20FR12G

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

[X]	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITEIS EXCHANGE ACT OF 1934
	OR
[ ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 For the fiscal year ended _____________________________
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ______________________

Commission file number _______________________________

CAPITAL RESERVE CANADA LIMITED.(Exact name of Registrant as specified in its charter)

(Translation of Registrant's name into English)

Alberta, Canada(Jurisdiction of incorporation or organization)

1530-9 Avenue S.E.Calgary, Alberta, CanadaT2G 0T7

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class None Name of each exchange on which registered Not applicable

Securities registered or to be registered pursuant to Section 12(g) of the Act.

2,000,000 shares of Class A common stock

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer's capital or common stock as of the close period covered by the annual report.

As of December 31, 2002 there were a total of 1,000 shares of Class A common stock issued and outstanding. By resolution of the sole shareholder of the Company effective May 28, 2003, the stock was forward split 2,000 to 1 bringing the total issued and outstanding share capital to 2,000,000 shares of Class A common stock.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[ ]Yes [X] No

Indicate by check mark which financial statement item the registrant has elected to follow.

[ ] Item 17 [X ] Item 18

_________________________________

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

[ ]Yes [ ] No

TABLE OF CONTENTS
PART I	2
Item 1. Identity of Directors, Senior Management and Advisors	2
Item 2. Offer Statistics and Expected Timetable	3
Item 3. Key Information	3
Item 4. Information on the Company	6
Item 5. Operating and Financial Review and Prospects	10
Item 6. Directors, Senior Management and Employees	11
Item 7. Major Shareholders and Related Party Transactions	14
Item 8. Financial Information	14
Item 9. The Offering and Listing	14
Item 10. Additional Information	15
Item 11. Quantitative and Qualitative Disclosures About Market Risk	19
Item 12. Description of Securities Other than Equity Securities	19
PART II	19
Item 13. Defaults, Dividend Arrearages and Delinquencies	19
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	19
Item 15. Reserved	19
Item 16. Reserved	19
PART III	19
Item 17. Financial Statements	19
Item 18. Financial Statements	20
Item 19. Exhibits	20

PART I

This Registration Statement is being filed by Capital Reserve Canada Limited, an Alberta, Canada corporation. Throughout this Registration Statement, Capital Reserve Canada Limited is referred to as "Capital Canada", "we", and "our". This Registration Statement on Form 20-F includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading "Operating and Financial Review and Prospects". Forward-looking statements also include statements in which words such as "expect", "anticipate", "intend", "plan", "believe", "estimate", "consider" or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

Exchange Rates

This Registration Statement contains conversions of certain amounts in Canadian dollars ("CDN$") into United States dollars ("US$") based upon the exchange rate in effect at the end of the calendar year to which the amount relates, or the exchange rate on the date specified. For such purposes, the exchange rate means the noon buying rate for United States dollars from the Bank of Canada (the "Noon Buying Rate"). These translations should not be construed as representations that the Canadian dollar amounts actually represent such U.S. dollar amounts or that Canadian dollars could be converted into U.S. dollars at the rate indicated or at any other rate. The Noon Buying Rate at the end of each of the four years ended December 31, the average of the Noon Buying Rates on the last day of each month during each of such fiscal years and the high and low Noon Buying Rate for each of such fiscal year's were as follows:

	December 31,
	1999$	2000$	2001$	2002$
At end of period	0.6929	0.6666	0.6279	0.6331
Average for period	0.6747	0.6728	0.6448	0.6372
High for period	0.6929	0.6973	0.6695	0.6618
Low for period	0.6537	0.6413	0.6242	0.6199

The Noon Buying Rate as of July 7, 2003 was 0.74.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

DIRECTORS AND SENIOR MANAGEMENT

The following sets forth the names, business addresses, and functions of our directors and senior management:

N. Desmond Smith - Director and President Box 86020, 2106-33^rd Avenue S.W., Calgary, Alberta, T2T 1Z6, CanadaMr. Smith is responsible for the development and expansion of our operations with a special focus on strategic business development and financial initiatives.

W. Scott Lawler - Director and Secretary-Treasurer1530-9^th Avenue S.E., Calgary, Alberta, T2G 0T7, CanadaMr. Lawler is responsible for overseeing of the day to day operations of Capital Reserve Canada Limited and reporting to the parent corporation, FACT Corporation.

Jacqueline R. Danforth - Director1530-9^th Avenue S.E., Calgary, Alberta, T2G 0T7, CanadaMs. Danforth assists us in acting as a resource on matters such as business valuation, mergers and acquisitions, corporate finance and business plans.

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ADVISORS

The Company's principal advisors are:

Banking

Alberta Treasury Branches 2^nd Floor, 239-8 Avenue S.W., Calgary, Alberta, T2P 1B9, Canada

U.S. Legal Counsel

W. Scott Lawler,Esq.1530-9 Avenue S.E., Calgary, Alberta, T2G 0T7, Canada403-693-8014

AUDITORS

Miller & McCollom, Certified Public Accountants300-4350 Wadsworth Boulevard, Wheat Ridge, Colorado 80033. Auditors since September 6, 2002.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Capital Reserve Canada Limited is filing this Form 20-F as a registration statement under the Securities Exchange Act of 1934, and as such the information called for by Item 2 is not applicable.

ITEM 3. KEY INFORMATION

SELECTED FINANCIAL DATA

	For the fiscal year ending December 31,			March 31, 2003 (Unaudited)	March 31, 2002(Unaudited)
	2000	2001	2002
Operating Revenues	172,936	134,502	116,382	31,667	19,379
Income (loss) from Operations	(50,211)	(567,747)	(13,287)	10,357	(8,155)
Net Income (loss)	(64,739)	(581,362)	(21,429)	8,494	(9,445)
Net Income (loss) from operations per share	(65)	(581)	(21)	8.94	(9.45)
Total Assets	621,124	123,706	87,578	96,581	119,726
Net Assets	(64,088)	(626,074)	(648,978)	(651,6512)	(635,227)
Capital Stock	68	68	68	68	68
Number of Shares	1,000	1,000	1,000	1,000	1,000

CAPITALIZATION AND INDEBTEDNESS

We are authorized to issue an unlimited number of Class A Common shares with no par value, an unlimited number of Class B Common shares with no par value and an unlimited number of First Preferred shares with no par value. On May 28, 2003, Capital Canada's sole shareholder executed a resolution to forward split 1,000 shares of Class A common stock on the basis of 2,000 shares to 1 bringing the total number of issued and outstanding shares of Class A Common Stock to 2,000,000 shares. Neither shares of our Class B Common Stock nor shares of our First Preferred Stock have been issued to date.

Other than expenses outlined below or expenses incurred in our normal day-to-day operations, we have no outstanding debts.

We have an outstanding loan with FACT Corporation (formerly known as Capital Reserve Corporation), which is presently the parent of Capital Canada. The loan relates to certain amounts advanced by FACT Corporation for ongoing operations of Capital Canada since inception. As a part of the spin-off of Capital Canada, the parties have agreed to enter into a promissory note with specific repayment terms to be negotiated at the time of the spin off of Capital Canada. The note is intended to be executed immediately upon Capital Canada no longer being a wholly-owned subsidiary of FACT Corporation. The amount owing to FACT Corporation as of March 31, 2003 was $658,578. As there is a commonality amongst the respective boards of directors of FACT Corporation and Capital Reserve Canada Ltd. only those directors who are not common to each board of directors will approve the terms of the promissory note for each respective company.

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The promissory note to be executed will accrue interest at the rate of U.S. prime plus 1% for a 36 month term, with interest only payments commencing within 6 months of execution of the note. The note is intended to be executed immediately upon Capital Canada no longer being a wholly-owned subsidiary of FACT Corporation. The loan will have a pre-payment provision allowing Capital Canada to prepay at any time.

We lease office and laboratory space from FACT Corporation in a commercial building located in the City of Calgary, Alberta, Canada. The lease was executed on August 30, 2000 for a five-year term expiring on October 31, 2005. The financial commitment under the terms of the lease is the payment of CDN$2,822 per month plus operating costs estimated at $8.00 per sq ft for 2003. We executed a sublease agreement with T2/H2B Analytical Services, Inc. on October 30, 2000 at the rate of CDN$3,212 per month ,net of operating costs estimated at $8.00 per sq ft for the year 2003, for the period of November 1, 2000 to October 31, 2003 at which time the rate increases to CDN$3,614 per month net of operating costs until the expiry of the sublease on October 31, 2005. We have also executed a one year sublease with Canada Chemical Corporation which expires on December 31, 2003. This sublease is for the remaining square footage with a monthly rental rate of CDN$727.00, net of operating costs estimated at $8.00 per sq foot for 2003, until November 1, 2003 at which point the monthly rental rate increases to CDN$848.

RISK FACTORS

INVESTMENT IN THE COMMON SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE. A PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS:

We can give you no assurance that our plans will be successful. The failure of our plans could ultimately force us to reduce or suspend operations and even liquidate our assets and wind-up and dissolve our company.

Exploration and development of oil and natural gas is extremely risky, particularly given our present stage of development. An investment in our company should be considered highly speculative due to the nature of our involvement in the exploration, development and production of oil and natural gas. Oil and gas exploration involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. There is no assurance that expenditures we make on future exploration will result in new discoveries of oil or gas. Exploratory drilling is subject to numerous risks, including the risk that no commercially productive oil and natural gas reservoirs will be encountered. The cost to drill, complete and operate wells is often uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors including unexpected drilling conditions, abnormal pressures, equipment failures, premature declines o f reservoirs, blow-outs, cratering, sour gas releases, fires, spills or other accidents, as well as weather conditions, compliance with governmental requirements, delays in receiving governmental approvals or permits, unexpected environmental issues and shortages or delays in the delivery of equipment. These uncertainties could result in the drilling costs exceeding our financial resources to fund the drilling and therefore could result in suspension of drilling activities prior to completion of a well. Our inability to drill wells that produce commercial quantities of oil and natural gas would have a material adverse effect on our business, consolidated financial condition and results of operations.

Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after exploration, drilling, operating and other costs. Completion of wells does not ensure a profit on the investment or recovery of exploration, drilling, completion and operating costs. Drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect production. Adverse conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions.

Capital Canada has already identified certain development and exploration projects on which it intends to immediately commence activity. We anticipate we will drill a total of 1 well initially on the Montana leases at an estimated cost of $15,000.00 for drilling and completion and if successful, we would expect to drill additional wells on the Montana leases. Capital Canada also intends to continue with identification of additional exploration and development projects which may alter our currently proposed operational plans. There can be no guarantee that we will be successful in development our current prospects or in locating and acquiring working interests in additional projects of merit.

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We have incurred net losses since inception and anticipate that losses will continue.

We have incurred losses since inception and had an accumulated deficit of $650,245 at March 31, 2003. We anticipate that we will continue to incur net losses due to our expectation of a high level of planned operating and capital expenditures, additional personnel requirements and our general growth objectives. We anticipate that our net losses will increase in the near future as we implement our business strategy. Our ability to earn a profit will depend, in addition to the other risks discussed in this registration statement, on successful development of our existing prospects and identification and acquisition of additional oil and gas properties that generate revenue in excess of operating expenses for the properties and operating expenses of our business, which has not yet been achieved. We may never achieve profitability.

We may be unable to continue as a going concern if we are unable to raise additional capital.

In light of the risks described in this section and other factors, our auditors have expressed considerable doubt as to our ability to continue as a going concern. We will be unable to continue as a going concern if we are unable to earn sufficient revenues from our operations or to raise additional capital through debt or equity financings to meet our working capital obligations. At March 31, 2003, we had a working capital deficit of $75,903. Based on our plan of operation, we estimate we may require an additional $250,000 in financing during 2003 to meet our capital requirements through 2003, which is anticipated to vary depending on the Company's ability to identify and acquire either oil and gas exploration properties or producing oil and gas properties. If we do not raise this capital, we will be unable to continue as a going concern and you may lose your entire investment. Any additional capital required subsequent to 2003 cannot currently be estimated and will be dependent u pon our results of operations during 2003.

Our future operating results may fluctuate significantly

Our future operating results may fluctuate significantly depending upon a number of factors including industry conditions, prices of oil and natural gas, rate of drilling success, rates of production from completed wells and the timing of capital expenditures. This variability could have a material adverse effect on our business, financial condition and results of operations. In addition, any failure or delay in the realization of expected cash flows from initial operating activities could limit our future ability to continue exploration and to participate in economically attractive projects.

Volatility of oil and natural gas prices could have a material adverse effect on our business

Oil and natural gas are commodities whose prices are determined based on world demand, supply and other factors, all of which are beyond our control. It is impossible to predict future oil and natural gas price movements with any certainty, as they have historically been subject to wide fluctuations in response to a variety of market conditions, including relatively minor changes in the supply and demand for oil and natural gas, economic, political and regulatory developments, and competition from other sources of energy.

Any extended or substantial decline in oil and natural gas prices would have a material adverse effect on our ability to negotiate favorable joint ventures with viable industry participants, our ability to acquire drilling rights, the volume of oil and natural gas that could be economically produced, our cash flow and our access to capital.

We do not currently intend to engage in hedging activities (although we reserve the right to do so in the future), and may be more adversely affected by fluctuations in oil and natural gas prices than other industry participants that do engage in such activities. A sustained material decline in prices from historical average prices could add additional limitation factors to our borrowing base, reducing credit available to our company. Our business, financial condition and results of operations would be materially and adversely affected by adverse changes in prevailing oil and natural gas prices.

The intense competition that is prevalent in the oil and natural gas industry could have a material adverse effect on our business

If we pursue development of an oil and gas prospect without a partner, we will have to establish markets for any oil and natural gas we do produce and we will also have to market our oil and natural gas to prospective buyers. The marketability and price of oil and natural gas, which may be acquired or discovered by us, will be affected by numerous factors beyond our control. We will be affected by the differential between the price paid by refiners for light quality oil and the grades of oil produced by us. Our ability to market our oil and gas production may depend upon our ability to acquire space on pipelines which deliver oil and gas to commercial markets. We will also likely be affected by deliverability uncertainties related to the proximity of our reserves to pipelines and processing facilities and relating to price, taxes, royalties, land tenure, allowable production, the export of oil and natural gas and many other aspects of the oil and natural gas business. We have limit ed direct experience in the marketing of oil and natural gas.

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We compete directly with independent, technology-driven exploration and service companies, and with major oil and natural gas companies in our exploration for and development of commercial oil and natural gas properties.

The oil and natural gas industry is highly competitive. Many companies and individuals are engaged in the business of acquiring interests in and developing oil and natural gas properties, and the industry is not dominated by any single competitor or a small number of competitors. We will compete with numerous industry participants for the acquisition of land and rights to prospects, and for the equipment and labor required to drill and develop those prospects. Many of these competitors have financial, technical and other resources substantially in excess of those available to us. These competitive disadvantages could adversely affect our ability to participate in projects with favorable rates of return.

We may be unable to effectively manage our expected growth

Our success will depend upon the expansion of our business. Expansion will place a significant strain on our financial, management and other resources, and will require us, among other things, to change, expand and improve our operating, managerial and financial systems and controls and improve coordination between our various corporate functions.

We cannot give you any assurance that we will be able to manage the expansion of our business effectively. We presently have no full time employees or management personnel. Our inability to effectively manage our growth, including the failure of any new personnel we hire to achieve anticipated performance levels, would have a material adverse effect on our business, consolidated financial condition and results of operations.

Risks Relating to Our Stock

There is no public market for the common shares at this time

There is no public market for our common shares and we cannot give you any assurance that we will be able to attain a listing for our securities. We will attempt to have our stock authorized for quotation on the Over the Counter Bulletin Board ("OTC/BB") following the spin off of our shares to the FACT Corporation shareholders. This will be dependent upon our ability to locate a market maker to submit an application for trading on the OTC/BB. We currently do not have a relationship with any market makers.

You should not expect to receive dividends

We have never paid any cash dividends on shares of our capital stock, and we do not anticipate that we will pay any dividends in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our board of directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as our board of directors may deem relevant at that time.

ITEM 4. INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

Capital Reserve Canada Limited was incorporated on December 8, 1999 as a private company under the Business Corporations Act (Alberta, Canada) and is a wholly-owned subsidiary of FACT Corporation, a Colorado corporation, which trades on the OTC/BB. On January 15, 2003, we amended our articles of incorporation to enable us to be a public company under the laws of the Province of Alberta. On May 28, 2003, we amended our Articles of Incorporation to forward split our issued and outstanding shares of Class A common stock.

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Our registered offices are located at 1530-9^th Avenue S.E., Calgary, Alberta, T2G 0T7, Canada, (403) 693-8000.

On March 1, 2000, FACT Corporation lent us $560,262 in cash and common sharesas an inter-company loan with which to acquire oil and natural gas assets located in Alberta, Canada. Concurrently, we purchased a 5% interest in a producing oil and gas property in Alberta, Canada from Stone Canyon Resources Ltd. The cost of the acquisition was $612,788 (CDN $900,000), which was paid by way of $204,263 (CDN$300,000) in cash and in 817,050 shares of Class A common stock of FACT Corporation, at a deemed price of $0.50 per share. The cash payment was made from the draw down of $204,263 (CDN$300,000) from a stand-by operating line of credit at an annual interest rate of the Bank of Canada of prime rate plus 1% provided to Capital Canada by the Alberta Treasury Branches. The line of credit was secured by a floating charge debenture over all of Capital Canada's assets. The property is operated by Hornet Energy Ltd, a division of Compton Pe troleum Corporation, a company located in Calgary, Alberta, Canada. On May 15, 2003, the Company sold this property to Hornet Energy Ltd. for CDN$150,000.00 or approximately US$108,680.

On May 1, 2003, we negotiated an agreement with FACT Corporation and Terra Nostra Technology Ltd. whereby we acquired an interest in certain oil and gas leases held in Rosebud and Garfield Counties, Montana which had previously been sold by FACT Corporation to Terra Nostra Technology Ltd. (previously Terra Nostra Resources Ltd.) in exchange for a promissory note to be executed at the time of the spin off to FACT Corporation in the amount of $10,000 US. As part of the agreement with FACT Corporation and Terra Nostra Technology Ltd., we will also take ownership of a small producing oil and gas well in Colorado.

We are presently negotiating the acquisition of a producing oil and gas property in Saskatchewan, Canada. If we are successful in completing the acquisition of this property, management believes that it will provide us with sufficient cash flow to meet a substantial portion of our present monthly overhead.

We are filing this registration statement on Form 20-F pursuant to a decision by the Board of Directors of FACT Corporation to divest itself of its non-core business assets and investments. Our oil and natural gas holdings no longer fit with FACT Corporation's primary business focus which is the functional food industry.

As well, FACT Corporation intends to distribute our Class A Common shares to the FACT Corporation stockholders in proportion to their holdings of FACT Corporation's Class A Common shares. The ratio of FACT Corporation Class A Common shares to our Class A Common shares will be one-to-five. The successful spin-off of Capital Reserve Canada Limited is contingent on this registration statement being declared effective by the US Securities and Exchange Commission and the filing of an information statement on Schedule 14C with the Securities and Exchange Commission.

BUSINESS OVERVIEW

During the period from March 2000 to May 2003, Capital Canada participated in programs for the ongoing development of its primary asset, a 5% interest in six wells and a gathering facility in a producing oil and gas field known as Chestermere, located in Alberta, Canada, which working interest was acquired March 1, 2000 (see HISTORY AND DEVELOPMENT OF THE COMPANY above). Capital expenditures on this property over the past three years included various work-overs, recompletions and the drilling of one development well. The cost of the acquisiti on of this field was $612,788 (CDN $900,000), which was paid by way of $204,263 (CDN$300,000) in cash and in 817,050 shares of Class A common stock of the Company, at a deemed price of $0.50 per share. The cash payment was made from the draw down of $204,263 (CDN$300,000) from a stand-by operating line of credit at an annual interest rate of the Bank of Canada of prime rate plus 1% provided to Capital Canada by the Alberta Treasury Branches. The line of credit was secured by a floating charge debenture over all of Capital Canada's assets. The line of credit was renegotiated in September 2001, and again in May 2002, to a term loan with payments of $6,344 (CDN$10,000) per month. The outstanding balance on the loan at December 31, 2002 is $44,408 (CDN$70,000). The Alberta Treasury Branches is an Agent of the Crown in right of the Province of Alberta, Canada and operates under the Alberta Treasury Branches Act, Statutes of Alberta, 1997. Under that Act, Alberta Treasury Branches was established as a provi ncial corporation.

During the fiscal year ended December 31, 2001 the book value of this property was substantially reduced by an impairment of reserves totaling $483,987. The net book value as at the fiscal year ended December 31, 2002 is $76,921, net of accumulated depreciation, depletion, amortization and the impairment of reserves. The net book value as at March 31, 2003, is $84,368 net of accumulated depreciation, depletion, amortization and the impairment of the reserves.

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Capital Canada's average monthly net loss from this interest for fiscal year 2002 was $58, in fiscal year 2001 the average net monthly gain was $475. As at March 31, 2003 the average monthly net gain from this interest was $3,943. During the year ended December 31, 2002, Capital Canada expended $12,761 on workovers and recompletion of wells. During fiscal year 2001, Capital Canada spent $32,060 on drilling one well, which was cased and shut in pending evaluation of alternative target zones, and $26,017 on capital expenditures for workovers and re-completion of the wells. During the most recently completed quarter to March 31, 2003 Capital Canada expended $3,283 for workovers and recompletion of the wells.

Hornet Energy Ltd., a division of Compton Petroleum Corporation, a company located in Calgary, Alberta, Canada operates the property and revenues are generated from sales of oil, gas and natural gas liquids.

On May 15, 2003 we sold this interest to the operator, Hornet Energy Ltd. for CDN$150,000 or approximately US$108,680.

On May 1, 2003, the Company negotiated an agreement with Terra Nostra Technology Ltd. and FACT Corporation whereby the Company will acquire an interest in oil and gas exploration leases located in Rosebud County, Montana and an interest in a small producing oil well in Colorado.

The Montana Leases:

Capital Canada has acquired by negotiated agreement between FACT Corporation, Terra Nostra Technology Ltd. and the Company, a 4% working Interest in 4100 acres of petroleum and natural gas rights in Rosebud County Montana, U.S.A. (the "Montana Leases"). An eight mile geophysical seismic program has been conducted on these lands to define drilling locations. The operator of the project has identified a 6,400 foot drilling location and Capital Canada will be participating as to its working interest. Capital Canada has executed the formalized negotiated agreement to acquire the leases and has forwarded funds to the operator to participate in the drilling prospect as at the date of this report. The total cost of drilling will be approximately US$9,000 to Capital Canada's 4% interest. If the drilling is successful then completion costs of approximately US$6,000 will be required bringing the total anticipated cost for one completed well to be US$15,000. Should the first well be completed suc cessfully then the operator will most likely commence a program for the drilling of further wells on the leases. At this time Capital Canada can not predict what the costs related to further exploration might be.

The Kejr Leases:

We have acquired by negotiated agreement between FACT Corporation, Terra Nostra Technology Ltd. and Capital Canada, a 10% interest in certain oil and gas assets, known as the Kejr leases, S/2 Section 11, Township 2 South, Range 56 West, Washington County, Colorado (the "Kejr Leases"). There is one producing well on the leases, the Kejr 23-11, and one well, the Kejr 24-11, that is presently not producing.

The Kejr 23-11 came on production in December 1996 and the Kejr 24-11, which was a marginal well, was brought on production by the operator in June 1997. A third well drilled on the Kejr leases, the Keela 34-10, was a dry hole and was shut in.

The operation of the Kejr 23-11 well and the sale of the oil are managed by the operator, Merit Energy Company ("Merit") and thus we will be dependent upon the expertise of Merit to deliver the output of this well in the most beneficial manner possible. The operating agreement to be executed between Capital Canada and the operator, Merit, requires Merit to comply with any and all environmental and other governmental agency laws, regulations and permit requirements. Merit carries excess liability insurance with a limit of $5,000,000 at a cost of $180.00 per annum. Our portion of the liability insurance of $18.00 per annum will be passed onto is in monthly billings for operating costs. The lease operating costs have been kept current by Terra Nostra Technology Ltd. Terra Nostra Technology Ltd. was quoted $12,000 per annum for extra coverage over and above that carried by Merit as operator, but declined to effect such coverage as the costs were prohibitive. We also intend to decline to purcha se any extra insurance coverage. Any losses or damages caused in the operation of this well that is not covered by operator's insurance would be a liability for us. We believe that the liability insurance carried by the operator is sufficient to pay for any and all claims which may arise from the operation of the well or any breaches of environmental laws, save for any claims which may be due to operator negligence or fraud. We could be named in any litigation brought against the operator by any party and may be found liable should the operator be unable to pay any awards from such litigation. In such event, we could be unable to pay and may not be able to continue to exist. We will also be liable for a pro-rata portion of expenses incurred in the event the well is shut-in which are estimated to be $6,000.

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Production from this well will be minimal. Present revenues net approximately $200.00 per month.

Presently a portion of our existing revenue stream and possible future revenue stream depends on revenues obtained from oil and gas operations. Various factors affect the marketability of oil and gas including: market fluctuations, the world price of oil, the supply and demand for gas, the deregulation of gas prices, the proximity to and capacity of oil and gas pipelines and processing equipment, and government regulations including regulations relating to prices, taxes, royalties, land tenure, allowable production, the import and export of oil and gas and environmental protection. It is difficult to determine the impact these factors may have on future cash flows. We have analyzed certain requirements for compliance with existing environmental regulations concerning abandonment of shut -in wells and site restoration and have included an estimate of these future costs in its financial statements.

Marketing

We currently do not conduct any marketing activities. When we have oil and gas producing properties, the sale of the extracted products is determined by existing market conditions. We do not believe that any marketing activities will be necessary to conduct operations following the acquisition of any of the properties described above. The properties described above currently have operators who will be responsible for the marketing. Should we take on the operatorship of a property then one of the responsibilities would be the marketing of the products. At this time, we have no plans for becoming an operator.

Competition

Our competition comes from other oil and gas companies that are acquiring oil and gas assets that we would contemplate acquiring due to its investment and capital costs compared to our financial capabilities. Since our financial resources are severely limited at this time, we are at a distinct disadvantage when competing against companies with significant assets.

Employees

We presently have no employees. We hire consultants as required and rely on present management, being the directors and officers, to direct our business. We will need to hire employees with experience in the oil and gas industry as we implement our business plan.

ORGANIZATIONAL STRUCTURE

The following figure sets forth our corporate structure prior to our spin-off from FACT Corporation.

FACT Corporation a Colorado corporation
Wall Street Investment Corp.a Colorado corporation	Capital Reserve Canada Limitedan Alberta corporation	Food and Culinary Technology Group, Inc.a Nevada corporation
		Fact Bread Company Inc.a Nevada corporation

PROPERTY, PLANTS AND EQUIPMENT

Our principal corporate and administrative facilities are located in Calgary, Alberta, Canada and are presently provided free of charge by FACT Corporation. We may be required to find other space or enter into an agreement with FACT Corporation for some cash consideration to remain in the present space. We also have approximately 2,821 square feet of office space at another Calgary, Alberta facility held under a lease that expires on October 31, 2005. This space is located at 335-25^th Street S.E., Calgary, Alberta and is leased from our parent corporation, FACT Corporation. The financial commitment under the terms of this lease is the payment of CDN$2,822 per month plus operating costs estimated at $8.00 per sq ft for 2003. We executed a sublease agreement with T2/H2B Analytical Services, Inc. on October 30, 2000 for approximately 2,409 square feet at a rate of CDN$3,212 per month plus operating costs estimated at $8.00 per sq ft for 2003, for the period of November 1, 2000 to O ctober 31, 2003 at which time the rate increases to CDN$3,614 per month plus operating costs until the expiry of the sublease on October 31, 2005. We also executed a one year sublease with Canada Chemical Corporation which expires on December 31, 2003 for the remaining square footage with a monthly rental rate of CDN$727.00 plus operating costs until November 1, 2003 at which point the monthly rental rate increases to CDN$848 plus operating costs.

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Oil and Natural Gas Properties

As described above under this Item 4, under the subheading "BUSINESS OVERVIEW - The Montana Leases", we have negotiated an agreement to acquire a 4% working interest in certain development acreage located in Montana, previously described as the Montana Leases. The operator of the property has notified us through Terra Nostra Technology Ltd. of its intent to commence drilling operations on an exploration well on these leases at the end of June, 2003. The dry hole cost to us is approximately $9,000.00US. If drilling is successful we will be required to fund further costs for completion of the well. We intend to participate in the drilling of this exploratory well which, if successful, will be a part of a continued drilling program on the leases. 

As discussed above under this Item 4, under the subheading "BUSINESS OVERVIEW - The Kejr Leases", we have negotiated an agreement to acquire a 10% interest in certain oil and gas leases in Colorado, known as the Kejr leases, S/2 Section 11, Township 2 South, Range 56 West, Washington County, Colorado. There is one producing well on the leases, the Kejr 23-11, and one well, the Kejr 24-11, which is presently not producing.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

OPERATING RESULTS

During the fiscal year ended December 31, 2002, we earned $77,354 in petroleum and natural gas revenue and $39,028 in rental income, while during fiscal year 2001 we earned $94,864 and $39,638 respectively. Our operating expenses in fiscal year 2002 decreased to $129,669 from $702,249 in fiscal year 2001. Such decrease in operating expenses was largely due to a one time loss due to impairment of $497,397 realized in year 2001. We also realized reduced administrative expenses and consultants fees in year 2002 ($15,060 and $13,148 respectively) compared to such expenses in year 2001 ($45,635 and $30,000 respectively). This was due to reduced activity during year 2002 as the Company was not actively pursuing additional acquisition opportunities.

During the three month period ended March 31, 2003 we earned $23,842 in petroleum and natural gas revenue ($10,176 - March 31, 2002) and $7,825 in rental income ($9,203 - March 31, 2002). Operating expenses over the comparative periods ended March 31, 2003 and 2002 remained relatively constant and totaled $21,310 for the three months ended March 31, 2003 versus $27,534 for the three months ended March 31, 2002. The reduction in operating expenses over the comparative three month periods was primarily the result of decreased petroleum and natural related costs and decreased consulting fees during 2003. .

Our net loss for year 2002 was $21,429 compared to a net loss for year 2001 of $581,362. There was a net gain of $8,494 for the three months ended March 31, 2003 as compared to a net loss of $9,445 for the three months ended March 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002, we had total assets of $87,578 compared to total assets of $123,708 as of December 31, 2001. This reduction in assets was predominantly caused by a sale of certain office equipment and computers during the year and depletion associated with the producing oil and gas assets. As at March 31, 2003 we had total assets of $96,581 as compared to $119,726 (2002).

As of December 31, 2002, we had a working capital deficit of $231,220, compared to a working capital deficit at December 31, 2001 of $99,843. The decrease in our working capital was mainly due to a reduction in our loan payable during fiscal year 2002, which was partially offset by an increase in loans from related parties. As at March 31, 2003 we had a working capital deficit of $75,903 as compared to $208,595, which reduction was predominantly related to a substantial reduction in loans payable. As of December 31, 2002, our accumulated deficit was $648,978, compared to an accumulated deficit of $626,074 as of December 31, 2001. As of March 31, 2003 our accumulated deficit was $651,651 as compared to an accumulated deficit of $635,227 as at March 31, 2002.

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We financed our operations during fiscal year 2002 through loans from our parent corporation totaling $116,757 and loan proceeds from related and arm's length third parties of $25,828. We used cash in operations of $19,971 and used cash in investing activities of $5,836.

Operations for the three months ended March 31, 2003 continued to be financed through loans from our parent corporation totaling $33,766 ($31,429 - March 31, 2002), as well as net income from our producing oil and gas assets. We had net cash flows from operations of $3,291 and used cash in investing activities of $11,611 to March 31, 2003.

TREND INFORMATION

Capital Canada is not aware as of the filing of this Registration Statement of any known trends, uncertainities, demands, commitments or events that are reasonably likely to have a material effect on its financial condition, other than the prospective acquisitions of the Montana Leases and the Kejr Leases, discussed above under "ITEM 4 - INFORMATION ON THE COMPANY - BUSINESS OVERVIEW - The Montana Leases". At this time, it is not possible to quantify the impact that either of these acquisitions could have on Capital Canada's net revenues, income from continuing operations, profitability, liquidity or capital resources.

The Company sold its oil and gas assets on May 15, 2003 to Hornet Energy Ltd., a division of Compton Petroleum Corporation, a company located in Calgary, Alberta for CDN$150,000 (approximately $108,680 US). The Company is currently reviewing various other oil and gas opportunities for acquisition.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND OFFICERS

The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person and the date such person became a director or executive officer. Our executive officers are elected annually by our Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers, and no persons have been elected as a director or officer at the request of any shareholders, customers, suppliers, or others.

Name	Age	Title	Date
N. Desmond Smith	50	President and Director	February 13, 2003
W. Scott Lawler	41	Secretary-Treasurer and Director	December 8, 1999
Jacqueline R. Danforth	31	Director	September 3, 2002

N. Desmond Smith

Mr. Smith has been our President and a member of our board of directors since February 13, 2003. Mr. Smith has been the Manager of Development for Nostra Terra (Overseas) Ltd. since May 2000. In this capacity he is responsible for the development and operations of oil and gas projects in the Ukraine. From February 1995 to May 2000, Mr. Smith was the Chief Operating Officer of A&B Geoscience Corp., where he was responsible for the development of oil and gas projects in the Republic of Azerbaijan. Mr. Smith is a director of Texas T Resources Inc. and the President and a director of Lion's Gate Investments Ltd. He obtained his Bachelor of Science in Geology in 1975 from the University of British Columbia.

W. Scott Lawler, Esq.

Mr. Lawler has been a member of our Board of Directors and our Secretary-Treasurer since incorporation. Mr. Lawler is an attorney and is admitted in the State Bar of California. Currently, Mr. Lawler is a director and the President of International Securities Group, Inc., a private venture capital company. Mr. Lawler has been a member of the Board of Directors of FACT Corporation since November 1999 and served as President of FACT from November 1, 1999 to August 7, 2001, and serves as a director of subsidiaries of FACT, including Food and Culinary Technology Group, Inc. since July 2001, FACT Bread Company Inc, since November 2001. As well, Mr. Lawler has also served as a director of Crysler Corp. since November 2001 and E-one Corporation since October 2002. Mr. Lawler received a Bachelor's Degree in Business Management in 1984 from Brigham Young University and his Juris Doctorate degree from University of Southern California Law Center in 1988. Mr. Lawler was admitted to the California State Bar in 1988. Mr. Lawler has been the principal of Lawler & Associates, specializing in corporate and securities matters, since 1995.

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Jacqueline R. Danforth

Ms. Danforth has been a member of our Board of Directors since September 3, 2002. Ms. Danforth has spent the past several years in the employ of publicly traded companies providing management, administrative and accounting services. She has been a member of the Board of Directors and the President of FACT Corporation, a public corporation engaged in the business of functional foods, since August 7, 2001. Ms. Danforth has been a director and Secretary-Treasurer of Food and Culinary Technology Group Inc., FACT Corporation's primary operational subsidiary, since its acquisition by FACT Corporation on November 7, 2001. Ms. Danforth became President of Food and Culinary Technology Group Inc. on July 22, 2002. Ms. Danforth was the Secretary, Treasurer and a member of the Board of Directors of Synergy Technologies Corporation, an oil and gas technology company, from December 1997 to June 2001. During her tenure at Synergy Technologies, Ms. Danforth was a member of Synergy's Audit Committee; a nd a director of Synergy's operating subsidiaries, Carbon Resources Ltd., SynGen Technologies Limited, and Lanisco Holdings Limited. Ms. Danforth also currently serves on the Board of Directors of Texas T Resources Inc., a publicly traded Alberta corporation operating in the oil and gas industry, as well as on the Board of Directors of its subsidiaries, Texas T Petroleum Ltd. and Texas T Petroleum Inc. She is the President and sole director of Argonaut Management Group, Inc., a private consulting company.

None of our directors has been involved in any bankruptcy or criminal (excluding traffic violations and other minor offenses) proceedings. None of our directors is subject to any order, judgment or decree related to his involvement in any type of business, securities or banking activities or has been found to have violated a federal or state securities or commodities law.

COMPENSATION

The following table sets forth the compensation paid to our President and two other most highly compensated executive officer for the years indicated. No executive officer of Capital Reserve Canada Limited earned a salary and bonus for such fiscal year in excess of CDN$100,000. 

	Annualized Compensation			Long Term Compensation
Name andPrincipal Position	Year	Salary(CDN$)	Bonus(CDN$)	Securities Under Options to be Granted (#)	Long Term IncentivePlan Payouts (CDN$)	All other Compensation (CDN$)
James F. Marsh	2002	3,000	-	-	-	-
President & Director	2001	30,000	-	-	-	-
	2000	37,500	-	-	-	-

We do not provide pension, retirement or other benefits for our directors, officers or employees. 

Compensation of Directors

No directors receive any form of compensation in their capacity as directors of Capital Canada.

BOARD PRACTICES

Members of our Board of Directors are elected annually at the Annual Shareholders' Meeting and hold the position until the next Annual Shareholders' Meeting or until his successor is duly elected and qualified. Ms. Danforth and Messrs. Lawler and Marsh were elected at our last Annual Shareholders' Meeting which was held on December 31, 2002. Mr. Marsh resigned from the board on February 13, 2003 at which time Mr. Smith was elected as a member of the board. We have not entered into any formal service contracts with any of our directors.

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We do not have any standing audit, nominating, or compensation committees of the Board of Directors. Our executive officers are elected annually by our Board of Directors and hold such positions until the following year or until his successor is duly elected by our Board of Directors.

SHARE OWNERSHIP

The following table sets forth information, as of March 3, 2003, with respect to the beneficial ownership of Capital Reserve Canada Limited's Class A common stock by each person known to be the beneficial owner of more than 5% of the outstanding Class A common stock, by each of the Company's officers and directors, and by the officers and directors of the Company as a group. This information assumes the effects of the 2,000 to 1 forward split of the outstanding shares of Class A common stock and its distribution by FACT Corporation to its shareholders on a pro rata basis. Information is also provided regarding beneficial ownership of Class A common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable officers and directors have the right to exercise in the next 60 days) are exercised and additional shares of Class A common stock are issued.

TITLE OFCLASS	BENFICIAL OWNER	AMOUNT AND NATURE OF BENEFICIAL OWNER	PERCENT OFCLASS (1)
Class A Common	Caribbean Overseas Investments Ltd. (2) 25 Regent St., Belize City, Belize	181,160 common shares	9.06%
Class A Common	Bahamian Overseas Investment Fund Sociedad (3) Nassau, Bahamas	164,933 common shares	8.25%
Class A Common	Buccaneer Holdings Inc.(4), P.O. Box 1678, Belize, Central America	176,007 common shares	8.80%
Class A Common	Stone Canyon Resources Ltd. (5)1530-9th Ave S.E.Calgary, Alberta T2G 0T7	179,610 common shares	8.98%
Class A Common	Texas T Petroleum Ltd. (6)1530-9th Ave S.E.Calgary, Alberta T2G 0T7	101,200	5.06%
Class A Common	W. Scott Lawler, director of Capital Reserve Canada Limited and Secretary/Treasurer c/o 1530-9th Ave S.E. Calgary, Alberta, Canada T2G OT7	45,568 common shares held directly (7)	2.27%
Class A Common	Jacqueline R. Danforth, director of Capital Reserve Canada and President and director of Fact Corporation; c/o 1530-9th Ave S.E. Calgary, Alberta, Canada T2G OT7	200 common shares held directly 71,167 held indirectly(8)	3.56%
Class A Common	N. Desmond Smith, President and Director of Capital Reserve Canada Limitedc/o 1530-9th Avenue SECalgary, Alberta T2G 0T7	Des gets 1,000 per month after the forward split. Do I want to detail what he has earned here. He has no other shares.	%
	All Officers and Directors as a group	116,735 common shares	5.84%

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(1)Based on 2,000,000 shares of Class A common stock. (2) Caribbean's beneficial owner is Crysler Investments Inc. whose beneficial owner is Clifford L. Winsor(3)Bahamian Overseas Investment Fund Sociedad beneficial owner is John King.(4) Buccaneer Holdings Inc.'s beneficial owners are Walter Brown, Al Brown, Berta Tillman, Alfonso Sevasey, Renegade Recreational Rentals, Inc., Dorothy Vasquez, Rupert Flowers, Gerald Jones and Yvette Burks.(5) Stone Canyon Resources Ltd. is a Company that has more than 50 shareholders and its sole officer and director is Caroline Winsor.(6) Texas T Petroleum Ltd. is 75% owned subsidiary of Texas T Resources Inc., a public reporting Company trading on the Toronto Venture Exchange (TSX).(7) This position includes 6,000 Class A common shares owned by Nate Lawler, the son of W. Scott Lawler.(8) Ms. Danforth is the beneficial owner of Argonaut Management Group Inc.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

Currently, we are a wholly-owned subsidiary of FACT Corporation which presently owns 1,000 shares of our Class A Common Stock and will own 2,000,000 shares of our Class A Common Stock upon the completion of a forward split of 2000 to 1 approved on May 28, 2003.

As part of our planned spin off, the shareholders of FACT Corporation would receive a proportionate number of our Class A Common Shares based on the number of shares which they own of FACT Corporation. A list showing our principal shareholders following the spin-off is provided above under Item 6 above.

RELATED PARTY TRANSACTIONS

We are not aware of any material interest, direct or indirect, of any of our directors or officers, any person beneficially owning, directly or indirectly, more than 10% of our voting securities, or any associate or affiliate of any such person in any transaction within the last three years or in any proposed transaction which in either case has materially affected or will materially affect the Corporation or its subsidiaries.

INTERESTS OF EXPERTS AND COUNSEL

Not applicable .

ITEM 8. FINANCIAL INFORMATION

The required financial statements are provided at the end of this Registration Statement starting on Page F-1.

ITEM 9. THE OFFERING AND LISTING

OFFER AND LISTING DETAILS

As of the date of this registration statement, no public market has ever existed for our shares.

As of May 16, 2003, there was one record holder of our Class A common stock, FACT Corporation which is our parent corporation. As a result of the distribution of the shares of Capital Canada to the shareholders of FACT Corporation, Capital Canada will have approximately 791shareholders of record. Each registered shareholder of FACT Corporation as of March 3, 2003 will receive registered share certificates on a pro rata basis depending on the number of shares of FACT Corporation's Class A Common Stock owned by such shareholder. A total of 2,000,000 shareswill be outstanding following the spin-off. Shareholders of FACT Corporation that hold their shares in brokerage accounts will receive shares through their brokerage firms or clearing houses at the same rate as the registered shareholders.

Upon this registration statement being deemed effective by the Securities and Exchange Commission, with no outstanding comments thereto, we will apply for approval of our shares for quotation on the Over-the-Counter Bulletin Board. No assurances can be given that such approval will be obtained.

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There has never been cash dividends declared on any of our stock and management does not anticipate that dividends will be paid in the foreseeable future.  

We have no equity compensation plans in effect and have not issued any securities under any equity compensation plan other than options issued to our President, N. Desmond Smith as outlined above.

MARKETS

Currently, there is no market for any of our classes of stock. There is no assurance that there will be liquidity in the any of our stock. Upon the receipt of confirmation by the United States Securities and Exchange Commission that this registration statement has been declared effective and without further comment, we intend to apply to have our Class A Common stock traded on the Over The Counter Bulletin Board maintained by NASDAQ.

ITEM 10. ADDITIONAL INFORMATION

SHARE CAPITAL

We are authorized to issue an unlimited number of Class A and Class B common shares, no par value, of which 2,000,000 Class A Common shares will be issued and outstanding immediately upon the acceptance for filing of the articles of amendment relating to a forward split at a ratio of 2,000 to 1 approved on May 28, 2003 by the Company's sole shareholder. We are also authorized to issue an unlimited number of First Preferred Shares, no par value, of which none have been issued to date.

On December 8, 1999, FACT Corporation (formerly known as Capital Reserve Corporation) purchased 1,000 Class A Common Shares of Capital Reserve Canada Ltd. at a price of CDN $0.10 for a total purchase price of CDN $100.00. On May 28, 2003, the Company's Board of Directors and its sole shareholder took action to forward split the Company's outstanding Common shares at a ratio of 2,000 to 1, resulting in 2,000,000 shares issued and outstanding. These shares will then be distributed by FACT Corporation to its shareholders at a ratio of 1 share of Capital Reserve Canada Ltd. for every 5 shares of FACT Corporation. Any shares that are remaining in the name of FACT Corporation following the share distribution will be held by FACT Corporation for the benefit of FACT Corporation.

On May 12, 2003, the board of directors issued options to N. Desmond Smith, our President, in connection with his services as our President. These options are exercisable into 24,000 Class A common shares with an exercise price of CDN $0.01 per share. Under the terms of the option agreement, the date which is 30 days following the date on which we commence trading on the Over the Counter Bulletin Board or its successor, the Bulletin Board Exchange, is considered the monthly anniversary date for purposes of the option agreement. Commencing on the first monthly anniversary or the option agreement, 1,000 options shall vest. On each subsequent monthly anniversary, 1,000 options will vest. As of the date of this filing, no options had vested.

MEMORANDUM AND ARTICLES OF ASSOCIATION

Capital Reserve Canada Limited was formed on December 8, 1999 as a private Alberta corporation. Our Articles of Incorporation were filed with Alberta Registries and we were registered as Alberta Corporation Number 208572057.

With respect to our directors, our Articles of Incorporation and bylaws provide that if a director or officer complies with the Alberta Business Corporations Act, then such director or officer shall not be disqualified from his office from contracting with Capital Canada nor shall any contract or arrangement entered into by or on behalf of Capital Canada with any director or officer or in which any director or officer is in any way interested be liable to be voided nor shall any director or officer so contracting or being so interested be liable to account to Capital Canada for any profit realized by any such contract or arrangement by reason of such director or officer holding that office or of the fiduciary relationship thereby established. Section 120(1) of the Business Corporations Act provides that a director or officer of a corporation who is either a party to a material contract or proposed material contract or is a director of officer of or has a material interest in any person who is a party to a material contract or a proposed material contract with the corporation, shall disclose in writing to the corporation or request to have entered in the minutes of meetings of the directors the nature and extent of the director's or officer's interest.

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There are no provisions in our Articles of Incorporation or bylaws relating to (a) the directors' power in absence of an independent quorum to vote compensation to themselves or any members of the Board of Directors, (b) borrowing powers exercisable by the directors; (c) retirement or non-retirement of directors under any age limit requirement; or (d) the number of shares required for director's qualification.

Class A Common Shares

Holders of Class A Common shares are entitled to:

(a)	the right to vote at any meeting of the shareholders of the Corporation
(b)	the right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to receive dividends as, when, and if declared on the Class A Common shares by the Corporation.
(c)	notwithstanding (b) and subject to any preferential rights attaching to any other class or series of the Corporation, dividends may be paid on the Class B Common shares to the exclusion of any dividend or of a proportionate dividend on the Class A Common shares.
(d)	notwithstanding (b), no dividend may be declared or paid on the Class A Common shares if payment of the dividend would cause the realizable value of the Corporation's assets to be less that the aggregate of its liabilities and the amount required to redeem all shares of the Corporation then outstanding having attached thereto a redemption or retraction right.
(e)	subject to any preferential rights attaching to any other class or series of shares of the Corporation, to share in the remaining property of the Corporation upon dissolution.

Class B Common Shares

No Class B Common shares have been issued to date. Holders of Class B Common shares are entitled to:

(a)	to no right to notice of, to attend, or to vote at meetings of the shareholders of the Corporation.
(b)	to the right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to receive dividends as, when, and if declared on the Class B Common shares by the Corporation.
(c)	notwithstanding (b) and subject to any preferential rights attaching to any other class or series of the Corporation, dividends may be paid on the Class A Common shares to the exclusion of any dividend or of a proportionate dividend on the Class B Common shares.
(d)	notwithstanding (b), no dividend may be declared or paid on the Class B Common shares if payment of the dividend would cause the realizable value of the Corporation's assets to be less that the aggregate of its liabilities and the amount required to redeem all shares of the Corporation then outstanding having attached thereto a redemption or retraction right.
(e)	the right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to share in the remaining property of the Corporation upon dissolution.

First Preferred Shares

No preferred shares have been issued to date. The First Preferred shares may be issued from time to time in one or more series with each series to consist of such number of First Preferred shares as may, before the issue thereof, be determined by the directors of the Corporation. Before the first issue of First Preferred shares of a particular series the directors of the Corporation shall by resolution determine the designation, rights, privileges, restrictions, and conditions attaching to that series of First Preferred shares, which rights are completely in the discretion of the directors of the Corporation subject to the requirements of the Business Corporations Act.

Any changes required to be made to the rights of holders of our stock would have to be made by filing Articles of Amendment. Special resolutions approving changes to the Articles would require the consent of a majority of the shares voted at any meeting of the shareholders called to approve such action.

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National Policy 41 pertaining to the rights of non-registered shareholders to have the same access to corporate information as registered shareholders supersedes the by-laws of the Corporation governing the holding of Annual or Special Meetings of Shareholders. Notice of the meeting must be filed with the securities administrators having jurisdiction, stock exchanges and clearing agencies at least 25 days before the record date of the meeting. Proxy related material must be delivered directly or, in the case of non-registered shareholders, through an intermediary to the shareholder a minimum of 25 days before the meeting.

All registered shareholders may attend the meeting in person or by proxy and cast their vote on each item of business properly brought before the meeting.

Non-registered shareholders may attend the meeting, however, they may only vote on each item of business by submitting their proxy, in advance of the meeting, to the intermediary who will provide an omnibus proxy for each vote received.

There are no limitations on the rights to own securities.

There are no provisions that would have the effect of delaying, deferring or preventing a change in the control of the Corporation.

There are no conditions imposed by the Articles of Incorporation governing changes in the capital of the Corporation.

MATERIAL CONTRACTS

Each of our material contracts has been described within this Form 20-F and attached.

EXCHANGE CONTROLS

There are no governmental laws, decrees, regulations or other legislation of Canada that may affect the import or export of capital for use.

Other than the withholding of any taxes due under the terms of specific treaties between countries on dividends paid to shareholders of the Corporation there are no restrictions on the remittance of dividends, interests or other payments.

TAXATION

The discussions below summarize the material tax considerations relevant to an investment in common shares by individuals and corporations who, for income tax purposes, are resident in the U.S. for purposes of the Convention (as hereinafter defined) and are not resident in Canada, who hold common shares as a capital asset, and who do not hold the common shares in carrying on a business through a permanent establishment in Canada or in connection with a fixed base in Canada (collectively, "Unconnected U. S. Shareholders" or "Holders"). The tax consequences of an investment in common shares by investors who are not Unconnected U.S. Shareholders may differ substantially from the tax consequences discussed herein. The discussion of U.S. tax consideration is addressed only to Unconnected U. S. Shareholders whose "functional currency" within the meaning of Section 985 of the Internal Revenue Code of 1986, as amended (the "Code"), is the U. S. dollar, and to U. S. citizens who are not residen ts in the U.S. for the purpose of the Convention, but who otherwise meet the definition of Unconnected U.S. Shareholders. Furthermore, the discussion of U.S. tax consideration does not address the tax treatment of Unconnected U. S. Shareholders that own, or are deemed for U.S. federal income tax purposes to own, 10% or more of the total combined voting power of all classes of voting stock of Capital Reserve Canada Limited. The discussion of Canadian tax considerations does not address the tax treatment of a trust, company, organization or other arrangement that is a resident of the U.S. and that is generally exempt from U. S. tax.

This discussion does not address all of the income tax consequences that may be applicable to any Holder subject to special treatment under the U.S. federal income tax law or to any particular Holder in light of such Holder's particular facts and circumstances. Some Holders, including tax exempt entities, banks, insurance companies and persons who hold common shares as part of a hedging transaction may be subject to special or different rules not discussed below. The discussion of U.S. tax considerations is based on the provisions of the Code.

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The discussion of Canadian tax consideration is based upon the provisions of the Income Tax Act (Canada), as amended from time to time (the "Tax Act"), the Convention between Canada and the U.S. with Respect to Taxes on Income and Capital, as amended from time to time (the "Convention"), and the Company's understanding of published administrative practices of Canada Customs and Revenue Agency and judicial decision, all of which are subject to change. The discussion does not take into account the tax laws of the various provinces or territories of Canada or the tax laws of the various state and local jurisdictions in the U. S.

U.S. Federal Income Tax Considerations

Unconnected U.S. Shareholders generally will treat the gross amount of the distributions paid by the Company, including the amount of any Canadian tax withheld, as foreign source dividend income for U.S. federal income tax purposes to the extent of the Company's current or accumulated earnings and profits, as computed for U.S. federal income tax purposes. Distribution in excess of that amount will reduce an Unconnected U.S. Shareholder's tax basis in the common shares, but not below zero, and the remainder, if any, will be treated as taxable capital gains. In general, in computing its U.S. federal income tax liability, an Unconnected U.S. Shareholder may elect for each taxable year whether to claim a deduction or, subject to the limitations described below, a credit for Canadian taxes withheld from dividends paid on its common shares. If the Unconnected U.S. Shareholder elects to claim a credit for such Canadian taxes, the election will be binding for all foreign taxes paid or accrued by the Shareholder for such taxable year. The Code applies various limitations on the amount of foreign tax credit that may be available to a U.S. taxpayer based upon the segregation of foreign source income into separate categories of income. The amount of credit which may be claimed with respect to the category of income to which the dividend is allocated, and to which the foreign taxes are attributable generally may not exceed the same portion of the U.S. tax on worldwide taxable income, before applying the foreign tax credit as the U.S. holder's foreign source taxable income allocation to such category bears to such U.S. holder's entire taxable income. The foreign tax credit is disallowed for dividends on stock unless a minimum holding period is satisfied and additional limitations may restrict the ability of some individuals to claim the foreign tax credit. Accordingly, we urge investors to consult their own tax advisors with respect to the potential consequences to them of the foreign tax credit limita tions.

For U. S. federal income tax purposes, the amount of any distributions made on a common share to an Unconnected U.S. Shareholder in Canadian dollars will equal the U.S. dollar value of the Canadian dollars calculated by reference to the appropriate exchange rate in effect on the date of receipt of the distribution, regardless of whether the Canadian dollars are actually converted into U.S. dollars upon receipt. Unconnected U.S. Shareholders are urged to consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any Canadian dollars which are converted into U.S. dollars subsequent to receipt by the shareholder.

The sale of common shares generally will result in a gain or loss to the Holder in an amount equal to the difference between the amount realized and the Holder's adjusted cost basis in the shares. Provided that the Holder is not considered a "dealer' in the shares sold, gain or loss on the sale of the common shares will generally be capital gain or loss.

Capital losses are used to offset capital gains. Individual taxpayers may deduct the excess of capital losses over capital gains of up to US$3,000 a year, US$1,500 in the case of a married individual filing separately, from ordinary income. Non-corporate taxpayers may carry forward unused capital losses indefinitely. Unused capital losses of a corporation may be carried back three years and carried forward five years.

Canadian Tax Considerations

Dividends received or deemed to be received, on the common shares by Unconnected U.S. Shareholders will be subject to Canadian withholding tax at the rate of 25%, subject to reduction under the Convention. Under the Convention, the maximum rate of withholding tax on such dividends is reduced to 15% if the beneficial owner of such dividends is an Unconnected U.S. Shareholder. However, that rate is reduced to 5% under the Convention if the beneficial owner of such dividends is an Unconnected U.S. Shareholder that is a corporation that owns at least 10% of the voting stock of the company.

An Unconnected U.S. Shareholder will not be subject to tax in Canada on any capital gain realized upon the disposition or deemed disposition of the common shares, provided that the common shares do not constitute "taxable Canadian property" of the shareholder within the meaning of the Tax Act.

Canada does not currently impose any estate taxes or succession duties.

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DIVIDENDS AND PAYING AGENTS

Not applicable.

STATEMENTS BY EXPERTS

The consolidated financial statements of Capital Reserve Canada Limited for the periods ending December 31, 2001 and 2002, included in this registration statement have been audited by Miller and McCollum, certified public accountants, as stated in their report herein and elsewhere in the registration statement, and is included in reliance upon such reports of such firm given upon the authority as experts in accounting and auditing.

DOCUMENTS ON DISPLAY

All documents filed in connection with this registration statement have been filed with the Securities and Exchange Commission using the EDGAR (Electronic Data Gathering, Analysis and Retrieval) system. The Securities and Exchange Commission maintains a Web site on the Internet at the address http://www.sec.gov that contains reports, proxy information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

Not applicable.

ITEM 16. AUDIT COMMITTEE FINANCIAL EXPERT/CODE OF ETHICS

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

The required financial statements are provided herein starting on page F-1. 

ITEM 18. FINANCIAL STATEMENTS

The required financial statements are provided herein starting on page F-1.

19

ITEM 19. EXHIBITS

Exhibit No.	Exhibit
3.1	Certificate of Incorporation of the Company consisting of the Articles of Incorporation filed with the Alberta Registries on December 8, 1999
3.2	Amendment to Articles of Incorporation of the Company filed with Alberta Registries on January 15, 2003
3.3	By-Laws of the Company, dated December 8, 1999
10.1	Lease between Capital Reserve Corporation (now known as FACT Corporation) and Capital Reserve Canada Limited, dated August 30, 2000
10.2	Amendment to Lease between Capital Reserve Corporation (now known as FACT Corporation) and Capital Reserve Canada Limited, dated September 7, 2000
10.3	Amendment to Lease between Capital Reserve Corporation (now known as FACT Corporation) and Capital Reserve Canada Limited, dated October 30, 2000
10.4	Sublease between Capital Reserve Canada Limited and TJ/H2b Analytical Services Inc, dated October 30, 2000
10.5	Sublease between Capital Reserve Canada Limited and Canada Chemical Corporation, dated January 3, 2003
10.6	Specific Variable Rate Loan Agreement between Alberta Treasury Branches and Capital Reserve Canada Limited, dated September 27, 2001
10.7	Option Agreement between Capital Reserve Canada Limited and N. Desmond Smith, dated May 12, 2003
10.8	Purchase Agreement between Capital Reserve Canada Limited, FACT Corporation and Terra Nostra Technology Ltd. dated June 10, 2003
99.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - President
99.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Treasurer

20 

SIGNATURES 

The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf. 

CAPITAL RESERVE CANADA LIMITED

/s/ N. DESMOND SMITHN. Desmond SmithPresident 

Date: July 9, 2003

21

___________________________

SECTION 302 CERTIFICATIONS

I, N. Desmond Smith, certify that:

1. I have reviewed this Registration Statement on Form 20-F of Capital Reserve Canada Limited.

2. Based on my knowledge, this filing does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this filing;

3. Based on my knowledge, the financial statement, and other financial information included in this filing, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this filing;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the filing is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this filing (the "Evaluation Date"); and

c) presented in this filing our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

6. The registrant's other certifying officer and I have indicated in this filing whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 9 , 2003 By: /s/ N. DESMOND SMITH
Name: N. Desmond Smith
Title: President (Principal Executive Officer)

___________________________

22 

I, W. Scott Lawler, certify that:

1. I have reviewed this Registration Statement on Form 20-F of Capital Reserve Canada Limited.

2. Based on my knowledge, this filing does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this filing;

3. Based on my knowledge, the financial statement, and other financial information included in this filing, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this filing;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the filing is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this filing (the "Evaluation Date"); and

c) presented in this filing our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

6. The registrant's other certifying officer and I have indicated in this filing whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 9 , 2003 By: /s/ W. SCOTT LAWLER
Name: W. Scott LawlerTitle: Treasurer (Principal Accounting Officer)

23 

INDEX TO FINANCIAL STATEMENTS

AUDITED FINANCIAL STATEMENTS AS AT AND FOR THE FISCAL YEARS ENDED DECEMBER 31, 2002 AND 2001.

	Page
Report of Independent Certified Public Accountants	F-3
Financial Statements:
Balance Sheets	F-4
Statements of Operations	F-5
Statements of Cash Flows	F-6
Statement of Shareholders' Deficit	F-7
Notes to Financial Statements	F-8 to F-12
Supplemental Information	F-13 to F-15

UNAUDITED FINANCIAL STATEMENTS AS AT AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002.

March 31, 2003 Quarterly Financials (unaudited, prepared by management)
Balance Sheets	F-18
Statements of Operations	F-19
Statements of Cash Flows	F-20
Statement of Shareholders' Deficit	F-21
Notes to Financial Statements	F-22 to F-25

 F-1 

CAPITAL RESERVE CANADA LIMITED

FINANCIAL STATEMENTS

AS AT THE FISCAL YEARS ENDED DECEMBER 31, 2002 AND 2001

with

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

F-2

 Independent Accountants' Report 

Board of DirectorsCapital Reserve Canada Limited

We have audited the accompanying balance sheets of Capital Reserve Canada Limited as of December 31, 2002, 2001 and 2000, and the related statements of operations, stockholders' equity, and cash flows for the years ending December 31, 2002, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Reserve Canada Limited as of December 31, 2002, 2001 and 2000 and the results of its operations, its stockholders' equity, and its cash flows for the years ending December 31, 2002, 2001 and 2000, in conformity with generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2, the Company has suffered operating losses since inception that raise substantial doubts about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Miller and McCollom

MILLER AND MCCOLLOMCertified Public Accountants4350 Wadsworth Boulevard, Suite 300Wheat Ridge, Colorado 80033March 27, 2003

F-3

CAPITAL RESERVE CANADA LIMITED

BALANCE SHEETS

	December 31,
	2002	2001
ASSETS
Current Assets
Cash and cash equivalents	501	4,252
Accounts receivable	2,162	5,018
Accounts receivable (related party)	6,585	--
Loan receivable	402	--
Prepaid expenses	581	670
Total current assets	10,231	9,940
Oil & Gas Leases	76,921	95,000
Office equipment and computers (net of accumulated depreciation of $875 and $17,641)	426	18,766
Total assets	87,578	123,706
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Loans payable	50,500	163,462
Accounts payable and accrued liabilities	23,734	47,935
Accounts payable (related party)	11,104	24,733
Loans from related parties	24,766	5,030
Total current liabilities	110,104	241,160
Provision for site restoration	1,640	565
Due to parent	624,812	508,055
Total liabilities	736,556	749,780
Commitments and contingencies
Stockholders' equity
Common stock, authorized unlimited number of Class A common shares, no par value, 1,000 shares issued and outstanding	68	68
Accumulated deficit	(667,530)	(646,101)
Accumulated other comprehensive income	18,484	19,959
Total stockholders' equity	(648,978)	626,074
Total liabilities and stockholders' equity	87,578	123,706

F-4

CAPITAL RESERVE CANADA LIMITED

STATEMENTS OF OPERATIONS

	December 31,
	2002	2001
Revenue
Petroleum and natural gas (net of royalties)	77,354	94,864
Rental income	39,028	39,638
Total revenue	116,382	134,502
Costs and expenses
Petroleum and natural gas related costs (including depletion)	77,699	92,403
Rental operating costs	20,994	29,941
Legal	542	--
Consultants	13,148	30,000
Administrative expenses	5,060	45,635
Depreciation and amortization	7,566	6,873
Loss on disposal of assets	4,660	--
Loss due to impairment	--	497,397
	129,669	702,249
(Loss) from operations	(13,287)	(567,747)
Other income and expenses:
Interest income	--	--
Interest expense	(8,142)	(13,615)
Net (loss)	(21,429)	(581,362)
Net (loss) per common share	(21)	(581)
Weighted average number of common shares used in calculation	1,000	1,000
Other comprehensive income
Net (loss)	(21,429)	(581,362)
Foreign currency translation adjustment	(1,475)	19,376
Total other comprehensive income	(22,904)	(561,986)

 F-5

CAPITAL RESERVE CANADA LIMITED

STATEMENTS OF CASH FLOWS

	December 31,
	2002	2001
Cash flows from operating activities
Net loss	(22,904)	(581,363)
Reconciling adjustments:
Depletion, amortization and site restoration	38,268	52,241
Loss on disposal of assets	4,660	--
Loss due to impairment	--	497,397
Changes in operating assets and liabilities:
Accounts receivables	(3,729)	(4,967)
Prepaid expenses	89	530
Accounts payable and accrued liabilities	(37,830)	40,619
Net cash flows from operating activities	(19,971)	4,457
Cash flows from investing activities
Acquisition of oil & gas properties	(11,548)	(58,078)
Acquisition of property and equipment	--	(8,215)
Loan advances	(402)	--
Proceeds from disposal of office equipment	6,114	--
Net cash flows from investing activities	(5,836)	(66,293)
Cash flows from financing activities
Issuance of common stock	--	--
Loan proceeds	25,828	--
Loan repayment	(119,054)	(25,845)
Loan from parent	116,757	91,909
Net cash flows from financing activities	23,531	66,064
Foreign currency translation adjustment	(1,475)	(122)
Net change in cash and cash equivalents	(3,751)	4,106
Cash and cash equivalents at the beginning of the year	4,252	146
Cash and cash equivalents at the beginning of the year	501	4,252

Supplemental schedule of non-cash investing and financing activities:
Accrued interest expense added to Loans payable	1,810	--
Supplemental schedule of cash flow information:
Interest paid	6,323		13,615
Income taxes paid	--		--

F-6

CAPITAL RESERVE CANADA LIMITED

STATEMENT OF STOCKHOLDERS' DEFICIT

	Class A Common Stock
	Shares	Amount	Accumulated deficit	Accumulated other comprehensive income (loss)	Total Shareholders' Deficit
Balance at December 31, 2000	1,000	68	(64,739)	583	(64,088)
Net loss for the year	--	--	(581,362)	--	(581,362)
Foreign currency translation adjustment	--	--	--	19,376	19,376
Balance at December 31, 2001	1,000	68	(646,101)	19,959	(626,074)
Net loss for the year	--	--	(21,429)	--	(21,429)
Foreign currency translation adjustment	--	--	--	(1,475)	(1,475)
Balance at December 31, 2002	1,000	68	(667,530)	18,484	(648,978)

F-7 

Note 1- Summary of Significant Accounting Policies

This summary of significant accounting policies of Capital Reserve Canada Limited (the "Company") is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.

Organization

The Company is an Alberta, Canada corporation formed in December 1999 to locate and acquire producing oil and gas assets in Canada. The Company is a wholly owned subsidiary of FACT Corporation, a publicly traded Colorado corporation.

Operations

The Company owns interests in producing oil and gas properties located in Alberta, Canada.

Use of Estimates in the preparation of the financial statements

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Depreciation

Depreciation has been provided in amounts sufficient to relate the costs of depreciable assets to operations over their estimated useful lives principally on the straight-line method from two to five years.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

Currency

The functional currency of the Company is the Canadian dollar. Assets and liabilities in the accompanying financial statements are translated to United States dollars at current exchange rates and income statement accounts are translated at the average rates prevailing during the period. Related translation adjustments are reported as other comprehensive income, a component of stockholders' equity.

(Loss) Per Share

(Loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Fully diluted earnings per share are not presented because they are anti-dilutive.

Fair Value of Financial Instruments

Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 107 ("SFAS 107"), Disclosure About Fair Value of Financial Instruments. SFAS 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of the Company's cash and cash equivalents, accounts receivable, prepaid expenses and other current expenses, and the current portions of notes payable approximate their estimated fair values due to their short-term maturities.

F-8 

Valuation of Long-Lived Assets

The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with accounting principles generally accepted in the United States of America.

Income taxes

The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Other

The company has selected December 31 as its year-end.

The Company paid no dividends in 2002 or 2001.

Reclassifications

Certain reclassifications have been made to previously reported statements to conform to the Company's current financial statement format.

Note 2 - Basis of Presentation

Generally accepted accounting principles in the United States of America contemplates the continuation of the Company as a going concern. However, the Company has reported a net liability position and has accumulated operation losses since its inception, which raises substantial doubt about the Company's ability to continue as a going concern. The continuation of the Company is dependent upon the continuing financial support of creditors and stockholders and upon obtaining the capital requirements for the continuing operations of the Company. Management believes actions planned and presently being taken provide the opportunity for the Company to continue as a going concern.

Note 3 - Oil and Gas Activities

During the year 2000, the Company acquired a 5% interest in a producing oil and gas field in the Crossfield Area of Alberta, Canada that included four wells and a gathering facility. The total cost of the acquisition, $612,788 (CDN$900,000), was paid in cash of $204,263 together with 817,050 shares of the parent's common stock at a deemed price of $0.50 per share.

The Company has elected to follow the full cost method of accounting for its oil & gas activities. Accordingly, all costs associated with the acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs, are capitalized.

All capitalized costs of oil and gas properties, including estimated future costs to develop proved reserves, are depleted on the unit of production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment of unproved properties indicate that they are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

F-9 

In addition, the capitalized costs are subject to a "ceiling test", which basically limits such costs to the aggregate of the "estimated present value" discounted at a 10 percent interest rate of future net revenues from proved reserves based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Abandonment of properties are accounted for as adjustments of capitalized costs with no loss recognized.

During the year ended December 31, 2001, the Company and its industry partners in the Crossfield Area became aware that it was no longer economically feasible to produce all of the oil and gas reserves previously estimated to be productive. Therefore, estimated future producible volumes of oil and gas were reduced substantially, from an estimated 68,197 barrels of oil equivalent (BOE, wherein 6 Mcf of gas equals one barrel of oil) at December 31, 2000, to 18,330 BOE at December 31, 2001. Oil and gas prices also declined significantly during 2001, from an effective rate of $30.79 per BOE at December31, 2000, to $14.57 per BOE at December 31, 2001.

Pursuant to Statement of Financial Accounting Standards (SFAS) 19, Financial Accounting and Reporting by Oil and Gas Producing Companies, certain proved and unproved properties are impaired, determined by evaluation of the properties at December 31, 2001. Resulting from this impairment, the net carrying value of the Company's oil and gas assets was reduced by $497,397 at December 31, 2001.

During the year ending December 31, 2002, the Company and its industry partners in the Crossfield Area experienced a significant decline in overall production from the area's producing wells. Production performance is a key component utilized in the calculation of reserves. The proven producible reserves from the producing wells, was therefore reduced in 2002 by 6,698 BOE (using 6 Mcf of gas equals one barrel of oil). This decline was offset somewhat with the recompletion of the 7-21-23-28W4 well in the belly river formation. The December 31, 2002 net proven producible reserves are estimated at 12,799 BOE or a reduction in reserves from the previous year ending of 5,531 BOE.

As at the fiscal year ended December 31, 2002 there were five producing wells located on these properties that had gross sales totaling 39,715 bbls of oil, 60,570 BOE of gas and 3,145 bbls of other products. The average sales price per barrel of oil produced was $22.55 and the average sale price for gas produced was $2.56 per MCF. The average lifting cost per equivalent barrel of oil (gas volumes were converted to oil volumes assuming 6 MCF of gas equals 1 barrel of oil) during 2002 was $7.62. During the previous fiscal year there were five producing wells located on these properties that had sales totaling 46,200 bbls of oil, 51,840 BOE of gas and 220 bbls of other products. The average sales price per barrel of oil produced was $21.37 and the average sale price for gas produced was $3.24 per MCF. The average lifting cost per equivalent barrel of oil (gas volumes were converted to oil volumes assuming 6 MCF of gas equals 1 barrel of oil) during 2001 was $7.08.

Note 4 - Loans Payable

The Company has a $44,408 revolving bank term loan, payable on demand, with the Alberta Treasury Branches. The loan is secured by the assets of the Company, including certain oil and gas interests. The Company has agreed to repay the loan at the rate of $6,344 ($10,000 CDN) per month. The loan bears interest at the Bank of Canada's prime rate (4.75% as of December 31, 2002) plus 1%, payable on the last day of each month. At December 31, 2002 the company is in technical default of certain covenants under the loan agreement.

Loans payable also includes an amount of $6,092 due to an arms length third party.

F-10 

Note 5 - Related Party Payables and Transactions

Loans from related parties consist of amounts due to companies that are controlled by a director of the Company and amounts due to shareholders of the parent, FACT Corporation. The loans are unsecured and interest is charged at rates between 10% and 20% p.a.

Due to parent consists of amounts advanced from the Company's parent, and are non-interest bearing.

The Company paid rent and property costs to its parent in the amounts of $37,958 in 2002 and $35,604 in 2001.

The Company also paid management fees of $3,000 in 2002 and $30,000 in 2001 to a company controlled by a director of the Company.

Note 6 - Commitments

The Company has entered into an office lease agreement with its parent company to make minimum lease payments as follows:

2003		21,481
2004		21,481
2005		17,901
Total	$	60,863

The Company has subleased this property for the remaining term of the lease.

Note 7 - Income Taxes

The Company is subject to Canadian income taxes.

Significant components of the Company's net deferred income tax asset are as follows:

Undepreciated capital cost of capital assets over net book value	1,257
Non-capital loss carry forward	6,916
Cumulative Canadian oil and gas property expenses	174,148
Less: Valuation allowance	(182,321)
Net deferred income tax asset	--

As of December 31, 2002 the Company's non-capital losses of approximately $23,000 and cumulative Canadian oil and gas property expenses of approximately $601,000 are carried forward for tax purposes and are available to reduce taxable income of future years. The non-capital losses expire in 2007. the cumulative Canadian oil and gas property expenses can be forward indefinitely. No deferred income taxes have been recorded because of the uncertainty of future taxable income to offset. These carryforwards may not be available if there is a significant change in ownership of the company.

The reconciliation of income tax (benefit) computed at the statutory rate to income tax expense (benefit) is as follows:

Tax (benefit) at federal statutory rate	(38.60)%
Valuation allowance	38.60
Tax provision (benefit)	0.00%

Note 8 - Segment reporting

The Company's operations consist of one reportable segment, which derives its revenue from the sale of oil, natural gas, and related products.

F-11

Note 9 - Risks and Uncertainties

The Company is subject to substantial risks and uncertainties inherent in the operation of oil and gas properties.

Capitalized Costs Relating to Oil and Gas Producing Activities:
At December 31, 2000 -
Proved oil and gas properties	$	649,118
Unproved oil and gas properties		--
Less accumulated depreciation, depletion,
amortization, and impairment reserves		37,578
Net capitalized costs	$	611,540
At December 31, 2001
Proved oil and gas properties	$	657,624
Unproved oil and gas properties		--
		657,624
Less accumulated depreciation, depletion,
amortization, and impairment reserves		562,624
Net capitalized costs	$	95,000
At December 31, 2002
Proved oil and gas properties	$	657,624
Unproved oil and gas properties		--
		657,624
Less accumulated depreciation, depletion,
amortization, and impairment reserves		580,705
Net capitalized costs	$	76,919
Costs Incurred in Oil and Gas Producing Activities -

for the Year Ended December 31, 2001:
Exploration costs -
Undeveloped oil and gas properties	$	--
Development costs	$	58,077
Amortization rate per equivalent barrel of production	$	14.38
for the Year Ended December 31, 2002:
Exploration costs -
Undeveloped oil and gas properties	$	--
Development costs	$	12,621
Amortization rate per equivalent barrel of production	$	6,86

F-12 and F-13

Results of Operations for Oil and Gas Producing Activities -

for the Year Ended December 31, 2001:
Oil and gas sales, net of royalties	$	94,864
Production costs		(47,036)
Depreciation, depletion, and amortization		(45,367)
Impairment of Canadian oil and gas properties		(483,990)
Abandonment of U.S. oil and gas properties		--
		(481,529)
Income tax expense		--
Results of operations for oil and gas producing activities (excluding corporate overhead and financing costs)	$	(481,529)
for the Year Ended December 31, 2002:
Oil and gas sales, net of royalties	$	77,354
Production costs		(47,345)
Depreciation, depletion, and amortization		(30,702)
		(693)
Income tax expense		--
Results of operations for oil and gas producing activities (excluding corporate overhead and financing costs)	$	(693)

Reserve Information:

All of the Company's reserves are located in the province of Alberta, Canada. The following estimates of proved developed reserve quantities and related standardized measure of discounted cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the company's reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, estimates are expected to change as future information becomes available.

Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.

The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (Edmonton Light Sweet for oil and Edmonton spot for gas, without consideration for price changes since the Company has no long-term contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent a year to reflect the estimated timing of the future cash flows.

F-14 

	12/31/2002		12/31/2001
	Oil (Bbls)	Gas (Mcf)	Oil (Bbls)	Gas (Mcf)
Proved developed and undeveloped reserves -
Beginning of year	9,830	51,000	18,438	388,399
Revisions of previous estimates	235	28,240	(6,297)	(311,905)
Purchase of minerals in place	--	--	--	--
Production	1,822	16,240	2,311	15,494
End of year	8,243	63,000	9,830	61,000
Proved developed reserves -
Beginning of year	9,830	51,000	18,438	298,554
End of year	8,243	63,000	9,830	51,000

Standardized Measure of Discounted Future

Net Cash Flows at December 31, 2002 and 2001 -
		2002		2001
Net cash inflows	$	230,000	$	267,000
Future production costs		(135,000)		(131,000)
Future development costs		(4,000)		(9,000)
Future income tax expense		--		--
Future net cash flows		91,000		127,000
10% annual discount for estimated timing of cash flows		(9,000)		(32,000)
Standardized measure of discounted future net
cash flows relating to proved oil and gas reserves	$	82,000	$	95,000

The following reconciles the change in the standardized measure of discounted future net cash flow:

Net Cash Flows at December 31, 2002 and 2001 -
		2002		2001
Beginning of year	$	95,000	$	692,000
Sales of oil and gas produced, net of production costs		(48,000)		(48,000)
Purchase of minerals in place		--		--
Net change in prices and production costs		(40,000)		(836,000)
Development costs incurred during the year which were previously estimated				8,000
Revisions of previous quantity estimates		62,000		(726,000)
Accretion of discount		4,000		327,000
Net change in income taxes		--		648,000
Other		9,000		30,000
End of year	$	82,000	$	95,000

F-15 

CAPITAL RESERVE CANADA LIMITED

FINANCIAL STATEMENTS(UNAUDITED)AS AT THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002

 F-16

INDEX TO FINANCIAL STATEMENTS

CAPITAL RESERVE CANADA LIMITED

FINANCIAL STATEMENTS(UNAUDITED)

	Page
Financial Statements:
Balance Sheets	F-18
Statements of Operations	F-19
Statements of Cash Flows	F-20
Statement of Shareholders' Deficit	F-21
Notes to Financial Statements	F-22 to F-25

 F-17 

CAPITAL RESERVE CANADA LIMITED

BALANCE SHEETS

	March 31, 2003(Unaudited)	December 31, 2002(Audited)
ASSETS
Current Assets
Cash and cash equivalents	1,139		501
Accounts receivable	2,384		2,162
Accounts receivable (related party)	7,269		6,585
Loan receivable	430		402
Prepaid expenses	622		581
Total current assets	11,844		10,231
Oil & Gas Leases	84,368		76,921
Office equipment and computers (net of accumulated depreciation of $1,024 and $875)	369		426
Total assets	96,581		87,578
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Loans payable	33,985		50,500
Accounts payable and accrued liabilities	14,480		23,734
Accounts payable (related party)	11,812		11,104
Loans from related parties	27,470		24,766
Total current liabilities	87,747		110,104
Provision for site restoration	1,907		1,640
Due to parent	658,578		624,812
Total liabilities	748,232		736,556
Commitments and contingencies
Stockholders' equity
Common stock, authorized unlimited number of Class A common shares, no par value, 1,000 shares issued and outstanding	68		68
Accumulated deficit	(659,036)		(667,530)
Accumulated other comprehensive income	7,317		18,484
Total stockholders' equity	(651,651)		(648,978)
Total liabilities and stockholders' equity	96,581		87,578

F-18

CAPITAL RESERVE CANADA LIMITED

STATEMENTS OF OPERATIONS

	Three months ended March 31,
	2003	2002
Revenue
Petroleum and natural gas (net of royalties)	23,842	10,176
Rental income	7,825	9,203
Total revenue	31,667	19,379
Costs and expenses
Petroleum and natural gas related costs (including depletion)	12,014	15,340
Rental operating costs	5,644	5,311
Consultants	1,103	3,000
Administrative expenses	2,464	2,021
Depreciation and amortization	85	1,862
	21,310	27,534
Gain (Loss) from operations	10,357	(8,155)
Other income and expenses:
Interest income	--	565
Interest expense	(1,863)	(1,855)
Net Gain (loss)	8,494	(9,445)
Net Gain (loss) per common share	8.49	(9.45)
Weighted average number of common shares used in calculation	1,000	1,000
Other comprehensive income
Net gain (loss)	8,494	(9,445)
Foreign currency translation adjustment	(11,167)	292
Total other comprehensive income		(9,153)

 F-19

CAPITAL RESERVE CANADA LIMITED

STATEMENTS OF CASH FLOWS

	Three months endedMarch 31,
	2003	2002
Cash flows from operating activities
Net Gain (loss)	8,494	(9,445)
Reconciling adjustments:
Depletion, amortization and site restoration	4,249	10,834
Changes in operating assets and liabilities:
Accounts receivables	(906)	157
Accounts payable and accrued liabilities	(8,546)	(7,326)
Net cash flows from operating activities	3,291	(5,780)
Cash flows from investing activities
Acquisition of oil & gas properties	(11,611)	(10,843)
Net cash flows from investing activities	(11,611)	(10,843)
Cash flows from financing activities
Loan proceeds	2,704	--
Loan repayment	(16,515)	(19,242)
Loan from parent	33,766	31,429
Net cash flows from financing activities	19,955	12,187
Foreign currency translation adjustment	(10,997)	652
Net change in cash and cash equivalents	638	(3,784)
Cash and cash equivalents at the beginning of the year	501	4,252
Cash and cash equivalents at the end of period	1,139	468

 F-20 

CAPITAL RESERVE CANADA LIMITED

STATEMENT OF STOCKHOLDERS' DEFICIT

	Class A Common Stock
	Shares	Amount	Accumulated deficit	Accumulated other comprehensive income (loss)	Total Shareholders' Deficit
Balance at December 31, 2000	1,000	68	(64,739)	583	(64,088)
Net loss for the year	--	--	(581,362)	--	(581,362)
Foreign currency translation adjustment	--	--	--	19,376	19,376
Balance at December 31, 2001	1,000	68	(646,101)	19,959	(626,074)
Net loss for the year	--	--	(21,429)	--	(21,429)
Foreign currency translation adjustment	--	--	--	(1,475)	(1,475)
Balance at December 31, 2002	1,000	68	(667,530)	18,484	(648,978)
Net gain (loss) for the period			8,494	--	8,494
Foreign currency translation adjustment	--	--	--	(11,167)	(11,167)
Balance at March 31, 2003	1,000	68	(659,036)	7,317	(651,651)

F-21

Capital Reserve Canada LimitedNotes to Financial Statementsfor the three months ended March 31, 2003 and 2002

Note 1- Summary of Significant Accounting Policies

This summary of significant accounting policies of Capital Reserve Canada Limited (the "Company") is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.

Organization

The Company is an Alberta, Canada corporation formed in December 1999 to locate and acquire producing oil and gas assets in Canada. The Company is a wholly owned subsidiary of FACT Corporation, a publicly traded Colorado corporation.

Operations

The Company owns interests in producing oil and gas properties located in Alberta, Canada.

Use of Estimates in the preparation of the financial statements

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Depreciation

Depreciation has been provided in amounts sufficient to relate the costs of depreciable assets to operations over their estimated useful lives principally on the straight-line method from two to five years.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

Currency

The functional currency of the Company is the Canadian dollar. Assets and liabilities in the accompanying financial statements are translated to United States dollars at current exchange rates and income statement accounts are translated at the average rates prevailing during the period. Related translation adjustments are reported as other comprehensive income, a component of stockholders' equity.

(Loss) Per Share

(Loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Fully diluted earnings per share are not presented because they are anti-dilutive.

Fair Value of Financial Instruments

Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 107 ("SFAS 107"), Disclosure About Fair Value of Financial Instruments. SFAS 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of the Company's cash and cash equivalents, accounts receivable, prepaid expenses and other current expenses, and the current portions of notes payable approximate their estimated fair values due to their short-term maturities.

F-22 

Valuation of Long-Lived Assets

The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with accounting principles generally accepted in the United States of America.

Income taxes

The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Other

The company has selected December 31 as its year-end.

The Company paid no dividends in 2002 or 2001, or to the date of this report.

Reclassifications

Certain reclassifications have been made to previously reported statements to conform to the Company's current financial statement format.

Note 2 - Basis of Presentation

Generally accepted accounting principles in the United States of America contemplates the continuation of the Company as a going concern. However, the Company has reported a net liability position and has accumulated operation losses since its inception, which raises substantial doubt about the Company's ability to continue as a going concern. The continuation of the Company is dependent upon the continuing financial support of creditors and stockholders and upon obtaining the capital requirements for the continuing operations of the Company. Management believes actions planned and presently being taken provide the opportunity for the Company to continue as a going concern.

Note 3 - Oil and Gas Activities

During the year 2000, the Company acquired a 5% interest in a producing oil and gas field in the Crossfield Area of Alberta, Canada that included four wells and a gathering facility. The total cost of the acquisition, $612,788 (CDN$900,000), was paid in cash of $204,263 together with 817,050 shares of the parent's common stock at a deemed price of $0.50 per share.

The Company has elected to follow the full cost method of accounting for its oil & gas activities. Accordingly, all costs associated with the acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs, are capitalized.

All capitalized costs of oil and gas properties, including estimated future costs to develop proved reserves, are depleted on the unit of production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment of unproved properties indicate that they are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

F-23

In addition, the capitalized costs are subject to a "ceiling test", which basically limits such costs to the aggregate of the "estimated present value" discounted at a 10 percent interest rate of future net revenues from proved reserves based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Abandonment of properties are accounted for as adjustments of capitalized costs with no loss recognized.

Hornet Energy Ltd., a division of Compton Petroleum Corporation, a company located in Calgary, Alberta, Canada operates the property and revenues are generated from sales of oil, gas and natural gas liquids.

As at the fiscal year ended December 31, 2002 there were five producing wells located on these properties that had gross sales totaling 39,715 bbls of oil, 60,570 BOE of gas and 3,145 bbls of other products. The average sales price per barrel of oil produced was $22.55 and the average sale price for gas produced was $2.56 per MCF. The average lifting cost per equivalent barrel of oil (gas volumes were converted to oil volumes assuming 6 MCF of gas equals 1 barrel of oil) during 2002 was $7.62. During the year ending December 31, 2002, the Company and its industry partners in the Crossfield Area experienced a significant decline in overall production from the area's producing wells. Production performance is a key component utilized in the calculation of reserves. The proven producible reserves from the producing wells, was therefore reduced in 2002 by 6,698 BOE (using 6 Mcf of gas equals one barrel of oil). This decline was offset somewhat with the recompletion of the 7-21-23-28W4 wel l in the belly river formation. The December 31, 2002 net proven producible reserves are estimated at 12,799 BOE.

The Company's average monthly net loss from this interest for fiscal year 2002 was $58. As at March 31, 2003 the average monthly net gain from this interest was $3,943. During the year ended December 31, 2002, the Company $32,060 on drilling one well, which was cased and shut in pending evaluation of alternative target zones, and $26,017 on capital expenditures for workovers and re-completion of the wells. During the most recently completed quarter to March 31, 2003 the Company expended $3,283 for workovers and recompletion of the wells.

On May 15, 2003 the Company sold this interest to the operator, Hornet Energy Ltd. for CDN$150,000 or approximately US$108,680.

Note 4 - Loans Payable

The Company has a $33,985 revolving bank term loan, payable on demand, with the Alberta Treasury Branches. The loan is secured by the assets of the Company, including certain oil and gas interests. The Company has agreed to repay the loan at the rate of $6,344 ($10,000 CDN) per month. The loan bears interest at the Bank of Canada's prime rate (4.75% as of March 31, 2002) plus 1%, payable on the last day of each month. At March 31, 2003 the Company is in technical default of certain covenants under the loan agreement. The Company has agreed to retire this loan in full upon receipt of proceeds from the sale of its oil and gas interests.

F-24 

Note 5 - Related Party Payables and Transactions

Loans from related parties totaling $27,470 consist of amounts due to companies that are controlled by a director of the Company and amounts due to shareholders of the parent, FACT Corporation. The loans are unsecured and interest is charged at rates between 10% and 20% p.a.

Due to parent consists of amounts advanced from the Company's parent, and are non-interest bearing.

The Company paid rent and property costs to its parent in the amounts of $5,644 for the three months ended March 31, 2003 and $5,311 for the three months ended March 31, 2002.

During the three months ended March 31, 2003, the Company paid accounting, administration and consulting fees totaling $3,458 to a Company controlled by a director of the Company. The Company also paid management fees of $3,000 to a company controlled by a director of the Company during the three months ended March 31, 2002.

Note 6 - Commitments

The Company has entered into an office lease agreement with its parent company to make minimum lease payments as follows:

2003		21,481
2004		21,481
2005		17,901
Total	$	60,863

The Company has subleased this property for the remaining term of the lease.

Note 8 - Segment reporting

The Company's operations consist of one reportable segment, which derives its revenue from the sale of oil, natural gas, and related products.

Note 9 - Risks and Uncertainties

The Company is subject to substantial risks and uncertainties inherent in the operation of oil and gas properties.

Note 10 - Other

On May 15, 2003 the Company sold its oil and gas interests to the operator, Hornet Energy Ltd. for CDN$150,000 or approximately US$108,680.

F-25

EX-3

ARTICLES OF INCORPORATION	BUSINESS CORPORATIONS ACT (Section 6)	FORM 1
ALBERTA	Consumer and Corporate Affairs	ARTICLES OF INCORPORATON
1. NAME OF CORPORATION CAPITAL RESERVE CANADA LIMITED		CORPORATE ACCESS NUMBER:
2. THE CLASSES, AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORZIED TO ISSUE: See Schedule "A" attached hereto.
3. RESTRICTIONS ON SHARE TRANSFERS (IF ANY): The right to transfer shares is restricted in that no shares may be transferred without the approval of the directors of the Corporation.
4. NUMBER, OR MINIMUM AND MAXIMUM NUMBER, OF DIRECTORS THAT THE CORPORATION MAY HAVE: The Corporation may have a minimum of one (1) director and a maximum of eleven (11) directors.
5. IF THE CORPORATION IS RESTRICTED FROM CARRYING ON A CERTAIN BUSINESS, OR RESTRICTED TO CARRYING ON A CERTAIN BUSINESS, SPECIFY THE RESTRICTIONS: No restrictions.
6. OTHER RULES OR PROVISIONS (IF ANY): See Schedule "B" attached hereto
7. DATE: 1999 December 7
INCORPORATORS NAMES: Gabor I. Zinner	ADDRESS (including Postal Code) #188, 400-4th Avenue S.W. Calgary, AB T2P 4H2	SIGNATURE /s/ Gabor I. Zinner
FOR DEPARTMENTAL USE ONLY CORPORATE ACCESS NO. CCA-06.101 (REV 12/86)	INCORPORATION DATE December 8, 99

SCHEDULE " A"

(1) The Corporation is authorized to issue an unlimited number of Class A Common shares having attached thereto, as a class, the following rights, privileges, restrictions and conditions:

1. The right to vote at any meeting of the shareholders of the Corporation
2. The right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to receive dividends as, when, and if declared on the Class A Common shares by the Corporation.
3. Notwithstanding (b) and subject to any preferential rights attaching to any other class or series of the Corporation, dividends may be paid on the Class B Common shares to the exclusion of any dividend or of a proportionate dividend on the Class A Common shares.
4. Notwithstanding (b), no dividend may be declared or paid on the Class A Common shares if payment of the dividend would cause the realizable value of the Corporation's assets to be less that the aggregate of its liabilities and the amount required to redeem all shares of the Corporation then outstanding having attached thereto a redemption or retraction right.
5. The right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to share in the remaining property of the Corporation upon dissolution.

(2) The Corporation is also authorized to issue an unlimited number of Class B Common shares having attached thereto, as a class, the following , rights, privileges, restrictions and conditions:

1. No right to notice of, to attend, or to vote at meetings of the shareholders of the Corporation.
2. The right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to receive dividends as, when, and if declared on the Class B Common shares by the Corporation.
3. Notwithstanding (b) and subject to any preferential rights attaching to any other class or series of the Corporation, dividends may be paid on the Class A Common shares to the exclusion of any dividend or of a proportionate dividend on the Class B Common shares.

(d) Notwithstanding (b), no dividend may be declared or paid on the Class B Common shares if payment of the dividend would cause the realizable value of the Corporation's assets to be less that the aggregate of its liabilities and the amount required to redeem all shares of the Corporation then outstanding having attached thereto a redemption or retraction right.

(e) The right, subject to any preferential rights attaching to any other class or series of shares of the Corporation, to share in the remaining property of the Corporation upon dissolution.

(3) The Corporation is also authorized to issue an unlimited number of Class B Common shares having attached thereto, as a class, the following , rights, privileges, restrictions and conditions:

1. The First Preferred shares may be issued from time to time in one or more series with each series to consist of such number of First Preferred shares as may, before the issue thereof, be determined by the directors of the Corporation.

(b) Before the first issue of First Preferred shares of a particular series the directors of the Corporation shall by resolution determine the designation, rights, privileges, restrictions, and conditions attaching to that series of First Preferred shares, which rights are completely in the discretion of the directors of the Corporation subject to the requirements of the Business Corporations Act.

SCHEDULE " B "

OTHER RULES OR PROVISIONS (IF ANY):

1. The number of shareholders of the Corporation, exclusive of:
1. persons who are in its employment and are shareholders of the Corporation, and
2. persons who, have been formerly in the employment of the Corporation were, while in that employment, shareholders of the Corporation and have continued to be shareholders of the Corporation after termination of that employment, is limited to not more than fifty (50) persons, two or more persons who are the joint registered owners of one or more shares being counted as one shareholder.
2. Any invitation to the public to subscribe for securities issued by the Corporation is prohibited.
3. The Corporation shall have a lien on all shares registered in the name of a shareholder or his legal representative for any debt of that shareholder to the Corporation.

(4) The directors of the Corporation may, between annual meetings of the Corporation, appoint one or more additional directors of the Corporation to hold office until the next annual meeting, but the number of additional directors shall not at any time exceed one-third of the number of directors who held office at the close of the last annual meeting of the Corporation.

EX-3

CAPITAL RESERVE CANADA LIMITED ("Corporation")

Special resolutions of the shareholder effective January 15, 2003

AMENDMENT OF THE ARTICLES

RESOLVED AS A SPECIAL RESOLUTION THAT:

1. pursuant to Section 173(1)(m) of the Business Corporations Act (Alberta), the share transfer restrictions as set out in the Articles of Incorporation are hereby amended by declaring the restrictions in their entirely and replaced with the following:

"None";

2. pursuant to Section 173(1)(n) of the Business Corporations Act (Alberta), the other rules or provisions as set out in the Articles of Incorporation are hereby amended by deleting paragraphs (1), (2), and (3) in their entirely and with paragraph (4) being renamed (1), and shall read as follows:

"(1) The directors of the Corporation may, between annual meeting of the Corporation, appoint one or more additional directors of the Corporation to hold office until the next annual meeting, but the number of additional directors shall not at any time exceed one-third of the number of directors who held office at the close of the last annual meeting of the Corporation."

3. any director or officer is authorized to send to the Register of Corporations (Alberta) articles of amendment in prescribed form and to do all things necessary to implement this special resolution;

4. the shareholders of the Corporation hereby expressly authorize the directors of the Corporations to exercise their discretion as circumstances may require to revoke this resolution before it is acted upon without requiring the further approval of the shareholders of the Corporation in that regard; and

5. this resolution may be executed in as many counterparts as are necessary and all counterparts together shall constitute the resolution. Facsimile signatures shall and do hereby constitute valid approval of these resolutions.

The foregoing resolution is consented to in writing by the sole shareholder of the Corporation pursuant to section 141(1) of the Business Corporation Act (Alberta), as evidence by the signature below.

FACT CORPORATION

EX-3

BY-LAW NO. 1

A by-law relating generally to the transaction of the businessand affairs of

CAPITAL RESERVE CANADA LIMITED

(hereinafter referred to as the "Corporation")

DIRECTORS

1. Calling of and Notice of Meetings - Meetings of the board shall be held at such time and on such day as the chairman of the board, president or a vice-president or a vice-president, if any, or any two directors may determine. Notice of meetings of the board shall be given to each director not less than forty-eight hours before the time when the meeting is to be held. Each newly elected board may without notice hold its first meeting for the purposes of organization and the election and appointment of officers immediately following the meeting of shareholders at which such board was elected, provided a quorum of directors be present.

2. Votes to Govern - At all meetings of the board every question shall be decided by a majority of the votes cast on the question; and in case of an equality of votes the chairman of the meeting shall [not] be entitled to a second or casting vote.

3. Quorum - A majority of the minimum number of directors specified in the Articles of the Corporation shall constitute a quorum for the transaction of business at any meeting of directors.

4. Interest of Directors and Officers Generally in Contracts - No director or officer shall be disqualified by his office from contracting with the Corporation nor shall any contract or arrangement entered into by or on behalf of the Corporation with any director of officer or in which any director or officer is in any way interested be liable to be voided nor shall any director of officer so contracting or being so interested by liable to account to the Corporation for any profit realized by any such contract or arrangement by reason of such director or officer holding that office or of the fiduciary relationship thereby established; provided that the director or officer shall have complied with the provisions of the Business Corporations Act. 

MEETINGS BY TELEPHONE

5. Directors and Shareholders - A director may participate in a meeting of the board or of a committee of the board and a shareholder may participate in a meeting of shareholders by means of telephone or other communication facilities that permit all persons participating in any such meeting to hear each other. 

SHAREHOLDERS' MEETINGS

6. Quorum - One shareholder or duly appointed proxy holder personally present shall constitute a quorum for a meeting of shareholders for the choice of a chairman and adjournment of the meeting. For all other purposes the quorum of a meeting of the shareholders shall be the shareholders or duly appointed proxy holders personally present not being less than one in number, and holding or representing by proxy not less than five percent of the issued shares of the Corporation of the class or classes respectively enjoying voting rights at such meeting. Notwithstanding the foregoing, if the articles of the Corporation provide for a different quorum in respect of a meeting of shareholders of any class or series of shares, such provisions in the articles shall be incorporated into this bylaw and shall be deemed to govern the quorum requirements in respect of any such meeting. 

INDEMNIFICATION

7. Indemnification of Directors and Officers - The Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives to the extent permitted by the Business Corporations Act.

8. Indemnity of Others - Except as otherwise required by the Business Corporation Act and subject to paragraph 6, the Corporation may from time to time indemnify and save harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of participant in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted honestly and in good faith with view to the best interests of the Corporation, and with respect to any criminal or adminis trative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, shall not, or in itself, create a presumption that the person did not act honestly and in good faith with view to the best interests of the Corporation, and with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had no reasonable grounds for believing that his conduct was not lawful.

9. Right of Indemnity Not Exclusive - The provisions for indemnification contained in the by-laws of the Corporation shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

10. No Liability of Directors or Officers of Certain Acts, etc. - To the extent permitted by law, no director or officer for the time being of the Corporation shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee or for joining in any receipt or act for conformity or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by the Corporation or for or on behalf of the Corporation or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Corporation shall be placed out or invested or for any loss or damage arising from the bankruptcy, insolvency or tortuous act of any person, firm or corporation with whom or which any moneys, securtities or effects shall be lodged or deposited or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Corporation or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his failure to act honestly and in good faith with a view to the best interests of the Corporation and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. If any director or officer of the Corporation shall be employed by or shall perform services for the Corporation, the fact of his being a director or officer of the Corporation shal no disentitle such director or officer or such firm or company, as the case may be, from receiving proper remuneration for such services.  

BANKING ARRANGEMENTS, CONTRACTS, ETC.

11. Banking Arrangements - The banking business of the Corporation, or any part thereof, shall be transacted with such banks, trust companies or other financial institutions as the board may designate, appoint or authorize from time to time by resolution and all such banking business, or any part thereof, shall be transacted on the Corporation's behalf by such one or more officers and/or other persons as the board may designate, direct or authorize form time to time by resolution and to the extra therein provided.

12. Execution of Instruments - Contracts, documents, or instruments in writing requiring execution by the Corporation may be signed by any one officer or director, and all contracts, documents or instruments in writing so signed shall be binding upon the Corporation without any further authorization or formality. The board of directors is authorized from time to time by resolution to appoint any officer or officers or any other person or persons on behalf of the Corporation to sign and deliver either contracts, documents or instruments in writing generally or to sign either manually or by facsimile signature and deliver specific contracts, documents or instruments in writing. The term "contracts, documents or instruments in writing" as used in this by-law shall include share certificates, warrants, bonds, debentures or other securities or security instruments of the Corporation, deeds, mortgages, charges, conveyances, transfers and assignments of property and all kinds including specifica lly but without limitation transfers and assignments of shares, warrants, bonds, debentures or other securities and all paper writings.

13. Voting Rights in Other Bodies Corporate - The signing officers of the Corporation may execute and deliver proxies and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting right attaching to any securities held by the Corporation. Such instruments shall be in favor of such persons as may be determined by the officers executing or arranging for the same. In addition, the board may from time to time direct the manner in which and the persons by whom any particular voting rights or class of voting rights may or shall be exercised.

MADE the 8^th day of December, 1999.

WITNESS the corporate seal of the Corporation.  

/s/ James F. MarshPresident /s/ W. Scott LawlerSecretary-Treasurer

BY-LAW NO. 2  

A by-law respecting the borrowing of money, the issuing of securities and the securingof liabilities by CAPITAL RESERVE CANADA LIMITED (hereinafter called the "Corporation")

IT IS HERBY ENACTED as a by-law of the Corporation as follows:

1. Without limiting the borrowing powers of the Corporation as set forth in The Business Corporations Act, the Board may from time to time:

(a) borrow money upon the credit of the Corporation;

(b) re-issue, sell or pledge debt obligations of the Corporation;

(c) subject to Section 42 of the Business Corporations Act as amended from time to time, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person;

(d) mortgage, hypothecate, pledge or otherwise, create a security interest in all or any property of the Corporation owned or subsequently acquired to secure any obligation of the Corporation;

(e) to provide security for any loans of the Corporation by an assignment of:

(i) accounts receivable

(ii) the proceeds of any policy of insurance owned by the Corporation

(iii) the proceeds of benefit or any contract or chose in action; 

(f) sign bills, notes, contracts and other evidences of or securities for money borrowed or to be borrowed;

(g) authorize any two officers acting jointly, provided that one is either one of the President or Secretary and the other is any one of the Vice-President or the Treasurer of the Corporation, with or without substitutions, to execute any or all documents necessary for the above purposes.

2. The Board may, from time to time, delegate to a Committee of the Board, to a Director or an Officer of the Corporation or any other person as may be designated by the Board, all or any of the powers conferred on the Board by Paragraph 1 hereof or by The Business Corporations Act, to such extent and in such manner as the Board shall determine at the time of such delegation.

Enacted by the Board this 8^th day of December, 1999 and confirmed by the shareholders in accordance with the Business Corporations Act, this 8^th day of December, A.D. 1999. 

/s/ James F. MarshPresident /s/ W. Scott LawlerSecretary -Treasurer

EX-10

LEASE AGREEMENT  

BETWEEN:

CAPITAL RESERVE CORPORATION (the "Lessor")

- and -

CAPITAL RESERVE CANADA LIMITED (the "Lessee")

PREMISES:	335 - 25TH STREET S.E.
TERM:	FIVE (5) YEARS
COMMENCEMENT DATE:	SEPTEMBER 1, 2000
EXPIRY DATE:	AUGUST 31, 2005

	INDEX
	HEADINGS
Clause No.		Page No.
1.	Premises	1
2.	Term	1
3.	Possession of Premises	1
4.	Rent	2
5.	Rent and Interest	3
6.	Net Lease	3
7.	Lessee's Proportionate Share	4
8.	Utilities & Other Services	4
9.	Taxes, Etc.	5
10.	Insurance	6
11.	Operating and Maintenance Costs	7
12.	Increase in Costs	7
13.	Good & Substantial Repair	8
14.	Entry to Inspect	8
15.	Quality of Repair	8
16.	Nuisance, Waste, Etc.	8
17.	Use	8
18.	Ordinances & Regulations	9
19.	Assigning & Sub-Letting	9
20.	Indemnification	9
21.	Lessee's Insurance	10
22.	Premiums	11
23.	Damage	11
24.	Quiet Possession	11
25.	Lessor's Repairs	11
26.	Lessor's Insurance	12
27.	Taxes	12
28.	Heating	12
29.	Janitorial	12
30.	Access	12
31.	Security Services	12
32.	Damage & Destruction	12
33.	Improvements & Alterations	13
34.	Signs	14
35.	No Liens	14
36.	Time for Payment and Legal Costs	14
37.	Default	15
38.	Consequences of Default	16
39.	Distress	16
40.	Surrender	17
41.	Right to Exhibit Premises	17
42.	Overholding	17
43.	Waiver by the Lessor	17
44.	Notices	17
45.	Rules and Regulations	18
46.	Subordination & Acknowledgements	18
47.	Notice of Defects	18
48.	Exclusion of Liability	18
49.	Force Majeure	19
50.	Lessor's Right to Perform	19
51.	Alterations by Lessor	19
52.	Time of Essence	20
53.	Headings	20
54.	Interpretation	20
55.	Acceptance	20
56.	Governing Laws	20
57.	Reservation to Lessor	20
58.	Representations	20
59.	Binding on Successors & Approved Assigns	20
60.	Sale or Financing of Lands or Assignment by the Lessor	21
61.	Registration	21
62.	Parking	21
63.	Special Clauses	21
	Schedule "A" (Floor Plan of Demised Premises)
	Schedule "B" (Method of Measurement)
	Schedule "C" (Lessor's Improvements)
	Schedule "D" (Lessee's Improvements)
	Schedule "E" (Rules and Regulations)
	Schedule "F" (Standard Parking Agreement)
	Schedule "G" (Special Clauses)

THIS AGREEMENT made the 30^th day of August, A.D. 2000.

BETWEEN:

CAPITAL RESERVE CORPORATION, a body corporate having offices at the City of Calgary, in the Province of Alberta(hereinafter called "the Lessor")

OF THE FIRST PART

- and -

CAPITAL RESERVE CANADA LIMITED(hereinafter called "the Lessee")

OF THE SECOND PART

WHEREAS:

PREMISES

1. The Lessor being the owner of those lands in the City of Calgary in the Province of Alberta which lands are legally described as:

Lot 3, Block 3, Plan #9211584, CalgaryExcepting thereout all mines and minerals

(hereinafter called "the lands") upon which lands the Lessor presently owns an office building municipally described as 335 - 25 Street S.E., Calgary, Alberta (hereinafter called "the building"), for and in consideration of the rents, covenants and agreements hereinafter on the part of the Lessee to be paid, kept, observed and performed, the Lessor does hereby demise and lease unto the Lessee and the Lessee hereby accepts the lease to it of that portion or of those portions on the main floor(s) of the building outlined in red on the floor plan(s) attached hereto as Schedule "A" containing a Gross Rentable Area of approximately Two Thousand Seven Hundred and Eighty Four point Two (2,784.2) square feet (hereinafter called "the demised premises").

The areas as aforesaid shall be calculated in accordance with the method of floor measurement attached hereto as Schedule "B" and forming a part hereof. In the event that any calculation or determination by the Lessor of any area requiring measurement is disputed or called into question, it shall be calculated or determined by the Lessor's architect whose certificate in that regard shall be conclusive and binding upon the parties.

For so long as the Lessee duly and punctually pays, performs and observes it's covenants herein, the Lessee shall have access to and egress from the demised premises in common with other lessees of the building, over common driveways, roadways, sidewalks and other common areas, if any upon the lands.

TERM

2. To have and to hold the demised premises for and during the term of Five (5) years commencing on the first (1^st) day of September, A.D. 2000, (hereinafter called "the commencement date") and terminating on the thirty-first (31^st) day of August, A.D. 2005 unless this Lease is sooner terminated as hereinafter provided.

POSSESSION OF PREMISES

3. The Lessee shall be entitled to enter into possession of the demised premises at the commencement date for the sole purpose of installing and completing at it sole risk, cost and expense its fixtures, improvements and furnishings (hereinafter called "the leasehold improvements") after receipt of notice from the Lessor's architect setting the fixturing date. The fixturing date shall be the first day of the month next following the date when the Lessor's architect certifies in writing to the Lessee that the demised premises are substantially completed and ready for installation of the leasehold improvements. Rental shall commence to be payable on the commencement date notwithstanding that the Lessee has not completed its leasehold improvements or opened for business.

Provided Always, that if the demised premises are not ready for the Lessee to install its leasehold improvements so as to allow the Lessee the fixturing period provided for herein, for any reasons not attributable to any failure or neglect on the part of the Lessee, the fixturing date shall be postponed until the demised premises are ready for the Lessee to install its leasehold improvements and the commencement date shall be postponed for an equal period of time and the Lessor shall not be liable for any loss, damage or injury suffered by the Lessee by reason of any delay by the Lessor in delivering the demised premises for fixturing or for occupancy on the commencement date.

Page 1 of 30

Notwithstanding the foregoing, the Lessee may if it desires, but only with the Lessor's prior written consent, take possession of the demised premises or portions thereof as they become available for fixturing provided that the fixturing date and commencement date shall apply as and from the time or times when the Lessee takes possession for those purposes. Rental shall be calculated upon the basis of the monthly rental payments hereinafter provided and they shall be in relation that the premises occupied by the Lessee bears to the entire area of the demised premises.

In the event a commencement date for all or a portion of the demised premises is other than the first of the month, the Lessee shall pay a proportionate rental for that portion of the month until the end of such month. Notwithstanding that possession of the demised premises may occur prior to or after the commencement date, the expiry date of the initial term shall remain as set forth in the preceding Paragraph 2.

RENT

4. (a) Basic Annual Rental

- YIELDING AND PAYING therefor unto the Lessor in lawful money for each and every year during the term hereof without deduction, set-off or abatement, basic annual rental of Thirty Three Thousand Four Hundred and Ten Dollars and Forty Cents ($33,410.40). It is understood and agreed that the basic annual rental set forth above is based on the rate of Twelve ($12.00) Dollars per square foot per annum.

- On the first day of each month during the term hereof, the Lessee will pay to the Lessor in advance the Basic monthly rent of Two Thousand Seven Hundred and Eighty Four Dollars and Twenty Cents ($2,784.20), the first payment of such Basic monthly rent to be due and payable upon the commencement date.

Upon the Lessor providing to the Lessee a statement of occupancy costs referred to in paragraph 11 hereof and from time to time, the Lessee shall provide to the Lessor a series of twelve (12) post-dated cheques comprising the aggregate of:

a. the minimum monthly rent; and

b. the monthly estimated occupancy cost charge;

c. the Goods and Services Tax (GST).

The Lessee shall pay to the Lessor an amount equal to all Goods and Services Taxes imposed or to be imposed by any governmental authority with respect to base rent, additional rent and other charges payable by the Lessee to the Lessor under this Lease. Such amount as may be applicable is to be paid to the Lessor by the Lessee with each payment of base rent, additional rent or other charges on the date such payment is otherwise due under this Lease, without reference to any Goods and Services Tax remitted or to be remitted by the Lessor to the governmental authority in respect thereof.

The amount payable by the Lessee hereunder shall not be or be deemed to be base rent or additional rent or other charges, however, the Lessor shall have all of the same rights and remedies for recovery of the amount as it has for recovery of base rent, additional rent and other charges hereunder. In addition to the Lessor's normal rights and remedies, the Lessee shall indemnify the Lessor in respect of any claim or loss which the Lessor may suffer as a result of any default in remitting the amount to the governmental authority which arise from the Lessee's obligations including any penalties relating thereto and/or interest thereon.

Page 2 of 30

- For any period during which the Lessee carries on or is required to carry on business under the terms of this lease and which period is less than a month or a year, Basic rent will be payable on a per diem basis at a rate per diem which shall be one three hundred and sixty-fifth (1/365th) of the annual rent payable hereunder.

- The rent for Zero (0) months of the term hereof acknowledged as being received in the amount of NIL ($0.00) has been paid by the Lessee to the Lessor upon the execution of this lease as partial consideration for the execution of this lease, and such rent shall be held by the Lessor without liability or interest, as security for the faithful performance by the Lessee of all the terms, covenants and conditions of this lease, and if at any time during the term of this lease the rent or other charges properly made by the Lessee hereunder are overdue and unpaid then the Lessor may at its option apply any portion of such security deposit toward the payment of such overdue rent or other charge without thereby limiting or excluding any other rights which the Lessor may have hereunder or at law, and if such security deposit is not so applied during the term hereof then such sum shall be applied as Basic rent for the last Zero (0) months of the term hereof.

THE LESSEE COVENANTS AND AGREES WITH THE LESSOR AS FOLLOWS:

RENT AND INTEREST

5. To pay to the Lessor or its order in lawful money of Canada, at the office of the Lessor hereinafter set forth or at such other place as the Lessor may in writing direct, without notice or demand, except as otherwise specifically provided herein, and without deduction or set-off for any reason whatsoever the rent stipulated by the Lessor as being comprised of:

(a) the basic rent or the percentage rental if applicable, hereby reserved in the manner herein provided and

(b) all amounts which become due and payable to the Lessor from time to time pursuant to the terms of Paragraphs 7 through 13 inclusive within the time therein provided (herein called "the additional rent");

all of which amounts shall be payable and recoverable as rent.

To pay the Lessor interest at a rate equal to the commercial prime bank lending rate from time to time charged by the Lessor's bank plus four (4%) per cent per annum on all arrears of basic rent or additional rent owing to the Lessor and all other sums payable by the Lessee to the Lessor pursuant to the terms hereof from the date of default in payment thereof, or where provided herein, from the date the amount was expended or incurred by the Lessor, until payment is received by the Lessor.

NET LEASE

6. That this Lease is a net lease and the basic rent referred to above is to be received by the Lessor absolutely net and free of all outgoings whatsoever except as otherwise herein provided and except for the Lessor's income taxes and for payments of any financing respecting the lands and the building that may now or in the future become due.

LESSEE'S PROPORTIONATE SHARE

7. In addition to the Lessee's obligation to pay for all charges, expenses, costs and outlays related directly to the demised premises, the Lessee shall be responsible for payment of its proportionate share of all other charges, expenses, costs and outlays related to the maintenance, operation and management of the building as hereinafter set forth. The Lessee's proportionate share shall be determined by the relationship that the Gross Rentable Area of the demised premises bears to the Gross Rentable Area of the building excluding the floor area of the vehicle parking area or areas designated by the Lessor as for storage only, (hereinafter called the Lessee's proportionate share). Notwithstanding any other provisions of this lease the Lessors accountant may allocate any charges, expenses, costs and outlays to be borne exclusively by retail Lessees or exclusively by office Lessees and the decision of the Lessors accountant acting in accordance with generally accepted accounting p rinciples shall be final and binding on the parties hereto.

Page 3 of 30

UTILITIES & OTHER SERVICES

8. To pay for all electricity, gas, water, telephone and other utility services consumed or used in the demised premises by the Lessee, including, without limitation, all utilities used by the Lessee for any special air-conditioning system servicing its own computers or telephone equipment room or any other machinery or equipment whether situate within or without the demised premises and if any such utility service cannot reasonably be sub-metered separately from the same utility service provided to parts of the building other than the demised premises, the Lessee shall pay for such utility service on a connected load and usage basis and as determined by the Lessor's engineer whose decision is final and binding.

The Lessee shall pay, as and when due, all business taxes and any other taxes, charges, duties, rates, assessments, or license fees imposed in respect of the occupation of and the operations conducted in, on or from the demised premises by the Lessee. The Lessee shall pay all taxes, rates and assessment levies, charged or assessed by any school, municipal, regional, provincial, federal or parliamentary body or authority against or in respect of personal property (other than that owned by the Lessor) situated in or on the demised premises or any part thereof (whether or not such personal property is owned by the Lessee and whether such taxes, rates and assessments are levied, charged or assessed to the Lessor or to the Lessee), such personal property to include without limitation, fixtures, machinery and equipment made and installed by the Lessee upon or in the demised premises, but not to include machinery and equipment of the Lessor.

In the event of the Lessee failing to pay the aforesaid utilities, taxes, license fees, rates or assessments which it has herein covenanted to pay and which may constitute a lien or charge upon the demised premises or the contents, or the building, the Lessor may, if such default is not cured after giving ten (10) days notice to the Lessee, pay all or any of the same and all of such payments so made shall be recoverable in the same manner as rent in arrears; provided however that where there is a bona fide dispute of the amount or propriety of any payments alleged to be due from the Lessee and the Lessor is not prejudiced by non-payment, the Lessor shall not pay the same until such dispute has been resolved either by agreement of the Lessee or by the decision of a competent authority whichever is the earlier in date; whereupon such period of ten (10) days will be deemed to commence on the date of such agreement or decision.

So long as the Lessor shall purchase the supply of electric current from any public service or utility, the Lessor shall not be liable for any loss or damage or expense which the Lessee may sustain or incur if either the quantity or character of electric service is changed or made unavailable to the Lessee or unsuitable for its requirements by the supplier, or for any reason.

The Lessee will not purchase or acquire for use in the demised premises or use or permit to be used in the demised premises any electric current for lighting or other purposes except current being supplied by the public service or utility which shall, for the time being supply the Lessor, the intention being that there shall be only one system of electric current used in the building at any given time. The Lessee agrees to pay the cost including installation, of all electric light bulbs, fluorescent tubes and ballasts used to replace those installed on the demised premises at the commencement of the term, and cost of maintenance and repair of the fluorescent fixtures thereon, and the Lessor shall have the exclusive right to provide and carry out such installation, maintenance and repair.

TAXES, ETC.

9. (a) To pay to the Lessor, in the manner in the Paragraph 9 provided, the Lessee's proportionate share of the real property taxes (including local improvement charges), assessments and outgoings, and any taxes whatsoever that accrue during the term hereof against the lands and building of which the demised premises form a part, and the cost to the Lessor of any appeals against the validity or amount of any of the foregoing, all such taxes (including local improvement charges), assessments and other outgoings levied in any calendar year and such costs of appeal to be deemed to accrue from day to day during the calendar year unless specifically stated to accrue otherwise in the enabling legislation related thereto.

Page 4 of 30

(b) Prior to, or as soon as possible, after, the commencement of any period determined upon, from time to time, by the Lessor, (which period shall not exceed twelve (12) months in duration nor exceed the term of this lease in duration) the Lessor shall provide the Lessee with an estimate of the aforesaid taxes (including local improvement charges), assessments, other outgoings and such costs of appeal for such period and indicate the amount thereof which will be payable and contributable by the Lessee. The Lessee shall pay to the Lessor the amount so calculated in equal monthly instalments in advance throughout such period at the time set for payment of the basic rent pursuant to this Lease. The amount of the estimated taxes (including local improvement charges), assessments, other outgoings and such cost of appeal may be adjusted from time to time, during such period by the Lessor giving notice in writing thereof to the Lessee in which event the remaining payments to be made by the Les see as aforesaid in such period will likewise be adjusted. Upon receipt of the actual property tax invoice, the Lessor shall be entitled, if necessary, to adjust the monthly contribution required to accurately reflect the Lessee's monthly proportionate share and to recover any difference for any previous months in which the proportionate share was underestimated.

(c) Within sixty (60) days after the end of each such period, or as soon as possible thereafter if the actual costs thereof are not then known, the Lessor shall furnish to the Lessee a statement of the actual taxes (including local improvement charges), assessments, other outgoings and such costs of appeal and the amount thereof payable by the Lessee in accordance with this Paragraph 9. Appropriate adjustments with respect to the Lessee's share thereof shall be made between the parties, if necessary, within fourteen (14) days after receipt of such statement by the Lessee.

INSURANCE

10. To pay to the Lessor, in the manner provided in this Paragraph 10, the Lessee's proportionate share of the premiums for the insurance carried by the Lessor during the term of this Lease for insurance against fire (and other coverages for perils or liabilities related to the lands or building, which coverage shall be in the Lessor's discretion) on the building of which the demised premises form a part, which insurance may at the Lessor's discretion include coverage of the leasehold improvements or other property within, about or adjacent to the demised premises or the lands. Prior to or as soon as possible after the commencement of any period determined upon, from time to time, by the Lessor (which period shall not exceed twelve (12) months in duration nor exceed the term of this lease in duration), the Lessor shall provide the Lessee with an estimate of the premiums for such period and indicate the amount thereof which will be payable and contributable by the Lessee. The Les see shall pay to the Lessor the amount so contributable in equal monthly instalments in advance throughout such period at the time set for the payments of the basic rent pursuant to this Lease. As soon as possible after the end of such period the Lessor shall furnish to the Lessee a statement of the actual premiums related to such period and any adjustments, if necessary, shall be made between the parties within fourteen (14) days after receipt of such statement by the Lessee.

Not to allow anything to be done, kept, used or sold upon or about the demised premises which contravenes any of the Lessor's insurance policies or which would prevent the Lessor from procuring any such policy with companies acceptable to the Lessor. If any insurance policy upon the building or any part thereof is cancelled or threatened by the insurer to be cancelled, or the coverage thereunder reduced or threatened to be reduced by the insurer, or if such insurance policy is not obtainable by reason of the use and occupation of the demised premises or any part thereof by the Lessee or any assignee or sub-tenant of the Lessee or by anyone permitted by the Lessee to be upon the demised premises, and if the Lessee fails to remedy the condition giving rise to cancellation, threatened cancellation, reduction or threatened reduction in coverage or refusal to cover within twenty four (24) hours after notice thereof by the Lessor, the Lessor may, without limiting any other remedies it may have p ursuant to this lease or at law, enter the demised premises and remedy the condition giving rise to the cancellation or reduction or threatened cancellation or threatened reduction or refusal to cover and the Lessee will pay to the Lessor the cost thereof upon demand and the Lessor shall not be liable for any inconvenience, disturbance, loss of business or other damage resulting from such entry and remedying.

Page 5 of 30

OPERATING AND MAINTENANCE COSTS

11. (a) To pay to the Lessor, in the manner provided in this Paragraph 11, an amount calculated by the Lessor that is equal to the Lessee's proportionate share of the general operating and maintenance costs of the lands and building of which the demised premises form a part during the term of this Lease. For the purposes of this Lease general operating and maintenance costs means all costs, charges, and expenses chargeable against income and incurred, approved, or attributed by the Lessor to operate, service, maintain, clean, supervise, police, replace and repair, and keep in good order and safe condition the lands and the building of which the demised premises form a part and structures or improvements thereon, including, without limiting the generality of the foregoing:

- The cost of gas, oil, power, water, sewer, communications and all other utilities and services, together with the direct cost of administering such utility services; provided that non exclusive utility costs may at the discretion of the Lessor in cases where, in the opinion of the Lessor, the consumption of utility is heavier in one or more rentable premises by reason of the business carried on in such premises, be allocated on a user basis; 

- The cost of servicing and maintaining all heating, air conditioning, ventilation, elevators, plumbing, electrical (including light fixtures) and other machinery and equipment and at the option of the Lessor, either the cost of depreciation at rates in conformity with generally accepted accounting principles upon all such machinery and equipment and all other fixtures which by their nature require periodic replacement or substantial replacement, or the cost of replacement of same;

- The cost of all business, machinery or other taxes, charges and license fees which are not directly levied against or payable by any tenants of the Building individually;

- The cost of cleaning, and removing garbage from the leased premises and the cost of all supplies, labour, wages (including statutory or usual fringe benefits), and fees of independent contractors relating thereto;

- The cost of cleaning, and removing snow and garbage from, servicing, maintaining, operating, repairing, supervising, policing and securing the Building, including the cost of all supplies, labour, wages (including statutory or usual fringe benefits) and fees of independent contractors relating thereto;

- The cost of operating and replacing a public address system, background music, information kiosk, directory boards, and the net cost of operating and the cost of replacing public telephones and information facilities;

- The cost of operating and maintaining the Building identification sign(s) and general building signage excluding only the signs paid for directly by the Lessee;

- The cost of interest on the capital cost of all cleaning and maintenance equipment owned by the Lessor calculated at rates charged from time to time to borrowers regarded as prime credit risks, together with the cost of depreciation on such equipment;

- The direct cost of management, administration and book-keeping services at Five (5%) per cent of the total of the basic rent charged pursuant to paragraph 4 and the additional rent payable to the Lessor pursuant to paragraphs 7 to 12 hereof.

Page 6 of 30

(b) Prior to, or as soon as possible after, the commencement of any period determined upon, from time to time, by the Lessor (which period shall not exceed twelve (12) months in duration nor exceed the term of this Lease in duration) the Lessor shall provide the Lessee with an estimate of the general operating and maintenance costs for such period and indicate the amount thereof which will be payable and contributable by the Lessee. The Lessee shall pay to the Lessor the amount so calculated in equal monthly instalments in advance throughout such period at the time set for payment of the basic rent pursuant to this Lease. The amount of the estimated general operating and maintenance costs as aforesaid may be adjusted, from time to time, during such period by the Lessor giving notice in writing thereof to the Lessee in which event the remaining payments to be made by the Lessee as aforesaid in such period shall likewise be adjusted.

(c) Within ninety (90) days after the end of each such period the Lessor shall furnish to the Lessee a statement of the Lessor's actual general operating maintenance costs during such period showing in reasonable detail the information relevant and necessary to the calculation and determination of these amounts and the amount thereof payable by the Lessee in accordance with this Paragraph 11. Appropriate adjustments with respect to the Lessee's share of the general operating and maintenance costs shall be made between the parties, if necessary, within fourteen (14) days after receipt of such statement by the Lessee. The Lessor's statement shall be conclusive and binding upon the Lessor and the Lessee as to the actual operating costs of the building.

INCREASE IN COSTS

12. To pay to the Lessor on demand the amount equal to any increase in the costs referred to in any of Paragraphs 7, 8, 9, 10 and 11 immediately preceding by reason of any installation, alteration or use made in or to the demised premises by or for the benefit of the Lessee or to pay, where such installation, alteration or use is for the benefit of the Lessee and other lessees of premises on the lands, such share of such costs as may be reasonably allocated by the Lessor.

In determining whether any increased insurance premiums are the result of any installation, alteration or use made in or to the demised premises by or for the benefit of the Lessee, a schedule or rate calculation issued or provided by the insurer providing such insurance showing the various components of the rate shall be deemed to be conclusive evidence thereof.

GOOD AND SUBSTANTIAL REPAIR

13. (a) To leave the demised premises in a clean, sanitary and tidy condition at the end of each business day and to leave the demised premises in a tidy condition at the expiration or sooner termination of the term hereof.

(b) At its expense to repair and maintain the demised premises in a good and proper state of maintenance, repair and decoration, excepting from the above covenant reasonable wear, tear and damage by fire, lightning, tempest, impact of aircraft, acts of God or the Queen's enemies, riots, insurrections, structural defects or weaknesses and explosions (unless such explosion is caused by the negligence of the Lessee, its agents, employees, invitees or licensees) and repairs required to be made by the Lessor herein. The Lessee shall be responsible for the cost of repairing all leasehold improvements together with all partitioning and/or improvements erected on behalf of the Lessee by the Lessor. The Lessee covenants to maintain any partitioning within or defining the demised premises in a good and proper state of repair and free from scratches or defacement. Upon failure of the Lessee to undertake any repairs or to do anything which is required of it by this Lease, the Lessor may carry out s uch repairs or do such things and the Lessor shall be entitled to recover from the Lessee the cost thereof together with a fee on behalf of the Lessor or the Lessor's managing agent as the case may be for supervision for carrying out the Lessee's obligations in an amount equal to fifteen (15%) percent of the cost of repairs or other work carried out by or under the supervision of the Lessor or the Lessor's managing agent, which amount shall be in addition to the cost of such work and which cost and fees shall be forthwith payable by the Lessee to the Lessor and shall be recoverable in the same manner as rent in arrears.

Page 7 of 30

(c) If the building including the demised premises, the boilers, engines, elevators, pipes and other apparatus (or any of them) used for the purpose of heating or air conditioning the building or operating the elevators or, if the water pipes, drainage pipes, electric lighting or other equipment of the building get out of repair or become damaged or destroyed through negligence, carelessness or misuse by the Lessee, its servants, agents, employees or anyone permitted to it to be in the building or through it or them in any way stopping up or injuring the heating apparatus, elevators, water pipes, drainage pipes or other equipment or part of the building, the expense of the necessary repairs, replacements or alterations shall be borne by the Lessee, who shall pay the same to the Lessor forthwith on demand.

ENTRY TO INSPECT

14. To permit the Lessor and its agents at all reasonable times to enter the demised premises to view the state of repair and the Lessee shall forthwith after the receipt of written notice thereof (or within such reasonable time thereafter if for any cause beyond the control of the Lessee it is not reasonable in the circumstances, it being understood that lack of finances on the part of the Lessee shall not be treated as a cause beyond the Lessee's control), commence and diligently proceed to make such repairs and replacements as the Lessee may be obligated to make and in the event of the Lessee's failure or neglect to do, the Lessor and its agents may enter the demised premises and at the Lessee's expense, perform and carry out such repairs or replacements and the Lessor in so doing shall not be liable for inconvenience, disturbance, loss of business or other damage resulting therefrom and in the event the Lessor expends any monies pursuant to this Paragraph the Lessee will pay the same on demand together with a fee for supervision of same as well as interest thereon at the aforesaid rate from the date of the expenditure of such monies by the Lessor until paid by the Lessee.

QUALITY OF REPAIR

15. That all repairs and replacements made by the Lessee to the demised premises shall be of a quality and class at least equal to the original and shall become the property of the Lessor absolutely and part of the demised premises.

NUISANCE, WASTE, ETC.

16. Not to use or occupy the demised premises or suffer or permit the same to be used or occupied for any unlawful purpose, or for any dangerous, noxious or offensive trade or business; or for any purpose likely to cause any public or private nuisance or to endanger the general public or neighbouring properties, tenants or tenements (it being understood that the use of the demised premises as provided in Paragraph 17 hereof shall not be a default of the preceding provisions of this Paragraph 16) nor undertake any excavation or operation likely to cause the same; nor to commit or suffer to be done any waste, damage or disfigurement or injury to the building or other part of the lands or any improvement thereon or to permit or suffer any overloading of the floors therein.

USE

17 To carry on in the demised premises during the term hereof the business of a general office, a conventional oil and gas corporation office, teaching and analytical chemical and petrochemical laboratory and not to carry on any other business. The Lessee agrees to occupy the demised premises on the commencement date subject to the terms hereof.

ORDINANCES & REGULATIONS

18 To observe and fulfil the provisions and requirements of all statutes, orders-in-council, by-laws, rules and regulations, municipal, parliamentary or by other lawful authority, relating to the use of the demised premises, and, without limitation thereto, to comply with any applicable lawful regulation or order of The Canadian Underwriters Association or any body having similar function or any liability or fire insurance company by which the Lessor or Lessee may be insured and that all fines, charges, costs, damages, or other expenses resulting from the default or infringement of, or changes in the demised premises required to comply with the above mentioned shall be borne by the Lessee.

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ASSIGNING & SUB-LETTING

19 The Lessee shall not at any time or on any occasion assign this lease, nor mortgage or pledge, nor sub-let nor part with possession of the whole or any part of the Demised Premises except with the prior consent of the Lessor which may not be unreasonably withheld. With respect to any proposed assignment or sub-letting:

(a) The Lessee shall deliver to the Lessor its written request for consent to such assignment or sub-lease together with a copy of the proposed assignment or sub-lease and shall provide the Lessor with such information as the Lessor may reasonably require with respect to the business and financial responsibility and standing of the proposed assignee or sub-lessee, and

(b) The Lessee, with the Landlord's prior written consent may assign this lease to an assignee who is a purchaser of all or substantially all of the business of the Lessee that is conducted in the Premises, a parent or controlled subsidiary company of Lessee, a company which results from the reconstruction, consolidation, amalgamation or merger of Lessee, or a partnership or like business association in which Lessee (or not less than one-half of the principals thereof) has a substantial interest, or a co-mingled singular business interest or any third party involved in a joint venture partnership or other similar co-mingling of mutual business interests with Lessee.

(c) If Lessee wishes to assign this Lease or sublet all or any part of the Premises to a named third party (except as set out in Paragraph 19 (b)), Lessee shall first offer in writing to assign or sublet (as the case may be) to Lessor on the same terms and conditions and for the same Rent as provided in this lease. Any such first offer shall be deemed to have been rejected unless within five (5) days of receipt thereof Lessor delivery written notice of acceptance to Lessee.

No assignment or other disposition by the Lessee, of this lease or of any interest under this lease shall relieve the Lessee from the performance of its covenants, obligations or agreements under this lease. Such assignment or other disposition shall not render null and void at the time of such assignment or other disposition any options or rights to renew this lease, options or rights to additional space and options or rights to car parking spaces. A sub-tenant shall not have any options or rights to renew this lease, options or rights to additional space and options or rights to car parking spaces. However, the sub-lessor shall retain those rights for itself.

All of the Lessor's reasonable legal fees or documentation fees, or both, necessary to the Lessor's consent or lack of consent shall be borne by the Lessee.

INDEMNIFICATION

20 Notwithstanding any other provisions of this Lease to the contrary, to indemnify and save harmless the Lessor from any and all liabilities, damages, costs, including solicitor-client legal costs, claims, suits or actions resulting from:

(a) any breach, violation or non-performance of any covenant, condition or agreement in this Lease set forth and contained on the part of the Lessee to be fulfilled, kept, observed and performed;

(b) any damage to property, including property of the Lessor, occasioned by the operations of the Lessee's business on, or the Lessee's occupation of the demised premises;

(c) injury to person or persons, including death resulting at any time therefrom, occasioned by the operation of the Lessee's business on, or the Lessee's occupation of the demised premises;

such indemnifications to survive the expiration or sooner termination of the term hereof, notwithstanding anything herein contained to the contrary.

LESSEE'S INSURANCE

21 That the Lessee shall during the whole of the said term maintain the following insurance at the Lessee's sole expense in such form and with such companies as the Lessor may reasonably approve;

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(a) Comprehensive General Liability Insurance against claims for bodily injury, including death, and property damage or loss arising out of the use and/or occupation of the demised premises, or the operation of Lessee's business on or about the demised premises. Such insurance shall be in the joint names of the Lessor and Lessee so as to indemnify and protect both the Lessor and the Lessee and shall contain a "cross liability" or "severability of interest" clause so that the Lessor and the Lessee shall be insured in the same manner and to the same extent as if individual policies had been issued to each, and shall be for the amount of not less than $5,000,000.00 combined single limit;

(b) Legal Liability Insurance for an amount of not less than $2,000,000.00;

(c) Full Pollution Coverage for an amount of not less than $2,000,000.00, with a deductible of not more than $2,500.00;

(d) All Risk Insurance on the leasehold improvements, its furniture, trade fixtures and other property to the full replacement value thereof;

(e) Plate Glass Insurance.

The policies of insurance referred to above shall, to the extent obtainable, contain the following:

- any protection available to the Lessor shall continue notwithstanding any act, neglect or misrepresentation of the Lessee which might otherwise result in the avoidance of a claim thereunder, nor shall they be affected or invalidated by any act, omission or negligence of any third party which is not within the knowledge or control of the insured(s);

- all Property Insurance and Plate Glass Insurance referred to above shall provide for a waiver of the insurer's rights of subrogation as against the Lessor.

such policies of insurance shall not be cancelled without the insurers providing to the Lessor thirty (30) days prior written notice of such cancellation.

Evidence of all such insurances shall be provided to the Lessor upon request.

The requirements imposed on the Lessee in this Paragraph 21 respecting the obtaining and maintaining of insurance shall not in any manner limit or derogate from any other obligations imposed on the Lessee pursuant to this Lease or at law.

The Lessor other than for gross negligence or wilful misconduct shall not be responsible for any damage to any person in or about the demised premises or to any merchandise, goods, chattels or equipment contained therein or to any person in the building with the express or implied consent of the Lessee or in respect of the Lessee's business.

PREMIUMS

22 To pay all insurance premiums and insurance renewal premiums when due with respect to insurance to be carried by the Lessee pursuant to Paragraph 21 above and immediately forward to the Lessor receipts or other satisfactory evidence as to the payment thereof and the existence of any such policy prior to the taking of possession by the Lessee of the demised premises and at least fifteen (15) days prior to the expiration of any policy. If the Lessee fails to insure, keep insured, or provide proof of insurance as herein provided, the Lessor shall be at liberty to effect such insurance and pay the premium thereof and the Lessee shall pay the cost thereof to the Lessor together with interest thereon at the rate aforesaid from the date of such expenditure by the Lessor until the date of payment by the Lessee. 

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DAMAGE

23 That it will not bring upon the demised premises, the building, the lands, or any part thereof any vehicles, machinery, equipment, safes, articles or things that by reason of their weight, size or use might damage the floors or other improvements of the demised premises, the building or the lands and that if any damage is caused to the demised premises, the building or the lands by any such vehicle, machinery, equipment, article or thing, or by such overloading or by any act, neglect or misuse on the part of the Lessee or any of its servants, agents or employees or any person having business with the Lessee, the Lessee will at its sole cost repair such damage or pay the cost of repair to the Lessor, together with a reasonable supervision fee in respect thereof.

THE LESSOR COVENANTS AND AGREES WITH THE LESSEE AS FOLLOWS:

QUIET POSSESSION

24 The Lessor covenants with the Lessee that upon the Lessee paying the rent hereby reserved and all other charges herein provided and observing, performing and keeping the covenants and agreements herein contained, the Lessee shall and may peaceably possess and enjoy the demised premises for the term hereby granted without any interruption or disturbance from the Lessor.

LESSOR'S REPAIRS

25 The Lessor covenants and agrees that notwithstanding the provisions of Paragraph 13 hereof, it shall at its sole cost during the term hereof carry out as soon as possible in the circumstances after receipt of notice thereof in writing from the Lessee, structural repairs to footing, structural columns, foundation, exterior walls and metal roof decks, unless necessitated as the result of normal wear and tear, which interfere with or impair the use or occupancy of the demised premises by the Lessee; PROVIDED HOWEVER, that if such repairs are necessitated by the negligence or misconduct of the Lessee, its servants, agents, contractors, licensees, employees or others for whom in law the Lessee is responsible, the Lessee shall pay to the Lessor on demand the cost of such repairs together with a fee for supervision thereof and interest thereon from the date of expenditure thereof by the Lessor until paid by the Lessee; PROVIDED that the Lessor shall not be responsible for any damag es, loss or injuries sustained by the Lessee by the entry of the Lessor or its agents on the demised premises to effect such repairs. Except as expressly provided in this Lease, there shall be no allowance to the Lessee by reason of any inconvenience, annoyance or injury to the Lessee's business arising from the event which resulted in repairs or improvements to the building or the demised premises.

It is distinctly understood and agreed that in case the apparatus or any part thereof used in providing services to the building or the demised premises, including but not limited to heating, air conditioning, elevator, electrical, mechanical or telephone (other than such apparatus or part thereof, or anything else aforementioned, as may be the property of or installed by the Lessee) becomes damaged or destroyed, the Lessor shall have a reasonable time within which to repair the apparatus and the Lessor shall not in any event be liable to the Lessee, its officers or employees for any indirect or consequential damage or damages for personal discomfort or illness arising by reason of the interruption of such services or for any other damage or damages of every nature whatsoever incurred.

LESSOR'S INSURANCE

26 It will insure and keep insured the building together with any improvements, addition or alterations thereto belonging to the Lessor against loss or damage by fire and other risks included in a standard fire and extended coverage insurance policy to the extent of the full replacement value thereof; PROVIDED HOWEVER, that the Lessor may also obtain and maintain insurance for other perils or liabilities, including rental loss insurance, and insurance on the leasehold improvements, fixtures, partitions and wall coverings related to the lands, which other insurance shall be at the Lessor's discretion; PROVIDED FURTHER, that such policies may have such deductibles as the Lessor shall determine. Nothing contained in this Paragraph 26 shall derogate from the Lessee's covenant contained in Paragraph 10 hereof. 

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TAXES

27 The Lessor shall, from time to time, pay or cause to be paid the taxes (including local improvement charges), assessments and other outgoings referred to in Paragraph 9 hereof, PROVIDED HOWEVER, that nothing contained in this Paragraph 27 shall derogate from the Lessee's covenant contained in Paragraph 9 hereof.

HEATING

28 To furnish adequate heating to the demised premises at all times during the normal heating season as established by custom and practice for a comparable building in the City of Calgary, the costs of which are an operating cost pursuant to Paragraph 11 hereof.

JANITORIAL

29 To provide cleaning and janitorial services, including window cleaning to the demised premises and building to standards consistent with the maintenance of a comparable building in the City of Calgary and to keep the entrance ways, stairways, corridors, leading to or giving access to the demised premises and the washroom facilities in the building a clean and wholesome condition, the costs of which are an operating cost pursuant to Paragraph 11 hereof.

ACCESS

30 To permit the Lessee and the employees of the Lessee and all persons lawfully requiring communication with them to have the use at all reasonable times of the entrances provided for the Lessee and the elevator, stairways and corridors leading to the demised premises.

The Lessor agrees to permit the Lessee, its agents, servants, employees and invitees the right of access and use in connection with other tenants to the building to the toilet and washroom facilities in the building other than those provided exclusively for the use of other tenants and to keep the same in good working order and supplied with water and to have the same repaired with all reasonable diligence whenever such repairs are necessary, to furnish hot and cold water for lavatory, drinking and cleaning purposes. The Lessee shall pay the cost of installing any additional utilities which exclusively serve the demised premises occupied by it together with all the charges, rates or assessments made in connection with such utility service.

SECURITY SERVICES

31 At the sole and unilateral discretion of the Lessor, the Lessor agrees to provide security service reasonably adequate for the safety and care of the demised premises (but not the contents thereof including the property of the Lessee) and preservation of good order therein, such security service to comprise of the supply of security personnel. The cost of such security shall be deemed to be an operating cost within the terms of this Lease.

THE LESSOR AND THE LESSEE FURTHER COVENANT AND AGREE AS FOLLOWS:

DAMAGE AND DESTRUCTION

32 (a) If the demised premises or the building shall at any time during the term hereof granted be damaged or destroyed by fire, lightning, earthquake, tempest or other casualty, so as:

(i) The same is/are damaged or destroyed, to the extent that the same cannot with reasonable diligence be rebuilt, repaired or restored within one hundred and eighty (180) days of the date of such damage or destruction (which determination shall be made in the opinion, in writing, of a reputable builder selected by the Lessor, which written opinion shall be delivered to the Lessee within thirty (30) days of the occurrence of such damage) then the Lessor may terminate this Lease by notice in writing to the Lessee given within thirty (30) days of the occurrence of such damage and on the giving of such notice, the rent hereby reserved shall be forthwith payable by the Lessee only to the date of such damage of destruction and the term hereby granted shall immediately terminate and the Lessor may forthwith re-enter and take possession of the demised premises and deal with the same as fully and effectively as if these presents had not been entered into. But if within the said period of thirty (30) days the Lessor shall not give notice terminating this Lease, then as soon as reasonably practicable thereafter the Lessor shall undertake or continue the repair of the same with all reasonable diligence and the basic rent hereby reserved, or a proportionate part thereof depending upon the proportion of the demised premises that are not fit for use by the Lessee for the intended purpose of the lease, shall abate until the demised premises have been rebuilt and made fit for the purpose of the Lessee.

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(ii) The same is/are damaged or destroyed to the extent that the same can, with reasonable diligence, be rebuilt, repaired or restored within one hundred and eighty (180) days of the date of such damage and destruction (which determination shall be made in the opinion, in writing, of a reputable builder selected by the Lessor, which written opinion shall be delivered to the Lessee within thirty (30) days of the date of the occurrence of such damage), the Lessor shall as soon as reasonably practicable after such determination undertake or continue the repair of the same with all reasonable diligence provided, however, that nothing herein contained shall impose any obligation upon the Lessor to complete such repair within the period of one hundred and eighty (180) days and the basic rent hereby reserved, or a proportionate part depending upon the proportion of the premises that are not fit for use by the Lessee for the intended purpose of this lease, shall abate until the demised premises have been rebuilt and made fit for the purpose of the Lessee.

(b) For greater certainty it is agreed that the expressions "building" and "demised premises" shall be deemed not to include the leasehold improvements, fixtures, furniture or other property.

(c) If the Lessor rebuilds or restores the demised premises as contemplated in this Paragraph 33, it will not be required to reproduce exactly the demised premises or restore the same to the exact condition that existed before the damage, provided that it reproduces or restores the same to a comparable condition.

(d) The certificate of the Lessor's representative in charge of the rebuilding or restoration will bind the parties hereto as to the state of useability of the demised premises and to the date upon which the Lessor's work of reconstruction or restoration is completed and the premises fit for the purpose of the Lessee.

(e) Notwithstanding any of the foregoing provisions of this Paragraph 33 to the contrary, in the event that the damage or destruction referred to above is caused by the negligence or misconduct of the Lessee, its servants, agents, contractors, licensees, employees or other persons for whom in law the Lessee is responsible:

(i) and this Lease is not terminated as a result of such damage or destruction, there shall be no abatement of basic rent as heretofore otherwise contemplated;

(ii) to the extent that the amount of liabilities, damages, costs, claims, suits, or actions of any nature whatsoever are suffered by the Lessor as a result of such damage or destruction, the Lessee shall indemnify and save harmless the Lessor therefrom and this indemnity shall survive the expiration or sooner termination of the Lease.

IMPROVEMENTS AND ALTERATIONS

33 The Lessor agrees to furnish the demised premises to the Lessee at the fixturing date with those improvements set forth as Lessor's Improvements in Schedule "C" attached hereto. The Lessee agrees to be responsible for the installation at the fixturing date at its sole risk, cost and expense of the Lessee's Improvements in accordance with the rules and regulations as set forth in Schedule "D" attached hereto.

Should the Lessee require any alterations, improvements, partitions, or changes of whatsoever kind to or in the demised premises after the Lessee has taken possession thereof, the Lessee will make and install the same at its own expense; PROVIDED HOWEVER, that no repairs, alterations, improvements, partitions, or changes of whatsoever kind shall be made without the written consent of the Lessor first had and obtained, such consent not to be unreasonably withheld; PROVIDED FURTHER, that any such repairs, alterations, improvements, partitions, or changes of whatsoever kind shall be made in a good and workmanlike manner with new, first-class materials and shall be carried out and the plans relating thereto shall be prepared by such tradesman, engineers or consultants as are approved by the Lessor. All alterations, improvements, partitions and changes made in or to the demised premises at any time before or after the taking of possession by the Lessee, by the Lessee or the Lessor, shall immedi ately become the property of the Lessor and form part of the demised premises and the building and shall remain upon the demised premises; PROVIDED ALWAYS that the Lessor may at the expiration or sooner termination of this Lease for any reason whatsoever require that the Lessee restore the demised premises in whole or in part to the same condition in which they were at the time of the entering into of this Lease, the exceptions to the Lessee's repair obligations only excepted. The Lessee shall not remove any furniture, leasehold improvements, fixtures, chattels of any kind from the demised premises without the prior consent of the Lessor and until all rents and other monies due are fully paid.

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SIGNS

34 No signs shall be installed in or on the demised premises or the building or the lands without the prior consent of the Lessor, and, in any event, all signs shall conform to building standard as to size and design, shall be installed by the Lessee and, at the termination of this Lease, shall be removed by the Lessee and any damage caused by such removal shall be repaired, all at the expense of the Lessee. All such signs shall require the written consent of the Lessor as to location and design before their installation and the Lessee shall be responsible at its sole cost for obtaining all appropriate municipal or regulatory approvals.

NO LIENS

35 The Lessee shall not suffer or permit during the term of this Lease any Builder's or Mechanic's Liens or other liens for work, labour, services or material ordered by it or for the cost of which it may in any way be obligated, to attach to the demised premises or any portion thereof, or to any improvements erected upon the same, and that whenever and so often, if ever, as any such lien or liens shall be filed or shall attach, the Lessee shall within ten (10) days thereafter either pay the same or procure the discharge thereof by giving security or in such other manner as is or may be required or permitted by law.

In the event the Lessee fails to take such action as aforesaid, the Lessor may, but shall not be obligated to, take such action as may be necessary to procure the discharge of such lien and the Lessee shall forthwith upon demand from the Lessor pay the Lessor any and all expenses and amounts, including legal fees, so incurred in discharging any such lien.

TIME FOR PAYMENT AND LEGAL COSTS

36 All amounts (other than rent and additional rent) required to be paid by the Lessee to the Lessor pursuant to this Lease shall, unless otherwise specified herein, be payable at the place designated by the Lessor for payment of rent and on demand and if not so paid within ten (10) days of such demand be treated as rent in arrears and the Lessor may, in addition to any other remedy it may have for the recovery of the same, distrain for the amount thereof as rent in arrears.

In the event that the Lessee shall make default in payment of any sums required to be paid by it under this Lease (other than payments to the Lessor), the Lessor may pay the same.

Unless otherwise expressly provided herein all sums referred to in the preceding paragraph of this Paragraph 37 and all costs paid by the Lessor as between solicitor and client on account of any default by the Lessee under this Lease, shall be payable by the Lessee to the Lessor forthwith, either before or after payment by the Lessor with interest therein at the rate aforesaid from the date of payment of such sums or costs by the Lessor. The Lessor may, by notice to the Lessee, demand payment thereof and if not paid by the Lessee within ten (10) days of such notice, the amount thereof shall be deemed to be rent in arrears and Lessor may, in addition to any other remedy it may have for the recovery of the same, distrain for the amount thereof as rent in arrears.

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DEFAULT

37 If and whenever:

(a) The rent hereby reserved, or any part thereof, be not paid when due, or there is a non-payment of any other sum which the Lessee is obligated to pay under any provisions hereof, and such default shall continue for ten (10) days after notice by the Lessor requiring the Lessee to rectify the same; or

(b) The term hereby granted or any goods, chattels or equipment of the Lessee, shall be taken or be exigible in execution or in attachment or if a writ of execution shall issue against the Lessee; or

(c) The Lessee shall become insolvent or commit an act of bankruptcy or become bankrupt or take the benefit of any Act that may be in force for bankrupt or insolvent debtors or become involved in a winding-up proceeding, voluntary or otherwise, or if a receiver shall be appointed for the business, property, affairs or revenues of the Lessee, or if any governmental authority shall take possession of the business or property of the Lessee; or

(d) The Lessee shall make a bulk sale of its goods or move or commence, attempt or threaten to move its goods, chattels and equipment out of the demised premises (other than in the routine course of its business) or shall, for a period of fifteen (15) consecutive days (without written consent of the Lessor), fail to conduct business from or occupy the demised premises; or

(e) The Lessee shall purport to assign, transfer, sub-let, or grant a license with respect to any portion or all of the term of the demised premises without the written consent of the Lessor; or

(f) The Lessee fails to remedy any condition giving rise to cancellation, threatened cancellation, reduction or threatened reduction of any insurance policy on the building or any part thereof within twenty -four (24) hours after notice thereof by the Lessor; or

(g) The Lessee fails to continually occupy the leased premises or conduct its business therein during the lease term hereof;

(h) The Lessee shall not observe, perform and keep any other of the covenants, agreements, provisions, stipulations and conditions herein to be observed, performed and kept by the Lessee and shall persist in such failure for ten (10) days after notice by the Lessor requiring that the Lessee remedy, correct, desist or comply (or in the case of any such breach which reasonably would require more than ten (10) days to rectify unless the Lessee shall commence rectification within the said ten (10) day period and thereafter promptly and diligently and continuously proceed with the rectification of the breach);

then and in any such cases at the option of the Lessor, the full amount of the current month's and the next ensuing three (3) months' instalments of rent shall immediately become due and payable and the Lessor may immediately distrain for the same, together with any arrears then unpaid; and the Lessor may without notice or any form of legal process forthwith re-enter upon and take possession of the demised premises or any part thereof in the name of the whole and remove and sell the Lessee's goods, chattels and equipment therefrom, any rule of law or equity to the contrary notwithstanding; and the Lessor may seize and sell such goods, chattels, and equipment of the Lessee as are in the demised premises or at any place at which the Lessor or any other person may have removed them in the same number as if they had remained and had distrained upon the demised premises; and such sale may be effected at the discretion of the Lessor either by public auction or by private treaty, and either in bu lk or by individual item, or partly by one means and partly by another, all as the Lessor in it entire discretion by decide. The Lessee hereby waives any right or benefit it may have under The Landlord and Tenant Act of Alberta S.A. 1979 as amended and hereby confirms that the Lessor may forthwith re-enter and re-take possession of the demised premises in the event of default without the necessity of obtaining an order for possession under the said Act.

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CONSEQUENCES OF DEFAULT

38 If and whenever the Lessor is entitled to re-enter the demised premises, or does re-enter the demised premises, the Lessor may either terminate this Lease by giving written notice of termination to the Lessee, or by posting notice of termination in the demised premises, and in such event the Lessee will forthwith vacate and surrender the demised premises or alternatively, the Lessor may from time to time without terminating the Lessee's obligation under this Lease, make alterations and repairs considered by the Lessor necessary to facilitate a sub-letting and sub-let the demised premises or any part thereof as agent of the Lessee for such term or terms and at such rent or rents and upon such other terms and conditions as the Lessor in its reasonable discretion considers advisable. Upon each sub-letting all rent and other monies received by the Lessor from the sub-letting will be applied first to the payment of indebtedness other than rent due hereunder from the Lessee to the Lessor, second to the payment of costs of the alterations and repairs, and third to the payment of rent due and unpaid hereunder. The residue, if any, will be held by the Lessor and applied in payment of future rent as it becomes due and payable. If the rent received from the sub-letting during a month is less than the rent to be paid during that month by the Lessee, the Lessee will pay the deficiency to the Lessor, the deficiency will be calculated and paid monthly. No re-entry by the Lessor will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Lessee or posted as aforesaid. Despite a sub-letting without termination, the Lessor may elect at any time to terminate this Lease for a previous breach. If the Lessor re-enters the premises or terminates this Lease for any breach, the Lessee will pay to the Lessor on demand therefore:

(a) both basic and additional rent, up to the time of re-entry or termination, whichever is the later, and

(b) all costs payable by the Lessee pursuant to the provisions hereof up until the date of re-entry or termination, whichever is later; and

(c) such expenses as the Lessor may incur or has incurred in connection with re-entering or terminating and reletting or collecting sums due or payable by the Lessee or realizing upon assets seized including brokerage expense, legal fees and disbursements determined on a solicitor-client basis, and including the expense of keeping the demised premises in good order and repairing or maintaining the same or preparing the demised premises for re-letting; and

(d) all costs, expenses, losses of rent and the like incurred by the Lessor from the date of termination of this Lease until the demised premises are re-let on terms suitable to the Lessor; and

(e) as liquidated damages for the loss of rent and income of the Lessor expected to be derived from this Lease during the period which would have constituted the unexpired portion of the term had it not been terminated or had the Lessee observed and performed its covenants under this Lease. It is agreed between the Lessee and the Lessor that the monetary extent of their liquidated damages shall be at the sole discretion of the Lessor but shall be either of the following:

(i) an amount equal to three months' minimum rent and occupancy cost charges as provided for under this Lease; or

(ii) the balance of the minimum rent and occupancy costs, as estimated by the Lessor, payable under this Lease from the date of termination to and including the expiration of the term of this Lease.

DISTRESS

39 The Lessee waives and renounces the benefit of any present or future statute or any amendments thereto taking away or limiting the Lessor's right of distress and agrees with the Lessor that, notwithstanding any such enactment, all goods and chattels of the Lessee from time to time on the demised premises shall be subject to distress for arrears of rent.

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SURRENDER

40 The Lessee shall, subject to any provisions of Paragraph 39 or this Paragraph 41 to the contrary, at the expiration or sooner termination for any reason whatsoever of this Lease, peacefully surrender and yield up to the Lessor all and every part of the demised premises together with all buildings, structures, and fixtures including all appurtenances, alterations, repairs, additions and replacements thereto all in good order, condition and repair, the exceptions to the Lessee's repair obligations only excepted. PROVIDED ALWAYS, that the Lessee shall on the expiration or sooner termination of this Lease sever and remove any and all fixtures which are not or have not become the property of the Lessor and the Lessee shall forthwith restore and repair the demised premises and any damage caused as a result of such severance or removal. If the Lessee does not so sever and remove in the time hereinbefore limited, the Lessor at it option may do so at the expense of the Lessee and the Lessee will have no interest whatsoever therein. PROVIDED ALWAYS, that no such fixtures and no goods or chattels of any kind will, except in the ordinary course of business, be removed from the demised premises during the term or at any time thereafter without the written consent of the Lessor first had and obtained, until all rent in arrears has been fully paid.

RIGHT TO EXHIBIT PREMISES

41 The Lessor and its agents may at all reasonable times enter the demised premises to exhibit the same for purposes of sale and may at all reasonable times during the last six (6) months of the term of this Lease enter the demised premises to exhibit the same for purposes of rent and, in addition thereto, may display the usual "For Sale" and "To Let" signs therein in conjunction therewith.

OVERHOLDING

42 If, at the expiration of this Lease the Lessee shall hold over for any reason, the tenancy of the Lessee thereafter shall be from month to month only and shall be subject to all the terms and conditions of this Lease, except as to duration, in the absence of written agreement between the Lessor and the Lessee to the contrary, and the rent shall be deemed to be the basic rent multiplied by Two Hundred and Fifty (250%) Percent together with all additional rent herein provided, adjusted, if necessary, on a monthly basis. The terms of this Paragraph 43 shall in no way derogate from the Lessor's right to insist upon vacant possession of the demised premises at the expiry of the term of this Lease.

WAIVER BY THE LESSOR

43 The failure of the Lessor to insist in any one or more cases upon the strict performance of any of the covenants of this lease or to exercise any option herein contained shall not be construed as a waiver or a relinquishment for future of such covenant or option and the acceptance of rental by the Lessor with knowledge of the breach by the Lessee of any covenants or conditions of this Lease shall not be deemed a waiver of such breach and no waiver by the Lessor of any provisions of the Lease shall be deemed to have been made unless expressed in writing and signed by the Lessor.

NOTICES

44 Any notices herein provided or permitted to be given by the Lessee to the Lessor shall, except in the event of mail strike during which time all notices must be personally delivered, be sufficiently given if delivered in person or sent by registered mail, postage prepaid, posted within Alberta, addressed to the Lessor at:

CAPITAL RESERVE CORPORATIONBayview Property & Asset Management Inc.Suite 510, 602 - 12 Avenue S.W.Calgary, Alberta T2R 1J3

or to such other address as might be designated in writing by the Lessor from time to time, and any notice herein provided or permitted to be given by the Lessor the Lessee shall, except in the event of mail strike during which time all notices must be delivered, be sufficiently given if delivered, or mailed, posted prepaid, posted within Alberta and addressed to the Lessee at the demised premises. The Lessor may serve any notice on the Lessee by posting same on the door of the demised premises.

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Notice given as aforesaid, if posted in Alberta, shall be conclusively deemed to have been given on the third business day following the day of which such notice is mailed; or if delivered in person, on the date of delivery. The Lessor may at any time give notice in writing to the Lessee of any change of address or the party giving such notice, and from and after the giving of such notice the address therein specified shall be deemed to be the address of the Lessor for the giving of notice hereunder. The word "notice" in this paragraph shall be deemed to include any request, statement or other writing in this Lease provided or permitted to be given by the Lessor to the Lessee or by the Lessee to the Lessor.

RULES AND REGULATIONS

45 The Lessee, its servants, agents, employees, visitors and all persons visiting or doing business with them shall faithfully observe and comply with such reasonable rules and regulations as shall be communicated in writing to the Lessee from time to time, which in the judgment of the Lessor shall be necessary for the reputation, safety, care and appearance of the building and for the preservation of good order therein or the operation or maintenance of the building or the equipment thereof, or the comfort of the Lessees or other occupants or users of the building, which rules and regulations shall be deemed to be incorporated in and form part of these presents. For present Schedule "E" attached hereto shall constitute the Rules and Regulations.

SUBORDINATION AND ACKNOWLEDGEMENTS

46 In the event of registration of a caveat by the Lessee pursuant to Paragraph 62 hereof in respect of this Lease and in the further event of a mortgage or mortgages being registered against the said lands and premises, such mortgage or mortgages shall take priority over such every respect and the Lessee shall within ten (10) days of the request of the Lessor execute and deliver to the Lessor any and all documents required to give effect to the foregoing, including postponements under the Land Titles Act of Alberta or any other applicable statute. Further, the Lessee shall within ten (10) days of the request thereof by the Lessor, from time to time, execute and deliver to the Lessor and, if required by the Lessor, to any mortgagee (including any trustee under a deed of trust and mortgage) designated by the Lessor, a certificate in writing to the then status of this Lease, including whether it is in full force and effect, as modified or unmodified, confirming the rent payable h ereunder and the state of accounts between the Lessor and the Lessee and the existence or non-existence of defaults and any other matters pertaining to the Lease as to which the Lessor shall request of such certificate; PROVIDED FURTHER, that the Lessee, whenever requested by any mortgage (including any trustee under a deed of trust and mortgage), shall attorn to such mortgagee as a Lessee upon all terms and conditions of this Lease and shall execute promptly whenever requested by the Lessor or by such mortgagee an instrument of attornment.

NOTICE OF DEFECTS

47 The Lessee will at all times, with respect to those matters of which the Lessee shall have knowledge, give the Lessor prompt written notice of any accident or defect to or in the water pipes, gas pipes, air conditioning equipment, heating apparatus, electric or other wires, or plumbing fixtures or in any other portion of the said building or any defect in the demised or other condition in the demised premises which may cause injury.

EXCLUSION OF LIABILITY

48 It is agreed between the Lessor and the Lessee that:

(a) The Lessor, its agents, servants and employees shall not be liable for damage or injury to any property of the Lessee which is entrusted to the care or control of the Lessor, its agents, servants or employees.

(b) The Lessor, its agents, servants and employees, shall not be liable nor responsible in any way for any personal or consequential injury of any nature whatsoever that may be suffered or sustained by the Lessee or any employee, agent, customer, invitee or licensee of the Lessee or any other person who may be upon the demised premises or for any loss of or damage or injury to any property belonging to the Lessee or to its employees or to any other person while such property is on the demised premises and, in particular (but without limiting the generality of foregoing), the Lessor shall not be liable for any damage or damages of any nature whatsoever to any such property or persons caused by the failure, by reason of a breakdown of any apparatus or part thereof or other cause, to supply adequate drainage, snow or ice removal, heating, air conditioning, or electricity, or by reason of the interruption of any public utility or service or in the event of steam, water, rain or snow which m ay leak into, issue, or flow from any part of the building or from the water, steam sprinkler, or drainage pipes or plumbing works of the same, or from any other place or quarter or for any damage caused by anything done or omitted by any Lessee. The Lessee shall not be entitled to any abatement of rental in respect of any such condition, failure or interruption of service.

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(c) The Lessor, its agents, servants, employees or contractors shall not be liable for any damage suffered to the demised premises or the contents thereof by reason of the Lessor, its agents, servants, employees or contractors, entering upon the demised premises herein provided to undertake any examination thereof or any work therein or in the case of an emergency.

FORCE MAJEURE

49 Save and except for the obligations of the Lessee as set forth in this Lease to pay basic rent, additional rent and other monies to the Lessor, if either party shall fail to meet its obligations hereunder within the time prescribed, and such failure shall be caused or materially contributed to by force majeure (and for the purpose of this Lease, force majeure shall mean any Acts of God, strikes, lockouts or other industrial disturbances, Acts of the Queens' enemies, sabotage, war, blockades, insurrections, riots, epidemics, lightning, earthquakes, floods, storms, fires, washouts, nuclear and radiation activity or fallout, arrests, and restraints of rulers and people, civil disturbances, explosions, breakage of or accident to machinery, inability to obtain materials or equipment, any legislative, administrative or judicial action which has been resisted in good faith by all reasonable legal means any act omission or event whether of the kind herein enumerated or otherwise not within the control of such party, and which by the exercise of due diligence such party could not have prevented, but lack of funds on the part of such party shall be deemed not to be a force majeure), such failure shall be deemed not to be breach of the obligations of such party hereunder and the time for the performance of such obligations shall be extended accordingly, PROVIDED HOWEVER, nothing contained in this Paragraph 50 shall extend or otherwise change the date of expiration of the term hereof, and PROVIDED FURTHER HOWEVER, that force majeure shall not have application for the benefit of the Lessee as regards the procurement and installation by the Lessee of its improvements, fixtures, furniture or equipment in the demised premises unless the services required to be made available by the Lessor in connection therewith are also subject to force majeure.

LESSOR'S RIGHT TO PERFORM

50 If the Lessee fails to perform any of the covenants or obligations of the Lessee under or in respect of this Lease, the Lessor may from time to time at its discretion perform or cause to be performed any of such covenants or obligations or any part thereof and for such purpose as may be requisite and may enter upon the demised premises to do such things, and all expenses incurred and expenditures made by or on behalf of the Lessor including a reasonable supervision fee shall be paid forthwith by the Lessee to the Lessor with interest thereon from the date and same to the rent and recover the same by all remedies available to the Lessor for recovery of rent in arrears; PROVIDED HOWEVER, that if the Lessor commences and completes either the performance of any such covenants or obligations or any part thereof, the Lessor shall not be obliged to complete such performance or be later obliged to act in like fashion. 

ALTERATIONS BY LESSOR

51 It is further agreed that the Lessor shall be at liberty at its sole cost and expense, except for alterations that are the responsibility of the Lessee, during the term hereby granted, to make such changes, alterations, additions or improvements in or to the building and fixtures and equipment thereof owned by the Lessor, as well as in or to the street entrance, halls, passages and stairways thereof, as may be necessary or desirable.

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TIME OF ESSENCE

52 Time shall be of the essence hereof.

HEADINGS

53 The parties hereto agree that the headings form no part of this Lease and shall be deemed to have been inserted for the convenience of reference only.

INTERPRETATION

54. Where the singular and masculine or neuter are used throughout this Lease they shall be construed as if the plural and feminine had been used where the context of the party or parties hereto so requires and the rest of the sentence shall be construed as if the necessary grammatical and terminological changes thereby rendered necessary had been made. The terms "Lessor" and "Lessee" shall include their respective heirs, executors, administrators, successors and assigns and where there is more than one Lessee the covenants shall be deemed joint and several.

ACCEPTANCE

55. The Lessee does hereby accept this Lease of the above described lands to be held by it as tenant and subject to the conditions, restrictions and covenants herein set forth. The Lessee acknowledges that it has examined the demised premises before taking possession hereunder and such taking possession by the Lessee shall be conclusive evidence as against the Lessee that the demised premises were in good order and satisfactorily completed as at the commencement date.

GOVERNING LAWS

56. This Lease and any rules and regulations adopted hereunder shall be governed by the laws of the Province of Alberta. Should any provision of this Lease and/or its conditions be illegal or non enforceable under the laws of the Province of Alberta, it or they shall be considered severable, and this Lease and its conditions shall remain in force and be binding upon the parties as though the provision or provisions had never been included.

RESERVATION TO LESSOR

57. All outside walls of the demised premises and any space in the demised premises used for passageways and common areas as well as access thereto through the demised premises for the purpose of use, operation, maintenance and repair are expressly reserved to the Lessor.

REPRESENTATIONS

58. The Lessee hereby acknowledges that the demised premises are taken without representation of any kind on the part of the Lessor or its agents other than as set forth herein. It is understood and agreed that no representative or agent of the Lessor or Lessee is or shall be authorized or permitted to make any representation with reference thereto, or to vary or modify this agreement in any way, and that this Lease contains all of the agreements and conditions made between the parties hereto respecting the demised premises and that any addition to or alteration of or changes in this Lease or other agreements hereafter made or conditions created to be binding, must be made in writing and signed by both parties. This Lease constitutes the entire Agreement between the parties and the parties agree that there are no warranties or representations. 

BINDING ON SUCCESSORS AND APPROVED ASSIGNS

59. This indenture and everything herein contained shall enure to the benefit of and be binding upon the parties hereto, the collateral hereto. The parties agree that any Offer to Lease made by the Lessee to the Lessor shall be merged in this Lease and the execution hereof by the Lessee shall constitute an acknowledgement that the Lessor's obligations in respect of any Offer to Lease have been fully performed and satisfied.

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SALE OR FINANCING OF LANDS OR ASSIGNMENT BY LESSOR

60. The Lessee acknowledges that the rights of the Lessor under this Lease may be mortgaged, charged, transferred or assigned to a purchaser or to a mortgagee or trustee. The Lessee further acknowledges that in the event of the sale or lease by the Lessor of the lands or a portion thereof containing the demised premises or the assignment by the Lessor of this Lease or of any interest of the Lessor hereunder, and to the extent that such purchaser, or assignee has assumed the covenants and obligations of the Lessor hereunder, the Lessor shall, without further written agreement, be conclusively deemed to be freed and relieved of liability upon such covenants and obligations. The Lessee shall promptly provide without charge to the Lessor an estoppel certificate certifying the terms of this Lease and confirming its good standing at the Lessor's request in the event of a prospective sale of the lands.

REGISTRATION

61. The Lessee covenants and agrees it will not register this Lease in the Land Titles Office but it shall be entitled to register a caveat in respect thereof at its sole cost and expense, provided however, in the event the Lessor requires such caveat to be registered in priority to any mortgage, trust deed or trust indenture which may now or at any time hereafter affect in whole or in part the demised premises or the lands then the Lessee shall execute promptly any certificate or other instrument which may from time to time be requested by the Lessor to give effect to the provisions of this Paragraph 62.

PARKING

62. The Lessor shall provide to the Lessee, on the Lessor's standard parking rental agreement attached hereto as Schedule "F", * parking stalls at the current monthly rental.

SPECIAL CLAUSES

63. The provisions of those special clauses as set forth in Schedule "G" attached hereto shall be incorporated herein and form a part hereof.

IN WITNESS WHEREOF the parties hereto have executed this agreement by their respective duly authorized officers in that behalf, as of the day and year first above written.

CAPITAL RESERVE CORPORATION (as Lessor)

Per: /s/ W. Scott Lawler (c/s)

Per: _______________

CAPITAL RESERVE CANADA LIMITED (as Lessee)

Per: /s/ Dan Koyich

/s/ Bruce FrancisWitness

Per: ____________(c/s)

_______________Witness

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SCHEDULE "A"

FLOOR PLAN

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SCHEDULE "B"

METHOD OF FLOOR MEASUREMENT

1. The area of the demised premises on a full floor shall be determined as follows:

(a0 The rentable area of a single floor shall be computed by measuring to the inside surface of the exterior window glass. Rentable area of a single tenancy floor shall include all area within the outside walls, less stairs; elevator shafts; flues; stacks; pipe shafts; and, vertical ducts with their enclosing walls;

(b0 No deduction shall be made for columns and projection necessary to the building;

(c0 Areas common to the usage of the building such as, foyer, and central utility closets shall be apportioned to each floor on the basis of a pro-rata calculation to the total gross rentable area of the building.

2. The area of the demised premises on a multiple tenancy floor shall be determined as follows:

(a0 The rentable area of the demised premises on a multiple tenancy floor shall be computed as actual area, by measuring to the inside surface of the exterior window glass, to the office side of the corridors and/or other permanent partitions, and to the centre of the partitions that separate the demised premises from adjoining rentable areas; together with (for rental calculation purposes only) a proportionate share of the common areas on the floor, including corridors; washrooms; elevator lobby; service elevator lobby; air conditioning rooms; fan rooms; janitor closets; telephone and electrical closets, and other closets serving the demised premises in common with other premises; for this purpose common areas shall be all of those areas which when added to the actual area on a multiple tenancy floor, provide an area equal to the full floor tenancy as described in accordance with paragraph 1.

(b0 No deductions shall be made for columns and projections necessary to the building.

3. The gross rentable area of the building will be the aggregate areas of the office building and will include both measurements as defined in 1 and 2.

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SCHEDULE "C"

LESSOR'S IMPROVEMENTS

The demised premises are accepted by the Lessee in their "As Is Pre-Lease Commencement" condition.

The Lessee acknowledges that all furnishings, fixtures and equipment contained within the demised premises as of the date of this Lease Agreement belong to the Lessor and are not to be altered or removed with the prior written consent of the Lessor.

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SCHEDULE "D"

LESSEE'S IMPROVEMENTS

1. Upon request, the Lessor will provide to the Lessee the necessary plans to enable the Lessee or its consultants to prepare architectural, mechanical and electrical layouts.

2. The Lessee may engage its own consultants or the Lessor's consultants and the Lessee will be responsible for all consultant's fees and cost for all work performed for or at the request of the Lessee.

3. Should the Lessee elect to engage consultants other than those of the Lessor, then all plans and specifications will be subject to the written approval of the Lessor's consultants prior to commencement of any work. The Lessee will be responsible for the charges of the Lessor's consultants in checking and approving such plans and specifications.

4. Mechanical and electrical work shall be undertaken by contractors designated by the Lessor.

5. The Lessor will supply at its cost and to its standard the required demising walls and the entrance door from the public hallway into the Lessee's space including standard hardware and lock set for the door (multiple tenancy floors only).

6. Unless otherwise specifically arranged between the Lessee and the Lessor, all partitions, doors, door frames and allied installations will be supplied by the Lessee. All hardware, including latch sets, lock sets, butts, and door closers, will be supplied by the Lessor. The Lessor will supply lock sets to the Lessee at the Lessor's cost.

7. All installations and work performed for the Lessee are subject to the prior written approval of the Lessor.

8. Before bringing any heavy equipment into the demised premises the Lessee must obtain the prior written approval of the Lessor.

9. Arrangements for the supply and installation of the Lessee's improvements will be directly between the Lessee and the suppliers and contractors concerned.

10. Prior to commencing any work the Lessee will obtain all necessary permits relating to its installations and occupancy of the demised premises.

11. The Lessor will charge the Lessee for regular and overtime labour for its attendance outside of normal business hours. The Lessee or its contractor should advise the Lessor of the arrival of any materials at least twenty-four (24) hours in advance.

12. The Lessee shall promptly pay any accounts for the leasehold improvements and shall ensure that no builders' liens or other encumbrances are filed against the Lessor's title and in the event any such lien or liens are filed, the Lessee shall forthwith take all such steps as may be required to discharge the liens at its expense and provide evidence thereof to the Lessor.

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SCHEDULE "E"

RULES AND REGULATIONS

1. The Lessor shall have the right to control and operate the public portions of the building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. No tenant shall invite to the demised premises, or permit the visit of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, corridors, atrium and facilities of the building by other tenants.

2. The Lessor shall refuse admission to the building outside of ordinary business hours to any person not known to any security personnel in charge or not having a pass issued by the Lessee or not properly identified, and may require all persons admitted to or leaving the building outside of ordinary business hours to register.

3. The parking area, sidewalks, entrances, walkways, stairways and corridors of the building shall not be obstructed by the Lessee or used by it for any other purpose than for ingress and egress to and from the demised premises and no Lessee shall place or allow to be placed in or on the atrium hallways, corridors, toilets or stairways any waste paper, dust, garbage, refuse or anything whatever that shall tend to make them appear unclean or untidy.

4. No awnings or other projections over or around the windows or entrances of the demised premises shall be installed by any tenant.

5. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be ordinarily delivered to and removed from the demised premises only in the manner designated by the Lessor.

6. All entrance doors in the demised premises shall be left locked by the tenant when the demised premises are not in use.

7. Canvassing, soliciting or peddling in the building is prohibited and each tenant shall co-operate to prevent the same.

8. Lessee shall not permit the introduction into the demised premises or the building of any machine or mechanical device of any nature whatsoever which may be liable to cause objectionable noise or vibration or be injurious to the demised premises or the building.

9. Lessee shall not install or permit the installation or use of any machine dispensing goods on sale in the demised premises or the building or permit the delivery of any food or beverage to the demised premises without the approval of the Lessor. Only persons authorized by the Lessor shall be permitted to deliver food or beverages to the demised premises.

10. The Lessee shall not permit any cooking in the demised premises without the written consent of the Lessor.

11. Any hand trucks, carryalls, or similar appliances used for the delivery of or receipt of merchandise or equipment shall be equipped with rubber tires, side guards and such other safeguards as Lessor shall require.

12. If any apparatus used or installed by Lessee requires a permit as a condition for installation, Lessee must file a copy of such permit with Lessor.

13. Lessee shall not place any additional locks upon any doors of the demised premises or the building without the written consent of the Lessor.

14. Lessee shall not install any blinds, curtains or drapes which would be exposed to view from the exterior of the building without the written consent of the Lessor.

15. No signs, advertisements or notice shall be inscribed, painted or applied on any part of the outside of the building whatever, or inside of the building unless of such colours, size and style and in such places, upon or in the building as shall be first designated by the Lessor, and the Lessee or ceasing to be a Lessee of the demised premises shall before leaving same, cause any sign as aforesaid to be removed or obliterated at its own expense, and in a workmanlike manner.

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16. The Directory boards provided by the Lessor and the space thereon allotted to the Lessee for directory listing shall be of such size and style as the Lessor shall decide. No name other than that of the Lessee hereunder shall be permitted on the Directory board without the express, prior written consent of the Lessor.

17. The Lessor reserves the right to promulgate, rescind, alter or waive any rules or regulations at any time prescribed for the building when it is necessary, desirable or proper for its best interest and in the opinion of the Lessor, for the best interest of the tenants.

18. The Lessee shall not drill into, or in any way deface the walls, ceilings, partitions, floors, wood, stone or ironwork. Boring, cutting or stringing of wires including telegraphic or telephonic connections, or pipes shall not be permitted, except with the prior written consent of the Lessor, and as it may direct.

19. No one shall use the demised premises or any part thereof for sleeping apartments.

20. The Lessee shall not operate or permit to be operated any musical or sound producing instrument or device inside or outside the demised premises which may be heard outside the demised premises. The Lessee will not install any radio or television antennae, loud-speakers, sound amplifiers or similar devices on the roof or exterior walls of the said building without the written consent of the Lessor.

21. No animal shall be allowed or kept in or about the building.

22. The Lessee shall make no change to the light fixtures, bulbs or tubes used in lighting the demised premises without the prior written consent of the Lessor.

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SCHEDULE "F"

LEASE OF PARKING SPACE

THIS INDENTURE MADE THIS_____ DAY OF AUGUST, A.D. 2000

BETWEEN

CAPITAL RESERVE CORPORATION, a body corporate having offices at the City of Calgary, in the Province of Alberta (hereinafter called "the Lessor")

- and -

CAPITAL RESERVE CANADA LIMITED (hereinafter called "the Lessee")

WITNESSETH, that the Lessor, for the consideration and subject to the conditions and stipulations hereinafter expressed, hereby leases unto the Lessee, and the Lessee hereby agrees to lease, for the purpose of parking * passenger car(s) of the Lessee, an area designated by the Lessor for the parking of the aforesaid passenger car(s), such area (hereinafter referred to as the "said parking space") to be, from time to time during the currency of this Lease, designated by the Lessor for the use of the Lessee at the building (hereinafter referred to as "the building") and legally described as:

- Lot 3, Block 3, Plan #9211584, Calgary

THIS lease is made subject to the following conditions, every one of which is of the essence of this Lease, and without any one of which the same would not have been made, namely:

1. The Lessee to have and hold the said parking space for a term commencing and ending on the same dates as its lease in the building dated the ____ day of August, 2000 (hereinafter called "the Lease").

2. The Lessee to pay rent unto the Lessor in the sum of NIL ($0.00) DOLLARS per month in advance of the first day of each and every month during the currency of this lease and payable to the Lessor at the offices of the Lessor in the City of Calgary, or at such other address as the Lessor may designate from time to time in writing. It is understood and agreed that the Lessor may increase the rent for the said parking space to market rent from time to time throughout the term of the lease by giving the Lessee thirty (30) days notice of such increase.

3. The Lessee shall not assign this Lease or sublet the said parking space to any other person or persons whatsoever without consent of the Lessor which consent may be arbitrarily withheld.

4. The Lessee further covenants with the Lessor that the said parking space will be used only for the purpose of parking standard passenger model cars and that any passenger car parked in the said parking space be kept in proper repair so that it will not leak excessive amounts of oil or grease and in no event shall a passenger car be parked in the said parking space which is leaking gasoline. In the event that the said parking space is at any time used other than for the purpose of parking as aforesaid, or in any way or manner objectionable to the Lessor, or in the event of non-payment of rent at the times and in the manner hereinbefore specified, or in case the said parking space shall be deserted or vacated, the Lessor, in addition to all other rights hereby reserved to it, shall have the right to enter the same as agent for the Lessee either by force or otherwise without any liability to the Lessor therefor and to relet the said parking space as agent for the Lessee and to receive t he rent therefor.

5. The Lessee herein indemnifies the Lessor against any loss or damage to the parking area fixtures, signs and improvements and any adjoining building or structures whether caused by the Lessee's employees, agents or otherwise.

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6. If for any reason the Lease is terminated, this lease of parking space shall automatically and simultaneously be terminated.

7. Notwithstanding the rental payable pursuant to this lease, the Lessee agrees that the Lessor shall be entitled to charge and recover property taxes, insurance and operating costs under the Lease incurred in respect of the maintenance of the parking area as a normal operating cost for a common area or facility of the Building.

8. The covenants, agreements and provisions of the Lease shall apply mutatis mutandis to this lease and provisions of same are incorporated herein by reference; PROVIDED HOWEVER, that this lease shall govern in the event of a conflict in provisions between the Lease and this lease.

IN WITNESS WHEREOF the Lessor and the Lessee have executed this Lease all as of the day and year first above written.

CAPITAL RESERVE CORPORATION (as Lessor)

Per: /s/ W. Scott Lawler

Per: ______________

CAPITAL RESERVE CANADA LIMITED (as Lessee)

Per: /s/ Dan Koyich

/s/ Bruce FrancisWitness

Per: ___________

_____________Witness

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SCHEDULE "G"

SPECIAL CLAUSES

USE

(a) The Lessee acknowledges and it is a condition of this lease that no change in the nature or character of the business carried on by the Lessee in or from the demised premises and no assignment of this lease and subletting, of the whole or any part of the demised premises will be permitted without the written consent of the Lessor, not to be unreasonably withheld (and if required by the Lessor the major Lessee's and the holders or the trustee for the holders of the long term debt financing for the building) notwithstanding any contrary provision of the Landlord and Tenant Act of the Province of Alberta the benefit of which is hereby waived by the Lessee.

(b) The Lessee acknowledges that its continued occupancy of the demised premises and the regular conduct of its business therein are of the utmost importance to the Lessor in avoiding the appearance and impression generally created by vacant space in commercial areas in facilitating the leasing of vacant space in the building, in the renewal of other leases in the building and in maintaining the character and quality of the building and of the Lessees in the building and that the Lessor will suffer substantial damage if the demised premises are left vacant or are vacated by the Lessee during the term of this lease even in the event the Lessee continues to pay rent as required hereunder. The Lessee therefore covenants that it will occupy and utilize the entire demised premises in the active conduct of its business during the whole of the lease term hereof and will conduct such business in a reputable, diligent and energetic manner.

(c) No auction, fire sale or bankruptcy sale, sale of second hand merchandise or discount type business or wholesaling may be conducted on the demised premises or advertised without the previous written consent of the Lessor.

OPTION TO RENEW

If the Lessee shall have promptly paid the rent when due hereunder, and shall have observed and performed the Lessee's covenants herein, and shall by writing to the Lessor six (6) months prior to the expiration of the current term, have given notice of its desire to have the term of this Lease renewed, the Lessee shall have the term of this Lease renewed for a period of FIVE (5) YEARS upon the conditions herein set forth, except the right to renew, and except as to the basic annual rent during the renewal term which shall be mutually agreed upon by the Lessor and the Lessee. In the event the Lessor and the Lessee fail to agree on the rental to apply for the renewal term ninety (90) days prior to the expiration of the initial term of this Lease, then either party may submit the determination of the rental to a board of three arbitrators being licensed real estate agents having a minimum of five (5) years experience in the leasing of similar projects, one of which arbitrators shall b e named by the Lessor, one of which arbitrators shall be named by the Lessee, the third arbitrator to be selected by the arbitrators named by the Lessor and the Lessee. The three arbitrators shall determine the rental for the renewal term with reference to the then current rental rates for similar premises in the City of Calgary but the basic annual rent during the renewal term of the Lease, shall not be less than that reserved during the primary term of this Lease, and the decision of the three arbitrators or a majority of them shall be binding on the Lessor and the Lessee. The provisions of the Alberta Arbitration Act shall apply and the costs of arbitration shall be borne equally by the Lessor and the Lessee. If either party shall neglect or refuse to name its arbitrator within three (3) weeks from the submission to arbitration in accordance with this clause, the arbitrator already named shall proceed and his award fixing the basic annual rental for the renewal term shall be final.

Page 30 of 30

EX-10

AMENDMENT TO LEASE

THIS AGREEMENT made as of the 7^th day of September, 2000.

BETWEEN:

CAPITAL RESERVE CORPORATION, a body corporate having a business office at the City of Calgary, in the Province of Alberta(hereinafter called the "Landlord")

OF THE FIRST PART

- and -

CAPITAL RESERVE CANADA LIMITED, a body corporate having an office at the City of Calgary in the Province of Alberta(hereinafter called the "Tenant")

OF THE SECOND PART

WHEREAS by a Lease Agreement DATED August, 2000 (hereinafter called the "Lease"), the Landlord did lease unto the Tenant those premises as described therein (hereinafter called the "Demised Premises");

AND WHEREAS the building in which the Leased Premises form a part was re-surveyed in August, 2000 resulting in a change in the Gross Rentable Area of the building and the Demised Premises;

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the mutual covenants and conditions contained herein and the sum of One ($1.00) Dollar paid by the Tenant to the Landlord, the sufficiency of which is hereby mutually agreed, the parties hereto covenant each with the other to amend the Lease as follows:

1. The Lease is hereby amended by deleting the words "Two Thousand Seven Hundred and Eighty Four Point Two (2,784.2)" on the last two (2) lines of the first (1^st) paragraph of clause one (1) of the Lease and substituting "Two Thousand Eight Hundred and Twenty One Point Seven (2,821.7)" in its' place.
2. The Lease is hereby amended by deleting the first (1^st) two (2) paragraphs of clause Four (4) (a) of the Lease and substituting the following in its' place:

- YIELDING AND PAYING therefor unto the Lessor in lawful money for each and every year during the term hereof without deduction, set-off or abatement, basic annual rental of Thirty Three Thousand Eight Hundred and Sixty Dollars and Forty Cents ($33,860.40). It is understood and agreed that the basic annual rental set forth above is based on the rate of Twelve ($12.00) Dollars per square foot per annum.

- On the first (1^st) day of each month during the term hereof, the Lessee will pay to the Lessor in advance the Basic monthly rent of Two Thousand Eight Hundred and Twenty One Dollars and Seventy Cents ($2,821.70), the first payment of such Basic monthly rent to be due and payable upon the commencement date.

Page 1 of 2

The amendment to the Lease as above written shall take effect as of the first (1^st) day of September, 2000.

Save and except as amended hereby, the Lease remains in full force and effect and is binding upon the parties hereto and their successors and permitted assigns.

IN WITNESS WHEREOF the parties hereto have duly executed this agreement by their proper Officers duly authorized in that regard all as of the day and year first above written.

CAPITAL RESERVE CORPORATION(Landlord)

Per: /s/ W. Scott Lawler

Per: ________________

CAPITAL RESERVE CANADA LIMITED(Tenant)

Per: /s/ James F. Marsh

Per: ________________

Page 2 of 2

EX-10

SECOND AMENDMENT TO LEASE

THIS AGREEMENT made as of the 30^th day of October, 2000.

BETWEEN:

CAPITAL RESERVE CORPORATION, a body corporate having a business office at the City of Calgary, in the Province of Alberta(hereinafter called the "Landlord")

OF THE FIRST PART

- and -

CAPITAL RESERVE CANADA LIMITED, a body corporate having an office at the City of Calgary in the Province of Alberta(hereinafter called the "Tenant")

OF THE SECOND PART

WHEREAS by a Lease Agreement DATED August, 2000 which was amended by Amendment to Lease dated the 7^th day of September, 2000 (hereinafter collectively called "the Lease"), the Landlord did lease unto the Tenant those premises as described therein (hereinafter called the "Demised Premises");

AND WHEREAS the Tenant wishes to extend the term of the Lease;

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the mutual covenants and conditions contained herein and the sum of One ($1.00) Dollar paid by the Tenant to the Landlord, the sufficiency of which is hereby mutually agreed, the parties hereto covenant each with the other to amend the Lease as follows:

1. The Lease is hereby amended by changing the Expiry Date on the cover page from August 31, 2005 to October 31, 2005.
2. The Lease is hereby amended by deleting the word "August" on line three (3) of clause two (2) and inserting the word "October" in its' place.
3. The Lease is hereby amended by adding the words "and two (2) months" between the words "years" and "commencing" on line one (1) of clause two (2) of the Lease.

The amendment to the Lease as above written shall take effect as of the thirtieth (30^th) day of October, 2000.

Save and except as amended hereby, the Lease remains in full force and effect and is binding upon the parties hereto and their successors and permitted assigns.

Page 1 of 2

IN WITNESS WHEREOF the parties hereto have duly executed this agreement by their proper Officers duly authorized in that regard all as of the day and year first above written.

CAPITAL RESERVE CORPORATION(Landlord)

Per: /s/ W. Scott Lawler

Per: ________________

CAPITAL RESERVE CANADA LIMITED(Tenant)

Per: /s/ Dan Koyich

Per: _____________

Page 2 of 2

EX-10

SUBLEASE AGREEMENT

THIS SUBLEASE is made as of the 30^th day of October, 2000.

BETWEEN:

CAPITAL RESERVE CANADA LIMITED, a body corporate having an office in the City of Calgary, in the Province of Alberta(hereinafter called the "Sublessor")

- and -

TJ / H2b ANALYTICAL SERVICES INC., a body corporate having an office in the City of Calgary, in the Province of Alberta(hereinafter called the "Sublessee")

WHEREAS by written Lease Agreement dated the 30^th day of August, 2000 which was amended by Amendments to Lease dated the 7^th day of September, 2000 and the 30^th day of October, 2000 (hereinafter collectively called the "Head Lease") between Capital Reserve Corporation and the Sublessor, the Sublessor leased a portion of the building located at 335 - 25^th Street S.E., Calgary, Alberta; and legally described as Lot 3, Block 3, Plan #9211584, Calgary Alberta (hereinafter referred to as the "Leased Premises");

AND WHEREAS by Offer to Lease dated October 26, 2000 the Sublessee has offered to sublease a portion of the Leased Premises from the Sublessor on the terms and conditions set out therein;

AND WHEREAS this Indenture constitutes a Sublease agreement between the parties hereto and it is the intent of the parties to this Sublease that it be a Net Sublease to the Sublessor except as expressly otherwise set out herein;

NOW THEREFORE in consideration of the mutual covenants hereinafter contained, and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged) the parties hereto covenant and agree as follows:

1. RECITALS

The above recitals are true and shall form an integral part of this agreement.

2. PREMISES

Sublessor subleases to Sublessee, TJ / H2b Analytical Services Inc., Calgary, Alberta those premises comprising Two Thousand Four Hundred and Nine (2,409) rentable square feet, as outlined in red on the floor plan attached hereto as Schedule "A" (the "Sub-leased Premises") on the terms and conditions outlined herein.

3. TERM

3.1 Sublessee subleases the Sub-leased Premises for a term ("Term") of Five (5) years commencing the first (1^st) day of November, 2000 (the "Commencement Date") and expiring on the thirty-first (31^st) day of October, 2005.

Page 1 of 13

3.2 Provided the Sublessee pays the Basic Rent and Additional Rent as and when due and punctually observes and performs all of the applicable terms, covenants and conditions contained in the Head Lease, the Sublessee shall have the option to renew this Sublease for a further period of Five (5) Years upon written Notice to the Sublesssor at least Six (6) Months prior to the expiration of the original Term on the same terms and conditions as this Sublease except for this Option to Renew and the Basic Rent for the renewal period which shall be not more than ten (10%) percent of the last Basic Rent agreed to by the Sublessor and Sublessee. If the Sublessee and Sublessor are unable to agree on the Basic Rent, the same shall be decided by arbitration pursuant to the Arbitration Act S.A. 1991 (c) A-43.1 (as amended). In the event that this option is not exercised in accordance with the foregoing, this option shall be null and void.

3.3 The Sublessee shall be permitted access upon the occurrence of the following:

a) the Sublessee's execution and delivery of this sublease agreement to the Sublessor;

b) approval of this agreement by the Sublessor;

c) consent to this agreement by the Lessor; and

d) Sublessee's delivery to Sublessor and Lessor of a certificate of insurance evidencing the Sublessee's placement of insurance in respect of the Sub-leased Premises in accordance with the provisions of clause five (5) hereof.

3.4 The Sublessee shall not carry out any alterations to the Sub-leased Premises or do any leasehold improvements until the Lessor has approved the plans and specifications for same in writing in accordance with the Head Lease.

3.5 Sublessee's use and occupation of the Sub-leased Premises shall be in accordance with the applicable terms of the Head Lease, a true copy of which is attached hereto as Schedule "F" and forms a part hereof.

4. RENT

During the Term, Sublessee shall pay Rent as per Schedule "C" attached hereto ("Rent") and such Rent shall be payable in equal monthly instalments on the first (1^st) day of each month by Sublessee to the Sublessor in advance without deduction.

5. INSURANCE

Sublessee shall take out and keep in force such insurance coverage as is provided in the Head Lease unless the Sublessor and the Sublessee agree in writing to alternate coverage.

6. EXISTING IMPROVEMENTS

Sublessee shall sublease the Sub-leased Premises on an "as is" basis except as provided for in Schedule "B" attached hereto. 

Page 2 of 13

7. CONSTRUCTION LIENS

Upon the Sublessee taking possession of the Sub-leased Premises and thereafter throughout the Term should a builders lien, caveat, or charge become registered against the title as described in the Head Lease in connection with work undertaken on behalf of the Sublessee, the Sublessee shall promptly secure the removal of same by way of payment of said encumbrance and the cost associated with its removal.

8. USE OF SUB-LEASED PREMISES

The Premises shall be used for the purpose of Laboratory Services and shall be operated continuously throughout the Term by the Sublessee under the operating name of TJ/H2b Analytical Services Inc.

9. NOTICE

Any notice herein required to be given by either party to the other shall be sufficiently given if delivered or if sent by first class mail, postage prepaid or if sent by facsimile, as follows:

-	Sublessor:Capital Reserve Canada Limited335 - 25th Street S.E.Calgary, Alberta T2A 7H8Facsimile: (403) 290-1257Attention: Kelly Warrack
-	Sublessee:TJ/H2b Analytical Services Inc.335 - 25th Street S.E.Calgary, Alberta T2A 7H8Facsimile: (403)
	Either party may change its address for notice by delivery of a notice to that effect to the other party.

10. DEPOSIT

It is acknowledged that a cheque in the sum of Eight Thousand and Ninety Eight Dollars and Twenty-Eight Cents ($8,098.28) including GST was delivered by the Sublessee as a non-refundable deposit made out to Re/Max House of Real Estate in Trust and to be held as security for the performance by the Sublessee of its obligations hereunder and to be applied in whole or partial satisfaction of any liability of the Sublessee to the Sublessor under this Sublease, and if not so applied on account of the first one (1) month and last one (1) month's rent accruing under this Sublease, but to be returned to the Sublessee if this Sublease is not accepted. In the event this Sublease is accepted by the Sublessor and the Lessor and the Sublessee thereafter fails to executed this Sublease, or otherwise fails to comply with the provisions hereof, such deposit will be retained by the Sublessor in partial payment for its expenses. Such retention shall not limit or preclude the Sublessor's right fo action for damages for b reach of the provisions hereof, and the Sublessor may, upon such failure by the Sublessee declare this Sublease terminated.

Page 3 of 13

11. SIGNAGE

The Sublessee shall be entitled to and be bound by the signage provisions as are set forth in the Head Lease.

12. ATTACHMENTS

The Schedules referred to in this Sublease and attached hereto are deemed to be incorporated herein and include the following:

- Schedule "A" Building Floor Plan outlining in red the Sub-leased Premises

- Schedule "A1" Lab Space and Agreed Rentable Area

- Schedule "B" Sublessor's Work and Sublessee's Work

- Schedule "B1" Common Entrance Plan

- Schedule "C" Basic Annual Rent and Proportionate Share

- Schedule "D" Lessor's Consent

- Schedule "E" Special Conditions

- Schedule "F" Head Lease

13. DEFINITIONS

The definitions set forth in the Head Lease shall apply to this Sublease.

14. TIME OF ESSENCE

Time shall be of the essence of this Sublease.

15. GOODS AND SERVICES TAX

Unless otherwise noted, amounts quoted on this Sublease do not include Goods and Services Tax ("GST"). The Sublessee and the Sublessor agree to pay all applicable GST at the same time and place as any other payments due hereunder.

16. CONDITIONS

Both parties acknowledge that this Sublease is conditional upon the following:

a) Sublessor's Conditions

i) Consent by the Lessor to sublease the Sub-leased Premises as attached hereto as Schedule "D".

ii) Approval by the Sublessor of the Sublessee's financial status. The Sublessee agrees to provide the Sublessor with credit references and such other financial information relating to the Sublessee as the Sublessor may request and the Sublessee consents to the Sublessor making such inquiries as it deems necessary to satisfy this condition.

Unless otherwise stated, if written notice waving the above conditions is not received by the respective party within the time period stipulated, this Sublease shall be null and void and of no further force or effect.

Page 4 of 13

17. ENTIRE AGREEMENT

It is understood and agreed that neither the Sublessor nor its agents have made any covenants, representations, agreements, warranties or conditions in any way relating to the subject matter of this Sublease, whether expressed or implied, collateral or otherwise, either oral or written, except for those set forth in this Sublease. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Sublease shall be binding upon the Sublessor the Sublessee unless reduced to writing and signed by each of them. This Sublease shall be governed by and construed in accordance with the laws of the Province of Alberta.

18.

The Sublessee shall perform, observe, keep and comply with each and every covenant, proviso, condition, agreement and obligation imposed upon the Sublessor pursuant to the Head Lease to the same extent as though the Sublessee was the original Lessee thereof except that all monies payable thereunder as rent or otherwise shall be paid to the Lessor by the Sublessor.

19. ACCEPTANCE

Sublessee does hereby accept this Sublease of the above-described interest in the Building to be held by it as Sublessee subject to the conditions, restrictions, and covenants above set forth.

IN WITNESS WHEREOF the parties hereto have affixed their respective corporate seals, if available, duly attested by the hands of their respective authorized officers in that regard as of the date first above written.

	CAPITAL RESERVE CANADA LIMITED (Sublessor)
/s/ Bruce FrancisWitness	Per: /s/ Dan Koyich Per: ____________
	TJ / H2b ANALYTICAL SERVICES INC. (Sublessee)
/s/ Bruce FrancisWitness	Per: /s/ Sudhir Kumar Per: ______________

Page 5 of 13

SCHEDULE "A"

BUILDING FLOOR PLAN

Page 6 of 13

SCHEDULE "A1"

LAB SPACE AND AGREED RENTABLE AREA

Page 7 of 13

SCHEDULE "B"

SUBLESSOR'S WORK AND SUBLESSEE'S WORK

The Sub-Leased Premises shall be constructed in accordance with this Schedule "B". The Sublessor shall at its expense be responsible only for the work described as "Sublessor's Work" and the Sublessee shall at its sole expense be responsible for all work required by the Sublessee or necessary to complete Sub-Leased Premises for occupancy, including the work described as "Sublessee's Work" in this Schedule "B". All such work shall be designed, approved, performed and completed in strict compliance with the provisions of both Schedule "B" and "B1" and any design criteria provided by the Sublessor to the Sublessee.

SUBLESSOR'S WORK

1. The Sublessor will complete the following improvements to the Sub-Leased Premises at the sole cost of the Sublessor:

1. Ensure the electrical, heating, air conditioning, plumbing and mechanical systems are in satisfactory working order.
2. Install a common area entrance as discussed and shown on Schedule "B1" attached hereto.

SUBLESSEE'S WORK

1. The Sublessee will complete the following improvements to the Sub-Leased Premises at the sole cost of the Sublessee:

1. Remove wall between two (2) offices.
2. Remove counters in both offices.
3. Remove one (1) large counter in reception area to be replaced by smaller reception counter.
4. Walls in reception area as to Sublessee's requirements.
5. Place a window over small counter in reception.
6. Place one (1) man door in reception area.

Page 8 of 13

SCHEDULE "B1"

COMMON ENTRANCE PLAN

Page 9 of 13

SCHEDULE "C"

BASIC ANNUAL RENT

FROM	TO	AREA(sq.ft.)	$/SQ.FT./YR.	PER MONTH	PER ANNUM
November 1, 2000	October 31, 2003	2,409	$16.00	$3,212.00	$38,544.00
November 1, 2003	October 31, 2005	2,409	$18.00	$3,613.50	$43,362.00

Excludes G.S.T.

PROPORTIONATE SHARE OF OPERATING COSTS AND PROPERTY TAXES

During the Term of this Sublease and renewals thereof the Sublessee shall pay to the Sublessor the Sublessee's proportionate share of Operating and Maintenance Costs and Property Taxes all as defined in the Head Lease. It is understood and agreed that these costs are estimated at Six Dollars and Ten Cents ($6.10) per rentable square foot for the year 2000 resulting in a monthly payment in 2000 of One Thousand Two Hundred and Twenty Four Dollars and Sixty Cents ($1,224.60) (plus GST).

It is further understood and agreed that janitorial and all other costs due under this Sublease are the responsibility of the Sublessee and are in addition to the Basic Annual Rent and the Sublessee's proportionate share of costs as described above.

Page 10 of 13

SCHEDULE "D"

LESSOR'S CONSENT

The Lessor hereby consents to the within Sublease to the Sublessee as written and, save as aforementioned, the covenants in the Head Lease prohibiting assignment or subleasing without the Lessor's written consent thereto shall remain full force and effect. It is further understood that this consent does not release the Sublessor from any of its obligations under the Lease.

DATED the 30^th day of November, 2000.

CAPITAL RESERVE CORPORATION (Lessor) 

Per: /s/ W. Scott Lawler

Page 11 of 13

SCHEDULE "E"

SPECIAL CONDITIONS

1. Sublessee would have access to the boardrooms for five (5) days in a year for their business meetings. The bookings for the boardroom will be made in advance.
2. Possession of the space will be made available on or before November 1, 2000 or on signing of the Sublease.
3. Sublessor and Sublessee have agreed to provide or share a common storage area for oil drums and other materials.
4. The Sublessor acknowledges receipt of the Environmental Audit Requirements Form attached as Schedule "D" to the Offer to Lease dated October 26, 2000 and relies on the contents thereof as provided by the Sublessee.
5. The Sublessee covenants and agrees it will not register this Sub-lease in the Land Titles Office but it shall be entitled to register a caveat in respect thereof at its sole cost and expense, provided however, in the event the Lessor requires such caveat to be registered in priority to any mortgage, trust deed or trust indenture which may now or at any time hereafter affect in whole or in part the demised premises or the lands, then the Sublessee shall execute promptly any certificate or other instrument which may from time to time be requested by the Lessor to give effect to the provisions of this Paragraph.
6. It is understood and agreed that the Lessor agrees to the Sublessor providing sufficient parking stalls to the Sublessee during the Term of this Sublease at no charge to the Sublessee.

Page 12 of 13

Landlord's Consent

So long as the Sub-Tenant is not in default in the performance of any of the terms, covenants or conditions of the Sublease on the Sub-Tenant's part to be performed (beyond any period given the Sub-Tenant to cure such default pursuant to the Sublease), the Head Landlord agrees with the Sub-Tenant that the Sub-Tenant's possession of the Subleased Premises and the Sub-Tenant's right and privileges under the Sublease (and those rights and privileges derived from under the Lease), or any extensions or renewals thereof, shall not be diminished or interfered with by the Head Landlord, and the Sub-Tenant's occupancy of the Subleased Premises shall not be disturbed by the Head Landlord for any reason whatsoever during the term of the Sublease, including any such extensions or renewals thereof. In the event of default under or termination of the Head Lease, Sub-Tenant on receipt of written notice from the Head Landlord to the Sub-Tenant of the same, shall pay all monies under the Sublease to the Head Landlord instead of the Sub Landlord and, will enter into a new Lease Agreement with the Head Landlord on equivalent terms to the Sublease.

CAPITAL RESERVE CORPORATION

Per: /s/ W. Scott Lawler

Per: _______________

CAPITAL RESERVE CORPORATION

Per: /s/ Dan Koyich

Per: ___________

TJ/H2b ANALYTICAL SERVICES INC.

Per: /s/ Sudhir Kumar

Per: _____________

SCHEDULE "F"

HEAD LEASE

Page 13 of 13

EX-10

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT (this "Sublease") is made as of the 3^rd day of January, 2003.

BETWEEN:

CAPITAL RESERVE CANADA LIMITED, a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Sublessor")

-and-

CANADA CHEMICAL CORPORATION, a body corporate having an office in the City of Calgary, in the Province of Alberta(hereinafter called the "Sublessee")

WHEREAS by written Lease Agreement dated the 30^th day of August, 2000 which was amended by Amendment to Lease dated the 7^th day of September, 2000 (hereinafter collectively called the "Head Lease") between Capital Reserve Corporation (now Fact Corporation) and the Sublessor, the Sublessor leased a portion of the building loczated at 335-25^th Street S.E., Calgary, Alberta; and legally described as Lot 3, Block 3, Plan #9211584, Calgary, Alberta (hereinafter referred to as the "Leased Premises");

AND WHEREAS the Sublessee has offered to sublease a portion of the Leased Premises from the Sublessor on the terms and conditions set out herein;

AND WHEREAS this Indenture constitutes a Sublease Agreement (the "Agreement") between the parties hereto and it is the intent of the parties to this Sublease that it be a Net Sublease to the Sublessor except as expressly otherwise set out herein;

NOW THEREFORE in consideration of the mutual covenants hereinafter contained, and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged) the parties hereto covenant and agree as follows:

1. RECITALS

The above recitals are true and shall form an integral part of this Agreement.

2. PREMISES

Sublessor subleases to Sublessee those premises comprising Seven Hundred and Twenty-Seven point Twenty Seven (727.27) rentable square feet, as outlined in red on the floor plan attached hereto as Schedule "A" (the "Sub-leased Premises") on the terms and conditions outlined herein.

1 

3. TERM

3.1 Sublessee subleases the Sub-Leased Premises for a term of Twelve (12) months commencing the 1^st day of January, 2003, (the "Commencement Date") and expiring on the 31^st day of December, 2003.

3.2 Provided the Sublessee pays the Basic Rent and Additional Rent as and when due and punctually observes and performs all of the applicable terms, covenants and conditions contained in the Head Lease, the Sublessee shall have the option to renew this Sublease for a further period of One (1) Year upon written Notice to the Sublessor at least Three (3) Months prior to the expiration of the original Term on the same terms and conditions as this Sublease except for this Option to Renew and the Basic Rent for the renewal period which shall be not more than ten (10%) percent of the last Basic Rent agreed to by the Sublessor and Sublessee. If the Sublessee and Sublessor are unable to agree on the Basic Rent, the same shall be decided by arbitration pursuant to the Arbitration Act S.A. 1991 (c) A-43.1 (as amended). In the event that this option is not exercised in accordance with the foregoing, this option shall be null and void.

3.3 The Sublessee shall be permitted access upon the occurrence of the following:

a) the Sublessee's execution and delivery of this Agreement to the Sublessor;

b) approval of this Agreement by the Sublessor;

c) consent to this Agreement by the Lessor; and

d) Sublessee's delivery to Sublessor and Lessor of a certificate of insurance evidencing the Sublessee's placement of insurance in respect of the Sub-leased Premises in accordance with the provision of clause five (5) hereof.

3.4 The Sublessee shall not carry out any alterations to the Sub-leased Premises or do any leasehold improvements until the Lessor has approved the plans and specifications for same in writing in accordance with the Head Lease.

3.5 Sublessee's use and occupation of the Sub-leased Premises shall be in accordance with the applicable terms of the Head Lease, a true copy of which is attached hereto as Schedule "F" and forms a part hereof.

2

4. RENT

During the Term, Sublessee shall pay Rent as per Schedule "B" attached hereto ("Rent") and such Rent shall be payable in equal monthly instalments on the first (1^st) day of each month by Sublessee to the Sublessor in advance without deduction.

5. INSURANCE

Sublessee shall take out and keep in force such insurance coverage as is provided in the Head Lease unless the Sublessor and the Sublessee agree in writing to alternate coverage.

6. EXISTING INPROVEMENTS

Sublessee shall sublease the Sub-leased Premises on an "as is" basis.

7. USE OF SUB-LEASED PREMISES

The Premises shall be used for the purpose of Laboratory Services and shall be operated continuously throughout the Term by the Sublessee under the operating name of Canada Chemical Corporation.

8. NOTICE

Any notice herein required to be given by either party to the other shall be sufficiently given if delivered or if sent by first class mail, postage prepaid or if sent by facsimile, as follows:

- Sublessor:

Capital Reserve Canada Limited1530-9^th Ave S.E.Calgary, Alberta T2A 7H8Facsimile: (403) 272-3620Attention: W. Scott Lawler

- Sublessee:

Canada Chemical Corporation335-25^th St S.E.Calgary, Alberta T2A 7H8Facsimile: (403)Attention: Conrad Ayasse

3

Either party may change it address for notice by delivery of a notice to that effect to the other party.

9. SIGNAGE

The Sublessee shall be entitled to and be bound by the signage provisions as are set forth in the Head Lease.

10. ATTACHMENTS

The Schedules referred in this Sublease and attached hereto are deemed to be incorporated herein and include the following:

- Schedule "A" Building Floor Plan outlining in red the Sub-leased Premises- Schedule "A1" Lab Space and Agreed Rentable Area- Schedule "B" Basic Annual Rent and Proportionate Share- Schedule "C" Lessor's Consent - Schedule "D" Special Conditions- Schedule "E" Head Lease 

11. DEFINITIONS

The definitions set forth in the Head Lease shall apply to this Sublease.

12. TIME OF ESSENCE

Time shall be of the essence of this Sublease.

13. GOODS AND SERVICES TAX

Unless otherwise noted, amounts quoted on this Sublease do not include Goods and Services Tax ("GST"). The Sublessee and the Sublessor agree to pay all applicable GST at the same time and place as any other payments due hereunder.

14. CONDITIONS

Both parties acknowledge that this Sublease is conditional upon the following:

1. Sublessor's Conditions
1. Consent by the Lessor to subleas the Sub-leased Premises as attached hereto as Schedule "C"
2. Approval by the Sublessor of the Sublessee's financial status. The Sublessee agrees to provide the Sublessor with credit references and such other financial information relating to the Sublessee as the Sublessor may request and the Sublessee consents to the Sublessor making such inquiries as it deems necessary to satisfy this condition.

4

Unless otherwise stated, if written notice waiving the above conditions is not received by the respective party within the time period stipulated, this Sublease shall be null and void and of no further force and effect.

15. ENTIRE AGREEMENT

It is understood and agreed that neither the Sublessor nor its agents have made any covenants, representations, agreements, warranties or condition in any way relating to the subject matter of this Sublease, whether expressed or implied, collateral or otherwise provided, no subsequent alteration, amendment, change or addition to this Sublease shall be binding upon the Sublessor or the Sublessee unless reduced to writing and signed by each of them. This Sublease shall be governed and construed in accordance with the laws of the Province of Alberta.

16. COVENANT OF SUBLESSEE

The Sublessee shall perform, observe, keep and comply with each and every covenant, proviso, condition, agreement and obligation imposed upon the Sublessor pursuant to the Head Lease to the same extent as though the Sublessee was the original Lessee thereof except that all monies payable thereunder as rent or otherwise shall be paid to the Lessor by the Sublessor.

17. ACCEPTANCE

Sublessee does hereby accept this Sublease of the above-described interest in the Building to be held by it as Sublessee subject to the conditions, restrictions, and covenants above set forth.

IN WITNESS WHEREOF the parties hereto have affixed their respective corporate seals, if available, duly attested by the hand of their respective authorized officers in that regard as of the date first above written.

	CAPITAL RESERVE CANADA LIMITED(Sublessor)
/s/ Megan PowellWitness	Per: /s/ Jacqueline Danforth
	Per: /s/ W. Scott Lawler

5

	CANADA CHEMICAL CORPORATION(Sublessee)
/s/ Dan KoyichWitness	Per: /s/ Conrad Ayasse Per: _____________

6

SCHEDULE "A"

BUILDING FLOOR PLAN

  [Graphic of Floor Plan]

 7 

SCHEDULE "A1"

LAB SPACE AND AGREED RENTABLE AREA

  [Graphic of Lease Space]

Common Area: Washrooms 12.45 Sq Ft. and Entrance Use: 60.42 Sq. Ft

Total Rentable Area: 727.27 Sq. Ft.

8 

SCHEDULE "B"

BASIC ANNUAL RENT

FROM	TO	AREA(sq. ft.)	$/SQ.FT./YR.	PERMONTH	PERPERIOD
January 1, 2003	October 31, 2003	727.27	$12.00	$727.27	$7,272.70
November 1, 2003	December 31, 2003	727.27	$14.00	$848.48	$1,696.96

Excludes GST

PROPORTIONATE SHARE OF OPERATING COSTS AND PROPERTY TAXES

During the Term of this Sublease and renewals thereof the Sublessee shall pay to the Sublessor the Sublessee's proportionate share of Operating and Maintenance Costs and Property Taxes all as defined in the Head Lease. It is understood and agreed that these costs are estimated at Eight Dollars and Sixty-Eight Cents ($8.68) per rentable square foot for the year 2003 resulting in a monthly payment in 2003 of Five Hundred and Twenty-Six Dollars and Six Cents ($526.06) (plus GST).

It is further understood and agreed that janitorial and all other costs due under this Sublease are the responsibility of the Sublessee and are in addition to the Basic Annual Rent and the Sublessee's proportionate share of costs as described above. 

EQUIPMENT RENTAL COSTS

During the term of this Sublease and renewals thereof the Sublessee shall pay to the Sublessor the amount of $242.42 per month plus GST for the rental of the laboratory equipment in the Sub-lease Premises.

9 

SCHEDULE "C"

LESSOR'S CONSENT 

The Lessor hereby consents to the within Sublease to the Sublessee as written and, save as aforementioned, the covenants in the Head Lease prohibiting assignment or subleasing without the Lessor's written consent thereto shall remain in full force and effect. It is further understood that this consent does not release the Sublessor from any of its obligations under the Lease.

DATED the 3^rd day of January, 2003.

FACT CORPORATION(Lessor) 

Per: Jacqueline Danforth

10

SCHEDULE "D"

SPECIAL CONDITIONS

1. The Sublessee covenants and agrees it will not register this Sub-lease in the Land Titles Office but it shall be entitled to register a caveat in respect thereof at its sole cost and expense, provided however, in the event the Lessor requires such caveat to be registered in priority to any mortgage, trust deed or trust indenture which may now or at any time hereafter affect in whole or in part the demised premises or the lands, then the Sublessee shall execute promptly any certificate or other instrument which may from time to time be requested by the Lessor to give effect to the provisions of this Paragraph.
2. It is understood and agreed that the Lessor agrees to the Sublessor providing one parking stall to the Sublessee during the Term of this Sublease at no charge to the Sublessee.

11 

SCHEDULE "E"

HEAD LEASE

 12

EX-10

Phone (403) 974-5770Fax (403) 974-5784 OIL & GAS DEPARTMENT2nd Floor, 239-8th Avenue SWCalgary, Alberta T2P 1B9

September 24, 2001 

Capital Reserve Canada Limited1528B-9 Avenue SWCalgary, ABT2G 0T7

Attn: James F. Marsh, President

Dear Sirs:

Alberta Treasury Branches has approved and offers financial assistance on the terms and conditions in the attached Outline of Credit.

You may accept our offer by returning the enclosed duplicate of this letter, signed as indicated below, by 4:00 p.m. on or before September 28, 2001 or our offer will automatically expire. We reserve the right to cancel our offer at any time prior to acceptance.

Yours truly,	Yours truly,
/s/ Phil BurnhamPhil BurnhamRelationship Manager/fg	/s/ Brad HaackBrad HaackAccount Manager

Encl.

Accepted this 27th day of September, 2001

CAPITAL RESERVE CANADA LIMITED

Per: /s/ W. Scott Lawler

Per: /s/ James F. Marsh

OUTLINE OF CREDIT

LENDER: ALBERTA TREASURY BRANCHES

BORROWER: CAPITAL RESERVE CANADA LIMITED

GUARANTOR(S): N/A

A) DETAILS OF CREDIT FACILITIES:

Specific Variable Rate Loan Facility $300,000.00

1. Funds previously used to finance general operating of Borrower which included acquisition of oil and gas properties and the development of oil and gas properties; loan now on a repayment basis.
2. Interest calculated on daily outstanding principal at 1% above Prime will be payable on the last day of each month

In addition to interest, principal payment of $10,000 per month, will be payable on the last day of each month commencing September 30, 2001

3. Lender is authorized to charge monthly payments to Borrower's account 760-1139932-24
4. This loan is subject to periodic (and at least annual) review. Next scheduled review date is May 31, 2002
5. This loan will expire and all outstanding amounts under it will be payable in full on the earlier of demand by Lender or May 31, 2002

B. SECURITY DOCUMENTS:

1. The security documents (whether now held or hereafter delivered) will secure all Credit Facilities unless and until otherwise agreed in writing by Lender.
2. The following security is required:

1. Environmental Questionnaire & Disclosure Statement;
2. Authority to Debit account
3. All other security deemed necessary by ATB or it's solicitor 

2

C. FEES:

1. Non-refundable commitment fee of $1,500 is payable on acceptance of this offer
2. Any amount in excess of established credit facilities will be subject to a fee of 1% of such excess for each minimum 30 day period, where ATB in its discretion permits excess borrowings, if any.
3. For monthly or quarterly reports or statements not received within the stipulated periods, the Borrower will be subject to a fee of $50 per month, per report or statement at the lender's discretion, for each late reporting occurrence.
4. For annual reports or statements not received within the stipulated periods, the Borrower will be subject to a fee of $250 per month at the lender's discretion, per report or statement, for each late reporting occurrence.

D. COVENANTS:

Borrower will perform and observe the Positive and Negative Covenants set forth in Schedule "A" attached hereto. Guarantors (if any) will perform and observe the covenants in Schedule "A" under 1(c), (f), (h), (i), and (l), and 2(e), and (l). In addition, Borrower and each of the Guarantors (if any) covenants that they will perform and observe the following covenants, namely:

1. Borrower will provide to Lender as soon as possible and in any event:

1. annually within 90 days after the end of its fiscal years, an engineering report, in an economic evaluation format, of Borrower's major oil and gas interest, prepared by a firm acceptable to Lender and using Lender's pricing forecasts;
2. within 90 days after the end of each month, monthly production and revenue reports (operator statements or government "S" reports or internally generated area-by-area summaries supported by an Officer's Certificate) which will clearly indicate gross and/or net oil and gas production volumes, gross revenues, royalties and other burdens, operating costs, etc; and
3. ongoing and at least annually at the review date, details of all gas contracts having a term of 13 months or longer.

2. Borrower will not, without the prior written consent of Lender, breach the following restrictions:

1. working capital ratio (as defined by GAAP with the exception that current liabilities will exclude the current portion of long term debt) not less than 1:1;
2. debt to equity ratio not to exceed 2:1.

3

E. CONDITIONS PRECEDENT:

None of the Credit Facilities will be available and the availability of further advances on any of the loans will be curtailed until the following conditions precedent have been satisfied, unless waived by Lender:

1. Lender has received all Security Documents and all registrations and filings have been completed, in all cases in form and substance satisfactory to Lender except at provincial energy departments which may be registered after loan advance;
2. Borrower has provided all financial statements, appraisals, environmental reports and any other information that Lender may require;
3. Lender is satisfied as to the value of the Borrower's assets and financial condition, and Borrower's ability to carry on business and repay any amount owned to Lender from time to time, and that no Event of Default exists; and
4. There is no Event of Default. 

F. EVENTS OF DEFAULT:

Without restricting the rights of Lender to terminate any Credit Facility and to demand payment in full at any time, if any of the "Events of Default" in the attached Schedule "A" occurs and is continuing, Lender may at its option, by notice to Borrower, terminate any or all of the Credit Facilities hereunder and demand immediate payment in full of all or any part of the amounts owed by Borrower. Failing such immediate payment, Lender may, without further notice, realize under the Security Documents to the extent Lender chooses.

It will be an Event of Default if control of Borrower ceases to be vested either directly or indirectly in Capital Reserve Corporation. In the foregoing "control" means the right to elect a majority of the Board of Directors of Borrower.  

G. MISCELLANEOUS:

1. all legal and other costs and expenses incurred by Lender in respect of the Credit Facilities, the Security Documents and other related matters will be paid or reimbursed by Borrower on demand by Lender.
2. all security documents will be prepared by or under the supervision of Lender's solicitors.
3. acceptance of this offer will authorized Lender to instruct its solicitors to prepare all necessary security documents and proceed with related matters.  

4

G. MISCELLANEOUS (continued):

4. Lender, without restriction, may waive the satisfaction, observance or performance of any of the Conditions or Covenants contained in this Outline of Credit. Except to the extent that such waiver relates to an obligation of a Guarantor, the obligations of Guarantors (if any) will not be diminished, discharged or otherwise affect by or as a result of any such waiver.
5. Acceptance of this Commitment Letter will confirm that to the best of the Borrower's knowledge, the Corporation is currently in compliance with environmental laws and that there is no existing impairment to the properties as a result of environmental damage.

5

SCHEDULE "A'CONTAINING STANDARD COVENANTS, EVENTS OF DEFAULTAND INTERPRETATION PROVISIONS

1. Positive Covenants:

Borrower and Guarantor or each of the Guarantors to the extent required under the outline of Credit to which this Schedule is attached, covenants with Lender that so long as it is indebted or otherwise obligated to Lender, it will:

1. pay to Lender when due all amounts (whether principal, interest or other sums) owing by it to Lender from time to time;
2. execute and deliver to Lender promissory notes or other evidence of indebtedness, in such form and at such times, as Lender may require;
3. deliver to Lender the Security Documents, in all cases in form and substance satisfactory to Lender;
4. ensure the Guarantor complies with all notice requirements at the times and in the manner as required under Section 42 of the Business Corporations Act (Alberta)
5. use the proceeds of loans only for the purposes approved by Lender;
6. maintain its separate corporate existence and all licences and authorizations required from regulatory or governmental authorities or agencies to permit it to carry on its business, including, without limitation, any licences, certificates, permits and consents for the protection of the environment;
7. maintain appropriate books of account, records, reports and other papers relative to the operation of the business' affairs and financial conditions;
8. continuously carry on and conduct its business in a proper, efficient and businesslike manner;
9. maintain appropriate types and amounts of insurance, provide evidence of insurance to Lender on request and promptly advise Lender in writing of any significant loss or damage to its property;
10. maintain, repair and keep in good working order and condition all of its property and assets for continuous operation of its business;
11. pay when due all material amounts owed to any person and governmental authority unless payment is being disputed by it in good faith or is being withheld for prudent business reasons other than inability to make payment, and it will observe and perform its obligations to all persons and governmental authorities;
12. permit Lender, by its officers or authorized representatives at any reasonable time, to enter Borrower's premises and to inspect it's plant, machinery, equipment and other real and personal property and their operation, and to examine and copy all relevant books of accounts, records, reports and other papers of Borrower;

6

1. Positive Covenants (Cont'd):

13. provide to Lender as soon as possible and in any event;

i) within 120 days after the end of each of its fiscal years, financial statements on a minimum review engagement basis prepared by a firm of qualified accountants, and signed by appropriate officers of Borrower. Lender reserves the right to require audited financial statements; and

ii) within 60 days following the end of each quarter, internally produced financial statements for that quarter;

14. provide to Lender on request any further information regarding its assets, operations and financial condition that Lender may from time to time require;
15. pay and remit all sums when due to tax and other governmental authorities (including, without limitation, any sums in respect of employees) and provide proof to Lender upon request;
16. upon request, provide Lender with such information and documentation as Lender may reasonably require from time to time in respect of the collection and payment of G.S.T. including, without limitation, information concerning the amount of taxable supplies, G.S.T. collected, input tax credits received and G.S.T. paid during each year of Borrower's operations;
17. upon request, Borrower will forward to Lender copy of any G.S.T. election forms filed with Revenue Canada Taxation;
18. Borrower will advise Lender of any transfer or exchange of assets with a related party where no funds are exchanged (ie. nil consideration);
19. promptly advise Lender in writing, giving reasonable details, of each event which has or is reasonably likely to have a material adverse effect on its business, affairs or financial condition; and

7 

2. Negative Covenants:

Borrower and Guarantors or each of the Guarantors to the extent required under the Outline of Credit to which this Schedule is attached, covenants with Lender that while it is indebted or otherwise obligated to Lender, it will not, without the prior written consent of Lender:

1. create or permit to exist any mortgage, charge, lien, encumbrance or other security interest on any of its present of future assets except the permitted encumbrances (if any) identified in the Outline of Credit. Permitted encumbrances will include encumbrances incurred through the normal course of business such as overriding royalties and Crown Royalties that have been advised to Lender through engineering reports and other means;
2. amalgamate, consolidate, or merge with or enter into any partnership or joint venture with any other person. Partnerships and joint ventures that are entered into in the normal course of business for the development of oil and gas properties and are advised to Lender through engineering reports before loan values are established on those properties, will be permitted without further reference to Lender;
3. sell, lease or otherwise dispose of any assets except assets being sold in the ordinary course of business including farm-ins used for the development of undeveloped properties which will be permitted;
4. move any of its assets or allow any of its assets to be moved outside the Provinces of Alberta, Saskatchewan, British Columbia or Manitoba;
5. change the present nature of its business;
6. operate accounts with, take loans from, or otherwise conduct any banking business with any financial institution other than Lender;
7. reduce its capital or redeem, purchase or otherwise acquire, retire or pay off any of its present or future share capital;
8. pay unusual sum(s) to or for the benefit of shareholders or persons associated with shareholders (within the meaning of the Business Corporations Act of Alberta) by way of salaries, bonuses, dividends, management fees, repayment of loans or otherwise, in excess of the amount for any fiscal year approved by Lender;
9. permit its working capital ratio (as determined by Lender in accordance with generally accepted accounting practices) to fall below the level approved by Lender;
10. permit its debt to equity ratio (as determined by Lender in accordance with generally accepted accounting practices) to exceed the level approved by Lender; 

8

2. Negative Covenants (Cont'd):

1. provide financial assistance (by means of loan, guarantees, or otherwise) to any person other than in favour of Lender; and
2. respecting any land now or in the future mortgaged or charged as security in favour of Lender by Borrower or any Guarantor, allow any pollutant (including any pollutant now on, under or about such land) to be placed, handled, stored, disposed of or released on, under or about such land without the prior written consent of Lender which may be arbitrarily or unreasonably withheld, and, if granted, may be subject to conditions, except that Borrower may use or produce any pollutants in the normal course of Borrower's business as long as Borrower complies with all applicable laws placing, handling, storing, transporting, disposing of or otherwise dealing with such pollutants.

3. Events of Default:

1. if Borrower defaults in paying when due all or any part of its indebtedness or other liability to Lender and such default continues after notice from Lender;
2. if Borrower or a Guarantor (if any) defaults in the observance or performance of any of its covenants or obligations in this Schedule or in the Outline of Credit to which this Schedule is attached or in any of the Security Documents, or in any other document under which Borrower or a Guarantor (if any) is obligated to Lender, and in any such cases, the default continues after notice from Lender;
3. if any charge or encumbrance on any property of Borrower becomes enforceable and steps are taken to enforce it;
4. if Borrower defaults in any obligation to any other person which involves or may involve a sum which Lender considers material, and the default will not be cured within seven (7) days of the date Borrower first knew or should have known of the default;
5. if any other creditor of Borrower or a Guarantor (if any) takes collection steps against Borrower or its assets;
6. if final judgement or judgements should be entered against Borrower or Guarantor (if any) for the payment of any amount of money which Lender considers material, and the judgement is or judgements are not discharged within 20 days;
7. if an order is made, an effective resolution passed, or a petition is filed for the winding up the affairs of Borrower or a Guarantor (if any) or if a receiver of Borrower or a Guarantor (if any) or any part of its assets is appointed;
8. if Borrower or a Guarantor (if any) becomes insolvent or makes a general assignment for the benefit of its creditors or otherwise acknowledges its insolvency or if a bankruptcy petition is filed or receiving is made against a Borrower or Guarantor (if any) and is not being disputed in good faith

9

3. Events of Default (continued):

1. if Borrower ceases or threatens to cease to carry on its business or makes a bulk sale of its assets;
2. if any of the licences, permits or approvals granted by any government or governmental authority or agency and essential to the business of Borrower is withdrawn, cancelled, suspended or adversely amended; and
3. if any material adverse change occurs (as determined by Lender in its sole discretion) in the business, management, prospects assets, liabilities or condition (financial or otherwise) of Borrower or a Guarantor (if any).

4. Interpretation:

In the Positive Covenants, Negative Covenants, Events of Default and the Outline of Credit (including any other Schedules) to which this Schedule "A" is attached:

1. words importing the singular will include the plural and vice versa, and words importing gender will include the masculine, feminine and neuter, and anything importing or referring to a person will include a body corporate and a partnership and any entity, in each case all as the context and the nature of the parties requires;
2. any Covenant or Event of Default or any part of any Covenant or Event of Default which contemplates that Borrower or Guarantor is a body corporate will, to that extent only, be inapplicable to Borrower or such Guarantor if not a body corporate;
3. "Prime" means the prime lending rate per annum established by Lender from time to time. Where the interest rate for a credit is based on Prime, the applicable rate on any day will depend on the Prime in effect on that day. The statement by Lender as to Prime and as to the rate of interest applicable to a credit on any day will be binding and conclusive for all purposes;
4. all interest rates specified are nominal annual rates. The effective annual rate in any case will vary with payment frequency;
5. any written communication which Lender may wish to serve on Borrower or Guarantor (if any) may be served personally (in the case of a body corporate, on any officer or director thereof) or by leaving the same at or mailing the same by registered mail to the last known address of Borrower or Guarantor (if any), and in the case of mailing will be deemed to have been received two (2) business days after mailing except in the case of postal disruption; and
6. "Lender", "Borrower", "Guarantors" (if any) and "Security Documents" have the meaning set out in the Outline of Credit to which this Schedule is attached. "Security Documents" will also include any other securities and related documents now held or hereafter delivered by Borrower or Guarantors (if any) to Lender as security for the debts and other liabilities of Borrower to Lender, whether arising prior to or after acceptance by Borrower or Guarantor of the Outline of Credit and this Schedule "A". 

10  

September 27, 2001 

Alberta Treasury BranchesOil & Gas Department2^nd Flr., 239 - 8^th Avenue S.W.Calgary, AB.T2P 1B9

Attn: Phil Burnham, Relationship Manager

Dear Sirs:

In connection with the undersigned's request for a loan from you of $300,000, we hereby authorize Alberta Treasury Branches to debit account 760-1139932-24 in the amount of $1,500 as a commitment fee.

Yours truly,

CAPITAL RESERVE CANADA LIMITED 

Per: /s/ W. Scott Lawler 

Per: /s/ James F. Marsh

EX-10

CAPITAL RESERVE CANADA LIMITED

STOCK OPTION AGREEMENT

I. NOTICE OF STOCK OPTION GRANT:

N. DESMOND SMITH of Box 42, Site 22, R.R. #4,, Calgary, Alberta, you have been granted an option to purchase Common Stock of Capital Reserve Canada Limited (the "Company"), subject to the terms and conditions of contained in this Stock Option Agreement as follows:

Grant Number	001
Date of Grant	May 12, 2003
Vesting Commencement Date	30 days following the date on which the Company first trades
Exercise Price per Share	$0.01
Total Number of Shares Granted	24,000
Type of Option:	Incentive Stock Option: X	Non-Statutory Option:
Term/Expiration Date:	May 12, 2013

VESTING SCHEDULE: This Option may be exercised, in whole or in part, in accordance with the following schedule:

The date which is 30 days following the date on which the Company commences trading on the Over the Counter Bulletin Board or its successor, the Bulletin Board Exchange shall be considered the monthly anniversary date for purposes of this option agreement. Commencing on the first anniversary, 1,000 options shall vest. On each subsequent monthly anniversary, 1,000 options will vest.

Page-1-

Capital Reserve Canada Limited

STOCK OPTION AGREEMENT

RECITALS

A. The Board of Capital Reserve Canada Limited (the "Company"), an Alberta corporation, have approved the issuance of options to N. Desmond Smith (the "Optionee") for the purpose of retaining the services of the Optionee who provides services to the Company.

B. Optionee has rendered valuable services to the Company, and this Stock Option Agreement (this "Agreement") is executed pursuant to the Company's grant of an option to Optionee.

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. The Company hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price.

2. OPTION TERM. This option shall have a maximum term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.

3. LIMITED TRANSFERABILITY. (a) This option shall be neither transferable nor assignable by Optionee other than by will or by the laws of descent and distribution following Optionee's death and may be exercised, during Optionee's lifetime, only by Optionee. However, Optionee may designate one or more persons as the beneficiary or beneficiaries of this option, and this option shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee's death while holding such option. Such beneficiary or beneficiaries shall take the transferred option subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period during which this option may, pursuant to paragraph 5, be exercised following Optionee's death. (b) If this option is designated a Non-Statutory Option in the grant Notice, then this option may, in connection with the Optionee's estate plan, be assigned in whole or in part during Optionee's lifet ime to one or more members of Optionee's immediate family or to a trust established for the exclusive benefit of one or more such family members. The assigned portion shall be exercisable only by the person or persons who acquire a proprietary interest in the option pursuant to such assignment. The terms applicable to the assigned portion shall be the same as those in effect for this option immediately prior to such assignment.

Page -2-

4. DATES OF EXERCISE. This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option hereunder either Paragraph 5 or 6 below.

5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(a) Should Optionee die while holding this option, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of inheritance shall have the right to exercise this option; provided, however, if Optionee has designated one or more beneficiaries of this option, then those persons shall have the exclusive right to exercise this option following Optionee's death until the EARLIER of (i) the expiration of a twelve (12) month period measured from the date of Optionee's death or (ii) the Expiration Date;

(b) Should Optionee cease Service by reason of Permanent Disability while holding this option, then Optionee shall have a period of twenty-four (24) months (commencing with the date of such cessation of Service) during which to exercise this option; provided, however, in no event shall this option be exercisable at any time after the Expiration Date;

(c) Should Optionee's Service be terminated either by the Optionee or by the Company then this option shall automatically expire within thirty (30) days from the date of such termination unless exercised prior to the end of such thirty (30) day period; and

(d) Should Optionee's Service be terminated for Misconduct, then this option shall terminate immediately and cease to remain outstanding on the date of termination.

6. SPECIAL ACCELERATION OF OPTION. (a) This option, to the extent outstanding at the time of a Corporate Transaction but not otherwise fully exercisable, shall automatically accelerate so that this option shall, immediately prior to the effective date of such Corporate Transaction, become

Page -3-

exercisable for all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully vested shares of Common Stock. No such acceleration of this option shall occur, however, if and to the extent: (i) this option is, in connection with the Corporate Transaction, to be assumed by the successor company (or parent thereof) or (ii) this option is to be replaced with a cash incentive program of the successor company which preserves the spread existing at the time of the Corporate Transaction on the Option Shares for which this option is not otherwise at that time exercisable (the excess of the Fair Market Value of those Option Shares over the aggregate Exercise Price payable for such shares) and provides for subsequent payout in accordance with the same option exercise/vesting schedule set forth in the Grant Notice. (b) Immediately following the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor company (or parent thereof) in connection with the Corporate Transaction. (c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, PROVIDED the aggregate Exercise Price shall remain the same. (d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company's receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

8. STOCKHOLDER RIGHTS. The holder of this option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares.

Page -4-

9. MANNER OF EXERCISING OPTION. (a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions: (i) Execute and deliver to the Company a Notice of Exercise for the Option Shares for which the option is exercised; and (ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

(A) cash or check made payable to the Company;

(B) a promissory note payable to the Company, but only to the extent authorized by the Board in accordance with Paragraph 13;

(C) shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions (i) to a Company-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such exercise; (ii) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Notice of Exercise delivered to the Company in connection with the option exercise; (iii) Furnish to the Company appropriate document ation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option; (iv) Make appropriate arrangements with the Company (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise; (b) As soon as practical after the Exercise Date, the Company shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto; (c) In no event may this option be exercised for any fractional shares.

Page -5-

10. COMPLIANCE WITH LAWS AND REGULATIONS. (a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Company and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance; (b) The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Company of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals.

11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Optionee, Optionee's assigns, the legal representatives, heirs and legatees of Optionee's estate and any beneficiaries of this option designated by Optionee.

12. NOTICES. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit either in the U.S. or Canadian mail, postage prepaid and properly addressed to the party to be notified.

13. FINANCING. The Board may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a full-recourse promissory note payable to the Company. The terms of any such promissory note (including the interest rate, the requirements for collateral and the terms of repayment) shall be established by the Board in its sole discretion.

14. CONSTRUCTION. All decisions of the Board with respect to any question or issue arising under this Agreement shall be conclusive and binding on all persons having an interest in this option.

Page -6-

15. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the Province of Alberta without resort to that Province's conflict-of-laws rules.

16. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event this option is designated an Incentive Option in the Grant Notice, the following terms and conditions shall also apply to the grant: (a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is exercised for one or more Option Shares:

(A) more than three (3) months after the date Optionee ceases to be an Officer for any reason other than death or Permanent Disability or

(B) more than twelve (12) months after the date Optionee ceases to be an Officer by reason of Permanent Disability; (b) No installment under this option shall qualify for favorable tax treatment as an Incentive Option if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which such installment first becomes exercisable hereunder would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this option or any other Incentive Options granted to Optionee prior to the Grant Date first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred Thousand Dollar ($100,000) limitation be exceeded in any calendar year, this option shall nevertheless become exercisable for the excess shares in such calendar year as a Non-Statutory Option; (c) Should the exercisability of this option be accelerated upon a Corporate Transaction, then this option shall qualify for favorable tax treatment as an Incentive Option only to the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option first becomes exercisable in the calendar year in which the Corporate Transaction occurs does not, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this option or one or more other Incentive Options granted to Optionee prior to the Grant Date first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the calendar year of such Corporate Transaction, the option may nevertheless be exercised for the excess shares in such calendar year as a Non-Statutory Option; and (d) Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become exercisable for the first time in the same calendar year as this option, then the foregoing limitations on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.

Page -7-

Dated: May 12, 2003

		CAPITAL RESERVE CANADA LIMITED, an Alberta corporation
/s/ N. Desmond SmithN. DESMOND SMITH	By:	/s/ W. Scott LawlerName: W. Scott LawlerTitle: Director, Treasurer, Secretary

 Page -8-

EXHIBIT I

NOTICE OF EXERCISE

I hereby notify Capital Reserve Canada Limited (the "Company") that I elect to purchase _______________ shares of the Company's Common Stock (the"Purchased Shares") at the option exercise price of $0.01 per share (the"Exercise Price") pursuant to that certain option (the "Option") granted to me on May 12, 2003. Concurrently with the delivery of this Exercise Notice to the Company, I shall hereby pay to the Company the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Company (or other documents) evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in my agreement to effect payment of the Exercise Price.

Date: ____________________________

Optionee Address: ______________________________________________________________

Print name in exact manner it is to appear on the stock certificate:

 _____________________________________________________________________________

Address to which certificate is to be sent, if different from address above:

 _____________________________________________________________________________

Social Insurance Number: ________________________________________________________

Page -9-

APPENDIX

The following definitions shall be in effect under the Agreement:

A. ACT shall mean the Income Tax Act of Canada, as amended.

B. AGREEMENT shall mean this Stock Option Agreement.

C. BOARD shall mean the Company's Board of Directors.

D. COMMON STOCK shall mean shares of the Company's Class A common stock.

E. CORPORATE TRANSACTION shall mean either of the following stockholder-approved transactions to which the Company is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Company's assets in complete liquidation or dissolution of the Company.

F. COMPANY shall mean Capital Reserve Canada Limited, an Alberta company, and any successor company to all or substantially all of the assets or voting stock of Capital Reserve Canada Limited.

G. OFFICER shall mean an individual who is an officer of the Company (or any Subsidiary), subject to the control and direction of the Company as to both the work to be performed and the manner and method of performance.

H. EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement.

I. EXERCISE PRICE shall mean the exercise price per Option Share as specified in the Grant Notice.

J. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice.

K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the Nasdaq National Market or as reported on an automated quotation system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists, or (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be deemed equal to the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Board to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

Page -10-

L. GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice.

M. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.

N. INCENTIVE OPTION shall mean an option which satisfies the requirements of the Act.

O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other individual in the Service of the Company (or any Parent or Subsidiary).

P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of the Act.

Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form attached hereto as Exhibit I.

R. OPTION SHARES shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice.

Page -11-

S. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice.

T. PARENT shall mean any company (other than the Company) in an unbroken chain of companies ending with the Company, provided each company in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other Companies in such chain.

U. PERMANENT DISABILITY shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more.

V. SERVICE shall mean the Optionee's performance of services for the Company (or any Parent or Subsidiary) in the capacity of an Officer, a non-employee member of the board of directors or a consultant or independent advisor.

W. SUBSIDIARY shall mean any company (other than the Company) in an unbroken chain of companies beginning with the Company, provided each company (other than the last company) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain.

Page -12-

ADDENDUM TO STOCK OPTION AGREEMENT

The following provisions are hereby incorporated into, and are hereby made a part of, that certain Stock Option Agreement (the "Option Agreement") by and between Capital Reserve Canada Limited (the "Company") and ("Optionee") evidencing the stock option (the "Option") granted this day to Optionee and such provisions are effective immediately. All capitalized terms in this Addendum, to the extent not otherwise defined herein, shall have the meanings assigned to them in the Option Agreement.

INVOLUNTARY TERMINATION FOLLOWING CORPORATE TRANSACTION/CHANGE IN CONTROL

1. To the extent the Option is, in connection with a Corporate Transaction, to be assumed in accordance with Paragraph 6 of the Option Agreement, the Option shall not accelerate upon the occurrence of that Corporate Transaction, and the Option shall accordingly continue, over Optionee's period of Service after the Corporate Transaction, to become exercisable for the Option Shares in one or more installments in accordance with the provisions of the Option Agreement. However, immediately upon an Involuntary Termination of Optionee's Service within eighteen (18) months following such Corporate Transaction, the assumed Option, to the extent outstanding at the time but not otherwise fully exercisable, shall automatically accelerate so that the Option shall become immediately exercisable for all the Option Shares at the time subject to the Option and may be exercised for any or all of those Option Shares as fully vested shares.

2. The Option as accelerated pursuant to this Addendum shall remain so exercisable until the EARLIER of (i) the Expiration Date or (ii) the expiration of the one (1)-year period measured from the date of the Optionee's Involuntary Termination.

3. For purposes of this Addendum the following definitions shall be in effect: (i) An INVOLUNTARY TERMINATION shall mean the termination of Optionee's Service by reason of:

(A) Optionee's involuntary dismissal or discharge by the Company for reasons other than Misconduct, or

(B) Optionee's voluntary resignation following (a) a change in Optionee's position with the Company (or Parent or Subsidiary) which materially reduces Optionee's duties and responsibilities or the level of management to which Optionee reports, or (b) a reduction in Optionee's level of compensation (including base salary, fringe benefits and target bonus under any corporate performance based bonus or incentive programs) by more than fifteen percent (15%).

Page -13-

4. The provisions of Paragraph 1 of this Addendum shall govern the period for which the Option is to remain exercisable following the Involuntary Termination of Optionee's Service within eighteen (18) months after the Corporate Transaction and shall supersede any provisions to the contrary in Paragraph 5 of the Option Agreement.

IN WITNESS WHEREOF, Capital Reserve Canada Limited has caused this Addendum to be executed by its duly-authorized officer as of the Effective Date specified below.

Capital Reserve Canada Limited 

By: W. Scott LawlerName: W. Scott LawlerTitle: Director, Treasurer, Secretary

EFFECTIVE DATE: May 12, 2003

Page -14-

EX-10

THIS AGREEMENT made this day of 15^th day of June 2003.

BETWEEN:

FACT CORPORATION ("FACT"), a Colorado corporation doing business in the City of Calgary, in the Province of Alberta

OF THE FIRST PART

- and -

TERRA NOSTRA TECHNOLOGY LTD., a Nevada corporation with offices in the City of Montreal, in the Province of Quebec (hereinafter called the "Vendor")

OF THE SECOND PART

- and -

CAPITAL RESERVE CANADA LTD., an Alberta corporation with offices in the City of Calgary, in the Province of Alberta (hereinafter called the "Purchaser")

OF THE SECOND PART

WHEREAS the Vendor and FACT had entered into an agreement (the "Agreement") dated August 26, 2002 whereby Vendor purchased from FACT certain leases in consideration of the issuance of 40,000 shares of the Vendor's common stock (the "shares") ;

WHEREAS the Vendor has changed its business objectives and wishes to rescind the Agreement with FACT; return the Montana Leases to FACT (or its assigns) and cancel the aforementioned Shares;

WHEREAS the Vendor holds additional oil and gas assets which it wishes to transfer to FACT (or its assigns) in consideration for FACT agreeing to rescind the Agreement;

WHEREAS FACT wishes to sell to the Purchaser, who is currently the wholly-owned subsidiary of FACT and the Purchase wishes to purchase from FACT, the Montana Leases and the Kejr Leases on the terms and conditions set forth herein:

NOW THEREFORE in consideration of the premises and the mutual covenants and warranties herein contained, the Parties agree as follows:

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1.0 INTERPRETATION

1.1 Definitions

In this Agreement, including the recitals and the Schedules, the following terms shall have the respective meanings hereby assigned to them:

(a) "Agreement" means this agreement together with the Schedules attached hereto and made a part hereof.

(b) "Assets" means the Petroleum and Natural Gas Rights, the Tangibles and the Miscellaneous Interests, each as defined below.

(c) "Closing" means the exchange of Conveyance Documents at the Closing Date, as more particularly described in Clause 3.3, the delivery by the Purchaser to the Vendor of the Purchase Price, as described in Clause 2.3, and the transfer of the Assets by the Vendor to the Purchaser.

(d) "Closing Date" means 10:00 a.m. on June 15, 2003 or such other time and date as may be agreed to by the Parties;

(e) "Conveyance Documents" means the documents described in Paragraphs 3.3(a)(i) and (ii), which provide for the assignment, transfer or other disposition of the Assets to the Purchaser.

(f) "Effective Date" means 8:00 a.m. on the 1^st day of June 2003.

(g) "Encumbrance" means any lessor, overriding or other royalty, lien, charge, mortgage, debenture, encumbrance, production payments, profits interest or other adverse claim.

(h) "Lands" means the lands set forth and described in Schedule "A" and the Petroleum Substances within, upon or under those lands, subject to the limitations set forth in Schedule "A".

(i) "Leases" means the leases, licenses, permits and other documents of title set forth and described in Schedule "A", by virtue of which the holder thereof is entitled to drill for, win, take, own or remove the Petroleum Substances within, upon or under the Lands or by virtue of which the holder thereof is deemed to be entitled to a share of Petroleum Substances removed from the Lands or any lands with which the Lands are pooled or unitized and includes, if applicable, all renewals and extensions of such documents and all documents issued in substitution thereof.

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(j) "Miscellaneous Interests" means the entire interest of the Vendor in and to all property, assets and rights, other than the Petroleum and Natural Gas Rights and the Tangibles, to the extent such property, assets and rights pertain to the Petroleum and Natural Gas Rights or the Tangibles, or any rights relating thereto, including, without limitation of the generality of the foregoing, the entire interest of the Vendor in:

(i) all contracts, agreements and documents, to the extent that they relate directly to the Petroleum and Natural Gas Rights or the Tangibles, including agreements for the sale, processing or transportation of Petroleum Substances;

(ii) all subsisting rights to enter upon, use and occupy the surface of any of the Lands, of any lands upon which any Tangibles are located or of any lands to be crossed in order to gain access to any of the lands or the Tangibles;

(iii) all well bores and casing located on the Lands which may be used to produce Petroleum Substances from the Lands or otherwise serve the Lands; and

(iv) copies of geological and engineering records, files, reports and data that relate directly to the Petroleum and Natural Gas Rights, any well thereon or the Tangibles, excluding the Vendor's interpretative data.

Unless otherwise agreed in writing by the Parties, however, the Miscellaneous Interests shall not include agreements, documents or data to the extent that: (i) they pertain to the Vendor's proprietary technology or interpretations; (ii) they are owned or licensed by third parties with restrictions on their deliverability or disclosure by the Vendor to any assignee which is not an affiliate of the Vendor.

(k) "Party" means a person, partnership or corporation, which is bound by this Agreement.

(l) "Permitted Encumbrances" means:

(i) any encumbrances, overriding royalties, net profits interests and other burdens identified in Schedule "A";

(ii) the terms and conditions of the Leases, including, without limitation, the requirement to pay any rentals or royalties to the grantor thereof to maintain the Leases in good standing;

(iii) easements, rights of way, servitudes or other similar rights in land, including, without in any way limiting the generality of the foregoing, rights of way and servitudes for highways, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light, power, telephone or cable television conduits, poles, wires or cables;

3

(iv) rights of general application reserved to or vested in any governmental authority to levy taxes on Petroleum Substances produced after the Effective Date or the income or revenue therefrom and governmental restrictions on production rates from wells on the Lands;

(v) agreements for the sale of Petroleum Substances, which are terminable on thirty (30) days' notice or less (without an early termination penalty or other cost) or are identified in Schedule "A";

(vi) the Regulations and any rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any of the Assets in any manner;

(vii) undetermined or inchoate liens incurred or created as security in favour of any person with respect to the development or operation of any of the Assets, as regards the Vendor's share of the costs and expenses thereof; which costs and expenses are not due as of the Closing Date.

(viii) the reservations, limitations, provisos and conditions in any grants or transfers from the Crown of any of the Lands or interests therein, and statutory exceptions to title;

(ix) provisions for penalties and forfeitures under agreements as a consequence of nonparticipation in operations, provided that any such penalties or forfeitures which apply to the Assets as a result of the Vendor's failure to participate in a particular operation prior to the Effective Date shall be identified in Schedule "A";

(x) liens granted in the ordinary course of business to a public utility, municipality or governmental authority with respect to operations pertaining to any of the Assets; and

(xi) registered security interests for which discharges or "no interest letters" in form and substance satisfactory to the Purchaser are provided at Closing;

m) "Petroleum and Natural Gas Rights" means the entire interest of the Vendor as specified in Schedule "A" in and to the Lands and, insofar as they pertain to the Lands, the Leases.

4

n) "Petroleum Substances" means petroleum, natural gas, sulphur and every other mineral or substance, or any of them, the right to explore for which, or an interest in which, is granted pursuant to the Leases, insofar only as they pertain to the Lands.

o) "Prime Rate" means the annual rate of interest used by Alberta Treasury Branches as a reference rate for determining the rate of interest on Canadian dollar commercial loans and designated by such bank as its prime rate.

p) "Purchase Price" means the amount payable by the Purchaser to the Vendor pursuant to Clause 2.2, as modified by the adjustments provided for herein.

q) "Regulations" means all statutes, laws, rules, orders and regulations in effect from time to time and made by governments or governmental boards or agencies having jurisdiction over the Assets.

r) "Tangibles" means the Vendor's entire interest in and to all tangible depreciable property located in or on the Lands and used, or intended for use, in connection with production, storage, treatment or transportation operations respecting the Lands, including, without limitation, the well equipment, if any, relating to the wells on the Lands;

s) "Title Defect" means:

(i) a defect or deficiency in or affecting, or the absence of satisfactory evidence as to, the good and valid title of the Vendor to all or any of the Assets;

(ii) the existence of any Encumbrance that is not a Permitted Encumbrance or that exceeds in magnitude the description of that particular encumbrance set forth in Schedule "A"; or

(iii) any discrepancy (herein a "Discrepancy") between the description of the Assets and Permitted Encumbrances set forth herein and the Vendor's actual interest or the actual Permitted Encumbrances; other than Permitted Encumbrances, which in the Purchaser's opinion acting reasonably is sufficiently material and adverse that it is not acceptable to the Purchaser;

1.2 Schedules

The following Schedules are attached hereto and made part of this Agreement:

5

(a) Schedule "A", which includes a description of the Lands, the Leases and Permitted Encumbrances;

(b) Schedule "B", which is a General Conveyance;

(c) Schedules "C-1" and "C-2", which is the form of the certificate to be provided pursuant to Article VIII with respect to the truth of a Party's representations and warranties.

(d) Schedule "D" which is a description of the outstanding AFE's.

1.3 References

The references "hereunder", "herein" and "hereof' refer to the provisions of this Agreement, and references to Articles, Clauses, Subclauses, Paragraphs or Subparagraphs herein refer to Articles, Clauses, Subclauses, Paragraphs or Subparagraphs of this Agreement .Any reference to time shall refer to Mountain Standard Time or Mountain Daylight Savings Time during the respective intervals in which each is in force.

1.4 Headings

The headings of the Articles, Clauses, Schedules and any other headings, captions or indices herein are inserted for convenience of reference only and shall not be used in any way in construing or interpreting any provision hereof.

1.5 Singular/Plural

Whenever the singular or masculine or neuter is used in this Agreement or in the Schedules, it shall be interpreted as meaning the plural or feminine or body politic or corporate, and vice versa, as the context requires.

1.6 Use of United States Funds

All references to "dollars" or "$" herein shall refer to lawful currency of the United States.

1.7 Derivatives

Where a term is defined herein, a capitalized derivative of such term shall have a corresponding meaning unless the context otherwise requires.

1.8 Interpretation If Closing Does Not Occur

In the event that Closing does not occur, each provision of this Agreement which expressly or implicitly presumes that the Purchaser has acquired the Assets hereunder shall be construed as having been contingent upon Closing having occurred.

6

1.9 Conflicts

If there is any conflict or inconsistency between a provision of the body of this Agreement and that of a Schedule or a Conveyance Document, the provision of the body of this Agreement shall prevail. If any term or condition of this Agreement conflicts with a term or condition of a Lease or the Regulations, the term or condition of such Lease or the Regulations shall prevail, and this Agreement shall be deemed to be amended to the extent required to eliminate any such conflict.

2.0 PURCHASE AND SALE

2.1 Agreement Of Purchase and Sale

FACT agrees to the cancellation of the Shares by the Vendor. In consideration of such agreement, Vendor shall transfer title to all of the Assets to the Purchaser at the direction of FACT.

2.2 Allocation Of Purchase Price

The monetary consideration payable by the Purchaser to FACT for the Assets is Ten Thousand US Dollars ($10,000.00 USD), and shall be allocated among the Assets as follows:

(a)	To Petroleum and Natural Gas Rights	100.00%
(b)	To Tangibles	0%
(c)	To Miscellaneous Interests	0%

2.3 Payment of Purchase Price

The Purchase Price shall be in the form of a promissory note from Purchases in favor of FACT, in a form reasonably satisfactory to each of FACT and the Purchaser, and shall be delivered at the Closing (the "Note").

Purchaser shall also remit to the Vendor at Closing the seven percent (7%) goods and services tax applicable to that portion of the Purchase Price allocated to the Tangibles, in accordance with the Excise Tax Act (Canada).

3.0 CLOSING

3.1 Place of Closing

Unless otherwise agreed in writing by the Parties, Closing shall take place at the offices of the Purchaser at Calgary, Alberta on the Closing Date.

7

3.2 Effective Date of Transfer

The transfer and assignment of the Assets from the Vendor to the Purchaser shall be effective as of the Effective Date, provided Closing occurs. Possession of the Assets, however, shall not pass to the Purchaser until after Closing on the Closing Date. 

3.3 Deliveries at Closing

(a) At Closing, the Vendor shall deliver the following to the Purchaser:

(i) a General Conveyance, in the form attached as Schedule "B", which has been executed by the Vendor;

(ii) all specific assignments, registrable transfers, novation agreements, trust agreements and other instruments reasonably requested by the Purchaser at least 3 business days prior to Closing and which are required to convey the Vendor's interest in the Assets to the Purchaser, unless and to the extent that the Purchaser allows the Vendor to deliver such documents to the Purchaser at a later date, provided that such documents shall not be required to be executed by any third parties and shall not require the Vendor to assume or incur any obligation, or to provide any representation or warranty, beyond that contained in this Agreement;

(iii) one complete copy of the Vendor's records, land, lease, contract correspondence and other files and reports and data pertaining to the Assets, insofar as such delivery is permitted and required hereunder;

(iv) the certificates required by Paragraphs 8.1(d); and

(v) such other documents as may be specifically required hereunder or as may be reasonably requested by the Purchaser upon reasonable notice to the Vendor.

(b) At Closing, the Purchaser shall deliver the following:

(i) to FACT, the Note, any applicable goods and services tax in accordance with Clause 2.3;

8

(ii) to the Vendor, a General Conveyance, in the form attached as Schedule "B", which has been executed by the Purchaser;

(iii) to FACT and the Vendor, the certificate required by Paragraph 8.2(b);

(iv) to FACT and the Vendor, such other documents as may be specifically required hereunder. 

3.4 Costs of Registration

The Purchaser shall bear all costs incurred in registering any conveyances of title to the Assets to it and all costs of preparing and registering any further assurances required to convey the Assets to it. The Purchaser shall register all such conveyances promptly after Closing. Copies of all registered documents shall be provided to the Vendor.

4.0 ADJUSTMENTS

4.1 Benefits And Obligations To Be Apportioned

(a) All benefits and obligations of any kind and nature accruing, payable, paid, received or receivable with respect to the Assets (including, without limitation, maintenance, development, capital and operating costs, advances, payments with respect to the Permitted Encumbrances, proceeds form the sale of production, accounts receivable and incentives accruing pursuant to the Regulations) shall be apportioned, as of the Effective Date, between the Vendor and the Purchaser in accordance with generally accepted accounting principles, subject to the provisions of this Agreement. All costs of whatever nature pertaining to work performed or goods or services provided with respect to the Assets prior to the Effective Date shall be borne by the Vendor, notwithstanding that such costs may be payable in whole or in part after the Effective Date.

(b) Notwithstanding the provisions of Subclause 4.1(a), all rentals and all similar payments required to preserve any of the Leases and all taxes (other than income taxes and taxes based on the volume of the production of Petroleum Substances) levied with respect to the Assets shall be apportioned between the Vendor and the Purchaser on a per diem basis as of the Effective Date, unless and to the extent that such apportionment is waived by the Vendor.

(c) All proceeds from the sale of Petroleum Substances which were produced, but not sold, on or before the Effective Date shall be credited to the Vendor if such proceeds are received by the Purchaser. Such Petroleum Substances shall be deemed to be sold on a "first in first out" basis.

9

4.2 Adjustments To Accounts

(a) An interim accounting and adjustment shall be conducted for Closing. At least 3 business days prior to the Closing Date, Vendor shall provide to the Purchaser its good faith estimate of all adjustments to be made pursuant to this Article and such adjustments shall be made at Closing. A final accounting and adjustment shall be prepared and submitted by the Vendor to the Purchaser within one hundred and twenty (120) days following the Closing Date. All adjustments shall be settled by payment by the Party required to make payment hereunder within fifteen (15) days of being notified of the determination of the amount owing.

(b) During the one hundred and twenty day period following receipt of the final statement of adjustments from the Vendor, the Purchaser may audit the books, records and accounts of the Vendor respecting the Assets, for the purpose of effecting adjustments pursuant to this Article. Such audit may be conducted upon reasonable notice to the Vendor at the Vendor's offices during the Vendor's normal business hours, and shall be conducted at the sole expense of the Purchaser. Any claims of discrepancies disclosed by such audit shall be made in writing to the Vendor within sixty days following the completion of such audit, and the Vendor shall respond in writing to any claims of discrepancies within sixty days of receipt of such claims. To the extent that the Parties are unable to resolve any outstanding claims of discrepancies disclosed by such audit within two (2) months of the Vendor's response thereto, such audit exceptions shall be submitted to arbitration by a single arbitrator pu rsuant to the Arbitration Act (Alberta). The decision of the arbitrator shall be final and binding upon the parties.

(c) No adjustments shall be made more than 24 months after the Closing Date; provided, however, that any adjustments established by an audit under any joint venture or operating agreement relating to the Assets or an audit conducted pursuant to the Regulations or the provisions of the Leases with respect to the payment of royalties shall be made at the time such adjustment is established, with payment being made by the Party required to make payment hereunder within fifteen (15) days of being notified of the determination of the amount owing.

5.0 MAINTENANCE OF BUSINESS

5.1 Material Commitments

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1. Until Closing, the Vendor shall not, without the prior written consent of the Purchaser:
1. surrender or abandon any of the Assets;

(ii) amend any agreement or enter into any new agreement respecting the Assets;

2. sell, transfer or otherwise dispose of the Assets, or any of them; or
3. grant a security interest or any encumbrance with respect to any of the Assets. 

6.0 REPRESENTATIONS AND WARRANTIES OF PARTIES

6.1 Vendor's Representations and Warranties

The Vendor represents and warrants to the Purchaser that:

(a) Standing. The Vendor is a corporation, duly organized, valid and subsisting and incorporated under the laws of the State of Nevada, and is authorized to carry on business in Alberta;

(b) Requisite Authority: The Vendor has the requisite capacity, power and authority (subject to obtaining any third party consents required in order to transfer the Assets) to execute this Agreement and the Conveyance Documents and to perform the obligations to which it thereby becomes subject;

(c) No Conflict: The execution and delivery of this Agreement and the completion of the sale of the Assets in accordance with the terms of this Agreement are not and will not be in violation or breach of, or be in conflict with:

(i) any term or provision of the charter, by-laws or other governing documents of the Vendor;

(ii) any agreement, instrument, permit or authority to which the Vendor is a party or by which the Vendor is bound (subject to obtaining any third party consents required in order to transfer the Assets); or

(iii) the Regulations or any judicial order, award, judgment or decree applicable to the Vendor or the Assets;

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(d) Execution And Enforceabity The Vendor has taken all actions necessary to authorize the execution and delivery of this Agreement, and, as of the Closing Date, the Vendor shall have taken all actions necessary to authorize and complete the sale of the Assets in accordance with the provisions of this Agreement. This Agreement has been validly executed and delivered by the Vendor, and this Agreement and all other documents executed and delivered on behalf of the Vendor hereunder shall constitute valid and binding obligations of the Vendor enforceable in accordance with their respective terms and conditions;

(e) No Finders' Fees The Purchaser shall not have any responsibility for any obligation or liability, contingent or otherwise, for brokers' or finders' fees, if any, incurred by the Vendor with respect to the transactions herein;

(f) Lawsuits And Claims: There are no unsatisfied judgments, claims, proceedings, actions, governmental investigations or lawsuits in existence, or, to the best of the information, knowledge and belief of the Vendor, contemplated or threatened against or with respect to the Assets or the interest of the. Vendor therein, and there exists no particular circumstance which the Vendor reasonably believes will give rise to such a claim, proceeding, action, governmental investigation or lawsuit;

(g) No Additional Consent Requirements or Rights of First Refusal: Except as set out in Schedule "A", the disposition of the Assets from the Vendor to the Purchaser does not require the consent of any third party and is not subject to any rights of first refusal or preferential or pre-emptive purchase rights created by, through or under the Vendor, or of which the Vendor is otherwise aware;

(h) Compliance With Leases and Agreements: To the best of the information, knowledge and belief of the Vendor, no act or omission has occurred whereby the Vendor is, or would be, in default under the terms of the Regulations, any Lease or any agreement pertaining to the Assets;

(i) (Intentionally omitted)

(j) No Default Notices: The Vendor has not received any notice of default under the Regulations or the Leases or any notice alleging its default under any agreement pertaining to the Assets, which default has not been rectified as of the date of this Agreement.

(k) No Production Penalties: The Vendor is not in a penalty position with respect to production from any of the Lands as a result of non-participation in any operations with respect thereto;

(l) Offset Drilling Obligations: To the best of the knowledge, information and belief of the Vendor, none of the Lands are subject to any offset or other accrued drilling obligations that have not been satisfied or waived;

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(m) Sale Agreements: The Petroleum and Natural Gas Rights are not subject to any gas balancing agreement or, except as identified in Schedule "A", any agreement for the sale of Petroleum Substances therefrom which the Purchaser is required to assume hereunder that requires either the sale of more than thirty (30) days of production (without an early termination penalty or other cost) or the delivery of Petroleum Substances to the purchaser thereof without receiving in due course (and being entitled to retain) full payment at current market price or the contract price therefor;

(n) Area of Mutual Interest: None of the Lands are subject to an agreement which provides for an area of mutual interest, except as specifically identified in Schedule "A";

(o) Quiet Enjoyment: Subject at all times to the Vendor's other representations and warranties made pursuant to this Clause, the Permitted Encumbrances and the satisfaction of the obligations required to maintain the Leases in good standing by the applicable lessees, the Purchaser may, for the residue of the term of the Leases, take possession of and utilize the Assets for the Purchaser's own use and benefit without any interruption by the Vendor or any other person claiming by, through or under the Vendor;

(p) Payment Of Costs, Royalties And Taxes: All royalties and all ad valorem, property, production, severance and similar taxes and assessments based on, or measured by, the Vendor's ownership of the Assets, the production of Petroleum Substances from the Lands or the receipt of proceeds therefrom and operating or capital costs or expenses that are payable by the Vendor and which accrued prior to the Effective Date have been properly and fully paid and discharged (or will be paid and discharged after Closing in the manner and at the time prescribed by the Leases and the Regulations);

(q) Encumbrances: Other than the Permitted Encumbrances, the Vendor has not alienated or encumbered the Assets and has not committed and is not aware of there having been committed any act or omission whereby its interest in any of the Assets could be cancelled or terminated, and the Assets are free and clear of any and all liens, mortgages, pledges, claims, options, encumbrances, overriding royalties, net profits interests and other Encumbrances created by, through or under the Vendor, or of which the Vendor is otherwise aware, other than the Permitted Encumbrances;

(r) No Reduction: Except as set out in Schedule "A", the interests of the Vendor in the Assets are not subject to reduction on payout of a well or otherwise, or subject to modification in size or nature by virtue of any right or interest granted by, through or under the Vendor or of which the Vendor is otherwise aware;

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(s) Environmental Matters: The Vendor is not aware of and has not received:

(i) any orders or directives under the Regulations which relate to environmental matters and which require any work, repairs, construction or capital expenditures with respect to the Assets, where such orders or directives have not been complied with in all material respects; or

(ii) any demand or notice issued under the Regulations with respect to the breach of any environmental, health or safety law applicable to the Assets, including, without limitation, any Regulations respecting the use, storage, treatment, transportation or disposition of environmental contaminants, which demand or notice remains outstanding on the Closing Date;

and the Vendor has, prior to the execution of this Agreement, made available to the Purchaser or its representatives all reports in the possession of the Vendor with respect to the environmental condition of the Assets.

(t) Authorized Expenditures There are no outstanding authorizations for expenditure approved by the Vendor or outstanding financial commitments made by Vendor respecting the Assets, pursuant to which expenditures are or may be required by the Purchaser as a result of the acquisition of the Assets or in respect of which any amount is outstanding, other than as disclosed in Schedule "D".

6.2 Purchaser's Representations and Warranties

Purchaser represents and warrants to the Vendor that:

(a) Standing: It is a corporation, duly organized, valid and subsisting under the laws of its jurisdiction of incorporation, and duly registered and authorized to carry on business in the jurisdiction in which the Lands are located;

(b) Requisite Authority: It has the requisite capacity, power and authority to execute this Agreement and the Conveyance Documents and execute and deliver the Note, and to perform the obligations to which it thereby becomes subject;

(c) No Conflict: The execution and delivery of this Agreement and the Note and the completion of the purchase of the Assets in accordance with the terms of this Agreement are not and will not be in violation or breach of, or be in conflict with:

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(i) any term or provision of its charter, by-laws or other governing documents; or

(ii) the Regulations or any judicial order, award, judgment or decree applicable to it.

(d) Execution And Enforceability: It has taken all actions necessary to authorize the execution and delivery of this Agreement and, as of the Closing Date, then it shall have taken all actions necessary to authorize and complete the purchase of the Assets in accordance with the provisions of this Agreement. This Agreement has been validly executed and delivered by it, and this Agreement and all other documents executed and delivered on its behalf hereunder shall constitute valid and binding obligations of Purchaser;

(e) No Sales Commission: It has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees with respect to the transactions herein for which the Vendor shall have any responsibility.

6.3 Survival Of Representations And Warranties

The representations and warranties in Clauses 6.1 and 6.2 are true as of the date hereof and shall continue to be true on the Closing Date, and such representations and warranties shall continue in full force and effect and shall survive the Closing Date for a period of eighteen (18) months, for the benefit of the Party for which such representations and warranties were made. However, no claim or action shall be commenced with respect to a breach of any such representation or warranty, unless, within such eighteen (18) month period, written notice specifying such breach in reasonable detail has been provided to the Party which made such representation or warranty.

6.4 No Merger

The representations and warranties in Clauses 6.1 and 6.2 shall be deemed to apply to all assignments, conveyances, transfers and other documents conveying any of the Assets from the Vendor to the Purchaser. There shall not be any merger of any of such representations or warranties in such assignments, conveyances, transfers or other documents, notwithstanding any rule of law, equity or statute to the contrary, and all such rules are hereby waived.

6.5 No Additional Representations Or Warranties By Vendor

(a) The Vendor makes no representations or warranties to the Purchaser in addition to those expressly enumerated in Clause 6.1. Except and to the extent provided in Clause 6.1, the Vendor does not warrant title to the Assets or make representations or warranties with respect to:

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(i) the quantity, quality or recoverability of Petroleum Substances respecting the Lands;

(ii) any estimates of the value of the Assets or the revenues applicable to future production from the Lands;

(iii) any engineering, geological or other interpretations or economic evaluations respecting the Assets;

(iv) the rates of production of Petroleum Substances from the Lands;

(v) the quality, condition or serviceability of the Assets; or

(vi) the suitability of the use of the Assets for any purpose, or

(vii) its title to the Assets.

The Purchaser acknowledges that it has made its own independent investigation, analysis, evaluation, verification and inspection of the Vendor's interests in the Assets and the state and condition thereof and that, except for the representations and warranties of the Vendor in Clause 6.1, the Purchaser has relied on such investigation, analysis, evaluation, verification and inspection as to its assessment of the condition (environmental or otherwise), quantum and value of the Assets.

(b) Except with respect to the representations and warranties in Clause 6.1 or in the event of fraud, the Purchaser forever releases and discharges the Vendor and its directors, officers, servants, agents and employees from any claims and all liability to the Purchaser, whether in tort or contract, as a result of the use or reliance upon advice, information or materials pertaining to the Assets which was delivered or made available to the Purchaser by the Vendor or its directors, officers, servants, agents or employees prior to or pursuant to this Agreement, including, without limitation, any evaluations, projections, reports and interpretive or non-factual materials prepared by or for the Vendor, or otherwise in the Vendor's possession. The Purchaser shall be deemed irrefutably and conclusively to have relied upon the representations and warranties in Clause 6.1, notwithstanding any other provision of this Agreement and notwithstanding the occurrence of Closing or the receipt of any ce rtificates at Closing, or any investigations it may have conducted prior to Closing. Furthermore, after Closing, the definition of "Permitted Encumbrances" shall be deemed to have been amended so as to delete paragraph (xi) thereof notwithstanding the delivery at Closing of the documents referred to Clause 8.1(f).

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7.0 TITLE REVIEW AND RIGHTS OF FIRST REFUSAL

7.1 Title Defects

(a) The Purchaser shall conduct its review of the Vendor's title to the Assets with reasonable diligence. Not later than Closing, the Purchaser shall give the Vendor written notice of the Title Defects which the Purchaser does not waive. Such notice shall specify such Title Defects in reasonable detail, the Assets directly affected thereby and the Purchaser's requirements for the rectification or curing thereof. The Vendor shall thereupon diligently make reasonable efforts to cure such Title Defects not later than the Closing Date.

(b) Insofar as the Title Defects described in the Purchaser's notice have not been cured to the Purchaser's reasonable satisfaction, the Purchaser may elect, at or before the Closing Date by written notice to the Vendor, to do one of the following:

(i) delay the Closing Date to such later date as is agreed by the Parties, so as to provide the Vendor with additional time to cure the remaining Title Defects;

(ii) waive such uncured Title Defects and proceed with Closing; or

(iii) terminate this Agreement, if the value of the Assets has been reduced by more than ten (10%) percent of the Purchase Price as a result the Title Defects.

Termination of this Agreement shall be the Purchaser's sole remedy for any Title Defect referred to in Purchaser's notice of Title Defects issued pursuant to Subclause A. Any dispute with respect to the reduction in the value of the Assets as a result of the Title Defect shall be resolved by arbitration by a single arbitrator pursuant to the Arbitration Act (Alberta). The decision of the arbitrator shall be final and binding upon the Parties, and if the decision of the arbitrator is in favour of the Vendor, Closing shall, subject to the other provisions of the Agreement, occur on the third business day after the decision of the arbitrator is rendered.

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8.0 Conditions For Benefit

8.1 Conditions For Benefit Of Purchaser

The obligation of the Purchaser to complete the purchase hereunder is subject to the following conditions precedent:

1. No Substantial Damage: There shall have been no physical damage to any of the Assets between the Effective Date and the Closing Date which, in the Purchaser's reasonable opinion would materially and adversely affect the value of the Assets, except and to the extent approved in writing by the Purchaser or to the extent that such damage is covered by insurance and the insurance proceeds are assigned to the Purchaser.
2. Availability Of Documents: The Vendor shall have provided the the Purchaser with reasonable access to the Vendor's records and documents pertaining to the Asset pursuant to Article VII, in order to confirm the Vendor's title to the Assets;
3. Material Compliance By Vendor: The Vendor shall have performed or complied in all material respects with each of the terms, covenants and conditions of this Agreement to be performed or complied with by the Vendor at or prior to the Closing Date;
4. Representations Correct: Each of the covenants, representations and warranties contained in Clause 6.1 shall be true and correct in all material respects as of the Closing Date, and the Vendor shall have delivered to the Purchaser a certificate of a senior officer of the Vendor, in the form of Schedule "C" dated as of the Closing Date, to that effect,
5. Delivery of Documents: The Vendor shall have delivered to the Purchaser one copy of the documents described in paragraphs 3.3(a)(i),(ii),(iii) and (v) and shall have delivered the documents described in Paragraph 3.3(a)(iv).
6. Releases and Discharges: The Vendor shall have delivered to the Purchaser releases of security or other evidence satisfactory to the Purchaser, acting reasonably, confirming that all secured creditors of the Vendor holding security interests in the Assets have discharged their security or claim no security interest in the Assets.
7. Regulatory Approvals: All regulatory approvals required to be obtained, by the Purchaser in order for the Purchaser to purchase the Assets, shall have been obtained.
8. Environmental Audit: The Purchaser shall have had the opportunity to conduct an environmental audit or inspection of the Assets and shall be satisfied with the results of such inspection. Such inspection shall be concluded on or before the Closing Date.

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8.2 Conditions For Benefit Of Vendor

The obligation of the Vendor to complete the sale is subject to the following conditions precedent:

(a) Material Compliance By Purchaser: The Purchaser shall have performed or complied in all material respects with each of the terms, covenants and conditions of this Agreement to be performed or complied with by the Purchaser at or prior to the Closing Date;

(b) Certificate That Representations Are Correct: The Purchaser shall have delivered to the Vendor a certificate of a senior officer of the Purchaser, in the form of Schedule "C-2" dated as of the Closing Date, to the effect that each of the covenants, representations and warranties contained in Clause 6.2 is, as of the Closing Date, true and correct in all material respects, except for those changes thereto which necessarily arise as a consequence of the operation of the provisions of this Agreement, as specifically provided herein;

(c) Delivery Of Documents: The Purchaser shall have executed and delivered to the Vendor one copy of the documents which are to be provided by the Purchaser pursuant to Paragraphs 3.3(b)(ii), (iii), (iv); and

(d) Payment of Purchase Price: The Purchaser shall have tendered to the Vendor the applicable goods and services tax and interest in the manner provided for in Clause 2.3. 

8.3 Waiver Of Conditions

The conditions in Clauses 8.1 and 8.2 are for the sole benefit of the Purchaser and the Vendor respectively. The Party for the benefit of which such conditions have been included may waive any of them, in whole or in part, by written notice to the other Party, without prejudice to any of the rights of the Party waiving such condition, including, without limitation, reliance on or enforcement of the representations, warranties or covenants re preserved and pertain to conditions similar to the condition so waived. However, neither the Purchaser nor the Vendor may waive the existence and operation of any preferential right of a third party to purchase any of the Assets or, without the concurrence of the other, any required consent of a third party to the Vendor's disposition of any of the Assets.

8.4 Failure To Satisfy Conditions

In the event any of the conditions in Clauses 8.1 or 8.2 has not been satisfied at or before the Closing Date and such condition has not been waived by the Party for the benefit of which such condition has been included, such Party may terminate this Agreement by written notice to the other Party. However, a Party may not terminate this Agreement in such manner after Closing.

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8.5 Parties To Exercise Diligence With Respect To Conditions

Each Party shall proceed diligently, honestly and in good faith and use all reasonable efforts with respect to all matters within its control to satisfy the conditions referred to in Clauses 8.1 and 8.2.

9.0 DEFAULT 

9.1 Remedies Of Injured Party

If a Party (hereinafter referred to as "the Defaulting Party") fails to comply with any of the terms and conditions of this Agreement such that Closing does not occur, the other Party (hereinafter referred to as "the Injured Party") may, by notice to the Defaulting Party, elect to:

1. treat this Agreement as terminated by reason of the non-fulfillment of the Defaulting Party's obligations and, if the Injured Party so decides, pursue a claim for damages; or
2. continue to treat the Agreement as binding and enforceable, pending resolution of the default by agreement of the Parties or by a court of competent jurisdiction.

However, the Injured Party shall be deemed to be treating the Agreement as binding and enforceable, unless and until it specifically elects in writing to pursue the alternative in Paragraph (a) of this Clause.

9.2 Interest Accrues On Amounts Owing

Any amount owing to a Party by the other Party pursuant to any provision of this Agreement after Closing and remaining unpaid shall bear compound interest, as computed monthly, from the day such amount was due to be paid until the day such amount was paid, at the Prime Rate, regardless of whether such Party has given the other Party prior notice of the accrual of interest hereunder. If the Vendor receives any money after Closing which is attributable to Petroleum Substances produced after the Effective Date, it shall promptly remt such money to the Purchaser. Any money received and not remitted within 10 days after receipt shall bear interest at the Prime Rate from the date of receipt until the date of payment to the Purchaser.

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10.0 LIABILITY AND INDEMNIFICATION

10.1 Responsibility of Vendor

Provided that Closing has occurred, the Vendor shall:

1. be liable to the Purchaser for all losses, costs, damages and expenses whatsoever which the Purchaser may suffer, sustain, pay or incur; and
2. indemnify and save the Purchaser and its directors, officers, servants, agents, consultants and employees harmless from and against all losses, costs, damages, expenses, claims, liabilities, actions, proceedings and demands whatsoever which may be brought against or suffered by the Purchaser, its directors, officers, servants, agents, consultants or employees or which they may sustain, pay or incur.

as a result of the breach or inaccuracy of any representation, warranty or covenant of the Vendor contained herein, except any losses, costs, damages, expenses, claims, liabilities, actions, proceedings and demands to the extent that the same are either reimbursed (or reimbursable) by insurance maintained by the Purchaser or are caused by the gross negligence or willful misconduct of the Purchaser, its directors, officers, servants, agents, employees or assigns. Notwithstanding any provision herein, the liability of the Vendor and the indemnity hereby granted by the Vendor to the Purchaser shall only apply with respect to claims made within eighteen (18) months following the Closing Date.

10.2 Responsibility Of Purchaser

Provided that Closing has occurred, and subject to Clause 4.2 Purchaser shall assume all of the Vendor's liabilities and obligations, under contracts to which they are made parties or which are assigned to them by virtue of documents delivered at Closing arising after the Effective Date in respect to the Assets and shall,

(a) be liable to the Vendor for all losses, costs, damages and expenses whatsoever which the Vendor may suffer, sustain, pay or incur; and

(b) indemnify and save the Vendor and its directors, officers, servants, agents and employees harmless from and against all claims, liabilities, actions, proceedings, demands, losses, costs, damages and expenses whatsoever which may be brought against or suffered by the Vendor, its directors, officers, servants, agents or employees or which they may sustain, pay or incur;

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as a direct result of any matter or thing arising out of, resulting from, attributable to or connected with the Assets and occurring subsequent to the Effective Date, except any losses, costs, damages, expense, claims, liabilities, actions, proceedings and demands to the extent that the same either are reimbursed (or reimbursable) by insurance maintained by the Vendor or arise as a result from or are caused by the gross negligence or willful misconduct of the Vendor, it's directors, officers, servants, agents, employees or assigns, or the breach of inaccuracy of any of the Vendor's representations and warranties in Clause 6.1 (and without regard to the time limit set out in Clause 6.3). The responsibility prescribed by this Clause, however, does not provide either an extension of any representation or warranty contained in Clause 6.2 or an additional remedy for breach of such a representation or warranty. Nothing contained in this Clause shall relieve the Vendor from any liability arising as a result of a breach of any representation or warranty contained in Clause 6.1.

10.3 Limit On Vendor's Responsibility

In no event shall the total of the liabilities and indemnities of the Vendor under this Agreement, including, without limitation, any claims relating to its representations and warranties, exceed the Purchase Price of the value of the Shares.

10.4 Assets Acquired On "As Is" Basis

Notwithstanding the foregoing provisions of this Article, but subject to the other provisions of this Agreement, the Purchaser acknowledges that it is acquiring the Assets on an "as is" basis, as of the Effective Date. The Purchaser acknowledges that it is familiar with the condition of the Assets, including the past and present use of the Lands and the Tangibles, that the Vendor has provided the Purchaser with a reasonable opportunity to inspect the Assets at the sole cost, risk and expense of the Purchaser (insofar as the Vendor could reasonably provide such access) and that the Purchaser is not relying upon any representation or warranty of the Vendor as to the condition, environmental or otherwise, of the Assets, except as is specifically made pursuant to Clause 6.1. Provided that Closing has occurred, Purchaser further agrees that, as of the Effective Date, it shall:

(a) be solely liable and responsible for any and all losses, costs, damages and expenses (in this Clause, "Losses") which the Vendor may suffer, sustain, pay or incur; and

(b) indemnify and save the Vendor and its directors, officers, servants, agents and employees harmless from any and all claims, liabilities, actions, proceedings, demands, losses, costs, damages and expenses whatsoever (in this Clause, "Claims") which may be brought against or suffered by the Vendor, its directors, officers, servants, agents or employees or which they may sustain, pay or incur;

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as a direct result of any matter or thing arising out of, resulting from, attributable to or connected with any environmental damage pertaining to or resulting from the Assets or the operation thereof, or any of them to the extent that the Losses or Claims accrue on or after the Effective Date (but regardless of the date on which the environmental damage occurred) including, without limitation, damage from or removal of hazardous or toxic substances, cleanup, well abandonment, decommissioning and reclamation and, as between the Vendor, on the one hand, and Purchaser on the other hand, Purchaser shall be solely responsible for all such Losses and Claims relating to environmental damage. Nothing contained in this Clause shall relieve the Vendor from any liability arising as a result of a breach of any representation or warranty contained in Clause 6.1.

10.5 No Merger Of Legal Responsibilities

The liabilities and indemnities created in this Article shall be deemed to apply to, and shall not merge in, all assignments, transfers, conveyances, novations, trust agreements and other documents conveying any of the Assets from the Vendor to the Purchaser, notwithstanding the terms of such assignments, transfers, conveyances, novations and other documents, the Regulations or any rule of law or equity to the contrary, and all such rules are hereby waived.

10.6 Substitution And Subrogation

Insofar as is possible, each Party shall have full rights of substitution and subrogation in and to all covenants, representations and warranties by others previously given or made in respect of the Assets or any of them.

10.7 Responsibility Extends To Legal Costs

Notwithstanding any provision to the contrary contained in this Article, references to costs in the liability and indemnification obligations prescribed by Clauses 10.1, 10.2 and 10.4 shall be deemed to include reasonable legal costs on a solicitor-client basis. 

12.0 WAIVER

12.1 Waiver Must Be In Writing

No waiver by any Party of any breach (whether actual or anticipated) of any of the terms, conditions, representations or warranties contained herein shall take effect or be binding upon that Party unless the waiver is expressed in writing under the authority of that Party. Any waiver so given shall extend only to the particular breach so waived and shall not be limited or affect any rights with respect to any other or future breach.

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13.0 ASSIGNMENT

13.1 Assignments Before Closing

Neither Party may assign its interest in or under this Agreement without the prior written consent of the other Party. No assignment, transfer or other disposition of this Agreement or all or any portion of the Assets by the Purchaser after Closing shall relieve the Purchaser from its obligations to the Vendor herein. The Vendor shall have the option to claim payment or performance of such obligations from Purchaser or it's assignee's or transferee's, and to bring proceedings in the event of default against it.

14.0 NOTICE

14.1 Service of Notice

Notwithstanding anything to the contrary contained herein, all notices required or permitted hereunder shall be in writing. Any notice to be given hereunder shall be deemed to be served properly if served in any of the following modes:

(a) personally, by delivering the notice to the Party on which it is to be served at that Party's address for service. Personally served notices shall be deemed to be received by the addressee when actually delivered as aforesaid, provided that such delivery shall be during normal business hours on any day other than a Saturday, Sunday or statutory holiday in Alberta. If a notice is not delivered on such a day or is delivered after the addressee's normal business hours, such notice shall be deemed to have been received by such Party at the commencement of the addressee's first business day next following the time of the delivery; or

(b) by telecopier (or by any other like method by which a written message may be sent) directed to the Party on which it is to be served at the Party's address for service. A notice so served shall be deemed to be received by the addressee when actually received by it, if received within normal business hours on any day other than a Saturday, Sunday or statutory holiday in Alberta or at the commencement of the next ensuing business day following transmission if such notice is not received during such normal business hours.

14.2 Addresses For Notices

The address for service of notices hereunder of each of the Parties shall be as follows:

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VENDOR:

Terra Nostra Technology Ltd.2160 Rue de la MontagneMontreal, QuebecAttention: Regis Bosse, President

PURCHASER:

Capital Reserve Canada Ltd.1530 - 9th Avenue SECalgary, Alberta T2G 0T7

Attention: W. Scott Lawler, Secretary/Treasurer

FACT:

FACT Corporation1530-9^th Ave SECalgary, Alberta T2G 0T7

Attention: J. Danforth, President

14.3 Right To Change Address

A Party may change its address for service by notice to the other Party, and such changed address for service thereafter shall be effective for all purposes of this Agreement. 

15.0 MISCELLANEOUS PROVISIONS

15.1 Further Assurances

At the Closing Date and thereafter as may be necessary, the Parties shall execute, acknowledge and deliver such instruments and take such other actions as may be reasonably necessary to fulfill their respective obligations under this Agreement. The Vendor shall cooperate with the Purchaser as reasonably required to secure execution by third parties of the documents referred to in Paragraph 3.3(a)(ii)

15.2 Governing Law

This Agreement shall be subject to and be interpreted, construed and enforced in accordance with the laws in effect in the Province in Alberta. Each Party accepts the jurisdiction of the courts of the Province of Alberta and all courts of appeal therefrom.

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15.3 Time

Time shall be of the essence in this Agreement.

15.4 No Amendment Except In Writing

Subject to Clause 14.3, this Agreement may be amended only by written instrument executed by the Vendor and the Purchaser. 

15.5 Consequences of Termination

If this Agreement is terminated in accordance with its terms prior to Closing, then except for the provisions of Articles X and XI and the covenants, warranties, representations or other obligations breached prior to the time at which such termination occurs, the Parties shall be released from all of their obligations under this Agreement. If this Agreement is so terminated, the Purchaser shall promptly return to the Vendor all materials delivered to the Purchaser by the Vendor hereunder, together with all copies that may have been made by or for the Purchaser.

15.6 Supersedes Earlier Agreements

This Agreement supersedes all other agreements between the Parties with respect to the Assets and expresses the entire agreement of the Parties with respect to the transactions contained herein. 

15.7 Enurement

Subject to the provisions of Article XVI, this Agreement shall be binding upon and enure to the benefit of the Parties and their respective successors and permitted assigns.

15.8 Counterpart Execution

This Agreement may be executed in counterpart and when each counterpart has been executed and delivered, this Agreement shall be binding on the parties.

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IN WITNESS WHEREOF the Parties have executed this Agreement on the date first above written.

Capital Reserve Canada Ltd.

Per: /s/ Desmond SmithDesmond Smith, President & Director

Terra Nostra Technology Ltd.

Per: /s/ Regis BosseRegis Bosse, President & Director

FACT Corporation 

Per: /s/ Jacqueline DanforthJacqueline Danforth, President & Director

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SCHEDULE "A"

Attached to and made part of Agreement of Purchase and Sale dated June 15, 2003 between Capital Reserve Canada Ltd. and Terra Nostra Technology Ltd. and FACT Corporation

Lease Number	LeaseName	Legal Description	Lease ExpiryDate	GrossAcres	NetAcres	LOR
Mont-2402	Louise R. Galt	T. 13 N., R. 34 E.Sec. 26, W2Sec. 29, All	10-30-2006	960.00	240.00	12.5%
Mont-2402.1	Norma Hersh	Same As Above	9-22-2003		77.33	12.5%
Mont-2402.10	Unity School	Same As Above	11-3-2003		8.00	12.5%
Mont-2402.A	Merl Long	T. 13 N., R. 34 E.Sec 26, W2	9-15-2003		64.00	12.5%
Mont-2402.B	Maidette Smith	T. 13 N., R. 34 E.Sec 26, W2	1-7-2004		43.56	15.0%
Mont-2402.C	Maidette Smith	T. 13 N., R. 34 E.Sec 29, All	1-7-2004		87.11	15.0%
Mont-2403	ST. 32, 313-97	T. 13 N., R. 34 E.Sec 26, E2	3-4-2007		320.00	13.0% (oil)
Kejr Leases - Lease Description

Washington County, Colorado

1. Identification and Lands Subject to this Agreement, "Contract Area".

Township 2 South, Range 56 WestSection 2: S/2Section 10: E/2Section 11: S/2Section 14: W/2

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2. Restrictions to Depths: None

3. Percentage Interests of the Parties in the Contract Area: Bataa Oil, Inc. - 25% Azalea Oil Co. LLC - 25% Texas T Petroleum Ltd. - 20% Richard K. and Anita K. Knight - 10% James and Victoria Wise - 10% Renegade Recreational Rentals Inc. d.b.a. Buccaneer Holdings Inc. - 10%

4. Oil and Gas Leases Subject to this Agreement:

Lessor: Kejr Foundation, Inc.Lessee: Azalea Oil Company, LLCDated: January 15, 1996Description: Township 2 South, Range 56 West Section 11: S/2Recorded: BK 938, pg 322

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SCHEDULE "B"

Attached to and made part of Agreement of Purchase and Sale dated 15^th of June, 2003 between Capital Reserve Canada Ltd. and Terra Nostra Resources Ltd. and FACT Corporation

CONVEYANCE

THIS AGREEMENT made this day of 15 June 2003.

BETWEEN:

CAPITAL RESERVE CANADA LTD., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter called the "Purchaser")

OF THE FIRST PART

- and -

TERRA NOSTRA TECHNOLOGY LTD. a body corporate having an office in the City of Montreal, in the Province of Quebec (hereinafter called the "Vendor")

OF THE SECOND PART

WHEREAS the Vendor has agreed to sell and convey the Assets to the Purchaser and the Purchaser has agreed to purchase and receive the Assets from the Vendor;

NOW THEREFORE for the consideration provided in the Agreement of Purchase and Sale and in consideration of the premises hereto and the covenants and agreements hereinafter set forth and contained, the parties hereto covenant and agree as follows:

1. DEFINITIONS

In this Agreement, including the premises hereto:

(a) "Sale Agreement" means the agreement entitled "Agreement of Purchase and Sale", dated the 15^th day of June 2003, and made between the Vendor, as vendor, and the Purchaser as purchaser.

In addition, all undefined terms used herein shall have the meaning ascribed thereto in the Sale Agreement.

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2. EFFECTIVE TIME

This conveyance shall be effective as of the Effective Date.

3. CONVEYANCE

The Vendor, pursuant to and for the consideration provided for in the Sale Agreement, the receipt and sufficiency of such consideration being hereby acknowledged by the Vendor, hereby sells, assigns, transfers, conveys and sets over to the Purchaser the entire right, title, estate and interest of the Vendor in and to the Assets, to have and to hold the same absolutely together with all benefit and advantage to be derived therefrom and subject to the performance and observance of all obligations and burdens associated therewith.

4. SUBORDINATE DOCUMENT

This Agreement is executed and delivered by the parties hereto pursuant to and for the purposes of the provisions of the Sale Agreement and the provisions of the Sale Agreement shall prevail and govern in the event of a conflict between the provisions of the Sale Agreement and this Agreement.

5. ENUREMENT

This Agreement shall be binding upon and shall enure to the benefit of each of the parties hereto and their respective trustees, receivers, receiver-managers, successors and assigns.

6. FURTHER ASSURANCES

Each party hereto will, from time to time and at all times hereafter, at the request of the other party but without further consideration, do all such further acts and execute and deliver all such further documents as shall be reasonably required in order to fully perform and carry out the terms hereof.

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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written. 

CAPITAL RESERVE CANADA LTD.

Per: /s/ Desmond Smith Desmond Smith, President/Director  

TERRA NOSTRA TECHNOLOGY LTD.

Per: /s/ Richard St. Julien Richard St. Julien, Director

32  

SCHEDULE "C-1"

Attached to and made part of Agreement of Purchase and Sale date 15^th June 2003 between Capital Reserve Canada Ltd. and Terra Nostra Technology Ltd. and FACT Corporation

OFFICER'S CERTIFICATE

To: Capital Reserve Canada Ltd. and FACT Corporation

The undersigned hereby certifies that:

1. I am a Director of Terra Nostra Technology Ltd.

2. All of the covenants, representations and warranties contained in Clause 6.1 of the Agreement of Purchase and Sale dated as of the 15th day of June, 2003, between Capital Reserve Canada Ltd. and Terra Nostra Resources Ltd. and FACT Corporation (the "Agreement") are true and correct in all material respects as of the date hereof, except for those changes thereto which necessarily arise as a consequence of the operation of the provisions of the Agreement as specifically provided therein.

This Certificate is given in my capacity as an officer of Terra Nostra Technology Ltd. and I assume no personal liability for the statements contained herein. 

Dated this 15th day of June, 2003 

/s/ Regis BosseRegis Bosse, President & Director

33 

SCHEDULE "C-2"

Attached to and made part of Agreement of Purchase and Sale date 15^th of June, 2003 between Capital Reserve Canada Ltd. and Terra Nostra Resources Ltd. and FACT Corporation

OFFICER'S CERTIFICATE

To: Terra Nostra Technology Ltd. and FACT Corporation

The undersigned hereby certifies that:

1. I am the President of Capital Reserve Canada Ltd.

2. All of the covenants, representations and warranties contained in Clause 6.2 of the Agreement of Purchase and Sale dated as of the 15^th day of June, 2003, between Capital Reserve Canada Ltd. and Terra Nostra Resources Ltd. and FACT Corporation (the "Agreement") are true and correct in all material respects as of the date hereof, except for those changes thereto which necessarily arise as a consequence of the operation of the provisions of the Agreement as specifically provided therein.

This Certificate is given in my capacity as an officer of Capital Reserve Canada Ltd. and I assume no personal liability for the statements contained herein.

Dated this 15th day of June, 2003 

/s/ N. Desmond SmithN. Desmond Smith, President/Director

34 

SCHEDULE "D"

Attached to and made part of Agreement of Purchase and Sale dated 15th June, 2003 between Capital Reserve Canada Ltd. and Terra Nostra Resources Ltd. and FACT Corporation

There is an outstanding Approval for Expenditures of $9,000.00US on the Montana Leases

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