Mr. Donald P. Bellum
January 3, 1997
DAKOTA MINING CORPORATION
Suite 2450
410 Seventeenth Street
Denver, Colorado
80202
January 3, 1997
Mr. Donald P. Bellum, President
USMX, INC.
141 Union Blvd., Suite 100
Lakewood, CO 80228
Dear Mr. Bellum:
The purpose of this letter is to confirm our various
discussions and the agreement in principle we have reached
regarding the proposed business combination (the "Merger") of
USMX, INC. ("USMX"), a Delaware corporation, and Dakota Mining
Corporation ("Dakota"), a Canadian corporation and certain
transactions ancillary thereto (together with the Merger (the
"Transaction")). Our further discussions will culminate in a
definitive agreement (the "Merger Agreement") on terms and
conditions consistent with this letter. It is our mutual desire
and objective that the Merger Agreement be executed as promptly
as feasible, but no later than January 30, 1997. The Merger
Agreement should provide for, among other matters, the following:
1. At the closing of the Merger (the "Closing"), each
holder of 1.10 outstanding shares ("USMX Shares") of USMX common
stock will receive one common share ("Dakota Share") of Dakota
(the "Exchange Ratio"). The Merger is intended to be adopted and
treated as a tax-free reorganization under Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the
"Code"), and to be effected as a reverse triangular merger under
the General Corporation Law of the State of Delaware (the
"DGCL"), whereby an indirect wholly-owned subsidiary of Dakota
(the "Merger Subsidiary") to be incorporated and organized under
the DGCL will merge with and into USMX. USMX, as the surviving
corporation, will become an indirect wholly-owned subsidiary of
Dakota and, at the effective time (the "Effective Time") of the
Merger, a number of other steps will occur simultaneously
culminating in each outstanding USMX Share being converted on the
basis of the Exchange Ratio into Dakota Shares issued by Dakota
and contributed to the Merger Subsidiary as merger consideration.
Notwithstanding the foregoing, the Merger may be effected in such
other manner, whether pursuant to the DGCL or other applicable
corporate law, as Dakota and USMX may agree to, provided that in
any event the manner in which the Merger is effected qualifies as
a tax-free reorganization under Section 368(a) of the Code.
Dakota and USMX will use their respective reasonable best efforts
to effect the Merger in a manner that generally provides tax-
deferred treatment under the Income Tax Act (Canada), as amended
(the "Canadian Tax Act") to holders of USMX shares who, for
purposes of the Canadian Tax Act, are resident or deemed to be
resident in Canada, provided that the availability of such tax-
deferred treatment will not be a condition to the consummation of
the Merger.
2. At the Closing, pursuant to the Merger or otherwise
pursuant to the Transaction, each of then outstanding options,
warrants, convertible or exchangeable securities and other rights
granted or issued by USMX entitling the holders thereof to
purchase or otherwise acquire USMX Shares ("USMX Convertible
Securities") will be cancelled and replaced by or exchanged for
similar securities of and rights in Dakota, or will continue as
obligations of USMX (as the surviving corporation under the
Merger) and be assumed by Dakota and deemed to constitute rights
in Dakota, entitling the holders thereof to purchase or otherwise
acquire, on the same terms and conditions as were applicable to
such USMX Convertible Securities, a number of Dakota Shares based
on the Exchange Ratio for each USMX Share underlying such USMX
Convertible Securities and with the exercise, conversion or
exchange price for such USMX Convertible Securities adjusted
accordingly.
3. The obligations of Dakota and USMX to enter into the
Merger will be subject to satisfaction of the following
conditions:
(a) The approval of the holders of USMX
Shares and, if required, the holders of Dakota
Shares;
(b) By no later than January 30, 1997, the
written consent of N M Rothschild & Sons Limited,
on terms and conditions satisfactory to Dakota,
and of such other third parties whose consents are
required under any agreements or other instruments
to which USMX or Dakota or any of their affiliates
is a party or by which any of them is bound;
(c) USMX and Dakota shall have obtained any
regulatory clearances and approvals necessary to
effect the Merger;
(d) By no later than January 30, 1997,
Dakota shall have issued and sold, on terms and
conditions reasonably satisfactory to Dakota and
USMX, Dakota Shares or securities directly or
indirectly convertible into or exchangeable or
exercisable for Dakota Shares for aggregate gross
proceeds of not less than Cdn. $40 million (the
"Canadian Offering"), provided that a portion of
such proceeds (not in excess of the amount of such
proceeds less the amount of the Loan referred to
below) may be held in escrow pending consummation
of the Merger;
(e) By no later than January 30, 1997,
Dakota will lend US $5 million to USMX (the
"Loan") on terms and conditions to be mutually
agreed upon;
(f) The date of Closing shall be no later
than April 30, 1997, provided, however, that the
date of Closing will be automatically extended to
no later than May 31, 1997 in the event that on
April 30, 1997 (i) the Proxy Statement/Prospectus
filed with the U.S. Securities and Exchange
Commission ("SEC") has either not been cleared by
the SEC or clearance has been obtained, but
without sufficient time (under applicable law) to
hold the stockholder meeting(s), or (ii) other
regulatory clearances or approvals necessary to
effect the Merger have not been obtained; and
(g) The Merger Agreement shall also contain
representations, warranties and covenants
customary for transactions of the nature
contemplated hereby.
4. After the Closing, the Board of Directors of Dakota
will consist of nine persons. The Board shall be comprised of
five persons designated by Dakota and four persons designated by
USMX; provided, however, the designated persons will be agreeable
to both USMX and Dakota. Of the four persons designated by USMX,
one person will be selected by Pegasus Gold Inc., the largest
stockholder of USMX.
5. At the Closing, the Board will elect Alan R. Bell to be
the President and Chief Executive Officer of Dakota and Donald P.
Bellum will be elected to serve as the Chairman of the Board of
Directors of Dakota.
Dakota and USMX covenant and agree with each other as set
forth in Schedule A hereto, which is incorporated by reference
herein and the provisions of which shall be binding upon Dakota
and USMX.
It is also our mutual desire and objective, by no later than
the time the Merger Agreement is executed, to procure from
Pegasus Gold Inc. and North Pacific Mining Corporation (the
"Major Shareholders") agreements ("Support Agreements") pursuant
to which each of the Major Shareholders will agree, subject to
customary conditions, to (i) vote its USMX Shares in favor of
resolutions to approve the merger, (ii) not exercise any dissent
rights with respect to its USMX Shares in connection with the
merger, and (iii) not dispose of any of its USMX shares without
the consent of Dakota.
Dakota and USMX each confirm that their respective boards of
directors have approved the Exchange Ratio and the other terms
and conditions of the Transaction set out in this letter.
Upon execution of this letter by Dakota and USMX, Dakota and
USMX will issue promptly a joint press release approved by both
parties announcing the proposed Transaction. Thereafter, Dakota
and USMX may issue such press releases, and make such other
disclosure regarding the Transaction, as each determines (after
consultation with legal counsel) are required under applicable
securities laws and stock exchange rules, provided that to the
extent reasonably practicable each party making any such
disclosure will provide advance notice to the other of the form
and content of such disclosure and the opportunity to comment
thereon, and shall in any case promptly deliver to the other
party a copy of such disclosure in the form released.
We have discussed that time is of the essence in
consummating the proposed Transaction. Accordingly, we have each
instructed our respective counsel to work with each other
promptly after the execution of this letter to prepare the Merger
Agreement. It is understood that Dakota, with the cooperation of
USMX, will continue its efforts in connection with the Canadian
Offering in order to obtain commitments for the total amount of
the offering by no later than January 10, 1997.
If this letter meets with your approval, kindly so signify
by signing the enclosed duplicate copy of this letter, whereupon
Schedule A shall constitute a binding agreement between us and
otherwise this letter shall constitute a letter of intent between
us.
Yours truly,
Dakota Mining Corporation
By:
Alan R. Bell, President
The foregoing is confirmed on
this 3rd day of January, 1997:
USMX, INC.
By:
Donald P. Bellum, President
We confirm that we intend to support the
Transaction and enter into a Support Agreement:
PEGASUS GOLD INC.
By:
Executive Officer
Schedule A
1. Each of Dakota and USMX covenants and agrees as to
itself and with respect to each of its subsidiaries (the
"Subsidiaries") that, from and after the date of the letter (the
"Letter") to which this Schedule A is attached until the
Effective Time, except insofar as the other party shall otherwise
consent or except as otherwise contemplated hereby or by the
Letter:
(a) the business of it and its Subsidiaries will be
conducted only in the ordinary and usual course in all
material respects and, to the extent consistent
therewith, it and its Subsidiaries will use all
reasonable efforts to preserve their business
organizations intact and maintain their existing
relations with customers, suppliers, employees and
business associates;
(b) it will not (i) sell or pledge or agree to sell or
pledge any shares or capital stock owned by it in any
of its Subsidiaries, (ii) amend its constating
documents, (iii) subdivide, split, combine, consolidate
or reclassify any of its outstanding shares or capital
stock, (iv) declare, set aside or pay any dividend or
make any other distribution payable in cash, shares,
stock, securities or property with respect to any of
its shares or capital stock, (v) repurchase, redeem or
otherwise acquire, or permit any Subsidiary to purchase
or otherwise acquire, directly or indirectly, any of
its shares or capital stock or any securities
convertible into or exchangeable or exercisable for any
of its shares or capital stock, or (vi) enter into any
material transaction not in the ordinary course of its
business, consistent with past practice, other than, in
the case of USMX, a definitive agreement with Pegasus
Gold Inc. ("Pegasus") relating to the previously
disclosed proposed sale of USMX's interest in the
Montana Tunnels property to Pegasus for, and the
concurrent release of USMX from its obligation to repay
loans owing to Pegasus in the amount of, US$4.5
million;
(c) neither it nor any of its Subsidiaries will
(i) issue, sell, pledge, dispose of or encumber, or
authorize or propose the issuance, sale, pledge,
disposition or encumbrance of, any of its shares or
capital stock, or any securities convertible into or
exchangeable or exercisable for, or options, puts,
warrants, calls, commitments or rights of any kind to
acquire, any of its shares or capital stock other than
(x), in the case of Dakota, Dakota Shares or securities
directly or indirectly convertible into or exchangeable
or exercisable for Dakota Shares pursuant to the
Canadian Offering or Dakota Shares issuable pursuant to
options outstanding on the date of the Letter and (y),
in the case of USMX, debentures or notes convertible
into USMX Shares as contemplated in clause (ii) below
or USMX Shares issuable pursuant to USMX Convertible
Securities outstanding on the date of the Letter,
(ii) transfer, lease, license, sell, mortgage, pledge,
encumber or dispose of any property or assets or incur,
guarantee, assume or modify any indebtedness or other
liability other than in the ordinary and usual course
of business consistent with past practice or other than
(x), in the case of Dakota, convertible debentures or
notes issued by Dakota pursuant to the Canadian
Offering and (y), in the case of USMX, transactions
relating to the agreement with Pegasus referred to in
clause (vi) of subparagraph (b) above and convertible
debentures or notes issued by USMX or other
indebtedness incurred by USMX in an aggregate principal
amount of up to US $3 million on terms and conditions
acceptable to Dakota, acting reasonably,
(iii) authorize capital expenditures other than in the
ordinary and usual course of business consistent with
past practice, or (iv) make any material acquisition
of, or investment in, assets, shares, capital stock or
other securities of any other person or entity other
than its wholly-owned subsidiaries or in the ordinary
and usual course of business consistent with past
practice;
(d) except as may be required to satisfy contractual
obligations existing as of the date of the Letter and
the requirements of applicable law, neither it nor any
of its Subsidiaries will establish, adopt, enter into,
make, amend in any material respect or make any
material elections under any collective bargaining,
bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, employee
stock ownership, deferred compensation, employment,
termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any
directors, officers or employees;
(e) it will not implement any change in its accounting
principles, practices or methods, other than as may be
required by generally accepted accounting principles;
and
(f) neither it nor any of its Subsidiaries will
authorize or enter into any agreement to take any of
the actions referred to in subparagraphs (a) through
(e) above.
2. (a) From and after the date of the Letter until the
earlier of the Effective Time or the termination of
this Schedule A in accordance with its terms, USMX and
its Subsidiaries shall not, and shall use their best
efforts to ensure that their respective directors do
not, and shall not permit their respective officers,
employees, representatives, investment bankers, agents
and affiliates to, directly or indirectly, (i) solicit,
initiate or engage in discussions or negotiations with
any person, encourage submission of any inquiries,
proposals or offers by, or take any other action
intended or designed to facilitate the efforts of any
person, other than Dakota, relating to the possible
acquisition of, or business combination with, USMX or
any of its Subsidiaries (whether by way of merger,
consolidation, take-over bid, tender offer, purchase of
shares, purchase of assets or otherwise) or any
material portion of its or their shares or capital
stock or assets (with any such efforts by any such
person, including a firm proposal to make such an
acquisition or combination, herein referred to as a
"Competing Transaction"), (ii) provide non-public
information with respect to USMX or its Subsidiaries,
or afford any access to the properties, books or
records of USMX or its Subsidiaries, to any person,
other than Dakota, relating to a possible Competing
Transaction by any person other than Dakota, (iii) make
or authorize any statement, recommendation or
solicitation in support of any possible Competing
Transaction by any person, other than by Dakota, or
(iv) enter into an agreement with any person, other
than Dakota, providing for a possible Competing
Transaction. USMX, its Subsidiaries, and their
respective directors, officers, employees,
representatives, investment bankers, agents and
affiliates, shall immediately cease any and all
existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of
the foregoing.
(b) Notwithstanding subparagraph (a) above, prior to
the approval of the Merger by the holders of USMX
Shares, nothing contained in this Schedule A shall
prevent the USMX Board of Directors (or its agents
pursuant to its instructions) from (i) engaging in
discussions or negotiations with (but not soliciting or
initiating such discussions or negotiations or
encouraging inquiries from) a party concerning an
unsolicited proposal for a Competing Transaction, (ii)
providing non-public information with respect to USMX
or its Subsidiaries that has previously been provided
to Dakota or (iii) making any statement or
recommendation in support of any Competing Transaction,
in each case if the USMX Board of Directors first
determines in good faith, after consultation with and
receiving written advice from its outside legal counsel
(which advice need not constitute an opinion), that
such action is required by reason of the fiduciary
duties of the directors of USMX to the USMX
shareholders under applicable law, provided that in
each such event USMX promptly notifies Dakota of such
determination and provides Dakota with the fact that it
is furnishing information to, or entering into
discussions or negotiations with, a person or entity
and USMX keeps Dakota informed of the status (but not
the terms or the identity of the person or entity) of
any such discussions or negotiations. Except to the
extent expressly provided in this subparagraph (b),
nothing in this subparagraph shall relieve USMX from
its obligation to comply with the other terms of this
Schedule A. If USMX or any of its Subsidiaries
receives any unsolicited offer or proposal to enter
negotiations relating to a Competing Transaction, USMX
shall immediately notify Dakota thereof. USMX shall be
responsible for any breach of this paragraph 2 by any
of its (or its Subsidiaries') directors, officers,
employees, representatives, investment bankers, agents
and affiliates.
(c) Dakota may, in its sole discretion, prior to the
holding of the meeting of USMX shareholders to approve
the Merger, amend the terms of the Merger to increase
the consideration payable to holders of USMX Shares
pursuant thereto, by delivering such amended terms of
the Merger to USMX before the holding of such meeting,
provided that such amendment shall not materially delay
the consummation of the Merger.
(d) Notwithstanding any other provisions hereof, USMX
shall not (i) enter into a Competing Transaction until
at least (x) ten business days following the first
notification by USMX to Dakota that it has entered into
discussions with a third party in respect of such
Competing Transaction and (y) five business days
following delivery of written notice by USMX to Dakota
of the identity of the parties to and the terms and
conditions of such Competing Transaction or (ii) for a
period of ten business days following termination of
this Schedule A pursuant to subparagraphs 3(j) or (k)
hereof, grant or agree to grant to any third party, in
connection with a Competing Transaction, an option to
purchase treasury securities or assets of USMX or any
of its Subsidiaries, pay or agree to pay to any such
third party, termination, expense reimbursement,
"topping" or similar fees in the event of non-
consummation of such Competing Transaction or otherwise
commit to any inducement to any such third party.
3. This Schedule A and any obligations under the Letter
may be terminated at any time:
(a) by mutual written agreement of Dakota and USMX;
(b) by either Dakota or USMX, if the Merger Agreement
has not been executed and delivered by each of Dakota
and USMX on or before January 30, 1997;
(c) by Dakota, if a Support Agreement has not been
executed and delivered by Pegasus on or before the date
the Merger Agreement is executed and delivered;
(d) by either USMX or Dakota, if, after January 10,
1997 and on or before January 13, 1997, either USMX or
Dakota gives written notice to the other that it is not
satisfied, acting reasonably, with the amount of
commitments or expressions of interest obtained for the
Canadian Offering, provided that such notice may not be
given if, on or before January 10, 1997, Dakota has
delivered to USMX a copy of a letter addressed to
Dakota from Canaccord Capital Corporation to the effect
that it is highly confident that not less than
Cdn. $40 million of aggregate gross proceeds can be
raised under the Canadian Offering;
(e) by either Dakota or USMX, if the condition set
forth in subparagraph 3(b) of the Letter is not
satisfied;
(f) by either USMX or Dakota, if the conditions set
forth in subparagraphs 3(d) or (e) of the Letter are
not satisfied;
(g) by Dakota, if there has been a breach by USMX of
any of its covenants or agreements set forth in this
Schedule A or if a Material Adverse Change (as defined
below) has occurred with respect to USMX;
(h) by USMX, if there has been a breach by Dakota of
any of its covenants or agreements set forth in this
Schedule A or if a Material Adverse Change has occurred
with respect to Dakota;
(i) by either Dakota or USMX, if a permanent
injunction or other order by any court having
jurisdiction shall have been issued and shall have
become final and non-appealable which would (i) make
illegal or otherwise restrain or prohibit the
consummation of the Merger, (ii) prohibit Dakota's
ownership or operation of all or any material portion
of the business or assets of USMX and its Subsidiaries
or (iii) compel Dakota to dispose of or hold separate
all or any material portion of the business or assets
of USMX or its Subsidiaries;
(j) by Dakota, if the USMX Board shall have made any
recommendation to the USMX shareholders against the
Merger or in support of a Competing Transaction or if
USMX shall have entered into a Competing Transaction;
(k) by USMX, if the USMX Board of Directors determines
in good faith, after consultation with and receiving
written advice from its outside legal counsel (which
advice need not constitute an opinion), that it is
required, by reason of the fiduciary duties of the
directors of USMX to the USMX shareholders under
applicable law, to recommend to the USMX shareholders
that they vote against the Merger and approve instead a
Competing Transaction that the USMX Board of Directors
has determined in good faith, after consultation with
its outside financial advisors, is financially more
favourable to the USMX shareholders than the Merger
(including any adjustment to the terms and conditions
of the Merger proposed by Dakota in response to such
Competing Transaction), is the subject of a firm
written offer from a third party that is capable of
consummating such Competing Transaction and is likely
to be successful, taking into account any amendments to
the Merger contemplated by subparagraph 2(c) hereof and
the conditions and valid and binding character of such
offer (a "Superior Competing Transaction"), provided
that a Superior Competing Transaction shall not be
committed to or entered into by USMX or effected until
at least five business days following delivery to
Dakota of the notice contemplated by clause (y) of
subparagraph 2(d)(i) hereof.
For purposes of this paragraph 3, the term "Material Adverse
Change" used with respect to a party means any event, change or
effect, that is, or is reasonably likely to be, adverse to the
condition (financial or otherwise), properties, assets,
liabilities, businesses, operations, results of operations or
prospects of such party and its subsidiaries, taken as a whole,
provided that a Material Adverse Change shall not include or be
deemed to result from any change in the market value of USMX
Shares or Dakota Shares or any adverse effect resulting from
changes in general economic conditions or conditions generally
affecting gold prices.
Any termination of this Schedule A under this paragraph 3 will be
effective by the delivery of written notice by the terminating
party to the other party hereto.
In the case of any termination of this Schedule A as provided by
this paragraph 3 or in paragraph 4 hereof, this Schedule A shall
be of no further force and effect (except as provided in
paragraphs 6 and 7 hereof) and nothing herein shall relieve any
party from liability for any breach of this Schedule A.
4. As an inducement and consideration for Dakota agreeing,
subject to the terms and conditions of the Letter and this
Schedule A, to effect the Merger, USMX agrees to grant to Dakota
an option (the "Option") to purchase up to 810,000 USMX Shares,
at a price equal to US $1.75 per Share, exercisable at any time
after this Schedule A is terminated (i) by Dakota pursuant to
subparagraph 3(j) hereof or (ii) by USMX pursuant to subparagraph
3(k) hereof and on or before the day that is six months after
such termination, provided that the Option shall not be
exercisable after the Termination Fee (as defined below) has been
paid to Dakota. The granting of the Option is subject to
acceptance for filing of notice of the grant of the Option by The
Toronto Stock Exchange (the "TSE"). USMX covenants and agrees to
promptly file such notice with the TSE and to use its reasonable
best efforts to obtain the acceptance for filing of such notice
by the TSE. The terms and conditions of the Option (including
customary anti-dilution provisions) shall be set forth in an
agreement (the "Option Agreement"), in form and content
reasonably acceptable to Dakota, to be executed and delivered by
Dakota and USMX promptly after such condition is satisfied. If
the Option is not granted, and the Option Agreement is not
executed and delivered, on or before January 30, 1997 by reason
of the failure of the TSE to accept for filing notice of the
grant of the Option, Dakota may terminate this Schedule A by
giving written notice thereof to USMX on or before such date.
5. If this Schedule A is terminated (i) by Dakota pursuant
to subparagraph 3(j) hereof or (ii) by USMX pursuant to
subparagraph 3(k) hereof, then USMX may pay to Dakota (by wire
transfer of immediately available funds) a fee (the "Termination
Fee") of US $500,000 within 30 days after the delivery of the
notice of termination pursuant to paragraph 3 hereof, provided
that USMX shall not be entitled to make such payment if at any
time prior to the making of such payment, Dakota shall have
exercised the Option.
The issuance by USMX to Dakota of the USMX Shares issuable upon
exercise of the Option or the payment by USMX to Dakota of the
Termination Fee is in lieu of any damages or any other payment
which USMX might otherwise be obligated to pay to Dakota as a
result of any termination for which payment is due hereunder.
USMX agrees that, in view of the nature of the issues likely to
arise in the event of such a termination, it would be
impracticable or extremely difficult to fix the actual damages
resulting from such termination and proving actual damages,
causation and foreseeability in the case of such termination
would be costly, inconvenient and difficult. In requiring USMX
to issue the USMX Shares issuable upon exercise of the Option or
to pay the Termination Fee as set forth in the Option Agreement
or herein, it is in the intent of the parties to provide, as of
the date of the Letter, for a liquidated amount of damages to be
paid by USMX to Dakota. Such liquidated amount shall be deemed
full and adequate damages for such termination and is not
intended by either party to be a penalty.
6. Each of Dakota and USMX will bear its respective
expenses incurred with respect to the Transaction.
7. Prior to the Effective Time and for one year from any
termination of this Schedule A, each of the parties hereto will
hold, and will use commercially reasonable efforts to cause its
officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by
other requirements of law, all confidential documents and
information concerning the other party furnished to such party by
such other party in connection with the Transaction, except to
the extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by such party, (ii)
in the public domain through no fault of such party or (iii)
later acquired by such party from sources other than such other
party so long as, to the knowledge of such party, such sources
are not subject to a contractual or fiduciary duty of
confidentiality with respect to such information; provided that
such party may disclose such information to its officers,
directors, employees, accountants, counsel, consultants, advisors
and agents in connection with the Transaction so long as such
persons are informed by such party of the confidential nature of
such information and are directed by such party to treat such
information confidentially. The obligations of the parties
hereto to hold any such information in confidence shall be
satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of
its own similar information. If this Schedule A is terminated,
each of the parties hereto will, and will use its best efforts to
cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to the
other party all documents and other materials, and all copies
thereof, obtained by such party from such other party in
connection with the Transaction that are subject to such
confidence.