Peabody COALSALES Company

Contract No. LGE03010

 

EXHIBIT 10.69

 

COAL SUPPLY AGREEMENT

 

 

This is a coal supply agreement (the “Agreement”) dated January 1, 2003 between
LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220 West Main
Street, Louisville, Kentucky 40202 (“hereinafter referred to as Buyer”) and
PEABODY COALSALES COMPANY, a Delaware corporation, (hereinafter referred to as
“Seller”), whose address is 701 Market Street, St. Louis, Missouri 63101-18926.

 

WITNESSETH:

 

WHEREAS, LG&E is an electric utility company which desires to purchase steam
coal; and

 

WHEREAS, Buyer and Seller desire to enter into a coal supply agreement pursuant
to which the Seller will supply coal to Buyer under the terms as set forth
herein.

 

NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

 

SECTION 1.  GENERAL.

 

(a) The above recitals are true and correct and comprise a part of this
Agreement.

 

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(b) Seller will sell to Buyer and Buyer will buy from Seller steam coal under
all the terms and conditions of this Agreement.

 

(c) Seller hereby represents and warrants that it has obtained or will obtain
the agreement of Patriot Coal Company, LP, a Delaware limited partnership, and
Peabody Coal Company, a Delaware corporation (together, the “Producer”), as
indicated by each Producers’ signatures on the Producer’s Certificate attached
hereto as “Exhibit A” and made a part hereof, and has delivered or will deliver
such original Producer’s Certificate to Buyer.  This obligation of Seller is a
material inducement for Buyer’s entering into this Agreement.  If Seller fails
to deliver an unrevised Producer’s Certificate to Buyer within five (5) days
after execution of this Agreement, then Buyer may declare this Agreement null
and void, and neither party shall have any further obligations hereunder, except
to the extent of deliveries then in route.  Seller acknowledges and agrees that
Buyer is the third-party beneficiary of the agreement between Producer and
Seller (the “Coal Marketing and Sales Agreement”) and as such shall be entitled
to enforce its rights thereunder, in addition to exercising its rights and
remedies hereunder.

 

(d) Each covenant, representation and warranty given by Seller herein or by
Producer in the Producer Certificate is a material inducement for Buyer to enter
into this Agreement.

 

SECTION 2.  TERM.  The term of this Agreement shall commence on January 1, 2003
and shall continue through December 31, 2005.

 

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SECTION 3.  QUANTITY.

 

§ 3.1 Base Quantity.  Seller shall sell and deliver and Buyer shall purchase and
accept delivery of the following annual base quantity of coal (“Base Quantity”):

 

YEAR

 

BASE QUANTITY (TONS)

 

2003

 

1,000,000

 

2004

 

1,000,000

 

2005

 

1,000,000

 

 

§ 3.2 Delivery Schedule. Shipments are to be made on a ratable basis as adjusted
during the year to reflect Buyer’s outages.  Initial shipments shall begin on or
about January 1, 2003.  Time is of the essence with respect to the schedule so
established.  Except as otherwise provided herein, failure by Seller to deliver
in a timely fashion shall constitute a material breach within the meaning of §
16 of this Agreement, unless such failure to deliver is the result of Buyer’s
action or inaction to perform as required by this Agreement.

 

SECTION 4.         SOURCE.

 

§ 4.1 Source.  The coal sold hereunder, including coal purchased by Seller from
third parties, shall be supplied from Patriot Coal Company’s “Patriot Complex”,
located in Henderson County, Kentucky which consists of the “Patriot Mine” (a
surface mining operation which is owned and operated by Seller’s affiliated
company, Patriot Coal Company, L.P (“Patriot”)) and the “Freedom Mine”(which is
an underground mine operated by Seller’s affiliated company,

 

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Ohio County Coal Company (“Ohio County”)).  Seller may also provide coal
supplied from Peabody Coal Company’s Camp Complex located in Union County,
Kentucky and its Gibraltar Mine located in Muhlenberg County, Kentucky, (all of
the foregoing sources hereinafter referred to as the “Coal Property”).

 

§ 4.2 Assurance of Operation and Reserves.  Seller represents and warrants that
the Coal Property contains economically recoverable coal of a quality and in
quantities which will be sufficient to satisfy all the requirements of this
Agreement.  Seller agrees and warrants that it will cause the applicable
Producer to have at the Coal Property adequate machinery, equipment and other
facilities to produce, prepare and deliver coal in the quantity and of the
quality required by this Agreement.  Seller further agrees to cause the
applicable Producer to operate and maintain such machinery, equipment and
facilities in accordance with good mining practices so as to efficiently and
economically produce, prepare and deliver such coal.  Seller agrees that Buyer
is not providing any capital for the purchase of such machinery, equipment
and/or facilities and that Seller shall cause the applicable Producer to operate
and maintain same at the sole expense of Seller and Producer, including all
required permits and licenses.  Seller hereby warrants that Producer has
dedicated, or Seller will cause Producer to dedicate to this Agreement
sufficient reserves of coal meeting the quality specifications hereof and lying
on or in the Coal Property so as to fulfill the quantity requirements hereof.

 

§ 4.3 Non-Diversion of Coal.  Seller agrees and warrants that it will not,
without Buyer’s express prior written consent, use or sell coal from the Coal
Property in a way that will reduce

 

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the economically recoverable balance of coal in the Coal Property to an amount
less than that required to be supplied to Buyer hereunder.

 

§ 4.4 Seller’s Preparation of Mining Plan.  On or before January 1, 2003, Seller
shall have prepared, or obtained from Producer, and delivered to Buyer, a
complete mining plan for the Coal Property with adequate supporting data to
demonstrate Producer’s capability to have coal produced from the Coal Property
which meets the quantity and quality specifications of this Agreement.  Seller
shall provide Buyer with two (2) copies of such mining plan.  Buyer’s receipt of
any such mining plans or other information or data furnished voluntarily by
Seller (the “Mining Information”) shall not in any manner relieve Seller of any
of Seller’s obligations or responsibilities under this Agreement.  Buyer’s
receipt and review, if any, of any Mining Information shall not be construed as
constituting an approval of Producer’s proposed mining plan or Producer’s mining
practices.  The parties acknowledge that Buyer has no right to approve,
disapprove or require modification of Producer’s mining plan.  Buyer and Seller
understand and acknowledge that a review, if any, by Buyer of the Mining
Information shall be limited solely to a determination, for Buyer’s purposes
only, of Seller’s capability to supply coal to fulfill Buyer’s requirements of a
dependable coal supply.

 

Seller shall have prepared a complete mining plan for the Coal Property with
adequate supporting data to demonstrate Seller’s capability to have coal
produced from the Coal Property which meets the quantity and quality
specifications of this Agreement.  Seller shall provide Buyer with two (2)
copies of such mining plan which shall contain maps and a narrative

 

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depicting areas and seams of coal to be mined and shall include (but not be
limited to) the following information: (i) reserves from which the coal will be
produced during the term hereof and the mining sequence, by year (or such other
time intervals as mutually agreed) during the term of this Agreement, from which
coal will be mined; (ii) methods of mining such coal; (iii) methods of
transporting and, in the event a preparation plant is constructed at the Coal
Property, methods of washing coal to insure compliance with the quantity and
quality requirements of this Agreement including a description and flow sheet of
the preparation plant; (iv) quality data plotted on the maps depicting data
points and isolines by ash, sulfur, and Btu; (v) quality control plans including
sampling and analysis procedures to insure individual shipments meet quality
specifications; and (vi) Seller’s aggregate commitments to others to sell coal
from the Coal Property during the term of this Agreement.  Such complete mining
plan shall be delivered to Buyer on or before January 1, 2003.

 

Buyer’s receipt of the mining plan or other information or data furnished by
Seller shall not in any many relieve Seller of any of Seller’s obligations or
responsibilities under this Agreement; nor shall such review be construed as
constituting an approval of Producer’s proposed mining plan as prudent mining
practices, such review by Buyer being limited solely to a determination, for
Buyer’s purposes only, of Producer’s capability to supply coal on a long-term
basis to fulfill Buyer’s requirements of a dependable coal supply.

 

Seller shall annually provide Buyer with a mining plan update (“Update”) showing
progress to date, conformity to original mining plan, and then known changes in
reserve data and

 

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planned changes in mining progression, plans or procedures.  The update shall be
submitted annually on or before January first (1st) of each year during the term
of this Agreement.

 

§ 4.5 Substitute Coal.  Notwithstanding the above representations and
warranties, in the event that Seller is unable to supply coal from the Coal
Property in the quantity and of the quality required by this Agreement, and such
inability is not caused by a force majeure event as defined in § 10, then Buyer
will have the option of requiring that Seller supply substitute coal from other
facilities and mines.  Seller shall also have the right to supply substitute
coal after receiving Buyer’s written consent (which shall not be unreasonably
withheld).  Such substitute coal shall be provided under all the terms and
conditions of this Agreement including, but not limited to, the quantity
provisions of § 3.1, the price provisions of § 8, the quality specifications of
§ 6.1, and the provisions of § 5 concerning reimbursement to Buyer for increased
transportation costs.  Seller’s delivery of coal not produced from the Coal
Property without having received the express written consent of Buyer shall
constitute a material breach of this Agreement.

 

§ 4.6 Relationship of the Parties.  Seller agrees that it is not and will not
hold itself out as a partner, employee, agent or representative of or joint
venturer with Buyer.  Nothing herein contained shall be construed as creating a
single enterprise, joint venture, agency, partnership, joint employer,
owner-contractor, or lessor-lessee relationship between Buyer and Seller or
between Buyer and Producer.

 

Seller and Producer shall each have sole and exclusive authority to direct and
control its respective activities and operations, and those of any
subcontractors, undertaken in the

 

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performance of Seller’s obligations under this Agreement.  Seller and Producer
shall each exercise full and complete control over its respective work force and
labor relations policies.  Buyer shall have no authority or control over either
Seller’s or Producer’s operations or work force.

 

§ 4.7 Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY
DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, EXPRESS OR
IMPLIED, INCLUDING MERCHANTABLILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

 

§4.8 Remedies.  No waiver of remedies or damages herein shall apply to claims of
anticipatory repudiation or remedies therefore provided by law except that
neither Seller nor Buyers shall be liable to the other for any punitive,
special, incidental or consequential damages (including without limitation, loss
of profits or overhead), whether by statute, in tort or in contract, under any
indemnity provision or otherwise.

 

SECTION 5.  DELIVERY.

 

§ 5.1 Barge Delivery.  The coal shall be delivered to Buyer F.O.B. barge at the
following points (the “Delivery Point”), Demao Dock (Patriot coal) at Mile Point
31.5 on the Green River, Camp Breckinridge (Camp Mine Complex coal) at Mile
Point 842.0 on the Ohio River, or the Gibraltar Dock (Gibraltar Mine coal) at
Mile Point 85.9 on the Green River.  With Buyer’s consent, Seller may deliver
the coal at a location different from the Delivery Point, provided,

 

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however, that Seller shall reimburse Buyer for any resulting increases in the
cost of transporting the coal to Buyer’s generating stations.  Any resulting
savings in such transportation costs shall be retained by Buyer.

 

Title to and risk of loss of coal sold will pass to Buyer and the coal will be
considered to be delivered when barges containing the coal are disengaged by
Buyer’s barging contractor from the loading dock.  Buyer or its contractor shall
furnish suitable barges, clean and ready for loading in accordance with a
delivery schedule provided by Buyer to Seller, and in sufficient number and in a
timely manner in order for Seller to meet any previously agreed upon delivery
schedule as provided for in §3.2.  Seller shall arrange and pay for all costs of
transporting the coal from the mines to the loading docks and loading and
trimming the coal into barges to the proper draft and the proper distribution
within the barges.  Buyer shall arrange for transporting the coal by barge from
the loading dock to its generating station(s) and shall pay for the cost of such
transportation.  For delays caused by Seller in handling the scheduling of
shipments with Buyer’s barging contractor, Seller shall be responsible for any
demurrage or other penalties assessed by said barging contractor (or assessed by
Buyer) which accrue at the Delivery Point, including the demurrage, penalties
for loading less than the specified minimum tonnage per barge, or other
penalties assessed for barges not loaded in conformity with applicable
requirements.  Buyer shall be responsible to deliver barges in as clean and dry
condition as practicable.  Seller shall require of the loading dock operator
that the barges and towboats provided by Buyer or Buyer’s barging contractor be
provided convenient and safe berth free of

 

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wharfage, dockage, fleeting, switching, and other harbor and port charges; that
while the barges are in the care and custody of the loading dock, all applicable
U.S. Coast Guard regulations and other applicable laws, ordinances, rulings, and
regulations shall be complied with, including adequate mooring and display of
warning lights; that the loading operations be performed in a workmanlike manner
and in accordance with the reasonable loading requirements of Buyer and Buyer’s
barging contractor; and that the loading dock operator carry landing owners or
wharfinger’s insurance with basic coverage of not less than $300,000.00 and
total of basic coverage and excess liability coverage of not less than
$1,000,000.00, and provide evidence thereof to Buyer in the form of a
certificate of insurance from the insurance carrier or an acceptable certificate
of self-insurance with requirement for thirty (30) days advance notification of
Buyer in the event of termination of or material reduction in coverage under the
insurance.

 

SECTION 6. QUALITY.

 

§ 6.1  Specifications.  The coal delivered hereunder shall conform to the
following specifications on an “as received” basis:

 

Specifications

 

Guaranteed Monthly
Weighted Average (1)

 

Rejection Limits
(per shipment)

 

 

 

 

 

 

 

 

 

 

 

BTU/LB.

 

min.

 

10,850

 

<

 

10,600

 

 

 

 

 

 

 

 

 

 

 

LBS/MMBTU:

 

 

 

 

 

 

 

 

 

MOISTURE

 

MAX.

 

12.9

 

>

 

15.0

 

ASH

 

max.

 

10.8

 

>

 

12.5

 

SULFUR

 

max.

 

 3.00

 

>

 

3.40

 

SULFUR

 

min.

 

 2.75

 

<

 

2.55

 

CHLORINE

 

max.

 

 0.05

 

>

 

0.06

 

FLUORINE

 

max.

 

0.01

 

>

 

0.015

 

NITROGEN

 

MAX.

 

1.35

 

>

 

1.45

 

 

 

 

 

 

 

 

 

 

 

SIZE (3” x 0”):

 

 

 

 

 

 

 

 

 

Top size (inches)*

 

max.

 

3

 

>

 

3

 

Fines (% by wgt)

 

 

 

 

 

 

 

 

 

Passing 1/4” screen

 

max.

 

50

 

>

 

55

 

 

 

 

 

 

 

 

 

 

 

% BY WEIGHT:

 

 

 

 

 

 

 

 

 

VOLATILE

 

max.

 

31

 

>

 

29

 

 

 

 

 

 

 

 

 

 

 

FIXED CARBON

 

max.

 

38

 

>

 

30

 

 

 

 

 

 

 

 

 

 

 

GRINDABILITY (HGI)

 

min.

 

55

 

<

 

50

 

 

 

 

 

 

 

 

 

 

 

BASE ACID RATIO (B/A)

 

 

 

0.60

 

 

 

0.90

 

SLAGGING FACTOR**

 

max.

 

2.0

 

>

 

 2.5

 

FOULING FACTOR***

 

max.

 

0.5

 

>

 

0.7

 

 

 

 

 

 

 

 

 

 

 

ASH FUSION TEMPERATURE (°F) (ASTM D1857)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REDUCING ATMOSPHERE

 

 

 

 

 

 

 

 

 

Initial Deformation

 

min.

 

1940

 

min.

 

1900

 

Softening (H=W)

 

min.

 

2035

 

min.

 

1975

 

Softening (H=1/2W)

 

min.

 

2085

 

min.

 

2000

 

Fluid

 

min.

 

2190

 

min.

 

2100

 

 

 

 

 

 

 

 

 

 

 

OXIDIZING ATMOSPHERE

 

 

 

 

 

 

 

 

 

Initial Deformation

 

min.

 

2300

 

min.

 

2200

 

Softening (H=W)

 

min.

 

2330

 

min.

 

2280

 

Softening (H=1/2W)

 

min.

 

2425

 

min.

 

2300

 

Fluid

 

min.

 

2490

 

min.

 

2375

 

 

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(1) An actual Monthly Weighted Average will be calculated for each specification
for coal delivered to the Buyer’s generating stations.

 

* All the coal will be of such size that it will pass through a screen having
circular perforations three (3) inches in diameter, but shall not contain more
than fifty (50) per cent (50%) by weight of coal that will pass through a screen
having circular perforations one-quarter (1/4) of an inch in diameter.

 

**           Slagging Factor (Rs)=(B/A) x (Percent Sulfur by WeightDry)

 

***         Fouling Factor (Rf)=(B/A) x (Percent Na20 by WeightDry)

 

The Base Acid Ratio (B/A) is herein defined as:

 

BASE ACID RATIO (B/A) =

 

 

 

(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20 )

 

 

 

 

 

 

 

 

(Si02  +  A1203  +  T102)

 

 

 

 

 

 

 

 

 

 

 

Note:As used herein

 

>

 

means greater than:

 

 

 

 

 

<

 

means less than.

 

 

 

 

§ 6.2        Definition of “Shipment”.  As used herein, a “shipment” shall mean
one (1) barge load or a barge lot load in accordance with Buyer’s sampling and
analyzing practices.

 

§ 6.3        Rejection.

 

Buyer has the right, but not the obligation, to reject any shipment which
fail(s) to conform to any or all of the Rejection Limits set forth in § 6.1 or
contains extraneous materials.  Buyer must reject such coal within seventy-two
(72) hours of receipt of the coal analysis provided for in § 7.2 or such right
to reject is waived.  In the event Buyer rejects such non-conforming coal, title
to and risk of loss of the coal shall be considered to have never passed to
Buyer and Buyer shall return the coal to Seller or Producer, or at Seller’s
request, divert such coal to Seller’s designee, all at Seller’s cost and risk. 
Seller shall replace the rejected coal within five (5) working days

 

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from notice of rejection with coal conforming to all of the Rejection Limits set
forth in § 6.1.  If Seller fails to replace the rejected coal within such five
(5) working day period or the replacement coal is rejected for failure to meet
the Rejection Limits (per shipment) set forth in §6.1, Buyer may purchase coal
from another source in order to replace the rejected coal.  Seller shall
reimburse Buyer for (i) any amount by which the actual price plus transportation
costs to Buyer of such coal purchased from another source exceed the price of
such coal under this Agreement plus transportation costs to Buyer from the
Delivery Point; and (ii) any and all transportation, storage, handling, or other
expenses that have been incurred by Buyer for the rejected coal.  This remedy is
in addition to all of Buyer’s other remedies under this Agreement.

 

If Buyer fails to reject a shipment of non-conforming coal which it had the
right to reject for failure to meet any or all of the Rejection Limits set forth
in § 6.1 or because such shipment contained a material amount of extraneous
materials, then such non-conforming coal shall be deemed accepted by Buyer;
however, the quantity Seller is obligated to sell to Buyer under the Agreement
may or may not be reduced by the amount of each such non-conforming shipment at
Buyer’s sole option and the shipment shall nevertheless be considered
“rejectable” under § 6.4.  Buyer shall notify Seller no later than thirty (30)
days following Buyer’s acceptance of such rejectable coal, of Buyer’s decision
to reduce by an amount equal to the amount of rejectable coal, the Base Quantity
which Seller is obligated to sell and deliver to Buyer.  If Buyer does not
notify Seller within the thirty (30) day time period of Buyer’s decision to
reduce the Base Quantity by the amount of rejectable coal, the Base Quantity
will remain as defined in § 3.1.

 

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Further, for shipments containing extraneous materials, which include, but are
not limited to, slate, rock, wood, corn husks, mining materials, metal, steel,
etc., the estimated weight of such materials shall be deducted from the weight
of that shipment.

 

§ 6.4 Suspension and Termination.

 

If the coal sold hereunder fails to meet one (1) or more of the Guaranteed
Monthly Weighted Averages set forth in § 6.1 for any two (2) consecutive months
or a total of three (3) months in a six (6) month period, or if six (6) barge
shipments in a thirty (30) day period are rejectable by Buyer, Buyer may upon
notice confirmed in writing and sent to Seller by certified mail, suspend future
shipments except shipments already loaded into barges.  Seller shall, within ten
(10) days, provide Buyer with reasonable assurances that subsequent monthly
deliveries of coal shall meet or exceed the Guaranteed Monthly Weighted Averages
set forth in § 6.1 and that the source will exceed the rejection limits set
forth in § 6.1.  If Seller fails to provide such assurances within said ten (10)
day period, Buyer may terminate this Agreement by giving written notice of such
termination at the end of the ten (10) day period.  A waiver of this right for
any one (1) period by Buyer shall not constitute a waiver for subsequent
periods.  If Seller provides such reasonable assurances to Buyer, shipments
hereunder shall resume and any tonnage deficiencies resulting from suspension
may be made up at Buyer’s sole option.  Buyer shall not unreasonably withhold
its acceptance of Seller’s assurances, or delay the resumption of shipment(s). 
If Seller, after providing such assurances, fails to meet any of the Guaranteed
Monthly Weighted Averages for any one (1) month within the next six (6) months
or if three (3)

 

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barge shipments are rejectable within any one (1) month during such six (6)
month period, then Buyer may terminate this Agreement and exercise all its other
rights and remedies under applicable law and in equity for Seller’s breach.

 

SECTION 7.         WEIGHTS, SAMPLING AND ANALYSIS.

 

§ 7.1  Weights.  The weight of the coal delivered hereunder shall be determined
on a per shipment basis by Buyer on the basis of scale weights at the generating
station(s) unless another method is mutually agreed upon by the parties.  Such
scales shall be duly reviewed by an appropriate testing agency and maintained in
an accurate condition.  Seller shall have the right, at Seller’s expense and
upon reasonable notice, to have the scales checked for accuracy at any
reasonable time or frequency.  If the scales are found to be over or under the
tolerance range allowable for the scale based on industry accepted standards,
either party shall pay to the other any amounts owed due to such inaccuracy for
a period not to exceed thirty (30) days before the time any inaccuracy of scales
is determined.

 

§ 7.2 Sampling and Analysis.  The Seller has sole responsibility for quality
control of the coal and shall forward its “as loaded” quality to the Buyer as
soon as possible.  The sampling and analysis of the coal delivered hereunder
shall be performed by Buyer and the results thereof shall be accepted and used
for the quality and characteristics of the coal delivered under this Agreement. 
All analyses shall be made in Buyer’s laboratory at Buyer’s expense in
accordance with ASTM standards where applicable, or industry-accepted
standards.  Samples for analyses

 

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shall be taken by any industry-accepted standard, mutually acceptable to both
parties, may be composited and shall be taken with a frequency and regularity
sufficient to provide reasonably accurate representative samples of the
deliveries made hereunder.  Seller represents that it is familiar with Buyer’s
sampling and analysis practices, and finds them to be acceptable.  Buyer shall
notify Seller in writing of any significant changes in Buyer’s sampling and
analysis practices.  Any such changes in Buyer’s sampling and analysis practices
shall, except for ASTM or industry accepted changes in practices, provide for no
less accuracy than the sampling and analysis practices existing at the time of
the execution of this Agreement, unless the Parties otherwise mutually agree.

 

Each sample taken by Buyer shall be divided into four (4) parts and put into
airtight containers, properly labeled and sealed.  One (1) part shall be used
for analysis by Buyer; one (1) part shall be used by Buyer as a check sample, if
Buyer in its sole judgment determines it is necessary; one (1) part shall be
retained by Buyer until the twenty-fifth (25th) of the month following the month
of unloading (the “Disposal Date”) and shall be delivered to Seller for analysis
if Seller so requests before the Disposal Date; and one (1) part (“Referee
Sample”) shall be retained by Buyer until the Disposal Date.  Seller shall be
given copies of all analyses made by Buyer by the twelfth (12th) business day of
the month following the month of unloading.  Seller, on reasonable notice to
Buyer shall have the right to have a representative present to observe the
sampling and analyses performed by Buyer.  Unless Seller requests a Referee
Sample analysis before the Disposal Date, Buyer’s analysis shall be used to
determine the quality of the coal

 

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delivered hereunder.  The Monthly Weighted Averages shall be determined by
utilizing the individual shipment analyses.

 

If any dispute arises before the Disposal Date, the Referee Sample retained by
Buyer shall be submitted for analysis to an independent commercial testing
laboratory (“Independent Lab”) mutually chosen by Buyer and Seller.  For each
coal quality specification in question, a dispute shall be deemed not to exist
and Buyer’s analysis shall prevail and the analysis of the Independent Lab shall
be disregarded if the analysis of the Independent Lab differs from the analysis
of Buyer by an amount equal to or less than:

 

(i)            0.50% moisture

(ii)           0.50% ash on a dry basis

(iii)          100 Btu/lb. on a dry basis

(iv)          0.10% sulfur on a dry basis.

 

For each coal quality specification in question, if the analysis of the
Independent Lab differs from the analysis of Buyer by an amount more than the
amounts listed above, then the analysis of the Independent Lab shall prevail and
Buyer’s analysis shall be disregarded.  The cost of the analysis made by the
Independent Lab shall be borne by Seller to the extent that Buyer’s analysis
prevails and by Buyer to the extent that the analysis of the Independent Lab
prevails.

 

SECTION 8.         PRICE.

 

§  8.1 Base Price.  The base price (“Base Price”) of the coal to be sold
hereunder will be firm and will be determined by the year in which the coal is
delivered as defined in § 5 in accordance with the following schedule:

 

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BASE PRICE ($ PER MMBTU)

 

YEAR

 

Patriot

 

Camp

 

Gibraltar

 

2003

 

$

0.88

 

$

0.8774

 

$

0.8539

 

2004

 

$

0.89

 

$

0.8874

 

$

0.8639

 

2005

 

$

0.90

 

$

0.8974

 

$

0.8739

 

 

§8.2         Quality Price Discounts.

 

(a)           The Base Price is based on coal meeting or exceeding the
Guaranteed Monthly Weighted Average specifications as set forth in § 6.1. 
Quality price discounts shall be applied for each specification each month to
reflect failures to meet the Guaranteed Monthly Weighted Averages set forth in §
6.1, as determined pursuant to § 7.2, subject to the provisions set forth
below.  The discount values used are as follows:

 

DISCOUNT VALUES

 

 

 

$ /MMBTU

 

BTU/LB.

 

0.2604

 

 

 

 

 

 

 

$ /LB./MMBTU

 

SULFUR

 

0.1232

 

ASH

 

0.0083

 

MOISTURE

 

0.0016

 

 

(b)           Notwithstanding the foregoing, for each specification each month,
there shall be no discount if the actual Monthly Weighted Average meets the
applicable Discount Point set forth below.  However, if the actual Monthly
Weighted Average fails to meet such applicable Discount Point, then the discount
shall apply and shall be calculated on the basis of the difference

 

17

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between the actual Monthly Weighted Average and the Guaranteed Monthly Weighted
Average pursuant to the methodology shown in Exhibit B attached hereto.

 

 

 

Guaranteed Monthly
Weighted Average

 

Discount Point

 

 

 

 

 

 

 

 

 

BTU/LB

 

MIN.

 

10,850

 

10,650

 

 

 

 

 

 

 

 

 

LB/MMBTU:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SULFUR

 

max.

 

3.00

 

3.05

 

ASH

 

max.

 

10.80

 

12.20

 

MOISTURE

 

max.

 

12.90

 

14.46

 

 

For example, if the actual Monthly Weighted Average of sulfur equals 3.10
lb/MMBTU, then the applicable discount would be (3.1lb – 3.00 lb) X
$.1232/lb/MMBTU = $.0123/MMBTU.

 

§ 8.3 Payment Calculation.  Exhibit B attached hereto shows the methodology for
calculating the coal payment and quality price discounts for the month Seller’s
coal was unloaded by Buyer.  If there are any such discounts, Buyer shall apply
credit to amounts owed Seller for the month the coal was unloaded.

 

§ 8.4 New Impositions.  The above Base Price shall be subject to adjustment only
in the event that new applicable Federal or state statues, regulations, or other
governmental impositions on the coal to be supplied hereunder, including but not
limited to tax increases or decreases, occur after July 1, 2002, which cause
Seller’s cost for providing coal to Buyer under this Agreement to increase or
decrease by more than $.05 per ton.  Seller shall promptly notify Buyer

 

18

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of any such changes and supply sufficient documentation for Buyer to verify any
such change.  Either Buyer or Seller may request a Base Price adjustment, which
shall be comprised of no more than the reasonable costs directly associated with
the effect of such change on the coal to be supplied hereunder.  If the
non-requesting party agrees to the requested price adjustment, such adjustment
shall be made effective on the first day of the calendar month following the
effective date of any change, (except when such change is effective on the first
day of the month in which case the adjustment shall be made as of such date). 
If the non-requesting party rejects the request of the requesting party for a
Base Price adjustment, the requesting party, at its option, may terminate the
contract without liability due to such termination for either party.

 

SECTION 9.         INVOICES, BILLING AND PAYMENT.

 

§ 9.1 Invoicing Address.  Invoices will be sent to Buyer at the following
address:

 

Louisville Gas and Electric Company

P.O. Box 32010

Louisville, KY  40232

Attention: Manager LG&E/KU Fuels

 

§ 9.2 Invoice Procedures for Coal Shipments.  Seller shall invoice Buyer at the
Base Price, minus any quality price discounts, for all coal unloaded in a
calendar month by the fifteenth (15th) of the following month.  Seller’s invoice
shall be based upon the monthly analysis data set forth in § 7.2.

 

19

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§ 9.3 Payment Procedures for Coal Shipments. For all coal unloaded at the
Buyer’s generating station(s) between the first (1st) and fifteenth (15th) days
of any calendar month.  Buyer shall make a preliminary payment of seventy-five
percent (75%) of the amount owed for the coal (based on the assumption that the
coal will meet all guaranteed monthly quality parameters) by the twenty-fifth
(25th) day of such month of unloading, except that, if the twenty-fifth (25th)
is not a regular work day, payment shall be made on the next regular work day. 
For all coal unloaded at the Buyer’s generating station(s) between the sixteenth
(16th) and the last day of any calendar month, Buyer shall make a preliminary
payment of seventy-five percent (75%) of the amount owed for the coal (based on
the assumption that the coal will meet all of the guaranteed monthly quality
parameters) by the tenth (10th) day of the month following the month of
unloading, except that, if the tenth (10th) is not a regular work day, payment
shall be made on the next regular work day.

 

All preliminary payments shall be calculated based on the then-current price on
a dollar per ton basis as calculated by the guaranteed monthly weighted average
BTU/lb. and the then-current Base Price in cents per MMBTU and shall be equal to
seventy-five percent (75%) of such calculated amount.

 

A reconciliation of amounts paid and amounts owed shall occur by the
twenty-fifth (25th) day of the month following the month of unloading.  (For
example, Buyer will make one preliminary payment by September 25 for all coal
unloaded September 1 through 15, and another preliminary payment by October 10
for seventy-five percent (75%) of coal unloaded September

 

20

--------------------------------------------------------------------------------

 

16 through 30.  A reconciliation will occur by October 25 for all unloadings
made in September.)  The reconciliation shall be made as follows: Seller shall
invoice Buyer for all coal unloaded during the preceding month on or before the
fifteenth (15th) day of the month following the month of unloading.  The amount
due for all coal (based on the Base Price minus any Quality Price Discounts)
delivered and unloaded and accepted by Buyer during any calendar month shall be
calculated and compared to the sum of the preliminary payments made for coal
delivered and unloaded and accepted during such month.  The difference shall be
paid by or paid to Seller, as applicable, by the twenty-fifth (25th) day of the
month following the month of delivery, except, that, if the twenty-fifth (25th)
is not a regular work day, payment shall be made in the next regular work day. 
Buyer shall electronically transfer all payments to Seller’s account at:

 

PEABODY COALSALES, ST LOUIS

PNC BANK OF N.A.

ABA # 043000096

ACCOUNT # 1008971287

 

§ 9.4  Withholding.  Buyer shall have the right to withhold from payment of any
billing or billings (i) any sums which it is not able in good faith to verify or
which it otherwise in good faith disputes, (ii) any damages resulting from or
likely to result from any breach of this Agreement by Seller or Producer, and
(iii) any amounts owed to Buyer from Seller.  Buyer shall notify Seller promptly
in writing of any such issue, stating the basis of its claim and the amount it
intends to withhold.

 

21

--------------------------------------------------------------------------------

 

Payment by Buyer, whether knowing or inadvertent, of any amount in dispute shall
not be deemed a waiver of any claims or rights by Buyer with respect to any
disputed amounts or payments made.

 

SECTION 10.       FORCE MAJEURE.

 

§ 10.1 General Force Majeure.  If either party hereto is delayed in or prevented
from performing any of its obligations or from utilizing the coal sold under
this Agreement due to acts of God, war, riots, civil insurrection, acts of the
public enemy, strikes, lockouts, fires, floods or earthquakes, which are beyond
the reasonable control and without the fault or negligence of the party affected
thereby, then the obligations of both parties hereto shall be suspended to the
extent made necessary by such event; provided that the affected party gives
written notice to the other party as early as practicable of the nature and
probable duration of the force majeure event.  The party declaring force majeure
shall exercise due diligence to avoid and shorten the force majeure event and
will keep the other party advised as to the continuance of the force majeure
event.  During any period in which Seller’s ability to perform hereunder is
affected by Producer’s force majeure event, Seller shall require Producer to not
deliver any coal to any other buyers to whom Producer’s ability to supply is
similarly affected by such force majeure event unless contractually committed to
do so at the beginning of the force majeure event; and further shall deliver to
Buyer under this Agreement at least a pro rata portion (on a per ton basis) of
its total contractual commitments to all its buyers to whom Seller’s ability to
supply is similarly affected by such

 

22

--------------------------------------------------------------------------------

 

force majeure event in place at the beginning of the force majeure event.  An
event which affects the Producer’s ability to produce or obtain coal from a mine
other than the Coal Property will not be considered a force majeure event
hereunder.

 

Tonnage deficiencies resulting from a force majeure event shall be made up only
upon mutual agreement of Buyer and Seller, on the basis of a mutually agreeable
shipping schedule.

 

§ 10.2 Environmental Law Force Majeure.  The parties recognize that, during the
continuance of this Agreement, legislative or regulatory bodies or the courts
may adopt or reinterpret environmental laws, regulations, policies and/or
restrictions which will make it impossible or commercially impracticable for
Buyer to utilize this or like kind and quality coal which thereafter would be
delivered hereunder.  If as a result of the adoption or reinterpretation of such
laws, regulations, policies, or restrictions, or change in the interpretation or
enforcement thereof, Buyer decides that it will be impossible or commercially
impracticable (uneconomical) for Buyer to utilize such coal, Buyer shall so
notify Seller, and thereupon Buyer and Seller and Producer shall promptly
consider whether corrective actions can be taken in the mining and preparation
of the coal at Seller’s mine and/or in the handling and utilization of the coal
at Buyer’s generating station; and if in Buyer’s sole judgment such actions will
not, without unreasonable expense to Buyer, make it possible and commercially
practicable for Buyer to so utilize coal which thereafter would be delivered
hereunder without violating any applicable law, regulation, policy or order,
Buyer shall have the right, upon the later of sixty (60) days notice to

 

23

--------------------------------------------------------------------------------

 

Seller or the effective date of such restriction, to terminate this Agreement
without further obligation hereunder on the part of either party.

 

SECTION 11.  CHANGES.  Either party may, at any time by written notice pursuant
to § 12 of this Agreement, propose changes within the general scope of this
Agreement in any one or more of the following: quality of coal or coal
specifications, quantity of coal, method or time of shipments, place of delivery
(including transfer of title and risk of loss), method(s) of weighing, sampling
or analysis or any such other provision as may affect the suitability and amount
of coal to be delivered to Buyer’s generating stations. Such proposed changes
will not become binding unless and until the parties agree thereto and this
Agreement is amended in writing. If any such changes makes necessary or
appropriate an increase or decrease in the then current price per ton of coal,
or in any other provision of this Agreement, an equitable adjustment shall be
made in: price, whether current or future or both, and/or in such other
provisions of this Agreement as are affected directly or indirectly by such
change, and the Agreement shall thereupon be modified in writing accordingly.

 

Any claim by the Seller for adjustment under this § 11 shall be asserted within
thirty (30) days after the date of Seller’s receipt of the written notice of
change, it being understood, however that Seller shall not be obligated to
proceed under this Agreement as changed until an equitable adjustment has been
agreed upon.  The parties agree to negotiate promptly and in good faith to agree
upon the nature and extent of any equitable adjustment.

 

24

--------------------------------------------------------------------------------

 

SECTION 12.       NOTICES.

 

§ 12.1 Form and Place of Notice.  Any official notice, request for approval or
other document required to be given under this Agreement shall be in writing,
unless otherwise provided herein, and shall be deemed to have been sufficiently
given when delivered in person, transmitted by facsimile or other electronic
media, delivered to an established mail service for same day or overnight
delivery, or dispatched in the United States mail, postage prepaid, for mailing
by first class, certified, or registered mail, return receipt requested, and
addressed as follows:

 

If to Buyer:

 

Louisville Gas and Electric Company

 

 

 

P.O. Box 32010

 

 

 

Louisville, Kentucky 40232

 

 

 

Attn.: Director Corporate Fuels and By-Products

 

 

 

 

 

If to Seller:

 

Peabody COALSALES Company

 

 

 

701 Market Street, Suite 930

 

 

 

St. Louis, Missouri 63101

 

 

 

Attn: Vice-President, Sales

 

 

§ 12.2 Change of Person or Address.  Either party may change the person or
address specified above upon giving written notice to the other party of such
change.

 

§ 12.3 Electronic Data Transmittal.  Seller hereby agrees, at Seller’s cost, to
electronically transmit shipping notices and/or other data to Buyer in a format
acceptable to and established by Buyer upon Buyer’s request.  Buyer shall
provide Seller with the appropriate format and will inform Seller as to the
electronic data requirements at the appropriate time.

 

25

--------------------------------------------------------------------------------

 

SECTION 13.       CREDIT RATING.  If the credit rating of either Buyer (if Buyer
has a public rating) or Buyer’s affiliates that have public ratings falls below
investment grade (BBB - as defined by Standard & Poor’s or the equivalent as
defined by other public ratings agencies), Buyer shall, within thirty (30) days
after Seller’s written request, provide Seller with a mutually agreed upon form
of credit enhancement (e.g., letter of credit, guaranty from an investment grade
entity, etc.).  Until the mutually acceptable assurances of good credit are
received, Seller has the right to require payment in cash at the time of
delivery. Such mutually acceptable assurances of good credit shall not be more
than the average monthly outstanding net balance.

 

SECTION 14.       RIGHT TO RESELL.  Buyer shall have the unqualified right to
resell all or any of the coal purchased under this Agreement.

 

SECTION 15.       INDEMNITY AND INSURANCE.

§ 15.1 Indemnity.  Seller agrees to indemnify and save harmless Buyer, its
officers, directors, employees and representatives from any responsibility and
liability for any and all claims, demands, losses, legal actions for personal
injuries, property damage and pollution (including reasonable inside and outside
attorney’s fees) (i) relating to the trucks, barges or railcars provided by
Buyer or Buyer’s contractor while such trucks, barges or railcars are in the

 

26

--------------------------------------------------------------------------------

 

care and custody of the loading dock or loading facility, (ii) due to any
failure of Seller or Producer to comply with laws, regulations or ordinances, or
(iii) due to the acts or omissions of Seller or Producer in the performance of
this Agreement.

 

Buyer agrees to indemnify and save harmless Seller, its officers, directors,
employees and representatives from any responsibility and liability for any and
all claims, demands, losses, legal actions for personal injuries, property
damage and pollution (including reasonable inside and outside attorney’s fees)
(i) due to any failure of Buyer to comply with laws, regulations or ordinances,
or (ii) due to the negligence of any representatives, agents or employees of
Buyer (collectively, “Visitors”) who inspect the Coal Property; or (iii) due to
the acts or omissions of Buyer in the performance of this Agreement.

 

§ 15.2 Insurance.  Seller shall require Producer to carry insurance coverage
with minimum limits as follows:

 

(1)           Commercial General Liability, including Completed Operations and
Contractual Liability, $5,000,000 single limit liability.

 

(2)           Automobile General Liability, $1,000,000 single limit liability.

 

(3)           In addition, Seller shall require Producer to carry excess
liability insurance covering the foregoing perils in the amount of $4,000,000
for any one occurrence.

 

(4)           Workers’ Compensation and Employer’s Liability with statutory
limits.

 

If any of the above policies are written on a claims made basis, then the
retroactive date of the policy or policies will be no later than the effective
date of this Agreement.  Certificates of

 

27

--------------------------------------------------------------------------------

 

Insurance satisfactory in form to the Buyer and signed by the Producer’s insurer
shall be supplied by the Seller to the Buyer evidencing that the above insurance
is in force and that not less than thirty (30) calendar days written notice will
be given to the Buyer prior to any cancellation or material reduction in
coverage under the policies.  The Seller shall cause the Producer’s insurer to
waive all subrogation rights against the Buyer respecting all losses or claims
arising from performance hereunder.  Evidence of such waiver satisfactory in
form and substance to the Buyer shall be exhibited in the Certificate of
Insurance mentioned above.  Seller’s and Producer’s liability shall not be
limited to their insurance coverage.

 

SECTION 16.       TERMINATION FOR DEFAULT.

 

Subject to § 6.4, if either party hereto commits a material breach of any of its
obligations under this Agreement at any time, including, but not limited to, a
material breach of a representation and warranty set forth herein, then the
other party has the right to give written notice describing such breach and
stating its intention to terminate this Agreement no sooner than thirty (30)
days after the date of the notice (the “notice period”).  If such material
breach is curable and the breaching party cures such material breach within the
notice period, then the Agreement shall not be terminated due to such material
breach.  If such material breach is not curable or the breaching party fails to
cure such material breach within the notice period, then this Agreement shall
terminate at the end of the notice period in addition to all the other rights
and remedies available to the aggrieved party under this Agreement and at law
and in equity.

 

28

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SECTION 17.       TAXES, DUTIES AND FEES.

 

Seller shall pay when due, and the price set forth in § 8 of this Agreement
shall be inclusive of, all taxes, duties, fees and other assessments of whatever
nature imposed by governmental authorities with respect to the transactions
contemplated under this Agreement.

 

SECTION 18.       DOCUMENTATION AND RIGHT OF AUDIT.

 

Seller and Producer shall maintain all records and accounts pertaining to
payments, quantities, quality analyses, and source for all coal supplied under
this Agreement for a period lasting through the term of this Agreement and for
two (2) years thereafter.  Buyer shall have the right at no additional expense
to Buyer to audit, copy and inspect such records and accounts at any reasonable
time upon reasonable notice during the term of this Agreement and for two (2)
years thereafter and Seller and Producer shall cooperate at no additional cost
to Buyer.

 

SECTION 19.       EQUAL EMPLOYMENT OPPORTUNITY.  To the extent applicable,
Seller shall comply with all of the following provisions which are incorporated
herein by reference: Equal Opportunity regulations set forth in 41 CRF §
60-1.4(a) and (c) prohibiting discrimination against any employee or applicant
for employment because of race, color, religion, sex, or national origin;
Vietnam Era Veterans Readjustment Assistance Act regulations set forth in 41 CRF
§ 50-250.4 relating to the employment and advancement of disabled veterans

 

29

--------------------------------------------------------------------------------

 

and veterans of the Vietnam Era; Rehabilitation Act regulations set forth in 41
CRF § 60-741.4 relating to the employment and advancement of qualified disabled
employees and applicants for employment; the clause known as “Utilization of
Small Business Concerns and Small Business Concerns Owned and Controlled by
Socially and Economically Disadvantaged Individuals” set forth in 15 USC §
637(d)(3); and subcontracting plan requirements set forth in 15 USC § 637(d).

 

SECTION 20.       COAL PROPERTY INSPECTIONS.  Buyer and its representatives, and
others as may be required by applicable laws, ordinances and regulations shall
have the right at all reasonable times and at their own expense to inspect the
Coal Property, including the loading facilities, scales, sampling system(s),
wash plant facilities, and mining equipment for conformance with this
Agreement.  Seller and Producer shall cooperate with such inspections at no
additional cost to Buyer.  Seller shall cause the Producer to undertake
reasonable care and precautions to prevent personal injuries to any
representatives, agents or employees of Buyer (collectively, “Visitors”) who
inspect the Coal Property.  Any such Visitors shall make every reasonable effort
to comply with Seller’s regulations and rules regarding conduct on the work
site, made known to Visitors prior to entry, as well as safety measures mandated
by state or federal rules, regulations and laws.  Buyer understands that
underground mines and related facilities are inherently high-risk environments. 
Buyer’s failure to inspect the Coal Property or to object to defects therein at
the time Buyer inspects the same shall not relieve

 

30

--------------------------------------------------------------------------------

 

Seller or Producer of any of their responsibilities nor be deemed to be a waiver
of any of Buyer’s rights hereunder.

 

SECTION 21.       MISCELLANEOUS.

 

§ 21.1 Applicable Law.  This Agreement shall be construed in accordance with the
laws of the Commonwealth of Kentucky, and all questions of performance of
obligations hereunder shall be determined in accordance with such laws.

 

§ 21.2 Headings.  The paragraph headings appearing in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.

 

§ 21.3 Waiver.  The failure of either party to insist on strict performance of
any provision of this Agreement, or to take advantage of any rights hereunder,
shall not be construed as a waiver of such provision or right.

 

§ 21.4 Remedies Cumulative.  Remedies provided under this Agreement shall be
cumulative and in addition to other remedies provided under this Agreement or by
law or in equity.

 

§ 21.5 Severability.  If any provision of this Agreement is found contrary to
law or unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms, unless such unlawful
or unenforceable provision is material to the transactions contemplated hereby,
in which case the parties shall negotiate in good faith a substitute provision.

 

31

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§ 21.6 Binding Effect.  This Agreement shall bind and inure to the benefit of
the parties and their successors and assigns.

 

§ 21.7 Assignment.

 

A.            Seller shall not, without Buyer’s prior written consent, which
shall not be unreasonably withheld, make any assignment or transfer of this
Agreement, by operation of law or otherwise, including without limitation any
assignment, encumbrance or transfer as security for any obligation, and shall
not assign or transfer the performance of or right or duty to perform any
obligation of Seller hereunder; provided, however, that Seller may assign the
right to receive payments for coal directly from Buyer to a lender as part of
any accounts receivable financing or other revolving credit arrangement which
Seller may have now or at any time during the term of this Agreement.

 

B.            Buyer shall not, without Seller’s prior written consent, which may
not be unreasonably withheld, assign this Agreement or any right or duty to
perform any obligation of Buyer hereunder; except that, without such consent,
Buyer may assign this Agreement in connection with a transfer by Buyer of all or
a part interest in the generating station comprising the Delivery Point, or as
part of a merger or consolidation involving Buyer.

 

C.            In the event of an assignment or transfer contrary to the
provisions of this section, the non-assigning party may terminate this Agreement
immediately.

 

§ 21.8      Entire Agreement.  This Agreement contains the entire agreement
between the parties as to the subject matter hereof, and there are no
representations, understandings or

 

32

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agreements, oral or written, which are not included herein.

 

§ 21.9 Amendments.  Except as otherwise provided herein, this Agreement may not
be amended, supplemented or otherwise modified except by written instrument
signed by both parties hereto.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

LOUISVILLE GAS AND ELECTRIC COMPANY

 

 

 

 

 

PEABODY COALSALES COMPANY

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Title:

SVP – Energy Services

 

Title:

 

 

 

 

 

 

Date:

 

 

Date:

 

 

 

33

--------------------------------------------------------------------------------

 

EXHIBIT A

 

PRODUCER’S CERTIFICATE

 

The undersigned, PATRIOT COAL COMPANY, L.P. a Delaware limited partnership and
OHIO COUNTY COAL COMPANY, a Kentucky corporation, and PEABODY COAL COMPANY, a
Delaware corporation (herein collectively “Producer”), by and through their duly
authorized officers, as an inducement to LOUISVILLE GAS AND ELECTRIC COMPANY
(“LG&E”), a Kentucky corporation (“Buyer”) and PEABODY COALSALES COMPANY, a
Delaware corporation (herein “Agent”), to enter into a Coal Supply Agreement
(the “Coal Supply Agreement”) between LG&E and Agent, and as a further
inducement to Agent to enter into a Coal Marketing and Sales Agreement with
Producer (“Coal Marketing and Sales Agreement”), hereby certifies, warrants and
represents to LG&E and Agent as follows:

 

1.             Producer is a duly organized, validly existing limited
partnership or corporation, as the case may be, in good standing under the laws
of the Commonwealth of Kentucky, and fully qualified to do business under the
laws of the Commonwealth of Kentucky.  Producer has all requisite power and
authority to execute this instrument and to enter into all documents required in
connection with and including the proposed Coal Marketing and Sales Agreement
between Producer and Agent.

 

2.             By the execution hereof, the undersigned certify that, as the
officers of Producer, they have all the necessary power and authority to execute
and deliver this Producer’s Certificate, for and on behalf of Producer.

 

34

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3.             This Certificate is given by Producer to induce LG&E and Agent to
each execute and deliver between themselves that certain proposed Coal Supply
Agreement, with the knowledge that LG&E and Agent will each rely upon the truth
of the statements made herein.

 

4.             Each Producer represents and warrants that the portion of the
“Coal Property” described in Exhibit “A” over which that Producer has control
(the “Coal Property”) contains economically recoverable coal of a quality and in
quantities which will be sufficient to satisfy all the quantity and quality
requirements of the Coal Supply Agreement and the Coal Marketing and Sales
Agreement which requirements are set forth on Exhibit “B” attached hereto. 
Producer further agrees and warrants that it will have at the Coal Property
adequate machinery, equipment and other facilities to produce, prepare and
deliver coal in the quantity and at the quality specified in Exhibit “B”. 
Producer further represents and warrants and agrees to operate and maintain such
machinery, equipment, and facilities in accordance with good mining practices so
as to efficiently and economically produce, prepare, and deliver such coal. 
Producer agrees that it shall operate and maintain the machinery, equipment
and/or facilities at its sole expense, including all required permits and
licenses.  Producer further dedicates to the Coal Supply Agreement and the Coal
Marketing and Sales Agreement sufficient reserves of coal meeting the quality
specifications specified in Exhibit “B” and lying on or in the Coal Property so
as to fulfill the quantity requirements of the proposed Coal Marketing and Sales
Agreement.

 

5.             Producer agrees and warrants that it will not, without obtaining
the express prior written consent of both LG&E and of Agent, use or sell coal
from the Coal Property in a way that

 

35

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will reduce the economically recoverable balance of coal in the Coal Property to
an amount less than that required to be supplied by Producer as specified in
Exhibit “B”.

 

6.             Producer agrees and warrants that it shall require of the loading
dock operator that the barges and towboats provided by LG&E or LG&E’s barging
contractor be provided convenient and safe berth free of wharfage, dockage and
port charges; that while the barges are in the care, custody and control of the
loading dock, all U.S. Coast Guard regulations and other applicable laws,
ordinances, rulings and regulations shall be complied with, including adequate
mooring and display of warning lights; and any water in the cargo boxes of the
barges be pumped out by the loading dock operator prior to loading; that the
loading operations be performed in a workmanlike manner and in accordance with
the reasonable loading requirements of LG&E and LG&E’s barging contractor; that
the loading dock operator carry landing owner’s or wharfinger’s insurance with
basic coverage of not less than $300,000 and total of basic coverage and excess
liability coverage of not less than $1,000,000 and provide evidence thereof to
LG&E and Agent in the form of a certificate of insurance from the insurance
carrier or an acceptable certificate of self-insurance with requirement for
notification of LG&E and Agent in the event of termination of the insurance.

 

7.             Producer agrees that it will replace rejected coal within five
(5) working days with coal conforming to the rejection limits set forth in the
proposed Coal Supply Agreement and the Coal Marketing and Sales Agreement
between Producer and Agent, which rejection limits Producer understands and
acknowledges are the same rejection limits as provided in the proposed

 

36

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Coal Supply Agreement between LG&E and Agent, and that should Producer either
fail to replace the rejected coal within such five (5) working day period or the
replacement coal is rightfully rejected (where such rejection is not based upon
the BTU/LB minimum or the percentage of moisture maximum being exceeded as a
result of weather conditions), and another source has replaced such rejected
coal, Producer agrees to and shall reimburse LG&E for any amount that the total
delivered cost to LG&E of such coal purchased from another source exceeds the
then current delivered cost of coal sold by Producer under the proposed Coal
Marketing and Sales Agreement between Agent and LG&E.  Further, Producer agrees
to be responsible to pay or reimburse Agent or LG&E as applicable, for any and
all freight or transportation expenses that have been incurred for rightfully
rejected coal.

 

8.             Producer agrees that if it shall receive a notice in writing that
the coal sold fails to meet one or more of the monthly average guarantees as set
forth in the Coal Supply Agreement between Agent and LG&E, then Producer shall
within ten (10) days provide LG&E with reasonable assurances that subsequent
monthly deliveries of coal shall meet or exceed such monthly average guarantees

 

9.             Producer agrees to and shall indemnify and save harmless LG&E,
and its respective officers, directors, employees, and representatives from any
responsibility and liability for any and all claims, demands, losses, legal
actions for personal injuries, property damage and pollution (including
reasonable attorney’s fees) relating to the barges provided by LG&E or LG&E’s
contractor while such barges are in the care and custody of the loading dock, or
for any

 

37

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failure of Producer to comply with laws, regulations or ordinances, or for any
matter which arises out of the acts or omissions of Producer in the performance
of its obligations hereunder including, but not limited to, the proper delivery
of coal by Producer to Buyer.

 

10.           Producer agrees and warrants to and shall carry insurance coverage
with minimum limits as follows:

 

A.            Commercial general liability, $1,000,000, single limit liability.

 

B.            Automobile general liability, $1,000,000 single limit liability.

 

C.            In addition, Producer shall carry excess liability insurance
covering the foregoing perils in the amount of $4,000,000 for any one
occurrence.

 

D.            Kentucky Worker’s Compensation and Employer’s Liability with
statutory limits.

 

E.             If any of the above policies are written on a claims made basis,
then the retroactive date of the policy or policies will be no later than the
effective date of Producer’s proposed Coal Marketing and Sales Agreement with
Agent.

 

11.           Producer agrees that it shall not assign the proposed Coal
Marketing and Sales Agreement between it and Agent or any rights or obligations
thereunder without the prior written consent of Agent and Buyer which consent
shall not be unreasonably withheld.

 

IN TESTIMONY WHEREOF, the undersigned officers of Producer have executed and
delivered the foregoing Producer’s Certificate on behalf of Producer.

 

38

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ATTEST:

 

 

 

 

 

PATRIOT COAL COMPANY, L.P.

 

 

 

 

 

By:

 

 

 

 

Its:

 

 

 

 

Date:

 

 

 

 

 

 

 

 

OHIO COUNTY COAL COMPANY

 

 

 

 

 

 

By:

 

 

 

 

Its:

 

 

 

 

Date:

 

 

 

 

 

 

 

 

PEABODY COAL COMPANY

 

 

 

 

 

 

By:

 

 

 

 

Its:

 

 

 

 

Date:

 

 

 

39

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EXHIBIT A TO PRODUCER’S CERTIFICATE

 

“Coal Property” means the following seams and mines owned by Producer:

 

Patriot Coal Company’s Patriot Complex, located in Henderson County, Kentucky;
Peabody Coal Company’s Camp Complex located in Union County, Kentucky and
Gibraltar Mine located in Muhlenberg County, Kentucky.

 

40

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EXHIBIT B TO PRODUCER’S CERTIFICATE

 

Quality Requirement

 

The quality required by the Coal Marketing and Sales Agreement is as follows:

 

Specifications

 

Guaranteed Monthly
Weighted Average

 

Rejection Limits
(per shipment)

 

 

 

 

 

 

 

BTU/LB.

 

min. 10,850

 

< 10,600

 

 

 

 

 

 

 

Ash

 

max 10.80 lbs./MMBTU

 

> 12.50 lbs./MMBTU

 

Moisture

 

max 12.90 lbs./MMBTU

 

> 15.00 lbs./MMBTU

 

Sulfur

 

max.  3.00 lbs./MMBTU

 

> 3.40 lbs./MMBTU

 

Sulfur

 

min. 2.75 lbs./MMBTU

 

< 2.55 lbs./MMBTU

 

 

 

 

 

 

 

All Qualities:

 

 

 

 

 

Chlorine

 

max. 0.05 lbs./MMBTU

 

> 0.06 lbs./MMBTU

 

Fluorine

 

max. 0.01 lbs./MMBTU

 

> 0.015 lbs./MMBTU

 

Nitrogen

 

max. 1.35 lbs./MMBTU

 

> 1.45 lbs./MMBTU

 

 

 

 

 

 

 

SIZE (3” x 0”):

 

 

 

 

 

Top size (inches)*

 

max.  3”x 0”

 

>  3”x 0”

 

Fines (% by wgt)

 

 

 

 

 

passing 1/4” screen

 

max. 50%

 

>  55

 

 

 

 

 

 

 

% BY WEIGHT:

 

 

 

 

 

 

 

 

 

 

 

VOLATILE

 

max. 31

 

> 29

 

FIXED CARBON

 

min. 38

 

< 30

 

GRINDABILITY (HGI)

 

min. 55

 

< 50

 

BASE ACID RATIO (B/A)

 

       .60

 

> .90

 

SLAGGING FACTOR

 

       2.0

 

   2.5

 

 

 

 

 

 

 

ASH FUSION TEMPERATURE (°F) (ASTM D1857)

 

 

 

 

 

 

 

 

 

 

 

REDUCING ATMOSPHERE

 

 

 

 

 

Initial Deformation

 

min. 1940

 

min. 1900

 

Softening (H=W)

 

min. 2035

 

min. 1975

 

Softening (H=1/2W)

 

min. 2085

 

min. 2000

 

Fluid

 

min. 2190

 

min. 2100

 

 

 

 

 

 

 

OXIDIZING ATMOSPHERE

 

 

 

 

 

Initial Deformation

 

min. 2300

 

min. 2200

 

Softening (H=W)

 

min. 2330

 

min. 2280

 

Softening (H=1/2W)

 

min. 2425

 

min. 2300

 

Fluid

 

min. 2490

 

min. 2375

 

 

41

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* All the coal will be of such size that it will pass through a screen having
circular perforations three (3) inches in diameter, but shall not contain more
than forty percent (40%) by weight of coal that will pass through a screen
having circular perforations one-quarter (1/4) of an inch in diameter.

 

**           Slagging Factor (Rs)=(B/A) x (Percent Sulfur by WeightDry)

 

***         Fouling Factor (Rf)=(B/A) x (Percent Na20 by WeightDry)

 

The Base Acid Ratio (B/A) is herein defined as:

 

BASE ACID RATIO (B/A) =

 

 

(Fe203  +  Ca0  +  Mg0  +  Na20  +  K20)

 

 

 

 

(Si02  +  A1203  +  T102)

 

 

 

 

 

 

Note:As used herein:

 

>

means greater than;

 

 

 

<

means less than.

 

 

Quantity Requirement

 

The quantity required by the Coal Marketing and Sales Agreement is as follows:

 

QUANTITY

 

 

 

 

 

Year

 

Tonnage

 

2003

 

1,000,000

 

2004

 

1,000,000

 

2005

 

1,000,000

 

 

42

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Exhibit B

 

EXHIBIT B TO COAL SUPPLY AGREEMENT

SAMPLE COAL PAYMENT CALCULATIONS

For contracts supplied from multiple “origins”, each “origin will be calculated
individually.

 

 

 

Section I

 

Base Data

 

 

 

 

 

 

 

 

 

1)

 

Base F.O.B. price per ton:

 

$

19.10

 

/ton

 

 

 

 

 

 

 

 

 

1a)

 

Tons of coal delivered:

 

 

 

tons

 

 

 

 

 

 

 

 

 

2)

 

Guaranteed average heat content:

 

10,850

 

BTU/LB.

 

 

 

 

 

 

 

 

 

2r)

 

As received monthly avg. heat content:

 

 

 

BTU/LB.

 

 

 

 

 

 

 

 

 

2a)

 

Energy delivered in MMBTU:

 

 

 

MMBTU

 

[(Line 1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU

 

 

 

 

 

[(       ) *2,000 lb./ton*]*MMBTU/1,000,000 BTU

 

 

 

 

 

 

 

 

 

 

 

 

 

2b)

 

Base F.O.B. price per MMBTU:

 

$

.880

 

MMBTU

 

{[(Line 1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU

 

 

 

 

 

{[(       /ton)/(       BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

 

 

 

 

 

 

 

 

 

 

 

 

 

3)

 

Guaranteed monthly avg. max. sulfur

 

3.00

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

3r)

 

As received monthly avg. sulfur

 

 

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

4)

 

Guaranteed monthly avg. ash

 

10.80

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

4r)

 

As received monthly avg. ash

 

 

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

5)

 

Guaranteed monthly avg. max. moisture

 

12.90

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

5r)

 

As received monthly avg. moisture

 

 

 

LBS./MMBTU

 

 

 

 

Section II

 

Discounts

 

 

 

Assign a (-) to all discounts (round to (5) decimal places)

 

 

 

 

 

6d)

 

BTU/LB.:  If line 2r < 10,650. then:

 

 

 

 

 

 

 

{1 –{(line 2r) / (line 2)} * $0.2604/MMBTU

 

 

 

 

 

 

 

{1 - (       ) / (       )} * $0.2604 =

 

$

 

 

/MMBTU

 

7d)

 

SULFUR:  If line 3r is greater than 3.05 then:

 

 

 

 

 

 

 

[ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur

 

 

 

 

 

 

 

[ (       ) - (       ) ] * 0.1232 =

 

$

 

 

/MMBTU

 

8d)

 

ASH: If line 4r is greater than 12.20 then:

 

 

 

 

 

 

 

[ (line 4r) - (line 4) ] * 0.0083/MMBTU

 

 

 

 

 

 

 

[ (       ) - (       ) ] * 0.0083 =

 

$

 

 

/MMBTU

 

9d)

 

MOISTURE:  If line 5r is greater than 14.46then:

 

 

 

 

 

 

 

[ (line 5r) - (line 5) ] * 0.0016/MMBTU

 

 

 

 

 

 

 

[ (       ) - (       ) ] * 0.0016 =

 

$

 

 

/MMBTU

 

 

 

43

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Section III

 

Total Price
Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Determine total Discounts as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assign a (-) to all discounts (round to (5) decimal places)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line 6d:

 

$

 

 

/MMBTU

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line 7d

 

$

 

 

/MMBTU

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line 8d

 

$

 

 

/MMBTU

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line 9d

 

$

 

 

/MMBTU

 

 

 

 

 

 

 

 

 

 

 

 

 

10)

 

Total Discounts (-):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Algebraic sum of above:

 

$

 

 

/MMBTU

 

 

 

 

 

 

 

 

 

 

 

 

 

11)

 

Total evaluated coal price = (line 2b) + (line 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12)

 

Total discount price adjustment for Energy delivered:

 

 

 

 

 

 

 

 

 

(line 2a) * (line 10) (-)

 

 

 

 

 

 

 

 

 

$                      /MMBTU                            +

 

$

 

 

/MMBTU

=

$

 

 

 

 

 

 

 

 

 

 

 

 

13)

 

Total base cost of coal

 

 

 

 

 

 

 

 

 

(line 2a) * (line 2b)

 

 

 

 

 

 

 

 

 

$                      /MMBTU                            +

 

$

 

 

/MMBTU

=

$

 

 

 

 

 

 

 

 

 

 

 

 

14)

 

Total coal payment for month

 

 

 

 

 

 

 

 

 

(line 12) + (line 13)

 

 

 

 

 

 

 

 

 

$                      /MMBTU                            +

 

$

 

 

 

=

$

 

 

 

 

 

 

 

 

 

 

 

 

 

44

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