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PERMIT TRANSFER AND OPERATING AGREEMENT <br />I This Permit Transfer and Operating Agreement ("Agreement`) is made and entered into effective <br />• this 12"' day of January, 2006, by and between Picketwire Processing, LLC and Lorencito Coal <br />Company, LLC, Kentucky limited liability companies, with offices at 4422 Bryan Station Road, Lexington, <br />Kentucky 40516, (collectively "the Companies") and New Elk Coal Company, a Kansas limited liability <br />company, with offices at 1202 Main Street, Goodland, Kansas 67735 ("New Elk"). <br />WITNESSETH: <br />A. The Companies are the holders and owners of Permit Nos. C-81-012 and C-96-084 <br />issued by the Colorado Division of Minerals and Geology ("DMG°) (the "Permits"). <br />B. The Companies desire to designate New Elk as the "Operator" to conduct coal processing <br />and reclamation activities under the Permits until the transfer date ("Transfer Date°) for each permit, <br />respectively, subject to the terms and condftions of this Agreement. <br />C. The Companies desire to transfer the permits to New Elk, and New Elk desires to <br />succeed to the Permit. <br />NOW, THEREFORE, for and in consideration of these premises and other good and valuable <br />• consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as <br />follows: <br />Designation of Operator. The Companies hereby designate New Elk as the Operator <br />under Permit Numbers C-81-012 and C-96-084, and shall, within thirty (30) days after the execution of this <br />Agreement, file with DMG any and all applications or notifications necessary to formalize such designation <br />with DMG. <br />2. Operator's Rights and Obligations. Effective on the date upon which New Elk is <br />recognized by the DMG as Operator under the Permits (the "Effective Date"), and continuing until the <br />Transfer Date for the Permits to the extent allowed by and in accordance with applicable law, the <br />Companies hereby grant New Elk the right to conduct coal processing and recamation activities on the <br />Permits prior to the Transfer Date; provided that if the DMG has not approved the transfer of the Permits <br />to New Elk within six (6) months of the Effective Date and released the bonds provided by the Companies <br />to secure the Permit, New Elk will cease all further activities on the area of the Permits until the Permits <br />n <br />U <br /> <br />