Document:

exh4-4_agencyagmt.htm

 

 

 

 

 

 

 

 

 

EXHIBIT 4.4

 

AGENCY AGREEMENT WITH PRIMARY CAPITAL INC.

DATED OCTOBER 1, 2010

 

 

 

  

  

  

AGENCY AGREEMENT

October 20, 2010

 

	
Mill City Gold Corp.

	
4719 Chapel Road NW

	
Calgary, AB  T2L 1A7

Attention:        James R. Brown, President & Chief Executive Officer

 

Dear Sir:

 

Re:         Private Placement of Flow-Through Shares and Units

 

Primary Capital Inc. (the “Agent”) understands that:

 

	
  

	
(a)

	
Mill City Gold Corp. (the “Corporation”) is authorized to issue an unlimited number of Common Shares (as hereinafter defined) and an unlimited number of preferred shares (“Preferred Shares”).

 

	
  

	
(b)

	
As at October 19, 2010, 51,794,207 Common Shares were issued and outstanding as fully paid and non-assessable shares and an aggregate of 15,739,999 Common Shares were reserved for issue pursuant to outstanding options, warrants, share incentive plans, convertible and exchangeable securities and other rights to acquire Common Shares as set out in Schedule A.

 

	
  

	
(c)

	
As at October 19, 2010, no Preferred Shares were issued and outstanding or reserved for issue.

 

	
  

	
(d)

	
The Corporation is prepared to issue and sell Flow-Through Shares (as hereinafter defined) at a price of $0.10 per Flow-Through Share (the “Flow-Through Offering”) and Units (as hereinafter defined) at a price of $0.10 per Unit (the “Unit Offering”).  Each Unit shall be comprised of one Common Share (a “Unit Share”) and one-half of one Common Share purchase warrant (each whole Common Share purchase warrant, a “Warrant”).  Each Warrant shall entitle the holder thereof to acquire one Warrant Share (as hereinafter defined) at a exercise price of $0.15 per Warrant Share at any time during the 24 month period following the Closing Date (as hereinafter defined).

 

	
  

	
(e)

	
The aggregate gross proceeds of the Flow-Through Offering and the Unit Offering (collectively, the “Offering”) will be up to $1,500,000.

 

Based upon the understanding of the Agent set out above and upon the terms and subject to the conditions contained hereinafter, upon the acceptance hereof by the Corporation, the Corporation hereby appoints the Agent to act as the sole and exclusive agent of the Corporation to solicit, on a reasonable best efforts basis, offers to purchase the Offered Securities, and the Agent hereby agrees to act as such agent.  It is understood and agreed that the Agent will offer the Offered Securities (as hereinafter defined) on a private placement best efforts basis to raise gross proceeds of up to $1,500,000 in the Offering Jurisdictions (as hereinafter defined).

 

  

  

  

 

 

	
1.  

	
Definitions, Interpretations and Schedules

 

	
(a)           

	
Definitions: Whenever used in this Agreement:

 

	
(i)        

	
“Agent” means  Primary Capital Inc.;

 

	
(ii)        

	
“Agreement” means the agreement resulting from the acceptance by the Corporation of the offer made by the Agent herein, including the schedules attached hereto, as amended or supplemented from time to time;

 

	
(iii)        

	
“Ancillary Documents” means all agreements, indentures, certificates (including the Warrant Certificates, Broker Warrant Certificates and Broker Warrant Underlying Warrant Certificates) and documents executed and delivered, or to be executed and delivered, by the Corporation in connection with the transactions contemplated by this Agreement or the Subscription Agreements and includes the Subscription Agreements;

 

	
(iv)        

	
“Auditor” means D&H Group LLP, the auditor of the Corporation;

 

	
(v)        

	
“BC Act” means the Securities Act (British Columbia) and the regulations thereunder, together with the instruments, policies, rules, orders, codes, notices and interpretation notes of the British Columbia Securities Commission, as amended, supplemented or replaced from time to time;

 

	
(vi)        

	
“Broker Units” means those Units issuable upon exercise of the Broker Warrants;

 

	
(vii)        

	
“Broker Warrant Certificates” means the certificates representing the Broker Warrants;

 

	
(viii)        

	
“Broker Warrant Shares” means those Common Shares comprising part of the Units issuable upon exercise of the Broker Warrants (which will not be Flow-Through Shares);

 

	
(ix)        

	
“Broker Warrant Underlying Warrant Certificate” means the certificates representing the Broker Warrant Underlying Warrants;

 

	
(x)        

	
“Broker Warrant Underlying Warrant Shares” means the Common Shares issuable upon exercise of the Broker Warrant Underlying Warrants (which will not be Flow-Through Shares);

 

	
(xi)        

	
“Broker Warrant Underlying Warrants” means those Warrants comprising part of the Broker Units issuable upon exercise of the Broker Warrants;

 

	
(xii)        

	
“Broker Warrants” means the broker warrants to purchase Broker Units issuable to the Agent in connection with the Offering as part of its Commission;

 

  

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(xiii)        

	
“Business Day” means a day on which Canadian chartered banks are open for the transaction of regular business in the City of Vancouver, British Columbia and the City of Toronto, Ontario;

 

	
(xiv)        

	
“Canadian Exploration Expense” or “CEE” means one or more expenses referred to in paragraph (f) of the definition of Canadian exploration expense in subsection 66.1(6) of the Tax Act other than amounts which are prescribed to be “Canadian exploration and development overhead expense” for the purposes of paragraph 66(12.6)(b) of the Tax Act or the cost of acquiring or obtaining the use of seismic data described in paragraph 66(12.6)(b.1) of the Tax Act or any expenses for prepaid services or rent that do not qualify as outlays and expenses for the period as described in the definition “expense” in subsection 66(15) of the Tax Act;

 

	
(xv)        

	
“Closing” means the closing of the purchase and sale of the Offered Securities subscribed for by the Purchasers pursuant to the Subscription Agreements;

 

	
(xvi)        

	
“Closing Date” means October 20, 2010 or such other date as the Corporation and the Agent may mutually agree upon in writing, but in any event not later than October 31, 2010;

 

	
(xvii)        

	
“Closing Time” means 7:30 a.m. (Vancouver time) on the Closing Date or such other time on the Closing Date as the Corporation and the Agent may mutually agree upon in writing;

 

	
(xviii)        

	
“Commitment Amount” means the aggregate amount paid by the FT Purchasers for the Flow-Through Shares;

 

	
(xix)        

	
“Common Shares” means the common shares in the capital of the Corporation as constituted on the date hereof;

 

	
(xx)        

	
“Corporation” means Mill City Gold Corp., a corporation existing under the Business Corporations Act (British Columbia) and includes any successor corporation thereto, and as applicable, its wholly owned subsidiary, Mill City Gold, Inc.;

 

	
(xxi)        

	
“CRA” means Canada Revenue Agency;

 

	
(xxii)        

	
“Debt Instrument” means any loan, bond, debenture, promissory note or other instrument evidencing indebtedness (demand or otherwise) for borrowed money or other liability;

 

	
(xxiii)        

	
“Dollars” or “$” means lawful money of Canada;

 

	
(xxiv)        

	
“Expenditure Period” means the period commencing on the Closing Date and ending on the Termination Date;

 

 

  

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(xxv)        

	
“Flow-Through Mining Expenditure” means an expense which would constitute a “flow-through mining expenditure” as defined in subsection 127(9) of the Tax Act;

 

	
(xxvi)        

	
“Flow-Through Offering” means the offering of Flow-Through Shares to be offered for sale on a private placement basis pursuant to NI 45-106, through the Agent;

 

	
(xxvii)        

	
“Flow-Through Shares” means the Common Shares which are “flow-through shares” as defined in subsection 66(15) of the Tax Act;

 

	
(xxviii)        

	
“FT Purchasers” means the purchasers of Flow-Through Shares pursuant to the Flow-Through Offering;

 

	
(xxix)        

	
“FT Subscription Agreements” means the subscription and renunciation agreements entered into between the Corporation and the FT Purchasers in respect of the Flow-Through Shares, pursuant to the Flow-Through Offering;

 

	
(xxx)        

	
“Information” means all information regarding the Corporation that is, or becomes, publicly available on SEDAR;

 

	
(xxxi)        

	
“June 30, 2010 Financial Statements” has the meaning given to such term in section 8(u) of this Agreement;

 

	
(xxxii)        

	
“NI 45-106” means National Instrument 45-106 - Prospectus and Registration Exemptions of the Canadian Securities Administrators;

 

	
(xxxiii)        

	
“Offered Securities” means, collectively, the Flow-Through Shares and the Units to be issued and sold pursuant to the Offering;

 

	
(xxxiv)        

	
“Offering” means, collectively, the Flow-Through Offering and the Unit Offering;

 

	
(xxxv)        

	
“Offering Jurisdictions” means, collectively, the Provinces of Ontario, British Columbia and Alberta and such other provinces and territories of Canada as may be mutually agreed upon by the Agent and the Corporation, and in respect of the Units, jurisdictions outside of North America, where the Offered Securities are offered to prospective purchasers, as the context permits or requires;

 

	
(xxxvi)        

	
“Person” means an individual, a firm, a corporation, a syndicate, a partnership, a trust, an association, an unincorporated organization, a joint venture, an investment club, a government or an agency or political subdivision thereof and every other form of legal or business entity of any nature or kind whatsoever;

 

  

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(xxxvii)        

	
“Preferred Shares” means the preferred shares in the capital of the Corporation as constituted on the date hereof;

 

	
(xxxviii)        

	
“Prescribed Forms” means the forms prescribed from time to time under subsection 66(12.7) of the Tax Act and under the applicable provision of the Taxation Act (Québec) as described in paragraph 1(e) hereof filed or to be filed by the Corporation within the prescribed times renouncing to the FT Purchasers the Resource Expenses incurred pursuant to the FT Subscription Agreements and all parts or copies of such forms required by the CRA and under the Taxation Act (Québec) as described in paragraph 1(e) hereof to be delivered to the FT Purchasers;

 

	
(xxxix)        

	
“Prescribed Relationship” means a relationship between the Corporation and a Person where such Person and the Corporation are related or otherwise do not deal at arm’s length for purposes of the Tax Act;

 

	
(xl)        

	
“Property Agreements” means the agreements related to the material properties of the Corporation which include, collectively: the option and joint venture agreement with Temex dated September 22, 2010 related to the Croxall property and the option and joint venture agreement made September 2, 2008 with Temex and Rainy Mountain Royalty Corp. related to the GP2 property, and amendments thereto;

 

	
(xli)        

	
“Purchase Price” means, as the context requires, the price to be paid by the Purchasers for each Flow-Through Share or Unit under the Offering, being $0.10 per Flow-Through Share and $0.10 per Unit, respectively;

 

	
(xlii)        

	
“Purchasers” means, collectively, the purchasers of the Offered Securities;

 

	
(xliii)        

	
“Reporting Provinces” means, collectively, the Provinces of British Columbia, Alberta and Quebec;

 

	
(xliv)        

	
“Resource Expense” means an expense which is CEE, which qualifies as a Flow-Through Mining Expenditure that is incurred on or after the Closing Date and on or before the Termination Date which will be renounced by the Corporation pursuant to subsections 66(12.6) and 66(12.66) of the Tax Act with an effective date not later than December 31, 2010 and in respect of which, but for the renunciation, the Corporation would be entitled to a deduction from income for income tax purposes;

 

	
(xlv)        

	
“Securities Commissions” means, collectively, the securities regulatory authorities of the Offering Jurisdictions or the Reporting Provinces, as applicable;

 

	
(xlvi)        

	
“Securities Laws” means the securities legislation and regulations of, and the instruments, policies, rules, orders, codes, notices, interpretation notes 

 

  

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and policy statements of the applicable securities regulatory authorities in each of the provinces of Canada, and the rules of the Stock Exchange;

 

	
(xlvii)        

	
“Stock Exchange” means the TSX Venture Exchange;

 

	
(xlviii)        

	
“Stock Option Plan” means the incentive stock option plan of the Corporation;

 

	
(xlix)        

	
“Subject Shares” means, collectively, the Flow-Through Shares, the Unit Shares, the Warrant Shares, the Broker Warrant Shares and Broker Warrant Underlying Warrant Shares;

 

	
(l)        

	
“Subscription Agreements” means, collectively, the FT Subscription Agreements and the subscription agreements to be entered into between the Corporation and each of the Purchasers with respect to the purchase of Units;

 

	
(li)        

	
“Tax Act” means the Income Tax Act (Canada), and all rules and regulations made pursuant thereto, all as may be amended, re-enacted or replaced from time to time and any proposed amendments thereto announced publicly from time to time;

 

	
(lii)        

	
“Temex” means Temex Resources Corp;

 

	
(liii)        

	
“Termination Date” means December 31, 2011;

 

	
(liv)        

	
“Unit” means a unit of the Corporation, comprised of one Unit Share and one-half of one Warrant;

 

	
(lv)        

	
“Unit Offering” means the offering of Units to be offered for sale on a private placement basis pursuant to NI 45-106, through the Agent;

 

	
(lvi)        

	
“Unit Shares” means the Common Shares comprising part of the Units;

 

	
(lvii)        

	
“United States” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia;

 

	
(lviii)        

	
“Warrant Certificates” means the certificates representing the Warrants;

 

	
  

	
(lix) 

	
“Warrant Shares” means the Common Shares issuable upon the exercise of the Warrants; and

 

	
(lix)        

	
“Warrants” means the Common Share purchase warrants of the Corporation comprising part of the Units with each whole Warrant entitling the holder thereof to acquire one Warrant Share at an exercise price of $0.15 at any time during the 24 month period after the Closing Date.

 

  

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(b)          

	
Other Defined Terms:  Whenever used in this Agreement, the words and terms “affiliate”, “associate”, “material fact”, “material change”, “misrepresentation”, “senior officer” and “subsidiary” shall have the meaning given to such word or term in the BC Act unless specifically provided otherwise herein.

 

	
(c)          

	
Plural and Gender:  Whenever used in this Agreement, words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and neuter.

 

	
(d)          

	
Currency:  All references to monetary amounts in this Agreement are to lawful money of Canada.

 

	
(e)          

	
Taxation Act (Québec):  Any reference to a word or term defined in the Tax Act includes, for purposes of Québec income taxation, a reference to the equivalent word or term, if any, defined in the Taxation Act (Québec) and all rules and regulations made pursuant thereto, all as may be amended, re-enacted or replaced from time to time and any proposed amendments thereto as may be announced publicly from time to time.  Any reference to the Tax Act or a provision thereof includes, for purposes of Québec income taxation, a reference to the Taxation Act (Québec) or the equivalent provision thereof as such act may be amended, re-enacted or replaced from time to time.  Any reference to a filing or similar requirement imposed under the Tax Act includes, for purposes of Québec income taxation, a reference to the equivalent filing or similar requirement, where applicable, under the Taxation Act (Québec) as such act may be amended, re-enacted or replaced from time to time; provided that, if no filing or similar requirement is provided under the Taxation Act (Québec), a copy of any material filed under the Tax Act shall be filed with the ministère du Revenu du Québec.

 

	
(f)        

	
Schedules:  The following schedules are attached to this Agreement and are deemed to be a part of and incorporated in this Agreement:

 

	
Schedule

	
Title

	
A

	
Outstanding Convertible Securities

	
B

	
Property Interests

	
2.  

	
The Offered Securities

 

	
(a)          

	
Offered Securities:  The Offered Securities consist of Flow-Through Shares and Units to be sold under the Offering.

 

	
(b)          

	
Incurring and Renouncing of CEE:  The Corporation hereby agrees to incur Resource Expenses in an amount equal to the Commitment Amount on or before the Termination Date in accordance with the FT Subscription Agreements and agrees to renounce to the FT Purchasers, with an effective date no later than December 31, 2010, pursuant to subsection 66(12.6) of the Tax Act, and in respect of Resource Expenses incurred in 2011, pursuant to subsections 66(12.6)

 

 

  

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and 66(12.66) of the Tax Act, Resource Expenses in an amount equal to the Commitment Amount.

 

	
(c)          

	
Renunciation:  The Corporation shall deliver to the FT Purchasers, on or before February 15, 2011, the relevant Prescribed Forms (including T-101 Forms), fully completed and executed, renouncing to each FT Purchaser, Resource Expenses in an amount equal to the Commitment Amount applicable to such FT Purchaser with an effective date of no later than December 31, 2010, such delivery constituting the authorization of the Corporation to the FT Purchasers to file such Prescribed Forms with applicable taxation authorities.

 

	
  

	
(d)

	
The Warrants:  The terms and conditions, and the material attributes and characteristics, of the Warrants shall be satisfactory to the Corporation and the Agent and consistent with the provisions of this Agreement.  Such terms and conditions, and material attributes and characteristics, will be contained in the Warrant Certificates which will contain, among other things, anti-dilution provisions and provisions for the appropriate adjustment in the class and number of Warrant Shares or other securities to be received on the exercise of Warrants upon the occurrence of certain events, including any subdivision, consolidation or reclassification of the Common Shares or any payment of dividends or the amalgamation of, or other reorganization involving, the Corporation.  Subject to adjustment in accordance with the provisions of the Warrant Certificates, each whole Warrant shall entitle the holder thereof to purchase one Warrant Share at an exercise price of $0.15 per Warrant Share for a period of 24 months following the Closing Date.

 

	
3.  

	
The Offering

 

	
(a)          

	
Sale on Exempt Basis:  The Agent will use its reasonable best efforts to arrange for Purchasers of the Offered Securities in the Offering Jurisdictions. The Agent shall offer for sale on behalf of the Corporation the Offered Securities in the Offering Jurisdictions in compliance with the Securities Laws of the Offering Jurisdictions and only to such Persons and in such manner so that, pursuant to the provisions of the Securities Laws of the Offering Jurisdictions, no prospectus, registration statement or offering memorandum or other similar document need be filed with, or delivered to, any Securities Commission in any Offering Jurisdiction in connection therewith.

 

	
(b)          

	
Agency Group:  The Corporation agrees that the Agent has the right to invite one or more investment dealers to form an agency group to participate in the soliciting of offers to purchase the Offered Securities.  The Agent shall have the exclusive right to control all compensation arrangements between the members of the agency group.  The Corporation grants all of the rights and benefits of this Agreement to any investment dealer who is a member of any agency group formed by the Agent and appoints the Agent as trustee of such rights and benefits for all such investment dealers, and the Agent hereby accepts such trust and agrees to hold such rights and benefits for and on behalf of all such investment 

 

  

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dealers.  The Agent shall ensure that any investment dealer who is a member of any agency group or syndicate formed by the Agent pursuant to the provisions of this subsection 3(b) or with whom the Agent has a contractual relationship with respect to the Offering, if any, agrees with the Agent to comply with the covenants and obligations given by the Agent herein.

 

	
(c)          

	
Covenants of the Agent:  The Agent covenants with the Corporation that (i) it will comply with the Securities Laws of the Offering Jurisdictions in which they solicit or procure subscriptions for Offered Securities in connection with the Offering, (ii) it will not solicit or procure subscriptions for Offered Securities so as to require the registration thereof or the filing of a prospectus with respect thereto under the laws of any jurisdiction, and (iii) it will obtain from each Purchaser an executed Subscription Agreement in a form acceptable to the Corporation and the Agent, acting reasonably. The Agent represents and warrants that it is, and, to the best of its knowledge, each member of any agency group formed by the Agent is:

 

	
(i)        

	
an "accredited investor" within the meaning of such term as defined in NI 45-106 by virtue of being a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors; and

 

	
(ii)        

	
registered in a category permitting it to participate in the distribution of the Offered Securities as contemplated in this Agreement and has complied with all applicable laws applicable to its registration in connection with its involvement in the Offering.

 

	
(d)          

	
Filings:  The Corporation undertakes to file or cause to be filed all forms and undertakings required to be filed by the Corporation in connection with the Offering so that the distribution of the Offered Securities may lawfully occur in the Offering Jurisdictions without the necessity of filing a prospectus or an offering memorandum in Canada and the Agent undertakes to use its commercially reasonable best efforts to cause the Purchasers of the Offered Securities to complete (and it shall be a condition of closing in favour of the Corporation that the Purchasers complete and deliver to the Corporation) any forms and undertakings required by the Securities Laws of the Offering Jurisdictions.  All fees payable in connection with such filings shall be at the expense of the Corporation.

 

	
(e)          

	
No Offering Memorandum:  Neither the Corporation nor the Agent shall provide to prospective purchasers of Offered Securities any document or other material that would constitute an offering memorandum within the meaning of the Securities Laws of the Offering Jurisdictions.

 

  

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4.  

	
Due Diligence

 

The Corporation shall allow the Agent to conduct all due diligence investigations, including meeting with senior management of the Corporation, the Auditor and legal counsel to the Corporation, as the Agent shall consider appropriate in connection with the Offering.

 

	
5.  

	
Deliveries By Closing Time

 

	
(a)          

	
Deliveries:  By the Closing Time:

 

	
(i)        

	
all actions required to be taken by or on behalf of the Corporation including, without limitation, the passing of all required resolutions of the directors, including committees of the directors, and shareholders of the Corporation, shall have occurred in order to complete the transactions contemplated by this Agreement and the Subscription Agreements, including, without limitation, to issue the Flow-Through Shares and Unit Shares, to create and issue the Warrants and the Broker Warrants, to allot and reserve for issuance the Broker Warrant Underlying Warrants and Broker Warrant Underlying Warrant Shares and a certified copy of all such resolutions shall have been delivered by the Corporation to the Agent;

 

	
(ii)        

	
the Corporation shall have delivered or caused to be delivered to the Agent:

 

	
(A)        

	
a favourable legal opinion dated the Closing Date of counsel to the Corporation, DuMoulin Black LLP and favourable legal opinions of local counsel and tax counsel, acceptable to the Agent, which counsel may rely on a certificate of a senior officer of the Corporation with respect to the factual matters addressed in such opinion addressed to, among others, the Agent and the Purchasers in form and substance acceptable to the Agent and its counsel,

 

	
(B)        

	
a certificate dated the Closing Date signed by an appropriate officer of the Corporation and addressed to, among others, the Agent and the Purchasers with respect to the articles of the Corporation, the resolutions of the directors and shareholders, if any, of the Corporation and any other corporate action taken relating to this Agreement and the Ancillary Documents and with respect to such other matters as the Agent may reasonably request, and including specimen signatures of the signing officers of the Corporation,

 

	
(C)        

	
a certificate dated the Closing Date addressed to, among others, the Agent and the Purchasers signed by the chief executive officer and the chief financial officer of the Corporation or any two other senior officers of the Corporation acceptable to the Agent 

 

 

  

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acknowledging that the Agent and the Purchasers are relying on such certificate, the Subscription Agreement and the Information in deciding to invest, certifying for and on behalf of the Corporation to the best or their knowledge, information and belief that:

 

	
(I)        

	
no order, ruling or determination having the effect of suspending the sale or ceasing the trading in any securities of the Corporation (including the Offered Securities) has been issued by any regulatory authority and is continuing in effect and no proceedings for that purpose have been instituted or threatened, or to the knowledge of such officers, are pending or contemplated by any regulatory authority;

 

	
(II)        

	
the Corporation has duly complied with all the terms, covenants and conditions of this Agreement on its part to be complied with up to the Closing Time;

 

	
(III)        

	
the representations and warranties of the Corporation contained in this Agreement are true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated by this Agreement,

 

	
(IV)        

	
since December 31, 2009, except as disclosed in the Information, there has been no material adverse change (whether actual, anticipated, proposed, prospective or threatened) in the financial condition, assets, liabilities (contingent or otherwise), business, affairs, operations or prospects of the Corporation or in the capital of the Corporation; and

 

	
(V)        

	
no transaction of a nature material to the Corporation has been entered into by the Corporation, except as disclosed in the Information,

 

	
(D)        

	
favourable title opinions dated as of a recent date addressed to the Agent and the Purchasers in form and substance acceptable to the Agent and its counsel, acting reasonably with respect to title to the Croxall property and the GP2 property,

 

	
(E)        

	
a Subscription Agreement from each Purchaser accepted by the Corporation,

 

	
(F)        

	
definitive certificates representing the Flow-Through Shares, Unit Shares and Warrants registered in the names of the Purchasers or 

 

  

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in such other name or names as the Purchasers or the Agent may direct,

 

	
(G)        

	
definitive certificates representing the Broker Warrants registered in the name of the Agent or in such other name or names as the Agent may direct, and

 

	
(H)        

	
such further documents as may be contemplated by this Agreement or as the Agent may reasonably require,

 

all in form and substance satisfactory to the Agent;

 

	
(iii)        

	
the Agent shall have delivered or cause to be delivered to the Corporation:

 

	
(A)        

	
payment in an aggregate amount equal to: (i) the aggregate Purchase Price for the Offered Securities net of the commission payable by the Corporation to the Agent as provided for in section 7 of this Agreement and the expenses payable by the Corporation to the Agent as provided for in section 12 of this Agreement; and (ii) the Commitment Amount, by cheque, bank draft or wire transfer payable to the Corporation against delivery from the Corporation to the Agent of a receipt for such amounts,

 

	
(B)        

	
a Subscription Agreement signed by or on behalf of each Purchaser, and

 

	
(C)        

	
such further documents as may be contemplated by this Agreement or as the Corporation may reasonably require, all in form and substance satisfactory to the Corporation.

 

	
6.  

	
Closing

 

	
(a)          

	
Closing:  The Closing shall be completed at the offices of counsel for the Corporation at the Closing Time on the Closing Date.

 

	
(b)          

	
Conditions of Closing:  The following are conditions precedent to the obligation of the Agent to complete the Closing and of the Purchasers to purchase the Offered Securities, which conditions the Corporation hereby covenants and agrees to use its commercially reasonable efforts to fulfill within the time set out herein therefor, and which conditions may be waived in writing in whole or in part by the Agent:

 

	
(i)        

	
the Corporation shall have received all necessary approvals and consents, including all necessary regulatory approvals and consents (including those of the Stock Exchange) required for the completion of the transaction contemplated by this Agreement, all in a form satisfactory to the Agent, acting reasonably, and the Stock Exchange shall have conditionally 

 

  

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approved the listing thereon of the Subject Shares, subject to the fulfillment of normal conditions;

 

	
(ii)        

	
receipt by the Agent of the documents set forth in section 5 of this Agreement to be delivered to the Agent;

 

	
(iii)        

	
the representations and warranties of the Corporation contained herein being true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated hereby;

 

	
(iv)        

	
the Corporation having complied with all covenants, and satisfied all terms and conditions, contained herein to be complied with and satisfied by the Corporation at or prior to the Closing Time; and

 

	
(v)        

	
the Agent not having previously terminated its obligations pursuant to this Agreement.

 

	
7.  

	
Fee

 

	
(a)          

	
Commission:  In consideration of the agreement of the Agent to act as Agent of the Corporation in respect of the Offering, and in consideration of the services performed and to be performed by the Agent in connection therewith, including, without limitation:

 

	
(i)        

	
acting as agent of the Corporation to solicit offers to purchase the Offered Securities;

 

	
(ii)        

	
participating in the preparation of the form of the Subscription Agreements and certain of the Ancillary Documents; and

 

	
(iii)        

	
advising the Corporation with respect to the private placement of the Offered Securities;

 

the Corporation shall pay to the Agent or as the Agent may otherwise direct at the Closing Time against receipt of payment of the aggregate Purchase Price for the Offered Securities, a cash commission equal to 6% of the aggregate Purchase Price for the Offered Securities, out of the proceeds of the Offering. In addition, the Agent will receive Broker Warrants which will entitle the Agent to purchase that number of Broker Units as is equal to 10% of the number of Offered Securities sold, exercisable at a price of $0.10 per Broker Unit at any time during the 24 month period after the Closing Date.

 

For greater certainty, in the event that Closing does not occur, no cash commission will be payable to the Agent and no Broker Warrants will be issuable to the Agent.

 

  

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8.  

	
Representations and Warranties

 

The Corporation hereby represents and warrants to the Agent and the Purchasers, and acknowledges that the Agent and the Purchasers are relying upon each of such representations and warranties in completing the Closing, as follows:

 

	
(a)          

	
Incorporation and Organization:  The Corporation has been amalgamated and organized and is a valid and subsisting corporation under the laws of its jurisdiction of amalgamation and has all requisite corporate power and authority to carry on its business as now conducted or proposed to be conducted and to own or lease and operate the property and assets thereof and the Corporation has all requisite corporate power and authority to enter into, execute and deliver this Agreement and the Ancillary Documents and to carry out the obligations thereof hereunder and thereunder.

 

	
(b)          

	
Extra-provincial Registration:  The Corporation is licensed, registered or qualified as an extra-provincial or foreign corporation in all jurisdictions where the character of the property or assets thereof owned or leased or the nature of the activities conducted by it make licensing, registration or qualification necessary and is carrying on the business thereof in compliance with all applicable laws, rules and regulations of each such jurisdiction.

 

	
(c)          

	
Authorized Capital:  The Corporation is authorized to issue an unlimited number of Common Shares of which, as of October 19, 2010, 51,794,207 Common Shares were issued and outstanding as fully paid and non-assessable shares. The Corporation is also authorized to issue an unlimited number of Preferred Shares, of which as of October 19, 2010, no Preferred Shares were issued and outstanding.

 

	
(d)          

	
Listing:  The Common Shares are listed on the Stock Exchange and the Subject Shares will, at the time of issue of the Offered Securities, have been conditionally accepted for listing on the Stock Exchange and any other consents or approvals required by the Stock Exchange in respect of the Offering, to the extent necessary to be obtained, shall have been obtained. The Corporation has not issued, or agreed to issue, any Common Shares or any securities exchangeable or exercisable for, or convertible into, Common Shares at an effective price per Common Share which is less than the Purchase Price during the 60 day period immediately preceding the date hereof. except for Common Shares issued pursuant to the Property Agreements.

 

	
(e)          

	
Certain Securities Law Matters:  The Corporation is a reporting issuer or the equivalent in the Reporting Provinces and is not in default of any requirement of the Securities Laws of any of such provinces.

 

	
(f)          

	
Resale of Securities:  None of the Subject Shares, Warrants or Broker Warrant Underlying Warrants will be subject to a restricted period or statutory hold period under the Securities Laws of the Offering Jurisdictions or to any resale restriction 

 

  

-14-

  

 

 

	
         

	
under the policies of the Stock Exchange which extends beyond four months and one day after the Closing Date.

 

	
(g)          

	
Rights to Acquire Securities:  No Person has any agreement, option, right or privilege (whether pre-emptive, contractual or otherwise) capable of becoming an agreement for the purchase, acquisition, subscription for or issue of any of the unissued shares or other securities of the Corporation, except for, as at October 19, 2010, an aggregate of 15,489,999 Common Shares were reserved for issue pursuant to outstanding options, warrants, share incentive plans, convertible, exercisable and exchangeable securities and other rights to acquire Common Shares (including property acquisitions), as set out in Schedule A.

 

	
(h)          

	
Rights Plan:  The directors of the Corporation have not adopted a shareholder rights plan or a similar plan and the Corporation is not party to what is commonly referred to as a shareholder rights plan agreement.

 

	
(i)          

	
No Pre-emptive Rights:  The issue of the Offered Securities will not be subject to any pre-emptive right or other contractual right to purchase securities granted by the Corporation or to which the Corporation is subject.

 

	
(j)          

	
Offered Securities:  The execution of this Agreement and the Subscription Agreements, the issue by the Corporation to the Purchasers of the Flow-Through Shares, Unit Shares and Warrants (and Warrant Shares on exercise of the Warrants), the issue by the Corporation to the Agent of the Broker Warrants (and Broker Warrant Shares and Broker Warrant Underlying Warrants on exercise of the Broker Warrants and Broker Warrant Underlying Warrant Shares on exercise of the Broker Warrant Underlying Warrants) will be exempt from the registration and prospectus requirements of the Securities Laws of the Offering Jurisdictions.

 

	
(k)          

	
Subsidiaries:  The Corporation does not have any subsidiaries within the meaning of the BC Act other than its wholly owned subsidiary, Mill City Gold, Inc. and all of the outstanding shares of Mill City Gold, Inc. are issued and outstanding as fully paid and non assessable shares and 100% of such outstanding shares, are legally and beneficially owned, directly or indirectly by the Corporation and no Person has any agreement, option, right or privilege (whether pre-emptive, contractual or otherwise) capable of becoming an agreement for the purchase, acquisition, subscription for or issue of any such shares or for the issue or allotment of any unissued shares or other securities convertible or exchangeable for any such shares of Mill City Gold, Inc.

 

	
(l)          

	
Issue of Offered Securities:  All necessary corporate action has been taken to authorize the issue and sale of, and the delivery of certificates representing, the Flow-Through Shares, Unit Shares and Warrants and, upon payment of the requisite consideration therefor, the Flow-Through Shares and Unit Shares will be validly issued as fully paid and non-assessable Common Shares, the Warrants will be validly created, authorized and issued, the Warrant Shares will be validly allotted and reserved for issuance, and upon the valid exercise of the Warrants, 

 

 

  

-15-

  

 

	
      

	
including receipt of the requisite consideration therefore, the Warrant Shares will be validly issued as fully paid and non-assessable Common Shares.

 

	
(m)          

	
Issue of Broker Warrants:  All necessary corporate action has been taken to validly create and authorize the issue and the delivery of the Broker Warrants and to validly create, authorize, allot and reserve for issuance the Broker Warrant Shares and Broker Warrant Underlying Warrants upon exercise of the Broker Warrant and the Broker Warrant Underlying Warrant Shares upon valid exercise of the Broker Warrant Underlying Warrants.  Upon receipt of the requisite consideration thereof, the Broker Warrants and Broker Warrant Underlying Warrants, as applicable, will be validly issued and, upon the valid exercise of the Broker Warrants, including receipt of the requisite consideration therefor, in accordance with the terms of the Broker Warrant Certificates, the Broker Warrant Shares on exercise of the Broker Warrants will be validly issued as fully paid and non-assessable Common Shares and, upon the valid exercise of the Broker Warrant Underlying Warrants in accordance with the terms of the Broker Warrants Underlying Warrant Certificates, the Broker Warrant Underlying Warrant Shares on exercise of the Broker Warrant Underlying Warrants will be validly issued as fully paid and non-assessable Common Shares.

 

	
(n)          

	
Consents, Approvals and Conflicts:  None of the offering and sale of the Offered Securities, the execution and delivery of this Agreement or the Ancillary Documents, the compliance by the Corporation with the provisions of this Agreement and the Ancillary Documents or the consummation of the transactions contemplated herein and therein including, without limitation, the incurring of Resource Expenses, the issue of the Offered Securities to the Purchasers for the consideration and upon the terms and conditions as set forth herein, the issue of the Broker Warrants to the Agent for the consideration and upon the terms and conditions as set forth herein, and the issue of the Broker Warrant Shares and Broker Warrant Underlying Warrants for the consideration and upon the terms and conditions set forth in the Broker Warrant Certificates, the issue of the Broker Warrant Underlying Warrant Shares for the consideration and upon the terms and conditions set forth in the Broker Warrant Underlying Warrant Certificates and the issue of the Warrant Shares for the consideration and upon the terms and conditions set forth in the Warrant Certificates, do or will (i) require the consent, approval, or authorization, order or agreement of, or registration or qualification with, any governmental agency, body or authority, court, stock exchange, securities regulatory authority or other Person, except (A) such as have been obtained, or (B) such as may be required under the Securities Laws of the Offering Jurisdictions and the policies of the Stock Exchange and will be obtained by the Closing Date, or (ii) conflict with or result in any breach or violation of any of the provisions of, or constitute a default under, any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Corporation is a party or by which it or any of the properties or assets thereof is bound, or the articles of the Corporation or any resolution passed by the directors (or any committee thereof) or shareholders of the Corporation, or any statute or any judgment, decree, order, rule, policy or regulation of any court, governmental authority, 

 

  

-16-

  

 

 

	
      

	
arbitrator, stock exchange or securities regulatory authority applicable to the Corporation or any of the properties or assets thereof which could have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Corporation.

 

	
(o)          

	
Authority and Authorization:  The Corporation has full corporate power and authority to enter into this Agreement and the Ancillary Documents and to do all acts and things and execute and deliver all documents as are required hereunder and thereunder to be done, observed, performed or executed and delivered by it in accordance with the terms hereof and thereof and the Corporation has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Ancillary Documents and to observe and perform the provisions of this Agreement and the Ancillary Documents in accordance with the provisions hereof and thereof including, without limitation, the incurring of Resource Expenses, the issue of the Offered Securities to the Purchasers for the consideration and upon the terms and conditions set forth herein, the issue of the Broker Warrants to the Agent for the consideration and upon the terms and conditions as set forth herein, the issue of the Broker Warrant Shares and Broker Warrant Underlying Warrants on exercise of the Broker Warrants for the consideration and upon the terms and conditions set forth in the Broker Warrant Certificates and the issue of the Broker Warrant Underlying Warrant Shares on exercise of the Broker Warrant Underlying Warrants for the consideration and upon the terms and conditions set forth in the Broker Warrant Underlying Warrant Certificates and the issue of the Warrant Shares on exercise of Warrants for the consideration and upon the terms and conditions set forth in the Warrants Certification.

 

	
(p)          

	
Validity and Enforceability:  Each of this Agreement, the Subscription Agreements, the Warrant Certificates and the Broker Warrant Certificates has been duly authorized, executed and delivered by the Corporation and constitutes a valid and legally binding obligation of the Corporation enforceable against the Corporation in accordance with the terms thereof.

 

	
(q)          

	
Public Disclosure:  Each of the documents which contains any of the Information is, as of the date thereof, in compliance in all material respects with the Securities Laws of the Reporting Provinces and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and such documents collectively constitute full, true and plain disclosure of all material facts relating to the Corporation and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, as of the date hereof.  There is no fact known to the Corporation which the Corporation has not publicly disclosed which materially adversely affects the assets, liabilities (contingent or otherwise), capital, affairs, business, prospects, operations or condition (financial or otherwise) of the Corporation or the ability of the 

 

  

-17-

  

 

 

	
      

	
Corporation to perform its obligations under this Agreement or the Ancillary Documents.

 

	
(r)          

	
Timely Disclosure:  The Corporation is in compliance with all timely disclosure obligations under the Securities Laws of the Reporting Provinces and, without limiting the generality of the foregoing, there has not occurred any material adverse change in the assets, liabilities (contingent or otherwise), capital, affairs, business, prospects, operations or condition (financial or otherwise) of the Corporation which has not been publicly disclosed and none of the documents filed by or on behalf of the Corporation pursuant to the Securities Laws of the Reporting Provinces contain a misrepresentation at the date of the filing thereof.

 

	
(s)          

	
No Cease Trade Order:  No order preventing, ceasing or suspending trading in any securities of the Corporation or prohibiting the issue and sale of securities by the Corporation has been issued and no proceedings for either of such purposes have been instituted or, to the best of the knowledge of the Corporation, are pending, contemplated or threatened.

 

	
(t)          

	
Accounting Controls:  The Corporation maintains a system of internal accounting controls sufficient to provide reasonable assurance that:  (i) transactions are completed in accordance with the general or a specific authorization of management of the Corporation; (ii) transactions are recorded as necessary to permit preparation of consolidated financial statements for the Corporation in conformity with Canadian generally accepted accounting principles and to maintain asset accountability; (iii) access to assets of the Corporation is permitted only in accordance with the general or a specific authorization of management of the Corporation; and (iv) the recorded accountability for assets of the Corporation is compared with the existing assets of the Corporation at reasonable intervals and appropriate action is taken with respect to any differences therein.

 

	
(u)          

	
Financial Statements:  The audited consolidated financial statements of the Corporation for the year ended December 31, 2009, together with the auditors’ report thereon and the notes thereto, and the unaudited interim consolidated financial statements of the Corporation for the six months ended June 30, 2010 and the notes thereto (the “June 30, 2010 Financial Statements”), have been prepared in accordance with Canadian generally accepted accounting principles applied on a basis consistent with prior periods (except as disclosed in such financial statements), are substantially correct in every particular and present fairly the financial condition and position of the Corporation on a consolidated basis, as at the dates thereof and such financial statements contain no direct or implied statement of a material fact which is untrue on the date of such financial statements and do not omit to state any material fact which is required by Canadian generally accepted accounting principles or by applicable law to be stated or reflected therein or which is necessary to make the statements contained therein not misleading.

 

	
(v)          

	
Changes in Financial Position:  Since June 30, 2010:

 

  

-18-

  

 

 

	
(i)        

	
the Corporation has not paid or declared any dividend or incurred any material capital expenditure or made any commitment therefor;

 

	
(ii)        

	
the Corporation has not incurred any obligation or liability, direct or indirect, contingent or otherwise, except in the ordinary course of business and which is not, and which in the aggregate are not, material; and

 

	
(iii)        

	
the Corporation has not entered into any material transaction;

 

except in each case as disclosed in the Information.

 

	
(w)          

	
Insolvency:  Within the last 10 years, the Corporation has not committed an act of bankruptcy or sought protection from the creditors thereof before any court or pursuant to any legislation, proposed a compromise or arrangement to the creditors thereof generally, taken any proceeding with respect to a compromise or arrangement, taken any proceeding to be declared bankrupt or wound up, taken any proceeding to have a receiver appointed of any of the assets thereof, had any Person holding any encumbrance, lien, charge, hypothec, pledge, mortgage, title retention agreement or other security interest or receiver take possession of any of the property thereof, had an execution or distress become enforceable or levied upon any portion of the property thereof or had any petition for a receiving order in bankruptcy filed against it.

 

	
(x)          

	
No Contemplated Changes:  The Corporation has not approved, is not contemplating, has not entered into any agreement in respect of, or has any knowledge of:

 

	
(i)        

	
the sale, transfer or other disposition of any material property or assets or any interest therein currently owned, directly or indirectly, by the Corporation whether by asset sale, transfer of shares or otherwise; or

 

	
(ii)        

	
the change of control (by sale or transfer of shares or sale of all or substantially all of the property and assets of the Corporation or otherwise) of the Corporation.

 

	
(y)          

	
Insurance:  The assets of the Corporation and the business and operations thereof are insured against loss or damage with responsible insurers on a basis consistent with insurance obtained by reasonably prudent participants in a comparable business in comparable circumstances, such coverage is in full force and effect and the Corporation has not failed to promptly give any notice or present any material claim thereunder.

 

	
(z)          

	
Taxes and Tax Returns:  The Corporation has filed in a timely manner all necessary tax returns and notices and has paid all applicable taxes of whatsoever nature for all tax years ending prior to the date hereof to the extent that such taxes have become due or have been alleged by the CRA or other taxing authority to be due and the Corporation is not aware of any tax deficiencies or interest or penalties accrued or accruing, or alleged by the CRA or other taxing authority to 

 

 

  

-19-

  

 

	
         

	
be accrued or accruing, thereon where, in any of the above cases, it might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), or in the earnings, business, affairs or prospects of the Corporation on a consolidated basis and there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return by the Corporation or the payment of any material tax, governmental charge, penalty, interest or fine against the Corporation.  There are no material actions, suits, proceedings, investigations or claims now pending or, to the best knowledge of the Corporation, threatened against the Corporation which could result in a material liability in respect of taxes, charges or levies of any governmental authority, penalties, interest, fines, assessments or reassessments or any matters under discussion with any governmental authority relating to taxes, governmental charges, penalties, interest, fines, assessments or reassessments asserted by any such authority and the Corporation has withheld (where applicable) from each payment to each of the present and former officers, directors, employees, consultants and suppliers thereof the amount of all taxes and other amounts, including, but not limited to, income tax and other deductions, required to be withheld therefrom, and have paid the same or will pay the same when due to the proper tax or other receiving authority within the time required under applicable tax legislation.

 

	
(aa)          

	
Compliance with Laws, Licenses and Permits:  The Corporation has conducted and is conducting the business thereof in compliance in all material respects with all applicable laws, rules, regulations, tariffs, guidelines, orders and directives of each jurisdiction in which it carries on business and possesses all material approvals, consents, certificates, registrations, authorizations, permits and licenses issued by the appropriate provincial, state, municipal, federal or other regulatory agency or body necessary to carry on the business currently carried on, or, except as disclosed in the Information, contemplated to be carried on by it, is in compliance in all material respects with the terms and conditions of all such approvals, consents, certificates, authorizations, permits and licenses and with all laws, rules, regulations, tariffs, guidelines, orders and directives material to the operations thereof, and the Corporation has not received any notice of the modification, revocation or cancellation of, or any intention to modify, revoke or cancel or any proceeding relating to the modification, revocation or cancellation of any such approval, consent, certificate, authorization, permit or license which, singly or in the aggregate, if the subject of an unfavourable decision, order, ruling or finding, would materially adversely affect the conduct of the business or operations of, or the assets, liabilities (contingent or otherwise), condition (financial or otherwise) or prospects of, the Corporation on a consolidated basis.

 

	
(bb)          

	
Agreements and Actions:  The Corporation is not in violation of any term of the articles, notice of articles or constating documents thereof.  The Corporation is not in violation of any material term or provision of any agreement, indenture or other instrument applicable to it which would, or could, reasonably be expected to result in any material adverse effect on the business, condition (financial or otherwise), capital, affairs or operations of the Corporation on a consolidated 

 

 

  

-20-

  

 

	
          

	
basis, nor is the Corporation in default in the payment of any obligation owed which is now due and there is no action, suit, proceeding or investigation commenced, pending or, to the knowledge of the Corporation after due inquiry, threatened which, either in any case or in the aggregate, might reasonably be expected to result in any material adverse effect on the business, condition (financial or otherwise), capital, affairs, prospects or operations of the Corporation on a consolidated basis or in any of the material properties or assets thereof or in any material liability on the part of the Corporation on a consolidated basis or which places, or could reasonably be expected to place, in question the validity or enforceability of this Agreement, the Ancillary Documents or any document or instrument delivered, or to be delivered, by the Corporation pursuant hereto or thereto.

 

	
(cc)          

	
Owner of Property:  The Corporation is the absolute legal and beneficial owner of, and has good and marketable title to, all of the material property or assets thereof as described in Schedule B, free of all mortgages, liens, charges, pledges, security interests, encumbrances, claims or demands whatsoever, other than those described in Schedule B, and no other property rights are necessary for the conduct of the business of the Corporation on a consolidated basis as currently conducted or contemplated to be conducted, except as disclosed in Schedule B, the Corporation does not know of any claim or the basis for any claim that might or could reasonably be expected to adversely affect the right thereof to use, transfer or otherwise exploit such property rights and, except as disclosed in Schedule B, the Corporation does not have any responsibility or obligation to pay any commission, royalty, licence fee or similar payment to any Person with respect to the property rights of the Corporation.

 

	
(dd)          

	
Mineral Rights:  The Corporation holds a right to earn an interest in the properties described in Schedule B, under valid, subsisting and enforceable title documents or other recognized and enforceable option agreements, sufficient to permit the Corporation to explore the minerals relating thereto, all such property, leases, claims or permits and all property, leases, claims or permits in which the Corporation has any interest or right have, to the best of the Corporation’s knowledge, been validly located and recorded in accordance with all applicable laws and are valid and subsisting, the Corporation has all necessary surface rights, access rights and other necessary rights and interests relating to the properties in which the Corporation has an interest as described in Schedule B, granting the Corporation the right and ability to explore for minerals, ore and metals for development purposes and subsequently produce therefrom, except as disclosed in Schedule B, and each of the proprietary interests or rights and each of the documents, agreements and instruments and obligations relating thereto referred to above is currently in good standing to the best of the Corporation’s knowledge.

 

	
(ee)          

	
Property Agreements:  The Property Agreements and any documents and instruments referred to in the Property Agreements are, collectively, all of the agreements and other documents and instruments pursuant to which the Corporation holds its interests in its material property and assets (including any 

 

 

  

-21-

  

 

	
            

	
interest in, or right to earn an interest in, any material property).  Each of the Property Agreements and the documents and instruments referred to therein are valid and subsisting agreements, documents or instruments, are in full force and effect, enforceable in accordance with the terms thereof, and the Corporation is not in default of any of the material provisions of any such agreements, documents or instruments nor has any such default been alleged.  All of the properties and assets of the Corporation are in good standing under the applicable statutes and regulations of the jurisdictions in which they are situated, all leases, licences, claims and permits pursuant to which the Corporation derives the interests thereof in such property and assets are in good standing and there has been no material default under any such lease, licence, claim or permit and all taxes required to be paid with respect to such properties and assets to the date hereof have been paid.  None of the properties (or any interest in, or right to earn an interest in, any property) of the Corporation is subject to any right of first refusal or purchase or acquisition right which is not disclosed in the Information.

 

	
(ff)          

	
Technical Reports:  The Corporation has duly filed with the applicable regulatory authorities all reports required by National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), and to the best of the Company’s knowledge, all such reports comply in all material respects with the requirements of NI 43-101.

 

	
(gg)          

	
No Defaults:  The Corporation is not in default of any material term, covenant or condition under or in respect of any judgement, order, agreement or instrument to which it is a party or to which it or any of the property or assets thereof are or may be subject, and no event has occurred and is continuing, and no circumstance exists which has not been waived, which constitutes a default in respect of any commitment, agreement, document or other instrument to which the Corporation is a party or by which it is otherwise bound entitling any other party thereto to accelerate the maturity of any amount owing thereunder or which could have a material adverse effect upon the condition (financial or otherwise), capital, property, assets, operations or business of the Corporation on a consolidated basis.

 

	
(hh)          

	
Compliance with Employment Laws:  The Corporation is in compliance with all laws and regulations respecting employment and employment practices, terms and conditions of employment, pay equity and wages, and has not and is not engaged in any unfair labour practice, there is no labour strike, dispute, slowdown, stoppage, complaint or grievance pending or, to the best of the knowledge of the Corporation after due inquiry, threatened against the Corporation, no union representation question exists respecting the employees of the Corporation and no collective bargaining agreement is in place or currently being negotiated by the Corporation, the Corporation has not received any notice of any unresolved matter and there are no outstanding orders under the Employment Standards Act (Ontario), the Human Rights Code (Ontario), the Occupational Health and Safety Act (Ontario) or the Workers’ Compensation Act (Ontario) or any other similar legislation in any jurisdiction in which the Corporation carries on business or has employees, no employee has any agreement as to the length of notice required to 

 

 

  

-22-

  

 

	
            

	
terminate his or her employment with the Corporation in excess of twelve months or equivalent compensation and all benefit and pension plans of the Corporation are funded in accordance with applicable laws and no past service funding liability exist thereunder.

 

	
(ii)          

	
Employee Plans:  Each plan for retirement, bonus, stock purchase, profit sharing, stock option, deferred compensation, severance or termination pay, insurance, medical, hospital, dental, vision care, drug, sick leave, disability, salary continuation, legal benefits, unemployment benefits, vacation, pension, incentive or otherwise contributed to, or required to be contributed to, by the Corporation for the benefit of any current or former officer, director, employee or consultant of the Corporation has been maintained in material compliance with the terms thereof and with the requirements prescribed by any and all statutes, orders, rules, policies and regulations that are applicable to such plan.

 

	
(jj)          

	
Debt Instruments:  The Corporation is not a party to any Debt Instrument or any agreement, contract or commitment to create, assume or issue any Debt Instrument other than in the ordinary course of business.

 

	
(kk)          

	
Accruals:  All material accruals for unpaid vacation pay, premiums for unemployment insurance, health premiums, federal or provincial pension plan premiums, accrued wages, salaries and commissions and payments for any plan for any officer, director, employee or consultant of the Corporation have been accurately reflected in the books and records of the Corporation, as applicable.

 

	
(ll)          

	
Work Stoppage:  There has not been, and there is not currently, any labour dispute which is adversely affecting or could reasonably be expected to adversely affect, in a material manner, the conduct of the business of the Corporation.

 

	
(mm)          

	
Environmental Compliance:

 

	
(i)        

	
The Corporation and the property, assets and operations thereof comply in all material respects with all applicable Environmental Laws (which term means and includes, without limitation, any and all applicable international, federal, provincial, state, municipal or local laws, statutes, regulations, treaties, orders, judgments, decrees, ordinances, official directives and all authorizations relating to the environment, occupational health and safety, or any Environmental Activity (which term means and includes, without limitation, any past, present or currently contemplated future activity, event or circumstance in respect of a Contaminant (which term means and includes, without limitation, any pollutants, dangerous substances, liquid wastes, hazardous wastes, hazardous materials, hazardous substances or contaminants or any other matter including any of the foregoing, as defined or described as such pursuant to any Environmental Law), including, without limitation, the storage, use, holding, collection, purchase, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, 

 

  

-23-

  

 

 

	
       

	
disposition, handling or transportation thereof, or the release, escape, leaching, dispersal or migration thereof into the natural environment, including the movement through or in the air, soil, surface water or groundwater);

 

	
(ii)        

	
The Corporation does not have any knowledge of, and has not received any notice of, any material claim, judicial or administrative proceeding, pending or threatened against, or which may reasonably be expected to affect, the Corporation or any of the property, assets or operations thereof, relating to, or alleging any violation of any Environmental Laws, the Corporation is not aware of any facts which could give rise to any such claim or judicial or administrative proceeding and the Corporation does not have any knowledge that it or any of its property, assets or operations is the subject of any investigation, evaluation, audit or review by any Governmental Authority (which term means and includes, without limitation, any national, federal government, province, state, municipality or other political subdivision of any of the foregoing, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing) to determine whether any violation of any Environmental Laws has occurred or is occurring or whether any remedial action is needed in connection with a release of any Contaminant into the environment, except for compliance investigations conducted in the normal course by any Governmental Authority;

 

	
(iii)        

	
The Corporation has not given or filed any notice under any federal, state, provincial or local law with respect to any Environmental Activity, and the Corporation does not have any knowledge of, and is not aware of, any liability (whether contingent or otherwise) in connection with any Environmental Activity and the Corporation is not aware of any notice being given under any federal, state, provincial or local law or of any liability (whether contingent or otherwise) with respect to any Environmental Activity relating to or affecting the Corporation or the property, assets, business or operations thereof;

 

	
(iv)        

	
The Corporation does not store any hazardous or toxic waste or substance on the property thereof and the Corporation has not disposed of any hazardous or toxic waste, in a manner contrary to any Environmental Laws, and there are no Contaminants on any of the premises at which the Corporation carries on business, other than in compliance with Environmental Laws;

 

	
(v)        

	
The Corporation is not subject to any contingent or other liability relating to the restoration or rehabilitation of land, water or any other part of the environment or non-compliance with Environmental Law; and

 

 

  

-24-

  

 

	
(vi)        

	
There are no environmental audits, evaluations, assessments, studies or tests relating to the Corporation except for ongoing assessments conducted by or on behalf of the Corporation in the ordinary course.

 

	
(nn)          

	
No Litigation:  There are no actions, suits, proceedings, inquiries or investigations existing, pending or, to the knowledge of the Corporation after due inquiry, threatened against or which adversely affect the Corporation or to which any of the property or assets thereof is subject, at law or equity, or before or by any court, federal, provincial, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which may in any way materially adversely affect the condition (financial or otherwise), capital, property, assets, operations or business of the Corporation on a consolidated basis or the ability of the Corporation to perform the obligations thereof and the Corporation is not subject to any judgement, order, writ, injunction, decree, award, rule, policy or regulation of any Governmental Authority, which, either separately or in the aggregate, may reasonably be expected to result in a material adverse effect on the condition (financial or otherwise), capital, property, assets, operations or business of the Corporation on a consolidated basis or the ability of the Corporation to perform its obligations under this Agreement or the Ancillary Documents.

 

	
(oo)          

	
Intellectual Property:  The Corporation owns or possesses no intellectual property.

 

	
(pp)          

	
Non-Arm’s Length Transactions:  The Corporation does not owe any amount to, nor has the Corporation any present loans to, or borrowed any amount from or is otherwise indebted to, any officer, director, employee or securityholder thereof or any Person not dealing at “arm’s length” (as such term is defined in the Tax Act) with any of them except for usual employee reimbursements and compensation paid in the ordinary and normal course of the business of the Corporation.  Except usual employee or consulting arrangements made in the ordinary and normal course of business, the Corporation is not a party to any contract, agreement or understanding with any officer, director, employee or securityholder thereof or any other Person not dealing at arm’s length with the Corporation.  No officer, director or employee of the Corporation and no Person which is an affiliate or associate of any of the foregoing Person, owns, directly or indirectly, any interest (except for shares representing less than 10% of the outstanding shares of any class or series of any publicly traded company) in, or is an officer, director, employee or consultant of, any Person which is, or is engaged in, a business competitive with the business of the Corporation (i.e., mineral exploration and development) which could reasonably be expected to materially adversely impact on the ability to properly perform the services to be performed by such Person for the Corporation.  No officer, director, employee or securityholder of the Corporation has any cause of action or other claim whatsoever against, or owes any amount to, the Corporation except for claims in the ordinary and normal course of the business of the Corporation such as for accrued vacation pay or other amounts or matters which would not be material to the Corporation.

 

  

-25-

  

 

 

	
(qq)          

	
Flow-Through Shares:  Except as a result of any agreement, arrangement, undertaking, obligation or understanding to which the Corporation is not a party and of which it has no knowledge, upon issue, the Flow-Through Shares will be “flow-through shares” as defined in subsection 66(15) of the Tax Act and are not and will not be “prescribed shares” within the meaning of section 6202.1 of the regulations to the Tax Act and the applicable provisions of the Taxation Act (Québec).

 

	
(rr)          

	
Principal-Business Corporation:  The Corporation is a “principal-business corporation” as defined in subsection 66(15) of the Tax Act.

 

	
(ss)          

	
Commitment Amount:  The Corporation has no reason to believe that it will be unable to incur, on or after the Closing Date and on or before the Termination Date or that it will be unable to renounce to the FT Purchasers, effective on or before December 31, 2010, Resource Expenses in an aggregate amount equal to the Commitment Amount and the Corporation has no reason to expect any reduction of such amount by virtue of subsection 66(12.73) of the Tax Act.

 

	
(tt)          

	
Material Contracts:  The only material contracts to which the Corporation is a party or by which it is bound are disclosed in the Information and all such contracts are valid and subsisting agreements in full force and effect unamended and there exists no material default or event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any event or condition, would become a material default hereunder by any party thereto.

 

	
(uu)          

	
Website:  The website of the Corporation does not contain material information with respect to the Corporation which is incomplete, incorrect or omits to state a fact so as to render such information misleading, or any news release which has not been disseminated on a news wire service and all information contained on such website complies with the Securities Laws of the Offering Jurisdictions including, without limitation, restrictions on promotional material disseminated before and during the Offering.

 

	
9.  

	
Covenants of the Corporation

 

	
(a)          

	
Consents and Approvals:  Immediately following the acceptance by the Corporation hereof, the Corporation covenants and agrees with the Agent and the Purchasers that the Corporation will use all reasonable commercial efforts to:

 

	
(i)        

	
obtain the approval of the Stock Exchange in respect of the listing of the Subject Shares, and any other necessary regulatory consents or approvals of the Stock Exchange and the Securities Commissions of the Offering Jurisdictions for the Offering, to the extent not already obtained, on such terms as are mutually acceptable to the Agent and the Corporation, acting reasonably;

 

	
(ii)        

	
arrange for the listing of the Subject Shares on the Stock Exchange as soon as possible; and

 

 

  

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(iii)        

	
make all necessary filings to obtain all other necessary regulatory and other consents and approvals required in connection with the transactions contemplated by this Agreement.

 

	
(b)          

	
General:  The Corporation hereby covenants and agrees with the Agent and the Purchasers that the Corporation will:

 

	
(i)        

	
fulfill all legal requirements to permit the creation, issue, offering and sale of the Offered Securities, the issue of the Broker Warrants, the issue of the Broker Warrant Shares and Broker Warrant Underlying Warrants upon exercise of the Broker Warrants, and the issue of the Broker Warrant Underlying Warrant Shares upon exercise of the Broker Warrant Underlying Warrants, in each case, as contemplated in this Agreement including, without limitation, compliance with the Securities Laws of the Offering Jurisdictions to enable the Offered Securities to be offered for sale and sold to the Purchasers and the Broker Warrants to be issued to the Agent without the necessity of filing a prospectus, registration statement or similar document in the Offering Jurisdictions;

 

	
(ii)        

	
use all reasonable commercial efforts to deliver to the Agent a copy of all press releases made and material change reports and other documents filed with any regulatory authority forthwith upon such press release being made or material change report or other document being filed in connection with the Offering;

 

	
(iii)        

	
use all reasonable commercial efforts to maintain the listing of the Common Shares on the Stock Exchange and the status thereof as a reporting issuer not in default under the Securities Laws of each of the Reporting Provinces for a period of at least 24 months from the Closing Date; and

 

	
(iv)        

	
forthwith after the Closing Date file such documents as may be required under the Securities Laws of the Offering Jurisdictions relating to the offering of the Offered Securities which, without limiting the generality of the foregoing, shall include a Form 45-106F1 as prescribed under NI 45-106.

 

	
(c)          

	
Flow-Through Shares:  The Corporation hereby covenants with the Agent and the FT Purchasers that:

 

	
(i)        

	
for a period of at least 24 months from the Closing Date, the Corporation shall use all reasonable commercial efforts to remain a validly subsisting corporation licensed, registered or qualified as an extra-provincial or foreign corporation in all jurisdictions where the character of the properties owned or leased by the Corporation or the nature of the activities conducted by the Corporation make such licensing, registration or qualification necessary and shall carry on the business thereof in the 

 

  

-27-

  

 

 

	
       

	
ordinary course and in compliance in all material respects with all applicable laws, rules and regulations of each such jurisdiction

 

	
(ii)        

	
the Corporation shall incur, during the Expenditure Period, Resource Expenses in an amount not less than the Commitment Amount;

 

	
(iii)        

	
the Corporation shall renounce Resource Expenses in an amount equal to the Commitment Amount, in favour of the FT Purchasers and take all other actions necessary under the Tax Act and the Taxation Act (Québec) and within the time periods required under the Tax Act and the Taxation Act (Québec) in order for such renunciation to be valid and effective on or before December 31, 2010;

 

	
(iv)        

	
the Corporation shall provide to the FT Purchasers as soon as possible after the Corporation has renounced Resource Expenses, all information and documents that the FT Purchasers may reasonably require for income tax purposes;

 

	
(v)        

	
the Corporation shall keep proper and complete books, records and accounts  of all expenses incurred by the Corporation and all transactions affecting the FT Purchasers and the use of the Commitment Amount and, upon reasonable notice, if required by any FT Purchaser, by CRA or by the ministère du Revenue du Québec, shall make such books, records and accounts available for inspection and audit by or on behalf of any FT Purchaser by CRA or by the ministère du Revenue du Québec, as applicable;

 

	
(vi)        

	
if the Corporation fails to renounce in favour of the FT Purchasers, Resource Expenses in an amount, after any adjustment pursuant to subsection 66(12.73) of the Tax Act, equal to the Commitment Amount in accordance with the Tax Act and the Taxation Act (Québec), the Corporation shall pay forthwith to the FT Purchasers after such failure becomes known an amount equal to the amount of any tax (within the meaning of “excluded obligation” in paragraph 6202.1(5)(b) of the regulations to the Tax Act or proposed paragraph 6202.1(5)(c) of the regulations to the Tax Act) payable under the Tax Act (and under any corresponding provincial legislation) by the FT Purchasers as a consequence of such failure to renounce by the Corporation, provided that nothing in this paragraph shall derogate from any rights or remedies the FT Purchasers may have at common law;

 

	
(vii)        

	
the Corporation shall file with CRA and with the appropriate authorities in the Province of Québec and any other applicable provincial authorities within the time prescribed, and in any event on or before February 15, 2011, under subsection 66(12.68) of the Tax Act and the applicable section of the applicable provincial tax statute the forms prescribed for the purposes of such legislation, including, without limitation, the form T101 

 

  

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and any applicable provincial tax statute required to be filed by the end of the month after the month in which the Closing Date occurs together with a copy of the FT Subscription Agreements and any “selling instrument” contemplated by such legislation and by the FT Subscription Agreements and shall provide to the applicable FT Purchasers a copy of such forms certified by two officers of the Corporation;

 

	
(viii)        

	
the Corporation shall maintain its status as a “principal-business corporation” as defined in subsection 66(15) of the Tax Act hereof until such time as all the Resource Expenses required to be renounced to FT Purchasers pursuant to the Offering have been incurred and validly renounced pursuant to the Tax Act;

 

	
(ix)        

	
the Corporation shall not enter into any other agreement which would prevent or restrict its ability to renounce to the FT Purchasers Resource Expenses in an amount equal to the Commitment Amount and, if the Corporation is required under the Tax Act or otherwise to reduce Resource Expenses previously renounced to the FT Purchasers, the reduction shall be made pro rata by number of Flow-Through Shares purchased, provided that the Corporation shall not reduce Resource Expenses renounced to the FT Purchasers under the FT Subscription Agreements until it has first reduced, to the extent required, all CEE renounced to Persons other than the FT Purchasers under any other agreement pursuant to private placements or pursuant to other public offerings subsequent to the Offering;

 

	
(x)        

	
the Resource Expenses to be renounced by the Corporation to the FT Purchasers:

 

	
(A)        

	
will constitute CEE on the effective date of the renunciation and will qualify as Flow-Through Mining Expenditures,

 

	
(B)        

	
will not include expenses that are “Canadian exploration and development overhead expenses” (as defined in the Regulations to the Tax Act for purposes of paragraph 66(12.6)(b) of the Tax Act) of the Corporation or amounts which constitute the cost of acquiring or obtaining the use of seismic data described in paragraph 66(12.6)(b.1) of the Tax Act or any expenses for prepaid services or rent that do not qualify as outlays and expenses for the applicable period as described in the definition of “expense” in subsection 66(15) of the Tax Act,

 

	
(C)        

	
will not include any amount that has previously been renounced by the Corporation to the FT Purchasers or to any other Person, and

 

 

  

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(D)        

	
would be deductible by the Corporation in computing its income for the purposes of Part I of the Tax Act but for the renunciation thereof to the FT Purchasers;

 

	
(xi)        

	
except as required by the Tax Act, the Corporation shall not reduce the amount renounced to the FT Purchasers pursuant to subsection 66(12.6) and 66(12.66) of the Tax Act;

 

	
(xii)        

	
the Corporation shall not be subject to the provisions of subsection 66(12.67) of the Tax Act in a manner which impairs its ability to renounce Resource Expenses to the FT Purchasers in an amount equal to the Commitment Amount;

 

	
(xiii)        

	
if the Corporation receives, or becomes entitled to receive, any government assistance which is described in the definition of “excluded obligation” in subsection 6202.1(5) of the regulations made under the Tax Act and the receipt of or entitlement to receive such government assistance has or will have the effect of reducing the amount of CEE validly renounced to the FT Purchasers to less than the Commitment Amount, the Corporation will incur additional Resource Expenses using funds from other sources in an amount equal to such assistance such that the aggregate Resource Expenses renounced to the FT Purchasers will be equal to the Commitment Amount; and

 

	
(xiv)        

	
upon the Corporation becoming aware of the fact that the amount purportedly renounced pursuant to this Agreement exceeds the amount that it is entitled to renounce under the Tax Act, the Corporation will notify the Purchaser and the CRA immediately and comply with subsection 66(12.73) of the Tax Act, including the filing with the CRA of the statement contemplated therein, in an expeditious manner.

 

	
(d)          

	
Use of Proceeds:  The gross proceeds raised from the issuance of the Flow-Through Shares will be used for Canadian Exploration Expenses which qualify as Flow-Through Mining Expenditures on the exploration of the Croxall property and the GP2 property as described in the information part of the claims listed in Schedule B to this Agreement. The gross proceeds from the Unit Offering will be used for general working capital purposes, including payment of the Agent’s cash commission and other expenses of the Offering.

 

	
(e)          

	
Lock Up:  For a period of five months following the Closing Date, the Corporation agrees that it shall not without the prior written consent of the Agent, which consent shall not be unreasonably withheld or delayed, issue or announce the issuance of any of its Common Shares or other securities, other than pursuant to: (i) a bona fide acquisition by the Corporation or one of its affiliates; (ii) the issue of Common Shares upon the exercise of existing warrants and the exercise of options issued under the Stock Option Plan; or (iii) the grant of options under the Stock Option Plan.

 

 

  

-30-

  

 

 

	
(f)          

	
Right of First Refusal:  The Agent shall have a right of first refusal to act as lead agent or underwriter or lead advisor with respect to any offering of securities by the Corporation, where an investment dealer or advisor is involved or proposes to be involved during the period ending six months after the Closing Date. Primary shall have a period of five days from the date of receipt of written notice from the Corporation of any such proposed financing, in which notice, the Corporation shall set forth in reasonable detail the terms of such proposed offering and the terms of compensation payable by the Corporation to Primary, to provide written notice to the Corporation that Primary intends to exercise its right of first refusal.  If Primary does not give written notice within such five day period, it shall be deemed to have waived its right in respect of such transaction. Should Primary fail, or be deemed to fail, to give notice within five days of the receipt of the Corporation’s notice, the Corporation may then make other arrangements to engage another source to obtain financing or advice on terms no less favourable to the Corporation than as set out in the written notice for a period of 30 days thereafter. Primary’s waiver of its right in respect of any one or more transactions will not constitute a waiver of its right of first refusal in respect of any other transaction. If another source is not engaged in connection with a transaction where Primary waives or is deemed to have waived its right of first refusal within 30 days following the date on which the five day period set forth above expires, the transaction shall be deemed to be a new transaction requiring the Corporation to give written notice to Primary as set forth above.

 

	
10.  

	
Termination

 

	
(a)          

	
Right of Termination:  The Agent shall be entitled, at its sole option, to terminate and cancel, without any liability on the part of the Agent, all of the obligations thereof under this Agreement and the obligations of any Person who has executed a Subscription Agreement, by notice in writing to that effect delivered to the Corporation prior to or at the Closing Time if:

 

	
(i)        

	
the Agent is not satisfied in its sole discretion with the results of the due diligence review and investigation of the Corporation conducted by the Agent;

 

	
(ii)        

	
there is in the sole opinion of the Agent a material change, change in a material fact, new material fact or a material fact or material change which has not been publicly disclosed, which might be expected to have a significant adverse effect on the condition (financial or otherwise), capital, property, assets, operations, business, affairs, profitability or prospects of the Corporation or on the market price or value of the Common Shares or any other securities of the Corporation or on the marketability of the Offered Securities;

 

	
(iii)        

	
there should develop, occur or come into effect any occurrence of national or international consequence, or any action, law or regulation, inquiry or other event, act of terrorism, action or occurrence of any nature 

 

 

  

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whatsoever which, in the sole opinion of the Agent, seriously affects, or would reasonably be expected to seriously affect, the financial markets, the condition (financial or otherwise), capital, property, assets, operations, business, affairs, profitability or prospects of the Corporation or the market price or value of the Common Shares or any other securities of the Corporation or the marketability of the Offered Securities;

 

	
(iv)        

	
the state of the financial markets is such that in the sole opinion of the Agent it would be unprofitable to offer or continue to offer for sale the Offered Securities;

 

	
(v)        

	
any order or ruling is issued, or any inquiry, action, suit, proceeding or investigation (whether formal or informal) is instituted or announced or threatened in relation to the Corporation or any of the directors, officers or principal shareholders of the Corporation (other than one based solely upon the activities or alleged activities of the Agent) or any law or regulation is promulgated or changed which prevents or restricts trading in or the distribution of the Offered Securities, the Common Shares or any other securities of the Corporation (other than one based solely upon the activities or alleged activities of the Agent) or any law or regulation is promulgated or changed which prevents or restricts trading in or the distribution of the Offered Securities, the Common Shares or any other securities of the Corporation (other than one based solely upon the activities or alleged activities of the Agent) or any law or regulation is promulgated or changed which prevents or restricts trading in or the distribution of the Offered Securities, the Common Shares or any other securities of the Corporation;

 

	
(vi)        

	
any order to cease or suspend trading in any securities of the Corporation is made, threatened or announced by the Stock Exchange or any other securities regulatory authority; or

 

	
(vii)        

	
the Corporation is in breach of any term, condition, covenant or agreement contained in this Agreement or in any Subscription Agreement or any representation or warranty given by the Corporation in this Agreement or in any Subscription Agreement is or becomes untrue, false or misleading.

 

	
(b)          

	
Rights on Termination:  Any termination by the Agent pursuant to subsection 10(a) hereof shall be effected by notice in writing delivered by the Agent to the Corporation at the address thereof as set out in section 14 hereof.  The right of the Agent to so terminate the obligations thereof under this Agreement is in addition to such other remedies as the Agent may have in respect of any default, act or failure to act of the Corporation in respect of any of the matters contemplated by this Agreement.  In the event of a termination by the Agent pursuant to subsection 10(a) hereof there shall be no further liability on the part of the Agent to the Corporation or of the Corporation to the Agent except any liability which may have arisen or may thereafter arise under either section 11 or 12 hereof.

 

  

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11.  

	
Indemnity and Contribution

 

	
(a)          

	
Indemnity:  The Corporation hereby covenants and agrees to protect, indemnify and hold harmless the Agent and each investment dealer which is a member of any agency or selling group formed by the Agent in connection with the Offering, each of the associates and affiliates of each of them and the respective directors, officers, employees, shareholders, partners and advisors (collectively, the “Personnel”) of the Agent and each investment dealer which is a member of any agency group formed by the Agent in connection with the Offering and of each of the associates and affiliates of each of them (in this section 11 each an “Indemnified Person” and collectively the “Indemnified Persons”) from and against all losses (other than a loss of profits), claims, damages, payments, liabilities, costs, fines, penalties and expenses (including the amount paid in settlement of any claim, action, suit or proceeding and the fees and expenses of counsel on a solicitor and his own client basis incurred obtaining advice in respect of, or in defending or settling, any such claim, action, suit or proceeding), joint or several, of whatsoever nature or kind to which an Indemnified Person may become subject or otherwise involved in any capacity under statute or common law or otherwise caused or incurred by reason of or in any way arising, directly or indirectly, from, by virtue of, or related to, enforcing the provisions of this Agreement or any Subscription Agreement, or:

 

	
(i)        

	
the Agent having acted as the Agent of the Corporation in respect of the Offering (other than by reason of the negligence, wilful misconduct or bad faith of the Agent);

 

	
(ii)        

	
any statement or information contained in the Information which at the time and in light of the circumstances under which it was made containing or being alleged to contain a misrepresentation or being or being alleged to be untrue, false or misleading;

 

	
(iii)        

	
the omission or alleged omission to state in the Information any material fact required to be stated therein or necessary to make any statement therein not misleading in light of the circumstances under which it was made;

 

	
(iv)        

	
any order made or inquiry, investigation or proceeding commenced or threatened by any officer or official of the Stock Exchange, any securities commission or authority or any other competent authority, not based upon the activities or the alleged activities of the Agent or any member of any agency group formed by the Agent in connection with the Offering;

 

	
(v)        

	
the non-compliance or alleged non-compliance by the Corporation with any of the Securities Laws of the Offering Jurisdictions or any other applicable law in connection with the transactions contemplated herein;

 

 

  

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(vi)        

	
any negligence or wilful misconduct by the Corporation relating to or connected with the sale by the Corporation of the Offered Securities;

 

	
(vii)        

	
any misrepresentation or alleged misrepresentation (except any made by the Agent and for which the Agent did not rely on any information provided by the Corporation or anyone acting on its behalf) relating to the Offering or the Offered Securities, whether oral or written and whether made during and in connection with the Offering or in respect of the trading of the Offered Securities in the secondary market after the completion of the Offering, where such misrepresentation or alleged misrepresentation may give or gives rise to any other liability under any statute in any jurisdiction which is in force on the date of this Agreement or which comes into force after that date;

 

	
(viii)        

	
any failure or alleged failure to make timely disclosure of any material change by the Corporation, whether such failure or alleged failure occurs during the Offering or after the completion of the Offering, where such failure relates to the Offering or the Offered Securities and may give or gives rise to any liability under any statute in any jurisdiction which is in force on the date of this Agreement or which comes into force after that date; or

 

	
(ix)        

	
the breach of, or default under, any term, condition, covenant or agreement of the Corporation made or contained herein or in any other document of the Corporation delivered pursuant hereto or made by the Corporation in connection with the sale of the Offered Securities or any representation or warranty of the Corporation made or contained herein or in any other document of the Corporation delivered pursuant hereto or in connection with the sale of the Offered Securities being or being alleged to be untrue, false or misleading.

 

provided, however, that this indemnity shall not apply to the extent that a court of competent jurisdiction in a final judgment that has become non-appealable shall determine that:

 

	
(i)  

	
the Indemnified Person or any Personnel has been negligent or dishonest or has committed any fraudulent act or engaged in wilful misconduct in the course of such performance or has breached any material provision of this Agreement; and

 

	
(ii)  

	
the expenses, losses, claims, damages or liabilities, as to which indemnification is claimed were caused by the negligence, dishonesty, fraud, wilful misconduct or material breach of this Agreement.

 

If any matter or thing contemplated by this section 11 shall be asserted against any Indemnified Person in respect of which indemnification is or might reasonably be considered to be provided hereunder, such Indemnified Person shall notify the Corporation as soon as possible of the nature of such claim and the 

 

 

  

-34-

  

 

Corporation shall be entitled, but not required, to assume the defence of any action, suit or proceeding brought to enforce such claim; provided, however, that the defence shall be through legal counsel reasonably acceptable to the Indemnified Person and that no settlement may be made by the Corporation or the Indemnified Person without the prior written consent of the other of them and the Corporation shall not be liable for any settlement of any such claim unless it has consented in writing to such settlement.

 

Failure by the Agent and/or the Indemnified Person to so notify the Corporation as contemplated in this paragraph shall not relieve the Corporation of its obligation of indemnification hereunder unless (and only to the extent that) such failure results in forfeiture by the Corporation or material impairment of its substantive rights or defences. The Corporation shall, throughout the course of any investigation as contemplated herein, provide copies of all relevant documentation to the Agent, will keep the Agent advised of the progress thereof and will discuss with the Agent all significant actions proposed.

 

The Corporation agrees that in case any legal proceeding shall be brought against the Corporation and/or any Indemnified Person by any governmental commission or regulatory authority or any stock exchange or other entity having regulatory authority, either domestic or foreign, shall investigate the Corporation and/or any Indemnified Person and any Personnel shall be required to testify in connection therewith or shall be required to respond to procedures designed to discover information regarding, in connection with, or by reason of the performance of professional services rendered to the Corporation by any Indemnified Person under this Agreement, such Indemnified Person shall have the right to employ its own counsel in connection therewith, and the reasonable fees and expenses of such counsel as well as the reasonable costs (including an amount to reimburse the Agent and/or each investment dealer which is a member of the agency group formed by the Agent in respect of the Offering and/or each of their associates and affiliates, for time spent by its Personnel in connection therewith) and out-of-pocket expenses incurred by its Personnel in connection therewith shall be paid by the Corporation as they occur on demand by the Agent.

 

	
(b)          

	
Counsel:  In any claim referred to in section 11 hereof, the Indemnified Person shall have the right to retain separate legal counsel to act on behalf of such Indemnified Person provided that the fees and disbursements of such separate legal counsel shall be paid by the Indemnified Person unless:

 

	
(i)        

	
the Corporation fails to assume the defence of such claim on behalf of the Indemnified Person within ten days of receiving notice of such claim;

 

	
(ii)        

	
the Corporation and the Indemnified Person shall have mutually agreed to the retention of such separate legal counsel; or

 

	
(iii)        

	
the named parties to such claim (including any added, third or impleaded parties) include both the Corporation and the Indemnified Person and the 

 

  

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Indemnified Person has been advised by legal counsel that representation of both the Corporation and the Indemnified Person by the same legal counsel would be inappropriate due to actual or potential differing interests between them;

 

in which event or events the fees and disbursements of such separate legal counsel shall be paid by the Corporation, subject as hereinafter provided.  Where more than one Indemnified Person is entitled to retain separate counsel in the circumstances described in this subsection 11(b), all Indemnified Persons shall be represented by one separate legal counsel and the fees and disbursements of only one separate legal counsel for all Indemnified Persons shall be paid by the Corporation, unless:

 

	
(i)        

	
the Corporation and the Indemnified Persons have mutually agreed to the retention of more than one legal counsel for the Indemnified Persons; or

 

	
(ii)        

	
the Indemnified Persons have or any of them has been advised in writing by legal counsel that representation of all of the Indemnified Persons by the same legal counsel would be inappropriate due to actual or potential differing interests between them.

 

	
(c)          

	
Waiver of Right:  The Corporation hereby waives its right to recover contribution from the Agent and the other Indemnified Persons with respect to any liability of the Corporation by reason of or arising out of the indemnity provided by the Corporation in this section 11; provided, however, that such waiver shall not apply in respect of the Agent for any liability directly caused or incurred by reason or arising out of any information or statements relating solely to, and provided by, the Agent or any failure by the Agent in connection with the Offering to provide to Purchasers any document which the Corporation is required to provide to the Purchasers and which the Corporation has provided or made available to the Agent to forward to the Purchasers, or any breach by the Agent, for any reason, of its covenants contained in subsection 3(c) hereof.

 

	
(d)          

	
Contribution:

 

	
(i)        

	
In order to provide for just and equitable contribution in circumstances in which the indemnity contained in this section 11 is, for any reason of policy or otherwise, held to be unavailable to or unenforceable by, in whole or in part, an Indemnified Person other than in accordance with the provisions of this section 11, the Corporation shall contribute to the aggregate losses (other than a loss of profit), claims, damages, payments, liabilities, costs, fines, penalties and expenses (including the amount paid in settlement of any claim, action, suit or proceeding and the fees and expenses of counsel on a solicitor and his own client basis incurred obtaining advice in respect of, or in defending or settling, any such claim, action, suit or proceeding) of the nature contemplated by such indemnity incurred or paid by the Indemnified Person in such proportion as is 

 

 

  

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appropriate to reflect not only the relative benefits received by the Corporation on the one hand and the Indemnified Person on the other hand in connection with the Offering but also the relative fault of the Corporation on the one hand and the Indemnified Person on the other hand in connection with the matters, things and actions which resulted in such losses, claims, damages, payments, liabilities, costs, fines, penalties or expenses as well as any other relevant equitable considerations or, if such allocation is not permitted by applicable law, in such proportion so that the Indemnified Person shall be responsible for the proportion represented by the percentage that the Agent’s commission per Offered Security bears to the Purchase Price and the Corporation shall be responsible for the balance, whether or not they are a party to the same or separate claims; provided, however, that no Person who has engaged in any dishonesty, fraud, fraudulent misrepresentation, negligence or wilful default shall be entitled to contribution from any Person who has not engaged in any dishonesty, fraud, fraudulent misrepresentation, negligence or wilful default and further provided that in no event shall the Agent be responsible for any amount in excess of the cash commission actually received from the Corporation under this Agreement and retained by the Agent.  For purposes of this subsection 11(d), relative fault shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact relates to information supplied by the Corporation on the one hand or the Agent on the other hand and the relevant intent, knowledge, access to information and opportunity to correct or prevent any such untrue statement or omission of the Corporation and the Indemnified Person.

 

	
(ii)        

	
In the event that the Corporation is held to be entitled to contribution from the Agent under the provisions of any statute or law, the Corporation shall be limited to such contribution in an amount not exceeding the lesser of:

 

	
(A)        

	
the portion of the amount of the loss or liability giving rise to such contribution for which the Agent is responsible as determined in accordance with this subsection 11(d); and

 

	
(B)        

	
the amount of the Agent’s commission actually received from the Corporation under this Agreement and retained by the Agent.

 

	
(iii)        

	
For purposes of this subsection 11(d), each party hereto shall give prompt notice to the other party hereto of any claim, action, suit or proceeding threatened or commenced in respect of which a claim for contribution may be made under this subsection 11(d) , provided that failure by a party to so notify the other party as contemplated in this paragraph shall not relieve the other party of its obligations of contribution hereunder unless (and only to the extent that) such failure results in forfeiture by the other party or material impairment of its substantive rights or defences.

 

  

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(e)          

	
Held in Trust:  To the extent that the indemnity contained in subsection 11(a) hereof is given in favour of a Person who is not a party to this Agreement, the Corporation hereby constitutes the Agent as trustee for such Person for such indemnity and the covenants given by Corporation to such Person in this Agreement.  The Agent hereby accepts such trust and hold such indemnity and covenants for the benefit of such Persons.  The benefit of such indemnity and covenants shall be held by the Agent in trust for the Persons in favour of whom such indemnities and covenants are given and may be enforced directly by such Persons.

 

	
12.  

	
Expenses

 

The Corporation will pay all reasonable costs and expenses incurred in connection with the Offering including, without limitation, the fees and expenses of the Agent and counsel to the Agent (to a maximum in respect of fees of counsel to the Agent of $25,000 (exclusive of taxes)), all expenses of or incidental to the creation, issue, sale and distribution of the Offered Securities and the expenses of the counsel, auditors and transfer agent of the Corporation and all filing fees.  All fees and expenses shall be payable by the Corporation immediately upon receiving an invoice therefore from the Agent and shall be payable by the Corporation whether or not the Offering is completed.

 

	
13.  

	
Conditions

 

All of the terms and conditions contained in this Agreement to be satisfied by the Corporation prior to the Closing Time shall be construed as conditions and any breach or failure by the Corporation to comply with any of such terms and conditions shall entitle the Agent to terminate the obligations thereof to complete the Closing by written notice to that effect given by the Agent to the Corporation prior to the Closing Time.  It is understood and agreed that the Agent may waive in whole or in part, or extend the time for compliance with, any of such terms and conditions without prejudice to the rights thereof in respect of any other such term and condition or any other or subsequent breach or non-compliance; provided that to be binding on the Agent any such waiver or extension must be in writing and signed by the Agent.  If the Agent shall elect to terminate the obligations thereof to complete the Closing as aforesaid, whether the reason for such termination is within or beyond the control of the Corporation, the liability of the Corporation hereunder shall be limited to the indemnity referred to in section 11 hereof and the right to contribution referred to in section 11 hereof.

 

	
14.  

	
Notices

 

Any notice or other communications required or permitted to be given hereunder shall be in writing and shall be personally delivered or sent by telecopier on a Business Day to the following addresses:

 

  

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(a)

	
in the case of the Corporation

 

Mill City Gold Corp.

4719 Chapel Road NW

Calgary, Alberta

T2L 1A7

Attention:       James R. Brown, President & Chief Executive Officer

Telecopier:     (403) 640-4024

 

with a copy to:

 

DuMoulin Black LLP

10th Floor, 595 Howe Street

Vancouver, British Columbia

V6C 2T5

Attention:        Corey Dean

Telecopier:      (604) 687-8772

 

	
  

	
(b)

	
in the case of the Agent:

 

Primary Capital Inc.

Exchange Tower

130 King Street West, Suite 2110

P.O. Box 91

Toronto, Ontario

M5X 1B1

Attention:         Robert Pollock, Chief Executive Officer

Telecopier:       (416) 214-5954

 

with a copy to:

 

Cassels Brock & Blackwell LLP

2100 Scotia Plaza

40 King Street West

Toronto, ON M5H 3C2

Attention:          Jay Goldman

Telecopier:        (416) 644-9337

 

Either the Corporation or the Agent may change its address for notice by notice given in the manner aforesaid.  Any such notice or other communication shall be in writing, and unless delivered to a responsible officer of the addressee, shall be given by telecopier, and shall be deemed to have been given on the day on which it was delivered or sent by telecopier.

 

 

  

-39-

  

 

 

	
15.  

	
Miscellaneous

 

	
(a)          

	
Governing Law:  This Agreement shall be governed by and be interpreted in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein and the parties hereto irrevocably attorn to the jurisdiction of the courts of such province.

 

	
(b)          

	
Time of Essence:  Time shall be of the essence of this Agreement.

 

	
(c)          

	
Survival:  All representations, warranties, covenants and agreements of the parties herein contained or contained in any documents contemplated by, or delivered pursuant to, this Agreement or in connection with the purchase and sale of the Offered Securities shall survive the purchase and sale of the Offered Securities and the termination of this Agreement and shall continue in full force and effect, for a period of two years regardless of any subsequent disposition of the Offered Securities or the Warrants Shares, or any investigation by or on behalf of the Agent.  Notwithstanding the foregoing, the representations, warranties and covenants of the Corporation contained in this Agreement in respect of the Flow-Through Shares and the Flow-Through Offering, shall continue in full force and effect for the benefit of the FT Purchasers.

 

	
(d)          

	
Counterparts:  This Agreement may be executed by any one or more of the parties to this Agreement by facsimile or other electronic means, in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

 

	
(e)          

	
Entire Agreement:  This Agreement constitutes the entire agreement between the Corporation and the Agent in connection with the issue and sale of the Offered Securities by the Corporation and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, including, but not limited to, any engagement agreement or term sheet relating to the Offering between the Corporation and the Agent.

 

	
(f)          

	
Severability:  If any provision of this Agreement is determined to be void or unenforceable in whole or in part, it shall be deemed not to affect or impair the validity of any other provision of this Agreement and such void or unenforceable provision shall be severed from this Agreement.

 

	
(g)          

	
Language: The parties hereto acknowledge and confirm that they have requested that this Agreement as well as all notices and other documents contemplated hereby be drawn up in the English language.  Les parties aux présentes reconnaissent et confirment qu’elles ont convenu que la présente convention ainsi que tous les avis et documents qui s’y rattachent soient rédigés dans la langue anglaise.

 

THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.

 

  

-40-

  

 

Would you kindly confirm the agreement of the Corporation to the foregoing by executing four duplicate copies of this Agreement and thereafter returning two such executed copies to the Agent.

 

Yours truly,

 

	  	
PRIMARY CAPITAL INC.

 

Per:  /s/ Robert Pollock                

      Authorized Signing Officer

 

 

 

The undersigned hereby accepts and agrees to the foregoing as of the 20th day of October, 2010.

 

MILL CITY GOLD CORP.

 

 

Per:   /s/ James R. Brown                                                

Authorized Signing Officer

 

 

  

-41-

  

Schedule A

 

Outstanding Convertible Securities

 

 

	
Securities

	
Common Shares Reserved

	
Details

	
Stock Options

 

	
9,865,000

 

	
Exercisable at prices ranging from $0.10 to $0.25 per Common Share,

with expiry dates between February 2011 and September 2015.

	  	  	  
	
Warrants

	
5,624,999

	
Exercisable at prices ranging from $0.20 to $0.40 per Common Share, expiring in June 2011.

 

	
Property Agreements

	
Nil(1)

	
N/A

	  	  	  
	
TOTAL

	
15,489,999

	  

 

 

(1)           Under the terms of the Property Agreements, the Corporation may extend for one year the time for completion of each milestone of the Corporation's work commitments by giving notice to the optionor(s) under the applicable Property Agreement and issuing common shares to said optionor(s), being 125,000 common shares in respect of the Croxall property and 250,000 common shares in respect of the GP2 property.

 

 

 

	
 

A - 1

 

  

  

  

Schedule B

 

Property Interests

 

 

Croxall Property – the Corporation has an option to acquire a 75% interest in the Croxall property comprised of the claims set out below pursuant to a letter agreement dated September 21, 2010 between the Corporation and Temex Resources Corp. ("Temex"), subject to the terms and conditions set out therein.  The claims comprising the Croxall property are currently recorded in the name of Temex pursuant to an option agreement dated June 22, 2009 (the "Croxall Agreement") among James Croxall, Margaret Kangas, Robert John De Carle (collectively, the "Optionors") and Temex, pursuant to which the Optionors have granted Temex an option to earn a 100% interest to the Croxall Property.  There is a 2.5% net smelter returns royalty ("NSRR") payable to the Optionors under the Croxall Agreement, of which 1.3% of the NSRR may be purchased for $1,300,000, subject to adjustment.  An advance minimum royalty of $9,000 per annum for a period not to exceed 10 years is also payable, subject to adjustment, in the event commercial production has not occurred by the 1st anniversary of the date of exercise of the option under the Croxall Agreement.

 

Claims comprising Croxall property

 

 

	  	
Claim Number

	
Ontario Mining Division

	
1 

	
998017

	
Porcupine

	
2 

	
998021

	
Porcupine

	
3 

	
998246

	
Porcupine

	
4 

	
998247

	
Porcupine

	
5 

	
998248

	
Porcupine

	
6 

	
1033734

	
Porcupine

	
7 

	
1033736

	
Porcupine

	
8 

	
1033737

	
Porcupine

	
9 

	
1126672

	
Porcupine

	
10 

	
849065

	
Porcupine

	
11 

	
849066

	
Porcupine

	
12 

	
849067

	
Porcupine

	
13 

	
849068

	
Porcupine

	
14 

	
849069

	
Porcupine

	
15 

	
871790

	
Porcupine

	
16 

	
871791

	
Porcupine

	
17 

	
871792

	
Porcupine

	
18 

	
871793

	
Porcupine

	
19 

	
871794

	
Porcupine

	
20 

	
871795

	
Porcupine

	
21 

	
871796

	
Porcupine

	
22 

	
871797

	
Porcupine

	
23 

	
880298

	
Porcupine

	
24 

	
880299

	
Porcupine

	
25 

	
880300

	
Porcupine

	
26 

	
880301

	
Porcupine

	
27 

	
880302

	
Porcupine

	
28 

	
880303

	
Porcupine

 

B-1

  

  

  

 

	
29 

	
880304

	
Porcupine

	
30 

	
880305

	
Porcupine

	
31 

	
880306

	
Porcupine

	
32 

	
880307

	
Porcupine

	
33 

	
880308

	
Porcupine

	
34 

	
880309

	
Porcupine

	
35 

	
880310

	
Porcupine

	
36 

	
889259

	
Porcupine

	
37 

	
889260

	
Porcupine

	
38 

	
889261

	
Porcupine

	
39 

	
889262

	
Porcupine

	
40 

	
889263

	
Porcupine

	
41 

	
889264

	
Porcupine

	
42 

	
900409

	
Porcupine

	
43 

	
900410

	
Porcupine

	
44 

	
900411

	
Porcupine

	
45 

	
900412

	
Porcupine

	
46 

	
900413

	
Porcupine

	
47 

	
900414

	
Porcupine

	
48 

	
900415

	
Porcupine

	
49 

	
905588

	
Porcupine

	
50 

	
988131

	
Porcupine

	
51 

	
988132

	
Porcupine

	
52 

	
988133

	
Porcupine

	
53 

	
1159644

	
Porcupine

	
54 

	
1159645

	
Porcupine

	
55 

	
1177832

	
Porcupine

	
56 

	
880296

	
Porcupine

	
57 

	
880297

	
Porcupine

	
58 

	
905586

	
Porcupine

	
59 

	
905587

	
Porcupine

 

 

 

GP2 Property – the Corporation has an option to acquire an undivided 50% participating interest in the GP2 property comprised of the claims set out below pursuant to a letter agreement dated September 2, 2008 among the Corporation, Temex and Rainy Mountain Royalty Corp. (formerly East West Resource Corporation) in connection with an option and joint venture agreement relating to the GP2 property, subject to the terms and conditions therein.

	  	
Claim Number

	
Ontario Mining Division

	
1 

	
4216155

	
Thunder Bay

	
2 

	
4216156

	
Thunder Bay

	
3 

	
4216157

	
Thunder Bay

	
4 

	
4216158

	
Thunder Bay

	
5 

	
4216159

	
Thunder Bay

	
6 

	
4216160

	
Thunder Bay

	
7 

	
4216161

	
Thunder Bay

	
8 

	
4216162

	
Thunder Bay

	
9 

	
4216163

	
Thunder Bay

	
10 

	
4216164

	
Thunder Bay

	
11 

	
4216165

	
Thunder Bay

 

B-2

  

  

  

 

	
12 

	
4216185

	
Thunder Bay

	
13 

	
4216186

	
Thunder Bay

	
14 

	
4216187

	
Thunder Bay

	
15 

	
4216188

	
Thunder Bay

	
16 

	
4216189

	
Thunder Bay

	
17 

	
4216190

	
Thunder Bay

 

 

 

 

 

 

 

 

 

 

 

B-3exh4-5_optagmt.htm

 

 

 

 

 

 

 

EXHIBIT 4.5

 

OPTION AND JOINT VENTURE AGREEMENT - TARGET 12 (ROSEBUD) PROPERTY

DATED NOVEMBER 8, 2010 WITH THE YUKON CORNELIUS SYNDICATE

 

  

  

  

 

OPTION AND JOINT VENTURE AGREEMENT

TARGET 12 (ROSEBUD) PROPERTY

THIS AGREEMENT made as of the    8th    day of November, 2010

BETWEEN:

THE YUKON CORNELIUS SYNDICATE, Suite 1300 – 1111 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4M3 (Fax No.: 604-888-7929 / Email: billsc@shaw.ca)

(the "Optionor")

AND:

MILL CITY GOLD CORP., a British Columbia corporation having an office at 4719 Chapel Road NW, Calgary, Alberta, T2L 1A7 (Fax No.: 403-640-4024 / Email: jim.brown@millcitygold.com)

(the "Optionee")

WITNESSES THAT WHEREAS:

	
A.

	
The Optionor is the registered and beneficial owner of the Claims, which are situate in the Dawson Mining District, Yukon, Canada, and are generally collectively known and described as the “Target 12”, “RB” or “Rosebud” project;

	
B.

	
The Optionor has agreed to grant to the Optionee an option to acquire an undivided 70% interest in and to the Property, subject only to the Royalty, by, inter alia, making certain payments, issuing shares and carrying out exploration work on the Claims;

THEREFORE, in consideration of the sum of $10.00 now paid by the Optionee to the Optionor and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Optionor, the parties covenant and agree as follows:

DEFINITIONS

1.01           For the purposes of this Agreement the following words and phrases shall have the following meanings, namely:

“Approval Date” means the day on which the Optionee receives written notice from the TSXV of its acceptance of all filings required to be made with the TSXV in respect of this Agreement and the subject matter hereof; provided that if no such filings are required by the policies of the TSXV, such term shall mean the date of execution and delivery of this Agreement;

"Area of Interest" means all lands situate within five kilometers of the external boundary of any portion of the Property;

 

  

  

  

-2-

 

"Claims" means the mineral claims described in Schedule 1.01-1 hereto;

“Commercial Production” means the commercial exploitation of Ore but does not include milling for the purpose of testing or milling or leaching by a pilot plant or during an initial tune up period of the plant. Commercial Production with respect to the Property shall be deemed to have commenced on the first day of the month following the first period of 30 consecutive days during which Ore from the Property have been processed through the plant at an average rate of not less than 85% of the initial rated capacity of the plant as set forth in the Positive Feasibility Report.

"Effective Date" means the fifth business day next following the Approval Date;

"Exploration Expenses" means out-of-pocket costs and expenses of whatsoever kind or nature except those of a capital nature, incurred and actually paid in connection with or otherwise attributable to the exploration and/or development of the Property, specifically excluding administrative and office overhead expenses;

"Governmental Authority" means any federal, provincial, state, municipal, county or regional government or governmental authority, domestic or foreign, and includes any department, commission, bureau, board, administrative agency or regulatory body of any of the foregoing;

"Hazardous Substances" means any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous materials, or hazardous substances as defined in or pursuant to any law, judgment, decree, order, injunction, rule, statute and regulation of any court, arbitrator or Governmental Authority;

"Interest" means a 70% right, title and interest in and to the Property, free and clear of all Liens, charges, encumbrances, rights or interests of others and adverse claims whatsoever, subject only to the Royalty;

"Joint Venture" means the joint venture which may be formed by the parties to this Agreement pursuant to section 8.01;

"Joint Venture Agreement" means the agreement between the Optionor and Optionee attached as Schedule 1.01-2 to and forming part of this Agreement;

"Lien” means any Lien, security interest, mortgage, charge, encumbrance, or other claim of a third party, whether registered or unregistered, and whether arising by agreement, statute or otherwise;

“Manager” means the manager for the time being of the Syndicate, and means William Chornobay as at the date of this Agreement;

“Members” means those persons who are from time to time members of the Syndicate, and “Membership Interest” means the respective beneficial percentage interest of each Member in the Property, the Option Payments and the Royalty, and until written notice from the Manager to the contrary, means the persons described in Schedule 1.01-3 hereto and the interests set out opposite their names in that schedule;

 

  

  

  

-3-

 

"Option" means the sole and exclusive right and option to acquire the Interest, granted to the Optionee by the Optionor pursuant to section 4.01 of this Agreement;

“Option Payments” means, collectively, all monetary payments and Share issuances provided for in section 4.02 of this Agreement;

"Option Period" means the period from the date hereof to and including the date of exercise or termination of the Option;

"Optionor" means, collectively, the Members;

"Ore" means any material containing a mineral of commercial economic value mined from the Claims;

"Positive Feasibility Report" means a detailed study or report showing that placing the Property or part thereof into Commercial Production is feasible and economic, and including at least:

	
  

	
(a)

	
a description of that part of the Property to be covered by the proposed mine;

	
  

	
(b)

	
the estimated recoverable reserves of minerals and the estimated composition and content thereof;

	
  

	
(c)

	
the proposed procedure for development, mining and production;

	
  

	
(d)

	
the results of ore amenability tests (if any);

	
  

	
(e)

	
the nature and extent of the facilities proposed to be acquired, including a preliminary design for the mill facilities if the size, extent and location of the ore body makes such mill facilities feasible;

	
  

	
(f)

	
the total costs, including capital budget, reasonably required to purchase, construct and install all structures, machinery and equipment required for the proposed mine and a schedule indicating the times at which such moneys will be required, including in particular the operating capital requirements for the first four months of operation;

	
  

	
(g)

	
all environmental impact studies and the costs thereof;

	
  

	
(h)

	
the period in which it is proposed the Property will be brought into Commercial Production; and

	
  

	
(i)

	
such other data and information as are reasonably necessary to substantiate the existence of an ore deposit of sufficient size and grade to justify development of a mine, taking into account all relevant business, tax and other considerations;

"Property" means the Claims, together with all minerals in, on or under the Claims, whether or not severed or extracted therefrom, all relocations and amendments affecting such claims and all veins, lodes and ledges, and all dips, spurs, angles, pits, dumps, tailings, and stockpiles situate thereon or pertaining thereto; and all structures (if any) and plant situate thereon; and all Property Rights and other rights and privileges belonging or in any way appurtenant thereto;

 

  

  

  

-4-

 

"Property Rights" means any exploration, exploitation and mining licenses, permits, leases, easements, rights-of-way, certificates and other mining interests and approvals obtained by any person before or after the date of this Agreement and in which the Optionor holds an ownership interest and which are necessary or desirable for the exploration and development of the Claims, and all geological, geophysical, geochemical and engineering reports, charts, maps and other data and documentation relating to the Claims and owned or controlled by the Optionor (in electronic format as well as paper format where available), including prior exploration and development results, proposed work programs and budgets, pre-feasibility or feasibility studies and reports, valuations, reserve estimates and the like);

“Royalty” means the royalty equal to 3.0% of net smelter returns from the Property hereby reserved to the Members according to their respective Membership Interests, and more particularly described in Schedule 1.01-4 hereto;

“Shares” means common shares without par value in the capital of the Optionee;

“Syndicate” means “The Yukon Cornelius Syndicate”, a joint venture of the Members established to, inter alia, stake or otherwise acquire the Property;

"TSXV" means the TSX Venture Exchange.

1.02           The words "section", "subsection", "paragraph", "subparagraph", "clause", "herein" and "hereunder" refer to this Agreement, and the words "this Agreement" include every schedule attached hereto and each schedule forms part of this Agreement.

REPRESENTATIONS AND WARRANTIES OF THE OPTIONOR

2.01           The Optionor hereby represents and warrants to the Optionee that:

	
  

	
(a)

	
the Optionor is, and at the time of transfer to the Optionee of the Interest will be, the legal and beneficial owner of the Property free and clear of all Liens, charges, encumbrances, rights or interests of others and adverse claims whatsoever;

	
  

	
(b)

	
the Optionor will not breach any other agreement or commitment by entering into and performing the Optionor’s obligations under this Agreement;

	
  

	
(c)

	
the Claims have been legally and validly staked and recorded pursuant to all applicable laws, and are in good standing under all applicable laws until the Annual Expiry Dates recorded in Schedule 1.01-1 hereto;

	
  

	
(d)

	
there are no fees, taxes or other assessments of any Governmental Authority due and owing or accruing due in respect of the Property, there are no work or other assessment filings due in respect of the Property, there are no outstanding work orders or other orders of any Governmental Authority relating to the Property and there are no actions required or reasonably anticipated to be required to be taken with respect to any rehabilitation work done or to be done on the Property;

	
  

	
(e)

	
, there is no adverse claim or challenge made against or with regard to the ownership of or title to any of the Claims, or any of the mineral rights granted thereunder, there are no 

 

  

  

  

-5-

 

	
  

	
 

	
outstanding agreements or options to acquire or purchase the Property or any portion thereof, and no person has any royalty, net profits or other interest whatsoever in production from any of the Claims except as provided for herein;

 

	
  

	
(f)

	
the Optionor has good and sufficient right and authority to grant the Option and to sell, transfer and assign the Interest to the Optionee;

	
  

	
(g)

	
this Agreement has been duly executed and delivered by the Manager, on behalf of the Optionor, as lawful attorney for each of the Members; and the consummation of the transactions herein contemplated will not conflict with or result in any breach of any covenants or agreements contained in, or constitute a default under, or result in the creation of any encumbrance under the provisions of any agreement or other instrument whatsoever to which the Optionor is a party or by which the Optionor is bound or to which the Optionor or the Optionor’s interest in the Property may be subject;

	
  

	
(h)

	
the Optionor has complied with all laws applicable to its activities on and in respect of the Property, and without limiting the generality of the foregoing, the Optionor has not used any part of the Property, or permitted any part of the Property to be used, to generate, manufacture, refine, treat, transport, store, handle, dispose of, transfer, produce or process Hazardous Substances, and, to the best of the Optionor’s knowledge and belief, neither has any other person; and none of the Claims is the subject of any investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to a release of any Hazardous Substance into the environment;

	
  

	
(i)

	
no proceedings are pending for, and the Optionor is unaware of any basis for the institution of, any proceedings leading to the dissolution or winding up of the Optionor or the placing of the Optionor in bankruptcy or subject to any other laws governing the affairs of insolvent persons; and the Optionor is not aware of any facts relating to any of the Claims which, if known to the Optionee, could reasonably be expected to cause the Optionee to decide not to enter into this Agreement or not to exercise the Option;

	
  

	
(k)

	
no Member is a non-resident of Canada for the purposes of section 116 of the Income Tax Act (Canada).

2.02           The representations and warranties contained in section 2.01 are provided for the exclusive benefit of the Optionee, and any misrepresentation or breach of warranty may be waived by the Optionee in whole or in part at any time without prejudice to its rights in respect of any other misrepresentation or breach of the same or any other representation or warranty; and the representations and warranties contained in section 2.01 shall survive the execution and performance of this Agreement for a period of one year; and the Optionor will indemnify and save the Optionee harmless from and against any loss or damage the Optionee may suffer or incur as a result of any material misrepresentation or breach of any warranty by the Optionor.

REPRESENTATIONS AND WARRANTIES OF THE OPTIONEE

3.01           The Optionee represents and warrants to the Optionor that:

	
  

	
(a)

	
the Optionee validly exists as a corporation in good standing under the laws of British Columbia;

 

  

  

  

-6-

 

	
  

	
(b)

	
the Optionee has duly obtained all corporate authorizations for the execution of this Agreement and for the performance of this Agreement by it, and this Agreement has been duly executed and delivered by the Optionee as a legal and binding agreement, enforceable against the Optionee;

	
  

	
(c)

	
the Optionee is a "reporting issuer" as that expression is defined in the Securities Act (British Columbia), is a reporting issuer not in default in each of Alberta,  British Columbia and Quebec, and has its shares listed and trading on the TSXV; and the Optionee will use reasonable commercial efforts to obtain any required TSXV or other regulatory approvals and acceptances in respect of this Agreement and the transactions contemplated by this Agreement as soon as practicable.

3.02           The representations and warranties contained in section 3.01 are provided for the exclusive benefit of the Optionor and a misrepresentation or breach of warranty may be waived by the Optionor in whole or in part at any time without prejudice to its rights in respect of any other misrepresentation or breach of the same or any other representation or warranty; and the representations and warranties contained in section 3.01 shall survive the execution hereof.

GRANT OF OPTION AND RESERVATION OF ROYALTY

4.01           The Optionor hereby grants the Option to the Optionee and reserves the Royalty to the Optionor.

4.02           The Option may be maintained and exercised by the Optionee by doing all of the following things within the times stipulated:

	
  

	
(a)

	
paying:

	
  

	
(i)

	
$75,000 (Canadian funds) to the order of the Optionor not later than 4:30 p.m. (local Vancouver time) on the Effective Date;

	
  

	
(ii)

	
an additional $75,000 (Canadian funds) to the order of the Optionor not later than 4:30 p.m. (local Vancouver time) on the first anniversary of the Effective Date;

	
  

	
(iii)

	
an additional $100,000 (Canadian funds) to the order of the Optionor not later than 4:30 p.m. (local Vancouver time) on the second anniversary of the Effective Date;

	
  

	
(iv)

	
an additional $200,000 (Canadian funds) to the order of the Optionor not later than 4:30 p.m. (local Vancouver time) on the third anniversary of the Effective Date;

	
  

	
(v)

	
an additional $400,000 (Canadian funds) to the order of the Optionor not later than 4:30 p.m. (local Vancouver time) on the fourth anniversary of the Effective Date; and

	
  

	
(vi)

	
an additional $600,000 (Canadian funds) to the order of the Optionor not later than 4:30 p.m. (local Vancouver time) on the fifth anniversary of the Effective Date;

 

  

  

  

-7-

 

	
  

	
provided that, subject to necessary approvals of the TSXV, the Optionor shall have the option of making the payments referred to in (ii), (iii), (iv), (v) and (vi) above in cash or by issuing Shares on the specified Effective Dates, in each case at a price per Share equal to the average of the closing prices of the Optionor’s shares on the TSXV over the 20 trading days immediately preceding the relevant Effective Date, less in each case the maximum discount from such average permitted by the policies of the TSXV; and

	
  

	
(b)

	
issuing:

	
  

	
(i)

	
200,000 Shares to and in the names of the Members according to their respective Membership Interests not later than 4:30 p.m. (local Vancouver time) on the Effective Date;

	
  

	
(ii)

	
an additional 300,000 Shares to and in the names of the Members according to their respective Membership Interests not later than 4:30 p.m. (local Vancouver time) on the first anniversary of the Effective Date;

	
  

	
(iii)

	
an additional 400,000 Shares to and in the names of the Members according to their respective Membership Interests not later than 4:30 p.m. (local Vancouver time) on the second anniversary of the Effective Date;

	
  

	
(iii)

	
an additional 400,000 Shares to and in the names of the Members according to their respective Membership Interests not later than 4:30 p.m. (local Vancouver time) on the third anniversary of the Effective Date;

	
  

	
(iii)

	
an additional 500,000 Shares to and in the names of the Members according to their respective Membership Interests not later than 4:30 p.m. (local Vancouver time) on the fourth anniversary of the Effective Date; and

	
  

	
(iii)

	
an additional 1,000,000 Shares to and in the names of the Members according to their respective Membership Interests not later than 4:30 p.m. (local Vancouver time) on the fifth anniversary of the Effective Date; and

	
  

	
(c)

	
giving written notice to the Optionor not later than December 31, 2010 of its commitment to incur and pay Exploration Expenses aggregating not less than $200,000 by the first anniversary of the Effective Date, and thereafter incurring and paying such Exploration Expenses by the first anniversary of the Effective Date; and

	
  

	
(d)

	
delivering to the Optionor, not later than the fifth anniversary of the Effective Date, written notice of the Optionee’s commitment to fund the preparation of a feasibility study in respect of the Property or part thereof, and delivering a Positive Feasibility Report to the Optionor within  three years after the date of such written notice.

4.03           The Optionor acknowledges that:

	
  

	
(a)

	
all Shares issued to the Members pursuant to this Agreement will be issued in accordance with the information provided in Schedule 1.01-3  at a deemed price equal to the higher of the closing price of the Optionee’s shares on the day immediately preceding 

 

  

  

  

-8-

 

	
  

	
 

	
the date of the news release announcing this Agreement and the closing price of the Optionee’s shares on the day immediately preceding the date of issue of such Shares and that such Shares, when issued, will be subject to such resale restrictions as are prescribed by law at the time of issue of such Shares, and that the certificates representing such Shares will bear legends to such effect; and each Member will provide such information regarding beneficial ownership, acknowledgments or other information of such Member as may be required by the TSXV;

 

	
  

	
(b)

	
in the event of any subdivision, consolidation or other change in the share capital of the Optionee prior to the exercise in full of the Option, the number of Shares to be delivered or issued to the Optionor thereafter in connection with the exercise of the Option shall be adjusted in accordance with such subdivision, consolidation or other change in the Share capital of the Optionee;

	
  

	
(c)

	
in the event the Optionee undertakes an amalgamation, merger, reorganization or other arrangement prior to the exercise in full of the Option, the Shares to be delivered or issued to the Optionor thereafter shall be adjusted in accordance with such amalgamation, merger, reorganization or other arrangement.

4.04           Subject only to exercise of the Option and commencement of Commercial Production from the Property as contemplated in Schedule 1.01-2, the Optionee will pay the Royalty to the Optionor.

4.05           The Royalty constitutes an interest in the Property, and the Optionor shall be entitled to register notice of the Royalty in any applicable office or public record of a Governmental Authority.

4.06           The Optionee will make an annual payment (each an “Advance Royalty”) of $100,000 (Canadian funds) to the Optionor on the sixth anniversary of the Effective Date and on  each anniversary of the Effective Date thereafter until the earlier of the date of termination of the Option and the first Royalty payment after commencement of Commercial Production from the Property, when the obligation to pay such Advance Royalties shall terminate.

4.07           All Advance Royalties paid by the Optionee will be deducted from the Royalties otherwise payable after the commencement of Commercial Production.

4.08           All payments stipulated in this Agreement to be made “to the Optionor” shall be made to “Holmes & King, in trust” for the benefit of the Members according to their respective Membership Interests until directed otherwise in writing by the Manager or Holmes & King.

4.09           The Optionee will have and is hereby granted the exclusive right and option to purchase one-third of the Royalty (i.e. a royalty equal to 1% of net smelter returns) for $1,500,000 (Canadian funds) at any time up to the 90th day after delivery of a Positive Feasibility Report to the Optionor.

EXERCISE OF OPTION

5.01           If the Optionee makes the payments, issues the Shares, incurs the Exploration Expenses and delivers a Positive Feasibility Report to the Optionor as described in, and within the time permitted by, section 4.02, it will, without any further act or payment, have and be deemed for all purposes to have exercised the Option.

 

  

  

  

-9-

 

5.02           If and when the Option has been exercised, all right, title and interest in and to the Interest will vest in the Optionee, subject only to the Royalty.

5.03           If the Option is exercised, the Optionor will forthwith following written notice from the Optionee, and insofar as same has not previously been accomplished, take all and any actions necessary to effect the transfer to and registration in the name of the Optionee of the Interest, subject only to the Royalty.

OPERATORSHIP AND RIGHT OF ENTRY

6.01           Throughout the Option Period, the Optionee will be the "operator" in respect of the Property and, as such, shall have the sole and exclusive right in respect of the Property to:

(a)           enter thereon;

(b)           have exclusive and quiet possession thereof;

	
  

	
(c)

	
do such prospecting, exploration, development and/or mining work thereon and thereunder as the Optionee may determine to be necessary, desirable or advisable;

	
  

	
(d)

	
bring upon and erect upon the Property and use in its operations, at any time and from time to time, such buildings, plant, machinery, equipment, vehicles, tools, appliances and supplies as the Optionee may deem necessary, desirable or advisable; and

	
  

	
(e)

	
remove therefrom and dispose of reasonable quantities of ores, minerals and metals for the purposes of sampling, including bulk sampling, obtaining assays or making other tests.

6.02           Throughout the Option Period the Manager and agents and independent contractors retained by the Optionor shall, on reasonable written advance notice to the Optionee, have the right in respect of the Property to enter thereon at the sole risk and expense of the Optionor and such Manager and agents and independent contractors of the Optionor, for the purpose of viewing the same.

6.03           The Optionee shall be entitled to all income and other tax deductions, allowances, credits, incentives and other benefits available pursuant to exploration incentive programs or similar programs in connection with the exploration of the Property.

6.04           The Optionee shall not have any right to and will not grant mortgages, charges or liens of or upon the Property or any portion thereof, any mill or other fixed assets located thereon, or any of the tangible personal property located on or used in connection with the Property without the prior written consent of the Optionor.

OBLIGATIONS DURING OPTION PERIOD / AREA OF INTEREST

7.01           Forthwith following execution of this Agreement, and in any event prior to the Effective Date, the Optionor shall, at the Optionor’s expense, deliver to the Optionee copies of all geological, geophysical and geochemical reports, maps and other data and documentation relating to the Claims and 

 

  

  

  

-10-

 

in the possession or control of the Optionor, in printed and, where available, electronic formats; provided that all such information and documentation will be delivered without warranty as to completeness and the Optionor will not be held liable for any errors or omissions in any such information and documentation or for any loss, damage or expense incurred by the Optionee from the utilization and results of utilization of any such information and documentation by the Optionee.

7.02           During the Option Period and, in the case of subsection 7.02(a), for a period of not less than 6 months following any termination of the Option, the Optionee shall:

	
  

	
(a)

	
maintain the Property in good standing by incurring Exploration Expenses, filing assessment work reports and taking all other actions which may be necessary in that regard and in order to keep the Claims free and clear of all Liens and other charges arising from the Optionee's activities thereon; and without limiting the generality of the foregoing, the Optionee shall in each calendar year during the Option Period:

	
  

	
(i)

	
either:

	
  

	
(A)

	
do or cause to be done work to the value of at least $100 per Claim (or such greater amount as may be prescribed from time to time by any Yukon Governmental Authority) [subject to grouping of Claims for such purpose as permitted by the Quartz Mining Act (Yukon) (the “QMA”)]; or, alternatively

	
  

	
(B)

	
pay $105 per Claim (or such greater amount as may be prescribed from time to time by any Yukon Governmental Authority) to the Mining Recorder in whose office the Claim is recorded and file an Application for Renewal of Grant for Quartz Mining Pay in Lieu with such Mining Recorder;

	
  

	
in either case not less than 15 days prior to the Annual Expiry Date set forth in Schedule 1.01-1 in respect of such Claim (which is the anniversary of the date on which such Claim was recorded), as required to assure the Optionee and Optionor that the Optionor (or the registered owner of the Claims holding them in trust for the Optionor) will have title to the Claims for at least one year after each Annual Expiry Date;

	
  

	
(ii)

	
give written notice to the Optionor not less than 15 days prior to the Annual Expiry Date for such Claim stating that the Optionee has taken one of the actions described in clause (i) in respect of such Claim, and describing such action;

	
  

	
(iii)

	
within 14 days after each Annual Expiry Date, file an Application for a Certificate of Work in respect of each Claim described in clause (i)(A) in accordance with the Schedule of Representation Work under the QMA and, where applicable, an Application to Group Mineral Claims, with the Mining Recorder in whose office the Claim is recorded;

	
  

	
(iv)

	
obtain a Certificate of Work in Form 5 of Schedule 1 to the QMA in respect of each Claim described in clause (i)(A) and a receipt for each payment made in respect of a Claim described in clause (i)(B);

 

  

  

  

-11-

 

	
  

	
(b)

	
permit the designated consultants of the Optionor, and its servants, agents and independent contractors, at their own risk, access to the Property at all reasonable times; provided that the Optionor agrees (and the Optionor does hereby so agree) to indemnify the Optionee against and to save it harmless from all Liens, costs, claims, actions, causes of action, liabilities and expenses that the Optionee may incur or suffer as a result of any injury (including injury causing death) to any such person while on the Property;

	
  

	
(c)

	
do all work on the Property in a careful, minerlike and workmanlike fashion, and in accordance with all applicable laws, regulations, orders and ordinances of any Governmental Authority, and all applicable permits and licenses; and comply with all laws, rules, regulations, policies and orders of Governmental Authorities with respect to reclamation and rehabilitation of all disturbances resulting from the Optionee's use and occupancy of the Property; and promptly pay or cause to be paid all workers and wage earners employed by it or its contractors on the Property, and pay for all materials, services and supplies purchased or delivered in connection with its activities on or with respect to the Property;

	
  

	
(d)

	
furnish the Optionor with a report with respect to each work program carried out by the Optionee on the Property or part thereof, including material results obtained and a detailed list of Exploration Expenses incurred together with evidence of payment thereof, within six months of completion of such work program.

7.03           If at any time after the date of this Agreement, before or after exercise of the Option, the Optionee stakes or otherwise acquires, directly or indirectly, any right or title to or any legal or beneficial interest in any mineral claim or any license, lease, grant, concession, permit, patent or other interest (in each case an "AMI Interest") in any mineral property located wholly or partly within the Area of Interest, the Optionee will immediately give written notice of the acquisition of such AMI Interest to the Optionor together with copies of all information in the possession of the acquiring party relating to such AMI Interest, and, unless the Optionor notifies the Optionee in writing within 60 days next following receipt of such notice that the Optionor does not wish to acquire any ownership interest in the AMI Interest, such AMI Interest will thereafter be and will be deemed for all purposes to be part of the Property, and to be subject to the Option if the Option has not yet been exercised; and in such event the Optionee will transfer legal title to the AMI Interest by appropriate conveyance to the Optionor; provided that if an AMI Interest is acquired by the Optionee otherwise than by staking such AMI Interest, and if the Optionee is obligated to pay a royalty (in each case a “Third Party Royalty”) on net smelter returns from such AMI Interest to an arm’s length third party, then the Royalty otherwise payable to the Optionor in respect of such AMI Interest shall be reduced by an amount equal to the Third Party Royalty so that, for example, if the the Third Party Royalty is 2% of net smelter returns from such AMI Interest, then the Royalty will be reduced from 3% of net smelter returns from such AMI Interest to 1% of net smelter returns from such AMI Interest.

7.04           If the Optionee acquires an AMI Interest and, before or after acquiring such AMI Interest, stakes any mineral claim (in each case an “Additional Claim”) which is more than five kilometers from the Property as originally constituted and is at the time of such staking contiguous, or subsequently by reason of additional staking becomes contiguous, to any Claim or any Additional Claim which is part of a group of Additional Claims contiguous to a Claim, the Optionee will immediately give written notice of the acquisition of such Additional Claim to the Optionor together with copies of all information in the possession of the acquiring party relating to such Additional Claim, and, unless the Optionor notifies the 

 

  

  

  

-12-

 

 

Optionee in writing within 60 days next following receipt of such notice that the Optionor does not wish to acquire any ownership interest in the Additional Claim, such Additional Claim will thereafter be and will be deemed for all purposes to be part of the Property, and to be subject to the Option if the Option has not yet been exercised; and in such event the Optionee will transfer legal title to the Additional Claim by appropriate conveyance to the Optionor.

7.05           The Optionee will indemnify and save the Optionor harmless from and against any and all claims, suits, actions, causes of action, administrative orders and notices,  demands, losses, damages, interest, fines, penalties and expenses, including reasonable legal fees and expenses, expert’s and consultant’s fees and expenses, court costs and all other out-of-pocket expenses arising or suffered or incurred by the Optionor as a result of any act or omission of the Optionee, or any breach of this agreement by the Optionee, including without limitation claims, suits, demands, losses, damages and expenses relating to any work, act or thing done or omitted to be done by the Optionee on or with respect to the Property.

FORMATION OF JOINT VENTURE

8.01           On the date of exercise of the Option, the Optionor and the Optionee will without any further act or formality associate themselves,  will be deemed for all purposes to have associated themselves, by way of Joint Venture on the terms and conditions contained in the Joint Venture Agreement, and the parties hereby agree to enter into an agreement in substantively the form attached as Scheduled 1.10-2 to evidence their agreement with regard to such Joint Venture.

8.02           If the Joint Venture is constituted pursuant to this Agreement, the relationship of the Optionor and the Optionee will, from and after the date of constitution of such Joint Venture, be that of co-venturers and will, subject to express provisions of this Agreement, be governed by the terms and conditions of the Joint Venture Agreement.

TRANSFERS OF PROPERTY INTERESTS

9.01           The Optionee shall have the right to assign any of the Optionee’s rights hereunder to any person without the prior written consent of the Optionor, and any purchaser, grantee or transferee of any such rights must, before such assignment becomes effective, have delivered to the Optionor its written agreement related to this Agreement and to the Property, containing:

	
  

	
(a)

	
a covenant by such transferee to perform all the obligations of the Optionee to be performed under this Agreement in respect of the rights to be acquired by it from the Optionee to the same extent as if this Agreement had been originally executed by the Optionee and such transferee as joint and several obligors making joint and several covenants; and

	
  

	
(b)

	
a provision subjecting any further sale, transfer or other disposition of such rights in the Property or this Agreement to the restrictions contained in this section;

and for greater certainty, no such assignment shall operate to discharge the Optionor from any of its obligations hereunder or alter the terms of the Option.

 

  

  

  

-13-

 

9.02           The Optionor shall have the right to transfer any or all of its right, title and interest in and to the Property (subject to the Option) and/or assign any or all of its right, title and interest in, to and/or under this Agreement and/or any or all of the Optionor’s rights and obligations herein and/or hereunder to any person without the consent of the Optionee provided that any such transferee or assignee (including any subsequent transferee or assignee) shall have delivered to the Optionee a written agreement whereby such transferee or assignee covenants to perform all of the obligations and committments of the Optionor and otherwise be bound by the terms of this Agreement as they relate to the Optionor; and in any such event, such assignment shall operate to discharge the Optionor from any of its obligations hereunder in respect of such interest save and except for the fulfillment of contractual commitments having accrued due prior to the date of such assignment.

REGULATORY APPROVALS AND REQUIREMENTS

10.01         The Optionor and Optionee acknowledge and agree that their respective rights and obligations hereunder are subject to acceptance of filings to be made by both parties in respect of this Agreement by the TSXV.

10.02         The Optionee will use reasonable commercial efforts to have this Agreement accepted for filing by the TSXV forthwith following execution of this Agreement.

10.03         The Optionor agrees to cooperate, and shall use reasonable efforts to facilitate the cooperation of the Members, in the provision of all personal information, acknowledgements and other information as may be required by the TSXV with regarding to the filing of this Agreement and other related approvals.

 

TERMINATION OF OPTION

11.01         The Option may be terminated by the Optionor by delivering a written notice of termination to the Optionee if the Optionee fails to make any cash Option Payment, issue any Shares or incur any Exploration Expenses described in section 4.02, or deliver a Positive Feasibility Report, within the time periods permitted by section 4.02; provided that the Optionor shall have first delivered to the Optionee a written notice of default specifying the default and the Optionee shall have failed to cure such default within 30 days next following the date of receipt of such default notice by appropriate payment or performance.

11.02         The Option may also be terminated by the Optionor delivering a written notice of termination to the Optionee if the Optionee breaches any of its covenants set forth herein or fails to perform any of its obligations set forth herein; provided that the Optionor shall have first delivered to the Optionee a written notice of default specifying the default and the Optionee shall have failed to cure such default within 30 days next following the date of receipt of such default notice by appropriate payment or performance.

11.03         If the Option is terminated pursuant to section 11.01 or 11.02 hereof, the Optionee shall:

	
  

	
(a)

	
at no cost to the Optionor and within 30 days of such termination, deliver to the Optionor copies of all reports, maps, assay results and other relevant technical data in the possession of the Optionee with respect to the Property;

 

  

  

  

-14-

 

	
  

	
(b)

	
leave the Property in good standing for at least 6 months after the date of such termination, free and clear of all Liens arising from its operations on the Property, in a safe and orderly condition and in a condition which is in compliance with all laws, rules, regulations, policies and orders of Governmental Authorities with respect to reclamation and rehabilitation of all disturbances resulting from the Optionee's use and occupancy of the Property;

	
  

	
(c)

	
have the right (and, if required by the Optionor within 90 days of the effective date of termination, the obligation) to remove from the Property within six months of termination of the Option, all plant, equipment and facilities erected, installed or brought upon the Property by or at the instance of Optionee, failing which the facilities shall become the property of the Optionor.

SURRENDER OF PROPERTY INTERESTS PRIOR TO TERMINATION

12.01         The Optionee may at any time elect to abandon and surrender the Option in respect of any one or more of the Claims comprised in the Property by giving written notice to the Optionor of such proposed abandonment and surrender, and in each such event the Claims in respect of which such notice has been given shall cease to be subject to the Option and shall cease to be part of the subject matter of this Agreement; and the Option shall in each such event remain in full force and effect with respect to the Claims which are not so abandoned and surrendered.

12.02         If the Optionee makes an election pursuant to section 12.01 hereof, the Optionee shall:

	
  

	
(a)

	
at no cost to the Optionor and within 30 days of the Optionor making such election, deliver to the Optionor party a transfer, quitclaim, bill of sale or other appropriate deed or assurance in registrable form transferring its interest in such Claims to the Optionor, together with copies of all reports, maps, assay results and other relevant technical data in the possession of the Optionee with respect to the Property;

	
  

	
(b)

	
leave the Claims so abandoned or surrendered in good standing for at least 6 months after the date of such surrender or abandonment, free and clear of all Liens arising from its operations hereunder, in a safe and orderly condition and in a condition which is in compliance with all laws, rules, regulations, policies and orders of Governmental Authorities with respect to reclamation and rehabilitation of all disturbances resulting from the Optionee's use and occupancy of the Property.

12.03         The Area of Interest will not be diminished by any surrender of Claims pursuant to section 12.01.

FORCE MAJEURE

13.01         If the Optionee is at any time either during the Option Period or thereafter prevented from or delayed in complying with any provisions of this Agreement by reason of strikes, lock-outs, labour shortages, power shortages, fuel shortages, fires, wars, acts of war, insurrection or terrorism, inclement weather, acts of God, governmental regulations restricting normal operations, shipping or other transportation delays, delays in obtaining required governmental or regulatory approvals or permits not due to fault or default on the part of the Optionee, or any other reason or reasons (other than lack of funds) beyond the control of the Optionee, the time limited for the performance by the Optionee of its 

 

  

  

  

-15-

 

obligations hereunder shall be extended by a period of time equal in length to the period of each such prevention or delay; provided that if the duration of any event of force majeure exceeds six months, the Optionor may terminate the Option by written notice to the Optionee and in such event the provisions of section 11.03 will apply.

13.02         The Optionee shall give prompt notice to the Optionor of each event of force majeure under section 13.01 and upon cessation of such event shall furnish the Optionor with notice to that effect together with particulars of the number of days by which the obligations of the Optionee hereunder have been extended by virtue of such event of force majeure and all preceding events of force majeure.

NEWS RELEASES

14.01         The text of any news release respecting the execution and delivery of this Agreement will be subject to approval by both parties, and both parties will act reasonably in that regard.

14.02         All matters concerning the Optionor and the contents of this Agreement shall be treated as and kept confidential and not disclosed by the parties, except as required by applicable securities laws, the rules of any stock exchange on which the Optionee’s shares are listed or other applicable laws or regulations, without the prior written consent of the other party, such consent not to be unreasonably withheld; provided that, notwithstanding the foregoing, the parties are entitled to disclose confidential information to prospective investors or lenders, who shall be required to keep all such confidential information confidential.

NOTICES

15.01         Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by prepaid registered mail addressed to the party entitled to receive the same, or delivered to such party by hand, or communicated by telecopy or email, at the address for such party specified above, on any business day, in each case directed to the attention of the President or Manager, as the case may be.

15.02         The date of receipt of any notice, demand or other communication shall be the date of delivery thereof if delivered, the date of transmission if communicated by telecopy or email, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the fifth day after the same shall have been so mailed except in the case of interruption of postal services for any reason whatever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee.

15.03         Either party may at any time and from time to time notify the other party in writing of a change of address (including telecopy or email address) and the new address to which notice shall be given to it thereafter until further change.

GENERAL

16.01         This Agreement supersedes and replaces all other agreements or arrangements, whether oral or written, heretofore existing between the parties in respect of the subject matter of this Agreement.

 

  

  

  

-16-

 

16.02         No consent or waiver, expressed or implied, by either party in respect of any breach or default by the other in the performance by such other of its obligations hereunder shall be deemed or construed to be a consent to or a waiver of any other breach or default.

16.03         The parties will promptly execute or cause to be executed all documents, deeds, conveyances and other instruments of further assurance which may be reasonably necessary or advisable to carry out fully the intent of this Agreement or to record wherever appropriate the respective interests from time to time of the parties in the Property.

16.04         This Agreement will be interpreted in accordance with and governed by the laws of the Province of British Columbia and the laws of Canada applicable therein, and the parties hereby irrevocably attorn to the exclusive jurisdiction of the courts of British Columbia, Vancouver Registry.

16.05         If any term, provision, covenant or condition of this Agreement, or any application thereof, should be held by a court of competent jurisdiction to be invalid, void or unenforceable, all provisions, covenants and conditions of this Agreement, and all applications thereof, not held invalid, void or unenforceable shall continue in full force and effect, and in no way be affected, impaired or invalidated thereby.

16.06         The parties hereto agree to do and perform all such further and other acts and things, and to execute all such further and other instruments and documents, and to give all such further and other assurances as may be necessary to give effect to the intent of this Agreement.

16.07         Except as may be specifically provided for herein, time is of the essence of this Agreement.

16.08         This Agreement shall enure to the benefit of and be binding upon the parties and their respective successors and permitted assigns.

16.09         This Agreement may be executed in any number of counterparts and delivered by fax or email, and each of such counterparts when so executed and delivered shall be deemed to be an original, (and each signed copy sent by electronic facsimile transmission shall be deemed to be an original) and all such counterparts together shall constitute one and the same instrument.

[Next Page is Execution Page]

  

  

  

 

-17-

IN WITNESS WHEREOF the Optionor and the Optionee have executed this Agreement as of the day first set forth above.

THE YUKON CORNELIUS SYNDICATE

Per:

/s/ William Chornobay

_________________________________________

William Chornobay

Manager for The Yukon Cornelius Syndicate

MILL CITY GOLD CORP.

Per:

/s/ James R. Brown

_______________________________________

James R. Brown, Authorized Signatory

This is page 17 of an Option Agreement in respect of the Target 12 (Rosebud) mineral claims, made as of November   8 , 2010 between The Yukon Cornelius Syndicate and Mill City Gold Corp.

 

  

  

  

SCHEDULE 1.01-1

Attached to and forming part of an Option Agreement made as of November   8  , 2010 between The Yukon Cornelius Syndicate and Mill City Gold Corp.

DESCRIPTION OF MINERAL CLAIMS

	
Grant Number

	
Claim

Name

	
Claim

Number

	
Claim Expiry Date

	
NTS Map Number

	
YD15851

	
RB

	
1

	
June 30

	
115O08

	
YD15852

	
RB

	
2

	
June 30

	
115O08

	
YD15853

	
RB

	
3

	
June 30

	
115O08

	
YD15854

	
RB

	
4

	
June 30

	
115O08

	
YD15855

	
RB

	
5

	
June 30

	
115O08

	
YD15856

	
RB

	
6

	
June 30

	
115O08

	
YD15857

	
RB

	
7

	
June 30

	
115O08

	
YD15858

	
RB

	
8

	
June 30

	
115O08

	
YD15859

	
RB

	
9

	
June 30

	
115O08

	
YD15860

	
RB

	
10

	
June 30

	
115O08

	
YD15861

	
RB

	
11

	
June 30

	
115O08

	
YD15862

	
RB

	
12

	
June 30

	
115O08

	
YD15863

	
RB

	
13

	
June 30

	
115O08

	
YD15864

	
RB

	
14

	
June 30

	
115O08

	
YD15865

	
RB

	
15

	
June 30

	
115O08

	
YD15866

	
RB

	
16

	
June 30

	
115O08

	
YD15867

	
RB

	
17

	
June 30

	
115P05

	
YD15868

	
RB

	
18

	
June 30

	
115P05

	
YD15869

	
RB

	
19

	
June 30

	
115P05

	
YD15870

	
RB

	
20

	
June 30

	
115P05

	
YD15871

	
RB

	
21

	
June 30

	
115O08

	
YD15872

	
RB

	
22

	
June 30

	
115O08

	
YD15873

	
RB

	
23

	
June 30

	
115O08

	
YD15874

	
RB

	
24

	
June 30

	
115O08

	
YD15875

	
RB

	
25

	
June 30

	
115O08

	
YD15876

	
RB

	
26

	
June 30

	
115O08

	
YD15877

	
RB

	
27

	
June 30

	
115O08

	
YD15878

	
RB

	
28

	
June 30

	
115O08

	
YD15879

	
RB

	
29

	
June 30

	
115O08

	
YD15880

	
RB

	
30

	
June 30

	
115O08

	
YD15881

	
RB

	
31

	
June 30

	
115O08

	
YD15882

	
RB

	
32

	
June 30

	
115O08

	
YD15883

	
RB

	
33

	
June 30

	
115O08

 

 

  

  

  

 

-2-

 

	
YD15884

	
RB

	
34

	
June 30

	
115O08

	
YD15885

	
RB

	
35

	
June 30

	
115O08

	
YD15886

	
RB

	
36

	
June 30

	
115O08

	
YD15887

	
RB

	
37

	
June 30

	
115O08

	
YD15888

	
RB

	
38

	
June 30

	
115O08

	
YD15891

	
RB

	
41

	
June 30

	
115O08

	
YD15892

	
RB

	
42

	
June 30

	
115O08

	
YD15893

	
RB

	
43

	
June 30

	
115O08

	
YD15894

	
RB

	
44

	
June 30

	
115O08

	
YD15895

	
RB

	
45

	
June 30

	
115O08

	
YD15896

	
RB

	
46

	
June 30

	
115O08

	
YD15897

	
RB

	
47

	
June 30

	
115O08

	
YD15898

	
RB

	
48

	
June 30

	
115O08

	
YD15899

	
RB

	
49

	
June 30

	
115O08

	
YD15900

	
RB

	
50

	
June 30

	
115O08

  

  

  

 

SCHEDULE 1.01-2

Attached to and forming part of an Option Agreement made as of November   8  , 2010 between The Yukon Cornelius Syndicate and Mill City Gold Corp.

 

JOINT VENTURE AGREEMENT

THIS JOINT VENTURE AGREEMENT made as of and entered into effective _______________________

BETWEEN:

THE YUKON CORNELIUS SYNDICATE, Suite 1300 – 1111 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4M3 (Fax No.: 604-888-7929 / Email: billsc@shaw.ca)

("The YC Syndicate")

AND:

MILL CITY GOLD CORP., a British Columbia corporation having an office at 4719 Chapel Road NW, Calgary, Alberta, T2L 1A7 (Fax No.: 403-640-4024 / Email: jim.brown@millcitygold.com)

("Mill City")

WITNESSES THAT WHEREAS:

	
A.

	
The YC Syndicate owns a 30% interest in the Property;

	
B.

	
Mill City owns a 70% interest in the Property, acquired from The YC Syndicate pursuant to the Head Agreement;

	
C.

	
The YC Syndicate and Mill City have agreed to form a joint venture for the purpose of conducting Joint Operations to further explore and, if deemed advisable, to develop and mine the Property and to process and sell or otherwise dispose of any Minerals from the Property;

THEREFORE, in consideration of the premises and the mutual covenants, commitments and undertakings hereinafter contained, and for other good and valuable consideration, the parties agree as follows:

INTERPRETATION

1.01           In this Agreement the following words, phrases and expressions shall have the following meanings:

 

 

  

  

  

-2-

 

"Accounting Procedure" means the procedure attached to this Agreement as Appendix I.

"Affiliate" shall have the meaning attributed to it in the Head Agreement.

"Assets" means all tangible and intangible goods, chattels, improvements or other items including, without limiting the generality of the foregoing, the Property Rights and land, buildings and equipment (excluding the Property), acquired for or made to the Property under the Head Agreement or this Agreement in connection with the Mining Operations.

“Commercial Production” means the commercial exploitation of Ore but does not include milling for the purpose of testing or milling or leaching by a pilot plant or during an initial tune up period of the plant. Commercial Production with respect to the Property shall be deemed to have commenced on the first day of the month following the first period of 30 consecutive days during which Ore from the Property have been processed through the plant at an average rate of not less than 85% of the initial rated capacity of the plant as set forth in the Positive Feasibility Report.

"Completion Date" means the date on which it is demonstrated to the satisfaction of the Management Committee that any Construction done pursuant to a Production Notice is complete.

"Construction" means every kind of work carried out during the Construction Period by the Operator in accordance with a Feasibility Report approved by the Management Committee.

"Construction Period" means, unless a Production Notice is subsequently withdrawn, the period beginning on the date a Production Notice is given and ending on the Completion Date.

"Costs" means, except as to Prior Exploration Costs, all costs and expenses whatsoever, direct or indirect, with respect to Mining Operations, recorded by Mill City in accordance with the Head Agreement, and by the Operator in accordance with this Agreement, and without limiting the generality of the foregoing, the following categories of Costs shall have the following meanings:

	
  

	
"Construction Costs" means the Costs of Construction recorded by the Operator during the Construction Period, including, without limiting the generality of the foregoing, the Operator's fee contemplated in section 11;

	
  

	
"Exploration Costs" means those Costs, exclusive of Prior Exploration Costs, Construction Costs and Operating Costs, recorded by the Operator during the Exploration Period in connection with the exploration and development of the Property, including, without limiting the generality of the foregoing, the Operator's fee contemplated in section 11;

"Mine Costs" means Construction Costs and Operating Costs;

	
  

	
"Operating Costs" means those Costs recorded by the Operator subsequent to the Operative Date including, without limiting the generality of the foregoing, the Operator's fee contemplated in section 11, but specifically excluding Construction Costs and Exploration Costs; and

	
  

	
"Prior Exploration Costs" means, for Mill City, 70% of “Exploration Expenses” recorded by it under the Head Agreement before the Operative Date and, for The YC Syndicate, an amount equal to 30% of “Exploration Expenses” recorded by Mill City under the Head Agreement before the Operative Date.

 

  

  

  

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"Exploration Period" means the period beginning the Operative Date and ending the date an effective Production Notice is given.

"Feasibility Report" means that document or those documents consisting of reports, estimates, studies and comprehensive financial analyses prepared at the direction of the Management Committee and in such form and of such a standard as may be required by the Management Committee, to examine the feasibility of bringing into commercial production any Mineral deposit on the Property and establishing and operating a Mine or increasing production from an existing Mine, but does not include the Positive Feasibility Report or any other feasibility report prepared pursuant to the Head Agreement.

"Head Agreement" means that certain Option and Joint Venture Agreement made between the parties hereto as of _________________, 2010 and to which this Agreement is attached as a Schedule and pursuant to which this Agreement has been entered into.

"Interest" means an undivided beneficial percentage interest in and to the Property, the Assets and any Mine calculated according to sections 7 and 10 during the commencement of this Agreement.

"Joint Operation" means the joint operation described in subsection 2.01.

"Management Committee" means the committee established pursuant to section 4.

"Mine" means the workings established and Assets acquired, including, without limiting the generality of the foregoing, development headings, plant and concentrator installations, infrastructure, housing, airport and other facilities in order to bring a portion of the Property into Commercial Production in accordance with a Production Notice, or to increase Commercial Production from the Property.

"Minerals" means any and all ores (and concentrates and metals derived therefrom) and minerals, precious and base, metallic and non-metallic, and any and all gemstones (including diamonds), in, on or under the Property which may lawfully be explored for, mined and sold.

"Mining Operations" means every kind of work done by the Operator:

	
  

	
(a)

	
on or in respect of the Property in accordance with a Program or Production Notice, or pursuant to the Head Agreement; or

	
  

	
(b)

	
if not provided for in a Program or Production Notice or in the Head Agreement, unilaterally and in good faith to maintain the Property in good standing, to prevent waste or to otherwise discharge any obligation which is imposed upon it pursuant to this Agreement and in respect of which the Management Committee has not given it directions;

including, without limiting the generality of the foregoing, investigating, prospecting, exploring, developing, property maintenance, preparing reports, estimates and studies, designing, equipping, improving, surveying, Construction and mining, milling, concentrating, rehabilitation, reclamation, and environmental protection.

"Net Proceeds of Production" shall have the meaning attributed to it in Appendix II.

 

  

  

  

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"Operative Date" means the date upon which this Agreement becomes effective.

"Operator" means the party appointed as the Operator in accordance with section 5.

"Participant" means a party that is contributing to Exploration Costs or Mine Costs, as the case may be.

"party" or "parties" means the parties to this Agreement and their respective successors and permitted assigns which become parties pursuant to this Agreement.

"Prime Rate" means the rate of interest published and declared as such from time to time and stated by the Bank of Montreal, Main Branch, Vancouver, British Columbia, as being charged by it on Canadian Dollar demand loans to its most creditworthy domestic commercial customers.

"Production Notice" means a notice which is given to each of the parties pursuant to subsection 9.02.

"Program" means an exploration program conducted on the Property during the Exploration Period and adopted pursuant to subsection 7.02.

"Property" means the mineral properties that become subject to this Agreement on the Operative Date, as are particularly set forth in Schedule 101-1 [NTD: Schedule to list all properties that are subject to the Agreement on the Operative Date],and any additional mineral properties that become part of the Property pursuant to this Agreement, the Minerals thereon, all information obtained from Mining Operations and those rights and benefits appurtenant to the Property that are acquired for the purpose of conducting Mining Operations.

"proportionate share" means that share which is equal to a party's Interest.

"Simple Majority" means a decision made by the Management Committee by a majority in Interest representing in excess of 50 percent of the votes entitled to be cast.

"$" means Canadian Dollars.

1.02           The words "section", "subsection", "paragraph", "subparagraph", "herein", "hereto" and "hereunder" refer to this Agreement. The words "this Agreement" or "the Agreement" include every Schedule and Appendix attached hereto but exclude the Head Agreement. Every Schedule and Appendix attached hereto forms part of this Agreement.

1.03           The captions and the emphasis of the defined terms have been inserted for convenience and do not define the scope of any provision.

1.04           Unless specifically defined in this Agreement, words and expressions defined in the Head Agreement have their defined meanings in this Agreement.

FORMATION OF THE JOINT VENTURE

2.01           The parties hereby agree to associate and participate in a joint operation (herein called the "Joint Operation") for the purpose of exploring and, if warranted, carrying on Commercial Production from the Property.

 

  

  

  

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2.02           The right of each party to mine and market production from other sources in competition with the other parties and of each Participant to market its share of any Minerals in competition with any other Participant is hereby confirmed; and this Agreement shall not be construed so as to preclude or restrict such rights.

INTERESTS

3.01           Except as otherwise provided herein and in the Head Agreement, the parties shall bear all Costs and all liabilities arising under this Agreement and the Head Agreement, and shall own the Property, the Assets and any Mine, in proportion to their respective Interests.

3.02           On the Operative Date the respective Interests of the parties shall be equal to the respective Interests which the parties held under the Head Agreement immediately prior to the Operative Date.

MANAGEMENT COMMITTEE

4.01           A Management Committee will be established on or forthwith after the Operative Date. Except as herein otherwise provided, the Management Committee will make all decisions in respect of Mining Operations.

4.02           Each party shall forthwith appoint one representative and one alternate representative to the Management Committee. The alternate representative may act for a party's representative in its absence.

4.03           The Operator shall call a Management Committee meeting at least once every 12 months, and, in any event within 14 days of being requested to do so by any representative or alternate representative.

4.04           The Operator shall give notice, specifying the time and place of, and the agenda for, the meeting, to all representatives at least seven days before the time appointed for the meeting. All meetings of the Management Committee will be held at a place in Vancouver, British Columbia designated by The YC Syndicate unless otherwise agreed in writing by the parties.

4.05           Notice of a meeting shall not be required if representatives of all the parties are present and unanimously agree upon the agenda.  If the Operator does not comply with section 4.03, any party may call a Management Committee meeting in accordance with section 4.04.

4.06           A quorum for any Management Committee meeting shall be present if the representative or all the representatives of parties totalling over 50 percent in Interest are present.  If a quorum is present at the meeting, the Management Committee shall be competent to exercise all of the authorities, powers and discretions herein bestowed upon it hereunder.  The Management Committee shall not transact any business at a meeting unless a quorum is present at the commencement of the meeting; provided that in such event such meeting will be set over to the same time and place in the immediately following week and at the reconvened meeting, the representative or representatives present shall constitute a quorum.

4.07           The Management Committee shall decide every question submitted to it by a vote with each representative being entitled to cast that number of votes which is equal to its party's Interest percentage.  The Management Committee shall make decisions by Simple Majority.

 

  

  

  

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4.08           The representative and alternate representative of the Operator shall be the chairman and secretary, respectively, of Management Committee meetings.  In the event of an equality of votes on any matter, neither party will have a casting vote.

4.09           The secretary of each Management Committee meeting shall take minutes of that meeting and circulate copies thereof to each representative.

4.10           The Management Committee may make decisions by obtaining the consent in writing of the representatives of all parties.  Any decision so made shall be as valid as a decision made at a duly called and held meeting of the Management Committee.

4.11           Management Committee decisions made in accordance with this Agreement shall be binding upon all of the parties.

4.12           Each party shall bear the expenses incurred by its representatives and alternate representatives in attending meetings of the Management Committee.

4.13           The Management Committee may, by agreement of the representatives of all the parties, establish such other rules of procedure, not inconsistent with this Agreement, as the Management Committee deems fit.

4.14           Reference in this section to the "parties" shall apply during the Exploration Period.  After the date of a Production Notice this section shall be read as if the word "Participant" appeared wherever the word "party" appears.

OPERATOR

5.01           Mill City shall act as Operator until and unless:

	
  

	
(a)

	
its Interest is diluted below 50%, in which event the party then holding the greatest Interest and which has consented thereto shall thereafter act as Operator;

	
  

	
(b)

	
it shall fail during any period of twelve consecutive months (calculated from the date of commencement of the Joint Operation or any anniversary thereof, as the case may be) to propose a Program calling for the expenditure of at least $1,000,000, in which event The YC Syndicate shall, if The YC Syndicate’s Interest is at least 30% at the end of such period, have the right to propose a Program calling for the expenditure of at least $1,000,000 and containing a statement in reasonable detail of the proposed Mining Operations and estimates of all Exploration Costs budgeted to be incurred, and act as Operator in respect of that Program;

and the provisions of subsection 5.01(b) will apply to the operatorship during each subsequent 12 month period, regardless of which party is then Operator.

5.02           The party acting as Operator may resign as Operator on at least 90 days' notice to all the parties, and the Management Committee shall thereupon select another party to be Operator upon the 90th day after receipt of the Operator's notice of resignation.

 

  

  

  

 

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5.03           The new Operator shall assume all of the rights, duties and status of the previous Operator as provided in this Agreement.The new Operator shall have no obligation to hire any of the employees of the former Operator.

5.04           Upon ceasing to be Operator, the former Operator shall forthwith deliver to the person nominated for that purpose by the Management Committee, custody of all Assets, Property, books, records and other property both real and personal relating to this Agreement or the Property.

5.05           If the Operator resigns and no other party consents to act as Operator the Joint Operation shall terminate and the provisions of section 12 shall apply mutatis mutandis.

RIGHTS, DUTIES AND STATUS OF OPERATOR

6.01           The Operator in its operations hereunder shall be deemed to be an independent contractor, and the Operator shall not act or hold itself out as agent for any of the parties nor make any commitments on their individual behalf unless specifically permitted by this Agreement or directed in writing by a party.

6.02           Subject to any specific provision of this Agreement and subject to it having the right to reject any direction on reasonable grounds by virtue of its status as an independent contractor, the Operator shall perform its duties hereunder in accordance with the directions of the Management Committee and in accordance with this Agreement.

6.03           The Operator shall manage and carry out such Mining Operations as are provided for in the Head Agreement and otherwise as the Management Committee may direct, and in connection therewith shall, in advance if reasonably possible, notify the Management Committee of any change in Mining Operations which the Operator considers material, and if it is not reasonably possible, the Operator shall notify the Management Committee so soon thereafter as is reasonably possible.

6.04           The Operator shall have the sole and exclusive right and authority to manage and carry out all Mining Operations and to incur the Costs required for that purpose, and in so doing the Operator shall, unless it obtains the approval of the Management Committee:

	
  

	
(a)

	
comply with the provisions of all agreements or instruments of title under which the Property or Assets are held;

(b)           pay all Costs properly incurred promptly as and when due;

	
  

	
(c)

	
keep the Property and Assets free of all Liens and encumbrances (other than those, if any, in effect on the Operative Date or the creation of which is permitted pursuant to this Agreement or the Head Agreement) arising out of the Mining Operations and, in the event of any Lien being filed as aforesaid, proceed with diligence to contest or discharge the same;

	
  

	
(d)

	
prosecute claims or, where a defence is available, defend litigation arising out of the Mining Operations, provided that any Participant may join in the prosecution or defence at its own expense;

	
  

	
(e)

	
subject to section 20, perform such assessment work or make payments in lieu thereof and pay such rentals, taxes or other payments and do all such other things as may be 

 

  

  

  

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necessary to maintain the Property in good standing, including, without limiting the generality, staking and restaking mining claims, and applying for licenses, leases, grants, concessions, permits, patents and other rights to and interests in the Minerals;

 

	
  

	
(f)

	
maintain accounts in accordance with the Accounting Procedure; provided, that the judgment of the Operator as to matters related to the accounting, for which provision is not made in the Accounting Procedure, shall govern if the Operator's account practices are in accordance with accounting principles generally accepted in the mining industry in Canada; and

	
  

	
(g)

	
perform its duties and obligations hereunder in a sound and workmanlike manner, in accordance with sound mining and engineering practices, and in compliance with all applicable federal, provincial and local laws, by-laws, ordinances, rules and regulations, and this Agreement.

EXPLORATION PROGRAMS / DILUTION OF NON-PARTICIPANTS

7.01           The Operator may, in addition to carrying on Mining Operations on behalf of the parties hereto, prepare draft Programs for consideration by the Management Committee, and all draft Programs shall contain a statement in reasonable detail of the proposed Mining Operations and estimates of all Exploration Costs budgeted to be incurred.

7.02           The Management Committee shall review each Program prepared and, if it deems fit, adopt the Program with such modifications, if any, as the Management Committee deems necessary; and the Operator shall be entitled to an allowance for a Cost overrun of 10 percent in addition to any budgeted Exploration Costs and any Costs so incurred shall be deemed to be included in the Program, as adopted.

7.03           The Operator shall forthwith submit the adopted Program to the parties other than itself, and each party may, within 30 days of receipt of the Program, give notice to the Operator committing to contribute its proportionate share of the Exploration Costs on that Program, and any party which fails to give that notice within the 30 day period shall be deemed to have elected not to contribute.

7.04           If any party is deemed under subsection 7.03 to have elected not to contribute to a Program, the proportion to be contributed by the parties who elected to contribute shall be increased pro rata, subject to the right of any of them to elect not to contribute more than its proportionate share.

7.05           The Operator shall be entitled to invoice each Participant:

	
  

	
(a)

	
no more frequently than monthly, for its proportionate share of Exploration Costs incurred and paid by the Operator; or

	
  

	
(b)

	
reasonably in advance of requirements, for an advance of that Participant's proportionate share of Exploration Costs;

and each invoice shall be signed by some responsible official of the Operator, and each Participant shall pay to the Operator the amount invoiced, within 30 days of receipt of the invoice; and if a Participant protests the correctness of an invoice it shall nevertheless be required to make the payment.

 

  

  

  

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7.06           If any Participant, having elected to contribute to a Program, fails to pay its proportionate share within the 30-day period referred to in subsection 7.05 the Operator may by notice demand payment, and if no payment is made within the period of 30 days next succeeding the receipt of the demand notice, that Participant shall be deemed to have elected not to contribute.

7.07           The Operator shall expend all monies advanced by a Participant rateably with the advance of the other Participants, and if the Operator suspends or prematurely terminates a Program, any funds advanced by a Participant in excess of that Participant's proportionate share of Exploration Costs incurred prior to the suspension or premature termination shall be refunded forthwith.

7.08           If any Program is altered, suspended or terminated prematurely so that the Exploration Costs incurred on that Program as altered, suspended or terminated are less than 80 percent of the Exploration Costs originally proposed, any party which elected not to contribute to that Program shall be given notice of the alteration, suspension or termination by the Operator and shall be entitled to contribute its proportionate share of the Exploration Costs incurred on that Program by payment thereof to the Operator within 30 days after receipt of the notice, and if payment is not made by that party within the 30 days aforesaid, it shall forfeit its right to contribute to that Program without a demand for payment being required to be made thereafter by the Management Committee.

7.09           If a party elects or is deemed to have elected not to contribute to the Exploration Costs of any Program, the Interest of that party shall be decreased and the Interest of each Participant contributing in excess of its proportionate share of the Exploration Costs shall be increased so that, subject to subsection 7.10, at all times the Interest of each party will be that percentage which is equivalent to its Exploration Costs and Prior Exploration Costs and its contributions to Mine Costs expressed as a percentage of the Exploration Costs and Prior Exploration Costs of, and the total of contributions to Mine Costs by, all Parties; and notwithstanding the foregoing the party whose Interest has been reduced shall be entitled to receive details of and to contribute to future Programs to the extent of its then Interest.

7.10           If the effect of the application of subsection 7.09 is to reduce the Interest of any party to less than 10% it shall forfeit its Interest to the Participants (if more than one, then in proportion to their respective Interests), and that party shall have no further right or Interest under this Agreement except for a 1% royalty on production from the Property on the terms of the Royalty (as that term is defined in the Head Agreement) provided for in the Head Agreement. Accordingly, for greater certainty, such royalty on production from the Property shall be 1% of Net Smelter Returns as determined under Schedule 1.01-4 of the Head Agreement.

FEASIBILITY REPORT

8.01           A Feasibility Report (other than any Feasibility Report provided for under the Head Agreement) shall only be prepared with the approval of the Management Committee, and the Operator shall provide copies of each completed Feasibility Report to each of the parties forthwith upon receipt.

8.02           The parties shall meet at reasonable intervals and times to review the Feasibility Reports prepared otherwise than pursuant to the Head Agreement referred to in subsection 8.01 and discuss whether the Mining Operations which are the subject of the applicable Feasibility Report are feasible or desirable.

 

  

  

  

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PRODUCTION NOTICE

9.01           The Operator shall call a Management Committee meeting to consider each Feasibility Report for a date no sooner than six months after the Feasibility Report was provided to each of the parties or such earlier date as the representatives of all parties may agree.

9.02           The Management Committee shall consider each Feasibility Report prepared pursuant to subsection 8.02 and may approve any Feasibility Report, with such modifications, if any, as it considers necessary or desirable, and if such a Feasibility Report is approved as aforesaid the Management Committee shall forthwith cause a Production Notice to be given to each of the parties by the Operator stating that the Management Committee intends to conduct the Mining Operations which are the subject of the Feasibility Report in conformity with the Feasibility Report as so approved.

ELECTION TO CONTRIBUTE / CONVERSION OF NON-PARTICIPANT’S INTEREST

10.01         Each party may, within 60 days of receipt of a Production Notice, give the Operator notice committing to contribute its proportionate share of the Mine Costs.

10.02         If any party fails to give notice pursuant to subsection 10.01 that party shall forfeit the right to contribute to Mine Costs and shall suffer dilution and conversion of its Interest as provided in this subsection.  Those parties which elected to contribute as aforesaid may thereupon elect to increase their contribution to the Mine Costs, if more than one party then in proportion to their respective Interests, by the amount which any party has declined to contribute. If elections are made so that Mine Costs are fully committed:

	
  

	
(a)

	
the Interest of each Participant shall be increased and that of each non-Participant shall be decreased so that the Interest of each party at all times is that percentage which is equivalent to:

	
  

	
(i)

	
the sum of its Exploration Costs, its Prior Exploration Costs and its contribution to Mine Costs, multiplied by 100; divided by:

	
  

	
(ii)

	
the sum of the total Exploration Costs, Prior Exploration Costs and Mine Costs of all the parties;

	
  

	
(b)

	
each non-Participant shall then be deemed to have assigned and conveyed its Interest to the Participants, if more than one then in proportion to their respective Interests, and shall be entitled to receive as its sole remuneration and benefit in consideration of that assignment and conveyance, by way of royalty, that percentage of the Net Proceeds of Production, as and when available, which is equivalent to its Interest (which has been reduced by the application of Paragraph 10.02(a);

	
  

	
(c)

	
each Participant shall severally calculate and cause to be paid to each non-Participant any Net Proceeds of Production derived from the Property in the manner provided in Appendix II; and

	
  

	
(d)

	
notwithstanding the provisions of paragraphs 10.02(b) and (c) if the effect of the application of paragraph 10.02(a) reduces any party's Interest to less than one percent it shall forfeit its Interest to the Participants, if more than one then in proportion to their 

 

  

  

  

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respective Interests, and that party shall have no further right or Interest under this Agreement.

 

10.03         If, after the operation of subsection 10.02, Mine Costs are not fully committed the Production Notice shall be deemed to be withdrawn.

OPERATOR'S FEE

11.01         The Operator may charge the following sums in return for its head office overhead functions which are not charged directly:

 

	
  

	
(a)

	
with respect to Programs: ten percent of all Exploration Costs;

 

	
  

	
(b)

	
with respect to Mine development and Construction: two percent of all Construction Costs;

	
  

	
(c)

	
subsequent to the Completion Date: ten percent of all Operating Costs.

MINE FINANCING

12.01         The contributions of the Participants toward the Mine Costs shall be individually and separately provided by them.

12.02         Any party may pledge, mortgage, charge or otherwise encumber its Interest in order to secure moneys borrowed and used by that party for the sole purpose of enabling it to finance its participation under this Agreement or in order to secure by way of floating charge and as part of the general corporate assets of that party moneys borrowed for its general corporate purposes, provided that the pledgee, mortgagee, holder of the charge or encumbrance (in this subsection called the "Chargee") shall hold the same subject to the provisions of this Agreement and that if the Chargee realizes upon any of its security it will comply with this Agreement. The Agreement between the party hereto, as borrower, and the Chargee shall contain specific provisions to the same effect as the provisions of this paragraph.

CONSTRUCTION

13.01         Subject to subsections 10.02 and 10.03 the Management Committee shall cause the Operator to, and the Operator shall, proceed with Construction with all reasonable dispatch after a Production Notice has been given.  Construction shall be substantially in accordance with the Feasibility Report subject to any variations proposed in the Production Notice, and subject also to the right of the Management Committee to cause such other reasonable variations in Construction to be made as the Management Committee deems advisable.

MINE OPERATION

14.01         Commencing with the Operative Date, all Mining Operations shall be planned and conducted and all estimates, reports and statements shall be prepared and made on the basis of a calendar year (the "Operating Year").

 

  

  

  

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14.02         With the exception of the first Operating Year, a plan (the "Operating Plan") for each Operating Year shall be submitted by the Operator to the Participants not later than September 30 in the year immediately preceding the Operating Year to which the Operating Plan relates. Each Operating Plan shall contain the following:

 

	
  

	
(a)

	
a plan of the proposed Mining operations;

 

	
  

	
(b)

	
a detailed estimate of all Mine Costs plus a reasonable allowance for contingencies;

	
  

	
(c)

	
an estimate of the quantity and quality of the ore to be mned and the concentrates, metal and/or gemstones to be produced; and

	
  

	
(d)

	
such other facts as may be necessary to reasonably illustrate the results intended to be achieved by the Operating Plan.

Upon request of any Participant the Operator shall meet with that Participant to discuss the Operating Plan and shall provide such additional or supplemental information as that Participant may reasonably require with respect thereto.

14.03         The Management Committee shall adopt each Operating Plan, with such changes as it deems necessary, by November 30 in the year immediately preceding the Operating Year to which the Operating Plan relates; provided, however, that the Management Committee may from time to time and any time amend any Operating Plan.

PAYMENT OF MINE COSTS

15.01         Subject to subsection 15.03, the Operator may invoice each Participant, from time to time, for that Participant's proportionate share of Mine Costs incurred to the date of the invoice; or at the beginning of each month for an advance equal to that Participant's proportionate share of the estimated cash disbursements to be made during the month.  Each Participant shall pay its proportionate share of the Mine Costs or the estimated cash disbursements aforesaid to the Operator within 30 days after receipt of the invoice.  If the payment or advance requested is not so made, the amount of the payment or advance shall bear interest calculated monthly not in advance from the 30th day after the date of receipt of the invoice thereof by that Participant at a rate equivalent to the weighted average Prime Rate for the month plus two percent until paid.  The Operator shall have a Lien on each Participant's Interest in order to secure the payment or advance together with interest which has accrued thereon.

15.02         If any Participant fails to pay an invoice contemplated in subsection 15.01 within the 30 day period aforesaid, the Operator may, by notice, demand payment.  If no payment is made within 30 days of the Operator's demand notice, the Operator may, without limiting its other rights at law, including its right, hereby granted, to sell that Participant's proportionate share of ores and concentrates derived from the Minerals produced from the Mine, enforce the Lien created by subsection 15.01 by taking possession of all or any part of that Participant's Interest.  The Operator may sell and dispose of the Interest which it has so taken into its possession by:

	
  

	
(a)

	
first offering that Interest to the other Participants, if more than one then in proportion to the respective Interests of the Participants who wish to accept that offer, for that price which is the fair market value stated in the lowest of two appraisals obtained by the 

 

  

  

  

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Operator from independent well recognized appraisers competent in the appraisal of Mining properties; and

 

	
  

	
(b)

	
if the Participants have not purchased all or part of that Interest as aforesaid, then by selling the balance, if any, either in whole or in part or in separate parcels at public auction or by private tender (the Participants being entitled to bid) at a time and on whatever terms the Operator shall arrange, having first given notice to the defaulting Participant of the time and place of the sale.

As a condition of the sale as contemplated in paragraph 15.02(b), the purchaser shall agree to be bound by this Agreement and, prior to acquiring the Interest, shall deliver notice to that effect to the parties, in form acceptable to the Operator.  The proceeds of the sale shall be applied by the Operator in payment of the amount due from the defaulting Participant and interest as aforesaid, and the balance remaining, if any, shall be paid to the defaulting Participant after deducting reasonable costs of the sale.  Any sale or disposal made as aforesaid shall be a perpetual bar both at law and in equity by the defaulting Participant and its successors and assigns against all other Participants.

15.03         Following Commencement of Commercial Production from the Property, all Minerals produced from the Property will, after payment by the Operator on behalf of all parties of all Costs other than Prior Exploration Costs, be distributed to Mill City until such time as Mill City has received Minerals equal in value to 100% of its Prior Exploration Costs.

DISTRIBUTION IN KIND

16.01         It is expressly intended that the association of the parties hereto shall be limited to the efficient production of Minerals from the Property and that each of the parties shall, subject to subsection 15.03, be entitled to use, dispose of or otherwise deal with its proportionate share of ores, concentrates, metals and gemstones as it sees fit.  Each Participant shall take in kind, f.o.b. truck or railcar at the concentrator, and separately dispose of its proportionate share of the ores, concentrates or metals derived from the Minerals produced from the Mine.  Any extra costs and expenses incurred by reason of the Participants taking in kind and making separate dispositions shall be paid by each Participant directly and not through the Operator or Management Committee.

16.02         Each Participant shall construct, operate and maintain, all at its own cost and expense, any and all facilities which may be necessary to receive and store and dispose of its proportionate share of the Minerals at the rate the same are produced.

16.03         If a Participant has not made the necessary arrangements to take in kind and store its share of production as aforesaid the Operator shall, at the sole cost and risk of that Participant store, in any location where it will not interfere with Mining Operations, the production owned by that Participant.  The Operator and the other parties shall be under no responsibility with respect thereto.  All of the Costs involved in arranging and providing storage shall be billed directly to, and be the sole responsibility of, the Participant whose share of production is so stored.  The Operator's charges for such assistance and any other related matters shall be billed directly to and be the sole responsibility of the Participant.

SURRENDER OF INTEREST

 

  

  

  

 

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17.01         Any party may, at any time upon notice, surrender its entire Interest to the other parties by giving those parties notice of surrender. The notice of surrender shall:

	
  

	
(a)

	
indicate a date for surrender not less than three months after the date on which the notice is given;

(b)           contain an undertaking that the surrendering party will;

	
  

	
(i)

	
satisfy its proportionate share, based on its then Interest, of all obligations and liabilities which arose at any time prior to the date of surrender;

	
  

	
(ii)

	
pay its proportionate share, based on its then Interest, of any Costs of rehabilitating the Mine site and of reclamation as at the date of surrender; and

	
  

	
(iii)

	
will hold in confidence, for a period of two years from date of surrender, all information and data which it acquired pursuant to this Agreement.

17.02         Upon the surrender of its entire Interest as contemplated in subsection 17.01 and upon delivery of a release in writing, in form acceptable to counsel for the Operator, releasing the other parties from all claims and demands hereunder, the surrendering party shall be relieved of all obligations or liabilities hereunder except for those which arose or accrued or were accruing due on or before the date of the surrender.

17.03         A party to whom a notice of surrender has been given as contemplated in subsection 17.01 may elect, by notice within 90 days to the party which first gave the notice to accept the surrender, in which case subsections 17.01 and 17.02 shall apply, or to join in the surrender. If all of the parties join in the surrender the Joint Operation shall be terminated in accordance with section 18.

TERMINATION OF MINING OPERATIONS

18.01         The Operator, at the direction of the Management Committee, may at any time by notice to all the Participants terminate permanently all Mining Operations.

18.02         The Operator shall thereupon remove, sell and dispose of such Assets, other than timbers and structures affixed to the underground workings and the shafts of the Mine, if any, as may be removed and disposed of profitably and such other Assets as the Operator may be required to remove pursuant to applicable environmental and mining laws.  The disposal price shall be the best price obtainable and the net revenues from the sale shall be divided between the Participants in proportion to their respective Interests.

18.03         On termination of Mining Operations the Participants shall pay the Costs of rehabilitating the Mine site and of reclamation as may be required by the applicable environmental and mining laws in proportion to their respective Interests.

THE PROPERTY

19.01         Title to the Property shall be held in the name of the Operator in trust for the parties in proportion to their Interests as adjusted from time to time.  Each of the parties shall have the right to 

 

  

  

  

 

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receive, forthwith upon making demand therefor, from the Operator such documents as it may reasonably require to confirm its Interest.

INFORMATION AND DATA

20.01         At all times during the subsistence of this Agreement the duly authorized representatives of each Participant shall, at its and their sole risk and expense and at reasonable intervals and times, have access to the Property and to all technical records and other factual engineering data and information relating to the Property which is in the possession of the Operator.

20.02         During the Exploration Period while Programs are being carried out the Operator shall furnish the Participants with monthly progress reports and with a final report on conclusion of each Program.  The final report shall show the Mining Operations performed and the results obtained and shall be accompanied by a statement of Costs and copies of pertinent plans, assay maps, diamond drill records and other factual engineering data.  During the Construction Period the Operator shall provide monthly progress reports to the Participants, which reports shall include information on any changes or improvements affecting the Mine that the Operator considers are material.

20.03         All information and data concerning or derived from the Mining Operations shall be kept confidential and, except to the extent required by law, by regulation of any Securities Commission or Stock Exchange, or in connection with the filing of a prospectus or other offering document by any party or any of its Affiliated Corporations, shall not be disclosed to any person other than an Affiliated Corporation without the prior consent of all the Participants, which consent shall not unreasonably be withheld.

20.04         The text of any news releases or other public statements which a party desires to make with respect to the Property shall be made available to the other parties prior to publication and the other parties shall have the right to make suggestions for changes therein.

LIABILITY OF THE OPERATOR

21.01         Subject to subsection 21.02, each party shall indemnify and save the Operator harmless from and against any loss, liability, claim, demand, damage, expense, injury and death (including, without limiting the generality of the foregoing, legal fees) resulting from any acts or omissions of the Operator or its officers, employees or agents.

21.02         Notwithstanding subsection 21.01, the Operator shall not be indemnified nor held harmless by any of the parties for any loss, liability, claim, demand, damage, expense, injury or death (including, without limiting the generality of the foregoing, legal fees) resulting from the negligence or willful misconduct of the Operator or its officers, employees or agents.

21.03         An act or omission of the Operator or its officers, employees or agents done or omitted to be done:

	
  

	
(a)

	
at the direction, or within the scope of the direction, of the Management Committee; or

	
  

	
(b)

	
with the concurrence of the Management Committee; or

 

  

  

  

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(c)

	
unilaterally and in good faith by the Operator to protect life or property;

shall be deemed not to be negligence or willful misconduct.

21.04         The obligation of each of the other parties to indemnify and save the Operator harmless pursuant to subsection 21.01 shall be in proportion to its Interest as at the date that the loss, liability, claim, demand, damage, expense, injury or death occurred or arose.

21.05         The Operator shall not be liable to any other party nor shall any party be liable to the Operator in contract, tort or otherwise for special or consequential damages, including, without limiting the generality of the foregoing, loss of profits or revenues.

22.           INSURANCE

22.01         Commencing on the Operative Date, the Management Committee shall cause the Operator to place and maintain with a reputable insurer or insurers such insurance, if any, as the Management Committee in its discretion deems advisable in order to protect the parties together with such other insurance as any Participant may by notice reasonably request.  The Operator shall, upon the written request of any Participant, provide it with evidence of that insurance.

22.02         Subsection 22.01 shall not preclude any party from placing, for its own account, insurance for greater or other coverage than that placed by the Operator.

RELATIONSHIP OF PARTIES

23.01         The rights, duties, obligations and liabilities of the parties shall be several and not joint nor joint and several, it being the express purpose and intention of the parties that their respective Interests shall be held as tenants in common.

23.02         Nothing herein contained shall be construed as creating a partnership of any kind or as imposing upon any party any partnership duty, obligation or liability to any other party hereto.

23.03         No party shall, except when required by this agreement or by any law, by-law, ordinance, rule, order or regulation, use, suffer or permit to be used, directly or indirectly, the name of any other party for any purpose related to the Property.

PARTITION

24.01         Each of the parties hereto waives, during the term of this Agreement, any right to partition of the Property or the Assets or any part thereof and no party shall seek or be entitled to partition of the Property or the Assets whether by way of physical partition, judicial sale or otherwise during the term of this Agreement.

TAXATION

 

  

  

  

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25.01         All Costs incurred hereunder shall be for the account of the party or parties making or incurring the same, if more than one then in proportion to their respective Interests, and each party on whose behalf any Costs have been incurred shall be entitled to claim all tax benefits, write-offs and deductions with respect thereto.

25.02         The Operator shall prepare and shall file, after approval of the Management Committee, any tax returns or other tax forms required in connection with the Joint Operation.

FORCE MAJEURE

26.01         Notwithstanding anything herein contained to the contrary, if any Participant is prevented from or delayed in performing any obligation under this Agreement and such failure is occasioned by any cause beyond its reasonable control, excluding only lack of finances, then, subject to subsection 26.02, the time for the observance of the condition or performance of the obligation in question shall be extended for a period equivalent to the total period the cause of the prevent or delay persists or remains in effect regardless of the length of such total period.

26.02         Any party hereto claiming suspension of its obligations as aforesaid shall promptly notify the other parties to that effect and shall take all reasonable steps to remove or remedy the cause and effect of the force majeure described in the said notice insofar as it is reasonably able to do so and as soon as possible; provided that the terms of settlement of any labour disturbance or dispute, strike or lockout shall be wholly in the discretion of the party claiming suspension of its obligations by reason thereof; and that party shall not be required to accede to the demands of its opponents in any such labour disturbance or dispute, strike or lockout solely to remedy.

NOTICE

27.01         Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by prepaid registered mail addressed to the party entitled to receive the same, or delivered to such party by hand, or communicated by telecopy or email, at the address for such party specified above, on any business day, in each case directed to the attention of the President.

27.02         The date of receipt of any notice, demand or other communication shall be the date of delivery thereof if delivered, the date of transmission if communicated by telecopy or email, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the fifth day after the same shall have been so mailed except in the case of interruption of postal services for any reason whatever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee.

27.03         Either party may at any time and from time to time notify the other party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change.

WAIVER

 

  

  

  

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28.01         No waiver of any breach of this Agreement shall be binding unless evidenced in writing executed by the party against whom charged. Any waiver shall extend only to the particular breach so waived and shall not limit any rights with respect to any future breach.

AMENDMENTS

29.01         Except for those provisions, if any, of the Head Agreement specifically incorporated herein by reference, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. An amendment or variation of this Agreement shall only be binding upon a party if evidenced in writing executed by that party.

TERM

30.01         Unless earlier terminated by agreement of all parties having an Interest or as a result of one party acquiring a 100 percent Interest, the Joint Operation and this Agreement shall remain in full force and effect for so long as any party has any right, title or interest in the Property.  Termination of the Agreement shall not, however, relieve any party from any obligations theretofore accrued but unsatisfied, nor from its obligations with respect to rehabilitation of the Mine site and reclamation.

TIME OF ESSENCE

31.01         Time is of the essence of this Agreement.

SUCCESSORS AND ASSIGNS

32.01         This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

 

 

  

  

  

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GOVERNING LAW

33.01         This Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein, and the parties hereto irrevocably attorn to the exclusive jurisdiction of the courts of British Columbia, Vancouver Registry.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

THE YUKON CORNELIUS SYNDICATE

By its Manager:

 

___________________________________

William Chornobay

Authorized Signatory

MILL CITY GOLD CORP.

Per:

___________________________________

James R. Brown

Authorized Signatory

  

  

  

 

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APPENDIX I

Attached to and forming part of a Joint Venture Agreement between The Yukon Cornelius Syndicate and Mill City Gold Corp. made as of _________________________.

ACCOUNTING PROCEDURE

INTERPRETATION

1.01           In this Appendix the following words, phrases and expressions shall have the following meanings:

"Agreement" means the Agreement to which this Accounting Procedure is attached as Appendix I.

"Count" means a physical inventory count.

"Employees" means those employees of the Operator who are assigned to and directly engaged in the conduct of Mining Operations, whether on a full-time or part-time basis.

"Employee Benefits" means the Operator's cost of holiday, vacation, sickness disability benefits, field bonuses, paid to and the Operator's cost of established plans for employee's group life insurance, hospitalization, pension, retirement and other customary plans maintained for the benefit of Employees and Personnel, as the case may be, which costs may be charged as a percentage assessment on the salaries and wages of Employees or Personnel, as the case may be, on a basis consistent with the Operator's cost experience.

"Field Offices" means the necessary sub-office or sub-offices in each place where a Program or Construction is being conducted or a Mine is being operated.

"Government Contributions" means the costs or contributions made by the Operator pursuant to assessments imposed by governmental authority which are applicable to the salaries or wages of Employees or Personnel, as the case may be.

"Joint Account" means the books of account maintained by the Operator to record all costs, expenses, credits and other transactions arising out of or in connection with the Mining Operations.

"Material" means the personal property, equipment and supplies acquired or held, at the direction or with the approval of the Management Committee for use in the Mining Operations and, without limiting generality, more particularly "Controllable Material" means such Material which is ordinarily classified as Controllable Material, as that classification is determined or approved by the Management Committee, and controlled in mining operations.

"Personnel" means those management, supervisory, administrative, clerical and other personnel of the Operator normally associated with the Supervision Offices whose salaries and wages are charged directly to the Supervision Office in question.

 

  

  

  

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"Reasonable Expenses" means the reasonable expenses of Employees or Personnel, as the case may be, for which those Employees or Personnel may be reimbursed under the Operator's usual expense account practice; including, without limiting generality, any relocation expenses necessarily incurred in order to properly staff the Mining Operations if the relocation is approved by the Management Committee.

"Supervision Offices" means the Operator's offices or departments within the Operator's offices from which the Mining Operations are generally supervised.

STATEMENTS AND BILLINGS

2.01           The Operator shall, by invoice, charge each Participant with its proportionate share of Exploration Costs and Mine Costs in the manner provided in sections 7 and 15 of the Agreement respectively.

2.02           The Operator shall deliver, with each invoice rendered for Costs incurred a statement indicating:

	
  

	
(a)

	
all charges or credits to the Joint Account relating to Controllable Material in detail; and

	
  

	
(b)

	
all other charges and credits to the Joint Account summarized by appropriate classifications indicative of the nature of the charges and credits.

2.03           The Operator shall deliver with each invoice for an advance of Costs a statement indicating:

	
  

	
(a)

	
the estimated Exploration Costs or, in the case of Mine Costs, the estimated cash disbursements, to be made during the next succeeding month;

	
  

	
(b)

	
the addition thereto or subtraction therefrom, as the case may be, made in respect of Exploration Costs or Mine Costs actually having been incurred in an amount greater or lesser than the advance which was made by each Participant for the penultimate month preceding the month of the invoice; and

	
  

	
(c)

	
the advance made by each Participant to date and the Exploration Costs or Mine Costs incurred to the end of the penultimate month preceding the month of the invoice.

DIRECT CHARGES

3.01           The Operator shall charge the Joint Account with the following items:

(a)           Contractor's Charges:

	
  

	
(i)

	
All proper costs relative to the Mining Operations incurred under contracts entered into by the Operator with third parties.

(b)           Labour Charges:

	
  

	
(i)

	
The salaries and wages of Employees in an amount calculated by taking the full salary or wage of each Employee multiplied by that fraction which has as its numerator the total time for the month that the Employees were directly engaged 

 

  

  

  

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in the conduct of Mining Operations and as its denominator the total normal working time for the month of the Employee;

 

	
  

	
(ii)

	
the Reasonable Expenses of the Employees; and

	
  

	
(iii)

	
Employee Benefits and Government Contributions in respect of the Employees in an amount proportionate to the charge made to the Joint Account in respect to their salaries and wages.

(c)           Office Maintenance:

	
  

	
(i)

	
The cost or a pro rata portion of the cost, as the case may be, of maintaining and operating the Offices.  The basis for charging the Joint Account for Office maintenance costs shall be as follows:

	
  

	
(A)

	
the expense of maintaining and operating Field Offices, less any revenue therefrom; and

	
  

	
(B)

	
that portion of maintaining and operating the Supervision Offices which is equal to:

	
  

	
(1)

	
the anticipated total operating expenses of the Supervision Offices divided by:

	
  

	
(2)

	
the anticipated total staff man days for the Employees whether in connection with the Mining Operations or not;

multiplied by:

	
  

	
(3)

	
the actual total time spent on the Mining Operations by the Employee expressed in days.

	
  

	
(ii)

	
Without limiting generality, the anticipated total operating expenses of the Supervision Offices shall include:

	
  

	
(A)

	
the salaries and wages of the Operator's Personnel which have been directly charged to those Offices;

	
  

	
(B)

	
the Reasonable Expense of the Personnel; and

	
  

	
(C)

	
Employee Benefits and Government Contributions in respect of the Personnel.

	
  

	
(iii)

	
The Operator shall make an adjustment in respect of the Office Maintenance cost forthwith after the end of each Operating Year upon having determined the actual operating expenses and actual total staff man days referred to in clause 3.01(c)(i)(B) of this Appendix I.

(d)           Material:

 

  

  

  

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Material purchased or furnished by the Operator for use on a Property as provided under section 6 of this Appendix I.

(e)           Transportation Charges:

	
  

	
The cost of transporting Employees and Material necessary for the Mining Operations.

(f)           Service Charges:

	
  

	
(i)

	
The cost of services and utilities procured from outside sources other than services covered by paragraph 3.01(i). The cost of consultant services shall not be charged to the Joint Account unless the retaining of the consultant is approved in advance by the Management Committee; and

	
  

	
(ii)

	
Use and service of equipment and facilities furnished by the Operator as provided in subsection 4.05 of this Appendix I.

(g)           Damages and Losses to Joint Property:

	
  

	
All costs necessary for the repair or replacement of Assets made necessary because of damages or losses incurred by fire, flood, storm, theft, accident or other cause. The Operator shall furnish each Participant with written particulars of the damages or losses incurred as soon as practicable after the damage or loss has been discovered. The proceeds, if any, received on claims against any policies of insurance in respect of those damages or losses shall be credited to the Joint Account.

(h)           Legal Expense:

	
  

	
All costs of handling, investigation and settling litigation or recovering the Assets, including, without limiting generality, attorney's fees, court costs, costs of investigation or procuring evidence and amounts paid in settlement or satisfaction of any litigation or claims; provided, however, that, unless otherwise approved in advance by the Management Committee, no charge shall be made for the services of the Operator's legal staff or the fees and expenses of outside solicitors.

(i)           Taxes:

	
  

	
All taxes, duties or assessments of every kind and nature (except income taxes) assessed or levied upon or in connection with a Property, the Mining Operations thereon, or the production therefrom, which have been paid by the Operator for the benefit of the parties.

(j)           Insurance:

Net premiums paid for:

	
  

	
(i)

	
such policies of insurance on or in Operations as may be required to be carried by law; and

 

  

  

  

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(ii)

	
such other policies of insurance as the Operator may carry for the accordance with the Agreement; and

the applicable deductibles in event of an insured loss.

(k)           Rentals:

	
  

	
Fees, rentals and other similar charges required to be paid for acquiring, recording and maintaining permits, mineral claims and mining leases and rentals and of the Mining Operations.

(l)           Permits:

	
  

	
Permit costs, fees and other similar charges which are assessed by various governmental agencies.

(m)           Other Expenditures:

	
  

	
Such other costs and expenses which are not covered or dealt with in the foregoing provisions of this subsection 3.01 of this Appendix I as are incurred with the approval of the Management Committee for Mining Operations or as may be contemplated in the Agreement.

PURCHASE OF MATERIAL

4.01           Subject to subsection 4.04 of this Appendix I the Operator shall purchase all Materials and Operations.

4.02           Materials purchased and services procured by the Operator directly for the Mining Operations shall be charged to the Joint Account at the price paid by the Operator less all discounts actually received.

4.03           So far as it is reasonably practical and consistent with efficient and economical operations, the Operator shall purchase, furnish to otherwise acquire only such Material and the Operator shall attempt to minimize the accumulation of surplus stocks of Material.

4.04           Any Participant may sell Material or services required in the Mining Operations to the Operator for such price and upon such terms and conditions as the Management Committee may approve.

4.05           Notwithstanding the foregoing provisions of this section 4, the Operator shall be entitled to supply for use in connection with the Mining Operations equipment and facilities which are owned by the Operator and to charge the Joint Account with such reasonable Costs which is commensurate with the ownership and use thereof.

  

  

  

 

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DISPOSAL OF MATERIAL

5.01           The Operator, with the approval of the Management Committee, may, from time to time, sell any Material which has become surplus to the forseeable needs of the Mining Operations terms and conditions available.

5.02           Any Participant may purchase from the Operator any Material which may from time to time become surplus to the forseeable needs of the Mining Operations for such price and upon such terms and conditions as the Management Committee may approve.

5.03           Upon termination of the Agreement, the Management Committee may approve the division of any Material held by the Operator at that date may be between the Participants in kind or be taken by a Participant in lieu of a portion of its proportionate share of the net revenues received from the disposal of the Assets and Property. If the division to a Participant be in lieu, it shall be for such price and on such terms and conditions as the Management Committee may approve.

5.04           The net revenues received from the sale of any Material to third parties or to a Participant shall be credited to the Joint Account.

INVENTORIES

6.01           The Operator shall maintain records of Material in reasonable detail and records of Controllable Material in detail.

6.02           The Operator shall perform Counts from time to time at reasonable intervals and in connection therewith shall give notice of its intention to perform a Count to each Participant at least 30 days in advance of the date set for performing of the Count. Each Participant shall be entitled to be represented at the performing of a Count upon giving notice thereof to the Operator within 20 days of the Operator's notice. A Participant who is not represented at the performing of the Count shall be deemed to have approved the Count as taken.

6.03           Forthwith after performing a Count, the Operator shall reconcile the inventory with the Joint Account and provide each Participant with a statement listing the overages and shortages. The Operator shall not be held accountable for any shortages of inventory except such shortages as may have arisen due to a lack of diligence on the part of the Operator.

ADJUSTMENTS

7.01           Payment of any invoice by a Participant shall not prejudice the right of that Participant to protest the correctness of the statement supporting the payment; provided, however, that all invoices and statements presented to each Participant by the Operator during any Operating Year shall conclusively be presumed to be true and correct upon the expiration of 12 months following the end of the Operating Year to which the invoice or statement relates, unless within that 12 month period that Participant gives notice to the Operator making claim on the Operator for an adjustment to the invoice or statement.

7.02           The Operator shall not adjust any invoice or statement in favour of itself after the expiration of 12 months following the end of the Operating Year to which the invoice or statement relates.

 

  

  

  

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7.03           Notwithstanding subsections 7.01 and 7.02 of this Appendix I, the Operator may make adjustments to an invoice or statement which arises out of a physical inventory of Material or Assets.

7.04           A Participant shall be entitled upon notice to the Operator to examine the accounting records and books maintained by the Operator in respect of the Joint Operations and to request that the independent external auditors of the Operator provide that Participant with their opinion that any invoice or statement delivered pursuant to the Agreement in respect of the period referred to in subsection 7.01 of this Appendix I has been prepared in accordance with this Agreement.

7.05           The time required for giving the audit opinion contemplated in subsection 7.04 of this Appendix I shall not extent the time for the taking of exception to and making claim on the Operator for adjustment as provided in subsection 7.01 of this Appendix I.

7.06           The cost of the auditors opinion referred to in subsection 7.04 of this Appendix I shall be solely for the account of the Participant requesting the auditor's opinion, unless the audit disclosed a material error adverse to that Participant, in which case the cost shall be solely for the account of the Operator.

  

  

  

 

APPENDIX II

Attached to and forming part of a Joint Venture Agreement between The Yukon Cornelius Syndicate and Mill City Gold Corp. made as of _________________________.

NET PROCEEDS OF PRODUCTION

OBLIGATION

1.01           If any non-Participant becomes entitled to a royalty pursuant to paragraph 10.02(b) of the Agreement, each Participant shall separately calculate, as at the end of each calendar quarter subsequent to the Completion Date, the Net Proceeds of Production.

1.02           Each Participant shall within 60 days of the end of each calendar quarter, as and when any Net Proceeds of Production are available for distribution:

	
  

	
(a)

	
severally pay or cause to be paid to each non-Participant that percentage of the Net Proceeds of Production to which that non-Participant is entitled under paragraph 10.02(b) of the Agreement;

	
  

	
(b)

	
deliver to each non-Participant a statement indicating:

	
  

	
(i)

	
the Gross Receipts during the calendar quarter;

	
  

	
(ii)

	
the deductions therefrom made in the order itemized in subsection 3.01 of this Appendix II;

	
  

	
(iii)

	
the amount of Net Proceeds of Production remaining; and

	
  

	
(iv)

	
the amount of those Net Proceeds of Production to which that non-Participant is entitled;

	
  

	
provided, however, that, until such time as there are Net Proceeds of Production available, each Participant shall deliver to each non-Participant, within 60 days of the end of each calendar quarter commencing with the first calendar quarter following the Completion Date, a statement indicating the Gross Receipts during the calendar quarter less the deductions therefrom made in the order itemized in subsection 3.01 of this Appendix II.

1.03           Nothing contained in the Agreement or this Appendix shall be construed as:

	
  

	
(a)

	
imposing on a Participant any obligation with respect to the payments of royalty due hereunder to a non-Participant from any other Participant; or

	
  

	
(b)

	
conferring on any non-Participant any right to or interest in any Property or Assets except the right to receive royalty payments from each Participant as and when due.

 

  

  

  

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1.04           The Participants agree that on request of any non-Participant they will execute and deliver such documents as may be necessary to permit that non-Participant to record its royalty right against the Property.

DEFINITIONS

2.01           In addition to the definitions of the classes of Costs provided in paragraph 1.01(g) of the Agreement and without limiting the generality thereof:

 

	
  

	
(a)

	
"Distribution Costs" means all Costs of:

	
  

	
(i)

	
transporting ore, concentrate or gemstones from a Mine or a concentrating plant to a smelter or other place of delivery designated by the purchaser;

	
  

	
(ii)

	
handling, warehousing and insuring the concentrates, metal and gemstones;

	
  

	
(iii)

	
in the case of concentrates tolled, of smelting and refining, including any penalties thereon or in connection therewith; and

	
  

	
(iv)

	
in the case of gemstones, of any cutting and polishing.

	
  

	
(b)

	
"Interest Costs" means interest computed quarterly and not in advance calculated as follows:

	
  

	
the average of the opening and closing monthly outstanding balance for each month during the quarter of the net unrecovered amounts of all Costs in the classes enumerated in subparagraphs 1.01(g)(i), (ii) (iv) and (v) of the Agreement, and in paragraphs 2.01(a), (b), (c) and (d) of this Appendix II; multiplied by, (ii) the Prime Rate plus two percent; multiplied by, (iii) the number of days in the quarter; divided by, (iv) the number of days in the Year;

	
  

	
(c)

	
"Marketing Costs" means such reasonable charge for marketing of ore, concentrate or gemstones sold or of concentrates tolled as is consistent with generally accepted marketing practices; and

	
  

	
(d)

	
"Taxes and Royalties" means all taxes (other than income taxes), royalties or other charges or imposts provided for pursuant to any law or legal obligation imposed by any government if paid by the Participant.

2.02           Wherever used in this Appendix II, "Gross Receipts" means the aggregate of all receipts, recoveries or amounts received by or credited to a Participant in connection with its participation under the Agreement including, without limiting the generality of the foregoing:

	
  

	
(a)

	
the receipts from the sale of that Participant's proportionate share of the ore, concentrate or gemstones from the Mine together with interest on those receipts calculated as follows:

	
  

	
(i)

	
the aggregate of the cumulative daily receipts for each day of the quarter; divided by,

 

  

  

  

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(ii)

	
the number of days in the quarter; multiplied by,

	
  

	
(iii)

	
the Prime Rate; multiplied by,

	
  

	
(iv)

	
the number of days in the quarter;

	
  

	
divided by,

	
  

	
(v)

	
the number of days in the Year;

	
  

	
(b)

	
all proceeds received from the sale of the Property or Assets subsequent to the Operative Date;

	
  

	
(c)

	
all insurance recoveries (including amounts received to settle claims) in respect of loss of, or damage to any portion of the Property or Assets subsequent to the Operative Date;

	
  

	
(d)

	
all amounts received as compensation for the expropriation or forceable taking of any portion of the Property or Assets subsequent to the Operative Date;

	
  

	
(e)

	
the fair market value, at the Property, of those Assets, if any, purchased for the Joint Account, that are transferred from the Property for use by a Participant elsewhere subsequent to the Operative Date; and

	
  

	
(f)

	
the amount of any negative balance remaining after the reallocation of negative balances pursuant to subsection 3.03 of this Appendix II;

to the extent that those receipts, recoveries or amounts have not been applied by the Participant as a recovery of any of the classes of Costs itemized in subsection 3.01 of this Appendix II.

NET PROCEEDS OF PRODUCTION

3.01           "Net Proceeds of Production" means the Gross Receipts minus deductions therefrom, to the extent of but not exceeding the amount of those Gross Receipts, of the then net unrecovered amounts of the following classes of Costs made in the following itemized order:

(a)           Marketing Costs;

(b)           Distribution Costs;

(c)           Operating Costs;

(d)           Taxes and Royalties;

(e)           Interest Costs;

(f)           Capital Costs;

(g)           Exploration Costs; and

 

  

  

  

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(h)           Prior Exploration Costs;

it being understood that the deductions in respect of the Costs referred to in paragraphs 3.01(a), (b), (d) and (e) of this Appendix II shall be based on those Costs as recorded by that Participant and the deductions in respect of the Costs referred to in paragraphs 3.01(e), (f), (g) and (h) of this Appendix II shall be based on that Participant's proportionate share of those Costs as recorded by the Operator.

3.02           For greater certainty, in calculating Net Proceeds of Production at any time, each of the classes of Costs shall constitute a separate pool from which all Costs deducted on any previous quarterly calculation shall be removed and to which, in the case of all classes of Costs, excepting Prior Exploration Costs, Costs of those classes recorded since the Operative Date (in the case of the first quarterly calculation) or since the date of the last quarterly calculation (in the case of any calculation subsequent to the first quarterly calculation) shall be added.

3.03           If the application of credits to a pool of Costs results in a negative balance in that pool of Costs, the amount of any negative balance from a Cost pool shall be applied to reduce the balance then remaining in pools itemized in subsection 3.01 of this Appendix II in the order itemized.

ADJUSTMENTS AND VERIFICATION

4.01           Payment of any Net Proceeds of Production by a Participant shall not prejudice the right of that Participant to protest the correctness of the statement supporting the payment; provided, however, that all statements presented to the non-Participant by that Participant for any quarter shall conclusively be presumed to be true and correct upon the expiration of 12 months following the end of the quarter to which the statement relates, unless within that 12 month period that Participant gives notice to the non-Participant making claim on the non-Participant for an adjustment to the statement which will be reflected in subsequent payment of Net Proceeds of Production.

4.02           The Participant shall not adjust any statement in favour of itself after the expiration of 12 months following the end of the quarter to which the statement relates.

4.03           The non-Participant shall be entitled upon notice to any Participant to request from any Participant that the auditors of that Participant provide the non-Participant with their opinion that any statement delivered pursuant to subsection 1.01 of this Appendix II in respect of any quarterly period falling with the 12 month period immediately preceding the date of the non-Participant's notice has been prepared in accordance with this Agreement.

4.04           The time required for giving the audit opinion contemplated in subsection 4.03 of this Appendix II shall not extend the time for the taking of exception to and making claim on the non-Participant for adjustment as provided in subsection 4.01 of this Appendix II.

4.05           The cost of the auditors opinion referred to in subsection 4.03 of this Appendix II shall be solely for the account of the non-Participant requesting the auditors' opinion.

  

  

  

 

SCHEDULE 1.01-3

Attached to and forming part of an Option Agreement made as of November ___, 2010 between The Yukon Cornelius Syndicate and Mill City Gold Corp.

MEMBERS AND MEMBERSHIP INTERESTS

	
Name and Mailing Address

	
Interest in Syndicate Assets

	
16406 YUKON INC.

Bag 7080

Dawson City, Yukon Territory

Y0B 1G0

	
20.0%

	
0865381 B.C. LTD.

1640 Spray Avenue

Coquitlam, British Columbia

V3J 5Y6

	
5.0%

	 
BRUCE DURHAM

907 – 251 Quay West

Toronto, Ontario

M5J 2N6

	7.5% 
	
GOLDPLAY INVESTMENTS INC.

1585 Springfield Road

Kelowna, British Columbia

V1Y 5V5

	
10%

	 
1511558 ALBERTA INC.

2735 Brecken Road NW

Calgary, Alberta

T2L 1H4

	7.5% 
	
0760180 B.C. LTD.

#303 – 10090 – 152nd Street

Langley, British Columbia

V3R 8X8

	
5.0%

	
0739796 BC LTD.

PO Box 759

Fort Langley, British Columbia

V1M 2S2

	
10.0%

	
517769 B.C. LTD.

PO Box 759

Fort Langley, British Columbia

V1M 2S2

	
10.0%

	
TERRENCE E. KING LAW CORPORATION

1300 - 1111 West Georgia Street

Vancouver, British Columbia

V6E 4M3

	
5.0%

	
2258501 ONTARIO INC.

2500 – 130 King Street West

Toronto, Ontario

M5X 1A9

	
20.0%

  

  

  

 

SCHEDULE 1.01-4

Attached to and forming part of an Option Agreement made as of November   8  , 2010 between The Yukon Cornelius Syndicate and Mill City Gold Corp.

 

CALCULATION AND PAYMENT OF ROYALTY

1.           In this Schedule the following words and phrases shall have the following meanings and other capitalized words and phrases have the meanings assigned to them in the agreement to which this Schedule is attached:

“Commercial Production” means the commercial exploitation of Ore but does not include milling for the purpose of testing or milling or leaching by a pilot plant or during an initial tune up period of the plant. Commercial Production with respect to the Property shall be deemed to have commenced on the first day of the month following the first period of 30 consecutive days during which Ore from the Property have been processed through the plant at an average rate of not less than 85% of the initial rated capacity of the plant as set forth in the Positive Feasibility Report;

"Net Smelter Returns" with respect to the Claims means the gross proceeds actually received by the Optionee in any year from the sale of Product from the mining operation on the Claims, less successively:

	
  

	
(a)

	
smelting costs, treatment charges and penalties, including, but not limited to, metal losses, penalties for impurities and charges for refining, selling and handling by the smelter, refinery or other purchaser; provided that in the case of leaching operations or other solution mining techniques, where the metal being treated is precipitated or otherwise directly derived from such leach solution, all processing and recovery costs incurred beyond the point at which the metal being treated is in solution shall be considered as treatment charges;

	
  

	
(b)

	
costs of handling, transporting and insuring Product, whether situated on or off the Property, to a smelter, refinery or other place of treatment, and sampling and assaying procedures carried out after Product has left the Property; and

	
  

	
(c)

	
government royalties and other government charges and imposts, and ad valorem taxes and taxes based upon production, but not income taxes;

"Ore" means any material containing a mineral of commercial economic value mined from the Claims;

"Product" means Ore mined from the Claims and any concentrates or other materials or products derived therefrom; provided that if any such Ore, concentrates or other materials or products are further treated as part of the mining operation in respect of the Claims, such Ore, concentrates or other materials or products shall not be considered to be "Product" until after they have been so treated.

 

  

  

  

-2-

 

2.           The Optionee shall give notice to the Optionor of the date on which Ore is first mined.  For clarity, pilot plant operations and the mining or milling of Ore in connection therewith shall not be considered Commercial Production.

3.           The amount of Royalty payable to the Optionor, namely 3.0% of Net Smelter Returns, shall be calculated by the Optionee at the end of such quarter and shall be paid to the Optionor on or before the last day of the next following quarter.  Any adjustments in the payment of Royalties hereunder arising out of an audit referred to in paragraph 9 hereof shall be made and paid at that time.

4.           For the purposes of calculating the amount of any Royalty payable to the Optionor, if after the date of commencement of Commercial Production from the mining operation on the Claims the Optionee sells any Product to one of its subsidiaries or affiliates, and if the sale price of such Product is not negotiated on an arm's length basis, the Optionee shall for the purposes of calculating Net Smelter Returns only and notwithstanding the actual amount of such sale price, add to the proceeds from the sale of such Product an amount which would be sufficient to make such sale price represent a reasonable net sale price for such Product as if negotiated at arm's length and after taking into account all pertinent circumstances (including, without limitation, then current market conditions relating to Ore, concentrates or other materials or products similar to such Product).

5.           The Optionee shall by notice inform the Optionor of the quantum of such reasonable net sale price and if the Optionor does not object thereto within 60 days after receipt of such notice, said quantum shall be final and binding for the purposes of this paragraph.

6.           On or before the last day of each quarter of each year after the date of commencement of Commercial Production, the Optionee shall deliver to the Optionor a statement indicating in reasonable detail, as of the last day of the immediately preceding quarter, the calculation of Net Smelter Returns and the aggregate Royalty payable for such quarter.

7.           The Optionee may remove reasonable quantities of Ore and rock from the Claims for the purpose of bulk sampling and of testing, and there shall be no Royalty payable to the Optionor with respect thereto unless significant profits are derived therefrom.

8.           The Optionee agrees to maintain for each Mining operation on the Claims up to date and complete records relating to the production and sale of Product including accounts, records, statements and returns relating to treatment and smelting arrangements of the Product, and the Optionor or its agents shall have the right at all reasonable times, including for a period of 12 months following the expiration or termination of this Agreement, to inspect such records, statements and returns and make copies thereof at its own expense for the purpose of verifying the amount of Royalty payments to be made by the Optionee to the Optionor pursuant hereto.  The Optionor shall have the right at its own expense to have such accounts audited by independent auditors once each year.

9.           The Optionee shall have an audited statement prepared by its auditors for each year with respect to the Royalty payable to the Optionor hereunder, by the last day of the sixth month in the following financial year of the Optionee, and the Optionee shall forthwith deliver a copy of such statement to the Optionor.

10.           All Royalty payments shall be considered final and in full satisfaction of all obligations of the Optionee making same in respect thereof if such payments or the calculation in respect thereof are not disputed by the Optionor within 60 days after receipt by the Optionor of the audited statement referred to in paragraph 9 hereof.

 

  

  

  

-3-

 

 

11.           The Optionee shall have the right to commingle with Ores from the Property ore produced from other properties provided that prior to such commingling, the Optionee shall adopt and employ reasonable practices and procedures for weighing, determination of moisture content, sampling and assaying, as well as utilize reasonably accurate recovery factors in order to determine the amounts of Products derived from, or attributable to Ore mined and produced from the Claims.  The Optionee shall maintain accurate records of the results of such sampling, weighing and analysis as pertaining to Ore mined and produced from the Claims.

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