Document:

EX-4.2

 

EXHIBIT 4.2

AMENDMENT NO. 8 TO CREDIT AND SECURITY AGREEMENT

     This Amendment No. 8 to Credit and Security Agreement (“Amendment No. 8”) dated effective as
of the 26 day of April, 2006, by and between COHESANT TECHNOLOGIES INC., a Delaware corporation
(hereinafter referred to as “Borrower”), and REGIONS BANK as successor by merger to UNION PLANTERS
BANK, N.A., a banking institution chartered under the laws of the state of Alabama (hereinafter
referred to as “Bank”).

W I T N E S S E T H :

     WHEREAS, the Borrower and the Bank are parties to that certain Credit and Security Agreement
dated as of the 15th day of May, 1998, as amended by that certain Amendment No. 1 to Credit and
Security Agreement dated April 13, 1999, as further amended by that certain Amendment No. 2 to
Credit and Security Agreement dated April 17, 2000, as further amended by that certain Amendment
No. 3 to Credit and Security Agreement dated April 1, 2001, as further amended by that certain
Amendment No. 4 to Credit and Security Agreement dated April 29, 2002, as further amended by that
certain Amendment No. 5 to Credit and Security Agreement dated March 25, 2003, as further amended
by that certain Amendment No. 6 to Credit and Security Agreement dated April 23, 2004 and as
further amended by that certain Amendment No. 7 to Credit and Security Agreement dated April 29,
2005 (hereinafter referred to as “Agreement”); and

     WHEREAS, the Borrower desires to renew and amend the financial accommodations previously
extended by the Bank; and

     WHEREAS, the Bank is willing to provide such financial accommodations to the Borrower on the
terms and subject to the conditions in the Agreement as amended by the terms and conditions of this
Amendment No. 8.

     NOW, THEREFORE, in consideration of the premises, the mutual covenants hereinafter contained,
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

     Section 1. Effect of this Amendment No. 8. This Amendment No. 8 shall not
change, modify, amend or revise the terms, conditions and provisions of the Agreement, the terms
and provisions of which are incorporated herein by reference, except as expressly provided herein
and agreed upon by the parties hereto. This Amendment No. 8 is not intended to be nor shall it
constitute a novation or accord and satisfaction of the outstanding instruments by and between the
parties hereto. Borrower and Bank agree that, except as expressly provided herein, all terms and
conditions of the Agreement shall remain and continue in full force and effect. The Borrower
acknowledges and agrees that the indebtedness under the Agreement remains outstanding and is not
extinguished, paid, or retired by this Amendment No. 8, or any other agreements between the parties
hereto prior to the date hereof, and that Borrower is and continues to be fully liable for all
obligations to the Bank contemplated by or arising out of the Agreement. Except as expressly
provided otherwise by this Amendment No. 8, the credit facilities contemplated by this Amendment
No. 8 shall be made according to and pursuant to all conditions, covenants, representations and
warranties contained in the Agreement.

-1-

 

     Section 2. Definitions. Terms defined in the Agreement which are used herein
shall have the same meaning as set forth in the Agreement unless otherwise specified herein.
Additionally, the following terms are hereby amended or added to Section 1 of the Agreement as
follows:

     1.28 “Guarantors” mean individually and collectively Glas-Craft, CMI and CIPAR,
as appropriate.

     1.48 “CIPAR” means CIPAR, Inc., a Delaware corporation.

     1.49 “CMI” means Cohesant Materials, Inc. f/k/a Raven Lining Systems, Inc., an Oklahoma
corporation.

     Section 3. Amendment of Agreement. Subject to the satisfaction of the
conditions precedent set forth in Section 5 herein, the Agreement is amended as follows:

     (a) The first sentence of Subsection 2.1.1 of the Agreement is hereby amended and replaced
with the following:

	     2.1.1	 	The obligation of the Borrower to repay the Line of Credit Loans shall be
evidenced by the Line of Credit Note which shall be repayable on or before May 1, 2007
(“Maturity”).

     (b) Section 2.2 of the Agreement is hereby deleted.

     (c) The address for purposes of notices to the Bank as set forth in Section 13.11 of the
Agreement is hereby amended as follows:

	 	 	 	 	 
	 

	 	If to Bank:
	 	Regions Bank
	 

	 	 	 	One Indiana Square
	 

	 	 	 	Suite200
	 

	 	 	 	Indianapolis, Indiana 46204
	 

	 	 	 	Attn: Terry L. Moore
	 

	 	 	 	Telecopy: (317) 221-6921

     Section 4. Conditions Precedent. This Amendment No. 8 shall become and be
deemed effective in accordance with its terms immediately upon the Bank receiving:

     (a) Two (2) copies of this Amendment No. 8 duly executed by the authorized officers of
the Borrower and the Bank.

     (b) One (1) copy of the Line of Credit Note reflecting the revised Maturity duly
executed by an authorized officer of the Borrower.

     (c) Two (2) copies of a Consent and Confirmation of Guaranty executed by Glas-Craft,
Inc.

     (d) Two (2) copies of a Guaranty executed by each of CMI and CIPAR granting to the
Bank an unconditional unlimited continuing guaranty to repay the debt of Borrower to the
Bank, as well as any and all obligations and liabilities of the Borrower to the Bank.

-2-

 

     (e) Officers’ certificates with respect to the Articles of Incorporation (or
Certificate of Incorporation, where appropriate), By-Laws, resolutions and incumbency of CMI
and CIPAR, in form and substance acceptable to the Bank.

     (f) Certificates of Existence regarding Borrower and Guarantors issued by the
appropriate Secretary of State’s Office.

     (g) Such other documents and items as the Bank may reasonably request.

     Section 5. Representations and Warranties of the Borrower. The Borrower
hereby represents and warrants, in addition to any other representations and warranties contained
herein, in the Agreement, the Loan Documents (as defined in the Agreement) or any other document,
writing or statement delivered or mailed to the Bank or its agent by the Borrower, as follows:

     (a) This Amendment No. 8 constitutes a legal, valid and binding obligation of the
Borrower enforceable in accordance with its terms. The Borrower has taken all necessary and
appropriate corporate action for the approval of this Amendment No. 8 and the authorization
of the execution, delivery and performance thereof.

     (b) As of the date hereof, there is no Event of Default or Default under the Agreement,
the Amendment No. 8 or the Loan Documents.

     (c) The Borrower hereby specifically confirms and ratifies its obligations, waivers and
consents under each of the Loan Documents.

     (d) Except as specifically amended herein, all representations, warranties and other
assertions of fact contained in the Agreement and the Loan Documents continue to be true,
accurate and complete.

     (e) There have been no changes to the Articles of Incorporation, By-Laws, or the
composition of the Board of Directors of the Borrower since execution of the Agreement.

     (f) Borrower acknowledges that the definition “Loan Documents” shall include this
Amendment No. 8 and all the documents executed contemporaneously herewith.

     Section 6. Affirmative Covenants. By entering into this Amendment No. 8,
Borrower further specifically undertakes to comply with the obligations, terms and covenants as
contained in the Agreement and agrees to comply therewith as such relate to the credit facilities
and accommodations as provided to the Borrower pursuant to the terms of this Amendment No. 8.

     Section 7. Governing Law. This Amendment No. 8 has been executed and
delivered and is intended to be performed in the State of Indiana and shall be governed, construed
and enforced in all respects in accordance with the substantive laws of the State of Indiana.

     Section 8. Headings. The section headings used in this Amendment No. 8 are
for convenience only and shall not be read or construed as limiting the substance or generality of
this Amendment No. 8.

     Section 9. Survival. All representations, warranties, and covenants of the
Borrower herein or any certificate, agreement or other instrument delivered by or on its behalf
under this Amendment No. 8 shall be considered to have been relied upon by the Bank and shall
survive the making of the Loans and

-3-

 

delivery to the Bank of the Line of Credit Note. All statements and any such certificate or
other instrument shall constitute warranties and representations hereunder by the Borrower, as the
case may be.

     Section 10. Counterparts. This Amendment No. 8 may be signed in one or more
counterparts, each of which shall be considered an original, with the same effect as if the
signatures were upon the same instrument.

     Section 11. Modification. This Amendment No. 8 may be amended, modified,
renewed or extended only by written instrument executed in the manner of its original execution.

     Section 12. Waiver of Certain Rights. The Borrower waives acceptance or
notice of acceptance hereof and agrees that the Agreement, this Amendment No. 8, the Line of Credit
Note, and all of the other Loan Documents shall be fully valid, binding, effective and enforceable
as of the date hereof, even though this Amendment No. 8 and any one or more of the other Loan
Documents which require the signature of the Bank, may be executed by and on behalf of the Bank on
other than the date hereof.

     Section 13. Waiver of Defenses and Claims. In consideration of the financial
accommodations provided to the Borrower by the Bank as contemplated by this Amendment No. 8,
Borrower hereby waives, releases and forever discharges the Bank from and against any and all
rights, claims or causes of action against the Bank arising under the Bank’s actions or inactions
with respect to the Loan Documents or any security interest, lien or collateral in connection
therewith as well as any and all rights of set off, defenses, claims, causes of action and any
other bar to the enforcement of the Loan Documents which exist as of the date hereof.

     IN WITNESS WHEREOF, COHESANT TECHNOLOGIES INC. and REGIONS BANK have caused this Amendment No.
8 to Credit and Security Agreement to be executed by their respective duly authorized officers
effective as of the date and year first written above.

	 	 	 	 	 
	 	COHESANT TECHNOLOGIES INC.

(“Borrower”)

 	 
	 	By:  	           /s/ Robert W. Pawlak
 	 
	 	Printed: 	Robert W. Pawlak 	 
	 	Title: 	Chief Financial Officer 	 
	 
	 	REGIONS BANK

(“Bank”)

 	 
	 	By:  	     /s/ Terry L. Moore
 	 
	 	 	Terry L. Moore, Vice President 	 
	 	 	 	 
	 

-4-EX-10.1

 

Exhibit 10.1

TABLE OF CONTENTS

IEC (MONTGOMERY), LLC – BPI ENERGY, INC.

COAL SEAM GAS LEASE AGREEMENT

	 	 	 	 	 	 	 
	SECTION	 	TITLE	 	PAGE
	1.

	 	PROPERTY TO BE LEASED AND RESERVATIONS
	 	 	1	 
	 
	 	 	 	 	 	 
	2.

	 	PRIMARY TERM
	 	 	3	 
	 
	 	 	 	 	 	 
	3.

	 	ROYALTIES — PAYMENTS & REPORTS
	 	 	4	 
	 
	 	 	 	 	 	 
	4.

	 	POOLING
	 	 	11	 
	 
	 	 	 	 	 	 
	5.

	 	SHUT-IN OF PRODUCTION
	 	 	12	 
	 
	 	 	 	 	 	 
	6.

	 	DRAINAGE
	 	 	12	 
	 
	 	 	 	 	 	 
	7.

	 	OBLIGATIONS RELATED TO DRILLING
	 	 	13	 
	 
	 	 	 	 	 	 
	8.

	 	DEFAULT
	 	 	13	 
	 
	 	 	 	 	 	 
	9.

	 	ASSIGNMENT
	 	 	15	 
	 
	 	 	 	 	 	 
	10.

	 	WARRANTY AND PROPORTIONATE REDUCTION
	 	 	15	 
	 
	 	 	 	 	 	 
	11.

	 	PLUGGING AND OTHER COVENANTS
	 	 	16	 
	 
	 	 	 	 	 	 
	12.

	 	NOTICES
	 	 	16	 
	 
	 	 	 	 	 	 
	13.

	 	FORCE MAJEURE
	 	 	16	 
	 
	 	 	 	 	 	 
	14.

	 	INFORMATION, INSPECTION AND AUDIT
	 	 	17	 
	 
	 	 	 	 	 	 
	15.

	 	INDEMNIFICATION AND INSURANCE
	 	 	18	 
	 
	 	 	 	 	 	 
	16.

	 	TAXES
	 	 	18	 
	 
	 	 	 	 	 	 
	17.

	 	APPLICABLE LAW
	 	 	18	 
	 
	 	 	 	 	 	 
	18.

	 	DISPUTE RESOLUTION — ARBITRATION
	 	 	19	 
	 
	 	 	 	 	 	 
	19.

	 	ENTIRE AGREEMENT AND AMENDMENT
	 	 	20	 
	 
	 	 	 	 	 	 
	20.

	 	RECORDING OF LEASE AGREEMENT
	 	 	20	 
	 
	 	 	 	 	 	 
	21.

	 	HEADINGS
	 	 	20	 
	 
	 	 	 	 	 	 
	22.

	 	ADDITIONAL DOCUMENTS
	 	 	20	 
	 
	 	 	 	 	 	 
	23.

	 	MULTIPLE COUNTERPARTS
	 	 	21	 
	 
	 	 	 	 	 	 
	24.

	 	SEVERABILITY
	 	 	21	 
	 
	 	 	 	 	 	 
	25.

	 	GENDER
	 	 	21	 

 

 

COAL SEAM GAS LEASE AGREEMENT

     THIS COAL SEAM GAS LEASE AGREEMENT (this “Agreement”) is made and entered into as of the 26th
day of April 2006, between IEC (MONTGOMERY), LLC, an Illinois limited liability company (“LESSOR”),
and BPI Energy, INC., a Nevada corporation (“LESSEE”).

RECITALS

     WHEREAS, LESSEE requests the right to lease in Christian, Fayette, Montgomery and Shelby
Counties, Illinois, certain mineral lands owned by LESSOR as described in those certain deeds dated
December 3, 2003, and recorded with the Recorder of Deeds in Montgomery County, Illinois as
Document No. 200400016707 in Book 973, Page 202 on January 5, 2004, and as with the Recorder of
Deeds in Christian County, Illinois as Document 2003R10075 on December 19, 2003, and with the
Recorder of Deeds in Shelby County, Illinois as Document 03-6017 on December 22, 2003, and as with
the Recorder of Deeds in Fayette County, Illinois as Document 036115 in Volume 1483, Page 63 on
December 22, 2003, and also described in Exhibit “A”, attached hereto and made a part hereof,
(hereinafter referred to as the “Leased Premises”), for the exploration and development of gas (as
defined herein below) located therein, and LESSOR is willing to enter into an agreement to provide
for the same upon the terms and conditions set forth herein.

AGREEMENT

     NOW THEREFORE, in consideration of the premises herein and intending to be legally bound,
LESSOR and LESSEE agree as follows:

	1.	 	PROPERTY TO BE LEASED AND RESERVATIONS

	 	1.1	 	In consideration of using its best effort to commercially produce all
economically recoverable Gas (as defined in Paragraph 1.3) and paying LESSOR the
royalties and other consideration for the same as set forth in this Agreement, and in
consideration of the covenants contained in this Agreement to be performed by LESSEE,
and for other good and valuable consideration, LESSOR hereby GRANTS, LEASES, and LETS
unto LESSEE all of LESSOR’S title and interest, but only to the extent in fact actually
legally owned or held by LESSOR, in and to the Gas underlying the Leased Premises, for
the limited purpose of investigating, exploring by geophysical and other methods,
prospecting, drilling for, developing, producing, treating, storing, and transporting,
selling and using Gas.
	 
	 	1.2	 	LESSEE acknowledges that LESSOR does not own the surface of the Leased
Premises.
	 
	 	1.3	 	The term “Gas” shall mean coal seam gas, including without limitation coalbed
methane gas, Gob Gas (other than VMM (as defined in Paragraph 1.5)) or other naturally
occurring gases contained in or associated with any coal seam and all communicating
zones, and all associated natural gas and other hydrocarbon gas originating or produced

Page 1 of 22

 

	 	 	 	from or between coal seam to coal seam. The term “Gob Gas” shall mean gas that is
liberated and accumulated within the fractured and collapsed zones resulting from
the Second Mining of coal seams. The term “Second Mining of coal seams” includes all
forms of underground mining, including technologies not yet developed which may come
to be known in the future, which result in the collapsing and fracturing of strata
overlying the coal beds and includes without limitation full or partial pillar,
shortwall, and longwall mining.
	 
	 	1.4	 	All coal, limestone, iron ore, VMM and all other minerals and nonmineral
substances, other than the Gas produced hereunder from said coal seams and all zones in
communication therewith, are excluded from this Agreement, along with the right to
extract, mine, remove, use and dispose of same for all purposes.
	 
	 	1.5	 	The term “VMM” shall mean Gas that is vented or flared from coal, whether by
drilling or otherwise, in connection with or related to the mining of coal which the
party mining such coal determines is necessary or appropriate to vent or flare
including without limitation venting which is carried out to ensure mine safety.
	 
	 	1.6	 	LESSOR reserves the right of ingress and egress at all times for itself, its
contractors, agents, and licensees on, over and under the Leased Premises.
	 
	 	1.7	 	Except for those rights granted to LESSEE herein, LESSOR to the extent of its
interests, expressly reserves all rights with respect to the surface and subsurface of
the Leased Premises for any and all purposes, including without limitation the right to
explore for, drill, mine (by any method), produce, treat, store and transport any and
all minerals, coal and non-mineral substances (other than Gas), and to conduct
geological and other exploration surveys, whether or not said activities involve the
disturbance or destruction of the coal seams from which the right to produce Gas is
provided herein. However, LESSOR agrees to use commercially reasonable efforts to not
unreasonably interfere with LESSEE’S Operations, as defined in Paragraph 2.1, on the
Leased Premises.
	 
	 	1.8	 	LESSOR and LESSEE recognize the importance of environmental protection and the
necessity of proper ecological balance, and to further these objectives, LESSEE agrees
to conduct all Operations hereunder with caution and in material compliance in every
respect with all applicable laws of the State of Illinois and the United States of
America now existing or hereafter enacted, and all rules and regulations promulgated
pursuant to such laws, now existing or hereafter enacted (including without limitation
all obligations for reclamation of surface areas LESSEE disturbs in its activities and
operations hereunder), and to preserve conditions as nearly as practicable as they
presently exist by altering the topography and interfering with or impeding
watercourses as little as possible.

Page 2 of 22

 

	2.	 	PRIMARY TERM

	 	2.1	 	Unless sooner terminated or extended under other provisions of this
Agreement, this Agreement shall be for a primary term of twenty (20) years from
the date of this Agreement (“Primary Term”), and so long thereafter as Gas is
produced in Paying Quantities (as defined hereafter) from the Leased Premises or on
lands pooled or unitized therewith, as defined hereunder in Paragraph 4, or so long
as Operations are being conducted on any Production Unit (as defined in Paragraph
2.3). Whenever used in this Agreement, the term “Paying Quantities” shall mean
production in commercially reasonable quantities sufficient to yield a return in
excess of operating costs, even though drilling and equipment costs may never be
recovered, and the undertaking considered as a whole may ultimately result in loss,
and the term “Operations” shall be defined as work conducted in furtherance of the
following: LESSEE is conducting itself as an operator in a prudent, reasonable
manner and in material compliance with all applicable laws and regulations, using
modern equipment and methods that are in accordance with commercially reasonable
practices and technology all related to drilling, testing, completing,
de-watering, reworking, workover, recompleting, deepening, plugging back,
sidetracking, or repairing wells in order to obtain the production of Gas in Paying
Quantities and shall include testing and dewatering activities of LESSEE conducted
on a well or wells drilled and completed upon the Leased Premises or lands pooled
or unitized therewith to produce sufficient formation water to permit LESSEE a
reasonable period of time to ascertain the volumes of Gas which may be produced
from said wells, whether or not such Gas is producing in Paying Quantities prior
thereto.
	 
	 	2.2	 	In the event of termination or forfeiture of this Agreement, in whole
or part, for any reason, LESSEE shall immediately execute and record a proper
instrument releasing from the terms hereof all of those portions of the Leased
Premises as to which this Agreement terminated or was forfeited and shall deliver a
copy of the instrument to LESSOR.
	 
	 	2.3	 	If at the expiration of twenty (20) years from the date of this
Agreement, all acreage under this Agreement has not been developed into a
Production Unit on which is located either a well capable of producing Gas in
Paying Quantities or a well on which Operations are being conducted and which
results in production in Paying Quantities, this Agreement shall automatically
terminate as to any of the Leased Premises which is not included in a Production
Unit, except that LESSEE shall retain, in addition to all such Production Units,
all pipelines, facilities, easements, and rights of ingress and egress to operate
the Production Units on the Leased Premises and in the immediate vicinity thereof.
For purposes of this Agreement, a “Production Unit” is (a) an area of no more than
160 acres for a typical vertical hydraulically fractured well (based on current
technology and fracturing practices at the time of the signing of this Lease)
(“Current Vertical Well”), plus 10% tolerance, or an area of no more than 320

Page 3 of 22

 

	 	 	 	acres for a vertical, unconventionally stimulated or drilled, well, plus 10%
tolerance, 1,920 acres for any horizontal well (currently, as of the time of the
signing of this Lease, planned to include one vertical well and four lateral
wells) (“Planned Horizontal”), plus 10% tolerance, the shape and location of
said units being designated by LESSEE upon which a Gas well has been drilled and
completed or on which Operations are being conducted, or (b) a pooled unit
created pursuant to Paragraph 4.1. LESSEE shall promptly notify LESSOR as soon
as practical after the designation of each Production Unit. Notwithstanding
anything herein to the contrary, if after discovery, and production of Gas from
a Production Unit, and following the Primary Term, such production should cease
for any cause or reason, this Agreement as to the portion of the Leased Premises
included within any such Production Unit shall not terminate if LESSEE commences
Operations thereon for drilling or reworking within ninety (90) days after such
cessation and prosecutes such Operations with no cessation thereafter for more
than ninety (90) consecutive days; and if such drilling or reworking operation
results in the restoration of production of Gas from such Production Unit in
Paying Quantities, so long thereafter as Gas is produced from or attributable to
such Production Unit.

	3.	 	ROYALTIES — PAYMENTS AND REPORTS

	 	3.1	 	On Gas produced from the Leased Premises and sold by LESSEE, beginning
upon execution of this Agreement and extending to 12:00 A.M. on April 30, 2011, the
production royalty to be paid by LESSEE shall be One Sixteenth (6.25%) of the Gross
Sales Price (as hereinafter defined) of such Gas (“Royalty Percentage”).
	 
	 	 	 	Beginning on May 1, 2011 and so long thereafter as this Agreement is in full
force and effect, on Gas produced from the Leased Premises and sold by LESSEE,
the production royalty to be paid by LESSEE shall be a percentage of the Gross
Sales Price as follows:

	 	 	 	 	 
	GROSS
SALES PRICE
	 	 	 
	PER
MM BTU
	 	PRODUCTION ROYALTY	 
	£ $7.00
	 	 	6.25	%
	> $7.00
but £ $9.00
	 	 	9.00	%
	> $9.00
	 	 	12.50	%

LESSOR shall have the right, at any time and from time to time, upon not less
than thirty (30) days written notice to LESSEE, to take in kind such LESSOR’S
Royalty Percentage of Gas produced from the Leased Premises. LESSOR may elect
to take LESSOR’S Percentage Royalty of Gas in kind (“In-Kind Royalty”) at the
well, or at the point of delivery where LESSEE delivers LESSEE’S Gas to any
third party. LESSOR shall reimburse LESSEE for all reasonable costs incurred by
LESSEE in installing, operating or maintaining additional facilities

Page 4 of 22

 

necessary for LESSOR’S In-Kind Royalty to be separately metered, accounted for,
and delivered to a third party. Should LESSOR elect to take an In-Kind Royalty
in kind as provided for above, LESSOR’S royalty shall bear its proportionate
part of any transportation, treating, conditioning or compression charges
incurred off-lease or after the point nearest to the well that such Gas is ready
for sale or use either at the tailgate of a processing, treating or conditioning
plant or other delivery point.

The term “Gross Sales Price” as used herein shall mean the actual sales price at
which Gas is sold to a Bona Fide Purchaser (as defined in Paragraph 3.4), plus,
to the extent applicable, any BTU bonus or minus BTU penalty; provided, however,
that there shall be no deduction from said Gross Sales Price for any on-site
handling, collecting, dehydrating and compression charges, brokerage fees, sales
commissions, credit losses, sales tax, income tax, severance tax, license tax,
privilege tax, occupational tax, advertising, and any other charges whatsoever
or taxes paid by LESSEE for the privilege of conducting business in Illinois.
In the case of Gas produced hereunder and sold at some point other than the
Delivery Point, the Gross Sales Price may be reduced by deducting from the final
and actual price at which such Gas is sold all transportation and handling
charges beyond the Delivery Point as long as LESSEE can verify such deductions
from the sales price to the satisfaction of LESSOR. The term “Delivery Point”
as used herein shall mean the point at which Gas produced hereunder is delivered
by LESSEE, whether from the wellhead, compressing station, or point of entry
into a Federal Energy Regulatory Commission (FERC) regulated transmission line
or carrier.

Notwithstanding anything to the contrary in this Agreement, the royalty due by
LESSEE under this Agreement shall not be less than the amount required to be
paid by LESSOR or its successors and assigns as an overriding royalty on the
production of Gas that was reserved by the transferors of the Leased Premises in
connection with the sale of the Leased Premises to LESSOR.

	 	3.2	 	On Gas produced from the Leased Premises and used off the Leased
Premises or in the manufacture of gasoline or other products therefrom, the royalty
to be paid by LESSEE to LESSOR shall be as stated in Paragraph 3.1, except that
said Royalty Percentage shall be twelve and one-half percent (12.5%) of the market
value of such Gas at the Delivery Point. LESSEE shall have the free reasonable use
of gas and water produced from the Leased Premises for operations serving the
Leased Premises, prior to the Delivery Point.
	 
	 	3.3	 	The term “market value” as used in this Agreement shall mean the price
paid by a purchaser under a written purchase contract, arrived at through good
faith, arm’s length negotiations, pursuant to which Gas produced hereunder is being
sold by LESSEE to a Bona Fide Purchaser. The price for all gas sold hereunder shall
be paid on a dry MMBtu basis.

Page 5 of 22

 

	 	3.4	 	The term “Bona Fide Purchaser” as used herein shall mean a purchaser
who pays consideration in good faith without intending to take unfair advantage of
LESSEE or LESSOR, and in no instance shall a Bona Fide Purchaser include a person,
persons, party, parties, company or corporation affiliated with LESSEE unless
approved in writing by LESSOR, which approval shall not be unreasonably withheld.
It is the parties’ intent that all sales of Gas produced by LESSEE under this
Agreement shall be at the price of the Gas sold on the open market in an arm’s
length transaction to a non-related and unaffiliated entity. As used in this
Agreement, the term “affiliate” means any entity that directly or indirectly
controls or is controlled by or is under common control with LESSEE, the directors,
officers or principal shareholders of LESSEE, or such persons’ spouses, parents or
children. For purposes hereof, “control” is presumed to exist if (a) any director,
officer or principal shareholder of LESSEE is an officer of, partner in, or trustee
of, or serves in a similar capacity with respect to, a specified entity; or (b)
LESSEE, or any officer, director or principal shareholder of LESSEE, directly or
indirectly, is the beneficial owner of more than 5% of any class of voting security
of or interest in a specified entity; or (c) LESSEE, or any officer, director or
principal shareholder of LESSEE is otherwise connected, allied, affiliated or
associated with or to a specified entity.
	 
	 	3.5	 	LESSEE may vent Gas during repairs to wells, prior to connection of any
wells to gathering and/or transmission lines, and during market interruptions, as
long as the same is in compliance with all rules and regulations of the Division of
Oil and Gas of the Office of Mines and Minerals of the Department of Natural
Resources of the State of Illinois (the “State of Illinois Division of Oil and
Gas”). No royalty shall be due on vented gas.
	 
	 	3.6	 	Royalties for Gas produced hereunder shall be as provided for in
Paragraph 3.1 and shall be payable on or before the last day of the second month
following the month of such production, sale or use. All reports and determinations
called for below are to be forwarded to LESSOR at the time royalty payments are due
as provided for in this Paragraph 3.6. In conjunction with royalty payments,
LESSEE shall provide to LESSOR a production report which shall include:

	 	1)	 	the quantity of Gas produced for each individual well
and the cumulative total production on a monthly basis; and
	 
	 	2)	 	the quantity of Gas sold; and
	 
	 	3)	 	the quantity of Gas used as permitted under this
Agreement; and
	 
	 	4)	 	the Gross Sales Price at the point at which Gas
produced hereunder is delivered by LESSEE to a Bona Fide Purchaser,
and/or the market value of the Gas delivered at the Delivery Point, as the
case may be.

Page 6 of 22

 

	 	3.7	 	Royalty payments and reports by LESSEE shall be completed and delivered
to LESSOR at the following address:

IEC (Montgomery), LLC

1000 Urban Center Drive, Suite 360

Birmingham, Alabama 35242

Attention: Bruce Webster

	 	3.8	 	LESSOR expressly reserves all rights with respect to the subsurface of
the Leased Premises for any and all purposes, including without limitation the
following: ingress and egress; mining coal, regardless of whether said coal has
been developed for the production of Gas; venting or flaring VMM (as defined in
Paragraph 1.5) in connection with or related to the mining of coal; conducting
geological and other surveys; selling, leasing, or otherwise transferring interest
in the Leased Premises; and exploring for, drilling, mining, producing, treating,
storing and transporting any and all minerals, coal, oil and natural gas and
surface materials other than those leased hereunder, regardless of whether said
activities involve the disturbance or destruction of coal seams.
	 
	 	 	 	LESSOR shall within ninety (90) days of the execution of this Agreement
designate to LESSEE the area or areas of the Leased Premises that LESSOR plans
to mine (“Mine Plan Block”) and the order of priority in which they will be
mined. Each Mine Plan Block will be placed in an order of mining priority as
follows: (1) within eight (8) years and (2) greater than eight (8) years. Each
Mine Plan Block can range in size up to twenty thousand (20,000) acres.
	 
	 	 	 	The Leased Premises under this Agreement may be combined with the leased
premises from other agreements between LESSEE and LESSOR to form a Mine Plan
Block. In such case, the terms and conditions under each agreement shall apply
only to the specific acreage covered under that agreement including but not
limited to any mine through provisions and reimbursements.
	 
	 	 	 	LESSEE and LESSOR shall meet at least once a year to review mining plans for the
Leased Premises and at LESSEE’S and LESSOR’S mutual agreement describe and
adjust the order of mining priority of Mine Plan Blocks.
	 
	 	 	 	If LESSEE drills a Gas well within a Mine Plan Block that will be mined with an
order of mining priority within eight (8) years and LESSOR or its lessees or
contractors mine through said well (“Mined Through Well”), then LESSOR or its
lessees or contractors shall not be obligated to reimburse LESSEE for any cost
or loss of profits or loss of reserve associated with said Mined Through Well.
	 
	 	 	 	If LESSOR or its lessees or contractors mines through one of LESSEE’S wells in a
Mine Plan Block with an order of mining priority greater than eight (8) years,
then LESSOR or its lessees or contractors shall be
obligated to reimburse LESSEE for said well (“Reimbursed Well”) as follows:

Page 7 of 22

 

	 	(a)	 	If a Reimbursed Well has been in production for eight
(8) years or greater at the time of notice as provided for below, the
Reimbursed Well will be plugged at LESSEE’S expense and LESSOR shall not be
obligated to compensate LESSEE for the loss of the Reimbursed Well.
	 
	 	(b)	 	If the Reimbursed Well has not been in production for
eight (8) years but has produced sufficient gross income to cover: (i) the
cost of drilling, completing and equipping the Reimbursed Well; (ii) the
operating costs incurred by LESSEE during the life of the Reimbursed Well;
(iii) an amount equal to 10% per year upon the total cost of drilling,
completing and equipping the Reimbursed Well; and (iv) the cost of
plugging, then LESSOR will not be obligated to compensate LESSEE for the
loss of the Reimbursed Well.
	 
	 	(c)	 	If the Reimbursed Well to be plugged does not meet the
requirements of subparagraphs (a) or (b) above, then LESSEE will pay to
LESSOR the value of the Gas reserves remaining in the first eight (8) years
of production in the coal seam or seams to be plugged plus the cost of
plugging the Reimbursed Well. The value of lost economically recoverable
reserves reduced to present value shall be determined by a qualified
petroleum engineer acceptable to all parties. The fees and expenses of the
engineer hired for this purpose shall be paid equally by LESSOR and LESSEE.
Any compensation due to LESSEE from LESSOR shall be deducted out of future
royalties due LESSOR.
	 
	 	(d)	 	In determining value, the engineer will take into
account only LESSEE’S share of reserves to be recovered from the coal seam
or seams then being produced in said Reimbursed Well by LESSEE at the
receipt of the notice to plug minus any production subsequent to receipt of
notice. The value shall be based on an average of LESSEE’S gas sales
contract prices for the six (6) month period prior to plugging of the
Reimbursed Well to be mined through on the Leased Premises.
	 
	 	(e)	 	If LESSEE should produce and sell Gob Gas from the
Leased Premises in the vicinity of a Mined Through Well, then LESSOR shall
be credited under subparagraph (b), (c) and (d) above for any net profit of
LESSEE from said produced and sold Gob Gas. If LESSOR has reimbursed LESSEE
for said Mined Through Well prior to LESSEE producing said Gob Gas, then
LESSEE shall refund to LESSOR all amounts paid by LESSOR for said Mined
Through Well.

Should LESSEE reenter a Mined Through Well that LESSEE has been reimbursed for
and begin producing Gas after mining takes place, LESSOR shall only be obligated
to reimburse LESSEE for plugging cost and its actual cost to reenter the Mined
Through Well plus One Hundred and No/100 Dollars ($100.00) per month (“Rental”)
that said well was out
of production as a result of mining. LESSOR shall give written notice to LESSEE
when a Mined Through Well is available to reenter for Gas production. For
purposes of calculating the number of months that a Mined Through Well has been
out of production, said

Page 8 of 22

 

period shall begin when the well was plugged and end
when the aforementioned notice is given. If LESSOR has reimbursed LESSEE for
said Mined Through Well prior to LESSEE reentering said well, then LESSEE shall
refund to LESSOR all amounts paid by LESSOR for said well less the plugging cost
and its actual cost to reenter the well plus the sum of the Rental paid.

Actual well costs for reimbursement purposes under this Agreement shall not
exceed the average cost (calculated based on Lessee’s actual costs over the
preceding six (6) month period prior to the date such Reimbursed Well was mined
through) to drill and complete a comparable well in the same or similar area;
provided, however, that for the first six (6) months of the Primary Term, the
average costs for a Current Vertical Well and a Planned Horizontal Well (as
described in Section 2.3) shall not exceed $200,000 and $2,000,000 respectively.

LESSOR will provide written notification to LESSEE at least six (6) months prior
to commencement of coal removal that will cause or require mining through any
Gas wells drilled by LESSEE on the Leased Premises.

LESSEE agrees to plug the well or wells to be mined through at least sixty (60)
days in advance of active mining of coal but, in all events, before such mining
approaches within three hundred (300) feet of the well bore.

	 	3.9	 	Nothing herein shall prevent LESSOR from venting or flaring VMM out of
a coal mine or taking other reasonable safety precautions, and LESSOR shall not
have any liability or obligation to pay royalty or otherwise compensate LESSEE or
any other person in any fashion for VMM so liberated in ventilation of coal mining
operations. LESSEE shall have no obligation to recover such coal seam gas that
will be vented or flared by any coal mining, and LESSEE shall have no liability or
obligation to LESSOR for royalties on such VMM, nor shall any royalties be due on
any VMM which may be vented or flared by third parties or on such Gas as may be
vented or flared during repairs to wells, prior to connection of any wells to
gathering and/or transmission lines or as may be necessitated by any underground
coal mining activities carried on by LESSOR.
	 
	 	 	 	Every six (6) months commencing on the date that is six (6)
months after the date of this Agreement, LESSEE shall provide to LESSOR a
map or maps of not less than 1”=2,000’ scale that describes the location of
all existing and proposed Gas wells and facilities on the Leased Premises.
Likewise, should LESSOR subject the Leased Premises to coal mining
operations, LESSOR shall on the same schedule furnish or caused to be
furnished such a map showing the projected coal mining and other surface
use activities that might
adversely affect the operations of LESSEE on the Leased Premises projected by
LESSOR.

Page 9 of 22

 

	 	3.10	 	Measurement of Methane

	 	(a)	 	The volume of all Gas for which payment is to be made
hereunder shall be measured, before being mixed with gas or coalbed methane
from other lands not pooled or unitized with the Leased Premises, by
standard meters of approved type adapted to the volume of Gas to be
measured. Such meters shall be located at convenient points to be selected
by LESSEE and shall be furnished, connected, operated, maintained and read
by LESSEE at its own expense.
	 
	 	 	 	For the purpose of this Agreement, a cubic foot of Gas shall consist of
the quantity or volume of Gas which shall occupy one (1) dimensional cubic
foot at an average absolute atmospheric pressure of 14.73 pounds per
square inch (commonly called pressure base) and at a temperature of 60
degrees Fahrenheit (commonly called temperature base). When the Gas is
measured through an orifice meter or other acceptable methods of measuring
Gas, the method of computation shall conform with the recommendations
contained in American National Standard Institute (“ANSI”) / American
Petroleum Institute (“API”) 14.3.1 & 2, American Gas Association (“AGA”)
Report No. 3, Orifice Metering of Natural Gas and Other Related
Hydrocarbon Fluids, latest edition. The specific gravity of the Gas shall
be determined when marketing of Gas is begun, and as often thereafter as
conditions may warrant.
	 
	 	 	 	LESSEE shall: (i) have sole charge of said meters; (ii) read said meters
as often as necessary to obtain accurate measurements; (iii) test all of
said meters in the field in accordance with applicable industry standards
or rules and regulations of any applicable laws and regulations; (iv)
upon request furnish LESSOR current available meter charts showing results
of tests; and (v) repair said meters when necessary or when tests show
inaccuracy.
	 
	 	(b)	 	LESSOR shall have access to said meters at all
reasonable times in company with a representative of LESSEE, and LESSOR
shall have the right to inspect the equipment and records of LESSEE for the
purpose, to the extent and in the manner provided in Paragraph 14. If
LESSOR challenges the accuracy of any meter, LESSEE shall upon written
request of LESSOR have the meter tested and adjusted or repaired, and
LESSOR shall have the right to have its representative present during such
tests, adjustments or repairs. If the test shows a meter to be three
percent (3%) or
more inaccurate, then prior measurements shall be corrected at the rate of
such inaccuracy for any period which is definitely known and agreed upon,
but, if the period of inaccuracy is not definitely known and agreed upon,
then prior measurements for a period extending back one-half (1/2) of the
time elapsed since the

Page 10 of 22

 

	 	 	 	last previous test or calibration. During such
time as a meter is out of repair, the Gas may be delivered through a
bypass and the quantity estimated by use of the readings of the repaired
meter when replaced. If the test shows inaccuracy of less than three
percent (3%), the cost of removing, testing, adjusting and returning the
meter to service shall be borne by the LESSOR, but if the test shows
inaccuracy of three percent (3%) or more, then such costs shall be borne
by LESSEE. In any case, the cost of repairing and replacing any meter
shall be borne by LESSEE.
	 
	 	(c)	 	Upon request of LESSOR at any time, LESSEE shall, at
the expense of the LESSEE, install separate meters for the purpose of
measuring the Gas from any individual producing well or wells on the Leased
Premises.

	4.	 	POOLING

	 	4.1	 	LESSEE, at its option, is hereby given the right to pool or combine the
Leased Premises, or any portion thereof, as to Gas, with other lands, lease or
leases in the immediate vicinity thereof, when, in LESSEE’S judgment, it is
necessary or advisable to do so in order to properly develop and operate the Leased
Premises. Pooling shall be limited to a unit that conforms to any lawful spacing
rules which may be prescribed or permitted for the field or unit in which the
Leased Premises are situated by any governmental authorities having jurisdiction
thereof. LESSEE shall execute an instrument identifying and describing the pooled
acreage and shall submit it to LESSOR prior to filing with the appropriate
governmental authority. The entire acreage so pooled into a tract or unit shall be
treated for all purposes, except the payment of royalties on production from the
pooled unit, as if it were included in this Agreement. LESSOR shall receive on
production from a unit so pooled only such portion of the production royalty
stipulated herein as the amount of LESSOR’S acreage placed in the unit, or LESSOR’S
royalty interest therein on an acreage basis, bears to the total acreage so pooled
in the particular unit involved.
	 
	 	4.2	 	Prior to filing a petition with the State of Illinois Division of Oil
and Gas seeking unitization of any acreage covered by this Agreement or seeking any
changes with respect to Drilling Units including the formation and operation
thereof, LESSEE shall submit to LESSOR a copy of its proposed unitization plan or
proposed changes, together with copies of any exhibits, including technical data,
that are to be submitted to the State of Illinois Division of Oil and Gas in
support thereof.
	 
	 	4.3	 	Notwithstanding LESSEE’S right, at its option, to pool or combine the
Leased Premises as granted herein, LESSOR reserves the right to appear
before the State of Illinois Division of Oil and Gas regarding any petition or
application made by LESSEE regarding LESSEE’S operations that are not specifically
authorized herein and oppose any relief that LESSEE may be seeking.

Page 11 of 22

 

	5.	 	SHUT-IN OF PRODUCTION

	 	5.1	 	If, at any time or times under any term of this Agreement, there is any
well within a Production Unit that is capable of producing Gas in Paying Quantities
and any such well is shut-in, this Agreement shall, nevertheless, continue in force
as though Operations were being conducted on such Production Unit for so long as
any said wells are shut-in, and thereafter, this Agreement may be continued in
force as if no shut-in had occurred. If, any such wells are shut-in for a period
of one hundred twenty (120) consecutive days, and during such time there are no
Operations on the Leased Premises, then at or before the expiration of any one
hundred twenty (120) day period, LESSEE shall pay, as an advance, annual royalty,
an amount equal to $100 for each such well. LESSEE shall make like payments on or
before the end of each anniversary of the expiration of any ninety (90) day period
if upon such anniversary this Agreement is being continued in force solely by
reason of this provision. However, in no event shall shut-in well payments
maintain this Agreement in force for a period exceeding five (5) consecutive years.
LESSEE shall be entitled to recover any shut-in royalty payments from future sales
of Gas. Should such shut-in royalty payments not be made in a timely manner as
provided in this paragraph and for an additional period of thirty (30) days
following LESSEE’S receipt of written notice from LESSOR of the failure to make any
such timely payment, it will be considered for all purposes that there is no
production or no excuse for delayed production of Gas from any such well or wells,
and unless there is then in effect other preservation provisions of this Agreement,
this Agreement shall terminate as to the acreage within the Production Unit for
such well at midnight on the last day providing for the payment of such shut-in
royalties, and LESSEE shall thereupon furnish to LESSOR a written release of all
its interest in and to the Leased Premises within such Production Unit.

	6.	 	DRAINAGE

	 	6.1	 	It is understood and agreed that LESSEE shall conduct its exploration,
drilling, production and marketing in a reasonable and prudent manner not only with
a view to reasonable development and recovery of the Gas and avoidance of “waste”,
as that term is defined in the laws applicable to Gas in the State of Illinois, but
with a view to the conservation of potential production and reserves by the
protection from drainage by adjacent owners, the intrusion of water into an oil or
natural gas stratum, the escape of oil or natural gas out of one stratum into
another, or the pollution of fresh water by oil, natural gas or salt water. The
obligations of LESSEE pursuant to this Paragraph 6.1 are expressly subject to the
following special provision.
	 
	 	 	 	In the event that a well or wells produce Gas in Paying Quantities on land
adjacent to the Leased Premises, and such is draining Gas from the Leased
Premises, LESSEE shall immediately take such action as a

Page 12 of 22

 

	 	 	 	prudent operator would
take to protect the Leased Premises from uncompensated drainage.

	7.	 	OBLIGATIONS RELATED TO DRILLING

	 	7.1	 	If at any time during the Primary Term of this Agreement or any
continuance thereof, LESSEE shall elect to farm-out (as defined below) the drilling
of any well on the Leased Premises or any parcel unitized therewith, then LESSEE
shall obtain LESSOR’S consent thereto, which LESSOR shall not unreasonably
withhold, by sending advance written notice, at least thirty (30) days prior to any
such farm-out. If LESSEE does not receive a written response within thirty (30)
days of such request, it shall be deemed a consent to the farm-out. The term
“farm-out” as used in this Agreement, and distinguished from assignment, mortgage,
conveyance, sublease or setting over of LESSOR’S estate interest or rights herein,
shall mean that LESSEE may grant certain of its rights under this Agreement to a
third party for the purpose of drilling a well or a limited number of wells upon a
specific area of the Leased Premises within a defined time period, the production
from which wells such third party is obligated to offer for purchase by LESSEE on
the basis of a right of first refusal.
	 
	 	 	 	This provision is not intended to prevent LESSEE from assigning working
interests or other interests in wells to be drilled to participants in those
wells. This provision shall not limit or modify LESSEE’S obligations or
liability to LESSOR, and LESSEE shall be fully responsible and liable for the
performance of this Agreement in the event of a farm-out, and LESSEE shall be in
all respects responsible for the activities and operations of any such third
party.
	 
	 	 	 	LESSEE agrees to not stimulate, fracture or inject fluids under high pressure
into any coal seam greater than four (4) feet in thickness or the overlying and
underlying rock or strata in the Leased Premises without the prior written
consent of LESSOR, which consent may be granted or withheld in LESSOR’S sole
discretion.

	8.	 	DEFAULT

	 	8.1	 	In the event of default by LESSEE in the payment of any sum of money or
the submission of any report under Paragraph 3.6, LESSOR shall have, without notice
or demand to LESSEE, a lien on all machinery, equipment, structures, and other
property of LESSEE of every kind wherever located on the Leased Premises at the
time of the event of default and thereafter. Upon default continuing for thirty
(30) days for any payment due or any reports to be submitted to LESSOR, such lien
may be enforced as provided by the laws of the State of Illinois, including without
limitation the Illinois Uniform Commercial Code.
	 
	 	 	 	In the event of LESSEE’S failure to pay any royalty or any other sum due to
LESSOR under this Agreement when due, LESSOR shall provide LESSEE with written
notice of said default (the “Default

Page 13 of 22

 

	 	 	 	Notice”). Upon the further failure of
LESSEE to pay such royalty or other sum due LESSOR under this Agreement within
thirty (30) days after delivery of the Default Notice by LESSOR, LESSOR shall
have the right without further notice to LESSEE to:

	 	1)	 	Exercise any of the remedies set forth herein or
allowed under the laws of the State of Illinois to collect from LESSEE any
sum of money due LESSOR hereunder; and/or
	 
	 	2)	 	Receive payment from LESSEE, as liquidated damages,
twice the amount due, plus interest from the date due, within ten (10) days
after delivery of the Default Notice; provided, however, that in the event
that any royalty or other sum due LESSOR under this Agreement is the
subject of a bona fide dispute, LESSEE shall notify LESSOR of the disputed
portion, and shall promptly pay the portion of the royalty or sum not in
dispute, and, in which case, LESSOR’S right to receive the above described
liquidated damages shall not apply; or
	 
	 	3)	 	Terminate this Agreement at any time following the date
that is ten (10) days after delivery of the Default Notice if LESSEE has
failed to pay LESSOR in full.

	 	8.2	 	Neither LESSOR’S failure to give, nor any delay in giving, a Default
Notice as herein provided shall be deemed a waiver by LESSOR of its rights pursuant
to any default by LESSEE.
	 
	 	8.3	 	In the event LESSEE has failed to comply with any obligations under
this Agreement, other than those in Paragraph 8.1, whether express or implied, and
LESSEE does not remedy such failure within thirty (30) days after delivery of a
Default Notice, or, if such failure cannot reasonably be remedied within thirty
(30) days, and LESSEE does not commence bona fide efforts to remedy such failure
within such thirty (30) day period, and thereafter, continuously and diligently
pursue such efforts to a successful conclusion, LESSOR may terminate this Agreement
by providing LESSEE with written notice pursuant thereto and/or exercise any of the
remedies set forth in this Agreement or allowed under the laws of the State of
Illinois.
	 
	 	8.4	 	Notwithstanding Paragraph 8.1, LESSOR shall have the right, upon
written notice, to assess interest on all past due royalties or other payments at
the rate of one and one-half percent (1.5%) per month from the date of delinquency
until paid. The date of delinquency shall be the last day of the month on which
payment was due. Time periods provided to cure defaults do not effect the
determination of the date of delinquency or the assessment of interest to be
assessed against delinquent payments. An assessment of interest shall in no way be
deemed to be a waiver of LESSEE’S obligation to pay all royalties when due or to be
a waiver or bar to the subsequent exercise or enforcement by LESSOR of any and all other rights provided under this Agreement or applicable law.

Page 14 of 22

 

	9.	 	ASSIGNMENT

	 	9.1	 	LESSEE may not assign its rights provided under this Agreement, in
whole or in part, without the prior written consent of LESSOR, which consent shall
not be unreasonably withheld, and if LESSEE does obtain LESSOR’S prior consent,
then LESSEE shall be discharged from obligations arising under this Agreement
subsequent to such an assignment of all of its interest. If LESSEE does not obtain
LESSOR’S prior written consent to an assignment of LESSEE’S rights under this
Agreement, then LESSEE shall remain liable to LESSOR under the terms and conditions
of this Agreement. In determining whether to grant or withhold its consent to any
such assignment, LESSOR may consider without limitations, the prospective
assignee’s financial condition, business reputation, and other factors relevant to
the assignee’s ability and willingness to perform LESSEE’s duties hereunder.
Notwithstanding the foregoing statement, LESSEE may not assign its interest to
another coal company or an affiliate of another coal company without Lessor’s
consent. This Agreement shall inure to and be binding upon the respective
successors and assigns of the parties hereto, as well as the parties themselves.
	 
	 	9.2	 	Except as provided herein, no change or division in ownership of the land,
however accomplished, shall operate to enlarge the obligations or diminish the rights
of LESSEE, and no change or division in such ownership shall be binding on LESSEE
until thirty (30) days after LESSEE shall have been furnished by certified mail at
the address provided herein with a certified copy of the recorded instrument or
instruments evidencing same.

	10.	 	WARRANTY AND PROPORTIONATE REDUCTION

	 	10.1	 	The parties acknowledge that the Leased Premises are hereby leased to
LESSEE, AS IS, IN THEIR PRESENT CONDITION and subject to the rights of others as
hereinabove set forth in this Agreement.
	 
	 	 	 	The rights leased pursuant to this Agreement are limited to such only as LESSOR
possesses and has the lawful right to lease; and where LESSOR owns the minerals
and appurtenant rights only, specific and/or implied by law, the rights herein
leased are limited to such as LESSOR owns under the deeds conveying or reserving
said minerals and appurtenant rights, specific and/or implied by law; and before
drilling LESSEE shall satisfy itself as to the title of LESSOR to the Leased
Premises. LESSOR makes no warranty of title, either express or implied, to the
estate leased pursuant to this Agreement.
	 
	 	 	 	It is specifically understood and agreed that LESSOR shall be under no liability
if any claim be made or established or litigation instituted by any third party
as to the title or ownership of LESSOR in or to any
portion of the Leased Premises. In the event of any such claim or litigation,
LESSOR shall have the right, at its option, to defend the same, but LESSOR shall
be under no duty to do so. If LESSOR owns an interest in any part or all of the
Gas leased hereunder that is less

Page 15 of 22

 

	 	 	 	than full interest therein, royalties and all
payments due prospectively pursuant to this Agreement with respect to such Gas
shall be reduced proportionately, but LESSOR shall have no obligation to refund
any royalties or payments received by LESSOR.

	11.	 	PLUGGING AND OTHER COVENANTS

	 	11.1	 	LESSEE shall comply with all rules and regulations of the State of
Illinois Division of Oil and Gas and other applicable laws of the State of Illinois
in connection with its operations including without limitation the drilling,
completion, operation and plugging of Gas wells.

	12.	 	NOTICES

	 	12.1	 	All notice requirements hereunder, unless otherwise provided for in
this Agreement, shall be given in writing and may be delivered (a) by hand
delivery, or (b) by certified or registered United States Mail, postage prepaid,
return receipt requested or (c) by Federal Express or another nationally recognized
similar overnight delivery agency as follows:

	 	 	 	 	 
	 

	 	If to LESSOR:
	 	IEC (Montgomery), LLC
	 

	 	 	 	1000 Urban Center Drive, Suite 360
	 

	 	 	 	Birmingham, Alabama 35242
	 

	 	 	 	Attention: Bruce Webster
	 

	 	 	 	Fax: 205-945-6592
	 
	 	 	 	 
	 

	 	If to LESSEE:
	 	BPI ENERGY, INC.
	 

	 	 	 	30775 Bainbridge Road, Suite 280
	 

	 	 	 	Solon, Ohio 44139
	 

	 	 	 	Attention: Jim Azlein
	 

	 	 	 	Fax: 440-248-4240

or at such other address as either party may designate by providing the other
party written notice in the manner defined above. Notices shall be effective
(i) if delivered in person or by courier, upon actual receipt,
(ii) if mailed or sent by Federal Express or other overnight courier, upon the date of delivery as
shown by the receipt therefor.

	13.	 	FORCE MAJEURE

	 	13.1	 	This Agreement shall not be terminated or subject to cancellation in
whole or in part, nor shall LESSEE be held liable in damages for failure of LESSEE
to carry out its obligations under this Agreement, if such compliance is prevented
by, through no fault of LESSEE, the direct result of an act of God, fire, storm,
flood, insurrection, rebellion, acts of a public enemy, riot, rule or order of any
governmental authority having jurisdiction over the Leased Premises, failure of
transportation beyond the reasonable control of LESSEE, or other causes which are
beyond
the control of LESSEE. Such occurrences shall be considered to be events of
force majeure under this Agreement. LESSEE shall promptly give LESSOR written
notice of the event of force majeure, which notice shall set forth the full
particulars of the case relied upon. While

Page 16 of 22

 

	 	 	 	LESSEE is prevented from complying
with its obligations under this Agreement as the result of such force majeure
event, the obligations affected by such force majeure event shall be suspended,
but such cause shall, so far as possible, be remedied by due diligence on the
part of LESSEE. However, no event of force majeure shall relieve the obligation
of LESSEE to pay any and all royalties or payments when due. Notwithstanding
any other provision in this Agreement to the contrary, if the force majeure
event, or the effect therefrom, continues for a continuous period of more than
180 days, then, upon not less than five (5) days notice, LESSOR may terminate
this Agreement.

	14.	 	INFORMATION, INSPECTION AND AUDIT

	 	14.1	 	LESSEE shall promptly furnish to LESSOR any information reasonably
requested by LESSOR with respect to Operations on the Leased Premises. LESSOR
shall at all times have full and free right of ingress and egress to and from all
parts of the Leased Premises for the purpose of inspecting drilling operations or
producing wells or inspecting and gauging tanks, meters and other equipment and
storage facilities. LESSEE shall not be liable for injury of LESSOR’S personnel
engaged in such activities unless injury is caused by the negligence, recklessness
or willful misconduct of LESSEE or its agents, servants or employees.
	 
	 	14.2	 	LESSEE shall keep adequate books, records, and reports concerning Gas
produced and sold under this Agreement. LESSOR shall have the right to audit, at
all reasonable times, the pertinent books and records of LESSEE in order to
determine the correctness of any report required of LESSEE pursuant to this
Agreement. All books and records of LESSEE concerning any facet of this Agreement
shall be kept open and available for inspection by LESSOR for eight (8) years,
including the eight (8) year period following expiration or termination of this
Agreement.
	 
	 	14.3	 	LESSEE shall maintain and preserve accurate drilling reports and logs
of each and every well drilled by it under this Agreement, and LESSOR shall have
the right to inspect the same at any and all reasonable times. LESSEE shall
provide LESSOR at LESSOR’S written request with copies of driller logs and
geophysical logs for the total depth of each drilled well. LESSEE shall furnish
LESSOR with such additional reasonable information as to the progress and results
of the drilling and as to its other operations under this Agreement as LESSOR shall
request. Such logs and drilling reports shall also show the depth of the well, and
the volume and original rock pressure of the coalbed methane, if any. LESSEE shall
also furnish LESSOR with copies of all electrical and radioactivity logs available
for each well, as LESSOR shall request.

Page 17 of 22

 

	15.	 	INDEMNIFICATION AND INSURANCE

	 	15.1	 	LESSEE assumes all liability for and agrees to indemnify, defend, and
hold harmless LESSOR and its affiliates and their respective officers, directors,
employees, agents and assigns from and against any and all damages, claims, loss
and expense (including attorneys’ fees) arising out of or in connection with
LESSEE’S use of the Leased Premises or the exercise of any right hereunder by
LESSEE; and it is expressly understood and agreed that during the Primary Term and
any continuance of this Agreement, the terms hereof shall be binding upon LESSEE,
its successors and assigns; and upon expiration or termination of this Agreement,
they and each of them, jointly and severally, shall remain liable to LESSOR under
the provisions of this Paragraph in connection with any claim which arose, or which
may be alleged to have arisen during the Primary Term or any continuance of this
Agreement.
	 
	 	 	 	As further protection to LESSOR, but without in any way limiting the scope of
the foregoing assumption of risk and indemnity, LESSEE shall at all times during
the Primary Term and any continuance of this Agreement maintain comprehensive
general liability and automobile liability insurance and workers’ compensation
and employer’s liability insurance with solvent insurance underwriters
satisfactory to LESSOR. The limits of liability of said liability insurance
shall not be less than $10,000,000 for injury to one person; $10,000,000 for
personal injuries in one accident; and $10,000,000 for property damage. LESSOR
shall be added as an additional insured as to policies for general liability and
automobile liability. Additionally, policies for general liability and
automobile liability shall be endorsed to expressly state that they are primary
as to any other valid and collectible insurance available to LESSOR, and said
insurance shall not be changed or cancelled without at least thirty (30) days
prior written notice to LESSOR.

	16.	 	TAXES

	 	16.1	 	LESSEE shall pay its portion of all taxes levied on the production,
use, or sale of Gas produced from the Leased Premises, and all taxes on the
receipts therefrom or taxes due by reason of LESSEE’S activities on the Leased
Premises of whatever nature or kind, either federal or state, or any subdivision
thereof. LESSEE shall pay ad valorem taxes levied upon its interests in the Leased
Premises and on all of its improvements, fixtures, and equipment. LESSOR shall pay
ad valorem taxes levied upon its interest in the Leased Premises and its share of
severance taxes and income taxes.

	17.	 	APPLICABLE LAW

	 	17.1	 	This Agreement shall be governed and interpreted by Title 9 of the U.S.
Code and by the laws of the State of Illinois and shall be subject to all
applicable state and federal laws and rules and regulations of public bodies having
jurisdiction over this Agreement.

Page 18 of 22

 

	18.	 	DISPUTE RESOLUTION — ARBITRATION

	 	18.1	 	In the first instance, any unresolved dispute between or among any of
the parties arising under this Agreement shall be attempted to be resolved by the
following procedures. Such a dispute resolution procedure shall be initiated by
any party giving written notice to the other parties of the matter in dispute.
Within twenty (20) days after the delivery of a notice of dispute, the Chief
Executive Officer or President of each of the parties, or their designees, shall
meet at a mutually acceptable time and place to exchange relevant information and
to attempt to resolve the dispute through good faith negotiations. Requests for
information shall be reasonable and responses shall be prompt and complete. If
the matter is not resolved within thirty (30) days after delivery of the notice to
commence, the parties shall be free to pursue arbitration as set forth below to
resolve the dispute.
	 
	 	 	 	Such matter or matters shall be referred to a board of arbitrators consisting of
three (3) disinterested, competent persons, one selected by LESSOR and one by
LESSEE, as hereinafter provided, and the two thus selected shall select the
third, who shall have the power of an umpire and be known as umpire-arbitrator.
The decision and award of such arbitrators, or any two of them, shall be
conclusive and binding upon LESSOR and LESSEE and promptly complied with.
	 
	 	 	 	The party desiring arbitration shall give written notice to the other party
definitively stating the point or points in dispute and naming the person
selected as arbitrator; and it shall be the duty of the other party, within
fifteen (15) days after receiving such notice, to name an arbitrator, and these
two arbitrators shall select the umpire-arbitrator; and in the event the party
notified does not name an arbitrator within said period of fifteen (15) days,
the party serving such notice may select a second arbitrator and the two thus
selected shall select the umpire-arbitrator.
	 
	 	 	 	In the event of failure of the two arbitrators, selected as aforesaid, within
thirty (30) days from receipt by both of them of notice of their selection, to
agree upon the umpire-arbitrator, then they shall jointly notify, in writing,
the parties of their failure to agree upon such umpire-arbitrator. The parties
shall then, within fifteen (15) days from the date of such notification, jointly
select the umpire-arbitrator. In the event the parties are unable to so select
the umpire-arbitrator within said fifteen (15) day period, they shall then
jointly select the names of three (3) potential umpire-arbitrators. None of
these three (3) potential umpire-arbitrators shall represent, or have any
affiliation with either party. Once the list of said three (3) potential
umpire-arbitrators has been prepared, each party shall then strike the name of
one (1) potential umpire-arbitrator from said list. The person remaining on
such list after the parties have stricken a name from said list shall be the
umpire-arbitrator. Further, in the event the parties fail to select such
umpire-arbitrator as aforesaid, either of the parties may apply to the American
Arbitration Association (AAA) for the appointment of an umpire-arbitrator
pursuant to the rules and procedures of the AAA for the

Page 19 of 22

 

	 	 	 	appointment of neutral arbitrators, as revised. The individual then designated
will act as such umpire-arbitrator hereunder.
	 
	 	 	 	The umpire-arbitrator thus chosen shall give to LESSOR and LESSEE written notice
as to the time and place of hearing, which hearing shall be not less than ten
(10) nor more than twenty (20) days after his selection, and, at the time and
place appointed, he shall proceed with the hearing unless, for some good cause
of which the arbitrators shall be the judge, it shall be postponed until some
later date within a reasonable time. Both LESSOR and LESSEE shall have full
opportunity to be heard, orally and in writing, on any question thus submitted.
In arriving at a decision and award, the arbitrators shall be bound by any
relevant state and federal law applicable to the substantive issue or issues so
submitted for arbitration, and they shall make such decision and award in
writing, and deliver a copy to both LESSOR and LESSEE. The arbitration award
shall specify by whom the costs of arbitration shall be borne and paid and the
amount of such costs, including reasonable compensation for the arbitrators.
Any meetings, hearings or arbitration regarding dispute resolution shall be held
in Nashville, Tennessee.

	19.	 	ENTIRE AGREEMENT AND AMENDMENT

	 	19.1	 	This Agreement constitutes the entire agreement between the parties
and supersedes any and all other written or oral agreements or understandings
between the parties concerning the subject matter hereof. No modification or
amendment of the terms and provisions of this Agreement shall be effective unless
in writing and signed by authorized persons of the parties.

	20.	 	RECORDING OF LEASE AGREEMENT

	 	20.1	 	It is specifically understood and agreed that this Agreement shall
not be recorded in full unless required by law and that only a short form of this
Agreement shall be placed of record. LESSEE shall be responsible for recording
the proper instruments and paying all costs associated therewith.

	21.	 	HEADINGS

	 	21.1	 	The paragraph headings contained herein are inserted for convenience
only and shall not control or affect the meaning or construction of any provision
in this Agreement.

	22.	 	ADDITIONAL DOCUMENTS

	 	22.1	 	The parties agree to execute such additional instruments, agreements,
or documents including without limitation a Memorandum of Lease, as may be
necessary to effectuate the intentions of this Agreement.

Page 20 of 22

 

	23.	 	MULTIPLE COUNTERPARTS

	 	23.1	 	This Agreement may be executed in multiple counterparts, each of which
shall constitute an original for all purposes, and all of which when taken together
shall constitute a single document.

	24.	 	SEVERABILITY

	 	24.1	 	If any provision of this Agreement or the application thereof to LESSOR
or LESSEE shall, for any reason and to any extent, be held to be invalid or
unenforceable, the remainder of this Agreement shall not be affected thereby, but
rather be enforced to the greatest extent permitted by law.

	25.	 	GENDER 

	 	25.1	 	As used in this Agreement, the neuter gender shall include the
masculine and the feminine, the masculine and feminine genders shall be
interchangeable, and the singular number shall include the plural and the plural
the singular where appropriate to effectuate the intent of the parties.

     IN WITNESS WHEREOF, this Agreement is executed by LESSOR and LESSEE in duplicate originals as
of the day and year first above written.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	LESSOR:	 	 
	 	 	IEC (MONTGOMERY), LLC,	 	 
	 	 	Its: Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Bruce Webster	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	President	 	 
	 
	 	 	 	 	 	 
	 	 	LESSEE:	 	 
	 	 	BPI ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James G. Azlein	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	President	 	 

Page 21 of 22

 

ACKNOWLEDGMENT

	 	 	 
	STATE OF ALABAMA

	 	) 
	 

	 	) 
	COUNTY OF JEFFERSON

	 	) 

I, the undersigned authority, a Notary Public, in and for said County in said State, hereby certify
that Bruce C. Webster, whose name is signed as President of IEC (Montgomery), LLC, to the foregoing
conveyance, he, as such officer and with full authority, executed the same voluntarily for and as
the act of said limited liability company.

Given under my hand and seal this the 20th day of April, 2006.

	 	 	 	 	 
	 

	 	/s/ Sandra Everest
 

NOTARY PUBLIC
	 	 

ACKNOWLEDGMENT

	 	 	 
	STATE OF OHIO

	 	) 
	 

	 	) 
	COUNTY OF PORTAGE

	 	) 

I, the undersigned authority, a Notary Public in and for said State and County, hereby certify that
James G. Azlein, whose name as President of BPI Energy, Inc., is signed to the foregoing
conveyance, and who is known to me, acknowledged before me on this day that, being informed of the
contents of the conveyance, he, with full authority, executed the same voluntarily on the day the
same bears date on behalf of said corporation.

Given under my hand and official seal, this the 25th day of April, 2006.

	 	 	 	 	 
	 

	 	/s/ Joyce M. Werner
 

NOTARY PUBLIC
	 	 

Page 22 of 22

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