PARTICIPATION AGREEMENT
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THIS AGREEMENT made the 27th day of March, 2003.
BETWEEN:
PATCH ENERGY INC.
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(herein called "Patch")
OF THE FIRST PART
AND:
MICRON ENVIRO SYSTEMS INC.
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(herein called "Micron")
OF THE SECOND PART
WHEREAS:
A. Pursuant to the terms of a farmout and joint operating agreement dated May
1, 2002 (the "Farmout Agreement") between Patch, True Energy Inc. ("True")
and Arsenal Energy Inc., Patch has earned a 12.5% interest (the
"Interest") in the Farmout Lands (as defined in the Farmout Agreement);
B. The parties to the Farmout Agreement are proposing to carry out a further
10 well drill program (the "Second Program");
C. Micron is desirous of earning up to a 3.5% interest in the Second Program
(the "Partial Interest") in consideration of incurring 5% of the costs
(the "Costs") associated with the Second Program, provided that if Micron
incurs less than 5% of the costs associated with the Second Program the
Partial Interest earned shall be adjusted pro rata from the full 3.5%
earned when 5% of such costs are incurred;
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties hereto agree as follows:
1. PARTICIPATION
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1.1 Patch hereby agrees to grant to Micron the right to earn the Partial
Interest.
1.2 In order to earn the Partial Interest Micron shall fund 5% of the costs
associated with the Second Project and in this regard Micron shall pay
such Costs as and when requested by Patch in order that Patch may fulfil
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its obligations under the Farmout Agreement in respect of the Costs
provided that, if Micron fails to make any such payments within 2 weeks of
written notice from Patch requesting same, its right to earn the Partial
Interest shall cease and this Agreement shall be terminated.
1.3 In circumstances where Micron incurs all the Costs, it shall have earned
the right to the Partial Interest and, in such instance, Patch shall use
its reasonable best efforts to seek the consents necessary to assign the
Partial Interest to Micron provided that, if such consents are not
obtained, Patch shall hold the Partial Interest in trust for Micron.
2. REPRESENTATIONS AND WARRANTIES OF PATCH
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2.1 Patch represents and warrants to Micron in order to induce Micron to enter
into this Agreement, as follows:
(a) the Farmout Agreement is in good standing, not in default and
enforceable by Patch in accordance with its terms;
(b) Patch has not assigned, transferred, optioned or otherwise
encumbered the Interest except as provided for herein; and
(c) Patch has all corporate authority and has obtained any and all
consents required to enter into this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF MICRON
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3.1 Micron represents and warrants to Patch in order to induce Patch to enter
into this Agreement that Micron has all corporate authority and has
obtained any and all consents required to enter into this Agreement.
4. COVENANTS OF PATCH
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4.1 Patch covenants with Micron that it shall:
(a) upon receipt of any payments from Micron pursuant to section 1.2
hereof, advance those payments to True in accordance with the terms
of the Farmout Agreement;
(b) provide Micron with such drilling reports and other data which it
receives in respect of the Second Program on the same day such
reports or data are received by Patch;
(c) make all such payments as are required to be paid by Patch in order
to maintain its 12.5% interest in the Second Program; and
(d) upon Micron having earned the Partial Interest, forthwith upon
receipt of same, forward any revenues received by Patch on account
of the Partial Interest to Micron.
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5. RIGHT OF FIRST REFUSAL
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5.1 In circumstances where Micron earns the Partial Interest Patch shall give
Micron the right to participate in the next drill program and all
subsequent drill programs (the "Further Programs") to be undertaken on the
Farmout Lands on the same terms as provided for herein, i.e., incurring 5%
of the costs of the Further Programs to earn a 3.5% interest in the
Further Programs provide that, in circumstances where Micron funds less
than 5% of the costs of the Second Program and as such earns less than
3.5% interest in the Second Program, Micron's entitlement to participate
in Further Programs shall be limited to its participation in the Second
Program, and Micron's entitlement to participate in Further Programs shall
terminate in Micron elects not to participate in any drill program to be
undertaken on the Farmout Lands.
5.2 In circumstances where Micron earns the Partial Interest, and Patch
completes the acquisition of a working interest in a gas exploration and
development project in Saskatchewan, the terms of which have been
discussed between the parties (the "Gas Project"), Patch shall give Micron
the right to earn a 2.5% working interest in the Gas Project by incurring
5% of the costs of drilling the test xxxxx associated with the Gas
Project.
6. GENERAL
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6.1 Time shall be of the essence in this Agreement.
6.2 This Agreement may be executed in counterpart and delivered by facsimile
transmission and each counterpart, once so delivered to the other party,
shall be binding on the parties.
6.3 This Agreement shall be subject to, interpreted, construed and enforced in
accordance with the laws in effect in the Province of British Columbia.
Each party accepts the jurisdiction of the courts of the Province of
British Columbia.
6.4 This Agreement supersedes and replaces all other agreements, documents,
discussions and verbal understandings between the parties with respect to
the Second Program and contains the entire agreement between the parties.
6.5 The address for service of notices for each party is:
To Patch:
Patch Energy Inc.
Xxxxx 000, 000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX X0X 0X0
Attention: Xxxxx Xxxxxxx
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To Micron:
Micron Enviro Systems Inc.
Xxxxx 000, 000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxx, XX X0X 0X0
Attention: Xxxxxxx XxXxxxxxx
6.6 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and each of their respective successors and assigns.
6.7 Each of the parties covenant and agree to do such acts and execute and
deliver all such documents, conveyance and transfers as may be reasonably
requested or required by the other party, in order to fully perform and
carry out the terms of this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
set out above.
PATCH ENERGY INC.
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Per: /s/ Xxxxx Xxxxxxx
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Authorized Signatory
MICRON ENVIRO SYSTEMS INC.
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Per: /s/ Xxxxxxx XxXxxxxxx
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Authorized Signatory
