EX-10.16 8 h69756a1exv10w16.htm EX-10.16 exv10w16
Exhibit 10.16
 

ACQUISITION AGREEMENT

 
by and among
Oxford Mining Company, LLC
(as the Buyer),
Phoenix Coal Inc.
(as a Seller),
Phoenix Coal Corporation
(as a Seller),
and
Phoenix Newco, LLC
(as the Acquired Company)
Signed: August 14, 2009
Closed: September 30, 2009

 


 

ACQUISITION AGREEMENT
by and among
Oxford Mining Company, LLC
(as the Buyer),
Phoenix Coal Inc.
(as a Seller),
Phoenix Coal Corporation
(as a Seller),
and
Phoenix Newco, LLC
(as the Acquired Company)
Dated: August 14, 2009

 


 

TABLE OF CONTENTS
             
        Page  
 
  TABLE OF CONTENTS        
1.
  DEFINITIONS     1  
 
           
2.
  PRE-CLOSING REORGANIZATION; ACQUISITION TRANSACTION; TRANSACTION CONSIDERATION     15  
 
  2.1 Pre-Closing Reorganization     15  
 
  2.2 Acquisition Transaction     19  
 
  2.3 Transaction Consideration     19  
 
  2.4 Allocation of Transaction Consideration     20  
 
  2.5 Working Capital Adjustment     20  
 
           
3.
  CLOSING     23  
 
  3.1 Closing     23  
 
  3.2 Closing Deliveries     23  
 
           
4.
  REPRESENTATIONS AND WARRANTIES OF SELLERS     24  
 
  4.1 Organization and Good Standing; Power     24  
 
  4.2 Authority; No Conflicts; Consents     25  
 
  4.3 Ownership     26  
 
  4.4 Subsidiaries     26  
 
  4.5 Financial Statements     26  
 
  4.6 Books and Records     27  
 
  4.7 Properties     27  
 
  4.8 Condition and Sufficiency of Certain Assets     30  
 
  4.9 Liabilities     30  
 
  4.10 Taxes     30  
 
  4.11 Inventory     32  
 
  4.12 Coal Interests     32  
 
  4.13 Absence of Certain Changes and Events     33  
 
  4.14 Contracts; Defaults     33  
 
  4.15 Environmental, Health and Safety Matters     34  
 
  4.16 Intellectual Property     36  
 
  4.17 Employees     36  
 
  4.18 Labor Relations; Compliance     36  
 
  4.19 Employee Benefits     37  
 
  4.20 Compliance with Legal Requirements; Governmental Authorizations     38  
 
  4.21 Legal Proceedings; Orders     42  
 
  4.22 Insurance     43  
 
  4.23 Solvency     44  
 
  4.24 Relationships with Related Persons     44  
 
  4.25 No Brokers or Finders     45  
 
  4.26 Certain Payments; Grants and Allowances     45  
 
  4.27 Customers and Suppliers     46  

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TABLE OF CONTENTS
             
        Page  
 
  4.28 Disclosure     46  
 
  4.29 Scope of Representations, Warranties and Covenants     46  
 
           
5.
  REPRESENTATIONS AND WARRANTIES OF BUYER     47  
 
  5.1 Organization and Good Standing     47  
 
  5.2 Authority; No Conflicts     47  
 
  5.3 Certain Proceedings     47  
 
  5.4 No Brokers or Finders     48  
 
  5.5 Scope of Representations, Warranties and Covenants     48  
 
           
6.
  COVENANTS OF SELLERS     48  
 
  6.1 Operation of Business     48  
 
  6.2 Access and Investigation     49  
 
  6.3 No Negotiation     49  
 
  6.4 Destruction of Confidential Information     50  
 
  6.5 Required Approvals of Governmental Bodies     50  
 
  6.6 Commercially Reasonable Efforts     50  
 
  6.7 Restrictive Covenants     50  
 
  6.8 Employee Matters     52  
 
  6.9 Liabilities of Phoenix Group Entities     52  
 
  6.10 APE Financial Statements     52  
 
  6.11 Rose France Reserves     53  
 
           
7.
  COVENANTS OF BUYER     53  
 
  7.1 Required Approvals of Governmental Bodies     53  
 
  7.2 Commercially Reasonable Efforts     54  
 
  7.3 Release of Reclamation Obligations Collateral     54  
 
  7.4 Employee Matters     54  
 
  7.5 AT Liabilities     54  
 
           
8.
  MUTUAL COVENANTS OF PARTIES     54  
 
  8.1 Further Actions     54  
 
  8.2 Public Announcements     55  
 
  8.3 Tax Matters     55  
 
  8.4 Consideration of Alternative to Escrow     56  
 
           
9.
  CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE     56  
 
  9.1 Accuracy of Representations and Warranties     56  
 
  9.2 Performance by Phoenix AA Parties     56  
 
  9.3 Consents     57  
 
  9.4 Additional Documents     57  
 
  9.5 No Proceedings     58  
 
  9.6 No Prohibition     58  
 
  9.7 Business Conduct and No Material Adverse Effect     58  
 
  9.8 Employee Matters     58  

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TABLE OF CONTENTS
             
        Page  
 
  9.9 Recoverable Tons of Coal     58  
 
  9.10 AT Reclamation Obligations     58  
 
  9.11 AT Coal Reserves Quality     59  
 
  9.12 Mining Permit Approval     59  
 
  9.13 Abatement of Violations     59  
 
           
10.
  CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS TO CLOSE     59  
 
  10.1 Accuracy of Representations and Warranties     59  
 
  10.2 Performance by Buyer     59  
 
  10.3 Initiation of Action to Obtain Release of Reclamation Obligations Collateral     59  
 
  10.4 Additional Documents     60  
 
  10.5 No Proceedings     60  
 
  10.6 No Prohibition     60  
 
           
11.
  TERMINATION     60  
 
  11.1 Termination Events     60  
 
  11.2 Termination Effect Generally     61  
 
  11.3 Termination Fee     62  
 
           
12.
  INDEMNIFICATION; REMEDIES     62  
 
  12.1 Survival; Right to Indemnification not Affected by Knowledge     62  
 
  12.2 Indemnification and Payment of Damages by Sellers     62  
 
  12.3 Indemnification and Payment of Damages by Buyer     62  
 
  12.4 Time Limitations     63  
 
  12.5 Limitations on Amount - Sellers     63  
 
  12.6 Limitations on Amount - Buyer     64  
 
  12.7 Excluded Damages     64  
 
  12.8 Procedure for Indemnification - Third Party Claims     64  
 
  12.9 Procedure for Indemnification - Other Claims     65  
 
  12.10 Recovery of Indemnification Amounts     66  
 
  12.11 Exclusive Remedy     66  
 
           
13.
  GENERAL PROVISIONS     66  
 
  13.1 Expenses     66  
 
  13.2 Confidentiality     66  
 
  13.3 Notices     67  
 
  13.4 Further Assurances     68  
 
  13.5 Waiver     68  
 
  13.6 Entire Agreement and Modification     68  
 
  13.7 Schedules     68  
 
  13.8 Assignments, Successors and Limited Third-Party Rights     69  
 
  13.9 Severability     69  
 
  13.10 Headings; Construction     69  
 
  13.11 Time of Essence     69  

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TABLE OF CONTENTS
             
        Page  
 
  13.12 Governing Law     69  
 
  13.13 Dispute Resolution     69  
 
  13.14 Counterparts     70  
 
           
SIGNATURES     71  

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ACQUISITION AGREEMENT
     This Acquisition Agreement (this “Agreement”) is entered into as of August 14, 2009 by and among Oxford Mining Company, LLC, an Ohio (U.S.A.) limited liability company (the “Buyer”), Phoenix Coal Inc., an Ontario (Canada) corporation (“PCI”), Phoenix Coal Corporation, a Delaware (U.S.A.) corporation (“PCC”, and collectively with PCI the “Sellers”), and Phoenix Newco, LLC, a Kentucky (U.S.A.) limited liability company (the “Acquired Company”).
Recital
     The Buyer desires to acquire, and the Sellers desire to sell, in the acquisition transaction described in Section 2, all of the membership interests in the Acquired Company, for the consideration and on the other terms and conditions set forth in this Agreement.
Agreement
     The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
     For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1:
     “AAA” has the meaning set forth in Section 13.13.
     “Acceptable RFR Lease” has the meaning set forth in Section 6.11.
     “Accounting Referee” has the meaning set forth in Section 2.5(d)(ii)(A).
     “Accrued Coal Leases Liabilities” means all liabilities of the Phoenix Entities under AT Coal Leases accruing prior to and on the Closing Date, including without limitation liabilities for royalties for coal mined by the Phoenix Entities through the Closing Date, all determined in accordance with GAAP (U.S.).
     “Acquired Company” has the meaning set forth in the first paragraph of this Agreement.
     “Acquired Company AT Assets/AT Liabilities” has the meaning set forth in Section 2.1(d)(iii).
     “Acquired Company Membership Interests” means all of the membership interests in the Acquired Company.
     “Acquired Phoenix Entities” means together the Acquired Company and all of its Subsidiaries as of the Closing.
     “Acquisition Proposal” means any unsolicited proposal or offer with respect to any of the following (other than the transactions contemplated in this Agreement): (a) any merger, consolidation, stock purchase, membership interest purchase, share exchange, business combination, extraordinary transaction or other similar transaction involving the Phoenix Entities;


 

(b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of the Phoenix Entities’ consolidated assets outside of the Ordinary Course of Business in a single transaction or series of related transactions; (c) any tender offer or exchange offer for 25% or more of the outstanding shares of PCI or the filing of a registration statement under the applicable Canadian law in connection therewith; or (d) any agreement to engage in any of the foregoing.
     “Acquisition Transaction” means the transaction described in Section 2.2 and includes without limitation the Pre-Closing Reorganization described in Section 2.1.
     “Actual Working Capital” has the meaning set forth in Section 2.5(c).
     “Actual Working Capital Statement” has the meaning set forth in Section 2.5(c).
     “Adjustment Objection” has the meaning set forth in Section 2.5(d).
     “Affiliates” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended.
     “Agreement” has the meaning set forth in the first paragraph of this Agreement.
     “Ancillary Documents” means, collectively, the Transaction Documents and any other certificates, instruments, agreements or other documents contemplated by this Agreement. This definition shall also include any other ancillary documents reasonably requested by the Buyer and acceptable to the Sellers or reasonably requested by the Sellers and acceptable to the Buyer.
     “APE Employees” has the meaning set forth in Section 4.17(a).
     “APE Financial Statements” means the consolidated balance sheet as of the relevant date, and the related statement of direct revenues and expenses for the relevant period ending as of the relevant date, of the Acquired Phoenix Entities (and as if the Pre-Closing Reorganization had been effected prior to the commencement of the relevant period), prepared in accordance with GAAP (Canada) and with a reconciliation to GAAP (U.S.).
     “AT Assets” has the meaning set forth in Section 2.1(b).
     “AT Coal Leases” has the meaning set forth in Section 2.1(b)(ii).
     “AT Coal Purchase Agreements” has the meaning set forth in Section 2.1(b)(vi).
     “AT Coal Reserves” has the meaning set forth in Section 2.1(b)(iii).
     “AT Coal Sales Agreements” has the meaning set forth in Section 2.1(b)(v).
     “AT Contracts” has the meaning set forth in Section 2.1(c)(ii).
     “AT Current Assets” has the meaning set forth in Section 2.1(b)(xi).
     “AT Current Liabilities” has the meaning set forth in Section 2.1(c)(v).

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     “AT Fixed Assets” has the meaning set forth in Section 2.1(b)(i).
     “AT Fixed Assets Debt” has the meaning set forth in Section 2.1(c)(i).
     “AT Governmental Authorizations” has the meaning set forth in Section 2.1(b)(viii).
     “AT Inventory” has the meaning set forth in Section 2.1(b)(ix).
     “AT Leased Coal Reserves” has the meaning set forth in Section 2.1(b)(ii).
     “AT Liabilities” has the meaning set forth in Section 2.1(c).
     “AT Optional Health Plan Obligations” has the meaning set forth in Section 2.1(c)(iv).
     “AT Other Contracts” has the meaning set forth in Section 2.1(b)(vii).
     “AT Other Leases” has the meaning set forth in Section 2.1(b)(iv).
     “AT Reclamation Obligations” has the meaning set forth in Section 2.1(c)(iii).
     “AT Technology Assets” has the meaning set forth in Section 2.1(b)(x).
     “Audited Financial Statements” has the meaning set forth in Section 4.5.
     “Basket Amount” has the meaning set forth in Section 12.5.
     “Benchmark Working Capital” means zero dollars ($0.00).
     “Breach” means a violation or infraction of, or failure to comply with, a representation, warranty, agreement, obligation or other provision of this Agreement or any instrument delivered pursuant to this Agreement, and shall be deemed to have occurred if there is or has been any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, agreement, obligation or other provision.
     “Buyer” has the meaning set forth in the first paragraph of this Agreement.
     “Buyer Ancillary Documents” means the Ancillary Documents to which the Buyer is a party.
     “Buyer Indemnified Persons” has the meaning set forth in Section 12.2.
     “Buyer PRE Notice” has the meaning set forth in Section 2.1(d)(i).
     “Buyer’s Advisors” has the meaning set forth in Section 6.2.
     “Cap Amount” has the meaning set forth in Section 12.5.
     “CERCLA” means the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended.

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     “Claims” means any written or oral claims, causes of action, demands, lawsuits, suits, proceedings, governmental investigations or audits and administrative orders.
     “Closing” has the meaning set forth in Section 3.1.
     “Closing Date” means the date as of which the Closing actually takes place.
     “Coal Act” means the Coal Industry Retiree Health Benefit Act of 1992, as it may be amended from time to time (codified at Subtitle J of the IRC).
     “Company Other Benefit Obligations” means Other Benefit Obligations owed, adopted or followed by the Phoenix Group Entities or an ERISA Affiliate of the Phoenix Group Entities or with respect to which the Phoenix Group Entities or an ERISA Affiliate of the Phoenix Group Entities participates, sponsors or is a party.
     “Company Plans” means all Plans with respect to which the Phoenix Group Entities or an ERISA Affiliate of the Phoenix Group Entities is or was a Plan Sponsor, or to which the Phoenix Group Entities or an ERISA Affiliate of the Phoenix Group Entities otherwise contributes or has contributed, or is or has been required to contribute, or in which the Phoenix Group Entities or an ERISA Affiliate of the Phoenix Group Entities otherwise participates or has participated.
     “Company Surety Bonds” has the meaning set forth in Section 4.20(e).
     “Company VEBA” means a VEBA whose members include employees of the Phoenix Entities or an ERISA Affiliate of the Seller.
     “Competing Business” has the meaning set forth in Section 6.7(a).
     “Confidentiality Agreement” has the meaning set forth in Section 6.2.
     “Consent” means any approval, consent, ratification, waiver or other authorization (including any Governmental Authorization).
     “Contract” means any agreement, contract, obligation, promise or undertaking (whether written or oral and whether express or implied) that is legally binding.
     “Cormark” means Cormark Securities Inc.
     “Damages” means all debts, liabilities, obligations, losses, including diminution of value, damages, loss of profits, costs and expenses, whether actual, consequential or punitive, interest (including without limitation prejudgment interest), penalties, fines, reasonable legal fees, disbursements and costs of investigations, deficiencies, levies, duties and imposts.
     “Disputes” means controversies (oral or in writing) which are material to the subject matter, asset or right to which the term “Disputes” relates.
     “Employee Matters” has the meaning set forth in Section 6.8.

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     “Encumbrance” means any charge, Claim, marital or community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal or other restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.
     “Environment” means soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.
     “Environmental, Health and Safety Liabilities” means any cost, Damages, expense, liability, obligation or other responsibility arising from or under an Environmental Law or an Occupational Safety and Health Law and consisting of or relating to, without limitation:
          (a) any environmental, health or safety matters or conditions (including on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or products);
          (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, Damages, losses, Claims, demands and response, investigative, remedial, removal, response, reclamation or inspection costs and expenses arising under any Environmental Law or Occupational Safety and Health Law;
          (c) financial responsibility under any Environmental Law or Occupational Safety and Health Law for cleanup costs, corrective action or reclamation, including any investigation, cleanup, removal, containment or other remediation, response or reclamation actions (“cleanup”) required by applicable Environmental Law or Occupational Safety and Health Law (whether or not such cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource Damages; or
          (d) any other compliance, corrective, investigative or remedial, removal, response or reclamation measures required under any Environmental Law or Occupational Safety and Health Law.
The terms “removal,” “remedial” and “response action” include the types of activities covered by CERCLA. The term “reclamation” includes the types of activities covered by SMCRA.
     “Environmental Law” means all applicable Legal Requirements in effect as of the date of this Agreement (as amended) relating to the protection of the Environment, to human health and safety, to Hazardous Materials or to any Hazardous Activity, including without limitation all requirements pertaining to reporting, licensing, permitting, investigation or remediation of Releases of Hazardous Materials into the air, surface water, groundwater or land.
     “ERISA” means the Employee Retirement Income Security Act of 1974 as amended or any successor law, and the regulations and rules issued pursuant to that Act as amended or any successor law.

5


 

     “ERISA Affiliate” means, with respect to any of the Phoenix Entities, any other Person that, together with any of such Phoenix Entities, would be treated as a single employer under IRC Section 414 or ERISA Section 4001.
     “Escrow Agent” means the Person designated by the Buyer and approved by the Sellers (which approval shall not be unreasonably delayed or withheld), which Person shall serve as the escrow agent under the Escrow Agreement.
     “Escrow Agreement” means the Escrow Agreement among the Buyer, the Sellers and the Escrow Agent in a mutually agreed form pursuant to which the Sellers are escrowing as of the Closing Date, subject to the Scheduled Escrow Releases, the Escrow Deposit Amount to be available for indemnification (if any) of the Buyer Indemnified Persons under Section 12.2.
     “Escrow Deposit Amount” means the sum of Two Million Three Hundred Thousand Dollars ($2,300,000.00) deposited by the Sellers at the Closing in escrow under the Escrow Agreement.
     “Estimated Closing Balance Sheet” has the meaning set forth in Section 2.5(b).
     “Estimated Working Capital” has the meaning set forth in Section 2.5(b).
     “Estimated Working Capital Adjustment” has the meaning set forth in Section 2.5(b)(ii).
     “Excluded Governmental Authorizations” has the meaning set forth in Section 2.1(c)(iii).
     “Excluded Reclamation Obligations” has the meaning set forth in Section 2.1(c)(iii).
     “Excluded Reclamation Obligations Value” means the sum of Five Million Seven Hundred Thousand Dollars ($5,700,000.00).
     “Excluded Subsidiaries” means PACT and Gryphon.
     “Excluded Subsidiaries Surface Mining” means the mining by the Excluded Subsidiaries by surface mining methods of that certain coal in the Illinois Coal Basin to which the Excluded Subsidiaries presently hold rights pursuant to outstanding leases which principally relate to the underground mining of coal.
     “Facilities” means any real property, leaseholds or other interests currently or formerly owned or operated by the Phoenix Entities including any buildings, plants or structures currently or formerly owned or operated by the Phoenix Entities.
     “Final Working Capital Adjustment” has the meaning set forth in Section 2.5(c)(ii).
     “Financial Statements” has the meaning set forth in Section 4.5.
     “GAAP (Canada)” means generally accepted accounting principles in Canada, applied on a consistent basis.

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     “GAAP (U.S.)” means generally accepted accounting principles in the United States of America, applied on a consistent basis.
     “Governmental Authorization” means any approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement, including without limitation Mining Authorizations.
     “Governmental Body” means any (a) nation, state, county, city, town, village, district or other jurisdiction of any nature, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal), (d) multi-national organization or body or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.
     “Group Health Plan” has the meaning set forth in IRC Section 4980B(g)(2).
     “Gryphon” means Gryphon Mining Co., LLC, a Delaware limited liability company.
     “Hazardous Activity” means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about or from the Facilities or any part thereof into the Environment, and any other act, business, operation or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities, the AT Assets or the Surface Mining Business.
     “Hazardous Materials” means any waste or other substance that is listed, defined, designated or classified as, or otherwise determined to be, hazardous, radioactive or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials.
     “Hilco Report” means a Forced Liquidation Value, Orderly Liquidation Value, and Fair Market Value appraisal of the AT Fixed Assets by Hilco Appraisal Services, LLC.
     “Illinois Coal Basin” means the Illinois Basin coal field.
     “Interim Financial Statements” has the meaning set forth in Section 4.5.
     “IRC” means the Internal Revenue Code of 1986 or any successor law, and regulations issued pursuant to the Internal Revenue Code or any successor law.
     “IRS” means the Internal Revenue Service.
     “JT Boyd Report” means a report issued by John T. Boyd Company with respect to the AT Coal Reserves establishing the amount of the recoverable reserves included in the AT Coal Reserves.

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     “June 30 Balance Sheet” has the meaning set forth in Section 2.5(a).
     “June 30 Working Capital” has the meaning set forth in Section 2.5(a).
     “Key Phoenix Entities Persons” means all of the following Persons who are Related Persons with respect to the Phoenix Entities: David A. Wiley and Dustin K. Angelo.
     “Knowledge” means, with respect to an individual, that such individual is actually aware of such fact or other matter, and in the case of a Person other than an individual, that Person will be deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving as a director, manager, shareholder (except for shareholders of PCI), member, executive officer, executor or trustee of such Person has Knowledge of such fact or other matter.
     “Leased Fixtures and Improvements” has the meaning set forth in Section 4.7(d)(vi).
     “Leased Real Property” has the meaning set forth in Section 4.7(d).
     “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute or treaty.
     “made available,” when used in connection with the provision of documents or other information by the Sellers to the Buyer, means provision by posting not less than five (5) days prior to the date hereof such documents or other information on the datasite of the Sellers to which the Buyer and its Representatives have been given access or by delivering the same to the Buyer or its Representatives.
     “manager” means a manager of a limited liability company.
     “Material Adverse Effect” means a material adverse effect on the AT Assets, the results of operations or financial condition of the Surface Mining Business or the ability of the Sellers to consummate the Acquisition Transaction; provided, however, that in determining whether a Material Adverse Effect has occurred there shall be excluded any effect the primary cause of which is (a) any change in laws, rules or regulations of general applicability or interpretations thereof by courts or Governmental Bodies, (b) acts of terrorism or war, or general changes in the global or United States economies or in the global or United States financial markets, (c) the result of the negotiation, announcement or pendency of the Acquisition Transaction and (d) any action or omission of the Sellers required by or permitted under this Agreement or taken with the prior written consent of the Buyer.
     “member” means a member of a limited liability company.
     “Membership Interests Assignment” means an Assignment of Membership Interests executed by the Sellers in a mutually agreed form pursuant to which the Sellers assign and transfer the Acquired Company Membership Interests to the Buyer.
     “Mining Activities” means those activities of the Phoenix Entities related to the mining, extraction, processing, sale and trading of coal and other minerals or natural resources that involve

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surface mining, underground mining, auger mining, processing, sale or transporting of coal and other minerals or natural resources and their by-products, including reclamation activities. For the purpose of this definition, “Mining Activities” shall include any activities regulated or required under SMCRA and Legal Requirements governing, controlling or applying to coal mining operations or the extraction of other minerals or natural resources.
     “Mining Applications” has the meaning set forth in Section 4.19(d).
     “Mining Authorizations” means the mining or exploration licenses, Governmental Authorizations and other authorities held by any of the Phoenix Entities with respect to the Surface Mining Business, including without limitation any authorization or permit relating to coal mining, exploration, preparation, loadout or reclamation operations.
     “MSHA” means the Mine Safety and Health Administration, U.S. Department of Labor, or any successor agency.
     “Multi-Employer Plan” has the meaning given it in ERISA Section 3(37)(A).
     “Negotiation Period” has the meaning set forth in Section 2.5(e)(i).
     “Newbridge Condition” has the meaning set forth in Section 9.10.
     “Newbridge Report” means a mine inspection report by Newbridge Services, Inc. setting forth a statement of the costs and expenses of conducting the reclamation activities constituting the AT Reclamation Obligations, together with the face amount of the surety, reclamation or similar bonds securing the AT Reclamation Obligations.
     “Occupational Safety and Health Law” means any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions, including the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), as amended, the Mine Safety and Health Act (30 U.S.C. § 801 et seq.), as amended, and comparable state statutes and regulations.
     “Order” means any award, decision, injunction, judgment, order, ruling, subpoena or verdict entered, issued, made or rendered by any court, administrative agency or other Governmental Body or by any arbitrator.
     “Ordinary Course of Business” means any action taken by a Person if such action is consistent with the past custom and practice (including with respect to quantity and frequency) of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person, and if such action is similar in nature and magnitude to actions customarily taken in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person.
     “Organizational Documents” means any of the following, as applicable: (a) the articles or certificate of incorporation and the bylaws or regulations of a corporation, (b) the charter and

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operating agreement or limited liability company agreement of any limited liability company, (c) any charter or similar document adopted or filed in connection with the creation, formation or organization of any other Person and (d) any amendment to any of the foregoing.
     “OSMRE” means the Office of Surface Mining, Reclamation and Enforcement, U.S. Department of the Interior, or any successor agency.
     “Other AT Assets” has the meaning set forth in Section 2.1(d)(iv).
     “Other AT Liabilities” has the meaning set forth in Section 2.1(d)(v).
     “Other Benefit Obligations” means all obligations, arrangements or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees or agents, other than obligations, arrangements and practices that are Plans. Other Benefit Obligations include without limitation consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, stock option or other equity plans, bonus arrangements and fringe benefits within the meaning of IRC Section 132.
     “Out Leases” has the meaning set forth in Section 4.7(f).
     “Outside Indemnification Notification Date” has the meaning set forth in Section 12.4(a).
     “Owned Fixtures and Improvements” has the meaning set forth in Section 4.7(e)(i).
     “Owned Real Property” has the meaning set forth in Section 4.7(e).
     “PAAP Ancillary Documents” means the Ancillary Documents to which one or more of the Phoenix AA Parties is a party.
     “PACT” means PACT Resources, LLC, a Kentucky limited liability company.
     “PCC” has the meaning set forth in the first paragraph of this Agreement.
     “PCC AT Assets/AT Liabilities” has the meaning set forth in Section 2.1(d)(ii).
     “PCI” has the meaning set forth in the first paragraph of this Agreement.
     “Pension Plan” has the meaning given it in ERISA Section 3(2)(A).
     “Permitted Encumbrances” means (a) liens on the AT Fixed Assets securing the AT Fixed Assets Debt, (b) liens securing current Taxes, assessments, fees or other governmental charges or levies not yet delinquent, (c) Encumbrances which do not individually or in the aggregate materially detract from the value, or materially impair the use, of properties in the Surface Mining Business, (d) inchoate mechanics and materialmen’s liens for construction in progress, (e) liens of warehousemen and carriers arising in the Ordinary Course of Business, (f) zoning, building codes and other land use laws regulating the use or occupancy of owned real property or the activities conducted thereon that are imposed by any Governmental Body having jurisdiction over such real

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property and (g) liens incurred or deposits made in the Ordinary Course of Business in connection with workers’ compensation, unemployment insurance, social security and other similar laws which are not material, individually or in the aggregate.
     “Permitting Condition” has the meaning set forth in Section 9.12.
     “Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.
     “Phoenix AA Parties” means together the Sellers and the Acquired Company, who are all of the Phoenix Entities that are a party to this Agreement.
     “Phoenix Entities” means together the Sellers and all of their Subsidiaries other than the Excluded Subsidiaries.
     “Phoenix Group Entities” means together the Phoenix Entities and the Excluded Subsidiaries.
     “Phoenix Reorganization Entities” has the meaning set forth in Section 2.1(a).
     “Plan” has the meaning given it in ERISA Section 3(3).
     “Plan Sponsor” has the meaning given it in ERISA Section 3(16)(B).
     “Post-Closing Tax Period” has the meaning set forth in Section 8.3(e).
     “Pre-Closing Reorganization” has the meaning set forth in Section 2.1.
     “Pre-Closing Tax Period” has the meaning set forth in Section 8.3(b).
     “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator.
     “Qualified Plan” means any Plan that meets or purports to meet IRC Section 401(a).
     “Real Property” means both the Owned Real Property and the Leased Real Property.
     “Recoverable Tons Condition” has the meaning set forth in Section 9.9.
     “Related Person” means with respect to a specified Person other than an individual (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person, (b) any Person that holds a material interest in such specified Person (excluding shareholders of PCI solely in their capacity as shareholders of PCI), (c) each Person that serves as a director, manager, executive officer, executor or trustee of such specified Person, (d) any Person in which such specified Person holds a material interest, (e) any Person with respect to which such specified Person serves as a general partner or a

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trustee (or in a similar capacity) and (f) any Related Person of any individual described in clause (b) or (c). For purposes of this definition, “material interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least 25% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 25% of the outstanding equity securities or equity interests in a Person.
     “Release” means any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping or other releasing into the Environment, whether intentional or unintentional, and without limiting the foregoing includes such term as defined in CERCLA.
     “Release Funds Pool” means at any relevant time (a) the sum of (i) the funds remaining in the escrow pursuant to the Escrow Agreement at that time and (ii) the amount of the RFR Fee at that time (taking into account any applicable reduction in the RFR Fee pursuant to Section 6.11 that has occurred by that time) that has not yet been deposited by the Buyer with the Escrow Agent as provided in Section 6.11, less (b) an amount equal to the sum of all then pending, unresolved Claims made against such escrow.
     “Remaining Phoenix Entities” means together all of the Phoenix Group Entities other than the Acquired Phoenix Entities.
     “Representative” means, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.
     “Restrictive Covenants Agreements” has the meaning set forth in Section 6.7(e).
     “Restricted Parties” has the meaning set forth in Section 6.7(a).
     “Restricted Period” has the meaning set forth in Section 6.7(a).
     “RFR Conditions” has the meaning set forth in Section 6.11.
     “RFR Fee” means the sum of One Million Dollars ($1,000,000.00), as reduced pursuant to Section 6.11 if applicable.
     “RFR Mineral Leasehold Condition” has the meaning set forth in Section 6.11.
     “RFR Surface Leasehold Condition” has the meaning set forth in Section 6.11.
     “Rose France Mineral Leasehold” has the meaning set forth in Section 6.11.
     “Rose France Reserves” means the coal reserves described on Schedule 1A.
     “Rose France Surface Leasehold” has the meaning set forth in Section 6.11.
     “Scheduled Closing Time” means the time for the Closing provided for in Section 3.1, as extended pursuant to Section 11.1(d) if applicable.

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     “Scheduled Escrow Releases” means the releases of funds from the escrow under the Escrow Agreement to be made with payments to the Sellers as follows: (a) on such date as is six (6) months after the Closing Date, the Escrow Agent shall release and pay to the Sellers one-third of the Release Funds Pool at that time, (b) on such date as is twelve (12) months after the Closing Date, the Escrow Agent shall release and pay to the Sellers one-half of the Release Funds Pool at that time, and (c) on such date as is eighteen (18) months after the Closing Date, the Escrow Agent shall release and pay to the Sellers the remainder of the Release Funds Pool.
     “Sellers” has the meaning set forth in the first paragraph of this Agreement.
     “Sellers Indemnified Persons” has the meaning set forth in Section 12.3.
     “SMCRA” means the Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. § 1201 et seq.), as amended.
     “Special Acquisition Conditions” has the meaning set forth in Section 9.11.
     “Subsidiary” means, with respect to any Person (the “owner”), each other Person that is a corporation, joint venture, trust, partnership, limited liability company or other entity (a) of which the securities or other interests having the power to elect a majority of that other Person’s board of directors or similar governing body are held by the owner or one or more of the owner’s Subsidiaries (other than securities or other interests having such power only upon the happening of a contingency that has not occurred), or (b) over which the owner has, directly or indirectly, the power to direct its business and policies.
     “Superior Proposal” means an unsolicited, bona fide offer made by a third Person to consummate an Acquisition Proposal that PCI’s Board of Directors determines in good faith is reasonably likely to result in a transaction that is more favorable to the shareholders of PCI than the transactions contemplated by this Agreement, taking into account all legal, financial, regulatory and other aspects of the Acquisition Proposal and the entity making the Acquisition Proposal.
     “Surface Mining Business” means the business of the surface mining of coal, which includes the following with respect to mining of coal by surface mining methods whether now known or hereafter developed, including without limitation strip mining, auger mining and highwall mining: the production, processing, exploration, storing, shipment, ownership, leasing, subleasing, loading, unloading, marketing and sale of surface mined coal and activities directly relating thereto, including without limitation developing or otherwise controlling real property used or useful in the surface coal mining business, including surface mining rights or the rights to severed coal reserves mineable by surface mining methods or applying for any Mining Authorizations or engaging a contract miner; however, it excludes the Excluded Subsidiaries Surface Mining.
     “Tax” means any tax (including any income tax, payroll tax including employee withholdings, gross receipts tax, commercial activities tax, capital gains tax, value-added tax, sales tax, severance tax or property tax), levy, assessment, tariff, duty (including any customs duty) or deficiency, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Governmental Body or payable

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pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty or deficiency.
     “Tax Return” means any return (including any information return), report, statement, schedule, notice, form or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.
     “Termination Fee” means a fee in the amount of One Million Two Hundred Thousand Dollars ($1,200,000.00).
     “Threatened” means a Claim, Proceeding, dispute, action or other matter will be deemed to have been “Threatened” if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a Claim, Proceeding, dispute, action or other matter is likely to be asserted, commenced, taken or otherwise pursued in the future.
     “Transaction Consideration” has the meaning set forth in Section 2.3.
     “Transaction Documents” means the Membership Interests Assignment, the Escrow Agreement, the Restrictive Covenants Agreements and the Transition Services Agreement.
     “Transfer Sections” has the meaning set forth in Section 2.1(d)(vi)(A).
     “Transition Services Agreement” means an agreement in a mutually agreed form between the Sellers and the Buyer pursuant to which the Sellers provide to the Buyer for a mutually agreed fee the agreed upon transition accounting, financial and other administrative services from the date of the Closing through and including December 31, 2009.
     “VEBA” means a voluntary employees’ beneficiary association under IRC Section 501(c)(9).
     “WARN Act” has the meaning set forth in Section 7.4(a).
     “Workers’ Compensation Laws” means all Legal Requirements that provide for awards to employees and their dependents for employment-related accidents and occupational diseases, including without limitation the Federal Black Lung Benefits Act, as amended, 29 U.S.C. Section 801 et seq.
     “Working Capital” means an amount equal to the AT Current Assets minus the AT Current Liabilities.

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2. PRE-CLOSING REORGANIZATION; ACQUISITION TRANSACTION; TRANSACTION CONSIDERATION
          2.1 Pre-Closing Reorganization
     Prior to the Closing, the Phoenix AA Parties, in order to position the Acquired Company and the other Acquired Phoenix Entities properly for completing the Acquisition Transaction, shall effect a reorganization of the Sellers and their direct and indirect Subsidiaries (the “Pre-Closing Reorganization”), as follows:
          (a) The Phoenix Entities that will be involved in the Pre-Closing Reorganization are PCC, the Acquired Company and all of the other Phoenix Entities listed on Schedule 2.1(a) (the "Phoenix Reorganization Entities”), all of which Phoenix Reorganization Entities other than PCC (which is currently a wholly owned Subsidiary of PCI) are currently Subsidiaries wholly owned directly or indirectly by PCC.
          (b) The present assets of the Phoenix Reorganization Entities which are to be included in the Acquisition Transaction (the “AT Assets”) are as follows:
          (i) the fixed assets listed on Schedule 2.1(b)(i) which identifies both fixed assets and the Phoenix Reorganization Entity which is the owner thereof (the “AT Fixed Assets”);
          (ii) the coal reserves leases listed on Schedule 2.1(b)(ii) which identifies such leases and as well both the Phoenix Reorganization Entity a party thereto and the landlord/lessor with respect thereto (the “AT Coal Leases”), and including the coal reserves available thereunder with such changes therein occurring in the Ordinary Course of Business (the “AT Leased Coal Reserves”);
          (iii) the real property rights covered under deeds and other instruments listed on Schedule 2.1(b)(iii), and including the coal reserves available thereby with such changes therein occurring in the Ordinary Course of Business (collectively with the AT Leased Coal Reserves, the “AT Coal Reserves”);
          (iv) all leases other than the AT Coal Leases listed on Schedule 2.1(b)(iv) which identifies such leases and as well both the Phoenix Reorganization Entity a party thereto and the landlord/lessor with respect thereto (the “AT Other Leases”);
          (v) the coal sales agreements listed on Schedule 2.1(b)(v) which identifies such agreements and as well both the Phoenix Reorganization Entity a party thereto and the other party with respect thereto (the “AT Coal Sales Agreements”);
          (vi) the coal purchase agreements listed on Schedule 2.1(b)(vi) which identifies such agreements and as well both the Phoenix Reorganization Entity a party thereto and the other party with respect thereto (the “AT Coal Purchase Agreements”);
          (vii) the other Contracts, including without limitation fleeting agreements (if any), listed on Schedule 2.1(b)(vii) which identifies such other Contracts and as well both the Phoenix

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Reorganization Entity a party thereto and the other party with respect thereto (the “AT Other Contracts”);
          (viii) all Governmental Authorizations listed on Schedule 2.1(b)(viii) which identifies each such Governmental Authorization and the Phoenix Reorganization Entity holding each such Governmental Authorization, including without limitation any applications for any such Governmental Authorizations, and any such Governmental Authorizations issued after the date of this Agreement and prior to the Closing pertaining to the AT Coal Reserves (the “AT Governmental Authorizations”);
          (ix) the inventory of the Surface Mining Business, including without limitation coal, spare parts, fuel and supplies inventory (the “AT Inventory”);
          (x) the software, Contracts relating to software including software licenses, hardware, electronic scales and related equipment, and other such technology and equipment used in connection with the Surface Mining Business listed on Schedule 2.1(b)(x) (the “AT Technology Assets”);
          (xi) the accounts receivable, the advance royalties, the prepaid assets and the other current assets of the Surface Mining Business, all determined in accordance with GAAP (U.S.) (which items, together with the AT Inventory, collectively constitute the “AT Current Assets"); and
          (xii) the other assets (if any) listed on Schedule 2.1(b)(xii) which identifies such assets in the manner set forth therein, including without limitation any contractual rights of the Phoenix Reorganization Entities under previous acquisition agreements and other acquisition documents (to the extent they reside in a Phoenix Reorganization Entity which is an Acquired Phoenix Entity (or are assignable and are assigned to any Acquired Phoenix Entity) and relate to any of the AT Assets or the AT Liabilities).
          (c) The present liabilities of the Phoenix Reorganization Entities which are to be included in the Acquisition Transaction (the “AT Liabilities”) are as follows:
          (i) the AT Fixed Assets acquisition debt listed on Schedule 2.1(c)(i) which identifies specifics regarding the debt and the Phoenix Reorganization Entity which is the debtor with respect thereto (the “AT Fixed Assets Debt”);
          (ii) the obligations and other liabilities of the Phoenix Reorganization Entities arising after the Closing under the AT Coal Leases, the AT Other Leases, the AT Coal Sales Agreements, the AT Coal Purchase Agreements, the AT Other Contracts, the AT Governmental Authorizations, any Contracts included in the AT Technology Assets and the Contracts pertaining to the AT Fixed Assets Debt (the “AT Contracts”);
          (iii) the reclamation obligations (whether accruing prior to or after the Closing Date) relating to the AT Governmental Authorizations listed on Schedule 2.1(c)(iii)-1 which identifies the Phoenix Reorganization Entity having such reclamation obligations and information relating to the associated AT Governmental Authorizations including any permit

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numbers and the reclamation bond gross amount on the face of any such permit (the “AT Reclamation Obligations”), specifically excluding the reclamation obligations (whether accruing prior to or after the Closing Date) relating to the excluded Governmental Authorizations listed on Schedule 2.1(c)(iii)-2 (the “Excluded Governmental Authorizations") which identifies the Phoenix Entity having such reclamation obligations and information relating to the associated Excluded Governmental Authorizations including any permit numbers and the reclamation bond gross amount on the face of any such permit (the “Excluded Reclamation Obligations”);
          (iv) subject to the consent of any insurance carrier and/or other service provider who provides or arranges for current health insurance coverage, with respect to the APE Employees accruing after the Closing Date under the current health (medical, dental and/or vision) insurance plan(s)of the Phoenix Group Entities for a period of time ending on or before December 31, 2010 in the event the Buyer elects the option hereby granted to, at the expense of the Acquired Phoenix Entities (and/or the Buyer), continue coverage of the APE Employees under the current health (medical, dental and/or vision) insurance plan(s) of the Phoenix Group Entities for such a period (the “AT Optional Health Plan Obligations”);
          (v) all accounts payable and accrued expenses of the Surface Mining Business, including without limitation the Accrued Coal Leases Liabilities, all determined in accordance with GAAP (U.S.) (the “AT Current Liabilities"); and
          (vi) the other liabilities (if any) listed on Schedule 2.1(c)(vi) which identifies such liabilities in the manner set forth therein.
          (d) The actions to effect the Pre-Closing Reorganization shall be carried out by the Phoenix Reorganization Entities in the following manner:
          (i) the actions taken by the Phoenix Reorganization Entities shall be as provided below in this Section 2.1(d), and where the Buyer has the right to make a direction with respect to any such actions such direction (if any) to be effective shall be made by the Buyer in a written notice to the Sellers (the “Buyer PRE Notice”) given not less than seven (7) days prior to the Closing;
          (ii) except as otherwise provided in Section 2.1(d)(vi), those AT Assets and AT Liabilities held by PCC (the “PCC AT Assets/AT Liabilities”) shall be transferred by PCC to the Acquired Company;
          (iii) those AT Assets and AT Liabilities held by the Acquired Company (the “Acquired Company AT Assets/AT Liabilities”) shall be retained by the Acquired Company;
          (iv) except as otherwise provided in Section 2.1(d)(vi), all other AT Assets (other than the AT Assets included in the PCC AT Assets/AT Liabilities and the Acquired Company AT Assets/AT Liabilities) (the “Other AT Assets”) directed by the Buyer for transfer to the Acquired Company shall be transferred by the Phoenix Reorganization Entities to the Acquired Company;

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          (v) except as otherwise provided in Section 2.1(d)(vi), all other AT Liabilities (other than the AT Liabilities included in the PCC AT Assets/AT Liabilities and the Acquired Company AT Assets/AT Liabilities) (the “Other AT Liabilities”) directed by the Buyer for transfer to the Acquired Company shall be transferred by the Phoenix Reorganization Entities to and assumed by the Acquired Company;
          (vi) (A) notwithstanding Section 2.1(d)(ii), Section 2.1(d)(iv) and Section 2.1(d)(v) (the “Transfer Sections”), if and to the extent there are any Consents required with respect to the transfer of any AT Assets or AT Liabilities which are to be transferred to the Acquired Company as provided in the Transfer Sections, and the Sellers are unable with the use of commercially reasonable efforts to obtain such Consents prior to the Closing, the AT Assets or the AT Liabilities subject thereto shall not be so transferred and instead shall be retained by the Phoenix Reorganization Entity holding the same, and (B) notwithstanding anything to the contrary in Section 2.1 or elsewhere in this Agreement, with respect to any AT Assets or AT Liabilities that are associated in any part with the Excluded Reclamation Obligations (e.g., an AT Coal Lease where a portion of the leased property has AT Coal Reserves to be included in the Acquisition Transaction and another portion of the leased property relates to mined out property associated with the Excluded Reclamation Obligations), the Phoenix Reorganization Entities shall take such actions as are directed by the Buyer to exclude from the Acquisition Transaction those portions of the AT Assets and AT Liabilities associated with the Excluded Reclamation Obligations (and the same shall not be considered to be AT Assets and AT Liabilities) while including in the Acquisition Transaction the portion of the AT Assets and AT Liabilities which are not associated with the Excluded Reclamation Obligations and to the extent that cannot be done due to necessary Consents which cannot be obtained or otherwise then the portion of the AT Assets and AT Liabilities which are not associated with the Excluded Reclamation Obligations shall be retained by the Remaining Phoenix Entities and shall be treated as PCC AT Assets/AT Liabilities hereunder;
          (vii) for those PCC AT Assets/AT Liabilities (if any) that, by reason of the provisions of Section 2.1(d)(vi), are not held by any of the Acquired Phoenix Entities, the applicable Remaining Phoenix Entity and the applicable Acquired Phoenix Entity shall have an arrangement with respect thereto under which the Acquired Phoenix Entity has responsibility for the post-Closing obligations and obtains the post-Closing benefits of such PCC AT Assets/AT Liabilities;
          (viii) any Other AT Assets or Other AT Liabilities not timely directed by the Buyer for transfer to the Acquired Company shall not be so transferred and shall be retained by the Phoenix Reorganization Entity holding the same;
          (ix) for any Phoenix Reorganization Entities other than PCC and the Acquired Company which are retaining either or both Other AT Assets and/or Other AT Liabilities, the Phoenix Reorganization Entities holding the ownership interests (in the form of shares, membership interests or otherwise) in such retaining Phoenix Reorganization Entities shall transfer all of such ownership interests to such Phoenix Reorganization Entities other than PCC as directed by the Buyer, and in the absence of such a direction by the Buyer with respect to any such retaining Phoenix Reorganization Entity, shall make such transfer of such ownership interests to such Phoenix Reorganization Entities other than PCC as is directed by the Sellers, so

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that they shall all then become and as of the Closing be Subsidiaries wholly owned directly or indirectly by the Acquired Company;
          (x) for any Phoenix Reorganization Entities other than PCC and the Acquired Company which are not retaining any Other AT Assets or Other AT Liabilities, the Phoenix Reorganization Entities holding the ownership interests (in the form of shares, membership interests or otherwise) in such Phoenix Reorganization Entities shall transfer to PCC all of such ownership interests, so that they shall become wholly owned Subsidiaries of PCC and as of the Closing the Acquired Company shall not have any direct or indirect ownership interests therein;
          (xi) those Phoenix Reorganization Entities (other than PCC) which are corporations (if any) shall be converted to limited liability companies;
          (xii) those APE Employees being employed by the Acquired Phoenix Entities shall have been employed and shall as of the Closing be employed by such of the Acquired Phoenix Entities as are directed by the Buyer, and to the extent not so directed by the Buyer shall have been employed and shall as of the Closing be employed by such of the Acquired Phoenix Entities as are determined by the Sellers, it being understood and agreed in all events that neither the Buyer nor any of the Acquired Phoenix Entities is assuming or shall have after the Closing any obligations with respect to any Company Plans or any Company Other Benefit Obligations (other than the AT Optional Health Plan Obligations in the event the Buyer elects the option under Section 2.1 (c)(iv) to at the expense of the Acquired Phoenix Entities continue coverage of the APE Employees under the current health (medical, dental and/or vision) insurance plan(s) of the Phoenix Entities for a period of time ending on or before December 31, 2010); and
          (xiii) for any Phoenix Reorganization Entity which will be an Acquired Phoenix Entity, any assets of such Phoenix Reorganization Entity that are not AT Assets and any liabilities of such Phoenix Reorganization Entity that are not AT Liabilities shall be transferred to a Phoenix Entity which will not be an Acquired Phoenix Entity.
          2.2 Acquisition Transaction
     Subject to the terms and conditions of this Agreement, at the Closing and following the Pre-Closing Reorganization, the Sellers and the Buyer shall engage in the completion of an acquisition transaction pursuant to which the Sellers shall sell, assign, transfer and deliver to the Buyer, and the Buyer shall acquire from the Sellers, the Acquired Company Membership Interests, free and clear of all Encumbrances.
          2.3 Transaction Consideration
     The consideration to be provided by the Buyer with respect to the Acquisition Transaction (the "Transaction Consideration”) shall be as follows:
          (a) At the Closing, indirectly through the acquisition of the Acquired Company and hence as well the other Acquired Phoenix Entities, the Buyer will have taken on all of the AT

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Liabilities by reason of such AT Liabilities residing in and/or having been assumed by the Acquired Phoenix Entities.
          (b) By the Closing, in order to position the Remaining Phoenix Entities to obtain the release and return to them following the Closing of the cash collateral and Company Surety Bonds posted by the Phoenix Group Entities (or third Persons on behalf of the Phoenix Group Entities) to secure the AT Reclamation Obligations, the Buyer shall (i) with respect to any AT Governmental Authorizations for which a Consent is required by reason of a transfer thereof or a change in control of the Phoenix Entity holding the same, file an application for such Consent and post an adequate bond or other collateral which will enable the Remaining Phoenix Entities to obtain such release and return upon the granting of such Consent and (ii) with respect to any AT Governmental Authorizations not requiring such a Consent, post a substitute bond or other collateral with respect thereto which will enable the Remaining Phoenix Entities to obtain such release and return upon approval of such substituted bond or other collateral.
          (c) At the Closing, the Buyer shall pay to the Sellers an amount equal to the Excluded Reclamations Obligations Value, or at the option of the Sellers some portion of that amount shall be paid by the Buyer to the Escrow Agent as a credit against and to satisfy that portion of the obligation of the Sellers to deposit the Escrow Deposit Amount with the Escrow Agent.
          (d) After the Closing, the Buyer shall deposit with the Escrow Agent in the escrow under the Escrow Agreement (i) 50% of the RFR Fee if and within ten (10) days after the Sellers have satisfied the RFR Surface Leasehold Condition and (ii) the other 50% of the RFR Fee if and within ten (10) days after the Sellers have satisfied the RFR Mineral Leasehold Condition.
          2.4 Allocation of Transaction Consideration
     The Transaction Consideration shall be allocated among the AT Assets in accordance with the values mutually agreed to by the Buyer and the Sellers in writing at or prior to the Closing.
          2.5 Working Capital Adjustment
          (a) Schedule 2.5(a) sets forth the consolidated balance sheet of the Phoenix Reorganization Entities as of June 30, 2009 reflecting the AT Assets and the AT Liabilities and prepared in accordance with GAAP (U.S.) (the “June 30 Balance Sheet”), and (ii) a written estimate of the Working Capital as of June 30, 2009 based on the June 30 Balance Sheet (the “June 30 Working Capital”).
          (b) At least five (5) business days prior to the Closing Date, the Sellers shall deliver to the Buyer (i) an estimated consolidated balance sheet of the Acquired Phoenix Entities immediately following the Closing prepared in accordance with GAAP (U.S.) (the “Estimated Closing Balance Sheet”), and (ii) a written estimate of the Working Capital immediately following the Closing based on the Estimated Closing Balance Sheet (the “Estimated Working Capital”). The Estimated Working Capital shall be determined in a manner consistent with the calculation of the June 30 Working Capital and in accordance with GAAP (U.S.). With respect to the Estimated Working Capital, the parties agree that:

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          (i) If the Estimated Working Capital is less than the Benchmark Working Capital, then at the Closing the Sellers shall pay to the Buyer the amount by which the Benchmark Working Capital exceeds the Estimated Working Capital, via certified check or wire transfer of immediately available funds.
          (ii) If the Estimated Working Capital is greater than the Benchmark Working Capital, then at the Closing the Buyer shall pay to the Sellers the amount by which the Estimated Working Capital exceeds the Benchmark Working Capital, via certified check or wire transfer of immediately available funds (any adjustment pursuant to subsection (i) or (ii) above being the “Estimated Working Capital Adjustment”).
          (c) Within ninety (90) days after the Closing Date, the Buyer shall prepare and deliver to the Sellers a statement (the “Actual Working Capital Statement”) of the Buyer’s determination of the actual Working Capital immediately following the Closing, provided that the accounts receivable included in the AT Current Assets shall for this purpose be limited to the accounts receivable included in the AT Current Assets which are received by the Buyer within the period of sixty (60) days after the Closing Date (the “Actual Working Capital”). The Actual Working Capital shall be determined in a manner consistent with the calculation of the Estimated Working Capital and in accordance with GAAP (U.S.). Following the determination of the Actual Working Capital under this Section 2.5(b), the parties hereby agree that:
          (i) If the Actual Working Capital is less than the Estimated Working Capital, then the Sellers shall pay to the Buyer the amount by which the Estimated Working Capital exceeds the Actual Working Capital; and
          (ii) If the Actual Working Capital is greater than the Estimated Working Capital, then the Buyer shall pay to the Sellers the amount by which the Actual Working Capital exceeds the Estimated Working Capital (any adjustment pursuant to subsection (i) or (ii) above being the “Final Working Capital Adjustment”).
          (d) The Sellers may, within fifteen (15) days after receiving notice of the Actual Working Capital Statement, deliver a notice to the Buyer objecting to the Final Working Capital Adjustment (the “Adjustment Objection”). The Adjustment Objection shall set forth the Buyer’s calculation of the Final Working Capital Adjustment and shall specify those items or amounts to which the Sellers disagree. The Sellers shall be deemed to have agreed with all other items and amounts contained in the Actual Working Capital Statement and the calculation of the Final Working Capital Adjustment. A failure on the part of the Sellers to provide timely notice shall be deemed an acceptance of the Final Working Capital Adjustment by the Sellers and the Buyer.
          (e) The parties shall resolve the Adjustment Objection (if any) in the following manner:
          (i) For a period of fifteen (15) days from the date of the Adjustment Objection (the “Negotiation Period”), the parties shall attempt to negotiate the amount of the Final Working Capital Adjustment in good faith.

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          (ii) If the Adjustment Objection is not resolved during the Negotiation Period, the Final Working Capital Adjustment shall be determined according to the following terms:
          (A) The Buyer and the Sellers shall attempt to agree upon a neutral and impartial certified public accounting firm to be retained as the accounting referee to resolve the Adjustment Objection (the “Accounting Referee”). If the Buyer and the Sellers are unable to agree upon the Accounting Referee within ten (10) days following the end of the Negotiation Period, then the Buyer, on the one hand, and the Sellers, on the other hand, shall submit in writing to each other a list of three names of neutral and impartial certified public accounting firms within twelve (12) days following the end of the Negotiation Period. The first name that matches on both lists shall be retained as the Accounting Referee. If there are no matches on the lists, the parties shall submit new lists of three names within one (1) business day, and this process shall continue until an Accounting Referee is selected.
          (B) The Buyer, on the one hand, and the Sellers, on the other hand, shall submit the Actual Working Capital Statement, the Adjustment Objection and the Buyer’s response to the Adjustment Objection to the Accounting Referee within five (5) days following the appointment of the Accounting Referee. In making the calculation of the Actual Working Capital, the Accounting Referee shall consider only those items or amounts in the Actual Working Capital Statement and the Buyer’s calculation of Actual Working Capital to which the Sellers have disagreed in the Adjustment Objection and the Buyer’s response to the Adjustment Objection.
          (C) The Accounting Referee shall deliver to the Buyer and the Sellers, as promptly as practicable (but in any case no later than thirty (30) days from the date of engagement of the Accounting Referee), a report setting forth the calculation of the Actual Working Capital. Such report shall be final and binding upon the Buyer and the Sellers and shall be used to calculate the Final Working Capital Adjustment.
          (D) The fees and costs of the Accounting Referee shall be borne equally by the Buyer and the Sellers.
          (f) The Sellers, on the one hand, or the Buyer, on the other hand, shall pay the Final Working Capital Adjustment to the Buyer or the Sellers, respectively, within ten (10) days of the final determination thereof by agreement or the calculation of the Accounting Referee. Unless otherwise agreed to by the parties, the Final Working Capital Adjustment shall be paid via certified check or wire transfer of immediately available funds.
          (g) Any accounts receivable included in the AT Current Assets which are not counted in the determination of the Actual Working Capital pursuant to Section 2.5(b) because they are not received within sixty (60) days after the Closing shall if and as collected by the Buyer (including the Acquired Phoenix Entities) be for the account of the Sellers and paid over to the Sellers within thirty (30) days after the end of the calendar month in which they are received.

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3. CLOSING
          3.1 Closing
     The closing of the Acquisition Transaction (the “Closing”) shall take place at the offices of Squire, Sanders & Dempsey L.L.P., 2000 Huntington Center, 41 South High Street, Columbus, Ohio 43215, at 10:00 a.m. or such other mutually agreed time on September 30, 2009 or such other mutually agreed date, or at such other place and time as the Sellers and the Buyer may mutually agree.
          3.2 Closing Deliveries
     At the Closing:
          (a) The Sellers shall deliver, or cause to be delivered, to the Buyer and the Escrow Agent, as applicable:
          (i) each of the PAAP Ancillary Documents, executed by a duly authorized officer of the Phoenix AA Parties;
          (ii) certificates, dated as of the Closing Date, executed by duly authorized officers of the Sellers certifying in such detail as the Buyer may reasonably request that the conditions specified in Article 9 have been satisfied;
          (iii) the opinions of one or more counsel for the Phoenix Entities, dated as of the Closing Date, in such form as is reasonably requested by the Buyer and its counsel;
          (iv) the Escrow Deposit Amount;
          (v) the payment (if any) payable by the Sellers to the Buyer with respect to the Estimated Working Capital Adjustment pursuant to Section 2.5(a);
          (vi) the resignations of the limited liability company managers and the officers of the Acquired Phoenix Entities; and
          (vii) such other duly executed documents and certificates as may be reasonably requested by the Buyer prior to or at the Closing.
          (b) The Buyer shall deliver, or cause to be delivered, to the Sellers:
          (i) each of the Buyer Ancillary Documents, duly executed by an authorized officer of the Buyer;
          (ii) a certificate, dated as of the Closing Date, executed by a duly authorized officer of the Buyer certifying in such detail as the Sellers may reasonably request that the conditions specified in Article 10 have been satisfied;

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          (iii) the opinions of one or more counsel for the Buyer, dated as of the Closing Date, in such form as is reasonably requested by the Sellers and their counsel;
          (iv) the payment payable by the Buyer to the Sellers (or to the Escrow Agent at the option of the Sellers pursuant to Section 2.3(c)) of the Excluded Reclamation Obligations Value;
          (v) the payment (if any) payable by the Buyer to the Sellers with respect to the Estimated Working Capital Adjustment pursuant to Section 2.5(a); and
          (vi) such other duly executed documents and certificates as may be reasonably requested by the Sellers prior to or at the Closing.
4. REPRESENTATIONS AND WARRANTIES OF SELLERS
     The Sellers jointly and severally represent and warrant to the Buyer as of the date hereof and as of the Closing (or solely as of the date hereof or as of the Closing where specifically stated so) as follows:
          4.1 Organization and Good Standing; Power
          (a) Each of the Sellers is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of the Sellers has full corporate power and authority to carry on its business, to own, lease or use the assets that it purports to own, lease or use in its business and to operate its properties in connection with its business. The Sellers have made available to the Buyer copies of the Organizational Documents of the Sellers.
          (b) Each of the Phoenix Reorganization Entities is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the state of its organization. Each of the Phoenix Reorganization Entities has full corporate or limited liability company (as applicable) power and authority to carry on its business, to own, lease or use the assets that it purports to own, lease or use in its business and to operate its properties in connection with its business, and to perform all of its obligations under each Contract to which it is a party. The jurisdictions in which the Phoenix Reorganization Entities are licensed, qualified or registered to do business as a foreign corporation or limited liability company (as applicable) are set forth on Schedule 4.1(b), and there are no other jurisdictions in which the nature of the business as now conducted by any of the Phoenix Reorganization Entities or the property owned or leased by any of the Phoenix Reorganization Entities makes such licensing, qualification or registration necessary, except where the failure to be so duly licensed, qualified or registered would not have a Material Adverse Effect. The Sellers have made available to the Buyer copies of the Organizational Documents of the Phoenix Reorganization Entities. Notwithstanding anything to the contrary set forth in this Section 4.1(b), PCC shall not be considered a Phoenix Reorganization Entity for purposes of this Section 4.1(b).

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          4.2 Authority; No Conflicts; Consents
          (a) Each of the Phoenix AA Parties has the requisite corporate or limited liability company (as applicable) power and authority to execute and deliver this Agreement and each of the PAAP Ancillary Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Acquisition Transaction. The execution, delivery and performance by each of the Phoenix AA Parties of this Agreement and the consummation by each of the Phoenix AA Parties of the Acquisition Transaction have been duly authorized by all requisite corporate or limited liability company (as applicable) action on its part, including the requisite approvals of its board of directors and shareholders (if necessary) in the case of each of the Sellers and its managers and members in the case of the Acquired Company. Each of the Phoenix AA Parties has duly executed and delivered this Agreement, and on the Closing Date will have duly executed and delivered each of the PAAP Ancillary Documents to which it is a party. This Agreement constitutes, and on the Closing Date each of the PAAP Ancillary Documents will constitute, the legal, valid and binding obligations of each of the Phoenix AA Parties a party thereto enforceable against each such Phoenix AA Party in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights and remedies generally and to general principles of equity.
          (b) Neither the execution and delivery of this Agreement nor the consummation or performance of the Acquisition Transaction will, directly or indirectly (with or without notice or lapse of time):
          (i) contravene, conflict with or result in a violation of (A) any provision of any of the Organizational Documents of any of the Phoenix Group Entities or (B) any resolution adopted by the board of directors, managers, shareholders or members of any of the Phoenix Group Entities;
          (ii) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Acquisition Transaction or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which any of the Phoenix Group Entities, or any of the assets owned or used by any of the Phoenix Group Entities, may be subject;
          (iii) subject to the approvals of Governmental Bodies provided for in Section 7.1, contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by any of the Phoenix Group Entities, or that otherwise relates to the business or any of the assets owned or used by any of the Phoenix Group Entities;
          (iv) except as set forth on Schedule 4.2(c), contravene, conflict with or result in a violation or Breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, accelerate the maturity or performance of, or cancel, terminate or modify, any of the AT Contracts; or

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          (v) result in the imposition or creation of any Encumbrance (except Permitted Encumbrances) upon or with respect to any of the assets of the business owned or used by any of the Phoenix Group Entities.
          (c) Subject to the approvals of Governmental Bodies provided for in Section 7.1, and except as set forth on Schedule 4.2(c), the Phoenix Group Entities are not and will not be required to give any notice to, or obtain any Consent from, any Person in connection with the execution and delivery of this Agreement or the consummation or performance of the Acquisition Transaction.
          4.3 Ownership
     Schedule 4.3-1 sets forth for each of the Phoenix Reorganization Entities, as of the date hereof: (a) the identity of its shareholders or members (as applicable) and (b) the shares or membership interests, respectively, held by each of its shareholders or members (as applicable). As of the date hereof, the Phoenix Reorganization Entities have no outstanding bonds, debentures, notes or other obligations, or any other equity or other securities other than the shares and membership interests set forth on Schedule 4.3-1. Schedule 4.3-2, which shall be completed by the Sellers and approved by the Buyer (which approval shall not be unreasonably withheld or delayed) prior to the Closing, sets forth for each of the Phoenix Reorganization Entities as of the Closing: (a) the identity of its shareholders or members (as applicable) and (b) the shares or membership interests, respectively, held by each of its shareholders or members (as applicable). As of the Closing, the Phoenix Reorganization Entities have no outstanding bonds, debentures, notes or other obligations, or any other equity or other securities other than the shares and membership interests set forth on Schedule 4.3-2. Notwithstanding anything to the contrary set forth in this Section 4.3, PCC shall not be considered a Phoenix Reorganization Entity for purposes of this Section 4.3. PCI owns 100% of the equity interests and other securities of PCC.
          4.4 Subsidiaries
     As of the Closing, none of the Acquired Phoenix Entities has any Subsidiaries (other than any other Acquired Phoenix Entities that are Subsidiaries) or otherwise any ownership interest in any other Person.
          4.5 Financial Statements
     Schedule 4.5 sets forth (a) the balance sheets, and the related statements of income, cash flow and changes in stockholders’ equity and notes thereto, of PCC and its Subsidiaries for the fiscal years ended December 31, 2006 and 2007 (the “2006 and 2007 Audited Financial Statements”) and PCI and its Subsidiaries for the fiscal year ended December 31, 2008, all of which are audited (the “Audited Financial Statements”), and (B) the balance sheet as of June 30, 2009, and the related statements of income, cash flow and changes in stockholders’ equity for the six months then ended, which are unaudited (the “Interim Financial Statements,” and collectively with the Audited Financial Statements, the “Financial Statements”). The Financial Statements have been prepared in accordance with GAAP (Canada) (except for the 2006 and 2007 Audited Financial Statements, which have been prepared in accordance with GAAP (U.S.)) and fairly present the financial condition and the results of operations, changes in stockholders’ equity, and

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cash flow of PCC and its Subsidiaries and PCI and its Subsidiaries, as applicable, as at the respective dates of and for the periods referred to in the Financial Statements, subject, in the case of the Interim Financial Statements, to normal year-end adjustments which, when taken together, shall not be material and are consistent with GAAP (Canada) or GAAP (U.S.), as applicable. Except for certain differences between GAAP (U.S.) and GAAP (Canada), the Financial Statements reflect the consistent application of accounting principles throughout the periods involved. No financial statements of any Person are required by GAAP (Canada) or GAAP (U.S.), as applicable, to be included in the Financial Statements that have not been included.
          4.6 Books and Records
     The books of account, minute books, stock record books and other records of the Phoenix Group Entities which have been made available to the Buyer are complete and correct in all material respects and have been maintained in accordance with sound business practices.
          4.7 Properties
          (a) As of the Closing, each of the Acquired Phoenix Entities will own (with good and marketable title in the case of owned real property, except for and subject to the Permitted Encumbrances) all of the owned properties and assets (whether real, personal or mixed and whether tangible or intangible) which are AT Assets. As of the Closing, all such owned properties and assets will be free and clear of any and all Encumbrances and will not, in the case of owned real property, be subject to any rights of way, building use restrictions, exceptions, variances, reservations or limitations of any nature, except, with respect to all such owned properties and assets, for the Permitted Encumbrances. All buildings, plants and structures owned or leased by the Acquired Phoenix Entities as of the Closing will be wholly within the boundaries of such real property owned or leased by the Acquired Phoenix Entities and will not encroach upon the property of, or otherwise conflict with the property rights of, any other Person.
          (b) The AT Fixed Assets include all tangible assets used by the Phoenix Group Entities at any time for the conduct of the Surface Mining Business.
          (c) The Acquired Phoenix Entities will not be a party to any capital or operating leases with respect to the AT Fixed Assets as of the Closing.
          (d) The AT Coal Leases and the AT Other Leases constitute all real property and water rights, and other interests in land, including coal and other mineral extraction rights (both underground and surface), easements, rights of way and options, and all rights of the Acquired Phoenix Entities to timber, limestone, natural gas (including coalbed methane and gob gas) and any other natural resources, which will as of the Closing be leased or subleased by the Acquired Phoenix Entities (the “Leased Real Property”). Notwithstanding anything to the contrary contained in this Agreement, nothing contained herein shall be deemed or construed to be a covenant for quiet enjoyment or a warranty of title whatsoever on the part of the Sellers relating to the Leased Real Property, either express or implied, and the Sellers expressly disclaim any express or implied representation or warranty as to title of the lessors of the Leased Real Property. The Sellers have heretofore made available to the Buyer true and complete copies of such leases and

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subleases. As of the Closing, with respect to each such lease or sublease and the Leased Real Property, and except for Permitted Encumbrances:
          (i) such lease or sublease is in full force and effect in all respects and enforceable in accordance with its terms with respect to the Phoenix Group Entity a party thereto;
          (ii) to the Knowledge of the Phoenix Group Entities, such lease or sublease is in full force and effect in all respects and enforceable in accordance with its terms with respect to the other party (or parties) to such lease or sublease;
          (iii) (A) none of the Acquired Phoenix Entities nor any of their predecessor Phoenix Group Entities (if any) were or are in default under any such lease or sublease, and subject to any notices or Consents set forth on Schedule 4.2(c) no event has occurred which, with the passage of time or expiration of any grace period, would constitute a default of the obligations of the Acquired Phoenix Entities or any of their predecessor Phoenix Group Entities (if any) under any such lease or sublease, (B) to the Knowledge of any of the Phoenix Group Entities, no other party to any such lease or sublease is in default thereunder, and (C) none of the Phoenix Group Entities has received a written or other notice of default or potential default with respect to any such lease or sublease;
          (iv) there are no unwritten or oral modifications to any such lease or sublease or any course of dealing or business operations that can be construed as a modification to any such lease or sublease;
          (v) no such lease or sublease has been mortgaged, deeded in trust or subjected to an Encumbrance;
          (vi) there are no other matters that materially adversely affect the rights of the Acquired Phoenix Entities to the Leased Real Property or the fixtures and improvements on the Leased Real Property, including all tipples, loadouts and other transportation and mineral processing facilities (the “Leased Fixtures and Improvements”); and
          (vii) except as set forth on Schedule 4.7(d)(vii), there are no existing Disputes between the Phoenix Group Entities, on the one hand, and any of the lessors or sublessors with respect to the Leased Real Property or any Person having rights under or with respect to any of the Leased Real Property, on the other hand. Also set forth on Schedule 4.7(d)(vii) is a listing of all advance and minimum royalties which have been paid by any of the Phoenix Group Entities with respect to the Leased Real Property, and which advance or minimum royalties may be recouped upon the mining of the Leased Real Property. All minimum royalties payable with respect to the Leased Real Property are payable in advance and recoupable in accordance with the terms of the applicable AT Coal Lease.
          (e) Schedule 4.7(e) sets forth all real property and water rights, and other interests in land, including coal and other mineral rights (both underground and surface), easements, rights of way and options, and all rights of any of the Acquired Phoenix Entities to timber, limestone, natural gas (including coalbed methane and gob gas) and any other natural resources, which will as

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of the Closing be owned by any of the Acquired Phoenix Entities (the “Owned Real Property”). All existing surveys, title insurance policies, title insurance abstracts and other evidence of title in the possession of the Phoenix Group Entities relating to any of the Owned Real Property have been heretofore made available to the Buyer. As of the Closing, with respect to each such parcel of the Owned Real Property and except for the Permitted Encumbrances and as otherwise set forth on Schedule 4.7(e):
          (i) the identified owner has good and marketable fee simple title to the parcel of the Owned Real Property and all fixtures and improvements on such Owned Real Property, including any tipple, riverdock, loadout and other transportation or mineral processing facilities (the “Owned Fixtures and Improvements”), free and clear of any Encumbrances;
          (ii) there are no pending or, to the Knowledge of any of the Phoenix Group Entities, Threatened, condemnation, eminent domain or requisition Proceedings; and
          (iii) there are no other matters that materially adversely affect the title of any of the Acquired Phoenix Entities to the Owned Real Property or the Owned Fixtures and Improvements.
          (f) Set forth on Schedule 4.7(f) is a true and complete list of all of the leases, subleases, assignments thereof and other instruments, agreements and arrangements pursuant to which any of the Acquired Phoenix Entities will as of the Closing lease, sublease or otherwise demise any property, whether surface, underground, mineral or any combination thereof, to any other Person (all such instruments, agreements and arrangements being hereinafter referred to as the “Out Leases”). True and complete copies of all of the Out Leases (including all amendments thereto and all instruments in any way modifying any thereof) have heretofore been delivered by the Sellers to the Buyer. All of the Out Leases are valid, in good standing and in full force and effect and enforceable in accordance with their terms. To the Knowledge of any of the Phoenix Group Entities, there are no existing defaults by any party under any of the Out Leases, and no event has occurred which, with notice or the passage of time or both, would constitute a default by any party under any of the Out Leases. There are no existing Disputes between any party and any other Person with respect to any of the Out Leases.
          (g) Except as set forth on Schedule 4.7(g), the Phoenix Group Entities have not received any written or other notice of Claims that any of the Phoenix Group Entities have mined any coal or other minerals or extracted any other natural resources that they did not have the right to mine or extract or mined any coal or other minerals or extracted any other natural resources in such reckless and imprudent fashion as to give rise to any Claims for loss, waste or trespass, and to the Knowledge of the Phoenix Group Entities no facts exist upon which such a Claim could be based. The Sellers have made available to the Buyer the most recent complete and correct version of each of the following items to the extent such items (i) are in the possession of any of the Phoenix Group Entities, (ii) relate to or affect the Real Property, including the coal or mineral reserves, coal or mineral ownership, mining or extraction conditions, mines, permits, licenses and mining or mineral extraction plans of the Phoenix Group Entities with respect thereto, and (iii) are material or relevant to the conduct of the Surface Mining Business: geological data, reserve data, existing mine maps, surveys, core hole logs and associated data, coal measurements, coal samples, lithologic data, coal and mineral reserve calculations (broken down in tons, by location and by

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current status of permitting) or reports, washability analyses or reports (including number of samples and sample sizes), mine plans, mining permit applications and supporting data, blasting and other permits, engineering studies and any and all other books and records, information, maps, reports and data in that regard; provided, however, that the Sellers make no representation or warranty as to the accuracy of such information except that to the Knowledge of the Phoenix Group Entities there is no material inaccuracy in such information.
          4.8 Condition and Sufficiency of Certain Assets
     Except as otherwise set forth on Schedule 4.8, all of the AT Fixed Assets and the AT Technology Assets are in good operating condition and repair, and are adequate for the uses for which they were designed and to which they are being put, and none of the equipment included in the AT Fixed Assets and the AT Technology Assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. Except for the Excluded Governmental Authorizations and except as otherwise set forth on Schedule 4.8, the AT Fixed Assets and the AT Technology Assets are sufficient for the continued conduct of the Surface Mining Business to be conducted by the Acquired Phoenix Entities after the Closing in substantially the same manner as conducted by the Phoenix Entities prior to the Closing.
          4.9 Liabilities
     All of the AT Fixed Assets Debt was incurred for the acquisition of the AT Fixed Assets. As of the Closing, all amounts due prior to the Closing with respect to the AT Liabilities will have been paid in full or be reflected in the Estimated Closing Balance Sheet, and, except for the AT Liabilities and the liabilities under this Agreement, the Acquired Phoenix Entities will not have any debts, obligations or other liabilities of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise).
          4.10 Taxes
          (a) Each of the Phoenix Group Entities has filed or caused to be filed on a timely basis all Tax Returns that are or were required to be filed by or with respect to it, either separately or as a member of a group of business entities, pursuant to applicable Legal Requirements. All such Tax Returns were true, correct and complete in all respects and were prepared in compliance with all applicable laws and regulations. Except as set forth on Schedule 4.10(a), none of the Phoenix Group Entities has requested or been (or is) the beneficiary of any extension of time within which to file any Tax Return the original due date of which precedes the Closing Date. Each of the Phoenix Group Entities has paid, or made provision for the payment of, all Taxes that have or may have become due pursuant to those Tax Returns (whether or not shown on any Tax Return) or otherwise, or pursuant to any assessment received by such entity, except such Taxes, if any, as are set forth on Schedule 4.10(a) as being contested in good faith and as to which adequate reserves (determined in accordance with GAAP (Canada) or GAAP (U.S.), as applicable) have been provided in the Interim Financial Statements.
          (b) Except as set forth on Schedule 4.10(b), no Claim has ever been made by an authority in a jurisdiction where any of the Phoenix Group Entities does not file Tax Returns that any such Phoenix Group Entity is or may be subject to taxation by that jurisdiction. There are no

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Encumbrances for Taxes (other than Taxes not yet due and payable) upon any of the assets of any of the Phoenix Group Entities.
          (c) Except as set forth on Schedule 4.10(c), none of the Phoenix Group Entities has Knowledge that any Governmental Body intends to assess any additional Taxes for any period for which Tax Returns have been filed. Except as set forth on Schedule 4.10(c), no foreign, federal, state or local tax audits or administrative or judicial Tax Proceedings are pending or being conducted with respect to any of the Phoenix Group Entities. Except as set forth on Schedule 4.10(c), none of the Phoenix Group Entities has received from any foreign, federal, state or local taxing authority or Governmental Body (including all jurisdictions where any of the Phoenix Group Entities has not filed Tax Returns (each a “Taxing Authority” and collectively the “Taxing Authorities”)) any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted or assessed by any Taxing Authority against any of the Phoenix Group Entities. Schedule 4.10(c) sets forth a complete and accurate list of the Tax Returns of the Phoenix Group Entities that, since December 31, 2006, have been audited, and indicates those Tax Returns that currently are the subject of audit, including a reasonably detailed description of the nature and outcome of each audit. All deficiencies proposed as a result of such audits have been paid, reserved against, settled, or, as set forth on Schedule 4.10(c), are being contested in good faith by appropriate proceedings. Schedule 4.10(c) sets forth all adjustments to the United States federal income Tax Returns filed by any of the Phoenix Group Entities for all taxable years since January 1, 2006, and the resulting deficiencies proposed by the IRS. Except as set forth on Schedule 4.10(c), none of the Phoenix Group Entities has been given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment of Taxes of such entity or for which such entity may be liable.
          (d) The charges, accruals, and reserves with respect to all Taxes on the respective books of each of the Phoenix Group Entities are adequate (determined in accordance with GAAP (Canada) or GAAP (U.S.), as applicable) and are at least equal to such Phoenix Group Entity’s liability for such Taxes. There exists no proposed tax assessment against any of the Phoenix Group Entities except as disclosed in the Interim Financial Statements or as set forth on Schedule 4.10(d). All Taxes that any of the Phoenix Group Entities is or was required by Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Body or other Person.
          (e) Except as set forth on Schedule 4.10(e), none of the Phoenix Group Entities is a party to, or bound by, any Tax allocation or Tax sharing agreements. Except as set forth on Schedule 4.10(e), none of the Phoenix Group Entities has any liability for Taxes of any Person under Section 1.1502-6 of the Regulations (or any similar provision of state, local or foreign law), as a transferee or successor, by Contract, or otherwise.
          (f) Except as set forth on Schedule 4.10(f), none of the Phoenix Group Entities will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in the method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the IRC (or any corresponding or similar

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provision of state, local or foreign income or other Tax law) executed on or prior to the Closing Date; (iii) inter-company transactions or any excess loss account described in Treasury Regulations under Section 1502 of the IRC (or any corresponding or similar provision of state, local or foreign income Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.
          (g) Except as set forth on Schedule 4.10(g), none of the Phoenix Group Entities is a party to any agreement, Contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of Section 280G of the IRC (or any corresponding provision of state, local or foreign Tax law) and (ii) any amount that will not be fully deductible as a result of Section 162(m) of the IRC (or any corresponding provision of state, local or foreign Tax law).
          (h) Each of the Phoenix Group Entities has collected all sales and use Taxes required to be collected, and has remitted or will remit on a timely basis such amounts to the appropriate Taxing authorities, or have been furnished properly completed exemption certificates. Each of the Phoenix Group Entities (i) has in its (or its Related Persons’) possession all material records and supporting documents required by all applicable sales and use Tax statutes and regulations regarding the collection and payment of sales and use Taxes required to be collected and paid over by such Phoenix Group Entity and regarding all exempt transactions by such Phoenix Group Entity for all periods open under the applicable statute of limitations, and (ii) has maintained all such records and supporting documents in material compliance with all sales and use Tax statutes and regulations applicable thereto.
          (i) None of the Phoenix Group Entities organized as a limited liability company has an election in effect to be treated as a corporation for federal or state income tax purposes.
          4.11 Inventory
     All of the AT Inventory consists of a quality and quantity usable and saleable in the Ordinary Course of Business.
          4.12 Coal Interests
     As of the Closing, the following shall be true with respect to certain coal interests of the Phoenix Group Entities:
          (a) the AT Coal Reserves shall constitute all of the coal reserves as to which the Phoenix Entities have any rights;
          (b) neither of the Excluded Subsidiaries shall have any interest in a lease or sublease that grants such Excluded Subsidiary the right to mine coal by surface mining methods only; and
          (c) except as provided in the second sentence of Section 4.7(d), the real property rights of the Acquired Phoenix Entities in and to the AT Coal Reserves shall be sufficient to enable

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the Acquired Phoenix Entities to mine on a surface mining basis all of the AT Coal Reserves without any need for the acquisition of additional real property rights.
          4.13 Absence of Certain Changes and Events
     Since December 31, 2008, the Phoenix Entities have conducted the Surface Mining Business only in the Ordinary Course of Business, there has not been any change therein having a Material Adverse Effect and no event has occurred or circumstance exists that may result in a change therein having a Material Adverse Effect.
          4.14 Contracts; Defaults
          (a) As of the Closing, and except for this Agreement, the PAAP Ancillary Documents and any other Contracts entered into in connection with the Pre-Closing Reorganization, the AT Contracts will constitute all of the Contracts of the Acquired Phoenix Entities, and the Sellers have made available to the Buyer true and complete copies of all of the AT Contracts.
          (b) Except as set forth on Schedule 4.14(b), to the Knowledge of the Phoenix Group Entities, no APE Employee is bound by any Contract that purports to limit the ability of such APE Employee to (i) engage in or continue any conduct, activity or practice relating to the Surface Mining Business or (ii) assign to the Phoenix Group Entities or to any other Person any rights to any invention, improvement or discovery.
          (c) Each of the AT Contracts (except for the AT Coal Leases which are addressed in Section 4.7(d), and the AT Governmental Authorizations which are addressed in Section 4.20(b)) is in full force and effect and is valid and enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights and remedies generally and to general principles of equity.
          (d) Except as set forth on Schedule 4.14(d):
          (i) the Phoenix Group Entities are, and (excluding AT Coal Sales Agreements and AT Governmental Authorizations) at all times have been, in compliance with all material terms and requirements of each AT Contract;
          (ii) to the Knowledge of any of the Phoenix Group Entities, each other Person that has or had any obligation or liability under any AT Contract is, and at all times has been, in compliance with all material terms and requirements of such AT Contract;
          (iii) subject to the approvals of Governmental Bodies provided for in Section 7.1, and except as set forth on Schedule 4.2(c), no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a violation or breach of, or give any of the Phoenix Group Entities or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any AT Contract; and

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          (iv) none of the Phoenix Group Entities has given to or received from any Person, at any time since December 31, 2008, any notice or other communication (whether oral or written) regarding any actual, alleged, possible or potential violation or breach of, or default under, any AT Contract.
          (e) There are no powers of attorney relating to the Surface Mining Business that are currently effective and outstanding.
          (f) There are no pending renegotiations of, attempts to renegotiate or outstanding rights to renegotiate any amounts paid or payable to the Phoenix Group Entities under any of the AT Contracts
          (g) with any Person and no such Person has made written demand for such renegotiation that remains outstanding or otherwise unresolved.
          (h) All AT Contracts have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement.
          4.15 Environmental, Health and Safety Matters
     Notwithstanding anything contained herein to the contrary, this Section 4.15 shall not apply to the Excluded Governmental Authorizations. Except as set forth on Schedule 4.15:
          (a) The Phoenix Group Entities are, and to the Knowledge of the Phoenix Group Entities since December 31, 2006 have been, in compliance with, and are not in violation of or liable under, any Environmental Law or Occupational Safety and Health Law. The Phoenix Group Entities do not have any basis to expect, nor have the Phoenix Group Entities or any other Person for whose conduct the Phoenix Group Entities are or may be held to be responsible received, any actual or Threatened Order, notice or other communication from (i) any Governmental Body or private citizen, or (ii) the current or prior owner or operator of any Facilities or conductor of any Mining Activities, relating to, or arising out of, or associated with, any actual or potential violation or failure to comply with any Environmental Law or Occupational Safety and Health Law, any actual or Threatened obligation to undertake or bear the cost of any Environmental, Health and Safety Liabilities with respect to any of the Facilities or the Mining Activities or any other properties or assets (whether real, personal or mixed) in which the Phoenix Group Entities have or have had an interest, any property or Facilities or Mining Activities at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, processed, stored, treated or disposed of by the Phoenix Group Entities, or any other Person for whose conduct the Phoenix Group Entities are, or may be, held responsible, or from or to which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled or received.
          (b) Except for the AT Reclamation Obligations and the Excluded Reclamation Obligations, there are no pending or, to the Knowledge of any of the Phoenix Group Entities Threatened, Claims, Encumbrances or other restrictions of any nature, relating to, resulting from or associated with any Environmental, Health and Safety Liabilities or arising under or pursuant to

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any Environmental Law or Occupational Safety and Health Law, with respect to or affecting any of the Facilities or any other properties and assets (whether real, personal or mixed) in which the Phoenix Group Entities have or had an interest.
          (c) Other than standard, routine objections made by private environmental groups such as the Sierra Club, the Phoenix Group Entities do not have any basis to expect, nor have the Phoenix Group Entities or any other Person for whose conduct the Phoenix Group Entities are or may be held responsible received, any citation, directive, inquiry, notice, Order, summons, warning or other communication that relates to Hazardous Activity, Hazardous Materials or any alleged, actual or potential violation or failure to comply with or any liability under any Environmental Law or Occupational Safety and Health Law, or of any alleged, actual or potential obligation to undertake or bear the cost of any Environmental, Health and Safety Liabilities with respect to any of the Facilities or any other properties or assets (whether real, personal or mixed) in which the Phoenix Group Entities have or have had an interest, or with respect to any property or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used or processed by the Phoenix Group Entities, or any other Person for whose conduct the Phoenix Group Entities are or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled or received.
          (d) Except for the AT Reclamation Obligations and the Excluded Reclamation Obligations, neither any of the Phoenix Group Entities, nor any other Person for whose conduct the Phoenix Group Entities are or may be held responsible, has any Environmental, Health and Safety Liabilities with respect to the Facilities or with respect to any other properties and assets (whether real, personal or mixed) in which the Phoenix Group Entities (or any predecessor) have or had an interest, or to the Knowledge of any of the Phoenix Group Entities at any property geologically or hydrologically adjoining the Facilities or any such other property or assets.
          (e) There are no Hazardous Materials present on or in the Environment at the Facilities or to the Knowledge of any of the Phoenix Group Entities at any geologically or hydrologically adjoining property, including any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land deposits, dumps, equipment (whether moveable or fixed) or other containers, either temporary or permanent, or deposited or located in land, water, sumps or any other part of the Facilities or such adjoining property, or incorporated into any structure therein or thereon, except for Hazardous Materials used in the Ordinary Course of Business in material compliance with Environmental Laws. None of the Phoenix Group Entities or any other Person for whose conduct the Phoenix Group Entities are or may be held responsible, or to the Knowledge of any of the Phoenix Group Entities any other Person, has permitted or conducted, or is aware of, any Hazardous Activity conducted with respect to the Facilities or any other properties or assets (whether real, personal or mixed) in which the Phoenix Group Entities have or had an interest, except for Hazardous Activities conducted in the Ordinary Course of Business in material compliance with Environmental Laws.
          (f) There has been no Release or, to the Knowledge of any of the Phoenix Group Entities Threatened Release, of any Hazardous Materials at or from the Facilities or to the Knowledge of any of the Phoenix Group Entities at any other locations where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used or processed from or by the Facilities, or from or by any other properties and assets (whether real,

35


 

personal or mixed) in which the Phoenix Group Entities have or had an interest, or to the Knowledge of any of the Phoenix Group Entities any geologically or hydrologically adjoining property, by the Phoenix Group Entities or to the Knowledge of any of the Phoenix Group Entities by any other Person.
          (g) The Phoenix Group Entities have made available to the Buyer true and complete copies and results of any reports, studies, analyses, tests or monitoring possessed by the Phoenix Group Entities (or its agents) pertaining to Releases of Hazardous Materials or Hazardous Activities in, on or under the Facilities, or concerning compliance by the Phoenix Group Entities, or to the Knowledge of any of the Phoenix Group Entities any other Person for whose conduct the Phoenix Group Entities are or may be held responsible, under or pursuant to any Environmental Laws or Occupational Safety and Health Laws.
          4.16 Intellectual Property
     There are no domestic or foreign patents, patent rights, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names or copyrights, or applications for such which are in the process of being prepared, owned by or registered in the name of the Phoenix Group Entities and used in the Surface Mining Business. No Claim is pending or to the Knowledge of any of the Phoenix Group Entities Threatened to the effect that the operations of the Phoenix Group Entities infringe upon, misappropriate or conflict with the rights of any other Person, and to the Knowledge of any of the Phoenix Group Entities there is no valid basis for any such Claim (whether or not pending or Threatened).
          4.17 Employees
          (a) Schedule 4.17(a) sets forth a complete and accurate list of the following information for each employee of the Phoenix Group Entities engaged in the Surface Mining Business as of the date of this Agreement (the “APE Employees"): name, job title or position, current employer, work location, current compensation, date of hire, vacation policy and bonus policy. Except as set forth on Schedule 4.17(a), there are no employment or severance agreements, plans or arrangements pursuant to which the Phoenix Group Entities are obligated to make any payment to any of the APE Employees or which change the status of any of the APE Employees to something other than an at-will employee.
          (b) Except as set forth on Schedule 4.17(b), to the Knowledge of the Phoenix Group Entities, no APE Employee is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition or proprietary rights agreement, between such APE Employee and any other Person that in any way adversely affects or will affect (i) the performance of his or her duties as an employee of the Acquired Phoenix Entities or (ii) the ability of the Acquired Phoenix Entities after the Closing to conduct the Surface Mining Business. To the Knowledge of any of the Phoenix Group Entities, none of the APE Employees has a present intention to terminate his or her employment with the Acquired Phoenix Entities.
          4.18 Labor Relations; Compliance

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     The Phoenix Group Entities have not been, and are not, a party to or negotiating any collective bargaining or other labor Contract for any of their employees, and the Phoenix Group Entities have not agreed to recognize any union or other collective bargaining representative for any of their employees. To the Knowledge of any of the Phoenix Group Entities, no union organizing campaign or representation petition is currently pending with respect to any of their employees. Since December 31, 2006, there has not been, and there is not presently pending or existing, and, to the Knowledge of any of the Phoenix Group Entities, there is not Threatened with respect to their employees, (a) any strike, slowdown, picketing, work stoppage or employee grievance, (b) any Proceeding against or affecting the Phoenix Group Entities relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission or any comparable Governmental Body, organizational activity or other labor or employment Dispute against or affecting the Phoenix Group Entities or any of their premises, and the Phoenix Group Entities are not subject to any settlement agreement, conciliation agreement, letter of commitment, deficiency letter or consent decree with any present or former employee or applicant for employment, labor union or other employee representative or any Governmental Body or arbitrator relating to any Proceedings or (c) any application for certification of a collective bargaining agent. To the Knowledge of the Phoenix Group Entities, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor Dispute with respect to the employees of the Phoenix Group Entities. There is no lockout of any employees of any of the Phoenix Group Entities by any of the Phoenix Group Entities, and no such action is contemplated by any of the Phoenix Group Entities. The Phoenix Group Entities have complied in all respects as pertains to their employees with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the withholding, payment or reporting of any federal, state or local income, social security and similar Taxes, occupational safety and health, and plant closing. The Phoenix Group Entities are not liable for the payment of any compensation, Damages, Taxes, fines, penalties or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements with respect to any employees of any of the Phoenix Group Entities. The Phoenix Group Entities are in compliance in all material respects with all of the Workers’ Compensation Laws relating to the employees of the Phoenix Group Entities. The Phoenix Group Entities have not received any withdrawal orders from the Mine Safety and Health Administration within the period of 90 days prior to the Closing under Section 104 of the Mine Safety and Health Act, 30 U.S.C. Sec. 814. All pending Claims against the Phoenix Group Entities with respect to the APE Employees under any Workers’ Compensation Laws are set forth on Schedule 4.18.
          4.19 Employee Benefits
     The following applies only with respect to employee benefits in which APE Employees participate:
          (a) Except as set forth on Schedule 4.19(a), none of the Phoenix Group Entities is, or has been, a Plan Sponsor or an ERISA Affiliate, nor do any of the Phoenix Group Entities or an ERISA Affiliate contribute to, or have contributed to, any Plan or Multi-Employer Plan, and none of the Phoenix Group Entities or an ERISA Affiliate has, or has had, any Other Benefit Obligation

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or a Company VEBA or liability under the Coal Act. Copies of Plan documents, summaries, insurance policies, service provider contracts, and, if applicable, the two most recent Form 5500 filings, for the Plans set forth on Schedule 4.19(a), written information regarding the Other Benefit Obligations set forth on Schedule 4.19(a), and payroll and employment manuals and policies of the Phoenix Group Entities have been made available to the Buyer. Except as set forth on Schedule 4.19(a), the consummation of the Acquisition Transaction will not result in the payment, vesting or acceleration of any benefit or right under any Plan or Other Benefit Obligations (except potential accelerated vesting of stock options under PCI’s stock option plan).
          (b) Each of the Phoenix Group Entities has performed its obligations under the Plans and has made appropriate entries in its financial records and statements for liabilities under the Plans that have accrued but are not due. Except as set forth on Schedule 4.19(b), contributions and payments made or accrued with respect to the Plans are deductible under IRC Sections 162 or 404. No amount, or any asset of any Plan, is subject to Tax as unrelated business taxable income.
          (c) Each Pension Plan and any related trust agreement or annuity contract (or any funding instrument) complies currently, and has complied in the past, with the provisions of ERISA and the IRC, where required in order to be a qualified plan under IRC Section 401(a) and tax exempt under IRC Section 501, and no event has occurred or circumstance exists that will or could give rise to disqualification or loss of tax exempt status of any such Pension Plan or trust.
          (d) None of the Phoenix Group Entities, nor any Person who is a fiduciary or otherwise has a relationship to a Plan, has any liability to the IRS or the Pension Benefit Guaranty Corporation with respect to a Plan, or any liability under ERISA Sections 502 or 4071.
          (e) Except as set forth on Schedule 4.19(e), filings required by ERISA and the IRC as to each Plan have been timely filed, and notices and disclosures to participants required by either ERISA or the IRC have been timely provided.
          (f) Other than routine claims for benefits submitted by participants or beneficiaries in the ordinary course, no claim against or Proceeding involving any Plan is pending or, to the Knowledge of any of the Phoenix Group Entities, is Threatened.
          (g) No payment that is owed or may become due to any director, officer, employee or agent of any of the Phoenix Group Entities will be non-deductible to the Phoenix Group Entities or subject to tax under IRC Sections 280G or 4999, nor shall any of the Phoenix Group Entities be required to “gross-up” or otherwise compensate any such Person because of the imposition of any excise Tax on a payment to such Person, except as set forth on Schedule 4.19(g).
          (h) Each Group Health Plan maintained by any of the Phoenix Group Entities has been administered in material compliance with the continuation coverage and notice requirements of ERISA Section 601 et seq. and IRC Section 4980B.
          4.20 Compliance with Legal Requirements; Governmental Authorizations

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          (a) This Section 4.20 shall not apply to the extent such matters are addressed in Section 4.10 (Taxes), 4.15 (Environmental, Health and Safety Matters), 4.18 (Labor Relations: Compliance), 4.19 (Employee Benefits) or 4.21 (Legal Proceedings; Orders). Except as set forth on Schedule 4.20(a), with respect to the Surface Mining Business:
          (i) the Phoenix Group Entities are, and since December 31, 2006 have been, in compliance with each Legal Requirement that is applicable to them or to their conduct or operation or the ownership or use of any of their assets;
          (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation by any of the Phoenix Group Entities of, or a failure on the part of any of the Phoenix Group Entities to comply with, any Legal Requirement, or (B) may give rise to any obligation on the part of any of the Phoenix Group Entities to undertake, or to bear all or any portion of the cost of, any remedial action of any nature;
          (iii) none of the Phoenix Group Entities has received, at any time since December 31, 2006, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible or potential violation of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged, possible or potential obligation on the part of any of the Phoenix Group Entities to undertake, or to bear all or any portion of the cost of, any remedial action of any nature;
          (iv) the Phoenix Group Entities are, and since December 31, 2006 have been, in compliance in all respects with all of the terms and requirements of each Governmental Authorization set forth on Schedule 4.20(b) and applicable to any of the Phoenix Group Entities; without limiting the foregoing, the Phoenix Group Entities are current in the commencement, conduct, completion and maintenance of all reclamation necessitated by their Mining Activities and are in compliance with their mining plans for so doing, including all mining plans submitted to the Commonwealth of Kentucky and OSMRE to obtain the Mining Authorizations, including those set forth on
Schedule 4.20(d), and with all applicable Legal Requirements; and the Phoenix Group Entities are in compliance with all of the requirements of SMCRA, the Federal Mine Safety and Health Act of 1977, as amended, all similar statutes of the Commonwealth of Kentucky, and all rules and regulations promulgated under said laws and any other Legal Requirements imposed by OSMRE, MSHA, the Commonwealth of Kentucky and any other Governmental Body or other Person;
          (v) subject to the approvals of Governmental Bodies provided for in Section 7.1, no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization set forth on Schedule 4.20(b), or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Governmental Authorization set forth on
Schedule 4.20(b);
          (vi) none of the Phoenix Group Entities has received, at any time since December 31, 2006, any notice or other communication (whether oral or written) from any Governmental

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Body or any other Person regarding (A) any actual, alleged, possible or potential violation of or failure to comply with any term or requirement of any Governmental Authorization or other Legal Requirement, or (B) any actual or alleged revocation, withdrawal, suspension, cancellation, termination of or modification to any Governmental Authorization, which remains outstanding and under protest, uncured or otherwise unresolved; all plans for corrective action, consent decrees, agreed orders, settlement agreements, long term remediation plans, fines, penalties and similar charges imposed on or assessed against any of the Phoenix Group Entities or contract miners engaged by any of the Phoenix Group Entities by the Commonwealth of Kentucky, OSMRE, MSHA or any other Governmental Body have been either fully resolved or paid in full, excepting only those payable or requiring future reclamation with respect to citations, notices of non-compliance and notices of violation which are set forth on Schedule 4.20(a) and designated as still outstanding and unresolved, none of which shall have a Material Adverse Effect; and none of the Phoenix Group Entities is subject to or under any cessation orders or cease and desist orders issued by the Commonwealth of Kentucky, OSMRE or MSHA or any other Governmental Body; and
          (vii) none of the matters set forth on Schedule 4.20(a) are reasonably likely to have a Material Adverse Effect.
          (b) Schedule 4.20(b) sets forth a complete and accurate list of each Governmental Authorization (including all permits and Mining Authorizations) that is held by any of the Phoenix Group Entities that relates to the Surface Mining Business or otherwise to any of the assets owned or used by any of the Phoenix Group Entities in the Surface Mining Business, and further the following shall apply with respect thereto:
          (i) each Governmental Authorization set forth on Schedule 4.20(b) is valid and in full force and effect;
          (ii) all applications required to have been filed for the timely renewal of the Governmental Authorizations set forth on
Schedule 4.20(b) have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies; and
          (iii) the Governmental Authorizations set forth on Schedule 4.20(b) collectively constitute all of the Governmental Authorizations necessary to permit the Phoenix Group Entities to lawfully conduct and operate the Surface Mining Business in the manner the Phoenix Group Entities currently conduct and operate the Surface Mining Business and to permit the Phoenix Group Entities to own and use the assets of the Surface Mining Business in the manner in which they currently own and use such assets.
          (c) subject to the approvals of Governmental Bodies provided for in Section 7.1, the execution, delivery and performance by the Phoenix AA Parties of this Agreement and any of the other documents referred to herein to which the Phoenix AA Parties are a party and consummation of the Acquisition Transaction (i) will require no action by or in respect of, or any Consent from, any Governmental Body, (ii) will not give any Governmental Body the right to challenge any portion of the Acquisition Transaction or exercise any remedy or obtain any relief under any Legal

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Requirement to which any of the Phoenix Group Entities are subject and (iii) will not contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel or terminate, any Governmental Authorization that is held by any of the Phoenix Group Entities and which relates to the Surface Mining Business.
          (d) With respect to Mining Authorizations, there are no applications for Mining Authorizations in the name of any of the Phoenix Group Entities other than those set forth on Schedule 4.20(d) (the “Mining Applications"); the Phoenix Group Entities would, on grant of any such Mining Applications, hold legal and beneficial title to the entire interest in each of such Mining Applications; except as set forth on Schedule 4.20(d), each of the Mining Applications has been made in accordance and compliance with all applicable Legal Requirements; and the Phoenix Group Entities have not received any written or other communication that indicates that any of the Mining Applications will not be granted, provided that Sellers make no representation or warranty regarding the expected approval date of any such Mining Applications or whether any such Mining Applications will ever be approved.
          (e) The Phoenix Group Entities have, in connection with the Surface Mining Business, posted all deposits, letters of credit, guarantees, indemnities, trust funds, bid bonds, performance bonds, reclamation bonds and surety bonds (and all such similar undertakings) required to be posted in connection with its operations, including those necessary to secure the performance of the reclamation or other obligations of the Phoenix Group Entities pursuant to, in connection with or as a condition of the Governmental Authorizations (collectively, the “Company Surety Bonds”). Except as set forth on Schedule 4.20(e), the Company Surety Bonds are in amounts, and are in all other respects, sufficient for their purpose and are in full force and effect and no facts exist that could require the Phoenix Group Entities to increase the amounts of the Company Surety Bonds. All of the Company Surety Bonds are listed on a list set forth on Schedule 4.20(e), and such list includes all obligees, beneficiaries, amounts and effective dates and the purpose of each such Company Surety Bond, including the permit number to which it relates. Except as set forth on Schedule 4.20(e): (i) the Phoenix Group Entities are in compliance with all of the Company Surety Bonds applicable to them; and (ii) the operation of the Mining Activities of the Phoenix Group Entities and processing operations and the state of reclamation with respect to the Company Surety Bonds and the Governmental Authorizations are “current” or in “deferred status” regarding reclamation obligations and otherwise and are otherwise in material compliance with all applicable mining, reclamation and analogous Legal Requirements.
          (f) Neither any of the Phoenix Group Entities nor any Person “owned or controlled” by any of the Phoenix Group Entities, or any Person that “owns or controls” any of the Phoenix Group Entities or any Related Person of any of the Phoenix Group Entities, has been notified in writing or otherwise by OSMRE or the agency of any state administering the SMCRA or any comparable state statute that it is: (i) ineligible to receive additional surface mining permits or any other Mining Authorizations or Governmental Authorizations (i.e., “permit blocked” under OSMRE’s Applicant Violator System (AVS)); or (ii) is under investigation to determine whether its eligibility to receive or maintain any such Governmental Authorizations should be revoked. No facts exist that presently or upon the giving of notice or the lapse of time or otherwise would render any of the Phoenix Group Entities ineligible to receive surface mining permits or any other

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potential Mining Authorizations or Governmental Authorizations. As used herein, the terms “owned or controlled” and “owns or controls” shall be defined as set forth in 30 C.F.R. Section 701.5.
          4.21 Legal Proceedings; Orders
          (a) Except as set forth on Schedule 4.21(a), there is no pending Proceeding:
          (i) that has been commenced by or against any of the Phoenix Group Entities with respect to the Surface Mining Business or that otherwise relates to or may affect the Surface Mining Business or any of the assets owned or used by any of the Phoenix Group Entities in the Surface Mining Business;
          (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, this Agreement and/or the Acquisition Transaction; or
          (iii) that is related to any of the Mining Authorizations.
          (b) To the Knowledge of any of the Phoenix Group Entities, except as set forth on Schedule 4.21(a), (i) no such Proceeding has been Threatened and (ii) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. The Sellers have made available to the Buyer copies of all pleadings, correspondence and other documents relating to each Proceeding set forth on Schedule 4.21(a). The Proceedings set forth on Schedule 4.21(a) will not have a Material Adverse Effect.
          (c) Except as set forth on Schedule 4.21(c):
          (i) there is no Order with respect to the Surface Mining Business to which any of the Phoenix Group Entities, or any of the assets owned or used by any of the Phoenix Group Entities with respect to the Surface Mining Business, is subject or in respect of any of the Mining Authorizations or Governmental Authorizations; and
          (ii) no Person is subject to any Order that prohibits such Person from engaging in or continuing any conduct, activity or practice relating to the Surface Mining Business.
          (d) Except as set forth on Schedule 4.21(d):
          (i) the Phoenix Group Entities are, and since December 31, 2006 have been, in full compliance with all of the terms and requirements of each Order with respect to the Surface Mining Business to which they, or any of the assets owned or used by them in the Surface Mining Business, are or have been subject;
          (ii) no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order with respect to the Surface Mining Business to which any of the Phoenix Group Entities, or any of the assets owned or used by any of the Phoenix Group Entities in the Surface Mining Business, is subject; and

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          (iii) none of the Phoenix Group Entities has received any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible or potential violation of, or failure to comply with, any term or requirement of any Order with respect to the Surface Mining Business to which any of the Phoenix Group Entities or any other Person, or any of the assets owned or used by any of the Phoenix Group Entities in the Surface Mining Business, is or has been subject.
          (e) Except as set forth on Schedule 4.21(e), to the Knowledge of any of the Phoenix Group Entities, there are no existing Claims by Persons owning, controlling or occupying lands or realty adjoining or near any of the Owned Real Property or the Leased Real Property and/or the AT Coal Reserves regarding, with respect thereto, adverse possession, the location of boundary lines, encroachments, mineral rights, subsidence, water quality or quantity, flood damage, blasting damage, trespass, waste, transportation of coal or other materials, nuisances or any other similar matter.
          4.22 Insurance
          (a) Schedule 4.22(a) sets forth the policies of insurance to which any of the Phoenix Group Entities is a party or under which any of the Phoenix Group Entities, or any director, manager or officer of any of the Phoenix Group Entities, is covered and which are in force for the current policy year. The Sellers have made available to the Buyer:
          (i) true and complete copies of all policies of insurance to which any of the Phoenix Group Entities is a party or under which any of the Phoenix Group Entities, or any director, manager or officer of any of the Phoenix Group Entities, is or has been covered at any time within the three (3) policy years preceding the date of this Agreement;
          (ii) true and complete copies of all pending applications for policies of insurance; and
          (iii) any statement by the accountant for the Phoenix Group Entities with regard to the adequacy of the insurance coverage of any of the Phoenix Group Entities or of the reserves for claims.
          (b) Schedule 4.22(b) sets forth:
          (i) any self-insurance arrangement by or affecting any of the Phoenix Group Entities, including any reserves established thereunder; and
          (ii) any Contract or other arrangement with respect to the Surface Mining Business, other than a policy of insurance, for the transfer or sharing of any risk by any of the Phoenix Group Entities.
          (c) Schedule 4.22(c) sets forth, by year, for the current policy year and the preceding two (2) policy years, a summary of the loss experience under each policy.
          (d) Except as set forth on Schedule 4.22(d):

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          (i) all policies to which any of the Phoenix Group Entities is a party or that provide coverage to any of the Phoenix Group Entities, or any director, manager or officer of any of the Phoenix Group Entities:
  (A)   are valid, outstanding and enforceable;
 
  (B)   to the Knowledge of any of the Phoenix Group Entities, are issued by an insurer that is financially sound and reputable;
 
  (C)   are sufficient for compliance with all Legal Requirements and Contracts to which any of the Phoenix Group Entities is a party or by which any of the Phoenix Group Entities is bound; and
 
  (D)   do not provide for any retrospective premium adjustment or other experienced-based or tail liability on the part of any of the Phoenix Group Entities or any director thereof;
          (ii) none of the Phoenix Group Entities has received (A) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (B) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any insurance policy is not willing or able to perform its obligations thereunder;
          (iii) the Phoenix Group Entities have paid, or caused to be paid, all premiums due, and have otherwise performed all of their obligations, under each insurance policy to which any of the Phoenix Group Entities is a party or that provides coverage to any of the Phoenix Group Entities; and
          (iv) to the Knowledge of any of the Phoenix Group Entities, the Phoenix Group Entities have given notice to the appropriate insurer of all Claims that may be insured by such insurer.
          4.23 Solvency
     None of the Phoenix Group Entities has stopped or suspended payment of its debts, become unable to pay its debts as they become due or otherwise become insolvent in any jurisdiction. None of the Phoenix Group Entities is the subject of any pending, rendered or Threatened insolvency proceedings of any character. None of the Phoenix Group Entities has made an assignment for the benefit of creditors or taken any action with a view to or that could constitute a valid basis for the institution of any such insolvency proceedings.
          4.24 Relationships with Related Persons
     Except as set forth on Schedule 4.24, no officer, director, manager, shareholder (except shareholders of PCI), member or Related Person of any of the Acquired Phoenix Entities has any interest in any property (whether real, personal or mixed, and whether tangible or intangible), used in or pertaining to the Surface Mining Business conducted by the Phoenix Entities. Except as set forth on Schedule 4.24, no executive officer, director, manager, shareholder (except shareholders of

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PCI), member or Related Person of any of the Acquired Phoenix Entities owns (of record or as a beneficial owner) an equity interest or any other financial or profit interest in a Person that (a) has business dealings or a material financial interest in any transaction with any of the Acquired Phoenix Entities relating to the Surface Mining Business or (b) engages in competition with any of the Acquired Phoenix Entities with respect to the Surface Mining Business. Except as set forth on Schedule 4.24, no executive officer, director, manager, shareholder (except shareholders of PCI), member or Related Person of any of the Acquired Phoenix Entities is a party to any AT Contract, or has any Claim or right against any of the Acquired Phoenix Entities. Except as set forth on Schedule 4.24, no officer, director, manager, shareholder, member or Related Person of any of the Acquired Phoenix Entities provides in any other capacity any services to any of the Acquired Phoenix Entities.
          4.25 No Brokers or Finders
     Except for Cormark, neither any of the Phoenix Group Entities nor any of their Representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement or any of the other documents referred to herein or otherwise with respect to the Acquisition Transaction. The Sellers are solely responsible for any fees or commissions owed to Cormark for brokerage or finders’ fees or for agents’ commissions or other similar payment in connection with this Agreement or any of the other documents referred to herein or otherwise with respect to the Acquisition Transaction, and the Buyer will not incur any liability to Cormack for brokerage or finders’ fees or for agents’ commissions or other similar payment in connection with this Agreement or any of the other documents referred to herein or otherwise with respect to the Acquisition Transaction.
          4.26 Certain Payments; Grants and Allowances
     None of the Acquired Phoenix Entities, any of the Representatives of the Acquired Phoenix Entities, or any other Person associated with or acting for or on behalf of any of the Acquired Phoenix Entities has directly or indirectly, with respect to or on behalf of the Surface Mining Business, (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of any of the Acquired Phoenix Entities or any Related Person of any of the Acquired Phoenix Entities, or (iv) in violation of any Legal Requirement, or (b) established or maintained any fund or asset that has not been recorded in the books and records of the Acquired Phoenix Entities. None of the Acquired Phoenix Entities has received with respect to the Surface Mining Business any grant, allowance, aid or subsidy from any Governmental Body during the last three (3) years including any such payments which are currently due and owing as a result of any act or failure to act by any of the Acquired Phoenix Entities or which would become due and owing as a result of the consummation of the Acquisition Transaction.

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          4.27 Customers and Suppliers
     Set forth on Schedule 4.27 is a list of the top five (5) customers of the Surface Mining Business (determined on the basis of revenues) for each of the last three (3) completed fiscal years. Except as set forth on Schedule 4.27 and Schedule 4.14(d), since December 31, 2006, there has not been (a) any adverse change to any of the Acquired Phoenix Entities in its business relationship with any of its customers (including the customers set forth on Schedule 4.27) or suppliers, or (b) any adverse change to any of the Acquired Phoenix Entities in any term (including credit terms) of the agreements or other arrangements with any such customers or suppliers, in each case other than in the Ordinary Course of Business. Except as set forth on Schedule 4.27, since December 31, 2006, none of the Acquired Phoenix Entities has received any customer complaints relating to the Surface Mining Business, nor has any of the Acquired Phoenix Entities had any of its coal deliveries returned or rejected by a purchaser thereof, other than complaints in the Ordinary Course of Business which have not, and are not likely to have, individually or in the aggregate, an adverse effect on the relationship of any of the Acquired Phoenix Entities with any customer of the Surface Mining Business. Except as set forth on Schedule 4.27, to the Knowledge of any of the Acquired Phoenix Entities, none of the customers of, or suppliers to, the Surface Mining Business has a current intention to suspend deliveries or to cancel, terminate or otherwise modify their relationship with any of the Acquired Phoenix Entities.
          4.28 Disclosure
          (a) No representation or warranty or other statement made by the Sellers in this Agreement, the Schedules, the certificates and other documents delivered pursuant to this Agreement or otherwise in connection with the Acquisition Transaction contains an untrue statement or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading.
          (b) To the Knowledge of any of the Acquired Phoenix Entities, there is no fact that has specific application to any of the Acquired Phoenix Entities (other than general economic or industry conditions) and that materially adversely affects or, as far as any of the Acquired Phoenix Entities can reasonably foresee, materially Threatens, the assets, business, prospects, financial condition or results of operations of the Acquired Phoenix Entities relating to the Surface Mining Business that has not been set forth in this Agreement or the Schedules.
          4.29 Scope of Representations, Warranties and Covenants
     EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT AND THE PAAP ANCILLARY DOCUMENTS, THE SELLERS ARE NOT MAKING ANY REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OF ANY NATURE WHATSOEVER WITH RESPECT TO THE AT ASSETS, THE AT LIABILITIES, THE SURFACE MINING BUSINESS OR THE PHOENIX GROUP ENTITIES. THE SELLERS DO NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING THE FUTURE OPERATIONS, PROJECTIONS OF ANY NATURE, FINANCIAL REQUIREMENTS OR

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PERFORMANCE OF THE SURFACE MINING BUSINESS OR THE ACQUIRED PHOENIX ENTITIES.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
     The Buyer represents and warrants to the Sellers as of the date hereof and as of the Closing as follows:
          5.1 Organization and Good Standing
     The Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Ohio. The Buyer has full limited liability company power and authority to carry on its business, to own, lease or use the assets that it purports to own, lease or use in its business and to operate its properties in connection with its business.
          5.2 Authority; No Conflicts
          (a) The Buyer has the requisite power and authority to execute and deliver this Agreement and each of the Buyer Ancillary Documents, to perform its obligations hereunder and thereunder, and to consummate the Acquisition Transaction. The execution, delivery and performance by the Buyer of this Agreement and the consummation of the Acquisition Transaction have been duly authorized by all requisite action on the part of the Buyer. The Buyer has duly executed and delivered this Agreement, and on the Closing Date will have duly executed and delivered each of the Buyer Ancillary Documents. This Agreement constitutes, and on the Closing Date each of the Buyer Ancillary Documents will constitute, the legal, valid and binding obligations of the Buyer enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights and remedies generally and to general principles of equity.
          (b) The execution, delivery and performance by the Buyer of this Agreement and the Buyer Ancillary Documents, and the consummation of the Acquisition Transaction, do not and will not in any material respects (with or without the giving of notice, the lapse of time or both): conflict with, contravene, result in a violation or breach of, result in a default under, give rise to a right of acceleration, amendment, cancellation, modification, termination or vesting under, result in a decreased right of the Buyer or obligation of any other Person under, or result in an increased or additional obligation of the Buyer or right of any other Person under, (a) any applicable Legal Requirement, (b) the Organizational Documents of the Buyer or (c) any Contract to which the Buyer is a party or by which the Buyer or any of its material properties or assets may be bound or affected.
          5.3 Certain Proceedings
     There is no pending Proceeding that has been commenced against the Buyer and that challenges, or may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Acquisition Transaction. To the Buyer’s Knowledge, no such Proceeding has been Threatened.

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          5.4 No Brokers or Finders
     The Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement or the Acquisition Transaction.
          5.5 Scope of Representations, Warranties and Covenants
     EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT AND THE BUYER ANCILLARY DOCUMENTS, THE BUYER IS NOT MAKING ANY REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND, EXPRESS, IMPLIED, OR STATUTORY.
6. COVENANTS OF SELLERS
     6.1 Operation of Business
     From the date hereof to the Closing (or the earlier termination of this Agreement in accordance with Section 11.1), except as expressly permitted or required by this Agreement or as otherwise consented to by the Buyer in writing, the Sellers agree to use their best efforts to (a) carry on the Surface Mining Business in the ordinary course, in substantially the same manner as heretofore conducted, and to preserve intact in all material respects the present business organization of the Phoenix Entities with respect to the Surface Mining Business, maintain the properties and assets of the Phoenix Entities with respect to the Surface Mining Business in good operating condition and repair, keep available the services of the present officers and significant employees of the Phoenix Entities with respect to the Surface Mining Business, and preserve the relationship with customers, suppliers and others having business dealings with the Phoenix Entities with respect to the Surface Mining Business, and (b) not take any action or omit to take any action, which action or omission would result in a breach of any of the representations and warranties of the Sellers set forth herein that would entitle the Buyer to terminate this Agreement under Section 11.1. Without limiting the generality of the foregoing, except (x) as set forth in Schedule 6.1 and (y) as may be reasonably required to satisfy the conditions set forth in Article 9, the Phoenix Entities shall not, without the written consent of the Buyer (which consent shall not be unreasonably withheld, delayed or conditioned):
          (i) sell, assign, license, lease, or otherwise dispose of any of the AT Assets which are material, individually or in the aggregate, to the Surface Mining Business, except in the Ordinary Course of Business;
          (ii) mortgage, pledge or otherwise encumber or subject to an Encumbrance (other than a Permitted Encumbrance) any of the AT Assets;
          (iii) accelerate the delivery or sale of products or services of the Surface Mining Business, or offer discounts or price protection on the sale of products or services of the Surface Mining Business or premiums thereon, except in the Ordinary Course of Business consistent with past practice;

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          (iv) make any material changes in the selling, distribution, advertising, promotion, terms of sale or collection, purchase or payment practices of the Phoenix Entities with respect to the Surface Mining Business other than in the Ordinary Course of Business;
          (v) purchase, order or otherwise acquire inventory with respect to the Surface Mining Business in excess of reasonably forecasted requirements in the Ordinary Course of Business;
          (vi) increase or add any salary, bonuses or other compensation, or adopt, amend, suspend, or terminate any benefit plan (including a Company Benefit Plan), in any manner that could reasonably be expected to increase the costs, liabilities, or obligations with respect to the APE Employees;
          (vii) enter into, amend or terminate any agreement containing covenants that in any way purport to restrict the business activity of the Phoenix Entities with respect to the Surface Mining Business or limit the freedom of the Acquired Phoenix Entities to engage in any line of business or compete with any Person; or
          (viii) enter into a written agreement to do any of the foregoing.
     6.2 Access and Investigation
     Between the date of this Agreement and the Closing Date (or the earlier termination of this Agreement in accordance with Section 11.1), the Sellers shall (a) afford the Buyer, and its Representatives and lenders and their Representatives (collectively, the “Buyer’s Advisors”), reasonable access, during normal business hours and upon reasonable prior notice, to the personnel, properties, contracts, books and records, and other documents and data of the Phoenix Entities, and (b) furnish the Buyer and the Buyer’s Advisors with such additional financial, operating and other data and information as the Buyer may reasonably request; provided, however, that such investigation shall be conducted in a manner so as to minimize any unreasonable disruptions to the operations of the businesses of the Phoenix Entities. All information disclosed pursuant to this Section 6.2 shall be subject to the Confidentiality Agreement, effective May 12, 2009, between PCI and the Buyer (the “Confidentiality Agreement”).
     6.3 No Negotiation
     Between the date of this Agreement and the Closing, or until such time, if any, as this Agreement is terminated pursuant to Section 11.1, none of the Phoenix Group Entities shall directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than the Buyer) relating to any transaction (a) involving the sale of the Surface Mining Business of the Phoenix Entities or any of the assets thereof including the AT Assets (other than in the Ordinary Course of Business) or (b) in which there would be any merger, consolidation, business combination, or similar transaction involving any of the Phoenix Reorganization Entities.

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     Notwithstanding the foregoing, the Sellers may, in response to an Acquisition Proposal that reasonably is expected to result in a Superior Proposal, (a) furnish non-public information with respect to the Phoenix Group Entities and the Surface Mining Business to the Person who made such Acquisition Proposal pursuant to a confidentiality agreement on terms no more favorable to such Person than the Confidentiality Agreement, (b) participate in discussions or negotiations with such Person regarding such Acquisition Proposal, and (c) enter into a definitive agreement with respect to such Acquisition Proposal, if and so long as PCI’s Board of Directors determines in good faith that such action is required in order for the Board of Directors to comply with its fiduciary duties under applicable law.
     The Sellers shall promptly notify the Buyer orally (within two (2) days) and in writing (within four (4) days) of any Acquisition Proposal, including the identity of the Person making such Acquisition Proposal. The Sellers shall keep the Buyer informed of any developments with respect to any such Acquisition Proposal immediately upon the occurrence thereof. The Sellers shall also continue to negotiate in good faith with the Buyer to facilitate a potential counterproposal to such Acquisition Proposal, unless and until the Sellers execute a definitive purchase agreement with respect to such Acquisition Proposal.
     6.4 Destruction of Confidential Information
     In the event this Agreement is terminated in accordance with Section 11.1 and the Acquisition Transaction is not consummated, the Buyer agrees, upon the written request of the Sellers, to promptly destroy all confidential materials received from any of the Phoenix Entities.
     6.5 Required Approvals of Governmental Bodies
     The Sellers shall, and shall cause each of their Related Persons to, cooperate with the Buyer with respect to all filings that the Buyer and/or one or more of its Related Persons is required by Legal Requirements to make in connection with the Acquisition Transaction, including without limitation with respect to the transfer of the AT Governmental Authorizations and assisting the Buyer in substituting reclamation bonds or other collateral at the lowest possible cost. In this regard, if and to the extent there are any applications included in the AT Governmental Authorizations which cannot be transferred until the same have been issued, the Sellers shall at the Buyer’s expense continue to pursue diligently all such applications until such issuance and then continue their cooperation in getting the AT Governmental Authorizations the subject thereof transferred to the Buyer (or the Acquired Phoenix Entity designated by the Buyer).
          6.6 Commercially Reasonable Efforts
     Prior to the Closing, the Sellers shall use their commercially reasonable efforts to cause the conditions in Article 9 to be satisfied.
          6.7 Restrictive Covenants
     In order to induce the Buyer to enter into the Acquisition Transaction and in consideration thereof, the Sellers have agreed to the provisions of this Section 6.7, as follows:

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          (a) For a period of seven (7) years after the Closing Date (the “Restricted Period”), each of the Sellers agrees that it will not, and will cause the other Phoenix Group Entities (collectively with the Sellers, the “Restricted Parties”) not to, directly or indirectly, own, manage, operate or control or participate in the ownership, management, operation or control of any Person that competes with the Surface Mining Business by conducting a Competing Business. For purposes hereof, a “Competing Business” is any business that (i) acquires, owns, leases, subleases, develops or otherwise controls any real property (surface or mineral) which is used in the surface coal mining business or applying for any Mining Authorizations with respect to surface coal mining or mining, producing, acting as a contract miner, engaging a contract miner, marketing, brokering or selling or reselling surface mined coal, from within the Illinois Coal Basin, or (ii) produces, markets, brokers, sells or resells coal to any customer or former customer or an affiliate of any customer or former customer of the Phoenix Group Entities or any of their Related Persons; provided, however, that the Buyer acknowledges and agrees that the Excluded Subsidiaries hold rights relating to the Excluded Subsidiaries Surface Mining, and that any actions taken by the Excluded Subsidiaries in connection with the Excluded Subsidiaries Surface Mining (including without limitation selling the surface mined coal to current and former customers of the Phoenix Group Entities and their Related Persons) will not constitute a “Competing Business” hereunder. For the avoidance of doubt, the Buyer acknowledges and agrees that nothing contained in this Section 6.7(a) or elsewhere in this Agreement shall constitute a limitation or restriction on the ability of the Excluded Subsidiaries to conduct deep mining operations, sell deep mined coal, or acquire, own, lease, sublease, develop or otherwise control any real property (surface or mineral) which is used in such deep coal mining, in each case whether within or outside the Illinois Coal Basin.
          (b) For the Restricted Period, each of the Sellers agrees that it will not, and will cause each of the Restricted Parties not to, directly or indirectly, (i) entice, induce or attempt to cause any officer, director, manager, shareholder, member, employee, agent or consultant of the Buyer or any of its Related Persons (including any of the same previously serving in any such capacity with the Phoenix Group Entities) to terminate his or her employment with the Buyer or such Related Person, or (ii) hire or employ any APE Employee that Buyer designates as critical pursuant to Section 9.8(b).
          (c) Each of the Sellers shall, and shall cause each of its Related Persons to, maintain the confidentiality of, and not use, (i) confidential or proprietary information regarding the Surface Mining Business as conducted by the Phoenix Entities or (ii) trade secrets regarding the Surface Mining Business as conducted by the Phoenix Entities; provided that this Section 6.7(c) shall not apply to information: (A) that becomes available to such Person after the Closing from a source other than the Phoenix Group Entities or any of their Representatives (and not as a result of a violation of a contractual restriction or fiduciary duty known to such Person); or (B) that was or becomes generally available to the public (and not as a result of a violation of a contractual restriction or fiduciary duty known to such Person). Notwithstanding the preceding sentence, the Sellers (and their Related Persons) may make, and may permit, disclosure of such information (I) in response to any judicial or administrative proceedings (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigation demand or similar process), (II) if requested by a Governmental Body or (III) to avoid violating any applicable securities laws; provided that the Sellers shall, to the extent practicable, promptly notify the Buyer thereof and

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cooperate with the Buyer at the Buyer’s reasonable request and cost if the Buyer should seek to obtain an Order that confidential treatment will be accorded to such information.
          (d) The Sellers acknowledge that all of the restrictions in this Section 6.7 are reasonable in all respects, including duration, geographical limitation and scope of activity restricted. The Sellers agree that each of the covenants contained in this Section 6.7 shall be construed as separate agreements independent of any other provision of this Agreement or of any other agreement between the Sellers and the Buyer or any other Person. The Sellers agree that the existence of any claim or cause of action by any of the Sellers against the Buyer or any other entity, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of the covenants and restrictions contained in this Section 6.7. The Sellers acknowledge that an actual Breach, or Threatened Breach, by any of the Sellers of the provisions of this Section 6.7 shall cause irreparable harm to the Buyer, which harm cannot be fully redressed by the payment of damages to the Buyer. Accordingly, the Buyer shall be entitled, in addition to any other right or remedy it may have at law or in equity, to an injunction enjoining or restraining any of the Sellers (and their Related Persons) from any Breach or Threatened Breach of the provisions of this Section 6.7. The Sellers hereby waive the defense in any equitable proceeding that there is an adequate remedy at law for any such actual or Threatened Breach. Moreover, in the event of a Breach by any of the Sellers of any covenant of this Section 6.7, the term of such covenant shall be extended by the period of the duration of such Breach.
          (e) The Sellers shall at or before the Closing cause each of the Key Phoenix Entities Persons to execute Restrictive Covenants Agreement (the “Restrictive Covenants Agreements”) with the Buyer pursuant to which the Key Phoenix Entities Persons are bound by the restrictive covenants set forth in this Section 6.7.
          6.8 Employee Matters
     The Sellers hereby agree to cooperate with the Buyer and use their commercially reasonable efforts to cause the APE Employees referred to in Section 9.8 to be employed by the Acquired Phoenix Entities as of the Closing. The matters described in this Section 6.8 for cooperation between the Sellers and the Buyer are hereinafter referred to as the “Employee Matters.”
          6.9 Liabilities of Phoenix Group Entities
     Excluding only the AT Liabilities, the Sellers shall be responsible for and shall satisfy all of the obligations, indebtedness, causes of action and other liabilities of any kind of or against any of the Phoenix Group Entities including the assumption of the defense thereof, whether contingent, accrued or matured, known or unknown. Without limitation as to the foregoing, the Sellers acknowledge and agree that they are responsible for and shall pay all liabilities constituting fines and penalties hereafter levied for violations listed or required to be listed on Schedule 4.15.
          6.10 APE Financial Statements
     The Sellers agree to provide to the Buyer, prior to the Closing, estimated APE Financial Statements for the period consisting of the portion of calendar year 2009 ended on the Closing Date,

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which shall be adjusted by the Sellers as necessary and finalized within ninety (90) days after the Closing Date to provide the Buyer with accurate APE Financial Statements.
          6.11 Rose France Reserves
     The Sellers shall use their commercially reasonable efforts to assist the Buyer (or any Acquired Phoenix Entity or any of their respective Affiliates as designated by the Buyer) in obtaining one or more lease agreements, which contains terms and conditions customary in the area where the Rose France Reserves are located and which is in form and substance acceptable to the applicable lessor and reasonably acceptable to the Buyer (with respect to the Rose France Surface Leasehold as defined below, the Buyer acknowledges that a royalty to the lessor of 4% is acceptable) (an “Acceptable RFR Lease”), granting to the Buyer (or any Acquired Phoenix Entity or any of their respective Affiliates as designated by the Buyer) a leasehold interest in (a) all of the surface property overlying the Rose France Reserves (the “Rose France Surface Leasehold ”) and (b) the Rose France Reserves themselves (the “Rose France Mineral Leasehold”). In the event the Sellers present the Buyer with an Acceptable RFR Lease with respect to the Rose France Surface Leasehold on or prior to December 31, 2009 (the “RFR Surface Leasehold Condition”), 50% of the RFR Fee shall be earned and paid into the escrow under the Escrow Agreement as provided in Section 2.3(d); in the event the Sellers do not satisfy the RFR Surface Leasehold Condition, said 50% of the RFR Fee shall be forfeited by the Sellers and shall not at any time be deposited into such escrow or otherwise credited or paid to or for the benefit of the Sellers. In the event the Sellers present the Buyer with an Acceptable RFR Lease with respect to the Rose France Mineral Leasehold on or prior to June 30, 2010 (the “RFR Mineral Leasehold Condition,” and collectively with the RFR Surface Leasehold Condition, the “RFR Conditions”), the other 50% of the RFR Fee shall be earned and paid into the escrow under the Escrow Agreement as provided in Section 2.3(d); in the event the Sellers do not satisfy the RFR Mineral Leasehold Condition, said 50% of the RFR Fee shall be forfeited by the Sellers and shall not at any time be deposited into such escrow or otherwise credited or paid to or for the benefit of the Sellers. For the avoidance of doubt, if the Sellers fail to accomplish timely either of the RFR Conditions as set forth in the immediately preceding two sentences, then there will be no RFR Fee and thus there would then be no RFR Fee amount to be deposited by the Buyer with the Escrow Agent in the escrow being maintained pursuant to the Escrow Agreement as provided in Section 2.3(d).
7. COVENANTS OF BUYER
          7.1 Required Approvals of Governmental Bodies
     The Buyer acknowledges that the “transfer” of any AT Governmental Authorizations, whether by reason of an actual transfer from a Phoenix Reorganization Entity to another Phoenix Reorganization Entity that is an Acquired Phoenix Entity or a change in control of any Acquired Phoenix Entity holding any AT Governmental Authorizations, shall in each case require filings to be made with, and approvals of, certain Governmental Bodies. The Buyer shall, and shall cause each of its Related Persons to, prepare all filings required by Legal Requirements to be made by them to consummate the Acquisition Transaction, including without limitation documentation to transfer the Governmental Authorizations. The Buyer shall, and shall cause each of its Related Persons to, cooperate with the Sellers with respect to all filings that the Sellers and/or one or more of their Related Persons are required by Legal Requirements to make in connection with the

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Acquisition Transaction; provided that this Agreement shall not require the Buyer to dispose of, or make any change in, any portion of its business to obtain a Governmental Authorization.
          7.2 Commercially Reasonable Efforts
     Prior to the Closing, the Buyer shall use its commercially reasonable efforts to cause the conditions in Article 10 to be satisfied.
          7.3 Release of Reclamation Obligations Collateral
     In addition to the Buyer taking by the Closing the action required by Section 2.3(b), the Buyer hereby agrees after the Closing to pursue on a commercially reasonable basis the matters described in Section 2.3(b) in order to obtain as soon as possible for the Remaining Phoenix Entities the release and return of their collateral securing the AT Reclamation Obligations.
          7.4 Employee Matters
     The Buyer hereby agrees to cooperate with the Sellers with respect to the Employee Matters. Further, the Buyer hereby agrees (a) to hire or cause the Acquired Phoenix Entities to hire a sufficient number of the APE Employees so that as of the Closing the Acquisition Transaction will not result in a “mass layoff” or “plant closing” under the Workers Adjustment and Retraining Notification Act (the “WARN Act”) and (b) to be responsible for any action by the Buyer or the Acquired Phoenix Entities after the Closing with respect to the APE Employees who are employed by the Acquired Phoenix Entities as of the Closing that results in a “mass layoff” or “plant closing” under the WARN Act.
          7.5 AT Liabilities
     The Buyer and the Acquired Phoenix Entities shall be responsible for and shall satisfy and discharge the AT Liabilities as they become due.
8. MUTUAL COVENANTS OF PARTIES
     8.1 Further Actions
          (a) From the date hereof to the Closing (or the earlier termination of this Agreement in accordance with Section 11.1), each party agrees to use its commercially reasonable efforts to take all actions and to do all things necessary or appropriate to consummate the Acquisition Transaction, including without limitation (i) filing or supplying all applications, notifications and information required to be filed or supplied by it pursuant to applicable Legal Requirements, (ii) obtaining all material Consents (including all Governmental Authorizations) necessary to be obtained by it in order to consummate the Acquisition Transaction, and (iii) coordinating and cooperating with the other parties in exchanging such information and providing such reasonable assistance as may be reasonably requested by such other parties.
          (b) From the date hereof to the Closing (or the earlier termination of this Agreement in accordance with Section 11.1), each party shall promptly notify the other parties in writing of any

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fact, condition, event or occurrence that will or is reasonably likely to result in the failure of any of the conditions contained in Articles 9 and 10 (to the extent applicable to such party) to be satisfied.
     8.2 Public Announcements
     From the date hereof to the Closing and except as required by applicable Legal Requirements, no party shall make any public announcement in respect of this Agreement or the Acquisition Transaction without the prior written consent of the Sellers and the Buyer.
     8.3 Tax Matters
          (a) Notwithstanding anything in this Agreement to the contrary, the Sellers shall jointly and severally indemnify and hold harmless the Buyer and its Related Persons against and from any and all liability for any Taxes of the Remaining Phoenix Entities as a result of the Acquisition Transaction or otherwise. For the avoidance of doubt, no indemnification payment under this Section 8.3(a) shall be subject to the limitations on indemnity contained in Article 12.
          (b) The Sellers shall remain responsible to prepare and file or cause to be prepared and filed and pay all Taxes due with respect to all Tax Returns for the Acquired Phoenix Entities which are filed on or after the Closing Date with respect to a taxable period ending prior to or on the Closing Date (the “Pre-Closing Tax Period”). Upon the request of the Sellers and if and as required by law, the Buyer shall, and shall cause the Acquired Phoenix Entities to, timely sign and file each such Tax Return prepared by the Sellers and delivered to the Buyer, unless any such Tax Return is manifestly inconsistent with law. The Buyer covenants not to amend any Tax Returns of the Acquired Phoenix Entities for the Pre-Closing Tax Period without the prior written consent of the Sellers, and the Buyer agrees that the Sellers shall have the right to amend any such Tax Returns if such amendment would not have an adverse effect on the Buyer or the Acquired Phoenix Entities in a Post-Closing Tax Period (as defined below), and that, upon the request of the Sellers and if and as required by law, the Buyer shall sign and file, or cause the Acquired Phoenix Entities to sign and file, as applicable, all such amended Tax Returns.
          (c) The Sellers shall also remain responsible to prepare and file or cause to be prepared and filed and pay all Taxes due with respect to all Tax Returns for the Remaining Phoenix Entities which are filed on or after the Closing Date, whether or not any such Tax Return is with respect to a taxable period ending prior to, on or after the Closing Date.
          (d) The Buyer shall be liable for and indemnify, defend and hold harmless the Sellers and their Related Persons from and against any and all Taxes imposed on or with respect to the Acquired Phoenix Entities or their respective operations, ownership, assets or activities for any Post-Closing Tax Period. For the avoidance of doubt, no indemnification payment under this Section 8.3(d) shall be subject to the limitations on indemnity contained in Article 12.
          (e) The Buyer shall cause the Acquired Phoenix Entities to promptly remit to the Sellers any refund of Taxes of the Acquired Phoenix Entities with respect to a Pre-Closing Tax Period (including without limitation, if received by the Acquired Phoenix Entities, expected refunds of $319,000 for Charolais Mining Company, LLC, $73,000 for R&L Winn, Inc. and $108,000 for C&R Coal, Inc. and Renfro Equipment Inc.), except to the extent that (i) such refund

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is attributable to actions not in the Ordinary Course of Business taken by the Buyer or the Acquired Phoenix Entities on or after the Closing Date, or (ii) such refund is attributable to the carryback of a Tax attribute (including without limitation a net operating loss, net capital loss, or research and development credit) arising in a period other than a Pre-Closing Tax Period (a “Post-Closing Tax Period”), and the carryback of such Tax attribute does not reduce the amount of any refund that would otherwise be received by the Sellers. All other refunds of Taxes of the Acquired Phoenix Entities shall be for the account of the Acquired Phoenix Entities.
          (f) If the Sellers pay a Tax for a Pre-Closing Tax Period as a result of an adjustment by a Governmental Body of a Tax Return for such period, and any Acquired Phoenix Entity realizes a Tax benefit (including without limitation a refund, credit, or reduction in Tax) in a Post- Closing Tax Period as a result of such adjustment, the Buyer shall cause the applicable Acquired Phoenix Entity to pay the amount of such Tax benefit to the Sellers within thirty (30) days after the filing of a Tax Return reflecting such Tax benefit.
          (g) The Buyer and the Sellers will cooperate fully, and the Buyer will cause the Acquired Phoenix Entities to cooperate fully, as and to the extent reasonably requested by any such party, in connection with any Tax matters relating to the Acquired Phoenix Entities (including by the provision of reasonably relevant records or information).
     8.4 Consideration of Alternative to Escrow
     The Sellers and the Buyer agree to consider prior to and for implementation at the Closing an alternative to the escrow under the Escrow Agreement which would allow the Buyer to retain the funds which would otherwise be in such escrow with those funds being administered and released in a manner which is the same as or similar to the manner in which such administration and release would be handled utilizing such escrow. However, neither the Sellers nor the Buyer are obligated to accept such alternative and forego such escrow, a determination as to which shall be in the sole discretion of each of the Sellers and the Buyer.
9. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE
     The obligation of the Buyer to consummate the Acquisition Transaction, including without limitation taking all actions required to be taken by the Buyer at the Closing, is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Buyer, in whole or in part, in its sole discretion):
          9.1 Accuracy of Representations and Warranties
     The representations and warranties of the Sellers in this Agreement (considered collectively), and each of such representations and warranties (considered individually), shall be true and correct in all respects as of the Closing Date.
          9.2 Performance by Phoenix AA Parties
          (a) The Pre-Closing Reorganization shall have been effected in accordance with Section 2.1.

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          (b) All of the other covenants and obligations that the Phoenix AA Parties are required to perform or to comply with pursuant to this Agreement and any of the other documents referred to herein at or prior to the Closing (considered collectively), and each of such covenants and obligations (considered individually), must have been duly performed and complied with in all material respects.
          (c) Each document required to be delivered to the Buyer pursuant to this Agreement or any of the other documents referred to herein must be or have been delivered to the Buyer.
          9.3 Consents
     Each of the Consents identified in this Agreement and/or the Schedules must have been obtained and must be in full force and effect, unless the same is not required because the Phoenix Reorganization Entity holding the AT Assets and/or the AT Liabilities otherwise the subject of such Consent becomes an Acquired Phoenix Entity pursuant to the terms hereof. The Sellers shall use their commercially reasonable efforts to obtain and furnish to the Buyer all such Consents not less than fourteen (14) days prior to the Closing, in order to enable the Buyer to make the decisions it needs to make in order to timely provide the Buyer PRE Notice.
          9.4 Additional Documents
     Each of the following additional documents shall have been delivered to the Buyer:
          (a) the Transaction Documents, executed by the Sellers where applicable;
          (b) a joint certificate of the Sellers executed by an authorized representative or individual, as the case may be, dated as of the Closing Date, certifying that the conditions set forth in Section 9.1 have been satisfied;
          (c) copies of the Consents referred to in Section 9.3;
          (d) copies of the resolutions on the part of the Sellers with respect to any required corporate approvals authorizing and approving this Agreement and any other documents referred to herein and the Acquisition Transaction, certified by an officer of each of the Sellers to be true and complete and in full force and effect and unmodified as of the Closing Date;
          (e) a certificate of good standing with respect to each of the Sellers issued by the Secretary of State or other applicable authority of the jurisdiction of organization of such Seller; and
          (f) such other documents as the Buyer may reasonably request for the purpose of (i) evidencing the accuracy of the representations and warranties of the Sellers, (ii) evidencing the performance by the Phoenix AA Parties of, or the compliance by the Phoenix AA Parties with, any covenant or obligation required to be performed or complied with by the Phoenix AA Parties, (iii) evidencing the satisfaction of any condition referred to in Article 9 or (iv) otherwise facilitating the consummation or performance of the Acquisition Transaction.

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          9.5 No Proceedings
     There must not have been commenced or Threatened against any of the parties to this Agreement any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, the Acquisition Transaction, or (b) that may have the effect of preventing, delaying, making illegal or otherwise interfering with the Acquisition Transaction.
          9.6 No Prohibition
     Neither the consummation nor the performance of the Acquisition Transaction will, directly or indirectly (with or without notice or lapse of time), contravene, conflict with or result in a violation of, or cause the Buyer or any Related Person of the Buyer to suffer any adverse consequence under, (a) any applicable Legal Requirement or Order or (b) any Legal Requirement or Order that has been published, introduced or otherwise proposed by or before any Governmental Body.
          9.7 Business Conduct and No Material Adverse Effect
     Since December 31, 2008, the Surface Mining Business of the Phoenix Entities shall have been conducted only in the Ordinary Course of Business consistent with past practice, and there shall not have been any change therein during the period after December 31, 2008 and through the Closing Date which has had or could have a Material Adverse Effect.
          9.8 Employee Matters
     There shall have been secured commitments for employment by the Acquired Phoenix Entities of (a) not less than ninety percent (90%) of the APE Employees that the Buyer designates as desired for the mining operation associated with the Surface Mining Business and (b) all of the APE Employees that the Buyer designates as critical for the mining operation associated with the Surface Mining Business not to exceed that number of the APE Employees as is equal to five percent (5%) of the APE Employees that the Buyer designates pursuant to Clause (a). For purposes hereof, all designations by the Buyer provided for in this Section 9.8 shall be made in writing not less than ten (10) days prior to the Closing.
          9.9 Recoverable Tons of Coal
     The controlled recoverable tons of coal included in the AT Coal Reserves, as confirmed by a JT Boyd Report, shall be not less than 22.4 million tons (in this regard, the Sellers acknowledge that they will need to obtain necessary modifications to the Covington-Bandy lease in order to have the coal reserves under that lease so treated as controlled recoverable tons of coal included in the AT Coal Reserves) (the “Recoverable Tons Condition”).
          9.10 AT Reclamation Obligations
     The AT Reclamation Obligations, as confirmed by a Newbridge Report, shall not exceed the sum of Five Million Dollars ($5,000,000.00) (the “Newbridge Condition”).

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          9.11 AT Coal Reserves Quality
     The quality of the AT Coal Reserves shall be acceptable to the Buyer in its sole and absolute discretion (which condition, together with the Recoverable Tons Condition and the Newbridge Condition, collectively the “Special Acquisition Conditions”).
          9.12 Mining Permit Approval
     The Phoenix Entities shall have received technical approval of KDSMRE mining permit number 889-0134A3 (the “Permitting Condition”).
          9.13 Abatement of Violations
     All violations of the Phoenix Reorganization Entities set forth on Schedule 4.15 shall have been abated.
10. CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS TO CLOSE
     The obligation of the Sellers to consummate the Acquisition Transaction, including without limitation taking all actions required to be taken by the Sellers at the Closing, is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Sellers, in whole or in part, in their sole discretion):
          10.1 Accuracy of Representations and Warranties
     The representations and warranties of the Buyer in this Agreement (considered collectively), and each of such representations and warranties (considered individually), shall be true and correct in all respects as of the Closing Date.
          10.2 Performance by Buyer
          (a) All of the covenants and obligations that the Buyer is required to perform or to comply with pursuant to this Agreement or any of the other documents referred to herein at or prior to the Closing (considered collectively), and each of such covenants and obligations (considered individually), must have been performed and complied with in all material respects.
          (b) Each document required to be delivered to the Sellers pursuant to this Agreement or any of the other documents referred to herein must be or have been delivered to the Sellers, and the consideration under Section 2.3 to be provided at the Closing must have been provided.
          10.3 Initiation of Action to Obtain Release of Reclamation Obligations Collateral
     As of the Closing Date, the Buyer shall have taken the action required by Section 2.3(b) in order to position the Remaining Phoenix Entities to obtain the release and return to them following the Closing of the cash collateral posted by the Phoenix Entities to secure the AT Reclamation Obligations subject to the approval of state regulatory authorities.

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          10.4 Additional Documents
     Each of the following additional documents shall have been delivered to the Sellers:
          (a) the Transaction Documents, executed by the Buyer where applicable;
          (b) a certificate of the Buyer, executed by an officer of the Buyer, dated as of the Closing Date, certifying that the conditions set forth in Section 10.1 have been satisfied;
          (c) copies of the resolutions on the part of the Buyer with respect to any required limited liability company approvals authorizing and approving this Agreement and any other documents referred to herein and the Acquisition Transaction, certified by an officer of the Buyer to be true and complete and in full force and effect and unmodified as of the Closing Date;
          (d) a certificate of full force and effect with respect to the Buyer issued by the Secretary of State of the State of Ohio; and
          (e) such other documents as the Sellers may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of the Buyer, (ii) evidencing the performance by the Buyer of, or the compliance by the Buyer with, any covenant or obligation required to be performed or complied with by the Buyer, (iii) evidencing the satisfaction of any condition referred to in Article 10 or (iv) otherwise facilitating the consummation of the Acquisition Transaction.
          10.5 No Proceedings
     There must not have been commenced or Threatened any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, the Acquisition Transaction, or (b) that may have the effect of preventing, delaying, making illegal or otherwise interfering with the Acquisition Transaction.
          10.6 No Prohibition
     Neither the consummation nor the performance of the Acquisition Transaction will, directly or indirectly (with or without notice or lapse of time), contravene, conflict with or result in a violation of, or cause the Sellers or any Related Person of the Sellers to suffer any adverse consequence under, (a) any applicable Legal Requirement or Order or (b) any Legal Requirement or Order that has been published, introduced or otherwise proposed by or before any Governmental Body.
11. TERMINATION
          11.1 Termination Events
     This Agreement may, by notice given prior to or at the Closing, be terminated:
          (a) by either the Buyer or the Sellers if a material Breach of any provision of this Agreement has been committed by the Phoenix AA Parties or the Buyer, respectively, and such

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Breach is not curable or, if curable, is not cured by the party committing such Breach within ten (10) days following written notice thereof by the non-Breaching party or such Breach has not been waived by the non-Breaching party;
          (b) (i) by the Buyer if any of the conditions in Article 9 have not been satisfied as of the Closing Date or if satisfaction of any such condition is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition on or before the Closing Date or (ii) by the Sellers if any of the conditions in Article 10 has not been satisfied as of the Closing Date or if satisfaction of any such condition is or becomes impossible (other than through the failure of the Phoenix AA Parties to comply with their obligations under this Agreement) and the Sellers have not waived such condition on or before the Closing Date;
          (c) by mutual consent of the Buyer and the Sellers;
          (d) by either the Buyer or the Sellers if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement or its Related Persons to comply fully with obligations under this Agreement) by the Scheduled Closing Time; provided, however, that if, as of the Scheduled Closing Time, the Permitting Condition is the only condition to the Buyer’s obligation to consummate the Acquisition Transaction that has not been satisfied (other than those conditions that can only be satisfied at the Closing), the Sellers shall have the right to unilaterally extend the Scheduled Closing Time to a later date as of which the Permitting Condition is satisfied, but in no event later than December 31, 2009;
          (e) by the Sellers if the Sellers receive a Superior Proposal and execute a definitive agreement with respect to such Superior Proposal; or
          (f) by the Sellers in the event any Special Acquisition Condition is not satisfied on or prior to September 8, 2009 and the Buyer has not waived such Special Acquisition Condition (it being understood that, if so waived by the Buyer, the Sellers shall have no liability to the Buyer for Damages as a result of the failure of such Special Acquisition Condition to be satisfied).
          11.2 Termination Effect Generally
     Each party’s right of termination under Section 11.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 11.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 11.3, 13.1, 13.2 and 13.13 will survive; provided, however, that, if this Agreement is terminated by a party because of the Breach of this Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

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          11.3 Termination Fee
     In the event the Sellers terminate this Agreement pursuant to Section 11.1(e), the Sellers shall, within three (3) days of the date of such termination, pay to the Buyer the Termination Fee.
12. INDEMNIFICATION; REMEDIES
          12.1 Survival; Right to Indemnification not Affected by Knowledge
     All representations, warranties, covenants and obligations in this Agreement, the Schedules, the certificates delivered pursuant to Sections 9.4(d) and 10.4(b) and any other certificate or document delivered pursuant to this Agreement will survive the Closing. The right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants and obligations will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants and obligations.
          12.2 Indemnification and Payment of Damages by Sellers
     The Sellers, jointly and severally, shall indemnify and hold harmless the Buyer and its Representatives, and their respective Related Persons (collectively, the “Buyer Indemnified Persons”), against and from, and shall pay to the Buyer Indemnified Persons the amount of, any Damages arising, directly or indirectly, from or in connection with:
          (a) any Breach of any representation or warranty made by either of the Sellers in this Agreement, the Schedules or any other certificate or document delivered by either of the Sellers pursuant to this Agreement;
          (b) any Breach by any of the Phoenix AA Parties of any covenant or obligation of the Phoenix AA Parties in this Agreement; and
          (c) any Claim by any Person, based upon any agreement or understanding alleged to have been made by any such Person with any of the Phoenix Entities (or any Person acting on their behalf), for brokerage or finder’s fees or commissions or similar payments in connection with the Acquisition Transaction.
          12.3 Indemnification and Payment of Damages by Buyer
     The Buyer shall indemnify and hold harmless the Sellers and their Representatives, and their respective Related Persons (collectively, the “Sellers Indemnified Persons”), against and from, and shall pay to the Sellers Indemnified Persons the amount of, any Damages arising, directly or indirectly, from or in connection with:

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          (a) any Breach of any representation or warranty made by the Buyer in this Agreement or in any certificate or document delivered by the Buyer pursuant to this Agreement;
          (b) any Breach by the Buyer of any agreement or obligation of the Buyer under this Agreement; or
          (c) any Claim by any Person, based upon any agreement or understanding alleged to have been made by any such Person with the Buyer (or any Person acting on its behalf), for brokerage or finder’s fees or commissions or similar payments in connection with the Acquisition Transaction.
          12.4 Time Limitations
          (a) The Sellers shall have no liability (for indemnification or otherwise) with respect to any representation or warranty other than those in Section 4.1 (Organization and Good Standing; Power), Section 4.2(a) (Authority), Section 4.3 (Ownership), Section 4.7 (Properties), Section 4.10 (Taxes), Section 4.15 (Environmental Matters), Section 4.19 (Employee Benefits) and Section 4.25 (No Brokers or Finders) unless, on or before such date as is 18 months after the Closing Date (the “Outside Indemnification Notification Date”), the Buyer notifies the Sellers of a Claim specifying the factual basis of that Claim in reasonable detail to the extent then known by the Buyer. A Claim with respect to any representation or warranty in Section 4.10 (Taxes) or Section 4.19 (Employee Benefits) shall survive until the expiration of the applicable statute of limitations. A Claim with respect to any representation or warranty in Section 4.15 (Environmental Matters) shall survive until the sixth anniversary of the Closing Date. A Claim with respect to any representation or warranty in Section 4.1 (Organization and Good Standing; Power), Section 4.2(a) (Authority), Section 4.3 (Ownership), Section 4.7 (Properties) or Section 4.25 (No Brokers or Finders), or a Claim for indemnification or reimbursement not based upon any representation or warranty, may be made at any time.
          (b) The Buyer shall have no liability (for indemnification or otherwise) with respect to any representation or warranty other than those in Section 5.1 (Organization and Good Standing), Section 5.2(a) (Authority) and Section 5.4 (No Brokers or Finders) unless, on or before the Outside Indemnification Notification Date, either of the Sellers notifies the Buyer of a Claim specifying the factual basis of that Claim in reasonable detail to the extent then known by either of the Sellers. A Claim with respect to any representation or warranty in Section 5.1 (Organization and Good Standing), Section 5.2(a) (Authority) and Section 5.4 (No Brokers or Finders), or a Claim for indemnification or reimbursement not based upon any representation or warranty, may be made at any time.
          12.5 Limitations on Amount — Sellers
     The Sellers shall have no liability (for indemnification or otherwise) with respect to the matters described in Section 12.2(a) until the total of all Damages with respect to such matters exceeds Two Hundred Thousand Dollars ($200,000.00) (the “Basket Amount”), at which point the Buyer Indemnified Persons shall be entitled to recover any Damages in excess of the Basket Amount. In no event, however, shall the Sellers be liable for Damages in excess of the aggregate amount of Three Million Three Hundred Thousand Dollars ($3,300,000.00) (the “Cap Amount”).

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Notwithstanding anything in this Section 12.5 to the contrary, in no event shall the limitations set forth in this Section 12.5 apply (a) in the event of fraud, willful misconduct or bad faith by the Sellers or any of their Related Persons, (b) with respect to any breach of any representation, warranty, covenant or obligation pursuant to Section 4.1 (Organization and Good Standing; Power), Section 4.2(a) (Authority), Section 4.3 (Ownership), Section 4.7 (Properties), Section 4.10 (Taxes) or Section 4.19 (Employee Benefits) or (c) with respect to Section 12.2(b), Section 12.2(c) or Section 8.3(a).
          12.6 Limitations on Amount — Buyer
     The Buyer shall have no liability (for indemnification or otherwise) with respect to the matters described in Section 12.3(a) until the total of all Damages with respect to such matters exceeds the Basket Amount, at which point the Sellers Indemnified Persons shall be entitled to recover any Damages in excess of the Basket Amount. In no event, however, shall the Buyer be liable for Damages in excess of the Cap Amount. Notwithstanding anything in this Section 12.6 to the contrary, in no event shall the limitations set forth in this Section 12.6 apply (a) in the event of fraud, willful misconduct or bad faith by the Buyer, (b) with respect to any breach of any representation, warranty, covenant or obligation pursuant to Section 5.1 (Organization and Good Standing), Section 5.2(a) (Authority) or Section 5.4 (No Brokers or Finders) or (c) with respect to Section 12.3(b), Section 12.3(c) or Section 8.3(d).
          12.7 Excluded Damages
     For purposes of determining the amount of any Damages under this Article 12, and notwithstanding anything to the contrary in this Agreement including without limitation the definition of Damages, such amount shall exclude any and all Damages which are consequential, indirect, incidental, lost profits or revenues, cost of capital, loss of business reputation or opportunity, or special and punitive damages, except as and to the extent any such Damages were actually awarded, paid or incurred in a third party Claim.
     Notwithstanding anything herein to the contrary, the Sellers shall have no liability for Damages with respect to any Claim to the extent any Buyer Indemnified Person or any Acquired Phoenix Entity, and the Buyer shall have no liability for Damages with respect to any Claim to the extent any Sellers Indemnified Person or any Remaining Phoenix Entity, (a) receives or is entitled to receive any insurance proceeds relating to such Claim, (b) receives or is entitled to receive payment or indemnification from any third party respecting the matter covered by such Claim, or (c) receives or is entitled to receive any Tax benefit in respect of the subject matter of such Claim.
          12.8 Procedure for Indemnification — Third Party Claims
          (a) Promptly after receipt by an indemnified party under Section 12.2 or Section 12.3 of notice of the commencement of any Proceeding against it, such indemnified party shall, if a claim is to be made against an indemnifying party under either such Section, give notice to the indemnifying party of the commencement of such Claim, but the failure to notify the indemnifying party shall not relieve the indemnifying party of any liability that it may have to any indemnified party except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnified party’s failure to give such notice.

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          (b) If any Proceeding referred to in Section 12.8(a) is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party shall be entitled to participate in such Proceeding and, to the extent that he or it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party shall not, as long as it diligently conducts such defense, be liable to the indemnified party under this Article 12 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (I) it will be conclusively established for purposes of this Agreement that the Claims made in that Proceeding are within the scope of and subject to indemnification, (II) no compromise or settlement of such Claims may be effected by the indemnifying party without the indemnified party’s consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other Claims that may be made against the indemnified party and (B) the sole relief provided is monetary Damages that are paid in full by the indemnifying party, and (III) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within ten days after the indemnified party’s notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the indemnified party.
          (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its Related Persons other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise or settle such Proceeding, but the indemnifying party shall not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).
          (d) The parties hereby consent to the non-exclusive jurisdiction of any court in which a Proceeding is brought against any indemnified party for purposes of any Claim that such indemnified party may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on them with respect to such a Claim anywhere in the world.
          12.9 Procedure for Indemnification — Other Claims
     A claim for indemnification for any matter not involving a third party Claim may be asserted by notice to the indemnifying party from whom indemnification is sought.

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          12.10 Recovery of Indemnification Amounts
     Any indemnified party shall have the right to seek to recover and obtain recovery of any indemnification amounts owed to it hereunder in any lawful way and through any lawful means. In this regard, the Buyer Indemnified Persons shall have the right to obtain recovery of any indemnification amounts owed to them hereunder from the amounts held in escrow under the Escrow Agreement. Further, in this regard, the Buyer and the Sellers shall have the right to offset and credit against any amounts payable by the Buyer to the Sellers (including without limitation any portion of the RFR Fee) or the Sellers to the Buyer, respectively, after the Closing under this Agreement or any of the Transaction Documents, and pay to the Buyer Indemnified Persons or the Sellers Indemnified Persons, respectively, any indemnification amounts owed by the Sellers to the Buyer Indemnified Persons or the Buyer to the Sellers Indemnified Persons, respectively, hereunder.
          12.11 Exclusive Remedy
     The sole and exclusive recourse of the parties and their Related Persons against each other for any Claims or Damages arising out of or relating to this Agreement and the Transaction Documents (including any Claims or causes of action arising from or under any statute or the common law) shall be expressly limited to this Article 12. Notwithstanding anything to the contrary in this Agreement, this Section 12.11 shall not apply in the case of fraud, willful breach, willful misconduct or bad faith.
13. GENERAL PROVISIONS
          13.1 Expenses
     Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the other documents referred to herein and the Acquisition Transaction, including all fees and expenses of agents, counsel, accountants and other Representatives, provided that the Sellers shall be responsible for and shall pay all of the filing fees required to obtain any necessary Governmental Authorizations and transfer taxes. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a Breach of this Agreement by another party.
          13.2 Confidentiality
     From and after the date of this Agreement, the Buyer and the Sellers shall maintain in confidence and not use to the detriment of another party, and shall cause the directors, managers, officers, employees, agents and advisors of the Buyer and the Sellers to maintain in confidence and not use to the detriment of another party, any written, oral or other information obtained in confidence from another party in connection with this Agreement or the Acquisition Transaction, unless the use of such information is necessary or appropriate in making any filing or obtaining any Consent or approval required for the consummation of the Acquisition Transaction.

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          13.3 Notices
     All notices, consents, waivers and other communications under this Agreement must be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties):
         
 
Phoenix AA Entities:
    Phoenix Coal Inc.
 
 
    National City Tower, Suite 3650
 
 
    101 South Fifth Street
 
 
    Louisville, Kentucky 40202
 
 
    Attention: Dustin Angelo,
 
 
    Chief Financial Officer
 
 
    Telephone:
 
 
    Facsimile No.
 
 
     
 
with a copy to:
    Greenebaum Doll & McDonald PLLC
 
 
    300 West Vine Street, Suite 1100
 
 
    Lexington, Kentucky 40507
 
 
    Attention: Bruce E. Cryder, Esq.
 
 
    Telephone: (859) 231-8500
 
 
    Facsimile No.: (859) 255-2742
 
 
     
 
Buyer:
    Oxford Mining Company, LLC
 
 
    544 Chestnut Street
 
 
    P.O. Box 427
 
 
    Coshocton, Ohio 43812-0427
 
 
    Attention: Charles C. Ungurean,
 
 
    President and Chief Executive Officer
 
 
    Telephone: (740) 622-6302
 
 
    Facsimile: (740) 628-8268
 
 
     
 
with a copy to:
    Squire, Sanders & Dempsey L.L.P.
 
 
    2000 Huntington Center
 
 
    41 South High Street
 
 
    Columbus, Ohio 43215
 
 
    Attention: Daniel M. Maher. Esq.
 
 
    Telephone: (614) 365-2700
 
 
    Facsimile No.: (614) 365-2499
Any such notice or communication will be deemed to have been given either at the time of personal delivery or, in the case of delivery by service or mail, as of the date of delivery at the address and in the manner provided herein, or, in the case of telecopy, on receipt.

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          13.4 Further Assurances
     The parties agree to (a) furnish upon request to each other such further information, (b) execute and deliver to each other such other documents and (c) do such other acts and things, all as any other party may reasonably request, for the purpose of carrying out the intent of this Agreement and the other documents referred to in this Agreement.
          13.5 Waiver
     The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor the delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by a party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by any other affected party, (b) no waiver that may be given by a party shall be applicable except in the specific instance for which it is given and (c) no notice to or demand on any party shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the other documents referred to herein.
          13.6 Entire Agreement and Modification
     This Agreement supersedes all prior agreements between the parties with respect to its subject matter, and constitutes (along with the other documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement among the parties with respect to its subject matter. Notwithstanding the foregoing, the parties agree that Section 8 of that certain Letter Agreement dated July 17, 2009 by and between the Buyer and the Sellers shall survive the execution of this Agreement and the Closing in accordance with its terms. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment.
          13.7 Schedules
     The Schedules that relate to representations and warranties must relate only to the representations and warranties in the Section of this Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. In the event of any inconsistency between the statements in the body of this Agreement or the other documents referred to herein and those in the Schedules (other than an exception expressly set forth as such in the Schedules with respect to a specifically identified representation or warranty), the statements in the body of this Agreement or the other documents referred to herein shall control.

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          13.8 Assignments, Successors and Limited Third-Party Rights
     No party may assign any of its rights under this Agreement without the prior written consent of the other parties; provided, however, that (a) the Buyer may assign this Agreement to a Related Person (excluding individuals) with respect to the Buyer and (b) the Buyer may assign or transfer certain of the AT Assets and/or AT Liabilities to another Person; and provided further, however, that in all such cases the Buyer shall remain liable for all of the covenants, agreements and obligations of the Buyer under this Agreement and the Buyer Ancillary Documents. Subject to the preceding sentence, this Agreement shall apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties. Except for the rights of the Buyer Indemnified Persons and the Sellers Indemnified Persons under Article 12, nothing expressed or referred to in this Agreement shall be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or Claim under or with respect to this Agreement or any provision of this Agreement.
          13.9 Severability
     If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
          13.10 Headings; Construction
     The headings of the Articles and Sections in this Agreement are provided for convenience only and shall not affect their construction or interpretation. All references to “Article” or “Articles” or “Section” or “Sections” refer to the corresponding Article or Articles or Section or Sections of this Agreement. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.
          13.11 Time of Essence
     With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
          13.12 Governing Law
     This Agreement shall be governed by the laws of the State of Delaware without regard to conflicts of law principles.
          13.13 Dispute Resolution
     All Disputes arising in connection with this Agreement or the Acquisition Transaction shall be submitted to binding arbitration before three (3) neutral arbitrators (unless the parties agree to use only one (1) arbitrator) selected in accordance with the rules of Commercial Arbitration of the American Arbitration Association (the “AAA”) and conducted in accordance with the AAA’s rules

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of Commercial Arbitration utilizing the AAA’s expedited procedures and applying the laws of the State of Delaware. The arbitration proceeding shall be conducted in Columbus, Ohio.
          13.14 Counterparts
     This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy and all of which, when taken together, shall be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement and signatures transmitted by facsimile shall be deemed to be original signatures for all purposes.
[Remainder of Page Intentionally Left Blank with Signatures on Following Page]

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     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
                     
Buyer:       Phoenix AA Parties:    
 
                   
Oxford Mining Company, LLC       Phoenix Coal Inc.    
 
                   
By:
  -s- Charles C. Ungurean       By:   -s- Dustin Angelo    
Name:
 
 
Charles C. Ungurean
      Name:  
 
Dustin Angelo
   
Title:
  President and Chief Executive Officer       Title:   CFO    
 
                   
            Phoenix Coal Corporation    
 
                   
 
          By:   -s- Dustin Angelo    
 
          Name:  
 
Dustin Angelo
   
 
          Title:   CFO    
 
                   
            Phoenix Newco, LLC    
 
                   
 
          By:   Phoenix Coal Corporation, its sole member    
 
 
          By:   -s- Dustin Angelo    
 
          Name:  
 
Dustin Angelo
   
 
          Title:   CFO    

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FIRST AMENDMENT
TO

ACQUISITION AGREEMENT
     This First Amendment to Acquisition Agreement (this “Amendment”) is entered into as of September 4, 2009 by and among Oxford Mining Company, LLC, an Ohio (U.S.A.) limited liability company (the “Buyer”), Phoenix Coal Inc., an Ontario (Canada) corporation (“PCI”), Phoenix Coal Corporation, a Delaware (U.S.A.) corporation (collectively with PCI, the “Sellers”), and Phoenix Newco, LLC, a Kentucky (U.S.A.) limited liability company (the “Acquired Company”).
RECITALS
     WHEREAS, as of August 14, 2009, the parties hereto entered into an Acquisition Agreement (the “Acquisition Agreement”) setting forth the terms and conditions of the sale by the Sellers and the acquisition by the Buyer of all of the membership interests in the Acquired Company (capitalized terms used but not defined herein shall have the meanings given them in the Acquisition Agreement);
     WHEREAS, the Acquisition Agreement provides that each of the Special Acquisition Conditions is a condition to the Buyer’s obligation to close the Acquisition Transaction;
     WHEREAS, the Special Acquisition Condition set forth in Section 9.11 of the Acquisition Agreement providing that the quality of the AT Coal Reserves shall be acceptable to the Buyer in its sole and absolute discretion (the “Coal Quality Condition”) has not yet been satisfied and is not hereby being waived by the Buyer;
     WHEREAS, each of the Special Acquisition Conditions other than the Coal Quality Condition (the “Other Special Acquisition Conditions”) has been satisfied or is being waived by the Buyer as acknowledged or waived herein;
     WHEREAS, the parties hereto desire to amend the Acquisition Agreement to extend the date for satisfaction of the Coal Quality Condition (the “CQC Date”), following which CQC Date the Sellers have the right to terminate the Acquisition Agreement pursuant to Section 11.2(f) thereof if the Coal Quality Condition has not by then been satisfied or waived by the Buyer; and
     WHEREAS, the parties desire and intend to keep the Acquisition Agreement in full force and effect except to the extent and in the manner that the terms and provisions thereof are modified, revised and amended by this Amendment;
     NOW THEREFORE, the parties hereto, in consideration of the mutual promises and covenants contained herein, hereby agree as follows:
AGREEMENT
     1. Acknowledgment or Waiver Regarding Other Special Acquisition Conditions. The Buyer acknowledges satisfaction or waiver as of the date hereof of each of the Other Special Acquisition Conditions.
     2. Extension of CQC Date. The parties hereto hereby effect extension of the CQC Date by amending Section 11.2(f) of the Acquisition Agreement to read in its entirety as follows:

 


 

     “(f) by the Sellers in the event any Special Acquisition Condition is not satisfied on or prior to September 15, 2009 (or such later date as is mutually agreed to in writing by the Sellers and the Buyer) and the Buyer has not waived such Special Acquisition Condition (it being understood that, if so waived by the Buyer, the Sellers shall have no liability to the Buyer for Damages as a result of the failure of such Special Acquisition Condition to be satisfied).”
     3. Reaffirmation. The parties hereto do hereby ratify and affirm all of the terms and provisions of the Acquisition Agreement and such terms, as amended by this Amendment, shall remain in full force and effect.
     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first written above.
                     
Buyer:       Sellers:    
 
                   
Oxford Mining Company, LLC       Phoenix Coal Inc.    
 
                   
By:
  -s- Charles C. Ungurean        By:   -s- Dustin Angelo     
Name:
 
 
Charles C. Ungurean
      Name:  
 
Dustin Angelo
   
Title:
  President & CEO       Title:   CFO    
 
                   
            Phoenix Coal Corporation    
 
                   
 
          By:   -s- Dustin Angelo     
 
          Name:  
 
Dustin Angelo
   
 
          Title:   CFO    
 
                   
            Acquired Company:    
 
                   
            Phoenix Newco, LLC    
 
                   
            By: Phoenix Coal Corporation, its sole member    
                     
 
          By:   -s- Dustin Angelo     
 
          Name:  
 
Dustin Angelo
   
 
          Title:   CFO    

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SECOND AMENDMENT
TO

ACQUISITION AGREEMENT
     This Second Amendment to Acquisition Agreement (this “Amendment”) is entered into as of September 30, 2009 by and among Oxford Mining Company, LLC, an Ohio (U.S.A.) limited liability company (the “Buyer”), Phoenix Coal Inc., an Ontario (Canada) corporation (“PCI”), Phoenix Coal Corporation, a Delaware (U.S.A.) corporation (collectively with PCI, the “Sellers”), and Phoenix Newco, LLC, a Kentucky (U.S.A.) limited liability company (the “Acquired Company”).
RECITALS
     WHEREAS, as of August 14, 2009, the parties hereto entered into an Acquisition Agreement (the “Acquisition Agreement”) setting forth the terms and conditions of the sale by the Sellers and the acquisition by the Buyer of all of the membership interests in the Acquired Company (capitalized terms used but not defined herein shall have the meanings given them in the Acquisition Agreement);
     WHEREAS, as of September 4, 2009, the parties hereto entered into a First Amendment to Acquisition Agreement amending the Acquisition Agreement (the “First Amendment”);
     WHEREAS, the parties hereto desire to amend the Acquisition Agreement, as amended by the First Amendment (the “Amended Acquisition Agreement”), as provided herein; and
     WHEREAS, the parties hereto desire and intend to keep the Amended Acquisition Agreement in full force and effect except to the extent and in the manner that the terms and provisions thereof are modified, revised and amended by this Amendment;
     NOW THEREFORE, the parties hereto, in consideration of the mutual promises and covenants contained herein, hereby agree as follows:
AGREEMENT
     1. Amendment to Article 1. Article 1 of the Acquisition Agreement is amended by adding thereto the following definition of “Equipment Lease” and amending therein the definition of “Excluded Subsidiaries Surface Mining” to read in its entirety as follows:
     Equipment Lease” means a lease with Caterpillar Financial Services Corporation or other lessor designated by the Buyer (a) with respect to which such lessor has acquired from the Phoenix Reorganization Entities those assets designated by the Buyer which would otherwise be AT Fixed Assets (with the financing debt with respect thereto being satisfied and cancelled) and (b) under which such lessor has leased such assets to the Acquired Company on such terms as are acceptable to the Buyer.

 


 

     Excluded Subsidiaries Surface Mining” means the mining by the Excluded Subsidiaries by surface mining methods of that certain coal in the Illinois Coal Basin to which the Excluded Subsidiaries (a) presently hold rights pursuant to outstanding leases which principally relate to the underground mining of coal or (b) hereafter hold rights by reason of transfer thereof from Evergreen Mineral Co., Inc. to the Excluded Subsidiaries where such transfer is limited to the transfer of the Penn Virginia Operating Co., LLC Panama Reserve Area Coal Lease and Sublease to Evergreen Mineral Co., Inc.
     2. Amendment to Section 2.1(b)(i). Section 2.1(b)(i) of the Acquisition Agreement is amended to read in its entirety as follows:
     (i) the fixed assets listed on Schedule 2.1(b)(i) which identifies both fixed assets and the Phoenix Reorganization Entity which is the owner thereof, excluding those fixed assets which the Buyer designates prior to the Closing for coverage under the Equipment Lease (the “AT Fixed Assets”);
     3. Amendment to Section 2.1(b)(iv). Section 2.1(b)(iv) of the Acquisition Agreement is amended to read in its entirety as follows:
     (iv) all leases other than the AT Coal Leases listed on Schedule 2.1(b)(iv) which identifies such leases and as well both the Phoenix Reorganization Entity a party thereto and the landlord/lessor with respect thereto, and also the Equipment Lease (except that the Equipment Lease shall not be included as an AT Other Lease which is an AT Contract for purposes of Sections 4.2(b)(iv), 4.14(c), 4.14(d) and 4.14(g)) (the “AT Other Leases”);
     4. Amendment to Section 2.1(b)(xi). Section 2.1(b)(xi) of the Acquisition Agreement is amended to read in its entirety as follows:
     (xi) the advance royalties, the prepaid assets and the other current assets other than accounts receivable of the Surface Mining Business, all determined in accordance with GAAP (U.S.) (which items, together with the AT Inventory, collectively constitute the AT Current Assets”); and
     5. Amendment to Section 2.1(c)(i). Section 2.1(c)(i) of the Acquisition Agreement is amended to read in its entirety as follows:
     (i) the AT Fixed Assets acquisition debt listed on Schedule 2.1(c)(i) which identifies specifics regarding the debt and the Phoenix Reorganization Entity which is the debtor with respect thereto, excluding any such cancelled acquisition debt which relates to the AT Fixed Assets which are covered under the Equipment Lease and also any such acquisition debt which is paid off and cancelled prior to the Closing as provided in Section 2.3(e) (the “AT Fixed Assets Debt”);
     6. Amendment to Section 2.1(c)(v). Section 2.1(c)(v) of the Acquisition Agreement is amended to read in its entirety as follows:

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     (v) certain accrued expenses other than general accounts payable of the Surface Mining Business, including without limitation the Accrued Coal Leases Liabilities, royalties and taxes, accrued commissions and accrued property tax, all determined in accordance with GAAP (U.S.) (the AT Current Liabilities”); and
     7. Amendment to Section 2.3. Section 2.3 of the Acquisition Agreement is amended by adding thereto a new Section 2.3(e) which shall read in its entirety as follows:
          (e) Prior to the Closing, the Buyer shall pay for the benefit of the Sellers a purchase price amount equal to the amount necessary to pay off all outstanding acquisition debt on those fixed assets designated by the Buyer for which there would be AT Fixed Assets Debt if the same were not so paid off, with such payment for the benefit of the Sellers to be made directly to the creditors with respect to such outstanding acquisition debt to accomplish such pay off.
     8. Amendment to Section 2.4. Section 2.4 of the Acquisition Agreement is amended to read in its entirety as follows:
          2.4 Allocation of Transaction Consideration
     The Transaction Consideration shall be allocated among the AT Assets in accordance with the values mutually agreed to by the Buyer and the Sellers in writing within ninety (90) days after the Closing.
     9. Amendment to Section 6.7(a). Section 6.7(a) of the Acquisition Agreement is amended to read in its entirety as follows:
          (a) For a period of seven (7) years after the Closing Date (the “Restricted Period”), each of the Sellers agrees that it will not, and will cause the other Phoenix Group Entities (collectively with the Sellers, the “Restricted Parties”) not to, directly or indirectly, own, manage, operate or control or participate in the ownership, management, operation or control of any Person that competes with the Surface Mining Business by conducting a Competing Business. For purposes hereof, a “Competing Business” is any business that (i) acquires, owns, leases, subleases, develops or otherwise controls any real property (surface or mineral) which is used in the surface coal mining business or applying for any Mining Authorizations with respect to surface coal mining or mining, producing, acting as a contract miner, engaging a contract miner, marketing, brokering or selling or reselling surface mined coal, from within the Illinois Coal Basin, or (ii) produces, markets, brokers, sells or resells coal to any customer or former customer or an affiliate of any customer or former customer of the Phoenix Group Entities or any of their Related Persons; provided, however, that the Buyer acknowledges and agrees that (A) the conduct of the business of the surface mining of coal reserves contributed by Patriot Coal Corporation in any areas outside of Muhlenberg County, Kentucky through any joint venture between the Phoenix Group Entities and Patriot Coal Corporation where the Excluded Subsidiaries have contributed to the capital of such joint venture the portion of the underground mining coal reserves under the lease for the Panama Reserve Area referred to in the definition of Excluded Subsidiaries Surface Mining which are located east of Pennyrile Parkway and where Patriot Coal Corporation has contributed to the

-3-


 

capital of such joint venture such surface mining coal reserves, and (B) the Excluded Subsidiaries hold or will hold rights relating to the Excluded Subsidiaries Surface Mining and any actions taken by the Excluded Subsidiaries in connection with the Excluded Subsidiaries Surface Mining (including without limitation selling the surface mined coal to current and former customers of the Phoenix Group Entities and their Related Persons), will not constitute a “Competing Business” hereunder. For the avoidance of doubt, the Buyer acknowledges and agrees that nothing contained in this Section 6.7(a) or elsewhere in this Agreement shall constitute a limitation or restriction on the ability of the Excluded Subsidiaries to conduct deep mining operations, sell deep mined coal, or acquire, own, lease, sublease, develop or otherwise control any real property (surface or mineral) which is used in such deep coal mining, in each case whether within or outside the Illinois Coal Basin.
     10. Amendment to Section 6.7(b). Section 6.7(b) of the Acquisition Agreement is amended to read in its entirety as follows:
          (b) For the Restricted Period, each of the Sellers agrees that it will not, and will cause each of the Restricted Parties not to, directly or indirectly, (i) entice, induce or attempt to cause any officer, director, manager, shareholder, member, employee, agent or consultant of the Buyer or any of its Related Persons (including any of the same previously serving in any such capacity with the Phoenix Group Entities) to terminate his or her employment with the Buyer or such Related Person, or (ii) hire or employ any of the critical APE Employees consisting of (A) those APE Employees that the Buyer designates as critical pursuant to Section 9.8(b), (B) David Brockman, Billy Don Clark, Michael Edens, Richard Parks, Jonathan Rogers, Eddie Tinsley and Morris Tingley and (C) any of Mark Davis, Melissa May, Sally Hicks, Janet Smith, Jeff Hayden or Tom Waters if he or she has been hired by the Buyer or any of its Affiliates after and within six (6) months following the Closing.
     11. Amendment to Article 6. Article 6 of the Acquisition Agreement is further amended by adding thereto a Section 6.12 which shall read in its entirety as follows:
          6.12 Designated Post-Closing Obligations
     From and after the Closing, the parties shall take or cause to be taken the specific post-closing actions and shall fulfill the specific post-closing obligations applicable thereto provided for, and in the manner set forth, in Schedule 6.12.
     12. Amendment to Section 9.12. Section 9.12 of the Acquisition Agreement is amended to read in its entirety as follows:
          9.12 Mining Permit Approval
     The Phoenix Entities shall have received technical approval of KDSMRE mining permit number 889-0134A3, or in lieu thereof the Sellers shall have consented to a holdback at the Closing of $1,000,000 of the consideration otherwise payable to the Sellers pursuant to Section 2.3(a), with the amount of such holdback to be deposited and held in the trust account of Squire, Sanders & Dempsey L.L.P., and with payment thereof from such trust account to be made to the Sellers after the Closing upon receipt of such technical approval provided that the amount of

-4-


 

such holdback shall be forfeited by the Sellers and paid back to the Buyer in the event such technical approval is not obtained within forty-five (45) days after the Closing (the “Permitting Condition”).
     13. Amendment to Section 9.13. Section 9.13 of the Acquisition Agreement is amended to read in its entirety as follows:
          9.13 Abatement of Violations
     All violations of the Phoenix Reorganization Entities set forth on Schedule 4.15 shall have been abated, provided that any such abatement matters which are identified in Schedule 6.12 for post-Closing action may be abated on a post-Closing basis as provided in Schedule 6.12.
     14. Amendment to Section 13.7. Section 13.7 of the Acquisition Agreement is amended to read in its entirety as follows:
          13.7 Schedules
     One or more Schedules to this Agreement may be modified and/or added to this Agreement following the execution of this Agreement and at or prior to the Closing, and the Schedules that the parties agree to at the Closing as the Schedules to this Agreement shall for all purposes be deemed to be the Schedules in effect under this Agreement from the date of execution of this Agreement and through and as of the Closing. The Schedules that relate to representations and warranties must relate only to the representations and warranties in the Section of this Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. In the event of any inconsistency between the statements in the body of this Agreement or the other documents referred to herein and those in the Schedules (other than an exception expressly set forth as such in the Schedules with respect to a specifically identified representation or warranty), the statements in the body of this Agreement or the other documents referred to herein shall control.
     15. Reaffirmation. The parties hereto do hereby ratify and affirm all of the terms and provisions of the Amended Acquisition Agreement and such terms, as amended by this Amendment, shall remain in full force and effect.
[Remainder of Page Intentionally Left Blank]

-5-


 

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first written above.
                     
Buyer:       Sellers:    
 
                   
Oxford Mining Company, LLC       Phoenix Coal Inc.    
 
                   
By:
  /s/ Jeffrey M Gutman       By:   /s/ David Wiley    
Name:
 
 
Jeffrey M Gutman
      Name:  
 
David Wiley
   
Title:
  SVP & CFO       Title:   President & CEO    
 
                   
            Phoenix Coal Corporation    
 
                   
 
          By:   /s/ David Wiley    
 
          Name:  
 
David Wiley
   
 
          Title:   President    
 
                   
            Acquired Company:    
 
                   
            Phoenix Newco, LLC    
 
                   
            By: Phoenix Coal Corporation, its sole member    
                     
 
          By:   /s/ David Wiley    
 
          Name:  
 
David Wiley
   
 
          Title:   President    

-6-


 

SCHEDULES TO
ACQUISITION AGREEMENT
BY AND AMONG
OXFORD MINING COMPANY, LLC,
PHOENIX COAL INC.,
PHOENIX COAL CORPORATION, AND
PHOENIX NEWCO, LLC
These Schedules (each a “Schedule” and collectively the “Schedules”) are the Schedules referenced in the Acquisition Agreement dated as of August 14, 2009 as amended (the “Agreement”), by and among (i) Oxford Mining Company, LLC, an Ohio (U.S.A.) limited liability company (the “Buyer”), (ii) Phoenix Coal Inc., an Ontario (Canada) corporation (“PCI”), (iii) Phoenix Coal Corporation, a Delaware (U.S.A.) corporation (“PCC”, and collectively with PCI, the “Sellers”), and (iv) Phoenix Newco, LLC, a Kentucky (U.S.A.) limited liability company (the “Acquired Company”). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement.
The inclusion of any item in a Schedule, where for that Schedule the Agreement requires the listing of a “material” item or one or more items that could (alone or in the aggregate) reasonably be expected to have a Material Adverse Effect, is not deemed to be an admission or representation that the included item is “material” or could (alone or in the aggregate) reasonably be expected to have a Material Adverse Effect.
To the extent that any Schedule or any item described or identified on a Schedule refers to (1) “C&R Coal” or “C&R Coal Inc.” or “C&R” or “C&R Coal Company, Inc.” or (2) “Phoenix Coal Processing Company, LLC” or “Phoenix Coal Processing, LLC” or “Phoenix Coal Processing” or “PCP”, such references shall be deemed to mean C&R Coal Company, Inc., a Kentucky corporation, and Phoenix Coal Processing Company, LLC, a Delaware limited liability company, respectively.

 


 

(MAP)

 


 

Schedule 1A
Rose France Reserves
1. See attached, including the map on which the area for the Rose France Reserves is outlined in blue.

2


 

(MAP)

 


 

Schedule 1A
Rose France Property
Coal Reserves — Engineering estimate
                 
#9 Surface   Old Tonnage   New Tonnage
Acres
    425       520  
Thickness
    5       5  
#/Cu.Ft.
    80       80  
Tonnage
    3,702,600       4,530,240  
% Recovery
    95 %     95 %
Total Surface Tonnage
    3,517,470       4,303,728  
Average Ratio
    20.2       20.2  
 
               
#9 Auger
               
 
               
Acres
    45       35  
Thickness
    5       5  
#/Cu.Ft.
    80       80  
Tonnage
    392,040       304,920  
% Recovery
    35 %     35 %
Total Surface Tonnage
    137,214       106,722  
 
               
#10 Surface
               
 
               
Acres
    350       465  
Thickness
    3.33       3.33  
#/Cu.Ft.
    80       80  
Tonnage
    2,030,767       2,698,019  
% Recovery
    95 %     95 %
Total Surface Tonnage
    1,929,229       2,563,118  
Average Ratio
    19.3       19.3  
 
               
#11 Surface
               
 
               
Acres
    135       50  
Thickness
    3.5       3.5  
#/Cu.Ft.
    80       80  
Tonnage
    823,284       304,920  
% Recovery
    75 %     75 %
Total Surface Tonnage
    617,463       228,690  
Average Ratio {Estimate}
    15       15  
 
               
Total tons for Rose France
    6,201,376       7,202,258  
 
               
Average Ratio {Estimate}
    19.4       19.7  

 


 

Rose-France Project — Property Descriptions
All Tracts
Opinion of Title
Roger Tract 235A
81 acres, more or less
Surface Only
Muhlenberg County, Kentucky
Carter Coordinate: 16 - 130
Title Opinion #RLW-M- 016 (8)
DESCRIPTION OF PROPERTY
Beginning at a hickory or gum and running N 73 E 18 poles to a hickory and dogwood; thence N 20 E 66 poles to a white oak; thence N 55 E 70 poles to a hickory and beech; thence N 15 W 86 poles to a sweet gum and poplar; thence S 67Yz W 171 poles to a rock; thence S 9 E 109 poles and 19 links to a rock Sam Drake’s line; thence with the line N 73 E 44 poles to the beginning, containing 81 acres.
Opinion of Title
Coal Only
Muhlenberg County, Kentucky
Carter Coordinates: 20 & 21 — J 29 and 16 & 25 — 130
Title Opinion # RLW-M-009
Rogers Tract
300, 301, 227, 238, 239, 240, 214, 235, 236, 310, 308, 209
DESCRIPTION OF PROPERTY
ROGERS TRACT 300
Beginning at an elm, black gum and dogwood, the Ditto corner, and running N. 51 ~ E. 66 poles and 10 links to a white oak, 1. G. W. Fortney corner; thence N. 52 E. 32 poles to two beeches; thence N. 50 W. 20 ~ poles to a white oak; thence N. 20 E. 74 poles to a rock not found; thence S. 38 E. 20 ~ poles to a rock at a sassafras; thence N. 44 E. 128 poles to a stake; thence N. 55 W. to a stake formerly a double beech; thence N. 51 ~ E. 156 poles to a walnut bush, walnut and sycamore marked as pointers, the C. C. & 1. Co.; thence N. 72 E. 2020 poles and 10 links to a beech C. C. & 1. Co.; thence S. 7 ~ E. 52 poles to a rock; thence N. 82 E. 180 poles to a sugar tree and dogwood, Young’s corner; now two elms marked as pointers; thence S. 8 ~ E. 58 poles and 10 links to a white oak, Sharps corner; thence N. 83 E. 18 poles to a stake; thence S. 2 ~ E. 10 poles to a beech; thence N. 88 E. 185 poles to a sweet gum, Creel corner; thence S. 18 W. 65 poles and 20 links to a rock, thence S. 83 W. 148 poles to a stake, formerly two black oaks; thence S. 4 12 E. 86 poles to three sweet gums; thence S. 2 12 W. 46 poles to a walnut; thence S. 60 E. 46 poles and 10 links to a rock; thence N. 34 E. 38 poles and 20 links to a hickory; thence S. 6 ~ W. 46 poles and 10 links to a rock, chestnut, hickory and black oak marked as pointers; thence S. 22 ~ W. 98 poles and 20 links to a black gum; thence S. 71 E. 2 poles to two service bushes; thence S. 77 W. 122 poles and 10 links to a rock; thence N. 23 ~ E. 40 poles to a rock and two hickories; thence N. 26 ~ W. 77 poles to a black oak and rock; thence S. 75 W. 130 W. 130 poles to a rock, formerly poplar; thence S. 27 E. 121 poles and 18 links to a stake, Gleen corner; thence S. 52 W. 133 poles and 10 links to a small white oak; thence N. 40 W. 74 poles and 5 links to 3 white oaks on the public road; thence N. 81 W. 64 poles to a black gum on the said road; thence N. 79 E. 11 poles and 10 links to a stake; thence N. 8 E. 73 poles and 5 links to a stake; Estes corner; thence N. 2 W. 8 poles to a white oak stump; thence S. 83 Y2 W. 126 poles to a small beech and a chestnut, the Kittinger corner; thence S. 80 W. 62 poles to a rock in a road, four beeches marked as pointers; thence S. 39 W. 48 poles to a stake, thence S. 33 /12 W. 44 poles to a stake in the old line; thence S. 82 E. 57 poles and 12 links to a white oak; thence S. 40 W. 114 poles to a rock; thence N. 41 W. 100 poles and 10 links to the beginning, containing, 1,343.02 acres. There is however, excepted from said tract the following parts thereof: Beginning at a rock, white oak, and black gum, marked as pointers, running N. 22 ~ E. 66 poles to a stake, formerly a white oak and dogwood; thence S. 88 E. 104 poles to a stake; thence S. 3 W. 66 poles to two beeches and dogwoods; thence N. 88 W. 127 poles and 10 links to the beginning, containing 45.61 acres, and being the same tract at one timeg owned by James Browning.
ROGERS TRACT 301
Beginning at a rock, white oak, and black gum, marked as pointers, running N. 22 ~ E. 66 poles to a stake, formerly a white oak and dogwood; thence S. 88 E. 104 poles to a stake; thence S. 3 W. 66 poles to two beeches and dogwoods; thence N. 88 W. 127 poles and 10 links to the beginning, containing 45.61 acres, and being the same tract at one timeg owned by James Browning.
ROGERS TRACT 227
Beginning at a large black gum stump, formerly two black gums on a steep hillside an old original corner, running thence N. 8-45

 


 

W. 950-1/2 feet to a rock planted on top of hill in sink where tree formerly stood; thence N. 7-38 W. 1838 feet to a rock planted on steep hillside in old field; thence on divisional line S. 82-22 E. 352/5 poles to a stake planted in old original line with small lack oak marked as pointer; thence with the old line S. 1-52 W. 2970 feet to a planted rock 2-1/4 W. 6-1/2 feet from center of beech stump and S. 79 W. 9-1/2 feet from small sweet gum marked as pointer N. 68-1/2 W. 297 feet to the beginning, and containing
ROGERS TRACT 238
Beginning at a beech, sugar tree and white oak marked “A” in plat as surveyed by James Nunan (all now down); thence N. 5 W. 182 poles to a beech (old call a black oak stump), same corner designated by two white oaks and a black oak called for in the Joseph Adcock 200 acre survey, recorded in Deed Book No. 19, page 151 of the Muhlenberg County Court Clerk’s Office; thence N. 85 E. 28 poles to a rock; thence S. 13 E. 183 poles to a rock; thence “with South line” S. 85 W. 44-1/2 poles to the beginning and containing 40 acres, more or less.
ROGERS TRACT 239
Beginning at the southeast corner, at a stone, with black oak pointer, 11 feet north, cherry pointer 13.5 feet north and white oak pointer three feet south; thence S. 87 W. 948.75 feet to a stone; thence N. 6 W. 3012 feet to a beech in the old Adcock Survey; thence N. 87 E. 907.5 feet to a stake with maple and gum pointers; thence S. 57 E. 3025 feet to the beginning, and containing 64.1 acres.
ROGERS TRACT 240
Beginning at a white oak M. Rose’s corner, running thence S. 89 W. with old line 578 feet to a sweet gum; thence N. 16-15 W. 188 feet to a poplar stump; thence S. 88-30 W. 1655 feet to a corner of this tract and the A. R. Adcock place, now owned by the Gibraltar Coal Mining Company; thence with the Gibraltar Coal Mining Company line S. 6-50 E. 2325 feet to A. M. Creel’s corner; thence with the said Creel’s line S. 74-30 E. 480 feet to another of A. M. Creel’s corners in G. B. Rose’s line; thence with his line N. 1 E. 825 feet to his corner; thence with his line S. 82 E. 420 feet to another corner; thence N. 5-15 E. 190 feet to another of the said G. B. Rose’s corners; thence S. 81-30 E. 1145 feet to the east side of a lane between this tract and G. B. Roses old place; thence N. 1-15 W. 1535 feet to the beginning, containing 88.5 acres.
ROGERS TRACT 214
Beginning at a black oak stump, the Drake corner, running thence N. 87' ii E. 181 poles and 15 links to a poplar; thence N. 27 E. 28 poles to a black oak stump; thence N. 20 W. 52 poles to a white oak; thence N. 42' ii W. 127 poles to a hickory, the Baxter corner; thence N. 77 E. 24 poles to a stake in a road; thence with the meanders of said road S. 75 E. 26 poles and 20 links, S. 69 E. 6 poles; S. 62 E. 20 poles to a stake in Rose’s line; thence with said line N. 20 W. 14 poles to a stake, Rose’s corner; thence S. 87' ii E. 24 poles to a stake, formerly two black oaks, hickory and black gum; thence S. 25 E. 120 poles to a red oak; thence N. 78 E. 55 poles to a sweet gum, Rose and Lewi’s corner, thence S. 19 E. 77 poles and 5 links to an elm, Rose’s corner; thence N. 70 E. 46 poles to a stake, Rose’s corner; thence S. 59 E. 16 poles to a stake, formerly beech; thence S. 2 ~ E. 177 poles to a rock; thence S. 9 E. 34 poles to a stake, Rose’s corner; thence S. 70 W. 256 poles to a large sweet gum, Rose’s corner in the rolling line; thence S. 37 E. 4 poles and 20 links to a sweet gum; thence S. 34 ~ W. 137 poles and 5 links to a rock; thence N. 60 W. 46 poles and 10 links to a hickory; thence N. 2 ~ E. 46 poles to a walnut; thence N. 4 ~ W. 66 poles to a stake, formerly two black oaks; thence N. 83 E. 148 poles to a rock; thence N. 18 E. 65 poles and 20 links to a sweet gum, Creel’s corner; thence S. 8 W. 185 poles to a beech; thence N. 2 ~ W. 175 poles to the beginning, containing 668.22 acres.
ROGERS TRACT 235
Beginning at a hickory and gum gone (now a stone), fifth corner to tract #1; thence with the line of tract #1 N. 73 E. 18 poles to a hickory and dogwood; thence N. 20 E. 66 poles to a white oak; thence N. 55 E. 70 poles to a hickory and beech, beginning in tract #1; thence with line of W. H. Noffsinger N. 15 W. 86 poles, more or less, to a gum and poplar, corner to G. B. Ross; thence with the said Ross’s line S. 67 ~ W. 171 poles to a rock; thence S. 9 E. 109 poles and 19 links to a rock in Sam Drake’s line; thence N. 73 E. 44 poles to the beginning, containing 81 acres, more or less.
ROGERS TRACT 236
Beginning at a stake; thence N. 33-36 E. 728.3 feet to a sweet gum stump; thence N. 33-25 W. 73.2 feet to a sweet gum stump; thence N. 70-05 E. 1448.7 feet to a stake in a ditch; said stake being in line with the center line of a lane; thence S. 6-03 E. 1845.5 feet with the center line of said lane to a stake; thence S 75-11 W. 424.4 feet to a rock; thence N. 40-13 W. 515.2 feet to a sycamore; thence S. 39-30 W. 815.3 feet to a white oak; thence N. 37-47 W. 1224 feet to the beginning, containing 60.85 acres.
ROGERS TRACT 310
A tract of land in Muhlenberg County, Kentucky, beginning at a small gum; thence N. 25-15 E. 1594.2 feet to a rock; thence N. 006 W. 669.5 feet to an elm; thence N. 33-36 E. 955 feet to a stake; thence N. 33-36 E. 955 feet to a stake; thence S. 37-47 E. 1224 feet to a large white oak; thence S. 76-14 W. 911.2 feet to a poplar; thence S. 13-42 E. 2421 feet to a white oak stump; thence N. 69-14 W. 1806.4 feet to the beginning, containing 64.35 acres.
ROGERS TRACT 209 (INCLUDES ROGERS TRACT 312)
Beginning at a poplar, Rose and Drake’s corner, running N 75 E 56 poles to two white oaks; thence N 39 E 49 poles and 5 links to a sycamore’ thence S 40 E 32 poles to a rock in the old line; thence N 75 E 96 poles to a rock, Drake’s corner; thence S 14 ~ E 97 ~poles to a rock; thence N 75 W 136 poles and 20 links to a rock, Creel’s corner, thence S 14 ~ E 71 poles and 5 links to a rock, formerly two hickories S 75 W 69 poles and 15 links to a rock; thence N 14 Y2 W 171 poles and 15 links to the beginning, containing 161 acres.

 


 

Opinion of Title
Roger A. Frances and Ellen L. France Tract
82 acres, more or less
Surface Only
Muhlenberg County, Kentucky
Carter Coordinate: 20 — J29 & 16 — 130
PVA Tract # 160-94
Title Opinion #RLW-M- 007 (S)
Tract 1
Tract #1: Beginning at a rock by a Sycamore stump running N. 20% E. 2063 feet to a stake by a small bridge; thence S. 89 W. 1000 feet to a stake; thence N. % E. 1375 feet to a stake; thence S. 82 E. 1594 feet to a stake in the lane; thence S. is E. 809 feet to a stake in lane at bridge; thence S. 6 W. 332 feet to A. B. Oak stump; thence due South 1452 feet to a stake in old line; thence with old line S. 70 W. 1376 feet to beginning, containing 82 acres, more or less.
Tract 2
Tract #1: Beginning at G. B. Rose’s corner running S 81-114 W 40 poles; thence S 3 E 11 poles; thence N 81-1/4 E 40 poles; thence N 2 W 11 poles to the beginning, containing 2-1/2 acres, more or less.
Tract #2: Beginning at a stone on West side of the land Alvis Adcock’s corner, running N 81-114 W 29 poles and 3/12 feet to a stake; thence S 2 W 11 poles and 10 feet; thence S 81-114 E 29 poles and 3-112 feet; thence N 2 W 11 poles and 10 feet to the beginning.
Opinion of Title
Warren Tract
20 acres, more or less
Surface Only
Muhlenberg County, Kentucky
Carter Coordinate: 25 - 130
PYA Tract # 175-1 (part)
Title Opinion #RLW-M-OIO(S)
DESCRIPTION OF PROPERTY
Beginning at a stake about 10 feet North of a Large white oak, old corner, running S 2-1/4 E 1100 feet to a black oak in old line; thence N 88-1/4 W 800 feet to a stake in field; N 2-1/4 W 1100 feet to a stake in old line thence with the old line N 88-1/4 E 800 feet to the beginning, containing 20 acres, more or less.
Opinion of Title
Rose Tract
140 acres, more or less
Surface Only
Muhlenberg County, Kentucky
Carter Coordinate:
PYA Tract # 160-95
Title Opinion #RLW-M- 011 (S)
DESCRIPTION OF PROPERTY
BEGINNING at a stake in an old road about 10 feet West of white oak, an old corner, and running N. 88\14 E. 1736 feet with an old line (that passes through the cemetery) to a stake in said line W. C. Rose’s corner to 20 A. tract; thence with W. C. Rose’s line S. 2 Y2 E. 1100 feet to his corner a stake in field; thence with another of W. C. Rose’s lines S 88 \14 E. 800 feet to a B. Oak in another old line; thence S. 2 \14 E. 596 feet to the old Adcock corner; thence with the old Adcock line S. 12 E. 577 Y2 feet to a stake on a ditch; thence S. 70 W. about 2900 feet to a stake W. C. Rose’s corner; thence with his line due North 1452 feet to B. Oak stump; thence N. 6 E. 332 feet to a stake at a bridge; thence N. Y2 W. 809 to a stake; thence N. 1 W. 590 feet to the beginning, containing 140 acres, more or less.
Opinion of Title
Coal Leasehold Only
Muhlenberg County, Kentucky
Carter Coordinate: 20 & 21 of J-29, 18 & 25 of J-30
Title Opinion # RLW-M-008

 


 

Rogers No.
209, 214, 227, 235, 236, 238, 239, 240, 300, 308, 301, 312
ROGERS TRACT 300
Beginning at an elm, black gum and dogwood, the Ditto corner, and running N. 51 Y2 E. 66 poles and 10 links to a white oak, J. G. W. Fortney corner; thence N. 52 E. 32 poles to two beeches; thence N. 50 W. 20 Y2 poles to a white oak; thence N. 20 E. 74 poles to a rock not found; thence S. 38 E. 20 1;2 poles to a rock at a sassafras; thence N. 44 E. 128 poles to a stake; thence N. 55 W. to a stake formerly a double beech; thence N. 51 l;2 E. 156 poles to a walnut bush, walnut and sycamore marked as pointers, the C. C. & 1. Co.; thence N. 72 E. 2020 poles and 10 links to a beech C. C. & 1. Co.; thence S. 7 1 ;2 E. 52 poles to a rock; thence N. 82 E. 180 poles to a sugar tree and dogwood, Young’s corner; now two elms marked as pointers; thence S. 8 Y2 E. 58 poles and 10 links to a white oak, Sharps corner; thence N. 83 E. 18 poles to a stake; thence S. 2 1;2 E. 10 poles to a beech; thence N. 88 E. 185 poles to a sweet gum, Creel corner; thence S. 18 W. 65 poles and 20 links to a rock, thence S. 83 W. 148 poles to a stake, formerly two black oaks; thence S. 4 1;2 E. 86 poles to three sweet gums; thence S. 2 1;2 W. 46 poles to a walnut; thence S. 60 E. 46 poles and 10 links to a rock; thence N. 34 E. 38 poles and 20 links to a hickory; thence S. 61;2 W. 46 poles and 10 links to a rock, chestnut, hickory and black oak marked as pointers; thence S. 22 1;2 W. 98 poles and 20 links to a black gum; thence S. 71 E. 2 poles to two service bushes; thence S. 77 W. 122 poles and 10 links to a rock; thence N. 23 Y2 E. 40 poles to a rock and two hickories; thence N. 26 Y2 W. 77 poles to a black oak and rock; thence S. 75 W. 130 W. 130 poles to a rock, formerly poplar; thence S. 27 E. 121 poles and 18 links to a stake, Gleen corner; thence S. 52 W. 133 poles and 10 links to a small white oak; thence N. 40 W. 74 poles and 5 links to 3 white oaks on the public road; thence N. 81 W. 64 poles to a black gum on the said road; thence N. 79 E. 11 poles and 10 links to a stake; thence N. 8 E. 73 poles and 5 links to a stake; Estes corner; thence N. 2 W. 68 poles to a white oak stump; thence S. 83 1 ;2 W. 126 poles to a small beech and a chestnut, the Kittinger corner; thence S. 80 W. 62 poles to arock in a road, four beeches marked as pointers; thence S. 39 W. 48 poles to a stake, thence S. 33 /I2 W. 44 poles to a stake in the old line; thence S. 82 E. 57 poles and 12 links to a white oak; thence S. 40 W. 114 poles to a rock; thence N. 41 W. 100 poles and 10 links to the beginning, containing, 1,343.02 acres. There is however, excepted from said tract the following parts thereof: Beginning at a rock, white oak, and black gum, marked as pointers, running N. 22 Y2 E. 66 poles to a stake, formerly a white oak and dogwood; thence S. 88 E. 104 poles to a stake; thence S. 3 W. 66 poles to two beeches and dogwoods; thence N. 88 W. 127 poles and 10 links to the beginning, containing 45.61 acres, and being the same tract at one timeg owned by James Browning.
ROGERS TRACT 301
Beginning at a rock, white oak, and black gum, marked as pointers, running N. 22 Y2 E. 66 poles to a stake, formerly a white oak and dogwood; thence S. 88 E. 104 poles to a stake; thence S. 3 W. 66 poles to two beeches and dogwoods; thence N. 88 W. 127 poles and 10 links to the beginning, containing 45.61 acres, and being the same tract at one timeg owned by James Browning.
ROGERS TRACT 227
Beginning at a large black gum stump, formerly two black gums on a steep hillside an old original corner, running thence N. 8-45 W. 950-1/2 feet to a rock planted on top of hill in sink where tree formerly stood; thence N. 7-38 W. 1838 feet to a rock planted on steep hillside in old field; thence on divisional line S. 82-22 E. 35- .2/5 poles to a stake planted in old original line with small black oak marked as pointer; thence with the old line S. 1-52 W. 2970 feet to a planted rock 2-1/4 W. 6-1/2 feet from center of beech stump and S. 79 W. 9-1/2 feet from small sweet gum marked as pointer N. 68-1/2 W. 297 feet to the beginning, and containing
ROGERS TRACT 238
Beginning at a beech, sugar tree and white oak marked “A” in plat as surveyed by James Nunan (all now down); thence N. 5 W. 182 poles to a beech (old call a black oak stump), same corner designated by two white oaks and a black oak called for in the Joseph Adcock 200 acre survey, recorded in Deed Book No. 19, page 151 of the Muhlenberg County Court Clerk’s Office; thence N. 85 E. 28 poles to a rock; thence S. 13 E. 183 poles to a rock; thence “with South line” S. 85 W. 44-1/2 poles to the beginning and containing 40 acres, more or less.
ROGERS TRACT 239
Beginning at the southeast corner, at a stone, with black oak pointer, 11 feet north, cherry pointer 13.5 feet north and white oak pointer three feet south; thence S. 87 W. 948.75 feet to a stone; thence N. 6 W. 3012 feet to a beech in the old Adcock Survey; thence N. 87 E. 907.5 feet to a stake with maple and gum pointers; thence S. 57 E. 3025 feet to the beginning, and containing 64.1 acres.
ROGERS TRACT 240
Beginning at a white oak M. Rose’s corner, running thence S. 89 W. with old line 578 feet to a sweet gum; thence N. 16-15 W. 188 feet to a poplar stump; thence S. 88-30 W. 1655 feet to a corner of this tract and the A. R. Adcock place, now owned by the Gibraltar Coal Mining Company; thence with the Gibraltar Coal Mining Company line S. 6-50 E. 2325 feet to A. M. Creel’s corner; thence with the said Creel’s line S. 74-30 E. 480 feet to another of A. M. Creel’s corners in G. B. Rose’s line; thence with his line N. 1 E. 825 feet to his corner; thence with his line S. 82 E. 420 feet to another corner; thence N. 5-15 E. 190 feet to another of the said G. B. Rose’s corners; thence S. 81-30 E. 1145 feet to the east side of a lane between this tract and G.B. Rose’s old place; thence N. 1-15 W. 1535 feet to the beginning, containing 88.5 acres.
ROGERS TRACT 214
Beginning at a black oak stump, the Drake corner, running thence N. 87 12 E. 181 poles and 15 links to a poplar; thence N. 27 E. 28 poles to a black oak stump; thence N. 20 W. 52 poles to a white oak; thence N. 4212 W. 127 poles to a hickory, the Baxter corner; thence N. 77 E. 24 poles to a stake in a road; thence with the meanders of said road S. 75 E. 26 poles and 20 links, S. 69

 


 

E. 6 poles; S. 62 E. 20 poles to a stake in Rose’s line; thence with said line N. 20 W. 14 poles to a stake, Rose’s corner; thence S. 87 12 E. 24 poles to a stake, formerly two black oaks, hickory and black gum; thence S. 25 E. 120 poles to a red oak; thence N. 78 E. 55 poles to a sweet gum, Rose and Lewis’ corner; thence S. 19 E. 77 poles and 5 links to an elm, Rose’s corner; thence N. 70 E. 46 poles to a stake, Rose’s corner; thence S, 59 E. 16 poles to a stake, formerly beech; thence S. 2 )Iz E. 177 poles to a rock; thence S. 9 E. 34 poles to a stake, Rose’s corner; thence S. 70 W. 256 poles to a large sweet gum, Rose’s corner in the rolling line; thence S. 37 E. 4 poles and 20 links to a sweet gum; thence S. 34 )Iz W. 137 poles and 5 links to a rock; thence N. 60 W. 46 poles and 10 links to a hickory; thence N. 2 )Iz E. 46 poles to a walnut; thence N. 4 )Iz W. 66 poles to a stake, formerly two black oaks; thence N. 83 E. 148 poles to a rock; thence N. 18 E. 65 poles and 20 links to a sweet gum, Creel’s corner; thence S. 8 W. 185 poles to a beech; thence N. 2 )Iz W. 175 poles to the beginning, containing 668.22 acres.
ROGERS TRACT 235
Beginning at a hickory and gum gone (now a stone), fifth corner to tract #1; thence with the line of tract#l N. 73 E. 18 poles to a hickory and dogwood; thence N. 20 E. 66 poles to a white oak; thence N. 55 E. 70 poles to a hickory and beech, beginning in tract #1; thence with line of W. H. Noffsinger N. 15 W. 86 poles, more or less, to a gum and poplar, corner to G. B. Ross; thence with the said Ross’s line S. 67 )Iz W. 171 poles to a rock; thence S. 9 E. 109 poles and 19 links to a rock in Sam Drake’s line; thence N. 73 E. 44 poles to the beginning, containing 81 acres, more or less.
ROGERS TRACT 236
Beginning at a stake; thence N. 33-36 E. 728.3 feet to a sweet gum stump; thence N. 33-25 W. 73.2 feet to a sweet gum stump; thence N. 70-05 E. 1448.7 feet to a stake in a ditch; said stake being in line with the center line of a lane; thence S. 6-03 E. 1845.5 feet with the center line of said lane to a stake; thence S 75-11 W. 424.4 feet to a rock; thence N. 40-13 W. 515.2 feet to a sycamore; thence S. 39-30 W. 815.3 feet to a white oak; thence N. 37-47 W. 1224 feet to the beginning, containing 60.85 acres.
ROGERS TRACT 310
A tract of land in Muhlenberg County, Kentucky, beginning at a small gum; thence N. 25-15 E. 1594.2 feet to a rock; thence N. 006 W. 669.5 feet to an elm; thence N. 33-36 E. 955 feet to a stake; thence N. 33-36 E. 955 feet to a stake; thence S. 37-47 E. 1224 feet to a large white oak; thence S. 76-14 W. 911.2 feet to a poplar, thence S. 13-42 E. 2421 feet to a white oak stump; thence N. 69-14 W. 1806.4 feet to the beginning, containing 64.35 acres.
ROGERS TRACT 209 (INCLUDES ROGERS TRACT 312)
Beginning at a poplar, Rose and Drake’s corner, running N 75 E 56 poles to two white oaks; thence N 39 E 49 poles and 5 links to a sycamore thence S 40 E 32 poles to a rock in the old line; thence N 75 E 96 poles to a rock, Drake’s corner; thence S 14 ~ E 97 ~ poles to a rock; thence N 75 W 136 poles and 20 links to a rock, Creel’s corner; thence S 14 ~ E 71 poles and 5 links to a rock, formerly two hickories S 75 W 69 poles and 15 links to a rock; thence N 14 ~ W 171 poles and 15 links to the beginning, containing 161 acres.

 


 

Schedule 2.1(a)
Other Phoenix Reorganization Entities
         
Other Phoenix   Jurisdiction of    
Reorganization Entity   Organization   Ownership
C&R Coal Company, Inc.
  Kentucky   R&L Winn, Inc. (100%)
Charolais Coal Sales, LLC   Delaware   Phoenix Coal Corporation (100%)
Charolais Mining Company, LLC   Delaware   Phoenix Coal Corporation (100%)
Evergreen Mineral Co., Inc.   Kentucky   Phoenix Coal Corporation (100%)
Old Liberty Equipment Co., Inc.   Kentucky   Phoenix Coal Corporation (100%)
Phoenix Coal Processing Company, LLC   Delaware   Phoenix Coal Corporation (100%)
R&L Winn, Inc.   Kentucky   Phoenix Coal Corporation (100%)
Renfro Equipment Inc.   Kentucky   Phoenix Coal Corporation (100%)
Schoate Mining Co., LLC   Kentucky   Evergreen Mineral Co., Inc. (50%) / Old Liberty Equipment Co., Inc. (50%)

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Schedule 2.1(b)(i)
AT Fixed Assets
1. The fixed assets described on the Forced Liquidation Value, Orderly Liquidation Value, and Fair Market Value appraisal of the fixed assets of the Phoenix Entities by Hilco Appraisal Services, LLC, a copy of the description listing of which fixed assets as it appears in said appraisal (with valuation amounts redacted) is attached hereto.
2. All mining equipment and other fixed assets not specifically listed on the attachment to Item 1 of this Schedule 2.1(b)(i) which are owned by the Phoenix Group Entities and used in the conduct of the Surface Mining Business, including without limitation those fixed assets which are owned by the Phoenix Group Entities as of the date of the Agreement and listed on each Monthly Fixed Asset Report attached hereto (each such Report being attached to provide a listing of fixed assets without any representation by reason of attaching such Reports as to (i) whether those assets are currently assets of the Phoenix Group Entities or (ii) any other information contained thereon). The assets listed on the attachment as owned by Crittenden County Coal, Inc., if owned by Crittenden County Coal, Inc. as of the date of the Agreement, will be transferred to the Acquired Company prior to the Closing.
3. Office furniture and equipment located at the Cleaton shop, the surface mining sites [and the Madisonville office], excluding office equipment, computers and related software utilized at their work stations (and in some cases elsewhere as well) by employees who will remain employees of the Remaining Phoenix Entities after the Closing. In this regard, to the extent that (i) any Phoenix Group Entity is a party to any software license agreement and (ii) software licenses derived from any such software license agreement are applicable to software installed on both computers constituting AT Assets and computers that will remain with employees of the Remaining Phoenix Entities after the Closing, the Sellers shall use their best reasonable efforts to ensure that such software licenses remain applicable to, and in full force and effect for, the software on such computers constituting AT Assets following the Closing.
4. GPS Topcon Hyper Ga. — base receiver, rover receiver, tribrach – S#: 498-00252/00274.
External radio — S#: 2003766
Data Collector — TDS Nomad — S#: ET0DC03531
Laser Rangefinder — True Pulse 360 — S#: 009940
Auto Level — Topcon AT-G3 8H1781
Tripod — Two CST Berger
Prism pole — Seco

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(GRAPHIC)
Hilco Appraisal Services LLC August 10,2009 Phoenix Coal, Inc. Phoenix Coal, Inc., 1215 Nebo Road, Madisonvitle, Kentucky I HHooRet* Rank * Unit* Year Make Effective Data: July 30,2009,.” r-:- -:.-”: , ..%v*i- — OrdBriy F* UndeWon Msiwt V*w Value t : . » oozens 22 803 1881 CaterpUar D9N Crawler Tractor W002874 SCH (BRIAR HILL) ~ 23 871 1985 CaterpUar D9L Crawler Tractor 14Y02974 Counterweight. UC Good SCH (BRIAR Hill.) Y 21 527 1883 CampMsr 09L Crawler Tractor 14YB1325 Ejdra undercarriage aralIHe for unit RL V 24 879 2008 CatBtpMar D6TLGP Crawler Tractor KP2S2495 Segemerts down, showing wear SCH (BRIAR HILL) V 25 C142 2005 Caterpillar 08T Crawler Trador KPZ00765 SCH (BRIAR HILL) RH 26 CMS 1998 CaterpHar 08R Crawlar Tractor 7XM0281S RB (JESSUP) 27 C152 1S85 Caterpillar pet Crawler Tractor 53Y03540 Winch KOMINE 28 423 2005 Caterpillar D7RLGP Crawler Tractor ABJ00602 KOMINE 30 0148 1894 Caterpaiaf D7H Crawler Tractor 4K305775 Mew Undercarriage being msaledettmieof Inspection KOMINE Y 28 9521 1969 (Est.) CaterpUar D7F Crawler Tractor 61G00478 G5 v 31 804 1990 Caterpillar D6HLGP Crawler Tractor 1KDO40B8 CCC LN 3 3 886 2007 Calarpttar D11R Crawler Tractor 4,288 7PZD5O10 Undercarriage down SCH (BRIAR HILL) Y 5 5 424 2007 Caterpillar D11R Crawler Tractor 7P2S009 RL 1 t 529 2O06 Caterpillar D11R Crawler Tractor 6,791 7PZD1448 KOMINE 2 2 878 2008 Caterpillar D11R Crawler Tractor 7,381 7PZ01450 KOMINE 6 7 C158 2006 CaterpUar D11R Crawler Tractor 7P201493 UC Appro*. 60% SCH (BRIAR HILL) RH 7 6 901 2001 CatarpMar 011R Crawler Tractor 09TR0034S Purchased with CCC SCH (BRIAR HILL) RH 6 8 612 1997 CaterpUar 011R Crawler Tractor 08TROO212 Purchased wttr/REI RB (JESSUP) 4 4 C159 2006 CaterpWar D11R Crawler Tractor 07P2B1449 UC Appro* 60% SCH (BRIAR rfflX) RH 12 13 528 1998 Caterplhr D11N Crawler Tractor 74275288 KOMINE 15 16 C1S1 1997 Caterpillar D11N Crawler Tractor 74Z75270 RL 13 14 827 1994 CatopMar D11M Crawlar Tractor 74Z75242 Not In service, UC poor, machowFalrCaid SCH (BRIAR HILL) 14 15 C157 1990 Caterpillar D1 IN Crawlar Tractor 7420776 Retxitt Engine IrrstafeBon being done at lime ot Inspection RL Y 20 C149 1988 CalerpWar DION Crawler Tractor 2YD00824 RH (JESSUP) Y 18 19 525 1984 CatenjOlaf 0101 Crawler Tractor 84W00974 WtianAwBiMe? CCC N 19 20 523 1981 CaterpBlar D10L Crawler Tractor B4W00703 AviDeMitjr Decreasing, pent Han) to Get, — — * Kecarnaaon ixvy REI (JESSUP) Y 17 18 C150 1981 Caterpillar 010 Crawler Tractor 84W00692 Radamaoon Tractor Move to Jump wtm CCC WrbrtaOut CCC Y 16 17 C155 1978 Caterpffjar _,g Crawler Tractor 84W00S80 REI (JESSUP, Y 10 10 868 2008 Komatsu D475A-6 Crawler Tractor 20104 Counisrwelaht SCH (BRIAR MILL) Y 9 9 807 2005 Komatsu D476-SA Crawler Tractor 20063 Newer Undercarriage, 4 BBUSS Ripper SCH (BRIAR HILL) Y 11 11 852 2003 Kometou D475A-3 SO Crawler Tractor 10743 Couftterwdght. Segrnerus SCH (BRIAR HILL) Y LOADERS I I Y

 


 

(GRAPHIC)
Hilco Appraisal Services IL.C August 10,2009 Phoenbt Coal. he. Phoenix Coal. Inc., 1215 Nebo Road, IVIadisonvilte, Kentucky WeoRaf* Rank* Un»# Year Mate «otM-h fipiMSfM “m Orderly Fair liquidator! Market Vak» Value * * 32 1 535 2008 Catnpllar 992K Wheel Loader H4C00345 RL 33 3 534 2007 CaterpMar 9920 Wheel Loader 6S79 AZX00629 TOKO KOMINE 34 4 C241 2007 Cateipiar 992G Wheel Loader AZX00823 SCH (BRIAR HILL) 35 6 C243 1997 CaterpWw 992G Wheel Loader 7HR0009B KOMINE 36 6 916 1996 CatarpHar 992D Wheel Loader 7MJ75014 Ugh LB RSIiJESSUPJ 41 11 533 1994 CaterpSar 992C Wheel Loader 49Z75248 RBljesSUP) 40 10 C244 1993 CateipMar 992C Wheel Loader 49Z00670 WghUft ISLAND DOCK 38 8 856 1991 CatwpOar 992C Wheel Loader 49Z01901 SghLH SCH (BRIAR HIU-1RH 39 9 C242 1991 Caterpillar 992C Wheel Loader 49Z001316 V. 3? 7 B75 1987 Caterpillar 992C Wheel Loader 4BZO103O Standard UK, Fair Cond. SCH (BRIAR HILL) RH v 42 12 C245 1985 Catetp3tar 992C Wheel Loader 49200863 Standard Lai When Available, Rubber Fair-Poor CCC Y 43 13 9IT 1981 Caterpillar 992C Wheel Loader 42X00943 High Lilt TOKO CR 44 14 531 1980 CaterpMar 992C Vlfticel Loader 42X00720 ISLAND DOCK 4S 15 649 1978 CarapHar 992C Wheel Loader 042X00217 Standard Lift ISLAND DOCK 46 C24T 1994 Caterpillar 9888 Wheel Loader 50W05703 REKJESSUP) 48 C248 1988 CaterpMar 988B Wheel Loader 50W09272 SCH (BRIAR HILL) 48 431 1988 CaterpNar 088B Wheel Loader 50W08880 KOMINE 47 432 1977 Cateipillar 988B Wheel Loader 50W01740 RL 52 857 1996 Cateipiar 950FII Wheel Loader 05SK02637 SCH (BRIAR HILL) 57 BOS 1986 Draeter 5208 Wheat Loader 41966 REI(JESSUP) 50 813 1994 Komatsu WA600 Wheel Loader UA50017 SCH (BRIAR HILL) 55 C212 1978 A4ichigan 4758 Wheel Loader 42U224C ISLAND DOCK 66 C215 19T7 Michigan 475B Wheel Loader 42W179C ISLAND DOCK 54 C167 1979 Michigan 380 Wheel Dear 484A107K ISLAND DOCK 51 919 1983 Michigan Clark 275C Wheel Loader 492A2S1 RL 53 918 1997 Volvo 180C Wheel Loader L180CVB04S5 Coal BM., Smal rubber, SCH (BRIAR HILL) HAUL TRUC JSS 70 New C720 2009 CaterpWar 777F OffMjrtway 2,419 0JRPO1866 KOMINE 58 New 507 2008 Caterpilar ___ OIF Highway OJRP01082 RL 59 New 508 2008 Caterpilar 777F Of! Highway BJRP01234 RL 60 New 509 2008 CatorpHar 777F Off Highway 0JRP01305 RL 61 Now 887 2008 CaterpMar 777F Off Highway 4,124 0JRP01367 KOMINE r 62 New 888 2008 Cateipiar 777F Of? Highway 3,796 0JRP01S04 KOMINE r 63 Naw 889 2008 Csterpfflar 777? Off Highway 3,987 OJRP01506 KOMINE v 68 New ___C718 2008 Catarp&ar 777F Off Highway 2,887 fWRP01612 SCH (BRIAR HILL) RH y 69 Naw C719 2006 Catarpnar —f OffHhway 2.816 0JRP01613 SCH (BRIAR HILL) RH Y- 71 1 936 1994 Caterpillar 777C Off Highway 4XJ75004 SCH (BKIAH HILL) RH n 2 937 1994 Caterpillar 777C Off Highway 4XJ75003 SCH (BRIAR HILL)RH Y 73 3 805 1994 CaterpOar 777C Off Highway 4XJ401 SCH (BRIAR HILL) RH t 74 4 801 19S4 CaUrpiar 777C Off Highway 4X1306 SCH (BRIAR HILL) RH Y 75 5 C710 1989 Caterpilar 7778 Off Highway 4YC00S31 SCH (BRIAR HILL) RH Y 91 21 9507 1985 Caterpllar 777A Off Highway 84A1479 RB (JESSUP) Y 93 23 402 1985 CaterpMar 777A Off Highway 84A1715 CR y 92 22 403 1984 CaterpMar 777A OffWohway 84A01414 CR Y 89 19 508 1983 Caterpillar 777A Off Highway 84A124S CR Y

 


 

(GRAPHIC)
Hilco Appraisal Services LLC August 10,2009 Phoenix Coal. Inc. Phoenix Coal, Inc., 1215 Nebo Road, Madisonville, Kentucky HtksoReW Rar*§ Unit* Year MateA-/ EteaftS0a*bauh36aa!(«Ssfci£;v* Model ;. “ iTypoj:”:. tap. - Order* Fa* Uqiadefton Market VWue Vam» S3 13 505 1981 CaterpBsr 777A CHI Highway S4A909 REI (JESSUP) r m 14 C703 1981 Caterptsar 77TA Off Highway MA009BB RB(JESSUP) Y 88 18 C705 1981 CaterpSar 777A Off Highway B4A000987 When Available? CCC N 95 25 401 1981 Caterpiar 777A OrTHIghway 84A843 No Power, Coat Hauler Only RL Y 78 a C709 1980 Cateipllaf 777A Off Highway 84A006S9 Cummkn Engine REI (JESSUP) V 85 15 503 1880 CatarpHar 777A Off Highway 84A073S Back Up Truck tor Both Schoated Operations SCH (BRIAR HILL) Y 86 18 504 I960 Caterpitar 777A Olf Highway 64A00855 RB (JESSUP) Y 87 17 C707 1980 Caterpillar 777A Oil Highway 84A00631 CCC N 94 24 C704 1980 CaterpBar 777A Off Highway 84A0O872 CCC N 90 20 C708 1979 CsnrpHar 777A Off Highway 84A00487 REI (JESSUP) Y 64 New 895 2008 Komatsu 785-7 Off Highway 8,935 A10079 SCH (BRIAR HIU) Y 65 New 896 2008 Komatsu 785-7 Off Highway 2,112 A10089 SCH (BRIAR WLL) V 66 New 897 2008 Komatsu 785-7 Off Highway 831 A10090 SCH (BRIAR HU.) V 67 New 898 2008 Komatsu 785-7 Off Highway 1,506 A10D93 SCH (BRIAR HILL) Y 77 7 B54 1997 (Est) Komatsu 330MHaulpak Off Highway CF2447BBFP41BP Unit being serviced at erne of inspection SCH (BRIAR HIU) Y 78 8 853 1997 (Esl.) Komatsu 330MHSUlpak OR Highway CF244798CFP41BP SCH (BRIAR HU) V BO 10 830 1997 (EM.) Komatsu 330MHaufpak Off Highway CF24480BFP41BW SCH (BRIAR HILL) Y 79 9 B3E 1996 (Est.) Komatsu 330M Haulpiik OW Highway CF24418BFP41BW SCH (BRIAR HILL) Y 81 11 828 1998 (Ell.) Komatsu 330MHaulpBll Off Highway CF24432BFP41Brl Unit in* in use during innpm, Iwifi SCH (BRIAR HILL) Y 82 12 829 1998 (Est) Komatsu 330MHaB«ilt Off Highway CF24413BFP41BE SCH (BRIAR HtLL| Y GRADERS, BRILLS. EX CAVATORS Y 96 890 2008 Volvo (3990 Motor Grader 4,049 42046 SCH (BRIAR HILL} Y 98 956 1988 Catnpllar 16G Motor Grader 93U026S1 KOMINE Y SB 0407 1988 GatapUar 16Q Motor Grader 93U2S43 REHJESSUP) Y Wl 806 1987 CaterpHar 16G Motor Grader 93002425 rapper RL Y too C405 19B3 CaterpBar 1BG Motor Grader 93U02227 SCH (BRIAR HILL) RH Y 97 C40S 1981 CatorpRer 160 Motor Grader 93U1394 ISLAND DOCK Y 102 466 Drilech D45KS CMS 731618 KOMINE Y 103 614 DrHtech D40KS Drill 731537 REI (JESSUP) Y 104 C309 Ingereof Rand DMLX1200 DrilJ 7137 SCH (BRIAR HILL) Y 105 9310 DrHtech D45KS Drill 731850 Machine He during inspection. Right side engine enotourse mte»ig,FalrCorKl. SCH (BRIAR HILL) Y 106 C308 1999 psL) Ingersol Rand RDM50EXL1200 Dili 2874 SCH (BRIAR HILL) RH Y 107 C3« 1885 (&t) DrWech C40K2L Drll 731117 KOMINE Y 108 547 1988 (Est.) Drlstch D40K Orfl 731184 RL Y 109 546 1988 (Ett.) Driltech D40K OriB 731089 Machine nee rough appearance, ovaral cond. rsfr SCH (BRIAR HILL) RH Y ;

 


 

(GRAPHIC)
Hilco Appraisal Services LLC August 10,2009 Phoenix Co«I, Inc. Phoenix Coal, Inc 1215 Nsba Road, Madisonville, Kentucky rtfcoRr* Rank* UnM year Make -.y£; \ MsfkMiS* ::IKwSi->*<%4MhifieMi\f[ WB»,;.,w:-,;..J05BaonA “ >. (nap (Marty Fak UqukJieon Market Value Value S f 110 541 1894 HRacht ExraT Hyd. Excavator 172-M88 Rough Apperenee, Sheet ircetel dameae, fcAakte catmks beat, rigKt akla angina anctounuB / UhrmI htnu pail tad at RL 111 479 2008 Komatsv PC600 Hyd. Excavator 20149 TO MINE * 111 932 1997 HttacM EX7S0 Hyd. Excavator 17C-508S VefyWaak.No Spare »8 Spread! CCC N 113 C903 3004 LI* Belt 800LX Hyd. Excavator KBJ49008 RB(J658UP) v 114 846 1995 Hitachi 700H Hyd. Ewsrvator 172-1589 Undotcaniaga ahoaaig a&jns of reptceemant won, IIC appnac. 20% Ife remaeig 8CH (BRIAR MIX) Y 115 884 1994 Hitachi EX70OB6 Hyd. Excavator 172-1445 SCH (BRIAR HIU.JRH v 116 894 2007 Komatsu SJaboLol Hyd. Excavator 55024 5CH [BRIAR HILL) v 117 C93S 1896 f£st.) Unk BeH SOOOQuantam Hyd. Excavator 800Q2-1117 SCH tBRIAR HILL) RH v 118 834 1990 HitacW EXlBOOLD Hyd. Front Shovel 182-0185 SCH (BRIAR HILL) RH 1 its 881 2008 Hitachi ExiioaLD Hyd. Front Shovel 5,498 FF018K0001007 SCH (BRIAR HILL) 1 -:

 


 

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001 Ptioenix Coal Corporation Monty FbriAottl-GAAPBoofe Fore»lical year trtWDeoeniw 31,2009 AccumAated DepracWon displayed as of Cunwt Thu Data Book=Internal ITO Won** December kt&e W UN BttWQ DtfMMf taflpjl MgrAoGUM CurYTO ttamBq/ TeWtam NrtBoct Sjpffa Co PwafyiM D* DM lit Mi Coi fcqdUBm TnoMM 04 Dttr Burnt DW4M Ov VMka Xt* On. AMtnDGtN911 nmvtoWB O00I55 FWKWK* O&W3005 SF 10 00 0X91/2090 vnm OHO 000 277*80 99545 15205 000 1.157a 1520a 000175 IfciiEffiMgencyilMliGilKit Kfll/2096 SF 10 00 07/31/2)09 3,115a 0.00 000 3,11409 157.48 wia 000 1039a 2,078.73 oooie To* laowoM SF 1009 O7AV20Q9 vm 000 ooo 17*452 716.42 10234 ooo 5H.76 935.76 oxw Ft» TRUCK nffliffloa SF 0500 0791/2803 21/59151 on ooo 21/59901 167455 253154 000 W50649 2593a ooow 1971 immttMStW 0MU2005 SF 05 X 07/31/2009 5/90000 000 000 510040 4/40000 70000 000 5,woa sooa 000219 fCtMS0O3B464K oam/2005 SF WOO O7/SV2009 1«J30 ooo OJOO 1522a 40079 5959 000 450.49 552a 000220 17T Fortf taMmsSEMMl 04010005 SF MOO 07/31/2009 250000 000 ooo 250000 93750 14553 000 1JK133 1,41657 000221 GtvBofbrrSFY KHIfiDOS SF 1000 07/31(2009 409JD ooo OOO mm 133.19 2350 000 157a 2S2J1 000222 iMr lomaw SF 10 01 07/518009 83QyM 009 000 12O00 26050 47a 000 314a 90567 000281 CariSpnngVibnte-SizaiK-CKff amvmt SF IflflOOTfllfflDS 173257 ooo 000 173257 25J0S 10106 000 35395 U7152 00(1302 GGDatfKceswnt oajwooa SF 0700 07/310000 34,07500 ooo ooo 3*07500 4,45756 2jo»a ooo 7a?.M 26767a GA.*MAa**> 162OWMMO-80 1999,263a ooo OOO tflSSSSuB 504727a 119a2.fi 000 sHtwa 11575,14355 UsRennnngVii ues NetToW 1«9»38 ooo 000 1359263a 804727a inas-w ooo 624,119a 11375,143a Gn.AWrtn6CtNO: =1t3000D404HO 050041 Ploeer 0X010006 SF 05 00 0701/2000 150MO 000 Oft 15D0O0 15000 iTsa 000 iosa 147500 000042 Pwar Retain 0201/2006 SF 0500 0781/2009 99552 ooo ooo 09552 S22a 8H.47 000 626a 25007 000043 CoflhunciWionB OWWOOS SF 10 00 07SV2009 513J5 ooo 000 513*5 MU2 2557 oa 171.29 342* 000044 IDesk 0*01/2036 SF 10 00 07/11(2009 95254 ooo ooo 55294 xis& ssa ooo 317a 6355) 000O45 Sawing ItBuBmOigUKipa o&maoM SF 05 00 07/31/2009 456« ooo ooo 45650 2432 5357 000 29679 15951 000048 f«t Proal leg* Sin FJing CabM BSOIfiOOS SF iooo 07/31/2009 1*1.14 ooo ooo 1,»U4 47177 11556 ooo 594a iaeii ooooso AgatuknSowwtfTvndnalSarw atfSoHMieUcMHa 09JW20O6 SF 05 00 O70WOO9 12JXH.12 003 000 nooi.« M87.18 1516.79 ooo 758357 M17.15 000051 D«IL«»CP BjnyCoyfc OWV2006 SF 05 oo mum 1532» ooo 000 1*3225 75172 190.42 on 952.14 6B.12 000052 3 Samsung it MortOoW Key* isfeuraocs 0WV2006 SF 10 0) 07flW009 726.H ooo 000 728.16 16145 42a oa Mia 514a 000053 LouoMfltOtlcaFunAm OM1/2006 SF MoooraweB 21564.15 on 0X0 21564.15 5,12451 iau4 on VOU2 15557a 000064 Coptr 9*018006 SF 10 oo mvm J55S.H w on 3/553,10 09906 22475 ooo 1,12353 272925 kvMimat*m hail

 


 

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001 Phoertx Coal Corporation FfrftifcatjWOTMDeariarSl.aiOg Book «internal FYEMorth* December klto HI Thy BtgMg Dkfuef Bribe PfcrfeaB CvYTD AaMtUff -RMAeam tWBnk SfM» Co Dewwon Mi DM l* Mi CM titpfabn TomOii Cot Mr TnntOtt Mr Vtbt My aLtatftect»<1fsaMB4MMri twos F* Catena lOttiaos ST iowonsiaio9 3269 on on 32BJ9 7354 19.16 on 93.10 235.46 000056 OHct Chili* (BarrndMm*) 1M0H2006 SF 10 00 0701/2009 43*a 050 on 43436 97J2 2533 on 12105 31123 000057 FingCibNK KWDB006 SF 10 00 07810009 1.12254 0.00 on 1,12254 25256 6547 on 3i«n 60451 0X058 Suiwng1BeuBariOig)lilK«|«t mum SF 1000 07)3100} 68439 OJJO on 684.90 154.10 3985 on B4K 49055 00OOS8 Bnwemt mvm SF 10 09 0791/2009 23SS 100 on 23922 Hffl as? on «7n 17156 000060 CwnMw «BW006 SF 05 00 0701/2089 3)38909 too on snon 1525JS 3953 on 1429.43 146857 800061 iJptjp/WwiyTjjtrt IMIflOOB SF 05 00 O7/JU2009 159659 on on HS65J 76347 19783 on 96140 73S.1S 000062 M*FMlM*UMinBl 1WH/B006 SF 70 0017/31/8009 48U0 OjOO on 48550 K&3D 2655 an 13365 35235 000063 PintnjttofOflcioUjiisv* 1WW006 a « OS 07/31/2009 4,106.19 0X0 on 4,mis 68966 Z3SXS2 on 1,12920 257659 Q00O6S Ott»Fwrture-U)Ur* MW006 SL WOO 07/3020(8 140059 040 on IjUOJB 303.49 8170 on 385.19 i«isn 000066 MetQMr-OidqWgglgn iiftwas SF 1000 07/31/3009 2S2.M on on 23ZM 5029 1359 on 6352 16832 000067 Wot CM-ChiiBUad 11*10X16 SF 10 00 07810009 232.M on on 232.14 son 1353 on 6352 16832 000068 Otca Strap.laJMb 11/0*2006 SF wooflwiaw 86656 on on Man 187ffl son on 23639 62847 000069 RlnD Cibint — jfifctfi OfiM IttlOW SF 10 00 07131/2009 4312 on on 43120 9143 are on mse 31262 000070 MASSOtaMtty Sabot 0WVMO7 a 0300 07/31/WB 26.701.45 on on 26,70145 17,60096 5,191.94 on 22.5S2.90 370855 000072 MCatifiilM KKI1M04 SF 05 00 07/31/2009 5,181*2 on on 5,1*152 4/0453 60454 on smm 172J5 000073 OfcgFumJUt-dMt,r«WvBl Caen* {Tim tOat) 1M1M04 SF 10 00 07/31/2009 IMS on on 2,36263 1/904.11 13751 on 1,14152 122171 000074 Ola Fumftfffar$MMbiy-<l«fc,le atmtM*.* WDM0M SF 1000 077318009 964JS6 on on 96156 40995 5626 on 46621 49w5 WO075 VVMi buifdB IWIfflW SF 10 00 07/31/2099 1*46.49 on on 1546.49 58*73 107.71 on 69244 1,t545S 000077 n*ont%ilipa OWU2006 SF WOO 07(!JV2O09 394379 on on i&m 1,003.11 19554 on 1.1M-K 2,14555 000078 F*abM 0WV2006 SF 05 00 0M3W009 62959 on on 62939 37800 73M on 45in 17849 000079 total*) 09Q1/2006 SF 1O0O 073W0C8 3511.76 on on 3511.76 (Bk 22225 on 1,11177 259959 OQOMO «*m 10B1/2006 SF 1000 07816009 3/noo on on 3,73m 839.48 217*4 on W7.12 Z573« 0000(1 CttdpuMr tar PfioahK Aooourftn 04/01/2006 SF B50»07flttW» 1/564.19 on on ISRtJ 11531 194.15 on 1,10946 554J3 000062 GmpifcrbCCC 6OTH2I06 SF 0500 07731/2009 968.97 on on 96&S7 53253 1044 on 64557 32300 000003 DrwWhrPhiKiii&ijhMfinj IWJ1«0S SF SOD 87/31/2009 M8153 on on 1J6153 VB4J5 21951 on JS» 627.17 000064 Mxttrtm mm* SF 03 00 0741/2009 twos on on is/tcn 12354 1,121« on O460n on 000085 Boitwinctftttt 0001/2006 SF 10 00 0701/2009 47710 on on 477n mis 2752 on 16655 31055 000066 I4drt66*tafc 62Q1ffiOQ6 SF W00 07/3W009 SS13 on on ssm 16077 3215 on 19252 35828 000087 BaACM B2OV2006 SF 10 00 07/310)09 43457 on 050 43457 12661 2552 on 15153 262.14 krmi,m»* Ml PlfH

 


 

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OKSchoateMringCorapffliy UdtNyRad Aart Report-QAAPBcls Farft»iKaly88r«niMD«Mb»31,2009 AcamUated Depr«ciafon displayed as of Cure* Thru Dak Book = Internal FYE Mortis Decwitter klSw a -m Baghfeg Dhtnuf FjiAg nforAfiBK CwYTD AcenOhpf TttolAMPt WBNk SgNo Co Dwjfcn Ml M Ub Ml CM MqNm MaOtt Con Dwf tmm TnmOU 0* v*» m M.A4HI iAeaNo< .«WO-0O«K»« Rjsia 0J» 0J» i2$in 3,19094 mm too 3347n j 931420 UssRem MMjVauiS NelToU 12,961.29 (LOO ooo wniffl 3,19094 790.06 on 3347.00 1001420 61AiMAMND« WSMWMMB O000D3 850 BucMKSCaEMUad* 67XH/2006 SF 05« 07/31/2099 tsjxnoo on on isnon 7non ijson on §25000 JS,750n 00D0M 134 E«ane-8M-mdiSlKwl STOvans sf Nnormeoos «2*U0 009 on «#&n 40,20057 aoton on 48JMO60 on 000005 827 lMmmage-837 07WCOW SF MMOTflttnS 1353U7 aoo ooo 053*37 112,7458 22548.12 on 1353437 aoo 000006 834 Undwonasi-eu 07418006 SF 0300 07fltaw 1X30900 aoo on w&njn 130,424.17 2598443 on i5snsn on 000007 827 Umwanag«-8Z7 0HOU3OC6 SF 93W07B1fi0O9 361565 000 on 3jG15A 2Jtl2j62 70304 on W«« on 000008 Ne»Gm»U9MjjowTUght[)lii*! OMTMOS SF tooo vmvsas WOO 009 on 4,45290 W75J9 259.70 on W&M 3.1W.40 000009 Nm G«i>Ughtm«l4)hk*nh mwm SF WOOOTfllflOOS MSZjBO ooo on 4,48200 tffsn 25079 on 1,3*60 3,116.40 000010 652 Uwranaoe-JSZ (SO/M2006 SF 0309 07/31/3)09 s32soon aoo on msnn 10305155 25J63J9 on 12081945 33H 000011 87! SBIIicklrtiTiu* inetaoE SF osooojwaw 7J9KUXJ on on 7WM W5W0 BTSLOO on 4.12$n wn 000013 C4ntUgMoMrMiiOtlTW.4000N 0MW007 SF Mooomiflooj 4.S7S66 000 on 4j67&6C 896.1? 272.74 on 1,16631 3506.75 OOOQM G«»Lghfen«rMod«l”!)4HO0oN 0MHfflM7 SF moo vmvzm 4463« 000 on 4an SW34 26038 an 1,078.72 3X434 000015 rw«rPwnp-SW Mounted 07/OWD07 SF Ktomvm 1X2HUB 000 on russn i«2n sssn on 2wn 8330n 000016 «7? 2002G4CWW eawaom SF 05 00 07/81/2009 ttrfOOW en on 1EV4C<U» 4.10&67 U96jSS on 538133 9,496,67 000017 423 CATD7-ABJ006O2 IWV2907 Sf 10 00 07/31J2009 3f4J6249 ooo on 31436449 36,733.* 18366.97 on 55.19033 25SV76156 000050 67B C*TDtlR-7PZ9l450 124Ma»7 SF 1000 8191/8109 IStTSOO 000 on iwzsn 16604521 89(40835 on 255454.16 1777034 DM051 079 »T OBT T«*-1>jie Tnaor- KPZIB* OW1B008 SF 10 00 07I9V2009 S39/WOO 000 ooo 539n9n 5330330 31,442,19 an 65443* 453*6531 000052 801 EX190QLDKt»cfistow( 95*1/2008 Sf 10 00 07)910009 WWflTJOO on ooo 23807800 172338S3 IS0J97121 on 32339974 2mSw3& 000053 l99Zlte»FtietTHlck 05040008 SF OS 00 0781O009 25,00000 aoo on ssjooon 3,33339 4916.6S on 6M» WS0O1 OOOQM 986 CArD11fi-7f>Z75010 MiWOM SF 10 00 07)310109 l.tSSSdOQ OJBO on 1,16t35aM 47*039 67*208 on 115J0238 W7*7fi 000055 890 KXVOG990GriilirSN 42046 mwmt SF « n oTravsxs 33UB5JN 010 on 338nsn M72J8 197S8J7 on 212412 310JHS75 000056 C7« C*T777F-JBP0«« mum SF woooratfflw ijZ48,7Qaoa aoo aoo lasjoon 31,217,73 7234US on wnon 1,1444952 000057 C719 CAT777F-J(W1«B wfliara SF 10 00 078W009 tajosun aoo on i,24*mn 31.217.73 72341-35 aoo 194359* 1,144j64932 oooo5a 895 U>naSu785-7HalTM*-A1<)079 iwiaw SF looooravara 1,12*394) 000 on 1,132000 njBan 6S|7fln on 84j590n 1W5«n ooooss 894 Komi* PWl&JlkWTn* Hot imvzm Sf 1000 07)31/2099 555,900.00 aoo on sssnon %265n 3M27J0 on 4W250 5M2Wn 000060 C720 C*T777FMiMT™*-JBM1BB8 O101/2OW SF 10 00 07/3WQM ittmoo tun on 1,24933400 on 72JS156 on nm m l,17Sn2.« he*<.agin cam Pigi2

 


 

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002$choate Mning Company MorthlyR«8dA>MtR«port-GAAPBaji5 Forte feoljwffffad Dooombor 31,2009 Bo<*= Internal FYEM«tl«OBCWtar irSk fit -am — * * -HomnB QnoNdf ftdhB. Marten CfcrTO MggtmtfJSngl ToMAxom Mta* Sytfe 0» OmfHn D* DM u» a* Co* tasMom TnoKM Cat On* Em Tnmtot D*r V*» Kiy GlAMArtltoBlcaMMMMO 000061 85? KarauOflSMOwtoOoBr oiwaxs SF lonwaiaw 233,10100 OiOO aoo 239,19000 aoo 1334750 aoo U0I7SO 225,15250 tt.MNtAt*lto.162»««0«n 1J71M0O4 aoo aoo lyisno* 964S3&52 8007892S aoo 1.789,727* 1 UW607&M LmReiMifwgWtaa N*ToM 1W1M0474 aoo aoo B7KJIH7* 98*9389 mma 010 iTSSjWn 3WW607&S4 GMMtatM»< «00*0MO41 000062 152 K»wlw047SMC!WlK oaawooo SF WOO 07913009 an systM aoo Z6WBJ* aoo 13W.11 aoo 13fl01.11 S 24721.13 Dnar-Miftf 000063 596 Kemiu78S-7HiiilTti*-Atgon Bsman SF 1000 07/3*2009 an OTomo OjOO Liamoo 003 47OSO00 an 47B50n 1j082,150n 000064 897 Um*u7»?HltJTn«i-A10090 BWUS009 SF WWO7AW009 aoo i,i292oaao aoo 1,12MO0j0O aoo 47J0SO00 aoo 47«san \pB,mm 000065 898 Kom*tl7B5-7HBjTiix*-AKI0S3 OW1M08 Sf naamvm aoo 1,09200.00 aoo i,i2#nn aoo W4O90 aoo 37/MUO \tmS6M 000066 SJ5 CATSKKUufcrWOOOW 04W/20K SF muimiim on 1/599J590O0 on 1*9969)J00 WO J6JJS133 aoo susstsa iMms 000067 107 K«MiHD475A4MThKtor 0W1/20O9 SF 10 00 07flMM9 cus 73«A00 OJOO 73410000 000 1223333 an 1223333 721/sss 000069 HC K«miauD47SM*T8dw OOWfflW SF 10 00 on (WIMBj OJOO 90032365 aoo aoo an on 890323J65 6M.Mm(AmN»* *2B0«««41 aoo $309,69519 OJOO MBJ.635J9 aoo siaueaa.77 on 2131530177 $6OTkb.« leaRenwmgVi*** MrtTotti ODD sjwisasas aoo SJWfiM? 000 21SJB3077 on 2W«0J7 $6*76*5.12 BumtfuMt.mattmwo 0OO0T2 PinftMrffeMk-Olto 07AV2006 SF os 08 0mm wn ODD aoo !TO00 yoaoo 58133 an 306133 11,91557 EtppnMftilfttngs «ug«4l2H»M«3IM Pipl

 


 

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009 Phoenix Coal Processing Ftctd Asset SumniiyRflport For the fecM yon ndtdDunto 31,2009 AocumulitedDBprecialfondspbyasrfCaTenlThmDate Books Internal FYE Month rDecamber hSK Gt Tta Biatfftg OhpoNf &itei Nor Am CtwVTD tanKfT TcnJAoswi NMBgok S*Nd Co DotWbh D* EM III Ut CM AayMkni TnwCst CM Mir TtwOU ov V** T 01 fettAottNe W5MWWWM 000079 PW04 ScnotttaprafenftK-ZHI iwwra SF IQBJBTOIfflOOS 107#Ofi OjOO tun iwaa 3112141 HQsras OflO wma I1J5WH9 oooon www: 900083 n-wi NpOWSomflim* omkmm Q&MMBBttt TOVHMMQ SF MB MO nmvmum flft an BflftifflWi WW WH/88W E320&SS mo ax m m M0 AN ftOO S32JS20 MQ 3ME7J9 M0 OJOO MB MB n\/mm MB MB 460J520.T1 AHA PnfrPtwi tss ftOO adggai AM W-3IB rap HOT UPHU htsKwlJIPiiili-ftwl D&TO007 NO OOWBTmSDOJ MO m uo M0 M0 sso MB MB RAW ooooes OteMmSamfyiiWmftmiq 0WV200S SF loooowaw SWTSfll OjOO HOD 2S7.S1SJ1 WKBjOD ftifVlfl on 10M15J7 162399.14 OBBBft f|Ttf l**m*immtitd aapDot NO W wrtffWcJmj wo M0 m M0 M0 MB MB M0 MB 00OOB7 73-111 NpRMlmnwrtOhir G2Q1&006 Sf moobwswoo) ZB?fl69it MO aoo ar*sifl 925j(S 1W9J38 (LOO !0M*flT 1JBJEI4? wwiM MAittttUfiiMUtfitMAn VHVWCWQ vvfinmi IB MS MS MB MS ana ObSB M0 MO MB Mt MB Mt MB MB MO MB MB 096681 00 09 07fltfi600 nQQQQA &4J| TvlBWtf wTnrWBBHQ NO 0&OPW1JB008 BBB M0 ftoo UO M0 M» M0 MB M3 80600$ W439 pVCfom QTjfljffQftt NO Ml ftOO m flatt MO MO tao M» Mt M0 MB MB MB MS 960699 lajjfi PVC£tA OiMMfQQOf N9 MR Mt ngmQA W-44* uba£I SXDUSBQC OtfflttPQOfi » N9 NO MB wo AM too MO M0 8e66 MB M0 Mt MB ABO MB MB MB Aung MB 996091 &44{ 6B68SS 900696 MtHWHM UBTUUUNPf m MS bbobbtomoob M0 (Mt 0« M0 too MB MS MO MB MB Mt MB MB M0 0.O8 MB 60QO9O J3 jfcl aflBIMftte iwmwwe MS MB oo« wawaai WOOtgaWBM MB (too BAB M0 MO M0 (UBB MB MB M0 MB MB fififl flyM M0 MB Mt 6066% ya Ifflt i inrrkfifMfSiMiB fliAlQDQC. NS woo trovaxa M0 tm M8 M0 em MB MB OVOB AIM QfiOsflQ 79-40 I Lwufci W<#W 1 111 N9 MB MB Mt Ml BOB MO Mt Ml MB MS (MB BLflfl 8J6 MB M0 M0 M0 MB AM A MB ass ftflO agoifli ?Wfl tlbttw Write UW ounce yj «« \mm*mm«wiv*v* OffllCfflS MO wwwavawB MB flflftlflft SHiW fltrrwWpBflojlBf QCBUEDOC W 00 OB BTOIffiOOB Mt M0 Mt MB OflO flflfl MB MB MB KHW N9 00M flfflVMW MB MB M0 fcOB AM M0 MB MB flM QQQlflfi 7|9 tqft fmMJUHAC WVTOWPBP NS woatmnflro 0*00 M0 M0 mm MB W fifiO anil Auguuansoim ftp

 


 

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009 Phoenix Coal Processing RttdAwtSumraijfaport Rr*lllc«Iliwr«l(WDwrtb»31,2009 AmmfaodDepeciaSooclsptyefl” as of Current Thru Data 8<x* = Internal FYEMwtis Decanter hStt Ert Tin 8#rtf HbmmrV Btf« MsrAgem CarYTO fernM* ToWAOftM MM SytNo Ob Omaigm D* OH Uh OMi Out i tw*ou 0* 0«r Bom Itatffct ow Vita Kay EUCAMtatNa NZOMMNMB C0006* OtoTnto 07AVSI07 SF W00 07fitfflffl 62400) on (US 124000 sa&n 8SU0 on won 4540n 000065 954 WOFttdTM* 0SOW007 SF 0Snfl7OTZ009 20JlMfl9 too 0.00 anon tftm 233*133 on Bi-fwJyy unon 000067 C1S7 C*T01tB7W»1493 I2CV2007 SF »03 07J31ffl!09 iszwn 000 ooo i$on7n i&yraoo «;15U4 on 254J27.83 127J«91T (MOMS C2«1 CATW**Uw*.9IK-«»S62S 016U200B SF W00 C73V3JM IjS5Eu484J» OJOO an 1*5M84n «sjMan 96J62B23 on 26Z27«n in*n737 0OCO69 LECOSutftwAnalpa noism SF KOOCTSIGCW 40321.74 ooo on 40,9217* 68183 287-09 on 3jOStt2 S7J8S242 000070 SaHPiOjK! tw«zw SF I0HO7M2O99 fojjn\fl an on asnia 58197 W*an on 2«7« 32,41036 000074 JTjSyTn* owwow SF MSB 07/310059 *,wa ooo on 4,1B0n 76632 24183 on IflflllS 3,16955 000D7S 32£iVTM 03018007 SF WOO 07/JIOTJ9 mm OJ00 on s,6om 1,026*5 326J2 on 1*357 4247.43 OflODTS 3Ci«T«* 03019007 SF 1000 07331/3009 yam on on E,4S0O 1,177.91 374J9 on 1JE270 4jt7U0 0O0B77 MtoTfftVMwFtowielei 0781/2007 SF 1000 (TOV3XS 3044.78 OJOO on SJ44JI 5tUl 22428 on gain 3*43.78 OOOOffl RaUWlTtttCal IWKSW SF 1000 98310)09 (90000 on ooo «non tosn 48ZSS on «07» s»2n M. tat ft* No — WOWWHWO 6.1W,ttU4 a» 6.00 6,116,181.74 895317 36M0627 on 1296.17954 *4j656fl8220 UantmunngV«uM ItetTott 6.116,181.74 400 on 6,116,181.74 895OT27 362,40627 on 1558,17954 t4j85lj00220 OlAMtAcdNo K23MOOM0n 000061 Bug* taring F«d*jf C2W/2007 SF 10 00 07(310009 1,77SjO3M0 000 on UTsnon 34020433 mS41J6 on 443.749.B *W2Mjoi OLMMMCtfe- leaMUMHS wwm aoi on isnon MOMS nasun on 443,74999 JWS12SM1 LenH«m«t»nVa«*J NttToa ItfSnon ooo on i,r?snon wo&a wjsfln on 44374999 S12412SU1 OwlTM 10*759493 S9922B.44 an 11575,17794 158339721 <4sn2n on 22293998 f 9315*796 l«*FtomNiiY*m tat 0*4 T« wsriMsa S»2a44 11375,177.94 15813973 64595269 OOP tssmx (9343X7,96 «agut4,MU«3ini mn

 


 

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007 OW Utoty Eqiiprart Compffli RodAnatSurtratiy Report-GAAP Fgrt»lnliMrm)adDi«nto31,2S09 AccunulatBd Depreciation Sspbyed as of CmsfflTfou Date. Bucks internal ITEMorfi” December 8jt* Co Mb DM hi E* tin 1* DM BegMig CM tattkm Dtfotif ItaflNM CM Dtpr caryra fecmO0 TMKM TOHtnOttRI NCBNfc 0BB9H 000073 183 m m BS KM Me BBS m m MS 18 m m WSBB4MMB4B whiwtbspbi WbMbBWBCtt6IO jsBssiWBlwHwiWW KWOfroitrti WWIWJJM AUOfUOD 7UEBJB1 IJJU ffllWKfllft Draw fj*4 OEhtnooo fltfMtft*Bfl HWww BEttiUQfifl 11/Q6ftQ01 ttWUMH twpjbictwhp tusasooi VJTEBUBMBE fnnDN uafueuoB IwwSWSiWf MWtWfiM pnBnrew*B UADOOhE MttlFflM OS/15*3)03 wnmnn 0619619068 06SSSOOS &XD3J9QA3 MffcVcMM NB N9 NO HO NO NO NO w NO NS NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO NO » NO WK» S7B1B8SB, MS MS MS Ml MS MS MS flflfl MS MB MS «49 MS Ml MS sa MS SjBB MS ftSS ftsa am Ml MS MS m m m MS MB CSS m m MS aw MS MB ftflB MB MS MB Qftft MB MB MS MS MS MB MB MS BAB MS MS ess m m MS S£S s» MS m m MB M MS SAB MS SAB BBS MB MB WO U0 M3 Am SA MS MB &06 Ml aa MS 8SB MB MS MS MB MB Bjjft MB AMI MS SSS StBS MS MB MS MB MB MS BW MS MB MS MB MB feSS MB tat m StSB SMS StSB MS «SB MS MS MS MB MS S» MS MS MS a» MS MS MS 600 Ml MS 948 MS MS MB MB MS MB MS MS Ml m MS MS MS MS MB MS MB MS Sfi» SSB MS Ml Scffi MS Btt Ml Ml Ml MB MS Ml MS m MS Ml MB MO MB MS MB MB am MS MS MS tat MS MB MB MS MS Ml MS UBS Ml sa MS MB MB m MS MS MB BM MS SB m MS MB MB MS MB MB SbBS S« MS MS MB MB MS MB MS AM m MS MS M Ml ftSS MS m MS MS ft00 MB MB BBS BM MS MS MB MB MS MB SJS MB MS ftSS m MS (4B MS BM m m m MB MS m MS MS BM MS we m MB Ml MS MS MS tea MB «SB MS Ml BM SSB m MS AM tffi MS BM MS MS MS Ml MS Ml MB ang ftflfl MS Sffl SAB 069030 986074 6066% 9689?? 006638 f¥Hfl7*l oooooo 0066 0WBOB» flu mi HfJByWna an iw irwutMnwn All OtilM liii vnufcuii mil 10 Tw Tufrw **>*—**- —* WPWpwiBWW «6mvfH|»fan|l i¥ fiwMiM urn "ITnRWB> 6Q0#eu#ami wbtwbtowv —.«t—» a— - 1*7 tail * OTilf nJlMllnnAlr PL)1 U *ll Wfj fTTPHiJihinWi wVMMMbf 600063- flgangp 069683 009064 QauK WBWPtJB 969666 90000? oooooo no w wavawa WWtWKBM 000003 000084 wwwawwH 000006 0006 ffffl/ftXP pq oo 07/avaoo 000007 000096 900400 00 00 ffgtfflOOfl flQBI&t 600163 MB ess QQfllffi) woo roaifflsss u %«»« *am PlttS

 


 

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007 CXd Liberty Bpipnwrt Compan RadAwlSiCTMiyRapcxt-QMP For the SsalywrindBdOmnilMf 31,2009 Aawraua8tfD8pration*splay«ssoft>n«TliraD9fe 8ook = lnt9mai FYElta*cDecamlw hSR E* Hw B*5*»*l PIJPMIdj EM$ rUFMOKI OarVTO taviDap/ ToH Atom IWBoOk SyiNo Ce Datamini D* 061 Ub 0* CM AcfMkM lw»Oil Cut Dtpr B(p«at T*»Oot DV V*a K«y aa.MMA0tMo* WZOMMfrOWQ 000029 MO 1979IHC$1«0UWrTwli 07*1(2008 SF W09 07/31ffl»S HWOOjOO 0.00 on tciyDGQuQO 240100 58333 on 3JW333 SS1«i7 1)00031 642 1998M«iD«m3l0SE4»4l<Mlr 990 HBAEXISOOHyrtafc Short 0701/8)06 SF iooqotmw 3200000 OJD on 32J0&OO ixoon tjBSfijSS on MGfiJK 22,13334 000032 834 07*1/2006 Sf nmmma 250 WHO on on 250,000 40 82JS9M0 14583* on 77«333 I72916i7 OM033 M3 199214* ROUSSXTmftiliDvqp Tiu* 1995 «»* WOW H»<htf: owi/ax* SF nmvmm 2R0QQn on an flQjM&TO snon \,M& N» iMw£6 U833J4 000036 8*6 o7«vaa SF 10 DO 07/3Ua009 1KUXB.O0 OJ00 on tsonon 323x10a 7SM3 on 4Qy0633 89J1M7 Ejomoi 0OOO37 847 l99BGMC7<nOU%Tnx* orm/ajof SF 10 00 07l31fi009 2SWUU 0J» on SlSjWSjQO 6£on 1«M3 on 70633 I73K7 000041 851 mi cnwjf Kodak tMBiw m«* 0OTW0M SF 10 00 0701/2009 ITflOOJO 0X0 an tfnon 4j7sn 1/02083 on S395J3 12,104.17 000043 8S3 19«KgiMtEu330MOMaidHial 1996Kl»ttU(l1-fMHk<Tiv<* 87ffl15906 SF »»07S1/30» 295/00000 0.00 on 286306.00 73,J50n nnas on 90,558.33 ZMMU7 000044 054 OTfllfflODS SF wwmvm 2S0J00fl3 on on 25onan (2/soon H»3J on nmx 17251647 090046 «7 1996 C4l950FSiriall FUterTM LMdK 199tCn992CFra«Ea)Uai)« OTWWOOS SF 1000 0781/3109 80/900.00 on on Banw zono.00 4nsn on 266&jG6 5533334 oose47 as* 07AV200S SF I0 00 87fl«a09 2SUXAO0 on on mooan 72Aan 1691&66 on bmw« 25058344 000049 859 2004Fo8F350Su|wOul!MMd Tibet ohhots SF 10 w o?fliaxs zwm on tm 22jD0On umm iaaa on ssan 1571657 0M049 164 i9S3HtteN EX7tOHyiMcECJMto 07101/2006 SF 10 00 07»1ffl6» 150/30000 on on isonon sr/soan *75on on 4Ssan URTSOn 000051 WCOF9670Tii-WBl«*rTn«» oMnooot SF 10(Q S7AKSOB BflKW on on tnsn 2ntn 46&SB on 2,466.66 533334 000054 861 1992NtKANU$1B0DEmi»*dVui own/aw SF 1000 0WW009 Z5JD0iB on on 25,00000 VSDX nem on T,7Wn 17»lO 000057 07ffl1fflO06 SF 10 oo orsifion TSMMSO on on T66JSMO 1J6«2S) 4SnC58 on 242,427n 54342232 000058 849 !97(CiiBptr993CRi«i«TW W40* CAT D9L Dour 07AV2006 SF 1000 877310009 129,00080 in an 122X00n sown 7,iisn on 37*16.66 8438334 M0053 871 ioma» SF woooiaiaw 137JWUD on on 137 win sinsn 8H38J3 on 39W333 J8J56J7 000064 873 1986 Mtdt lute Track 04OT2007 SF 10M 07O1/2M9 48J0OMO on on 42non won 2jCM0 on 9non 32/9UIQ 009065 874 2001 Fort F250 0*01/2007 SF WOO 87/31/2009 20,710X0 on on awnn asm uotn on 4*3233 1S377i7 000068 875 CAT992CW*( Under OMvmr SF WOO 8791/2009 Msnin on on wm® T&ssm m\» on 3336&E6 WM3134 0MO5? 875* 99XR«*Budc!lorCAr992CWMt< 06AVZ007 SF 0 tO 07/31/9009 13,70000 on an warn ZXSS3 8B71 on 3jO«« 10»136 N0M8 m im tfc i liM Tilsit V**9MBirsBDirTni||1 NB BM» ftflfl mo an m MS MB MS onfitttiQ WWUJ UUtttt m 88 W CWI/iBB MB m M m MO on m ft» M jUMAH UVOTPTB VkffgfeA MfilfWft m WHO 07/3W60B AOO AM MB tm m on on MB on h*M4,ana4J8ni *m*

 


 

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004 Crtteoden Courty Coal UonWj FtelAwetSummBy- GAAP Basis For titfccsljfesrsniMDtosfltierSI, 2009 Accumulated DsptBoatJon disptayad as of Current Tlmi Date. Book=Wsfiial FYEMorth=Decemb« BjJINQ Qj OWtq*PI hS* H l*ra ftstag CON tffUL— HBOMdf * cnvg NorfcoM CurYTD AoanOV £*mi TiMfrOtt TMtawi MBook Via Kir QA JrtksilkimlSSaMA&IAM 0MWIID7 SF 05B1OTT SF W 00 07HtM09 10 00 07M2009 MJMO MlOuM m aoo am 0J90 97U7 1,50147 340M 000 SBJSt 003 1411.75 ZAZM5 000003 LyiPinspiioBit&resinJoni M41US MfETS Lest Rowing Vafats 144&00 OflO 000 M440M 147434 IS566 OSS W»* S 1140100 NetTom 1444000 aoo ouo 1444001 W7&34 96SJ6 CO] JS»M $ H40U0 QmtfM LataMM*1M» 1444000 100 040 14440.00 WttM tssa aoo M3M0 $11501.00 MSnnrfToM ummo I aoo 14,84085 MW. «sa om in 32Xai H1J010O fc«*4,MI««aw rlQfti

 


 

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Schedule 2.1(b)(ii)
AT Coal Leases
1. See attached list of AT Coal Leases.

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Schedule 2.1(b)(ti) 5Phoenix Coat Surface and Coal Leases Mine 5lessee/Assignee Lessor Type Date Comments and Recording Info Star Evergreen Mineral Co., inc. Peabody Development Company, LLC & Peabody Coal Company, LLC Surface Mining Rights 21-Nov-05 Star Evergreen Mineral Co., Inc. Peabody Development Company, LLC & Peabody Coal Company, LLC Partial Assignment of Mining Rights 30-Sep-OS Star Evergreen Mineral Co., Inc. Peabody Coal Company, LLC/Terteling Partial Assignment & Assumption of Leasehold Estate 30-Sep-05 Recorded at DB 514/531 Star Evergreen Mineral Co., Inc. Peabody Development Company, LLC/Terteling Partial Assignment & Assumption of Leasehold Estate 3Q-Sep-05 Recorded at DB 514/506 Vogue North Evergreen Mineral Co., Inc. Peabody Development Company, LLC & Peabody Coal Company, LLC Surface Mining Rights 21-NOV-05 Vogue North Evergreen Mineral Co., inc. Peabody Coal Company, LLC/Terteling Partial Assignment & Assumption of Leasehold Estate 30-Sep-05 Vogue North Evergreen Mineral Co., inc. Peabody Coal Company, LLC/Terteling Partial Assignment & Assumption of Leasehold Estate 3Q-Sep-05 Vogue North Evergreen Mineral Co., inc. Peabody Coal Company, LLC Surface Mining Rights 21-Nov-GS River Queen Evergreen Mineral Co., inc. Peabody Development Company, LLC & Peabody Coal Company, LLC Grant of Surface Mining Rights 21-Nov~05 Brier Creek Evergreen Mineral Co., . inc. Peabody Development Company, LLC & Peabody Coal Company, LLC Easement Agreement 21-Nov-OS Brier Creek Evergreen Mineral Co., Inc. Peabody Development Company, LLC Martha F. Rogers, widow; Martha R. Poulos & George Poufos, her husband; T.G. Rogers, Jr. & Jean M. Rogers, his wife; J.l. Rogers, Ml & Gloria Rogers, his wife; Partial Assignment and Assumption of Leasehold Estate 21-Nov-OS Rogers/Cherry Hill Evergreen Mineral Co., Inc. Sue R. Grable & William J. GrabEe, her husband Coai Mining Lease 30-Nov-65 Recorded at DB 252/343 Rogers/Cherry Hill Evergreen Mineral Co., Inc. Rogers Brothers Coai Mining Lease (amendment) 26-Oct~02 No confirmation on recording status Rogers/Cherry Hill Evergreen Mineral Co., Inc. Peabody Development Company, LLC Partial Assignment & Assumption of Leasehold Estate 21-NQV-G5 Sacramento (McLean) Evergreen Mineral Co., , Inc. Richard Reno & ieanette Reno, husband and wife Coal Mining Lease 2-Feb-96 Recorded at D8 135/4 Howard H. Revlett, Jr. & Elaine J. Reviett, h&w; Dora R. Harris; Larry E. Stewart & Sacramento (McLean) Evergreen Mineral Co., . inc. Virginia R, Stewart, h&w; Martha fay R. Anderson Coal Mining Lease 1-Jui~96 Sacramento (McLean) Evergreen Mineral Co., Inc. R. Douglas Wood and Sandra B. Wood, h&w James A. Wells and Connie Sue Wetis, his wife (99 Shamrock Dr., Madisonviiie, Coal Mining Lease l-Jut-96 Memos not recorded to keep private this leasehold area, until Thompson Creek Evergreen Mineral Co., , Inc. KY 42431) James A. Welis and Connie Sue Welis, his wife (99 Shamrock Dr., Madisonviiie, Surface & Coat 20-May-09 ready for permitting Memos not recorded to keep private this leasehold area, until Thompson Creek Evergreen Mineral Co.,         . Inc. KY 42431) Surface only 20-May-09 ready for permitting Thompson Creek Renfro Equipment Inc. Kevin Huh (3389 Shady Grove Rd., Clarksviite, TN 37043; Surface & mineral 26~Aug-05 Recorded at DB 517/29 Memos not recorded to keep private this leasehold area, until Thompson Creek Renfro Equipment Inc. Captain and Dana Inc. (515 Gishton Rd., Central City, KY 42330) Sublease Agreement to surface mine coal 21-Aug-07 ready for permitting Memos not recorded to keep private this leasehold area, until Thompson Creek Renfro Equipment inc. Captain and Dana Inc. (S15 Gishton Rd., Central City, KY 42330) Mineral lease agreement 2i-Aug-07 ready for permitting Memos not recorded to keep private this leasehold area, until ready for permitting; currently amending to include surface mineable coai; Lessors still have amendment documents in Covington Bandy Evergreen Mineral Co., , inc. Howard Covington, Mary Covington, Morris Bandy, and Carolyn Bandy Coal Lease Agreement (Underground only) 23-Jun-Q9 review at attorneys office Briar Hill/Radio Hili Evergreen Mineral Co., inc. Taimage G. Rogers et ai. (aka Rogers Bros) Surface Coal Lease 4-Dec-47 Briar Hill/Radio Hill Evergreen Mineral Co., , inc. J.L. Rogers Jr. etal. {aka Rogers Bros) Supplemental tease 8-Jan-57 Briar Hilt/Radio Hil) Evergreen Mineral Co., ,lnc. Taimage G. Rogers Jr. et al. (aka Rogers Bros) Extension of Lease 6-Dec-62 Briar Hill/Radio Hii Evergreen Mineral Co., , Inc. Martha F. Rogers, etal (aka Rogers Bros) Supplemental Lease l-Jan-66 Briar Hill/Radio Hill Evergreen Mineral Co., , Inc. Sentry Royalty Company Strip Coal Mining Lease 20-Oct-67 Short Form of Lease recorded at DB 261/22S Briar Hill/Radio Hili Evergreen Mineral Co., , Inc. AMAX Inc. release to Rogers Bros. Partial Release of Coal Mining Lease 23-Sep-86 Briar Hill/Radio Hil Evergreen Mineral Co., ,lnc. AMAX inc. assigns to Meadowlark, inc. Assignment & Assumption Agreement 27-Aug-87 Briar Hill/Radio Hil Evergreen Mineral Co., ,inc. Meadowiark, Inc. Surface & Mineral Lease Agreement 16-Nov-99 Memo recorded at DB 481/32 Briar Hill/Radio Hill Evergreen Mineral Co., , inc. Lynx, Inc. Assignment & Sublease Agreement 22~Jan-£l Briar Hill/Radio Hili Evergreen Mineral Co., , Inc. Meadowiark, Inc. Corrected Surface & Mineral Lease Agreement 5-Apr-01 Memo is recorded at DB 482/213 Briar Hiit/Radio Hili Evergreen Mineral Co., ,lnc. Meadowlark, Inc. Corrected Assignment & Sublease Agreement ll-Apr-01 Memo is recorded at DB 482/213 Briar Hill/Radio Hil! Evergreen Mineral Co., , inc. Meadowiark, inc. Corrected Memorandum of Assignment & Sublease Agreement 12-Apr-01 Not recorded; Notarized and copy in fife, but no “prepared by” Briar Hill/Radio Hili Evergreen Mineral Co., , inc. Lynx, Inc. Amendment to Assignment and Sublease Agreement I0~Qct-Gl section on this document Briar Hill/Radio Hili Evergreen Mineral Co., , Inc. Rogers Brothers Settlement St Access Agreement l~Sep-Gl Briar Hilt/Radio Hil; Evergreen Mineral Co.,         , inc. Meadowiark, Inc. Amendment No. 1 to Surface and Mineral Lease Agreement l-Jan-03 Not recorded; incomplete and only have faxed copy Briar Hill/Radio Hill Evergreen Mineral Co., ,lnc. Rogers Brothers Notice of Extension of Lease 25-Feb-04 Briar Hill/431 Evergreen Mineral Co., , Inc. Crescent Coal Company; Justin Potter & Vaiera Blatr Potter, his wife Royalty Agreement 3Q-Jul-55 In house; not sure if recorded Briar Hill/431 Evergreen Mineral Co., .Inc. Potter Grandchildren, LL.C. Modification of Agreement 4-Apr-01 This document was listed as a reference only; this option was never exercised within the given time period and therefore, Briar Htil/431 Evergreen Mineral Co., , Inc. Lexington Coal Company, LLC & its wholly owned subsidiary, LLC Kentucky, LLC Option for Surface and Mineral Lease and Sublease Agreement 7-Jun-06 lease is not valid. See valid lease below. Briar Hill/431 Evergreen Mineral Co., , inc. Lexington Coal Company, LLC & its wholiy owned subsidiary, LLC Kentucky, LLC William Thomas Dockins, individually, and as Sole Trustee f/b/o Karen Estelte Surface & Mineral Lease & Sublease Agreement 30-Jun-09 Not recorded; no “prepared by” section Back in Black Evergreen Mineral Co., , inc. Dockins; and Brenda Dockins, his wife Coal Mining Lease (coai only; no surface ownership) 29-Jun~Q9 Memos fully executed and will be recorded soon. Back In Black Evergreen Mineral Co., ,lnc. Florence Jane McPherson, and Virgil McPherson, her husbanc Coal Mining Lease (coal only; no surface ownership) 29-Jun~09 Memos fully executed and will be recorded soon. Back in Black Evergre

 


 

(GRAPHIC)
Mine Lessee/Assigneep Lessor Type Date Comments and Recording info Re-leasing after preliminary title showed Lessors had partial coal ownership in leased tracts; will record once new Geibel Evergreen Mineral Co., Inc. Lisa f-airchild & John Fairchild Hi (297 Baggett Ln., Greenville, KY 42345} Surface ONLY 5-Mar-09 documents are executed. H.C. Epley and Betty Epley, h&w James K. Putman & tlene A. Putman, Trustees of Geibel Evergreen Mineral Co., inc. the Putman Family Trust, Linnie Putman (widow) James K. Putman and ilene A. Putman, Trustees of the Putman Family Trust; Surfaces Minerals 7~Nov-05 Geibel Evergreen Mineral Co., inc. Unnie Putman; Sondra Epiey; Kevin Epley & Melissa Epley, his wife James K. Putman and flene A. Putman, Trustees of the Putman Family Trust dayed 09/08/1999; Linnie E. Putman, a widow; Sondra C. Epley, a single woman; Amendment/Term Extension and Renewal Agreement (#1) 18-Jan-Q8 Ail documents are fully executed an in-house; however, the orignal lease and 1st amendment were poorly executed by Midsouth Energy; likewise, we do not want to disclose these Geibel Evergreen Mineral Co., inc. Kevin Epley & Melissa Epiey, his wife Amendment to Lease (#2) l~Jul~09 royalty terms to the public and no memo was executed w/ Geibel Evergreen Mineral Co., Inc. Midsouth Energy, Inc. Assignment of Coal Lease 2G~iui-09 Lessors and Midsouth Energy KO Phoenix Coal Corporation Claude W. Lee & Alicetine Lee, his wife Surface & Minerals 7-Aug-09 Memo recorded at DB 543/956 KO phoenix Coat Corporation Tom Eubanks (2378 S.R. 189 South, Greenville, KY 42345; Surface & Minerals 31-May~07 pjeetj to execute memos of lease on these two leases and have them recorded. Al! other leases, with the exception of Simms KO Phoenix Coat Corporation Jeffrey L. Eubanks (196 Luzeme-Depoy Rd., Greenville, KY 42345) Donald R. Lear & Judy Lear, his wife (2615 Greens Chapel Rd., White Plains, KY Surface & Minerals 31-May-Q7 tease, have had memos recorded. KO Phoenix Coal Corporation 42464) (l/4th interest) Ella J. Winn & Donald Wtnn, her husband (11734 State Route 175 South, Surface & Minerals 12-Sep-£5 KO Phoenix Coal Corporation Greenville, KY 42345) (l/8th interest) Martha L Blass (11650 State Route 175 South, Greenville, KY 42345} (l/8th Surface & Minerals 12-Sep-05 KO phoenix Coal Corporation interest) Fiowel (William R.) King (12055 State Route 175 South, Greenvilie, KY 42345) Surface & Minerals 12-Sep-05 KO Phoenix Coal Corporation (l/8th interest) Surfaces Minerals 12~5ep-05 KO Phoenix Coal Corporation Ruby M. Smith (4899 State Route 70 E, Drakesboro, KY 42337) (l/8th interest) William L Lear & Sadie L. Lear, his wife (5993 Hatchett Mill, Spottsvilfe, KY Surface & Minerals 12~Sep-05 KO Phoenix Coai Corporation 42458} (l/Sth interest) Herbert W. Lear & Ilene L Lear, his wife (11903 State Route 175 South, Surface & Minerals 12-5ep-05 KO Phoenix Coal Corporation Greenville, KY 42345) (l/8th interest) Surface & Minerals 2Q~Aug-G5 Need to execute memo of lease and have it recorded. All other leases, with the exception of Eubanks leases, have had memos KO Phoenix Coal Corporation Jon Simms & Crystal Simms (565 Kennedy Rd., Greenville, KY 42345) Surface & Minerals 9-Oct-06 recorded. KO Phoenix Coal Corporation Loren R. Lee & Kay Lee, his wife (193 Stoneybrook Dr., Greenwood, IN 46142) Surfaces Minerals 6-Mar~06 KO Phoenix Coal Corporation Donald Lee & Ellen Lee, his wife (929 S. 250 W., Hebron, IN 46341 Surface & Minerals 30-Aug-05 Geibel Lumber Co., Lydia Geibel by Jon Geibel, POA and Jon Geibel, Agent for the Geibel Renfro Equipment inc. Geibel Family (P.O. Box 200, Greenville, KY 42345) Geibel Lumber Co., James Tardio, Executor of the Estate of Lydia Geibel, and Jor Surface t 24-Aug-05 Lease recorded at DB 517/35 Amends 08/24/2005 lease; no “prepared by” section; not Geibel Renfro Equipment Inc. Geibel, Agent for the Geibel Family {P.O. Box 200, Greenville, KY 42345) Richard T. Williams & Tonya L Williams, his wife (631 Pallet Mill Rd., Greenville, Amendment to Lease/Sublease Agreement ll-Nov-08 recorded Geibel Renfro Equipment Inc. KY 42345} Gerald A. tiles & Judith Ann Liles, his wife (69 Shady Acres Ln., Greenville, KY Surface 25~Jun~G7 One document; only have a copy in lease file and believed to Geibel Renfro Equipment Inc. 42345) Surface 3-Aug-06 be recorded but no confirmation; no “prepared by” section on Geibel Renfro Equipment inc. Joseph P. Liles (3111 4th St., Apt. 320, Santa Monica, CA 90405! Gerald A. Liles & Judith Ann Sites, his wife (69 Shady Acres Ln., Greenville, KY Surface 3~Aug-06 this document; One document; only have a copy in lease file and believed to Geibel Renfro Equipment inc. 42345) Surface & Minerals 13-Sep-06 be recorded but no confirmation; no “prepared by” section on Geibel Renfro Equipment Inc. Joseph P. Liles (31114th St., Apt. 320, Santa Monica, CA 90405; Surface & Minerals 13-Sep-06 this document; No “prepared by” section, but believed to be recorded; Geibel Renfro Equipment Inc. James H. Edwards (1266 S.R. 831, Greenville, KY 42345} Surface 7-Sep-06 however, no confirmation on recording No “prepared by” section, but believed to be recorded; Jessup Renfro Equipment Inc. Terry Adkins (737 Blame St., Sand Coulee, MT 59472) Surface & Minerals 2-Dec-05 however, no confirmation on recording No “prepared by” section, but believed to be recorded; Jessup Renfro Equipment Inc. Hilltop Haven, Inc. (P.O. Box 726, Burkesville, KY 42717} (Alma Jessup-President) Surface and Minerals 30-May-01 however, no confirmation on recording Short Form Memo of Lease recorded at DB 543/396; original lease was 38 pgs and incorrectly leased Anna Lorainne Cundiff as Lessor (should have been George Rudy Cundiff & wf); Memo corrected this and reaffirmed leasehold interest in R & L Winn Back in Black R&L Winn, inc. Anna Loraine Cundiff, an individual Surface and Coal 28-Feb-Q8 (Purvis Tract-92 ac) Recorded at DB 521/74 & re-recorded at DB 521/237 (Jamison Back in Black R&L Winn, Inc. Anna Loraine Cundiff, an individual Surface and Coai 7-Jun-06 Tract-144.093 ac} Recorded at DB 521/68 & re-recorded at DB 521/227 Back in Black R&L Wtnn, Inc. Anna Loraine Cundiff, an individual Surface Lease only 7~Jun-06 (Kirkpatrtck/Beech Creek Tract-103 ac) Lease in-house but no confirmation available on recording Back in Black R&L Winn, Inc. Kirkpatrick-Beech Creek Mining Surface and Coal 10-Sep-01 status (Kirkpatrick/Beech Creek Tract-103 ac) Back in Black R&l Wtnn, Inc. C&R Coal Company, inc. Sublease Agreement 20-Oct-06 In house document and was not recorded Back in Black R&L Winn, Inc. Tom McDonald Heirs etal. Surface & Coal (reclamation only) 15-Apr~G3 Back in Black R&L Winn, Inc. Tom McDonald Heirs etal. (Billy & Patsy Kirtley) Surface & Coai (reclamation only) 31-Juf-04

 


 

(GRAPHIC)
Mine Lessee/Assignee Lessor Type Date Comments and Recording Info Lease in-house but no confirmation available on recording Back in Black R&L Winn, Inc. Bobby Dukes & Jonnie Dukes, h&w {see notes for original Lessor information) Sublease Agreement 23-Qct-03 status Back in Black R&L Winn, Inc. John Wesley Horn, single Surface Mining Lease Agreement 24-May-06 Back in Black R&L Winn, Inc. Marjorie Dukes, unmarried Surface Mining Lease Agreement 23-Oct-03 Lease in-house but no confirmation available on recording Back in Black R&L Winn, inc. Glendell Horn and Martha Horn, h&w Surface Mining Lease Agreement 8-Dec~03 status Back in Black R&L Winn, Inc. Kenneth R. Dukes, unmarried Surface Mining Lease Agreement 13~Jan-G4 Back in Black R&t Winn, Inc. Bobby Dukes and Jonnie Dukes, his wife Surface Mining Lease Agreement 23-Oct-Q3 Rose France R&L Winn, Inc. Shirley A. Adler (SS# XXX~XX~6237) Roger A. France (SS# XXX-XX-5217) & Ellen L. France (SS# XXX-XX-2104); Ellen Surface Lease Option 26-Mar-08 Rose France R&L Winn, Inc. France signed, but not listed as Lessor at front of lease John K. Vaught, a/k/a Kenny Vaught & Lisa Michelle Vaught, his wife (1704 S.R. Surface Lease Option ll-Jan-08 Vaught R&L Winn, Inc. 1379, Central City, KY 42330} Martha Rodgers Haas, Trustee of the Martha Rogers Haas 1996 Revocable Trust Talmage G. Rogers, Jr. & Jean M. Rogers, his wife; James L. Rogers, III Surface 4~Nov~08 Vaught R&L Winn, inc. Testamentary Trustee under the Will of James L. Rogers jr. Coal Mining Lease Agreement 17-JUI-06 R&L Winn; Back in Black R&L Winn, Inc. W. Edwin Bandy and Exie Bandy, h&w Surface Mining Lease Agreement 22-Dee-G3 Legal not plottable R&L Winn; Back in Black R&L Winn, fnc. W. Edwin Bandy and Exie Bandy, h&w Surface Mining Lease Agreement 22~Dec~G3 Glendell R. Horn Property (surface) R&L Winn; Sack in Black Phoenix Coal Corporation Rudy Cundiff, an individual Memorandum/amendment 27-Sep~Q6 reference, coal lease should be Exhibit B J Rogers & R&6 Leasing assign interest to R L Winn for both Rose-France & Vaught R&L Winn, inc. R&G Leasing, LLC amd Jonathan L Rogers 31-Jul-G8 Rose-France and Vaught Rogers/Cherry Hill Ayrshire Collieries Corp. Martha F. Rogers, widow; Martha R. Poulos & George Poulos, her husband; T.G. Coal Mining Lease 11/30/1965 1/1/1986 (renewed *05) reference to Peabody Development Reserves Rogers, Jr. & Jean M. Rogers, his wife; J.L Rogers, 111 & Gloria Rogers, his wife; Sue R. Grable & William J. Grable, her husband (effective 01/01/1966} Company on 10/26/2005 extended this tease to 01/01/2019 (DB unknown-unrecorded); assignment of #11 & #12 coal to Charoiais at DB 516/34

 


 

Schedule 2.1(b)(iii)
Real Property Rights
1. See attached list of real property rights.
2. Reference is made to the Fleeting Rights Agreements with each of Doug and Norma Everly and James and Sue Markwell, as more particularly described on the attachment to Schedule 2.1(b)(vii), which are incorporated by reference in this Schedule 2.1(b)(iii).

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Schedule 2.1(b)(iii)
     
County   Description
Muhlenberg County KY
  Cleaton Shop Property: DB 541/363 — Deed of Conveyance dated 02/05/2009 between Jackie L. Brewer and Cathy L. Brewer, as Co-Trustees of the Jackie L. and Cathy L. Brewer Trust, U.T.D. March 3, 2004 to Phoenix Coal Company; 5.001 acres located on Hwy. 1380 (also known as the Cleaton Cut-off Road);
 
   
 
  Brier Creek Property: DB 516/1 — Deed of Conveyance dated 11/21/2005 between Peabody Development Company, LLC (Grantor) AND Charolais Corporation (Grantee). All of the Grantor’s right title and interest in the surface estate only on the following: 100% ownership in 497 acres and 50% ownership in 91 acres, as shown on Exhibit A as Brier Creek #11 Ug., and further described in Exhibit B by legal description. Further assigned to Evergreen Minerals from Charolais Corporation dated 01/01/2007 as shown in our Closing Documents and recorded in DB 525/1;
 
   
 
  Brier Creek Property: DB 515/790 — Deed of Conveyance dated 11/21/2005 between Peabody Development Company, LLC & Peabody Coal Company, LLC (Grantors) AND Charolais Corporation (Grantee). Brier Creek — #11 Seam Only — as conveyed in DB 398/37 as follows: 1/2 interest in the #11 in the following tracts: 61 ac & 109 poles & 12 ac & 16 poles +/-, less 50.25 ac, 35 ac, 5.06 ac, and 2 ac & 22 poles; T5-117 ac +/-; T16- 5.06 ac +/-; T19- 50 ac +/-; T21- 372 ac +/-; 3 ac +/-; Further assigned to Evergreen Minerals from Charolais Corporation dated 01/01/2007 as shown in our Closing Documents and recorded in DB 525/1 in Muhlenberg Co KY
 
   
 
  Brier Creek Property: DB 516/391 — Deed of Confirmation (and Correction): Dated 12/14/2005 between Peabody Development Company, LLC & Peabody Coal Company, LLC (Grantors) AND Charolais Corporation (Grantee). Brier Creek — #11 Seam Only — as conveyed in DB 398/37 as follows: 1/2 interest in the #11 in the following tracts: 61 ac & 109 poles & 12 ac & 16 poles +/-, less 50.25 ac, 35 ac, 5.06 ac, and 2 ac & 22 poles; T5-117 ac +/-; T16- 5.06 ac +/-; T19- 50 ac +/-; T21- 372 ac +/-; 3 ac +/-; Further assigned to Evergreen Minerals from Charolais Corporation dated 01/01/2007 as shown in our Closing Documents and recorded in DB 525/1 in Muhlenberg Co KY
 
   
 
  River Queen Property: DB 515/790 — Deed of Conveyance: Dated 11/21/2005 between Peabody Development Company, LLC & Peabody Coal Company, LLC (Grantors) AND Charolais Corporation (Grantee). All of Grantor’s right title and interest in all of the coal and coal mining rights and privileges in and to the following lands: River Queen Area — #11 & #12 Seams Only — as conveyed in DB 398/37 as follows: Only that portion of the following described property that lies south of a point 50, from the centerline on the ROW of the River Queen RR and only that portion of the same property lying north of the north ROW of U.S. Hwy. 70: 65 ac +/- Note: Deed of Confirmation & Correction found at DB 516/391, amending legal for River Queen; Further assigned to Evergreen Minerals from Charolais Corporation dated 01/01/2007 as shown in our Closing Documents and recorded in DB 525/1 in Muhlenberg Co KY
 
   
 
  River Queen Property: DB 516/391 — Deed of Confirmation (and Correction): Dated 12/14/2005 between Peabody Development Company, LLC & Peabody Coal Company, LLC (Grantors) AND Charolais Corporation (Grantee). River Queen Area — #11 & #12 Seams Only — as conveyed in DB 398/37 as follows: Only that portion of the following described properties that lies south of a point 50, from the centerline on the ROW of the River Queen RR and only that portion of the same property lying north of the north ROW of U.S. Hwy. 70: Tract1: 65 ac +/-; Tract 4 (Designated as N-23): 59.5 ac +/-; Further assigned to Evergreen Minerals from Charolais Corporation dated 01/01/2007 as shown in our Closing Documents and recorded in DB 525/1 in Muhlenberg Co KY
 
   
 
  Vogue North Property: DB 516/391 — Deed of Confirmation (and Correction): Dated 12/14/2005 between Peabody Development Company, LLC & Peabody Coal Company, LLC (Grantors) AND Charolais Corporation (Grantee). An undivided 1/2 interest in the following: 263 acres +/-; Was originally supposed to be conveyed in DB 515/790, but was erroneously omitted from that deed, so it was conveyed in this deed.
 
   
River Queen
  Evergreen Mineral Co. Inc. Deed of Conveyance (Coal Mining Rights) Nov 12, 1995 Peabody Development Company, LLC & Peabody Coal Company, LLC
 
   
River Queen
  Evergreen Mineral Co., Inc. Deed of Confirmation (and Correction) 12/14/2005 Peabody Development Company, LLC & Peabody Coal Company, LLC
 
   
Brier Creek
  Evergreen Mineral Co., Inc. Deed of Conveyance (coal mining rights) 11/21/2005 Peabody Development Company, LLC & Peabody Coal Company, LLC
 
   
Brier Creek
  Evergreen Mineral Co., Inc. Deed of Conveyance (coal mining rights) 11/21/2005 Peabody Development Company, LLC
 
   
Brier Creek
  Evergreen Mineral Co., Inc. Deed of Confirmation (and Correction) 12/14/2005 Peabody Development Company, LLC & Peabody Coal Company, LLC
 
   
McLean County KY
  Island Dock Property: 56.691 ac +/- as shown in DB 172/310 in closing documents; dated 01/01/2007 from Charolais Corporation to Phoenix Coal Processing Co., LLC;
 
   
 
  Island Dock Property: 15.92 ac +/- as shown in DB 172/304 in closing documents; dated 01/01/2007 from Donald & Betty Bowles, h&w to Phoenix Coal Processing Co., LLC;
 
   
 
  Island Dock Property: Assignment of Powerline Easement as shown in DB 172/324 in closing documents; dated 01/01/2007 from Charolais Corporation to Phoenix Coal Processing Co., LLC;
 
   
 
  Island Dock Property: Assignment of Fleeting Rights as shown in DB 172/328 in closing documents; dated 01/01/2007 from Charolais Corporation to Phoenix Coal Processing Co., LLC.

 


 

Schedule 2.1(b)(iv)
AT Other Leases
1. See attached list of AT Other Leases.

7


 

(GRAPHIC)
AT Other Leases TypDotlmm Lessor lassM Term Lass* Date Renewal Data Gross Acres Notas Tenant — Rentier Lab Chatharine Fowler Carol Brown Uiry Brown Mary&reenwatt Oarreft Qmmmak DawdCrow* ftaglna Crowe Phoenix Coat Prootiiing 3yn l-Jul-07 1-Jul-1G EtuMnj & sa acres SCQ-DQ/month Tenant — Rent for Office Ron Sanders Phoenix Coat Corporation 1 yr* Htto renwttal l-Jan-07 Baiting office spates 460000/1*100*

 


 

Schedule 2.1(b)(v)
AT Coal Sales Agreements
1. See attached list of AT Coal Sales Agreements.

8


 

(GRAPHIC)
Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC Acquisition Agreement Schedule Schedule 2.1 (b) (v) AT Coai Sales Agreements Original Contract Date Contract Amendment Date (if applicable) Termination Date Seller Buyer 12/31/2007 12/31/2011 Phoenix Coal Corporation and Charolais Coal Sales, LLC Western Kentucky Energy Corp. 3/1/2006 12/31/2009 R & L Winn, Inc. Western Kentucky Energy Corp. and WKE Station Two Inc. 9/5/2007 7/28/2009 12/31/2012 Charolais Coal Sales, LLC Duke Energy Kentucky, Inc. 1/1/2008 2/27/2009 12/31/2009 Phoenix Coal Corporation Duke Energy Ohio, Inc. I 8/1/2007 1/1/2009 12/31/2010 Phoenix Coal Corporation and Charolais Coal Sales, LLC Kentucky Utilities Company i 1/1/2007 12/31/2010 Charolais Coal Sales, LLC, Charolais Coal No. 1, LLC, and Charolais Coal Resources, LLC Louisville Gas & Electric Company and Kentucky Utilities Company

 


 

Schedule 2.1(b)(vi)
AT Coal Purchase Agreements
1. See attached list of AT Coal Purchase Agreements.

9


 

(GRAPHIC)
Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC Acquisition Agreement Schedule Schedule 2.1 (b) (vi) AT Coal Purchase Agreements Original Contract Date Contract Amendment Date Termination Date Seller Purchaser 11/30/2007 7/6/2009 Life of Covol Reserves Covol Fuels No. 2, LLC Charolais Coal Sales, LLC 6/23/2009 12/31/09, extension available to 12/31/10 The American Coal Company Charolais Coal Sales, LLC

 


 

Schedule 2.1(b)(vii)
AT Other Contracts
1. See attached list of AT Other Contracts.
2. Reference is made to Item 2 on Schedule 4.7(e) relating to the Option for Purchase of Surface Rights, which is incorporated by reference in this Schedule 2.1(b)(vii).
3. The following agreements shall also be AT Other Contracts:
     (a) Coal Representation Agreement dated March 30, 2006, by and between Edmonson Fuels, LLC and R&L Winn, Inc.
     (b) Overriding Royalty Agreement dated August 26, 2005, by and between Edge River Farms, LLC and Renfro Equipment, Inc.
     (c) Overriding Royalty Agreement dated July 31, 2008, by and among R&L Winn, Inc., Randy Garris and Jonathan L. Rogers.
     (d) Overriding Royalty Agreement dated July 31, 2008, by and among C&R Coal, Inc., Howard Covington and Jonathan L. Rogers (which is also referenced on Schedule 2.1(c)(vi)).
     (e) Cooperative Agreement, dated May 27, 2009, between the Department of Highways, Transportation Cabinet, Commonwealth of Kentucky and Phoenix Coal Corporation.

10


 

(GRAPHIC)
Oxford Mining Company, LLC, Phoenix Coai Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC Acquisition Agreement Schedule Schedule 2.1 (b) (vii) AT Other Contracts Original Contract Date Termination Date Phoenix Party Second Party Description 10/31/2007 10/31/2012 Phoenix Coal Processing, LLC Doug Everly and Norma Everly Fleeting Rights Agreement at Island Dock — Additional space for barge fleeting at dock 9/12/1995 Until dock is no longer used Phoenix Coal Processing, LLC James Markwell and Sue Markwell Fleeting Rights Agreement at Island Dock — monthly wheelage paid of $0.05 per ton of coal loaded at dock 1/1/2008 12/31/2010- automatically renewing for 1 year terms, unless terminated Phoenix Coal Corp. Heritage Petroleum LLC Diesel Fuel Supply Agreement 2/27/2009 02/27/2010-month to month thereafter, unless terminated Phoenix Coal Corp. Allied Security LLC Security Service Agreement 4/15/2009 10/15/2009 Phoenix Coal Corp. John Hedges Independent Contractor Agreement -Landman Services Heritage Petroleum Fuel Purchase Contracts, entered into with Phoenl Ix Coal Corporation Description Contract Dates Gallons Rate per Gallon Heritage Contract 1 AUG — DEC 2009 210,000 $ 3.2080 Heritage Contract 2 # 111808 (ULS Dyed) AUG — DEC 2009 420,000 2.2660 Heritage Contract 7 AUG — DEC 2009 420,000 1.6600 Heritage Contract 1 JAN-MAR 2010 126,000 1.8980 Heritage Contract 2 JAN 2010 42,000 2.2620 Heritage Contract 2 FEB2010 42,000 2.2700 Heritage Contract 2 MAR 2010 42,000 2.2890 Heritage Contract 2 APR 2010 42,000 2.3150 Heritage Contract 2 MAY 2010 42,000 2.2900 Heritage Contract 2 JUN2010 42,000 2.3420 Heritage Contract 3 APR 2010 42,000 2.3300 Heritage Contract 3 MAY 2010 42,000 2.3390 Heritage Contract 3 JUN2010 42,000 2.3490 Heritage Contract 4 JAN 2010 42,000 2.1350 Heritage Contract 4 FEB 2010 42,000 2.1740 Heritage Contract 4 MAR 2010 42,000 2.1790 Heritage Contract 4 APR 2010 42,000 2.2360 Heritage Contract 4 MAY 2010 42,000 2.2450 Heritage Contract 4 JUN2010 42,000 2.2590 Heritage Contract 4 JUL2010 42,000 2.3080 Heritage Contract 4 AUG 2010 42,000 2.2950 Heritage Contract 4 SEP 2010 42,000 2.3390 Heritage Contract 4 OCT2010 42,000 Z3200 Heritage Contract 4 NOV2010 42,000 2.3320 Heritage Contract 4 DEC 2010 42,000 2.3380 Heritage Contract 5 JUL2010 42,000 2.1750 Heritage Contract 5 AUG 2010 42,000 2.2030 Heritage Contract 5 SEP 2010 42,000 2.2280 Heritage Contract 5 OCT2010 42,000 2.2320 Heritage Contract 5 NOV-DEC2010 84,000 2.2430

 


 

Schedule 2.1(b)(viii)
AT Governmental Authorizations
1. See attached lists of AT Governmental Authorizations.
2. Work-in-process with respect to all AT Governmental Authorizations which are being or are planned to be secured with respect to the Surface Mining Business as conducted by the Phoenix Group Entities.

11


 

(GRAPHIC)
DSMRE & KPDES Permit Information SCh.dulll2.1(bl(vil~ DSMRE f!l!!!II Stale ,”,ploye. Coal Severan” Company Name Pmyloys Pad No Plumll NI!mbor l!!!W ~ E2lPlratfon DatI ~ EffeW.. [)ate Stat! File No. ~ QJ1I ~ lncorpOQlled l!il!!l. :w.ti9. Ken 669-0112 889-01:14 Iv:AAio 012964 10l3I2011 15-18134 9/1112002 18367 ·1 0904-5-001 li:l3l2009 KYG046704 61 ·1332297 62664 889-0112 66ll-0134Al Activo 012954 10l3I2011 15-18134 9/1112002 18367 ·1 lJII04.S.OOl 112312009 KYG045704 61 ·1332297 62664 Ken 669-0112 889-01:w.2 Iv:AAio 012954 101312011 15-18134 9/1112002 18367 ·1 0904-$-001 li:l3l2OO9 KYG045704 61 ·1332297 62664 869-0112 889-0134A3 Prolim 01 10l3I2011 16018134 9/1112002 7 · lJII04.S.OO1 112312009 KYG045704 61 ·1332297 82664 Kentu 889-0127 889-0136 Iv:AAio 013506 111l512011 16018622 3/1 O9()4.S.O()t 211312009 KYG045755 61 ·1 394 63102 669-0127 135Al Activo 01350S 1115121111 1601 3/1 1&430-1 0904-S-009 1312009 KYG045755 61 ·1332394 63102 Kent. 889-0127 66ll-0135A2 Activo 01350S 111112011 16018622 3/1J2003 O9()4.S.O()t 2/1312009 G0457 61 ·1332394 63102 l&Il,’ ‘I:C6l1I ‘·“lne: ;...: 5~W Hiii:. ~i1ij Ken ...·tln D” UU iil 889-0149 Prelim 013240 61 ·1387393 62997 Kentu 889-0153 P10Ilm 01 61 ·1 7383 99 Renfro E u mentlnc.. Ken JUIU ine 889-0116 889-01<16 Activo 012752 61612010 15-1ll905 811___16613.1 ~ lJ29121lO9 G045525 31 ·1539559 63092 Renfro E nllne. Kent. eos. ine 669-0116 869-01461\1 Activo 012152 61612010 15-18905 12005 1661ll.1 ~ 112912009 KYG045a25 31 ·1 63062 Kenlu<l< 66W116 146A2 Activo 012752 61612010 1601ll905 811___16613.1 lJli04-S.OO2 1129i:lOO9 KYG045625 31-1639559 63062

 


 

(GRAPHIC)
404 & 401 Permit Information Schedule 2.1 (b)(vill) DSMRE USACOE Water Quality Company Nam. Pennlt Number permit 10 Effective Date permit IP Effective Date 889-0134 N1A 889-0134A2 1213112009 889-{)134A2-WOG-1 1211512008 889 ·0134A3 LRL2oo81437 889-{)134A3-waC-1 andin 889-0135 NlA N1A 889-o135A1 LRl.2oo5-125 11/1/2005 N1A 889-0135A2 lRL-2oo8-309 1/3012009 889-0135-waG-1 1212312008

 


 

(GRAPHIC)
Air Quality Permit Information Schedule 2.1 (b)(viii) AQ Company Name Permit Number Effective Date Expiratalon Date Schoate Mining Co., LLC Briar Hill — crushin S-07-023 21212007 21212017 Schoate Mining Co., LLC Briar Hill — washin S-07-o24 21212007 21212017 Schoate Mining Co., LLC Briar Hill — washing 8-07-060 91912004 2/212014

 


 

(GRAPHIC)
Extended Weight Program — Road Bonds Schedule 2. 1(b)(viii) Bond # Permit # Route County 1m! Begin End BondAmt 88850240 02-089175189-08 Hwy 175 Muhlenberg road 0 1.1 $200.000 88850240 02-089175189-08 Hwy 189 Muhlenberg bridge 5.38 88850240 02-089175189-08 Hwy 189 Muhlenberg bridge 9.987 88850240 02-089175189-08 Hwy 189 Muhlenberg bridge 10.174 88850240 02-089175189-08 Hwy 189 Muhlenberg bridge 11.042 88850240 02-089175189-08 Hwy 189 Muhlenberg bridge 11.373 1208979 02-0621752693-09 US62 Muhlenberg road 8.78 3.178 $ 300.000 1208979 02-0621752693-09 Hwy 175 MUhlenberg road 5.804 6.281 1208979 02-0621752693-09 Hwy 2693 MUhlenberg road 0 0.56 1208979 02-0621752693-09 US 62 Muhlenberg bridge 3.677 1208979 02-0621752693-09 US62 Muhlenberg bridge 4.702 1208979 02-0621752693-09 US 62 Muhlenberg bridge 4.865 1208979 02-0621752693-09 US 62 Muhlenberg bridge 5.402 1208979 02-0621752693-09 Hwy 175 Muhlenberg bridge 6.259 88850239 02-043150331-2008 US 431 McClean road 2.8 11.573 $200,000 88850239 02-043150331-2008 US 431 McClean road 0 12.451 88850239 02-043150331-2008 US 60 8P Davies road 0 0.7 88850239 02-043150331-2008 US 60 Davies road 10.179 10.615 88850239 02-043150331-2008 Hwy 331 Davies road 0 1.555

 


 

Schedule 2.1(b)(x)
AT Technology Assets
1. See attached list of AT Technology Assets, but excluding any AT Technology Asset utilized by employees at their work stations (and in some cases elsewhere as well) who will remain employees of the Remaining Phoenix Entities after the Closing. In this regard, to the extent that (i) any Phoenix Group Entity is a party to any software license agreement and (ii) software licenses derived from any such software license agreement are applicable to software installed on both computers constituting AT Assets and computers that will remain with employees of the Remaining Phoenix Entities after the Closing, the Sellers shall use their best reasonable efforts to ensure that such software licenses remain applicable to, and in full force and effect for, the software on such computers constituting AT Assets following the Closing.

12


 

Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC
Acquisition Agreement Schedule
Schedule 2.1 (b) (x)
AT Technology Assets
     
Software Licenses   Renewal Date
Microsoft Small Business Server 2003 (45 user licenses)
   
Software assurance Server and 5 user licenses
  8/31/2010
Software assurance and 10 user licenses
  8/31/2010
Software assurance and 20 user licenses
  9/30/2010
Software assurance and 10 user licenses
  2/28/2011
         
MAS90
  15 licenses    
FRx
  4 licenses    
F9
  5 licenses    
FAS
  3 licenses    
Coal Software and Systems, Inc.
  V6.0.123   Only utilizing scale and coal tracking modules
AutoCAD 2006 344-10085946
SurvCad 2006 1572991-4F27ACO-65481-XXXXX
AutoCAD 2008 347-34026750
AutoCAD 2008 347-34026552
HP Designjet 4000/4500 Plotter, Model # Q1273A, Serial No. SG6AQH900G
IT Support Contracts
 
On April 27, 2009, Phoenix Coal Corporation executed an On-site Support Contract with Keller Schroeder and Associates to provide monthly network administration and support through December 31, 2009. Cost is based on time and materials, estimated at $800 per month. Phoenix can terminate the contract “if expectations are not being met or other circumstances require the termination of contract”.
Technology Hardware
Primary technology hardware consists of:
Dell PowerEdge 1800 Server — Main Data and Application Server

Purchase Date:       8/7/2006
Original Warranty Expires:       8/6/2009
Backup Tape Drive
80gb Hard drives (3 ea)
3.0 Ghz Processor
Cd Rom read/write
2gb In line Memory Originally
15” Flat Panel Monitor
UPGRADES
250gb Harddrives (3 ea) to be installed third quarter 2009
Added 2gb additional memory (maximum capacity)
Warranty Extended-Expires:       8/7/2011
Dell PowerEdge SC1420 Server—Terminal Server
Purchase Date:       8/8/2006
Original Warranty Expires:       8/7/2009
80gb Hard drive (1 ea)
3.0 Ghz Processor
Cd Rom Read/write

 


 

Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC
Acquisition Agreement Schedule
Schedule 2.1 (b) (x)
AT Technology Assets
1gb In Line Memory
UPGRADES
Warranty Extended—Expires:       8/8/2011
Other Peripherals and Workstations
LS500 gl Buffalo Link Station Pro 500 gb data backup drive (2 ea)
Smart UPS 1500 Uninterrupted Power Supply (2ea)
Netopia Router (Bell South)
LinkSys WRT54G Wireless G Router with Switch
Dell 2324 PowerConnect 24 port Switch-10/100 + 2ea 10/10/1000 ports
Dell 2216 PowerConnect 16 port Switch—1 0/1 00
Dell 5448 PowerConnect 48 port Switch—10/100/1000
Zonet ZFS3008P 10/100 8 port switches (3 ea)
Approximately 25 Dell workstations/notebooks
3 Hewlett Packard network printers

 


 

Schedule 2.1(b)(xii)
Other Assets
1. Only to the extent assignable (or to the extent they reside in a Phoenix Reorganization Entity which is an Acquired Phoenix Entity) and relating to the AT Assets or AT Liabilities, all contractual rights (but not obligations, other than the obligations set forth on Schedule 2.1(c)(vi)) of the Phoenix Reorganization Entities under the following and all documents executed pursuant thereto and/or in connection therewith:
     (a) Stock Purchase Agreement dated April 8, 2006, by and among Phoenix Coal Corporation, Evergreen Mineral Co., Inc., Old Liberty Equipment Co., Inc., P. Ron Siler and Emma Siler;
     (b) Stock Purchase Agreement dated July 6, 2006, by and among Phoenix Coal Corporation, R&L Winn, Inc. and Randy Winn;
     (c) Asset Purchase Agreement dated July 14, 2006, by and among Phoenix Coal Corporation, Pennyrile Coal Co., Inc., Black Diamond Resources, Inc., Cardinal River Resources, Inc., No. 1 Contractor, Inc., K.O. Mining Co., Inc., Kenneth O. Taylor, Jr., Kenwyn Riddle, Estate of Kenneth O. Taylor, Estate of Dorothy Taylor and Tama Taylor;
     (d) Asset and Purchase Agreement dated November 17, 2006, by and among Phoenix Coal Corporation, Charolais Corporation, Charolais Coal No. 1 LLC, Charolais Coal Resources LLC, Mark Energy, Inc., Mark One, Inc., and Donald Bowles;
     (e) Stock Purchase Agreement dated July 29, 2008, by and among R&L Winn, Inc., C&R Coal, Inc., Howard Covington and Jonathan L. Rogers;
     (f) Stock Purchase Agreement dated July 31, 2008, by and among Phoenix Coal Corporation, Stuart K. Renfro and Robin R. Renfro;
     (g) Noncompetition Agreement, dated July 31, 2008, between R&L Winn, Inc. and Jonathan L. Rogers;
     (h) Non-Competition Agreement, dated January 1, 2007, between Phoenix Coal Corporation and Donald Bowles;
     (i) Non-Competition Agreement dated July 31, 2008, by and among Phoenix Coal Corporation, Stuart K. Renfro and Robin R. Renfro;
     (j) Non-Competition Agreement dated June 8, 2006, by and among Phoenix Coal Corporation, P. Ron Siler and Emma Siler;
     (k) Employment Agreement, dated July 6, 2006, between Phoenix Coal Corporation and Randy Winn;

13


 

     (l) Non-Competition Agreement dated July 26, 2006, between Phoenix Coal Corporation and Kenneth O. Taylor, Jr; and
     (m) Non-Competition Agreement dated July 24, 2006, between Phoenix Coal Corporation and Kenwyn Riddle.

14


 

Schedule 2.1(c)(i)
AT Fixed Assets Debt
1. See attached list of AT Fixed Assets Debt.

15


 

(GRAPHIC)
Oxford Mlnftig Company, LLC, Phoenix Coal Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC Acquisition Agreement Schedule Schedule Z.1 (e) (I) AT Fixed Assets Debt Company TotalsSchoate Schoate SchoateSchoate Schoete Schoate Schoate Schoate SchoateSchoateSchoateSchoate Lender CAT CAT CAT Deere CAT CAT Volvo Komatsu Komatsu Komatsu CAT Komatsu Note Number 496985 496996 499935 80067 529232 536249 7581867 131717-000 131717-004 133586 541558 133588-007 JRP01812 Phoenix Note #/Serial# ABJ00602 7PZB1450 KPZ02495 QO01007 7PZ75010 JRP01613 2048 55024 A10079 10743 JRP01888 A100B9 Proceeds Used For Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment EX1900LD-8 PC800 Komatsu HD785 Komatsu D475A Komatsu HD785 Collateral D7RTractor DURTractor DBTTractor Shovel D11RTractor 777FTrucks(2) G990Qrader Excavator 7Truck 3Dozer 777FTruck 7Truck NeworUsed Used New Used New Used New New New New Used-off lease New New Original note amount 314,862.49 1532,725.00 539,009.00 2588,078.00 1,163,350.00 2,497,418.00 338,895.00 555,900.00 1,129,200.00 239,100.00 1,248.884.00 1.129,200.00 Original note date Nov-07 Nov-07 Dec-07 Apr-08 Aug-08 0*08 Sep-08 Oct-08 Oct-08 Dec-08 Dec-08 Feb-09 Maturity Date Nov-12 Nov-12 Deo-12 Oct-10 Aug-12 Ocl-11 Sep-12 0ct-11 Nov-12 Oec-10 Dec-11 Feb-13 Term (months) 606060304836483848 24 3648 Finance Rate 7.50% 6.03% 8.18% 8.41% 5.75% 730% 6.45% 8.75% 7,50% 6.75% 8.75% 8.50% Down payment 6,270.01 108,242.50 10,411.54 250,000.00 110,260.66 824,267.00 85,000.00 — 112,900,00 - 312,133.50 112,900.00 Monthly Payment Amount 6,270.01 28,437.73 10.411.54 86,687.62 23,009.41 58,266.64 6,015.25 17,101.10 24.573.01 10,678.05 29,679.54 25,050.07 G/L Account 24500-02 24500-03 24500-04 24500-05 24500-06 24500-07 2450008 24500-09 24500-10 24500-11 24500-12 24500-13 Estimated Debt Balance 07/31/09 22,774,187.41 216.41Z47 934,265 24 376,799.13 1230,21858 759,16627 1,443,485.90 20624824 427.265.32 873,078.49 173,626.55 773,26543 925,770.18 08/31/09 21,988,829.09 211,495,04 912519.09 388,291.64 1,152,15051 739,794.53 1,394241.05 201,34157 412,567.59 853,698.00 163565.09 749224.28 907.277.63 09/30/09 21505,457.77 206,546.87 890,683.74 359,740.35 1,073,53754 720,329.87 1544,688.42 196,408.53 397,787.18 834201.37 154,048.72 725,007.83 888,654.11 10/31/09 20,638203.39 201587.78 868,698.64 351,145.04 994.373.84 700,772.14 1294,826.08 191,448.98 382,923.83 814,587.91 144,177.13 700,614.81 889,898.67 11/30/09 19,987,068.40 196,557.57 846,62324 342,505.48 914,654.92 681,120.60 1244,652.10 188,46277 367576.48 794,85652 134,250.02 676,043.92 851,010.38 12131/09 19,292,002.86 191,516.04 824,436.98 333.821.44 834,37751 661,374.89 1,194,184.54 181,449.76 35254525 775,007.69 124,267.07 651,293.87 831,98830 01/31/10 18,613.00635 188,443.01 802,139.31 325,092.69 753,537.49 641,53457 1,143,361.43 176,409.80 337,829.47 755,039.52 114227.96 628563.35 812.831.48 02/28710 17,930,044.52 181,338.27 779,729.67 316,319.02 672,130.92 621.599.18 1,092240.80 171,342.75 322,628.66 734,951.70 104.132.38 601251.04 793538.97 03/31/10 17,243,083.07 176201.62 757,207.49 307,500.17 590,153.82 601,56827 1,040,800.66 168,248.47 307,342.35 714,743.50 93,980.02 575,955.62 774,109.80 04/30/10 16,552,344.58 171,032.87 734,57221 298,63552 507,602.19 581,441.37 989,039.02 161,126.81 291,970.05 694,41420 83,770.55 550,475.76 754,543.01 05/31/10 15,864,391.03 165,831.82 711.82327 289,72854 424,472.03 561,218.03 936,953.87 155,977.82 278.511.28 673,963.10 73,503.65 524,810.11 734,837.62 06/30/10 15,172,430.40 160,598.28 688,960.08 280,770.29 340,75925 540.897.79 884,543.19 150,800.75 260.98556 653,389,43 63,179.00 498,957.31 714.992.65 07/31/10 14,467.792.44 155531.99 665,982.10 271,78844 256,459.78 520,480.18 831,804.94 145,598 .05 245,33259 632,692.48 52,79628 472,916.00 695,007.11 08/31/10 13,776591.55 150.032.80 642.888.72 262,720.24 171,589.52 499,964.74 778,737.08 140,363.38 229,611.28 611571.51 42.355.15 448,684.81 674580.01 09/30/10 13,080,972.06 144,700.49 619,879.37 253,625.46 86,084.33 479,350.99 725537,55 135,102.58 213,801.74 590,925.78 31,855.29 420,262.35 654,610.34 1001/10 12,381,509.88 139,334.86 696,35347 244,483.87 — 458,638.47 671,604.27 129,813.51 197,903.27 569,854.53 21,29657 393,647.22 634,197.09 11/30/10 11,764,86855 133,935.69 572,910.43 235,295.21 437,826.70 817,535.18 124,496.01 181,915.38 548,657.01 10,678.04 366,838.02 613,63925 12/31/10 11,144,343.07 128502.78 549,349.67 226,059.25 418.915.21 583,128.11 119,149.93 165,837.55 527,332.47 — 339,833.34 592,935.79 01/31/11 10,531251.76 123,03551 525,670.60 218,776.74 395,903.52 508.381.02 113,775.11 149.86929 505,880,15 312531.75 572,085,68 02/28711 9,914,696.37 117,53457 501,872.62 207,444.44 374,791.15 453,291.78 108,371.40 133,410.08 484299.28 285,231.82 551,087.88 03/31/11 9294,656.67 111,999.45 477,955.13 198,065.10 353,57751 397,858.19 102538.85 117.059.41 462,589.09 257,632.10 529,941.35 04/30/11 8,671,112.32 106,429.44 453,917.54 188,63747 332,262.43 342,078.16 97.478.70 100.616,77 440,748.80 229531.13 508,645.03 05/31/11 8,044,042.92 100,824.61 429,75924 179,161.32 310,845.11 285,949.51 91.985.39 84,081.64 418,777.64 201.827.44 487,197.86 06730/11 7,413,427.85 95,184.75 405,479.62 189,636,38 289.325.17 229,470.05 86,464.56 67,453.50 396,874,82 173,81958 465.598.77 07/31/11 6,779246.45 89,509.64 381,078,08 160,082.40 267,702.11 172,837.60 80,914.05 50,731.83 374,439,55 145,206.00 443,846.69 08/31/11 8,141,477.91 B3.799.07 356,554,00 150,439.14 245,975.44 115,449.94 75,333.72 33,918.10 352.071.05 116,585.25 421,940.53 09/30/11 5,500,10126 78,052.80 331,906.77 140,76853 224,144.66 57,904.86 69,723.39 17,00578 329,568.50 87,755.81 399,879.21 10/31/11 4,855,095.03 72270.62 307,135.77 131,043.73 202.209.28 — 64,082.90 — 306,931.11 58,716.16 377,661.62 11/30/11 4281,806.73 66,452.30 282240.38 121,271.07 180,168.79 58,412.10 284,158.07 29,464.76 355286.65 12/31/11 3,777,344.37 60,597.82 257,219.97 111,448.11 158,022.68 52,710.82 281,248.58 — 332.753.19 01/31/12 3,299,646.75 54,706.34 232,073.91 101,574.57 135,770.47 46,978.89 238,201.77 310,060.12 02/29/12 2,889.04158 48,77824 206,801.58 91,650.21 113,411.63 41216.15 215,016.88 287.206.31 03/31/12 2,435.923.58 42,813.09 181,402.34 81,674.76 90,945,65 35,422.44 191,693.06 264,190.82 04/30/12 2,091,058.09 36,810.86 155.875.55 71,847.96 68572.02 29,597.59 168229.47 241,011.90 05/31/12 1,744205.84 30,770.72 130,220.58 61,569.54 45,69023 23,741.43 144,62529 217,669.00 06/30/12 1,413,879.92 24,893.03 104,436.77 51,43923 22,899.75 17,853.79 120.879.65 194,160.75 07/31/12 1,081,671.17 18,577.35 78523.49 41,258.77 — 11,934.50 96,991.73 170,485.99 08/31/12 795,933.51 12,423.45 52,480.08 31,021.90 5,983.40 72,960.68 148,643.53 09O0/12 572,807.63 6231.09 26,305.69 20,734.33 — 48,785,59 122,632.19 10/31/12 354,393.16 — - 10593.78 24,465.66 98,450.76 11/30/12 246,646.86 — 74,098.05 12/31/12 173,243.73 49,572.84 01/31/13 99,320.66 24,873.91 02/28/13 24,873.91 03/31/13

 


 

(GRAPHIC)
Oxford Mining Company, LLC, Pti Acquisition Agreement Schedule Schedule 2.1(c)(1) AT Fixed Assets Debt Company Schoate Schoate Schoate Schoate Schoate R & L Winn R1L Winn R & L Winn R&LWinn R & LWInn R&L Winn PCP PCP Lender Komatsu CAT Komatsu Komatsu Komatsu CAT CAT CAT CAT CAT CAT CAT CAT Note Number 133586-008 544935 133586-009 133586-010 133586-XXX 497416 501540 508533 510382 518288 516458 498200 500789 Phoenix Note #/Serial# A10090 H4C00345 A10093 20063 20104 7PZ01448 AZX00629 JRP01082 JRP01234 7PZ75009 JRP01305 7PZ01493 AZX00623 Proceeds Used For Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Equipment Komatsu HD785 CAT 992K Komatsu HD785 Komatsu D475A Komatsu 0475A Collateral 7Truck Loader 7Trudt 5Dozer SDozer 011RTroctor D92G Loader 777FTruck 777FTiucx DURTractor 777FTrucK DURTraclor 992G Loader NeworUsed New New New Used Used — off lease New New New New Rebuild New New New Original note amount 1,129,200.00 1,699,690.00 1,129,200.00 734,000.00 808523.85 1,532,725.00 1,656,484.00 1,145574.00 1,145,374.00 1,084,436.00 1,145,375.00 1,528,367.00 1,658,484.00 Original note date Feb-09 Mar-09 Apr-09 May-09 Aug-09 Nov-07 Dec-07 Feb-08 Feb-08 Apr-08 Apr-08 Nov-07 Dec-07 Mature Date Feb-13 Mar-12 Mar-13 May-12 Aug-12 Nov-12 Dec-11 Feb-12 Feb-12 Apr-12 Apr-12 Nov-12 Deo-11 Term (monlhs) 48 38 48 38 36 60 48 48 48 48 48 60 48 Finance Rate 8.50% 8.75% 550% 8.25% 7.99% 8.03% 525% 5.25% 525% 8.25% 625% 653% 525% Down payment 112,900.00 424,835.00 112,900.00 146,760.00 161,864.73 106,24252 82.806.70 57288.70 57.268.70 24,966.86 56,767.78 105,940.42 82,806.70 Monthly Payment Amount 25,050.07 40,391.88 25,050.07 18,469.78 20,260.95 26,437.73 36,018.71 4,904.06 24,904.08 24,966.86 25,42259 26,362.58 36,018.71 G/L Account 24500-14 24500-15 24500-16 24500-17 24500-18 24500-01 24500-02 24500-03 24500-04 24500-05 24500-08 24500-02 24500-03 Estimated Debt Balance 07/31/09 925,770.18 1.149,103.68 944,132.62 559,938.97 808,32355 93426524 947225.39 688,726.01 898,726.01 734,155.56 747556.07 931,608.82 947225.39 08/31/09 907,277.63 1,117,090,68 925,770.18 545,263.75 646,658.92 912518.09 915552.70 676,879.75 676,879.75 713,012.43 728,027.00 909,924.50 915,352.70 09/30/09 888554.11 1,084,84425 907277.63 530,487.64 630,703.64 890,663.74 883540.50 654,937.88 54,937.88 691.759.18 704,385.80 888,131.29 883,340.50 10/31/09 869598.67 1,052,36£69 888,654.11 515.609.95 614,642.13 868,698.84 851,188.18 632,899,89 632599.99 670585.23 682,631.89 866,228.64 851,188.18 11/30/09 851510.38 1,019,844.29 869,898.67 500.62957 598.473.67 848.82324 818,895.13 610,785.66 610,765.68 648,920.01 660,764.67 844,218.00 818,895.13 12/31/09 831.988.30 986,687.32 851,010.38 485547.00 582.197.58 824,436.98 788.460.73 588534.48 588,534,46 627,332.94 638,783.56 822,092.82 786,460.73 01/31/10 812.831.48 953,490.04 831,988.30 470,360.34 585,813.08 802,13951 753,884.37 566205.97 566205.97 805,633.44 616,687.97 799,858.55 753,884.37 02/28/10 793,538.97 920,050.69 812531.48 455,06928 549519.50 779,729.67 721,165.42 543,779.77 543,779.77 583,820.92 594,477.30 777.512.62 721,165.42 03/31/10 774,109.80 886,36751 793.538.97 439,673.08 532,718.10 757,207.49 88850328 521,255.42 521255.42 561,894.79 572,150.95 755,054.48 688,303.26 04/30/10 754543.01 852,438.73 774,10950 424,171.04 516,002.15 734,57221 65529728 498,632.50 498,632.50 539,854.47 549,708.31 732,483.56 655,29728 05/31/10 734,837.62 618262.55 754,543.01 408,582.41 499,176.91 711523.27 822,146.79 475,910.58 475,910.58 517,699.35 527,148.78 709,79950 622,146.79 06730/10 714,992.65 783,837.17 734,837.62 392546.49 482239.85 688.960.09 588,85122 453,089.22 453,089,22 495.428.84 504,471.76 687,001.12 588,85122 07/31/10 695,007.11 749,160.77 714,992.85 377,022,51 465,189.61 665,982.10 855,409.92 430,167.99 430.167.99 473,042.34 481,676.63 884,088,46 555,409.92 08/31/10 674,880 .01 71423152 895,007.11 361,089.75 448,026.05 642,888.72 521,822.25 407,148.45 407,146.45 45053924 458.762.77 641,060.74 52152225 09/30710 654,61054 879,047,58 674,880.01 345,047.45 430,74821 819,879.37 488.087,58 384,024.18 384,024.16 427,918.94 435,729.57 617,917.38 488,087.56 10/31/10 634,197.09 643,807.09 654,610.34 328,89458 413,35553 596,353.47 45420521 360,800.68 360,800.68 405,180.82 412,576.41 594.657,80 454205.21 11/30/10 813,639.25 607,908.18 634,197.09 312,631.22 395,846.64 572,910.43 420,174.58 337,475.57 337,475.57 382,32428 389,302.66 571281.42 420,174.58 12/31/10 592,935.79 571,948.96 813,63925 298255,77 375221.37 549.34987 385,994.96 314548.39 314,048.39 359,348,69 385,907.89 547,787.65 385,994.96 01/31/11 572,085.68 535,727.54 592,93579 279,787.73 360,478.74 625570.60 351,665.75 290518.88 290,518,68 338253.44 342,390.87 524,175.90 351,665.75 02/28/11 551,087.88 499242.01 572,085.68 263,16655 342,617.98 501,872.62 317,188,28 268,886.00 286,886.00 313,037.90 318,751.57 500,445.58 317,18828 0301/11 529,94155 462,490.44 551.087.88 246,450.82 324.63828 477,955.13 282555.90 243,14850 243,149,90 289,701.45 294,989.15 476,598.10 282.555.90 04O0/11 508,845.03 425,47059 529,941.35 229,620.38 306538.89 453,91754 247,773.94 21950952 219509,92 266,243.45 271,102.96 452526.85 247,773.94 0501/11 487.197.88 388,181.40 508,845.03 212,67423 288,318.98 429,75924 212,839.74 195,36551 195,385.61 242,86327 247,09257 428.53724 212,839.74 06O0/11 465598.77 350,62051 487,19758 195,61158 269,977.75 405,479.62 177,752.63 171,316.52 171,318.52 218,98028 222,956.72 404,326.66 177,752.63 0701/11 443,846.89 312,784.73 465598.77 178,431.62 251,514.40 381,078.08 142.511.95 147,162.18 147,162.18 195,13354 198,69556 379,994.50 142,511.95 08/31/11 421,94053 274,673.57 443,846.69 161.133,55 232,928.12 358,554,00 107,117.02 122,902.14 122,902.14 171,18350 174,307.64 355,540.16 107,11752 09O0/11 399.87821 236284.52 421,940.53 143,716,55 214218.08 331,906.77 71,567.18 98535.83 98,535.93 147,108.02 149,792.90 330,963.00 71,567.16 1001/11 377,661.62 197,815.55 399,87921 128,179.81 195,383.47 307,135.77 35,881.70 74,083.09 74,063.09 122,907.35 125,150.48 306,262.43 35,861.70 1100/11 355,288.65 158,664,62 377.661.62 108,52251 176,423.45 282240.38 — 49,483.15 49,483.15 98,580.63 100,379.72 281,437.82 1201/11 332,753.19 119,429.67 35528855 90,743.82 157537.19 257219.97 24,795.64 24,795.64 74,12721 75,479.94 256,488.55 01O1/12 310,080.12 79,908.63 332,753.19 72,842.90 138,123.84 232,073.91 — 49,548.43 60,450.48 231,413.99 02/29/12 28720651 40.099.42 310,060.12 54,818.91 118,782.56 206,80158 24,837.62 25290.65 206,213.52 0301/12 264,190.62 — 287,208.31 36,671.00 99,312.50 181,402.34 — - 180,886.50 0400/12 241,011.90 284,190.62 18,398.31 79,71251 155,87555 155,432.29 05/31/12 217,869.00 241,011.90 — 59,982.61 130220.58 129,85026 06730/12 194,160.75 21758950 40,121.04 104,436.77 104,139.77 07/31/12 170,485.99 194,160.75 20,12723 78,523.49 78,300.17 08O1/12 146,643.53 170,485.99 — 52,480.08 52,330.81 09/30/12 122,632,19 146,643.53 26,305.89 26231.04 1001/12 98,450.76 122,632.19 11/30/12 74,098.05 98,450.76 1201/12 49,572,84 74,098.05 01/31/13 24,87351 49,572.84 02/28713 — 24,873.91 0301/13

 


 

(GRAPHIC)
Oxford Mining Company, LLC, Ph Acquisition Agreement Schedule Schedule 2.1 (c) (I) AT Fixed Assets Debt Company CMC CMC CMC CMC CSJJ C&R RENFRO Lender CAT CAT CAT CAT 1ST KY 1ST KY CAT Note Number 497012 529238 533033 533032 43682 49401 480677 Phoenix Note #/Serfal# 7PZ01449 JRP01367 JRP01504 JRP01506 Proceeds Used For Equipment Equipment Equipment Equipment Equipment Equipment Equipment Collateral D11R Tractor 777F Truck 777FTru<* 777F Track None None D11R New or Used New New New New Original note amount 1,532,725,00 1,286,282.00 1,248,884.00 1,248,884.00 S0.180.31 200,070.00 274,000.00 Original note date Nov-07 Aug-OS Sep-08 Sep-08 Apr-07 Apr-05 Auo-07 Maturity Date Nov-12 Aug-12 Sep-12 Sep-12 Apr-10 Apr-10 Aufl-10 Term (months) 60 48 48 48 36 60 36 Finance Rate 6.03% 625% 8.38% 6.39% 850% 5.50% 849% Down payment 106,242.50 120,487.63 178,557.45 178,657.45 Monthly Payment Amount 26,437.73 25,269.81 22,049.62 22,049.62 2,869.51 4,057.71 8,648.24 GIL Account 24500-01 24500-02 24500-03 24500-04 24500-03 24500-04 24500-00 Estimated Debt Balance 07/31/09 934,265.24 827,559.42 738,880.95 738,680.95 24,855.00 35.885.93 107,782,79 08/31/09 912,519.09 808,599.82 720,564.81 720,564,81 22,175.98 32,091.53 89,837.97 09/30/09 890,683.74 785,531.05 702,352.20 702,352.20 19,478.42 28,186.54 91336.95 10/31/09 868,898.64 764,352.55 684,042.81 684.042.61 18,751.36 24.203.57 83,779.31 11/30/09 846,623.24 743,063.74 665,635.52 665,635.52 14,010,23 20,218.61 75,684.88 12O1/09 824,436.98 721,864.05 847,130.41 847,130.41 11,244.63 18,19320 87,492.60 01/31/10 802,139.31 700,152.91 628,526.76 828,526.76 8,481.30 12,14331 59,282.73 02/28/10 779,729.67 878,529.73 609.824.04 609,824,04 5,656.64 8,081,60 50,974.63 03/31/10 757207.49 656,793.93 591,021.73 591,021.73 2,82629 3,941.69 42.627,89 04/30/10 734,572.21 634,944.92 572,119.30 572,119.30 — - 34,222.09 05/31/10 711,823.27 612,982.11 553,11622 553,11822 25,756.83 06/30/10 688,960.09 590,90452 534,011.94 534,011.84 17,231,67 07/31/10 665,982.10 568,712.74 514,805.83 514,805.93 08O1/10 642,888.72 546,404.98 495,497.65 495,497.65 09/30/10 819,679.37 523,981.03 478,08635 478,088.55 10/31/10 598,353.47 501,440.29 456,572.09 456,572.09 11/30/10 572,910.43 478,782.15 436,853.72 436,953.72 12/31/10 549,349.67 456,006.00 417230.88 417,230.88 01/31/11 325.670.60 433,11122 397,403.01 397,403.01 02/28/11 501.872.62 410,09720 377/189.58 377.469.66 03/31/11 477,955.13 388,983.31 357,429.97 357,429.97 04/30/11 453,917.54 383,708.83 337,283.66 337283.88 05/31/11 429,75924 340,333.44 317,030.08 317,030.08 06/30/11 405,479.62 316,83820 296.668.85 296,668.65 07/31/11 381,078,08 293,216.58 278,198.79 276,198.79 08/31/11 356.554.00 269,473.94 255,619.93 255,619.93 09/30/11 331,906.77 245,607.64 234,931.49 234,931.49 10/31/11 307,135.77 221,817,04 214,132.88 214.132.88 11/30/11 282,240.38 197,501.49 193,223.52 193,22332 12/31/11 267,219.97 173,280.33 172202.82 17Z202.82 01/31/12 232,073.91 148,892.92 151,070,18 151,070.18 02*29/12 206,801.58 124,398.59 129,825.01 129,825.01 03/31/12 181,402.34 99,776.69 108,488.71 108,468.71 04/30/12 155,87535 75,026.55 86,994.68 86,994.68 05/31/12 130,220.58 50,147.50 65,408.31 65,408.31 06/30/12 104,436.77 25,138.87 43,706.99 43,708.99 07/31/12 78,523.49 — 21,890.11 21.890.11 08/31/12 52.480.08 09/30/12 26,305 89 10/31/12 11/30/12 12/31/12 01/31/13 02/28/13 03/31/13

 


 

Schedule 2.1(c)(iii)-1
AT Reclamation Obligations
1. See attached list of AT Reclamation Obligations.

16


 

Phoenix Coal, Inc.
8/26/2009
PHOENIX COAL INC.
Reclamation Obligation
Schedule 2.1(c)(iii)-1
                             
                        Outstanding
Company   Project/Mine   Permit No.   Acres   Bond Amount
 
R&L Winn, Inc.
  Back In Black     889-0135       429.7     $ 1,205,400  
Schoate Mining Co., LLC
  Briar Hill     889-0134       1,655.1     $ 3,164,100  
Phoenix Coal Corporation
  K.O. Mine     889-0141       224.0     $ 654,200  
Renfro Equipment Inc. **
  Jessup Mine     889-0146       190.0     $ 771,300  
 
                           
 
TOTALS
                2,498.8     $ 5,795,000  
 
**   MIS shows $671,300 which does not include (2) $50,000 supplemental assurance bonds,

 


 

Schedule 2.1(c)(iii)-2
Excluded Governmental Authorizations
1. See attached lists of Excluded Governmental Authorizations.

17


 

(GRAPHIC)
DSMRE & KPDES Permit Information _ul.2.1 (c)(iii)-2 DSMRE fmJlU Slale Employer Coal Severance Permit NumlJer §lIlus Expiration Data Iif1UtjylI PlI!lI S!lIt!!EII,No · ~ Il!tIl ~ ~ Jll.N9., IIlUl2. Companv Name Pmlous Permil No l!l1MBUl ~ oelaware 854-6038 014259 NlA 15—18968 2I2l2OO6 18&15 None NlA 20-1372167 63210 854-5019 Idle Crittendan Coun eoa Inc. ft28..OOO1 Tax ~ Mine 82B-0001 82B-0002 _mation 013332 112512010 15—18630 12/1512004 18616 None KY 959 30.0053027 63170 Crittenden Coun coal Inc. Kenlucl< Prov. No. 1 854-5019 854- Reclamation 013332 6/1112009 15—02156 11/1212001 18256 N .... KYGIl449211 3ll-0053O27 63170 Charulals Mlnln Com n LLC Oelawarr GrallrmtlS 88&-0129 88&-0136 ReclilmaliOn 014319 411812010 15—18882 7/1812005 10915-21 None KYG046112 20-8013656 63296 Phoenix coal Pro.....ln LLC Qelawanl Rock Crusher I\lIlI.Ol ecIII 1 1& 51 15—1 311512004 10915-20 None NlA 20-8013611 63297 Ph......lx Coal_. LLC DeIawwe Point Min! 854-0211 854-0253 Red.mation 014918 711012013 15- 8080 1111811998 18276- None KYO 11 13611 63297 Pael Rllou”,,, lLC Joe Allen 917-5021 II...... 014157 13 15-1ll2ll4 7/1812008 KY0107191 37-1495296 63398 C&RCoa Inc. Kenlucl< Boe<1le.-Soufh 88Il-0122 88Il-0150 Roclomatian 0132<10 121312011 15-18377 5/112001 18152.2 09IJ4..S.008 2/1312009 KYOl00781 61-1357393 062997 C&RCoa Inc. Ke EbrnrenrMine 88~124 88Il-0151 Reclamatian 013240 1111l121l12 15-18377 51112001 18152.2 09IJ4..S.008 2/1312009 61-1387393 62997 C&RCoa Inc. Ke al_C_Mine 88&-0120 88Il-0152 Roclomatian 0132<10 Ill1212OO8 15-18377 6/112001 18162.2 0904-s-008 2/131201lll KYG046020S 61-1387393 62997 JPhoenlx Goal Inc. 014617 Eorelgn E!l!!lign lellOllI”‘” MinrraI Co., Inc. 013010 Kettluc!cy 61-1332209 ~ 61-1332300 Inc. Maroon Redamallon LLC IMarcon Roclamatlon, lLC I ~ ll54-5026 r:::::::=l

 


 

(GRAPHIC)
404 & 401 Permit Information Schedule 2.1 (c)(iii)-2 DSMRE USACOE Water Quality Company Name Permit Number permitlQ Effective Date permit 10 Effective Date 828-0002 LRL ·2005-131 ·GJD 3/1312009 1211512004 854-5038 N/A N/A 889-0136 LRL-2004-527 7/1812005 2006 ·0198-3 51112005 LLC 889-0123 N/A NlA LLC 854-0253 N/A N/A 917-5021 7/1/2008 917 ·5021-WQC ·1 512712008 889-0150 NlA N/A 889-0151 N/A Rahall 889-0152 N/A N/A

 


 

(GRAPHIC)
Extended Weight Program — Road Bonds Schedule 2.1{c){lii)-2 Bond # Permit # Route County 1m! Begin End BondAmt 88850237 02-02911508-07 Hwy 291 Hopkins road 5.313 6.302 $50,000 88850237 02-02911508-07 Hwy 1508 Union bridge 1.432

 


 

Schedule 2.1(c)(vi)
Other Liabilities
1. See attached list of other liabilities.
2. The royalty payment obligations of R&L Winn, Inc. and Renfro Equipment Inc., as applicable, under the following agreements:
     (a) Overriding Royalty Agreement, dated as of August 26, 2005, by and between Edge River Farms, LLC and Renfro Equipment Inc.
     (b) Overriding Royalty Agreement, dated as of July 31, 2008, by and between R&L Winn, Inc. and Randy Garris and Jonathan L. Rogers.
3. Liability for all payments payable to the Renfros under Section 7.4 of the Stock Purchase Agreement between Phoenix Coal Corporation and Stuart and Robin Renfro, dated as of July 31, 2008, if and when such payments become due, notwithstanding the fact that a portion of the 1.5 million reserve tons described therein (the “Additional Reserves”) were acquired prior to the Closing, so that following the Closing in no event shall the Sellers or any of the other Remaining Phoenix Entities be liable for any portion of the payments owing to the Renfros with respect to the acquisition of the Additional Reserves.

18


 

(GRAPHIC)
Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal Corporation, and Phoenix Newco, LLC Acquisition Agreement Schedule Schedule 2.1 (c) (vi) AT other Liabilities Not Previously Described Agreement Type of Aareement Date Termination Date Phoenix Company Second Party Until all coal is mined from property Overriding Royalty 7/3112008 specified In overriding royalty C&R Coallne. Howard Covinoton and Jonathan Rogers This is an overriding royalty agreement created by the C&R acquisition on July 31, 2008. The Second Parties receive a total of $0.60 per ton for coal mined and sold from two leased properties. The leased properties are Dart of the C&R Beech Creek reserves and the Back in Black reserves. Reserve Payments I 7/31/2008 I 7/3112010 IPhoenix Coal Corporation IStuart and Robin Renfro This is a condition of the Stock Purchase Agreement with Stuart and Robin Renfro. As part of the Renfro Equipment inc. acquisition in July 2008, the Company agreed that if, by July 31, 2010,It acquires at least 1.5 minion reserve tons (“Additional Reserves”) as defined by National Instrument 43-101 (“NI43-101”) due to the direct efforts of the sellers (Stuart and Robin Renfro), the Company will pay the sellers $1,000,000 for the first 1.5 million tons of reserves, plus $0.50 per ton for each reserve ton in excess of 1.5 million. The acquisition closing documents define a specific territory from which the Additional Reserves can be acquired. The acouisition of the Additional Reserves must be on terms and conditions acceptable to the Company in its sale, reasonable discretion.

 


 

Schedule 2.5(a)
June 30th Balance Sheet and Working Capital
1. See attached. In addition to the attached being limited to the AT Assets and the AT Liabilities, there are other differences with the Interim Financial Statements (which are also as of June 30, 2009) given that with the Interim Financial Statements accounting in accordance with GAAP (Canada) requires Phoenix Coal Inc. to treat as current assets and current liabilities all of the assets and liabilities (essentially the AT Assets and AT Liabilities) of the Surface Mining Business of the Phoenix Group Entities due to their being assets held for sale and liabilities associated with assets held for sale. As provided in the Agreement, all determinations under Section 2.5 with respect to Working Capital are to be made in a manner consistent with the calculation of the June 30 Working Capital in accordance with GAAP (U.S.) and not as “Working Capital” would be determined in accordance with the Interim Financial Statements, provided that, while not reflected in the June 30 Working Capital, the spare parts equipment out for repair will be reflected in Working Capital for all determinations under Section 2.5 through offsetting entries for spare parts inventory and current liabilities for repair costs.

19


 

Phoenix Coal
AT Assets and AT Liabilities as of June 30, 2009
Schedule 2.5(a)
                 
    AT Assets &     Working  
    AT Liabilities     Capital  
Assets
               
Current Assets
               
Receivables
    3,288,714       3,288,714  
Coal Inventory
    877,841       877,841  
Other Inventory
    168,266       168,266  
Prepaid Expenses
               
Advance Payments on Purchased Coal
    374,400       374,400  
Heritage Oil Deposit
    200,000       200,000  
Island Dock Fleeting Rights
    15,000       15,000  
Wash Plant Utilities Deposit
    12,825       12,825  
 
             
Total Current Assets
    4,937,046          
 
               
Fixed Assets
               
Land
    631,747          
Buildings and Improvements
    490,236          
Preparation Plant
    3,683,996          
Mining Equipment
    30,182,428          
Loading and Marine Transport Equipment
    1,775,000          
Vehicles
    65,965          
Office Equipment
    319,870          
 
             
Total Property, Plant and Equipment
    37,149,242        
Accumulated Depreciation
    (9,430,209 )        
 
             
Net Fixed Assets
    27,719,033          
 
               
Other Non Current Assets
               
Advance Royalties Surface
    121,325       121,325  
     
Total Non Current Assets
    121,325          
     
 
               
Total Assets
    32,777,404       5,068,371  
     
 
               
Liabilities and Stockholders Equity
               
 
               
Current Liabilities
               
Current Portion Long Term Debt
    7,915,623          
Accounts payable — general
    4,387,154       4,387,154  
Accounts payable — Komatsu lease buyout
    495,000        
Royalites and taxes
    678,130       678,130  
Accrued commissions
    8,475       8,475  
Accrued property tax
    331,565       331,565  
 
             
Total Current Liabilities
    13,815,947          
 
               
Long Term Liabilities
               
Notes Payable
    22,596,234          
Less Current Portion of Long Term Debt
    (7,915,623 )        
Asset Retirement Obligations
    2,587,981          
 
             
Total Long Term Liabilities
    17,268,592          
 
               
Stockholders Equity
               
Total Stockholders Equity
    1,692,865          
 
               
Total Liabilities and Stockholders Equity
  $ 32,777,404       5,405,324  
     
 
               
 
            (346,963 )
 
             

 


 

Schedule 4.1(b)
Organization and Good Standing; Power
1. Charolais Coal Sales, LLC, a Delaware limited liability company, is qualified to do business as a foreign limited liability company in the Commonwealth of Kentucky.
2. Charolais Mining Company, LLC, a Delaware limited liability company, is qualified to do business as a foreign limited liability company in the Commonwealth of Kentucky.
3. Phoenix Coal Processing Company, LLC, a Delaware limited liability company, is qualified to do business as a foreign limited liability company in the Commonwealth of Kentucky.

20


 

Schedule 4.2(c)
Notices and Consents
The agreements listed below require the written consent of the other party thereto, or written notice delivered to the other party thereto, in order for a Phoenix Reorganization Entity to transfer its rights under such agreement to the Acquired Company or another Affiliate of such Phoenix Reorganization Entity prior to Buyer’s acquisition of the Acquired Company Membership Interests.
Notwithstanding the foregoing, the parties acknowledge that (i) a consent listed in Item I(a) below shall not be required to be obtained for an agreement if the debt subject to such agreement is paid off, in its entirety, prior to or at the Closing and (ii) a notice listed in Item II(a) below shall not be required to be given for an agreement if the debt subject to such agreement is paid off, in its entirety, prior to or at the Closing, and none of such agreements to which (i) or (ii) above applies shall constitute part of the AT Assets or the AT Liabilities unless the Buyer elects otherwise.
I. WRITTEN CONSENT REQUIRED
(a) Agreements and Guarantees in Connection with Equipment Financing
     
Security Agreement and Promissory Note #480677, dated July 17, 2007
Parties:
  Renfro Equipment, Inc. (Debtor) and Caterpillar Financial Services Corporation
     
Guaranty of Payment (to Security Agreement and Promissory Note #480677)
Parties:
  Phoenix Coal Corporation (guarantor), Renfro Equipment, Inc. (Obligor), and Caterpillar Financial Services Corporation (Seller)
     
Installment Sales Contract #508533, dated February 4, 2008
Parties:
  R&L Winn, Inc. (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #508533), dated February 4, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #508533), dated February 4, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc., (Obligor) and Whayne Supply Company (Seller)
     
Installment Sales Contract #510382, dated February 27, 2008
Parties:
  R&L Winn, Inc. (Buyer) and Whayne Supply Company (Seller)

21


 

     
Guaranty of Payment (to Installment Sales Contract #510382), dated February 27, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #510382), dated
February 27, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #516288, dated April 25, 2008
Parties:
  R&L Winn, Inc. (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #516288), dated April 25, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #516288), dated
April 25, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #516458, dated April 28, 2008
Parties:
  R&L Winn, Inc. (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #516458), dated April 28, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #516458), dated
April 28, 2008
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #529232, dated August 13, 2008
Parties:
  Schoate Mining Co., LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #529232), dated August 13, 2008
Parties:
  Phoenix Coal Corporation (guarantor), Schoate Mining Co., LLC (Obligor), and Whayne Supply Company (Seller)

22


 

     
Installment Sales Contract #529236, dated August 13, 2008
Parties:
  Charolais Mining Company, LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #529236), dated August 13, 2008
Parties:
  Phoenix Coal Corporation (guarantor), Charolais Mining Company., LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #533032, dated September 19, 2008
Parties:
  Charolais Mining Company, LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #533032), dated September 19, 2008
Parties:
  Phoenix Coal Corporation (guarantor), Charolais Mining Company., LLC (Obligor), and Whayne Supply Company (Seller)
     
Limited Guarantee (to Installment Sales Contract #533032), dated September 19, 2008
Parties:
  Phoenix Coal Corporation (guarantor), Charolais Mining Company., LLC (Obligor), and Caterpillar Financial Services Corporation
     
Installment Sales Contract #533033, dated September 19, 2008
Parties:
  Charolais Mining Company, LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #533033), dated
September 19, 2008
Parties:
  Phoenix Coal Corporation (guarantor), Charolais Mining Company., LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #536249, dated October 20, 2008
Parties:
  Schoate Mining Co., LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #529232), dated October 30, 2008
Parties:
  Phoenix Coal Corporation (guarantor), Schoate Mining Co., LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #496985, dated November 20, 2007
Parties:
  Schoate Mining Co., LLC (Buyer) and Whayne Supply Company (Seller)

23


 

     
Guaranty of Payment (to Installment Sales Contract #496985), dated November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Schoate Mining Co., LLC (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #496985), dated
November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #496996, dated November 20, 2007
Parties:
  Schoate Mining Co., LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #496996), dated November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Schoate Mining Co., LLC (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #496996), dated
November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Schoate Mining Co., LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #497012, dated November 20, 2007
Parties:
  Charolais Mining Company, LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #497012), dated November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Charolais Mining Company, LLC (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #497012), dated
November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Charolais Mining Company, LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #497416, dated November 26, 2007
Parties:
  R&L Winn, Inc. (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #497416), dated November 26, 2007
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)

24


 

     
Installment Sales Contract #498200, dated November 30, 2007
Parties:
  Phoenix Coal Processing Company, LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #498200), dated November 30, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Phoenix Coal Processing Company, LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #499935, dated December 11, 2007 (as amended)
Parties:
  Schoate Mining Co., LLC (Buyer) and Whayne Supply Company (Seller)
     
Installment Sales Contract #500789, dated December 18, 2007 (as amended)
Parties:
  Phoenix Coal Processing Company, LLC (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #500789), dated November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Phoenix Coal Processing Company, LLC (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #500789), dated November 20, 2007
Parties:
  Phoenix Coal Corporation (guarantor), Phoenix Coal Processing Company, LLC (Obligor), and Whayne Supply Company (Seller)
     
Installment Sales Contract #501540, dated December 21, 2007 (as amended)
Parties:
  R&L Winn, Inc. (Buyer) and Whayne Supply Company (Seller)
     
Guaranty of Payment (to Installment Sales Contract #501540), dated December 21, 2007
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Collateralized Guaranty of Payment (to Installment Sales Contract #501540), dated
December 21, 2007
Parties:
  Phoenix Coal Corporation (guarantor), R&L Winn, Inc. (Obligor), and Whayne Supply Company (Seller)
     
Term Loan Note, dated April 1, 2008
Parties:
  Schoate Mining Co., LLC. and Deere Credit, Inc..
     
Security Agreement - Equipment, dated April 1, 2008
Parties:
  Schoate Mining Co., LLC. and Deere Credit, Inc..

25


 

     
Guarantee, dated April 1, 2008
Parties:
  Schoate Mining Co., LLC., Phoenix Coal Corporation and Deere Credit, Inc..
(b) Coal Sale Agreements
     
Agreement for the Sale and Purchase of Coal, dated September 5, 2007
Parties:
  Charolais Coal Sales Company, LLC and Duke Energy Kentucky, Inc.
     
Coal Supply Agreement, dated January 1, 2007
Parties:
  Charolais Coal No. 1, LLC, Charolais Coal Resources, LLC, Charolais Coal Sales Company, LLC and Louisville Gas & Electric Company, Kentucky Utilities Company
     
Coal Supply Agreement, dated June 23, 2009
Parties:
  American Coal Company and Charolais Coal Sales LLC
     
Restated and Amended Coal Supply Agreement, dated August 1, 2007
Parties:
  Charolais Coal Sales Company, LLC Phoenix Coal Corporation and Kentucky Utilities Company
     
Coal Supply Agreement, dated December 31, 2007
Parties:
  Western Kentucky Energy Corp. and Phoenix Coal Corporation, Charolais Coal Sales, LLC
     
Coal Supply Agreement, dated March 16, 2006
Parties:
  Western Kentucky Energy Corp. and WKE Station Two Inc., R&L Winn, Inc.
     
Coal Supply Agreement, dated January 1, 2008
Parties:
  Phoenix Coal Corporation and Duke Energy Ohio, Inc.
     
Master Coal Purchase and Sale Agreement, dated November 30, 2007
Parties:
  Charolais Coal Sales, LLC (buyer) and Covol Fuels No.2, LLC (seller)
 
   
Transfers/Assignments:
  Neither party may assign without the prior written consent of the other party, which consent shall not be unreasonably withheld or denied; except a transfer of the agreement may be made without consent in connection with a financing arrangement OR to any person or entity acquiring all or substantially all of the assets of the Party where the acquiring party is equally creditworthy as the assigning party.

26


 

(c) Coal Lease Agreements
     
Coal Mining Lease Agreement, dated November 4, 2008
Parties:
  John K. (“Kenny”) Vaught, Lisa Michelle Vaught and R&G Leasing, LLC
     
Surface Coal Mining Lease Agreement, dated May 31, 2007
Parties:
  Tom Eubanks, Jeff Eubanks and Phoenix Coal Corporation
     
Surface Coal Mining Lease/Sublease Agreement, dated January 26, 2006
Parties:
  Tom Eubanks, Jeff Eubanks and Phoenix Coal Corporation
     
Coal Representation Agreement, dated March 30, 2006
Parties:
  Edmonson Fuels, LLC and R&L Winn, Inc.
     
Coal Lease Agreement, dated June 7, 2006
Parties:
  Anna Loraine Cundiff and R&L Winn, Inc.
     
Coal Lease Agreement, dated February 28, 2008
Parties:
  Anna Loraine Cundiff and R&L Winn, Inc.
     
Strip Coal Mining Lease, dated October 20, 1967
Parties:
  Sentry Royalty Company and Ayershire Collieries Corporation
 
   
Transfers/Assignments:
  Section 21 — permits assignment, but the lessee will not be released unless written consent of the lessor is obtained.
     
Mineral Lease, dated December 4, 1947
Parties:
  Talmage Rogers, et al. and Ayershire Collieries Corporation
     
Assignment and Sublease Agreement, dated January 22, 2001
Parties:
  Lynx, Inc. and Evergreen Mineral Company, Inc.
     
Surface & Coal Lease Agreement, dated
Parties:
  Tom McDonald Heirs et al. and R&L Winn, Inc.
     
Surface Mining Lease Agreement, dated July 31, 2004
Parties:
  Billy & Patsy Kirtley and R&L Winn, Inc.
     
Minerals Agreement, dated September 13, 2006
Parties:
  Gerald A. Liles & Judith Ann Liles and Renfro Equipment, Inc.

27


 

     
Surface Agreement, dated August 3, 2006
Parties:
  Gerald A. Liles & Judith Ann Liles and Renfro Equipment, Inc.
     
Coal Mining Lease Agreement, dated July 17, 2006
Parties:
  Martha Rogers Haas, et al. and R&G Leasing, LLC
     
Surface Coal Mining Lease/Sublease Agreement, dated September 7, 2006
Parties:
  James H. Edwards and Renfro Equipment, Inc.
     
Surface Coal Mining Lease/Sublease Agreement, dated August 3, 2006
Parties:
  Gerald A. and Judith Ann Liles, Joseph P. Lilies and Renfro Equipment, Inc.
     
Surface Coal Mining Lease/Sublease Agreement, dated August 24, 2005
Parties:
  Geibel Lumber Co., Lydia Geibel by Jon Geibel and Jon Geibel’s Agent for the Geibel family and Renfro Equipment, Inc.
     
Amendment to Surface Coal Mining Lease/Sublease Agreement, dated November 11, 2008
Parties:
  Geibel Lumber Co., Lydia Geibel by Jon Geibel and Jon Geibel as Agent for the Geibel Family and Renfro Equipment, Inc.
     
Mineral Coal Mining Lease, dated September 13, 2006
Parties:
  Gerald A. and Judith Ann Liles, Joseph P. Liles and Renfro Equipment, Inc.
     
Coal Mining Lease, dated April 15, 2003
Parties:
  Virginia Avaneil McDonald, Douglas W. McDonald, Pam and Tommy Davidson, Pam Davidson, Keith and Mya McDonald, Greg and Suzie McDonald, Ron and Mona McDonald, Corinne Knight, Gary and Adelia McDonald, Jolene and James Walker, Jane and Doug Galyen, Brenda and Frank L. Coomer, Bobby D and Jennifer Whitson, Deborah W. and Joe Whitson, Bruce and Marilyn McDonald, Roger Neal and Donna McDonald, Barbara and Ray Newman, Peggy and Danny Grissom, Kevin and Sandra McDonald, Donald and Joanna McDonald, Wanda and Gene Luckett, Phillis A. and Yost Newman, Billy W. and Patsy Kirtley, and R&L Winn, Inc.
II. NOTICE REQUIRED
(a) Agreements and Guarantees in Connection with Equipment Financing
     
Security Agreement, dated October 20, 2008
Parties:
  Phoenix Coal Corporation and Brandeis Machinery & Supply Company (as assigned to Komatsu)

28


 

     
Security Agreement, dated October 20, 2008
Parties:
  Phoenix Coal Corporation and Brandeis Machinery & Supply Company (as assigned to Komatsu)
     
Security Agreement, dated December 1, 2008
Parties:
  Schoate Mining Co., LLC and Komatsu Financial Limited Partnership
     
Security Agreement, dated February 16, 2009
Parties:
  Schoate Mining Co., LLC and Brandeis Machinery & Supply Company (as assigned to Komatsu)
     
Security Agreement, dated February 16, 2009
Parties:
  Schoate Mining Co., LLC and Brandeis Machinery & Supply Company (as assigned to Komatsu)
(b) Coal Lease Agreements
     
Coal Lease and Mining Agreement, dated December 2, 2005
Parties:
  Terry Adkins and Renfro Equipment, Inc.
     
Surface Coal Mining Lease/Sublease Agreement, dated May 30, 2001
Parties:
  Hilltop Haven, Inc. and Renfro Equipment, Inc.
     
Coal Lease and Mining Agreement, dated August 26, 2005
Parties:
  Gon “Kevin” Huh and Renfro Equipment, Inc.
     
Surface Coal Mining Lease/Sublease Agreement, dated June 25, 2007
Parties:
  Richard T. and Tonya L. Williams and Renfro Equipment, Inc.
     
Surface Mining Lease Agreement, dated October 23, 2003
Parties:
  Bobby and Jonnie Dukes and R&L Winn, Inc.
     
Surface Mining Sublease Agreement (of Taylor Lease to the Dukes), dated October 20, 2006
Parties:
  Bobby and Jonnie Dukes and R&L Winn, Inc.
     
Surface Mining Lease Agreement, dated May 24, 2006
Parties:
  John Wesley Horn and R&L Winn, Inc.
     
Surface Mining Lease Agreement (Multiple Leases for Various Properties), dated
October 23, 2003
Parties:
  Majorie Dukes and R&L Winn, Inc.

29


 

     
Surface Mining Lease Agreement (Multiple Leases for Various Properties), dated
December 22, 2003
Parties:
  W. Edwin and Exie Bandy and R&L Winn, Inc.
     
Surface Mining Lease Agreement, dated January 13, 2004
Parties:
  Kenneth R. Dukes and R&L Winn, Inc.

30


 

Schedule 4.3-1
Ownership
1. C&R Coal Company, Inc. (“C&R”). R&L Winn, Inc. owns 2,000 shares of common stock of C&R, representing 100% of the issued and outstanding common stock of C&R.
2. Charolais Coal Sales, LLC (“CCS”). PCC owns 100% of the membership interests of CCS.
3. Charolais Mining Company, LLC (“CMC”). PCC owns 100% of the membership interests of CMC.
4. Evergreen Mineral Co., Inc. (“Evergreen”). PCC owns 200 shares of common stock of Evergreen, representing 100% of the issued and outstanding common stock of Evergreen.
5. Old Liberty Equipment Co., Inc. (“Old Liberty”). PCC owns 200 shares of common stock of Old Liberty, representing 100% of the issued and outstanding common stock of Old Liberty.
6. Phoenix Coal Processing Company, LLC (“PCP”). PCC owns 100% of the membership interests of PCP.
7. R&L Winn, Inc. (“Winn”). PCC owns 1,000 shares of common stock of Winn, representing 100% of the issued and outstanding common stock of Winn.
8. Renfro Equipment Inc. (“Renfro”). PCC owns 100 shares of common stock of Renfro, representing 100% of the issued and outstanding common stock of Renfro.
9. Schoate Mining Co., LLC (“Schoate”). Evergreen owns one (1) unit of Schoate and Old Liberty owns one (1) unit of Schoate, which units together represent 100% of the issued and outstanding membership units of Schoate.
10. Phoenix Newco, LLC. PCC owns 100% of the membership interests of Phoenix Newco, LLC.

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Schedule 4.3-2
Ownership
1. None at Closing, provided that the Buyer may designate Phoenix Reorganization Entities after the Closing pursuant to Section 6.12 of the Agreement and entities so designated shall conform to the requirements for Phoenix Reorganization Entities contained in Section 4.3 of the Agreement.

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Schedule 4.5
Financial Statements
1. See attached Financial Statements.

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CONSOLIDATED FINANCIAL STATEMENTS PHOENIX COAL CORPORATION 4 SUBSIDIARY December 31,2006

 


 

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PHOENIX COAL CORPORATION & AFFILIATES Table of Contents December 31,2006 Independent Auditort Report 1 Consolidated Financial Statements Balance Sheet 2 Statement of Operations 3 Statement of Stockholdera’ Equity 4 Statement of Cash Flows — 5 Notes to Financial Statement 6

 


 

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Mountjcy & Bressler INDEPENDENT AUDITOR’S REPORT To the Board of Directors Phoenix Cod Corporation & Subsidiaries We have audited the accompanying consolidated balance sheet of Phcsnfic Coal Corporation & Subsidiaries aj of December 31, 2006 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. The consolidated financial statements are the responsibility of the Company’s management Our responsibility Is to express an opinion on the consolidated financial statements based on our audit We conducted our audit In accordance with auditing standards generafly accepted In the United States of America Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also Includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We befievo that our audit provides a reasonable basis for our opinion. in our opinion, the consoldatad financial statements referred to above present fairly. In ai material respects, the financial position of Phoenix Coal Corporation & Subsidiaries as of December 31,2008 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America Louisvlle, Kentucky April 30,2007 mountjoybr*” ktr.com 2300 WMartomt Pta« 175 East Main Street, SuMe 200 Th« trim Mansion ISOflynn Avenue, SuHalOO 335 W Main S«r**» Loington, Kentucky 40507 «0S Citrard Stiaat P.O. Bwittt loulnlVc. Xcfltucky 40202 Covinpon, Kentucky 41411 Frankfort, Kentucky 40601 1502) 992-1700 (859)155-4950 (459)431-1975 (502)227-9000 (502) 992-4700 fire (859) 2SS-2S7S fu UBS) 431-7771 fix (502) 227-9400 fa* An tndewndtnl Member of Bator TIty intwntficoal

 


 

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PHOENIX COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31,2008 ASSETS Current Assets Cash and equivalents $8,307,088 Restricted cash 1,697,038 Investments 713,077 Trade accounts recefvable 1,582,136 Accounts receivable — other 203,365 Coal Inventories 256,383 Prepaid expanses and other current assets 246.119 Total current assets 13,005,214 Property, Plant and Equipment, net 13,397,672 Goodwill 9,927,059 Other Intangible Assets, net of accumulated amortization of $26,272 462,787 Other Assets 1.623.240 S 38.415.972 See accompanying Independent auditor’s report and notes to balance sheet

 


 

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LIABILITIES AND STOCKHOLDER’S EQUITY Current Liabilities Trade accounts payable and accrued liabilities $3,505,762 Current portion of long-term debt — 3.31 Mg2, Total current liabilities 3,821,184 Reclamation liability 1,538,948 Lons-Term Debt, less current portion $3,315.422 14,044,163 Cthertong4erm liabilities 2,188,271 Stockholder’s Equity Common stock, $.001 stated value per share, 55,000,000 shares euthorized, 38,392,687 shares Issued and outstanding 38,393 Additional paid-in capital 21,051,649 Accumulated otter comprehensive loss (143,858) Accumulated deficit (7,118,7781 13,328,406 ?, 36,415,978

 


 

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PHOENIX COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS Year ended December 31,2006 Coal sales $16,276,283 Cost and Expenses: Cost of coal sales 14,348,085 Selling, general and administrative expenses 5,132,864 Depreciation and amortization 677.825 Loss from operations (3, B82,301) Other Income (Expense) Interest expense (1,102,999) Interest Income 30,960 Other, net (66.4381 ... (1.138,475) Loss before income tax expense {5,020,776) Income Tax (Benefit) Zm___See accompanying independent auditor’s report and notes to consolidated financial statements

 


 

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PHOENIX COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY For the year ended December 31,2006 Accumulated Additional Other Common Stock Paid-in Comprehensive Accumulated Shares Dollars Capital Income Deficit Total December 31,2003 14,190,000 $14,190 $3,360,310 $ — $ (2.098,002)3 1,276,498 Capital contribution 22,202,667 22,203 t7,044,115 — - 17,658,318 interest rate swap — — (143,858) (143,858) Share-based Compensation — - 47,224 — - 47,224 Netloas : ^___= -___(§,020,776) ($.02,0,771?) December31,2006 36,332,667 I 3MM «1.051.648 £ CL&S221 ¥ (7,113,778) m«ff.4W See accompanying Independent auditor’s report and notes to consolidated financial statements

 


 

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PHOENIX COAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS . Year ended December 31,2006 Cash Flow From Operating Activities Net I0SS $ (5,020,778) Adjustments to reconcile net loss to net cash used In operating activities: Depreciation and amortization 677,625 Loss on sale of property and equipment 148,686 Deferred tax provision Share-based compensation 47,224 In-kind Interest 179,192 Write off on license agreement 187,500 Changes in operating assets and liabilities: Accounts receivable (163,267) Inventories (266,383) Prepaid expenses and other assets 20,464 Trade accounts payable, accrued liabilities and other liabilities 741.623 Net cash used In operating activities (3,438,232) Cash Flow From Investing Activities Restricted cash (1,697,038) Investments (713,077) Payments for other assets principally mine development (1.433,147) Payments for property and equ^sment (1,024,018) Acquisition (13.610.1381 Net cash used In Investing activities (18,477,419) Cash Flow From Financing Activities Principle payments on long-term debt (3,147,149) Proceeds from long-term debt 15,839,958 Financing fees (489,059) Net proceeds from capital contributions 17.666.31 a Nat cash provided by financing activities 28.870.068 Net Increase In Cash and Equivalents 7,954.417 Cash and Equivalents, Beginning of Year 352.679 Cash and Equivalents, End of Year s fi.307.P9B Supplemental Disclosure: Interest paid * 91Q 797 See accompanying independent auditor’s report and notes to consolidated financial statements

 


 

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PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31, 2006 NOTE A-NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Qperatlona: Phoenix is headquartered in Madisorwille, Kentucky with satellite offices in Champaign, Hinds and Louisville, Kentucky. The Company is engaged in the production and sale of steam coal to utilities and Industrial fuel consumers. Formed in July 2004 as a Delaware C corporation, the Company was originally named Dynamic Separations, Inc. (“DSP). Principles of Combination: The Consolidated Company’s consolidated financial statements include Phoenix Coal Corporation and its affiliates, Schoate Mining Company, LLC, Crittanden County Coal, Inc. and R & L Winn, Inc. and Old Liberty Equipment Company and Evergreen Mineral Company, inc. AJ significant intercompany transactions have been elimfoated. Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generaly accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liaMWea and disclosure of contingent assets and liabilities at the date of the consoOdated financial statements and the reported amounts of revenues and expenses during Ihe reporting period. Actual results could differ from those estimates. Cash and Equivalents: For purposes of reporting cash flows, the Company considers all cash accounts that are not subject to withdrawal restrictions or penalties to be cash or cash equivalents. Accounts Receivable: Trade accounts receivables are recorded at the invoiced amount and do not bear interest. Customers are primarily Investment grade companies and quasi-governmental agencies. As a result, we have not experienced any instances of non-payment and do not currently maintain an allowance for doubtful accounts. Management monitors customers closely and will record an allowance if trade account balances become potentially uncoltectfble. Inventory: Inventory Is maintained on a perpetual basis. The Company uses an average cost per ton ranging from $21.85 to $25.22 on a “clean” coal basis. The Company accounts for parts inventory using the original cost on a first-in-first-out basis. Parts Inventory Is Included In other current assets. Property and Equipment: Purchased property and equipment are stated at cost. The Company provides for depreciation of the purchased depreciable assets on the straight-line basis with useful lives that range from 5 to 10 years. Depredation expense was $602,723 for the year ended December 31,2008. The cost of assets sold, retired or otherwise disposed of and the related allowance for depreciation are eliminated from the accounts and any resulting gafei or loss is included in operations. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Interest cost fs capitalized for qualifying assets during the period In which the asset Is being installed and prepared for its Intended use. Capitalized interest cost is amortized on the same basis as the related depredation. Interest costs capitalized were $48,082 in 2006. Consistent with Statement of Financial Accounting Standards (SFAS> No 144, Accounting for We Impairment or Disposal of Long-Lived Assets, the Company evaluates long-lived assets for Impairment and assesses their recoverabilfty based upon anticipated future cash flows. If facts ami circumstances lead the Company’s management to believe that the cost of one of Its assets may be Impaired, the Company will reduce the carrying amount to fair value to the extent necessary. Continued

 


 

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PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Deferred Mine Coats: Deferred mine costs represent the costs incurred to prepare future mine sites for mining and are amortized over the Ufa of the mine sila Deferred mine expense for the year ended December 31,2008 was $471,825. Asset Retirement Costa: The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations,” which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. For the Company, asset retirement obligation expense represents the systematic accretion and depredation of future mine reclamation costs, which Includes the costs to reclaim the land disturbed during the mining process and the removal of mine facilities, equipment, transportation and other support facilities. Asset retirement obligation expense is the depreciation of future mine reclamation costs as described above. Goodwin and Other Intangible Assets: Goodwill Is tested at least annually for Impairment in accordance with SFAS No. 142, GoodwW and Other Intangible Assets. Intangible assets are amortized over their respective useful fives on a straighWIne baslB. Deferred Financing. Fees: Deferred financing fees are amortized to interest expense over the life of the related loan. Unamorflzed deferred financing fees were $462,787 at December 31,2008. Prepaid Royalties Rights to leased coal lands are often acquired through royalty payments. Where royalty payments represent prepayments recoupable against production, they are recorded as a prepaid asset, and amounts expected to be recouped within one year are classified as a current asset. As mining occurs on these leases, the prepayment is charged to cost of coal sales. Revenue Recognition: Under SEC Staff Accounting Bulletin No. 104, Revenue Recognition, we recognize revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2} delivery has occurred or services have been rendered, (3} the seller’s price to the buyer Is fixed or determinable, and (4) collectibiHty Is reasonably assured. In the case of coal we mine and sell, we negotiate a specific sales contract with each customer, which Includes a fixed-price per ton, a delivery schedule, and terms for payment Royalty Expense: The coat that the Company mines belongs to other entitles. The Company acquires the right to mine and sell the coal through various leases. These leases require the Company to pay a royalty to the owners of the land and the minerals being mined. Royalty expense for the year ended December 31, 2008 was $1,579,355. income Taxes: Deferred Income taxes are provided for temporary differences arising from differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates expected to be in effect when the related taxes are expected to oe paid or recovered. Continued

 


 

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PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE A - NATURE OP OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Accounting Pronouncements: On January 1,2008, the Company adopted the Emerging Issues Task Force Issue No. 04-6, Accounting tor Stripping Costs to the Mining Industry (“EfTF 04-6”). EITF 04-8 appOes to stripping costs Incurred in tha production phase of a mine for the removal of overburden or waste materials for the purpose of obtaining access to coal that wiB be extracted. Under EITF 04-8, stripping costs incurred during the production phase of the mine are variable production costs that are included In the cost of inventory extracted during the period tie stripping costs are Incurred, As of January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Shars«Based Payment (“Statement No. 123R”), which requires companies to measure compensation cost In the statement of Income for all share-based payments (Including employe* stock options) at fair value. Prior to the adoption of Statement No. 123R, the Company accounted for is stock options under the Intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employes* CAPB25”) and related interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation , as amended by Statement of Financial Accounting Standards No. 148, Accounting, for Stack-Based Compensation -Transition and Disclosure (“Statement No. 123*). The Company adopted Statement No. 123R using the prospective method. Under this method, compensation cost for share-based payments to employees Is based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. Measurement and recognition of compensation cost for awards that ware granted prior to, but not vested as of, tha date Statement No. 123R was adopted are based on the same estimate of the grant-date fair value and the same recognition method used previously under Statement No. 123. The Company uses the Btacfc-Scholas option pricing model for its options to determine tha fair value. Statement No. 123R also requires the benefits of tax deductions In excess of recognized compensation cost to be reported as a financing cash flew, rather man as an operating cash flow. Prior to the adoption of Statement No. 123R, the Company accounted for its stock options under the intrinsic value method prescribed by APB 25 and related interpretations bs permitted by Statement No. 123.

 


 

(GRAPHIC)
PHOENIX COAL CORPORATION 4 AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE B-ACQUISITIONS In 2006, the Company made a series of acquisitions of coal production and reserves as follows: » Sohoate Mining Company — Company acquired stock of Evergreen Mineral Co. and Old Liberty Equipment Co., each of which owned 50% of Schoate, in June 2006. Consideration included cash, assumption of liabilities and $400,000 in common stock of ttie Company. R&L Winn — Company acquired stock and R&L Wlrwi in July 2006. Consideration included cash and assumption of ffabiRUes. * Taylor famify assets — Company acquired stock and assets of Taylor family holdings Including Crrttenden County Coal in July 2008. Consideration Included cash and assumption of UabSftles. The fair values of assets acquired and nabrfibes assumed at the acquisition date are as follows: Schoate R&L Taylor Mining Wing Property Total Current assets $3,417.202 3 131,387 $6,674 5 3.555,733 Property and Equipment 8,071,115 1,289.200 2,604,207 9,844,522 Reserves 250,000 150,000 400,000 Goodwill 8,150,421 673.322 2,873,055 9,696,798 Assumed Liabilities t3.S88.7551 (528,156) (3,860.934) r7.977.835t ? 12.049.gg3 ? 1,796,233 1 1,773,013 S 15,612,2,19 The accompanying consolidated financial statements induce operations of the subsidiaries from the date of acquisition through December 31,2006. NOTE C—PROPERTY AND EQUIPMENT, NET Property and equipment consists of the following as of December 31,2006: Land $2,026,968 Building and Improvements 25,424 Preparation plant 1,214,697 Mining equipment 10,564,757 Office equipment 195,962 Vehicles 91.36 ft 14,119,173 Less accumulated depreciation and amortization (721.601) $13,397672

 


 

(GRAPHIC)
PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE D-DEBT Tha Company has a 52 million secured rfne-of-credlt agreement with Fifth Third Bank for working capital purposes. The line-of-credit Is collaterallzed by all general business assets of Phoanix Coal Corporation, including but not limited to aD equipment now owned and hereafter acquired, accounts receivables and inventory. The line bears Interest at he Libor rate plus 2.72%. The Company had no outstanding balance on the llne-of-credit at December 31, 2006. Under the debt agreement, the Company Is subject to certain debt covenants. As of December 31,2006. the Company was in compliance with all debt covenants or received a waiver, in April 2007, the line of credit was amended to Increase the available Una to $3.4 million and increase interest to libor to 4%. In December 2006, the Company received a $500,000 advance as part of a bridge financing agreement associated with an acquisition completed in January 2007. The advance was repaid In January 2007 and reissued as part of the full bridge financing of $3.5 milKon (See Note K). Long-term debt at December 31,2006 consisted of the fotfowlng; Note payable to bank of $41,667 plus Interest starting January 2007 with interest at Libor plus 2.75% (8,1% at December 31, 2006}. Payments are made In monthly installments. The loan is collaterallzed by all assets and has a maturity date of December 2011. $1,339,058 Equipment notes payable, interest at 6.22%. Payments are made in monthly Installments. The loan is coBateraBzed by related assets and has maturity dates through June 2008. 1,157,017 Note payable to bank with interest at Libor plus 2.75%, Monthly payments of $116,667 plus interest beginning January 2007. Loan is collaterallzed by substantially all assets and has a maturity date of December 2011. 7,000.000 Subordinated note payable — MVC Capital with Interest payable quarterly at 15% per annum. Interest in excess of 10% to be rolled into principal Holder has option on June 8, 2007 to convert Interest to shares or common stock at defined value with same option June 2008. 7,179,192 Advance on bridge financing (see above) 500,000 Advanced coal purchase, repayable monthly through December 31,2007, interest at 2.8% 183.418 17,369,583 Less: current maturities f3.3lS.42ft IHW.1W Expected maturities of notes payable are as follows: 2007 $3,315,422 2.325,017 1,739,950 1,400,000 8,679,199 ill7 i?ngi5u3 Continued

 


 

(GRAPHIC)
PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31.2008 NOTE D-DEBT - Continued in 2006,the Company entered into an Interest rate swap transaction whereby the interest payments on a notional dollar amount of $7 million are converted to a fixed rate of 8.10% compared to a variable rate of UBOR remeasured on a quarterly basis. The swap agreement Is tor 6 years expiring December 2011. The Company has designated this agreement as a cash flow hedge. The value of the derivative as of December 31, 2005 amounted to $143,858 and the related liability Is included in accounts payable and accrued liabilities. NOTE E-4NCOME TAXES The components of the Income tax expense are: Current $ Deferred s___S i— A reconciliation of differences between the statutory U.S. federal Income tax expense (benefit) and the Company1 s effective tax benefit follows: U.S. statutory rate $ (1,691,532) State taxes, net of federal benefit Permanent items (94,178) Valuation allowance 1.785.71Q Income tax expense t The income tax expense attributable to discontinued operations presented on the consolidated statement of operations Is reflective of statutory tax rate as differences noted above were attributable to continuing operations. The expense for Income taxes includes federal and state income taxes currently payable or receivable and those deferred or prepaid because of temporary differences between the financial statement and the tax basis of assets and liabilities. The Company records income taxes under the liability method. Under this method, deferred income taxes are recognized for the estimated future tax effects of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted laws. The deferred tax assets and liabilities recognized in the consolidated balance sheet are comprised of the following: Deferred tax assets: Net operating loss carry forwards and tax credits $2,977,666 Share based cmmpensat’on 18,900 Other 31.371 3,028,237 Deferred tax liabilities: Tax over book depreciation (1,228.559) 1,801,878 Valuation allowance fl.aoi.878i Net deferred tax ft Continued

 


 

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PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE B-4NCOME TAXES — Continued As a result of losses from operations, management has recorded a valuation allowance against the total deferred tax asset as they do not believe Ft Is more likely tfian not these assets will be realized. At December 31, 2006, the Company had available net operating loss carryforwards, to reduce future taxable income, of approximately $7,000,000. NOTE F-C0NCENTRAT1ONS For Ova year ended December 31, 2008, the Company’s two primary customers comprised approximately 93% of coal sales. Accounts receivables due from the two primary customers were $960,795 at December 31,2006. NOTE C-COMIUUTMENTS AND CONTINGENT LIABILITIES In the normal course of business, the Company makes various commitments and Incurs certain contingent liabilities including Eabflltlea related to reclamation costs and financial obligations in connection w»» mining permits that are not reflected in the accompanying balance sheet The Company does not anticipate any material losses as a result of these transactions. According to KRS Chapter 350, the Company is required to post reclamation bonds to assure the reclamation work la completed Outstanding reclamation bonds totaled approximately $8 million at December 31,2006. The Company leases certain office space and mining equipment over long-term operating leases running through 2009. The office lease contains an automatic renewal on a monthly basis for an additional two years after the Initial term which has bean Included In the summary. Future minimum lease commitments as of December 31 under noncancalable operating leases are as follows: 2007 $1,154,640 2008 1,126,880 2009 334,620 2010 34.320 3 2,650,470 A significant amount of the Company’s coal reserves are controlled ftrough leasing arrangements and non-cancellable royalty lease agreements under which future minimum lease payments are due.

 


 

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PHOENIX COAL CORPORATION * AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31.2006 NOTE H—COM MON STOCK The Company has conducted four separate equity transactions (n which It issued common stock. Although each transaction was designated as a new series, the stock issued for each series was all common stock with the same rights and privileges. A summary of the transactions follows: Per Common Paid-in Shares Share Stock Caplt?) ipJa! Inittaf-Common 12,750,000 $ .19 $12,750 12,641,763 9 2,654,513 Series A 8,370,000 .50 8,370 4,176,630 4,185,000 Series B 9,170,000 .75 9,170 8,868,330 8,877,500 Series C 6.102.6B7 125 6.103 ,.7,622,231 7,628,334 3g.392.gg7 3 36383 21,308,954 21,345,347 Expenses (304,5291 (3Q4,g29) 821004.425 S2j.ft4Q.a-f 8, In January 2007, the Company completed the Series C transaction resulting In the issuance of an additional 831,440 shares and $1,039,300 fri proceeds. NOTE l-STOCK INCENTIVE PLAN The Company’s Stock Incentive Man (the “Incentive Plan”) reserved 3,057,000 shares of the Company’s common stock for awards to officers, other selected key management employees and members of the Board of Directors of the Company. The Incentive Plan provides the Board of Directors with the flexibility to grant either incentive or nonstatutory stock options (“Awards”). The Incentive Plan calls for the adjustment of shares awarded under the plan in the event of a split Stock options are generally subject to vesting provisions of 25% at the end-of-year one from the date of grant and then evenly over 48 months. The options are granted at a price equal to 100% of the fair value of the Company’s common stock on the date of grant and have a ten year term. Information regarding stock option activity under the Incentive Plan follows for the year ended December 31,2006; Option Average Common Exercise Contract Shares Price , Ufo Options outstanding at January 1 2,250,000 $ .25 10 Granted 820,000 .50 10 Exercised Cancelled f25.0001 .50 Options outstanding at December 31 3.045.000 Options exercisable at December 31 1-383.628 8 .25, Continued

 


 

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PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE 1-STOCK INCENTIVE PLAN — Continued Compensation cost of stock option grants is recognized straight-line over the options’ vesting periods. Compensation expense related to stock options for the ysar ended December 31,2006 was $47,224. As of December 31, 2006, there was approximately $207,000 of unrecognized compensation cost related to the unvested stock options. The options’ fair value was determined using the Black-Schcles option pricing model. Expected vdafih’Ues are based on comparable company historical stock movement, and other factors. The cost relating to the stock-based compenaatton plans !s Included in selling, general and administrative expenses in the accompanying Consolidated Statement of Operations. Weighted average fair value per share of options granted $ .28 per share Assumptions (weighted average): Risk free interest rate 4.52% Expected dividend yield 0.0 Expected volatility 0.40 Expected life (in years) 10.0 NOTe J-RELATED PARTY TRANSACTIONS The Company regularly enters Into transactions with shareholders and/or affiliated entities that have some level of common ownership with the Company. A summary of the related party transactions and balances for the year ended and as of December 31,2006 follows; Sales $2,466 Expenses: Consulting fees 766,000 Rent 27,230 Miscellaneous 5,393 Accounts receivable 57,655 Accounts payable 16,464

 


 

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PHOENIX COAL CORPORATION & AFFILIATES NOTES TO FINANCIAL STATEMENTS December 31,2006 NOTE K-SUBSEQUENT EVENTS In January 2007, the Company completed the following transactions; On January 2,2007, the Company completed an asset and stock acquisition agreement related to CharWais Corporation and related entities for a total consideration of $21.7 million principally allocated as follows: Real property $600,000 Plant and equipment 14,000,000 Minerals 1,500,000 Goodwill 5,gCQ,pQQ, As part of the purchase transaction, the sailer provided financing amounting to $3.5 mfflton. The note accrued Interest at 8.75% and matured January 31,2007. The note was repaid through the proceeds of the bridge financing noted below. The Company also entered into a note with the seller amounting to $9.2 million with fixed rate of interest at 8.75%. The note matures June 30, 2007. The seller also received 434,640 common shares of Company stock at a $1.25 per share value as part of the transaction. In connection with the above acquisition, the Company entered into a new credit agreement on January 25, 2007 amounting to $4,135,600 denominated in Canadian dollars (approximately $3.5 minion in U.S. dollars). The note payable accrues interest at 12% per annum and is repayable on or before June 29,2007. In addition to the interest, the Company paid a bonus to the creditor of $262,500 which was payable with 210,000 shares of common stock at a value of $1.26 per share.

 


 

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INDEPENDENT AUDITOR’S REPORT lb the Board of Directors Phoenix Coal Corporation & Subsidiaries We have audited the accompanying consolidated balance sheets of Phoenix Coal Corporation & Subsidiaries (the Company) as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity and cash flows tor the years ended December 31, 2007, 2006 and 2005. (See Note A), The financial statements are the responsibility of the Company’s management Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform die audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as weU as evaluating the overall financial statement presentation. We believe tiiat our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, die financial position of Phoenix Coal Corporation & Subsidiaries as of December 31,2007 and 2006 and die results of then- operations and cash flows for the years ended December 31, 2007, 2006 and 2005 in conformity with accounting principles generally accepted in die United States of America. The accompanying financial statements have been prepared assuming that die Company will continue as a going concern. As discussed in Mote A to die consolidated financial statements, the Company has incurred a net Loss for fiscal years 2007,2006 and 2005 and had a working capital deficiency of $18,636,258 as of December 31, 2007. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. “Mounrjoy & Bressler lAP” Louisville, Kentucky May 2, 2008 except for Note L as to which the date is June 13,2008.

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 2007 2006 ASSETS Current Assets Cash and equivalents $381,374 $8,307,095 Investments 153,100 713,077 Trade accounts receivable ‘. 4314,385 1,582,136 Accounts receivable —other 16,858 203,365 Coal inventories 1,072,697 256383 Prepaid expenses and other current assets 526,664 246,119 Total current assets 6,465,078 11,308,176 Property, Plant and Equipment, net 29,028382 13,397,672 Restricted Cash 2,312,500 1,697,038 Goodwill 32,393,227 9,927,059 Mine Development Costs, net of accumulated amortization of $210,658 in 2007 and $0 in 2006 1,464,831 471,825 Deferred Financing Flees, net of accumulated amortization of $54,545 in 2007 and $26,272 ul 2006 545,455 462,787 Other Assets 1,116,838 1,151,415 S 73,326,511 $38,415,972 UABHXTXES AND STOCKHOLDERS’ EQUITY Current Liabilities trade accounts payable and accrued liabilities ,,... $8,896,898 $3,505,762 Seller provided financing 7,794,000 — Notes payable 6,072,240 — Current portion of long-term debt 2338,198 3,315,422 Total current liabilities 25,101,336 6,821,184 Reclamation liability , 3,757353 1,536,948 Long-Term Debt, less current porlion 7,348,915 14,044,163 Other long-term liabilities 707,796 2,188371 Stockholders1 Equity Preferred stock, cumulative and convertible $.001 stated value per share, 40,000,000 shares authorized, 37,190,267 shares issued and outstanding 37,191 — Common stock, $.001 stated value per share, 105,000,000 shares authorized, 37,701,440 shares in 2007 and 345392,667 shares in 2006 issued and outstanding 37,701 36,393 Additional paid-in capital 67,984,236 21,051,649 Accumulated other comprehensive loss — (143358) Accumulated deficit (31,648,017) (7,118,778) 36,411,111 13,825,406 $73326^11 $38,415,972 See accompanying independent auditor’s report and notes to consolidated financial statements

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31 2007 2006 2005 Coal sales $67,184,104 $16,276,283 $92^40 Cost and Expenses: Cost of coal sales 62,175,073 14,348,095 849,473 Selling, general aad administrative expenses 14,920,851 5,132,864 970,660 Depreciation and amortization 3,143,365 677,625 55,353 Goodwill impairment 2,873,055 —¦ — 83,112344 20,158,584 1,875,486 Loss from operations , (15,928,240) (3,882^01) (1,782,646) Other Income (Expense) Interest expense, including financing Eee amortization (5,044,174) (1,102^99) (1,599) Interest income 106,692 30,960 2^511 Foreign currency adjustment (498,794) — — Other, net.. .’ (1,816,730) (66,436) 12JK5 (7,253,006) (1,138,475) 12,967 Loss before income tax expense (23,181,246) (5,020,776) (1,769,679) Income Tax 70,155 — — Net loss 3(23,251,401) $(5,020,776) (1,769,679) Basic net loss per share $ (.63) $ (.20) $ (.14) Weighted average common shares outstanding 37,141,490 25,358,789 12,787,041 See accompanying independent auditor’s report ami notes to consolidated financial statements

 


 

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PHOENIX COAL COBPOHATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS” EQUITY For the years ended December 31, 2007,2006, and 2005 Accumulated ,, ^f^”?” ****. P“foari Stock ru,,^1 Com^aivi Accumulated Sharea Dalian Sharei Dalian Capital Intonn Deficit Ibtal December 31, 2004 6,111,684 $6,112 — $ — $1,181388 $ — $ (328323) $85*177 Capital contribution— common stock 8,078316 8,078 .— — 2,178,922 — — 2,187,000 Net low — — — — ___— — (1,769,679) (1,769379) December 31, 2005 14,190,000 14,190 — — 3,360,310 — (2398302) 1,276.498 Capital contribution — common stock 22302,667 22,203 — — 17,6*4,115 — — 17,666318 Interest rate swap — — — — — (143,558) — (14X858) Share-based camperoarioii. . — — — — 47,224 — — 47,224 Net loss — — — — — — (5,020,776) (5.020,776) December 31,2006 35392,667 $36,393 — — 21,051^49 (143358) (7,118,778) l332Sj406 Capital contribution— common stock 1,591,440 1,591 — — 1,987,696 — — 1.989.2B7 Capital contribution — preferred stock — — 36,207,600 36,208 43371,732 — — 43,407,940 Common sharei converted to preferred share* (982,667) (983) 982,667 983 — — — — Exercfceot stock options... 300,000 300 — — 124,700 — — 125300 Interest rate swap — — — — — 143,858 — 143,858 Share-fcased compensation— option* .. — — — — 948359 — — 948^59 Share-based compensation — restricted sock 400,000 400 — — 499,600 — — 500300 OMdend» — — — - — — (U77338) (1.277,838) Net low — — — — — — (23351,401) (23,251,401) December 31,2007 37,701,440 $37,701 37,1901267 $37,191 $67,584,236 $ — $(313*8317) $36,411,111 See accompanying independent auditor’s report and notes to consolidated financial statements

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Far the Years Ended December 31 2007 2006 2005 Cash Flow Prom Operating Activities Net toss $(23051,401) $(5,020,776) J(l,769,679) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortteation . 4,145,230 677,625 55053 Loss tm sale of property and equipment 1,810,138 148,686 — Interest rate swap 224,686 — — Rsreign currency lass .. 81,227 Share-based compensation 1,448,859 47,224 — Goodwill impairment 2073055 — — In-kind interest 350^300 179,192 — Vfttte off on license agreement — 187,500 — Reclamation liability 1,244,438 — — Changes in operating assets sod liabilities: Accounts receivable (2045,742) (163,287) (117,524) Inventories (816,314) (256083) — Prepaid expense* and other assets (280045) 20,464 (345) Trade accounts payable, accrued liabilities and other liabilities 5010,299 741,523 274,407 Net cash used in operating activities (9,406,060) (3,438032) (1057,788) Cash Flow Vtam Investing Activities Restricted cash (615,462) (1,697,038) — Payments for investments 559,977 — — Proceeds from sales of investments — (713,077) — Payments tor Other assets principally mine development and mineral rights (1039042) (1,433,147) (250093) Proceeds from sale of property and equipment 6006073 — (733,110) Payments for properly and equipment (1,549,511) (1,024,018) — Acquisitions (31092,433) (13010039) — Net cash used in invatin| tctbitla* (28030098) (18,477,419) (983003) Cash How From Financing Activities Principal payments on long-term debt (21,618,644) (3,147,149) (T6*3*7) Proceeds from long-terra debt 4,660,042 15039058 — Proceeds from short terra nates 5,991,013 — 220,000 Payments on equipment financing (1,007,250) — — Financing toes (222032) (489059) — Decrease in other long terra liabilities (580/482) — — Net proceeds from capital contributions 42,488,589 17,666318 2,187000 Net cash provided bj financing activities 29,711036 29,870068 2030,653 Net (Decrease) Increase In Cash and Equivalents (7,925,722) 7,954^17 (210338) Cash and Equivalents, Beginning <rf Kar 8007,096 352079 S63017 Cash and Equivalents, End of Year $381074 $8007096 $352079 Supplemental Dlsdcrans Intcrcstpaid $3,708,418 $910,797 $ t,599 Non-Cash Investing and financing Activities! ScOer provided financing of acquisition $7,794000 $ — $ — Seller provided financing for equipment purchases $10093081 $ — $ — Stock issued in connection with acquisition t S430QO $ — $ — Stock issued for financing fees , i 862000 $ — S — See accompanying independent auditor’s report and notes to consolidated financial statanents

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 3% 2007,2006* and 2005 NOTE A— NATURE OF OPERATIONS AND SUMMARY O* SIGNIFICANT ACCOUNTING POLICIES Natum of Qpemtleru? Phoenix Cod Corporation & Subsidiaries (the “Company”) ii headquartered in Madlsoiwule, Kentucky with satellite offices in Ouunpaigb, Illinois and Loufsvflie, Kentucky. The Company is engaged in tho production and sale of steam coal to utUftiea and industrial fuel consumers. Formed en July 2004 at a Delaware C corporation, the Company was originally named Dynamic Separation*, Inc. (“DST*). Principles of Consolidation; The Company’s consolidated financial statements Include Phoenix Coal Corporation and its affiliates Scaoate Mining Company, (XQ R & L Winrt, Btcj Crtttenden County Coal, lie; Evergreen Mineral Company, lac; Old liberty Equipment Company, Inc; Maroon Sedamadoo IXC; Phoenix Coal Processing Company, LLQ Dynamic Separations, 1XQ Oiaralais Mining Company, LLQ Charolaia Coal Sale*, IXC and Pact Resources, IXC. Basis of Presentation: The Company’s consolidated financial statements have been prepared on the going concern basis which contemplate* the realization of assets and liquidation of liabilities in the normal coarse of business. As shown in the accompanying financial statements, the Company ha* incurred net losses of $23,251,401, $5,020,776, and $1,769,679 for the year* ceding December 31, 2007,2006, and 200% respectively. The 03nroairy%curxoi«liab^ continue as a going concern Is dependent on management’s ability to raise required funding through future equity issuances, asset sale* or a combination thereof and increase cash flow through improved operating results. Thtj» consoJidated fim™^l stalenKntj tiq not iodude ajiy adjustments to the recoveiabUity and classification of recorded asset amount* and classification of liabilities that slight be necessary, should the Company be unable to continue a* a going concern. All monetary referent*! expressed herein are references to United States dollars. Use of Estimate* The preparation of the consolidated financial statements in conformity wit* accounting principles generally accepted in the United States of America requires management to reake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and lUbmties at the dato rf the conMlidated financUl Jtaten^nB and ti»e report^ anwunta of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Equivakna: Ror purposes of reporting cash flows, the Company considers aU auh accounts that are not subject to withdrawal restrictions or penalties to be cash or cash equivalents. Account! Receivable: Trade accounts receivables are recorded at the Invoiced amount and do not bear Interest Customers are primarily investment grade companies and quasi-gOTommenlal agencies. As a result, the Company has not experienced any instances of non-payment and do not currently maintain an allowance tor doubtful accounts. Management monitors customers closely and will record an allowance if trade account balances become potentially uncollectible. hmtnlory; Inventory is maiatataed on a perpetual basis. The Company value* inventory at the lower of cost or market with cost determined using average cost per ton. Inventory values ranged from $21.99 to $29.02 and $2135 to $23XL In 2007 and 2006; respectively. These ranges are stated on a “dean” coal baste. The Company accounts for parts inventory using the original cost on a flrst-in-flrst-out basis. Parts inventory Is Included in other current assets. Properly and Equipment: Purchased property and equipment are stated at coat The Company provides tor depreciation of the purchased depreciable assets on the straight-line basis with useful lives that range from 3 to 10 years. Depredation expense for th e years ended December 31, 2007,2006, and 2003 were $2,652,542, $602,723, and $47,920, respectively. The cost of assets sold, retired, or otherwise disposed of and the reliited *Uowan« tor deprmation is eliminated frorn the accounts arid any resulting gain or loss is included in operations. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and beltermenta that extend the useful live* of property ami equipment are capitalized. Interest cost is capitalized for qualifying assets during the period In which the asset is being installed and prepared for its intended use. Capitalized interest cost is amortized on the same basis as the related depredation. Interest costs capitalized far the periods ended December 31,2007,2006 and 2005 were $0, $46,682 and $0, respectively. Consistent with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting fir the Impairment or Disposal of Leng-ZJvcd Assets, the Company evaluates long-lived assets for impairment and assesses their reeoverabiUty based upon anticipated future cash flows. If tacts and circumstance! lead the Company’s management to believe that the coat of one of its assets may be impaired, the Company will reduce the carrying amount to lair value to the extent necessary. Mine Development Costs Mine development costs represent the costs incurred to prepare future mine sites for mining and are amortized over the life of the mine site. Aa of December 31,2007 and 2006, the net book value of mine development costs included $882396 and $471,323, respectivery, attributable to properties where the Company was not currently mining and, therefore, the mine development costs were currently not being amortized. Mineral Reserves and Mining Righto: Mineral reserves and mining rights, which an included in Other Assets, are recorded at cost, or at fair value in the case of acquired businesses. As of December 31, 2007, the net book value of mineral reserves totaled S$89,434. This entire

 


 

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PHOENIX COAL C0RFOKATI0N & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2007, 2006, and 2005 NOTE A— NATURE 0* OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) amount is attributable to properties when the Company was not current]; engaged In mining operations and, therefore, the assets-were not currently being depleted. There were no mineral reserves recorded on the balance sheet at December 31,2006. Goodwill and Other faumgjbk Assets: Goodwill Is tested at least annually for impairment to accordance with SPAS No. 142, Goodwill and Other Intangible Assets. Intangible assets are amortized over their respective useful lives on a straight-line basis, to June 2007, the Company dosed itl OMteoden County Coal mining operation due to uneconomical mining conditions. As a result of the dosing, the Company deducted from its operating results goodwill impairment of 12373,(03 and unamortued mine development costs of $244,849.” Deferred Financing Fees: Deferred financing fees are amortized to interest expense over the lire of the related loan. Unamortized deferred financing fees at December 31,3007 and 2006 were $545,453 and $462,787, respectively. Interest paid, as a supplemental disclosure on the Consolidated Statement of Cash Flows, includes cash paid for deferred financing fees. Prepaid Royalties Rights to leased coal lands are often acquired through royalty payments. Where royalty payments represent prepayments recoBpable against production, they are recorded as a prepaid asset, and amcnrnti effected to be recOTrwd within one year are classified a» a current asset. As mining occurs on these leases, the prepayment is charged to cost of coal safes. Ami Statement Obligation!: SH4S No. 143, “Aecountrnj *» Asset Retirement ObRgattens” (“S7AS No. 14}”) addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived asset! and the associated asset retirement costs, fhe Company’s asset retirement obligation (“AKO”) liabilities primarily consist of spending estimates related to reclaiming surface bad and support faculties at both, surface and underground mioes in acconiaiwe widi fede^ and state redaraation Jaws as defined by each mining permit The Company estimates Its ARO liabilities fee final reclamation and mtae closure based upon detailed engineering calculations of the amount and tuning of the future cash spending for g third parry to pcrfonn the required work. Spending estimates are escalated for inflation and then discounted at the credit-adjusted risl-free rate. The Company records an ARO asset associated vdeh the discounted liability for fins! reclamation and nine closure. The obligation and corresponding asset are recognized in the period in which the liability is incurred. The ARO asset is amortized on the units-of-production method over its expected life and the ARO liability is accreted to the projected spending date. As changes m estimates occur (such as mine plan revisions, changes in estimated costs or changes hi timing of the performance of reclamation activities), the revisions to the obligation and asset are recognized at the appropriate credit-adjusted risk-free rate. The Company alio recognizes an obligation for contemporaneous reclamation uobUWes Incurred as a result of surface mining. Contemporaneous reclamation consists primarily of grading, topsoil replacement, and rovegetation of backfilled pit areas, A progression of the reclamation liability recorded on the balance sheet is as follows: 2007 2006 Balance at beginning of year $1,536,948 $ — Acquisitions 821,000 1,514,443 Accruals 1,339,052 22^00 Accretion , 60,353 — Balance at end of year $3,757,353 $1.536.948 Revtnus Recognition: The Company recognizes revenue when all of the following criteria an met (1} persuasive evidence of an arrangement exists, (2) delivery h as occurred or services have been rendered, (3) the seller’s price to the buyer Is fixed or deterrnuiable, and (4) CQllcctability la reasonably assured. In the case of coal that Is mined and sold, a specific sales contract is negotiated with cash customer, which includes < feed-price per fern, a delivery schedule, and terms for payment Royalty Expense: The coal that the Company mines belongs to other entitle*. The Company acquires the right to mine and sell the coal through various leases, These leases require the Company to pay a royalty to the owners of the land and the minerals being mined. Royalty expense for the years ended December 31, 2007, 2006, and 2005 were $331,015, $841,391, and $0, respectively. Income Ttuet: Deferred income taxes are provided for temporary differences arising front differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates expected to Iwta effect when the related taxes are expected to be paid or recovered. Accounting Pronouncements On January 1, 2006, the Company adopted the Emerging Issues Task Force Issue No. 04-6, Accounting for         .W«a^Ce^«iite.Ml»«i^.liiAuiry{“EOT removal of overburden or waste materials for the purpose of obtaining access to coal that will be extracted. Under B3TF 04-6, stripping ousts incurred during the production phase of the mine are variable production costs that are included in the cost of inventory extracted during the period the stripping costs are incurred.

 


 

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PHOENIX COAL CORK>HATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2007, 2006, and 2005 NOTE A—NATURE OF OPERATIONS AND SUMMARY OT SIGN1IJCANT ACCOUNTING FOUCIES (Cwrtfautd) As of January 1,2006, the Company adopted Statement of Financial Accounting Standards No, 123 (revised 2004), Share-Based Payment (“Statement No. 123R”), which required companies to measure compensation cost in the statement of income for all share-based payment (including employee stock options) at fair value. Prior to tbs adoption of Statement No. 123R, the Company accounted for its stock optioni under the intrinsic value method prescribed by Accounting Principle* Board Opinion Ha. 25, Accounting for Stock. Issued to Employees (“AFB 25”) and related interpretation!, ax permitted by Statement of Financial Accounting Standard? No. 123, Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standard* No. 148, Accounting for Stock-Based Compensation. In June 2006, [be Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS109, Accounting for Income taxes (FIN 46% to create a angle model to address accounting for uncertainty in tax positions. HN 4S clarifies the accounting for irtfx>meuxes\ representing a nunimn^ before beu^ reeojprfzed in Ihe finandal statements and penalties, accounting in Interim periods, dactosure and transidoaFm 48 is efeetivefw fiscal yeara The Company wm adopt FIN 48 m erf January l,2rx& as required Ttec^ earnings and other accounts as applicable. The Company does not expect the adoption of FIN 48 to materially impact the Company’s financial positfon and results of operations. In September 2006, the FASB issued SEAS No. 157 — Fair Value Measurements—which enhances existing guidance for measuring assent and liabilities using tair value and requires additional disclosure about die use of fair value for measurement. The Stair ment is effective for financial statements Issued for fiscal yean beginning after November IS, 2007, and interim periods within those fiscal years. The Company has not yet evaluated the impact of SEAS No. 157. SPAS No. 159, The Fair value Option for Financial Assets and financial liabilities—an anKsidmerit of SFAS Na 115 permits, but does not require, entities to measure many financial instrument* at fair value. The objective it to provide entitles with an opportunity to mitigate volatility In reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities electing this option will apply it when the entity first recognizes art eltgible instrument and will report unrealized gains and losses on such instruments in current earnings. This statement 1) applies to aD entitles, 2) specifies certain election dates, 3) can be applied on an inslrument-by-inslmment basis with some exceptions, 4) Is Irrevocable and 5} applies only to entire instruments. Demand deposit liabilities are explicitly excluded as qualifying for fata value. SFAS No. 159 is effective for financial statements issued fc* fiscal yeaisoeginuing after Nw^ election option that -would allow the Company to elect the fair value option for existing eligible items as of the beginning of a fiscal year that begins on or before November IS, 2007. The Company hat not early adopted SFAS 159 and does not expect the adoption of SFAS 159 to materially impact the Company’s consolidated financial statements. In December 2007, the EASE issued Statement on Financial Accounting Standards No. 160, NoncontsvUing Interests in Consolidated Ftnanciai Statements, an amendment ofARB No. SI (“Statement No. 160”). Statement No. 160 requires that a Eonctmtroliing Interest’ (minority inte rest) in a consolidated subsidiary be displayed in the consolidated balance sheet as a separate component of equity. The amount of net income attributable to the noncatitroUing interest wDI be included in consolidated net income cm the face of the consolidated statement of income. Statement No. MO also Includes expanded disclosure requirements regarding the interests of die parent and its noncontroliftig interest. Statement No. 160 is effective for fiscal years beginning on or after December IS, 2008. Early adoption is not allowed. The Company is still analyzing Statement No, 160 to determine what the Impact of adoption will be. In December 2007, the FASB issued SFAS No. 141(R),’“ftafce» Combinations,” which replaces SFAS No. 141. SFAS No. 141(R) significantly changes the principles and requirements for bow the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the aequiree. This statement also provides) guidance for the recognition and measures^ c^goodwul acquired fo a mnune^ that will enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the aexjuisidan date ii on or after tx« r»ginmng of the flrit annual rcrwiting period beginning on or after December IS, 2008. The Company is in the processof dcteririmm|uie effect, n* any, the adoption of SFAS No. 141(R) will have on its financial statements. In March 2008, the FASB issued FAS No. 161, “Discloturcs about Derivative Iwtmmtm and Htdging Activities”, (“JAS 161”) which is intended to Improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim r^riods begiiming after November 15, Z003. The Cornpany is currentry e^luattag the impact of FAS 161 on its consolidated financial statements. Redasttpcmiara: Certain amounts in 2006 and 2005 have been reclassifled to conform with current year presentation. The reclissiflcations had no impact on net loss or stockholder’s equity.

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 20Q7, 2006, and 2005 NOTE B — ACQUISITIONS In January 2007, the Company acquired assets and stock of die Charolais Corporation and related entities for a total cortsideratton of $21,924,000 principally allocated as follows: Real property $557,000 Plant and equipment , 13,483,000 Mineral* , l,542/)00 Goodwill W3C000 Redamatton Habffity (488/100) The purchase price paW to the seller was $21,735,000, including 434,6+0 common shares of the Company*! stock valued at $543/300. la addition, the Company incurred $189,000 of transaction costs related to the purchase. The purchase both expanded the Company’s reserve base in the v&stem Kentucky markets, and increased sales volume with avail established utility. la October 2007, the Compare acquired the membership interests in Fact Rescourccs IXC (“FACT”) upon exercising its option in September 2007 pursuant to the option agreements dated September 7,2006 (the “Option Agreements”). Through the acquisition of FACE the Company controls the leases for the proposed Pratt Mine widiintheai^of interest as defined m the Option Agrocmcnts. The rtfOposed Pratt Mine contains both underground and surface coal totaling 33,833,000 tons of measured and indicated resources, 670/100 tons of inferred resources and 28,933,000 torts of proven and probable reserves. The Company has been carrying out development work on the proposed Pratt Mine since the fourth quarter of 2006 and is in the process of permitting the reserve. In addition to die leases for the proposed Pratt Mine, the selieri of FACT delivered to the Company the Sease for the Panama South property and, as a result, the in-place tons associated with the Panama South property are included in the calculation of the Scheduled Payment (as described below). The Panama Sooth property contains both underground and surface coal totaling 76^87,000 tons of measured and indicated resources. A further discussion of the Panama South property follows in thai Note. Per the Option Agreements, in addition to the scheduled payment for In-place tons of coal delivered by the sellers (the “Scheduled Payment”), which payment terms would be subsequently modified, the Company agreed to pay $300,000 (the “Option Bee’*) »t the effective date of the Option Agreements, an overriding royalty no greaterthan3%of the gros»sa!ra price per ton sold from the proposed Pfatt Mine (the “Ofoxiding Royalty”) and expenses related to the development of the proposed Pratt Mine during the option period (the “Pratt Expense*”)- Prior n> the closing of the acquisition, the Company and the seflen of PACT modified the original Option Agreements and entered into modificatlba of option EgrcementJ (the “Modlflcatiun of Option Agreements”). The Modification of Option Agreements stipulated that the Scheduled Payment was $15,000,009 payable in three instaUments, $10/100,000 of which was paid in 2007, plus a true-up payment of $0,10 per in-place ton on September 7,2008 for airy nd ditio^ tons of CoJ greater truml50XXXl,(XlOin-^ce tons that the sellers deliver. As of December 31,2007, the Company estimated that the sells* had already delivered 177,940,000 In-place tons of coal for a total Scheduled Payment of $17,794,000. As such, the Company recorded an additional $7,794,000 of Seller Provided Financing on the balance sheet due the former owners of PACT. Of this amoanr, $$£00/300 it payable in April 2008, with the balance due in September 200& As of December 31,2007, the Company’s acquisition cost in EACT was comprised of the Option Fee, Pratt Expenses and the Scheduled Payment, which totaled $18#»/>00 (the “Purchase Price”). Option Fee $300,000 Pratt Expenses , 815/100 Scheduled Payment 17,794,000 $18,909,000 The Purchase Price was allocated as follows: Cash $3/X» Advance royalties 42,000 Land purchase option 75/300 Mine development 713,000 Qoodwai 18.076,000 $18,909,000 masmmmmmm

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31,2007,2006, and 2005 NOTE B — ACQUISITIONS COwUnDtd) Subsequent to December 31,2007, in Mitch 2008, the Company renegotiated certain mum of the Modification of Options Agreement and entered into a buy-out agreement with the farmer owner* of PACT (the “Buy-oat Agttemear”)- Pursuant to * public offering of the OoMpany"* shares or a private tale of more than 50ft of the Company’s issued and outstanding stock or more than 50% of its asses (the “MtrnttlsaflraEvwrl”), the Company shall pay the former owner* of BftCT $25,000,000 within thirty days after the hfonetrzatioa Event (the “Buy-out Payment”), Bex the Buy-out Agreement, the Company’s obligation to make a $3,000,000 payment is April 2003 and Ule balance of $2,794,000 in September 2008 shall be suspended until the occurrence of a Monetization Event Upon receipt of the Buy-out Payment, all obligations of the Company to make any additional payments, including the accrued amount of 57,794,000 on the balance sheet as of December 31,2007 and the Ovorridtag realty, shall cease and terminate. In lime, 2008, the Corop&ny and the former owners of PACT entered into an agreement to clarify and amend certain terms of the Buy-out Agreement The parties acknowledged and agreed that the reverse triangular merger shall qualify as and constitute a Moradmtion Event under the Buy-out Agreement. The parties a bo agreed to extend the data by which [he MoiwtteBUan Event must bo oonsummated under the Buy-out Agreement to a date that it fifty (SO) days from the dosing date rf tlwoffoing, so long as the Offering is closed on or before July 1, 2008. in die event the Monetization Event is the Reverse Triangular Merger, -die Buy-out Payment must be paid by the Company to the former owners of PACT within three (3) days of Marimba Capital Corp.’* receipt of the escrowed proceeds (after deducting the agents’fee). If the Offering h not closed on or before July 1, 2QD8, then all obligations of the Company to make additional payments to the former owneis of PACT for the PACT properties shall be reinstated at that tune. Tn addition, if the Offering is closed on or before July 1,2008 but the Reverse Triangular Merger is not consummated on or before rtie^dayfoUowi^ the closing date of the Offering, then all obligations of the Company to make additional payments to the former owners of FACT for (he PACT properties shall be reinstated at that tine. At the acquisition date, the owners of PACT owned less than 1% of the total outstanding shares of the Company and also held 300,000 options to purchase common shares of the Company. The PACT purchase price was negotiated by members of senior management that had no financial ownership in PACT and was considered to be as arms4eagth transaction. The Company is currently fa the process of finalizing its valuation of the assets acquired and liabilities Hjoumed for tMa acquisition. In September 2007, the Company entered into a management and administrative services agreement with C&R Coal Inc. (“CUT). Under the agreement, the Company operates and manages C&R’s Beech Creek South and Ebeneexer mines (the “CSB. Mines”). In consideration tor providing the sendees. Phoenix is entitled to retain ill revenues baa expenses generated by the operations of C&R at the C&R Mines, less $aw per ton paid to the owners of OfcR for each ton of coal sold from the CeaiMineSbSuwe the Cc«paBy does not own CAR, It does not consolidate its operating results, and records funds invested and services provided in other assets and accoontsreceiviiblo on it» balance sheet, which totaled $612,751 at December 31,2007. In December 2007, the Company entered into a lease with Peon Virginia Operating Go, IiX for the right to min e its Panama South property, located is Webster County, Kentucky, which contains both underground and surface coat totaling 76*287,000 tons of measured and indicated resources. In connection therewith, the Company paid s non-recoupsble fee of 5500,000. The lease outlines three terms: (1) the development term (the “Development Term”), from the effective date of the (ease until December 31, 2011; (2) the primary term (the “Primary Tana”), from the end of the Development Tkrm until the earlier of: (j) December 31, 2021, (if) the time at which the Company has mined and removed all leased coal, or (iff) termination of the lease; and (3) the remainder term, from the end of the Primary Term until the Company has completed reclamation, environmental and other obligations under the lease. The Primary Term can be renewed twice for a period of five years each. The Company Is required to pay a tonnage royalty for each ton of leased coal mined and sold, and a monthly minimum rental fee. Each month’s tonnage royalty w3l be credited against die monthly minimum remtal fee such that no minimum rental payment shall be due in any month when tonnage royalties equal or exceed die minimum rental The Company us also requited to pay a wheelaga fee for any coal mined from advene lands and transported through die leased premises. The Company must produce and ship no less than 500,000 toot of leased coal from the leased premise* during the calendar year ending December 31,2014 and during each calendar year thereafter, failure to da so will result in the payment of additional fees under the lease. In 2006, the Company made a series of acquisitions of coal production and reserves as follows: Scnoate Mining Company—Company acquired stock of Evergreen Mineral Co. and Old Liberty Equipment Co, each of which owned 50% of Scnoate, hi June 2006. Consideration included cash, assumption of liabilities and $400,000 in common stock of the Company. R&L Wmn—Company acquired stock of R&L Wnn in July 2006. Consideration included cadi and asiumpttofl of liabilities. Taylor family assets—Company acquired stock and assets of Taylor family holdings Including Crittenden County Coal in July 2006. Consideration included cash and assumption of liabilities.

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL S1&TEMENTS (Continued) December 31, 2007, 2006, and 2005 NOTE B—ACQUISITIONS (Continued) The fair values of assets acquired and liaMUtiet assumed at the acquisition date are as fellows: Scboate Taylor Mining R&LWina Properties Total CurrentasaeB $3,417,202 $131,857 $6,674 $3^55.733 Property and Equipment 6,071,115 1^69,200 2$MO07 9,944,522 Reserves — 250,000 tfftOOQ 400,000 Goodwill 6,150421 673,322 2,873,055 9,696,798 Assumed LtaWIMei (3J3S8J35) (528,156) (3,860,924) (7,977,835) $12.049,983 $1,796323 $1,70,012 $15,619,218 The accompanying consolidated financial statements include operations of die subsidiaries from die date of acquisition through December 31, 2007. NOTK C—PROPERTY AND EQWTMENT; NET Property and equipment consists of the following at December 31: 2007 2006 Land $599,654 $2,026568 Building and improvements 25,424 25,424 Preparation plant 1,476,805 WH697 Mining equipment 27.SS4J63 10,564,757 Loading and marine transport equipment 1,775,000 — Office equipment 324*684 195,962 Vehicles 65,965 9U65 31,95235 14,119,173 Leu accumulated depredation and amortization (2,923,813) (721,501) $29,028482 $13,397.672 In November 2007, the Company sold certain assets and reserves to Covol for $i,230,0O0 in cash. The assets comprised a permit, lease, mobile equipment, a preparation plant and slurry reserves. Aa part of the agreement, the Company entered into a coal purchase and sale agreement to purchase the processed coal fines from Cowl tad a coal pivxs^lng a^eemenr Id enable the Company to temporarily wash iu coarse coal product at the preparation plant In addition to the Covol sale, the Company also sold noa-core n^ estate for grcra proceeds of $1,926,951, and other smaller, non-core assets such as mobile equipment during 2007. On a book basat, the Company incurred net losses of $1,810,138 related to the disposal of these asset*. NOTBB —DE8T The Company has a $3.1 million secured linc-of-credlt agreement with Filth Third Bank for working capital purposes ($2 million at December 31,200Q. The line-of-credlt is collateral ized by all general busiiwis asseis of PhOranix Coal 0>rpc«tiOT (er»pt for the assets held by PACT and certain reserves held by Evergreen Mineral Company, Inc.), including but not United to all equipment now owned and hereafter acquired, accounts receivables and inventory. The line bean interest at the UBOR rate phis 4% (B.(50% at December 31,2007). The interest rate was LIBOR plus 2.75% at December 31, 2006. There was no outstanding balance on the Itne-of-credit at December 31, 2007 and 2006. Under die debt agreement, the Company is subject to certain debtcuveaants. As of December 31, ZQ07, the Company was in compliance with all debt covenants or received a waiver. In November 2007, the Company entered into a loan agreement with a finance company, acting as administrative agent for a syndicate of tenders, for $6,000,000 Canadian dollars (“C$”). The note is collaleraUied by, among other things, the assets of PACT, matures on October 31,2008, and bears interest at 12%. Interest on the note is paid monthly. The principal amount of the loan Is convertible, in whole or in part, by the lenders at the time of an initial public offering of securities of the Company, at a conversion price equal to 90% of the offering price. The value of the note is adjusted to U.S. dollars based on current exchange rates, and any adjustments are charged or credited to the statement of operations. The value of the outstanding loan was $6^rT2^40asof Decen*er31,2fl07. Asconsirkratiooforlhctoan, the

 


 

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PHOENIX COAL COBPOHATTON & SUBSIDIARIES NOTES TO CONSOLIDATE]) FINANCIAL STATEMENTS (Continued) December 31, 2007,2006, and 2005 NOTE D — DEBT (Contimud) Company paid to the lenders a non-refundable $600,000 bonus in the Sana of 483,000 shares of common stock at a deemed price of 11.25 per share. (See Note L) In December ZOOS, the Company received a $500,000 advance at part of a bridge financing agreement associated with the Charolab acquisition completed in January 2)07. The advance was repaid la January 2007 and reissued as part of the full bridge financing of $4,135,600 denominated is Canadian dollar* (approximately 13 S mffltoa in U.S. dollars). The loan was repaid in August of 2007 resulting in a foreign currency transaction loss of approximately $418,000. Long-term debt consisted of the following >t December 31: axrr saw Note payable to bank with interest at LIBOR pins 2.75% (8-1% at December 31,2006). Payments of $41,667 plus interest starting January 2007 are made in monthly installments. The loan was coilateraOzed by all assets and was repaM in 2007. $ — $ L339.958 Equipment notes payable, interest at 5.25% to 730%. Payments are made in monthly installments. The loans are eoUaterainsd by related assets with a net book value of $10,237,079 as of December 31,2007 and have maturity dates from June 2008 to November 2011 9^687,113 1,157,017 Note payable to bank with interest at LIBOR pros 175%. Monthly payments of $116,687 plus interest beginning January 2007. Loan was collateralized by substantially all assets and was repaid in 2007. .... — 7,000,000 Subordinated note payable—MVC Capital with interest payable quarterly at 15% per annum. Interest in excess of 10% to be rolled Into principal. Holder had option on June B, 2007 to convert interest to shares of common stock which was not exercised and amount was repaid in 2007, — 7,179,192 Advance on bridge financing — 500,000 Advanced coal purchase, repayable monthly through December 31, 3X37, Interest at 2,8% — 183,418 9,687,113 17,359,585 Less: current maturities (2338,198) (3,315,422) 17348^15 tl4.044.163 Expected maturities of notes payable are as follows: 2007 2008 $1338,198 2009 1,955,253 2010 2,071,274 2011 1122,194 2012 1,200,194 $9,687,113 In 2006, the Company entered into an interest rate swap transaction whereby the interest payments on an original notional dollar amount of $7,000,000 are converted to a fixed rate of 8.10% compared to a variable rate of LIBOR re-measured on a quarterly basis. The notional amount decreases over the lire of the swap agreement, which expires in December 201L The notional amounts of the agreement were $5,483,333 and $7,000*000 at December 31,2007 and 2006, respectively. Under the agreement, the Company pays or receives the net Interest amount monthly, with the monthly settlements included in interest expense. In 200$ management designated the interest rate swap agreement as a cash flow hedging instrument, and determined the agreement met the requirements of the shortcut method under the provisions of Statement of Financial Accounting Standards No. 133. For 20D6, the agreement was recorded at its fair valua with subsequent changes in fair value included in comprehensive income. Is August, 2007, the debt to which Brit swap was related was retired. As a result, the amount previously recorded in other comprehensive income was charged to interest

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2007,2006, and 2D05 NOTE D —DEBT (Continued) expense and soy future change* to the ftdr value of the swap will either increase or decrease interest expense as the contract no longer qualifies as an accounting hedge. The value of the derivative was $224,696 and $143,858 at December 31,2007 ami 2006, respectively and is included in accrued liabilities on the balance sheet NOTE E —INCOME TAXES The components of the income tax expense at December 31 are: 2007 2006 1005 Current STD.ISS $— 4— Deferred , — — — A reconciliation of differences between the statutory VS. federal income tax expense (benefit) and tie Company’* effective tax benefit at December 31 are at follows 2007 2006 2005^ Federal and state taxes at statutory rate 5(8,934^67) $(1,691,532) 1(683,096) Permanent Items 58,325 (94478) 25,498 Valuation allowance 8,946^97 1,785,710 657,598 Income tax expense ‘ ‘ S 70,155 $ — $ — The expense far income taws includes: federal and state income taxes currently payable or receivable and those deferred or prepaid because of temporary diSerenees between the financial statement and tbe tax ba^ of aaeli and liabiU(ie4.TlBCbrapai^ records income taicei under the liability method. Under tMi method, deferred income tmw are recognized for the estiinated future ux effects of differences between the tax basis of assets and liabilities and their flnanctal leporttog amounts based on enacted laws. The deferred tax assets and BaollWes recognized is the consolidated balance sheet are comprised of the following at December 31: 2007 2006 Deferred tax assets: Net operating loss cany forwards and tax credits J 10,769,102 $2,977,666 Share based compensation 577,488 18,900 Reclamation Expense 491,431 — Goodwill 928^16 — Other 1.702 31,671 12,767,739 3,028,237 Deferred tax liabiliticr Mine Development Costa (54,693) — lax owiboolc depredation (1,964,971) (1,226.359) (2£19,6S4) (1.22M59) 10,748,075 1,801,678 valuation allowance (10,748,075) (1,801.678) Net deferred tax t — $ — As a result of tosses from operations, management has recorded a valuation allowance against the total deferred tax asset aa they do not believe it is more likely than not these assets will he realized. Tne net change in valuation allowance for the current period is $8,946,397. At December 31,2007, the Company had available net operating joss (NOL) carry forwards, to reduce future taxable income of approximately

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2007,1006, and 2005 NOTE E—INCOME TAXES (Continued) $28,000,000 expiring through 2028. The future benefit of these NOL carry forwards may b« limited on aa annual bask and in total undo’ Section 382 of the Internal Revenue Code depending on the extent of ownership change* contemplated by the Company’s plan*. Net Operating Los* Carryovers (20 year carryover): toss Expiring In Amount 2004 2025 $304,900 2005 2026 1,860,275 2006 2027 5,088,854 2007 2028 19,645,199 $27,899,228 NOTE 7 — CONCENTRATIONS For the year ended December 31, 2007 the Company*! three primary customers comprised approximately 89% of coal safci. Accounts receivablei due bom the three primary customers »t December 31,2007 were $2,285,240. Rsr the period ended December 31,2006, the Company’s two primary customers comprised approximately 93%clcoal5aIe3. Amounts receivables due from the two primary customers at December 31, 2006 were $960,795. For the year ending December 31, 2005,100% of revenue was derived from one customer, NOTE G — COMMITMENTS AND CONTINGENT LIABILITIES In the normal coarse of business, the Company makes various commitment! and incur* certain contingent liabilities including liabilities related to reclamation costs and financial obhgattara In connection with mining permits that are not reflected in the accompanying balance sheet The Company does not anticipate any material tosses as a [«uitof the« transactions. According to KRS Chapter 3S0, the CoropinyU required to post reclamation bonds to assure the reclamation work ij completed. Outstanding reclamation bonds totaled approximately $9 million at December 31,2007 and approximately $8 million at December 31, 2006. These bonds are secured by lettort of credit equal to the amount of the outsranding reclamation bonds. The letters of credit are collateralized by general business assets of the Company and the restricted cash on the balance sheet of $2312,500 and $1,697,038 at December 31,2007 and 2006, respectively. The Company leases certain office space and muting equipment over long-term operating leases running through 2010. Future minimum lease commitments under non-cancelable operating Isasu as of December 31, 2007, ate as follows: 2008 $1,092,570 2009 338,160 $M30,730 A significant amount of the Company’s coal reserves are controlled through leasing arrangements and non-cancellable royalty lease agreements under which future minimum lease payments are due. As of December 31, 2007, the Company had committed to purchase $7,100,000 of mining equipment Sir its operations, with delivery scheduled during the first quarter of 2008. The equipment it being purchased to increase operating efficiencies at its surface coal mines. A series of notes with an equipment financing company will be used to finance the equipment, with estimated down payments of $500,000. The notes will be coilaterallzed by the equipment purchased. As of the audit opinion dais, the Company had completed the purchase of this raining equipment and executed five notes with two financing companies with toaa terras ranging from 30 to 48 months, interest rates of 525% to 841%, and total monthly payments of $187,000. In conjunction with the sale of certain assets to Covol, the Company entered into a master coal purchase and sale agreement (the “Master Agreement”) to purchase coal fines recovered and processed by CovoJ from two coal slurry reserves areas in Muhlenberg County, Kentucky defined in tin Master Agreement as the Rock Crusher Reserves and the National Guard Reserves (collectively, die “Starry Reserve*"'). The term of the Master Agreement runs through the exhaustion of the Slurry Reserve (the’Term”). For the remainder o« 2008, Covol shall u» itj commerdatly reaionablE efforts to produce from the Sluny Reserve* not less than 60,000 tool per month, but in any event shall produce and deliver not less than 20,000 tons per month. During the remainder of the Master Agreement Terra, Covol shall produce and deliver to the Company not less than 60,000 toni per month. The Company agrees that it will purchase from Covol, pursuant to die terms of the Master Agreement including certain BTU and quality speafications, all of the coal fines produced by Covol from the Slurry Reserves up to 60,000 tons per month during the Term. The price tor the coal lines shall be the contract price set forth in each confirmation attached to the Master Agreement, provided, however, that in no

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31,2007, 2006, and 2005 NOTE G— COMMITMENTS AMD CONTINGENT llABUJTiES (Continued) event shall the contract pries be lea than $2530 per ton for coal delivered from the Sock Crusher Reserve! or $2450 per toa for coal delivered from the National Guard Reserves. NOTE H — COMMON AND PREFERRED STOCK COMMON STOCK The Company has conducted four separate equity transactions bi which it Issued common stock. Although each transaction was designated m new series, the stock issued for each series was all common stock with the sarae right* and privileges. A summsiy of the transactions follows: Far Common Paid-in Stares Share Stock Capital Total Initial —Common 12,750.000 $.19 $12,750 $2,6*1,763 $2354313 Series A 8370,000 30 8370 4,176,830 4,185,000 Series B 9,170,000 .75 9470 6368330 6,877300 Series C 6,102,667 135 6,103 7,62231 7,62833* 36392,607 36393 21308^54 21345347 Expense* — — (304329) (304329) Balance as Of December 31,2006 36392,667 36393 21,004,425 21,040,818 2007 Activity: Series C 621,440 1.25 621 776,166 776,787 Stock issued for losn feet 970,000 155 970 1311330 1,212300 Common shares converted to preferred shares (982.667) 1.25 (983) (1^27,351) (1328334) Restricted stock issued 400,000 135 400 499300 500300 Optima exercised 300,000 .42 300 124,700 125,000 Balance as of December 31,2007 37,701,440 $37,701 $22.389,070 $22,426,771 PREFERRED STOCK In 2007, the Company conducted a preferred Stock offering; Preferred stock was issued in August 2007 and the proceeds used for working capital and the reduction of outstanding debt The hoJdexB at preferred stock have the rfghttotimtnumbcrof ¦votes equal to the number of share* of common stock issuabls upon conversion of the preferred stock. Subject to the restrictions of any credit facility as may then he in effect, the preferred stock pays a 6S% per annum cumulative dividend upon redemption or la common shores upon conversion. Based on these provisions, die accrued dividend has been reflected in the value of the preferred stock on the balance sheet Additionally, holders of Series C common shares could exchange one common share for One share of prtferred stock £or eveiy share of preferred stock purchased. Preferred stock can be converted by the holder at anytime to mmmon stock based on a conversion fonnulalncorporariiig the iisue price of the preferred stock and subsequent values of common stock. The preferred stock is converted automatically into common stock upon the dosing of an underwritten public offering of shares of the common stock of the Company or if the holders of a majority of the preferred slock consent to the conversion into common stock. Additkmaifc/, subject to various restrictions and the automatic and voluntary conversion provisions noted, commencing one yesr after lsstniice of tiie preferred stock, the holder may revest rede^ issue price ($1.25 per share) plus any unpaid dividends. Per Preferred Paid-in Shares Share Stock Capital Tbtal Preferred 36,207,600 $1.25 $36,208 $45,223,292 $45,259300 Issuance of warrants — — — 462,800 462300 Common shares converted to preferred shares 982367 155 983 1,227351 1,228334 Dividend — — — 1577,838 1,277338 Expenses ___ (3,592,198) (3392,198) Balance as of December 31,2007 37,190,267 $37,191 $44399,083 $44,636374

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contfnoed) December 3L 2007,2006, and 2B05 NOTE I—STOCK XNCEflTVE PLAN AND WARRANTS The Company"* Stock Incentive Plan (the “Incentive Man”) reserved 8,297,411 shares of the Ocnnpaiiy’s common stock for awards to officea, other selected key management employees and members of the Bond of Directors of the Company, The Incentive Han provide* the Board of Directors with tiie flexibility to grant either incentive or non-statutory stack options (“Awards”). The Incentive Fhui calls for the adjustment of shares awarded under the plan in the event of a split Stock option* an generally subject to vesting provisions of 25% at the end-of-year one from the date of grant and then evenly over the following 48 months. The option* are granted at a price equal to 10096 of the fair valucoftfao Compan/scomniDdsiock on the date of grant and have a ten-year term. Information regarding stock option activity under the Incentive Pfcui follows: Weighted Average Weighted Average Remaining Common Shares Exerdse Price Contractual Life Option* outstanding at January I, 2007 3,045JMQ $ .32 Granted 4,004,000 US Exercised (300,000) .42 Options outstanding at December 31,2007 6,749,000 $ .87 85 Options exerdsable at December 31,2007 2,609,050 $ .66 &5 Caah received from options exercised under ail share-based paymeatartangeasats for flw period ended December 31,2007 was $125,000. Compensation cost Of itock opticm grama is recognized straight-line over the options’ vesting period*, Compensation expense related to stock options for the years ended December 31,2007 and 2006 were $943,a59andM7,224,reape«lveiy.Aaaf December 31,2007, there was approximately $2,l£SiQ00 of unrecognized enmpenaation cost related to the unvested stock options to be recognized over a weighted-average period of 33 yearn. The options’ fair value was determined using the Black-Sctioles option-pricing model. Expected volatilities are based on comparable company historical stock movement, and other factor*. The cost relating to the stoci-based aampeMatfcm plans is Included in selling, general and administrative expenses in the accompanying Consolidated Statement of Operations. 2007 2006 2005 Weighted average fair value per share of options granted $.73 per share. $.29 per share $.15 per share Assumptions (weighted average): Risk-free loterestrate : 437% 4.52% 440% Expected dividend yield 0.00 0X10 040 Expected volatility         , , 140 0.40 0.40 Expected option life (in years) , iQJOO 10.00 10.00 Prior to adopting SFAS No. 123R, die company applied APB Opinion No. 2S and related interpretations to account for its equity incentive plans. The following table reflects 2005 pro forms net income had connpwuation cost bera delennixied for the Company’s ncawjualified and incentive stock options based on the fair value at the grant dates consistent with the methodology set forth under SEAS No. 123R; ZOOS Net loss As reported $(L769,6W) Pro forma (1,848,140) In December 2007, the Company issued 400,000 restricted shares to four of its directors. The share* were valued at $500,000 and the related expense is included in selling, general and administrative expenses. The shares cannot be sold uoless the Company doses a public offering of the Company’s shares, or if the Company is sold to a third patty. As ‘part of the fee structure related to the preferred stock offering in August 2007, the underwriter received warrants to purchase 1,780,000 shares of the prefaced stock of the Company at $1.25 per share. The warrants expire 24 months following the date, die Company consummates an initial public offering of shares of common slock of the Company. The warrants total value, of $462,800 was determined using the Black-Sdieles option pricing model. Assumptions used in t he model were ¦ risk free interest rats of 4.76%, dividend yield of &50%, and expected volatility of .40. The value of the warrants was charged to additional paid in capital.

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31,2007, 2006, and 2005 NOTE J — DEHMBO CONTRIBUTION PLAN The Company ha* a retirement savings but plan in effect for substanti^ all fuU-time employeo. Tbc Plan also coneiins a deferred salary arrangement under ISC Section Wl(k). Under the deferred salary arrangement, employees can contribute up to 100% of their earnings and the Company may match a portion of the employee contributions. The Company paid and charged to operations approximately $556,000, 593,000, and $0 for me yean ended December 31, 2007, 2006, and 2005 for Plan contribution*. NOTE K — RELATED PARTY TRANSACTIONS The Company enters iota transaction* with stockholders and/or affiliated entities that have some level of common ownership with the Company. A summary of the related party transactions aad balances follows: 2007 2006 2005 Expense*: Consulting fee* $610,000 $765,000 $470,000 Bent and misceflnteowi 65,377 32,623 2JSS2 Accounts receivable 16,858 57,655 30357 Accounts payable 6,670 14484 — These transactions were paid to MM Energy Partners, UUC, which amounts were applied towards, among other things, salaries, overhead and benefits for individuals who provided services. These transactions an also in the normal course of business, and are recorded at the consideration established and agreed to by the related parties. David Wiley and Timothy Fbgarty are managing directors of MHI Energy Partners, LLC ami both of whom, are currently directors of the Company. NOTE L— SUBSEQUENT EVENTS In May 2008, tho Company modified Its loan agreement with the finance company, acting * administrative agent for t syndicate of lenders, that initially loaned the Company C$6 million in November 2007. The Company borrowed an additional CSS million (the “Additional Loan”), which together with the initial C$6 million, remain* outstanding as of die audit opinion date. The net proceeds of die Additional Loan after fees and converting to US doUars was $4,877,000. The term* mini conditions of the loan agreement are substantially the same except for the convtrefon price employed should the lenders exercise their right to convert the principal amount of the loan to common equity. The principal amount of the loan (including the iniUslioan, which WMamuided at the ume of the Additioaai Loan) (j convertible, in whole or in part, by the lenders at the time of an initial public ottering of securities of Phoenix or reverse takeover involving Phoenix (a “Going Public Transaction”) at a conversion price equal to 80% of the Going Public “transaction offering price. As consideration tor the Additional Loan, the Company paid to the lenders a non-refundable $510204 bonus In das form of 408,163 shares of common stock at a deemed issue price of $125 per share. On June 13,2008, the Company and Quest, on behalf of each of the lenders, entered into an agreement pursuant to which, provided that no event of default has occurred and to continuing, (A) immediately prior to comptetiOT of the direet share ewJiange, expected ta occur on or before June 30,2008, the principal amount of the bridge loan will be fully converted into common stock or the Company at a conversion price of $1.25 per share of Gomroon Stock, such that upon conversion. Quest (or its designers) shall receive a number of shares of common stock equal to C$11,003,000 divided by $L2S (based on the Canadian dollar to United States dollar exchange rate at the time of the conversion), and (8) no adjustment to the number of bonus shares of common stock Issued in connection with the Bridge Loan wfll be required. The agreement is conditional upon, among other things, the offering dosing on or prior to July 2, 2008. Oil May 5,2008, Marimba Capital Corp. (“MCC) and entered into a letter of inUnt pursuant to which the parties agreed to effect a reve rse triangular merger which wUI result in AcquisitionCo merging into the Company and the Company as tho surviving company wfll become a wholly owned subsidiary of MCC On May 22,2008, MCC, the Company and Ar^WtiwiCo entered into a c^nidve merger agreeroent with respect to such reverse triangular merger. On May 22, 2008, MCC also has filed a preliminary prospectus for an offering of Subscription Receipts (the “Subscription Receipts”), each Subscription Receipt to entitle the holder thereof to receive one unit (a “Unit”), each Unit consisting of one common sabre of MCC and one-half of one warrant of MCC subject to the satirfactton of certain conditions. MCC has applied to have the common shares and warrants lilted on the Toronto Stock Exchange (the “TS2C”). The Subscription Receipts have been offered to the public in si) of the provinces of Canada, except for Quebec, and in the United States in an offering exempt from the registration requirements of the UJS. Securities Act Subject to applicable law, the agents acting in connection with the offering have also offered the Subscription Receipts outside of Canada and the United States. The Offering consists of up to 62,857,160 Subscription Receipts at a price of $1.75 per Subscription Receipt to raise gross proceeds of C$110,000,030. In addition, the agents have been granted an over-eitotment option to acquire up to aa additional 15% of common shares of MCC and/or warrant* of MCC at price* of CSL62 and C$026, respectively (for as implied aggregate [nice per Unit of CSL75). Pursuant to an agency agreement among MCC, the Company and the agents, die Agents will receive a cash commission equal to 6% of the gross proceeds of the Offering plus compensation option* equal to

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS {Continued) December 31,2007, 2006, and 2005 NOTE L— SUBSEQUENT EVICTS (Continued) 4% of (i) the Subscription Receipts icld pursuant to the offering and (3) the number of commas shares and warrants that equal a Unit issued pursuant to the over-allotment option. The proposed offering is subject to final regulatory approval. NOTE M—DEFERENCES IN GENERALLY ACCEPTESJ ACCOUNTING PMNCHtES BETWEEW THE UNITED STATES AND CANADA The Company*! consolidated financial statements bib prepared in accordance with generally accepted accounting principle* 1a the United States. (“US CAAF”) which differ in certain respects from those principle* that the Company would have followed bad its consolidated financial statements been prepared in accordance with accounting principle* generally accepted in Canada (“Canadian GAAJP”). Tie major differences between US GAAP and Canadian GAAP and their effect on the M07 consolidated financial statements are as follows: The following table reconcile* the balance sheet amounts bi of December 31,2007 at reported under US GAAP with those amount* that would have been reported under Canadian GAAP; Canadi#n GAAP1 Canadian US GAAP Adjustment GAAP ASSETS Current Asset* Cash and equivalents $381,374 $ — $381374 Investments 153,100 — 153,100 Trade accounts receivable 4314385 — 43M385 Accounts receivable—other 16,858 — 15,858 Coal inventories 1372,697 — Wt72,697 Prepaid expenses and other currant assets 526.664 — 526,664 Total caxreat iwti 6,465,078 — 6,455,078 Property Plant and Eqalpment, net 29,028382 — 29,028382 Restricted Cash 2312300 — 2312300 Goodwm 32^93,227 — 32393,227 Mine DereloBOunt Costa 1,464,831 — 1,464331 Deferred Financing Fees (a) 545,455 (545,455) — Other Asset* 1,116338 — 1,116,838 $73326311 S (545,455) $72,781,056 LUmUHES AND STOCKHOLDER’S EQUIT* Current liabilities ‘ Trade, accounts payable and accrued liabilities $8396398 S — $8396398 Seller provided financing 7,794300 — 7,794,000 Preferred stock, subject to redemption provisions — 4S3353S9 45,635369 Note* payable (a) 6,072340 (545^*55) 5326,785 Current portion of tang-term debt 2338,198 — 2,338,198 Total current llaWUtua 25,101336 45,089314 70,191,250 Reclamation UaWUlj 3,757,353 — 3,757,353 Long-Harm Debt, lest current portion 7348315 — 7348,915 Other long-tonn liabilities 707,796 — 707,796 Stockhold>r»i Equity Preferred stock (b) 37,191 (37,191) — Common stock 37,701 — 37,701 Additional paid-in capital (b) 67384,236 (44,136382) 23347354 Accumulated other camprehensiva Ids* — — — Aficumuiated deficit (b) (31,648,017) (1,461396). (33,109,913) Total Stockholder’s Eoeify 36.411.111 (45335,369) (9324358) j 73326311% (545.455) $72,781,056

 


 

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PHOENIX COAL CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2007, 2006, and 2005 NOTE M— DIFFERENCES IN GENERALLY ACCEPTED ACCOUNTING PMNCIFCJES BETWEEN THE UNITED STATES AND CANADA (Continued) The following table reconciles the statement of operation j amounts for the year ended December SI, 2007 as reported under US GAAP with those amounts that woald have been reported under Canadian GAAP: 2087 NetLoM —US GAAP $(23,25M01) Increased interest expense from dividends on redeemable preferred Hock (b) (1^277,838) Increased interest expense from feel on redeemable preferred stock (b) (1,461.896) Net Lea—Canadian GAAP t(2S.991,135) (a) Deferred financing feel Under VS. GAAP, financing fees related to debt acquisition bib capitalized as an asset siid the fc« amortized over tha term of the debt and recorded at interest expense in the statement of operations. Canadian GAAP requires that these costs be recorded as a contra-liability and reduce the amount of the debt to which they are related. The financing fees are accreted and also recorded as interest expense. The reconciliation adjustments listed are to redassify deferred financing feet of $545,455 as a contra-liability on the balance (beet (b) Preferred stock with redemption rights As dfcqtmwi in Note H» in August 2007 the Company issued preferred stock that automatically converts to common shares upon the closing of an underwritten pubic offering. Additionally, subject to varxius reslrirtions, arid the autcraiatic inversion prcr/ision jioted, commencing one year after issuance, the preferred stock hoMef may request redemption of the preferred shares at its issue price plus any unpaid dividends. Although the preferred shares have a redemption feature, the redemption is conditional and subject to liquidity considerations. Based oa these and other characteristics of the preferred shares, under US. GAAP the proceeds front the sale of the preferred shares, less applicable expenses have been recorded as stockholders* equity. Due to the redemption features, Canadian GAAP requires the preferred shares to be recorded as debt Expenses related to the preferred offering are recorded as a contra-Uabtthy. The expenses are accreted using the effective interest ate method and recorded as interest expense. Any dividends due on the preferred shares are also included In interest expense. The reconciliation adjustments recorded are to rctlasslfy the preferred Shares as debt (344,173.473), accrete the expenses related to the oifering u interest expense ($1,461,896}, «ad redassify the dividends as interest expense (11^277,838).

 


 

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Phoenix Coal Inc. Consolidated Financial Statements December 31,2008 and 2007

 


 

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REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS To the Shareholders of Phoenix Coal Inc. We have audited the consolidated balance sheet of Phoenix Coal Inc. (the Company) as at December 31, 2008 and the consolidated statement of operations and comprehensive loss, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are dee of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31,2008 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting prfaciples. (signed) Ernst & Young LLP Louisville, Kentucky March 17,2009

 


 

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INDEPENDENT AUDITOR’S REPORT To the Board of Directors Phoenix Coal Inc. We have audited the accompanying consolidated balance sheet of Phoenix Coal Inc. (successor to Phoenix Coal Corporation) (the Company) as of December 31, 2007 and the related consolidated statements of operations and comprehensive loss, shareholders* equity and cash tows for the year ended December 31, 2007 which have been prepared on the basis of accounting principles generally accepted in Canada, The financial statements are the responsibility of the Company’s management Our responsibility is to express an opinion on the financial statements based on our audit We conducted our audit in accordance with auditing standards generally accepted In the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present feirly, in all material respects, the financial position of Phoenix Coal toe. (successor to Phoenix Coal Corporation) as of December 31, 2007 and the results of its operations and to cash flows for the year ended December 31,2007 in conformity with accounting principles generally accepted m Canada. lil Mountjoy & Bressler, LLP Louisville, Kentucky May 2,2008

 


 

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PHOENIX COAL INC. CONSOLIDATED BALANCE SHEETS (Expressed in U.S. Dollars) As at December 31 Note 2008 Z0O7 ASSETS Current Assets Cash and cash equivalents ,,.. «.,, ,, ,, ,, $40,523,609 $381,374 Short-term investments -.- ___A 100,707 153,100 Trade accounts receivable ___2,843,134 4,314,385 Accounts receivable—other... ,,...,, ,,...,, — 16,858 Coal inventories ,, A 452,558 1,072,697 Prepaid expenses and other current assets.... ._. 470,506 526,664 Total current assets .... 44,392,514 6,465,078 Property, Plant and Equipment, net ~ E.K 46,037,904 29,028,582 Restricted Cash, Cash Equivalents and Certificate* of Deposit. K 11,638,921 2,312^500 Mining Rights, Mine Development Costs and Mineral Reserves, net of accumulated amortization of $3,670,570 in 2008 and $210,658 in 2007 A, D 52,582,655 34,547,492 Otter Assets . ...,, ,,_,.,,.._.. _...,,.,,,,,,._. -.. 492.520 427 404 $155,144414 $72,781,056 LUBILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Trade accounts payable and accrued liabilities S 6,470,390 S 8,896,898 Vendor financing ,..,,.,,. ,, ,, ,, ,, D — 7,794,000 Preferred shares, subject to redemption provisions™ O — 45,635,369 Notes payable— _.,. ™         .. O — 5,526,785 Current portiofl of long-term debt ^.^ — _.___G 6,532,045 2338,198 Current portion of asset retirement obligations ,, F 1,958,000 1,667,000 Total current liabilities — -.-, 14,960,435 71,858,250 Asset Retirement Obligations, less current portion F 2^66,000 2,090,353 Long-term Debt, less current portion . .___O 14,641,745 7,348,915 Other Long-term Liabilities .. 482,743 707,796 Shareholders’ Equity Share capital.-.. « — C, G 171,817,981 22,426,771 Stock options and warrants ,, - ___... L 16,625,724 1,458,884 Accumulated deficit — (65.750.114) (33,109,913) 122,693,591 (9024.258) $155,144,514 S 72,781,056 See accompanying nates to consolidated financial statements Approved by the Board of Directors: Robert gush an (fflpigefl Director Robert Wardell Uigmd) . Director

 


 

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PHOENIX COAL INC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in U.S, Dollars) Far the Yean Ended December 31 Nate 1003 hot Revenue _» — $76,724,270 $ 67,184,104 Cost and Expenses Cost of sales 71,881,533 62,175,073 Selling expenses ,, 8,188,945 7,859,571 General and administtathfe expenses L 13,545,412 7,06130 Depredation and amortization....,...,...,,.™ ,, ,, ___A 8,412,073 3,143,365 Asset impairment write down ....^.,, _., A — 2,873,055 102,027,963 83,112344 Loss from operations -. (25,303,693) (15,928,240) Other Income (Expense) Interest expense, including accretion . G (5,767,496) (7,783,908) Interest income , ,, ,, ,, ___570,378 . 106,692 Foreign currency gain (loss) ,, ___,, G 129,130 (498,794) Otfaer.net _,, E (1,014,424) (1,816,730) (6,082.412) (9592,740) Loss before income taxes ~ -,, (31,3 36,105) (25,920,980) Income-taxes... ___,,. I 37,838 70,155 Net loss.. ,,..___$(31,423,943) $(25.991.135) Basic and diluted loss per share $(033) $(0.70) Weighted average number of common shares outstanding.— ,,,,, A 95,249,972 37,141,490 Comprehensive loss Net loss..™ $(31,423,943) $(25,991,135) Reclassification to net loss of loss on derivatives previously designated as cash flow hedges,.. ,, ___,, — 143,858 Comprehensive loss $(31,423,943) $(25,847,277) See accompanying nates to consolidated financial statements

 


 

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PHOENIX COAL INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Expressed In U.S. Dollars) For the years ended December 31,2008 and 2007 Accumulated Stock Other Common Shim Option* and Comprehend™ Accumulated Note Shares Dollars Warrants Low PeHcii Total December 31,2tH6 36^92,667 $21,040,818 $47,224 $ (143,858) $ (7,118,778) S 13,825,406 Imuuim of common «hana_. 1,591,440 1,989,287 — — — 1,989,287 Common share* converted to preferred shares O (982,667) (1,228,334) — — — (1,228,334) ShatB-haserfcompeMuioa-opdora— L — 948,859 — — 948,859 Wananfe issued in ramneerJan who prefenedsh_eoflerin| — L — 462,801 — — 462,801 Share-based coraperuation * restricted shares ,, ___L 400,000 500,000 — — — 500,000 Exerra* of stock optfom l 300,000 125,000 — — — 125,000 Interest rats swan Q ___143,858 — 143,858 Net less -. — — — (25,991,135) (25,991,135) December M.20II7 37,701,440 22,426,771 1,458,884 — (33,109,913) (9,224,258) Smre capital contribution — common shares issued in payment of loan lees H....,,.,, C.G 408,163 510,204 — — — 510,204 Issuance of common itwos to seals *W- C.0 8,668,000 10,276,682 — — — 10,276,682 Conversion of prefeoed snares, including scorned dividends, to eommonshares C.G 39,386^70 48,922,722 — — — 48,922,722 Value of additional share* issued in paymentordebt,,..»....- c,G — 808,258 — — (808,258) — Share-bucd compensation-options j_, ___260,000 — — 260,000 Balances — pre merger, pre snare issue, and prior to recording loss tor the year... — 86,163,873 82^44,637 1,718,884 — (33,918,171) 50,745,350 Marimba Capital Corp. equity balances pre-merger C 2^20,000 347,514 48,120 — (88^55) 307,379 Marimba.Capital shares consolidated on the basis of 1 share for wary 235 shares outstanding. C (1,332,769) ___Reverse i_«eow adjustment.- C — (88^55) — — 88,255 — Reverse akeover costs incurred c — — — — (408,000) (408,000) Issuance of common shares C 62,857,160 97,784,678 — — — 97,784,678 Issuance of warrants QL — (8,077,145) 8,077,145 ___ issuance of brokeroptioM C.L — (1,106,286) 1,106,286 — — — Shate-basodconrperoatkm-options-.-.. _. — — 5,675,289 — — 5,675,289 Option and warrsnt* exercised L 37,288 12,838 — — — 12,838 Net!o___-. — — — — (31,423,943) (31,423,943) De«ember31,200a 150,045,552 $171,817,981 $16,625,724 $ — $(65,750,114) $122,693,591 See accompanying notes to consolidated financial statements

 


 

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PHOENIX COALING CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. Dollars) For the Yeira Ended December 31 Note 200J 2007 Cash now From Operating Activities Net loss..,-™ «31,423.943) $ (25,991,135) Adjustments to reconcile net lost to rat cash used in operating aclivities; DepraolatiCB and amortization _, ___A 10,729,602 5,607,126 Loss OB saleof property end equipment ,, — ,, g ij0ia,7S0 1,810,131 Intewtrattswip— — G (224,696) 224,696 Unreiliad foreign currency (gain) lass ...,,, Q (129,130) 81,227 Share-buedcompens.tkM, L S.935,289 1,448,83? Asset Impairment write down ,,.,.,,.,,..,,,.._,,, A, 2,873,055 Reclamation liability ,, A (730,436) 1,244,438 to-kindinterest.         ,..,,..-««,, ...,,™™«,,M,,,..,,,™....,, ,,,,,,,,,, ,, ,, -j*qqqa Dividends accrued on preferred shares .,,,,_., Q 1,467,165 1,277,838 Changes in non-cash operating assets and liabilities: Account] receivable . 2£[ 8,442 CW45.742) Inventories—*- — ¦ A 1.192,838 (816^14) Prepaid expenses and other current assets..- . 59,433 (280,545) Trad* accounts payable and offer accrued liabilities.._.._.,,., ...___(3,901565) 3310,399 Net cash used ia operating activities — (13,994,621) (9,406,060) Cash Row From Investing AcUvillr* R«OrKtedcash,cMheo^iys!cotj,sndccrtificatesc^ deposit,,. . K (8,833,264) (515,452) Payrrisritsfc^i]rve8tnieriti...,,H,MHM,.,Hm.UHU.,,IUMH.R..MM,,,».w,M %.. .,.., .,«, (1007071 -*~ Proceeds Bom sales of investments.. _^..,,,,.,,,,,._.,, 153 jqo 559,977 Payments fiir other assets, principally mine development and mining rights ,, ___(953,698) 0-239,842) Proceeds Sara sale of property ind equipment . ..-——-~ ,,™.™- .«. B 683,912 6^6,373 Psymentsfbr property and ecpaprnent H PWUO) (1,549,511) Net assets acquired in merger, prior to public offering , — 307,379 Acquisition* ,, J) (27.946,494) (31.392,433) Net cash used I. (.voting acllvltlai (40^72,882) (28,230,898) Cash Clow From Fmancfais Activities rVmc%slpiyirientsanaeDt— G (1.058-3*7) (21.618.644) Proceeds ftom debt, aetoffiMncingfbcs.— ___Q 4,891,890 10.429.023 ItyrrBntsonequinmerrtftaDdag G (6,48e\279) (1,007,250) Reverse takeover costs Incurred. . ,,,, .,, C (408,000) Decrease in other long-term liabilities.... ,, _..,,.,...,, , (225,052) (580,482) Net proceeds Corn common and preferred share issuances and exercise of options and warrants C, L 97.797,516 42.488J89 Net cash provided by financing acilviflea 94.5n.738 29.711.236 Nit Inert^n* (Decrease)la Cash and Cask Eqalvaients.___....-, .. ..,,.,,,., 40,144,235 (7,925,722) Cash and Cash Equivalents, Betinniag; of Year .. _... . 381.374 8,307,096 Cash and Cash Equivalents, End of Year — — 5 40,523.609 $381,374 Supplements! DJscHMurc- Intsrastpsid : -. $2.179,723 S 6.814,827 Non-Cajti Investing and Financing Activities: Vendor financing fia equipment purchases ___Q $ 18,033.434 $ LO.293,381 Snares issued in connection with acquisition..___fj $ — S 543.300 Vendor prwided financing of acquisition ,,.,,,,....,,,, ,, fj $ — S 7,794,000 Receivable credited to acquisition ,, 0 $26X1.000 $ — Shares issued in payment of flnBflcJBg fees ___Q $510,204 t 862,500 See accompanying notes to consolidated financial statements

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 NOTE A — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: The Company is engaged in the production and sale of steam coal to utilities and industrial fuel consumers. The Company’s mining activities are currently limited to one importable business segment, which is the Illinois Basin. On June 27,2008, Phoenix Coal Corporation (“Phoenix”) completed a reverse takeover (“RTO”) of Phoenix Coal Inc. (the “Company”), formerly Marimba Capital Corp. (“MCC”), which was previously listed on the TSX Venture Exchange (note C). MCC was incorporated under the Business Corporations Act (Alberta) on February 8, 2007 and was classified as a Capital Pool Company as defined in the TSX Venture Exchange Policy 2.4 and, accordingly, had no assets other than cash and no commercial operations. MCC changed its name to Phoenix Coal Inc. on June 25, 2008. Phoenix, a U.S. company headquartered in Madisonville, Kentucky with satellite offices in Champaign, Illinois and Louisville, Kentucky, was formed in Jury 2004 as a Delaware C corporation and was originally named Dynamic Separations, Inc. (“DSI”). Where the context requires, in respect to transactions prior to the RTO, die “Company” also refers to Phoenix. Principles of Consolidation: Pursuant to the RTO transaction, these consolidated financial statements for the years ended December 31, 2008 and 2007 reflect the assets, liabilities and results of operations of Phoenix prior to the RTO and the consolidated assets, liabilities and results of operations of the Company and Phoenix subsequent to the RTO. Tub consolidated financial statements are issued under the name of the legal parent (file Company), but are deemed to be a continuation of the legal subsidiary (Phoenix). The consolidated financial statements include Phoenix Coal Inc. and its subsidiaries, all of which are wholly-owned. Basis of Presentation: The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles (“GAAF”). All monetary references expressed in these notes are references to United States dollars, except occasional references to Canadian dollar amounts, where the dollar amount is preceded by Cdn (“Cdn$”). Use of Estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The assets and liabilities which require management to nuke significant estimates and assumptions in determining carrying values include, but are not limited to, coal inventories, property, plant and equipment, mining rights, mine development, mineral reserves, prepaid royalties, provision for income taxes, and asset retirement obligations. Reverse takeover accounting: The RTO was completed on June 27, 2008. Prior to the complerloo of the RTO, MCC affected a reverse split of its outstanding common shares on the basis of 1 new share for each Z35 shares outstanding. Pursuant to the RTO, the Company issued one common share for each outstanding common share of Phoenix. In addition, warrants and options to purchase Phoenix common shares outstanding Immediately prior to the RTO were replaced with warrants and options to purchase an equivalent number of common shares of ate Company, on economically equivalent terms and conditions. The capital changes of the Company related to the RTO are detailed in note C to these consolidated financial statements. ‘ Concurrent with the RTO, the Company raised 597,784,678, net of Issuance costs, In a prospectus offering of 62,837,160 subscription receipts priced at CdnS 1.75. In connection with the RTO, each subscription receipt was exchanged for one unit, each unit consisting of one common share and one half common share purchase warrant exercisable until June 25, 2010 at CdnS2.25 per share. The acquisition of the shares of Phoenix has been accounted for as an RTO transaction in accordance with guidance provided in Canadian Institute of Chartered Accountants* (“OCA”) Emerging Issues Committee (“EIC) Abstract No. 10. As MCC did not qualify as a business for accounting purposes, the transaction has been accounted for as a capital transaction of Phoenix. Business Combinations: C1CA Handbook Section 1581 establishes standards for the recognition, measurement and disclosure of business combinations including criteria for the recognition of intangible assets of the acquired enterprise apart from goodwill. Initially, in all of the Company’s previous acquisitions, including the acquisition of Pact Resources LLC

 


 

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PHOENIX COAL INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007 (“Pacf”), a development-stage enterprise, as described In note D, the amount of the purchase price is excess of the feir value of identifiable tangible assets was allocated in its entirety to goodwill. The Compaq has determined that in each of these acquisitions, the excess should have been allocated to mining rights. Consequently, on the June 30,2008 and subsequent balance sheets, the Company has reclassified $32,393,227, previously shown as goodwill at December 31,2007, to Mining Rights, Mine Development Costs and Mineral Reserves. Other than this rectification, the change in the purchase allocation in the Pact and other acquisitions has had no material impact on the reported financial position or results of operations of any prior period. Financial Instruments: CICA Section 3 855, “Financial Instruments — Recognition and Measurement”, establishes standards tor recognizing and measuring financial assets, financial liabilities, and non-financial derivatives. Under CICA 3855 financial instruments are classified into one of the following five categories: held for hading assets or liabilities, held to maturity investments, loans and receivables, available for sale financial assets or other financial liabilities. Held for trading financial instruments are measured at feir value and all gains and losses are included in net income in the period in which they arise. Available for sale financial instruments are measured at fair value with revaluation gains and losses included hi accumulated other comprehensive income until the instruments are derecognized or impaired. Loans and receivables, investments held to maturity and other financial liabilities are measured at amortized cost using the effective interest method. The Company’s financial instruments consist of cash and cash equivalents (Including restricted cash), short-term investments, trade accounts receivable, trade accounts payable and accrued liabilities, other long-term liabilities, and short-term and long-term debt, indudmg notes payable and preferred shares. Cash and cash equivalents are classified as held for trading, and are measured at fair value at the balance sheet date. Short-term investments are classified as held for trading and arc measured at fair value at the balance sheet date. Accounts receivable are designated as loans and receivables and accounted for at amortized cost Trade accounts payable and accrued liabilities, other long term liabilities and short-term and long-term debt, including preferred shares, are classified as other financial liabilities and accounted for at amortized cost Transaction costs for financial instruments, other than held for trading, are included in the value of the financial instrument. Income and expense related to financial instruments is included in the consolidated statement of operations as mterest income or Interest expense. Cash and Cash Equivalents: Cash and cash equivalents include demand deposits held with banks and highly liquid investments with original maturities of three months or less. For purposes of reporting cash flows, the Company considers all cash accounts mat are not subject to withdrawal restrictions or penalties to be cash and cash equivalents. Short-term investments: Short-term investments typically include certificates of deposit and investments issued by the United States government, such as Treasury bills and Treasury notes, with original maturities greater than three months. At December 31,2008, the short-term investment balance off 100,707 was entirely invested in certificates of deposit            Trade Accounts Receivable; Trade accounts receivables are recorded at the invoiced amount and do not bear interest Customers are primarily investment grade companies and quasi-governmental agencies . As a result, the Company has not experienced any instances of non-payment and does not currently require an allowance for doabtful accounts. Management monitors customers closely and will record an allowance if trade account balances become potentialh/ uncollectible. Inventory: Ita Company accounts for coal inventories on a first-in-first-out basis and values these inventories at the lower of cost and net realizable value with cost determined using average cost per ton. Coal inventory values were $22.62 per ton at December 31, 2008 and ranged from $21.99 to $29.02 at December 31, 2007. At December 31, 2008, the total inventory value of $452,558 was valued at net realizable value. At December 31, 2007, the total inventory value of $1,072^97 comprised $748,454 that was valued at cost and $324,243 that was valued at net realizable value. The Company accounts for parts inventory using the original cost on a firsNn-first-out basis. Parts inventory is included in other current assets. There were no write downs or reversal of write downs of inventory recorded in 2008. Restricted Cash, Cask Equivalents, and Certificates of Deposit: Restricted cash balances are either used to collateralize letters of credit, or secure reclamation bonds with state agencies. These assets will not be released until the reclamation bonds are released by the state, and as such are not included in current assets.

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Property, Plant and Equipment; Property, plant and equipment are stated at cost. The Company provides far depreciation on the straight-line basis with useftil lives that range from 5 to 10 years. Depreciation expense for the years ended December 31, 2008 and 2007 was $4,364,650 and $2,652,542, respectively. The cost of assets sold, retired, or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is included in operations. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and betterments that extend the useful lives of property, plant and equipment are capitalized Interest cost is capitalized for qualifying assets during the period in which the asset is being installed and prepared for its intended use. Capitalized interest cost is amortized on the same basis as the related asset No Interest costs were capitalized for the years ended December 31,2008 and 2007. Consistent with CICA Section 3063, Impairment of Long-Lived Assets, the Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that their carrying amount may not be recoverable. This impairment testing is based on estimated future undlsoounted cash flows to be realized from the use of the tons-lived asset These future cash flows are developed using assumptions that reflect the long-term operating plans given management’s best estimate of future economic conditions, such as revenues, production costs, and reserve estimates. A change in these factors could result in a modification of die Impairment calculation, Mm Development Costs: Mine development costs represent the costs incurred to prepare future mine sites fbr mining and are amortized on the units-of-productlon method. The net book value of mine development costs was $1,681,147 and $1,464,831 at December 31, 2008 and 2007, respectively. At December 31,2008 and 2007, die net book value of mine development costs included $1,446,478 and $882,896, respectively, attributable to properties where the Company was not currently mining and, therefore, the mine development costs were currently not being amortized. Development costa amortized totaled $665,243 and $455,408 for the years ended December 31,2008 and 2007, respectively. Mining Rights; Mining rights, which are lights to mine coal properties acquired through coal leases, are recorded at cost Mining rights are amortized on the units-of-productlon method. The net book value of mining rights totaled $50,712^374 and $32,893,227 at December 31,2008 and 2007, respectively. At December 31,2008 and 2007, the net book value of mining rights included $45,627,773 and $24,854,649, respectively, attributable to properties where the Company was not currently mining and, therefore, the mining rights were currently not being amortized. Mining rights amortized totaled $3,382,180 and nil fbr the years ended December 31,2008 and 2007, respectively. In June 2007, the Company closed its Crittenden County Coal mining operation due to uneconomical mining conditions. As a result of the closing, we Company recorded an asset impairment writs down related to its mining rights of $2^173,055. Mineral Reserves; Mineral reserves, which are coal properties fbr which the Company owns the coal in place, are recorded at cost At December 31, 2008 and 2007, the net book value of mineral reserves totaled $189,434. This entire amount is attributable to properties where the Company was not currently engaged in mining operations and, therefore, the assets were not currently being depleted. Prepaid Royalties: Rights to leased coal lands are often acquired through royalty payments. Where royalty payments represent prepayments recoupable against production, they are recorded a s a prepaid asset As mining occurs on these leases, the prepayment Is charged to cost of sales. Prepaid royalties were $492,418 and $80,683 at December 31,2008 and 2007, respectively, and are included in other assets. Asset Retirement Obligations: CICA Handbook Section 3110, “Asset Retirement Obligations,” addresses financial accounting and reporting fbr obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company’s asset retirement obligation (“ARO”) liabilities primarily consist of spending estimates related to reclaiming surface land and support facilities in accordance with federal and state reclamation laws as defined by each mining permit

 


 

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PHOENIX COAL JNC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Revenue Recognition: The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determlnable, and (4) collectability is reasonably assured. In the case of coal that Is mined and sold, a specific sales contract is negotiated with each customer, which includes a fixed-price per ton, a delivery schedule, and terms of payment Royally Expense: The majority of the coal that the Company mines is owned by other entities. The Company acquires the right to mine and sell the coal through various leases. These leases require the Company to pay a royalty to the owners of the land and the minerals being mined. Royalty expense for the years ended December 31,2008 and 2007 was $3,778,642 and $3,391,015, respectively, and is included in selling expenses on the consolidated statement of operations. Income Taxes: Future Income taxes are provided for temporary differences arising from differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using substantively enacted tax rates expected to be in effect when the related taxes are expected fo be paid or recovered Loss per Stare: The Company uses the treasury stock method to compute the dllutiveeffcrtofoptiona and warrants. Under mis method the dilutive effect on loss per share is recognized on the use of the proceeds tfiat could be obtained upon exercise of options and warrants. It assumes that the proceeds would be used to purchase common shares at the average market price during the year. The Company also uses the “if converted” method to compute the dilutive effect of any convertible debt For loss per share, the dilutive effect has not been presented, as it would prove to be anti-dilutive. Basic and diluted loss per common share is calculated using the weighted-average number of common shares outstanding during the year. As a result of the RTO transaction, die basic and diluted loss per share has been presented in accordance with the guidance provided in EIC Abstract No. 10. Stock-based compensation: The Company uses the fair value method for options, warrants and restricted stock granted. The fm value of stock options and warrants is determined by the Black-Scholcs option pricing model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s common shares and an expected life of the options and warrants. The fair value of the restricted stock is determined to be the equivalent of the Company’s common shares’ trading price on the date of the grant; The fair value of the instruments granted is amortized over this vesting period. Foreign currency translation: The Company translates monetary assets and liabilities at the rate of exchange in effect at the balance sheet date and non monetary assets and liabilities at historical exchange rates. Revenues and expenses are translated at rates prevailing at the dates of the related transactions. New Accounting Policies: Capital Disclosures: Effective January 1,2008, the Company adopted CiCA Handbook Section 1535, Capital Disclosures. Handbook Section 1535 specifies the disclosure of (1) an entity’s objectives, policies and processes for managing capital; (li) quantitative data about what the entity regards as capital; (Hi) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such noncompliance. The Company has included disclosures recommended by the new Handbook section in note B to these consolidated financial statements. Inventories: Effective January 1, 2008, the Company adopted new accounting recommendations set out in the CICA, Handbook Section 3031, “Inventories”, which supersedes the previously issued standard on inventory. The new standard introduces significant changes to the measurement and disclosure of Inventory. The measurement changes include: the elimination of LIFO, the requirement to measure inventories at the lower of cost and net realizable value method for inventories that are not ordinarily interchangeable and goods or services produced for specific purposes, the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use, and the reversal of previous writedowns to net realizable value when there is a subsequent increase in the value of inventories. Disclosures of inventories have also been enhanced. Inventory policies, carrying amounts, amounts recognized as an expense, write-downs and the reversals of write-downs are required to be disclosed. This standard has had no material impact on the Company’s consolidated financial statements. Financial Instruments Disclosures and Presentation: Effective January 1,2008 the Company also adopted the following new CICA Handbook Sections: Section 3862, Financial Instruments Disclosures, and Section 3863, Financial Instruments

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Presentation. Sections 3862 and 3863 consist of a comprehensive series of disclosure requirements and presentation rules applicable to financial instruments. Section 3862 revises and enhances the disclosure requirements set out in Section 3861, Financial Instruments Disclosure and Presentation, and Section 3863 carries forward unchanged the presentation requirements of Section 3861. Section 3862, Financial Instruments Disclosures, requires die Company to provide disclosures in its financial statements that enable users to evaluate the significance of financial instruments for tbe Company’s financial position and performance, the nature and extent of the risks arising from financial instruments to which the Company ia exposed during the year and at the balance sheet date, and how tbe Company manages those risks. The Company has included disclosures recommended by the new Handbook section in note H to these consolidated financial statements. Amendments to Section 1400 — General Standards qf Financial Statement Presentation: The CICA amended Handbook Section 1400, Going Concern, to include additional requirements to assess and disclose an entity’s ability to continue as a going concern. The Company has determined that these amendments had no material impact on the Company’s consolidated financial statements. Future Accounting Changes; Goodwill and Intangible Assets: The CICA has issued a new standard which may affect the financial disclosures and results of operations of the Company for interim and annual periods beginning January 1, 2009. Section 3064, Goodwill and intangible assets, establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets, Concurrent with the introduction of this standard, the CICA withdrew EIC-27, Revenues and Expenses during the pre-operating period. International Financial Reporting Standards (“IFRS”): In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. In February 2008, the AcSB announced that Canadian GAAP for publicly accountable enterprises will be converged who IFRS effective in calendar year 2011. The Company will adopt IFRS for the fiscal year beginning January I 2011, with restatement for comparative purposes of amounts reported by the Company for the fiscal year beginning January 1,2010. The Company is currently in the planning phase of the conversion, which includes identifying potential differences between GAAP and existing IFRS at December 31,2008, as well as proposed IFRS which may be in effect in 2011. The Company is utilizing both internal and external resources to identify and ultimately quantify these differences and tbe impact that they will have on accounting policies, infbrmation technology and data systems, internal control over financial reporting, disclosure controls and procedures, financial reporting, and business activities. Employees responsible for financial reporting will attend IFRS training and begin IFRS accounting policy development in 2009. Reclassiflcatlons: Certain of die 2007 figures have been reclassified to conform to the 2008 financial statement presentation. NOTE B -CAPITAL MANAGEMENT The Company manages its capital structure and makes adjustments to It, based on the funds available to the Company, in order to support the acquisition, exploration and development of its mineral properties. The Board of Directors docs not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. Tbe Company defines capital to include its shareholders equity, long and short- term debt, vendor financing, and its preferred shares. Capital, as defined, totaled $143,867381 and $59,419,009 at December 31,2008 and 2007, respectively. The mineral properties in which the Company has an interest are in both the active mining and development stages. The Company manages its capital structure in a manner that provides sufficient funding for operational activities, capital expenditures, and mine development. Funds are secured through a combination of equity capital and external debt In order to maintain or adjust the capital structure, the Company may attempt to raise additional financing through the issuance of sew equity securities, the exercise of outstanding common share warrants and stock options, or the issuance of debt instruments Such as term loans, equipment financing, and sale-leaseback arrangements.

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 During the years ended December 31, 2008 and 2007, the Company generated cash flows from equity capital and external debt as follows: 2008 2007 Proceeds from debt, net of financing fees . $4,891,890 $10,429,023 Net proceeds from common share, warrants and preferred share offerings and exercise of options and warrants ___97,797,516 42,488,589 Vendor financing of equipment purchases and acquisitions .,, 18.025.434 18.087.381 Total proceeds from equity capital and external debt S 120.714.840 t 71.004.90,3 Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company’s approach to capital management during the year ended December 31, 2O08. Neither the Company nor its subsidiaries axe subject to externally imposed capital requirements. NOTE C — RTO AND RELATED CAHTAL ACTIVITY On May 22,2008, MCC and Phoenix entered into a definitive merger agreement with respect to the RTO discussed in note A. On May 22,2008, MCC also filed a preliminary prospectus for an offering (the “Offering”) of Subscription Receipt* (me “Subscription Receipts”), each Subscription Receipt entitled the holder to receive one unit (a “Unit”), each Unit consisted of one common share of MCC and one-half of one warrant of MCC, subject to the satisfaction of certain conditions. MCC applied to have the common shares and warrants listed oa the Toronto Stock Exchange (the “TSX”). The Subscription Receipts were offered to the public in all of the provinces of Canada, except for Quebec, and in the United States in an offering exempt from the registration and prospectus requirements of the U.S. Securities Act Subject to applicable law, the agents acting in connection with the Offering also offered the Subscription Receipts outside of Canada and die United States. The Offering consisted of 62,857,160 Subscription Receipts at a price of Cdn$1.75 per Subscription Receipt to raise gross proceeds of CdnSl 10,000,030. Pursuant to an agreement among MCC, Phoenix and the Offering agents, the agents received a cash commission equal to 6% of the gross proceeds of die Offering phis compensation options equal to 4% of the Subscription Receipts sold pursuant to the Offering. A summary of the gross proceeds received and Offering costs incurred is as fellows: Gross proceeds (CdnSl 10,000,030 converted to VS. dollars at a conversion rate of 0.99007 U.S. to Cdn) — S 108,908,500 Agents* fees. .. ,™ . ,,,, ^,, ,, - (6,534,510) Other out-of-pocket costs ,,,, ,,,. ,, (4,589,312) Net proceeds ,, — ~~... -— $97.784,678 In addition to the Offering costs, the Company incurred $408,000 in costs related to the RTO which have been treated as a capital transaction and charged to accumulated deficit

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Common and preferred share activity in 2008, up to and including the KTO closing date, is detailed as follows: Number Phoenix Common Share* Issued -105,1)00,000 authorized, $.001 stated value per share of Shares Amount Balancet Decembers!. 2007 ,,,,,,,.. _,.. ,, 37,701,440 S 22,426,771 Conversion offinaneecomply debt to common sharM.iricludmg ETC-96 idjustniont-note G.___8,668,000 11,084,940 Issued for fees on payment of debt-noteG 401,163 510^204 Conversion oT preferred shares to common shun- noteO ___, 37,190,267 46,177,718 Issued to settle dividends on preferred sham- sole Q . ,.,,- -         ... 2,196.003 2.745,004 Balance June 27,2008, pre RTO -— 86,163.873 S 82,944,637 Number Phoenix Preferred Sham Issued — 40,000,000 authorized, $.001 stated value per shire ofSharcs Aroonat Balance, December31,2007,oriudiagaccr«edd1videi>d*OfSl,2?7,830... . 37,190^67 $44,357,330 Accredan of preferred share ottering costs—~~~.~ . _«...,..»...»4.«. -«. ,,.,,.,,.,..™^-,,,,_ — 1,820;1&8 Conversion of preferred shares to common stares — note G.. «—,,,.,,. ,, ,,. .___,.-. (37,190.267) (46,177,718) Balance, June 27,2008.,,..,.,., ,,.,, ___,,-..,,,._,., — ¦¦,.— — $ — Number MCC and Company Common Shares Issued- unlimited authorized ofSharaa Amount Balance, December 31,2007 ,, ___, , «™. 2,320,000 $347,314 Consolidated on the basil of 1 share for every 3.35 sharei ouartandinf-noteA— -— ,, —.— (1333.7691 — Balance after consolidation... . ,,,, . 987,231 347,514 Issued in public oSferina. 62,857,160 97,784,678 Reverse takeover adjiatraeat ,,.. — (8»\255) Value of broker options aivJsharchoIder warrants issued wMi pubBeoffering — (9,183,431) Shan capital arising from RTQ transaction on June 27,2008 -note A 86.163,873 82.944ff37 Balance June 27.2008, post KTO ,, , —,, ___.___150,008^64 $171.805.143. NOTE D—ACQUISITIONS C&R Coal Inc. In July 2008, the Company’s subsidiary, R&L Wton toe. (“R&L Warn”), purchased all of the outstanding common shares of C&R Coal Inc. (“C&R”) for cash consideration of $2,051,000, In addition, under the terms of the agreement, R&L Wlnn will pay the former owners a royalty of $0.60 per ton for each ton of coal sold from the C&R mines. The current mining area, Beech Creek and Beech Creek South, contained approximately 450,000 reserve tons (697,000 reserve tons as at December 31,2007 pursuant to the Company’s National Instrument 43-101 revised technical report less coal mined in the first seven months of 2008) as at July 31,2008. R&L Wion also acquired other leases in the transaction from C&R and R&O Leasing, LLC, a company that is affiliated with C&R through common ownership. Based on exploration completed to date by the Company, management estimates the leases contain approximately 1,500,000 tons of coal. The potential quantity is conceptual in nature as there has been insufficient exploration to define a mineral resource and it is uncertain that further exploration will result in the delineation of a mineral resource. The cost of the C&R acquisition was allocated to the following identifiable net assets: Current assets and restricted certificates of deposit — ,,,.........,«,,.. .. $1,281,000 Mining equipment ,, ,,.-« ~ 859,000 Mining rights and mine development costs ,, ,, 2^87,000 Assumed liabilities- — ,, (2,476,000) $2,051,000 Prior to July 2008, the Company operated and managed C&R’s mines under a management and adnurustrative services agreement. Since the Company did not own nor control C&R, it did not consolidate its operating results prior to July 2008, and recorded funds invested and services provided in other assets and accounts receivable on its balance sheet, which totaled 1612,751 at December 31,2007.

 


 

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PHOENIX COAL INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Renfro Equipment, Inc. In July 2008, the Company purchased all of the outstanding common shares of Renfro Equipment, Inc. (“Renfro”) for total cash consideration of 51,129,000. Additionally, the Company incurred 118,000 of dosing costs. The purchase included all assets and liabilities of Renfro, except certain equipment and associated debt specifically excluded from the purchase. Based on exploration completed to date by the Company, management estimates Renfro controls approximately 1,000,000 tons of coal reserves and 465,000 resource tons via lease. The potential quantity is conceptual in nature as there has been insufficient exploration to define a mineral resource and it Is uncertain that further exploration will result in the delineation of a mineral resource. Additionally, if by the second anniversary of the closing date, me Company acquires at least 1^00,000 reserve tons as defined by National Instrument 43-101 due to the direct efforts of the sellers (the “Additional Reserves”), the Company will pay the sellers Sl,000,00O for the first \5 million tons of reserves, plus S0.S0 per ton for each reserve ton in excess of 1.5 million. The share purchase agreement defines a specific territory from which the Additional Reserves can be acquired. The acquisition of the Additional Reserves is on terms and conditions acceptable to the Company in its sole, reasonable discretion. The cost of the Renfro acquisition was allocated to the following identifiable net assets: Current assets and restricted certificates of deposit ,,..,,, ,,_._         . S 334,000 Mining equipment — ,, ~~ . -. 429,000 Mining rights and mine development costs.. ,,.,.,, ,,...,,..,,.,,. ,,,,,,,...,, 1,770,000 Assumed liabilities. ™ ,,.. (1,386,000) $1,147,000 The Company is in the process of finalizing its valuation of the assets acquired and liabilities assumed for both the C&R and Renfro acquisitions. The above allocations are preliminary estimates of fab- value and may differ from the final allocation and the differences may be material. The Company will finalize the allocations within one year of the acquisition dates. Pact Resources LLC In October 2007, the Company acquired the membership interests in Pact Resources LLC (“PACT”) upon exercising its option in September 2007 pursuant to the option agreements dated September 7,2006 {the “Option Agreements”). Through the acquisition of PACT, the Company controls the leases for the proposed Pratt Mine within the area of interest as defined in the Option Agreements. The proposed Pratt Mine contains both underground and surface coal totaling 33,333,000 tons of measured and indicated resources, 670,000 tons of inferred resources and 28,933,000 toss of proven and probable reserves. The Company has been carrying out development work on the proposed Pratt Mine since the fourth quarter of 2006, and in August 2008 received a state permit which will allow the Company to begin construction on the Pratt Mine. In addition to the leases for the proposed Pratt Mine, the sellers of PACT delivered to the Company the lease for the Panama South property, which is described further below. As a result, the in-place tons associated with the Panama South property were included in the calculation of the Scheduled Payment (as described below). The Panama South property contains both underground and surface coal totaling 76,287,000 tons of measured and Indicated resources. Pursuant to the Option Agreements, in addition to the scheduled payment for in-place tons of coal delivered by the sellers (the “Scheduled Payment”), which payment terms would be subsequently modified, the Company agreed to pay £300,000 (the “Option Fee”) at the effective date of the Option Agreements, an overriding royalty no greater than 3% o f the gross sales price per ton sold from the proposed Pratt Mine (the “Overriding Royalty’’) awl expenses related to the development of the proposed Pratt Mine during the option period (the “Pratt Expenses”). Prior to the closing of the acquisition, the Company and the sellers of PACT modified the original Option Agreements and entered into modification of option agreements (the “Modification of Option Agreements”). The Modification of Option Agreements stipulated that the Scheduled Payment was SI 5,000,000 payable in three installments, 510,000,000 of which was paid in 2007, plus a true-up payment of $0.10 per in-place ton on September 7, 2008 for any additional tons of coal greater than 150,000,000 in-place tons that the sellers deliver. As at December 31,2007, the Company estimated that the sellers had already delivered 177,940,000 in-place tons of coal for a total Scheduled Payment of $17,794,000. As such, the Company recorded an additional $7,794,000 of vendor

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 financing on its consolidated balance sheet due to the former owners of PACT as at December 31,2007. Of this amount, $5,000,000 was originally payable in April 2008, with the balance due in September 2008. On March 31, 2008, the Company entered into a buy-out agreement with the former owners of PACT, which was subsequently amended in June 2008 (collectively the “Buy-out Agreements”). Under the terms of the Buy-out Agreements, if die Company either completed a public offering of its shares, sold On a private sale) more than 50% of its issued and outstanding shares or more than 50% of its assets, or completed an RTO (the “Monetization Event”), the Company would pay the former owners of PACT $25 million (the “Buy-out Payment”). Pursuant to the Buy-out Agreements, Phoenix’s obligations to make a $5 million payment in April 2008 and the balance in September 2008 were suspended until the occurrence of a Monetization Event Upon receipt of the Buy-out Payment, all obligations of Phoenix to make any additional payments, including the accrued amount on the consolidated balance sheet as at December 31, 2007 and future overriding royally payments, would cease and terminate. In the event the Monetization Event was an RTO, and the offering was not closed on or before July 1,2008, then all obligations of the Company to mate additional payments to the former owners of PACT for the PACT properties would be reinstated at that time. On June 27,2008, the Company completed the RTO and paid $25,000,000 to the former owners of Pact on June 30, 2008. At December 31,2007, Phoenix’s acquisition costs In PACT totaled $12,909,000. With the $25,000,000 Buy-out Payment paid on June 30, less the vendor financing of $7,794,000 previously recorded at December 31,2007, the acquisition costs increased by $17,206,000 during the year ended December 31,2008, with a corresponding increase in mining rights. The Company’s total acquisition cost of PACT is comprised of the Option Fee, Pratt Expenses, the Scheduled Payments, and the Buy-out Payment which total $36,115,000 (the “Purchase Priced at December 31,2008 and $18,909,000 at December 31,2007 as follows: 2001 2BQ7 Option Fee ,, ,, $300,000 $300,000 Pratt Expenses ,,. 815,000 815,000 Scheduled Payments and Buy-out Payment . 33,000,000 17,794,000 S 36,113,000 $18,909,000 The Purchase Price was allocated to the following identifiable net assets: 20M 2087 Cash. ___$3,000 $3,000 Advance royalties — ___,, ,, ___.. 42,000 42,000 Land purchase option ___75,000 75,000 Mining rights and mine development costs — . ... 35,995.000 18.789,000 S 36.115.000 S 18,909,000 At the acquisition date, the owners of PACT owned less than 1% of the total outstanding shares of Phoenix and also held 300,000 options to purchase common shares of Phoenix. The PACT purchase price was negotiated by members of senior management that had no financial ownership in PACT and the acquisition was considered to be an arms-length transaction. During 2008, the Company finalized the purchase allocation and related valuation of the assets acquired and liabilities assumed for the PACT acquisition. Initially, the purchase price in excess of tangible and identifiable assets was allocated to goodwill. However, as PACT is a development stage enterprise which has not yet commenced commercial production, the Company has concluded that the allocation should be to acquired mining rights as explained more fully under “Business Comfainations,, in note A. Panama South In December 2007, the Company entered into a lease with Peon Virginia Operating Co., LLC for the right to mine its Panama South property, located in Webster County, Kentucky, which contains bot h underground and surface coal totaling 76,287,000 tons of measured and indicated resources. In connection therewith, the Company paid a non-recoupable fee of

 


 

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PHOENIX COAL INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2MB and 2007 S500.000. The lease outlines three terms: (I) the development term (the “Development Terra”), from the effective date of the lease until December 31,2011; (2) the primary term (the “Primary Term”), from the end of the Development Term until the earlier of. (i) December 31, 2021, (ii)the time at which the Company has mined and removed all leased coal, or (HI) termination of the lease; and (3) the remainder term, from the end of the Primary Term until me Company has completed reclamation, environmental and other obligations under the lease. The Primary Term can be renewed twice for a period of five years each. The Company is required to pay a tonnage royalty tor each ton of leased coal mined and sold, and a monthly minimum rental fee. Each month’s tonnage royalty will be credited against the monthly rmrmnum rental fee such that no minimum rental payment shall be due in any month where tonnage royalties equal or exceed the minimum rental. The Company is also required to pay a wheelage fee for any coal mined from adverse lands and transported through me leased premises. The Company must produce and ship no less than 500,000 tons of leased coal from the leased premises during the calendar year ending December 31, 2014 and during each calendar year thereafter. Failure to do so will result in the payment of additional fees under the lease. Charolah Corporation In January 2007, the Company acquired assets and shares of the Charolais Corporation and related entities for a total consideration of S21,924,000 principally allocated as follows: Real property ,, ___. .,,,,.,,.,,,.,,,,,.,, $557,000 Plant and equipment ___,, ,,.,,..,,,.».-. ... 13,483,000 Mining rights and mineral reserves ,, > ___8,705,000 Asset retirement obligations ,, ,, (821,000) $21,924,000 The purchase price paid to the seller was $21,735,000, including 434,640 common shares of the Company valued at $543,000. In addition, the Company incurred $189,000 of transaction costs related to the purchase. The purchase bom expanded the Company’s reserve base in the Western Kentucky markets, and increased sales volume wiiri a well established utility, NOTE E—PROPERTY, PLANT AND EQUIPMENT.NET Property, plant and equipment consists of the following at December 31: 2MB Accumulated Cart Depreclttkm N>t Book Value Land .- S 1,474,574 $. S 1,474474 Building and improvements _ 25,424 7,698 17,726 Preparation plant ~ ~- 3,084,768 347,416 2,737,352 Mining equipment — ,, — 45,886,694 5,758,494 40,128,200 Loading and marine transport equipment — ,, l ,775,000 340,208 1,434,792 Office equipment- ,, ,, 370,450 158,172 212^278 Vehicles 65,965 32^83 32^82 $52,682,875 S 6,644,971 $46,037,904

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 2D07 ___ Attnmulattd Cm* Depreciation Net Bank Value Land— ,, ___$599,654 $ — $599,654 Building and improvements ,, 25,424 5,156 20,268 Preparation plant ,, 1,476,805 260,003 1,216,302 Milling equipment ,, 27,684,863 2,393,571 25,291,292 Loading and marine transport equipment ,, .. 1,775,000 162,708 1,612,292 Office equipment — .,.,, ..,,.-..-«___~-™ 324,684 82^85 242^099 Vehicles ,, ,, 65,965 19.790 46475 $31.952395 $2,923,813 129,028,582 In 2008, the Company sold several pieces of non-core equipment, generating gross proceeds of $683,912. The Company recorded a loss of 51,012,780 related to these sales. In November 2007, the Company sold certain assets and reserves to Covol Fuels No. 2, LLC (“Covol”) for $4,230,000 in cash. The- assets comprised a permit, lease, mobile equipment, a preparation plant and slurry reserves. As part of the agreement, the Company entered into a coal purchase and sale agreement to purchase the processed coal fines from Covol and a coal processing agreement to enable the Company to temporarily wash its coarse coal product at the preparation plant In addition to the Covol sale, the Company also sold non-core real estate for gross proceeds of $1,926,951, and other smaller, non-core assets such as mobile equipment during 2007. The Company incurred net losses of $1,810,138 related to the disposal of these assets in 2007. NOTE F—ASSET RETIREMENT OBLIGATIONS The Company estimates its ARO liabilities for fwal reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future cash spending for a third party to perform the required work. Spending estimates are escalated for Inflation and men discounted at me ovdaVaijusted risk-free rate, which ranged from 6.12% to 7.64% at December 31,2008 and 6,53% at December 31,2007. Total estimated undiscounted future cash spending related to the ARO liabilities totaled $5,142,000 at December 31,2008, with spending estimated to occur from 2009 to 2016. Total estimated undiscounted future cash, spending related to the ARO liabilities totaled $4,437,000 at December 31, 2007. The Company records an ARO asset associated with the discounted liability for final reclamation and mine closure. The obligation and corresponding asset are recognized in the period in which me liability is incurred. The ARO asset is amortized on the unite-of-production method over its expected life and the ARO liability is accreted to the projected spending date. As changes in estimates occur (such as mine plan revisions, changes in estimated costs or changes in timing of the performance of reclamation activities), the revisions to the obligation and asset am recognized at the appropriate credit-adjusted risk-free rate. The Company also recognizes an obligation fbr contemporaneous reclamation liabilities incurred as a result of surface mining. Contemporaneous reclamation consists primarih/ of grading, topsoil replacement, and revegetation of backfilled pit areas, A progression of the reclamation liability recorded on the consolidated balance sheet is as follows: JOCS 2097 Balance at beginning of year $3,757,353 $1,536,948 Liabilities acquired ,, — 1,131,000 821,000 Liabilities incurred ,, ,, ,,. 166,083 1,339,052 Accretion. ,, 189,132 60,353 Liabilities settled™ ~ — ___(919,568) — Total asset retirement obligations .,, 4,324,000 3,757,353 Less current portion ,,...- ,, ___1,958,000 1,667,000 $2,366,000 $2,090,353

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 NOTE G —DEBT Revolving Line-of-CredU Prior to July 2008, the Company had a S3.I million secured llne-of-credit agreement with a bank for working capital purposes. The line-of-credit was collateral ized by general business assets of the Company, including but not limited to equipment, accounts receivable and inventories. On July 7,2008, there was no balance owing on the line of credit facility when the Company terminated the line of credit The collateral has since been released. The line bore interest at the LIBOR rate phis 4% (8.60% at December 31,2007). There was no outstanding balance on the line-of-credit at December 31,2007. Preferred Shares In 2007, the Company conducted a preferred share offering. Preferred shares were issued in August 2007 and the proceeds used tor working capital and the reduction of outstanding debt The holders of preferred shares had the right to that number of votes equal to the number of shares burnable upon conversion of the preferred shares. Subject to the restrictions of any credit facility that may have been in effect, the preferred shares paid a 6.5% per annum cumulative dividend upon redemption or in common shares upon conversion. Additionally, holders of Series C common shares could exchange one common share for one preferred share for every preferred share purchased. Proceeds received and preferred shares issued m the third and fourth quarters of 2007 related to the preferred share offering, less related expenses, were as follows: Starts Per Stare Total Preferred shares , 36,207,600 Si 25 $45,259,500 Common shares converted to preferred shares ~. — 982,667 1,25 1,228,334 Issue costs ,,         ,.,,,...,,,,...,,,. (3,592,198) Totals as at December 31,2007 ™ 37,190,267 S 42,895,636 Preferred shares conld have been converted by the holder at any time to common shares based on a conversion formula incorporating the issue price of the preferred shares and subsequent values of common shares. The preferred shares would be converted automatically into common shares upon the closing of an underwritten public offering of common shares of the Company or if the holders of a majority of the preferred shares consented to the conversion into common shares. Additionally, subject to various restrictions and the automatic and voluntary conversion provisions noted, commencing one year after issuance of the preferred shares, the holder could request redemption of the preferred shares at ha issue price (SI .25 per share) plus any unpaid dividends. Due to the redemption features, OAAP required the preferred shares to be recorded as debt Costs related to the preferred offering were netted against the liability. The liability was being accreted to its face value using the effective interest rate method and the accretion recorded as interest expense. Dividends due on the preferred shares were also included in interest expense, which totaled $1,467,165 and $1,277,838 for the years ended December 31, 2008 and 2007, respectively. The net carrying value of the preferred shares, including accrued dividends of $1,277,838, was $45,635,369 at December 31,2007. On June 27, 2008, in conjunction with the RTO, the preferred shares and accrued preferred dividends were converted to common shares at the conversion price of $1.25 per share. The carrying value of the preferred shares prior to the conversion was reclassified to common equity. A summary of the conversion is as follows: CommoQ Shares Preferred shares issued 37,19(067 $46,487,833 Preferred shares offering costs net of accretion. ___(310,115) Preferred share dividends accrual - 2.196.003 2.745,004 Amounts reclassified to common shares 39,386 270 $48 922,722

 


 

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PHOENIX COAL INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Bridge Loan In November 2007, the Company entered into a loan agreement with a finance company, acting as administrative agent for a syndicate of lenders, for CdnS6,000,000. The note was coltateralfzed by, among other thugs, the assets of PACT, was scheduled to mature on October 31, 2008, and bore interest at 12%. Interest on the note was paid monthly. The principal amount of the loan could be converted, in whole or in part, by the lenders at the time of an initial public offering of securities of the Company, at a conversion price equal to 90% of the ottering price. The value of the note was adjusted to U.S. dollars based on current exchange rates, and any adjustments were charged or credited to the consolidated statement of operations, As consideration for the loan, the Company paid to the lenders a non-refundable $£00,000 bonus in the form of 480,000 common shares at a deemed price of $1.25 per share. The value of the outstanding loan was $5,526,785 net of unamorflzed loan fees as at December 31,2007. In May 2008, the Company modified its loan agreement with the finance company, acting as administrative agent for a syndicate of lenders, that initially loaned the Company Cdn$6,000,000 in November 2007. The Company borrowed an additional CdnS5,000,000 million (the “Additional Loan”). The net proceeds of the Additional Loan after fees and converting to VS. dollars was 34,877,000. The terms and conditions of the loan agreement were substantially the same except for the conversion price employed should the lenders exercise their right to convert the principal amount of the loan to common equity. The principal amount of the loan (including the initial loan, which was amended at the time of the Additional Loan) was convertible, in whole or in part, by the lenders at the rime of an initial public offering of securities of Phoenix or reverse takeover involving Phoenix (a “Going Public Transaction”) at a conversion price equal to 80% of the Going Public Transaction offering price. As consideration for the Additional Loan, the Company paid to the lenders a non-iefimdabie $510,204 bonus in the form of 408,163 common shares at adeemed issue price of 51.25 per share. On June 13, 2008, the Company and the finance company, on behalf of each of the lenders, entered into an agreement clarifying the terms of the loan agreement modified in May 2008 pursuant to which, provided that no event of default had occurred, (A) immediately prior to completion of the direct share exchange, expected to occur on or before June 30,2008, the principal amount of the loans would be fully converted into common shares of the Company at a conversion price of $1.25 per common share, such that upon conversion, the finance company {or its designees) would receive a number of common shares equal to CdnSl 1,000,000 divided by $125 (based on the Canadian dollar to United States dollar exchange rate at the time of the conversion), and (B) no adjustment to the number of bonus common shares issued in connection with the loans would be required. The agreement was conditional upon, among other things, the offering closing on or prior to July 2,2008. As a result of the modifications of the conversion terms of the November 2007 debt, pursuant to EI096, Accounting for the Early Extinguishment of Convertible Securities through Early Redemption or Repurchase and Induced Early Conversion, the Company distributed an estimated 499,000 additional common shares to the lenders related to the November 2007 debt of Cdn$6,000,000, since the conversion price decreased from 90% of the offering price to $1.25. As a result of the additional common shares distributed, the Company recorded a charge to accumulated deficit and an offsetting increase to share capital of $808,258. On June 23,2008, the finance com pany, on behalf of each of the lenders, elected to convert the entire principal amount of the loan into common shares of the Company. Based on a loan value of $10,835,000, and a conversion price of $1.25 per share, the Company issued 8,668,000 common shares to ihe lenders. The ban value of $10,835,000, less unamortized loan costs of $558,318, was credited to sharecaphal. The assets collateralizing the loan have been released,

 


 

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PHOEMXCOAHNC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 Long Term Debt Summary Long-term debt consists of tha following at December 31: zooa «07 Bank notes payable, interest at 7.25% to 8.90%. Payments are made in monthly installments. The loans are collateralized by various pieces of equipment and mature April 2010 $105,109 S — Equipment notes payable, interest at 5.25% to 8.75%. Payments are made in monthly installments. The loans are collateralized by related assets with a net book value of $26,773,902 as at December 31, 2008 and have maturity dates from May 2009 to December2012. ™ 21,068,681 9,687,113 Total long-term debt . 21,173,790 9,687,113 Less current portion..-, , , ... .. ,,.. 6,532,045 2,338,198 $14,641,745 $7,348,915 Expected maturities of notes payable based on years ending December 31 are as follows: 2009— $6,532,045 2010 . ,, ,,. 6,543338 2011 5.709,365 2012 ,, 2,389,042 $21,173,790 Interest Rate Swap and Other Debt In 2006, the Company entered into an interest rate swap transaction whereby the Interest payments on an original notional dollar amount of $7,000,000 converted to a fixed rate of 8.10% compared to a variable rate of LIBOR re-measured on a quarterly basis. The notional amount decreased over the life of tha swap agreement, which was due to expire in December 2011. The notional amount of the agreement was $5,483333 at December 31,2007. Under the agreement, the Company paid or received the net interest amount monthly, with the monthly settlements included in interest expense. In 2006, management designated the interest rate swap agreement as a cash flow hedging instrument, and determined the agreement met the requirements for hedge accounting under OAAP. In August 2007, the debt to which this swap was related was retired. As a result, the amount previously recorded in other comprehensive income was charged to interest expense in October 2007 and any future changes to the fair value of the swap either increased or decreased interest expense as the contract no longer qualified as an accounting hedge. On Jury 15, 2008, the Company paid $237,200 to terminate the swap. The fair value of the derivative was $224,696 at December 31,2007, and is included in accrued liabilities on the consolidated balance sheet on that date. In December 2006, the Company received a $500,000 advance as part of a bridge financing agreement associated with the Charolais acquisition completed in January 2007. The advance was repaid in January 2007 and reissued as part of the full bridge financing of $4,135,600 denominated in Canadian dollars (approximately $3.5 million in U.S. dollars). The loan was repaid in August of 2007 resulting m a foreign currency exchange loss of approximately $418,000. Interest Expense Included in interest expense for the years ended December 31,2008 and 2007 is $955,048 and S2£54,999, respectively, for interest on indebtedness initially incurred for a term of more titan one year. NOTE H — FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS The Company has exposure to credit risk, liquidity risk, interest rate risk, and foreign currency risk. The Company’s risk management objective is to protect earnings and cash flow and, ultimately, shareholder value. Risk management strategies,

 


 

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PHOENIX COAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 as discussed below, are designed and implemented to ensure the Company’s risks and the related exposure are consistent with the business objectives and risk tolerance. Credit Risk: Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a. financial instrument fails to meet its contractual obligation. The Company invests its cash and cash equivalents and short-term investments in a U.S. financial institution, which at December 31,2008, carried Standard and Poor’s investment ratings on their deposits of A to A-l. At December 31,2008, approximately 539,700,000 of the cash and cash equivalents balance was invested in a money market fund managed by mis financial institution. In January 2009, the Company reduced this money market balance to approximately $8,000,000, an amount that is guaranteed until April 30,2009 by the US, Treasury Department under the Temporary Guarantee Program for Money Market Funds. The Company has not experienced any losses on its deposits with this financial institution. The Company is also subject to credit risk from its trade accounts receivable. While economic factors can affect credit risk, the Company manages risk by providing credit terms on a case by case basis. Customers are primarily investment grade companies and quasi-governmental agencies. As a result, the Company has not experienced any instances of non-payment Subsequent to December 31,2008, the Company has collected all of its trade accounts receivable at December 31,2008. the Company also invests in short-term Investments issued by the United States government, such as Treasury bUIs and Treasury notes. Historically, these types of investments have been AAA rated, so the Company does not anticipate any risk related to default on these investments by the issuer. At December 31, 2008, the total fair value of assets subject to credit risk, including cash and cash equivalents (including restricted cash and investments], short-term investments, and trade accounts receivable totaled 155,108,371. Liquidity Rist Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity by ensuring mat there is sufficient capital to meet short and long-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash, cash equivalents and short-term investments. The Company also strives to maintain sufficient financial liquidity at all times in order to participate in investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances. Management forecasts cash flows for its current and subsequent fiscal years to predict future financing requirements. Future requirements are met through a combination of credit commitments and access to capital markets. At December 31,2008, the Company had $40.6 million of cash, cash equivalents, and short-term investments. The following are the maturities, excluding interest payments, reflecting undiscounfed future cash disbursements of the Company’s financial liabilities based on years ending December 31: 2009 2010 to 2011 2012 and later Trade accounts payable and accrued liabilities ,..,..,,-.» $6,470,390 Long-term debt 6,532,045 S 12,252,703 $2^89,042 Other long-term liabilities ; 241,372 241,371 $13,002,435 $12,494,075 $2,630,413 Interest Rate Risk Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s most significant interest rate risk arises from its investments in marketable securities and cash equivalents. However, the maturity on these Instruments is generally less than ninety days, thereby mitigating the exposure to the impact of changing interest rates.

 


 

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PHOENIX COAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2008 and 2007 The Company’s long-term debt consists of only fixed rate notes. The Company previously maintained a credit facility which bore variable interest rate based on LIBOR. This facility was retired on July 7,2008, The following represents the hypothetical annual future interest income that would be earned on the Company’s cash and cash equivalents (including restricted cash and investments) and short-term investments, and the effect of a 1% change in the interest rates on these investments. The calculation uses the interest rates realized on these assets at December 31* 2008 and the balances of the investments at December 31,2008. Armualized Income Earned Using: Interest rates in effect at December 31,2008™ ,, ,, S 834,200 Interest rates with a 1% decrease in rates.___,,,,.___™,,»» _ ___319,300 Interest rates with a 1% increase in rates .«,,... ... ,,.««.,,. — . 1,349,100 Currency Risk The Company’s functional currency is the U.S. dollar and the Company’s sales are denominated in U.S. dollars. As the Company operates m an international environment^ some of the Company’s financial instruments and transactions are denominated in currencies other than the U.S. dollar. The results of the Company’s operations are subject to currency transaction risk and currency translation risk. At December 31, 2008, the Company had no material financial instruments that were denominated in non U.S. currencies. Fair Values: At December 31,2008, the fair values of cash and cash equivalents (including restricted cash and investments), short-term investments, trade accounts receivable, and trade accounts payable and accrued liabilities approximated their carrying values because of die short-term nature of these instruments. The fair value of other long-term liabilities also approximated its carrying value. The fair value of the Company’s long term debt, calculated using die present value of the scheduled debt payments, and using a credit adjusted risk free rate of 6,75%, was $21,052^00 at December&n