**Peabody COALSALES Company**

**Contract No. LGE03010**

 

**EXHIBIT10.69**

 

**COAL SUPPLY AGREEMENT**

 

 

This is a coal supply agreement (the “Agreement”)dated January 1, 2003 between LOUISVILLE GAS AND ELECTRIC COMPANY, a Kentuckycorporation, 220 West Main Street, Louisville, Kentucky 40202 (“hereinafterreferred 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 whichdesires to purchase steam coal; and

 

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

 

NOW, THEREFORE, in consideration of the mutualcovenants set forth herein, and for other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the parties agree asfollows:

 

**SECTION 1.  GENERAL**.

 

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

 

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

 

(c) Seller hereby represents and warrants that it hasobtained or will obtain the agreement of Patriot Coal Company, LP, a Delawarelimited partnership, and Peabody Coal Company, a Delaware corporation(together, the “Producer”), as indicated by each Producers’ signatures on theProducer’s Certificate attached hereto as “Exhibit A” and made a part hereof,and has delivered or will deliver such original Producer’s Certificate toBuyer.  This obligation of Seller is amaterial inducement for Buyer’s entering into this Agreement.  If Seller fails to deliver an unrevisedProducer’s Certificate to Buyer within five (5) days after execution of thisAgreement, then Buyer may declare this Agreement null and void, and neitherparty shall have any further obligations hereunder, except to the extent ofdeliveries then in route.  Selleracknowledges and agrees that Buyer is the third-party beneficiary of theagreement between Producer and Seller (the “Coal Marketing and SalesAgreement”) and as such shall be entitled to enforce its rights thereunder, inaddition to exercising its rights and remedies hereunder.

 

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

 

**SECTION 2.  TERM.**  The term of this Agreement shall commence onJanuary 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 acceptdelivery 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 bemade on a ratable basis as adjusted during the year to reflect Buyer’s outages. Initial shipments shall begin on orabout January 1, 2003.  Time is of theessence with respect to the schedule so established.  Except as otherwise provided herein, failure by Seller to deliverin 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’saction 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 thirdparties, shall be supplied from Patriot Coal Company’s “Patriot Complex”,located in Henderson County, Kentucky which consists of the “Patriot Mine” (asurface mining operation which is owned and operated by Seller’s affiliatedcompany, Patriot Coal Company, L.P (“Patriot”)) and the “Freedom Mine”(which isan 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’sCamp Complex located in Union County, Kentucky and its Gibraltar Mine locatedin Muhlenberg County, Kentucky, (all of the foregoing sources hereinafterreferred to as the “Coal Property”).

 

§ 4.2 Assurance of Operation and Reserves.  Seller represents and warrants that the CoalProperty contains economically recoverable coal of a quality and in quantitieswhich will be sufficient to satisfy all the requirements of this Agreement.  Seller agrees and warrants that it willcause the applicable Producer to have at the Coal Property adequate machinery,equipment and other facilities to produce, prepare and deliver coal in thequantity and of the quality required by this Agreement.  Seller further agrees to cause theapplicable Producer to operate and maintain such machinery, equipment andfacilities in accordance with good mining practices so as to efficiently andeconomically produce, prepare and deliver such coal.  Seller agrees that Buyer is not providing any capital for thepurchase of such machinery, equipment and/or facilities and that Seller shallcause the applicable Producer to operate and maintain same at the sole expenseof Seller and Producer, including all required permits and licenses.  Seller hereby warrants that Producer hasdedicated, or Seller will cause Producer to dedicate to this Agreementsufficient reserves of coal meeting the quality specifications hereof and lyingon 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 CoalProperty in a way that will reduce 

 

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the economically recoverable balance of coal in the Coal Property to anamount 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 shallhave prepared, or obtained from Producer, and delivered to Buyer, a completemining plan for the Coal Property with adequate supporting data to demonstrateProducer’s capability to have coal produced from the Coal Property which meetsthe quantity and quality specifications of this Agreement.  Seller shall provide Buyer with two (2)copies of such mining plan.  Buyer’sreceipt of any such mining plans or other information or data furnishedvoluntarily by Seller (the “Mining Information”) shall not in any mannerrelieve Seller of any of Seller’s obligations or responsibilities under thisAgreement.  Buyer’s receipt and review,if any, of any Mining Information shall not be construed as constituting anapproval of Producer’s proposed mining plan or Producer’s mining practices.  The parties acknowledge that Buyer has noright to approve, disapprove or require modification of Producer’s miningplan.  Buyer and Seller understand andacknowledge that a review, if any, by Buyer of the Mining Information shall belimited solely to a determination, for Buyer’s purposes only, of Seller’scapability to supply coal to fulfill Buyer’s requirements of a dependable coalsupply.

 

Seller shall have prepared a complete mining plan forthe Coal Property with adequate supporting data to demonstrate Seller’scapability to have coal produced from the Coal Property which meets thequantity 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 (butnot be limited to) the following information: (i) reserves from which the coalwill be produced during the term hereof and the mining sequence, by year (orsuch other time intervals as mutually agreed) during the term of thisAgreement, from which coal will be mined; (ii) methods of mining such coal;(iii) methods of transporting and, in the event a preparation plant isconstructed at the Coal Property, methods of washing coal to insure compliancewith the quantity and quality requirements of this Agreement including adescription and flow sheet of the preparation plant; (iv) quality data plottedon the maps depicting data points and isolines by ash, sulfur, and Btu; (v)quality control plans including sampling and analysis procedures to insureindividual shipments meet quality specifications; and (vi) Seller’s aggregatecommitments to others to sell coal from the Coal Property during the term ofthis Agreement.  Such complete miningplan shall be delivered to Buyer on or before January 1, 2003.

 

Buyer’s receipt of the mining plan or otherinformation or data furnished by Seller shall not in any many relieve Seller ofany of Seller’s obligations or responsibilities under this Agreement; nor shallsuch review be construed as constituting an approval of Producer’s proposedmining plan as prudent mining practices, such review by Buyer being limitedsolely to a determination, for Buyer’s purposes only, of Producer’s capabilityto supply coal on a long-term basis to fulfill Buyer’s requirements of adependable coal supply.

 

Seller shall annually provide Buyer with a mining planupdate (“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 orbefore January first (1st) of each year during the term of thisAgreement.

 

§ 4.5 Substitute Coal.  Notwithstanding the above representationsand warranties, in the event that Seller is unable to supply coal from the CoalProperty in the quantity and of the quality required by this Agreement, andsuch inability is not caused by a force majeure event as defined in § 10, thenBuyer will have the option of requiring that Seller supply substitute coal fromother facilities and mines.  Sellershall also have the right to supply substitute coal after receiving Buyer’swritten consent (which shall not be unreasonably withheld).  Such substitute coal shall be provided underall the terms and conditions of this Agreement including, but not limited to,the quantity provisions of § 3.1, the price provisions of § 8, the qualityspecifications of § 6.1, and the provisions of § 5 concerning reimbursement toBuyer for increased transportation costs. Seller’s delivery of coal not produced from the Coal Property withouthaving received the express written consent of Buyer shall constitute amaterial breach of this Agreement.

 

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

 

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

 

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

 

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

 

§4.8 Remedies**.**  No waiver of remedies or damages herein shall apply to claims ofanticipatory repudiation or remedies therefore provided by law except thatneither 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, underany indemnity provision or otherwise.

 

**SECTION 5.  DELIVERY.**

 

§ 5.1 Barge Delivery.  The coal shall be delivered to Buyer F.O.B. barge at thefollowing points (the “Delivery Point”), Demao Dock (Patriot coal) at MilePoint 31.5 on the Green River, Camp Breckinridge (Camp Mine Complex coal) atMile 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 locationdifferent from the Delivery Point, provided, 

 

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

 

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

 

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wharfage, dockage, fleeting, switching, and other harbor and portcharges; 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 adequatemooring and display of warning lights; that the loading operations be performedin a workmanlike manner and in accordance with the reasonable loadingrequirements of Buyer and Buyer’s barging contractor; and that the loading dockoperator carry landing owners or wharfinger’s insurance with basic coverage ofnot less than $300,000.00 and total of basic coverage and excess liabilitycoverage of not less than $1,000,000.00, and provide evidence thereof to Buyerin the form of a certificate of insurance from the insurance carrier or anacceptable certificate of self-insurance with requirement for thirty (30) daysadvance notification of Buyer in the event of termination of or materialreduction in coverage under the insurance.

 

**SECTION 6. QUALITY.**

 

§ 6.1  Specifications.  The coal delivered hereunder shall conformto 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 becalculated for each specification for coal delivered to the Buyer’s generatingstations.

 

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

 

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

 

***         FoulingFactor (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        Definitionof “Shipment”.  As used herein, a“shipment” shall mean one (1) barge load or a barge lot load in accordance withBuyer’s sampling and analyzing practices.

 

§ 6.3        Rejection.

 

Buyer has the right, but not the obligation, to rejectany shipment which fail(s) to conform to any or all of the Rejection Limits setforth in § 6.1 or contains extraneous materials.  Buyer must reject such coal within seventy-two (72) hours ofreceipt of the coal analysis provided for in § 7.2 or such right to reject iswaived.  In the event Buyer rejects suchnon-conforming coal, title to and risk of loss of the coal shall be consideredto have never passed to Buyer and Buyer shall return the coal to Seller orProducer, or at Seller’s request, divert such coal to Seller’s designee, all atSeller’s cost and risk.  Seller shallreplace the rejected coal within five (5) working days 

 

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

 

If Buyer fails to reject a shipment of non-conformingcoal which it had the right to reject for failure to meet any or all of theRejection Limits set forth in § 6.1 or because such shipment contained amaterial amount of extraneous materials, then such non-conforming coal shall bedeemed accepted by Buyer; however, the quantity Seller is obligated to sell toBuyer under the Agreement may or may not be reduced by the amount of each suchnon-conforming shipment at Buyer’s sole option and the shipment shallnevertheless be considered “rejectable” under § 6.4.  Buyer shall notify Seller no later than thirty (30) daysfollowing Buyer’s acceptance of such rejectable coal, of Buyer’s decision toreduce by an amount equal to the amount of rejectable coal, the Base Quantitywhich Seller is obligated to sell and deliver to Buyer.  If Buyer does not notify Seller within thethirty (30) day time period of Buyer’s decision to reduce the Base Quantity bythe 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 theweight of that shipment.

 

§ 6.4 Suspension and Termination.

 

If the coal sold hereunder fails to meet one (1) ormore 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) monthperiod, or if six (6) barge shipments in a thirty (30) day period arerejectable by Buyer, Buyer may upon notice confirmed in writing and sent toSeller by certified mail, suspend future shipments except shipments alreadyloaded into barges.  Seller shall,within ten (10) days, provide Buyer with reasonable assurances that subsequentmonthly deliveries of coal shall meet or exceed the Guaranteed Monthly WeightedAverages set forth in § 6.1 and that the source will exceed the rejectionlimits set forth in § 6.1.  If Sellerfails to provide such assurances within said ten (10) day period, Buyer mayterminate this Agreement by giving written notice of such termination at theend of the ten (10) day period.  Awaiver of this right for any one (1) period by Buyer shall not constitute awaiver for subsequent periods.  IfSeller provides such reasonable assurances to Buyer, shipments hereunder shallresume and any tonnage deficiencies resulting from suspension may be made up atBuyer’s sole option.  Buyer shall notunreasonably withhold its acceptance of Seller’s assurances, or delay the resumptionof shipment(s).  If Seller, afterproviding such assurances, fails to meet any of the Guaranteed Monthly WeightedAverages 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 itsother rights and remedies under applicable law and in equity for Seller’sbreach.

 

**SECTION 7.         WEIGHTS,SAMPLING AND ANALYSIS.**

 

§ 7.1  Weights.  The weight of the coal delivered hereundershall be determined on a per shipment basis by Buyer on the basis of scaleweights at the generating station(s) unless another method is mutually agreedupon by the parties.  Such scales shallbe duly reviewed by an appropriate testing agency and maintained in an accuratecondition.  Seller shall have the right,at Seller’s expense and upon reasonable notice, to have the scales checked foraccuracy at any reasonable time or frequency. If the scales are found to be over or under the tolerance rangeallowable for the scale based on industry accepted standards, either partyshall pay to the other any amounts owed due to such inaccuracy for a period notto exceed thirty (30) days before the time any inaccuracy of scales isdetermined.

 

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

 

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shall be taken by any industry-accepted standard, mutually acceptableto both parties, may be composited and shall be taken with a frequency andregularity sufficient to provide reasonably accurate representative samples ofthe deliveries made hereunder.  Sellerrepresents that it is familiar with Buyer’s sampling and analysis practices,and finds them to be acceptable.  Buyershall notify Seller in writing of any significant changes in Buyer’s samplingand analysis practices.  Any suchchanges in Buyer’s sampling and analysis practices shall, except for ASTM orindustry accepted changes in practices, provide for no less accuracy than thesampling and analysis practices existing at the time of the execution of thisAgreement, 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 byBuyer; one (1) part shall be used by Buyer as a check sample, if Buyer in itssole judgment determines it is necessary; one (1) part shall be retained byBuyer until the twenty-fifth (25th) of the month following the monthof unloading (the “Disposal Date”) and shall be delivered to Seller foranalysis 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 analysesmade by Buyer by the twelfth (12th) business day of the monthfollowing the month of unloading. Seller, on reasonable notice to Buyer shall have the right to have arepresentative present to observe the sampling and analyses performed byBuyer.  Unless Seller requests a RefereeSample analysis before the Disposal Date, Buyer’s analysis shall be used todetermine the quality of the coal 

 

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delivered hereunder.  TheMonthly Weighted Averages shall be determined by utilizing the individualshipment analyses.

 

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

 

(i)            0.50%moisture

(ii)           0.50%ash on a dry basis

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

(iv)          0.10%sulfur on a dry basis.

 

For each coal quality specification in question, ifthe analysis of the Independent Lab differs from the analysis of Buyer by anamount more than the amounts listed above, then the analysis of the IndependentLab shall prevail and Buyer’s analysis shall be disregarded.  The cost of the analysis made by theIndependent Lab shall be borne by Seller to the extent that Buyer’s analysisprevails and by Buyer to the extent that the analysis of the Independent Labprevails.

 

**SECTION 8.         PRICE**.

 

§  8.1 BasePrice.  The base price (“BasePrice”) of the coal to be sold hereunder will be firm and will be determined bythe year in which the coal is delivered as defined in § 5 in accordance withthe 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         QualityPrice Discounts.

 

(a)           TheBase Price is based on coal meeting or exceeding the Guaranteed MonthlyWeighted Average specifications as set forth in § 6.1.  Quality price discounts shall be applied foreach specification each month to reflect failures to meet the GuaranteedMonthly 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)           Notwithstandingthe foregoing, for each specification each month, there shall be no discount ifthe actual Monthly Weighted Average meets the applicable Discount Point setforth below.  However, if the actualMonthly Weighted Average fails to meet such applicable Discount Point, then thediscount shall apply and shall be calculated on the basis of the difference 

 

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between the actual Monthly Weighted Average and the Guaranteed MonthlyWeighted 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 ofsulfur 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 themethodology for calculating the coal payment and quality price discounts forthe month Seller’s coal was unloaded by Buyer. If there are any such discounts, Buyer shall apply credit to amountsowed Seller for the month the coal was unloaded.

 

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

 

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of any such changes and supply sufficient documentation for Buyer toverify any such change.  Either Buyer orSeller may request a Base Price adjustment, which shall be comprised of no morethan the reasonable costs directly associated with the effect of such change onthe coal to be supplied hereunder.  Ifthe non-requesting party agrees to the requested price adjustment, suchadjustment shall be made effective on the first day of the calendar monthfollowing the effective date of any change, (except when such change iseffective on the first day of the month in which case the adjustment shall bemade as of such date).  If thenon-requesting party rejects the request of the requesting party for a BasePrice adjustment, the requesting party, at its option, may terminate thecontract 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 thefollowing address:

 

Louisville Gas andElectric Company

P.O. Box 32010

Louisville, KY  40232

Attention: ManagerLG&E/KU Fuels

 

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

 

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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 ofseventy-five percent (75%) of the amount owed for the coal (based on theassumption that the coal will meet all guaranteed monthly quality parameters)by the twenty-fifth (25th) day of such month of unloading, except that, if thetwenty-fifth (25th) is not a regular work day, payment shall be made on thenext regular work day.  For all coalunloaded at the Buyer’s generating station(s) between the sixteenth (16th) andthe last day of any calendar month, Buyer shall make a preliminary payment ofseventy-five percent (75%) of the amount owed for the coal (based on theassumption that the coal will meet all of the guaranteed monthly qualityparameters) by the tenth (10th) day of the month following the month ofunloading, except that, if the tenth (10th) is not a regular workday, payment shall be made on the next regular work day.

 

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

 

A reconciliation of amounts paid and amounts owedshall occur by the twenty-fifth (25th) day of the month following the month ofunloading.  (For example, Buyer willmake one preliminary payment by September 25 for all coal unloaded September 1through 15, and another preliminary payment by October 10 for seventy-fivepercent (75%) of coal unloaded September 

 

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16 through 30.  A reconciliationwill 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 onor before the fifteenth (15th) day of the month following the monthof unloading.  The amount due for allcoal (based on the Base Price minus any Quality Price Discounts) delivered andunloaded and accepted by Buyer during any calendar month shall be calculatedand compared to the sum of the preliminary payments made for coal delivered andunloaded and accepted during such month. The difference shall be paid by or paid to Seller, as applicable, by thetwenty-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 bemade in the next regular work day.  Buyershall 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 frompayment of any billing or billings (i) any sums which it is not able in good faithto verify or which it otherwise in good faith disputes, (ii) any damagesresulting from or likely to result from any breach of this Agreement by Selleror Producer, and (iii) any amounts owed to Buyer from Seller.  Buyer shall notify Seller promptly inwriting of any such issue, stating the basis of its claim and the amount itintends to withhold.

 

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

 

**SECTION 10.       FORCEMAJEURE.**

 

§ 10.1 General Force Majeure.  If either party hereto is delayed in orprevented from performing any of its obligations or from utilizing the coalsold 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 ofthe party affected thereby, then the obligations of both parties hereto shallbe suspended to the extent made necessary by such event; provided that theaffected party gives written notice to the other party as early as practicableof the nature and probable duration of the force majeure event.  The party declaring force majeure shallexercise due diligence to avoid and shorten the force majeure event and willkeep the other party advised as to the continuance of the force majeureevent.  During any period in which Seller’sability to perform hereunder is affected by Producer’s force majeure event,Seller shall require Producer to not deliver any coal to any other buyers towhom Producer’s ability to supply is similarly affected by such force majeureevent unless contractually committed to do so at the beginning of the forcemajeure event; and further shall deliver to Buyer under this Agreement at leasta pro rata portion (on a per ton basis) of its total contractual commitments toall its buyers to whom Seller’s ability to supply is similarly affected by such

 

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

 

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

 

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

 

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

 

**SECTION 11.  CHANGES**.  Either party may, at any time by writtennotice pursuant to § 12 of this Agreement, propose changes within the generalscope of this Agreement in any one or more of the following: quality of coal orcoal specifications, quantity of coal, method or time of shipments, place ofdelivery (including transfer of title and risk of loss), method(s) of weighing,sampling or analysis or any such other provision as may affect the suitabilityand amount of coal to be delivered to Buyer’s generating stations. Suchproposed changes will not become binding unless and until the parties agreethereto and this Agreement is amended in writing. If any such changes makesnecessary or appropriate an increase or decrease in the then current price perton of coal, or in any other provision of this Agreement, an equitableadjustment shall be made in: price, whether current or future or both, and/orin such other provisions of this Agreement as are affected directly orindirectly by such change, and the Agreement shall thereupon be modified inwriting accordingly.

 

Any claim by the Seller for adjustment under this § 11shall be asserted within thirty (30) days after the date of Seller’s receipt ofthe written notice of change, it being understood, however that Seller shallnot be obligated to proceed under this Agreement as changed until an equitableadjustment has been agreed upon.  Theparties agree to negotiate promptly and in good faith to agree upon the natureand extent of any equitable adjustment.

 

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**SECTION 12.       NOTICES.**

 

§ 12.1 Form and Place of Notice.  Any official notice, request for approval orother document required to be given under this Agreement shall be in writing,unless otherwise provided herein, and shall be deemed to have been sufficientlygiven when delivered in person, transmitted by facsimile or other electronicmedia, delivered to an established mail service for same day or overnightdelivery, or dispatched in the United States mail, postage prepaid, for mailingby first class, certified, or registered mail, return receipt requested, andaddressed 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 oraddress specified above upon giving written notice to the other party of suchchange.

 

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

 

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**SECTION 13.       CREDITRATING. **If thecredit rating of either Buyer (if Buyer has a public rating) or Buyer’saffiliates that have public ratings falls below investment grade (BBB - asdefined by Standard & Poor’s or the equivalent as defined by other publicratings agencies), Buyer shall, within thirty (30) days after Seller’s writtenrequest, 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 ofgood credit are received, Seller has the right to require payment in cash atthe time of delivery. Such mutually acceptable assurances of good credit shallnot be more than the average monthly outstanding net balance.

 

**SECTION 14.       RIGHTTO RESELL.**  Buyershall have the unqualified right to resell all or any of the coal purchasedunder this Agreement.

 

**SECTION 15.       INDEMNITYAND INSURANCE.**

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

 

26

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

 

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

 

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

 

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

 

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

 

(3)           Inaddition, Seller shall require Producer to carry excess liability insurancecovering the foregoing perils in the amount of $4,000,000 for any oneoccurrence.

 

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

 

If any of the above policies are written on a claimsmade basis, then the retroactive date of the policy or policies will be nolater than the effective date of this Agreement.  Certificates of 

 

27

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Insurance satisfactory in form to the Buyer and signed by theProducer’s insurer shall be supplied by the Seller to the Buyer evidencing thatthe above insurance is in force and that not less than thirty (30) calendardays written notice will be given to the Buyer prior to any cancellation ormaterial reduction in coverage under the policies.  The Seller shall cause the Producer’s insurer to waive allsubrogation rights against the Buyer respecting all losses or claims arisingfrom performance hereunder.  Evidence ofsuch waiver satisfactory in form and substance to the Buyer shall be exhibitedin the Certificate of Insurance mentioned above.  Seller’s and Producer’s liability shall not be limited to theirinsurance coverage.

 

**SECTION 16.       TERMINATIONFOR DEFAULT.**

 

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

 

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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 otherassessments of whatever nature imposed by governmental authorities with respectto the transactions contemplated under this Agreement.

 

**SECTION 18.       DOCUMENTATIONAND RIGHT OF AUDIT.**

 

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

 

**SECTION 19.       EQUALEMPLOYMENT OPPORTUNITY**. To the extent applicable, Seller shall comply with all of the followingprovisions which are incorporated herein by reference: Equal Opportunityregulations set forth in 41 CRF § 60-1.4(a) and (c) prohibiting discriminationagainst any employee or applicant for employment because of race, color,religion, sex, or national origin; Vietnam Era Veterans Readjustment AssistanceAct regulations set forth in 41 CRF § 50-250.4 relating to the employment andadvancement of disabled veterans 

 

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and veterans of the Vietnam Era; Rehabilitation Act regulations setforth in 41 CRF § 60-741.4 relating to the employment and advancement ofqualified disabled employees and applicants for employment; the clause known as“Utilization of Small Business Concerns and Small Business Concerns Owned andControlled by Socially and Economically Disadvantaged Individuals” set forth in15 USC § 637(d)(3); and subcontracting plan requirements set forth in 15 USC §637(d).

 

**SECTION 20.       COALPROPERTY INSPECTIONS. **Buyerand its representatives, and others as may be required by applicable laws,ordinances and regulations shall have the right at all reasonable times and attheir own expense to inspect the Coal Property, including the loadingfacilities, scales, sampling system(s), wash plant facilities, and miningequipment for conformance with this Agreement. Seller and Producer shall cooperate with such inspections at noadditional cost to Buyer.  Seller shallcause the Producer to undertake reasonable care and precautions to preventpersonal injuries to any representatives, agents or employees of Buyer(collectively, “Visitors”) who inspect the Coal Property.  Any such Visitors shall make everyreasonable effort to comply with Seller’s regulations and rules regarding conducton the work site, made known to Visitors prior to entry, as well as safetymeasures mandated by state or federal rules, regulations and laws.  Buyer understands that underground mines andrelated facilities are inherently high-risk environments.  Buyer’s failure to inspect the Coal Propertyor to object to defects therein at the time Buyer inspects the same shall notrelieve 

 

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

 

**SECTION 21.       MISCELLANEOUS.**

 

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

 

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

 

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

 

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

 

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

 

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

 

§ 21.7 Assignment.

 

A.            Seller shall not, without Buyer’sprior written consent, which shall not be unreasonably withheld, make anyassignment or transfer of this Agreement, by operation of law or otherwise,including without limitation any assignment, encumbrance or transfer assecurity for any obligation, and shall not assign or transfer the performanceof or right or duty to perform any obligation of Seller hereunder; provided,however, that Seller may assign the right to receive payments for coal directlyfrom Buyer to a lender as part of any accounts receivable financing or otherrevolving credit arrangement which Seller may have now or at any time duringthe term of this Agreement.

 

B.            Buyer shall not, without Seller’sprior written consent, which may not be unreasonably withheld, assign thisAgreement or any right or duty to perform any obligation of Buyer hereunder;except that, without such consent, Buyer may assign this Agreement inconnection with a transfer by Buyer of all or a part interest in the generatingstation comprising the Delivery Point, or as part of a merger or consolidationinvolving Buyer.

 

C.            In the event of an assignment ortransfer contrary to the provisions of this section, the non-assigning partymay terminate this Agreement immediately.

 

§ 21.8      Entire Agreement.  This Agreement contains the entire agreementbetween the parties as to the subject matter hereof, and there are norepresentations, understandings or 

 

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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 beamended, supplemented or otherwise modified except by written instrument signedby both parties hereto.

 

IN WITNESS WHEREOF, the parties hereto have causedthis 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:**  |   |   |
|                                            |                                 |                                |            |  |  |  |  |

 

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**EXHIBIT A**

 

**PRODUCER’S CERTIFICATE**

 

The undersigned, **PATRIOT COALCOMPANY,****L.P.** a Delaware limited partnership and **OHIO COUNTYCOAL COMPANY,** a Kentucky corporation, and **PEABODY COAL COMPANY**, aDelaware corporation (herein collectively “Producer”), by and through theirduly authorized officers, as an inducement to **LOUISVILLE GAS AND ELECTRIC COMPANY(“LG&E”),** a Kentucky corporation (“Buyer”) and **PEABODYCOALSALES COMPANY**, a Delaware corporation (herein “Agent”), to enterinto a Coal Supply Agreement (the “Coal Supply Agreement”) between LG&E andAgent, and as a further inducement to Agent to enter into a Coal Marketing andSales Agreement with Producer (“Coal Marketing and Sales Agreement”), herebycertifies, warrants and represents to LG&E and Agent as follows:

 

1.             Producer is a duly organized, validly existing limitedpartnership or corporation, as the case may be, in good standing under the lawsof the Commonwealth of Kentucky, and fully qualified to do business under thelaws of the Commonwealth of Kentucky. Producer has all requisite power and authority to execute thisinstrument and to enter into all documents required in connection with andincluding the proposed Coal Marketing and Sales Agreement between Producer andAgent.

 

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

 

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

 

4.             Each Producer represents and warrants that the portionof the “Coal Property” described in Exhibit “A” over which that Producer hascontrol (the “Coal Property”) contains economically recoverable coal of aquality and in quantities which will be sufficient to satisfy all the quantityand quality requirements of the Coal Supply Agreement and the Coal Marketingand Sales Agreement which requirements are set forth on Exhibit “B” attachedhereto.  Producer further agrees andwarrants that it will have at the Coal Property adequate machinery, equipmentand other facilities to produce, prepare and deliver coal in the quantity andat the quality specified in Exhibit “B”. Producer further represents and warrants and agrees to operate andmaintain such machinery, equipment, and facilities in accordance with goodmining practices so as to efficiently and economically produce, prepare, anddeliver such coal.  Producer agrees thatit shall operate and maintain the machinery, equipment and/or facilities at itssole expense, including all required permits and licenses.  Producer further dedicates to the CoalSupply Agreement and the Coal Marketing and Sales Agreement sufficient reservesof coal meeting the quality specifications specified in Exhibit “B” and lyingon or in the Coal Property so as to fulfill the quantity requirements of theproposed Coal Marketing and Sales Agreement.

 

5.             Producer agrees and warrants that it will not, withoutobtaining the express prior written consent of both LG&E and of Agent, useor sell coal from the Coal Property in a way that 

 

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

 

6.             Producer agrees and warrants that it shall require ofthe loading dock operator that the barges and towboats provided by LG&E orLG&E’s barging contractor be provided convenient and safe berth free ofwharfage, 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 andother applicable laws, ordinances, rulings and regulations shall be compliedwith, including adequate mooring and display of warning lights; and any waterin the cargo boxes of the barges be pumped out by the loading dock operatorprior to loading; that the loading operations be performed in a workmanlikemanner and in accordance with the reasonable loading requirements of LG&Eand LG&E’s barging contractor; that the loading dock operator carry landingowner’s or wharfinger’s insurance with basic coverage of not less than $300,000and 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 acertificate of insurance from the insurance carrier or an acceptablecertificate of self-insurance with requirement for notification of LG&E andAgent in the event of termination of the insurance.

 

7.             Producer agrees that it will replace rejected coalwithin five (5) working days with coal conforming to the rejection limits setforth in the proposed Coal Supply Agreement and the Coal Marketing and SalesAgreement between Producer and Agent, which rejection limits Producerunderstands and acknowledges are the same rejection limits as provided in theproposed 

 

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Coal Supply Agreement between LG&E and Agent, and that shouldProducer either fail to replace the rejected coal within such five (5) workingday period or the replacement coal is rightfully rejected (where such rejectionis not based upon the BTU/LB minimum or the percentage of moisture maximumbeing exceeded as a result of weather conditions), and another source hasreplaced such rejected coal, Producer agrees to and shall reimburse LG&Efor any amount that the total delivered cost to LG&E of such coal purchasedfrom another source exceeds the then current delivered cost of coal sold byProducer under the proposed Coal Marketing and Sales Agreement between Agentand LG&E.  Further, Producer agreesto be responsible to pay or reimburse Agent or LG&E as applicable, for anyand all freight or transportation expenses that have been incurred forrightfully rejected coal.

 

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

 

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

 

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

 

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

 

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

 

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

 

C.            In addition, Producer shall carry excess liabilityinsurance covering the foregoing perils in the amount of $4,000,000 for any oneoccurrence.

 

D.            Kentucky Worker’s Compensation and Employer’s Liabilitywith statutory limits.

 

E.             If any of the above policies are written on a claimsmade basis, then the retroactive date of the policy or policies will be nolater than the effective date of Producer’s proposed Coal Marketing and SalesAgreement with Agent.

 

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

 

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

 

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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 minesowned by Producer:

 

Patriot Coal Company’s Patriot Complex, located inHenderson County, Kentucky; Peabody Coal Company’s Camp Complex located inUnion 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 SalesAgreement 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 passthrough a screen having circular perforations three (3) inches in diameter, butshall not contain more than forty percent (40%) by weight of coal that willpass through a screen having circular perforations one-quarter (1/4) of an inchin diameter.

 

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

 

***         FoulingFactor (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 SalesAgreement is as follows:

 

| **QUANTITY** |   |
|--------------|--------|
|         |   |   |   |
| **Year**     |   | **Tonnage** | ** ** |
| 2003         |   | 1,000,000 |   |
| 2004         |   | 1,000,000 |   |
| 2005         |   | 1,000,000 |   |

 

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**ExhibitB**

 

#### **EXHIBIT B TO COAL SUPPLY AGREEMENT**

**SAMPLE COAL PAYMENT CALCULATIONS**

For contracts suppliedfrom 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 |   |

 

 

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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                            + |   | $                            |   |   |   | = | $ |   |   |
|   |   |                                                                                                                                                                                                                                                                                                             |   |                         |   |   |   |   |   |

 

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