Mineral Buy and Sell Agreement

1.  

a.  

Seller agrees to convey to Buyer by quit claim deed all of its right, title and interest in and to the mineral property it acquired from Giffen Coal Mines Company as described above, together with all easements, rights-of-way, tenements, hereditaments, appurtenances and surface use rights owned by Seller and used or connected with the beneficial use or enjoyment of the mineral property.

b.  

Seller shall convey the mineral property free and clear of all mortgages, liens, claims, charges, encumbrances, leases, security interests and pledges, of any kind or nature, except for the royalty interest retained by Seller as provided in paragraph 3.a. below.

c.  

Attached hereto as Exhibit 2 and by this reference made a part of this Agreement is a Map entitled "Mineral Rights Owned by Russell B. Pace, Jr. and JBM Energy Company, LLC, Judith Basin County, Montana" showing the location of all the coal and other minerals owned by Pace and JBM in Judith Basin County, Montana.

2.  

 

Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Mineral Property as described above and all rights referred to in paragraph 1.a. above, for a total purchase price of One Million Nine Hundred Fifty Thousand U.S. Dollars ($1,950,000), payable to Seller, in cash, in the following manner.

a.  

The purchase price of $1,950,000 shall be paid by Buyer executing and delivering to Seller on the dosing date Buyer's negotiable Promissory Note in the above principal amount payable to Seller on the following terms and schedules:

iii.  

$100,000 90 days following completion of Reserve Study and Mining Plan

iv.  

$200,000 180 days following completion of Reserve Study and Mining Plan

v.  

The Note shall bear interest at the rate of five percent (5%) per annum, but no interest shall be due and payable by Buyer during the first two (2) years following the Closing Date hereunder.

vi.  

Interest only payments shall be made quarterly during the third and fourth years following the Closing Date hereunder.

vii.  

Commencing the fifth year following the Closing Date, the principal of One Million Two Hundred Fifty Thousand U.S. Dollars ($1,250,000) shall be paid in eight (8) equal quarterly installments, plus accrued interest on unpaid principal balance to date of each principal payment.

viii.  

Buyer shall have the right to prepay all or any part of the principal balance at any time without penalty.

ix.  

The entire principal balance and all accrued interest shall be accelerated and became immediately due and payable if the Buyer sells or transfers the coal property or the mineral property.

x.  

All of the above payments will be secured by a mortgage on the coal property and the other mineral property being conveyed by Seller and Russell B. Pace, Jr. to Buyer at Closing.  The form and substance of the Promissory Note and Mortgage shall be acceptable to Seller.

b.  

All payments made by Buyer hereunder shall be made by bank cashier’s checks or by bank wire to an account designated by Seller, as directed by Seller.

3.  

a.  

Seller will be paid a royalty equal to twenty percent (20%) of all royalties or other payments received by Buyer as a result of any lease of the mineral property being conveyed to Buyer hereunder, or any portion thereof, and twenty percent (20%) of all net cash proceeds and/or other considerations received by Buyer from the sale or other disposition of the mineral property being conveyed to Buyer hereunder, or any portion thereof.

b.  

At closing, Buyer will execute and deliver to Seller a document in form and substance acceptable to Seller establishing Seller’s right to the royalty described above, which document will be recorded in the office of the Judith Basin County Clerk and Recorder.  Upon any subsequent leasing, sale or other disposition of all or any part of the Mineral Property, Buyer will take all appropriate steps to notify the acquirer of any of the mineral rights of Seller’s royalty interest therein and to protect Seller’s royalty interest.

b.  

Seller shall have the right to require Buyer at Buyer’s expense to give an accounting of all information needed to support Seller’s right to the royalty payments due hereunder.

c.  

If the minerals are sold by the Buyer, other than after being mined by Buyer, Seller will receive ten percent (10%) of the net proceeds or other considerations received by Buyer after deducting the Buyer's total investment in the minerals and a 15% annualized return on Buyer's investment.

d.  

If the minerals are not sold but are transferred as an equity contribution in any development project, Seller will receive an equity interest equal to ten percent (10%) of the equity interest which Buyer receives in such projects as a result of the contribution of the minerals or any portion thereof, or ten percent (10%) of any other interests or considerations which Buyer receives as a result of such transfer of the minerals.

4.  

 

Seller has provided Buyer with certain documents, maps, reports and information concerning Seller’s coal and other mineral rights and its envisioned coal gasification facility in Montana, as well as other matters such as transmission possibilities, and CO2 use for enhanced oil recovery and sequestration.  Buyer agrees that it will conduct its own independent investigation of the mineral property and enters into this Mineral Agreement in full reliance thereon, and that there are no other agreements, verbal or otherwise modifying the terms of this Mineral Agreement, and that it has not relied upon any oral representations made by Seller.  Seller does not warrant the accuracy of any of the information or data contained in any of the documents or materials delivered, or to be delivered, by Seller to Buyer.

5.  

a.  

Seller had Stephan R. Granzow of Meadowlark Search search title on the mineral property.  Seller has delivered to Buyer title reports, abstracts and memoranda of title, prepared by Stephen R. Granzow, showing the chain of title to Seller’s coal and other minerals.  Seller has also delivered to Buyer a letter dated November 21, 2008 from Stephen R. Granzow, wherein Granzow states his opinion that under the Quit Claim Deed dated March 1, 1965, from Giffen Coal Mines Company to Russell B. Pace, Jr., recorded on October 15, 1969 in Book 156, page 186 in the Judith Basin Clerk and Recorder’s Office, Russell B. Pace, Jr. acquired 100% of all the coal and other mineral interests conveyed to him under said Quit Claim Deed, with the exception of 480 acres which may be owned by the Federal Government and 160.9 acres which may be owned by the State of Montana.

b.  

At the closing on the date hereinafter provided,

i.  

Seller will execute a Quit Claim Deed to Buyer of the mineral property being sold hereunder, conveying the property free and clear of all mortgages, liens, claims, charges, encumbrances, leases, security interests and pledges, of any kind or nature except for the royalty interest retained by Seller as provided in paragraph 3.a. above.  The Quit Claim Deed shall be in the same form and substance as the Quit Claim Deed which Seller received from its Seller, except that it will also include a provision reserving the royalties provided in paragraph 3.a. above.

ii.  

Buyer will execute a mortgage on the coal property and the other mineral property being conveyed by Seller and Russell B. Pace, Jr. to Buyer at closing, securing the payments due from Buyer to Seller and Pace under the Coal Agreement, Mineral Agreement, and the Consulting Agreement, and the delivery of the Stock under the Stock Agreement referred to in subparagraph 9.c. below, and all of the obligations of Buyer under all of the aforesaid Agreements.

c.  

Both the Quit Claim Deed executed by Seller and the mortgage executed by Buyer, as referred to in subparagraph 5.b.i. and ii. above, shall be placed in escrow under an Escrow Agreement containing terms and conditions acceptable to both Seller and Buyer.  When Buyer completes the drilling and produces the studies and mining plan as provided in paragraph 2 of the Coal Buy and Sell Agreement, and makes timely all payments provided for in subparagraph 3.a., 3.b. and 3.c.i. through 3.c.iii. of the Coal Buy and Sell Agreement, and all payments due under the Mineral Agreement and the Consulting Agreement, and delivers the stock under the Stock Agreement as provided, the Quit Claim Deed will be delivered to Buyer and recorded, and the mortgage will be delivered to Seller and recorded.  If there is any breach or default by Buyer as provided in paragraph 9 below, the Quit Claim Deed will not be delivered to Buyer but will be delivered back to Seller and not recorded, and the mortgage will be delivered back to Buyer and not recorded.

d.  

Buyer shall have until 5 PM, PDT, March 31, 2010 to complete Buyer’s due diligence and to review all title documents and reports, and to advise Seller by email whether it accepts title, and commits to proceed to closing on the closing date hereafter provided.  If Buyer fails to give the email notice at the time provided above or fails to accept title, Seller may terminate this Agreement, in which event this Agreement shall be null, void and of no further force and effect.  Buyer is not obligated to proceed to closing unless it accepts title, and is satisfied with Buyer’s due diligence.

6.  

7.  

a.  

Seller is an individual who has the power to own his properties and to carry on his business as it is now being conducted.

b.  

There are no liabilities and there is no indebtedness of Seller which, in any way, would impair the right of Seller to enter into this Mineral Agreement or to perform under it.

c.  

There are no pending or threatened claims, made on behalf of anyone against Seller, or the mineral property, nor are there pending or threatened actions, suits, proceedings or investigations against or affecting seller, or the mineral property, at law or in equity, before any federal, state or local court, board or other governmental or administrative agency.

d.  

Seller is not in violation of any law, regulation or rule, or of any writ, judgment, injunction, order or decree of any court or government authority.

e.  

Seller has the requisite authority to execute, deliver and  perform this Mineral Agreement and all other agreements or instruments to be executed by Seller pursuant to this Mineral Agreement.  This Mineral Agreement constitutes, and such other agreements and instruments will constitute, the legal, valid and binding obligation of Seller which are or will be enforceable against Seller in accordance with their respective terms.

f.  

The execution, delivery and performance of the Mineral Agreement will not result in the violation of any statute, regulations, judgment, writ, injunction or decree of any court or other agency.

g.  

The representations and warranties contained in the Paragraph 7 shall be true, on and as of the closing date, with the same force and effect as though made on and as of the closing date, and shall survive and remain in effect following the closing date.

8.  

a.  

Buyer hereby incorporates into this Mineral Buy and Sell Agreement, and by this reference makes as a part hereof, all of the Representations and Warranties of Buyer as set forth in paragraph 9 of the Coal Buy and Sell Agreement between Buyer and JBM Energy Company, LLC executed of even date herewith.

9.  

a.  

Buyer’s Breach:  In the event that Buyer fails to timely pay to Seller any installment payment of the Purchase Price as set forth in paragraph 2 above, or fails to perform any agreement, covenant, representation or warranty under this Mineral Agreement, which failure (other than the failure to make timely payments where no notice is required) is not cured within thirty (30) days after written notice thereof by Seller to Buyer, Seller may at Seller’s option (i) deem this Mineral Agreement terminated, null, void and of no further force and effect at which time Buyer shall have no further rights or liabilities under this Mineral Agreement and all payments made by Buyer shall be deem forfeited and non-refundable, or (ii) initiate action for any other remedy at law or in equity permitted under Montana law including, without limitations, an action for specific performance.  In the event the Buyer defaults under or breaches this Mineral Agreement, it will deliver to Seller all of the drill hole records, maps, reports, core hole tests, feasibility studies, reserve studies and evaluations, mining plans, permits, applications, and all other information and data gathered or developed by Buyer or on its behalf with respect to the coal and other minerals.  Any permits, licenses or other authorizations obtained will be assigned or transferred from Buyer to Seller if permitted by law.

b.  

Seller Breach: In the event the Seller fails to perform any agreement, covenant, representation or warranty under this Mineral Agreement, and Buyer is at that time ready, willing and able to perform all obligations by Buyer to be performed, Buyer may at Buyer’s option: (i) deem this Mineral Agreement terminated, null, void and of no further force or effect, at which time Seller shall have no further rights or liabilities under this Mineral Agreement, or (ii) initiate action for any other remedy at law or in equity permitted under Montana law including, without limitation, an action for specific performance.

c.  

Sale Contingency: JBM Energy Company, LLC (JBM) and Buyer have entered into a Coal Buy and Sell Agreement of even date herewith whereby Buyer is purchasing all the coal owned by JBM and acquired under Quit Claim Deed from Russell B. Pace, Jr. dated July 8, 2005 (“Coal Property”), and Pace and Buyer have entered into a Consulting Agreement and a Stock Agreement, both of even date herewith.  If Buyer does not close the purchase of the Coal Property on the Closing Date set forth in paragraph 6 above, or fails to timely make the payments due under this Mineral Agreement, the Coal Agreement and the Consulting Agreement, and fails to make timely delivery of the stock under the Stock Agreement, or fails to perform any agreement, representation or warranty under these Agreements, the Seller hereunder has the option to (i) terminate this Mineral Agreement in which event it will be null, void and no further force or effect, and all payments made by Buyer and stock delivered by Buyer shall be deemed forfeited and non-refundable, or (ii) initiate action for any other remedy at law or in equity permitted under Montana law including, without limitation, an action for specific performance.

10.  

11.  

 

In the event of any litigation to construe and/or enforce the terms of this Mineral Agreement, the party prevailing in such action shall be entitled to recover its reasonable attorney’s fees and costs in addition to any other damages or relief to which such party may be entitled.

12.  

 

Both parties agree that facsimile signatures by any party will be treated as original signatures for the purpose of this transaction.

13.  

 

Any and all notices required under this Mineral Agreement shall be in writing and shall be served upon the respective parties at the addresses shown below or to such other address as the parties may designate by written notice to the other.

 

Any notice to be given under this Mineral Agreement shall be sent by:

a.  

Certified mail, return receipt requested, in which case notice shall be deemed delivered five (5) business days after deposit, postage prepaid in the United States Mail; or

b.  

a nationally recognized overnight courier, in which case notice shall be deemed delivered three (3) business days after deposit with that courier.

14.  

 

This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument; and the parties may execute copies sent by telefacsimile, and return signed copies by telefacsimile.  Copies signed and returned by telefacsimile shall be deemed and considered executed counterparts, but a party executing a copy and transmitting same by telefacsimile shall promptly mail or overnight to the other parties copies bearing the transmitting party’s original signature.

15.  

16.  

 

Seller and Buyer shall not disclose any terms or provisions of this Mineral Agreement to any other persons except to professionals who require such information in the performance of this Mineral Agreement, and both parties will treat all information disclosed to it as confidential information and will not make further disclosure to third parties without the consent of the disclosing party.