LETTER OF INTENT
THIS LETTER OF INTENT is made and entered into as of the 22nd day of
September, 1995, and sets forth the salient points of a subscription agreement
in principle reached by and between AURTEX, INC. ("Aurtex" herein), a Nevada
corporation, whose address is 0000 Xxxxxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxxxxx, XX 00000, and VenCan Gold Corporation ("VenCan" herein), an Ontario
corporation, whose address is 000 Xxxxxxxx Xxxxxx Xxxx, Xxxxx 0000, Xxxxxxx, XX
X0X 0X0.
RECITALS
WHEREAS, VenCan is the owner of the Xxxxxxx gold deposit (the "Xxxxxxx
Project" herein) located near Wawa, Ontario (more particularly described on
Exhibit "A" attached hereto and made a part hereof) and holds an option to
purchase the Xxxxxxx claim block (the "Xxxxxxx Claims" herein) located in the
vicinity of the Xxxxxxx Project (more particularly described on Exhibit "B"
attached hereto and made a part hereof); and
WHEREAS, VenCan desires to obtain funds through a private placement of its
common shares in order to acquire the Xxxxxxx Claims, to conduct certain
exploration and development work on the Xxxxxxx Project and the Xxxxxxx Claims,
and to pay certain fees; and
WHEREAS, Aurtex desires to provide such funds and subscribe common shares
and warrants for common shares of VenCan on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises, the receipt and
sufficiency whereof is hereby acknowledged by each of the parties hereto, it is
agreed as follows:
1. Issue and Subscription of Common Shares. Subject to satisfaction of the
conditions precedent set forth in Section 8 below, Aurtex hereby agrees to
subscribe, and VenCan hereby agrees to issue and allot to Aurtex, for the sum of
Cdn$700,000 (the "Phase I Proceeds"), (i) 2,000,000 common shares of VenCan's
treasury stock at the price of Cdn$0.35 each and (ii) warrants to purchase up to
an additional 2,000,000 common shares of VenCan's treasury stock at the price of
Cdn$0.40 each (subject to adjustment as provided in Section 5 below), which
warrants will expire one year from the date of closing unless sooner exercised;
Aurtex shall pay the Phase I Proceeds to VenCan, and VenCan shall concurrently
deliver to Aurtex said 2,000,000 common shares and warrants for said 2,000,000
additional common shares at a mutually acceptable time and place within ten days
following execution hereof. The certificate or certificates representing such
warrants shall be in form and substance acceptable to counsel for Aurtex, acting
reasonably.
2. Use of Phase I Proceeds. VenCan agres to use the Phase I Proceeds for
the following purposes (the Phase I work herein) and for no other purpose
without Aurtex' prior written consent:
a. Cdn$450,000 for systematic diamond drilling of the Xxxxxxx Project,
for option payments related to the Xxxxxxx Claims and for associated field
work; and
b. Cdn$100,000 to be used for working capital and for general
corporate purposes;
c. Cdn$150,000 to cover legal fees, a finder's fee for the account of
IBK, regulatory and miscellaneous fees for the private placement of
VenCan's common shares contemplated by this Agreement.
Prior to commencing its Phase I Work, VenCan shall obtain from Aurtex approval
of a budget for performance of the work, which approval shall not be
unreasonably withheld. VenCan shall complete the Phase I Work within 90 days
following closing of the purchase described in Section 1 hereof and upon such
completion shall give Aurtex written notice thereof, together with an accounting
of the use of the Phase I Proceeds and a report on the results of the Phase I
Work.
3. Conditional and Additional Subscription of Common Shares. Subject to
approval by its shareholders for issuance of the required additional shares,
VenCan hereby agrees to issue and allot to Aurtex, upon election by Aurtex to
subscribe, for the sum of Cdn$2,250,000 (the "Phase II Proceeds") (I) 3,000,000
common shares of VenCan's treasury stock at the price of Cdn$.75 and (II)
warrants to purchase up to an additional 3,000,000 common shares of VenCan's
treasury stock at the price of Cdn$1.00 each (subject to adjustment as provided
in Section 5 below), which warrants will expire one year from the date of
issuance of such warrant. Aurtex may elect to subscribe at any time prior to
June 30, 1996, in which event Aurtex shall pay to VenCan the Phase II Proceeds
and VenCan shall concurrently deliver to Aurtex said additional 3,000,000 common
shares of VenCan and warrants for said additional 3,000,000 common shares of
VenCan at a mutually acceptable time and place within ten days following such
election to subscribe. The certificate or certificates representing such
warrants shall be in form and substance acceptable to counsel for Aurtex, acting
reasonably.
4. Use of Phase II Proceeds. VenCan agrees to use the Phase II Proceeds for
purposes of driving an underground ramp on the Xxxxxxx Project, for obtaining an
underground bulk ore sample therefrom and for conducting metallurgical tests
and assays thereon (including reasonable overhead costs incidental to such
purposes)(the "Phase II Work") and for no other purpose without Aurtex' prior
written consent.
-2-
5. Regulatory Requirements.
5.1 Aurtex hereby acknowledges that the common shares and warrants to
be issued and delivered to it pursuant to Sections 1 and 3 above are subject
to certain resale restrictions for a period of one year or more following
the date of issuance without the prior approval of the appropriate
regulatory authority. The common shares and warrants shall not be subject to
restrictions other than statutory restrictions.
5.2 It is further understood by the parties that applicable
regulations may, unless waived, require that the common shares to be issued
upon exercise of the warrants contemplated by Sections 1 and 3 above be
repriced to reflect the market price of VenCan's common shares at the time
of issuance; in that event, and if such repricing causes a substantial
change from the intent of the parties (i.e., that, if Aurtex exercises all
of its options and warrants as herein provided, it will more than 43% of the
issued and outstanding common shares of VenCan on a fully diluted basis at a
cost to it of approximately Cdn$6,870,000), both parties will use their best
efforts to obtain regulatory relief or to agree upon an amendment of this
Agreement that will give effect to such intent.
6. Future Financing. VenCan hereby grants to Aurtex a preemptive or first
right to participate in all or any portion of future debt or equity financing
VenCan desires to obtain (either directly or indirectly through a subsidiary)
for any purpose during the time any of the warrants granted hereunder remain
outstanding and in full force and effect. In the event VenCan desires to obtain
such financing, it shall give written notice to Aurtex of the terms offered by a
third party which are acceptable to it and Aurtex may within 30 days thereafter
agree to provide such financing on the stated terms, in which event Aurtex shall
provide such financing within 90 days after advising VenCan of its agreement to
do so. If Aurtex declines to participate in such financing, VenCan shall close
its financing with the third party on substantially the same terms with 90 days
thereafter; if VenCan fails to so close, it shall similarly offer future
financing first to Aurtex. Aurtex' decision not to participate in any financing
proposal will not result in termination of its preemptive or first right to
participate in a future financing proposal.
7. Representations and Warranties. VenCan hereby represents and warrants to
Aurtex that:
a. There are currently no more than 12,550,000 VenCan common shares
outstanding on a fully diluted basis and no individual or entity has any
right to purchase or otherwise acquire, directly or indirectly, any
additional common treasury shares of VenCan;
-3-
b. It has good and marketable title to the Xxxxxxx Project and a
valid option to acquire the Xxxxxxx Claims for Cdn$200,000;
c. It is incorporated and in good standing in the Province of Ontario
and, subject only to shareholders ratification and approval as contemplated
herein, has all of the requisite authority to enter into this Agreement and
fulfill its obligations hereunder; and
d. The data and information it has provided Aurtex regarding (i) its
title to and the mineral character and content of the Xxxxxxx Project (ii)
its option to acquire the Xxxxxxx Claims, (iii) the material environmental
risks associated with the Xxxxxxx Project and the Xxxxxxx Claims, and (iv)
its books and records, fairly reflect its financial condition and are true
and correct.
8. Prohibited Actions. VenCan hereby covenants and agrees that so long as
any of the warrants granted pursuant to Section 1 or Section 3 hereof remain
outstanding and in full force and effect, VenCan will not:
a. Sell, lease, enter into a joint venture arrangement or otherwise
transfer, encumber or divest itself of its interest in the Xxxxxxx Project
or the Xxxxxxx Claims;
b. Issue any common shares of VenCan to any person or entity other
than Aurtex except as obligated to do so under existing options and
warrants, grant an option, warrant or other instrument creating a right to
acquire any common or preferred shares of VenCan to any person or entity,
engage in a split of issued and outstanding common shares of VenCan, incur
debt in excess of Cdn$500,000, or take any other action which has the effect
of diluting the rights of Aurtex as provided in this Agreement; or
c. Appoint an additional director or directors of VenCan, it being
the intent that the number of directors shall not be more than five until
the warrants contemplated by this Agreement have either been exercised or
expired.
9. Conditions Precedent
a. Aurtex' obligations under Section 1 hereof are subject to and
shall not become binding upon Aurtex until:
i. Aurtex shall have satisfied itself through a due diligence
investigation (which shall be completed within 21 days following
execution hereof by the parties) that (w) VenCan has good and
marketable title to the Xxxxxxx Project, (x) VenCan has a valid option
to
-4-
acquire the Xxxxxxx Claims, (y) there are no material environmental risks
associated with the Xxxxxxx Project or the Xxxxxxx Claims, and (z) VenCan's
books and records fairly reflect its financial condition as confirmed by
completion of a financial due diligence investigation;
ii. Aurtex has received documentation reasonably acceptable to it that
all necessary regulatory approval for issuance of the common shares and
warrants for common shares of VenCan pursuant to Section 1 has been granted;
iii. The claim (which VenCan denies) of X.X. Xxxx that he has a first
right to conduct all underground mining operations at the Xxxxxxx Project
and/or the Xxxxxxx Claims has either been fully discharged and released or
it has been demonstrated to Aurtex' satisfaction that such claim is not
meritorious;
iv. Aurtex shall have received an opinion from an attorney acceptable
to it to the effect that issuance of the VenCan common shares and warrants
for VenCan common shares pursuant to Section 1 will be in compliance with
all applicable security rules and regulations of all jurisdictions affected
thereby and will be restricted only as provided in Subsection 5.1 hereof;
and
v. VenCan's Board of Directors shall have approved and ratified the
execution of this Agreement on or before the expiration of 21 days from the
date of execution of this agreement by the parties.
b. Aurtex' obligations in the event it elects to subscribe for additional
common shares and warrants under Section 3 hereof are subject to and shall not
become binding upon Aurtex until Aurtex has received documentation reasonably
acceptable to it that:
i. All necessary regulatory approvals for issuance of the common
shares and warrants for common shares of VenCan have been granted;
ii. VenCan's shareholders have approved the issuance of the additional
number of common VenCan shares necessary for VenCan to meet its obligations
under this Agreement; and
iii. Aurtex shall have received an opinion from an attorney acceptable
to it to the effect that issuance of the VenCan common shares and warrants
for VenCan common shares issued pursuant to Section 3 will be in compliance
with all applicable security rules and regulations of
-5-
all jurisdictions affected thereby and will be restricted only as
provided in Section 5.1 hereof;
iv. VenCan and Aurtex shall have agreed upon a budget for
performance of the work.
c. In the event any of the conditions set forth in Subsections a. and
b. above are not met to Aurtex' satisfaction on or before the Special
Shareholders' Meeting to be called as provided in Section 11 below and are
not waived by Aurtex, or if such shareholders' meeting shall not have been
held and the approval of issuance of additional common shares by VenCan
obtained from the shareholders by January 31, 1998, Aurtex shall have the
right to terminate this Agreement and thereafter neither party shall have
any further obligation to the other. For greater certainty, in case Aurtex
terminates this Agreement by reason of any of the conditions precedent set
forth in Subsections a. and b. not being satisfied, Aurtex hereby agrees to
refrain from seeking any damages, or compensation of any nature, against
VenCan by reason of such termination and agrees to hold VenCan harmless in
that respect.
d. VenCan's obligations under this Agreement are subject to and shall
not become binding on VenCan until:
i. VenCan shall have satisfied itself through a due diligence
investigation that Aurtex is financially capable of fulfilling its
obligations under this Agreement; and
ii. Aurtex' Board of Directors shall have approved and ratified the
execution of this Agreement by the parties.
In the event either of the conditions set forth in this Subsection d. is not met
to VenCan's satisfaction on or before the expiration of 21 days following the
execution of this Agreement by the parties, VenCan shall have the right to
terminate this Agreement and thereafter neither party shall have any further
obligation to the other. For greater certainty, in case VenCan terminates this
Agreement by reason of either of the conditions precedent set forth in this
Subsection d. not being satisfied, VenCan hereby agrees to refrain from seeking
any damages, or compensation of any nature, against Aurtex by reason of such
termination and agrees to hold Aurtex harmless in that respect.
10. Shareholders' Meeting. Prior to January 31, 1996, VenCan shall convene a
validly constituted Special Shareholders' Meeting for purposes of describing the
terms of this Agreement to its shareholders and, if appropriate, obtaining their
-6-
approval for the issuance of the number of additional common shares of VenCan as
are necessary for VenCan to meet its obligations under this Agreement. At least
ten days prior to mailing, VenCan shall submit its Information Circular and
Proxy to be sent to its shareholders in connection with such meeting to Aurtex
for its review and comment. VenCan hereby undertakes to cause VenCan's Board of
Directors to recommend, to VenCan's shareholders, approval of the issuance of
such additional shares. Such recommendation shall be reflected in the
Information Circular to be sent to VenCan's shareholders.
11. Directors. It is understood and agreed by the parties that Aurtex shall
be entitled to one representative on VenCan's Board of Directors for each
Cdn$700,000 that Aurtex invests in VenCan. Promptly following payment of
Cdn$700,000 as provided in Section 1 hereof, VenCan's Board of Directors shall
cause one of its members to resign and be replaced by a representative
designated by Aurtex. Promptly following payment by Aurtex of its second
incremental Cdn$700,000 investment, whether by cash payment as provided in
Section 3 hereof or by exercise of warrants issued pursuant to Section 1 or 3
hereof, VenCan's Board of Directors shall cause another of its members to resign
and be replaced by a representative designated by Aurtex. Thereafter, promptly
following payment by Aurtex of each additional incremental Cdn$700,000
investment, whether by cash payment as provided in Section 3 hereof or by
exercise of warrants issued pursuant to Section 1 or 3 hereof, VenCan's Board of
Directors shall either cause another of its members to resign and be replaced by
a representative designated by Aurtex or expand its membership to allow for the
designation of another representative by Aurtex. In making its designations,
Aurtex shall comply with the Province of Ontario's requirement that a majority
of a corporation's directors be residents of Canada.
12. Stock Exchange Listing. The parties shall use their best efforts to list
VenCan on the Toronto Stock Exchange, either in addition to its current listing
on The Montreal Exchange or in lieu thereof, as soon as possible.
13. Fiduciary Obligations. Aurtex shall at all times honor all of its
applicable fiduciary obligations to VenCan's shareholders as required by
Canadian statutory and common law and shall keep its transactions with VenCan at
arm's length.
14. Confidentiality. The data and information, including the terms of this
Agreement, coming into either party's possession by virtue of this Agreement,
shall be deemed confidential and shall not be disclosed to outside third parties
except as may be required to publicly record or protect title to the property or
to publicly announce and disclose information under applicable laws and
regulations or under the rules and regulations of any stock exchange.
15. Press Releases. In the event either party desires to issue a press
release relating in any way to this Agreement, the Xxxxxxx Project or the
Xxxxxxx Claims, a
-7-
draft thereof shall be submitted to the other party a sufficient length of time
before its issuance for it to review and comment thereon; the consent of the
other party must be obtained only if such other party is mentioned in such press
release but the parties agree to give due and fair consideration to the comments
of the other party prior to issuing the press release.
16. Notices. Notices given pursuant to this Agreement shall be in writing
and may be sent (a) by personal delivery or (b) by registered or certified mail,
postage prepaid and return receipt requested, addressed to the party to be
notified at the following address or such other address as the party shall have
designated by notice to the other party. A notice so served shall be effective
on the date of receipt or five (5) days after being sent, whichever first
occurs.
If to Aurtex: Aurtex, Inc.
Attention: Xxxxxxx X. Silver
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
w/copy to: Root & Xxxxxxxxx
Attention: F. Xxxx Xxxxxxxx
000 00xx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
If to VenCan: VenCan Gold Corporation
Xxx Xxxxx, President
000 Xxxxxxxx Xxxxxx Xxxx, Xxxxx 0000
Xxxxxxx, XX X0X 0X0
17. Binding Effect of Obligations. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto, and their successors and
assigns.
18. Whole Agreement. The parties hereto agree that this Agreement contains
the whole agreement between them and shall constitute the entire contract
between the parties. There are no terms or conditions, express or impelled,
other than stated in this Agreement.
19. Amendments. This Agreement may be amended or modified only by an
instrument in writing, signed by the parties with the same formality as this
Agreement.
20. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
-8-
21. Multiple Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute the same Agreement.
22. Severability. If any part, term or provision of this Agreement is held
to be illegal or in conflict with any applicable law, the validity of the
remaining portions or provisions shall not be affected and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be invalid.
IN WITNESS WHEREOF, the parties hereto have made and executed this Agreement
as of the day and year first above written.
AURTEX, INC. VENCAN GOLD CORPORATION
By /s/ Xxxxxxx Silver By /s/ Xxxxxxx Xxxxx
------------------------------------- --------------------------------
Xxxxxxx Silver, Its President & CEO Xxxxxxx Xxxxx, Its President
Attest: Attest:
By /s/ Xxxxx Xxxxxxx By /s/ Xxxxxx X. Xxxxx
------------------------------------- --------------------------------
Xxxxx Xxxxxxx, Its Secretary Xxxxxx X. Xxxxx,
Its Administration Officer
-9-
