[GENCO RESOURCES LTD. LOGO]
Suite 000 - 000 Xxxx Xxxxxxxx, Xxxxxxxxx,
X.X. V6C 2W2, Canada Trading Symbol (TSX): GGC
March 7, 2008
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
ATTN: XXXXXXX X. XXXXXXXXX
Dear Sirs:
RE: PURCHASE OF SHARES OF COMMON STOCK OF CHIEF CONSOLIDATED MINING COMPANY
The purpose of this letter ("AGREEMENT") is to set forth a binding
agreement between Genco Resources Ltd. ("GENCO") and Xxxxxxxx, Xxxxxxxxx & Park
Reorganization Fund II, L.P. (the "PARTNERSHIP"), a shareholder and former
debentureholder of Chief Consolidated Mining Company ("CHIEF MINING"), with
respect to the purchase from the Partnership by Genco of that number of shares
of common stock and convertible common stock (convertible into common stock on a
1:1 basis and entitled to an 8% annual convertible common stock dividend until
the holder owns 68% of Chief Mining's outstanding stock) of Chief Mining as
approximately equals (assuming conversion of the convertible common stock into
common stock) 64.7% of the outstanding shares of common stock of Chief Mining as
follows:
(i) 6,477,241 convertible common shares (the "CONVERTIBLE COMMON SHARES");
and
(ii) 13,034,769 common shares (the "COMMON SHARES" and, with the
Convertible Common Shares, the "SHARES"),
on the terms set forth below (together with the other transactions contemplated
hereby, the "ACQUISITION").
In this Agreement, Genco and the Partnership are sometimes called
singularly a "PARTY" and collectively the "PARTIES" and all references to
'dollars' or '$' shall mean United States of America dollars.
I. PARTNERSHIP'S REPRESENTATIONS AND WARRANTIES
The Partnership has represented and warranted to Genco that:
Suite 000 - 000 Xxxx Xxxxxxxx Xxxxxx, Xxxxxxxxx, X.X. V6C 2W2, Canada
Tel: (000) 000-0000 Fax: (000) 000-0000 xxx.xxxxxxxxxxxxx.xxx
GGC (Toronto Stock Exchange)
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 2
1. The Shares have been validly issued as fully paid and non-assessable
shares of common and convertible common stock of Chief Mining.
2. The Shares are owned by the Partnership as the legal and beneficial
owner thereof, with a good and marketable title thereto, free and clear of all
restrictions on transfer, mortgages, liens, charges, security interests, adverse
claims, charges, encumbrances, and demands whatsoever other than resale
restrictions imposed on those shares by applicable securities legislation.
3. No person, firm or corporation has any agreement or option or any right
or privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement or option for the purchase from the Partnership of any of the Shares.
4. The principal and accrued interest payable to January 31, 2008 pursuant
to a Debenture issued by Chief Mining to the Partnership under a Debenture
Purchase Agreement dated December 15, 2005 between Chief Mining, as seller, and
the Partnership, as purchaser (collectively, the "DEBENTURE") have been fully
converted into 11,700,822 Common Shares, the dividends due under the Debenture
to January 31, 2008 has been fully satisfied by the issuance of 2,417,241
Convertible Common Shares and the Debenture has thereby been fully discharged
and no further liability of Chief Mining exists under the Debenture and all
registrations of such discharges have been made where applicable or required.
5. Chief Mining is duly incorporated and organized and is in good standing
with respect to all acts required to maintain its corporate existence under the
laws of Arizona.
6. The authorized and issued share capital of Chief Mining consists of:
(a) 100,000,000 shares of common stock, par value $0.01, of which
23,670,276 shares have been duly issued and are outstanding as
fully paid and non-assessable;
(b) 30,000,000 shares of convertible common stock, par value $0.01,
of which 6,477,241 shares have been duly issued as fully paid and
non-assessable; and
(c) 1,500,000 shares of preferred stock, par value $0.50, of which
10,899 shares were duly issued as fully paid and non-assessable).
7. No person, firm or corporation has any agreement or option or any right
or privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement, including convertible securities, warrants or convertible obligations
of any nature, for the purchase, subscription, allotment or issuance of any
securities, or unissued shares in the capital, of Chief Mining, except as
follows:
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 3
NUMBER & CLASS EXERCISE
NAME TYPE OF SHARES PRICE EXPIRY DATE
-------------------- ------------ ---------------- -------- ----------------
Xxxxx Xxxxxxxxx Stock Option 4,000,000 Common $0.25 February 1, 2011
Xxxxxxx X. Xxxxxxxxx Stock Option 60,000 Common $2.90 June 11, 2011
Xxxxxxx X. Xxxx Stock Option 60,000 Common $3.00 October 16, 2011
8. The most recent financial statements of Chief Mining filed on XXXXX for
the nine month period ended September 30, 2007 fairly and correctly set out and
disclose in all material respects, in accordance with United States generally
accepted accounting principles, the financial position of Chief Mining as at the
date thereof.
9. There has not been any material adverse change in Chief Mining's
business, financial condition, assets, or operations since September 30, 2007
and its business, financial condition, assets and operations are accurately
described in Chief Mining's filings on XXXXX.
10. There is no pending or threatened litigation regarding Chief Mining's
business or the Acquisition except as disclosed in Chief Mining's most recent
filings on XXXXX.
11. The entering into of this Agreement and the completion of the
Acquisition will not result in the violation of any of the terms or provisions
of the constating documents of Chief Mining or of any agreement, whether written
or oral, indenture, instrument or other document to which Chief Mining or its
assets may be a party or subject.
12. Chief Mining is not in material default or breach of any contracts or
agreements, written or oral, indentures or other instruments to which it is a
party and there exists no state of facts which, after notice or lapse of time or
both would constitute such a default or breach, and all such contracts,
agreements, indentures and other instruments are now (and will be until the
Closing (as defined herein) of the Acquisition) in good standing and Chief
Mining is entitled to all benefits thereunder.
13. All mineral resource assets in which Chief Mining has an interest have
been duly and validly located, recorded, granted and issued pursuant to the laws
of the jurisdiction in which they are situated and are now (and will be and
until the Closing of the Acquisition) in good standing with respect to all
filings, fees, taxes, assessments, work commitments or other conditions on the
date hereof other than approximately $60,000 in real estate taxes payable for
2008.
14. There is no adverse claim or challenge against or to the ownership of
or title to any of the mineral and mining interests comprising Chief Mining's
properties nor, to the Partnership's knowledge, is there any basis therefor, and
there are no outstanding agreements or options to acquire or purchase such
properties or any portion thereof, and no person, firm or
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 4
corporation has any royalty or other interest whatsoever in production from any
of the mineral claims, leases and other interests comprising such properties
other than:
(a) an option granted to Godiva Silver Mines Inc. of Utah to purchase
approximately 358 acres; and
(b) an option to be granted to Anglo American PLC of London, England
to acquire a 55% interest in a to be determined portion,
of Chief Mining's properties, neither of which options are, or if exercised
would be, material to the ownership and operation of either the Xxxxxx or Xxxxxx
Xxxxx.
15. No order ceasing or suspending trading in securities of Chief Mining
nor prohibiting the sale of such securities is presently outstanding against
Chief Mining or the Partnership and no investigations or proceedings for such
purposes have been threatened or, to the best of the Partnership' knowledge,
without making any inquiries, are pending.
16. Chief Mining does not have any existing contracts, agreements,
undertakings or arrangements, whether oral, written or implied, with the
Partnership, its directors and officers, or the directors and officers of Chief
Mining.
17. Since September 30, 2007 Chief Mining has satisfied all outstanding
indebtedness to the Partnership (which totalled $333,486.75) by the issuance of
1,333,947 Common Shares and Chief Mining is not indebted to the Partnership
(although the Partnership may loan up to $25,000 to Chief Mining prior to the
Closing) or the directors or officers of Chief Mining nor is the Partnership or
any officer or director of Chief Mining indebted to Chief Mining.
18. To the best of the Partnership's knowledge, Chief Mining is not in
breach of any laws, ordinances, statutes, regulations, by-laws, orders or
decrees to which it is subject or which apply to it nor of the terms and
conditions of its listing on the OTC Bulletin Board.
19. The Shares represent all of the shares of stock of Chief Mining owned
by the Partnership.
II. XXXXX'X REPRESENTATIONS AND WARRANTIES
Xxxxx has represented and warranted to the Partnership that:
1. The entering into of this Agreement and the completion of the
Acquisition will not result in the violation of any of the terms or provisions
of the constating documents of Genco or of any indenture, agreement, whether
written or oral, or other document to which Genco may be a party.
2. It has obtained all corporate and regulatory approvals necessary for it
to enter into this Agreement and complete the Acquisition.
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 5
III. PURCHASE AND SALE OF THE SHARES
The Partnership hereby agrees to sell and Xxxxx hereby agrees to purchase
the Shares at a price of $0.25 each for a total price of $4,878,002.50. The
aggregate purchase price payable on Closing shall be determined immediately
prior to the Closing Date.
IV. CONDITIONS TO CLOSING
It shall be a condition precedent to the Closing of the Acquisition that:
1. the outstanding options to purchase shares of common stock of Chief
Mining, as set out in the Partnership's representations and warranties, other
than the option held by Xxxxx Xxxxxxxxx, shall be terminated without being
exercised;
2. any non-arm's length management, consulting and similar agreements and
any pre-emptive rights of the Partnership to purchase any shares of the capital
stock of Chief Mining shall have been terminated; and
3. the aforesaid representations and warranties of each of the Partnership
and Genco shall be true on the Closing Date (as defined herein).
4. Genco's Board of Directors shall have approved the Acquisition by no
later than three business days after Chief's confirmation of its acceptance of
the terms of this Agreement.
V. DELIVERIES ON CLOSING
On Closing of the Acquisition the Parties shall make, or cause to be made,
the following deliveries:
1. The Partnership shall deliver to Genco:
(a) evidence of the satisfaction of all conditions to Closing set out
in Part IV, including a certificate of a senior officer of Chief
Mining and such legal opinions as may be reasonably requested by
Xxxxx;
(b) certificates representing the Shares, duly endorsed in blank for
transfer with the Partnership's signature properly guaranteed, or
with a duly executed and guaranteed stock power of attorney, and
such other documents as may be reasonably required by the
transfer agent for Chief Mining;
(c) unconditional releases of Chief Mining from all of the current
directors and officers of Chief Mining and resignations of such
directors and officers as Xxxxx may request, in its sole
discretion;
(d) appointment of one representative of Genco as a director of Chief
Mining; and
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 6
(e) all the books, records, bank accounts and documents of Chief
Mining in the possession or under the control or direction of the
Partnership.
2. Genco shall deliver to the Partnership a wire transfer, certified
cheque, bank draft, or solicitor's trust cheque payable to the
Partnership for the purchase price of the Shares.
VI. CLOSING
Closing of the Acquisition ("CLOSING") will occur on Wednesday, March 12,
2008 (the "CLOSING DATE"). Genco, the Partnership and Chief shall concurrently
issue press releases following receipt of approval of Xxxxx'x Board of
Directors.
VII. ACCESS
During the period from the date of execution of this Agreement by the
Partnership until the Closing Date, the Partnership will afford Genco and its
representatives full and free access to Chief Mining, its personnel, properties,
contracts, books and records and all other documents and data, as well as
documentation and data regarding the Shares but such access and related due
diligence shall be conducted in accordance with a framework and process that is
agreed upon by Genco and the Partnership and will be subject to the
confidentiality provisions referred to or described in this Agreement.
VIII. CONDUCT OF BUSINESS
During the period from the date of execution of this Agreement by the
Partnership until the Closing Date, the Partnership shall cause Chief Mining to:
1. conduct its business in the same manner as has been regularly conducted
and in compliance with applicable laws and regulations;
2. not enter into any transaction other than in the ordinary course of
business;
3. use its reasonable best efforts to maintain its business, assets, and
operations in accordance with past custom and practice;
4. not issue, or agree to issue, any securities.
After the Closing Date, Xxxxxxx X. Xxxxxxxxx and Xxxxxxx X. Xxxx shall
continue as directors of Chief Mining for as long as Genco requests and they
desire to continue as directors and Genco shall cause Chief Mining to maintain
at least the current level of coverage of director and officer liability
insurance.
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 7
IX. COSTS
Genco and the Partnership will be responsible for and bear all of their
respective costs and expenses incurred at any time in connection with pursuing
or consummating the Acquisition and Loan.
X. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties and
supersedes all prior oral or written agreements, understandings, representations
and warranties and courses of conduct and dealing between the Parties on the
subject matter thereof.
XI. AMENDMENT
This Agreement may be amended or modified only in a written document
executed by both of the Parties.
XII. GOVERNING LAW
The Binding Provisions will be governed by and construed under the laws of
the State of Utah without regard to conflicts-of-laws principles.
Agreement may be amended or modified only in a written document executed by
both of the Parties.
XIII. COUNTERPARTS AND DELIVERY
This Agreement may be executed in one or more counterparts and delivered by
facsimile or e-mail and, each of which counterparts will be deemed to be an
original of this Agreement and all of which, when taken together, will be deemed
to constitute one and the same Agreement.
XXXXXXXX, XXXXXXXXX & PARK
REORGANIZATION FUND II, L.P.
March 7, 2008
Page 8
If you are in agreement with the foregoing, please sign and return one copy of
this Agreement, which thereupon will constitute our binding with respect to the
Acquisition.
Yours truly,
GENCO RESOURCES LTD.
Per: /s/ Xxxxxx X. Xxxxxxx, QC
--------------------------------
Xxxxxx X. Xxxxxxx, QC
Chairman
AGREED to on this 7th day of March, 2008.
XXXXXXXX, XXXXXXXXX & PARK REORGANIZATION FUND II, L.P.
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
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Its: General Partner
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