Document:

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THIS STOCK OPTION AGREEMENT made effective as of the 4th day of November 2009.

BETWEEN:

PROGRESSIVE IR CONSULTANTS CORP., a Company carrying on business in the Province of British Columbia, (herein referred to as the “Optionee”)

- and -

ALBERTA STAR DEVELOPMENT CORP., a body corporate duly incorporated under the laws of the Province of Alberta (the "Corporation")

WHEREAS:

1.

The Corporation is incorporated under the laws of the Business Corporations Act (Alberta), having an authorized capital consisting of an unlimited number of Shares (as defined herein) and an unlimited number of preferred shares, all without nominal or par value.

2.

The Optionee is a consultant engaged by the Corporation to perform Investor Relations Activities.

3.

The Board of Directors have agreed to grant unto the Optionee an irrevocable option to purchase an aggregate of 500,000 Shares without par value of its authorized unissued share capital in order to encourage the Optionee to remain associated with the Corporation and to furnish the Optionee with additional incentive to contribute to the advancement of the Corporation pursuant to the stock option plan of the Corporation as approved by the Shareholders of the Corporation on November 7, 2007, as may be amended from time to time (the “Plan”).

4.

The granting of such option to the Optionee was authorized by the Board of the Corporation.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and mutual covenants hereinafter set forth, and for other valuable consideration, the parties hereto have agreed as follows:

ARTICLE 1

DEFINITIONS

1.1

In this Agreement the following terms shall have the following meanings:

(a)

“Agreement”, “herein”, “hereto”, “hereof” and similar expressions means this Agreement, and includes any Agreement amending this Agreement or any Agreement or instrument which is supplemental or ancillary hereof;

(b)

“Board” means the Board of Directors of the Corporation;

(c)

“Corporation” means Alberta Star Development Corp. and any successor or continuing corporation resulting from any form of corporate reorganization;

(d)

“Exchange” means the TSX Venture Exchange, or such other exchange or market on which the Common Shares of the Corporation may be listed for trading from time to time;

(e)

“Expiration Date” means five (5) years from the effective date of this Agreement;

(f)

“Investor Relations Activities” means any activities, by or on behalf of the Corporation, that promote or reasonably could be expected to promote the purchase or sale of securities of the Corporation, but does not include:

(i)

the dissemination of information provided, or records prepared, in the ordinary course of business of the Corporation 

(1)

to promote the sale of products or services of the Corporation, or

(2)

to raise public awareness of the Corporation, that cannot reasonably be considered to promote the purchase or sale of securities of the Corporation;

(ii)

activities or communications necessary to comply with the requirements of 

(1)

applicable securities laws,

(2)

articles, by-laws, policies, circulars, rules, guidelines, orders, notices, rulings, forms, decisions and regulations of the Exchange or the by-laws, rules or other regulatory instruments of any other self regulatory body or exchange having jurisdiction over the Corporation;

(iii)

communications by a publisher of, or writer for, a newspaper, magazine or business or financial publication, that is of general and regular paid circulation, distributed only to subscribers to it for value or to purchasers of it, if 

(1)

the communication is only through the newspaper, magazine or publication, and

(2)

the publisher or writer receives no commission or other consideration other than for acting in the capacity of publisher or writer; or

(iv)

activities or communications that may be otherwise specified by the Exchange;

(g)

“Investor Relations Activities Consultant” means the Optionee;

(h)

“Option Date” in respect of the Share Option means the date of this Agreement;

(i)

“Option Price” means the price per Common Share for each portion of the Share Option set forth in Clause 3.1;

(j)

“Option Shares” means the Shares the Optionee is entitled to purchase under a Share Option; 

(k)

“Shares” means a common share of the Corporation as constituted at the date hereof; and

(l)

“Share Option” means the option to purchase Option Shares granted to the Optionee pursuant to this Agreement, and includes any portion of that option.

1.2

In this Agreement, the masculine gender shall include the feminine gender and the singular shall include the plural and vice versa wherever the context requires.

ARTICLE 2

OPTION PLAN

2.1

The Share Option shall be subject to the Plan, as well as any and all amendments to the Plan. Whenever any provision of this Agreement conflicts with any provision of the Plan, as may be amended from time to time, the provisions of this Plan shall prevail.

ARTICLE 3

SHARE OPTION

3.1

The Corporation hereby grants to the Optionee, subject to the terms and conditions hereinafter set forth, an irrevocable option (previously defined as “Share Option”) to purchase at any time or from time to time after the Option Date and on or before 4:30 p.m., Vancouver time, on the Expiration Date, 500,000 Option Shares at a price of $0.20 per Option Share, subject to the vesting provisions set forth herein.

3.2

Subject to the provisions of the Plan as to early exercise or termination of the Option, the Optionee may, after the Option Date, exercise the Share Option in whole or in part on the following basis, namely:

(a)

on March 4, 2010, the rights to purchase 125,000 Option Shares vest to and in favour of the Optionee and are exercisable thereafter on the terms and conditions set forth herein;

(b)

on June 4 , 2010, the rights to purchase 125,000  Option Shares vest to and in favour of the Optionee and are exercisable thereafter on the terms and conditions set forth herein;

(c)

on September 4, 2010, the rights to purchase 125,000  Option Shares vest to and in favour of the Optionee and are exercisable thereafter on the terms and conditions set forth herein; and

(d)

on December 4, 2010, the rights to purchase 125,000  Option Shares vest to and in favour of the Optionee and are exercisable thereafter on the terms and conditions set forth herein.

provided always that all such Option Shares must be exercised no later than the Expiration Date, and that the Optionee has no right to exercise Option Shares until such vesting dates.

3.3

At 4:30 p.m., Vancouver time, on the Expiration Date, the Share Option shall forthwith expire and terminate and be of no further force or effect whatsoever as to such of the Option Shares in respect of which the Share Option hereby granted has not then been exercised.

3.4

Share Option may only vest during the period in which the Optionee is providing Investor Relations Activities to the Corporation or any of its subsidiaries.

ARTICLE 4

CURRENCY DURING TERM OF EMPLOYMENT

4.1

If subsequent to the Option Date and prior to the Expiration Date, the Optionee’s position as an Investor Relations Activities Consultant to the Corporation and/or the Corporation’s subsidiary is terminated by reason of the death of the Optionee, no further Option Shares will vest, and any vested but unexercised Option Shares may be exercised during the period expiring the earlier of the Expiration Date or one (1) year after such date of death.  In the event of the Optionee’s death, the rights of the Optionee under the Share Option may be exercised by the person or persons to whom the Optionee’s rights under the Share Option shall pass by will or applicable law or, if no such person has such right, by the Optionee’s executors or administrators, subject to the time limitations as aforesaid.  For greater clarity, upon the expiry of such one (1) year period, or the Expiration Date, whichever is earlier, the Share Option shall expire.

4.2

If subsequent to the Option Date and prior to the Expiration Date, the Optionee’s position as an Investor Relations Activities Consultant to the Corporation ceases for any reason other than death, no further Option Shares will vest, and any vested but unexercised Option Shares may be exercised during the period expiring the earlier of the Expiration Date or the thirty (30) day period following the date on which the Optionee’s position ceases.  For greater clarity, upon the expiry of such thirty (30) day period or the Expiration Date, whichever is earlier, the Share Option will expire.

ARTICLE 5

MATERIAL CHANGE

5.1

In the event that, prior to the Expiration Date or exercise in full of the Share Option, the outstanding share capital of the Corporation shall be increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Corporation through re-organization, re-capitalization, re-classification, stock dividend, subdivision or consolidation (collectively, “Capital Transaction”), the number and price of Option Shares remaining subject to the Share Option hereunder shall be increased or reduced accordingly, as the case may be, in order that the number and price of Option Shares remaining shall be the equivalent of the number and price of Option Shares immediately prior to such Capital Transaction.

5.2

If, prior to the Expiration Date or exercise in full of the Share Option granted hereby, the Corporation shall, at any time arrange with or merge into another corporation, the Optionee will thereafter receive, upon the exercise of the Share Option, the securities or properties to which a holder of the number of Common Shares then deliverable upon the exercise of the Share Option would have been entitled upon such arrangement or merger, and the Corporation will take steps in connection with such arrangement or merger as may be necessary to assure that the provisions hereof shall thereafter be applicable, in relation to any securities or property thereafter deliverable upon the exercise of the Share Option granted hereby.  A sale of all or substantially all of the assets of the Corporation for consideration, (apart from the assumption of obligations), consisting primarily of securities shall be deemed to be an arrangement or merger for the foregoing purposes. 

ARTICLE 6

RESERVATION OF SHARES

6.1

The Corporation shall at all times during the term of this Agreement, reserve and keep available a sufficient number of Shares to satisfy the requirements hereof.

ARTICLE 7

RESTRICTION ON ASSIGNMENT

7.1

The Share Option granted hereby is, insofar as the Optionee is concerned, personal and non-assignable and neither this Agreement nor any rights in regard thereto shall be transferable or assignable.  For greater clarity, during the lifetime of the Optionee, any benefits, rights and options may only be exercised by the Optionee.

ARTICLE 8

EXERCISE OF THE SHARE OPTION

8.1

Subject to the vesting provision set forth in the Plan and Clause 3.2, the Share Option may be exercised by the Optionee in accordance with the provisions hereof in whole or in part, from time to time, by delivery of written notice of such exercise and by tendering the full payment therefore in cash or by certified cheque or by bank draft to the Corporation at its head office in the City of Vancouver, in the Province of British Columbia.  Such notice shall state the number of the Option Shares with respect to which the Share Option is then being exercised.  The Share Option shall be deemed for all purposes to have been exercised to the extent stated in such notice upon delivery of the notice and a tender of payment in full, notwithstanding any delay in the issuance and delivery of the certificates for the Common Shares so purchased.

ARTICLE 9

RIGHTS OF THE OPTIONEE PRIOR TO EXERCISE DATE

9.1

The Share Option herein granted shall not entitle the Optionee to any rights whatsoever as a shareholder of the Corporation with respect to any Option Shares subject to the Share Option until the Share Option, or any portion thereof, has been exercised in accordance with Clause 8.1 and Option Shares have been issued as fully paid and non-assessable.

9.2

Until the Share Option, or any portion thereof, has been exercised in accordance with Clause 8.1, the Optionee may elect to surrender unexercised Share Option, all in the manner as more particularly provided for in the Plan.  The Optionee acknowledges that the Corporation may at its sole discretion decline to accept the surrender of the unexercised Share Option, and if any such surrender is not accepted by the Corporation, the Share Option to be surrendered shall become subject to its original terms.

ARTICLE 10

RESALE RESTRICTIONS

10.1

In addition to any resale restrictions under applicable securities law, the Share Option will be subject to a four (4) month hold period from the date of grant of the Share Option and all Share certificates issued upon exercise of the Share Option prior to the expiry of such hold period will be legended with a four (4) month hold period from the date of grant in accordance with the policies of the Exchange.

ARTICLE 11

SUBJECT TO REGULATORY BODIES

11.1

Notwithstanding anything to the contrary in this Agreement, expressed or implied, this Agreement and the option hereby granted shall be subject to the provisions of any regulatory body having jurisdiction in regard to same.  The granting of the option as provided herein, and the exercise of such rights, including but without limitation, the allotment, issuance and delivery of such shares, will be subject to such approval as may be required from time to time from any regulatory body, having jurisdiction in regard to same.  This Agreement may be amended or terminated by the Corporation without the prior consent of the Optionee where necessary to comply with or conform to the requirements or restrictions of such regulatory bodies.

ARTICLE 12

FURTHER ASSURANCES

12.1

The parties hereto covenant that they shall and will from time to time and at all times hereafter do and perform all such acts and things and execute all such additional documents as may be required to give effect to the terms and intention of this Agreement.

12.2

The Optionee certifies that s/he is a resident of British Columbia.

12.3

The Corporation represents and warrants that the Optionee is a bona fide Investor Relations Activities Consultant of the Corporation or a subsidiary of the Corporation.

ARTICLE 13

INTERPRETATION

13.1

It is understood and agreed by the parties hereto that questions may arise as to the interpretation, construction or enforcement of this Agreement and the parties are desirous of having the Board of the Corporation determine any such question of interpretation, construction or enforcement.  It is therefore understood and agreed by and between the parties hereto that any question arising under the terms of this Agreement as to interpretation, construction or enforcement shall be referred to the Board of the Corporation and their majority decision shall be final and binding on both of the parties hereto.

ARTICLE 14

ENTIRE AGREEMENT

14.1

This Agreement supersedes all other agreements, documents, writings and verbal understandings among the parties relating to the subject matter hereof and represents the entire agreement between the parties relating to the subject matter hereof.

ARTICLE 15

GOVERNING LAW

15.1

This Agreement shall be construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.

ARTICLE 16

ENUREMENT

16.1

Subject to the other provisions hereof, this Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.

ARTICLE 17

CHANGE OF CONTROL

17.1

This Agreement shall continue to constitute a binding obligation of the Corporation notwithstanding any change of control of the Corporation’s voting securities during the term of this Agreement.

ARTICLE 18

AMENDMENT

18.1

Unless disinterested shareholder approval is obtained in advance, the Corporation shall not amend this Agreement to reduce the Option Price of the Option Shares if the Optionee is an insider (as defined in the Securities Act (Alberta) of the Corporation.

ARTICLE 19

GENERAL

19.1

All references herein to dollar amounts shall refer to Canadian currency.

ARTICLE 20

PERSONAL INFORMATION

20.1

The Optionee hereby acknowledges, agrees and consents to the collection, use and disclosure by the Corporation to applicable regulatory authorities of any information (“Personal Information”) about the Optionee, as may be required by applicable regulatory authorities, including, but not limited to, the following:

(a)

the name, address (including residential address), and contact information (including phone and fax numbers and e-mail address) of the Optionee and if, applicable, any beneficial owners of the Option shares;

(b)

any other information provided by the Optionee to the Corporation pursuant to this Agreement;

(c)

any information required to be provided to the Exchange pursuant to the Exchange’s Form 4G - Summary Form - Incentive Stock Options; 

(d)

any information required to be provided to the Canada Revenue Agency; and

(e)

any information required to be provided to all applicable regulatory authorities.

20.2

The Optionee hereby acknowledges, agrees and consents to the collection, use and disclosure by the Corporation of the Personal Information to the (a) Exchange and any other stock exchange or securities regulatory authorities, (b) the Corporation’s registrar and transfer agent, (c) Canada Revenue Agency, and (d) any of the other parties involved in the granting of Option Shares.  

20.3

The Optionee hereby acknowledges, agrees and consents to the collection, use and disclosure of the Personal Information by the Exchange for the purposes described in Schedule “A” attached hereto.

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

				
	 
	 
	PROGRESSIVE IR CONSULTANTS CORP.

	 
	 
	 

	 
	 
	 
	 

	 
	 
	Per:

	 

	 
	 
	 
	Andrew Mugridge, President

				
	 
	 
	 

	 
	 
	ALBERTA STAR DEVELOPMENT CORP.

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	Per:

	 

	 
	 
	 
	Tim Coupland

	 
	 
	 
	President

C:\Documents and Settings\The CFO\Local Settings\Temporary Internet Files\Content.Outlook\D6ZAFCN2\CAL01-665150-v2-Stock_Option_Agreement_-_Progressive_IR_Consultants_Corp Master.DOC

-2-

SCHEDULE “A”

TSX Venture Exchange Inc. and its affiliates, authorized agents, subsidiaries and divisions, including the TSX Venture Exchange (collectively referred to as “the Exchange”) collect Personal Information in certain Forms that are submitted by the individual and/or by an Issuer or Applicant and use it for the following purposes:

·

to conduct background checks, 

·

to verify the Personal Information that has been provided about each individual, 

·

to consider the suitability of the individual to act as an officer, director, insider, promoter, investor relations provider or, as applicable, an employee or consultant, of the Issuer or Applicant,

·

to consider the eligibility of the Issuer or Applicant to list on the Exchange,

·

to provide disclosure to market participants as to the security holdings of directors, officers, other insiders and promoters of the Issuer, or its associates or affiliates,

·

to conduct enforcement proceedings, and 

·

to perform other investigations as required by and to ensure compliance with all applicable rules, policies, rulings and regulations of the Exchange, securities legislation and other legal and regulatory requirements governing the conduct and protection of the public markets in Canada.

As part of this process, the Exchange also collects additional Personal Information from other sources, including but not limited to, securities regulatory authorities in Canada or elsewhere, investigative, law enforcement or self-regulatory organizations, regulations services providers and each of their subsidiaries, affiliates, regulators and authorized agents, to ensure that the purposes set out above can be accomplished. 

The Personal Information the Exchange collects may also be disclosed:

(a)

to the agencies and organizations in the preceding paragraph, or as otherwise permitted or required by law, and they may use it in their own investigations for the purposes described above; and

(b)

on the Exchange’s website or through printed materials published by or pursuant to the directions of the Exchange.

The Exchange may from time to time use third parties to process information and/or provide other administrative services.  In this regard, the Exchange may share the information with such third party service providers.

OPTION EXERCISE FORM

		
	TO:

	Alberta Star Development Corp.

506 - 675 West Hastings Street

Vancouver, British Columbia V6B 1N2

Attention:  President

The undersigned Optionee hereby exercises the right to purchase and subscribe for the Option Shares at the Option Price as set forth below and payment for which is submitted with this Exercise Form.

		
	TOTAL OPTION SHARES EXERCISED:

	 

	 
	 

	TOTAL OPTION PRICE:

	$

Please make certified cheque payable to “Alberta Star Development Corp.”

The undersigned hereby directs that the Common Shares hereby acquired by this Exercise Form be issued and delivered as follows:

				
	NAME IN FULL:

	 

	ADDRESS IN FULL:

	 

	NUMBER OF SHARES:

	 

	DATED:

	 

	 
	 

	Signature of Optionee

	 

C:\Documents and Settings\The CFO\Local Settings\Temporary Internet Files\Content.Outlook\D6ZAFCN2\CAL01-665150-v2-Stock_Option_Agreement_-_Progressive_IR_Consultants_Corp Master.DOCWHEATON RIVER MINERALS LTD

KOOTENAY GOLD INC.

 Suite 960 – 1055 West Hastings Street,

Vancouver, British Columbia, Canada, V6E 2E9

March 5, 2010

Alberta Star Development Corp.

506 - 675 Hastings Street West

Vancouver, BC, V6B 1N2

Attention:

Tim Coupland, President

Dear Sirs:

Re:

Joint Bid for Sterling Mining Company

This letter is to confirm our mutual intentions to make a joint bid for Sterling Mining Company (“Sterling”) which commenced a voluntary reorganization proceeding with the filing of a voluntary petition under Chapter 11 (“the “Reorganization Plan”) of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Idaho (the “Court”).  Sterling is the lessee under a 15 year lease agreement (the “Lease”) with Sunshine Precious Metals, Inc. for real property, mineral rights, improvements and related assets generally know as the Sunshine Mine and Mill in Shoshone County, Idaho (the “Sunshine Mine” ).  

Sterling’s Reorganization Plan contemplates a sale of all of 100% of its common stock and transfer of ownership by way of a bidding procedure (the “Bid Procedure”) by potential bidders with the proceeds from a successful Bid being used to pay secured and unsecured creditors and the expenses of the Reorganization Plan.  It is through the Bid Procedure, which must be approved by the Court, that Sterling and the Court will determine the highest, best offer for 100% of the common stock of Sterling.  As a condition to making a bid, a potential bidder, among other things, is required to enter into a confidentiality agreement and make a deposit in the amount of $1,250,000 to Sterling by the bid deadline in order to be a qualified bidder and submit a cash offer for 100% of the common stock of Sterling. Sterling will then conduct an auction of its common stock on April 6, 2010 under the bidding procedure described in the Reorganization Plan.  

Alberta Star has submitted its deposit with Sterling and has become a qualified bidder under the Bid Procedure.  Kootenay and Alberta Star have agreed to cooperate to conduct a joint bid for 100% of the common stock of Sterling under the Bid Procedure and if successful to participate as joint venture partners in the future management and operations of Sterling and the Sunshine Mine under the terms of this letter agreement.  It is contemplated that if the bid from Alberta Star and Kootenay is successful, that this letter agreement will be replaced by a definitive agreement which will contain the terms described herein and such other terms as would be customary in joint venture agreements of this nature.

We confirm our agreement as follows:

1.

Joint Bid

1.1

Alberta Star and Kootenay shall participate as joint venture partners to make a bid (a “Joint Bid”) to acquire 100% of the common stock of Sterling under the Bid Procedure and shall make an equal financial contribution to the amount of their Joint Bid.  Except as otherwise indicated herein, all decisions concerning the amount of the Joint Bid shall be unanimous as it relates to the amount of the Joint Bid and whether to increase the amount of the Joint Bid as part of the auction under the Bid Process.  Both of Alberta Star and Kootenay shall be available during the auction to respond to previous bids and determine whether to increase their Joint Bid.  The initial amount of the Joint Bid shall be US$11,750,000 and each of Alberta Star and Kootenay agrees to be responsible for 50% of the amount of the Joint Bid and for any increase in the Joint Bid made on a unanimous basis as part of the auction under the Bid Process.

1.2

After the initial Joint Bid has been submitted, in the event that Alberta Star or Kootenay  cannot unanimously agree to increase their Joint Bid and the amount of such increase during the auction period, then a party may withdraw from the Joint Bid (the “Terminating Party”).  The remaining party (the “Remaining Party”) that wishes to continue in the Bid Procedure shall notify the Terminating Party of its intention to proceed with an increased offer and the amount of the offer for the Joint Bid.  The Bid Procedure allows for no more than one half hour to respond to the previous highest and best bid by any qualified bidder.  The Terminating Party shall be required to provide immediate written notification to the Remaining Party to withdraw prior to the expiry time for making a higher bid under the Bid Procedure.  The Remaining Party may proceed with its own bid or may include another party and the Terminating Party shall have no further interest or right in and to the Joint Bid.  If the Terminating Party does not provide written notification to withdraw from the Joint Bid as noted above, the Terminating Party shall be deemed to be part of the Joint Bid and obligated to fund the Joint Bid if successful.

1.3

Kootenay acknowledges that Alberta Star has made a deposit in the amount of US$1,250,000 in order to become a qualified bidder under the Bid Procedure and Alberta Star shall be credited with the deposit as part of its financial contribution to the Joint Bid in the event that such bid is successful. It is contemplated that each of Alberta Star and Kootenay will fund their respective financial contributions for Joint Bid from their current working capital or as a result of either or both of them completing a financing.  However, their obligations to contribute to the Joint Bid are firm and binding commitments and are not subject to either of Alberta Star or Kootenay completing a financing.

1.4

The Joint Bid will either be made directly by Alberta Star or made through a newly incorporated company (“Newco”) of which Alberta Star and Kootenay shall each own 50% of the issued and outstanding shares.  In the event that Alberta Star makes the Joint Bid directly and such bid is successful, Alberta Star shall immediately transfer and assign all of its right, title and interest in and to Sterling and the Sunshine Mine to Newco.

2.

Newco

2.1

It is contemplated that Newco will be incorporated in British Columbia unless determined otherwise by Alberta Star and Kootenay based on advice from its professional advisors.

2.2

If the Joint Bid is successful, Alberta Star and Kootenay will negotiate, prepare and execute a shareholders’ agreement setting forth their ownership interest in Newco and their respective rights and obligations in respect of the management and operation of Newco and the further exploration and development of Sterling and the Sunshine Mine, which will reflect, as closely as possible, the provisions of this Agreement and such other terms and conditions as are customary in joint venture or shareholder agreements of this nature.

2.3

If the Joint Bid is successful, it is contemplated that Kootenay and Alberta Star will seek a listing of Newco on the TSX Venture or the TSX (the “Spin-out”) and will use their commercial reasonable efforts to complete an additional debt or equity financing of approximately US$30 million (the “Financing”) to be used by Newco for the further exploration and development of the Sunshine Mine.  Each of Alberta Star and Kootenay shall be entitled to contribute to the Financing of Newco in proportion to its initial percentage ownership interest in Newco which will reflect their respective percentage interests in Newco prior to or concurrent with the Spin-out.  In the event that a party does not wish to contribute to the Financing in proportion to its initial percentage ownership in Newco, such party will be diluted in accordance with industry-standard, straight line dilution formulae.

2.4

The affairs of Newco and Sterling and the operations of the Sunshine Mine to be managed through the Operator (as hereinafter defined), will be governed by a board of directors (the “Board”).  The Board of Newco (the “Board”) shall initially be comprised of four directors. Each of Alberta Star and Kootenay shall be entitled to nominate two directors to the Board, provided that each of the nominees shall be subject to the approval of the other party, acting reasonably.  A director nominated from each of Alberta Star and Kootenay will jointly act in the capacity as co-chairs of the Board (the “Co-Chairs”); A management team will be determined by the Co-Chairs and will consist of a President and CEO, a Chief Financial Officer and a Chief Operating Officer.  After the Spin-out, the Board and management of Newco will be determined in accordance with the Articles of Newco and applicable corporate law.

3.

Participation Date, Work Programs and Contribution to Costs

3.1

On the date that the Joint Bid is successful, (the “Participation Date”), each of Alberta Star and Kootenay (each, a “Participant”) will be responsible for its pro rata share of all further costs, expenses, obligations and liabilities of whatever kind or nature spent or incurred, directly or indirectly in connection with the further exploration of, and, if warranted, development of and achievement and carrying on of commercial production from the Sunshine Mine and the maintenance and operation of Newco and Sterling (collectively, the “Costs”) from time to time.  Following the Participation Date, each work program and budget will, at a minimum, provide for Newco to carry out and fund the minimum activities necessary to maintain Newco and the Sunshine Mine and Lease in good standing and comply with all applicable governmental requirements and applicable laws (the “Maintenance Expenditures”).  All work programs and budgets will be prepared by the Operator and submitted to the board of directors of Newco for approval, following which each Participant will elect, within the time prescribed by the directors (but in no case being less than forty-five (45) days) whether or not to contribute to such approved work program and budget.

4.

Operatorship and Management of Newco

4.1

On the Participation Date, Alberta Star and Kootenay shall engage Touchstone Capital Inc. (“Touchstone”) to act as the initial operator (the “Operator”) of Newco and the Sunshine Mine through a technical team comprised of consultants from Touchstone and Alberta Star.  The Operator will be responsible for the running and operation of Newco for formulating and proposing work programs and budgets for approval by the Board of Newco and for implementing all approved work programs.

4.2

On the Participation Date, Touchstone shall also be engaged to manage all administration, accounting and regulatory matters concerning  Newco, Sterling and the Sunshine Mine and may be requested to contribute other personnel or resources.  Alberta Star shall be responsible for any investor relations program for Newco.  

4.3

Each of Alberta Star and Kootenay shall equally contributed to the management and operations matters prior to and after the Spin-out concerning Newco and the Sunshine Mine until the Financing has been completed.

5.

Failure to Contribute

5.1

Failure by a Participant to elect to contribute to the Financing or to an approved work programs which are completed or Costs or Maintenance Expenditures will result in the dilution of the non-contributing Participant(s) interest in Newco.  Dilution for non-contribution to cash calls after the Participation Date will be determined by industry-standard, straight-line dilution formulae to be detailed in the formal shareholder agreement.  If a Participant elects to contribute to an approved work program and budget but thereafter fails to contribute its share of costs when required by the Operator, such dilution will be doubled.

6.

Governing Law and Language

6.1

By express agreement of the parties, this agreement will be governed by and interpreted in accordance with the laws of British Columbia and those of Canada applicable therein.

7.

Assignment

7.1

Neither Alberta Star nor Kootenay shall have the right without the consent of the other to assign and transfer all or any portion of its interest in this agreement, such consent not to be unreasonably withheld.

8.

Right of First Offer Upon Proposed Assignment

8.1

Any assignment, transfer, sale, or other disposition by either Alberta Star or Kootenay (the “Optionor”) of any of its interest in or to this agreement or Newco (collectively, the “Rights”) will be subject to a right of first offer in favour of the not assigning party (the “Optionee”), whereby the Optionor, if it either determines to seek a buyer for any of its Rights or receives an offer to purchase any of its Rights which it determines to accept, will be required to first offer such portion of its Rights to the Optionee, such offer to be accompanied by all information with respect to such proposed disposition (including the amount and nature of any consideration, the identity of the proposed third party buyer (if any) and a copy of the relevant third party offer(if any)).  The Optionee will have a period of sixty (60) days to determine if it wishes to purchase such portion of the Rights upon the same terms and for the same consideration (or the cash equivalent of any non-cash consideration) as set forth in the offer from the Optionor.  If the Optionee accepts such offer, it will purchase such portion of the Rights upon the terms and conditions of the offer on a mutually agreed closing date (or on the 45th day following the acceptance of the offer if the closing date cannot be agreed).  If the Optionee does not accept such offer, the Optionor may sell such portion of the Rights, upon terms no more favourable to the Optionor than contained in the offer (or, if such offer was made as a consequence of an offer from a third party, upon the terms and conditions contained in such offer).  If such sale does not complete within ninety (90) days after the Optionee determines not to accept the offer from the Optionor, the right of first offer will again become applicable.

9.

Arbitration

9.1

Any dispute, controversy or claim arising out of or relating to this agreement, the breach, termination or invalidity of it, any deadlock or inability of the parties to agree on a course of action to be taken hereunder will be referred to and finally resolved by arbitration in accordance with the  “Procedures for Cases under the BCICAC Rules” of  the British Columbia International Commercial Arbitration Centre (“BCICAC”), which will administer the arbitration case in accordance with such rules.  If the parties cannot agree on an arbitrator within fifteen (15) days of the matter being referred to arbitration, then the BCICAC will appoint an arbitrator.  The place of arbitration will be Vancouver, British Columbia, Canada and the language used in the arbitral proceeding will be English.  The arbitrator’s fees, and the other costs of the arbitration, will be paid by the losing party, subject to the contrary decision of the arbitrator.

10.

Public Announcements

10.1

Prior to the formation of the Joint Venture, in the event of any public announcement of   information related to this transaction a draft of such announcement will be forwarded to the other party for comment with a minimum of 24 hours notice from receipt of the draft information release. If no comments are received following the expiration of the said 24-hour notice, then the party that prepared the news release is allowed to release the announcement to the public.

11.

Time of the Essence

11.1

Time shall be of the essence of this Letter Agreement, and Alberta Star and Kootenay covenant and agree to use their best efforts to fulfil their obligations hereunder in a timely fashion.

12.

Force Majeure

12.1

No party will be liable for its failure to perform any of its obligations under this agreement due to a cause beyond its control (except those caused by its own lack of funds) (each an "Intervening Event") including, but not limited to, acts of God, fire, flood, explosion, strikes, lockouts or other industrial disturbances, laws, rules and regulations or orders of any duly constituted governmental authority, excessive delays in obtaining, or the refusal to issue, any required permits or licenses, or non-availability of materials, supplies, labour or transportation.  All time limits imposed by this agreement will be extended by a period equivalent to the period of delay resulting from an Intervening Event.  A party relying on force majeure will take all reasonable steps to eliminate an Intervening Event and, if possible, will perform its obligations under this agreement as far as practical, but nothing herein will require such party to settle or adjust any labour dispute or to question or to test the validity of any law, rule, regulation or order of any duly constituted governmental authority.

If the foregoing correctly sets forth the agreement reached among us, kindly acknowledge this by signing and returning to us a copy of this letter on or before the close of business on the business day following the date hereof.

Yours very truly,

KOOTENAY GOLD INC.

“Ken Berry”

Per:

Ken Berry, Chairman

We, Alberta Star Development Corp., hereby acknowledge and confirm the foregoing correctly sets forth our understanding and agree to the foregoing terms and conditions as legally binding upon us as of this _____ day of _____________________________, 2010.

ALBERTA STAR DEVELOPMENT CORP.

“Tim Coupland”

Per:

Tim Coupland, President

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