Execution Copy
 
EXHIBIT 10.8
 
 
COAL MINING LEASE
(FEDERAL #2 RESERVES)
 
Between
 
SUNCREST RESOURCES LLC
 
And
 
STERLING SMOKELESS COAL COMPANY
 
Dated December 19, 2002
 

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COAL MINING LEASE
 
INDEX
 
ARTICLE 1
TERM OF LEASE
Section 1.1
  
Term
  
2
ARTICLE 2
MINING OPERATIONS
Section 2.1
  
Mining Operations
  
3
ARTICLE 3
ROYALTIES
Section 3.1
  
Minimum Rental Payments
  
3
Section 3.2
  
Production Royalty Payments
  
4
ARTICLE 4
DEFAULT
Section 4.1
  
Events of Default
  
6
Section 4.2
  
Remedies
  
8
Section 4.3
  
Arbitration
  
10
ARTICLE 5
INDEMNIFICATION
Section 5.1
  
Indemnification of Lessor
  
11
ARTICLE 6
TAXES AND INSURANCE
Section 6.1
  
Payment of Taxes
  
11
Section 6.2
  
Insurance
  
12

 
 

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ARTICLE 7
INSPECTION AND MINE PLANS
Section 7.1
  
Lessor’s Right to Inspect
  
14
Section 7.2
  
Mine Plans
  
14
ARTICLE 8
LOST COAL QUANTITY
Section 8.1
  
Agreement to Acquire Adverse Interests
  
15
Section 8.2
  
Determination of Lost Coal Quantity
  
16
Section 8.3
  
Mandatory Sale of Lost Coal Quantities for Failure to Acquire Adverse Interests
  
17
Section 8.4
  
Federal No. 2 Order
  
17
Section 8.5
  
Determination of Lost Coal Quantity
  
17
Section 8.6
  
Mandatory Sale of Lost Coal Quantities for Adverse Chloride Event
  
19
ARTICLE 9
GENERAL
Section 9.1
  
Remedies Cumulative
  
20
Section 9.2
  
Notices
  
20
Section 9.3
  
Binding Effect of Lease
  
21
Section 9.4
  
Entire Agreement
  
21
Section 9.5
  
Governing Law and Section Headings
  
21
Section 9.6
  
Memorandum of Lease
  
21
Section 9.7
  
Relationship Between the Parties
  
21
Section 9.8
  
Separability of Provisions
  
22
Section 9.9
  
Force Majeure
  
22
Section 9.10
  
Reconveyance
  
23

 

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COAL MINING LEASE
 
THIS COAL MINING LEASE (“Lease”) is made and entered into as of the 19th day of
December, 2002, by and between Suncrest Resources LLC, a Delaware limited
liability company, having its principal offices at 2550 East Stone Drive, Suite
200, Kingsport, TN 37660 (the “Lessor”), and Sterling Smokeless Coal Company, a
West Virginia corporation, having its principal offices at 202 Laidley Tower,
Charleston, WV 25324 (the “Lessee”).
 
WITNESSETH:
 
WHEREAS, Lessor owns the fee interest in the Pittsburgh seam of coal in certain
tracts of land in Monongalia County, West Virginia (the “Fee Interests”); and
 
WHEREAS, Lessee has agreed to obtain (i) all subsidence rights with respect to
certain tracts of land in Monongalia County, West Virginia (the “Subsidence
Rights”), and (ii) certain adverse Pittsburgh seam of coal interests in four
tracts in Monongalia County, West Virginia (the “Adverse Pittsburgh Interests”
and, together with the Subsidence Rights, the “Adverse Interests”);
 
WHEREAS, the Fee Interests and the Adverse Interests are collectively referred
to herein as the “Coal Reserves”, which are fully described in Exhibit A
attached hereto and made a part hereof; and
 
WHEREAS, Lessee desires to lease the Coal Reserves from Lessor for the purpose
of mining such coal reserves by any underground mining method;
 
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
hereinafter contained, the parties hereto agree as follows:
 
Subject to the terms hereof, Lessor does hereby lease unto Lessee the Coal
Reserves for the purpose of mining the coal by any underground mining method.
Lessor also grants to Lessee all such mining rights held by Lessor with respect
to the Coal Reserves.
 

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NOTWITHSTANDING ANY PROVISION IN THIS LEASE OR ANY AGREEMENT REFERRED TO HEREIN
OR ATTACHED HERETO, LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, WHETHER OF
MERCHANTABILITY, QUALITY, QUANTITY, RECOVERABILITY, TITLE OR OTHERWISE AS TO THE
COAL RESERVES OR LESSOR’S INTERESTS THEREIN OR MINING RIGHTS OWNED BY LESSOR, OR
AS TO THE CONDITION OF THE COAL RESERVES AND LESSEE SHALL RELY UPON ITS OWN
EXAMINATION THEREOF THROUGH ENGINEERS AND OTHER REPRESENTATIVES SELECTED AND
EMPLOYED SOLELY BY LESSEE.
 
Lessee’s rights hereunder are subject, however, to all rights existing as of the
date hereof, including, but not limited to, coalbed methane rights, oil and
natural gas lease rights, public roads, public drainage ditches, easements for
power lines, pipelines, railroads and rights-of-way, telephone lines, buried
cables and all other easements.
 
TO HAVE AND TO HOLD the same unto the Lessee, its successors and assigns, for
and during the term herein set forth and upon the following terms and
conditions:
 
ARTICLE 1
 
TERM OF LEASE
 
Section 1.1 Term. The term of this Lease shall commence on the date hereof and
terminate on the earlier of (a) the date on which all of the “mineable” and
“merchantable” coal shall have been removed from the Coal Reserves or (b) the
Purchase Date (as defined in Section 9.1(a) of the Purchase and Sale Agreement
dated the date hereof (the “Purchase Agreement”) among Eastern Associated Coal
Corp. (“EACC”), Penn Virginia Resource Partners, L.P., Peabody Energy
Corporation (“Peabody”) and Peabody Natural Resources Company. For purposes of
this Lease, the term “mineable coal” shall mean coal which can be mined by the
use of modern, practical and efficient machinery, facilities and methods. The
term “merchantable” coal shall mean coal that is generally mineable at a profit
to Lessee.
 

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ARTICLE 2
 
MINING OPERATIONS
 
Section 2.1 Mining Operations. Lessee shall promptly upon execution of this
Lease begin and diligently continue to mine and remove the mineable and
merchantable Coal Reserves, subject only to Force Majeure (as defined in Section
9.9 hereof), in a skillful and professional manner in accordance with
commercially modern mining practices having due regard for the value of the Coal
Reserves so as to avoid damage and waste of the Coal Reserves. Lessee shall
conduct its mining operations and any other activities conducted by Lessee with
respect to the Coal Reserves, including but not limited to permitting,
reclamation and bonding obligations, in accordance with, and shall comply with,
all federal, state and local laws and the lawful rules, regulations and orders
of any governmental authority (collectively, “Laws and Regulations”) in respect
of such mining operations and other activities. Lessee shall have the
obligation, at the cost and expense of Lessee, to do and perform, with respect
to the Coal Reserves, whatever may be required by all Laws and Regulations
(including, without limitation, Environmental Laws (as defined in the Purchase
Agreement)) to be performed by Lessee, or may be deemed by Lessee to be so
required or to be advisable.
 
ARTICLE 3
 
ROYALTIES
 
Section 3.1 Minimum Rental Payments. Lessee will pay to Lessor a recoupable
monthly minimum rental payment (the “Minimum Rental Payment”) in the amount of
$416,667 commencing on the 25th day of the month immediately following the month
during which this Lease was executed and delivered and continuing each month
thereafter (it being acknowledged that the first Minimum Rental Payment shall be
that amount equal to (x) $416,667 times (y) a fraction the numerator of which is
the number of days remaining in the month during which this Lease is executed
and the denominator of which is 31) until the earlier to occur of (i) the
eight-year anniversary of the date hereof, (ii) the date on which Lessee has
paid to Lessor Production Royalty
 

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Payments (as defined in Section 3.2 hereof) with respect to (A) 40 million tons
of Coal Reserves, less (B) any tons of Coal Reserves sold pursuant to Article 8
or (iii) the date on which the remaining Coal Reserves are insufficient to allow
for recoupment of the Minimum Rental Payments which have been paid but not
recouped (the “Minimum Period”), provided, however, that in the event that the
remaining Coal Reserves (whether or not mineable and/or merchantable) are
insufficient to allow for recoupment of the full Minimum Rental Payment, then
the Minimum Rental Payment for the applicable month shall be prorated in
proportion to the ratio of tons of Coal Reserves remaining (whether or not
mineable and/or merchantable) to the tons necessary for recoupment of the full
Minimum Rental Payment. All Minimum Rental Payments shall be paid on the 25th
day of each calendar month during the Minimum Period and shall be recouped
against Production Royalty Payments as set forth in Section 3.2. Lessee’s
obligation to pay Minimum Rental Payments during the Minimum Period shall be
absolute and shall not be subject to Force Majeure or any other contingency or
event.
 
Section 3.2 Production Royalty Payments.
 
(a) Payment for Coal Mined. For all coal mined from the Coal Reserves by Lessee
hereunder and sold by Lessee, Lessee shall pay to Lessor a royalty (a
“Production Royalty Payment”) in a fixed amount per ton of coal sold by Lessee
as follows:
 
Time Coal Sold
    
Production Royalty Rate
Commencement of Lease – December 31, 2003
    
$1.09
January 1, 2004 – December 31, 2004
    
$1.20
January 1, 2005 – December 31, 2005
    
$1.31
January 1, 2006 – December 31, 2006
    
$1.42
January 1, 2007 – December 31, 2007
    
$1.53
January 1, 2008 – December 31, 2008
    
$1.64
January 1, 2009 – December 31, 2009
    
$1.71
January 1, 2010 and thereafter
    
$1.75

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In the event that the Production Royalty Payment in any month is less than the
Minimum Rental Payment, the excess of the Minimum Rental Payment over the
Production Royalty Payment (“Recoupable Royalty”) shall be recoupable as
provided below. In the event that the Production Royalty Payment in any month
equals or exceeds the Minimum Rental Payment, no Minimum Rental Payment shall be
due. In the event that the Production Royalty Payment in any month exceeds the
Minimum Rental Payment and there exists a balance in the Cumulative Recoupable
Royalty (defined below), the Production Royalty Payment for such month shall be
reduced by all or a portion of the Cumulative Recoupable Royalty. The resultant
Production Royalty Payment for such month shall not be reduced to an amount less
than the Minimum Rental Payment for such month. The reduction shall be referred
to as the “Reduction Amount.” The “Cumulative Recoupable Royalty” for any month
shall be the aggregate total of the Recoupable Royalty for all months preceding
the current month less any Reduction Amount used to reduce the Production
Royalty Payment for any months preceding the current month.
 
(b) Lessee to Keep Records. Lessee shall keep accurate records of truck scale
weights and/or railroad car weights, whichever is or are applicable, which shall
be taken as the basis for payment of Production Royalty Payments. Lessee shall
keep a true and correct record of all coal mined, removed and sold from the Coal
Reserves. Lessee shall keep a true and correct record of the produced but unsold
inventory of coal mined from the Coal Reserves at the end of each calendar year
and shall deliver a copy of such record to Lessor by February 1st of each year
during the term hereof. In accordance with the provisions contained in Section
7.1, Lessee shall permit Lessor or its agents, at all reasonable times, to
inspect the records, and perform other practical and reasonable investigations
to check the accuracy of the weighing records of Lessee. Lessor, through its
agents, may enter upon the Coal Reserves at any time for the purpose of
verifying the quantity of coal removed therefrom.
 
(c) Time and Place of Payment of Production Royalty Payments. All Production
Royalty Payments shall be paid by Lessee to Lessor on or before the 25th day of
each calendar month on all coal sold by Lessee from the Coal Reserves during

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the preceding calendar month (or part thereof) during the term hereof. All
Production Royalty Payments shall be paid in immediately available funds by wire
transfer to such account as Lessor may designate from time to time in writing.
Contemporaneously with each payment of Production Royalty Payments hereunder,
Lessee shall deliver to Lessor a statement from Lessee showing the number of
tons of coal sold from the Coal Reserves by Lessee during the calendar month for
which such Production Royalty Payment relates, and the computation of royalties
payable on such coal so sold during such calendar month, offset by Minimum
Rental Payments made pursuant to Section 3.1 hereof and recoupable in accordance
with Section 3.2. Any late payment of Production Royalty Payments shall bear
interest at the rate of 8% compounded annually.
 
ARTICLE 4
 
DEFAULT
 
Section 4.1 Events of Default. Upon the occurrence of any of the following
events (an “event of default”), Lessor shall have the remedies provided in
Section 4.2:
 
(a) Lessee shall fail to pay any Minimum Rental Payment or Production Royalty
Payment after the same is due hereunder and such failure shall continue for two
business days after Lessor has given notice to Lessee; or
 
(b) Lessee shall fail for a period of 30 days after written demand therefor from
Lessor to pay any sums due for Taxes as provided herein; or
 
(c) Lessee shall abandon the mineable Coal Reserves; or
 
(d) Lessee or any of its successors or assigns, shall, pursuant to Title 11,
United States Code, as amended, or any similar Federal or state law for the
relief of creditors (“Bankruptcy Law”), (i) commence a voluntary case; (ii)
consent to the entry of an order for relief against it or any of its
Subsidiaries (as defined in the Purchase Agreement) in an involuntary case in
which it is the debtor; (iii) consent to the appointment of a receiver; trustee,
assignee, liquidator, custodian or similar official

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under any Bankruptcy Law; or (iv) make a general assignment for the benefit of
its creditors; or
 
(e) Lessee shall fail to:
 
(i) diligently continue its operations as required in Section 2.1 hereof; or
 
(ii) conduct its mining operations and any other activities conducted by Lessee
with respect to the Coal Reserves in compliance with all Laws and Regulations as
required in Section 2.1 hereof; or
 
(iii) maintain and make available to Lessor those records as required to be so
maintained and made so available by Section 3.2 hereof; or
 
(iv) provide workers compensation insurance, Employer’s Liability insurance,
Comprehensive Automotive Liability insurance, Property insurance and
Comprehensive General Liability insurance as required in Section 6.2 hereof; or
 
(v) provide such information and access to Lessor in connection with its
inspection of Lessee’s mine workings and records as required in Section 7.1
hereof; or
 
(vi) provide Lessee’s mine plans and files to Lessor, and make available all
permits to Lessor, as required in Section 7.2 hereof; or
 
(vii) comply with the indemnity provisions of Section 5.1 hereof; or
 
(viii) comply with the non-assignment and other provisions of Section 9.3
hereof; or
 
(ix) comply with the arbitration provisions of Section 4.3 hereof; or

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(x)  keep and perform any of the other terms, conditions, covenants and
agreements of this Lease to be kept and performed;
 
and any such failure shall continue for more than 30 days following written
notice thereof from Lessor to Lessee; provided, however, that if such failure
under this Section 4.1(e) cannot be cured within such 30-day period, Lessee
shall have such additional reasonable time to cure such failure if Lessee has
commenced such cure during such 30-day period and continues to diligently
attempt to cure such failure.
 
Section 4.2     Remedies.
 
(a)    Termination of Lease.  Upon the occurrence of an event of default, all
rights of Lessee hereunder to mine, process and ship coal as provided herein
shall, at the option of the Lessor (except for an event specified in Section
4.1(d) hereof, which event shall cause a forfeiture and termination ipso facto),
become forfeited and cease and determine (the date of such forfeiture and
cessation to be referred to herein as the “Date of Termination”), and Lessor
shall have the right, without notice or demand (except as set forth in Section
4.2(b)), and without legal action or notice or process required by any Laws and
Regulations, to reenter and reclaim the Coal Reserves and to exclude Lessee
therefrom and to hold the Coal Reserves free of any claims of Lessee; provided,
however, that Lessor shall not have the right to reenter and reclaim the Coal
Reserves if Lessee has paid to Lessor the Breach Sale Price; provided further,
however, that (i) Lessee shall fully comply with, perform and complete all of
its reclamation, environmental and other obligations hereunder, (ii) the
termination of this Lease in any manner or for any cause whatever shall not
relieve Lessee of its obligation for any payment of any sum which may have
accrued hereunder at or prior to the Date of Termination, it being acknowledged
that certain of such accrued obligations may be payable under Section 4.2(b) as
part of the Breach Sale Price and (iii) in the event Lessor shall assume this
Lease pursuant to Section 365 of Title 11 of the United States Code (the
“Bankruptcy Code”), then Lessee as debtor-in-possession, or any trustee,
receiver or liquidator appointed for Lessee’s benefit shall provide adequate
assurance of performance of the terms of this Lease and shall satisfy all other
Bankruptcy Code

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requirements for the assumption of this Lease; and if the trustee does not cure
all events of default then existing and provide such adequate assurances under
the Bankruptcy Code within the applicable time periods provided by the
Bankruptcy Code, then Lessee hereby agrees that cause exists under 11 U.S.C.
§362(d) for granting relief from the bankruptcy automatic stay, or Lessor may
determine in its sole discretion that the Lease shall be deemed rejected and
Lessor shall have the right to immediate possession of the Coal Reserves and
shall be entitled to all remedies provided by the Bankruptcy Code for damages
for breach and/or termination of this Lease. The remedy of termination in the
event of default by Lessee as above authorized shall not be deemed or
interpreted as the exclusive remedy available to Lessor, and Lessor may require
and enforce performance by Lessee of each and every term and provision of this
Lease incumbent upon the Lessee to be kept and performed, utilizing any
available remedy therefore unless Lessee shall have paid to Lessor the Breach
Sale Price in which case Lessor shall not have any further remedies available
for a breach and/or termination of this Lease other than damages incurred in
connection with Lessee’s failure to fully comply with its obligations described
in Section 4.2(a)(ii).
 
(b) Mandatory Sale for Breach. Upon and after the Date of Termination, Lessor
shall notify (the “Mandatory Sale Notice”) Lessee in writing that Lessor desires
to sell, assign and transfer the then remaining Coal Reserves to Lessee on
account of such event of default, which notice shall include the purchase price
(the “Breach Sale Price”) payable for such remaining Coal Reserves, which shall
be computed as follows: the product of (x) the difference between (i) 40 million
tons and (ii) that number which is the sum of (A) the number of tons of Coal
Reserves with respect to which Lessor had received Production Royalty Payments
and (B) the number of tons of Coal Reserves with respect to which Lessor has
received Cumulative Recoupable Royalty Payments (computed based on the Royalty
Rate at the time such Cumulative Recoupable Royalty Payments were made) which
are then outstanding, and (C) the Lost Coal Quantity, if any (as defined in
Section 8) and (D) the number of tons of Coal Reserves with respect to which
Pittsburgh Escrow Units have been delivered to Buyer, in accordance with the
Escrow Agreement (as such terms are defined in Section 8.3), times (y) the
Production Royalty rate in effect on the Date of Termination. The Breach

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Sale Price shall be payable by not later than three business days after the date
of the Breach Sale Notice (the “Due Date”). Upon receipt of the Breach Sale
Price, Lessor shall convey to Lessee or one of its affiliates by special
warranty deed all Coal Reserves and other rights granted under this Lease.
 
Section 4.3 Arbitration. Any disagreement between Lessor and Lessee arising
hereunder shall be submitted to binding arbitration in accordance with the rules
of the American Arbitration Association then in effect. A panel of three
arbitrators knowledgeable with the coal industry shall be named, one to be
selected by Lessee, one to be selected by Lessor, and within 15 days those two
arbitrators shall name a third arbitrator. Each party shall name their
representative arbitrator within 15 days of receipt of notice from the other
party requesting arbitration. If the two representative arbitrators are unable
to agree on the selection of a third arbitrator within 15 days, then the
American Arbitration Association shall designate a disinterested person to act
as such third arbitrator. If either of the parties should, for a period of 15
days after receipt of the notice referred to above, fail to select and make
known in writing to the other party the arbitrator selected by it, the one
party-selected arbitrator and an arbitrator selected by the American Arbitrator
Association shall constitute the Board. Either party may at any time serve upon
the other a notice setting forth the point or points upon which the decision of
the Board of Arbitration is desired and the other party may, within ten days
thereafter, serve a counter-notice specifying any additional points or
differences arbitrable hereunder upon which such other party may desire a
decision. The Board shall give ten days written notice of the time and place of
hearing to the respective parties, which hearing shall be held within 15 days
after the appointment of the third arbitrator. The Board shall make its decision
and award in writing within 20 days of such hearing. The decision and award of a
majority of the arbitrators shall be final, conclusive and obligatory upon the
said parties to this Lease, their successors and assigns, and without appeal,
and each party hereto agrees to abide by and comply with every such decision and
award. All questions of costs shall in each case be determined by the Board when
it renders its decision and in the interim each party shall pay one half of the
costs of the Board.

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ARTICLE 5
 
INDEMNIFICATION
 
Section 5.1 Indemnification of Lessor. Lessee does hereby indemnify and hold
Lessor, its parent, subsidiaries and other affiliates and its and their
respective officers, directors, partners, employees, agents, successors and
assigns (collectively, the “Indemnitees”) harmless of, from and against, any and
all claims, damages, demands, expenses, fines and liabilities (of any character
or nature whatsoever, regardless of by whom imposed), and losses of every
conceivable kind, character and nature whatsoever (including, but not limited
to, claims for losses or damages to any property or injury to or death of any
person) asserted by or on behalf of any person or entity arising out of,
resulting from or in any way connected with Lessee’s presence on the real
property in which the Coal Reserves are situated or mining of the coal from the
Coal Reserves. Lessee also covenants and agrees, at its expense, to pay, and to
indemnify and save the Indemnitees harmless of, from and against, all costs,
reasonable attorneys’ fees and expenses incurred by any Indemnitee in connection
with any claim for which any Indemnitee is indemnified hereunder. The
indemnification obligations under this Article 5 shall survive termination of
this Lease.
 
ARTICLE 6
 
TAXES AND INSURANCE
 
Section 6.1 Payment of Taxes. Lessee shall pay, at the times they become due and
payable in accordance with all Laws and Regulations, all taxes (except income
taxes payable by Lessor on account of its receipt of payments due hereunder)
fees, levies, assessments, including, but not limited to, ad valorem, excise,
license, privilege or severance taxes, and any other charges due with respect
to: (a) the fee estate or other interests of Lessor in the Coal Reserves; (b)
Lessee’s interest in this Lease; (c) the leasehold estate hereby created; (d)
all coal mined and produced from the Coal Reserves by Lessee and the products
thereof; (e) any buildings, structures, improvements, equipment or other
personal property of any kind owned or used by Lessee in connection with the
Coal Reserves; and (f) the exercise of any right or

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privileges in connection with Lessee’s operations hereunder (collectively
“Taxes”); so that Lessor shall be entirely relieved from such charges. Lessee
shall forward evidence of the payment of real estate taxes to Lessor promptly
after such payment is made, and Lessee shall permit Lessor and its agents at all
reasonable times to inspect the records evidencing payments of all other Taxes.
 
If Lessor makes any payment, either voluntarily or as required by law, on
account of any Taxes, then the amount thereof shall be repaid by Lessee to
Lessor immediately after the date Lessor submits a written statement to Lessee
regarding such payment.
 
Section 6.2 Insurance.
 
(a) Types and Amounts of Coverage. Lessee shall obtain and continue in force,
during the term of this Lease from Pacific Employers Insurance Company or other
insurance companies of similar size and reputation (or, in the case of Black
Lung, insurance as described in Section 6.2(a)(v)), the following insurance
coverages (including commercially reasonable deductible amounts):
 
(i) (A) Statutory workers’ compensation insurance or evidence of same through a
state self-insured workers’ compensation privilege or participation in a state
workers’ compensation fund in accordance with requirements of applicable Laws
and Regulations and (B) Employer’s Liability Insurance with limits of $2,000,000
each occurrence.
 
(ii) Comprehensive Automobile Liability insurance covering owned, non-owned and
hired motor vehicles which may be used in any connection with the mining
operations contemplated hereunder with limits of not less than $1,000,000
combined single limits in any one occurrence, for all liability arising out of
injury to or death of one or more persons, and for all liability arising out of
damage to or destruction of property, including loss of use thereof and
downtime.
 
(iii) Property Insurance in amounts equal to the full replacement cost (or the
highest insurable value if coverage for replacement cost is not

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available) covering all real and personal property and fixtures located on the
real property in which the Coal Reserves are situated, against loss or damage by
fire, lightning, explosion or other hazards covered under extended coverage
insurance. The proceeds of any loss payable under such policies as above
required shall be used by Lessee in the restoration, repair, or replacement of
the destroyed or damaged property as required for the performance of Lessee’s
obligations under this Lease.
 
(iv) Comprehensive General Liability insurance, including Contractual Liability,
Pollution Liability, Owners and Contractors Protective Liability, Broad Form
Property Damage Liability and Explosion and Collapse Hazards coverages with
Bodily Injury limits of $2,000,000 each person and $2,000,000 each occurrence.
 
(v) State and Federal Black Lung insurance, as required, and/or evidence of same
through a state self-insured privilege and/or participation in a state fund in
accordance with requirements of applicable Laws and Regulations, including any
liability arising out of the Federal Coal Mine Health and Safety Act of 1969, as
shall be amended from time to time, and/or any substitute, replacement, or
supplement thereto.
 
(b) Other Requirements. All policies and endorsements providing the insurance
required shall:
 
(i) Name Lessor as an Additional Insured;
 
(ii) Be primary to any and all other insurance of Lessor and the Indemnified
Parties with respect to any and all claims and demands which may be made against
them for bodily injury or death to Lessor’s or Lessee’s employees, contractors,
agents, invitees and guests, and for property damage, including damage to
Lessor’s or Lessee’s property, caused by or alleged to have been caused by any
act, omission or default, negligent or otherwise, of Lessee by reason of the
mining or other activities under this Lease; and

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(iii) Provide that it applies separately to each insured against which claim is
made or suit is brought, however in no event for more than the limit of
liability of the applicable policy.
 
(c) Certificates of Insurance.  Lessee shall promptly provide to Lessor
acceptable evidence in the form of an original certificate or certificates of
insurance from the respective insurance companies confirming that all coverages
and policies required hereinbefore are in full force and effect in the form
required, and confirming that Lessor will be notified in writing not less than
30 days prior to the cancellation or non renewal of any such insurance. Lessee
shall require its contractors, subcontractors and other agents performing any
work in connection with this Lease to obtain and maintain insurance for the
risks and in accordance with all the terms in this Section but at reasonable
limits designated by Lessee.
 
ARTICLE 7
 
INSPECTION AND MINE PLANS
 
Section 7.1 Lessor’s Right to Inspect. Lessor or its representatives at all
reasonable times, and upon advance notice, shall have the right to enter the
Coal Reserves for the purpose of inspecting the mine workings and premises or to
make surveys of the workings in the Coal Reserves herein leased to determine the
accuracy of Lessee’s surveys of such workings and to examine maps and
engineering records of Lessee with reference to said surveys. Lessee shall keep
records of all coal mined and sold from the Coal Reserves and Lessor shall have
the right to inspect the records at all reasonable times. Lessor agrees to treat
Lessee’s records as confidential and not to disclose such records. Lessee shall
not be responsible for any injury, loss or damages suffered by Lessor’s
representatives that enter the Coal Reserves, except for any injury, loss or
damages caused in whole or in part by the gross negligence of Lessee, its agents
or employees.
 
Section 7.2 Mine Plans. Lessee shall furnish to Lessor copies, in electronic and
paper formats, Lessee’s mine plan maps and any revisions thereto (which maps
shall depict mining plans and projections, Coal Reserve thickness, including
seam

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thickness, and elevation of coal seams). Such maps and files shall be provided
not less than twice each year and shall show the extent of workings through June
30 and December 31 of each year. Such maps shall be provided not later than
August 15 and February 15 of each year, as appropriate; provided, however, that
if Lessee changes its mine plan at any time to include the mining of areas
outside of the lands in which the Coal Reserves are located, Lessee shall
provide such maps and files to Lessor promptly upon making such change. Lessee
shall also make available to Lessor for inspection all permits (and applications
therefor, including all maps and diagrams submitted herewith) or other
authorizations issued to Lessee with respect to the Coal Reserves by any
regulatory authority. Lessor shall not interfere with Lessee’s permitting
activities, provided that Lessee shall have complied with the terms and
conditions of this Lease. In addition, Lessor agrees to treat Lessee’s maps and
files as confidential and not to disclose such maps and files (except as
required by applicable law or as publicly filed).
 
ARTICLE 8
 
LOST COAL QUANTITY
 
Section 8.1 Agreement to Acquire Adverse Interests. Lessee shall, at its own
expense, diligently seek to acquire, as soon as practicable but in no event
later than the applicable dates set forth in Schedule 8.1 (each such date, a
“Deadline”), Subsidence Rights with respect to each of the respective tracts of
land set forth opposite such Deadlines on Schedule 8.1, which tracts are located
in Monongalia County, West Virginia, as more particularly described in Schedule
8.1. Lessee shall, at its own expense, diligently seek to acquire, as soon as
practicable but in no event later than the applicable Deadlines set forth in
Schedule 8.1, the Adverse Pittsburgh Interests with respect to each of the
respective tracts of land set forth opposite such Deadlines on Schedule 8.1, as
more particularly described in Schedule 8.1. Upon acquisition of any of the
Adverse Interests, Seller Group shall promptly convey, or cause to be conveyed,
the Adverse Interest(s) to Lessor by special warranty deed in the same form as
the Special Warranty Deed dated December 19, 2002 (the “Federal Special Warranty
Deed”) between Lessor and EACC for the Coal Reserves. Lessee shall at that time

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provide all real estate documents in its possession with respect to such Adverse
Interest including, but not limited to, a title opinion on the Adverse Interest.
 
Section 8.2 Determination of Lost Coal Quantity. If Lessee fails to acquire any
of the Adverse Interests by the applicable Deadline, Lessee shall, by not later
than 5 business days after such Deadline, so notify (the “Mandatory Sale Adverse
Interest Notice”) Lessor in writing which notice shall describe the tract or
tracts that were not acquired and set forth Lessee’s estimate (including the
calculation thereof) of the quantity of tons of Coal Reserves that are rendered
unmineable as a result of Lessor’s failure to acquire such Adverse Interests
(“Lost Coal Quantity”). If Lessor and Lessee are unable to agree upon the Lost
Coal Quantity within 10 business days after the date of the Mandatory Sale
Adverse Interest Notice (“Adverse Interest Negotiation Period”), then Lessor and
Lessee shall each appoint an Eligible Mining Consultant (as defined below) of
its choice within five business days after the Adverse Interest Negotiation
Period. The two Eligible Mining Consultants appointed by the respective parties
shall appoint a third Eligible Mining Consultant not later than five business
days after such two Eligible Mining Consultants have been so appointed. Within
15 business days from the appointment of the third Eligible Mining Consultant,
each Eligible Mining Consultant appointed as aforesaid shall provide Lessor and
Lessee with a determination of the Lost Coal Quantity. The Lost Coal Quantity
shall be the average of the three determinations; provided, however, that for
purposes of calculating the average, the highest quantity shall in no event be
deemed to be more than 10% above the second highest quantity and the lowest
quantity shall in no event be deemed to be more than 10% below the second
highest quantity. The determination of the Lost Coal Quantity pursuant to this
Section 8.2 shall be final and binding on Lessor and Lessee and shall not be
appealable. Each of Lessor and Lessee shall be responsible for the costs and
expenses of its Eligible Mining Consultant appointee, and the costs of the third
Eligible Mining Consultant shall be shared equally by them. For the purposes of
this Agreement, “Eligible Mining Consultant” shall mean any of Marshall Miller
and Associates, Inc., John T. Boyd, Marston & Marston, NorWest Mine Services,
Inc. or Weir International and their respective successors and assigns.

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Section 8.3 Mandatory Sale of Lost Coal Quantities for Failure to Acquire
Adverse Interests. If Lessee fails to acquire any of the Adverse Interests by
the applicable Deadline, then Lessee shall pay Lessor in immediately available
funds by wire transfer to an account designated by Lessor for the Lost Coal
Quantity related to such Adverse Interest an amount equal to (a) the product of
(x) the Lost Coal Quantity and (y) the Production Royalty payment per ton
applicable to the applicable Deadline, less (b) the product of (x) the number of
any Applicable Pittsburgh Escrow Units (as defined in the Escrow Agreement dated
the date hereof (the “Escrow Agreement”)) delivered to Buyer (as defined in the
Escrow Agreement) pursuant to the Escrow Agreement, and (y) $19.00 (as adjusted
for any split, subdivision or combination of Common Units). Lessee shall make
such payment within three business days after, as applicable, (a) if Lessor and
Lessee agree upon the Lost Coal Quantity during the Adverse Interest Negotiation
Period, the end of the Adverse Interest Negotiation Period or (b) if Lessor and
Lessee fail to so agree, the date the Lost Coal Quantity is determined by the
Eligible Mining Consultants in accordance with Section 8.2. Upon such payment,
Lessor shall convey to Lessee (or one of its affiliates designated by Lessee) by
special warranty deed in the same form as the Federal Special Warranty Deed all
of Lessor’s interest in the Lost Coal Quantity.
 
Section 8.4 Federal No. 2 Order. EACC is subject to an Order of Compliance,
dated September 12, 2002, issued by the West Virginia Department of
Environmental Protection against EACC (such order, including other similar
orders or requirements that may be assessed in the future in connection with
elevated levels of chloride concentrations relating to the matter referred to
therein or any related appeal, the “Federal No. 2 Order”) as a result of
chloride concentrations in excess of levels permitted by Environmental Laws and
Environmental Permits (each as defined in the Purchase Agreement). Lessee
acknowledges and agrees that EACC shall perform its obligations under the
Federal No. 2 Order in conformity with Section 2.1 of this Agreement.
 
Section 8.5 Determination of Lost Coal Quantity. Lessee promptly shall furnish
to Lessor prior written notice in reasonable detail of any actions EACC may take
in

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complying with the Federal No. 2 Order that may adversely affect the mineability
or merchantability of any of the Coal Reserves and, without limiting the
generality of Section 7.2, any actual or prospective revisions to Lessee’s
mining plans and projections associated with compliance with the Federal No. 2
Order. Without limiting the generality of Section 7.1, Lessee shall promptly
thereafter at all reasonable times, and upon advance notice, provide Lessor or
its representatives the right to enter the Coal Reserves for the purpose of
inspecting any of the Federal Reserves the mineability and merchantability of
which may be adversely affected by compliance with the Federal No 2. Order. If
the performance of EACC’s obligations under the Federal No. 2 Order adversely
affects the mineability or merchantability of any of the Coal Reserves (an
“Adverse Chloride Event”), then Lessee shall, by not later than 5 business days
after such Adverse Chloride Event, so notify (the “Lessee Adverse Chloride
Notice”) Lessor in writing, which notice shall describe the affected tract or
tracts or portions thereof and shall set forth Lessee’s estimate (which shall be
in good faith and based on reasonable assumptions) of the quantity of tons of
Coal Reserves that is not mineable and merchantable as a result of such Adverse
Chloride Event (the final determination of such quantity is referred to as the
“Lost Coal Quantity”). Lessee shall also provide Lessor with its calculations of
the amount of the Lost Coal Quantity. Nothing herein shall preclude Lessor from
similarly providing a written notice (the “Lessor Adverse Chloride Notice”) to
Lessee to the extent Lessor believes that an Adverse Chloride Event has occurred
and Lessee has failed to provide the Lessee Adverse Chloride Notice. If Lessor
and Lessee are unable to agree upon the Lost Coal Quantity within 10 business
days after the date of the Lessee Adverse Chloride Notice or Lessor Adverse
Chloride Notice, as the case may be (the “Chloride Negotiation Period”), then
Lessor and Lessee shall each appoint an Eligible Mining Consultant of its choice
within five business days after the Chloride Negotiation Period. The two
Eligible Mining Consultants appointed by the respective parties shall appoint a
third Eligible Mining Consultant not later than five business days after such
two Eligible Mining Consultants have been so appointed. Within 15 business days
from the appointment of the third Eligible Mining Consultant, each Eligible
Mining Consultant appointed as aforesaid shall provide Lessor and Lessee with a
determination of the Lost Coal Quantity. The Lost

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Coal Quantity shall be the average of the three determinations; provided,
however, that for purposes of calculating the average, the highest quantity
shall in no event be deemed to be more than 10% above the second highest
quantity and the lowest quantity shall in no event be deemed to be more than 10%
below the second highest quantity, provided, however, that if two out of the
three Eligible Mining Consultants determine pursuant to this Section 8.5 that
there is no Lost Coal Quantity attributable to an Adverse Chloride Event, the
resulting Lost Coal Quantity determination hereunder shall be zero. The
determination of the Lost Coal Quantity pursuant to this Section 8.5 shall be
final and binding on Lessor and Lessee and shall not be appealable. Each of
Lessor and Lessee shall be responsible for the costs and expenses of its
Eligible Mining Consultant appointee, and the costs of the third Eligible Mining
Consultant shall be shared equally by them.
 
Section 8.6 Mandatory Sale of Lost Coal Quantities for Adverse Chloride Event.
In the event of a determination of any Lost Coal Quantity as provided in Section
8.5, then Lessee shall pay Lessor for the Lost Coal Quantity in an amount (the
“Lost Coal Payment”) equal to the product of (x) the Lost Coal Quantity and (y)
the Production Royalty Payment per ton applicable pursuant to this Lease at the
time of determination of the Lost Coal Quantity as provided in Section 8.5.
Lessee shall have the option to make the Lost Coal Payment (i) in immediately
available funds by wire transfer to an account designated by Lessor, (ii) by
duly transferring to Lessor (or any affiliate of Lessor designated by Lessor)
the number of Common Units representing limited partner interests in Penn
Virginia Resource Partners, L.P. equal to the Lost Coal Payment, assuming each
Common Unit so transferred is the equivalent of $19.00, as adjusted for any
split, subdivision or combination of Common Units, or (iii) by some combination
of (i) and (ii) above that equals the Lost Coal Payment. Lessee shall make such
Lost Coal Payment within three business days after, as applicable, (a) if Lessor
and Lessee agree upon the Lost Coal Quantity during the Adverse Chloride
Negotiation Period, the end of the Adverse Interest Negotiation Period or (b) if
Lessor and Lessee fail to so agree, the date the Lost Coal Quantity is
determined by the Eligible Mining Consultants in accordance with Section 8.5.
Upon such payment, Lessor shall convey to Lessee (or

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one of its affiliates designated by Lessee) by special warranty deed in the same
form as the Federal Special Warranty Deed all of Lessor’s interest in the Lost
Coal Quantity.
 
ARTICLE 9
 
GENERAL
 
Section 9.1 Remedies Cumulative. Except as provided in Section 4.2(b) and
Article 8, each right, power and remedy of Lessor or Lessee provided for in this
Lease shall be cumulative and concurrent and shall be in addition to every other
right, power or remedy provided for in this Lease or now or hereafter existing
at law or in equity or by statute or otherwise, and the exercise or beginning of
the exercise or the failure to exercise by Lessor or Lessee of any one or more
of the rights, powers or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Lessor or Lessee of any or all rights, powers
or remedies.
 
Section 9.2 Notices. All notices and other communications with respect to this
Lease shall be in writing and shall be deemed effectively given when delivered
personally, by telecopy or by courier, such as Federal Express, or seventy-two
(72) hours after mailing by certified mail, postage prepaid, to the following
addresses of the parties:
 
President
Suncrest Resources LLC
2550 East Stone Drive,
Suite 200 Kingsport, TN 37660
Telecopy No.: 423-723-0210
 
President
Sterling Smokeless Coal Company
202 Laidley Tower
Charleston, WV 25324
Telecopy No.: 304-340-1834
 
Each party may change its address by giving written notice of such change to the
other party.

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Section 9.3 Binding Effect of Lease. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Lessee will not assign, let, mortgage or
otherwise transfer its rights hereunder, without the prior written consent of
Lessor, which consent shall not be unreasonably withheld; provided, however,
Lessee may assign this Lease or sublease the Coal Reserves to an Affiliate (as
hereinafter defined). For purposes of this Lease, “Affiliate” shall mean any
entity which controls, is controlled by, or is under common control with Lessee.
No assignment, sublease, mortgage or other transfer by Lessee will release
Lessee from its obligations hereunder. Lessor may sell, assign, mortgage or
otherwise transfer its rights hereunder in any transaction effectuated pursuant
to Article IX of the Purchase Agreement.
 
Section 9.4 Entire Agreement. This Lease constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, and no
alteration, modification or interpretation hereof shall be binding upon the
parties hereto unless in writing and signed by Lessor and Lessee.
 
Section 9.5 Governing Law and Section Headings. This Lease shall be interpreted
and construed in accordance with the laws of the state of West Virginia. The
titles of the Articles and Sections in this Lease have been inserted as a matter
of convenience of reference only and shall not control or affect the meaning or
construction of any of the terms and provisions hereof.
 
Section 9.6 Memorandum of Lease. Lessor and Lessee agree to execute and record a
short form of this Lease called a Memorandum of Lease, the form of which is
attached hereto as Exhibit C and made a part hereof.
 
Section 9.7 Relationship Between the Parties. Nothing contained herein or
implied hereby including, without limitation, the rights of Lessor to receive
and examine mining plans and maps, to review Lessee’s records and otherwise
audit and inspect Lessee’s operations shall in any way be construed as creating
or constituting any obligation or right in Lessor to control or otherwise
correct Lessee’s acts and omissions or any relationship of partnership, joint
venture or agency between Lessor and Lessee.

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It is expressly understood and agreed that the relationship between Lessor and
Lessee in connection with this Lease shall be solely that of landlord and
tenant.
 
Section 9.8 Separability of Provisions. If any provision of this Lease shall to
any extent be held to be unenforceable, the remainder of this Lease shall not be
affected thereby, and each provision of this Lease shall be valid and
enforceable to the extent permitted by law.
 
Section 9.9 Force Majeure. Lessee’s obligations to conduct mining operations
under this Lease shall be suspended in the event coal mining operations on the
Coal Reserves are suspended or are prevented or prohibited by any event of force
majeure. An event of force majeure shall mean any event of the type listed below
which is beyond Lessee’s reasonable control and which is not caused by the
negligence or willful misconduct of Lessee, its agents or employees, including
the following: an act of God or of the public enemy; a law, ordinance or other
governmental regulation or court order not in effect on the date hereof;
inability to obtain mining or related permits provided that Lessee has used
commercially reasonable means to secure such permits; strike, lockout or
industrial disturbance; sabotage; failure of carriers to transport or furnish
transportation equipment and facilities; explosion; fire; storm; or natural
flood. Lessee shall have the right to determine and settle any strikes, lockouts
or industrial disputes in its sole discretion. Promptly upon the occurrence of
any event of force majeure, Lessee shall give written notice thereof to Lessor
in reasonable detail including without limitation the nature thereof, the
current and projected effect on mining operations, and the proposed steps to
remedy the same. Additionally, immediately upon the occurrence of an event of
force majeure, Lessee shall take commercially reasonable steps to remedy the
same or to avoid the effects thereof and shall continue such efforts diligently
until such event of force majeure is no longer applicable. Any suspension,
prohibition, or reduction of mining operations on the Coal Reserves necessary to
comply with the Federal No. 2 Order shall not be considered an event of force
majeure under this Lease.

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Section 9.10 Reconveyance. In a timely manner after the date on which all
mineable and merchantable coal shall have been removed from the Coal Reserves,
Lessor shall convey to Lessee or one of its affiliates by special warranty deed
all of its interest in the Coal Reserves.
 
IN WITNESS WHEREOF, the parties hereto have each caused this Lease to be
executed by one of its duly authorized officers as of the date first above
written.
 
SUNCREST RESOURCES LLC
By:
 
Eastern Associated Coal Corp., its sole member        
     
By:
 

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Name:  Mark N. Schroeder
   
Title:    Vice President
     
STERLING SMOKELESS COAL COMPANY
 
By:
 

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Name:  Mark N. Schroeder
   
Title:    Vice President

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EXHIBIT A
 
Legal Description of Federal Reserves

1

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Schedule 8.1
 
Adverse Interests
 
Excepted Parcel
in Legal
Description
 
Rights to be
Acquired
 
Approximate
Acres
 
Deadline for Acquiring
Interests
           
2 – Tract 1
 
Coal
 
21.47
 
March 31, 2004
2 – Tract 2
 
Coal
 
23.10
 
March 31, 2004
2 – Tract 3
 
Coal
 
19.40
 
March 31, 2004
2 – Tract 4
 
Coal
 
26.06
 
March 31, 2004
3
 
Coal
 
1.334
 
February 28, 2006
4
 
Coal
 
6.606
 
January 31, 2005
5
 
Coal
 
10.792  
 
July 31, 2005
6
 
Subsidence
 
1.334
 
February 28, 2006
7
 
Subsidence
 
21.47
 
March 31, 2004

2