Document:

exv10w4

 

Exhibit 10.4

FORM OF

COAL SUPPLY AGREEMENT

     This Coal Supply Agreement (this “Agreement”) is made and entered into as of [Spinoff Date]
(the “Effective Date”) by and between [Peabody Energy subsidiary], a Delaware limited liability
company (“COALSALES II”) and PATRIOT COAL SALES LLC, a Delaware limited liability company
(“Patriot”).

RECITALS:

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

AGREEMENT:

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

	 	1.1	 	Incorporation of End Customer Contract. Copies of the End Customer Contracts,
as amended through the Effective Date, are attached hereto as Exhibit B. It is
the intent of the parties that except where expressly provided otherwise in this
Agreement, the terms and conditions of the End Customer Contract (including the rights,
obligations and benefits of each party thereto) shall apply to Patriot as if Patriot
were the named “Seller” (or such comparable term) under the End Customer Contract and
to COALSALES II, as if COALSALES II were the named “Buyer” (or such comparable term)
under the End Customer Contract. Accordingly, the text of each End Customer Contract is
hereby incorporated by

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

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	 	 	 	forth below. Likewise, COALSALES II hereby assumes toward Patriot all obligations
and responsibilities that End Customer has toward COALSALES II under the End
Customer Contract; and Patriot will have the benefit of all rights and remedies
against COALSALES II that COALSALES II has against End Customer under the End
Customer Contract, in each case subject to the modifications set forth below.
	 
	 	1.6	 	Conflicting Terms. If there is a conflict or inconsistency between a provision
of the End Customer Contract and a provision of the body of this Agreement, the
provision of the body of this Agreement will control.
	 
	 	1.7	 	Legal Proceedings. In addition to all other rights and remedies available under
this Agreement, including the End Customer Contract, the following shall apply:

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

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

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	 	 	The following provisions of this Article 2 set forth general modifications to be made to,
and rules of construction to be applied to, the text of the End Customer Contract.

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

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	 	 	 	confidential, or in order to comply with any applicable law, order, regulation or
exchange rule; provided, such party shall notify the other party of any proceeding
of which it is aware which may result in disclosure and use reasonable efforts to
prevent or limit the disclosure. Notwithstanding anything contained in this
provision to the contrary, the terms and conditions of this provision shall under no
circumstances supersede, override, or violate the confidentiality rights set forth
in the End Customer Contract, it being understood and agreed by the parties hereto
that the terms and conditions of confidentiality set forth in the End Customer
Contract shall remain in full force and effect for so long as the End Customer
Contract are effective.
	 
	 	2.3	 	Termination and Extension of Agreement by COALSALES II. The parties acknowledge
that it may be possible under one or more terms of the End Customer Contract, that
either or both of COALSALES II and End Customer may have the unilateral right to
terminate the End Customer Contract. Neither COALSALES II nor Patriot will exercise any
such right to terminate this Agreement with respect to such End Customer Contract
unless End Customer exercises its right to terminate the End Customer Contract pursuant
to the termination rights contained therein, in which event, this Agreement shall
concurrently terminate with respect to such End Customer Contract. In the event Patriot
is the sole source under the End Customer Contract and if Patriot desires to terminate
such End Customer Contract in accordance with such End Customer Contract, then
COALSALES will terminate such End Customer Contract and this Agreement shall
concurrently terminate with respect to such End Customer Contract. Notwithstanding
anything in Section 1.7 of this Agreement to the contrary, if the End Customer Contract
provides that as a result of such early termination, early termination damages are
payable by COALSALES II to End Customer or payable by End Customer to COALSALES II,
COALSALES II shall transfer to Patriot, or Patriot shall transfer to COALSALES II (as
the case may be) pursuant to the terms of Section 2.12 hereof, any and all early
termination damages actually received. COALSALES shall use commercially reasonable
efforts to pursue all such rights and defenses on Patriot’s behalf with respect to any
early termination damages that become due and owing to COALSALES II by End Customer
under the End Customer Contract. If legal action is necessary for COALSALES II to
pursue the foregoing rights and defenses, all legal costs and fees incurred by
COALSALES II in relation thereto shall be borne by Patriot. If the End Customer
Contract allows End Customer to extend the term of the End Customer Contract and End
Customer exercises such right, this Agreement will likewise extend with respect to such
End Customer Contract.
	 
	 	2.4	 	Price Adjustments. The right of Patriot to adjust prices (irrespective of how
the term “price” is defined in the End Customer Contract) under this Agreement with
respect to an End Customer Contract shall be subject to the same price adjustment
terms, restrictions, and guidelines to which COALSALES II and End Customer are bound
under such End Customer Contract. COALSALES II shall use commercially reasonable
efforts to obtain such price adjustment. If End Customer agrees, the price under this
Agreement with respect to the End Customer Contract

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

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

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	 	 	 	by COALSALES II to Patriot within five (5) business days of receipt. COALSALES II
shall use commercially reasonable efforts to pursue all such rights and defenses on
Patriot’s behalf with respect to any liquidated damages or early termination damages
that become due and owing to COALSALES II by End Customer under the End Customer
Contract. If legal action is necessary for COALSALES II to pursue the foregoing
rights and defenses, all legal costs and fees incurred by COALSALES II in relation
thereto shall be borne by Patriot.
	 
	 	2.13	 	COALSALES II’s Right To Market Coal. COALSALES II shall not have the right to
resell coal purchased from Patriot under this Agreement.
	 
	 	2.14	 	Guarantees. To the extent COALSALES II (by itself or through its parent or
affiliate) has provided a performance guarantee to End Customer under the End Customer
Contract, the parties acknowledge that such guarantee is intended solely for the
benefit of such End Customer and shall remain in effect according to its terms during
the term of the End Customer Contract, unless otherwise agreed to by the parties or
their parent companies.
	 
	 	2.15	 	Other Assurances. To the extent the End Customer Contract obligates the End
Customer to provide COALSALES II with Adequate Assurances (as hereinafter defined) of
End Customer’s financial stability, COALSALES II hereby assigns the benefits arising
from such Adequate Assurances to Patriot. COALSALES II shall instruct such End Customer
to take all necessary measures and prepare and execute all necessary instruments to
effectuate the transfer of the Adequate Assurances, including any and all benefits
arising thereunder to Patriot. For purposes of this Agreement, the term “Adequate
Assurances” means any collateral, including cash, Letter(s) of Credit (as hereinafter
defined), credit provisions, assurances, or such other collateral that is has been
deemed reasonably acceptable to End Customer and COALSALES II under the terms of the
End Customer Contract. “Letter(s) of Credit” means one or more irrevocable,
transferable, standby letters of credit issued by a U.S. commercial bank or a foreign
bank with a U.S. branch, such bank having a credit rating of at least A from S&P or A3
from Moody’s.

	3.	 	RESOLUTION OF DISPUTES.

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

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

[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE ON NEXT PAGE.]

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

	 	 	 	 	 	 	 
	COALSALES II, LLC	 	PATRIOT COAL SALES LLC
	 
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Name:

	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Title:

	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 

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Exhibit 10.5

CERTAIN PORTIONS OF THIS EXHIBIT

HAVE BEEN OMITTED AND FILED

SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR

CONFIDENTIAL TREATMENT. THE

SYMBOL “****” HAS BEEN INSERTED IN

PLACE OF THE PORTIONS SO OMITTED

COAL SUPPLY AGREEMENT

          This Coal Supply Agreement (this “Agreement”) is made and entered into as of [Spinoff Date]
(the “Effective Date”) by and between COALSALES II, LLC, FORMERLY KNOWN AS PEABODY COALSALES
COMPANY (hereinafter “COALSALES II”), and PATRIOT COAL SALES LLC, a Delaware limited liability
company (“Patriot”).

RECITALS:

	A.	 	COALSALES II and **** (“End Customer”) have entered into that certain coal supply agreement
CONTRACT NUMBER **** dated July 1, 1992 (as amended through the Effective Date and
as the same may be amended after the Effective Date, the “End Customer Contract”) pursuant to
which COALSALES II supplies coal to End Customer.
	 
	B.	 	Patriot operates one or more coal mines designated as approved sources as set forth in the
End Customer Contract; and such mine(s) have supplied coal to COALSALES II to enable COALSALES
II to fulfill its supply obligations under the End Customer Contract.
	 
	C.	 	Immediately prior to the Effective Date, COALSALES II and Patriot were both indirect
subsidiaries of Peabody Energy Corporation. Commencing on or after the Effective Date, as a
result of a spin-off transaction, Patriot will no longer be an indirect subsidiary of Peabody
Energy Corporation.
	 
	D.	 	It is the intent of the parties to allow COALSALES II to continue to meet its obligations
under the End Customer Contract with respect to Specification “A” coal by purchasing
Specification “A” coal from Patriot in accordance with the terms and conditions of this
Agreement.

AGREEMENT:

          NOW, THEREFORE, COALSALES II and Patriot agree as follows:

	1.	 	INCORPORATION OF EXHIBIT A TERMS

	 	1.1	 	Incorporation of Exhibit A Terms. Certain provisions the End Customer Contract,
as amended through the Effective Date, are attached hereto as Exhibit A 

 

 

(such attached provisions, the “Exhibit A Terms”). It is the intent of the parties
that, except where expressly provided otherwise in the body this Agreement, the
Exhibit A Terms (including the rights, obligations and benefits of each party
thereto) shall apply to Patriot as if Patriot were the named “Seller” thereunder,
and to COALSALES II as if COALSALES II were the named “Buyer” thereunder.
Accordingly, the Exhibit A Terms are hereby incorporated by reference into this
Agreement, with the same force and effect as if fully set forth herein, subject to
the modifications thereto set forth below.

	 	1.2	 	No Assignment or Privity. For the avoidance of doubt, this Agreement does not
constitute a subcontract, delegation or assignment by COALSALES II of the End Customer
Contract, and there will be no privity of contract between End Customer and Patriot
under or in respect of the End Customer Contract.
	 
	 	1.3	 	Communications For Scheduling, Transportation, and Related Activities. Patriot
shall have the right, without obtaining the prior written consent of COALSALES II, to
communicate directly with End Customer for any purposes and/or activities which by
their nature require direct communication between Patriot and End Customer, such as
scheduling and transportation, but expressly excluding any communications that a
reasonable person would perceive as detrimental to COALSALES II’s interests under the
End Customer Contract including, without limitation, communications relating to
pricing, amendments to the End Customer Contract, termination of the End Customer
Contract, or any material modifications to price, quality, or quantity terms. Patriot
shall promptly notify COALSALES II of all substantive communications exchanged between
Patriot and End Customer in relation to the End Customer Contract. Where End Customer’s
direct involvement is necessary to effectuate the scheduling and transportation of the
coal, Patriot shall be responsible for making the necessary arrangements with End
Customer to satisfy the obligations of COALSALES II under the End Customer Contract
that address the specific performance obligations expected from End Customer related to
coal shipped to End Customer hereunder. Under no circumstances shall COALSALES II be
liable to Patriot for damages of any kind arising out of or relating to End Customer’s
failure to meet any of its obligations relating to the scheduling and transportation of
coal; provided, that if Patriot has any claims or defenses arising under COALSALES II’s
rights in connection with a failure of the End Customer to satisfy its performance
obligations under the End Customer Contract, COALSALES II shall, subject to Section 1.6
hereof, use commercially reasonable efforts to pursue all such rights and defenses on
Patriot’s behalf or for the benefit of Patriot.
	 
	 	1.4	 	Assumption of Rights, Remedies, Responsibilities and Obligations. In
furtherance of the foregoing, Patriot hereby assumes toward COALSALES II all
obligations and responsibilities that the “Seller” has toward the “Buyer” under the
Exhibit A Terms; and COALSALES II will have the benefit of all rights and remedies
against Patriot that the “Buyer” has against the “Seller” under the Exhibit A Terms, in
each case subject to the modifications set forth below. Likewise, except for certain
obligations for which End Customer may assume

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direct responsibility pursuant to separate communications between Patriot and End
Customer as set forth in Sections 1.3 and 4.3 hereof, COALSALES II hereby assumes
toward Patriot all obligations and responsibilities that the “Buyer” has toward the
“Seller” under the Exhibit A Terms; and Patriot will have the benefit of all rights
and remedies against COALSALES II that the “Seller” has against the “Buyer” under
the Exhibit A Terms, in each case subject to the modifications set forth below. For
the sake of clarity, the Exhibit A Terms, as modified by the body of this Agreement,
will apply to Specification “A” coal that is resold by COALSALES II to any third
party.

	 	1.5	 	Conflicting Terms.

	 	(a)	 	If there is a conflict or inconsistency between a provision of
the Exhibit A Terms and a provision of the body of this Agreement, the
provision of the body of this Agreement will control.
	 
	 	(b)	 	If there is a conflict or inconsistency between a provision of
the End Customer Contract with respect to Specification “A” coal applicable to
Patriot under this Agreement and a provision of the body of this Agreement, the
provision of the body of this Agreement will control.
	 
	 	(c)	 	COALSALES II and Patriot acknowledge that (i) the End Customer
Contract, as it exists on the Effective Date, is comprised of the original End
Customer Contract plus numerous amendments thereto over a fifteen-year period
and (ii) the Exhibit A Terms were compiled by the parties from the documents
comprising the End Customer Contract, as amended through the Effective Date,
for the sake of convenience. COALSALES II represents that it has furnished
Patriot with what COALSALES II, in good faith, believes to be a true and
complete copy of the original End Customer Contract plus all amendments made
through the Effective Date (from which the Exhibit A Terms were compiled), and
Patriot acknowledges receipt of the same. If there is a conflict or
inconsistency between a provision of the Exhibit A Terms and a provision of the
End Customer Contract (including all amendments through the Effective Date) as
furnished to Patriot, pertaining to Specification “A” coal, the provision of
the End Customer Contract furnished to Patriot will control.

	 	1.6	 	Legal Proceedings. In addition to all other rights and remedies available under
this Agreement, including the Exhibit A Terms, the following shall apply:

	 	(a)	 	COALSALES II will use commercially reasonable efforts to defend
its rights against End Customer under the End Customer Contract and to pursue
all necessary legal action to enforce its rights against End Customer under the
End Customer Contract; provided, however, that COALSALES II shall have the
right, in its sole discretion, to determine whether or not it will pursue or
defend a given legal action; and in the event COALSALES II determines not to
pursue or defend a given legal

 - 3 - 

 

	 	 	 	action, it shall notify Patriot of such determination. COALSALES II agrees
that in the course of defending or pursuing its rights against End Customer
under the End Customer Contract that it will exercise commercially
reasonable efforts to avoid taking any actions that it knows or would
reasonably be expected to know would be detrimental to Patriot without first
advising Patriot of such actions. Notwithstanding the foregoing, nothing in
this Section 1.6(a) will be construed to limit any right that Patriot may
have against COALSALES II under this Agreement as a result of such action
by, or inaction of, COALSALES II.

	 	(b)	 	If the parties are co-defendants in any legal proceeding
arising out of the End Customer Contract, the parties agree to work together in
good faith and in the spirit of mutual cooperation to defend such action in a
manner beneficial to both parties, provided, that each party shall have the
right to engage counsel of its choosing, and will bear the costs of its own
legal defense.

	2.	 	COAL PREPAYMENT 2008-2011

	 	2.1	 	Monthly Prepayment; Prepayment Supply Period. As consideration for Patriot’s
entering in to this Agreement, subject to fulfillment by Patriot of its obligations
hereunder, and as additional consideration for coal deliveries to be made during the
period beginning January 1, 2008 and ending December 31, 2011 (the “Prepayment Supply
Period”), COALSALES II shall pay to Patriot forty eight (48) equal, monthly,
non-refundable payments in the amount of $1,041,666 (each a “Monthly Prepayment”),
beginning on December 20, 2007 and continuing through November 20, 2011. Each Monthly
Prepayment shall represent consideration for the coal deliveries made to COALSALES II
during the month of the Prepayment Supply Period immediately following the month in
which such Monthly Prepayment is due and payable. (By way of example, the Monthly
Prepayment made on December 20, 2007 shall represent consideration for the coal
deliveries made during January, 2008 of the Prepayment Supply Period, and each Monthly
Prepayment thereafter shall likewise be applied as consideration for each consecutive
month of the Prepayment Supply Period). In the event no coal deliveries are made during
a given month of the Prepayment Supply Period, the Monthly Prepayment made with respect
to that month shall not be refunded, but shall be applied as additional consideration
for coal deliveries made during the following month of the Prepayment Supply Period.
The Monthly Prepayments shall entitle COALSALES II to a first priority right for
production for quantities to be delivered under this Agreement from the sources and
reserves of coal for Specification “A” coal shown on Exhibit 1 of the Exhibit A Terms,
except, that if Patriot experiences an event of force majeure, as that term is
described in Article XII of the Exhibit A Terms, deliveries shall be distributed in
accordance with the terms of Article XII of the Exhibit A Terms. For the avoidance of
doubt, the Monthly Prepayment is in addition to, and shall not serve as a reduction of,
any amounts due and payable by COALSALES II under Sections 4.7 and 4.8. The Monthly
Prepayment obligations described in this

 - 4 - 

 

Section 2.1 and in Section 2.2 shall survive expiration or termination of the End
Customer Contract.

	 	2.2	 	Taxes and Royalties. If at any point in time Patriot notifies COALSALES II in
writing that it is obligated to pay federal, state or local taxes (except for taxes on
Patriot’s income or property), or private royalties as a result of a Monthly Prepayment
received, then COALSALES II shall promptly reimburse Patriot for all such taxes or
royalties assessed against and actually paid by Patriot related to such Monthly
Prepayment.

	3.	 	GENERAL MODIFICATIONS TO EXHIBIT A TERMS
	 
	 	 	The purpose of this Agreement is to allow COALSALES II to continue to meet its obligations
under the End Customer Contract with respect to Specification “A” coal by purchasing
Specification “A” coal from Patriot in accordance with the terms and conditions agreed to
hereunder. Accordingly, this Agreement will be construed and performed in furtherance of
such purpose notwithstanding that the parties may not have adequately modified the Exhibit A
Terms.
	 
	 	 	The following provisions of this Article 3 set forth general modifications to be made to,
and rules of construction to be applied to, the Exhibit A Terms.

	 	3.1	 	Notices and Information. To the extent certain provisions of the Exhibit A
Terms require that the “Buyer” or the “Seller” provide the other with notice within a
period of two (2) business days or less, for purposes of incorporating such requirement
into this Agreement, each party hereto shall use commercially reasonable efforts to
promptly relay such notice to the other party, taking into consideration the notice
requirement under the Exhibit A Terms. In all other situations under the Exhibit A
Terms requiring the “Buyer” to provide notice or information to the “Seller” within a
period of time greater than two (2) business days, for purposes of incorporating such
requirement into this Agreement, such period of time shall be extended by two (2)
business days to account for the possibility that End Customer may not provide such
notice or information to COALSALES II under the End Customer Contract until the end of
the specified period, provided, however, that upon receipt of any notice given by End
Customer, COALSALES II will use commercially reasonable efforts to promptly forward
such notice to Patriot. Likewise, except for any provisions under the Exhibit A Terms
requiring two (2) business days’ or less notice, whenever the Exhibit A Terms require
the “Seller” to provide notice or information to the “Buyer” within a specified period
of time, for purposes of incorporating such requirement into this Agreement, such
period of time shall be shortened by two (2) business days to enable COALSALES II
sufficient time to provide the same notice or information to End Customer under the End
Customer Contract.
	 
	 	3.2	 	Confidentiality. Patriot acknowledges and agrees that the End Customer Contract
is a strictly confidential document, and that the information contained therein
represents the confidential and proprietary information of COALSALES II and

 - 5 - 

 

End Customer. Accordingly, Patriot covenants that during the term of this Agreement
and continuing after termination of this Agreement until otherwise permitted in
writing by COALSALES II, it will hold the End Customer Contract and the information
contained therein in strictest confidence and will protect the End Customer Contract
from any unauthorized disclosure. Except as expressly provided for herein, Patriot
will not disclose to any third parties any information of any nature, specific or
general, pertaining to the End Customer Contract, and will only disclose such
information to those of its employees who have a need to know in order for Patriot
to perform its obligations hereunder. In the event Patriot has a legitimate business
and/or financial need to disclose the terms of the End Customer Contract to a third
party, Patriot shall promptly notify COALSALES II of the circumstances necessitating
the need to disclose, and COALSALES II shall act in good faith and use commercially
reasonable efforts to obtain the End Customer’s written consent to Patriot’s
disclosure of the End Customer Contract under those limited circumstances. The
foregoing notwithstanding, either party may disclose the terms of this Agreement
(excluding the Exhibit A Terms) to such party’s lenders, counsel, accountants or
prospective permitted purchasers, directly or indirectly, of all or substantially
all of such party’s assets or of any rights under this Agreement, in each case who
have agreed to keep such terms confidential, or in order to comply with any
applicable law, order, regulation or exchange rule; provided, such party shall
notify the other party of any proceeding of which it is aware which may result in
disclosure and use reasonable efforts to prevent or limit the disclosure.
Notwithstanding anything contained in this provision to the contrary, the terms and
conditions of this provision shall under no circumstances supersede, override, or
violate the confidentiality rights in Article XXI of the End Customer Contract, it
being understood and agreed by the parties hereto that the terms and conditions of
such Article XXI shall remain in full force and effect for so long as the End
Customer Contract is effective.

	 	3.3	 	Audit and Inspection Rights. Whenever the End Customer Contract grants End
Customer the right to conduct an audit or inspection of, or access to coal production
facilities, processes, books, records, or otherwise, End Customer will be entitled, as
applicable, to enforce or exercise such audit, inspection and/or access rights against
Patriot. If COALSALES II has the right under the End Customer Contract to conduct any
inspections of End Customer’s books, records, or premises, such right does not directly
pass through to Patriot under this Agreement; however, Patriot may request such
inspection rights from COALSALES II, and COALSALES II shall contact End Customer and
use commercially reasonable efforts to obtain End Customer’s consent to such request.
In the event End Customer refuses Patriot’s request to inspect, COALSALES II shall be
obligated to promptly conduct the inspection on Patriot’s behalf and at Patriot’s sole
expense, and shall report the results of such inspection to Patriot promptly upon
completion, provided, that disclosure of such results does not violate the terms of
confidentiality under Article XXI of the End Customer Contract. Notwithstanding the
foregoing, this Section 3.3 does not eliminate or modify COALSALES II’s audit,
inspection or access rights under the

 - 6 - 

 

	 	 	 	Exhibit A Terms with respect to Patriot or Patriot’s facilities, processes, books or
records.

	 	3.4	 	Rejected Deliveries. If, pursuant to the Exhibit A Terms, End Customer and/or
COALSALES II exercises its right to reject any non-conforming coal shipments or to
suspend deliveries, COALSALES II shall, subject to the notice provisions set forth in
Section 3.1 hereof, notify Patriot. Patriot will, at its sole expense, take all
necessary measures to correct the conditions giving rise to the failure of the coal to
conform to specifications under the Exhibit A Terms, and will reimburse COALSALES II
for any and all costs and expenses incurred by COALSALES II as a result of Patriot’s
shipment of non-conforming coal. COALSALES II and Patriot will work together in good
faith to expeditiously resolve any disputes arising from non-conforming coal or
suspended shipments. If, however, End Customer exercises its right to hold COALSALES II
in anticipatory breach of the End Customer Contract as a result of Patriot’s failure to
provide conforming coal pursuant to this Agreement, and not as a result of any action
or inaction of COALSALES II, Patriot shall indemnify COALSALES II in accordance with
the terms of Section 3.8 hereof for any claims for past, present, and future damages
arising on or after the Effective Date hereof that are pursued by End Customer against
COALSALES II by reason of such breach.
	 
	 	3.5	 	Amendments to End Customer Contract. Subject to Section 4.4(c) hereof, for the
avoidance of doubt, the parties hereto understand and agree that COALSALES II shall
have the unconditional, unilateral right, in its sole discretion, to amend the End
Customer Contract in any manner contemplated by the terms and conditions contained
therein, without the prior written consent of Patriot. However, any such amendment to
the End Customer Contract will apply only as between COALSALES II and End Customer and
will not amend the Exhibit A Terms without Patriot’s signed, written consent.
	 
	 	3.6	 	Assignment. Neither party shall assign this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, either party may, without the need of consent
from the other party (and without relieving itself from liability hereunder), (a)
transfer, sell, pledge, encumber, or assign this Agreement or the account, revenues or
proceeds hereof in connection with any financing or other financial arrangement; (b)
transfer or assign this Agreement to an affiliate of such party; or (c) transfer or
assign this Agreement to any person or entity succeeding to all or substantially all of
the assets of such party by way of merger, reorganization, or otherwise, provided,
however, that in each such case, any such assignee shall agree in writing to be bound
by the terms and conditions hereof, and that no such assignment shall in any way
relieve the assignor from liability or full performance under this Agreement. The
foregoing assignment rights notwithstanding, such rights shall under no circumstances
supersede, override, or violate the assignment rights in Article XV of the End Customer
Contract, it being understood and agreed by the parties hereto that the terms and
conditions of such

 - 7 - 

 

Article XV shall remain in full force and effect for so long as the End Customer
Contract is effective.

	 	3.7	 	Venue and Dispute Resolution. Subject to Article 6 of this Agreement, venue for
the resolution of disputes between COALSALES II and Patriot under this Agreement will
lie exclusively in the federal courts of jurisdiction in the Eastern District of
Missouri.
	 
	 	3.8	 	Indemnification. Each party hereto (as the “Indemnifying Party”) shall
indemnify, defend and hold harmless the other party, its directors, officers,
employees, agents and affiliates (collectively, the “Indemnified Party”) from and
against any and all suits, actions, legal or administrative proceedings, claims,
demands, actual damages, fines, punitive damages, losses, costs, liabilities, interest,
and attorneys’ fees (including any such fees and expenses incurred in enforcing this
indemnity) incurred by the Indemnified Party arising from (a) a breach by the
Indemnifying Party of its obligations to the Indemnified Party under this Agreement, or
(b) a breach by the Indemnifying Party of its obligations to the End Customer, either
indirectly, as assumed under the terms of this Agreement, or directly under the Exhibit
A Terms.
	 
	 	3.9	 	Specification “A” Coal and Sourcing. It is understood and agreed by the parties
hereto that this Agreement applies solely to Specification “A” coal, as defined in the
Exhibit A Terms, and such coal shall be supplied from the sources and reserves of coal
for Specification “A” coal shown on Exhibit 1 of the Exhibit A Terms plus any
additional sources approved pursuant to this Agreement. Any and all references in the
Exhibit A Terms to Specification “B” coal or Specification “C” coal are deemed null,
void, and having no legal force or effect with respect to this Agreement.
	 
	 	3.10	 	Liquidated Damages. In addition to all other rights and remedies available
under the Exhibit A Terms, notwithstanding anything in Section 1.6 to the contrary, to
the extent liquidated damages are due and payable to COALSALES II under Article XX of
the End Customer Contract, any such liquidated damages that are actually paid to
COALSALES II by End Customer under the End Customer Contract shall be transferred by
COALSALES II to Patriot within five (5) business days of receipt. The foregoing shall
not apply in the event that COALSALES II elects to continue to purchase the full
quantity of Specification “A” coal under this Agreement after the occurrence of the
event triggering the payment of liquidated damages. COALSALES II shall use commercially
reasonable efforts to pursue all such rights and defenses on Patriot’s behalf with
respect to any liquidated damages that become due and owing to COALSALES II by End
Customer under the End Customer Contract. If legal action is necessary for COALSALES II
to pursue the foregoing rights and defenses, all legal costs and fees incurred by
COALSALES II in relation thereto shall be borne by Patriot.

	4.	 	SPECIFIC MODIFICATIONS TO EXHIBIT A TERMS

 - 8 - 

 

	 	 	The following provisions of this Article 4 set forth specific modifications to be made to
specified provisions of the Exhibit A Terms. All references to sections or pages are to
sections or pages of the Exhibit A Terms, unless specifically indicated otherwise.

	 	4.1	 	Definitions. All defined terms in the Exhibit A Terms shall have the same
meanings under this Agreement; and all capitalized terms herein that are not otherwise
defined shall have the meaning ascribed to them in the Exhibit A Terms.
	 
	 	4.2	 	Article 1, Section 1 (Term of Agreement).

	 	(a)	 	Original and Extended Terms. The Original Term (as
defined in the Exhibit A Terms) when applied to this Agreement shall commence
on the Effective Date hereof and continue until December 31, 2012. If it is
determined that the End Customer has the valid right to extend the End Customer
Contract, and if End Customer exercises such right, on or before January 1,
2012 to extend the term of the End Customer Contract (the “Extended Term”),
then the term of this Agreement will likewise be extended for the same period
of time. In such event, COALSALES II shall notify Patriot of the Extended Term
and the volume of coal tonnage required under such Extended Term (if known)
within 10 business days after COALSALES II’s receipt of End Customer’s notice
to extend the term of the End Customer Contract.
	 
	 	(b)	 	Expiration of End Customer Contract. This Agreement
will expire upon the later of (a) the end of the Original Term of the Exhibit A
Terms, or (b) the end of the Extended Term, subject to earlier termination as
provided under Section 4.2(c) hereof. Following expiration of this Agreement,
neither party hereto shall have, after the effective date of such expiration,
any further obligation under this Agreement to the other, provided, however,
that such expiration shall not affect any rights or obligations of each party
existing under this Agreement for coal shipped or required to be shipped prior
to the effective date of said expiration.
	 
	 	(c)	 	Early Termination of End Customer Contract; Extension of
this Agreement. If End Customer exercises its rights under Article VI,
Section 3(c) (i) or Article IX, Section 2 of the End Customer Contract to
terminate the End Customer Contract prior to the expiration of the Original
Term or Extended Term for any reason other than a breach of the End Customer
Contract by COALSALES II not attributable to Patriot, then COALSALES II shall
have the right, at its sole option, to continue to purchase the Maximum
Quantity of Specification “A” coal per Contract Half Year for the remainder of
the term of this Agreement or to concurrently terminate this Agreement. If
COALSALES II terminates this Agreement under the preceding sentence, then (i)
Article 2 and Sections 3.8, 3.10, and 4.12 hereof shall survive termination of
this Agreement and (ii) neither party hereto shall have, after the effective
date of such early

 - 9 - 

 

termination, any further obligation under this Agreement to the other,
provided, however, that such early termination shall not affect any rights
or obligations of each party existing under this Agreement for coal shipped
prior to the effective date of said termination. In the event, as a result
of such early termination, any liquidated damages are payable to COALSALES
II by virtue of Article XX or such other applicable provisions of the End
Customer Contract, COALSALES II shall transfer to Patriot, pursuant to the
terms of Section 3.10 hereof, any and all liquidated damages actually
received. The foregoing shall not apply in the event that COALSALES II
elects to continue to purchase the full quantity of Specification “A” coal
under this Agreement after the occurrence of the event triggering the
payment of liquidated damages. COALSALES II shall, notwithstanding Section
1.6 hereof, use commercially reasonable efforts to pursue all such rights
and defenses on Patriot’s behalf with respect to any liquidated damages that
become due and owing to COALSALES II by End Customer under the End Customer
Contract. If legal action is necessary for COALSALES II to pursue the
foregoing rights and defenses, all legal costs and fees incurred by
COALSALES II in relation thereto shall be borne by Patriot.

	 	4.3	 	Article II (Quantities and Deliveries; Related Communications). For purposes of
ensuring the seamless delivery of the coal to End Customer, Patriot shall comply with
the Seller obligations under Article II of the Exhibit A Terms, including, without
limitation, all requirements as to quantity, delivery, specifications, quality,
loading, transport, delivery, and establishment of a demurrage account. For
Specification “A” coal to be shipped to End Customer, all required notices and other
communications related to the foregoing shall be made by Patriot directly to End
Customer within the stated notice period. In addition to its obligation to communicate
directly with the End Customer to fulfill the Seller obligations under Article II of
the Exhibit A Terms, Patriot may, pursuant to Section 1.3 of this Agreement, exchange
information directly with End Customer at the address provided to it by COALSALES II
for purposes of coordinating transportation, scheduling, loading days, quantity,
delivery and any other details for which End Customer must have direct involvement.
Subject to Section 1.3 hereof, Patriot agrees that any and all decisions made between
Patriot and End Customer as a result of such direct communications are outside of
COALSALES II’s control, and as such, COALSALES II disclaims all responsibility for, and
any and all liability for damages incurred by Patriot, or claimed against Patriot by
End Customer, arising from the scheduling and transportation of the coal between End
Customer and Patriot. To the extent copies of any written communications under the End
Customer Contract in connection with scheduling, transportation and related activities
are required by Patriot to perform its obligations hereunder, COALSALES shall provide
Patriot with copies of such communications.

 - 10 - 

 

	4.4	 	Article II, Section 1 (Quantity and Maximum Quantity Coal Purchases).

	 	(a)	 	The terms “Contract Year” and “Contract Half Year” when
referenced under this Agreement shall have the same meaning ascribed to it
under Article II, Section 1(a) of the Exhibit A Terms. The term “Maximum
Quantity” shall mean the amount of coal set forth in the chart below relative
to the corresponding Contract Half Year. The term “End Customer Quantity” shall
mean, for purposes of this Agreement, the quantity of coal nominated by End
Customer to be purchased under the End Customer Contract for a given Contract
Half Year, as provided under the terms of the End Customer Contract. The term
“Quantity” when used under this Agreement shall mean the amount of coal to be
purchased by COALSALES II from Patriot under this Agreement for a particular
Contract Half Year. Subject to Section 4.4(c), for each Contract Half Year, the
Quantity of coal purchased shall equal the lesser of:

	 	(i)	 	the End Customer Quantity of coal nominated by
End Customer for such Contract Half Year; or
	 
	 	(ii)	 	the Maximum Quantity shown in the following
chart with respect to that same Contract Half Year.

	 	 	MAXIMUM QUANTITY PURCHASES PER CONTRACT HALF YEAR:

	 	 	 
	 	 	MAXIMUM QUANTITY PER
	CONTRACT YEAR	 	CONTRACT HALF YEAR
	2007
	 	                     tons
	 	 	 
	2008
	 	1,600,250 tons
	 	 	 
	2009
	 	1,412,500 tons
	 	 	 
	2010
	 	1,412,500 tons
	 	 	 
	2011
	 	1,412,500 tons
	 	 	 
	2012
	 	1,412,500 tons

	 	(b)	 	If, during calendar years 2009 through 2012, End Customer
elects or continues to elect under Article II, Section 1(c) of the End Customer
Contract to increase the scheduled quantity obligation for any month(s) by as
much as five percent (5%), then COALSALES II will purchase such additional
quantities from Patriot, and Patriot will sell such additional quantities to
COALSALES II, under this Agreement.

 - 11 - 

 

	 	(c)	 	If the End Customer Contract is amended during the term of this
Agreement in any manner that negatively affects the nomination of coal by the
End Customer, then the Quantity for each Contract Half Year shall equal the
Maximum Quantity shown above, unless the Quantity under this Agreement is
reduced or the quality under this Agreement is revised, in each case by mutual
agreement of the parties.

	4.5	 	Article II, Sections 3 and 4 (Approved Rail and Barge Shipping Origins).
Patriot shall comply at all times with the rights of End Customer regarding railcars
and barges provided by End Customer, the approved rail and barge shipping origin(s)
listed on Exhibit 1, Minimum Trainload Requirements and Maximum Load Limit Requirements
of the Exhibit A Terms, all of which shall be communicated by COALSALES II to Patriot
along with any changes thereto as requested by End Customer pursuant to its rights
under the End Customer Contract. Any penalties arising from Patriot’s failure to comply
with the foregoing requirements, except those caused by End Customer, shall be paid by
Patriot to COALSALES II who shall pass along such payments to End Customer. Any changes
desired by Patriot to the approved rail or barge shipping origin(s) listed on Exhibit 1
of the Exhibit A Terms are subject to the prior written consent of End Customer, and
all increased transportation, barging, and/or handling costs arising therefrom shall be
borne solely by Patriot. Patriot shall notify COALSALES II of any such change requests,
and COALSALES II shall exercise commercially reasonable efforts to gain End Customer’s
approval and shall notify Patriot of End Customer’s approval or denial of the change.
	 
	4.6	 	Article III, Section 1(b) (Substitution Rights). It is understood and agreed by
the parties hereto that for purposes of this Agreement, Patriot shall have no rights of
substitution with respect to Alternative Substitute Sources (as set forth in Exhibit
1-A of the Exhibit A Terms). The foregoing notwithstanding, Patriot may, at any time
during the course of this Agreement, request the right to provide coal to COALSALES II
from substitute sources, and COALSALES II shall have the right, in its sole discretion,
to grant or deny such request, provided, however, that if COALSALES II is not fully
utilizing the substitution rights provided to it under the End Customer Contract, the
parties agree to meet periodically to discuss alternatives to optimize the substitution
rights under the End Customer Contract to the mutual benefit of the parties.
Notwithstanding anything to the contrary in this Agreement, Patriot shall not have any
liability nor have any obligation and/or responsibilities with respect to coal supplied
by COALSALES II from sources other than Patriot under this Agreement to satisfy the
delivery requirements under the End Customer Contract. For purposes of clarity, the
Quantity of coal to be supplied under this Agreement shall not be reduced by deliveries
of coal under the End Customer Contract by COALSALES II from any sources not provided
by Patriot. In addition, should End Customer claim a force majeure event under the End
Customer Contract during any period of time when COALSALES II is supplying coal from
any sources not provided by Patriot under the End Customer Contract, then COALSALES II
shall prorate among Patriot and such other sources any reduction in deliveries claimed
by End Customer resulting from such

 - 12 - 

 

force majeure event in proportion to the quantity of scheduled shipments from
Patriot and such other sources during the period of the such force majeure event.

	4.7	 	Article IV (Payment). For coal purchased hereunder that is shipped to End
Customer, promptly after receipt from End Customer of weight, analytical, and pricing
data for a given half-month, as required under the End Customer Contract, COALSALES II
shall submit such information to Patriot; and Patriot shall, as soon as commercially
practicable after receipt of such information, prepare and submit to COALSALES II the
invoice for the half-month that corresponds to such information. With respect to coal
that is resold by COALSALES II into the market, certified origin weights and analysis
provided by Patriot shall govern payment. All invoices shall be submitted by Patriot
directly to COALSALES II at the billing address(s) provided by COALSALES II (e.g. mail,
facsimile and EDI as applicable), in accordance with the same procedures governing
COALSALES II’s submission of invoices to End Customer under the Exhibit A Terms.
COALSALES II shall have twenty two (22) calendar days after the close of such
half-month to submit payment to Patriot. Patriot agrees that in the event of a payment
dispute between COALSALES II and End Customer, it will cooperate fully with COALSALES
II and will take all reasonable measures to assist COALSALES II in resolving any issues
with End Customer relating to invoices, payment, and collection of all outstanding
amounts due from End Customer.
	 
	4.8	 	Article VI, Sections 1 – 4 (Base Price and Base Price Adjustments).

	 	(a)	 	Relationship of Monthly Prepayments to Price. For
purposes of clarity, the Monthly Prepayment obligations of COALSALES II under
Article 2 hereof shall not be credited against the Patriot Base Price or the
Patriot Selling Price, nor shall the Patriot Base Price or the Patriot Selling
Price be reduced as a consequence of the Monthly Prepayments made under Article
2.

 - 13 - 

 

	 	(b)	 	Patriot Base Price During Original Term for Maximum
Quantity. The “Patriot Base Price” for quantities of Specification “A”
coal purchased by COALSALES II hereunder during a given Contract Year in the
Original Term up to the Maximum Quantity (as set forth in Section 4.4 hereof)
shall equal the greater of (a) the Base Price per ton, as adjusted pursuant to
the Exhibit A Terms, as if it were used to determine the Selling Price to be
charged by COALSALES II to the End Customer or (b) the Patriot Base Price set
forth in the following table:

	 	 	 
	 	 	PATRIOT BASE PRICE*
	CONTRACT YEAR	 	(per ton)
	2007
	 	$****
	 	 	 
	2008
	 	$****
	 	 	 
	2009
	 	$****
	 	 	 
	2010
	 	$****
	 	 	 
	2011
	 	$****
	 	 	 
	2012
	 	$****

 

			
	*	 	Before adjustments for premiums, penalties and changes in law.

	 	(c)	 	Patriot Base Price During Original Term for Additional
Quantities. The “Patriot Base Price” for quantities of Specification “A”
coal (if any) purchased by COALSALES II hereunder during a given Contract Year
in the Original Term in excess of the Maximum Quantity (as set forth in Section
4.4(b) hereof) shall equal the greater of (a) the Base Price per ton, as
adjusted pursuant to the Exhibit A Terms, as if it were used to determine the
Selling Price to be charged by COALSALES II to the End Customer or (b) $****
per ton (before adjustments for premiums, penalties and changes in law).
	 
	 	 	 	The calendar year-to-date quantity of coal purchased by COALSALES II from
Patriot under this Agreement will be monitored on a monthly basis. The
Patriot Base Price of all tons of coal purchased during a given Contract
Year up to the Maximum Quantity set forth in Section 4.4 hereof will be
determined in accordance with Section 4.8(b) hereof, and the Patriot Base
Price of all tons of coal purchased during the same Contract Year in excess
of the Maximum Quantity will be determined in accordance with this Section
4.8(c).

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	 	(d)	 	Patriot Selling Price During Original Term. The
“Patriot Selling Price” per ton at which COALSALES II will purchase coal from
Patriot under this Agreement during the Original Term will equal:

	 	(i)	 	the Patriot Base Price per ton (as determined
above under this Section 4.8),
	 
	 	(ii)	 	adjusted for the discounts described in Article
V of the Exhibit A Terms (an example of the discounts applied to the
Patriot Base Price as per Article V of the Exhibit A Terms is set forth
in Exhibit B, attached hereto and incorporated herein), and
	 
	 	(iii)	 	adjusted for quality pursuant to Section 4.11
of this Agreement.

	4.9	 	Article VI, Section 3(c)(i) (Changes in Law).

	 	(a)	 	If Patriot desires, in accordance with the terms of Article VI,
Section 3(c)(i) of the Exhibit A Terms, to adjust the Base Price of the coal
sold to End Customer and adjust the Patriot Base Price hereunder, COALSALES II
shall use commercially reasonable efforts to obtain End Customer’s consent to
such adjustment. If End Customer agrees, the Base Price under the Exhibit A
Terms and the Patriot Base Price hereunder shall be adjusted accordingly.
	 
	 	(b)	 	If, however, End Customer does not agree to an adjustment to
the Base Price of coal sold to End Customer under the End Customer Contract
which had been proposed pursuant to the provisions of Section 4.9(a) hereof,
and as a result thereof indicates its intention to terminate the End Customer
Contract pursuant to its rights under Article VI, Section 3(c)(i) of the End
Customer Contract, COALSALES II shall notify Patriot of the pending
termination, and Patriot shall have the option of (a) allowing this Agreement
to concurrently terminate with the End Customer Contract, or (b) nullifying
such End Customer termination by waiving its right to all or a portion of such
proposed adjustment in accordance with the terms of Article VI, Section 3(c)(i)
of the End Customer Contract. Patriot shall, within eight (8) calendar days of
receiving notice from COALSALES II, notify COALSALES II of its decision as to
the foregoing options.

	4.10	 	Article XIV – Buyer’s Right To Market Coal.

	 	(a)	 	COALSALES II shall have the right, in its sole discretion, to
resell to any third party coal purchased from Patriot under this Agreement. It
is understood and agreed that if COALSALES II elects to resell such coal to a
third party, it shall have the right to claim force majeure under this
Agreement with respect to such resold coal; provided that deficiencies in
Specification “A” coal shall be made up by COALSALES II within 12 months after
the end of the force majeure event, subject to a mutually agreed schedule. If
Patriot claims a force majeure event, COALSALES II

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has the right to require that Patriot make up deficiencies in accordance
with the provisions of the Exhibit A Terms, regardless of whether the
Quantity of coal is sold to End Customer or has been resold into the market.

	 	(b)	 	With respect to coal that is resold by COALSALES II into the
market, certified origin weights and analysis provided by Patriot shall govern
payment; and quality adjustments will be determined based upon formulas set
forth in the Exhibit A Terms utilizing such certified origin weights and
analysis.

	 	4.11	 	Article VII – Adjustment of Price for Quality. Premiums and penalties per ton
to be paid or credited by COALSALES II to Patriot under this Agreement shall be
calculated on the Base Price charged by COALSALES II to End Customer under the Exhibit
A Terms.
	 
	 	4.12	 	Article IX (Other Governmental Legislation, Regulations, and Orders). If End
Customer exercises its right under Article IX of the End Customer Contract to request
delivery of a quality of coal having different specifications or in different
quantities from the coal specified under Article II of the End Customer Contract
(“Alternative Coal”), COALSALES II shall so notify Patriot, and Patriot shall have the
option, using any alternative sources, including its affiliates or reserves, to supply
such Alternative Coal to COALSALES II for the remainder of this Agreement. If Patriot
does not agree to exercise the option to supply Alternative Coal, COALSALES II shall
have the right to obtain the Alternative Coal from other supply sources as it sees fit,
in its sole discretion, in order to deliver the Alternative Coal to End Customer, in
which event, COALSALES II shall pay to Patriot liquidated damages in the same amount
that would otherwise have been paid to COALSALES II by End Customer had the End
Customer Contract terminated under Article IX, Section 5 thereof. The foregoing shall
not apply in the event that COALSALES II elects to continue to purchase the full
quantity of Specification “A” coal under this Agreement after the occurrence of the
event that would otherwise trigger the payment of liquidated damages.
	 
	 	4.13	 	Article XIX (Notices). COALSALES II’s address for notices will remain the same.
Patriot’s address for notices is as follows:

Patriot Coal Sales LLC

12312 Olive Boulevard, Suite 400

St. Louis, Missouri 63141

Fax: (____) _____-_______

Attention: General Counsel

	5.	 	PATRIOT SELLING PRICE DURING EXTENDED TERM

	 	5.1	 	Scope of Article 5. This Article 5 governs the price of coal purchased
by COALSALES II from Patriot under this Agreement during the Extended Term, if

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any. The price of coal purchased by COALSALES II from Patriot under this Agreement
during the Original Term will be governed by Section 4.8.

	 	5.2	 	Extended Term Pricing Periods. For purposes of determining the Market
Price (as defined below), and consequently the Patriot Base Price and Patriot Selling
Price, during the Extended Term, the Extended Term will be divided into the following
three pricing periods:

	 	(1)	 	The “First Extended Term Price Period” will commence upon the
start of the Extended Term and, if the Extended Term is longer than 24 months,
will end at the end of the 24th month of the Extended Term.
	 
	 	(2)	 	If the Extended Term is longer than 24 months, the “Second
Extended Term Price Period” will commence upon the end of the First Extended
Term Price Period and, if the Extended Term is longer than 48 months, will end
at the end of the 48th month of the Extended Term.
	 
	 	(3)	 	If the Extended Term is longer than 48 months, the “Third
Extended Term Price Period” will commence upon the end of the Second Extended
Term Price Period and will end upon the expiration of the Extended Term.

The First, Second and Third Extended Term Price Periods will each be referred to
herein as an “Extended Term Price Period”.

	 	5.3	 	Determination of Market Price. 

	 	(a)	 	“Market Price” per ton of Specification “A” coal for each
Extended Term Price Period will be determined: (i) by mutual agreement of the
parties in accordance with Section 5.3(b) hereof during the First Negotiation
Period (as defined in Section 5.3(b)(i) hereof); (ii) if the parties are unable
to mutually agree upon a Market Price after the First Negotiation Period, then
the Market Price will be determined by mutual agreement of the parties in
accordance with Section 5.3(b) hereof during the Second Negotiation Period (as
defined in Section 5.3(b)(ii) hereof); or (iii) if the parties are unable to
mutually agree upon a Market Price after the Second Negotiation Period, then
the Market Price will be determined pursuant Sections 5.3(c) through 5.7
hereof.
	 
	 	(b)	 	During the First Negotiation Period and, if necessary, the
Second Negotiation Period, the parties shall meet regularly and work together
exercising good faith attempts to reach a mutually agreed Market Price for
Specification “A” coal, which Market Price shall not be adjusted pursuant to
Section 5.7.

	 	(i)	 	The “First Negotiation Period” shall mean (1)
for the First Extended Term Price Period, the period January 15, 2012
through March 1, 2012, (2) for the Second Extended Term Price Period,
the period January 15, 2014 through March 1, 2014, and (3) for the

 - 17 - 

 

	 	 	 	Third Extended Term Price Period, the period January 15, 2016 through
March 1, 2016.

	 	(ii)	 	The “Second Negotiation Period” shall mean (1)
for the First Extended Term Price Period, the period May 1, 2012
through May 31, 2012, (2) for the Second Extended Term Price Period,
the period May 1, 2014 through May 31, 2014, and (3) for the Third
Extended Term Price Period, the period May 1, 2016 through May 31,
2016.

	 	(c)	 	If the parties are unable to mutually agree upon a Market Price
under Section 5.3(b) hereof after the Second Negotiation Period, then the
Market Price will be determined in accordance with this Section 5.3(c).
Commencing on the first day of each Market Price Period (as defined in Section
5.3(c)(i)), for each business day during which data is available, COALSALES II
will calculate the simple average of the daily “bid” and “ask” prices from the
three “Approved Pricing Sources” (as defined in Section 5.3(c)(ii)) for the
Central Appalachian CSX-BSK 12,500 Btu/lb <1% sulfur rail product for the
applicable Extended Term Price Period. This average will be the “Index Based
Market Price”.

	 	(i)	 	“Market Price Period” shall mean (1) for the
First Extended Term Price Period, the period February 1, 2012 through
May 31, 2012, (2) for the Second Extended Term Price Period, the period
February 1, 2014 through May 31, 2014, and (3) for the Third Extended
Term Price Period, the period February 1, 2016 through May 31, 2016.
	 
	 	(ii)	 	The three “Approved Pricing Sources” under this
Agreement are: ICAP United, Inc.; Evolution Markets, Inc.; and TFS
Energy, LLC. If any of the foregoing Approved Pricing Sources is
discontinued, altered or otherwise becomes unavailable, then either
party may suggest a replacement, but if the parties are unable to agree
upon a replacement, the Index Based Market Price shall be determined
using the average of the remaining two Approved Pricing Sources. If two
of the three Approved Pricing Sources are discontinued, altered or
otherwise become unavailable, the parties shall work in good faith to
choose one mutually agreeable replacement broker source (which shall
thereafter be deemed an Approved Pricing Source); and the Index Based
Market Price shall henceforth be determined using the average of the
remaining Approved Pricing Source and the newly appointed Approved
Pricing Source. If the parties are unable to reach agreement within a
reasonable period of time as to such replacement Approved Pricing
Source, the matter shall be determined by arbitration in accordance
with Section 6.3 of this Agreement.

 - 18 - 

 

	5.4	 	SO2 Adjustment. The Index Based Market Price shall be adjusted
to reflect a sulfur value of 1.2lbs SO2 /MMBtu.

SO2 Adjustment = (((1.60 – 1.20) x 12,500 Btu)/1,000,000) X SA

Where:

	 	“SA” 	 	 means the simple average value of the
published monthly Air Daily Price Index for an SO2
emission allowance for the months of the applicable Market
Price Period or, if such index ceases to be published, by such
mutually agreed substitute broker which accurately measures the
market value of SO2 emission allowances.

	5.5	 	Btu Adjustment. The Index Based Market Price will be adjusted to
reflect contract calorific value according to the following formula:

Btu Adjustment = Index Based Market Price x ((12,300 – 12,500)/12,500)

	5.6	 	Patriot’s Premium. “Patriot’s Premium” equals the fixed amount of
$****/ton, which represents a premium to the Index Based Market Price to reflect the
volume and terms and conditions under the Exhibit A Terms.
	 
	5.7	 	Market Price During Extended Term. If the Market Price is being
determined pursuant to Section 5.3(c) hereof, then the Market Price per ton during each
Extended Term Price Period will equal:

	 	(a)	 	the Index Based Market Price per ton for that Extended Price
Term Period, as determined under Section 5.3(c),
	 
	 	(b)	 	plus the “SO2 Adjustment” determined under Section
5.4,
	 
	 	(c)	 	plus the “Btu Adjustment” determined under Section 5.5, and
	 
	 	(d)	 	plus “Patriot’s Premium” determined under Section 5.6.

COALSALES II will provide the Market Price, along with the calculation thereof
pursuant to this Section 5.7, to Patriot within fifteen (15) days following the
Second Negotiation Period, and Patriot will provide written notice of its acceptance
or rejection of the Market Price to COALSALES II no later than June 30th
of that year. In the event Patriot rejects COALSALES II’s calculation of the Market
Price, then the calculation of Market Price will be determined by one or more
arbitrators in an arbitration proceeding pursuant to Article 6 of this Agreement,
and such determination will be final and binding upon the parties. Such arbitration
proceeding must be completed within 90 days after commencement.

 - 19 - 

 

	 	5.8	 	Patriot Base Price During Extended Term. The “Patriot Base Price” will
equal the Market Price for each Extended Term Price Period.
	 
	 	5.9	 	Patriot Selling Price During Extended Term. The “Patriot Selling Price”
per ton at which COALSALES II will purchase coal from Patriot under this Agreement
during each Extended Term Price Period will equal:

	 	(a)	 	the Patriot Base Price per ton for that Extended Term Price
Period, as determined under Section 5.8, and
	 
	 	(b)	 	adjusted for quality pursuant to Section 4.11 of this
Agreement.

For the sake of clarity, during the Extended Term, the Patriot Selling Price will
not be reduced pursuant to Article V of the End Customer Contract regardless of End
Customer nominations of quantity.

	6.	 	RESOLUTION OF DISPUTES

	 	6.1	 	Notice of Dispute. Disputes arising pursuant to this Agreement shall be
resolved in accordance with this Section. Either party may invoke the procedures of
this Section by written notice to the other party claiming the existence of a dispute
and describing the nature of that dispute (the “Dispute Notice”).
	 
	 	6.2	 	Resolution of Disputes. Any dispute between the parties arising under
this Agreement first shall be referred for resolution to a senior representative of
each party. Upon receipt of a notice describing the dispute, designating the notifying
party’s senior representative and indicating that the dispute is to be resolved by the
parties’ senior representatives under this Agreement, the other party shall promptly
designate its senior representative to the notifying party. The senior representatives
so designated shall attempt to resolve the dispute on an informal basis as promptly as
practicable. The parties agree that they shall negotiate expeditiously in good faith in
an effort to resolve any disputes arising under this Agreement. In the event a dispute
cannot be resolved by negotiation within thirty (30) days after the date that the
Dispute Notice was received by the other party, or within such other period as the
parties may jointly agree, the parties agree to consider the use of a mini-trial or
other informal procedure such as umpire settlement (“Informal Procedure”) to resolve
the dispute. An Informal Procedure shall be utilized only if the parties agree in
writing on the procedures to be followed and whether the resulting determination shall
be binding. All disputes that are resolved by negotiation or through a binding Informal
Procedure shall be acknowledged in writing by both parties. Any dispute that is not
resolved nor committed to final and binding resolution by means of an Informal
Procedure within ninety (90) days of the date the Dispute Notice was received by the
other party may, within one hundred (100) days of the date of the Dispute Notice, be
referred to arbitration by either party and the same shall be resolved not later than
one hundred fifty (150) days after such referral to arbitration in accordance with

 - 20 - 

 

	 	 	 	Section 6.3 below. A disputed matter that is not submitted to arbitration as
provided herein shall be deemed to have been waived.

	 	6.3	 	Arbitration. Any controversies or claims arising out of or relating to
this Agreement or the breach hereof which are not resolved by negotiations between the
parties, or which is not committed to final and binding resolution by means of an
Informal Procedure, shall be determined by arbitration in accordance with Commercial
Arbitration Rules of the American Arbitration Association; provided, however, the
arbitrator(s) selected shall be a person knowledgeable of the subject matter of the
arbitration. Judgment may be entered on the arbitration award in any court having
jurisdiction. Unless otherwise agreed in writing by COALSALES II and Patriot,
performance of their respective obligations under this Agreement shall be continued in
full by the parties during the arbitration process. The parties stipulate that this
Agreement constitutes a contract evidencing a transaction involving commerce and that
this section is enforceable under the Federal Arbitration Act (9 U.S.C.A. §§ 1 et
seq.).

[REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURES ON NEXT PAGE.]

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

	 	 	 	 	 	 	 	 	 
	PATRIOT COAL SALES LLC	 	COALSALES II, LLC, Formerly known as 

Peabody Coalsales Company
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	Name:

	 	 	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 	 	 

 

 

Exhibit A

Exhibit A Terms

Table of Contents

	 	 	 	 	 	 	 
	ARTICLE	 	TITLE	 	Page	 
	I
	 	Term of Agreement	 	 	1	 
	II
	 	Quantities & Deliveries	 	 	1	 
	III
	 	Specifications, Quality & Weight	 	 	15	 
	IV
	 	Payment	 	 	33	 
	V
	 	Price	 	 	34	 
	VI
	 	Base Price & Base Price Adjustments	 	 	35	 
	VII
	 	Adjustment of Price for Quality	 	 	44	 
	VIII
	 	Sampling and Analysis	 	 	47	 
	IX
	 	Other Governmental Legislation, Regulations, and Orders	 	 	50	 
	X
	 	Major Technological Improvements	 	 	53	 
	XI
	 	Administrative Program	 	 	54	 
	XII
	 	Force Majeure	 	 	56	 
	XIII
	 	Warranties and Dedication	 	 	59	 
	XIV
	 	Buyer’s Right to Market Coal	 	 	60	 
	XV
	 	Assignment	 	 	61	 
	XVI
	 	Government Compliance Certificate	 	 	62	 
	XVII
	 	Employee Interest	 	 	62	 
	XVIII
	 	Waiver and Limitation of Damages	 	 	63	 
	XIX
	 	Notices	 	 	63	 
	XX
	 	Liquidation of Seller’s Damages	 	 	64	 
	XXI
	 	Confidentiality	 	 	65	 
	XXII
	 	Finality	 	 	65	 
	XXIII
	 	Governing Law	 	 	65	 
	Exh. 1
	 	Seller’s Production Source(s), Reserves of Coal, Approved Coal, Approved Rail Shipping Origin(s), and Approved Barge Shipping Origins	 	 	68	 
	Exh. 2
	 	West Virginia Severance Tax	 	 	71	 
	Exh. 3
	 	Government Contractor Compliance Certificate	 	 	72	 

1

 

ARTICLE I

TERM OF AGREEMENT

     Section 1. The term of this Agreement shall be for a period of twenty (20) years and
six (6) months commencing July 1, 1992, and continuing through and including December 31, 2012,
(hereinafter “original term”) except as provided elsewhere in this Agreement.

     Section 2. Provided this Agreement is still in effect, Buyer shall have the optional
right, but not the obligation, to extend the term of this Agreement for a period of up to sixty
(60) months beyond the original term (such extended period hereinafter referred to as “extended
term”) for coal produced from reserves of coal dedicated to this Agreement. Buyer shall give
written notice of its election to extend the term for such additional period on or before January
1, 2012. Such notice by Buyer shall designate the length of the extended term. If such optional
right of buyer is exercised, all provisions of this Agreement shall continue in full force and
effect over the extended term designated by Buyer.

ARTICLE II

QUANTITIES & DELIVERIES

     Section 1. (a) For the purposes of this Agreement, the term “Contract Year” shall be
defined as the period commencing January 1 of each calendar year and ending December 31 of each
calendar year. Each following Contract Year shall commence on January 1 thereof and continue for a
12-month period thereafter. Each Contract Year shall consist of two Contract Half-Year periods,
which shall respectively consist of the first six (6) months and the last six (6) months of each
calendar year.

1

 

     Except as Buyer may elect as provided hereinafter, Seller shall deliver beginning January 1,
1995, two million five hundred thousand (2,500,000) tons of coal per Contract Year (1,250,000 tons
per Contract Half-Year) (the “base quantity obligation”).

     Buyer may elect to increase or decrease the base quantity obligation for any Contract
Half-Year(s) after 1999 by thirteen percent (13%) by giving Seller written notice of such election
at least ninety (90) calendar days prior to the beginning of any such Contract Half Year. If no
such notice is given, then the Contract Half-Year quantity obligation shall be deemed to be the
minimum Contract Half-Year quantity (i.e., the base quantity requirement reduced by thirteen
percent [13%]).

                    (b) Seller shall have the unilateral right to supply coal meeting the requirements of
Specification “A” coal.

                    (c) At least sixty (60) calendar days prior to the beginning of each Contract Half-Year,
Seller shall propose to Buyer, in writing, a schedule of monthly deliveries and shipping origin for
such Contract Half-Year (the “scheduled quantity”); such proposed schedule shall provide for
deliveries in approximately equal monthly quantities, and unless Seller is notified otherwise by
Buyer, such schedule of monthly quantity obligations shall be accepted and implemented by both
parties hereunder. It is acknowledged that such scheduled shipping origins (but not monthly
quantity obligations) are to be provided for planning purposes and may be adjusted from time to
time in accordance with the following sentence. Seller may by notice in writing by the twentieth
(20th) day of the month prior to shipment, change the scheduled shipping origins for any
subsequent month; provided, however, such changes shall not increase or decrease the total amount
required to be delivered in such month.

                    From time to time and at any time after July 1, 2001, Buyer may elect to increase the
scheduled quantity obligation for any month(s) by as much as five percent (5%) by

2

 

giving Seller notice of such election no later than twenty (20) days preceding that month in
which such deliveries are to be made. Such increased scheduled monthly quantity obligation shall
remain in effect until such time as Buyer again gives notice of a subsequent change in the
scheduled monthly quantity obligation. Buyer’s notification may be exercised verbally, but shall
be confirmed in writing as soon as practicable. Buyer’s election to increase by as much as five
percent (5%) is in addition to Buyer’s election to increase or decrease the Contract Half-Year by
thirteen percent (13%) as set forth in Article II, Section 1(a).

                    (d) In addition, Seller shall be offered and have the right but not the obligation to accept
spot coal supply purchase order(s) (such offer and acceptance rights hereinafter referred to as
“Option Rights”) for coal to be delivered to the **** Plant in the amount of up to one hundred
sixty-two thousand five hundred (162,500) tons during each Contract Half-Year after 1999 in which
Buyer has elected to decrease the base quantity obligation for such Contract Half-Year by thirteen
percent (13%), and in which Buyer intends to make spot purchases of coal during such Contract
Half-Year from offers received from third parties. Buyer shall have no obligation to make spot
purchases of coal in any Contract Half-Year.

                    The Base Price per ton of coal offered to Seller shall be that which is equivalent to the
total adjusted delivered cost (in cents-per-million Btu and including Buyer’s adjustment for the
ash and sulfur content of Seller’s coal) to the **** Plant that Buyer would expend for coal
deliveries from such third party(ies).

                    Buyer shall notify Seller in writing of the quantity(ies), delivery period(s), and any other
applicable terms and conditions regarding spot coal supply purchase order(s) for which such Option
Rights apply, and of the FOB railcar price applicable to Seller for Specification “A” coal,
calculated as stated above, which notification by Buyer shall be deemed

3

 

to be an offer available for Seller’s acceptance. Seller shall then have ten (10) calendar
days from its receipt thereof to accept such offer and notify Buyer in writing of such acceptance.
Any such acceptance shall culminate in an enforceable spot coal supply purchase order, and Buyer
and Seller within a reasonable time thereafter shall execute a written document setting forth the
terms thereof. Seller’s failure to so accept shall result in the quantity(ies) so offered being
deducted from said one hundred sixty-two thousand five hundred (162,500) ton amount of Option
Rights for the applicable Contract Half-Year.

                    (e) In addition to, but independent of, the base quantity and/or any exercised options in
Contract Half-Year quantity, Seller shall ship 234,500 tons/year of Specification A coal each year
during calendar years 2006, 2007 and 2008 (“2004-2005 Shortfall”)

                    (f) Buyer and Seller agree to reduce the base quantity obligation for Contract Year 2007 by
One million Four Hundred Eighty Thousand (1,480,000) tons (the “2007 Reduction Quantity”).
Notwithstanding the foregoing, and solely for the purpose of calculating (i) Buyer’s right to
increase the base quantity obligation for any Contract Half-Year by thirteen percent (13%) pursuant
to Article II, Section l(a) of this Agreement or (ii) Buyer’s right to increase the scheduled
monthly quantity obligation by five percent (5%) pursuant to Article II, Section l(c) of this
Agreement, the base quantity obligation for 2007 shall not change and shall be One Million Two
Hundred Fifty Thousand (1,250,000) tons per Contract Half-Year and shall be unaffected by the 2007
Reduction Quantity.

                    (g) [Intentionally deleted]

                    (h) The first Two Hundred Thirty-four Thousand Five Hundred (234,500) tons shipped in Contract
Year 2007 and in Contract Year 2008 shall be (i) credited toward full and complete satisfaction of
the 2004-2005 Shortfall for Contract Year 2007 and

4

 

Contract Year 2008 and (ii) credited toward satisfaction of the 2007 Contract Quantity for
Contract Year 2007 and the 2008 Contract Quantity for Contract Year 2008, respectively.

     Section 2. The term “ton” shall mean a net ton of 2,000 pounds avoirdupois weight.

     Section 3. (a) Except as provided in Article II, Section 4, Seller shall cause the
coal that is to be delivered hereunder to be loaded into carrier- or Buyer-provided railcars (at
Buyer’s option) at approved rail shipping origin(s) (hereinafter the “approved rail shipping
origin”), as described on Exhibit 1, attached hereto and hereby made a part hereof, and properly
consign such shipment in accordance with Section 5 of this Article and in accordance with Buyer’s
rail transportation contract #****, as amended or superseded. New amendments or provisions to such
rail transportation contract placing new or revised requirements on Seller regarding the loading of
railcars and/or consignment of shipments hereunder, other than that provided for herein, shall be
subject to Seller’s approval which shall not be unreasonably withheld.

     Seller shall not have the right to ship coal to be delivered under this Agreement from any
rail shipping origin other than the approved rail shipping origin(s) listed on Exhibit 1, unless
Seller shall first have obtained Buyer’s written approval of such additional shipping origin. Such
written approval shall not be unreasonably withheld and shall further be conditioned upon Seller’s
agreement to pay any increase in Buyer’s transportation costs (including, but not limited to, any
take or pay penalty incurred by Buyer under its rail transportation contract for the **** Plant
and/or the costs associated with the use or nonuse of Buyer’s railcars), that would increase the
delivered price of coal to Buyer’s **** Plant if shipments were made from such proposed rail
shipping origin as compared to the Harris loadout (OPSL No. 65289) for Specification “A” coal.
Title to the coal and risk of loss thereof shall pass to Buyer as the loaded railcars are pulled
from any such origin.

5

 

     Seller shall add the following notation on each Bill of Lading or Mine Card documents:
“Subject to Contract #****” or as otherwise designated by Buyer to Seller. Seller shall cause the
loadings to be tendered in unit train consignments each consisting of at least ninety (90)
railcars, which shall be tendered in unit train consignments of at least ninety-six (96) railcars.
If Seller is unable to load any railcar that has been placed for loading due to an unserviceable
condition of a railcar, and has notified the railroad and Buyer of such unserviceable condition,
Seller shall be relieved of any penalties for failure to comply with the minimum train size
requirements that are attributable to such unserviceable railcar. Should Seller be limited to
seventy-five (75) railcars at any approved rail shipping origin, and tender unit train consignments
consisting of between seventy-five (75) and ninety (90) railcars, then Seller shall pay Buyer an
amount equal to one-half of one percent (0.5%) of the Base Price for each ton of coal in such unit
train.

     Seller shall provide, maintain, and operate at each approved rail shipping origin (except as
further provided herein) a unit train loading facility, including coal storage and track to
facilitate the proper loading of each unit train within twenty-four (24) hours of actual or
constructive placement by the railroad. Seller agrees to operate said loading facility(ies) on a
twenty-four (24) hours per day, seven (7) days per week basis.

     Seller agrees to load each unit train to comply with the Buyer’s Minimum Trainload
Requirements and Maximum Load Limit requirements. To comply with Buyer’s Minimum Trainload
Requirements, Seller shall load each unit train of coal to full visible capacity and an average
lading weight of at least **** tons per steel railcar and **** tons per aluminum railcar if such
railcars are Buyer-provided railcars. Seller shall load each unit train to a minimum of ****
percent (****%) of the total marked load capacity of all the railcars in the unit train if such
railcars are carrier-provided railcars. Additionally, Seller recognizes that Buyer shall be
assessed a penalty by the railroad for phantom tons in the event that Seller fails to load each
unit train to a

6

 

lading weight of **** percent (****%) of the total of the marked load limit of all the
railcars in the unit train. To comply with Buyer’s Maximum Load Limit Requirements, Seller shall
not load any railcar in excess of a gross load limit, including lading and railcar, of **** pounds.
Buyer shall have the right to alter the Minimum Trainload Requirements and Maximum Load Limit
Requirements by giving Seller seven (7) days prior written notice; provided, however, Buyer’s
Minimum Trainload Requirements shall not require Seller to load railcars to within **** tons of the
Maximum Load Limit Requirement.

     If Seller fails to comply with the foregoing origin loading requirements and/or the Maximum
Load Limit Requirements, Seller shall pay to Buyer the penalty charges assessed by the railroad.
The charges will be those actually paid to the railroad and will not exceed those published in the
railroad’s Freight Tariff No. ICC-CSXT-8200, Series, in effect when such charges were incurred. If
Seller fails to comply with Buyer’s Minimum Trainload Requirement, then Seller shall pay to Buyer a
penalty charge of $**** per ton or part of a ton that the average lading weight per railcar falls
short of the Minimum Trainload Requirement times the actual number of tons in the unit train.

     (b) Should Buyer, in accordance with the terms of Article III of this Agreement, reject any
railcar load(s) of coal in any shipment, Seller shall arrange for the removal of such rejected
railcar(s). All costs assessed by the railroad, including but not limited to reconsignment
charges, transportation charges, and demurrage charges, shall be to the account of Seller. In
addition, if the rejected railcar(s) of coal are Buyer-provided railcar(s), then Seller shall also
pay the per diem and mileage charges as defined in the Car Hire Tables of the Official Railway
Equipment Register, ICC-REF-6411 Series, as amended. Such per diem charges shall be effective as
of the first 7:00 AM following Buyer’s rejection until the railcar(s) are unloaded at a destination
specified by Seller and then returned to a destination specified by (or by the railroad,

7

 

if applicable) for further utilization. Such mileage charges shall be based on the loaded and
empty miles traveled by the rejected railcar(s) from the point of rejection to such specified
return destination.

     (c) During periods of freezing temperatures, Buyer shall provide notice on a weekly basis,
regarding freeze-proofing. When directed by Buyer to use freeze-proofing agents, Seller shall
cause these agents to be properly applied during loading in sufficient quantity for the coal to
comply with the free flowing requirements (when received at the **** Plant or the alternative
consigned destination, as applicable) expressed elsewhere in this Agreement, and Seller shall
include the statement “Freeze Treatment Applied” on the shipping manifests. For each ton of coal
delivered under this Agreement to which such freeze-proofing has been applied in strict accordance
herewith, an amount of **** percent (****%) of the Base Price applicable thereto shall be added to
the Selling Price of such coal.

     (d) Seller shall indemnify, save harmless, and defend Buyer, its agents, and its affiliates
(all referred to in this sentence as “Buyer”) from and against any liabilities, expenses, claims,
and all other obligations whatsoever, including without limitation, all judgments rendered against
and all fines and penalties imposed upon Buyer (whether severally, or in combination with others)
and any reasonable attorneys’ fees and any other costs of litigation (all of which are hereinafter
referred to as “liabilities”) arising out of injuries or death to any person(s), or damage to any
property, caused by or related to, in whole or in part, the railcars furnished hereunder (as
applicable), between the time that such railcars are delivered to Seller or Seller’s agent and the
time that custody thereof is properly returned to Buyer (or to Buyer’s agent carrier, if
applicable), except for that portion of any such liabilities that rise out of Buyer’s contributing
negligent acts or negligent omissions. Any injury or death to person(s) or damage to property as

8

 

hereinbefore described shall be reported to Buyer by Seller immediately upon the occurrence
thereof, and confirmed in writing as soon as possible.

     Section 4. During any calendar month(s), Buyer shall have the right, but not the
obligation, to require that Seller deliver all or any portion of the scheduled quantity obligation
of Specification “B” coal FOB barge rather than FOB rail by providing notice to Seller at least ten
(10) days prior to the beginning of said calendar month. Said notice may be verbal, but shall be
confirmed in writing as soon as practicable. In the event that Buyer exercises it right hereunder,
Seller shall load such Specification “B” coal into Buyer-provided barges. Seller shall load all
Specification “B” coal to be delivered hereunder into Buyer-provided barges at the approved barge
shipping origin(s) (hereinafter the “approved barge shipping origin”) as described on Exhibit 1,
attached hereto and hereby made a part hereof, at which time delivery and title for coal conforming
to this Agreement shall pass to Buyer. Such barge shipments shall be tendered by Seller loaded to
each barge’s normal draft capacity (each such barge of coal hereinafter referred to as “bargeload
lot”) unless otherwise directed by Buyer or its agents.

     The loading, switching, movement, and fleeting of barges between the time Buyer delivers the
barges and the time Buyer picks up the barges shall be at Seller’s risk and expense.

     Except for the movement between Anker Rail & River Terminal and Dippel Barge Facility, Seller
shall not move, nor permit the movement of, any barge(s) provided by Buyer, or its agent, to any
other location once the barge(s) are delivered at an approved barge shipping origin for loading,
unless otherwise agreed to by Buyer. The movement of any barge(s) requested by Seller and approved
by Buyer shall be arranged and directed by Buyer at Seller’s expense.

     In the event that an approved barge shipping origin is utilized by more than one supplier of
coal to Buyer, Buyer shall arrange for the allocation and placement of barges on a weekly

9

 

basis in response to the suppliers’ reasonable requests. Barge requests are to be made by
Seller under this Agreement so as to provide for approximately equal weekly shipments in
fulfillment of Seller’s monthly quantity obligation hereunder. Any request for an alteration to
such allocation or placement shall be made to and, if approved, directed by Buyer’s Marketing and
Transportation Section.

     Seller shall not have the right to ship coal to be delivered under this Agreement from any
barge shipping origin other than the approved barge shipping origin(s) unless Seller shall first
have obtained Buyer’s written approval of such proposed shipping origin. Such written approval
shall not be unreasonably withheld and shall further be conditioned upon Seller’s agreement to pay
any increase in barging and/or handling costs that would be incurred by Buyer for shipments made
from the proposed shipping origin as compared to the Alloy Dock at Milepost 89.7 on the Kanawha
River.

     (a) It shall be Seller’s obligation to provide adequate dock and harbor facilities at the
approved barge shipping origin(s), to load barges in accord to Buyer’s or its agent’s request, and
to dispatch and otherwise comply with reasonable requirements of Buyer or its agent’s barging and
operating schedule.

     Seller shall indemnify, save harmless, and defend Buyer, its agents, and its affiliates (all
referred to in this sentence as “Buyer”) from and against any liabilities, expenses, claims, and
all other obligations whatsoever, including without limitation, all judgments rendered against and
all fines and penalties imposed upon Buyer (whether severally, or in combination with others) and
any reasonable attorneys’ fees and any other costs of litigation (all of which are hereinafter
referred to as “liabilities”) arising out of injuries or death to any person(s), or damage to any
property, caused by or related to, in whole or in part, the barges furnished hereunder, between the
time that such barges are delivered to Seller or Seller’s agent and the time that custody thereof
is

10

 

properly returned to Buyer (or to Buyer’s agent carrier, if applicable), except for that
portion of any such liabilities that arise out of Buyer’s contributing negligent acts or negligent
omissions. Any injury or death to person(s) or damage to property as hereinbefore described shall
be reported to Buyer by Seller immediately upon the occurrence thereof, and confirmed in writing as
soon as possible.

     (b) Seller shall be responsible for all loss of, or damage to, any barge provided hereunder
and for the loss of any coal in said barge (other than damage or loss due to normal wear and tear,
latent or patent defects in the barge existing at the time of delivery) occurring after such barge
has been delivered to Seller at the approved barge shipping origin and while in the custody,
control, and possession of Seller. Seller shall reimburse Buyer for the cost to Buyer of repairing
or replacing any such barge in an amount not to exceed its replacement value at the time of its
loss or damage. Said replacement value shall be defined as the remaining year of life of said
barge, divided by the expected life of said barge when new, and multiplied by the current market
value of a new barge having similar design and capacity at the time of loss or damage. A barge
shall be deemed to have been delivered to Seller and be in Seller’s custody, control, and
possession, when it has been secured by or on behalf of Buyer or its agent at an approved barge
shipping origin to await loading and shall be deemed to be picked up when untied for pick up by or
on behalf of Buyer from such approved barge shipping origin.

     Seller shall have the right, but not the duty, to refuse to load any barges which Seller
considers unseaworthy or contain an excessive amount of residual coal or extraneous material or are
otherwise in unserviceable condition upon delivery to Seller. In such event, Seller shall promptly
notify Buyer.

     (c) Seller shall be allowed three (3) free loading days for the loading of each barge
delivered by Buyer to an approved barge shipping origin. A loading day shall commence at 7:00

11

 

AM of a calendar day and end at 7:00 AM the next calendar day. The first free loading day
shall commence at the later of 7:00 AM of a calendar day immediately following the delivery of said
barge, or 7:00 AM on the delivery date of the barge for loading specified in Seller’s notice.

     (d) The three (3) free loading days for a barge delivered shall end seventy-two (72)
consecutive hours after they commenced. Actual loading days for a barge shall commence
concurrently with the commencement of the three (3) free loading days and shall continue until the
barge has been loaded and Buyer has been advised that the barge is loaded and available at the
approved barge shipping origin for pick up by Buyer or its agent.

     (e) Seller shall maintain a demurrage account in which debits and credits for the loading of
barges shall be recorded. One credit for each barge delivered to be loaded with coal shall be
recorded in the demurrage account for each loading day for which the actual loading time for the
barge is less than the free loading days for the barge set forth above, and one debit for each
barge delivered to be loaded with coal shall be recorded in the demurrage account for each loading
day, or part of a loading day, for which the actual loading time for the barge is greater than the
free loading days provided above for loading the barge, and for each demurrage day accrued for each
barge in a bargeload shipment rejected by Buyer as hereinafter provided.

     (f) At the end of each calendar quarter throughout the term of this Agreement, the demurrage
account shall be balanced and settled as follows: Credits in the demurrage account shall be used
to cancel debits in the demurrage account with one credit canceling one debit. Seller shall pay to
Buyer the daily barge demurrage rate of $**** (which amount shall be adjusted in an amount
proportional to the adjustments to the Base Price under Article VI hereof), for each debit in a
demurrage account not so cancelled. There shall not be a payment for credits in the demurrage
account. Excess credits in a demurrage account accumulated during each

12

 

calendar quarter which remain unused following the balancing and settlement of the demurrage
account shall be cancelled.

     (g) Should Buyer, in accordance with the terms of Article III of this Agreement, reject any
bargeload lot(s) as provided for herein, Seller shall pay all barge transportation cost(s)
associated with the shipment of such rejected bargeload lot(s), including the daily barge demurrage
rate effective as of the first 7:00 AM following Buyer’s rejection and all other costs incurred by
Buyer with respect to said shipment(s) from the time said bargeload lot(s) is (are) rejected until
the barge(s) is (are) unloaded at a location designated by Seller and subsequently transported to a
destination specified by Buyer for further utilization.

     Section 5. The coal to be delivered hereunder (unless and until otherwise directed by
Buyer as hereinafter provided) shall be properly consigned by Seller (Rail Freight Collect if
shipped by rail) for initial rail or barge delivery to Buyer’s **** Plant (also referred to in this
Agreement as “Plant”). It is understood and agreed that, at any time and from time to time during
this Agreement, Buyer shall have the right, but not the obligation, to have all or any of such coal
consigned for alternative rail delivery, barge delivery, and/or to transload any rail deliveries
into barges for subsequent barge delivery, as appropriate, to other alternative destinations.
Buyer shall notify Seller of the alternative consignment of shipments, and Seller, at its own risk
and expense, shall have the right to have an observer present at the unloading of such shipments.
In the event of such alternative consignment, Buyer may only claim relief under Article IX hereof
when conditions pertaining to the **** Plant would warrant Buyer’s claim, regardless of conditions
at the alternative consigned destination.

     Additionally, in the event of such alternative consignment, Buyer may claim relief under
Article XII hereof only when conditions pertaining to the alternative consigned destination would
warrant Buyer’s claim regardless of conditions at the Plant.

13

 

     Section 6. For each unit train or bargeload lot shipment of coal hereunder, Seller,
within twenty-four (24) hours of the completion of loading of such shipment, shall provide via
computer or telecopier (actual method specified by Buyer) to the Plant (or to the applicable
consigned destination, if other than the Plant), and to ****, Marketing and Transportation Section,
a shipping notice showing unit train and railcar number(s) or barge number(s), estimated weight of
the coal in each railcar or barge, shipping date, the rail shipping origin or the barge shipping
origin from which shipment was consigned, and this Agreement’s contract number ****.

     Section 7. Buyer and Seller recognize the critical need to know the quality of the
coal prior to delivery of the shipment to the Plant, due to existing and possible future government
regulations related to the quality of coal that may be burned at Buyer’s power plants. Therefore,
Seller shall sample and analyze the coal as it is loaded into each unit train or bargeload (lot(s)
and notify Buyer, by telecopy, and/or Telex of the type of coal being shipped (i.e., Specification
“A”) and the short proximate (calorific value per pound, percent moisture, percent ash, and percent
sulfur) average analytical results of each unit train lot shipment or bargeload lot shipment,
including the identifying number of the railcars or barges comprising such lot, within one (1)
business day after the coal is loaded into the unit train or bargeload lot for delivery.

14

 

ARTICLE III

SPECIFICATIONS, QUALITY & WEIGHT

     Section 1. (a) The coal to be delivered hereunder shall be produced at approved
production source(s) as defined in Exhibit 1. Seller shall have no right to deliver coal under
this Agreement from any other production source without Buyer’s written consent that Seller may do
so, which consent shall not be unreasonably withheld.

     In the event that Seller desires to supply coal from any other production source, Seller shall
notify Buyer in writing of such proposed new source, documenting as follows: location of mineral
tract(s); status of all legal interests in such tract(s); coal seam(s) designation (by tract[s]);
typical proximate analysis from such seam(s); typical ultimate analysis from such seam(s); typical
ash mineral analysis from such seam(s); trace element analysis from such seam(s); analysis of
fusion temperatures, both in oxidizing and reducing atmospheres, from such seam(s); an analysis of
the sulfur forms from such seam(s); an analysis of Hardgrove grindability for such seam(s); and any
other pertinent information requested by Buyer.

     Seller shall not have the right to ship coal under this Agreement from any such proposed new
production source except upon Buyer’s written approval of Seller’s request pursuant to the
preceding paragraph, which shall be based upon Buyer’s reasonable determination of the suitability
of such proposed source for Buyer’s purposes hereunder. Buyer shall require prior to its approval
that: (i) the coal would meet the requirements of Article III, Section 2 and the “Contracted”
specifications of Article III, Section 3(a) or 3(b) or this Agreement, as applicable; (ii) none of
the aforementioned analyses (proximate, ultimate, ash mineral, trace element, fusion temperatures,
sulfur forms, or grindability) differ in material respect from the coal from production sources
initially approved in Exhibit 1; (iii) Seller owns or controls the reserves from which such coal
would be produced; (iv) the reserves of coal are located in the state of West

15

 

Virginia; and (v) the supplying of such coal shall not result in a higher delivered price
(¢/MMBtu) to Buyer than the coal shipped from the Harris loadout (OPSL No. 65289).

          In the event that Buyer gives written approval for such new source, subsequent shipments from
such source shall be subject to this Agreement in all respects.

     (b) The Plant has not burned significant quantities of Specification “A”; however, the parties
anticipate that such coals are suitable for use at the Plant. Except as provided below, Buyer
shall have the right to suspend further shipments from any approved production source(s) and/or
seam(s) at such production source(s) if Buyer reasonably determines through operating experience
that the coal therefrom causes unsatisfactory performance at the Plant that cannot be corrected by
Buyer through reasonable and prudent efforts without material cost to Buyer, even if such coal
quality meets the requirements and specifications of Sections 2 and 3 of this Article. The cost of
coal under this Agreement shall not be a basis for Buyer to invoke this right. Should Buyer
exercise such right to suspend further shipments, Buyer shall give Seller written notice thereof,
specifying the basis of such unsatisfactory performance and Seller shall have the obligation to
propose and implement, if reasonable, a suitable cure for such unsatisfactory aspects of the coal
to be supplied hereunder. Suspended shipments shall resume only if Buyer, in its reasonable
judgment, agrees that such proposed cure can eliminate such unsatisfactory performance, subject to
Buyer’s continuing rights under this Section 1 in the event of a subsequent determination of
unsatisfactory performance. If Seller cannot cure such unsatisfactory performance that resulted in
Buyer’s invocation of its suspension rights under this Section 1(b) and deliver coal in full
conformance with this Agreement in all respects within 45 calendar days (or within a longer period
as necessary for Seller to implement its cure to which Buyer has agreed, not to exceed 120 calendar
days) after any suspension under this section 1(b),

16

 

then Buyer may terminate Seller’s right to deliver coal from such previously approved
production source(s) and/or seam(s).

     Seller shall have the right to require Buyer to perform test burns at the Plant, in an attempt
to “permanently qualify” up to four (4) coal products to be delivered hereunder. The scheduling
and quantity requirements of each such test burn shall be subject to Buyer’s reasonable discretion,
but each test shall not exceed six (6) weeks in duration. A “permanently qualify(ied)” coal
product shall be a coal that has been delivered and consumed independent of all other deliveries to
the Plan from one approved production source and from one or more approved seams (the ratio of the
seams in the blend, if applicable, shall be agreed prior to the test) during a test burn in which
Buyer determines such coal has performed in a satisfactory manner in the Plant. Following each
test burn, Buyer shall give Seller written notice in a timely manner as to the outcome of the test.
In the event Buyer gives notice that the tested coal product is “permanently qualified,” Buyer
shall not, thereafter, have a continuing right pursuant to this Section 1(b) to seek termination of
deliveries of such “permanently qualified” coal product, so long as such coal from such production
source, is not materially different from the coal supplied for the satisfactory test burn. Seller
shall also have the right to have a representative at the Plant to observe any such test burn. The
test burn quantity of coal shall be considered part of the annual quantity obligation provided by
Seller under Article II and shall be subject to all other terms and conditions of this Agreement.

     Should Buyer terminate Seller’s right to deliver coal from such approved production source(s)
and/or seam(s) at such production source(s), Seller shall have the obligation to replace the coal
from other approved production source(s) and seam(s) or with a coal that Seller will propose for
approval pursuant to Section 1(a) of this Article and that provides satisfactory performance
(provided Seller can do so at a cost which is reasonably similar to that of the other

17

 

coals of the same specification provided hereunder). Seller shall make a good faith effort to
provide such replacement coal. If Seller is unable to provide such replacement coal at such cost,
then the quantity of coal to be delivered under this Agreement shall be reduced by the amount of
coal the parties anticipate to be provided from such terminated production source(s) and/or
seam(s), and Buyer shall pay liquidated damages on each such undelivered ton according to the
procedure outlined in Article XX. If Seller is able to provide such replacement coal at such
reasonable cost, but elects not to, the quantity of coal to be delivered under this Agreement shall
be reduced by the amount of coal the parties anticipated to be provided from such terminated
production source(s) and/or seam(s) and Buyer shall not be liable for liquidated damages on the
tons that the parties anticipated would be delivered from such terminated production source(s)
and/or seam(s).

     In addition to the foregoing, Seller shall have the right, but not the obligation, to
substitute up to **** tons per calendar year of rail coal from Alternative Substitute Sources(s)
listed in Exhibit 1-A, beginning January 1, 2005 and ending December 31, 2012, provided that (i)
such coal meets or is superior to the then current coal contract quality specifications, and (ii)
the delivered price from such alternative source(s) shall not result in a higher FOB Mine Price or
delivered price on a cents per million Btu (¢/mmBtu) basis to Buyer than the coal shipped from
Seller’s Big Mountain Complex. Any increased cost on a ¢/mmBtu basis from such alternative
source(s) shall be borne entirely by Seller (any cost decrease shall be to Buyer’s benefit).
Seller’s right to substitute under this paragraph from any sources other than those listed in
Exhibit 1-A shall be subject to Buyer’s written consent and successful testing of the substitute
coal at the Plant and the subsequent amending of Exhibit 1-A to include such source.

18

 

     Section 2. The coal to be delivered hereunder shall have a maximum top size of two
inches (2”), and shall be free flowing and free of extraneous material upon uploading at Buyer’s
Plant.

     Section 3. (a) The coal from each respective approved rail shipping origin based upon
the applicable analyses obtained pursuant to Article VIII, shall meet the following “Contracted”
specifications under the table entitled “SPECIFICATION A” on a Contract Half-Month basis
(except for lbs. SO2/MMBtu on both a Contracted and Suspension Half-Month weighted
average basis, and for Volatile Matter on a Contracted Half-Month weighted average basis, which
shall be additionally based on the combined weighted average of all shipping origins for
Specification “A” coal as further provided for in footnote ***). Further, for the purposes of this
Article, the following “Suspension” specifications under the table “SPECIFICATION A” shall
also be applicable to the coal from each such respective origin on the indicated bases.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	SPECIFICATION A	 
	 	 	“As-Received” Basis	 
	 	 	Contracted	 	 	Suspension Basis	 
	 	 	Half-Month	 	 	Half-Month	 	 	Applicable Lot	 
	 	 	Wtd. Avg.	 	 	Wtd. Avg. (A)*	 	 	Wtd. Avg. (B)*	 
	 	 	 	 	 	 	Minimum	 	 	Maximum	 	 	Minimum	 	 	Maximum	 
	Caloric Value (Btu/lb.)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Moisture (%)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Ash (%)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	**Ash Loading (lbs. Ash/MMBtu)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Volatile Matter (%)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Hardgrove Grindability Sulfur (%)
	 	 	 	 	 	 	 	 	 	 	**** 	 	 	 	 	 	 	 	 	 
	**Sulfur Dioxide (lbs. SO2/MMBtu)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Ash Fusion Temp. (H=1/2W)°F, Red. Ats.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

19

 

 

	*	 	Definitions:

	 	(A)= 	 	the half-month weighted average analysis result (as determined under Article IV).
	 
	 	(B)= 	 	the analysis result of the sample (or composite of samples, if more than one) representing each unit train of coal.
	 
	 	(C)= 	 	the “suspension” specification for grindability shall be no less than X, where X = **** times ****, divided by the actual weighted average “As-Received” calorific value for such period.
	 
	 	N/A:  	 	Not applicable.
	 
	 	**	 	For the purpose of determining the pounds of sulfur dioxide per
million Btu and pounds ash per million Btu, the figures shall be rounded to the
nearest one hundredth. For example, 1.604 pounds SO2 per million
Btu shall mean 1.60 pounds SO2 per million Btu, while 1.605 pounds
SO2 per million Btu shall mean 1.61 pounds SO2 per
million Btu and shall be deemed, for example, not to have met a 1.60 pounds
SO2 per million Btu specification.
	 
	 	***	 	The Half-Month weighted average SO2 from each
approved rail shipping origin (except as hereafter provided) and collectively
from all approved shipping origins shall not exceed a maximum **** pounds
SO2/MMBtu effective May 1, 2001 and thereafter. Additionally, the
maximum Contracted and Suspension Basis Half-Month weighted average for sulfer
dioxide (1bs. SO2/MMBtu) shall be **** lbs. effective September 1,
1999 and thereafter for coal shipped from each of the following rail shipping
origins: the Harris Mine, Rocklick Complex, and the Wells Complex. The
Contracted Half-Month weighted average volatile matter from all approved rail
shipping origins shall be greater than or equal to ****%. Additionally, the
Contracted Half-Month weighted average for volatile matter shall be ****%
(minimum) for coal shipped from the Harris Mine rail shipping origin.

	 	 (b)	 	[Intentionally deleted]
	 
	 	 (c)	 	[Intentionally deleted]

     Section 4. In addition to all other remedies at law or in equity, except as
specifically limited elsewhere in this Agreement, and in addition to the price adjustments provided
for in Article VII, Buyer shall have the following rights and remedies upon Seller’s failure to
conform

20

 

with the requirements as set forth in Sections 1, 2, and 3 of this Article and/or Article II,
Section 1.

     (a) Buyer shall have the right to reject any shipment if the coal in such shipment fails to
conform to any requirement set forth in Article III, Sections 1 or 2. Buyer shall also have the
right to reject a shipment if the coal in such shipment fails to conform to any requirement set
forth in Article III, Section 3, applicable to said shipment. Should Buyer elect to exercise such
right of rejection, it shall notify Seller of its election, such notification to be promptly
confirmed in writing.

     (b) Buyer shall have the right to suspend further shipments of coal hereunder from any
approved shipping origin(s) in the event the coal quality from such shipping origin(s) fails to
meet the defined minimum or exceeds the defined maximum “Suspension” specifications as set forth in
Section 3 of this Article, or if the coal fails to conform to any requirement set forth in Sections
1 or 2 of this Article and/or Article II, Section 1. Should Buyer exercise such right to suspend
further shipments, Buyer shall notify Seller in writing within twenty (20) calendar days after the
day or half-month period in which such failure occurs.

     (c) Upon receipt of Buyer’s notice of suspension, Seller shall suspend further shipments from
such shipping origin(s) and make every reasonable effort to correct the conditions giving rise to
the shipment(s) of coal failing to conform to specifications. Seller shall inform Buyer in writing
on a weekly basis of such corrective actions taken by Seller.

     During such suspension, Seller shall, upon prior notice and subject to Seller’s reasonable
safety requirements, permit Buyer’s full access to the mine(s) designated in Exhibit 1, and to all
relevant engineering data and facilities related to such shipping origin(s). Buyer shall have the
right, but not the duty, to participate in discussions relating to the matter and to recommend
procedures to correct said matter.

21

 

     Such suspension shall continue until Seller provides buyer with assurances in writing
that are acceptable to Buyer (such acceptance not to be unreasonably withheld) stating that the
conditions causing shipment of nonconforming coal have been corrected and that Seller can and shall
deliver coal meeting Article III, Sections 1 and 2 and Article II, Section 1 requirements and
meeting all of the applicable specifications of Article III, Section 3.

     Upon receipt by Buyer of Seller’s satisfactory written assurances, shipments shall be resumed
at the rate specified in Article II.

     (d) In the event that: (i) Seller fails to provide Buyer with satisfactory assurances within
thirty (30) days after the date of Buyer’s notice of suspension as described in Article III,
Section 4(b); or (ii) having provided such assurances, Seller fails to correct such conditions and
resume shipments in the ensuing thirty (30) days thereafter; or (iii) after such resumption of
shipments, Seller’s subsequent deliveries from the suspended shipping origin(s) at any time during
the ensuing sixty (60) days fall below the minimum or exceed the maximum applicable “Suspension”
specifications in Article III, Section 3, or fail to conform to the requirements of Article III,
Sections 1 and 2, and Article II, Section 1; then Buyer shall have the right to hold Seller in
anticipatory breach of this Agreement and enforce any and all claims for past, present, and future
damages incurred or to be incurred by reason of such breach, subject to the limitation of
consequential damages as specified in Article XVIII, Section 2.

     (e) Whether shipments suspended pursuant to Article III, Section 4(b) hereof shall be made up
shall be subject to Buyer’s sole discretion, subject to a mutually agreeable schedule so that such
make up tonnage shall be shipped no later than **** calendar days following the date of the
resumption of deliveries after such suspension.

22

 

     (f) Seller shall, at all times, exercise reasonable care and diligence in its efforts to ship
to Buyer coal which conforms to the “Contracted” specifications of Section 3 of this Article III.

     Section 5. The weight of the coal delivered pursuant to this Agreement shall be
determined by Buyer at its expense. For rail deliveries, the accuracy of Buyer’s scale(s) shall be
maintained between +**** percent. Buyer’s scale(s) shall be calibrated at least once every
six (6) months in accordance with the guidelines established by the national Institute of Standards
and Technology Handbook #44. Such calibrations shall be performed by a party, mutually agreeable
to Buyer and Seller, in accordance with the aforementioned guidelines. For barge deliveries,
Buyer’s conveyor belt scales at Buyer’s barge unloading facility(ies) shall be calibrated once each
month to maintain them to within +**** percent accuracy. The testing and calibration of
such conveyor belt shall be accomplished in accordance with the guidelines outlined in the National
Institute of Standard and Technology Handbook #44, or other procedures which shall be mutually
acceptable to Seller and Buyer. At Seller’s request, which Seller may make from time to time,
Buyer shall inform Seller of the result of such testing and calibration. It shall be the
responsibility of Buyer to arrange and schedule scale calibrations when required.

     Buyer shall give prompt notice by telephone or telegram and confirm such notice in writing to
Seller if and when any scales are discovered to be in error beyond the limits established above.
During any period when such scales are inoperable, determination of the quantities of coal
delivered shall be made by a procedure to be established by agreement of Buyer and Seller. Seller
shall have the right, but not the duty, to have a representative present at any and all times to
observe the determination of weights and/or recalibration or testing of scales; however, Buyer
shall not be obligated to notify Seller to be present. If Seller should at

23

 

any time question the accuracy of the weights thus determined, Seller shall so advise Buyer
and confirm the same in writing. Buyer shall arrange to test the scales and shall give written
notice to Seller of the date of such test so that Seller may have a representative present. If such
test shows the scales to be in error, they shall be adjusted to the required accuracy established
above. If such test requested by Seller shows the scales to be within the applicable limits
established above for the respective scale, then Seller shall pay all costs of such test, otherwise
Buyer shall pay all such cost.

     If, upon testing pursuant to the above paragraph, the scales are determined to be in error
beyond the limits established above, an adjustment of the payment to Seller shall be made based on
the assumption that the condition causing the scales to be in error beyond such limits shall have
existed with respect to all coal unloaded on and after thirty (30) calendar days prior to Seller’s
notification to buyer that Seller questions the accuracy of the weights, or the date of the
previous scale calibration, whichever is later. Such adjustments shall be in an amount equal to
the difference in the weights as specified in the applicable invoices and the weights that would
have been obtained had the scales not been inaccurate, multiplied by the price per ton as stated in
said invoices.

     If, upon any regular calibration of the scales by Buyer, the scales are determined to be in
error beyond the limits established above, an adjustment shall be made in the same manner provided
in the preceding paragraph, such adjustment to be based on the assumption that the condition
causing the scales to be in error beyond such limits shall have existed with respect to all
shipments weighed on and after a date thirty (30) calendar days prior to such determination, or the
date of the previous scale calibration, whichever is later.

24

 

     Any payments due by either party to the other, as a result of adjustments made pursuant to
this Article III, Section 5, shall be paid within thirty (30) calendar days from the date of the
determination thereof.

ARTICLE IV

PAYMENT

     Buyer shall pay Seller by wire transfer (recipient account per Seller’s advice) in United
States Funds for all coal received, unloaded, taken into account, and accepted hereunder.

     Buyer shall submit to Seller the weight, analytical, and pricing data on such coal taken into
account and accepted during each half-month within five (5) working days after each such
half-month. Thereafter, Seller shall mail to Buyer, within two (2) working days of receipt of such
information, an invoice (referencing the contract number ****), in triplicate, covering such
half-month unloadings.

     Buyer shall make payment to Seller within twenty (20) calendar days after the close of such
half-month, provided Seller’s invoice is submitted in accordance with the preceding paragraph.

     For the purpose of this Agreement, “month” shall mean a calendar month and “half-month” shall
mean either the first fifteen (15) calendar days of a month or the calendar days in a month after
the fifteenth (15th) calendar day thereof, as the case may be.

ARTICLE V

PRICE

     For coal accepted hereunder, the FOB railcar or FOB barge price for all approved shipping
origins to be paid to Seller by Buyer (hereinafter “Selling Price”) for each ton thereof shall be
the then applicable Base Price (as determined under Article VI) plus or minus such other

25

 

charges or credits to the Base Price as determined pursuant to Article VII, and Article II,
Section 3, if applicable.

     In the event Buyer elects to increase or decrease the base quantity obligation for any given
Contract Half-Year after 1999, pursuant to Article II, Section 1, then the Selling Price for all
coal shipped during said Contract Half-Year shall be adjusted by the following amounts.

	 	 	 
	Elected Base Quantity Obligation	 	Adjustment in
	For Contract Half-Year	 	Selling Price
	1,087,500 tons
	 	+****% of the Base Price
	1,412,500 tons
	 	- ****% of the Base Price

     For all Specification “A” coal shipped on or after January 1, 2000, the Selling Price shall be
decreased by ****% of the Base Price. Said ****% decrease shall be in addition to any other
applicable price adjustment pursuant to this Article V.

     Beginning on January 1, 2007, the Selling Price for the next One Million Seven Hundred Twenty
Thousand Five Hundred (1,720,500) tons (“2007 Contract Quantity”) shall be reduced by **** Dollars
($****) per ton (the “2007 Price Reduction”). Immediately upon completion of shipment of the 2007
Contract Quantity, the Selling Price for the next Three Million Two Hundred Thousand Five Hundred
(3,200,500) tons (“2008 Contract Quantity”) shall be reduced by **** Dollars ($****) per ton (the
“2008 Price Reduction”).

     The parties acknowledge and agree that the reduced Selling Price for the 2007 Contract
Quantity shall apply to the next One Million Seven Hundred Twenty Thousand Five Hundred (1,720,500)
tons delivered beginning January 1, 2007, whether or not all such tons are delivered in Contract
Year 2007, and that the reduced Selling Price for the 2008 Contract Quantity shall apply to the
Three Million Two Hundred Thousand Five Hundred (3,200,500) tons delivered

26

 

immediately after the 2007 Contract Quantity, whether or not all such tons are delivered in
Contract Year 2008.

ARTICLE VI

BASE PRICE & BASE PRICE ADJUSTMENTS

     Section 1. The initial Base Price shall be $**** per ton, effective January 1, 1992,
comprised of Components and Subcomponents as shown in Section 4 of this Article. Such Base Price
shall be subject to adjustments in accordance with the provisions hereinafter set forth in this
Article VI.

     Section 2. The Base Price shall be redetermined, to the nearest tenth of a cent, on
the dates designated and by the methods prescribed in Sections 3(a) through 3(d) of this Article.
The Base Price as so adjusted shall be the Base Price applicable to any coal shipped on and after
the effective date of any such adjustment and shall remain in effect until the Base Price is again
adjusted pursuant to this Article.

     Section 3. Adjustable Components.

     (a) (i) Labor and Supplies Components. The Labor and Supplies Components (Labor shall
be deemed to be inclusive of all benefits and related taxes, except as provided in Section 3(c)(i)
of this Article) shall be adjusted effective January 1 and July 1 of each year commencing July 1,
1992. At such dates the average value of each respective index correlative thereto (per Section 4
of this Article) for the third, fourth, and fifth preceding months of such dates (e.g., August,
September, and October for the January calculation and February, March, and April for the July
calculation) shall be compared to the average value of each such respective index for the ninth,
tenth, and eleventh preceding months of such dates, and **** percent (****%) of the respective
percentage change (carried out four decimal places, e.g., 6.124% shall

27

 

be 0.0612) in each such index shall be multiplied by the last previously effective Component
or Subcomponent amount of the Base Price correlative thereto. The amounts per ton of increase or
decrease so obtained shall be added to or subtracted from, as the case may be, the last previously
effective amount of such respective Component or Subcomponent, and the resulting amounts per ton
shall become the then effective amounts per ton for such Components and Subcomponents of the Base
Price.

          (ii) Capital & Other Direct Costs Component. The Capital & Other Direct Costs
Component shall be adjusted effective January 1 and July 1 of each year commencing July 1, 1992.
At such dates the value of the index correlative thereto (per Section 4 of this Article) for the
second quarter preceding such dates (e.g., third quarter index of the preceding year for the
January calculation) shall be compared to the value of the index for the fourth quarter preceding
such dates, and **** percent (****%) of the percentage change (carried out four decimal places,
e.g., 6.124% shall be 0.0612) in such index shall be multiplied by the last previously effective
amount of the Capital & Other Direct Costs Component. The amount per ton of increase or decrease
so obtained shall be added to or subtracted from, as the case may be, the last previously effective
amount of the Capital & Other Direct Costs Component, and the resulting amount per ton shall become
the then effective amount per ton for such Component of the Base price.

     (b) Assessments Components. The Assessments Component shall be adjusted effective on
the first day of the next half-month following the effective date of any change occurring after May
1, 1992 (except when such change is effective on the first day of a month in which case the
Assessments Component shall be adjusted as of such date) in the assessment to Seller for Federal
Reclamation Fee, Federal Black Lung Excise Tax, West Virginia Special Reclamation Tax, and West
Virginia Mines and Minerals Operations Fund Tax, as further

28

 

defined in this Section 3(b). Such amounts shall be adjusted for any related tax credits
allowed Seller. For the purposes of calculating price adjustments under this Section 3(b), all
adjustments shall be deemed to be based on those assessments applicable to underground mining.

     The initial amounts of the Federal Reclamation Fee and the Federal Black Lung Excise Tax as
shown in Section 4 below are net of a four percent (4%) deduction for moisture content in excess of
inherent moisture ($.150 - $.006 = $.144 Federal Reclamation Fee, and $1.100 - $0.044 = $1.056
Federal Black Lung Excise Tax). In the event of an adjustment to the base amounts of $0.150 per
ton and $1.100 per ton for the Federal Reclamation Fee and the Federal Black Lung Excise Tax
respectively, the adjusted amounts pursuant to this Section 3(b) shall reflect said four percent
(4%) deduction for moisture content in excess of inherent moisture. Said four percent (4%)
deduction shall be fixed and firm for the term of this Agreement.

     (c) Changes in Law. Seller hereby certifies that to the best of its knowledge the
approved production source(s) are in good faith compliance with the rules, practices, and standards
issued by any governmental agency with respect to legislation, regulations, rules, or mandates
which were in effect either by interim or final rules, or passed, adopted, or promulgated but to go
into later effect, as of May 1, 1992.

          (i) In the event of the enactment, modification, revision, or changes in the interpretation as
set forth in a legally enforceable written policy memorandum from the applicable governmental
entity or decision by a court of competent jurisdiction of any federal, state or local legislation,
regulations, rules, or mandates issued pursuant thereto, including but not limited to the Federal
Mine Safety & Health Act of 1977 and the Surface Mining Control and Reclamation Act of 1977, after
May 1, 1992, which affect the bituminous coal industry with respect to reclamation; conservation;
environmental protection; mine safety; mine working

29

 

conditions and practices; ventilation; health; occupational hazards; research, reclamation,
and conservation of mined area; or other aspects of coal production, and which increases or
decreases Seller’s cost of producing coal under this Agreement, an equitable adjustment will be
made to the current Base Price to recognize such changed cost; provided, however, there shall be no
changes made in the Base Price hereunder for changed costs related to labor related benefits or
taxes (except as provided in the immediately following paragraph), real or personal property taxes,
corporate net income and franchise taxes, Federal Reclamation Fee, Federal Black Lung Excise Tax,
West Virginia Special Reclamation Tax, and West Virginia Mines and Minerals Operations Fund Tax,
inasmuch as the exclusive adjustments for such items are provided for in Subsection (a) and (b)
hereof, (should any such item listed for exclusion become known by a different name, or should a
new tax or assessment be levied for the same purpose(s), there shall likewise be no change under
this Subsection (c) for any such item).

     Either party may request an adjustment pursuant to this Subsection (c) for (and specifically
limited to) Buyer’s pro rata share of any changed costs to Seller (including offsetting reductions
in cost, if any, for Seller’s payments to Plans and Trusts of or for the UMWA to the extent that
such reductions result in payments which are less than $**** per hour, or the equivalent thereto on
a per ton basis) due to any federal legislation enacted subsequent to the date hereof to address
the change in funding of the UMWA 1950 and 1974 Pension or Benefit Plan and Trusts. However, any
offsetting reductions shall not exceed the amount of any changed costs resulting from such federal
legislation.

     Buyer shall have the right, but not the obligation, to terminate this Agreement should any
such adjustment cause the Base Price to be increased by more than **** percent (****%) of its then
current amount or should the total of all such adjustments under this Section 3(c) cause the

30

 

Base Price to be increased by more than **** percent (****%) of its initial amount as of
January 1, 1992. Should Buyer terminate the Agreement as provided in the prior sentence, Seller
may nullify such termination by giving written notice to Buyer within ten (10) calendar days after
receiving Buyer’s notice of such termination that Seller permanently waives its right to the amount
of such adjustment which is in excess of any such limits, as applicable.

     If any of the foregoing governmental actions cause Seller to incur any increase in costs as
hereinbefore described, then Seller shall consider and, if in its good faith judgment determines it
is warranted (as further defined), contest or appeal the legal basis of such actions and/or its
application to Seller, with the objective of mitigating any resulting increase in the Base Price
under this Article. Seller shall consult with Buyer in conjunction with making such determination,
which shall be based upon, by way of illustration but not of limitation, the likelihood of
prevailing in such action and by the economic impact, absent such contest or appeal, upon such Base
Price.

     Seller shall notify Buyer in the event of any governmental action applicable under this
Article and shall submit detailed documentation to allow determination of any such adjustment.
Notwithstanding Article XI, Section 3, if Seller and Buyer are unable to agree within ninety (90)
days of receipt by Buyer of Seller’s documentation as to the amount the price per ton should be
adjusted or as to whether the event is applicable, then the matter shall be submitted to a firm of
mining engineers and/or independent certified public accountants mutually agreeable to the parties
for final determination, which shall be binding upon the parties. The costs associated with any
such mining engineers’ and/or certified public accountants’ review shall be shared equally by the
Buyer and Seller.

31

 

     If upon agreement or final determination, an adjustment in the cost per ton is found to be
appropriate, appropriate credit for such amount on all tons shipped and accepted on and after the
effective date of any such change resulting in such price adjustment, plus interest computed on the
basis of the prime rate in effect at Citibank, N.A., commencing sixty (60) days after the effective
date of such change, shall be made to the party to whom the benefit of such credit is due;
provided, however, that Seller shall not be entitled to any such credit for such tonnage delivered
prior to the date upon which Seller’s written request for such adjustment is received by Buyer, nor
for interest for a period of sixty (60) days subsequent to such date of Buyer’s receipt.

          (ii) If Buyer elects to terminate this Agreement under the provisions of this Article VI,
Section 3(c), then neither party shall have, after the effective date of such termination, any
further obligation under this Agreement (except as provided by Article XX); provided, however, that
such termination shall not affect any rights or obligations of Buyer or Seller existing under this
Agreement for coal shipped or required to be shipped prior to the effective date of said
termination.

     (d) West Virginia Severance Tax Component. The Base Price includes a component for
West Virginia Severance Tax in the amount of five percent (5.00%) of the Base Price. Any time
there is a change in any of the Base Price Components or Subcomponents or a change in the Severance
Tax rate, a new Severance Tax Component shall be calculated in accordance with the formula set
forth in Exhibit 2, attached hereto and hereby made a part hereof. Such components shall be
adjusted for any related tax credits allowed Seller.

     Section 4. The amount of the initial Base Price allocated to each Component and
Subcomponent thereof, and the index or method to be used for the adjustment of each such Component
and Subcomponent, are as follows:

32

 

	 	 	 	 	 	 	 
	 	 	 	 	Initial Amount	 	 
	 	 	 	 	Per Ton of Base	 	 
	Component	 	Subcomponent	 	Price	 	Index Method
	1. Labor

	 	(a)
	 	$            ****
	 	NAICS Index No. CEU1021210006
Average Hourly Earnings – Coal
Mining, published by Bureau of
Labor Statistics
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	CPI-W Medical Care (BLS Table 6)
	 
	 	 	 	 	 	 
	 

	 	(b)
	 	****	 	 
	 
	2. Supplies

	 	(a)
	 	****
	 	Mining Machinery and Equipment (PPI
1192, Table 6)
	 
	 

	 	(b)
	 	****	 	 
	 
	 

	 	(c)
	 	****	 	Electrical Power, Industrial South
Atlantic (NAICS 
Index #
PCU221122221122435)
	 
	 

	 	 	 	****	 	 
	 

	 	(d)
	 	 	 	Mining Machinery & Equipment (PPI
1192-53)

	 

	 	 	 	****	 	 
	 

	 	(e)
	 	 	 	Petroleum Products Refined
(PPI 057, Table 6)

	 

	 	 	 	****	 	 
	 

	 	(f)
	 	 	 	Externally Threaded Fasteners (PPI
1081-02, Table 6)

	 

	 	 	 	 	 	PPI-Industrial Commodities, Less
Fuels and Related Products and
Power, Table 8

	3. Capital & Other Direct
Costs

	 	 	 	****
	 	Implicit Price Deflator of the
Gross National Product (Survey of
Current Business, Table 7.13

33

 

	 	 	 	 	 	 	 
	 	 	 	 	Initial Amount	 	 
	 	 	 	 	Per Ton of Base	 	 
	Component	 	Subcomponent	 	Price	 	Index Method
	4. Assessments
	 	 	 	 	 	 
	     a. Federal Reclamation
Fee

	 	 	 	****
	 	Shall be adjusted pursuant to Article VI, Section3(b)
	 
	 	 	 	 	 	 
	     b. Federal Black Lung
Excise Tax

	 	 	 	****
	 	 
	 
	 	 	 	 	 	 
	     c. WV Special
Reclamation Tax

	 	 	 	****	 	 
	 
	 	 	 	 	 	 
	     d. WV Mines and
Minerals Operations
Fund Tax

	 	 	 	****	 	 
	 
	 	 	 	 	 	 
	5. Changes in Law

	 	 	 	****
	 	Shall be adjusted pursuant to
Article VI, Section3(c)

	6. WV Severance Tax

	 	 	 	****
	 	Shall be adjusted pursuant to
Article VI, Section 3(d)
	 
	INITIAL FOB BASE PRICE

	 	 	 	$             ****	 	 

34

 

ARTICLE VII

ADJUSTMENT OF PRICE FOR QUALITY

     In order for the Selling Price to accommodate variations in calorific value and the sulfur
dioxide value of the coal delivered hereunder, there shall be an amount added to or subtracted from
the Base Price as provided in this Article.

     Section 1. If the weighted average calorific value of the Specification “A” coal
received at each respective consigned destination during the half-month period is greater than the
applicable “Contracted” half-month weighted average specification (“Guaranteed”) Btu per pound,
then there shall be an amount added to the Base Price, as determined by the following formula, to
arrive at the Selling Price for such coal:

	 	 	 	 	 	 	 
	 	Amount Per Ton of 

Increase for 

Caloric = Value
	 	(Actual Btu – Guaranteed Btu) x 

 

(Guaranteed Btu)
	 	**** x Base

Price Redetermined

Pursuant to Article

V and Article VI

provided, however, that no premium shall be paid for the increment, if any, by which the calorific
value of such coal exceeds the Guaranteed Btu by 1000 Btu per pound.

     Section 2. If the weighted average calorific value of the Specification “A” coal
received at each respective consigned destination during the half-month period is less than the
Guaranteed Btu per pound, then there shall be an amount subtracted from the Base Price, as
determined by the following formula, to arrive at the Selling Price for such coal:

	 	 	 	 	 	 	 
	 	Amount Per Ton of Decrease 
for =
Caloric Value
	 	(Guaranteed Btu – Actual Btu) x

 

(Guaranteed Btu)
	 	Base Price

Redetermined

Pursuant to Article

VI

     Section 3. An initial amount of **** dollars ($****) per ton, subject to adjustment of
such initial amount as provided herein, shall be deducted from the Base Price to arrive at
the

35

 

Selling Price for each unit train lot or bargeload lot (or a composite of two (2) or more bargeload
lots) of coal shipped having a sulfur dioxide (SO2) value greater than the maximum
SO2
Applicable Lot “Suspension” specification applicable under Article III, Section 3. This
deduction shall be in addition to the Btu quality adjustment as provided in Sections 1 and 2 of
this Article and to Buyer’s other remedies as provided in Article III of this Agreement.

     At any time such shipments occur, the percentage change (carried out four decimal places,
e.g., 6.124% shall be 0.0612) between the initial Base Price and the adjusted Base Price applicable
to such coal shall be multiplied by **** dollars ($****) and the amount obtained (rounded to the
nearest tenth of a cent) shall be added to or subtracted from, as the case may be, the **** dollars
($****) in lieu of any such previous adjustment thereto and the amount thus obtained shall be the
applicable Selling Price deduction for SO2 quality of such coal.

     Section 4. [Intentionally deleted]

     Section 5. In addition to the foregoing provisions of this Article, during the period
on and after September 1, 1999, if the combined weighted average sulfur dioxide per million Btu
value of Specification “A” coal received at the consigned destination from all approved shipping
origins during a half-month period is more than 1.20 lbs. per million Btu, then there shall be an
amount subtracted from the Base Price as determined by the following formula, to arrive at the
Selling Price for such coal:

	 	 	 	 	 	 	 
	 	Amount Per Ton 

of Decrease for 

Excess. SO2 Value
	 	= Actual lbs. SO2 /Btu – 1.20 lbs. SO2/Btu X
**** X
	 	Base Price Redetermined

Pursuant to Article V and

Article VI

36

 

Section 6. [Intentionally deleted]

ARTICLE VIII

SAMPLING AND ANALYSES

     Section 1. All coal delivered hereunder shall be sampled by Buyer using a mechanical
sampling system before it is commingled with other coal and approximately at the time it is weighed
by Buyer on Buyer’s scales. Buyer shall determine, by proper analyses made in its laboratory and at
its expense, the “as-received” quality and characteristics of the coal. The sampling and analyses
shall be performed in accordance with methods approved by the American Society for Testing and
Materials (ASTM), or such other method as may be mutually acceptable. Except as otherwise provided
in this Article, the results of the sampling and analyses by Buyer shall be accepted as the quality
and characteristics of the coal delivered hereunder.

     Section 2. Seller shall have the right to have a representative present at any and all
times to observe the sampling and to receive a split of the resultant laboratory pulp when sampling
is being performed pursuant to Section 1 above, and Seller may also analyze the coal either from
its own samples or from samples taken by Buyer. Buyer shall retain the remaining portion of the
laboratory pulp of each coal sample until the twentieth (20th) day following the
calendar half-month in which the applicable lot of coal represented by such sample was unloaded at
the Plant so that Seller (and/or a commercial laboratory employed by Seller) may obtain and analyze
a portion of such laboratory pulp. Seller’s analytical results obtained from such pulp portion,
however, shall not be relevant for any purpose under the Agreement.

37

 

     Section 3. The results of the sampling and analyses by Buyer shall be accepted as the
quality and characteristics of the coal delivered hereunder at each respective consigned
destination; provided, however, that if Seller should at any time question the correctness of
either
the sampling or the analyses made by Buyer, Seller shall have the right to have up to two (2)
unit trains of coal or up to six (6) bargeload lot(s) of coal hereunder individually sampled and
analyzed by a commercial testing laboratory, mutually chose, and using mutually acceptable
procedures. The results of such commercial testing laboratory’s sampling and analyses shall be
accepted as the quality and characteristics of such coal. If the average of one or more of the coal
quality parameter values of the gross samples separately collected and analyzed by the commercial
testing laboratory differ by more than the ASTM (or other mutually agreed methodology)
reproducibility tolerance ranges for such respective coal quality parameter, when compared to the
average values of the gross samples separately collected and analyzed by the Buyer when both sets
of samples have been taken from the same delivery of coal, then Buyer shall pay such charges of
such commercial testing laboratory, otherwise Seller shall pay such charges.

     Section 4. Unless Seller challenges, pursuant to Section 3 of this Article, the
accuracy of either the sampling or analyses made by Buyer by written notice to Buyer within thirty
(3) calendar days after receipt of Buyer’s notice of such analytical results, Seller shall be
deemed to have waived all claims with respect to such sampling and analyses.

     Section 5. Coal received, unloaded, and taken into account that is not sampled but not
analyzed for reasons beyond Buyer’s control shall be taken into account as follows: If during any
half-month at least **** percent (by weight) of coal delivered from an approved shipping origin at
a respective consigned destination during such period has been sampled and analyzed,

38

 

then the
weighted average analytical results of such samples shall be applicable to all coal delivered from
such shipping origin to such consigned destination during such half-month period. If at least ****
percent (by weight) of coal delivered from an approved shipping origin at
a consigned destination during any such half-month period has not been sampled and analyzed,
then the weighted average analytical results of the portion of sampled and analyzed coal shall
apply to such portion, and the weighted average analytical result of the last preceding four (4)
half-months in which at least **** percent (by weight) of the coal delivered from such shipping
origin to such consigned destination was sampled and analyzed shall be applicable to such portion
of the coal delivered from such shipping origin which was not sampled and/or was not analyzed for
such half-month period.

ARTICLE IX

OTHER GOVERNMENTAL LEGISLATION, REGULATIONS, AND ORDERS

     Section 1. Seller and Buyer shall make good faith efforts to comply with the
provisions of all federal, state, and other governmental laws and any applicable orders and/or
regulations, or any amendments or supplements thereto, which have been, or may at any time be,
issued by a governmental agency.

     Section 2. If any federal, state, or other governmental law, regulation, or order is
enforced or imposed upon Buyer regarding the purchasing, burning, transporting, processing, or the
use of the coal specified in this Agreement, or the reduction of the emission limitations below the
current standard, or the sulfur or other chemical content of the coal to be burned in said Plant;
or if, as a result of any federal, state, or other governmental law, regulation, or order relating
to the sulfur or other chemical content of the coal and/or the stack emission limitations at a
group of plants comprised of the Plant and any other generating plant(s) operated by any subsidiary
or

39

 

affiliated company(ies) of the **** (including but not limited to the Clean Air Act Amendments
of 1990, except as it relates to the sulfur dioxide emission limitations which were known to Buyer
as of May 1, 1992), Buyer voluntarily or involuntarily revises the specifications of the
coal to be burned at the Plant and/or voluntarily or involuntarily reduces the stack emission
limitations at the Plant, in order that such group of plans may be in compliance with said federal,
state, or other governmental law, regulation, or order; and if as a result of any of the foregoing,
Buyer in its sole reasonable judgment discontinues the use of coal at the Plant or decides that it
will be impossible, impracticable, or economically unfeasible for Buyer to utilize the coal to be
delivered hereunder, then, if Buyer has not decided to discontinue the use of coal, Buyer may
request by written notice to Seller that Seller agree to deliver coal of a quality other than that
specified under Article III hereof (Buyer may elect to reduce the quantity to zero). If Buyer so
requests by such notice that Seller deliver such coal, Seller shall have the right, but not the
obligation, to so agree to deliver coal having such different specifications and/or quantity
requirements in accordance with the remainder of the terms and conditions of this Agreement
(specifically at the price provisions set forth in Article V); provided, however, that those
provisions dealing with quantity and/or quality will be changed appropriately to accommodate such
different specifications and/or quantities. If, within thirty (30) days of Seller’s receipt of
Buyer’s notice to Seller pursuant to this paragraph, Seller has not exercised its right to continue
deliveries as provided above, or if Buyer elects not to provide such notice to Seller, buyer may
terminate this Agreement by written notice to Seller. Should Buyer make such termination election,
this Agreement shall terminate as of the date determined pursuant to Section 4 of this Article.

40

 

     Section 3. In the event of the enactment of any new federal, state, or other
governmental law, or the promulgation of any regulation or order thereunder which prohibits (or
restricts so as effectively to prohibit) underground or surface mining, or processing or shipping,
as may be applicable, of the coal specified in this Agreement, Seller may elect to be relieved of
its obligations upon the effective date of implementation (compliance date) of such law,
regulation, or order to deliver the total quantity of coal to be delivered under this Agreement to
the extent of the amount of tonnage represented by the percentage of Seller’s production of such
underground or surface mining, or processing or shipping, as may be applicable, of coal so affected
by such law, regulation, or order to the total amount of coal so produced, processed, or shipped to
meet the quantity requirements of this Agreement.

     Section 4. (a) In the event Buyer elects to invoke Section 2 relative to the Clean Air
Act Amendments of 1990, Buyer shall notify Seller in writing setting forth the date upon which
Buyer’s election shall become effective; provided, however, that said effective date shall in no
event be earlier than sixty (60) days after the date of delivery of such notice.

     (b) Except as provided for in Section 4(a), should either Buyer or Seller elect to invoke
Section 2 or 3 above, respectively, the party so invoking shall notify the other party in writing,
stating the grounds upon which such invocation is based. Said notice shall also state the date
upon which the notifying party’s election shall become effective, which said date shall not be
earlier than 120 days prior to the effective date of the implementation (compliance date) of such
law, regulation, or order giving rise to the election; provided, however, that notwithstanding
anything to the contrary herein, said effective date shall in no event be earlier than sixty (60)
days after the date of delivery of notice.

41

 

     Section 5. If Buyer elects to terminate this Agreement under the provisions of this
Article IX, then neither party shall have, after the effective date of such termination, any
further obligation under this Agreement, (except as provided by Article XX); provided, however,
that such termination shall not affect any rights or obligations of Buyer or Seller existing under
this
Agreement for coal shipped or required to be shipped prior to the effective date of said
termination.

ARTICLE X

MAJOR TECHNOLOGICAL IMPROVEMENTS

     The parties hereto recognize that major technological improvements during the term hereof in
mining, hauling, handling, or processing coal may provide Seller the opportunity to reduce its
costs of supplying coal hereunder. Seller agrees to consider the introduction of any such new
technology in mining, hauling, handling, or processing coal at the approved production sources and
shall implement such new technology if feasible. The Selling Price for all coal delivered from any
approved production source where any such new technology is introduced shall be reduced by ****
percent (****%) of the difference between Seller’s normal production, hauling, handling, and
processing costs per ton without such new technology and such production, hauling, handling, and
processing costs per ton subsequent to the implementation of such new technology, including
depreciation of any related capital expenditures(s), amortization of any costs related to
installation of such new technology, and a rate of return on such expenditures and costs at the
then existing prime rate of Citibank, N.A., prorated over the normal useful life of any such
capital expenditure(s).

42

 

     The Selling Price hereunder shall not be reduced pursuant to this Article X based on Seller’s
use in the approved production sources of any technology, if such technology was generally
available for commercial use in the mining industry as of May 1, 1992.

ARTICLE XI

ADMINISTRATIVE PROGRAM

     Section 1. The indices utilized in calculations made pursuant to this Agreement shall
be the indices as they are first published. In the event that the current base of any index
referred to in Article VI is converted to a new base, then conversion tables published by the U.S.
Department of Labor, Bureau of Labor Statistics, or the U.S. Department of Commerce, as the case
may be, shall be used in recomputing the level of any such index. Should publication of any index
be discontinued, an index which is as nearly as practicably equivalent shall be substituted by
mutual agreement of the parties hereto.

     Section 2. In the event that supervening events or circumstances shall render
inapplicable any of the methods set forth in Article VI for computing price adjustments hereunder,
the parties hereto shall meet promptly to consider and agree upon new and revised methods
appropriate to the circumstances then prevailing.

     Section 3. Seller and Buyer shall keep accurate up-to-date records and books of
account showing all costs, payments, price revisions, credits, debits, weights, analyses, and all
other data required of each of them for the purpose of administering this Agreement.

     Each time the price is to be revised in accordance with Article VI and at any other reasonable
time upon ten (10) days notice from Buyer, Seller shall furnish to Buyer a detailed statement (a
“claim”) showing Seller’s calculations of the price which should then be in effect under the
provisions of this Agreement.

43

 

     Buyer shall make a preliminary review of the claim within a reasonable amount of time.
Upon completion of Buyer’s preliminary review, Buyer may submit to Seller a letter explaining the
differences, if any, in the price as shown on the claim and the price as determined by Buyer’s
preliminary review. Buyer shall then submit a letter agreement to Seller for its review and
countersignature to establish a tentative price adjustment. The price adjustment as agreed to in
the fully executed letter agreement, either a debit or credit, shall be processed using Buyer’s
normal payment procedures and, if necessary, a tentative retroactive adjustment shall be made by
payment to the party to whom such tentative adjustment is due.

     From time to time, representatives of Buyer shall audit Seller’s claim(s) and recommend final
price adjustments associated with such claim(s). Thereafter, Buyer shall submit a letter agreement
to Seller for its review and countersignature to establish a final price adjustment. The price
adjustment as agreed to in the fully executed letter agreement, either a debit or credit, shall be
processed using buyer’s normal payment procedures and, if necessary, a final retroactive adjustment
shall be made by payment to the party to whom such final adjustment is due.

     Section 4. Buyer and its designated representatives and/or agents including its
auditors, engineers, and geologists, shall at reasonable times, upon reasonable notice, have access
to the mine(s) producing coal under this Agreement; to all support facilities and to all records
pertaining to the coal reserves covered by this Agreement); to all records pertaining to
transportation costs, the determination of weights, and to any adjustments in price under this
Agreement; and to all records relating to the sampling and analytical determinations made pursuant
to Article VIII of this Agreement.

44

 

ARTICLE XII

FORCE MAJEURE

     No party shall be subject to liability to the other party for the failure to perform in
conformity with this Agreement where such failure results from an event or occurrence beyond the
control of the party affected thereby (and, in regard to Seller’s failure, is due solely to an
event or occurrence pertaining to the approved production source[s] making then current deliveries
to Buyer), such as without limitation, acts of God, war, insurrection, riots, nuclear disaster,
strikes, labor disputes, threats of violence, labor and material shortages, fires, explosions,
floods, river water levels or freeze-ups, breakdowns or damage to mines, plants, equipment or
facilities (including emergency outages or an extension of a scheduled outage of equipment or
facilities to make repairs to avoid breakdowns thereof or damage thereto), interruptions to or
slowdowns in transportation, railcar shortages, barge shortages, river lock outages, embargoes,
orders or acts of civil or military authority, laws, regulations, or administrative rulings. The
provisions of the above sentence shall not excuse a party from performing unless such party shall
give written notice to the other party and furnish full information as to the cause of the force
majeure event and probable extent thereof within thirty (30) calendar days after such cause occurs.
Failure to give such notice and furnish such information within the time specified shall be deemed
a waiver of all rights under this Article for such period of time during which notice was not
given. No suspension or reduction by reasons of force majeure shall invalidate the remainder of
this Agreement but, on the removal of the cause, shipments shall resume at the specified rate.
(During such periods when a force majeure event or occurrence claimed by Seller results in a
reduction in shipments, shipments from the affected production source(s) for ultimate delivery
under this Agreement shall not be reduced
below the pro rata share which the average rate of such shipments therefrom pursuant to this
Agreement for the six (6) months preceding the force majeure event bears to the total contractual

45

 

commitments to all parties from such production source(s) as of the date of the force majeure
event.) Deficiencies in shipments under this Article shall be made upon in accordance with a
mutually agreeable schedule. Delivery of make up tonnage shall be scheduled so that such
deliveries shall be shipped no later than **** calendar days following the date of the termination
of the force majeure event which gave rise to the suspension or reduction of shipments to be made
up; provided, however, that the delivery rate for any make up tons shall not exceed thousand
(****) tons per month, unless otherwise required by Buyer and agreed to by Seller.

     Without limiting the generality of this Article, in the event of a partial or total
curtailment of the generating capacity at the Plant or partial or total curtailment of transmission
or distribution of electricity therefrom, or any other force majeure event pertaining to Buyer,
Buyer shall be relieved under this Article from its obligation to accept any portion or all
deliveries form Seller based upon the quantity of Seller’s coal scheduled for delivery under this
Agreement during the period over which such force majeure event or occurrence exists or existed.

     Seller shall furnish Buyer a monthly statement by the fifteenth (15th) day of the
calendar month setting force the amount of tonnage not shipped because of force majeure causes
asserted during the preceding calendar month, and shall inform Buyer in writing on a weekly basis
during the duration of such force majeure event as to the progress of the alleviation thereof.

     Nothing herein contained shall be construed as requiring Seller or buyer to accede to any
demands of labor, or labor unions, or suppliers, or other parties which Seller or Buyer considers
unacceptable.

46

 

ARTICLE XIII

WARRANTIES AND DEDICATION

     In addition to all other warranties and representations made by Seller in this Agreement,
Seller represents and warrants that (i) Seller has sufficient reserves of coal as defined in
Exhibit 1 to satisfy the quantity and quality provisions of this Agreement during the original term
hereof, including, but not limited to any elections of Buyer as to quantity under Article II,
Section 1; (ii) Seller is or will be, at the time specified for the first delivery of coal
hereunder, in good faith compliance with all laws and regulations regarding the mining and sale of
coal (notices and orders issued under the Federal Coal Mine Health and Safety Act and State and
Federal Reclamation Acts excepted); and (iii) Seller has filed or will have filed in a timely
manner to have obtained by said time all licenses, permits, certificates, and other documents
necessary for it to fulfill its obligations hereunder. Seller shall furnish, within thirty (30)
days of Buyer’s request, which Buyer may make from time to time and at any time, to Buyer a
statement indicating the amount of reserves that remain to fulfill the quantity and quality
requirements of this Agreement.

     Seller covenants that it will, and does hereby, dedicate to this Agreement such quantity of
said coal reserves and appurtenant facilities as is required for the full performance of Seller’s
obligations hereunder during the original term (including Buyer’s options of quantity) and that
Seller will not sell nor contract to sell to others nor take for its own use coal from said
reserves in such quantity and quality as to jeopardize its ability to deliver the total quantity
and quality of coal called for by this Agreement. Nothing in this Article XIII shall be construed
as preventing Seller from mining and selling coal from said reserves to others nor from utilizing
said facilities provided Seller complies with the foregoing provisions with respect thereto.

47

 

ARTICLE XIV

BUYER’S RIGHT TO MARKET COAL

     Buyer reserves the right, at any time, and from time to time, at its sole discretion to sell
to any person, firm, or corporation whether or not associated or affiliated with Buyer any or all
coal purchased by Buyer under this Agreement.

     In the event of any such sales by Buyer, and Buyer does not sample, analyze, and weigh said
coal, Seller’s analyses and weights shall govern for the purpose of payment to Seller, subject to
Buyer’s right, at Buyer’s sole risk and expense, to examine Seller’s sample, analyses, and weight
records and to have representatives present when Seller performs the sampling, analyses, and
weighing; provided, that in the event that Buyer challenges in writing the accuracy of the
sampling, analyses, or weights of Seller, then buyer shall have all of the rights and obligations
of “Seller” pursuant to Article III, Section 5 and Article VIII, Section 3 of this Agreement, and
Seller shall have all of the rights and obligations of “Buyer” under such provisions.

ARTICLE XV

ASSIGNMENT

     This Agreement shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; but this Agreement may not be assigned by either party without
the prior written consent of the other, except that either party may without the written consent of
the other assign to any financing institution or institutions any monies due or to become due
hereunder. Buyer may also without the consent of Seller assign this Agreement (in whole or in
part) to any other subsidiary or affiliated company(ies) of the ****, and upon such assignee
expressly assuming in writing, to the extent of such assignment, the obligations of the Buyer
hereunder, Seller shall to the extent of such assignment release buyer from all further
obligations under this Agreement. For financing purposes only, Buyer may also without the
consent of Seller assign this Agreement in whole or in part to any financial corporation with

48

 

which
Buyer or any of said subsidiary or affiliated company(ies) may contract for the purchase of coal,
but no such assignment shall relieve Buyer of its obligations under this Agreement to make payments
to Seller for coal delivered by Seller under this Agreement, in the event that the assignee shall
not make such payments. Seller may also without the consent of Buyer assign this Agreement (in
whole or in part) to any other subsidiary or affiliated company(ies) of Peabody Development
Company, and upon such assignee expressly assuming in writing, to the extent of such assignment the
obligations of the Seller hereunder, Buyer shall to the extent of such assignment release Seller
from all further obligations under this Agreement. Written consent to one or more assignments
shall not be construed as waiving the necessity of obtaining written consent to other and/or
additional assignments.

     In addition to the foregoing, Buyer shall have the right to require Seller to enter into a new
coal supply agreement with a producer of Synthetic Fuel for all or part of the tonnage requirements
under this Agreement; provided, however, such Synthetic Fuel producer is deemed creditworthy,
otherwise secures a guaranty or letter of credit from a creditworthy institution or provides some
other form of financial guaranty acceptable to Seller to ensure the Synthetic Fuel producer’s
performance on substantially the same terms and conditions as provided in this Agreement with
respect to all or part of the coal to be purchased hereunder. In such event, Buyer would be
excused from its obligations under this Agreement to purchase coal to the extent of the quantities
provided for in such new Agreement are actually purchased by the Synthetic Fuel Producer, but not
otherwise.

49

 

ARTICLE XVI

GOVERNMENT COMPLIANCE CERTIFICATE

     Seller hereby agrees that it does, and for the term of this Agreement will, comply with the
duties of “SELLER” under the “Government Contractor Compliance Certificate,” attached hereto and
hereby made a part hereof marked Exhibit 3.

ARTICLE XVII

EMPLOYEE INTEREST

     Seller represents to Buyer that Seller has not given and will not give, directly or
indirectly, anything of value to any employee or other representative of the **** or its
subsidiaries or affiliates (of which buyer is one) with the view of securing this Agreement or
obtaining favorable treatment with respect to the performance of this Agreement. If such
representation is untrue, or becomes untrue, Buyer shall have the right to terminate this
Agreement, to sue for damages, and to take such other action as may be provided by law. If Seller
obtains knowledge at any time that any such employee has a direct or indirect interest in Seller or
its affiliates, it will immediately inform Buyer of such fact.

ARTICLE XVIII

WAIVER AND LIMITATION OF DAMAGES

     Section 1. The failure of any party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take advantage of any of its rights
hereunder shall not be construed as a future waiver of any such provisions or the relinquishment of
any such rights, but the same shall continue and remain in full force and effect for the term of
this Agreement.

     Section 2. Neither Seller nor Buyer shall be liable for any special, incidental, or
consequential damages which exceed, in the aggregate, **** dollars ($****) for the entire term of
this Agreement.

50

 

ARTICLE XIX

NOTICES

     Notices provided for or required herein shall be given by postage prepaid, certified mail,
addressed as follows:

TO BUYER:

****

TO SELLER:

ATTENTION SENIOR VICE PRESIDENT SALES AND MARKETING

PEABODY COALSALES COMPANY

701 MARKET STREET

ST. LOUIS, MO 63101-1826

ARTICLE XX

LIQUIDATION OF SELLER’S DAMAGES

     In the event that the minimum tonnage obligation pursuant to Article II hereof is reduced
under Article III, Section 1 or Article IX of this Agreement, or the Agreement terminates
pursuant to Article VI, Section 3(c)(i) or Article IX, Section 2 prior to December 31, 2012,
for any reason other than Seller’s breach of this Agreement, Buyer shall be liable to Seller for
liquidated damages hereunder in the amount of **** dollars ($****) for each ton of Specification
“A” coal precluded from delivery in any Contract Quarter during the remaining portion of the
original term of this Agreement. Such monetary liability shall be payable by installment each
Contract Quarter, as defined below, at the applicable rate per ton times the minimum tonnage
obligation Buyer could have elected pursuant to Article II, Section 1 of this Agreement. Any
amount thus payable by Buyer shall be paid to Seller within thirty (30) calendar days after Buyer’s
receipt of Seller’s invoice for such amount, which invoice shall not be tendered prior to the last
day of the Contract Quarter(s) if any, to which this Article becomes

51

 

applicable. For the purposes
of this Article, each Contract Half-Year as defined in Article II, Section 1, shall consist of the
first three calendar months and the last three calendar months of each such Contract Half-Year.

ARTICLE XXI

CONFIDENTIALITY

     The parties and their agents or representatives who, by this Agreement or otherwise, obtain
any documents or other information relative to this Agreement, shall, except for the acceptable
disclosure of information to other affiliated companies which shall also keep the same
confidential, keep confidential the terms and conditions of this Agreement, the transactions
provided for herein, and any such documents or other information unless readily ascertainable from
public information or sources, requested by a regulatory commission, or required by law to be
disclosed.

ARTICLE XXII

FINALITY

     This Agreement is intended as the final, complete, and exclusive statement of the terms of the
Agreement between the parties. The parties agree that parol or extrinsic evidence may not be used
to vary or contradict the express terms of this Agreement. This Agreement shall not be amended or
modified and no waiver of any provision hereof shall be effective, unless set forth in a written
instrument authorized and executed with the same formality as this Agreement.

     The titles of the articles and sections of this Agreement have been inserted as a matter of
convenience for reference only.

52

 

ARTICLE XXIII

GOVERNING LAW

     This Agreement shall be construed, enforced, and performed in accordance with the laws of the
State of West Virginia.

53

 

EXHIBIT 1

Page 1 of 2

Revision Effective November 1, 1995

SELLER’S PRODUCTION SOURCE(S), RESERVES OF COAL, APPROVED RAIL

SHIPPING ORIGIN(S), AND APPROVED BARGE SHIPPING ORIGIN(S)

     The production source(s) and reserves of coal to which reference is made to
in Section 1 of Article III and in Article XIII, respectively, consist of the
following:

Sources and Reserves of Coal for Specification “A” Coal:

****

 

 

EXHIBIT 1

Page 2 of 2

Revision Effective May 1, 1996

SELLER’S PRODUCTION SOURCE(S), RESERVES OF COAL,

APPROVED RAIL SHIPPING ORIGIN(S), AND 

APPROVED BARGE SHIPPING ORIGIN(S)

Approved Rail Shipping Origin(s) for Specification “A” Coal:

	 	 	 	 	 	 	 	 	 
	Facility	 	Origin rail Station	 	 	OPSL No.	 
	****
	 	 	 	 	 	 	 	 

 

 

Exhibit 1-A

EXHIBIT 1-A

Page 1 of 1

Effective January 1, 2005

ALTERNATIVE PRODUCTION SOURCE

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Transport
	Facility	 	Origin Rail Station	 	OPSL No.	 	Differential*
	 
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	NO
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	NO
	****
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	NO
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	YES
	 
	 	 	 	 	 	CSXT	 	NO
	 
	 	 	 	 	 	CSXT	 	NO

 

 

Exhibit 2

WEST VIRGINIA SEVERANCE TAX

     Whenever there is any change in the Base Price or a change in the West Virginia Severance Tax
Rate, a new West Virginia Severance Tax subcomponent shall be calculated and the Base Price shall
be adjusted to reflect such change in accordance with the following:

	 	 	 	 	 	 	 	 	 
	 

	 	T
	 	=
	 	R
	 	x   BPE
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	1 – R	 	 

where:

T = Revised West Virginia Severance Tax Subcomponent

R = The Statutory West Virginia Severance Tax Rate

BPE = The Current Base Price, excluding the West Virginia Severance Tax subcomponent

 

 

Exhibit 3

Government Compliance Certificate

 

 

Exhibit B

Example of End Customer Contract Article V Discounts Only

(Example for CY 2009)

	 	 	 	 	 	 	 
	 	 	 	 	Patriot	 	 
	Contract Half-Year	 	Article V	 	Base	 	Patriot Selling
	Quantity	 	Discounts	 	Price*	 	Price
	1,412,500
	 	-10.46%	 	$****	 	$****
	1,250,000
	 	-7.57%	 	$****	 	$****
	1,087,500
	 	-4.51%	 	$****	 	$****

 

			
	*	 	Before adjustments for premiums, penalties, and changes in laws.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}]]