DULCET ACQUISITION LLC DULCIMER LAND PROPERTY AMENDED AND RESTATED COAL LEASE TO POWDUL ACQUISITION LLC

CONFIDENTIAL TREATMENT

INTERNATIONAL COAL GROUP, INC. HAS REQUESTED THAT THE

MARKED PORTIONS OF THIS DOCUMENT BE ACCORDED

CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 OF THE

SECURITIES EXCHANGE ACT OF 1934

Exhibit 10.4

Execution Copy

DULCET ACQUISITION LLC

DULCIMER LAND PROPERTY

AMENDED AND RESTATED COAL LEASE TO

POWDUL ACQUISITION LLC

May 27, 2008

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

TABLE OF CONTENTS

 

 

i

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

 

 

 

ii

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

AMENDED AND RESTATED COAL LEASE

THIS AMENDED AND RESTATED COAL LEASE (this “Lease”), is made and effective as of the 27 ^th day of May, 2008, by and between DULCET ACQUISITON LLC, a Delaware limited liability company with an address at Seven Sheridan Square, Suite 400, Kingsport, Tennessee 37660 (“Lessor”), and POWDUL ACQUISITION LLC, a Delaware limited liability company with an address at 300 Corporate Centre Drive, Scott Depot, West Virginia 25560 (“Lessee”).

W I T N E S S E T H :

WHEREAS, Lessor and Lessee are parties to that certain Sublease Agreement, dated as of October 22, 1980 (as amended, the “Original Coal Lease”); and

WHEREAS, Lessor and Lessee desire to amend and restate the Original Coal Lease as provided in this Lease;

NOW, THEREFORE, that for and in consideration of the premises and of the sum of Ten Dollars, cash in hand paid by Lessee to Lessor, the receipt and sufficiency of which are hereby acknowledged, and of the rents and royalties herein provided to be paid, and of the mutual covenants and promises hereinafter set forth, the parties hereto do hereby agree as follows:

1. Leased Coal; Leased Premises .

a. Lease . Subject to the exceptions, reservations and conditions set forth in this Lease, Lessor does hereby LEASE, LET, ASSIGN and/or GRANT unto Lessee, upon the terms and conditions hereinafter set forth, all of the coal (the “Leased Coal”) in and underlying those certain tracts or parcels of land commonly referred to as the Dulcimer Land Property, situate, lying and being in Harlan County, Kentucky and Lee County, Virginia (collectively, the “Leased Premises”), a general description of such lands shown on a map attached hereto as Exhibit A, together with the right to use the surface, together with all the rights, easements and privileges that Lessor has the right to grant as may be necessary or convenient to the exploration, mining, transportation and sale of the Leased Coal. Lessee shall have the right to mine the Leased Coal by any current or future surface or deep mining method (including, without limitation, mountaintop removal, contour surface, room and pillar, longwall or other method now or hereafter in existence). Highwall and auger mining may be conducted on the Leased Premises upon written consent by Lessor with respect to specific mining plan proposals submitted by Lessee.

EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE, LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, WHETHER OF MERCHANTABILITY, QUALITY, QUANTITY, RECOVERABILITY, TITLE OR OTHERWISE AS TO THE LEASED PREMISES, THE LEASED COAL OR INTERESTS THEREIN, COAL RESERVES OR MINING OR OTHER RIGHTS OWNED BY LESSOR, OR AS TO THE

 

1

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

CONDITION OF THE LEASED PREMISES OR THE LEASED COAL, AND LESSEE SHALL RELY UPON ITS OWN EXAMINATION THEREOF THROUGH ENGINEERS AND OTHER REPRESENTATIVES SELECTED AND EMPLOYED SOLELY BY LESSEE.

b. Exceptions and Reservations . There is excepted and reserved from the operation of this Lease the entire ownership and control of the Leased Premises for all purposes other than those for which this Lease is made, including the following:

i. The right to mine and take away coal not leased to Lessee under this Lease from the Leased Premises by any current or future surface or deep mining method and to select and grant to others the right to do so;

ii. The right to cut, prepare, use or remove all the timber on the Leased Premises;

iii. The right to search for oil, gas, coal, coal bed methane not released in the ordinary course of mining (“CBM”) and other minerals and products other than the Leased Coal and removing the same when found, the right to bore for and produce the oil and gas, including CBM, found in the Leased Premises ( provided, however , that nothing herein shall prevent or restrict Lessee from venting CBM as may be necessary in its mining operations, without compensation or other liability therefor to Lessor), the right to store and transport, through pipelines or otherwise, such gas and oil, and gas and oil from any other lands, the right to prospect, mine, produce, store and transport any minerals other than the Leased Coal found in, on or underlying the Leased Premises and the right to store and transport any minerals from other lands; provided, however, that with respect to any pipelines placed on the Leased Premises pursuant to rights granted to third parties after the date hereof, if Lessee determines that such pipelines will interfere with Lessee’s mining operations, Lessor shall, promptly upon receipt of written notice from Lessee, require such third parties to relocate such pipeline(s) to avoid such interference, with the first such relocation to be at no cost to Lessee, and any subsequent relocation of the same pipeline to be at Lessee’s cost.

iv. The right to drain water, to transmit electrical energy, steam and heat, to transport coal or coke or other products and minerals and goods of all other kinds from the Leased Premises or any other land over, across or through the Leased Premises and to select and grant to others such rights;

v. The right to use the stone, earth, water and other minerals and products in, on or underlying the Leased Premises, to make excavations and sinking or boring slopes, shafts, drifts, tunnels and walls, to erect buildings, structures, machinery and other improvements, to construct and maintain ditches, transmission lines, telegraph and telephone lines, railroads or other roads, tramways, tubing, pipelines or other means of drainage, transmission, communications or transportation over, upon or beneath the surface of the Leased Premises and to select and grant to others rights of way therefor;

 

2

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

vi. The right to grant and convey, from time to time, any rights of way over, across or through the Leased Premises;

vii. Rights of ingress and egress as may be necessary or convenient in the proper development of the Leased Premises or other lands or in the proper exercise of the rights hereby excepted and reserved; and

viii. All outstanding rights of any person or entity under existing leases, subleases, deeds or other instruments evidenced by recorded instruments or visible on the ground;

provided, however, that the exercise and any use by Lessor of the rights retained and reserved unto Lessor in subsections b(i) through (viii) herein above shall not unreasonably interfere with the mining plans and operations of Lessee upon the Leased Premises; provided, further, that any such rights granted to third parties by Lessor after the date hereof shall expressly provide that such rights shall be subject to the rights of Lessee under this Lease.

2. Term . The term of this Lease shall be as follows:

a. The “Primary Term” shall commence on the date hereof and shall continue until the earlier of (i) 10 years from the date hereof, (ii) such time as Lessee shall have mined and removed all of the mineable and merchantable (as defined below) Leased Coal or (iii) the termination of this Lease in accordance with Section 30. Lessee shall have the option to extend the Primary Term for two additional terms of five years each, provided, that Lessee is not then in breach hereof beyond any applicable notice and grace periods hereunder and is either (x) actively engaged in mining operations on the Leased Premises or (y) prevented from mining at the time of such extension due to an event of Force Majeure (as defined in Section 9(b)). The option to extend the Primary Term of this Lease for the additional periods described above may be exercised by written notice from Lessee to Lessor no more than 120 days nor less than 90 days prior to the expiration of the then-current term.

b. The “Remainder Term” shall commence at the end of the Primary Term, or any extension thereof, as applicable, and shall continue until Lessee shall have fully complied with all of its reclamation, environmental and other obligations hereunder and under all applicable Permits (as defined in Section 15(a)). During the Remainder Term, Lessee shall continue to comply with the terms of this Lease, although Lessee shall have no rights to mine, transport or process coal on the Leased Premises.

c. For purposes of this Lease, “mineable and merchantable” Leased Coal shall mean Leased Coal which when reached in the prosecution of a prudent and economic plan of operation and development of the Leased Premises ordinarily could be mined by Lessee and, with prudent and economic preparation, marketed at reasonable profit to Lessee by the use of machinery and methods for mining and cleaning coal which at the time are modern and efficient, and by the use of skillful and efficient management and planning.

 

3

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

3. Rights; Failure of Title .

a. During the Primary Term, or any extension thereof, Lessee shall have all of the mining rights and privileges, including surface rights, reasonably necessary or convenient to mine and take away the Leased Coal by the mining methods as granted herein, and no additional rights or privileges. Lessee covenants and agrees to ascertain those mining rights and privileges to include, without limitation, the accurate boundary line of the Leased Premises before conducting any mining operations under this Lease.

b. It is distinctly understood and agreed that Lessor grants only such mining rights and privileges as it possesses or has acquired in connection with the Leased Coal contained in the Leased Premises; and that in mining, removing and carrying away the Leased Coal Lessee shall be limited to the exercise of the aforesaid rights and privileges.

c. Lessee and Lessor recognize there may be multiple lessees operating on Lessor’s property, as well as timber and other activities pursuant to Lessor’s retained rights. Recognizing there will be increased demand for use of surface areas and roads on the Leased Premises, Lessor and Lessee agree to reasonably cooperate with each other to coordinate and plan the development and use of the coal, surface and roads so the interference to the operations of each is minimized. Lessee acknowledges and agrees that its leasehold interest and estate created hereby is subject to the interest or estate of other lessees of Lessor’s property and shall be subject to and benefit from the cooperation provisions herein. Lessee further acknowledges and consents to operations by other lessees of Lessor in the Leased Premises in coal seams not leased hereunder. Lessee shall cooperate with these other coal lessees of Lessor to the extent necessary so as not to unreasonably interfere with their ability to: (i) obtain or modify a mining Permit; (ii) mine and remove coal from seams not leased hereunder; or (iii) use the surface of the Leased Premises for mining such seams of coal.

d. Lessee is hereby advised that there may be utility power lines, gas lines, water lines or other obstructions in and on the Leased Premises. To the extent Lessor has the right to give consent to Lessee for rights-of-way or easements necessary to provide for relocation of such lines to facilitate mining activities of Lessee on the Leased Premises, Lessor shall give such consent in its reasonable discretion. Lessor assumes no responsibility for any loss or delay resulting from having to relocate such lines.

e. In the event any part of the Leased Premises is lost after final adjudication or settlement to the holder of any outstanding superior title, and, if Lessee has mined and removed a part or all of the Leased Coal therefrom and paid Lessor therefore on the royalty basis, Lessor agrees to repay to Lessee the amount of Tonnage Royalty so paid, without interest, but Lessor shall not be otherwise liable to Lessee on account of the mining and removing of such Leased Coal by Lessee.

 

4

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

4. Disclaimer of Warranty . Lessee has examined the Leased Premises and the Leased Coal existing on the Leased Premises, accepts the same in their present condition and assumes all risks incident thereto, to the mining and removal of Leased Coal therefrom and therewith and to any and all activities of its contractors, agents, employees, invitees or licensees. Lessee shall in no way be considered an agent, contractor or employee of Lessor. Lessee agrees that Lessor makes no covenant to Lessee for quiet enjoyment of the Leased Premises and that Lessor has made no representations or warranties with respect to the Leased Premises, including, without limitation, the condition thereof, the quantity, quality, depth or thickness of the Leased Coal therein or the condition of Lessor’s title thereto; provided, however, that Lessor does warrant and covenant that it (i) has not and will not enter into any lease, conveyance or other agreement that would materially interfere with Lessee’s rights or operations hereunder and (ii) will not cause or permit the creation of any lien, claim or encumbrance on the Leased Premises that would materially interfere with Lessee’s operations hereunder.

5. Wheelage and Processing Rights .

a. Lessee shall have the right to transport Adverse Coal over, under or through the Leased Premises subject to the terms and conditions of this Section 5.

i. If, in any particular month, Lessee has mined from the Leased Premises and sold an amount of tons of Leased Coal less than the tons of Leased Coal set forth on Exhibit B attached hereto (the “Production Schedule”) for such month, then Lessee shall pay to Lessor a wheelage fee (the “Wheelage Fee”) equal to [        *        ] of the Gross Sales Price for each ton of Adverse Coal transported over, under or through the Leased Premises up to the number of tons of such shortfall.

ii. Payment of Wheelage Fees, if any, shall be made monthly on or before the 20 ^th day of each calendar month with respect to Adverse Coal transported over, under or through the Leased Premises during the preceding month. Each payment of Wheelage Fees shall be accompanied by a statement showing the Adverse Coal transported over, under or through the Leased Premises during the period for which the payment is tendered, the Gross Sales Price per ton, the number of tons sold at such Gross Sales Price and the Wheelage Fee thereon.

iii. In any month where Lessee pays the Wheelage Fee, such Wheelage Fee shall be credited to Lessee’s account for subsequent months. If, in any subsequent month, Lessee shall mine from the Leased Premises and sell an amount of tons of Leased Coal greater than the tons of Leased Coal set forth on the Production Schedule for such month, then Lessee shall have the right to produce and ship, without paying any Tonnage Royalty, such quantities of Leased Coal as would produce, at the royalty rates prevailing at that time, a Tonnage Royalty equal to that credit. This right of recoupment may be exercised within 36 consecutive months from the time that the credit accrues. However, this right of recoupment shall terminate upon the expiration or termination of this Lease.

 

5

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

iv. If, in any particular month, Lessee has mined from the Leased Premises and sold an amount of tons of Leased Coal equal to or greater than the tons of Leased Coal set forth on the Production Schedule for such month, then Lessee shall have the right to transport Adverse Coal over, under or through the Leased Premises during such month free of any Wheelage Fee.

v. After the third anniversary of the date of this Lease, Lessee shall have the right to transport Adverse Coal over, under or through the Leased Premises free of any Wheelage Fee.

b. Lessee shall have no right under this Lease to process coal from Adverse Lands on the Leased Premises.

c. For purposes of this Lease, (i) “Adverse Coal” shall mean coal mined from Adverse Lands; (ii) “Adverse Lands” shall mean property not included in this Lease that is not owned by Lessor or any of its Affiliates ( provided, however, that if Lessor or any of its Affiliates acquires the property currently leased by Lessee from Manalapan Mining Company, then such property shall be Adverse Lands); and (ii) “Process,” “Processed” or “Processing” shall mean any coal beneficiation process which results in the separation and disposal of rock, shale or other waste material from the coal, and shall not be applied to crushing and/or blending operations.

6. Tonnage Royalty .

a. For each ton of Leased Coal mined hereunder from the Leased Premises and sold, Lessee shall pay to Lessor a tonnage royalty (the “Tonnage Royalty”) equal to the greater of a fixed rate (the “Fixed Rate”) or the percentage of the Gross Sales Price (as defined in Section 6(b)) for such ton (the “Percentage Rate”), each as specified below (the “Lease Royalty Rate”).

 

b. Defined Terms . For the purpose of this Lease, the following terms shall have the following meanings:

i. The term “ton” shall mean a short ton of 2,000 pounds, composed of coal after final preparation, or, if not to be prepared, after mining.

ii. The term “Gross Sales Price” shall mean the actual aggregate price or consideration received, f.o.b. the railcar, for Leased Coal by Lessee or its Affiliates, directly or indirectly, from an independent third party buyer in an arms’ length transaction, without the deduction of any costs whatsoever. The Gross Sales Price shall include all amounts paid by such independent third party buyer for such

 

6

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

Leased Coal, whether stated as part of the price per ton or not, and whether paid in cash or not. If any Leased Coal mined hereunder shall be consumed without first being loaded through the loading point or if any Leased Coal is sold at the loading point to a buyer other than an independent third party buyer, the Gross Sales Price of such Leased Coal for the purpose of computing the Percentage Rate shall be the price then being paid by independent third party buyers for similar coal at similar loading sites.

iii. The term “independent third party” shall mean a buyer in which neither Lessee nor any of its Affiliates has a controlling ownership interest or any other means of controlling price.

iv. The term “Affiliate” shall mean an entity which is controlled by, in control of or under common control with another entity.

7. Minimum Rental; Payment .

a. During the Primary Term, or any extension thereof, Lessee shall pay to Lessor, as a minimum rental, without regard to the quantity of Leased Coal mined, a monthly minimum rental of [ * ] per month, which sum shall be payable without demand therefor, on or before the 20 ^th day of the calendar month following that for which the minimum rental payment is applicable, beginning with the payment on or before August 20, 2008 for the calendar month of July 2008. Notwithstanding the foregoing, after Lessee shall have mined [ * ] tons of Leased Coal, then the monthly minimum rental shall be reduced to [ * ] per month for the remainder of the then-current term and any extension thereof. The amount of minimum rental that is unable to be recouped by Lessee due to the expiration of the right of recoupment as provided in Section 7(c) shall be credited as having been mined for the purposes of calculating such [ * ] tons threshold. Such credit shall be the number of tons determined by dividing the amount of such expired recoupable amounts by [ * ] per ton. All coal mined from the properties identified on Exhibit D attached hereto (the “Third Party Coal Properties”) shall also reduce on a ton-for-ton basis the [ * ] tons required to have been mined by Lessee hereunder in order to reduce the monthly minimum rental payable hereunder. By way of example, if [ * ] tons of coal is mined from the Third Party Coal Properties, then Lessee’s monthly minimum rental will reduce in accordance herewith after Lessee shall have mined [ * ] tons of Leased Coal. Lessor shall provide Lessee at least quarterly with a certified statement of the number of tons mined under from each of the Third Party Coal Properties until the monthly minimum rental has been reduced to [ * ] per month and the Production Minimum obligations under Section 7(g) have terminated.

b. For each month during the Remainder Term and until termination of this Lease, Lessee shall pay to Lessor as rent the sum of [ * ] per month, payable monthly in advance on or before the first day of each month.

c. Each month’s Tonnage Royalty shall be credited against such month’s minimum rental so that no minimum rental payment shall be due for any month

 

7

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

where Tonnage Royalties equal or exceed the minimum rental. In any month where the Tonnage Royalty falls short of the minimum rental, the difference between the minimum rental paid and the Tonnage Royalty for that month shall be credited to Lessee’s account for subsequent months. Lessee shall then have the right to produce and ship, without paying any Tonnage Royalty, such quantities of Leased Coal as would produce, at the royalty rates prevailing at that time, a Tonnage Royalty equal to that credit. In no event will Lessee pay less during any month than the monthly minimum rental. This right of recoupment may be exercised within 24 consecutive months from the time that the credit accrues. However, this right of recoupment shall terminate upon the expiration or termination of this Lease.

d. Payment of Tonnage Royalty, if any, shall be due after applying the foregoing provisions and shall be made monthly on or before the 20 ^th day of each calendar month with respect to Leased Coal mined and sold from the Leased Premises during the preceding month. Each payment of Tonnage Royalty shall be accompanied by a statement showing the Leased Coal mined and sold during the period for which the payment is tendered, the unsold inventory at the beginning and end of the month, the Gross Sales Price per ton, the number of tons sold at such Gross Sales Price and the royalty due thereon. Any coal sales agent of Lessee is hereby authorized, and Lessee shall instruct such agent, to furnish to Lessor upon Lessor’s request to such sales agent (with a copy of such request to Lessee) any information desired by Lessor with regard to the quantities and the Gross Sales Price of the Leased Coal with respect to which Lessor is to receive a payment hereunder.

e. All payments to be made hereunder by Lessee to Lessor shall be wire transferred in immediately available funds to such account as Lessor may from time to time designate in writing to Lessee, or in such manner as Lessor may from time to time designate in writing. Any late payment shall bear interest at the rate of [ * ] compounded annually on all amounts not paid when due. Interest charges, if incurred, are intended to compensate Lessor for actual pecuniary loss due to late payment by Lessee. Charging of interest shall not excuse late payment by Lessee or limit Lessor’s remedies for failure of Lessee to make payments in a timely fashion.

f. If Lessee shall make any payment of a lesser amount than that due hereunder, Lessor may accept the same as a payment on account, without any requirement of notice to Lessee of the nature of such acceptance; and Lessor shall not be bound by any notation on any check involving such payment or any statement in any accompanying letter. The existence of a dispute as to any amount due Lessor shall not relieve Lessee from paying when due the amount not in dispute, and the receipt of such amount shall not be treated as a waiver by Lessor of any of its claims with respect to any amounts in dispute.

g. Subject to Force Majeure and the provision contained in the last sentence of this Section 7(g), Lessee shall produce and ship not less than [ * ] tons of Leased Coal from the Leased Premises during 2008, not less than [ * ] tons of Leased Coal from the

 

8

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

Leased Premises during each of 2009 and 2010, not less than [ * ] tons of Leased Coal from the Leased Premises during each calendar year thereafter during the Primary Term and not less than [ * ] tons of Leased Coal from the Leased Premises during each calendar year during any extended term, such minimum amounts being hereinafter referred to as the “Production Minimum;” provided, however , that any Adverse Coal for which Lessee pays a Wheelage Fee pursuant to Section 5(a), and any coal mined from the Third Party Coal Properties shall be credited towards the Production Minimum. If Lessee fails during a calendar year to meet the Production Minimum for such year, then Lessee shall pay an amount equal to the Production Minimum for such year multiplied by the Fixed Rate provided in Section 6(a) less the greater of the Tonnage Royalty or minimum rental paid during such year, such amount due and payable to Lessor on or before the 25 ^th day of January immediately following the calendar year in which such failure occurred; provided, however, that such payment in lieu of the complete satisfaction of the Production Minimum shall not be available to Lessee in more than two years during the Primary Term and one year in each extended term. Notwithstanding anything herein to the contrary, the requirement to produce and ship any Production Minimum shall cease on the date that Lessee shall have produced and shipped, or received credit as set forth above for, an aggregate of [ * ] tons of Leased Coal. Any amounts paid by Lessee pursuant to this Section 7(g) shall be recoupable in the same manner and within the same time frame as minimum rental payments as provided in Section 7(c). The requirement to meet, or make payment under this Section 7(g) in lieu of, the Production Minimum shall be excused in any year that the quarterly reported price of 12,500 Btu, 1.6# SO ₂ Norfolk Southern prompt market coal shall be [ * ] per ton or less as reported by ICAP United index. This Section 7(g) shall not affect the applicability of Section 7(a).

8. Compliance with Laws . Lessee shall observe and promptly comply in all material respects with all federal, state and local laws, statutes, ordinances, rules, regulations, orders and other similar requirements of any appropriate governmental authority, now or hereafter enacted or promulgated, as they may exist from time to time, which are in any way applicable to Lessee or the Leased Premises or activities thereon (“Laws and Regulations”), including, but not limited to, all Laws and Regulations pertaining to the environment and to the working of mines and the health and safety of all persons employed therein or in connection therewith. Notices of violation, cessation orders or other enforcement orders issued by any governmental authority that are timely abated or appealed in good faith shall not be deemed a breach of this Section 8.

9. Mining Operations .

a. Lessor shall not direct or control the operations of Lessee and hereby waives and disclaims any right to exercise any supervision, operation or control with respect to the operations of Lessee. Notwithstanding anything in this Lease to the contrary, this Lease does not empower Lessor to make any decisions regarding Lessee’s mining operations and Lessor hereby expressly waives and disclaims any right to exercise any supervision, operation or control with respect to the terms and

 

9

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

conditions under which the Leased Coal hereby leased is extracted or prepared, such as, but not limited to, the manner of extraction or preparation or the amount of Leased Coal to be produced, all within the meaning of the Acts (as defined in Section 18(b)(i)). The parties hereto do acknowledge, however, that Lessor has reserved certain rights and has imposed certain requirements under the terms of this Lease, including, but not limited to, those rights and requirements provided in Sections 9, 10 and 11, solely for the purpose of preventing waste and protecting the reserved rights of Lessor.

b. Lessee shall diligently develop and continue mining operations on the Leased Premises in an energetic, approved, skillful and workmanlike manner, utilizing a mine plan reviewed by Lessor, so as to recover the greatest practicable amount of mineable and merchantable Leased Coal from the Leased Premises employing modern machinery and equipment and good mining and reclamation practices and in accordance with the plans submitted by Lessee to Lessor pursuant to Section 10(b), having due regard for the value of the Leased Premises as a coal-producing property so as to avoid unnecessary damage to and waste of any seams of coal, whether granted as a part of the Leased Premises or not so granted, and to continue mining operations to extract the same with due diligence during the term of this Lease, subject to Force Majeure. For the purpose of this Lease, the term “Force Majeure” shall mean any act or occurrence that is beyond Lessee’s reasonable control and that is not caused by the negligence or willful misconduct of Lessee or its agents or employees and that prevents in any material respect the mining, processing, transportation or delivery of Leased Coal from the Leased Premises, including, but not limited to, fire, natural flood, damage to or destruction of Lessee’s mines, improvements or machinery, riot, strike, labor disruption, act of God or serious accident, terrorist attack, geological abnormalities, non-approval of government or regulatory environmental Permits required for mining operations provided Lessee has done all things reasonably necessary to secure such Permits, or other similar causes beyond the reasonable control of Lessee. Lessee shall, however, upon the happening of any event of Force Majeure, use all commercially reasonable efforts to remove or abate the cause of the inability to mine, process, transport and deliver Leased Coal.

c. Lessor shall at all times have the right, in compliance with all applicable safety requirements, to enter the Leased Premises and workings and mines of Lessee in order to determine that all the terms and conditions of this Lease are fully complied with and for these purposes to use freely the means of access to the Leased Premises and workings thereon without hindrance, but in such manner as not unreasonably to interfere with Lessee’s operations.

d. If Lessor finds and reports to Lessee in writing that, in the progress of the work, any areas of merchantable and mineable Leased Coal have been passed by with the result that Leased Coal has not been removed, which in accordance with good mining practices should have been removed, Lessee agrees either to (i) return to such areas and remove the Leased Coal therefrom or (ii) pay for the Leased Coal under the lost coal provision as provided in Section 9(e).

e. Lessee shall pay full Tonnage Royalty at the rate herein stipulated

 

10

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

upon all mineable and merchantable Leased Coal, whether in place or mined, which is burned, lost, destroyed, abandoned or injured by fire or explosion (“Lost Coal”), when such loss is caused by negligence of Lessee or its agents or employees or the failure of Lessee to properly mine or provide for the mining of such Leased Coal by the methods of mining described in Section 9(b). Lost Coal shall be paid for according to the following formula: (Lease Royalty Rate) X (Average Gross Sales Price) X (Recoverable Tons). The Lease Royalty Rate is provided in Section 6(a). The Average Gross Sales Price as used in this subsection is the average of the Gross Sales Prices for all Leased Coal sold during the month preceding the month of the occurrence of Lost Coal during which Leased Coal was actually sold pursuant to this Lease. Recoverable Tons is the percentage of tons in place that could reasonably be expected to be recovered, taking into consideration mining conditions, geology and other relevant factors. If Lessor and Lessee cannot agree on the quantity of Recoverable Tons, the quantity shall be determined pursuant to Section 36. The Lost Coal for partially mined areas shall be calculated using the pre-mining tons in place and deducting therefrom actual tons mined. Payment for Lost Coal shall be made by Lessee to Lessor within one month following such loss.

f. Lessee shall use commercially reasonable efforts to prevent trespass on the mines operated hereunder and shall, at its own expense and in its own name (and in the name of Lessor when specifically authorized by Lessor), initiate and conduct all proceedings necessary to that end. Lessor, or any person acting on its behalf, shall have the right to enter the Leased Premises at all reasonable times to inspect for or prevent any trespass; provided, however, that Lessor shall not be obligated to make such inspections nor will Lessor be responsible in any manner for any such trespass.

g. Lessee shall use reasonable care and precaution to (i) prevent the occurrence of fires in timber or forest growth on the surface overlying the Leased Premises, (ii) prevent mine fires in the coal seams on the Leased Premises and (iii) pursue the prompt extinguishment of any such fires caused by its activities. Lessee shall also cooperate with Lessor and its other lessees in extinguishing such fires on the Leased Premises and on adjoining lands that may be liable to spread to or over the Leased Premises. Lessee shall be responsible for all injuries and damages caused by Lessee or its contractors or agents or by fire, including, but not limited to, damages to timber and forest growth and injuries to persons or property on the Leased Premises or adjoining lands, if such fire is caused by the negligence of Lessee or its employees, subcontractors, agents or assigns.

h. Lessee shall have the right to employ reputable contract operators on the Leased Premises to mine and deliver Leased Coal to Lessee for preparation and marketing; provided, however, that Lessee shall (i) remain liable for the performance of all of the terms of this Lease and (ii) include in its mining agreement with its contractor language relating to this Lease in substantially the following form:

Receipt of Lease . Contractor acknowledges receipt of pertinent provisions of the Amended and Restated Coal Lease (the “Lease”)

 

11

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

effective May 27, 2008 under which Owner is Lessee of the Lease Premises; has read and examined those provisions of the Lease; and hereby agrees that all work to be performed by Contractor under this agreement shall be in conformance with this agreement and with the terms, conditions and obligations of those provisions of the Lease. The rights and privileges of Contractor hereunder are and shall be construed as limited to such rights and privileges only as Owner possesses and has the lawful right to contract. Contractor agrees to assume, in performing under this agreement, the obligations and conditions under the Lease relating to mine operations in the same manner as if the Contractor were Lessee under the Lease, except for payments owing from Owner to its Lessor as required by the Lease. Notwithstanding additional requirements contained herein, all statements, notices, maps or other similar documents required to be furnished by Owner to its Lessor under the Lease shall be furnished by Contractor to Owner in connection with Contractor’s operations under this agreement and all such documents shall in turn be furnished by Owner to its Lessor. Contractor shall indemnify and save harmless Owner against all liability arising out of the nonperformance by Contractor of any of the terms, conditions, covenants and requirements of the Lease.

i. Lessee shall conduct its mining operations so as not to violate any rights of lateral and subjacent support or other rights belonging to the owners of other estates on or adjacent to the Leased Premises, unless Lessor shall provide its written consent to conduct retreat mining or other full extraction mining, which consent shall not be unreasonably withheld.

10. Surveys, Maps and Permits .

a. Lessee shall at its expense employ a competent, registered professional mining engineer, whose duty it shall be to plan and project in advance the coal mining operations to be conducted on the Leased Premises in an efficient and practicable manner, according to accepted and approved engineering practices for the development of coal mines by the methods of mining provided for in this Lease.

b. The registered mining engineer shall lay out plans for development of the mining and cause maps, on such scale as Lessor may deem acceptable, to be made, which maps shall show thereon, fully and accurately, mining plans and proposals for mining covering at least one year of projected mining, all improvements and surface structures to be made in conjunction with the mining of the Leased Coal, reclamation methods after removal of the Leased Coal, elevation of the coal seam, total coal thickness, total seam thickness and contour above sea level, utilizing the Kentucky State Plane Coordinate System or Virginia State Plane Coordinate System, as applicable, and Lessee shall, 30 days before the commencement of any mining operation, furnish to Lessor a copy of such maps and electronic files in a format acceptable to Lessor. Such maps showing planned mining shall be submitted no less than two times per year, on March 1 and September 1 of each year, and at such times as material changes have been made to such plans as submitted.

 

12

CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND

FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. BOXES AND ASTERISKS

DENOTE SUCH OMISSION.

 

c. Lessee agrees to give Lessor reasonable notice of its or any contractor’s intention to submit a permit application under Kentucky or Virginia state law or other applicable Laws and Regulations any area in, on or under the Leased Premises. Lessor will not withhold unreasonably its consent to any request for a change in post-mining land use for all or any portion of the Leased Premises (it being understood that it shall not be unreasonable for Lessor to withhold its consent to a change in post-mining land use that adverse affects Lessor’s ability to use the Leased Premises for timber operations), and Lessor will execute any waivers or other documents reasonably requested by Lessee in connection with its permitting activities.

d. Once every month, Lessee shall furnish to Lessor maps and/or electronic files in a format acceptable to Lessor which accurately show workings and the extension of Lessee’s mining operations on, and the volume of Leased Coal removed from, the Leased Premises during the preceding month, and any other reasonable information requested by Lessor. Such maps and/or electronic files shall show measurements of coal and impurities in the coal at intervals not exceeding 200 feet in every direction and at intermediate places whenever coal thickness significantly changes. The maps shall be on a scale of five hundred (500) feet to one (1) inch (three sets) for deep mining and surface mining operations and one hundred (100) feet to one (1) inch (one set) or such other scale as requested in writing by Lessor and shall be based on tied surveys of all workings utilizing the Kentucky State Plane Coordinate System or Virginia State Plane Coordinate System, as applicable and shall be delivered to Lessor at its designated office. Lessee agrees to provide any additional maps, electronic files or other documentation that may be required by the Prime Lease in a timely manner so as to allow Lessor to review such documents and timely submit such documents to the Prime Lessor.

e. Lessor itself, or through its agents, shall at all times have access to the plans, Permit applications (amendments and completions), maps, electronic files and exploration and quality data pertaining to Lessee’s mining operations in a form acceptable to Lessor and may take therefrom copies of such portions thereof as Lessor or its agents may desire. If Lessee fails to furnish maps or other records as herein provided for and continues not to furnish such maps or documents for a period of 20 days after written demand by Lessor, Lessor may employ a competent engineer to make a survey of the mining developments of Lessee as herein provided and the expense thereof shall be paid by Lessee within 10 days after written demand.

f. Lessee shall furnish Lessor on or before the 1 ^st day of March of each year and at such other times as may be fixed by law or required for tax assessments, a statement of and maps showing the acreage of the Leased Coal that was mined,