Document:

exv10w40

Exhibit 10.40

FUEL PURCHASE ORDER: J10007

	 	 	 

	Buyer:

	 	Louisville Gas and Electric Company (“LG&E”), or 

Kentucky Utilities Company (“KU”), individually as Buyer,

as applicable
220 West Main Street
P.O. Box 32010
Louisville, Kentucky 40232-2010

Attn: Mike Dotson

Phone: 502-627-2322

Fax: 502-627-3243
	 
	 	 
	 

	 	LG&E and KU shall be severally but not jointly liable for
obligations of Buyer hereunder, and shall be liable only for such
obligations that pertain to a particular party constituting Buyer
	 
	 	 
	Seller:

	 	Armstrong Coal Company

407 Brown Road

Madisonville, Kentucky 42431
	 
	 	 
	Fuel Purchase Order Number:

	 	Jl0007
	 
	 	 
	Effective Date:

	 	January 1, 2010
	 
	 	 
	Shipping Destination:

	 	Mill Creek, Trimble County, Cane Run, and Ghent Generating
Stations, as designated from time to time by Buyer
	 
	 	 
	Commodity:

	 	Crushed, bituminous coal reasonably free from any extraneous
material, and of reasonably uniform size and consistency and other
wise meeting the specifications of this Fuel Purchase Order.
	 
	 	 
	Producer:

	 	Armstrong Coal Company
	 
	 	 
	Mine:

	 	Any of Seller’s Mines located in Ohio County and Muhlenberg County,
Kentucky 

Type of Mining: Underground and Surface

Seam: Kentucky #9 and #11
	 
	 	 
	 

	 	Producer represents and warrants that the Source is sufficient to
supply the quantity and quality of coal required hereunder.
	 
	 	 
	Base Price:

	 	Price: - $41.00 per net ton at 11,000 BTU/lb, FOB Railcar at the
rail loading facility at Midway Unit Train Facility near McHenry,
Kentucky on the Paducah and Louisville Railroad or FOB barge at
Armstrong Dock located at MP 76.6 on the Green River. Price
includes without limitation, the transloading of the coal into
barges, all switching, fleeting, shifting, monitoring of barges
and all other harbor charges. The barges shall be free of
wharfage, dockage and other port charges.
	 
	 	 
	 

	 	Price will remain firm during the Term hereof, except for
variations in quality as provided in Section 5 — Quality Price
Adjustment.
	 
	 	 
	Quantity:

	 	The total quantity of coal supplied under this Fuel Purchase Order
will be 600,000 tons during the term set forth below. The parties
acknowledge that the actual total quantity supplied may be
slightly more or less than the amount set forth in the preceding
sentence due to the logistics of supplying bulk materials.

 

 

	 	 	 

	Term:

	 	January 1, 2010 through December 31, 2010
	 
	 	 
	Delivery Point:

	 	Rail Delivery: Midway Unit Train Facility near McHenry, Kentucky
Barge Delivery: Armstrong Dock located at MP 76.6 on the Green
River
	 
	 	 
	Destination Points:

	 	Mill Creek, Trimble County, Cane Run and Ghent Generating Stations
	 
	 	 
	Quality Specifications:

	 	The fuel shipped hereunder shall be of reasonably uniform quality
and shall conform (calculated on a monthly weighted average
basis) to the specifications set forth below under the heading of
Guaranteed Monthly Weighted Average (the “Guaranteed Monthly
Weighted Average”):

Quality:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Guaranteed Monthly Weighted	 	Individual Shipment	 	 	Monthly Discount	 	 	 	 
	Average (As Received Basis)	 	Rejection Limits	 	 	Points	 	 	Monthly Discount Values	 
	Moisture- 12.00 Ibs./MMBtu
	 	> 13.50 Ibs/MMBtu	 	12.75 Ibs./MMBtu	 	$0.0016/Ib/MMBtu
	Ash- 12.00 Ibs./MMBtu
	 	> 13.50 Ibs./MMBtu	 	12.80 Ibs./MMBtu	 	$0.0083/Ib/MMBtu
	BTU 11,000
	 	 	< 10,800	 	 	 	10,900	 	 	$0.2604/Ib/MMBtu
	Sulfur- 3.00 lbs./MMBtu
	 	> 3.25Ibs.IMMBtu	 	3.10 Ibs./MMBtu	 	$0.1232/1b/MMBtu
	Sizing 3” x 0”
	 	 	 	 	 	 	 	 	 	 	 	 
	Fines- 45.0%
	 	 	N/A	 	 	 	 	 	 	 	 	 
	Volatile- 33.0%
	 	 	< 30	 	 	 	 	 	 	 	 	 
	Ash Fusion (H=W Reducing) 2030 F	 	 	< 2020	 	 	 	 	 	 	 	 	 
	Fixed Carbon- 44
	 	 	<41	 	 	 	 	 	 	 	 	 
	Grindability- 55
	 	 	< 50	 	 	 	 	 	 	 	 	 

As used herein, a “shipment” shall mean one (1) train load of fuel for rail delivery or one
(1) barge load or a barge lot load of fuel for barge delivery in accordance with Buyer’s
sampling and analyzing practices.

Quality: The Seller has sole responsibility for quality control of the fuel and
shall forward its as loaded quality to the Buyer as soon as possible. Each shipment hereunder shall
also be of uniform quality. All Shipments shall be sampled and analyzed by Seller prior to shipment
to determine loading quality. Seller shall provide the results of such sampling and analysis to the
recipients designated by Buyer and in the format specified by Buyer as soon as possible after the
Shipment is loaded. Two (2) trains or six (6) barges in a thirty (30) consecutive day period not
conforming (i.e. exceeding any maximums or falling below any minimums) with one or more Rejection
Limits set forth above (the “Rejection Limits”) shall be considered an Event of Default and may, if
Seller does not give adequate assurances of future compliance or otherwise cure, result in
suspension or rejection as provided herein and/or may result in the exercise of other legal and
equitable remedies at Buyer’s option.

In the event of a conflict between the terms and conditions contained in this document and those
contained in any exhibits or attachments attached hereto the terms and conditions contained in this
document shall govern.

	 	 	 	 

	BUYER

	SELLER
	 
	 	 	 
	LOUISVILLE GAS and ELECTRIC CO.

KENTUCKY UTILITlES COMPANY

	     ARMSTRONG COAL COMPANY
	 
	 	 	 
	By:  	/s/ David S. Sinclair

	By:  	/s/ Martin Wilson
	 	Name: David S. Sinclair

Title: Vice President — Energy Marketing

Date: December l8, 2009

	 	Name: Martin Wilson

Title: President

Date: December 22, 2009

 

 

LOUISVILLE GAS AND ELECTRIC COMPANY/KENTUCKY UTILITIES COMPANY

FUEL PURCHASE ORDER TERMS AND CONDITIONS

			
	ARMSTRONG COAL COMPANY
	 	P.O. # J10007

	1.	 	SCHEDULING & DELIVERY

Seller shall cause fuel sold hereunder to be properly loaded into barges and/or railcars for
delivery to Buyer. Buyer or its contractor shall furnish suitable railcars or suitable barges, as
the case may be, and Seller shall have no obligation to load coal into a railcar or barge that,
in Seller’s good faith determination, is not suitable. Shipments are to be made on a ratable
basis as adjusted from time to time during the year to reflect Buyer’s outages; provided,
however, without the express written mutual agreement of the parties, such shipments will not
exceed 60,000 tons in any given thirty (30) day period.

	2.	 	TITLE AND RISK OF LOSS; WARRANTY

Title to and risk of loss of fuel conforming to this Purchase Order shall pass to Buyer as follows:

	 	a)	 	For rail deliveries, as the coal is loaded into railcars at the Delivery Point.
	 
	 	b)	 	For barge deliveries, as the loaded barges are pulled from the Delivery Point.
	 
	 	c)	 	For all Non-Conforming Shipments (as hereinafter defined) title to and risk of loss of fuel shall revert back to Seller immediately upon any rejection or non-acceptance by Buyer as
provided elsewhere in this Purchase Order.

Seller and Buyer shall each indemnify, defend, and save harmless the other party, its affiliates
and their respective officers, directors, agents, representatives and employees from and against
any liabilities, losses, claim, damages, penalties, causes of action, or suits (collectively
“Claims”) arising out of, in connection with or related to the ownership, operation, storage,
processing, handling and transportation of the fuel by the indemnifying party during the
Applicable Period. For purposes of this paragraph, “Applicable Period” shall mean (i) with
respect to the Seller, the period of time prior to title to and risk of loss of the fuel passing to
Buyer hereunder, and (ii) with respect to the Buyer, the period of time from and after title to
and risk of loss of the fuel passing to Buyer hereunder. Seller represents and warrants that it
has title to, and the right to sell, all fuel sold hereunder and the same is shipped free and
clear of all liens, encumbrances, and claims of all third parties.

Seller and Buyer also agree to indemnify and save harmless each other, their respective officers,
directors, employees and representatives from any responsibility and liability for any and all
third party claims, demands, losses, legal actions for personal injuries, property damage and
pollution (including reasonable inside and outside attorney’s fees) which, directly or indirectly
result from or relate to (i) any failure of the indemnifying party to comply with laws,
regulations or ordinances related to Seller’s or Buyer’s, as applicable, performance of this
Agreement; or (ii) the negligent acts or omissions of the indemnifying party in the performance
of this Agreement.

Seller agrees to carry and to cause its agent operating any facilities on its behalf 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)	 	Employer’s Liability, $1,000,000 single limit liability.
	 
	 	(4)	 	In addition, Seller and Seller’s agent shall each carry excess liability insurance
covering the foregoing perils in the amount of $5,000,000 for anyone occurrence.
	 
	 	(5)	 	Workers’ Compensation 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. Upon request by
Buyer, Certificates of Insurance satisfactory in form to the Buyer and each signed by the
Seller’s and Seller’s agent’s insurer, as applicable, shall be supplied by the Seller to the
Buyer evidencing that the above insurance is in force and that not less than thirty (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 and Seller’s agent shall each request of 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.

 

 

	3.	 	WEIGHTS

The weight of the fuel delivered hereunder shall be determined on a per shipment basis by Buyer on
the basis of certified scale weights at the Buyer’s Generating Station unless another method is
mutually agreed by the parties. Seller shall have the right, at Seller’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.
	 
	4.	 	SAMPLING AND ANALYSIS

Buyer shall perform all sampling and analysis at its expense and the results of Buyer’s testing
shall be accepted and used for the quality and characteristics of the fuel delivered under this
Purchase Order. Seller may observe the unloading, sampling, sample preparation and analysis
hereunder. Buyer’s sampling and analysis practices for the fuel delivered under this Purchase Order
shall be performed in substantial compliance with ASTM standards where applicable or mutually
agreed methods.
	 
	 	 	Each fuel sample collected by the Buyer shall be properly divided into at
least four sub-samples. One part shall be analyzed by Buyer pursuant to the terms herein. One part
shall be used by Buyer as a check sample, if Seller in its sole reasonable judgment determines it
is necessary; one part shall be retained by Buyer until the twenty fifth (25th)
of the month following the month of unloading (the “Disposal Date”) after the sample is taken
and shall be delivered to Seller for analysis if Seller so requests before the Disposal Date. One
part (“Referee Sample”) shall be retained by Buyer until the Disposal Date. Seller shall be given
copies of all analyses made by Buyer by the tenth (l0th) business day of the month following the
month of unloading. Seller, on reasonable notice to Buyer, shall have the right to have a
representative present to observe the sampling and analyses performed by Buyer. Unless Seller
requests a Referee Sample analysis before the Disposal Date, Buyer’s analysis shall be used to
determine the quality of the fuel delivered 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 Buyer 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. If the Independent Lab results differ
from Buyer’s analysis by more than the applicable ASTM reproducibility standards, the Independent
Lab results will govern and the costs of the Independent Lab shall be borne by Buyer.

	5.	 	QUALITY PRICE ADJUSTMENTS

(a) BTU True Up.

The Base Price for coal delivered hereunder in any particular calendar month is based on the
assumption that the actual “as received” monthly weighted average BTU/LB (the “AMWA”) for
coal delivered to Buyer during that particular calendar month is equal to the minimum Guaranteed
Monthly Weighted Average BTU/LB (“GMWA”). In the event the AMWA varies from the GMWA for
any particular calendar month, then the Base Price applicable to such delivered coal will be
adjusted for that particular calendar month to account for such variation in BTU’s; such Base Price
adjustment for BTU’s for that particular calendar month to be determined as follows:

(i) Calculate the per ton Base Price BTU adjustment for any particular calendar month using the
following formula (where Price per Ton is the applicable Base Price):

AMWA — GMWA X Price per Ton = Per Ton Adjustment

GMWA                 
                         
                         
             

(ii) Determine the Base Price adjustment for BTU’s for that month by multiplying the Per Ton
Adjustment (as calculated in (i) above) by the total number of tons of coal actually delivered to
and unloaded by Buyer under this Agreement for that particular calendar month.

Depending on whether the AMWA is greater or less than the GMWA in any particular calendar month,
the Per Ton Adjustment (and thus the Base Price adjustment for BTU’s) for that particular calendar
month can be positive or negative. If the Base Price adjustment for BTU’s (as calculated above) for
a particular calendar month is positive, then Buyer shall be obligated to pay the amount of such
adjustment to Seller. If the Base Price adjustment for BTU’s (as calculated above) for a particular

 

 

calendar month is negative, then Seller shall be obligated to pay or credit the amount of such
adjustment to Buyer. Buyer shall be responsible for making the calculations and shall send a
written statement to Seller of the amount of such adjustment each month. Such payments shall be due
when the next payment for coal is due hereunder.

For example, if the AMWA for a particular calendar month equals 11,250 BTU/LB, the GMWA equals
11,000 BTU/LB and the Price Per Ton equals $41.00/ton, then the Per Ton Adjustment would be
((11,250 - 11,000) ÷ 11,000) x $41.00 = $.9318 per ton. If a total of 55,000 tons
were delivered during that particular calendar month, then the Base Price adjustment for BTU’s
would equal $51,250.00 (55,000 x $.9318). Since it is positive, this amount would be due and owing
to Seller by Buyer with respect to the deliveries for that particular calendar month (but not
including any fuel rejected pursuant to Paragraph (B) below) determined in accordance with the
terms and conditions hereof.

Notwithstanding the foregoing, for each specification each month with respect to the quality price
discounts, there shall be no discount if the Actual Monthly Quality meets the applicable Discount
Point set forth in the Quality Specifications section above. However, if the Actual Monthly Quality
fails to meet such applicable Discount Point, then the discount shall apply to and shall be
calculated as
provided in Exhibit A attached hereto.

(b) If any Shipment of fuel triggers any of the Rejection Limits specified herein (a
“Non-Conforming Shipment”), Buyer shall have the option, exercisable by notice to Seller of either
(i) rejecting such Non-Conforming Shipment at the Delivery Point or en-route, but prior to
unloading from transporter’s equipment or (ii) accepting any Non-Conforming Shipment with a
mutually agreeable price reduction. Buyer must reject such coal within seventy-two (72) hours of
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, 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. 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, then such non-conforming coal shall be deemed accepted by Buyer. Seller
shall, at Buyer’s request replace the rejected fuel as soon as reasonably possible, provided that
Buyer gives written notice to Seller of Buyer’s desire for replacement fuel within ten (10) days
after rejection of the Non-Conforming Shipment; provided, Seller shall only be required to replace
rejected fuel if it is able to do so prior to the expiration of the Term of this Agreement.

	6.	 	INVOICING AND PAYMENT

	 	(A)	 	Exhibit A attached hereto shows the methodology for calculating the fuel payment and quality
price adjustments for the month Seller’s fuel is unloaded by Buyer.

	 	(B)	 	For all fuel delivered and unloaded at the Buyer’s generating station between the first
(1st) and fifteenth (15th) days of any calendar month, Buyer shall make
preliminary payment of one-hundred percent (100%) of the amount owed for the fuel (based on the
assumption that the fuel will meet all guaranteed monthly quality parameters) by the twenty-fifth
(25th) day of such month of delivery and unloading, except that, if the twenty-fifth
(25th) is not a regular work day, payment shall be made on the next regular work day. All
preliminary payments shall be calculated based on the then-current price on a dollar per ton basis
as calculated based on the guaranteed monthly weighted average BTU/Lb. and then-current Base Price
in cents per MMBTU. For all fuel delivered and unloaded at the Buyer’s generating station(s)
between the sixteenth (16th) and the last day of any calendar month, Buyer shall make preliminary
payment for one-hundred percent (100%) of the delivered and unloaded fuel by the fifteenth (15th)
day of the month following the month of unloading except that, if the fifteenth (15th) is not a
regular work day, payment shall be made on the next regular work day. Also by the fifteenth
(15th) day of the month following the month of unloading, with respect to all fuel unloaded
at Buyer’s generating station during the month of unloading, a reconciliation of amounts paid and
amounts owed during said month shall be made, including, making any adjustments for any applicable
discounts or other adjustments provided herein, except that, with respect to all amounts due or
owing on the fifteenth (15th) of the month following the month of unloading, if the
fifteenth (15th) is not a regular work day, payment shall be made on the next regular work
day.
	 
	 	 	 	For example, Buyer shall make a preliminary payment by August 25 for fuel unloaded from August 1
through August 15. By September 15, a payment for fuel unloaded from August 16 through August 31
will be made which shall be adjusted to include a reconciliation with respect to fuel unloaded in
August. The reconciliation shall be made as follows: Seller shall invoice Buyer on or before the
tenth (10th) day of the month following the month of delivery and unloading for all fuel delivered
and

 

 

	 	 	 	unloaded at Buyer’s generating station during the previous month. The amount due for all fuel
(based on the Base Price plus or minus any Quality Price adjustments) unloaded and accepted by
Buyer during any calendar month shall be calculated and compared by Buyer to the sum of the
preliminary payments made for fuel delivered and unloaded and accepted during such month. The
difference shall be paid by or paid to Seller, as applicable, by the fifteenth (l5th) day of the
month following the month of unloading, except, that, if the fifteenth (15th) is not a regular work
day, payment shall be made in the next regular work day.
	 
	 	(C)	 	Payment for fuel unloaded in a calendar month will be electronically transferred to Seller’s
Account:

Armstrong Energy, Inc.

US Bank, N.A.

Account # 152306681361

Routing # 081-000-210

	 	 	 	This order is not subject to Kentucky Sales Tax.
	 
	 	 	 	If any party in good faith reasonably disputes an invoice, it shall provide a written explanation
specifying in detail the basis for the dispute and pay any undisputed portion no later than the due
date. Notwithstanding anything herein to the contrary, non-payment of disputed portions, so long as
such amounts remain disputed in good faith, shall not constitute an Event of Default hereunder. If
Buyer, in good faith, disputes an invoice, Buyer shall immediately notify Seller of the basis for
the dispute and pay the portion of such statement not in dispute no later than the due date. If any
amount withheld under dispute by Buyer is ultimately determined to be due to Seller, it shall be
paid within five (5) business day after such determination, along with interest accrued at the rate
of two (2) percent over the prime lending rate as published from time to time in the Wall Street
Journal, but in no event to exceed the maximum lawful rate (“Interest Rate”) from the original due
date until the date paid. If after such determination any party fails to pay amounts under this
Agreement when due, unless such amount is excused by Force Majeure, in addition to the rights and
remedies provided in this Agreement, the aggrieved party shall have the right to: (i) suspend
performance under this Agreement until such amounts plus interest at the Interest Rate have been
paid, and/or (ii) exercise any remedy available at law or in equity to enforce payment of such
amount plus interest at the Interest Rate. If Buyer shall fail to pay for fuel delivered in
accordance with the terms hereof, Seller shall deliver written notice to Buyer of Buyer’s failure
to pay, and if such default is still outstanding fifteen (15) days after the notice is given, then
Seller shall have the right to suspend further shipments until all previous shipments are paid for.
Overdue payments shall accrue interest from the date overdue at the rate of two (2) percent over
the prime lending rate as published from time to time in the Wall Street Journal, but in no event
to exceed the maximum lawful rate.

	 	(D)	 	Invoices shall be sent to Buyer at the following address:

E.ON U.S. Services

220 West Main Street

Louisville, Kentucky 40202

Attn: Manager Fuels Accounting and Administration

	 	7.	 	ASSIGNMENT/DELEGATION

This Purchase Order shall inure to the benefit of and be binding upon the parties and their
respective successors and permitted assigns. However, no Party shall assign this Purchase Order or
any of its rights or obligations hereunder without the prior written consent of the other party.
Notwithstanding the foregoing, any party may, without the need for consent from the other party
(and without relieving itself from liability hereunder), (a) transfer, sell, pledge, encumber or
assign this Purchase Order or the accounts, revenues or proceeds hereof or thereof in connection
with any financing or other financial arrangements or (b) transfer or assign this Purchase Order to
an affiliate of such party; provided, however, that no such assignment shall in any way
relieve the assignor from liability for full performance under this Purchase Order. Any such
assignee shall assume and agree to be bound by the terms and conditions of this Purchase Order.
	 
	 	 	 	Written consent to one or more assignments shall not be construed as waiving the necessity of
obtaining written consent to other and/or additional assignments.

 

 

	 	8.	 	FORCE MAJEURE

No party shall be subject to liability to the other party for the failure to perform in conformity
with this Purchase Order where such failure results from a Force Majeure. A party affected by Force
Majeure shall notify the other party in writing as promptly as practicable of the existence of such
Force Majeure condition, and shall provide to the other party a written confirmation of such Force
Majeure condition, and its expected effect on deliveries and expected duration within seven
(7) business days following such initial notification. The party affected by the Force
Majeure shall remedy the Force Majeure, if possible, with all reasonable dispatch. In the event of
a Force Majeure, delivery of the affected quantity of fuel shall be made up in full or in part only
at the discretion of the Party not claiming Force Majeure; provided, in no event shall Seller be
required to deliver fuel beyond the end of the Term. If an event of Force Majeure persists for a
continuous period of at least sixty (60) days, then the party not claiming Force Majeure shall have
the option, upon three (3) days’ prior written notice, to terminate this Purchase Order and the
obligations of the parties hereunder shall terminate (other than obligations and liabilities for
prior performance thereunder). If Seller claims Force Majeure and is unable to meet all of its
sales obligations under this Purchase Order and any other of its fuel sales agreements involving
fuel of a similar type and quality as the fuel sold hereunder, or if Buyer claims Force Majeure and
is unable to meet all of its purchase obligations under this Purchase Order and any other of its
fuel and/or fuel purchase agreements involving fuel and/or fuel of a similar type and quality as
the fuel purchased hereunder for the same generating station, then any reductions in Seller’s
deliveries or Buyer’s purchases (as applicable) shall be allocated by the party claiming Force
Majeure on a pro rata basis among this Purchase Order and such other fuel and/or fuel purchase
agreements, involving fuel of a similar type and quality as the fuel to be sold and purchased
hereunder to the extent contractually permitted by this Purchase Order and such other agreements.
For purposes of this paragraph, the term “Force Majuere” means an event or circumstance which
prevents one (1) party from performing its obligations under this Purchase Order, which
is not within the reasonable control of, or the result of the negligence of, the party claiming
Force Majeure, and which by the exercise of due diligence, the claiming party is unable to overcome
or avoid or cause to be avoided, including, without limitation, acts of God, adverse geologic or
mining conditions, war, riots, civil insurrection, acts of the public enemy, strikes, lockouts,
natural disasters, breakdown or damage to Seller’s mining or railcar loading equipment or Buyer’s
coal unloading system, transportation delays, or other causes whether of a similar or dissimilar
nature. Force Majeure shall not be based on: (1) the loss of the Buyer’s markets; (2)
Buyer’s inability economically to use or resell the fuel purchased hereunder; (3) the Seller’s
ability to sell the fuel at a price greater than the Base Price; (4) Buyer’s ability to buy the
fuel at a price less than the Base Price; or (5) Seller’s inability to economically produce fuel
subject to this Agreement. A Force Majeure event affecting the Source shall be deemed a Force
Majeure event affecting the Seller. It is understood and agreed that significant capital
expenditures and settlement of strikes and lockouts shall be entirely within the discretion of the
party declaring Force Majeure.
	 
	 	9.	 	WAIVER

The failure of Buyer or Seller to insist in any one (1) or more instances upon strict
performance of any of the provisions of this Purchase Order or to take advantage of any of its
rights hereunder shall not be construed as a waiver of any such provisions (now or in the future)
or the relinquishment of any such rights, but the same shall continue and remain in full force and
effect for the term of this Purchase Order.
	 
	 	10.	 	This Section Intentionally Left Blank
	 
	 	11.	 	EVENT OF DEFAULT AND DAMAGES

If an Event of Default (as hereafter defined) occurs with respect to a party (the “Defaulting
Party”) at any time during the term of this Purchase Order, the other party (the “Non- Defaulting
Party”) may, in its sole discretion, do any or all of the following: (i) establish a date (which
date shall be no earlier than the date that such notice is given to the Defaulting Party) (“Early
Termination Date”) on which this Purchase Order shall terminate, (ii) withhold any payments due in
respect of this Purchase Order, (iii) suspend performance under this Purchase Order and/or (iv)
exercise such other remedies as may be provided in this Purchase Order or at law or in equity. An
event of default with respect to any party (“Event of Default”) shall mean any of the following:
(i) the failure of either party to materially comply with any or all of its other respective
obligations in good faith as herein set forth and such noncompliance is not cured within twenty
(20) business days after notice thereof to Defaulting Party; (ii) failure to provide reasonable and
adequate security for or reasonable assurances of its ability to perform its further obligations
under this Purchase Order within 5 days of a written request by the Non-Defaulting Party; or (iii)
either party (a) filing a petition in bankruptcy, (b) having such a petition filed against it, (c)
becoming otherwise insolvent or unable to pay its debts as they become due.

 

 

	 	12.	 	LIMITATION ON LIABILITY

NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EXCEPT TO THE EXTENT COVERED BY ONE OR MORE
INSURANCE POLICIES REQUIRED TO BE MAINTAINED UNDER THIS AGREEMENT, AND EXCEPT TO THE EXTENT A
CLAIM, DEMAND, LOSS, OR LEGAL ACTION BROUGHT BY A THIRD PARTY INCLUDES ONE OR MORE SUCH ITEMS AND
FOR WHICH THERE IS AN INDEMNITY OBLIGATION UNDER THIS AGREEMENT WITH RESPECT TO SUCH CLAIM, DEMAND,
LOSS OR LEGAL ACTION, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY, SPECIAL OR INDIRECT DAMAGES, LOST REVENUES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION
DAMAGES, BY STATUTE, IN TORT OR CONTRACT. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY
NEGATES ANY OTHER REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO CONFORMITY TO MODELS OR SAMPLES, MERCHANTABILITY, OR
FITNESS FOR ANY PARTICULAR PURPOSE.

	13.	 	REMEDIES

	 	(A)	 	Notwithstanding anything else herein to the contrary, Buyer reserves the right to reject
any fuel and/or terminate this Purchase Order on the terms permitted herein in addition to any
other legal or equitable remedies.
	 
	 	(B)	 	Buyer’s and Seller’s remedies arising from this purchase order are cumulative, and the exercise
of any one of them shall not preclude the exercise by Buyer or Seller of any other remedy which may
be allowed by law or equity.

	 	14.	 	ENTIRE AGREEMENT; MODIFICATIONS

This Purchase Order, the Fuel Purchase Order Terms and Conditions, together with any
attachments or exhibits specifically referenced herein (collectively, the “Purchase Order”),
constitutes the entire contract between the Seller and the Buyer with respect to the subject matter
hereof, supersedes all prior oral or written representations and contracts, and may be modified
only by a written amendment signed by Buyer and Seller.
	 
	 	15.	 	COMPLIANCE WITH THE LAW

Seller and Buyer shall, to the extent applicable, comply in all material respects with the
provisions of all federal, state, and other governmental laws and any applicable order and/or
regulations, or any amendments or supplements thereto, which have been, or may at any time be,
issued by a governmental agency, pertaining to performance of this Agreement, including, without
limitation:

	 	a)	 	applicable requirements of Sections 6, 7 and 12 of the Fair Labor Standards
Act of 1938, as amended, and of the regulations and orders of the U. S.
Department of Labor issued under Section 14 thereof.
	 
	 	b)	 	federal and state Occupational Safety and Health laws;
	 
	 	c)	 	regulations of the Public Service Commission of Kentucky and Virginia;
	 
	 	d)	 	the Equal Opportunity Clause in Section 202, Paragraphs 1 through 7
or Executive Order 11246, as amended, and the implementing Rules and Regulations of
the Office of Federal Contract Compliance by all of which are incorporated herein by reference; and
	 
	 	e)	 	federal and state affirmative action obligations for contractors or subcontractors for
minorities and females, handicapped workers and disabled veterans and veterans of the Vietnam Era,
and the regulations issued thereunder, as amended from time to time (applicable government
affirmative action clauses are incorporated herein by reference); and,

	16.	 	GOVERNING LAW

The rights and duties of the parties hereto shall be determined by the laws of the Commonwealth
of Kentucky and to that end this agreement shall be construed and considered as a contract made and
to be performed in the Commonwealth of Kentucky.

	17.	 	NOTICES

Unless expressly stated otherwise in this Agreement, notices provided for or required under
this Purchase Order shall be in writing and delivered by hand or electronic means or transmitted by
facsimile or sent by certified mail, postage prepaid, return receipt requested, or by overnight
mail or courier.

 

 

	 	 	Notices hand delivered or delivered by electronic means, shall be deemed delivered by the close of
the business day on which it was hand delivered or delivered by electronic means (unless hand
delivered or transmitted by electronic means after the close of the business day in which case it
shall be deemed received by the close of the next business day). Notices provided by facsimile
shall be deemed to have been received upon the sending party’s receipt of its facsimile machine’s
confirmation of a successful transmission. If the day on which such facsimile is received is not a
business day or is after five p.m. Eastern Time on a business day, then such facsimile shall be
deemed to have been received on the following business day. Notices provided by certified mail,
postage prepaid, return receipt requested, or by overnight mail or courier shall be deemed
delivered upon mailing.

     Notices to should be addressed as follows:

	 	 	 	 	 

	 

	 	If to Buyer:
	 	Louisville Gas and Electric Company/Kentucky Utilities Company

220 West Main Street

P.O. Box 32010

Louisville, Kentucky 40232

Attn.: Director Corporate Fuels and By-Products
	 
	 	 	 	 
	 

	 	If to Seller:
	 	Armstrong Coal Company

407 Brown Road

Madisonville, Kentucky 42431

Attn: Mr. David Cobb
	 
	 	 	 	 
	 

	 	 	 	With Copy To:
	 
	 	 	 	 
	 

	 	 	 	Mason L. Miller

Miller + Wells, PLLC

300 East Main Street, Ste. 360

Lexington, Kentucky 40507

	18.	 	CHANGES IN LAWS

All coal delivered pursuant to this Purchase Order must meet the standards and specifications as
outlined. The specifications as written will meet all the sulfur dioxide standards (both state and
federal) that are now applicable to the Buyer’s Generating Station for which this coal is being
purchased. In the event of any material and substantial change in any applicable laws or
regulations, including but not limited to environmental laws and regulations, or in the
interpretation hereof or enforcement practices with respect hereto, Buyer may cancel, in whole or
in part, its order or orders for any coal ordered as a result of this Purchase Order and may
terminate this Purchase Order without any liability to Seller, other than those with respect to
prior performance upon sixty (60) days written notice to Buyer.

 

 

Exhibit A

Page 1 of 2

EXHIBIT A TO FUEL PURCHASE ORDER

SAMPLE COAL PAYMENT CALCULATIONS —

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

	 	 	 	 	 	 
	 	 	Section I	 	Base Data
	1)

	 	Base or Adjusted Base FOB Price Per Ton:
	 	41.00	/ton
	1 a)

	 	Tons of coal delivered:
	 	 	tons
	2)

	 	Guaranteed average heat content:
	 	11,00	BTU/LB.
	2a)

	 	As received monthly avg. heat content:
	 	 	BTU/LB.
	2b)

	 	Total BTU’s unloaded in the month:
	 	 	Millions of BTU’s
	3)

	 	Guaranteed monthly avg. max. sulfur
	 	3.00	LBS./MMBTU
	3a)

	 	As received monthly avg. sulfur
	 	 	LBS./MMBTU
	4)

	 	Guaranteed monthly avg. ash
	 	12.00	LBS./MMBTU
	4a)

	 	As received monthly avg. ash
	 	 	LBS./MMBTU
	5)

	 	Guaranteed monthly avg. max. moisture
	 	12.00	LBS./MMBTU
	5a)

	 	As received monthly avg. moisture
	 	 	LBS./MMBTU
	6)

	 	BTU True Up: {[(line 2a — line 2)] ÷ line 2} x line 1
	 	 	Dollars/Ton
	6a)

	 	BTU True Up Dollars (line 6 x line la)
	 	 	Dollars

	 	 	 	 	 
	 	 	Section II	 	Discounts
	 
	 	Assign a (-) to all discounts (round to (5) decimal places)	 	 
	7)
	 	BTU/LB.: If line 2a < 10,900 BTU/LB. then:	 	 
	 
	 	{l - {(line 2a) / (line 2)} * $0.2604/MMBTU	 	 
	 
	 	(l-( )/( )} *$0.2604=	 	$________ /MMBTU
	7a)
	 	SULFUR: If line 3a is greater than 3.10 LBS/MMBTU	 	 
	 
	 	[ (line 3a) - (line 3) ] *0.1232/1b. Sulfur	 	 
	 
	 	[( ) - ( )] * 0.1232 =	 	$________  /MMBTU
	7b)
	 	ASH: If line 4a is greater than 12.80	 	 
	 
	 	[ (line 4a) - (line 4)] * 0.0083/MMBTU	 	 
	 
	 	[( ) - ( )] * 0.0083 =	 	$________ /MMBTU
	7c)
	 	MOISTURE: If line 5a is greater than 12.75 LBS/MMBTU	 	 
	 
	 	[ (line 5a) - (line 5) ] * 0.0016/MMBTU	 	 
	 
	 	[( )-( )]*0.0016=	 	$________ /MMBTU

 

 

Exhibit A
Page 2 of 2

	 	 	 	 	 
	 	 	 	 	Total Price
	 	 	Section III	 	Adjustments
	 
	 	Determine total Discounts as follows:	 	 
	8)
	 	BTU/Lb Discount Dollars (line 7 x line 2b)	 	$             Dollars
	9)
	 	Sulfur Discount Dollars (line 7a x line 2b)	 	$             Dollars
	10)
	 	Ash Discount Dollars (line7b x line 2b)	 	$             Dollars
	11)
	 	Moisture Discount Dollars (line 7c x line 2b)	 	$             Dollars
	12)
	 	Total Discount Dollars: Sum of lines 8 thru 11:	 	$             Dollars
	 
	 	Total Coal Payment Calculation	 	 
	13)
	 	Total coal payment for month:	 	 
	 
	 	[(line 1 x line la) + line 6a] -line 12	 	$             Dollarsexv10w59

Exhibit
10.59

PROMISSORY NOTE

New York, New York

			
	 	 	 
	$11,000,000
	 	November 30, 2009

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

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

 

 

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

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

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

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

2

 

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

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

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

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

3

 

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

[Remainder of this Page Intentionally Left Blank]

[Signature Pages Follow]

4

 

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

	 	 	 	 	 
	 	ARMSTRONG LAND COMPANY, LLC

 	 
	 	By:  	/s/ J. Hord Armstrong, III
 	 
	 	 	J. Hord Armstrong, III 	 
	 	 	Chief Executive Officer 	 
	 
	 	ARMSTRONG RESOURCES HOLDINGS, LLC

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

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

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

[Signature Page to Promissory Note]

 

 

EXHIBIT A

TO PROMISSORY NOTE

REVENUE PAYMENT CALCULATION

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

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

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

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

     3. Borrower’s Duties.

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

A-1

 

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

      4. Determination and Payment.

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

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

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

A-2

 

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

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

A-3

 

EXHIBIT A-1

TO PROMISSORY NOTE

SUBJECT ASSETS

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

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

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

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

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

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

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

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

A1-1

 

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

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

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

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

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

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

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

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

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

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

A1-2

 

EXHIBIT B

TO PROMISSORY NOTE

DESCRIPTION OF PATRIOT NOTES

	1.	 	Negotiable Promissory Note in the principal amount of Twenty Nine Million Dollars
($29,000,000.00) dated September 19, 2006, between Central States Coal Reserves of
Kentucky, LLC, Beaver Dam Coal Company, LLC and Western Diamond, LLC.
	 
	2.	 	Negotiable Promissory Note in the principal amount of Twenty Eight Million Five Hundred
Sixteen Thousand Ninety Four Dollars ($28,516,094.00) dated November 30, 2006, between
Central States Coal Reserves of Kentucky, LLC, Beaver Dam Coal Company, LLC and Western
Land Company, LLC.
	 
	3.	 	Negotiable Promissory Note in the principal amount of Thirty Two Million One Hundred
Seventy Four Thousand Seven Hundred Thirty Two Dollars ($32,174,732.00) dated March 30,
2007, between Central States Coal Reserves of Kentucky, LLC, Beaver Dam Coal Company, LLC
and Western Diamond, LLC.
	 
	4.	 	Negotiable Promissory Note in the principal amount of Thirty Seven Million Ninety Five
Thousand Dollars ($37,095,000.00) dated May 31, 2007, between Central States Coal Reserves
of Kentucky, LLC, Beaver Dam Coal Company, LLC and Western Land Company, LLC.

B-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00203-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00203-of-00352.parquet"}]]