March 20, 1995
Mega Metals, Inc.
Mega Minerals S.A.
Mr. Gregory Pusey
Mr. John Drejer
Mr. Gary McAdam
1111 Washington Street
Golden, CO 80401
Gentlemen:
This letter is to set forth the terms of our binding agreement
("Letter Agreement") concerning certain mining concessions in
Ecuador.
1. Representations and warranties. You jointly and
severally (collectively, as "Sellers") represent and warrant to
USMX, Inc. ("USMX") as follows:
A. Gregory Pusey, John Dreier and Gary McAdam
("Individuals") collectively own the majority of all of the issued
and outstanding shares of stock of Mega Metals, Inc., a Colorado
corporation ("Mega Metals (U.S.)")
B. To the best of their knowledge, the Individuals own,
for the benefit of Mega Metals (U.S.), all of the issued and
outstanding shares of stock of Mega Minerals S.A., an Ecuadorian
company ("Mega Minerals (Ecuador)")
C. To the best of Sellers' knowledge, Mega Minerals
(Ecuador) has been validly formed and organized and is in good
standing, and none of its shares of stock are subject to any liens
or encumbrances or restrictions on transfer. Mega Minerals
(Ecuador) has no current or contingent liabilities, and its only
assets are a bank account, the balance of which is less than
$5,000, and the right to acquire certain mineral concessions
pursuant to the Jeffcock Agreement described in paragraph l.D
below.
D. Mega Metals (U.S.) is a party to a certain letter
agreement dated october 3, 1994 and subsequently amended
(collectively, the "Jeffcock Agreement"), copies of which letter
agreement and amendments are attached hereto as Exhibit A, with an
individual named Pippa Jeffcock, plus additional parties, and
Minera Revenge S.A., an Ecuadorian company partially owned by Ms.
Jeffoock. Ms. Jeffcock, Minera Revenge S.A. and associates shall
be described collectively herein as "Jeffcock". To the best of
Sellers' knowledge, Jeffcock owns three concessions and may be able
to acquire up to an additional nine concessions from the Government
of Ecuador if those concessions are made available by the
Government. The twelve concessions described in this paragraph l.D
are described more specifically on Exhibit a hereto.
E. To the best of Sellers' knowledge, other than as
described in paragraph 1.11 below, each of the three concessions now
owned by Jeffcock is valid, in good standing, current in payments,
and free of all liens, encumbrances or claims thereto by third
parties, other than a possible claim by Black Swan Gold Mines Ltd.
Each of these concessions and the Jeffcock Agreement are fully
assignable to Mega Minerals (Ecuador) or to an Ecuadorian
subsidiary of USMX. The Jeffcock Agreement is in full force and
effect, and none of Sellers are subject to a declaration of default
thereunder.
F. To the best of Sellers' knowledge, none of the
properties or lands within the boundaries of the concessions
described in Exhibit B are subject to any environmental liabilities
or obligations. To the best of Sellers' knowledge, none of those
properties or lands are subject to any restrictions or impediments
to the exploration, development and mining thereof, other than as
specified in the documents granting the concessions.
G. To the best of Sellers' knowledge, Mega Minerals
(Ecuador) is at present not subject to Ecuadorian or United States
tax liabilities, contingent or otherwise, and to the best of
Sellers' knowledge, consummation of the terms contained by this
Letter Agreement will not give rise to any present tax liabilities
on the part of Mega Minerals (Ecuador) or USMX.
H. To the best of Sellers' knowledge, costs that are
currently pending and that are related to the concessions now owned
by Jeffcock or that have been made available to Jeffcock for
acquisition are as follows and collectively do not exceed $120,000:
(I) Approximately $45,000 for governmental fees
and taxes on the concessions;
(ii) approximately $30,000 to be paid to Jeffcook
to effectuate the transfer of the Jeffcock
concessions described in this paragraph 1.1+ to
Mega Minerals (Ecuador); and
(iii) approximately $20,000 owing to Sellers'
Ecuadorian counsel.
2. USMX Right to Assignment of Stock or Assets. Sellers
hereby agree to assign to USMX or to its designee either:
A. All of the shares of stock of Mega Minerals
(Ecuador) (the "Stock"); or
B. all of Mega Minerals (Ecuador)`s right, title and
interest in and to the concessions owned by it and in and to the
Jeffoock Agreement (collectively, the "Assets")
At any time within 30 days after the date of this better
Agreement, USMX shall instruct Sellers in writing of whether it
elects to have the Stock or the Assets assigned. That notice also
shall specify whether the assignment, if of the Stock, is to be
made to USMX or to a separate United States USMY subsidiary, or, if
of the Assets, an Ecuadorian subsidiary of USMX. Sellers promptly
shall execute whatever instruments of transfer are reasonably
requested by USMX and its counsel in order to effectuate and
document the transfer of the Stock or the Assets, as the case may
be. Sellers also shall be solely responsible for satisfying all
requirements under the Jeffcock Agreement for delivery of shares of
stock of Mega Metals (U.S.) to Jeffoock. Sellers also shall be
solely responsible for satisfaction of the existing Suber bill for
consulting services.
3. Payments and Work Commitments by USMX. In consideration
of the assignment described in paragraph 2 above, and in reliance
upon Sellers' representations and warranties in paragraph 1 above,
usxx or its assigns agree to do the following:
A. On or before April 5, 1995, USMX will use its
reasonable best efforts to pay the costs described in paragraph l.H
above, subject to the following conditions:
(i) USMX reasonably satisfying itself that the
representations and warranties in paragraph I
above are true, complete and accurate;
(ii) The total of those costs shall not exceed
$120,000; and
(iii) the payment or partial payment to Jeffcock
described in paragraph l.H(ii) shall not be
made unless and until all rights, titles and
interests in and to the concessions currently
owned by Jeffcock or currently available for
acquisition by Jeffcock have been transferred
to Mega Minerals (Ecuador) and Sellers'
Ecuadorian counsel has confirmed and
represented to USMX that such transfer has
been completed.
B. If USMX has not terminated this better Agreement
pursuant to paragraph 5 below before October 1, 1995, it shall be
obligated to expend before September 30, 1996 at least $100,000 in
exploring, prospecting and evaluating some or all of the lands
subject to the concessions. USMX shall be entitled to include in
such expenditures all out-of-pocket costs paid to third parties as
well as expenses and reasonable allocations of salaries and
benefits of USMX employees who devote time directly to those
concessions. USMX also shall be entitled to include in such
expenditures its costs of legal and environmental services related
directly to those concessions.
c. If USMX has not terminated this Letter Agreement
pursuant to paragraph 5 below before October 1, 1996, it shall be
obligated to expend by September 30, 1997 at least an additional
$100,000 in the manner described in paragraph 3.8 above. Any
amounts in excess of $100,000 expended by USMX during the period
described in paragraph 3.5 above shall be credited against the
$100,000 requirement under this paragraph 3.C.
D. on a calendar quarter basis, USMX shall provide Mega
Metals (U.S.) with copies of all data produced by its operations on
the concessions during the previous quarter. Such data shall be
provided subject to the conditions and limitations set forth below
in paragraph 4.
E. If USMX has not terminated this better Agreement by
more than 30 days prior to the respective due dates of the $50,000
payments (or as such payments may be renegotiated) to be made as
provided in the Jeffcock Agreement, USMX shall pay same when due.
While this better Agreement is in effect, if other concessions are
made available to Jeffoock by the Government of Ecuador, USMX shall
pay for and acquire those concessions (but not including the Raloga
concession, unless USMX elects in writing to receive that
concession) at the price and on the terms provided for in the
Jeffoock Agreement.
F. If USMX places any of the properties subject to the
concessions into production, it shall pay Mega Metals (U.S.) ten
percent (10%) of Net Proceeds, as calculated in zxhibit C hereto
("NPI Royalty"), after USMX has recouped all monies it has expended
in performing this better Agreement, as well as all other monies it
has expended in exploring, developing those properties and in
conducting activities reasonably related to exploring, developing
and mining those properties. It is understood and agreed by
Sellers that at any time within three years after the date of this
Letter Agreement, USMX shall have the right to purchase the Ilpi
Royalty for $2,000,000. That purchase may be made in the form of
cash or in stock of USMX and/or its assigns, or a combination
thereof, with a total fair market value of $2,000,000 at the time
of USMX's notice of election to the owner of the NPI Royalty. If
USMX so elects and pays the purchase price, the NPI Royalty shall
be conveyed to USMYC free and clear of all liens and encumbrances.
USMX shall be entitled to release any of the concessions at any
time it so elects, subject to the reconveyance rights of Mega
Metals (U.S.), as provided in paragraph 4 below.
0. USMX may utilize the bank accounts of Mega Minerals
(Ecuador) for the transfer of funds required under paragraphs 3.A
and 3.E above, provided that Sellers guarantee to USMX's
satisfaction that funds so provided by USMX shall remain secure and
shall be used solely for USMX's purposes under this Letter
Agreement.
4. USMX's Right of Termination. USMX shall have the right
at any time to terminate this Letter Agreement by delivering
written notice of same to Mega Metals (U.S.), in the manner
provided in paragraph 6.B below. Upon such notice being effective,
USMX shall have no further obligations or liabilities under this
Letter Agreement, other than those accrued as of the effective date
of that notice. Mega Metals (U.S.) shall have 20 business days
after USMX's notice in which to notify USMX in writing of whether
Mega Metals (U.S.) wishes to receive from USMX a reconveyance of
the Stock or the Assets, as the case may be. Within 10 business
days after receipt of notice of such election, USMX shall reconvey
to Mega Metals (U.S.) or its designee all of USMX's right, title
and interest in and to either the Stock or the Assets, as
appropriate, received by USMX pursuant to paragraph 2 above. USMX
shall warrant title to the same against all parties claiming by,
through or under USMX but not otherwise. Within 30 days after
termination, USMX also shall provide Mega Metals (U.S.) with copies
of all information regarding the concessions obtained by USMX
during the term of this better Agreement to the extent, if any,
that such information had not previously been provided pursuant to
paragraph 3.D above; provided, however, that USMX shall make no
express or implied representations or warranties of any nature
regarding that information, and any use of or reliance upon that
information by Mega Metals (U.S.), its successors or assigns, shall
be at their sole risk and expense.
5. Assignment. The parties shall have the right to assign
their respective interests in and under this better Agreement
without the approval or consent of the other parties. The
assigning party shall provide the other parties with a written
notice of the assignment and the name and address of the assignee
within five days after the assignment. If any of Sellers assign
their individual interests under this Letter Agreement, USMX shall
only be required to send notices and payments to one address, as
provided in paragraph 6.B below.
6. Miscellaneous Provisions.
A. Dollars: All references in this better Agreement to
"dollars" or "$" shall refer to United States dollars.
B. Notices: All notices, payments and other required
communications ("Notices") to the parties shall be in writing, and
shall be addressed respectively as follows:
Sellers: Mega Metals, Inc.
Mega Minerals S.A.
Gregory Pusey
John Dreier
Gary McAdam
1111 washing on Street
Golden, CO 80401
USMX, Inc.: USMX, Inc.
141 Union Blvd., Suite 100
Lakewood, CO 80228
All Notices shall be given (i) by personal delivery to the party,
or (ii) by electronic communication, with a confirmation sent by
registered or certified mail return receipt requested, or (iii) by
registered or certified mail return receipt requested. All Notices
shall be effective and shall be deemed delivered (i) if by personal
delivery on the date of delivery if delivered during normal
business hours, and, if not delivered during normal business hours,
on the next business day following delivery, (ii) if by electronic
communication on the next business day following receipt of the
electronic communication, and (iii) if solely by mail on the next
business day after actual receipt. A party may change its address
by Notice to the other party.
c. Waiver: The failure of a party to insist on the
strict performance of any provision of this better Agreement or to
exercise any right, power or remedy upon a breach hereof shall not
constitute a waiver of any provision of this better Agreement or
limit the party's right thereafter to enforce any provision or
exercise any right.
D. Modification: No modification of this Letter
Agreement shall be valid unless made in writing and duly executed
by all of the parties hereto.
E. Force Majeure: Except tor tne onligatlon to make
payments when due hereunder and work required by Ecuadorian law or
terms of the concessions to maintain the concessions in good
standing, the obligations of USMX under this Letter Agreement,
including but not limited to its work commitment obligations under
paragraphs 3.B and 3.C above, shall be suspended and extended for
the period that performance is prevented by any cause, whether
foreseeable or unforeseeable, beyond its reasonable control,
including, without limitation, labor disputes (however arising and
whether or not employee demands are reasonable or within the power
of the participant to grant); acts of God; laws, regulations,
orders, proclamations, instructions or requests of any government
or governmental entity; judgments or orders of any court; inability
to obtain on reasonably acceptable terms any public or private
license, permit or other authorization; curtailment or suspension
of activities to remedy or avoid an actual or alleged, present or
prospective violation of federal, state or local environmental
standards; acts of war or conditions arising out of or attributable
to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm,
flood, sink holes, drought or other adverse weather condition;
delay or failure by suppliers or transporters of materials, parts,
supplies, services or equipment or by contractors' or
subcontractors' shortage of, or inability to obtain, labor,
transportation, materials, machinery, equipment, supplies,
utilities or services; accidents; breakdown of equipment, machinery
or facilities; or any other cause whether similar or dissimilar to
the foregoing. USMX shall promptly give notice to Mega Metals
(U.S.) of the suspension of performance, stating therein the nature
of the suspension, the reasons therefor, and the expected duration
thereof. USMX shall resume performance as soon as reasonably
possible.
F. Governing Law: This Letter Agreement shall be
governed by and interpreted in accordance with the laws of the
State of colorado, except for its rules pertaining to conflicts of
laws.
G. Further Assurances: Each of the parties shall take
from time to time such actions and execute such additional
instruments as may be reasonably necessary or convenient to
implement and carry out the intent and purpose of this Letter
Agreement.
H. Entire Agreement; Successors and Assigns: This
Letter Agreement contains the entire understanding of the parties
and supersedes all prior agreements and understandings between the
parties relating to the subject matter hereof.
I. Memorandum: At the request of either party, a
Memorandum or short form of this better Agreement, as appropriate,
which shall not disclose financial information contained herein,
shall be prepared and recorded by USMX. This Letter Agreement
shall not be recorded.
If the above correctly represents your understanding of our
agreement, please so indicate by signing in the appropriate space
below.
Very truly yours,
USMX, INC.
By:
James A. Knox,President
EXHIBIT A
MEGA METALS, INC.
1111 WASNINGTON STREET, SUITE 117
GOLDEN, COLORAQO 80401
(303) 278-0828
October 3, 1994
Pippa Jeffcock
CIA. MINERA REVENGE S.A.
Reina Victoria 1539 y Colon
Edificto Banco do Guayaquil
P.O. Box 17 - 07 - 9354
Quito, Ecuador
Dear Pippa:
This letter sets forth the terms and conditions pursuant to
which Mega Metals, Inc., a corporation organized under the laws of
the State of Colorado, U.S.A. ("Mega") shall purchase the
properties of CIA. MINERA REVENGE S.A., a corporation organized
under the laws of Ecuador ("Revenge"). The properties are Listed
on the attached Exhibit "A". It is intended that the terms
included herein will be included in a fornal agreement between the
two corporate entities. It is our mutual desire and objective that
the format agreement be executed and consummated as promptly as
feasible to permit a closing cf the purchase on or about December
31, 1994 (the -Closing"). Both Mega and Revenge will use their
best efforts to finalize the formal agreement and effect the
closing on or before December 31, 1394. Our understandings are as
follows:
1. Upon your execution cf this letter, Mega will pay to
Revenge U.S. $15,000, to be utilized by Revenge for its
corporate operations prior to Closing. This sum will be
nonrefundable to Mega in the event Mega determines not to
proceed with the property purchase at Closing due solely
to Mega's inability or unwillingness (based on reasons
unrelated to Revenge's performance) to effect the
Closing.
2. At Closing, Mega will pay to Revenge (or to the persons
designated by Revenge listed in Exhibit "8", as directed
by Revenqe), U.S. $60,000. Additional installment
payments of U.S. $50,000 each shall be :Iad? six months
from the date of closing and twelve nonthe from the date
of closing.
3. At Closing, Mega shall issue to Revenge shares of a new
series of Mega Pref erred Stock to be created specifically
for this transaction, which shares of Preferred Stock
shall rovide for a reference to common shareholders
upon liquidation of $400,000. The Preferred Stock will
also provide for a mandatory conversion into Mega's
common stock if and when Mega conducts an initial public
offerizig or other public financing of its common stock.
The conversion rate shall be calculated utilizing the
saute price per share paid by the public for the Mega
common stock.
4. Mega shall also have the option to purchase the stock of
Revenge and/or the use ot Revenge's name by paying to
Rovenge (or to the persons designated by Revenge listed
on Exhibit "C, as directed by Revenge), U.S. $5,625 at
Closing, U.S. $4,667.50 six months from the date of
Closing and U.S. $4,687.50 twelve months from the date of
Closing. Mega shall also issue shares of Mega Preferred
Stock with a liquidation preference of $35,000.
5 For each of the three months prior to Closing, commencing
October 3, 1994, Mega shall pay to Revenge the amount of
U.S. $2,000 for geological consulting work concerning
Rcvenge `s properties.
6. At the Closing, Mega and Revenge will cooperate in making
the necessary arrangements in order to enable Mega to
utilize the office space in Quito presently used by
Revenge, and to enter into arrangements to use the
services of the current secretary, administrative
assistant and Revenge's consultant, Wilson Larrea.
7. It is understood that Mega's desire to consummate the
purchase of the properties at Closing is, based upon your
representation (which will be confirmed in the final
agreement) that Revenge has clear title to the properties
to be conveyed to Mega (or that Mega is satisfied that
title can be issued to it), that the properties are in
good standing and that Revenge is in material compliance
with all applicable laws, rules and regulations
including, but not limited to, the Mining Law of Ecuador.
None of the properties to be conveyed by Revenge to Mega
shall be subject to any lien, claim or encumbrance.
Revenge shall provide such assurances and indemnification
regarding these properties as may be requested by Mega.
8. Pending the Closing, Mega and its representatives shall
have, at all reasonable times, access to the premises and
to the books, records and properties of Revenge, and
Revenge shall furnish to Mega and its representatives
such information with respect to the properties and
business of Revenge, as Mega shall, from time to time,
reasonably request. In connection therewith, Mega and
its representatives shall be privileged to contact and
communicate with persons having business dealings with
Revenge or involvement with its properties. In addition,
Meqa may (but is under no obligation) conduct work on
Revenge 5 properties to assist in maintaining such
properties in good standing, and may assist Revenge in
filing reports required under applicabie laws. Revenge
shall cooperate with Mega in filing any reports which may
be due in order to preserve the title to, and good
standing of, the properties.
9. In the event Mega determines not to proceed with the
purchase of all of the properties listed on Exhibit "A",
any funds spent to maintain the properties (as set forth
in the preceding paragraph) or for consulting fees to
Revenge (as set forth in paraguaph 5), :nay be repaid to
Mega, at Revenge's option, during the 30 day period after
Mega notifies Revenge of its; decision. If Revenge does
not choose to repay Mega, then the funds shall be applied
to the purchase of one or more of the properties listed
on Exhibit "A", the purchase price to be apportioned
equally among such properties. The properties will be
selected at random.
10. Upon execution of this letter by Revenge, Mega will
commence its due diligence investigation and retain
counsel to prepare a formal agreement. In consideration
for the substantial expenditures of time, effort and
expense to be undertaken by Mega in connection with the
preparation and execution 0 the agreement, and the
various investigations and reviews referred to above, you
and Revenge will undertake and agree that
(a) Neither Revenge or you shall, between the date of
execution by you of this letter of intent and the Closing,
enter into or conduct any discussions with any prospective
purchaser of the stock, properties or other assets of
other assets of Revenge; and
(b) You and Revenge shall use your best efforts to
preserve intact the properties, including title and
good standing thereof, as well as the good will of
persons having business relations with Revenge.
In the event the formal agreement is not executed by December
31, 1994 due to no fault of Revenge, then these obligations will
terminate.
If this letter meets with your approval, kindly so signify by
signing the enclosed duplicate copy of this letter, whereupon this
letter shall constitute an agreement between us.
Very truly yours,
MEGA METALS, INC.
By:
John Dreier, President
AGREEN AND CONFIRMED:
CIA. MINERA REVENGE S.A.
3/20/95
EXHIBIT C
NET PROCEEDS CALCULATION
1. Income and Expenses. Net proceeds shall be calculated by
deducting from the gross revenues realized (or deemed to be
realized) from the sale (or deemed sale) of products, such costs
and expenses attributable to exploration, development, mining,
processing and the marketing of products as would be deductible
under generally accepted accounting principles and practices
consistently applied as employed by the manager of the properties,
including without limitation:
(a) All costs and expenses of replacing, expanding,
modifyinq, altering or changing from time to time the mining
facilities. Costs and expenses of improvements (such as haulage
ways or mill facilities) that are also used in connection with
workings other than the properties shall be charged to the
properties only in the proportion that their use in connection with
the properties bears to their total use.
(b) Ad valorem real property and unsecured personal
property taxes, and all taxes other than income taxes, applicable
to mining of the properties, including without limitation all state
mining taxes, sales taxes, severance taxes, royalties, license fees
and governmental levies of a similar nature.
(c) A reasonable allowance for overhead.
C-l
(d) All expenses incurred relative to the sale of
products, including an allowance for commissions at rates which are
normal and customary in the industry.
(e) Interest on monies borrowed or advanced for costs
and expenses, at an annual rate equal to two percentage points
above the Prime Rate, as published in the Money Rates column of The
Wall Street Journal from time to time, but in no event in excess of
the maximum permitted by law.
(f) An allowance for reasonable working capital and
inventory.
(g) Reasonably anticipated reclamation costs.
No deduction shall be made for income taxes depreciation,
amortization or depletion. If in any year after the beginning of
mining of the properties an operating loss relative thereto is
incurred, the amount thereof shall be considered as and be included
with outstanding costs and expenses and carried forward
determining Net Proceeds for subseguent periods. If products are
processed by USMX, or are sold to an affiliate of USMX, then, for
purposes of calculating Net Proceeds, such products shall be deemed
conclusively to have been sold at a price equal to fair market
value to arm's length purchaser FOB the concentrator for the
properties, and Net Proceeds relative thereto shall be calculated
without reference to any profits or losses attributable to smelting
or refining.
2. Payment of Net Proceeds. Payments of Net Proceeds shall
commence in the calendar quarter next following the calendar
quarter in which Net Proceeds are first realized, and shall be made
45 days following the end of each calendar quarter during which Net
Proceeds are realized, and shall be subject to adjustment, if
required, at the end of each calendar year.