ex10-4.htm


    Exhibit
10.4

     

    
      
        	 
      
	 
	 
	 
	
                DATED
      25 FEBRUARY 2010

              
	 
	 
	 
	 
	
                MEGO
      GOLD LLC

                and

                INDUSTRIAL
      MINERALS SA

              
	 
	 
	 
	 
      

                
    
	 
	
                SECURITY
      AGREEMENT

              
	 
	 
      

                
    


      

      


       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      THIS AGREEMENT is made on
25FEBRUARY 2010

       

      BY
AND BETWEEN

       

      
        	
                (1)

              	
                MEGO GOLD LLC,
      registered offices at Suite#2, 2A Tamanyan Street, Yerevan, Armenia
      ( hereinafter referred to us "Mego");
    and

              


      

       

      
        	
                (2)

              	
                Industrial Minerals SA,
      ac/o Lenz & Staehelin, Rte de Chene 30, 1208 Geneva,
      Switzerland (hereinafter referred to us “Secured
      Party”).

              


      

       

      IT IS AGREED as
follows:

       

      
        	
                1.

              	
                DEFINITIONS AND
      INTERPRETATION

              


      

       

      
        	
                1.1

              	
                Definitions

              


      

       

      In this
Agreement:

       

      "Business Day" means a day
(other than Saturday or Sunday) on which banks are open for general business in
Switzerland and Armenia.

       

      "GCSC" means Gold Concentrate
Supply Contract concluded between the parties and dated as of February 1,
2010

       

      "Civil Code" means the Civil
Code of the Republic of Armenia.

       

      "Collateral Rights" means all
rights, powers and remedies of the Secured Party provided by this Agreement or
by law.

       

      "Enforcement Event" means the
non-performance or improper performance by Mego.

       

      "Collateral/Security" means the
Stockpile secured under or pursuant to or evidenced by this
Agreement.

       

      "Stockpile" means 20,000 tones
of ore stockpiled and held by, to the order or on behalf of the Secured Party at
any time.

       

      
        
          	
                  1.2

                	
                  Construction

                


        

      

      
        In this
Agreement,

      

       

      
        
          	
                	
                  (a)

                	
                  Unless
      a contrary indication appears, a reference
to:

                


        

      

       

      
        	
                 
      

              	
                (i)

              	
                "assets" includes present
      and future properties, revenues and rights of every
      description;

              


      

       

      
        	
                 
      

              	
                (ii)

              	
                "indebtedness" includes
      any obligation (whether incurred as principal or as surety) for the
      payment or repayment of money, whether present or future, actual or
      contingent;

              


      

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

      
        	
                 
      

              	
                (iii)

              	
                a
      "person" includes
      any person, firm, company, corporation, government, state or agency of a
      state or any association, trust or partnership (whether or not having
      separate legal personality) of two or more of the
    foregoing;

              


      

       

      
        	
                 
      

              	
                (iv)

              	
                a
      "regulation"
      includes any regulation, rule, official directive, request or guideline
      (whether or not having the force of law but, if not having the force of
      law, with which persons who are subject thereto are accustomed to comply)
      of any governmental, intergovernmental or supranational body, agency,
      department or regulatory, self-regulatory or other authority or
      organisation;

              


      

       

      
        	
                 
      

              	
                (v)

              	
                the
      "winding-up",
      "dissolution",
      "administration"
      or "reorganisation" of a
      company or corporation shall be construed so as to include any equivalent
      or analogous proceedings under the laws and regulations of Armenia or any
      jurisdiction in which the Mego carry on business including the seeking of
      liquidation, winding-up, reorganisation, bankruptcy, dissolution,
      administration, arrangement, adjustment, protection or relief of
      debtors;

              


      

       

      
        	
                 
      

              	
                (vi)

              	
                a
      reference to a clause, paragraph or schedule, unless the context otherwise
      requires, is a reference to a clause, a paragraph of or a schedule to this
      Agreement.

              


      

       

      
        	
                 
      

              	
                (b)

              	
                General
      words shall not be given a restrictive meaning by reason of their being
      preceded or followed by words indicating a particular class of acts,
      matters or things or by examples falling within the general
      words.  Any phrase introduced by the terms "other", "including"
      and "include" or any similar expression shall be construed as illustrative
      and shall not limit the sense of the words preceding those
      terms.

              


      

       

      
        	
                 
      

              	
                (c)

              	
                Section,
      Clause and Schedule headings are for ease of reference
    only.

              


      

       

      
        	
                2.

              	
                SECURED
      OBLIGATIONS

              


      

       

      The Mego
charge the Stockpile with full title guarantee and mortgages as of first ranking
security in favour of the Secured Party, as continuing security for the payment
of an amount USD 450 000 /four hundred fifty thousands/ received under the
“Gold Concentrate Supply Contract” concluded between the parties and dated as of
February 1, 2010 a copy of which is attached hereto and made a part hereof
(GCSC).

       

      
        	
                3.

              	
                RELEASE

              


      

       

      
        	
                3.1

              	
                Release

              


      

      Upon
performance in full by the Mego of their obligations under the GCSC Contract or
otherwise upon termination of such Contract, the Secured Party shall, at the
request and cost of the Mego, release all the security granted under this
Agreement and deliver to the Secured Party all documents necessary to effect the
release of security without any recourse to, and without any representations or
warranties by, the Secured Party or any of its nominees.

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

      
        	
                4.

              	
                ENFORCEMENT
      EVENT

              


      

       

      
        	
                4.1

              	
                Enforcement
      Event

              


      

      Mego
shall be in default under this agreement upon the occurrence of any of the
following events or conditions, namely: (a) default in the performance of any of
the Obligations or of any agreements or liabilities contained or referred to
herein or in GSCS; (b) any warranty, representation or statement made or
furnished to Secured Party by or on behalf of Mego proving to have been false in
any material respect when made or furnished; (c) loss, theft, substantial
damage, destruction, sale or encumbrance to or any of the Collateral, or the
making of any levy, seizure or attachment thereof or thereon; or (d)
dissolution, termination of existence, filing by Mego or by any third party
against Mego of any petition under any bankruptcy statute, insolvency, business
failure, appointment of a receiver of any part of the property of, or assignment
for the benefit of creditors by Mego.

       

      Upon the
occurrence of an Enforcement Event, the Mego must:

       

      
        
          	
                	
                  (a)

                	
                  transfer
      to the Secured Party any interest and other monies and benefits it may
      receive thereafter in connection with the
  Stockpile

                


        

      

       

      
        
          	
                	
                  (b)

                	
                  notwithstanding
      Clause 5.2 of this Agreement, not take any decisions as the owner of
      Stockpile except in accordance with the instructions of the Secured
      Party.

                


        

      

       

      
        	
                5.

              	
                MEGOS' REPRESENTATIONS AND
      UNDERTAKINGS

              


      

       

      
        	
                5.1

              	
                Representations

              


      

      Mego
makes the following representations and warranties to the Secured Party and
acknowledges that the Secured Party has become party to this Agreement in
reliance on these representations and warranties:

       

      
        
          	
                	
                  (a)

                	
                  Non-conflict
      with other obligations

                


        

      

       

      The entry
into and performance by it of, and the transactions contemplated by, this
Agreement  do not and shall not result in the existence of, or oblige
it to create, any security over the Collateral other than as permitted under
this Agreement.

       

      Except
for the security interest granted hereby, Mego is the owner of the Collateral
free from any adverse lien, security interest or encumbrance; and Mego will
defend the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein.

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

      
        
          	
                	
                  (b)

                	
                  No
      Financing Statement covering any of the Collateral or any proceeds thereof
      is on file in any public office. Mego shall immediately notify the Secured
      Party in writing of any change in name, address, identity or corporate
      structure from that shown in this Agreement and shall also upon demand
      furnish to the Secured Party such further information and shall execute
      and deliver to Secured Party such financing statements and other documents
      in form satisfactory to Secured Party and shall do all such acts and
      things as Secured Party may at any time or from time to time reasonably
      request or as may be necessary or appropriate to establish and maintain a
      perfected security interest in the Collateral as security for the
      Obligations, subject to no adverse liens or encumbrances; and Mego will
      pay the cost of filing the same or filing or recording this agreement in
      all public offices wherever filing or recording is deemed by Secured Party
      to be necessary or desirable.  A carbon, photographic or other
      reproduction of this agreement is sufficient as a financing
      statement.

                


        

      

       

      
        
          	
                	
                  (c)

                	
                  Except
      as contemplated by the GCSC between the parties, Mego will not sell,
      assign, pledge, lease or otherwise transfer or encumber the Collateral or
      any interest therein, without the prior written consent of Secured
      Party.

                


        

      

       

      
        
          	
                	
                  (d)

                	
                  Mego
      will keep the Collateral free from any adverse lien, security interest or
      encumbrance and in good order and repair, shall not waste or destroy the
      Collateral or any part thereof, and shall not use the Collateral in
      violation of any statute, ordinance or policy of insurance thereon.
      Secured Party may examine and inspect the Collateral at any reasonable
      time or times, wherever
located.

                


        

      

       

      
        
          	
                	
                  (e)

                	
                  Mego
      will pay promptly when due all taxes and assessments upon the Collateral
      or for its use or operation or upon this Agreement or upon any note or
      notes evidencing the
Obligations.

                


        

      

      


      
        	
              	
                (f) 

              	
                Repetition

              


      

       

      The
representations set out in Clauses 5.1 (Non-conflict with other
obligations) are deemed to be made by the Mego by reference to the facts
and circumstances then existing on the date of this Agreement.

       

      
        	
                5.2

              	
                Undertakings

              


      

      
        
          	
                	
                  (a)

                	
                  Disposals
      and Negative pledge

                


        

      

       

      The Mego
shall not enter into a single transaction or a series of transactions (whether
related or not) whether voluntarily or involuntarily, to sell, lease, transfer
or otherwise dispose of the whole or any part of the Collateral and will not
create or permit to subsist any security interest on any part of the Collateral
or otherwise deal with any part of the Collateral, save as may be permitted
under this Agreement or instructions received by the Secured Party.

       

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      

      
        	
                6.

              	
                FURTHER
      ASSURANCE

              


      

       

      
        	
              	
                (a)

              	
                The
      Mego will promptly at their own cost do all such acts or execute all such
      documents as the Secured Party may specify (and in such form as the
      Secured Party may require in favour of the Secured Party or its
      nominee(s)) for the purpose of exercising the Collateral Rights or
      perfecting the Security created or intended to be created in respect of
      the Collateral or for the exercise of the rights, powers and remedies of
      the Secured Party provided by or pursuant to this Agreement or by law in
      each case in accordance with the rights vested in it under this
      Agreement.

              


      

       

      
        	
              	
                (b)

              	
                The
      Mego shall promptly take all such action available to them as may be
      necessary for the purpose of the creation, perfection, protection or
      maintenance of the Collateral as a first-ranking security over the
      Stockpile.

              


      

       

      
        	
                7.

              	
                SECURITY
      ENFORCEMENT

              


      

       

      
        	
                7.1

              	
                Enforcement out of
      court

              


      

      Upon and
at any time after the occurrence of an Enforcement Event, the Secured Party may
in its sole discretion, by written notice to the Mego in accordance with the
Article 249 of the Civil Code of RA (which, at the date of this Security,
requires that two-months' notice be given before security can be enforced) and
without recourse to any court, in its absolute discretion enforce all or any
part of the Collateral by securing and perfecting its title to all or any part
of the Collateral (including transferring the Collateral into its name or the
name of third persons designated by it or by instructing Mego to sell/export the
Collateral to the person designated by the Secured Party) or selling (direct
sale), or otherwise disposing of all or any part of the Collateral at a fair
market value prevailing at the material time.

       

      
        	
                7.2

              	
                Enforcement through
      court

              


      

      Upon the
occurrence of an Enforcement Event, the Secured Party shall be entitled in its
sole discretion to select the enforcement the Security by taking proceedings in
any competent court in Armenia.

       

      
        	
                8.

              	
                EFFECTIVENESS OF
      COLLATERAL

              


      

       

      
        	
                8.1

              	
                No
  Waiver

              


      

      No
failure to exercise, nor any delay in exercising, on the part of the Secured
Party, any right or remedy under this Agreement shall operate as a waiver of any
such right or remedy or constitute an election to affirm this Agreement. No
single or partial exercise of any right or remedy shall prevent any further or
other exercise or the exercise of any other right or remedy of the Secured
Party. The rights and remedies provided in this Agreement are cumulative and not
exclusive of any rights or remedies provided by law.

       

      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      

      
        	
                8.2

              	
                Illegality, Invalidity,
      Unenforceability

              


      

      If, at
any time, any provision of this Agreement is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of this
Agreement nor the legality, validity or enforceability of such provision under
the law of any other jurisdiction will in any way be affected or
impaired.

       

      
        	
                8.3

              	
                No
    liability

              


      

      None of
the Secured Party or its nominee(s) shall be liable by reason of (a) taking any
action permitted by this Agreement or (b) any neglect or default in connection
with the Collateral or (c) realisation of all or any part of the Collateral,
except in the case of gross negligence or wilful default upon its
part.

       

      
        	
                8.4

              	
                Implied Covenant for
      Title

              


      

      It shall
be implied in respect of this Agreement that the Mego are charging the
Collateral free from all charges and encumbrances (whether monetary or not) and
from all other rights exercisable by third parties (including liabilities
imposed and rights conferred by or under any enactment).

       

      
        	
                8.5

              	
                Continuing
      security

              


      

      
        	
              	
                (a)

              	
                The
      Security from time to time constituted by this Agreement is a continuing
      security and will remain in full force and effect as a continuing security
      until the date of full and final discharge of the
  GCSC.

              


      

       

      
        	
              	
                (b)

              	
                No
      part of the Security from time to time constituted by this Agreement will
      be considered satisfied or discharged by any intermediate payment,
      discharge or satisfaction of any part of the
  CCSC.

              


      

       

      
        	
              	
                (c)

              	
                In
      accordance with Article 233 of the Civil Code, the Security shall secure
      the Secured Party’s claim to the extent of the amount it will be worth of
      at the time of actual satisfaction.

              


      

       

      
        	
                8.6

              	
                Immediate
      recourse

              


      

      The Mego
waives any right it may have of first requiring the Secured Party to proceed
against or enforce any other rights or Security or claim payment from any person
before claiming from the Mego under this Agreement.

       

      
        	
                8.7

              	
                No
    prejudice

              


      

      The
Collateral created by or pursuant to this Agreement and the rights, powers and
remedies of the Secured Party provided by or pursuant to this Agreement or by
law shall not be prejudiced by any unenforceability or invalidity of any other
agreement or document (other than the agreements and documents under which the
GCSC are created) or by any time or indulgence granted to the Mego or any other
person by the Secured Party or by any other thing which might otherwise
prejudice the Security or any rights, powers and remedies of the Secured Party
provided by or pursuant to this Agreement or by law.

       

      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      

      
        	
                8.8

              	
                Discretion

              


      

      Any
liberty or power which may be exercised or any determination which may be made
under this Agreement by the Secured Party may be exercised or made in its
absolute and unfettered discretion without any obligation to give
reasons.

       

      
        	
                9.

              	
                EXPENSES, STAMP TAXES,
      INDEMNITY

              


      

       

      
        	
                9.1

              	
                Expenses

              


      

      The Mego
shall promptly on demand pay the Secured Party the amount of all costs and
expenses (including legal fees) reasonably incurred by the Secured Party in
connection with the negotiation, preparation and execution of this Agreement and
the completion of the transactions and perfection of the security contemplated
in this Agreement.

       

      
        	
                9.2

              	
                Enforcement
      expenses

              


      

      The Mego
shall, within 5 (five) Business Days of demand pay to the Secured Party for all
the costs and expenses (including legal fees) on a full indemnity basis incurred
by it in connection with the exercise, preservation and/or enforcement of any of
the rights, powers or remedies of the Secured Party or the Security or any
proceedings instituted by or against the Secured Party as a consequence of
taking the Security.

       

      
        	
                9.3

              	
                Indemnity

              


      

      The Mego
shall, notwithstanding any release or discharge of all or any part of the
security, indemnify the Secured Party, its attorneys against any action,
proceeding, claims, losses, liabilities and costs which they may sustain as a
consequence of any breach by the Mego of the provisions of this Agreement, the
exercise or purported exercise of any of the rights and powers conferred on them
by this Agreement or otherwise relating to the Collateral.

       

      
        	
                9.4

              	
                Interest on
      Demands

              


      

      If the
Mego fails to perform any of its Obligations under the GCSC and consequently
repay the amount due on the due date for payment of that amount the Mego shall
pay interest on any such sum (before and after any judgment and to the extent
interest at a default rate is not otherwise being paid on such sum) from the
date of demand until the date of payment calculated on a daily basis at the
interest rate of 8% annually.

       

      
        	
                9.5

              	
                Payments Free Of
      Deduction

              


      

      All
payments to be made to the Secured Party under this Agreement shall be made free
and clear of and without deduction for or on account of tax unless the Mego are
required to make such payment subject to the deduction or withholding of tax, in
which case the sum payable by the Mego in respect of which such deduction or
withholding is required to be made shall be increased to the extent necessary to
ensure that, after the making of such deduction or withholding, the person on
account of whose liability to tax such deduction or withholding has been made
receives and retains (free from any liability in respect of any such deduction
or withholding) a net sum equal to the sum which it would have received and so
retained had no such deduction or withholding been made or required to be
made.

       

      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

      

       

      
        	
                10.

              	
                APPLICATION OF
      PROCEEDS

              


      

       

      All
moneys received or recovered by the Secured Party as a result of enforcement of
the Security shall be:

       

      
        	
              	
                (a)

              	
                first,
      reimbursing the Secured Party any costs incurred in connection with the
      enforcement of the Security; and

              


      

       

      
        	
              	
                (b)

              	
                second,
      paying the amount due to the Secured Party under the GSCS as well as
      interest incurred, if any; and

              


      

       

      
        	
              	
                (c)

              	
                if any amount is left from the
      enforcement of Security in excess of the amounts due to Secured Party, it
      shall be transferred to
Mego.

              


      

       

      
        	
                11.

              	
                ASSIGNMENT

              


      

       

      
        	
                11.1

              	
                Permitted
      Successors

              


      

      This
Agreement shall be binding upon and shall inure to the benefit of each party and
its legal successors, permitted transferees and permitted assigns and despite
any amalgamation or merger (however effected) relating to such
party.

       

      
        	
                11.2

              	
                Disclosure

              


      

      The
Secured Party shall be entitled to disclose such information concerning the Mego
or any other person and this Agreement as the Secured Party considers
appropriate to any actual or proposed direct or indirect successor or to any
person to whom information may be required to be disclosed by applicable
law.

       

      
        	
                12.

              	
                NOTICES

              


      

       

      
        	
                12.1

              	
                Communications in
      writing

              


      

      Any
communication to be made under or in connection with the present Agreement shall
be made in writing form.

       

      
        	
                13.

              	
                WAIVERS AND
      COUNTERPARTS

              


      

       

      
        	
                13.1

              	
                Waivers

              


      

      No waiver
by the Secured Party of any of its rights under this Agreement shall be
effective unless given in writing.

       

      
        	
                13.2

              	
                Counterparts, Governing
      language

              


      

      This
Agreement is made in three original copies in the Armenian and English
languages, all having the same legal effect. Each party holds a copy. A fourth
copy shall be provided to, and kept with, the notary public. In the event of any
discrepancies between the English and Armenian language versions of this
Agreement, the Armenian language version shall prevail.

       

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

      
        	
                14.

              	
                GOVERNING
      LAW

              


      

       

      This
Agreement shall be governed by the laws of Republic of Armenia.

       

      
        	
                15.

              	
                DISPUTE
      RESOLUTION

              


      

       

      Any
dispute, controversy or claim which may arise out of or in connection with this
Agreement, or the execution, breach, termination or invalidity of this Agreement
shall be referred to, and finally resolved by, relevant Armenian
courts.

      


       

      THIS AGREEMENT has been signed
by the Mego and the Secured Party on the date specified above in February 25,
2010.

       

      


      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

       

      EXECUTION
PAGE

       

      

       

       

      -11-