LEASE PURCHASE AGREEMENT
LEASE PURCHASE AGREEMENT (the "Agreement") dated as of July 1,
1997, by and among LKA International, Inc., a Nevada corporation ("LKA"
and/or "Lessor") and Au Mining, Inc., a Colorado limited liability
corporation, ("Buyer" and/or "Lessee").
WHEREAS, LKA owns certain real and personal property interests
including patented and unpatented mining claims, water rights,
buildings, fixtures, improvements, equipment, and permits situated in
Hinsdale County, Colorado which are collectively referred to herein as
the "Property" and more particularly described in "Exhibit A" attached
hereto.
WHEREAS, Lessee desires to lease the Properties (with an option to
purchase) for the express purpose of exploring, developing and
commercially producing ore from the Property.
WHEREAS, LKA and Lessee have previously entered into a binding
agreement known as the "Letter of Intent" dated May 12, 1997 and an
amendment thereto dated May 13, 1997 (copies of both of which are
attached hereto as "Exhibit B") and agree to more specifically set forth
the rights and obligations of both parties through a more comprehensive
agreement.
NOW, THEREFORE, in consideration of the promises and payments
previously made by Lessee pursuant to the terms of the Letter of Intent,
and, payments to be made by the Lessee to the Lessor, as set forth
below, and the mutual covenants contained herein, the parties to this
Agreement agree as follows:
1. Lessor hereby leases to Lessee the properties known
generally as the Golden Wonder Mine, Xxx Xxx Mine, Ute Mill
and all related property described in Exhibit A including
all surface and subsurface areas, permits, claims,
easements, ore on-site, rights-of-way, equipment and all
improvements located at, or associated with the Property.
2. Lessee shall have the right, authority, legal responsibility
and liability for and associated with mining, developing,
exploring, reclaiming, constructing facilities required for
such purposes, maintaining access to and from the Minej,
conducting assessment work, and disposing of waste material.
Lessee shall safely conduct all such activities in
accordance with generally accepted mining industry standards
and all applicable laws and regulations governing such
activity.
3. The term of this Lease Purchase Agreement shall be six
months beginning on July 1, 1997 and ending December 31,
1997 (unless extended by Lessee pursuant to Section 7 below)
and shall be renewable at the election of the lessee
provided that the terms of this Agreement have been complied
with in every respect and proper and timely payments made to
Lessor as set forth in Sections 7 below.
4. Lessee agrees to conduct all activities on the subject
property in a manner which will not materially impair or
preclude the future development or exploration of the
Properties. If Lessee causes or determines that a condition
exists that may impair or preclude the future development of
the Mine, then Lessee agrees to notify LKA immediately and
cease activity in the "effected area" of the Mine until LKA
and Lessee jointly determine and agree upon steps required
to remedy the problem.
5. Lessee agrees to share with LKA, on a timely basis, all
maps, reports, significant discoveries, assays, milling
formulas, metals recovery information, milling techniques
and results and all other materially relevant information
pertaining to the Property and its economic viability.
6. This lease constitutes a lease of all of the mining rights
and easements owned by the Lessor pertaining to the
Properties. Precious ores in, on and underlying the subject
property may be removed and sold by the Lessee in any
reasonable and lawful manner determined by the Lessee
provided that the following conditions are met;
a. Lessee shall notify Lessor, in writing, of all ore removed
from the subject property. Such notification shall be
made within 30 days of removal and shall include all
documentation reasonably necessary to determine the
amount, weight and value of all ores and/or ore
concentrates or metals removed. Such documentation shall
include, but not be limited to, legal weight/scale slips,
mill and smelter receipts, settlement records and/or cash
sale receipts.
b. Lessee shall cause a representative sample of all ores,
concentrates or metals removed to be assayed by an
independent, certified assayer. Copies of all such assays
shall be included in the documentation described in
Section 6 (a) of this Agreement.
7. Lesee Payments and Extensions: Lessee agrees to pay LKA
lease payments for at least one, six-month period (which
period may be extended by two additional six-month periods
at Lessees option provided that Lessee is in compliance with
all terms of this Agreement) as follows:
a. Upon execution of this Agreement, Lessee shall pay to LKA
the amount of Thirty Thousand Dollars ($30,000) as a lease
payment for the first six months of the lease ending
December 31, 1997. "Initial six-month period."
b. Two optional six-months period described above, then,
Lessee shall pay to LKA the sum of Sixty Thousand Dollars
($60,000) for the six-month period beginning January 1,
1998 and ending June 30, 1998 ("First Extension"). Lessee
may extend the Lease by an additional six months by paying
to LKA the sum of Ninety Thousand Dollars ($90,000) for
the six-month period beginning on July 1, 1998 and ending
December 31, 1998 ("Second Extension").
c. Lesee may reduce the amount due under the First Extension
by actual amounts paid by Lessee pursuant to the Letter Of
Intent.
d. All payments for lease extension periods described in 6(b)
above, shall be made in the form of a cashier's check, or
such other form of payment acceptable to LKA, and shall be
payable in payments of one-half of the amount due for the
extension period at the time the extension period begins
with the balance to be paid within 90 days thereafter.
8. Receipts and Royalties: All receipts from the sale of ore,
concentrates, or other products produced from the Peroperty
by Lessee shall be sent directly to LKA from the buyer of
such products. Within five business days of receipt, LKA
shall deduct any amounts due pursuant to its royalty
interests (as described below in this Section and Section 9)
and forward the balance to Lessee. LKA may also deduct any
amounts required to pay taxes, bonds, assessments,
royalties, fines, liens or other expenses which have not
been timely paid by Lessee and are necessary to maintain the
Property in accordance with Lessee's representations below
in Section 12 and elsewhere in this Agreement.
a. In addition to the lease payments described above in
Section 7, Lessee shall be required to pay LKA, a royalty
equal to ten percent ("10% net-smelter royalty") of all
proceeds received, or to which Lessee is entitled to
receive, (after customary and usual deductions for
assaying, transportation costs, smelting charges and
penalties, severance taxes, and any state and federal
royalties, if required, or similar charges for which
Lessee receives no material benefit) from the sale of ore,
metals and/or concentrates or any other product or
substance produced from the Properties.
b. All royalties received by LKA from Lessee shall be applied
toward any payments currently due, or future payments due
pursuant to Sections 7 and 10 of this Agreement.
9. Xxxxxxx' Royalty: In addition to the royalties due to LKA,
Lessee agrees to pay the royalty of 4 1/8% due to Xxxxxx
Xxxxxxx on ore sales as described in Exhibit B attached
hereto.
10. Option To Purchase: At any time after the execution of this
Agreement, until November 1, 1998, provided that all of the
terms of this Agreement have been met, Lessee may purchase
the Properties by paying to LKA the "Purchase Price" of two-
million dollars ($2,000,000) over a five year period plus
accrued interest at the rate of eight percent (8%) per
annum. Interest shall begin to accrue on the Purchase Price
within 12 months of the execution of this Agreement.
a. Upon delivering to LKA written notice of Lessee's intent
to purchase the Property along with the initial payment of
fifty thousand dollars ($50,000) and a promissory note
representing the balance of the Purchase Price (payable at
the rate of $50,000 per quarter over a five-year period
with the balance due at the end of the five-year period).
LKA shall convey to Lessee a deed(s) conveying ownership
to the Property. The deed(s) to the Property shall be
free and clear of all liens and encumbrances with the
exception of the Xxxxxxx Royalty.
b. Upon Lessee's full payment of the Purchase Price, LKA
shall promptly execute the instruments necessary to
transfer all mining and related permits to Lessee.
c. Upon written notice to LKA of Lessee's intent to purchase
the Property, as an alternative to the above described
financing (note and deed of trust), Lessee may pay to LKA
a lump sum payment of One Million Five Hundred Thousand
Dollars ($1,500,000).
d. Upon Lessee's exercise of its option to purchase the
Property, all payments made to LKA pursuant to Sections 7
and 8 above shall be applied to the Purchase Price.
11. Representations and Responsibilities of Lessor: LKA
represents that it is the sole owner of the Properties and
as such has authority to enter into this Agreement. LKA
further represents that it is aware of nothing that would
prevent or inhibit Lessee's rights to mine and/or purchase
the subject properties as contemplated by this Agreement.
LKA agrees to indemnify, hold harmless and defend Lessee
against any actions or liabilities that may arise as a
result of LKA's previous activities on, or related to LKA's
ownership of the subject properties including liabilities
associated with the reclamation obligations of LKA which
predate this Agreement. In the event that Lessee is
prevented from mining or purchasing the properties as
contemplated by this agreement (as a result of LKA's
previous activities or negligence) then LKA, at its sole
expense, shall take whatever action is reasonably required
to remedy the problem in a timely manner.
a. LKA agrees not to sell, assign, mortgage, convey or
otherwise encumber the subject property UNLESS the
instrument of such an assignment or conveyance
specifically contains a reference to this Agreement and
provides that so long as Lessee is not in default of the
terms of this Agreement then Lessee shall continue in
possession of the subject property and enjoy all rights
guaranteed by this Agreement. LKA agrees to provide
Lessee with twenty days prior written notice of any such
sale or conveyance.
c. LKA represents that it has not knowingly violated any
laws, ordinances, regulations or rules relating to the
disposal of wastes, toxic or hazardous chemicals, and that
it shall remain in compliance with such rules or
regulations with reference to all such materials.
12. Representations and Responsibilities of Lessee: Lessee
shall not pledge, assign or transfer its rights under the
terms of this Agreement without the express written
authorization of LKA, (such authorization by LKA shall not
be unreasonably withheld). Lessee also agrees not to take
any action or engage in any activity that will encumber the
title of the subject properties. Lessee further agrees to
indemnify, hold harmless and defend LKA from any claims
arising from Lessee's activities on or involving the
property.
a. All property taxes, assessments, claim and permit filings,
performance bonds and any other fees associated with
Lessee's activities on the property shall be the
responsibility of the Lessee. Copies or other evidence of
filings or payments made in this regard will be provided
to LKA prior to any lawfully required filing dates.
b. Lessee shall at all times maintain liability insurance
coverage for its activities on the property in the amount
of at least One Million Dollars ($1,000,000) in a standard
form acceptable to LKA from any and all claims arising out
of or resulting from Lessees activities.
c. Lessee shall be solely responsible for all financial and
legal obligations associated with its activities on or
related to the subject property. Lessee shall at all
times save and keep harmless LKA from any and all claims
arising out of or resulting from Lessees activities.
d. Lessee shall do all things reasonably required to
maintain, keep current and remain in compliance with;
State and Federal regulations, mining and reclamation
permits, unpatented claim filings, property taxes (real
and personal) and royalty payments.
13. In the event of default by either party to this Agreement,
the remedies are set forth below in this Section 13 unless
otherwise provided in this Agreement. Time is of the
essence of this Agreement.
a. If Lessee defaults on any of the payments described in
Sections 7 of this Agreement, then LKA shall deliver
written notice of such default to Lessee which shall
provide for ten days in which Lessee may cure such default
after receiving written notice, this Agreement shall be
terminated and all of Lessee's rights and interest in the
Property shall be forfeited to LKA.
b. If Lessee makes a general assignment for the benefit of
creditors or is otherwise adjudged bankrupt, such action
shall be deemed a default under the terms of this
Agreement and the failure of Lessee to obtain an entity
capable of meeting the obligations of this Agreement shall
result in the forfeiture of Lessee's interest in the
Property.
c. If LKA fails to perform any of its obligations or has
breached its representations or warranties hereunder,
Lessee may, at its option, either terminate this Agreement
and receive prompt refund from LKA for the unexpired
period of the lease, or Lessee shall have the right to
require specific performance of this Agreement.
14. If either party to this Agreement is delayed, interrupted or
prevented from performing its obligations under the terms of
this Agreement by reasons of "force majeure" then that party
will be temporarily relieved from its obligations until the
period or event giving rise to the force majeure has lapsed.
Force Majeure conditions include disabilities arising from
causes beyond the reasonable control or expectation of the
affected party including, acts of God, accidents, fires,
labor trouble, unavailability of supplies and equipment,
orders or requirements of courts and/or government agencies
(provided that such orders do not result from the negligence
or inappropriate activity of the affected party) or the
inability to obtain environmental or operating permits that
may be required by governmental authorities.
15. Notices, payments and other communications required by this
Agreement shall be effective on the day of receipt and shall
be addressed as follows:
LKA International, Inc.
0000 00xx Xxxxxx Xxxxx XX
Xxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
AU Mining, Inc.
00000 Xxxxxxx 000
Xxxxxxx, XX 00000
Telephone:
Facsimile:
16. The rights, duties and obligations created by this Agreement
shall be binding upon the parties, their heirs, executors,
administrators, sublesse and assigns. Both Lessee and LKA
represent that they are not acting as agents for others and
are participating in this Agreement for their sole benefit.
17. This Agreement shall not be construed in accordance with the
laws of the State of Colorado and in the event of
litigation, the prevailing party shall be entitled to court
costs and reasonable attorney's fees.
18. LKA shall have the right to inspect the subject property, at
its own expense, provided that such inspections do not
directly interfere with Lessee's mining activities. LKA
shall give Lessee at least 24 hours prior notice of LKA's
intended inspection.
19. This Agreement is intended to clarify and more specifically
define and detail the terms contained in the "Letter of
Intent" dated May 12, 1997 and the amendment to the Letter
of Intent dated May 13, 1997 and executed by both parties.
This Agreement may not be modified or amended except by the
written consent of both parties.
20. If any one or more provisions of this Agreement shall become
invalid, unenforceable or illegal, the remaining provisions
shall not be affected or impaired.
21. The entire Agreement of the parties is as herein written.
The parties are not bound by any agreements, understandings,
conditions or inducements other than those set forth in this
Agreement. No change alteration or amendment of any of the
terms of this Agreement shall be valid unless such changes
are in writing and signed by both parties.
22. If either party to this Agreement employs legal counsel or
brings an action at law or other proceeding against the
other party to enforce any of the terms of this Agreement,
the prevailing party shall be entitled to reasonable
attorney's fees and other expenses directly associated with
such action. Any judgments secured by the prevailing party
shall include these fees and expense.
IN WITNESS WHEREOF, the parties to this Lease Purchase Agreement
have affixed their signatures as of the 1st day of July, 1997.
LESSOR:
LKA International, Inc.
A Nevada corporation ATTEST:
By: /s/ Xxx X. Xxxxxxx /s/ Xxxxxxx X. Xxxxxxx
------------------- ----------------------
Xxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxx,
President Secretary
LESSEE:
Au Mining, Inc.
A Colorado limited liability corporation
By: /s/ Xxxxx Xxxxxx
----------------
Xxxxx Xxxxxx, Officer/Shareholder
/s/ Xxx Xxxxx
-----------------
Xxx Xxxxx, Officer/Shareholder
EXHIBIT A
The patented mining claims of Grantor conveyed hereby are situated
in Hinsdale County, Colorado, are described as follows:
A. The "Ute-Ule Mine" consisting of:
Albany Lode Mining Claim. U.S. Survey No. 15157;
Mab, Auric, Mayor of Leadville, Maid of Xxxxxx, Yankee Doodle,
Cuter, Free Xxxxx, Leadville and Regulator Lode Mining
Claims which are known as U.S. Survey No. 12265;
Bushnell Lode Mining Claim, U.S. Survey No. 1212A;
California Lode Mining Claims, U.S. Survey Xx. 000X
Xxxxxxx Xxxx Xxxxxx Xxxxx, X.X. Xxxxxx Xx. 0000X;
Equator Mill Site, U.S. Survey No. 1366B;
Hidden Treasure Lode Mining Claim, U.S. Survey No. 342;
Invincible Lode Mining Claim, U.S. Survey No. 13478;
Lightning Striker Lode Mining Claim, U.S. Survey No. 452;
XxXxxxxx Lode Mining Claim, U.S. Survey No. 13781;
XxXxxx Lode Mining Claim, U.S. Survey 13781;
XxXxxxxx Lode Xx. 0 Xxxx Xxxxxx Xxxxx, X.X. Xxxxxx Xx. 00000;
XxXxxx Xx. 0 Xxxx Xxxxxx Xxxxx, X.X. Xxxxxx Xx. 00000;
Metropole Lode Mining Claim, U.S. Survey No. 15157;
Xxxx Xxxx Xxxxxx Xxxxx, X.X. Xxxxxx Xx. 00000;
Protector Lode Mining Claim, U.S. Survey No. 13478;
Xxxxxx Lode Mining Claim, U.S. Survey No.15157;
Ule Lode Mining Claim, U.S. Survey No. 147A;
Ule Extension Lode Mining Claim, U.S. Survey Xx. 0000;
Xxx Xxxx Xxxx, X.X. Xxxxxx Xx. 0000;
Ute Lode Mining Claim, U.S. Survey No. 148
Ute Mill Site, U.S. Survey No. 2590;
Windsor Lode Mining Claim, U.S. Survey No. 15157;
B. The following claims consisting of part of the "Golden Wonder
Mine:"
Name of Claim Mineral Survey No. Patent No.
------------- ------------------ ----------
Golden Wonder Lode 552 5926
Golden Mammoth Lode 553 6012
Golden Carbonate Lode 17651 43868
Together with any and all water rights, water filings, claims for use of
water, mill sites, ditches and dams appertaining to any of the above
described properties.
The unpatented mining claims of Grantor conveyed hereby are
situated in Hinsdale County, Colorado, the names of which and the place
of record of the location notices thereof in the official records of
such county and the Colorado State Office of the Bureau of Land
Management are as follows:
A. The following claims constituting part of the "Golden Wonder
Mine":
Name of Claim Date Loc Date Rec'd Book Page C MC No.
------------- -------- ---------- ---- ---- --------
San Francisco #1 04-04-90 06-29-90 131 423 237964
Xxx Xxxxxxxxx #0 00 000
Xxx Xxxxxxxxx #0 04-04-90 06-29-90 131 424 237965
San Francisco #4 04-04-90 06-29-90 131 425 237966
San Francisco #5 04-04-90 06-29-90 131 426 237967
San Francisco #6 04-04-90 06-29-90 131 427 237968
San Francisco #7 04-04-90 06-29-90 131 428 237969
San Francisco #8 04-04-90 06-29-90 131 429 237970
Xxx Xxxxxxxxx #0 00 000
Xxx Xxxxxxxxx #00 04-04-90 06-29-90 131 430 237971
San Francisco #00 00-00-00 06-29-90 131 431 237972
San Francisco #00 00-00-00 06-29-90 131 432 237973
San Francisco #00 00-00-00 06-29-90 131 433 237974
San Francisco #00 00-00-00 06-29-90 131 434 237975
San Francisco #00 00-00-00 06-29-90 131 435 237976
San Francisco #00 00-00-00 06-29-90 131 436 237977
San Francisco #00 00-00-00 06-29-90 131 437 237978
Xxxxx and Xxxxxx 04-04-90 06-29-90 131 438 237979
EXHIBIT B
LETTER OF INTENT
This document will serve as an interim agreement between LKA
INTERNATIONAL, INC. (LKA) and Au MINING (AuM) while a detailed purchase
agreement is finalized. This agreement will pertain to all of LKA's
mining and milling properties and equipment located in the Lake City
area of Hinsdale county, Colorado.
GENERAL TERMS
This agreement will provide for an evaluation period culminating with
the purchase of the properties or withdrawal of AuM from the project.
OPTION PERIOD
During the evaluation period Au Mining will reactivate the properties
and commence production and exploration activities sharing all
information with LKA.
Production royalties will be 10% net smelter returns less all advance
royalty payments to LKA and 4.5% net smelter returns to Xxxxxxx.
Smelter settlements will be sent direct to LKA's office at:
0000 00xx Xxxxxx Xxxxx X.X.
Xxx Xxxxxx, XX 00000
LKA will process settlements and make disbursements in a timely manner.
AuM is fully informed as to the current status of the permits. AuM
representatives have attended several meetings with the Colorado
Department of Minerals and Geology, including the April 24th Board
hearing at which cease and desist orders were issued and non-compliance
fines were levied. AuM is committed to bringing the permits into
compliance and maintaining compliance.
AuM is informed that the previous operators did not meet the Xxxxxxx
royalty obligations and AuM has committed to settle this account.
INTERIM PERIOD
During an interim period, commencing with the signing of this document
and terminating with the permits back in compliance (June 30, 1997
deadline) and the finalization of the detailed purchase agreement, AuM
will pay as xxxxxxx money:
-$2600 non-compliance penalty to Colorado DMG
-$5000 unpaid production royalties due Xxxxxxx
payments applicable to future LKA production royalties
at the completion of this interim period the evaluation period will
commence.
OPTION PERIOD TERMS
- First six months $30,000 paid in advance
- Second six months $60,000 paid quarterly
- Third six months $90,000 paid quarterly
All payments
- Fully applicable to purchase price
- Fully applicable to LKA production royalties
PURCHASE PRICE
- $1.5 million LUMP SUM payment less any credits from
previous payments
- $2.0 million LKA carries the note
Terms: 5 years at $200,000/year
Totaling $1.0 million
And $1.0 million lump sum payment
At purchase: LKA would not retain a royalty
Xxxxxxx royalty continues
As stated this document is to be replaced by a detailed contract, but
completion of this document is recognized by the undersigned parties to
be contractual and binding.
LKA - warrants the property as free and clear and
marketable except for the detailed deficiencies.
- grants to Au Mining the sole, exclusive, and
irrevocable rights to the property as long as the
contractual conditions are met.
Au Mining - committs to meet all contractual obligations and
will proceed in good faith to consummate this
transaction.
- all work performed by the operator, Au Mining shall
be done in a good and workmanlike manner and in
compliance with all state and federal laws and
regulations governing such operations.
Seller: LKA International Inc.
0000 00xx Xxxxxx Xxxxx X.X.
Xxx Xxxxxx, XX 00000
By: /s/ Xxx Xxxxxxx 5/14/98
----------------- ---------
Xxx Xxxxxxx, President Date
Buyer: Au Mining
00000 Xxx 000
Xxxxxxx, Xxxxxxxx 00000
By: /s/ Xxxxx Xxxxxx 5/12/97
---------------- ---------
Xxxxx Xxxxxx, Partner Date
By: /s/ Xxx Xxxxx 5/12/97
-------------- --------
Xxx Xxxxx, Partner Date
LKA INTERNATIONAL, INC.
0000 00xx Xxxxxx Xxxxx X.X.
Xxx Xxxxxx, XX 00000
(000) 000-0000
May 13, 1997
Xx. Xxxxx Xxxxxx
Au Mining
00000 Xxx 000
Xxxxxxxx, XX 00000
Re: LKA/Au Mining Letter of Intent dated 5/12/97
Dear Xxxxx,
This letter will serve as an amendment to and clarification of
some of the terms of the Letter of Intent referenced above.
1. All amounts paid to LKA as royalties shall reduce the
purchase price of the Properties as described in the section
entitled "PURCHASE PRICE." Any and all amounts paid to
Xxxxxxx shall not reduce said price.
2. After the first year (12 months after a contract for
lease/purchase is signed by Au Mining and LKA) interest will
begin to accrue on the purchase price at the rate of 8% per
annum. All payments made to LKA after this initial 12-month
period shall be applied first to interest and then to the
principal balance.
3. Au Mining agrees to notify LKA in advance of any shipment of
ores or ore concentrates that are shipped to any entity other
that ASARCO, LKA may refuse to allow Au Mining to ship ores
or concentrates to any metals refiner or processor, other
than ASARCO, if, in the determination of LKA its interests
(royalties) are not adequately protected.
4. Under the section entitled "OPTION PERIOD TERMS" the full
$30,000 advance royalty payment shall be paid to LKA upon the
signing of the contract for lease/purchase.
5. Au Mining agrees to engage in no activity that would
jeopardize or impair the mining properties and their
respective permits.
Xxxxx, if you find these terms/clarifications acceptable please
sign where indicated below and return an original to me.
Sincerely,
/s/ Xxx X. Xxxxxxx
--------------------
Xxx X. Xxxxxxx
President
Agreed and accepted this 14th day of May, 1997.
Au Mining
/s/ Xxxxx Xxxxxx /s/ Xxx Xxxxx
---------------- -------------
Xxxxx Xxxxxx Xxx Xxxxx
