COAL MINING LEASE — CROW
TRIBAL LANDS — COAL LEASE
This CROW TRIBAL LANDS COAL LEASE (hereinafter
“Coal Lease”), made and entered into this 13
th day of February, 2004, to be effective thirty
(30) days after the date upon which Westmoreland exercises its
option under Section 3.2 of the Exploration Agreement
(hereinafter referred to as the “Effective Date of this Coal
Lease”), between the CROW TRIBE OF INDIANS , Crow
Agency, Montana 59022 (hereinafter “Lessor”), and
WESTMORELAND RESOURCES, INC ., a corporation organized under
the laws of the state of Delaware, with its principal place of
business at P.O. Box 449, Hardin, Big Horn County, Montana
(hereinafter “Lessee”).
Lessor and Lessee, in consideration of these
premises and for other valuable consideration herein provided,
hereby agree as follows:
ARTICLE 1 INDIAN MINERAL
DEVELOPMENT ACT
This Lease is entered into pursuant to the terms
of the Indian Mineral Development Act of 1982.
ARTICLE 2 INCORPORATION OF
EXPLORATION AGREEMENT
This Coal Lease is executed pursuant to and is
expressly made subject to the terms and conditions of that certain
Exploration and Option to Lease Agreement (herein the
“Exploration Agreement”) executed contemporaneously
with this Coal Lease by and between Lessor and Lessee. The
definitions, terms, and conditions set forth in the Exploration
Agreement, and all provisions listed in Section 27.2 thereof,
are incorporated herein by reference. Where there is a conflict
between the terms of the Exploration Agreement and this Coal Lease,
the terms of this Coal Lease shall prevail.
ARTICLE 3 LEASE OF INDIAN
LAND
Lessor, for and in consideration of the payments
described in the Exploration Agreement, and in consideration of the
rents and royalties to be paid by Lessee to Lessor hereunder, does
hereby grant, demise, lease, and let exclusively to Lessee, its
successors and assigns, for the sole purpose of mining Coal, all of
Lessor’s right, title, and interest in that tract of land
(hereinafter the “Leased Premises”) identified as the
Mining Area in accordance with the terms and conditions of
Section 8 of the Exploration Agreement, and the use of the
surface and subsurface overlying the same, in, under and upon the
Leased Premises, together with the right to exercise and conduct
Mining Rights and Mining Activities thereon and therein.
ARTICLE 4 DEFINITION OF
“MINING RIGHTS”
“Mining Rights,” as used herein,
shall mean all necessary or convenient rights and privileges
incident to the mining, storing, processing, and shipping of Coal
under this Coal Lease or any Coal acquired pursuant to
Article 15, including, but not limited to, the right to mine,
remove, transport, and process Coal in, on, or under the Leased
Premises by any method; the right to market, sell, and ship coal
removed; the right to use Tribal Lands leased hereunder to
construct, maintain, and operate roadways, railroads, sidetracks,
switches, haul ways, dams, substations, buildings, processing
plants, tipples, water drainage courses and conveyors, and any
other improvements or structures necessary or convenient to
accomplish the purpose of this Coal Lease; the right to use and
transport water developed by Lessee and any other water made
available to the Lessee on the Leased Premises; the right to enter
in accordance with applicable law upon the surface of the Leased
Premises from time to time with tools, equipment, and machinery for
the purpose of drilling, taking core samples, surveying, mapping,
and performing environmental research; the right to pump and
discharge water; the right to transport, without further charge,
rent, or royalty, over and through the Leased Premises and over and
through the Crow Reservation from the Leased Premises, personnel,
materials, supplies, and Coal, including coal mined from other
properties now or hereafter leased; the right to make such other
use of the Leased Premises as shall be necessary and convenient for
the mining, transporting, storage, and processing of Coal, Coal
refuse, and by-products; the right to do all things necessary and
convenient to satisfy all applicable legal requirements for
environmental protection and reclamation during and after Mining
Activities; the right to ingress and egress to the Leased Premises,
including the right to construct, maintain, and operate access
roads, power lines, telephone lines, pipelines, and railroads to
and in the Leased Premises, the right to remove Lessee’s
improvements, fixtures, and equipment at the conclusion of mining
or reclamation, all without further charge, rent, or royalty,
except as otherwise provided in the Exploration
Agreement.
Subject to the provisions of Article 17 of
this Coal Lease, any rights-of-way across Crow Reservation land
shall be granted in accordance with applicable federal laws and
regulations governing rights-of-way across Indian land.
The parties further agree that any off-lease
Mining Rights to be exercised by the Lessee shall be reasonable and
necessary and shall be utilized by Lessee in accordance with all
applicable federal regulations, other than those waived by the
Secretary where waiver is found to be in the best interests of the
Lessor and is otherwise appropriate to effectuate the terms and
conditions of this Coal Lease. The parties further agree that
Lessee will take whatever measures it deems necessary to obtain
whatever additional rights or interests may be necessary for the
uses of lands described in this Article from the owner or owners of
the surface estate other than the Lessor. The parties understand
that the Lessor grants to the Lessee only those rights and
interests in the surface estate within the Leased Premises that it
owns or controls and will cooperate with Lessee in Lessee’s
efforts to obtain additional surface rights as provided in the
Exploration Agreement.
ARTICLE 5 COVENANT OF QUIET
ENJOYMENT
Lessor covenants that the Lessee, upon complying
with the terms, conditions, covenants, and agreements hereof, shall
have quiet and peaceful possession and enjoyment of the Leased
Premises and the Mining Rights granted herein.
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This Coal Lease is granted for a primary term of
ten (10) years from the Effective Date of this Coal Lease, and
for so long thereafter as the Coal is being produced by Lessee in
“Paying Quantities,” but the period for mining shall
not exceed twenty-five (25) years from the date of the first
Coal delivery from the Leased Premises, plus any adjustment for
Force Majeure. As used in this Article, the term “Paying
Quantities” means that, by midnight of the last day of the
primary term of the Exploration Lease, the Lessee has commenced and
thereafter continues the primary removal of Coal intended for sale
and upon which royalties will be paid, subject to the provisions of
Force Majeure contained in Article 31 of this Coal
Lease.
No Coal may be mined from the Leased Premises
after the end of such twenty-five (25) year period, as
extended by Force Majeure. However, after the end of the
twenty-five (25) year period for mining or, when prior
thereto, mining on the Leased Premises otherwise ceases, this Coal
Lease shall continue for as long as is necessary to allow Lessor to
conduct activities necessary or appropriate to reclaim the land,
salvage equipment, and comply with applicable laws and regulations.
Reclamation shall be deemed complete at time of final bond release.
If, at the end of twenty-five (25) years, there is mineable
Coal remaining within the Leased Premises that would be sterilized,
bypassed, or forever forsaken by the termination of mining of Coal
by Lessee, adjustments to this termination date may be made by the
mutual consent of Lessor and Lessee.
ARTICLE 7 ROYALTY
PAYMENTS
7.1 Minimum Royalty . Lessee shall pay,
or cause to be paid, a royalty to the Superintendent for the use
and benefit of Lessor, on or before the twenty-fifth (25th) day of
each calendar month during the term hereof on all Coal mined and
shipped from the Leased Premises during the preceding calendar
month. The amount of minimum royalty, hereinafter “Minimum
Royalty,” paid shall be an amount per ton equal to 6.5% of
the sales price per ton sold and delivered F.O.B. Mine at loadout
into or onto a Carrier, hereinafter “Sales Price.” The
Minimum Royalty of 6.5% may be increased as provided in provision
7.3 below.
7.2 Additional Royalty . Lessee shall
pay, or cause to be paid, an additional royalty to the
Superintendent for the use and benefit of Lessor, on or before the
twenty-fifth (25th) day of the calendar month following each
calendar quarter during the term hereof on all Coal mined and
shipped from the Leased Premises during the preceding calendar
quarter. The amount of additional royalty shall be determined as
follows:
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a.
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Lessee shall determine the Sales
Price less Minimum Royalty and any production taxes, hereinafter
“Base Price.” The Base Price is determined using the
formula and methodology set forth in Appendix A attached
hereto. The production tax components shown in Appendix A are
those currently in effect. If, in the future, taxes levied and
payable change, taxes in effect at the time of sales will be
included in the formula and methodology used in determining Base
Price. The amount of additional royalty shall be equal to one-third
(1/3) the increase in the Base Price per ton above $5.157 per ton,
hereinafter “Initial Base Price.” The Initial Base
Price was determined using the formula and methodology set forth in
Appendix A for a Sales Price of $7.38 per ton.
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b.
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The Initial Base Price of $5.157
per ton is effective July 1, 2004, and will be adjusted
quarterly thereafter on January 1, April 1, July 1,
and October 1 during the term hereof, hereinafter the
“Adjustment Date.” The Initial Base Price as adjusted
shall be used to determine the additional royalty for the quarter
preceding the Adjustment Date. The Initial Base Price shall be
adjusted to reflect 85% of any increase in the
“GDP-IPD” in accordance with the definitions, formula,
and methodology set forth in Appendix B attached hereto and
effective on the Adjustment Date.
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c.
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After April 1, July 1,
October 1, and January 1 each year during the term hereof, the
Lessee shall determine the Base Price for all Coal mined and
shipped on a year-to-date basis during all of the previous quarters
for the calendar year. The additional royalty due for all Coal
mined and shipped on a year-to-date basis will then be computed.
The additional royalty due for the previous quarter will then be
equal to the total additional royalty as computed on a year-to-date
basis less the additional royalty payments paid for all quarters
during the current year prior to the quarter being paid.
Appendix C hereto attached shows an example of the formula and
methodology for determining the additional royalty payment for a
quarter.
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7.3 Royalty Offset . If the amount of
taxes payable to the Crow Tribe is reduced for any reason
(including, but not limited to, a reduction in the Montana tax
rates) after this Coal Lease takes effect, the Minimum Royalty
provided in Article 7.1 and payable to the Crow Tribe shall be
increased by an amount necessary to offset the reduction in taxes,
so that the total taxes and royalty paid to the Crow Tribe equals
the current taxes in existence in 2003, plus the royalty otherwise
payable under this Coal Lease; provided, however, that the maximum
royalty rate shall not exceed 12.5% of the Sales Price; and
provided further that if Westmoreland notifies the Crow Tribe that
the increased royalty will result in serious difficulty in
marketing the coal, or loss of sales under current long term coal
sales agreements, the Crow Tribe will negotiate in good faith on
reducing the amount of increase in the royalty rate. If a tax
increase occurs, following a tax reduction and royalty increase per
this section, then there will be a commensurate royalty reduction,
so that the total taxes and royalty paid remains as provided in the
first sentence of this Section 7.3.
7.4 Royalty Cap and Additional Royalty
Adjustment . Notwithstanding Sections 7.1, 7.2, or 7.3,
the total royalty paid to Lessor from the mining operations under
this Coal Lease shall never exceed 12.5% of the Sale
Price.
7.5 Measure of Quantity for Royalty
Payment . The quantity of all Coal mined and shipped by the
Lessee shall be determined by railroad or truck scales, belt
weightometers, or other means mutually agreed upon.
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7.6 Royalty Payments . All royalty
payments and reports shall be made according to the applicable
federal regulations governing royalty payments for Indian coal.
Where the express terms of this Agreement differ from any
provisions of the applicable federal regulations, the terms of this
Agreement shall control. This method of payment shall also apply to
the Annual Rental and surface rental payable pursuant to Articles 9
and 10 of this Coal Lease, and to royalties payable under the Tract
III Lease as provided in section 6.1 of the Exploration
Agreement.
Lessee shall pay, or cause to be paid, to the
Superintendent for the use and benefit of Lessor, a tax on its
mining operations as follows:
8.1 Exploration Agreement . All tax
provisions in the Exploration Agreement, including, without
limitation, Sections 15, 17, and 19, shall apply to all mining
and Mining Activities undertaken pursuant to this Coal
Lease.
8.2 Tax Obligation and Calculation . On
Coal mined and shipped from the Mining Area pursuant to this Coal
Lease, Lessee will from time to time pay to the Lessor a tax equal
to the Montana coal severance tax existing at the time the
Exploration Agreement is executed and applicable to the mining of
Coal generally within the state of Montana and a tax equal to the
Montana state gross proceeds tax existing at that time and
applicable to the mining of Coal generally within the state, less
whatever amount is required to be paid in severance and gross
proceeds taxes to the state of Montana or its political
subdivisions. The tax shall be levied on the Sales Prices of Coal
as defined in Section 7.1, less any applicable
deductions.
Compliance with the terms of this Coal Lease
shall satisfy any obligation which Lessee may have now, or at any
time hereafter, to pay any severance or other tax to Lessor
pursuant to any tax ordinance which now exists or may be adopted by
Lessor hereafter. Lessor shall not attempt to assess or collect any
tax or other amount from Lessee except as provided for in this Coal
Lease or the Exploration Agreement.
Nothing in this Lease is to be construed as an
admission that Montana has any right to tax coal on the Crow
Reservation. In the event the Crow Tribe litigates this issue,
Lessee will cooperate reasonably to provide information to the
Lessor.
8.3 Maximum Tax . The amount of tax
payable to Lessor under provision 8.2 will not exceed the amount
that otherwise would be payable by a Coal operator on non-tribal
lands to Montana or its political subdivisions, giving effect to
all allowable deductions and credits, if Lessor’s activities
were fully taxable by Montana or its political
subdivisions.
8.4 Reporting and Payment . Lessee shall
provide to the Lessor all of the information that Lessee may be, or
otherwise would be, required to provide to the state of Montana or
its political subdivisions in satisfaction of the requirements of
Montana’s severance tax law and gross proceeds tax law at the
same time that such information is, or otherwise would be, provided
to the state of Montana or to its political subdivisions. Lessee
shall pay any amounts due to the Lessor under this Article, and
provide an accounting of, and explanation for, said amounts, at the
same time that Montana’s severance and gross proceeds taxes
are being, or otherwise would be, paid. The confidentiality
provisions of Article 18 shall apply equally to this Article.
All tax payments shall be made according to the applicable federal
regulations governing royalty payments for Indian coal. Where the
express terms of this Agreement differ from any provisions of the
applicable federal regulations, the terms of this Agreement shall
control.
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8.5 Changes
in Rate of Tax .
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a.
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Tax Reduction
. In the event that
either the Montana state severance tax or gross proceeds tax should
be repealed or reduced below its current level, then amounts paid
by Lessee under Section 8.2 shall be reduced accordingly. Further,
an adjustment to royalty will be made in accord with
Article 7. In addition, the parties shall have the rights
provided herein below:
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(1)
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Lessor may require Lessee to
negotiate with Lessor on the amount of severance and/or gross
proceeds taxes, if any, which Lessee will pay to the Lessor by
giving Lessee notice of an intent to renegotiate this provision
with respect to a severance tax and/or gross proceeds tax within
ninety (90) days (unless otherwise agreed) after the effective
date of the act of the Montana legislature or after action of any
Montana political subdivision effecting such reduction.
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(2)
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Unless otherwise agreed,
negotiations shall commence within thirty (30) days after
Lessee’s receipt of the Lessor’s notice of intent to
renegotiate.
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(3)
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Lessee’s obligation to pay a
severance and/or a gross proceeds tax to Lessor under this Coal
Lease shall be suspended during the period of renegotiation from
the last day of the month in which the intent to renegotiate is
received by Lessor. If tax rates are established by agreement as a
result of renegotiation, then Lessee shall pay Lessor a tax or
taxes based on those rates retroactive to the time of suspension of
payment under this Coal Lease.
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b.
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Procedure for Renegotiation
Impasse . In
the event Lessor and Lessee are unable to reach an agreement on the
amount of taxes to be paid to the Lessor within sixty
(60) days of the commencement of negotiations provided for in
8.5a.(1) (excluding time required to seek approval of any such
agreement at the next meeting of Lessor’s Tribal
Legislature), then, unless otherwise agreed, either Lessor or
Lessee may resolve the issue of the proper amount of taxes payable
by Lessee to Lessor under this Coal Lease through binding
arbitration. The arbitration procedure shall be that provided in
the Exploration Agreement at Section 26. The arbitrators shall
be asked to arrive at a reasonable rate of severance and gross
proceeds tax which, when combined with the royalty received by the
Crow Tribe, accomplishes the following goals: provision to
Westmoreland of a reasonable profit and rate of return on its
investment, when compared with similar (including non-tribal)
mining operations located within Lessee’s market area; while
providing a reasonable return to the Crow Tribe from the mining of
its mineral assets in the form of royalty and severance and gross
proceeds taxes.
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Lessee shall pay, or cause to be paid, for the
use and benefit of Lessor, in advance, beginning with the date of
approval of this Coal Lease by the Secretary, as annual rental, One
Dollar and 0/100 ($1.00) per acre for the first lease year, and
subsequently One Dollar and 0/100 ($1.00) per acre per year,
payable in advance on or before the first day of each lease year,
for each and every year during the continuance of this Coal Lease.
The rent is not to be credited on royalties accruing to Lessor
under this Coal Lease. If this Coal Lease is surrendered or
cancelled, no part of any advance rental shall be refunded to
Lessee, nor shall the surrender or cancellation relieve Lessee from
the obligation to pay the advance rental when it becomes due, on
any portion of the Lease that is retained.
Lessee shall pay a separate surface rental on
all surface property owned by Lessee within the Mining Area of one
dollar and 0/100 cents ($1.00) per acre per year.
ARTICLE 11 PREVENTION OF
WASTE
Lessee shall carry on development and operations
in a workmanlike manner and agrees to the following: to neither
commit nor suffer waste to be committed upon the land leased; to
comply with applicable laws of the United States; and to surrender
and return promptly the premises upon the termination of this Coal
Lease to whoever is lawfully entitled thereto. If Lessee is in
compliance with applicable federal laws and regulations and mining
in accord with approved mining plans and permits, including the
Resource Recovery and Protection Plan, it shall be deemed to be in
full compliance with its obligation to prevent waste and to mine in
a workmanlike manner.
If the payments agreed upon in this Coal Lease
have been made and the other lease terms and applicable regulations
have been complied with, the office fixtures and records, personal
property, tools, pumping and drilling equipment, boilers, engines
and mining machinery, facilities and equipment, and all other
personal property and improvements on the leased land (except the
Lessor’s property) may be removed by the Lessee as soon as
practicable after the Coal Lease expires by forfeiture or
otherwise.
ARTICLE 12 FORESTS, CROPS, AND
GRAZING
The Lessor agrees that with respect to any
surface property rights acquired by Lessee in the Leased Land, or
acquired by Lessee for Lessor as provided in Article 15,
Lessee may remove any timber, crop, or improvements to the extent
convenient for Mining Activities without compensation for same to
Lessor.
With respect to any surface owned by the Tribe
and under lease pursuant to this Agreement, Lessee will reasonably
compensate the Tribe for any forest, crops, or grazing damage or
removal in the year it occurs, and for any diminution in value due
to mining assessed as of the completion of final reclamation (i.e.,
final bond release).
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