exv10w7



 





Exhibit 10.7




Execution Version




COAL SUPPLY AGREEMENT




     This Coal Supply Agreement (this “Agreement”) is made and entered into as of October 22, 2007
(the “Execution Date”) by and between COALSALES II, LLC, formerly known as Peabody Coalsales
Company, a Delaware limited liability company (“COALSALES II”), and PATRIOT COAL SALES LLC, a
Delaware limited liability company (“Patriot”).



RECITALS:





	A.	 	COALSALES II and each of the End Customers (as hereinafter defined) listed on Exhibit
A attached hereto have entered into certain coal supply agreements, pursuant to which
COALSALES II supplies coal to each End Customer. For purposes of this Agreement, all
references to “End Customer” shall mean and refer to each entity listed on Exhibit A;
all references to the “End Customer Contract” shall mean and refer to each coal supply
agreement between COALSALES II and an End Customer.
	 
	B.	 	Patriot operates one or more coal mines in the location(s) set forth in the End Customer
Contract; and such mine(s) have supplied coal to COALSALES II to enable COALSALES II to
fulfill its supply obligations under the End Customer Contract.
	 
	C.	 	Immediately prior to the Effective Date (which, for purposes
hereof, shall be October 31, 2007, and, when relevant,
11:59 p.m. on such date), COALSALES II and Patriot were both indirect
subsidiaries of Peabody Energy Corporation. Commencing on or after the Effective Date, as a
result of a spin-off transaction, Patriot will no longer be an indirect subsidiary of Peabody
Energy Corporation.
	 
	D.	 	It is the intent of the parties to allow COALSALES II to continue to meet its obligations
under the End Customer Contract by purchasing coal from Patriot in accordance with terms and
conditions of this Agreement and of the End Customer Contract, except where expressly provided
otherwise in this Agreement.





AGREEMENT:





	 	 	NOW, THEREFORE, COALSALES II and Patriot agree as follows:
	 
	1.	 	INCORPORATION OF TERMS OF END CUSTOMER CONTRACT






	 	1.1	 	Incorporation of End Customer Contract. Copies of the End Customer Contracts,
as amended through the Execution Date, are attached hereto as Exhibit B. It is
the intent of the parties that except where expressly provided otherwise in this
Agreement, the terms and conditions of the End Customer Contract (including the rights,
obligations and benefits of each party thereto) shall apply to Patriot as if Patriot
were the named “Seller” (or such comparable term) under the End Customer Contract and
to COALSALES II, as if COALSALES II were the named “Buyer” (or such comparable term)
under the End Customer Contract. Accordingly, the text of each End Customer Contract is hereby incorporated by
reference, with the same force and effect as if such text were fully set forth
herein, subject to the modifications thereto set forth below. The foregoing
notwithstanding, COALSALES II shall only exercise those rights and benefits of




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	 	 	 	the named Buyer under the End Customer Contract that are first exercised by the End
Customer.
	 
	 	1.2	 	Confirmation Letters. To the extent the End Customer Contract consists of a
master supply agreement and individual confirmation letters (or similar documents)
having definitive start and end dates, and additional terms and conditions pursuant to
which the End Customer purchases coal (each hereinafter a “Confirmation Letter”), it is
intended by COALSALES II and Patriot that all references to the term End Customer
Contract mean and include all Confirmation Letters that are in effect as of the
Effective Date of this Agreement. Such Confirmation Letters shall apply to COALSALES II
and Patriot in the same manner as an End Customer Contract, and they shall remain in
full force and effect until expiration or termination pursuant to their terms.
Confirmation Letters entered into between COALSALES II and the End Customer after the
Effective Date of this Agreement are expressly excluded from the definition of End
Customer Contract and have no application to this Agreement.
	 
	 	1.3	 	No Assignment or Privity. For the avoidance of doubt, this Agreement does not
constitute a subcontract, delegation or assignment by COALSALES II of the End Customer
Contract, and there will be no privity of contract between the End Customer and Patriot
under or in respect of the End Customer Contract.
	 
	 	1.4	 	Communications For Scheduling, Transportation, and Related Activities. Patriot
will have the primary responsibility for the coordination of all deliveries under each
End Customer Contract. Patriot shall promptly notify COALSALES II of all substantive
communications exchanged between Patriot and End Customer in relation to the End
Customer Contract. Under no circumstances shall COALSALES II be liable to Patriot for
damages of any kind arising out of or relating to End Customer’s failure to meet any of
its obligations relating to the scheduling and transportation of coal; provided, that
if Patriot has any claims or defenses arising under COALSALES II’s rights in connection
with a failure of the End Customer to satisfy its performance obligations under the End
Customer Contract, COALSALES II shall, subject to Section 1.7 hereof, use commercially
reasonable efforts to pursue all such rights and defenses on Patriot’s behalf or for
the benefit of Patriot. In accordance with Section 2.11 hereof, Patriot shall be liable
to COALSALES II for damages incurred by COALSALES II arising from non-performance by
Patriot of any of its obligations hereunder.
	 
	 	1.5	 	Assumption of Rights, Remedies, Responsibilities and Obligations. In
furtherance of the foregoing, Patriot hereby assumes toward COALSALES II all
obligations and responsibilities that COALSALES II has under the End Customer Contract
toward End Customer; and COALSALES II will have the benefit of all rights and remedies
against Patriot that End Customer has against COALSALES
II under the End Customer Contract, in each case subject to the modifications set
forth below. Likewise, COALSALES II hereby assumes toward Patriot all obligations
and responsibilities that End Customer has toward COALSALES II under the End
Customer Contract; and Patriot will have the benefit of all rights




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	 	 	 	and remedies against COALSALES II that COALSALES II has against End Customer under the End
Customer Contract, in each case subject to the modifications set forth below.






	 	1.6	 	Conflicting Terms. If there is a conflict or inconsistency between a provision
of the End Customer Contract and a provision of the body of this Agreement, the
provision of the body of this Agreement will control.
	 
	 	1.7	 	Legal Proceedings. In addition to all other rights and remedies available under
this Agreement, including the End Customer Contract, the following shall apply:






	 	(a)	 	COALSALES II will use commercially reasonable efforts to defend
its rights against End Customer under the End Customer Contract and to pursue
all necessary legal action to enforce its rights against End Customer under the
End Customer Contract; provided, however, that COALSALES II shall have the
right, in its sole discretion, to determine whether or not it will pursue or
defend a given legal action; and in the event COALSALES II determines not to
pursue or defend a given legal action, it shall notify Patriot of such
determination. COALSALES II agrees that in the course of defending or pursuing
its rights against End Customer under the End Customer Contract that it will
exercise commercially reasonable efforts to avoid taking any actions that it
knows or would reasonably be expected to know would be detrimental to Patriot.
Notwithstanding the foregoing, nothing in this Section 1.7(a) will be construed
to limit any right that Patriot may have against COALSALES II under this
Agreement as a result of such action by, or inaction of, COALSALES II.
	 
	 	(b)	 	If the parties are co-defendants in any legal proceeding
arising out of the End Customer Contract, the parties agree to work together in
good faith and in the spirit of mutual cooperation to defend such action in a
manner beneficial to both parties, provided, that each party shall have the
right to engage counsel of its choosing, and will bear the costs of its own
legal defense.






	2.	 	GENERAL MODIFICATIONS TO END CUSTOMER CONTRACT
	 
	 	 	The purpose of this Agreement is to allow COALSALES II to continue to meet its obligations
under the End Customer Contract by purchasing coal from Patriot in accordance with the terms
and conditions agreed to hereunder. Accordingly, this Agreement will be construed and
performed in furtherance of such purpose notwithstanding that the parties may not have
adequately modified the text of the End Customer Contract.
	 
	 	 	The following provisions of this Article 2 set forth general modifications to be made to,
and rules of construction to be applied to, the text of the End Customer Contract.




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	 	2.1	 	Notices and Information. To the extent certain provisions of the End Customer
Contract require that End Customer or COALSALES II provide the other with notice within
a period of two (2) business days or less, for purposes of incorporating such
requirement into this Agreement, each party hereto shall use commercially reasonable
efforts to promptly relay such notice to the other party, taking into consideration the
notice requirement under the End Customer Contract. In all other situations under the
End Customer Contract requiring the End Customer to provide notice or information to
COALSALES II within a period of time greater than two (2) business days, for purposes
of incorporating such requirement into this Agreement, such period of time shall be
extended by two (2) business days to account for the possibility that End Customer may
not provide such notice or information to COALSALES II until the end of the specified
period, provided, however, that upon receipt of any notice given by End Customer,
COALSALES II will use commercially reasonable efforts to promptly forward such notice
to Patriot. Likewise, except for any provisions under the End Customer Contract
requiring two (2) business days’ or less notice, whenever the End Customer Contract
requires COALSALES II to provide notice or information to End Customer within a
specified period of time, for purposes of incorporating such requirement into this
Agreement, such period of time shall be shortened by two (2) business days to enable
COALSALES II sufficient time to provide the same notice or information to End Customer
under the End Customer Contract.
	 
	 	2.2	 	Confidentiality. Patriot acknowledges and agrees that the End Customer Contract
is a strictly confidential document, and that the information contained therein
represents the confidential and proprietary information of COALSALES II and its End
Customer. Accordingly, Patriot covenants that during the term of this Agreement and
continuing after termination of this Agreement until otherwise permitted in writing by
COALSALES II, it will hold the End Customer Contract and the information contained
therein in strictest confidence and will protect the End Customer Contract from any
unauthorized disclosure. Except as expressly provided for herein, Patriot will not
disclose to any third parties any information of any nature, specific or general,
pertaining to the End Customer Contract, and will only disclose such information to
those of its employees who have a need to know in order for Patriot to perform its
obligations hereunder. In the event Patriot has a legitimate business and/or financial
need to disclose the terms of the End Customer Contract to a third party, Patriot shall
promptly notify COALSALES II of the circumstances necessitating the need to disclose,
and COALSALES II shall act in good faith and use commercially reasonable efforts to
obtain the End Customer’s written consent to Patriot’s disclosure of the End Customer
Contract under those limited circumstances. The foregoing notwithstanding, either party
may disclose the terms of this Agreement (excluding the End Customer Contract) to such
party’s lenders, counsel, accountants or prospective permitted purchasers, directly or
indirectly, of all or substantially all of such party’s assets or of any rights under
this Agreement, in each case who have agreed to keep such terms
confidential, or in order to comply with any applicable law, order, regulation or
exchange rule; provided, such party shall notify the other party of any proceeding
of which it is aware which may result in disclosure and use reasonable efforts to




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	 	 	 	prevent or limit the disclosure. Notwithstanding anything contained in this
provision to the contrary, the terms and conditions of this provision shall under no
circumstances supersede, override, or violate the confidentiality rights set forth
in the End Customer Contract, it being understood and agreed by the parties hereto
that the terms and conditions of confidentiality set forth in the End Customer
Contract shall remain in full force and effect for so long as the End Customer
Contract are effective.
	 
	 	2.3	 	Termination and Extension of Agreement by COALSALES II. The parties acknowledge
that it may be possible under one or more terms of the End Customer Contract, that
either or both of COALSALES II and End Customer may have the unilateral right to
terminate the End Customer Contract. Neither COALSALES II nor Patriot will exercise any
such right to terminate this Agreement with respect to such End Customer Contract
unless End Customer exercises its right to terminate the End Customer Contract pursuant
to the termination rights contained therein, in which event, this Agreement shall
concurrently terminate with respect to such End Customer Contract. In the event Patriot
is the sole source under the End Customer Contract and if Patriot desires to terminate
such End Customer Contract in accordance with such End Customer Contract, then
COALSALES II will terminate such End Customer Contract and this Agreement shall
concurrently terminate with respect to such End Customer Contract. Notwithstanding
anything in Section 1.7 of this Agreement to the contrary, if the End Customer Contract
provides that as a result of such early termination, early termination damages are
payable by COALSALES II to End Customer or payable by End Customer to COALSALES II,
COALSALES II shall transfer to Patriot, or Patriot shall transfer to COALSALES II (as
the case may be) pursuant to the terms of Section 2.12 hereof, any and all early
termination damages actually received. COALSALES II shall use commercially reasonable
efforts to pursue all such rights and defenses on Patriot’s behalf with respect to any
early termination damages that become due and owing to COALSALES II by End Customer
under the End Customer Contract. If legal action is necessary for COALSALES II to
pursue the foregoing rights and defenses, all legal costs and fees incurred by
COALSALES II in relation thereto shall be borne by Patriot. If the End Customer
Contract allows End Customer to extend the term of the End Customer Contract and End
Customer exercises such right, this Agreement will likewise extend with respect to such
End Customer Contract.
	 
	 	2.4	 	Price Adjustments. The right of Patriot to adjust prices (irrespective of how
the term “price” is defined in the End Customer Contract) under this Agreement with
respect to an End Customer Contract shall be subject to the same price adjustment
terms, restrictions, and guidelines to which COALSALES II and End Customer are bound
under such End Customer Contract. COALSALES II shall use commercially reasonable
efforts to obtain such price adjustment. If End Customer agrees, the price under this
Agreement with respect to the End Customer Contract
shall be adjusted accordingly. If End Customer does not agree then COALSALES II
shall use commercially reasonable efforts to pursue all such rights and defenses on
Patriot’s behalf with respect to any such price adjustment




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	 		 	request. If legal action is necessary for COALSALES II to pursue the foregoing rights and defenses, all legal
costs and fees incurred by COALSALES II in relation thereto shall be borne by
Patriot. If Patriot desires a price adjustment in accordance with the End Customer
Contract, and End Customer has the right under the terms of the End Customer
Contract to terminate the End Customer Contract as a result thereof, and End
Customer exercises its right to terminate, then this Agreement shall likewise
terminate with respect to such End Customer Contract unless Patriot elects to
continue such End Customer Contract under the existing price.
	 
	 	2.5	 	Audit and Inspection Rights. Whenever the End Customer Contract grants End
Customer the right to conduct an audit or inspection of, or access to coal production
facilities, processes, books, records, or otherwise, End Customer will be entitled, as
applicable, to enforce or exercise such audit, inspection and/or access rights against
Patriot. If COALSALES II has the right under the End Customer Contract to conduct any
inspections of End Customer’s books, records, or premises, such right does not directly
pass through to Patriot under this Agreement; however, Patriot may request such
inspection rights from COALSALES II, and COALSALES II shall contact End Customer and
use commercially reasonable efforts to obtain End Customer’s consent to such request.
In the event End Customer refuses Patriot’s request to inspect, COALSALES II shall be
obligated to promptly conduct the inspection on Patriot’s behalf and at Patriot’s sole
expense, and shall report the results of such inspection to Patriot promptly upon
completion, provided, that disclosure of such results does not violate any terms of
confidentiality under the End Customer Contract. Notwithstanding the foregoing, this
Section 2.5 does not eliminate or modify COALSALES II’s audit, inspection or access
rights under the End Customer Contract with respect to Patriot or Patriot’s facilities,
processes, books or records.
	 
	 	2.6	 	[Intentionally left blank]
	 
	 	2.7	 	Amendments to End Customer Contract. For the avoidance of doubt, the parties
hereto understand and agree that COALSALES II shall not amend the End Customer Contract
in any manner without Patriot’s signed, written consent.
	 
	 	2.8	 	Assignment. Neither party shall assign this Agreement, in whole or in part with
respect to any End Customer Contract, without the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, either party may, without the need of consent from the other party (and
without relieving itself from liability hereunder), (a) transfer, sell, pledge,
encumber, or assign this Agreement or the account, revenues or proceeds hereof in
connection with any financing or other financial arrangement; (b) transfer or assign
this Agreement to an affiliate of such party; or
(c) transfer or assign this Agreement to any person or entity succeeding to all or
substantially all of the assets of such party by way of merger, reorganization, or
otherwise, provided, however, that in each such case, any such assignee shall




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	 	 	 	agree in writing to be bound by the terms and conditions hereof, and that no such
assignment shall in any way relieve the assignor from liability or full performance
under this Agreement. The foregoing assignment rights notwithstanding, such rights
shall under no circumstances supersede, override, or violate the assignment rights
(if any) set forth in the End Customer Contract, it being understood and agreed by
the parties hereto that the terms and conditions of assignment under the End
Customer Contract shall remain in full force and effect for so long as the End
Customer Contract is effective.
	 
	 	2.9	 	Venue and Dispute Resolution. Notwithstanding anything to the contrary set
forth in the End Customer Contract, but subject to Article 3 of this Agreement, venue
for the resolution of disputes between COALSALES II and Patriot under this Agreement
will lie exclusively in the federal courts of jurisdiction in the Eastern District of
Missouri.
	 
	 	2.10	 	Payment Terms; Payment Disputes. All invoices for coal shipped hereunder shall
be submitted by Patriot directly to COALSALES II at the billing address(s) provided by
COALSALES II (e.g. mail, facsimile and EDI as applicable), in accordance with the same
procedures governing COALSALES II’s submission of invoices to its End Customer.
COALSALES II shall remit payment to Patriot upon receipt of payment from End Customer.
Patriot agrees that in the event of a payment dispute between COALSALES II and End
Customer or non-payment by End Customer, it will cooperate fully with COALSALES II and
will take all reasonable measures to assist COALSALES II in resolving any issues with
End Customer relating to invoices, payment, and collection of all outstanding amounts
due from End Customer.
	 
	 	2.11	 	Indemnification. Each party hereto (as the “Indemnifying Party”) shall
indemnify, defend and hold harmless the other party, its directors, officers,
employees, agents and affiliates (collectively, the “Indemnified Party”) from and
against any and all suits, actions, legal or administrative proceedings, claims,
demands, actual damages, fines, punitive damages, losses, costs, liabilities, interest,
and attorneys’ fees (including any such fees and expenses incurred in enforcing this
indemnity) incurred by the Indemnified Party arising from (a) a breach by the
Indemnifying Party of its obligations to the Indemnified Party under this Agreement, or
(b) a breach by the Indemnifying Party of its obligations to the End Customer, either
indirectly, as assumed under the terms of this Agreement, or directly under the End
Customer Contract.
	 
	 	2.12	 	Liquidated Damages and Early Termination Damages. In addition to all other
rights and remedies available under the End Customer Contract, notwithstanding anything
in Section 1.7 of this Agreement to the contrary, to the extent liquidated damages or
early termination damages are due and payable to COALSALES II under the End Customer
Contract, any such liquidated damages or early termination damages that are actually paid to COALSALES II by End Customer under the
End Customer Contract shall be transferred by COALSALES II to Patriot within five
(5) business days of receipt. COALSALES II shall use




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	 	 	 	commercially reasonable efforts to pursue all such rights and defenses on Patriot’s behalf with respect to any
liquidated damages or early termination damages that become due and owing to
COALSALES II by End Customer under the End Customer Contract. If legal action is
necessary for COALSALES II to pursue the foregoing rights and defenses, all legal
costs and fees incurred by COALSALES II in relation thereto shall be borne by
Patriot.
	 
	 	2.13	 	COALSALES II’s Right To Market Coal. COALSALES II shall not have the right to
resell coal purchased from Patriot under this Agreement.
	 
	 	2.14	 	Guarantees. To the extent COALSALES II (by itself or through its parent or
affiliate) has provided a performance guarantee to End Customer under the End Customer
Contract, the parties acknowledge that such guarantee is intended solely for the
benefit of such End Customer and shall remain in effect according to its terms during
the term of the End Customer Contract, unless otherwise agreed to by the parties or
their parent companies.
	 
	 	2.15	 	Other Assurances. To the extent the End Customer Contract obligates the End
Customer to provide COALSALES II with Adequate Assurances (as hereinafter defined) of
End Customer’s financial stability, COALSALES II hereby assigns the benefits arising
from such Adequate Assurances to Patriot. COALSALES II shall instruct such End Customer
to take all necessary measures and prepare and execute all necessary instruments to
effectuate the transfer of the Adequate Assurances, including any and all benefits
arising thereunder to Patriot. For purposes of this Agreement, the term “Adequate
Assurances” means any collateral, including cash, Letter(s) of Credit (as hereinafter
defined), credit provisions, assurances, or such other collateral that is has been
deemed reasonably acceptable to End Customer and COALSALES II under the terms of the
End Customer Contract. “Letter(s) of Credit” means one or more irrevocable,
transferable, standby letters of credit issued by a U.S. commercial bank or a foreign
bank with a U.S. branch, such bank having a credit rating of at least A from S&P or A3
from Moody’s.






	3.	 	RESOLUTION OF DISPUTES.






	 	3.1	 	Notice of Dispute. Disputes arising pursuant to this Agreement shall be
resolved in accordance with this Article 3. Either party may invoke the procedures of
this Article 3 by written notice to the other party claiming the existence of a dispute
and describing the nature of that dispute (the “Dispute Notice”).
	 
	 	3.2	 	Resolution of Disputes. Any dispute between the parties arising under
this Agreement first shall be referred for resolution to a senior representative of
each party. Upon receipt of a notice describing the dispute, designating the notifying
party’s senior representative and indicating that the dispute is to be resolved by
the parties’ senior representatives under this Agreement, the other party shall
promptly designate its senior representative to the notifying party. The senior
representatives so designated shall attempt to resolve the dispute on an informal




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	 	 	 	basis as promptly as practicable. The parties agree that they shall negotiate
expeditiously in good faith in an effort to resolve any disputes arising under this
Agreement. In the event a dispute cannot be resolved by negotiation within thirty
(30) days after the date that the Dispute Notice was received by the other party, or
within such other period as the parties may jointly agree, then either party may
commence an action at law or in equity to resolve such dispute.





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     IN WITNESS WHEREOF, COALSALES II and Patriot have executed this Agreement as of the Execution
Date.



	 	 	 	 	 
	 	COALSALES II, LLC

 	 
	 	By:  	/s/ Bryan Galli
 	 
	 	 	Name:  	Bryan Galli 	 
	 	 	Title:  	President 	 
	 
	 	PATRIOT COAL SALES LLC

 	 
	 	By:  	/s/ Michael V. Altrudo
 	 
	 	 	Name:  	Michael V. Altrudo 	 
	 	 	Title:  	President 	 
	 




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