Settlement And Mutual Release Agreement

Exhibit 10.1 SETTLEMENT AND MUTUAL RELEASE AGREEMENT This Settlement and Mutual Release Agreement (" Settlement Agreement" ) is made this 23rd day of June, 2006, by and among BPI Energy, Inc., for itself and as successor by merger or otherwise to Methane Management, Inc. and BPI Industries, Inc., (" BPI" ), Colt LLC (" Colt" ), AFC Coal Properties, Inc. (" AFC" ), American Premier Underwriters, Inc. (" APU" ), and Central States Coal Reserves of Illinois, LLC (" Central States" ) (collectively, the " Parties" ). WHEREAS, each of the Parties is or was a party or assignee to that certain Oil, Gas and Coal Bed, Methane Gas Lease dated April 3, 2001, as amended (the " Methane Lease" ); WHEREAS, disputes have arisen between the Parties regarding their rights and obligations under the Methane Lease; WHEREAS, on March 15, 2006, BPI filed a lawsuit against Colt, AFC, APU and Central States before the United States District Court for the Southern District of Ohio, styled as BPI Energy, Inc. v. Colt LLC, et al., Case No. 06-cv-144 (the " Lawsuit" ), seeking injunctive, declaratory and other relief relating to BPI' s alleged right to produce coal bed methane gas under the Methane Lease; WHEREAS, Colt, AFC and APU each filed an answer in the Lawsuit denying any liability for the claims asserted, Colt counterclaimed against BPI for declaratory and other relief, and Central States filed a motion to dismiss the Lawsuit; WHEREAS, an interlocutory appeal arising from the Lawsuit is currently pending before the United States Court of Appeals for the Sixth Circuit, Appeal No. 06-3559 (the " Appeal" ) (the Lawsuit and the Appeal referred to collectively as the " Action" );

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WHEREAS, the Parties desire to forever release and extinguish all claims that were brought or could have been brought in the Action; and WHEREAS, contemporaneously with the execution of this Agreement, the Colt and BPI are executing that certain Purchase and Sale Agreement (" Purchase and Sale Agreement" ) dated as of the same date as this Settlement Agreement, a copy of which is attached as Exhibit A and to which reference is hereby made. NOW, THEREFORE, in consideration of the promises, covenants and undertakings set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Conditions Precedent . The following actions shall have occurred before or shall occur contemporaneous with the execution of this Settlement Agreement: (a) Colt shall acquire any and all of the Methane Assets that it has conveyed to any of its affiliates, as provided in Section 3.1(a) of the Purchase and Sale Agreement. (b) Colt shall obtain from AFC and/or APU, as appropriate, the right, title and interests described in Section 3.1(b) of the Purchase and Sale Agreement. (c) Colt and BPI shall execute the Purchase and Sale Agreement, and Colt shall execute and deliver the Quit Claim deeds to BPI as contemplated by Section 5.2 of the Purchase and Sale Agreement. (d) BPI shall make a lump sum cash payment of Three Million and 00/100 Dollars ($3,000,000.00) (the " Settlement Sum" ), as provided in Section 2.1 of the Purchase and Sale Agreement. (e) The Parties shall execute a Termination Agreement, as provided in Section 6.3(d) of the Purchase and Sale Agreement.

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2. Mutual Release . Upon the occurrence and happening of each of the conditions precedent set forth in Section One above and except as otherwise explicitly stated in this Settlement Agreement, for and in consideration of the mutual agreements set forth herein, each of the Parties hereby, for each of them and for their respective agents, attorneys, servants, employees, officers, directors, shareholders, members, partners, predecessors, successors, and assigns, RELEASE, ACQUIT and FOREVER DISCHARGE each other, and each other' s respective agents, attorneys, servants, employees, officers, directors, shareholders, members, partners, successors, and assigns, and all related firms, entities, corporations, associations, or partnerships, of and from any and all manner of liability, claims, actions, causes of action, demands, damages, costs (including costs of suit and attorneys' fees), loss of service, expenses, compensation, judgments, awards, and suits, either civil, criminal or administrative, known or unknown, foreseen and unforeseen, suspected and unsuspected, whether or not legally cognizable, now existing, arising out of, or in any way relating to the Methane Lease, the Action, or any other claims arising from the beginning of time up to the date of this Settlement Agreement. 3. No Accrued Obli ...