EXHIBIT 4.2
LETTER OF INTENT BY AND AMONG
HALO RESOURCES LTD.,
AND
THE SHERIDAN PLATINUM GROUP LTD.
AND
MR. PAT SHERIDAN
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HALO RESOURCES LTD.
#1305, 1090 West Georgia Street
Vancouver, BC, Canada, V6E 3V7
Phone: (604) 685-9316
Fax: (604) 683-1585 TSXV: HLO / OTCBB: HLOSF
July 5, 2004
Mr. Pat Sheridan and The Sheridan Platinum Group Ltd.
14 Park Lane Circle
Toronto, Ontario M5B 1Z7
Dear Mr. Sheridan:
RE: PURCHASE OF A 100% INTEREST IN THE DUPORT PROPERTY, ONTARIO
Further to our various discussions, we write to confirm the terms upon which we
("Halo") are prepared to acquire the Duport Property (the "Property") from
Sheridan Platinum Group Ltd. ("SPG"). The terms are as follows:
1. PURCHASE AND SALE. We agree to purchase and you agree to sell to us, a
100% interest in the Property, subject to the NSR referred to in
paragraph 3, which will be retained by SPG.
2. PURCHASE PRICE. The purchase price for the Property will consist of and
will be paid as follows:
(a) $250,000 payable at Closing (as defined below), subject to TSX
Venture Exchange ("TSX") approval;
(b) one million common shares of Halo payable at Closing, subject
to TSX approval. As required by applicable securities laws,
these shares will be restricted from trading for four months
from Closing, and in addition, may be subject to escrow
restrictions imposed by the TSX;
(c) $8 million worth of Halo Preferred Shares. The shares will be
issued forthwith after their creation. Halo will submit the
appropriate resolutions to its shareholders for approval at
its next AGM (expected to be in December, 2004). The number of
preferred shares will be established by dividing $8 million by
the price/share of Halo's first round financing (flow-through
pricing level) to be undertaken concurrently with the
acquisition of the Property. The Preferred Shares will have
the following terms:
- Dividends- Years one and two - a dividend of $50,000
per year payable annually on the anniversary of the
date of this Agreement. Years 3-5 - an annual
dividend of 4% of the issue price of the outstanding
Preferred Shares (based on the original $8 million
issue price), payable quarterly. The dividend will be
paid in either cash or common shares of Halo, as
determined by Halo in its sole discretion. If paid in
shares, the number of shares issuable will be
determined by dividing the amount of the dividend by
the 10 day average trading price of Halo's common
shares for the 10 days immediately prior to the date
the dividend is due.
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- The parties will agree to file an election under
Section 85 of the Income Tax Act with an elected
amount to be determined by SPG.
- Non-voting - unless applicable dividends are in
arrears and payment is not made within 60 days of due
date;
- Non-convertible.
- Redeemable -At Halo's election, the Preferred Shares
may be redeemed from Sheridan at any time on or
before the fifth anniversary of the date of issuance
of the Preferred Shares by payment of $8,000,000 cash
plus a bonus of 5% ($400,000), together with any
accrued and unpaid dividends;
- Retractable - If the Preferred Shares have not been
previously redeemed or returned to Halo, as
contemplated in the immediately preceding paragraph
or in paragraph 5 herein, on the day before the fifth
anniversary of the date of issue of the Preferred
Shares, Halo will retract the shares in consideration
of $8,000,000 plus any accrued and unpaid dividends
(collectively the "Retraction Amount"). Halo may pay
any or all of the Retraction amount in common shares
or cash, at its sole election but provided that at
least $100 is paid in cash. If paid in common shares,
the shares will be issued at the price/share referred
to in paragraph 2(c) above;
- Additional specific terms and conditions associated
with the Preferred Share issuance will be determined
by Halo and SPG in consultation with TSX.
3. NSR ROYALTY. SPG will retain A net smelter return royalty on the
Property ("NSR") once the Property goes into production. The terms of
the NSR would be 2.5% on first 1.5 million ounces of gold produced and
5% on excess. The NSR will be evidenced by a royalty agreement
delivered to you at Closing. The royalty agreement will contain a
provision allowing us y to purchase, at a predetermined price, some or
all of this royalty. We will need to arrive at a mutually acceptable
agreement on royalty buy-out but there are many examples available to
us.
4. CLOSING. The closing of the purchase and sale ("Closing") will take
place on the fifth business day after TSX- V approval, or at such other
time as we may mutually agree. At Closing, you will deliver
documentation acceptable to us to transfer title to the Property to us,
and we will deliver the consideration payable at Closing as set forth
in paragraph 2 above. At Closing, both parties will deliver all other
documents reasonably required to give effect to the purchase and sale.
5. WORK COMMITMENTS. There are no minimum annual work commitments on our
part except that we will, for a period of 5 years from Closing, keep
the Property in good standing including the payment of property holding
costs. This 5 year period will be reduced in the event we return the
Property pursuant to paragraph 5 below.
6. RETURN OF PROPERTY - Halo may, at any time within 5 years after the
issuance of the Preferred Shares, but provided that all dividends have
been paid pursuant to paragraph 2 above, return the Property to SPG, in
exchange for the return of all Special Preferred Shares. In such event,
Halo will transfer the Property back to SPG and SPG will return the
Preferred Shares to Halo. If Halo exercises this right, the Property
must be in good standing for at least 6 months after the date of
exercise of this option to return the Property.
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7. CONDITIONS. Our obligation to proceed with the purchase of the Property
is subject to:
(a) TSX approval, which may, as a condition, require shareholder
approval and the submission of a technical report acceptable
to the TSX.;
(b) completion by us of due diligence on the Property, with
results satisfactory to us, such due diligence to be completed
on or before the 30th day after the date this agreement is
signed by you (or the next business day if such day is not a
business day); and
(c) completion and execution of a formal agreement on or before
the 60th day after the date this agreement is signed by you
(or the next business day if such day is not a business day).
8. FORMAL AGREEMENT. We will forthwith prepare a formal agreement to
reflect the terms set out above. The formal agreement will contain
customary representations, warranties , covenants and other terms and
conditions.
9. ANNOUNCEMENTS. Neither party will issue a press release regarding this
transaction without giving the other party a reasonable opportunity to
comment on the release.
10. COSTS. We will each pay our own costs in respect of the purchase and
sale.
11. AREA CLAUSE. If during the period ending five years after the date of
issuance of the Preferred shares SPG acquires any mineral property
interests within a one mile radius of the Property, such interests
shall be deemed to form a part of the Property and shall be transferred
to Halo at no cost to Halo. If during the period ending five years
after the date of issuance of the Preferred shares Halo acquires any
mineral property interests within a one mile radius of the Property,
such interests shall be deemed to form a part of the Property and Halo
shall pay the NSR referred to in paragraph 3 above in respect of those
additional property interests, to SPG.
If the foregoing terms are acceptable to you, please sign below and fax this
agreement back to us whereupon this will become a binding agreement.
Yours truly,
HALO RESOURCES LTD.
Per:
/s/ Nick DeMare
---------------
Nick DeMare,
Director
ND:as
The foregoing terms have been reviewed, acknowledged and accepted this 6th day
of July, 2004.
THE SHERIDAN PLATINUM GROUP LTD.
Per:
/s/ Pat Sheridan /s/ Pat Sheridan
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Mr. Pat Sheridan
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