Document:

exhibit10_2.htm

     

    F.B.
CULLEY

    COAL
SUPPLY AGREEMENT

    

    

    

    THIS COAL SUPPLY AGREEMENT
(“Agreement”) is entered into effective the 1st day of
January, 2009, between VECTREN
FUELS, INC., an Indiana corporation (“Seller”), whose principal business
address is One Vectren Square, Evansville, Indiana 47708, and SOUTHERN INDIANA
GAS AND ELECTRIC COMPANY d/b/a VECTREN POWER SUPPLY, INC.
 (“Buyer”), whose
principal business address is One Vectren Square, Evansville, Indiana
47708.

    

    WITNESSETH,
That:

    

    WHEREAS, Buyer desires to
secure to the extent of the quantities and for the period hereinafter stated, a
supply of bituminous coal of the quality hereinafter set forth, for use in its
F.B. Culley generating plant (“Plant”); and

    

    WHEREAS, Seller represents
that it is experienced in the commercial production and preparation of coal and
that it owns, has leased, or controls the hereinafter mentioned reserves of
bituminous coal which are assigned to its Cypress Creek, Prosperity and Oaktown
Mines (“Seller’s Mines” or “Mines”);

    

    WHEREAS, Seller desires to
sell coal to Buyer and Buyer desires to buy coal from Seller, upon the terms and
conditions hereinafter set forth; and

    

    WHEREAS, Seller acknowledges
the Buyer’s right to dispose of coal-combustion waste, including fly ash (“Coal
Waste”), “at cost” at its Mine is a material part of the consideration for this
Agreement; and,

    

    NOW THEREFORE, in
consideration of the mutual covenants contained herein, Seller agrees to sell
and deliver coal to Buyer and Buyer agrees to purchase and accept delivery of
coal from Seller, pursuant to the terms and conditions set forth as
follows:

    

    ARTICLE
I

    AGREEMENT OF SALE AND
PURCHASE

    

    1.1           Sale and
Purchase; Source of Coal.   Seller agrees to sell and
Buyer agrees to purchase, the quantity and quality of coal specified herein, on
the terms and subject to the conditions hereinafter set forth.  The
source of coal to be supplied under this Agreement shall be the Seller’s
Mines.  Alternate Source Coal, as defined hereinafter, may be supplied
by Seller, subject to the provisions of Section 6.5 of this
Agreement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.2           Dedication
of Reserves.  Seller represents that it owns or has leased, and
will dedicate and set aside for this Agreement, such quality and quantity of
coal reserves at Seller’s Mines, as are required for full performance of
Seller’s obligations hereunder.  Seller represents and warrants that
it has the legal right to mine and sell such coal reserves.  Seller
will not sell, nor contract to sell to others, coal from said reserves in such
quantity as to jeopardize Seller’s ability to deliver the total quantity of coal
Seller is obligated to deliver to Buyer under this Agreement.

    

    1.3           Annual
Delivery Plan.  Seller has dedicated and set aside for this
Agreement such quality and quantity of coal reserves at Seller’s Mines as are
required for full performance of Seller’s obligations
hereunder.  Seller warrants that such reserves are assigned to
Seller’s Cypress Creek, Prosperity and Oaktown Mines.  Because the
availability of coal may vary from each of Seller’s Mines during certain
periods, Buyer and Seller hereby agree, on an annual basis, to meet to discuss,
coordinate, and agree to a plan (“Annual Delivery Plan”) for the delivery of
coal to Buyer’s Plant.  The Annual Delivery Plan shall specify the
source and volumes from each source to be delivered to the Plant under this
Agreement.  Transportation charges for delivering coal to Buyer’s
Plant from either of Seller’s Mines shall be determined in Accordance with
Section 4.1 and Section 6.5.  When developing the Annual Delivery
Plan, every attempt shall be made to deliver coal to Buyer in accordance with
Buyer’s instructions.  Coal delivered according to the Annual Delivery
Plan shall also meet the coal quality specifications outlined in Exhibit
A.

    

    1.4           Title and
Risk of Loss.  The sale of coal under this Agreement shall
occur, and ownership and risk of loss shall pass from Seller to Buyer, upon
delivery of the coal at the Plant.

    

           1.5           Opening
of Oaktown Mine.  Buyer acknowledges that Seller’s Oaktown Mine is
still in the construction/development phase, that the Oaktown Mine is not
forecast to commence production until May 2009, or be operating at full capacity
(250,000 tons/mo.) until the first quarter of 2010, that Seller’s ability to
deliver coal from Seller’s Oaktown Mine in the full quantities contemplated
under the 2009 Annual Delivery Plan is contingent upon Seller’s Oaktown
Mine phasing in 2009 monthly production, commencing May, 2009, at the following
monthly rates (in 000’s):

    

    May                  
63

    June                   83

    July                   
109

    August                      145

                    September        
145

                    October 
                    146

                    November                  219

                    December  
                219

     

    Seller’s ability to deliver coal at the
contemplated levels in 2010 and thereafter is contingent upon the Oaktown Mine
operating at its projected full capacity from and after January, 2010. 
Seller shall use commercially reasonable efforts to complete the
construction/development of the Oaktown Mine, so that the same is operational to
facilitate mining and delivery of coal as contemplated by the 2009 Annual
Delivery Plan.  Nonetheless, Buyer agrees that Seller shall have no
liability under this Agreement, notwithstanding any provision to the contrary,
for failure to deliver the full quantities of coal from Seller’s Oaktown Mine as
contemplated by the 2009 Annual Delivery Plan to the extent applicable to delays
in the opening or full operation of, or failure to open, the Oaktown Mine so
long as Seller has used commercially reasonable efforts to accomplish the
same.  In years subsequent to 2009,  in the event Seller is unable to
deliver the full quantities of coal as contemplated in the then effective Annual
Delivery Plan, or if Seller is unable to provide an acceptable Annual
Delivery Plan meeting the volumes contemplated hereunder, due to delays in
the opening or full operation of, or failure to open, Seller’s Oaktown Mine,
the termination provisions of Section 9.2, Force Majeure, shall apply,
whether or not such failure to open or operate at full production would
otherwise constitute a Force Majeure.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Commercially reasonable efforts mean
efforts equivalent to those that would be exercised by an owner/operator of a
mine/mining facility of similar size and complexity to the Oaktown Mine acting
in good faith and in a commercially reasonable manner.

    

    

    ARTICLE
II

    TERM

    

    2.1           Term.  The
term of this Agreement shall commence on January 1, 2009, and shall continue
until and including December 31, 2014 (the “Term”).  Provided,
however, Buyer and Seller agree only the first three (3) years of the price per
ton of coal commencing on January 1, 2009 and continuing until and including
December 31, 2011 (“Pricing Period”) shall be specified in this
Agreement.  Pricing for years 2012, 2013 and 2014 of this Agreement
shall be determined in accordance with Section 4.4, Price.  No
suspension of an obligation under this Agreement by reason of Force Majeure
shall extend the Term of this Agreement, except upon mutual agreement of Seller
and Buyer.

     

    ARTICLE
III

    QUANTITY

    

    3.1           Quantity.  Seller shall sell
and deliver, and Buyer shall purchase and accept delivery of, coal at the Plant
in the following amounts during the Term of this Agreement:

    

         
Tonnage                      Tons/month                                Maximum
tons/month

    Year 1
(2009)                                           1,100,000                      92,000                                           115,000

    Year 2
(2010)                                           1,120,000                      94,000                                           115,000

    Year 3
(2011)                                           1,120,000                      94,000                                           115,000

    Year 4
(2012)                                           1,120,000                      94,000                                           115,000

    Year 5
(2013)                                           1,120,000                      94,000                                           115,000

    Year 6
(2014                                           1,120,000                      94,000                                           115,000

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Buyer may adjust the tonnage to be
delivered in any year to any amount within a range of fifteen percent (15%) more
or less than the tons specified for delivery in a particular year, it being
understood that any such adjustment may be made only upon fifteen (15) days
advance notice to Seller.  Unless otherwise agreed by Buyer at least
twenty-four (24) hours in advance, no daily delivery of coal shall exceed 2,000
tons.

    

    

    

    ARTICLE
IV

    PRICE ADJUSTMENT; QUALITY
PRICE ADJUSTMENT; GOVERNMENT IMPOSITION; RIGHT OF FIRST REFUSAL; INVOICING AND
PAYMENT

    

    4.1           Price
Adjustment.    The Pricing Period for the Term of
this Agreement shall be years 2009-2011.  The price per ton and MMBTU,
F.O.B. mine, for the Pricing Period shall be as listed below:

    

           
PRICE

    Year                                $/Ton                                $/MMBTU

    2009                                $59.00                                $2.6818

    2010                                $61.36                                $2.7891

    2011                                $63.81                                $2.9005

    

    In addition to the F.O.B. mine prices
above, there will also be per ton transportation charges to deliver the coal to
the Plant.  For shipments by truck, the transportation charges will include
the base transportation rates as set forth in Seller’s September 16, 2008 Offer
to Buyer plus a fuel surcharge which shall be adjusted on a monthly basis to
adjust for fluctuations in the price of diesel fuel.  The transportation
adjustment charge made by Seller shall be identical to the transportation
adjustment charge made by Seller’s contract carrier under the contract carrier’s
Coal Hauling Contract with Seller.  For shipments by rail, the
transportation charges will include the base transportation rate as set forth in
Seller’s September 16, 2008 Offer to Buyer plus a fuel surcharge, if any, to
adjust for fluctuations in the price of fuel above or below the level of fuel
cost included in the base transportation rate.

    

    The prices shall be adjusted (upward or
downward, as the case may be) for changes in Seller’s cost which are prudently
incurred and paid in connection with Mine production, sale, processing,
reclamation and loading of the coal due to a change or changes after January 1,
2009 in local, state and federal laws or regulations, or verifiable changes by a
government body (having competent jurisdiction over the subject matter) in the
interpretation of existing laws or regulations (but excluding laws relating to
income taxes, real and personal property taxes; provided, however, any other
taxes, including, but not limited to severance, carbon or labor related taxes,
such as unemployment, social security, black lung and worker’s compensation
shall be included).  Seller shall exercise all reasonable efforts to
minimize its costs attributable to such changes in laws or
regulations.  Any claim by Seller for an increase in price due to a
change in costs caused by a change in laws or regulations (as permitted above),
shall be net of any benefits, credits, deductions, depletion allowances, or
other reductions in costs allowed or allowable which become available to Seller
in connection with the Mine production, sale, processing, reclamation and
loading of coal due to a change or changes after January 1, 2009 in local,
state, and federal laws or regulations, or verifiable changes by the government
body (having competent jurisdiction over the subject matter).  Any
such claim shall be made within 90 days of when such change in costs occurs,
shall be fully supported by Seller’s accounting records and other documents
establishing the basis for the change as soon as reasonably practicable, and is
subject to Buyer’s audit.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.2           Quality
Price Adjustment.   If coal
delivered hereunder varies from the Coal Quality Specifications plus the penalty
threshold amounts identified in Exhibit A but Buyer does not exercise its
rejection right under Section 6.2, Coal quality adjustments pursuant to this
Section 4.2 shall be made decreasing the contract price of the coal to
compensate for variations in the “as received” monthly weighted average Ash and
SO2 content including the penalty threshold amounts of such coal as set forth in
the Coal Quality Specifications in Exhibit A.  The term “as received”
for purposes of this Agreement shall have that meaning defined in specifications
promulgated by the American Society for Testing and Materials
(“ASTM”).

    

    
      	
              A.  

            	
              Ash
      Contract Price Adjustment.  There shall
      be no Ash Contract Price adjustment increasing the contract price per ton
      of coal if the “as received” monthly weighted average ash content in such
      coal is equal to or less than the ash content set for in the Coal Quality
      Specifications in Exhibit A.

            

    

    

    If the
“as received” weighted average ash content of coal in any month is greater than
the ash content plus the penalty threshold amount as both are set forth in the
Coal Quality Specifications in Exhibit A, an adjustment decreasing the contract
price per ton of coal shall be calculated according to Exhibit B.

    

    
      	
              B.  

            	
              SO2
      Contract Price Adjustment. There shall be no SO2
      contract price adjustment increasing the contract price per ton of coal if
      the “as received” monthly weighted average SO2 content in such coal is
      equal to or less than the SO2 content set for in the Coal Quality
      Specifications in Exhibit A.

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    If the
“as received” weighted average SO2 content of coal in any month is greater than
the SO2 content plus the penalty threshold amount as both are set forth in the
Coal Quality Specifications in Exhibit A, an adjustment decreasing the contract
price per ton of coal shall be calculated according to Exhibit B.

    

    4.3           Government
Imposition.  “Government Imposition” means
taxes, fees, or increases in Seller's operating costs resulting from any newly
adopted, promulgated, ordered, released, approved, enacted or amended statute,
regulation, rule, interpretation, decision, requirement (including without
limitation mine permit requirements and other regulatory requirements), standard
or method (collectively, "Requirements") imposed by any federal, state or local
government or government agency upon the mining, production, severance,
preparation or sale of Coal hereunder, including, but not limited to carbon tax,
severance taxes or fees on Coal produced or sold hereunder such as but not
limited to black lung tax, abandoned mine land fee, and any other state or
federal impositions imposed on a per ton basis or by reference to the mining,
production, severance, preparation or sale of coal, and ad valorem taxes on
Seller’s land, improvements, machinery, equipment and the like as well as
increases in Seller's taxes, fees or operating costs incurred as a result of a
change after the Effective Date in any such Requirements related to mine safety
or otherwise related to the manner and method of mining, production, severance,
preparation or sale of Coal hereunder.  The term does not include
federal or state income taxes; employee benefits or payroll taxes of general
application such as employer’s Social Security, unemployment or worker’s
compensation taxes or payments; any civil or criminal money fine or penalty
imposed as the result of failure to comply with any Law; or increases in
operating costs not related to any new or changed Requirements.

    

    Adjustment to the Contract Price shall
be made for changes in Seller’s costs per Ton of Coal sold hereunder caused
directly by increased or decreased Governmental Impositions adopted,
promulgated, ordered, released, approved, or enacted after the Effective
Date.  Seller shall give prompt notice to Buyer of the amount of any
such increased or decreased cost per Ton of Coal sold hereunder incurred by
reason of a change of Governmental Imposition along with detailed documentation
of such amount which shall be supported by Seller’s accounting records and other
documents establishing the basis for the change which are subject to Buyer’s
audit.

    

    In the event of an increase in cost,
Seller in such notice further shall indicate the increase in Contract Price that
Seller will require which increase may not exceed the increase in Seller’s cost
caused by Governmental Impositions enacted or otherwise effective after the
Effective Date.  Within thirty (30) Days of receipt of such notice of
increase in cost, Buyer will give notice (“Buyer’s Notice”) that Buyer at its
option will either pay the requested increased Contract Price or will terminate
this Agreement as of the date that is the effective date of such change in
Government Regulation or thirty (30) days from Buyer’s Notice, whichever is
later.  Upon receipt of a Buyer’s Notice electing termination, Seller
shall have the option of rescinding its increase in the Contract Price per the
applicable change in Government Impositions, in which case this Agreement shall
not terminate but shall continue in full force and effect.

    

    In the
event of a decrease in cost, the Contract Price will be decreased by an amount
equal to the decrease in Seller’s cost caused by Governmental Impositions
enacted after the Effective Date.  If there are both increases and
decreases in cost, such increases and decreases shall be netted one against the
other.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Notwithstanding
any other provision of this Section 4.3, there shall be no change in the
Contract Price as a result of any noncompliance with any Government Impositions,
or any civil or criminal fines or penalties imposed for failure to comply with
any Governmental Imposition currently existing or hereafter
enacted.  Additionally, adjustments to the Contract Price shall be
made hereunder only if the adjustment is allocated evenly to all coal that is
produced from Seller’s Mines, so that Buyer is allocated only its proportionate
share of such cost.

    

    Any
adjustment to the Contract Price under this Section 4.3 will be
effective as of the date the change in Governmental Imposition is
effective.

    

    4.4           Right of
First Refusal.  The
Parties agree to negotiate in good faith, during
the period from April 1, 2011 to June 30, 2011, a new price and
specifications for coal quality for the supply of coal for years four (4), five
(5) and six (6).  Buyer shall have the right, but not the obligation,
to agree to the negotiated price and specifications for coal quality and
continue receipt of the Agreement quantity during years 2012, 2013 and
2014.  In the event Buyer and Seller are unable to agree on a price
and/or coal quality specifications for years 2012, 2013 and 2014 by June 30, 2011, this Agreement shall
expire December 31, 2011 unless otherwise agreed
in writing by the parties.

    

    4.5           Invoicing.  Seller
shall invoice Buyer weekly on a $ per MMBTU basis, the calculation of which
shall be based on the weekly average of the “as received” coal at the
Plant.  Invoices shall be electronically delivered to Buyer promptly
after the last shipment of the pertinent period once corresponding quality data
has been accumulated.

    

    4.6           Payment.  Buyer
shall mail payment within ten (10) days following Buyer’s receipt of Seller’s
invoices.  In the event that Buyer does not make payment in accordance
with the terms of this Agreement, then delinquent payments shall bear interest
at the prime rate of interest reported in the “Money Rates” section of “The Wall
Street Journal” (the “Prime Rate”), as of the first day of any such
delinquency.

    

    4.7           Errors or
Omissions.  In the event that any Seller’s invoice can be
demonstrated by Buyer to contain a material error or omission which unavoidably
delays Buyer’s ability to process payment of such invoice in a timely manner,
Seller shall extend the payment due date for the portion of the invoiced amount
which is affected, by the same number of days (from the time Buyer first
notified Seller of the error or omission) as it takes Seller to provide the
corrected or additional data required by Buyer.

    

    4.8           Disputed
Amount.  If Buyer disagrees with the amount of any invoice for
reasonable cause, Buyer shall promptly notify Seller by facsimile transmission,
followed promptly by written confirmation which shall set forth the basis for
such disagreement, so that the dispute may be resolved before the payment due
date.  If any portion of an invoice is not reconciled prior to the
payment due date, the undisputed amount shall be paid when due and the disputed
portion shall be held in abeyance until the dispute is
resolved.  Buyer may, at its option, pay the disputed portion of any
invoice without thereby waiving its right to contest such disputed portion of
the invoice.  Upon final resolution of the dispute, any adjustment due
either Buyer or Seller shall bear interest at the Prime Rate in effect as of the
date upon which Buyer notifies Seller of the existence of a
dispute.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
V

    QUALITY

    

    5.1           Quality;
Specifications.   The coal supplied under this Agreement
shall meet the quality specifications set forth on Exhibit A on an “as received”
basis.  The coal supplied under this Agreement shall be raw coal,
crushed to two (2) inch maximum top size, and shall be substantially free of
impurities, such as bone, slate, rock, wood, tramp metal, and mine
debris.  In the event that the coal supplied hereunder contains
non-authorized components, Seller shall indemnify, defend and hold harmless
Buyer from and against any and all claims, liabilities, damages, fines,
penalties, costs and expenses, including reasonable attorney fees, that Buyer
may incur as a result of any non-conforming coal delivered
hereunder.  Such indemnification shall include, but shall not be
limited to, any costs, fines and penalties associated with environmental
remediation incurred by Buyer.

    

    Seller
recognizes that Buyer must comply with applicable state and federal
environmental regulations, including sulfur and particulate standards, and that
Buyer is required to receive a substantially uniform coal quality on a
day-to-day basis in order to comply with such regulations.  Seller
agrees to carefully utilize proper mining techniques and procedures, and to
properly maintain and operate the preparation plant at the Mine, so as to
minimize day-to-day deviations in quality.

    

    5.2           Weights.  The
weight of the coal delivered hereunder shall be determined by Buyer on the basis
of certified scales maintained at the Plant.  Empty and full truckload
weights shall be ascertained for each truckload delivery of
coal.  Buyer shall furnish to Seller the weight of each shipment of
coal to be received by Buyer within twenty-four (24) hours after delivery to the
Plant.

    

    5.3           Sampling
and
Analysis.                                                      Each
daily shipment of coal shall be sampled and analyzed within twenty-four (24)
hours of delivery to the Plant.  Such analysis of the coal designated
for delivery to Buyer shall be undertaken as a “quick analysis” by an
independent laboratory acceptable to Buyer.  Seller shall furnish the
results of such analysis by facsimile transmission to F.B. Culley Power Plant at
(812) 491-5366, within twenty-four (24) hours of delivery to the Plant. Such
analyses shall govern for the purposes of determining compliance with the
quality specifications required under this Agreement, except as otherwise
provided herein below:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               
      

            	
              A.

            	
              All
      sampling and analysis shall meet ASTM Standards. Seller shall retain
      sample splits at Seller’s Mine for a period of ninety (90)
      days.  Upon Buyer’s request, the retained sample split shall be
      sent to an independent laboratory for analysis and the results of such
      analysis shall govern as to the quality of the coal shipment as to which
      such sample pertains.

            

    

    

    
      	
               
      

            	
              B.

            	
              Sampling
      and analysis shall be performed on not greater than 2,000 ton
      batches.

            

    

    

    
      	
               
      

            	
              C.

            	
              If
      it is determined that samples have been obtained incorrectly, Seller and
      Buyer shall attempt to determine the effect, if any, on quality
      determinations as the same may apply to the price for coal paid by Buyer
      with respect to samples previously used by Buyer and Seller in their
      analyses.  If required, a reasonable adjustment shall be made in
      amounts invoiced and payments made to compensate for any differences in
      the gross calorific value of coal tested versus that of the coal which
      should have been tested.  If it is determined that sample
      analyses are in error, whether due to improper preparation of samples to
      be analyzed, faulty analytical equipment, or faulty laboratory methods, an
      appropriate adjustment shall be made in amounts invoiced and payments made
      to correct for errors in gross calorific values determined by the sample
      analyses.  However, no adjustment hereunder shall be retroactive
      for a period in excess of ninety (90) days prior to either (i) the date
      that either party first questioned in writing the correctness of the
      sampling procedures or the accuracy of the sample analyses, or (ii) the
      date that the inaccuracy was first determined, whichever was the earlier
      date.

            

    

    

    
      	
               
      

            	
              D.

            	
              Coal
      not complying with the quality specifications set forth herein will not be
      accepted by Buyer unless authorized prior to shipment.  At the
      option of the Buyer, acceptance of non-conforming coal may be conditioned
      upon reductions in price which shall be agreed upon in writing prior to
      delivery of any such non-conforming
coal.

            

    

    

    5.4.           Limitation
of Seller’s Warranties.  Seller agrees to fully meet Buyer’s
specifications for all coal provided pursuant to this
Agreement.  Provided that Seller strictly complies with Buyer’s
specifications, then Buyer agrees that Seller makes no other warranty, express
or implied, including but not limited to, warranties of merchantability or of
fitness for a particular purpose.

    

    5.5           Buyer’s
Extraordinary Termination Rights.  If Buyer is suffering
damages at the Plant from (a) unit derating; (b) increased forced outage rates;
or (c) other abnormal operating conditions, solely due to characteristics of the
coal supplied by Seller, although the coal supplied by Seller hereunder may be
meeting the quality specifications set forth in Exhibit A, Buyer shall notify
Seller of the nature of the operating problem, and the specific coal
characteristic(s) that is (are) causing such problem.  Buyer and
Seller shall promptly undertake good faith efforts to determine if there are
practical methods to eliminate or substantially mitigate any such problem and,
with mutual agreement by Buyer and Seller, shall take appropriate corrective
action.  If, after a period of one (1) month from the date Buyer
notifies Seller of a problem with burning the coal of the quality being
supplied, the parties have not reached agreement and executed a document
defining a mutually acceptable way to eliminate or mitigate such problem, which
agreement and execution shall not be unreasonably withheld, Buyer shall have the
option of terminating this Agreement by giving written notice to Seller, with
such termination to be effective one (1) month after the giving of such
notice.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
VI

    DELIVERY

    

    6.1           Deliveries.  Coal
conforming to Buyer’s specifications shall be supplied to Buyer at the
Plant.  Truck delivery will normally be between the hours of 6:00 A.M.
and 6:00 P.M., Monday thru Friday, except during periods when the Plant is
closed due to scheduled vacations, holidays, or periods of Force Majeure, unless
special restricted or extended hours are mutually agreeable to Buyer and Seller.
Seller shall obtain all applicable tariffs or transportation contracts for the
truck movement of coal hereunder.  Buyer shall pay all transportation
costs per the terms specified in this Agreement, and Seller shall bear all risk
of loss until the coal is delivered to the Plant.

    

    6.2           Rejection.  Buyer
shall have the right to reject coal which does not conform to the specifications
set forth in Exhibit A, on a per shipment basis.  A “shipment” is the
quantity of coal delivered to Buyer on a given day, upon which ASTM sampling and
analysis have been performed.  A shipment shall not exceed 2,000 tons,
unless Buyer shall agree to the delivery of quantities in excess
thereof.  Any shipments rejected by Buyer shall be returned to Seller,
at Seller’s expense, and shall be credited against Buyer’s purchase requirements
hereunder.

    

    6.3           Redirection
of Deliveries.  Buyer shall have the right to redirect the
delivery of coal purchased under this Agreement to any destination other than to
the Plant, so long as Buyer agrees to reimburse Seller for any additional
transportation or handling costs incurred by Seller to effectuate such
redirected deliveries.

    

    6.4           Failure
of Seller’s Trucks to Perform.  In the event that any person
retained by Seller to deliver coal to the Plant fails to provide adequate
equipment and drivers to deliver coal purchased under this Agreement, and such
failure to perform shall continue for a period of thirty (30) days, Buyer may
arrange for an alternate trucker to provide trucking services to make-up
shortfall tonnage caused by Seller’s contracted trucker’s failure to
perform.  Seller shall reimburse Buyer for trucking costs incurred to
deliver such shortfall tonnage so long as the cost per ton incurred by Buyer’s
alternative trucker does not exceed the price paid to Seller’s contracted
trucker.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6.5           Alternate
Supply Source.  The source of coal subject to this Agreement
shall be determined according to the Annual Delivery Plan as detailed in Section
1.3.  Seller, with Buyer’s prior written approval, may however deliver
to Buyer coal conforming to the specifications set forth in Exhibit A, from an
alternate source (“Alternate Source Coal”).  Buyer shall retain the
right to revoke such approval at Buyer’s discretion upon providing Seller with
seven (7) days’ prior written notification.  The transportation cost
for delivering Alternate Source Coal shall be determined in accordance with
Section 4.1 provided that in no event will the transportation cost be greater
than the delivered cost per million BTU of coal from Seller’s Mines as provided
for in the Annual Delivery Plan, unless otherwise mutually agreed.

    

    Seller shall
use commercially reasonable efforts, as defined in Section 1.5, to comply with
the Annual Delivery Plan.  Seller shall provide Purchaser with
documentation supporting its inability to comply if such inability exceeds
15% of planned deliveries from a particular source Mine designated in
the Annual Delivery Plan and the deviation from the Annual Delivery Plan
results in increased transportation costs to Buyer (i.e. more deliveries
from Oaktown Mine or at the Oaktown Mine rate in substitution for planned
Prosperity Mine deliveries).  Without limiting the generality of the
foregoing, except for pro-rata reductions applicable to all buyers in the event
of a Force Majeure affecting the Prosperity Mine, Seller shall not be permitted
to deviate from the Annual Delivery Plan in order to ship to
another buyer all or any portion of the coal from the Prosperity Mine that
is contemplated under the Annual Delivery Plan to be delivered to Buyer, where
such deviation would result in any increase in overall cost to
Buyer.

    

    

    ARTICLE
VII

    COAL WASTE DISPOSAL
RIGHTS

    

    7.1           Coal
Waste Disposal Rights.  While the Cypress Creek permit allows
during the Term of this Agreement, Buyer shall have the right to dispose of Coal
Waste at Seller’s Cypress Creek Mine.  Such disposal shall be
performed in a manner compliant with all legal requirements.  Seller
shall be responsible for the method of such disposal at Cypress Creek
Mine.  Seller shall recover any transportation, tipping, and disposal
costs it incurs to carry out such disposal, without any additional charges to
provide it with a profit.  To the extent the ability to engage in coal
waste disposal is no longer possible due to environmental constraints, Seller
shall notify Buyer in writing of such change in circumstances.  Seller
shall use commercially reasonable efforts to extend the duration of the ability
to dispose of Coal Waste at the Cypress Creek Mine.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
VIII

    MINING FACILITIES AND
PRACTICES

    

    8.1           Seller’s
Warranty.  Seller shall maintain at the Mines, efficient
machinery, equipment, and other facilities required to produce, prepare, supply
and deliver the quality and quantity of coal contemplated by this
Agreement.  Seller further agrees to operate and maintain the
machinery, equipment and facilities at the Mines in accordance with good mining
practices so as to efficiently produce, prepare and deliver the
coal.  In addition, Seller shall conduct all operations at the Mines
in compliance with any and all applicable federal, state and local laws, rules
and regulations, and Seller shall observe and perform all terms and provisions
of any contract or agreement with third parties relative to the recovery and
sale of coal from the reserves dedicated to this Agreement.

     

    ARTICLE
IX

    FORCE
MAJEURE

    

    9.1.           General.  “Force Majeure”
shall mean acts of God, acts of the public enemy, insurrections, riots,
terrorism, labor disputes, strikes, lockouts, boycotts, labor and material
shortages, fires, explosions, landslides, earthquakes, storms, roof falls, rib
falls, cave-ins, floods, aquifers, floor conditions, breakdowns of or damage to
equipment or facilities, interruptions to transportation or shortages of
transportation equipment, embargoes, blockades, acts of military authorities,
inability to obtain permits or authorization from any government authority, any
laws, orders, rules, regulations, enforcement proceedings or other acts or
restraint of governmental authority, unexpected mining conditions including
unforeseen changes in the coal seam, or faults or sandstone intrusions in the
coal seam, and other cause including unsafe working conditions, whether of the
kind or character herein enumerated or otherwise, which is not within the
control of the Party claiming excuse, whether or not foreseen or foreseeable,
which wholly or partly renders the mining removal, processing or loading of all
or part, of the normal output of the mine impractical or unfeasible, or renders
the accepting, utilizing, unloading, or intended use of the Coal impossible,
impractical or unfeasible, and which are not caused by acts or omissions of the
Party failing to perform.  Settlement of labor disputes shall be
deemed beyond the control and without the fault or negligence of the party
experiencing such event.  A change in market conditions including the
ability of Seller to sell Coal at a higher price, or Buyer to buy Coal at a
lower price, whether or not foreseeable, shall not be a Force
Majeure.  If such Party promptly gives notice to the other Party of
the nature and estimated duration of such Force Majeure, then the obligations of
the Party giving such notice and the corresponding obligations of the other
Party shall be suspended to the extent made necessary by and during the
continuance of such Force Majeure; provided, however, that the affected Party
shall make all reasonable efforts to eliminate the cause of such Force Majeure
and shall keep the other Party informed as to the continuance of the Force
Majeure.  During the estimated period of time, the other Party may
make arrangements to sell or purchase the estimated quantity of coal so affected
for the estimated time period.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9.2           Allocation
in Event of Reduced Capability.  If Force Majeure occurs and
results in, or is projected to result in, (i) a reduction or limitation of
Seller’s ability to supply coal from Seller’s Mine or (ii) the inability of
Buyer to accept or utilize coal at the Plant, then in the case of Seller, Seller
shall allocate available supplies of coal from Seller’s Mines on a pro-rata
basis among its customers, or others as required by law, to the extent that its
contracts with other customers give Seller the right to reduce its supply
obligations as a result of the Force Majeure.  In the case of Buyer,
it will spread its reduced ability to accept or utilize coal at the Plant among
all its suppliers to the Plant, committed at the time the Force Majeure
occurred, on a pro-rata basis to the extent that its contracts with other
suppliers give Buyer the right to reduce purchase obligations as a result of the
Force Majeure.  Any such allocation shall be determined on the basis
of the number of tons of coal which Seller is obligated to deliver to its
committed customers or Buyer are obligated to receive from its committed
suppliers at the time the Force Majeure occurred.

     

    ARTICLE
X

    RIGHT TO TERMINATE
AGREEMENT; SPECIFIC PERFORMANCE

    

    10.1           Non-Exclusive
Remedy.  The rights of one party or the other, or of both, to
terminate this Agreement without liability, which are specifically stated in
this Article and in other parts of this Agreement, are not exclusive, but are in
addition to any other rights recognized at law or in equity which may accrue to
one party or the other by reason of circumstances and conditions not dealt with
in these specific provisions.

    

    10.2           Force
Majeure.  If a Force Majeure event prevents the delivery or
purchase of more than fifty percent (50%) of the minimum tons of coal to be
supplied or received during a three (3) month period or longer, then the party not
suffering the Force Majeure, may, on fifteen (15) days written notice, terminate
this Agreement; provided, that if the event of Force Majeure on which the right
of termination was based is eliminated prior to the effective date of
termination, the termination right is voided.

    

    10.3           Change in
Regulations.  In the event that Buyer determines that it either
is or will be at a future date unable to burn the coal supplied under this
Agreement due to the quality of the coal and legally imposed regulations, Buyer
shall promptly notify Seller in writing.  The parties agree to make a
good-faith effort to resolve the problem in a manner to allow Buyer to continue
using Seller’s coal.  If after thirty (30) days the parties have not
reached agreement on a mutually acceptable solution, then Buyer shall have the
right by written notice given as early as possible to terminate this Agreement
on the future date after which it cannot legally burn coal from Seller’s
Mine.  Nothing herein shall be construed as requiring Buyer to incur
any significant added expense or significant capital investment to (i) treat or
alter the characteristics of the coal, (ii) blend the coal with any other fuel
including other coal, or (iii) make any modifications to the Plant to utilize
Seller’s coal.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.4            Default.  Subject
to the provisions of Article XIX, in the event of the failure of either party to
comply with any material obligation of this Agreement, either party shall have
the right to terminate this Agreement at any time by giving to the other fifteen
(15) days’ notice in writing of its intention to so terminate, specifying in
reasonable detail the nature of the default.  At the expiration of
said fifteen (15) days, unless the party in default shall have cured such
default, the party not in default shall have the right at its election to
terminate this Agreement forthwith.  Such right to terminate shall be
in addition to any other remedies at law or equity that the non-defaulting party
may have against the defaulting party.

    

    10.5           Specific
Performance.  It is expressly recognized and understood between
the parties that prompt and full deliveries by the Seller in accordance with
this Agreement are essential to Buyer.  Therefore, the parties agree
that in addition to, and not in limitation of, any and all other remedies to
which Buyer may be entitled by law, Buyer shall have the right to require
specific performance of this Agreement by the Seller, and Buyer shall have the
right, if necessary, to enter any appropriate judicial forum and, without bond
or other security, to obtain injunctions or other appropriate remedies against
Seller to prevent deliveries of any coal by the Seller to any third parties
while Seller is in default of or threatens default in the delivery of coal in
quantities and of a quality conforming to the specifications provided in this
Agreement.

     

    ARTICLE
XI

    INDEMNIFICATION

    

    11.1           Scope.  The
Seller agrees to indemnify, defend and hold harmless the Buyer, its affiliates,
and their agents and employees from any claims, demands, loss, cost damages,
expense or liability of any kind or nature, including attorneys’ fees, resulting
from the performance of this Agreement or arising in any manner from any product
supplied or activity required by this Agreement, unless such claim, demand,
loss, cost, damage, or liability arises from the sole negligence or intentional
misconduct of the Buyer.

    

    11.2           Effect of
Release.  If the Seller obtains a release from any person for
damages resulting from the performance of this Agreement, it shall not affect
the Buyer’s rights nor the Seller’s obligations herein.

    

    11.3           Notice.  The
Seller agrees to immediately notify the Buyer in the event any accident, injury,
or damage occurs during the course of performance of this Agreement, or in the
event that anyone makes any claim for damages alleged to have resulted from the
performance or nonperformance of this Agreement, or from the negligence of the
Seller, its agents, or employees.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      ARTICLE
XII

      NOTICES

    

    

    12.1           Notices.  Any
official notice, request for approval or other document required to be given
under this Agreement shall be in writing, unless otherwise provided herein, and
shall be deemed to have been sufficiently given (i) on the date of delivery in
person or transmitted by facsimile or other electronic media, (ii) one business
day after delivery to an established mail service for overnight delivery, or
(iii) two (2) business days after dispatch in the United States mail, postage
prepaid, for mailing by first class, certified, or registered mail, return
receipt requested, and addressed as follows:

    

    If the
notice is to Seller:

    

    Randy
Beck

    Vectren
Fuels, Inc.

    One
Vectren Square

    Evansville,
IN 47708

    

    If the
notice is to Buyer:

    

    Southern
Indiana Gas and Electric Company

    Attn:  Ron
Jochum

    One
Vectren Square

    Evansville,
IN 47708

    

    With a
copy to:

    Ronald E.
Christian

    Senior
Vice President, Chief Administrative Officer, General Counsel and
Secretary

    Vectren
Corporation

    One
Vectren Square

    Evansville,
IN 47741

    

    ARTICLE
XIII

    GOVERNING LAW;
FORUM

    

    13.1           Governing
Law.  This Agreement and any questions concerning its validity,
construction or performance shall be governed by the laws of the State of
Indiana without reference to any choice of law provisions.  Any action
which may be commenced based upon this Agreement, shall be brought only in the
Vanderburgh Superior Court or Circuit Court, in Evansville, Vanderburgh County,
Indiana.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
XIV

    RELATIONSHIP OF THE
PARTIES

    

    14.1           Relationship.  The
Seller, and any person or entity performing on its behalf, shall not be an
employee of the Buyer, but shall operate as and have the status solely as that
of a vendor.  The Buyer shall not be required to withhold or pay FICA
tax, unemployment, workers’ compensation, or other insurance or tax on behalf of
the Seller, its agents or employees. The Seller shall not at any time hold
itself out as an employee of Buyer. This Agreement does not create, nor shall it
be deemed to create, as between Seller and Buyer any relationship other than
that of vendor and purchaser.

    

    ARTICLE
XV

    ASSIGNMENT

    

    15.1           Assignment.  Either
party may assign this Agreement and its rights hereunder to its parent company,
or any affiliate or subsidiary of its parent company or of itself, and only to
such a party, without the consent of the other party.  Otherwise, this
Agreement may not be assigned wholly or in part by either party without the
written consent of the other party, which consent shall not be unreasonably
withheld.  No assignment shall release the assignor from its financial
responsibility hereunder, unless expressly agreed to in writing by the other
party.  Subject to the foregoing limitations, all of the provisions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto, their successors, and assigns.  Nothing stated herein shall be
construed to limit Buyer’s unilateral right to resell, transfer, pledge or
assign the delivery right to any coal delivered under this Agreement after Buyer
takes title thereto.

    

    

    ARTICLE
XVI

    BUYER’S INSPECTION
RIGHTS

    

    16.1           Inspection.  The
Buyer and its duly authorized representatives shall have the right during
regular business hours to make reasonable inspections of the Seller’s records
pertaining to this Agreement, which shall include Seller’s records pertaining to
the quantity and quality of the coal supplied hereunder, along with shipping
records relating to said coal. Buyer and its duly authorized representatives
shall also at all reasonable times have the right and privilege to inspect the
Mines and facilities.  The Buyer shall provide the Seller with
reasonable notice before exercising any of the foregoing inspection rights. Any
representative of Buyer visiting the Mines shall be safety trained, sign
appropriate waivers, and sign in at the Mines’ office.

    

    ARTICLE
XVII

    COMPLETE AGREEMENT AND
CONFIDENTIALITY

    

    17.1           Entire
Agreement.  This Agreement contains the entire agreement
between the parties hereto, and no alteration or modification thereof shall be
binding unless in writing and signed by Buyer and Seller.  The titles
of the Articles and Sections in this Agreement have been inserted as a matter of
convenience for reference only and shall not control or affect the meaning or
construction of the terms and provisions thereof.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    17.2           Confidentiality.  Buyer
and Seller agree to use reasonable efforts to maintain this Agreement (including
attachments) as confidential and not to disclose, without the consent of the
other party, the terms of this Agreement to any third parties (other than
consultants, legal counsel, and accountants retained by a party) except in
response to or to avoid the issuance of legal process; provided that the parties
may, without the consent of the other party, disclose this Agreement, with the
request that it be treated as confidential, in connection with securing or
maintaining any permits or license, in connection with any financing of
securities, complying with reporting or filing requirements with any local,
state, or federal agencies, or responding to any inquiries or requests by any
state, local, or federal agencies.  Neither party shall incur any
monetary damage or liability to the other party for failure of or breach of the
provisions of this Section 17.2.

    

    ARTICLE
XVIII

    HEADINGS

    

    18.1           Headings.  The
headings of the Articles and Sections of this Agreement are included only as
reference and shall not limit or alter the meaning or any of the terms and
conditions of this Agreement.

    

    ARTICLE
XIX

    SEVERABILITY

    

    19.1           Severability.  The
provisions of this Agreement are severable, and the invalidity or
unenforceability of any one or more provision shall not affect or limit the
validity of the remaining provisions. Should any particular provision be held to
be unreasonable or unenforceable for any reason, then such provision shall be
given effect and enforced to whatever extent would be reasonable and enforceable
under the applicable law.

    

    ARTICLE
XX

    DISPUTE
RESOLUTION;
TERMINATION

    

    20.1           Moratorium
on Actions.  Except as otherwise specifically provided in or
permitted by this Agreement, all disputes, differences of opinion, or
controversies arising in connection with this Agreement shall be resolved first,
by the use in good faith for a period of ten (10) days, of mutual best efforts
to arrive at an agreeable resolution.  If, after negotiating in good
faith for a period of ten (10) days, the parties are unable to agree upon a
resolution of any such dispute, difference or controversy,  then
either party shall have the right to pursue any remedies that such party may
have at law or in equity.

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN WITNESS WHEREOF, Seller and
Buyer have caused this Agreement to be signed in their respective corporate
names by their respective proper corporate officers, all as of the date first
written above.

    

    

                                                                  VECTREN FUELS, INC.

      

      By: /s/ Randy L.
Beck                                       

      

      Its: Randy L. Beck,
President                         

      (Printed Name and Title)

      

      

      

      

      
        	
                 
      

              	 	
                SOUTHERN
      INDIANA GAS AND 

                ELECTRIC
      COMPANY d/b/a VECTREN
      

                POWER SUPPLY,
      INC.

              

      

      

      By: /s/ William
Doty                            

      

      Its:William Doty,
President                  

      (Printed Name and Title)

      

      

      

      

    

    

    

    

    

    

    

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
A

    

    COAL
QUALITY SPECIFICATIONS

    

    

    The following coal quality
specifications must be met with respect to each shipment of coal prepared for
daily shipment during the Term of this Agreement.  All of the
following specifications are on an “as received” basis.

    

    
      	
              Coal
      Characteristics

            	
              Monthly
      Weighted Average

            	
              Penalty
      Threshold

            	
              Shipment
      Rejection Limits

            
	 
      	 
      	 
      	 
      
	
              Calorific
      value,

              As
      received

            	
              11,000BTU/lb

            	
              N/A

            	
              <
      10,700BTU/lb

            
	
              %
      Moisture, as received

            	
              14.5
      % Max.

            	
              N/A

            	
              >16%
      Max.

            
	
              %
      Ash, as received

            	
              2009

              12%
      Max.

               

              2010, 11, 12, 13,
      14

              10.5%

            	
               

              +1%

               

               

              +1%

            	
              2009

              >14%Max.

               

              2010, 11, 12, 13,
      14

              >12%

            
	
              SO2
      (lb/mmBTU)

            	
              7.5
      lb/mmBTU

               

            	
              +.25lb/mmBTU

               

            	
              >8.0
      lb SO2/mmBTU

               

            
	
              Ash
      Fusion, softening, H=W red

            	
              2100
      deg. F Min.

            	
              N/A

            	
              2100
      deg. F Min.

            
	
              Hardgrove
      Grindability Index

            	
              53
      Min.

            	
              N/A

            	
              51.5
      Min.

            
	
              Nominal
      Size

            	
              2”
      x 0” Max.

            	
              N/A

            	
              2”
      x 0” Max.

            
	
              Percent
      passing 1⁄4 inch screen

            	
              >50%

            	
              N/A

            	
              55%

            
	
              Chlorine

            	
              .05%
      Max.

            	
              N/A

            	
              0.1%Max

            

    

    

    The above coal quality characteristics
must be met with respect to each shipment of coal prepared for daily shipment
against this Agreement with such shipment not to exceed 2,000
tons.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
B

    

    Penalties:

    
      	 
      	
              Unit
      (above threshold band)

            	
              Penalty
      per Unit or any portion thereof (Penalty per MMBTU) above
    band

            
	
              Ash
      %

            	
              1%

            	
              $.01

            
	
              SO2
      lb/MMBTU

            	
              .1
      lb

            	
              $.01

            

    

    

    

    

    EXAMPLE
OF HOW PENALTIES WILL BE CALCULATED

    
      	 
      	 
      	
              2 –
      Ash

            	
              3 –
      SO2

            
	
              Hypothetical

              Monthly
      Weighted

              Average

            	
               

              A

            	
               

              12.2%

            	
               

              7.60#

            
	
              Threshold
      Band

            	
              B

            	
              12%

            	
              7.50#

            
	
              Above
      Threshold Band

            	
              A –
      (upper band limit)

            	
              .2%

            	
              .1#

            
	
              #
      of Units or Portion Thereof Exceeding Threshold Band

            	
              C

            	
              .2

            	
              1

            
	
              Penalty  Per
      Units Above Threshold Band

            	
              D

            	
              .01

            	
              .01

            
	
              Penalty
      Per MMBTU

            	
              C x
      D

            	
              .002

            	
              .01

            
	
              Penalty
      on 3,000 tons

              (assumes
      11,000 BTUs per lb)

            	 
      	
              $132.00

            	
              $660.00exhibit10_3.htm

     

    A.B.
BROWN

    COAL
SUPPLY AGREEMENT

    

    

    

    THIS COAL SUPPLY AGREEMENT
(“Agreement”) is entered into effective the 1st day of
January, 2009, between VECTREN
FUELS, INC., an Indiana corporation (“Seller”), whose principal business
address is One Vectren Square, Evansville, Indiana 47708, and SOUTHERN INDIANA
GAS AND ELECTRIC COMPANY d/b/a VECTREN POWER SUPPLY, INC.
 (“Buyer”), whose
principal business address is One Vectren Square, Evansville, Indiana
47708.

    

    WITNESSETH,
That:

    

    WHEREAS, Buyer desires to
secure to the extent of the quantities and for the period hereinafter stated, a
supply of bituminous coal of the quality hereinafter set forth, for use in its
A.B. Brown generating plant (“Plant”); and

    

    WHEREAS, Seller represents
that it is experienced in the commercial production and preparation of coal and
that it owns, has leased, or controls the hereinafter mentioned reserves of
bituminous coal which are assigned to its Cypress Creek, Prosperity and Oaktown
Mines (“Seller’s Mines” or “Mines”); and

    

    WHEREAS, Seller desires to
sell coal to Buyer and Buyer desires to buy coal from Seller, upon the terms and
conditions hereinafter set forth.

    

    NOW THEREFORE, in
consideration of the mutual covenants contained herein, Seller agrees to sell
and deliver coal to Buyer and Buyer agrees to purchase and accept delivery of
coal from Seller, pursuant to the terms and conditions set forth as
follows:

    

    ARTICLE
I

    AGREEMENT OF SALE AND
PURCHASE

    

    1.1           Sale and
Purchase; Source of Coal.   Seller agrees to sell and
Buyer agrees to purchase, the quantity and quality of coal specified herein, on
the terms and subject to the conditions hereinafter set forth.  The
source of coal to be supplied under this Agreement shall be the Seller’s
Mines.  Alternate Source Coal, as defined hereinafter, may be supplied
by Seller, subject to the provisions of Section 6.5 of this
Agreement.

    

    1.2           Dedication
of Reserves.  Seller represents that it owns or has leased, and
will dedicate and set aside for this Agreement, such quality and quantity of
coal reserves at Seller’s Mines, as are required for full performance of
Seller’s obligations hereunder.  Seller represents and warrants that
it has the legal right to mine and sell such coal reserves.  Seller
will not sell, nor contract to sell to others, coal from said reserves in such
quantity as to jeopardize Seller’s ability to deliver the total quantity of coal
Seller is obligated to deliver to Buyer under this Agreement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.3           Annual
Delivery Plan.  Seller has dedicated and set aside for this
Agreement such quality and quantity of coal reserves at Seller’s Mines as are
required for full performance of Seller’s obligations
hereunder.  Seller warrants that such reserves are assigned to
Seller’s Cypress Creek, Prosperity and Oaktown Mines.  Because the
availability of coal may vary from each of Seller’s Mines during certain
periods, Buyer and Seller hereby agree, on an annual basis, to meet to discuss,
coordinate, and agree to a plan (“Annual Delivery Plan”) for the delivery of
coal to Buyer’s Plant.  The Annual Delivery Plan shall specify the
source and volumes from each source to be delivered to the Plant under this
Agreement.  Transportation charges for delivering coal to Buyer’s
Plant from either of Seller’s Mines shall be determined in Accordance with
Section 4.1 and Section 6.5.  When developing the Annual Delivery
Plan, every attempt shall be made to deliver coal to Buyer in accordance with
Buyer’s instructions.  Coal delivered according to the Annual Delivery
Plan shall also meet the coal quality specifications outlined in Exhibit
A.

    

    1.4           Title and
Risk of Loss.  The sale of coal under this Agreement shall
occur, and ownership and risk of loss shall pass from Seller to Buyer, upon
delivery of the coal at the Plant.

    

               1.5           Opening
of Oaktown Mine.  Buyer acknowledges that Seller’s Oaktown Mine is
still in the construction/development phase, that the Oaktown Mine is not
forecast to commence production until May 2009, or be operating at full capacity
(250,000 tons/mo.) until the first quarter of 2010, that Seller’s ability to
deliver coal from Seller’s Oaktown Mine in the full quantities contemplated
under the 2009 Annual Delivery Plan is contingent upon Seller’s Oaktown
Mine phasing in 2009 monthly production, commencing May, 2009, at the following
monthly rates (in 000’s):

    

    May                     63

    June                     83

    July                    
109

    August                              
145

    September                          145

    October                              146

    November                          219

    December                           219

     

    Seller’s ability to deliver coal at the
contemplated levels in 2010 and thereafter is contingent upon the Oaktown Mine
operating at its projected full capacity from and after January, 2010. 
Seller shall use commercially reasonable efforts to complete the
construction/development of the Oaktown Mine, so that the same is operational to
facilitate mining and delivery of coal as contemplated by the 2009 Annual
Delivery Plan.  Nonetheless, Buyer agrees that Seller shall have no
liability under this Agreement, notwithstanding any provision to the contrary,
for failure to deliver the full quantities of coal from Seller’s Oaktown Mine as
contemplated by the 2009 Annual Delivery Plan to the extent applicable to delays
in the opening or full operation of, or failure to open, the Oaktown Mine so
long as Seller has used commercially reasonable efforts to accomplish the
same.  In years subsequent to 2009,  in the event Seller is unable to
deliver the full quantities of coal as contemplated in the then effective Annual
Delivery Plan, or if Seller is unable to provide an acceptable Annual
Delivery Plan meeting the volumes contemplated hereunder, due to delays in
the opening or full operation of, or failure to open, Seller’s Oaktown Mine,
the termination provisions of Section 9.2, Force Majeure, shall apply,
whether or not such failure to open or operate at full production would
otherwise constitute a Force Majeure.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Commercially reasonable efforts mean
efforts equivalent to those that would be exercised by an owner/operator of a
mine/mining facility of similar size and complexity to the Oaktown Mine acting
in good faith and in a commercially reasonable manner.

    

    

    ARTICLE
II

    TERM

    

    2.1           Term.  The
term of this Agreement shall commence on January 1, 2009, and shall continue
until and including December 31, 2014 (the “Term”).  Provided,
however, Buyer and Seller agree only the first four (4) years of the price per
ton of coal commencing on January 1, 2009 and continuing until and including
December 31, 2012 (“Pricing Period”) shall be specified in this
Agreement.  Pricing for years 2013 and 2014 of this Agreement shall be
determined in accordance with Section 4.4, Price.  No suspension of an
obligation under this Agreement by reason of Force Majeure shall extend the Term
of this Agreement, except upon mutual agreement of Seller and
Buyer.

     

    ARTICLE
III

    QUANTITY

    

    3.1           Quantity.  Seller shall sell
and deliver, and Buyer shall purchase and accept delivery of, coal at the Plant
in the following amounts during the Term of this Agreement:

    

                              
Tonnage                  Tons/month                    Maximum tons/month

    Year 1
(2009)                                           410,000                      34,000                                40,000

    Year 2
(2010)                                           410,000                      34,000                                40,000

    Year 3
(2011)                                           410,000                      34,000                                40,000

    Year 4
(2012)                                           410,000                      34,000                                40,000

    Year 5
(2013)                                           410,000                      34,000                                40,000

    Year 6
(2014                                        
   410,000                      34,000                                40,000

    

    Buyer may adjust the tonnage to be
delivered in any year to any amount within a range of fifteen percent (15%) more
or less than the tons specified for delivery in a particular year, it being
understood that any such adjustment may be made only upon fifteen (15) days
advance notice to Seller.  Unless otherwise agreed by Buyer at least
twenty-four (24) hours in advance, no daily delivery of coal shall exceed 2,000
tons.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    ARTICLE
IV

    PRICE ADJUSTMENT; QUALITY
PRICE ADJUSTMENT; GOVERNMENT IMPOSITION; RIGHT OF FIRST REFUSAL; INVOICING AND
PAYMENT

    

    4.1           Price
Adjustment.                                           The
Pricing Period for the Term of this Agreement shall be years
2009-2012.  The price per ton and MMBTU, F.O.B. mine, for the Pricing
Period shall be as listed below:

    

    PRICE

    Year                                $/Ton                                $/MMBTU

    2009                                $56.50                                $2.5682

    2010                                $58.76                                $2.6709

    2011                                $61.00                                $2.7727

    2012                                $62.00                                $2.8182

    

    In addition to the F.O.B. mine prices
above, there will also be per ton transportation charges to deliver the coal to
the Plant.  For shipments by truck, the transportation charges will include
the base transportation rates as set forth in Seller’s September 16, 2008 Offer
to Buyer plus a fuel surcharge which shall be adjusted on a monthly basis to
adjust for fluctuations in the price of diesel fuel.  The transportation
adjustment charge made by Seller shall be identical to the transportation
adjustment charge made by Seller’s contract carrier under the contract carrier’s
Coal Hauling Contract with Seller.  For shipments by rail, the
transportation charges will include the base transportation rate as set forth in
Seller’s September 16, 2008 Offer to Buyer plus a fuel surcharge, if any, to
adjust for fluctuations in the price of fuel above or below the level of fuel
cost included in the base transportation rate.

    

    The prices shall be adjusted (upward or
downward, as the case may be) for changes in Seller’s cost which are prudently
incurred and paid in connection with Mine production, sale, processing,
reclamation and loading of the coal due to a change or changes after January 1,
2009 in local, state and federal laws or regulations, or verifiable changes by a
government body (having competent jurisdiction over the subject matter) in the
interpretation of existing laws or regulations (but excluding laws relating to
income taxes, real and personal property taxes; provided, however, any other
taxes, including, but not limited to severance, carbon or labor related taxes,
such as unemployment, social security, black lung and worker’s compensation
shall be included).  Seller shall exercise all reasonable efforts to
minimize its costs attributable to such changes in laws or
regulations.  Any claim by Seller for an increase in price due to a
change in costs caused by a change in laws or regulations (as permitted above),
shall be net of any benefits, credits, deductions, depletion allowances, or
other reductions in costs allowed or allowable which become available to Seller
in connection with the Mine production, sale, processing, reclamation and
loading of coal due to a change or changes after January 1, 2009 in local,
state, and federal laws or regulations, or verifiable changes by the government
body (having competent jurisdiction over the subject matter).  Any
such claim shall be made within 90 days of when such change in costs occurs,
shall be fully supported by Seller’s accounting records and other documents
establishing the basis for the change as soon as reasonably practicable, and is
subject to Buyer’s audit.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.2           Quality
Price Adjustment.   If coal
delivered hereunder varies from the Coal Quality Specifications plus the penalty
threshold amounts identified in Exhibit A but Buyer does not exercise its
rejection right under Section 6.2, Coal quality adjustments pursuant to this
Section 4.2 shall be made decreasing the contract price of the coal to
compensate for variations in the “as received” monthly weighted average Ash and
SO2 content including the penalty threshold amounts of such coal as set forth in
the Coal Quality Specifications in Exhibit A.  The term “as received”
for purposes of this Agreement shall have that meaning defined in specifications
promulgated by the American Society for Testing and Materials
(“ASTM”).

    

    
      	
              A.  

            	
              Ash
      Contract Price Adjustment.  There shall
      be no Ash Contract Price adjustment increasing the contract price per ton
      of coal if the “as received” monthly weighted average ash content in such
      coal is equal to or less than the ash content set for in the Coal Quality
      Specifications in Exhibit A.

            

    

    

    If the
“as received” weighted average ash content of coal in any month is greater than
the ash content plus the penalty threshold amount as both are set forth in the
Coal Quality Specifications in Exhibit A, an adjustment decreasing the contract
price per ton of coal shall be calculated according to Exhibit B.

    

    
      	
              B.  

            	
              SO2
      Contract Price Adjustment. There shall be no SO2
      contract price adjustment increasing the contract price per ton of coal if
      the “as received” monthly weighted average SO2 content in such coal is
      equal to or less than the SO2 content set for in the Coal Quality
      Specifications in Exhibit A.

            

    

    

    If the
“as received” weighted average SO2 content of coal in any month is greater than
the SO2 content plus the penalty threshold amount as both are set forth in the
Coal Quality Specifications in Exhibit A, an adjustment decreasing the contract
price per ton of coal shall be calculated according to Exhibit B.

    

    4.3           Government
Imposition.  “Government Imposition” means
taxes, fees, or increases in Seller's operating costs resulting from any newly
adopted, promulgated, ordered, released, approved, enacted or amended statute,
regulation, rule, interpretation, decision, requirement (including without
limitation mine permit requirements and other regulatory requirements), standard
or method (collectively, "Requirements") imposed by any federal, state or local
government or government agency upon the mining, production, severance,
preparation or sale of Coal hereunder, including, but not limited to carbon tax,
severance taxes or fees on Coal produced or sold hereunder such as but not
limited to black lung tax, abandoned mine land fee, and any other state or
federal impositions imposed on a per ton basis or by reference to the mining,
production, severance, preparation or sale of coal, and ad valorem taxes on
Seller’s land, improvements, machinery, equipment and the like as well as
increases in Seller's taxes, fees or operating costs incurred as a result of a
change after the Effective Date in any such Requirements related to mine safety
or otherwise related to the manner and method of mining, production, severance,
preparation or sale of Coal hereunder.  The term does not include
federal or state income taxes; employee benefits or payroll taxes of general
application such as employer’s Social Security, unemployment or worker’s
compensation taxes or payments; any civil or criminal money fine or penalty
imposed as the result of failure to comply with any Law; or increases in
operating costs not related to any new or changed Requirements.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Adjustment to the Contract Price shall
be made for changes in Seller’s costs per Ton of Coal sold hereunder caused
directly by increased or decreased Governmental Impositions adopted,
promulgated, ordered, released, approved, or enacted after the Effective
Date.  Seller shall give prompt notice to Buyer of the amount of any
such increased or decreased cost per Ton of Coal sold hereunder incurred by
reason of a change of Governmental Imposition along with detailed documentation
of such amount which shall be supported by Seller’s accounting records and other
documents establishing the basis for the change which are subject to Buyer’s
audit.

    

    In the event of an increase in cost,
Seller in such notice further shall indicate the increase in Contract Price that
Seller will require which increase may not exceed the increase in Seller’s cost
caused by Governmental Impositions enacted or otherwise effective after the
Effective Date.  Within thirty (30) Days of receipt of such notice of
increase in cost, Buyer will give notice (“Buyer’s Notice”) that Buyer at its
option will either pay the requested increased Contract Price or will terminate
this Agreement as of the date that is the effective date of such change in
Government Regulation or thirty (30) days from Buyer’s Notice, whichever is
later.  Upon receipt of a Buyer’s Notice electing termination, Seller
shall have the option of rescinding its increase in the Contract Price per the
applicable change in Government Impositions, in which case this Agreement shall
not terminate but shall continue in full force and effect.

    

    In the
event of a decrease in cost, the Contract Price will be decreased by an amount
equal to the decrease in Seller’s cost caused by Governmental Impositions
enacted after the Effective Date.  If there are both increases and
decreases in cost, such increases and decreases shall be netted one against the
other.

    

    Notwithstanding
any other provision of this Section 4.3, there shall be no change in the
Contract Price as a result of any noncompliance with any Government Impositions,
or any civil or criminal fines or penalties imposed for failure to comply with
any Governmental Imposition currently existing or hereafter
enacted.  Additionally, adjustments to the Contract Price shall be
made hereunder only if the adjustment is allocated evenly to all coal that is
produced from Seller’s Mines, so that Buyer is allocated only its proportionate
share of such cost.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Any
adjustment to the Contract Price under this Section 4.3 will be
effective as of the date the change in Governmental Imposition is
effective.

    

    4.4           Right of
First Refusal.  The
Parties agree to negotiate in good faith, during
the period from April 1, 2012 to June 30, 2012, a new price and
specifications for coal quality for the supply of coal for years five (5) and
six (6).  Buyer shall have the right, but not the obligation, to agree
to the negotiated price and specifications for coal quality and continue receipt
of the Agreement quantity during years 2013 and 2014.  In the event
Buyer and Seller are unable to agree on a price and/or coal quality
specifications for years 2013 and 2014 by June 30,
2012, this Agreement shall expire December 31, 2012 unless otherwise agreed in writing by the
parties.

    

    4.5           Invoicing.  Seller
shall invoice Buyer weekly on a $ per MMBTU basis, the calculation of which
shall be based on the weekly average of the “as received” coal at the
Plant.  Invoices shall be electronically delivered to Buyer promptly
after the last shipment of the pertinent period once corresponding quality data
has been accumulated.

    

    4.6           Payment.  Buyer
shall mail payment within ten (10) days following Buyer’s receipt of Seller’s
invoices.  In the event that Buyer does not make payment in accordance
with the terms of this Agreement, then delinquent payments shall bear interest
at the prime rate of interest reported in the “Money Rates” section of “The Wall
Street Journal” (the “Prime Rate”), as of the first day of any such
delinquency.

    

    4.7           Errors or
Omissions.  In the event that any Seller’s invoice can be
demonstrated by Buyer to contain a material error or omission which unavoidably
delays Buyer’s ability to process payment of such invoice in a timely manner,
Seller shall extend the payment due date for the portion of the invoiced amount
which is affected, by the same number of days (from the time Buyer first
notified Seller of the error or omission) as it takes Seller to provide the
corrected or additional data required by Buyer.

    

    4.8           Disputed
Amount.  If Buyer disagrees with the amount of any invoice for
reasonable cause, Buyer shall promptly notify Seller by facsimile transmission,
followed promptly by written confirmation which shall set forth the basis for
such disagreement, so that the dispute may be resolved before the payment due
date.  If any portion of an invoice is not reconciled prior to the
payment due date, the undisputed amount shall be paid when due and the disputed
portion shall be held in abeyance until the dispute is
resolved.  Buyer may, at its option, pay the disputed portion of any
invoice without thereby waiving its right to contest such disputed portion of
the invoice.  Upon final resolution of the dispute, any adjustment due
either Buyer or Seller shall bear interest at the Prime Rate in effect as of the
date upon which Buyer notifies Seller of the existence of a
dispute.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
V

    QUALITY

    

    5.1           Quality;
Specifications.   The coal supplied under this Agreement
shall meet the quality specifications set forth on Exhibit A on an “as received”
basis.  The coal supplied under this Agreement shall be raw coal,
crushed to two (2) inch maximum top size, and shall be substantially free of
impurities, such as bone, slate, rock, wood, tramp metal, and mine
debris.  In the event that the coal supplied hereunder contains
non-authorized components, Seller shall indemnify, defend and hold harmless
Buyer from and against any and all claims, liabilities, damages, fines,
penalties, costs and expenses, including reasonable attorney fees, that Buyer
may incur as a result of any non-conforming coal delivered
hereunder.  Such indemnification shall include, but shall not be
limited to, any costs, fines and penalties associated with environmental
remediation incurred by Buyer.

    

    Seller
recognizes that Buyer must comply with applicable state and federal
environmental regulations, including sulfur and particulate standards, and that
Buyer is required to receive a substantially uniform coal quality on a
day-to-day basis in order to comply with such regulations.  Seller
agrees to carefully utilize proper mining techniques and procedures, and to
properly maintain and operate the preparation plant at the Mine, so as to
minimize day-to-day deviations in quality.

    

    5.2           Weights.  The
weight of the coal delivered hereunder shall be determined by Buyer on the basis
of certified scales maintained at the Plant.  Empty and full truckload
weights shall be ascertained for each truckload delivery of
coal.  Buyer shall furnish to Seller the weight of each shipment of
coal to be received by Buyer within twenty-four (24) hours after delivery to the
Plant.

    

    5.3           Sampling
and
Analysis.                                                      Each
daily shipment of coal shall be sampled and analyzed within twenty-four (24)
hours of delivery to the Plant.  Such analysis of the coal designated
for delivery to Buyer shall be undertaken as a “quick analysis” by an
independent laboratory acceptable to Buyer.  Seller shall furnish the
results of such analysis by facsimile transmission to A.B. Brown Power Plant at
(812) 985-9656, within twenty-four (24) hours of delivery to the Plant. Such
analyses shall govern for the purposes of determining compliance with the
quality specifications required under this Agreement, except as otherwise
provided herein below:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               
      

            	
              A.

            	
              All
      sampling and analysis shall meet ASTM Standards. Seller shall retain
      sample splits at Seller’s Mine for a period of ninety (90)
      days.  Upon Buyer’s request, the retained sample split shall be
      sent to an independent laboratory for analysis and the results of such
      analysis shall govern as to the quality of the coal shipment as to which
      such sample pertains.

            

    

    

    
      	
               
      

            	
              B.

            	
              Sampling
      and analysis shall be performed on not greater than 2,000 ton
      batches.

            

    

    

    
      	
               
      

            	
              C.

            	
              If
      it is determined that samples have been obtained incorrectly, Seller and
      Buyer shall attempt to determine the effect, if any, on quality
      determinations as the same may apply to the price for coal paid by Buyer
      with respect to samples previously used by Buyer and Seller in their
      analyses.  If required, a reasonable adjustment shall be made in
      amounts invoiced and payments made to compensate for any differences in
      the gross calorific value of coal tested versus that of the coal which
      should have been tested.  If it is determined that sample
      analyses are in error, whether due to improper preparation of samples to
      be analyzed, faulty analytical equipment, or faulty laboratory methods, an
      appropriate adjustment shall be made in amounts invoiced and payments made
      to correct for errors in gross calorific values determined by the sample
      analyses.  However, no adjustment hereunder shall be retroactive
      for a period in excess of ninety (90) days prior to either (i) the date
      that either party first questioned in writing the correctness of the
      sampling procedures or the accuracy of the sample analyses, or (ii) the
      date that the inaccuracy was first determined, whichever was the earlier
      date.

            

    

    

    
      	
               
      

            	
              D.

            	
              Coal
      not complying with the quality specifications set forth herein will not be
      accepted by Buyer unless authorized prior to shipment.  At the
      option of the Buyer, acceptance of non-conforming coal may be conditioned
      upon reductions in price which shall be agreed upon in writing prior to
      delivery of any such non-conforming
coal.

            

    

    

    5.4.           Limitation
of Seller’s Warranties.  Seller agrees to fully meet Buyer’s
specifications for all coal provided pursuant to this
Agreement.  Provided that Seller strictly complies with Buyer’s
specifications, then Buyer agrees that Seller makes no other warranty, express
or implied, including but not limited to, warranties of merchantability or of
fitness for a particular purpose.

    

    5.5           Buyer’s
Extraordinary Termination Rights.  If Buyer is suffering
damages at the Plant from (a) unit derating; (b) increased forced outage rates;
or (c) other abnormal operating conditions, solely due to characteristics of the
coal supplied by Seller, although the coal supplied by Seller hereunder may be
meeting the quality specifications set forth in Exhibit A, Buyer shall notify
Seller of the nature of the operating problem, and the specific coal
characteristic(s) that is (are) causing such problem.  Buyer and
Seller shall promptly undertake good faith efforts to determine if there are
practical methods to eliminate or substantially mitigate any such problem and,
with mutual agreement by Buyer and Seller, shall take appropriate corrective
action.  If, after a period of one (1) month from the date Buyer
notifies Seller of a problem with burning the coal of the quality being
supplied, the parties have not reached agreement and executed a document
defining a mutually acceptable way to eliminate or mitigate such problem, which
agreement and execution shall not be unreasonably withheld, Buyer shall have the
option of terminating this Agreement by giving written notice to Seller, with
such termination to be effective one (1) month after the giving of such
notice.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
VI

    DELIVERY

    

    6.1           Deliveries.  Coal
conforming to Buyer’s specifications shall be supplied to Buyer at the
Plant.  Truck delivery will normally be between the hours of 6:00 A.M.
and 6:00 P.M., Monday thru Friday, except during periods when the Plant is
closed due to scheduled vacations, holidays, or periods of Force Majeure, unless
special restricted or extended hours are mutually agreeable to Buyer and Seller.
Seller shall obtain all applicable tariffs or transportation contracts for the
truck movement of coal hereunder.  Buyer shall pay all transportation
costs per the terms specified in this Agreement, and Seller shall bear all risk
of loss until the coal is delivered to the Plant.

    

    6.2           Rejection.  Buyer
shall have the right to reject coal which does not conform to the specifications
set forth in Exhibit A, on a per shipment basis.  A “shipment” is the
quantity of coal delivered to Buyer on a given day, upon which ASTM sampling and
analysis have been performed.  A shipment shall not exceed 2,000 tons,
unless Buyer shall agree to the delivery of quantities in excess
thereof.  Any shipments rejected by Buyer shall be returned to Seller,
at Seller’s expense, and shall be credited against Buyer’s purchase requirements
hereunder.

    

    6.3           Redirection
of Deliveries.  Buyer shall have the right to redirect the
delivery of coal purchased under this Agreement to any destination other than to
the Plant, so long as Buyer agrees to reimburse Seller for any additional
transportation or handling costs incurred by Seller to effectuate such
redirected deliveries.

    

    6.4           Failure
of Seller’s Trucks to Perform.  In the event that any person
retained by Seller to deliver coal to the Plant fails to provide adequate
equipment and drivers to deliver coal purchased under this Agreement, and such
failure to perform shall continue for a period of thirty (30) days, Buyer may
arrange for an alternate trucker to provide trucking services to make-up
shortfall tonnage caused by Seller’s contracted trucker’s failure to
perform.  Seller shall reimburse Buyer for trucking costs incurred to
deliver such shortfall tonnage so long as the cost per ton incurred by Buyer’s
alternative trucker does not exceed the price paid to Seller’s contracted
trucker.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6.5           Alternate
Supply Source.  The source of coal subject to this Agreement
shall be determined according to the Annual Delivery Plan as detailed in Section
1.3.  Seller, with Buyer’s prior written approval, may however deliver
to Buyer coal conforming to the specifications set forth in Exhibit A, from an
alternate source (“Alternate Source Coal”).  Buyer shall retain the
right to revoke such approval at Buyer’s discretion upon providing Seller with
seven (7) days’ prior written notification.  The transportation cost
for delivering Alternate Source Coal shall be determined in accordance with
Section 4.1 provided that in no event will the transportation cost be greater
than the delivered cost per million BTU of coal from Seller’s Mines as provided
for in the Annual Delivery Plan, unless otherwise mutually agreed.

    

    Seller shall
use commercially reasonable efforts, as defined in Section 1.5, to comply with
the Annual Delivery Plan.  Seller shall provide Purchaser with
documentation supporting its inability to comply if such inability exceeds
15% of planned deliveries from a particular source Mine designated in
the Annual Delivery Plan and the deviation from the Annual Delivery Plan
results in increased transportation costs to Buyer (i.e. more deliveries
from Oaktown Mine or at the Oaktown Mine rate in substitution for planned
Prosperity Mine deliveries).  Without limiting the generality of the
foregoing, except for pro-rata reductions applicable to all buyers in the event
of a Force Majeure affecting the Prosperity Mine, Seller shall not be permitted
to deviate from the Annual Delivery Plan in order to ship to
another buyer all or any portion of the coal from the Prosperity Mine that
is contemplated under the Annual Delivery Plan to be delivered to Buyer, where
such deviation would result in any increase in overall cost to
Buyer.

    

    

    ARTICLE
VII

    MINING FACILITIES AND
PRACTICES

    

    7.1           Seller’s
Warranty.  Seller shall maintain at the Mines, efficient
machinery, equipment, and other facilities required to produce, prepare, supply
and deliver the quality and quantity of coal contemplated by this
Agreement.  Seller further agrees to operate and maintain the
machinery, equipment and facilities at the Mines in accordance with good mining
practices so as to efficiently produce, prepare and deliver the
coal.  In addition, Seller shall conduct all operations at the Mines
in compliance with any and all applicable federal, state and local laws, rules
and regulations, and Seller shall observe and perform all terms and provisions
of any contract or agreement with third parties relative to the recovery and
sale of coal from the reserves dedicated to this Agreement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      ARTICLE
VIII

      FORCE
MAJEURE

    

    

    8.1.           General.  “Force Majeure”
shall mean acts of God, acts of the public enemy, insurrections, riots,
terrorism, labor disputes, strikes, lockouts, boycotts, labor and material
shortages, fires, explosions, landslides, earthquakes, storms, roof falls, rib
falls, cave-ins, floods, aquifers, floor conditions, breakdowns of or damage to
equipment or facilities, interruptions to transportation or shortages of
transportation equipment, embargoes, blockades, acts of military authorities,
inability to obtain permits or authorization from any government authority, any
laws, orders, rules, regulations, enforcement proceedings or other acts or
restraint of governmental authority, unexpected mining conditions including
unforeseen changes in the coal seam, or faults or sandstone intrusions in the
coal seam, and other cause including unsafe working conditions, whether of the
kind or character herein enumerated or otherwise, which is not within the
control of the Party claiming excuse, whether or not foreseen or foreseeable,
which wholly or partly renders the mining removal, processing or loading of all
or part, of the normal output of the mine impractical or unfeasible, or renders
the accepting, utilizing, unloading, or intended use of the Coal impossible,
impractical or unfeasible, and which are not caused by acts or omissions of the
Party failing to perform.  Settlement of labor disputes shall be
deemed beyond the control and without the fault or negligence of the party
experiencing such event.  A change in market conditions including the
ability of Seller to sell Coal at a higher price, or Buyer to buy Coal at a
lower price, whether or not foreseeable, shall not be a Force
Majeure.  If such Party promptly gives notice to the other Party of
the nature and estimated duration of such Force Majeure, then the obligations of
the Party giving such notice and the corresponding obligations of the other
Party shall be suspended to the extent made necessary by and during the
continuance of such Force Majeure; provided, however, that the affected Party
shall make all reasonable efforts to eliminate the cause of such Force Majeure
and shall keep the other Party informed as to the continuance of the Force
Majeure.  During the estimated period of time, the other Party may
make arrangements to sell or purchase the estimated quantity of coal so affected
for the estimated time period.

    

    8.2           Allocation
in Event of Reduced Capability.  If Force Majeure occurs and
results in, or is projected to result in, (i) a reduction or limitation of
Seller’s ability to supply coal from Seller’s Mine or (ii) the inability of
Buyer to accept or utilize coal at the Plant, then in the case of Seller, Seller
shall allocate available supplies of coal from Seller’s Mines on a pro-rata
basis among its customers, or others as required by law, to the extent that its
contracts with other customers give Seller the right to reduce its supply
obligations as a result of the Force Majeure.  In the case of Buyer,
it will spread its reduced ability to accept or utilize coal at the Plant among
all its suppliers to the Plant, committed at the time the Force Majeure
occurred, on a pro-rata basis to the extent that its contracts with other
suppliers give Buyer the right to reduce purchase obligations as a result of the
Force Majeure.  Any such allocation shall be determined on the basis
of the number of tons of coal which Seller is obligated to deliver to its
committed customers or Buyer are obligated to receive from its committed
suppliers at the time the Force Majeure occurred.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
IX

    RIGHT TO TERMINATE
AGREEMENT; SPECIFIC PERFORMANCE

    

    9.1           Non-Exclusive
Remedy.  The rights of one party or the other, or of both, to
terminate this Agreement without liability, which are specifically stated in
this Article and in other parts of this Agreement, are not exclusive, but are in
addition to any other rights recognized at law or in equity which may accrue to
one party or the other by reason of circumstances and conditions not dealt with
in these specific provisions.

    

    9.2           Force
Majeure.  If a Force Majeure event prevents the delivery or
purchase of more than fifty percent (50%) of the minimum tons of coal to be
supplied or received during a three (3) month period or longer, then the party not
suffering the Force Majeure, may, on fifteen (15) days written notice, terminate
this Agreement; provided, that if the event of Force Majeure on which the right
of termination was based is eliminated prior to the effective date of
termination, the termination right is voided.

    

    9.3           Change in
Regulations.  In the event that Buyer determines that it either
is or will be at a future date unable to burn the coal supplied under this
Agreement due to the quality of the coal and legally imposed regulations, Buyer
shall promptly notify Seller in writing.  The parties agree to make a
good-faith effort to resolve the problem in a manner to allow Buyer to continue
using Seller’s coal.  If after thirty (30) days the parties have not
reached agreement on a mutually acceptable solution, then Buyer shall have the
right by written notice given as early as possible to terminate this Agreement
on the future date after which it cannot legally burn coal from Seller’s
Mine.  Nothing herein shall be construed as requiring Buyer to incur
any significant added expense or significant capital investment to (i) treat or
alter the characteristics of the coal, (ii) blend the coal with any other fuel
including other coal, or (iii) make any modifications to the Plant to utilize
Seller’s coal.

    

    9.4            Default.  Subject
to the provisions of Article XIX, in the event of the failure of either party to
comply with any material obligation of this Agreement, either party shall have
the right to terminate this Agreement at any time by giving to the other fifteen
(15) days’ notice in writing of its intention to so terminate, specifying in
reasonable detail the nature of the default.  At the expiration of
said fifteen (15) days, unless the party in default shall have cured such
default, the party not in default shall have the right at its election to
terminate this Agreement forthwith.  Such right to terminate shall be
in addition to any other remedies at law or equity that the non-defaulting party
may have against the defaulting party.

    

    9.5           Specific
Performance.  It is expressly recognized and understood between
the parties that prompt and full deliveries by the Seller in accordance with
this Agreement are essential to Buyer.  Therefore, the parties agree
that in addition to, and not in limitation of, any and all other remedies to
which Buyer may be entitled by law, Buyer shall have the right to require
specific performance of this Agreement by the Seller, and Buyer shall have the
right, if necessary, to enter any appropriate judicial forum and, without bond
or other security, to obtain injunctions or other appropriate remedies against
Seller to prevent deliveries of any coal by the Seller to any third parties
while Seller is in default of or threatens default in the delivery of coal in
quantities and of a quality conforming to the specifications provided in this
Agreement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      ARTICLE
X

      INDEMNIFICATION

    

    

    10.1           Scope.  The
Seller agrees to indemnify, defend and hold harmless the Buyer, its affiliates,
and their agents and employees from any claims, demands, loss, cost damages,
expense or liability of any kind or nature, including attorneys’ fees, resulting
from the performance of this Agreement or arising in any manner from any product
supplied or activity required by this Agreement, unless such claim, demand,
loss, cost, damage, or liability arises from the sole negligence or intentional
misconduct of the Buyer.

    

    10.2           Effect of
Release.  If the Seller obtains a release from any person for
damages resulting from the performance of this Agreement, it shall not affect
the Buyer’s rights nor the Seller’s obligations herein.

    

    10.3           Notice.  The
Seller agrees to immediately notify the Buyer in the event any accident, injury,
or damage occurs during the course of performance of this Agreement, or in the
event that anyone makes any claim for damages alleged to have resulted from the
performance or nonperformance of this Agreement, or from the negligence of the
Seller, its agents, or employees.

     

    ARTICLE
XI

    NOTICES

    

    12.1           Notices.  Any
official notice, request for approval or other document required to be given
under this Agreement shall be in writing, unless otherwise provided herein, and
shall be deemed to have been sufficiently given (i) on the date of delivery in
person or transmitted by facsimile or other electronic media, (ii) one business
day after delivery to an established mail service for overnight delivery, or
(iii) two (2) business days after dispatch in the United States mail, postage
prepaid, for mailing by first class, certified, or registered mail, return
receipt requested, and addressed as follows:

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    If the
notice is to Seller:

    

    Randy
Beck

    Vectren
Fuels, Inc.

    One
Vectren Square

    Evansville,
IN 47708

    

    If the
notice is to Buyer:

    

    Southern
Indiana Gas and Electric Company

    Attn:  Ron
Jochum

    One
Vectren Square

    Evansville,
IN 47708

    

    With a
copy to:

    Ronald E.
Christian

    Senior
Vice President, Chief Administrative Officer, General Counsel and
Secretary

    Vectren
Corporation

    One
Vectren Square

    Evansville,
IN 47741

    

    ARTICLE
XII

    GOVERNING LAW;
FORUM

    

    13.1           Governing
Law.  This Agreement and any questions concerning its validity,
construction or performance shall be governed by the laws of the State of
Indiana without reference to any choice of law provisions.  Any action
which may be commenced based upon this Agreement, shall be brought only in the
Vanderburgh Superior Court or Circuit Court, in Evansville, Vanderburgh County,
Indiana.

    

    ARTICLE
XIII

    RELATIONSHIP OF THE
PARTIES

    

    14.1           Relationship.  The
Seller, and any person or entity performing on its behalf, shall not be an
employee of the Buyer, but shall operate as and have the status solely as that
of a vendor.  The Buyer shall not be required to withhold or pay FICA
tax, unemployment, workers’ compensation, or other insurance or tax on behalf of
the Seller, its agents or employees. The Seller shall not at any time hold
itself out as an employee of Buyer. This Agreement does not create, nor shall it
be deemed to create, as between Seller and Buyer any relationship other than
that of vendor and purchaser.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
XIV

    ASSIGNMENT

    

    15.1           Assignment.  Either
party may assign this Agreement and its rights hereunder to its parent company,
or any affiliate or subsidiary of its parent company or of itself, and only to
such a party, without the consent of the other party.  Otherwise, this
Agreement may not be assigned wholly or in part by either party without the
written consent of the other party, which consent shall not be unreasonably
withheld.  No assignment shall release the assignor from its financial
responsibility hereunder, unless expressly agreed to in writing by the other
party.  Subject to the foregoing limitations, all of the provisions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto, their successors, and assigns.  Nothing stated herein shall be
construed to limit Buyer’s unilateral right to resell, transfer, pledge or
assign the delivery right to any coal delivered under this Agreement after Buyer
takes title thereto.

    

    

    ARTICLE
XV

    BUYER’S INSPECTION
RIGHTS

    

    16.1           Inspection.  The
Buyer and its duly authorized representatives shall have the right during
regular business hours to make reasonable inspections of the Seller’s records
pertaining to this Agreement, which shall include Seller’s records pertaining to
the quantity and quality of the coal supplied hereunder, along with shipping
records relating to said coal. Buyer and its duly authorized representatives
shall also at all reasonable times have the right and privilege to inspect the
Mines and facilities.  The Buyer shall provide the Seller with
reasonable notice before exercising any of the foregoing inspection rights. Any
representative of Buyer visiting the Mines shall be safety trained, sign
appropriate waivers, and sign in at the Mines’ office.

    

    ARTICLE
XVI

    COMPLETE AGREEMENT AND
CONFIDENTIALITY

    

    17.1           Entire
Agreement.  This Agreement contains the entire agreement
between the parties hereto, and no alteration or modification thereof shall be
binding unless in writing and signed by Buyer and Seller.  The titles
of the Articles and Sections in this Agreement have been inserted as a matter of
convenience for reference only and shall not control or affect the meaning or
construction of the terms and provisions thereof.

    

    17.2           Confidentiality.  Buyer
and Seller agree to use reasonable efforts to maintain this Agreement (including
attachments) as confidential and not to disclose, without the consent of the
other party, the terms of this Agreement to any third parties (other than
consultants, legal counsel, and accountants retained by a party) except in
response to or to avoid the issuance of legal process; provided that the parties
may, without the consent of the other party, disclose this Agreement, with the
request that it be treated as confidential, in connection with securing or
maintaining any permits or license, in connection with any financing of
securities, complying with reporting or filing requirements with any local,
state, or federal agencies, or responding to any inquiries or requests by any
state, local, or federal agencies.  Neither party shall incur any
monetary damage or liability to the other party for failure of or breach of the
provisions of this Section 17.2.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
XVII

    HEADINGS

    

    18.1           Headings.  The
headings of the Articles and Sections of this Agreement are included only as
reference and shall not limit or alter the meaning or any of the terms and
conditions of this Agreement.

    

    ARTICLE
XVIII

    SEVERABILITY

    

    19.1           Severability.  The
provisions of this Agreement are severable, and the invalidity or
unenforceability of any one or more provision shall not affect or limit the
validity of the remaining provisions. Should any particular provision be held to
be unreasonable or unenforceable for any reason, then such provision shall be
given effect and enforced to whatever extent would be reasonable and enforceable
under the applicable law.

    

    ARTICLE
XIX

    DISPUTE
RESOLUTION;
TERMINATION

    

    20.1           Moratorium
on Actions.  Except as otherwise specifically provided in or
permitted by this Agreement, all disputes, differences of opinion, or
controversies arising in connection with this Agreement shall be resolved first,
by the use in good faith for a period of ten (10) days, of mutual best efforts
to arrive at an agreeable resolution.  If, after negotiating in good
faith for a period of ten (10) days, the parties are unable to agree upon a
resolution of any such dispute, difference or controversy,  then
either party shall have the right to pursue any remedies that such party may
have at law or in equity.

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, Seller and
Buyer have caused this Agreement to be signed in their respective corporate
names by their respective proper corporate officers, all as of the date first
written above.

    

    

                                               

      

                                                                    VECTREN FUELS, INC. 

        

        By: /s/ Randy L.
Beck                                       

         

        Its: Randy L. Beck,
President                         

        (Printed Name and Title)

         

        

        

        

        
          	
                   
      

                	 	
                  SOUTHERN
      INDIANA GAS AND 

                  ELECTRIC
      COMPANY d/b/a VECTREN
      

                  POWER SUPPLY,
      INC.

                

        

        

        By:
/s/ William
Doty                            

        

        Its:William
Doty,
President                  

        (Printed Name and Title)

        

        

        

        

      

    

    

    

    

    

    

    

    

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
A

    

    COAL
QUALITY SPECIFICATIONS

    

    

    The following coal quality
specifications must be met with respect to each shipment of coal prepared for
daily shipment during the Term of this Agreement.  All of the
following specifications are on an “as received” basis.

    

    
      	
              Coal
      Characteristics

            	
              Monthly
      Weighted Average

            	
              Penalty
      Threshold

            	
              Shipment
      Rejection Limits

            
	 
      	 
      	 
      	 
      
	
              Calorific
      value,

              As
      received

            	
              11,000
      BTU/lb Min.

            	
              N/A

            	
              <
      10,700 BTU/lb

            
	
              %
      Moisture, as received

            	
              14.5%
      Max.

            	
              N/A

            	
              >16%
      Max.

            
	
              %
      Ash, as received

            	
              2009

              12
      % Max.

               

              2010, 11, 12, 13,
      14

              10.5%
      Max

            	
               

              +1%

               

               

              +1%

            	
              2009

              >14%
      Max.

               

              2010, 11, 12, 13,
      14

              >12%
      Max

            
	
              SO2
      (lb/mmBTU)

            	
              2009

              7.5
      lb/mmBTU Max.

               

              2010, 11, 12, 13,
      14

              6.5
      lb/mmBtu Max.

            	
               

              +.25lb/mmBTU

               

               

              +
      .25lb/mmBTU

            	
              2009

              >8.0
      lb/mmBTU Max.

               

              2010, 11, 12, 13,
      14

              >7.0lb/mmBtu
      Max.

            
	
              Ash
      Fusion, softening, H=W red

            	
              2100
      deg. F Min.

            	
              N/A

            	
              2,100
      deg. F Min.

            
	
              Hardgrove
      Grindability Index

            	
              53
      Min.

            	
              N/A

            	
              51.5
      Min.

            
	
              Nominal
      Size

            	
              2”
      x 0” Max.

            	
              N/A

            	
              2”
      x 0” Max.

            
	
              Percent
      passing 1⁄4 inch screen

            	
              50%

            	
              N/A

            	
              55%

            
	
              Chlorine

            	
              .05%

            	
              N/A

            	
              Max
      0.1%

            

    

    

    

    The above
coal quality characteristics must be met with respect to each shipment of coal
prepared for daily shipment against this Agreement with such shipment not to
exceed 2,000 tons.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
B

    

    Penalties:

    
      	 
      	
              Unit
      (above threshold band)

            	
              Penalty
      per Unit or any portion thereof (Penalty per MMBTU) above
    band

            
	
              Ash
      %

            	
              1%

            	
              $.01

            
	
              SO2
      lb/MMBTU

            	
              .1
      lb

            	
              $.01

            

    

    

    

    EXAMPLE
OF HOW PENALTIES WILL BE CALCULATED

    
      	 
      	 
      	
              2 –
      Ash

            	
              3 –
      SO2

            
	
              Hypothetical

              Monthly
      Weighted

              Average

            	
               

              A

            	
               

              13.2%

            	
               

              7.85#

            
	
              Threshold
      Band

            	
              B

            	
              >=13%

            	
              >=7.75#
      (2009)

            
	
              Above
      Threshold Band

            	
              A –
      (upper band limit)

            	
              .2%

            	
              .1#

            
	
              #
      of Units or Portion Thereof Exceeding Threshold Band

            	
              C

            	
              .2

            	
              1

            
	
              Penalty  Per
      Units Above Threshold Band

            	
              D

            	
              .01

            	
              .01

            
	
              Penalty
      Per MMBTU

            	
              C x
      D

            	
              .002

            	
              .01

            
	
              Penalty
      on 3,000 tons

              (assumes
      11,000 BTUs per lb)

            	 
      	
              $132.00

            	
              $660.00

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