SHAREHOLDERS' EQUITY | NOTE 10 SHAREHOLDERS’ EQUITY Preferred Stock Simultaneous with the Shea Exchange Agreement, Wits Basin exchanged 19,713,544 10,000,000 1.00 The Company entered into an Agreement on July 29, 2016 with the holder of the Series A Preferred Stock, Wits Basin Precious Minerals, Inc., (“Wits”) and Wits’ secured creditor regarding exchange options for the Series A Preferred Stock. Under the terms of the Agreement, upon the occurrence of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding compensation, the “Triggering Events” and their corresponding compensation are set forth below: Series A Preferred Stock Attributes of Series A Preferred Stock include but are not limited to the following: Distribution in Liquidation The Series A Preferred Stock has a liquidation preference of $ 10,000,000 200,000,000 • The Corporation has an average market capitalization (calculated by adding the value of all outstanding shares of Common Stock valued at the Corporation’s closing sale price on the OTCQB or other applicable bulletin board or exchange, plus the value of the outstanding Series A Preferred Stock at the Original Issues Price per share) of $ 200,000,000 • Any Liquidity Event in which the Corporation receives proceeds of $ 50,000,000 Written notice of any Liquidation Event (the “Liquidation Notice”) shall be given by mail, postage prepaid, or by facsimile to non-U.S. residents, not less than five days prior to the anticipated payment date state therein, to the holders of record of Series A Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The Liquidation Notice shall state (i) the anticipated payment date, and (ii) the total Liquidation Value available for distribution to Series A Preferred Stock shareholders upon the occurrence of the Liquidation Event. Redemption The Series A Preferred Stock may be redeemed in whole or in part as determined by a resolution of the Board of Directors at any time, at a price equal to the Liquidation Value. Voting Rights Shares of Series A Preferred Stock shall have no rights to vote on any matter submitted to a vote of shareholders, except as required by law, in which case each share of Series A Preferred Stock shall be entitled to one vote. Conversion Rights Holders of Series A Preferred Stock will have no right to convert such shares into any other equity securities of the Company. Agreement with Holder of Series A Preferred Stock As disclosed in a Form 8-K filed with the SEC on August 1, 2016, the Company entered into an Agreement on July 29, 2016 with the holder of the Series A Preferred Stock, Wits Basin Precious Minerals, Inc., (“Wits”) and Wits’ secured creditor regarding exchange options for the Series A Preferred Stock. Under the terms of the Agreement, upon the occurrence of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding compensation, the “Triggering Events” and their corresponding compensation are set forth below: 3. Liquidation Rights, Stated Value and Redemption 10,000,000 (a) Upon any liquidation, dissolution or winding up of the Corporation, and after paying or adequately providing for the payment of all its obligations, the remainder of the assets of the Corporation shall be distributed, either in cash or in kind, first pro rata to the holders of the Series A Preferred Stock in an amount equal to the Stated Value (as described below); then, to any other series of Preferred Stock, until an amount to be determined by a resolution of the Board of Directors prior to issuances of such Preferred Stock, has been distributed per share, and, then, the remainder pro rata to the holders of the Common Stock. (b) Upon the occurrence of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding compensation, The “Triggering Events” and their corresponding compensation are set forth below: (1) If either of the following occur: (i) the Corporation receives proceeds of $ 10,000,000 (ii) the Corporation’s Common Stock trades at $ 3.00 then all of the 10,000,000 5,000,000 (2) If the Corporation has an average market capitalization (calculated by adding the value of all outstanding shares of Common Stock valued at the Corporation’s closing sale price on the Over the Counter Markets (or other applicable exchange) (the “Market”) of $ 200,000,000 (A) issue the number of shares of Common Stock equal to the Stated Value using the average closing sale price of the Common Stock on the Over the Counter Markets of the prior 15 trading days from the date of the notice. The Corporation will provide 10 days’ prior written notice to the holder and any known secured party of such holder of the Series A Stock of its intention to proceed with this option; or (B) issue a portion of the Stated Value in shares of Common Stock based on the valuation formula in 3(b)(2)(A) and pay the remaining Stated Value in cash. If this Section (3)(b)(2) is triggered, the Corporation has three years to choose option Section (3)(b)(2)(A) or (B) and pay the Stated Value. The Corporation has 60 days from the date of notice of its election to pay under either Section (3)(b)(2)(A) or (B). Upon payment of the Stated Value, the Series A Shares will be retired. (c) If Section (3)(b)(2) is triggered and the Corporation fails to pay the Stated Value within the three year time frame, the Corporation will take all necessary action to return the Series A Preferred Shares in their original form (containing all original terms and conditions) to the holder with the exception that the Stated Value will be increased to $ 10,100,000 The previous terms of the Series A Preferred Stock would have required the Company to make a payment of $10,000,000 upon the Company having an average market capitalization of $200,000,000. This Agreement gives the Company additional payment options and allows for the payment to be made completely or partially in common shares, depending on the Triggering Event. The Company issued five million shares of restricted common stock on April 1, 2016 that are being held in escrow pending a Series A Preferred Stock Triggering Event. Series B Preferred Stock The Company designated a class of Series B Preferred shares effective November 4, 2013. As of the date of this filing, no shares of our Series B Preferred Stock are issued and outstanding. Shares of our Series B Preferred Stock are entitled to receive, when and as declared by our Board of Directors, dividends at a rate of 8% per share annually, payable on the October 1 of each year. Such dividends shall be cumulative and shall accrue, whether or not earned or declared, from and after the date of issuance of the Series B Preferred Stock, whichever is later. Each share of Series B Preferred Stock shall be convertible, at any time and at the option of the holder, into ten shares of common stock (the “Stock Conversion Rate”). The Stock Conversion Rate is subject to certain adjustments for stock-splits, combinations, reclassifications, exchanges, substitutions, reorganizations, mergers and/or consolidations. Upon any liquidation, dissolution, or winding up of the Company, before any payment of cash or distribution of other property shall be made to the holders of common stock or any other class or series of stock subordinate in liquidation preference to the Company’s preferred stock, the assets of the Company shall be distributed as follows: first, the holders of the Series A Preferred Stock shall be entitled to the preferences detailed in the Certificate of Designation of Series A Preferred Stock; second, the holders of the Series B Preferred Stock shall be entitled to receive, pro rata according to the stated value of their shares, out of the assets of the Company legally available for distribution to its shareholders, the greater of: (i) the stated value per share or (ii) the amount such holder of Series B Preferred Stock would be entitled to receive if the shares of Series B Preferred Stock were converted into Common Stock at the Stock Conversion Rate. Shares of Series B Preferred Stock shall have no rights to vote on any matter submitted to a vote of shareholders, except as required by law, in which case each share of Series B Preferred Stock shall be entitled to one vote. Additional details regarding the Series B Preferred Stock can be found in our Articles of Amendment, which are on file with the Nevada Secretary of State. On April 11, 2016, the Board of Directors retired and cancelled the Series B Preferred Stock. As of that date, no shares of Series B Preferred Stock had been issued and no shares are able to be issued in the future. Common Stock Issuances Common Stock issued on conversion of notes payable On July 22, 2016 three convertible promissory notes payable totaling $ 160,000 4,919 4,879,067 On December 28, 2016 a convertible promissory note payable totaling $ 65,000 353 3,262,838 On August 17, 2016 the company received a subscription agreement and $ 20,000 275,028 Restricted Stock Sale The Company sold four million shares of restricted common stock to an accredited investor on December 21, 2015. The shares were sold at fair market value at a per share price of $ 0.013 40,000 Debt Settlements On July 31, 2015 the Company issued 250,000 50,000 The Company recorded non-cash loss on settlement of debt of $ 0 150,000 Stock Warrants On July 15, 2014, a holder with an option to purchase a total of 400,000 282,000 118,000 During the year ended December 31, 2014, a total of 7,025,227 1,830,867 0.25 520,000 0.50 4,000,000 0.60 244,360 0.89 430,000 1.00 3,790,197 During the first quarter of 2015, 100,000 0.89 89,000 40,000 0.89 35,600 Promissory Notes On February 11, 2015, the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a director of the Company. The Note for up to $ 750,000 8 250,000 1.23 200,000 48,000 50,000 150,000 2,500 12,000 15,000 Under the terms of the Pure Path Note, the Company received $ 54,590 Option Grants 2010 Plan The Company had one stock option plan: the 2010 Stock Incentive Plan, as amended (the “Plan”). Stock options, stock appreciation rights, restricted stock and other stock and cash awards may be granted under the Plan. In general, options vest over a period ranging from immediate vesting to five years and expire 10 3,000,000 13,500,000 13,500,000 13,500,000 14,500,000 The Company has been receiving files from former officers and attorneys. Upon review of the files, the original Plan and Board Resolution were located. The Plan approved by the Board of Directors on March 22, 2010 authorized 3,000,000 9.11 Amendment of the Plan. The Board of Directors may amend or discontinue the Plan at any time. However, no such amendment or discontinuance shall adversely change or impair, without the consent of the recipient, an Incentive previously granted. Further, no such amendment shall, without approval of the stockholders of the Company, (a) increase the maximum number of shares of Common Stock which may be issued to all participants under the Plan, (b) change or expand the types of Incentives that may be granted under the Plan, (c) change the class of persons eligible to receive Incentives under the Plan, or (d) materially increase the benefits accruing to participants under the Plan. Pursuant to the terms of the Plan, the stockholders of the Company must approve this increase. As the stockholders of the Company did not approve the increase of shares available under the Plan, the increase on January 21, 2011 was not effective. As of January 21, 2011 the Company had issued a total of 2,800,000 200,000 10,500,000 200,000 The Board of Directors terminated the 2010 option plan on August 23, 2013. Options issued in 2013 The following options were issued in 2013 outside of any option plan: The Company executed an Employment Agreement with Sharon Ullman dated effective November 13, 2013. As compensation for her employment as the Chief Executive Officer of the Company, Ms. Ullman was granted a total of 4,500,000 0.40 7 1,500,000 The Company executed an Employment Agreement with Jim Stieben dated effective October 15, 2013. Pursuant to the agreement, Mr. Stieben was appointed the President and Director of Operations of Tonopah Custom Processing, Inc. As compensation for his services, Mr. Stieben was granted a total of 1,500,000 0.60 7 750,000 375,000 2014 Option Plan By Board Resolution effective January 27, 2014, the Company adopted a 2014 Stock Incentive Plan (the “Plan”) to compensate employees and consulting groups in their efforts to enhance the long-term shareholder value of the Company. Pursuant to the Plan, selected persons are offered opportunities to participate in the Company's growth and success and are encouraged to acquire and maintain stock ownership in the Company. The Plan grants options to purchase shares of our common stock vesting at dates beginning on the date of grant and issuable at chronological or performance increments. The Plan Administrator may also grandfather in existing options granted during 2013. The shareholders approved the 2014 Plan at the 2014 annual meeting. Under administration by the Compensation Committee (the “Plan Administrator”), a maximum of 75,000,000 10 The Plan Administrator establishes the time at which each option shall vest and become exercisable. If not established in the instrument evidencing the option, the option shall vest and become exercisable according to the following schedule: (i) after one year of the participant’s continuous employment or service with the company or its related corporations, one quarter of the total options will be vested and exercisable; (ii) after each additional six-month period of continuous service completed thereafter, an additional one eighth of the total options will be vested and exercisable; and (iii) after four years, 100% of the options will be vested and exercisable. Under the terms of the Plan, the exercise price for shares shall be paid in cash or check to the Company unless the Plan Administrator determines otherwise. The Plan Administrator shall determine whether the options will continue to be exercisable, and the terms and conditions of such exercise, if a participant ceases to be employed or provide services to the Company. If not so established in the instrument evidencing such options, any portion of an option that is not vested and exercisable on the date of termination of the participant’s employment or service relationship (the “Employment Termination Date”) shall expire on such date. Any portion of an option that is vested and exercisable on the Employment Termination Date shall expire upon the earliest to occur of: (i) if the participant’s Employment Termination Date occurs by reason of retirement, disability or death, the one-year anniversary of such Employment Termination Date; (ii) if the participant’s Employment Termination Date occurs for reasons other than cause, retirement, disability or death, the three-month anniversary of such Employment Termination Date; or (iii) the last day of the option term. Notwithstanding the foregoing, if the participant dies after the Employment Termination Date while the Option is otherwise exercisable, the portion of the option that is vested and exercisable on such Employment Termination Date shall expire upon the earlier to occur of: (a) the last day of the option term; or (b) the first anniversary of the date of death, unless the Plan Administrator determines otherwise. If a participant is terminated for cause, the options shall automatically expire at the time the Company first notifies the participant of the termination. If a participant’s employment is suspended pending investigation of whether they will be terminated for cause, the participant’s rights under any option shall be suspended during the period of investigation. Awards granted under the Plan may not be assigned, except, to the extent permitted by Section 422 of the Internal Revenue Code (the “IRC”), and the Plan Administrator may permit such assignment, transfer and exercisability, and may permit a participant to designate a beneficiary who may exercise the award or receive compensation under the award after the participant’s death. Any award permitted to be assigned shall be subject to the terms and conditions contained in the instrument evidencing the award. The Plan may only be amended by the Company’s Board of Directors, as it deems advisable. Shareholder approval shall be required for any amendment to the extent required for compliance with Section 422 of the IRC, as amended or any applicable law or regulation. The Board may suspend or terminate the Plan at any time. Incentive stock options may not be granted more than 10 years after the later of the Plan’s adoption by the Board or the adoption by the Board of any amendment to the Plan that constitutes adoption of a new plan for the purpose of Section 422 of the IRC. Participants who are residents of California shall be subject to additional terms and conditions until the Common Stock becomes a publicly traded security, under the California Securities Code. On January 16, 2015 the Company’s Chief Operating Officer was granted 2,250,000 1.15 750,000 shall vest on the Date of Grant 187,500 shall vest on each of the following dates: April 1, 2015, July 1, 2015, October 1, 2015, January 1, 2016, April 1, 2016, July 1, 2016, October 1, 2016 and January 1, 2017 7,000,000 1.00 On April 24, 2015 the Company entered into an employment agreement with Mr. John Ryan to serve as the Company’s president. Pursuant to the employment agreement, the Company granted Mr. Ryan 2,500,000 0.92 100,000 vested on the Date of Grant 150,000 vested on July 24, 2015 250,000 shall vest on each of the following dates: October 24, 2015, January 24, 2016 and April 24, 2016 750,000 shall vest on achievement of certain performance objectives of tonnage and gold ore concentrate 750,000 shall vest on achievement of certain performance objectives based on earnings before interest, taxes, depreciation and amortization On June 4, 2015 the Company entered into an employment agreement with Mr. Thomas Loucks to serve as the Company’s Vice President of Corporate Development. Pursuant to the employment agreement, the Company granted Mr. Loucks 2,500,000 0.90 500,000 shall vest on the Date of Grant 500,000 shall vest on each of the following dates: December 4, 2015, June 4, 2016, December 4, 2016 and June 4, 2017 On June 11, 2015 the Company entered into an employment agreement with Mr. Bobby Cooper to serve as the Company’s Managing Director. Pursuant to the employment agreement, the Company granted Mr. Cooper 2,500,000 0.80 500,000 shall vest on the Date of Grant 500,000 shall vest on each of the following dates: December 11, 2015, June 11, 2016, December 11, 2016 and June 11, 2017 On July 21, 2015 the Company agreed to reprice 750,000 1.67 0.75 318,270 The Company uses the Black-Scholes pricing model as a method for determining the estimated fair value for stock awards. Compensation expense for stock awards is recognized on a straight-line basis over the vesting period of service awards and for performance-based awards, the Company recognizes the expense when the performance condition is probable of being met. 2016 2015 Risk-free interest rate 0.084% - 2.08% Expected volatility factor 185% - 305% Expected dividend Expected option term (years) 3 - 7 The Company reviews its current assumptions on a periodic basis and adjusts them as necessary to ensure an accurate valuation. The risk-free interest rate is based on the Federal Reserve Board’s constant maturities of the U.S. Treasury bond obligations with terms comparable to the expected life of the options at their issuance date. The Company uses historical data to estimate expected forfeitures, expected dividend yield, expected volatility of the Company’s stock and the expected life of the options. The Company recorded $ 0 10,608,577 0.10 0.13 0 Weighted Average Number of Exercise Options Price Options outstanding - December 31, 2014 34,131,842 $ 0.99 Granted 17,500,000 .90 Canceled or expired (16,555,619) .92 Exercised - - Options outstanding - December 31, 2015 35,076,223 $ 0.99 Granted - - Canceled or expired (2,500,000) 0.88 Exercised - - Options outstanding December 31, 2016 32,576,223 $ 0.98 Weighted average fair value of options granted during the year ended December 31, 2016 $ - Weighted average fair value of options granted during the year ended December 31, 2015 $ 0.90 Weighted Average Grant Date Options Fair Value Non-vested, beginning of period 1,149,850 $ 0.90 Granted - $ - Vested - $ - Forfeited (1,149,850) $ 0.88 Non-vested, end of period - $ - Options Outstanding and Exercisable at December 31, 2016 Weighted Weighted Remaining Average Aggregate Range of Number Contractual Exercise Intrinsic Exercise Prices Outstanding Life Price Value(1) $0.40 to $0.60 5,276,223 3.9 years $ 0.46 $ - $0.61 to $1.00 9,800,000 3.7 years $ 0.67 $ - $1.01 to $1.50 14,500,000 3.8 years $ 1.25 $ - $1.51 to $2.25 3,000,000 4.3 years $ 1.63 $ - $0.40 to $2.25 32,576,223 3.9 years $ 0.98 $ - (1) The aggregate intrinsic value in the table represents the difference between the closing stock price on December 31, 2016 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their options on December 31, 2016. No options were exercised during 2016. Common Stock Purchase Warrants For warrants granted to non-employees in exchange for services, we recorded the fair value of the equity instrument using the Black-Scholes pricing model unless the value of the services is more reliably measurable. On March 2, 2015, 100,000 0.89 89,000 On April 23, 2015, 40,000 0.89 35,600 The Company and Wits Basin executed a Settlement Agreement on January 22, 2016. Pursuant to the terms of the Settlement Agreement, the Company issued 630,000 0.70 630,000 0.30 Weighted Range Weighted Average of Remaining Exercise Exercise Contractual Number Price Price Life Outstanding at December 31, 2014 5,483,980 $ 0.79 $ 0.20 2.00 4.8 years Granted 400,000 $ 1.24 $ 1.23 1.25 Cancelled or expired (728,340) 0.50 0.50 Exercised (140,000) $ 0.89 $ 0.25 0.89 Outstanding at December 31, 2015 5,015,640 $ 0.88 $ 0.20 2.00 4.4 years Granted 1,260,000 $ 2.00 $ 0.30 1.25 Cancelled or expired - - - Exercised - $ - $ - Outstanding at December 31, 2016 6,275,640 $ 0.86 $ 0.20 2.00 3.2 years Warrants exercisable at December 31, 2016 6,275,640 The aggregate intrinsic value of the 6,275,640 0 |