Document:

EX10-3

EXHIBIT10.3 

________________________________________

NEGERO OPTION AGREEMENT 

Made as of June 29, 2007

Between

DOUGLAS LAKE MINERALS INC.

and

CANACO RESOURCES INC.

________________________________________

 

 

 

TABLE OF CONTENTS

	
RECITALS
	
1

	
SECTION 1 - REPRESENTATIONS AND WARRANTIES
	
2

	 	
1.1
	
Representations and Warranties
	
2

	
SECTION 2 - OPTION TO ACQUIRE INTEREST
	
3

	 	
2.1
	
Grant of Option
	
3

	 	
2.2
	
Grant of Reacquired PLs
	
3

	 	
2.3
	
Consideration
	
3

	 	
2.4
	
Expenditures
	
4

	 	
2.5
	
Non-Exercise
	
5

	 	
2.6
	
Termination
	
5

	 	
2.7
	
Exercise of Option to Earn 70% Interest
	
6

	 	
2.8
	
Title
	
6

	 	
2.9
	
Creation of Joint Venture
	
6

	 	
2.10
	
Operator
	
6

	
SECTION 3 - CANACO'S RIGHT TO PLACE THE CANACO SHARES
	
6

	 	
3.1
	
Preemptive Right
	
6

	
SECTION 4 - TECHNICAL COMMITTEE
	
7

	 	
4.1
	
Establishment
	
7

	 	
4.2
	
Purposes
	
7

	 	
4.3
	
Meetings
	
8

	
SECTION 5 - INDEMNITIES.
	
8

	 	
5.1
	
Indemnities of Canaco
	
8

	 	
5.2
	
Douglas Lake's Indemnities
	
8

	
SECTION 6 - EFFECTIVE DATE
	
9

	 	
6.1
	
Conditions Precedent
	
9

	
SECTION 7 - OPERATIONS DURING THE OPTION PERIOD
	
10

	 	
7.1
	
Operator's Rights
	
10

	 	
7.2
	
Duties of the Operator
	
10

	 	
7.3
	
Insurance
	
11

	 	
7.4
	
Access to Mining Operations
	
11

	 	
7.5
	
Encumbrances
	
12

	
SECTION 8 - SALE OF INTEREST
	
12

	 	
8.1
	
Preemptive Right
	
12

	 	
8.2
	
Exceptions to Pre-emptive Right.
	
12

	 	
8.3
	
Prohibition Against Encumbrance
	
13

	 	
8.4
	
Novation
	
13

	
SECTION 9 - CONFIDENTIALITY
	
13

	 	
9.1
	
Confidentiality
	
13

(i)

 

	 	
9.2
	
Free Utilization
	
14

	
SECTION 10 - FORCE MAJEURE
	
14

	 	
10.1
	
Force Majeure
	
14

	
SECTION 11 - NOTICE
	
15

	 	
11.1
	
Manner
	
15

	 	
11.2
	
Addresses
	
15

	
SECTION 12 - INTERPRETATION
	
16

	 	
12.1
	
Definitions
	
16

	 	
12.2
	
Other Definitions
	
19

	 	
12.3
	
Table of Contents
	
19

	 	
12.4
	
Recitals
	
19

	 	
12.5
	
Gender and Number
	
19

	 	
12.6
	
Entire Agreement
	
19

	 	
12.7
	
Currency
	
19

	 	
12.8
	
Law
	
20

	 	
12.9
	
Enurement
	
20

	 	
12.10
	
Further Assurances
	
20

	
Schedule A - Property

Schedule B - Form of Joint Venture Agreement

Schedule C - Form of Addendum to (Magembe) Option Agreement
	 

 

(ii)

NEGERO OPTION AGREEMENT 

This Agreement is made as of the 29th day of June, 2007, between
DOUGLAS LAKE MINERALS INC., a corporation organized under the laws of the State of Nevada, United States of America, and having an office address at Suite 500 - 602 West Hastings Street, Vancouver, British Columbia  V6B 1P2 

(herein called "Douglas Lake")
OF THE FIRST PART

and
CANACO RESOURCES INC., a corporation organized under the laws of Canada, and having an office address at Suite 500 - 602 West Hastings Street, Vancouver, British Columbia  V6B 1P2

(herein called "Canaco")
OF THE SECOND PART

RECITALS

A.        Douglas Lake is the registered and beneficial owner of a 100% undivided interest of Prospecting License No. PLR 2957/2005 ("Initial PL") over an area located in Kilindi District, Tanzania, colloquially referred to as the Negero property, and legally described in Schedule A annexed hereto.

B.        The Initial PL expired on December 21, 2006.  Megadeposit Explorers Limited ("Megadeposit") will apply for one or more prospecting licenses ("Reacquired PLs") over the same area previously covered by Prospecting License No. PLR 2957/2005.  Pursuant to an agreement to transfer mineral rights dated June 20, 2007, between Megadeposit and Douglas Lake, Megadeposit has agreed to transfer the Reacquired PLs to Douglas Lake when the Reacquired PLs are granted by the Tanzanian Ministry for Energy and Minerals.  

C.        The Initial PL and Reacquired PLs and the area described in Schedule A are hereinafter collectively described as the "Property".

D.        Canaco has agreed to acquire, and Douglas Lake has agreed to grant an option to Canaco to acquire, up to a 70% of Douglas Lake's interest in the Property on the terms and conditions set out herein.

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NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants expressed herein the Parties agree as follows:

Section 1 - REPRESENTATIONS AND WARRANTIES

1.1        Representations and Warranties

(1)       Douglas Lake represents and warrants to Canaco that on the date hereof and on the Effective Date:
(a)        Douglas Lake is the sole recorded and beneficial owner of a 100% undivided interest in the Initial PL;

(b)        the Property is accurately described in Schedule A annexed hereto;

(c)        all taxes, assessments, rentals, levies or other payments relating to the Property and required to be made to any governmental instrumentality have been made, save and except for the payments related to the acquisition of the Reacquired PLs;

(d)        subject to any Prospector's Mining Licenses, the Property (including all ores, concentrates, minerals, metals or products in, on or under the Property or which may be removed or extricated therefrom) is free and clear of any and all Encumbrances, agreements, obligations, adverse claims (including, without limitation, any order or judgment relating to the Property or any legal proceedings in process, pending or threatened which might result in any such order or judgment), royalties, profit interests or other payments in the nature of a rent or royalty, or other interests of whatsoever nature or kind, recorded or unrecorded;

(e)        Douglas Lake has not received from any governmental instrumentality any notice of, or communication relating to, any actual or alleged Environmental Claims, and there are no outstanding work orders or actions required to be taken relating to environmental matters respecting the Property or any operations carried out thereon;

(f)        there are no actions, suits or proceedings (whether or not purportedly on behalf of Douglas Lake) (including Environmental Claims) pending or threatened against or materially adversely affecting, or which could materially adversely affect, the Property or before or by any federal, provincial, municipal or other governmental authority, department, court, commission, board, bureau, agency or instrumentality, domestic or foreign, whether or not insured, and which might involve the possibility of any Encumbrance or any other right of another against the Property; and

(g)        all required consents of any third parties to the sale and transfer by Douglas Lake to Canaco of the Property have been obtained and written copies thereof have been provided to Canaco.

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(2)        Each Party represents and warrants to the other that at the date of execution of this Agreement:
(a)        all requisite corporate acts and proceedings have been done and taken by it with respect to entering into this Agreement and it has the right to enter into this Agreement and to perform the obligations hereunder, save and except for the approvals to be obtained by both parties pursuant to paragraphs 6.1(1)(b) and Error! Reference source not found.; and

(b)        the execution and delivery of this Agreement and the performance from time to time of the rights and obligations arising hereunder do not and will not conflict with the terms of the constating instruments of it or with any agreement or other instrument or regulatory provision by which it is bound.

(3)        The representations and warranties hereinbefore set out are conditions on which the parties have relied in entering into this Agreement and shall survive the acquisition of any interest in the Property by Canaco and the termination of this Agreement, and each of the parties will indemnify and save the other harmless from all loss, damage, costs, actions and suits arising out of or in connection with any breach of any representation, warranty, covenant, agreement or condition made by it and contained in this Agreement.

Section 2 - Option to Acquire Interest

2.1        Grant of Option

            Douglas Lake hereby grants to Canaco the exclusive and irrevocable right and option of acquiring up to a 70% undivided interest in and to the Property (the "Option") free and clear of all Encumbrances and all royalties, profit interests or other payments in the nature of a rent or royalty or other interests of whatsoever nature or kind, subject to the provisions of this Agreement.  

2.2       Grant of Reacquired PLs

            Douglas Lake covenants, agrees and undertakes with Canaco that Douglas Lake will use its best efforts to do all things and take all steps to complete the transactions contemplated by this Agreement, including to take or cause to be taken all necessary corporate and other actions, steps and proceedings to assist Megadeposit's application for the Reacquired PLs with the Tanzanian Minister for Energy and Minerals, and to cause Megadeposit to transfer the Reacquired PLs to Douglas Lake when the Reacquired PLs are granted by the Tanzanian Minister for Energy and Minerals.  

2.3        Consideration

(1)        In consideration of the granting of the Option, following receipt by Canaco of all required regulatory and other approvals and consents by Canaco to the entering into of this Agreement the following payments shall be made:

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(a)        upon execution of this Agreement, Canaco will pay to Douglas Lake the sum of $50,000.00.  Douglas Lake hereby acknowledges receipt of the sum of $50,000.00; 

(b)        on the Effective Date, Canaco will issue and deliver to Douglas Lake 100,000 common shares in its capital, subject to applicable hold periods, or the equivalent in cash; 

(c)        on the first anniversary of the Effective Date,
(i)        Canaco will issue and deliver to Douglas Lake 200,000 common shares in its capital, subject to applicable hold periods; and

(ii)       Canaco will pay to Douglas Lake the sum of $75,000 by certified cheque or bank draft; and

(d)        on the second anniversary of the Effective Date,
(i)        Canaco will issue and deliver to Douglas Lake 500,000 common shares in its capital, subject to applicable hold periods; and

(ii)       Canaco will pay to Douglas Lake the sum of $125,000 by certified cheque or bank draft.

(2)        Douglas Lake agrees that the amount of the Price (as defined in the Strategic Alliance Agreement) paid by Canaco to Douglas Lake under the Strategic Alliance Agreement may be allocated, at the sole and absolute discretion of the Purchaser and in any amount up to the Price, to the cash consideration payments required under Sections 2.3(1)(c)(ii) and/or 2.3(1)(d)(ii) hereof.  Notwithstanding the foregoing, any amount of the Price allocated to the cash consideration under another Option Agreement (as defined in the Strategic Alliance Agreement) may not be allocated to the cash consideration under Sections 2.3(1)(c)(ii) and/or 2.3(1)(d)(ii); and any amount of the Price allocated to the cash consideration under Section 2.3(1)(c)(ii) may not be allocated to the cash consideration under Section 2.3(1)(d)(ii).

2.4        Expenditures

(1)        In order to maintain in force the rights granted to it hereunder and to maintain in force the Option, Canaco must incur an additional aggregate of $2,000,000 of Expenditures on or before the third anniversary of the Effective Date, as follows:
(a)        on or before the first anniversary of the Effective Date, $250,000; 

(b)        on or before the second anniversary of the Effective Date, $500,000; 

(c)        on or before the third anniversary of the Effective Date, $1,250,000; and

(d)        on or before the third anniversary of the Effective Date, Canaco shall have spent the sum of $2,000,000 in Aggregate Expenditure as that term is defined in the Strategic Alliance Agreement. 

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(2)        Douglas Lake agrees that Strategic Alliance Expenditures made pursuant to the Strategic Alliance Agreement may be allocated, at the sole and absolute discretion of Canaco and in any amount up to the Aggregate Expenditure (as defined in the Strategic Alliance Agreement), to Expenditure under Section 2.4(1) hereof.  Notwithstanding the foregoing, any Strategic Alliance Expenditure allocated by Canaco under another Option Agreement (as defined in the Strategic Alliance Agreement) may not be allocated to Expenditure under Section 2.4(1) hereof. 

2.5        Non-Exercise

            The right of Canaco to exercise the Option or the portion thereof which has not been previously exercised, as applicable, shall become null and void and the Option held by Canaco shall terminate if:
(a)       Canaco notifies Douglas Lake at any time of its intention not to exercise the Option or the portion thereof which has not been previously exercised, as applicable; or

(b)       Canaco fails to incur all of the Expenditures described in Section 2.5 as scheduled and in the manner described above and shall have failed to either incur Expenditures in the amount of the deficiency or pay the amount of such deficiency to Douglas Lake within thirty (30) days after receipt of written notice from Douglas Lake of such failure.

2.6        Termination

            On the termination of the Option Period in accordance with Section 2.5:
(a)       the Property shall be free of all Encumbrances created by or through Canaco;

(b)       all plant, machinery, equipment and supplies owned by Canaco and brought and placed upon the Property shall remain the exclusive property of the owner thereof and, if the Option Period terminates without Canaco exercising any part of the Option, shall be removed by the owner thereof, at any time or times within a period of six (6) months next following the termination of the Option Period; provided that the owner thereof has not removed all such plant, machinery, equipment or supplies within the said six (6) month period, then such plant, machinery, equipment and supplies not so removed thereafter shall become the property of Douglas Lake or, at Douglas Lake's option, may within a further six (6) months be removed by Douglas Lake at the expense of the owner thereof. All plant, machinery, equipment and supplies, until it becomes Douglas Lake's property or is removed from the Property, shall be the sole responsibility of the owner thereof and Douglas Lake shall have no liability with regard thereto;

(c)       if the Option Period terminates without the Option being exercised, Canaco shall forthwith deliver to Douglas Lake all data and factual information generated by Canaco through their exploration activities on the Property; and

(d)       Canaco shall be solely liable for all costs and expenses accrued by it to third parties as a result of its activities on the Property during the Option Period up to the date of termination of the Option Period.

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            The provisions of Sections 5, 9, 11 and 12 and Section 2.8 (if applicable) shall survive the termination of the Option Period.

2.7        Exercise of Option to Earn 70% Interest

            If Canaco incurs the Expenditures during the Option Period in the manner described in Section 2.5, then Canaco shall earn a 70% interest in the Property which interest shall automatically and immediately vest in Canaco without any further act by any Party.  

2.8        Title

            Upon Canaco earning a 70% interest in the Property in accordance with this Section 2, Douglas Lake shall forthwith transfer the registered title to the Property to Canaco, to be held by Canaco in its own name in trust for the Parties as their interests may from time to time appear, except where a transfer of title is required herein.  Any Party shall be entitled to record its interest in the Property and in this Agreement on the title to the Property.  Each party shall pay its own costs (including taxes payable) associated with the transfer of title to the Property from Douglas Lake to Canaco.

2.9        Creation of Joint Venture

            In the event that Canaco has earned a 70% interest in the Property pursuant to Section 2.7, the Parties shall forthwith complete, execute and deliver the Joint Venture Agreement.

2.10      Operator

            While Canaco is earning an interest in the Property through incurring Expenditures hereunder, the operator of all operations on the Property to be undertaken pursuant to this Agreement (the "Operator") shall be Canaco from the Effective Date.  

Section 3 - canaco's right to place the canaco shares

3.1        Preemptive Right

            If at any time Douglas Lake desires to sell, assign, or transfer all or any shares it holds in the capital of Canaco (the "Canaco Shares"), then Canaco shall have a preemptive right to place the Canaco Shares with purchasers it has located as follows:
(a)       Douglas Lake shall promptly notify Canaco of its intentions.  The Notice shall state the price in cash (the "Canaco Shares Purchase Price") and all other pertinent terms and conditions of the intended transfer.  Douglas Lake need not have any offer in hand, but if it does, then the Notice shall be accompanied by a copy of the offer or contract for sale.  Canaco shall have fifteen (15) Business Days after the date such Notice is delivered to notify Douglas Lake whether it elects to place the offered Canaco Shares with purchasers that it has located at the same Canaco Shares Purchase Price and on the same terms and conditions as set forth in the Notice.  If such an election is made, then the transfer shall be consummated promptly after Notice of such election is delivered to Douglas Lake;

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(b)       if Canaco elects not to acquire the offered Canaco Shares or fails to so elect within the fifteen (15) Business Day period provided above, Douglas Lake shall have forty-five (45) days following the earlier of (i) the date of expiration of the above mentioned fifteen (15) Business Day period or (ii) the last date when Canaco elected not to place the Canaco Shares, to consummate the transfer to a third party at a price at least equal to the Purchase Price and on terms no less favourable to Douglas Lake than those offered by the Douglas Lake to Canaco in the Notice required herein; and

(c)       if Douglas Lake fails to consummate the transfer to a third party within the said forty-five (45) day period, then the right of Canaco in such offered Canaco Shares shall be deemed to be revived.  Any subsequent proposal to transfer such Canaco Shares shall be conducted in accordance with all the procedures set forth in this Section 3.

Section 4 - Technical Committee

4.1        Establishment

            A Technical Committee composed of one (1) representative of each Party, shall be established on the Effective Date. Each Party shall, within fifteen (15) days after the Effective Date, notify the other Party in writing of the name of its representative (the "Representative") and alternative Representative ("Alternate") who may from time to time act in the absence of the Representative. Each Party shall also be free to bring to all meetings at its own cost such technical and other advisors as it may deem appropriate; provided that such advisors are bound by the provisions of Section 9. Each Party shall have the right at any time and from time to time to change its Representative or Alternate by written notice given to the other Party. Each Party shall incur all costs (which shall not be deemed to be Expenditures) for its Representative's and Alternate's activities hereunder.

4.2       Purposes

            The Technical Committee shall be constituted during the Option Period for the following purposes:
(a)       to review the on-going activities of Canaco on the Property and to review reports submitted by Canaco on the progress of its activities;

(b)       to discuss in good faith any changes, alterations or recommendations to the activities undertaken by Canaco on the Property; and

(c)       to review proposed exploration operations on the Property to be undertaken by Canaco.

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4.3        Meetings

(1)       Meetings of the Technical Committee shall be held no less than twice annually in Vancouver. In lieu of holding meetings of the Technical Committee, the Technical Committee may convene telephone conferences with the unanimous consent of both Parties.

(2)       The Technical Committee shall establish at its first meeting such procedures and rules governing the meetings and convening of the meetings of the Technical Committee as the Parties may unanimously agree.

Section 5 - Indemnities.

5.1        Indemnities of Canaco

            Canaco shall indemnify Douglas Lake from all liability, however arising, in respect of all debts, liabilities, costs and obligations of every kind and nature, including damage to property and personal injury, arising out of or related to the conduct by it of activities on the Property, which were incurred or arose during the Option Period. For further clarity, the Parties intend that, pursuant to the preceding sentence, Canaco shall be liable for its liabilities, known or unknown, contingent or otherwise, which were incurred or arose during the Option Period, relating to or arising out of:
(a)       the conduct of activities by it or on its behalf in, on or under the Property; and

(b)       the environmental protection, clean-up, remediation, and reclamation of the Property resulting from or relating to its activities referred to in Section 5.1(a) including, but not limited to, the obligations and liabilities arising out of or related to:
(i)       the disturbance or contamination of land, water (above or below surface) or the environment by exploration, mining, processing or waste disposal activities;

(ii)      any failure to comply with all past, current or future governmental or regulatory authorizations, licenses, permits, and orders and all non-governmental prohibitions, covenants, contracts and indemnities; and

(iii)     any act or omission causing or resulting in the spill, discharge, leak, emission, ejection, escape, dumping or release of hazardous or toxic substances, materials, or wastes as defined in any federal, provincial, or local law or regulation in connection with or emanating from the Property.

5.2        Douglas Lake's Indemnities

            Douglas Lake shall indemnify Canaco from all liability, however arising, in respect of all debts, liabilities, costs and obligations of every kind and nature, including damage to property and personal injury, arising out of or related to the Property or the conduct by Douglas Lake of activities on the Property, arising before the Effective Date. For further clarity, the Parties intend that Douglas Lake shall be liable for its liabilities, known or unknown, contingent or otherwise, arising before the Effective Date, relating to or arising out of:

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(a)       the conduct of activities in, on or under the Property; and

(b)       the environmental protection, clean-up, remediation, and reclamation of the Property including, but not limited to, the obligations and liabilities arising out of or related to:
(i)       the disturbance or contamination of land, water (above or below surface) or the environment by exploration, mining, processing or waste disposal activities;

(ii)      any failure to comply with all past, current or future governmental or regulatory authorizations, licenses, permits, and orders and all non-governmental prohibitions, covenants, contracts and indemnities; and

(iii)     any act or omission causing or resulting in the spill, discharge, leak, emission, ejection, escape, dumping or release of hazardous or toxic substances, materials, or wastes as defined in any federal, provincial, or local law or regulation in connection with or emanating from the Property.

Section 6 - Effective Date

6.1        Conditions Precedent

(1)       This Agreement is conditional upon:
(a)       Douglas Lake acquiring title to the Reacquired PLs; and

(b)       the obtaining of any applicable regulatory approvals, consents and orders,

in each case in form and substance satisfactory to the affected Party, as the case may be.

(2)       The "Effective Date" means the date on that all of the conditions set out in paragraphs 6.1(1)(a) and 6.1(1)(b) have been met.

(3)       Douglas Lake will promptly notify Canaco upon Douglas Lake having completed its acquisition of title to the Reacquired PLs.  Canaco will promptly notify Douglas lake upon Canaco's receipt of approval of this Agreement from the TSX Venture Exchange. 

(4)       In the event that on or before March 31, 2008, Canaco has not receive the confirmation from Douglas Lake pursuant to paragraph 6.1(3) that Douglas Lake has acquired title to the Reacquired PLs, Douglas Lake shall waive Canaco's obligation to pay Douglas Lake $100,000 pursuant to the Option Agreement relating to the Magembe property.  Therefore, upon execution of this Agreement, Douglas Lake and Canaco will enter into an addendum to the option agreement dated as of the 2nd day of March, 2007, in the form attached hereto as Schedule C.  Further, in the event that Douglas Lake waives the $100,000 payment obligation pursuant to the said addendum in form of Schedule C, this Agreement will continue to be valid and binding and the Effective Date will be the date described in paragraph 6.1(2) regardless of when the conditions described therein are met.

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Section 7 - Operations during the Option Period

7.1        Operator's Rights

            Subject to the other terms of this Agreement, during the Option Period, the Operator shall have the following rights:
(a)       the sole and exclusive right to enter upon the Property to carry on exploration and related operations thereon;

(b)       the right to remove from the Property such reasonable amounts of ore and mineralized material as the Operator may deem necessary for the purposes of making assays and tests;

(c)       the right to erect buildings and other improvements and install such machinery and equipment on the Property as the Operator deems advisable or necessary in connection with the activities contemplated by this Section 7.1;

(d)       the right of access to all of Douglas Lake's data and information concerning the Property including mining records and drill cores; 

(e)       be allowed to review and copy data relevant to the Property in Douglas Lake's possession; provided that the confidentiality provisions of Section 9 shall apply with respect to such data; and

(f)       acquire any Prospector's Mining License granting rights to third parties with respect to the Property.  All costs and fees connected to the acquisition of such Prospector's Mining License shall be considered an Expenditure.

7.2        Duties of the Operator

            Subject to the other terms of this Agreement, during the Option Period, the Operator shall be responsible for the following duties and shall:
(a)       cause to be done all things that may be required to keep the Property in good standing under the laws of the country of Tanzania;

(b)       conduct all exploration and other operations in, on and under the Property in a good and workmanlike manner in accordance with good mining and engineering practices and in compliance with all applicable laws, regulations and orders; 

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(c)       in the event it does not exercise the Option, leave the Property in a safe condition with all openings safeguarded in accordance with the applicable mining laws and regulations; and

(d)       prepare and submit to Douglas Lake, on or before the 10th business day after Canaco's quarterly reports are released to the public, quarterly progress reports and statements of Expenditures, and an annual report by 10 business days after Canaco's year end financial statements is released to the public, of each calendar year in respect of the preceding calendar year.

7.3        Insurance

(1)       During the Option Period, the Operator shall use its commercially reasonable best efforts to provide, maintain and pay for the following insurance which shall be placed with an insurance company or companies and in a form as may be acceptable to Douglas Lake (acting reasonably):
(a)       comprehensive general liability insurance protecting each of the Parties and their respective employees, agents, contractors, invitees and licencees against damages arising from personal injury (including death) and from claims for property damage which may arise directly or indirectly out of the operations of the Operator under this Agreement; and

(b)       automobile insurance on the Operator's owned and non-owned vehicles, if any, protecting its employees, agents, contractors, invitees and licencees against damages arising from bodily injury (including death) and from claims for property damage arising out of the operations of the Operator under this Agreement.

(2)       Each policy of insurance contemplated in the Section 7.3 shall be in an amount not less than $2,000,000 inclusive of any one occurrence.  The policy of insurance referred to in Section 7.3(1)(a) shall:
(a)       include a standard form of cross-liability clause;

(b)       contain a clause waiving the insurer's right of subrogation against Douglas Lake; and

(c)       indicate that the insurer will give Douglas Lake thirty (30) days' prior written notice of cancellation or termination of the coverage.

(3)       the Operator shall provide Douglas Lake with such evidence of insurance as Douglas Lake may, acting reasonably, request.

7.4        Access to Mining Operations

            Douglas Lake may, at its own risk and expense and at reasonable times agreed to by the Operator enter on the Property and examine the Operator's operations; provided, that Douglas Lake is not, in the opinion of the Operator, interfering with such operations.

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7.5        Encumbrances

            During the Option Period, Canaco shall not Encumber its beneficial interest in the Property or its rights under this Agreement.

Section 8 - Sale of Interest

8.1        Preemptive Right

            Except as otherwise provided in Section 8.2, if at any time a Party (the "Offeror") desires to sell, assign, or transfer all or any part of its interest in this Agreement and the Property (the "Sale Interest"), then the other Party (each, an "Offeree") shall have a preemptive right to acquire such Sale Interest as follows:
(a)       the Offeror shall promptly notify the Offeree of its intentions.  The Notice shall state the price in cash or cash equivalent in the form of marketable securities (the "Purchase Price") and all other pertinent terms and conditions of the intended transfer.  The Purchase Price may be stated in whole or in part in the form of publicly marketable securities provided that the Offeror delivers together with its Notice given under this subsection 8.1(a) a certificate signed by a duly qualified and reputable securities analyst certifying as to the cash equivalent value of the publicly marketable securities on the date of such Notice.  The Offeror need not have any offer in hand, but if it does, then the Notice shall be accompanied by a copy of the offer or contract for sale.  The Offeree shall have fifteen (15) days after the date such Notice is delivered to notify the Offeror whether it elects to acquire the offered Sale Interest at the same Purchase Price and on the same terms and conditions as set forth in the Notice.  If such an election is made, then the transfer shall be consummated promptly after Notice of such election is delivered to the Offeror;

(b)       if the Offeree elects not to acquire the offered Sale Interest or fails to so elect within the fifteen (15) day period provided above, the Offeror shall have ninety (90) days following the earlier of (i) the date of expiration of the above mentioned fifteen (15) day period or (ii) the last date when the Offeree elected not to purchase the Sale Interest, to consummate the transfer to a third party at a price at least equal to the Purchase Price and on terms no less favourable to the Offeror than those offered by the Offeror to the Offeree in the Notice required herein; and

(c)       if the Offeror fails to consummate the transfer to a third party within the said ninety (90) day period, then the preemptive right of the Offeree in such offered Sale Interest shall be deemed to be revived.  Any subsequent proposal to transfer such Sale Interest shall be conducted in accordance with all the procedures set forth in this Section 8.

8.2        Exceptions to Pre-emptive Right.

            Section 8.1 shall not apply to the following:

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(a)       a transfer by the Offeror of all or any part of its interest in this Agreement and the Property to an Affiliate; provided that:
(i)       the transferee remains an Affiliate indefinitely thereafter;

(ii)       the subsequent transfer of Control of such Affiliate, other than to an Affiliate of the original Offeror, whether through the issuance or transfer of shares in the capital of the Affiliate or otherwise (such that it no longer conforms to the definition of an Affiliate) shall be subject to Section 8.1; 

(b)       the Affiliate agrees in writing to be bound by the provisions hereof; and

(c)       a transfer to an Affiliate shall not relieve the Offeror of any of its liabilities and obligations arising under this Agreement; or

(d)       a corporate merger, consolidation, amalgamation, or reorganization of the Offeror by which the surviving entity shall be subject to all of the liabilities and obligations of the Offeror hereunder, including an amalgamation or reorganization involving Canaco.

8.3        Prohibition Against Encumbrance

            Douglas Lake shall not be entitled to:
(a)       sell, assign, transfer or otherwise deal with all or any part of its interest in this Agreement or the Property, except as permitted by this Section 8; or

(b)       Encumber its interest in this Agreement or in the Property in any manner whatsoever.

8.4        Novation

            Any permitted assignee of a Party shall, upon such assignment taking place, be deemed to be a Party as though the assignee had been an original signatory to this Agreement.  All Parties, including such assignee, shall execute a novation agreement to evidence the assignee's commitments on such terms as the Parties may reasonably agree.

Section 9 - Confidentiality

9.1        Confidentiality

(1)       The parties shall keep confidential all information, documentation, reports, including without limitation all records obtained from each other with respect to the Property or in connection with this Agreement (collectively, "Confidential Information").  Subject to Section 9.2, neither party shall use any Confidential Information for any purposes not related to the Property any joint venture entered into between the parties, or in any way detrimental to the other party.  Nothing herein contained shall restrict or prohibit the parties from disclosing the Confidential Information to their respective consultants, agents, bankers, lenders, advisors and solicitors as long as such parties agree to keep such Confidential Information confidential. The Confidential Information referred to in this Section shall not include:

- 14 -
(a)       public information or information in the public domain at the time of receipt by a party or its consultants, agents, advisors and solicitors;

(b)       information which becomes public through no fault or act of a party or its consultants, agents, bankers, lenders, advisors or solicitors;

(c)       information in the possession of a party not provided by the other party or its consultants, agents, bankers, lenders, advisors and solicitors;

(d)       information required to be disclosed by law; or

(e)       information received in good faith from a third party lawfully in possession of the information and not in breach of any confidentiality obligations.

(2)       If the either party is required or requested by legal process to disclose any Confidential Information, such party will provide the other party with prompt notice of such requirement or request so that the other party may seek an appropriate protective order or waive compliance with the provisions of this requirement or both.  If either party is compelled to disclose Confidential Information to any court or tribunal or else stand liable for contempt or suffer other censures or penalty, such party may disclose same without liability hereunder provided that it shall give the other party advance written notice of the information to be disclosed and, at the request of the other party, shall seek to obtain assurances that such information will be accorded confidential treatment.

(3)       Douglas Lake and Canaco each agree that prior to making any press release concerning the transactions contemplated herein, each of them shall consult with the other and obtain the other's written approval with respect to such press release, which approval shall not be unreasonably or arbitrarily withheld or delayed, it being acknowledged that it is intended that no press release will be made until after the completion of Closing, unless required by law or any applicable stock exchange.

9.2        Free Utilization

            Notwithstanding the generality of the foregoing, each Party shall be free to utilize information or knowledge obtained pursuant to the Agreement in connection with the conduct by such Party for exploration or mining operations for its own benefit and account or for the benefit and account of any partnership, joint venture or corporation of which it is a partner or member.

Section 10 - force majeure

10.1      Force Majeure

            Neither party shall be liable or deemed to be in default of its obligations hereunder for any delay or failure in performance under this Agreement or other interruption of service resulting, directly or indirectly, from acts of God, acts of governmental, civil or military authority, acts of war, terrorist acts, accidents, natural disasters or catastrophes, power outages, strikes, or other work stoppages or any other causes beyond the reasonable control of the party affected thereby ("Force Majeure").  However, each party shall use its best good faith efforts to perform such obligations to the extent of its ability to do so in the event of any such occurrence or circumstances.  If a Force Majeure occurs rendering the performance of an obligation to be performed hereunder reasonably impractical, the date by which such obligation was to be completed shall be extended by the number of days that the obligation has been delayed by reason of the Force Majeure.

- 15 -

Section 11 - Notice

11.1      Manner

            Any notice which may be or is required to be given under the terms of this Agreement shall be in writing and shall be effective:
(a)       when personally delivered upon any Party at the address designated by it for such service;

(b)       on production of a facsimile transmission report by a machine from which the facsimile was sent which indicates that the facsimile was sent in its entirety to the facsimile number of the recipient being notified for the purposes of this clause; or

(c)       five (5) business days after the same shall have been deposited in the mail properly addressed, certified or registered with return receipt requested and postage prepaid, unless at the time of such posting or within five (5) working days thereafter, any strike, labour dispute or similar disruption of mail service shall come into effect, in which event such notice shall not be valid.

11.2      Addresses

            The addresses for such notices shall be as follows:

	 	
If to Douglas Lake:
	
Douglas Lake Minerals Inc.

500 - 602 West Hastings Street

Vancouver, British Columbia

V6B1P2

Attention:     President

Facsimile:     (604) 899-1240

	 	
If to Canaco:
	
Canaco Resources Inc.

500 - 602 West Hastings Street

Vancouver, British Columbia

V6B1P2

Attention:     Chairman & CEO

Facsimile:     (604) 899-1240

- 16 -

Any Party may change the addresses for such notice by giving the other Parties notice of such change in accordance with the foregoing.

Section 12 - Interpretation

12.1     Definitions

            In this Agreement unless the context otherwise requires, the following words and terms set forth in this Section 12 shall have the meanings respectively assigned to them:

(1)       Affiliate means any person, partnership, venture, corporation, or other form of enterprise which directly or indirectly Controls, is Controlled by or is under common Control of a Party.

(2)       Agreement means this Negero option agreement and all amendments made hereto in accordance with the provisions hereof.

(3)       Business Day means any day on which banks are open for business in the City of Vancouver, British Columbia, but does not include a Saturday, Sunday or holiday in the Province of British Columbia.

(4)       Confidential Information has the meaning given to it in Section 9.1(1).

(5)       Control means possession directly or indirectly of the power to direct or cause direction of management and policies through ownership of the voting securities, contract voting trust and otherwise.

(6)       Effective Date has the meaning given to it in Section 6.1.

(7)       Encumbrance means any claim, restriction, charge, mortgage, security interest, lien, option, right of pre-emption or first refusal, equity, power of sale, hypothecation, servitude or other third party right, and "Encumber" and "Encumbered" shall be construed accordingly.

(8)       Environmental Claims means any and all administrative, regulatory or judicial actions, suits, demands, claims, liens, notices of non-compliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued under any such Environmental Law, including, without limitation:
(a)       any and all claims by governmental or regulatory authorities for enforcement, clean-up, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law; and

(b)       any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive or other relief resulting from hazardous materials, including any release thereof, or arising from alleged injury or threat of injury to human health or safety (arising from environmental matters) or the environment.

- 17 -

(9)       Environmental Law means all requirements of the common law or of environmental, health or safety statutes, regulations, rules, ordinances, policies, orders, approvals, notices, licenses, permits or directives of any federal, territorial, provincial, state or local judicial, regulatory or administrative agency, board or governmental authority including, but not limited to those relating to:
(a)       noise;

(b)       pollution or protection of the air, surface water, ground water or land;

(c)       solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation;

(d)       exposure to hazardous or toxic substances; or 

(e)       the closure, decommissioning, dismantling or abandonment of any facilities, mines or workings and the reclamation or restoration of any lands.

(10)     Expenditures means all expenses, obligations and liabilities of whatever kind or nature spent or incurred directly or indirectly in connection with the exploration and development of the Property, including, an overhead charge in favour of the Operator equal to 15% of all Expenditures.  For the purposes of the foregoing, Expenditures shall include, without limiting the generality of the foregoing:  insurance premiums, moneys expended in maintaining properties in good standing, moneys expended in doing and filing assessment work, expenses paid for or incurred in connection with any program of surface or underground prospecting, exploring, geophysical, geochemical and geological surveying, diamond drilling and drifting, raising and other underground work, assaying and metallurgical testing and engineering, environmental studies, data preparation and analysis, submissions to government agencies with respect to production permits, in paying the fees and travelling expenses of all outside Persons engaged in work with respect to and for the benefit of the Property.

(11)     Force Majeure has the meaning given to it in Section 10.1.

(12)     Initial PL has the meaning given to in Recital A.

(13)     Joint Venture means the joint venture to be formed between Canaco and Douglas Lake pursuant to the Joint Venture Agreement.

(14)     Joint Venture Agreement means the agreement to be entered into by Douglas Lake and Canaco in the event that the Option is exercised, in the form set out in Schedule B annexed hereto.

(15)     Mining Operations means all activities carried out in, on or under or in connection with the Property related to or necessary for the development and construction of a mine(s) thereon, the mining, extraction, treatment, storage and processing of minerals located therein, thereon or thereunder and the acquisition or construction of any improvements, personal property, fixtures or equipment reasonably necessary therefor.

- 18 -

(16)     Notice means any notice, approval, demand, direction, consent, designation, request, document, instrument, certificate or other communication required or permitted to be given under this Agreement.

(17)     Operator has the meaning given to it in Section 2.10:

(18)     Option has the meaning given to it in Section 2.1.

(19)     Option Period means that period of time commencing on the Effective Date and terminating on the earlier of the date upon which:
(a)       the entire Option is exercised; and

(b)       the Option held by Canaco is terminated by the provisions of Section 2.5.

(20)      Party means Douglas Lake or Canaco, as applicable, and its successors and permitted assigns.

(21)     Person includes a natural person, firm, corporation, company, association, partnership, joint venture, unincorporated syndicate, unincorporated organization, trust, trustee, executive, administrator or other legal representative, governmental instrumentality or any group or combination thereof.

(22)     Property includes the Initial PL, the Reacquired PLs and the area legally described in Schedule A hereto.

(23)     Prospector's Mining License means a license validly issued under the [insert the name of relevant mining statute] bestowing limited rights to one or more local miners to extract minerals from a property comprising part of the Portfolio at the applicable time.

(24)     Reacquired PLs has the meaning given to in Recital B.

(25)     Strategic Alliance Agreement means the amended and restated strategic alliance agreement made as of August 25, 2006, between Canaco and Douglas Lake, as amended and restated from time to time.

(26)     Strategic Alliance Expenditure means "Expenditure" as defined in the Strategic Alliance Agreement.

(27)     Technical Committee means the committee established under Section 4.

- 19 -

12.2      Other Definitions

            Any words or expressions defined otherwise in this Agreement including the Schedules shall have the meanings respectively assigned to them notwithstanding that such definition does not appear in this Section 12. When used in the Schedules annexed hereto, terms defined in this Agreement shall have the same meaning unless the Schedules expressly otherwise define such terms. In case of any other inconsistency between the terms of this Agreement and the Schedules annexed hereto, the terms of this Agreement shall prevail.

12.3      Table of Contents

            The Table of Contents to this Agreement, Sections, Sub-sections and Headings contained herein are included solely for convenience and are not intended to be full or accurate descriptions of the content thereof and shall not be considered part of this Agreement.  "Section", "Sub-section", or "Schedule" means and refers respectively to the specified Section, Sub-section or Schedule of this Agreement. "Hereof", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular Section or Sub-section.

12.4      Recitals

            The recitals to this Agreement shall form a part of and are an integral part of this Agreement. 

12.5      Gender and Number

            Words importing the singular include the plural and vice versa. Words importing gender include all genders.

12.6      Entire Agreement

            This Agreement including all Schedules together with the agreements and documents to be delivered pursuant hereto are the full expression of the Parties' intentions and rights and the entire agreement between them pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions whether oral or written of the Parties. There are no representations, warranties or other agreements between the Parties in connection with the subject matter hereof. No amendment or termination of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any other provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provisions nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

12.7      Currency

            Unless otherwise indicated all dollar amounts referred to in this Agreement are in U.S. funds.

- 20 -

12.8      Law

            This Agreement shall be interpreted and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein and shall be treated in all respects as a British Columbia contract except to the extent that any Property or asset affected by this Agreement is subject to the laws of the jurisdiction where such Property are situate in which case the laws of that local jurisdiction shall govern to the extent necessary to complete the transaction.

12.9      Enurement

            This Agreement shall enure to the benefit of and be binding on the successors and permitted assigns of the Parties.

12.10      Further Assurances

            Each Party shall execute such deeds, documents and give such further assurances as are necessary or appropriate in connection with its obligations under this Agreement.

IN WITNESS WHEREOF the Parties have duly executed this Agreement as of the 29th day of June, 2007.

	
DOUGLAS LAKE MINERALS INC.  

	
Per:
	
"Harpreet Singh Sangha"

	 	
Authorized Signature

	 	 
	
I have authority to bind the corporation.

	
CANACO RESOURCES INC. 

	
Per:
	
"Andrew Lee Smith"

	 	
Authorized Signature

	 	 
	
I have authority to bind the corporation.

Schedule A - Property

 

 

 

A - 1

Schedule B - Form of Joint Venture Agreement 

(See attached)

 

 

 

B - 1

Schedule C - Addendum to (Magembe) Option Agreement 

ADDENDUM NO. 1 TO (MAGEMBE) OPTION AGREEMENT 

THIS Addendum No. 1 to Option Agreement (this "Addendum") is made as of the 29th day of June, 2007, between Douglas Lake Minerals Inc. ("Douglas Lake") and Canaco Resources Inc. ("Canaco").

WHEREAS:

	The parties entered into that option agreement made as of the 2nd day of March, 2007 (the "Agreement"), regarding Douglas Lake's interest in prospecting license no. PL 3920/2006, colloquially known as Magembe property.

	The parties entered into a Kwadijava option agreement (the "Kwadijava Option Agreement") made as of June 29, 2007, whereby Canaco has agreed to acquire up to 70% of Douglas Lake's interest in the Reacquired PLs (as that term is defined in the Kwadijava Option Agreement).

	The parties entered into a Negero option agreement (the "Negero Option Agreement") made as of June 29, 2007, whereby Canaco has agreed to acquire up to 70% of Douglas Lake's interest in the Reacquired PLs (as that term is defined in the Negero Option Agreement).

	Douglas Lake desires to waive the requirement of Canaco to make a cash payment under the Agreement if Douglas Lake does not own the said Reacquired PLs by March 31, 2008.

NOW THEREFORE, in consideration of the mutual promises set forth below, the parties hereto agree as follows:

1.        Definitions.  Capitalized terms not defined herein shall have the meaning defined in the Agreement. 

2.        Waiver of Payment.  Subject to the condition precedent set out in provision 3 below, Douglas Lake hereby agrees to waive the requirement of Canaco to pay Douglas Lake the sum of $100,000 pursuant paragraph 2.2(b) of the Agreement.

3.        Condition Precedent.  The waiver in provision 2 of this Addendum is conditional upon and comes into effect if Douglas Lake does not own title to the Reacquired PLs (as that term is defined in the Kwadijava Option Agreement) and Reacquired PLs (as that term is defined in the Negero Option Agreement) by March 31, 2008.

4.        Continuing Effect.  The Agreement shall remain in full force and effect and unamended in all respects except as amended by this Addendum and this Addendum and the Agreement shall hereafter be read as one agreement.  All other terms and conditions of the Agreement shall remain in full force and effect.

5.        Recitals.  The recitals to this Addendum shall form a part of and are an integral part of this Addendum.

6.        Cross References.   Unless otherwise stated, all references in this Agreement to a designated "section", "subsection", "provision" or other subdivision is to the designated section, subsection, provision or other subdivision of this Agreement.

B - 1

7.        Enurement.  This Addendum shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, representatives, successors, and permitted assigns. 

8.        Conflict.  In the event of a conflict between the Agreement and this Addendum, the terms and conditions of this Addendum shall govern.

9.        Execution in Counterparts.  This Addendum may be executed by the parties hereto in as many counterparts as may be necessary, and each such agreement so executed shall be deemed to be an original and, provided that all of the parties have executed a counterpart, such counterparts together shall constitute a valid and binding agreement, and notwithstanding the date of execution shall be deemed to bear the date as set forth above.  Such executed copy may be transmitted by telecopied facsimile or other electronic method of transmission, and the reproduction of signatures by facsimile or other electronic method of transmission will be treated as binding as if originals.

IN WITNESS WHEREOF the parties hereto have entered into this Agreement as of the date hereinbefore set out.

	
DOUGLAS LAKE MINERALS INC. 

per:    "Harpreet Singh Sangha"

           Harpreet S. Sangha, Director
	 	
CANACO RESOURCES INC. 

per:     "Andrew Lee Smith"

            Andrew Lee Smith, Director

 

 

 

B - 2Demand Response Resource Purchase Agreement

 Exhibit 10.1 
 Confidential Treatment 
 Requested 
 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY RESOURCES, INC. 
 AND 
 SOUTHERN CALIFORNIA EDISON 
 This Demand Response Resource Purchase Agreement, together with its exhibits and attachments (the “Agreement”) is entered into by and between Southern California Edison Company, a California corporation (“Buyer” or
“SCE”), and Alternative Energy Resources, Inc., a Delaware corporation (“Seller”) as of October 16, 2007 (“Execution Date”). Buyer and Seller are sometimes referred to herein individually as a “Party” and
collectively as “Parties.” 
 Whereas, in Decision 06-11-049, issued November 17, 2006, the California Public Utilities Commission (the
“Commission”) directed SCE to procure additional demand response resources, defined herein to include capacity and energy as explained below (“DR Resources”) for the summer of 2007 and beyond, and to seek Commission approval of
the additional DR Resources by filing an application no later than February 28, 2007; 
 Whereas, on January 29, 2007, SCE issued a bilateral
solicitation for DR Resources (“DR Bilateral Solicitation”) seeking proposals from potential bidders to sell DR Resources to SCE; 
 Whereas,
Seller submitted one or more offers (the “Offer”) in response to the DR Bilateral Solicitation; 
 Whereas, the Parties wish to enter into an
agreement (“Agreement”) for the sale by Seller and purchase by SCE of DR Resource Capacity. 
 NOW, THEREFORE, in consideration of these recitals
and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows. 
 ARTICLE 1: TRANSACTION ELEMENTS 
  

	 	1.1	Purchase and Sale of the DR Resource Capacity 

 During the
Term of this Agreement, Seller shall deliver and sell, and SCE shall purchase and receive, the capacity from the DR Resource (as defined in Section 1.4 below) subject to and in accordance with the terms and conditions of this Agreement. Seller
represents, warrants, and covenants that it will deliver the DR Resource to SCE free and clear of all liens, security interests, claims and encumbrances. Seller shall not sell, assign or otherwise transfer the DR Resource, or any portion thereof, to
any third party other than to SCE pursuant to this Agreement. 
  

	 	1.2	Term. 

 The “Term” of this Agreement shall commence
upon Final Commission Approval (as defined in Section 2.2 below) and shall continue in full force and effect until December 31, 2012, unless earlier terminated in accordance with the terms and conditions of this Agreement. 
  

	 	1.3	Delivery Period. 

 The Delivery Period shall consist of the
Delivery Days, Delivery Hours, and Operating Months as set forth below. 
 The Delivery Days shall be defined as follows: 
 Monday through Friday, excluding Holidays (please list): North American Electric Reliability Corporation (NERC) holidays 
  
 *** Portions of this agreement marked by *** have been omitted pursuant to a request for
confidential treatment. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. *** 

 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

 The Delivery Hours shall be defined as follows: 
  

	 	a.	*** 

 Operating Months shall be defined as follows: 
  

	 	b.	Calendar months during the Term that contain DR Capacity Nominations 

  

	 	1.4	DR Resource 

  

	 	(a)	DR Resource Type 

  

													
	 ***
	 	 ***
	 	 ***
	 	 ***
	 	 ***
	 	 ***
	 	 ***

							
	 ***
	 	***	 	***	 	***	 	***	 	***	 	***
							
	 ***
	 	***	 	***	 	***	 	***	 	***	 	***

  

	 	(b)	DR Resource Capacity Nominations and Rates 

 Year 2008

  

													
	 Month
	  	January	 	February	 	March	 	April	 	May	 	June
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
							
	 Month
	  	July	 	August	 	September	 	October	 	November	 	December
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
	  
 Year 2009
	  		 		 		 		 		 	
							
	 Month
	  	January	 	February	 	March	 	April	 	May	 	June
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
							
	 Month
	  	July	 	August	 	September	 	October	 	November	 	December
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***

  

 Page 2 of 20 

 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

 Year 2010 
  

													
	 Month
	  	January	 	February	 	March	 	April	 	May	 	June
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
							
	 Month
	  	July	 	August	 	September	 	October	 	November	 	December
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
	  
 Year 2011
	  		 		 		 		 		 	
							
	 Month
	  	January	 	February	 	March	 	April	 	May	 	June
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
							
	 Month
	  	July	 	August	 	September	 	October	 	November	 	December
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
	  
 Year 2012
	  		 		 		 		 		 	
							
	 Month
	  	January	 	February	 	March	 	April	 	May	 	June
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***
							
	 Month
	  	July	 	August	 	September	 	October	 	November	 	December
	 DR Capacity Nomination (kW) (the “Contract Capacity”)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Capacity Credit Rate ($/kW-month)
	  	***	 	***	 	***	 	***	 	***	 	***
	 Trigger
	  	***	 		 		 		 		 	
	 Energy Credit Rate ($/MWh)
	  	***	 	***	 	***	 	***	 	***	 	***

  

 Page 3 of 20 

 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

	 	(c)	Limitations on the DR Resource: 

  

	 	(i)	*** 

  

	 	(ii)	To the extent Seller aggregates two or more service accounts of end-use customers in SCE’s service territory, or multiple service accounts of a single end-use Customer in
SCE’s territory or a single service account of an end-use customer (each an “aggregated group”) to form the DR Resource, Seller cannot include in its aggregated group(s) a customer service account served under any SCE curtailment
demand response program, with the exception of Schedule OBMC. 

  

	 	(iii)	No less than fifteen (15) days before the beginning of each Operating Month, Seller shall deliver to SCE a list of each customer service account to be included in Seller’s
aggregator group(s) so that SCE may verify that such customer service accounts are not served under any SCE curtailment demand response program except for Schedule OBMC. The list should include the customer name, service address, SCE Service Account
Number, and Electric Meter Number for each customer service account to be verified. All customers on the list must have an active CISR-S form on file with SCE (see section 5.6) 

  

	 	(iv)	Seller shall provide SCE with notice no less than five (5) days before the beginning of each Operating Month, of adding or deleting a verified customer service account from the
aggregated group. Seller shall not be entitled to any payments for any Capacity associated with customer service accounts that were not submitted within the five days notice required under this paragraph or for customer service accounts Buyer
reasonably determines to be served under another SCE curtailment demand response program except for Schedule OMBC. 

  

	 	(v)	Monthly nominations that include Community Choice Aggregation (CCA) and Direct Access (DA) customers must be made in accordance with Section 5.3 and subsection 5.3a.

  

	 	(vi)	At its sole discretion, SCE may require that customer service accounts in each aggregated group be reconfigured to be on a single billing cycle. 

  

	 	1.5	Dispatch Notification 

 Notice to dispatch the DR Resources
under this Agreement will be *** prior to the time that the DR Resources are required to respond. The Buyer may give notice to dispatch the DR Resources ***, subject to the terms of this Agreement. 
  

	 	1.6	Exclusive Rights 

 During the Delivery Period, SCE shall have
the exclusive rights to: 
  

	 	(a)	*** 

  

	 	(b)	*** 

  

 Page 4 of 20 

 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

 ARTICLE 2: CONDITIONS PRECEDENT 
  

	 	2.1	Conditions Precedent 

 Notwithstanding the Parties’
execution and delivery of this Agreement, the Partie’s respective obligations under this Agreement shall only become effective upon the date (“Effective Date”) that all the following conditions are satisfied: 
  

	 	(a)	Final Commission Approval. Final Commission Approval shall have been obtained of the Agreement. If the Final Commission Approval materially alters the terms or conditions of the
Agreement, then either Party may terminate the Agreement upon written notice to the other Party. If the Final Commission Approval materially alters the cost recovery mechanism requested by SCE for the Agreement, then SCE may terminate the Agreement
upon written notice to the Seller. In the event SCE, Seller or any third party appeals a final Commission decision related to this Agreement prior to Final Commission Approval, SCE may, upon notice to Seller within fifteen (15) calendar days of
the appeal, terminate this Agreement (and no Termination Payment will be due or owing by either Party), provided, neither Party shall have an obligation to appeal, petition to modify, or request a rehearing of, any decision by the Commission,
provided, further, SCE may waive the requirement of Final CPUC Approval at any time with the written consent of the Seller. 

 Provided,
if all of the conditions precedent above have not been satisfied by February 29, 2008, then this Agreement will automatically terminate, and SCE shall return any Security Deposit submitted by Seller, if any, pursuant to Article 4 herein.

 ARTICLE 3: COMPENSATION 
  

	 	3.1	Disbursements 

 Disbursement of Delivered Energy Payments and
Delivered Capacity Payments. 
  

	 	(a)	If no dispatch event is called during the Operating Month, Seller shall, on a monthly basis, submit an invoice to Buyer for services rendered under this Agreement during the
previous Operating Month no later than thirty (30) days after the end of the Operating Month. 

  

	 	(b)	If a dispatch event was called during the Operating Month for which the invoice is being submitted, Seller shall submit an invoice to Buyer for services rendered under this
Agreement during the previous Operating Month, and also submit recorded kW and other performance data and calculations supporting the Delivered Capacity Payment and Delivered Energy Payment Seller claims for such Operating Month.

  

	 	(c)	SCE will pay Seller all undisputed disbursements approximately thirty (30) days after receiving the invoice but not later than sixty (60) days after receiving the invoice.

  

	 	(d)	 Payments to Seller will be in the form of a check, or when such calculations result in a net charge, SCE shall bill the Seller and the net charge shall be 

  

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due and payable in accordance with the terms and conditions of SCE’s invoice. If Seller fails to pay those net charges, then Buyer may offset the net
charges against any future amounts it may owe to Seller under this Agreement. 

  

	 	3.2	Baseline Calculation 

 x
Same baseline calculation as approved for SCE’s Capacity Bidding Program for Aggregators: 
  

	 	(a)	The Energy Baseline (EB) is used to calculate the DR Resource’s Recorded Reduced Energy for each dispatch event. A valid EB will be established when at least ten
(10) similar days of interval meter data available to SCE’s billing system for all service accounts contained in the DR Resource are collected. 

  

	 	(b)	Only the hourly average kWh usage (calculated over the pool of accounts, on an aggregated basis, in each DR Resource) during the Delivery Hours will be included in the EB.

  

	 	(c)	The EB will be calculated on an hourly basis using the average of the three (3) highest energy usage days of the immediate past ten (10) similar delivery days, excluding
holidays, of all service accounts within the Resource. 

  

	 	(d)	The EB will be determined by SCE at the end of the Operating Month following the dispatch of the DR Resource. The EB may vary for each hour of the dispatched DR Resource.

 The Seller must be able to establish a valid EB for each DR Resource prior to each Operating Month. Only the eligible service accounts
included in the Seller’s DR Resource will be used in the establishment of the Seller’s EB. 
 *** 
  

	 	3.3	Recorded Reduced Capacity Calculation 

  

	 	(a)	The Recorded Reduced Capacity equals the difference between the DR Resource’s EB per hour and its recorded maximum kWh per hour during each hour of DR Resource dispatch.

  

	 	(b)	Seller shall use reasonable means of recording the kWh per hour during each of DR Resource dispatch, which means shall be subject to the reasonable approval of SCE.

  

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	 	3.4	Delivered Capacity Payment Calculation 

 The Delivered
Capacity Payment shall be calculated on an aggregated basis across all service accounts within a Resource ID for each Operating Month. 
 When the DR
Resource is not dispatched during an Operating Month, the Seller’s Delivered Capacity Payment shall equal the Contract Capacity times the applicable Capacity Credit Rate, as shown in Section 1.4 of this Agreement. 
 When the DR Resource is dispatched at least once during an Operating Month, the Delivered Capacity Payment shall be calculated for each hour of the DR Resource dispatch
as follows: 
  

					
	 	  	 Percent of Contract Capacity
	  	 Percent of Capacity Credit

	 a)
	  	***	  	***
	 b)
	  	***	  	***
	 c)
	  	***	  	***
	 d)
	  	***	  	***
	 e)
	  	***	  	***

  

	 	(a)	For each hour of the dispatch event, when the Recorded Reduced Capacity is at least *** percent of the Contract Capacity then the Delivered Capacity Payment shall equal *** percent
of the Contract Capacity times the applicable Capacity Credit Rate, as shown in Section 1.4 of this Agreement, divided by the number of dispatch hours in the Operating Month. Any Recorded Reduced Capacity above *** percent of the DR Capacity
Nomination shall not be eligible for compensation. 

  

	 	(b)	For each hour of the dispatch event, when the Recorded Reduced Capacity is at least *** percent of the Contract Capacity, but less than *** percent of the Contract Capacity, the
Delivered Capacity Payment calculation shall be the actual Recorded Reduced Capacity times the applicable Capacity Credit Rate, as shown in Section 1.4 of this Agreement, divided by the number of dispatch hours in the Operating Month.

  

	 	(c)	For each hour of the dispatch event, when the Recorded Reduced Capacity is at least *** percent of the DR Capacity Nomination, but less than *** percent of the DR Capacity
Nomination, the Delivered Capacity Payment for that hour shall equal the actual Recorded Reduced Capacity times ***% of the applicable Capacity Credit Rate, as shown in Section 1.4 of this Agreement, divided by the number of dispatch hours in
the Operating Month. 

  

	 	(d)	For each hour of the dispatch event, when the Recorded Reduced Capacity equals less than *** percent of the Contract Capacity, the Delivered Capacity Payment shall equal zero for
that hour. 

  

	 	(e)	For each hour of the dispatch event, when the Recorded Reduced Capacity is less than *** percent of the Contract Capacity, the Delivered Capacity Payment is calculated as ***

  

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	 	3.5	Delivered Energy Payment Calculation 

 The Delivered Energy
Payment shall be calculated on an aggregated basis across all service accounts within a Resource ID for each Operating Month. 
 When the DR Resource is not
dispatched during an Operating Month, the Seller’s Delivered Energy Payment will be zero for that Operating Month. 
 When the DR Resource is dispatched
at least once during an Operating Month, the Recorded Reduced Energy shall be used in the calculation of the Seller’s Delivered Energy Payment, calculated as follows for each hour of each DR Resource dispatch: 
  

	 	(a)	Recorded Reduced Energy equals the difference between the DR Resource’s EB and its recorded kWh usage during each hour of DR Resource dispatch. 

  

	 	(b)	All Recorded Reduced Energy up to 150 percent of the Contract Capacity for each hour shall be eligible for a Delivered Energy Payment, determined by multiplying the Recorded Reduced
Energy by the product of the Energy Credit Rate as recorded in Section 1.4 of this Agreement. Any Recorded Reduced Energy in excess of 150 percent of the Contract Capacity for each hour shall not be eligible for a Delivered Energy Payment.

  

	 	(c)	If the Recorded Energy is less than *** percent of the Contract Capacity for any dispatch hour, then the difference between the Recorded Reduced Energy and the Contract Capacity for
that hour is defined as Shortfall Energy. Shortfall Energy shall be *** 

  

	 	(d)	Seller shall use reasonable means of recording the DR Resource’s kWh usage during each hour of DR Resource dispatch, which means shall be subject to the reasonable approval of
SCE. 

  

	 	3.6	Test Events 

 SCE may conduct up to two test events
(“Test Events”) per calendar year during the Term of this Agreement. Seller shall be entitled to receive a Delivered Energy Payment and a Delivered Capacity Payment for each hour of the Test Events, which shall be calculated in accordance
with the provisions of Sections 3.4 and 3.5 above. The hours for these test events shall be dispatched in accordance with the DR Resource Type descriptions in Article 1.4 (a). ***. 
  

	 	3.7	Disputed Bills or Charges 

 Any disputed invoices and/or
charges shall be resolved in accordance with the provisions of Article 11 below. 
 ARTICLE 4: CREDIT REQUIREMENTS 
 SCE shall require Seller to establish its creditworthiness through evaluations, deposits, or other security in the manner described below. Seller may establish its
creditworthiness through any one of the following. Upon the establishment of such creditworthiness, SCE upon request will refund Seller’s security deposits, if any, then being held to secure payment of liabilities to Buyer under this Agreement.

  

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	 	4.1	Credit Evaluation 

 Seller with a demonstrable current credit
rating of Baa2 or higher from Moody’s or BBB or higher from Standard and Poor’s, Fitch or Duff & Phelps, is deemed to be creditworthy unless SCE determines that a material change in the Seller’s creditworthiness has occurred.
SCE requires Seller to complete a credit application including financial information reasonably necessary to establish credit. The creditworthiness evaluation may be conducted by an outside credit analysis agency, determined by SCE, with final
credit approval granted by SCE. This evaluation will be completed within 10 business days. Credit reports will remain strictly confidential between the credit analysis agency and SCE. A credit application processing fee, as approved by the
Commission, may be charged to offset the cost of determining the Seller’s creditworthiness. 
  

	 	4.2	Security Deposits 

 Seller may submit and maintain a
cost-based security deposit in lieu of submitting to or being qualified under a creditworthiness evaluation. The amount of the security deposit required to establish credit will ***. The initial value of the security deposit shall be reasonably
estimated by Buyer upon consultation with Seller and will be adjusted as necessary from time to time to meet the security requirements based on Seller’s performance under this Agreement. 
  

	 	4.3	Forms of Security Deposits 

 Security deposits may be in the
form of (1) cash deposits, with interest earned at the 3-month commercial paper rate, (2) letters of credit, defined as irrevocable and renewable issued by a major financial institution acceptable to SCE, (3) surety bonds, defined as
renewable and issued by a major insurance company acceptable to SCE, or (4) guarantees from Seller’s parent company, affiliate, guarantor, or subsidiary with a credit rating of Baa2 or higher from Moody’s or BBB or higher from
Standard and Poor’s, Fitch or Duff & Phelps, unless SCE determines that a material change in the guarantor’s creditworthiness has occurred, or, in other cases, through the credit evaluation process described above. Security
deposits must be posted with SCE prior to the Delivery Period. Security deposits posted with SCE which are in excess *** will be returned to Seller within approximately sixty (60) days after the expiration or termination of this Agreement.

  

	 	4.4	Security Deposit Payment Timetable 

 Seller is obligated to
post a security deposit with SCE prior to the Delivery Period. Seller’s failure to timely post the required security deposit may result in the termination of this Agreement. 
  

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	 	4.5	Interest on Cash Deposit 

 SCE will pay interest on cash
deposits, except as provided below, calculated on a daily basis, and compounded at the end of each calendar month, from the date fully paid to the date of refund by check or credit to Seller’s account. The interest rate applicable in each
calendar month shall be set forth in Rule 7; except that when a refund is made within the first fifteen days of a calendar month the interest rate applicable in the previous month shall be applied for the elapsed portion of the month in which the
refund is made. 
  

	 	4.6	Ongoing Maintenance of Credit 

 To assure continued validity
of established unsecured credit, Seller shall promptly notify SCE of any material change in its credit rating or financial condition. Seller shall also furnish evidence of an acceptable credit rating or financial condition, as set forth above, to
SCE upon request. In the event SCE determines that Seller’s or Seller’s guarantor’s creditworthiness has materially changed, as set forth above, and Seller does not rectify or provide a security deposit commensurate with the change in
creditworthiness, then SCE may terminate this Agreement. 
  

	 	4.7	Additional Documents 

 Prior to the Delivery Period, Seller
shall execute and deliver all documents and instruments (including, without limitation, security agreements and SCE financing statements) reasonably required from time to time to implement the provisions set forth above and to perfect any security
interest granted to SCE. 
 ARTICLE 5: SPECIAL TERMS AND CONDITIONS 
  

	 	5.1	Resource Adequacy Benefits 

  

	 	(a)	Seller grants, pledges, assigns, and otherwise commits to SCE the full Capacity of each DR Resource in order for SCE to meet its Resource Adequacy Requirement (“RAR”) and,
if applicable, local RAR under any Resource Adequacy Rulings. Seller represents, warrants, and covenants to SCE that Seller (a) has not used, granted, pledged, assigned, or otherwise committed; and (b) will not use, grant, pledge, assign,
or otherwise commit any Capacity of any DR Resource to meet the RAR or local RAR of, or confer Resource Adequacy Benefits upon, any entity other than SCE during the Term. The Parties shall take all actions (including amending this Agreement and
complying with all current and future tariff provisions and decisions of the Commission and/or any other governmental authority that address Resource Adequacy performance obligations and penalties) and execute all documents or instruments necessary
to effect the use of the Resource Adequacy Benefits of each DR Resource for SCE’s sole benefit throughout the Term. 

  

	 	(b)	If the DR Resources will not be available to provide the Contract Capacity in the full amount for any RAR or Local RAR showing for the Delivery Period, Seller shall, no later than
the earlier of (a) twenty (20) Business Days after the loss of any Contract Capacity, or (b) fifteen (15) Business Days before the relevant deadline for such RAR or local RAR showing, notify Buyer of the Capacity of each DR
Resource which can be included in such showing. 

  

	 	(c)	At any time after the Effective Date, if SCE enters into any demand response resource purchase agreement or similar agreement that provides a seller with more favorable terms and
conditions than the terms and conditions of this section, then Seller shall have the right to avail itself of such terms and conditions as if the same were written into this section. 

  

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	 	5.2	*** 

 Seller grants, pledges, assigns, and otherwise commits
to SCE *** if any, of *** in order for SCE to meet its ***. Seller represents, warrants, and covenants to SCE that Seller (a) has not used, granted, pledged, assigned, or otherwise committed, and (b) will not use, grant, pledge, assign, or
otherwise commit any ***, any entity other than SCE during the Term. The Parties shall take all actions (including amending this Agreement and complying with all current and future provisions and decisions of the Commission and/or any other
governmental authority that address and penalties) and execute all documents or instruments necessary to effect the use of the *** for SCE’s sole benefit throughout the Term. *** 
  

	 	5.3	Ensure Necessary Arrangements with Scheduling Coordinators for CCA and DA Customers 

 Seller shall be solely responsible for having the appropriate contractual or other arrangements with the Scheduling Coordinator (SC) for the electric service provider of each CCA and DA customer with service accounts
that are included in a Seller’s group, and for complying with the Scheduling Coordinator to Scheduling Coordinator (SC-to-SC) Protocol noted below, to ensure that SCE’s SC receives a delivery in the congestion zone in which the
Seller’s DA or CCA customer service account(s) is located. 
 *** 
 *** 
  

	 	(a)	*** 

  

	 	(b)	*** 

  

	 	(c)	*** 

  

	 	(d)	*** 

 *** 
  

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	 	5.4	Secure Customer Participation in Measurement and Evaluation Activities 

 Seller agrees, and shall cause each customer service account of Seller’s aggregated group(s) to agree, to (i) allow SCE, the Commission, and/or the California Energy Commission (“CEC”), and the
authorized representatives of any of them, reasonable access to Seller’s and customer’s facilities to conduct measurement and evaluation activities related to this Agreement; and (ii) participate in and complete all evaluation surveys
received from SCE, the Commission and/or the CEC related to this Agreement. Seller’s failure to secure these agreements may result in the termination of this Agreement. 
  

	 	5.5	SCE Not Liable for Aggregator Service 

 SCE has no
obligations to a customer with one or more service accounts participating in a Seller’s aggregated group(s). Such customer must look to Seller to carry out the responsibilities associated with Seller’s service. 
  

	 	5.6	Customer-Specific Usage or Meter Data 

 SCE will provide
customer-specific usage or meter data to Seller, provided SCE has received written authorization from the customer to release such information to Seller in the form of an executed “Authorization to Receive Customer Information or Act on a
Customer’s Behalf” form (CISR-S), available at www.sce.com. 
  

	 	5.7	Customer Inquiries 

 Customer inquiries concerning
Seller’s services shall be directed to Seller. 
 ARTICLE 6: CONTACT INFORMATION 
  

									
	 	  	 	  	SELLER	  	 	  	BUYER
	 	  	 	  	Phone/Fax	  	 	  	Phone/Fax
					
	 Dispatch Notification:
	  	***	  		  	***	  	
					
	 Day Ahead Trading:
	  	***	  		  	***	  	
					
	 Real Time Trading:
	  	***	  		  	***	  	
					
	 Day Ahead Scheduling:
	  	***	  		  	***	  	
					
	 Real Time Scheduling:
	  	***	  		  	***	  	
					
	 Settlements:
	  	***	  		  	***	  	
					
	 Customer Inquiries:
	  	***	  		  	***	  	

 ARTICLE 7: REPRESENTATIONS AND WARRANTIES 
  

	 	7.1	Representations and Warranties of Both Parties 

 As of the
Execution Date and the Effective Date, each Party represents and warrants to the other Party that: 
  

	 	(a)	It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation; 

  

	 	(b)	 The execution, delivery and performance of this Agreement are within its power, have been duly authorized by all necessary action (other than Final 

  

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Commission Approval) and do not violate any of the terms and conditions in its governing documents, any contracts to which it is a party or any laws
applicable to it; 

  

	 	(c)	This Agreement constitutes its legally valid and binding obligation enforceable against it in accordance with its terms; 

  

	 	(d)	It is not bankrupt and there are not proceedings pending or being contemplated by it or, to its knowledge, threatened against it which would result in it being or become bankrupt;

  

	 	(e)	There is not pending or, to its knowledge, threatened against it or in Seller’s case, guarantor, if applicable, any legal proceedings that could materially adversely affect its
ability to perform its obligations under this Agreement; 

  

	 	(f)	It is acting for its own account, has made its own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for it based upon its
own judgment, is not relying upon the advice or recommendations of the other Party in so doing, and is capable of assessing the merits of and understanding, and understand and accepts, the terms, conditions, and risks of this Agreement; and

  

	 	(g)	It has entered into this Agreement in connection with the conduct of its business and it has the capacity or ability to make or take delivery of all DR Resources under this
Agreement. 

 ARTICLE 8: NOTICES 
 Unless otherwise provided in this Agreement, any notice or request (“Notice”) shall be in writing to the address provided below and delivered by hand delivery, United States mail, overnight courier service or facsimile. Notice by
facsimile or hand delivery shall be effective at the close of business on the day received, if the entire document was received during business hours on a Business Day, and otherwise shall be effective at the close of business on the next Business
Day after it was sent or personally delivered. Notice by overnight courier service shall be effective on the next Business Day after it was sent. Notice by United States mail shall be effective on the third Business Day after it was sent. A Party
may change its address by providing Notice of same to the other Party in accordance with this Article 8. 
  

			
	If to SCE:	  	Southern California Edison Company
		  	***
		  	***
		  	***
		  	***
		
	If to Seller:	  	***
		  	***
		  	***
		  	***
		  	***

 ARTICLE 9: SELLER’S FAILURE TO DELIVER CONTRACT CAPACITY 
 Seller shall indemnify Buyer for any monetary penalties or fines assessed against Buyer by the Commission or the California Independent System Operator
(“CAISO”) resulting from and to the extent caused by: 
  

	 	(a)	Seller’s failure to provide Buyer with any portion of the Contract Capacity pursuant to the terms and conditions of this Agreement, including, without limitation, meeting the
time requirements for dispatching the DR Resource; 

  

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	 	(b)	Seller’s failure to provide notice of the non-availability of any portion of the Contract Capacity as required under Section 5.1 hereof; or 

  

	 	(c)	any other failure by Seller to perform its obligations under this Agreement. With respect to the foregoing, the Parties shall use commercially reasonable efforts to minimize such
penalties and fines, provided that in no event shall Buyer be required to utilize or change its utilization of its owned or controlled assets or market positions to minimize these penalties and fines. If Seller fails to pay such penalties or fines,
or fails to reimburse Buyer for such penalties and fines, then Buyer may offset the cost of those penalties and fines against any future amounts it may owe to Seller under this Agreement. 

 ARTICLE 10: TERMINATION 
 A Party may terminate this
Agreement in the event of a material breach by the other Party of any of the material terms or conditions of this Agreement, provided such breach is not remedied within sixty (60) days of receipt of the non-breaching Party’s Notice
to the breaching Party of such breach or otherwise cured pursuant to the dispute resolution provisions set forth below. 
  

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 ARTICLE 11: DISPUTE RESOLUTION 
  

	 	11.1	Dispute Resolution 

 Any and all disputes, claims or
controversies arising out of, relating to, concerning or pertaining to the terms of this Agreement, or to either Party’s performance or failure of performance under this Agreement (“Dispute”), which Dispute the Parties have been
unable to resolve by informal methods after undertaking a good faith effort to do so, shall first be submitted to an informal dispute resolution under the procedure described in Section 11.2 below; if the matter is not resolved through such
procedures, then to a nonbinding mediation under the procedure described in Section 11.3 below; and then, if the Dispute is not resolved through the informal resolution and nonbinding mediation procedures, it shall be referred for final and
binding arbitration under the procedures described in Section 11.4. 
  

	 	11.2	Informal Resolution 

 Any unresolved Disputes shall initially
be referred to a Vice President of SCE, or designee, and an officer of Seller, or designee, for resolution. 
  

	 	11.3	Mediation 

 If the Dispute is not resolved under the
procedure provided for in Section 11.2, above, within one (1) month of its submission to SCE’s Vice President and Seller’s officer, then the Dispute shall be submitted to JAMS, its successor, or any other mutually agreeable
neutral (the “Mediator”) for non-binding mediation. Either Party may initiate the mediation by providing to the other Party a written request for mediation that sets forth the subject of the Dispute and the relief requested. The Parties
will cooperate with one another in promptly selecting the Mediator from the JAMS’ panel of neutrals, or in selecting a mutually acceptable non-JAMS Mediator, and in scheduling the time and place of the mediation. Unless otherwise agreed to by
the Parties, however, the mediation shall not be scheduled for a date that is greater than one hundred twenty (120) days from the date of the initial written demand for mediation. Moreover, if the Parties cannot agree on the place of mediation,
it shall alternate between the Parties’ headquarters, starting at the headquarters of the Party that did not request mediation. The Parties covenant that they will participate in the mediation in good faith, and that they will share equally in
its costs (other than each Party’s individual attorneys’ fees and costs related to the Party’s participation in the mediation, which fees and costs shall be borne by such Party). All offers, promises, conduct and statements, whether
oral or written, made in connection with or during the mediation by either of the Parties, their Representatives, and by the Mediator and any of the Mediator’s agents, representatives and employees, are confidential, privileged and inadmissible
for any purpose, including impeachment, in any arbitration or other proceeding between the Parties, provided, evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use
in the mediation. 
  

	 	11.4	Arbitration 

 Either Party may initiate binding arbitration
with respect to the Dispute first submitted to mediation by making a written demand for binding arbitration before a single, neutral arbitrator (the “Arbitrator”) at any time following the unsuccessful conclusion of the mediation provided
for in Section 11.3. The Parties will cooperate with one another in promptly selecting the Arbitrator and in scheduling the arbitration to commence no later than one hundred eighty (180) days from the date of the initial written demand for
binding arbitration. If, notwithstanding their good faith efforts, the Parties are unable to agree upon a mutually acceptable Arbitrator, the Arbitrator shall be appointed as provided for in California Code of Civil Procedure Section 1281.6,
provided, unless the Parties otherwise agree in writing, the person who acted as Mediator shall be precluded from serving as Arbitrator. Upon a Party’s written demand for binding arbitration, such Dispute, including the determination of
the scope or applicability of this agreement to arbitrate, shall be determined by binding arbitration before the Arbitrator, in accordance with the laws of the State of California, without regards to principles of conflicts of laws. Except as
provided for herein, the arbitration shall be conducted by the Arbitrator in accordance with the rules and procedures for arbitration of complex business disputes for the organization with which the Arbitrator is associated; absent the existence of
such rules and procedures, the arbitration shall be conducted in accordance with the California Arbitration Act, California Code of Civil Procedure Section 1280 et seq. However, notwithstanding the rules and procedures that would
otherwise apply to the arbitration, and unless the 

  

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Parties agree to a different arrangement, the place of the arbitration shall be in Los Angeles County, California, each side in the arbitration shall be
entitled to take up to three depositions, and all direct testimony in the arbitration shall be submitted in the form of affidavits or declarations under penalty of perjury. Each Party shall cooperate in making available for cross-examination at the
arbitration hearing its witnesses whose direct testimony has been so submitted. Judgment on the award may be entered in any court having jurisdiction. The Arbitrator shall, in any award, allocate all of the costs of the binding arbitration (other
than each Party’s individual attorneys’ fees and costs related to the Party’s participation in the arbitration, which fees and costs shall be borne by such Party), including the fees of the Arbitrator, against the Party who did not
prevail. Until such award is made, however, the Parties shall share equally in paying the costs of the arbitration. 
  

	 	11.5	Waiver of July Trial 

 The Parties waive any right to trial
by jury in any litigation arising under this Agreement. 
 ARTICLE 12 : INDEMNIFICATION 
  

	 	12.1	Seller Acts and Omissions 

 Seller shall, at its own cost,
defend, indemnify and hold harmless SCE and its officers, directors, employees, agents, representatives, assigns, and successors in interest from and against any and all liability, damages, losses, claims, demands, actions, causes of action, costs,
including reasonable attorneys’ fees (which shall include allocable costs of in-house counsel) and expense of any of them, resulting from the death or bodily injury to any person or damage to any property, arising out of any negligent act or
omission of Seller, its employees, officers and agents, or any of them. Seller’s indemnification obligation hereunder shall be contingent on Buyer giving Seller written notice of any such claim. Buyer will provide full cooperation in any
defence or settlement of such claim (at Seller’s cost). 
  

	 	12.2	Breach of Representations, Warranties, and Covenants 

 Each
Party shall, at its own cost, defend, indemnify and hold harmless the other Party and its officers, directors, employees, agents, representatives, assigns, and successors in interest from any and all liability, damage, losses, claims, demands,
actions, causes of action, costs and expense arising out of or in connection with any breach by the first Party of its representations, warranties, and covenants in this Agreement. 
  

	 	12.3	Survival 

 All indemnity rights shall survive the termination
of this Agreement for a period of four (4) years. 
 ARTICLE 13: Limitation of Remedies, Liability, and Damages 
 There is no warranty of merchantability or fitness for a particular purpose with respect to any product or DR Resource, and any and all implied warranties are
disclaimed. The Parties confirm that the express remedies and measure of damages provided in this Agreement satisfy the essential purposes hereof. Unless expressly provided otherwise in this Agreement, for breach of any provision for which an
express remedy or measure of damages is provided, such express remedy or measure of damages shall be the sole and exclusive provision and all other remedies or damages at law or in equity (other than injunctive relief as provided in this Agreement)
are waived. If no remedy or measure of damages is expressly provided herein, the obligor’s liability shall be limited to direct actual damages only, such direct actual damages to be the sole and exclusive remedy and all other remedies or
damages at law or in equity (other than in injunctive relief as provided in this agreement) are waived. Notwithstanding anything to the contrary in this Agreement, neither Party shall be liable to the other Party for any indirect, special,
exemplary, incidental, punitive, lost profits, business interruption or consequential damages whatsoever under any theory, including by statute, contract, tort (including negligence) or strict liability, under any indemnity provision set forth in
this Agreement or otherwise, resulting from a Party’s performance or nonperformance of its obligations under or termination of this Agreement. The Parties intend that the limitations herein imposed on remedies and the measure of damages be
without regard to the cause or causes related thereto, including the negligence of any Party, whether such negligence be sole, joint or 
  

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 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

 concurrent, or active or passive. To the extent any damages required to be paid hereunder are liquidated, the Parties
acknowledge that the damages are difficult or impossible to determine or otherwise obtaining an adequate remedy is inconvenient and the damages calculated hereunder constitute a reasonable approximation of the harm or loss. Nothing in this section
prevents or is intended to prevent a party from seeking specific performance unless performance is otherwise excused herein. 
 ARTICLE 14:
CONFIDENTIALITY 
 The terms and conditions of this Agreement shall be Confidential Information of SCE and Seller, and shall not be disclosed to a third
party without the prior written consent of the other Party. 
 Notwithstanding the foregoing, the Parties agree that SCE or Seller may disclose the transfer
of the Contract Capacity under this Agreement or the Agreement itself to any governmental body, the Commission, or the CAISO as required by any law or regulation, or in order to support its RAR, local RAR and/or RPS showings; provided that
the disclosing Party shall, to the extent reasonable, use reasonable efforts to seek a protective order, file under seal, or take other actions to limit the ability of any such applicable governmental body, Commission or CAISO to further disclose
such information. 
 ARTICLE 15: FORCE MAJEURE 
 A Party shall not be in default in the performance of its obligations under this Agreement when and to the extent that the failure or delay of its performance is due to an event of Force Majeure. 
  

	 	15.1	Definition 

 Force Majeure means any event or circumstance to
the extent beyond the control of, and not the result of the negligence of, or caused by, the Party seeking to have its performance obligation excused thereby, which by the exercise of due diligence such Party could not reasonably have been expected
to avoid and which by exercise of due diligence it has been unable to overcome. Force Majeure shall not include (i) a failure of performance of any other entity, except to the extent that such failure was caused by an event that would otherwise
qualify as a Force Majeure event, or (ii) breakage or malfunction of equipment (except to the extent that such failure was caused by an event that would otherwise qualify as a Force Majeure). 
  

	 	15.2	Limitations 

 If, because of a Force Majeure, either Party is
unable to perform its obligations under this Agreement, such Party shall be excused from whatever performance is affected by the Force Majeure only to the extent so affected, provided: 
  

	 	(a)	the claiming Party, no more than five (5) calendar days after the initial occurrence of the claimed Force Majeure, gives the other Party notice describing the particulars of
the occurrence; 

  

	 	(b)	the claiming Party, within five (5) business days of providing notice of occurrence of the Force Majeure, provides evidence reasonably sufficient to establish that the
occurrence constitutes a Force Majeure as defined in this Agreement; 

  

	 	(c)	the suspension of performance is of no greater scope and of no longer duration than is required by the Force Majeure; and 

  

	 	(d)	as soon as Claiming Party is able to resume performance of its obligations under this Agreement, it shall do so and shall promptly give the other Party Notice of this resumption.

  

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 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

 ARTICLE 16: MISCELLANEOUS 
  

	 	16.1	General 

 This Agreement shall be considered for all purposes
as prepared through the joint efforts of the Parties and shall not be construed against one Party or the other as a result of the preparation, substitution, submission or other event of negotiation, drafting or execution hereof. The term
“including” when used in this Agreement shall be by way of example only and shall not be considered in any way to be in limitation. All references to time shall be in PPT unless stated otherwise. The headings used herein are for
convenience and reference purposes only. This Agreement shall be binding on each Party’s successors and permitted assigns. Each Party further agrees that it will not assert, or defend itself, on the basis that any applicable tariff is
inconsistent with this Agreement. 
  

	 	16.2	Governing Law 

 This Agreement shall be construed under the
laws of the State of California without giving effect to choice of law provisions that might apply the laws of a different jurisdiction. 
  

	 	16.3	Amendment 

 This Agreement can only be amended by a writing
signed by both Parties. 
  

	 	16.4	Assignment 

 Neither Party shall assign this Agreement or its
rights hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 
  

	 	16.5	Successors and Assigns 

 This Agreement shall be binding
upon, and inure to the benefit of, the Parties and their respective successors and assigns. Rights and obligations under this Agreement shall not be assignable by either Party without the prior written consent of the other Party. This Agreement is
not intended to confer any rights or remedies upon any other persons other than the Parties. 
  

	 	16.6	Waiver 

 None of the provisions of this Agreement shall be
considered waived by either Party unless the Party against whom such waiver is claimed gives the waiver in writing. The failure of either Party to insist in any one instance upon strict performance of any the provisions of this Agreement or to take
advantage of any of its rights hereunder shall not be construed as a waiver of any such provisions or the relinquishments of such rights for the future, but the same shall continue and remain in full force and effect. Waiver by either Party of any
default of the other Party shall not be deemed a waiver of any other default. 
  

	 	16.7	Obligations Surviving Termination 

 Except as may be provided
or limited by this Agreement, the obligations which by their nature are intended to survive termination of this Agreement, including representations, warranties, covenants and rights and obligations with respect to indemnification, payment, and
settlement, confidentiality, shall so survive. 
  

	 	16.8	No Agency 

 Except as otherwise provided explicitly herein,
in performing their respective obligations under this Agreement, neither Party is acting, or is authorized to act, as the other Party’s agent. 
  

	 	16.9	No Third Party Beneficiaries 

 This Agreement shall not
impart any rights enforceable by any third party (other than a permitted successor or assignee bound by this Agreement). 
  

	 	16.10	Entire Agreement 

 This Agreement, when fully executed,
constitutes the entire agreement by and between the Parties as to the subject matter hereof, and supersedes all prior understandings, agreements or representations by or between the Parties, written or oral to the extent they have related in any way
to the subject matter hereof. Each Party represents that, in entering into this Agreement, it has not relied upon any promise, inducement, representation, warranty, agreement or other statement not set forth in this Agreement. 
  

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 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

	 	16.11	Severability 

 If any term, section, provision or other part
of this Agreement, or the application of any term, section, provision or other part of this Agreement, is held to be invalid, illegal or void by a court or regulatory agency of proper jurisdiction, all other terms, sections, provisions or other
parts of this Agreement shall not be affected thereby but shall remain in force and effect unless a court or regulatory agency holds that the provisions are not separable from all other provisions of this Agreement. 
  

	 	16.12	Multiple Originals 

 This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any of the signatures thereon, and may be attached to
another counterpart of this Agreement identical in form hereto by having attached to it one or more signature pages. 
  

	 	16.13	Audit Rights 

 SCE and the Commission shall each have the
right, at its sole expense and during normal working hours, to audit the documents, records or data of Seller to the extent reasonably necessary to verify the accuracy of any statement, claim, charge or calculation made pursuant to this Agreement.
Seller shall promptly comply with any reasonable request by SCE under this Section and provide copies of documents, records or data to SCE. The rights and obligations under this Section shall survive the termination of this Agreement for a period of
two (2) years. 
  

	 	16.14	Performance under this Agreement 

 Each Party and its
representatives shall maintain records and supporting documentation relating to this Agreement, and the performance of the Parties hereunder in accordance with, and for the applicable time periods required by, all applicable laws, but in no event
less than seven (7) years after final payment is made under this Agreement. 
 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives as of the Execution Date. 
  

									
	ALTERNATIVE ENERGY RESOURCES, INC.	 		 	SOUTHERN CALIFORNIA EDISON COMPANY
					
	By:	 	 /s/ Frank Magnotti
	 		 	By:	 	 /s/ Lynda L. Ziegler

					
	Name:	 	 Frank Magnotti
	 		 	Name:	 	 Lynda L. Ziegler

		 	print	 		 		 	print
					
	Title:	 	 President and EOO, AER
	 		 	Title:	 	 Senior V.P. Customer Service

					
	Date:	 	 10/10/2007
	 		 	Date:	 	 October 16, 2007

  

 Page 19 of 20 

 DEMAND RESPONSE RESOURCE PURCHASE AGREEMENT 
 BETWEEN 
 ALTERNATIVE ENERGY
RESOURCES, INC. AND SOUTHERN CALIFORNIA EDISON 
  

 Exhibit A 
  

			
	 Calendar Year
	  	 Security Requirement (not to exceed)

		
	2008	  	***
		
	2009	  	***
		
	2010	  	***
		
	2011	  	***
		
	2012	  	***
		
	***	  	

  

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