Document:

EXHIBIT 10.73

  
	

   

  	

  A.T. MASSEY COAL

  COMPANY

  
	

   

  	

  KU Contract # KUF02850

  
			

 

 

COAL

SUPPLY AGREEMENT

 

This is a coal supply

agreement (the “Agreement”) dated January 1, 2002 between KENTUCKY UTILITIES

COMPANY, a Kentucky corporation, whose address is 220 West Main Street,

Louisville, Kentucky 40202 (“Buyer”), and MASSEY COAL SALES COMPANY, INC. a

Virginia corporation, whose address is P.O. Box 26765, Richmond, Virginia 23261

(“Seller”).

 

The parties hereto agree

as follows:

 

SECTION 1. GENERAL.  Seller will sell to Buyer and Buyer will buy

from Seller steam coal under all the terms and conditions of this Agreement.

 

SECTION 2.  TERM. 

The term of this Agreement shall commence on April 1, 2002 and shall

continue through March 31, 2004.

 

SECTION 3.  QUANTITY.

 

§ 3.1  Base Quantity.  Subject to the price review set forth in § 8.1, Seller shall sell

and deliver, and Buyer shall purchase and accept delivery of the following

annual base quantity of coal (“Base Quantity”):

 

	

  YEAR

  	

   

  	

  BASE

  QUANTITY (TONS)

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/02-3/31/03

  	

   

  	

  800,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/03-3-31-04

  	

   

  	

  800,000

  	

   

  

 

The Base Quantity will be

delivered in approximately equal monthly quantities and in accordance with a

mutually agreed-upon schedule.

 

1

 

SECTION 4.  SOURCE.

 

§ 4.1 Source.  The coal sold hereunder, shall be supplied

primarily from Seller’s Elk Run, Progress, Black Castle and Bandmill Mines,

located in Boone and Logan Counties, West Virginia (the “Coal Property”).

 

§ 4.2 Assurance of

Operation and Reserves.  Seller

represents and warrants that the Coal Property contains economically

recoverable coal of a quality and in quantities which will be sufficient to

satisfy all the requirements of this Agreement.  Further, Seller has adequate machinery, equipment and other facilities

to produce, prepare and deliver coal in the quantity and of the quality

required by this Agreement.  Seller will

operate and maintain such machinery, equipment and facilities in accordance

with good mining practices so as to efficiently and economically produce,

prepare and deliver such coal.  Seller

agrees that Buyer is not providing any capital for the purchase of such

machinery, equipment and/or facilities and that Seller shall operate and

maintain same at its sole expense, including all required permits and

licenses.  Seller hereby allocates to

this Agreement sufficient reserves of coal meeting the quality specifications

hereof so as to fulfill the quantity requirements hereof.

 

§ 4.3  Seller’s Preparation of Mining Plan.  If Seller claims force majeure or fails to

deliver the required quantity hereunder for any other reason, Seller shall,

upon request, promptly deliver to Buyer mining and production histories

covering relevant time periods and plans for the Coal Property and such

reasonably related supporting data as Buyer shall request.  Seller shall,

 

2

 

upon Buyer’s request

during Coal Property Inspections, if any (made pursuant to § 19), provide

information to Buyer of its mining plan which shall include (but not be limited

to) the following information: (i) reserves from which the coal will be

produced during the term hereof and the mining sequence, by year (or such other

time intervals as mutually agreed) during the term of this Agreement, from

which coal will be mined; (ii) methods of mining such coal; (iii) methods of

transporting and, in the event a preparation plant is utilized by Seller, the

methods of washing coal to insure compliance with the quantity and quality

requirements of this Agreement including a description and flow sheet of the

preparation plant; (iv) quality data plotted on the maps depicting data points

and isolines by ash, sulfur, and Btu; (v) quality control plans including

sampling and analysis procedures to insure individual shipments meet quality

specifications; and (vi) Seller’s aggregate commitments to others to sell coal

from the Coal Property during the term of this Agreement.

 

Buyer’s receipt of

information or data furnished by Seller (the “Mining Information”) shall not in

any manner relieve Seller of any of Seller’s obligations or responsibilities

under this Agreement; nor shall such review be construed as constituting an

approval of Seller’s proposed mining plan as prudent mining practices, such

review by Buyer being limited solely to a determination, for Buyer’s purposes

only, of Seller’s capability to supply coal to fulfill Buyer’s requirements of

a dependable coal supply.

 

§ 4.4 Substitute Coal.  Notwithstanding the above, in the event that

Seller is unable to produce or obtain coal from the Coal Property in the

quantity and of the quality required by this Agreement, and such inability is

not caused by a force majeure event as defined in § 10, Seller shall have the

right to supply substitute coal after having received Buyer’s prior written

consent

 

3

 

(which shall not be

unreasonably withheld).  Such substitute

coal shall be provided under all the terms and conditions of this Agreement

including, but not limited to, the price provisions of §8, the quality

specifications of § 6.1, and the provisions of § 5 concerning reimbursement to

Buyer for increased transportation costs.

 

SECTION 5.  DELIVERY.

 

§ 5.1 Barge Delivery.  The coal shall be delivered to Buyer F.O.B.

barge at the following points (each a “Delivery Point”): for Elk Run, Progress,

Black Castle and Bandmill Mines, the KRT-Ceredo Dock at mile point 314.5 on the

Ohio River.  Seller may deliver the coal

at a location different from the Delivery Point, provided, however, that Seller

shall reimburse Buyer for any resulting increases in the cost of transporting

the coal to Buyer’s generating stations. Buyer shall retain any resulting

savings in such transportation costs.

 

Title to and risk of loss

of coal sold will pass to Buyer and the coal will be considered to be delivered

when barges containing the coal are disengaged by Buyer’s barging contractor

from the loading dock.  Buyer or its

contractor shall furnish suitable barges in load ready condition in accordance

with a delivery schedule provided by Buyer to Seller.  Seller shall arrange and pay for all costs of transporting the

coal from the mines to the loading docks and loading and trimming the coal into

barges to the proper draft and the proper distribution within the barges.  Buyer shall arrange and pay for all costs of

transporting the coal by barge from the Delivery Point to its generating

station(s).  For delays caused by Seller

in handling the scheduling of shipments with Buyer’s barging contractor, Seller

shall be responsible for any demurrage or other penalties assessed by said

barging contractor to Buyer which accrue at the Delivery Point, including the 

 

4

 

demurrage, penalties for

loading less than the minimum of 1,500 tons per barge, or other penalties

assessed for barges not loaded in conformity with applicable requirements.  Buyer shall be responsible to deliver barges

in as clean and dry condition as practicable. 

Seller or its affiliate shall require of the loading dock operator that

the barges and towboats provided by Buyer or Buyer’s barging contractor be

provided convenient and safe berth free of wharfage, dockage, fleeting,

switching and other harbor and port charges; that while the barges are in the

care and custody of the loading dock, all U.S. Coast Guard regulations and

other applicable laws, ordinances, rulings, and regulations shall be complied

with, including adequate mooring and display of warning lights; that any water

in the cargo boxes of the barges, be pumped out by the loading dock operator

prior to loading; and that the loading operations be performed in a workmanlike

manner and in accordance with the reasonable loading requirements of Buyer and

Buyer’s barging contractor.  Seller will

use commercially reasonable efforts to provide to Buyer evidence that its

loading dock operator carries adequate landing owner’s or wharfinger’s

insurance with basic coverage of not less than $300,000, and total of basic

coverage and excess liability coverage of not less than $1,000,000, such

evidence to be in the form of a certificate of insurance from the insurance

carrier or an acceptable certificate of self-insurance with requirement for 30

days advance notification of Buyer in the event of termination of or material

reduction in coverage under the insurance.

 

SECTION 6. QUALITY.

 

§ 6.1                       Specifications.  The coal delivered hereunder shall conform

to the following specifications on an “as received” basis:

 

5

 

	

  Specifications

  	

   

  	

  Guaranteed Monthly

  Weighted Average(1)

  	

   

  	

  Rejection Limits

  (per shipment)

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  BTU/LB.

  	

   

  	

  min.

  	

   

  	

  12,000

  	

   

  	

  <

  	

   

  	

  11,800

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  LBS/MMBTU:

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  MOISTURE

  	

   

  	

  max. 

  	

   

  	

  6.67

  	

   

  	

  >

  	

   

  	

  8.33

  	

   

  
	

  ASH

  	

   

  	

  max. 

  	

   

  	

  10.83

  	

   

  	

  >

  	

   

  	

  10.83

  	

   

  
	

  SULFUR

  	

   

  	

  max. 

  	

   

  	

  0.60

  	

  *

  	

  >

  	

   

  	

  0.60

  	

   

  
	

  SULFUR

  	

   

  	

  min.

  	

   

  	

  NA

  	

   

  	

  <

  	

   

  	

  NA

  	

   

  
	

  CHLORINE

  	

   

  	

  max. 

  	

   

  	

  0.18

  	

   

  	

  >

  	

   

  	

  0.18

  	

   

  
	

  NITROGEN

  	

   

  	

  max. 

  	

   

  	

  1.30

  	

   

  	

  >

  	

   

  	

  1.30

  	

   

  

 

* Individual shipment

limit of 1.20 lbs. SO2/MMBTU

 

	

  SIZE

  (2” x 0”):

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Top

  size (inches)**

  	

   

  	

  max. 

  	

   

  	

  2x0

  	

   

  	

  >

  	

   

  	

  2x0

  	

   

  
	

  Fines

  (% by wgt)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Passing

  1/4” screen

  	

   

  	

  max. 

  	

   

  	

  50

  	

   

  	

  >

  	

   

  	

  50

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  %

  BY WEIGHT:

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  VOLATILE

  	

   

  	

  min.

  	

   

  	

  34

  	

   

  	

  <

  	

   

  	

  32

  	

   

  
	

  FIXED

  CARBON

  	

   

  	

  min.

  	

   

  	

  46

  	

   

  	

  <

  	

   

  	

  42

  	

   

  
	

  GRINDABILITY

  (HGI)

  	

   

  	

  min.

  	

   

  	

  45

  	

   

  	

  <

  	

   

  	

  42

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  ASH

  FUSION TEMPERATURE (°F) (ASTM D1857)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  REDUCING

  ATMOSPHERE

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Initial

  Deformation

  	

   

  	

  min.

  	

   

  	

   +2550

  	

   

  	

  min.

  	

   

  	

  +2450

  	

   

  
	

  Softening

  (H=W)

  	

   

  	

  min.

  	

   

  	

   +2610

  	

   

  	

  min.

  	

   

  	

  +2500

  	

   

  
	

  Softening

  (H=1/2W)

  	

   

  	

  min.

  	

   

  	

   +2640

  	

   

  	

  min.

  	

   

  	

  +2550

  	

   

  
	

  Fluid

  	

   

  	

  min.

  	

   

  	

   +2670

  	

   

  	

  min.

  	

   

  	

  +2575

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  OXIDIZING

  ATMOSPHERE

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Initial

  Deformation

  	

   

  	

  min.

  	

   

  	

   +2610

  	

   

  	

  min.

  	

   

  	

  +2500

  	

   

  
	

  Softening

  (H=W)

  	

   

  	

  min.

  	

   

  	

   +2660

  	

   

  	

  min.

  	

   

  	

  +2550

  	

   

  
	

  Softening

  (H=1/2W)

  	

   

  	

  min.

  	

   

  	

   +2690

  	

   

  	

  min.

  	

   

  	

  +2570

  	

   

  
	

  Fluid

  	

   

  	

  min.

  	

   

  	

   +2700

  	

   

  	

  min.

  	

   

  	

  +2590

  	

   

  

 

(1) An actual Monthly

Weighted Average will be calculated for each specification for coal delivered

to the Kentucky Utilities Ghent generating station.

 

6

 

	

  Note:

  	

  As used herein

  	

   

  	

  >

  	

   

  	

  means greater than:

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  <

  	

   

  	

  means less than.

  

 

§ 6.2                       Definition

of “Shipment”.  As used herein, a

“shipment” shall mean the quantity of coal actually loaded into one barge.

 

§ 6.3                       Rejection.

 

Buyer has the right, but

not the obligation, upon written notification to Seller to reject any shipment

which exceeds the Rejection Limits set forth in § 6.1, such written notice to

be provided to Seller within forty-eight (48) hours after receipt of the coal

analysis provided for in § 7.2 or such right to reject is waived.  In the event Buyer rejects such

non-conforming coal as provided herein, title to and risk of loss of the coal

shall be considered to have never passed to Buyer and Buyer shall return the

coal to Seller or, at Seller’s request, divert such coal to Seller’s designee,

all at Seller’s cost and risk.  Seller

shall replace the rejected coal within five (5) working days from notice of

rejection with coal conforming to the Rejection Limits set forth in § 6.1.  If Seller fails to replace the rejected coal

within such five (5) working day period or the replacement coal is rightfully

rejected, Buyer may purchase coal from another source in order to replace the

rejected coal.  Seller shall reimburse

Buyer for (i) any amount by which the actual price plus transportation costs to

Buyer of such coal purchased from another source exceed the price of such coal

under this Agreement plus transportation costs to Buyer from the Delivery

Point; and (ii) any and all transportation, storage, handling, or other

expenses that have been incurred by Buyer for rightfully rejected coal.  This remedy is in addition to all of Buyer’s

other remedies under this Agreement and under applicable law and in equity for

Seller’s breach.

 

7

 

If Buyer fails to reject

a shipment of non-conforming coal which it had the right to reject for failure

to meet any or all of the Rejection Limits set forth in §6.1, or because such

shipment contained a material amount of extraneous materials, then such

non-conforming coal shall be deemed accepted by Buyer.  Further, for shipments containing extraneous

materials, which include, but are not limited to, slate, rock, wood, corn

husks, mining materials, metal, steel, etc., the estimated weight of such

materials shall be deducted from the weight of that shipment.

 

§ 6.4                       Suspension

and Termination.

 

If the coal sold

hereunder fails to meet one or more of the Guaranteed Monthly Weighted Averages

set forth in §6.1 for any two (2) months in a six (6) month period or if 20% of

the shipments in any month are rejectable by Buyer, then Buyer may upon notice

confirmed in writing and sent to Seller by certified mail, suspend future

shipments except shipments already loaded into barges.  Seller shall, within 15 days after written

notice, provide Buyer with reasonable assurances that subsequent monthly

deliveries of coal shall meet or exceed the Guaranteed Monthly Weighted

Averages set forth in §6.1.  If Seller

fails to provide such assurances within said 15 day period, Buyer may terminate

this Agreement by giving written notice of such termination at the end of the

15 day period.  A waiver of this right

for any one period by Buyer shall not constitute a waiver for subsequent

periods.  If Seller provides such

assurances to Buyer’s reasonable satisfaction, shipments hereunder shall resume

and any tonnage deficiencies resulting from suspension may be made up at

Buyer’s sole option.  Buyer shall not

unreasonably withhold its acceptance of Seller’s assurances, or delay the

resumption of shipment. If Seller, after such assurances, fails to meet any of

the Guaranteed Monthly Weighted Averages for any one (1) month within the next

six (6) months or if three (3) barge shipments are rejectable

 

8

 

within any one (1) month

during such six (6) month period, then Buyer may terminate this Agreement and

exercise all its other rights and remedies under applicable law and in equity

for Seller’s breach.

 

SECTION 7.  WEIGHTS, SAMPLING AND ANALYSIS.

 

§ 7.1  Weights. The weight of the coal

delivered hereunder shall be determined on a per shipment basis by Seller on

the basis of scale weights at the rail loading location unless another method

is mutually agreed upon by the parties. 

Such scales shall be duly reviewed by an appropriate testing agency and

maintained in an accurate condition. 

Buyer shall have the right, at Buyer’s expense and upon reasonable

notice, to have the scales checked for accuracy at any reasonable time or

frequency.  If the scales are found to

be over or under the tolerance range allowable for the scale based on industry

accepted standards, either party shall pay to the other any amounts owed due to

such inaccuracy for a period not to exceed thirty (30) days before the time any

inaccuracy of scales is determined.

 

§ 7.2  Sampling and Analysis. The Seller has

sole responsibility for quality control of the coal and shall forward its

loading quality to the Buyer as soon as possible.  The sampling and analysis of the coal loaded hereunder shall be

performed by Seller and the results thereof shall be accepted and used for the

quality and characteristics of the coal delivered under this Agreement.  All analyses shall be made in Seller’s

laboratory or an independent laboratory at Seller’s expense.  Samples for analyses shall be taken by

Seller’s approved procedures of sampling, may be composited and shall be taken

with a frequency and regularity sufficient to provide reasonably accurate

representative samples of the loadings made hereunder.  Seller shall notify Buyer in writing of any

significant changes in Seller’s sampling and analysis practices.  Any such changes

 

9

 

in Seller’s sampling and

analysis practices shall provide for no less accuracy than the sampling and

analysis practices existing at the time of the execution of this Agreement,

unless the Parties otherwise mutually agree.

 

Each sample taken by

Seller shall be divided into 4 parts and put into airtight containers, properly

labeled and sealed.  One part shall be

used for analysis by Seller; one part shall be used by Seller as a check

sample, one part shall be retained by Seller until thirty (30) days (“Disposal

Date”) after the sample is taken, and shall be delivered to Buyer for analysis

if Buyer so requests before the Disposal Date; and one part (“Referee Sample”)

shall be retained by Seller until the Disposal Date.  Buyer, on reasonable notice to Seller, shall have the right to

have a representative present to observe the sampling and analyses performed by

Seller.  Unless Buyer requests a Referee

Sample analysis before the Disposal Date, Seller’s analysis shall be used to

determine the quality of the coal loaded hereunder.  The Monthly Weighted Averages shall be determined by utilizing

the individual shipment analyses.

 

If any dispute arises

before the Disposal Date, the Referee Sample retained by Seller shall be

submitted for analysis to an independent commercial testing laboratory

(“Independent Lab”) mutually chosen by Buyer and Seller.  All testing of any such sample by the

Independent Lab shall be at requestor’s expense unless the results differ by

more than the applicable ASTM reproducibility standards, in such case Buyer

will pay for testing.  If the

Independent Lab results differ by more than the applicable ASTM reproducibility

standards, the Independent Lab results will govern.  The cost of the analysis made by the Independent Lab shall be

borne by Buyer to the extent that Seller’s analysis prevails and by Seller to the

extent that the analysis of the Independent Lab prevails.

 

10

 

SECTION 8.  PRICE.

 

§  8.1 Base Price.  The base price (“Base Price”) of the coal to

be sold hereunder will be firm during the entire term of this agreement in

accordance with the following schedule, subject to adjustment only for quality

variations pursuant to §8.2 and New Costs pursuant to §8.4:

 

BASE PRICE

 

	

  PERIOD

  	

   

  	

  LOADING

  POINT

  	

   

  	

  ($PER

  MMBTU)

  	

   

  	

  ($PER TON)

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  4/1/02

  - 3/31/04

  	

   

  	

  KRT-Ceredo Dock

  	

   

  	

  1.80625 F.O.B. barge

  	

   

  	

  $

  	

  43.35

  	

   

  
									

 

§ 8.2                       Quality

Price Discounts.

 

(a)                                  The

Base Price is based on coal meeting or exceeding the Guaranteed Monthly

Averages specifications for the Kentucky Utilities Ghent Generating Station, as

set forth in §6.1. Quality price discounts shall be applied for each

specification, for the Kentucky Utility generating station, to reflect failures

to meet the Guaranteed Monthly Averages or Individual Shipment SO2

specifications set forth in §6.1, as determined pursuant to §7.2, subject to

the provisions set forth below.  The

discount values used are as follows:

 

MONTHLY DISCOUNT

VALUES

 

	

   

  	

   

  	

  $/MMBTU

  	

   

  
	

  BTU/LB.

  	

   

  	

  0.2604

  	

   

  

 

	

   

  	

   

  	

  $/LB./MMBTU

  	

   

  
	

  ASH

  	

   

  	

  0.0083

  	

   

  
	

  MOISTURE

  	

   

  	

  0.0016

  	

   

  

 

INDIVIDUAL SHIPMENT DISCOUNT VALUE

 

	

   

  	

   

  	

  $/TON

  	

   

  
	

  SO2

  	

   

  	

  3.00

  	

   

  

 

11

 

(b)                                 Notwithstanding

the foregoing, for each specification, there shall be no discount if the actual

Monthly Weighted Average meets the applicable Discount Point set forth below.

However, if the actual Monthly Weighted Average for the Kentucky Utilities

Ghent generating station fails to meet such applicable Discount Point, then the

discount shall apply to and shall be calculated on the basis of the difference

between the actual Monthly Weighted Average and the Guaranteed Monthly Weighted

Average pursuant to the methodology shown in Exhibit A attached hereto.

 

	

   

  	

   

  	

  Guaranteed

  Monthly

  Weighted Average

  	

   

  	

  Discount

  Point

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  BTU/LB

  	

   

  	

  Min. 12,000

  	

   

  	

  11,800

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  LB/MMBTU:

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  ASH

  	

   

  	

  Max. 10.83

  	

   

  	

  10.83

  	

   

  
	

  MOISTURE

  	

   

  	

  Max. 6.67

  	

   

  	

  8.33

  	

   

  

 

	

   

  	

   

  	

  Guaranteed Barge

  LbsSO2/Mmbtu

  	

   

  	

  Discount Point

  	

   

  
	

  LB/MMBTU:

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  SO2

  	

   

  	

  Max. 1.20

  	

   

  	

  1.20

  	

   

  

 

For example, if the

actual Monthly Weighted Average of ash equals 11.00 lb/MMBTU, then the

applicable discount would be (11.00 lb. – 10.83 lb.) X $.0083/lb/MMBTU =

$.001411/MMBTU.

 

§ 8.3                       Payment

Calculation Exhibit A attached hereto shows the methodology for calculating

the coal payment and quality price discounts for the month Seller’s coal is

unloaded by Buyer.  If there are any

such discounts, Buyer shall apply credit to amounts owed Seller for the month

the coal was unloaded.

 

12

 

§ 8.4                       New

Costs. The Base Price shall be subject to adjustment only in the event that

new or amended applicable Federal, state or local statutes, laws, rules,

regulations, orders, or other governmental impositions or a change in the

interpretation  of any such statutes,

laws, rules, regulations, orders or other governmental impositions on the coal

to be supplied hereunder, including but not limited to tax increases or

decreases that occur after April 1, 2002, which cause Seller’s or its

affiliate’s cost of the mining, processing, transportation, delivery or sale

of  coal to Buyer under this Agreement

to increase or decrease.  Seller shall

promptly provide written notice to Buyer of any such changes and supply

sufficient documentation for Buyer to verify any such change.  Either Buyer or Seller may request a Base

Price adjustment under this Section 8.4, which shall be comprised of no more than

the reasonable costs directly associated with the effect of such change on the

coal to be supplied hereunder.  If the

non-requesting party agrees to the requested price adjustment, such adjustment,

shall be made effective on the first day of the calendar month following the

effective date of any change, (except when such change is effective on the

first day of the month in which case the adjustment shall be made as of such

date).  If the non-requesting party rejects

the request of the requesting party for a Base Price adjustment, the requesting

party, at its option within fifteen days thereafter, may terminate the contract

with thirty days’ written notice to the other party without liability due to

such termination for either party.

 

SECTION 9.  INVOICES, BILLING AND PAYMENT.

 

§ 9.1                       Invoicing:

 

Invoices for Kentucky

Utilities will be sent to the following address:

 

Kentucky Utilities

Company

220 West Main Street

Louisville, KY  40202

 

13

 

Attention: Director,

Corporate Fuel

Fax No.: (502) 627-3243

 

§ 9.2                       Invoice

Procedures for Coal Shipments. Seller shall invoice Buyer at the Base Price

including any adjustments, and reconciliations as provided herein, for all coal

unloaded in a calendar month by the fifteenth (15th) of the

following month. In the event that any adjustment is not calculated in time for

inclusion on the invoice, such adjustment(s) may be stated as a retroactive

adjustment on the invoice next following the calculation date.  A statement showing the basis for the

adjustment shall accompany the invoice.

 

§ 9.3                       Payment

for Coal Shipments.  For all coal

unloaded at the Ghent Station between the first (1st) and fifteenth

(15th) days of any calendar month, Buyer shall make preliminary

payment for eighty-five percent (85%) of the amount owed for the Coal (based on

the assumption that the Coal will meet all guaranteed monthly quality

parameters) by the twenty-fifth (25th) day of such month of

unloading, except that, if the 25th is not a regular work day,

payment shall be made on the next regular work day.  For all Coal unloaded at the Ghent Station between the sixteenth

(16th) and the last day of any calendar month, Buyer shall make

preliminary payment for eighty-five percent (85%) of the amount owed for the

Coal (based on the assumption that the Coal will meet all guaranteed monthly

quality parameters) by the tenth (10th) day of the month following

the month of unloading, except that, if the 10th is not a regular

work day, payment shall be made on the next regular work day.

 

Preliminary payment shall

be in the amount of eighty-five percent (85%) of the then current price on a

dollar per ton basis as calculated by the guaranteed monthly weighted average

BTU/lb. and the then current Base Price in cents per MMBTU.

 

14

 

A reconciliation of

amounts paid and amounts owed shall occur by the twenty-fifth (25th)

day of the month following the month of unloading.  (For example, Buyer will make one initial payment by August 25

for eighty-five percent (85%) of Coal delivered August 1 through August 15, and

a second payment by September 10 for eighty-five percent (85%) of Coal

delivered August 16 through August 31. 

A reconciliation will occur by September 25 for all deliveries made in

August.)  The reconciliation shall be

made as follows: Seller shall invoice Buyer on or before the 15th

day of the month following the month of delivery.  The amount due for all Coal (based on the Base Price minus any

Quality Price Discounts) delivered and unloaded and accepted by Buyer during

any calendar month shall be calculated and compared to the sum of the

preliminary payments made for Coal delivered and unloaded and accepted during

such month.  The difference shall be

paid by or paid to Seller, as applicable, by the twenty-fifth (25th)

day of the month following the month of unloading, except, that, if the 25th

is not a regular work day, payment shall be made on the next regular work

day.  Payment for coal unloaded in a

calendar month shall by mailed or wired by the 25th of the month

following the month of unloading, except that, if the 25th is a

weekend or a holiday observed by the Buyer, payment shall be made on the next

business day or within ten days after receipt of Seller’s invoice, whichever is

later.  Buyer shall electronically

transfer all payments to Seller’s account at:

 

Massey

Coal Sales Company, Inc.

SUN

TRUST BANK, Richmond, VA.

 

Account

No.   201367459

 

ABA

No.   051000020  

 

15

 

§ 9.4                       Withholding.  Buyer shall have the right to withhold from

payment of any billing or billings (i) any sums which are the subject of a good

faith dispute provided, however, that Buyer shall pay all amounts then due

which are not disputed; and (ii) any amounts owed to Buyer from Seller.  Buyer shall notify Seller promptly in

writing of any such dispute, stating the basis of its claim and the amount it

intends to withhold.

 

Payment by Buyer, whether

knowing or inadvertent, of any amount in dispute shall not be deemed a waiver

of any claims or rights by Buyer with respect to any disputed amounts or

payments made.

 

SECTION 10.                     FORCE

MAJEURE.

 

§ 10.1  General Force Majeure.  If either party hereto is delayed in or

prevented from performing any of its obligations or from utilizing the coal

sold under this Agreement due to acts of God, war, riots, civil insurrection,

acts of the public enemy, strikes, lockouts, fires, floods or earthquakes, or

any similar events which are beyond the reasonable control and without the

fault or negligence of the party affected thereby, then the obligations of both

parties hereto shall be suspended to the extent made necessary by such event;

provided that the affected party gives written notice to the other party as

early as practicable of the nature and probable duration of the force majeure

event.  The party declaring force

majeure shall exercise due diligence to avoid and shorten the force majeure

event and will keep the other party advised as to the continuance of the force majeure

event.

 

During any period in

which Seller’s ability to perform hereunder is affected by a force majeure

event, Seller shall not deliver any coal to any other buyers to whom Seller’s

ability to supply is similarly affected by such force majeure event unless

contractually committed to do so 

 

16

 

at the beginning of the

force majeure event; and further shall deliver to Buyer under this Agreement at

least a pro rata portion (on a per ton basis) of its total contractual

commitments to all its buyers to whom Seller’s ability to supply is similarly

affected by such force majeure event in place at the beginning of the force

majeure event. An event which affects the Seller’s ability to produce or obtain

coal from a mine other than the Coal Property will not be considered a force

majeure event hereunder.

 

Tonnage deficiencies

resulting from Buyer’s force majeure event shall be made up at Seller’s sole

option on a mutually agreeable schedule; tonnage deficiencies resulting from

Seller’s force majeure event shall be made up at Buyer’s sole option on a

mutually agreeable schedule.

 

§ 10.2  Environmental Law Force Majeure.  The parties recognize that, during the

continuance of this Agreement, legislative or regulatory bodies or the courts

may adopt environmental laws, regulations, policies and/or restrictions which

will make it impossible or commercially impracticable for Buyer to utilize this

or like kind and quality coal which thereafter would be delivered hereunder.  If as a result of the adoption of such laws,

regulations, policies, or restrictions, or change in the interpretation or

enforcement thereof, Buyer decides that it will be impossible or commercially

impracticable for Buyer to utilize such coal, Buyer shall so notify Seller, and

thereupon Buyer and Seller shall promptly consider whether corrective actions

can be taken in the mining and preparation of the coal at Seller’s mine and/or

in the handling and utilization of the coal at Buyer’s generating station; and

if in Buyer’s sole judgment such actions will not, without unreasonable expense

to either Buyer or Seller, make it possible and commercially practicable for

Buyer to so utilize coal which thereafter would be delivered hereunder without

violating any applicable law, regulation, policy or order, Buyer shall have the

 

17

 

right, upon the later of

60 days notice to Seller or the effective date of such restriction, to

terminate this Agreement without further obligation hereunder on the part of

either party except for shipments already loaded onto barges and/or in transit

to Buyer.

 

SECTION 11.  CHANGES.  Buyer may, by mutual agreement with Seller, at any time by

written notice pursuant to § 12 of this Agreement, make changes within the

general scope of this Agreement in any one or more of the following: quality of

coal or coal specifications, quantity of coal, method or time of shipments,

place of delivery (including transfer of title and risk of loss), method(s) of

weighing, sampling or analysis and such other provision as may affect the

suitability and amount of coal for Buyer’s generating stations.

 

If any such changes makes

necessary or appropriate an increase or decrease in the then current price per

ton of coal, or in any other provision of this Agreement, an equitable

adjustment shall be made in price, whether current or future or both, and/or in

such other provisions of this Agreement as are affected directly or indirectly

by such change, and the Agreement shall thereupon be modified in writing

accordingly.

 

Any claim by the Seller

for adjustment under this § 11 shall be asserted within thirty (30) days after

the date of Seller’s receipt of the written notice of the requested change, it

being understood, however that Seller shall not be obligated to modify this

Agreement until an equitable adjustment has been agreed upon.  The parties agree to negotiate promptly and

in good faith to agree upon the nature and extent of any equitable adjustment.

 

18

 

SECTION 12.                     NOTICES.

 

§ 12.1  Form and Place of Notice. 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 when delivered in person,

transmitted by facsimile or other electronic media (with confirmation),

delivered to an established mail service for same day or overnight delivery, or

dispatched in the United States mail, postage prepaid, for mailing by first

class, certified, or registered mail, return receipt requested, and addressed

as follows:

 

If to Buyer:                                                                                    Kentucky

Utilities Company

220 West Main Street

Louisville, Kentucky

40202

Attn.:  Director, Corporate Fuels

Fax No.: (502) 627-3243

 

If to Seller:                                                                                       Massey

Coal Sales Company, Inc.

P.O. Box  26765

Richmond, Virginia  23261

Attn: Senior

Vice-President

Fax No.: (804) 788-1811

 

With a copy to:

 

A.T. Massey Coal Co.,

Inc.

P.O. Box 26765

Richmond, Virginia 23261

Attn: General Counsel

Fax No.: (804) 788-1804

 

§ 12.2  Change of Person or Address.  Either party may change the person or

address specified above upon giving written notice to the other party of such

change.

 

§ 12.3  Electronic Data Transmittal.  Seller hereby agrees, at Seller’s cost, to

electronically transmit shipping notices and/or other data to Buyer in a

mutually acceptable format.

 

19

 

SECTION 13.                     RIGHT

TO RESELL.  Buyer shall have the

unqualified right to sell all or any of the coal purchased under this

Agreement.

 

SECTION 14.                     INDEMNITY

AND INSURANCE.

 

§ 14.1  Indemnity.  Both parties agree to indemnify and save harmless the other, its

officers, directors, employees and representatives from any responsibility and

liability for any and all claims, demands, losses, legal actions for personal

injuries, property damage and pollution (including reasonable inside and

outside attorney’s fees)  (i) due to any

failure of either party to comply with laws, regulations or ordinances, or (ii)

due to the acts or omissions of either party in the performance of this

Agreement.  Notwithstanding the

foregoing, neither party shall be liable to the other for any consequential,

incidental, special, punitive, exemplary or indirect damages, lost profits, or

business interruption damages, whether by statute, in tort or in contract

arising out of the performance of any of the obligations under this Agreement.

 

§ 14.2  Insurance.  Seller agrees to carry insurance coverage with minimum limits as

follows:

 

(1)                         Commercial

General Liability, including Completed Operations and Contractual Liability,

$1,000,000 single limit liability.

 

(2)                         Automobile

General Liability, $1,000,000 single limit liability.

 

(3)                         In

addition, Seller shall carry excess liability insurance covering the foregoing

perils in the amount of $4,000,000 for any one occurrence.

 

(4)                         Workers’

Compensation and Employer’s Liability with statutory limits.

 

If any of the above

policies are written on a claims made basis, then the retroactive date of the

policy or policies will be no later than the effective date of this

Agreement.  Certificates of 

 

20

 

Insurance satisfactory in

form to the Buyer and signed by the Seller’s insurer shall be supplied by the

Seller to the Buyer evidencing that the above insurance is in force and that

not less than 30 calendar days written notice will be given to the Buyer prior

to any cancellation or material reduction in coverage under the policies.  The Seller shall cause its insurer to waive

all subrogation rights against the Buyer respecting all losses or claims

arising from performance hereunder. 

Evidence of such waiver satisfactory in form and substance to the Buyer

shall be exhibited in the Certificate of Insurance mentioned above.  Seller’s liability shall not be limited to

its insurance coverage.

 

SECTION 15.                     TERMINATION

FOR DEFAULT.

 

Subject to § 6.4, if

either party hereto commits a material breach of any of its obligations under

this Agreement at any time, including, but not limited to, a breach of a

representation and warranty set forth herein, then the other party has the

right to give written notice describing such breach and stating its intention

to terminate this Agreement no sooner than 30 days after the date of the notice

(the “notice period”).  If such material

breach is curable and the breaching party cures such material breach within the

notice period, then the Agreement shall not be terminated due to such material

breach.  If such material breach is not

curable or the breaching party fails to cure such material breach within the

notice period, then this Agreement shall terminate at the end of the notice

period in addition to all the other rights and remedies available to the aggrieved

party under this Agreement and at law and in equity.

 

SECTION 16.                     TAXES,

DUTIES AND FEES.

 

Seller shall pay when

due, and the price set forth in § 8 of this Agreement shall be inclusive of,

all taxes, duties, fees and other assessments of whatever nature imposed by 

 

21

 

governmental authorities

with respect to the transactions contemplated under this Agreement, as such

price may be adjusted pursuant to § 8.4.

 

SECTION 17.                     DOCUMENTATION

AND RIGHT OF AUDIT.

 

Seller shall maintain all

records and accounts pertaining to payments, quantities, quality analyses, and

source for all coal supplied under this Agreement for a period lasting through

the term of this Agreement.   Buyer

shall have the right, at its sole cost and expense, to audit, copy and inspect

such records and accounts at any reasonable time upon reasonable notice during

the term of this Agreement.

 

SECTION 18.                     EQUAL

EMPLOYMENT OPPORTUNITY.  To the

extent applicable, Seller shall comply with all of the following provisions

which are incorporated herein by reference: 

Equal Opportunity regulations set forth in 41 CFR § 60-1.4(a) and

(c) prohibiting discrimination against any employee or applicant for employment

because of race, color, religion, sex, or national origin;  Vietnam Era Veterans Readjustment Assistance

Act regulations set forth in 41 CFR § 50-250.4 relating to the employment

and advancement of disabled veterans and veterans of the Vietnam Era;

Rehabilitation Act regulations set forth in 41 CFR § 60-741.4 relating to the

employment and advancement of qualified disabled employees and applicants for

employment; the clause known as “Utilization of Small Business Concerns and

Small Business Concerns Owned and Controlled by Socially and Economically

Disadvantaged Individuals” set forth in 15 USC § 637(d)(3); and

subcontracting plan requirements set forth in 15 USC § 637(d).

 

SECTION 19.                     COAL

PROPERTY INSPECTIONS.  Buyer and

its representatives, and others as may be required by applicable laws, ordinances

and regulations shall have the right at all reasonable times and at their own

expense upon reasonable notice to 

 

22

 

Seller to inspect the

Coal Property, including the loading facilities, scales, sampling system(s),

wash plant facilities, and mining equipment for conformance with this

Agreement. Seller shall undertake reasonable care and precautions to prevent

personal injuries to any representatives, agents or employees of Buyer

(collectively, “Visitors”) who inspect the Coal Property. Any such Visitors

shall make every reasonable effort to comply with Seller’s regulations and

rules regarding conduct on the work site, made known to Visitors prior to

entry, as well as safety measures mandated by state or federal rules,

regulations and laws.  Buyer understands

that mines and related facilities are inherently high-risk environments.  Buyer’s failure to inspect the Coal Property

or to object to defects therein at the time Buyer inspects the same shall not

relieve Seller of any of its responsibilities nor be deemed to be a waiver of

any of Buyer’s rights hereunder.

 

SECTION 20.                     WARRANTIES.  OTHER THAN THOSE EXPRESSLY PROVIDED HEREIN,

SELLER MAKES NO OTHER REPRESENTATION OR WARRANTY, WRITTEN OR, EXPRESS OR IMPLIED,

IN CONNECTION WITH THE SALE AND PURCHASE OF COAL HEREUNDER.  ALL WARRANTIES OF MERCHANTABILITY OF FITNESS

FOR A PARTICULAR PURPOSE OR ARISING FROM A COURSE OF DEALING OR USEAGE OF TRADE

ARE SPECIFICALLY EXCLUDED.

 

SECTION 21.                     MISCELLANEOUS.

 

§ 21.1  Applicable Law.  This Agreement shall be construed in

accordance with the laws of the Commonwealth of Kentucky, and all questions of

performance of obligations hereunder shall be determined in accordance with

such laws.

 

§ 21.2  Headings.  The paragraph headings appearing in this Agreement are for

convenience only and shall not affect the meaning or interpretation of this

Agreement.

 

23

 

§ 21.3  Waiver.  The failure of either party to insist on strict performance of

any provision of this Agreement, or to take advantage of any rights hereunder,

shall not be construed as a waiver of such provision or right.

 

§ 21.4  Remedies Cumulative.  Remedies provided under this Agreement shall

be cumulative and in addition to other remedies provided under this Agreement

or by law or in equity.

 

§ 21.5  Severability.  If any provision of this Agreement is found

contrary to law or unenforceable by any court of law, the remaining provisions

shall be severable and enforceable in accordance with their terms, unless such

unlawful or unenforceable provision is material to the transactions

contemplated hereby, in which case the parties shall negotiate in good faith a

substitute provision.

 

§ 21.6  Binding Effect.  This Agreement shall bind and inure to the

benefit of the parties and their successors and assigns.

 

§ 21.7  Assignment.

 

A.  Seller shall not, without Buyer’s prior

written consent, which may be withheld in Buyer’s discretion, make any

assignment or transfer of this Agreement, by operation of law or otherwise,

including without limitation any assignment or transfer as security for any

obligation, and shall not assign or transfer the performance of or right or

duty to perform any obligation of Seller hereunder; provided, however, that

Seller may assign the right to receive payments for coal directly from Buyer to

a lender as part of any accounts receivable financing or other revolving credit

arrangement which Seller may have now or at any time during the term of this

Agreement.

 

24

 

B.  Buyer shall not, without Seller’s prior

written consent, which consent shall not be unreasonably withheld, assign this

Agreement or any right for the performance of or right or duty to perform any

obligation of Buyer hereunder; except that, without such consent, Buyer may

assign this Agreement in connection with a transfer by Buyer of all or a part

interest in the generating station comprising the Delivery Point, or as part of

a merger or consolidation involving Buyer, or to Buyer’s affiliate.

 

C.  In the event of an assignment or transfer

contrary to the provisions of this section, the non-assigning party may

terminate this Agreement immediately.

 

§ 21.8  Entire Agreement.  This Agreement contains the entire agreement

between the parties as to the subject matter hereof, and there are no

representations, understandings or agreements, oral or written, which are not

included herein.  Without limiting the

foregoing (a) this Agreement shall not be construed as a requirements or

similar agreement, and (b) this Agreement shall not be construed as affecting

Buyer’s ability to negotiate with and/or acquire other sources of coal from

third parties throughout the term hereof.

 

§ 21.9  Amendments.  Except as otherwise provided herein, this Agreement may not be

amended, supplemented or otherwise modified except by written instrument signed

by both parties hereto.

 

IN WITNESS WHEREOF, the

parties hereto have caused this Agreement to be executed as of the date first

above written.

 

	

  BUYER

  	

   

  	

   

  	

  SELLER

  	

   

  
	

  KENTUCKY UTILITIES

  COMPANY

  	

   

  	

  MASSEY COAL SALES

  COMPANY, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  By:

  	

   

  	

   

  	

   

  	

  By:

  	

   

  	

   

  
									

 

25

 

	

   

  	

   

  	

  Paul W. Thompson

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Senior VP -  Energy Services

  	

   

  	

  Its:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Date:

  	

   

  	

   

  	

   

  	

  Date:

  	

   

  	

   

  	

   

  

 

26

 

Exhibit

A

 

EXHIBIT A

SAMPLE COAL PAYMENT CALCULATIONS

Total Evaluated Coal Costs for

Contract No. KU F02850

 

For contracts supplied

from multiple “origins”, each “origin will be calculated individually.

 

	

   

  	

   

  	

  Section I

  	

   

  	

  Base Data

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  1)

  	

   

  	

  Base F.O.B. price per

  ton:

  	

   

  	

  $

  	

  43.35

  	

  /ton

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  1a)

  	

   

  	

  Tons of coal delivered:

  	

   

  	

   

  	

  tons

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  2)

  	

   

  	

  Guaranteed average heat

  content:

  	

   

  	

  12,000

  	

  BTU/LB.

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  2r)

  	

   

  	

  As received monthly

  avg. heat content:

  	

   

  	

   

  	

  BTU/LB.

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  2a)

  	

   

  	

  Energy delivered in

  MMBTU:

  	

   

  	

   

  	

  MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  [(Line

  1a) *2,000 lb./ton*(Line 2r)] *MMBTU/1,000,000 BTU

  	

   

  	

   

  	

   

  
	

  [(   ) *2,000 lb./ton*(   )]*MMBTU/1,000,000 BTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  2b)

  	

   

  	

  Base F.O.B. price per

  MMBTU:

  	

   

  	

  $

  	

  1.80625

  	

  MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  {[(Line

  1)/(Line 2)]*(1 ton/2,000 lb.)]}*1,000,000 BTU/MMBTU

  	

   

  	

   

  	

   

  
	

  {[(  /ton)/( 

  BTU/LB)]*(1 ton/2,000 lb.)}*1,000,000 BTU/MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  3)

  	

   

  	

  Guaranteed shipment.

  max. SO2

  	

   

  	

  1.20

  	

  LBS./MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  3r)

  	

   

  	

  Number of tons >

  1.20 lbsSO2/Mmbtu

  	

   

  	

   

  	

  TONS

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  4)

  	

   

  	

  Guaranteed monthly avg.

  ash

  	

   

  	

  10.83

  	

  LBS./MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  4r)

  	

   

  	

  As received monthly

  avg. ash

  	

   

  	

   

  	

  LBS./MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  5)

  	

   

  	

  Guaranteed monthly avg.

  max. moisture

  	

   

  	

  6.67

  	

  LBS./MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  5r)

  	

   

  	

  As received monthly

  avg. moisture

  	

   

  	

   

  	

  LBS./MMBTU

  

 

	

   

  	

   

  	

  Section II

  	

   

  	

  Discounts

  	

   

  
	

   

  	

   

  	

  Assign

  a (-) to all discounts (round to (5) decimal places)

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  6d)

  	

   

  	

  BTU/LB.:  If line 2r <11,800 BTU/lb. then:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  {1 -

  (line 2r) / (line 2)} * $0.2604/MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  {1 -

  (   ) / (   )} * $0.2604 =

  	

   

  	

  $

  	

   

  	

   /MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  7d)

  	

   

  	

  SO2:  If any individual shipment is greater than

  1.20 lbs./MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  [(line

  3r) * $3.00 per ton] / line 2a

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  [

  (   ) * (3.00) ] / (   ) =

  	

   

  	

  $

  	

   

  	

   /MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  8d)

  	

   

  	

  ASH: If line 4r is

  greater than 10.83 lbs./MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  [

  (line 4r) - (line 4) ] * 0.0083/MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  [

  (   ) - (   ) ] * 0.0083 =

  	

   

  	

  $

  	

   

  	

   /MMBTU

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  9d)

  	

   

  	

  MOISTURE:  If line 5r is greater than 8.33 lbs./MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  [

  (line 5r) - (line 5) ] * 0.0016/MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  [

  (   ) - (   ) ] * 0.0016 =

  	

   

  	

  $

  	

   

  	

   /MMBTU

  

 

27

 

	

   

  	

   

  	

  Section

  III

  	

   

  	

  Total

  Price

  Adjustments

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Determine

  total Discounts as follows:

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Assign

  a (-) to all discounts (round to (5) decimal places)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Line

  6d:

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Line

  7d

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Line

  8d

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Line

  9d

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  10)

  	

   

  	

  Total Discounts (-):

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Algebraic

  sum of above:

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  11)

  	

   

  	

  Total evaluated coal

  price = (line 2b + (line 10)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  12)

  	

   

  	

  Total discount price

  adjustment for Energy delivered:

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (line

  2a) * (line 10) (-)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

  +

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

  =

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  13)

  	

   

  	

  Total base cost of coal

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (line

  2a) * (line 2b)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

  +

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

  =

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  14)

  	

   

  	

  Total coal payment for

  month

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (line

  12) + (line 13)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  $

  	

   

  	

  /MMBTU

  	

  +

  	

   

  	

  $

  	

   

  	

   

  	

  =

  	

  $

  	

   

  	

   

  

 

28

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT

(“Guaranty”) is made and entered into this 1st day of January 2002

by MASSEY ENERGY COMPANY (“Massey”), a Delaware corporation, with offices at 4

North Fourth Street, Richmond, Virginia 23219, to and for the benefit of

KENTUCKY UTILITIES COMPANY (“Buyer”), a Kentucky corporation, with offices at

220 West Main Street, Louisville, Kentucky 40202.

WHEREAS, Buyer and Massey

Coal Sales Company, Inc. (“Seller”), a Virginia corporation, with offices at 4

North Fourth Street, Richmond, Virginia 23219, propose to enter into a Coal

Supply Contract dated on or about January 1, 2002 (“Contract”) for a coal

supply from Massey’s Elk Run, Progress, Black Castle and Bandmill Mines,

located in Boone and Logan Counties, West Virginia (the “Coal Property”); and

WHEREAS, Buyers

performance under the Contract will benefit Massey through the Seller, and to

induce Buyer to enter into the Contract, Massey is willing to guarantee to

Buyer, its successors, representatives and assigns, Seller’s performance of

Seller’s obligations (collectively, the “Obligations”) set forth in the

Contract and any extension or amendment thereof.

NOW, THEREFORE, for and

in consideration of the sum of Ten Dollars ($10.00) and other good and valuable

consideration, the receipt and adequacy of which are hereby acknowledged,

Massey hereby agrees as follows:

1)                                      Guaranty

- Massey guarantees to Buyer Seller’s performance of the Obligations and agrees

that this Guaranty shall inure to the benefit of and may be enforced by Buyer,

its successors, representatives and assigns.

2)                                      Acceptance

and Amendments - Massey waives notice of acceptance of this Guaranty, and

consents to any and all waivers and extension of the time of performance and to

any and all changes, modifications or amendments in the terms, covenants and

conditions in the Contract hereafter made or granted.

3)                                      Buyer’s

Remedies - Massey agrees that this Guaranty may be enforced by Buyer

without first enforcing Buyer’s rights under the Contract against Seller;

provided, however, that nothing herein contained shall prevent Buyer from

enforcing the Contract with or without making Massey a party to the suit.

4)                                      Massey’s

Defenses - Except as otherwise provided in Section 5 of this Guaranty,

Massey shall be entitled to the benefit of any defenses which Seller may have

to the enforcement by Buyer of any of the Obligations.

5)                                      Seller’s

Bankruptcy - Massey agrees that its obligations under this Guaranty shall

not be impaired, modified, changed, released or limited in any manner

whatsoever by any impairment, modification, change, release or limitation of

the liability of Seller (or Seller’s estate in bankruptcy) resulting from the

operation of any present or future provision of the federal bankruptcy law or

other similar statute.

6)                                      Expenses

- If any claim by Buyer is successfully prosecuted against Massey under

this Guaranty, Massey shall reimburse Buyer for all reasonable expenses

incurred by Buyer in connection therewith, including reasonable attorneys’

fees.

 

29

 

7)                                      Representations

- Massey represents that:

a.                                                                                       Massey

is a validly organized corporation duly existing and in good standing under the

laws of the State of Delaware.

b.                                                                                      The

giving of this Guaranty is within Massey’s corporate powers.

c.                                                                                       The

giving of this Guaranty has been pursuant to all necessary corporate action and

does not contravene any law or any contractual restriction binding on Massey.

d.                                                                                      This

Guaranty is a legal, valid and binding obligation, enforceable against Massey

in accordance with its terms.

8)                                      Waiver

by Buyer - The failure of Buyer to enforce any of the provisions of this

Guaranty at any time or for any period of time shall not be construed to be a

waiver of any such provision or of the right thereafter to enforce the same.

9)                                      Governing

Law - This Guaranty shall be interpreted and enforced in accordance with

the laws of the Commonwealth of Kentucky.

10)                                Notices

- Any notice, request, consent, demand, report or statement which is given

to or made upon either party hereto by the other party hereto under any of the

provisions of this Guaranty shall be in writing unless otherwise provided

herein and shall be treated as duly delivered when the same is received by the

party to be notified whether by personal delivery, or by the United States

mail, as evidenced by a receipt or by telecopier and confirmed by United States

mail, as evidenced by a receipt. 

Notices shall be properly addressed as follows:

 

As to Buyer:                                                                            Kentucky

Utilities Company

220 West Main Street

Louisville, Kentucky  40202

Attn: Director, Corporate

Fuels

 

As to Seller:                                                                               Massey

Coal Sales Company, Inc.

PO Box 26765

Richmond, Virginia  23261

Attn: Senior

Vice-President

 

As to Massey:                                                                 Massey

Energy Company

PO Box 26765

Richmond, Virginia  23261

Attn: President

 

Either party hereto may

change its address or representative for the purposes of notices or

communications hereunder by furnishing notice thereof to the other party in

compliance with this provision

11)                                Assignment

- Massey’s rights and obligations under this Guaranty may be assigned to the

ultimate parent company of an approved assignee of Seller’s rights and 

 

30

 

obligations under the

Contract, provided the assignment provisions of the Contract shall control and

provided further, such that a wholly-owned subsidiary or wholly affiliate

company of the ultimate parent takes title to the Coal Property.  If such assignee is not owned either

directly or indirectly by Massey and if Buyer has agreed to release Seller from

the Obligations, this Guaranty shall terminate and Massey shall be released

from any further obligations or liabilities hereunder.  If another company with substantial assets

becomes the new ultimate parent company of Seller, Massey may, with Buyer’s

written approval, assign its rights and obligations hereunder to such other

company and thereafter, as to Massey, this Guaranty shall terminate, and Massey

shall be released from any further obligations or liabilities hereunder.

 

IN WITNESS WHEREOF,

Massey has executed this Guaranty as of the date first written above.

 

 

	

   

  	

  MASSEY ENERGY COMPANY

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  
	

   

  	

  Its:  

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  ATTEST:

  	

   

  	

   

  

 

31Exhibit
10.74

 

THIRD AMENDMENT TO THE

EMPLOYMENT AND SEVERANCE AGREEMENT

OF

VICTOR A. STAFFIERI

 

 

                This Third Amendment to the Employment and Severance Agreement of
Victor A. Staffieri (“Third Amendment”) is made and entered into this 1st day of July, 2002 by
and among (i) LG&E Energy Corp., a Kentucky
corporation (“Company”), (ii) Powergen, plc, a
United Kingdom public limited company (“Parent”), (iii) E.ON AG, an
anktiengesellschaft formed under the Federal Republic of Germany (“German
Parent”), and (iv) Victor A. Staffieri
(“Executive”), collectively referred to as the “Parties”.

 

                WHEREAS,  the
Executive, the Company and the Parent entered into an Employment and Severance
Agreement, dated February 25, 2000 (“Agreement”);

 

                WHEREAS, the Agreement was previously amended by the Executive,
the Company and the Parent in a document dated December 8, 2000 (“First
Amendment”);

 

                WHEREAS, the Agreement was also amended by the Executive, the
Company and the Parent in a document effective as of April 30, 2001 (“Second
Amendment”);

 

                WHEREAS, the Parent and German Parent have agreed to the terms
of a recommended pre-conditional cash offer, whereby German Parent or its
subsidiary will acquire ownership of the Parent;

 

                WHEREAS, the Parent and the German Parent have determined that
the acquisition of the Parent by the German Parent shall be completed by way of
a scheme of arrangement, whereby the acquisition will become effective in
accordance with the terms of the scheme (“Acquisition Date”); and

 

                WHEREAS, the Parties have determined that it is now desirable
to amend the Agreement to reflect certain changes resulting from the German
Parent’s acquisition of the Parent.

 

AGREEMENT:

 

                NOW
THEREFORE, in consideration of the respective agreements of the
Parties contained herein, it is agreed as follows:

 

1.   A new
Section 1.4 shall be added to the end of Article 1 to read as follows:

 

“1.4         On the Acquisition Date, the Company,
the Parent, the German Parent, or any subsidiary of the Company, the Parent or
the German Parent, hereinafter referred to as the

 

1

 

“Employer”, shall pay to
the Executive a lump sum cash payment in an amount equal to $800,570, provided
that the Executive is employed by an Employer on the Acquisition Date.  Additionally, the Employer shall pay the
Executive, as provided herein, the following: (i) $800,570 on the first
anniversary of the Acquisition Date, (ii) $800,570 on the second anniversary of
the Acquisition Date, and (iii) $800,570 on the thirty month anniversary of the
Acquisition Date, collectively hereinafter referred to as the “Additional
Retention Payments.”  The Additional
Retention Payments shall be credited to the Executive’s account under the
deferred compensation plan of the Company on the Acquisition Date and shall be
payable in a lump sum cash payment (including adjustment for any increases in
Executive’s account under the deferred compensation plan), if the Executive so
elects, within ten (10) days after the earliest to occur of (i) any termination
of the Executive’s employment with an Employer, other than a termination by the
Executive without Good Reason, (ii) a Change in Control that occurs during the
thirty months following the Acquisition Date, so long as the Executive is still
employed by an Employer immediately prior to such Change in Control, or (iii)
the respective first year, second year and thirty month anniversaries of the
Acquisition Date, so long as the Executive is still employed by an Employer on
such dates.  In the event that the
Executive elects to continue to defer the foregoing lump sum payments, such
amounts shall nevertheless vest as set forth above, and shall continue to be
held in the Executive’s deferred compensation plan account, which shall
continue to be adjusted and shall be distributed in accordance with the terms
of the deferred compensation plan.”

 

2.             Section 3.1 shall be deleted and replaced in its
entirety to read as follows:

 

“3.1         The
Company agrees to employ Executive, and Executive agrees to serve during the
term hereof as Chief Executive Officer of the Company.  Executive shall report to Ulrich Hartmann,
or his successor.  In addition, German
Parent shall (i) cause the Executive to be elected as a member of the Board of
Directors of the Company (the “Board”), (ii) secure Executive’s election as a
member of the Board of Directors of Parent (the “Parent Board”), and (iii)
secure Executive’s election as a member of the management board or board of
directors (as applicable) of E.ON U.S. Verwaltungs GMBH or any other similar
entity

 

2

 

the German Parent utilizes to establish its presence,
through acquisition or other development activity, in the United States’ energy
industry (“Primary U.S. Acquisition Board”), and Executive agrees to serve in
such capacities.”

 

3.  Section 3.2
shall be deleted and replaced in its entirety to read as follows:

 

“3.2         Executive
agrees to devote his full working time and efforts, to the best of his ability,
experience and talent, to the performance of services, duties and
responsibilities in connection with the position named above.  Executive shall perform such duties and
exercise such powers, commensurate with his position, as Chief Executive Officer
of the Company, as Ulrich Hartmann or his successor shall from time to time
delegate to him on such terms and conditions and subject to such restrictions
as  Ulrich Hartmann or
his successor may reasonably from time to time impose.”

 

4.               Section 3.4 shall be deleted and replaced in its
entirety to read as follows:

 

“3.4.        The
Executive will perform his services at the Company’s headquarters in
Louisville, Kentucky, with the understanding that he will be required to travel
as reasonably required (including travel to the United Kingdom and Germany) for
the performance of his duties under this Agreement.”

 

5.               Section 4.1 shall be deleted and replaced in its
entirety to read as follows:

 

“4.1.        SALARY. 
The Company shall pay Executive an annual base salary (“Base Salary”) of
not less than  $630,000.  The Base Salary shall be payable in
accordance with the ordinary payroll practices of the Company.  The Base Salary shall be reviewed by Ulrich
Hartmann or his successor in December of each year during the term of this
Agreement and may be increased in the discretion of Ulrich Hartmann or his
successor at that or any other time and, as so increased, shall constitute
“Base Salary” hereunder.   At no time
shall Ulrich Hartmann or his successor be able to decrease the Base Salary.”

 

6.     Subsection 6.5(a) shall be deleted and replaced in its entirety
to read as follows:

 

“(a)         For purposes of this Agreement, “Good
Reason” shall mean the occurrence of any of 

 

3

 

the events or conditions described in subsections (1)
through (10) hereof:

 

                (1)
          a reduction by the Company in
the Executive’s Base Salary or annual target bonus opportunity as in effect
prior to such reduction or any failure to pay the Executive any compensation or
benefits to which the Executive is entitled within thirty days of the
applicable due date, provided that the Company may correct such reduction or
failure within thirty (30) days of its commission;

 

                (2)           German Parent, Parent or the Company
require the Executive to be relocated anywhere in excess of fifty (50) miles of
his present office location, except for required travel on German Parent,
Parent or Company business consistent with his business travel obligations as
in effect prior to the Effective Time and as provided in Section 3.4 of this
Agreement;

 

                (3)           a failure by Parent or the Company to
maintain plans providing benefits at least as beneficial in the aggregate as
those provided by any benefit or compensation plan, retirement or pension plan,
stock option plan, bonus plan, long-term incentive plan, life insurance plan,
health and accident plan or disability plan in which the Executive is
participating prior to the Effective Time, the Change in Control, the Second
Amendment, or this Third Amendment, as applicable, or if the Company or Parent has
taken any action which would adversely affect the Executive’s participation in
or materially reduce the Executive’s benefits under any of such plans or
deprive him of any material fringe benefit enjoyed by him prior to the
Effective Time, the Change in Control, the Second Amendment or this Third
Amendment, as applicable, or if the Company or Parent has failed to provide him
with the number of paid vacation days to which he would be entitled in
accordance with the Company’s normal vacation policy immediately prior to the
Effective Time, the Change in Control, the Second Amendment, or this Third
Amendment as applicable;

 

4

 

 

                (4)           Parent or the Company materially
reduces, individually or in the aggregate, the Executive’s title, job
authorities or responsibilities as in effect prior to such reduction;

 

                (5)           Parent or the Company fails to obtain
the assumption of the obligations contained in this Agreement by any successor
as contemplated in Section 11 hereof;

 

                (6)           any purported termination of the
Executive’s employment by Parent or the Company which is not effected pursuant
to a Notice of Termination satisfying the requirements of Section 8, hereof;
and, for purposes of this Agreement, no such purported termination shall be
effective;

 

                (7)           any material breach by Parent or the
Company of any provision of this Agreement;

 

                (8)           any purported termination of the
Executive’s employment for Cause by Parent or the Company which does not comply
with the terms of Section 6.2 of this Agreement;

 

                (9)           any removal of the Executive from the
position of Chief Executive Officer of the Company, except for Cause; or

 

                (10)         any removal of Executive from, the
Board, the Parent Board, or the Primary U.S. Acquisition Board, except for Cause.”

 

7.               The introduction to Section 7.1 shall be deleted and
replaced in its entirety to read as follows:

 

“7.1         If,
during the term of this Agreement, the Executive’s employment with the Company
shall be terminated within twenty-four months after the effective time of any
Change in Control occurring after the Acquisition Date, then the Executive
shall be entitled to the following compensation and benefits:”

 

5

 

8.               The introduction to Section 7.2 shall be deleted and
replaced in its entirety to read as follows:

 

“7.2.        If, during the term
of this Agreement, but not during a twenty-four month period following the
effective time of any Change in Control occurring after the Acquisition Date,
the Executive’s employment with the Company shall be terminated, the Executive
shall be entitled to the following:”

 

                IN WITNESS WHEREOF, the Company, the German
Parent, and the Parent have caused this Third Amendment to be executed by its
duly authorized representative and the Executive has executed this Third
Amendment as of the date set forth below, but which shall be effective as of
the later of (i) the Acquisition Date, provided the Company employs Executive
on that date, or (ii) the date the Executive executes a release in the form
attached hereto.  Except as provided
herein, nothing contained in this Third Amendment shall alter the terms and
conditions of the Agreement, the First Amendment, or the Second Amendment.

 

	
  E. ON. AG

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Ulrich Hartmann

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  1/7/2002

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  LG&E ENERGY CORP.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John R. McCall

  	
   

  	
   

  
	
   

  	
  Name

  	
  John R. McCall

  	
   

  	
   

  
	
   

  	
  Title

  	
  EVP, General Counsel and Corporate Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  POWERGEN, plc

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /signed/

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  

 

6

 

 

	
  EXECUTIVE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Victor A. Staffieri

  	
   

  	
   

  
	
   

  	
  VICTOR A. STAFFIERI

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  

 

 

7

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