PURCHASE AND SALE AGREEMENT

Exhibit 1.1

PURCHASE AND SALE AGREEMENT

By and Among

ITOCHU COAL INTERNATIONAL INC.,

ITOCHU CORPORATION

and

ARCH COAL, INC.

Covering the Acquisition of

All of ITOCHU COAL INTERNATIONAL INC.’s
Limited Liability Company Interest

in

CANYON FUEL COMPANY, LLC

July 14, 2004

TABLE OF CONTENTS

PURCHASE AND SALE AGREEMENT

     THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) dated as of July 14, 2004 is by and among ITOCHU COAL INTERNATIONAL INC., a Delaware corporation (“Seller”), ITOCHU CORPORATION, a corporation formed under the laws of Japan (“Parent”), and ARCH COAL, INC., a Delaware corporation (“Buyer”). Seller, Parent and Buyer are sometimes referred to collectively herein as the “Parties” and individually as a “Party.”

RECITALS

     WHEREAS, Seller and Arch Western Resources, LLC, a Delaware limited liability company and Buyer’s subsidiary (“Arch Western”), have entered into the Third Amended and Restated Partnership Agreement of Canyon Fuel Company, LLC, a Delaware limited liability company (“Canyon Fuel”), dated as of June 1, 1998 (the “LLC Agreement”), pursuant to which Seller is the owner of 35% of the limited liability company interest in Canyon Fuel and Arch Western is the owner of the remaining 65% limited liability company interest in Canyon Fuel; and

     WHEREAS, subject to the terms and conditions set forth in this Agreement, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, Seller’s limited liability company interest in Canyon Fuel (the “LLC Interest”).

     NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained, the Parties hereby agree as follows:

AGREEMENT

     1. Definitions. Unless otherwise provided for herein, the following terms have the following meanings:

     “Adverse Consequences” means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, damages, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, Taxes, Encumbrances, losses, expenses, payments and fees of every type and nature whatsoever, legal or equitable, or any item similar or related to the foregoing, including, without limitation, the reasonable cost of the investigation and preparation of defense, court costs and attorneys’ fees and expenses, but excluding any punitive, exemplary, special, indirect, remote, speculative or consequential damages (including any damages on account of lost profit or opportunities).

     “Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 134, as amended.

     “Agreement” has the meaning set forth in the preface.

     “Assignment and Assumption Agreement” means that certain Assignment and Assumption Agreement between Buyer and Seller, a form of which is attached hereto as Exhibit A, pursuant to which Seller shall assign the LLC Interest to Buyer and Buyer shall expressly

assume all liabilities of Canyon Fuel, including, without limitation, employee related liabilities and mine reclamation and closing liabilities.

     “Buyer” has the meaning set forth in the preface.

     “Buyer Indemnitees” means, collectively, Buyer and its Affiliates and each of their respective officers (or natural persons performing similar functions), directors (or natural persons performing similar functions), employees, agents and representatives to the extent acting in such capacity.

     “Canyon Fuel” has the meaning set forth in the preface.

     “Closing” has the meaning set forth in Section 2(c).

     “Closing Date” has the meaning set forth in Section 2(c).

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor Law.

     “Encumbrance” means any mortgage, pledge, lien, encumbrance, charge or security interest.

     “Governmental Authority” means any court, tribunal, arbitrator, authority, agency, commission, department, board, bureau, official, or other regulatory, administrative or governmental authority or instrumentality of the United States, any foreign country, or domestic or foreign state, county, city, local or other political subdivision.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

     “HSR Filing” means the notification and report form required to be filed by the Parties with the U.S. Federal Trade Commission and the Antitrust Division of the Department of Justice under the HSR Act with respect to the transactions contemplated by this Agreement.

     “Indemnified Party” has the meaning set forth in Section 7(d).

     “Indemnifying Party” has the meaning set forth in Section 7(d).

     “Interest Amount” means interest which shall accrue on the $112 million base Purchase Price at a rate of 4.0% per annum, commencing on July 17, 2004 and continuing through the Closing Date

     “Laws” means any applicable federal, state, municipal, local, foreign, international, multinational or administrative law, constitution, statute, code, ordinance, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any kind or nature whatsoever, including any public policy, judgment or principle of common law, of any applicable Governmental Authority.

     “LLC Agreement” has the meaning set forth in the Recitals.

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     “LLC Interest” has the meaning set forth in the Recitals.

     “Organizational Documents” means the articles of incorporation, certificate of incorporation, charter, bylaws, articles or certificate of formation, regulations, operating agreement, limited liability company agreement, certificate of limited liability company, partnership agreement, and all other similar documents, instruments or certificates executed, adopted, or filed in connection with the creation, formation, or organization of a Person, including any amendments thereto.

     “Parent” has the meaning set forth in the preface.

     “Parent Indemnitees” means, collectively, Parent and each of its respective Affiliates and each of its respective officers (or Persons performing similar functions), directors (or Persons performing similar functions), employees, agents, and representatives.

     “Party” and “Parties” have the meanings set forth in the preface.

     “Person” means an individual or entity, including any partnership, corporation, association, joint stock company, trust, joint venture, limited liability company, unincorporated organization, or Governmental Authority (or any department, agency or political subdivision thereof) or any other legal entity.

     “Promissory Note” means that certain Promissory Note executed by Buyer in favor of Seller in the aggregate principal amount of $22 million, a form of which is attached hereto as Exhibit B.

     “Purchase Price” means an amount equal to (i) $112 million, plus (ii) the Interest Amount.

     “Securities Act” means the Securities Act of 1933, as amended from time to time.

     “Seller” has the meaning set forth in the preface.

     “Seller Indemnitees” means, collectively, Seller and each of its respective Affiliates and each of its respective officers (or Persons performing similar functions), directors (or Persons performing similar functions), employees, agents, and representatives.

     “Tax” or “Taxes” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), custom duties, capital stock, franchise, profits, withholding, social security (or similar excises), unemployment, disability, ad valorem, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax, duty, excise, assessment, fee or other governmental charge of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

     “Third-Party Claim” has the meaning set forth in Section 7(d).

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     “Transaction Agreements” means, collectively, this Agreement, the Assignment and Assumption Agreement, the Promissory Note and all other agreements, documents, certificates or instruments executed and delivered in connection with the transactions contemplated herein.

     2. The Transactions.

          (a) Sale of LLC Interest. Subject to the terms and conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, at the Closing, all of Seller’s right, title and interest in and to the LLC Interest.

          (b) Consideration(i) . Subject to the terms and conditions of this Agreement and in consideration for the purchase of the LLC Interest, Buyer agrees to pay the Purchase Price to Seller in the following manner: (i) an amount at Closing equal to $90 million plus the Interest Amount, in cash, payable by wire transfer of immediately available federal funds to an account specified by Seller, and (ii) the remaining $22 million over the twenty calendar quarters following the Closing Date pursuant to the terms of the Promissory Note.

          (c) The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) will take place at the offices of Latham & Watkins LLP, 650 Town Center Drive, Costa Mesa, CA (i) at 10:00 a.m., Los Angeles time, as soon as reasonably practicable, but in no event later than the third business day after the last of all the conditions to the respective obligations of the Parties set forth in Section 5 hereof shall have been satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) or (ii) at such other time and date as the Parties shall mutually agree (the “Closing Date”).

          (d) Actions at the Closing. At the Closing,

               (i) Buyer will pay to Seller the portion of the Purchase Price due at Closing, as set forth in clause (i) of Section 2(b) above, by wire transfer of immediately available federal funds to an account or accounts specified by Seller;

               (ii) Buyer will execute the Promissory Note and deliver the same to Seller;

               (iii) Seller and Buyer will execute the Assignment and Assumption Agreement;

               (iv) Seller will deliver a Secretary’s Certificate substantially in the form of Exhibit C;

               (v) Buyer will deliver a Secretary’s Certificate substantially in the form of Exhibit D;

               (vi) Parent will deliver an Officer’s Certificate substantially in the form of Exhibit E;

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               (vii) Buyer will deliver an Officer’s Certificate substantially in the form of Exhibit F;

               (viii) Parent will deliver to Buyer an opinion of legal counsel with respect to the matters set forth on Exhibit G hereto; and

               (ix) Seller will deliver to Buyer resignations of each of its representatives and alternate representatives to the Management Board of Canyon Fuel.

          (e) Tax Information. Buyer will use its reasonable best efforts to deliver to Seller and Parent, within 60 days of the Closing Date, a Form K-1 reflecting the tax information required to be disclosed thereon which is allocable to the LLC Interest for each of (i) the 2003 calendar year (if not required to be delivered to Parent or Seller prior to such date), and (ii) the period from January 1, 2004 to the Closing Date.

     3. Representations and Warranties Concerning the Transaction.

          (a) Representations and Warranties Concerning Seller and Parent. Seller and Parent hereby jointly and severally represent and warrant to Buyer that:

               (i) Organization and Good Standing. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and is duly qualified to transact business and is in good standing in the State of Colorado. Parent is a corporation duly organized, validly existing, and in good standing under the laws of Japan and is duly qualified to transact business and is in good standing in such jurisdictions where the failure to so qualify could reasonably be expected to have a material adverse affect on the business or operations of Parent and its subsidiaries, taken as a whole.

               (ii) Authorization of Transaction. Each of Parent and Seller has the full corporate power and authority to execute and deliver each Transaction Agreement to which it is a party and to perform its obligations thereunder and each Transaction Agreement to which Parent or Seller is or will be a party is or will, as the case may be, constitute the valid and legally binding obligation of such Party enforceable against such Party in accordance with its terms and conditions, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally, including limiting the right of specific performance, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law). Neither Seller nor Parent need give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order to consummate the transactions contemplated by this Agreement or any other Transaction Agreement to which it is a party.

               (iii) Title to LLC Interest. Seller has good, valid and marketable title to the LLC Interest, free and clear of all Encumbrances. Upon purchase of the LLC Interest by Buyer and the receipt by Seller of the Purchase Price pursuant hereto,

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good and valid title to the LLC Interest will pass to Buyer, free and clear of all Encumbrances.

               (iv) Noncontravention. Neither the execution and delivery of any of the Transaction Agreements to which either Seller or Parent is a party, nor the consummation of any of the transactions contemplated thereby, shall (A) violate any Law to which Seller or Parent is subject or any provision of its Organizational Documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, indenture, note agreement, loan agreement, contract, lease, license, instrument, or other arrangement (x) to which either Seller or Parent is a party or by which either of them is bound or (y) to which any of their assets are subject (or result in the imposition of any Encumbrance upon any of Seller’s or Parent’s assets), in either case except for such violations, conflicts, breaches, defaults, accelerations, terminations, modifications, cancellations, failures to give notice, Encumbrances or other occurrences that would not have, or would reasonably be expected not to have, a material adverse effect on the ability of Seller or Parent to consummate the transactions contemplated by this Agreement or any other Transaction Agreement to which it is a party.

               (v) Brokers’ Fees. Neither Seller nor Parent has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Buyer is, or could become, liable or obligated.

          (b) Representations and Warranties Concerning Buyer. Buyer hereby represents and warrants to Seller that:

               (i) Organization of Buyer. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and is duly qualified to transact business and is in good standing in the States of Delaware, Missouri, Utah and such other jurisdictions where the failure to so qualify could reasonably be expected to have a material adverse affect on the business or operations of Buyer.

               (ii) Authorization of Transaction. Buyer has the full power and authority to execute and deliver each Transaction Agreement to which it is a party and to perform its obligations thereunder and each Transaction Agreement to which Buyer is or will be a party is or will, as the case may be, constitute the valid and legally binding obligation of Buyer, enforceable against it in accordance with its terms and conditions, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally, including limiting the right of specific performance, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law). Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental

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Authority in order to consummate the transactions contemplated by this Agreement or any other Transaction Agreement to which it is a party, other than the HSR Filing.

               (iii) Noncontravention. Neither the execution and delivery of any of the Transaction Agreements to which Buyer is a party, nor the consummation of any of the transactions contemplated thereby, shall (A) violate any Law to which Buyer