MGS Draft
3-7-06
MOHAVE MEDIATION
MEMORANDUM OF RECOMMENDED
NON-ECONOMIC TERMS

	The negotiating team representatives identified below have been engaged in confidential discussions pursuant to the JAMS Mediation Agreement between their respective parties.  The mediation has resulted in the proposed non-economic terms set forth below related to the potential Return to Service (as defined herein) of the Mohave Generating Station.  The undersigned acknowledge that they do not have the authority to bind their respective principals and parties, that these non-economic terms are therefore not binding on any party, and are subject to the review and approval of their respective principals and governing and regulatory bodies.  Moreover, the undersigned understand that these non-economic terms are subject to the negotiation and execution of satisfactory binding and enforceable definitive agreements, including the agreements described on Exhibit 1 hereto (the “Definitive Agreements”) incorporating these terms, and other terms and conditions set forth in the Memorandum of Economic Terms dated February 8, 2005, executed by the negotiating team representatives.  This Memorandum is intended to supersede the terms of the Key Principles of the C-Aquifer Agreements dated September 30, 2004, but is not intended to modify the parties’ rights and obligations under the Memorandum of Understanding dated March 4, 2004.

	The undersigned acknowledge that the following non-economic terms represent the agreed result of the mediation and agree to present them to their respective principals.  However, the undersigned also acknowledge that there are no representations or assurances that the terms will be adopted by any of the parties, or that the parties will be able to agree upon the terms and conditions of the Definitive Agreements.

After execution of this Memorandum and the Memorandum of Recommended Economic Terms by all parties, the MGS Owners and NGS Owners together will make a one-time grant in the amount of $150,000 to each of the Navajo Nation and the Hopi Tribe, to be used for social service programs for which funding has been reduced as a result of the shut-down of Mohave Generating Station operations.
This Memorandum assumes that the Bureau of Reclamation will operate the C-Aquifer Project, subject to reimbursement by the MGS Owners.  This Memorandum also assumes the enactment of the Navajo-Hopi Coal Leasing Settlement Act in the form set forth in Exhibit 2 hereto.  
I.	EFFECTIVENESS AND TERMINATION OF DEFINITIVE AGREEMENTS
A.	Effectiveness of the Definitive Agreements
The Parties shall execute the Definitive Agreements upon the receipt of all necessary corporate, Tribal, or Council approvals.
1.	The Tribes shall, prior to execution of the Definitive Agreements, conduct such due diligence review of Peabody’s past operations as they shall deem necessary to grant the waivers of certain natural resources damages claims described in Section IV below.  Peabody’s responsibility for cooperating with the Tribe’s due diligence will be to comply with the requirements set forth in Section IV.A.2 below, and to respond in good faith to reasonable requests by the Tribes in their due diligence process
2.	The (i) obligation to make the NGS and Peabody Royalty Advances and MGS Extension Option Payments described in the Memorandum of Recommended Economic Terms (but not the increased MGS Extension Option Payments set forth in Section I.B.3 below), and (ii) parties’ termination rights (but not the termination payment obligations of the MGS Owners, if any), as set forth below, shall be effective and enforceable by the parties upon execution of the Definitive Agreements.  The MGS Extension Option Payment payable to each Tribe upon execution of the Definitive Agreements shall be increased from $1 million to $3 million.  The other MGS Extension Option Payments will be made on a quarterly basis and will not be retroactive for periods pre-dating execution of the Definitive Agreements.  In addition, the Definitive Agreements will provide that, effective upon execution thereof:
a.	The MGS Owners and NGS Owners will establish an MGS/NGS Hopi Education Fund and MGS/NGS Navajo Education Fund, and together will deposit $250,000 into each fund, for each year during the term of the Definitive Agreements.  The funds will be used for scholarships, educational programs, or other activities related to the preservation of Tribal cultures.  
b.	The Tribes will agree not to grant third parties any rights to use the C-Aquifer or the N-Aquifer that would interfere with the MGS Owners’ ability to make the Decision to Proceed (as defined in Section I.B below).  
3.	Other than the provisions related to enforcement of the obligations set forth in Section I.A.2 above, the remaining provisions of the Definitive Agreements shall not become effective until:
a.	Passage of the Navajo-Hopi Coal Leasing Settlement Act, in the form of Exhibit 2 hereto.  
b.	Execution by the Secretary of the Interior (“Secretary”) of Section 323 Grants (and extensions of existing grants) for the C-Aquifer Project and Black Mesa Pipeline, and approval by the Secretary of Section 415 leases for the C-Aquifer Project and amendments to Peabody coal leases, in the forms to be agreed to by the parties and attached to the Definitive Agreements.
Until the passage of the Navajo-Hopi Coal Leasing Settlement Act, the parties’ claims for breach of the obligations described in this Section I.A.2 shall be subject to the arbitration provisions described in Section II.B below, except that the arbitrator’s decision may be enforced by the Tribes in state court.  

B.	Decision to Proceed with Extension of MGS Operations
After the Definitive Agreements have become effective pursuant to Section I.A.3 above, the MGS Owners shall, in their sole judgment, decide whether to proceed with the extension of MGS operations (“Decision to Proceed”), in accordance with the following provisions.  Notice of the Decision to Proceed shall be provided in writing to all parties to the Definitive Agreements.  Except for (i) the matters described in Section  I.A above, (ii) the increased MGS Extension Option Payments set forth in Section I.B.3 below, and (iii) the termination payment obligations of the MGS Owners set forth below, the parties’ rights and obligations under the Definitive Agreements shall be conditioned upon the Decision to Proceed.
1.	Upon making the Decision to Proceed, the MGS Owners will make the following payments to the Tribes:
a.	$5 million initial payments for C-Aquifer Project right-of-ways.
b.	$1.725 million (Navajo) and $1.275 million (Hopi) initial payments for Black Mesa Pipeline right-of-ways.  
c.	Commencement of $2.5 million (Navajo) and $1.25 million (Hopi) annual payments in lieu of taxes.
d.	$2.5 million to the Hopi Tribe for J-23 ROW.
2.	Upon making the Decision to Proceed, the MGS Owners shall begin, and the Tribes shall cooperate with, construction of the C-Aquifer Project, as specifically described in the Definitive Agreements.  In connection with the construction of the C-Aquifer Project, the MGS Owners shall (a) loan the Hopi Tribe up to $5 million to fund construction of Hopi Hart Ranch wells, connection of such wells to the C-Aquifer Pipeline, and upsizing of the C-Aquifer Pipeline, at 5% interest, to be repaid in five equal annual installments starting in 2015 (except that if the MGS Owners terminate the Definitive Agreements for any reason after funding such loan, any outstanding loan payments will be forgiven at such time), and (b) design, construct and operate the C-Aquifer Project well field with a capacity of 7,000 acre feet per year (“afy”), and allow 1000 afy of well field capacity to be dedicated to Navajo Nation on-reservation domestic and municipal uses (including commercial, but excluding industrial uses except for industrial uses existing as of January 1, 2006 and up to ___ afy for the 1.5 MW El Paso Natural Gas Waste Heat Generation Project to provide electric service in the Leupp area) (“Navajo Uses”) in accordance with Section VI below.
3.	If the MGS Owners have not made the Decision to Proceed (or given notice to terminate the Definitive Agreements) by July 1, 2008, the MGS Extension Option Payments set forth in the Memorandum of Recommended Economic Terms shall continue until the MGS Owners make the Decision to Proceed (or give notice to terminate the Definitive Agreements or the Tribes give notice to terminate the Definitive Agreements as set forth below) and, upon the effectiveness of the Definitive Agreements in accordance with Section I.A.3 above, shall increase to $5 million per year (made retroactive to January 1, 2008).
C.	Rights of Tribes to Terminate the Definitive Agreements
1.	Either Tribe may terminate the Definitive Agreements if the Decision to Proceed is not made by July 1, 2008.
2.	A Tribe must exercise this termination right by the earlier of (a) October 1, 2008 or (b) the Decision to Proceed.  If the Tribes do not exercise such right by that date, either Tribe may only terminate the Definitive Agreements after July 1, 2009, if the Decision to Proceed is not made by that date.
3.	Upon termination of the Definitive Agreements by a Tribe:
a.	The parties will notify the courts that the stays in Navajo Nation v. Peabody Holding Co., et al., CA No. 99-0469 (D.D.C.) (the “RICO Suit”), and Navajo Nation v. Peabody Coal Co., CA No. 93-2342 (D. Ariz.) (the “Arizona Suit”) should be terminated.
b.	The MGS Owners shall have no payment obligations related to a Tribe’s termination.
D.	Rights of MGS Owners to Terminate the Definitive Agreements
The MGS Owners may terminate the Definitive Agreements at any time (the “Termination Decision”).
1.	The following provisions shall apply if the Termination Decision occurs before the Decision to Proceed: 
a.	If the Termination Decision is made before July 1, 2008, the MGS Owners will make MGS Extension Option Payments, if any, that would otherwise be made through July 1, 2008.  
b.	If the Termination Decision is made after July 1, 2008, then the MGS Owners shall pay a termination payment of $6 million to each Tribe, payable in two installments of $3 million each, on January 1 of the two years following the Termination Decision.
c.	The MGS Owners shall have no other payment obligations related to the Termination Decision.
2.	The following provisions shall apply if the Termination Decision is made after the Decision to Proceed, but before the MGS Owners notify the California Independent System Operator that MGS has resumed commercial operation and after installation of all equipment required by the Consent Decree, as may be modified by the parties thereto and approved by the Nevada court (a “Return to Service”):
a.	If the Termination Decision results from a Force Majeure condition, then the MGS Owners shall have no payment obligations related to the Termination Decision.  
i.	A Force Majeure condition shall include, without limitation: (A) any single change in law, regulation, regulatory implementation order or court order beyond the MGS Owners’ control that increases, over the term of the Definitive Agreements with respect to such change, the projected capital expenditures (not including any cost overruns associated with installation of equipment required by the Consent Decree) and operating costs required for MGS operations by more than the applicable MGS Cost Threshold, as defined below; or (B) any additional limitations beyond the MGS Owners’ control on the pumping or transportation of C-Aquifer Project water, if the projected cumulative costs of remedying such limitations exceed the applicable C-Aquifer Cost Threshold, as defined below.
ii.	The MGS and C-Aquifer Cost Thresholds shall mean:
Date of Termination Decision	MGS Cost Threshold	C-Aquifer Cost Threshold	
Before December 31, 2012	$150,000,000	$30,000,000	
Between January 1, 2013 and December 31, 2020	$87,500,000	$20,000,000	
After January 1, 2021	$50,000,000	$10,000,000	

b.	For any Termination Decision unrelated to a Force Majeure condition, the MGS Owners shall pay a termination payment of $15 million to the Navajo Nation and $7.5 million to the Hopi Tribe, payable in equal annual payments over a five year period commencing on the January 1 following the Termination Decision.  The MGS Owners shall have no other payment obligations related to the Termination Decision.
c.	The C-Aquifer well field improvements will be transferred to the Navajo Nation or, in the sole discretion of the Navajo Nation (and subject to the prompt exercise of that discretion), abandoned in compliance with then-applicable standards under federal and state laws respecting abandonment of such wells and improvements applicable generally to non-Indian lands in Arizona.
d.	The C-Aquifer Pipeline improvements will be transferred to the Tribes or, in the sole discretion of the Tribes (and subject to the prompt exercise of that discretion), abandoned in compliance with then-applicable standards under federal and state laws respecting abandonment of such wells and improvements applicable generally to non-Indian lands in Arizona.  If the Tribes have not reached agreement on whether the improvements will be transferred, the improvements may be transferred to the federal government in trust for the Tribes.  Pipeline improvements funded by the MGS Owners will be transferred to the Tribes on a 50/50 ownership/capacity basis, and any upsizing funded by a Tribe shall inure to that Tribe’s right to capacity in the pipeline improvements.  If the Tribes have not reached agreement on a plan of operation for the pipeline, operational responsibility may be transferred to the federal government for the benefit of the Tribes.  
i.	The MGS Owners will be held harmless from any disputes that arise between the Tribes with respect to ownership or operation of the C-Aquifer Pipeline after transfer to or by the Tribes or the federal government.
e.	In connection with the transfer of any such improvements, the MGS Owners will assign all construction plans and drawings and, to the extent assignable, all construction contract rights and permits, to the assignee.  The improvements will be transferred “as is”, without any warranties from the MGS Owners.
3.	If the Termination Decision is made after MGS Returns to Service:
a.	If the Termination Decision results from a Force Majeure condition, then the MGS Owners shall have no notice or payment obligations related to the Termination Decision.
i.	A Force Majeure condition shall include, without limitation: (A) any single change in law, regulation, regulatory implementation order or court order beyond the MGS Owners’ control that (1) increases, over the term of the Definitive Agreements with respect to such change, the projected capital expenditures and operating costs required for MGS operations by more than the applicable MGS Cost Threshold, as defined in paragraph 2.a.ii above, or (2) limits MGS’s operating hours, operating levels or operations so that MGS’s projected maximum annual capacity factor is reduced by more than 15 percentage points; or (B) any additional limitations beyond the MGS Owners’ control on the pumping or transportation of C-Aquifer Project water, if the projected cumulative costs of remedying such limitations exceed the applicable C-Aquifer Cost Threshold, as defined in paragraph 2.a.ii above.
b.	For any Termination Decision unrelated to a Force Majeure condition, the MGS Owners shall provide to the Tribes four years’ notice of the Termination Decision.  If the MGS Owners fail to provide the full four years’ notice, then the MGS Owners shall pay an Annual Termination Penalty for each year for which the MGS Owners have not provided the full four years’ notice or, if less, the years remaining in the term of the Definitive Agreements, calculated in accordance with the formula below.  The Termination Penalty shall be paid 2/3 to the Navajo and 1/3 to the Hopi, and shall be payable starting upon termination of the Definitive Agreements.
					Annual Termination Penalty = A x B, where

		A is the Target MGS Gross Realization Rate as set forth in Schedule 2 to the Memorandum of Recommended Economic Terms for the year in which termination is effective, and

	B is 7.50% of the annual forecast tonnage (5.4 million tons/year) for MGS = 405,000 tons.

	Examples:  Assume that the MGS Owners make a Termination Decision effective January 1, 2020 unrelated to a Force Majeure condition.  

i.	As long as notice of the Termination Decision is provided to the Tribes on or before January 1, 2016, there will be no Termination Penalty.
ii.	If notice is given after January 1, 2016 but on or before January 1, 2017, the Annual Termination Penalty would be $13,115,995 (2020 Target MGS Gross Realization Rate of $32.385/ton x 405,000 tons), and would be paid on January 1, 2020.  
						Total payment to Navajo: 		$  8,743,950 
	Total payment to Hopi:    		$  4,371,975 
	Total payment by MGS Owners:	$13,115,925 

iii.	If notice is given after January 1, 2017 but on or before January 1, 2018, the Annual Termination Penalty would be paid on January 1, 2020 and 2021.
						Total payment to Navajo: 		$17,487,900  							(2x $8,743,950)
						Total payment to Hopi:    		$  8,743,950  							(2x $4,371,975) 
						Total payments by MGS Owners:	$26,231,850 

iv.	If notice is given after January 1, 2018 but on or before January 1, 2019, the Annual Termination Penalty would be paid on January 1, 2020, 2021 and 2022.
						Total payment to Navajo: 		$26,231,850  							(3x $8,743,950)
						Total payment to Hopi:     		$13,115,925  							(3x $4,371,975)
						Total payment by MGS Owners:	$39,347,775 

v.	If notice is given after January 1, 2019, the Annual Termination Penalty would be paid on January 1, 2020, 2021, 2022 and 2023.
						Total payment to Navajo: 		$34,975,800  							(4x $8,743,950)
						Total payment to Hopi:     		$17,487,900 							(4x $4,371,975)
						Total payment by MGS Owners:	$52,463,700 

c.	The MGS Owners shall have no other payment obligations related to the Termination Decision.
d.	The C-Aquifer well field will be transferred to the Navajo Nation.  Peabody will purchase C-Aquifer water from the Navajo Nation for Kayenta mine use at the rate of $750 per acre foot.  If C-Aquifer water is not available, Peabody may continue to use N-Aquifer water for Kayenta mine uses and shall pay the rate set forth in Section VI.B.1.b below.  
e.	The C-Aquifer Pipeline will be transferred to the Tribes.  Pipeline improvements funded by the MGS Owners will be transferred to the Tribes on a 50/50 ownership/capacity basis, and any upsizing funded by a Tribe shall inure to that Tribe’s right to capacity in the pipeline improvements.  If the Tribes have not reached agreement on a plan of operation of the C-Aquifer Pipeline, operational responsibility may be transferred to the federal government for the benefit of the Tribes.
i.	The MGS Owners will be held harmless from any disputes that arise between the Tribes with respect to ownership or operation of the C-Aquifer Pipeline after transfer to or by the Tribes or the federal government.
f.	Any Hopi Hart Ranch well field improvements and infrastructure developed by the MGS Owners pursuant to Section VI.B.2.c below and dedicated to MGS Uses will be transferred to the Hopi Tribe.
g.	In connection with the transfer of the C-Aquifer Project, the MGS Owners will assign all construction plans and drawings and, to the extent assignable, all construction contract rights and permits, to the assignee.  The MGS Owners will design, construct, operate and maintain the C-Aquifer Project in accordance with standard industry practices with the objectives of reducing the likelihood of any reduction or cessation of project operations and the length of time needed to rely on the N-Aquifer or other backup water sources for mine-related uses, and providing facilities that are in good working order upon transfer to the Tribes, provided that the MGS Owners shall not warrant or be liable for the condition of the C-Aquifer Project after such transfer.  Prior to executing the Definitive Agreements, the parties will discuss appropriate comprehensive maintenance practices, replacement measures and other steps consistent with the foregoing objectives.  Further, after the C-Aquifer Project commences operations, the MGS Owners will meet periodically with the Tribes to review steps taken to further the reliability of the C-Aquifer Project, and provide the Tribes with annual reports of maintenance and operation of the project.  In addition, the MGS Owners will design and operate the C-Aquifer Pipeline consistent with an expected 50 year useful life.
4.	Unless sooner terminated by the Tribes or the MGS Owners, the Definitive Agreements will terminate on [July 1, 2026].  The provisions of Sections I.D.3.d, e, f and g above will apply with respect to such termination.
E.	Dismissal of Litigation
1.	The Parties will voluntarily dismiss with prejudice all complaints, claims, and counterclaims asserted in the RICO Suit and the Arizona Suit upon a Return to Service.  
2.	If there is no Return to Service, the following amounts shall be credited against any judgment received by a Tribe in the RICO Suit:
a.	Any payments received by a Tribe pursuant to Sections I.B.1.a, b and d above shall be credited against any judgment received by that Tribe.  
b.	Any termination payments received by a Tribe pursuant to this Section I (including the amount of any outstanding loan to the Hopi Tribe that was forgiven as provided in Section I.B.2(a) above) shall be credited against any judgment received by that Tribe.
c.	If either the Navajo Well Field (as defined in Sections VI.A.1 and VI.A.2 below) or C-Aquifer Pipeline (i) is completed by the MGS Owners and transferred to the Tribes, or to the federal government in trust for the Tribes, or (ii) is not completed by the MGS Owners but transferred to and completed by the Tribes, or to or by the federal government in trust for the Tribes, (x) all amounts expended by the MGS Owners for construction of the Navajo Well Field shall be credited against any judgment received by the Navajo Nation, and (y) one-half of all amounts expended by the MGS Owners for construction of the C-Aquifer Pipeline shall be credited against any judgment received by the Navajo Nation and Hopi Tribe.  
d.	All amounts, if any, expended by the MGS Owners for developing the Hopi Hart Ranch well-field infrastructure for MGS Uses, provided that such infrastructure is completed (by the Hopi Tribe or the MGS Owners) and transferred to the Hopi Tribe, shall be credited against any judgment received by the Hopi Tribe.  
e.	All amounts, if any, (i) expended by Peabody for the Many Mules water project described in the Memorandum of Recommended Economic Terms and any other infrastructure projects for the benefit of the Navajo Nation shall be credited against any judgment received by the Navajo Nation, and (ii) funded by Peabody for expansion of a Hopi Tribal water infrastructure project described in the Memorandum of Recommended Economic Terms or any other infrastructure projects for the benefit of the Hopi Tribe shall be credited against any judgment received by the Hopi Tribe.  
3.	In addition, to the extent the MGS Owners are subject to any claims for contribution to any final judgment received by a Tribe in the lawsuits entitled Navajo Nation v. United States, No. 93-763 (Fed. Cl.) and/or Hopi Tribe v. United States, No. 00-217 (Fed. Cl.), the receiving Tribe shall indemnify the MGS Owners against any such contribution claim up to the amount that would be credited against any judgment in the RICO Suit received by that Tribe pursuant to Section I.E.2 above, provided that such amounts have not previously been credited to any judgment received by that Tribe in the RICO Suit.  For purposes of clarification, the payments described in Section I.E.2.a above shall not include any payments received by a Tribe for any year after the year in which the Decision to Proceed was made.
4.	The Parties will agree to stay the RICO Suit and the Arizona Suit until the parties jointly notify the courts that the litigation shall be dismissed with prejudice or reinstated as a result of a termination of the Definitive Agreements.  The parties will also agree to a discovery plan to preserve evidence during the stay necessary to pursue the litigation if the stay is terminated.  
F.	Return to Service Bonus
	During the term of the Definitive Agreements, the MGS Owners will pay the Navajo Nation $1 million, and the Hopi Tribe $500,000, upon each five year anniversary of MGS’s Return to Service.
II.	DISPUTE RESOLUTION
A.	Good Faith Efforts to Resolve Disputes
Prior to initiating arbitration or federal court proceedings, the parties as to whom the dispute exists shall first attempt in good faith to resolve any dispute arising out of the Definitive Agreements promptly by face-to-face negotiation at a mutually convenient time and location between or among senior officers and/or executives who have authority to settle the controversy.  All such negotiations are confidential and shall be treated as compromise and settlement negotiations such that such negotiations shall not be admissible in evidence.  No party shall initiate arbitration or federal court proceedings until the earlier of (1) the completion of at least one face-to-face negotiation or (2) thirty (30) days after a request for such face-to-face negotiations, provided that the parties may seek a temporary restraining order or preliminary injunctive relief in the United States District Court for the District of Arizona (the “Arizona Court”) to preserve the status quo ante as provided in the Definitive Agreements pending such good faith negotiations and dispute resolution.  If the MGS Owners use water from the N-Aquifer while any negotiations or dispute resolution proceedings are pending, the provisions of Section III.D below shall apply with respect to all quantities of N-Aquifer water used by the MGS Owners.
B.	Forum
The forum for the resolution of all disputes arising under the Definitive Agreements (i) between the MGS Owners or NGS Owners on the one hand, and one or both Tribes on the other hand, and (ii) between Peabody on the one hand, and one or both Tribes on the other hand, shall be either binding arbitration pursuant to the Definitive Agreements or the Arizona Court based upon the issues involved in the dispute, as follows:
1.	Claims Subject to Arbitration – Unless the affected parties agree otherwise, and except for claims described in paragraph 2 below, any and all disputes arising under the Definitive Agreements shall be subject to arbitration, except for claims alleging a failure to make payments to the Tribes by the MGS Owners, NGS Owners or Peabody as required under the Definitive Agreements for which there are existing federal administrative regulatory processes governing such payments, including any federal administrative regulatory processes governing the payment of royalties under the Peabody Coal Leases.
2.	Claims Subject to Initiation in Federal Court – Unless the affected parties agree otherwise, any and all disputes of the following types shall be brought initially by an aggrieved party in the Arizona Court, but in any such case the determination of damages shall be subject to arbitration as set forth below:
a.	Alleging or arising from (i) an interruption or reduction caused by one or both Tribes in the supply of C-Aquifer Project water that requires the use of any backup water supply described in Section VI.B below, or (ii) an interruption caused by one or both Tribes in the supply of coal to MGS or NGS (x) for more than 120 hours during any 30 day period or (y) if such interruptions occur in each of two consecutive 30-day periods for an aggregate interruption of more than 60 hours (the Tribes shall agree in the Definitive Agreements not to interfere with the supply of coal and C-Aquifer Project water to MGS or NGS); 
b.	Relating to (i) pumping from either the C or N Aquifers by the MGS Owners or Peabody, or (ii) pumping by the Tribes that threatens an interruption or reduction in the supply of water to the MGS Owners or Peabody;
c.	Alleging or arising from violations of the Navajo-Hopi Coal Leasing Settlement Act or any waivers of liability provided by the parties pursuant to the Definitive Agreements; and/or
d.	Any request for a temporary restraining order or preliminary injunction in a claim otherwise subject to arbitration and for the sole purpose of maintaining the status quo ante pending arbitration. Such temporary or preliminary requests for injunctive relief to maintain the status quo pending dispute resolution are available for any interruption or reduction in the supply of coal or water caused by any party, notwithstanding the length of such interruption or reduction.  Such preliminary injunctive relief shall not prohibit operation of the C-Aquifer Project during the pendency of any dispute.
With respect to disputes under paragraphs (a) through (c) above, the Arizona Court shall have the authority to determine the merits of the parties’ claims and grant injunctive and declaratory relief, including ordering specific performance of any provision of the Definitive Agreements, but shall not have the authority to award damages, other than contempt or related sanctions (including compensatory sanctions) for a party’s failure to comply with any order of the court.  Except for contempt or related sanctions (including compensatory sanctions) for such failure to comply, the determination of damages, if any, for breach of the Definitive Agreements shall be subject to arbitration as set forth in Section II.C below, provided that the findings of the Arizona Court shall be binding upon the arbitrator with respect to a party’s liability for breach of the Definitive Agreements with respect to disputes under paragraphs (a) through (c).  
3.	Neither the sovereign nation status of any Tribal party nor any requirement for exhaustion of Tribal remedies shall be a defense to any arbitration or federal court proceeding described in this Section II.
4.	The dispute resolution provisions of the Definitive Agreements shall neither create nor limit (a) any rights of the MGS Owners to challenge in any federal court any Tribal action that exceeds that Tribes’ contractual regulatory authority as expressly set forth in the Definitive Agreements or (b) any rights of any party to appeal the results of any federal regulatory process.
5.	All provisions of the Peabody Coal Leases not expressly amended pursuant to the Definitive Agreements shall remain in full force and effect and shall be preserved.
C.	
Additional Provisions Regarding Arbitration  
1.	The parties shall negotiate and agree to additional provisions in the Definitive Agreements addressing binding arbitration of the arbitrable claims identified above, including but not limited to:  
a.	The Definitive Agreements shall include procedures governing (i) the prompt and inexpensive selection of arbitrator(s) and their qualifications, and (ii) the conduct of the arbitration (and may incorporate procedural rules established by a recognized third party provider of arbitration services).  The parties agree that discovery will be available for arbitration and the arbitration provisions shall define those discovery rights.  
b.	The arbitrator(s) shall have the power to award injunctive relief (including specific performance), and damages (where consistent with the Definitive Agreements).  
c.	The place of arbitration shall be Phoenix, Arizona or such other location as may agreed to by the parties to the arbitration.  
d.	All costs and expenses associated with arbitration, other than those related to each party’s legal representation and advocacy (including travel and lodging expenses), shall be shared equally by the parties involved in the dispute.  For this purpose, the MGS Owners shall be considered to be a single party, and the NGS Owners shall be considered to be a single party, except that an individual MGS or NGS Owner who elects to appear separately shall be treated as a separate party.  No amicus participation shall be permitted in any arbitration pursuant to the Definitive Agreements.
e.	The Definitive Agreements shall permit the parties to the dispute to file a civil action in the Arizona Court to enforce the arbitration provisions set forth in the Definitive Agreements, to enforce or confirm any arbitration award entered pursuant to the arbitration provisions, including injunctive relief, and to seek the entry of an order vacating, modifying, or correcting any arbitration award consistent with the Federal Arbitration Act.  
D.	Attorneys’ Fees
Any prevailing defendant(s) in any arbitration or federal court proceeding shall be entitled to recover its or their reasonable attorneys’ fees and costs incurred in that proceeding from the non-prevailing plaintiff(s).
E.	
No Third Party Beneficiaries
There shall be no third party beneficiaries of the parties’ rights under the Definitive Agreements.  
III.	DAMAGES
A.	Availability of Damages
1.	Subject to the Dispute Resolution provisions of Section II above, and the limitations set forth below, damages and/or contempt or related sanctions (including compensatory sanctions) for violation of a court order will be available to the MGS Owners, the NGS Owners, Peabody and the Tribes for all breaches of the Definitive Agreements.
a.	No party shall be in breach of the Definitive Agreements for any cause beyond the party’s reasonable control or that was the result of Force Majeure (to be defined in the Definitive Agreements consistent with prevailing commercial legal standards).
b.	No party shall be in breach for any conduct permitted under the Definitive Agreements.  Other than the termination payments described above, no party shall be liable for any damages, whether in tort, contract, or otherwise, resulting from conduct permitted  under the Definitive Agreements.  
c.	A party shall only be in breach of the Definitive Agreements through the actions or inactions of its officials, agents and employees when those officials, agents and employees are acting in their official capacity and in the scope of that official capacity or where the party has a specific duty to act set forth in the Definitive Agreements and fails to act.  
d.	Nothing in the Definitive Agreements will prevent a party from having the right to seek remedies against any person(s), including any other party’s officials, agents or employees acting outside the scope of their official capacity, for all acts or omissions, including interference with operations or the delivery of water from the C- or N-Aquifers, in any court of competent jurisdiction.
e.	The parties agree that the availability of injunctive relief or specific performance is not always adequate to compensate the non-breaching party and that, subject to the Dispute Resolution provisions of Section II above, and the limitations set forth herein, damages will be available for breaches of the Definitive Agreements.  Any claim for damages shall not preclude a claim for specific performance or injunctive relief, and each of the parties agrees not to assert that the availability of damages or the availability of a backup water supply to the C-Aquifer is a sufficient remedy to preclude the grant of specific performance or injunctive relief.
f.	For purposes of clarification, any surcharges payable by the MGS Owners for use of N-Aquifer water (as set forth in Section VI below) shall not be considered damages.  The MGS Owners shall pay such surcharges for N-Aquifer water used for MGS coal slurry, coal slurry preparation, coal washing, crusher plant, and other Black Mesa Mine related uses, but excluding domestic uses of the Black Mesa Mines, except as set forth in Section III.D below.
2.	[Nothing in the Definitive Agreements shall be interpreted as creating any right to, cause of action for, or court jurisdiction over, a claim for damages between the Navajo Nation and the Hopi Tribe.]
3.	The provisions of this Section III shall apply to liabilities between the Tribes and Peabody for damages to each other and for breaches of the  Definitive Agreements, with the exception that Peabody shall not have the right to pursue monetary damages against the Tribes other than contempt or related sanctions (including compensatory sanctions) if that Tribe fails to comply with specific performance or injunctive relief.
B.	Cap on Damages
1.	The cumulative damages liability of each Tribe to the MGS Owners, of the MGS Owners to each Tribe, of each Tribe to the NGS Owners, of the NGS Owners to each Tribe, and of Peabody to each Tribe, for all breaches of the Definitive Agreements, shall not, in each case, exceed in the aggregate $35 million.  Such cumulative limits shall not apply to any contempt or related sanctions (including compensatory sanctions) for a party’s failure to comply with a court order, or to any claims for specific payments expressly provided for in the Definitive Agreements, but in no event shall any party seek contempt or related sanctions (including compensatory sanctions) for any single failure to comply in excess of $250 million.  The amount of any N-Aquifer Surcharges deducted from a Tribe’s revenues pursuant to Section III.D below by reason of any breach shall not count against such $250 million limit on contempt or related sanctions (including compensatory sanctions).
2.	Neither the Tribes, the MGS Owners, the NGS Owners nor Peabody shall be liable for consequential, exemplary, multiple, or punitive damages, provided that incremental replacement power costs and lost net water royalties to a Tribe from third party users shall not be considered consequential damages.
C.	Source of Recovery of Damages
1.	If, after a dispute resolution proceeding in accordance with the procedures set forth in the Definitive Agreements, the MGS Owners, the NGS Owners or Peabody are found to be in breach and damages have been awarded, the MGS Owners, the NGS Owners or Peabody, as applicable, shall pay such damages in cash directly to the prevailing Tribe(s).
2.	If, after a dispute resolution proceeding in accordance with the procedures set forth in the Definitive Agreements, a Tribe is found to be in breach and damages have been awarded:
a.	The MGS Owners will recover such damages (i) from a reserve account, if any, established by the Tribe on terms acceptable to the MGS Owners, or (ii) as offsets against the future C-Aquifer right-of-way payments, royalties on water and Black Mesa coal, and other payments and bonuses payable by the MGS Owners to the Tribe (either directly or through Peabody) pursuant to the Definitive Agreements (or the coal lease(s) between the Tribe and Peabody).
b.	The NGS Owners will recover such damages (i) from a reserve account, if any, established by the Tribe on terms acceptable to the NGS Owners, or (ii) as offsets against the future royalties on Kayenta coal, and other payments and bonuses payable by the NGS Owners to the Tribe (either directly or through Peabody) pursuant to the Definitive Agreements (or the coal lease(s) between the Tribe and Peabody)  
c.	For purposes of paragraphs a and b above:
i.	If a reserve account, if any, is not adequate to satisfy any damages award, the MGS Owners or NGS Owners, as applicable may recover such damages as offsets against future payments, royalties and bonuses as set forth in clause (ii) of paragraph a or b, as applicable. 
ii.	Offsets in any year shall not exceed 50% of the Tribe’s projected revenues from (A) the sources described in paragraph a or b, as applicable, and (B) any additional revenue sources that the Tribes pledge legally to the MGS Owners or the NGS Owners, as applicable, unless such offsets over the next five years are not expected to be sufficient to cover such damages, in which case such offsets may be up to the amount of the Tribe’s revenues from such sources.
iii.	If the Tribe’s expected revenues from such sources over the next five years are not expected to be sufficient to cover such damages, the Tribe may grant the MGS Owners or NGS Owners, as applicable, a lien on real property or other assets of the Tribe to satisfy the amount of such damages that are not expected to be covered by such revenues.  If such lien is not sufficient to satisfy such damages, the MGS Owners or NGS Owners, as applicable, shall have the right to seek an order directing the breaching Tribe to pay any remaining damages directly in cash to the MGS Owners or NGS Owners.
3.	If a court has issued and determines that any party has failed to comply with an injunction, the party securing the injunction may seek contempt or related sanctions (including compensatory sanctions) for such failure to comply.  To the extent any such sanctions are awarded, the payment of those sanctions is not governed by Section III.C.2 above and the party seeking sanctions may request the direct payment of such sanctions (including compensatory sanctions) in cash.       
D.	Process for Payment of N-Aquifer Surcharges Upon Alleged Tribal Breach
If the MGS Owners are required to use N-Aquifer water because use of the C-Aquifer is restricted due to an alleged breach by one of the Tribes, the MGS Owners shall (i) promptly and actively pursue dispute resolution to remedy such an alleged breach, and (ii) implement the surcharge payment procedures set forth in this section.  The non-breaching Tribe shall be entitled to participate in such dispute resolution proceedings, but shall not be entitled to raise separate claims, cross-claims or counter-claims, or to any remedy (including damages for the alleged breach) other than enforcement of the provisions of the next sentence.  If the MGS Owners fail to commence dispute resolution and establish the escrow accounts necessary to implement surcharge payment procedures within 50 days of knowledge of the alleged breach, the MGS Owners shall thereafter make applicable N-Aquifer Surcharge payments to each Tribe in accordance with the rates set out in Section VI.B.1.a.ii below, and all N-Aquifer water used by the MGS Owners related to such alleged breach will count against the N-Aquifer Bank.  The following surcharge payment procedures shall apply when there is an alleged Tribal breach:  :
1.	The MGS Owners will pay to the non-breaching Tribe an amount equal to (a) the volume of N-Aquifer water used by the MGS Owners, multiplied by (b) one-half of the C-Aquifer royalty rate.
2.	The MGS Owners will pay into escrow an amount (the “C-Aquifer Escrow Amount”) equal to (a) the volume of N-Aquifer water used by the MGS Owners, multiplied by (b) one-half of the C-Aquifer royalty rate.
3.	The MGS Owners will deduct, from future amounts that would otherwise be payable to the allegedly breaching Tribe under the Definitive Agreements, and pay into escrow an amount (the “Supplemental Escrow Amount”) equal to (a) the volume of N-Aquifer water used by the MGS Owners, multiplied by (b) the difference between (i) one-half of the current N-Aquifer Surcharge Rate and (ii) the C-Aquifer royalty rate.
4.	If the Tribe is found to be in breach, (a) the C-Aquifer Escrow Amount and the Supplemental Escrow Amount will be paid to the non-breaching Tribe, and (b) except as provided in paragraph D above, the volume of N-Aquifer water used by the MGS Owners will not count against the N-Aquifer Bank.
5.	If the Tribe is found not to be in breach, or there is no finding of breach, the C-Aquifer Escrow Amount will be returned to the MGS Owners and the Supplemental Escrow Amount will be released from escrow to the Tribe not found to be in breach.  The MGS Owners will pay to each Tribe an amount equal to (a) the volume of N-Aquifer water used by the MGS Owners, multiplied by (b) one-half of the N-Aquifer Surcharge Rate.  With respect to such payment, the MGS Owners shall receive credit for amounts paid to the non-breaching Tribe pursuant to paragraph D.1 above.  The volume of N-Aquifer water used by the MGS Owners will count against the N-Aquifer Bank.
IV.	SETTLEMENT OF CLAIMS
A.	N- and C-Aquifers (authorized by Congressional legislation and incorporated into Settlement Agreement)
1.	Effective upon the issuance of the final order of dismissal by the U.S. District Court for the District of Columbia in the RICO Suit, the Navajo Nation, the Hopi Tribe, and the United States, as trustee of the Navajo Nation and the Hopi Tribe, will waive and release any and all Claims against APS, Southern California Edison, Salt River Project, Nevada Power, Tucson Electric Power and LADWP for injury to Underground Water caused by, or resulting from, the withdrawal of Underground Water from wells located within the surface area leased to Peabody by Navajo Coal Lease 8580, Navajo Coal Lease 9910 or Hopi Coal Lease 5743 (collectively the “Coal Leases”) from February 1, 1964 through and including the effective date of the Navajo-Hopi Coal Leasing Settlement Act, whether the injury occurs within or outside the boundaries of such Coal Leases.
a.	“Injury to Underground Water” shall have the same meaning as  defined in the Navajo-Hopi Coal Leasing Settlement Act.  
b.	“Underground Water” shall have the same meaning as  defined in the Navajo-Hopi Coal Leasing Settlement Act.
2.	Effective upon the issuance of the final order of dismissal by the U.S. District Court for the District of Columbia in the RICO Suit, the Navajo Nation, the Hopi Tribe, and the United States, as trustee of the Navajo Nation and the Hopi Tribe, will waive and release any and all Claims against Peabody, for injury to Underground Water caused by, or resulting from, the withdrawal of Underground Water from wells located within the surface area leased to Peabody by the Coal Leases from February 1, 1964 through and including the effective date of the Navajo-Hopi Coal Leasing Settlement Act, whether such injury occurs within or outside the boundaries of such Coal Leases.
a.	As a condition of the waivers set forth in this Section IV.A.2, Peabody shall use its reasonable and good faith efforts to provide to the Tribes (i) well logs, pump tests and any reports created within the past ten years that analyze the data from such logs or tests, and (ii) specifications and reports concerning the maintenance and rehabilitation of the wells.  
b.	Peabody shall represent and warrant in the Definitive Agreements that:  (i) its Director, Environmental Services; Environmental Specialist; Operations Manager Arizona Business Unit; Manager of Mine Engineering and Services; and Mine Manager, Operations, have made a reasonable good faith effort to locate all reports and studies within their possession or control, created within the past ten years, that assess or analyze the effects of pumping from the N-Aquifer related to Peabody’s mining operations; and (ii) the materials identified pursuant to the foregoing clause (i) either (A) do not conclude there may have been Material Damage to the N-Aquifer caused by Peabody’s use of the N-Aquifer in relation to its mining operations, or (B) to the extent any materials required to be located state or conclude that there may have been Material Damage to the N-Aquifer caused by Peabody’s use of the N-Aquifer in relation to its mining operations, such materials have been produced to the Tribes at least sixty (60) days prior to execution of the Definitive Agreements.  Peabody will produce any materials referenced in the foregoing clause (B) promptly.
c.	The waiver and release granted in this Section IV.A.2 will not apply to any Claim brought by either Tribe where (i) Material Damage to the N-Aquifer caused by Peabody’s acts or omissions is demonstrated and (ii) such Material Damage was identified in a document whose analysis is based on methodology generally accepted in the scientific community, employs and is consistent with then-applicable Material Damage Criteria as established by OSM, and contains credible and reasonable data or information, and (A) was not, but should have been, produced to the Tribes pursuant to paragraphs a or b above, and (B) was not publicly available.  All documents produced by Peabody pursuant to this Section IV.A.2, and not otherwise publicly available, shall be subject to a confidentiality agreement in a form mutually agreeable to Peabody and the Tribes.
d.	The waivers and releases provided in this Section IV.A.2 shall not apply to Claims for N-Aquifer Material Damage confirmed through analysis that was (a) based on methodology generally accepted in the scientific community, employing and consistent with then-applicable Material Damage Criteria as established by OSM, and containing credible and reasonable data or information and (b) known to and fraudulently concealed by Peabody prior to the Tribes signing the Definitive Agreements. 
3.	Effective upon the issuance of the final order of dismissal by the U.S. District Court for the District of Columbia in the RICO Suit, the Navajo Nation, the Hopi Tribe, and the United States, as trustee of the Navajo Nation and the Hopi Tribe, will waive and release any and all Claims against Peabody, APS, Southern California Edison, Salt River Project, Nevada Power, Tucson Electric Power, and LADWP for injury to Underground Water caused by, or resulting from, the withdrawal of Underground Water from wells located within the surface area leased (a) to Peabody by the Coal Leases from the effective date of the Navajo-Hopi Coal Leasing Settlement Act through the completion of all land surface reclamation by Peabody for the Coal Leases required under applicable federal or other law, or (b) to Southern California Edison by the Tribal Leases from the effective date of the Navajo-Hopi Coal Leasing Settlement Act through the decommissioning of MGS required under applicable federal or other law, in either case whether the injury occurs within or outside the boundaries of such Coal Leases or Tribal Leases; unless (i) the withdrawal of such Underground Water is in violation of the Coal Leases, the Tribal Leases or applicable federal permits, or any applicable provisions, conditions or standards of the N-Aquifer and C-Aquifer monitoring programs set forth or referred to therein or in Section VI.C below, and (ii) such violation caused such injury.
a.	“Tribal Leases” shall have the same meaning as defined in the Navajo-Hopi Coal Leasing Settlement Act.  
B.	
Settlement of Additional Claims (incorporated into Settlement Agreement only)
1.	Effective upon the issuance of the final order of dismissal by the U.S. District Court for the District of Columbia in the RICO Suit, the Navajo Nation, the Hopi Tribe, Southern California Edison, Salt River Project, Nevada Power, LADWP and Peabody will waive, release, and hold each other harmless from any and all past and present Claims as of the date of this final dismissal order (a) asserted and arising out of events described in the Complaints, Answers, and Counterclaims filed in the RICO Suit; (b) asserted and arising out of events described in the Complaints, Answers, and Counterclaims filed in the Arizona Suit; and (c) arising out of the negotiation and approval by the parties and the Secretary of the Coal Mining Leases (including any and all amendments thereto).
2.	Effective upon the Decision to Proceed, the Navajo Nation, the Hopi Tribe, Southern California Edison, Salt River Project, Nevada Power, LADWP and Peabody will waive, release, and hold each other harmless from any and all past and present Claims as of the date of the Decision to Proceed (a) arising out of the shutdown of operations of the Mohave Generating Station (temporary and/or permanent); and (b) arising out of the negotiation and approval by the parties and the Secretary of the Definitive Agreements and the Navajo-Hopi Coal Leasing Settlement Act. 
3.	Effective upon the issuance of the final order of dismissal by the U.S. District Court for the District of Columbia in the RICO Suit, the Navajo Nation, the Hopi Tribe, APS, Salt River Project, Nevada Power, Tucson Electric Power, LADWP and Peabody will waive, release, and hold each other harmless from any and all past and present Claims as of the date of this final dismissal order (a) asserted and arising out of events described in the Complaints, Answers, and Counterclaims filed in the RICO Suit; (b) asserted and arising out of events described in the Complaints, Answers, and Counterclaims filed in the Arizona Suit; and (c) arising out of the negotiation and approval by the parties and the Secretary of the Coal Mining Leases (including any and all amendments thereto).
4.	Effective upon the Decision to Proceed, the Navajo Nation, the Hopi Tribe, APS, Salt River Project, Nevada Power, Tucson Electric Power, LADWP and Peabody will waive, release, and hold each other harmless from any and all past and present Claims as of the date of the Decision to Proceed (a) arising out of the shutdown of operations of the Mohave Generating Station (temporary and/or permanent); and (b) arising out of the negotiation and approval by the parties and the Secretary of the Definitive Agreements and the Navajo-Hopi Coal Leasing Settlement Act.  
5.	Pursuant to the Navajo-Hopi Coal Leasing Settlement Act, Congress will confirm and declare valid the Navajo Coal Lease 8580, Navajo Coal Lease 9910, Hopi Coal Lease 5743, the Tribal Leases, and 323 Grants (as each of those terms are defined therein) (hereinafter “Leases and Grants”), and the Navajo Nation and the Hopi Tribe will not seek to invalidate the Leases and Grants during their respective terms.  Accordingly, effective upon the dismissal of the RICO Suit, the Navajo Nation and Hopi Tribe will agree and covenant not to seek in the future as a remedy for any Claim the rescission of the Leases and Grants, or other equitable remedy to invalidate the Leases and Grants, except to the extent that such a remedy is available under the terms of the existing Coal Leases and exercised in accordance with those terms.
a.	If a Tribe is entitled to exercise such a contractual remedy to terminate the Coal Lease(s) (as determined by any final dispute resolution process), the MGS Owners and NGS Owners (or an assignee that meets the requirements set forth in paragraph b below) shall have the right to exercise and perform Peabody’s rights and obligations under the Coal Leases pursuant to the Conditional Partial Assignments described in paragraph b below.  If the MGS Owners and NGS Owners do not exercise such right, the Tribes may terminate the Coal Leases. 
b.	As part of the Definitive Agreements, the parties shall modify (to the extent necessary) and execute the Conditional Partial Assignments of the Coal Leases to the MGS and NGS Owners (which were recognized in the 1987 Lease Amendments).  Any successor mining company or assignee other than the MGS Owners and NGS Owners shall meet criteria to be specified in the Definitive Agreements and shall be subject to the approval of the Tribes, such approval not to be unreasonably withheld or delayed, and no additional compensation or fees shall be payable with respect to any such successor or assignee.  No other consent or approval by the Tribes or the Secretary, and no payment of additional compensation or fees, shall be required for these Conditional Partial Assignments to become effective.
6.	The Parties recognize and agree that, to the extent any Claims accrue or arise after the effective date of the Definitive Agreements but before the applicable effective date of the Settlement of Claims identified in Sections IV.A and B above, any such Claims subject to these Settlement of Claims, whether asserted or not, will be extinguished and the Parties shall not sue each other for any Claims subject to these provisions.   
7.	For purposes of this Section IV (except as specifically modified in Section IV.A.2 above), “Claims” shall be defined to include any actions, claims, demands, liabilities, and damages, whether sounding in tort or in contract or otherwise, and whether in law or equity, anticipated and unanticipated, known and unknown (including express waiver of any statute or principle of common law reserving unknown claims), suspected or unsuspected, contingent or non-contingent without regard to the subsequent discovery of additional or different facts.  
C.	N-Aquifer and C-Aquifer Monitoring
	The Definitive Agreements shall provide for the Secretary to monitor N-Aquifer and C-Aquifer levels in the areas in which Peabody pumps N-Aquifer water and the MGS Owners pump C-Aquifer water, respectively.  The Secretary shall also monitor whether Peabody and the MGS Owners have pumped N-Aquifer and C-Aquifer water in compliance with the Coal Leases, the Tribal Leases and applicable federal permits.  N-Aquifer monitoring will apply to a geographic region consistent with past monitoring practices.
V.	TRIBAL REGULATORY AND JUDICIAL AUTHORITY
A.	General
The MGS Owners and Peabody respect the sovereign authority of the Tribes, and agree that the Definitive Agreements will respect this stature, consistent with the understandings set forth below.  The Section 323 Grants and the Section 415 Leases will specify that the regulatory and judicial authority of the Tribes over their Tribal lands shall be retained, except that the Tribes’ regulatory and judicial authority, including delegated Federal authority, shall not apply to the MGS Owners in connection with the construction, ownership, or operation of the C-Aquifer Project.  The MGS Owners, however, will agree to specific contractual obligations in the Definitive Agreements based on the Tribes’ existing regulatory regimes that would apply to the C-Aquifer Project (but for this agreement).  The Definitive Agreements will expressly and exclusively define the scope of those regulatory contractual provisions and the MGS Owners’ obligations thereunder.  The term “MGS Owners” is defined here to include the owner/operator of the C-Aquifer Project. 
1.	As set forth in Section II above, notwithstanding any enforcement mechanisms set forth in existing regulatory regimes, any and all disputes involving the regulatory contractual provisions shall be resolved pursuant to the dispute resolution provisions of the Definitive Agreements.  
2.	To the extent either Tribe adopts new or additional regulatory regimes that would apply to the C-Aquifer Project after the execution of the Definitive Agreements (but for this agreement), the Parties shall in good faith meet and confer to discuss mutually acceptable amendments to the Definitive Agreements to incorporate contractual obligations based on such new or additional regulatory regimes. 
B.	Covenant of Enjoyment
Each Section 415 Lease will contain a covenant of quiet enjoyment in favor of the C-Aquifer Project and MGS Owners.  Each Tribe may continue to use, and authorize the use of, the tribal lands covered by its Section 415 Lease and corresponding Section 323 Grant, provided that such use shall not interfere with the construction, ownership, or operation of the C-Aquifer Project.  The Tribes will exercise their police and regulatory powers in the ordinary course to protect the pumping, conveyance and use of C-Aquifer Project water against interference by third parties.
C.	Taxes
The Tribes shall not establish any new or revised taxes or special tax districts that apply to the Peabody Coal Leases in connection with the operation of the Black Mesa mine, or the construction, ownership or operation of the C-Aquifer Project, including any such taxes or tax districts concerning the use of surface water in connection with such project.  Peabody and the MGS Owners will agree to implement this provision and the Payment in Lieu of Taxes contemplated by the Memorandum of Recommended Economic Terms through a settlement agreement with the Office of the Navajo Nation Tax Commission in response to a private ruling issued by the Navajo Tax Commission, provided that such settlement agreement (1) shall constitute a Definitive Agreement, and shall be subject to the provisions of Sections II and III above, and (2) shall be executed prior to the Decision to Proceed.
D.	Tribal Criminal Jurisdiction
In connection with the construction, ownership or operation of the C-Aquifer Project, the Tribes shall not, consistent with applicable federal law as of the date of this Memorandum, exercise any criminal jurisdiction over (1) the MGS Owners, (2) Peabody, or (3) any non-Indian employee, officer or agent of the MGS Owners, provided, that nothing in this paragraph shall prohibit any Navajo Nation or Hopi Tribe law enforcement officer who is cross-deputized as a federal, state or county law enforcement officer from exercising the authority of the United States, state or county, as the case may be, and, provided further, that nothing in this paragraph shall prohibit any Navajo Nation or Hopi Tribe law enforcement from stopping or arresting any person whom such officer reasonably suspects has committed a crime within the reservations for the purpose of determining if such person is an Indian and, if such person is not an Indian, to hold such person temporarily until a non-Indian law enforcement agency or officer may take custody of such person, if deemed appropriate by such enforcement agency or officer.
E.	Black Mesa Pipeline
With respect to the coal slurry pipeline(s), the Navajo Nation and the Hopi Tribe shall permit the owner(s) of the coal slurry pipeline(s) to abandon such pipelines in place, provided that such pipelines are purged of coal and slurry water, and that such abandonment adequately protects against subsidence or other hazard to the public health and safety consistent with any requirements of the United States or the State of Arizona or its political subdivisions for abandonment of the portions of such pipeline crossing their respective lands. 
F.	Federal Law
To the extent the Federal Government agrees to operate the C-Aquifer Project, the scope of any regulatory contractual provisions incorporated into the Definitive Agreements shall be in accordance with Federal law. 
VI.	
WATER ISSUES
	The parties intend and agree that C-Aquifer Project water will be used to the maximum extent possible and practicable to reduce the level of past reliance on the N-Aquifer for MGS Uses (as defined below), consistent with the following provisions.  The MGS Owners will develop the Navajo Well Field, as described in Section VI.A below, and the parties intend for that well field to be used as the preferred source of water for MGS Uses .  If water from the Navajo Well Field is not available for MGS Uses, the MGS Owners may use the backup water sources described in Section VI.B below, although the parties intend to use reasonable efforts (as defined below) to minimize the use of any alternative sources of water.  In addition, longer-term problems with the physical availability of water from the Navajo Well Field may be addressed through certain of the mitigation measures described in Section VI.C below, as well as the alternative water sources described in Sections VI.B.2 and 3 below.  

A.	Development of Navajo C-Aquifer Well Field
1.	The MGS Owners will develop a C-Aquifer Project well field on the Navajo Reservation as delineated on Exhibit 3 hereto (the “Navajo Well Field”) to produce up to 6,000 afy (“MGS Capacity”) for transportation through the planned C-Aquifer Pipeline for use by the MGS Owners, Black Mesa Pipeline Company (“BMPC”) and Peabody for MGS coal slurry, coal slurry preparation, coal washing, crusher plant, and other Black Mesa and Kayenta Mine related uses, but not including domestic uses of the Black Mesa and Kayenta Mines (“MGS Uses”).  The Navajo Well Field will include backup wells drilled and maintained by the MGS Owners for supplemental or emergency use.
2.	In addition to developing 6,000 afy, as provided in Section VI.A.1 above, the MGS Owners will drill and operate as part of the Navajo Well Field additional wells so that the Navajo Well Field will have a capacity of 7,000 afy, and, upon MGS’s Return to Service, allow 1,000 afy of well field capacity (“Navajo Capacity”) to be dedicated to Navajo Uses, subject to the Operating Agreement described below.  The wells producing the MGS Capacity and the Navajo Capacity are referred to as “MGS Wells”.  The Navajo Capacity will be tied into the C-Aquifer Pipeline, but the water and electricity associated with such capacity will be metered separately from the MGS Capacity, and the Navajo Nation shall be responsible for all operations, maintenance and replacement (“OM&R”) costs associated with the Navajo Capacity.  The MGS Owners shall have no responsibility for treatment of water from the Navajo Capacity, or delivery of such water beyond the turn out from the C-Aquifer Pipeline.    
3.	In addition to the Navajo Capacity, the Navajo Nation reserves its right to drill additional wells, at its expense, within the Navajo Well Field (“Navajo Wells”).  If requested by the Navajo Nation, these Navajo Wells will be operated as part of the Navajo Well Field, but will be metered separately from the MGS Wells, and the Navajo Nation shall be responsible for all OM&R costs associated with their operation.  The location of the Navajo Wells will be jointly determined by the MGS Owners and the Navajo Nation, but will not be located in proximity to any MGS Well so as to impair the production of any MGS Well.  
a.	The Navajo Nation may produce an additional 3,100 afy from the Navajo Wells.  Water from the Navajo Wells shall be used only for Navajo Uses.
b.	The MGS Owners may use any amount from the Navajo Wells that the Navajo Nation is not using if the MGS Capacity is not available from the MGS Wells in the Navajo Well Field.  Pumping from the Navajo Wells may also be reduced pursuant to the mitigation measures described in Section VI.C below.
4.	The Navajo Nation shall permit the drilling of other wells within the Navajo Well Field only if such wells: (a)  produce no more than five (5) afy, and are located at a minimum distance of one-quarter (1/4) mile from the nearest MGS Well; or (b) are powered by windmills.  Each such wells shall be deemed a “Non-Interfering Well.”  Consistent with Sections VI.A.5  and Section VI.C below, pumping from a Non-Interfering Well shall be reduced or interrupted if it impairs the production of an MGS Well, a Navajo Well, an Existing Navajo or Hopi Well (as defined below), and/or any Hopi Hart Ranch well pursuant to the Operating Agreement described in Section VI.A.5 below.
5.	The operation of the Navajo Well Field, including the Navajo Wells, and the C-Aquifer Pipeline will be subject to an Operating Agreement between the parties.  Pursuant to the Operating Agreement:  
a.	Upon the retirement of existing Navajo Nation wells in the Leupp area, 500 afy of the Navajo Capacity shall  replace existing Navajo Nation uses of C-Aquifer water.  
b.	500 afy of the Navajo Capacity shall be delivered for Navajo Uses  prior to delivery of the quantities described in paragraphs c and d below.
c.	Subject to delivery of the quantities described in paragraphs a and b above, the MGS Capacity shall be delivered for MGS Uses prior to delivery of the quantities described in paragraph d below.  
d.	The Navajo Nation shall reserve the right to develop up to 3,100 afy from the Navajo Wells, and the Hopi Tribe shall reserve the right to develop up to 2,000 afy from the Hopi Hart Ranch.  
i.	The Navajo Nation shall be responsible for (A) the construction and, subject to Section VI.A.3 above, operation, of Navajo Wells, (B) the construction and operation of appropriate storage and distribution systems, and (C) the costs of upsizing the C-Aquifer Pipeline and OM&R, for deliveries of Navajo Nation water.
ii.	The Hopi Tribe shall be responsible for (A) the construction and operation of wells on the Hopi Hart Ranch, any infrastructure required to deliver water from the Hopi Hart Ranch to the C-Aquifer Project, and appropriate storage and distribution systems, and (B) the costs of upsizing the C-Aquifer Pipeline and OM&R, for deliveries of Hopi Hart Ranch water.
iii.	The MGS Owners must be satisfied that the upsizing of C-Aquifer Pipeline does not create additional regulatory issues or other liabilities that the MGS Owners are not prepared to accept.  The C-Aquifer Project water that is to be used by the Tribes may be withdrawn by each Tribe at a reasonable number of specific locations, to be identified prior to completion of project design, along the entire length of the pipeline.
iv.	Subject to such development and the delivery of quantities described in paragraphs a, b and c above, water from the Hart Ranch may be delivered for use by the Hopi Tribe, and water from any Navajo Wells may be delivered for use by the Navajo Nation.  The MGS Owners shall have no responsibility for treatment of water from Navajo Wells, or from the Hopi Hart Ranch, or delivery of such water beyond the turn out from the C-Aquifer Pipeline.
e.	The Operating Agreement shall also provide for the MGS Owners to use any amount from the Navajo Capacity that the Navajo Nation is not using if the MGS Capacity is not available from the MGS Wells in the Navajo Well Field. 
f.	In addition, if the Environmental Impact Statement (“EIS”) indicates that the withdrawal of 6,500 afy from the C-Aquifer Project is likely to impair existing Navajo Nation uses of C-Aquifer water in the Leupp area (to the extent not replaced pursuant to paragraph a above) or existing Hopi Tribal uses of C-Aquifer water on the Hopi ranches south of the Navajo reservation and the MGS Owners nevertheless agree to proceed with the C-Aquifer Project, the MGS Owners shall, at their expense, take such measures as may be required by the applicable Department of the Interior agencies or the Record of Decision for the EIS to mitigate such impacts on such affected uses.  If such mitigation includes delivery of replacement water from the C-Aquifer Project, then such water shall be entitled to the same priority for delivery as the uses described in paragraphs a and b above.
B.	Backup Water Sources
	As set forth below, the MGS Owners shall have the right to use backup water sources for MGS Uses, but only if the full MGS Capacity is not available daily from the Navajo Well Field, including the Navajo Wells.  Such backup may only be used to the extent of any shortfall.  If the full MGS Capacity is not available daily from the Navajo Well Field, then the MGS Owners shall have the discretion to use the following backup water sources, or any combination thereof, for MGS Uses, consistent with the needs of the C-Aquifer Project and MGS and the parties’ agreement to use C-Aquifer Project water to the maximum extent possible and practicable to reduce reliance on the N-Aquifer for MGS Uses.  

	Additionally, if the MGS Owners or Peabody is using a backup water source due to any interruption or reduction of supply of water from the Navajo Well Field (including any damage to the C-Aquifer Pipeline), the MGS Owners shall use reasonable efforts to revert to the use of water from the Navajo Well Field at such time as any shortfall has been alleviated, except as otherwise provided in Section VI.B.3 below.  Reasonable efforts means the efforts that a reasonable business person in the position of the MGS Owners would use so as to achieve the given goal of returning to the use of C-Aquifer Project water as expeditiously and efficiently as possible, except that such efforts shall not include, inter alia, requiring the MGS Owners to engage in new construction beyond the Navajo Well Field (except as specifically provided for in Section VI.C.2 below); requiring the MGS Owners to pursue any claims against any other user of the C-Aquifer; or taking actions beyond the reasonable control of the MGS Owners (such as remedying interruptions in the supply of electric power provided by a third party for the C-Aquifer Pipeline).  Tribal representatives will be promptly notified of any event that results in reduction or shutdown of the C-Aquifer Project, and will be furnished with a written notice describing the problem and a plan and schedule to repair it as soon thereafter as possible.  If requested by either Tribe or the Department of the Interior, periodic meetings to update the Tribes and the Department shall occur. 

1.	N-Aquifer Backup Water
a.	Use of N-Aquifer water for MGS Uses shall be limited to amounts in the N-Aquifer Bank.  Any amount utilized from such bank may be replenished, consistent with the terms of this section, up to the maximum balance.
i.	N-Aquifer Bank terms:
(1)	8,000 acre feet upon MGS Return to Service
(2)	Annual increase to balance of 1,500 afy for the first six years, and 1,000 afy thereafter
(3)	Maximum balance at any one time = 18,000 acre feet
(4)	Maximum annual withdrawals = 5,000 afy

ii.	Surcharges for use of N-Aquifer Bank
(1)	1st 2,000 acre feet in any year at $1,500/acre foot
(2)	2nd 2,000 acre feet in any year at $1,750/acre foot
(3)	Remaining 2,000 acre feet in any year at $2,000/acre foot

				Surcharge is calculated in 2004$, escalated at 3% annually

b.	Peabody’s Use of N-Aquifer Water —Peabody estimates that it will use 500 afy for well maintenance, domestic uses at the Black Mesa and Kayenta Mines, and the Many Mules Project.  This 500 afy pumped by Peabody will not be deducted from the N-Aquifer Bank balance, and will not be subject to the surcharges set forth above.  Peabody agrees to pay a non-surcharge royalty rate of $750/acre foot (2004$, escalated at 3% annually) for its use of N-Aquifer water under this provision (and any additional N-Aquifer water used for the Kayenta Mine), except that Peabody shall not owe any royalties for water used for the Many Mules Project.  If Peabody pumps less than 500 afy, any unused amounts will be added to the N-Aquifer Bank balance.
c.	Industrial Uses by Hopi Tribe – If the Hopi Tribe sells or uses, or grants third parties the right to use, N-Aquifer water for industrial purposes (in quantities in excess of five (5) afy per user and 200 afy in the aggregate) during the term of the Definitive Agreements, the annual increases and maximum balance for the N-Aquifer Bank set forth above shall be eliminated, and the N-Aquifer Bank balance shall be an amount equal to the product of (a) 5,000 acre feet and (b) the number of years remaining in the term of the Definitive Agreements.  If the charges for such non-domestic uses are lower than the N-Aquifer surcharges set forth above, the N-Aquifer surcharges will be lowered to the same price as the other new industrial use.  However, such changes will not affect the general provisions regarding N-Aquifer use set forth in Section VI.B above.
2.	Hopi Ranch Backup Water
	The MGS Owners may obtain up to 5,000 afy of water in any calendar year from wells located on the Hopi Hart Ranch or other Hopi lands as set forth below.

a.	The MGS Owners may obtain up to 2,000 afy of water in any calendar year from wells located on the Hart Ranch beyond one and one-half miles of the Navajo Well Field as additional backup for MGS Uses.
i.	The Hopi Tribe will make such water available for MGS Uses to the extent not used by the Hopi Tribe.  To the extent the Hopi Hart Ranch well field and infrastructure is capable of pumping such water for MGS Uses and is connected to the C-Aquifer Pipeline, the Hopi Tribe shall deliver such water to the C-Aquifer Pipeline.  To the extent additional well field improvements and/or infrastructure are necessary to deliver such water for MGS Uses and the MGS Owners decide to develop the Hopi Hart Ranch as a backup water supply, the MGS Owners will do so pursuant to Section VI.B.2.c below.   
ii.	The MGS Owners will pay the Hopi Tribe $880 per acre foot (2004$, escalated at 3% annually) for the first 667 acre feet of Hopi Hart Ranch water used annually for MGS Uses.  The MGS Owners will pay the Hopi Tribe $500 per acre foot (2004$, escalated at 3% annually) for any remaining Hopi Hart Ranch water used for MGS Uses in that year.  The MGS Owners will not be obligated to make any additional payments to either Tribe for delivery or transportation of Hopi Hart Ranch water to the C-Aquifer Project.  
iii.	Pumping from the Hopi Hart Ranch may also be reduced pursuant to the mitigation measures described in Section VI.C below.
b.	The Navajo Nation shall not object to the Hopi Tribe’s provision of additional potential backup water for MGS Uses from Hart Ranch or other Hopi land to the extent such water is not used by the Hopi Tribe so long as:
i.	Any water provided by the Hopi Tribe from the C-Aquifer beyond 2,000 afy is not taken from wells located within four (4) miles of the boundary of the Navajo Nation.
ii.	The amount of such water provided by the Hopi Tribe beyond the 2,000 afy is limited to 3,000 afy.
The MGS Owners will pay the Hopi Tribe $500 per acre foot (2004$, escalated at 3% annually) for such additional water, with no additional payment to either Tribe for delivery or transportation of water to the C-Aquifer Project.
c.	The Hopi Tribe will pay for all Hopi Hart Ranch well field improvements and infrastructure, provided that if the MGS Owners decide to develop the Hopi Hart Ranch as a backup water supply, the MGS Owners will pay for all well field improvements or infrastructure dedicated to MGS Uses.  Upon termination of the Definitive Agreements, any Hopi Hart Ranch improvements and infrastructure developed by the MGS Owners will be transferred to the Hopi Tribe or, in the sole discretion of the Hopi Tribe (and subject to the prompt exercise of that discretion), abandoned in compliance with then-applicable standards under federal and state laws respecting abandonment of such wells and improvements applicable generally to non-Indian lands in Arizona.
3.	Winslow Tract Lands
The Navajo Nation shall grant the MGS Owners a non-exclusive option to use C-Aquifer water from the Navajo Nation’s Winslow tract fee lands to the extent water is available and unused at the time the MGS Owners exercise such option.  The same water royalty payment scheme applicable to the Navajo Well Field shall also apply to the Winslow lands, and no additional fees, including right-of-way fees, will be imposed with respect to pumping, transportation or delivery of water from the Winslow lands.  Use of water from the Winslow tract will not be subject to the requirement that the MGS Owners and Peabody revert to use of water from the Navajo Well Field when it becomes available.   

C.	C-Aquifer Monitoring, Impact Criteria, and Mitigation
	The following provisions are designed to establish a system to protect the C-Aquifer Project and Navajo Nation and Hopi Tribe wells in proximity to the C-Aquifer Project by: gathering information; measuring, analyzing, and reporting that information; and where appropriate, mitigating impacts.

1.	Well Monitoring.  The MGS Owners (or the operator of the C-Aquifer Project) shall:
a.	Measure and report monthly and annual pumping amounts for MGS Uses and Tribal uses in the Navajo Well Field by well. 
b.	Measure and report semi-annual static water levels in selected monitoring wells (in spring and fall).  Monitoring wells shall be selected based on: 
i.	Completion solely in the C-aquifer. 
ii.	Need for wells along the perimeter and within the interior of the Navajo Well Field.
iii.	Need for radial pattern of wells emanating from the Navajo Well Field.
iv.	History of prior water level measurements preferred. 
v.	Satisfactory access. 
vi.	Satisfactory quality of construction.
c.	Measure and report initial water quality from MGS Wells using constituent elements for water quality standards established by the Navajo Nation pursuant to a grant of primacy from the United States Environmental Protection Agency under the Safe Drinking Water Act for primary and secondary municipal use water quality, measure and report initial quality from monitoring wells using constituent elements for the water quality standard associated with the historical use of water from the well, and establish a baseline electrical conductance (EC) for MGS Wells and monitoring wells.  Subsequent monitoring would only be for EC unless EC increases by more than 20% above the baseline measurements, in which case, samples would be analyzed for all constituent elements for the relevant water quality standard. 
d.	Collect data provided by the Tribes for initial water quality, annual pumping amount and costs, and annual water level in each existing Navajo and Hopi well within [2.7] miles of the Navajo Well Field eligible for potential mitigation (“Existing Navajo and Hopi Wells”), and maintain database of such data.  To qualify as an Existing Navajo and Hopi Well, the well must be in existence as of January 1, 2006 and the Navajo Nation or Hopi Tribe must provide all available information for the well (e.g., drill logs, well and pump characteristics, historical water level measurements, pumping costs and historical type of water use) and agree to collect the initial and annual data.  The MGS Owners shall collect water quality, annual pumping amount, and water level data provided by others in the area (e.g., ADWR, ADEQ, cities or towns, ADOT, Joseph City INA) and include and maintain in the database. 
e.	The above monitoring data and reports shall be shared with the Tribes. 
2.	Well Impact Criteria and Mitigation
	The parties will take the following measures, or any other alternative measures which may be agreed to by the parties, to mitigate the following impacts on C-Aquifer uses.  The following measures shall continue in effect from the onset of pumping by the MGS Owners for MGS Uses until the cessation of pumping by the MGS Owners for MGS Uses, except that the measures described in paragraphs a, b and c below shall be in effect until five (5) years after the cessation of such pumping.  The MGS Owners shall only be responsible for mitigation of the following adverse impacts to the extent caused by the MGS Owners’ pumping from the Navajo Well Field for MGS Uses, and shall not be responsible for mitigation of adverse impacts caused by pumping by the Tribes or Tribal members, including pumping from the Navajo Capacity, or by third parties. 
a.	Adverse impact on water production in Existing Navajo and Hopi Wells:
i.	Definition:  A material change in well production caused by the MGS Owners’ pumping for MGS Uses.  A material change is defined as the well no longer being capable of producing 80% of the historical annual pumping amount due to the water level change caused by such MGS Owners’ pumping for MGS Uses.
ii.	Mitigation by the MGS Owners:  Subject to the MGS Owners’ discretion and at the MGS Owners’ expense, the MGS Owners may lower the existing pump, deepen the existing well, replace the existing well, or provide C-Aquifer Project water, except that no royalties will be paid on C-Aquifer Project water used for such purposes and such use shall not be considered part of the MGS Capacity.  
b.	Adverse impact on the cost of water production in Existing Navajo and Hopi Wells:
i.	Definition:  Increase equal to or greater than a 20% in the inflation-adjusted annual cost of Tribal pumping (for historical annual pumping amount) caused by MGS Owners’ pumping for MGS Uses.
ii.	Mitigation by the MGS Owners:  Subject to the MGS Owners’ discretion and at the MGS Owners’ expense, the MGS Owners may pay incremental costs above any 20% increase or provide C-Aquifer Project water, except that no royalties will be paid on C-Aquifer Project water used for such purposes and such use shall not be considered part of the MGS Capacity.
c.	Adverse impact on water quality in Existing Navajo and Hopi Wells:
i.	Definition:  Water quality degradation greater than 20% in any single parameter caused by the MGS Owners’ pumping for MGS Uses.
ii.	Mitigation by the MGS Owners:  Subject to the MGS Owners’ discretion and at the MGS Owners’ expense, the MGS Owners may treat the water produced from the existing well, or provide C-Aquifer Project water, except that no royalties will be paid on C-Aquifer Project water used for such purposes, and such use shall not be considered part of the MGS Capacity. 
d.	Adverse impact on pumping from the C-Aquifer Project, assuming exploration of the mitigation measures described in paragraph e below:
i.	Definition:   Navajo Well Field and Hopi Hart Ranch unable to supply 12,100 afy.
ii.	Mitigation by the Parties:  The MGS Owners, Navajo Nation and Hopi Tribe will reduce pumping based on the principles set forth in Section VI.A.5 above and the Operating Agreement, unless the party with inferior priority can show by clear and convincing evidence that its pumping is not adversely impacting pumping by the party with superior priority. 
e.	Adverse impact on the ability of the Navajo Well Field to supply water for MGS Uses:
i.	Definition:  Navajo Well Field unable to supply the MGS Capacity, plus 20% redundant well capacity for backup.
ii.	Mitigation by the MGS Owners and Navajo Nation:  If physically practicable, the MGS Owners will use commercially reasonable efforts to drill additional wells to restore MGS Capacity (plus backup).  The Navajo Nation will provide additional contiguous parcels of land for inclusion in the Navajo Well Field as needed to supply the MGS Capacity, plus 20% redundant well capacity, and all reasonable and necessary rights, right of ways, permits, and approvals needed to pump water from those additional lands and transport the water to the C-Aquifer Pipeline at no cost to the MGS Owners.
iii.	Interim Mitigation.  The Navajo Nation and Hopi Tribe will reduce pumping based upon the principles set forth in Section VI.A.5 above and the Operating Agreement until the MGS Capacity and Navajo Capacity returns to a production level of [18] gallons per minute, but not exceeding 7,000 afy, unless the party with inferior priority can show by clear and convincing evidence that its pumping is not adversely impacting pumping by the party with superior priority.
f.	Adverse impact on the long-term C-aquifer water supply in the vicinity of the Navajo Well Field caused by MGS Owners’ pumping for MGS Uses:
i.	Definition:  Static water level drawdown of greater than 100 feet at a distance of 1 mile outside of the exterior perimeter of the Navajo Well Field.  
ii.	Mitigation by the MGS Owners and Navajo Nation:  If physically practicable, the MGS Owners will use commercially reasonable efforts to disperse the MGS Wells over a larger area on contiguous parcels of land provided by the Navajo Nation so that static water level drawdown caused by pumping for MGS Uses does not result in a drawdown greater than 100 feet.  The Navajo Nation will provide all reasonable and necessary rights, right of ways, permits, and approvals needed for the MGS Owners to pump water from those additional lands and transport the water to the C-Aquifer Pipeline at no cost to the MGS Owners.
VII.	SHARE AND SHARE ALIKE
A.	Purpose  
	This Section VII describes the substance of the parties’ agreements regarding Share and Share Alike (“SASA”).  The intent of the parties is to preclude future SASA claims arising out of the economic benefits provided by the MGS Owners, the NGS Owners or Peabody (collectively, the “Companies”) under the Definitive Agreements (which, as used in this section, includes the Peabody Coal Leases in their entirety), and to eliminate the potential that SASA claims may have to disrupt the operation of any activities or agreements covered by the Definitive Agreements.  
B.	Summary
	The Tribes agree that the economic benefits provided under the Definitive Agreements shall not give rise to any SASA claims.  The Tribes and the Companies agree to certain notice requirements with respect to amendments to the Definitive Agreements, and the Tribes agree to release and hold the Companies harmless from potential SASA claims related to such amendments subject to compliance with the notice requirements.  The Companies shall not be entitled to the benefit of such release and hold harmless with respect to any amendment to the Definitive Agreements for which notice has not been given by either the Company or the Tribe executing the amendment, but shall not be liable for damages solely by reason of their failure to give notice.  
C.	No SASA Claim Under the Definitive Agreements  
	Each Tribe shall be provided with a copy of the Definitive Agreements between any  Company and the other Tribe.  There shall be a conclusive presumption that the economic benefits received by the Navajo Nation and Hopi Tribe under Definitive Agreements satisfy all obligations under Section 7, and that, for the term of the Definitive Agreements, the economic benefits provided in the Definitive Agreements do and shall constitute all economic benefits from jointly owned minerals leased thereunder.  The Tribes agree that no SASA claims shall be brought by either Tribe against the other Tribe, or any of the Companies, based on any economic benefit provided under the Definitive Agreements and that, notwithstanding the rights preserved under Section IV.B.5 above, no SASA claim shall provide a basis to rescind, amend, or invalidate the Definitive Agreements.
	Such presumption and agreement shall extend only to the economic benefits under the Definitive Agreements, and shall not apply to, or be construed to modify, waive or affect (1) either Section 7 or the 9th Circuit Peabody Coal decision, or (2) any economic benefits under or from (a) any amendments to the Definitive Agreements, or (b) the “coal, oil, gas and other minerals” referenced in 25 U.S.C. 640d-6 that are not covered by the Definitive Agreements.  However, the 2002 SASA Settlement Agreement shall, upon execution of the Definitive Agreements, be deemed fully satisfied, extinguished and of no further force and effect, and no rights or obligations under the 2002 SASA Settlement Agreement shall survive or arise thereafter. 
D.	Disclosure of Amendments to the Definitive Agreements
	The parties agree that, within 30 days of any written amendment to the Definitive Agreements, both the Company (the “Notifying Company”) and the Tribe (the “Notifying Tribe”) that are parties to such amendment shall provide a copy thereof (“Notice”) to the other Tribe (the “Other Tribe”).  If either the Notifying Company or the Notifying Tribe provide such Notice, the Tribes agree to release and hold the Companies harmless from potential SASA claims related to the economic benefits under such amendment (including all claims based on the Notifying Tribe’s SASA liability, if any, to the Other Tribe) and the Other Tribe shall only have a SASA claim, if any, against the Notifying Tribe.  The Companies shall not be entitled to the benefit of such release and hold harmless with respect to the economic benefits under any amendment to the Definitive Agreements if there has been an adjudication under the dispute resolution provisions of the Definitive Agreements that (a) Notice of such amendment has not been given by the Notifying Company or the Notifying Tribe, and (b) such economic benefits are subject to SASA.  Nothing contained in the Definitive Agreements shall constitute an admission or acknowledgment that the Companies have any SASA liability, duty or obligation to either Tribe, and the Companies shall not be liable to either Tribe for damages solely by reason of their failure to give Notice.  

1.	Notice shall be directed to both the Office of the President and Office of the Attorney General in the case of the Navajo Nation and both the Office of the Chairman and the Office of the General Counsel in the case of the Hopi Tribe.
2.	The Companies shall have no obligation to notify the Tribes of additional economic benefits that are not provided under the terms of an amendment to the Definitive Agreements, and nothing contained in the Definitive Agreements shall be construed as waiving or affecting any SASA claim that either Tribe may have with respect to any such economic benefits.
E.	
Dispute Resolution for SASA Claims
	All claims for violation of the Notice obligations, and any related SASA claims, that the Other Tribe may raise against the Companies, shall be subject to the dispute resolution procedures of the Definitive Agreements.

	All claims for violation of the Notice obligations, and any SASA claims related to the economic benefits received by a Tribe under an amendment to the Definitive Agreements, or otherwise pertaining to the jointly owned coal leased under the Definitive Agreements, that one Tribe may raise against the other, shall be subject to the dispute resolution procedures of the Definitive Agreements.  Any other claims for the payment or receipt of economic benefits for minerals covered by Section 7, but not leased under the Definitive Agreements or any amendment thereto, shall not be subject to such dispute resolution procedures. 

ACKNOWLEDGED:

Navajo Nation

_______________________________	_______________________________

Hopi Tribe

________________________________	________________________________

Peabody

_________________________________	________________________________

MGS Owners

_________________________________	________________________________

NGS Owners

_________________________________	________________________________

Exhibit 1
List of Definitive Agreements
1.	Settlement Agreement between the Navajo Nation, Hopi Tribe, Peabody Western Coal Company, MGS Owners and NGS Owners. 

2.	Section 415 Lease between the MGS Owners and the Hopi Tribe for the necessary rights of way and easements on Hopi land for the C-Aquifer Project.

3.	Section 415 Lease between the MGS Owners and the Navajo Nation for the necessary rights of way and easements on Navajo land for the C-Aquifer Project, including the right to use 6,000 afy of C-Aquifer groundwater.

4.	C-Aquifer Project Operating Agreement between the MGS Owners, the Navajo Nation and the Hopi Tribe.

5.	Hopi Coal Lease 5743 Amendment between Peabody and the Hopi Tribe.  

6.	Navajo Coal Lease 8580 Amendment between Peabody and the Navajo Nation.  

7.	Navajo Coal Lease 9910 Amendment between Peabody and the Navajo Nation.

8.	Navajo Coal Bonus Agreement between the Navajo Nation, Peabody, MGS Owners and NGS Owners.

9.	Hopi Coal Bonus Agreement/Generation Performance Agreement Amendment between the Hopi Tribe, Peabody, MGS Owners and NGS Owners.  

10.	Section 323 Grant from the Secretary of the Interior to the MGS Owners for real property covered by Hopi Section 415 Lease.

11.	Section 323 Grant from the Secretary of the Interior to the MGS Owners for real property covered by Navajo Section 415 Lease.

12.	Section 323 Grants, and/or renewals of existing Section 323 Grants, from the Secretary of the Interior to Black Mesa Pipeline Company.

13.	Releases from the United States in favor of Peabody, the MGS Owners and NGS Owners.

Exhibit 2
Navajo-Hopi Coal Leasing Settlement Act

Exhibit 3

Navajo Well Field