Document:

ex1012092010.htm

    
      REGISTRATION RIGHTS
AGREEMENT

       

      REGISTRATION RIGHTS AGREEMENT
(this “Agreement”), dated as
of October 7, 2009, by and between NORTH BAY RESOURCES, INC., a
Delaware corporation (the “Company”), and TANGIERS INVESTORS, LP., a
limited partnership (the “Investor”).

       

      WHEREAS:

       

      A.In connection with the Securities
Purchase Agreement by and between the parties hereto of even date herewith (the
“Securities
Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Investor that number of
shares of the Company’s common stock, par value $0.001 per share (the
“Common
Stock”), which can be
purchased pursuant to the terms of the Securities Purchase Agreement for an
aggregate purchase price of up to Five Million Dollars ($5,000,000).
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Securities Purchase Agreement.

       

      B.To induce the Investor to execute and
deliver the Securities Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the “Securities
Act”), and applicable
state securities laws.

       

      NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Investor hereby agree as
follows:

       

      1.    DEFINITIONS.

       

      As used
in this Agreement, the following terms shall have the following
meanings:

       

      a.   “Person” means a corporation, a limited
liability company, an association, a partnership, an organization, a business,
an individual, a governmental or political subdivision thereof or a governmental
agency.

       

      b.   “Register,” “registered,” and “registration” refer to a registration effected by
preparing and filing one or more Registration Statements (as defined below) in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous or
delayed basis (“Rule
415”), and the declaration
or ordering of effectiveness of such Registration Statement(s) by the United
States Securities and Exchange Commission (the “SEC”).

       

      c.   “Registrable
Securities” means the
Investor’s Shares, as defined in the Securities Purchase Agreement, and shares
of Common Stock issuable to Investors pursuant to the Securities Purchase
Agreement.

      

      d.   “Registration
Statement” means a
registration statement under the Securities Act which covers the Registrable
Securities.

       

      2.    REGISTRATION.

       

      a.   Mandatory
Registration. The Company
shall prepare and file with the SEC a Registration Statement on Form S-1 or on
such other form as is available. The Company shall cause such Registration
Statement to be declared effective by the SEC prior to the first sale to the
Investor of the Company’s Common Stock pursuant to the Securities Purchase
Agreement. The Company shall cause the Registration Statement to remain
effective until the full completion of the Commitment Period (as such term is
defined in the Securities Purchase Agreement).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      b.   Sufficient
Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Section 2(a) is
insufficient to cover all of the Registrable Securities pursuant to the
Securities Purchase Agreement, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefore, if applicable), or both, so as to cover all of such Registrable
Securities pursuant to the Securities Purchase Agreement as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefore
arises. The Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed “insufficient to cover
all of the Registrable Securities” if at any time the number of Registrable
Securities issuable on an Advance Notice Date is greater than the number of
shares available for resale under such Registration
Statement.

       

      3.    RELATED
OBLIGATIONS.

       

      a.   The Company shall keep the Registration
Statement effective pursuant to Rule 415 at all times until the completion of
the Commitment Period (as such term is defined in the Securities Purchase
Agreement) (the “Registration
Period”), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.

       

      b.   The Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company’s filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Company shall
have incorporated such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement the Registration
Statement.

      

      c.   The Company shall furnish to the
Investor without charge, (i) at least one copy of such Registration Statement as
declared effective by the SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) ten (10) copies of the final
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents as such Investor may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by such Investor.

       

      d.   The Company shall use its best efforts
to (i) register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or “blue sky” laws of such jurisdictions
in the United States as the Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify the Investor
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      e.   As promptly as practicable after
becoming aware of such event or development, the Company shall notify the
Investor in writing of the happening of any event as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (provided
that in no event shall such notice contain any material, nonpublic information),
and promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to each Investor. The Company shall also promptly notify
the Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to the Investor by facsimile on the same day of
such effectiveness), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be
appropriate.

      

      f.   The Company shall use its best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction within the United States
of America and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and to
notify the Investor of the issuance of such order and the resolution thereof or
its receipt of actual notice of the initiation or threat of any proceeding for
such purpose.

       

      g.   At the reasonable request of the
Investor, the Company shall furnish to the Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as the Investor may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Investor.

       

      h.   The Company shall make available for
inspection by (i) the Investor and (ii) one firm of accountants or other agents
retained by the Investor (collectively, the “Inspectors”) all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the “Records”), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company’s officers, directors and employees to supply all information which any
Inspector may reasonably request in connection with the Registration Statement.
The Investor agrees that Records obtained by it as a result of such inspections
which is conspicuously marked by the Company as "Confidential" (subject to the
Company’s obligations with respect to material non-public information set forth
in Section 8.1(a) herein) shall be deemed confidential and held in strict
confidence by the Investor, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the Securities Act, (b) the release of
such Records is ordered pursuant to a final, non-appealable subpoena or order
from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector and the Investor has knowledge. The Investor agrees that it shall,
upon learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      i.   The Company shall hold in confidence
and not make any disclosure of information concerning the Investor provided to
the Company unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental body
of competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this Agreement
or any other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning the Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt written notice to the Investor and allow the Investor, at the
Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

       

      j.   The Company shall use its best efforts
either to cause all the Registrable Securities covered by a Registration
Statement (i) to be listed on each securities exchange on which securities of
the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or to secure the inclusion for quotation on the National Association of
Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The
Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(j).

       

      k.   The Company shall cooperate with the
Investor to the extent applicable, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investor may reasonably request and registered in such names as the
Investor may request.

       

      l.   The Company shall use its best efforts
to cause the Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.

       

      m.   The Company shall make generally
available to its security holders as soon as practical, but not later than
ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with the provisions of Rule 158 under the
Securities Act) covering a twelve-month period beginning not later than the
first day of the Company’s fiscal quarter next following the effective date of
the Registration Statement.

       

      n.   The Company shall otherwise use its
best efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.

       

      o.   Within two (2) business days after a
Registration Statement which covers Registrable Securities is ordered effective
by the SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investor) confirmation that such Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit
A.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      p.   The Company shall take all other
reasonable actions necessary to expedite and facilitate disposition by the
Investor of Registrable Securities pursuant to a Registration
Statement.

      

      4.    OBLIGATIONS
OF THE INVESTOR.

       

      The
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e), the Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until the Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required. Notwithstanding anything to
the contrary, the Company shall cause its transfer agent to deliver unlegended
certificates for shares of Common Stock to a transferee of the Investor in
accordance with the terms of the Securities Purchase Agreement in connection
with any sale of Registrable Securities with respect to which the Investor has
entered into a contract for sale prior to the Investor’s receipt of a notice
from the Company of the happening of any event of the kind described in Section
3(f) or the first sentence of 3(e) and for which the Investor has not yet
settled.

       

      5.    EXPENSES OF
REGISTRATION.

       

      All
expenses incurred in connection with registrations, filings or qualifications
pursuant to Sections 2 and 3, including, without limitation, all registration,
listing and qualifications fees, printers, legal and accounting fees shall be
paid by the Company.

       

      6.    INDEMNIFICATION.

       

      With
respect to Registrable Securities which are included in a Registration Statement
under this Agreement:

       

      a.   To the fullest extent permitted by law,
the Company will, and hereby does, indemnify, hold harmless and defend the
Investor, the directors, officers, partners, employees, agents, representatives
of, and each Person, if any, who controls the Investor within the meaning of the
Securities Act or the Exchange Act (each, an “Indemnified
Person”), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint
or several (collectively, “Claims”) incurred in investigating, preparing
or defending any action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or the SEC, whether pending or
threatened, whether or not an indemnified party is or may be a party thereto
(“Indemnified
Damages”), to which any of
them may become subject insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon: (i) any untrue statement or alleged untrue statement of a material fact in
a Registration Statement or any post-effective amendment thereto or in any
filing made in connection with the qualification of the offering under the
securities or other “blue sky” laws of any jurisdiction in which Registrable
Securities are offered (“Blue Sky
Filing”), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, “Violations”). The Company shall reimburse the
Investor and each such controlling person promptly as such expenses are incurred
and are due and payable, for any legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      b.   In connection with a Registration
Statement, the Investor agrees to indemnify, hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration Statement
and each Person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act (each an “Indemnified
Party”), against any Claim
or Indemnified Damages to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by the
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), the Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of the Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to the Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the prospectus was corrected and such new
prospectus was delivered to the Investor prior to the Investor’s use of the
prospectus to which the Claim relates.

      

      c.   Promptly after receipt by an
Indemnified Person or Indemnified Party under this Section 6 of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses of not more than one counsel
for such Indemnified Person or Indemnified Party to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      d.   The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.

       

      e.   The indemnity agreements contained
herein shall be in addition to (i) any cause of action or similar right of the
Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.

      

      7.    CONTRIBUTION.

       

      To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that: (i) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.

       

      8.    REPORTS
UNDER THE EXCHANGE ACT.

       

      With a
view to making available to the Investor the benefits of Rule 144 promulgated
under the Securities Act or any similar rule or regulation of the SEC that may
at any time permit the Investors to sell securities of the Company to the public
without registration (“Rule 144”) the
Company agrees to:

       

      a.   make and keep public information
available, as those terms are understood and defined in Rule
144;

       

      b.   file with the SEC in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company’s obligations
under Section 6.3 of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and

       

      c.   furnish to the Investor so long as the
Investor owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Investor to sell such securities pursuant to
Rule 144 without registration.

       

      9.    AMENDMENT
OF REGISTRATION RIGHTS.

       

      Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only by a written agreement between the Company and the
Investor. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon the Investor and the Company. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of this Agreement unless the same consideration also is
offered to all of the parties to this Agreement.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      10.    MISCELLANEOUS.

       

      a.   A Person is deemed to be a holder of
Registrable Securities whenever such Person owns or is deemed to own of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

       

      b.   Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

       

      

      
        	
                If
      to the Company, to:

              	 
      
	 
      	 
      
	 
      	
                North
      Bay Resources, Inc.

                PO
      BOX 162

                Skippack,
      Pennsylvania 19474

                ATTN:
      Perry Leopold

                Phone:
      215-661-1100

                Facsimile:
      215-661-8959

                 

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      
	
                If
      to the Investor, to:

              	
                Tangiers
      Capital, LLC

              
	 
      	
                402
      West Broadway, Suite 400

              
	 
      	
                San
      Diego, California 92101

              
	 
      	
                Attention:

              	
                Michael
      Sobeck

              
	 
      	 
      	
                Managing
      Partner

              
	 
      	
                Telephone:  

              	
                619-615-4255

              
	 
      	
                Facsimile:  

              	
                619-566-2011

              
	 
      	 
      

      

      Any party
may change its address by providing written notice to the other parties hereto
at least five days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
courier or overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.

       

      c.   Failure of any party to exercise any
right or remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      d.   The corporate laws of the State of
California govern all issues concerning the relative rights of the Company and
the Investor. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of California, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of California or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the Superior Courts of the State of
California, sitting in California and the Federal District Court for the
District of California, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

       

      e.   This Agreement, the Securities Purchase
Agreement and the Registration Rights Agreement constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and
thereof.

      

      f.   This Agreement shall inure to the
benefit of and be binding upon the permitted successors and assigns of each of
the parties hereto.

       

      g.   The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

       

      h.   This Agreement may be executed in
identical counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.

       

      i.   Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

       

      j.   The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent and no rules of strict construction will be applied against any
party.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      k.   This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

       

      

      IN WITNESS WHEREOF, the
parties have caused this Registration Rights Agreement to be duly executed as of
day and year first above written.

       

      
        	
                COMPANY:

              
	
                North
      Bay Resources, Inc.

              
	 
      	 
      
	 
      	 
      
	 
      	
                       /s/ Perry
      Leopold       
                      
      

              
	
                Name:

              	
                 Perry
      Leopold

              
	
                Title:

              	
                CEO

              
	 
      	 
      
	 
      	 
      
	
                INVESTOR:

              
	
                Tangiers
      Investors, LP

              
	 
      	 
      
	 
      	
                      /s/ Michael
      Sobeck       
      

              
	
                By:

              	
                Tangiers
      Capital, LLC

              
	
                Its:

              	
                General
      Partner

              
	 
      	 
      

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      EXHIBIT
A

      FORM
OF NOTICE OF EFFECTIVENESS

      OF
REGISTRATION STATEMENT

      

      Attention:

      

      Re:   NORTH BAY
RESOURCES, INC.

      

      Ladies
and Gentlemen:

      

      We are
counsel to North Bay Resources, Inc. (the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement (the “Securities Purchase
Agreement”) entered into by and between the Company and Tangiers
Investors, LP (the “Investor”) pursuant
to which the Company issued to the Investor shares of its Common Stock, par
value $0.001 per share (the “Common Stock”).
Pursuant to the Securities Purchase Agreement, the Company also has entered into
a Registration Rights Agreement with the Investor (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the “Securities Act”). In
connection with the Company’s obligations under the Registration Rights
Agreement, on ____________ ____, the Company filed a Registration Statement on
Form ________ (File No. 333-_____________) (the “Registration
Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the
Registrable Securities which names the Investor as a selling stockholder
thereunder.

       

      In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS]
on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a
member of the SEC’s staff, that any stop order suspending its effectiveness has
been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Registrable Securities are available for resale
under the Securities Act pursuant to the Registration Statement.

       

      
        	
                
Very truly
    yours,

              
	 
      
	
                By:

              	 
      

      

      

      cc:    NORTH BAY
RESOURCES, INC.ex1032092010.htm

     

    FAWN
& BUCK OPTION AND JOINT VENTURE AGREEMENT

     

    This
Agreement is made as of October 15, 2009

     

    BETWEEN:

     

    NORTH BAY
RESOURCES INC., a corporation existing under the laws of the State of
Delaware, United States of America and having an address at 2120 Bethel Road,
Lansdale, PA 19446

     

    (“North
Bay”),

     

    AND:

     

    SILVER
QUEST RESOURCES LTD., a corporation existing under the laws of British
Columbia and having its head office at Suite 1410, 650 West Georgia Street,
Vancouver, British Columbia, V6B 4N8

     

    (“Silver
Quest”).

     

    WHEREAS:

     

    
      	
              A.

            	
              North
      Bay holds a 100% interest in four mineral claims covering a total of
      406.7845 hectares located in the Omineca Mining Division, British Columbia
      (the “Property”) , as more particularly described in Schedule “A” hereto;
      and

            

    

     

    
      	
              B.

            	
              North
      Bay has agreed to grant Silver Quest the sole and exclusive right and
      option to acquire an undivided seventy-five percent (75%) right, title and
      interest in and to the Property whereupon a Joint Venture shall
      automatically be formed between the parties in accordance with the terms
      and conditions of this Agreement.

            

    

     

    For
valuable consideration, the parties agree as follows:

     

    SECTION 1.
- INTERPRETATION.

     

    1.1           Definitions.  In
this Agreement terms and expressions given a defined meaning in any Schedule
shall have the corresponding meaning in this Agreement and:

     

    
      	
              (a)

            	
              “Affiliate”
      has the meaning given to that term in the Securities Act (British
      Columbia);

            

    

     

    
      	
              (b)

            	
              “Agreement”
      means this Agreement, including the recitals and the Schedules, all as
      amended, from time to time;

            

    

     

    
      	
              (c)

            	
              “Claims”
      means the mineral claims set forth in Schedule “A” and any amended or
      relocated mineral claims therefore;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (d)

            	
              “Commercial
      Production” means, and is deemed to have been achieved, when the
      concentrator processing ores, for other than testing purposes, has
      operated for a period of 60 consecutive production days at an average rate
      of not less than 80% of design capacity or, if a concentrator is not
      erected on the Property, when ores have been produced for a period of 60
      consecutive production days at the rate of not less than 80% of the mining
      rate specified in a feasibility study recommending placing the Property in
      commercial production;

            

    

     

    
      	
              (e)

            	
              “Diluted
      Interest Royalty” means the royalty retained by North Bay or Silver Quest,
      as the case may be, in accordance with Section 2.2 of Schedule “B” and
      calculated as more fully described in Schedule
  “C”;

            

    

     

    
      	
              (f)

            	
              “Effective
      Date” means the date of the Bulletin issued by the TSX Venture Exchange
      stating that the Venture Exchange has accepted this Agreement for
      filing;

            

    

     

    
      	
              (g)

            	
              “Expenditures”
      means, without duplication, all costs and expenses actually and directly
      incurred by a party on the Property including without limiting the
      generality of the foregoing, monies expended in doing geophysical,
      geochemical and geological surveys, drilling, drifting and other
      underground work, assaying and metallurgical testing and engineering, in
      acquiring Facilities, equipping the Property for and commencing Commercial
      Production, in paying the fees, wages, salaries, travelling expenses, and
      fringe benefits (whether or not required by law) of all persons engaged in
      work with respect to and for the benefit of the Property and which are
      attributable to such person’s work on the Property, in paying for the
      food, lodging and other reasonable needs of such persons while engaged in
      such work at the Property and including all costs at prevailing charge out
      rates for any personnel who from time to time are engaged directly in work
      on the Property, such rates to be in accordance with industry
      standards;

            

    

     

    
      	
              (h)

            	
              “Facilities”
      means all buildings, facilities, structures, fixtures and improvements
      brought onto or erected upon or attached to the
  Property;

            

    

     

    
      	
              (i)

            	
              “Joint
      Venture” means the joint venture which may be formed pursuant to Section
      7;

            

    

     

    
      	
              (j)

            	
              “Joint
      Venture Assets” means, after the formation of the Joint Venture, the
      Property and all other assets of the Joint
  Venture;

            

    

     

    
      	
              (k)

            	
              “Joint
      Venture Interest” means the percentage undivided interest of each of North
      Bay and Silver Quest in the Joint Venture, which interest shall, at all
      times, correspond with and represent their respective percentage undivided
      interest in the Property and vice
versa;

            

    

     

    
      	
              (l)

            	
              “Letter
      of Intent” means the letter from North Bay to Silver Quest respecting the
      rights and obligations set out herein dated October 2,
    2009;

            

    

     

    
      	
              (m)

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

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (n)

            	
              “Management
      Committee” means the committee established by the parties on the formation
      of the Joint Venture as described in Section 3 of Schedule
      “B”;

            

    

     

    
      	
              (o)

            	
              “MEMPR”
      means the Ministry of Energy, Mines and Petroleum Resources of the
      Government of the Province of British
Columbia;

            

    

     

    
      	
              (p)

            	
              “MTO”
      means “Mineral Titles Online”, the web-based system of mineral titles
      administered and maintained by
MEMPR;

            

    

     

    
      	
              (q)

            	
              “Operator”
      means the party responsible for carrying out, or causing to be carried
      out, all work in respect of the Property during the Option Period and the
      Joint Venture;

            

    

     

    
      	
              (r)

            	
              “Option”
      means the option granted to Silver Quest by North Bay in accordance with
      Section 3.1;

            

    

     

    
      	
              (s)

            	
              “Party”
      means a party to this Agreement and “Parties” means all parties to this
      Agreement;

            

    

     

    
      	
              (t)

            	
              “Permitted
      Encumbrances” means:

            

    

     

    
      	
               
      

            	
              (i)

            	
              liens
      for taxes, assessments and governmental charges which are not due or the
      validity of which is being diligently contested in good faith by or on
      behalf of the affected Party,

            

    

     

    
      	
               
      

            	
              (ii)

            	
              liens
      incurred or created in the ordinary course of business as security in
      favor of the person(s) who is/are providing financing or conducting the
      development or operation of the Property to which such liens relate for
      either Party’s proportionate share of the costs and expenses of such
      development or operation,

            

    

     

    
      	
               
      

            	
              (iii)

            	
              mechanics',
      builders' and materialmen's liens in respect of services rendered or goods
      supplied for which payment is not
due,

            

    

     

    
      	
               
      

            	
              (iv)

            	
              easements,
      rights of way, servitudes and other similar rights in land (including
      without limitation rights of way and servitudes for highways and other
      roads, railways, sewers, drains, gas and oil pipelines, gas and water
      mains, electric light, power, telephone, telegraph and cable television
      conduits, poles, wires and cables) which do not materially impair the use
      of the Property affected thereby,

            

    

     

    
      	
               
      

            	
              (v)

            	
              the
      right reserved to or vested in any municipality or government or other
      public authority by the terms of any lease, license, franchise, grant or
      permit or by any statutory provision, to terminate any such lease,
      license, franchise, grant or permit or to require annual or other periodic
      payments as a condition of the continuance
  thereof,

            

    

     

    
      	
               
      

            	
              (vi)

            	
              rights
      of general application reserved to or vested in any governmental authority
      to levy taxes on the Property or the income therefrom, and governmental
      requirements and limitations of general application as to production rates
      on the operations of the Property,
and

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (vii)

            	
              statutory
      exceptions to title, and the reservations, limitations, provisos and
      conditions in any original grants from the Crown of any of the minerals
      within, upon or under the Property;

            

    

     

    
      	
              (u)

            	
              “Program” means a written description,
      prepared by the Operator, outlining all Expenditures which the Operator
      contemplates incurring on the Property including a detailed description of
      all work which the Operator proposes to carry out on the Property pursuant
      to such Program;

            

    

     

    
      	
              (v)

            	
              “Property”
      has the meaning set forth in Recital A, together with any and all
      substitute or successor title
thereto;

            

    

     

    
      	
              (w)

            	
              “Representative”
      means the individual appointed from time to time by a Party to act as such
      Party’s representative on the Management
  Committee;

            

    

     

    1.2           Extended
Meanings.  Unless otherwise specified, words importing the
singular include the plural and vice versa.  The term
“including” means “including, without limitation.”

     

    1.3           Headings.  The
division of this Agreement into sections and the insertion of headings are for
convenience of reference only and are not to affect the construction or
interpretation of this Agreement.

     

    1.4           Severability.  If
any term of this Agreement is or becomes illegal, invalid or unenforceable, that
term shall not affect the legality, validity or enforceability of the remaining
terms of this Agreement.

     

    1.5           Entire
Agreement.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter herein and supersedes all
prior arrangements, negotiations, discussions, undertakings, representations,
warranties and understandings, whether written or verbal.

     

    1.6           Time.  For every
provision in this Agreement, time is of the essence.

     

    1.7           Governing Law.  This
Agreement shall be governed by and shall be construed and interpreted in
accordance with the laws of British Columbia and the laws of Canada applicable
in British Columbia.  The Parties irrevocably attorn and submit to the
exclusive jurisdiction of the courts of the Province of British Columbia and the
courts of appeal therefrom in respect of all matters arising out of or in
connection with this Agreement.

     

    1.8           Currency. All dollar amounts
referred to herein are expressed in Canadian dollars unless otherwise
indicated.

     

    1.9           Statutory
References.  Each reference to a statute in this Agreement
includes the regulations made under that statute, as amended or re-enacted from
time to time.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.10           Schedules.  The
following Schedules are incorporated herein by reference as though contained in
the body hereof.  Wherever any term or condition of such schedules
conflicts or is at variance with any term or condition in the body of this
Agreement, such term or condition in the body of this Agreement shall
prevail:

     

    
      	
              Schedule

            	
              Description

            
	
              Schedule
      “A”

            	
              Description
      of the Property

            
	
              Schedule
      “B”

            	
              Joint
      Venture

            
	
              Schedule
      “C”

            	
              Diluted
      Interest Royalty

            

    

    

     

    SECTION
2 - REPRESENTATIONS AND WARRANTIES.

     

    2.1           North
Bay hereby represents and warrants to Silver Quest that:

     

    
      	
              (a)

            	
              it
      is a corporation duly incorporated and organised and validly existing
      under the laws of the State of
Delaware;

            

    

     

    
      	
              (b)

            	
              it
      has full corporate power, authority and capacity to enter into this
      Agreement and to carry out its obligations under this
      Agreement;

            

    

     

    
      	
              (c)

            	
              it
      has been duly authorized to enter into, and to carry out its obligations
      under, this Agreement and no obligation of it in this Agreement conflicts
      with or will result in the breach of any term
  in:

            

    

     

    (i)           its
articles or by-laws; or

     

    (ii)           any
other agreement to which it is a party;

     

    
      	
              (d)

            	
              it
      has duly executed and delivered this Agreement, which binds it in
      accordance with its terms;

            

    

     

    
      	
              (e)

            	
              with
      respect to the Claims:

            

    

     

    
      	
               
      

            	
              (i)

            	
              to
      the best of its knowledge and belief the Claims were properly applied for
      and confer upon North Bay exclusive prospecting rights to the
      Property;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      the best of its knowledge and belief all required location and validation
      work was properly performed;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              to
      the best of its knowledge and belief location notices and certificates
      were properly recorded and filed with the appropriate governmental
      agencies;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              to
      the best of its knowledge and belief all assessment work required to hold
      the Claims has been performed and all applicable governmental fees have
      been paid;

            

    

     

    
      	
               
      

            	
              (v)

            	
              to
      the best of its knowledge and belief all affidavits of assessment work,
      evidence of payment of applicable governmental fees, and other filings
      required to maintain the Claims in good standing have been properly and
      timely recorded or filed with appropriate governmental agencies;
      and

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (vi)

            	
              to
      the best of its knowledge and belief there are no conflicting mineral
      dispositions;

            

    

     

    
      	
              (f)

            	
              there
      are no outstanding agreements or options to acquire or purchase the
      Property or any interest in or any portion thereof and no person, firm or
      corporation has any proprietary or possessory or royalty interest in the
      Property other than Silver Quest pursuant to this
    Agreement;

            

    

     

    
      	
              (g)

            	
              the
      Property is properly and accurately described in Schedule “A”
      hereto;

            

    

     

    
      	
              (h)

            	
              North
      Bay has a 100% registered and beneficial interest in the Property and
      North Bay is in exclusive possession of the mineral rights for the
      Property and has the exclusive right to explore and exploit the
      Property;

            

    

     

    
      	
              (i)

            	
              to
      the best of its knowledge and belief the Property is free and clear of all
      Liens, defects in title and third party interests other than any royalties
      created by statute in favour of the Crown or any agency of the
      Crown;

            

    

     

    
      	
              (j)

            	
              to
      the best of its knowledge and belief there has been no known spill,
      discharge, deposit, leak, emission or other release of any contaminant,
      pollutant, dangerous or toxic substance, hazardous waste or material
      substance on, into, under or affecting the Property and no such
      contaminant, pollutant, dangerous or toxic substance, hazardous waste or
      material substance is stored in any type of container on, in or under the
      Property;

            

    

     

    
      	
              (k)

            	
              to
      the best of its knowledge and belief there are no pending or threatened
      actions, suits, claims or proceedings regarding North Bay or the Property
      and there are no outstanding notices, orders, assessments, directives,
      rulings or other documents issued in respect of the Property by any
      governmental authority;

            

    

     

    
      	
              (l)

            	
              to
      the best of its knowledge and belief no reclamation, rehabilitation,
      restoration or abandonment obligations exist with respect to the Property;
      and

            

    

     

    
      	
              (m)

            	
              North
      Bay has delivered to Silver Quest all information concerning title to the
      Property in its possession or
control.

            

    

     

    
      	
              2.2

            	
              Silver
      Quest hereby represents and warrants
that:

            

    

     

    
      	
              (a)

            	
              it
      is a corporation duly incorporated and organised and validly existing
      under the Business
      Corporations Act (British
Columbia);

            

    

     

    
      	
              (b)

            	
              it
      has full corporate power, authority and capacity to enter into this
      Agreement and to carry out its obligations under this Agreement.  It is
      qualified to carry on business in British
  Columbia;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (c)

            	
              it
      has been duly authorized to enter into, and to carry out its obligations
      under, this Agreement and no obligation of it in this Agreement conflicts
      with or will result in the breach of any term
  in:

            

    

     

    (i)           its
articles or by-laws; or

     

    (ii)           any
other agreement to which it is a party;

     

    
      	
              (d)

            	
              it
      has duly executed and delivered this Agreement, which binds it in
      accordance with its terms and

            

    

     

    
      	
              (e)

            	
              there
      is no action, suit, litigation, arbitration, investigation, inquiry or
      other proceeding in progress, or, to the best of Silver Quest’s knowledge,
      pending or threatened against or relating to Silver Quest or its material
      assets and there is no circumstance, matter or thing known to Silver Quest
      which might give rise to any such proceeding or to any governmental
      investigation relative to Silver Quest and there is not outstanding
      against Silver Quest any judgment, decree, injunction, rule or order of
      any court, government department, commission, agency or
      arbitrator.

            

    

     

    2.3          Each
Party’s representations and warranties set out above, will be relied on by the
other Party in entering into the Agreement and shall survive the execution and
delivery of the Agreement.  Each Party shall
indemnify and hold harmless the other Party for any loss, cost, expense, claim
or damage, including legal fees and disbursements, suffered or incurred by the
other Party at any time as a result of any misrepresentation or breach of
warranty arising under the Agreement.

     

    SECTION
3 - OPTION.

     

    3.1          For
and in consideration of the payment by Silver Quest to North Bay of twenty-five
thousand ($25,000) dollars and the issuance of 50,000 shares in the capital of
Silver Quest (“Shares”) within five (5) business days after the Effective Date,
North Bay hereby grants to Silver Quest the sole and exclusive right and option
to acquire an undivided 75% Joint Venture Interest in the Property pursuant to
the Option as set out herein.

     

    3.2           In
order to maintain the Option in good standing and to earn an undivided 75% Joint
Venture Interest in the Property, Silver Quest must incur at least two hundred
fifty thousand ($250,000) dollars in Expenditures on or before the first
anniversary of the Effective Date and make subsequent cash payments, share
issuances and Expenditures as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              On
      or before

            	
              Cash

              Payments

            	
              Silver
      Quest

              Shares

            	
              Cumulative

              Expenditures

            
	 
      	 
      	 
      	 
      
	
              First
      anniversary of the Effective Date

            	
              $25,000

            	
              50,000

            	
              $250,000

            
	
              Second
      anniversary of the Effective Date

            	
              $25,000

            	
              50,000

            	
              $675,000

            
	
              Third
      anniversary of the Effective Date

            	
              $25,000

            	
              Nil

            	
              $1,100,000

            
	
              Fourth
      anniversary of the Effective Date

            	
              $Nil

            	
              Nil

            	
              $1,500,000

            

    

    

    3.3           Expenditures
in excess of the amounts stipulated in Section 3.2 may be carried forward and
credited against Expenditures required in subsequent years.

     

    3.4           Silver
Quest will have the right to terminate this Agreement at any time up to the date
of exercise of the Option by giving notice in writing of such termination to
North Bay, and in the event of such termination, this Agreement will, except for
the provisions of Section 5.2, be of no further force and effect save and
except for any obligations of Silver Quest incurred prior to the effective date
of termination.  If Silver Quest fails to incur the Expenditures set
out in Section 3.2 within the time provided therein the Option will terminate
and Silver Quest’s only obligations will be as set out in Section
5.2.

     

    3.5           Once
Silver Quest has exercised the Option, Silver Quest will be deemed to have
acquired an undivided seventy-five percent (75%) Joint Venture Interest subject
to this Agreement.

     

    3.6           The
Option is an option only and except as specifically provided otherwise, nothing
herein contained will be construed as obligating Silver Quest to do any acts or
make any payments hereunder except as otherwise set forth, and any act or acts
or payment or payments as may be made hereunder will not be construed as
obligating Silver Quest to do any further act or make any further payment or
payments.

     

    3.7           During
the term of the Option, record title to the Property will be held by Silver
Quest, it being understood that such transfer of legal and recorded title to the
Property will be for administrative convenience only and that Silver Quest will
hold such title in trust for the Parties in accordance with their interests
under this Agreement and that a beneficial interest in the Property will pass to
Silver Quest only upon exercise of the Option in accordance with the terms of
this Agreement.

     

    3.8           During
the term of the Option, Silver Quest shall provide documentation to North Bay
not less than 30 days prior to the expiry date of any of the Claims constituting
the Property showing that the expiry date of said Claim(s) has been extended as
the result of filing assessment work or payment of cash-in-lieu.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.9           To
give effect to Section 3.7, North Bay shall, upon receipt of notice from Silver
Quest that the TSX Venture Exchange has accepted the Agreement for filing,
initiate the transfer of the Claims to Silver Quest (Free Miner Certificate #
110051596, Client #144280) by completing the “Bill of Sale – Initiation”
documentation and filing such documentation on the MEMPR MTO system and shall
forthwith thereafter advise Silver Quest by telephone or email that such
transfer was initiated.

    

    3.10           Forthwith
after being advised by North Bay pursuant to Section 3.9, Silver Quest shall
accept and complete the transfer of the Claims by completing the “Bill of Sale –
Completion” documentation and filing such documentation on the MEMPR MTO
system.  Silver Quest shall forthwith thereafter make the payment and
issue the shares pursuant to Section 3.1.

    

     

    SECTION
4 - COVENANTS OF NORTH BAY.

     

    4.1           During
the Option, North Bay will:

     

    
      	
              (a)

            	
              make
      available to Silver Quest and its representatives all available relevant
      technical data, geotechnical reports, maps, digital files and other data
      with respect to the Property in North Bay’s possession or control,
      including soil samples, and all records and files relating to the Property
      and permit Silver Quest and its representatives at their own expense to
      take abstracts therefrom and make copies
  thereof;

            

    

     

    
      	
              (b)

            	
              promptly
      provide Silver Quest with any and all notices and correspondence from
      government agencies in respect of the
Property;

            

    

     

    
      	
              (c)

            	
              cooperate
      fully with Silver Quest in obtaining any surface and other rights on or
      related to the Property as Silver Quest deems
  desirable;

            

    

     

    
      	
              (d)

            	
              grant
      to Silver Quest, its employees, agents and independent contractors, the
      sole and exclusive right and option
to:

            

    

     

    
      	
               
      

            	
              (i)

            	
              enter
      upon the Property;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              have
      exclusive and quiet possession
thereof;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              do
      such prospecting, exploration, development or other mining work thereon
      and thereunder as Silver Quest in its sole discretion may consider
      advisable;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              bring
      and erect upon the Property such equipment and facilities as Silver Quest
      may consider advisable; and

            

    

     

    
      	
               
      

            	
              (v)

            	
              remove
      from the Property and dispose of material for the purpose of testing;
      and

            

    

     

    
      	
              (e)

            	
              except
      to the extent agreed to be done by Silver Quest, hereunder, comply with
      all requirements and obligations of the Property and not take any action
      which may adversely affect the interest of Silver Quest in the
      Property.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SECTION
5 - COVENANTS OF SILVER QUEST.

     

    
      	
              5.1

            	
              During
      the Option Silver Quest shall:

            

    

     

    
      	
              (a)

            	
              comply
      with the provisions of Section 3.1
hereof;

            

    

     

    
      	
              (b)

            	
              keep
      the Property free and clear of all Liens arising from its operations
      hereunder (except liens for taxes not yet due, other inchoate liens or
      liens contested in good faith by Silver Quest) and proceed with all
      diligence to contest or discharge any Lien that is
  filed;

            

    

     

    
      	
              (c)

            	
              pay
      or cause to be paid all workers and wage earners employed by it or its
      contractors on the Property, and pay for all materials, services and
      supplies purchased or delivered in connection with its activities on or
      with respect to the Property;

            

    

     

    
      	
              (d)

            	
              permit
      North Bay, or its representatives duly authorized by it in writing, at its
      own risk and expense, access to the Property at all reasonable times and
      to all exploration information and data, all maps, drill logs, assay
      results and program budgets, records and reports, in paper or electronic
      form, if any, prepared by Silver Quest in connection with work done on or
      with respect to the Property, and furnish North Bay within sixty (60) days
      of the completion of a Program (for greater certainty, a Program will not
      be completed until Silver Quest has received all exploration data and
      reports generated by service companies conducting the Program), with a
      report with respect to the work carried out by Silver Quest pursuant to
      such Program and material results
obtained;

            

    

     

    
      	
              (e)

            	
              conduct
      all work on or with respect to the Property in a careful and minerlike
      manner and in compliance with all applicable federal, provincial and local
      laws, rules, orders and regulations, and indemnify and save North Bay
      harmless from any and all claims, suits, demands, losses and expenses
      including, without limitation, with respect to environmental matters, made
      or brought against it as a result of work done or any act or thing done or
      omitted to be done by Silver Quest on or with respect to the
      Property;

            

    

     

    
      	
              (f)

            	
              at
      the completion of each work program Silver Quest shall submit a Statement
      of Work to the MEMPR via MTO to apply the work expenditures towards the
      Claims to maintain them in good standing;
and

            

    

     

    
      	
              (g)

            	
              maintain
      adequate insurance coverage in accordance with normal industry standards
      and practice .

            

    

     

    5.2           In
the event of termination of the Option for any reason other than through the
exercise thereof, Silver Quest will:

     

    (a)           leave
the Property:

     

    
      	
               
      

            	
              (i)

            	
              in
      good standing with respect to the filing of assessment work for a period
      of twenty-four (24) months from the date of termination, and free and
      clear of all Liens arising from its operations
  hereunder,

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (ii)

            	
              in
      a safe and orderly condition, and

            

    

     

    
      	
               
      

            	
              (iii)

            	
              in
      a condition which is in compliance with all rules and orders of
      governmental authorities with respect to reclamation and rehabilitation of
      all disturbances resulting from Silver Quest’s use and occupancy of the
      Property;

            

    

     

    
      	
              (b)

            	
              deliver
      to North Bay, within ninety (90) days of a written request therefor, a
      report on all work carried out by Silver Quest on the Property (limited to
      factual matters only) together with copies of all sample location maps,
      drillhole assay logs, assay results and other technical data compiled by
      Silver Quest with respect to the
Property;

            

    

     

    
      	
              (c)

            	
              within
      two business days of the termination date, initiate the transfer of record
      title to the Property to North Bay (Free Miner Certificate # 110043840,
      Client # 204090) by completing the “Bill of Sale – Initiation”
      documentation and filing such documentation on the MEMPR MTO system and
      shall forthwith thereafter advise North Bay by telephone or email that
      such transfer was initiated; and

            

    

     

    
      	
              (d)

            	
              have
      the right (and, if requested by North Bay within ninety (90) days of the
      effective date of termination, the obligation) to remove from the Property
      all facilities erected, installed or brought upon the Property by or at
      the instance of Silver Quest.

            

    

     

    SECTION
6 - MUTUAL COVENANTS

     

    6.1           During
the currency of this Agreement, the Parties shall:

     

    
      	
              (a)

            	
              not
      do any other act or thing which would or might in any way adversely affect
      the rights of the Parties
hereunder,

            

    

     

    
      	
              (b)

            	
              promptly
      provide all Parties with any and all notices and correspondence received
      from government agencies in respect of the Property;
  and

            

    

     

    
      	
              (c)

            	
              cooperate
      fully with each other in conducting exploration and in obtaining any
      surface and other rights on or related to the Property as is reasonably
      required.

            

    

     

    SECTION
7 -THE JOINT VENTURE.

     

    7.1           If
Silver Quest exercises the Option as set out in Section 3, then a Joint Venture
will be automatically formed between North Bay and Silver Quest with respect to
the Property in accordance with Section 7.2 and the Property shall automatically
become a Joint Venture Asset.

     

    7.2           If
a Joint Venture is formed pursuant to Section 7.1, the initial terms of the
Joint Venture agreement shall be as set out in Schedule “B” attached to
this Agreement.  Any issues that arise in the course of the Joint
Venture activities prior to completion of a formal joint venture agreement in
substantially the form referenced in the Continuing Legal Education of British
Columbia Mining Law Materials of June 1999 (“CLE JV”) which are not
covered by Schedule “B” shall be governed by the terms contained in the form of
the CLE JV, however, the terms of Schedule “B” shall prevail in the event
of any inconsistency with the form of the proposed CLE JV until the CLE JV
is completed and executed.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.3           Cumulative
Expenditures, if any, in excess of $1,500,000, up to a maximum of $100,000,
which have been committed or incurred by Silver Quest at the time of formation
of the Joint Venture will be deemed to have been approved as Joint Venture
programs under the Joint Venture and North Bay will pay or reimburse Silver
Quest its pro rata share of such excess Expenditures.

     

    7.4           North
Bay acknowledges that Silver Quest holds other mineral rights in the vicinity of
the Property, and further, has an active and on-going program to acquire
additional mineral rights in the vicinity of the Property, including mineral
rights in the vicinity of the Property.  North Bay agrees that there
is no “Area of Interest” concept applicable to the Property, this Agreement or
the Joint Venture and that it has no right to acquire an interest in any mineral
rights now held or subsequently acquired by Silver Quest, whether by staking,
joint venturing, purchasing or otherwise, that are contiguous to or in the
vicinity of the Property.

     

    SECTION
8 – DEVELOPMENT AND OPERATING AGREEMENT.

     

    8.1           If
a feasibility study conducted on the Property indicates that mine development
work and Commercial Production are warranted, the Parties will negotiate in good
faith to settle and execute a development and operating agreement for the
purpose of developing and exploiting the Property or any part(s) thereof and
bringing same into Commercial Production, failing which this Agreement will
continue to govern the relations between them.

     

    SECTION
9 – CONFIDENTIALITY.

     

    9.1           All
matters concerning the execution and contents of this Agreement, the Joint
Venture, and the Property shall be treated as and kept confidential by the
parties and there shall be no public release of any information concerning the
Property without the prior written consent of the other party, such consent not
to be unreasonably withheld; except as required by applicable securities laws,
the rules of any stock exchange on which a party’s shares are listed or other
applicable laws or regulations.  Notwithstanding
the foregoing the Parties are entitled to disclose confidential information to
prospective assignees, investors or lenders, who shall be required to keep all
such confidential information confidential.

     

    9.2           Prior
to making any required disclosure that is permitted pursuant to Section 9.1, the
disclosing Party shall provide the other Party with a draft copy of any proposed
news release for review and shall allow such Party 24 hours to provide comments
on the draft release before disseminating the news release.

     

    SECTION
10 – NOTICES

     

    10.1           The
addresses for service and the fax numbers of the Parties shall be as
follows:

     

    
      	
               
      

            	
              North
      Bay –

            

    

    
      	
               
      

            	
              North
      Bay Resources Inc

            

    

    
      	
               
      

            	
              2120
      Bethel Road

            

    

    
      	
               
      

            	
              Lansdale,
      PA 19446 USA

            

    

    

    
      	
               
      

            	
              Attn:
      Perry Leopold

            

    

    
      	
               
      

            	
              Fax
      No.: 215-661-8959

            

    

    

    
      	
               
      

            	
              Silver
      Quest -

            

    

    650 West
Georgia Street, Suite 1410

    Vancouver,
British Columbia

    Canada
V6B 4N8

    

    
      	
               
      

            	
              Attn:
      Mr. Randy Turner

            

    

    
      	
               
      

            	
              Fax
      No.: 604-687-1448

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    10.2           All
notices, communications and statements required, permitted or contemplated
hereunder shall be in writing, and shall be delivered as follows:

     

    
      	
              (a)

            	
              by
      personal service on a Party at the address of such Party set out above, in
      which case the item so served shall be deemed to have been received by
      that Party when personally served;

            

    

     

    
      	
              (b)

            	
              by
      facsimile transmission to a Party to the fax number of such Party set out
      above, in which case the item so transmitted shall be deemed to have been
      received by that Party when transmitted;
or

            

    

     

    
      	
              (c)

            	
              except
      in the event of an actual or threatened postal strike or other labor
      disruption that may affect mail service, by mailing first class registered
      post, postage prepaid, to a Party at the address of such Party set out
      above, in which case the item so mailed shall be deemed to have been
      received by that Party on the fifth day following the date of
      mailing.

            

    

     

    10.3           A
Party may from time to time change its address for service or its fax number or
both by giving written notice of such change to the other Party.

     

    SECTION
11- INDEMNITIES FOR REPRESENTATIONS AND WARRANTIES

     

    11.1           North
Bay shall be liable to Silver Quest for and shall, in addition, indemnify Silver
Quest from and against, all losses, costs, claims, damages, expenses and
liabilities suffered, sustained, paid or incurred by Silver Quest which would
not have been suffered, sustained, paid or incurred had all of the
representations and warranties contained in Section 2.1 been accurate and
truthful, provided however that nothing in this Section 11.1 shall be construed
so as to cause North Bay to be liable to or indemnify Silver Quest in connection
with any representation or warranty contained in Section 2.1 if and to the
extent that Silver Quest did not rely upon such representation or
warranty.

     

    11.2           Silver
Quest shall be liable to North Bay for and shall, in addition, indemnify North
Bay from and against, all losses, costs, claims, damages, expenses and
liabilities suffered, sustained, paid or incurred by North Bay which would not
have been suffered, sustained, paid or incurred had all of the representations
and warranties contained in Section 2.2 been accurate and truthful, provided
however that nothing in this Section 11.2 shall be construed so as to cause
Silver Quest to be liable to or indemnify North Bay in connection with any
representation or warranty contained in Section 2.2 if and to the extent that
North Bay did not rely upon such representation or warranty.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    11.3           Notwithstanding
any other provision in this Agreement, North Bay shall not be liable to or be
required to indemnify Silver Quest in respect of any losses, costs, claims,
damages, expenses and liabilities suffered, sustained, paid or incurred by
Silver Quest in respect of which Silver Quest is liable to and has indemnified
North Bay pursuant to Section 11.2.

     

    SECTION
12– DISPOSITION AND RIGHT OF FIRST REFUSAL

     

    12.1           Any
sale, assignment or transfer by a Party of all or any part of its rights or
obligations hereunder shall include a provision whereby the purchaser, successor
or permitted assignee, as the case may be, shall agree to assume the rights and
be subject to all the liabilities and obligations of the transferring Party
under this Agreement.

     

    12.2           If
either Party elects to sell its interest that Party must first offer its
interest to the other Party stating the cash consideration and other terms the
offering Party is prepared to accept, which consideration must be accepted
within 60 days of the offer, failing which the offered Party shall be deemed to
have rejected the offer and the offering Party shall be permitted to sell such
interest for a period of 90 days on terms (including the cash consideration)
that are no more favourable to the buyer than those offered to the other
Party.  Failing a sale closing in said 90 day period, the Right of
First Refusal shall be revived.

     

    12.3           The
right of first refusal shall survive the termination of this Agreement, if such
termination is the result of Silver Quest exercising its Option and acquiring
the 75% undivided interest.

     

    SECTION
13 - GENERAL

     

    13.1           Neither
Party may assign this Agreement or any rights hereunder or in the Property
without the prior written consent of the other, such consent not to be
unreasonably withheld. Any sale, assignment or
transfer by a Party of all or any part of its right or obligations hereunder
shall include a provision whereby the purchaser, successor or assignee, as the
case may be, shall agree to assume the rights and be subject to all the
liabilities and obligations of the transferring Party under this
Agreement.

     

    13.2           This
Agreement inures to the benefit of and binds the Parties and their respective
successors and permitted assigns.

     

    13.3           Each
Party shall from time to time promptly execute and deliver all further documents
and take all further action reasonably necessary or desirable to give effect to
the terms and intent of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    13.4           No
waiver of any term of this Agreement by a Party is binding unless such waiver is
in writing and signed by the Party entitled to grant such waiver.  No failure to
exercise and no delay in exercising, any right or remedy under this Agreement
shall be deemed to be a waiver of that right or remedy.  No waiver of any
breach of any term of this Agreement shall be deemed to be a waiver of any
subsequent breach of that term.

     

    13.5           No
amendment, supplement or restatement of any term of this Agreement is binding
unless it is in writing and signed by each Party.

     

    13.6           Notwithstanding
any term in this Agreement, if a Party is at any time delayed from carrying out
any action under this Agreement due to circumstances beyond the reasonable
control of such party (other than any requirement to keep the Property in good
standing with all bodies having jurisdiction over such matters, and aside from
circumstances arising from the financial difficulty of such Party), acting
diligently, the period of any such delay shall be excluded in computing, and
shall extend, the time within which such party may exercise its rights and/or
perform its obligations under this Agreement.

     

    13.7           Any
payment made under this Agreement from one party to the other may be made by
cheque by personal delivery, by overnight courier to the appropriate address set
out in Section 10, by electronic funds transfer, or by wire
transfer.

     

    13.8           This
Agreement may be executed by facsimile and in any number of counterparts, no one
copy of which need be executed by all the Parties.  A valid and
binding contract in accordance with the terms hereof shall arise if and when
counterpart execution pages are executed and delivered by each Party to the
other.

     

    13.9           This
Agreement constitutes the entire agreement between the parties and replaces and
supersedes all prior agreements, memoranda, correspondence, communications,
negotiations and representations, whether verbal or written, express or implied,
statutory or otherwise between the parties with respect to the subject matter
herein including, without limitation, the Letter of Intent.

     

    13.10           Time
is of the essence in the performance of this Agreement.

     

    13.11           Should
Silver Quest default under this Agreement then North Bay will provide written
notice to Silver Quest with specific details of such defaults or
failures.  After receiving said notice, Silver Quest shall have 60
days to remedy such default. Should Silver Quest fail to initiate efforts to
remedy the default within the 60 day period and thereafter fail to diligently
pursue such efforts, Silver Quest shall forfeit any rights it has to the
Property and this Agreement shall be terminated.

     

    13.12           Neither
North Bay nor any of its principals, affiliates, or employees is a “Qualified
Person” as defined by National Instrument 43-101 and therefore are not qualified
to make any judgments on the economic viability of the Claims or minerals
contained there-in, and as such will be held harmless for any information
provided both verbal and written, expressed or implied, with regard to the
economic, technical, or geological aspects of the Property.  Any
conclusions drawn from the information provided are the product of Silver
Quest’s own due diligence, for which it bears sole responsibility.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
parties have duly executed this Agreement as of the date and year first written
above.

     

     

    NORTH
BAY RESOURCES
INC.                                             SILVER
QUEST RESOURCES LTD.

     

     

    

     

     

    By:          /s/Perry
Leopold                                                  By:           /s/ Randy
Turner                                                                

                   
Authorized
Signing
Representative                                    
     Authorized Signing Representative

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
“A”

     

    DESCRIPTION
OF THE FAWN AND BUCK PROPERTY

     

    OMINECA
MINING DIVISION, BRITISH COLUMBIA

     

    
      	
              Tenure
    Number

            	
              Type

            	
              Claim Name

            	
              Good Until

            	
              Area (ha)

            
	
              598000

            	
              Mineral

            	
              BUCK

            	
              20100126

            	
              38.74

            
	
              606724

            	
              Mineral

            	
              FAWN

            	
              20100627

            	
              174.2886

            
	
              606728

            	
              Mineral

            	
              MALAPUT
      E-W

            	
              20100627

            	
              96.8958

            
	
              617183

            	
              Mineral

            	
              BUCK
      2

            	
              20100810

            	
              96.8601

            

    

    
    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
“B” - JOINT VENTURE

     

    1.           RELATIONSHIP
OF PARTIES.

     

    The
relationship of the Parties in the Joint Venture shall not be, and shall not be
construed to be, a partnership relationship, an agency or legal representative
relationship or a fiduciary relationship.  Except as
otherwise expressly provided in this Agreement, the rights, privileges, powers,
duties, liabilities and obligations of the Parties shall be as joint venturers
and shall be several and not joint or joint and several.

     

    2.           CALCULATION
OF JOINT VENTURE INTERESTS.

     

    2.1           Initial
Calculation.  On the date that the Joint Venture is formed,
North Bay and Silver Quest are deemed to have the following Joint Venture
Interests:

     

    
      	 
      	
              North Bay

            	
              Silver Quest

            
	
              Deemed
      Expenditures:

            	
              $500,000

            	
              $1,500,000

            
	
              Joint
      Venture Interest

            	
              25%

            	
              75%

            

    

    Calculation on Ongoing
Basis.  North Bay’s and Silver Quest’s, as the case may be,
Joint Venture Interest, calculated at any time and from time to time, shall be
determined in accordance with the formula:

     

    A  =  
 B x
100%,  where:

    C

     

    (a)           A
is North Bay’s or Silver Quest’s, as the case may be, Joint Venture
Interest;

     

    
      	
              (b)

            	
              B
      is an amount equal to North Bay’s or Silver Quest’s, as the case may
      be,

            

    

     

    
      	
              (c)

            	
              C
      is an amount equal to the Parties’ total deemed Expenditures under
      Section 2.1 of this Schedule “B”, plus all of the Parties’
      Expenditures made after the formation of the Joint
  Venture.

            

    

     

    2.2           Conversion of Joint Venture
Interest.  If either Party’s Joint Venture Interest is reduced
to less than 10%, then that Party’s Joint Venture Interest shall be
automatically converted to a Two Percent (2.0%) Diluted Interest Royalty
calculated in accordance with Schedule “C” attached hereto.  The Joint
Venture is automatically terminated upon such conversion and the surviving Party
shall become the sole owner of a 100% interest in the Property, subject to the
Diluted Interest Royalty.

     

    2.3           No Obligation to
Produce.  If a Party’s Joint Venture Interest is converted to
the Diluted Interest Royalty pursuant to Section 2.2, any decision to place the
Property or any portion thereof into production shall be at the sole discretion
of the other Party and if the Property is in or is placed into production, such
other Party shall have the unfettered right to suspend, curtail or terminate any
such operation as it in its sole discretion may determine.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.           MANAGEMENT
COMMITTEE.

     

    3.1           Establishment.  Promptly
upon the formation of the Joint Venture, the Parties shall establish the
Management Committee.  One
Representative and one alternate shall be appointed in writing by each Party and
re-appointed from time to time.

     

    3.2           Powers and
Obligations.  Except as expressly provided otherwise in this
Agreement, the Management Committee is empowered to make all strategic and
planning decisions regarding the Joint Venture. Accordingly, the Management
Committee is responsible for revising, as deemed appropriate, Programs submitted
by the Operator, for approving all Programs and for evaluating the results of
all Programs.

     

    3.3           Calling of
Meetings.  Meetings of the Management Committee shall be held
in Vancouver, British Columbia at such place, time, and date as may be
determined by the Operator on at least 20 days’ notice or as may be determined
by the non-Operator on at least 30 days’ notice. The Representatives may
waive the notice period required for any meeting. Any notice must include the
time, date, place and agenda of each meeting. On receipt of any such
notice, the receiving Party may add any item to the agenda, if the receiving
Party notifies the other Party of the addition at least 10 days before the
meeting.  No
item that is not on the agenda may be discussed without the consent of the
Representatives.
Individuals other than the Representatives and the alternate may attend
meetings of the Management Committee with the consent of the
Representatives.

     

    3.4           Attendance at Meeting by
Phone.  Any Representative may attend a meeting of the
Management Committee by telephone or video conference call and such
Representative is deemed to be present at such meeting.

     

    3.5           Quorum at
Meetings.  The quorum for any meeting of the Management
Committee is one Representative from each of the Parties. If a quorum is not present
at the time and place set for a meeting, then the meeting shall be adjourned to
the same place and time on the next week. At the continuation of the
adjourned meeting the Management Committee may conduct business, if a notice
regarding the continuation of the adjourned meeting was sent to the Party whose
Representative did not attend the first portion of the meeting. In no other circumstance may
business be transacted at a meeting of the Management Committee without a quorum
being present.

     

    3.6           Chairman and Secretary of
Meetings.  The initial chairman of the Management Committee
(the “Chairman”) shall be determined by Silver Quest and thereafter designated
annually by the Parties with the greatest Joint Venture Interest. The Chairman
shall appoint a secretary to act as a secretary of the Management Committee at
the beginning of each meeting of the Management Committee. Such secretary shall carry
out the duties of the secretary of the Management Committee until such
secretary’s replacement is appointed. The secretary shall prepare
and maintain minutes of each meeting of the Management Committee. The secretary shall
distribute to the Representatives such minutes, as soon as practicable following
each meeting, but not later than 30 days after the meeting. The secretary shall also
maintain, and distribute to the Representatives, copies of all correspondence
and instruments received, sent or signed by the Management Committee or the
Representatives (when acting in the capacity of a Representative).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.7           Making
Decisions.  All decisions of the Management Committee shall be
by majority vote by the two voting Representatives, who shall each have the
number of votes equal to such Representative’s respective Party’s Joint Venture
Interest from time to time.
In the event of an equality of votes, the Operator’s Representative shall
have an additional and casting vote. Alternatively, the
Management Committee may transact any business by a written instrument signed by
a Representative of each Party. Each decision of the
Management Committee shall be final and binding on the Parties.

     

    3.8           Consent of Management Committee
Required.  Notwithstanding any term in this Agreement, the
Operator shall not take any of the following actions without obtaining the prior
written unanimous consent of the Parties:

     

    
      	
              (a)

            	
              create,
      or permit to remain, any material Liens, upon any Joint Venture Asset,
      except for any Liens which are customary in the circumstances of a mining
      joint venture;

            

    

     

    
      	
              (b)

            	
              abandon,
      sell or otherwise dispose of the Property, or any material part thereof,
      other than the Operator’s right to dispose of or allow Claims to lapse
      pursuant to Section 8;

            

    

     

    
      	
              (c)

            	
              settle
      any suit, claim or demand with respect to the Joint Venture involving an
      amount in excess of $500,000;

            

    

     

    4.           THE
OPERATOR, ITS POWERS AND OBLIGATIONS.

     

    4.1           Initial
Operator.  Upon the formation of the Joint Venture, Silver
Quest shall be the first Operator.

     

    4.2           Resignation and
Replacement.  The Operator may resign as Operator upon
notifying the non-Operator in writing of its resignation at any time after a
Program has been approved by the Management Committee but before the
commencement of the implementation of such Program, or at any time if no Program
is being carried out at that time. The Operator shall be
deemed to have resigned if:

     

    
      	
              (a)

            	
              the
      Operator materially defaults in its obligations as operator hereunder and
      fails to commence and diligently prosecute measures to remedy such default
      within thirty (30) days after the non-Operator shall have given written
      notice to the Operator of such default specifying in such notice the
      nature of the default;

            

    

     

    
      	
              (b)

            	
              the
      Joint Venture Interest of the Operator becomes less than fifty percent
      (50%); or

            

    

     

    
      	
              (c)

            	
              pursuant
      to Section 5.1 of this Schedule “B”, the Operator fails to submit a
      Program requiring minimum Expenditures of at least Fifty Thousand Dollars
      ($50,000) to the Management Committee within six (6) months of the
      completion of the previous Program;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (d)

            	
              an
      attachment in respect to any material liability of the Operator is made on
      the Property which is not related to the business of the Joint
      Venture,

            

    

     

    (e)           the
Operator:

     

    
      	
              (f)

            	
              admits
      in writing its inability to pay its debts as they become due other than
      indebtedness (“non-recourse financing”) for money borrowed or guaranteed
      where the recourse of the holder thereof is restricted to realization upon
      specific assets none of which consist of any Interest, and where failure
      to pay the indebtedness does not result in the creation of an unsecured
      obligation of the Operator,

            

    

     

    (g)           makes
an assignment for the benefit of creditors,

     

    
      	
              (h)

            	
              consents
      to the appointment of a receiver (other than a receiver appointed under
      non-recourse financing) for all or a substantial part of its
      assets,

            

    

     

    
      	
              (i)

            	
              files
      a petition in bankruptcy or for a reorganization or an arrangement under
      applicable bankruptcy, insolvency or creditors’ relief laws, or otherwise
      seeks the relief therein provided,
or

            

    

     

    (j)           is
adjudicated bankrupt or insolvent; or

     

    
      	
              (k)

            	
              a
      Court order is pronounced in respect of the Operator, appointing a
      receiver or trustee for all or a substantial part of its property (except
      for property, other than the Property, securing non-recourse financing),
      or approving a petition in bankruptcy or for a reorganization under
      applicable bankruptcy, insolvency or creditors’ relief laws or for any
      judicial modification or alteration of the rights of
      creditors.

            

    

     

    In the
event of the occurrence of (c) above, the non-Operator shall have the right
within a period of ninety (90) days of the occurrence of such event to prepare
and deliver to the Management Committee a Program requiring minimum Expenditures
of at least Fifty Thousand Dollars ($50,000) and the provisions of this
Section 4.2 and Section 5 shall for all purposes of this Agreement apply
mutatis mutandis as if for such Program the non-Operator was the Operator.  Provided further
that notwithstanding the foregoing, Silver Quest so long as it retains at least
a fifty percent (50%) interest in the Joint Venture, shall continue to have the
right to retain its position as Operator in accordance with this
Section 4.2 following completion of a Program by the
non-Operator.

     

    On any
change or replacement of the Operator, the retiring Operator shall transfer all
data, documents, reports, records, accounts, samples and assays in its
possession or control, and relating to the Mining Operations or the Property, to
the incoming Operator.

     

    4.3           Powers and
Obligations.  Subject to the approval of each Program by the
Management Committee and to funds being advanced by the Parties who have elected
to contribute to such Program, the powers and obligations of the Operator shall
be as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    
      	
              (a)

            	
              to
      manage the Joint Venture and conduct, or cause to be conducted, all work
      performed under a Program in a good and workmanlike manner in accordance
      with good exploration, engineering, mining and accounting practice and in
      accordance with the terms of this
Agreement;

            

    

     

    
      	
              (b)

            	
              to
      submit each Program to the Management Committee for approval by delivering
      the Program to the Representatives at least 30 days in advance of the
      meeting of the Management Committee at which such Program is to be
      considered;

            

    

     

    
      	
              (c)

            	
              subject
      to Section 3.8 of this Schedule “B”, to keep the Property in good
      standing and to pay all applicable payments, fees and taxes, and other
      similar governmental charges lawfully levied or assessed in respect of the
      Property, except that the Operator shall not be obliged, however, to make
      any such payment as long as such payment is being contested in good faith
      and the non-payment thereof does not adversely affect the
      Property;

            

    

     

    
      	
              (d)

            	
              subject
      to Sections 6, 7 and 8 of this Schedule “B”, to provide, purchase, lease
      or rent all plant, buildings, machinery, equipment, tools, appliances,
      materials, supplies and services required for a Program and to dispose of
      the same when no longer required or useful for the purposes of the
      Property and the Joint Venture;

            

    

     

    
      	
              (e)

            	
              to
      maintain and keep the Joint Venture Assets, or to cause the Joint Venture
      Assets to be maintained and kept, in good operating condition and repair
      in accordance with good exploration and mining
  practice;

            

    

     

    
      	
              (f)

            	
              to
      comply with all applicable statutes, regulations, by-laws, laws, orders
      and judgements and all directives, rules, consents, permits, orders,
      guidelines, approvals and policies of any applicable governmental
      authority affecting the Joint
Venture;

            

    

     

    
      	
              (g)

            	
              to
      obtain and maintain such types and levels of property and liability
      insurance with respect to the Joint Venture as the Operator shall consider
      necessary from time to time, such coverage to include the non-Operator as
      a named insured to the extent of the non-Operator’s undivided interest in
      the Joint Venture from time to
time;

            

    

     

    
      	
              (h)

            	
              to
      require the Operator’s contractors and subcontractors to take out and
      maintain such types and levels of property and liability insurance as the
      Operator shall consider necessary or advisable from time to time and to
      comply with the requirements of all applicable unemployment insurance and
      workers’ compensation legislation with respect to work or services to be
      provided by such contractors or
subcontractors;

            

    

     

    
      	
              (i)

            	
              to
      advise the non-Operator of any accident or occurrence resulting in any
      material damage to or destruction of any Joint Venture Assets or material
      harm or injury to any individual;

            

    

     

    
      	
              (j)

            	
              to
      keep adequate data, information and records of the Operator’s management
      of the Joint Venture and to keep suitable accounts which reflect all
      financial aspects of the Joint Venture and once per year to make such
      available to the non-Operator, at the place designated by the Operator,
      within 10 days of receipt of a written request for disclosure by the
      non-Operator and to permit the non-Operator at reasonable times and upon
      notice in writing to the Operator to audit the Operator’s accounts and
      records relating exclusively to the operations of the Joint Venture for
      any calendar year within 12 months following the end of such calendar year
      at the non-Operator’s expense;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (k)

            	
              to
      provide the non-Operator with monthly reports on activities on the
      Property, including a report of expenditures in comparison to the budget,
      during periods of active field work or when mine operations are active,
      quarterly reports and a detailed annual report on the Operator’s
      management of the Joint Venture, including an accounting of all
      Expenditures made by the Operator under the current or previous
      Program;

            

    

     

    
      	
              (l)

            	
              to
      permit the non-Operator, at the non-Operator’s sole risk and expense and
      with prior notice to the Operator, access to the Property during normal
      working hours for the purpose of examining activities and work thereon and
      access to, and the right to inspect and copy all geological, geochemical,
      geophysical, engineering and environmental data, maps, available drill
      core, drill logs, surveys, analyses and other technical information
      acquired with respect to the Property in the course of the work of the
      Joint Venture, so long as such access shall not materially interfere with
      or impair such activities and work;
and

            

    

     

    
      	
              (m)

            	
              to
      have all powers necessary to carry out, or cause to be carried out, all of
      the Operator’s obligations set out in this Agreement and to otherwise
      carry out, or cause to be carried out, all Programs approved by the
      Management Committee.

            

    

     

    4.4           Emergencies.  In an
emergency, the Operator, without the consent of the non-Operator, may take such
immediate actions and make such immediate Expenditures as the Operator deems
necessary to keep the Property in good standing or for the protection of
individuals and/or property and/or the environment.  The Operator
shall promptly report such emergency actions and Expenditures to the
non-Operator by delivering an invoice to the non-Operator.  The non-Operator
shall pay its share of the Expenditures to the Operator in accordance with
Section 5.4 of this Schedule “B”.

     

    4.5           Closure Fund.  The
Operator may establish and administer a closure fund to be applied by the
Operator to satisfy any legal obligations of the Parties respecting a mine
maintenance plan or mine closure plan, including obligations for severance pay,
pensions, rehabilitation and reclamation work.  Each Party shall
contribute its proportionate share of such fund based on such Party’s Joint
Venture Interest at the time of the establishment of the fund (or at the time of
the contribution, in respect of subsequent contributions). The Operator shall
invest any unused portion of such fund and all income thereon shall accrue in
such fund. If the
Operator determines that such fund, or any portion thereof, is no longer
necessary, the Operator shall make payments to the Parties in proportion to
their contribution to such closure fund on the date of such
payments.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.           PROGRAMS.

     

    5.1           Contents of
Program.  The Operator shall prepare a Program and submit such
Program budget to the Management Committee for approval at least sixty (60) days
before the beginning of each calendar year. The Management Committee
must approve each Program prior to implementation. Each Program shall cover
a period of up to 12 months or such other period as the Parties may agree. Each Program must
contain:

     

    
      	
              (a)

            	
              a
      reasonably detailed outline of all work which the Operator contemplates
      carrying out on the Property under such Program detailing the areas on the
      Property to be subject to such work and the time frame for each of the
      major elements of such work;

            

    

     

    
      	
              (b)

            	
              a
      reasonably itemised budget, broken down by month, of the projected
      Expenditures under the Program;

            

    

     

    
      	
              (c)

            	
              the
      budget shall include a contingency provision for costs not specifically
      itemized in the budget for the Program, which contingency provision shall
      be, at the Operator’s sole discretion, either a lump-sum dollar amount for
      the entire Program, or a dollar amount calculated as a percentage of the
      budgeted total cost for the itemized items and in either case need not be
      broken down by month, and

            

    

     

    
      	
              (d)

            	
              the
      estimated amount and date of each payment that the non-Operator would have
      to make to the Operator.

            

    

     

    5.2           Election by
Representatives.  If the Operator proposes a Program which is
approved by the Management Committee:

     

    
      	
              (a)

            	
              for
      less than One Million Dollars ($1,000,000), the Representatives shall then
      have 30 days to elect whether or not to participate in the Program;
      or

            

    

     

    
      	
              (b)

            	
              for
      more than One Million Dollars ($1,000,000), the Representatives shall then
      have 30 days to elect to participate in the Program, and a further 30 days
      to raise their share of the funding
required.

            

    

     

    5.3           Approved
Programs.  The Operator shall carry out each Program approved
by the Management Committee provided the Parties who have elected to contribute
to such Program provide the Operator with their proportionate share of the
funding in respect of the Program.

     

    5.4           Payments to
Operator.  If a Representative elects to participate in a
Program on behalf of a Party, the Operator will submit an invoice to such
Representative on or between the first and 20th day of the month immediately
preceding a month in which Expenditures are to be made under a Program.  The invoice must
set out the estimated Expenditures under the Program for the immediately
following month, multiplied by the Joint Venture Interest of such Party. Within 30 days of
receipt of such invoice, such Party shall pay the Operator the invoice
amount.  The
Operator may also submit other invoices relating to reconciliations, bills,
accounts or other requests for payment in respect of any Expenditures made by
the Operator under a Program or otherwise in accordance with this
Agreement. Such
invoice must set out the total amount involved, multiplied by the participating
Party’s Joint Venture Interest. Within 30 days of
receipt of such invoice, such Party shall pay the Operator the invoice
amount.  If
such Party fails to make any payment to the Operator under this Section 5.4
of this Schedule “B” within any applicable 30 day payment period, after
previously having elected to do so, such Party shall make such payment together
with an interest payment, calculated at the rate equal to the annual rate of
interest announced from time to time by the Canadian Imperial Bank of Commerce
as its reference rate then in effect for determining interest rates on Canadian
dollar commercial loans in Canada (commonly known as its prime rate), plus 10%,
for the period commencing on the expiry of such 30 day payment period and
terminating on the date that full payment is made.  If such Party
fails to make full payment, including in respect of interest, to the Operator
within 60 days of the expiry of the applicable 30 day payment period,
Section 5.6 of this Schedule “B” applies.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.5           Failure to
Participate.  If a Party does not elect to participate in a
Program, its Joint Venture Interest shall be diluted in accordance with
Section 2.1 of this Schedule “B”.

     

    5.6           Failure to Make Payment by
non-Operator.  If a Party which has elected to participate in a
Program fails to make a required payment within the 60 day period referred to in
Section 5.4 of this Schedule “B”, such Party’s Joint Venture Interest shall
be diluted at a rate of two times normal dilution.

     

    5.7           Failure to Spend at Least 80% of
Budget.  If a Party does not elect to participate in a Program
and the Operator does not make Expenditures under the Program at least equal to
80% of budgeted Expenditures, the non-participating Party shall not have its
Joint Venture Interest reduced in accordance with Section 2.1 of this
Schedule “B” if the non-participating Party promptly pays the Operator,
following receipt of notice from the Operator of the completion of such Program
at less than 80% of budgeted Expenditures, an amount equal to the total
Expenditures made under such Program, multiplied by the non-participating
Party’s Joint Venture Interest, determined at the commencement of such
Program.

     

    5.8           Expenditures More Than 10% Above
Budget.  Expenditures made by the Operator exceeding the
Expenditures contemplated by the Program by less than 10% will be funded by the
Parties in proportion to their Joint Venture Interests.  Expenditures made
by the Operator exceeding the Expenditures contemplated by the Program by more
than 10% will be funded solely by the Operator, unless otherwise agreed by the
Parties in writing.  Unless otherwise
agreed by the Parties in writing, any such payments exceeding the Expenditures
contemplated by the Program by more than 10% which are made by either the
Operator or the non-Operator will not form part of the calculations used to
determine the Joint Venture Interests of the Parties in accordance with
Section 2 of this Schedule “B”.

     

    5.9           Return of Surplus
Monies.  If, after completion of any Program, the Operator is
in possession of any moneys contributed by the Parties and which are not
required for the discharge of obligations relating to such Program, the Operator
shall repay such moneys to the contributing Parties.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.10           Failure to Submit Program to
Management Committee.  If the Operator does not submit a
Program involving Expenditures of at least $50,000 to the Management Committee
for approval within a period of at least 6 months from the date of completion of
the last Program (being when the report is complete and delivered to the
non-Operator), then the non-Operator may propose a Program to the Management
Committee for an amount not less than $50,000.  If the
non-Operator makes such a proposal and the Program is approved by the Management
Committee, the Operator shall carry out such Program and fund its proportionate
share. If the
Management Committee does not approve such Program, the non-Operator may,
notwithstanding Section 4.2 of this Schedule “B”, become the Operator and
carry out the Program. Following the completion
of such Program Section 4.2 of this Schedule “B” shall apply once
again.

     

    6.           DEALINGS
WITH AFFILIATES.

     

    Any Joint
Venture Assets that the Operator may purchase, lease or rent from an Affiliate
shall be purchased, leased or rented at not more than fair market value. The cost of all work
which the Operator may contract to an Affiliate shall be not more than the fair
market value of such work. Any Joint Venture Assets
that the Operator may sell or otherwise dispose of to an Affiliate shall be sold
or otherwise disposed of at not less than fair market value. The Operator shall pay
the net proceeds received in respect of such Joint Venture Assets, if any, to
the Parties in proportion to their respective Joint Venture Interests. The Operator shall give
the non-Operator written notice of any significant transaction with an Affiliate
and the non-Operator may, at any time within 12 months after it has received
such notice, dispute whether such transaction was at fair market
value.

     

    7.           USE
OF SURPLUS JOINT VENTURE ASSETS.

     

    Subject
to Section 5.9 of this Schedule “B”, the Operator may use any Joint Venture
Assets which are no longer required for the Joint Venture for such other
purposes and on such terms as the Operator may from time to time determine.  The Operator
shall pay the net proceeds received in respect of such Joint Venture Assets, if
any, to the Parties in proportion to their respective Joint Venture
Interests.  If
such surplus Joint Venture Assets are used by the Operator, outside the scope of
the Joint Venture, or are used by an Affiliate of the Operator, outside the
scope of the Joint Venture, then the net proceeds in respect of such use shall
be deemed to be an amount equal to what could be obtained from an arms-length
third party.

     

    8.           DISPOSITION
OF JOINT VENTURE ASSETS.

     

    Subject
to Section 3.8 of this Schedule “B”, and except as set out below, the
Operator may from time to time sell or otherwise dispose of such part of the
Joint Venture Assets as are no longer required for Joint Venture operations.  The Operator
shall pay the net proceeds received in respect of such Joint Venture Assets, if
any, to the Parties in proportion to their respective Joint Venture
Interests.

     

    The
Operator may dispose of or allow to lapse any of the Claims that comprise the
Property, by providing to the non-Operator 120 days prior written notice (the
“Disposition Notice”) of its intention to do so. Upon receipt of the Disposition
Notice, the non-Operator shall have the option, exercisable by providing written
notice of such (the “Exercise Notice”) to the Operator within 14 days of the
Disposition Notice, to require the Operator to transfer the Claims that are the
subject of the Disposition Notice to the non-Operator, and in such event, the
Operator shall transfer such Claims to the non-Operator as soon as reasonably
possible after receipt of the Exercise Notice.  Once the Claims have
been transferred to the non-Operator, such Claims shall no longer form part of
the Property or be subject to this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    9.           INSURANCE
PROCEEDS.

     

    The
Operator shall apply, to the extent determined by the Operator, any insurance
proceeds received by the Operator in respect of any loss or damage to Joint
Venture Assets towards the repair or replacement of the lost or damaged Joint
Venture Assets.  The Operator
shall pay the remaining proceeds received in respect of such Joint Venture
Assets, if any, to the Parties in proportion to their respective Joint Venture
Interests.

     

    10.           SETTLEMENT
PAYMENTS.

     

    Subject
to Section 3.8(c) of this Schedule “B”, all losses, costs, expenses, claims
or damages, including legal fees and disbursements, net of any insurance
proceeds, incurred and paid by the Operator in settlement of any loss, cost,
expense, claim, damage, judgement or similar matter (including a payment made,
or an action taken, by the Operator as a result of an action of a governmental
agency) shall constitute an Expenditure made by the Operator under the
applicable Program.  In addition, the
non-Operator, in proportion to its Joint Venture Interest calculated on the date
that the initial liability was incurred which gives rise to this indemnification
obligation, shall indemnify and hold harmless the Operator for any loss, cost,
expense, claim or damage, including legal fees and disbursements, suffered or
incurred by the Operator in respect of a third party claim (including an action
of a governmental agency which results in a payment made, or an action taken, by
the Operator), except to the extent that such claim arose from the gross
negligence or wilful misconduct of the Operator.

     

    11.           LIABILITY
OF OPERATOR.

     

    The
Operator shall not be liable to the non-Operator for any loss, cost, expense,
claim or damage, including legal fees and disbursements, (including a payment
made, or an action taken, by the Operator as a result of an action of a
governmental agency) except to the extent that such loss, cost, expense, claim
or damage is attributable to the gross negligence or wilful misconduct of the
Operator.  In
no event (including fundamental breach) shall the Operator be liable to the
non-Operator for any indirect, special or consequential damages (including for
loss of goodwill, loss of actual or anticipated profits or other economic loss),
even if the Operator has been advised of the potential for such
damages.

     

    12.           GST.

     

    At the
request of the Operator, the Parties shall promptly execute all documents and
take all other actions required to make (and file, if necessary) the election
referred to in section 273 of the Excise Tax Act (Canada), with
a view to authorizing the Operator to pay, from time to time, on behalf of the
other Party, all taxes which relate to the Joint Venture and which may become
due and payable under Part IX of the Excise Tax Act (Canada).  This Section 12
of this Schedule “B” shall apply, with such changes as are required in the
circumstances, in respect of any similar applicable provincial
legislation.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    13.           NO
PARTITION.

     

    Subject
to Section 3.8 of this Schedule “B”, no Party may seek or obtain partition
of any of the Joint Venture Assets, including the Property, or any interest
therein whether by way of physical partition, sale or otherwise.  No statute,
regulation or law providing for partition, or partition and sale, shall apply to
any of the Joint Venture Assets.

     

    14.           NO
RESTRICTION ON OTHER ACTIVITIES.

     

    Each
Party has the unrestricted right to engage in, and receive the full benefit of,
any activity outside the scope of the Joint Venture, without consulting with, or
accounting to, the other party, or permitting the other party to participate in
such activity.

     

    15.           TERMINATION.

     

    If the
Parties agree to terminate the Joint Venture, the Operator may take any actions
necessary or desirable to wind up the Joint Venture.  All costs,
charges and expenses of winding up the Joint Venture (including in respect of
any reclamation) shall be for the account of the Joint Venture and the Parties
shall divide the net Joint Venture Assets in proportion to their Joint Venture
Interests, although any loans advanced to the Joint Venture by a Party shall be
satisfied before any other distribution of assets is made to the Parties.  Once the said
costs, charges and expenses have been paid in full, the Operator may sell the
Joint Venture Assets (with the prior approval of the non-Operator, where Joint
Venture Assets are sold for a total amount of in excess of $100,000) or
distribute the Joint Venture Assets to the Parties in kind.

     

    16.           WITHDRAWAL
FROM JOINT VENTURE.

     

    16.1           Right
of Withdrawal and Mechanics.  Either Party may,
at any time during the Joint Venture, voluntarily withdraw from the Joint
Venture (the “Withdrawing Party”) and forfeit its interest in and to the
Property and its rights under this Agreement by giving written notice of such
withdrawal to the other Party (the “Remaining Party”).  The notice must
indicate an effective date for such withdrawal which may not be earlier than 90
days after receipt of such notice.  The effects of
the delivery of such notice are set out below.

     

    (a)           The
Withdrawing Party shall:

     

    
      	
               
      

            	
              (i)

            	
              remain
      liable for its share, based on its Joint Venture Interest, of all costs,
      expenses and obligations arising out of operations conducted before the
      effective date of the withdrawal;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              secure
      by way of a letter of credit, or otherwise to the satisfaction of the
      Remaining Party, its share, based on its Joint Venture Interest, of the
      costs of reclaiming the Property, as estimated at the effective date of
      the withdrawal considering all applicable statutes, regulations, by-laws,
      laws, orders and judgements and with all directives, rules, consents,
      permits, orders, guidelines, approvals and policies of any governmental
      authority;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (iii)

            	
              continue,
      for a period of three years after the effective date of the withdrawal, to
      be bound by Section 10;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              execute
      and deliver such documents as may be necessary to transfer the Property to
      the Remaining Party;

            

    

     

    
      	
               
      

            	
              (v)

            	
              remove,
      within 12 months of the effective date of the withdrawal, all buildings,
      machinery, equipment and supplies brought upon the Property by the
      Withdrawing Party that are not Joint Venture Assets;
  and

            

    

     

    (vi)           not
be entitled to any royalty under this Agreement.

     

    
      	
              (b)

            	
              The
      Remaining Party shall become the owner of a 100% of the Withdrawing
      Party’s interest in and to the Property as of the effective date of the
      withdrawal.

            

    

     

    
      	
              (c)

            	
              The
      Joint Venture shall be terminated and the Management Committee shall be
      terminated, as of the effective date of the
  withdrawal.

            

    

     

    16.2           Right of Remaining Party to
Withdraw.  Upon receipt by the Remaining Party of a notice of
withdrawal, the Remaining Party may give notice to the Withdrawing Party prior
to the effective date of the withdrawal electing to join in the withdrawal
(“Joint Withdrawal”).  In such case, the
Joint Venture shall be terminated in accordance with Section 15 of this Schedule
“B”.

     

    17.           GOVERNMENTAL
ASSISTANCE.

     

    Any grant
or other form of governmental financial assistance received by a Party with
respect to Mining Operations shall be shared by the Parties, in the proportion
of their respective Joint Venture Interests at the time that such grant or
financial assistance is received.

     

    18.           RIGHTS
TO MINERAL PRODUCTS

     

    18.1           Each
Party shall own and have the right, privilege and power to take in kind and
separately dispose of a portion of all Mineral Products produced from the
Property, in accordance with its Joint Venture Interest.  The Operator
shall designate and notify the Parties of the points of delivery situated on the
Property for the Parties respective Joint Venture shares of such Mineral Product
and all costs in respect of such Mineral Products shall be for the account of
the Joint Venture, until such Mineral Products are delivered to such points.  After such
Mineral Products are delivered to such points each Party shall pay its own costs
in respect of such Mineral Products.  The Operator
shall use its best efforts to ensure that each Party receives product of like
quality.

     

    18.2           The
Operator shall have no obligation in respect of the Parties’ Mineral Products
after delivery of such Mineral Products to the point of delivery provided,
however, that if a Party is prepared to sell its Mineral Products at the same
time and on the same terms and conditions as the Operator is selling its own
Mineral Products and so advises the Operator the Operator may, but is not
obligated to, act as an agent for the Non-Operator in relation to the sale of
the Non-Operator’s Mineral Products on the terms and conditions that are
equivalent to the terms and conditions obtained for its own Mineral
Products.  If
the Operator elects to act as agent for the Non-Operator, it may discontinue
such agency at any time upon giving the Non-Operator 30 days advance notice.  If the Operator,
while acting as the Non-Operator’s agent, is of the opinion that 100% of its own
Mineral Products and 100% of the Non-Operator’s Mineral Products available for
sale cannot be sold at the same time for revenue deemed acceptable by the
Operator, the Operator shall arrange for sales of a lesser amount of each
Party’s Mineral Products on a pro rata basis.  In the event that
the Operator acts as an agent for the Non-Operator, the Operator shall be
entitled to sale commissions equal to prevailing rates charged by other agents
for effecting similar sales.  In the event of a
non-arm’s length sale of Mineral Products, such sale shall be at commercially
competitive rates.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    19.           REPLACEMENT
JOINT VENTURE

     

    19.1           If
either Party so desires at any time the Parties will expeditiously work to
settle a more detailed Joint Venture Agreement in substantially the form
referenced  in the Continuing Legal Education Society of British
Columbia Mining Law Materials of June 1999 (“CLE JV”).  Until
the CLE JV is completed and executed  the initial terms of the joint
venture agreement shall be as set out in this Schedule “B”. Any issues that
arise in the course of the joint venture activities prior to completion of the
CLE JV which are not covered by this Schedule “B” shall be governed by the terms
contained in the form of the CLE JV, however, the terms of this
Schedule “B” shall prevail in the event of any inconsistency with the form
of the proposed CLE JV until the CLE JV is completed and
executed.

    

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    SCHEDULE
“C” – DILUTED INTEREST ROYALTY

     

    Pursuant
to Section 2.2 of Schedule “B” – Joint Venture Terms of the attached Agreement,
a Party (the “Payee”) may become entitled to a Diluted Interest
Royalty.  Such royalty shall be calculated in accordance with this
Schedule “C”.  Unless
specifically provided otherwise, any terms or expressions given a defined
meaning in this Schedule “C” shall have a corresponding meaning in the Agreement
of which this Schedule “C” forms a part, and any terms or expressions given a
defined meaning in the Agreement shall have a corresponding meaning in this
Schedule “C”.

     

    
      	
              1.

            	
              The
      Diluted Interest Royalty payable to a former Joint Venture Participant
      whose Joint Venture Interest was converted pursuant to Section 2.2 of
      Schedule “B” (a “Payee”) will, subject to reduction under paragraph 9, be
      equal to Two Percent (2.0%) of Net Returns and will be paid by the
      remaining Participant (the “Payor”) in accordance with the terms of this
      Schedule “C”.

            

    

     

    
      	
              2.

            	
              Net
      Returns will be calculated on a calendar quarterly basis and will be equal
      to Gross Revenue (as hereinafter defined) less Permissible Deductions (as
      hereinafter defined) for such
quarter.

            

    

     

    
      	
              3.

            	
               In
      this Schedule, the following words have the following
      meanings:

            

    

     

    
      	
               
      

            	
              (a)

            	
              “Gross
      Revenue” means the aggregate of the following amounts (without
      duplication) accruing in each quarterly period following commencement of
      Commercial Production:

            

    

     

    
      	
               
      

            	
              (i)

            	
              subject
      to paragraph 8(a), the revenue received by the Payor from arm’s length
      purchasers of all Mineral Products;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              the
      fair market value of all Mineral Products sold by the Payor in such a
      period to persons not dealing at arm’s length with the Payor;
      and

            

    

     

    
      	
               
      

            	
              (iii)

            	
              any
      proceeds of insurance on Mineral
Products;

            

    

     

    
      	
               
      

            	
              (b)

            	
              “Mineral
      Products” means all ores, concentrates, minerals, diamonds, compounds or
      refined or semi-refined products produced from the
    Property;

            

    

     

    
      	
               
      

            	
              (c)

            	
              “Permissible
      Deductions” means the aggregate of the following charges (to the extent
      that they are not deducted by any purchaser in computing payment) that are
      incurred with respect to the Mineral Products in each quarterly
      period:

            

    

     

    
      	
               
      

            	
              (i)

            	
              sales
      charges levied by any sales agent on the sale of Mineral
      Products;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              transportation
      costs for Mineral Products from the Property to the place of
      beneficiation, processing or treatment, if applicable, and thence to the
      place of delivery of Mineral Products to a purchaser thereof, including
      shipping, freight, handling and forwarding
  expenses;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               

               

               
      

            	
              (iii)

            	
              all
      costs, expenses and charges of any nature whatsoever which are either paid
      or incurred by the Payor in connection with beneficiation or refining of
      Mineral Products after leaving the Property, including all smelter and
      refinery charges and all weighing, sampling, assaying, representation and
      storage costs, deductions from gross metal content and umpire charges, and
      any penalties charged by the processor, smelter, or
    refinery;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              all
      costs, expenses and charges of any nature whatsoever which are either paid
      or incurred by the Payor in connection with any valuation of Mineral
      Products or marketing of Mineral
Products;

            

    

     

    
      	
               
      

            	
              (v)

            	
              all
      insurance costs on Mineral Products and any government royalties,
      production taxes, severance taxes and sales and other taxes levied on
      Mineral Products or on the production value thereof (other than income
      taxes of the Payor); and

            

    

     

    
      	
               
      

            	
              (vi)

            	
              all
      amounts payable pursuant to the Underlying
  Royalty.

            

    

     

    
      	
              4.

            	
              For
      greater certainty, and without limiting the generality of the foregoing,
      all charges deducted by an arm’s length purchaser of ores or concentrates
      whether for smelting, treatment, handling, refining, storage or any other
      operation on or service relating to the Mineral Products that occurs after
      the point of sale shall be considered to be legitimate deductions in
      arriving at the Net Returns amount.

            

    

     

    
      	
              5.

            	
              The
      Diluted Interest Royalty will be calculated and paid within 60 days after
      the end of each calendar quarter.  Smelter settlement sheets, if
      any, and a statement setting forth calculations in sufficient detail to
      show the payment’s derivation (the “Statement”) must be submitted with the
      payment.

            

    

     

    
      	
              6.

            	
              In
      the event that final amounts required for the calculation of the Diluted
      Interest Royalty are not available within the time period referred to in
      Section 5 of this Schedule “C”, then provisional amounts will be estimated
      and the Diluted Interest Royalty paid on the basis of this provisional
      calculation.  Positive or negative adjustments will be made to
      the Diluted Interest Royalty payment payable for the succeeding
      quarter.

            

    

     

    
      	
              7.

            	
              Subject
      to the adjustment provisions of this Schedule “C”, all Diluted Interest
      Royalty payments will be considered final and in full satisfaction of all
      obligations of the Payor with respect thereto, unless the Payee delivers
      to the Payor a written notice (“Objection Notice”) describing and setting
      forth a specific objection to the calculation thereof within sixty (60)
      days after receipt by the Payee of the Statement.  If the Payee
      objects to a particular Statement as herein provided, Payee will, for a
      period of sixty (60) days after the Payor’s receipt of such Objection
      Notice, have the right, upon reasonable notice at a reasonable time, to
      have the Payor’s accounts and records relating to the calculation of the
      Diluted Interest Royalty in question audited by the auditors of the
      Payor.  If such audit determines that there has been a
      deficiency or excess in the payment made to the Payee, such deficiency or
      excess will be resolved by adjusting the next quarterly Diluted Interest
      Royalty payment due hereunder.  The Payee will pay all the costs
      and expenses of such audit unless a deficiency of five (5%) or more of the
      amount due is determined to exist in which case the Payor will pay the
      costs and expenses of such audit.  All books and records used
      and kept by the Payor to calculate the Diluted Interest Royalty due
      hereunder will be kept in accordance with Canadian generally accepted
      accounting principals.  Failure on the part of the Payee to make
      claim against the Payor for adjustment within such sixty (60) day period
      by delivery of an Objection Notice will conclusively establish the
      correctness and sufficiency of the Statement and Diluted Interest Royalty
      payments for such quarter, and forever preclude the filing of exceptions
      thereto or making of claims for adjustment thereon by the
      Payee.  Nothing herein will limit the Payee’s rights arising out
      of fraud.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              8.

            	
              All
      profits and losses resulting from the Payor engaging in any commodity
      futures contract, forward sales contract, product loan, options contract,
      or any other type of derivatives contract or any combination thereof, and
      any other hedging transactions with respect to Mineral Products
      (collectively, “Hedging Transactions”) are specifically excluded from
      calculations of the payments on account of the Diluted Interest Royalty
      pursuant to this Schedule “C” (it being the intent of the parties that the
      Payee will not have any right to participate in such Hedging Transactions
      or to share in any profits or losses therefrom).  All Hedging
      Transactions by the Payor and all profits or losses associated therewith,
      if any, will be solely for the Payor’s account.  The amount of
      Gross Revenue derived from all Mineral Products subject to Hedging
      Transactions will be determined pursuant to the provisions of this
      paragraph 8, as set forth below and not by paragraph
    3(a)(i):

            

    

     

    
      	
               
      

            	
              (a)

            	
              the
      Gross Revenue for Mineral Products that are subject to Hedging
      Transactions will be determined using the price (the “Price”) that
      is:

            

    

     

    
      	
               
      

            	
              (A)

            	
              for
      gold, the average price of gold, which will be calculated by dividing the
      sum of all London Bullion Market Association P.M. Gold Fix prices reported
      for the quarterly period in question by the number of days for which such
      prices were quoted; and

            

    

     

    
      	
               
      

            	
              (B)

            	
              for
      all other Mineral Products, the spot price or average price or a
      valuation, as applicable, estimated by a mutually agreeable trade
      association or marketing group or entity recognized within the applicable
      industry as being knowledgeable with respect to current marketing
      conditions for the applicable Mineral
Products;

            

    

     

    multiplied
by the quantity of Mineral Products that are subject to that particular Hedging
Transaction;

     

    
      	
               
      

            	
              (b)

            	
              unless
      otherwise specified above, the reference spot price to be used for a
      particular Hedging Transaction will be determined using the reference spot
      price published for the week containing the date that the Mineral Products
      subject to that Hedging Transaction are deemed to be
  sold;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (c)

            	
              Mineral
      Products subject to Hedging Transactions will be deemed to be sold, and
      revenues received therefrom, only on the date of final settlement of the
      amount of refined Mineral Products allocated to the account of the Payor
      by a third party refinery in respect of such transactions,
    and

            

    

     

    
      	
               
      

            	
              (d)

            	
              the
      Payor will have no obligation to fulfill any Hedging Transaction which the
      Payor or any of its Affiliates may hold with Mineral
    Products.

            

    

     

    
      	
              9.

            	
              The
      Payee hereby irrevocably grants to the Payor the right to purchase for
      cancellation (the “Buy-Down Option”) One-half (1/2) of the Diluted
      Interest Royalty.  The purchase price shall be One Million
      Dollars ($1,000,000).  The Buy-Down Option may be exercised at
      any time prior to, or within Ninety (90) days following the commencement
      of Commercial Production on the
Property.

            

    

     

    
      	
              10.

            	
              If
      the Payor determines that it would be advantageous to the efficient
      operation of a processing plant to process Ore by commingling Ore with ore
      from other properties, then prior to doing so, the Payor shall give the
      Payee sixty (60) days notice of its intention, and shall deliver to the
      Payee a detailed description of the commingling plan under which the
      commingling shall be conducted.

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