Peabody COALSALES Company

CONTRACT NO. LGE02011

 

EXHIBIT 10.70

 

COAL SUPPLY AGREEMENT

 

This is a coal supply agreement (the “Agreement”) effective as of January 1,
2002 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentucky corporation, 220
West Main Street, Louisville, Kentucky 40202 (“Buyer”), and PEABODY COALSALES
COMPANY, a Delaware corporation, 701 Market Street, Suite 830, St. Louis,
Missouri 63101-1826  (“Seller”).

 

The parties hereto agree as follows:

 

SECTION 1. GENERAL.  Seller shall sell and deliver and Buyer shall purchase and
accept delivery of steam coal under all the terms and conditions of this
Agreement.

 

SECTION 2.  TERM.  The term of this Agreement shall commence on January 1, 2002
and shall continue through December 31, 2004.

 

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)

2002

 

750,000

2003

 

600,000 *

2004

 

600,000 *

 

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* Parties shall meet starting June 1, 2002 to negotiate pricing for an
additional 250,000 tons of coal per year to be supplied during calendar year
2003.  If the parties do not agree upon pricing for such additional tons by
September 1, 2002, then Buyer shall not be entitled to such additional tons, and
the tonnage to be delivered during calendar year 2003 shall be the Base Quantity
as defined above.

Parties shall also meet starting June 1, 2003 to negotiate pricing for an
additional 250,000 tons of coal for 2004.  If the parties do not agree upon
pricing for such additional tons by September 1, 2003, then Buyer shall not be
entitled to such additional tons and the tonnage to be delivered during calendar
year 2004 shall be the Base Quantity as defined above.

 

§ 3.2 Delivery Schedule.  Shipments are to be made on a ratable basis as
adjusted during the year to reflect outages.  Initial shipments shall begin on
or about January 1, 2002.  Time is of the essence with respect to the schedule
so established; and failure by Seller to deliver in a timely fashion shall
constitute a material breach within the meaning of § 16 of this Agreement.

 

SECTION 4.         SOURCE.

 

§ 4.1 Source.  The coal sold hereunder, including coal purchased by Seller from
third parties, shall be supplied from geological seam Western Kentucky #9 and
#11, from Seller’s

 

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affliliated company, Highland Mining Company’s (the “Producer”) Complex, Union
County, Kentucky (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 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 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 operate and maintain same at its sole
expense, including all required permits and licenses.

 

§ 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 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.  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, upon Buyer’s request during Coal Property Inspections, if any (made
pursuant to § 20), provide information to Buyer of such mining plan which shall
contain

 

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maps and a narrative 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 utilized
by Seller, the 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.

 

Buyer’s receipt of information or data furnished by Seller (the “Mining
Information”) shall not in any manner relieve Seller of any of Seller’s
obligations or responsibilities under this agreement; nor shall such review be
construed as constituting an approval of Seller’s proposed mining plan as
prudent mining practices, such review by Buyer being 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.

 

§ 4.5 Substitute Coal.  Notwithstanding the above representations and
warranties, in the event that Seller is unable to produce or obtain 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

 

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from other facilities and mines.  Seller shall also have the right to supply
substitute coal after having received Buyer’s prior 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 Implied Warranties.  EXCEPT AS EXPRESSLY SET FORTH THEREIN, SELLER
EXPRESSLY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL,
EXPRESS OR IMPLIED, INCLUDING MECHANTABILITY, OR FITNESS FOR ANY PARTICULAR
PURPOSE.  No waiver of remedies or damages herein shall apply to claims of
anticipatory repudiation or remedies therefor provided by law except that
neither Seller nor Buyer shall be liable to the other for consequential,
incidental, punitive, exemplary or indirect damages, lost profits, or business
interruption damages, whether by statue, 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
Camp Complex, Mile Point 841.6 on the Ohio River, or at Seller’s option as a
substitute, the Gibraltar Dock at Mile Point 85.9 on the Green River (either the
“Delivery Point”).  Seller may deliver the

 

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coal at a location different from the Delivery Point, provided, 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 the
coal into barges.  Buyer’s barging contractor shall be responsible for trimming
the coal into barges to the proper draft and the proper distribution within the
barges, and the release and movement of the barges during loading.  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, for Seller’s failure to provide coal for the
barges in a timely manner and in the specified minimum tonnage, including the
demurrage, or other penalties.   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 wharfage, dockage and

 

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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

 

Rejection Limits
(per shipment)

 

BTU/LB.

 

min.

 

11,400

 

<

 

10,800

 

 

 

 

 

 

 

 

 

 

 

LBS/MMBTU:

 

 

 

 

 

 

 

 

 

MOISTURE

 

max.

 

10.53

 

>

 

12.00

 

ASH

 

max.

 

8.33

 

>

 

9.00

 

SULFUR

 

max.

 

2.89

 

>

 

3.10

 

SULFUR

 

min.

 

2.30

 

<

 

2.00

 

CHLORINE

 

max.

 

0.009

 

>

 

.015

 

FLUORINE

 

max.

 

 

 

>

 

 

 

NITROGEN

 

max.

 

1.32

 

>

 

1.70

 

 

 

 

 

 

 

 

 

 

 

ASH/SULFUR RATIO

 

min.

 

3.22:1

 

<

 

3:1

 

 

 

 

 

 

 

 

 

 

 

SIZE (3” x 0”):

 

 

 

 

 

 

 

 

 

Top size (inches)*

 

max.

 

3x0

 

>

 

4x0

 

Fines (% by wgt)
Passing 1/4” screen

 

max.

 

60

 

>

 

65

 

 

 

 

 

 

 

 

 

 

 

% BY WEIGHT:

 

 

 

 

 

 

 

 

 

VOLATILE

 

min.

 

30

 

<

 

29

 

FIXED CARBON

 

min.

 

43

 

<

 

40

 

GRINDABILITY (HGI)

 

min.

 

50

 

<

 

48

 

 

 

 

 

 

 

 

 

 

 

BASE ACID RATIO (B/A)

 

 

 

0.40

 

 

 

.50

 

 

 

 

 

 

 

 

 

 

 

SLAGGING FACTOR**

 

max.

 

1.32

 

>

 

1.80

 

FOULING FACTOR***

 

max.

 

0.32

 

>

 

0.40

 

 

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ASH FUSION TEMPERATURE (°F) (ASTM D1857)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REDUCING ATMOSPHERE

 

 

 

 

 

 

 

 

 

Initial Deformation

 

min.

 

1990

 

min.

 

1990

 

Softening (H=W)

 

min.

 

2065

 

min.

 

2050

 

Softening (H=1/2W)

 

min.

 

2105

 

min.

 

2075

 

Fluid

 

min.

 

2225

 

min.

 

2200

 

 

 

 

 

 

 

 

 

 

 

OXIDIZING ATMOSPHERE

 

 

 

 

 

 

 

 

 

Initial Deformation

 

min.

 

2330

 

min.

 

2300

 

Softening (H=W)

 

min.

 

2355

 

min.

 

2325

 

Softening (H=1/2W)

 

min.

 

2400

 

min.

 

2370

 

Fluid

 

min.

 

2480

 

min.

 

2400

 

 

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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 fifty per cent ( 50%) by

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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 Na2O by WeightDry)

 

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

 

BASE ACID RATIO (B/A) =

 

(Fe2O3   +   CaO   +   MgO   +   Na2O   +   K2O)

 

 

(SiO2  +  A12O3  +  TiO2)

 

 

 

 

Note:   As used herein

>

means greater than:

 

<

means less than.

 

§ 6.2        Definition of “Shipment”.  As used herein, a “shipment” shall mean
one barge load, 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(s) which
fail(s) to conform to any of the Rejection Limits set forth in § 6.1 or contains
a material amount of 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, 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 from notice
of rejection with coal conforming to 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 any of the
Rejection Limits (per shipment) set

 

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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.  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 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 four (4) 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,

 

 

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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 coal will conform to all of 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 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) 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

 

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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 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 industry-accepted standards.  Samples for analyses 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 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 4 parts and put into airtight
containers, properly labeled and sealed.  One part shall be used for analysis by
Buyer; one part shall be used by Buyer as a check sample, if Buyer in its sole
judgment determines it is necessary; one part shall be retained by Buyer until
the twenty-fifth (25th) of the month following the month of

 

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unloading (the “Disposal Date”) and shall be delivered to Seller for analysis if
Seller so requests before the Disposal Date; and one 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 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

 

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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:

 

YEAR

 

BASE QUANTITY PRICE (F.O.B. Barge)

 

 

2002

 

$

1.1224 per MMBtu

 

$

25.59 per ton

 

2003

 

$

1.1351 per MMBtu

 

$

25.88 per ton

 

2004

 

$

1.1680 per MMBtu

 

$

26.63 per ton

 

 

§ 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

 

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

 

 

 

Guaranteed Monthly
Weighted Average

 

Discount Point

 

 

 

 

 

 

 

BTU/LB

 

min.

11,400

 

11,200

 

 

 

 

 

 

 

 

LB/MMBTU:

 

 

 

 

 

 

SULFUR

 

max.

2.89

 

2.98

 

ASH

 

max.

8.33

 

8.69

 

MOISTURE

 

max.

10.53

 

11.25

 

 

For example, if the actual Monthly Weighted Average of sulfur equals 3.00
lb/MMBTU, then the applicable discount would be (3.00 lb. – 2.89 lb.) X
$.1232/lb/MMBTU = $.0136/MMBTU.

 

§ 8.3  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

 

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on the coal to be supplied hereunder, including but not limited to tax increases
or decreases, occur after July 31, 2001, which cause Seller’s cost for providing
coal to Buyer under this Agreement to increase or decrease by more than $.10 per
ton.  Seller shall promptly notify Buyer 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.

 

§ 8.4 Payment Calculation.  Exhibit A 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.

 

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

220 West Main Street

P.O. Box 32010

Louisville, KY  40232

Attention:  Manager LG&E/KU Fuels

 

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§ 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.

 

§ 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 preliminary payment for 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 preliminary
payment for seventy-five percent (75%) of the unloaded coal 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.

 

Preliminary payment shall be in the amount of seventy-five percent (75%) of 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.

 

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 initial

 

17

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payment by September 25 for seventy-five (75%) percent of coal unloaded
September 1 through 15, and another initial payment by October 10 for
seventy-five percent (75%) of coal unloaded September 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 on or
before the fifteenth (15th) day of the month following the month of delivery. 
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, 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.

 

18

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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 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
a force majeure event, Seller shall not deliver any coal to any other buyers to
whom Seller’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
force majeure event in place at the beginning of the force majeure event.  An
event which affects the Seller’s ability

 

19

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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 at
Buyer’s sole option on a mutually agreeable 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 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 60 days notice to Seller or the
effective date of such restriction, to terminate this Agreement without further
obligation hereunder on the part of either party.

 

20

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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.

 

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.

 

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,

 

21

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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.

 

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

 

22

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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 to Buyer or third parties 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 care and custody of the loading dock or loading
facility, (ii) due to any failure of Seller to comply with laws, regulations or
ordinances, or (iii) due to the acts or omissions of Seller 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 to third
parties for any and all claims, demands, losses, legal actions for personal
injuries, and property damage (including reasonable inside and outside
attorney’s fees); (i) due to any failure of Buyer to comply with laws,

 

23

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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 agrees to carry insurance coverage with minimum
limits as follows:

 

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

 

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

 

(3)           In addition, Seller shall 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 Insurance satisfactory in form to the
Buyer and signed by the Seller’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 its 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 liability shall not
be limited to its insurance coverage.

 

24

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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.

 

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 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

 

25

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term of this Agreement and for two 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 2 years thereafter.

 

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 CFR §
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 CFR
§ 50-250.4 relating to the employment and advancement of disabled veterans and
veterans of the Vietnam Era; and Rehabilitation Act regulations set forth in 41
CFR § 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

 

26

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equipment for conformance with this Agreement.  Seller shall cause Highland
Mining Company 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 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 Seller of
any of its 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.

 

27

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§ 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.

 

§ 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 may be
withheld in Buyer’s discretion, make any assignment or transfer of this
Agreement, by operation of law or otherwise, including without limitation any
assignment 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 for the
performance of or right or duty to perform any obligation of Buyer hereunder;
except that, without such consent, Buyer may

 

28

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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, or to an affiliate of 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 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:

 

 

Paul Thompson

 

 

Richard A. Navarre

 

SVP — Energy Services

 

 

President

 

 

 

 

 

Date:

 

 

Date:

 

 

29

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Exhibit A

EXHIBIT A

SAMPLE COAL PAYMENT CALCULATIONS

Total Evaluated Coal Costs for Contract No. LGE02011

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

 

 

Section I

 

Base Data

 

 

 

 

 

 

 

 

 

 

 

1)

 

Base F.O.B. price per ton:

 

$

25.59

 

/ton

 

 

 

 

 

 

 

 

 

1a)

 

Tons of coal delivered:

 

 

 

tons

 

 

 

 

 

 

 

 

 

2)

 

Guaranteed average heat content:

 

11,400

 

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:

 

$

1.1224

 

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

 

2.89

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

3r)

 

As received monthly avg. sulfur

 

 

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

4)

 

Guaranteed monthly avg. ash

 

8.33

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

4r)

 

As received monthly avg. ash

 

 

 

LBS./MMBTU

 

 

 

 

 

 

 

 

 

5)

 

Guaranteed monthly avg. max. moisture

 

10.53

 

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 <11,200BTU/lb. then:
{1 - (line 2r) / (line 2)} * $0.2604/MMBTU
{1 - (    ) / (    )} * $0.2604 =

 

$

 

/MMBTU

 

 

 

 

 

 

 

 

7d)

 

SULFUR:  If line 3r is greater than 2.98 lbs./MMBTU
[ (line 3r) - (line 3) ] * 0.1232/lb. Sulfur
[ (    ) - (    ) ] * 0.1232 = 

 

$

 

/MMBTU

 

 

 

 

 

 

 

 

8d)

 

ASH: If line 4r is greater than 8.69 lbs./MMBTU
[ (line 4r) - (line 4) ] * 0.0083/MMBTU 
[ (    ) - (    ) ] * 0.0083 =

 

$

 

/MMBTU

 

 

 

 

 

 

 

 

 

9d)

 

MOISTURE:  If line 5r is greater than 11.25lbs./MMBTU
[ (line 5r) - (line 5) ] * 0.0016/MMBTU
[ (    ) - (    ) ] * 0.0016 =

 

$

 

/MMBTU

 

 

 

30

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Exhibit A

 

 

 

 

 

 

Total Price
Adjustments

 

 

 

 

Section III

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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                                                          +

 

$

 

 

=

 

$

 

   

 

31

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