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1.
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GRANT
OF OPTION
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2.
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OPTION
ONLY
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3.
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TERMS
OF THE OPTION
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(a)
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pay
to the Optionors $25,000 upon upon receipt of regulatory
approval;
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(b)
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pay
to the Optionors $25,000 on or before the date which is 12 months from the
date of regulatory approval;
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(c)
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pay
to the Optionors a further $25,000 on or before the date which is 24
months from the date of regulatory
approval;
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(d)
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pay
to the Optionors a further $25,000 on or before the date which is 36
months from the date of regulatory
approval;
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(e)
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issue
to the Optionors 250,000 common shares of the Optionee upon receipt of
regulatory approval;
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(f)
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issue
to the Optionors 250,000 common shares of the Optionee 12 months from the
date of regulatory approval;
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(g)
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issue
to the Optionors a further 250,000 common shares of the Optionee 24 months
from the date of regulatory approval;
and
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(h)
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issue
to the Optionors a further 250,000 common shares of the Optionee 36 months
from the date of regulatory
approval.
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4.
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EXERCISE
OF THE OPTION
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5.
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OPERATOR
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6.
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ROYALTY
INTEREST
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7.
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RIGHT
OF ENTRY
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(a)
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enter
in, under and upon the Property;
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(b)
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have
exclusive and quiet possession thereof subject to the rights of the
Optionors hereunder;
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(c)
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do
such prospecting, exploration, development or other mining work thereon
and thereunder as the Optionee in its sole discretion may consider
desirable;
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(d)
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bring
upon and erect upon the Property such mining facilities as the Optionee
may consider advisable; and
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(e)
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remove
from the Property and dispose of reasonable quantities of ores, minerals
and metals for the purposes of sampling, obtaining assays or making other
tests.
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8.
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NOTICE
OF DEFAULT AND TERMINATION BY
OPTIONORS
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9.
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NO
PRODUCTION OBLIGATION
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10.
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EXCLUSION
OF PROPERTY
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11.
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COVENANTS
OF THE OPTIONEE
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(a)
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keep
the Property in good standing by doing and filing of all assessment work
and by the doing all other acts and things and making all other payments
which may be necessary in that
regard;
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(b)
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permit
the Optionors, or their representative, duly authorized by it in writing,
at its own risk and expense, access to the Property at all reasonable
times and to all records prepared by the Optionee in connection with work
done or with respect to the Property, provided the Optionors shall not,
without the prior written consent of the Optionee, such consent not to be
unreasonably withheld, disclose any information obtained by it or
communicated to it, to any third party except as may be required by
regulatory bodies having jurisdiction over it;
and
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(c)
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conduct
all work on or with respect to the Property in a careful and workmanlike
manner and in compliance with the applicable laws of the jurisdiction in
which the Property is located and indemnify and save the Optionors
harmless from any and all claims, suits or actions made or brought against
the Optionors as a result of work done by the Optionee on or with respect
to the Property.
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12.
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COVENANTS
OF THE OPTIONORS
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(a)
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not
do or permit or suffer to be done any act or thing which would or might in
any way adversely affect the rights of the Optionee
hereunder;
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(b)
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make
available to the Optionee and its representatives all records and files
relating to the Property in its possession and permit the Optionee and its
representatives to take abstracts therefrom and make copies
thereof;
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(c)
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co-operate
with the Optionee in obtaining any water appropriation license, surface
licenses and any other rights or licenses on or related to the Property,
the Optionee deems necessary or desirable;
and
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(d)
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promptly
provide the Optionee with any and all notices and correspondence from
government or regulatory agencies in respect of the
Property.
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13.
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REPRESENTATIONS
AND WARRANTIES OF THE OPTIONORS
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(a)
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the
Optionors are the legal and beneficial owners of the
Property;
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(b)
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the
Property consists of those mining claims more particularly described in
Schedule “A”, all of which were duly and validly located and recorded in
accordance with the applicable laws of Ontario and are valid and
subsisting as of the date of execution and delivery of this
Agreement;
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(c)
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the
Property is in good standing, free and clear of all liens, charges and
encumbrances;
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(d)
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there
are no pending or threatened actions, suits, claims or proceedings
regarding the Property; and
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(e)
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the
Optionors have the exclusive right and authority to enter into this
Agreement and to dispose of the Property in accordance with the terms
hereof, and that no other person, firm or corporation has any proprietary
or other interest in the same.
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The
representations and warranties of the Optionors herein before set out,
form a part of this Agreement and are conditions upon which the Optionee
has relied on in entering into this Agreement and shall survive the
exercise of the Option by the Optionee. The Optionors shall
indemnify and save the Optionee harmless from all loss, damage, costs,
actions and suits arising out of or in connection with any breach of any
representation, warranty, covenant, agreement or condition contained in
this Agreement. The Optionors acknowledge and agree that the
Optionee has entered into this Agreement relying on the warranties and
representations and other terms and conditions of this Agreement and that
no information which is now known or which may hereafter become known to
the Optionee or its officers, directors or professional advisors shall
limit or extinguish the right to indemnity hereunder. The
Optionee may deduct the amount of any such loss or damage from any amounts
payable by it to the Optionors
hereunder.
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14.
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TERMINATION
PRIOR TO ACQUISITION OF INTEREST
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15.
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ADDITIONAL
TERMINATION
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16.
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FORCE
MAJEURE
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17.
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NOTICE
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18.
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FURTHER
ASSURANCES
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19.
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TIME
OF ESSENCE
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20.
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TITLES
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21.
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SCHEDULES
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22.
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VOID
OR INVALID PROVISION
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23.
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SUCCESSORS
AND ASSIGNS
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24.
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APPROVALS
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25.
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ARBITRATION
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26.
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ASSIGNMENT
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27.
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AFTER-ACQUIRED
PROPERTY
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28.
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GOVERNING
LAW
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29.
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PRIOR
AGREEMENTS
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30.
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EXECUTION
IN COUNTERPARTS
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Township
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Claim
Number
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#
of Units
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Recording
Date
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Due
Date
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Horwood
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4246161
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6
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Nov.
14, 2008
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Nov.
14, 2010
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Horwood
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4247296
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4
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Aug.
4, 2009
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Aug.
4, 2011
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Horwood
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4247626
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9
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April
23, 2009
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Feb.
26, 2011
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Horwood
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4247629
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16
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Feb.
25, 2009
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Feb.
25, 2011
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Horwood
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4247683
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16
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April
28, 2009
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April
28, 2011
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Horwood
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4247684
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2
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April
23, 2009
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April
23, 2011
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Horwood
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4247685
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15
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April
28, 2009
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April
28, 2011
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Horwood
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4247687
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12
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April
23, 2009
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April
23, 2011
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Horwood
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4247688
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16
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April
23, 2009
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April
23, 2011
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Horwood
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4247689
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8
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April
23, 2009
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April
23, 2011
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Horwood
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4250796
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13
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Sept.
8, 2009
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Sept.
8, 2011
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Horwood
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4250797
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16
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Sept.
8, 2009
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Sept.
8, 2011
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Silk
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4251713
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3
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Nov.
3, 2009
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Nov.
3, 2011
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Silk
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4251714
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16
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Nov.
3, 2009
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Nov.
3, 2011
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Total
Units
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152
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1.
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For
all diamonds, gems and other precious and semi-precious stones (“Stone
Products”) mined or produced from the Property, the Optionee shall pay to
the Vendor a Royalty equal to a percentage of the net sales returns
(“NSAR”) realized from the sale or disposition of the Stone
Products.
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2.
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For
all metals, bullion or concentrates (“Other Products”) mined or produced
from the Property, the Optionee shall pay to the Vendor a Royalty equal to
a percentage of the net smelter returns (“NSMR”) realized or deemed to be
realized as hereinafter provided, from the sale or disposition of the
Other Products.
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3.
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The
aforementioned percentage of the NSAR and percentage of the NSMR shall be
that determined in accordance with the provisions of Section 4 of the
Agreement to which this Schedule B forms a part; and in the calculation of
the Royalty, such percentage is applied to 100% of the NSAR or NSMR, as
the case may be, regardless of dilution of the Optionee’s working interest
or entitlement with respect to the Agreement, the Property or the
Products.
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4.
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For
the purposes of this Schedule B, the term “Products” shall be interpreted
as a collective reference to Stone Products and Other Products and the
term “Royalty” shall be interpreted as a collective reference to the NSAR
Royalty and the NSMR Royalty.
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5.
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Net
Sales Returns Royalty – Stone
Products
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a.
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Net
sales returns means the gross proceeds from the sale or disposition of
Stone Products to an independent purchaser, after deducting therefrom the
cost of Valuation, Sorting, Shipping and Insurance in connection with the
Stone Products as well as any sales, excise, production, export and other
duties, levies, assessments and taxes (except income taxes) payable on the
production or sale of Stone Products (but not income taxes), and for the
purposes hereof:
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i.
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“Valuation”
means the establishing of a value for each lot or group of sorted Stone
Products for purposes of reference when negotiating with a potential
purchaser of the same;
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ii.
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“Sorting”
means separation of Stone Products from waste materials and dividing them
into groups according to quality, size, or other characteristics, and then
the division of such groups into appropriate lots or groups for valuing
and/or sale, it being acknowledged that in the case of gem quality Stone
Products, a group or lot may be a single
stone;
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iii.
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“Shipping”
means all methods of transportation or places of storage of Stone Products
from the moment they leave the Property until the passing of title thereto
or risks therefore (whichever is the later) to an independent purchaser,
including, without limitation, any cost that may be incurred by reason of
such methods or places used or any sorting or valuation facilities being
situated off the Property; and
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iv.
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“Insurance”
means all insurance that the Optionee considers advisable to protect all
or part of the Stone Products in the possession or control of the Optionee
(including, without limitation, during shipping) until the passing of
title thereto or risks therefore (whichever is the later) and including,
without limitation, the insurance or bonding of any person who does or may
come into contact with any such Stone Products at any point during the
operations of the Optionee whether such person is an employee of the
Optionee or otherwise.
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b.
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If
Stone Products are sold to any entity with which the Optionee does not
deal at arm’s length, the Stone Products shall for the purposes hereof be
deemed to have been sold at prices determined by an independent valuator
chosen by the Vendor.
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c.
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the
Optionee shall not have the right to commingle Stone Products produced
from the Property with similar products produced from other
properties.
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6.
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Net
Smelter Returns Royalty – Other
Products
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a.
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Net
smelter returns means the gross proceeds from the sale or disposition of
Other Products removed from the Property after deducting the costs of
treatment, tolling, smelting, refining and minting of such products and
all costs associated therewith such as transporting, insuring, handling,
weighing, sampling, assaying and marketing, as well as all penalties,
representation charges, referee’s fees and expenses, import taxes and
export taxes; and the term "smelter" shall mean conventional smelters as
well as any other type of production plant used in lieu of a conventional
smelter to reduce concentrates.
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b.
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If
smelting, refining, treatment, assay or sampling of Other Products is
performed by facilities owned or controlled by the Optionee or any of its
affiliates, all charges, costs and penalties therefore to be deducted
pursuant to the foregoing paragraph shall be equal to and not exceed
actual costs incurred by the Optionee in carrying out such processes and
shall not exceed such amounts which the Optionee would have incurred if
such operations were conducted at facilities operating at arm’s length to
the Optionee, and which were then offering comparable services for
comparable quantities and quality of Other
Products.
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c.
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The
Optionee shall have the right to commingle Other Products produced from
the Property with metals, bullion or concentrates produced from other
properties. Before commingling, Other Products from the
Property shall be weighed, sampled, assayed, measured or gauged by the
Optionee in accordance with sound mining and metallurgical practices for
moisture, penalty substances and payable content. Records shall
be kept by the Optionee for a reasonable time showing weights, moisture
and assays of payable content. Prior to commingling, the Optionee shall
give thirty (30) days notice to the Vendor specifying its decision to
commingle and outlining the procedures it proposes to
follow.
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7.
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General
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a.
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Royalties
shall accrue at the time of sale or deemed sale, as applicable, and they
shall become due and payable in cash on a calendar quarter basis, on the
twentieth (20th) day of the month next following the calendar quarter in
which they accrue.
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b.
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At
the time of making each Royalty payment to the Vendor, the Optionee shall
provide the Vendor with a certificate of a senior officer of the Optionee
certifying as to the accuracy of the calculations of the Royalty payment
and setting out the method of the calculation thereof to which shall be
attached a true copy of the related smelter or sales receipt or
receipts.
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c.
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Net
sales returns and net smelter returns upon the respective Products shall
be calculated exclusively as provided herein, and the Royalty computed
thereon shall be determined without regard to any “hedging”, “forward”,
“futures” or comparable sales (collectively referred to as “future
trading”) of such Products by or on behalf of the Optionee. The Vendor
shall not be entitled to any benefit of or be subject to any loss
attributable to such future trading by the
Optionee.
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d.
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The
Optionee shall cause to be kept proper books of account, records and
supporting materials covering all matters relevant to the calculation of
Royalties payable to the Vendor, and the reasonable verification thereof;
and the Vendor shall have, from time to time, the unfettered right, during
regular business hours and on reasonable notice, to carry out at its sole
cost and expense an audit by established independent professionals chosen
by the Vendor, of the methodology and manner of calculating all Royalty
payments hereunder and the Optionee shall provide, during regular business
hours and on reasonable notice, unrestricted access to its books,
accounts, records, vouchers, smelter settlements, sales receipts and
related documentation for this purpose. Should there be any
difference in the amount of the Royalty payment or payments which are
ultimately determined by the process to be in the Vendor’s favour, which
exceed three (3%) percent of the amount of the Royalty paid to the Vendor,
then the cost of said audit, to the extent reasonable, shall be reimbursed
to the Vendor by the Optionee.
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e.
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Any
dispute relating to the quantum or methodology of calculating all
Royalties payable hereunder shall be settled by arbitration pursuant to
the provisions of the Agreement.
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