HOMERO BUSTILLOS GONZALEZ ASSIGNEES OR DESIGNEES and AMERICAN GOLD HOLDINGS LTD. OPTION TO PURCHASE AGREEMENT JANUARY 11, 2011 TABLE OF CONTENTS

THIS OPTION TO PURCHASE GREEMENT is made as of the 11th day of January, 2011. BETWEEN:

AND:

WITNESSES THAT WHEREAS:

NOW THEREFORE in consideration of the premises and the covenants, agreements, representations and warranties herein, the sufficiency of which is hereby acknowledged, the Parties hereto covenant and agree as follows:

 

 

As used in this Agreement, the following terms have the following meanings:

 

"Affiliate" means any company, group, person, partners or associates or any other stakeholder who directly or indirectly controls or is controlled by or associated with Optionor or Optionee.

 

 

"Definitive Agreement" means this option to purchase agreement and all schedules and instruments in amendment or confirmation of it and the expressions "Article" and "Section" followed by a number mean and refer to the specified article or section of this Agreement.

 

"Assets" means all property and assets of the Company of every nature and kind and wherever situated and includes, for greater certainty and without limiting the generality of the foregoing, the Properties, the Books and Records, the Corporate Records and the Contracts, Mining Concession Titles, and all rights and interests related to the granting of those titles.

 

"Associate" means one or more of the following relationships with Optionor or Optionee;

 

(1)	a corporation of which that Person or another Associate of that Person beneficially owns, directly or indirectly, at least 10% of the voting shares;

"Authorization" means, with respect to any person, corporation or stakeholder or associate, any order, permit, approval, waiver, license or similar authorization of any governmental or public department, central bank, commission, board, bureau, agency or instrumentality or stock exchange having jurisdiction over the Person.

 

"Books and Records" means all books of account, tax records, sales and purchase records, supplier lists, computer software, business reports, plans and projections and all other documents, files, correspondence and other information and records of the Company (whether in written, printed, electronic or computer printout form) acquired or generated in the course of its Business.

 

"Business" means the business of exploring for, developing and exploiting mineral deposits, as well as the sale of any and all metallic or non-metallic products produced from such exploitation.

 

"Business Day" means any day of the year, other than a Saturday, Sunday or any other day on which banks are required or authorized to close in Reno, Nevada.

"Closing" means the completion of the Transaction by signing of this Option to Buy -Sell Agreement, known as the "more-comprehensive, definitive agreement" in the letter of intent "L01" Dated November 15, 2010 and executed by the parties on or about November 25th, 2010.

 

"Closing Date" means the date which is this Option to Buy-Sell Agreement is signed by the Optionee and the Optionee delivers to the Optionor the executed copy notice of the Option to Buy-Sell Agreement, duly signed, or such other date as the Parties may agree for the Closing to take place. A period of up to

ninety (90) days was stipulated in the closing of the definitive agreement in the original LOl entered into by Optionor and Optonee for the acquisition of a seventy (70%) interest in La Candelaria, the  LOl is incorporated herein by this reference.

 

"Company" means a company to be incorporated under the laws of Mexico, as contemplated in Section 1.3(b).

 

"Company Shares" means all of the issued and outstanding shares in the capital

of the Company.

 

"Contracts" means all agreements to which the Company is a party including all contracts, leases of personal property and commitments of any nature, written

or oral.

 

"Corporate Records" means the corporate records of the Company, including:

"Effective Date" means the date that the conditions precedent set out in Section 1.3 are met.

 

"Encumbrances" means any mortgage, charge, pledge, hypothecation, security interest, assignment, lien (statutory or otherwise), charge, title retention agreement or arrangement, restrictive covenant, option, right of pre-emption, privilege or any contract to create any of the foregoing or any other arrangement or condition which, in substance, secures payment or performance of an obligation or which is capable of registration or registered against title.

 

"Expenditures" means all costs and expenses of whatever kind or nature spent or incurred by or on behalf of the Optionee from the Effective Date in the conduct of exploration, development and evaluation activities on or in relation to the

"Regulatory Approval" means the Authorizations required by the Optionee for its participation in the Transaction from all securities commissions, stock exchanges and other regulatory authorities having jurisdiction or from its shareholders.

 

"Related Party" means either of the Optionor or Homero Bustillos Gonzalez or any Affiliate or Associate of either of the Optionee, partners, subsidiaries or

designees, or transferees.

 

"Shares" means 300,000 common shares in the capital of the Optionee, a private company and, more specifically, the same number of shares vended in to a

public company either on a one to one (1:1) basis from Optionee's private company or on the same basis the Optionee is granted for this transfer/vend-in. This same requirement pursuant to this agreement shall apply to any of the 1,000,000 "earn-in" shares tied to mineral deposit discoveries. The common shares issued as earn-in shares require an additional 1,000,000 shares of the Optionee's private company issued to Optionor in the public company. The additional earn-in shares are contingent upon discovery of a 1,000,000 ounce gold-equivalent gold deposit. It is recognized that the shares of the private company (American Gold Holdings Ltd.) will be vended into a public company

on a reputable North American exchange.

 

"Transaction" means the purchase and sale of the Company Shares and Optionor's or affiliate's acquisition of 70% of the mining rights and interest to the eight (8) concessions as stipulated in the LOI, and as contemplated hereunder.

 

(i)

the words "including" and "includes" mean "including (or includes)without limitation", and the phrase "the aggregate of", "the total of", "the sum of", or a phrase of similar meaning means "the aggregate (or total or sum), without duplication, of"; and

(ii)

in the computation of periods of time from a specified date to alater specified date, unless otherwise expressly stated, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding".

The obligation of the Optionee to complete the Transaction is subject to and does not become binding until:

When all of the conditions precedent have been met, the date that the latter of the above three was met will be the effective date of this Agreement (the "Effective Date"). Each of the Parties and HBG to take all such actions and do all such things within its, their or his control as may be necessary or advisable to fulfill and satisfy the conditions precedent as soon as possible but no later than February 14, 2011. If the conditions precedent are not met by February 14, 2011, or such date as agreed upon as an extension by the Parties (such later date as the Optionee may reasonably request to which Optionor agrees), then this Agreement will have no further force and effect and no Party will have any further obligation or liability to another except in relation to its covenants under this Section 1.3.

 

 

The Optionor hereby grants to the Optionee the irrevocable and exclusive option (the 'Option") exercisable in accordance with this Article 2, to purchase  seventy (70%) percent of the rights and interests in the mining concessions subject of this definitive agreement, free and clear of all Encumbrances for the Purchase Price.

 

 

The purchase price for the Option will be:

 

 

a)

USD $25,000 on the signing of this letter. Paid pursuant to theoriginal LOI.

 

b)

USD $100,000 on signing of the definitive agreement (90 day periodfor closing of the definitive agreement was stipulated in the LOI)

 

 

 

c)

USD $125,000 within 12 months of the closing of the definitiveagreement.

 

 

 

 

 

 

 

 

In consideration for the granting of this Exclusive Option to Purchase, the Optionee will do the following:

 

 

 

 

 

 

 

 

 

To keep the Option in good standing the Optionee must:

 

(1) The Purchaser/Optionee will provide a work commitment for the Property of USD $450,000 over 3 years as follows:

 

 

 

 

(2)  All exploration and mine development work will be conducted as part of the Work Program will be in accord with the best practices and usual standards of professional conduct with the express focus of further exploring and defining mineral resources and mining reserves.

 

 

 

 

 

During the Option Period, the Optionor, HBG will:

 

 

 

 

Throughout the Option Period, the Optionee and its directors, officers, employees, consultants and other agents will have the exclusive right in respect of the Properties to

 

 

 

 

(d)	bring upon and erect upon the Properties such structures and other facilities asmay be necessary or advisable to carry out exploration and development activities.

 

The Optionee's rights pursuant to this Section 3.2 will at all times be subject to any restrictions that may be required by applicable Laws and to rights of entry and access reserved to the Optionor hereunder.

 

 

The Optionee is obligated during the entire period of this Option Agreement:

 

(a)	to conduct all work on or with respect to the Properties, and to otherwiseproperly use and maintain the Properties, in a manner consistent with good exploration, engineering and mining practices and in compliance with all applicable laws and regulations; and

 

(b)	to keep the Properties in good standing by the doing and filing of all necessarywork and by the doing of all other acts and things and making all other  payments which may be necessary in that regard; and

 

 

 

 

 

 

 

 

 

The Optionee will engage HBG or his designate as a consultant with respect to its work respecting the Property for a period beginning upon signing of this agreement for one year with an option for one additional 1 year.

 

Effective Date. For his consulting services HBG or his designate will be paid on a monthly basis. HBG or his designate shall be paid reasonable traveling expenses, including, but not limited to hotel, food, fuel costs and car rental if one is not supplied by the Company. Periodical expense reports will be submitted to the Company for approval and reimbursement. Consulting and travel expenditures will be applied against the company's work commitment.

 

 

Notwithstanding any other provision of this Agreement, the Optionee will be entitled to incur as Expenditures all costs and expenses necessary to preserve or protect life, limb, property or the environment or to comply with Laws, Authorizations, and lawful orders in respect of the Properties.

 

 

 

 

The Optionor represents to and warrants in favour of the Optionee the following:

 

 

 

 

The Optionee will incorporate a Company within 6 months of the closing of this Definitive Agreement under the laws of Mexico having its principal offices in Guachochi, Chihauhua, and the Optionor will represent and warrant in favour of the Optionee as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

The Optionee represents to and warrants in favour of the Optionor the following:

 

 

 

 

 

 

(e)	Proceedings: No proceedings are pending for and the Optionee is unaware of any basis for the institution of any proceedings leading to the dissolution or winding-up of the Optionee or its subjection to bankruptcy or any other Laws governing the affairs of insolvent persons.

 

 

The representations and warranties of the Parties set forth in this Article 4 will survive the Closing and the Final Payment.

 

 

 

During the Post Closing Period, the Optionee will, in any financing it arranges or which is arranged on its behalf, offer under the same terms Optionee is offered, to the Optionor the opportunity to maintain their aggregate percentage shareholding, participating in such financing(s) to the extent necessary to maintain such aggregate percentage interest.

 

 

During the Post-Closing Period, the Optionor will be entitled to appoint one nominee, who is acceptable to the Optionee acting reasonably, for appointment or election to the Optionee's Advisory Board.

 

 

From time to time during the Post-Closing Period, each Party must, at the reasonable request of any other Party, execute and deliver such additional conveyances, transfers and other assurances as may be reasonably required to effectively evidence the ownership of the Properties by the Company and the transfer the Company Shares to the Optionee and to otherwise carry out the intent of this Agreement.

 

 

 

The Optionee, at its sole discretion, may terminate this Definitive Option to Purchase/Buy Sell Agreement at any time during the Option Period upon at least 30 days' written notice to the Optionor.

 

 

If the Optionee does complies with all the terms of this Option to Purchase/Buy ­Sell Agreement and thereby does exercise the Option granted to Optionee by Optioner this Agreement will not terminate on the expiry of the Post Closing Period.

 

 

Except as may have arisen prior to termination, on and after any termination this Agreement under this Article 6, no Party will have any liability to any other under or in relation to this Agreement except that the provisions of Section 8.3 and all other provisions necessary for the interpretation and enforcement thereof will remain in full force and effect. Without limiting the generality of the foregoing, upon any termination under Section 6.1, the Optionee will not be liable to the Optionor for any failure to make any payment to the Optionors not yet due.

 

 

 

 

Should the Optionor not comply with all the option payments and good delivery of shares stipulated in Section 2.2.2 of this Definitive Agreement and the work program minimum investment of US $ 450,000 included in "Expenditures" as defined herein  within thirty-six months of the Effective date, this option agreement shall be null and void and any liability under or in relation to this Agreement shall cease, save the Optionee's obligation to return all the Properties transferred to the Company by Optionor to any entity or person designated by Optionor in good standing, including but not limited to the properties and Company being free and clear of all encumbrances including mining taxes, labor liens, and claims for exploration or mine development work, mining or feasibility studies.

 

 

 

All minor disputes (those not affecting the continuing validity or enforceability of this agreement) arising out of or in connection with this Agreement will be referred to and finally resolved by arbitration under the rules of the British Columbia International Commercial Arbitration Centre ("BCICAC") by a sole arbitrator.

 

 

Any Party may refer any such matter to arbitration by notice to the others and, within 30 days after receipt of such notice, the affected Parties will endeavour to agree on the appointment of an arbitrator, who will be capable of commencing the arbitration within 21 days of his appointment. The arbitrator will be an individual who by a combination of education and experience is competent to adjudicate the matter in dispute and who has indicated his willingness and ability to act as arbitrator in accordance with this Article 7.

 

 

The appointing authority for the arbitration will be the BCICAC. The case will be administered by the BCICAC in accordance with its ''Procedures for Cases under the BCICAC Rules". The place of arbitration will be Vancouver, British Columbia, Canada and the language of the arbitration will be English.

 

 

The award of the arbitrator will be final and binding upon each of the Parties and will not be subject to appeal or judicial review.

 

 

 

 

Any notice, direction or other communication given under this Agreement must be in writing and may be given by delivering it or sending it by facsimile or other similar form of recorded communication to any address provided by the Optionors or addressed:

 

(a)

to the Optionor, HBG at:

 

Alamo #6, Colonia, Alta Vista

Guachochi, Chihuahua 33180

Telephone:       (649) 196-3542

E-mail                  ***@***

 

(b)

to the Optionee, David Craven at:

 

Trident Chambers

Road Town, Tortola BVI

Attention:           Director

Telephone:

 

with a copy to:

 

World Trade Center

10 Route de l'Aeroport PO Box 691

CH-1215 Geneva 15

Attention: David Craven

Telephone:         +41 ###-###-####

 

Any such communication to the above addresses will be deemed to have been validly and effectively given: (I) if personally delivered, on the date of such delivery if such date is a Business Day and such delivery was made prior to 2:00 p.m. (Carson Ci and otherwise on the next Business Day; or (ii) if transmitted by facsimile, e-mail or similar means of recorded communication on the Business Day following the date of transmission.

 

 

 

Any Party may change its address for service from time to time by notice given in accordance with the foregoing and any subsequent notice must be sent to such Party at its changed address.

 

 

Time is of the essence of this Agreement.

 

 

The Optionee - Purchaser/Buyer or affiliates, partners or agents shall not acquire any property interests within a boundary of twenty kilometers of the exterior boundaries of the Property - La Candelaria concessions in the greater Guachochi area as further described or shown in the LOI attached hereto and incorporated herein by this reference (hereinafter referred to as the "Area of Influence") for a period of five years from the date of this Definitive Agreement without the express consent of Optionor ­Vendor/Seller.

 

 

The Parties will keep confidential all information concerning the exploration of the Properties or otherwise relating to the Transaction, the Company or the Properties, and will not disclose it to any other Person, except:

 

 

 

 

 

Except as otherwise expressly provided in this Agreement, all costs and expenses (including the fees and disbursements of legal counsel, investment advisers and accountants) incurred in connection with this Definitive Option to Purchase/Buy Agreement and the Transaction must be paid by the Party incurring such expenses.

 

 

This Definitive Agreement may only be amended, supplemented or otherwise modified by written agreement prior to the Effective Date signed by all Parties and after the Effective Date signed by the Optionor and the Optionee.

 

 

 

 

 

 

Except as otherwise expressly provided in this Definitive Agreement, the covenants and the representations and warranties herein will not merge on and will survive the Closing and the Final Payment and, notwithstanding such Closing and Final Payment or any investigation made by or on behalf of any Party, will continue in full force and effect. Neither Closing or Final Payment will prejudice any right of one Party against any other Party in respect of anything done or omitted under this Definitive Agreement or in respect of any right to damages or other remedies.

 

 

This Definitive Agreement constitutes the entire agreement between and among the Parties with respect to the Transaction and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties.

 

 

 

 

 

 

If any provision of this Agreement is determined by an arbitrator or any court of competent jurisdiction to be illegal, invalid or unenforceable, that provision will be severed from this Agreement and the remaining provisions will continue in full force and effect.

 

 

 

This Agreement is governed by and must be interpreted and enforced in accordance with the laws of the state of Nevada in state court in Carson City County (without reference to its choice of law rules). The parties hereby consent to such venue and governing law.

 

Unless provided otherwise, any payments of money required to be made hereunder to the Optionors may be made by cash, cheque, wire or electronic funds transfer. Payments may be made in Canada, in the USA, or in any place designated by depository agent in U.S. Dollars. The Optionor hereby designate HBG his assignees or designees as their depository agent to receive payments due hereunder. Upon making payment to such depository, the Optionee will have fulfilled its payment obligation to the Optionor hereunder for such payment.

 

This Agreement may be executed in any number of counterparts and all such counterparts taken together constitute one and the same instrument. This Agreement may be signed and accepted by facsimile.

 

IN WITNESS WHEREOF the Parties have executed this Definitive Option to Purchase or Buy Agreement and Share Purchase Agreement related to the shares of the Company.

 

For Optionor:

Homero Bustillos Gonzalez

/s/ Homero Bustillos Gonzalez

 

For Optionee:

AMERICAN GOLD HOLDINGS, LTD.

By:

/s/ D. Craven

Name: D. Craven

Its: Director