Document:

exv10w60

Exhibit 10.60

PROMISSORY NOTE

New York, New York

	 	 	 

	$11,000,000

	 	November 9, 2010

     1. Obligation. FOR VALUE RECEIVED, ARMSTRONG LAND COMPANY, LLC, a Delaware limited
liability company (“Armstrong”), and each of the undersigned companies set forth on the
signature pages hereto (Armstrong, together with the undersigned companies herein collectively
referred to as the “Borrower”), hereby jointly and severally promise to pay to the order of
ELK CREEK, L.P., a Delaware limited partnership (the “Lender”), on the earliest to occur of
(i) May 31, 2014; (ii) the 91st day after the Patriot Notes (as hereinafter defined)
have been repaid in full and the mortgages securing the Patriot Notes have been released, (iii) the
effective date upon which any one or more of the Borrower entities, the Lender or any successor to
any one or more of the Borrower entities or the Lender registers any class of its securities under
the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as
amended (the “1934 Act”), or is required to file periodic reports under Section 15(d) of
the 1934 Act, or (iv) any of the events requiring a mandatory prepayment as provided in Section 6
of this Note (such earliest date is herein referred to as the “Maturity Date”), the
principal sum of ELEVEN MILLION AND NO/100 DOLLARS ($11,000,000) (the “Loan”), together
with interest compounded annually on the unpaid principal amount of the Loan at the rate of 3% per
annum (the “Fixed Interest”). Such interest shall accrue on the basis of a 365/366-day
year, as applicable, and for the applicable number of days elapsed, and shall be payable at the
Maturity Date if not earlier paid by the Borrower. As further consideration for the Loan made by
the Lender, the Borrower hereby, jointly and severally, agrees to pay to the Lender at the Maturity
Date contingent interest equal to the amount, if any, by which the Revenue Payments calculated in
the manner specified on Exhibit A attached hereto exceed the aggregate amount of accrued
Fixed Interest on the Note. All past due principal and/or interest shall bear interest at the
greater of (i) 4% per annum, compounded annually, or (ii) the applicable federal rate then in
effect under Sections 7872(f)(2)(B) and Section 1274(d) of the Internal Revenue Code for a demand
loan, and such interest on past due amounts shall be payable daily as it accrues. All payments
under this Note shall be made in lawful money of the United States of America and in immediately
available funds at the principal office of Yorktown Partners LLC or at such other place in the
state of New York as the holder hereof may from time to time designate in writing to the Borrower.
Notwithstanding anything to the contrary contained herein, in no event shall the interest or
contingent interest payable hereon, whether before or after maturity, exceed the maximum amount of
interest which, under applicable law, may be charged hereon to the Borrower.

     2. Option to Acquire Certain of the Subject Assets. As further consideration for the
Loan made by the Lender, subject to the repayment by the Borrower of the Patriot Notes in full, the
Borrower hereby grants to the Lender the right and option (the “Option”) to purchase an
undivided interest in the Subject Assets (as defined in Exhibit A attached hereto) equal to
the percentage represented by a fraction, the numerator of which is the aggregate principal amounts
advanced and accrued interest, including contingent interest, under this Note, and the denominator
of which is the aggregate amounts paid by the Armstrong Entities to repay or

 

 

repurchase and retire the Patriot Notes in full (the “Interest”) pursuant to the terms and
conditions set forth in that certain Option Agreement of even date hereof by and among the Borrower
and the Lender; provided, however, the Option and any and all rights created thereunder shall
remain subject and subordinate to mortgages securing and the liens created by the Patriot Notes, to
all rights of a mortgagee of a mortgage securing the Patriot Notes, and to all renewals,
amendments, modifications and extensions thereof, such that the Option shall not constitute an
encumbrance on the Subject Assets. The parties further agree that the Option and any rights
created thereunder shall be terminated upon any foreclosure sale conducted by mortgagee of a
mortgage securing the Patriot Notes, or upon any conveyance of the Subject Assets in lieu of
foreclosure and upon such termination shall be of no or force effect as to the aforementioned
mortgagee.

     3. Use of Proceeds. The proceeds of the Loan made by the Lender to the Borrower
under this Note shall be used solely to (i) repay the Borrower’s obligations under the notes issued
by any one or more of the Borrower entities to Patriot Coal Corporation or its affiliates in
partial consideration for the purchase by any one or more of the Borrower entities of the Subject
Assets, which notes are more particularly described on Exhibit B attached hereto (the
“Patriot Notes”) or (ii) repurchase and retire the Patriot Notes.

     4. Events of Default. The Borrower will be deemed to be in default under this Note
upon the occurrence of any of the following events (each an “Event of Default”): (i) upon
the Borrower’s failure to make any payment under this Note within fifteen (15) days of the date
when due, whether at the Maturity Date or otherwise; (ii) the failure of the Borrower to perform
any obligation under this Note or the Option Agreement, or upon any other breach by the Borrower of
this Note or the Option Agreement that is not cured within thirty (30) days after written notice
thereof from the Lender to the Borrower, unless such failure cannot reasonably be cured within such
thirty (30) day period, in which event the Borrower shall not be in default hereunder if it
commences to cure such failure within such thirty (30) day period and thereafter cures the same
with due diligence; (iii) upon the filing regarding the Borrower, or any of them, of any voluntary
or involuntary petition for relief under the United States Bankruptcy Code or the initiation of any
proceeding under any other liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency or reorganization law or other law for the general relief of debtors,
whether federal law of the United States of America or law of any other jurisdiction; or (iv) upon
the execution by the Borrower, or any of them, of an assignment for the benefit of creditors or the
appointment of a receiver, custodian, trustee or similar party to take possession of the
Borrower’s, or any of their, assets or property.

     5. Acceleration; Remedies On Default. Upon the occurrence of an Event of Default
described in Section 4(iii) or 4(iv) above, this Note shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any
other notice or declaration of any kind, all of which are hereby expressly waived by the Borrower.
During the continuance of any other Event of Default, the Lender at any time and from time to time
may without notice to the Borrower declare any or all of this Note immediately due and payable, and
this Note shall thereupon be immediately due and payable, without demand, presentment, notice of
demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice

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or declaration of any kind, all of which are hereby expressly waived by the Borrower. In
addition, upon the occurrence of an Event of Default the Lender will have, without limitation of
its rights and remedies under this Note or the Option Agreement and may pursue any legal or
equitable remedies that are available to it.

     6. Prepayment. Other than mandatory prepayments required pursuant to this Section 6,
the Borrower may not voluntarily prepay any portion of the Loan prior to the Maturity Date. The
Borrower shall make mandatory prepayments of amounts owed under this Note to the extent of any cash
proceeds the Borrower receives on account of (i) any sale of all or substantially all of the assets
of the Borrower, or (ii) any merger, consolidation, reorganization or other transaction involving
the Borrower after giving effect to which the holders of a majority of the outstanding equity
interests (on a fully diluted basis) of the Borrower immediately prior to such transaction will not
own a majority of the outstanding equity interests immediately following such transaction. Unless
otherwise agreed in writing by the Lender, each payment will be applied to the extent of available
funds from such payment in the following order: (A) first to the accrued and unpaid costs and
expenses under the Note, (B) then to accrued but unpaid interest, and (C) lastly to the outstanding
principal.

     7. Governing Law. The validity, construction and performance of this Note will be
governed by the internal laws of the State of New York, excluding that body of law pertaining to
conflicts of law.

     8. Attorneys’ Fees; Waivers. If this Note is placed in the hands of an attorney for
collection after an Event of Default, or if all or any part of the indebtedness represented hereby
is proved, established or collected in any court or in any bankruptcy, receivership, debtor relief,
probate or other court proceedings, the Borrower and all endorsers, sureties, guarantors and
accommodation makers of this Note jointly and severally agree to pay reasonable attorneys’ fees and
collection costs to the holder hereof in addition to the principal and interest payable hereunder.
The Borrower, and each of them, and all endorsers, sureties, guarantors and accommodation makers of
this Note hereby severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, notice of the acceleration of the
maturity of this Note, notice of acceptance of this Note, diligence in collecting, the bringing of
any suit against any party and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its terms, provisions and
covenants, or any releases or substitutions of any security, or any delay, indulgence or other act
of any trustee or any holder hereof, whether before or after maturity, all setoffs and
counterclaims and any and all other act event or condition which would otherwise be a defense
available to an endorser, surety, guarantor or accommodation maker. No Borrower shall exercise any
right of subrogation, contribution, indemnity, reimbursement or similar rights against another
Borrower with respect to any payments it makes under this Note until all of the amounts payable
under this Note have been indefeasibly paid and performed in full, and any amounts are paid in
violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of
the Lender and shall forthwith be paid to the Lender to reduce the amount of this Note. A separate
action may be brought against any one or more of the Borrower entities to enforce this Note whether
or not any other of the Borrower entities or any other person or entity is joined as a party.

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     9. Due Authorization; No Conflicts. The Borrower represents and warrants to the
Lender that: (i) each of them is duly organized or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization, (ii) each of them has all
power and authority to enter into this Note and that this Note and the transactions contemplated
herein have been approved by all requisite action by its directors, members or managers, as
applicable, (iii) this Note constitutes a legal, valid and binding obligation of each of them,
enforceable against each of them in accordance with its terms, and (iv) neither the execution, the
delivery or performance of this Note conflicts with any applicable law, any organizational document
of any of them, or any agreement, judgment, license, order or permit applicable to or binding upon
any of them or any of their properties.

[Remainder of this Page Intentionally Left Blank]

[Signature Pages Follow]

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     IN WITNESS WHEREOF, each of the undersigned, by its duly authorized person, has executed this
Note as of the date first set forth above.

	 	 	 	 	 
	 	ARMSTRONG LAND COMPANY, LLC

 	 
	 	By:  	/s/ J. Hord Armstrong, III
 	 
	 	 	J. Hord Armstrong, III

Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	ARMSTRONG RESOURCES HOLDINGS, LLC

 	 
	 	By:  	/s/ J. Hord Armstrong, III
 	 
	 	 	J. Hord Armstrong, III 	 
	 	 	Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	WESTERN DIAMOND, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, Manager 	 

	 	 	 	 	 
	 	WESTERN LAND COMPANY, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, Manager 	 
	 	 	 	 
	 

[Signature Page to Promissory Note]

 

 

EXHIBIT A

TO PROMISSORY NOTE

REVENUE PAYMENT CALCULATION

     1. Revenue Payment. The Borrower, jointly and severally, agrees to pay a contingent payment
(the “Revenue Payment”) in an amount calculated monthly equal to seven percent (7%) of the product
of (a) the Sales Price (as hereinafter defined) received by the Borrower, or any of them, for any
and all sales of coal derived from the Subject Assets from and after the date of this Note and
prior to the Maturity Date) times (b) a fraction, the numerator of which is the principal
amount of this Note, and the denominator of which is $100,000,000. The Revenue Payment is not a
real property interest in the Subject Assets, but is a contractual right to payments from the
Borrower.

     2. Definitions. The following terms shall have the following meanings:

“Sales Price” means, as calculated on a monthly basis, the per ton consideration
actually charged by the Borrower for each 2,000 pounds of coal derived from the Subject
Assets sold F.O.B. the mine after final preparation and loading without any deduction of
preparation and loading costs, transportation costs, sales commissions or selling expenses,
discounts, rebates, preparation charges or any other costs or charges whatsoever. In the
case of any coal derived from the Subject Assets not sold at arm’s length, sold to an
affiliate of the Borrower, consumed by the Borrower or sold for a consideration other than
money, the per ton consideration for computing the Sales Price shall be the average sale
price for coal of comparable quality under similar contracts, F.O.B. the mine at the time of
shipment or consumption without any deduction of preparation and loading costs,
transportation costs, sales commissions or selling expenses, discounts, rebates, preparation
charges or any other costs or charges whatsoever.

“Subject Assets” means the real property set forth and described on Exhibit
A-1 attached hereto.

     3. Borrower’s Duties.

	 	(a)	 	The Borrower shall keep records of truck scale weights, or river barge dead
weight surveys, or railroad car weights, whichever is applicable, together with
accurate surveys and progress maps used in conjunction with accepted and recognized
engineering methods which shall be taken as the basis for payment of the Revenue
Payment. The Borrower shall keep a true and correct record of all coal mined, removed
and sold from the Subject Assets and shall permit the Lender or its agents, at all
reasonable times, to inspect the records, and perform other practical and reasonable
investigations to check the accuracy of the records of the Borrower, at the Lender’s
sole cost. The Lender, through its agents, may enter upon the Subject Assets at any
reasonable time, subject to all federal, state and local regulations, statutes and
ordinances, for the purpose of verifying the quantity of coal removed therefrom.

A-1

 

	 	(b)	 	The Borrower has a duty to explore, develop, operate and maintain the Subject
Assets as would a reasonably prudent operator.

      4. Determination and Payment.

	 	(a)	 	Interest will accrue on the unpaid principal amount of the Revenue Payment
after the date when due at the same rate and computed and payable on the same basis as
interest on the Loans.

	 	(b)	 	As soon as possible, and in any event not less than 30 days prior to the
Maturity Date, the Borrower will notify the Lender thereof, and shall promptly provide
all information necessary or as may be requested by the Lender to enable the Lender to
determine the Revenue Payment. All determinations of the Revenue Payment by the Lender
shall be prima facia evidence of the amount thereof. In the event that the Borrower
disagrees with the Lender’s determination of the Revenue Payment, the Borrower shall
specify in good faith the portion that it disputes, and the undisputed amount thereof
shall be paid to the Lender upon the terms set forth in the Note, and the disputed
amount shall be placed into escrow with an escrow agent (who shall be a bank or trust
company organized under the laws of the United States of any state thereof with capital
in excess of $2,000,000,000) to be distributed upon the mutual agreement of the Lender
and the Borrower or resolution of the disputed amount by arbitration as provided in
paragraph 6 of this Exhibit A. The Lender and the Borrower will negotiate in
good faith to resolve the disputed amount, and at any time after 60 days after date
that the Revenue Payment was due, either party may require the disputed amount to be
resolved by arbitration as provided in paragraph 6. Interest shall accrue on the
portion of the disputed amount that is agreed upon or held to have been properly
payable.

     5. Treatment of Revenue Payment. The Borrower and the Lender each agree to report the Revenue
Payment as interest on its reports or returns for United States federal and state income and
franchise taxes purposes.

     6. Arbitration. Any disagreement between the Borrower and the Lender arising hereunder shall
be submitted to binding arbitration in accordance with the rules of the American Arbitration
Association then in effect. A panel of three arbitrators, knowledgeable with the coal industry in
the West Kentucky area, shall be named, one to be selected by the Borrower, one to be selected by
the Lender, and one to be selected by the other two arbitrators. If the two arbitrators appointed
by the Borrower and the Lender cannot agree on the selection of the third neutral arbitrator
selection of such arbitrator shall be made by the American Arbitration Association. The
non-prevailing party shall be responsible for the reasonable expenses, fees and costs (including,
without limitation, reasonable attorney’s fees) incurred by both the Borrower and the Lender in
such arbitration. If royalty payments are disputed, then those payments shall be placed by the
Borrower in an interest-bearing escrow account to be distributed in accordance with the decision of
the arbitrators. With regard to any monetary sum or quantum measurement such as coal tonnages or
reserves, the figures determined by each of the arbitrators shall be averaged and the determination
which differs most from said average shall be excluded; the

A-2

 

remaining two determinations shall then be averaged and such average shall be final and conclusive.

     7. Assignments. Any assignment of this Note, in whole or in part, shall result in an
assignment of the Revenue Payment.

A-3

 

EXHIBIT A-1

TO PROMISSORY NOTE

SUBJECT ASSETS

     The Subject Assets shall mean all of the coal reserves and real property described in, and
conveyed, demised or otherwise granted in or under the following deeds and instruments, to Western
Land Company, LLC and/or Western Diamond, LLC, subject to all rights-of-way, easements, leases,
deed and plat restrictions, partitions, severances, encumbrances, licenses, reservations,
conveyances and exceptions which are of record as of the date of the exercise of the Option by the
Lender, and to all rights of persons in possession, and to physical conditions, encroachments and
possessory rights which would be evident from an inspection of the property at such time:

     (i) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC and Beaver Dam Coal Company to Western Diamond, LLC, dated September 19, 2006, of record in
Deed Book 363, page 369, in the Office of the Ohio County Clerk;

     (ii) The Partial Assignment of Coal Mining Lease from Central States Coal Reserves of
Kentucky, LLC to Western Diamond, LLC dated September 19, 2006, of record in Deed Book 363, page
428, in the Office of the Ohio County Clerk;

     (iii) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC and Beaver Dam Coal Company to Western Diamond, LLC, dated September 19, 2006, of record in
Deed Book 363, page 414, in the Office of the Ohio County Clerk;

     (iv) The Corporation Special Warranty Deed from Beaver Dam Coal Company to Western Diamond,
LLC, dated September 19, 2006, of record in Deed Book 363, page 393, in the Office of the Ohio
County Clerk;

     (v) The Corporation Special Warranty Deed from Beaver Dam Coal Company to Western Diamond,
LLC, dated September 19, 2006, of record in Deed Book 363, page 403, in the Office of the Ohio
County Clerk;

     (vi) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC to Western Diamond, LLC, dated May 31, 2007, of record in Deed Book 528, page 284, in the
Office of the Muhlenberg County Clerk, and the Deed of Confirmation between Central States Coal
Reserves of Kentucky, LLC, Western Diamond, LLC and Armstrong Coal Reserves, Inc., dated September
30, 2007, of record in Deed Book 531, page 205, in the Office of the Muhlenberg County Clerk;

     (vii) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC and Beaver Dam Coal Company to Western Diamond, LLC, dated May 31, 2007, of record in Deed Book
368, page 17, in the Office of the Ohio County Clerk, and the Deed of Correction between Central
States Coal Reserves of Kentucky, LLC, Beaver Dam Coal

A1-1

 

Company, LLC and Western Diamond, LLC, of record in Deed Book 369, page 759, in the Office of
the Ohio County Clerk;

     (viii) The Partial Assignment and Assumption of Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Diamond, LLC, dated May 31, 2007, of record in Deed Book
528, page 320, in the Office of the Muhlenberg County Clerk;

     (ix) The Partial Assignment and Assumption of Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Diamond, LLC, dated May 31, 2007, of record in Deed Book
528, page 330, in the Office of the Muhlenberg County Clerk.

     (x) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC to Western Land Company, LLC, dated December 12, 2006, of record in Deed Book 524, page 505, in
the Office of the Muhlenberg County Clerk;

     (xi) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC and Beaver Dam Coal Company to Western Land Company, LLC, dated December 12, 2006, of record in
Deed Book 365, page 36, in the Office of the Ohio County Clerk;

     (xii) The Partial Assignment and Assumption of Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Land Company, LLC, dated November 20, 2006, of record in
Deed Book 524, page 523, in the Office of the Muhlenberg County Clerk, as amended and restated in
Deed Book 527, page 186, in the Office of the Muhlenberg County Clerk;

     (xiii) The Partial Assignment and Assumption of Surface and Mineral Leasehold Estate from
Central States Coal Reserves of Kentucky, LLC to Western Land Company, LLC, dated November 20,
2006, of record in Deed Book 365, page 57, in the Office of the Muhlenberg County Clerk;

     (xiv) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC, Beaver Dam Coal Company, Ohio County Coal Company, LLC and Grand Eagle Mining, Inc. to Western
Land Company, LLC, dated March 30, 2007, of record in Deed Book 367, page 1, in the Office of the
Ohio County Clerk;

     (xv) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC to Western Land Company, LLC, dated March 30, 2007, of record in Deed Book 527, page 118, in
the Office of the Muhlenberg County Clerk, as corrected by Deed of Correction dated September 30,
2007, of record in Deed Book 531, page 213, in the Office of the Muhlenberg County Clerk; and

     (xvi) The Partial Assignment and Assumption of Surface and Mineral Leasehold Estate from
Central States Coal Reserves of Kentucky, LLC to Western Land Company, LLC, dated March 30, 2007,
of record in Deed Book 527, page 161, in the Office of the Muhlenberg County Clerk.

A1-2

 

EXHIBIT B 

TO PROMISSORY NOTE

DESCRIPTION OF PATRIOT NOTES

	1.	 	Negotiable Promissory Note in the principal amount of Twenty Nine Million Dollars
($29,000,000.00) dated September 19, 2006, between Central States Coal Reserves of
Kentucky, LLC, Beaver Dam Coal Company, LLC and Western Diamond, LLC.

	2.	 	Negotiable Promissory Note in the principal amount of Twenty Eight Million Five Hundred
Sixteen Thousand Ninety Four Dollars ($28,516,094.00) dated November 30, 2006, between
Central States Coal Reserves of Kentucky, LLC, Beaver Dam Coal Company, LLC and Western
Land Company, LLC.

	3.	 	Negotiable Promissory Note in the principal amount of Thirty Two Million One Hundred
Seventy Four Thousand Seven Hundred Thirty Two Dollars ($32,174,732.00) dated March 30,
2007, between Central States Coal Reserves of Kentucky, LLC, Beaver Dam Coal Company, LLC
and Western Diamond, LLC.

	4.	 	Negotiable Promissory Note in the principal amount of Thirty Seven Million Ninety Five
Thousand Dollars ($37,095,000.00) dated May 31, 2007, between Central States Coal Reserves
of Kentucky, LLC, Beaver Dam Coal Company, LLC and Western Land Company, LLC.

B-1exv10w61

Exhibit
10.61

CREDIT AND COLLATERAL SUPPORT

FEE, INDEMNIFICATION AND RIGHT OF FIRST REFUSAL AGREEMENT

     This Credit and Collateral Support Fee, Indemnification and Right of First Refusal Agreement
(the “Agreement”) is executed as of February 9, 2011 by and between Armstrong Land Company, LLC, a
Delaware limited liability company (“Armstrong”), and each of the other parties designated as
“Armstrong Entities” on the signature pages hereto (Armstrong, together with the other undersigned
Armstrong Entities herein collectively referred to as the “Armstrong Entities”), and Elk Creek,
L.P., a Delaware limited partnership (“Elk Creek”), and each of the other parties designated as
“Elk Creek Entities” on the signature pages hereto (Elk Creek, together with the other undersigned
Elk Creek Entities herein collectively referred to as the “Elk Creek Entities”). Contemporaneously
herewith, the Armstrong Entities and Elk Creek have entered into that certain Option Amendment,
Option Exercise and Membership Interest Purchase Agreement (the “Option and Purchase Agreement”).
Capitalized terms used herein and not otherwise defined shall have those meanings ascribed to them
in the Option and Purchase Agreement.

RECITALS

     WHEREAS, the Armstrong Entities have previously acquired coal reserves and other real property
from certain affiliates and/or subsidiaries of Peabody Energy Corp. (such entities now being
affiliates and/or subsidiaries of Patriot Coal Corporation as a result of its spin-off from Peabody
Energy Corp.), which reserves are more particularly described on Exhibit A attached hereto
(the “Subject Assets”) and, in partial payment therefor, issued notes to the sellers (the “Patriot
Notes”);

     WHEREAS, the Armstrong Entities have obtained up to a $50,000,000 Senior Secured Revolving
Credit facility and a $100,000,000 Senior Secured Term Loan arranged by PNC Bank, N.A. (the “PNC
Credit Facilities”), the proceeds of which have been used to repay and retire the Patriot Notes in
full (the “PNC Financing”);

     WHEREAS, as a condition to the lenders’ willingness to make the PNC Financing available to the
Armstrong Entities, Elk Creek became a co-borrower, the other Elk Creek Entities became guarantors,
and Ceralvo Holdings, LLC and Western Mineral Development, LLC mortgaged their assets as additional
security under the PNC Financing (the “Collateral”);

     WHEREAS, contemporaneously herewith, the Armstrong Entities and Elk Creek have entered into
the Option and Purchase Agreement, whereby Elk Creek shall exercise the Elk Creek Options to
indirectly acquire, through the acquisition of 100% of the membership interests in Western Mineral
Development, LLC, an undivided interest in the Subject Assets equal to the Option Interest, as
further described therein;

     WHEREAS, the parties desire to enter into this Agreement to reflect the Elk Creek Entities’
agreement to provide credit and collateral support in connection with the PNC Financing and, in
consideration therefor, the Armstrong Entities agree to pay the Elk Creek Entities a credit support
fee and grant a right of first refusal to acquire the remaining portion of

 

 

the Subject Assets held
by the Armstrong Entities after giving effect to the transactions contemplated by the Option and
Purchase Agreement (the “Remaining Interest”);

     NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Armstrong Entities and the Elk Creek Entities agree as follows:

AGREEMENT

1. Collateral and Credit Support. The Armstrong Entities hereby acknowledge that a
condition to the lenders’ willingness to provide the PNC Financing is Elk Creek agreeing to serve
as borrower, the other Elk Creek Entities agreeing to serve as guarantors, and Ceralvo Holdings,
LLC and Western Mineral Development, LLC agreeing to mortgage the Collateral as additional
security, under the PNC Credit Facilities. The parties hereby acknowledge and agree that the
Armstrong Entities are the primary obligors and shall have the primary responsibility to service the indebtedness under the PNC Credit
Facilities. Subject to the terms and conditions of the PNC Credit Facilities, the Elk Creek
Entities shall have no obligation to service the indebtedness under the PNC Facilities unless and
until the Armstrong Entities have insufficient cash flow to pay the indebtedness as it comes due
under the PNC Financing. In the event that the Armstrong Entities have insufficient cash flow to
service the indebtedness as it becomes due under the PNC Financing and subject to the terms and
conditions of this Agreement, the Elk Creek Entities jointly and severally agree to pay the amounts
required under the PNC Financing as and when they become due on behalf of the Armstrong Entities.

2. Credit and Collateral Support Fees. In consideration for the Elk Creek Entities
providing the credit and collateral support as specified herein, the Armstrong Entities hereby
agree to pay the Elk Creek Entities a credit and collateral support fee in an aggregate amount
equal to 1% per annum of the principal amount outstanding from time to time under the PNC Credit
Facilities from time to time during the period beginning on the date hereof and ending on the date
such fee is paid (the “Support Fee”), and the Support Fee shall be calculated as of the end of each
calendar quarter based on the weighted average of principal under the PNC Credit Facilities
outstanding from time to time during such quarter. The Support Fee shall accrue without compounding
and shall be due and payable in full on the earlier to occur of (i) the repayment in full of all
outstanding indebtedness, liabilities and obligations under the PNC Financing and (ii) if permitted
under the terms of the PNC Credit Facilities, the date on which the lender releases the Elk Creek
Entities under the PNC financing and releases its liens on the Collateral, The Elk Creek Entities
have the option to have the Support Fee payable either in cash or by receipt of a conveyance by the
Armstrong Entities of an undivided interest in the Remaining Interest equal to the aggregate amount
of the accrued Support Fee, divided by the fair market value of the Remaining Interest. If the
parties are unable to agree on the fair market value of the Remaining Interest, the fair market
value shall be determined in accordance with Section 5.

3. Indemnification. In the event that the lenders under the PNC Credit Facilities exercise
their rights to require the Elk Creek Entities to make payments to lenders on behalf of the
Armstrong Entities or if the lenders foreclose on the Collateral mortgaged under the PNC Credit

2

 

Facilities and apply the proceeds thereof against the Armstrong Entities’ primary obligations under
the PNC Credit Facilities, the Armstrong Entities shall as soon as reasonably practicable reimburse
and indemnify the Elk Creek Entities in the amount of (i) the Armstrong Entities’ obligations
repaid by the Elk Creek Entities, plus (ii) the fair market value of the Collateral foreclosed upon
by the lenders, plus (iii) any and all fees and expenses (including attorneys’ fees) actually
incurred by Elk Creek in satisfying the obligations of the Armstrong Entities under the PNC Credit
Facilities (the sum of clauses (i), (ii) and (iii) herein referred to as the “Reimbursement
Amount”). The Armstrong Entities shall issue to the Elk Creek Entities a demand note (the “Demand
Note”) in an aggregate principal face amount equal to the Reimbursement Amount. The Demand Note
shall bear interest at the rate of 5% per annum, payable quarterly, commencing on the earlier to
occur of (i) the date that Elk Creek is called to repay any obligations of the Armstrong Entities
under the PNC Credit Facilities or (ii) the date that the lenders commence foreclosure proceedings
on the Collateral until such date as Elk Creek is repaid in full. Elk Creek shall have the option
in its sole discretion to convert all indebtedness and accrued interest owed under the Demand Note,
into an undivided interest in the Remaining Interest equal to the aggregate amount of the
indebtedness including accrued interest under the Demand Note, divided by the fair market value of
the Remaining Interest. If the parties are unable to agree on the fair market value of the
Collateral or the Remaining Interest, the fair market value shall be determined in accordance with
Section 5. The Elk Creek Entities hereby agree that all rights to indemnification hereunder,
including but not limited to obligations under the Demand Note, shall be subordinate in priority
and payment to all obligations and indebtedness under the PNC Financing, and no payment shall be
demanded or accepted by the Elk Creek Entities therefor without the prior consent of PNC Bank,
National Association, as agent (“Agent”) under the PNC Financing, as long as any indebtedness or
obligations remains outstanding with respect to the PNC Financing.

4. Right of First Refusal.

     (a) In consideration for the Elk Creek Entities providing collateral and credit support as
provided herein, until such time as the indebtedness and accrued interest under the PNC Credit
Facilities have been paid in full, in the event that the Armstrong Entities desire to sell or offer to sell or
otherwise transfer or encumber any of the Subject Assets that comprise the Remaining Interest or
any interest therein to any third party other than Elk Creek Entities (a “Proposed Purchaser”), the
Armstrong Entities shall first cause the Proposed Purchaser’s offer and all of the terms thereof to
be reduced to writing, and shall promptly notify Elk Creek of the offer (the “Transfer Notice”).
Notwithstanding anything herein, the obligations and rights of this Section 4 shall not apply (a)
to any foreclosure or conveyance by any party in connection with the exercise of default remedies
by the Agent or the other lenders pursuant to the terms of the PNC Financing, or (b) to transfers
among Armstrong Entities or their affiliates. The Transfer Notice shall constitute an irrevocable
offer to sell the Subject Assets which are the subject of the Transfer Notice (the “Transferred
Assets”) to Elk Creek on the basis described below, on the same terms and conditions of, the
Transfer Notice, and at a purchase price equal to the price contained in, and on the same terms and
conditions of, the Transfer Notice. The Transfer Notice shall specify the proposed price, the
description of the Subject Assets to be sold, the identity of the Proposed Purchaser, and any other
relevant information.

3

 

     (b) Elk Creek shall have a right of first refusal (the “Right of First Refusal”) to purchase
the Transferred Assets, if Elk Creek gives written notice of the exercise of such right to the
Armstrong Entities within 30 days (the “Refusal Period”) from the receipt of the Transfer Notice.
The purchase price for the Transferred Assets to be purchased by Elk Creek upon exercise of the
Right of First Refusal will be the bona fide cash price (or the fair market value of any non-cash
consideration as determined in good faith by the Board of Managers of Elk Creek’s general partner)
for which the Armstrong Entities propose to transfer such Transferred Assets to the Proposed
Purchaser (subject to any rights Elk Creek may have under Section 2 of this Agreement or any other
agreement to purchase all or some of such Transferred Assets at a lower price), and will be payable
within 60 days after the end of the Refusal Period. Payment of the purchase price will be made in
cash by wire transfer of immediately available funds to the relevant Armstrong Entities designated
in the Transfer Notice.

     (c) In the event that Elk Creek does not elect to exercise its Right of First Refusal at any
time during the Refusal Period, the Armstrong Entities may sell the Transferred Assets to the
Proposed Purchaser on the terms and conditions set forth in the Transfer Notice. Promptly after
such sale, the Armstrong Entities shall notify Elk Creek of the consummation thereof and shall
furnish such evidence of the completion and time of completion of the Transfer and of the terms
thereof as may reasonably be requested by Elk Creek. If the Armstrong Entities’ sale to a Proposed
Purchaser is not consummated in accordance with the terms of the Transfer Notice on or before
ninety (90) calendar days after the receipt by Elk Creek of the Transfer Notice, any sale of the
Transferred Assets may only be made after renewed compliance with all of the provisions of this
Section 4.

5. Procedure for Determination of Fair Market Value of the Reserves. In the event that the
parties are unable to agree upon the fair market value of the Remaining Interest or the Collateral,
the fair market value of the Remaining Interest or the Collateral, unless otherwise agreed upon or
provided for in accordance with this Agreement, shall be determined by appraisal as provided in
this Section 5. Within 10 days after an appraisal is required under any provision hereof, the
Armstrong Entities, on the one hand, and Elk Creek, on the other hand, shall each select an
independent, qualified appraiser who regularly appraises surface and underground coal properties in
the Illinois Basin region, for such purpose. The appraisers so selected shall proceed to determine
promptly the fair market value of the reserves that are subject to appraisal. Each appraiser shall
deliver a written report of its appraisal to all interested parties. The determination of such fair
market value by the appraisers shall be final and binding upon all parties. If the appraisers so
selected are unable to agree upon such fair market value, the appraisers shall jointly agree upon
and appoint another appraiser who shall proceed to promptly determine the fair market value of the
reserves in accordance with the preceding requirements of this Section 5. After the written
report of the additional appraiser has been delivered, the fair market value determinations of all
such appraisers shall be totaled and the total divided by the number of appraisals, with the
resultant average to be conclusive and binding on all parties as to the fair market value of the
reserves; provided, however, that if any fair market value determination of any such appraiser
deviates by more than ten percent (10%) from the median of all such determinations, the fair market
value shall be the average of the two (2) determinations closest in amount and such average of the
two (2) closest determinations shall be conclusive and binding upon all parties as to the fair
market value of the Remaining Interest or the Collateral.

4

 

6. Transfer Taxes. The parties hereby agree that any state transfer taxes due upon the
conveyance of the Remaining Interest (or any portion thereof) to Elk Creek shall be shared equally
between Elk Creek and the Armstrong Entities.

7. Specific Performance. The Armstrong Entities hereby acknowledge and agree that Elk Creek
would not have an adequate remedy at law and would be irreparably harmed in the event that any of
the provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, the Armstrong Entities agree that Elk Creek shall be entitled to
equitable relief, including preliminary and permanent injunctions and specific performance, in the
event the Armstrong Entities breach or threaten to breach any of the provisions of this Agreement,
without the necessity of posting any bond or proving special damages or irreparable injury. Such
remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this
Agreement by the Armstrong Entities, but shall be in addition to all other remedies available at
law or equity.

8. Miscellaneous.

	 	(a)	 	Further Assurances. Each party to the Agreement agrees to perform such
further acts and to execute and deliver such other and additional documents as may be
necessary to carry out the provisions of the Agreement.
	 
	 	(b)	 	Amendment. The Agreement may not be amended in whole or in part except
by the written agreement of the parties hereto.
	 
	 	(c)	 	Assignment. Except as otherwise specifically provided, the Agreement
and any right hereunder, shall not be assigned by any party hereunder without the prior
written consent of the other party, which shall not be unreasonably withheld; provided
that Elk Creek shall be entitled to assign the Agreement to one or more of its
affiliates.
	 
	 	(d)	 	Severability. If any clause or provision of the Agreement is illegal,
invalid, or unenforceable under any present or future law, the remainder of the
Agreement will not be affected thereby. It is the intention of the parties that if any
such provision is held to be illegal, invalid or unenforceable, there will be added in
lieu thereof a provision as similar in terms to such provision as is possible which is
legal, valid and enforceable.
	 
	 	(e)	 	Binding Effect. The Agreement will inure to the benefit of and bind the
respective heirs, legal representatives, successors and permitted assigns of the
parties hereto.
	 
	 	(f)	 	Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered personally
or by facsimile transmission or mailed (first class postage prepaid) to the parties at
the following addresses or facsimile numbers:

5

 

	 	(i)	 	if to the Armstrong Entities:

Armstrong Land Company, LLC

7733 Forsyth Blvd., Suite 1625

St. Louis, MO 63105 

Attn: J. Hord Armstrong, III

Facsimile: (314) 721-8211
	 
	 	(ii)	 	if to Elk Creek:
 Elk Creek, L.P.

c/o Yorktown Partners LLC
 410 Park Avenue,
19th Floor
 New York, NY 10022

Attention: Bryan H. Lawrence
 Facsimile:
(212) 515-2105

	 	(g)	 	Governing Law; Venue. THE AGREEMENT SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING THAT BODY OF LAW PERTAINING TO
CONFLICTS OF LAW.
	 
	 	(h)	 	Counterparts. The Agreement may be executed in multiple counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument. Facsimile signatures shall be effective as
original signatures.

[Remainder of Page Left Intentionally Blank]

[Signature Page Follows]

6

 

     IN WITNESS WHEREOF, each of the undersigned, by its duly authorized person, has executed this
Agreement as of the date first above written.

	 	 	 	 	 
	 	ARMSTRONG ENTITIES:

ARMSTRONG LAND COMPANY, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson 	 
	 	 	President and Chief Financial Officer 	 
	 
	 	ARMSTRONG RESOURCES HOLDINGS, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson 	 
	 	 	President and Chief Financial Officer 	 
	 
	 	WESTERN DIAMOND LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, Manager 	 
	 	WESTERN LAND COMPANY, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, Manager  	 
	 	 	 	 
	 	ARMSTRONG COAL COMPANY, INC.

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, President 	 
	 	 	 	 
	 	ELK CREEK ENTITIES:

ELK CREEK, L.P.

 	 
	 	By:  	Elk Creek GP, LLC, its general partner
 	 
	 
	 	By:  	                                              /s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson 	 
	 	 	President and Chief Financial Officer 	 
	 

[Signature Page to Credit and Collateral
Support Agreement]

 

 

	 	 	 	 	 
	 	ELK CREEK OPERATING, L.P.

 	 
	 	By:  	Elk Creek Operating GP,LLC,
 	 
	 	 	its general partner 	 
	 
	 	By:  	                                   /s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson 	 
	 	 	President and Chief Financial Officer 	 
	 
	 	CERALVO HOLDINGS, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, Manager 	 
	 	 	 	 
	 
	 	WESTERN MINERAL DEVELOPMENT, LLC

 	 
	 	By:  	/s/ Martin D. Wilson
 	 
	 	 	Martin D. Wilson, Manager 	 
	 	 	 	 

[Signature Page to Credit and Collateral Support Agreement]

 

 

EXHIBIT A

SUBJECT ASSETS

     The Subject Assets shall mean all of the coal reserves and real property described in, and
conveyed, demised or otherwise granted in or under the following deeds and instruments, to Western
Land Company, LLC and/or Western Diamond LLC, subject to all rights-of-way, easements, leases, deed
and plat restrictions, partitions, severances, encumbrances, licenses, reservations, conveyances
and exceptions which are of record as of the date of the exercise of the Option by Elk Creek, and
to all rights of persons in possession, and to physical conditions, encroachments and possessory
rights which would be evident from an inspection of the property at such time:

     (i) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
and Beaver Dam Coal Company to Western Diamond LLC, dated September 19, 2006, of record in Deed
Book 363, page 369, in the Office of the Ohio County Clerk;

     (ii) The Partial Assignment of Coal Mining Lease from Central States Coal Reserves of
Kentucky, LLC to Western Diamond LLC dated September 19, 2006, of record in Deed Book 363, page
428, in the Office of the Ohio County Clerk;

     (iii) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
and Beaver Dam Coal Company to Western Diamond LLC, dated September 19, 2006, of record in Deed
Book 363, page 414, in the Office of the Ohio County Clerk;

     (iv) The Corporation Special Warranty Deed from Beaver Dam Coal Company to Western Diamond
LLC, dated September 19, 2006, of record in Deed Book 363, page 393, in the Office of the Ohio
County Clerk;

     (v) The Corporation Special Warranty Deed from Beaver Dam Coal Company to Western Diamond LLC,
dated September 19, 2006, of record in Deed Book 363, page 403, in the Office of the Ohio County
Clerk;

     (vi) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
to Western Diamond LLC, dated May 31, 2007, of record in Deed Book 528, page 284, in the Office of
the Muhlenberg County Clerk, and the Deed of Confirmation between Central States Coal Reserves of
Kentucky, LLC, Western Diamond LLC and Armstrong Coal Reserves, Inc., dated September 30, 2007, of
record in Deed Book 531, page 205, in the Office of the Muhlenberg County Clerk;

     (vii) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
and Beaver Dam Coal Company to Western Diamond LLC, dated May 31, 2007, of record in Deed Book 368,
page 17, in the Office of the Ohio County Clerk, and the Deed of Correction between Central States
Coal Reserves of

A-1

 

Kentucky, LLC, Beaver Dam Coal Company, LLC and Western Diamond LLC, of record in Deed Book 369,
page 759, in the Office of the Ohio County Clerk;

     (viii) The Partial Assignment and Assumption of Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Diamond LLC, dated May 31, 2007, of record in Deed Book
528, page 320, in the Office of the Muhlenberg County Clerk;

     (ix) The Partial Assignment and Assumption of Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Diamond LLC, dated May 31, 2007, of record in Deed Book
528, page 330, in the Office of the Muhlenberg County Clerk.

     (x) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
to Western Land Company, LLC, dated December 12, 2006, of record in Deed Book 524, page 505, in the
Office of the Muhlenberg County Clerk;

     (xi) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
and Beaver Dam Coal Company to Western Land Company, LLC, dated December 12, 2006, of record in
Deed Book 365, page 36, in the Office of the Ohio County Clerk;

     (xii) The Partial Assignment and Assumption of Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Land Company, LLC, dated November 20, 2006, of record in
Deed Book 524, page 523, in the Office of the Muhlenberg County Clerk, as amended and restated in
Deed Book 527, page 186, in the Office of the Muhlenberg County Clerk;

     (xiii) The Partial Assignment and Assumption of Surface and Mineral Leasehold Estate from
Central States Coal Reserves of Kentucky, LLC to Western Land Company, LLC, dated November 20,
2006, of record in Deed Book 365, page 57, in the Office of the Muhlenberg County Clerk;

     (xiv) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky,
LLC, Beaver Dam Coal Company, Ohio County Coal Company, LLC and Grand Eagle Mining, Inc. to Western
Land Company, LLC, dated March 30, 2007, of record in Deed Book 367, page 1, in the Office of the
Ohio County Clerk;

     (xv) The Corporation Special Warranty Deed from Central States Coal Reserves of Kentucky, LLC
to Western Land Company, LLC, dated March 30, 2007, of record in Deed Book 527, page 118, in the
Office of the Muhlenberg County Clerk, as corrected by Deed of Correction dated September 30, 2007,
of record in Deed Book 531, page 213, in the Office of the Muhlenberg County Clerk; and

The Partial Assignment and Assumption of Surface and Mineral Leasehold Estate from Central States
Coal Reserves of Kentucky, LLC to Western Land Company, LLC, dated March 30, 2007, of record in Deed Book 527, page 161, in the Office of the Muhlenberg County Clerk.

A-2

 

March 30, 2007, of record in Deed Book 527, page 161, in the Office of the Muhlenberg County Clerk.

A-3

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