EXHIBIT 4.9
OPTION AGREEMENTS
BETWEEN
HALO RESOURCES LTD.
AND
▇▇▇▇▇▇ BAY EXPLORATION AND DEVELOPMENT COMPANY LIMITED.
DATED
MARCH 19, 2006.
PARK AGREEMENT
THIS AGREEMENT made as of the day of , 2006.
BETWEEN:
▇▇▇▇▇▇ BAY EXPLORATION AND DEVELOPMENT COMPANY LIMITED,
a corporation incorporated under the laws of Canada,
(hereinafter referred to as the "Optionor")
OF THE FIRST PART,
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HALO RESOURCES LTD., a corporation continued
under the laws of British Columbia,
(hereinafter referred to as the "Optionee")
OF THE SECOND PART.
WHEREAS the Optionor is the sole recorded and beneficial owner
of a 100% undivided interest in the Property (as hereinafter defined);
AND WHEREAS the Optionor desires to grant to the Optionee and
the Optionee desires to receive from the Optionor an option to acquire a 100%
interest in the Property, subject to Sections 13 and 14 herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the terms and conditions hereinafter contained and the sum of $2.00 now paid
by the Optionee to the Optionor (receipt of which is hereby acknowledged) the
parties hereto agree as follows:
1. DEFINITIONS
In this Agreement and in all schedules hereto the following words and
terms where capitalized shall have the following meanings unless the
context clearly indicates a contrary meaning:
(a) "Agreement" means this agreement between the Optionor and the
Optionee, including all Schedules hereto and any documents
incorporated by reference and other amendments as permitted
hereunder, and the expressions this "Agreement", "herein",
"hereto" and other similar expressions refer to all of this
agreement, including the Schedules, any documents incorporated
by reference and other amendments permitted hereunder, and not
to any particular Article, Section or Subsection;
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(b) "Anniversary Date" means an anniversary date of this
Agreement;
(c) "Area of Interest" means the area within one (1) kilometre
from the existing boundaries of the Property as of the date of
this Agreement but excluding any claims held by any other
party as of the date of this Agreement, which excluded claims
are more particularly described in Schedule "A" attached
hereto;
(d) "Back-in Right" means the right of the Optionor to acquire the
Back-in Interest pursuant to Section 14;
(e) "Back-in Interest" has the meaning given to it in Section 14;
(f) "Back-in Interest Expenditures" means the expenditures
required to be made by the Optionor upon exercise of the
Back-in Right as set out in Section 14 hereof;
(g) "Commencement of Commercial Production" means the date upon
which Product from the Property, for other than testing
purposes, has been processed for a period of thirty (30)
consecutive production days at a rate equal to not less than
seventy-five (75%) percent of the rate projected in the
feasibility report, if any, prepared by or for the Optionee in
respect of the Property;
(h) "Environmental Laws" means all laws, statutes, regulations,
ordinances, rules, requirements, policies, guidelines,
by-laws, codes, orders, permits, directives, notices and
approvals of all federal, territorial, provincial, municipal
or local governmental or administrative authorities and
related to environmental or occupational or public health or
safety matters, or to the generation, handling, treatment,
storage, transportation, disposal or clean up of pollutants,
contaminants, hazardous or toxic substances, dangerous goods,
ozone-depleting substances or other harmful substances or
materials or to the reclamation, site rehabilitation,
restoration, remediation, or other mine and related facilities
closure requirements;
(i) "Expenditures" means:
A. all cash payments made by the Optionee in respect of
the Property towards fulfillment of the expenditure
requirements for this Agreement which meet the
requirements for obtaining assessment credits as set
out in the MINERAL DISPOSITION AND MINERAL LEASE
REGULATION, 1992 made under THE MINES AND MINERALS
ACT (Manitoba); plus
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B. up to ten (10%) percent per annum of the amount of
such qualifying expenditures referred to in Section
1(j)A. above, which may be applied towards overhead
and expenditures that do not otherwise meet the
requirements for obtaining assessment credits as set
out in the MINERAL DISPOSITION AND MINERAL LEASE
REGULATION, 1992 made under THE MINES AND MINERALS
ACT (Manitoba);
(j) "Feasibility Report" means a report prepared to analyze
whether or not to proceed with mine development and
exploration with respect to the Property in a form and of a
scope that is generally acceptable to reputable financial
institutions that provide financing to the mining industry;
(k) "Joint Venture" means the entity formed upon the execution of
the Joint Venture Agreement;
(l) "Joint Venture Agreement" means an agreement relating to the
development and operation of a joint venture formed pursuant
to Section 14 (d);
(m) "Net Sales Revenue" shall mean the actual proceeds received
from any independent custom smelter, mill, mint or other
purchaser for the sale of any Product extracted and derived
from the Property, after deducting all charges and penalties
for smelting and refining and the cost of transportation (to
the smelter and thereafter to the mint), insurance premiums,
sampling and assaying charges incurred after the Product has
left the Property, and all appropriate mint charges;
(n) "Net Smelter Return Royalty" has the meaning described in
Section 13 hereof;
(o) "Option" means the option described in Section 3 hereof;
(p) "Option Exercise Date" has the meaning described in Section 6
hereof;
(q) "Option Period" means the four (4) year time period set out in
Section 3 hereof;
(r) "Option Shares" means the shares described in Section 4 (f)
hereof;
(s) "Prime" means the prime interest rate charged by the Bank of
Nova Scotia from time to time;
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(t) "Product" means all metals, ores, concentrates, minerals and
mineral resources extracted or produced from the Property;
(u) "Property" means those claims more particularly described in
Schedule "A" attached hereto, all of which are situated in the
Sherridon area of Manitoba, or such of them as at any relevant
time have not been released by the Optionee under this
Agreement together with any claims added to the definition by
virtue of Section 10 hereof;
(v) "Quarter" means each period of 3 calendar months starting on a
Quarterly Date but so that the first Quarter under this
Schedule shall start on the date of the Commencement of
Commercial Production and end on the date immediately
preceding the second Quarterly Date to occur after the date of
the Commencement of Commercial Production;
(w) "Quarterly Date" means 1 January, 1 April, 1 June and 1
October of each calendar year; and
(x) "Vesting of the Back-in Right" has the meaning described in
Section 14.
All monies referred to in this Agreement, unless otherwise noted, are
expressed in Canadian dollars.
2. REPRESENTATIONS
(a) The Optionor represents and warrants to the Optionee that, as
of the date hereof:
(i) it is the sole recorded and beneficial owner of the
Property and, save for any rights granted to the
Optionee, is in exclusive possession thereof;
(ii) it is duly incorporated and validly existing under
the laws of Canada;
(iii) the Property is free and clear of all liens, charges,
encumbrances, royalties or other third party
interests of any kind whatsoever except for a charge
noted by a registration in favour of BNY Trust
Company of Canada pursuant to a debenture dated
December 10, 2004, given by the Optionor as security
under a Trust Indenture dated December 21, 2004 which
charge and registration will be discharged by the
Option or forthwith upon the Optionee exercising the
Option in accordance with the terms of this
Agreement.
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(iv) to the best of its knowledge, there are no pending or
threatened actions, suits, claims or proceedings
affecting the Property;
(v) except as disclosed in writing to the Optionee, it
has not entered into any agreements in respect of the
Property save for any agreements entered into with
the Optionee;
(vi) all taxes, rates and assessments owing on the
Property have been paid and discharged in full;
(vii) the Optionor is not a party to any judicial or
administrative proceeding which could have an adverse
effect on the Optionee's rights under this Agreement;
(viii) the Property, as described in this Agreement, is
correct as to claim number and all of the claims
comprising the Property has been validly and properly
staked, tagged and recorded in accordance with
applicable law; and
(ix) except as disclosed in writing to the Optionee, there
are no commitments of the Optionor to third parties
relating to the Property which do or could have any
direct or indirect effect on the rights granted to
the Optionee hereunder.
(b) The Optionee represents and warrants to the Optionor that, as
of the date hereof:
(i) it is duly continued and existing under the laws of
the Province of British Columbia;
(ii) the execution of this Agreement and the compliance
with its provisions by it do not breach or contravene
any provision of its constating documents and by-laws
or any of its licenses, permits, agreements or
privileges pursuant to which consent is necessary or
which has not been obtained;
(iii) it does not have any undisclosed relationship or
agreement with any other group or company that may be
interested in acquiring the Property; and
(iv) it is not, to its knowledge, a party to any actual
judicial or administrative procedure which is
materially adverse to this Agreement.
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3. GRANT OF OPTION
Subject to Sections 13 and 14 hereof, the Optionor grants to the
Optionee an exclusive and irrevocable option (the "Option") to earn a
one hundred (100%) percent undivided interest in the Property together
with all mining rights appertaining thereto exercisable in the manner
referred to in Section 6, at any time for a period of four (4) years
commencing from the date hereof until 5:00 p.m. central time on the
fourth Anniversary Date of this Agreement or such earlier date as this
Agreement is terminated in accordance with its terms (the "Option
Period"), for the consideration and upon the terms and conditions
hereinafter set forth.
4. CONSIDERATION
In consideration for the Optionor granting the Option to the Optionee,
the Optionee shall make the following non-cumulative payments by way of
cash as follows:
(a) $10,000 upon the signing of this Agreement;
(b) $20,000 payable on or before the first Anniversary Date of
this Agreement;
(c) $30,000 payable on or before the second Anniversary Date of
this Agreement;
(d) $40,000 payable on or before the third Anniversary Date of
this Agreement; and
(e) $200,000 payable on or before the fourth Anniversary Date of
this Agreement.
(f) If the Optionee and the Optionor agree in writing, up to
twenty-five (25%) percent of the payments to be made under
Section 4 (a) - (e) above may be paid to the Optionor by the
issuance of common shares in the capital of the Optionee (the
"Option Shares") to the Optionor in lieu of such payments. For
the purposes of this paragraph, the Option Shares shall be
deemed to have a value per share equal to the fifteen day
average price of Option Shares at the end of trading for the
fifteen trading days immediately prior to the date that the
Optionee advises the Optionor that it will make the payment
with Option Shares. The Optionee shall take all necessary
corporate action to issue the Option Shares to the Optionor
and to record the Option Shares on the books of the Optionee
in the name of the Optionor. The issuance of the Option Shares
to the Optionor hereunder shall be subject to compliance with
applicable securities laws and the Optionee shall take all
steps required to comply with applicable securities laws in
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connection with the issuance of such Option Shares. The
Optionee shall provide such documents, certificates, opinions
of its counsel and other information as may reasonably be
requested by the Optionor to satisfy itself as to the
compliance of the issuance of the Option Shares with the terms
of this Agreement and with applicable securities law.
(g) All Option Shares issued or to be issued by the Optionee to
the Optionor under and pursuant to this Agreement shall be
subject to all applicable hold periods required by applicable
securities laws and the TSX Venture Exchange. The issuance of
any Option Shares shall be conditional upon (i) the Optionee
obtaining all regulatory and third party consents or approvals
being received, including those of the TSX Venture Exchange
and applicable securities regulatory bodies; and (ii) the
existence of an exemption from prospectus and registration
requirements under applicable securities laws for the issuance
of the Option Shares to the Optionor. In the event that the
Optionee is unable to obtain such consents within six months
of application therefore, the Optionee's obligation to make
payments shall be payment in cash only.
5. EXPENDITURES
(a) As further consideration for the Optionor granting the Option
to the Optionee, the Optionee shall incur non-cumulative
Expenditures in the following amounts:
(i) $10,000 prior to the first Anniversary Date;
(ii) $50,000 prior to the second Anniversary Date; and
(iii) $1,940,000 prior to the fourth Anniversary Date.
(b) Except for the payment described in Section 4 (a) and any
payments payable pursuant to Section 13 hereof, nothing in
this Agreement shall be construed as obligating the Optionee
to make any further payments or incur any further
Expenditures, or to exercise the Option.
6. EXERCISE OF OPTION
(a) Upon the Optionee making the cash payments as required by
Section 4 and incurring total Expenditures of not less than
two million ($2,000,000) dollars on or before the applicable
dates as required by Section 5 (a) hereof, the Optionee may
exercise the Option by written notice thereof to the Optionor
and upon so doing, the Optionee shall have purchased, and the
Optionor shall have sold, on the date the notice is received
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by the Optionor (the "Option Exercise Date"), the Property and
all of the Optionor's right, title and interest therein,
subject only to the payment of the Net Smelter Return Royalty
and the Back-in Right of the Optionor.
(b) Upon exercise of the Option by the Optionee, the Optionor
shall forthwith deliver to the Optionee transfers of the
Property which, upon recording thereof, will be sufficient to
register the Optionee as the sole recorded holder of the
Property free of all liens, encumbrances, charges and claims
of any nature or kind whatsoever. The Optionor shall execute
and deliver to the Optionee all other documents, and shall do
or cause to be made all such further actions in order to
properly register the transfers and title in the name of the
Optionee. Upon the receipt of the transfer documents described
in this section, the Optionee shall forthwith record them at
its own cost with the appropriate government office to effect
the legal transfer of the Property to the Optionee, provided
that the Optionee shall hold the Property subject to the terms
of this Agreement and the Optionee shall record the Optionor's
interest hereunder with the appropriate government office
7. TERMINATION OF OPTION
(a) Upon making the payment described in Section 4 (a), the
Optionee may thereafter terminate the Option at any time and
return all of the mining claims forming the Property to the
Optionor by giving the Optionor written notice thereof.
(b) Subject to earlier termination pursuant to this Section 7 (a),
the Option shall automatically terminate if the Optionee does
not make a payment or does not incur Expenditures in the
amount and within the time period required by Sections 4 and
5, respectively, hereof. Notwithstanding the termination of
the Option under this Section 7 (b), the Optionee shall not be
released from its obligation to make the payment under Section
4 (a).
(c) Subject to earlier termination pursuant to Sections 7 (a) or 7
(b) hereof, the Option shall automatically terminate at 5:00
p.m. central time on the fourth Anniversary Date of this
Agreement unless the Optionee has made the payments or
incurred the Expenditures required by Sections 4 and 5,
respective, hereof, and provided notice has been given to the
Optionor in accordance with Section 6 hereof.
(d) Upon termination in accordance with Sections 7 (a), 7 (b) or 7
(c) hereof, the Optionee shall not suffer or incur any cost,
penalty, damage, claim or expense of any kind whatsoever or
have no further liabilities or unreleased obligations of any
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kind whatsoever hereunder, save that the Optionee shall ensure
that the Property shall remain in good standing for at least
one (1) year after such termination.
(e) Upon the termination of this Agreement, the Optionee shall
have the right for thirty (30) days beyond the date of such
termination to enter on, in or under that part of the Property
affected by the termination, to remove therefrom such
equipment, tools, materials, structures, apparatus or supplies
brought thereon by the Optionee or on its behalf, and to the
extent that the Optionee does not remove them they shall
become the Property of the Optionor.
(f) Upon termination of the Option pursuant to Section 7 herein,
the Optionee shall forthwith record with the Mining Recorder
and any other applicable government offices, such documents of
the Property as shall be sufficient and as may be required to
designate the Optionor as the sole recorded holder of the
Property, free of all liens, encumbrances, charges and valid
claims created by the act or omission of the Optionee
(including those arising under applicable Environmental Laws),
and the Optionee shall bear any and all costs related thereto.
(g) Any shares of the Optionee issued to the Optionor pursuant to
Section 4 prior to the termination of the Option for any
reason shall remain the property of the Optionor.
8. COVENANTS OF THE OPTIONOR
The Optionor shall:
(a) not act or fail to do any act which it is required to do under
this Agreement or otherwise which would result in the Property
or any part thereof not being transferred to the Optionee
pursuant to Section 6 free and clear of all liens, charges,
encumbrances or liabilities, including those pursuant to
applicable Environmental Laws, of any kind whatsoever;
(b) promptly transmit to the Optionee any notices pertaining to
taxes, assessments and other charges received by the Optionor;
and
(c) not make any agreement whereby any third party may acquire any
portion of the Optionor's interest in the Property otherwise
than in accordance with this Agreement.
9. COVENANTS OF OPTIONEE
The Optionee shall:
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(a) maintain the Property in good standing and submit assessment
work with respect to the Expenditures set out in Section 5
hereof according to applicable laws and regulations;
(b) maintain the Property in good standing by the payment of
taxes, assessments and rentals and the performance of all
other actions which may be reasonably necessary in that
regard;
(c) permit the Optionor or its authorized representatives, at
their own risk, with five (5) days prior notice to the
Optionee, access to the Property at all reasonable times,
provided that the Optionor agrees to indemnify the Optionee
against and to save it harmless from all costs, claims,
liabilities and expenses that the Optionee may incur or suffer
as a result of any property or other damage or injury
(including injury causing death) to the Optionor or its
authorized representatives while on the Property, except for
any costs, claims, liabilities and expenses incurred as a
result of any negligent act or omission of the Optionee or its
employees and agents;
(d) permit the Optionor, at its sole discretion, to participate in
any management reviews of the exploration programs relating to
the Property;
(e) do all work on the Property in a good and workmanlike fashion
in accordance with all applicable laws, regulations, orders
and ordinances of any governmental authority;
(f) indemnify and save the Optionor harmless in respect of any and
all costs claims, liabilities and expenses that the Optionor
may incur or suffer, including those pursuant to the
Environmental Laws, arising out of the Optionee's activities
on the Property and, without limiting the generality of the
foregoing shall, during the Option Period carry third party
liability insurance of not less than Five Million ($5,000,000)
Dollars in respect of its operations on the Property for the
benefit of the Optionee and the Optionor as their interests
may appear;
(g) not make any agreement whereby any third party may acquire any
portion of its interest in the Property or under this
Agreement otherwise than in accordance with the provisions of
this Agreement; and
(h) not act or fail to do any act which it is required to do under
this Agreement or otherwise which would result in the Property
or any part thereof, not being free and clear of all liens,
charges, encumbrances, obligations or liabilities, including
those pursuant to applicable Environmental Laws.
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10. AREA OF INTEREST
During the term of this Agreement, the Optionor and the Optionee shall
both be entitled to stake claims or otherwise acquire property within
the Area of Interest. If either of the Optionee or the Optionor
acquires, directly or indirectly, any interest in any claims (including
by way of staking, option or joint venture) within the Area of
Interest, any such claims shall be included in the definition of
"Property", subject to any previous retained interest agreements in
such claims. The cost (including by way of staking, option or joint
venture) thereof will be paid by the Optionee within thirty (30) days
of the acquisition of the interest by the Optionee.
11. RIGHT TO ENTER IN, UNDER OR ON PROPERTY
(a) The Optionee, its employees, agents and independent
contractors shall have the exclusive right:
(i) to enter in, under or on the Property;
(ii) to bring upon the Property such vehicles, equipment,
portable structures and other apparatus as the
Optionee shall in its sole discretion deem advisable;
(iii) to do such work and conduct and manage such programs
on or under the Property as the Optionee shall in its
sole discretion from time to time deem advisable;
(iv) to remove from the Property such materials for
analysis and testing as the Optionee shall in it sole
discretion deem advisable; and
(v) to have quiet and exclusive possession of the
Property from the date hereof and thereafter during
the currency of the Option Period.
(b) The Optionee shall keep full and complete records of all
exploration work, diamond drilling and development of the said
Property, together with the results of assays made, and,
subject always to the terms of this Agreement, all of such
records shall, at a minimum advance notice of thirty (30)
days, be available for inspection, prior to exercise of the
Option by the Optionor or its agent who may make copies
thereof at the Optionor's sole cost and take extracts
therefrom. If the Option is terminated or otherwise not
exercised by the Optionee, the Optionee shall on request by
the Optionor, deliver to the Optionor a copy of any part or
all of such records.
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12. OPTIONEE'S RIGHT TO RELEASE PROPERTY
The Optionee shall, in its sole discretion, upon written notice to the
Optionor, have the right to release from the provisions of this
Agreement from time to time any or all of the mining claims forming the
Property, provided that the Optionee shall ensure that any such mining
claim or part thereof so released will remain in good standing for a
period of at least one (1) year after the giving of the notice of
release. If the Optionee gives notice of such release, it shall specify
therein the mining claims or part thereof it is so releasing and shall
forthwith execute and attend to the registration, at the Optionee's
cost, of such transfers as may be required to transfer to the Optionor
all right, title and interest of the Optionee in and to the mining
claims or part thereof so released, free and clear of all liens,
claims, and other encumbrances of any kind whatsoever, including those
arising pursuant to applicable Environmental Laws, save those which are
the result of any act or omission of the Optionor or any employee or
agent thereof.
13. NET SMELTER RETURN ROYALTY
(a) If the Option is exercised, the Optionor shall be entitled to
receive the Net Smelter Return Royalty from the Optionee,
payable from the date of the Commencement of Commercial
Production, calculated and paid in accordance with Schedule
"B" attached hereto, provided that if the Optionor exercises
its Back-in Right in accordance with Section 14 hereof, the
Optionor's right to receive the Net Smelter Return Royalty
shall terminate.
(b) The Net Smelter Return Royalty shall be payable by the
Optionee in Canadian Dollars and shall be paid quarterly in
arrears within sixty (60) days of the end of the quarter to
which it relates.
(c) To the extent permitted by the applicable law, the Net Smelter
Return Royalty shall run with, attach to, and bind the land
underlying the Property. Upon becoming entitled to the Net
Smelter Return Royalty, and subject to the Optionor's exercise
of the Back-in Right, nothing contained in this Agreement
shall be construed as conferring on the Optionor any right to
or interest in the Property, except the right to receive the
Net Smelter Return Royalty as and when due.
(d) All payments of the Net Smelter Return Royalty to the Optionor
shall be deemed final and in full satisfaction of all
obligations of the Optionee in respect thereof if such
payments or the calculation thereof are not disputed by the
Optionor within sixty (60) days after receipt of the Net
Smelter Return Royalty payment and statement.
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(e) Unless the Optionor has exercised its Back-in Right, any
decision regarding the Commencement of Commercial Production
shall be at the sole discretion of the Optionee, and the
Optionee shall be under no obligation, and nothing in this
Agreement shall be construed as creating an obligation upon
the Optionee, to place the Property into production and, in
the event the Property is placed into production and operated
as a mine, the Optionee shall have the unfettered right to
suspend or curtail any such operation as it in its sole
discretion may determine.
14. BACK-IN RIGHT
(a) For a period of sixty (60) days following the date of the
Optionor receiving all of the exploration results and
confirmation of Expenditures from the Optionee, the Optionor
shall, at its discretion, have the right to elect by notice in
writing delivered to the Optionee:
(i) to hold the two (2%) percent Net Smelter Return
Royalty as set out in Section 13 hereof and, in such
case, the Optionee will hold a one hundred (100%)
percent undivided participating interest in the
Property; or
(ii) to exercise its right (the "Back-in Right") to
acquire a fifty-one (51%) percent undivided interest
in the Property by giving notice of such election in
writing to the Optionee on or before the expiration
of such sixty (60) day period. If the Optionor fails
or neglects to give such a notice, it shall have no
interest in the Property other than the Net Smelter
Return Royalty pursuant to Section 13 hereof.
(b) If the Optionor exercises its Back-in Right by giving notice
to the Optionee pursuant to Section 14 (a) hereof, the Back-in
Right shall vest in the Optionor when the Optionor incurs one
hundred and thirty-five (135) percent of the Expenditures
incurred by the Optionee on the Property (the "Back-in
Interest Expenditures") within two (2) years after receipt by
the Optionee of such notice by the Optionor (the "Vesting of
the Back-in Right"). During this two (2) year period, the
provisions of this Agreement hereof shall apply, mutatis
mutandis, so that the Optionor, its employees, agents and
independent contractors, shall have the exclusive rights and
obligations of the Optionee, and its employees, agents and
independent contractors, set forth in this Agreement and the
Optionee, its employees, agents and independent contractors,
shall have the exclusive rights and obligations of the
Optionor, the employees, agents and independent contractors
set for in this Agreement provided, that this shall not
relieve either the Optionor or Optionee for responsibility
under those Articles for their acts and omissions for the
period prior to the two (2) year period.
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(c) Upon the Vesting of the Back-in Right, the Optionor and
Optionee shall forthwith enter into a Joint Venture Agreement
on the terms and conditions of the Joint Venture Agreement
contemplated by Section 14 (d) upon the Optionor incurring the
Back-in Interest Expenditures in accordance with Section 14
(b), with the initial undivided participating interests of the
Optionor and Optionee in the Property being fifty-one (51%)
percent and forty-nine (49%) percent, respectively; provided,
if the Optionor does not incur the Back-in Interest
Expenditures in accordance with Section 14 (b), the Optionee
shall be deemed to have a retained one hundred (100%) percent
undivided participating interest in the Property and the
Optionor shall be entitled to the Net Smelter Royalty pursuant
to Section 13.
(d) Upon the Vesting of the Back-in Right, the Optionor and
Optionee shall forthwith enter into a Joint Venture Agreement
on the terms and conditions usual in the mining industry for
the purpose of further exploring, developing and exploiting
the Property. The Joint Venture Agreement shall include INTER
ALIA: (i) rights of first refusal so that if either party
wishes to dispose of its interest in the Property the other
party shall have the right to purchase that interest; and (ii)
all decisions to be made concerning the Property, including
the approval of programs, budgets, and the determination of
amounts to be expended by the Joint Venture, shall be made by
votes of representatives of the parties holding an interest in
the Property, in proportion to the respective interest then
held by them in the Property. The initial undivided
participating interests of the Optionor and Optionee in the
Property shall be fifty-one (51%) percent and forty-nine (49%)
percent, respectively.
(e) Upon the parties entering into a Joint Venture Agreement
pursuant to Section 14 (d), the parties shall immediately form
a joint venture (the "Joint Venture") after which the parties
shall share all future funding of exploration and other
expenditures proportionately to their interest in the Property
(each, a "Venture Interest"). The parties shall use their best
efforts to execute a definitive agreement governing the Joint
Venture which shall incorporate the terms set out herein in
respect of their relationship in the Joint Venture and such
other terms as the parties may agree.
(f) If either party elects not to fund its share of future Joint
Venture expenditures its Venture Interest shall be diluted
based on expenditures incurred, with the Optionor being
initially deemed to have spent $2,500,000 for a fifty-one
(51%) percent interest and the Optionee being initially deemed
to have spent $2,000,000 for a forty-nine (49%) percent
interest upon formation of the Joint Venture. Each party's
interest in the Property shall be calculated and re-calculated
from time to time to the nearest four decimal places expressed
as a percent, so that each party's interest shall be that
percentage obtained by multiplying by 100 the result obtained
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when the aggregate of that party's deemed and actual
expenditures on the Property is divided by the aggregate of
both parties' deemed and actual expenditures on the Property.
Actual expenditures are those incurred after Vesting of the
Back-in Right to the Optionor. If either party's Venture
Interest is reduced to ten (10%) percent or less, its Venture
Interest shall be converted to a two (2%) percent Net Smelter
Return Royalty calculated and paid in the manner described in
Schedule "B".
(g) Subject to available capacity and compatibility with the then
current facilities and through put of ▇▇▇▇▇▇ Bay Mining and
Smelting Co., Limited, the parties confirm that it is their
intention that any Product derived from the Property be
milled, concentrated, refined or otherwise treated at existing
facilities owned or operated by ▇▇▇▇▇▇ Bay Mining and Smelting
Co., Limited, whether pursuant to the Joint Venture or in the
event that the Optionor has not exercised the Back-in-Right,
at cost plus a reasonable fee to be negotiated by the Optionee
and ▇▇▇▇▇▇ Bay Mining and Smelting Co., Limited.
15. ARBITRATION
In the event of any dispute between the Optionor and the Optionee with
respect to this Agreement or any matter governed by this Agreement
which the Optionor and Optionee are unable to resolve, the matter shall
be decided by arbitration. The party desiring arbitration shall
nominate one arbitrator and shall notify the other party of such
nomination and the other party shall within thirty (30) days after
receiving such notice nominate one arbitrator, and the two arbitrators
shall select an umpire to act jointly with them. If the said
arbitrators shall be unable to agree upon the selection of such umpire,
the umpire shall be designated by any Justice of the Court of Queen's
Bench of Manitoba. If the party receiving the notice of nomination of
an arbitrator by the party desiring arbitration fails within the said
thirty (30) days to nominate an arbitrator, then the arbitrator
nominated by the party desiring arbitration may proceed alone to
determine the dispute. Any decision reached pursuant to this Section 15
shall be final and binding upon the parties. Insofar as they do not
conflict with the provisions hereof, the provisions of THE ARBITRATION
ACT (Manitoba) as amended from time to time shall be applicable.
16. CONFIDENTIALITY
All information, data and results relating to or derived from the
Property and operations thereon that either the Optionee or Optionor
may receive or become aware of through the provisions of this
Agreement, shall be kept confidential and shall not be disclosed or
used in any manner by the Optionee or Optionor except as such
- 16 -
disclosure may otherwise be required by law, or required to enforce any
provision hereof, or as may be mutually agreed in writing by the
parties.
17. NOTICE
(a) Any notice, document, cheque or thing required or permitted to
be given or delivered hereunder shall be deemed to be properly
given or delivered if:
(i) delivered in person and left with any person who must
be an employee of the party receiving such notice at
the relevant address set forth below; or
(ii) sent in a prepaid registered letter deposited in a
post office; or
(iii) sent by facsimile;
and if to the Optionor, addressed to,
▇▇▇▇▇▇ Bay Exploration and Development Company Limited
▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇
and if to the Optionee, addressed to:
Halo Resources Ltd.
▇▇▇▇ - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇
Any notice or delivery so given shall be deemed to have been
given and received on actual receipt of the letter, facsimile
received or on the day of delivery in person as the case may
be (provided that such day is a business day and, if it is
not, on the following business day).
(b) Any party may from time to time by notice in writing delivered
in accordance with the provisions of Section 17 (a) herein
change its address for the purposes of this Section 17;
(c) Any payment that the Optionee shall make to the Optionor
hereunder shall be deemed to have been properly made if a
cheque payable to the Optionor in the amount thereof, has been
- 17 -
delivered to the Optionor in accordance with the provisions of
this Section 17, unless such cheques are not honoured on
presentation for payment.
18. AGREEMENT OPTION ONLY
Subject to Section 14 hereof, this Agreement is an option only and
shall not be construed to create a partnership or the relationship of
principal and agent or any other similar relationship between the
Optionor and the Optionee.
19. TIME OF ESSENCE
Time shall be of the essence hereof.
20. FORCE MAJEURE
The Option Period and the time or times within which payments may or
shall be made hereunder and all other time limitations hereunder shall
be extended for a period of time equal to the total of all periods of
time during which the Optionee is prevented from or seriously impeded
in doing any prospecting, exploration, development and/or other mining
work in, on or under the Property by reason of fires, power shortages,
strikes, walk-outs, inability to obtain suitable machinery, labour or
supplies, wars, riots, acts of God or the Queen's enemies, actions by
aboriginal peoples or environmentalists, interference by civil or
military authorities, litigation, governmental regulations or any other
cause or causes (whether or not of the same class or kind as those
enumerated above) beyond the reasonable control of the Optionee. The
Optionee shall provide to the Optionor notice of the beginning of the
period of the force majeure and the end of the period of force majeure
in accordance with the terms of Section 17 hereof.
21. ENTIRE AGREEMENT
This Agreement supersedes all prior negotiations and agreements and
contains the entire understanding between the parties hereto, including
the Letter of Intent, and may be modified only by instrument in writing
signed by the party or parties against which the modification is
asserted.
22. INDEMNITY
The Optionor and the Optionee agree to indemnify and save the other
harmless from all claims, charges, suits, liens, costs, damages,
penalties, or other liabilities of any kind whatsoever suffered or
incurred by a party and which arise out of or are incidental to a
breach of any warranty, covenant, representation, term, or condition of
this Agreement.
- 18 -
23. FURTHER ASSURANCES
The Optionee and the Optionor agree that either before or after the
termination of this Agreement they will execute all documents and do
all acts and things as the other party may reasonably request and as
may be lawful and within their power to do to carry out the intent of
this Agreement.
24. ASSIGNMENT
The Optionor may, at its sole discretion, transfer, assign, or convey
its rights and obligations in this Agreement to ▇▇▇▇▇▇ Bay Mining &
Smelting Co., Limited or any other affiliate of the Optionor.
Otherwise, this Agreement and the rights and obligations of either
party hereto shall not be transferred, assigned or conveyed without the
prior written consent of the other party, such consent not to be
unreasonably withheld.
25. JURISDICTION
This Agreement shall be governed by the laws of the Province of
Manitoba and the parties hereto submit to such jurisdiction.
26. HEADINGS
The headings herein are inserted for convenience of reference only and
shall not be used in interpreting or construing this Agreement.
27. ENUREMENT
This Agreement shall enure to and be binding upon the parties hereto
and their respective successors and assigns.
- 19 -
28. SURVIVAL
The parties hereto agree that all covenants, representations,
warranties, terms and conditions contained in this Agreement shall not
merge on closing or upon the delivery of any documents contemplated
herein, but shall, in respect of the Property, survive thereafter for a
period of two (2) years from the date that it is released by the
Optionee under Section 12, the date that the Option is terminated under
Section 7 hereof or the date that the Option is exercised under Section
6 hereof, as the case may be.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
▇▇▇▇▇▇ BAY EXPLORATION AND
DEVELOPMENT COMPANY LIMITED
Per:
-------------------------------------
Per:
-------------------------------------
HALO RESOURCES LTD.
Per:
-------------------------------------
Per:
-------------------------------------
SCHEDULE "A"
PROPERTY
Par #203 P74157
Par #204 P74158
Par #205 P74159
Par #242 P74196
Par #243 P74197
Par #214 P74168
Par #215 P74169
Par #216 P74170
Par #241 P74195
SCHEDULE "B"
NET SMELTER RETURN ROYALTY
1. Net Smelter Return Royalty
(a) There shall accrue for each Quarter following the date of the
Commencement of Commercial Production an amount in dollars
equal to two (2%) percent of the Net Sales Revenue. Each sum
so accrued shall be payable by the Optionee to the Optionor in
accordance with the provisions of paragraph 2 below.
(b) The Optionee shall, as soon as practicable after the end of
each Quarter following the date of Commencement of Commercial
Production and in any event within thirty (30) business days,
determine the Net Smelter Return Royalty for the previous
Quarter in accordance with this Section 1(a) and shall deliver
to the Optionor promptly thereafter a statement (the "NET
SMELTER RETURN STATEMENT") showing such Net Smelter Return
Royalty and setting out in detail its calculations of such Net
Smelter Return Royalty.
(c) If the amount of Net Smelter Returns is not ascertainable for
a calendar quarter, it shall be estimated as nearly as
possible at the time for payment and an adjustment shall be
made at the end of each calendar year. Within ninety (90) days
following the end of each calendar year, commencing with the
year in which the date of the Commencement of Commercial
Production falls, the Optionee shall deliver a statement of
the Net Smelter Returns for the year duly certified as correct
by an independent Chartered Accountant appointed by the
Optionee for such purposes. The Optionor shall have the right
within a period of three (3) months from receipt of such
certified statement to conduct an independent audit at its own
cost and expense, the right to review the Optionee's books and
records relating thereto and an opportunity to discuss issues
raised with the independent Chartered Accountant. The Optionee
shall immediately pay to the Optionor any additional Net
Smelter Return Royalty found by such independent audit to be
payable in respect of the previous calendar year. In the event
such audit indicates that the Optionee's statements were more
than five (5%) percent different than that assessed by the
independent audit, then the cost of such independent audit
shall be borne by the Optionee.
(d) If any portion of the Product extracted and derived from the
Property are sold to a purchaser owned or controlled by the
Optionee or treated by a smelter owned or controlled by the
Optionee, the actual proceeds received shall be deemed to be
- 2 -
an amount equal to what could be obtained from a purchaser or
a smelter not so owned or controlled in respect of Product of
like quality and quantity after deducting therefrom a charge
equal to the transportation cost which would have been
incurred had the material been sold to such third party
purchaser or smelter.
2. Payment
(a) Each sum which shall accrue pursuant to Section 1(a) above
shall be payable by the Optionee to the Optionor in full upon
the Optionee's delivery of the Net Smelter Return Royalty
Statement or as soon as possible thereafter and, in any event,
within forty (40) business days of the end of the Quarter to
which such sum relates.
(b) All payments to be made by the Optionee under this Schedule
shall be made in Canadian dollars in same day funds to such
account at such bank or office as the Optionor shall designate
by not less than two (2) business days' notice to Optionee.
(c) The Optionee shall, if requested to do so by any of the
Optionor, produce to the Optionor the underlying evidence
supporting each of the Net Smelter Return Royalty Statements
delivered with a view to the Optionor verifying each such
statement.
(d) Each payment by the Optionee under this Schedule shall be made
(except to the extent required by law) without set-off or
counterclaim and free and clear of and without deduction or
withholding for or on account of any taxes unless the Optionee
is required by law to make such payment subject to the
deduction or withholding of any taxes in which case the sum
payable by the Optionee in respect of which such deduction or
withholding is required to be made shall be increased to the
extent necessary to ensure that, after the making of such
deduction or withholding, the Optionor receive and retain
(free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have
received and so retained had no such deduction or withholding
been made or required to be made.
FUD AGREEMENT
THIS AGREEMENT made as of the day of , 2006.
BETWEEN:
▇▇▇▇▇▇ BAY EXPLORATION AND DEVELOPMENT COMPANY LIMITED, a
corporation incorporated under the laws of Canada,
(hereinafter referred to as the "Optionor")
OF THE FIRST PART,
- and -
HALO RESOURCES LTD., a corporation continued under the
laws of British Columbia,
(hereinafter referred to as the "Optionee")
OF THE SECOND PART.
WHEREAS the Optionor is the sole recorded and beneficial owner of a
100% undivided interest in the Property (as hereinafter defined);
AND WHEREAS the Optionor desires to grant to the Optionee and the
Optionee desires to receive from the Optionor an option to acquire a 100%
interest in the Property, subject to Sections 13 and 14 herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
terms and conditions hereinafter contained and the sum of $2.00 now paid by the
Optionee to the Optionor (receipt of which is hereby acknowledged) the parties
hereto agree as follows:
1. DEFINITIONS
In this Agreement and in all schedules hereto the following words and
terms where capitalized shall have the following meanings unless the
context clearly indicates a contrary meaning:
(a) "Agreement" means this agreement between the Optionor and the
Optionee, including all Schedules hereto and any documents
incorporated by reference and other amendments as permitted
hereunder, and the expressions this "Agreement", "herein",
"hereto" and other similar expressions refer to all of this
agreement, including the Schedules, any documents incorporated
by reference and other amendments permitted hereunder, and not
to any particular Article, Section or Subsection;
Page 2
(b) "Anniversary Date" means an anniversary date of this
Agreement;
(c) "Back-in Right" means the right of the Optionor to acquire the
Back-in Interest pursuant to Section 14;
(d) "Back-in Interest" has the meaning given to it in Section 14;
(e) "Back-in Interest Expenditures" means the expenditures
required to be made by the Optionor upon exercise of the
Back-in Right as set out in Section 14 hereof;
(f) "Commencement of Commercial Production" means the date upon
which Product from the Property, for other than testing
purposes, has been processed for a period of thirty (30)
consecutive production days at a rate equal to not less than
seventy-five (75%) percent of the rate projected in the
feasibility report, if any, prepared by or for the Optionee in
respect of the Property;
(g) "Environmental Laws" means all laws, statutes, regulations,
ordinances, rules, requirements, policies, guidelines,
by-laws, codes, orders, permits, directives, notices and
approvals of all federal, territorial, provincial, municipal
or local governmental or administrative authorities and
related to environmental or occupational or public health or
safety matters, or to the generation, handling, treatment,
storage, transportation, disposal or clean up of pollutants,
contaminants, hazardous or toxic substances, dangerous goods,
ozone-depleting substances or other harmful substances or
materials or to the reclamation, site rehabilitation,
restoration, remediation, or other mine and related facilities
closure requirements;
(h) "Expenditures" means:
A. all cash payments made by the Optionee in respect of
the Property towards fulfillment of the expenditure
requirements for this Agreement which meet the
requirements for obtaining assessment credits as set
out in the MINERAL DISPOSITION AND MINERAL LEASE
REGULATION, 1992 made under THE MINES AND MINERALS
ACT (Manitoba); plus
B. up to ten (10%) percent per annum of the amount of
such qualifying expenditures referred to in Section
1(h)A. above, which may be applied towards overhead
and expenditures that do not otherwise meet the
requirements for obtaining assessment credits as set
out in the MINERAL DISPOSITION AND MINERAL LEASE
REGULATION, 1992 made under THE MINES AND MINERALS
ACT (Manitoba);
Page 3
(i) "Feasibility Report" means a report prepared to analyze
whether or not to proceed with mine development and
exploration with respect to the Property in a form and of a
scope that is generally acceptable to reputable financial
institutions that provide financing to the mining industry;
(j) "Joint Venture" means the entity formed upon the execution of
the Joint Venture Agreement;
(k) "Joint Venture Agreement" means an agreement relating to the
development and operation of a joint venture formed pursuant
to Section 14 (d);
(l) "Net Sales Revenue" shall mean the actual proceeds received
from any independent custom smelter, mill, mint or other
purchaser for the sale of any Product extracted and derived
from the Property, after deducting all charges and penalties
for smelting and refining and the cost of transportation (to
the smelter and thereafter to the mint), insurance premiums,
sampling and assaying charges incurred after the Product has
left the Property, and all appropriate mint charges;
(m) "Net Smelter Return Royalty" has the meaning described in
Section 13 hereof;
(n) "Option" means the option described in Section 3 hereof;
(o) "Option Exercise Date" has the meaning described in Section 6
hereof;
(p) "Option Period" means the three (3) year time period set out
in Section 3 hereof;
(q) "Option Shares" means the shares described in Section 4(b)
hereof;
(r) "Prime" means the prime interest rate charged by the Bank of
Nova Scotia from time to time;
(s) "Product" means all metals, ores, concentrates, minerals and
mineral resources extracted or produced from the Property;
(t) "Property" means those claims more particularly described in
Schedule "A" attached hereto, all of which are situated in the
Sherridon area of Manitoba, or such of them as at any relevant
time have not been released by the Optionee under this;
Page 4
(u) "Quarter" means each period of 3 calendar months starting on a
Quarterly Date but so that the first Quarter under this
Schedule shall start on the date of the Commencement of
Commercial Production and end on the date immediately
preceding the second Quarterly Date to occur after the date of
the Commencement of Commercial Production;
(v) "Quarterly Date" means 1 January, 1 April, 1 June and 1
October of each calendar year; and
(w) "Vesting of the Back-in Right" has the meaning described in
Section 14.
All monies referred to in this Agreement, unless otherwise noted, are
expressed in Canadian dollars.
2. REPRESENTATIONS
(a) The Optionor represents and warrants to the Optionee that, as
of the date hereof:
(i) it is the sole recorded and beneficial owner of the
Property and, save for any rights granted to the
Optionee, is in exclusive possession thereof;
(ii) it is duly incorporated and validly existing under
the laws of Canada;
(iii) the Property is free and clear of all liens, charges,
encumbrances, royalties or other third party
interests of any kind whatsoever except for a charge
noted by a registration in favour BNY Trust Company
of Canada pursuant to a debenture dated December 10,
2004, given by the Optionor as security under a Trust
Indenture dated December 21, 2004, which charge and
registration will be discharged by the Option or
forthwith upon the Optionee exercising the Option in
accordance with the terms of this Agreement;
(iv) to the best of its knowledge, there are no pending or
threatened actions, suits, claims or proceedings
affecting the Property;
(v) except as disclosed in writing to the Optionee, it
has not entered into any agreements in respect of the
Property save for any agreements entered into with
the Optionee;
Page 5
(vi) all taxes, rates and assessments owing on the
Property have been paid and discharged in full;
(vii) the Optionor is not a party to any judicial or
administrative proceeding which could have an adverse
effect on the Optionee's rights under this Agreement;
(viii) the Property, as described in this Agreement, is
correct as to claim number and all of the claims
comprising the Property has been validly and properly
staked, tagged and recorded in accordance with
applicable law; and
(ix) except as disclosed in writing to the Optionee, there
are no commitments of the Optionor to third parties
relating to the Property which do or could have any
direct or indirect effect on the rights granted to
the Optionee hereunder.
(b) The Optionee represents and warrants to the Optionor that, as
of the date hereof:
(i) it is duly continued and validly existing under the
laws of the Province of British Columbia;
(ii) the execution of this Agreement and the compliance
with its provisions by it do not breach or contravene
any provision of its constating documents and by-laws
or any of its licenses, permits, agreements or
privileges pursuant to which consent is necessary or
which has not been obtained;
(iii) it does not have any undisclosed relationship or
agreement with any other group or company that may be
interested in acquiring the Property; and
(iv) it is not, to its knowledge, a party to any actual
judicial or administrative procedure which is
materially adverse to this Agreement.
3. GRANT OF OPTION
Subject to Sections 13 and 14 hereof, the Optionor grants to the
Optionee an exclusive and irrevocable option (the "Option") to earn a
one hundred (100%) percent undivided interest in the Property together
with all mining rights appertaining thereto exercisable in the manner
referred to in Section 6, at any time for a period of three (3) years
Page 6
commencing from the date hereof until 5:00 p.m. central time on the
third Anniversary Date of this Agreement or such earlier date as this
Agreement is terminated in accordance with its terms (the "Option
Period"), for the consideration and upon the terms and conditions
hereinafter set forth.
4. CONSIDERATION
(a) In consideration for the Optionor granting the Option to the
Optionee, the Optionee shall make the following non-cumulative
payments by way of cash or the equivalent amount of shares of
the Optionee as follows:
(i) $10,000 upon the signing of this Agreement;
(ii) $30,000 payable on or before the first Anniversary
Date of this Agreement; and
(iii) $60,000 payable on or before the second Anniversary
Date of this Agreement.
(b) If the Optionee and the Optionor agree in writing, up to fifty
(50%) percent of the payments to be made under Section 4 (a)
above may be paid to the Optionor by the issuance of common
shares in the capital of the Optionee (the "Option Shares") to
the Optionor in lieu of such payments. For the purposes of
this paragraph, the Option Shares shall be deemed to have a
value per share equal to the fifteen day average price of
Option Shares at the end of trading for the fifteen trading
days immediately prior to the date that the Optionee advises
the Optionor that it will make the payment with Option Shares.
The Optionee shall take all necessary corporate action to
issue the Option Shares to the Optionor and to record the
Option Shares on the books of the Optionee in the name of the
Optionor. The issuance of the Option Shares to the Optionor
hereunder shall be subject to compliance with applicable
securities laws and the Optionee shall take all steps required
to comply with applicable securities laws in connection with
the issuance of such Option Shares. The Optionee shall provide
such documents, certificates, opinions of its counsel and
other information as may reasonably be requested by the
Optionor to satisfy itself as to the compliance of the
issuance of the Option Shares with the terms of this Agreement
and with applicable securities law.
(c) All Option Shares issued or to be issued by the Optionee to
the Optionor under and pursuant to this Agreement shall be
subject to all applicable hold periods required by applicable
securities laws and the TSX Venture Exchange. The issuance of
any Option Shares shall be conditional upon (i) the Optionee
obtaining all regulatory and third party consents or approvals
being received, including those of the TSX Venture Exchange
Page 7
and applicable securities regulatory bodies; and (ii) the
existence of an exemption from prospectus and registration
requirements under applicable securities laws for the issuance
of the Option Shares to the Optionor. In the event that the
Optionee is unable to obtain such consents within six months
of application therefore, the Optionee's obligation to make
payments shall be payment in cash only.
5. EXPENDITURES
(a) As further consideration for the Optionor granting the Option
to the Optionee, the Optionee shall incur non-cumulative
Expenditures in the following amounts:
(i) $10,000 prior to the first Anniversary Date; and
(ii) $790,000 prior to the third Anniversary Date.
(b) Except for the payment described in Section 4 (a) (i) and any
payments payable pursuant to section 13 hereof, nothing in
this Agreement shall be construed as obligating the Optionee
to make any further payments or incur any further
Expenditures, or to exercise the Option.
6. EXERCISE OF OPTION
(a) Upon the Optionee making the cash payments, or issuing to the
Optionor the Option Shares, as required by Section 4 and
incurring total Expenditures of not less than eight hundred
thousand ($800,000) dollars on or before the applicable dates
as required by Section 5 (a) hereof, the Optionee may exercise
the Option by written notice thereof to the Optionor and upon
so doing, the Optionee shall have purchased, and the Optionor
shall have sold, on the date the notice is received by the
Optionor (the "Option Exercise Date"), the Property and all of
the Optionor's right, title and interest therein, subject only
to the payment of the Net Smelter Return Royalty and the Back-
in Right of the Optionor.
(b) Upon exercise of the Option by the Optionee, the Optionor
shall forthwith deliver to the Optionee transfers of the
Property which, upon recording thereof, will be sufficient to
register the Optionee as the sole recorded holder of the
Property free of all liens, encumbrances, charges and claims
of any nature or kind whatsoever. The Optionor shall execute
and deliver to the Optionee all other documents, and shall do
or cause to be made all such further actions in order to
properly register the transfers and title in the name of the
Optionee. Upon the receipt of the transfer documents described
in this section, the Optionee shall forthwith record them at
its own cost with the appropriate government office to effect
Page 8
the legal transfer of the Property to the Optionee, provided
that the Optionee shall hold the Property subject to the terms
of this Agreement and the Optionee shall record the Optionor's
interest hereunder with the appropriate government office.
7. TERMINATION OF OPTION
(a) Upon making the payment described in Section 4 (a) (i), the
Optionee may thereafter terminate the Option at any time and
return all of the mining claims forming the Property to the
Optionor by giving the Optionor written notice thereof.
(b) Subject to earlier termination pursuant to this Section 7 (a),
the Option shall automatically terminate if the Optionee does
not make a payment or does not incur Expenditures in the
amount and within the time period required by Sections 4 and
5, respectively, hereof. Notwithstanding the termination of
the Option under this Section 7 (b), the Optionee shall not be
released from its obligation to make the payment under Section
4 (a) (i).
(c) Subject to earlier termination pursuant to Sections 7 (a) or 7
(b) hereof, the Option shall automatically terminate at 5:00
p.m. central time on the third Anniversary Date of this
Agreement unless the Optionee has made the payments or
incurred the Expenditures required by Sections 4 and 5,
respective, hereof, and provided notice has been given to the
Optionor in accordance with Section 6 hereof.
(d) Upon termination in accordance with Sections 7 (a), 7 (b) or 7
(c) hereof, the Optionee shall not suffer or incur any cost,
penalty, damage, claim or expense of any kind whatsoever or
have no further liabilities or unreleased obligations of any
kind whatsoever hereunder, save that the Optionee shall ensure
that the Property shall remain in good standing for at least
one (1) year after such termination.
(e) Upon the termination of this Agreement, the Optionee shall
have the right for thirty (30) days beyond the date of such
termination to enter on, in or under that part of the Property
affected by the termination, to remove therefrom such
equipment, tools, materials, structures, apparatus or supplies
brought thereon by the Optionee or on its behalf, and to the
extent that the Optionee does not remove them they shall
become the Property of the Optionor.
(f) Upon termination of the Option pursuant to Section 7 herein,
the Optionee shall forthwith record with the Mining Recorder
and any other applicable government offices, such documents of
Page 9
the Property as shall be sufficient and as may be required to
designate the Optionor as the sole recorded holder of the
Property, free of all liens, encumbrances, charges and valid
claims created by the act or omission of the Optionee
(including those arising under applicable Environmental Laws),
and the Optionee shall bear any and all costs related thereto.
(g) Any shares of the Optionee issued to the Optionor pursuant to
Section 4 prior to the termination of the Option for any
reason shall remain the property of the Optionor.
8. COVENANTS OF THE OPTIONOR
The Optionor shall:
(a) not act or fail to do any act which it is required to do under
this Agreement or otherwise which would result in the Property
or any part thereof not being transferred to the Optionee
pursuant to Section 6 free and clear of all liens, charges,
encumbrances or liabilities, including those pursuant to
applicable Environmental Laws, of any kind whatsoever;
(b) promptly transmit to the Optionee any notices pertaining to
taxes, assessments and other charges received by the Optionor;
and
(c) not make any agreement whereby any third party may acquire any
portion of the Optionor's interest in the Property otherwise
than in accordance with this Agreement.
9. COVENANTS OF OPTIONEE
The Optionee shall:
(a) maintain the Property in good standing and submit assessment
work with respect to the Expenditures set out in Section 5
hereof according to applicable laws and regulations;
(b) maintain the Property in good standing by the payment of
taxes, assessments and rentals and the performance of all
other actions which may be reasonably necessary in that
regard;
(c) permit the Optionor or its authorized representatives, at
their own risk, and with five (5) days prior notice to the
Optionee, access to the Property at all reasonable times,
provided that the Optionor agrees to indemnify the Optionee
against and to save it harmless from all costs, claims,
Page 10
liabilities and expenses that the Optionee may incur or suffer
as a result of any property or other damage or injury
(including injury causing death) to the Optionor or its
authorized representatives while on the Property, except for
any costs, claims, liabilities and expenses incurred as a
result of any negligent act or omission of the Optionee or its
employees and agents;
(d) do all work on the Property in a good and workmanlike fashion
in accordance with all applicable laws, regulations, orders
and ordinances of any governmental authority;
(e) indemnify and save the Optionor harmless in respect of any and
all costs claims, liabilities and expenses that the Optionor
may incur or suffer, including those pursuant to the
Environmental Laws, arising out of the Optionee's activities
on the Property and, without limiting the generality of the
foregoing shall, during the Option Period carry third party
liability insurance of not less than Five Million ($5,000,000)
Dollars in respect of its operations on the Property for the
benefit of the Optionee and the Optionor as their interests
may appear;
(f) not make any agreement whereby any third party may acquire any
portion of its interest in the Property or under this
Agreement otherwise than in accordance with the provisions of
this Agreement; and
(g) not act or fail to do any act which it is required to do under
this Agreement or otherwise which would result in the Property
or any part thereof, not being free and clear of all liens,
charges, encumbrances, obligations or liabilities, including
those pursuant to applicable Environmental Laws.
10. ADDITIONAL LAND
Notwithstanding anything to the contrary contained herein, each of the
Optionor and the Optionee retains the right to stake or otherwise
acquire additional land which shall not form a part of this Agreement.
11. RIGHT TO ENTER IN, UNDER OR ON PROPERTY
(a) The Optionee, its employees, agents and independent
contractors shall have the exclusive right:
(i) to enter in, under or on the Property;
Page 11
(ii) to bring upon the Property such vehicles, equipment,
portable structures and other apparatus as the
Optionee shall in its sole discretion deem advisable;
(iii) to do such work and conduct and manage such programs
on or under the Property as the Optionee shall in its
sole discretion from time to time deem advisable;
(iv) to remove from the Property such materials for
analysis and testing as the Optionee shall in it sole
discretion deem advisable; and
(v) to have quiet and exclusive possession of the
Property from the date hereof and thereafter during
the currency of the Option Period.
(b) The Optionee shall keep full and complete records of all
exploration work, diamond drilling and development of the said
Property, together with the results of assays made, and,
subject always to the terms of this Agreement, all of such
records shall, at a minimum advance notice of thirty (30)
days, be available for inspection, prior to exercise of the
Option by the Optionor or its agent who may make copies
thereof at the Optionor's sole cost and take extracts
therefrom. If the Option is terminated or otherwise not
exercised by the Optionee, the Optionee shall on request by
the Optionor, deliver to the Optionor a copy of any part or
all of such records.
12. OPTIONEE'S RIGHT TO RELEASE PROPERTY
The Optionee shall, in its sole discretion, upon written notice to the
Optionor, have the right to release from the provisions of this
Agreement from time to time any or all of the mining claims forming the
Property, provided that the Optionee shall ensure that any such mining
claim or part thereof so released will remain in good standing for a
period of at least one (1) year after the giving of the notice of
release. If the Optionee gives notice of such release, it shall specify
therein the mining claims or part thereof it is so releasing and shall
forthwith execute and attend to the registration, at the Optionee's
cost, of such transfers as may be required to transfer to the Optionor
all right, title and interest of the Optionee in and to the mining
claims or part thereof so released, free and clear of all liens,
claims, and other encumbrances of any kind whatsoever, including those
arising pursuant to applicable Environmental Laws, save those which are
the result of any act or omission of the Optionor or any employee or
agent thereof.
Page 12
13. NET SMELTER RETURN ROYALTY
(a) If the Option is exercised, the Optionor shall be entitled to
receive the Net Smelter Return Royalty from the Optionee,
payable from the date of the Commencement of Commercial
Production, calculated and paid in accordance with Schedule
"B" attached hereto, provided that if the Optionor exercises
its Back-in Right in accordance with Section 14 hereof, the
Optionor's right to receive the Net Smelter Return Royalty
shall terminate.
(b) The Net Smelter Return Royalty shall be payable by the
Optionee in Canadian Dollars and shall be paid quarterly in
arrears within sixty (60) days of the end of the quarter to
which it relates.
(c) To the extent permitted by the applicable law, the Net Smelter
Return Royalty shall run with, attach to, and bind the land
underlying the Property. Upon becoming entitled to the Net
Smelter Return Royalty, and subject to the Optionor's exercise
of the Back-in Right, nothing contained in this Agreement
shall be construed as conferring on the Optionor any right to
or interest in the Property, except the right to receive the
Net Smelter Return Royalty as and when due.
(d) All payments of the Net Smelter Return Royalty to the Optionor
shall be deemed final and in full satisfaction of all
obligations of the Optionee in respect thereof if such
payments or the calculation thereof are not disputed by the
Optionor within sixty (60) days after receipt of the Net
Smelter Return Royalty payment and statement.
(e) Unless the Optionor has exercised its Back-in Right, any
decision regarding the Commencement of Commercial Production
shall be at the sole discretion of the Optionee, and the
Optionee shall be under no obligation, and nothing in this
Agreement shall be construed as creating an obligation upon
the Optionee, to place the Property into production and, in
the event the Property is placed into production and operated
as a mine, the Optionee shall have the unfettered right to
suspend or curtail any such operation as it in its sole
discretion may determine.
14. BACK-IN RIGHT
(a) For a period of sixty (60) days following the date of the
Optionor receiving all of the exploration results and
confirmation of Expenditures from the Optionee, the Optionor
shall, at its discretion, have the right to elect by notice in
writing delivered to the Optionee:
Page 13
(i) to hold the two (2%) percent Net Smelter Return
Royalty as set out in Section 13 hereof and, in such
case, the Optionee will hold a one hundred (100%)
percent undivided participating interest in the
Property; or
(ii) to exercise its right (the "Back-in Right") to
acquire a fifty-one (51%) percent undivided interest
in the Property by giving notice of such election in
writing to the Optionee on or before the expiration
of such sixty (60) day period. If the Optionor fails
or neglects to give such a notice, it shall have no
interest in the Property other than the Net Smelter
Return Royalty pursuant to Section 13 hereof.
(b) If the Optionor exercises its Back-in Right by giving notice
to the Optionee pursuant to Section 14 (a) hereof, the Back-in
Right shall vest in the Optionor when the Optionor incurs one
hundred and thirty-five (135) percent of the Expenditures
incurred by the Optionee on the Property (the "Back-in
Interest Expenditures") within two (2) years after receipt by
the Optionee of such notice by the Optionor (the "Vesting of
the Back-in Right"). During this two (2) year period, the
provisions of this Agreement hereof shall apply, mutatis
mutandis, so that the Optionor, its employees, agents and
independent contractors, shall have the exclusive rights and
obligations of the Optionee, and its employees, agents and
independent contractors, set forth in this Agreement and the
Optionee, its employees, agents and independent contractors,
shall have the exclusive rights and obligations of the
Optionor, the employees, agents and independent contractors
set for in this Agreement provided, that this shall not
relieve either the Optionor or Optionee for responsibility
under those Articles for their acts and omissions for the
period prior to the two (2) year period.
(c) Upon the Vesting of the Back-in Right, the Optionor and
Optionee shall forthwith enter into a Joint Venture Agreement
on the terms and conditions of the Joint Venture Agreement
contemplated by Section 14 (d) upon the Optionor incurring the
Back-in Interest Expenditures in accordance with Section 14
(b), with the initial undivided participating interests of the
Optionor and Optionee in the Property being fifty-one (51%)
percent and forty-nine (49%) percent, respectively; provided,
if the Optionor does not incur the Back-in Interest
Expenditures in accordance with Section 14 (b), the Optionee
shall be deemed to have a retained one hundred (100%) percent
undivided participating interest in the Property and the
Optionor shall be entitled to the Net Smelter Royalty pursuant
to Section 13.
(d) Upon the Vesting of the Back-in Right, the Optionor and
Optionee shall forthwith enter into a Joint Venture Agreement
on the terms and conditions usual in the mining industry for
the purpose of further exploring, developing and exploiting
the Property. The Joint Venture Agreement shall include INTER
Page 14
ALIA: (i) rights of first refusal so that if either party
wishes to dispose of its interest in the Property the other
party shall have the right to purchase that interest; and (ii)
all decisions to be made concerning the Property, including
the approval of programs, budgets, and the determination of
amounts to be expended by the Joint Venture, shall be made by
votes of representatives of the parties holding an interest in
the Property, in proportion to the respective interest then
held by them in the Property. The initial undivided
participating interests of the Optionor and Optionee in the
Property shall be fifty-one (51%) percent and forty-nine (49%)
percent, respectively.
(e) Upon the parties entering into a Joint Venture Agreement
pursuant to Section 14 (d), the parties shall immediately form
a joint venture (the "Joint Venture") after which the parties
shall share all future funding of exploration and other
expenditures proportionately to their interest in the Property
(each, a "Venture Interest"). The parties shall use their best
efforts to execute a definitive agreement governing the Joint
Venture which shall incorporate the terms set out herein in
respect of their relationship in the Joint Venture and such
other terms as the parties may agree.
(f) If either party elects not to fund its share of future Joint
Venture expenditures its Venture Interest shall be diluted
based on expenditures incurred, with the Optionor being
initially deemed to have spent $1,000,000 for a fifty-one
(51%) percent interest and the Optionee being initially deemed
to have spent $800,000 for a forty-nine (49%) percent interest
upon formation of the Joint Venture. Each party's interest in
the Property shall be calculated and re- calculated from time
to time to the nearest four decimal places expressed as a
percent, so that each party's interest shall be that
percentage obtained by multiplying by 100 the result obtained
when the aggregate of that party's deemed and actual
expenditures on the Property is divided by the aggregate of
both parties' deemed and actual expenditures on the Property.
Actual expenditures are those incurred after Vesting of the
Back-in Right to the Optionor. If either party's Venture
Interest is reduced to ten (10%) percent or less, its Venture
Interest shall be converted to a two (2%) percent Net Smelter
Return Royalty calculated and paid in the manner described in
Schedule "B".
(g) Subject to available capacity and compatibility with the then
current facilities and through put of ▇▇▇▇▇▇ Bay Mining and
Smelting Co., Limited, the parties confirm that it is their
intention that any Product derived from the Property be
milled, concentrated, refined or otherwise treated at existing
facilities owned or operated by ▇▇▇▇▇▇ Bay Mining and Smelting
Co., Limited, whether pursuant to the Joint Venture or in the
event that the Optionor has not exercised the Back-in-Right,
Page 15
at cost plus a reasonable fee to be negotiated by the Optionee
and ▇▇▇▇▇▇ Bay Mining and Smelting Co., Limited.
15. ARBITRATION
In the event of any dispute between the Optionor and the Optionee with
respect to this Agreement or any matter governed by this Agreement
which the Optionor and Optionee are unable to resolve, the matter shall
be decided by arbitration. The party desiring arbitration shall
nominate one arbitrator and shall notify the other party of such
nomination and the other party shall within thirty (30) days after
receiving such notice nominate one arbitrator, and the two arbitrators
shall select an umpire to act jointly with them. If the said
arbitrators shall be unable to agree upon the selection of such umpire,
the umpire shall be designated by any Justice of the Court of Queen's
Bench of Manitoba. If the party receiving the notice of nomination of
an arbitrator by the party desiring arbitration fails within the said
thirty (30) days to nominate an arbitrator, then the arbitrator
nominated by the party desiring arbitration may proceed alone to
determine the dispute. Any decision reached pursuant to this Section 15
shall be final and binding upon the parties. Insofar as they do not
conflict with the provisions hereof, the provisions of THE ARBITRATION
ACT (Manitoba) as amended from time to time shall be applicable.
16. CONFIDENTIALITY
All information, data and results relating to or derived from the
Property and operations thereon that either the Optionee or Optionor
may receive or become aware of through the provisions of this
Agreement, shall be kept confidential and shall not be disclosed or
used in any manner by the Optionee or Optionor except as such
disclosure may otherwise be required by law, or required to enforce any
provision hereof, or as may be mutually agreed in writing by the
parties.
17. NOTICE
(a) Any notice, document, cheque or thing required or permitted to
be given or delivered hereunder shall be deemed to be properly
given or delivered if:
(i) delivered in person and left with any person who must
be an employee of the party receiving such notice at
the relevant address set forth below; or
(ii) sent in a prepaid registered letter deposited in a
post office; or
(iii) sent by facsimile;
Page 16
and if to the Optionor, addressed to,
▇▇▇▇▇▇ Bay Exploration and Development Company Limited
▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇
and if to the Optionee, addressed to:
Halo Resources Ltd.
▇▇▇▇ - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇
Any notice or delivery so given shall be deemed to have been
given and received on actual receipt of the letter, facsimile
received or on the day of delivery in person as the case may
be (provided that such day is a business day and, if it is
not, on the following business day).
(b) Any party may from time to time by notice in writing delivered
in accordance with the provisions of Section 17 (a) herein
change its address for the purposes of this Section 17;
(c) Any payment that the Optionee shall make to the Optionor
hereunder shall be deemed to have been properly made if a
cheque payable to the Optionor in the amount thereof, has been
delivered to the Optionor in accordance with the provisions of
this Section 18, unless such cheques are not honoured on
presentation for payment.
18. AGREEMENT OPTION ONLY
Subject to Section 14 hereof, this Agreement is an option only and
shall not be construed to create a partnership or the relationship of
principal and agent or any other similar relationship between the
Optionor and the Optionee.
19. TIME OF ESSENCE
Time shall be of the essence hereof.
20. FORCE MAJEURE
The Option Period and the time or times within which payments may or
shall be made hereunder and all other time limitations hereunder shall
be extended for a period of time equal to the total of all periods of
Page 17
time during which the Optionee is prevented from or seriously impeded
in doing any prospecting, exploration, development and/or other mining
work in, on or under the Property by reason of fires, power shortages,
strikes, walk-outs, inability to obtain suitable machinery, labour or
supplies, wars, riots, acts of God or the Queen's enemies, actions by
aboriginal peoples or environmentalists, interference by civil or
military authorities, litigation, governmental regulations or any other
cause or causes (whether or not of the same class or kind as those
enumerated above) beyond the reasonable control of the Optionee. The
Optionee shall provide to the Optionor notice of the beginning of the
period of the force majeure and the end of the period of force majeure
in accordance with the terms of Section 17 hereof.
21. ENTIRE AGREEMENT
This Agreement supersedes all prior negotiations and agreements and
contains the entire understanding between the parties hereto, including
the Letter of Intent, and may be modified only by instrument in writing
signed by the party or parties against which the modification is
asserted.
22. INDEMNITY
The Optionor and the Optionee agree to indemnify and save the other
harmless from all claims, charges, suits, liens, costs, damages,
penalties, or other liabilities of any kind whatsoever suffered or
incurred by a party and which arise out of or are incidental to a
breach of any warranty, covenant, representation, term, or condition of
this Agreement.
23. FURTHER ASSURANCES
The Optionee and the Optionor agree that either before or after the
termination of this Agreement they will execute all documents and do
all acts and things as the other party may reasonably request and as
may be lawful and within their power to do to carry out the intent of
this Agreement.
24. ASSIGNMENT
The Optionor may, at its sole discretion, transfer, assign, or convey
its rights and obligations in this Agreement to ▇▇▇▇▇▇ Bay Mining &
Smelting Co., Limited or any other affiliate of the Optionor.
Otherwise, this Agreement and the rights and obligations of either
party hereto shall not be transferred, assigned or conveyed without the
prior written consent of the other party, such consent not to be
unreasonably withheld.
Page 18
25. JURISDICTION
This Agreement shall be governed by the laws of the Province of
Manitoba and the parties hereto submit to such jurisdiction.
26. HEADINGS
The headings herein are inserted for convenience of reference only and
shall not be used in interpreting or construing this Agreement.
27. ENUREMENT
This Agreement shall enure to and be binding upon the parties hereto
and their respective successors and assigns.
28. SURVIVAL
The parties hereto agree that all covenants, representations,
warranties, terms and conditions contained in this Agreement shall not
merge on closing or upon the delivery of any documents contemplated
herein, but shall, in respect of the Property, survive thereafter for a
period of two (2) years from the date that it is released by the
Optionee under Section 12, the date that the Option is terminated under
Section 7 hereof or the date that the Option is exercised under Section
6 hereof, as the case may be.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
▇▇▇▇▇▇ BAY EXPLORATION AND
DEVELOPMENT COMPANY LIMITED
Per:
-------------------------------------
Per:
-------------------------------------
HALO RESOURCES LTD.
Per:
-------------------------------------
Per:
-------------------------------------
SCHEDULE "A"
PROPERTY
---------
FUD 54488
FUD 54489
FUD 54490
FUD 54672
FUD 54673
FUD 54487
FUD 54674
FUD 54493
FUD 54849
FUD 54675
FUD 54656
FUD 54696
FUD 54697
FUD 54698
FUD 54492
SCHEDULE "B"
NET SMELTER RETURN ROYALTY
1. Net Smelter Return Royalty
(a) There shall accrue for each Quarter following the date of the
Commencement of Commercial Production an amount in dollars
equal to two (2%) percent of the Net Sales Revenue. Each sum
so accrued shall be payable by the Optionee to the Optionor in
accordance with the provisions of paragraph 2 below.
(b) The Optionee shall, as soon as practicable after the end of
each Quarter following the date of Commencement of Commercial
Production and in any event within thirty (30) business days,
determine the Net Smelter Return Royalty for the previous
Quarter in accordance with this Section 1(a) and shall deliver
to the Optionor promptly thereafter a statement (the "NET
SMELTER RETURN STATEMENT") showing such Net Smelter Return
Royalty and setting out in detail its calculations of such Net
Smelter Return Royalty.
(c) If the amount of Net Smelter Returns is not ascertainable for
a calendar quarter, it shall be estimated as nearly as
possible at the time for payment and an adjustment shall be
made at the end of each calendar year. Within ninety (90) days
following the end of each calendar year, commencing with the
year in which the date of the Commencement of Commercial
Production falls, the Optionee shall deliver a statement of
the Net Smelter Returns for the year duly certified as correct
by an independent Chartered Accountant appointed by the
Optionee for such purposes. The Optionor shall have the right
within a period of three (3) months from receipt of such
certified statement to conduct an independent audit at its own
cost and expense, the right to review the Optionee's books and
records relating thereto and an opportunity to discuss issues
raised with the independent Chartered Accountant. The Optionee
shall immediately pay to the Optionor any additional Net
Smelter Return Royalty found by such independent audit to be
payable in respect of the previous calendar year. In the event
such audit indicates that the Optionee's statements were more
than five (5%) percent different than that assessed by the
independent audit, then the cost of such independent audit
shall be borne by the Optionee.
(d) If any portion of the Product extracted and derived from the
Property are sold to a purchaser owned or controlled by the
Optionee or treated by a smelter owned or controlled by the
Optionee, the actual proceeds received shall be
- 2 -
deemed to be an amount equal to what could be obtained from a
purchaser or a smelter not so owned or controlled in respect
of Product of like quality and quantity after deducting
therefrom a charge equal to the transportation cost which
would have been incurred had the material been sold to such
third party purchaser or smelter.
2. Payment
(a) Each sum which shall accrue pursuant to Section 1(a) above
shall be payable by the Optionee to the Optionor in full upon
the Optionee's delivery of the Net Smelter Return Royalty
Statement or as soon as possible thereafter and, in any event,
within forty (40) business days of the end of the Quarter to
which such sum relates.
(b) All payments to be made by the Optionee under this Schedule
shall be made in Canadian dollars in same day funds to such
account at such bank or office as the Optionor shall designate
by not less than two (2) business days' notice to Optionee.
(c) The Optionee shall, if requested to do so by any of the
Optionor, produce to the Optionor the underlying evidence
supporting each of the Net Smelter Return Royalty Statements
delivered with a view to the Optionor verifying each such
statement.
(d) Each payment by the Optionee under this Schedule shall be made
(except to the extent required by law) without set-off or
counterclaim and free and clear of and without deduction or
withholding for or on account of any taxes unless the Optionee
is required by law to make such payment subject to the
deduction or withholding of any taxes in which case the sum
payable by the Optionee in respect of which such deduction or
withholding is required to be made shall be increased to the
extent necessary to ensure that, after the making of such
deduction or withholding, the Optionor receive and retain
(free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have
received and so retained had no such deduction or withholding
been made or required to be made.
JUNGLE AGREEMENT
THIS AGREEMENT made as of the day of , 2006.
BETWEEN:
▇▇▇▇▇▇ BAY MINING AND SMELTING CO., LIMITED, a
corporation incorporated under the laws of Canada,
(hereinafter referred to as the "Optionor")
OF THE FIRST PART,
- and -
HALO RESOURCES LTD., a corporation continued under the
laws of British Columbia,
(hereinafter referred to as the "Optionee")
OF THE SECOND PART.
WHEREAS the Optionor is the sole recorded and beneficial owner
of a 100% undivided interest in the Property (as hereinafter defined);
AND WHEREAS the Optionor desires to grant to the Optionee and
the Optionee desires to receive from the Optionor an option to acquire a 100%
interest in the Property, subject to Sections 13 and 14 herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the terms and conditions hereinafter contained and the sum of $2.00 now paid
by the Optionee to the Optionor (receipt of which is hereby acknowledged) the
parties hereto agree as follows:
1. DEFINITIONS
In this Agreement and in all schedules hereto the following words and
terms where capitalized shall have the following meanings unless the
context clearly indicates a contrary meaning:
(a) "Agreement" means this agreement between the Optionor and the
Optionee, including all Schedules hereto and any documents
incorporated by reference and other amendments as permitted
hereunder, and the expressions this "Agreement", "herein",
"hereto" and other similar expressions refer to all of this
agreement, including the Schedules, any documents incorporated
by reference and other amendments permitted hereunder, and not
to any particular Article, Section or Subsection;
Page 2
(b) "Anniversary Date" means an anniversary date of this
Agreement;
(c) "Area of Interest" means the area within one (1) kilometre
from the existing boundaries of the Property as of the date of
this Agreement but excluding any claims held by any other
party as of the date of this Agreement, which excluded claims
are more particularly described in Schedule "A" attached
hereto;
(d) "Back-in Right" means the right of the Optionor to acquire the
Back-in Interest pursuant to Section 14;
(e) "Back-in Interest" has the meaning given to it in Section 14;
(f) "Back-in Interest Expenditures" means the expenditures
required to be made by the Optionor upon exercise of the
Back-in Right as set out in Section 14 hereof;
(g) "Commencement of Commercial Production" means the date upon
which Product from the Property, for other than testing
purposes, has been processed for a period of thirty (30)
consecutive production days at a rate equal to not less than
seventy-five (75%) percent of the rate projected in the
feasibility report, if any, prepared by or for the Optionee in
respect of the Property;
(h) "Environmental Laws" means all laws, statutes, regulations,
ordinances, rules, requirements, policies, guidelines,
by-laws, codes, orders, permits, directives, notices and
approvals of all federal, territorial, provincial, municipal
or local governmental or administrative authorities and
related to environmental or occupational or public health or
safety matters, or to the generation, handling, treatment,
storage, transportation, disposal or clean up of pollutants,
contaminants, hazardous or toxic substances, dangerous goods,
ozone-depleting substances or other harmful substances or
materials or to the reclamation, site rehabilitation,
restoration, remediation, or other mine and related facilities
closure requirements;
(i) "Expenditures" means:
A. all cash payments made by the Optionee in respect of
the Property towards fulfillment of the expenditure
requirements for this Agreement which meet the
requirements for obtaining assessment credits as set
out in the MINERAL DISPOSITION AND MINERAL LEASE
REGULATION, 1992 made under THE MINES AND MINERALS
ACT (Manitoba); plus
Page 3
B. up to ten (10%) percent per annum of the amount of
such qualifying expenditures referred to in Section
1(j)A. above, which may be applied towards overhead
and expenditures that do not otherwise meet the
requirements for obtaining assessment credits as set
out in the MINERAL DISPOSITION AND MINERAL LEASE
REGULATION, 1992 made under THE MINES AND MINERALS
ACT (Manitoba);
(j) "Feasibility Report" means a report prepared to analyze
whether or not to proceed with mine development and
exploration with respect to the Property in a form and of a
scope that is generally acceptable to reputable financial
institutions that provide financing to the mining industry;
(k) "Joint Venture" means the entity formed upon the execution of
the Joint Venture Agreement;
(l) "Joint Venture Agreement" means an agreement relating to the
development and operation of a joint venture formed pursuant
to Section 15(d);
(m) "Net Sales Revenue" shall mean the actual proceeds received
from any independent custom smelter, mill, mint or other
purchaser for the sale of any Product extracted and derived
from the Property, after deducting all charges and penalties
for smelting and refining and the cost of transportation (to
the smelter and thereafter to the mint), insurance premiums,
sampling and assaying charges incurred after the Product has
left the Property, and all appropriate mint charges;
(n) "Net Smelter Return Royalty" has the meaning described in
Section 13 hereof;
(o) "Option" means the option described in Section 3 hereof;
(p) "Option Exercise Date" has the meaning described in Section 6
hereof;
(q) "Option Period" means the four (4) year time period set out in
Section 3 hereof;
(r) "Option Shares" means the shares described in Section 4 (f)
hereof;
(s) "Prime" means the prime interest rate charged by the Bank of
Nova Scotia from time to time;
Page 4
(t) "Product" means all metals, ores, concentrates, minerals and
mineral resources extracted or produced from the Property;
(u) "Property" means the lease more particularly described in
Schedule "A" attached hereto, covering land situated in the
Sherridon area of Manitoba;
(v) "Quarter" means each period of 3 calendar months starting on a
Quarterly Date but so that the first Quarter under this
Schedule shall start on the date of the Commencement of
Commercial Production and end on the date immediately
preceding the second Quarterly Date to occur after the date of
the Commencement of Commercial Production;
(w) "Quarterly Date" means 1 January, 1 April, 1 June and 1
October of each calendar year; and
(x) "Vesting of the Back-in Right" has the meaning described in
Section 14.
All monies referred to in this Agreement, unless otherwise noted, are
expressed in Canadian dollars.
2. REPRESENTATIONS
(a) The Optionor represents and warrants to the Optionee that, as
of the date hereof:
(i) it is the sole recorded and beneficial owner of the
Property and, save for any rights granted to the
Optionee, is in exclusive possession thereof;
(ii) it is duly incorporated and validly existing under
the laws of Canada;
(iii) the Property is free and clear of all liens, charges,
encumbrances, royalties or other third party
interests of any kind whatsoever except for a charge
noted by a registration in favour BNY Trust Company
of Canada pursuant to a debenture dated December 10,
2004, given by HBED as security under a Trust
Indenture dated December 21, 2004,which charge and
registration will be discharged by the Option or
forthwith upon the Optionee exercising the Option in
accordance with the terms of this Agreement;
(iv) to the best of its knowledge, there are no pending or
threatened actions, suits, claims or proceedings
affecting the Property;
Page 5
(v) except as disclosed in writing to the Optionee, it
has not entered into any agreements in respect of the
Property save for any agreements entered into with
the Optionee;
(vi) all taxes, rates and assessments owing on the
Property have been paid and discharged in full;
(vii) the Optionor is not a party to any judicial or
administrative proceeding which could have an adverse
effect on the Optionee's rights under this Agreement;
(viii) the Property, as described in this Agreement, is
correct as to claim number and all of the claims
comprising the Property has been validly and properly
staked, tagged and recorded in accordance with
applicable law; and
(ix) except as disclosed in writing to the Optionee, there
are no commitments of the Optionor to third parties
relating to the Property which do or could have any
direct or indirect effect on the rights granted to
the Optionee hereunder.
(b) The Optionee represents and warrants to the Optionor that, as
of the date hereof:
(i) it is duly continued and validly existing under the
laws of the Province of British Columbia;
(ii) the execution of this Agreement and the compliance
with its provisions by it do not breach or contravene
any provision of its constating documents and by-laws
or any of its licenses, permits, agreements or
privileges pursuant to which consent is necessary or
which has not been obtained;
(iii) it does not have any undisclosed relationship or
agreement with any other group or company that may be
interested in acquiring the Property; and
(iv) it is not, to its knowledge, a party to any actual
judicial or administrative procedure which is
materially adverse to this Agreement.
Page 6
3. GRANT OF OPTION
Subject to Sections 13 and 14 hereof, the Optionor grants to the
Optionee an exclusive and irrevocable option (the "Option") to earn a
one hundred (100%) percent undivided interest in the Property together
with all mining rights appertaining thereto exercisable in the manner
referred to in Section 6, at any time for a period of four (4) years
commencing from the date hereof until 5:00 p.m. central time on the
fourth Anniversary Date of this Agreement or such earlier date as this
Agreement is terminated in accordance with its terms (the "Option
Period"), for the consideration and upon the terms and conditions
hereinafter set forth.
4. CONSIDERATION
In consideration for the Optionor granting the Option to the Optionee,
the Optionee shall make the following non-cumulative payments by way of
cash as follows:
(a) $10,000 upon the signing of this Agreement;
(b) $20,000 payable on or before the first Anniversary Date of
this Agreement;
(c) $30,000 payable on or before the second Anniversary Date of
this Agreement;
(d) $40,000 payable on or before the third Anniversary Date of
this Agreement; and
(e) $150,000 payable on or before the fourth Anniversary Date of
this Agreement.
(f) If the Optionee and the Optionor agree in writing, up to
twenty-five (25%) percent of the payments to be made under
Section 4 (a) - (e) above may be paid to the Optionor by the
issuance of common shares in the capital of the Optionee (the
"Option Shares") to the Optionor in lieu of such payments. For
the purposes of this paragraph, the Option Shares shall be
deemed to have a value per share equal to the fifteen day
average price of Option Shares at the end of trading for the
fifteen trading days immediately prior to the date that the
Optionee advises the Optionor that it will make the payment
with Option Shares. The Optionee shall take all necessary
corporate action to issue the Option Shares to the Optionor
and to record the Option Shares on the books of the Optionee
in the name of the Optionor. The issuance of the Option Shares
to the Optionor hereunder shall be subject to compliance with
applicable securities laws and the Optionee shall take all
Page 7
steps required to comply with applicabl securities laws in
connection with the issuance of such Option Shares. The
Optionee shall provide such documents, certificates, opinions
of its counsel and other information as may reasonably be
requested by the Optionor to satisfy itself as to the
compliance of the issuance of the Option Shares with the terms
of this Agreement and with applicable securities law.
(g) All Option Shares issued or to be issued by the Optionee to
the Optionor under and pursuant to this Agreement shall be
subject to all applicable hold periods required by applicable
securities laws and the TSX Venture Exchange. The issuance of
any Option Shares shall be conditional upon (i) the Optionee
obtaining all regulatory and third party consents or approvals
being received, including those of the TSX Venture Exchange
and applicable securities regulatory bodies; and (ii) the
existence of an exemption from prospectus and registration
requirements under applicable securities laws for the issuance
of the Option Shares to the Optionor. In the event that the
Optionee is unable to obtain such consents within six months
of application therefore, the Optionee's obligation to make
payments shall be payment in cash only.
5. EXPENDITURES
(a) As further consideration for the Optionor granting the Option
to the Optionee, the Optionee shall incur non-cumulative
Expenditures in the following amounts:
(i) $10,000 prior to the first Anniversary Date;
(ii) $50,000 prior to the second Anniversary Date; and
(iii) $1,440,000 prior to the fourth Anniversary Date.
(b) Except for the payment described in Section 4 (a) and any
payments payable pursuant to Section 13 hereof, nothing in
this Agreement shall be construed as obligating the Optionee
to make any further payments or incur any further
Expenditures, or to exercise the Option.
6. EXERCISE OF OPTION
(a) Upon the Optionee making the cash payments as required by
Section 4 (a) and incurring total Expenditures of not less
than one million five hundred thousand ($1,500,000) dollars on
or before the applicable dates as required by Section 5 (a)
hereof, the Optionee may exercise the Option by written notice
thereof to the Optionor and upon so doing, the Optionee shall
have purchased, and the Optionor shall have sold, on the date
Page 8
the notice is received by the Optionor (the "Option Exercise
Date"), the Property and all of the Optionor's right, title
and interest therein, subject only to the payment of the Net
Smelter Return Royalty and the Back-in Right of the Optionor.
(b) Upon exercise of the Option by the Optionee, the Optionor
shall forthwith deliver to the Optionee transfers of the
Property which, upon recording thereof, will be sufficient to
register the Optionee as the sole recorded holder of the
Property free of all liens, encumbrances, charges and claims
of any nature or kind whatsoever. The Optionor shall execute
and deliver to the Optionee all other documents, and shall do
or cause to be made all such further actions in order to
properly register the transfers and title in the name of the
Optionee. Upon the receipt of the transfer documents described
in this section, the Optionee shall forthwith record them at
its own cost with the appropriate government office to effect
the legal transfer of the Property to the Optionee, provided
that the Optionee shall hold the Property subject to the terms
of this Agreement and the Optionee shall record the Optionor's
interest hereunder with the appropriate government office.
7. TERMINATION OF OPTION
(a) Upon making the payment described in Section 4 (a), the
Optionee may thereafter terminate the Option at any time and
return all of the mining claims forming the Property to the
Optionor by giving the Optionor written notice thereof.
(b) Subject to earlier termination pursuant to this Section 7 (a),
the Option shall automatically terminate if the Optionee does
not make a payment or does not incur Expenditures in the
amount and within the time period required by Sections 4 and
5, respectively, hereof. Notwithstanding the termination of
the Option under this Section 7 (b), the Optionee shall not be
released from its obligation to make the payment under Section
4 (a).
(c) Subject to earlier termination pursuant to Sections 7 (a) or 7
(b) hereof, the Option shall automatically terminate at 5:00
p.m. central time on the fourth Anniversary Date of this
Agreement unless the Optionee has made the payments or
incurred the Expenditures required by Sections 4 and 5,
respective, hereof, and provided notice has been given to the
Optionor in accordance with Section 6 hereof.
(d) Upon termination in accordance with Sections 7 (a), 7 (b) or 7
(c) hereof, the Optionee shall not suffer or incur any cost,
penalty, damage, claim or expense of any kind whatsoever or
have no further liabilities or unreleased obligations of any
kind whatsoever hereunder, save that the Optionee shall ensure
Page 9
that the Property shall remain in good standing for at least
one (1) year after such termination.
(e) Upon the termination of this Agreement, the Optionee shall
have the right for thirty (30) days beyond the date of such
termination to enter on, in or under that part of the Property
affected by the termination, to remove therefrom such
equipment, tools, materials, structures, apparatus or supplies
brought thereon by the Optionee or on its behalf, and to the
extent that the Optionee does not remove them they shall
become the Property of the Optionor.
(f) Upon termination of the Option pursuant to Section 7 herein,
the Optionee shall forthwith record with the Mining Recorder
and any other applicable government offices, such documents of
the Property as shall be sufficient and as may be required to
designate the Optionor as the sole recorded holder of the
Property, free of all liens, encumbrances, charges and valid
claims created by the act or omission of the Optionee
(including those arising under applicable Environmental Laws),
and the Optionee shall bear any and all costs related thereto.
(g) Any shares of the Optionee issued to the Optionor pursuant to
Section 4 prior to the termination of the Option for any
reason shall remain the property of the Optionor.
8. COVENANTS OF THE OPTIONOR
The Optionor shall:
(a) not act or fail to do any act which it is required to do under
this Agreement or otherwise which would result in the Property
or any part thereof not being transferred to the Optionee
pursuant to Section 6 free and clear of all liens, charges,
encumbrances or liabilities, including those pursuant to
applicable Environmental Laws, of any kind whatsoever;
(b) promptly transmit to the Optionee any notices pertaining to
taxes, assessments and other charges received by the Optionor;
and
(c) not make any agreement whereby any third party may acquire any
portion of the Optionor's interest in the Property otherwise
than in accordance with this Agreement.
9. COVENANTS OF OPTIONEE
The Optionee shall:
Page 10
(a) make the annual lease payments in respect of the Property as
such payments become due and to such party as set out in Lease
No. ML 038;
(b) maintain the Property in good standing and submit assessment
work with respect to the Expenditures set out in Section 5
hereof according to applicable laws and regulations;
(c) maintain the Property in good standing by the payment of
taxes, assessments and rentals and the performance of all
other actions which may be reasonably necessary in that
regard;
(d) permit the Optionor or its authorized representatives, at
their own risk, with five (5) days prior notice to the
Optionee, access to the Property at all reasonable times,
provided that the Optionor agrees to indemnify the Optionee
against and to save it harmless from all costs, claims,
liabilities and expenses that the Optionee may incur or suffer
as a result of any property or other damage or injury
(including injury causing death) to the Optionor or its
authorized representatives while on the Property, except for
any costs, claims, liabilities and expenses incurred as a
result of any negligent act or omission of the Optionee or its
employees and agents;
(e) permit the Optionor, at its sole discretion, to participate in
any management reviews of the exploration programs relating to
the Property;
(f) do all work on the Property in a good and workmanlike fashion
in accordance with all applicable laws, regulations, orders
and ordinances of any governmental authority;
(g) indemnify and save the Optionor harmless in respect of any and
all costs claims, liabilities and expenses that the Optionor
may incur or suffer, including those pursuant to applicable
Environmental Laws, arising out of the Optionee's activities
on the Property and, without limiting the generality of the
foregoing shall, during the Option Period carry third party
liability insurance of not less than Five Million ($5,000,000)
Dollars in respect of its operations on the Property for the
benefit of the Optionee and the Optionor as their interests
may appear;
(h) not make any agreement whereby any third party may acquire any
portion of its interest in the Property or under this
Agreement otherwise than in accordance with the provisions of
this Agreement; and
(i) not act or fail to do any act which it is required to do under
this Agreement or otherwise which would result in the Property
or any part thereof, not being free and clear of all liens,
Page 11
charges, encumbrances, obligations or liabilities, including
those pursuant to applicable Environmental Laws.
10. AREA OF INTEREST
During the term of this Agreement, the Optionor and the Optionee shall
both be entitled to stake claims or otherwise acquire property within
the Area of Interest. If either of the Optionee or the Optionor
acquires, directly or indirectly, any interest in any claims (including
by way of staking, option or joint venture) within the Area of
Interest, any such claims shall be included in the definition of
"Property", subject to any previous retained interest agreements in
such claims. The cost (including by way of staking, option or joint
venture) thereof will be paid by the Optionee within thirty (30) days
of the acquisition of the interest by the Optionee.
11. RIGHT TO ENTER IN, UNDER OR ON PROPERTY
(a) The Optionee, its employees, agents and independent
contractors shall have the exclusive right:
(i) to enter in, under or on the Property;
(ii) to bring upon the Property such vehicles, equipment,
portable structures and other apparatus as the
Optionee shall in its sole discretion deem advisable;
(iii) to do such work and conduct and manage such programs
on or under the Property as the Optionee shall in its
sole discretion from time to time deem advisable;
(iv) to remove from the Property such materials for
analysis and testing as the Optionee shall in it sole
discretion deem advisable; and
(v) to have quiet and exclusive possession of the
Property from the date hereof and thereafter during
the currency of the Option Period.
(b) The Optionee shall keep full and complete records of all
exploration work, diamond drilling and development of the said
Property, together with the results of assays made, and,
subject always to the terms of this Agreement, all of such
records shall, at a minimum advance notice of thirty (30)
days, be available for inspection, prior to exercise of the
Option by the Optionor or its agent who may make copies
thereof at the Optionor's sole cost and take extracts
Page 12
therefrom. If the Option is terminated or otherwise not
exercised by the Optionee, the Optionee shall on request by
the Optionor, deliver to the Optionor a copy of any part or
all of such records.
12. OPTIONEE'S RIGHT TO RELEASE PROPERTY
The Optionee shall, in its sole discretion, upon written notice to the
Optionor, have the right to release from the provisions of this
Agreement from time to time any or all of the mining claims forming the
Property, provided that the Optionee shall ensure that any such mining
claim or part thereof so released will remain in good standing for a
period of at least one (1) year after the giving of the notice of
release. If the Optionee gives notice of such release, it shall specify
therein the mining claims or part thereof it is so releasing and shall
forthwith execute and attend to the registration, at the Optionee's
cost, of such transfers as may be required to transfer to the Optionor
all right, title and interest of the Optionee in and to the mining
claims or part thereof so released, free and clear of all liens,
claims, and other encumbrances of any kind whatsoever, including those
arising pursuant to applicable Environmental Laws, save those which are
the result of any act or omission of the Optionor or any employee or
agent thereof.
13. NET SMELTER RETURN ROYALTY
(a) If the Option is exercised, the Optionor shall be entitled to
receive the Net Smelter Return Royalty from the Optionee,
payable from the date of the Commencement of Commercial
Production, calculated and paid in accordance with Schedule
"B" attached hereto, provided that if the Optionor exercises
its Back-in Right in accordance with Section 14 hereof, the
Optionor's right to receive the Net Smelter Return Royalty
shall terminate.
(b) The Net Smelter Return Royalty shall be payable by the
Optionee in Canadian Dollars and shall be paid quarterly in
arrears within sixty (60) days of the end of the quarter to
which it relates.
(c) To the extent permitted by the applicable law, the Net Smelter
Return Royalty shall run with, attach to, and bind the land
underlying the Property. Upon becoming entitled to the Net
Smelter Return Royalty, and subject to the Optionor's exercise
of the Back-in Right, nothing contained in this Agreement
shall be construed as conferring on the Optionor any right to
or interest in the Property, except the right to receive the
Net Smelter Return Royalty as and when due.
(d) All payments of the Net Smelter Return Royalty to the Optionor
shall be deemed final and in full satisfaction of all
obligations of the Optionee in respect thereof if such
Page 13
payments or the calculation thereof are not disputed by the
Optionor within sixty (60) days after receipt of the Net
Smelter Return Royalty payment and statement.
(e) Unless the Optionor has exercised its Back-in Right, any
decision regarding the Commencement of Commercial Production
shall be at the sole discretion of the Optionee, and the
Optionee shall be under no obligation, and nothing in this
Agreement shall be construed as creating an obligation upon
the Optionee, to place the Property into production and, in
the event the Property is placed into production and operated
as a mine, the Optionee shall have the unfettered right to
suspend or curtail any such operation as it in its sole
discretion may determine.
14. BACK-IN RIGHT
(a) For a period of sixty (60) days following the date of the
Optionor receiving all of the exploration results and
confirmation of Expenditures from the Optionee, the Optionor
shall, at its discretion, have the right to elect by notice in
writing delivered to the Optionee:
(i) to hold the two (2%) percent Net Smelter Return
Royalty as set out in Section 13 hereof and, in such
case, the Optionee will hold a one hundred (100%)
percent undivided participating interest in the
Property; or
(ii) to exercise its right (the "Back-in Right") to
acquire a fifty-one (51%) percent undivided interest
in the Property by giving notice of such election in
writing to the Optionee on or before the expiration
of such sixty (60) day period. If the Optionor fails
or neglects to give such a notice, it shall have no
interest in the Property other than the Net Smelter
Return Royalty pursuant to Section 13 hereof.
(b) If the Optionor exercises its Back-in Right by giving notice
to the Optionee pursuant to Section 14 (a) hereof, the Back-in
Right shall vest in the Optionor when the Optionor incurs one
hundred and thirty five (135) percent of the Expenditures
incurred by the Optionee on the Property (the "Back-in
Interest Expenditures") within two (2) years after receipt by
the Optionee of such notice by the Optionor (the "Vesting of
the Back-in Right"). During this two (2) year period, the
provisions of this Agreement hereof shall apply, mutatis
mutandis, so that the Optionor, its employees, agents and
independent contractors, shall have the exclusive rights and
obligations of the Optionee, and its employees, agents and
independent contractors, set forth in this Agreement and the
Optionee, its employees, agents and independent contractors,
shall have the exclusive rights and obligations of the
Optionor, the employees, agents and independent contractors
Page 14
set for in this Agreement provided, that this shall not
relieve either the Optionor or Optionee for responsibility
under those Articles for their acts and omissions for the
period prior to the two (2) year period.
(c) Upon the Vesting of the Back-in Right, the Optionor and
Optionee shall forthwith enter into a Joint Venture Agreement
on the terms and conditions of the Joint Venture Agreement
contemplated by Section 14 (d) upon the Optionor incurring the
Back-in Interest Expenditures in accordance with Section 14
(b), with the initial undivided participating interests of the
Optionor and Optionee in the Property being fifty-one (51%)
percent and forty-nine (49%) percent, respectively; provided,
if the Optionor does not incur the Back-in Interest
Expenditures in accordance with Section 14 (b), the Optionee
shall be deemed to have a retained one hundred (100%) percent
undivided participating interest in the Property and the
Optionor shall be entitled to the Net Smelter Royalty pursuant
to Section 13.
(d) Upon the Vesting of the Back-in Right, the Optionor and
Optionee shall forthwith enter into a Joint Venture Agreement
on the terms and conditions usual in the mining industry for
the purpose of further exploring, developing and exploiting
the Property. The Joint Venture Agreement shall include INTER
ALIA: (i) rights of first refusal so that if either party
wishes to dispose of its interest in the Property the other
party shall have the right to purchase that interest; and (ii)
all decisions to be made concerning the Property, including
the approval of programs, budgets, and the determination of
amounts to be expended by the Joint Venture, shall be made by
votes of representatives of the parties holding an interest in
the Property, in proportion to the respective interest then
held by them in the Property. The initial undivided
participating interests of the Optionor and Optionee in the
Property shall be fifty-one (51%) percent and forty-nine (49%)
percent, respectively.
(e) Upon the parties entering into a Joint Venture Agreement
pursuant to Section 14 (d), the parties shall immediately form
a joint venture (the "Joint Venture") after which the parties
shall share all future funding of exploration and other
expenditures proportionately to their interest in the Property
(each, a "Venture Interest").The parties shall use their best
efforts to execute a definitive agreement governing the Joint
Venture which shall incorporate the terms set out herein in
respect of their relationship in the Joint Venture and such
other terms as the parties may agree.
(f) If either party elects not to fund its share of future Joint
Venture expenditures its Venture Interest shall be diluted
based on expenditures incurred, with the Optionor being
initially deemed to have spent $1,875,000 for a 51% interest
Page 15
and the Optionee being initially deemed to have spent
$1,500,000 for a 49% interest upon formation of the Joint
Venture. Each party's interest in the Property shall be
calculated and re-calculated from time to time to the nearest
four decimal places expressed as a percent, so that each
party's interest shall be that percentage obtained by
multiplying by 100 the result obtained when the aggregate of
that party's deemed and actual expenditures on the Property is
divided by the aggregate of both parties' deemed and actual
expenditures on the Property. Actual expenditures are those
incurred after the Vesting of the Back-in Right to the
Optionor. If either party's Venture Interest is reduced to 10%
or less, its Venture Interest shall be converted to a two (2%
percent Net Smelter Return Royalty calculated and paid in the
manner described in Schedule "B".
(g) Subject to available capacity and compatibility with the then
current facilities and through put of the Optionor, the
parties confirm that it is their intention that any Product
derived from the Property be milled, concentrated, refined or
otherwise treated at existing facilities owned or operated by
the Optionor, whether pursuant to the Joint Venture or in the
event that the Optionor has not exercised the Back-in-Right,
at cost plus a reasonable fee to be negotiated by the parties.
15. ARBITRATION
In the event of any dispute between the Optionor and the Optionee with
respect to this Agreement or any matter governed by this Agreement
which the Optionor and Optionee are unable to resolve, the matter shall
be decided by arbitration. The party desiring arbitration shall
nominate one arbitrator and shall notify the other party of such
nomination and the other party shall within thirty (30) days after
receiving such notice nominate one arbitrator, and the two arbitrators
shall select an umpire to act jointly with them. If the said
arbitrators shall be unable to agree upon the selection of such umpire,
the umpire shall be designated by any Justice of the Court of Queen's
Bench of Manitoba. If the party receiving the notice of nomination of
an arbitrator by the party desiring arbitration fails within the said
thirty (30) days to nominate an arbitrator, then the arbitrator
nominated by the party desiring arbitration may proceed alone to
determine the dispute. Any decision reached pursuant to this Section 15
shall be final and binding upon the parties. Insofar as they do not
conflict with the provisions hereof, the provisions of THE ARBITRATION
ACT (Manitoba) as amended from time to time shall be applicable.
16. CONFIDENTIALITY
All information, data and results relating to or derived from the
Property and operations thereon that either the Optionee or Optionor
may receive or become aware of through the provisions of this
Agreement, shall be kept confidential and shall not be disclosed or
Page 16
used in any manner by the Optionee or Optionor except as disclosure may
otherwise be required by law, or required to enforce any provision
hereof, or as may be mutually agreed in writing by the parties.
17. NOTICE
(a) Any notice, document, cheque or thing required or permitted to
be given or delivered hereunder shall be deemed to be properly
given or delivered if:
(i) delivered in person and left with any person who must
be an employee of the party receiving such notice at
the relevant address set forth below; or
(ii) sent in a prepaid registered letter deposited in a
post office; or
(iii) sent by facsimile;
and if to the Optionor, addressed to,
▇▇▇▇▇▇ Bay Mining and Smelting Co., Limited
▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇
and if to the Optionee, addressed to:
Halo Resources Ltd.
▇▇▇▇ - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇
Any notice or delivery so given shall be deemed to have been
given and received on actual receipt of the letter, facsimile
received or on the day of delivery in person as the case may
be (provided that such day is a business day and, if it is
not, on the following business day).
(b) Any party may from time to time by notice in writing delivered
in accordance with the provisions of Section 17 (a) herein
change its address for the purposes of this Section 17;
(c) Any payment that the Optionee shall make to the Optionor
hereunder shall be deemed to have been properly made if a
Page 17
cheque payable to the Optionor in the amount thereof, has been
delivered to the Optionor in accordance with the provisions of
this Section 17, unless such cheques are not honoured on
presentation for payment.
18. AGREEMENT OPTION ONLY
Subject to Section 14 hereof, this Agreement is an option only and
shall not be construed to create a partnership or the relationship of
principal and agent or any other similar relationship between the
Optionor and the Optionee.
19. TIME OF ESSENCE
Time shall be of the essence hereof.
20. FORCE MAJEURE
The Option Period and the time or times within which payments may or
shall be made hereunder and all other time limitations hereunder shall
be extended for a period of time equal to the total of all periods of
time during which the Optionee is prevented from or seriously impeded
in doing any prospecting, exploration, development and/or other mining
work in, on or under the Property by reason of fires, power shortages,
strikes, walk-outs, inability to obtain suitable machinery, labour or
supplies, wars, riots, acts of God or the Queen's enemies, actions by
aboriginal peoples or environmentalists, interference by civil or
military authorities, litigation, governmental regulations or any other
cause or causes (whether or not of the same class or kind as those
enumerated above) beyond the reasonable control of the Optionee. The
Optionee shall provide to the Optionor notice of the beginning of the
period of the force majeure and the end of the period of force majeure
in accordance with the terms of Section 17 hereof.
21. ENTIRE AGREEMENT
This Agreement supersedes all prior negotiations and agreements and
contains the entire understanding between the parties hereto, including
the Letter of Intent, and may be modified only by instrument in writing
signed by the party or parties against which the modification is
asserted.
22. INDEMNITY
The Optionor and the Optionee agree to indemnify and save the other
harmless from all claims, charges, suits, liens, costs, damages,
penalties, or other liabilities of any kind whatsoever suffered or
Page 18
incurred by a party and which arise out of or are incidental to a
breach of any warranty, covenant, representation, term, or condition of
this Agreement.
23. FURTHER ASSURANCES
The Optionee and the Optionor agree that either before or after the
termination of this Agreement they will execute all documents and do
all acts and things as the other party may reasonably request and as
may be lawful and within their power to do to carry out the intent of
this Agreement.
24. ASSIGNMENT
The Optionor may, at its sole discretion, transfer, assign, or convey
its rights and obligations in this Agreement to any affiliate of the
Optionor. Otherwise, this Agreement and the rights and obligations of
either party hereto shall not be transferred, assigned or conveyed
without the prior written consent of the other party.
25. JURISDICTION
This Agreement shall be governed by the laws of the Province of
Manitoba and the parties hereto submit to such jurisdiction.
26. HEADINGS
The headings herein are inserted for convenience of reference only and
shall not be used in interpreting or construing this Agreement.
27. ENUREMENT
This Agreement shall enure to and be binding upon the parties hereto
and their respective successors and assigns.
Page 19
28. SURVIVAL
The parties hereto agree that all covenants, representations,
warranties, terms and conditions contained in this Agreement shall not
merge on closing or upon the delivery of any documents contemplated
herein, but shall, in respect of the Property, survive thereafter for a
period of two (2) years from the date that it is released by the
Optionee under Section 12, the date that the Option is terminated under
Section 7 hereof or the date that the Option is exercised under Section
6 hereof, as the case may be.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
▇▇▇▇▇▇ BAY MINING AND
SMELTING CO., LIMITED
Per:
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Per:
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HALO RESOURCES LTD.
Per:
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Per:
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SCHEDULE "A"
PROPERTY
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ML 038
SCHEDULE "B"
NET SMELTER RETURN ROYALTY
1. Net Smelter Return Royalty
(a) There shall accrue for each Quarter following the date of the
Commencement of Commercial Production an amount in dollars
equal to two (2%) percent of the Net Sales Revenue. Each sum
so accrued shall be payable by the Optionee to the Optionor in
accordance with the provisions of paragraph 2 below.
(b) The Optionee shall, as soon as practicable after the end of
each Quarter following the date of Commencement of Commercial
Production and in any event within thirty (30) business days,
determine the Net Smelter Return Royalty for the previous
Quarter in accordance with this Section 1(a) and shall deliver
to the Optionor promptly thereafter a statement (the "NET
SMELTER RETURN STATEMENT") showing such Net Smelter Return
Royalty and setting out in detail its calculations of such Net
Smelter Return Royalty.
(c) If the amount of Net Smelter Returns is not ascertainable for
a calendar quarter, it shall be estimated as nearly as
possible at the time for payment and an adjustment shall be
made at the end of each calendar year. Within ninety (90) days
following the end of each calendar year, commencing with the
year in which the date of the Commencement of Commercial
Production falls, the Optionee shall deliver a statement of
the Net Smelter Returns for the year duly certified as correct
by an independent Chartered Accountant appointed by the
Optionee for such purposes. The Optionor shall have the right
within a period of three (3) months from receipt of such
certified statement to conduct an independent audit at its own
cost and expense, the right to review the Optionee's books and
records relating thereto and an opportunity to discuss issues
raised with the independent Chartered Accountant. The Optionee
shall immediately pay to the Optionor any additional Net
Smelter Return Royalty found by such independent audit to be
payable in respect of the previous calendar year. In the event
such audit indicates that the Optionee's statements were more
than five (5%) percent different than that assessed by the
independent audit, then the cost of such independent audit
shall be borne by the Optionee.
(d) If any portion of the Product extracted and derived from the
Property are sold to a purchaser owned or controlled by the
Optionee or treated by a smelter owned or controlled by the
Optionee, the actual proceeds received shall be deemed to be
-2-
an amount equal to what could be obtained from a purchaser or
a smelter not so owned or controlled in respect of Product of
like quality and quantity after deducting therefrom a charge
equal to the transportation cost which would have been
incurred had the material been sold to such third party
purchaser or smelter.
2. Payment
(a) Each sum which shall accrue pursuant to Section 1(a) above
shall be payable by the Optionee to the Optionor in full upon
the Optionee's delivery of the Net Smelter Return Royalty
Statement or as soon as possible thereafter and, in any event,
within forty (40) business days of the end of the Quarter to
which such sum relates.
(b) All payments to be made by the Optionee under this Schedule
shall be made in Canadian dollars in same day funds to such
account at such bank or office as the Optionor shall designate
by not less than two (2) business days' notice to Optionee.
(c) The Optionee shall, if requested to do so by any of the
Optionor, produce to the Optionor the underlying evidence
supporting each of the Net Smelter Return Royalty Statements
delivered with a view to the Optionor verifying each such
statement.
(d) Each payment by the Optionee under this Schedule shall be made
(except to the extent required by law) without set-off or
counterclaim and free and clear of and without deduction or
withholding for or on account of any taxes unless the Optionee
is required by law to make such payment subject to the
deduction or withholding of any taxes in which case the sum
payable by the Optionee in respect of which such deduction or
withholding is required to be made shall be increased to the
extent necessary to ensure that, after the making of such
deduction or withholding, the Optionor receive and retain
(free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have
received and so retained had no such deduction or withholding
been made or required to be made.