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EXHIBIT 10.17
AZCO MINING INC.
2068 Main Street, Suite C, P.O. Box 1895
Ferndale, Washington, U.S.A., 98248
(the "Purchaser")
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August 9, 1999 (the "Execution Date")
To:
MR. THOMAS FORD
ON HIS OWN BEHALF, AS THE MAJORITY SHAREHOLDER OF CALGEM, INC. AND, IF
APPLICABLE, ON BEHALF OF AND AS ATTORNEY AND DULY AUTHORIZED REPRESENTATIVE OF
ANY MINORITY SHAREHOLDER(S) OF CALGEM, INC.
(collectively, the "Shareholder")
And to:
CALGEM, INC.
TOGETHER WITH SUCH OTHER COMPANY OR COMPANIES WHICH ARE OWNED OR CONTROLLED BY
THOMAS FORD OR CALGEM, INC. IN THE BUSINESS PF PRECIOUS GEMS
(collectively, the "Company")
Both c/o 1823 Armour Lane, Redondo Beach
California, U.S.A., 90503
Re:
Offer to purchase all of the shares of each of the SHAREHOLDER in the Company by
the PURCHASER or, subject to the Purchaser's sole determination, all of the
assets of the Company
(the Shareholder and the Company being, collectively, herein the "Vendors", and
the Shareholder, the Company and the Purchaser being, collectively, herein the
"Parties")
AGREEMENT IN PRINCIPLE
This letter will confirm our agreement (herein the "Agreement")
pursuant to which, and subject to such legal, accounting and tax advice
(collectively, the "Advice") as may be provided to the Purchaser by its various
professional advisors and counsel prior to the completion of the transactions
contemplated by the terms and conditions of this Agreement, such Advice to be
for the sole and absolute benefit of and in the sole and absolute discretion of
the Purchaser, the Vendors wish to sell and the Purchaser wishes to purchase all
of the issued and outstanding shares of the Company (collectively, the
"Purchased Shares") and/or the business assets of the Company (collectively, the
"Business Assets") (the Purchased Shares and the Business Assets being
hereinafter collectively referred to as the "Property"), as the Advice may
determine and the Purchaser solely determine, and, in connection therewith, the
Vendors have herein agreed to provide the Purchaser with a formal and exclusive
option (the "Option") to purchase the Property upon the terms and conditions as
set forth in this Agreement.
We understand and confirm that the Company is a body corporate
subsisting under and registered pursuant to the laws of the State of California
and is in the present business of developing, managing, operating
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and marketing gemstones and jewelry through various television, Internet and
telemarketing campaigns and venues (collectively, the "Business").
We also understand and confirm that this Agreement is a binding
agreement, but that a more formal agreement (the "Formal Agreement") may or
shall be entered into in accordance with the Purchaser's Advice pursuant to
which the Company will agree to sell and the Purchaser will agree to purchase,
as the Advice. AT ALL TIMES THE UNDERSIGNED HERETO ACKNOWLEDGE AND AGREE THAT
THE COMPLETION OF ANY SUCH FORMAL AGREEMENT, AND FINAL BINDING NATURE ON THE
PURCHASER (WHICH MAY BE WAIVED BY THE PURCHASER AT ANY TIME AND AT ITS SOLE
DISCRETION) IS SUBJECT TO APPROVAL OF THE TERMS AND CONDITIONS OF ANY SUCH
FORMAL AGREEMENT BY, IF APPLICABLE, SHAREHOLDERS OF THE PURCHASER AND SUCH
SECURITIES REGULATORY AUTHORITIES AS MAY HAVE JURISDICTION OVER THE PURCHASER
AND, IN PARTICULAR AND WITHOUT LIMITATION, THE TORONTO STOCK EXCHANGE AND THE
AMERICAN STOCK EXCHANGE (collectively, the "Exchange").
ARTICLE 1
GRANT, MAINTENANCE, EXERCISE AND TERMINATION OF THE OPTION
2.1 GRANT OF THE OPTION TO ACQUIRE THE PROPERTY. Subject to such Advice as may
be provided to the Purchaser prior to the completion of the transactions
contemplated by the terms and conditions of this Agreement, such Advice to be
for the sole and absolute benefit of and in the sole and absolute discretion of
the Purchaser, and subject to the terms and conditions hereof and based upon the
representations, warranties and covenants contained in Article "5" hereinbelow
and the prior satisfaction of the conditions precedent which are set forth in
Article "6" hereinbelow, the Vendors hereby agree, individually and
collectively, to give and grant to the Purchaser the sole and exclusive right
and Option to purchase, at the Closing Date (as hereinafter determined), all of
their respective and collective right, title and interest in and to the
Purchased Shares and/or Business Assets on the terms and subject to the
conditions contained in this Agreement, and, in order to maintain the Option in
good standing and in full force and effect, the Purchaser hereby agrees to
exercise the Option on or before the Closing Date (as hereinafter determined and
which period in time between the Execution Date and the Closing Date is herein
also referred to as the "Option Period") for the Acquisition Share (as
hereinafter determined) issuance and for the Acquisition Payment (as hereinafter
determined) to be made and paid in accordance with section "1.2" hereinbelow,
and, in consideration therefor, the Vendors do hereby undertake for each of the
Vendors and for the Vendors' respective agents and advisors that they will not
until the earlier of either the Closing Date (as hereinafter determined) or the
termination of this Agreement approach other potential purchasers, make, invite,
entertain or accept any offer for the sale of any of the Property or disclose
any of the terms of this Agreement without the Purchaser's prior written
consent.
1.2 CONSIDERATION FOR AND MAINTENANCE OF THE OPTION. In order to keep the right
and Option granted to the Purchaser in respect of the Property in good standing
and in force and effect during the Option Period the Purchaser shall be
obligated to make the following Acquisition Share issuance and Acquisition
Payment (collectively, the "Option Price") to and for the order and direction of
the Vendors, as the Vendors may determine, in the Vendors' sole and absolute
discretion and advise the Purchaser of prior to such Acquisition Share issuance
or Acquisition Payment, in the following manner:
(a) Acquisition Share Issuance: issue to order and direction of the
Vendors, and in conjunction with Article "7" hereinbelow, an
aggregate of 250,000 common shares in the capital of the
Purchaser (each an "Acquisition Share"), at a deemed issuance
price of U.S. $0.95 per Acquisition Share, on or before 10
calendar days after the Purchaser's receipt of Exchange approval
to the terms and conditions of this Agreement (the "Effective
Date"); and
(b) Acquisition Payment: pay to the order and direction of the
Vendors the aggregate sum of U.S. $150,000 (collectively, the
"Acquisition Payment") in the following manner:
(i) an initial U.S. $75,000 of the Acquisition Payment on or
before six months from the Effective Date of this
Agreement; and
(ii) the balance of U.S. $75,000 of the Acquisition Payment on
or before 12 months from the Effective Date of this
Agreement.
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1.3 TERMINATION OR DEEMED EXERCISE OF THE OPTION. The Option shall terminate
upon 30 calendar days' prior written notice being first being provided by each
of the Vendors to the Purchaser:
(a) if the Purchaser fails to make the required Acquisition Share
issuance to the order and direction of the Vendors in accordance
with paragraph "1.2(a)" hereinabove within the time period as
specified in paragraph "1.2(a)"; or
(b) if the Purchaser fails to make any of the required Acquisition
Payments to the order and direction of the Vendors in accordance
with paragraph "1.2(b)" hereinabove within the time periods as
specified in paragraph "1.2(b)".
At such time as the Purchaser has made each of the required
Acquisition Share issuance and Acquisition Payments in accordance with section
"1.2" hereinabove, within the Option Period and the time periods as specified in
section "1.2", then the Option shall be deemed to have been exercised by the
Purchaser, and the Purchaser shall have thereby, in accordance with the terms
and conditions of this Agreement and without any further act required on its
behalf, acquired such portion (that being, based upon its prior Advice, the
Purchased Shares and/or the Business Assets) of the Property subject only to the
Consulting Fee (as hereinafter determined) payment consideration and to the
Royalty Performance Share (as hereinafter determined) issuance consideration
which may be payable and issuable by the Purchaser to the Vendors in accordance
with Articles "2" and "3", respectively, hereinbelow.
ARTICLE 2
GENERAL SERVICES AND COMPENSATION THEREFORE
2.1 GENERAL SERVICES. During the Initial Term (as hereinafter determined) of
this Agreement, and in conjunction with the general intent of the Parties hereto
which, upon the due and complete exercise by the Purchaser to acquire the
Property in accordance with section "1.2" hereinabove, seeks to have the
Purchaser further develop and expand the Vendors' existing Business interests,
the Purchaser hereby agrees to retain the Shareholder as a management consultant
to and on behalf of the Purchaser, or any of the Purchaser's subsidiaries, as
the case may be and as may be determined by the Purchaser in its sole and
absolute discretion, and the Shareholder hereby agrees to accept such position
in order to provide such consulting, technical, marketing and management
services (collectively, the "General Services") as may be necessary and
determined by the Purchaser, from to time and in its sole and absolute
discretion, to both develop and market the Business and Property interests
during the Initial Term and during the continuance of this Agreement; it being
expressly acknowledged and agreed by the Parties hereto that the Shareholder
shall commit and provide to the Purchaser the General Services on a full-time
basis during the Initial Term and during the continuance of this Agreement for
which the Purchaser, as more particularly set forth hereinbelow, hereby agrees
to pay to the order and direction of the Shareholder the Consulting Fee (as
hereinafter determined) in accordance with section "2.7" hereinbelow and during
the Initial Term only of this Agreement. In this regard it is hereby
acknowledged and agreed that the Shareholder shall be entitled to communicate
with and rely upon the immediate advice and instructions of Mr. Anthony R.
Harvey, the current Vice-Chairman, Vice-President, Secretary and a Director of
the Purchaser, or upon the advice or instructions of such other Director or
Officer of the Company as Mr. Harvey shall, from time to time, designate in
times of his absence, in order to initiate, coordinate and implement the General
Services for the Purchaser as contemplated herein.
2.2 INITIAL TERM IN RESPECT OF THE GENERAL SERVICES ONLY. The initial term of
this Agreement (the "Initial Term") in connection with the General Services only
is for the period commencing on the Effective Date of this Agreement and ending
on the date which is one calendar year from such Effective Date subject, at all
times, to the Purchaser's prior receipt, if required, of Regulatory Approval
from each of the Regulatory Authorities to the terms and conditions of and the
transactions contemplated by this Agreement.
2.3 RENEWAL BY THE PURCHASER IN RESPECT OF THE GENERAL SERVICES ONLY. Subject at
all times to sections "2.4" and "2.5" hereinbelow, the Initial Term in
connection with the General Services only shall renew automatically if not
specifically terminated in accordance with the following provisions. The
Purchaser agrees to notify the Shareholder in writing at least 30 calendar days
prior to the end of the Initial Term of its intent not to renew the General
Services portion only of this Agreement (the "Purchaser's Non-Renewal Notice").
Should the Purchaser fail to provide a Purchaser's Non-Renewal Notice the
General Services portion of this Agreement
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only shall automatically renew for a further one calendar year period until
otherwise specifically renewed in writing by each of the Parties hereto for the
next one calendar year period or, otherwise, terminated upon delivery by the
Purchaser of a corresponding and follow-up 30-calendar day Purchaser's
Non-Renewal Notice in connection with and within 30 calendar days prior to the
end of any such one calendar year renewal period. Any such renewal on a one
calendar year to one calendar year basis shall be on the same terms and
conditions for the delivery and compensation of such General Services as
contained in this Agreement unless otherwise modified and agreed to in writing
by the Shareholder and the Purchaser hereto.
2.4 TERMINATION OF THE GENERAL SERVICES FOR CAUSE BY ANY PARTY. Notwithstanding
any other provision of this Agreement, the General Services portion of this
Agreement only may be terminated at any time by either Party upon written notice
to the other Party and damages sought if:
(a) the other Party fails to cure a material breach of any provision
of this Agreement relating to the provision for General Services
only within 30 calendar days from its receipt of written notice
from said Party (unless such breach cannot be reasonably cured
within said 30 calendar days and the other Party is actively
pursuing to cure said breach);
(b) the other Party is willfully non-compliant in the performance of
its respective duties under this Agreement relating to the
provision for General Services only within 30 calendar days from
its receipt of written notice from said Party (unless such
willful non-compliance cannot be reasonably corrected within said
30 calendar days and the other Party is actively pursuing to cure
said willful non-compliance);
(c) the other Party commits fraud or serious neglect or misconduct in
the discharge of its respective duties relating to the provision
for General Services only hereunder or under the law; or
(d) the other Party becomes adjudged bankrupt or a petition for
reorganization or arrangement under any law relating to
bankruptcy, and where any such involuntary petition is not
dismissed within 10 calendar days.
2.5 TERMINATION WITHOUT CAUSE BY THE PURCHASER. Notwithstanding any other
provision of this Agreement, the General Services portion of this Agreement only
may be terminated by the Purchaser at any time after the Effective Date and
during the Initial Term and during the continuance of this Agreement upon its
delivery to the Shareholder of prior written notice of its intention to do so
(the "Purchaser's Notice of Termination") at least 10 calendar days prior to the
effective date of any such termination (the "Effective Termination Date"). In
any such event the respective obligations of each of Parties hereto under this
Agreement (and including, without limitation, the Shareholder's ongoing
obligation to provide the General Services and the Purchaser's ongoing
obligation to provide the Consulting Fee) will continue until such Effective
Termination Date as provided for in the Company's Notice of Termination and,
furthermore, upon the Effective Termination Date the Purchaser will also be
obligated to provide the Shareholder the then balance of any Consulting Fee (as
hereinafter determined) and Expense (as hereinafter determined) payment
reimbursement which would then be due and owing by the Purchaser to the
Shareholder to the completion of the Initial Term of this Agreement and, in
addition, and if this Agreement had then been previously and automatically
renewed for a further one calendar year period in accordance with section "3.5"
hereinabove, until the end of any such further one calendar year period in
conjunction with section "3.5". In addition, and again upon the Effective
Termination Date, the Purchaser will continue to be obligated to issue and pay,
respectively, the Acquisition Shares and the Acquisition Payment in order to
exercise the Option during the remaining portion of the Option Period
outstanding on the Effective Termination Date and, furthermore, to maintain the
Car Lease and Purchase Benefit (as hereinafter determined).
2.6 CONSULTING FEE. It is understood hereby that the Shareholder shall render
the General Services as defined hereinabove during the Initial Term and during
the continuance of this Agreement and shall thus be compensated on a monthly
basis by the Purchaser from the Effective Date of this Agreement to the
termination of the same by way of the payment by the Purchaser to the
Shareholder, or to the further order or direction of the Shareholder as the
Shareholder may determine, in the Shareholder's sole and absolute discretion,
and advise the Purchaser of prior to such payment, of a monthly fee of U.S.
$20,000 (the "Consulting Fee"), with such Consulting Fee being due and payable
by the Purchaser to the Shareholder, or to the further order or direction of
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the Shareholder as the Shareholder may determine, in the Shareholder's sole and
absolute discretion, and advise the Purchaser of prior to such payment, on the
first business day of the month following the then monthly period of service
during the Initial Term and during the continuance of this Agreement. In this
regard, and for the purposes of evidencing the Purchaser's ongoing commitment to
compensate the Shareholder together with the Shareholder's ongoing commitment to
perform the General Services faithfully, diligently, to the best of the
Shareholder's abilities and in the best interests of the Purchaser during the
Initial Term and during the continuance of this Agreement, it is hereby
acknowledged and agreed that the Purchaser shall provide the Shareholder, in the
manner aforesaid, with the initial month's and the final month's Consulting Fee
payments for the Initial Term of this Agreement on the first business day
following the Effective Date of this Agreement.
2.7 REIMBURSEMENT OF EXPENSES. It is also understood hereby that the Shareholder
shall also be reimbursed for all pre-approved direct reasonable expenses
actually and properly incurred by the Shareholder for the benefit of the
Purchaser (collectively, the "Expenses"), which Expenses have first been
approved by the Board of Directors of the Purchaser, and which Expenses, it is
hereby acknowledged and agreed, shall be payable by the Purchaser to the order,
direction and account of the Shareholder as the Shareholder may designate in
writing, from time to time, in the Shareholder's sole and absolute discretion,
as soon as conveniently possible after the prior delivery by the Shareholder of
written substantiation on account of each such reimbursable Expense.
2.8 CAR LEASE AND PURCHASE BENEFIT. It is further understood hereby that,
notwithstanding the prior termination of the General Services portion only of
this Agreement, the Purchaser shall make available for use by the Shareholder,
and for a period of four years from the Effective Date hereof, a new "BMW 540i"
of the Shareholder's choosing which the Purchaser will lease for the benefit of
the Shareholder during such four year term and, thereafter, transfer to the
Shareholder for the sum of U.S. $1.00; it being acknowledged and agreed that the
Purchaser shall thereupon be responsible for satisfying any residual amount
owing under said car lease prior to the corresponding transfer of the car to the
order and direction of the Shareholder in that instance (collectively, the "Car
Lease and Purchase Benefit").
ARTICLE 3
TRADING SUBSIDIARY, GROSS SALES AND COMPENSATION THEREFORE
3.1 CREATION OF TRADING SUBSIDIARY. Upon the due and complete exercise of the
Option by the Purchaser in accordance with section "1.2" hereinabove, and in
conjunction with the corresponding completion of the sale and purchase of the
Property in accordance with Article "7" hereinbelow such that the Purchaser is
the registered and beneficial owner of a one hundred percent (100%) undivided
interest in and to the Property, it is hereby acknowledged and agreed by the
Parties hereto that it is then presently intended that the Purchaser, or any of
the Purchaser's subsidiaries, as the case may be and as may be determined by the
Purchaser in its sole and absolute discretion, will establish one or more
trading subsidiaries (each a "Trading Subsidiary") for the purposes of
developing, marketing and maintaining the Business and Property interests
utilizing the Shareholder's General Services and in particular, however, without
limitation, for the purpose of generating and collecting all Gross Sales (as
hereinafter determined) and of any other benefit, directly or indirectly
collected or received, whether for cash or credit or by way of any benefit,
advantage, equity or concession from the research, development, marketing and
maintenance of the Business and Property interests or any other activity in
relation to the sale of any Product therefrom (collectively, the "Gross Sales").
3.2 CAPITAL FUNDING OF PROPOSED TRADING SUBSIDIARY. Upon the due and complete
exercise of the Option by the Purchaser in accordance with section "1.2"
hereinabove and the corresponding completion of the sale and purchase of the
Property in accordance with Article "7" hereinbelow, and in conjunction with any
and all proposed Loans (as hereinafter determined) in accordance with section
"4.1" hereinbelow, it is hereby acknowledged and agreed by the Parties hereto
that it is then presently intended that the Purchaser, or any of the Purchaser's
subsidiaries, as the case may be and as may be determined by the Purchaser in
its sole and absolute discretion, will, from time to time, however, during the
initial four month period after the Closing (as hereinafter determined) herein,
and again in the Purchaser's sole and absolute discretion, advance by way of a
loan or loans to any such Trading Subsidiary the aggregate sum of up to U.S.
$1,000,000 (collectively, the "Advance"), together with interest accruing
thereon at such rate as may be determined by the Purchaser from time to time, in
its sole and absolute discretion, compounded semi-annually and not in advance
(the "Interest") prior to maturity, which Advance and Interest will be payable
by the Trading Subsidiary to the Purchaser on
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such terms as may determined by the Purchaser, in its sole and absolute
discretion, prior to the advancement of any such Advance, and which Advance and
Interest will be secured, contemporaneously with the advancement of any funds
under any such Advance, by way of a senior fixed and floating charge on all of
the assets of such Trading Subsidiary. In this regard it is hereby acknowledged
and agreed that any said Advance will be utilized, at all times, by the Trading
Subsidiary under the control and direction of the Board of Directors of the
Purchaser, however, it is hereby also acknowledged and understood that it is
presently intended that any said Advance will at least be utilized in
conjunction with, but not limited to, the purchasing of Product and gemstones in
conjunction with the ongoing development, marketing and maintenance of the
Business and Property interests utilizing the Shareholder's General Services and
in particular, however, again without limitation, in the furtherance of
generating Gross Sales for the Purchaser through the Trading Subsidiary.
3.3 DEBT FUNDING OF PROPOSED TRADING SUBSIDIARY. Upon the due and complete
exercise of the Option by the Purchaser in accordance with section "1.2"
hereinabove, and in conjunction with any and all proposed Advances under section
"3.2" hereinabove and any and all proposed Loans (as hereinafter determined)
under section "4.1" hereinbelow, it is hereby further acknowledged and agreed by
the Parties hereto that it is then presently intended that the Purchaser, or any
of the Purchaser's subsidiaries, as the case may be and as may be determined by
the Purchaser in its sole and absolute discretion, will, from time to time,
however, during the Initial Term only of this Agreement, and again in the
Purchaser's sole and absolute discretion, arrange up to U.S. $1,000,000 in line
of credit financing(s) for the Trading Subsidiary (collectively, the "Line of
Credit"), on such terms as may determined by the Purchaser, in its sole and
absolute discretion, and in and for such jurisdiction(s) as may be determined by
the Purchaser, with the reasonable advice of the Vendors, and in conjunction
with, but not limited to, the purchasing of Product and gemstones in conjunction
with the ongoing development, marketing and maintenance of the Business and
Property interests utilizing the Shareholder's General Services and in
particular, however, without limitation, in the furtherance of generating Gross
Sales for the Purchaser through the Trading Subsidiary. In this regard it is
hereby further acknowledged and agreed that the Purchaser will be entitled, in
its sole and absolute discretion and in conjunction with any such Line of
Credit, to pledge and/or hypothecate such assets of the Trading Subsidiary and
the Company as may be reasonably required in order to secure any such Line of
Credit for the Trading Subsidiary.
3.4 PERFORMANCE SHARE CONSIDERATION IN RESPECT OF GROSS SALES. Upon the due and
complete exercise of the Option by the Purchaser in accordance with section
"1.2" hereinabove, and in conjunction with the corresponding completion of the
sale and purchase of the Property in accordance with Article "7" hereinbelow
such that the Purchaser is the registered and beneficial owner of a one hundred
percent (100%) undivided interest in and to the Property, the Purchaser hereby
acknowledges and agrees that it shall thereby be committed and hereby
contractually obligated, while it is the registered and beneficial owner of a
one hundred percent (100%) undivided interest in and to the Property, to provide
to the order and direction of the Vendors, or to the further order or direction
of the Vendors as the Vendors may determine, in the Vendors' sole and absolute
discretion, and advise the Purchaser of prior to such provision, a further fee
(the "Royalty") in respect of all Gross Sales received by either the Purchaser,
its subsidiary or its Trading Subsidiary, as the case may be, from the research,
development, marketing and maintenance of the Business and Property interests or
any other activity in relation to the sale of any Product therefrom. In this
regard said Royalty shall be satisfied by way of the issuance from treasury by
the Purchaser to order and direction of the Vendors, or to the further order or
direction of the Vendors as the Vendors may determine, in the Vendors' sole and
absolute discretion, and advise the Purchaser of prior to such Royalty
provision, and in conjunction with Article "7" hereinbelow, of an aggregate of
up to 750,000 additional common shares in the capital of the Purchaser (each a
"Performance Share"), at a deemed issuance price of U.S. $0.95 per Performance
Share, in the following manner (it being acknowledged and agreed that each of
the following Performance Share issuance circumstances are consecutive and
dependent upon the prior completion of each such issuance):
(a) an initial 250,000 of the Performance Shares shall be issuable to
the order and direction of the Vendors on or before 60 calendar
days from the last day of any calendar month which is determined
to be the fifth such consecutive calendar month during a period
in which either the Purchaser, its subsidiary or its Trading
Subsidiary, as the case may be, first maintained Gross Sales of
at least U.S. $570,000 during each of such initial five months
and, in addition, during each of which initial five months a
profit margin (the "Profit Margin") of at least twenty percent
(20%) was maintained by either the Purchaser, its subsidiary or
its Trading Subsidiary, as the case may be, in respect of all
such Gross Sales (the "Initial Performance Share Issuance");
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(b) subject to the prior obligation and completion of the Initial
Performance Share Issuance under the conditions and during the
initial five month period as contemplated in paragraph "3.4(a)"
hereinabove, a further 250,000 of the Performance Shares shall be
issuable to the order and direction of the Vendors on or before
60 calendar days from the last day of any calendar month which is
determined to then be the fourth such consecutive calendar month
during a period in which either the Purchaser, its subsidiary or
its Trading Subsidiary, as the case may be, maintained Gross
Sales of at least U.S. $600,000 during each of such four
additional months and, in addition, during each of which
additional four months a similar Profit Margin of at least twenty
percent (20%) was maintained by either the Purchaser, its
subsidiary or its Trading Subsidiary, as the case may be, in
respect of such Gross Sales (the "Second Performance Share
Issuance"); and
(c) subject to the prior obligation and completion of each of the
Initial Performance Share Issuance and the Second Performance
Share Issuance under the conditions and during the initial five
month and additional four month periods as contemplated in
paragraphs "3.4(a)" and "3.4(b)" hereinabove, the final 250,000
of the Performance Shares shall be issuable to the order and
direction of the Vendors on or before 60 calendar days from the
last day of any calendar month which is determined to then be the
third such further consecutive calendar month during a period in
which either the Purchaser, its subsidiary or its Trading
Subsidiary, as the case may be, maintained Gross Sales of at
least U.S. $800,000 during each of such three additional months
and, in addition, during each of which additional three months a
similar Profit Margin of at least twenty percent (20%) was
maintained by either the Purchaser, its subsidiary or its Trading
Subsidiary, as the case may be, in respect of such Gross Sales.
3.5 CALCULATION AND COLLECTION OF GROSS SALES. It is hereby acknowledged and
agreed that the Royalty shall be accounted for monthly, and within 30 calendar
days after the end of each such month, and that the first month shall commence
on the first business day of the month following the month of the Effective Date
hereof. The Royalty shall be calculated on all amounts invoiced, or deemed
invoiced, in a month. Within 30 calendar days (or such extended time as the
Parties may permit) of the end of each month the Purchaser, its subsidiary or
its Trading Subsidiary, as the case may be, shall be required to render a
monthly accounting statement with explanatory notes, shall make any adjustments
thereto and shall calculate any Royalty due from such adjustment upon
presentation of such accounting or give notice of any deduction to be carried to
apply to Gross Sales for the next month. The calculation of Gross Sales shall be
carried out in accordance with generally accepted United States accounting
principles applied on a consistent basis. In this regard the Vendors may contest
any accounting within 15 calendar days of presentation of such report. However,
an accounting may be challenged at any time if it comes to the attention of the
Vendors that the Purchaser has failed to clearly disclose any material fact or
Gross Sale therein. It will be the responsibility of the Purchaser, its
subsidiary or its Trading Subsidiary, as the case may be, to collect the amounts
of Gross Sales and all risk of such shall be that of the Purchaser.
Notwithstanding that the Purchaser shall not have invoiced a customer, it shall
be deemed to have invoiced for all Product on the tenth calendar day after
delivery of the same unless special circumstances, with prior approval in
writing by the Vendors, pertain. However, the Purchaser may deduct from Gross
Sales upon which a Royalty is calculated the uncollected receivables from
preceding months which the Purchaser has made bona fide and reasonable best
efforts to collect, but the cost of collection shall not be deducted from Gross
Sales for the purpose of any Royalty calculation. All calculated Gross Sales
figures shall be made in U.S. dollars without any reduction or deduction of any
nature or kind whatsoever, except as set forth in this Agreement. In this regard
the Purchaser shall not exercise any set-off, deduction or any other reduction
to the Gross Sales whether for claims of damages, costs or any other amount
excepting only the uncollected receivables as set forth hereinabove. In the
event that there is any dispute about the calculation or deductibility of
uncollected receivables, such shall be determined by arbitration in accordance
with Article "17" hereinbelow.
ARTICLE 4
INTERIM SECURED LOAN AND SECURITY THEREFORE
4.1 INTERIM SECURED LOAN FROM THE PURCHASER TO THE VENDORS. In conjunction with
and as a condition to the entering into of this Agreement by the Parties hereto,
and prior to the Closing (as hereinafter determined) the Purchaser has agreed to
hereby advance by way of a loan or loans to the Vendors (collectively,
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the "Loan") the aggregate principal sum of up to U.S. $250,000 (collectively,
the "Principal Sum"), together with interest accruing thereon at the rate of ten
percent (10%) per annum, compounded semi-annually and not in advance (the
"Interest") prior to maturity, which Principal Sum and Interest will be payable
by the Vendors to the Purchaser on such terms as may agreed upon by the
Purchaser and the Vendors prior to the advancement of any such Loan, and which
Principal Sum and Interest will be secured, contemporaneously with the
advancement of any funds under any such Loan, by way of a senior fixed and
floating charge on all of the assets of the Vendors (collectively, the
"Security"). In this regard it is hereby acknowledged and agreed that, upon the
completion of the within purchase and sale, it is intended, subject to the
Purchaser's prior receipt of appropriate accounting and legal advice, that the
Loan will simply be forgiven or become an inter-company account as the situation
may require.
4.2 COVENANTS OF THE VENDORS IN CONNECTION WITH ANY LOAN. In order to induce the
Purchaser to provide any such Loan as contemplated by section "4.1" hereinabove,
the Vendors hereby, jointly and severally, covenant with the Purchaser, with the
intent that the Purchaser will rely thereon in providing any such Loan and in
concluding the transactions contemplated thereby, that:
(a) the Vendors will use any such Principal Sum monies which may be
advanced by the Purchaser by way of Loan for the sole purpose of
purchasing Product and gemstones on behalf of, in the name of and
as agent only for either the Purchaser, its subsidiary or its
Trading Subsidiary, as the case may be, and, furthermore, in
conjunction with the ongoing development, marketing and
maintenance of the Business and Property interests utilizing the
Shareholder's General Services through the Purchaser and in
particular, however, without limitation, in the furtherance of
generating Gross Sales for the Purchaser; and
(b) any such Principal Sum will be advanced by the Purchaser to the
Vendors subject to the fulfillment and/or the continuing
fulfillment of at least the following Security conditions to the
sole and absolute satisfaction and discretion of the Purchaser:
(i) the execution by the Vendors of formal Loan documentation
in form and substance satisfactory to the Purchaser and
the Purchaser's counsel, acting reasonably;
(ii) the granting and delivery by the Vendors to the Purchaser
of such Security documentation (and including, without
limitation, promissory notes, security instruments and
United States Uniform Commercial Code registration
statements) as may be required by the Purchaser and its
counsel, acting reasonably, in order to evidence the Loan,
together with and all other supporting documents required
under any such Security documentation; and
(iii) the execution by the Vendors of such formal documentation
in form and substance satisfactory to the Purchaser and
the Purchaser's counsel, acting reasonably, necessarily
providing that any Product and gemstones which are
purchased by the Vendors utilizing any such Principal Sum
monies will be held on behalf of, in the name of and in a
trading account to be established for the Trading
Subsidiary and jointly administered by the Purchaser and
the Shareholder (the "Trading Account") in that instance,
whereupon, should either this Agreement be terminated for
any reason whatsoever by either or both Parties, or should
the Purchaser either relinquish, abandon or transfer back
to the Vendors all or any portion of the Property at any
time after the Execution Date hereof, then all Product,
gemstones and funds then remaining in such Trading Account
shall be returned to the sole and absolute benefit and
direction of the Purchaser without recourse to the
Vendors.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE VENDORS
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE VENDORS. In order to induce
the Purchaser to enter into and consummate this Agreement, each of the Vendors
hereby, jointly and severally, represents and warrants to the Purchaser, with
the intent that the Purchaser will rely thereon in entering into this
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Agreement and in concluding the transactions contemplated herein, that, to the
best of the knowledge, information and belief of each of the Vendors, after
having made due inquiry:
(a) the execution and delivery of this Agreement and the agreements
contemplated hereby have been duly authorized by all necessary
action, corporate or otherwise, on its respective part, and this
Agreement constitutes a legal, valid and binding obligation of it
enforceable against it in accordance with its terms, except as
enforcement may be limited by laws of general application
affecting the rights of creditors;
(b) the Vendors are the registered and beneficial owners of all of
the interests comprising the Business Assets and the Vendors are
authorized to hold the right to develop and maintain each of the
interests comprising the Business Assets, and the Vendors hold of
all of the interests comprising the Business Assets free and
clear of all liens, charges and claims of others;
(c) no person, firm or corporation has any written or oral agreement,
option, understanding or commitment, or any right or privilege
capable of becoming an agreement, for the purchase from the
Vendors of any interest in and to any of the interests comprising
the Business Assets;
(d) all permits and licenses covering the interests comprising the
Business Assets have been duly and validly issued pursuant to
applicable laws and are in good standing by the proper payment of
all fees, taxes and rentals in accordance with the requirements
of applicable laws and the performance of all other actions
necessary in that regard, and the Vendors have insured the
interests comprising the Business Assets against loss or damage
on a replacement cost basis;
(e) the Shareholder (or the Shareholder as a majority owner and as
the attorney and duly authorized representative of any resulting
minority shareholder of the Company, as the case may be) has good
and marketable title to and is the legal and beneficial owner of
all of the Purchased Shares and has the power and capacity to own
and dispose of the Purchased Shares;
(f) no other person, firm or corporation has any agreement, option or
right capable of becoming an agreement for the purchase of any of
the Purchased Shares;
(g) there are no actions, suits, proceedings or investigations
(whether or not purportedly against or on behalf of the Vendors,
the Company or the Property), pending or threatened, which may
affect, without limitation, the rights of the Vendors (or the
Shareholder as a majority owner and as the attorney and duly
authorized representative of any resulting minority shareholder
of the Company, as the case may be) to transfer any of the
Property to the Purchaser at law or in equity, or before or by
any federal, state, provincial, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and, without limiting the generality of the
foregoing, there are no claims or potential claims under any
relevant family relations legislation or other equivalent
legislation affecting the Property. In addition, the Vendors are
not now aware of any existing ground on which any such action,
suit or proceeding might be commenced with any reasonable
likelihood of success;
(h) the Company is not, nor until or at the Closing Date (as
hereinafter determined) will it be, in breach of any provision or
condition of, nor has it done or omitted to do anything that,
with or without the giving of notice or lapse or both, would
constitute a breach of any provision or condition of, or give
rise to any right to terminate or cancel or accelerate the
maturity of any payment under, any deed of trust, contract,
certificate, consent, permit, license or other instrument to
which it is a party, by which it is bound or from which it
derives benefit, any judgment, decree, order, rule or regulation
of any court or governmental authority to which it is subject, or
any statute or regulation applicable to it, to an extent that, in
the aggregate, has a material adverse affect on it;
(i) until the Closing Date the Company will:
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(i) maintain its Business Assets and other assets in a manner
consistent with and in compliance with applicable law; and
(ii) not enter into any material transaction or assume or incur any
material liability outside the normal course of its business;
(j) the Vendors have delivered to the Purchaser all Business
Documentation (as hereinafter determined) in their possession or
control relating to the interests comprising the Business Assets and
copies of all permits and permit applications respecting any of the
interests comprising the Business Assets; and
(k) neither this Agreement nor any other document, certificate or
statement furnished to the Purchaser by or on behalf of the Vendors
in connection with the transactions contemplated hereby knowingly or
negligently contains any untrue or incomplete statement of material
fact or omits to state a material fact necessary in order to make the
statements therein not misleading, and it is not aware of any fact or
circumstance which has not been disclosed to the Purchaser which
should be disclosed in order to prevent the representations,
warranties and covenants contained in this section from being
misleading or which would likely affect the decision of the Purchaser
to enter into this Agreement.
5.2 THE VENDORS' ADDITIONAL DOCUMENT COVENANTS. The Vendors will also deliver,
or caused to be delivered, to the Purchaser as soon as conveniently possible
after the Execution Date, however, prior to the Subject Removal Date (as
hereinafter determined), a comprehensive business plan and/or independent
assessment report respecting the interests comprising the Property, together
with such title opinion or other opinions respecting the interests comprising
the Property (collectively, the "Business Documentation"), all as addressed to
the Vendors, the Purchaser and the Purchaser's counsel and prepared in
accordance with the applicable rules and policies of the Exchange, together with
such other documentation as the Purchaser may require in order to seek and
obtain Regulatory Approval for each of the transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1 PURCHASER'S CONDITIONS PRECEDENT PRIOR TO THE CLOSING DATE. The rights,
duties and obligations of the Purchaser under this Agreement are subject to the
following conditions precedent for the exclusive benefit of the Purchaser
fulfilled in all material aspects in the reasonable opinion of the Purchaser or
to be waived by the Purchaser as soon as possible after the Execution Date,
however, unless specifically indicated as otherwise, not later than five
calendar days prior to the Subject Removal Date:
(a) the representations and warranties of each of the Vendors
contained herein shall be true and correct as of and on the
Subject Removal Date, and the Vendors shall have complied with
all warranties, representations, covenants and agreements herein
agreed to be performed or caused to be performed by the Vendors
on or before the Subject Removal Date;
(b) the Purchaser will have obtained all authorizations, approvals or
waivers that may be necessary or desirable in connection with the
transactions contemplated in this Agreement, and other actions
by, and have made all filings with, any and all regulatory
authorities from whom any such authorization, approval or other
action is required to be obtained or to be made in connection
with the transactions contemplated herein, and all such
authorizations, approvals and other actions will be in full force
and effect, and all such filings will have been accepted by the
Vendors who will be in compliance with, and have not committed
any breach of, any securities laws, regulations or policies of
any regulatory authority to which either of the Vendors may be
subject;
(c) all matters which, in the opinion of counsel for the Purchaser,
are material in connection with the transactions contemplated by
this Agreement shall be subject to the favourable opinion of such
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counsel, and all relevant records and information shall be
supplied to such counsel for that purpose;
(d) no material loss or destruction of or damage to either of the
Vendors, to any of the interests comprising the Business Assets
or to any of the Purchased Shares shall have occurred since the
Execution Date;
(e) no action or proceeding at law or in equity shall be pending or
threatened by any person, company, firm, governmental authority,
regulatory body or agency to enjoin or prohibit:
(i) the purchase or transfer of any of the Property interests
contemplated by this Agreement or the right of the Vendors
to dispose of any of the Property interests; or
(ii) the right of the Vendors to conduct their respective
operations and carry on, in the normal course, their
respective businesses and operations as they have carried
on in the past;
(f) delivery to the Purchaser by the Vendors, on a confidential
basis, of all Business Documentation (as hereinafter determined)
and including, without limitation,:
(i) a copy of all material contracts, agreements, reports and
title information of any nature respecting the Vendors,
the Business Assets and the Purchased Shares; and
(ii) details of any lawsuits, claims or potential claims
relating to either of the Vendors, to any of the Business
Assets or to any the Purchased Shares of which either of
the Vendors is aware and the Purchaser is unaware;
(g) the Company will, for a period of at least five calendar days
prior to the Subject Removal, during normal business hours:
(i) make available for inspection by the solicitors, auditors
and representatives of the Purchaser, at such location as
is appropriate, all of the Company's books, records,
contracts, documents, correspondence and other written
materials, and afford such persons every reasonable
opportunity to make copies thereof and take extracts
therefrom at the sole cost of the Purchaser; provided such
persons do not unduly interfere in the operation of the
Company;
(ii) authorize and permit such persons at the risk and the sole
cost of the Purchaser, and only if such persons do not
unduly interfere in the operations of the Company, to
attend at all of its places of business and operations to
observe the conduct of its business and operations,
inspect its properties and Business Assets and make
physical counts of its respective inventories, shipments
and deliveries; and
(iii) require the Company's management personnel to respond to
all reasonable inquiries concerning the Company's Business
Assets or the conduct of its business relating to its
liabilities and obligations; and
(h) the completion by the Purchaser and by the Purchaser's
professional advisors of a thorough due diligence and operations
review of both the respective businesses and operations of the
Vendors together with the transferability of the Property
interests as contemplated by this Agreement, to the sole and
absolute satisfaction of the Purchaser.
6.2 WAIVER OF CONDITIONS PRECEDENT. The conditions precedent set forth
hereinabove are for the exclusive benefit of the Purchaser and may be waived in
writing and in whole or in part at any after the Execution Date, however, unless
specifically indicated as otherwise, not later than five calendar days prior to
the Subject Removal Date.
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ARTICLE 7
CLOSING, EVENTS OF CLOSING AND ESCROW AGENT THEREFORE
7.1 CLOSING AND CLOSING DATE. The closing (the "Closing") of the within purchase
and delivery of the Property interests, as contemplated in the manner as set
forth in Article "2" hereinabove, together with all of the transactions
contemplated by this Agreement, shall occur on the day which is 10 calendar days
following the due and complete exercise of the Option by the Purchaser in
accordance with section "1.2" hereinabove (the "Closing Date"), or on such
earlier or later Closing Date as may be agreed to in advance and in writing by
each of the Parties hereto, and will be closed at the offices of counsel for the
Purchaser, Devlin Jensen, Barristers and Solicitors, located at Suite 2550, 555
West Hastings Street, Vancouver, British Columbia, V6B 4N5, at 2:00 p.m.
(Vancouver time) on the Closing Date.
7.2 LATEST CLOSING DATE. If the Closing Date has not occurred by March 30, 2000
this Agreement will be terminated and all advances by the Purchaser to, or to
the benefit, of the Vendors will be immediately repaid, unless the Parties
hereto agree in writing to grant an extension of the Closing Date.
7.3 DOCUMENTS TO BE DELIVERED BY EACH OF THE VENDORS PRIOR TO THE CLOSING DATE.
Not later than five calendar days prior to the Closing Date, and in addition to
the documentation which is required by the agreements and conditions precedent
which are set forth in Articles "6" hereinabove, the Vendors shall also execute
and deliver, or cause to be delivered, to the Escrow Agent (as hereinafter
determined) all such other documents, resolutions and instruments as may be
necessary, in the opinion of counsel for the Purchaser, acting reasonably, to
complete all of the transactions contemplated by this Agreement including,
without limitation, the necessary transfer of all of the Property interests to
the Purchaser free and clear of all liens, charges and encumbrances, and in
particular including, but not being limited to, the following materials:
(a) all documentation as may be necessary and as may be required by
the solicitors for the Purchaser, acting reasonably, to ensure
that all of the Property interests have been transferred,
assigned and are registerable in the name of and for the benefit
of the Purchaser under applicable corporate laws;
(b) if applicable, a certified copy of the resolutions of the
directors and/or shareholders of the Company authorizing the
transfer by such shareholders to the Purchaser of the Purchased
Shares in accordance with the terms of this Agreement;
(c) a copy of all respective corporate records and books of account
of the Company and including, without limitation, a copy of all
minute books, share register books, share certificate books and
annual reports;
(d) all necessary consents and approvals in writing to the completion
of the transactions contemplated herein from all regulatory
authorities having jurisdiction over the Vendors;
(e) certificates of the Vendor and of an officer of the Company,
dated as of the Closing Date, acceptable in form to counsel for
the Purchaser, acting reasonably, certifying that the
representations, warranties, covenants and agreements of the each
of the Vendors contained in this Agreement are true and correct
in all respects as of the Execution Date of this Agreement and
will be true and correct as of the Closing Date as if made by the
each of the Vendors on the Closing Date;
(f) an opinion of counsel to the Vendors, dated as at the Closing
Date and addressed to the Purchaser and its counsel, in form and
substance satisfactory to the Purchaser's counsel, acting
reasonably, to the effect that:
(i) the Vendors are the registered and beneficial owners of
all of the interests comprising the Property prior to the
completion of the transactions contemplated by this
Agreement;
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(ii) the Company holds the right to develop each of the
interests comprising the Business Assets;
(iii) the Vendors, as the registered and beneficial owners of
all of the interests comprising the Property, hold of all
of the interests comprising the Property free and clear of
all liens, charges and claims of others;
(iv) based on actual knowledge and belief, such counsel knows
of no adverse claim or challenge against or to the
ownership of or title to any of the interests comprising
the Property or which may impede the Business Assets'
development, and, based on actual knowledge and belief,
such counsel is not aware of any basis for any potential
claim or challenge, and there are no outstanding
agreements or options to acquire or purchase any of the
interests comprising the Property;
(v) the Company is a corporation duly incorporated under the
laws of its respective jurisdiction of incorporation and
is validly existing and in good standing with respect to
all statutory filings required by the applicable corporate
laws;
(vi) the Vendors have the requisite power, authority and
capacity to own and use all of their respective Business
Assets and to carry on their respective businesses as
presently conducted by them;
(vii) all necessary steps and corporate proceedings have been
taken by the Vendors to permit the Property interests to
be duly and validly transferred to and registered in the
name of the Purchaser as at the Closing Date;
(viii) the number of authorized and issued shares in the share
capital of the Company is as warranted by the Company, and
all of such issued shares are duly authorized, validly
issued and outstanding as fully paid and non-assessable;
(ix) based on actual knowledge and belief, such counsel knows
of no claims, judgments, actions, suits, litigation,
proceedings or investigations, actual, pending or
threatened, against either of the Vendors or the interests
comprising the Property which might materially affect
either of the Vendors or the Property interests or which
could result in any material liability to the Vendors or
the Property interests; and
(x) as to all other legal matters of a like nature pertaining
to the Vendors, the Property interests and to the
transactions contemplated hereby as the Purchaser or the
Purchaser's counsel may reasonably require;
(g) any remaining Business Documentation; and
(h) all such other documents and instruments as the Purchaser's
counsel may reasonably require.
7.4 APPOINTMENT OF ESCROW AGENT. The Parties hereto hereby acknowledge and
appoint Devlin Jensen, Barristers and Solicitors, of Suite 2550, 555 West
Hastings Street, Vancouver, British Columbia, V6B 4N5, counsel for the Purchaser
herein, as escrow agent (the "Escrow Agent") herein, or such other Escrow Agent
as may be mutually determined by the Parties hereto prior to the Subject Removal
Date, and the Escrow Agent will thereby agree to act as Escrow Agent in
accordance with the terms of this Agreement.
7.5 ESCROW OF TRANSFER DOCUMENTS. Subject to and in accordance with the terms
and conditions hereof and the requirements of Articles "2", "3", "4", "5" and
"6" hereinabove, and without in any manner limiting the obligations of each of
the Parties hereto as contained therein and hereinabove, it is hereby
acknowledged and confirmed by the Parties hereto that each of the Parties will
execute, deliver, or cause to be delivered, all such documentation as may be
required by the requirements of Articles "2", "3", "4", "5" and "6" hereinabove
(herein, collectively, the "Transfer Documents") and deposit the same with the
Escrow Agent, or with such other mutually agreeable escrow agent, together with
a copy of this Agreement, there to be held in
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escrow for release by the Escrow Agent to the Parties in accordance with the
strict terms and provisions of Articles "2", "3", "4", "5", and "6" hereinabove.
7.6 RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign from its duties and
responsibilities if it gives each of the Parties hereto three calendar days'
written notice in advance. Upon receipt of notice of the Escrow Agent's
intention to resign, the Parties shall, within three calendar days, select a
replacement escrow agent and jointly advise the Escrow Agent in writing to
deliver the Transfer Documents to the replacement escrow agent. If the Parties
fail to agree on a replacement escrow agent within three calendar days of such
notice, the replacement escrow agent shall be selected by a Judge of the Supreme
Court of the Province of British Columbia upon application by any Party hereto.
The Escrow Agent shall continue to be bound by this Agreement until the
replacement escrow agent has been selected and the Escrow Agent receives and
complies with the joint instructions of the Parties to deliver the Transfer
Documents to the replacement escrow agent. The Parties agree to enter into an
escrow agreement substantially in the same form of this Agreement with the
replacement escrow agent.
7.7 INSTRUCTIONS TO, DUTIES AND OBLIGATIONS OF AND INDEMNITY OF THE ESCROW
AGENT. Instructions given to the Escrow Agent pursuant to this Agreement shall
be given by duly authorized signatories of the respective Parties hereto. The
Escrow Agent shall have no duties or obligations other than those specifically
set forth in this Article. The Escrow Agent shall not be obligated to take any
legal action hereunder which might, in its judgment, involve any expense or
liability unless it shall have been furnished with a reasonable indemnity by all
of the Parties hereto together with such other third parties as the Escrow Agent
may require in its sole and absolute discretion. The Escrow Agent is not bound
in any way by any other contract or agreement between the Parties hereto whether
or not it has knowledge thereof or of its terms and conditions and its only
duty, liability and responsibility shall be to hold and deal with the Transfer
Documents as herein directed. The Escrow Agent shall be entitled to assume that
any notice and evidence received by it pursuant to these instructions from
anyone has been duly executed by the Party by whom it purports to have been
signed and that the text of any notice and evidence is accurate and the truth.
The Escrow Agent shall not be obliged to inquire into the sufficiency or
authority of the text or any signatures appearing on such notice or evidence.
The Parties hereto, jointly and severally, covenant and agree to indemnify the
Escrow Agent and to hold it harmless against any loss, liability or expense
incurred, without negligence or bad faith on its part, arising out of or in
connection with the administration of its duties hereunder including, without
limitation, the costs and expenses of defending itself against any claim or
liability arising therefrom.
ARTICLE 8
DUE DILIGENCE, NON-DISCLOSURE AND CONFIDENTIALITY
8.1 DUE DILIGENCE. Each of the Parties hereto may conduct such further due
diligence examination of the other Parties hereto as it deems appropriate. Each
Party may in a reasonable manner carry out such investigations and due diligence
as to the other Parties hereto, at all times subject to the confidentiality
provisions hereinbelow, as each Party deems advisable. In that regard the
Parties agree that each shall have full and complete access to the other
Parties' books, records, financial statements and other documents, articles of
incorporation, by-laws, minutes of Board of Directors' meetings and its
committees, investment agreements, material contracts and as well such other
documents and materials as the Parties hereto, or their respective counsel, may
deem reasonable and necessary to conduct an adequate due diligence investigation
of each Party, its respective operations and financial condition prior to the
Closing.
8.2 NON-DISCLOSURE. Subject to the provisions of hereinbelow, the Parties
hereto, for themselves, their officers, directors, shareholders, consultants,
employees and agents, agree that they each will not disseminate or disclose, or
knowingly allow, permit or cause others to disseminate or disclose to third
parties who are not subject to express or implied covenants of confidentiality,
without the other Parties' express written consent, either: (i) the fact or
existence of this Agreement or discussions and/or negotiations between them
involving, inter alia, possible business transactions; (ii) the possible
substance or content of those discussions; (iii) the possible terms and
conditions of any proposed transaction; (iv) any statements or representations
(whether verbal or written) made by either Party in the course of or in
connection with those discussions; or (v) any written material generated by or
on behalf of any Party and such contacts, other than such disclosure as may be
required under applicable securities legislation or regulations, pursuant to any
order of a Court or on a "need to know" basis to each of the Parties' respective
professional advisors. Any document or written material
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generated by either Party hereto in the course of, or in connection with, the
due diligence investigations conducted pursuant to this Agreement shall be
marked "Confidential" and shall be treated by each Party as a trade secret of
the other Parties. Upon termination of this Agreement prior to Closing all
copies of any and all documents obtained by any Party from any other Party
herein, whether or not marked "Confidential", shall be returned to the other
Parties forthwith. Notwithstanding the provisions of this Article, the Parties
hereto agree to make such public announcements of this Agreement promptly upon
its execution in accordance with the requirements of applicable securities
legislation and regulations.
8.3 CONFIDENTIAL INFORMATION. Each Party hereto acknowledges that any and all
information which a Party may obtain from, or have disclosed to it, about the
other Parties constitutes valuable trade secrets and proprietary confidential
information of the other Parties (collectively, the "Confidential Information").
No such Confidential Information shall be published by any Party without the
prior written consent of the other Parties hereto, however, such consent in
respect of the reporting of factual data shall not be unreasonably withheld, and
shall not be withheld in respect of information required to be publicly
disclosed pursuant to applicable securities or corporation laws. Furthermore,
each Party hereto undertakes not to disclose the Confidential Information to any
third party without the prior written approval of the other Parties and to
ensure that any third party to which the Confidential Information is disclosed
shall execute an agreement and undertaking on the same terms as contained
herein. The Parties hereto acknowledge that the Confidential Information is
important to the respective businesses of each of the Parties and that, in the
event of disclosure of the Confidential Information, except as authorized
hereunder, the damage to each of the Parties hereto, or to either of them, may
be irreparable. For the purposes of the foregoing sections the Parties recognize
and hereby agree that a breach by any of the Parties of any of the covenants
therein contained would result in irreparable harm and significant damage to
each of the other Parties that would not be adequately compensated for by
monetary award. Accordingly, the Parties agree that in the event of any such
breach, in addition to being entitled as a matter of right to apply to a Court
of competent equitable jurisdiction for relief by way of restraining order,
injunction, decree or otherwise as may be appropriate to ensure compliance with
the provisions hereof, any such Party will also be liable to the other Parties,
as liquidated damages, for an amount equal to the amount received and earned by
such Party as a result of and with respect to any such breach. The Parties also
acknowledge and agree that if any of the aforesaid restrictions, activities,
obligations or periods are considered by a court of competent jurisdiction as
being unreasonable, the Parties agree that said court shall have authority to
limit such restrictions, activities or periods as the court deems proper in the
circumstances. In addition, the Parties further acknowledge and agree that all
restrictions or obligations in this Agreement are necessary and fundamental to
the protection of the respective businesses of each of the Parties and are
reasonable and valid, and all defenses to the strict enforcement thereof by
either of the Parties are hereby waived by the other Parties.
ARTICLE 9
ARBITRATION
9.1 MATTERS FOR AND NOTICE OF ARBITRATION. The Parties hereto agree that all
questions or matters in dispute with respect to this Agreement shall be
submitted to arbitration pursuant to the terms hereof. It shall be a condition
precedent to the right of any Party to submit any matter to arbitration pursuant
to the provisions hereof that any Party intending to refer any matter to
arbitration shall have given not less than 10 calendar days' prior written
notice of its intention to do so to the other Parties together with particulars
of the matter in dispute. On the expiration of such 10 calendar days the Party
who gave such notice may proceed to refer the dispute to arbitration as provided
in section "9.2" hereinbelow.
9.2 APPOINTMENTS AND AWARD. The Party desiring arbitration shall appoint one
arbitrator, and shall notify the other Parties of such appointment, and the
other Parties shall, within 10 calendar days after receiving such notice,
appoint an arbitrator, and the two arbitrators so named, before proceeding to
act, shall, within 10 calendar days of the appointment of the last appointed
arbitrator, unanimously agree on the appointment of a third arbitrator, to act
with them and be chairman of the arbitration herein provided for. If the other
Parties shall fail to appoint an arbitrator within 10 calendar days after
receiving notice of the appointment of the first arbitrator, or if the two
arbitrators appointed by the Parties shall be unable to agree on the appointment
of the chairman, the chairman shall be appointed under the provisions of the
Commercial Arbitration Act (British Columbia) (the "Act"). Except as
specifically otherwise provided in this section, the arbitration herein provided
for shall be conducted in accordance with such Act. The chairman, or in the case
where only one arbitrator is appointed, the single arbitrator, shall fix a time
and place in Vancouver, British
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Columbia, for the purpose of hearing the evidence and representations of the
Parties, and he shall preside over the arbitration and determine all questions
of procedure not provided for under such Arbitration Act or this section. After
hearing any evidence and representations that the Parties may submit, the single
arbitrator, or the arbitrators, as the case may be, shall make an award and
reduce the same to writing, and deliver one copy thereof to each of the Parties.
The expense of the arbitration shall be paid as specified in the award. The
Parties hereto agree that the award of a majority of the arbitrators, or in the
case of a single arbitrator, of such arbitrator, shall be final and binding upon
each of them.
ARTICLE 10
DEFAULT AND TERMINATION
10.1 DEFAULT. The Parties hereto agree that if any Party hereto is in default
with respect to any of the provisions of this Agreement (herein called the
"Defaulting Party"), the non-defaulting Parties (herein called, collectively,
the "Non-Defaulting Party") shall give notice to the Defaulting Party
designating such default, and within 10 calendar days after its receipt of such
notice, the Defaulting Party shall either:
(a) cure such default, or commence proceedings to cure such default
and prosecute the same to completion without undue delay; or
(b) give the Non-Defaulting Party notice that it denies that such
default has occurred and that it is submitting the question to
arbitration as herein provided.
10.2 ARBITRATION. If arbitration is sought, a Party shall not be deemed in
default until the matter shall have been determined finally by appropriate
arbitration under the provisions of Article "9" hereinabove.
10.3 CURING THE DEFAULT. If:
(a) the default is not so cured or the Defaulting Party does not
commence or diligently proceed to cure the default; or
(b) arbitration is not so sought; or
(c) the Defaulting Party is found in arbitration proceedings to be in
default, and fails to cure it within five calendar days after the
rendering of the arbitration award,
the Non-Defaulting Party may, by written notice given to the Defaulting Party at
any time while the default continues, terminate the interest of the Defaulting
Party in and to this Agreement.
10.4 TERMINATION. In addition to the foregoing it is hereby acknowledged and
agreed by the Parties hereto that this Agreement will be immediately terminated
in the event that:
(a) the Purchaser is not in recent of formal approval from its Board
of Directors to the terms and conditions of this Agreement within
10 calendar days of the Execution Date hereof;
(b) the Parties hereto have not executed a Formal Agreement
incorporating the terms and conditions of this Agreement within
30 calendar days of the Execution Date hereof;
(c) either of the Parties hereto has not provided a satisfactory
report on its respective due diligence as contemplated in
accordance with Articles "5" and "8" hereinabove;
(d) either of the Parties hereto has either not satisfied or waived
each of their respective conditions precedent prior to the
Subject Removal Date in accordance with the provisions of Article
"5" hereinabove;
(e) the conditions specified in Article "5" hereinabove have not been
satisfied by June 30, 2000;
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(f) either of the Parties hereto has failed to deliver, or caused to
be delivered, any of their respective materials required to be
delivered in accordance with Articles "5" and "6" hereinabove
prior to each of the Subject Removal Date and the Closing Date in
accordance with the provisions of Articles "5" and "6"
hereinabove;
(g) the Option is terminated in accordance with section "1.3"
hereinabove; or
(h) by agreement in writing by each of the Parties hereto;
and in such event this Agreement will be terminated and be of no further force
and effect other than the obligations under Article "8" hereinabove.
ARTICLE 11
GENERAL PROVISIONS
11.1 FORCE MAJEURE. If any Party hereto is at any time prevented or delayed in
complying with any provisions of this Agreement by reason of strikes, walk-outs,
labour shortages, power shortages, fires, wars, acts of God, earthquakes,
storms, floods, explosions, accidents, protests or demonstrations by
environmental lobbyists or native rights groups, delays in transportation,
breakdown of machinery, inability to obtain necessary materials in the open
market, unavailability of equipment, governmental regulations restricting normal
operations, shipping delays or any other reason or reasons beyond the control of
that Party, then the time limited for the performance by that Party of its
respective obligations hereunder shall be extended by a period of time equal in
length to the period of each such prevention or delay. A Party shall, within
seven calendar days, give notice to the other Parties of each event of force
majeure and, upon cessation of such event, shall furnish the other Parties with
notice of that event together with particulars of the number of days by which
the obligations of that Party hereunder have been extended by virtue of such
event of force majeure and all preceding events of force majeure.
11.2 NOTICE. Each notice, demand or other communication required or permitted to
be given under this Agreement shall be in writing and shall be sent by prepaid
registered mail deposited in a Post Office in North America addressed to the
Party entitled to receive the same, or delivered to such Party, at the address
for such Party specified above. The date of receipt of such notice, demand or
other communication shall be the date of delivery thereof if delivered, or, if
given by registered mail as aforesaid, shall be deemed conclusively to be the
third calendar day after the same shall have been so mailed, except in the case
of interruption of postal services for any reason whatsoever, in which case the
date of receipt shall be the date on which the notice, demand or other
communication is actually received by the addressee. Either Party may at any
time and from time to time notify the other Parties in writing of a change of
address and the new address to which notice shall be given to it thereafter
until further change.
11.3 ASSIGNMENT. Save and except as provided hereinbelow, no Party may sell,
assign, pledge or mortgage or otherwise encumber all or any part of its interest
herein without the prior written consent all of the other Parties; provided that
any Party may at anytime at its sole discretion and without the prior approval
of the other Parties assign and transfer its interest herein to any wholly owned
subsidiary, subject at all times to the requirement that any such subsidiary
remain wholly owned by the Party hereto failing which any such interest must be
immediately transferred back to such Party hereto; and provided further that any
transfer of all or any part of a Party's interest herein to its wholly owned
subsidiary shall be accompanied by the written agreement of any such subsidiary
to assume the obligations of such Party hereunder and to be bound by the terms
and conditions hereof.
11.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement to date
between the Parties hereto and supersedes every previous agreement,
communication, expectation, negotiation, representation or understanding,
whether oral or written, express or implied, statutory or otherwise, between the
Parties hereto with respect to the subject matter of this Agreement.
11.5 ENUREMENT. This Agreement will enure to the benefit of and will be binding
upon the Parties hereto, their respective heirs, executors, administrators and
assigns.
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11.6 TIME OF THE ESSENCE. Time will be of the essence of this Agreement.
11.7 REPRESENTATION AND COSTS. It is hereby acknowledged by each of the Parties
hereto that, as between the Parties hereto, Devlin Jensen, Barristers and
Solicitors, acts solely for the Purchaser, and that each of the Vendors has been
advised by each of Devlin Jensen and the Purchaser to obtain independent legal
advice with respect to their respective reviews and execution of this Agreement.
In addition, it is hereby further acknowledged and agreed by the Parties hereto
that each Party to this Agreement will bear and pay its own costs, legal and
otherwise, in connection with its respective preparation, review and execution
of this Agreement and, in particular, that the costs involved in the preparation
of this Agreement, and all documentation necessarily incidental thereto, by
Devlin Jensen shall be at the cost of the Purchaser.
11.8 APPLICABLE LAW. The situs of this Agreement is Vancouver, British Columbia,
and for all purposes this Agreement will be governed exclusively by and
construed and enforced in accordance with the laws and Courts prevailing in the
Province of British Columbia.
11.9 FURTHER ASSURANCES. The Parties hereto hereby, jointly and severally,
covenant and agree to forthwith, upon request, execute and deliver, or cause to
be executed and delivered, such further and other deeds, documents, assurances
and instructions as may be required by the Parties hereto or their respective
counsel in order to carry out the true nature and intent of this Agreement.
11.10 SEVERABILITY AND CONSTRUCTION. Each Article, section, paragraph, term and
provision of this Agreement, and any portion thereof, shall be considered
severable, and if, for any reason, any portion of this Agreement is determined
to be invalid, contrary to or in conflict with any applicable present or future
law, rule or regulation in a final unappealable ruling issued by any court,
agency or tribunal with valid jurisdiction in a proceeding to any of the Parties
hereto is a party, that ruling shall not impair the operation of, or have any
other effect upon, such other portions of this Agreement as may remain otherwise
intelligible (all of which shall remain binding on the Parties and continue to
be given full force and agreement as of the date upon which the ruling becomes
final). In addition, the captions, section numbers and Article numbers appearing
in this Agreement are inserted for convenience of reference only and shall in no
way define, limit, construe or describe the scope or intent of this Agreement
nor in any way affect this Agreement.
11.11 COUNTERPARTS. This Agreement may be signed by the Parties hereto in as
many counterparts as may be necessary and, if required, by facsimile, each of
which so signed being deemed to be an original, and such counterparts together
shall constitute one and the same instrument and notwithstanding the date of
execution will be deemed to bear the Execution Date as set forth on the front
page of this Agreement.
ACCEPTANCE AND EXECUTION
Please acknowledge your acceptance of the terms of this Agreement
by executing the same in the space provided hereinbelow.
Yours very truly,
AZCO MINING INC.
Per:
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Alan P. Lindsay, Authorized Signatory
THE WITHIN OFFER AND TERMS OF THIS AGREEMENT ARE HEREBY ACCEPTED
BY THE SHAREHOLDER AND THE COMPANY EFFECTIVE ON THIS DAY OF AUGUST, 1999:
CALGEM, INC.
Per:
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THOMAS FORD Thomas Ford, Authorized Signatory
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