EXHIBIT 10.2

 

Portions of this exhibit indicated by “******” have been omitted pursuant to a
request for

confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934,
as

amended, and the omitted material has been separately filed with the Securities
and

Exchange Commission.

 

ANCILLARY SERVICES AGREEMENT

 

THIS ANCILLARY SERVICES AGREEMENT (“Agreement”) is made on the 22nd day of June,
2005, effective as of the 1st day of January, 2007 (the “Effective Date”), by
and between Virginia Electric and Power Company, a Virginia public service
corporation with its principal office located in Richmond, Virginia, trading in
the Commonwealth of Virginia as “Virginia Power” and in the State of North
Carolina as “North Carolina Power” (hereinafter referred to as “Virginia
Power”), and Alliance Coal, LLC, a Delaware limited liability company with its
principal office located in Tulsa, Oklahoma (hereinafter referred to as
“Alliance”). Virginia Power and Alliance sometimes are referred to hereinafter
individually as a “party” and collectively as the “parties.”

 

RECITALS

 

WHEREAS, Virginia Power owns and operates the Mt. Storm Power Station
(“Station”) in Grant County, West Virginia; and

 

WHEREAS, Alliance and Virginia Power have entered into that certain Agreement
for the Supply of Coal dated of even date herewith (the “Coal Supply Agreement”)
pursuant to which Virginia Power has agreed to purchase, and Alliance has agreed
to sell, coal for shipment to the Station; and

 

WHEREAS, subject to the terms and conditions hereof, as part of Alliance’s
obligation to supply coal to Virginia Power under the Coal Supply Agreement,
Alliance has agreed that it and/or its subcontractor(s) will provide certain
ancillary services to the Station in order to meet Alliance’s coal delivery
obligations under the Coal Supply Agreement and to blend coal meeting the
quality specifications required under the Coal Supply Agreement; and

 

WHEREAS, subject to the terms and conditions hereof, such ancillary services
shall include (a) the operation, use, maintenance and repair of the existing
truck unloading facility owned by Mettiki Coal, LLC and located at the Station
(the “Existing Truck Unloading Facility”), (b) the operation and use of the
existing Coal Silos (as defined in Section 1.1(o) of the Coal Supply Agreement)
and (i) the operation, maintenance and repair of the coal reclaim systems
located at the base of such Coal Silos, (ii) the maintenance and repair of the
chute work and mechanical interconnections of the Existing Truck Unloading
Facility located near the top of such Coal Silos, and (iii) the cleaning of the
interior of the Coal Silos in order to maintain for Alliance’s performance under
the Coal Supply Agreement the existing level of derated storage capacity of the
Coal Silos which is more particularly described in Section 1.1(o) and Section
7.7(a)(3) of the Coal Supply Agreement, (c) the operation, use, maintenance and
repair of a coal storage and blending facility at the Station (the “Storage and
Blending Facility” and together with

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the Existing Truck and Unloading Facility and the foregoing Coal Silos, the
“Facilities”), (d) certain snow removal services, and (e) such other services as
may be mutually agreed to by the parties from time to time.

 

NOW, THEREFORE, in consideration of the above Recitals, which are incorporated
herein, and for and in consideration of the mutual covenants and agreements set
forth below, the parties, intending to be legally bound, agree as follows:

 

1. Ancillary Services.

 

(a) During the term hereof, unless otherwise mutually agreed to by the parties,
Alliance and/or its subcontractors will (1) operate, use, maintain and repair
the Existing Truck Unloading Facility, (2) operate, use, maintain and repair the
Storage and Blending Facility, (3) operate and use the Coal Silos (as defined in
the Coal Supply Agreement) and (A) maintain and repair the coal reclaim systems
at the base of the Coal Silos, (B) maintain and repair the chute work and
mechanical interconnection of the Existing Truck Unloading Facility located near
the top of the Coal Silos and (C) clean the interior of the Coal Silos in order
to maintain for Alliance’s performance under the Coal Supply Agreement the
exiting level of derated storage capacity of the Coal Sales which is more
particularly described in Section 1.1(o) of the Coal Supply Agreement, (4)
provide snow removal services in accordance with this Agreement, and (5) provide
such other services as may be mutually agreed to from time to time by the
parties (the services set forth in subparagraphs (1) through (5) being referred
to hereinafter as the “Ancillary Services”). Alliance shall provide, and be
compensated for in accordance with the terms of Section 6 hereof, all labor,
maintenance, equipment and spare parts necessary to perform the Ancillary
Services. Virginia Power acknowledges and agrees that it will take any and all
such actions as may be reasonably necessary or required to enable Alliance to
perform its obligations hereunder.

 

(b) Alliance shall make such capital improvements to the Existing Truck
Unloading Facility, the Storage and Blending Facility and the Coal Silos as are
required for the safe and efficient operation of the same. Before making any
such capital improvement, Alliance shall obtain in writing Virginia Power’s
consent, which consent will not be unreasonably withheld, delayed or
conditioned.

 

(c) During the term of this Agreement, Alliance shall maintain the Facilities in
accordance with prudent utility practices; provided, however, the parties
acknowledge and agree that with respect to the Coal Silos, Alliance only shall
be required to (i) maintain and repair the coal reclaim systems located at the
base of such Coal Silos, (ii) maintain and repair the chute work and mechanical
interconnection of the Existing Truck Unloading Facility located near the top of
the Coal Silos, and (iii) clean the interior of the Coal Silos in order to
maintain for Alliance’s performance under the Coal Supply Agreement the existing
level of the derated storage capacity of the Coal Sales which is more
particularly described in Section 1.1(o) and Section 7.7(a)(3)of the Coal Supply
Agreement. As used herein, the term “prudent utility practices” shall mean those
practices, designs, methods, means, techniques, equipment and acts then
generally accepted by the electric utility industry and commonly used
engineering and operations

 

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consistent with good business practices, reliability, safety, efficiency and
economy as they may apply to units of the size and service of the Facilities.
Virginia Power acknowledges and agrees that it will be solely liable and
responsible for the present and future structural integrity of the Coal Silos
and any present and future latent and patent defects in the Coal Silos, as well
as all costs and expenses for the repair, replacement and maintenance of the
Coal Silos.

 

(d) Alliance shall maintain copies of all records of maintenance and other work
done at the Facilities during the term of this Agreement. Upon request, Virginia
Power shall have the right to inspect and audit such records. Alliance shall
provide Virginia Power with all such records upon the expiration of the
termination of the term of this Agreement.

 

(e) If, at any time during the term of this Agreement, Virginia Power in the
exercise of its reasonable commercial judgment, determines that Alliance is not
maintaining the Existing Truck Unloading Facility and/or the Storage and
Blending Facility as required above, and/or providing Ancillary Services
consistent with good business practices, reliability, safety, efficiency and
economy as they may apply to units of the size and service of such Facilities,
then Virginia Power may provide written notice citing areas of Alliance’s
nonperformance. Alliance will materially cure such nonperformance within thirty
(30) days of receipt of Virginia Power’s written notice. If Alliance determines
in the exercise of its reasonable commercial judgment that such nonperformance
can not be cured within such thirty (30) day period by the exercise of
reasonable diligence, Seller shall provide to Buyer in writing Seller’s good
faith estimated schedule of when such nonperformance will be cured by the
exercise of reasonable diligence. If Alliance fails to materially correct such
nonperformance within thirty (30) days of receipt of Virginia Power’s written
notice (or within such longer period of time as Seller has indicated in the
schedule provided to Buyer), then Virginia Power may, in its sole discretion and
at Alliance’s sole expense, perform such maintenance or repairs to the
Facilities as Virginia Power may reasonably deem advisable and, in such event,
Virginia Power shall have the right to enter upon the Facilities at any time to
perform such maintenance or repairs. Virginia Power may deduct such costs and
expenses incurred by Virginia Power from amounts due Alliance under this
Agreement and the Coal Supply Agreement.

 

(f) Virginia Power acknowledges and agrees that Alliance may make minor
alterations, additions or improvements to the Facilities without Virginia
Power’s approval. All such alterations, additions, or improvements shall be done
is a good and workmanlike manner in compliance with all applicable building
codes and regulations, and no liens shall attach to the Facilities (or any part
thereof) by reason thereof. All such alterations, additions, or improvements
shall become and be deemed to be a permanent part of the Facilities and shall
not be removed by Alliance upon expiration or termination of this Agreement.
Alliance also shall provide Virginia Power with updated “as-built” drawings of
the Facilities showing the impact of all alterations, additions or improvements
to the Facilities.

 

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(g) Alliance shall have the right to place on Station property such
non-permanent machines, tools or other equipment and items as it shall consider
necessary or desirable for the purpose for which this Agreement is made
(collectively, “Equipment”). Such Equipment shall at all times remain the
personal property of Alliance (and/or its subcontractors) and may be removed by
Alliance (and/or its subcontractors) at any time, whether at the termination of
this Agreement, or prior thereto. Any machines, tools, equipment, or other items
which Alliance permanently affixes to the Facilities during the term of this
Agreement shall be deemed to be part of the Facilities. Promptly following the
termination or expiration of the term of this Agreement, Alliance will remove
all of its Equipment from the Station property. If the Equipment is not so
removed within thirty (30) days following termination or expiration of the term
of this Agreement, Virginia Power shall have the right to remove it at
Alliance’s expense and without obligation to account to Alliance for any
Equipment so removed.

 

(h) Alliance, as an independent contractor, shall provide such ice and snow
removal services on the Roadway as are necessary in order to enable Alliance to
have all weather ingress and egress to and from the Facilities in connection
with Alliance’s delivery of coal to the Facilities pursuant to the Coal Supply
Agreement or as otherwise agreed to by the parties. Alliance shall furnish all
labor, supervision, materials (including, without limitation, anti-skid
materials approved for use on roads and highways in the State of West Virginia),
supplies, fuel, tools, motor vehicles and other equipment necessary to provide
such ice and snow removal on the Roadway, unless otherwise expressly agreed to
in writing by the parties.

 

Virginia Power, at its sole cost and expense, shall provide to Alliance all
deicing materials required and requested by Alliance in the exercise of
Alliance’s reasonable judgment for purposes of performing Alliance’s obligations
under this Section. Such deicing materials will be the same material used by
Virginia Power for Virginia Power’s use elsewhere on Station roads and will be
stockpiled by Virginia Power for use by Alliance at the salt storage building
near the ash facility. Alliance shall not be required to provide ice and snow
removal services on the Roadway except as specifically provided herein. Alliance
shall have no duty or obligation to otherwise maintain the Roadway except as
specifically provided in this Section.

 

(i) Alliance will operate, use and maintain the mechanical sample systems at the
Facilities pursuant to Annex D (Attachment A) attached to the Coal Supply
Agreement.

 

(j) Alliance will operate, use and maintain the belt scales at the Facilities
pursuant to Section 3.8 of the Coal Supply Agreement.

 

2. Term.

 

The term of this Agreement shall commence on the earlier of (a) January 1, 2007,
or (b) the date upon which the Storage and Blending Facility is ready for
startup and testing, and, thereafter, shall be coterminous with the term of the
Coal Supply Agreement unless otherwise mutually agreed to by the parties or
sooner terminated in accordance with the provisions of this Agreement.

 

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3. Termination.

 

Notwithstanding any other provision of this Agreement to the contrary, this
Agreement shall automatically terminate upon the expiration, cancellation, or
termination of the Coal Supply Agreement, unless otherwise mutually agreed by
the parties.

 

4. Personnel

 

The Ancillary Services may be provided by (a) Alliance and its employees, and/or
(b) Alliance’s agents, contractors, and subcontractors who have been approved in
writing by Virginia Power, such approval not to be unreasonably withheld,
delayed or conditioned. Virginia Power shall have the right, in its sole
discretion, to revoke such authorization in the event of violation of applicable
laws and regulations, on-site safety and/or drug/alcohol violations, or
threatened interference which are detrimental to the operation of the Station.
Removal from the Station property shall be immediate if required by Virginia
Power, otherwise loss of authorization shall be effective thirty (30) days after
Alliance receipt of written notice stating in reasonable detail the reason
therefore.

 

5. Access to the Facilities.

 

Alliance shall have access to the Facilities along a roadway owned, used and
controlled by Virginia Power (the “Roadway”). Except as provided in this Section
5, Virginia Power shall reasonably maintain the Roadway used for such access so
as not to unreasonably impair Alliance’s performance under this Agreement and/or
the Coal Supply Agreement; provided, however, Alliance shall be responsible for
the restoration of said Roadway to its immediately prior condition for any
damage to the condition of the Roadway: (i) caused by Alliance, its employees or
subcontractor(s), and (ii) beyond reasonable wear and tear considering the
intended use of the Roadway by Alliance, Virginia Power, and Virginia Power’s
other subcontractors and suppliers.

 

6. Compensation; Invoicing and Payment.

 

(a) Virginia Power shall compensate Alliance for Ancillary Services and all
capital improvements approved by Virginia Power and made to the Facilities after
the initial construction of the Storage and Blending Facility ******.

 

(b) The invoicing and payment of Alliance’s compensation for the Ancillary
Services will be effected in accordance with Article 6 of the Coal Supply
Agreement.

 

(c) The parties agree that Section 7.6 (Affiliate Pricing Covenant) of the Coal
Supply Agreement is incorporated herein by reference.

 

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7. Use or Storage of Hazardous Materials.

 

(a) Alliance shall not, at any time, use, store, or permit the use or storage
of, on the Station property, any material designated as hazardous or toxic
(either in its original form or as waste upon disposal) unless reasonably
required by Alliance or Alliance’s subcontractor(s) for the operation and
maintenance of the Facilities and such use or storage is conducted pursuant to
applicable laws, rules, regulations or ordinances. Alliance agrees not to commit
or permit any waste or nuisance on or about the Station property nor do or
permit any act that poses a threat of environmental harm or damage. Without
limitation of the foregoing, Alliance shall not dispose of any hazardous or
toxic material or petroleum product in, or cause or permit release of any such
material or product into, land, water, storm drains or sewers on the Station
property.

 

(b) Virginia Power shall provide Alliance with written notice of any violation
of the provisions of Section 7(a). If Alliance, in accordance with the
applicable laws, fails to initiate correction of such violation and does not
identify a cure reasonably acceptable to Virginia Power with a specified course
of action within thirty (30) days of receipt of Virginia Power’s written notice,
Alliance will be in material default under this Agreement. In the event Alliance
fails to comply with Section 7(a) above, and fails or refuses to remedy such
noncompliance within thirty (30) days of receipt of written notice from Virginia
Power (or within such period of time as is reasonable in the event such
nonperformance cannot reasonably be cured within such thirty (30) day period,
and Alliance is proceeding with all reasonable diligence to cure such
nonperformance), Virginia Power may immediately take remedial action to prevent
further noncompliance and contain and clean up releases of such materials or
products, and Alliance shall indemnify Virginia Power for any reasonable costs
and expenses Virginia Power so incurs. Virginia Power may deduct such costs and
expenses from amounts due Alliance under the Coal Supply Agreement. Nothing in
this Section 7 shall relieve Alliance of any of its obligations or liabilities
under this Agreement or the Coal Supply Agreement.

 

(c) Alliance shall not place underground or aboveground storage tanks, other
than those required for the operation of the Existing Truck Unloading Facility
on the Station property without Virginia Power’s prior written consent.

 

(d) In addition to any obligation imposed by the laws of the State of West
Virginia or any other provision of this Agreement that is not in conflict with
the Coal Supply Agreement, Alliance shall, comply with all applicable state and
federal spill reporting requirements and shall provide immediate notice to
Virginia Power of all known events and occurrences which are regulated by the
spill reporting laws.

 

8. Utilities and Other Services.

 

During the term of this Agreement, Virginia Power agrees to provide Alliance, at
Virginia Power’s expense, electricity, water and other utilities required for
the provision of the Ancillary Services. Alliance shall use electricity, water
and other utilities provided by Virginia Power only for purposes of providing
Ancillary Services.

 

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9. Permits and Licenses.

 

The parties shall obtain and maintain at all times during the term of this
Agreement, all licenses, permits, rights, variances, or other approvals required
under Section 11.3 of the Coal Supply Agreement.

 

10. Default.

 

Any default under this Agreement will constitute a default under the Coal Supply
Agreement.

 

11. Virginia Power’s Agent.

 

By written notice to Alliance, Virginia Power may designate an agent for the
purposes of administering this Agreement on its behalf.

 

12. Limitation of Liability.

 

Article 10 of the Coal Supply Agreement is hereby incorporated into this
Agreement. In addition, except as expressly otherwise provided in this Agreement
or the Coal Supply Agreement, Virginia Power shall not be liable to Alliance for
injury or death of persons or damage to property arising on account of any
latent or patent defects in the Existing Truck Unloading Facility. Virginia
Power shall be liable for any losses, claims or liabilities for loss of or
damage to the Existing Truck Unloading Facility as the result of the negligence
or willful misconduct of Virginia Power, its agents, contractors, or
subcontractors.

 

13. Insurance.

 

Alliance shall obtain and maintain, and require its contractors and
subcontractors to obtain and maintain, all policies and coverage’s of insurance
as required under Section 12.10 of the Coal Supply Agreement.

 

14. Indemnity.

 

The parties each agree to indemnify the other as set forth in Section 12.11 of
the Coal Supply Agreement, the terms of which are hereby incorporated into this
Agreement. Nothing contained in this Agreement shall be construed to require
either party to indemnify the other against the other party’s willful misconduct
or negligence.

 

15. Compliance with Laws.

 

Section 11.1 of then Coal Supply Agreement is hereby incorporated herein.

 

16. Assignment.

 

The provisions of Section 12.1 of the Coal Supply Agreement shall apply to this
Agreement with regard to assignment and the parties recognize that such
assignment shall not alter the rights and obligations of the assigned party with
respect to this Agreement and the Coal Supply Agreement.

 

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17. Waiver of Liens.

 

(a) Alliance waives, and shall require its contractors, subcontractors, and
suppliers of any tier to waive, any and all liens and claims, and the right to
file and enforce or otherwise assert any such liens and claims, against Virginia
Power, the Facilities or the Station property for work done, services performed
or materials or equipment furnished in connection with any work on the
Facilities for or on behalf of Alliance.

 

(b) If any liens or claims are filed or asserted against Virginia Power, the
Facilities or the Station property for services performed or material or
equipment furnished by Alliance’s contractors, subcontractors or suppliers or
any tier in connection with work performed on the Facilities, Alliance shall
promptly discharge or remove any such lien or claim by bonding, payment or
otherwise and shall notify Virginia Power promptly when it has done so. Alliance
assumes all liability for, and will indemnify, protect, save and hold harmless
Virginia Power and Virginia Power’s directors, officers and employee from and
against all such liens and claims.

 

18. Notices.

 

Any notice required or permitted to be given in writing hereunder shall be
executed in the manner set forth under Article 13 of the Coal Supply Agreement.
The reference to “Seller” in such Article 13 shall mean “Alliance” for purposes
of this Agreement.

 

19. Regulatory Changes.

 

In the event that a governmental agency has authority to regulate the charges
for, and conditions of, the performance of the Ancillary Services as described
in this Agreement, or acquires such authority subsequent to the effective date
of this Agreement, then this Agreement shall be subject to regulation by such
governmental agency (“Regulatory Change”). In such event, this Agreement shall
be modified but only to the extent necessary to comply with such regulations.
Any provisions of this Agreement not subject to regulation shall remain in full
force and effect.

 

20. Force Majeure.

 

Article 9 of the Coal Supply Agreement is hereby incorporated into this
Agreement.

 

21. Miscellaneous.

 

  (a) Governing Law.

 

This Agreement and the rights of the parties hereunder shall be governed by,
construed and enforced in accordance with the laws of the State of West
Virginia. This Agreement shall be deemed to have been executed in West Virginia
regardless of the actual place of signing or the actual place of performance.

 

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  (b) Non-Waiver of Rights.

 

The failure of either Alliance or Virginia Power to demand strict performance of
the terms of, or to exercise any right conferred in, this Agreement shall not be
construed as a waiver or relinquishment of its right to assert or rely upon any
such term or right in the future, or a consent to any continuing or subsequent
failure or breach.

 

  (c) Survival.

 

Section 12.4 of the Coal Supply Agreement is hereby incorporated into this
Agreement.

 

  (d) Relationship of the Parties.

 

This Agreement does not and shall not be construed to establish a partnership,
joint venture or other form of business association between Alliance and
Virginia Power, and neither party shall have the authority to obligate the other
without the other’s prior written consent. Virginia Power shall not be
considered an employer, either individually or jointly with Alliance, of any of
Alliance’s personnel or the personnel of Alliance’s contractors, subcontractors
or suppliers.

 

  (e) Headings.

 

Article and Section headings contained herein are inserted for convenience and
shall have no effect on interpretation or construction of this Agreement.

 

  (f) Successors and Assigns.

 

Section 12.3 of the Coal Supply Agreement is hereby incorporated into this
Agreement.

 

  (g) Authority.

 

Each of the parties warrants and represents to the other that this Agreement and
the transactions contemplated hereby have been duly authorized by all required
corporate or limited liability company action, as the case may be.

 

  (h) Severability.

 

Section 12.6 of the Coal Supply Agreement is hereby incorporated into this
Agreement.

 

22. Modification.

 

No amendment or modification of this Agreement shall be valid unless in writing
and executed by the duly authorized representatives of both parties.

 

23. Entirety.

 

This Agreement and the Coal Supply Agreement embody the entire agreement between
the parties with respect to the subject matter hereof and supersede any prior or
contemporaneous agreement or understanding between the parties. The parties
acknowledge and agree that in no event may this Agreement be terminated or
cancelled

 

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prior to the termination or cancellation of the Coal Supply Agreement. The
parties shall not be bound by or be liable for any statement, representation,
promise, inducement or understanding of any kind or nature not set forth or
provided for herein. No prior course of dealing, usage of trade or course of
performance shall be used to supplement or explain any term, condition or
instruction used in this Agreement, nor be deemed to effect any amendment.

 

24. Order of Precedence.

 

Notwithstanding any other term or provision of this Agreement, in the event of a
conflict between the terms and conditions of this Agreement, the Coal Supply
Agreement and the provisions of any Annex or Attachment to the Coal Supply
Agreement, the terms and conditions of the Coal Supply Agreement shall have
precedence over the conflicting provisions of the Annex or Attachment, and this
Agreement.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, on the date and year
first above written.

 

VIRGINIA ELECTRIC AND POWER

COMPANY

By:  

/s/ C. Edward Roarty

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Name:   C. Edward Roarty Title:   Authorized Representative ALLIANCE COAL, LLC
By:  

/s/ George C. Tichnell

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Name:   George C. Tichnell Title:  

Pursuant to Delegation of Authority

dated June 22, 2005

 

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