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Item
1.01
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Entry
into a Material Definitive Agreement.
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On
June 28, 2016 (the “Closing Date”), Star Mountain Resources, Inc. (“we,” “us,” “our,”
or “Company”) entered into and completed the transactions contemplated by the Securities Purchase Agreement (the “SPA”)
it entered into with TCA Global Credit Master Fund, LP, a limited partnership organized and existing under the laws of the Cayman
Islands (“TCA Global”), whereby we agreed to sell and issue to TCA Global up to $5,000,000 of senior secured convertible,
redeemable debentures (the “Debenture”), of which $3,000,000 was purchased by TCA Global on the Closing Date for the
total purchase price of $3,000,000. Up to $2,000,000 of additional Debentures may be purchased in additional closings by TCA Global
upon our mutual agreement with TCA Global.
Pursuant
to the SPA, we issued the Debenture to TCA Global in the principal amount of $3,000,000 which bears interest at 18% per annum.
We agreed to make monthly payments of principal and interest to TCA Global provided the first two monthly payments after the Closing
Date will consist of interest only. Beginning on the third month after the Closing Date, the entire principal amount will be amortized
in equal payments over the next 10 months along with interest on the unpaid balance until the maturity date which is 12 months
after the Closing Date. In the event of default under any term or condition of the Debenture, the interest on the Debenture will
accrue at the rate of 22% per annum until it is paid.
We
have the right to redeem the Debenture in full and for cash, at any time prior to the Maturity Date, with three business days
advance written notice to TCA Global. The amount required to redeem the Debenture in full is equal to: (i) the aggregate principal
amount then outstanding under the Debenture; plus all accrued and unpaid interest due under the Debenture as of the redemption
date. The Company is required to deliver the redemption amount to TCA Global on the third business day after the date of the redemption
notice.
TCA
Global may at any time and from time to time while the Debenture is outstanding on or after the Closing Date, during the period
of time when an event of default has occurred under the Debenture and remains uncured and at the sole option of TCA Global, convert
the Debenture into shares of our common stock (the “Conversion Shares”) at a conversion price equal to: (i) the amount
to be converted; divided by (ii) eighty-five percent (85%) of the lowest of the volume weighted average price of our common stock
during the five (5) trading days immediately prior to a conversion date. We agreed to give TCA Global make-whole rights whereby
we agreed that upon liquidation by TCA Global of the Conversion Shares, provided that TCA Global realizes a net amount from such
liquidation equal to less than the conversion amount specified in the relevant conversion notice (such net realized amount, the
“Realized Amount”), we agreed to issue to TCA Global additional shares of our common stock equal to: (i) the conversion
amount; minus (ii) the Realized Amount; divided by (iii) the average volume weighted average price of our Common Stock during
the five (5) Business Days immediately prior to the date upon which TCA Global delivers notice to the Company that such additional
shares are requested by TCA Global. Following the sale of the make-whole shares by TCA Global: (i) in the event that TCA Global
receives net proceeds from such sale which, when added to the Realized Amount from the prior relevant conversion notice, is less
than the conversion amount specified in the relevant conversion notice, TCA Global shall deliver an additional make-whole notice
to us and our obligation to issue make-whole shares shall continue until the conversion amount has been fully satisfied; and (ii)
in the event that TCA Global received net proceeds from the sale of make-whole shares in excess of the conversion amount specified
in the relevant conversion notice, such excess amount shall be applied to satisfy any and all amounts owed hereunder in excess
of the conversion amount specified in the relevant conversion notice.
Negative
Covenants
Pursuant
to the terms of the SPA, we agreed to that we would not take any of the following actions so long as TCA Global owns the Debentures:
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Incur
or assume any additional indebtedness or permitting any encumbrances on any of our assets except as provided for in the SPA
or approved by TCA Global.
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Make
any new investments.
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Issue
any new equity, debt or convertible or derivative instruments or securities that would result in a Change of Control.
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Enter
into any transaction involving a “Change of Control”, or any other merger, consolidation, sale, transfer, license,
Lease, Encumbrance or other disposition of all or substantially all of its properties or business or all or substantially
all of its Assets, except for the sale, lease or licensing of property or our assets in the Ordinary Course of our business.
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Purchase
or redeem any shares of our capital stock; (ii) declare or pay any dividends or distributions, whether in cash or otherwise,
or set aside any funds for any such purpose; (iii) make any distribution to its shareholders, make any distribution of our
property or Assets or make any loans, advances or extensions of credit to, or investments in, any Person, including, without
limitation, any our Affiliates, or our officers, directors, employees or Material Shareholder; (iv) pay any of our outstanding
indebtedness, except for indebtedness and other Obligations permitted under the SPA; (v) increase the annual salary paid to
any of our officers or directors, unless any such increase is part of a written employment contract with any such officers
entered into prior to the Closing Date; or (vi) add, replace, remove, or otherwise change any directors or officers of the
Credit Parties from the directors and officers existing as of the Closing Date, unless first approved by TCA Global in writing,
which approval may be granted or withheld or conditioned by TCA Global in its sole and absolute discretion.
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Use
any portion of the proceeds of the Debentures except as provided for in the use of proceeds confirmation approved by TCA Global
in its sole and absolute discretion.
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Engage
in any line of business other than the businesses engaged in as of the Closing Date and business reasonably related thereto;
(ii) change its name, organizational identification number (if applicable), its type of organization, its jurisdiction of
organization or other legal structure; or (iii) permit its Certificate of Incorporation, Bylaws or other organizational documents
to be amended or modified in any way which could reasonably be expected to have a material adverse effect.
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Enter
into any transaction with any of its Affiliates, officers, directors, employees, Material Shareholders or other insiders,
except in the Ordinary Course of Business and upon fair and reasonable terms that are no less favorable to us than we would
obtain in a comparable arm’s length transaction with a Person not an Affiliate of ours.
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Maintain
any bank, deposit, credit card payment processing accounts, or other accounts with any financial institution, or any other
Person, other than our accounts listed in the SPA without TCA Global’s prior written approval, which approval may be
withheld or conditioned in TCA Global’s sole and absolute discretion.
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Transaction
and Advisory Fees and Expenses
We
paid TCA Global a commitment fee equal to one percent (1%) of the amount of the Debentures purchased by TCA Global on the Closing
Date. In the event of any additional closings, we agreed to pay TCA Global a commitment fee equal to one percent (1%) of the amount
of the Debentures purchased by TCA Global at any such additional closings. In addition, we paid TCA Global a due diligence fee
equal to $15,000.00 on the Closing Date. We also agreed to pay TCA Global’s legal fees and expenses of incurred by TCA Global
in connection with: (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, subordination,
waiver or other modification or termination of the SPA or any other documents related thereto (the “Transaction Document”);
(ii) any documentary stamp taxes, intangibles taxes, recording fees, filing fees, or other similar taxes, fees or charges imposed
by or due to any Governmental Authority in connection with the SPA or any other Transaction Documents; (iii) the exercise or enforcement
of any of the rights of TCA Global under the SPA or the Transaction Documents; or (iv) the failure by the Credit Parties to perform
or observe any of the provisions of the SPA or any of the Transaction Documents. Included in the foregoing shall be the amount
of all expenses paid or incurred by TCA Global in consulting with counsel concerning any of its rights under the SPA or any other
Transaction Document or under applicable law. In addition, we paid TCA Fund Management Group an advisory fee of $300,000 on the
Closing Date pursuant to the terms of an Advisory Services Agreement.
Collateral
To
secure our obligations under the Debenture, we entered into a Security Agreement covering all of our assets, a pledge agreement
covering our ownership interest in our subsidiaries and our subsidiaries entered into security agreements covering all of their
assets and pledge agreements covering their ownership interest in their subsidiaries (our indirect subsidiaries) (collectively,
the “Pledge Agreements”), our wholly owned, indirect subsidiary St. Lawrence Zinc Company, LLC entered into a Mortgage,
Security Agreement, Assignment of Leases and Rents, and Fixture Filing in favor of TCA Global encumbering all of its real property
and mining interests (“Mortgage”) (such mortgage is subject to the $500,000 principal amount promissory note we issued
to the Development Authority of the North Country, a New York public benefit corporation (“DANC”), which loan is pari
passu with the Debenture as provided for in an Intercreditor Agreement entered into between DANC and TCA Global), Guarantee Agreements
whereby our subsidiaries guaranteed our performance and payment under the Debenture.
The
foregoing descriptions of the Debenture, SPA, Advisory Services Agreement, Security Agreements, Mortgage, Pledge Agreements and
the Guarantee Agreements are qualified in their entirety by reference to such document, which document or form thereof is filed
hereto as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 and 10.7, respectively, and are incorporated herein by reference.
Bridge
Financing
Effective
on June 28, 2016, we issued to each of our Chief Executive Officer who is also a director and one of our directors a warrant to
purchase 250,000 shares of our common stock at $1.00 per share for a period of three years from the date of issuance unless earlier
called by us in the event our common stock trades at or above three dollars ($3.00) per share for a period exceeding ten (10)
consecutive trading days (the “Common Stock Warrants”). The exercise price of the warrants is subject to proportional
adjustment in the event of stock splits, stock dividends and similar corporate events. A holder of the warrants is entitled to
piggy-back registration rights for the shares of our common stock issuable upon exercise of the warrants. The Warrants were issued
in partial consideration of an aggregate $250,000 loan by our Chief Executive Officer and director they provided to us in June
2016 (the “Bridge Loan”). The Bridge Loan was repaid in full from the proceeds of the Debenture.
The
foregoing descriptions of the Warrant is qualified in its entirety by reference to such document which is filed hereto as Exhibit
10.8 and is incorporated herein by reference.