in the united states bankruptcy court for the … · support of the debtors’ voluntary petitions...

010-8968-6671/6/AMERICAS

IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF KENTUCKY

In re:

Hartshorne Holdings, LLC, et al.,

Debtors.1

) ) ) ) )

Chapter 11

Case No. 20-40133

(Joint Administration Requested)

DECLARATION OF DAVID GAY IN SUPPORT

OF CHAPTER 11 FILINGS AND FIRST DAY MOTIONS

I, David Gay, declare under penalty of perjury that the following is true and correct to the

best of my knowledge, information and belief:

1. I am the President and a manager of Hartshorne Holdings, LLC (“Hartshorne”),

Hartshorne Mining Group, LLC (“Hartshorne Group”), Hartshorne Mining, LLC (“Hartshorne

Mining”), and Hartshorne Land, LLC (“Hartshorne Land” and, collectively with Hartshorne,

Hartshorne Group and Hartshorne Mining, the “Debtors”). I am also the Executive Director of

Paringa Resources Limited (“Paringa”), a non-debtor company organized under the laws of

Australia and the Debtors’ ultimate parent. A chart detailing the Debtors’ corporate structure is

attached hereto as Exhibit A.

2. In my positions with the Debtors and Paringa, I have extensive familiarity with the

day-to-day operations, business affairs, and books and records of the Debtors. I am familiar with

the Debtors’ relationships with the lenders, lessors, trade vendors, and other parties necessary to

the Debtors’ business operations. I have also been intimately involved in the Debtors’ preparation

of these chapter 11 cases.

1 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Hartshorne Holdings, LLC (3948); Hartshorne Mining Group, LLC (0063); Hartshorne Mining, LLC (1941) and Hartshorne Land, LLC (5582). The Debtors’ headquarters are located at 373 Whobry Road, Rumsey, Kentucky 42371.

Case 20-40133-thf Doc 14 Filed 02/20/20 Entered 02/20/20 22:53:01 of 91Docket #14 Date Filed: 02/20/2020

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3. I submit this declaration (the “Declaration”) pursuant to 28 U.S.C. § 1746 in

support of the Debtors’ voluntary petitions under chapter 11 of title 11 of the United States Code

(the “Bankruptcy Code”) and “first day” motions and other applications filed contemporaneously

herewith (the “First Day Motions”). Except as otherwise indicated, the facts set forth in this

Declaration are based upon my personal knowledge, my review of the relevant documents, and/or

my opinion based upon personal knowledge and experience with the Debtors’ business and

financial condition. I have reviewed and am familiar with the Debtors’ First Day Motions. If

called upon to testify, I could and would testify competently to the facts set forth in this

Declaration.

4. This Declaration is comprised of four sections. Part I includes a description of the

Debtors and their business operations, Part II sets forth the relevant facts giving rise to these

chapter 11 cases, Part III provides detail on the Debtors’ prepetition capital structure, and Part IV

includes information and facts in support of the First Day Motions filed contemporaneously with

this Declaration.

THE DEBTORS AND THEIR OPERATIONS

I. Coal Mining Business

5. The Debtors are engaged in the production and sale of high quality thermal coal

through the operation of the Poplar Grove Mine, which is part of the Buck Creek Complex located

in the Illinois Coal Basin in Western Kentucky. The Buck Creek Complex includes two mines –

(i) the operating Poplar Grove Mine, and (ii) the permitted, but not constructed, Cypress Mine.

The projected production capacities of the Poplar Grove Mine and the Cypress Mine are 2.8 Mtpa

and 3.8 Mtpa, respectively.

6. As of February 20, 2020 (the “Petition Date”), the Debtors controlled 40,114 gross

acres (16,234 hectares) of reserves in Kentucky through 331 individual coal leases with private

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mineral owners. The Western Kentucky area is among the best mining jurisdictions in the United

States due to its proximity to utility companies and access to low cost power, transportation and a

non-union labor pool. Mining conditions at the Poplar Grove Mine are generally similar to those

encountered in neighboring mines, which rank as some of the most productive room-and-pillar

thermal coal operations in the United States.

7. A graphic showing the location of the Buck Creek Complex in relation to the Green

and Ohio Rivers, nearby coal-fired power plants and other operating coal properties is below.

8. The Debtors commenced mining at the Poplar Grove Mine in March 2019. The

first mining unit to come online consisted of two continuous mining machines. A second mining

unit began operations in July 2019. The second mining unit increased the number of continuous

mining machines in operation to four and resulted in more coal being mined per shift. Coal

produced from the Poplar Grove Mine is processed at an onsite coal handling and processing plant


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(the “CHPP”) and is shipped to end customers from the Debtors’ Ainsworth Dock on the Green

River located a few miles from the Poplar Grove Mine. The maiden shipment of coal departed the

Ainsworth dock on April 26, 2019.

9. The saleable coal products from the Poplar Grove Mine are designed to achieve a

product energy content of approximately 11,200-11,300 Btu/lb, per the Debtors’ coal sales

contracts, over the life of the mine. Since the Poplar Grove Mine’s initial operations, the saleable

coal produced has generally had an energy content significantly higher than 11,200-11,300 Btu/lb.

The Debtors have received a pricing premium for the sale of these tons of coal compared to coal

with a lower energy content.

10. A summary of the Debtors’ coal production and sales for the period ending on

December 31, 2019 is below:

POPLAR GROVE PRODUCTION SUMMARY2

Quarter ended Dec. 31, 2019

Quarter ended Sep. 30, 2019

Change Quarter / Quarter

6 months ended Dec. 31, 2019

Run of mine (“ROM”) production (kt) 345.9 287.7 +20% 633.6

Saleable coal production (kt)3 179.2 172.1 +4% 351.2

ROM inventory movement (kt) (1.1) 3.7 n/a n/a

ROM stockpiles (kt) 13.2 35.8 -63% 49.0

Saleable coal stockpiles (kt) 24.5 30.6 -20% 55.1

Saleable coal loaded (kt) 172.7 140.3 +23% 313.1

Realized sales per ton (US$) $41.17 $41.98 -2% $41.52

II. Coal Sales Contracts

11. The Debtors sell their finished coal primarily through two4 fixed-priced coal sales

contracts. The first, that certain Coal Supply Agreement (as has been amended, the “LG&E

Contract”),5 dated as of October 15, 2015, by and among Louisville Gas and Electric Company

2 Units of mass in US tons. 3 Coal processed by the CHPP. 4 The Debtors were previously party to a third coal supply agreement with Big Rivers Electric Corporation (“BREC”). Prior to the Petition Date, BREC elected to terminate the agreement due to the delayed delivery of the first coal called for by the contract. 5 The LG&E Contract was amended in May 2016 and October 2019.


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(“LG&E”), Kentucky Utilities Company (“KU”) and Hartshorne Group, is the cornerstone of the

Debtors’ business. Pursuant to the LG&E Contract, the Debtors agreed to supply LG&E and KU,

one of the largest fuel buyers in the Ohio River basin, with 4,750,000 tons of coal from 2018 to

2023.

12. The base price per ton specified by the LG&E Contract is above current spot prices

in the Illinois Basin and is economically advantageous for the Debtors. As is common with coal

supply agreements, the price per ton paid by LG&E and KU is subject to certain quality

adjustments. Importantly, since commencing operations, the coal supplied to LG&E and KU has

generally exceeded quality requirements corresponding to the applicable contractual base price

and resulted in the Debtors receiving a premium over the applicable base price per ton listed in the

LG&E Contract.

13. The debtors are also party to that certain Fuel Purchase Order (the “OVEC-IKEC

Contract”),6 dated as of August 31, 2018, by and between the Ohio Valley Electric Corporation

and the Indiana-Kentucky Electric Corporation (“OVEC-IKEC”) and Hartshorne Group. Pursuant

to the OVEC Contract, the Debtors agreed to sell 650,000 tons of coal to OVEC-IKEC. The

OVEC-IKEC Contract specifies a term of April 1, 2019 through December 31, 2020 and also

provides for an economically beneficial price per ton, subject to quality adjustments identified in

the OVEC-IKEC Contract.

14. Shipments to OVEC-IKEC to date have been used to complete the test burn period

at the Clifty Creek Generating Station. Official notification of a successful test has been received

from OVEC-IKEC.

6 The OVEC-IKEC Contract was modified via change orders signed in April 2019 and June 2019 (together, the “Change Orders”). The Change Orders reduced the quantity of coal required to be provided under the OVEC-IKEC Contract.


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EVENTS LEADING TO THESE CHAPTER 11 CASES

15. While the Debtors continue to believe in the Western Kentucky region and the high

quality coal produced from the Poplar Grove Mine, they have not been able to produce coal in the

volumes necessary to generate a positive cash flow and stave off a liquidity crisis that ultimately

necessitated the filing of these chapter 11 cases. The Debtors’ inability to meet production targets

is the result of (i) ongoing operational and technical issues, and (ii) the same regulatory and cost

pressures that have led to an industry-wide downturn among coal companies.

I. Ongoing Operational and Technical Issues

16. As noted above, the Debtors have faced a series of ongoing operational and

technical issues at the Poplar Grove Mine, including the following:

In 2018, prior to the beginning of mining operations, the installation of the Poplar Grove mine access and slope was delayed due to unexpected geological soil issues. This required a redesign of the slope and resubmission of plans to the Mine Safety and Health Administration (“MSHA”). Once approved, the construction proceeded more slowly than expected.

During the early stages of mining, the first unit encountered a paleochannel.7 The paleochannel was a sandstone displacement. Clearing the paleochannel required extensive drilling and blasting and delayed productive mining. The paleochannel also caused water ingress, which softened the mine roadways and slowed haulage.

In August, the second unit encountered a geological fault. While the fault was previously identified when preparing the mine plan, it was encountered in a different area than its expected location. This resulted in delays, diminished production and required that unit two ultimately be moved away from the geological fault.

The floor conditions of the Poplar Grove Mine have often been much softer than anticipated, which has slowed the movement of mine cars.

7 A paleochannel is a remnant of an inactive river or stream that has been filled or buried by younger sediment.


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The difficult floor conditions have also increased the frequency of battery changes required by the mine cars. Each car typically requires multiple battery changes per shift. This increases costs and delays the removal of coal from the mine.

The Debtors’ processing yields have been negatively impacted by out of seam dilution caused by several factors, including floor conditions and penetrating faults.

17. Given these issues, a funding gap developed and, in September 2019, the Debtors

and Paringa announced that they would undertake a financing. The financing consisted of a $5.6

million entitlement offering by Paringa (with the funds received flowing to the Debtors) and a $9

million royalty financing. The terms of the existing Prepetition Term Loan Agreement (as defined

below) were also amended at that time.

18. In the fourth quarter of 2019, the first mining unit encountered a geological fault

that was previously unidentified. The coal seam was displaced approximately twelve feet and the

decision was made to continue mining through the fault and up into the coal seam beyond it. Coal

production was significantly impacted due to cutting rock, mining through the faulted area, and

bolting through the associated adverse conditions. Processing yields were also negatively

impacted by the additional rock generated while mining through the fault.

19. In November 2019, Paringa retained Perella Weinberg Partners LP (“PWP”) to

investigate a potential going concern sale of the business, the sale of an equity stake in Paringa

and/or the sale of the Cypress Mine project. The process being pursued by PWP was ultimately

put on hold when it became clear that the Debtors had a significant liquidity problem.

II. Coal Industry Downturn

20. In addition to operational and technical issues encountered at the Poplar Grove

Mine, the Debtors’ business has been impacted by many of the same issues impacting the coal

industry as a whole. Dating back to 2012, the coal industry has been under intense pressure driven


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by a combination of declining commodity prices, reduced domestic demand for both thermal and

metallurgical coal, and increased oversight and costs associated with regulatory compliance. As a

result, the industry as a whole has been operating in a generally higher cost environment than prior

periods.

21. A combination of an abundant, cheap and reliable alternative fuel in the form of

natural gas, increased usage of renewable sources of energy, and the shutting down of coal fired

power generation largely due to increased regulatory pressure and costs has severely impacted

demand for thermal coal domestically. Thermal coal demand in the domestic electric power sector

has declined from 935 million tons in 2011 to 636 million tons in 2018 and coal has seen its share

of the domestic electricity generation market reduce from 43% in 2011 to 31% in 2017.

22. In this period of declining demand, increased federal and state regulatory scrutiny

has significantly increased the overall industry cost of compliance. Changes to regulations

surrounding health and safety, permitting and licensing requirements, environmental protection

and the reclamation and restoration of mining properties along with increased enforcement of

existing laws has had a significant impact, reducing mine productivity and increasing the cost of

maintaining compliance.

23. The impact of the macro and regulatory environment is not isolated to the Debtors

performance. The entire U.S. coal mining complex has been impacted by these events. A growing

number of peers have filed for bankruptcy over the course of the past five plus years. The entire


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industry either has gone through, or is currently going through, a period of financial distress and

reorganization.

III. The Debtors’ Prepetition Efforts and the Potential Conversion to Care and Maintenance

24. After it became clear the Debtors were facing liquidity challenges, FTI Consulting,

Inc. (“FTI”) was engaged in late-December 2019 to analyze the Debtors’ financial condition and

make recommendations regarding a path forward. Squire Patton Boggs (US) LLP (“Squire”) was

retained as restructuring counsel in mid-January 2020 and PWP was re-engaged shortly thereafter.

The Debtors and their advisors immediately commenced discussions with the agent for the senior

secured lender, Tribeca Global Resources Credit Pty Ltd (“Tribeca”), regarding a consensual path

forward.

25. Tribeca indicated that it was unwilling to continue funding the Debtors’ regular

operations outside of chapter 11 case and the commencement of a sale process. Given the lack of

viable alternatives, the Debtors, in an exercise of their reasonable business judgment, determined

that the best means of maximizing value was to commence these chapter 11 cases and seek to sell

substantially all of their assets pursuant to section 363 of the Bankruptcy Code. In connection with

reaching an agreement with Tribeca and certain funds it manages regarding debtor-in-possession

financing and discussing the chapter 11 process in general, the Debtors will continue to operate

the Poplar Grove mine in accordance with the budget (attached to the Debtors’ motion for authority

to obtain debtor-in-possession financing), provided that Tribeca, in consultation with the Chief

Restructuring Officer, has the right after the first two weeks in chapter 11 to require the Debtors

to shift to care and maintenance.


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THE DEBTORS’ CAPITAL STRUCTURE

I. The Debtors’ Prepetition Secured Debt

A. The Tribeca Term Loan Facility

26. Tribeca is the agent and a lender under that certain Term Facility Agreement, dated

as of April 24, 2019 (as amended on November 19, 2019 and as may otherwise be amended,

supplemented or otherwise modified, the “Prepetition Term Loan Agreement”), by and among

Hartshorne Group, as borrower, non-debtors Paringa, Hartshorne Coal Mining Pty Ltd and HCM

Resources Pty Ltd (“HCM Resources”), and Debtors Hartshorne Holdings, Hartshorne Land and

Hartshorne Mining, as guarantors, Tribeca, as agent, and Global Loan Agency Services Australia

Nominees Pty Ltd, as security trustee (the “Security Trustee”).

27. Pursuant to the Prepetition Term Loan Agreement, Tribeca provided Hartshorne

Group a term loan of up to $56 million, split into tranches of $40 million and $16 million, for the

purposes of (a) refinancing the Debtors’ previous facility with Macquarie Bank Limited, and (b)

providing working capital for operations and general corporate obligations of the mine project sites

at the Buck Creek Complex.

28. The Prepetition Term Loan Agreement was amended on November 19, 2019 to

reduce the size of the second tranche to $10 million. Other operative terms of the Prepetition Term

Loan Agreement, as amended, include (i) a floating interest rate consisting of the U.S. Prime Rate

(subject to a floor of 5.5% per annum) plus a margin of 7.5% per annum (temporarily increased to

9.5% per annum until two consecutive quarters generate EBITDA of no less than $4 million), (ii)

a three year term, and (iii) a maturity date of April 30, 2022. As of February 15, 2020, the first

tranche of $40 million was fully drawn and the outstanding balance was $42,649,130.02.


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29. The Prepetition Term Loan Agreement required each Debtor to execute a pledge

and security agreement in respect of personal property collateral and to grant the Security Trustee

a leasehold mortgage and fixture filing in real property collateral, fixtures, and as-extracted coal

collateral. On April 30, 2019, the Security Trustee, the Debtors and certain non-debtor affiliates

executed that certain Pledge and Security Agreement (the “Security Agreement”), which granted

the Security Trustee liens on substantially all of the assets of the Debtors and HCM Resources (as

further detailed in paragraph 3 thereof) (the “Prepetition Collateral”), including second liens on

Komatsu Financial’s (as defined below) collateral. Pursuant to Paragraph 10(d) of the Security

Agreement, the Security Trustee was authorized to file any and all necessary financing statements.

On May 1, 2019, the Security Trustee filed financing statements related to the Prepetition

Collateral for each of the Debtors.

30. In connection with the Prepetition Term Loan Agreement, Hartshorne Land granted

the Security Trustee the following:

(a) Mortgage, Leasehold Mortgage, Fixture Filing, As-Extracted Collateral Filing and Assignment of Leases and Rents dated as of April 30, 2019, in favor of the Prepetition Security Trustee, of record in Mortgage Book 207, Page 649 and Fixture Filing Book 4, Page 443, in the McLean County Clerk’s office.

(b) Mortgage, Leasehold Mortgage, Fixture Filing, As-Extracted Collateral Filing and Assignment of Rents dated as of November 14, 2019, of record in Mortgage Book 210, Page 618 and Fixture Filing Book 4, Page 573 of the McLean County Clerk’s office.

(c) Mortgage, Leasehold Mortgage, Fixture Filing, As-Extracted Collateral Filing and Assignment of Rents dated as of November 14, 2019, of record in Mortgage Book 210, Page 583 of the McLean County Clerk’s office and Fixture Filing Book 4, page 550 of the McLean County Clerk’s office.

(d) Mortgage, Leasehold Mortgage, Fixture Filing, As-Extracted Collateral Filing and Assignment of Rents dated as of April 30, 2019, of record in Mortgage Book 1241, Page 129, Fixture Filing Book 12, Page 175, and Fixture Filing Book 12, Page 205 of the Hopkins County Clerk’s office.


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(e) Mortgage, Leasehold Mortgage, Fixture Filing, As-Extracted Collateral Filing and Assignment of Rents dated as of November 14, 2020, of record in Mortgage Book 1256, Page 222, Fixture Filing Book 12, Page 333, and Fixture Filing Book 12, Page 357 of the Hopkins County Clerk’s office.

(collectively, the “Prepetition Mortgages”).

31. Furthermore, in connection with the Prepetition Term Loan Agreement, the

Security Trustee, as the secured party, and non-debtors Paringa, Hartshorne Coal Mining Pty Ltd

(“Hartshorne Australia”) and HCM Resources, as grantors (collectively, the “Non-Debtor

Grantors”), executed that certain General Security Agreement, dated as of April 24, 2019 (the

“GSA”). Pursuant to the GSA, the Non-Debtor Grantors granted the Security Trustee a security

interest in substantially all of their current and future real and personal property, including all

membership units in Hartshorne Holdings.

32. The Debtors deferred payment of the December 31, 2019 quarterly interest and fees

due under the Prepetition Term Loan Agreement, which totaled approximately $1.5 million. This

deferral triggered an event of default (the “Event of Default”), which gives Tribeca the right to

accelerate the Prepetition Term Loan Agreement and demand payment in full of the facility.

Tribeca has issued a letter to the Debtors and the various non-debtor guarantors notifying them of

the existence of the Event of Default and reserving its rights. To date, no other action has been

taken and no party has sought to exercise remedies on account of the Event of Default.

B. Tribeca Royalty Interest

33. Six days after amending the Prepetition Term Loan Agreement, on November 25,

2019, Hartshorne Land, as grantor, and Hartshorne Group, as parent, executed that certain

Assignment and Conveyance of Royalty Interest (the “Royalty Agreement”) with an affiliate of

the lenders under the Prepetition Term Loan Agreement, SP2 Royalty Co., LLC (“SP2”), as

grantee.


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34. The Royalty Agreement granted SP2 a real property interest equal to a 2% royalty

interest of gross revenues of sales of the Subject Coal (as defined in the Royalty Agreement),

which is to be paid in perpetuity by Hartshorne Land for so as long as it is permitted to mine the

Subject Coal from the Subject Properties (as defined in the Royalty Agreement). In exchange for

this interest, SP2 paid Hartshorne Land $9 million in immediately available funds.

35. In consideration for arranging the Royalty Agreement, Hartshorne Group also

entered that certain Royalty Fee Letter, dated as of November 19, 2019 (the “Royalty Fee Letter”).

The Royalty Fee Letter required Hartshorne Group to pay Tribeca a royalty fee equal to $270,000

(for distribution to Tribeca and SP2) upon receipt of the $9 million payment provided for by the

Royalty Agreement; $20,000 of which remains unpaid.

C. Komatsu Equipment Sales and Financing Agreement

36. Hartshorne Mining and Komatsu Financial Limited Partnership (“Komatsu

Financial”) are parties to two equipment financing letter agreements, dated as of May 11, 2018

and August 31, 2018, respectively (the “Komatsu Letter Agreements”). The Komatsu Letter

Agreements also include an Equipment Refinancing and Security Agreement and a Security

Agreement-Conditional Sales Contract (collectively with the Komatsu Letter Agreements, the

“Equipment Sales and Financing Agreements”).

37. The Equipment Sales and Financing Agreements provided financing of up to $26.5

million to Hartshorne Mining for the purchase of mining equipment from Komatsu Mining Corp.

(“Komatsu”) and other suppliers. Pursuant to the Equipment Sales and Financing Agreements, the

Debtors executed approximately 32 contracts to purchase various mining equipment necessary to

operate the Poplar Grove Mine. Komatsu Financial has since filed financing statements to perfect

its interests in the subject mining equipment. As of January 31, 2020, the Debtors owed


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approximately $25.8 million to Komatsu Financial pursuant to the Equipment Sales and Financing

Agreements.

D. Letter of Credit Agreements

38. The Debtors have also executed three letter of credit agreements (collectively, the

“LOCs”) with their primary banking institution, Old National Bank (“Old National”). Two of the

LOCs, issued in the amounts of $36,797 and $88,000, respectively, are held for the benefit of the

Debtors’ utility provider at the Poplar Grove Mine site, Kenergy Corporation (“Kenergy”). The

first LOC guarantees payment of the Debtors’ utility obligations. The second LOC was issued as

a prerequisite to Kenergy constructing the electric service equipment (e.g., lines, transmitters, etc.)

at the Poplar Grove Mine. The third LOC is in the amount of $38,248 and serves as the security

deposit for Paringa’s former office location at 28 West 44th Street, Suite 810, New York, New

York 10036.8 Each of the LOCs is fully collateralized with cash. As of the Petition Date, no

amount had been drawn on any of the LOCs.

II. The Debtors’ Prepetition Unsecured Debt

A. Unsecured Trade Debt

39. In the ordinary course of their business, the Debtors purchase or lease mining

equipment and processing supplies and use other services and goods from numerous vendors.

Also, materials to keep the mining and processing machinery running, such as oil, grease, lube,

other equipment parts and hoses are purchased for the maintenance of the equipment. The Debtors

have substantial costs associated with the day-to-day operation of the Poplar Grove Mine as well

as costs which are less common, but are still incurred throughout the year. As of January 31, 2020,

the Debtors estimate that they owe approximately $7.3 million in unsecured trade debt.

8 The Debtors are now subleasing this office to an unrelated third party. Because the underlying lease remains in place, however, the Debtors have been unable to terminate this LOC.


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III. The Debtors’ Prepetition Equity Ownership.

40. As noted above, Paringa is the ultimate parent of the Debtors. Paringa owns a 100%

interest in Hartshorne Australia, which owns a 100% interest in HCM Resources. HCM Resources

owns 100% of the membership units of Debtor Hartshorne Holdings. Hartshorne Holdings owns

100% of the membership interests in each of the remaining Debtors. Paringa was previously traded

on the Australian Stock Exchange and also on the NASDAQ as an American Depository Receipt

(“ADR”) under the ticker symbol “PNRL.” On December 23, 2019, Paringa announced that its

securities would be placed in trading halt. As of the Petition Date, Paringa’s ADRs are not being

traded on the NASDAQ and trading of its securities remains suspended on the Australian Stock

Exchange.

FIRST DAY MOTIONS9

41. Concurrently with the filing of the chapter 11 cases, the Debtors filed the First Day

Motions requesting various forms of relief. Generally, the First Day Motions have been

designated to meet the goals of: (a) preserving and protecting the Debtors’ chapter 11 estates,

including by paying certain claims of employees, essential suppliers, lienholders and vendors;

(b) obtaining necessary debtor in possession financing to provide the Debtors’ estates with

sufficient liquidity to operate; and (c) establishing procedures for the smooth and efficient

functioning of the Debtors’ estates. I believe that the relief sought in each of the First Day Motions

is tailored to meet the goals described above and, ultimately, will be critical to the Debtors’ ability

to reorganize successfully.

9 Capitalized terms used but not otherwise defined in this section of the Declaration shall have the meaning ascribed in the applicable First Day Motion.


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I. Motion for an Order Directing the Joint Administration of Chapter 11 Cases (the “Joint Administration Motion”)

42. By the Joint Administration Motion, the Debtors seek entry of an order directing

(a) the consolidation and joint administration of these chapter 11 cases for procedural purposes

only pursuant to Bankruptcy Rule 1015(b); (b) the use of a single case docket and Bankruptcy

Rule 2002 notice list in these cases; (c) the use of a consolidated case caption; and (d) the use of a

consolidated list of Top 30 Unsecured Creditors.

43. I understand from counsel that Bankruptcy Rule 1015(b) provides, inter alia, that

the court may order a joint administration of estates where, as here, two or more petitions are

pending in the same court by a debtor and an affiliate. Fed. R. Bankr. P. 1015(b). Debtors

Hartshorne Mining and Hartshorne Land are wholly-owned subsidiaries of debtor Hartshorne

Group, which, in turn, is wholly-owned by debtor Hartshorne Holdings. I believe the Debtors are

therefore “affiliates” as defined in section 101(2) of the Bankruptcy Code.

44. I believe joint administration will benefit greatly the Debtors, the Court, the Office

of the Clerk, the Office of the United States Trustee for Region 8 (the “U.S. Trustee”), and all

other interested parties. Many of the motions, applications, notices, orders, and other documents

that will be filed and entered in these chapter 11 cases will relate to, and affect, all of the Debtors

collectively. Using a single, general case docket will relieve all parties—including the Court—of

the burden and related expense of filing and entering duplicative documents in each of these

chapter 11 cases and monitoring multiple dockets to stay apprised of developments in these cases

before the Court.

45. I believe the Debtors will also realize substantial cost savings and reduced

administrative burdens by sending a single set of notices to a single creditor matrix and Bankruptcy

Rule 2002 list, as opposed to utilizing multiple sets of notices to multiple notice lists. Joint


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administration will simplify all aspects of the administration of the above-captioned cases and

result in substantial cost savings to the Debtors and other parties in interest.

46. The Debtors further request that the Court approve and require for use on all

documents filed and entered in the jointly administered cases the following consolidated case

caption:

IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF KENTUCKY

In re:

Hartshorne Holdings, LLC, et al.,

Debtors.1

) ) ) ) )

Chapter 11

Case No. 20-40133

(Joint Administration Requested)

1 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Hartshorne Holdings, LLC (3948); Hartshorne Mining Group, LLC (0063); Hartshorne Mining, LLC (1941); and Hartshorne Land, LLC (5582). The Debtors’ headquarters are located at 373 Whobry Road, Rumsey, Kentucky 42371.

46. I believe the consolidated caption will relieve parties from including each of the

Debtors’ names, tax identification numbers, and individual case numbers on all documents they

file in the cases. This will further simplify administration of the cases, help prevent confusion,

and conserve resources.

47. Furthermore, I do not believe the rights of creditors and other interested parties will

not be prejudiced or otherwise affected in any way by the entry of an order directing the joint

administration of these chapter 11 cases because this is not a motion for substantive consolidation

of the Debtors’ estates. An order of joint administration relates solely to the routine procedural

administration of a case. Accordingly, I believe that the relief requested in the Joint Administration


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Motion is reasonable and appropriate under the circumstances and in the best interests of their

estates.

II. Debtors’ Motion for An Order Authorizing the Debtors to (A) File a Consolidated List of Creditors in lieu of Submitting a Separate Mailing Matrix for Each Debtor and (B) Redact Certain Personally Identifiable Information for the Debtors’ Employees (the “Creditor Matrix Motion”)

48. Pursuant to the Creditor Matrix Motion, the Debtors are seeking entry of an order

authorizing them to (a) file a consolidated list of creditors in lieu of submitting separate mailing

matrices for each Debtor (the “Creditor Matrix”) and (b) redact certain personally identifiable

information for the Debtors’ employees.

49. I understand from counsel that section 521(a) of the Bankruptcy Code, Bankruptcy

Rule 1007(a)(1), and Local Rule 1007-1(a) require a debtor in a voluntary chapter 11 case to file

a list containing the name and complete address of each creditor. In addition, I understand that

Bankruptcy Rule 1007(d) requires a debtor to file a list containing the name, address, and claim of

the creditors holding the twenty largest unsecured claims against the debtor. I believe that

permitting the Debtors to maintain the consolidated Creditor Matrix in electronic format only, in

lieu of filing a mailing matrix, is warranted under the circumstances of these chapter 11 cases.

Further, because certain of the Debtors share many creditors and the Debtors operate as a single

business enterprise, the Debtors are requesting authority to file a single, consolidated list of their

30 largest general unsecured creditors.

50. There are four Debtors and hundreds of estimated potential creditors and parties in

interest (on a consolidated basis) in these chapter 11 cases. Converting the Debtors’ computerized

information to a format compatible with the matrix requirements would be a burdensome task and

would greatly increase the risk of error with respect to information already on computer systems

maintained by the Debtors or their agents. I therefore believe that that permitting the Debtors to


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maintain a single consolidated list of creditors in lieu of filing a separate creditor matrix will benefit

the Debtors and their estates by allowing the Debtors to more efficiently provide required notices

to parties in interest and reduce the potential for duplicate mailings. Indeed, many of the Debtors’

creditors overlap and thus, to the extent that the Debtors are required to maintain separate mailing

matrices, a substantial number of parties likely would receive multiple copies of the same notice.

Accordingly, I believe that the proposed maintenance of the electronic list of creditors, rather than

preparing and filing separate creditor matrices for each Debtor, will not only maximize efficiency

and accuracy, but also reduce costs, and is consistent with applicable Local Rules.

51. Compiling separate top 20 creditor lists for each individual Debtor would consume

an inordinate amount of the Debtors’ time and resources. As noted above, the Debtors operate as

a single business enterprise and have hundreds of overlapping creditors, including creditors on

each of their top 20 lists. Further, a consolidated list of the Debtors’ 30 largest unsecured, non-

insider creditors will aid the U.S. Trustee in its efforts to communicate with these creditors. As

such, I believe that filing a single consolidated list of the 30 largest unsecured creditors in these

chapter 11 cases is appropriate.

52. The Debtors are also requesting that the Court authorize the Debtors to redact the

addresses of the employees from the Creditor Matrix and any other documents filed in these

chapter 11 cases. Although transparency is important to the bankruptcy process, with nearly 200

employees, the Debtors cannot reasonably know with sufficient certainty whether a release of their

personal information could potentially jeopardize their privacy or safety. In these circumstances,

the Debtors believe it is appropriate to authorize them to redact from any documents filed or to be

filed with the Court in these chapter 11 cases, including the Creditor Matrix, the home addresses

of the Debtors’ employees. Such information could be used, among other things, to perpetrate


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identity theft or locate survivors of domestic violence or stalking who have otherwise taken steps

to conceal their whereabouts.

53. To ameliorate any concerns, the Debtors would provide an unredacted version of

the Creditor Matrix and any other applicable filings to the Court, the U.S. Trustee and counsel to

any statutory committee appointed in these chapter 11 cases, which will ensure that certain parties

receive fully unredacted information while balancing the Debtors’ concerns about safeguarding

their employees’ safety and privacy.

54. Accordingly, for all the foregoing reasons, I believe that the relief requested in the

Creditor Matrix Motion is reasonable and appropriate under the circumstances and in the best

interests of the Debtors and their estates.

III. Debtors’ Motion for an Order (A) Extending the time to File Schedules of Assets and Liabilities, Schedules of Current Income and Expenditures, Schedules of Executory Contracts and Unexpired Leases and Statements of Financial Affairs, and (B) Excusing the Debtors from Filing Rule 2015.3 Financial Reports (the “Schedules and Statements Motion”)

55. By the Schedules and Statements Motion, the Debtors seek entry of an order (a)

authorizing an extension of time in which to file their schedules of assets and liabilities, schedules

of current income and expenditures, schedules of executory contracts and unexpired leases, and

statements of financial affairs (collectively, the “Schedules and Statements”) by 36 days, for a total

of 50 days from the Petition Date (as defined below), without prejudice to the Debtors’ ability to

request additional extensions for cause shown and (b) excusing the Debtors from filing Bankruptcy

Rule 2015.3 reports (the “2015.3 Reports”).

56. I understand from counsel that, absent the relief requested in the Schedules and

Statements Motion, the Debtors must file the Schedules and Statements within 14 days of the

Petition Date. I believe that ample cause exists to grant the relief requested. To prepare their

Schedules and Statements, the Debtors and their advisors will have to compile information from


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books, records, and documents relating to a myriad of claims, assets and contracts for four Debtor

entities. Collection of the necessary information will require a significant expenditure of time and

effort on the part of the Debtors and their employees. Additionally, because numerous invoices

related to prepetition goods and services have not yet been received and entered into the Debtors’

accounting system, it may be some time before the Debtors have access to all of the information

required to prepare the Schedules and Statements.

57. The Debtors’ business operations have a certain level of complexity, and preparing

the Schedules and Statements accurately and in appropriate detail will require significant attention

from the Debtors’ personnel and advisors. Engaging in such preparation immediately before or

after the commencement of these chapter 11 cases would distract such personnel and advisors from

the Debtors’ business operations at a critical juncture. Specifically, in the days leading up to the

Petition Date, the Debtors’ primary focus has been preparing for these chapter 11 cases, including

securing financing to operate their business postpetition, and thus the Debtors’ management and

professionals were not in a position to complete the Schedules and Statements as of the Petition

Date. Focusing the attention of key personnel and advisors on critical operational and chapter 11

compliance issues during the early days of these chapter 11 cases likewise will facilitate the

Debtors’ smooth transition into chapter 11, thereby maximizing value for their estates, their

creditors and other parties in interest.

58. Given the substantial burdens already imposed on the Debtors’ management by the

commencement of these chapter 11 cases, the competing demands upon the Debtors’ employees

to collect information and the time and attention the Debtors must devote to the restructuring

process, I believe that good cause exists to extend the current deadline by 36 days, until 50 days

after the Petition Date. The requested extension will enhance the accuracy of the Statements and


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Schedules when filed and help avoid the potential necessity of substantial subsequent amendments.

The Debtors request such an extension without prejudice to their rights to seek further extensions

or waivers from the Court. Moreover, an extension will not harm creditors or other parties in

interest because, even under the extended deadline, the Debtors will file the Schedules and

Statements in advance of any deadline for filing proofs of claim in these chapter 11 cases.

59. The Debtors are also requesting entry of an order by this Court excusing the Debtors

from filing the 2015.3 Reports. The Debtors do not have a substantial or controlling interest in

any entity that is not a publicly traded corporation and not a debtor in these chapter 11 cases. In

fact, the Debtors do not have a substantial or controlling interest in any non-debtor entity.

Accordingly, after consultation with counsel, I believe that the Debtors are not required to file the

2015.3 Reports. However, the Debtors are requesting this relief confirming as much out of an

abundance of caution.

60. For all the foregoing reasons, I believe that the relief requested in the Schedules

and Statements Motion is reasonable and appropriate under the circumstances and in the best

interests of the Debtors and their estates.

IV. Debtors’ Application Seeking Entry of an Order (A) Authorizing and Approving the Appointment of Stretto as Claims and Noticing Agent and (B) Granting Related Relief (the “Stretto Retention Application”)

61. Pursuant to the Stretto Retention Application, the Debtors are requesting entry of

an order (a) appointing Stretto (“Stretto”)10 as claims and noticing agent (the “Claims and Noticing

Agent”) for the Debtors in their chapter 11 cases effective nunc pro tunc to the Petition Date,

including assuming full responsibility for the distribution of notices and the maintenance,

10 Stretto is the trade name of Bankruptcy Management Solutions, Inc., and its subsidiaries.


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processing and docketing of proofs of claim filed in the Debtors’ chapter 11 cases, and (b) granting

related relief.

A. Stretto’s Qualifications

62. I understand that Stretto is a chapter 11 administrator comprised of leading industry

professionals with significant experience in both the legal and administrative aspects of large,

complex chapter 11 cases. Stretto’s professionals have experience in noticing, claims

administration, solicitation, balloting and facilitating other administrative aspects of chapter 11

cases and experience in matters of this size and complexity. Stretto’s professionals have acted as

debtor’s counsel or official claims and noticing agent in many large bankruptcy cases in districts

nationwide. Stretto has developed efficient and cost-effective methods to handle the voluminous

mailings associated with the noticing and claims processing portions of chapter 11 cases to ensure

the efficient, orderly and fair treatment of creditors, equity security holders and all parties in

interest.

63. By appointing Stretto as the Claims and Noticing Agent in these chapter 11 cases,

I believe the distribution of notices and the processing of claims will be expedited, and the Office

of the Clerk of the Court (the “Clerk’s Office”) will be relieved of the administrative burden of

processing what may be an overwhelming number of claims.

B. Services to be Provided

64. I understand that the Stretto Retention Application pertains only to the work to be

performed by Stretto under the Clerk’s Office’s delegation of duties permitted by 28 U.S.C. §

156(c), and any work to be performed by Stretto outside of this scope is not covered by this

Application or by any order granting approval hereof. Specifically, Stretto will perform the


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following tasks in its role as Claims and Noticing Agent, as well as all quality control relating

thereto:

a) prepare and serve required notices and documents in these chapter 11 cases in accordance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) in the form and manner directed by the Debtors and/or the Court, including (i) notice of the commencement of these chapter 11 cases and the initial meeting of creditors under Bankruptcy Code § 341(a), (ii) notice of any claims bar date, (iii) notices of transfers of claims, (iv) notices of objections to claims and objections to transfers of claims, (v) notices of any hearings on a disclosure statement and confirmation of the Debtors’ plan or plans of reorganization, including under Bankruptcy Rule 3017(d), (vi) notice of the effective date of any plan and (vii) all other notices, orders, pleadings, publications and other documents as the Debtors or Court may deem necessary or appropriate for an orderly administration of these chapter 11 cases;

b) maintain an official copy of the Debtors’ schedules of assets and liabilities and statements of financial affairs (collectively, the “Schedules”), listing the Debtors’ known creditors and the amounts owed thereto;

c) maintain (i) a list of all potential creditors, equity holders, and other parties-in-interest and (ii) a “core” mailing list consisting of all parties described in Bankruptcy Rule 2002(i), (j) and (k) and those parties that have filed a notice of appearance pursuant to Bankruptcy Rule 9010; update and make said lists available upon request by a party-in-interest or the Clerk;

d) furnish a notice to all potential creditors of the last date for filing proofs of claim and a form for filing a proof of claim, after such notice and form are approved by the Court, and notify said potential creditors of the existence, amount, and classification of their respective claims as set forth in the Schedules, which may be effected by inclusion of such information (or the lack thereof, in cases where the Schedules indicate no debt due to the subject party) on a customized proof of claim form provided to potential creditors;

e) maintain a post office box or address for the purpose of receiving claims and returned mail, and process all mail received;

f) for all notices, motions, orders or other pleadings or documents served, prepare and file, or cause to be filed with the Clerk, an affidavit or certificate of service within seven business days of service which includes (i) either a copy of the notice served or the docket number(s) and title(s) of the pleading(s) served, (ii) a list of persons to whom it was mailed (in alphabetical order) with their addresses, (iii) the manner of service, and (iv) the date served;


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g) process all proofs of claim received, including those received by the Clerk, check said processing for accuracy and maintain the original proofs of claim in a secure area;

h) maintain the official claims register for each Debtor (collectively, the “Claims Registers”) on behalf of the Clerk; upon the Clerk’s request, provide the Clerk with certified, duplicate unofficial Claims Registers; and specify in the Claims Registers the following information for each claim docketed: (i) the claim number assigned; (ii) the date received; (iii) the name and address of the claimant and agent, if applicable, who filed the claim; (iv) the amount asserted; (v) the asserted classification(s) of the claim (e.g., secured, unsecured, priority, etc.); (vi) the applicable Debtor; and (vii) any disposition of the claim;

i) provide public access to the Claims Registers, including complete proofs of claim with attachments, if any, without charge;

j) Provide an electronic interface for filing proofs of claim;

k) implement necessary security measures to ensure the completeness and integrity of the Claims Registers and the safekeeping of the original claims;

l) record all transfers of claims and provide any notices of such transfers as required by Bankruptcy Rule 3001(e);

m) relocate, by messenger or overnight delivery, all of the court-filed proofs of claim to the offices of Stretto, not less than weekly;

n) upon completion of the docketing process for all claims received to date for each case, turn over to the Clerk copies of the Claims Registers for the Clerk’s review (upon the Clerk’s request);

o) monitor the Court’s docket for all notices of appearance, address changes and claims-related pleadings and orders filed and make necessary notations on and/or changes to the claims register and any service or mailing lists, including to identify and eliminate duplicative names and addresses from such lists;

p) identify and correct any incomplete or incorrect addresses in any mailing or service lists;

q) assist in the dissemination of information to the public and respond to requests for administrative information regarding these chapter 11 cases as directed by the Debtors or the Court, including through the use of a case website and/or call center;

r) monitor the Court’s docket in these chapter 11 cases and, when filings are made in error or containing errors, alert the filing party of such error and work with them to correct any such error;


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s) if these chapter 11 cases are converted to cases under chapter 7 of the Bankruptcy Code, contact the Clerk’s office within three days of notice to Stretto of entry of the order converting the cases;

t) thirty days prior to the close of these chapter 11 cases, to the extent practicable, request that the Debtors submit to the Court a proposed order dismissing Stretto as Claims and Noticing Agent and terminating its services in such capacity upon completion of its duties and responsibilities and upon the closing of these chapter 11 cases;

u) within seven days of notice to Stretto of entry of an order closing these chapter 11 cases, provide to the Court the final version of the Claims Registers as of the date immediately before the close of the chapter 11 cases; and

v) at the close of these chapter 11 cases, box and transport all original documents, in proper format, as provided by the Clerk’s office, to (i) the Federal Archives Record Administration, located at Central Plains Region, 200 Space Center Drive, Lee’s Summit, Missouri 64064 or (ii) any other location requested by the Clerk’s Office

C. Professional Compensation

65. The Debtors are requesting that the undisputed fees and expenses incurred by

Stretto in the performance of the above services be treated as administrative expenses of the

Debtors’ chapter 11 estates pursuant to 28 U.S.C. § 156(c) and section 503(b)(1)(A) of the

Bankruptcy Code and be paid in the ordinary course of business without further application to or

order of the Court. Stretto has agreed to maintain records of all services showing dates, categories

of services, fees charged, and expenses incurred and to serve monthly invoices on the Debtors, the

U.S. Trustee, counsel for the Debtors, counsel for any official committee monitoring the expenses

of the Debtors and any party-in-interest who specifically requests service of the monthly invoices.

If any dispute arises relating to the Engagement Agreement setting forth the terms of Stretto’s

retention (the “Engagement Agreement”)11 or monthly invoices, the parties will meet and confer

11 A copy of the Engagement Agreement is attached to the Stretto Retention Application as Exhibit B.


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in an attempt to resolve the dispute; if resolution is not achieved, the parties may seek resolution

of the matter from the Court.

66. Prior to the Petition Date, the Debtors provided Stretto an advance in the amount

of $25,000. Stretto seeks to first apply the advance to all prepetition invoices, and thereafter, to

have the advance replenished to the original advance amount, and thereafter, to hold the advance

under the Engagement Agreement during these chapter 11 cases as security for the payment of

fees and expenses incurred under the Engagement Agreement.

67. Additionally, under the terms of the Engagement Agreement, the Debtors have

agreed to indemnify, defend and hold harmless Stretto and its members, officers, employees,

representatives and agents under certain circumstances specified in the Engagement Agreement,

except in circumstances resulting solely from Stretto’s bad faith, gross negligence or willful

misconduct or as otherwise provided in the Engagement Agreement or Order. After conferring

with counsel, I believe that such an indemnification obligation is customary, reasonable and

necessary to retain the services of a Claims and Noticing Agent in these chapter 11 cases.

D. Disinterestedness

68. Although the Debtors are not proposing to employ Stretto under section 327 of the

Bankruptcy Code pursuant to the Stretto Retention Application (such retention will be sought by

separate application), I understand that Stretto has nonetheless reviewed its electronic database to

determine whether it has any relationships with the creditors and parties in interest provided by

the Debtors, and, to the best of the Debtors’ knowledge, information, and belief and except as

disclosed in the Betance Declaration, Stretto has represented that it neither holds nor represents

any interest materially adverse to the Debtors’ estates in connection with any matter on which it

would be employed.


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69. Moreover, in connection with its retention as Claims and Noticing Agent, I

understand that Stretto represents in the Betance Declaration, among other things, that

a) Stretto is not a creditor of the Debtors;

b) Stretto will not consider itself employed by the United States government and shall not seek any compensation from the United States government in its capacity as the Claims and Noticing Agent in these chapter 11 cases;

c) by accepting employment in these chapter 11 cases, Stretto waives any rights to receive compensation from the United States government in connection with these chapter 11 cases;

d) in its capacity as the Claims and Noticing Agent in these chapter 11 cases, Stretto will not be an agent of the United States and will not act on behalf of the United States;

e) Stretto will not employ any past or present employees of the Debtors in connection with its work as the Claims and Noticing Agent in these chapter 11 cases;

f) Stretto is a “disinterested person” as that term is defined in section 101(14) of the Bankruptcy Code with respect to the matters upon which it is engaged;

g) in its capacity as Claims and Noticing Agent in these chapter 11 cases, Stretto will not intentionally misrepresent any fact to any person;

h) Stretto shall be under the supervision and control of the Clerk’s Office with respect to the receipt and recordation of claims and claim transfers;

i) Stretto will comply with all requests of the Clerk’s Office and the guidelines promulgated by the Judicial Conference of the United States for the implementation of 28 U.S.C. § 156(c); and

j) none of the services provided by Stretto as Claims and Noticing Agent in these chapter 11 cases shall be at the expense of the Clerk’s Office.

70. I understand that Stretto will supplement its disclosure to the Court if any facts or

circumstances are discovered that would require such additional disclosure. Given the foregoing,

I believe that the relief requested in the Stretto Retention Application is in the best interest of the

Debtors and their estates.


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V. Debtors’ Motion for Intra-District Venue Change, for Hearings Only, to the Louisville Division (the “Venue Motion”)

71. Pursuant to the Venue Motion, the Debtors seek entry of an order changing change

the venue, intra-district, and solely for the purposes of hearings in these cases, from the Owensboro

Division to the Louisville Division of the United States Bankruptcy Court for the Western District

of Kentucky.

72. On the Petition Date, the Debtors filed these chapter 11 cases in the Owensboro

Division with the intention of requesting to have their hearings in the Louisville Division. For the

convenience of the Debtors and their stakeholders, it is in the best interest of all concerned to hold

hearings in these cases in the Louisville Division. Although the Debtors operate in McLean

County, their proposed lead legal counsel, financial advisors and investment bankers all reside

outside of Kentucky. Furthermore, the Debtors’ proposed local legal counsel, Frost Brown Todd

LLC, is located in Louisville, Kentucky. Specifically, the following professionals are located in

the following states:

a) Squire Patton Boggs (US) LLP: New York, Texas and Ohio;

b) FTI Consulting, Inc.: Colorado, Pennsylvania and New York; and

c) Perella Weinberg Partners L.P.: New York and Illinois.

The Debtors’ proposed professionals will need to travel to attend the Debtors’ hearings, and

traveling to Louisville rather than Owensboro would save time and preserve estate resources.

73. The Debtors’ non-debtor parent entities (collectively, “Paringa”) are headquartered

and operating in Perth, Australia. To the extent it becomes necessary for Paringa directors and/or

officers to attend a hearing in these cases, with two connections, such professionals would be able

to fly to Louisville. Alternatively, if hearings were heard in Owensboro, these professionals would

need to have three to four connections to reach the Court. It is unclear whether testimony or


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appearances from professionals located in Australia will be required during these cases, but for

completeness the Debtors present the inconvenience that holding hearings in Owensboro would

cause Paringa.

74. The Debtors’ key stakeholders are also not located in Kentucky. The lender and

other parties to the Debtors’ term loan are Australian entities that would need to fly with double

the connections (i.e., two connections are required when flying from Australia to Louisville, while

four connections are required when flying from Australia to Owensboro) to attend hearings in

Owensboro rather than Louisville. Tribeca’s counsel is located in Lexington—Louisville is 78.2

miles from Lexington, but Owensboro is 176 miles away. The Debtors’ main equipment financer,

Komatsu Financial Limited Partnership, conducts its operations in Rolling Meadows, Illinois,

approximately 30 miles northwest of Chicago. Several airlines provide direct flights to Louisville,

but a connecting flight is necessary to arrive in Owensboro. The Debtors have hundreds of other

creditors located across the country. If some of these creditors wanted to attend the Debtors’

hearings, flying into Louisville would be much easier and cost-effective compared to traveling to

Owensboro.

75. Furthermore, the U.S. Trustee is based in Louisville, Kentucky. The U.S. Trustee

would benefit from not having to incur unnecessary travel expenses by driving approximately 230

miles roundtrip to attend each hearing. This would permit the U.S. Trustee to spend more of their

resources and time attending to the issues in these cases, not making travel arrangements.

76. At bottom, there will be a considerable amount of air travel involved by

stakeholders to attend hearings in these chapter 11 cases. Considering the travel logistics for many


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key stakeholders, and the Debtors’ expectation that the hearings will be well attended, changing

the venue for all hearings to the Louisville Division is warranted in these cases.

77. Accordingly, I believe that the relief requested in the Venue Motion is reasonable

and appropriate under the circumstances and in the best interest of the Debtors and their estates.

VI. Debtors’ Motion for Authority to (A) Maintain Existing Bank Accounts and Continue Use of Cash Management System, (B) Continue Use of Existing Business Forms and (C) Cause its Banks to Execute a Uniform Depository Agreement or Otherwise Comply with Bankruptcy Code Section 345(B) (the “Cash Management Motion”)

78. By the Cash Management Motion, the Debtors request entry of an order (a)

maintain their existing bank accounts and cash management system in the ordinary course of

business, (b) continue using their existing business forms, and (c) use good faith efforts to cause

their banks, as necessary, to execute a Uniform Depository Agreement in the form prescribed by

the U.S. Trustee within 60 days of the Petition Date or otherwise comply with section 345(b) of

the Bankruptcy Code and without prejudice to the Debtors or U.S. Trustee to seek a further

extension or waiver.

A. Description of the Debtors’ Bank Accounts and Cash Management System

79. In connection with the Debtors’ ordinary course of operations, they maintain eight

bank accounts—four collateral accounts, three checking accounts and one money market account

(collectively, the “Bank Accounts”). Seven of the Bank Accounts are held at Old National Bank

and the eighth is with Texas Capital Bank (together, the “Banks”). A schedule of the Bank

Accounts is attached to the Cash Management Motion as Exhibit A.

80. The Debtors’ Bank Accounts and a description of the function of each (the “Cash

Management System”) is as follows:

a) Master Money Market Account: A centralized pooling account, the Debtors withdraw (i) coal sales revenue from a Bank Account held by Hartshorne Mining Group and (ii) excess funds from a Bank Account held by Hartshorne Mining and place it into the Master Money Market Account


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to obtain a higher interest rate compared to leaving the funds in their other Bank Accounts. Approximately two to three deposits are made into the Master Money Market Account each month. Regarding withdrawals and debits, when an account payable becomes due for Hartshorne Group, Hartshorne Land, LLC (“Hartshorne Land”) or Hartshorne Mining, the Debtors withdraw the amount due from the Master Money Market Account and deposit the necessary funds into the Group Operating Account (as defined below). That amount is subsequently deposited into the appropriate Bank Account for payments. The Debtors do not directly transfer amounts from the Master Money Market Account into the applicable Bank Account each time an account payable becomes due because the Debtors may only make six withdrawals/debits from the Master Money Market Account each month pursuant to Federal Reserve Board Regulation D. Hartshorne Group is the holder of the Master Money Market Account. The balance in the Master Money Market Account as of February 15, 2020 was approximately $2.65 million.

b) Group Operating Account: The Group Operating Account serves three essential roles – intermediary account, receipt of payments from customers and payment account for certain administrative expenses. With respect to the intermediary account role, after the Debtors make deposits into the Group Operating Account from the Master Money Market Account, they then transfer a portion of the deposit into accounts held by Hartshorne Land and Hartshorne Mining to pay their various trade vendors and payroll obligations. In addition, both of the Debtors’ customers, Louisville Gas & Electric and Kentucky Utilities Company (“LG&E”) and Ohio Valley Electric Corp./Indiana-Kentucky Electric Corp. (“OVEC-IKEC,” collectively with LG&E, the “Customers”), wire ACH payments for purchases of the Debtors’ thermal coal to the Group Operating Account. The majority of the wire transfer payments from the Customers are deposited into the Master Money Market Account between one to four times per month to realize higher interest rates. Finally, the Group Operating Account is used to pay Hartshorne Group’s expenses, which includes administrative and office expenses, professionals’ and vendors’ invoices, loan payments, management salaries, and selling, general and administrative (“SG&A”) payroll. Because it serves all three of these purposes, the Group Operating Account is the Debtors’ most active Bank Account on a month-to-month basis. Hartshorne Group holds the Group Operating Account. The balance as of the Group Operating Account as of February 15, 2020 was approximately $155,000.

c) Mining Operating Account: The Mining Operating Account is used to pay the Debtors’ mining and plant payroll expenses, mining vendors and general mining costs. Disbursements are made on a daily basis. To the extent necessary, the Debtors transfer money from the Group Operating Account to the Mining Operating Account to pay their various trade vendor and payroll obligations. In addition, no more than once per month, when there


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are excess funds in the Mining Operating Account, the Debtors transfer money from the Mining Operating Account to the Master Money Market Account to obtain better interest rates. Hartshorne Mining holds the Mining Operating Account. Due to outstanding checks, the balance in the Mining Operating Account as of February 15, 2020 was $256,000.

d) Land Operating Account: The Land Operating Account is used to make royalty payments to lessors and satisfy related land, mineral, surface, and riparian obligations. The Land Operating Account is funded by withdrawing the necessary amounts from the Group Operating Account once or twice each month and depositing the amounts in the Land Operating Account. The account holder for the Land Operating Account is Hartshorne Land. The balance in the Land Operating Account as of February 15, 2020 was approximately $15,000.

e) Escrow Funding Account: This Bank Account is not an integral part of the Debtors’ day-to-day Cash Management System. Instead, this money market account holds cash collateral securing the Debtors’ obligations to its surety bond provider, Argonaut Insurance Company (“Argo”). The balance in the Escrow Funding Account represents one quarter of the aggregate bonding amounts associated with the eleven surety bonds issued by Argo. The surety bonds were issued for the Debtors’ current and future surface mining operations at the Poplar Grove Mine and Cypress Creek Mine and the Debtors’ loading site at Ainsworth Dock. Argo and Hartshorne Mining executed that certain Collateral Security Agreement and Account Control Agreement, both dated as of May 11, 2017, which granted and perfected Argo’s security interest in the Escrow Funding Account. The Debtors fund the Escrow Funding Account by withdrawing funds from the Mining Operating Account. The account holder for the Escrow Funding Account is Hartshorne Mining. The balance in the Escrow Funding Account as of February 15, 2020 was approximately $365,000.00.

f) Letter of Credit Deposit Accounts: These three Bank Accounts were opened by the Debtors to deposit cash collateral into Old National Bank savings accounts for the benefit of their utility provider and former New York City landlord. Old National Bank issued three letters of credit, as described in more detail below. These Bank Accounts were assigned by Hartshorne Mining to Old National Bank. The aggregate balance in the Letter of Credit Accounts as of February 15, 2020 was approximately $163,000.


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81. The Debtors believe that Old National Bank is included on the approved depository

list maintained by the U.S. Trustee in this jurisdiction. The Debtors do not believe that Texas

Capital Bank is on that list, but understand it is an approved institution in other jurisdictions around

the country. Regardless, the Debtors maintain that the Banks are well-capitalized, are insured by

the Federal Deposit Insurance Corporation (“FDIC”),12 are well-established institutions that have

been in business for nearly 200 years (Old National Bank) and over 20 years (Texas Capital Bank),

respectively, and therefore the Debtors can maintain all of the Bank Accounts without jeopardizing

any party in interest. Moreover, the Banks hold all eight Bank Accounts that comprise the Cash

Management System, and any changes in this system could cause significant disruption to the

Debtors’ operations. Notwithstanding the foregoing, as necessary, the Debtors will use good faith

12 Old National Bank’s number is FDIC #3832 and Texas Capital Bank’s number is FDIC #4297.


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efforts to cause the Banks to execute the Uniform Depository Agreement in a form prescribed by

the U.S. Trustee within 60 calendar days of the Petition Date.

B. Letter of Deposit Accounts

82. Prior to the Petition Date, Hartshorne Mining executed three Standby Letter of

Credit and Reimbursement Agreements (collectively, the “LOC Agreements”) with Old National

Bank. The purpose of the LOC Agreements was to provide Hartshorne Mining with the means to

provide collateral, in the form of letters of credit, to its utility provider and New York City office

landlord (collectively, the “LOC Beneficiaries”). Paragraphs 18 and 19 in the LOC Agreements

grant Old National Bank collateral in certain bank accounts held at Old National Bank. Pursuant

to that right, Hartshorne Mining executed three Account Agreements with Old National Bank to

establish the Letter of Credit Deposit Accounts. The third type of agreement executed between

Hartshorne Mining and Old National Bank was three Assignment of Deposit Account Agreements

to grant Old National Bank collateral in each Letter of Credit Deposit Account. After

consummating the foregoing agreements, the Debtors completed their transactions with the LOC

Beneficiaries.

83. Hartshorne Mining and Kenergy executed that certain Agreement for Electric

Service dated as of May 18, 2017 (as amended, the “Kenergy Agreement”) to provide Hartshorne

Mining with utility services at the Poplar Grove Mine site. Paragraph 7 of the Kenergy Agreement

requires Hartshorne Mining to provide certain deposits for the benefit of Kenergy. Accordingly,

Hartshorne Mining has provided two lines of credit to Kenergy in the amounts of $36,797 and

$88,000. The $36,797 letter of credit was issued as security for Hartshorne Mining’s monthly

billing obligations under the Kenergy Agreement. The $88,000 letter of credit was issued as

security for repaying Kenergy for the construction costs incurred to expand the electrical services


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at the Poplar Grove Mine (the “Expansion Costs”). If Hartshorne Mining terminated the Kenergy

Agreement, then Hartshorne Mining would have to pay Kenergy the full amount of the Expansion

Costs. As of the Petition Date, Kenergy had not drawn on the letters of credit whose

reimbursement obligations are secured by the Letter of Credit Deposit Accounts.

84. With respect to the third letter of credit, Paringa Resources Limited (“Paringa”)

executed that certain Standard Form of Office Lease (the “Lease”) dated as of April 2018 with

landlord Piedmont Lithium Limited (“Landlord) for the benefit of the Debtors leasing an office

location at 28 West 44th Street, Suite 810, New York, New York 10036.13 Paragraph 66 of the

Lease provides that the Landlord is entitled to a security deposit, in the form of a letter of credit,

in the amount of $38,248. The $38,248.58 letter of credit was issued to satisfy this requirement.

As of the Petition Date, the Landlord had not drawn on this letter of credit. Maintaining the Letter

of Credit Deposit Accounts for the benefit of the LOC Beneficiaries is critical to continue these

two business relationships in the ordinary course of business.

C. Intercompany Transfers

85. In light of the Debtors’ historically interconnected operations among Debtor

entities and Debtor and non-debtor entities, in the ordinary course of business the Debtors utilize

a system of intercompany payables and receivables and loans (the “Intercompany Transfers”)

associated with the Cash Management System. For the avoidance of doubt, the Debtors are not

requesting authorization to continue Intercompany Transfers between the Debtors and non-debtor

affiliates, except to continue the Debtors’ annual pass-through payment to HCM Resources Pty

Ltd. (“HCM Resources”) to pay the premium for the Debtors’ directors and officers liability

13 The Debtors are now subleasing this office to an unrelated third party, Derivative Path, Inc., pursuant to Paragraph 41 of the Lease. Because the Lease remains in place as of the Petition Date, the Debtors have not terminated this letter of credit.


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insurance (the “D&O Policy”). The D&O Policy provides liability insurance to the Debtors’

managers and officers, as well as several non-debtor Australian affiliates’ board members and

officers. The Debtors pay premiums by withdrawing funds from the Group Operating Account

and depositing the necessary premium payment into non-debtor HCM Resources’ bank account,

which is subsequently used to pay the insurers. This Debtor-to-HCM Resources Intercompany

Transfer is immensely important for the Debtors’ estates because in the absence of making these

premium payments, the Debtors would be unable to retain their managers and could lose a

significant number of their key officers.

86. The Debtors have tracked Intercompany Transfers since their formation and will

continue doing so on a postpetition basis. The Intercompany Transfers provide significant benefits

to the Debtors and their stakeholders, including the ability to (a) centrally control the flow of

corporate funds, (b) manage payables and payroll, (c) ensure the availability of funds when

necessary, and (d) reduce administrative expenses by facilitating the movement of funds and by

developing more timely and accurate balance reports.

87. As of February 15, 2020, the below table details the approximate intercompany

payables and receivables for each Debtor and the accounts payable the Debtors owe its direct non-

debtor parent, HCM Resources.


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Typical examples of the Debtors’ historic Intercompany Transfers include: (a) providing cash

from the Master Money Market Account to the Group Operating Account; (b) the Debtors

providing cash from the Group Operating Account to the Mining Operating Account and Land

Operating Account; (c) Hartshorne Holdings, LLC receiving funds from its non-debtor parent to

pay for ordinary course administrative and operating expenses and fees and mining construction

costs; and (d) the Debtors occasionally withdrawing funds from the Mining Operating Account to

the Master Money Market Account.

88. The interdependency of the Debtors’ business segments and the Debtors’ strategy

to obtain the highest rate of return for idle cash requires continued Intercompany Transfers in the

ordinary course of business. Indeed, the Intercompany Transfers would necessarily have to

continue to sustain the uninterrupted operations of the Debtors for the duration of the


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reorganization process. Because of the accessibility of intercompany funds and the low cost of

borrowing, the Debtors are able to reduce administrative and interest expenses which may

otherwise be assessed by third-party lenders, which is of significant benefit to all of the Debtors’

stakeholders. Requiring the Debtors to adopt new, segmented cash management systems would

not only create substantial additional costs and administrative burdens to the Debtors’ estates but

would likely lead to significant disruptions in the Debtors’ operations and delays in the delivery

of their customers’ coal shipments. Any such disruptions or delays would harm the Debtors’

operations during the anticipated chapter 11 time period and would destroy significant value for

the Debtors’ stakeholders.

D. Debtors’ Existing Business Forms

89. The Debtors use a variety of preprinted business forms, including checks,

letterhead, correspondence forms, invoices and other business forms in the ordinary course of

business (collectively, the “Business Forms”). To avoid the distraction and unnecessary expense

to their estates, the Debtors request authorization to continue using all of the Business Forms in

existence before the Petition Date, without reference to the Debtors’ status as chapter 11 debtors

in possession, rather than requiring the Debtors to incur the expense and delay of ordering new

Business Forms. The Debtors submit that once they have exhausted their existing stock of

Business Forms, they will ensure that any new Business Forms are clearly labelled “Debtor in

Possession,” and with respect to any Business Forms that exist or are generated electronically, the

Debtors shall ensure that such electronic Business Forms are clearly labelled “Debtor in

Possession.”

90. I believe that the relief requested in the Cash Management Motion is reasonable

and appropriate under the circumstances and in the best interests of the Debtors’ estates.


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VII. Debtors’ Motion for Entry of Interim and Final Orders (A) Authorizing, but not Directing, Payment of Prepetition Employee Wages, Salaries, and Other Compensation and Benefits and Continuation of Employee Benefits Programs and Related Administrative Obligations in the Ordinary Course (B) Authorizing and Directing Banks to Honor and Process Checks and Electronic Transfer Requests Related Thereto; and (C) Granting Related Relief (the “Employee Wage Motion”)

91. By the Employee Wage Motion, the Debtors request entry of interim and final

orders (a) authorizing, but not directing, the Debtors, in accordance with their existing policies to

(i) pay all prepetition wages, salaries, and other compensation owed to the Debtors’ employees,

(ii) reimburse prepetition business expenses incurred by the Debtors’ employees, (iii) forward

prepetition employee tax and other withholdings to third-parties, (iv) maintain and make

contributions to prepetition health and other employee benefit programs, and (v) honor prepetition

workers’ compensation obligations and other insurance premiums; (b) authorizing and directing

the Debtors’ Banks to honor and process check and electronic transfer requests related to the

foregoing; and (c) granting such other and further relief as may be appropriate.

A. The Debtors’ Employees

92. As of the Petition Date, the Debtors employ approximately 118 individuals (each

an “Employee” and collectively, the “Employees”). Debtor Hartshorne Mining, LLC employs

approximately 103 of the Employees and debtor Hartshorne Mining Group, LLC employs

approximately 15 of the Employees, none of which are subject to a collective bargaining

agreement.14

14 In connection with their prepetition operations, the Debtors generally employed approximately 161 employees, 146 of which were mine and plant operations employees. The remaining 15 were general corporate employees. In connection with the decision to shift to a modified mining plan going forward and the decision to commence these chapter 11 cases, the Debtors issued notices in accordance with the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2201 et seq (“WARN”), on February 17, 2020. The Debtors thereafter laid off 44 employees prior to the Petition Date.


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93. The Debtors’ ability to preserve the value of their business and successfully

navigate chapter 11 is dependent on the expertise and continued enthusiasm and service of their

Employees. The Employees perform a wide variety of functions critical to the administration of

these chapter 11 cases and the Debtors’ restructuring. The Employees’ skills, knowledge, and

understanding of the Debtors’ operations and infrastructure are essential to preserving operational

stability and efficiency. In many instances, the Employees include highly trained personnel who

cannot be easily replaced during this critical juncture of these cases and without whom the Debtors’

reorganization efforts likely will be jeopardized.

94. In the ordinary course of business, the Debtors (a) pay standard and variable wage

compensation and paid time off to their Employees, (b) maintain employee reimbursement

programs, and (c) maintain certain employee benefits, including medical, dental, and vision

coverage, and insurance, life insurance, accidental death and dismemberment insurance, disability

insurance, workers’ compensation insurance, and a 401(k) savings plan for their Employees. In

addition, the Debtors incur other employee-related costs such as payments to independent

contractors and administrators related to their various employee benefits. Each of these obligations

is further described as follows.

(i) Employee Payroll, Payroll Deductions, and Payroll Taxes

95. The Debtors’ mine and plant operators, including hourly and salaried Employees,

are paid weekly on Fridays (or on the preceding business day if a Friday falls on a holiday). The

Debtors’ corporate employees are all salaried Employees and paid bi-weekly on Fridays (or on the

preceding business day if a Friday falls on a holiday). Both hourly and salaried Employees are

paid in arrears. As a result, Employees often have wages and other compensation that has accrued,

but is unpaid, at any given point in time. In 2019, the Debtors’ monthly payroll obligations

(“Payroll Obligations”) averaged approximately $1,400,000.


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96. The Debtors’ next payroll is due on February 21, 2020, which will cover payroll

for the one-week ending on February 16, 2020 for mine and plant Employees. Corporate

Employees will have accrued payroll from February 10, 2020 through the Petition Date, but such

amounts will not come due until February 28, 2020. The aggregate payroll due February 21, 2020,

will total approximately $300,000 and will be solely attributable to the prepetition period (the

“Unpaid Wages”). The Debtors request authorization, in their discretion, to pay the Unpaid Wages

after the Petition Date in the ordinary course of their business. As of the Petition Date, two

Employees are owed Unpaid Wages, including PTO (as defined below), in excess of the $13,650

statutory priority cap imposed by sections 507(a)(4) and (5) of the Bankruptcy Code.

97. The Debtors administer their payroll through ADP, a third-party processing agent,

which charges a weekly fee of approximately $1,000 for processing payroll. ADP collects its fee

on a weekly basis in conjunction with processing payroll. Although payroll is historically paid to

Employees on Fridays, ADP withdraws the total payroll due on Wednesdays from the Debtors’

bank accounts. Accordingly, as of the date of the Motion, ADP has already withdrawn the Unpaid

Wages due Friday, February 21, 2020 from the Debtors’ bank accounts. The Debtors are

requesting authority to pay the Unpaid Wages out of an abundance of caution.

98. In the ordinary course of business, the Debtors process deductions from

Employees’ compensation on account of federal, state, and local income taxes, FICA, court-

ordered garnishments, employee retirement savings programs, loan repayments, optional

supplemental insurance, voluntary political or charitable contributions, and other programs

(collectively, the “Deductions”). Some Deductions are made from each paycheck, while other

Deductions are made less frequently. In 2019, the Deductions have averaged approximately

$250,000 per month.


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99. In addition to the Deductions, the Debtors are required by law to pay certain

amounts to the appropriate federal, state, and local taxing authorities on account of programs such

as Social Security, Medicare, and unemployment insurance (collectively, the “Employer Payroll

Taxes”). The Debtor’s third-party processing agent, ADP, remits the Employer Payroll Taxes to

the appropriate federal, state, or local taxing authority. As of the Petition Date, the Debtors

estimate that the aggregate amount of accrued but unpaid Employer Payroll Taxes is approximately

$105,000.

100. The Debtors estimate that, as of the Petition date, accrued but Unpaid Wages and

other compensation and Employer Payroll Taxes total approximately $375,000, including

approximately $75,000 attributable to the Deductions, $220,00 of which will come due during the

first 21 days of these chapter 11 cases. By the Employee Wage Motion, the Debtors are requesting

authority, to be exercised in their sole discretion, to (a) pay the Unpaid Wages, (b) transfer

Deductions and Employer Payroll Taxes related to the prepetition period; and (c) continue to pay

Employee wages and process Deductions and Employer Payroll Taxes in accordance with

prepetition practices.

(ii) Variable Wages

101. The Debtors provide hourly Employees with a variable wage addition as part of

their compensation based on mining production (the “Operating Variable Wage”). If an eligible

unit of Employees exceeds their production target, the Employees in that unit are eligible to

receive, in addition to their normal wages, a pro rata share of $15.00 per foot mined in excess of

the mining target. The Operating Variable Wage earned is equally divided among the Employees

in the unit that exceeded the mining targets and is paid the following month in arrears because the

Debtors verify compliance with safety metrics and measurement of the footage mined prior to

paying the Operating Variable Wage.


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102. By the Employee Wage Motion, the Debtors request authority, but not direction, to

continue to maintain, in their sole discretion, the Operating Variable Wage program in the ordinary

course of business and to pay in their sole discretion any and all Operating Variable Wage

obligations as such amounts become due in the ordinary course of the Debtors’ business.

(iii) Reimbursement of Expenses

103. Prior to the Petition Date and in the ordinary course of their business, the Debtors

reimbursed Employees for certain reasonable and customary expenses incurred on behalf of the

Debtors in the scope of their employment (the “Reimbursable Business Expenses”). The

Reimbursable Business Expenses include, but are not limited to, reimbursements for (a) business-

related travel, (b) mileage, (c) fuel, (d) attendance at conferences, (e) supplies and equipment, and

(f) other business-related expenses that are paid by the Employees. In the ordinary course,

Employees are required to submit reimbursement forms by the following Tuesday after the

Reimbursable Business Expenses are incurred. Reimbursable Business Expenses are typically

repaid as accounts payable outside of the normal payroll process.

104. Reimbursable Business Expenses are all incurred on the Debtors’ behalf and with

the understanding that the Employees will be reimbursed in the normal course of business.

Accordingly, to avoid harming those who may have incurred the Reimbursable Business Expenses,

the Debtors are requesting authority by the Employee Wage Motion, to be exercised in their sole

discretion, to (a) continue paying Reimbursable Business Expenses in accordance with prepetition

practices, (b) modify their prepetition policies relating thereto as they deem reasonably

appropriate, and (c) pay all Reimbursable Business Expenses that relate to the prepetition period

and are submitted to the Debtors postpetition. The Debtors estimate that outstanding prepetition

Reimbursable Business Expenses total not more than approximately $5,000.


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(iv) Independent Contractors

105. In addition to Employees, the Debtors retain approximately eight independent

contractors to undertake specific projects on an as-needed basis at the Debtors’ Poplar Grove Mine

(the “Independent Contractors”). The Independent Contractors are provided by third-party staffing

companies including Custom Staffing and Cherokee. The Debtors pay the staffing companies for

the Independent Contractors, and the staffing companies are responsible for paying the

Independent Contractors.

106. As of the Petition Date, the Debtors estimate that the accrued and unpaid amounts

owed in connection with the Independent Contractors is approximately $180,000, of which

$140,000 will come due during the first 21 days of these chapter 11 cases. The Debtors are

requesting by the Employee Wage Motion that they be authorized, but not directed, to continue to

pay the Independent Contractors in the ordinary course of business, and to honor and pay any

accrued and unpaid prepetition amounts.

(v) Vacation Days, Personal Days and Holidays

107. As a benefit of employment, all of the Debtors’ Employees are entitled to vacation

time (“Vacation Time”) and ten paid holidays (“Holiday Time”) on an annual basis. Hourly

Employees are entitled to earn Vacation Time at a rate of approximately .75 days per month

worked for a maximum of ten days per year. Salaried Employees receive between eight and twenty

days of fixed Vacation Time per year depending on seniority. Additionally, hourly Employees are

entitled to earn personal days (“Personal Time” and together with Vacation Time and Holiday

Time, “PTO”) at a rate of approximately .375 days per month. Salaried Employees are not entitled

to accrue Personal Time.

108. Employees’ unused days of PTO do not carry over from one calendar year to the

next. When an Employee elects to take PTO, that Employee is paid his or her regular hourly or


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salaried rate. If an Employee ceases employment with the Debtors, the Employee’s final paycheck

will include any accrued unused PTO. The Debtors estimate that approximately $60,000 of earned

but unused PTO will have accrued as of the Petition Date for all eligible Employees.

109. By the Employee Wage Motion, the Debtors are requesting that they be authorized,

but not directed, to continue to honor their PTO obligations in the ordinary course of business, and

to honor and pay any prepetition amounts related thereto. Moreover, the Debtors anticipate that

their Employees will utilize any accrued PTO and other leave allowances in the ordinary course

of business, which will not create any material cash flow requirements beyond the Debtors’ normal

payroll obligations.

(vi) Employee Benefits

110. Prior to the Petition Date, the Debtors offered Employees, their eligible spouses,

and their dependents various other standard employee benefits, including, without limitation,

(a) medical insurance, (b) basic term life and AD&D insurance, (c) short-term disability insurance,

(d) long-term disability insurance, (e) retirement savings plans, (f) workers’ compensation, and

(g) miscellaneous other benefits provided to the Employees in the ordinary course of business

(collectively, the “Employee Benefit Programs”). As of the Petition Date, the Debtors were

obligated to pay certain contributions to or provide benefits under such plans, programs, and

policies to their Employees. The Employee Benefit Programs are described in greater detail below.

(a) Medical, Vison and Dental Plans

111. The Debtors currently maintain and provide medical benefits to all active eligible

employees, their eligible spouses, and dependents. The Debtors offer medical and vision insurance

administered by Humana and a dental plan administered by Dental Health Option (collectively,

the “Health Plans”). The Health Plans are fully insured plans and the medical insurance includes

coverage for prescription drug costs. Premiums and administrative costs for the Health Plans are


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due at the beginning of each month and have cost approximately $255,000 in the aggregate per

month in recent months. Debtor Hartshorne Mining LLC pays the entire cost of the Health Plans.

112. The Health Plans represent an integral component of each participating Employee’s

benefits package, and without these benefits, the Debtors believe they would be unable to retain

all of their personnel and would impose a severe hardship on those participating Employees and

their families. By Employee Wage Motion, the Debtors are seeking authority, in their sole

discretion, to (a) continue offering the Health Plans for Employees in the ordinary course of

business, (b) continue making the above-described premium payments for the Health Plans, and

(c) pay any amounts related thereto, including on account of any premiums, claim amounts, and

administration fees to the extent that they remain unpaid as of the Petition Date.

(b) Workers’ Compensation Insurance

113. The Debtors maintain workers’ compensation insurance for Employees at the level

required by the Commonwealth of Kentucky for claims arising from or related to their employment

with the Debtors, including occupational pneumoconiosis (also known as “black lung”) claims

under applicable state law and costs in connection with the United States Black Lung Benefits

Revenue Act of 1977 and the Black Lung Benefits Reform Act of 1977 (collectively, the

“Workers’ Compensation Program,” and any obligations thereto, the “Workers’ Compensation

Obligations”). These benefits are provided at no cost to Employees.

114. The Debtors’ Workers’ Compensation Program is a fully insured policy through

Rockwood Casualty Insurance Company. The Debtors make monthly premium payments to

Rockwood in arrears for Workers’ Compensation Obligations of approximately $290,000. The

Debtors next payment for Workers’ Compensation Obligations is due on March 15, 2020.

115. By the Employee Wage Motion, the Debtors are requesting authority, but not

direction, to continue to maintain, in their sole discretion, the Workers’ Compensation Program in


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the ordinary course of business and to pay in their sole discretion any and all Workers’

Compensation Obligations including, without limitation, any payments for workers’ compensation

claims, deductibles, premiums and fees owed for administrative costs, and other amounts required

in connection with the Workers’ Compensation Program, as such amounts become due in the

ordinary course of the Debtors’ business.

(c) Life and Other Insurance, and Long-Term Disability Benefits

116. All of the Debtors’ Employees receive basic life insurance (the “Life Insurance”),

accidental death & dismemberment insurance (the “AD&D Insurance”), and long-term disability

insurance (“Long Term Insurance”) provided through Guardian at no cost to the Employees. The

Debtors provide Long Term Insurance in an amount up to 60% of an Employee’s annual earnings,

up to a maximum of $6,000 per month, and Life Insurance and AD&D Insurance is provided in

the amount of $100,000 each. Additionally, hourly Employees receive short-term disability

insurance provided by Guardian (the “Short Term Insurance” and together with the AD&D

Insurance, Long Term Insurance, and Life Insurance, the “Life Coverage”) at no cost to the

Employees. The Short Term Insurance is provided in an amount up to 60% of an Employee’s

monthly earnings, up to a maximum of $1,000 per week.

117. Employees also have the ability to purchase supplemental accident and cancer

insurance coverage through Aflac. The total cost to the Debtors for the Life Coverage premiums

and related administrative fees is approximately $20,000 per month. The Debtors are requesting

that the Court authorize, but not direct, the Debtors to continue providing the Life Coverage and

related benefits and to honor and pay any prepetition amounts related thereto.

(d) Retirement Plans

118. The Debtors provide a 401(k) retirement plan with Benefits Plans Plus LLC, which

is administered by John Hancock (the “401(k) Plan”). Under the 401(k) Plan, the Employees are


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entitled to contribute up to 6% of their wages and the Debtors match all contributions dollar-for-

dollar up to 4%. Gross withholdings for the 401(k) Plan fluctuates during the year, but averaged

approximately $75,000 in recent months. The Debtors also pay Benefits Plans Plus LLC a semi-

annual fee of $1,100 in connection with the 401(k) Plan. The Debtors are requesting that the Court

authorize, but not direct, the Debtors to continue offering the 401(k) Plan and honor and pay any

prepetition amounts related thereto, including, without limitation, any Employee contributions that

have been withheld but not transferred to John Hancock as of the Petition Date.

(e) Other Benefits

119. The Debtors also offer certain Employees a number of miscellaneous benefits,

including vehicle allowances and a cell phone program (collectively, the “Miscellaneous

Programs”). The Miscellaneous Programs are as follows:

Vehicle Allowance: Certain Employees who regularly use their personal vehicle in the performance of their job duties receive a vehicle allowance of $265 per week, depending on the frequency in which their vehicle is used to perform work-related tasks.

Cell Phone Program: Certain Employees may request reimbursement for cell phone charges by submitting an expense report. The monthly allowance for cell phone expenses is capped at $150.00 per month per Employee.

120. The Debtors estimate that the Miscellaneous Programs cost approximately $15,000

per month. The Debtors are requesting authority by the Employee Wage Motion to continue the

Miscellaneous Programs in the ordinary course of business and pay any prepetition amounts that

have not been remitted to participating Employees.

121. Overall, I believe that the relief requested by the Debtors pursuant to the Employee

Wage Motion is reasonable and appropriate under the circumstances and in the best interests of

the Debtors’ estates.


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VIII. Debtors’ Motion for Entry of Interim and Final Orders Authorizing Payment of Certain Prepetition and Postpetition Taxes and Directing all Banks to Honor Checks for Payment of Taxes (the “Tax Motion”)

122. Pursuant to the Tax Motion, the Debtors seek entry of interim and final orders (a)

authorizing, but not directing, the Debtors to pay certain taxes and fees without regard to whether

such obligations accrued or arose before or after the Petition Date, and (b) authorizing and

directing the Debtors’ Banks to honor and process check and electronic transfer requests related

to the foregoing.

A. The Debtors’ Taxes and Fees

123. In the ordinary course of business, the Debtors collect, withhold and incur

severance, excise, use, property, environmental and safety taxes, as well as other taxes and fees

further described herein (the “Taxes”).15 The Debtors remit Taxes to various federal, state and

local government entities, including taxing and licensing authorities (collectively, the

“Authorities”). A schedule identifying the Authorities is attached to the Taxes Motion as Exhibit

A.16 The Debtors remit the Taxes through checks and electronic transfers that their banks and

other financial institutions process.

124. The Debtors pay or remit, as the case may be, the Taxes as incurred, on a monthly,

quarterly, biannual, or annual basis, to the respective Authorities, in each case as required by

applicable laws and regulations. As of the Petition Date, the Debtors estimate that in the aggregate,

15 The Debtors are also required by law to withhold amounts from their employees’ wages that are related to federal, state, and local income taxes, including social security and employment insurance for remittance to the appropriate taxing and other governmental authorities (collectively, the “Payroll Taxes”). By separate motion filed contemporaneously herewith, the Debtors are seeking authority to continue withholding and paying the Payroll Taxes. 16 For the avoidance of doubt, the inclusion of any entity on, or the omission of any entity from, Exhibit A to the Taxes Motion is not an admission by the Debtors that such entity is, or is not, an Authority, and the Debtors reserve all rights with respect to any such determination.


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approximately $285,000 in Taxes relating to the prepetition period will become due and owing to

the Authorities during the postpetition period in the ordinary course of business.

125. The Taxes and fees incurred by the Debtors fall into the following general

categories:

(vii) Severance Taxes

126. In the ordinary course of business, the Debtors must pay severance or production

taxes and fees (collectively, the “Severance Taxes”) to produce coal. Generally, Severance Taxes

are taxes on “severing” natural resources, such as coal, from the land or waters within a state or

jurisdiction. The Commonwealth of Kentucky assesses a severance tax at a rate of 4.5% of the

gross value of all coal severed and/or processed, while federal taxing authorities generally

calculate severance tax liability as a percentage of either the value or volume of coal produced,

whichever is less.17

127. Historically, the Debtors have paid approximately $115,000 in the aggregate on a

monthly basis in Severance Taxes to the Authorities.18 As of the Petition Date, the Debtors

estimate that they have incurred approximately $70,000 in Severance Taxes that will become due

in the ordinary course postpetition.

(viii) Excise Taxes

128. The Debtors incur excise taxes pursuant to section 4121 of the Internal Revenue

Code (“Coal Excise Taxes”). See 26 U.S.C. § 4121. Internal Revenue Code section 4121 imposes

a tax on each ton of coal sold, with rates varying by the type of mine producing the coal.

26 U.S.C. § 4121. A portion of the Coal Excise Taxes imposed is used to fund a statutorily

17 Severance Taxes due to the federal government comprise reclamation fees payable in accordance with the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. § 1201 et seq. 18 In recent months, the amounts due to the Authorities for Severance Taxes were lower than the typical monthly amount provided herein due to the intervening holiday period.


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mandated Black Lung Disability Trust Fund. See 26 U.S.C. § 9501. The Black Lung Disability

Trust Fund finances benefits to miners that become disabled because of Black Lung Disease if and

when the mine operator responsible for such benefits ceases to exist, has no successor operator, or

is unable to pay such benefits. The Debtors pay Coal Excise Taxes on a semi-monthly basis.

129. Historically, the Debtors paid approximately $30,000 a month in aggregate Coal

Excise Taxes to the Authorities. Effective January 1, 2020, however, the amounts due under

section 4121 of the Internal Revenue Code will increase from $0.60 per ton to $1.10. Accordingly,

the Debtors expect to pay approximately $75,000 a month in aggregate Coal Excise Taxes to the

Authorities in the postpetition period. As of the Petition Date, the Debtors estimate that they have

incurred approximately $35,000 in Coal Excise Taxes that have not been remitted to the relevant

Authorities, all of which will become payable during the first 21 days following the Petition Date.

(ix) Environmental and Safety Fees

130. In the ordinary course of business, the Debtors incur various licensing and

permitting fees and assessments to comply with environmental, health, and safety laws and

regulations, including fees due to the Office of Surface Mining Reclamation and Enforcement and

the Kentucky Reclamation Guaranty Fund (collectively, the “Licensing and Permitting Fees”).

The Debtors are required to remit the Licensing and Permitting Fees to the relevant Authorities on

various dates throughout the year. In addition, the Debtors may from time to time incur

assessments for alleged violations of environmental, health, and safety laws (collectively, the

“Assessments,” and together with the Licensing and Permitting Fees, the “Environmental and

Safety Fees”). The Debtors pay Environmental and Safety Fees on a monthly or quarterly basis

depending of the applicable Authorities. As of the Petition Date, the Debtors estimate

approximately $15,000 is due and owing to the relevant Authorities on account of prepetition

Environmental and Safety Fees.


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(x) Sales and Use Taxes

131. The Debtors incur, collect, and remit sales and use taxes to the Authorities in

connection with the sale and purchase of goods and service (collectively, the “Sales and Use

Taxes”). The Debtors purchase a variety of equipment, materials, supplies, and services necessary

for the operation of their business from certain vendors who collect sales taxes in connection with

the Debtors’ purchase of such goods or services. But the Debtors incur use taxes for the purchase

of equipment, materials, supplies, and services when vendors do not, or are not registered to,

collect sales taxes. In these cases, applicable law generally requires the Debtors to subsequently

pay use taxes on such purchases to the applicable Authorities. The Debtors generally remit Sales

and Use Taxes on a monthly or quarterly basis, depending on the Authority. In the ordinary course

of business, the Debtors review invoices for any unpaid Sales and Use Taxes and remit the

applicable Sales and Use Taxes on a monthly basis to the applicable Authority.

132. On average, the Debtors pay approximately $2,500 a month in aggregate Sales and

Use Taxes to the Authorities. As of the Petition Date, the Debtors estimate that they have incurred

or collected approximately $2,500 in Sales and Use Taxes that have not been remitted to the

relevant Authorities, all of which will become payable during the first 21 days following the

Petition Date.

(xi) Property Taxes

133. State and local laws in the jurisdiction where the Debtors operate generally grant

Authorities the power to levy property taxes against the Debtors’ real and personal property,

including taxes with regard to unmined minerals (collectively, the “Property Taxes”). The

Debtors’ Property Taxes also include tax payments for approximately 350 lessors related to

property the Debtors lease. To avoid the imposition of statutory liens on their real and personal

property, the Debtors typically pay Property Taxes in the ordinary course of business on an annual


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or semi-annual basis, depending on the Authority. In 2019, the Debtors paid approximately

$45,000 in Property Taxes to the applicable Authorities. As of the Petition Date, the Debtors

estimate they have incurred approximately $7,000 in Property Taxes that will become due in the

ordinary course postpetition on account of prepetition Property Taxes.

(xii) Other Taxes and Fees

134. Federal, state, and local Authorities impose various other Taxes and Fees against

the Debtors’ operations (collectively, the “Other Taxes and Fees”). Such taxes and fees include

taxes imposed on corporations, gross receipts, explosive taxes, business license fees, and other

miscellaneous Taxes. As of the Petition Date, the Debtors estimate approximately $2,500 is due

and owing to the relevant Authorities on account of prepetition Other Taxes and Fees.

135. I believe that the relief requested in the Taxes Motion is reasonable and appropriate

under the circumstances and in the best interests of the Debtors’ estates.

IX. Debtors’ Motion for an Order Authorizing, but not Directing, the Debtors to Continue their Surety Bond Program (the “Surety Bond Motion”)

136. By the Surety Bond Motion, the Debtors seek entry of an order authorizing, but not

directing, the Debtors to continue, renew, supplement, and discontinue their surety bond program

on an uninterrupted basis.

A. The Debtors’ Surety Bond Program

137. In the ordinary course of business, the Debtors are required by applicable federal

and state laws and regulations to post bonds to certain government units or other public agencies

(the “Surety Bond Program”). Such bonds secure the Debtors’ performance or payment of certain

obligations related to the Debtors’ coal mining activities. More specifically, the Surety Bond

Program includes reclamation bonds and encroachment bonds (each, a “Surety Bond,” and

collectively, the “Surety Bonds”).


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138. The Surety Bond Program is essential to the Debtors’ operations. For instance, the

federal Surface Mining Control and Reclamation Act (the “SMCRA”), 30 U.S.C. § 1201, et seq.,

and Kentucky Revised Statute (“KRS”) Chapter 350 require the Debtors to post surety bonds to

ensure that funds are available to pay the Debtors’ reclamation, subsidence, and related

obligations. Without posting the Surety Bonds, the relevant government agency will not issue a

permit allowing and/or authorizing the Debtors to conduct their mining operations. Without

providing, maintaining or timely replacing the Surety Bonds, the Debtors simply cannot operate

their mine.

139. As of the Petition Date, the Debtors have eleven Surety Bonds outstanding, which

provide approximately $1.5 million in aggregate Surety Bond coverage. The Debtors have posted

approximately $360,000 in cash to collateralize the Surety Bonds. Approximately 97% of the

Surety Bond coverage secures reclamation obligations to governmental authorities related to the

Debtors’ mining operations. The Debtors’ remaining Surety Bond coverage secures the Debtors’

obligations related to encroachment on public lands or structures. The Surety Bonds continue in

perpetuity and can be cancelled (a) for nonpayment or (b) after reclamation/job performance. A

schedule of the Surety Bonds currently maintained by the Debtors is attached to the Surety Bond

Motion as Exhibit A and is incorporated herein by reference.19

140. The issuance of a Surety Bond shifts the risk of the Debtors’ nonperformance or

nonpayment from the Debtors to a surety. Unlike an insurance policy, if a surety incurs a loss on

a Surety Bond, it is entitled to recover the full amount of that loss from the principal. To that end,

the Debtors are party to that certain General Indemnity Agreement dated as of September 17, 2015

19 The Debtors request authority, but not direction, to honor obligations and renew all Surety Bonds, as applicable, regardless of whether the Debtors inadvertently fail to include a particular Surety Bond on the schedule attached to the Surety Bond Motion.


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between Hartshorne Mining Group, LLC (“Hartshorne Group”), Hartshorne Mining, LLC

(“Hartshorne Mining”) and Argonaut Insurance Company (“Argo”) (the “Indemnity Agreement”).

Pursuant to Section 2 of the Indemnity Agreement, the Debtors agree to indemnify, hold harmless

and exonerate Argo from and against any losses, as well as any reasonable expenses incurred or

sustained in connection with furnishing, executing, renewing, continuing or substituting any

Surety Bond. Section 4 of the Indemnity Agreement provides that Argo may establish a reserve

to recover against any losses it incurs on account of the Surety Bonds, and upon Argo’s request,

the Debtors must deposit a sum of money equal to the reserve request as collateral for the Surety

Bond. Furthermore, Argo executed the Parent Company Guarantee dated as of September 17,

2015 with non-debtor Paringa Resources Limited (“Paringa”) whereby Paringa agreed to guarantee

Hartshorne Group’s and Hartshorne Mining’s obligations under the Indemnity Agreement.

141. To satisfy their collateral requirement under the Indemnity Agreement, the Debtors

executed two agreements with Argo. First, Argo and the Debtors executed a Collateral Security

Agreement (the “Security Agreement”) dated as of May 11, 2017 between Argo and Hartshorne

Mining. The Security Agreement grants Argo a security interest in the Debtors’ securities

accounts, securities, financial assets, investment property, cash or other assets held now or

thereafter, and all proceeds of or from the foregoing, in the Debtors’ accounts held by Texas

Capital Bank (the “Escrow Funding Account”). Argo and the Debtors agreed that the Debtors

would deposit cash collateral equal to 25% of the aggregate Surety Bond penal sum into the Escrow

Funding Account for Argo’s benefit. Thus, as of February 1, 2020, the balance in the Escrow

Funding Account was $364,302.19. On or about May 11, 2017, Argo, Hartshorne Mining and

Texas Capital Bank executed that certain Account Control Agreement (“Control Agreement”) to

provide Argo with control of the Escrow Funding Account and perfect Argo’s security interest in


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the Escrow Funding Account. As of the Petition Date, the Debtors have satisfied their cash

collateral requirements under the Indemnity Agreement.

142. The Debtors pay Argo premiums associated with each Surety Bond (the “Surety

Premiums”). The annual Surety Premiums for the Debtors’ Surety Bonds total approximately

$34,000. The Surety Premiums are paid annually by Hartshorne Mining, historically in April and

May. As of the Petition Date, there are no Surety Premiums outstanding and the Debtors do not

anticipate any Surety Premiums becoming due until April 2020, but upon information and belief

expect the Surety Premiums to modestly increase this year.

143. I believe that the relief requested in the Surety Bond Motion is reasonable and

appropriate under the circumstances and in the best interests of the Debtors’ estates.

X. Debtors’ Motion for Interim and Final Orders (A) Determining Adequate Assurance of Payment for Future Utility Services, (B) Approving Adequate Assurance Procedures and (C) Granting Related Relief (the “Utility Motion”)

144. Pursuant to the Utilities Motion, the Debtors seek entry of interim and final orders

(a) finding that the Debtors’ utility providers (each, a “Utility Provider” and, collectively, the

“Utility Providers”) are adequately assured of future performance by the procedures set forth

herein; (b) enjoining Utility Providers from altering, refusing, discontinuing, or interfering with

service to the Debtors; and (c) establishing procedures for determining requests for additional

adequate assurance.

A. Utility Providers

145. In connection with the operation of their business and management of their

property, the Debtors incur utility expenses in the ordinary course of business for, among other

things, electricity, gas, trash disposal, local and long-distance telecom services, data services, and

other similar services (collectively, the “Utility Services”). On a monthly basis, the Debtors spend

approximately $100,000 for the various Utility Services. These Utility Services are provided by


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seven Utility Providers. A non-exhaustive list of the Utility Providers (the “Utility Providers List”)

is attached to the Utility Motion as Exhibit A.

B. Proposed Adequate Assurance Deposit

146. The Debtors intend to pay postpetition obligations owed to the Utility Providers in

the ordinary course. Contemporaneously herewith, the Debtors have filed a motion seeking

approval to enter into a $7.5 million debtor-in-possession credit facility (the “Proposed DIP

Facility”). The Debtors expect that their cash flows from operations and borrowings under the

Proposed DIP Facility will be sufficient to pay all of their postpetition obligations including those

related to their Utility Services.

147. Nevertheless, to the extent that a Utility Provider does not already hold a deposit

equal to or greater than two weeks’ worth of service provided by such Utility Provider (such Utility

Providers, the “Affected Utility Providers”), the Debtors propose to maintain in a special account

an aggregate amount of $4,592.21, which is an amount equal to the estimated aggregate cost for

two weeks of Utility Services, calculated as a historical average over the past 12 months, for the

benefit of such Affected Utility Providers as adequate assurance of future payment (the “Adequate

Assurance Deposit”). After reviewing the prepetition deposits maintained with the Utility

Providers, if any, and the Debtors’ two week average cost for the Utility Services, the Debtors

determined that all the Utility Providers, with the exception of Kenergy, are Affected Utility

Providers. The Adequate Assurance Deposit may be adjusted by the Debtors to account for the

termination of services provided by the Affected Utility Providers or for other arrangements with

respect to adequate assurance of payment reached with individual Affected Utility Providers.

148. The Debtors propose to place the Adequate Assurance Deposit into a newly created,

interest-bearing, segregated account (the “Adequate Assurance Deposit Account”) within twenty


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(20) calendar days of the Petition Date for the benefit of all Affected Utility Providers during these

chapter 11 cases. With respect to Kenergy, which already holds a deposit equal to or greater than

two weeks of utility services, the Debtors submit that any request for additional assurance of

payment for future services must be resolved pursuant to the Adequate Assurance Procedures (as

defined below).

C. Proposed Adequate Assurance Procedures

149. The Debtors believe that the Adequate Assurance Deposit and the Debtors’

demonstrated ability to pay for future utility services in the ordinary course of their business

(together, the “Proposed Adequate Assurance”) constitute sufficient adequate assurance to the

Utility Providers. If any Utility Provider believes that additional assurance is required, however,

the Debtors propose that such Utility Provider may request such assurance (each, an “Additional

Assurance Request”) pursuant to the following procedures (the “Adequate Assurance

Procedures”):

a) Any Additional Assurance Request must be sent to the following parties: (i) Debtor, Hartshorne Holdings, LLC, Attn: David Gay; (ii) proposed counsel for the Debtors, Squire Patton Boggs (US) LLP, 201 E. Fourth Street, Suite 1900, Cincinnati, Ohio 45202, Attn: Stephen D. Lerner ([email protected]) and Kyle Arendsen ([email protected]); (iii) proposed co-counsel to the Debtors, Frost Brown Todd LLC, 400 West Market Street, Suite 3200, Louisville, Kentucky 40202, Attn: Edward King ([email protected]); (iv) counsel to Tribeca Global Resources Credit Pty Ltd, Wyatt, Tarrant & Combs, LLP, 250 West Main Street, Suite 1600, Lexington, KY 40507, Attn: John P. Brice ([email protected]); and (v) the Office of the U.S. Trustee for the Western District of Kentucky, 601 West Broadway, Suite 512, Louisville, KY 40200, Attn: Charles Merrill (collectively, the “Notice Parties”).

b) Any Additional Assurance Request must: (i) be made in writing; (ii) include a summary of the Debtors’ payment history relevant to the affected account(s), including any security deposits; (iii) certify the amount that is equal to two weeks of utility service that the Utility Provider provides to the Debtors, calculated as a historical average over the past 12 months; (iv) certify that the Utility Provider currently is not paid in advance for its


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services; and (v) explain why the Utility Provider believes the Debtors’ Proposed Adequate Assurance is not sufficient adequate assurance of future payment.

c) Upon the Debtors’ receipt of any Additional Assurance Request at the addresses set forth above, the Debtors shall have the greater of (i) twenty (20) calendar days from the receipt of such Additional Assurance Request or (ii) thirty (30) calendar days from the Petition Date (collectively, the “Resolution Period”) to negotiate with such Utility Provider to resolve such Utility Provider’s Additional Assurance Request.

d) The Debtors may resolve any Additional Assurance Request by mutual agreement with the Utility Provider and without further order of the Court, and may, in connection with any such agreement and to the extent permitted by the terms of the Proposed DIP Facility, provide the Utility Provider with additional adequate assurance of future payment, including, but not limited to, cash deposits, prepayments, and other forms of security, without further order of the Court if the Debtors believe such additional assurance is reasonable.

e) If the Debtors determine that the Additional Assurance Request is not reasonable and are unable to reach an alternative resolution with the Utility Provider during the Resolution Period, the Debtors, during or immediately after the Resolution Period, will request a hearing before the Court to determine the adequacy of assurance of payment with respect to the particular Utility Provider (the “Determination Hearing”) pursuant to section 366(c)(3) of the Bankruptcy Code.

f) Pending resolution of any such Determination Hearing, the Utility Provider filing such Additional Assurance Request shall be prohibited from altering, refusing or discontinuing service to the Debtors on account of unpaid charges for prepetition services or on account of any objections to the Proposed Adequate Assurance.

150. The Debtors request that all Utility Providers who do not timely file an objection

to final approval of the relief requested in this Motion, or make an Additional Assurance Request

pursuant to the Adequate Assurance Procedures, be deemed to consent to the Proposed Adequate

Assurance and be bound by any order entered by this Court in respect of this Motion.

D. Modifications to the Utility List

151. The Debtors have made an extensive and good faith effort to identify the Utility

Providers and to include them on the Utility Providers List. To the extent that the Debtors later


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identify additional Utility Providers (each, an “Additional Utility Provider”), the Debtors seek

authority to amend the Utility Providers List to add or remove any Utility Providers. The Debtors

propose that any order entered by this Court granting this Motion apply to any Additional Utility

Providers, regardless of when such Additional Utility Provider is added to the Utility Providers

List. The Debtors will serve a copy of this Motion and any applicable orders, if entered, on such

Additional Utility Providers.

152. I believe that the relief requested in the Utility Motion is reasonable and appropriate

under the circumstances and in the best interests of the Debtors’ estates.

XI. Debtors’ Motion for Entry of Interim and Final Orders Authorizing the Debtors to Pay Certain Prepetition Claims of Critical Vendors and Shippers (the “Critical Vendor Motion”)

153. By the Critical Vendors Motion, the Debtors request entry of interim and final

orders (a) authorizing, but not directing, the Debtors, in consultation with the U.S. Trustee and the

Official Committee of Unsecured Creditors, if one is appointed in these chapter 11 case (the

“Creditors’ Committee”), to pay certain prepetition claims of critical vendors in accordance with

the procedures proposed herein, (b) authorizing the Debtors’ bank and other financial institutions

to honor and process related checks and transfers, and (c) granting related relief.

A. Debtors’ Critical Vendors

154. In the ordinary course of business, the Debtors extract coal at the Poplar Grove

Mine, process the coal at the onsite CHPP, and deliver the same from the Poplar Grove Mine to

the Debtors’ Ainsworth Dock on the Green River. The Debtors’ ability to extract and process coal

in a timely manner is critically important to their financial performance and depends on their

prompt and continuous receipt of a wide range of goods and services. Given the highly specialized

nature of the supplies and materials used by the Debtors to extract and process coal, as well as the

Debtors’ remote location, the Debtors rely on specific vendors, suppliers, and consultants to


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provide the Debtors with goods and services necessary for the Debtors’ business to function

properly safely and in full compliance with applicable federal and state regulations. The goods

and services provided by the Debtors’ vendors, suppliers and consultants are, therefore, essential

to the day-to-day operations of the Debtors’ business.

155. Given the importance of the Debtors’ vendors, suppliers, and consultants to the

Debtors’ business enterprise, the Debtors determined that it was necessary and prudent to identify

the vendors, suppliers, and consultants that are most critical to the Debtors’ go-forward operations

(collectively, the “Critical Vendors”). After a thorough review of their mining operations and

diligence regarding potential alternative vendors, suppliers, and consultants, the Debtors

determined, in the exercise of their business judgment, that goods and services provided by the

Critical Vendors are necessary at this critical juncture to the success of these chapter 11 cases, so

as to avoid irreparable harm to the Debtors’ business, preserve the value of the Debtors’ estates,

and allow for a successful sale process.

156. In identifying Critical Vendors, the Debtors considered the following three general

criteria: (a) whether the Debtors are required to use the particular vendor by their lender, customers

or another third-party; (b) whether the vendor would be prohibitively expensive or time-

consuming to replace, such as where the Debtors’ existing inventory, equipment, or coal mining

and processing processes are specifically tailored to that vendor’s products or services; and

(c) whether the vendor is a sole-source or limited-source supplier of goods or services of the quality

and quantity required by the Debtors, without whom the Debtors could not continue to operate

without disruption. The Debtors also considered the financial condition of their vendors and

service providers to the extent such information was known, including each vendor’s or supplier’s


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level of dependence on the Debtors’ continued business and whether such vendor or supplier is

itself financially distressed.

157. If the Critical Vendors are not paid, their unwillingness to continue to service the

Debtors could cause an interruption of the Debtors’ business.20 Such interruption could have

drastic consequences for the operations of the Debtors’ due to the lack of alternative suppliers or

service providers in many situations, or the amount of time needed to locate and convert to

alternative sources. Such interruption would also negatively affect the Debtors’ revenue and

further strain their liquidity.

158. The Critical Vendors provide various products, services, and goods essential to the

Debtors’ business, including, but not limited to, security, safety, parts and equipment, maintenance

and repair, environmental testing, shipping, permitting, surveying and mapping, and information

technology. The Debtors intend to provide a schedule of the Critical Vendors to the U.S. Trustee

and the Creditors’ Committee on a confidential basis and will provide a copy of the same to the

Court for in camera review. No other disclosure of the identity of the Critical Vendors is

contemplated in order to best protect the rights and interests of the Debtors, their estates and

creditors.

159. Moreover, the continued availability of trade credit in amounts and on terms

consistent with those that the Debtors enjoyed prepetition is necessary for the Debtors to maintain

the liquidity for operations and preserve the customer base and vendor network that is essential to

20 The Debtors may need to identify vendors as Critical Vendors even if the Debtors’ relationships with those vendors are contractual. Additionally, for contracts of a short duration or where the vendor is operating under a purchase order, there is a risk that failure to pay prepetition amounts may result in the counterparties refusing to renew those contracts or accept a new purchase order. To the extent the Debtors’ relationships with the Critical Vendors are contractual, the Debtors may assume the contracts with those Critical Vendors later in these chapter 11 cases, in which case the prepetition obligations owed to those Critical Vendors would be paid in full. Accordingly, the relief requested herein should only affect the timing of payment of those Obligations (as defined below) and will not prejudice the rights of other parties-in-interest.


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the Debtors’ efforts to maximize the value of their estates. The Debtors believe that preserving

working capital through the retention or reinstatement of Customary Trade Terms (as defined

below) will enable the Debtors to maintain their competitiveness and to maximize the value of

their business. Conversely, a deterioration of trade credit and disruption or cancellation of

deliveries of goods and services would hinder the Debtors’ operations and undermine their ability

to generate revenue and ultimately to maximize the value of these estates.

160. In sum, the failure to pay the prepetition amounts owed to Critical Vendors (the

“Obligations”) could critically damage the Debtors, their estates, their creditors and other parties

in interest and undermine the prospects for a successful chapter 11 process. In addition, without

Customary Trade Terms (defined below), the Debtors could lose an inexpensive and existing

source of financing. Indeed, failure to pay the Obligations may result in Critical Vendors ceasing

to do business with the Debtors altogether. The Debtors believe that having the ability to satisfy

the Obligations is necessary to preserve value. Accordingly, the Debtors seek authority to pay, in

consultation with the U.S. Trustee and the Creditors’ Committee, as applicable, and based on the

Debtors’ reasonable business judgment, prepetition Obligations on a case-by-case basis.

B. Proposed Payment Terms

161. The Debtors believe that payment of the Obligations is vital to maximizing the

value of the Debtors’ estates for the benefit of all parties-in-interest. However, the Debtors propose

to condition, in the Debtors’ discretion, the payment of the Obligations upon the agreement of each

Critical Vendor to continue supplying services on terms, and based on practices and programs in

effect between the Critical Vendor and the Debtors in the year prior to the Petition Date (the

“Customary Trade Terms”), or such other trade terms as are agreed to by the Debtors and the

Critical Vendor. The Debtors reserve the right to negotiate new trade terms with the Critical


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Vendor as a condition to payment of a portion of the Obligations. Payments made on Obligations

pursuant to this Motion shall be applied first to any claim of such Critical Vendors under section

503(b)(9) of the Bankruptcy Code. Moreover, the Debtors may, in consultation with the U.S.

Trustee and the Creditors’ Committee, as applicable, settle all or some of the Obligations for less

than their face amount without further notice or hearing. Nothing in the Motion or any order of

this Court approving the Motion should be construed as a waiver by any of the Debtors of their

rights to contest any invoice of the Critical Vendor under applicable non-bankruptcy law.

162. If a Critical Vendor refuses to supply services to the Debtors on Customary Trade

Terms following payment of any portion of the Obligations, the Debtors seek authority, in their

discretion, and without further order of the Court, to deem any payments made to the Critical

Vendor on account of the Obligations to have been in payment of then-outstanding postpetition

claims of the Critical Vendor (the “Terminated Obligor”). If, however, the Debtors choose not to

terminate the critical vendor status of a Critical Vendor immediately upon a refusal by a Critical

Vendor to provide services in accordance with Customary Trade Terms, the Debtors shall not be

deemed to have waived the ability to terminate a Critical Vendor or waived the ability to deem any

payments made to the Critical Vendor on account of the Obligations to have been in payment of

then-outstanding postpetition claims of such Critical Vendor.

163. In the event the Debtors exercise the rights set forth in the preceding paragraph, the

Debtors request that the Terminated Obligor be required to immediately return any payments made

on account of its Obligations to the extent that such payments exceed the postpetition amounts

then owed to the Terminated Obligor, without giving effect to any rights of setoff or reclamation.

In the event that the Terminated Obligor refuses to acknowledge such recharacterization and to

issue the repayment, the Debtors propose that they be authorized to compel such recharacterization


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and repayment by a motion on such notice as is required by this Court or by the Local Bankruptcy

Rules for the Western District of Kentucky.

164. I believe that the relief requested in the Critical Vendors Motion is reasonable and


XII. Debtors’ Motion for an Order Authorizing, but not Directing, the Debtors to (A) Continue Prepetition Insurance Coverage and (B) Maintain Prepetition Premium Finance Agreement (the “Insurance Motion”)

165. Pursuant to the Insurance Motion, the Debtors seek entry of an order authorizing,

but not directing, the Debtors to (a) continue to maintain and administer their prepetition insurance

policies and revise, extend, renew, supplement, or replace such policies, as needed, (b) pay or

honor prepetition obligations outstanding on account of the Debtors’ Insurance Obligations (as

defined below), and (c) continue to maintain their premium finance agreement and revise, extend,

renew, supplement, or replace such agreement, as needed.

A. The Debtors’ Insurance Policies

166. In the ordinary course of the Debtors’ business, the Debtors maintain a number of

insurance policies that provide coverage for, among other things, directors and officers liability,

commercial general liability, automobile liability, mine property liability, commercial inland

marine liability, property damage liability, and business interruption liability (collectively, the

“Policies”).21 A schedule of the current Policies, terms and annual insurance premiums is attached

to the Insurance Motion as Exhibit A.22 Last year, the Debtors’ annual insurance premiums for

the Policies, together with the associated taxes and fees for the Policies (collectively, the

21 The Policies provide coverage to the Debtors and certain of their non-debtor affiliates. 22 In addition to the Policies discussed in this Motion, the Debtors maintain numerous insurance programs with respect to employee health, medical and life insurance benefits and programs, including workers’ compensation, which are addressed in a separate motion filed contemporaneously herewith.


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“Premiums”), totaled approximately $1.05 million. The Debtors estimate that there are no

outstanding Premiums due as of the Petition Date.

167. Additionally, certain of the Policies may be due for renewal within the next month,

such as the directors and officers insurance policy, which must be renewed by March 14, 2020.

The Policies are essential to the preservation of the value of the Debtors’ business, property, and

assets. In addition, in many cases, the coverage provided under the Policies is required by various

law and contracts that govern the Debtors’ commercial activities and, as such, are necessary for

the continuation of the Debtors’ business operations.

B. Broker

168. The Debtors have historically employed Van Meter Insurance Agency, Inc. (the

“Broker”) to assist them with certain insurance services including, among other things,

procurement and negotiation of the majority of their Policies and insurance claims management.

Specifically, the Debtors have employed the Broker to provide risk management advice and assist

with the procurement, placement, and negotiation of the Policies. Employment of the Broker

allows the Debtors to obtain the insurance coverage necessary to operate their business in a

reasonable and prudent manner and to realize savings in the procurement of the Policies. For the

last policy year, the Debtors’ brokerage fees to the Broker totaled approximately $20,000. The

payment of all annual brokerage fees are covered by the Debtors’ insurance premium financing

arrangement with FIRST Insurance Funding, a Division of Lake Forest Bank & Trust Company,

N.A. (“FIRST”), as further described below.

C. Claims Reconciliation

169. The Debtors manage and settle insurance claims as they arise in the ordinary course

of business. Once an insurer notifies the Debtors of an insurance claim, the Debtors, at times with


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the assistance of the Broker, resolve or pay the applicable insurance claim without the assistance

of a third party professional.

D. The Debtors’ Premium Financing Arrangements

170. Since it was not economically feasible for the Debtors to pay the premiums on all

of the Policies on a lump-sum basis, in the ordinary course of the Debtors’ business, the Debtors

financed their Premiums on substantially all of their Policies, absent their directors and officers

liability Policy, pursuant to two Commercial Premium Finance Agreements (collectively, the

“Finance Agreements”) with FIRST. A copy of the Finance Agreements are attached to the

Insurance Motion as Exhibit B and further described below.

171. Pursuant to the Debtors’ Finance Agreements with FIRST, the Debtors finance the

Premiums for the Policies covering (i) property damage and business interruption, (ii) commercial

general liability, and (iii) automobile liability (the “FIRST Policies”). In other words, the only

Policy not financed by the Finance Agreements is the Debtors’ liability insurance policy for their

directors and officers.

172. Before the Petition Date, the Debtors made a payment to FIRST in the amount of

approximately $90,000 and financed the remaining approximately $850,000 amount for the

Premiums. Pursuant to the Finance Agreement, the Debtors agreed to pay 19 monthly installment

payments, including a total finance charge of approximately $22,000, representing an annual

interest rate of approximately 5.7%. To secure their payment obligations, the Debtors assigned to

FIRST (a) a security interest in the FIRST Policies and any sums payable to the Debtors under the

FIRST Policies (such as return premiums, dividend payments and loss payments) and (b) in any

circumstance in which the premiums related to any of the FIRST Policies could become fully

earned in the event of loss, the right to be named a loss-payee under the FIRST Policies.


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173. The Debtors are not aware of any finance company that will provide insurance

premium financing to the Debtors on an unsecured basis. If the Debtors are unable to continue to

make the payments due under the Finance Agreements, FIRST may seek relief from the automatic

stay to cancel the FIRST Policies and collect any unearned Premiums. The Debtors would then

be required to obtain replacement insurance on an expedited basis and at a substantial cost to the

estates. Any cancellation or suspension of the FIRST Policies would also place the Debtors’

enterprise at risk of noncompliance with various laws. It may also cause a loss in value for the

Debtors’ mine if a casualty, natural disaster or other unforeseen events occurs during the ordinary

course of their business. If the Debtors were required to obtain replacement insurance and make

a lump-sum payment with respect to the FIRST Policies and/or the Finance Agreement in advance,

this payment would likely be greater than what the Debtors currently pay. Thus, any interruption

of payment would have a severe, adverse effect on the Debtors’ ability to finance premiums for

future policies and would put the Debtors at risk.

174. I believe that the relief requested in the Insurance Motion is reasonable and


XIII. Debtors’ Motion for Entry of Interim and Final Orders (A) Authorizing Postpetition Secured Financing; (B) Authorizing the Debtors to Use Cash Collateral; (C) Providing Adequate Protection to the Prepetition Secured Parties; (D) Modifying the Automatic Stay; (E) Scheduling a Final Hearing; and (F) Providing Related Relief (the “DIP Motion”)

175. By the DIP Motion, the Debtors are requesting entry of interim and final orders (a)

authorizing the Debtors to obtain senior secured postpetition financing in an aggregate principal

amount of $7.5 million (the “DIP Loan”) on the terms set forth in the Secured Debtor-In-

Possession Loan Agreement evidencing the DIP Loan attached to the Interim Order as Exhibit A


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(the “DIP Credit Agreement”), (b) granting the DIP Finance Parties23 first priority liens and

security interests in all of the Debtors’ currently owned and after acquired property, subject to

certain priorities existing as of the Petition Date, including a senior priming lien in all Prepetition

Collateral subject to the Prepetition Secured Parties’24 prepetition liens, to secure the DIP

Obligations under the DIP Loan as further set forth herein, (c) subject to the Carve-Out, granting

the DIP Finance Parties’ claims superpriority administrative status pursuant to section 364(c)(1)

of the Bankruptcy Code in respect of all DIP Obligations under the DIP Credit Agreement with

priority in payment with respect to such obligations over any and all administrative expenses of

the kinds specified in sections 503(b) and 507(b) of the Bankruptcy Code, other than the Carve-

Out and as described below, (d) pursuant to the terms of the Financing Orders, authorizing the

Debtors to use cash collateral within the meaning of section 363(a) of the Bankruptcy Code,

pursuant to section 363(c) of the Bankruptcy Code, (e) providing adequate protection pursuant to

sections 361, 363(e) and 364(d) of the Bankruptcy Code, (f) modifying the automatic stay pursuant

to section 362(d) of the Bankruptcy Code, (g) authorizing the funding of postpetition allowed fees

and expenses of professionals, including those amounts to be paid pursuant to the Carve-Out

Escrow and Postpetition Fee Escrow, (h) in accordance with Bankruptcy Rule 4001(c)(2),

scheduling a final hearing to consider the Final Order (the “Final Hearing”) and approving the

form and manner of notice of the same, and (i) granting related relief.

23 Capitalized terms used in this introductory section which are not defined shall have the meanings ascribed to them below. 24 Defined as the “Finance Parties” in the Prepetition Credit Agreement.


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A. Summary of DIP Loan Terms

176. The material terms of the DIP Loan and DIP Credit Agreement can be summarized

as follows:

Term Summary25 Provision in Relevant

Document(s) Borrower Hartshorne Mining Group LLC (“Hartshorne Group”), a Delaware

limited liability company, as a debtor in possession (the “Borrower”). DIP Credit Agreement: Preamble;

See also Interim Order: Defined term on p.1

Guarantors Hartshorne Holdings, LLC (“Hartshorne”), Hartshorne Mining, LLC (“Hartshorne Mining”), and Hartshorne Land, LLC (“Hartshorne Land”), each as a debtor in possession (collectively with the Borrower, the “Debtors” or “Loan Parties”).

DIP Credit Agreement: Preamble;

See also Interim Order: Defined terms on p.1

DIP Agent Tribeca Global Resources Credit Pty Ltd, as Agent (in such capacity, the “DIP Agent”).



DIP Security Trustee

Global Loan Agency Services Australia Nominees Pty Ltd, as Security Trustee (in such capacity, the “DIP Security Trustee”).



DIP Lenders (a) Equity Trustees Limited, as trustee of the Tribeca Global Natural Resources Credit Fund, (b) Tribeca Global Natural Resources Credit Master Fund, and (c) any other institution that becomes party to the DIP Credit Agreement as a lender in accordance with the terms of the DIP Documents (in such capacities, collectively, the “DIP Lenders,” and together with the DIP Agent and DIP Security Trustee, the “DIP Finance Parties”).



25 The following chart is supplied for informational purposes only. In the event of any conflict between the DIP Credit Agreement and Interim Order and this chart, the DIP Credit Agreement and Interim Order shall control.


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Document(s) Commitment and Borrowings

A priming, superpriority senior secured debtor in possession new money term loan in an aggregate principal amount of $7.5 million (the “Aggregate DIP Commitments,” and each DIP Lender’s commitment to the Aggregate DIP Commitments, its “DIP Commitment”) (such obligations, collectively, the “DIP Loans” and all other obligations in respect of the DIP Loan, the “DIP Obligations”). The Aggregate DIP Commitment and the DIP Commitment of each DIP Lender, shall be set forth on a schedule to the DIP Credit Agreement as of the date of satisfaction of the “Conditions Precedent to Closing Date” listed below (the date of such satisfaction, the “Closing Date”).

During the period beginning with the entry of the Interim Order and ending on the date the Final Order (as defined below) is entered by the Court (the “Final Order Date”), $1.25 million of the Aggregate DIP Commitments (the “Interim Availability Amount”) shall be available to be drawn by the Borrower as DIP Loans in accordance with the Initial Budget and subject to the terms of the DIP Credit Agreement.

Upon the occurrence of the Final Order Date, any unused portion of the Interim Availability Amount plus the amount of the Aggregate DIP Commitments in excess of the Interim Availability Amount shall be available to be drawn as the DIP Loan at any time prior to the Maturity Date (as defined in the DIP Credit Agreement) in accordance with the DIP Credit Agreement and the Initial Budget or any Updated Budget, as applicable.

The DIP Loans may be voluntarily prepaid at the option of the Loan Parties, in whole or in part, without premium or penalty.

DIP Credit Agreement: Section 1.1;

See also Interim Order: Defined terms on p.2,14

Maturity Date The DIP Loan shall mature, being the later of (a) the date that is 120 days after the Closing Date; provided, however, that such date shall be extended automatically for one 30-day period in the event that the Loan Parties have received one or more Qualified Bids, irrespective of the expiration of any applicable Milestone, or (b) 5 business days after the expiration of the Sale Closing Date; or the earlier of (w) 45 days after the entry of the Interim Order if the Final Order has not been entered by the Court prior to the expiration of such period, (x) the consummation of an Acceptable Sale, (y) the effective date of a plan of reorganization or liquidation, and (z) the date of acceleration of the DIP Loan in accordance with the terms of the DIP Credit Agreement. In no event shall the Maturity Date be later than 150 days from the Petition Date.

“Acceptable Sale” means one or more sales (whether or not such sale(s) is made by way of a credit bid), of all or substantially all of the assets of the Debtors’ estates, which sale(s) result in sufficient distributable net proceeds to satisfy all of the allowed administrative expenses in the chapter 11 cases.

DIP Credit Agreement: Schedule I;



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Document(s) Mandatory Prepayment

Mandatory prepayment of the DIP Loan shall be required with 100% of the net cash proceeds received from the incurrence of indebtedness not permitted by the express written consent of the DIP Agent acting on behalf of the DIP Lenders in their sole discretion.

DIP Credit Agreement: Section 1.1(f)(i).

Collateral Sale Proceeds

Until such time as all obligations under the Carve-Out shall have been indefeasibly paid in full, the Loan Parties shall maintain in escrow (the “Carve-Out Escrow”) net cash proceeds from any sales, recoveries or other dispositions (including casualty events) of any Prepetition Collateral, but excluding the sale of inventory in the ordinary course of business (collectively, the “Net Sale Proceeds”) an amount equal to the lesser of (a) 100% of the Net Sale Proceeds, or (b) the maximum projected Carve-Out set forth in the Budget (the “Minimum Carve-Out Amount”), less the Postpetition Fee Escrow; provided, however, that in the event the amount of the Carve-Out Escrow at any time is insufficient to indefeasibly satisfy in full the payments required to be made pursuant to the Carve-Out, each DIP Lender shall be required to replenish its ratable share of the Carve-Out Escrow from any Net Sale Proceeds which they have received in an amount sufficient to satisfy the Minimum Carve-Out Amount.

“Postpetition Fee Escrow” shall mean $1,000,000 deposited by the DIP Lenders on the Closing Date into an escrow account maintained by the Loan Parties for the sole benefit of the allowed fees and expenses of those professionals retained pursuant to Court order in the chapter 11 cases. An additional $500,000 will be added by the DIP Lenders to the Postpetition Fee Escrow on April 15, 2020 with the same terms. A maximum of $100,000 of the Postpetition Fee Escrow shall be available for non-Debtor professionals. For the avoidance of doubt, the Postpetition Fee Escrow and the funds deposited therein shall not be subject to any lien or security interest, including but not limited to the Prepetition Lender Liens or the DIP Liens, and shall be maintained for the exclusive benefit of professionals retained by the Debtors and a Committee and shall not be used for any other purpose, nor will they be, nor shall they be deemed to be property of the Debtors’ estates or any chapter 7 estate in the event any of the chapter 11 cases are converted to cases under chapter 7. To the extent there are funds remaining in the Postpetition Fee Escrow after payment of all professional fees and expenses permitted to be paid from the Postpetition Fee Escrow, the balance shall be utilized to pay any amount remaining unpaid on the DIP Loan.

DIP Credit Agreement: Section 1.1(f)(ii), Schedule I;

See also Interim Order: Defined terms on p.20-21.

Drawdown Fee 2.5% of the Aggregate DIP Commitments to be paid in kind at the DIP Maturity Date to the DIP Agent.

DIP Credit Agreement: Section 1.1(a);

See also Interim Order: Referenced on p.17


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Document(s) DIP Agent Fee A fee of $50,000.00 shall be paid to the DIP Agent at the Closing

Date.

DIP Credit Agreement: Section 2.1(j);


DIP Security Trustee Fee

A fee of $17,500.00 shall be paid to the DIP Security Trustee at the Closing Date.

DIP Credit Agreement: Section 2.1(j);


Interest Rate Each Debtor on the DIP Loan shall bear interest at the rate of 10% per annum. If any principal of or interest on the DIP Loan or other Postpetition Debt (as defined in the DIP Credit Agreement) under the DIP Credit Agreement is not paid when due, whether at the Maturity Date, upon acceleration or otherwise, such overdue amount shall bear interest for the period after the due date, after as well as before judgment, at the rate of 11% per annum. All interest shall be computed on the basis of a year consisting of 360 days and shall be calculated based on the daily principal amount outstanding for such period. All interest shall be payable in kind and shall be paid in full at the Maturity Date.

DIP Credit Agreement: Section 1.1(g);


Security for Indebtedness, Superpriority Claims

All DIP Obligations shall be secured, pursuant to sections 361, 362, 364(c)(2), 364(c)(3), and 364(d) of the Bankruptcy Code, by a valid, binding, continuing, enforceable, fully-perfected, non-avoidable, automatically and properly perfected first priority senior priming lien on, and security interest in (such liens and security interests, but subject to the exclusions below, the “DIP Liens”) the Prepetition Collateral held by the Prepetition Secured Parties, which includes all present and after acquired property (whether tangible, intangible, real, personal or mixed) of the Debtors, wherever located, including, without limitation, all accounts, inventory, equipment, vehicles, capital stock in subsidiaries of the Debtors, investment property, instruments, chattel paper, real estate, leasehold interests, contracts, patents, copyrights, trademarks and other general intangibles, and all products and proceeds thereof (all such property, the “DIP Collateral”); provided, however, that the DIP Liens shall not prime and shall be in second and inferior position to the liens of (i) Old National Bank on the LC Deposit Accounts (as defined in the DIP Credit Agreement), (ii) Argonaut Insurance Company, and (iii) Komatsu Financial Limited Partnership (“Komatsu”) (including, without limitation, Liens on the “Komatsu Priority Collateral” as that term is defined in that certain Intercreditor Agreement, dated as of April 30, 2019, between Hartshorne Mining, the Prepetition Security Trustee and Komatsu) (collectively, the “Permitted Creditor

DIP Credit Facility: Schedule I (DIP Collateral, Permitted Creditor Liens, Postpetition Security Interest);

See also Interim Order: Referenced on p.19-20


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Document(s) Liens”).26 For the avoidance of doubt, the DIP Collateral does not include (i) the Carve-Out, (ii) the Postpetition Fee Escrow or (iii) any claims or causes of action under chapter 5 of the Bankruptcy Code or any commercial tort claims, including any proceeds of any of the foregoing. Other than the Carve-Out, the DIP Liens shall be senior to any and all other liens and security interests on the DIP Collateral, including the liens securing the Prepetition Secured Obligations (the “Prepetition Lender Liens”) and the Adequate Protection liens granted to the Prepetition Secured Parties under the Interim Order.

Subject only to the Carve-Out, the DIP Obligations shall constitute claims entitled to the benefits of section 364(c)(1) of the Bankruptcy Code, having superpriority over any and all administrative expenses and claims, of any kind or nature whatsoever, including, without limitation, the Adequate Protection claims granted to the Prepetition Secured Parties under the Interim Order and the Final Order, and the administrative expenses of the kinds specified in or ordered pursuant to sections 105, 326, 327, 328, 330, 331, 361, 362, 363, 364, 365, 503, 506, 507(a), 507(b), 546, 552, 726, 1113, and 1114 of the Bankruptcy Code, and any other provision of the Bankruptcy Code (“DIP Claims”).

Carve-Out “Carve-Out” shall mean any amount so designated in the Initial Budget or an Updated Budget, not to exceed $3 million. For the avoidance of doubt, the Carve-Out shall not constitute property of the Debtors’ estates and shall be senior in priority to (a) the Prepetition Lender Liens, (b) the DIP Liens, (c) the DIP Collateral, (d) any administrative, priority, superpriority, general unsecured or other claims, and (e) all other liens, claims and encumbrances of any party, whether such liens, claims or encumbrances arose prior or subsequent to the Petition Date, including any fees or claims by any trustee or any professionals retained by any trustee appointed or elected in the chapter 11 cases or in any chapter 7 case of any of the Debtors. To the extent there are funds remaining in the Carve-Out after payment of all expenses and other obligations of any kind permitted to be paid from the Carve-Out, the balance shall be utilized to pay any amount remaining unpaid on the DIP Loan.

DIP Credit Agreement: Schedule I;


Events of Default The occurrence of any of the following events, unless waived by the DIP Agent in writing, shall constitute an (each, an “Event of Default” and collectively, the “Events of Default”):

(a) Failure to Pay. Any Debtor shall fail to pay when

due any principal payment on the DIP Loan, or any interest or other payment required under the terms of the DIP Credit Agreement;

DIP Credit Agreement: Article 5;


26 Nothing in this Interim Order shall be construed as consent to the validity of the claim of any party, or granting any party a valid, perfected enforceable lien on any of the Debtors’ property, except to the extent provided herein to the DIP Finance Parties and Prepetition Secured Parties. The Debtors reserve all rights to object to any claim or purported security interests or liens on the estates’ property.


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Document(s) (b) Breaches of Representations and Warranties. Any

representation or warranty made by any Debtor in the DIP Credit Agreement shall not have been true when made;

(c) Breaches of Other Covenants. Any Debtor shall

fail to observe or to perform any other covenant, obligation, condition or agreement contained in the DIP Credit Agreement, and solely in the case of any non-monetary covenant default, such failure continues for five business days after notice of the breach is delivered to counsel for the Debtors;

(d) Compliance with Initial Budget and Updated

Budget. The Debtors shall make any expenditure using Cash Collateral or proceeds from the DIP Loan that is in excess of the amounts permitted by the Initial Budget or Updated Budget, as applicable, for such expenditure or otherwise not in compliance with the Initial Budget or Updated Budget, as applicable, without the prior written consent of the DIP Agent; provided, however, that such consent is not necessary, and it shall not constitute an Event of Default hereunder, to the extent that the Debtors are in compliance with the Minimum Liquidity Covenant;

(e) Chapter 11 Cases. If any of the chapter 11 cases

shall be (i) dismissed (or the Court shall make a ruling requiring the dismissal of a chapter 11 case) pursuant to section 1112 of the Bankruptcy Code, (ii) converted to a case or cases under chapter 7 of the Bankruptcy Code; or (iii) a trustee or examiner with expanded powers shall be appointed in any of the chapter 11 cases;

(f) Sale of Assets. Any Debtor shall sell all or

substantially all of such Debtors’ assets pursuant to section 363 of the Bankruptcy Code or otherwise, including but not limited to pursuant to any plan or reorganization (including any liquidating plan), unless (i) such asset sale is consummated pursuant to a Court-approved 363 asset sale procedure (the “Sale Procedure Order”) or with the written consent of DIP Agent, or (ii) the DIP Loan has been paid in full;

(g) Compliance with any Order of the Court. Any

Debtor shall fail to timely comply with any of its material obligations under the Financing Orders, the Sale Procedure Order or any other order entered by the Court which would impair or effect the rights of the DIP Finance Parties;

(h) Plan of Reorganization. Any Debtor or any other

person shall propose any plan of reorganization that does not provide for payment in full, in cash, on the effective date thereof, of all of the outstanding DIP Loan, or the Court enters an order confirming any plan of reorganization (including any liquidating plan) or approving the sale of all or any material portion of the assets or business of the Debtors without the DIP Agent’s prior written consent, such consent not to be unreasonably withheld;


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Document(s)

(i) Third-Party Financing. Any Debtor shall file any motion seeking postpetition financing or an extension of postpetition credit other than pursuant to the DIP Credit Agreement;

(j) Entry of Sale Procedure Order. After entry of the

Sale Procedure Order by the Court, without the DIP Agent’s prior written consent, such Sale Procedure Order is modified, amended, stayed, vacated or reversed in whole or in part such that it would impair or adversely affect the rights of the DIP Finance Parties; and

(k) Failure to Meet Milestones. The Debtors’ failure to

meet any of the Milestones by the date, or by any applicable extended date, such Milestone is required to be met.

Budget and Information Requirements

Weekly Reporting. Commencing on the first Thursday after the first week ending following the Closing Date, and on each subsequent Thursday thereafter, the Debtors will provide a “Variance Report” to the DIP Agent containing a report (i) showing actual cash receipts and disbursements for the immediately preceding weeks from the Closing Date, noting therein all variances, on a line-item basis, from amounts set forth for such period in the Initial Budget, and including explanations for all material variances, (ii) an update of the Initial Budget to reflect the prior week’s actual cash receipts and disbursements, and (iii) as appropriate, an update to the remaining weeks under the Initial Budget or an Updated Budget. In addition, the Debtors shall provide the DIP Agent with daily, weekly and monthly mining reports (in each case consistent with such reports being provided to the Prepetition Secured Parties as of the Petition Date) and such other information as the DIP Agent shall reasonably request. Monthly Reporting. On the Tuesday of the week following the last full week in any calendar month, beginning on March 31, 2020 and every month thereafter, the Debtors shall, in form and substance satisfactory to the DIP Agent in its sole discretion, deliver a new cash flow forecast (if such cash flow forecast is approved by the DIP Agent, such cash flow forecast shall be an “Updated Budget”); provided, however, that the failure of the DIP Agent to approve an Updated Budget shall not be, nor shall it be deemed to be, an Event of Default as long as the Debtors are otherwise in compliance with the existing Initial Budget or Updated Budget, as applicable, and the Minimum Liquidity Covenant. Payment Default. Each Debtor shall furnish to the DIP Agent prompt written notice of the occurrence of any payment default or Event of Default. Each notice delivered under this Section 13(d) shall be accompanied by a statement of such Debtors’ Chief Restructuring Officer or other executive officer setting forth the detail of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.




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Document(s) Variance Calculation. The Debtors shall maintain, as of the end of the last full week in any calendar month following the Closing Date (“Measurement Period”), a Net Liquidity greater than the Net Liquidity included in the Initial Budget or Updated Budget, as applicable, less the Permitted Variance Amount. The Debtors will report compliance with the foregoing covenant (the “Minimum Liquidity Covenant”) on the first Thursday following each Measurement Period. “Permitted Variance Amount” means (a) $500,000.00 on February 28, 2020 and March 27, 2020; (b) $1,000,000.00 on April 24, 2020 and May 29, 2020; and (c) $1,500,000.00 on June 26, 2020; provided, however, if the Debtors convert their operations to “care and maintenance,” for whatever reason from and after the date of such conversion to “care and maintenance”, the Permitted Variance Amount shall be the C&M Permitted Variance Amount. “C&M Permitted Variance Amount” means the sum of: (a) the total of (i) the Net Liquidity included in the Initial Budget or Updated Budget, as applicable, as of the last day of the time period covered by the immediately preceding weekly report delivered by the Loan Parties, minus (ii) the actual Net Liquidity as calculated in such weekly report; plus (b) $500,000.00; provided, however, in no event shall the C&M Permitted Variance Amount be less than $500,000.00 or greater than $1.5 million. Operation Conversion. The DIP Finance Parties may, in consultation with the Debtors’ Chief Restructuring Officer, provide written notice to the Debtors at any time after the fourteenth day after the Closing Date, to require the Debtors to modify their operations to “care and maintenance.” If such notice is given, the Debtors shall convert to “care and maintenance” as soon as reasonably possible but in any event within fourteen days of receipt of such notice. Upon conversion to “care and maintenance,” (a) the Debtors and the DIP Finance Parties will continue to abide by the DIP Credit Agreement and Financing Orders, each of which shall remain in full force and effect and (b) the Debtors will operate in accordance with an Updated Budget that reflects adjustments to the Initial Budget made necessary by the change in method of operation. The Debtors and DIP Finance Parties shall cooperate in good faith to agree on such an Updated Budget that is modeled after the care and maintenance budget attached to that certain side letter entered into on or prior to the Petition Date reflecting a conversion to care and maintenance as of March 9, 2020.

Conditions to the Closing Date and First Advance

The obligation of the DIP Lenders to make the first Loan Advance (as defined in the DIP Credit Agreement) under the DIP Credit Agreement is subject to the satisfaction (or waiver by the DIP Agent), at or before the first Borrowing Date (as defined in the DIP Credit Agreement), of the following conditions:

(a) Interim Order. The Court shall have entered the Interim Order, in form and substance acceptable to the DIP Finance




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Document(s) Parties in their reasonable discretion, and such Interim Order shall be in full force and effect, and the Interim Order shall not have been modified and shall not be subject to any appeal, and the consummation of the transactions contemplated under the DIP Credit Agreement shall not be stayed by an order of any court.

(b) Chief Restructuring Officer. Bertrand Troiano of

FTI Consulting, Inc. (or such other individual approved in advance by the DIP Agent), shall have been retained by the Debtors to act as the chief restructuring officer of the Debtors, with the final authority to approve (i) all disbursements after the Petition Date, and (ii) all contractual obligations entered into after the Petition Date.

(c) Representations and Warranties Correct. The

representations and warranties of each Debtor contained in the DIP Credit Agreement are true and correct in all material respects, in each case as of the date of the DIP Credit Agreement and as of the first Borrowing Date (as defined in the DIP Credit Agreement), with the same effect as though made as of the date of the DIP Credit Agreement, except that the accuracy of representations and warranties that by their terms speak only as of a specified date will be determined as of such date.

(d) Performance of Obligations. Each Debtor shall

have performed or complied in all material respects with all agreements and covenants required to be performed or complied with by it under the DIP Credit Agreement and each other Postpetition Loan Document at or prior to the first Borrowing Date.

(e) Budget and Material Adverse Effect. The DIP

Agent shall have approved the Initial Budget and, if applicable, the Updated Budget and, since entry of the Interim Order, no event shall have occurred that has had, or would reasonably be expected to have, a Material Adverse Effect.

(f) Officer’s Certificate. Each Debtor shall have

delivered to the DIP Agent a certificate, in form and substance reasonably acceptable to the DIP Agent, executed by a duly authorized officer of such Debtor, dated as of the first Borrowing Date, certifying as to the authenticity and continued effectiveness of attached copies of its Certificate of Incorporation or Certificate of Formation, as applicable, and Bylaws or limited liability company agreement, as applicable, in each case as the same may be amended from time to time, and resolutions of its board of directors, stockholders or members, as applicable, approving the transactions entered into in connection with the DIP Credit Agreement and authorizing specific officers or other Persons to execute and deliver the DIP Credit Agreement, as applicable.

(g) Definitive Transaction Documents. A Notice of

Borrowing shall have been issued and delivered by each Debtor to the


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Document(s) DIP Agent. Each Debtor shall have delivered to the DIP Agent each of the other Postpetition Loan Documents (as defined in the DIP Credit Agreement), as applicable, in each case duly executed by an authorized signatory of such Debtor.

(h) Necessity of Loan. The Debtors shall certify to the

DIP Agent in the Notice of Borrowing that the borrowing will be used for Approved Purposes.

(i) Milestones. The Debtors shall have met each

Milestone, if any, required to be met on or prior to the first Borrowing Date.

(j) DIP Finance Parties’ Fees. Such Notice of

Borrowing shall include a request for payment of all fees, attorneys’ fees and expenses for the DIP Lenders, DIP Agent, DIP Security Trustee, and SP2 Royalty Co., LLC. The parties agree those fees are as follows:

Wyatt Tarrant & Combs, LLP: $48,833.59 Herbert Smith Freehills: $19,485.45 DIP Security Trustee: $17,500.00 DIP Agent: $67,913.90, which is comprised of the

$50,000.00 fee plus out-of-pocket travel expenses SP2 Royalty Co., LLC: $20,000.00.

Conditions Precedent to Making Each Subsequent Advance

The obligation of the DIP Lenders to make any Loan Advance to the Debtors after the first Loan Advance made on the first Borrowing Date is subject to the satisfaction (or waiver by the DIP Agent), at or before each such Borrowing Date, of the following conditions:

(a) Representations and Warranties Correct. The representations and warranties of each Debtor contained in the DIP Credit Agreement or in any other Postpetition Loan Document are true and correct in all material respects, in each case with the same effect as though made as of the date of the DIP Credit Agreement and as of the date of the applicable Borrowing Date, except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date.

(b) Performance of Obligations. Each Debtor shall

have performed or complied in all material respects with all agreements and covenants required to be performed or complied with by it under the DIP Credit Agreement and each other Postpetition Loan Document at or prior to the date of the applicable Borrowing Date.

(c) Budget. Each Debtor shall have been conducting

its business in accordance with the Initial Budget and, if applicable, the Updated Budget.




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Document(s) (d) Milestones. The Debtors shall have met each

Milestone, if any, required to be met (after giving effect to any extended date with respect to any such Milestone) on or prior to such Borrowing Date.

(e) Receipt of a Notice of Borrowing. A Notice of

Borrowing shall have been issued and delivered by the Debtors to the DIP Agent.

(f) Effectiveness of Other Postpetition Loan

Documents; No Default or Event of Default. Each of the Postpetition Loan Documents shall continue to be in full force and effect and no Event of Default (or event or circumstance that with notice or the lapse of time, or both, would constitute an Event of Default) shall have occurred and be continuing as of the applicable Borrowing Date, or would result from such advance or from the application of the proceeds thereof.

(g) Material Adverse Effect. Since the Closing Date,

no event shall have occurred that has had or would reasonably be expected to have a Material Adverse Effect.

(h) DIP Finance Parties Expenses. Such Notice of

Borrowing shall include a request for payment of all DIP Finance Parties Expenses that are then payable pursuant to the procedures outlined in Paragraph 6 in the Interim Order.

(i) Financing Orders. The Interim Order or Final

Order, as the case may be, shall be in full force and effect and shall not have been vacated, revised, or modified or stayed in any respect.

(j) Chief Restructuring Officer. Bertrand Troiano of

FTI Consulting, Inc. (or such other individual approved in advance by the DIP Agent), shall have been retained by the Debtors to act as the chief restructuring officer of the Debtors at the time of such drawing, with the final authority to approve (i) all disbursements after the Petition Date, and (ii) all contractual obligations entered into after the Petition Date.

(k) Necessity of Loan. The Debtors shall certify to the

DIP Agent in the Notice of Borrowing that the borrowing will be used for Approved Purposes.

(l) Compliance with Law. The making of such

advance shall not violate any requirement of law and shall not be enjoined temporarily, preliminarily or permanently.


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Document(s) Use of Proceeds The proceeds of the DIP Loan may be used in a manner consistent

with the Initial Budget and, in the cases of payments pursuant to clauses (a) and (b) below, subject to the terms and conditions in the Initial Budget or an Updated Budget from time to time (the “Approved Purposes”): (a) working capital and other general corporate purposes of the Debtors; (b) any Adequate Protection payments required to be made in accordance with the Financing Orders; (c) the Postpetition Fee Escrow; (d) allowed fees of Court-retained professionals for the Debtors and the Committee in accordance with the Initial Budget or an Updated Budget; and (e) the fees and expenses of the DIP Finance Parties and their legal and other advisors in connection with the Prepetition Credit Agreement, the DIP Credit Agreement and the chapter 11 cases, whether incurred prepetition or postpetition. If the Debtors believe in good faith, based on the advice of counsel, that they have a bona fide claim that the DIP Lenders are in breach of their obligations under the DIP Credit Agreement, they may use the proceeds of the DIP Loan to seek appropriate relief from the Court; provided, however, except with respect to a Challenge brought consistent with the terms of the Challenge Period, none of the Carve-Out or the proceeds of the DIP Loan shall be used for payment of any professional or other fees or expenses incurred by any party in connection with (i) the assertion or prosecution of any other claims or causes of action against the DIP Finance Parties or any other person affiliated with the DIP Finance Parties other than for breach of the DIP Credit Agreement, (ii) any challenge to the amount or validity or secured status of the Prepetition Secured Obligations, as acknowledged by the Debtors in Section H.(b) of the Interim Order, or (iii) any challenge or other dispute regarding the extent, validity, characterization, amount, allowance, payment, perfection or priority of any claim, lien, security interest or right granted to the DIP Security Trustee or the Prepetition Security Trustee pursuant to the Financing Orders, the DIP Credit Agreement or the Prepetition Secured Obligations, or otherwise asserted by the DIP Finance Parties or the Prepetition Secured Parties.


See also Interim Order: Referenced in p.13-14

177. Importantly, in connection with reaching an agreement with Tribeca on the DIP

Loan, the Debtors will continue to operate the Poplar Grove Mine in accordance with the budget

(attached to the Debtors’ DIP Motion). Tribeca has the right, commencing fourteen days after the

Petition Date and after consultation with the Debtors’ Chief Restructuring Officer, to require the

Debtors to shift to “care and maintenance,” which would mean ceasing substantially all of the


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Debtors’ mining operations pending a sale of the Debtors’ assets, thus preserving the value of all

assets with minimal expense.

B. Debtors’ Attempts to Obtain Credit

178. Prior to the Petition Date, the Debtors, through PWP, attempted to obtain

postpetition financing proposals from 16 other lenders and financial entities, but were unable to

obtain postpetition financing in the form of unsecured credit allowable as an administrative

expense under section 503(b)(l) of the Bankruptcy Code and/or unsecured credit allowable under

sections 364(a) or 364(b) of the Bankruptcy Code. Of the 16 third party lenders contacted, four

executed an NDA to receive the Debtors’ marketing presentation, projected cash flow budget and

additional balance sheet details. However, the remaining potential third party lenders declined to

sign NDAs for various reasons, including: (a) the short time-frame for diligence, (b) not being

willing to lend on a non-consensual priming basis, (c) having excess exposure in the coal sector,

and/or (d) the Debtors not having sufficient unencumbered assets to support a non-priming loan.

179. In sum, the Debtors were unable to obtain proposals for postpetition financing on

terms and conditions more favorable to the Debtors’ estates than those set forth in the Interim

Order or DIP Credit Agreement. As such, I believe any credit extended by the DIP Finance Parties

on or after the Petition Date pursuant to the terms of the Interim Order and DIP Credit Agreement

should be accorded the benefits of section 364(e) of the Bankruptcy Code. In addition, due to their

urgent financial constraints, I believe the Debtors are presently unable to obtain, in the ordinary

course of business or otherwise, credit allowable under sections 364(c) or 364(d) of the Bankruptcy

Code, except from the DIP Finance Parties on the terms and conditions contained in the Interim

Order and DIP Credit Agreement.


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180. Before reaching agreement on the terms of postpetition financing from the DIP

Finance Parties, the Debtors and the DIP Finance Parties engaged in arm’s length, good faith

negotiations, each with separate and independent counsel. As a result, I believe that the Debtors

have determined in the exercise of their best and reasonable business judgment, that the financing

to be provided by the DIP Finance Parties is the most favorable funding available under the

circumstances and addresses the Debtors’ immediate and necessary financing needs during these

cases. I believe the financing available under the DIP Credit Agreement and the Financing Orders

will enable the Debtors, among other things, to preserve the value of the Poplar Grove Mine and

maximize the value of their estates during a fulsome sale process.

B. Need to Access Cash Collateral

181. By the DIP Motion, the Debtors are requesting authorization to use Cash Collateral

to pay actual, necessary ordinary course operating expenses, as set forth in the Initial Budget,

which includes the costs and expenses associated with maintaining the Debtors’ mine and to

maximize the value of the Debtors’ assets for a proposed sale process. For the avoidance of doubt,

“Cash Collateral” does not include any cash, accounts or deposit accounts held by or for the benefit

of Komatsu, Argo or Old National Bank’s three deposit accounts having account numbers ending

in 3417, 0783, and 8389 (collectively, the “LC Deposit Accounts”), unless otherwise granted to

the Prepetition Security Trustee under the Prepetition Credit Agreement, the Prepetition Pledge

and the Security Agreement or other Prepetition Debt Document.

182. Absent the use of the Cash Collateral, I believe the Debtors will be unable to meet

their ongoing obligations. Approval of interim use of Cash Collateral is crucial and necessary

under the facts and circumstances of these cases, and without such use, the Debtors’ would face

immediate and irreparable harm and their assets would markedly diminish in value going forward.


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Accordingly, I believe that good cause exists for the entry of the Financing Orders authorizing the

immediate use by the Debtors of Cash Collateral in accordance with the Initial Budget. Among

other things, entry of the Financing Orders will allow the Debtors to maintain and operate their

mine sites and preserve their assets while they conduct a fulsome process for the sale of

substantially all of their assets and business operations.

183. Pursuant to the terms of the DIP Credit Agreement and Interim Order, the DIP

Finance Parties and Prepetition Secured Parties have consented to the use of Cash Collateral. I

believe that obtaining the use of Cash Collateral is imperative to the Debtors, their estates, their

creditors, and their ability to conduct a sale process for substantially all of their assets. The Debtors

are therefore asking this Court to authorize the Debtors to use Cash Collateral pursuant to the

Initial Budget. I believe that the use of Cash Collateral on the terms set forth in the attached

proposed Interim Order maximizes the value of the Debtors’ assets for the benefit of all

stakeholders.

184. In consideration for the postpetition use of the Prepetition Collateral, the Debtors

are requesting that the Prepetition Secured Parties be granted, subject to the Carve-Out,

replacement liens on all other assets and superpriority claims as provided for in section 507(b) of

the Bankruptcy Code for any diminution in the value of the Prepetition Secured Parties’ interests

in the Prepetition Collateral, subject to the Carve-Out. Subject to the Carve-Out, all liens perfected

via the Interim Order, and all such liens and superpriority claims shall be junior to claims and liens

securing the DIP Obligations.

C. The DIP Loan, DIP Credit Agreement and Interim Order

185. I believe that, under the current circumstances, the DIP Loan satisfies the Debtors’

urgent financing needs. The Debtors and the DIP Finance Parties engaged in lengthy negotiations


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over the terms of the DIP Credit Agreement and the Interim Order. Those negotiations were

extensive, comprehensive, at arm’s length and in good faith. I believe the Debtors used their best

efforts to negotiate the elimination or narrowing of those provisions implicating issues that counsel

advises are the subject of Bankruptcy Rules 4001(b)(1)(B) and 4001(c)(l)(B). As a result of the

efforts of the Debtors and the DIP Finance Parties to formulate a DIP loan on favorable terms, I

am informed by counsel that there are no provisions in the Interim Order and the DIP Credit

Agreement that the Debtors are required to highlighted as required by Bankruptcy Rules

4001(b)(1)(B) and 4001(c)(1)(B).

186. With regard to the proposed DIP Loan, and as noted above, the Debtors attempted

to secure financing on terms other than a senior secured superpriority basis, but given the Debtors’

asset base and balance sheet, they were unable to do so. The Debtors have been unable to obtain

(a) adequate unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code as an

administrative expense; (b) credit for money borrowed secured solely by a lien on property of the

estate that is not otherwise subject to a lien; or (c) credit for money borrowed secured by a junior

lien on property of the estate which is subject to a lien, in each case, on more favorable terms and

conditions than those provided in the DIP Credit Agreement. In addition, the Debtors are unable

to obtain credit for borrowed money without granting priming liens on the Prepetition Collateral.

Indeed, no sophisticated lender, including the DIP Finance Parties, was willing to extend financing

on anything less than a priming basis accompanied by superpriority claims. Accordingly, I believe

entering into the DIP Credit Agreement is appropriate under the circumstances of these chapter 11

cases.

187. Moreover, I believe that unless the Debtors are authorized to obtain the financing

requested herein, the Debtors will not have sufficient available sources of working capital to


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maintain their mine site while they conduct a sale process—a result that would inevitably force

the Debtors to immediately liquidate and conduct a value-destructive fire sale of their estates’

assets. As detailed herein, I believe the DIP Loan is necessary to preserve the assets of the estates,

as it will allow the Debtors to conduct, among other things, an orderly sale process of the Debtors’

business and operations, and to otherwise satisfy their working capital requirements.

188. I further believe that the terms set forth in the Interim Order are fair, just and

reasonable under the circumstances. I understand and believe that the DIP Loan is ordinary and

appropriate for secured financing to debtors in possession, reflect the Debtors’ exercise of their

prudent business judgment consistent with their fiduciary duties and is supported by reasonably

equivalent value and fair consideration. The terms and conditions of the DIP Credit Agreement

and the Interim Order have been negotiated in good faith and at arms’ length by the Debtors and

the DIP Finance Parties, with all parties represented by counsel. Accordingly, I believe that any

credit extended under the terms of the Interim Order is extended in good faith by the DIP Finance

Parties. Likewise, I understand and believe the fees and other charges required by the DIP Finance

Parties under the DIP Credit Agreement are reasonable and appropriate under the circumstances.

The proposed fees under the DIP Credit Agreement are within the parameters of market fee

structures for similar postpetition financing.

189. Finally, I believe the Debtors’ determination to move forward with the DIP Loan

is plainly an exercise of their sound business judgment entitled to deference from the Court and

should be approved. Specifically, and in the face of depleted liquidity, the Debtors and their

advisors undertook an analysis of the Debtors’ projected financing needs and determined that the

Debtors would require postpetition financing to support their postpetition sale process. The

Debtors negotiated the DIP Credit Agreement and Interim Order with the DIP Finance Parties in


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good faith, at arm’s length, and with the assistance of their advisors. At the conclusion of the

negotiations, the Debtors determined that the resulting DIP Loan provides them with the capital

necessary to meet their working capital needs and the costs of conducting a fulsome, yet expedited,

sale process.

190. I believe there can be no reasonable dispute that the DIP Loan is a critical step

toward achieving the Debtors’ goal of maximizing the value of their assets for the benefit of all

stakeholders. The DIP Loan will support not only the Debtors’ near term liquidity needs, but will

also “bridge” the Debtors’ operations while they conduct a value-maximizing 363 sale process.

191. In sum, I believe that entry into the DIP Credit Agreement is in the best interests of

their estates and creditors, is necessary to preserve the value of estate assets and is an exercise of

the Debtors’ sound and reasonable business judgment.


I, David Gay, declare under penalty of perjury that the foregoing is true and correct to the

best of my knowledge.

Dated: February 20, 2020

~~. David Gay President Hartshorne Holdings, LLC, Hartshorne Mining Group, LLC, Hartshorne Mining, LLC, and Hartshorne Land, LLC.

010-8985-5628/1/AMERICAS


010-8968-6671/6/AMERICAS

EXHIBITA


010-8968-6671/6/AMERICAS

ORGANIZATIONAL CHART (Debtor Entities in Blue)

HCM Resources Pty Ltd. (Australia)

Hartshorne Mining, LLC (United States - DE)

Hartshorne Land, LLC (United States – DE)

Hartshorne Operations, LLC (United States - DE)

[Dissolved]

Hartshorne Holdings, LLC (United States - DE)

Hartshorne Mining Group, LLC (United States - DE)

Paringa Resources Limited (Australia)

Hartshorne Coal Mining Pty Ltd (Australia)
