Document:

EX-10.1

 

Exhibit 10.1

SETTLEMENT AND MUTUAL RELEASE AGREEMENT

     This Settlement and Mutual Release Agreement (“Settlement Agreement”) is made this 23rd day of
June, 2006, by and among BPI Energy, Inc., for itself and as successor by merger or otherwise to
Methane Management, Inc. and BPI Industries, Inc., (“BPI”), Colt LLC (“Colt”), AFC Coal Properties,
Inc. (“AFC”), American Premier Underwriters, Inc. (“APU”), and Central States Coal Reserves of
Illinois, LLC (“Central States”) (collectively, the “Parties”).

     WHEREAS, each of the Parties is or was a party or assignee to that certain Oil, Gas and Coal
Bed, Methane Gas Lease dated April 3, 2001, as amended (the “Methane Lease”);

     WHEREAS, disputes have arisen between the Parties regarding their rights and obligations under
the Methane Lease;

     WHEREAS, on March 15, 2006, BPI filed a lawsuit against Colt, AFC, APU and Central States
before the United States District Court for the Southern District of Ohio, styled as BPI Energy,
Inc. v. Colt LLC, et al., Case No. 06-cv-144 (the “Lawsuit”), seeking injunctive, declaratory and
other relief relating to BPI’s alleged right to produce coal bed methane gas under the Methane
Lease;

     WHEREAS, Colt, AFC and APU each filed an answer in the Lawsuit denying any liability for the
claims asserted, Colt counterclaimed against BPI for declaratory and other relief, and Central
States filed a motion to dismiss the Lawsuit;

     WHEREAS, an interlocutory appeal arising from the Lawsuit is currently pending before the
United States Court of Appeals for the Sixth Circuit, Appeal No. 06-3559 (the “Appeal”) (the
Lawsuit and the Appeal referred to collectively as the “Action”);

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     WHEREAS, the Parties desire to forever release and extinguish all claims that were brought or
could have been brought in the Action; and

     WHEREAS, contemporaneously with the execution of this Agreement, the Colt and BPI are
executing that certain Purchase and Sale Agreement (“Purchase and Sale Agreement”) dated as of the
same date as this Settlement Agreement, a copy of which is attached as Exhibit A and to
which reference is hereby made.

     NOW, THEREFORE, in consideration of the promises, covenants and undertakings set forth below,
and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:

     1. Conditions Precedent. The following actions shall have occurred before or shall
occur contemporaneous with the execution of this Settlement Agreement:

          (a) Colt shall acquire any and all of the Methane Assets that it has conveyed to any of its
affiliates, as provided in Section 3.1(a) of the Purchase and Sale Agreement.

          (b) Colt shall obtain from AFC and/or APU, as appropriate, the right, title and interests
described in Section 3.1(b) of the Purchase and Sale Agreement.

          (c) Colt and BPI shall execute the Purchase and Sale Agreement, and Colt shall execute and
deliver the Quit Claim deeds to BPI as contemplated by Section 5.2 of the Purchase and Sale
Agreement.

          (d) BPI shall make a lump sum cash payment of Three Million and 00/100 Dollars ($3,000,000.00)
(the “Settlement Sum”), as provided in Section 2.1 of the Purchase and Sale Agreement.

          (e) The Parties shall execute a Termination Agreement, as provided in Section 6.3(d) of the
Purchase and Sale Agreement.

- 2 -

 

     2. Mutual Release. Upon the occurrence and happening of each of the conditions
precedent set forth in Section One above and except as otherwise explicitly stated in this
Settlement Agreement, for and in consideration of the mutual agreements set forth herein, each of
the Parties hereby, for each of them and for their respective agents, attorneys, servants,
employees, officers, directors, shareholders, members, partners, predecessors, successors, and
assigns, RELEASE, ACQUIT and FOREVER DISCHARGE each other, and each other’s respective agents,
attorneys, servants, employees, officers, directors, shareholders, members, partners, successors,
and assigns, and all related firms, entities, corporations, associations, or partnerships, of and
from any and all manner of liability, claims, actions, causes of action, demands, damages, costs
(including costs of suit and attorneys’ fees), loss of service, expenses, compensation, judgments,
awards, and suits, either civil, criminal or administrative, known or unknown, foreseen and
unforeseen, suspected and unsuspected, whether or not legally cognizable, now existing, arising out
of, or in any way relating to the Methane Lease, the Action, or any other claims arising from the
beginning of time up to the date of this Settlement Agreement.

     3. No Accrued Obligations. Subject to Section 1(d) of this Settlement Agreement, Colt
acknowledges that no other amounts are payable or outstanding from BPI to Colt, through the date of
the Closing, including but not limited to any amounts for accrued royalties.

     4. Peabody Agreement. BPI expressly represents and warrants that it will continue to
honor its obligations in relation to the Settlement Agreement and Mutual Release between BPI and
Delta Mine Holding Company and Peabody Development Land Holdings, LLC dated April 15, 2005
(hereinafter the “Peabody Agreement”) including, but not limited to, Prohibited Area (i.e., the “no
fly zone”) as described in Section 4 of the Peabody Agreement, as provided in

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Section 5.4 of the Purchase and Sale Agreement. The Peabody Agreement shall remain in full
force and effect and shall not be deemed modified or amended in any manner as a result of the
Parties entering into Settlement Agreement. The execution of this Settlement Agreement and
performance of the terms and provisions contained in this Settlement Agreement shall not constitute
a waiver of any breach of the Peabody Agreement.

     5. No Admission of Wrongdoing. This Settlement Agreement is entered into in full
compromise, accord, satisfaction and settlement of any claims the Parties may have against each
other, as stated herein. This settlement is not to be construed as an admission of any
wrong-doing, liability or fault, and by entering into this Settlement Agreement, each of the
Parties expressly denies any wrong-doing, liability or fault, each intending to avoid further
claims, allegations and potential litigation, and buy their peace.

     6. Advice of Counsel. In executing this Settlement Agreement, the Parties expressly
warrant and represent that they have been fully informed of its terms, conditions and effects, that
they have had the benefit of advice of counsel of their own choosing who has fully explained this
Settlement Agreement and its effect on them, and that they have relied solely and completely upon
their own judgment, belief and knowledge and advice of counsel in evaluating the nature, extent,
effect and duration of any liability and damages, and the terms and effects of this Settlement
Agreement.

     7. Entire Agreement. The Parties declare and represent that no promise, inducement or
agreement not expressed (i) herein or (ii) in any document related to any transaction specifically
referenced herein, has been made by or to them, and that this Settlement Agreement (subject to (ii)
above) contains the entire agreement between the Parties and that the terms of this Settlement
Agreement are contractual and not a mere recital.

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     8. Severability. If any part of this Settlement Agreement should be held to be invalid
or of no force or effect by a court of law of competent jurisdiction, all of the remaining
provisions shall otherwise remain in full force and effect.

     9. Responsibility for Fees, Expenses and Costs. The Parties are responsible for their
own fees, expenses and costs arising out of or in any way related to the claims asserted in the
Action.

     10. Binding on Successors and Assigns. The terms and conditions of this Settlement
Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

     11. Counterparts. This document may be executed in multiple counterparts all of which
taken together shall be deemed to be one instrument.

     12. Choice of Law and Venue. This Settlement Agreement shall be governed by the laws
of Illinois, and any action or proceeding to enforce or arising out of this Settlement Agreement
shall be maintained in the U.S. District Court for the Southern District of Illinois or the Circuit
Court of Saline County, Illinois.

     13. Dismissal of the Action. By June 29, 2006, subject to the occurrence of all of
the events described in paragraph 1 above, the Parties, through counsel, shall cause the Lawsuit
and Appeal to be dismissed with prejudice by tendering the appropriate entries of dismissal.

     14. Public Disclosure. The Parties agree that BPI has the right to publicly disclose
the terms of this Settlement Agreement as required by federal securities laws.

     IN WITNESS WHEREOF, the parties have executed this Settlement Agreement as of the dates set
forth below.

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	 	COLT, LLC

 	 
	 	/s/ James Morris
 	 
	 	James Morris, Authorized Representative 	 
	 	 	 

	 	 	 	 	 
	 	BPI ENERGY, INC.

 	 
	 	/s/ James Azlein
 	 
	 	James Azlein, Chief Executive Officer and President 	 
	 	 	 

	 	 	 	 	 
	 	AFC COAL PROPERTIES, INC.

 	 
	 	/s/ Joseph D. Stelzer
 	 
	 	Joseph D. Stelzer 	 
	 	Authorized representative for 	 

	 	 	 	 	 
	 	ATTEST:

 	 
	 	/s/ James C. Kennedy
 	 
	 	James C. Kennedy 	 
	 	 	 

	 	 	 	 	 
	 	AMERICAN PREMIER UNDERWRITERS, INC.

 	 
	 	/s/ Joseph D. Stelzer
 	 
	 	Joseph D. Stelzer 	 
	 	Authorized representative for 	 

	 	 	 	 	 
	 	ATTEST:

 	 
	 	/s/ James C. Kennedy
 	 
	 	James C. Kennedy 	 
	 	 	 

	 	 	 	 	 
	 	CENTRAL STATES COAL RESERVES OF
ILLINOIS, 
LLC

 
	 	/s/
James C. Sevem	 
	 	James C. Sevem, Authorized Representative 	 
	 	 	 

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	STATE OF ILLINOIS

	 	)
	 

	 	)
	COUNTY OF WILLIAMSON

	 	)

     I, the undersigned, a Notary Public, in and for said County and State aforesaid, do hereby
certify that James R. Morris personally known to me to be the Authorized Representative of COLT,
LLC, and COLT LAND COMPANY, LLC, a West Virginia limited liability company, and personally known to
me to be the same person(s) whose name(s) is (are) subscribed to the foregoing instrument, appeared
before me this day in person and severally acknowledged that as such
representatives/manager(s)/member(s) he signed and delivered the said instrument for the limited
liability company as its free and voluntary act, and as the free and voluntary act of said limited
liability company, for the uses and purposes therein set forth.

     Given under my hand and seal this 23rd day of June, 2006.

My commission expires:

	 	 	 	 	 
	 	 	 
	 	     /s/ Michael A. McKelvey
 	 
	 	Notary Public 	 
	 	 	 

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	STATE OF ILLINOIS

	 	)
	 

	 	)
	COUNTY OF WILLIAMSON

	 	)

     I, the undersigned, a Notary Public, in and for said County and State aforesaid, do hereby
certify that James Azlein personally known to me to be the CEO & President of BPI ENERGY, INC, a
Nevada corporation, and personally known to me to be the same person(s) whose name(s) is (are)
subscribed to the foregoing instrument, appeared before me this day in person acknowledged that as
such representatives/officer he signed and delivered the said instrument for the corporation as his
free and voluntary act, and as the free and voluntary act of said corporation, for the uses and
purposes therein set forth.

     Given under my hand and seal this 23rd day of June, 2006.

My commission expires:

	 	 	 	 	 
	 	 	 
	 	     /s/ Michael A. McKelvey
 	 
	 	Notary Public 	 
	 	 	 
	 

	 	 	 
	STATE OF OHIO

	 	)
	 

	 	)
	COUNTY OF HAMILTON

	 	)

     BEFORE ME, a Notary Public, in and for the State and County, personally appeared Joseph D.
Stelzer and James C. Kennedy, known to me to be the Vice President and Secretary respectively, of
AMERICAN PREMIER UNDERWRITERS, INC., the corporation which executed the foregoing instrument, and
they did acknowledge that they did sign said instrument in the name and on behalf of the
corporation, that the same is their free act and deed as such officers and the free act and deed of
said corporation, duly authorized by its Board of Directors, and that the seal affixed to said
instrument is the corporate seal of said corporation.

     IN TESTIMONY WHEREOF, I have hereunto set my hand and notarial seal at Cincinnati, Ohio this
23rd day of June, 2006.

	 	 	 	 	 
	 	 	 
	 	     /s/ Charlotte A. Creech
 	 
	 	Notary Public 	 
	 	 	 

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	STATE OF OHIO

	 	)
	 

	 	)
	COUNTY OF HAMILTON

	 	)

     BEFORE ME, a Notary Public, in and for the State and County, personally appeared Joseph D.
Stelzer and James C. Kennedy, known to me to be the Vice President and Secretary respectively, of
AFC COAL PROPERTIES, INC., the corporation which executed the foregoing instrument, and they did
acknowledge that they did sign said instrument in the name and on behalf of the corporation, that
the same is their free act and deed as such officers and the free act and deed of said corporation,
duly authorized by its Board of Directors, and that the seal affixed to said instrument is the
corporate seal of said corporation.

     IN TESTIMONY WHEREOF, I have hereunto set my hand and notarial seal at Cincinnati, Ohio this
23rd day of June, 2006.

	 	 	 	 	 
	 	 	 
	 	     /s/ Charlotte A. Creech
 	 
	 	Notary Public 	 
	 	 	 

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	STATE OF

	 	)
	 

	 	)
	COUNTY OF

	 	)

     I, the undersigned, a Notary Public, in and for said County and State aforesaid, do hereby
certify that James C. Sevem personally known to me to be the Vice President of
Central States Coal Reserves of Illinois, LLC, a Delaware limited liability company, and
personally known to me to be the same person(s) whose name(s) is (are) subscribed to the foregoing
instrument, appeared before me this day in person and severally acknowledged that as such
representatives/manager(s)/member(s) he signed and delivered the said instrument for the limited
liability company as its free and voluntary act, and as the free and voluntary act of said limited
liability company, for the uses and purposes therein set forth.

     Given
under my hand and seal this 26th day of June, 2006.

My
commission expires: February 6, 2009

	 	 	 	 	 
	 

	 	/s/ Karen M. Sensel
	 	 
	 

	 	 

Notary Public
	 	 

- 10 -EX-10.2

 

Exhibit 10.2

PURCHASE AND SALE AGREEMENT

     THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is made as of June 23, 2006, by and
between COLT, LLC a West Virginia limited liability company, 430 Harper Park Drive, Suite A,
Beckley, West Virginia 25801 (referred to herein as “Seller”), and BPI ENERGY, INC., a
Nevada corporation, 30775 Bainbridge Road Suite 280, Solon, Ohio 44139 (“Purchaser”).

RECITALS

     WHEREAS, Seller is the owner of certain Methane Assets (as defined below) located in Saline
County, Illinois, and Purchaser desires to purchase such assets from Seller; and

     WHEREAS, Seller has agreed to sell the Methane Assets to Purchaser and Purchaser has agreed to
purchase the Methane Assets from Seller, subject to and in accordance with the terms and conditions
hereinafter set forth.

     NOW THEREFORE, in consideration of the mutual promises contained herein, the benefits to be
derived by each party hereunder and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Seller agree as follows:

ARTICLE 1.

PURCHASE AND SALE

     Section 1.1 Purchase and Sale. Subject to the terms and conditions of this Agreement,
Seller is selling and conveying, and Purchaser is purchasing and paying for, all of the Seller’s
respective rights, title and interests in and to the CBM and CMM associated with the 16 sections
described in Exhibit A (hereinafter the 16 sections referred to as the “Land”) (the CBM and
CMM in the Land, collectively, the “Methane Assets”), in the form of a deed that substantially
conforms to Exhibit B. The Parties acknowledge that the term “Methane Assets” does not
include (i) CBM or CMM rights associated with any wells repurchased by Seller pursuant to Section
5.7 hereof, or (ii) CBM or CMM rights associated with Seller’s efforts to vent gas, as provided in
Exhibit B.

     Section 1.2 Rights and Liabilities. Subject to the terms and provisions of this
Agreement and the Exhibits, documents, certificates and other instruments delivered pursuant
hereto, Purchaser hereby is entitled to all rights of ownership with respect to the Methane Assets
and assumes all liabilities, obligations or duties caused by or incurred by Purchaser after the
Closing and shall retain all liabilities caused by Purchaser’s operation of any and all CBM or CMM
wells or other assets on the Land prior to the Closing. For purposes of this Section 1.2, the
phrase “liabilities, obligations or duties” shall include, without limitation, any direct or
indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or unasserted, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Provided, however, that Purchaser does
not assume any contractual liabilities arising under or in relation to any employment

 

 

agreements, mineral marketing agreements, mineral sales agreements or mineral prepays or any
statutory liabilities under ERISA or workers’ compensation laws, or any other liabilities arising
under contracts not otherwise expressly assumed.

     Section 1.3 Excluded Assets. It is specifically agreed that Seller is not selling and
Purchaser is not purchasing the following assets all of which shall be deemed excluded from the
definition of “Methane Assets” (“Excluded Assets”):

     (a) Any cash, accounts receivable, notes receivable or cash equivalents of Seller
attributable to the Methane Assets and relating to the period prior to Closing;

     (b) Any right to use the Seller’s name, marks or insignia, or to use the name of any
other subsidiary or corporate affiliate of Seller; and

     (c)
Any other mineral rights or other interests Seller may possess in the Land.

     Section 1.4 Effective Time. The purchase and sale of the Methane Assets shall be
effective as of the time of Closing.

ARTICLE 2.

PURCHASE PRICE

     Section 2.1 Purchase Price. The purchase price for the Methane Assets (“Purchase
Price”) shall be Three Million Dollars ($3,000,000) payable in lawful currency of the United
States, shall be paid by Purchaser at Closing via electronic funds transfer to an account specified
by Seller.

     Section 2.2 Taxes. Seller agrees to pay any real estate tax or ad valorem tax
assessed, if any, on the Seller’s coal estate for 2005 taxes due in 2006, and 2006 taxes due in
2007, and to hold Purchaser harmless from such real estate or ad valorem taxes. Purchaser shall
pay any real estate tax or ad valorem tax assessed, if any, on the Methane Assets after the
Closing, and shall hold Seller harmless from such real estate or ad valorem taxes. The parties
agree that Purchaser shall be responsible for and pay all costs and fees with respect to: (i)
examining, insuring and transferring title to the Methane Assets, (ii) deed transfer fees and
taxes, and (iii) any other state or local conveyance fees, recording fees or similar fee, cost,
expense or tax with respect to the transfer of Seller’s interest in the Methane Assets to
Purchaser, but not any capital gains, penalties, interest or income tax imposed on Seller arising
from the sale of the Methane Assets.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

     Section 3.1 Representations and Warranties of Seller. Seller represents and warrants
to Purchaser as follows:

 

 

     (a) Methane Assets Previously Conveyed to Affiliates. Seller represents that
it has obtained any and all of the Methane Assets that it previously conveyed to any of its
affiliates at any time.

     (b) Transaction with American Premier Underwriters and AFC Coal Properties
(collectively, “APU”). Seller represents that it has obtained by Quit Claim Deed, with
covenant of after-acquired title to the extent of the purported paper title conveyed to APU
and within the chain of title to APU, all of APU’s right, title and interest to all of the
CBM and CMM in an area more specifically described in Exhibit C of that certain Settlement
Memorandum of Understanding dated June 13, 2006, among Seller, Purchaser, APU and Central
States Coal Reserves of Illinois, LLC (“Central States”) (the Settlement Memorandum of
Understanding, hereafter “MOU”).

     (c) No Liens, Encumbrances or Conveyances. Seller represents that, during its
period of ownership and other than the reservations expressly provided for in Exhibit
B, it has not conveyed, encumbered or impaired the title conveyed to Purchaser with
respect to the Methane Assets, except as may have been conveyed by Seller and then
reconveyed to Seller prior to execution of this Agreement.

     (d) Corporate Organization and Qualification. Seller is a limited liability
company duly organized, validly existing and in good standing under the laws of West
Virginia.

     (e) Corporate Authority. Seller has all requisite power and authority to carry
on its business as presently conducted, to enter into this Agreement, to sell the Methane
Assets on the terms described in this Agreement and to perform its obligations under this
Agreement. The consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with (i) any provision of Seller’s articles of incorporation,
bylaws, code of regulations, or other governing documents, or (ii) any agreement or
instrument to which Seller is a party or by which Seller is bound, or (iii) any judgment,
decree, order, statute, rule or regulation applicable to Seller.

     (f) Transactions Authorized. The execution and delivery of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by all requisite
action, corporate and otherwise, on the part of Seller and will not (i) require any consent,
authorization or approval of, or exemption by, or filing under any provision of any law,
statute, rule or regulation to which Seller or the Methane Assets are subject, (ii) violate
any judgment, order, writ or decree of any court applicable to Seller or the Methane Assets,
(iii) conflict with, result in a breach of, constitute a default under, or accelerate or
permit the acceleration of the performance required by, or require any consent,
authorization or approval under any agreement, contract, commitment, lease or other
instrument, document or undertaking to which either Seller is a party or any of its Methane
Assets are bound or (iv) result in the creation or imposition of any encumbrance upon the
Methane Assets.

     (g) Execution of Agreement. This Agreement has been duly executed and
delivered on behalf of Seller and, at the Closing, all documents and instruments required

 

 

hereunder to be executed and delivered by Seller shall have been duly executed and
delivered. This Agreement constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter
in effect relating to or affecting the enforcement of creditors’ rights generally and by
general principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).

     Section 3.2 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller that:

     (a) Corporate Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada.

     (b) Corporate Authority. Purchaser has all requisite power and authority to
carry on its business as presently conducted, to enter into this Agreement, to purchase the
Methane Assets on the terms described in this Agreement and to perform its obligations under
this Agreement. The consummation of the transactions contemplated by this Agreement will
not violate, or be in conflict with, any provision of (i) Purchaser’s articles of
organization, operating agreement, or other governing documents, or (ii) any agreement or
instrument to which Purchaser is a party or by which Purchaser is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to Purchaser.

     (c) Transactions Authorized. The execution and delivery of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by all requisite
action, corporate and otherwise, on the part of Purchaser and will not (i) require any
consent, authorization or approval of, or exemption by, or filing under any provision of any
law, statute, rule or regulation to which Purchaser is bound, (ii) violate any judgment,
order, writ or decree of any court applicable to Purchaser, (iii) conflict with, result in a
breach of, constitute a default under, or accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or approval under any
agreement, contract, commitment, lease or other instrument, document or undertaking to which
Purchaser is a party.

     (d) Execution of Agreement. This Agreement has been duly executed and
delivered on behalf of Purchaser and, at the Closing, all documents and instruments required
hereunder to be executed and delivered by Purchaser shall have been duly executed and
delivered. This Agreement constitutes the legal, valid and binding obligation of Purchaser
enforceable in accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter
in effect relating to or affecting the enforcement of creditors’ rights generally and by
general principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).

     (e) Knowledgeable Investor; Due Diligence. Purchaser is an experienced and
knowledgeable investor and operator in the coalbed methane and coal mine methane business
and is capable of independently evaluating, and has independently evaluated, the

 

 

merits and bearing the risks of the purchase of and investment in the Methane Assets
contemplated by this Agreement. Purchaser acknowledges that Seller has made available and
will continue to make available to Purchaser, its representatives and potential lenders the
Methane Assets, including, but not limited to, full access to any purchase and sale
agreements, deeds or other documents of conveyance relating to the Methane Assets, Seller’s
title information about the Methane Assets, copies of all available title opinions and
abstracts, instruments of title, maps, permits, easements, notices, licenses and orders
affecting the Methane Assets, in order to enable Purchaser to make an independent, informed
judgment with respect to the desirability of purchasing the Methane Assets. Purchaser
agrees that, independently and without reliance on Seller and based on Purchaser’s own due
diligence review of the information and records relating to the Methane Assets, and such
other documents and information as it has deemed appropriate, it has made its own analysis
of the Methane Assets and its own evaluation of the value of the Methane Assets. Purchaser
acknowledges that it has completed its due diligence review of the Methane Assets and any
objections to Closing or matters not asserted by Purchaser in writing to Seller on or before
the Closing shall be deemed waived by Purchaser.

ARTICLE 4.

COVENANTS

     Section 4.1 Covenants and Agreements of Seller. Seller covenants and agrees with
Purchaser that Seller shall take or cause to be taken all such actions as may be reasonably
necessary or advisable to consummate and make effective the sale of the Methane Assets and the
transactions contemplated by this Agreement and to assure that as of the Closing Date Seller will
not be under any material corporate, legal, or contractual restriction that would prohibit or delay
the timely consummation of such transactions.

     Section 4.2 Covenants and Agreements of Purchaser. Purchaser covenants and agrees
with Seller that Purchaser shall take or cause to be taken all such actions as may be reasonably
necessary or advisable to consummate and make effective the purchase of the Methane Assets and the
transactions contemplated by this Agreement and to assure that as of the Closing Date Purchaser
will not be under any material corporate, legal or contractual restriction that would prohibit or
delay the timely consummation of such transactions.

ARTICLE 5.

ADDITIONAL AGREEMENTS

     Section 5.1 Condition and Title of Assets. Except as expressly set forth in this
Agreement, the parties mutually acknowledge and agree that Seller shall convey and assign the
Methane Assets to Purchaser, and Purchaser shall accept the Methane Assets from Seller: (i) “AS IS,
WHERE IS, AND WITH ALL FAULTS”, without any warranty whatsoever by Seller as to their physical
condition, the extent of coal reserves in situ or the commercial feasibility of the mining thereof,
the condition of title and the existence of hazards or perils of operations thereon; (ii) Seller
has no obligation to repair or correct any such facts, circumstances, conditions or

 

 

defects or to compensate Purchaser for same; (iii) Seller has specifically bargained for the
assumption by Purchaser of all responsibility to inspect and investigate the Methane Assets and the
title thereto and of all risks attendant thereto; and (iv) Purchaser will have prior to the Closing
undertaken all such physical inspections and examinations of the Methane Assets and the title
thereto or interests of which the Methane Assets are a part as Purchaser deems necessary or
appropriate as to their condition. Except as expressly set forth in this Agreement, Purchaser
acknowledges that Seller has made no representations or warranties and shall have no liability to
Purchaser (and Purchaser hereby waives any right to recourse against Seller) with respect to the
Methane Assets and the title thereto, the economic feasibility of the Methane Assets, the
compliance or noncompliance with all laws, rules or regulations affecting the Methane Assets, or
any other aspect of the Methane Assets.

     Section 5.2 Title Procedure. Except as expressly set forth in this Agreement, at the
Closing, Seller shall convey its right, title and interest in and to the Methane Assets with only
the representations and warranties contained in a deed in substantially the form attached hereto as
Exhibit B, executed as appropriate for each county in which the Methane Assets are located
and executed by Seller (“Seller’s Deeds”). If any information or data obtained by
Purchaser from public records or any other source reflects the existence of any material
encumbrance, encroachment, defect in or objection to Seller’s title to the Methane Assets to be
conveyed under the Seller’s Deeds that render title to the Methane Assets or any portion thereof
less than that being conveyed under the Seller’s Deeds (all of which are herein called the
“Title Defects”), Purchaser shall give Seller written notice of the Title Defects. If Title
Defects shall be so specified, Seller may attempt to cure or to remove the Title Defects at its own
expense prior to Closing.

     Section 5.3 Environmental Liability. Purchaser and Seller agree that Purchaser shall
be liable to Seller for, and defend, indemnify and save and hold harmless Seller from and against,
all loss, cost or liability (“Losses”) caused by Purchaser’s violation of any federal, state, and
local laws, statutes, ordinances, codes, regulations, rules, consent decrees, judicial or
administrative orders, permits, licenses, approvals, or other requirements relating to the
protection of human health, safety, or the environment, all as amended or modified from time to
time, and the regulations adopted pursuant thereto, including any common law theory based on
nuisance, trespass, negligence, strict liability, or other tortious conduct; and/or any other
federal, state, or local laws, rules, regulations, or ordinances either in existence as of the date
of this Agreement, or enacted or promulgated after the date of this Agreement, that are caused by
Purchaser’s operations with respect to the Methane Assets.

     Section 5.4 Prohibition on Certain Drilling Activities. Purchaser shall not drill any
additional coal bed methane (“CBM”) or coal mine methane (“CMM”) wells in Sections 10 and 15 of
Township 9 South, Range 5 East, Saline County, Illinois. This does not affect Purchaser’s right to
drill any new CBM and CMM wells (as permitted by law) in any other acreage in the remaining portion
of the Land, nor does it affect Purchaser’s right to produce CBM or CMM from the wells (and in the
case of Meadowlark #2, to dispose of fluids through that well) identified in Exhibit C,
which have already been drilled in Sections 10 and 15, provided that Purchaser does not perforate
any casing passing through the No. 5 coal seam and all seams or other coal strata above the No. 5
coal seam to produce any CBM or CMM from the No. 5 coal seam or any coal seam above the No. 5 coal
seam, or to otherwise stimulate, by hydraulic

 

 

fracture or other method, said coal seams in Sections 10 or 15. Purchaser agrees, at its
cost, to plug and otherwise reclaim, as and when required by law, the wells identified in
Exhibit C.

     Section 5.5 No Objection to Future Drilling Permit Applications. Seller shall not
object to any current or future applications by Purchaser or its designees for permits to develop
CBM or CMM on the Land provided, however, that such applications and their content comply with
Illinois laws and regulations. This does not alter or affect Purchaser’s covenant not to drill new
wells described in Section 5.5 above.

     Section 5.6 Priority of Operations; Seller Relocation Rights. Subject only to Seller’s
rights to purchase any well pursuant to this Section and Section 5.8, Purchaser’s CBM or CMM
operations shall take priority over other operations (including coal mining operations) for as long
as CBM or CMM is produced anywhere on the Land. Seller or its designees (not including Central
States Coal Reserves of Illinois, LLC (“Central States”)) may be permitted, by mere delivery of
written notice to Purchaser, to move gas gathering or gas transportation lines or roads, water
disposal systems, equipment, or power lines servicing Purchaser’s wells, subject to (i) compliance
with any applicable surface agreements and (ii) any applicable law. Seller shall cause the work to
be performed under its direction and control and shall bear the cost and expense associated with
the work. Seller acknowledges on its behalf and on behalf of its designees that such cost and
expense shall include payments to Purchaser for any costs incurred and revenue lost as a result of
its CBM and/or CMM production being interrupted.

     Section 5.7 Seller Purchase Rights. Subject to the obligation to immediately plug the
well, Seller or its designees (not including Central States) shall have the right to buy any CBM or
CMM well located anywhere on the Land. Seller shall be wholly and principally liable for amounts
due under this Section. The payment to be made for the purchase of any well under this Section
shall be calculated at the Fair Market Value of the well taken, which will be determined in the
sole discretion of an appraiser who shall be a mutually agreeable petroleum reserve engineer who
has expertise in CBM production and reserve analysis and is a member of the Society of Petroleum
Engineers (“Appraiser”). In the event Seller and Purchaser are unable to agree on an individual to
serve as the Appraiser then either party may petition the Energy Section of the American
Arbitration Association for the appointment of the Appraiser pursuant to Rule 11 of the Rules of
Commercial Arbitration of the American Arbitration Association. The American Arbitration
Association must appoint an experienced petroleum engineer who has expertise in CBM production and
reserve analysis and is a member of the Society of Petroleum Engineers. The Appraiser’s
determination of the payment amount for the well purchased shall be final and not appealable in any
way by any Party. The cost, if any, of the appointment of the Appraiser and of the Appraiser’s
determination shall be at Seller’s expense.

     Section 5.8 Seller Plugging Obligations. Seller agrees, at its cost, to plug and
otherwise reclaim, as required by law, the following four CBM wells located in Williamson County,
Illinois: (a) Delta #4 (located in Section 1, Township 9 South, Range 4 East); (b) DDH #4 (located
in Section 27, Township 8 South, Range 4 East); (c) DDH #5 (located in Section 10, Township 8
South, Range 4 East); and (d) Delta H1A (located in Section 9, Township 8 South, Range 4 East).

 

 

     Section 5.9 Purchaser Plugging Obligations. Other than the four wells listed in
Section 5.9 above, and the obligation of Seller to plug any wells that it purchases under Section
5.7 of this Agreement, Purchaser agrees, at its cost, to plug and otherwise reclaim, when required
by law, all CBM and CMM wells owned and/or operated by Purchaser on the Land. Seller acknowledges
that it will abandon wells Delta Mine #14 (D6) and Delta #003, both located in Williamson County,
and Seller agrees to plug both of these wells within 6 months of the Closing Date. With respect to
all existing and future CBM and CMM wells on the Land that pierce mineable No. 5 or No. 6 coal
including, without limitation, those wells listed on Exhibit D, Purchaser shall, when
required by law, plug such wells in accordance with then existing legal standards designed by
appropriate regulatory agencies to allow mining through the plug and well-bore. By way of
illustration and not limitation, today’s standards are set forth on Exhibit E, attached
hereto.

ARTICLE 6.

CLOSING

     Section 6.1 Date of Closing. Subject to the conditions stated in this Agreement, the
closing of the transactions contemplated hereby (the “Closing”) is occurring, and
possession, risk and beneficial ownership of Seller’s interests in the Methane Assets is passing
from Seller to Purchaser, at 12:00 a.m. Eastern Daylight Time on or before June 23, 2006, or such
other time and date as may be agreed to by Seller and Purchaser. The date Closing actually occurs
is herein called the “Closing Date”.

     Section 6.2 Place of Closing. The Closing shall be held at Seller’s offices located
at 1107 W. DeYoung St., Marion, Illinois.

     Section 6.3 Closing Obligations. At the Closing the following events are occurring,
each being a condition precedent to the others and each being deemed to have occurred
simultaneously with the others:

     (a) Execution of Transfer Documents. Seller is executing, acknowledging and
delivering the Deeds transferring the Methane Assets to Purchaser, consistent with the terms
and conditions of this Agreement.

     (b) Delivery of Funds. Subject to the terms and conditions of this Agreement,
at the Closing, Purchaser is delivering to Seller the Purchase Price by wire transfer of
immediately available funds sent to the account designated by Seller in Exhibit A to the
MOU.

     (c) Possession of Assets. Seller shall deliver to Purchaser possession of the
Methane Assets.

     (d) Settlement and Release Agreement and Termination Agreement.
Contemporaneously with the Closing hereunder, Purchaser, Seller, Central States and American
Premier Underwriters, Inc. shall have executed (i) that certain Termination Agreement under
which each of the parties have acknowledged the lapse and termination of that certain Oil,
Gas and Coal Bed Methane Gas Lease dated April 3, 2001, and

 

 

forever discharges and releases one another from any and all obligations thereunder and
(ii) that certain Settlement and Mutual Release Agreement in settlement of the Lawsuit.

ARTICLE 7.

OBLIGATIONS AFTER CLOSING

     Section 7.1 Sales Taxes. Purchaser shall pay any applicable sales taxes or other
transaction taxes, duties or similar charges payable in connection with the sale of Methane Assets,
whether or not imposed upon Seller or Purchaser by law.

     Section 7.2 Rights, Duties and Obligations. Subsequent to the Closing:

     (a) Claims Accruing after Closing Date. Purchaser shall defend, indemnify and
save and hold harmless Seller against all Losses caused by Purchaser’s operations with
respect to the Methane Assets after the Closing Date.

     (b) Claims from Breach of Seller’s Warranties. Seller shall defend, indemnify
and save and hold harmless Purchaser against all Losses that result from or relate to or are
attributable to any representation or warranty of Seller contained herein being untrue or
any warranty, agreement or covenant of Seller contained herein being breached.

     (c) Claims from Breach of Purchaser’s Warranties. Purchaser shall defend,
indemnify and save and hold harmless Seller against all Losses that result from or relate or
are attributable to any representation or warranty of Purchaser contained herein being
untrue or any warranty, agreement or covenant of Purchaser contained herein being breached.

     (d) Procedure for Indemnification.

     (1) Promptly after receipt by an indemnified party under Section 7.2 of written
notice (a “Notice of Claim”) of the commencement of any action, suit or
proceeding against it, or written threat thereof, such indemnified party shall, if a
claim is to be made against an indemnifying party under either of said Sections, as
applicable, give notice to the indemnifying party of the commencement of such
action, suit or proceeding. The indemnified party shall furnish to the indemnifying
party in reasonable detail such information as the indemnified party may have with
respect to such indemnification claims (including copies of any summons, complaint,
pleading or notice that may have been served on it and any written claim, demand,
invoice, billing or other document evidencing or assenting the same). Subject to
the limitations set forth in this Section 7.2(d), no failure or delay by the
indemnified party in the performance of the foregoing shall reduce or otherwise
affect the obligation of the indemnifying party to indemnify and hold the
indemnified party harmless, except to the extent that (i) the failure to furnish
notice was intentional, which intentional failure shall extinguish the obligation to
indemnify, and (ii) in the case of a failure to furnish notice that is not
intentional, such failure or delay will extinguish the obligation to indemnify only
insofar as the delay shall have adversely affected the indemnifying party’s ability
to defend

 

 

against, settle or satisfy any action, suit or proceeding against it, damage,
loss, claim or demand for which the indemnified party is entitled to indemnification
hereunder.

     (2) If the claim or demand set forth in the Notice of Claim given by the
indemnified party is a claim or demand asserted by a third party, the indemnifying
party shall have 45 days after the Date of Notice of Claim to notify the indemnified
party in writing of its election to defend such third-party claim or demand on
behalf of the indemnified party. If the indemnifying party elects to defend such
third-party claim or demand, the indemnified party shall make available to the
indemnifying party and its agents and representatives all records and other
materials that are reasonably required in the defense of such third-party claim or
demand and shall otherwise cooperate with, and assist the indemnifying party in the
defense of, such third-party claim or demand, and so long as the indemnifying party
is defending such third-party claim in good faith, the indemnified party shall not
pay, settle or compromise such third-party claim or demand. If the indemnifying
party elects to defend such third-party claim or demand, the indemnifying party
shall have the right to control the defense of such third-party claim or demand, at
the indemnifying party’s own expense. If the indemnifying party does not elect to
defend such third-party claim or demand or does not defend such third-party claim or
demand in good faith, the indemnified party shall have the right, in addition to any
other right or remedy it may have hereunder, to defend such third-party claim or
demand at the indemnifying party’s expense.

     (3) If any indemnified party shall have a claim under Section 7.2 against any
indemnifying party that does not involve a third-party claim, the indemnified party
shall deliver a notice with reasonable promptness to the indemnifying party. The
failure by any indemnified party to give an indemnity notice shall not impair such
party’s rights hereunder except to the extent that an indemnifying party
demonstrates that it has been materially prejudiced thereby. If the indemnifying
party notifies the indemnified party that it does not dispute the claim described in
such notice or fails to notify the indemnified party within 45 days whether the
indemnifying party disputes the claim described in such indemnity notice, the amount
specified in the notice will be conclusively deemed a liability of the indemnifying
party under Section 7.2 and the indemnifying party shall pay, as the case may be,
the amount of such Loss to the indemnified party on demand. If the indemnifying
party has timely disputed its liability with respect to such claim, the indemnifying
party and the indemnified party will proceed in good faith to negotiate a resolution
of such dispute, and if not resolved through negotiation within 45 calendar days of
timely response by the indemnifying party, such dispute shall be resolved by
litigation in a court of competent jurisdiction.

     (4) The term “Date of Notice of Claim” shall mean the date the Notice
of Claim is effective pursuant to Section 8.4 of this Agreement.

 

 

     Section 7.3 Survival. The representations, warranties, covenants, agreements and
indemnities included or provided in this Agreement, or in any Exhibit, document, certificate or
other instrument delivered pursuant hereto, shall survive the Closing.

     Section 7.4 Other Obligations Contained Herein. Perform and comply with all
obligation under Article 5 of this Agreement.

ARTICLE 8.

MISCELLANEOUS

     Section 8.1 Exhibits. All of Exhibits hereto are incorporated in this Agreement by
reference and constitute a part of this Agreement. Each party to this Agreement and its counsel
has received a complete set of Exhibits prior to and as of the execution of this Agreement.

     Section 8.2 Expenses. Each Party shall bear its own fees, costs and expenses incurred
in negotiating this Agreement or in consummating the transactions contemplated by this Agreement,
including the fees and expenses of counsel.

     Section 8.3 Confidentiality. Except as otherwise set forth herein or as may be
required by law, Seller and Purchaser shall keep confidential all information, terms, conditions
and provisions relating to this Agreement and shall not disclose the same to any other person or
corporation or make any disclosure with respect to the matters set forth in this Agreement without
the prior written consent of the other, provided however that the parties may disclose such matters
to their respective advisors, investors, lenders and rating or regulatory agencies.

     Section 8.4 Notices. All notices and communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall be deemed to have
been duly made if actually delivered (including by confirmed facsimile), or if mailed by registered
or certified mail, postage prepaid, addressed as follows:

	 	 	 	 	 
	 

	 	If to Seller:
	 	 Colt, LLC
	 

	 	 	 	430 Harper Park Drive, Suite A
	 

	 	 	 	Beckley, West Virginia 25801
	 

	 	 	 	Facsimile: (304) 255-4908
	 
	 	 	 	 
	 	 	With copy (not constituting notice) to:
	 

	 	 	 	Brian A. Glasser, Esq.
	 

	 	 	 	Bailey & Glasser LLP
	 

	 	 	 	227 Capitol Street
	 

	 	 	 	Charleston, WV 25301
	 

	 	 	 	Facsimile: (304) 342-1110
	 
	 	 	 	 
	 

	 	If to Purchaser:
	 	BPI Energy, Inc.
	 

	 	 	 	30775 Bainbridge Road Suite 280
	 

	 	 	 	Solon, Ohio 44139
	 

	 	 	 	Facsimile: (440) 248-4240

 

 

	 	 	 	 	 
	 	 	With copy (not constituting notice) to:
	 

	 	 	 	James R. Carlson, Esq.
	 

	 	 	 	Thompson Hine LLP
	 

	 	 	 	3900 Key Center
	 

	 	 	 	127 Public Square
	 

	 	 	 	Cleveland, Ohio 44114-1291
	 

	 	 	 	Facsimile: (216) 566-5800

     Either party may, by written notice so delivered to the other, change the address to which
delivery shall thereafter be made.

     Section 8.5 Limitation of Liability. Subject to Section 5.6 of this Agreement, and
except with respect to the indemnification obligations specifically set forth herein, Seller and
Purchaser do hereby covenant and agree that, after Closing, the recovery by either party hereto of
any damages suffered or incurred by it as a result of any breach by the other party of any of its
covenants, agreements, representations, guaranties, warranties, disclaimers, waivers or continuing
obligations under this Agreement shall be limited to the actual damages allowed by law suffered or
incurred by the non-breaching party as a result of the breach by the breaching party of its
covenants, agreements, representations, guaranties, warranties, disclaimer, waivers, or continuing
obligations hereunder and the breaching party shall not be liable to the non-breaching party for
consequential damages, including but not limited to loss of profits, as a result of the breach, or
any punitive or exemplary damages, which damages are waived to the fullest extent allowed by law.
Seller and Purchaser hereby waive trial by jury in any judicial proceeding involving this
Agreement.

     Section 8.6 Amendment. This Agreement may not be altered or amended, or any rights
hereunder waived, except by an instrument in writing executed by the party or parties to be charged
with such amendment or waiver. No waiver of any term, provision or condition of this Agreement, in
any one or more instances, shall be deemed to be or construed as, a further or continuing waiver of
any such term, provision or condition or as a waiver of any other term, provision or condition of
this Agreement.

     Section 8.7 Assignment. Purchaser may assign its rights or delegate its duties or
obligations under the terms of this Agreement to an affiliate of Purchaser without the prior
written consent of Seller; provided, however, Purchaser shall remain liable for the performance of
all of Purchaser’s duties and obligations under this Agreement.

     Section 8.8 Headings. The headings of the Articles and Sections of this agreement are
for guidance and convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions of this Agreement.

     Section 8.9 Counterparts. This Agreement may be executed by Purchaser and Seller in
any number of counterparts, each of which shall be deemed an original instrument but all of which
together shall constitute but one and the same instrument.

     Section 8.10 References. References made in this Agreement, including use of a
pronoun, shall be deemed to include where applicable, masculine, feminine, singular or plural,

 

 

individuals, partnerships or corporations. As used in this Agreement, “party” shall
mean any natural person, corporation, partnership, trust, estate or other entity. As used in this
Agreement, “affiliate” of a party shall mean any partnership, joint venture, corporation or other
entity in which such party has an interest or which controls, is controlled by or is under common
control with such party.

     Section 8.11 Governing Law. This Agreement and the transaction contemplated hereby
shall be construed in accordance with, and governed by, the laws of the State of Illinois; and
Seller and Purchaser consent to venue and exclusive jurisdiction in the U.S. District Court for the
Southern District of Illinois or the Circuit Court of Saline County, Illinois, as appropriate.

     Section 8.12 Entire Agreement. This Agreement (including the Exhibits hereto)
constitutes the entire understanding between the parties with respect to the subject matter hereof
superseding all negotiations, prior discussions and prior agreements and understandings relating to
such subject matter.

     Section 8.13 Further Assurances. Upon the reasonable request of Purchaser, and at
Purchaser’s cost, Seller will at and after the Closing execute and deliver to Purchaser such other
documents as may be required to carry out the transactions contemplated by this Agreement.

     Section 8.14 Parties in Interest. This Agreement shall be binding upon, and shall
inure to the benefit of the parties hereto and, except as otherwise prohibited, their respective
successors and assigns, and nothing contained in this Agreement express or implied, is intended to
confer upon any other person or entity any benefits, rights or remedies.

[Signature page follows. Remainder of page intentionally left blank.]

 

 

     IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement as of the date first
above mentioned.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	SELLER:	 	 
	 
	 	 	 	 	 	 
	 	 	COLT, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James R. Morris	 	 
	 

	 	 	 	 	 	 
	 	 	Name: James R. Morris	 	 
	 	 	Its: Authorized Representative	 	 
	 
	 	 	 	 	 	 
	 	 	PURCHASER:	 	 
	 
	 	 	 	 	 	 
	 	 	BPI ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James G. Azlein	 	 
	 

	 	 	 	 	 	 
	 	 	Name: James G. Azlein	 	 
	 	 	Its: President and CEO

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