LETTER OF INTENT
EXHIBIT
10.1
LETTER
OF INTENT
THIS
LETTER OF INTENT,
hereinafter referred to as the “LOI”, is entered into, dated and made effective
this 7th day of September, 2007,
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AMONG:
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RADIAL
ENERGY INC. (a Washington corporation)
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(“RADIAL”)
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AND:
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MINERA
DEL XXXXXXXX XX (a company organized under the laws of
Ecuador)
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(“PACIFICO”)
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AND:
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SPIRIT
EXPLORATION INC. (a British Columbia
corporation)
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(“SPIRIT”)
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AND:
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XXXX
X. XXXXXX, an individual
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AND:
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XXXXX
XXXXXX, an
individual
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WHEREAS
Pacifico
has the exclusive rights to forty five percent (45%) ownership in the EMPEC
floatation mill and sixteen (16) individual mining concessions (“EMPEC”),
certain rights to the remaining fifty five percent (55%) ownership in EMPEC,
one
hundred percent (100%) ownership of two-10 year production leases to mine Adua
Dulce and Xxxxx Xxxxxxxxx and the mining rights to the Jorupe mine, all located
in Ecuador (“Adua Dulce,” “Xxxxx Xxxxxxxxx” and “Jorupe,” collectively, the
“Mines”) (“Mines” and “EMPEC” referred hereinafter as the
“Project”).
AND
WHEREAS
Radial and Spirit wish to acquire, and Pacifico wishes to sell and transfer
to
Radial and Spirit, the interest of Pacifico in the Project such that Pacifico
and Spirit would acquire all of the beneficial right, title and interest of
Pacifico (the “Interest” or the “Assets”) in and to the Project.
AND
WHEREAS
the parties wish to enter into a binding letter of intent which states that,
upon completion of a thirty (30) day due diligence period, and assuming that
Radial is satisfied with the results of its due diligence, the parties will
negotiate a formal, definitive acquisition agreement or other transaction
structure whereby Radial and Spirit would acquire the Interest.
NOW,
THEREFORE,
in consideration of $10.00 and other good and valuable consideration, the
parties agree as follows:
| 1. |
The
parties hereto agree that they will act together towards ensuring
that the
parties hereto enter into a definitive agreement containing substantially
the same terms and provisions as this LOI within ninety (90) days
from the
date first set forth above (the “Definitive
Agreement”).
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| 2. |
The
Definitive Agreement shall include the following material
terms:
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| (a) |
Radial
will acquire thirty percent (30%) ownership interest in EMPEC owned
by
Pacifico and eighty five percent (85%) ownership rights to Pacifico’s
rights in the Mines by (i) paying Pacifico $300,000 in cash (the
“Xxxx X.
Xxxxxx Payment”); (ii) issuing 2,000,000 of Radial common stock to Spirit;
and (iii) issuing in the aggregate 3,200,000 of Radial common stock
to
Xxxxxxxx, Xxxx X. Xxxxxx and Xxxxx XxXxxx. Radial will issue 1,000,000
of
such shares of its common stock prorata to Spirit and Pacifico based
on
the amounts set forth in this Paragraph 2(a) after receiving the
first
$100,000 payment from production at the EMPEC mill or other third
party
processing xxxxx. Thereafter, Radial will issue an additional 1,000,000
shares prorata to Spirit and Pacifico for every $100,000 of “Net Revenue”
earned by Radial until the total 5,200,000 shares as set forth in
this
Paragraph 2(a) are issued. “Net Revenue” shall mean revenue less NRI,
production costs and revenue due to Spirit. The shares issued by
Radial in
this Paragraph 2(a) are not registered under the Securities Act of
1933,
as amended, and Radial has no obligation to register them;
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| (b) |
Spirit
will acquire fifteen percent (15%) ownership interest in EMPEC owned
by
Pacifico and fifteen percent (15%) ownership rights to Pacifico’s rights
in the Mines by issuing 3,000,000 shares of its common stock at a
price of
$3.00 per share for an aggregate purchase price of $9,000,000 to
Xxxxxx
Xxxxxxxx, the current owner of the EMPEC floatation mill. These shares
are
not registered under the Securities Act of 1933, as amended, and
Spirit
has no obligation to register them;
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| (c) |
In
further consideration for acquiring Pacifico’s ownership rights in the
Project, Radial and Spirit agree to pay to Xxxxxx Xxxxxxxx their
respective proportion of up to $300,000 per calendar quarter for
ten
consecutive quarters beginning January 1, 2008, for a total payment
of
$3,000,000. Such quarterly payment shall be derived through production
from the Mines and will be capped at the lesser of (i) fifty percent
(50%)
of net quarterly revenue (revenue received less 5% NRI and production
costs) or (ii) $300,000.
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| (d) |
Radial
will be the “Operator of Record” for the EMPEC floatation mill and the
Mines with the Ecuadorian
Government;
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| (e) |
Radial
and Pacifico will enter into a “Joint Operating Agreement” whereby
Pacifico agrees to operate the EMPEC floatation mill and the Mines
on
behalf of Radial and Spirit;
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| (f) |
Pacifico
and its principals will receive five percent (5%) net smelter royalty
(NSR) from the Mines;
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| (g) |
Radial
agrees to invest up to $1,000,000 in EMPEC over the next twelve (12)
months upon receipt from Pacifico of a detailed capital expenditure
plan
and subject to Radial receiving the first production revenue payment
from
the Mines. $300,000 shall have been paid in accordance with Paragraph
4(a)
and 4(b) of the LOI and the remaining $700,000 will be paid in increments
of $100,000 once Radial approves the use of such funds. Any capital
expenditures in EMPEC and the Mines thereafter will be apportioned
between
Radial and Spirit in accordance with their ownership
percentage;
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| (h) |
Pacifico
will use its best efforts to ensure that the remaining fifty five
percent
(55%) of EMPEC is freed from escrow (the “Additional Interest”). Pacifico
and Spirit acknowledge and agree that Radial has exclusive right
to
acquire all or a portion (at its sole discretion) of the Additional
Interest awarded to Xxxxxxxx, Xxxx X. Xxxxxx, or any related affiliates
by
the Ecuadorian courts and/or Xxxxxx Xxxxxxxx. The purchase price
of the
Additional Interest will be valued on a pro-rated basis based on
the
original purchase price of USD $12,000,000 for forty five percent
(45%) of
EMPEC ($266,667 per 1% ownership) and will be paid one quarter (¼) in cash
and three quarters (¾) in shares of common stock of Radial issued at a
price of $0.50 per share. Such Radial shares will be held in escrow
and
delivered in equal installments of 1,000,000 shares for every $100,000
of
net production achieved from the Mines. The cash payment to Pacifico
and
Xxxxxx Xxxxxxxx shall be capped at fifty percent (50%) of total production
achieved from the Mines on a quarterly basis. Pacifico will not receive
its proportion of such cash payment each quarter until Xxxxxx Xxxxxxxx
is
paid in full amounts due to him each quarter under Paragraph 2(c).
Pacifico and Xxxx X. Xxxxxx represent and warrant that Radial has
no
further financial obligations related to the purchase of Additional
Interest other than the previously stated $266,667 for every additional
percentage of interest if acquired by Radial. The
shares issued by Radial in this Paragraph 2(h) are not registered
under
the Securities Act of 1933, as amended, and Radial has no obligation
to
register them.
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| 3. |
The
Closing shall occur as promptly as practicable, but in all events
on or
before November 30, 2007 unless otherwise agreed by the parties hereto.
In
the event that Closing does not occur on or before November 30, 2007:
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| (a) |
And
any party hereto decides to not pursue the transactions contemplated
by
this LOI and the Definitive Agreement, all funds advanced by Radial
pursuant to this LOI and the Definitive Agreement will be due immediately
and shall be repaid in full to Radial from revenue derived from the
production of the Mines in order of first priority. Any outstanding
balance shall be subject to a late charge interest rate of one percent
(1%) per month.
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| (b) |
The
parties hereto may extend the Closing for thirty (30) days.
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| 4. |
Upon
execution of this LOI, the parties hereto agree to the
following:
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| (a) |
Radial
will advance Pacifico the amount of $150,000 to pay for legal fees
related
to the intervention of the EMPEC mill. Prior to entering into the
Definitive Agreement, Pacifico agrees to provide a detailed accounting,
including invoices where applicable, of the use of such funds.
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| (b) |
Radial
will advance Pacifico an additional $150,000 for working capital
upon
receipt from Pacifico of a detailed use of funds and: (i) Pacifico
obtaining fifty one percent (51%) or more ownership or controlling
interest in EMPEC or the Ecuadorian courts granting Pacifico the
right to
operate EMPEC during the arbitration process; or (ii) Pacifico receiving
revenue through third party production
xxxxx.
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| (c) |
Radial
will pay Xxxx X. Xxxxxx the sum of $300,000 within thirty (30) days
from
the date first set forth above.
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| (d) |
Radial,
Pacifico and Xxxx X. Xxxxxx shall execute the Security Agreement
attached
hereto as Exhibit A.
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| 5. |
Radial
will use best efforts to obtain shareholder approval to increase
its
authorized capital from 75,000,000 to 500,000,000 shares.
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| 6. |
Prior
to signing the Definitive Agreement, Radial shall have obtained a
signed
agreement by Cornell Capital agreeing to defer repayment of any
outstanding debentures owed to Cornell Capital for a minimum period
of one
(1) year from the closing of the Definitive Agreement.
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| 7. |
The
Definitive Agreement will provide that closing of the transactions
contemplated
in the Definitive Agreement (the “Closing”) will be conditional
upon
the following:
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| (a) |
Pacifico
shall operate its business only in the ordinary course and will not
sell,
distribute, license or encumber any of the
Assets;
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| (b) |
the
receipt of any certificates, legal opinions (including the Legal
Opinion
defined in section 7(d)), tax opinions, other opinions and documents
which
Radial may reasonably request, including documents relating to any
tests
or geological work performed or studies or reports completed (provided
these are not subject to non-disclosure covenants by Pacifico in
connection with any third-party agreements) related to the Project
and
Assets;
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| (c) |
the
receipt of all consents, approvals, authorizations and orders required
of
or for the completion of any document required hereunder related
to the
Project and Assets;
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| (d) |
satisfactory
completion of due diligence related to the Project and Assets, to
be
conducted by Radial and/or Spirit’s legal counsel, at the absolute and
sole discretion of Radial, concerning the Project and Assets and
the legal
status of the Interest as well as the receipt of a legal opinion
(the
“Legal Opinion”) which Legal Opinion shall contain opinions given by a
qualified Ecuadorian lawyer stating that the Assets are in good standing
under applicable Ecuadorian laws and that the Assets will be transferrable
to Radial and Spirit upon closing of the Definitive Agreement;
and
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| (e) |
satisfactory
completion of due diligence, at the absolute and sole discretion
of
Pacifico, concerning the Project and
Assets.
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8.
Radial
will, in the Definitive Agreement, represent and warrant to Pacifico
that:
| (a) |
it
is a public corporation incorporated and is in good standing with
all
regulatory agencies and its shares are authorized to trade on the
OTC
Bulletin Board;
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| (b) |
there
are no legal actions against Radial or its directors or officers
and the
company knows of no intended legal actions against the company and
is not
engaged in any legal actions against other parties;
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| (c) |
its
business and financial condition are as set forth in its filings
with the
SEC on the XXXXX database and is the filings are current as of the
date
hereof;
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| (d) |
there
are no outstanding mergers, acquisitions, financial commitments,
obligations, liabilities, etc. other than those contemplated in this
transaction and publicly disclosed concerning
Radial;
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| (e) |
there
are no legal actions against Radial or its directors, officers and/or
shareholders nor does Radial know of any intended legal actions against
it
or any of its directors and Radial is not engaged in any legal actions
against other parties, and is current in all filings with tax and
regulatory authorities; and
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| (f) |
there
have been no other issuances of shares of its capital stock, or
instruments exercisable for, convertible into or otherwise entitling
the
holder to acquire shares of its capital stock, other than in connection
with the Closing or financing of the transactions to be contemplated
in
the Definitive Agreement (and then only on the terms contemplated
by the
Definitive Agreement).
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9.
Xxxxxxxx,
Xxxx X. Xxxxxx and Xxxxx XxXxxx will, in the Definitive Agreement, represent
and
warrant to Radial and Spirit that:
| (a) |
Pacifico
is a company organized under the laws of Ecuador and is in good standing
with all regulatory agencies;
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| (b) |
Except
for the actions related to the fifty five percent (55%) ownership
in EMPEC
not already owned by Pacifico, there are no legal actions against
Pacifico
or its directors nor does Pacifico know of any intended legal actions
against it or any of its directors and Pacifico is not engaged in
any
legal actions against other parties, and is current in all filings
with
tax and regulatory authorities;
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| (c) |
Pacifico’s
business and financial condition remain materially unchanged from
any due
diligence or financial statement documentation provided to Radial
prior to
Closing;
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| (d) |
Pacifico
has the exclusive rights to forty five percent (45%) ownership in
EMPEC,
certain rights to the remaining fifty five percent (55%) ownership
in
EMPEC, one hundred percent (100%) ownership of two-10 year production
leases to mine Adua Dulce and Xxxxx Xxxxxxxxx and the mining rights
to the
Jorupe mine, all located in Ecuador, subject to any liens, charges,
securitizations or debts disclosed in the financial statements of
Pacifico
provided to Radial prior to
Closing;
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| (e) |
there
have been no other issuances of shares of its capital stock, or
instruments exercisable for, convertible into or otherwise entitling
the
holder to acquire shares of its capital stock, other than in connection
with the Closing or financing of the transactions to be contemplated
in
the Definitive Agreement (and then only on the terms contemplated
by the
Definitive Agreement);
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| (f) |
there
are no outstanding mergers, acquisitions, financial commitments,
obligations, liabilities, etc. related to the Assets other than those
contemplated in this transaction.
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10.
The
Definitive Agreement shall provide that each and every obligation of Radial
to
be performed hereunder shall be subject to the satisfaction prior thereto of
the
following conditions:
| a) |
the
representations and warranties made by Xxxxxxxx, Xxxx X. Xxxxxx and
Xxxxx
XxXxxx in this LOI and the Definitive Agreement or given on its behalf
hereunder shall be substantially accurate in all material respects
on and
as of the closing date with the same effect as though such representations
and warranties had been made or given on and as of the closing
date;
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| b) |
Xxxxxxxx,
Xxxx X. Xxxxxx and Xxxxx XxXxxx shall have performed and complied
with all
obligations and covenants required by the Definitive Agreement to
be
performed or complied with by them prior to or at Closing;
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| c) |
Radial
shall have been furnished that information on the business and affairs
of
Pacifico which it deems, in its sole and absolute discretion, to
be
necessary for it to meet its continuous disclosure obligations under
the
Securities Exchange Act of 1934 upon Closing;
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| d) |
as
of Closing there shall not have occurred any material adverse change
to
Pacifico or to the Assets, financially or otherwise, which materially
impairs the ability of Radial to conduct its
business;
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| e) |
the
completion, by Radial and Pacifico, of any financial statements required
to be filed following the Closing by Radial as a reporting issuer
under
the Securities Exchange Act of 1934;
and
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| f) |
the
opinion of counsel to Radial that the Closing will not result in
Radial
breaching any applicable securities law, rules and
regulations.
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11.
The
Definitive Agreement shall provide that each and every obligation of Pacifico
to
be performed on Closing shall be subject to the satisfaction prior thereto
of
the following conditions:
| (a) |
the
representations and warranties made by Radial and Spirit in this
LOI and
the Definitive Agreement or given on its behalf hereunder shall be
substantially accurate in all material respects on and as of the
closing
date with the same effect as though such representations and warranties
had been made or given on and as of the closing
date;
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| (b) |
Radial
and Spirit shall have performed and complied with all obligations
and
covenants required by the Definitive Agreement to be performed or
complied
with by them prior to or at Closing;
and
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| (c) |
as
of Closing there shall not have occurred any material adverse change
to
Radial, financially or otherwise, which materially impairs the ability
to
conduct its business.
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12.
No
party hereto will make any disclosure or public announcements of the proposed
transactions, the Definitive Agreement or the terms thereof without the prior
knowledge of the other parties, which shall not be unreasonably withheld, or
except as required by relevant securities laws; provided, however, Radial may
issue press releases in the ordinary course of business but will make no
reference to the parties hereto unless their prior written consent is
received.
13. Each
party agrees and acknowledges that such party and its directors, officers,
employees, agents and representatives will disclose business information and
information about the proposed transaction in the course of securing financings
for Radial and Pacifico and that both parties and their representatives may
be
required to disclose that information under the continuous disclosure
requirements of the Securities Exchange Act of 1934.
14. Xxxxxxxx,
Xxxx X. Xxxxxx and Xxxxx XxXxxx hereby agree that neither will solicit any
third
party for the licensing, lease, transfer or sale of any of the Assets, or
solicit opportunities for either party to enter into any discussions with any
third party for the licensing, lease, transfer or sale of any of the Assets,
from the date first set forth above until the end of the term of the Definitive
Agreement. This section shall not be read to prohibit the parties from
conducting such discussions which are in the ordinary course of business but
is
intended to be read as protecting each of the parties from the other entering
into negotiations which would conflict with the transactions contemplated by
this LOI and by the Definitive Agreement.
15. This
LOI shall be construed in accordance with, and governed by, the laws of the
State of Washington, and each party separately and unconditionally subjects
to
the jurisdiction of any court of competent authority in the State of Washington,
and the rules and regulations thereof, for all purposes related to this
agreement and/or their respective performance hereunder.
16. This
LOI,
including any instruments incorporated herein by reference, constitutes the
final, complete and exclusive agreement between the parties with respect to
the
subject matter hereof, and supersedes all prior and contemporaneous
understandings or agreements of the parties relating to the subject matter
of
this LOI, and
may be modified only by a written document signed by all parties.
17. The
parties shall prepare, execute and file any and all documents necessary to
comply with all applicable federal and state securities laws, rules and
regulations in any jurisdiction where they are required to do so.
18.
If
any term or provision hereof shall be held illegal or invalid, this LOI shall
be
construed and enforced as if such illegal or invalid term or provision had
not
been contained herein.
19. All
references to currency in this LOI are references to the lawful currency of
the
United States of America.
20. This
LOI
may be executed in counterparts, by original or facsimile signature, with the
same effect as if the signatures to each such counterpart were upon a single
instrument; and each counterpart shall be enforceable against the Party actually
executing such counterpart. All counterparts shall be deemed an original
copy.
21. The
delay
or failure of a party to enforce at any time any provision of this LOI shall
in
no way be considered a waiver of any such provision, or any other provision
of
this LOI. No waiver of, delay or failure to enforce any provision of this LOI
shall in any way be considered a continuing waiver or be construed as a
subsequent waiver of any such provision, or any other provision of this
LOI.
DATED
EFFECTIVE THIS 7TH DAY OF SEPTEMBER, 2007
RADIAL
ENERGY INC.
____________________________
Xxxxxxx
Xxxxx Xxxxx, President
The
above terms are hereby read, understood, acknowledged and accepted effective
the
7th day of September, 2007.
MINERA
DEL XXXXXXXX XX
____________________________
Xxxx
X.
Xxxxxx
Title:
_______________________
SPIRIT
EXPLORATION INC.
____________________________
Xxxxx
Laipnieks
Title:
_______________________
XXXX
X. XXXXXX
____________________________
XXXXX
XXXXXX
____________________________
EXHIBIT
A
Security
Agreement
