IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION

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1 Document Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: ALPHA NATURAL RESOURCES, INC., et al., (Alex Energy, Inc., Case No ) (Boone East Development Company, Case No ) (Elk Run Coal Company, Inc., Case No ) (Independence Coal Company, Inc., Case No ) Chapter 11 Case No (KRH) Jointly Administered Debtors. OBJECTION OF HONEY ISLAND COAL CO., LLC, d/b/a/ FEDERAL COAL COMPANY, TO THE DEBTORS' OMNIBUS MOTION FOR ENTRY OF: (I) AN ORDER ESTABLISHING BIDDING AND SALE PROCEDURES FOR THE POTENTIAL SALE OF CERTAIN MINING PROPERTIES AND RELATED ASSETS; (II) ONE OR MORE ORDERS APPROVING THE SALE OF SUCH ASSETS; (III) AN ORDER APPROVING SETTLEMENTS RELATED TO UNENCUMBERED ASSETS AND THE PRE-PETITION LENDERS' DIMINUTION CLAIMS; AND (IV) AN ORDER APPROVING AMENDMENTS TO CERTAIN CASE MILESTONES IN CONNECTION WITH THE DIP CREDIT AGREEMENT Honey Island Coal Co., LLC, d/b/a/ Federal Coal Company ("Honey Island"), by Counsel, files this Objection to the Debtors' Omnibus Motion for Entry of: (I) an Order Establishing Bidding and Sale Procedures for the Potential Sale of Certain Mining Properties Christopher S. Smith - WV State Bar 3457 Nicola D. Smith - WV State Bar #11251 HOYER, HOYER & SMITH, PLLC 22 Capitol Street Charleston, West Virginia (304) ; (304) Fax Chris@hhsmlaw.com Nickyhhsmlaw@gmail.com Counsel for Honey Island Coal Co., LLC d/b/a/ Federal Coal Company Thomas M. Byrne Sutherland Asbill & Brennan LLP 999 Peachtree St NE #2300 Atlanta, GA tom.byrne@sutherland.com Mark D. Sherrill Sutherland Asbill & Brennan LLP th St. NW #700, Washington DC mark.sherrill@sutherland.com Counsel for Honey Island Coal Co., LLC d/b/a/ Federal Coal Company

2 Document Page 2 of 11 and Related Assets; (II) One or More Orders Approving the Sale of Such Assets; (III) an Order Approving Settlements Related to Unencumbered Assets and the Pre-petition Lenders' Diminution Claims; and (IV) an Order Approving Amendments to Certain Case Milestones in Connection with the Dip Credit Agreement (Doc 1464), and in support thereof, states as follows: 1. The Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. 157 and 1334, and venue in this Court is proper pursuant to 28 U.S.C and On August 3, 2015 (the "Petition Date"), the above-captioned Debtors (the "Debtors") filed in this Court voluntary Petitions for relief under Chapter 11 of the United States Bankruptcy Code, Case No Alex Energy, Inc., (Case No ), Boone East Development Company (Case No ), Elk Run Coal Company, Inc. (Case No ), and Independence Coal Company, Inc. (Case No ), are four of the above captioned Debtors in these jointly administered Bankruptcy cases. 3. The Debtors continue in possession of their property and in the operation and management of their businesses as Debtors-in-Possession pursuant to 11 U.S.C., 1107(a) and There is a lease between Honey Island and the Debtor, Alex Energy, Inc. (the "Alex Energy Lease"), shown by the following documents: A. LEASE, dated October 30, 2003, by and between Federal Coal Company, Inc., Lessor, and ALEX ENERGY, INC., Lessee. 2

3 Document Page 3 of 11 B. LETTER, dated August 30, 2011, to Karl Hamm, President, Federal Coal, from R. Freal Mize, Authorized agent for Alex Energy, Inc. on Alpha Natural Resources letterhead. 5. There is a lease between Honey Island and the Debtor, Boone East Development Company, (the "Boone East Lease"), shown by the following documents: A. INDENTURE OF LEASE, dated September 18, 1975, by and between Federal Coal Company, Lessor, and Robert E. Johnson and Samuel E. Fish, Lessors. B. INDENTURE OF SUBLEASE, dated September 18, 1975, by and between Robert E. Johnson and Samuel E. Fish, Sublessors, and Sandlick Coal Company, Sublessee. C. FIRST AMENDMENT OF INDENTURE OF LEASE, dated October 12, 1977, by and between Federal Coal Company, Lessor, and Robert E. Johnson and Samuel E. Fish, Lessee. D. LETTER, dated October 12, 1977 to Sandlick Coal Company from Robert E. Johnson and Samuel E. Fish. E. AMENDMENT OF SUBLEASE, dated May 23, 1980, by and between Marjorie Larch Johnson, Executrix of Robert Earley Johnson Estate, and Samuel Fish, Sublessors, Sandlick Coal Company, Sublessee, and Federal Coal Company, Lessor. F. THIS AGREEMENT OF FURTHER SUBLEASE, dated May 23, 1980, by and between Grantors (Sandlick), the Tenant (EKE), the Lessor (Federal) and the Sublessors (Johnson and Fish). 3

4 Document Page 4 of 11 G. ASSIGNMENT OF FURTHER SUBLEASE, dated June 29, 1987, by and between East Kentucky Energy Corporation, Tenant, Central West Virginia Energy Company, Assignee. H. LETTER, dated November 19, 2007, to Patricia Ayash, President, Federal Coal Company, Inc. from R. Freal Mize, President, Central West Virginia Energy Company ("Massey Energy") re: seams. I. ASSIGNMENT OF SUBLEASE, dated June 9, 2010, by and between the 1999 Patricia Ayash Testamentary Trust, BB&T, as Trustee to Christopher Mark Ayash, Aubrey York Ayash and William Henry Thomas Ayash, Assignees and Federal Coal. J. LETTER, dated November 22, 2013, notifying Federal Coal Company, Inc. that Central West Virginia will be merged with and into Boone East Development Company. 6. There is a lease between Honey Island and the Debtor, Elk Run Coal Company, Inc. (the "Elk Run Lease"), shown by the following documents: A. LEASE, dated November 29, 1990, by and between Federal Coal Company, Metallurgical Coal, Inc., Prenter Coal Company, Commerce Bank, Charleston, N.A. (formerly the National Bank of Commerce of Charleston, and successor to The Chemical Bank & Trust Co. of So. Charleston, West Virginia), Lessor, and Elk Run Coal Company, Inc., Lessee. B. AMENDMENT NO. 1 TO COAL LEASE, dated December 18, 1992, effective January 1, 1993, by and between Federal Coal Company, Metallurgical Coal, Inc., Prenter Coal Company, Commerce Bank, Charleston, N.A. (formerly the National Bank of 4

5 Document Page 5 of 11 Commerce of Charleston, and successor to The Chemical Bank & Trust Co. of So. Charleston, West Virginia), Lessor, and Elk Run Coal Company, Inc., Lessee. C. AMENDMENT NO. 2 TO COAL LEASE, dated May 31, 1995, effective June 1, 1995, by and between Federal Coal, Metallurgical Coal, Prenter Coal and Huntington National Bank West Virginia, Lessor(s), and Elk Run Coal Company. Also attached is a LETTER, dated June 1, 1995, to Paul M. DeFuria, President of Federal Coal, from R. Freal Mize, Vice President, Massey Coal Services, Inc. re Amendment No. 2 to Coal Lease. D. AMENDMENT NO. 3 TO COAL LEASE, dated February 1, 2000, effective January 1, 2000, by and between Federal Coal Company, Inc., Lessor, and Elk Run Coal Company, Lessee. E. PARTIAL RELEASE AND SURRENDER, dated February 3, 2000, by and among Peabody Coal Company, Lessee, and Federal Coal Company, Inc., Lessor. F. AMENDMENT NO. 4 TO COAL LEASE, dated January 1, 2003, by and between Federal Coal Company, Inc., Lessor, and Elk Run Coal Company, Inc., Lessee. G. AMENDMENT NO. 5 TO COAL LEASE, dated October 1, 2003, by and between Federal Coal Company, Inc., Lessor, and Elk Run Coal Company, Inc., Lessee. H. PARTIAL RELEASE AND SURRENDER, dated October 1, 2003, by and between Peabody Coal Company, Lessee, and Federal Coal Company, Lessor. I. AMENDMENT NO. 6 TO COAL LEASE, dated February 1, 2004, by and between Federal Coal Company, Lessor, and Elk Run Coal Company, Lessee. 5

6 Document Page 6 of 11 J. PARTIAL RELEASE AND SURRENDER, dated February 1, 2004, by and between Peabody Coal Company, Lessee, and Federal Coal Company, Lessor. K. AMENDMENT NO. 7 TO COAL LEASE, dated August 31, 2005, by and between Federal Coal Company, Lessor, and Elk Run Coal Company, Inc., Lessee. L. PARTIAL RELEASE AND SURRENDER, dated August 31, 2005, by and between Peabody Coal Company, Lessee, and Federal Coal Company, Lessor. M. AMENDMENT NO. 8 TO COAL LEASE, dated October 22, 2007, by and between Federal Coal Company, Lessor, and Elk Run Coal Company, Inc., Lessee. N. PARTIAL RELEASE AND SURRENDER, dated October 22, 2007, by and between Peabody Coal Company, Lessee, and Federal Coal Company, Lessor O. AMENDMENT NO. 9 TO COAL LEASE, dated June 27, 2008, by and between Federal Coal Company, Lessor, and Elk Run Coal Company, Inc., Lessee. P. PARTIAL RELEASE AND SURRENDER, dated June 27, 2008, by and between Heritage Coal Company, LLC (formerly Peabody Coal), Lessee, and Federal Coal Company, Lessor. Q. AMENDMENT NO. 10 TO COAL LEASE, dated September 22, 2010, by and between Federal Coal Company, Lessor, and Elk Run Coal Company, Inc., Lessee. 7. There is a lease between Honey Island and the Debtor, Independence Coal Company, Inc. (the "Independence Lease"), shown by the following documents: A. COAL LEASE AGREEMENT, dated September 10, 1999, by and between Federal Coal Company, Lessor, and Independence Coal Company, Inc. (subsidiary of Massey Coal), Lessee. 6

7 Document Page 7 of 11 B. PARTIAL RELEASE AND SURRENDER, dated September 10, 1999, by and between Peabody Coal Company, Lessee, and Federal Coal Company, Lessor. C. PARTIAL RELEASE AND SURRENDER, dated January 25, 2000, by and among Peabody Coal, Lessee, and Federal Coal Company, Lessor. D. AMENDMENT NO. 1 TO COAL LEASE AGREEMENT, dated October 1, 2003, by and between Federal Coal, Lessor, and Independence Coal, Lessee. E. PARTIAL RELEASE AND SURRENDER, dated February 1, 2004, by and between Peabody Coal, Lessee, and Federal Coal Company, Lessor. F. AMENDMENT NO. 2 TO COAL LEASE AGREEMENT, dated February 1, 2004, by and between Federal Coal, Lessor, and Independence Coal, Lessee. G. RIGHT OF ENTRY AGREEMENT, effective April 12, 2012, by and between Federal Coal Company and Independence Coal Company. 8. The Debtors' present Motion at page 43, proposes a settlement with the Debtors' Pre-Petition Lenders that is intended to recognize that all of the Debtors' assets are encumbered by Pre-Petition Senior Liens except those shown on Exhibit G to the Motion. Exhibit G, Schedule 3 on pages 1 and 39, shows the Independence Lease referenced in Paragraph 7, above, and the Alex Energy Lease referenced in Paragraph 4, above, as unencumbered. However, the Boone East and Elk Run Leases referenced in Paragraphs 5 and 6 above are not listed on Exhibit G, and are, therefore, presumably encumbered by the Pre-Petition Senior Liens. 9. All of the subject Honey Island leases contain an anti-assignment clause that prohibits an assignment, lien, or encumbrance on the leasehold without the Lessor's express 7

8 Document Page 8 of 11 consent. Honey Island is not aware that any such approval was ever granted. Nor is Honey Island aware that there is a Deed of Trust or other encumbrance upon any of the subject Leases. 10. Honey Island objects to the Debtors' Motion to the extent it seeks to confirm or grant lease encumbrances that historically do not exist and/or were never authorized. 11. The Debtors' present Motion at page 46, Paragraph 69, proposes to allow the Debtors' Lenders to choose to encumber some of the property interests on Schedule G of the Motion. ("As described above, the Pre-Petition Lenders are expressly granted the right to credit bid on account of their Diminution Claim, pursuant to the DIP Order. Id. 29(b); see also 48, 61, supra. Given the scope of the Senior Lender Adequate Protection Liens, this credit bid right would apply to the Unencumbered Assets"). As aforesaid, the Honey Island Leases have anti-assignment provisions. Therefore, Honey Island requests the opportunity to be heard on the enforceability of these provisions prior to permitting encumbrances upon its Leases to the extent described in the Motion. 12. The Debtors' Motion requests approval of sale procedures that will provide them with flexibility as they pursue a second auction process, but the procedures do not incorporate appropriate protections for non-debtor contract counterparties, such as the Lessor. A. First, the mine complexes listed on the Reserve Price Assets' Schedule attached to the Motion (docket item 1464, pp ) (the "Reserve Assets") and the Remaining Assets' Schedule attached to the Motion (docket item 1464, pp ) (the "Remaining Assets") (the "Reserve Assets and Remaining Assets" and, collectively, the "Assets") do not include enough detail for Honey Island to be able to identify whether its 8

9 Document Page 9 of 11 interests are being addressed by the Motion. If the Motion is proposing to auction off leases "by mine" as opposed to "by lessor" then the Motion is, in effect, seeking to auction only parts of Honey Island's Leases. Fourth Circuit case law on this issue is clear: If a lease is to be assumed and assigned, the whole lease must be assumed and assigned, including all of the related parcels of property, permits, and obligations due under the lease agreement. Shangra-La, Inc. v. Three Sisters Partner, L.L.C., 176 F.3d 843, 849 (4th Cir. 1999) (citing Adventure Resources, Inc. v. Holland, 137 F.3d 786, 798 (4th Cir.), cert. denied, 117 S. Ct. 404 (1998)) ("When the Debtor assumes its unexpired lease... it assumes it cum onere the debtor must accept the obligations of the executory contract along with the benefits."). If this sale process is not successful, the Debtors are precluded from dividing and rejecting portions of the Leases. B. Second, the lack of detail in the Debtors' description of the Assets for sale causes an additional concern for Honey Island. If the assets for sale cannot be identified, potential purchasers will not be able to understand clearly what assets are involved in this proposed sale process. This same format was used in the previously proposed auction of the Debtors' Prior Assets, and there was little interest generated in that sale process. There was so little interest that the auction was not held. A more detailed description of the Assets would be of assistance to the process as a whole. C. Finally, the listing of Assets with so little detail will cause difficulty for Honey Island during the inevitable process of objecting to the Debtors' proposed cures. The incorporation of additional information into the description of the Assets would be of great assistance to Honey Island's cure reconciliation process. Accurate cure objections will 9

10 Document Page 10 of 11 benefit the Debtors, the sale process, and potential purchasers of the Assets. 13. Honey Island hereby reserves the right to join in any objections to the Debtors' present Motion filed by other similarly situated parties. 14. Nothing in this Objection is intended to be, or should be construed as, a waiver by Honey Island of its rights under the Leases, the Bankruptcy Code, or applicable law. Honey Island expressly reserves all such rights, including, but not limited to, the right to (a) object to any proposed assumption or assumption and assignment of any of the subject Leases, (b) object to any cure amount or the adequacy of adequate assurance of future performance, and (c) assert any nonmonetary defaults under the subject Leases. WHEREFORE, Honey Island Coal Co., LLC d/b/a/ Federal Coal Company, respectfully Objects and requests that the Debtors' Motion be denied in its entirety, and also to the extent it provides for liens or encumbrances upon the aforesaid Honey Island Leases or that the unencumbered Leases be subject to credit bid, and Honey Island requests a hearing and such other and further relief as this Court deems just and proper. Honey Island Coal Co., LLC d/b/a/ Federal Coal Company By Counsel /s/ Mark D. Sherrill ` Mark D. Sherrill Sutherland Asbill & Brennan LLP th St. NW #700, Washington DC mark.sherrill@sutherland.com Counsel for Honey Island Coal Co., LLC d/b/a/ Federal Coal Company 10

11 Document Page 11 of 11 Thomas M. Byrne Sutherland Asbill & Brennan LLP 999 Peachtree St NE #2300 Atlanta, GA Counsel for Honey Island Coal Co., LLC d/b/a/ Federal Coal Company and Christopher S. Smith - WV State Bar 3457 Nicola D. Smith - WV State Bar #11251 HOYER, HOYER & SMITH, PLLC 22 Capitol Street Charleston, West Virginia (304) ; (304) Fax Chris@hhsmlaw.com Nickyhhsmlaw@gmail.com Counsel for Honey Island Coal Co., LLC d/b/a/ Federal Coal Company CERTIFICATE OF SERVICE I hereby certify that on February 19, 2016, a copy of the foregoing was served via electronic delivery and/or first class mail, postage prepaid on the parties required by Court's Order (I) Establishing Certain Notice, Case Management, and Administrative Procedures and (II) Granting Related Relief. /s/ Mark D. Sherrill Mark D. Sherrill 11