OPTION AGREEMENT

 

a)

"Agreement" means this agreement and all schedule hereto, as may be amended from time to time;

 

b)

"Encumbrance" means any privilege, mortgage, hypothec, lien, charge, pledge, security interest or adverse claim;

 

c)

"Environmental Liability" means any claim, demand, loss, liability, damage, cost or expense (including legal fees) suffered or incurred in respect of environmental cleanup and remediation obligations and liabilities arising directly or indirectly from operations or activities conducted in or on the Property;

 

d)

"Exploration Expenditures" means all expenditures and costs incurred by the Company relating directly or indirectly to the Property, including all expenditures and costs incurred: (a) in doing geophysical, geochemical, land, airborne, environmental and geological examinations, assessments, assays, audits and surveys; (b) in line cutting, mapping, trenching and staking; (c) in searching for, digging, trucking, sampling, working, developing, mining and extracting ores, minerals and metals; (d) in conducting diamond and other drilling; (e) in obtaining, providing, installing and erecting mining, milling and other treatment, plant, ancillary facilities, buildings, machinery, tools, appliances and equipment; (f) in construction of access roads and other facilities on or for the benefit of the Property or any part thereof; (g) in transporting personnel, supplies, mining, milling and other treatment plant, ancillary facilities, buildings, machinery, tools, appliances and equipment in, to or from the Property or any part thereof; (h) in paying reasonable wages and salaries of personnel directly engaged in performing work on the Property; (i) in carrying out reclamation and remediation; (j) in carrying out mineral, soil, water, air and other testing.  A 10% management fee is also to be considered an Exploration Expenditure.

 

e)

"Option" means the option to acquire a fifty-one percent (51%) undivided interest in and to the Property as provided in this Agreement; and

 

f)

"Option Period" means the period from the date of this Agreement to and including the date of exercise or termination of the Option.

 

2).1

The Optionor represents and warrants to the Optionee that:

(a)  

it is the legal and beneficial owner of a one hundred percent (100%) interest in the patented mineral claim described in Schedule “A” and has the exclusive right to enter into this Agreement and dispose of an interest in the Property in accordance with the terms hereof;

(b)  

the patented mineral claim comprising the Property is validly located, duly recorded and in good standing, free and clear of all Encumbrances and underlying interests whatsoever;

 

(d)

there are no actions, suits, investigations or proceedings before any court, arbitrator, administrative agency or other tribunal or governmental authority, whether current, pending or threatened, which directly or indirectly relate to or affect the Property or the interests of the Optionor therein;

 

(e)

there are no outstanding Agreements or options to purchase or otherwise acquire the Property or any portion thereof or any interest therein, and no person has any royalty or other interest whatsoever in the production from the or the profits earned from the Property;

 

(f)

the Optionor is legally entitled to hold its interest in the Property and the licenses, permits, easements, rights of way, certificates and other approvals now held or hereafter acquired by it and necessary for the exploitation of the Property, and will remain so entitled for so long as it holds any interest in the Property;

 

(g)

upon exercise of the Option, the Optionor will have the legal right and authority to transfer title to an undivided fifty-one percent (51%) legal and beneficial interest in the Property to the Optionee;

 

(h)

there are no obligations or commitments for reclamation, closure or other environmental corrective, clean-up or remediation action directly or indirectly relating to the Property;

 

(i)

no environmental audit, assessment, study or test has been conducted on the Property by or on behalf of the Optionor nor is the Optionor aware after reasonable inquiry of any of the same having been conducted by or on behalf of any governmental authority or by any other person; and

 

(k)

no proceedings are pending for, and the Optionor is unaware of any basis for the institution of any proceedings leading to, the dissolution or winding up of the Optionor or the placing of the Optionor in bankruptcy or subject to any other laws governing the affairs of insolvent corporations.

 

2.2

The Optionee represents and warrants to the Optionor that:

 

(a)

it is lawfully authorized to hold mineral claims and real property under the laws of the jurisdiction in which the Property is situate;

 

(b)

it has been duly incorporated and is a valid and subsisting body corporate under the laws of Nevada and is duly qualified to carry on business in its jurisdiction of incorporation and to hold an interest in the Property;

 

(c)

it has duly obtained all necessary governmental, corporate and other authorizations for its execution and performance of this Agreement, and the consummation of the transactions contemplated herein will not, with the giving of notice or the passage of time, or both, result in a breach of, constitute a default under, or result in the creation of any Encumbrance on its assets under, the terms or provisions of any law applicable to it, its constating documents, any resolution of its directors or shareholders or any indenture, Agreement or other instrument to which it is a party or by which it or its assets may be bound;

 

(d)

no proceedings are pending for, and the Optionee is unaware of any basis for the institution of any proceedings leading to, the dissolution or winding up of the Optionee or the placing of the Optionee in bankruptcy or subject to any other laws governing the affairs of insolvent corporations.

3.2

In order to exercise the Option, the Optionee will be required to:

 

(a)

incur Exploration Expenditures of $20,000 on or before the first anniversary date of this Agreement;

 

(a)

incur additional Exploration Expenditures of $35,000 on or before the second anniversary date of this Agreement; and

 

(c)

incur additional Exploration Expenditures of $50,000, and grant a cash payment of $25,000  on or before the third anniversary date of this Agreement.

 

(a)

to access all information in the possession or control of the Optionor relating to the prior operations of the Optionor, including all geological, geophysical and geochemical data and drill results;

 

(b)

to enter upon the Property and carry out such exploration and development work thereon and thereunder as the Optionee considers advisable, including removing material from the Property for the purpose of testing; and

 

(c)

to bring upon and erect upon the Property such structures, machinery and equipment, facilities and supplies as the Optionee considers advisable.

6)1

During the Option Period the Optionee shall:

 

a)

permit the Optionor, at its own risk and expense, access to the Property at all reasonable times, and the Optionor agrees to indemnify the Optionee against and to save it harmless from all costs, claims, liabilities and expenses that the Optionee may incur or suffer as a result of any injury (including injury causing death) to any director, officer, employee or designated consultant of the Optionor while on the Property;

 

b)

do all work on the Property in a good and workmanlike fashion and in accordance with all applicable laws, regulations, orders and ordinances of any governmental authority;

 

c)

indemnify and save the Optionor harmless in respect of any and all costs, claims, liabilities and expenses arising out of the Optionee's activities on the Property, but the Optionee shall incur no obligation hereunder in respect of claims arising or damages suffered after termination of the Option if upon termination of the Option any workings on or improvements to the Property made by the Optionee are left in a safe condition;

 

d)

permit the Optionor, at its own expense, reasonable access to the results of the work done on the Property during the last completed calendar year; and

 

e)

deliver to the Optionor, forthwith upon receipt thereof, copies of all reports, maps, assay results and other technical data compiled by or prepared at the direction of the Optionee with respect to the Property.

 

7)1

The Option shall terminate:

 

(a)

upon the Optionee failing to incur or make any expenditure which must be incurred in exercise of the Option; or

 

(b)

at any other time, by the Optionee giving notice of such termination to the Optionor.

 

(a)

a covenant to perform all the obligations of the Optionee to be performed under this Agreement in respect of the interest to be acquired by it from the Optionee to the same extent as if this Agreement had been originally executed by such purchaser, grantee or transferee; and

 

(b)

a provision subjecting any further sale, transfer or other disposition of such interest in the Property and this Agreement or any portion thereof to the restrictions contained in this paragraph 8.1.

 

(a)

The Optionor shall first offer (the "Offer") such interest in writing to the Optionee upon terms no less favourable than those offered by the Proposed Purchaser or intended to be offered by the Optionor, as the case may be.

 

(b)

The Offer shall specify the price, terms and conditions of such sale, the name of the Proposed Purchaser and shall, in the case of an intended offer by the Optionor, disclose the person or persons to whom the Optionor intends to offer its interest and, if the offer received by the Optionor from the Proposed Purchaser provides for any consideration payable to the Optionor otherwise than in cash, the Offer shall include the Optionor's good faith estimate of the cash equivalent of the non-cash consideration.

 

(c)

If within a period of 60 days of the receipt of the Offer the Optionee notifies the Optionor in writing that it will accept the Offer, the Optionor shall be bound to sell such interest to the Optionee on the terms and conditions of the Offer.  If the Offer so accepted by the Optionee contains the Optionor's good faith estimate of the cash equivalent of the non-cash consideration as aforesaid, and if the Optionee disagrees with the Optionor's best estimate, the Optionee shall so notify the Optionor at the time of acceptance and the Optionee shall, in such notice, specify what it considers, in good faith, the fair cash equivalent to be and the resulting total purchase price.  If the Optionee so notifies the Optionor, the acceptance by the Optionee shall be effective and binding upon the Optionor and the Optionee, and the cash equivalent of any such non-cash consideration shall be determined by binding arbitration and shall be payable by the Optionee, subject to prepayment as hereinafter provided, within 60 days following its determination by arbitration.  The Optionee shall in such case pay to the Optionor, against receipt of an absolute transfer of clear and unencumbered title to the interest of the Optionor being sold, the total purchase price which is specified in its notice to the Optionor and such amount shall be credited to the amount determined following arbitration of the cash equivalent of any non-cash consideration.

 

(d)

If the Optionee fails to notify the Optionor before the expiration of the time limited therefor that it will purchase the interest offered, the Optionor may sell and transfer such interest to the Proposed Purchaser at the price and on the terms and conditions specified in the Offer for a period of 60 days, but the terms of this paragraph shall again apply to such interest if the sale to the Proposed Purchaser is not completed within such 60 days.

 

(e)

Any sale hereunder shall be conditional upon the Proposed Purchaser delivering a written undertaking to the Optionee, in form and substance satisfactory to its counsel, to be bound by the terms and conditions of this Agreement.

If the participating interest of the parties are:

Their deemed expenditures upon formation of the Joint Venture shall be:

Optionee – 51%

$105,000

Optionor – 49%

$100,882

Gordon Davidson

MR6061

7.61