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05/10/2001 12:11 F.4S DORSEY & WHITNEY <br />III IIIIIIIIIIIII III <br />DORSLY ~ WHITNEY LLP <br />NINrve.VOLIS REPUBLIC PLAZA nU1LDING. SUITE 4700 <br />uaw rOAK 370 SEVENTEENTH STREE7 <br />xIIATTLG DENVER, COLORADO 80202-5647 <br />DENVR0. <br /> TeLBPHONe: (303) 629-3400 <br />wwsHlNCrDN, D.c. <br /> PAX: (303) 629-3450 <br />NORTHERN VIADINin <br />DEx MOINes www.dorseylaw.com <br />LONDON ROBERT A BASSEI'T <br /> (909)628-1616 <br />ANCxonnce FAI[ (303) 6249450 <br />xnLr LAID: nn bacaett.bab®dorceylaw.DOm <br /> May 9, 2001 <br />Mr. Bobby Hill, Managing Partner <br />Hil] Ranch <br />3974-C Highway 67 Wes[, <br />Route 1, Box 238C <br />Glen Rose, TX 76043 <br />Mr. Dickie Hill <br />F.E. Hill Co. <br />110 N. Keechi <br />Fairfield TX 75840 <br />Deaz Bobby and Dickies <br />fmooz <br />Dl1UaaELa <br />roars Fvxn <br />nuurvcx <br />Pn400 <br />HONG KONf. <br />GREAT Fnlt$ <br />AocHESreA <br />'roevo <br />NDxOUiA <br />VnNCUUVE0. <br />1MnNOHn1 <br />This letter of intent confirms our discussions regazding a coal lease and a surface use <br />agreement between our client, Lorencito Coal Company, LLC ("Lorencito"), Hill Ranch and and <br />FR Hill Jr. d/b/a F.E. Hill Co. (the "Lessors") and evidences the good faith intention of Lessors <br />and Lorencito to proceed on the following basic terms and conditions. This letter contains the <br />general basis of negotiations which, if successfully concluded, will Insult in a definitive Coal <br />Lease Agreement and a definitive Surface Use Agreement (the "Agreements"). <br />1. Lased Assets. Tn the Agreements, Lessors will lease to Lorencito, for the <br />purpose of exploring, developing, mining, removing, preparing and loading Lessor's interest in <br />the coal from the surface to the bottom of the Primero seam lying in, under and upon property <br />located in Las Animas County, Colorado described on Exhibit A hereto (the "Leased Lands") <br />and containing approximately 3,000 acres (the remainder of the approximately 17,861.84 Hill <br />Ranch surface and coal shall be subject to future leasing by Lorencito according to the <br />Agreements), and all surface rights necessary to mine the coal, during the term of the <br />Agreements and subject to the limitations and conditions to be provided in the Agreements. <br />Pursuant to those deeds recorded in the real property records of Las Animas County in Book 906 <br />az Page 745, Book 906 at Page 759, and Book 912 at Page 924, the Hills are the owners of an <br />undivided 46.54%D of all minerals, including coal, in or upon the Leased Lands, and an undivided <br />g <br />