UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): October 2, 2015
INCEPTION
MINING INC.
(Exact
name of registrant as specified in its charter)
Nevada |
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333-147056 |
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35-2302128 |
(State
or Other Jurisdiction
of Incorporation) |
|
(Commission
File Number) |
|
(IRS
Employer
Identification Number) |
5320
South 900 East, Suite 260
Murray,
Utah 84117
801-312-8113
Copies
to:
BRUNSON
CHANDLER & JONES, PLLC
175
S. Main Street, 15th Floor
Salt
Lake City, UT 84111
Direct:
801.303.5721
Main
Office: 801.303.5730
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Form 8-K and other reports filed by Inception Mining Inc., a Nevada corporation, from time to time with the Securities and Exchange
Commission (collectively the “Filings”) contain or may contain forward looking statements and information that are
based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions
made by the Company’s management. When used in the filings the words “anticipate”, “believe”, “estimate”,
“expect”, “future”, “intend”, “plan” or the negative of these terms and similar
expressions as they relate to the Company’s or Company’s management identify forward looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions and
other factors (including the risks contained in the section of this report entitled “Risk Factors”) relating to the
Company’s industry, the Company’s operations and results of operations and any businesses that may be acquired by
the Company. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Although
the Company’s management believes that the expectations reflected in the forward looking statements are reasonable, the
Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements
to conform these statements to actual results. The following discussion should be read in conjunction with the Company’s
financial statements and the related notes filed with this Form 8-K.
In
this Form 8-K, references to “we”, “our”, “us”, the “Company”, or “Inception”
refer to Inception Mining Inc., a Nevada corporation.
Item
2.01 Completion of Acquisition or Disposition of Assets.
On
August 4, 2015, Inception Mining Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and
among Inception Mining Inc., Clavo Rico, LTD, a Turks and Caicos corporation (“Clavo Rico”), and CR Acquisition Corp.,
a Nevada corporation (“Merger Subsidiary”). On August 5, 2015, after realizing there would be some administrative
delays with the transfer agent on the issuance of shares, the parties entered into an Addendum to the Merger Agreement in which
the parties agreed that Inception Mining Inc. would operate the Clavo Rico mine in Honduras and receive the proceeds for all operations
beginning August 5, 2015. After the transfer agent issues were resolved, and the shares were able to be issued (a precondition
to the closing of the Merger Agreement), the Merger Agreement closed on October 2, 2015 (the “Closing”). Pursuant
to the terms of the Merger Agreement, at the Closing, the Merger Subsidiary merged with and into Clavo Rico, the separate corporate
existence of Merger Subsidiary ceased, and Clavo Rico will continue as the surviving corporation and as a wholly-owned subsidiary
of the Company (the “Merger”). As consideration for the Merger, (i) the shareholders of Clavo Rico at the time of
the Closing received a total of 240,225,901 shares of the Company in the aggregate to be held in book entry, to be issued on a
pro rata basis and (ii) the Company assumed certain promissory notes of Clavo Rico in the amount of $8,883,306.
Employment
Agreements
On
August 1, 2015, the Company amended the previously entered into employment agreement with Michael Ahlin pursuant to which the
eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with
the Securities and Exchange Commission (“SEC”) were removed.
Other
Agreements
On
September 25, 2015, as required by the Merger Agreement, the Company retired 2,600,000 share of common stock issued in the name
of Trent D’Ambrosio.
On
September 25, 2015, as required by the Merger Agreement, the Company retired 2,000,000 share of common stock issued in the name
of Michael Ahlin.
On
September 25, 2015, as required by the Merger Agreement, the Company agreement to retired 1,000,000 share of common stock issued
in the name of Whit Cluff.
On
September 25, 2015, as required by the Merger Agreement, the Company retired 350,000 share of common stock issued in the name
of MDL Ventures LLC.
As
compensation for the work in closing the Merger Agreement and for services rendered to date, certain officers and directors were
issued shares of the Company’s common stock on October 2, 2015. Whit Cluff was issued 1,375,000 shares; Trent D’Ambrosio
was issued 3,855,929 shares; and Michael Ahlin was issued 2,750,000 shares.
Overview
We
are a mining company engaged in the acquisition, exploration, and development of mineral properties, primarily for gold, from
owned mining properties and or potential joint venture agreement. Inception Resources has acquired two projects, as described
below. Our target properties are those that have been the subject of historical exploration and production.
Clavo
Rico Gold/Silver Mine: El Corpus, Honduras, Central America
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held
Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession
through its subsidiary Minera Cerros del Sur, and holds other mining concessions. Its workings include several historical underground
operations dating back to the early Mayan and Spanish occupation.
Through
its operating subsidiaries, Clavo Rico is engaged in processing a significant historical tailings body along with several open
pit ore bodies, utilizing a new 600,000 ton membrane-lined leach system and ADR recovery plant. Processing had increased to an
average of 300 ounces per month with one month of 700 ounces prior to the last rain season at which time the company elected to
install a new crushing circuit, allowing for an increase in monthly production and greater reliability. After installing the new
cone and subsequent reworking of the primary crusher and other equipment, production has recently recovered and is stabilized
at more than 500 ounces per month. Precious metals, including silver, are recovered via an electro-winning circuit and then smelted
into doré onsite. The subsequent doré bars, being approximately 94% pure, are then picked up by an armored car service
and held in the Capital of Tegucigalpa. Upon completion of assay work, and payment of Honduran taxes and fees, the doré
is shipped via air to Asahi Refining (previously Johnson Mathey) in Salt Lake City, Utah. The doré is again assayed and
then sold either via Asahi or other dealers.
The
primary operation of Clavo Rico sits on 20 hectares and acquisition of adjacent property is in progress. The concession extends
well beyond the surface boundary limits. The tailings were the byproduct of a historical underground mine production and a vat
leach system. Government requirements to place the tailings on a membrane lining allowed for the expansion of further mining on
fresh ore bodies and the construction a larger membrane lined leach pad and new ADR process plant. The current operation has available
open pit ore bodies to allow for extended operations at the current processing level. Tailings grade between 2-3 grams per ton
(GPT) and fresh ore bodies have ranged from 2-6 GPT. Mine life has not been forecast as the concessions are so extensive that
costs to determine at this point were not justified. However, the current known and assayed ore will allow for several years production
at cost levels well below those of major producers. With the stabilization of extraction and crushing, and minor capex, production
is expected to be more efficient.
New
ore bodies associated with the property have been preliminarily mapped and drilled, leading to future mine planning and expanded
operations. The acquisition includes all of the current mining operations and primary concession along with the rights to acquire
the additional concessions. Efforts are underway to accumulate all available data and then along with new proposed drilling and
geotechnical analysis the company will move towards a 43-101 compliant Resource Analysis of the known ore bodies. The Company’s
exploration team will focus on bringing those new bodies to production within the next two years and will also embark on a comprehensive
mapping of the additional concessions.
UP
& Burlington Gold Mine, Salmon, Lemhi County, Idaho
In
addition to operations obtained during the Clavo Rico Merger, the Company plans to still continue its existing operations. On
February 25, 2013 the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the UP and Burlington Gold Mine (“UP & Burlington”) pursuant to an asset purchase agreement. We are presently
in the exploration stage at UP & Burlington. UP & Burlington contains two federal patented mining claims, which Inception
Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP &
Burlington.
Discovered
in 1892, UP & Burlington is a private gold property that has been held unused in a family trust for the past 75 years. UP
& Burlington is located in Lemhi County, Northwest of Salmon, Idaho, at an elevation of 3,994 feet. The UP & Burlington
site is located six miles from the city of Salmon; is 0.6 miles away from the closest major road (Ridge Rd.); and is 1.56 miles
away from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides an excellent infrastructure
for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806. In September 2011, heavy maintenance
and right-of-way repair was completed and a new road to UP & Burlington was constructed.
UP
& Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently,
in 1989, a U.S. Forest Survey was performed on the UP & Burlington site confirming that the patented claims cover an area
of six hundred feet by three thousand feet (600’ x 300’). The Mine’s patented claims remove the challenges associated
when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With our purchase
of UP & Burlington, we have the benefit of working on private land, which requires only a hauling/road permit to commence
significant operations.
The
Company has obtained the necessary permitting, cut additional access roads made surface improvements, and initiated surface mining
on a 2,500 foot per day lighted vein for bulk sampling, vein definition and ore valuation. In Phase II, we plan to contract an
underground mining and operations plan, expand portal development leveraging existing underground access and implement underground
mining to a depth based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing
either Phase I or Phase II.
Our
Tactical Plan includes obtaining a Lemhi County Conditional Use Permit, an Idaho Department of Lands Surface Reclamation Bond
and permitting for the U.S. Forest Service Access Road, as well as obtaining major contracts such as geotechnical contracts, surface
mining contracts, toll processing contracts and underground mine plan contracts.
The
Company and its independent consultants have developed a detailed exploration-drilling program to confirm and expand mineralized
zones in the Mine and collect additional environmental and technical data. The first phase of confirmation and expansion drilling
will began in 2013. The Company intends to continue drilling, metallurgical testing, engineering and environmental programs and
studies and has updated the historic feasibility study and environmental permit applications.
We
also plan to review opportunities and acquire additional mineral properties with current or historic precious and base metal mineralization
with meaningful exploration potential.
Item
1. BUSINESS
Competitive
Business Conditions
We
compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities,
personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or
acquisition in the United States, Honduras, and other areas where we may conduct exploration activities. Because we compete with
individuals and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage
in acquiring desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive
to us for exploration or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial
resources. Competition in the mining industry is not limited to the acquisition of mineral properties but also extends to the
technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital needed
to fund the acquisition and operation of such properties. Competition may result in our company being unable not only to acquire
desired properties, but to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration
activities or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with
other companies for these resources would have a material adverse effect on our results of operation and business. The mineral
exploration industry is highly fragmented, and we are a very small participant in this sector. Many of our competitors explore
for a variety of minerals and control many different properties around the world. Many of them have been in business longer than
we have and have established strategic partnerships and relationships and have greater financial resources than we do.
There
is significant competition for properties suitable for gold exploration. As a result, we may be unable to continue to acquire
interests in attractive properties on terms that we consider acceptable. We will be subject to competition and unforeseen limited
sources of supplies in the industry in the event spot shortages arise for supplies such as dynamite, and certain equipment such
as drill rigs, bulldozers and excavators that we will need to conduct exploration. If we are unsuccessful in securing the products,
equipment and services we need we may have to suspend our exploration plans until we are able to secure them.
Market
for Gold
In
the event that gold is produced from our property, we believe that wholesale purchasers for the gold would be readily available.
Readily available wholesale purchasers of gold and other precious metals exist in the United States and throughout the world.
Among the largest are Handy & Harman, Engelhard Industries and Johnson Matthey, Ltd. Historically, these markets are liquid
and volatile. Wholesale purchase prices for precious metals can be affected by a number of factors, all of which are beyond our
control, including but not limited to:
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fluctuation
in the supply of, demand and market price for gold; |
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mining
activities of our competitors; |
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sale
or purchase of gold by central banks and for investment purposes by individuals and financial institutions; |
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interest
rates; |
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currency
exchange rates; |
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inflation
or deflation; |
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fluctuation
in the value of the United States dollar and other currencies; and |
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political
and economic conditions of major gold or other mineral-producing countries. |
If
we find gold that is deemed of economic grade and in sufficient quantities to justify removal, we may seek additional capital
through equity or debt financing to build a mine and processing facility, or enter into joint venture or other arrangements with
large and more experienced companies better able to fund ongoing exploration and development work, or find some other entity to
mine our property on our behalf, or sell or lease our rights to mine the gold. Upon mining, the ore would be processed through
a series of steps that produces a rough concentrate. This rough concentrate is then sold to refiners and smelters for the value
of the minerals that it contains, less the cost of further concentrating, refining and smelting. Refiners and smelters then sell
the gold on the open market through brokers who work for wholesalers including the major wholesalers listed above. We have not
found any gold as of today, and there is no assurance that we will find any gold in the future.
Compliance
with Government Regulation
Mining
Operations
UP
and BURLINGTON (Lemhi County, Idaho): Mine operation is governed by both federal and state law. We will be required to comply
with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals
in the United States generally. Federal laws, such as those governing the purchase, transport or storage of explosives, and those
governing mine safety and health, also apply. The Company plans to obtain a Lemhi County Conditional Use Permit, an Idaho Department
of Lands Surface Reclamation Bond and permitting for the U.S. Forest Service Access Road.
When
the mine comes into production we will also be subject to the rules and regulations of the Mine Safety and Health Administration,
a Division of the United States Department of Labor.
CLAVO
RICO (Honduras, Central America): The mining operations in Honduras are governed by the national entities Honduran Institute of
Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). The Clavo Rico mine has operated under
a grandfathered concession granted many years ago and has now complied with all regulatory requirements of the above agencies
and the recently adopted HONDURAN Mining laws (The General Mining Law was approved by Legislative Decree No. 238-2012, dated January
23, 2013), including employee health and safety regulations, Environmental requirements, water discharge requirements, and potential
reclamation requirements. As the above ministries have only limited operational experience and the new mining law has only recently
been adopted, the interpretation, adoption and enforcement of many regulations are evolving. Other local ordinances (municipality
of El Corpus) minor and most regulatory efforts are as a result of interaction between the mine and the local populace, (examples
include use of the mine haul road for local traffic, restricting mine operations to daylight hours for noise considerations, watering
for dust control, etc.) where no regulation or law exists, we have attempted to duplicate best practices as required in other
business climates.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
Environmental
Laws
Mining
activities at the Company’s properties are also subject to various environmental laws, both federal and state, including
but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation
Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Idaho state laws governing the discharge
of pollutants and the use and discharge of water. Various permits from federal and state agencies are required under many of these
laws. Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road
use and noise levels.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict,
joint, and several liability on parties associated with releases or threats of releases of hazardous substances. Liable parties
include, among others, the current owners and operators of facilities at which hazardous substances were disposed or released
into the environment and past owners and operators of properties who owned such properties at the time of such disposal or release.
This liability could include response costs for removing or remediating the release and damages to natural resources. Our properties,
because of past mining activities, could give rise to potential liability under CERCLA.
Under
the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating,
transporting, treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities.
RCRA costs may also include corrective action or clean up costs.
Mining
operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers
and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject
to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality
laws. Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in
order to comply with the permitting conditions.
Under
the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into waters of the
State are regulated by the National Pollution Discharge Elimination System (NPDES) program. Storm water discharges also are regulated
and permitted under that statute. Section 404 of the Clean Water Act regulates the discharge of dredge and fill
material into Waters of the United States, including wetlands. All of those programs may impose permitting and other requirements
on our operations.
The
National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions.
The federal action requirement must be satisfied if the project involves federal land or if the federal government provides financing
or permitting approvals. NEPA does not establish any substantive standards, but requires the analysis of any potential impacts.
The scope of the assessment process depends on the size of the project. An Environmental Assessment (EA) may be adequate for smaller
projects. An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for
larger projects. NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.
The
Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior.
The purpose of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered
means that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under
such statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful
to take a listed species, which can include harassing or harming members of such species or significantly modifying their habitat.
Future identification of endangered species or habitat in our project areas may delay or adversely affect our operations.
U.S.
federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting
of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation
obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation
requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling
drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring
groundwater at the mining site, and maintaining visual aesthetics.
Research
and Development
During
the fiscal year ended July 31, 2015 we have had no expense related to research and development.
Corporate
Office
Our
principal executive office is located at 5320 South 900 East, Suite 260, Murray, Utah 84117. Our main telephone number is 801-312-8113.
Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are
available free of charge through the Securities and Exchange Commission’s website at www.sec.gov as soon as reasonably practicable
after those reports are electronically filed with or furnished to the SEC.
Employees
As
of the date of this filing, we currently employ one hundred twenty-three (123) full-time employees in the U.S. and Honduras. We
have contracts with various independent contractors and consultants to fulfill additional needs, including investor relations,
exploration, development, permitting, and other administrative functions, and may staff further with employees as we expand activities
and bring new projects on line.
Legal
Proceedings
We
are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is
contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely
to have a material adverse effect on the Company.
Item
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with
all of the other information included in this report, before deciding to buy our common stock. Additional risks
and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations.
If we are unable to prevent events that have a negative effect from occurring, then our business may suffer.
Risks
Relating to Our Company
We
have incurred losses since our inception in 2007 and may never be profitable, which raises doubt about our ability to continue
as a going concern.
Since
our inception in 2007, we have had nominal operations and incurred operating losses. As of April 30, 2015, our accumulated deficit
since inception was approximately $8,872,245. We have substantial current obligations and at April 30, 2015, we had approximately
$1,551,114 of current liabilities as compared to only approximately $657,955 of current assets. Since inception, we have been
able to raise only minimal additional capital, and we have minimal cash on hand. Accordingly, the Company does not have sufficient
cash resources or current assets to pay its current obligations, and we have been meeting many of our obligations through the
issuance of our common stock to our employees, consultants and advisors as payment for the goods and services.
Our
management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions
along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable
to obtain financing to continue our operations.
As
we are in the beginning stages of our exploration activities on UP & Burlington and such property has not generated revenue
in the recent past, we expect to incur additional losses in the foreseeable future, and such losses may continue to be significant.
To become profitable, we must be successful in raising capital to continue with our mining efforts, exploration activities, meet
the work commitment requirements on UP & Burlington, discover economically feasible mineralization deposits and establish
reserves, successfully develop the properties and finally realize adequate prices on our minerals in the marketplace. It could
be years before we receive any revenues from gold production, if ever. Thus, we may never be profitable.
These
circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph
to our independent registered public accounting firm’s report on our audited financial statements as of and for the year
ended July 31, 2014. If we are unable to continue as a going concern, investors will likely lose all of their investment in our
company.
We
have a limited operating history.
As
an early stage company that has recently made acquisitions, we are subject to all the risks inherent in the initial organization,
financing, expenditures, complications and delays inherent in a new business. Investors should evaluate an investment in us in
light of the uncertainties encountered by developing companies in a competitive environment. Our business is dependent upon the
implementation of our business plan. There can be no assurance that our efforts will be successful or that we will ultimately
be able to attain profitability. Additionally, the Company’s recent merger with the operating foreign entity was based on
a review of all historical data and potential revenue streams and resources as could be ascertained from the submission of documents
and a thorough review of all data made available. We believe the materials to be accurate and have attempted to discount the valuations
due to perceived risks of foreign operations and the tasks of incorporating a non-public entity into Inception.
The
feasibility of mineral extraction from UP & Burlington has not yet been established, as we have not completed exploration
or other work necessary to determine if it is commercially feasible to develop the properties.
UP
& Burlington does not have any proven or probable reserves. A “reserve,” as defined by the SEC, is that part of
a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A reserve
requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced.
We have not yet completed our feasibility study with regard to UP & Burlington. As a result, we currently have no reserves
and there are no assurances that we will be able to prove that there are reserves on UP & Burlington.
Exploring
for gold is an inherently speculative business.
Natural
resource exploration, and exploring for gold in particular, is a business that by its nature is very speculative. There is a strong
possibility that we will not discover gold or any other resources that can be mined or extracted at a profit. Even if we do discover
gold or other deposits, the deposit may not be of the quality or size necessary for us to make a profit after extracting it. Few
properties that are explored are ultimately developed into producing mines. Unusual or unexpected geological formations, geological
formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides and the inability to
obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs
and the subsequent development of gold deposits.
We
will require significant additional capital to continue our exploration activities, and, if warranted, to develop
mining operations.
We
will be required to raise significantly more capital in order to develop UP & Burlington for mining production, assuming economically
viable reserves exist. There is no assurance that our investments in UP & Burlington will be financially productive. Our ability
to obtain necessary funding depends upon a number of factors, including the price of gold, base metals, and other minerals we
are able to mine, the status of the national and worldwide economy, and the availability of funds in the capital markets. If we
are unable to obtain the required financing in the near future for these or other purposes, our exploration activities would be
delayed or indefinitely postponed, we would likely lose our lease and options to acquire an ownership interest in UP & Burlington
and this would likely lead to failure of our Company. Even if financing is available, it may be on terms that are not favorable
to us, in which case, our ability to become profitable or to continue operating would be adversely affected. If we are unable
to raise funds to continue our exploration and feasibility work on UP & Burlington, or if commercially viable reserves are
not present, the market value of our securities will likely decline, and our investors may lose some or all of their investment.
The
global financial conditions may have an impact on our business and financial condition in ways that we currently cannot predict.
The
continued pressure on commodities markets and related turmoil in the global financial system may have an impact on our business
and financial position. The recent high costs of consumables may negatively impact costs of our operations. In addition, current
financial market conditions may limit our ability to raise capital through credit and equity markets. As discussed further below,
the prices of the metals that we may produce are affected by a number of factors, and it is unknown how these factors will be
impacted by a continuation of the financial crisis.
Fluctuating
gold and mineral prices could negatively impact our business plan.
The
potential for profitability of our gold and mineral mining operations and the value of any mining properties we may acquire will
be directly related to the market price of gold and minerals that we mine. Historically, gold and other mineral prices have widely
fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand,
and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant
influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results
of operations and financial condition.
Our
business is subject to extensive environmental regulations which may make exploring for or mining prohibitively expensive, and
which may change at any time.
All
of our operations are subject to extensive environmental regulations which could make exploration expensive or prohibit it altogether.
We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products
that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental
pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial
position, which may cause you to lose your investment. If we are unable to fully remedy an environmental problem, we might be
required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If
a decision is made to mine our properties and we retain any operational responsibility for doing so, our potential exposure for
remediation may be significant, and this may have a material adverse effect upon our business and financial position. We have
not yet purchased insurance for potential environmental risks (including potential liability for pollution or other hazards associated
with the disposal of waste products from our exploration activities). However, if we mine one or more of our properties and retain
operational responsibility for mining, then such insurance may not be available to us on reasonable terms or at a reasonable price.
All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and
federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations
and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our
business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited
to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting
of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits,
increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental
laws.
We
may be denied the government licenses and permits which we need to explore on our properties. In the event that we discover commercially
exploitable deposits, we may be denied the additional government licenses and permits which we will need to mine our properties.
Exploration
activities usually require the granting of permits from various governmental agencies. For example, exploration drilling on unpatented
mineral claims requires a permit to be obtained from the United States Bureau of Land Management, which may take several months
or longer to grant the requested permit. Depending on the size, location and scope of the exploration program, additional permits
may also be required before exploration activities can be undertaken. Prehistoric or Indian grave yards, threatened or endangered
species, archeological sites or the possibility thereof, difficult access, excessive dust and important nearby water resources
may all result in the need for additional permits before exploration activities can commence. As with all permitting processes,
there is the risk that unexpected delays and excessive costs may be experienced in obtaining required permits. The needed permits
may not be granted at all. Delays in or our inability to obtain necessary permits will result in unanticipated costs, which may
result in serious adverse effects upon our business.
The
values of our properties are subject to volatility in the price of gold and any other deposits we may seek or locate.
Our
ability to obtain additional and continuing funding, and our profitability in the unlikely event we ever commence mining operations
or sell our rights to mine, will be significantly affected by changes in the market price of gold. Gold prices fluctuate widely
and are affected by numerous factors, all of which are beyond our control. Some of these factors include the sale or purchase
of gold by central banks and financial institutions; interest rates; currency exchange rates; inflation or deflation; fluctuation
in the value of the United States dollar and other currencies; speculation; global and regional supply and demand, including investment,
industrial and jewelry demand; and the political and economic conditions of major gold or other mineral producing countries throughout
the world, such as Russia and South Africa. The price of gold or other minerals have fluctuated widely in recent years, and a
decline in the price of gold could cause a significant decrease in the value of our properties, limit our ability to raise money,
and render continued exploration and development of our properties impracticable. If that happens, then we could lose our rights
to our properties and be compelled to sell some or all of these rights. Additionally, the future development of our properties
beyond the exploration stage is heavily dependent upon the level of gold prices remaining sufficiently high to make the development
of our properties economically viable. You may lose your investment if the price of gold decreases. The greater the decrease in
the price of gold, the more likely it is that you will lose money.
Our
property titles may be challenged. We are not insured against any challenges, impairments or defects to our mineral claims or
property titles. We have not fully verified title to our properties.
Our
future unpatented claims will be created and maintained in accordance with the federal General Mining Law of 1872. Unpatented
claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property
interests because the validity of unpatented claims is often uncertain. This uncertainty arises, in part, out of the complex federal
and state laws and regulations under the General Mining Law. Defending any challenges to our future property titles may be costly,
and may divert funds that could otherwise be used for exploration activities and other purposes. In addition, unpatented claims
are always subject to possible challenges by third parties or contests by the federal government, which, if successful, may prevent
us from exploiting our discovery of commercially extractable gold. Challenges to our title may increase our costs of operation
or limit our ability to explore on certain portions of our properties. We are not insured against challenges, impairments or defects
to our property titles, nor do we intend to carry extensive title insurance in the future. Potential conflicts to our mineral
claims are discussed in detail elsewhere herein.
Honduran
mining operations have increased exposure.
Sustaining
foreign mining operations, such as those in Honduras, comes with increased uncertainty, due to less stable governments, political
interruptions, volatility in taxes and fees, implementation of new laws and regulations, and more. The effect of this exposure
can lead to closure of operations, nationalization, and strikes, all of which are beyond the company’s control. Granting
and maintaining concessions is highly subject to political whim and maintaining the concessions is subject to a number of factors
and variables beyond the company’s control. We do not currently insure against these interruptions but have chosen to structure
our operations to minimize exposure to capital assets by subcontracting major areas of work, and to otherwise keep our financial
exposure limited even at the expense of operation costs and our bottom line.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and other financial risks.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and with increasing taxes and fees associated with
importing of necessary goods, equipment and services not adequately found in country and with exporting of the finished gold doré.
Recent enactment of the Honduran mining laws has helped stabilize the fees, but continual review by the various government operations,
and central bank subject the historical operations to review and could impact our ability to export on a timely basis and/or face
possible fines etc. associated with repatriation of past revenues, etc.
Possible
amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.
The
U.S. Congress has considered proposals to amend the General Mining Law of 1872 that would have, among other things, permanently
banned the sale of public land for mining. The proposed amendment would have expanded the environmental regulations to which we
might be subject and would have given Indian tribes the ability to hinder or prohibit mining operations near tribal lands. The
proposed amendment would also have imposed a royalty of 8% of gross revenue on new mining operations located on federal public
land, which might have applied to our future properties. The proposed amendment would have made it more expensive or perhaps too
expensive to recover any otherwise commercially exploitable gold deposits which we might find on our future properties. While
at this time the proposed amendment is no longer pending, this or similar changes to the law in the future could have a significant
impact on our business model.
Market
forces or unforeseen developments may prevent us from obtaining the supplies and equipment necessary to explore for gold and other
resources.
Gold
exploration, and resource exploration in general, demands contractors available for such work, and unforeseen shortages of supplies
and/or equipment could result in the disruption of our planned exploration activities. Current demand for exploration drilling
services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled
times for our exploration program. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials,
manpower and fuel if sufficient funds are available. If we cannot find the equipment and supplies needed for our various exploration
programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available.
Any such disruption in our activities may adversely affect our exploration activities and financial condition.
We
may not be able to maintain the infrastructure necessary to conduct exploration activities.
Our
exploration activities depend upon adequate infrastructure. Reliable roads, bridges, power sources, and water supply are important
factors that affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference
in the maintenance or provision of such infrastructure could adversely affect our exploration activities and financial condition.
Our
exploration activities may be adversely affected by the local climates, which could prevent or impair us from exploring our properties
year round.
The
local climate in our area of operations may impair or prevent us from conducting exploration activities on our properties year
round. Because of its rural location and limited infrastructure in this area, our property is generally impassible for several
days each year as a result of significant rain or snow events. Earthquakes, heavy rains, snowstorms, and floods could result in
serious damage to or the destruction of facilities, equipment or means of access to our properties, or may otherwise prevent us
from conducting exploration activities on our properties.
We
do not currently carry any property or casualty insurance.
Our
business is subject to a number of risks and hazards generally, including but not limited to, adverse environmental conditions,
industrial accidents, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory
environment, and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result
in damage to our properties, equipment, infrastructure, personal injury or death, environmental damage, delays, monetary losses
and possible legal liability. You could lose all or part of your investment if any such catastrophic event occurs. We do not carry
any property or casualty insurance at this time (but we will carry all insurances that we are required to by law, such as motor
vehicle and workers compensation, plus other coverage that may be in the best interest of the Company). Even if we do obtain insurance,
it may not cover all of the risks associated with our operations. Insurance against risks such as environmental pollution or other
hazards as a result of exploration and operations are often not available to us or to other companies in our business on acceptable
terms. Should any events against which we are not insured actually occur, we may become subject to substantial losses, costs and
liabilities, which will adversely affect our financial condition.
Reclamation
obligations could require significant additional expenditures.
We
are responsible for the reclamation obligations related to any exploratory and mining activities. The satisfaction of current
and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk we will
be unable to fund these additional bonding requirements, and further, increases to our bonding requirements or excessive actual
reclamation costs will negatively affect our financial position and results of operation.
Title
to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.
Our
ability to explore and mine future leased and optioned properties depends on the validity of title to that property. These uncertainties
relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory
guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial
portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty
is inherent in the mining industry. Thus, there may be challenges to the title to future properties, which, if successful, could
impair development and/or operations.
Our
ongoing operations and past mining activities of others are subject to environmental risks, which could expose us
to significant liability and delay, suspension or termination of our operations.
Mining
exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws
regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations
mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations
on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities
are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating
the design and use of exploration methods and equipment.
Environmental
and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which
will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent
us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business.
Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus
causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that
we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental
hazards may exist on UP & Burlington, or we may acquire properties in the future that have unknown environmental issues caused
by previous owners or operators, or that may have occurred naturally.
UP
& Burlington is subject to royalties on production.
As
part of our purchase of UP & Burlington, we granted a Net Smelter Royalty (“NSR”) of 3%. In addition, historical
royalties may be asserted by third parties currently unknown to us.
Our
industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.
We
compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel
and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands
available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities.
We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies,
many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and
employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can
offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable
not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund
our operation and advance our properties. Our inability to compete with other companies for these resources would have a material
adverse effect on our results of operation and business.
We
depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely
affect our business.
Our
company is completely dependent on our Chief Executive Officer, Michael Ahlin, and our Chief Financial Officer, Whit Cluff who
are also members of our Board of Directors. As of the date of this report the two are significant to the company. Thus, the loss
of either Ahlin or Cluff could significantly and adversely affect our business, and certainly the loss of both of these individuals
on or about the same time could result in a complete failure of the Company. We do not carry any life insurance on the life of
Ahlin or Cluff.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured
losses that could materially and adversely affect our operations.
Exploration
for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result
in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage
of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing
mineral properties such as, but not limited to:
| ● | economically
insufficient mineralized material; |
| ● | fluctuations
in production costs that may make mining uneconomical; |
| ● | unanticipated
variations in grade and other geologic problems; |
| ● | difficult
surface or underground conditions; |
| ● | industrial
accidents; personal injury, fire, flooding, cave-ins and landslides; |
| ● | metallurgical
and other processing problems; |
| ● | mechanical
and equipment performance problems; and |
| ● | decreases
in revenues and reserves due to lower gold and mineral prices. |
Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and
rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these
risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we
would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts
spent that are not recoverable.
Our
operations are subject to permitting requirements that could require us to delay, suspend or terminate our operations
on our mining property.
Our
operations and exploration activities require permits from the local, state and federal governments. We may be unable to obtain
these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if
there is a delay in receiving these permits, our timetable and business plan for Inception will be adversely affected.
Risks
Associated with Our Common Stock in General
Trading
on the Over the Counter markets may be volatile and sporadic, which could depress the market price of our common stock and make
it difficult for our stockholders to resell their shares.
Our
common stock is quoted on the OTCQB Inter-Dealer Quotation System owned and operated by the OTC Markets Group, Inc. and the OTC
Pink Sheet service of the Financial Industry Regulatory Authority (“FINRA”) under the symbol “IMII”. Trading
in stock quoted on over the counter markets is often thin, volatile, and characterized by wide fluctuations in trading prices
due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market
price of our common stock for reasons unrelated to operating performance. Moreover, the over the counter markets are not a stock
exchange, and trading of securities on the over the counter markets is often more sporadic than the trading of securities listed
on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange. Accordingly, our
shareholders may have difficulty reselling any of their shares.
Our
stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s
sales practice requirements, which may limit a stockholders ability to buy and sell our stock.
Our
stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has
a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of each penny stock held in the customers’ account.
The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny
stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.
Our
common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common
stock.
There
has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will
either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price
and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance.
In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy
or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations
may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot
predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be
stable or appreciate over time.
FINRA
sales practice requirements may also limit a stockholders ability to buy and sell our stock.
In
addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA
rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that
the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high
probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and
sell our stock and have an adverse effect on the market value for our shares.
Because
the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling
to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment
to decline.
Our
shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange
Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or
in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written
agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices,
it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your
shares and may cause the value of your investment to decline.
A
decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A
prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction
in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct
our planned operations through the sale of equity securities, or convertible debt instruments, a decline in the price of our common
stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest
in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds
from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability
to develop new products and continue our current operations. A result, our business may suffer, and not be successful and we may
go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale
of our common stock and we may be forced to go out of business.
Our
stock price may be volatile.
The
stock market in general has experienced volatility that often has been unrelated to the operating performance of any specific
public company. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response
to various factors, many of which are beyond our control, including the following:
| ● | changes
in our industry; |
| ● | competitive
pricing pressures; |
| ● | our
ability to obtain working capital financing; |
| ● | additions
or departures of key personnel; |
| ● | limited
“public float” in the hands of a small number of persons who sales or lack
of sales could result in positive or negative pricing pressure on the market prices of
our common stock; |
| ● | sales
of our common stock; |
| ● | our
ability to execute our business plan; |
| ● | operating
results that fall below expectations; |
| ● | loss
of any strategic relationship; |
| ● | regulatory
developments; |
| ● | economic
and other external factors; and |
| ● | period-to-period
fluctuations in our financial results. |
In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock.
We
have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.
We
have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future.
Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from
operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may
also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and
payment of dividends will be at the discretion of our Board of Directors.
We
have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited
protections against interested director transactions, conflicts of interest and similar matters.
Recent
federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures
designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted
in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures
that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’
independence, audit committee oversight and the adoption of a code of ethics. While our Board of Directors has adopted a Code
of Ethics and Business Conduct, we have not yet adopted any of these corporate governance measures and, since our securities are
not listed on a national securities exchange or NASDAQ, we are not required to do so. It is possible that if we were to adopt
some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal
corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct.
For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors,
decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may
be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should
bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Difficulties
we may encounter while managing our growth could adversely affect our results of operations.
As
our business needs expand, we may need to hire a significant number of employees. This expansion may place a significant strain
on our managerial and financial resources. To manage the potential growth of our operations and personnel, we will be required
to:
| ● | improve
existing, and implement new, operational, financial and management controls, reporting
systems and procedures; |
| ● | install
enhanced management information systems; and |
| ● | train,
motivate and manage our employees. |
We
may not be able to install adequate management information and control systems in an efficient and timely manner, and our current
or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable
to manage growth effectively, our business would be seriously harmed.
If
we lose key personnel or are unable to attract and retain additional qualified personnel we may not be able to successfully manage
our business and achieve our objectives.
We
believe our future success will depend upon our ability to retain our key management, Mr. Ahlin, our Chief Executive Officer and
Mr. Cluff, our Chief Financial Officer. We may not be successful in attracting, assimilating and retaining our employees in the
future.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If
our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding
period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence
of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or
appropriate.
Item
2. FINANCIAL INFORMATION
When
a public company that is not a shell company completes a merger or acquisition that requires the preparation and filing of financial
statements on the acquired company, such as our dealings that are effected by the Merger Agreement, it must file such financial
information via Form 8-K. If these required financials are not filed with the initial filing they must be filed by amendment to
the Form 8-K within 71 calendar days after the due date of the initial Form 8-K filing. As such, the Company will secure an agreement
with a certified public accountant to prepare the Company’s financial statements in conformity with SEC rules, regulations,
and guidelines to be filed as an amendment to this initial Form 8-K with the SEC within 71 days of the closing of the Merger Agreement.
Item
3. PROPERTIES
Our
principal executive office is located at 5320 South 900 East, Suite 260, Murray, Utah 84117. Our main telephone number is 801-312-8113.
The
Company owns two mining properties: the Clavo Rico Gold/Silver Mine: El Corpus, Honduras, Central America and the Up & Burlington
Gold Mine in Salmon, Lemhi County, Idaho. Both properties are described in full elsewhere in tis document.
Item
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of October 2, 2015 with respect to the beneficial ownership of the outstanding
common stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors;
and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders
listed below has sole voting and investment power over the shares beneficially owned.
Name of Beneficial Owner | |
Common Stock Beneficially Owned | | |
Percentage of
Common Stock (1) | |
Mike Ahlin (2) | |
| 2,750,000 | | |
| 1.08 | % |
Reed Benson (2) | |
| 5,147,700
| (3) | |
| 2.03 | % |
Whit Cluff (2) | |
| 1,375,000 | | |
| 0.54 | % |
Kay Briggs (2) | |
| 1,715,900 | | |
| 0.68 | % |
Trent D’Ambrosio (2) | |
| 3,855,929 | | |
| 1.52 | % |
All officers and directors as a group
(5 people) | |
| 14,844,529 | | |
| 5.85 | % |
Legends Capital Group, LLC (3) | |
| 64,346,250 | | |
| 25.35 | % |
Madison, LLC (4) | |
| 13,727,200 | | |
| 5.41 | % |
|
(1) |
Applicable
percentage ownership is based on shares of common stock outstanding as of October 2, 2015. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with
respect to securities. Applicable percentage ownership is based on 253,872,437 shares of common stock issued and outstanding
as of October 2, 2015, together with securities exercisable or convertible into shares of common stock within 60 days of October
2, 2015 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently
exercisable or exercisable within 60 days of October 2, 2015 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person. |
|
|
|
|
(2) |
Executive
officer and/or director of the Company. |
|
|
|
|
(3) |
These
shares are held by Moreland Family, LLC, whose majority member is Jeanne Benson, Mr. Benson’s wife. |
|
|
|
|
(4) |
Legends
Capital Group, LLC is beneficially controlled by Reed Benson, director of the Company. |
|
|
|
|
(5) |
Madison,
LLC is beneficially controlled by Jason Briggs. |
Item
5. DIRECTORS AND EXECUTIVE OFFICERS
Executive
Officers and Directors
Below are
the names and certain information regarding Inception’s executive officers and directors.
Name |
|
Age |
|
Position |
Michael Ahlin |
|
67 |
|
Chief Executive
Officer, President, Secretary and Director |
Whit Cluff |
|
65 |
|
Chief Financial
Officer and Director |
Trent D’Ambrosio |
|
50 |
|
Director |
Reed Benson |
|
69 |
|
Director |
Kay Briggs |
|
71 |
|
Director |
Officers
are elected annually by the Board of Directors (subject to the terms of any employment agreement), at its annual meeting, to hold
such office until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or
is removed by the Board.
Background
of Executive Officers and Directors
Michael
Ahlin, Chief Executive Officer, President, Treasurer, Secretary and Director
Mr.
Ahlin is a seasoned executive with several decades of experience who has founded numerous startups and has held executive management
positions in public and private companies in various industries. From 1985 through the present, Mr. Ahlin has served as the founder
and President of WetCor, Inc., a multi-disciplined Engineering Construction Firm licensed in numerous states and performing both
bid and design/build projects including minerals processing, mining, water treatment, energy, Medical (5 MRE centers), geothermal
power, and renewable energy and commercial buildings. In addition, from 2004 through the present, Mr. Ahlin has served as a Managing
Partner of Cactus Management Services LLC. Mr. Ahlin has served as Inception Resources’ CEO since inception. Mr. Ahlin was
appointed as CEO, President, Treasurer, Secretary and Director of the Company on February 25, 2013. Mr. Ahlin received a Bachelors
of Science Degree in Mechanical Engineering and a Masters Degree in Business Administration from the University of Utah in 1971
and 1977, respectively.
Whit
Cluff, Chief Financial Officer and Director
Mr.
Cluff has over 35 years of experience in the commercial real estate industry. Mr. Cluff has been involved in all disciplines of
real estate land development, mixed-use development, retail tenant representation, developer representation, industrial property
procurement and asset management. Mr. Cluff has an extensive background in public and private businesses giving him strong analytical,
planning, and organization ability with effective negotiation skills. From 2003 through the present, Mr. Cluff has served as Vice
President and Associate Broker at Coldwell Banker Commercial, NRT in Salt Lake City, Utah. Mr. Cluff attended the University of
Utah and served in the United States Army.
Trent
D’Ambrosio, Director
Since
2003, Mr. D’Ambrosio has been Managing Member of MDL Ventures LLC (“MDL”). His professional record includes
25 years of management and financial services experience with companies ranging from Fortune 500 companies to start ups. From
February 2008 to December 2012, he was consulting to a Fund of Hedge Funds and Private Equity. Prior to this, from September 2002
to September 2007, he served as the Chief Financial Officer for the D’Ambrosio Auto Group. He has held leadership positions
with MCI, World Com, and Montana Power. He holds the following licenses or certifications: Charter Hedge Fund Professional (CHP),
A Chartered Alternative Investment Analyst 1 (CAIA), Commodities Trading Advisor (CTA) Series 3 and 65, and he previously held
the Series 7, 24, 27 and 4 licenses. Mr. D’Ambrosio has been a Director of Inception Mining Inc. since March 28, 2013.
Reed
Benson, Director
Mr.
Benson received his juris doctor from the University of Utah and has extensive experience with contracts, securities law, and
taxation. He is a certified public accountant and currently is general counsel to Legends Capital Group, a small venture capital
specialist.
Kay Briggs,
Director
Mr.
Briggs has BS degrees in economics and political science from Brigham Young University, magna cum laude. To launch his career,
he completed internships with CitiBank in New York and Argentina. He then went on to obtain an MBA with an emphasis in international
business and finance, also from Brigham Young University. He then pursued post-graduate work with IBM and Stanford University.
Mr. Briggs spent nearly ten years with EXXON (Esso International) with managerial opportunities in information systems; refinery
maintenance (with additional training in product blending chemistry); maritime contract negotiating; supply and transportation
managing in Toronto, Canada with Imperial Oil; and an executive position with Tar Sands and Heavy Oil Extraction and Refining
in Calgary, Canada. Mr. Briggs spent the next 32 years with The Church of Jesus Christ of Latter-day Saints as managing director
of materials management and international operations, and director of business affairs in Argentina, Southeast US, and 32 island
nations in the Caribbean. He has experience with numerous civic assignments, including school boards, city council, and as mayor
of North Salt Lake, Utah. Additionally, he has served in various board of directors positions with several organizations.
Employment
Agreements
On
August 1, 2015, the Company amended the previously entered into an employment agreement with Michael Ahlin pursuant to which the
eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with
the Securities and Exchange Commission (“SEC”) were removed.
Family
Relationships
There
are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Involvement
in Certain Legal Proceedings
None
of our directors, executive officers, promoters or control persons has been involved in any of the following events during the
past ten years:
| ● | any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time; |
| ● | any
conviction in a criminal proceeding or being subject to a pending criminal proceeding,
excluding traffic violations and other minor offenses; |
| ● | being
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; or |
| ● | being
found by a court of competent jurisdiction in a civil action, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or
vacated. |
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of
our Common Stock to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes
in ownership and annual reports concerning their ownership of our Common Stock and other equity securities, on Forms 3, 4 and
5 respectively. An examination of our filings has shown that not all of our officers and directors are compliant, but they are
taking steps to become compliant and complete their filings.
Item
6. EXECUTIVE COMPENSATION
Summary
Compensation Table
The
particulars of the compensation paid to the following persons:
| ● | our
principal executive officers; |
| ● | each
of our two most highly compensated executive officers who were serving as executive officers
at the end of the years ended July 31, 2015 and 2014; and |
| ● | up
to two additional individuals for whom disclosure would have been provided but for the
fact that the individual was not serving as our executive officer at the end of the years
ended July 31, 2015 and 2014. |
We will
collectively refer to the above as the named executive officers of our company.
SUMMARY
COMPENSATION TABLE
Name and Principal | |
| | |
Salary | | |
Bonus | | |
Stock
Awards | | |
Option
Awards | | |
Non-Equity
Incentive Plan
Compensation | | |
Non-Qualified
Deferred
Compensation Earnings
| | |
All Other
Compensation | | |
Totals | |
Position
| |
Year
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($) | |
Michael Ahlin | |
| 2014 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Chief Executive Officer, President, Secretary and Director | |
| 2015 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Whit Cluff | |
| 2014 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Chief Financial Officer and Director | |
| 2015 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Brian Brewer | |
| 2014 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Chief Operating Officer and Director | |
| 2015 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
None
of our named executive officers received any compensation from us during the fiscal years ended July 31, 2015, and July 31, 2014.
Agreements
On
August 1, 2015, the Company amended the previously entered into an employment agreement with Michael Ahlin pursuant to which the
eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with
the Securities and Exchange Commission (“SEC”) were removed.
Option
Grants
As
of July 31, 2015 we had not granted any options or stock appreciation rights to our named executive officers or directors.
Compensation
of Directors
Our
directors did not receive any compensation for their services as directors from our inception to July 31, 2015. We have no formal
plan for compensating our directors for their services in the future in their capacity as directors, although such directors are
expected in the future to receive options to purchase shares of our common stock as awarded by our Board of Directors or by any
compensation committee that may be established.
Pension,
Retirement or Similar Benefit Plans
There
are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers.
We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors
or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Item
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related
Party Transactions
There
have been no transactions since the beginning of our last fiscal year or any currently proposed transactions in which we are,
or plan to be, a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct
or indirect material interest.
Family
Relationships
There
are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Director
Independence
Our
securities are quoted on the OTCQB, which does not have any director independence requirements. Once we engage further directors
and officers, we plan to develop a definition of independence and scrutinize our Board of Directors with regard to this definition.
Board
Committees
We
presently do not have an audit committee, compensation committee or nominating committee or committees performing similar functions,
as our management believes that until this point it has been premature at the early stage of our management and business development
to form an audit, compensation or nominating committee. However, our new management plans to form an audit, compensation and nominating
committee in the near future. The audit committee will be primarily responsible for reviewing the services performed by our independent
auditors and evaluating our accounting policies and system of internal controls. We intend that the audit committee will be comprised
solely of independent directors and will have an audit committee financial expert as required by the rules and regulations of
the SEC.
The
compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock
options) and other compensation of our executive officers. The nominating committee will be primarily responsible for nominating
directors and setting policies and procedures for the nomination of directors. The nominating committee will also be responsible
for overseeing the creation and implementation of our corporate governance policies and procedures. Until these committees are
established, these decisions will continue to be made by our board of directors. Although our board of directors has not yet established
any minimum qualifications for director candidates, when considering potential director candidates, our board of directors considers
the candidate’s character, judgment, skills and experience in the context of the needs of our Company and our board of directors.
We
do not have a charter governing the nominating process. The members of our board of directors, who perform the functions of a
nominating committee, are not independent because they are also our officers. There has not been any defined policy or procedure
requirements for shareholders to submit recommendations or nominations for directors. Our board of directors does not believe
that a defined policy with regard to the consideration of candidates recommended by shareholders is necessary at this time because,
given the early stages of our development, a specific nominating policy would be premature and of little assistance until our
business operations are at a more advanced level.
Item
8. LEGAL PROCEEDINGS
We
are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is
contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely
to have a material adverse effect on the Company.
None
of our directors, executive officers, promoters or control persons has been involved in any of the following events during the
past ten years:
| ● | any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time; |
| ● | any
conviction in a criminal proceeding or being subject to a pending criminal proceeding,
excluding traffic violations and other minor offenses; |
| ● | being
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; or |
| ● | being
found by a court of competent jurisdiction in a civil action, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or
vacated. |
Item
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is not traded on any exchange. Our common stock is quoted on OTCQB, under the trading symbol “IMII.”
We cannot assure you that there will be a market in the future for our common stock.
OTCQB
securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities
transactions are conducted through a telephone and computer network connecting dealers. OTCQB issuers are traditionally smaller
companies that do not meet the financial and other listing requirements of a national or regional stock exchange.
Holders
of our Common Stock
As
of October 2, 2015 there were 1,506 holders of record of our common stock. This number does not include shares held by brokerage
clearing houses, depositories or others in unregistered form. The stock transfer agent for our securities is Island Stock Transfer.
Dividends
To
date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our
common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial
condition, and other factors deemed relevant by our Board of Directors.
Equity
Compensation Plans
As
of October 2, 2015, we have one equity compensation plan: the 2013 Incentive Stock Plan.
Item
10. RECENT SALES OF UNREGISTERED SECURITIES
As
part of the Closing of the Merger Agreement, the Company issued 240,225,901 shares of its common stock to the shareholders of
Clavo Rico on a pro rata basis and certain of its officers and directors. The Company’s transfer agent is holding those
shares in book entry for the benefit of its new shareholders.
Item
11. DESCRIPTION OF SECURITIES
The
Company’s authorized capital stock consists of 500,000,000 shares of common stock at a par value of $0.00001 per share and
10,000,000 shares of preferred stock at a par value of $0.00001 per share. As of October 2, 2015 there are 253,872,250 shares
of the Company’s common stock issued and outstanding that are held by approximately 1,506 stockholders of record and no
shares of preferred stock issued and outstanding.
Holders
of the Company’s common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders
of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for
the election of directors can elect all of the directors. Holders of the Company’s common stock representing a majority
of the voting power of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of the Company’s
outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment
to the Company’s articles of incorporation.
Holders
of the Company’s common stock are entitled to share in all dividends that the board of directors, in its discretion, declares
from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder
to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock.
The
Board of Directors may later determine to issue our preferred stock. If issued, the preferred stock may be created and issued
in one or more series and with such designations, rights, preferences and restrictions as shall be stated and expressed in the
resolution(s) providing for the creation and issuance of such preferred stock. If preferred stock is issued and we are subsequently
liquidated or dissolved, the preferred stockholders would have preferential rights to receive a liquidating distribution for their
shares prior to any distribution to common shareholders. Although we have no present intent to do so, we could issue shares of
preferred stock with such terms and privileges that a third party acquisition of our company could be difficult or impossible,
thus entrenching our existing management in control of our company indefinitely.
Item
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Company’s directors and executive officers are indemnified as provided by the Nevada Corporation law and its Bylaws. These
provisions state that the Company’s directors may cause the Company to indemnify a director or former director against all
costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred
by him as a result of him acting as a director. The indemnification of costs can include an amount paid to settle an action or
satisfy a judgment. Such indemnification is at the discretion of the Company’s board of directors and is subject to the
Securities and Exchange Commission’s policy regarding indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
Item
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
When
a public company that is not a shell company completes a merger or acquisition that requires the preparation and filing of financial
statements on the acquired company, such as our dealings that are effected by the Merger Agreement, it must file such financial
information via Form 8-K. If these required financials are not filed with the initial filing they must be filed by amendment to
the Form 8-K within 71 calendar days after the due date of the initial Form 8-K filing. As such, the Company will secure an agreement
with a certified public accountant to prepare the Company’s financial statements in conformity with SEC rules, regulations,
and guidelines to be filed as an amendment to this initial Form 8-K with the SEC within 71 days of the closing of the Merger Agreement.
Item
3.02 Unregistered Sales of Equity Securities.
As
a result of the Closing of the Merger Agreement, a total of 240,225,901 shares of Common Stock of the Company were issued on a
pro rata basis to the then-shareholders of Clavo Rico as consideration for the Merger and to certain officers and directors.
Item
5.01 Changes in Control of Registrant.
As
a result of the Merger Agreement as described herein, a change of control of the Company has occurred.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
As
of the Closing of the Merger Agreement, two new directors of the Company have been appointed.
Reed
Benson, Director
Mr.
Benson received his juris doctor from the University of Utah and has extensive experience with contracts, securities law, and
taxation. He is a certified public accountant and currently is general counsel to Legends Capital Group, a small venture capital
specialist.
Kay
Briggs, Director
Mr.
Briggs, 71, has BS degrees in economics and political science from Brigham Young University, magna cum laude. To launch his career,
he completed internships with CitiBank in New York and Argentina. He then went on to obtain an MBA with an emphasis in international
business and finance, also from Brigham Young University. He then pursued post-graduate work with IBM and Stanford University.
Mr. Briggs spent nearly ten years with EXXON (Esso International) with managerial opportunities in information systems; refinery
maintenance (with additional training in product blending chemistry); maritime contract negotiating; supply and transportation
managing in Toronto, Canada with Imperial Oil; and an executive position with Tar Sands and Heavy Oil Extraction and Refining
in Calgary, Canada. Mr. Briggs spent the next 32 years with The Church of Jesus Christ of Latter-day Saints as managing director
of materials management and international operations, and director of business affairs in Argentina, Southeast US, and 32 island
nations in the Caribbean. He has experience with numerous civic assignments, including school boards, city council, and as mayor
of North Salt Lake, Utah. Additionally, he has served in various board of directors positions with several organizations.
Item
9.01 Financial Statements and Exhibits
Exhibit
No. |
|
Description |
|
|
|
3.1 |
|
Articles of Incorporation(1) |
|
|
|
3.2 |
|
Certificate of
Amendment, effective March 5, 2010(2) |
|
|
|
3.3 |
|
Certificate of
Amendment, effective June 23, 2010(3) |
|
|
|
3.4 |
|
Agreement and
Plan of Merger, effective October 2, 2015* |
|
|
|
3.5 |
|
Bylaws(1) |
|
|
|
10.1 |
|
Employment Agreement
with Michael Ahlin dated August 1, 2015* |
|
|
|
10.2 |
|
Agreement and
Plan of Merger dated August 4, 2015(5)* |
|
|
|
10.3 |
|
Addendum to Agreement
and Plan of Merger* |
|
|
|
* |
|
Filed herewith. |
|
|
|
(1) |
|
Incorporated by
reference from Form SB-2 filed with the SEC on October 31, 2007. |
|
|
|
(2) |
|
Incorporated by
reference from Form 8-K filed with the SEC on March 10, 2010. |
|
|
|
(3) |
|
Incorporated by
reference from Form 8-K filed with the SEC on June 28, 2010. |
|
|
|
(4) |
|
Incorporated by
reference from Form 10-Q filed with the SEC on May 20, 2013. |
|
|
|
(5) |
|
Incorporated
by reference from Form 8-K filed with the SEC on August 6, 2015.
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
|
INCEPTION
MINING INC. |
|
|
|
Date:
October 7, 2015 |
By: |
/s/
Michael Ahlin |
|
Name: |
Michael Ahlin |
|
Title: |
President and
Chief Executive Officer |
|
|
(Principal Executive
Officer) |
AGREEMENT
AND
PLAN
OF MERGER
BY
AND AMONG
INCEPTION
MINING INC.,
CLAVO
RICO, LTD, AND
CR
ACQUISITION CORPORATION
Table
of Contents
ARTICLE
1 Merger |
|
1 |
1.1 |
Effects
of Merger |
|
1 |
1.2 |
Effect
on Company Capital Stock and Merger Subsidiary Capital Stock |
|
2 |
1.3 |
Rights
of Holders of Company Capital Stock |
|
3 |
1.4 |
Procedure
for Surrender and Exchange of Certificates |
|
3 |
1.5 |
Dissenting
Shares |
|
4 |
1.6 |
Directors
and Officers of the Surviving Company |
|
4 |
1.7 |
Tax
Treatment |
|
4 |
|
|
|
|
ARTICLE
2 Representations and Warranties of Company |
|
4 |
2.1 |
Organization
and Good Standing |
|
5 |
2.2 |
Company
Structure |
|
5 |
2.3 |
Authority
and Authorization; Conflicts; Consents |
|
6 |
2.4 |
Capitalization |
|
6 |
2.5 |
Litigation |
|
7 |
2.6 |
No
Brokers or Finders |
|
7 |
2.7 |
Tax
Matters |
|
8 |
2.8 |
Contracts
and Commitments |
|
8 |
2.9 |
Affiliate
Transactions |
|
9 |
2.10 |
Compliance
with Laws; Permits |
|
9 |
2.11 |
Financial
Statements |
|
9 |
2.12 |
No
Undisclosed Liabilities |
|
9 |
2.13 |
Books
and Records |
|
9 |
2.14 |
Real
Property |
|
10 |
2.15 |
Insurance |
|
10 |
2.16 |
Absence
of Certain Developments |
|
10 |
2.17 |
Employee
Benefit Plans |
|
10 |
2.18 |
Employees |
|
11 |
2.19 |
Proprietary
Information and Inventions |
|
11 |
2.20 |
Intellectual
Property |
|
11 |
2.21 |
Tax-Free
Reorganization |
|
11 |
2.22 |
Full
Disclosure |
|
11 |
|
|
|
|
ARTICLE
3 Representations and Warranties of Parent and Merger Subsidiary |
|
11 |
3.1 |
Organization
and Good Standing |
|
11 |
3.2 |
Authority
and Authorization; Conflicts; Consents |
|
12 |
3.3 |
Capitalization |
|
12 |
3.4 |
Litigation |
|
13 |
3.5 |
No
Brokers or Finders |
|
13 |
3.6 |
Tax
Matters |
|
13 |
3.7 |
Contracts
and Commitments |
|
15 |
3.8 |
Affiliate
Transactions |
|
15 |
3.9 |
Compliance
with Laws; Permits |
|
15 |
3.10 |
Exchange
Act Reports |
|
16 |
3.11 |
No
Undisclosed Liabilities |
|
16 |
3.12 |
Books
and Records |
|
16 |
3.13 |
Real
Property |
|
16 |
3.14 |
Insurance |
|
17 |
3.15 |
Environmental
Matters |
|
17 |
3.16 |
Absence
of Certain Developments |
|
17 |
3.17 |
Employee
Benefit Plans |
|
18 |
3.18 |
Employees |
|
18 |
3.19 |
Proprietary
Information and Inventions |
|
19 |
3.20 |
Intellectual
Property |
|
19 |
3.21 |
Tax-Free
Reorganization |
|
19 |
3.22 |
Full
Disclosure |
|
19 |
3.23 |
Validity
of Parent Common Stock |
|
19 |
3.24 |
Private
Placement |
|
19 |
3.25 |
Trading
Matters |
|
19 |
3.26 |
Shell
Company Status |
|
20 |
3.27 |
Prepaid
Assets |
|
20 |
|
|
|
|
ARTICLE
4 Conduct of Business Pending the Merger |
|
20 |
4.1 |
Conduct
of Business by Parent |
|
20 |
4.2 |
Conduct
of Business by Company |
|
20 |
|
|
|
|
ARTICLE
5 Additional Covenants and Agreement |
|
21 |
5.1 |
Governmental
Filings |
|
21 |
5.2 |
Expenses |
|
21 |
5.3 |
Due
Diligence; Access to Information; Confidentiality |
|
21 |
5.4 |
Tax
Treatment |
|
22 |
5.5 |
Press
Releases |
|
22 |
5.6 |
Securities
Law Filings |
|
22 |
5.7 |
Merger
Consideration; Securities Act Exemption |
|
22 |
5.8 |
No
Solicitation |
|
23 |
5.9 |
Failure
to Fulfill Conditions |
|
23 |
5.10 |
Preparation
of Periodic and Current Reports |
|
23 |
5.11 |
Notification
of Certain Matters |
|
23 |
5.12 |
Directors
and Officers of Company |
|
23 |
5.13 |
Representation
in Honduras |
|
23 |
|
|
|
|
ARTICLE
6 Conditions |
|
23 |
6.1 |
Conditions
to Obligations of Each Party |
|
23 |
6.2 |
Additional
Conditions to Obligations of Parent and Merger Subsidiary |
|
24 |
6.3 |
Additional
Conditions to Obligations of Company |
|
25 |
|
|
|
|
ARTICLE
7 Termination |
|
27 |
7.1 |
Termination |
|
27 |
|
|
|
|
ARTICLE
8 General Provisions |
|
27 |
8.1 |
Notices |
|
27 |
8.2 |
No
Survival |
|
28 |
8.3 |
Interpretation |
|
28 |
8.4 |
Severability |
|
28 |
8.5 |
Entire
Agreement; Amendment; Waiver |
|
28 |
8.6 |
Counterparts;
Delivery |
|
28 |
8.7 |
Third-Party
Beneficiaries |
|
28 |
8.8 |
Governing
Law |
|
29 |
8.9 |
Jurisdiction;
Service of Process |
|
29 |
|
|
|
|
ARTICLE
9 Certain Definitions |
|
29 |
AGREEMENT
AND PLAN OF MERGER
This
Agreement and Plan of Merger (this “Agreement”) is entered into effective as of the 4th day of August, 2015
(the “Effective Date”), by and among Inception Mining Inc., a Nevada corporation (“Parent”),
Clavo Rico, LTD, a Turks and Caicos corporation (“Company”), and CR Acquisition Corporation, a Nevada corporation
(“Merger Subsidiary”). Certain capitalized terms used in this Agreement are defined in Article 9.
Background
|
A. |
The
respective Boards of Directors of the parties have (i) determined that it is in the best interests of such corporations and
their respective security holders to consummate a merger of Merger Subsidiary with and into Company (the “Merger”)
and (ii) approved and declared advisable this Agreement, the Merger and the other transactions contemplated by this Agreement; |
|
|
|
|
B. |
Pursuant
to the Merger, among other things, the outstanding shares of capital stock of Company will be converted into the right to
receive upon Closing (as defined in this Agreement) and thereafter, the Merger Consideration (as defined in this Agreement); |
|
|
|
|
C. |
The
parties to this Agreement intend to adopt this Agreement as a plan of reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder,
and intend that the Merger and the transactions contemplated by this Agreement be undertaken pursuant to that plan. Accordingly,
the parties intend that the Merger qualify as a “reorganization,” within the meaning of Code Section 368(a), and
that, with respect to the Merger and within the meaning of Code Section 368(b), each of Parent, Merger Subsidiary and Company
will be a “party to a reorganization;” |
Agreement
In
consideration of the foregoing, and the representations, warranties, and covenants contained in this Agreement, each party hereby
agrees as follows:
ARTICLE
1
Merger
At
the Merger Time (as defined herein), and subject to and upon the terms and conditions of this Agreement and the applicable provisions
of the Nevada Revised Statute or any successor statute (the “NRS”), Merger Subsidiary will merge with and into
Company, the separate corporate existence of Merger Subsidiary will cease, and Company will continue as the surviving corporation
and as a wholly owned subsidiary of Parent. Company, as the surviving corporation after the Merger, is hereinafter referred to
as the “Surviving Company.”
1.1 Effects
of Merger.
(a) From
and after the Merger Time and until further altered or amended in accordance with applicable law: (i) all of the rights, privileges,
immunities, powers, franchises and authority—both public and private—of Company and Merger Subsidiary shall vest in
the Surviving Company; (ii) all of the assets and property of Company and Merger Subsidiary of every kind, nature and description—real,
personal and mixed, and both tangible and intangible—and every interest therein, wheresoever located, including without
limitation all debts or other obligations belonging or due to Company or Merger Subsidiary, all claims and all causes of action,
shall be vested absolutely and unconditionally in the Surviving Company; and (iii) all debts and obligations of Company and Merger
Subsidiary, all rights of creditors of Company or Merger Subsidiary and all liens or security interests encumbering any of the
property of Company or Merger Subsidiary shall be vested in the Surviving Company and shall remain in full force and effect without
modification or impairment and shall be enforceable against the Surviving Company and its assets and properties with the same
full force and effect as if such debts, obligations, liens or security interests had been originally incurred or created by the
Surviving Company in its own name and for its own behalf. Without limiting the generality of the foregoing, the Surviving Company
specifically assumes all continuing obligations which Company or Merger Subsidiary would otherwise have to indemnify its officers
and directors, to the fullest extent currently provided in the Surviving Company’s certificate of incorporation, bylaws
and pursuant to the NRS and the Companies Ordinance and Subsidiary Legislation of the Turks and Caicos Islands, with respect to
any and all claims arising out of actions taken or omitted by Company’s officers and directors prior to the Merger Time.
(b) Each
of Parent, Company and Merger Subsidiary shall use its best efforts to take all such action as may be necessary or appropriate
to effectuate the Merger in accordance with the NRS at the Merger Time. If, at any time after the Merger Time, any further action
is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Company with full right, title
and possession to all properties, rights, privileges, immunities, powers and franchises of either Company or Merger Subsidiary,
the officers of Parent, and the officers of Surviving Company on behalf of Company and Merger Subsidiary, shall take all such
lawful and necessary action.
(c) Subject
to the provisions of Article 6 and Article 7, the closing of the transactions contemplated hereby (the “Closing,”
and the date of the Closing will be referred to interchangeably as the “Closing Date,” as the case may be)
shall take place at such location, on such date and at such time as Company and Parent mutually agree at the earliest practicable
time after the satisfaction or waiver of the conditions in Article 6, but in no event later than five business days after all
such conditions have been satisfied or waived, or on such other date as may be mutually agreed by the parties hereto. On the Closing
date, to effect the Merger, the parties will cause the Certificate of Merger to be filed with the Nevada Secretary of State in
accordance with the NRS. The Merger shall be effective upon the filing of the Certificate of Merger (the “Merger Time”).
1.2 Effect
on Company Capital Stock and Merger Subsidiary Capital Stock. To effectuate the Merger, and subject to the terms and conditions
of this Agreement, at the Merger Time:
(a) All
outstanding shares of Company Common Stock issued and outstanding immediately prior to the Merger Time (other than Dissenting
Shares as defined in Section 1.5 below) will be cancelled and extinguished and will automatically be converted into the right
to receive a total of 240,225,901 fully paid and non-assessable shares of Parent Common Stock in the aggregate, to be delivered
pro rata to the holders of Company Common Stock. Parent will issue to each holder of Company Common Stock (other than Dissenting
Shares) certificates or Book Entries evidencing the number of shares of Parent Common Stock determined in accordance with the
foregoing.
(b) Each
share of common stock, $0.001 par value per share, of Merger Subsidiary issued and outstanding immediately prior to the Merger
Time will be automatically converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving
Company; and
(c) All
shares of Parent Common Stock issued upon the surrender of and exchange of Company Common Stock for shares in accordance with
the terms and conditions of this Section 1.2 will be deemed to have been issued and paid in full satisfaction of all rights pertaining
to such shares of Company Common Stock.
1.3 Rights
of Holders of Company Capital Stock.
(a) From
and after the Merger Time and until surrendered for exchange, each outstanding stock certificate or Book Entry that, immediately
prior to the Merger Time, represented shares of Company Common Stock (except Dissenting Shares) will be deemed for all purposes,
to evidence ownership of and to represent the number of whole shares of Parent Common Stock into which such shares of Company
Common Stock will have been converted pursuant to Section 1.2(a) above. The record holder of each such outstanding certificate
or Book Entry representing shares of Company Common Stock, will, immediately after the Merger Time, be entitled to vote the shares
of Parent Common Stock into which such shares of Company Common Stock have been converted on any matters on which the holders
of record of the Parent Common Stock, as of any date subsequent to the Merger Time, are entitled to vote. In any matters relating
to such certificates or Book Entries of Company Common Stock, Parent may rely conclusively upon the record of stockholders maintained
by Company containing the names and addresses of the holders of record of Company Common Stock on the Closing Date.
(b) At
the Merger Time, Parent shall have reserved a sufficient number of authorized but unissued shares of Parent Common Stock for issuance
in connection with the issuance of the Merger Consideration upon automatic conversion of Company Common Stock into Parent Common
Stock at the Merger Time and a sufficient number of authorized but unissued shares of Parent Common Stock for issuance in connection
with the exercise of the Replacement Options, Replacement Warrants and the Replacement Convertible Promissory Notes.
1.4 Procedure
for Surrender and Exchange of Certificates.
(a) After
the Merger Time, each record holder of outstanding shares of Company Common Stock (except Dissenting Shares) will be entitled
to receive certificates or Book Entries representing the number of whole shares of Parent Common Stock into which shares of Company
Common Stock shall have been converted as provided in Section 1.2 hereof. Parent shall not be obligated to deliver certificates
representing shares of Parent Common Stock, to which any holder of shares of Company Common Stock is entitled, until such holder
surrenders the certificate(s), if any, representing such Company Common Stock. Upon surrender, each certificate evidencing Company
Common Stock shall be canceled. If there is a transfer of Company Common Stock ownership that has not been registered in the transfer
records of Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a Person other
than the Person in whose name the certificate so surrendered is registered if: (x) upon presentation to the Secretary of Parent,
such certificate, if any, shall be properly endorsed or otherwise be in proper form for transfer, (y) the Person requesting such
transfer shall pay any transfer fees or other administrative fees or taxes required by reason of the issuance of shares of or
certificates, if any, representing shares of Parent Common Stock to a Person other than the registered holder of such shares or
establish to the reasonable satisfaction of Parent that such fee or assessment has been paid or is not applicable, and (z) the
issuance of such shares of or certificates, if any, representing shares of Parent Common Stock shall not, in the sole discretion
of Parent, violate the requirements of Section 4(2) of the Securities Act with respect to the private placement of Parent Common
Stock that will result from the Merger.
(b) Any
shares of Parent Common Stock issued in the Merger will not be transferable except (1) pursuant to an effective registration statement
under the Securities Act or (2) upon receipt by Parent of a written opinion of counsel reasonably satisfactory in form and substance
to Parent to the effect that the proposed transfer is exempt from the registration requirements of the Securities Act and relevant
state securities laws. Restrictive legends will be placed on all certificates representing shares of Parent Common Stock issued
in the Merger, substantially as follows:
NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS IN EFFECT THEREUNDER AND ALL APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS (SUCH FEDERAL AND STATE LAWS,
THE “SECURITIES LAWS”) OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION
AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION
OR OTHER DISPOSITION IS EXEMPT FROM THE REGISTRATION OR SIMILAR REQUIREMENTS OF THE SECURITIES LAWS.
(c) Excluding
any shares of Company Common Stock held in Book Entry, in the event any certificate for shares of Company Common Stock shall have
been lost, stolen or destroyed, Parent shall issue in exchange for such lost, stolen or destroyed certificate, upon the making
of a sworn affidavit of that fact by the holder thereof, one or more certificates representing such shares of Parent Common Stock
as provided herein; provided, however, that Parent, in its discretion and as a condition precedent to the issuance of such certificates,
may require the holder of the shares represented by such lost, stolen or destroyed certificate to deliver a bond in such sum as
it may direct as indemnity against any claim that may be made against Parent or any other party with respect to the certificate
alleged to have been lost, stolen or destroyed.
1.5 Dissenting
Shares. There are no dissenters’ rights under Turks & Caicos Law.
1.6 Directors
and Officers of the Surviving Company. The directors of Parent immediately after the Merger Time will become the sole
directors of the Surviving Company. The Company shall have the right to appoint two additional directors, who will be Reed Benson
and Kay Briggs. As of the Merger Time, the officers of Parent immediately prior to the Merger Time will become the sole officers
of the Surviving Company. Each such director and officer will hold such office until their respective successors are duly appointed
or such Persons are removed from office in accordance with applicable law and the articles of incorporation and bylaws of the
Surviving Company.
1.7 Tax
Treatment. It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code. Each of the parties hereto adopts this Agreement as a “plan of reorganization” within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. Both prior to and after the Closing,
each party’s books and records shall be maintained, and all federal, state and local income tax returns and schedules thereto
shall be filed in a manner consistent with the Merger being qualified as a tax-free reorganization under Section 368(a) of the
Code (and comparable provisions of any applicable state or local laws).
ARTICLE
2
Representations and Warranties of Company
Company
hereby represents and warrants to Parent as follows:
2.1 Organization
and Good Standing. Company (a) is a duly organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it was organized and (b) has full corporate power and authority to own and lease its properties and
assets and conduct its business. The copies of the certificate of incorporation and bylaws of Company that have been made available
to Parent are correct and complete copies of such documents as in effect as of the Effective Date. Company is duly qualified and
in good standing to do business as a foreign corporation in each jurisdiction in which the ownership and leasing of its properties
and assets or the conduct of its business requires such qualification, except where the failure to be so qualified or in good
standing will not have a Material Adverse Effect on the ability of Company to consummate the transactions contemplated by this
Agreement.
Company
Structure. The Company has two Honduran subsidiaries: Compania Minera Cerros del Sur S.A. and Minera Clavo Rico, S.A.
2.2 Authority
and Authorization; Conflicts; Consents.
(a) Authority
and Authorization. Company has the requisite corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by Company’s Board of Directors and, except for approval of this Agreement
and the Merger by the requisite approval of Company’s stockholders (the “Required Company Stockholder Approval”),
no other corporate proceedings on the part of Company are necessary to authorize the execution and delivery of this Agreement
and the consummation of the Merger and all other transactions contemplated hereby. This Agreement has been duly executed and delivered
by Company and, assuming it is a valid and binding obligation of Parent and Merger Subsidiary, constitutes a valid and binding
obligation of Company enforceable in accordance with its terms except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors’
rights and remedies generally.
(b) Conflicts.
Neither the execution or delivery by Company of this Agreement or by Company of any Ancillary Document nor consummation by Company
of the transactions contemplated herein or therein does or will (with or without the passage of time or giving of notice): (1)
constitute a breach of, violate, conflict with or give rise to or create any right or obligation under its articles of incorporation
or bylaws; (2) violate any applicable law or order; or (3) constitute a breach or violation of or a default under, conflict with
or give rise to or create any right of any Person other than Company to accelerate, increase, terminate, modify or cancel any
right or obligation under, any contract to which Company is a party, except where such breach, violation, default, conflict or
right described in clause (2) or (3) above will not have a Material Adverse Effect on the ability of Company to consummate the
transactions contemplated herein.
(c) Consents.
Except for (a) the Required Company Stockholder Approval, (b) approvals under applicable state securities laws and (c) the filing
of the Certificate of Merger with the Secretary of State for the State of Nevada, no consent or approval by, notification to or
filing with any Person is required in connection with the execution, delivery or performance by Company of this Agreement or any
Ancillary Document or consummation of the transactions contemplated herein or therein by Company, except for any consent, approval,
notice or filing, the absence of which will not have a Material Adverse Effect on the ability of Company to consummate the transactions
contemplated herein.
2.3 Capitalization.
(a) The authorized, issued and outstanding shares of capital stock of Company are set forth on Schedule 2.3(a). The authorized capital stock of CLAVO RICO consists solely of 250,000,000 shares of capital stock, par value $.01. As of June 30, 2015, 65,000,000 shares of Clavo Rico common stock were issued and outstanding. There has been no change in the number of issued and outstanding shares of CLAVO RICO capital stock since such date. 100% of the issued and outstanding shares of common stock are owned by the Shareholders. All of the issued and outstanding shares of CLAVO RICO common stock are, duly authorized, validly issued, fully paid, and nonassessable. Except pursuant to this Agreement there are no outstanding subscriptions, options, warrants, rights (including “phantom” stock rights), preemptive rights or other contracts, commitments, understandings or arrangements, including any right of conversion or exchange under any outstanding security, instrument or agreement, obligating CLAVO RICO to issue or sell any shares of capital stock, bonds, or other securities of CLAVO RICO (collectively, “Options”) or to grant, extend or enter into any option with respect thereto. There are no outstanding contractual obligations of CLAVO RICO to repurchase, redeem, or otherwise acquire any shares of CLAVO RICO common stock to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any subsidiary or any other person. The authorized capital stock of each of the Subsidiaries consists solely of 500,000 shares of capital stock, no par value. As of June 30, 2015, 200,000 shares of common stock were issued and outstanding, 199,800 of which are held by CLAVO RICO and the remaining shares are held by Gerardo Flores. There has been no change in the number of issued and outstanding shares of capital stock since such date. All of the issued and outstanding shares of the Subsidiaries’ common stock are, duly authorized, validly issued, fully paid, and nonassessable. There are no outstanding Options obligating CLAVO RICO or either of the Subsidiaries to issue or sell any shares of capital stock of a Subsidiary or to grant, extend or enter into any option with respect thereto. Other than as described on Schedule 2.3(a), Company has no other equity securities or securities containing any equity features that are authorized, issued or outstanding. Except as set forth in Schedule 2.3(a), there are no agreements or other rights or arrangements existing which provide for the sale or issuance of capital stock by Company and there are no rights, subscriptions, warrants, options, conversion rights or agreements of any kind outstanding to purchase or otherwise acquire from Company any shares of capital stock or other securities of Company of any kind. Except as set forth on Schedule 2.3(a), there are no agreements or other obligations (contingent or otherwise) which may require Company to repurchase or otherwise acquire any shares of its capital stock.
(b) Except
as disclosed on Schedule 2.3(b), Company does not own, and is not party to any contract to acquire, any equity securities or other
securities of any entity or any direct or indirect equity or ownership interest in any other entity. To Company’s Knowledge,
there exist no voting trusts, proxies, or other contracts with respect to the voting of shares of capital stock of Company.
(c) Schedule
2.3(c) details those Persons to whom Company has granted registration rights, if any, which rights will obligate Company and/or
Parent to file a registration statement (or include certain shares in a registration statement filed with the SEC) covering the
resale of shares of Parent Common Stock constituting Merger Consideration.
2.4 Litigation.
There is no claim whether or not commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental
Authority or other Proceeding pending or, to the Knowledge of Company, threatened against Company or to which Company is a party
or that is reasonably expected to adversely affect Company and (b) Company is not subject to any order, in each case that will
have a Material Adverse Effect on the ability of Company to consummate the transactions contemplated herein.
2.5 No
Brokers or Finders. Company has no obligation or other liability to any broker, finder or similar intermediary in connection
with the transactions contemplated herein that would cause any party to this Agreement to become liable for payment of any fee
or expense with respect thereto.
2.6 Tax
Matters.
(a) For
purposes of this Agreement, “Company Tax Returns” includes all Tax Returns of Company relating to any
Taxes with respect to any income, properties or operations of Company or any of its Tax Affiliates. Except as disclosed on Schedule
2.6(a): (i) Company and each of its Tax Affiliates has timely filed (or has had timely filed on its behalf) all Company Tax Returns
required to be filed or sent by it in respect of any Taxes or required to be filed or sent by it to any Tax Authority having jurisdiction;
(ii) all such Company Tax Returns are complete and accurate in all material respects; (iii) Company and each of its Tax Affiliates
has timely and properly paid (or has had paid on its behalf) all Taxes required to be paid by it; (iv) Company has established
on the Company Balance Sheet, in accordance with GAAP, consistently applied, reserves that are adequate for the payment of any
Taxes not yet due and payable; and (v) Company and each of its Tax Affiliates has complied with all applicable laws, rules and
regulations relating to the collection or withholding of Taxes from third parties (including, without limitation, employees) and
the payment thereof (including, without limitation, withholding of Taxes under Code Sections 1441 and 1442, or similar provisions
under any foreign laws).
(b) There
are no material Liens for Taxes upon any assets of Company or any of its Tax Affiliates, except statutory Liens for Taxes not
yet due.
(c) No
deficiency for any Taxes has been proposed, asserted or assessed against Company or any of its Tax Affiliates that has not been
resolved and paid in full or is not being contested in good faith. No waiver, extension or comparable consent given by Company
or any of its Tax Affiliates regarding the application of the statute of limitations with respect to any Taxes or Company Tax
Returns is outstanding, nor is any request for any such waiver or consent pending. There has been no Tax audit or other Proceeding
with regard to any Company Tax Returns or Taxes relating to Company or any of its Tax Affiliates, nor is any such Tax audit or
other Proceeding pending, nor has there been any notice to Company by any Tax Authority regarding any such Tax audit or other
Proceeding, or, to the Knowledge of Company, is any such Tax audit or other Proceeding threatened with regard to any Company Tax
Returns or Taxes or relating to Company or any of its Tax Affiliates. Company does not expect the assessment of any additional
Taxes of Company for any period prior to the date hereof and has no Knowledge of any unresolved questions, claims or disputes
concerning the liability for Taxes relating to Company or any of its Tax Affiliates that would exceed the estimated reserves established
on its books and records.
(d) Neither
Company nor any of its Tax Affiliates is liable for Taxes of any other Person nor is currently under any contractual obligation
to indemnify any Person with respect to Taxes, or a party to any Tax sharing agreement or any other agreement providing for payments
by Company with respect to Taxes. Neither Company nor any of its Tax Affiliates has agreed and is not required, as a result of
a change in method of accounting or otherwise, to include any adjustment under Code Section 481 (or any corresponding provision
of state, local or foreign law) in Taxable income. Schedule 2.6(d) contains a list of all jurisdictions in which Company or any
of its Tax Affiliates is required to file any Company Return and no claim has been made by a Tax Authority in a jurisdiction where
Company or any of its Tax Affiliates does not currently file Company Tax Returns, that Company or any of its Tax Affiliates is
or may be subject to Taxation by that jurisdiction. There are no advance rulings in respect of any Tax pending or issued by any
Tax Authority with respect to any Taxes of or any of its Tax Affiliates. Neither Company nor any of its Tax Affiliates has entered
into any gain recognition agreements under Code Section 367 and the Treasury Regulations promulgated thereunder. Neither Company
nor any of its Tax Affiliates is liable with respect to any indebtedness the interest of which is not deductible for applicable
federal, foreign, state or local income Tax purposes.
(e) Company
has been neither a “distributing corporation” nor a “controlled corporation” (within the meaning of Code
Section 355) in a distribution of stock qualifying for Tax-free treatment under Code Section 355.
(f) Except
as disclosed on Schedule 2.6(f), Company has not requested any extension of time within which to file any Company Return, which
return has not since been filed.
(g) Neither
Company nor any Tax Affiliate has, for the five (5) year period preceding the Closing, been a United States real property holding
corporation within the meaning of Code Section 897(c)(2).
(h) There
have been made available to Parent true and complete copies of all Company Tax Returns with respect to Taxes based on net income;
and any other Company Tax Returns requested by Parent that may be relevant to Company or any of its Tax Affiliates or their respective
business, assets or operations for any and all Taxable periods ending before the date hereof; and for any other Taxable years
that remain subject to audit or investigation by any Tax Authority.
(i) Company
and each of its Tax Affiliates is a corporation or association Taxable as a corporation for federal income Tax purposes.
(j) Neither
Company nor any of its Tax Affiliates has made any election under Code Section 1362(a) to be an S corporation.
2.7 Contracts
and Commitments. Schedule 2.7 lists all material agreements, whether oral or written, to which Company is a party, which
are currently in effect, and which relate to the operation of Company’s business. Company has performed all obligations
required to be performed by it under the contracts or commitments required to be disclosed on Schedule 2.7 and is not in receipt
of any claim of default under any contract or commitment required to be disclosed under such caption. Company has no present expectation
or intention of not fully performing any material obligation pursuant to any contract or commitment required to be disclosed on
Schedule 2.7; and Company has no Knowledge of any breach or anticipated breach by any other party to any contract or commitment
required to be disclosed on such schedule.
2.8 Affiliate
Transactions. Except as set forth in Schedule 2.8, and other than pursuant to this Agreement, no officer, director or
employee of Company, or any member of the immediate family of any such officer, director or employee, or any entity in which any
of such Persons owns any beneficial interest in Company (other than any publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than five percent of the stock of which is beneficially owned by
any of such Persons) (collectively, the “Company Insiders”), has any agreement with Company (other than
normal employment arrangements) or any interest in any property, real, personal or mixed, tangible or intangible, used in or pertaining
to the business of Company (other than ownership of capital stock of Company). Except as set forth on Schedule 2.8, Company is
not indebted to any Company Insider (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary business
expenses) and no Company Insider is indebted to Company (except for cash advances for ordinary business expenses). Except as set
forth on Schedule 2.8, none of the Company Insiders has any direct or indirect interest in any competitor, supplier or customer
of Company or in any Person from whom or to whom Company leases any property, or in any other Person with whom Company transacts
business of any nature. The officers, directors and employees of Company have not, by virtue of their employment with or service
to Company, usurped any corporate opportunities of any third party to which such officer, director and employee has, or could
reasonably be considered to have, a fiduciary duty under any applicable laws. For purposes of this Section 2.8 the members of
the immediate family of an officer, director or employee shall consist of the spouse, parents, children and siblings of such officer,
director or employee.
2.9 Compliance
with Laws; Permits.
(a) Except
for any noncompliance that would not reasonably be expected to have a Material Adverse Effect on Company, Company and its officers,
directors, agents and employees have complied with all applicable laws, Environmental Laws, regulations and other requirements,
including, but not limited to, federal, state, local and foreign laws, ordinances, rules, regulations and other requirements pertaining
to equal employment opportunity, employee retirement, affirmative action and other hiring practices, occupational safety and health,
workers’ compensation, unemployment and building and zoning codes, and no claims have been filed against Company, and Company
has not received any written notice, alleging a violation of any such laws, Environmental Laws, regulations or other requirements.
Company is not relying on any exemption from or deferral of any such applicable law, Environmental Laws, regulation or other requirement
that would not be available to Parent after it acquires the properties, assets and business of Company.
(b) Except
as set forth on Schedule 2.9(b), Company has no licenses, permits, Environmental Permits or certificates, from federal, state,
local and foreign authorities (including, without limitation, federal and state agencies regulating occupational health and safety)
necessary to permit it to conduct its business and own and operate its properties.
2.10 Financial
Statements. Company has made available to Parent audited consolidated balance sheets of Company subsidiaries at December
31, 2013 and 2014, and the related audited consolidated statements of operations, stockholders’ equity and cash flows of
Company subsidiaries for the two annual periods then ended, as well as an unaudited consolidated balance sheet of Company as of
June 30, 2015, and the related unaudited consolidated statements of operations, stockholders’ equity and cash flows of Company
for the three-month period then ended (together, the “Company Financial Statements”). The Company Financial
Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto), and fairly present the financial position of Company as of the respective dates thereof
and the results of its operations and cash flows and stockholder equity for the periods indicated.
2.11 No
Undisclosed Liabilities. Except as reflected in the balance sheet of Company at June 30, 2015 (the “Latest Company
Balance Sheet”), Company has no liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) except
(i) liabilities which have arisen after the date of the Latest Company Balance Sheet in the ordinary course of business, none
of which is a material uninsured liability for breach of contract, breach of warranty, tort, infringement, claim or lawsuit, or
(ii) as otherwise set forth on Schedule 2.11.
2.12 Books
and Records. The books of account, minute books, stock record books, and other similar records of Company, complete copies
of which have been made available to Parent, have been properly kept and contain no inaccuracies except for inaccuracies that
would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.
2.13 Real
Property. Schedule 2.13 lists all real property leased by Company. Company does not own any real property. Company has
good and valid title to all of its leaseholds and other interests free and clear of all Liens, except for such Liens which do
not detract from the value or interfere with the present use of the property subject thereto or affected thereby. The real property
to which such leaseholds and other interests pertain constitutes all of the real property used in Company’s business.
2.14 Insurance.
The insurance policies obtained and maintained by Company that are material to Company are in full force and effect, all premiums
due and payable thereon have been paid (other than retroactive or retrospective premium adjustments that Company is not currently
required, but may in the future be required, to pay with respect to any period ending prior to the Effective Date), and Company
has received no written notice of cancellation or termination with respect to any such policy that has not been replaced on substantially
similar terms prior to the date of such cancellation.
2.15 Absence
of Certain Developments. Except as disclosed in the Company Financial Statements or as otherwise contemplated by this
Agreement, since December 31, 2014, Company has owned and operated its assets, properties and businesses consistent with past
practice. Without limiting the generality of the foregoing, except as listed in Schedule 2.15, since December 31, 2014, Company
has not:
(a) experienced
any change that has had or could reasonably be expected to have a Material Adverse Effect on Company; or
(b) suffered
(i) any loss, damage, destruction or other property or casualty (whether or not covered by insurance) or (ii) any loss of officers,
employees, dealers, distributors, independent contractors, customers or suppliers, which had or may reasonably be expected to
result in a Material Adverse Effect on Company.
2.16 Employee
Benefit Plans.
(a) Company
does not have, and has never had, any employee benefit plan (within the meaning of Section 3(3) of ERISA), or any other plan,
arrangement, program or payroll practice providing compensation, benefits or perquisites to any class of employees, former employees
or directors of Company other than statutory retirement plans of the country of Honduras for employees working in Honduras and
the Agreements relating to the Options, the Warrants and the Convertible Promissory Notes.
(b) Company
does not have, and has never had, any agreement, plan or other arrangement for the benefit of any independent contractor serving
Company that is or was treated as a nonqualified deferred compensation plan under Code Section 409A.
(c) The
consummation of the transactions contemplated by this Agreement will not (i) cause any employee, former employee, director or
independent contractor to become entitled to any severance pay, unemployment compensation or other payment; (ii) accelerate the
time of payment or vesting of any benefit payable to any such Person or (iii) increase the amount of compensation or benefits
due to any such Person.
2.17 Employees.
(a) Schedule
2.17(a) lists, as of the Effective Date, the name, position, base compensation and, for calendar year 2015, total compensation
for each employee of Company.
(b) Except
as otherwise set forth in Schedule 2.17(b), or as contemplated by this Agreement, to the Knowledge of Company, (i) neither any
executive employee of Company nor any group of the employees of Company has any plans to terminate his, her or its employment;
(ii) Company has no material labor relations problem pending and its labor relations are satisfactory; (iii) there are no workers’
compensation claims pending against Company nor is Company aware of any facts that would give rise to such a claim; (iv) no employee
of Company is subject to any secrecy or noncompetition agreement or any other agreement or restriction of any kind that would
impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business
of Company; and (v) no employee or former employee of Company has any claim with respect to any intellectual property rights of
Company.
2.18 Proprietary
Information and Inventions. Set forth on Schedule 2.18 is a complete and accurate list of all current Company employees,
consultants, contractors or other Persons that are subject to a non-disclosure agreement or an alternative employment agreement
with Company containing comparable non-disclosure provisions.
2.19 Intellectual
Property. Set forth on Schedule 2.19 is a complete and accurate list of all Intellectual Property owned or licensed by
Company, and accurately identifies all Persons from which or to which Company licenses all such listed Intellectual Property.
For purposes of this Agreement, the term “Intellectual Property” means: (a) patents (including any registrations,
continuations, continuations in part, renewals and any applications for any of the foregoing); (b) registered and unregistered
copyrights and copyright applications; and (c) registered and unregistered trademarks, service marks, trade names, slogans, logos,
designs and general intangibles of the like nature, together with all registrations and applications therefor.
2.20 Tax-Free
Reorganization. Company has not taken or agreed to take any action that would prevent the Merger from qualifying as a
reorganization under Section 368(a) of the Code. Company has confirmed with its legal counsel in Turks and Caicos and in Honduras
that this transaction is allowed as a tax-free reorganization under all relevant laws.
2.21 Full
Disclosure. The representations and warranties of Company contained in this Agreement (and in any schedule, exhibit, certificate
or other instrument to be delivered under this Agreement) do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading. There is no fact of which Company has Knowledge that has not been disclosed to
Parent pursuant to this Agreement, including the schedules hereto, all taken together as a whole, which has had or would reasonably
be expected to have a Material Adverse Effect on Company or materially adversely affect the ability of Company to consummate in
a timely manner the transactions contemplated hereby.
ARTICLE
3
Representations and Warranties of Parent and Merger Subsidiary
Parent and
Merger Subsidiary hereby jointly and severally represent and warrant to Company as follows:
3.1 Organization
and Good Standing. Each of Parent and Merger Subsidiary (a) is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction in which it was organized and (b) has full corporate power and authority to own and
lease its properties and assets and conduct its business. The copies of the articles of incorporation and bylaws of each of Parent
and Merger Subsidiary that have been made available to Company are correct and complete copies of such documents as in effect
as of the Effective Date. Parent is duly qualified and in good standing to do business as a foreign corporation in each jurisdiction
in which the ownership and leasing of its properties and assets or the conduct of its business requires such qualification, except
where the failure to be so qualified or in good standing will not have a Material Adverse Effect on the ability of Parent to consummate
the transactions contemplated by this Agreement. Parent has no subsidiaries other than Merger Subsidiary and Parent Subsidiary.
3.2 Authority
and Authorization; Conflicts; Consents.
(a) Authority
and Authorization. The execution, delivery and performance of this Agreement and each Ancillary Document of Parent and Merger
Subsidiary have been duly authorized and approved by all necessary corporate action with respect to Parent and Merger Subsidiary,
and each such authorization and approval remains in full force and effect. This Agreement has been duly executed and delivered
by Parent and Merger Subsidiary and, assuming it is a valid and binding obligation of Company and constitutes a valid and binding
obligation of Parent and Merger Subsidiary enforceable in accordance with its terms except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors’ rights and remedies generally.
(b) Conflicts.
Neither the execution or delivery by Parent and Merger Subsidiary of this Agreement or any Ancillary Document nor consummation
by Parent and Merger Subsidiary of the transactions contemplated herein or therein does or will (with or without the passage of
time or giving of notice): (1) constitute a breach of, violate, conflict with or give rise to or create any right or obligation
under its articles of incorporation or bylaws; (2) violate any applicable law or order; or (3) constitute a breach or violation
of or a default under, conflict with or give rise to or create any right of any Person other than Parent to accelerate, increase,
terminate, modify or cancel any right or obligation under, any contract to which Parent or Merger Subsidiary is a party, except
where such breach, violation, default, conflict or right described in clause (2) or (3) above will not have a Material Adverse
Effect on the ability of Parent and Merger Subsidiary to consummate the transactions contemplated herein.
(c) Consents.
Except for (a) approvals under applicable state securities laws and (b) the filing of the Certificate of Merger with the Secretary
of State for the State of Nevada, no consent or approval by, notification to or filing with any Person is required in connection
with the execution, delivery or performance by Parent or Merger Subsidiary of this Agreement or any Ancillary Document or Parent
or Merger Subsidiary’s consummation of the transactions contemplated herein or therein, except for any consent, approval,
notice or filing, the absence of which will not have a Material Adverse Effect on the ability of Parent or Merger Subsidiary to
consummate the transactions contemplated herein.
3.3 Capitalization.
(a) The
authorized, issued and outstanding shares of capital stock of Parent as of the date hereof are correctly set forth on Schedule
3.3(a). Parent’s authorized capitalization consists of 10,000,000 shares of Preferred Shares, $.00001 par value, none of
which are issued and outstanding, and 500,000,000 shares of common stock, par value $.00001, of which 13,077,679 (following the
cancellation of certain shares as part of this Merger) shares are issued and outstanding. The issued and outstanding shares of
capital stock of Parent have been duly authorized and validly issued, are fully paid and nonassessable, and have not been issued
in violation of any preemptive rights. Other than as described on Schedule 3.3(a), Parent has no other equity securities or securities
containing any equity features that are authorized, issued or outstanding. There are no agreements or other rights or arrangements
existing which provide for the sale or issuance of capital stock by Parent and there are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or otherwise acquire from Parent any shares of capital stock
or other securities of Parent of any kind. There are no agreements or other obligations (contingent or otherwise) which may require
Parent to repurchase or otherwise acquire any shares of its capital stock. Other than as described on Schedule 3.3(a), there are
not currently any outstanding capital stock, options, warrants or other rights to acquire any shares of Parent capital stock.
(b) There
are registration rights and those shares that have registration rights are described further in Schedule 3.3(b) attached hereto.
(c) The
authorized capital stock of Merger Subsidiary consists of One Hundred (100) shares of common stock, par value $0.001 per share,
all of which are issued and outstanding and held of record by Parent as of the date hereof. The issued and outstanding shares
of capital stock of Merger Subsidiary are duly authorized, validly issued, fully paid and nonassessable and have not been issued
in violation of any preemptive rights. Except as disclosed on Schedule 3.3(c), there are no options, warrants, conversion privileges
or other rights, agreements, arrangements or commitments obligating Merger Subsidiary to issue, sell, purchase or redeem any shares
of its capital stock or securities or obligations of any kind convertible into or exchangeable for any shares of its capital stock
(d) The
shares of Parent Common Stock representing the Merger Consideration will be, when issued in accordance with the terms of this
Agreement, duly authorized, validly issued, fully paid and nonassessable.
3.4 Litigation.
There is no claim whether or not commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental
Authority or other Proceeding pending or, to the Knowledge of Parent, threatened against Parent or to which Parent is a party
or that is reasonably expected to adversely affect Parent and (b) Parent is not subject to any order, in each case that will have
a Material Adverse Effect on the ability of Parent to consummate the transactions contemplated herein.
3.5 No
Brokers or Finders. Neither Parent nor Merger Subsidiary has any obligation or other liability to any broker, finder or
similar intermediary in connection with the transactions contemplated herein that would cause any party to this Agreement to become
liable for payment of any fee or expense with respect thereto.
3.6 Tax
Matters.
(a) For
purposes of this Agreement, “Parent Tax Returns” includes all Tax Returns of Parent relating to any
Taxes with respect to any income, properties or operations of Parent or any of its Tax Affiliates. Except as disclosed on Schedule
3.6(a): (i) Parent and each of its Tax Affiliates has timely filed (or has had timely filed on its behalf) all Parent Tax Returns
required to be filed or sent by it in respect of any Taxes or required to be filed or sent by it to any Tax Authority having jurisdiction;
(ii) all such Parent Tax Returns are complete and accurate in all material respects; (iii) Parent and each of its Tax Affiliates
has timely and properly paid (or has had paid on its behalf) all Taxes required to be paid by it; (iv) Parent has established
on the Parent Balance Sheet, in accordance with GAAP, consistently applied, reserves that are adequate for the payment of any
Taxes not yet due and payable; and (v) Parent and each of its Tax Affiliates has complied with all applicable laws, rules and
regulations relating to the collection or withholding of Taxes from third parties (including, without limitation, employees) and
the payment thereof (including, without limitation, withholding of Taxes under Code Sections 1441 and 1442, or similar provisions
under any foreign laws).
(b) There
are no material Liens for Taxes upon any assets of Parent or any of its Tax Affiliates, except statutory Liens for Taxes not yet
due.
(c) No
deficiency for any Taxes has been proposed, asserted or assessed against Parent or any of its Tax Affiliates that has not been
resolved and paid in full or is not being contested in good faith. Except as disclosed in Schedule 3.6(c), no waiver, extension
or comparable consent given by Parent or any of its Tax Affiliates regarding the application of the statute of limitations with
respect to any Taxes or Parent Tax Returns is outstanding, nor is any request for any such waiver or consent pending. Except as
disclosed in Schedule 3.6(c), there has been no Tax audit or other Proceeding with regard to any Parent Tax Returns or Taxes relating
to Parent or any of its Tax Affiliates, nor is any such Tax audit or other Proceeding pending, nor has there been any notice to
Parent by any Tax Authority regarding any such Tax audit or other Proceeding, or, to the Knowledge of Parent, is any such Tax
audit or other Proceeding threatened with regard to any Parent Tax Returns or Taxes or relating to Parent or any of its Tax Affiliates.
Parent does not expect the assessment of any additional Taxes of Parent for any period prior to the date hereof and has no Knowledge
of any unresolved questions, claims or disputes concerning the liability for Taxes relating to Parent or any of its Tax Affiliates
that would exceed the estimated reserves established on its books and records.
(d) Neither
Parent nor any of its Tax Affiliates is a party to any agreement, contract or arrangement that would result, separately or in
the aggregate, in the payment of any “excess parachute payments” within the meaning of Code Section 280G; and the
consummation of the transactions contemplated by this Agreement will not be a factor causing payments to be made by Parent or
any of its Tax Affiliates not to be deductible (in whole or in part) under Code Section 280G. Except as set forth on Schedule
3.6(d), neither Parent nor any of its Tax Affiliates is liable for Taxes of any other Person nor is currently under any contractual
obligation to indemnify any Person with respect to Taxes, or a party to any Tax sharing agreement or any other agreement providing
for payments by Parent with respect to Taxes. Except as set forth on Schedule 3.6(d), neither Parent nor any of its Tax Affiliates
is a party to any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal
income Tax purposes. Neither Parent nor any of its Tax Affiliates has agreed and is not required, as a result of a change in method
of accounting or otherwise, to include any adjustment under Code Section 481 (or any corresponding provision of state, local or
foreign law) in Taxable income. Schedule 3.6(d) contains a list of all jurisdictions in which Parent or any of its Tax Affiliates
is required to file any Parent Return and no claim has been made by a Tax Authority in a jurisdiction where Parent or any of its
Tax Affiliates does not currently file Parent Tax Returns, that Parent or any of its Tax Affiliates is or may be subject to Taxation
by that jurisdiction. There are no advance rulings in respect of any Tax pending or issued by any Tax Authority with respect to
any Taxes of or any of its Tax Affiliates. Neither Parent nor any of its Tax Affiliates has entered into any gain recognition
agreements under Code Section 367 and the Treasury Regulations promulgated thereunder. Neither Parent nor any of its Tax Affiliates
is liable with respect to any indebtedness the interest of which is not deductible for applicable federal, foreign, state or local
income Tax purposes.
(e) Parent
has been neither a “distributing corporation” nor a “controlled corporation” (within the meaning of Code
Section 355) in a distribution of stock qualifying for Tax-free treatment under Code Section 355.
(f) Except
as set forth on Schedule 3.6(f), Parent has not requested any extension of time within which to file any Parent Return, which
return has not since been filed.
(g) Neither
Parent nor any Tax Affiliate has, for the five (5) year period preceding the Closing, been a United States real property holding
corporation within the meaning of Code Section 897(c)(2).
(h) There
have been delivered to Company true and complete copies of Parent Tax Returns with respect to Taxes based on net income for the
2012, 2013, and 2014 tax years; and any other Parent Tax Returns requested by Company that may be relevant to Parent or any of
its Tax Affiliates or their respective business, assets or operations for any and all Taxable periods ending before the date hereof;
and for any other Taxable years that remain subject to audit or investigation by any Tax Authority.
(i) Except
as disclosed on Schedule 3.6(i), Parent and each of its Tax Affiliates is, and at all times has been, a corporation or association
Taxable as a corporation for federal income Tax purposes.
(j) Neither
Parent nor any of its Tax Affiliates has made any election under Code Section 1362(a) to be an S corporation.
3.7 Contracts
and Commitments.
(a) Except
as set forth on Schedule 3.7(a), all material agreements of Parent have been filed as an exhibit to the Parent SEC Filings (such
material contracts and any contracts described on Schedule 3.7(a), the “Parent Contracts”).
(b) To
Parent’s Knowledge, Parent has performed, in all material respects, the obligations required to be performed by it in connection
with the Parent Contracts and is not in receipt of any claim of default under any Parent Contract; Parent has no present expectation
or intention of not fully performing any material obligation pursuant to any Parent Contract; and Parent has no Knowledge of any
breach or anticipated breach by any other party to any Parent Contract. Schedule 3.7(b) lists the liabilities and obligations
of Parent as of the Closing.
3.8 Affiliate
Transactions. Except as disclosed in the Parent SEC Filings, and other than pursuant to this Agreement, no officer, director
or employee of Parent, or any member of the immediate family of any such officer, director or employee, or any entity in which
any of such Persons owns any beneficial interest (other than any publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than one percent of the stock of which is beneficially owned by
any of such Persons) (collectively, the “Parent Insiders”), has any agreement with Parent (other than
normal employment arrangements) or any interest in any property, real, personal or mixed, tangible or intangible, used in or pertaining
to the business of Parent (other than ownership of capital stock of Parent). Parent is not indebted to any Parent Insider (except
for amounts due as normal salaries and bonuses and in reimbursement of ordinary business expenses) and no Parent Insider is indebted
to Parent except for cash advances for ordinary business expenses). None of the Parent Insiders has any direct or indirect interest
in any competitor, supplier or customer of Parent or in any Person from whom or to whom Parent leases any property, or in any
other Person with whom Parent transacts business of any nature. For purposes of this Section 3.8, the members of the immediate
family of an officer, director or employee shall consist of the spouse, parents, children and siblings of such officer, director
or employee.
3.9 Compliance
with Laws; Permits.
(a) Except
for any noncompliance that would not reasonably be expected to have a Material Adverse Effect on Parent, Parent and its officers,
directors, agents and employees have complied with all applicable laws, Environmental Laws, regulations and other requirements,
including, but not limited to, federal, state, local and foreign laws, ordinances, rules, regulations and other requirements pertaining
to equal employment opportunity, employee retirement, affirmative action and other hiring practices, occupational safety and health,
workers’ compensation, unemployment and building and zoning codes, and no claims have been filed against Parent, and Parent
has not received any written notice, alleging a violation of any such laws, Environmental Laws, regulations or other requirements.
(b) Parent
has no licenses, permits, Environmental Permits or certificates from federal, state, local and foreign authorities (including,
without limitation, federal and state agencies regulating occupational health and safety) and no such items are necessary to permit
it to conduct its business and own and operate its properties.
3.10 Exchange
Act Reports.
(a) The
Parent Common Stock has been registered under Section 12 of the Exchange Act and Parent is subject to the periodic reporting requirements
of Section 13 of the Exchange Act.
(b) Except
as set forth on Schedule 3.10(b), Parent has timely filed all forms, reports and documents required to be filed with the SEC by
applicable law since the date it first became subject to the periodic reporting requirements of Sections 13(a), 14(a), 14(c) and
15(d) of the Exchange Act. All such required forms, reports and documents (including the financial statements, exhibits and schedules
thereto and those documents that Parent may file subsequent to the date hereof) are collectively referred to herein as the “Parent
SEC Filings.” As of their respective dates, the Parent SEC Filings (i) were prepared in accordance with the requirements
of the Securities Act or Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such
Parent SEC Filings, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the Effective
Date, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) Each
of the financial statements (including, in each case, any related notes thereto) contained in the Parent SEC Filings, as of their
respective dates, (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may
be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act) and (iii) fairly presented the financial position of Parent at the respective dates thereof
and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments which were not, or are not expected to be, material
in amount. The balance sheet of Parent as of December 31, 2014 is hereinafter referred to as the “Parent Balance Sheet.”
Except for those liabilities disclosed on Schedule 3.10(c) (the “Permitted Liabilities”), as of the Merger
Time Parent will not have any liabilities of a nature required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP.
3.11 No
Undisclosed Liabilities. Except as reflected in the unaudited balance sheet of Parent at March 31, 2015 included in Parent’s
quarterly report on Form 10-Q for such period (the “Latest Parent Balance Sheet”), Parent has no liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) except (i) liabilities which have arisen after the date of
the Latest Parent Balance Sheet in the ordinary course of business, none of which is a material uninsured liability for breach
of contract, breach of warranty, tort, infringement, claim or lawsuit, or (ii) as otherwise set forth on Schedule 3.11.
3.12 Books
and Records. The books of account, minute books, stock record books, and other similar records of Parent, complete copies
of which have been made available to Company, have been properly kept and contain no inaccuracies except for inaccuracies that
would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.
3.13 Real
Property. Schedule 3.13 lists all real property leased or owned by Parent. Parent has good and valid title to all of its
leaseholds and other interests free and clear of all Liens, except for such Liens which do not detract from the value or interfere
with the present use of the property subject thereto or affected thereby. The real property to which such leaseholds and other
interests pertain constitutes all of the real property used in Parent’s business.
3.14 Insurance.
The insurance policies obtained and maintained by Parent that are material to Parent are in full force and effect, all premiums
due and payable thereon have been paid (other than retroactive or retrospective premium adjustments that Parent is not currently
required, but may in the future be required, to pay with respect to any period ending prior to the Effective Date), and Parent
has received no written notice of cancellation or termination with respect to any such policy that has not been replaced on substantially
similar terms prior to the date of such cancellation.
3.15 Environmental
Matters.
(a) To
its Knowledge, except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect
on Parent, (i) Parent has not transported, handled, treated, stored, used, manufactured, distributed, disposed of, released or
exposed its employees or others to any Hazardous Materials in violation of any applicable law, and (ii) Parent has not engaged
in any Hazardous Materials Activities in violation of any applicable law, rule, regulation, treaty or statute promulgated by any
Governmental Authority in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(b) There
is no Environmental Claim pending or, to the Knowledge of Parent, threatened as of the Effective Date against Parent that will
have a Material Adverse Effect on Parent or will have a Material Adverse Effect on the ability of Parent to consummate the transactions
contemplated herein.
(c) Parent
has complied and is in compliance, in each case in all material respects, with all applicable laws, rules, regulations, treaties
and statutes promulgated by any Governmental Authority in effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
3.16 Absence
of Certain Developments. Except as set forth on Schedule 3.16 or as disclosed in the Parent SEC Filings or as otherwise
contemplated by this Agreement, since the Latest Parent Balance Sheet, Parent conducted its business only in the ordinary course
consistent with past practice and there has not occurred:
(a) any
event having a Material Adverse Effect on Parent or Merger Subsidiary;
(b) any
event that would reasonably be expected to prevent or materially delay the performance of Parent’s obligations pursuant
to this Agreement;
(c) any
material change by Parent in its accounting methods, principles or practices;
(d) any
declaration, setting aside or payment of any dividend or distribution in respect of the shares of capital stock of Parent or Merger
Subsidiary or any redemption, purchase or other acquisition of any of Parent’s or Merger Subsidiary’s securities;
(e) any
increase in the compensation or benefits or establishment of any bonus, insurance, severance, deferred-compensation, pension,
retirement, profit-sharing, stock-option, stock-purchase or other employee-benefit plan of Parent or Merger Subsidiary (including
without limitation the granting of stock options, stock-appreciation rights, performance awards or restricted stock awards), or
any other increase in the compensation payable or to become payable to any employees, officers, consultants or directors of Parent
or Merger Subsidiary;
(f) any
issuance, grants or sale of any stock, options, warrants, notes, bonds or other securities, or entry into any agreement with respect
thereto by Parent or Merger Subsidiary;
(g) any
amendment to the Articles of Incorporation or bylaws of Parent or the Certificate of Incorporation or bylaws, if any, of Merger
Subsidiary;
(h) other
than in the ordinary course of business consistent with past practice, any (1) capital expenditures by Parent or Merger Subsidiary,
(2) purchase, sale, assignment or transfer of any material assets by Parent or Merger Subsidiary, (3) mortgage, pledge or existence
of any lien, encumbrance or charge on any material assets or properties, tangible or intangible of Parent or Merger Subsidiary,
except for liens for taxes not yet due and such other liens, encumbrances or charges which do not, individually or in the aggregate,
have a Material Adverse Effect on Parent, or (4) cancellation, compromise, release or waiver by Parent or Merger Subsidiary of
any rights of material value or any material debts or claims;
(i) any
incurrence by Parent or Merger Subsidiary of any material liability (absolute or contingent), except for current liabilities and
obligations incurred in the ordinary course of business consistent with past practice;
(j) damage,
destruction or similar loss, whether or not covered by insurance, materially affecting the business or properties of Parent;
(k) entry
by Parent or Merger Subsidiary into any agreement, contract, lease or license other than in the ordinary course of business consistent
with past practice;
(l) any
acceleration, termination, modification or cancellation of any agreement, contract, lease or license to which Parent or Merger
Subsidiary is a party or by which any of them is bound;
(m) entry
by Parent or Merger Subsidiary into any loan or other transaction with any officers, directors or employees of Parent or Merger
Subsidiary;
(n) any
charitable or other capital contribution by Parent or Merger Subsidiary or pledge therefor;
(o) entry
by Parent or Merger Subsidiary into any transaction of a material nature other than in the ordinary course of business consistent
with past practice; or
(p) any
negotiation or agreement by the Parent or Merger Subsidiary to do any of the things described in the preceding clauses (a) through
(o).
3.17 Employee
Benefit Plans.
(a) Parent
has a 2013 Stock Option Plan with no current options issued and an effective S-8 with 1,388,889 shares eligible to be issued.
There are no other “employee-benefit plans” within the meaning of ERISA Section 3(3), and Parent has no other bonus,
stock-option, stock-purchase, stock-appreciation right, incentive, deferred-compensation, supplemental-retirement, severance,
or fringe-benefit plans, programs, policies or arrangements. No current or former director, officer, employee or independent contractor
of Parent will become entitled to retirement, severance, unemployment compensation or similar benefits or to enhanced or accelerated
benefits (including any acceleration of vesting or lapsing of restrictions with respect to equity-based awards and increases in
the amount of compensation or benefits due to any such Person) under any contract, commitment or arrangement as a result of consummation
of the transactions contemplated by this Agreement.
3.18 Employees.
(a) Schedule
3.18(a) lists, as of the Effective Date, the name, position, base compensation and, for year-to-date calendar year 2015, total
compensation for each employee of Company.
(b) Except
as otherwise set forth in Schedule 3.18(b), or as contemplated by this Agreement, to the Knowledge of Parent, (i) neither any
executive employee of Parent nor any group of the employees of Parent has any plans to terminate his, her or its employment; (ii)
Parent has no material labor relations problem pending and its labor relations are satisfactory; (iii) there are no workers’
compensation claims pending against Parent nor is Parent aware of any facts that would give rise to such a claim; (iv) no employee
of Parent is subject to any secrecy or noncompetition agreement or any other agreement or restriction of any kind that would impede
in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business of Parent;
and (v) no employee or former employee of Parent has any claim with respect to any intellectual property rights of Parent.
3.19 Proprietary
Information and Inventions. Set forth on Schedule 3.19 is a complete and accurate list of all current Parent employees,
consultants, contractors or other Persons that are subject to a non-disclosure agreement or an alternative employment agreement
with Parent containing comparable non-disclosure provisions.
3.20 Intellectual
Property. Set forth on Schedule 3.20 is a complete and accurate list of all Intellectual Property (as defined in Section
2.20) owned or licensed by Parent, and accurately identifies all Persons from which or to which Parent licenses all such listed
Intellectual Property.
3.21 Tax-Free
Reorganization. Neither Parent nor, to Parent’s Knowledge, any of its Affiliates has taken or agreed to take any
action that would prevent the Merger from qualifying as a reorganization under Section 368(a) of the Code.
3.22 Full
Disclosure. The representations and warranties of each of Parent and Merger Subsidiary contained in this Agreement (and
in any schedule, exhibit, certificate or other instrument to be delivered under this Agreement) do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make the statements contained herein and therein,
in light of the circumstances under which such statements were made, not misleading. There is no fact of which Parent or Merger
Subsidiary has Knowledge that has not been disclosed to Company in the Parent SEC Filings or pursuant to this Agreement, including
the schedules hereto, all taken together as a whole, which has had or would reasonably be expected to have a Material Adverse
Effect on Parent or Merger Subsidiary, or materially adversely affect the ability of Parent or Merger Subsidiary to consummate
in a timely manner the transactions contemplated hereby.
3.23 Validity
of Parent Common Stock. The shares of Parent Common Stock to be issued to holders of Company Common Stock pursuant to
this Agreement will be, when issued, duly authorized, validly issued, fully paid and non-assessable.
3.24 Private
Placement. Parent has taken all necessary action on its part such that the issuance of the Merger Consideration to Company
security holders constitutes a valid “private placement” that is exempt from the registration requirements of the
Securities Act and applicable state securities laws.
3.25 Trading
Matters. At the date hereof (i) the Parent Common Stock is eligible for quotation on the over-the-counter market, (ii)
Parent has and shall have performed or satisfied all of its undertakings to, and of its obligations and requirements with, the
SEC and FINRA, (iii) Parent has not taken, and shall not have taken, any action that would preclude, or otherwise jeopardize,
the eligibility of the Parent Common Stock for quotation on the over-the-counter markets and (iv) Parent does not have any reasonable
basis to believe that the Parent Common Stock is the subject of delisting or suspension of quotation or eligibility for quotation
on the over-the-counter markets (or hearings or any similar process related thereto).
3.26 Shell
Company Status. At the date hereof and prior to the Closing, Parent is not a “shell company” as such term
is defined in Section 12b-2 of the Exchange Act.
3.27 Prepaid
Assets. Schedule 3.27 hereof lists all prepaid assets of Parent as of the Closing Date.
ARTICLE
4
Conduct of Business Pending the Merger
4.1 Conduct
of Business by Parent. From the Effective Date through the Merger Time, unless Company shall otherwise agree in writing
or as otherwise expressly contemplated or permitted by other provisions of this Agreements, including but not limited to this
Section 4.2, Parent shall not, directly or indirectly, (a) amend its Certificate of Incorporation or bylaws, (b) split, combine
or reclassify any outstanding shares of capital stock of Parent, (c) declare, set aside, make or pay any dividend or distribution
in cash, stock, property or otherwise with respect to the capital stock of Parent, (d) default in its obligations under any material
debt, contract or commitment which default results in the acceleration of obligations due thereunder, except for such defaults
arising out of Parent’s entry into this Agreement for which consents, waivers or modifications are required to be obtained
in accordance with Section 3.2(c), (e) conduct its business other than in the ordinary course on an arms-length basis and in accordance
in all material respects with all applicable laws, rules and regulations and Parent’s past custom and practice, except as
set forth on Schedule 4.1, (f) issue or sell any additional shares of, or options, warrants, conversions, privileges or rights
of any kind to acquire any shares of, any of its capital stock, (g) acquire (by merger, exchange, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership, joint venture or other business organization or division or material
assets thereof, or (h) make or change any material tax elections, settle or compromise any material tax liability or file any
amended tax return.
4.2 Conduct
of Business by Company. From the Effective Date through the Merger Time, unless Parent shall otherwise agree in writing
or as otherwise expressly contemplated or permitted by other provisions of this Agreement, including but not limited to this Section
4.2, Company shall not, directly or indirectly, (a) amend its Articles of Incorporation or bylaws, (b) split, combine or reclassify
any outstanding shares of capital stock of Company, (c) declare, set aside, make or pay any dividend or distribution in cash,
stock, property or otherwise with respect to the capital stock of Company, (d) default in its obligations under any material debt,
contract or commitment which default results in the acceleration of obligations due thereunder, except for such defaults arising
out of Company’s entry into this Agreement for which consents, waivers or modifications are required to be obtained in accordance
with Schedule 2.2(c), (e) conduct its business other than in the ordinary course on an arms-length basis and in accordance in
all material respects with all applicable laws, rules and regulations and Company’s past custom and practice, except as
set forth on Schedule 4.2, (f) issue or sell any additional shares of, or options, warrants, conversions, privileges or rights
of any kind to acquire any shares of, any of its capital stock, except issuances or sales made in the Private Placement or in
connection with exercise or conversion into equity of Company debt securities outstanding on the date of this Agreement, (g) acquire
(by merger, exchange, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, joint venture
or other business organization or division or material assets thereof, or (h) make or change any material tax elections, settle
or compromise any material tax liability or file any amended tax return.
ARTICLE
5
Additional Covenants and Agreement
5.1 Governmental
Filings. Each party will use all reasonable efforts and will cooperate with the other party in the preparation and filing,
as soon as practicable, of all filings, applications or other documents required under applicable laws, including, but not limited
to, the Exchange Act, to consummate the transactions contemplated by this Agreement. Prior to submitting each filing, application,
registration statement or other document with the applicable regulatory authority, each party will, to the extent practicable,
provide the other party with an opportunity to review and comment on each such filing, application, registration statement or
other document to the extent permitted by applicable law. Each party will use all reasonable efforts and will cooperate with the
other party in taking any other actions necessary to obtain such regulatory or other approvals and consents at the earliest practicable
time, including participating in any required hearings or Proceedings. Subject to the terms and conditions herein provided, each
party will use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable law and regulations to consummate and make effective as promptly as practicable the Merger
and the other transactions contemplated by this Agreement.
5.2 Expenses.
All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses.
5.3 Due
Diligence; Access to Information; Confidentiality.
(a) Prior
to the Merger Time, Company and Parent shall afford to the other party and their authorized representatives the opportunity to
conduct and complete a due diligence investigation of the other party as described herein. Each party shall permit the other party
full access on reasonable notice and at reasonable hours to its properties and shall disclose and make available (together with
the right to copy) to the other party and its officers, employees, attorneys, accountants and other representatives, all books,
papers and records relating to the assets, stock, properties, operations, obligations and liabilities of such party and its subsidiaries,
including without limitation all books of account (including without limitation the general ledger), tax records, minute books
of directors’ and stockholders’ meetings, organizational documents, bylaws, contracts and agreements, filings with
any regulatory authority, accountants’ work papers, litigation files (including without limitation legal research memoranda),
attorney’s audit response letters, documents relating to assets and title thereto (including without limitation abstracts,
title insurance policies, surveys, environmental reports, opinions of title and other information relating to the real and personal
property), plans affecting employees, securities-transfer records and security holder lists, and any books, papers and records
relating to other assets or business activities in which such party may have a reasonable interest, and otherwise provide such
assistance as is reasonably requested in order that each party may have a full opportunity to make such investigation and evaluation
as it shall reasonably desire to make of the business and affairs of the other party; provided, however, that the foregoing
rights granted to each party shall, whether or not and regardless of the extent to which the same are exercised, in no way affect
the nature or scope of the representations, warranties and covenants of the respective party set forth herein. In addition, each
party and its officers and directors shall cooperate fully (including providing introductions, where necessary) with such other
party to enable the party to contact third parties, including customers, prospective customers, specified agencies or others as
the party deems reasonably necessary to complete its due diligence; provided further, that such party agrees not to initiate
such contacts without the prior approval of the other party, which approval will not be unreasonably withheld.
(b) Prior
to Closing and if, for any reason, the transactions contemplated by this Agreement are not consummated, neither Parent nor Company
nor any of their officers, employees, attorneys, accountants and other representatives shall disclose to third parties or otherwise
use any confidential information received from the other party in the course of investigating, negotiating, and performing the
transactions contemplated by this Agreement; provided, however, that nothing shall be deemed to be confidential information
which:
(i) is
known to the party receiving the information at the time of disclosure, unless any individual who knows the information is under
an obligation to keep that information confidential;
(ii) becomes
publicly known or available without the disclosure thereof by the party receiving the information in violation of this Agreement;
or
(iii) is
received by the party receiving the information from a third party not under an obligation to keep that information confidential.
This
provision shall not prohibit the disclosure of information required to be made under federal or state securities laws, rules and
regulations or by order of any federal, state or local regulatory agency or as otherwise required to be disclosed under applicable
law. If any disclosure is so required, the party making such disclosure shall consult with the other party prior to making such
disclosure, and the parties shall use all reasonable efforts, acting in good faith, to agree upon a text for such disclosure that
is satisfactory to both parties.
5.4 Tax
Treatment. The Surviving Company shall not knowingly take any action which could reasonably be expected to disqualify
the Merger as a “reorganization” within the meaning of Section 368(a) of the Code.
5.5 Press
Releases. Company and Parent shall agree with each other as to the form and substance of any press release or public announcement
related to this Agreement or the other transactions contemplated hereby; provided, however, that nothing contained herein shall
prohibit either party, following notification to the other party, from making any disclosure which is required by law or regulation.
If any such press release or public announcement is so required, the party making such disclosure shall consult with the other
party prior to making such disclosure, and the parties shall use all reasonable efforts, acting in good faith, to agree upon a
text for such disclosure which is satisfactory to both parties.
5.6 Securities
Law Filings.
(a) Parent
agrees to provide to Company copies of all reports and other documents that it proposes to file with the SEC under the Securities
Act or Exchange Act between the date hereof and the Merger Time at least two days prior to the filing of such reports or documents.
(b) Promptly
upon the execution of this Agreement, the parties hereto shall cooperate in the preparation and filing of all filings required
by applicable securities laws, including, without limitation, current reports on Form 8-K under the Exchange Act and information
required by Rule 14f-1, if applicable, under the Exchange Act.
5.7 Merger
Consideration; Securities Act Exemption. Each of Company and Parent shall take all necessary action on their part to cause
the issuance of the Merger Consideration to Company’s stockholders to constitute a valid private placement exempt from the
registration requirements of the Securities Act and applicable state securities laws.
5.8 No
Solicitation. Unless and until this Agreement shall have been terminated pursuant to Section 7.1, neither Parent nor its
officers, directors or agents shall, directly or indirectly, encourage, solicit or initiate discussions or negotiations with,
or engage in negotiations or discussions with, or provide non-public information to, any corporation, partnership, Person or other
entity or groups concerning any merger, sale of capital stock, sale of substantial assets or other business combination; provided,
however, that Parent may engage in such discussion in response to an unsolicited proposal from an unrelated and non-Affiliated
party if Parent’s Board of Directors determines, in good faith and after consultation with counsel, that the failure to
engage in such discussions may constitute a breach of the fiduciary or legal obligations of Parent’s Board of Directors.
Parent will promptly advise Company in writing if it receives a proposal or inquiry with respect to the matters described above.
5.9 Failure
to Fulfill Conditions. In the event that any of the parties hereto determines that a condition to its respective obligations
to consummate the transactions contemplated hereby cannot be fulfilled on or prior to the termination date of this Agreement,
it will promptly notify the other parties.
5.10 Preparation
of Periodic and Current Reports. Prior to the Merger Time, Parent shall prepare (but not file without making a reasonable
effort to comply with Section 5.6(a)) current reports on form 8-K, and any other subsequent periodic reports, that are required
to be filed prior to the Merger Time.
5.11 Notification
of Certain Matters. On or prior to the Merger Time, each party shall give prompt notice to the other party of (a) the
occurrence or failure to occur of any event or the discovery of any information, which occurrence, failure or discovery would
be likely to cause any representation or warranty on its part contained in this Agreement to be untrue, inaccurate or incomplete
after the date hereof in any material respect or, in the case of any representation or warranty given as of a specific date, would
be likely to cause any such representation or warranty on its part contained in this Agreement to be untrue, inaccurate or incomplete
in any material respect as of such specific date, and (b) any material failure of such party to comply with or satisfy any covenant
or agreement to be complied with or satisfied by it hereunder.
5.12 Directors
and Officers of Company.
(a) As
of the Effective Date, all members of Company’s board of directors (the “Board”) have tendered resignations
as members of the Board to be effective as of the Merger Time. The Board members of the Surviving Company shall be: Michael Ahlin,
Trent D’Ambrosio, Whit Cluff, Reed Benson and Kay Briggs.
(b) As
of the Merger Time, the officers of Parent immediately prior to the Merger Time will continue as the sole officers of Parent,
each to hold office until their respective successors are duly appointed or such Persons are removed from office in accordance
with applicable law and the articles of incorporation and bylaws of Parent.
5.13 Representation
in Honduras. Gerardo Flores shall remain as one of the Company’s Legal Representatives in Honduras for at least
six months from the date of Closing.
ARTICLE
6
Conditions
6.1 Conditions
to Obligations of Each Party. The respective obligations of each party to effect the transactions contemplated hereby
are subject to the fulfillment or waiver at or prior to the Merger Time of the conditions set forth in the paragraphs below:
(a) There
shall have been no law, statute, rule or regulation, domestic or foreign, enacted or promulgated which would prohibit or make
illegal the consummation of the transactions contemplated hereby.
(b) This
Agreement and all of the transactions contemplated hereby shall have been, and shall at the Merger Time remain, duly authorized
by the Boards of Directors of Company, Parent and Merger Subsidiary. Further, the Merger and this Agreement shall have been approved
by Parent, as the sole stockholder of Merger Subsidiary, and by the approval of the stockholders of Company as required under
the NRS.
(c) There
shall not be threatened, instituted or pending any action or proceeding before any court or governmental authority or agency:
(i) challenging or seeking to make illegal, or to delay or otherwise directly or indirectly restrain or prohibit, the consummation
of the transactions contemplated hereby or seeking to obtain material damages in connection with such transactions; (ii) seeking
to prohibit direct or indirect ownership or operation by Parent or Merger Subsidiary of all or a material portion of the business
or assets of Company, or to compel Parent or Merger Subsidiary or any of their respective subsidiaries or Company to dispose of
or to hold separately all or a material portion of the business or assets of Parent or Merger Subsidiary or of Company, as a result
of the transactions contemplated hereby; (iii) seeking to invalidate or render unenforceable any material provision of this Agreement
or any of the other agreements attached as exhibits hereto or contemplated hereby, or (iv) otherwise relating to and materially
adversely affecting the transactions contemplated hereby.
(d) There
shall not be any action taken, or any statute, rule, regulation, judgment, order or injunction proposed, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby, by any federal, state or other court, government
or governmental authority or agency, that would reasonably be expected to result, directly or indirectly, in any of the consequences
referred to in Section 6.1(c).
(e) There
shall not have occurred any general suspension of quotation on the over-the-counter markets or trading on any national exchange,
or any general bank moratorium or closing or any war, national emergency or other event affecting the economy or securities trading
markets generally that would make completion of the Merger impractical, as determined in the reasonable discretion of Company.
(f) There
shall be available a good faith claim for exemptions from the registration requirements of the Securities Act and all applicable
blue sky laws for the offer and issuance of the Merger Consideration.
6.2 Additional
Conditions to Obligations of Parent and Merger Subsidiary. The obligations of Parent and Merger Subsidiary to effect the
transactions contemplated hereby in accordance with the terms of this Agreement are also subject to the fulfillment or waiver
of the conditions set forth in the paragraphs below:
(a) Since
the Effective Date, Company shall have continued to conduct its operations in accordance with the provisions of Section 4.2.
(b) The
representations of Company contained in this Agreement shall be accurate as of the Effective Date and as of the Merger Time, in
all respects (in the case of any representation containing any materiality qualification) or in all material respects (in the
case of any representation without any materiality qualification). Company shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed and complied with by it hereunder at or prior to the
Merger Time.
(c) Company
has obtained all consents and approvals necessary to consummate the transactions contemplated by this Agreement in order that
the transactions contemplated herein shall not constitute a breach or violation of, or result in a right of termination or acceleration
of, or creation of any encumbrance on any of Company’s assets pursuant to the provisions of, any agreement, arrangement
or undertaking of or affecting Company or any license, franchise or permit of or affecting Company; including, but not limited
to, waivers by each of the holders of those certain 5% Convertible Promissory Notes held by such holders in Company.
(d) Company
shall have furnished to Parent a certificate of the Chief Executive Officer and the Chief Financial Officer of Company, dated
as of the Closing Date, in which such officers shall certify that, to their best Knowledge, the conditions set forth in Sections
6.2(a), (c) and (d) have been fulfilled.
(e) Company
shall have furnished to Parent (i) copies of the resolutions of the Board of Directors of Company approving this Agreement, the
Certificate of Merger and the transactions contemplated hereby, (ii) a copy of Company’s Certificate of Incorporation, certified
by the applicable governing body in Turks and Caicos, (iii) an incumbency certificate dated as of the Closing Date executed on
behalf of Company by its corporate secretary certifying the signature and office of each officer of Company executing this Agreement,
the Certificate of Merger or any other agreement, certificate or other instrument executed pursuant hereto by Company and (iv)
a certificate dated as of the Closing Date executed on behalf of Company by its corporate secretary or one of its assistant corporate
secretaries certifying to Parent that the aforementioned copies are true, correct and complete copies of such resolutions and
that such resolutions were duly adopted and have not been amended or rescinded, and certifying that the certified copy of Company’s
certificate of incorporation is true, correct and complete as received from such governmental office.
6.3 Additional
Conditions to Obligations of Company. The obligations of Company to effect the transactions contemplated hereby in accordance
with the terms of this Agreement are also subject to the fulfillment or waiver of the conditions set forth in the paragraphs below:
(a) Since
the date of this Agreement, Parent shall have continued to conduct its operations in accordance with the provisions of Section
4.1.
(b) The
representations of Parent and Merger Subsidiary contained in this Agreement shall be accurate as of the Effective Date and as
of the Merger Time, in all respects (in the case of any representation containing any materiality qualification) or in all material
respects (in the case of any representation without any materiality qualification). Parent and Merger Subsidiary, respectively,
shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and
complied with by it hereunder at or prior to the Merger Time.
(c) Parent
and Merger Subsidiary have obtained all consents and approvals necessary to consummate the transactions contemplated by this Agreement
in order that the transactions contemplated herein shall not constitute a breach or violation of, or result in a right of termination
or acceleration of, or creation of any encumbrance on any of Parent’s or Merger Subsidiary’s assets pursuant to the
provisions of, any agreement, arrangement or undertaking of or affecting Parent or any license, franchise or permit of or affecting
Parent.
(d) Neither
Parent nor Merger Subsidiary shall have any obligations or liabilities other than those obligations or liabilities required by
law or specifically contemplated by this Agreement and represented to Company in Article 3.
(e) Parent
will have satisfied all of Parent’s payment obligations identified on Schedule 3.7.
(f) There
shall not have occurred any suspension of the obligation of Parent to file reports and disclosure documentation with the SEC.
(g) There
shall not have been any comment or other communication from the SEC to Parent or any of its affiliates or representatives indicating
that Parent has been, is or may be, whether as a result of any of the transactions contemplated by this Agreement or otherwise,
a “shell company” for any duration of time.
(h) Parent
shall have furnished to Company a certificate of the Chief Executive Officer and the Chief Financial Officer of Parent, dated
as of the Closing Date, in which such officers shall certify that, to their best Knowledge, the conditions set forth in Sections
6.3(a), (b), (c), (d) and (e) have been fulfilled.
(i) Parent
shall have furnished to Company (i) copies of the resolutions of the Parent Board of Directors approving this Agreement and the
Certificate of Merger, the appointment of the directors to serve on Parent’s Board of Directors as of and after the Merger
Time, and the transactions contemplated hereby, (ii) a copy of the Certificate of Incorporation of Parent, certified by the Secretary
of State of Nevada, and one or more certificates from the Secretary of State of Nevada evidencing the good standing of Parent
in such jurisdiction, (iii) an incumbency certificate dated as of the Closing Date executed on behalf of Parent by its corporate
secretary certifying the signature and office of each officer of Parent executing this Agreement, the Certificate of Merger or
any other agreement, certificate or other instrument executed pursuant hereto by Parent and (iv) a certificate of the corporate
secretary of Parent dated as of the Closing Date certifying to Company that copies of the aforementioned resolutions referred
to in clause (i) above are true, correct and complete copies of such resolutions and that such resolutions were duly adopted and
have not been amended or rescinded, and certifying that the certificates furnished pursuant to clause (ii) above are true, correct
and complete as received from such governmental offices.
(j) As
of the Closing Date, Company will have entered into the Indemnification Agreement, indemnifying and holding harmless Parent against
all losses sustained by it in connection with any claim, action, suit, Proceeding or investigation, whether civil, criminal, administrative
or investigative, arising out of or pertaining to any act or omission of Company prior to the Merger Time, as further set forth
in the Indemnification Agreement.
(k) Company
shall have received assurance from Parent, satisfactory to Company, (i) that the number of outstanding shares of capital stock
of Parent immediately prior to the Merger Time is not greater than 13,077,679 (following the cancellation of certain shares as
part of this Merger) shares of Parent Common Stock and zero (0) shares of preferred stock of Parent, and (ii) that none of Parent’s
outstanding preferred stock or stock options have been converted or exercised after the Effective Date.
(l) Parent
shall have received resignations from all of the members of the Company Board, to be effective as of the Merger Time.
(m) Company
shall have received the Lock-up Agreements.
(n) The
outstanding indebtedness of Parent shall be equal to or less than $1,500,000, all of which is represented by the promissory notes
identified on Schedule 6.3(r) (collectively the “Carryover Notes”).
ARTICLE
7
Termination
7.1 Termination.
This Agreement may be terminated prior to the Merger Time:
(a) by
mutual consent of Company and Parent, if the Board of Directors of each so determines by vote of a majority of the members of
its entire board;
(b) by
Parent, if Company shall have breached any of its representations or failed to perform any of its covenants herein, which breach
or failure to perform (i) causes the condition set forth in Section 6.2(b) not to be satisfied, and (ii) is incapable of being
cured or has not been cured within 10 business days after the giving of written notice of such breach or failure to perform; provided,
however, that Parent may only terminate this Agreement pursuant this Section 7.1(b) if the subject breach or failure to perform
would be reasonably likely to have a Material Adverse Effect on Parent and the Surviving Company taken as a whole;
(c) by
Company, if Parent or Merger Subsidiary shall have breached any of their representations or failed to perform any of their covenants
herein, which breach or failure to perform (i) causes the condition set forth in Section 6.3(b) not to be satisfied, and (ii)
is incapable of being cured or has not been cured within 10 business days after the giving of written notice of such breach or
failure to perform; provided, however, that Company may only terminate this Agreement pursuant this Section 7.1(c) if the
subject breach or failure to perform would be reasonably likely to have a Material Adverse Effect on Company and the Surviving
Company taken as a whole;
(d) by
either Company or Parent if the Merger Time has not occurred on or before December 31, 2015, or such later date as Company and
Parent may mutually agree (unless the failure to consummate the Merger by such date shall be due to the action or failure to act
of the party seeking to terminate this Agreement in breach of such party’s obligations under this Agreement).
Any party
desiring to terminate this Agreement shall give prior written notice of such termination and the reasons therefor to the other
parties.
ARTICLE
8
General Provisions
8.1 Notices.
All notices and other communications hereunder shall be in writing and shall be sufficiently given if made by hand delivery, fax,
overnight delivery service, or registered or certified mail (postage prepaid and return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified by it by like notice):
If to Company: |
|
c/o Reed Benson |
|
|
4049 South Highland Drive |
|
|
Salt Lake City, Utah 84124 |
|
|
|
If to Parent or Merger Subsidiary: |
|
c/o Michael Ahlin |
|
|
5320 South 900 East |
|
|
Suite 260 |
|
|
Murray, Utah 84107 |
All
such notices and other communications shall be deemed to have been duly given as follows: when delivered by hand, if personally
delivered, when received; if delivered by registered or certified mail (postage prepaid and return receipt requested), when receipt
acknowledged; if faxed, on the day of transmission or, if that day is not a business day, on the next business day; and the next
day delivery after being timely delivered to a recognized overnight delivery service.
8.2 No
Survival. The representations and warranties contained in this Agreement and in any instrument delivered pursuant to this
Agreement will survive the Closing for a period of one (1) year. The covenants or agreements contained in Article
1 and any other covenants or agreements contained in this Agreement requiring performance or compliance after the Merger
Time shall survive the Merger Time indefinitely.
8.3 Interpretation.
The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. References to Sections, Articles, Exhibits or Schedules refer to Sections of, Articles of, Exhibit to, or Schedule
to, this Agreement unless otherwise stated. Words such as “herein,” “hereinafter,” “hereof,”
“hereto,” “hereby” and “hereunder,” and words of like import, unless the context requires
otherwise, refer to this Agreement (including the Exhibits and Schedules hereto). As used in this Agreement, the masculine, feminine
and neuter genders shall be deemed to include the others if the context requires.
8.4 Severability.
If any term of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being
enforced, then all other terms of this Agreement will nevertheless remain in full force and effect, and such term automatically
will be amended so that it is valid, legal and enforceable to the maximum extent permitted by applicable law, but as close to
the parties’ original intent as is permissible.
8.5 Entire
Agreement; Amendment; Waiver. This Agreement, including the Schedules, constitutes the entire Agreement between the parties
pertaining to the subject matter herein and supersedes any prior representations, warranties, covenants, agreements and understandings
of the parties regarding such subject matter. No supplement, modification or amendment hereof will be binding unless expressed
as such and executed in writing by each party. No waiver of any term hereof will be binding unless expressed as such in a document
executed by the party making such waiver. No waiver of any term hereof will be a waiver of any other term hereof, whether or not
similar, nor will any such waiver be a continuing waiver beyond its stated terms. Failure to enforce strict compliance with any
term hereof will not be a waiver of, or estoppel with respect to, any existing or subsequent failure to comply.
8.6 Counterparts;
Delivery. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute but one agreement. In addition, executed counterparts
may be delivered by means of facsimile or other electronic transmission; and signatures so delivered shall be fully and validly
binding to the same extent as the delivery of original signatures.
8.7 Third-Party
Beneficiaries. Except as provided in the next following sentence, each party hereto intends that this Agreement shall
not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto; provided, however,
that in the event that the Merger is consummated, those Persons who shall have been holders of Company Common Stock at the Merger
Time shall be third-party beneficiaries under the provisions of this Agreement giving them the right to the Merger Consideration
as specified herein.
8.8 Governing
Law. This Agreement shall be governed by, and construed in accordance with the laws of the State of Nevada, without regard
to the conflicts of law rules of such state.
8.9 Jurisdiction;
Service of Process. Any Proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement
must be brought against any of the parties in the courts of the State of Minnesota, Hennepin County, and each of the parties consents
to the jurisdiction of those courts (and of the appropriate appellate courts) in any such Proceeding and waives any objection
to venue laid therein. Process in any such Proceeding may be served by sending or delivering a copy of the process to the party
to be served at the address and in the manner provided for the giving of notices in Section 8.1. Nothing in this Section 8.9,
however, affects the right of any party to serve legal process in any other manner permitted by law.
ARTICLE
9
Certain Definitions
“Affiliate”
means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls,
is controlled by or is under common control with, such Person. For purposes of this definition, “control,” “controlled
by” and “under common control with,” as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of
voting securities, by contract or otherwise.
“Agreement”
has the meaning ascribed thereto in the preamble to this Agreement.
“Ancillary
Document” means, with respect to a Person, any document delivered by or on behalf of such Person in connection with
the execution and delivery of this Agreement and the Closing, pursuant to this Agreement (but does not include this Agreement).
“Board”
has the meaning ascribed thereto in Section 5.12(a).
“Book
Entry” means uncertificated shares of stock represented by book entry in applicable entity’s records.
“Carryover
Notes” has the meaning ascribed thereto in Section 6.3(r).
“Cash
at Closing” means an amount in cash or cash equivalents equal to or exceeding the total liabilities of Parent, on a
consolidated basis, including the assets and liabilities of all subsidiaries, except with regard to the Carryover Notes, immediately
preceding the Merger.
“Closing”
has the meaning ascribed thereto in Section 1.1(d).
“Closing
Date” has the meaning ascribed thereto in Section 1.1(d).
“Code”
has the meaning ascribed thereto in the background of this Agreement.
“Company”
has the meaning ascribed thereto in the preamble to this Agreement.
“Company
Common Stock” means the common stock, par value $0.01 per share, of Company.
“Company
Financial Statements” has the meaning ascribed thereto in Section 2.10.
“Company
Insiders” has the meaning ascribed thereto in Section 2.8.
“Company
Tax Returns” has the meaning ascribed thereto in Section 2.6(a).
“Convertible
Promissory Notes” has the meaning ascribed thereto in Section 1.2(d).
“NRS”
has the meaning ascribed thereto in the background of this Agreement.
“Dissenting
Shares” has the meaning ascribed thereto in Section 1.5.
“Effective
Date” means the date first set forth in the preamble to this Agreement.
“Environmental
Claim” means any written notice by a Governmental Authority alleging potential liability (including potential liability
for investigatory cost, cleanup cost, governmental response cost, natural resources damage, property damage, personal injury or
penalty) arising out of or resulting from (a) the presence, or release into the environment, of any material or form of energy
at any location, whether or not owned by any Acquired Company or (b) any violation, or alleged violation, of any Environmental
Law.
“Environmental
Law” means any and all federal, state, local and foreign laws, common laws, statutes, ordinances, rules, regulations
or other legal requirement relating to (i) the protection of the environment (including air, water vapor, surface water, groundwater,
drinking water supply, surface or subsurface land) or (ii) the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, release or disposal of, Hazardous Materials.
“Environmental
Permit” means, with respect to any of the parties hereto, any permit, license, certificate, approval or authorization
issued by a Governmental Authority that is required for the operation of such party’s business or the holding of any of
its material assets or properties.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“GAAP”
means generally accepted United States accounting principles as have been consistently applied by the respective corporation.
“Governmental
Authority” means any federal, state, municipal, foreign or other government, governmental department, commission, board,
bureau, agency or instrumentality, or any private or public court or tribunal, whether domestic or foreign.
“Hazardous
Materials” means any pollutant, contaminant, hazardous substance, hazardous waste or petroleum or fraction thereof,
and any other chemical, waste, substance or material listed in or regulated by or identified in any Environmental Law.
“Indemnification
Agreement” means that certain Indemnification Agreement by and between Parent and Company, dated as of the Closing Date.
“Initial
Parent Stockholders” means each Person who held Parent Common Stock immediately before the Merger Time.
“Knowledge”
means (a) an individual will have “Knowledge” of a particular fact or other matter if such individual is actually
consciously aware of such fact or matter; and (b) a Person, other than an individual, will have “Knowledge” of a particular
fact or other matter if any individual who is serving as a director or officer (or similar executive) of such Person currently
has Knowledge, as stated in clause (a), of such fact or other matter.
“Latest
Parent Balance Sheet” has the meaning ascribed thereto in Section 3.11.
“Latest
Company Balance Sheet” has the meaning ascribed thereto in Section 2.11.
“Liens”
has the meaning ascribed thereto in Section 2.3(a).
“Lock-up
Agreements” means those certain Lock-up Agreements in form and substance acceptable to Company from all Parent Insiders
and any holders of greater than five percent (5%) of the outstanding Parent Common Stock and certain Company shareholders.
“Material
Adverse Effect” means, with respect to any entity, a material adverse effect on the business, operations, results of
operations or financial condition of such entity taken as a whole, but shall exclude any effect resulting from or relating to
(i) general economic conditions or general effects on the industries in which such entity operates, (ii) acts of terrorism or
war (whether or not threatened, pending or declared), or (iii) the public announcement of this Agreement or the transactions contemplated
hereby.
“Merger
Time” has the meaning ascribed thereto in Section 1.1(d).
“Merger
Consideration” means the shares of Parent Common Stock issuable in connection with the Merger to the holders of Company
Common Stock pursuant to Section 1.2(a).
“Merger”
has the meaning ascribed thereto in the background of this Agreement.
“Merger
Subsidiary” has the meaning ascribed thereto in the preamble to this Agreement.
“Options”
has the meaning ascribed thereto in Section 1.2(b).
“Parent”
has the meaning ascribed thereto in the preamble to this Agreement.
“Parent
Balance Sheet” has the meaning ascribed thereto in Section 3.10(c).
“Parent
Common Stock” means the common stock, par value $0.00001 per share, of Parent.
“Parent
Contracts” has the meaning ascribed thereto in Section 3.7(a).
“Parent
Insiders” has the meaning ascribed thereto in Section 3.8.
“Parent
Tax Returns” has the meaning ascribed thereto in Section 3.6(a).
“Parent
SEC Filings” has the meaning ascribed thereto in Section 3.10(b).
“Parent
Subsidiary” shall mean Cimarron Medical Software, Inc., a Nevada Corporation.
“Permitted
Liabilities” has the meaning ascribed thereto in Section 3.10(c).
“Person”
means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company
or partnership, joint venture, estate, trust, proprietorship, association, organization, labor union or Governmental Authority.
“Proceeding”
means any action, arbitration, audit, claim, demand, grievance, complaint, hearing, inquiry, investigation, litigation, proceeding
or suit (whether civil, criminal or administrative), in each case that is commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Authority or arbitrator.
“Required
Company Stockholder Approval” has the meaning ascribed thereto in Section 2.2(a).
“SEC”
means the United States Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended.
“Surviving
Company” has the meaning ascribed thereto in Article 1.
“Tax”
(and with the corresponding meaning “Taxes” and “Taxable”) means (a) any net income,
alternative or add-on minimum, gross income, gross receipts, sales, use, transfer, value added, ad valorem, franchise, capital
stock, profits, license, withholding, payroll, employment, social security, unemployment, disability, workers’ compensation,
employment-related insurance, excise, environmental, severance, stamp, occupation, premium, real property, personal property,
or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest and any penalty, addition to tax or additional amount, imposed by any Governmental Authority, whether
disputed or not; and (b) any liability for the payment of any amount of the type described in clause (a) as a result of an entity
being a member of a consolidated, affiliated, combined or unitary group.
“Tax
Affiliate” shall include each of the following entities, which collectively, shall be “Tax Affiliates:”
(A) a party to this Agreement; (B) each of its subsidiaries and other Affiliates (if any); (C) each other member of any consolidated,
affiliated, combined or unitary group of which such party or any such Affiliate is or was a member for purposes of any Taxes.
“Tax
Returns” (and with corresponding meaning “Tax Return”) shall include all returns, claims for refund, declarations,
reports, estimates, elections and information returns and statements (including any attached schedules and any amendments thereto)
required to be filed or sent by or relating to a party to this Agreement or any of its Tax Affiliates and relating to any Taxes
with respect to any income, properties or operations of such party or any of such Tax Affiliates.
“Tax
Authority” shall mean the U.S. Internal Revenue Service and any other federal, state, local or foreign Governmental
Authority responsible for the administration of any Tax.
“NRS”
shall mean the Nevada Revised Statutes.
“Warrants”
has the meaning ascribed thereto in Section 1.2(c).
[Signatures
on Following Page]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers on the date first
written above.
|
CLAVO RICO, LTD |
|
|
|
By: |
/s/
|
|
Name: |
Reed L. Benson |
|
Its: |
President and Chairman |
|
|
|
|
INCEPTION MINING INC. |
|
|
|
By: |
/s/
|
|
Name: |
Michael Ahlin |
|
Its: |
Chief Executive Officer |
|
|
|
|
CR ACQUISITION CORPORATION |
|
|
|
|
By: |
/s/
|
|
Name: |
Michael Ahlin |
|
Its: |
Chief Executive Officer |
[Signature
Page to Agreement and Plan of Merger]
COMPANY
DISCLOSURE SCHEDULE
TO
AGREEMENT
AND PLAN OF MERGER
by
and among
Inception
Mining Inc.
Clavo
Rico, Ltd.
and
CR
Acquisition Corporation
Dated
as of August 4, 2015
COMPANY
DISCLOSURE SCHEDULE
This
Disclosure Schedule (this “Disclosure Schedule”), which consists of this cover page and all of the accompanying
pages and attachments hereto, is made and delivered by Clavo Rico, Ltd. pursuant to Article 2 that certain Agreement and Plan
of Merger, dated as of August 4, 2015 (the “Agreement”), by and among Inception Mining, Inc., a Nevada
corporation (“Parent”), CR Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary
of Parent (“Merger Sub”) and Clavo Rico, Ltd. , a Turks and Caicos limited company (the “Company”).
Capitalized terms used but not defined in this Disclosure Schedule shall have the same meanings given to them in the Agreement.
This Disclosure Schedule is arranged in sections and subsections corresponding to the numbered and lettered sections and subsections
contained in Article 2 of the Agreement. The information in any section or subsection of this Disclosure Schedule corresponding
to any section or subsection of Article 2 of the Agreement qualifies other sections and subsections in Article 2 of the Agreement
only if it is reasonably apparent on the face of such information (without further inquiry) that such information is also applicable
to such other sections or subsections of this Disclosure Schedule, and in such situation, such information shall be deemed to
be included in such other sections or subsections of this Disclosure Schedule. The headings contained in this Disclosure Schedule
are included for convenience only, and are not intended to expand the scope of the information required to be disclosed in this
Disclosure Schedule.
Nothing
in this Disclosure Schedule shall broaden the scope of any representation or warranty contained in the Agreement or create any
covenant. Inclusion of any item in this Disclosure Schedule (1) does not represent a determination that such item is material
or establish a standard of materiality, (2) does not and shall not represent a determination that such item did not arise in the
ordinary and usual course of business, and (3) shall not constitute, or be deemed to be, an admission to any third party concerning
such item or an admission of default or breach under any agreement or document. The information contained in this Disclosure Schedule
is provided solely for purposes of making disclosures to the Parent under the Agreement. In disclosing such information, Company
does not waive any attorney-client privilege associated with such information or any protection afforded by the work-product doctrine
with respect to any of the matters disclosed or discussed in this Disclosure Schedule. This Disclosure Schedule includes brief
descriptions or summaries of certain agreements and instruments, and to the extent copies of such agreements and instruments have
been made available to the Company or its counsel, such descriptions are qualified in their entirety by reference to the text
of such agreements and instruments.
Disclosure
Schedules for Agreement and Plan of Merger
Schedule
2.3(a).
The Company
has 500,000,000 shares of capital stock authorized and has issued and outstanding 65,000,000 shares of capital stock.
The Company
has no outstanding options, warrants, or other securities convertible into capital stock of the Company.
The Company
has no obligation (contingent or otherwise) that may require the Company to repurchase or otherwise acquire any shares of its
capital stock.
Capitalization.
The authorized,
issued and outstanding shares of capital stock of Company are set forth on Schedule 2.3(a). Other than as described on Schedule
2.3(a), Company has no other equity securities or securities containing any equity features that are authorized, issued or outstanding.
Except as set forth in Schedule 2.3(a), there are no agreements or other rights or arrangements existing which provide for the
sale or issuance of capital stock by Company and there are no rights, subscriptions, warrants, options, conversion rights or agreements
of any kind outstanding to purchase or otherwise acquire from Company any shares of capital stock or other securities of Company
of any kind. Except as set forth on Schedule 2.3(a), there are no agreements or other obligations (contingent or otherwise) which
may require Company to repurchase or otherwise acquire any shares of its capital stock.
Schedule
2.3(b).
Company
does not own, and is not party to any contract to acquire, any equity securities or other securities of any entity or any direct
or indirect equity or ownership interest in any other entity. To Company’s Knowledge, there exist no voting trusts, proxies,
or other contracts with respect to the voting of shares of capital stock of Company.
(d) Except
as disclosed on Schedule 2.3(b), Company does not own, and is not party to any contract to acquire, any equity securities or other
securities of any entity or any direct or indirect equity or ownership interest in any other entity. To Company’s Knowledge,
there exist no voting trusts, proxies, or other contracts with respect to the voting of shares of capital stock of Company.
Schedule
2.3(c)
Company
has granted no registration rights to any shareholder.
Schedule
2.6(a):
Company
has filed no tax returns in the Turks and Caicos Islands and does not believe that it has had nor does it have any obligation
to do so. Company subsidiaries have filed all income tax and other related returns in Honduras. Company believes that it and its
subsidiaries are in full compliance with all relevant taxing authorities.
on
Schedule 2.6(a): (i) Company and each of its Tax Affiliates has timely filed (or has had timely filed on its behalf) all Company
Tax Returns required to be filed or sent by it in respect of any Taxes or required to be filed or sent by it to any Tax Authority
having jurisdiction; (ii) all such Company Tax Returns are complete and accurate in all material respects; (iii) Company and each
of its Tax Affiliates has timely and properly paid (or has had paid on its behalf) all Taxes required to be paid by it; (iv) Company
has established on the Company Balance Sheet, in accordance with GAAP, consistently applied, reserves that are adequate for the
payment of any Taxes not yet due and payable; and (v) Company and each of its Tax Affiliates has complied with all applicable
laws, rules and regulations relating to the collection or withholding of Taxes.
Schedule
2.6(d)
Company
is a Turks and Caicos limited company and to the extent it may in the future have a tax liability it would pay taxes to the Turks
and Caicos Islands.
The Company’s
two subsidiaries file tax returns in Honduras.
No other
jurisdiction has ever contacted the Company nor its subsidiaries to claim a reporting responsibility other than set forth above.
contains
a list of all jurisdictions in which Company or any of its Tax Affiliates is required to file any Company Return and no claim
has been made by a Tax Authority in a jurisdiction where Company or any of its Tax Affiliates does not currently file Company
Tax Returns, that Company or any of its
Schedule
2.6(f)
None
(l) Except
as disclosed on Schedule 2.6(f), Company has not requested any extension of time within which to file any Company Return, which
return has not since been file
Schedule
2.7
Concession
Grants
Martinez
Crushing Services Agreement
Equipment
Rental Agreements-Tractomar
a. Contracts
and Commitments. Schedule 2.7 lists all material agreements, whether oral or written, to which Company is a party,
which are currently in effect, and which relate to the operation of Company’s business. Company has performed all
obligations required to be performed by it under the
Schedule
2.8
The attached
schedule of shareholders and/or affiliates have made the loans described herein to the Company;
Clavo Rico,
Ltd
Schedule
of Loans
For the
year ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
31-Dec-12 |
|
|
|
31-Dec-13 |
|
|
31-Dec-14 |
Entity |
|
|
Date |
|
|
Amount |
|
|
|
Acc’d
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silverbrook |
|
|
3/29/2011 |
|
$ |
193,000 |
|
|
$ |
60,795 |
|
|
$ |
34,740 |
|
$ |
34,740 |
(Dist from Belmont) |
|
|
1/3/2012 |
|
$ |
175,000 |
|
|
$ |
31,500 |
|
|
$ |
31,500 |
|
$ |
31,500 |
Silverbrook |
|
|
5/4/2011 |
|
$ |
700,000 |
|
|
$ |
210,000 |
|
|
$ |
126,000 |
|
$ |
126,000 |
|
|
|
3/20/2012 |
|
$ |
50,000 |
|
|
$ |
6,750 |
|
|
$ |
9,000 |
|
$ |
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LWB Irrevocable
Trust |
|
|
3/29/2011 |
|
$ |
108,000 |
|
|
$ |
34,020 |
|
|
$ |
19,440 |
|
$ |
19,440 |
|
|
|
4/27/2011 |
|
$ |
103,000 |
|
|
$ |
15,000 |
|
|
$ |
18,540 |
|
$ |
18,540 |
Assigned from
Zobrist |
|
|
1/11/2013 |
|
$ |
140,000 |
|
|
|
|
|
|
$ |
25,200 |
|
$ |
25,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legends Capital
Group |
|
|
7/18/2012 |
|
$ |
50,000 |
|
|
$ |
2,250 |
|
|
$ |
9,000 |
|
$ |
9,000 |
(Ballard) |
|
|
8/7/2012 |
|
$ |
100,000 |
|
|
$ |
4,500 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
9/7/2012 |
|
$ |
50,000 |
|
|
$ |
2,250 |
|
|
$ |
9,000 |
|
$ |
9,000 |
|
|
|
9/18/2012 |
|
$ |
25,000 |
|
|
$ |
1,125 |
|
|
$ |
4,500 |
|
$ |
4,500 |
|
|
|
9/24/2012 |
|
$ |
25,000 |
|
|
$ |
1,125 |
|
|
$ |
4,500 |
|
$ |
4,500 |
Repaid 4/15/2013 |
|
|
9/27/2012 |
|
|
|
|
|
$ |
4,500 |
|
|
$ |
5,250 |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIA |
|
|
12/6/2011 |
|
$ |
300,000 |
|
|
$ |
58,500 |
|
|
$ |
54,000 |
|
$ |
54,000 |
|
|
|
3/29/2012 |
|
$ |
400,000 |
|
|
$ |
54,000 |
|
|
$ |
72,000 |
|
$ |
72,000 |
|
|
|
4/26/2012 |
|
$ |
100,000 |
|
|
$ |
12,000 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
5/11/2012 |
|
$ |
50,000 |
|
|
$ |
6,000 |
|
|
$ |
9,000 |
|
$ |
9,000 |
|
|
|
6/4/2012 |
|
$ |
100,000 |
|
|
$ |
10,500 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
6/20/2012 |
|
$ |
100,000 |
|
|
$ |
9,000 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
10/10/2012 |
|
$ |
100,000 |
|
|
$ |
4,500 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claymore Management |
|
|
3/18/2011 |
|
$ |
185,000 |
|
|
$ |
58,275 |
|
|
$ |
33,300 |
|
$ |
33,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LWB Irrevocable
Trust |
|
|
12/14/2010 |
|
$ |
50,000 |
|
|
$ |
18,000 |
|
|
$ |
9,000 |
|
$ |
9,000 |
|
|
|
12/20/2010 |
|
$ |
100,000 |
|
|
$ |
36,000 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
3/18/2011 |
|
$ |
50,000 |
|
|
$ |
15,750 |
|
|
$ |
9,000 |
|
$ |
9,000 |
|
|
|
8/10/2011 |
|
$ |
500,000 |
|
|
$ |
127,500 |
|
|
$ |
90,000 |
|
$ |
90,000 |
|
|
|
2/20/2012 |
|
$ |
50,000 |
|
|
$ |
7,500 |
|
|
$ |
9,000 |
|
$ |
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legends Capital
Group |
|
|
10/20/2011 |
|
$ |
200,000 |
|
|
$ |
42,000 |
|
|
$ |
36,000 |
|
$ |
36,000 |
(Assigned from
BizVis) |
|
|
11/8/2011 |
|
$ |
150,000 |
|
|
$ |
31,500 |
|
|
$ |
27,000 |
|
$ |
27,000 |
|
|
|
2/16/2012 |
|
$ |
100,000 |
|
|
$ |
15,000 |
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
3/5/2012 |
|
$ |
30,000 |
|
|
$ |
4,500 |
|
|
$ |
5,400 |
|
$ |
5,400 |
|
|
|
3/28/2012 |
|
$ |
35,000 |
|
|
$ |
4,725 |
|
|
$ |
6,300 |
|
$ |
6,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phil Zobrist |
|
|
1/11/2013 |
|
$ |
60,000 |
|
|
|
|
|
|
$ |
10,800 |
|
$ |
10,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silverbrook |
|
|
2/28/2013 |
|
$ |
100,000 |
|
|
|
|
|
|
$ |
18,000 |
|
$ |
18,000 |
|
|
|
3/21/2013 |
|
$ |
100,000 |
|
|
|
|
|
|
$ |
13,500 |
|
$ |
18,000 |
|
|
|
3/28/2013 |
|
$ |
100,000 |
|
|
|
|
|
|
$ |
13,500 |
|
$ |
18,000 |
|
|
|
5/2/2013 |
|
$ |
100,000 |
|
|
|
|
|
|
$ |
12,000 |
|
$ |
18,000 |
|
|
|
12/13/2013 |
|
$ |
50,000 |
|
|
|
|
|
|
$ |
325 |
|
$ |
9,000 |
|
|
|
1/13/2014 |
|
$ |
49,990 |
|
|
|
|
|
|
|
|
|
$ |
9,000 |
|
|
|
2/7/2014 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
$ |
8,250 |
|
|
|
2/20/2014 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
$ |
7,500 |
|
|
|
3/6/2014 |
|
$ |
49,990 |
|
|
|
|
|
|
|
|
|
$ |
7,500 |
|
|
|
3/27/2014 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
$ |
6,750 |
|
|
|
4/14/2014 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
$ |
6,375 |
|
|
|
4/24/2014 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
$ |
6,000 |
|
|
|
6/3/2014 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
$ |
5,250 |
|
|
|
6/13/2014 |
|
$ |
30,000 |
|
|
|
|
|
|
|
|
|
$ |
2,925 |
|
|
|
6/13/2014 |
|
$ |
30,000 |
|
|
|
|
|
|
|
|
|
$ |
2,925 |
|
|
|
1/7/2015 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/22/2015 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/9/2015 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2015 |
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
5,488,980 |
|
|
$ |
889,065 |
|
|
$ |
850,795 |
|
$ |
931,695 |
Clavo
Rico, Inc., a Utah corporation, is owned by Company insiders and purchases unrefined gold dore bars from the Company subsidiaries
pursuant to invoices generated by the subsidiaries, imports the dore’ bars to the US, refines the gold and sells the refined
product on the open market.
9.1 Affiliate
Transactions. Except as set forth in Schedule 2.8, and other than pursuant to this Agreement, no officer, director or
employee of Company, or any member of the immediate family of any such officer, director or employee, or any entity in which any
of such Persons owns any beneficial interest in Company (other than any publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than five percent of the stock of which is beneficially owned by
any of such Persons) (collectively, the “Company Insiders”), has any agreement with Company (other than
normal employment arrangements) or any interest in any property, real, personal or mixed, tangible or intangible, used in or pertaining
to the business of Company (other than ownership of capital stock of Company). Except as set forth on Schedule 2.8, Company is
not indebted to any Company Insider (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary business
expenses) and no Company Insider is indebted to Company (except for cash advances for ordinary business expenses). Except as set
forth on Schedule 2.8, none of the Company Insiders has any direct or indirect interest in any competitor, supplier or customer
of Company or in any Person from whom or to whom Company leases any property, or in any other Person with whom Company transacts
business of any nature. The officers, directors and employees of Company have not, by virtue of their employment with or service
to Company, usurped any corporate opportunities of any third party to which such officer, director and employee has, or could
reasonably be considered to have, a fiduciary duty under any applicable laws. For purposes of this Section 2.8 the members of
the immediate family of an officer, director or employee shall consist of the spouse, parents, children and siblings of such officer,
director or employee.
Schedule
2.9(b)
Company
currently operates under the Mining Law in Honduras, which requires among other things constant supervision of the environmental
authorities, the mining ministry, central banking authorities and exporting agencies as well as other governmental authorities.
Formal licenses and permits have not been required, but the Company believes that it could acquire them should they become necessary.
Except as
set forth on Schedule 2.9(b), Company has no licenses, permits, Environmental Permits or certificates, from federal, state, local
and foreign authorities (including, without limitation, federal and state agencies regulating occupational health and safety)
necessary to permit it to conduct its business and own and operate.
Schedule
2.11.
Amounts
due under Honduran law to terminated or retiring employees for employees retirement benefits estimated to be approximately $400,000.
9.5 No Undisclosed
Liabilities. Except as reflected in the balance sheet of Company at June 30, 2015 (the “Latest Company Balance
Sheet”), Company has no liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) except (i) liabilities
which have arisen after the date of the Latest Company Balance Sheet in the ordinary course of business, none of which is a material
uninsured liability for breach of contract, breach of warranty, tort, infringement, claim or lawsuit, or (ii) as otherwise set
forth on Schedule 2.11.
Schedule
2.13
Twenty
Hectres located in El Corpus, Honduras encompassing the current plant and recovery fields.
9.9 Real Property.
Schedule 2.13 lists all real property leased by Company. Company does not own any real property. Company has good and valid title
to all of its leaseholds and other interests free and clear of all Liens, except for such Liens which do not detract from the
value or interfere with the present use of the property subject thereto or affected thereby. The real property to which such leaseholds
and other interests pertain constitutes all of the real property used in Company’s business.
Schedule
2.15
No
Changes to business operations since December 31, 2014.
9.10 Absence
of Certain Developments. Except as disclosed in the Company Financial Statements or as otherwise contemplated by this
Agreement, since December 31, 2014, Company has owned and operated its assets, properties and businesses consistent with past
practice. Without limiting the generality of the foregoing, except as listed in Schedule 2.15, since December 31, 2014, Company
has not:
Schedule
2.17(a)
9.11 Employees.
(c) Schedule
2.17(a) lists, as of the Effective Date, the name, position, base compensation and, for calendar year 2015, total compensation
for each employee of Company.
Schedule
2.17(b)
(d) Except
as otherwise set forth in Schedule 2.17(b), or as contemplated by this Agreement, to the Knowledge of Company, (i) neither any
executive employee of Company nor any group of the employees of Company has any plans to terminate his, her or its employment;
(ii) Company has no material labor relations problem pending and its labor relations are satisfactory; (iii) there are no workers’
compensation claims pending against Company nor is Company aware of any facts that would give rise to such a claim; (iv) no employee
of Company is subject to any secrecy or noncompetition agreement or any other agreement or restriction of any kind that would
impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business
of Company; and (v) no employee or former employee of Company has any claim with respect to any intellectual property rights of
Company.
Schedule
2.18
9.12 Proprietary
Information and Inventions. Set forth on Schedule 2.18 is a complete and accurate list of all current Company employees,
consultants, contractors or other Persons that are subject to a non-disclosure agreement or an alternative employment agreement
with Company containing comparable non-disclosure provisions.
Schedule
2.19
9.13 Intellectual
Property. Set forth on Schedule 2.19 is a complete and accurate list of all Intellectual Property owned or licensed by
Company, and accurately identifies all Persons from which or to which Company licenses all such listed Intellectual Property.
For purposes of this Agreement, the term “Intellectual Property” means: (a) patents (including any registrations,
continuations, continuations in part, renewals and any applications for any of the foregoing); (b) registered and unregistered
copyrights and copyright applications; and (c) registered and unregistered trademarks, service marks, trade names, slogans, logos,
designs and general intangibles of the like nature, together with all registrations and applications therefor.
PARENT
DISCLOSURE SCHEDULE
TO
AGREEMENT
AND PLAN OF MERGER
by
and among
Inception
Mining Inc.
Clavo
Rico, Ltd.
and
CR
Acquisition Corporation
Parent
Disclosure Schedules for Agreement and Plan of Merger
Representations
and Warranties of the Company
3.3 Capitalization.
(a) Parent’s
authorized capitalization consists of 10,000,000 shares of Preferred Shares, $.00001 par value, none of which are issued and outstanding,
and 500,000,000 shares of common stock, par value $.00001, of which 13,077,679 (following the cancellation of certain shares as
part of this Merger) shares are issued and outstanding. The issued and outstanding shares of capital stock of Parent have been
duly authorized and validly issued, are fully paid and nonassessable, and have not been issued in violation of any preemptive
rights.
(b)
Registration Rights.
The
Company has granted piggyback registration rights to certain PPM investors and to Firstfire (if they convert into shares)
1.1 Piggy-Back
Rights. If at any time on or after the date of the Closing the Company proposes to file any Registration Statement under the
1933 Act (a “Registration Statement”) with respect to any offering of equity securities, or securities or other obligations
exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders
of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i)
filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or
(iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the
holders of Registrable Securities appearing on the books and records of the Company as such a holder as soon as practicable but
in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe
the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the
name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable
Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such holders may request
in writing within five (5) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall
cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters
of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration
on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such
Registrable Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities
proposing to distribute their securities through a Piggy-Back Registration that involves an underwriter or underwriters shall
enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration.
(c)
Merger Subsidiary Capitalization. The authorized capital stock of Merger Subsidiary consists of One Hundred (100)
shares of common stock, par value $0.001 per share, all of which are issued and outstanding and held of record by Parent as of
the date hereof. The issued and outstanding shares of capital stock of Merger Subsidiary are duly authorized, validly issued,
fully paid and nonassessable and have not been issued in violation of any preemptive rights.
3.
6 Tax Matters. No Exceptions.
|
(f)
|
|
No
Exceptions. |
|
|
|
|
|
(i) |
|
No
Exceptions. |
3.7 Contracts
and Commitments.
|
(c) | | No Exceptions. |
|
| | |
|
(d) | | Liabilities and obligations
of Parent as of the Closing. |
Notes:
MDL Ventures, L.L.C./Trent D’Ambrosio | |
$ | 1,093,791 | |
Dave Wavrek | |
$ | 70,000 | |
Firstfire LLC | |
$ | 115,000 | |
Typnex | |
$ | 50,000 | |
Iconic | |
$ | 28,000 | |
Payables
PSI | |
$ | 30,000.00 | |
Fleming PLLC | |
$ | 26,000.00 | |
BJC | |
$ | 7,500.00 | |
Barkell Trucking | |
$ | 9,622.37 | |
Westfall Excavation | |
$ | 7,250.00 | |
Rod Sperry | |
$ | 4,500.00 | |
3.9
Compliance with Laws; Permits. None.
3.
10 Exchange Act Reports.
|
(b) |
|
No Exceptions. |
|
|
|
|
|
(c) |
|
Permitted Liabilities. |
3.11
Undisclosed Liabilities. No Exceptions.
3.13
Real Property.
U.P. &
Burlington Lode, Mineral Survey 1602, Eureka Mining District, Located in Section 17, Township 22 North, Range 21 East Boise Meridian.
3.16
Absence of Certain Developments. No Exceptions.
3.18
Employees.
Michael
Ahlin CEO – Effective 2/25/2013, Base Compensation for Calendar year 2015 was $0, Total Compensation for Calendar year 2015
was $0
Brian
Brewer COO – Effective 2/25/2013, Resigned 2/16/2015, Base Compensation for Calendar year 2015 was $0, Total Compensation
for Calendar year 2015 was $0
Whit
Cluff CFO - Effective 2/25/2013, Base Compensation for Calendar year 2015 was $0, Total Compensation for Calendar year 2015 was
$0
(c) No
Exceptions.
3.19
Proprietary Information and Inventions. None
3.20
Intellectual Property. None
3.27
Prepaid Assets. None.
ADDENDUM
TO
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
INCEPTION MINING INC.,
CLAVO RICO, LTD, AND
CR ACQUISITION CORPORATION
ADDENDUM TO AGREEMENT AND PLAN OF MERGER
This Addendum to Agreement and Plan of Merger
(this “Addendum”) is entered into effective as of the 5th day of August, 2015, by and among Inception Mining
Inc., a Nevada corporation (“Parent”), Clavo Rico, LTD, a Turks and Caicos corporation (“Company”), and
CR Acquisition Corporation, a Nevada corporation (“Merger Subsidiary”).
background
A. | | On
August 4, 2015, the parties entered into that certain Agreement and Plan of Merger (the
“Agreement”), wherein the respective Boards of Directors of the parties (i)
determined that it is in the best interests of such corporation and their respective
security holders to consummate a merger of Merger Subsidiary with and into Company (the
“Merger”) and (ii) approved and declared advisable the Agreement, the Merger,
and the other transactions contemplated by the Agreement; |
| | |
B. | | Article
1 of the Agreement states that the closing transactions contemplated thereby (the “Closing”
or “Closing Date”) shall take place on the date as Company and Parent mutually
agree after the satisfaction or waiver of the conditions as described in Article 6 of
the Agreement. |
| | |
C. | | Since the
execution of the Agreement, the parties have encountered some administrative delays with
the Parent’s transfer agent that will likely result in a delay of the issuance
of shares and thus delay the Closing of the Agreement; |
| | |
D. | | In a good
faith effort to continue the momentum and spirit of the Agreement, the parties have agreed
that the Parent shall begin the management of the operations of the Company and shall
receive all proceeds from that management as of the date of this Addendum. |
AGREEMENT
Notwithstanding the foregoing,
the Agreement, or the transactions contemplated thereby, the Company agrees that as of the date of this Addendum, Parent shall
be permitted to occupy the Clavo Rico mine to begin operations, and Parent shall be responsible for all expenditures and entitled
to all revenues therefrom. The considerations of this Addendum shall in no way delay the Merger, nor give either party cause for
terminating the Agreement. All articles in the Agreement shall survive this Addendum, and are not amended or otherwise implicated
by this Addendum.
[Signatures on Following Page]
IN WITNESS WHEREOF, the parties hereto have
caused this Addendum to be executed by their respective officers on the date first written above.
CLAVO RICO, LTD |
|
|
|
/s/
Reed Benson |
|
Reed Benson |
|
President and Chairman |
|
|
|
INCEPTION MINING INC. |
|
|
|
/s/
Michael Ahlin |
|
Michael Ahlin |
|
Chief Executive Officer |
|
|
|
CR ACQUISITION CORPORATION |
|
|
|
/s/
Michael Ahlin |
|
Michael Ahlin |
|
Chief Executive Officer |
|
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