Exhibit 10.21
     GRANT:     Multiple
UTAH STATE LEASE FOR COAL
ML 48435-OBA
     THIS COAL MINING LEASE AND AGREEMENT (the “Lease”) is entered into and
executed in duplicate as of September 1, 2000 (the “Effective Date”) by and
between the STATE OF UTAH, acting by and through the SCHOOL AND INSTITUTIONAL
TRUST LANDS ADMINISTRATION, 675 East 500 South, Suite 500, Salt Lake City, Utah
84102 (“Lessor”), and
CANYON FUEL COMPANY, LLC
6955 SOUTH UNION PARK CENTER, SUITE 540
MIDVALE, UT 84047
having a business address as shown above (“Lessee”).
WITNESSETH:
     That the State of Utah, as Lessor, in consideration of the rentals,
royalties, and other financial consideration paid or required to be paid by
Lessee, and the covenants of Lessee set forth below, does hereby GRANT AND LEASE
to Lessee the exclusive right and privilege to explore for, drill for, mine,
remove, transport, convey, cross-haul, commingle, and sell the coal located
within the boundaries of the following-described tract of land (the “Leased
Premises”) located in Carbon County, State of Utah:
T.13 S., R. 13 E.. SLB&M
Sec. 17: SW/4, SW/4SE/4;
Sec. 19: NE/4SE/4, S/2SE/4;
Sec. 20: All;
Sec. 21: SW/4NW/4, SW/4;
Sec. 28: NW/4, N/2SW/4, SW/4SW/4;
Sec. 29: All;
Sec. 30: E/2, E/2W/2.

Containing 2,560.00 acres, more or less.
Together with the right and privilege to make use of the surface (but only to
the extent owned by Lessor) and subsurface of the Leased Premises for uses
incident to the mining of coal by Lessee on the Leased Premises or on other
lands under the control of Lessee or mined in connection with operations on the
Leased Premises, including, but not limited to, conveying, storing, loading,
hauling, commingling, cross-hauling, and otherwise transporting coal;
excavating; removing, stockpiling, depositing and redepositing of surface
materials; and the subsidence, mitigation, restoration and reclamation of the
surface.
     This Coal Mining Lease and Agreement is subject to, and Lessee hereby
agrees to and accepts, the following covenants, terms, and conditions:
     LEASED MINERALS.

  1.1   Coal. This mineral lease covers coal, which shall mean and include black
or brownish-black solid fossil fuels that have been subjected to the natural
processes of coalification, and which fall within the classification of coal by
rank as anthracitic, bituminous, sub-bituminous, or lignitic, together with
closely associated substances which include, but are not limited to other
hydrocarbon substances physically contained within the same geologic strata as
the coal. In the event that minerals other than coal are discovered during lease
operations, Lessee shall promptly notify the Lessor.

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ML48435-OBA-COAL

  1.2   Coalbed Methane. To the extent that Lessor owns gas, coalbed methane or
coal seam gas (collectively “coalbed methane”) within the Leased Premises,
Lessee may remove, vent, flare or capture such coalbed methane from the coal
strata being mined and any overlying formations if such removal is necessary for
safety reasons in the reasonable discretion of Lessee. If Lessee captures or
uses such coalbed methane, it shall pay Lessor royalties on the value of such
coalbed methane at the prevailing state royalty rate for natural gas, unless
such royalties are expressly waived by Lessor. Except as expressly granted
herein, the right to extract gas, coalbed methane and coal seam gas is not
granted by this Lease.     1.3   No Warranty of Title. Lessor claims title to
the mineral estate covered by this Lease. Lessor does not warrant title nor
represent that no one will dispute the title asserted by Lessor. It is expressly
agreed that Lessor shall not be liable to Lessee for any alleged deficiency in
title to the mineral estate, nor shall Lessee become entitled to any refund for
any rentals, bonuses, or royalties paid under this Lease in the event of title
failure.     1.4   Reversion of Leased Premises to United States. Pursuant to
the May 8, 1998 “Agreement to Exchange Utah School Trust Lands Between the State
of Utah and the United States of America”, as ratified by Pub. L. No. 105-335,
112 Stat. 3139, ownership of the Leased Premises shall revert to the United
States when thirty-four (34) million tons of coal have been produced from either
or both the Leased Premises and the Muddy Coal Tract. Upon reversion, the United
States shall succeed the State of Utah as Lessor.

2.   RESERVATIONS TO LESSOR. Subject to the exclusive rights and privileges
granted to Lessee under this Lease, and further provided that Lessor shall
refrain from taking actions with respect to the Leased Premises that may
unreasonably interfere with Lessee’s operations, Lessor hereby excepts and
reserves from the operation of this Lease the following rights and privileges
(to the extent that Lessor has the right to grant such rights and privileges):

  2.1   Rights-of-Way and Easements. Lessor reserves the right, following
consultation with the Lessee, to establish rights-of-way and easements upon,
through or over the Leased Premises, under terms and conditions that will not
unreasonably interfere with operations under this Lease, for roads, pipelines,
electric transmission lines, transportation and utility corridors, mineral
access, and any other purpose deemed reasonably necessary by Lessor.     2.2  
Other Mineral Leases. Lessor reserves the right to enter into mineral leases and
agreements with third parties covering minerals other than coal, under terms and
conditions that will not unreasonably interfere with operations under this Lease
in accordance with Lessor’s regulations, if any, governing multiple mineral
development.     2.3   Use and Disposal of Surface. To the extent that Lessor
owns the surface estate of the Leased Premises and subject to the rights granted
to the Lessee pursuant to this Lease, Lessor reserves the right to use, lease,
sell, or otherwise dispose of the surface estate or any part thereof. Lessor
shall notify Lessee of any such sale, lease, or other disposition of the surface
estate.     2.4   Previously Authorized Improvements. If authorized improvements
have been placed upon the Leased Premises by a third party prior to the
commencement of this Lease, Lessee shall allow the owner of such improvements to
remove them within ninety (90) days after the Lease term commences. Nothing in
this paragraph shall authorize Lessee to remove surface improvements where
Lessor does not own the surface estate.     2.5   Rights Not Expressly Granted.
Lessor further reserves all rights and privileges of every kind and nature,
except as specifically granted in this Lease.

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ML48435-OBA-COAL

3.   TERM OF LEASE; READJUSTMENT.

  3.1   Primary Term. This Lease is granted for a “primary term” of ten
(10) years commencing on the Effective Date and for a “secondary term” of an
additional ten (10) years, subject to Lessee’s compliance with the requirements
of paragraph 3.3, Diligent Operations; Minimum Royalty.     3.2   Extension
Beyond Secondary Term. Subject to Lessee’s compliance with the other provisions
of this Lease, this Lease shall remain in effect beyond the secondary term and
for as long thereafter as coal is produced in commercial quantities from the
Leased Premises, or from lands constituting either (i) a logical mining unit
approved by the Bureau of Land Management containing the Leased Premises, or
(ii) a mining unit, in which the recoverable coal reserves can be developed in
an efficient, economical and orderly manner as a unit with due regard to the
conservation of recoverable coal reserves. The second type of mining unit
requires a determination by the Lessor that the criteria set forth in item
(ii) have been satisfied. The satisfaction of either (i) or (ii) above shall
mean that the Lease is contained within an “approved mining unit.” For the
purposes of this Lease, production of coal in commercial quantities shall mean
production during each lease year of at least one per cent (1%) of the
recoverable coal reserves within the Leased Premises or within lands
constituting an approved mining unit which includes the Leased Premises, as such
recoverable coal reserves are determined by Lessor after consultation with
Lessee, subject to adjustment from time to time based upon reasonable
justification from the Lessee.     3.3   Diligent Operations; Minimum Royalty.
In the absence of actual production in commercial quantities as set forth in
paragraph 3.2, Extension Beyond Secondary Term, this Lease shall remain in
effect beyond the primary term only if the Lessee is engaged in diligent
operations, exploration, research, or development activity (which development
activity shall include, but not be limited to, pursuit of required permits and
approvals) which in Lessor’s reasonable discretion is calculated to advance
development or production of coal from the Leased Premises or lands constituting
an approved mining unit which includes the Leased Premises, and Lessee pays an
annual minimum royalty in advance on or before the anniversary date of the
Effective Date. The minimum royalty shall be calculated by determining the
production royalty that would be payable upon production of one per cent (1%) of
the recoverable coal reserves within the Leased Premises, as such recoverable
coal reserves are determined by Lessor after consultation with Lessee, subject
to adjustment from time to time based upon reasonable justification from the
Lessee. The unit value of the recoverable coal reserves for purposes of
determining the minimum royalty shall be determined by Lessor using the
methodology set forth in 43 Code of Federal Regulations §3483.4(c)(l)-(3)
(1998). Minimum royalties paid by Lessee pursuant to this paragraph may be
credited against production royalties accruing during the term of this Lease.  
  3.4   Expiration: Cessation of Production, This Lease may not be extended
pursuant to paragraph 3.3, Diligent Operations; Minimum Royalty, beyond the end
of the twentieth year after the Effective Date except by the actual production
of coal in commercial quantities from the Leased Premises or from lands
constituting an approved mining unit which includes the Leased Premises. After
expiration of the secondary term, this Lease will expire of its own terms,
without the necessity of any notice or action by Lessor, if Lessee ceases
production of coal in commercial quantities for an entire lease year, unless the
Lease is suspended pursuant to paragraph 16.3, Suspension.     3.5  
Readjustment. At the end of the primary term and at the end of each period of
ten (10) years thereafter, Lessor may readjust the terms and conditions of this
Lease (including without limitation rental rates, minimum royalties, royalty
rates and valuation methods, and provisions concerning reclamation). In the
event that the State as Lessor makes such readjustment prior to reversion, it
shall not apply terms and conditions more

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ML48435-OBA-COAL

      economically disadvantageous than corresponding federal regulations and
lease terms unless, based upon written findings after consultation with Lessee,
it determines that the individual term or condition imposing the economic
disadvantage is necessary to serve the best interests of the beneficiaries of
the subject trust lands. If within thirty (30) days after submission of the
readjusted lease terms to the Lessee, the Lessee determines that any or all of
the proposed readjusted terms and conditions arc unacceptable, then Lessee shall
so notify Lessor in writing and the parties shall attempt to resolve the
objectionable term or condition. If the parties are unable to resolve the matter
and agree upon the readjusted terms and conditions submitted by Lessor at the
end of such ten (10) year period, Lessee shall forfeit any right to the
continued extension of this lease, and the lease shall automatically terminate,
provided that nothing herein shall be deemed to preclude Lessee from appealing
any readjustment by Lessor pursuant to applicable law.     3.6   Relinquishment.
Lessee may relinquish all or portions of this Lease at any time by filing a
written notice of relinquishment with Lessor. Lessor may disapprove any
relinquishment if Lessee has failed to pay all rentals, royalties, and other
amounts due and owing to the Lessor, if the lease is otherwise not in good
standing, or if relinquishment would in Lessor’s reasonable determination cause
waste of economically recoverable coal, Lessee may not relinquish parcels
smaller than a quarter-quarter section or surveyed lot. Upon approval,
relinquishment shall relieve the Lessee of all future rental obligations as to
the relinquished lands effective as of the date of filing of the relinquishment,
but shall not relieve Lessee from other obligations to the extent provided in
paragraph 15.2, Effect of Termination.

4.   BONUS BID. Lessee agrees to pay Lessor, an initial bonus bid in the sum of
One Million dollars ($1,000,000.00) as partial consideration for Lessor’s
issuance of this Lease, payable in four equal annual installments of $100,000.00
followed by five equal annual installments of $120,000.00 commencing on the
Effective Date. The unpaid balance of the bonus bid shall not bear interest;
provided, however, that if this Lease is relinquished or otherwise terminated
prior to the payment in full of the bonus bid, or if Lessee fails to make any
bonus bid payment when due, the entire unpaid balance of the bonus bid shall
immediately become due without regard to such relinquishment or termination, and
such balance shall thereafter bear interest as provided in paragraph 16.2,
Interest. Lessor may require Lessee to submit a bond or other sufficient surety
to secure Lessee’s obligation to pay the unpaid balance of the bonus bid. The
initial bonus bid may not be credited against any other bonus payments, annual
rentals or royalties accruing under the lease.       In addition to the initial
bonus bid of $1,000,000.00, Lessee agrees to pay Lessor a deferred bonus equal
to 1.5% of the value of all coal severed and removed from the Leased Premises in
excess of six million tons of coal. Lessee shall not be obligated to pay the
deferred bonus on the first six million tons of coal mined and removed from the
Leased Premises. The value of coal for the purposes of calculating deferred
bonus payments shall be determined pursuant to the provisions of Article 6,
ROYALTIES. Lessee shall notify Lessor when six million tons of coal have been
severed and removed from the Leased Premises, and thereafter shall submit
deferred bonus payments at the time the production royalties are submitted,
clearly identified on royalty reporting documents as deferred bonus payments.  
5.   RENTALS. Lessee agrees to pay Lessor an annual rental of three dollars
($3.00) for each acre and fractional part thereof within the Leased Premises.
Lessee shall promptly pay annual rentals each year in advance on or before the
anniversary date of the Effective Date. Lessee may not credit rentals against
production royalties or against minimum royalties payable pursuant to
paragraph 3.3, Diligent Operations; Minimum Royalty.   6.   ROYALTIES.

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ML48435-OBA-COAL

  6.1   Production Royalties. Lessee shall pay Lessor a production royalty of
eight per cent (8%) of the value of all coal severed and removed from the Leased
Premises. For all coal sold pursuant to an arm’s-length contract, value shall be
determined on the basis of the gross proceeds received by Lessee from the sale
or disposition of such coal. Gross proceeds shall include all bonuses,
allowances or other consideration of any nature received by Lessee for coal
actually produced. For any coal that is sold or disposed of other than by an
arms-length contract, or for coal that is used within the mine permit area
containing the Leased Premises for generation of electricity or for
gasification, liquefaction, in situ processing, or other method of extracting
energy from such coal, the value of such coal shall be determined by Lessor with
reference to (in order of priority): (i) comparable arms-length contracts or
other dispositions of like-quality coal produced in the same coal field;
(ii) prices reported for that coal to a public utility commission; (iii) prices
reported to other governmental agencies; or (iv) other relevant information.    
6.2   Allowable Deductions. It is expressly understood and agreed that none of
Lessee’s mining or production costs, including but not limited to costs for
materials, labor, overhead, distribution, transportation within the mine permit
area prior to the point of sale, loading, crushing, sizing, screening, or
general and administrative activities, may be deducted in computing Lessor’s
royalty. All such costs shall be entirely borne by Lessee and are anticipated by
the rate of royalty set forth in this Lease. In the event that the point of sale
for coal produced from this Lease is located outside the mine permit area
boundary, Lessee may deduct the reasonable, actual costs of transportation of
such coal from the mine permit area boundary to the point of sale from gross
proceeds in computing Lessor’s royalty; provided, however, that transportation
deductions for coal transported by Lessee, Lessee’s affiliates, or by
non-arm’s-length contract are subject to review and modification by Lessor.
Lessee shall be allowed to deduct its actual, reasonable washing and treatment
costs from gross proceeds in computing Lessor’s royalty; provided, however,
that, upon Lessor’s request Lessee shall provide to Lessor appropriate
justification to demonstrate that Lessee’s costs are reasonable.     6.3  
Reference to Federal Regulations. It is the intent of Lessor and Lessee that the
calculation of the value of coal for royalty purposes be consistent with federal
coal regulations governing the valuation of coal, except where this Lease
expressly provides otherwise. In no event shall the value of coal used for
calculation of royalties under this Lease be less than the value which would be
obtained were federal royalty valuation regulations applied.     6.4   Royalty
Payment. For all coal severed and removed from the Leased Premises that is used,
sold, transported or otherwise disposed of during a particular month, Lessee
shall pay royalties to Lessor on or before the end of the next succeeding month.
Royalty payments shall be accompanied by a verified statement, in a form
approved by Lessor, stating the amount of coal sold or otherwise disposed of,
the gross proceeds accruing to Lessee, the calculation of allowable deductions,
and any other information reasonably required by Lessor to verify production and
disposition of the coal or coal products. In the event that Lessee uses or
disposes of coal pursuant to a non-arm’s-length contract, or uses coal for
generation of electricity or for gasification, liquefaction, in situ processing,
or other method of extracting energy from such coal, Lessee shall notify Lessor
of such use or disposal on or before the end of the next succeeding month
following such use or disposal, and shall pay royalties upon Lessee’s good faith
estimate of the value of such coal, subject to Lessor’s right to determine the
value of such coal pursuant to paragraph 6.1, Production Royalties. After
reversion of the Leased Premises to the United States pursuant to paragraph 1.4,
Reversion of Leased Premises to United States, Lessee shall report production
and royalties monthly in accordance with applicable federal regulations.

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ML48435-OBA-COAL

  6.5   Royalty Valuation After Reversion. After reversion of the Leased
Premises to the United States, the Secretary of the Interior may establish the
reasonable value of post-reversion production for royalty purposes in the same
manner and by the same methods as the United States establishes value under coal
leases issued by the United States.     6.6   Suspension. Waiver or Reduction of
Rents or Royalties. Lessor, to the extent not prohibited by applicable law, is
authorized to waive, suspend, or reduce the rental or minimum royalty, or reduce
the royalty applicable with respect to the entire Lease, whenever in Lessor’s
judgment it is necessary to do so in order to promote development, or whenever
in the Lessor’s judgment the Lease cannot be successfully operated under the
terms provided herein.

7.   RECORDKEEPING; INSPECTION; AUDITS.

  7.1   Registered Agent: Records. Lessee shall maintain a registered agent
within the State of Utah to whom any and all notices may be sent by Lessor and
upon whom process may be served. Lessee shall also maintain an office within the
State of Utah containing originals or copies of all maps, engineering data,
permitting materials, books, records or contracts (whether such documents are in
paper or electronic form) generated by Lessee that pertain in any way to coal
production, output and valuation; mine operations; coal sales and dispositions;
transportation costs; and calculation of royalties from the Leased Premises.
Lessee shall maintain such documents for at least seven years after the date of
the coal production to which the documents pertain.     7.2   Inspection.
Lessor’s employees and authorized agents at Lessor’s sole risk and expense shall
have the right to enter the Leased Premises to check scales as to their
accuracy, and to go on any part of the Leased Premises to examine, inspect,
survey and take measurements for the purposes of verifying production amounts
and proper lease operations. Upon reasonable notice to Lessee, Lessor’s
employees and authorized agents shall further have the right to audit, examine
and copy (at Lessor’s expense) all documents described in paragraph 7.1,
Registered Agent; Records, whether such documents are located at the mine site
or elsewhere. Lessee shall furnish all conveniences necessary for said
inspection, survey, or examination; provided, however, that such inspections
shall be conducted in a manner that is in conformance with all applicable mine
safety regulations and does not unreasonably interfere with Lessee’s operations.
    7.3   Federal Inspections. Lessee agrees that, prior to reversion of the
Leased Premises to the United States, employees and authorized agents of the
Bureau of Land Management (“BLM”) may conduct underground inspections of the
Leased Premises, both independently and in cooperation with the State in its
capacity as Lessor. After reversion, employees and authorized agents of BLM may
conduct underground inspections of the Leased Premises under the authority of
applicable federal laws and regulations.     7.4   Geologic Information. In the
event Lessee conducts core-drilling operations or other geologic evaluation of
the Leased Premises, Lessor may inspect core samples, evaluations thereof, and
proprietary geologic information concerning the Leased Premises.     7.5  
Confidentiality. Any and all documents and geologic data obtained by Lessor
through the exercise of its rights as set forth in paragraphs 7.2, Inspection.,
and 7.4, Geologic Information., may be declared confidential information by
Lessee, in which event Lessor and its authorized agents shall maintain such
documents and geologic data as protected records under the Utah (Governmental
Records Access Management Act or other applicable privacy statute including
applicable federal law after reversion, and shall not disclose the same to any
third party without the written consent of Lessee, the order of a court of
competent jurisdiction requiring such disclosure, or upon termination of this
Lease. Following reversion of the Leased Premises to the United States, the
United States

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      as Lessor shall treat such information as confidential to the extent
permitted by federal law.

8.   USE OF SURFACE ESTATE.

  8.1   Lessor-Owned Surface. If Lessor owns the surface estate of all or some
portion of the Leased Premises, by issuance of this Lease the Lessee has been
granted the right to make use of such lands to the extent reasonably necessary
and expedient for the economic operation of the leasehold. Lessee’s right to
surface use of Lessor-owned surface estate shall include the right to subside
the surface. Such surface uses shall be exercised subject to the rights reserved
to Lessor as provided in paragraph 2, RESERVATIONS TO LESSOR, and without
unreasonable interference with the rights of any prior or subsequent lessee of
Lessor.     8.2   Split-Estate Lands. If Lessor does not own the surface estate
of any portion of the Leased Premises, Lessee’s access to and use of the surface
of such lands shall be determined by applicable law governing mineral
development on split-estate lands, including without limitation applicable
statutes governing access by mineral owners to split estate lands, and
reclamation and bonding requirements. Lessee shall indemnify, defend and hold
Lessor harmless for all claims, causes of action, damages, costs and expenses
(including attorney’s fees and costs) arising out of or related to damage caused
by Lessee’s operations to surface lands or improvements owned by third parties.

9.   APPLICABLE LAWS AND REGULATIONS; HAZARDOUS SUBSTANCES

  9.1   Trust Lands Statute and Regulations. This Lease is issued pursuant to
the provisions of Title 53C, Utah Code Annotated, 1953, as amended, and Lessee
is subject to and shall comply with all current and future rules and regulations
adopted by the School and Institutional Trust Lands Administration and its
successor agencies until reversion of the Leased Premises to the United States
pursuant to paragraph 1.4. Reversion of Leased Premises to United States.    
9.2   Regulation Upon Reversion. After reversion of the Leased Premises to the
United States pursuant to paragraph 1.4, Reversion of Leased Premises to United
States, Lessee will be subject to the requirements of the Mineral Leasing Act,
30 U.S.C. §~ 181 et seq. (the “MLA”), and to the royalty, operating, and
administrative procedure rules and regulations of the Department of Interior,
the Minerals Management Service, and the Bureau of Land Management, and to any
other federal laws and regulations generally applicable to coal leases issued
under the MLA to the same extent as if the Lease were a federally-issued lease.
Notwithstanding the foregoing, to the extent that the State, as Lessor, approves
a significant operational decision prior to reversion, and Lessee makes a
substantial economic commitment based upon that approval, Lessee may continue to
rely upon that approval after reversion; provided, however, that no such
approval shall act to limit the liability of Lessee, if any, under CERCLA. RCRA,
the Clean Water Act, 33 U.S.C. § 1251 et seq or other applicable environmental
law. Upon reversion, nothing in this paragraph shall be deemed to require that
the Leased Premises be included in the calculation of acreage held by Lessee for
the purposes of the acreage limitation provisions of the MLA and associated
regulations.

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ML48435-OBA-COAL

  9.3   Other Applicable Laws and Regulations. Lessee shall comply with all
applicable federal, state and local statutes, regulations, and ordinances,
including without limitation the Utah Coal Mining and Reclamation Act,
applicable statutes and regulations relating to mine safety and health, and
applicable statutes, regulations and ordinances relating to public health,
pollution control, management of hazardous substances and environmental
protection.     9.4   Hazardous Substances. Lessee [or other occupant pursuant
to any agreement authorizing mining] shall not keep on or about the premises any
hazardous substances, as defined under 42 U.S.C. § 960104) or any other Federal
environmental law, any regulated substance contained in or released from any
underground storage tank, as defined by the Resource Conservation and Recovery
Act, 42 U.S.C. § 6991, et seq. or any substances defined and regulated as
“hazardous” by applicable State law, (hereinafter, for the purposes of this
Lease, collectively referred to as “Hazardous Substances”) unless such
substances are reasonably necessary in Lessee’s mining operations, and the use
of such substances or tanks is noted and approved in the Lessee’s mining plan,
and unless Lessee fully complies with all Federal, State and local laws,
regulations, statutes, and ordinances, now in existence or as subsequently
enacted or amended, governing Hazardous Substances. Lessee shall immediately
notify Lessor, the Bureau of Land Management, the surface management agency, and
any other Federal, State and local agency with jurisdiction over the Leased
Premises, or contamination thereon, of (i) all reportable spills or releases of
any Hazardous Substance affecting the Leased Premises, (ii) all failures to
comply with any applicable Federal, state or local law, regulation or ordinance
governing Hazardous Substances, as now enacted or as subsequently enacted or
amended, (iii) all inspections of the Leased Premises by, or any correspondence,
order, citations, or notifications from any regulatory entity concerning
Hazardous Substances affecting the Leased Premises, (iv) all regulatory orders
or fines or all response or interim cleanup actions taken by or proposed to be
taken by any government entity or private Party concerning the Leased Premises.
    9.5   Hazardous Substances Indemnity. Lessee [or other occupant pursuant to
any agreement authorizing mining] shall indemnify, defend, and hold harmless
Lessor and the United States (as successor Lessor or owner pursuant to reversion
or as owner of surface estate) its agencies, employees, officers, and agents
with respect to any and all damages, costs, liabilities, fees (including
attorneys’ fees and costs), penalties (civil and criminal), and cleanup costs
arising out of or in any way related to Lessee’s use, disposal, transportation,
generation, sale or location upon or affecting the Leased Premises of Hazardous
Substances, as defined in paragraph 9.4 of this Lease. This indemnity shall
extend to the actions of Lessee’s employees, agents assigns, sublessees,
contractors, subcontractors, licensees and invitees. Lessee shall further
indemnify, defend and hold harmless Lessor and the United States from any and
all damages, costs, liabilities, fees (including attorneys’ fees and costs),
penalties (civil and criminal), and cleanup costs arising out of or in any way
related to any breach of the provisions of this Lease concerning Hazardous
Substances. This indemnity is in addition to, and in no way limits, the general
indemnity contained in paragraph 16.1 of this Lease.     9.6   Waste
Certification. The Lessee shall provide upon abandonment, transfer of operation,
assignment of rights, sealing-off of a mined area, and prior to lease
relinquishment, certification to the Lessor and the Bureau of Land Management
that, based upon a complete search of all the operator’s records for the Lease,
and upon its knowledge of past operations, there have been no reportable
quantities of hazardous substances as defined in 40 Code of Federal Regulations
§302.4, or used oil as defined in Utah Administrative Code R315-15, discharged
(as defined at 33 U.S.C. §1321(a)(2)), deposited or released within the Leased
Premises, either on the surface or underground, and that all remedial actions
necessary have been taken to protect human health and the environment with
respect to such substances. Lessee shall additionally provide to Lessor and the
Bureau of Land Management a complete

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      list of all hazardous substances, hazardous materials, and their
respective Chemical Abstracts Service Registry Numbers, and oil and petroleum
products used or stored on, or delivered to, the Leased Premises. Such
disclosure will be in addition to any other disclosure required by law or
agreement.

10.   BONDING.

  10.1   Lease Bond Required. At the time this Lease is executed, Lessee shall
execute and file with the Lessor a good and sufficient bond or other financial
guarantee acceptable to Lessor in order to:         (a) guarantee Lessee’s
performance of all covenants and obligations under this Lease, including
Lessee’s obligation to pay royalties; and (b) ensure compensation for damage, if
any, to the surface estate and any surface improvements. The Lease Bond shall
meet all federal mineral lease bond requirements as described in 43 Code of
Federal Regulations Subpart 3474. The Lease Bond shall further provide that upon
forfeiture after reversion of the Leased Premises to the United States, the
Lease Bond shall be payable to the Secretary of the Interior.     10.2  
Reclamation Bonding. The bond filed with the Utah Division of Oil, Gas and
Mining (“UDOGM”) in connection with the issuance of a mine permit which includes
the Leased Premises shall be deemed to satisfy Lessor’s bonding requirements
with respect to Lessee’s reclamation obligations under this Lease; provided,
however, upon notice to Lessee and a public hearing with respect to the basis
for its decision, the Lessor may, in its reasonable discretion, determine that
the bond filed with UDOOM is insufficient to protect Lessor’s interests. In such
an event the Lessor shall enter written findings as to the basis for its
calculation of the perceived insufficiency and enter an order establishing the
amount of additional bonding required. Lessee shall file any required additional
bond with Lessor within thirty (30) days after demand by Lessor. Lessor may
increase or decrease the amount of any additional bond from time to time in
accordance with the same procedure.     10.3   Release of Additional Bond. Any
additional bond required by Lessor pursuant to 10.2, Reclamation Bonding, may be
released by Lessor at any time and shall be released no later than the time of
final bond release by UDOGM with respect to the Leased Premises.

11.   WATER RIGHTS.

  11.1   Water Rights in Name of Lessor. If Lessee files to appropriate water
for coal mining operations on the Leased Premises, the filing for such water
right shall be made by Lessee in the name of Lessor at no cost to Lessor, and
such water right shall become an appurtenance to the Leased Premises, subject to
Lessee’s right to use such water right at no cost during the term of this Lease.
    11.2   Option to Purchase. If Lessee purchases or acquires an existing water
right for coal mining operations on the Leased Premises, Lessor shall have the
option to acquire that portion of such water right as was used on the Leased
Premises upon expiration or termination of this Lease. The option price for such
water right shall be the fair market value of the water right as of the date of
expiration or termination of this Lease. Upon expiration or termination of this
Lease, Lessee shall notify Lessor in writing of all water rights purchased or
acquired by Lessee for coal mining operations on the Leased Premises and its
estimate of the fair market value of such water right. Lessor shall then have
forty-five (45) days to exercise its option to acquire the water by payment to
Lessee of the estimated fair market value. If Lessor disagrees with Lessee’s
estimate of fair market value, Lessor shall notify Lessee of its disagreement
within the 45 day option exercise period. The fair market value of the water
right shall then be appraised by a single appraiser mutually

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ML48435-OBA-COAL

      acceptable to both parties, which appraisal shall be final and not subject
to review or appeal. If the parties cannot agree upon the choice of an
appraiser, the fair market value of the water right shall be determined by a
court of competent jurisdiction. Conveyance of any water right pursuant to this
paragraph shall be by quit claim deed.     11.3   Reversion. Upon reversion of
the Leased Premises to the United States, the United States shall succeed to the
interests of the State of Utah pursuant to this article 11.

12.   ASSIGNMENT OR SUBLEASE; OVERRIDING ROYALTIES.

  12.1   Consent Required. Lessee shall not assign or sublease this Lease in
whole or in part, or otherwise assign or convey any rights or privileges granted
by this Lease, including, without limitation, creation of overriding royalties
or production payments, without the prior written consent of Lessor. Any
assignment, sublease or other conveyance made without prior written consent of
Lessor shall have no legal effect unless and until approved in writing by
Lessor. Exercise of any right with respect to the Leased Premises in violation
of this provision shall constitute a default under this Lease.     12.2  
Binding Effect. All of the terms and provisions of this Lease shall be binding
upon and shall inure to the benefit of their respective successors, assigns, and
sublessees.     12.3   Limitation on Overriding Royalties. Lessor reserves the
right to disapprove the creation of an overriding royalty or production payment
that would, in Lessor’s reasonable discretion, constitute an unreasonable
economic burden upon operation of the Lease, In exercising its discretion to
disapprove the creation of an overriding royalty, Lessor shall consult with
Lessee and any third parties involved and shall prepare findings to evidence the
basis of its decision. Cumulative overriding royalties of 2% or less shall be
deemed presumptively reasonable unless special circumstances are shown by Lessor
to exist.

13.   OPERATIONS.

  13.1   Permitting. Before Lessee commences exploration, drilling, or mining
operations on the Leased Premises, it shall have obtained such permits and
posted such bonds as may be required under applicable provisions of the Utah
Coal Mining and Reclamation Act, the Surface Mining Control and Reclamation Act,
and associated regulations, together with applicable regulations of the surface
management agency. Lessee shall maintain any required permits in place for the
duration of mining operations and reclamation. Upon request, Lessee shall
provide Lessor with a copy of all regulatory filings relating to permitting
matters.     13.2   Plan of Operations. Prior to the commencement of any
underground mining operations on the Leased Premises, Lessee shall obtain
Lessor’s approval of a plan of operations for the Leased Premises. The plan of
operations shall contain all information required to be contained in a federal
Resource Recovery and Protection Plan, as described in 43 Code of Federal
Regulations § 3482.1(b) and (c) (1998). Lessor may modify the proposed plan of
operations as is needed to insure that there is no waste of economically
recoverable coal reserves contained on the Leased Premises. In this context
“waste” shall mean the inefficient utilization of, or the excessive or improper
loss of an otherwise economically recoverable coal resource. Lessor shall notify
Lessee in writing of its approval or modifications of the plan of operations.
The plan of operations submitted by Lessee shall be deemed approved by Lessor if
Lessor has not otherwise notified Lessee within sixty (60) days of filing.

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ML48435-OBA-COAL

  13.3   Plan of Operations — Modification. In the event that material changes
are required to the plan of operations during the course of mining, Lessee shall
submit a modification of the plan of operations to the Lessor. Routine
adjustments to the plan of operations based upon geologic circumstances
encountered during day-to-day mining operations do not require the submission of
a modification. If the proposed changes require emergency action by Lessor, then
the Lessee shall so notify the Lessor at the time of submission of the
modification and the parties shall use their best efforts to meet the Lessee’s
time schedule regarding implementation of the changes. Non-emergency
modifications will be reviewed promptly by Lessor to insure that there is no
waste of economically recoverable coal reserves pursuant to the plan of
operations, as modified, and Lessor shall notify lessee in writing of its
approval or modification of the proposed modification. Prior to reversion,
modifications shall be deemed approved by Lessor if Lessor has not otherwise
notified Lessee within thirty (30) days of filing. After reversion,
modifications shall be approved in accordance with applicable federal
regulations.     13.4   Mine Maps. Lessee shall maintain at the mine office
clear, accurate, and detailed maps of all actual and planned operations prepared
and maintained in the manner prescribed by 43 Code of Federal Regulations §
3482.3 (1998). Lessee shall provide copies of such maps to Lessor upon request.
    13.5   Good Mining Practices. Lessee shall conduct exploration and mining
operations on the Leased Premises in accordance with standard industry operating
practices, and shall avoid waste of economically recoverable coal. Lessee shall
comply with all regulations and directives of the Mine Safety and Health
Administration or successor agencies for the health and safety of employees and
workers. Lessee shall further comply with the performance standards for
underground resource recovery set forth at 43 Code of Federal Regulations §
3484.1(c) (1998); provided, however, that Lessor may waive such standards from
time to time in its reasonable discretion, upon request by Lessee. Coal shall be
mined from this Lease by underground methods only.     13.6   Mining Units.
Lessor may approve the inclusion of the Leased Premises in a mining unit with
federal, private or other non-state lands upon terms and conditions that it
deems necessary to protect the interests of the Lessor, including without
limitation segregation of production, accounting for commingled coal production,
and minimum production requirements or minimum royalties for the Leased
Premises.

14.   EQUIPMENT; RESTORATION.

  14.1   Equipment. Upon termination of this Lease, Lessee shall remove, and
shall have the right to remove, all improvements, equipment, stockpiles, and
dumps from the Leased Premises within six (6) months; provided, however, that
Lessor may, at Lessor’s sole risk and expense, and subject to Lessee’s
compliance with requirements imposed by UDOGM and MSHA, require Lessee to retain
in place underground timbering supports, shaft linings, rails, and other
installations reasonably necessary for future mining of the Leased Premises. All
improvements and equipment remaining on the Leased Premises after six (6) months
may be deemed forfeited to Lessor upon written notice of such forfeiture to
Lessee. Lessee may abandon underground improvements, equipment of any type,
stockpiles and dumps in place if such abandonment is in compliance with
applicable law, and further provided that Lessee provides Lessor with financial
or other assurances sufficient iii Lessor’s reasonable discretion Lu protect
Lessor from future environmental liability with respect to such abandonment or
any associated hazardous waste spills or releases. Lessee shall identify and
locate on the mine map the location of all equipment abandoned on the Lease
Premises.

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ML48435-OBA-COAL

  14.2   Restoration and Reclamation. Upon termination of this Lease, Lessee
shall reclaim the Leased Premises in accordance with the requirements of
applicable law, including mine permits and reclamation plans on file with UDOGM.
Lessee shall further abate any hazardous condition on or associated with the
Leased Premises. Lessee and representatives of all governmental agencies having
jurisdiction shall have the right to re-enter the Leased Premises for
reclamation purposes for a reasonable period after termination of the Lease.

15.   DEFAULT

  15.1   Notice of Default; Termination. Upon Lessee’s violation of or failure
to comply with any of the terms, conditions or covenants set forth in this
Lease, Lessor shall notify Lessee of such default by registered or certified
mail, return receipt requested, at the last address for Lessee set forth in
Lessor’s files. Lessee shall then have thirty (30) days, or such longer period
as may be granted in writing by Lessor, to either cure the default or request a
hearing pursuant to the Lessor’s administrative adjudication rules. In the event
Lessee fails to cure the default or request a hearing within the specified time
period, Lessor may cancel this Lease without further notice to or appeal by
Lessee.     15.2   Effect of Termination. The termination of this Lease for any
reason, whether through expiration, cancellation or relinquishment, shall not
limit the rights of the Lessor to recover any royalties and/or damages for which
Lessee may be liable, to recover on any bond on file, or to seek injunctive
relief to enjoin continuing violations of the Lease terms. No remedy or election
under this Lease shall be deemed exclusive, but shall, wherever possible, be
cumulative with all other remedies available under this Lease, at law, or in
equity. Lessee shall surrender the Leased Premises upon termination; however,
the obligations of Lessee with respect to reclamation, indemnification and other
continuing covenants imposed by this Lease shall survive the termination.

16.   MISCELLANEOUS PROVISIONS.

  16.1   Indemnity. Except as limited by paragraph 7.2, Inspection, Lessee shall
indemnify and hold Lessor and the United States (as successor Lessor or owner
pursuant to reversion or as owner of surface estate) harmless for, from and
against each and every claim, demand, liability, loss, cost, damage and expense,
including, without limitation, attorneys’ fees and court costs, arising in any
way out of Lessee’s occupation and use of the Leased Premises, including without
limitation claims fordeath, personal injury, property damage, and unpaid wages
and benefits. Lessee further agrees to indemnify and hold Lessor harmless for,
from and against all claims, demands, liabilities, damages and penalties arising
out of any failure of Lessee to comply with any of Lessee’s obligations under
this Lease, including without limitation attorneys’ fees and court costs,    
16.2   Interest. Except as set forth in paragraph 4, BONUS BID, interest shall
accrue and be payable on all obligations arising under this Lease at such rate
as may be set from time to time by rule enacted by Lessor. Interest shall accrue
and be payable, without necessity of demand, from the date each such obligation
shall arise.     16.3   Suspension. In the event that Lessor in its reasonable
discretion determines that suspension is necessary in the interests of
conservation of the coal resource, or if Lessee has been prevented from
performing any of its obligations or responsibilities under this Lease or from
conducting mining operations by labor strikes, fires, floods, explosions, riots,
any unusual mining casualties or conditions, Acts of God, government
restrictions or orders, severe weather conditions, or other extraordinary events
beyond its control, then the time for performance of this Lease by Lessee shall
be suspended during the continuance of such acts which prevent performance,
excepting any payments due and owing to Lessor.

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ML48435-OBA-COAL

  16.4   Consent to Suit: Jurisdiction. Prior to reversion of the Leased
Premises to the United States: (i) this Lease shall be governed by the laws of
the State of Utah; (ii) Lessor and Lessee agree that all disputes arising out of
this Lease shall be litigated only in the Third Judicial District Court for Salt
Lake County, Utah; (iii) Lessee consents to the jurisdiction of such court; and
(iv) Lessee shall not bring any action against Lessor without exhaustion of
available administrative remedies and compliance with applicable requirements of
the Utah Governmental Immunity Act. Notwithstanding the foregoing, after
reversion of the Leased Premises to the United States, any litigation between
the United States as Lessor and the Lessee shall be governed by the laws of the
United States otherwise applicable to federal coal leases.     16.5   No Waiver.
No waiver of the breach of any provision of this Lease shall be construed as a
waiver of any preceding or succeeding breach of the same or any other provision
of this Lease, nor shall the acceptance of rentals or royalties by Lessor during
any period of time in which Lessee is in default be deemed to be a waiver of
such default.     16.6   Severability. The invalidity of any provision of this
Lease, as determined by a court of competent jurisdiction, shall in no way
affect the validity of any other provision hereof.     16.7   [Deleted]     16.8
  Entire Lease. This Lease, together with any attached stipulations, sets forth
the entire agreement between Lessor and Lessee with respect to the subject
matter of this Lease. No subsequent alteration or amendment to this Lease shall
be binding upon Lessor and Lessee unless in writing and signed by each of them.

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ML 4843 5-OBA-COAL
     IN WITNESS WHEREOF, the parties have executed this Lease as of the date
hereinabove first written.

                                              THE STATE OF UTAH, acting by and
through the SCHOOL AND
INSTITUTIONAL TRUST LANDS
ADMINISTRATION (“LESSOR”)
APPROVED AS TO FORM:
JAN GRAHAM
           
 
                                            ACTING DIRECTOR ATTORNEY GENERAL    
       
 
                        By       /s/ Jan Graham       By   /s/ Kevin S. Carter  
               
 
                        Form Approved:   8/10/00                                
                          School & Institutional Trust Lands
Administration — LESSOR
 
                                            CANYON FUEL COMPANY LLC
(“LESSEE”)
 
                       
 
                  By:   /s/ Richard D. Pick                          
 
                       
 
                  Its:   President and CEO                          

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ML 48435-OBA-COAL

           
STATE OF UTAH
    )      
 
    :   SS.
COUNTY OF SALT LAKE
    )      

     On the 1st day of May, 2001, personally appeared before me Kevin S. Carter
who being by me duly sworn did say that he is Acting Director of the School and
Institutional Trust Lands Administration of the State acknowledged that he
executed the same.
Given under my hand and seal this 1st day of May 2001.

                  /s/ Becky Pritchett       Notary Public      Residing at:    
Salt Lake City, Utah     

 
My commission expires:
 

9-4-02

 

 

           
STATE OF UTAH
    )      
 
    :  
COUNTY OF SALT LAKE
    )      

     On the _____ day of ______________________, personally appeared before me
____________________ signer of the above instrument, who duly acknowledged to me
that _____________ executed the same.
Given under my hand and seal this _______________ day of
____________________________, ____________________

                  Notary Public      Residing at:        

 
My commission expires:
 

 

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ML 48435-OBA-COAL

           
STATE OF UTAH
    )      
 
    :  
COUNTY OF SALT LAKE
    )      

     On the 21st day of August, 2000, personally appeared before me Richard D.
Pick, who being duly sworn did say that he is an officer of Canyon Fuel Company,
LLC and that said instrument was signed in behalf of said corporation by
resolution of its Board of Directors, and said that he acknowledged to me that
said corporation executed the same.
Given under my hand and seal this 21st day of August, 2000.

                  /s/ Tavia Lynn Chiles       Notary Public      Residing at:  
  Salt Lake City, UT     

 
My commission expires:
 

September 5, 2001