SETTLEMENT AGREEMENT AND RELEASE
Whereas
LKA International, Inc. (“LKA”) and Au Mining, Inc.
(“Au”) have been engaged in several disputes, including
the claims and counterclaims in the lawsuit entitled LKA
International, Inc., a Nevada corporation vs. Au Mining, Inc., a
Colorado corporation, Case No. 2006 CV 05 in the District Court of
Colorado, Hinsdale County and
Whereas
the parties have agreed to resolve all disputes between them
pursuant to the following terms and conditions,
NOW THEREFORE, in consideration of the representations, promises
and agreements set forth herein, the receipt and sufficiency of
which is hereby acknowledged by the parties, it is agreed as
follows:
DEFINITIONS
1. “Golden Wonder
Mine” shall refer to the real property described in Exhibit A
attached hereto.
2. “Ute Ule Mine and
Millsites” shall refer to the real property described in
Exhibit B attached hereto.
3. The “2003 Lease
Agreement” shall refer to the Lease Agreement signed by LKA
and Au and dated September 18, 2003.
4. The “1997 Lease
Agreement” shall refer to the Lease Purchase Agreement signed
by LKA and Au dated July 1, 1997.
5. The
“Civil Action” shall refer to the action designated
as 2006 CV 05 filed in the Hinsdale County District Court, which
action includes claims and counterclaims by LKA and Au.
AGREEMENT
1. Termination of 2003 Lease Agreement and All Au Claims to
Golden Wonder Mine: Au hereby agrees that as of the date
of this Agreement, Au shall have no further right to mine at the
Golden Wonder Mine and hereby releases all rights to the Golden
Wonder Mine as they may exist under the 2003 Lease Agreement or
otherwise. Au further agrees that as of the date of this Agreement,
it is releasing all claims to ownership of both the Golden Wonder
Mine and the Ute Ule Mine, including any claims arising under or
based on the 1997 Lease Agreement or Au’s exercise of the
option to purchase under that agreement. Upon execution of this
Agreement by all parties, Au will provide LKA with keys and
combinations to all gates and mine locks.
2. LKA Payment to Au: LKA agrees to pay Au the sum of
$280,000.00 within 60 days of the date of this Agreement. The
payment shall be by wired funds or certified check and shall be
paid to The Tisdel Law Firm, P. C.. A second payment of $250,000.00
shall be paid by the date 12 months from the date of this
agreement. LKA will execute a promissory note reflecting this
obligation, which note will bear interest at the rate of eight per
cent, and include a late fee of five
per cent of the balance due. There will be no prepayment penalty.
The promissory note is attached hereto as Exhibit C and will be
executed by LKA concurrently with the execution of this Agreement.
The promissory note will be secured by a first deed of trust on the
Golden Wonder Mine. The deed of trust is attached hereto as Exhibit
D and will be executed by LKA concurrently with the execution of
this Agreement. The original promissory note and the original deed
of trust will be delivered to the Tisdel Law Firm, P.C. within 48
hours of fax transmission of the signed Agreement. The deed of
trust shall be recorded by the Tisdel Law Firm, P.C. after delivery
and recording of the quit claim deed discussed in paragraph 7
below.
3. Production Taxes: Within 48 hours after receipt of the
initial payment from LKA described above, the Tisdel Law Firm, P.C.
, on behalf of Au, shall pay to Hinsdale County the sum of
$97,733.51 as Au’s share of the production taxes for
production in 2005 that were assessed in 2006 and are due in 2007.
Within 48 hours after receipt of the second payment from LKA
described above, the Tisdel Law Firm, P.C., on behalf of Au, shall
also pay to Hinsdale County the sum due for Au’s share of the
production taxes for production in 2006 that are assessed in 2007
and will be due in 2008.
4. Property Taxes: Within 48 hours after receipt of the
initial payment from LKA described above, the Tisdel Law Firm, P.
C. on behalf of Au, shall pay to Hinsdale County the sum of $340.80
of the 2006 property taxes on the LKA patented mining claims. The
Tisdel Firm, P.C. on behalf of Au, shall also issue a check to LKA
in the amount of $227.20 as Au’s pro-rated share of the
property taxes for 2007.
5. Au Royalty On Future Production: LKA agrees to pay Au a
royalty of six percent (6%) on all future proceeds received from
the sale of materials (ore, metals and/or concentrates, or any
other product) produced from the Golden Wonder Mine. The royalty
will be a Net Smelter Royalty, meaning that LKA will pay Au six
percent of the proceeds received by LKA less customary and usual
deductions for assaying, transportation costs, smelting charges and
penalties, severance, production taxes and any county, state and
federal royalties, if required, or similar charges for which LKA
receives no material benefit. The royalty will stop once Au has
received a total of $12,647,505.00. Concurrently with the execution
of this Agreement, LKA will execute the Royalty Agreement attached
hereto as Exhibit E and shall deliver the original Royalty
Agreement, along with the promissory note and deed of trust to the
Tisdel Law Firm, P.C. within 48 hours of the exchange of facsimile
copies of the signed Agreement. The Tisdel Law Firm, P. C. shall
record the Royalty Agreement in the real property records of
Hinsdale County after the quit claim deed discussed in paragraph 7
below and the deed of trust discussed in paragraph 2 above.
6. Procedures for future payment of Net Smelter Royalty:
a. LKA shall pay the Net Smelter Royalty to Au within 15 days
after
LKA’s receipt of payment for materials from the Golden Wonder
Mine. Payment shall be made to:
Au
Mining, Inc.
21599
Highway 550
Ridgway,
CO 81432
b. At the time of payment, LKA shall provide Au
with documents showing the purchaser, amount purchased and
payment made to LKA.
c. LKA shall have full discretion to determine who to sell to and
the price at which materials will be sold. Nothing within this
Agreement shall obligate LKA to sell any amount of materials from
the Golden Wonder.
d. Except as set forth in Paragraph16 below, Au will have no right
to
view or assay ores or other materials from the Golden Wonder Mine.
Au shall, however, have the right to demand and review all records
and documents related to production of ore, mining, transportation,
processing and payment to LKA for produced from the Golden Wonder
Mine as long as the records and documents requested reasonably
relate to information needed to document the accuracy of royalties
paid or unpaid.
e. Should LKA sell the Golden Wonder Mine, it will convey title
subject to the right of Au to receive the Net Smelter Royalty
provided herein. Au shall have the right to assign its rights under
said Royalty Agreement.
7. Au Quitclaim Deed: Upon execution of this Agreement, Au
shall execute the quit claim deed attached hereto as Exhibit F. The
parties hereto agree that the Tisdel Law Firm, P.C. shall record
the quit claim deed, the deed of trust and the royalty agreement,
in that order in the real property records of Hinsdale County
within 72 hours of receipt of the original documents. . Au shall
also authorize a
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