Document:

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                                                                   Exhibit 10.26
                                 PROMISSORY NOTE

$5,000,000.00                                                    October 2, 2001
                                                                 Tulsa, Oklahoma

         FOR VALUE RECEIVED, the undersigned, ALLIANCE RESOURCE PARTNERS, L.P.
("Maker"), promises to pay to the order of BANK OF THE LAKES, N.A. ("Lender"),
at its offices in Collinsville, Oklahoma, on demand, the principal sum of FIVE
MILLION AND NO/100 DOLLARS ($5,000,000.00) or, if less, the aggregate sum of all
Advances made by Lender under the Letters of Credit issued for the account of
Maker pursuant to the Letter of Credit Facility Agreement between Maker and
Lender, dated as of October 2, 2001 (as the same may be amended, modified or
supplemented from time to time in accordance with the terms thereof, the "Credit
Agreement") to the extent Lender shall have not been reimbursed for such
Advances as required by Section 2.3 of the Credit Agreement, together with
interest thereon per annum at the Prime Rate as provided herein. Capitalized
terms used herein without definition shall have the meanings ascribed to them in
the Credit Agreement.

         If any payment shall be due on a Saturday or Sunday or upon any other
day on which state or national banks in the State of Oklahoma are closed for
business by virtue of a legal holiday for such banks, such payment shall be due
and payable on the next succeeding banking day and interest shall accrue to such
day. Interest on any Advance not so reimbursed shall accrue from the date
outstanding hereunder to (but not including) the date paid and shall be computed
on the actual number of days elapsed (365 or 366) based upon a 360-day year.

         "Prime Rate" shall mean a fluctuating interest rate per annum as in
effect from time to time, which interest rate per annum shall at all times be
equal to the rate of interest announced publicly from time to time (whether or
not charged in each instance) by Chase Manhattan Bank, N.A., at New York, NY
("Rate Bank"), as its base rate or general reference rate. Each change in the
Prime Rate (or any component thereof) shall become effective hereunder without
notice to Maker (which notice is hereby expressly waived by Maker), on the
effective date of each such change. Should the Rate Bank abolish or abandon the
practice of announcing or publishing a Prime Rate, then the Prime Rate used
during the remaining term of this Note shall be that interest rate or other
general reference rate then in effect at the Rate Bank which, from time to time,
in the reasonable judgment of Lender, most effectively approximates the initial
definition of the "Prime Rate." Maker acknowledges that Lender may, from time to
time, extend credit to other borrowers at rates of interest varying from, and
having no relationship to, the Prime Rate. The rate of interest payable upon the
indebtedness evidenced by this Note shall not, however, at any time exceed the
maximum rate of interest permitted under the laws of the State of Oklahoma for
loans of the type and character evidenced by this Note.

         All payments under this Note shall be made in legal tender of the
United States of America or in other immediately available funds at Lender's
office described above, and no credit shall be given for any payment received by
check, draft or other instrument or item until such time as the holder hereof
shall have received credit therefor from the holder's collecting agent or, in
the event no collecting agent is used, from the bank or other financial
institution upon which said check, draft or other instrument or item is drawn.

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         From time to time the maturity date of this Note may be extended or
this Note may be renewed, in whole or in apart, or a new note of different form
may be substituted for this Note and/or the rate of interest may be changed, or
changes to this Note may be made in consideration of any Letter of Credit
Action, and the holder of this Note, from time to time, may waive or surrender,
either in whole or in part, any rights, guarantees, security interests or liens
given for the benefit of the holder of this Note in connection herewith; but no
such occurrences shall in any manner affect, limit, modify or otherwise impair
any rights, guarantees or security of the holder of this Note not specifically
waived, released or surrendered in writing, nor shall any maker, guarantor,
endorser or any person who is or might be liable hereon, either primarily or
contingently, be released from such liability by reason of the occurrence of any
such event. The holder hereof, from time to time, shall have the unlimited right
to release any person who might be liable hereon; and such release shall not
affect or discharge the liability of any other person who is or might be liable
hereon.

         If any payment required by this Note to be made is not made when due,
or if any Default occurs under the Credit Agreement or if any "event of default"
occurs under the provisions of any mortgage, security agreement, assignment,
pledge or other document or agreement which provides security for the
indebtedness evidenced by this Note, the holder hereof may, at its option,
without notice or demand, declare this Note in default and all indebtedness due
and owing hereunder immediately due and payable. Interest from the date of
default on such principal balance and on any past due interest hereunder shall
accrue at the rate of two percent (2%) per annum above the nondefault interest
rate accruing hereunder. The Maker hereby waives protest, presentment, demand,
and notice of protest and nonpayment in case this Note or any payment due
hereunder is not paid when due; and the Maker agrees to any renewal, extension,
acceleration, postponement of the time of payment, substitution, exchange or
release of collateral and to the release of any party or person primarily or
contingently liable without prejudice to the holder hereof and without notice to
the Maker or any endorser, guarantor or surety. Maker and any guarantor,
endorser, surety or any other person who is or may become liable hereon will, on
demand, pay all costs of collection, including reasonable attorney fees of the
holder hereof in attempting to enforce payment of this Note and reasonable
attorney fees for defending the validity of any document securing this Note as a
valid first and prior lien.

         Upon the occurrence of any Default, Lender shall have the right,
immediately and without further action by it, to set off against this Note all
money owed by Lender in any capacity to the Maker or any guarantor, endorser or
other person who is or might be liable for payment hereof, whether or not due,
and also to set off against all other liabilities of Maker to Lender all money
owed by Lender in any capacity to Maker; and Lender shall be deemed to have
exercised such right of setoff and to have made a charge against such money
immediately upon the occurrence of such Default even though such charge is made
or entered into the books of Lender subsequently thereto.

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This Note is the promissory note issued pursuant to the Credit Agreement and is
given for an actual loan of money for business purposes and not for personal,
agricultural or residential purposes, and is executed and delivered in the State
of Oklahoma and shall be governed by and construed in accordance with the laws
of the State of Oklahoma, without giving effect to principles of conflicts of
laws.

                                  ALLIANCE RESOURCE PARTNERS, L.P.

                                  By:   ALLIANCE RESOURCE MANAGEMENT
                                        GP, LLC, the managing general partner

                                        By:        /s/ Michael L. Greenwood
                                           -----------------------------------
                                        Name:  Michael L. Greenwood
                                        Title: Senior Vice President - Chief
                                               Financial Officer and Treasurer

                                      -3-<PAGE>
                                                                   Exhibit 10.27
                                    GUARANTY

         THIS GUARANTY is dated October 2, 2001 (the "Guaranty"), and made by
ALLIANCE RESOURCE GP, LLC, a Delaware limited liability company ("Guarantor"),
in favor of the BANK OF THE LAKES, N.A. ("Lender").

         PRELIMINARY STATEMENT. Alliance Resource Partners, L.P., a Delaware
limited partnership (the "COMPANY" or "BORROWER"), is party to a Letter of
Credit Facility Agreement, dated as of October 2, 2001 (as amended, amended and
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"; the capitalized terms defined therein and not otherwise defined
herein being used herein as therein defined) with Lender. Guarantor shall
receive, directly or indirectly, a benefit from the issuance of the Letters of
Credit under the Credit Agreement and will derive substantial direct and
indirect benefits from the transactions contemplated by the Credit Agreement. It
is a condition precedent to issuing the Letters of Credit by the Lender under
the Credit Agreement from time to time that Guarantor shall have executed and
delivered this Guaranty.

         NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to issue Letters of Credit from time to time, Guarantor, hereby
agrees as follows:

         Section 1. Guaranty; Limitation of Liability. (a) Guarantor hereby
absolutely, unconditionally and irrevocably guarantees the punctual payment when
due, whether at scheduled maturity or on any date of a required prepayment or by
acceleration, demand or otherwise, of all obligations of the Company now or
hereafter existing under or in respect of the Loan Documents (including, without
limitation, any extensions, modifications, substitutions, amendments or renewals
of any or all of the foregoing obligations) (such obligations being the
"Guaranteed Obligations"), and agrees to pay any and all reasonable expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by the Lender in enforcing any rights under this Guaranty or any Loan
Document. To the extent permitted by law, without limiting the generality of the
foregoing, Guarantor's liability shall extend to all amounts that constitute
part of the Guaranteed Obligations and would be owed by any other party to
Lender under or in respect of the Loan Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such other party.

                  (b) Guarantor and, by its acceptance of this Guaranty, Lender
hereby confirm that it is the intention of all such Persons that this Guaranty
and the Guaranteed Obligations not constitute a fraudulent transfer or
conveyance for purposes of or under any Debtor Relief Laws (including the
Uniform Fraudulent Conveyance Act and the Uniform Fraudulent Transfer Act) to
the extent applicable to this Guaranty and the Guaranteed Obligations. To
effectuate the foregoing intention, the Lender and the Guarantor hereby
irrevocably agree that the Guaranteed Obligations under this Guaranty at any
time shall be limited to the maximum amount as will result in the Guaranteed
Obligations under this Guaranty not constituting a fraudulent transfer or
conveyance.

         Section 2. Guaranty Absolute. To the extent permitted by law, Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of the Loan Documents, regardless of any law, regulation or order
now or hereafter in effect in any jurisdiction

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affecting any of such terms or the rights of Lender with respect thereto. To the
extent permitted by law, the obligations of Guarantor under or in respect of
this Guaranty are independent of the Guaranteed Obligations, and a separate
action or actions may be brought and prosecuted against Guarantor to enforce
this Guaranty, irrespective of whether any action is brought against the
Borrower or any other Person guarantying or pledging assets as collateral
security for the Guaranteed Obligations or whether the Borrower or any such
other Person is joined in any such action or actions. To the extent permitted by
law, the liability of Guarantor under this Guaranty shall be irrevocable,
absolute and unconditional irrespective of, and Guarantor hereby irrevocably
waives any defenses it may now have or hereafter acquire in any way relating to,
any or all of the following:

                  (a) any lack of validity or enforceability of any Loan
Document or any agreement or instrument relating thereto;

                  (b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations under or in
respect of the Loan Documents, or any other amendment or waiver of or any
consent to departure from any Loan Document, including, without limitation, any
increase in the Guaranteed Obligations resulting from the extension of
additional credit to Company or otherwise;

                  (c) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of, or consent to
departure from, any other guaranty, for all or any of the Guaranteed
Obligations;

                  (d) any manner of application of any collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Guaranteed
Obligations;

                  (e) any change, restructuring or termination of the corporate
structure or existence of Company;

                  (f) any failure of Lender to disclose to Company any
information relating to the business, condition (financial or otherwise),
operations, performance, properties or prospects of Company now or hereafter
known to Lender (Guarantor waiving any duty on the part of the Lender to
disclose such information); or

                  (g) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any representation by
Lender that might otherwise constitute a defense available to, or a discharge
of, Company or any other guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by Lender or any other Person upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made.

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         Section 3. Waivers and Acknowledgments. (a) To the extent permitted by
law, Guarantor hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance, presentment, demand for performance, notice of
nonperformance, default, acceleration, protest or dishonor and any other notice
with respect to any of the Guaranteed Obligations and this Guaranty and any
requirement that Lender protect, secure, perfect or insure any lien or any
property subject thereto or exhaust any right or take any action against Company
or any other Person or any collateral.

                  (b) To the extent permitted by law, Guarantor hereby
unconditionally and irrevocably waives any right to revoke this Guaranty and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.

                  (c) To the extent permitted by law, Guarantor hereby
unconditionally and irrevocably waives (i) any defense arising by reason of any
claim or defense based upon an election of remedies by Lender that in any manner
impairs, reduces, releases or otherwise adversely affects the subrogation,
reimbursement, exoneration, contribution or indemnification rights of Guarantor
or other rights of Guarantor to proceed against Company, any other guarantor or
any other Person or any collateral and (ii) any defense based on any right of
set-off or counterclaim against or in respect of the Guaranteed Obligations.

                  (d) To the extent permitted by law, Guarantor hereby
unconditionally and irrevocably waives any duty on the part of Lender to
disclose to Guarantor any matter, fact or thing relating to the business,
condition (financial or otherwise), operations, performance, properties or
prospects of Company or any of its subsidiaries now or hereafter known by
Lender.

                  (e) Guarantor acknowledges that it will receive substantial
direct and indirect benefits from the financing arrangements contemplated by the
Loan Documents and that the waivers set forth in Section 2 and this Section 3
are knowingly made in contemplation of such benefits.

         Section 4. Subrogation. Guarantor hereby unconditionally and
irrevocably agrees not to exercise any rights that it may now have or hereafter
acquire against the Borrower that arise from the existence, payment, performance
or enforcement of Guarantor's obligations under or in respect of this Guaranty
or any Loan Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of Lender against the Borrower, or any other
insider guarantor whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including, without limitation, the right
to take or receive from the Borrower, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim, remedy or right, unless and until all of the Guaranteed Obligations
and all other amounts payable under this Guaranty shall have been paid in full
in cash and the Letter of Credit Commitment shall have expired or been
terminated. If any amount shall be paid to Guarantor in violation of the
immediately preceding sentence at any time prior to the later of (a) the payment
in full in cash of the Guaranteed Obligations and all other amounts payable
under this Guaranty, and (b) the Termination Date, such amount shall be received
and held in trust for the benefit of Lender, shall be segregated from other
property and funds of Guarantor and shall forthwith be paid or delivered to the
Lender in the same form as so received (with any necessary endorsement or
assignment) to be credited and applied to

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the Guaranteed Obligations and all other amounts payable under this Guaranty,
whether matured or unmatured, in accordance with the terms of the Loan
Documents, or to be held as collateral for any Guaranteed Obligations or other
amounts payable under this Guaranty thereafter arising. If (i) Guarantor shall
make payment to Lender of all or any part of the Guaranteed Obligations, (ii)
all of the Guaranteed Obligations and all other amounts payable under this
Guaranty shall have been paid in full in cash, and (iii) the Termination Date
shall have occurred, the Lender will, at Guarantor's request and expense,
execute and deliver to Guarantor appropriate documents, without recourse and
without representation or warranty, necessary to evidence the transfer by
subrogation to Guarantor of an interest in the Guaranteed Obligations resulting
from such payment made by such Guarantor pursuant to this Guaranty.

         Section 5. Payments Free and Clear of Taxes, Etc. (a) Any and all
payments made by any Guarantor under or in respect of this Guaranty or any Loan
Document shall be made free and clear of and without deduction for any and all
present or future taxes (other than any taxes that are imposed on the Lender's
overall net income by the United States and taxes that are imposed on the
Lender's overall net income (and franchise taxes imposed in lieu thereof) by the
state or other jurisdiction under the laws of which the Lender is organized or
any political subdivision thereof) (the "Taxes"). If Guarantor shall be required
by law to deduct any Taxes from or in respect of any sum payable under or in
respect of this Guaranty or any Loan Document to Lender, (i) the sum payable by
Guarantor shall be increased as may be necessary so that after Guarantor and the
Lender have made all required deductions (including deductions applicable to
additional sums payable under this Section 5), the Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
Guarantor shall make all such deductions, and (iii) Guarantor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.

                  (b) In addition, Guarantor agrees to pay any present or future
other Taxes that arise from any payment made by or on behalf of Guarantor under
or in respect of this Guaranty or any Loan Document or from the execution,
delivery or registration of, performance under, or otherwise with respect to,
this Guaranty and the Loan Documents.

                  (c) Guarantor will indemnify Lender for and hold it harmless
against the full amount of Taxes, and for the full amount of taxes of any kind
imposed by any jurisdiction on amounts payable under this Section 5, imposed on
or paid by Lender and any liability (including penalties, additions to tax,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date Lender makes written
demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes by
or on behalf of Guarantor, Guarantor shall furnish to the Lender, at its address
referred to in Section 9, the original or a certified copy of a receipt
evidencing such payment. In the case of any payment hereunder by or on behalf of
Guarantor through an account or branch outside the United States or by or on
behalf of Guarantor by a payor that is not a United States person, if Guarantor
determines that no taxes are payable in respect thereof, Guarantor shall
furnish, or shall cause such payor to furnish, to the Lender, at such address,
an opinion of counsel acceptable to the Lender stating that such payment is
exempt from taxes. For purposes of subsection (d) of this Section 5, the terms
"UNITED STATES"

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and "UNITED STATES PERSON" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.

         Section 6. Representations and Warranties. Guarantor hereby represents
and warrants that Guarantor has, independently and without reliance upon Lender
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Guaranty, and Guarantor
has established adequate means of obtaining from the Borrower on a continuing
basis information pertaining to, and is now and on a continuing basis will be
completely familiar with, the business, condition (financial or otherwise),
operations, performance, properties and prospects of the Borrower. In addition,
the Guarantor further represents and warrants to the Lender as follows:

                  (a) All financial statements heretofore delivered to Lender
relating to Guarantor are true and correct in all material respects, have been
prepared in accordance with Guarantor's past practices consistently applied, and
fairly present (subject to year-end audit adjustments) the financial conditions
reflected therein without material changes since the respective dates thereof;

                  (b) There are not actions, suits or proceedings pending or, to
the knowledge of Guarantor, threatened against or affecting Guarantor, or
involving the validity or enforceability of this Guaranty at law or in equity,
or before or by any governmental authority, except actions, suits and
proceedings fully covered by insurance or for which adequate reserves exist or
which, if adversely determined, would not substantially impair the ability of
Guarantor to pay when due any amounts which may become payable in respect of
this Guaranty; and to Guarantor's knowledge, Guarantor is not in default with
respect to any order, writ, injunction, decree or demand of any court or any
governmental authority;

                  (c) The consummation of the transaction hereby contemplated
and the performance of this Guaranty by Guarantor will not result in any breach
of, or constitute a default under, any indenture, mortgage, lease, loan or
credit agreement or any other material instrument or agreement to which
Guarantor is a party or by which Guarantor may be bound or affected; and

                  (d) No default presently exists under this Guaranty and no
event has occurred and is continuing which, with notice or the passage of time,
or both, would constitute a default under this Guaranty.

         Section 7. Covenants; Delivery of Financial Information. Guarantor
covenants and agrees that, so long as any part of the Guaranteed Obligations
shall remain unpaid or the Letter of Credit Commitment shall be in effect,
Guarantor will:

                  (a) perform and observe all of the terms, covenants and
         agreements set forth in the Loan Documents on its part to be performed
         or observed or that the Borrower has agreed to cause Guarantor to
         perform or observe;

                  (b) deliver to the Lender, as soon as available but within 60
         days following the end of each of the Guarantor's fiscal quarters
         (other than the last fiscal quarter of any fiscal

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         year), an internally prepared balance sheet, income statement and
         statement of cash flows of the Guarantor for the fiscal quarter then
         ended, prepared in accordance with GAAP except to the extent deviated
         therefrom in accordance with the Guarantor's past practices;

                  (c) deliver to the Lender, as soon as available but within 120
         days following the end of the Guarantor's fiscal year, an internally
         prepared balance sheet, income statement and statement of cash flows of
         the Guarantor for the fiscal year the ended, prepared in accordance
         with GAAP except to the extent deviated therefrom in accordance with
         Guarantor's past practices; and

                  (d) deliver to the Lender, as soon as available but within 60
         days following the end of each of the initial three quarters of the
         Guarantor's fiscal year and within 120 days following the end of the
         Guarantor's fiscal year, a statement demonstrating and computing
         compliance by the Guarantor with the covenants required to be
         maintained by the Guarantor pursuant to Sections 6.8 (Liquidity) and
         6.9 (Net Asset Position) of the Credit Agreement for the period then
         ended.

         The financial statements and compliance certificate required to be
delivered pursuant to clauses (b), (c) and (d) of this Section 7 shall be
accompanied by a certificate of the Chief Financial Officer or Treasurer of the
Guarantor to the effect that the information contained therein is true and
accurate as of the date of such certificate.

         Section 8. Amendments, Guaranty Supplements, Etc. No amendment or
waiver of any provision of this Guaranty and no consent to any departure by
Guarantor therefrom shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

         Section 9. Notices, Etc. All notices, consents, waivers, and other
communications required or permitted to be given under this Guaranty must be in
writing and will be deemed to have been duly given when (a) delivered by hand
(with written confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate by notice
to the other parties):

                  To Guarantor:

                  Alliance Resource GP, LLC
                  1717 South Boulder Avenue
                  Tulsa, Oklahoma 74119
                  Attn: Cary Marshall, Director, Corporate Finance
                  Telefax: (918) 295-7357

                  with a copy to:

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                  Alliance Resource Partners, L.P.
                  c/o Alliance Resource Management GP, LLC
                  1717 South Boulder Avenue
                  Tulsa, Oklahoma 74119
                  Attn:    Thomas L. Pearson,
                           Senior Vice President - Law and Administration,
                           General Counsel and Secretary
                  Telefax: (918) 295-7361

                  and to:

                  Katten Muchin Zavis
                  1025 Thomas Jefferson Street, NW
                  East Lobby, Suite 700
                  Washington, DC 20007
                  Attn:    Steven C. Schnitzer, Esq.
                  Telefax: (202) 298-7570

                  To Lender:

                  Bank of the Lakes, National Association
                  12401 East 86th Street North
                  Owasso, Oklahoma 74055
                  Attn:    Scott Yandell,  President & Chief Executive Officer
                  Telefax: (918) 274-0347

                  with copy to:

                  Stuart, Biolchini, Turner & Givray
                  3300 First Place Tower
                  15 East 5th Street
                  Tulsa, Oklahoma 74103
                  Attn:    Albert J. Givray, Esq.
                  Telefax: (918) 582-3033

or at such other address of which it shall have notified the party giving such
notice in writing. Notices to in-house counsel or outside counsel of a party
hereto shall not constitute sufficient notice to such party.

         Section 10. No Waiver; Remedies. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

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         Section 11. Right of Set-off. Upon (a) the occurrence and during the
continuance of any Default, and (b) the delivery of the notice and expiration of
the Cure Period provided by Section 6 of the Credit Agreement, the Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by Lender, to or for the credit or the account of Guarantor
against any and all of the Guaranteed Obligations now or hereafter existing
under the Loan Documents, irrespective of whether Lender shall have made any
demand under this Guaranty or any Loan Document and although such Guaranteed
Obligations may by unmatured. Lender agrees promptly to notify Guarantor after
any such set-off and application; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that Lender may have.

         Section 12. Indemnification. (a) Without limitation on any other
Guaranteed Obligations or remedies of the Lender under this Guaranty, Guarantor
shall, to the fullest extent permitted by law, indemnify, defend and save and
hold harmless Lender and its respective officers, directors, employees, agents
and advisors (each, an "INDEMNIFIED PARTY") from and against, and shall pay on
demand, any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party in
connection with or as a result of any failure of any Guaranteed Obligations to
be the legal, valid and binding obligations of Company enforceable against
Company in accordance with their terms.

                  (b) Guarantor hereby also agrees that none of the Indemnified
Parties shall have any liability (whether direct or indirect, in contract, tort
or otherwise) to the Guarantor or any of their respective officers, directors,
employees, agents and advisors, and Guarantor hereby agrees not to assert any
claim against any Indemnified Party on any theory of liability, for special,
indirect, consequential or punitive damages arising out of or otherwise relating
to the Loan Documents, the actual or proposed use of the proceeds under the Loan
Documents or any of the transactions contemplated by the Loan Documents.

                  (c) Without prejudice to the survival of any of the other
agreements of Guarantor under this Guaranty, the agreements and obligations of
Guarantor contained in Section 1(a) (with respect to enforcement expenses), the
last sentence of Section 2, Section 5 and this Section 12 shall survive the
payment in full of the Guaranteed Obligations and all of the other amounts
payable under this Guaranty.

         Section 13. Subordination. Guarantor hereby subordinates any and all
debts, liabilities and other obligations owed to Guarantor by Company (the
"Subordinated Obligations") to the Guaranteed Obligations to the extent and in
the manner hereinafter set forth in this Section 13:

                  (a) Prohibited Payments, Etc. Except during the continuance of
any Matured Default (including the commencement and continuation of any
proceeding under any Debtor Relief Law relating to the Company), Guarantor may
receive regularly scheduled payments from Company on account of the Subordinated
Obligations. After the occurrence and during the continuance of any

                                      -8-
<PAGE>
Matured Default (including the commencement and continuation of any proceeding
under any Debtor Relief Law relating to Company), however, unless the Lender
otherwise agrees, Guarantor shall not demand, accept or take any action to
collect any payment on account of the Subordinated Obligations.

                  (b) Prior Payment of Guaranteed Obligations. In any proceeding
under any Debtor Relief Law relating to Company, Guarantor agrees that the
Lender shall be entitled to receive payment in full in cash of all Guaranteed
Obligations (including all interest and expenses accruing after the commencement
of a proceeding under any Debtor Relief Law, whether or not constituting an
allowed claim in such proceeding ("POST PETITION INTEREST") before Guarantor
receives payment of any Subordinated Obligations.

                  (c) Turn-Over. After the occurrence and during the continuance
of any Matured Default (including the commencement and continuation of any
proceeding under any Debtor Relief Law relating to the Company), Guarantor
shall, if the Lender so requests, collect, enforce and receive payments on
account of the Subordinated Obligations as trustee for the Lender and deliver
such payments to the Lender on account of the Guaranteed Obligations (including
all Post Petition Interest), together with any necessary endorsements or other
instruments of transfer, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.

                  (d) Lender Authorization. After the occurrence and during the
continuance of any Matured Default (including the commencement and continuation
of any proceeding under any Debtor Relief Law relating to the Company), the
Lender is authorized and empowered (but without any obligation to so do), in its
discretion, (i) in the name of Guarantor, to collect and enforce, and to submit
claims in respect of, Subordinated Obligations and to apply any amounts received
thereon to the Guaranteed Obligations (including any and all Post Petition
Interest), and (ii) to require Guarantor (A) to collect and enforce, and to
submit claims in respect of, Subordinated Obligations and (B) to pay any amounts
received on such obligations to the Lender for application to the Guaranteed
Obligations (including any and all Post Petition Interest.

         Section 14. Continuing Guaranty; Assignment under the Credit Agreement.
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the latest of (i) the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and (ii) the
Termination Date, (b) be binding upon the Guarantor, its successors and assigns
and (c) inure to the benefit of and be enforceable by the Lender and its
successors, permitted transferees and permitted assigns. Without limiting the
generality of clause (c) of the immediately preceding sentence, the Lender may
assign or otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement (including, without limitation, all or any portion of
its Letter of Credit Commitment, the Advances owing to it and the Note held by
it) to any other Person to the extent permitted by and in accordance with
Section 8.5 of the Credit Agreement, and such other permitted transferee shall
thereupon become vested with all the benefits in respect thereof granted to
Lender herein or otherwise. Guarantor shall not have the right to assign its
rights hereunder or any interest herein without the prior written consent of the
Lender.

                                      -9-
<PAGE>
         Section 15. Execution in Counterparts. This Guaranty and each
amendment, waiver and consent with respect hereto may be executed in any number
of counterparts and by different parties thereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Guaranty by telecopier shall be
effective as delivery of an original executed counterpart of this Guaranty.

         Section 16. Governing Law. This Guaranty shall be deemed to be a
contract made under the laws of the State of Oklahoma, and shall be construed by
and governed in accordance with the laws of the State of Oklahoma, without
giving effect to principles of conflicts of laws. Guarantor hereby submits
itself to the jurisdiction and venue of the Tulsa County District Court, or
Federal Court (Northern District) situated in Oklahoma, at Lender's election,
except to the extent local law (if different) is required in connection with a
foreclosure action.

         IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly
executed and delivered by or on its behalf as of the date first above written.

                                ALLIANCE RESOURCE GP, LLC

                                     By       /s/ Michael L. Greenwood
                                       ----------------------------------------
                                     Title:  Senior Vice President -
                                             Chief Financial Officer
                                             and Treasurer

                                      -10-

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