LEASE AGREEMENT AND AMENDMENT TO LEASE AGREEMENT
LEASE AND OPTION TO PURCHASE AGREEMENT
THIS AGREEMENT made and entered into as of this _____day of ____________,
1984 by and between HEIDELBERG SILVER MINING COMPANY, INC., an Idaho
corporation, hereinafter called "Owner", and PACIFIC COAST MINES, INC., a
Delaware corporation, hereinafter called "Lessee ", as follows:
1. Demise
Owner, in consideration of the sun of Ten 'Thousand Dollars ($10,000.00) paid
to Owner by Lessee, receipt of which is hereby acknowledged, and of the
rents, covenants and conditions herein agreed to be paid, kept and performed
by Lessee, does hereby lease to Lessee those certain unpatented mining claim
(the "claims") situated in the County of Xxxxxxx, State of Montana, located
in Township 27 North, Range 31 West, M.P.M. and more particularly described
in Exhibit "A" attached hereto.
To have and to hold the said claims for the sole purpose of exploring, mining
and removing all of the minerals, mineral substances, metals, ore bearing
materials and rocks of every kind, except oil and gas, within the claims.
2. Duration
The term of this Agreement shall be a period of ten (10) years from
the date hereof, or for as long as Lessee explores or mines the claims for
minerals or ore deposits, whichever is longer unless sooner terminated or
cancelled as hereinafter provided.
3. Net Profits Interest, Recovery of Investment, and Minimum Payments
(a) Net Profits Interest
From and after such time as Lessee shall have recovered its Investment, as
hereinafter defined, Owner shall have thirty percent (30'/.) Net Profits
Interest in the claims, which shall be calculated and paid by Lessee in the
manner set forth in Exhibit "B" attached hereto.
In the event that Owner's claims are lost or invalidated through any gave
governmental action, or in the event that Lessee asserts extralateral rights
to mine areas appurtenant to Lessee's IIR claims, Lessee agrees to pay owner
ten percent (10'/.) of the Net Profits, calculated and paid by Lessee in the
manner set forth in Exhibit "B" attached hereto, for any minerals removed and
sold by Lessee from beneath the vertical boundaries of the claims listed in
Exhibit "A" as they existed of record on the date of this Agreement; said
claim are depicted an the map attached hereto as Exhibit "C". 'The
provisions of this Section 3(a) shall survive the termination of this
Agreement.
Submission page 56 of 85
(b) Recovery of Investment
For purposes of this Section, the term "Investment" shall be deemed to mean
all costs and expenses, as defined in Section 3 of Exhibit "B" expended by
Lessee prior to the "Occurrence of Production" as hereinafter defined.
"Occurrence of Production" shall be deemed to occur upon the first day of the
calendar month first following three (3) months of operation at sixty percent
(60'/.) capacity of Lessee's mill, plant, or heap xxxxx recovery system, in
connection with mineral product from the claims.
All "Gross Revenues" as defined in Section 2 of Exhibit "B!' except for five
percent (5%) of the "Net Profits" as defined in Section 1 of Exhibit "B",
shall be paid to or retained by Lessee until such time as Lessee shall have
recovered its investment, plus interest an all portions of said investment
made by Lessee with non-borrowed monies at the weighted average of prime
rates throughout each such year as established by the Bank of America. Said
five percent (5%) of the Net Profits shall be paid to Owner until such time
as Lessee has fully recovered its Investment as defined in Section 3(b)
hereof.
(c) Minimum Payments
During the continuance of this Agreement, and subject to the provisions of
this Agreement, Lessee shall make minimum payments to Owner in the following
amounts for each lease-year after the first, payable at the commencement of
each such year:
Second lease-year $ 10,000.00
Third lease-year $ 15,000.00
Fourth lease-year $ 20,000.00
Fifth lease-year and
Annually thereafter $ 25,000.00
All minimum payments made pursuant to this Section 3(c) shall be credited in
full on, and deducted from, any net profits payments hereunder, or shall be
credited toward the total purchase option price of the claims specified in
Section 5. Should Lessee elect to exercise its option to purchase the
claims, Owner's Net Profits Interest shall terminate.
4. Work Commitment
Without limiting its obligation to perform assessment work pursuant to
Section 13 hereof, and subject to the provisions of this Agreement, Lessee
shall make expenditures or costs and expenses as defined in Exhibit "B" on or
for the benefit of the claims in accordance with the following schedule:
First lease-year $ 25,000.00
Second lease-year $ 35,000.00
Third lease-year $ 50,000.00
Fourth lease-year $ 75,000.00
Fifth lease-year $ 100,000.00
Sixth lease-year $ 100,000.00
Submission page 57 of 85
Any expenditure in any year in excess of the above indicated amount will be
credited towards the required expenditures in subsequent years.
Lessee may tender to Owner during any lease-year a cash payment equal to one-
half (1/2) of the unfulfilled work expenditure required in that lease-year
through the third lease-year and one-third (1/3) of the unfulfilled work
expenditure thereafter, provided that Lessee has first performed the required
annual assessment work. Such cash payment shall satisfy all unfulfilled work
expenditures for that year.
The parties understand that the commencement, conduct and completion of the
wok commitment for each lease-year is contingent upon adequate and timely
approval by the U. S. Forest Service or any federal or state agency having
regulatory authority. If such approval cannot be obtained without
unreasonable delay, then Lessee shall not be required to carry out the work
commitment for that lease-year. If work is deferred due to lack of
reasonable access, the expenditures required pursuant to this Section 4 will
be undertaken sequentially from the work commitment schedule, one year at a
time, without aggregation, regardless of the lease-year.
"Lease-year" shall any full year in which this Agreement remains in full
force and effect commencing on the date hereof or any anniversary date
hereof. For the purposes of the work commitment specified in this Section 4,
"Lease-year" shall one year from the date that satisfactory approval is
obtained to conduct work an the claims.
5. Option to Purchase
Owner hereby grants to Lessee the exclusive option, exercisable at any time
during the period three (3) years from the date hereof, to purchase the
claims for a total cash consideration of Two Million Five Hundred Thousand
Dollars ($2,500,000.00). Within ten (10) days of receipt of such notice, an
escrow shall be opened with a mutually agreeable escrow holder. The closing
of the escrow shall take place no sooner than January 15, 1988. The escrow
shall be upon the following conditions:
(a) Lessee shall deposit, in cash, the purchase price specified herein,
which cash the escrow holder shall hold for the account of Owner when Owner
shall convey all the right, title and interest of in the claims to Lessee
free and clear of all liens and encumbrances except those of record and such
others as Lessee may accept in writing.
(b) Owner shall pay for the revenue stamps, if any, and Lessee shall pay
all recording costs. The costs of escrow shall be evenly divided between
Owner and Lessee. Proration of taxes shall be on the basis of thirty (30)
day month. Where not otherwise provided for, the escrow holder's standard
escrow terms and conditions shall apply.
(c) Time shall be of the essence for the sale and purchase.
6. Title Representation and Warranties
(a) Representations of Owner
Owner represents that it owns the full and undivided interest in and to the
claims; that it has not assigned or encumbered its interest in the claims;
that all of the claims are good and valid, not in conflict with any other
Submission page 58 of 85
mining claims except those of Lessee, and located, staked, filed and recorded
on available public domain land in compliance with all applicable state and
federal laws and constitute a compact group of contiguous and adjoining
claims without interior gaps; that all necessary assessment work for all
assessment years up to and including the assessment year ending on September
1, 1984, was timely and properly performed and that appropriate affidavits
evidencing such work have been timely and properly recorded; that all filings
with the Bureau of Land Management with respect to the claim which are
required by the Federal Land Policy and Management Act of 1976 have been
timely and properly made; that there are no actions, or administrative or
other proceedings pending or threatened against or affecting the claims; and
that it has the full and unrestricted right to enter into and perform this
Agreement without obtaining the consent or participation of any other party.
Owner further warrants and will forever defend the title of Lessee, its
successors and assigns, in the claims.
7. Use of Claims
Lessee shall have the exclusive right and privilege to prospect for, explore
and examine, mine, mill, prepare for market, store, market and remove from
the claims all minerals, mineral substances, metals, ores, ore bearing
materials and rocks of every kind, including the right of ingress and egress
for personnel, machinery, equipment, supplies and product through and upon
the claims, the right to use so much of the surface as may be needed for such
purposes, and the right to use water from the claim.
8. Environmental Protection
Lessee agrees to maintain all activities on the claim in strict accordance
with all laws, ordinances and regulations relating to the protection of the
environment and to make reasonable efforts to minimize the impact of its
operations upon the existing ecology.
9. Protection of Owner
Lessee agrees to take precautions while conducting hazardous operations to
avoid injury to persons or property rightfully on the claims, and to protect
and hold the Owner harmless from actions, claims, damages or loss arising
from any activities conducted, or conditions created by Lessee under this
Agreement.
10. Access to Claims and Inspection of Records
In the event mining is conducted under this Agreement, all such work shall be
open to representatives of Owner for inspection at all reasonable times,
which representatives shall have the right, at the risk of Owner and such
representatives, to go upon the claims for this purpose, and Lessee shall
render all necessary assistance to such representatives in connection
therewith. Owner shall have such representatives comply with all applicable
rules and regulations of Lessee affecting its operations upon the claims.
During the term of this Agreement, the duly authorized representatives of
shall have the right at reasonable times to inspect the books and engineering
and other records of Lessee relating to this Agreement for the purpose of
verifying the computations of net profits payments and work commitment
expenditures. Owner agrees to treat all information acquired hereunder as
confidential.
Submission page 59 of 85
11. Remedies for Defects in Title
In the event of Owner's failure to promptly remedy any defect in title or to
pay, when due, taxes, mortgages or other liens against the claims, Lessee
shall have the right, but shall not be obligated to remedy such defects or to
pay such past due amounts, and, if it does so, Lessee shall be subrogated to
all the rights of the holder thereof, and Owner shall reimburse Lessee within
twelve (12) months from the time of performing such acts of making such
payments for all costs and expenses of Lessee. Any royalties due or accruing
to Owner during said twelve (12) months' period may be credited against the
sum to be reimbursed. The provisions of this Section shall survive any
termination of this Agreement.
If Owner owns less than the entire undivided interest in all of the claims,
all payments to be made by Lessee hereunder shall be reduced by the sane
proportion thereof as the interest of Owner in the claims bears to the entire
ownership interest in the claims.
12. Relocation of Claims; Patent Applications
Lessee may cure defects in the location, recordation or filing of the claims
comprising a part or all of the claims. Lessee, at its discretion, may
relocate, amend, restake, refile, and rerecord any claim or claims, or
documents associated therewith.
This Agreement shall constitute full and irrevocable power and authority
during the term hereof for Lessee to apply for a United States mineral patent
in the name of Owner to any or all of the claims, and Owner agrees to assist
in such application in a manner requested by Lessee. Where required for
restating or relocation, Owner agrees to execute notices of abandonment of
mining claim or apply for a United States mineral patent to any or all of
such mining claims as my be requested by Lessee, but if action is
unsuccessful or the application is rejected in whole or in part, Lessee shall
not be liable to for such loss in any manner whatsoever, provided Lessee has
proceeded in good faith in taking such action or making such application or
requesting the same of Owner. The rights of Lessee and Owner under this
Agreement shall extend to any and all such amended, relocated, and patented
mining claim.
13. Annual Assessment Work
During the term of this Agreement, Lessee shall make all expenditures for
labor and Improvements requisite to hold and protect the possessory rights
and titles or interest of Owner in and to the unpatented mining claims
described in Section 1, and shall make and file the necessary affidavits
attesting thereto pursuant to the Statutes of the United States and the State
of Montana.
14. Taxes
Lessee shall pay all taxes assessed against any improvements which
it may place on the claims and shall also pay any increase in taxes on the
claims due to its operations thereon. Lessee may take action as it deems
proper to obtain a reduction in or refund of taxes paid or payable by it and
in connection therewith my defer the payment of taxes. Owner shall cooperate
with Lessee in connection with the foregoing. Owner shall pay all taxes
levied upon the rental or royalty payments due or paid under the terms of
this Lease or an the right to receive the same.
Submission page 60 of 85
15. Cancellation by Owner
In case of failure of Lessee to keep and perform its obligations under this
Lease, Owner may give to Lessee written notice of default, specifying the
details of the same. If such default is not remedied within thirty (30) days
after the receipt of said notice, provided the same can reasonably be done
within that time, or if not, if Lessee has not within that time commenced
action to cure the same and does not thereafter diligently prosecute such
action to completion, then this Agreement my be cancelled at the option of
Owner by written notice to Lessee which remedy shall be exclusive. No
forfeiture, however, shall be based an a default hereunder or an a failure to
remedy the sane, when resulting from any cause beyond the control of Lessee
including, without limitation, the Force Majeure provisions of Section 17.
16. Termination by Lessee
Lessee may at any time terminate this Agreement by tendering to Owner a
written release thereof and a quitclaim deed to that portion of Lessee's
mining claims that are overlapping the Owners claims, in proper form for
recording, and thereupon Lessee shall be released from all further
obligations and liabilities hereunder, except to account for and make
payments accrued during the life hereof. Tender of the release may be made
by mailing same to Owner at the address then in effect under Section 18
hereof. Lessee my record a duplicate of said release and quitclaim deed in
the same office as the short form lease agreement, hereinafter mentioned, was
recorded.
17. Force Majeure
The obligations of Lessee herein, express or implied, other than the
obligation to pay money, shall be suspended during such time and to the
extent that it is prevented from or substantially hindered in performing any
such obligation by war or war conditions, fire or acts of nature, strikes or
other labor controversies, accident, riots, or civil commotion, casualty,
government regulation or interference, inability to obtain labor, material or
equipment an the open market, or delay of carrier, or other cause, similar or
dissimilar, whether or not the same could have been foreseen or prevented.
18. Notices
All written notices hereunder shall, unless otherwise provided, be mailed by
registered mail to the addresses following, until some other address is
designated in a notice so given.
If to Owner: Heidelberg Silver Mining Company
Attention: Xxxxxxx X. Xxxxxxx
000 Xxxx 00
Xxxxx, Xxxxxxxxxx 00000
If to Lessee: Pacific Coast Mines, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Land Department
19. Whole Agreement
Submission page 61 of 85
The parties hereto agree that the whole agreement between them is
written herein and in a short form lease agreement of even date which is
intended to be recorded and that agreement together with this agreement shall
constitute the entire contract between the parties.
20. Assignment
This Lease shall be binding upon and inure to the benefit of the respective
parties hereto, and their personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
OWNER: LESSEE:
HEIDELBERG SILVER MINING COMPANY, INC. PACIFIC COAST MINES, INC.
By:____________________________________ By:_________________________________
X.X. Xxxxx, Vice President, Exploration
Attest: _______________________________ Attest:_____________________________
W.A. Xxxxxxxx, Secretary
STATE OF WASHINGTON )
)ss.
County of Xxxxxx )
On this ______ day of ____________________, 19___, before me the
undersigned, a notary public for the County aforesaid, appeared
________________________________________, whose name is signed to the writing
above, and acknowledged to me that he executed the same.
Witness my hand and official seal hereto affixed the day and year first
above written.
My commission expires: _________________________.
____________________________________
NOTARY PUBLIC in and for the State of
Washington, County of Xxxxxx.
STATE OF CALIFORNIA )
)ss.
County of Los Angeles )
On this _______ day of November in the year 1984, before me, Xxxx X.
Xxxxx personally appeared X. X. Xxxxx and W. A. Xxxxxxxx, personally known to
me to be the persons who executed the within instrument as Vice President,
Exploration, and Secretary or on behalf of the corporation therein named and
acknowledged to me that the corporation executed it.
__________________________________________
NOTARY PUBLIC n and for the State
of California, County of Los Angeles
Submission page 62 of 85
EXHIBIT "A"
UNPATENTED MINING CLAIMS
XXXXXXX COUNTY, MONTANA
Claim Name BLM Serial Number
----------------- ---------------------
Rock Lake #1 M MC 63949
Rock Lake #2 M MC 63950
Grizzly Gold M XX 00000
Council Gap M XX 00000
Xxxxxx M XX 00000
Silver Dream M XX 00000
Rock Lake M XX 00000
Duke M XX 00000
Hyjacker M XX 00000
Xxx M XX 00000
Xxx M XX 00000
EXHIBIT "B"
1. Net Profits
Net profits shall be determined by deducting from gross revenues all costs
and expensed, as defined in Paragraph 3 below, incurred by Lessee in
connection with or directly attributable to the exploration, development,
construction, exploitation, and marketing of Product from the claims.
2. Gross Revenues
Gross revenues shall man the aggregate &Hunts received by Lessee from the
sale of Mineral Product from the claims.
3. Costs and Expenses
Costs and expenses in connection with or directly attributable to the
exploration, development, construction, exploitation, processing, and
marketing of Product from the claims shall be all those costs and expenses,
both capital and non-capital, including Lessee's original capital investment
in developing a Mine an the claims paid or incurred by Lessee in the
exploration, development, construction, exploitation, processing, and
marketing of Product from the claims from the effective date of the
Agreement. If Owner's claims contain reserves of Mineral Product which are
less than the total reserves identified for development of a Mine, then costs
and expenses will be allocated to Owner's claims in the proportion that the
reserves present an Owner's claims bear to the total reserves of Mineral
Product. "Reserves" shall tons of proven ore as identified through drilling
or mining operations. Costs and expenses shall include, but not be limited
to:
Submission page 63 of 85
(a) Salaries and wages of employees of Lessee who are engaged in the
performance of work related to and who are employed at the claims and the pro
rata portion of salaries and wages of employees of Lessee who are temporality
assigned to perform work for the direct benefit of the claims, including
technical, clerical, secretarial or supervisory personnel.
(b) The costs to Lessee of all employee benefit plans, policies and
services provided by Lessee to its employees that are applicable to the
salaries and wages under (a) above.
(d) The cost of personnel travel and moving costs.
(e) The cost of any mill or plant, irrespective of location, acquired or
constructed to process ores from the claims.
(f) The cost of all materials, equipment and supplies.
(g) The cost of environmental control as my be required.
(h) All costs of services of third parties procured by Lessee including
costs of contract billing, contract shaft sinking, and contract development;
outside consultants and auditors and related expenses; and other third party
costs.
(i) All costs of use (i.e., rental or royalty costs) of devices,
equipment, automobiles, aircraft, instruments and other personalty; and of
offices and other realty.
(j) All taxes, assessments, fees, duties, or other charge (including
royalties) levied by any governmental authority having jurisdiction and
authority, and including all costs of maintaining the claims in good
standing, excluding only taxes on income.
(k) All costs of utilities (electric power, heat, water, and telephone),
administration and insurance.
(1) All costs of refining and melting or other treatment costs, including
the cost of transportation, if any, of the Product to the purchaser.
(m) All costs and expenses incurred in selling the Product to the
purchaser.
(n) All uninsured losses.
(o) Financing and interest charges incurred in respect of borrowed moneys
for developing the claims and any mill or plant irrespective of location
acquired or constructed to process ores from the claims.
(p) Any net loss incurred during an accounting period shall be carried
forward and applied to reduce Net Profits, if any, realized during ensuing
accounting periods.
(q) A reasonable allocation of administration and overhead expenses.
(r) All salaries, remuneration and fringe benefits, shipping
expenses, legal expenses, incorporation expenses, costs associated with
shutdown once production ceases.
Submission page 64 of 85
(s) All other charges and expenses usually made or incurred to
a like operation and accounted for in accordance with generally accepted
accounting principles.
4. Accounting Procedure
Lessee shall maintain separate books and accounts relating to the mining
and sale of Product and to operations on or for the benefit of the claims,
and Owner shall have the right to examine, copy and audit such books and
accounts at any reasonable time during normal business hours. Except as
otherwise provided herein, the accounting procedures, policies and
conventions to be applied and followed in computing Net Profits shall be in
accordance with generally accepted accounting principles consistently
applied.
5. Distribution of Net Profits
Owner's share of Net Profits realized during any calendar quarter shall
be distributed to Owner within forty-five (45) days following the end of such
calendar quarter. Such distributions of Net Profits shall be accompanied by
a statement showing in reasonable detail the derivation of Net Profits.
Statements for the first, second, and third quarters of each calendar year
and the accompanying distributions to Owner shall be provisional pending
final determination of Net Profits for the entire calendar year.
AMENDMENT
In consideration of the mutual covenants and promises herein contained, and
as an amendment to that certain Lease and Option to Purchase Agreement
between the undersigned parties dated November 8, 1984, the parties hereto
agree as follows:
Section 3 entitled "Net Profits Interest, Recovery of Investment, and Minimum
Payments", and more specifically Subsection (a) thereof entitled "Net Profits
Interest", is hereby amended to read as follows:
3. Net Profits Interest, Recovery of Investment, and
Minimum Payments.
(a) Net Profits Interest. From and after such time as Lessee shall have
recovered its Investment, as hereinafter defined, Owner shall have twenty
percent (20%) Net Profits Interest in the claims, said twenty percent (20%)
Net Profits Interest shall continue to be due under all circumstances even if
Owner's claims are lost or invalidated through any governmental action, or
Lessee asserts extralateral rights to mine areas appurtenant to Lessee's HR
claims. The said Net Profits Interest shall be calculated and paid by Lessee
in the manner set forth in Exhibit "B" attached hereto, for any minerals
removed and sold by Lessee from beneath the vertical boundaries of the claims
listed in Exhibit "A", attached hereto, as they existed of record on the date
of this Agreement. The claims to which this subsection refers are depicted
on the map attached hereto as Exhibit "C". The provisions of this Section
3(a) shall survive the termination of this Agreement.
It is agreed by the parties hereto that this Amendment effects only Section
3(a) of said Lease and Option to Purchase Agreement and all other provisions
of the Agreement shall remain unaffected by this Amendment and shall continue
to be binding obligations of the parties.
Submission page 65 of 85
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on this 7th day of 1986.
OWNER: HEIDELBERG MINING COMPANY, INC.
By:___________________________________
XXXXXXX XXXXXXX
ATTEST:
LESSEE: PACIFIC COAST MINES, INC.
By: __________________________________
ATTEST:
This space intentionally left blank.
Submission page 66 of 85
