EXHIBIT 10.25
 
 
AGREEMENT AND PLAN OF MERGER
 
dated as of September 4, 2007
among
SOO LINE HOLDING COMPANY,
SOO LINE PROPERTIES COMPANY,
CANADIAN PACIFIC RAILWAY COMPANY,
(solely for the purposes set forth herein)
and
DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
 

 

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Table of Contents

                      Page   ARTICLE I

 
            DEFINITIONS

 
           
SECTION 1.01.
  Certain Defined Terms     2  
SECTION 1.02.
  Other Defined Terms     12  
 
            ARTICLE II

 
            CERTAIN PAYMENTS; THE MERGER

 
           
SECTION 2.01.
  The Merger     14  
SECTION 2.02.
  Closing     14  
SECTION 2.03.
  Effect of the Merger     16  
SECTION 2.04.
  Certificate of Incorporation; By-Laws     16  
SECTION 2.05.
  Directors and Officers     16  
SECTION 2.06.
  Voting Trust     16  
 
            ARTICLE III

 
            MERGER CONSIDERATION

 
           
SECTION 3.01.
  Conversion of Securities     16  
SECTION 3.02.
  Share Units; Company Options; Warrants     17  
SECTION 3.03.
  Surrender of Shares; Stock Transfer Books     18  
SECTION 3.04.
  Working Capital Statement     20  
SECTION 3.05.
  Post-Closing Payments     21  
SECTION 3.06.
  Withholding Taxes     27  
SECTION 3.07.
  No Dissenter’s Rights     30  
 
            ARTICLE IV

 
            REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 
           
SECTION 4.01.
  Authority of the Company     30  
SECTION 4.02.
  Incorporation and Qualification and the Company and the Subsidiaries     31  
SECTION 4.03.
  Capital Stock of the Company and the Subsidiaries     31  
SECTION 4.04.
  Subsidiaries     31  
SECTION 4.05.
  No Conflict     32  
SECTION 4.06.
  Consents, Approvals, Licenses, Etc     32  
SECTION 4.07.
  Financial Statements; Budgets     33  
SECTION 4.08.
  Absence of Certain Changes     33  
SECTION 4.09.
  Employee Benefit Plans; Labor Matters     35  
SECTION 4.10.
  Absence of Litigation     36  

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Table of Contents
(continued)

                      Page  
SECTION 4.11.
  Compliance with Laws     36  
SECTION 4.12.
  Taxes     36  
SECTION 4.13.
  Material Contracts     38  
SECTION 4.14.
  Environmental Matters     40  
SECTION 4.15.
  Tangible Personal Property and Real Property     41  
SECTION 4.16.
  Intellectual Property     42  
SECTION 4.17.
  Brokers     42  
SECTION 4.18.
  Insurance     42  
 
            ARTICLE V

 
            REPRESENTATIONS AND WARRANTIES OF PURCHASER

 
           
SECTION 5.01.
  Incorporation and Authority of Purchaser     43  
SECTION 5.02.
  No Conflict     43  
SECTION 5.03.
  Consents and Approvals     44  
SECTION 5.04.
  Absence of Litigation     44  
SECTION 5.05.
  Investment Purpose     44  
SECTION 5.06.
  Financing     44  
SECTION 5.07.
  Brokers     44  
 
            ARTICLE VI

 
            ADDITIONAL AGREEMENTS

 
           
SECTION 6.01.
  Conduct of Business Prior to the Closing     45  
SECTION 6.02.
  Access to Information     47  
SECTION 6.03.
  Confidentiality     48  
SECTION 6.04.
  Regulatory and Other Authorizations; Consents     48  
SECTION 6.05.
  Investigation     50  
SECTION 6.06.
  Further Action     51  
SECTION 6.07.
  Directors’ and Officers’ Indemnification     51  
SECTION 6.08.
  Stockholders’ Representative Appointment     52  
SECTION 6.09.
  Preserve Accuracy of Representations and Warranties; Notification of Certain
Matters     54  
SECTION 6.10.
  Acquisition Proposals     54  
SECTION 6.11.
  Indemnity     54  
SECTION 6.12.
  Guaranty     56  
SECTION 6.13.
  Consents; Reports     56  
SECTION 6.14.
  Gross-Up Escrow Account     57  

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Table of Contents
(continued)

                      Page   ARTICLE VII

 
            CONDITIONS TO CLOSING

 
           
SECTION 7.01.
  Conditions to Obligations of the Company     57  
SECTION 7.02.
  Conditions to Obligations of Parent and Purchaser     58  
 
            ARTICLE VIII

 
            TERMINATION, AMENDMENT AND WAIVER

 
           
SECTION 8.01.
  Termination     59  
SECTION 8.02.
  Effect of Termination     60  
SECTION 8.03.
  Waiver     60  
 
            ARTICLE IX

 
            GENERAL PROVISIONS

 
           
SECTION 9.01.
  Expenses     60  
SECTION 9.02.
  Notices     60  
SECTION 9.03.
  Survival     62  
SECTION 9.04.
  Public Announcements     62  
SECTION 9.05.
  Headings     62  
SECTION 9.06.
  Severability     62  
SECTION 9.07.
  Entire Agreement     62  
SECTION 9.08.
  Assignment     62  
SECTION 9.09.
  No Third-Party Beneficiaries     63  
SECTION 9.10.
  Waivers and Amendments     63  
SECTION 9.11.
  Specific Performance     63  
SECTION 9.12.
  Governing Law; Consent to Jurisdiction; Waiver of Jury Trial     63  
SECTION 9.13.
  Counterparts     64  

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          AGREEMENT AND PLAN OF MERGER, dated as of September 4, 2007, among Soo
Line Holding Company, a Delaware corporation and an indirect wholly owned
subsidiary of the Guarantor (“Parent”), Soo Line Properties Company, a Delaware
corporation and a wholly owned subsidiary of Parent (“Purchaser”), Dakota,
Minnesota & Eastern Railroad Corporation, a Delaware corporation (the
“Company”), solely for the purposes of Article V and Sections 6.03 and 6.12,
Canadian Pacific Railway Company, a company organized under the laws of Canada
(the “Guarantor”), and, at such time as it is appointed pursuant to
Section 6.08(a), the Stockholders’ Representative.
W I T N E S S E T H :
          WHEREAS, the Boards of Directors of Guarantor, Parent, Purchaser and
the Company have each determined that it is in the best interests of their
respective stockholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth herein;
          WHEREAS, the Boards of Directors of Guarantor, Parent, Purchaser and
the Company have each approved this Agreement and declared its advisability and
approved the merger (the “Merger”) of Purchaser with and into the Company in
accordance with the terms of this Agreement and the applicable provisions of the
General Corporation Law of the State of Delaware (the “DGCL”);
          WHEREAS, concurrently with the execution and delivery of this
Agreement by the parties hereto, the holders of a number of shares of the common
stock, par value $0.01 per share, of the Company (the “Shares”) sufficient to
adopt and approve this Agreement and approve the Merger (the “Requisite
Stockholder Approval”) are executing and delivering written consents to deliver
the Requisite Stockholder Approval;
          WHEREAS, the Company has issued the Preferred Stock and the Warrants
(each as hereinafter defined);
          WHEREAS, the Company has elected to redeem the Preferred Stock in
accordance with its terms at the Closing (as hereinafter defined), and Purchaser
wishes to fund such redemption, upon the terms and subject to the conditions set
forth herein;
          WHEREAS, it is intended that the holders of all of the Warrants (as
hereinafter defined) will sell such Warrants to the Company at the Effective
Time upon the terms and subject to the conditions set forth in the Warrant
Purchase Agreement and Purchaser wishes to fund the purchase of such Warrants,
upon the terms and subject to the conditions set forth herein;
          WHEREAS, in order to induce Guarantor, Parent and Purchaser to enter
into this Agreement, it is intended that the holders of Shares and holders of
certain of the Warrants will enter into the Termination Agreement (as
hereinafter defined) and it is intended that holders of Preferred Stock, Share
Units and Options (each as hereinafter defined) will enter into a Release
Agreement (as hereinafter defined); and
          WHEREAS, the Company is required to satisfy its payment obligations
for the Company Options and the Share Units in accordance with the terms thereof
at the Closing, and

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Purchaser wishes to fund such payment, upon the terms and subject to the
conditions set forth herein;
          NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, Guarantor, Parent, Purchaser and
the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
          SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms have the following meanings:
          “1994 Bonus Share Plan” means the Company Bonus Share Plan approved
and instituted by the Board of Directors of the Company by unanimous resolution
dated June 28, 1994.
          “2004 Bonus Share Plan” means the Company Bonus Share Plan approved
and instituted by the Board of Directors by unanimous resolution dated
December 9, 2004.
          “Action” means any claim, action, suit, arbitration or proceeding by
or before or brought or conducted by any third-party or Governmental Entity, or
arbitrator, or any audit or investigation by any Governmental Entity.
          “Affiliate” means, when used with respect to a specified Person,
another Person that, either directly or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
Person specified.
          “Aggregate Closing Consideration” means $1,480,000,000.00.
          “Aggregate Strike Price Amount” means the sum of the aggregate
exercise price payable in respect of all Shares issuable upon the exercise of
each vested and unvested Company Option and each Warrant and the aggregate Base
Value of each Share Unit granted under the 2004 Bonus Share Plan.
          “Agreement” means this Agreement and Plan of Merger, dated as of
August [_], 2007, among Purchaser, Parent and the Company (together with
attachments hereto) and all amendments hereto made in accordance with
Section 9.10.
          “Audited Financial Statements” means the balance sheets, statements of
income and statements of cash flows as of the last day of, and for each of, the
three most recent calendar years immediately preceding the date hereof, together
with the reports thereon by an independent auditor.

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          “Base Value” means with respect to a Share Unit granted under the 2004
Bonus Share Plan, the base value established for such unit in accordance with
the 2004 Bonus Share Plan.
          “Bonus Share Plans” means the 1994 Bonus Share Plan and the 2004 Bonus
Share Plan.
          “Books and Records” means all books of account and other financial
records and corporate records pertaining to the Company and the Subsidiaries.
          “Business” means the business of the Company and the Subsidiaries as
conducted as of the date of this Agreement, including, but not limited to, the
railroad business.
          “Business Day” means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City of
New York.
          “Capital Expenditures Difference” means the aggregate of the proposed
Capital Expenditures, as set forth on Schedule 6.01(b)(vi) of the Disclosure
Schedule, for the period beginning on July 1, 2007 through the last day of the
calendar month immediately preceding the Closing Date, less the actual capital
expenditures of the Company during such period (other than any amount for
capital expenditures incurred in connection with the Flooding Repair Project).
          “Cash” means the total amount of cash and cash equivalents and
short-term investments, each of which shall be calculated in accordance with
GAAP in a manner consistent with the calculation of the corresponding line items
on the Company’s Audited Financial Statements for the year ended December 31,
2006, held by the Company and its Subsidiaries as of 12:01 a.m., Central time,
on the Closing Date.
          “Closing Date” means the date on which the Closing occurs.
          “Common Equity Consideration” means the amount equal to (i) the
Aggregate Closing Consideration, (ii)(a) if Target Working Capital less
Estimated Working Capital is a positive number, then less such number or (b) if
Target Working Capital less Estimated Working Capital is a negative number, then
plus the absolute value of such number, less (iii) the Estimated Debt Amount,
less (iv) the Preferred Redemption Amount, less (v) the Consulting Fees Payable,
less (vi) the Escrow Amount, less (vii) the Gross-up Escrow Amount and plus
(vii) the Aggregate Strike Price Amount and plus (ix) an amount equal to the
actual capital expenditures of the Company incurred from August 20, 2007 through
Closing solely in connection with upgrading the existing bridges and tracks at
the Waseca Sub, the Marquette Sub and the Rapid City Sub from 286K standard to
315K standard as part of the Flooding Repair Project, in each case, without
duplication.
          “Consultants” means any and all consultants (including, without
limitation, engineering consultants), financial advisors, accountants,
investment bankers or attorneys of the Company and its Subsidiaries in
connection with this Agreement and the transactions contemplated hereby or with
respect to any transactions considered by the Company or the Subsidiaries as
alternatives to the Merger and, solely with respect to the matters set forth in
the

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Gross-Up Agreement, Kevin Schieffer, and, solely with respect to the matters set
forth in the Director Change in Control Agreements, the directors named therein.
          “Consulting Fees Payable” means any and all Liabilities of the Company
or any of its Subsidiaries to be paid at the Closing for any item set forth on
Schedule 1.01(a)(i) and any (i) fees, costs, or expenses of, or amount owing to,
any Consultant, or (ii) dataroom and due diligence costs or expenses, in each
case incurred by the Company or the Subsidiaries in connection with this
Agreement and the transactions contemplated hereby or with respect to any
transactions considered by the Company or the Subsidiaries as alternatives to
the Merger.
          “Control” (including the terms “Controlling,” “Controlled by” and
“under common Control with”) means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities or otherwise.
          “Credit Risk Premium” means any Credit Risk Premium (as defined in 49
United States Code 822(f)(3)) paid to the FRA in connection with the FRA Loan
and accrued by the Company through the Closing Date.
          “Debt Amount” means, as of 12:01 a.m., Central time, on the Closing
Date, (i) the principal amount and accrued and unpaid interest outstanding under
the FRA Loan, the Fishback Mortgage, the Illinois Rehabilitation Loan, the South
Dakota Construction Loan and the Revolver and prepayment and termination costs
related thereto, plus (ii) capital lease obligations of the Company and its
Subsidiaries, calculated in accordance with GAAP in a manner consistent with the
calculation of the corresponding line item on the Company’s Audited Financial
Statements for the year ended December 31, 2006, plus (iii) any other
Indebtedness not included in clauses (i) and (ii), minus (iv) Cash, and (v)(a)
if the Capital Expenditures Difference is a positive number, then plus such
amount or (b) if the Capital Expenditures Difference is a negative number, then
minus the absolute value of such amount.
          “Definitive Agreements” means this Agreement, the Escrow Agreement,
the Gross-up Escrow Agreement, the Termination Agreement, the Warrant Purchase
Agreement, the Release Agreements and any contracts or agreements executed
pursuant or related hereto or thereto, including any documents or certificates
delivered pursuant hereto or thereto or to carry out the transactions
contemplated under any Definitive Agreement.
          “Development Property” means any real property that is, as of the date
hereof, in one or more phases of development, including pre-construction,
provided that a real property shall cease to be a Development Property at the
time such real property becomes a Stabilized Property.
          “Disclosure Schedule” means the Disclosure Schedule delivered to
Purchaser by the Company pursuant to this Agreement.
          “DM&E” means the Dakota, Minnesota & Eastern Railroad Corporation, a
Delaware corporation.

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          “Encumbrance” means any security interest, pledge, mortgage, lien
(statutory or other), charge, adverse claim of ownership or use, easement,
encroachment, defect in title or other encumbrance of any kind.
          “Environment” means surface waters, ground waters, soil, subsurface
strata and ambient air.
          “Environmental Claims” means actions, suits, demands, claims, notices
of noncompliance, proceedings, consent orders or consent agreements relating to
Environmental Laws, Environmental Permits or Hazardous Materials.
          “Environmental Law” means any applicable Law relating to protection of
the environment.
          “Environmental Permit” means any permit, approval, identification
number, license or other authorization required under any applicable
Environmental Law.
          “Equityholders” means the holders of Shares, Share Units, Warrants and
Company Options, in each case outstanding immediately prior to the Effective
Time.
          “Equityholder’s Percentage” means, except as set forth on Schedule
1.01(a)(iii), as to any holder of Shares, Share Units, Company Options or
Warrants, in each case outstanding immediately prior to the Effective Time, the
percentage as determined in good faith by the Stockholders’ Representative in
accordance with the way that a marginal dollar of Per Share Merger Consideration
would be allocated to such holder under Section 3.01(a), Section 3.02 and
Section 3.05; provided that the aggregate Equityholder’s Percentage for all
holders of Shares, Share Units, Company Options and Warrants shall total one
hundred percent (100%), and provided further that such Equityholder’s
Percentages may be adjusted from time to time upon certification by the
Stockholders’ Representative that a transfer of the right, title and interest in
an Equityholder’s Percentage has occurred in accordance with any plan approved
by a majority of the Equityholders. The Equityholder’s Percentages for the
Equityholders as of the date of this Agreement are set forth in Schedule 4.03 of
the Disclosure Schedule.
          “Escrow Agreement” means the Escrow Agreement, initially dated as of a
date prior to the Closing Date, between the Company, Parent, Purchaser and a
commercial bank or trust company having net capital of not less than
$250 million, as escrow agent, to be mutually agreed upon by Parent and the
Company.
          “Expected Withholding Tax” means (i) any Tax that would not have been
imposed but for the failure of the payee to provide a properly completed and
executed IRS Form W-9, or otherwise to establish an exemption from U.S. backup
withholding tax, or the failure of the payee to provide a properly completed and
executed IRS Form W-8 BEN and (ii) any applicable withholding Tax on
compensation for services rendered to the Company or its Subsidiaries by
employees, independent contractors or consultants.
          “Financial Agreement” means the Financial Agreement dated November 22,
1993 between the Company and the Chicago & North Western Transportation Company,
predecessor in interest to Union Pacific Railroad Company.

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          “FIRPTA Report” means a report, prepared by FMV Opinions, Inc.,
providing an opinion of the fair market value of the real property and total
assets of the Company as of December 31st of years 2002-2006 and as of the
Closing Date or as close thereto as practicable, in all cases determined in
accordance with applicable regulations under Section 897 of the Internal Revenue
Code.
          “Fishback Mortgage” means the Mortgage Agreement, dated as of
April 15, 2003, between the Company and Fishback Financial Corporation.
          “Flooding Repair Project” means the construction and other work
necessary to repair flooding damage to the Waseca Sub, the Marquette Sub and the
Rapid City Sub as described on Schedule 4.08(a)(viii) and such other
construction and other work as may be determined by the Company to be necessary
to repair such flooding damage, including to make upgrades as necessary to
achieve 315K standards.
          “FRA Loan” means the Financing Agreement, dated as of December 16,
2003, among the Company, Iowa, Chicago & Eastern Railroad Corporation and the
United States of America, represented by the Secretary of Transportation acting
through the Administrator of the Federal Railroad Administration, as amended by
Amendment No. 1 thereto, dated July 20, 2004 and as further amended by Amendment
No. 2 thereto, dated as of February 21, 2007.
          “Future Consulting Fees” means any and all Liabilities of the Company
or any of its Subsidiaries (or the Surviving Corporation on behalf of the
Company) not paid at the Closing or arising after the Closing for (i) any item
set forth on Schedule 1.01(a)(ii), (ii) fees, costs, or expenses of, or amount
owing to, any Consultant, or (iii) dataroom and due diligence costs or expenses,
in each case incurred by the Company in connection with this Agreement and the
Merger and the transactions contemplated hereby or with respect to any
transactions considered by the Company or the Subsidiaries as alternatives to
the Merger except (x) amounts payable in connection with the Construction
Milestone Payment, the Coal Milestone Payment, the Final Adjustment Amount and
the Transfer described in Section 2.02(e), and (y) amounts payable to the
Consultants to the extent such amounts, fees, costs or expenses are incurred as
a result of any engagement initiated by or on behalf of, or instructions from or
for the benefit of, the Company or the Surviving Corporation following the
Closing.
          “GAAP” means United States generally accepted accounting principles in
effect from time to time applied consistently throughout the period involved.
          “Governmental Entity” means any United States or foreign federal,
national, supra-national, state, provincial, or local government, governmental,
regulatory, self-regulatory or administrative authority, agency or commission or
any court, tribunal or judicial or arbitral body or political or other
subdivision, department or branch of any of the foregoing.
          “Governmental Order” means any order, judgment, injunction, decree,
stipulation, determination or award entered, issued or made by or with any
Governmental Entity.
          “Gross-up Agreement” means the Withholding Tax Gross-up Agreement,
dated as of the date of this Agreement, between Kevin Schieffer and the Company,
which agreement shall

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be amended and modified by the parties thereto after the date hereof to the
extent reasonably necessary to reflect the principles set forth on Schedule 6.14
of the Disclosure Schedule.
          “Hazardous Materials” means (a) those substances regulated under the
United States Hazardous Materials Transportation Act, the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act and the Clean Air Act; (b) petroleum and
petroleum products, radioactive materials and polychlorinated biphenyls; and
(c) chemicals or substances regulated as toxic or hazardous under any applicable
Environmental Law.
          “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
          “ICCTA” means the ICC Termination Act of 1995.
          “IC&E” means the Iowa, Chicago & Eastern Railroad Corporation, a
Delaware corporation.
          “Illinois Rehabilitation Loan” means the Track Rehabilitation Loan
Agreement, dated as of June 26, 1992, between the Company, as the successor to
the Soo Line Railroad Company, and the State of Illinois, acting by and through
its Department of Transportation.
          “Indebtedness” means, with respect to any Person, (a) all indebtedness
of such Person, whether or not contingent, for borrowed money and prepayment and
termination costs related thereto, (b) all obligations of such Person for the
deferred purchase price of property or services (including the aggregate
principal amount thereof and the aggregate amount of any accrued but unpaid
interest thereon), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments and prepayment and termination costs
related thereto, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person as lessee under leases that
have been or should be, in accordance with GAAP, recorded as capital leases,
(f) all obligations, contingent or otherwise, of such Person under acceptance,
letter of credit (other than the Letter of Credit) or similar facilities or in
respect of interest rate and currency obligation swaps, hedges or similar
arrangements and prepayment and termination costs related thereto, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, other than the Preferred Stock,
the Company Options and the Warrants, (h) all Indebtedness of others referred to
in clauses (a) through (g) above guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through any agreement and (i) all Indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Encumbrance on
property (including accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.

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          “Intellectual Property” means all patents, copyrights, software,
service marks. domain names, trade dress and trade secrets.
          “Internal Revenue Code” means the Internal Revenue Code of 1986, as
amended.
          “IRS” means the United States Internal Revenue Service.
          “knowledge of the Company” means the actual knowledge, after due
inquiry, of Kevin V. Schieffer, Kurt V. Feaster, Lynn A. Anderson, J. Ed
Terbell, Mike Ball, John Brooks, Randy H. Henke, Daniel L. Goodwin, Steve O.
Scharnweber, Clyde F. Mittleider and Ray Gigear.
          “Land Holdings” means any real property that is unimproved and not a
Development Property.
          “Law” means any United States or foreign federal, national,
supra-national, state, provincial, local, municipal or similar constitution,
statute, law, ordinance, regulation, rule, code, order, requirement or rule of
law (including any rules of any self-regulatory organization, securities
exchange or clearinghouse or common law).
          “Letter of Credit” means the Irrevocable Standby Letter of Credit
Number SCL SCL011670 issued by National City Bank, as amended through July 21,
2006, in favor of KM Strategic Investments, LLC, in the amount of $10,000,000 as
of the date of this Agreement.
          “Liabilities” means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute, matured or determined.
          “Licenses” means all of the licenses, permits, franchises and other
governmental authorizations required under any Law for the operation of the
Business.
          “Material Adverse Effect” means any condition, change, circumstance,
or effect (or any development that would result in any condition, change, effect
or circumstance) that, individually or in the aggregate with all other changes,
circumstances, or effects, is, or would reasonably be expected to be, materially
adverse to the financial condition or results of operations of the Company and
the Subsidiaries, taken as a whole, except for any such changes or effects
resulting from (i) changes or effects affecting the securities markets generally
or changes in general economic, regulatory or political conditions or other
changes that affect the railroad or coal industries in general, (ii) any action
taken pursuant to or in accordance with this Agreement, (iii) changes caused by
acts of terrorism or war (whether or not declared) occurring after the date of
this Agreement, (iv) the consummation of this Agreement or the transactions
contemplated hereby or the announcement of the execution thereof and (v) any
uninsured damage resulting from the flood conditions affecting the Waseca Sub,
the Marquette Sub and the Rapid City Sub since August 2007 and so long as such
uninsured damage does not exceed $10,000,000, except, with respect to the
foregoing clauses (i) through (iii), to the extent that such changes, effects,
or actions have a disproportionate effect on the Company and the Subsidiaries,
taken as a whole, relative to other participants in the industries in which the
Company and the Subsidiaries operate.

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          “New Construction” means the construction and operation of a new line
of railroad that extends between the existing lines of the DM&E and coal mines
in the Powder River Basin area of Wyoming, as defined in STB Finance Docket
No. 33407, or as my be modified by Parent or its Affiliates (or its or their
transferees, successors and assigns) from time to time.
          “Off-the-Shelf Software” means any and all Company Software that is
commercially available off-the-shelf Software and (i) is not material to the
Company or any Company Subsidiary, (ii) has not been modified or customized for
the Company or any Company Subsidiary, and (iii) is licensed to the Company or
any Company Subsidiary for a one-time or annual fee of $10,000 or less.
          “Permitted Encumbrances” means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for Taxes not yet due and payable or the validity of
which is being contested in good faith; (b) Encumbrances imposed by law, such as
materialmen’s, mechanics’, workmen’s, repairmen’s, warehousemen’s and carrier’s
liens and other similar liens arising in the ordinary course of business for
sums not due and payable; (c) pledges or deposits to secure obligations under
workers’ compensation Laws or similar legislation or to secure public or
statutory obligations under applicable Law; and (d) survey exceptions,
reciprocal easement agreements and other customary encumbrances on title to real
property that (i) were not incurred in connection with any Indebtedness and
(ii) do not, individually or in the aggregate, materially adversely affect the
use of such property.
          “Person” means any individual, partnership, firm, corporation,
association, trust, limited liability company, unincorporated organization, a
Governmental Entity or other entity, as well as any syndicate or group that
would be deemed to be a person under Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
          “PRB Expansion” means the New Construction and the improvements or
rehabilitation to the rail lines of the Company and its Subsidiaries reasonably
relating thereto and the entering into of mine access agreements as referenced
in Section 3.05(b)(i) of the Disclosure Schedule.
          “Preferred Redemption Amount” means the amount, including accrued and
unpaid dividends (whether or not declared) or similar amounts, required to be
paid to the holders of the Preferred Stock to redeem the Preferred Stock
pursuant to the terms of the Preferred Stock at the Effective Time.
          “Preferred Stock” means, collectively, the Company’s (i) Series A
preferred stock, par value $1.00 per share, (ii) Series B preferred stock, par
value $1.00 per share, (iii) Series C preferred stock, par value $1.00 per
share, (iv) the Series C-1 preferred stock, par value $1.00 per share, and
(v) the Series D preferred stock, par value $1.00 per share.
          “Purchaser Disclosure Schedule” means the Disclosure Schedule
delivered to the Company by the Purchaser pursuant to this Agreement.

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          “Real Property” means any material real property owned or leased by
the Company and the Subsidiaries.
          “Release” means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like
into or upon any land or water or air or otherwise entering into the
Environment.
          “Release Agreement” means the agreement in form of Exhibit A to be
executed by holders of Preferred Stock and holders of Share Units and Options.
          “Remedial Action” means all action to (a) clean up, remove, treat or
handle in any other way Hazardous Materials in the Environment; (b) prevent the
Release of Hazardous Materials so that they do not migrate, endanger or threaten
to endanger public health or the Environment; or (c) perform remedial
investigations, feasibility studies, corrective actions, closures and
post-remedial or post-closure studies, investigations, operations, maintenance
and monitoring.
          “Revolver” means the Loan Agreement, dated as of December 16, 2003, by
and among the Company, IC&E and National City Bank.
          “Share Unit” means a credit to the plan account of a participant in
the applicable Bonus Share Plan entitling such participant to receive (i) a
payment based on the fair market value of one Share upon settlement, in the case
of the 1994 Bonus Share Plan or (ii) a payment based on the difference between
the fair market value of one Share and such Share Unit’s Base Value upon
settlement, in the case of the 2004 Bonus Share Plan.
          “South Dakota Construction Loan” means the Loan Agreement, dated as of
August 12, 2005, between the Company and Brookings County Railroad Authority and
the State of South Dakota.
          “Stabilized Property” means any real property that is improved and
(i) is 90% leased or (ii) one year has elapsed since a certificate of occupancy
has been issued with respect to such real property.
          “STB” means the Surface Transportation Board or any successor agency.
          “Stockholders’ Agreement” means the Stockholders’ Agreement, dated
September 3, 1986, as amended.
          “Subsidiaries” means Cedar American Rail Holdings, Inc., a Delaware
corporation, the IC&E, and Wyoming Dakota Railroad Properties, Inc., a Delaware
corporation.
          “Tangible Personal Property” means all machinery, equipment, tools,
supplies, furniture, fixtures, personalty, vehicles, rolling stock and other
tangible personal property used in the Business.
          “Target Working Capital” means -$40,010,843 (deficit of $40,010,843).

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          “Tax” or “Taxes” means (i) any and all income, gross receipts, sales,
use, employment, franchise, profits, property or other taxes, duties,
assessments or other governmental charges in the nature of a tax (whether
payable directly or by withholding), together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority with respect thereto and (ii) any liability of the Company or any of
its Subsidiaries for the payment of amounts determined by reference to amounts
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation of the
Company or any of its Subsidiaries under any Tax sharing agreement or
arrangement.
          “Tax Return” means any report, return, declaration or other filing
required to be supplied to any taxing authority with respect to Taxes including
any amendments thereto.
          “Termination Agreement” means the agreement entered into in connection
with this Agreement in the form of Exhibit B hereto among holders of Shares,
certain holders of Warrants and the Company.
          “Unaudited Financial Statements” means the unaudited balance sheet,
statement of income and statement of cash flow of the Company as of July 31,
2007.
          “Warrants” means, collectively, the outstanding and unexpired warrants
to purchase Shares issued by the Company set forth on Schedule 4.03 of the
Disclosure Schedule.
          “Warrant Purchase Agreement” means the Warrant Purchase Agreement,
dated as of the date hereof, among the Company and each of the Sellers (as
defined therein) in the form of Exhibit C hereto pursuant to which each of the
Sellers has agreed to surrender to the Company at the Effective Time the
Warrants held by such Seller in exchange for the applicable amount of the
Option/Warrant Merger Consideration.
          “Working Capital” means, as of a particular time, (a) (i) current
assets (other than Cash, income taxes receivable and any deferred income taxes
receivable) less (ii) Future Consulting Fees, to the extent not already
reflected in current liabilities, less (iii) current liabilities other than
deferred income Taxes payable, including, to the extent they have not been paid
by the Company or arrangements have not been made for payment at the Closing by
the Paying Agent on behalf of the Company, payroll, excise and similar Taxes
arising as a result of the transactions contemplated by this Agreement and all
change in control payments or deal/transaction bonuses paid or payable in
connection with the transactions contemplated herein (other than current
maturities of long-term debt, interest payable, Consulting Fees Payable and
Future Consulting Fees) of the Company and its consolidated Subsidiaries, as of
such time, in each case calculated in accordance with GAAP in a manner
consistent with the calculation of the corresponding line items on the Company’s
Audited Financial Statements for the year ended December 31, 2006, less (iv) all
costs and expenses to be incurred after the Closing for any work related to the
Flooding Repair Project (other than the costs and expenses of upgrading the
existing bridges and tracks at the Waseca Sub, the Marquette Sub and the Rapid
City Sub from 286K standard to 315K standard as part of the Flooding Repair
Project), and plus (v) all payments or other reimbursements to the Company from
insurance carriers with respect to the Flooding Repair Project received, or
reasonably expected to be received, after the Closing. For

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purposes of determining Working Capital, (i) inventory shall not include any
item in existence on December 31, 2006 but excluded from inventory in the
December 31, 2006 Audited Financial Statements, (ii) prepaid expenses shall not
include any expense category not set forth in the December 31, 2006 Audited
Financial Statements, (iii) any cash payment or Liability (whether accrued,
absolute, contingent or otherwise) arising specifically from the Company’s
termination of any capital lease at the request of Parent or Purchaser pursuant
to Section 6.13(a) shall be excluded from Working Capital and (iv) any amounts
paid or payable pursuant to the Gross-Up Agreement shall not be included in such
determination.
          (b) Unless otherwise specified herein, all references to “dollars” or
“$” shall be deemed to be references to United States Dollars.
          SECTION 1.02. Other Defined Terms. The following terms have the
meanings defined for such terms in the Sections set forth below:

          Term   Section
280G Amounts
    3.06 (e)
280G Report
    3.06 (e)
409A Amounts
    3.06 (f)
Adjustment
    3.01 (d)
Applicable Contracts
    6.13 (b)
Benefit Plans
    4.09 (a)
Budgets
    4.07 (c)
Certificate of Merger
    2.02 (a)
Certificates
    3.03 (b)
Claim
    6.11 (b)
Closing
    2.02 (a)
Closing Date Payment Schedule
    2.02 (b)
Coal Milestone Payments
  3.05 (b)(ii)
Company
  Recital
Company Intellectual Property
    4.16  
Company Licenses
    4.06 (a)
Company Option
    3.02 (b)
Construction Conditions
    3.05 (b)(i)
Construction Milestone Payment
    3.05 (b)(i)
Debt Payment Amount
    2.02 (a)
Determination Date
    3.05 (a)
DGCL
  Recital
Disputed Pre-Closing Working Capital Amount
    3.04 (a)
DM&E
    1.01  
Effective Time
    2.02 (a)
Emergency Tonnage
  3.03 (b)(iii)
ERISA
    4.09 (a)
Escrow Account
    2.02 (b)
Escrow Amount
    2.02 (b)
Estimated Debt Amount
    3.04 (a)
Estimated Working Capital
    3.04 (a)

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          Term   Section
Estimated Working Capital Statement
    3.04 (a)
Fifth Milestone Payment
    3.05 (b)(ii)
Final Adjustment Amount
    3.05 (a)
Final Debt Amount
    3.04 (c)
Final Working Capital
    3.04 (c)
First Milestone Payment
    3.05 (b)(ii)
FIRPTA Amount
    3.06 (d)
Fourth Milestone Payment
    3.05 (b)(ii)
Gross-up Escrow Account
    2.02 (b)
Gross-up Escrow Agreement
    2.02 (b)
Gross-up Escrow Amount
    2.02 (b)
Guarantor
    Recital
Guaranteed Obligations
    6.12  
Holders
    3.03 (a)
Incumbent Carrier
    3.05 (b)(ii)
Indemnified Parties
    6.07 (b)
Independent Accounting Firm
    3.04 (d)
IRS Notice
    3.06  
Koch Transaction
    6.11 (c)
LC Amount
    6.11 (c)
Letter
    3.03 (b)
Loss
    6.11 (b)
Material Contracts
    4.13 (a)
Merger
    Recital
Milestone Statement
    3.05 (b)(iii)
Non-Releasing Equityholder
    6.11 (a)
Non-Releasing Equityholder Indemnity Amount
    6.11 (a)
Notice of Disagreement
    3.05 (b)(iii)
Option/Warrant Merger Consideration
    3.02 (b)
Parent
    Recital
Paying Agent
    3.03 (a)
Paying Equityholder
    6.08 (b)
Per Share Merger Consideration
    3.01 (a)
Purchaser
    Recital
Required Equityholders
    6.08 (c)
Requisite Stockholder Approval
    Recital
Restricted Equityholder
    3.05 (b)(iii)
Second Milestone Payment
    3.05 (b)(ii)
Shares
    Recital
Sixth Milestone Payment
    3.05 (b)(ii)
Stockholders’ Representative
    6.08 (a)
Stockholders’ Representative’s Losses
    6.08 (b)
Surviving Corporation
    2.03  
Termination Date
    8.01 (a)
Third Milestone Payment
    3.05 (b)(ii)  

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          Term   Section
Tonnage Condition
       3.05(b)(ii)
Track Maintenance Agreement
    6.11 (c)
Transfer
    2.02 (f)
Voting Trust
    2.06  
Voting Trust Agreement
    2.06  
WARN Act
    4.09 (f)
Working Capital Statement
    3.04 (b)

ARTICLE II
CERTAIN PAYMENTS; THE MERGER
          SECTION 2.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DGCL, at the Effective
Time Purchaser shall be merged with and into the Company.
          SECTION 2.02. Closing. (a) Subject to Section 6.13, as promptly as
practicable after all of the conditions set forth in Article VII have been
satisfied or, if permissible, waived, the parties hereto shall cause the Merger
to be consummated by filing a certificate of merger (the “Certificate of
Merger”) with the Secretary of State of the State of Delaware, in such form as
is required by, and executed in accordance with, the relevant provisions of the
DGCL (the date and time of such filing of the Certificate of Merger (or such
later time as may be agreed by each of the parties hereto and specified in the
Certificate of Merger) being the “Effective Time”). Immediately prior to such
filing of the Certificate of Merger a closing (the “Closing”) shall be held at
the offices of Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York
or such other office as the Company and Purchaser may mutually agree upon in
writing.
          (b) At the Closing, and immediately prior to the Effective Time,
Parent or Purchaser shall (i) deliver to the Company (A) the Preferred
Redemption Amount and (B) an amount equal to any outstanding Indebtedness of the
Company and its consolidated Subsidiaries which will be, or may become, payable
as a result of the consummation of the transactions contemplated by this
Agreement (the “Debt Payment Amount”), (ii) deliver to the Paying Agent, (A) an
amount equal to the consideration to which the holders of Shares become entitled
pursuant to Section 3.01(a) hereof less such holders’ proportional share of the
aggregate Equityholder’s Percentage of the Escrow Amount, (B) an amount equal to
the Consulting Fees Payable, and (C) an amount equal to the consideration to
which the holders of Share Units, Company Options and Warrants become entitled
pursuant to Section 3.02 hereof less such holders’ such holders’ proportional
share of the aggregate Equityholder’s Percentage of the Escrow Amount and
(iii) deposit or cause to be deposited (by wire transfer of immediately
available funds) cash in the amount of (A) $10,000,000, as such amount may be
adjusted in accordance with Section 3.04(a) (the “Escrow Amount”), in an account
(the “Escrow Account”) maintained pursuant to the Escrow Agreement to be entered
into prior to Closing by Parent, Purchaser, the Company and the Stockholders’
Representative which Escrow Agreement shall provide that any interest and other
income resulting from the investment of the Escrow Amount

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by the escrow agent shall be held in the Escrow Account and shall be disbursed
from the Escrow Account in accordance with this Agreement and (B) $7,500,000
(the “Gross-up Escrow Amount”), in an account (the “Gross-up Escrow Account”)
designated by Purchaser and maintained pursuant to the Gross-up Escrow Agreement
(the “Gross-up Escrow Agreement “) to be entered prior to the Closing by the
Company, Kevin Schieffer, the Stockholders’ Representative and Purchaser, which
Gross-up Escrow Agreement shall provide that any interest and other income
resulting from the investment of the Gross-up Escrow Amount by the escrow agent
designated by Parent shall be held in the Gross-up Escrow Account and shall be
disbursed from the Gross-up Escrow Account in accordance with the Gross-up
Agreement. The amounts described in clauses (i) and (ii) of this
Section 2.02(b), and the calculations thereof, shall be specified in a
certificate of an officer of the Company delivered to Purchaser seven Business
Days prior to the Closing (the “Closing Date Payment Schedule”). The Closing
Date Payment Schedule shall be prepared in good faith and shall include
reasonable documentation supporting the amounts set forth thereon. If Purchaser
notifies the Company at least five Business Days prior to the Closing that it
disagrees with the Closing Date Payment Schedule, the parties hereto shall use
commercially reasonable best efforts to reach an agreement on such disputed
items and amend the Closing Date Payment Schedule to reflect such agreement. The
amounts reflected on the Closing Date Payment Schedule, as amended (if
applicable), shall be paid as described above by wire transfer in immediately
available funds to the accounts designated at least two Business Days prior to
the Closing by the Company in a written notice to Purchaser.
          (c) At the Closing, and immediately prior to the Effective Time, the
Company shall redeem all of the Preferred Stock in accordance with the terms of
the Preferred Stock, and the Company shall withhold and retain for further
payment to the applicable Governmental Authority any applicable withholding
Taxes in accordance with Section 3.06.
          (d) At the Closing, and immediately prior to the Effective Time, the
Company shall pay the Debt Payment Amount to the applicable creditors in the
amounts set forth in the Closing Date Payment Schedule.
          (e) No less than five Business Days prior to the Closing, the Company
shall deliver to Purchaser an updated version of Schedule 4.03, which shall be
true and correct as of the Closing Date. The Company shall reasonably consider
any changes thereto requested by Parent prior to Closing.
          (f) At the Closing, the Company shall sell, transfer and assign
(“Transfer”) all of its right, title and interest in and to the Credit Risk
Premium to an entity to be designated by the Stockholders’ Representative.
Following the Closing, Parent shall, and shall cause the Surviving Corporation,
Parent and its Affiliates, to cooperate with the Stockholders’ Representative
and the entity to which the Credit Risk Premium is intended to be sold,
transferred and assigned pursuant to the foregoing sentence to give effect to
such sale, transfer and assignment and, if the Company is unable to Transfer the
Credit Risk Premium to such entity at the Closing, then the Surviving
Corporation shall use its commercially reasonable best efforts, at no cost or
expense to the Surviving Corporation or any of its Affiliates and as the
Stockholders’ Representative may reasonably request, to take such actions as are
necessary to provide such entity with the economic benefits of the ownership of
the Credit Risk Premium. The Stockholders’ Representative shall reimburse Parent
and its Affiliates for all costs and

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expenses incurred in connection therewith and the Stockholders’ Representative
shall indemnify and hold Parent and its Affiliates harmless from and against all
Losses related thereto.
          SECTION 2.03. Effect of the Merger. As a result of the Merger, the
separate corporate existence of Purchaser shall cease and the Company shall
continue as the surviving corporation of the Merger (the “Surviving
Corporation”). At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and Purchaser
shall vest in the Surviving Corporation, and all debts, liabilities,
obligations, restrictions, disabilities and duties of the Company and Purchaser
shall become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
          SECTION 2.04. Certificate of Incorporation; By-Laws.
          (a) At the Effective Time, the Certificate of Incorporation of the
Surviving Corporation shall be amended in its entirety to read as the
certificate of incorporation of Purchaser in effect immediately prior to the
Effective Time, until thereafter changed or amended as provided therein or by
applicable law.
          (b) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the By-laws of the Surviving Corporation shall be amended
and restated in their entirety to read as the bylaws of Purchaser as in effect
immediately prior to the Effective Time, until thereafter changed or amended as
provided therein or by applicable law.
          SECTION 2.05. Directors and Officers. The director or directors
identified to the Company by Parent at least three (3) Business Days prior to
the Closing Date shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified or until the earlier of their death,
resignation or removal.
          SECTION 2.06. Voting Trust. Immediately following the Effective Time,
the shares of the common stock, par value $.01 per share, of the Surviving
Corporation shall be deposited into a voting trust (the “Voting Trust”) in
accordance with the terms and conditions of a voting trust agreement (the
“Voting Trust Agreement”), which agreement shall be in form and substance
reasonably acceptable to Purchaser and to the STB.
ARTICLE III
MERGER CONSIDERATION
          SECTION 3.01. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:

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          (a) Each issued and outstanding Share immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to
Section 3.01(b)) shall cease to be outstanding and be canceled and shall be
converted automatically into the right to receive such holders’ proportional
share of the aggregate Equityholder’s Percentage of the Escrow Account, as set
forth in Section 3.04, and the Gross-up Escrow Account, as set forth in
Section 3.06(g), and any Construction Milestone Payment and any Coal Milestone
Payments as set forth in Section 3.05, plus an amount in cash, equal to the
quotient obtained dividing (i) the Common Equity Consideration by (ii) the sum
of (A) the number of Shares outstanding immediately prior to the Effective Time
(but after giving effect to Section 3.01(b)), (B) the number of Share Units
outstanding immediately prior to the Effective Time, (C) the number of Shares
represented by the Company Options and (D) the number of Shares issuable in
respect of the Warrants, without interest (the “Per Share Merger
Consideration”), to the holder of such Shares, upon surrender, in the manner
provided in Section 3.03, of the certificate that formerly evidenced such Share,
in all cases less any applicable withholding Taxes in accordance with
Section 3.06;
          (b) Each Share held in the treasury of the Company and each Share
owned by Purchaser, Parent, Guarantor or any direct or indirect wholly owned
subsidiary of Guarantor or of the Company immediately prior to the Effective
Time shall be canceled without any conversion thereof and no payment or
distribution shall be made with respect thereto;
          (c) Each share of common stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation; and
          (d) If, between the date of this Agreement and the Effective Time,
there is a recapitalization, reclassification, stock split, stock dividend,
subdivision, combination or exchange of shares with respect to, or rights issued
in respect of, the Shares (each, an “Adjustment”), the Per Share Merger
Consideration shall be adjusted accordingly, without duplication, to provide the
holders of Shares with the same economic effect as contemplated by this
Agreement prior to such Adjustment.
          SECTION 3.02. Share Units; Company Options; Warrants.
          (a) Except as set forth in Schedule 3.02(a), each holder of a Share
Unit that is outstanding as of the Effective Time shall be entitled to receive
such holders’ proportional share of the aggregate Equityholder’s Percentage of
the Escrow Account, as set forth in Section 3.04, and the Gross-up Escrow
Account, as set forth in Section 3.06(g), and any Construction Milestone Payment
and any Coal Milestone Payments as set forth in Section 3.05, if any, and shall
be paid by the Paying Agent, on behalf of the Surviving Corporation, in exchange
for the cancellation of such Share Unit, an amount in cash, without interest, in
each case less any applicable withholding Taxes in accordance with Section 3.06,
which applicable withholding Taxes shall be paid to the Surviving Corporation
immediately after being so withheld for further payment to the applicable
Governmental Entity, equal to, as applicable, (i) with respect to Share Units
granted under the 1994 Bonus Share Plan, the product of (a) the Per Share Merger
Consideration and (b) the aggregate number of such holder’s Share Units or
(ii) with respect to Share Units granted under the 2004 Bonus Share Plan,
(A) the product of (1) the Per Share

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Merger Consideration and (2) the aggregate number of such holder’s Share Units
less (B) the aggregate Base Value for such holder’s Share Units.
          (b) Each holder of (i) a vested or unvested option to purchase Shares
(a “Company Option”) or (ii) a Warrant, in each case outstanding at the
Effective Time, shall be entitled to receive such holders’ proportional share of
the aggregate Equityholder’s Percentage of the Escrow Account, as set forth in
Section 3.04, and the Gross-up Escrow Account, as set forth in Section 3.06(g),
and any Construction Milestone Payment and any Coal Milestone Payments as set
forth in Section 3.05, if any, and shall be paid by the Paying Agent, on behalf
of the Surviving Corporation, in exchange for the cancellation of such Company
Option or Warrant, an amount in cash, without interest, in each case less any
applicable withholding Taxes in accordance with Section 3.06, which applicable
withholding Taxes shall be paid to the Surviving Corporation immediately after
being so withheld for further payment to the applicable Governmental Entity,
equal to the product of (x) the number of Shares subject to such Company Option
or Warrant, as applicable, and (y) the excess of (1) the Per Share Merger
Consideration over (2) the exercise price per Share issuable upon the exercise
of such Company Option or Warrant, as applicable (the aggregate amount of which
is the “Option/Warrant Merger Consideration”).
          SECTION 3.03. Surrender of Shares; Stock Transfer Books.
          (a) At least fifteen Business Days prior to the Effective Time, the
Company shall designate a bank or trust company reasonably acceptable to
Purchaser to act as agent (the “Paying Agent”) for (i) the holders of Shares,
Share Units, Company Options and Warrants (the “Holders”) to receive the funds
to which such Holders shall become entitled pursuant to Section 3.01(a) and
Section 3.02 and (ii) the Consulting Fees Payable to which any Consultants shall
become entitled upon consummation of the Merger. Except as provided in Section
3.03(b) below, such funds shall be invested by the Paying Agent as directed by
Parent; provided, that such investments shall be in obligations of or guaranteed
by the United States of America or of any agency thereof and backed by the full
faith and credit of the United States of America, in commercial paper
obligations rated A-1 or P-1 or better by Moody’s Investors Service, Inc. or
Standard & Poor’s Corporation, respectively, or in deposit accounts,
certificates of deposit or banker’s acceptances of, repurchase or reverse
repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $1 billion (based on the most recent financial statements of such bank
which are then publicly available at the SEC or otherwise).
          (b) At least ten Business Days prior to the Effective Time, the
Company shall cause the Paying Agent to deliver to each person who is, as of
such date, (i) a Holder entitled to receive the Per Share Merger Consideration
pursuant to Section 3.01(a) or Section 3.02 a form of letter of transmittal
reasonably acceptable to Purchaser (which shall specify, in the case of a Holder
of Shares, that delivery shall be effected, and risk of loss and title to the
certificates evidencing such Shares (the “Certificates”) shall pass, only upon
proper delivery of the Certificates to the Paying Agent) and instructions for
use in effecting the surrender of the Certificates and, if applicable,
evidencing ownership of Share Units, Company Options and Company Warrants
pursuant to such letter of transmittal and (ii) a Consultant entitled to receive
any Consulting Fees Payable a letter of instruction (together with the letter of
transmittal, a

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“Letter”) for payment of the applicable Consulting Fee Payable to the
Consultant. Upon delivery to the Paying Agent of a Letter duly completed and
validly executed in accordance with the instructions thereto, together with
(A) as applicable, Certificates or evidence of ownership of Share Units, Company
Options and Company Warrants, (B) with respect to each Equityholder, each
Release and/or Termination Agreement to which such Equityholder is to be a
party, and (C) such other documents as may be required pursuant to such
instructions, (1) the Holder shall be entitled to receive in exchange for its
Certificates, Share Units, Company Options or Company Warrants (or appropriate
evidence of the ownership thereof) the Per Share Merger Consideration for each
Share formerly evidenced by such Certificate, Share Units, Company Options or
Warrants (in each case after giving effect to any required withholding Tax in
accordance with Section 3.06, which applicable withholding Taxes shall be paid
to the Surviving Corporation immediately after being so withheld for further
payment to the applicable Governmental Entity) and such Certificates, Share
Units, Company Options or Company Warrants shall then be canceled and (2) a
Consultant shall be entitled to receive its applicable Consulting Fee Payable.
Notwithstanding the foregoing, the aggregate Per Share Merger Consideration to
which Globe Investments, Martin Curie Capital Return Trust PLC (F&C Asset
Management PLC), Electra Investment Trust PLC, Hoare Govett Nominees Limited,
Candover Investments PLC and Sun Alliance Trust Co. LTD become entitled to
receive at the Closing under this Agreement shall be reduced by the amount of
any payment with respect to the FIRPTA Report, estimated to be $555,000.00. No
interest shall accrue or be paid on the Per Share Merger Consideration or
Consulting Fees Payable. The Company shall cause the Paying Agent to pay by wire
transfer on the Closing Date the amount that a Holder is entitled to receive
pursuant to Section 3.01(a) or Section 3.02 or that a Consultant is entitled to
receive to any such Holder or Consultant who delivers to the Paying Agent, at
least two Business Days prior to the Effective Time, the documentation required
by the first two sentences of this Section 3.03(b), together with wire
instructions for such holder’s account. If the payment equal to the Per Share
Merger Consideration is to be made to a person other than the person in whose
name the surrendered certificate formerly evidencing Shares is registered on the
stock transfer books of the Company, it shall be a condition of payment that the
Certificate or evidence of ownership of Share Units, Company Options or Warrants
so surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other Taxes required by reason of the payment of the Per Share
Merger Consideration to a person other than the registered holder of the
certificate surrendered, or shall have established to the satisfaction of the
Surviving Corporation that such Taxes either have been paid or are not
applicable. If any Holder is unable to surrender such holder’s Certificates,
Share Units, Company Options or Company Warrants because such Certificates,
Share Units, Company Options or Company Warrants have been lost, mutilated or
destroyed, such holder may deliver in lieu thereof an affidavit and indemnity
bond in form and substance and with surety reasonably satisfactory to the
Surviving Corporation.
          (c) At any time following the sixth month after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent and
not disbursed to Holders or Consultants (including, without limitation, all
interest and other income received by the Paying Agent in respect of all funds
made available to it) together with any applicable withholding Taxes withheld
and not yet paid to the Surviving Corporation, and, thereafter, such Holders and
Consultants shall be entitled to look to the Surviving Corporation (subject to
abandoned

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property, escheat and other similar laws) only as general creditors thereof with
respect to any Per Share Merger Consideration or Consulting Fees Payable that
may be payable under this Section 3.03. Notwithstanding the foregoing, neither
the Surviving Corporation nor the Paying Agent shall be liable to any Holder for
any Per Share Merger Consideration or to any Consultant for any Consulting Fees
Payable delivered in respect thereof to a public official pursuant to any
abandoned property, escheat or other similar law.
          (d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of Shares on the records of the Company.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
          SECTION 3.04. Working Capital Statement.
          (a) No later than five (5) Business Days before the Closing Date, the
Company shall deliver to Purchaser a statement containing good faith estimates
of Working Capital (the “Estimated Working Capital”) and of the Debt Amount (the
“Estimated Debt Amount” and such statement, the “Estimated Working Capital
Statement”), in each case as of 12:01 a.m., Central time, on the Closing Date.
The Estimated Working Capital Statement will be prepared on a basis consistent
with and using the same methods used in preparing the Audited Financial
Statements as of December 31, 2006 and shall include reasonable documentation
supporting the amounts set forth thereon. If Purchaser notifies the Company at
least three (3) Business Days prior to the Closing that it disagrees with the
Estimated Working Capital Statement or the Estimated Debt Amount, the parties
hereto shall use commercially reasonable best efforts to reach agreement on such
disputed items and amend the Estimated Working Capital Statement to reflect such
agreement. If the parties are not able to resolve such dispute prior to the
Closing, such amount in dispute up to $10,000,000, shall be deposited into the
Escrow Account at the Closing (the “Disputed Pre-Closing Working Capital
Amount”) and shall be subject to the dispute resolution mechanism set forth in
Section 3.04(d).
          (b) No later than 90 days following the Closing Date, Parent shall
cause to be prepared and delivered to the Stockholders’ Representative a
statement of Working Capital and the Debt Amount, in each case as of 12:01 a.m.,
Central time, on the Closing Date (the “Working Capital Statement”). The Working
Capital Statement will be prepared on basis consistent with and using the same
methods used in preparing the Audited Financial Statements as of December 31,
2006 and shall include reasonable documentation supporting the amounts set forth
thereon and shall state whether Parent continues to dispute the Disputed
Pre-Closing Working Capital Amount.
          (c) Subject to Section 3.04(d), the Working Capital Statement, and the
Working Capital and the Debt Amount set forth therein, shall be final, binding
and conclusive on the parties hereto (the “Final Working Capital” and the “Final
Debt Amount”).
          (d) The Stockholders’ Representative may dispute any amounts reflected
on the Working Capital Statement and, to the extent still in dispute, any
Disputed Pre-Closing Working Capital Amounts, solely on the basis that the
amounts reflected on the Working Capital

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Statement and, to the extent still in dispute, any Disputed Pre-Closing Working
Capital Amounts were not arrived at in a manner consistent with and using the
same methods used in preparing the Audited Financial Statements as of
December 31, 2006 or were arrived at based on mathematical or clerical error;
provided, however, that the Stockholders’ Representative shall have notified
Parent in writing of each disputed item, specifying the estimated amount thereof
in dispute and setting forth, in reasonable detail, the basis for such dispute,
within 30 Business Days of Parent’s delivery of the Working Capital Statement to
the Stockholders’ Representative. In the event of such a dispute, the
Stockholders’ Representative and Parent shall attempt to reconcile their
differences, and any resolution by them as to any disputed amounts shall be
final, binding and conclusive on the parties hereto. Any item or amount to which
no dispute is raised in a timely delivered notice will be final, conclusive and
binding on the parties as of the end of such 30th Business Day. If the
Stockholders’ Representative and Parent are unable to reach a resolution with
such effect within 30 Business Days after the receipt by Parent of the
Stockholders’ Representative’s written notice of dispute, Parent shall submit
the items remaining in dispute for resolution to KPMG, LLP (or, if such firm
shall decline or is unable to act or is not, at the time of such submission,
independent of the Company and Parent, to another independent accounting firm of
international reputation mutually acceptable to the Stockholders’ Representative
and Parent) (either KPMG, LLP or such other accounting firm being referred to
herein as the “Independent Accounting Firm”), which shall, within 30 Business
Days after such submission, determine and report to the Stockholders’
Representative and Parent upon such remaining disputed items, and such report
shall be final, binding and conclusive on the Stockholders’ Representative and
Parent and the Working Capital and the Debt Amount as adjusted pursuant to such
report shall be, respectively, the “Final Working Capital” and the “Final Debt
Amount”. Notwithstanding anything to the contrary contained above, the
Independent Accounting Firm is solely authorized and permitted to determine
whether the Parent’s calculations were prepared in a manner consistent with and
using the same methods used in preparing the Audited Financial Statements as of
December 31, 2006 or were arrived at based on mathematical or clerical error.
The fees and disbursements of the Independent Accounting Firm shall be allocated
between the Stockholders’ Representative and Parent in the same proportion that
the aggregate amount of such remaining disputed items so submitted to the
Independent Accounting Firm that is unsuccessfully disputed by each such party
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such remaining disputed items so submitted.
          (e) In acting under this Section 3.04, the Stockholders’
Representative, Parent and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
          SECTION 3.05. Post-Closing Payments. (a) The date on which both of the
Final Working Capital and the Final Debt Amount have been finally determined in
accordance with Section 3.04 is hereinafter referred to as the “Determination
Date”, and the amount of such Final Working Capital and the Final Debt Amount
shall be used to adjust the Common Equity Consideration (the amount of such
adjustment as determined pursuant to the following two sentences, “Final
Adjustment Amount”). In the event that the sum of (i) the Final Working Capital
less the Estimated Working Capital and (ii) the Estimated Debt Amount less the
Final Debt Amount is a positive number, then Parent shall pay to the Paying
Agent, for prompt payment to the Equityholders, in proportion to their
respective aggregate Equityholder’s Percentage in the Escrow Account, an amount
equal to such positive number (less any applicable

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withholding Taxes in accordance with Section 3.06, which applicable withholding
Taxes shall be paid to the Surviving Corporation immediately after being so
withheld for further payment to the applicable Governmental Entity), together
with interest thereon at a rate equal to the average LIBOR for the period
beginning on the Closing Date and ending on the date of payment. In the event
that the sum of (x) the Final Working Capital less the Estimated Working Capital
and (y) the Estimated Debt Amount less the Final Debt Amount is a negative
number, then the Stockholders’ Representative and Parent shall direct the escrow
agent maintaining the Escrow Account to pay Parent an amount equal to the
absolute value of such negative number, together with interest earned thereon.
Any required payment shall be made by Parent or the escrow agent (at the
direction of the Stockholders’ Representative), as the case may be, on the third
Business Day following the Determination Date, in immediately available funds by
wire transfer to, in the case of the Equityholders, the Paying Agent and, in the
case of Parent, such bank account or accounts as Parent may specify. At the time
of the payment of the Final Adjustment Amount pursuant to this Section 3.05, the
balance of the Escrow Account shall be paid to the Paying Agent for distribution
by the Paying Agent to the Equityholders in accordance with their respective
Equityholder’s Percentages. If the funds held pursuant to the Escrow Agreement
are not sufficient to pay the Final Adjustment Amount, then Parent shall have
the right to setoff and apply the Construction Milestone Payment or a Coal
Milestone Payment against any such shortfall (plus interest accruing on such
amount from the Closing Date to the payment date at an annual rate of 5%);
provided that no party shall have any other right of setoff for any reason
whatsoever against the Construction Milestone Payment or any Coal Milestone
Payment or any interest accrued thereon except with respect to Parent’s rights
of setoff with respect to to: (1) the Final Adjustment Amount as set forth in
Section 3.05(a), (2) the FIRPTA Amount, the 280G Amounts and the 409A Amounts as
set forth in Section 3.06, and (3) the LC Amount and the Non-Releasing
Equityholder Indemnity Amount as set forth in Section 6.11 .
          (b) Milestone Payments.
          (i) Parent (or its transferees, successors or assigns) shall cause the
Surviving Corporation (or its transferees, successors or assigns) to pay to the
Equityholders an aggregate of $350,000,000, less any amount deposited into
escrow pursuant to Section 6.11 (plus interest on such amount from the Closing
Date to the earlier of the payment date and December 31, 2012, at a rate of 5%
compounded annually and less any applicable withholding Taxes in accordance with
Section 3.06) (the “Construction Milestone Payment”), and subject to Parent’s
right to setoff against the Construction Milestone Payment with respect to:
(1) the Final Adjustment Amount as set forth in Section 3.05(a), (2) the FIRPTA
Amount, the 280G Amounts and the 409A Amounts as set forth in Section 3.06, and
(3) the LC Amount and the Non-Releasing Equityholder Indemnity Amount as set
forth in Section 6.11, upon the earlier to occur of either: (A) the issuance of
a “notice(s) to proceed”, duly authorized, directly or indirectly, by the board
of directors of Parent (or its transferees, successors or assigns) in its sole
discretion, under contracts for construction of any portion of the New
Construction line for which the maximum aggregate amount committed to be paid
exceeds $500 million, or (B) Parent (or its transferees, successors or assigns)
or one or more of its Affiliates (or their transferees, successors or assigns),
to the extent such Affiliate or Affiliates are authorized to do so by the board
of directors of Parent (or its transferees, successors or assigns) in its sole
discretion, causing the movement of more

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than 10,000 cubic yards of earth in connection with the New Construction line
(collectively, the “Construction Conditions”). Parent agrees that, for either
the issuance of the “notice(s) to proceed” or the movement of more than 10,000
cubic yards of earth in connection with the New Construction to take place, its
board of directors must (or the board of directors of its transferees,
successors or assigns shall be required to) take formal action authorizing such
activity. Notwithstanding the foregoing, if neither of the Construction
Conditions has been satisfied prior to December 31, 2025, no Construction
Milestone Payment shall be payable.
          (ii) Parent (or its transferees, successors or assigns) shall cause
the Surviving Corporation (or its transferees, successors or assigns) to pay to
the Equityholders certain payments (the “Coal Milestone Payments”) not to exceed
$707,000,000 in the aggregate (plus an inflation adjustment accruing on each
such amount from the Closing Date to the payment date at a rate of 2% compounded
annually and less any applicable withholding Taxes in accordance with
Section 3.06), and subject to Parent’s right to setoff against the Coal
Milestone Payments with respect to: (1) the Final Adjustment Amount as set forth
in Section 3.05(a), (2) the FIRPTA Amount, the 280G Amounts and the 409A Amounts
as set forth in Section 3.06, and (3) the LC Amount and the Non-Releasing
Equityholder Indemnity Amount as set forth in Section 6.11, if prior to
December 31, 2025, shipments of Powder River Basin coal over any portion of the
New Construction line exceed certain tonnage targets (without rounding) for any
calendar year as set forth in this clause (ii) below (the “Tonnage Condition”):

      Tonnage Condition   Coal Milestone Payment
At least 40 million tons in any calendar year
  $58,000,000 plus an inflation adjustment from the Closing Date at a rate of
2%, compounded annually (the “First Milestone Payment”)
 
   
At least 50 million tons in any calendar year
  $60,000,000 plus an inflation adjustment from the Closing Date at a rate of
2%, compounded annually (the “Second Milestone Payment”)
 
   
At least 60 million tons in any calendar year
  $100,000,000 plus an inflation adjustment from the Closing Date at a rate of
2%, compounded annually (the “Third Milestone Payment”)
 
   
At least 75 million tons in any calendar year
  $164,000,000 plus an inflation adjustment from the Closing Date at a rate of
2%, compounded annually (the “Fourth Milestone Payment”)
 
   
At least 100 million tons in any calendar year
  $175,000,000 plus an inflation adjustment from the Closing Date at a rate of
2%, compounded annually (the “Fifth Milestone Payment”)
 
   
At least 125 million tons in any calendar year
  $150,000,000 plus an inflation adjustment from the Closing Date at a rate of
2%, compounded annually (the “Sixth Milestone Payment”)

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Upon satisfaction of any Tonnage Condition (and payment of the corresponding
Coal Milestone Payment), the Equityholders will no longer be eligible to receive
the Coal Milestone Payment corresponding to said Tonnage Condition. For purposes
of illustration, in no event will Parent be obligated to pay more than one of
each of the First Milestone Payment, Second Milestone Payment, Third Milestone
Payment, Fourth Milestone Payment, Fifth Milestone Payment and the Sixth
Milestone Payment upon satisfaction of any Tonnage Condition. If during any
calendar year the Company satisfies more than one Tonnage Condition that has not
previously been satisfied, then Parent shall make the corresponding Coal
Milestone Payments for each such Tonnage Condition which has been satisfied
through such time. For purposes of illustration, Section 3.05(b) of the
Disclosure Schedule sets forth an example of the satisfaction of multiple
Tonnage Conditions during a particular calendar year. Any tonnage that is under
contract with either railroad (i.e., BNSF or Union Pacific Railroad, or their
successors) serving the PRB (the “Incumbent Carriers”) and moves on an emergency
basis via any portion of the lines that may be constructed or improved pursuant
to the PRB Expansion (“Emergency Tonnage”) shall not be included in measuring
whether a Tonnage Condition has been met. Any tonnage under contract with
Incumbent Carrier(s) that is moved over any portion of the PRB Expansion for
less than six months shall be assumed to be Emergency Tonnage, unless there is a
preponderance of the evidence to the contrary. Any tonnage under contract with
Incumbent Carrier(s) that is diverted for more than six months shall be assumed
to be other than Emergency Tonnage and shall be included in measuring whether a
Tonnage Condition has been met, unless there is a preponderance of the evidence
to the contrary. The parties understand and agree that the terms and conditions
of any contract and agreement entered into after the Closing Date and related to
the shipment of coal shall be determined by Parent in its sole discretion.
          (iii) Timing of Payments. Within thirty (30) days following the
satisfaction of the Construction Conditions or a Tonnage Condition, and, in any
event, within forty-five (45) days following each calendar year prior to the
earlier of December 31, 2025 and the payment of the Sixth Milestone Payment,
Parent shall prepare and deliver to the Stockholders’ Representative a statement
certified by Parent’s Chief Financial Officer or Chief Executive Officer setting
forth (A) the status of the Construction Condition and the Tonnage Conditions,
including a description of the status, in reasonable detail, of the PRB
Expansion and (B) whether facts or circumstances have arisen to Parent’s
knowledge that are likely to give rise to a deduction from the Construction
Milestone Payment or any Coal Milestone Payment in respect of a FIRPTA Amount,
280G Amount, 409A Amount or an LC Amount (the “Milestone Statement”).
Notwithstanding the foregoing and solely with respect to any of the
above-described amounts payable after the fifth (5th) anniversary of the
Effective Time in respect of any

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portion of the Equityholder’s Percentages which are attributable to interests
under the Bonus Share Plans or the Warrant Agreement dated November 4, 2005,
between the Company and Kevin V. Schieffer (the holders of such Equityholder’s
Percentages, the “Restricted Equityholders”), which Equityholders and their
applicable Equityholder’s Percentages shall be identified in a writing delivered
by the Stockholders’ Representative to Parent at least thirty (30) days prior to
the fifth (5th) anniversary of the Effective Time, such payments shall not be
paid to the Stockholders’ Representative or any Restricted Equityholder prior to
January 1 of the calendar year next following the calendar year in which a
Construction Condition or Tonnage Condition, as the case may be, occurs and
shall be paid in such next following year on the later of the first Business Day
of such year or the date the amount would otherwise be paid to the Stockholders’
Representative (and promptly paid to the Restricted Equityholders by the
Stockholders’ Representative on receipt) as provided herein. The preceding
sentence shall not, however, be interpreted as interfering with or as a waiver
of Parent’s right to enforce its legal rights as provided above, provided that
the parties hereto agree that if there is a dispute or payment thereafter as a
result of a dispute it shall be paid in a manner that satisfies the requirements
of Treasury regulation section 1.409A-3(g). The Milestone Statement shall become
final and binding upon the parties on the sixtieth (60th) day following receipt
thereof by the Stockholders’ Representative unless the Stockholders’
Representative gives written notice of its disagreement with the Milestone
Statement (“Notice of Disagreement”) to Parent before such date. Any Notice of
Disagreement must set forth in reasonable detail the nature of any disagreement.
During the 30-day period following the delivery of a Notice of Disagreement, the
Stockholders’ Representative and Parent shall seek in good faith to resolve in
writing any differences that they may have with respect to any matter specified
in the Notice of Disagreement. If, at the end of such 30-day period, the
Stockholders’ Representative and Parent have not reached agreement on all such
matters, then the Stockholders’ Representative and Parent shall be entitled to
seek such other remedies as may be available at Law. Not later than the tenth
(10th) day following the date the Milestone Statement becomes final, whether
automatically because the Stockholders’ Representative does not provide a Notice
of Disagreement, by agreement of Parent and the Stockholders’ Representative or
otherwise, if the final Milestone Statement sets forth the satisfaction of the
Construction Conditions or one or more Tonnage Conditions, as applicable, Parent
shall cause the Surviving Corporation to deposit by wire transfer of immediately
available funds to (i) a single bank account specified by the Stockholders’
Representative, the Construction Milestone Payment or the applicable Coal
Milestone Payment(s), less, as applicable, any FIRPTA Amount, LC Amount, 409A
Amount and 280G Amount and (ii) to the Escrow Account the Non-Releasing
Equityholder Amount, if any. After deducting from any such Construction
Milestone Payment or the applicable Coal Milestone Payment(s), as adjusted
pursuant to the foregoing sentence, any amounts any Consultants are entitled to
receive, which amounts Parent and the Stockholders’ Representative shall use
commercially reasonable best efforts to agree upon within ten days of the
Milestone Statement becoming final, and distributing such amounts to the
Consultants as required, the Stockholders’ Representative shall distribute the
remainder of such Construction Milestone Payment or Coal Milestone Payment(s),
as applicable, among the Equityholders in proportion to their respective
Equityholders’ Percentage or as otherwise agreed among the Equityholders

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and the Stockholders’ Representative. Each party shall pay its own fees and
expenses incurred during the 30-day review period with respect to the resolution
of a Notice of Disagreement.
          (iv) During the period of any dispute provided for in
Section 3.05(b)(iii), and otherwise not more frequently than once per year until
December 31, 2025, at the request of the Stockholders’ Representative, Parent
shall provide the Stockholders’ Representative and its representatives
(including legal and financial advisors), reasonable access to the books,
records, facilities and employees of the Surviving Corporation and, to the
extent applicable, Parent and its Affiliates and any other person operating the
PRB Expansion and its Affiliates, and Parent shall cooperate, and cause its
Affiliates, the Surviving Corporation and any other person operating the PRB
Expansion and its Affiliates to cooperate, with the Stockholders’ Representative
and its representatives (including legal and financial advisors), to the extent
reasonably required by the Stockholders’ Representative to investigate the basis
for any such dispute.
          (v) Payments made pursuant to this Section 3.05(b) will be treated as
adjustments to the consideration payable to the Equityholders in exchange for
their Shares, Share Units, Warrants and Company Options, as the case may be, for
U.S. federal income tax purposes and any other applicable Tax law (except to the
extent a portion of such payments are treated as interest under Section 483 of
the Internal Revenue Code or other applicable Tax law). For all Tax purposes,
each party agrees not to take an inconsistent position therewith including in
the filing of any Tax Return or pursuant to any audit or administrative or
judicial proceeding.
          (vi) Subject to any restrictions on transfer contained in the Bonus
Share Plans, the Warrant Agreement dated November 4, 2005, between the Company
and Kevin V. Schieffer and the Director Change in Control Agreements, each
Equityholder shall be entitled to transfer all right, title and interests in and
to its right to receive any payments under this Section 3.05 to: (i) one or more
entities identified to Parent by the Stockholders’ Representative, which entity
or entities shall have been formed for the purposes of holding such rights and
administering such Equityholders’ rights under this Agreement, provided (A) if
such transfer occurs on or prior to the Closing, such transfer shall be approved
in advance by the Stockholders’ Representative, which approval shall not be
unreasonably withheld or delayed and (B) if such transfer occurs after the
Closing, such transfer shall be approved in advance by Parent, which approval
shall not be unreasonably withheld or delayed; (ii) one of its Affiliates,
provided such transferee remains an Affiliate of the transferor or (iii) to any
member of the immediate family of such Equityholder or any trust or trustee for
the benefit thereof for estate or Tax planning purposes; provided, in each of
(i)(A), (i)(B), (ii) and (iii), such transferee delivers to the Stockholders’
Representative and Parent an agreement to be bound by the terms of this
Agreement. The Stockholders’ Representative shall provide Parent with notice of
all such transfers which have occurred during a calendar quarter within 30 days
of the end of each calendar quarter until the earlier to occur of December 31,
2025 or all payments of the Construction Milestone Payment and each Coal
Milestone Payment have been made, if applicable.

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          (vii) Parent, Purchaser and Guarantor acknowledge and agree no direct
or indirect transfer of any right, title and interest in the Surviving
Corporation, the PRB Expansion or the right to undertake the PRB Expansion shall
relieve Parent, Purchaser or Guarantor of their respective obligations hereunder
and, to the extent applicable hereto, Section 6.12, without the consent of the
Stockholders’ Representative
          SECTION 3.06. Withholding Taxes. (a) Subject to subsections (b), (c),
(d), (e) and (f) of this Section 3.06, Parent, Purchaser, the Surviving
Corporation and the Paying Agent shall be entitled to withhold and deduct Taxes
on payments made pursuant to Section 2.02(b) and this Article III to the extent
required by applicable Law. Any amounts withheld shall be timely paid to the
person required to remit the withheld amounts to the appropriate Governmental
Entity, and such person shall timely remit such amounts to the appropriate
Governmental Entity.
          (b) Notwithstanding subsection (a) of this Section 3.06, if Parent,
Purchaser, the Surviving Corporation or the Paying Agent determines that
withholding, other than an Expected Withholding Tax, is required by applicable
Law, then Parent, Purchaser, the Surviving Corporation or the Paying Agent, as
applicable, shall use its best efforts to so notify the payees subject to such
withholding and the Stockholders’ Representative in writing at least 15 days
prior to the date the payment is to be made, together with a statement setting
forth the amount of such non-Expected Withholding Tax to be deducted and
withheld. If an affected payee objects in writing to the Parent, Purchaser, the
Surviving Corporation or the Paying Agent’s determination, then Parent, the
Stockholders’ Representative and such payee shall negotiate in good faith to
agree on the amount that should be deducted and withheld. If (A) Parent, the
Stockholders’ Representative and such payee are unable to agree on such amount
prior to the date such payment is to be made or (B) despite using best efforts
to identify any withholding requirements and give such notice at least 15 days
before a payment is required to be made, Parent, Purchaser, the Surviving
Corporation or the Paying Agent determine that withholding, other than an
Expected Withholding Tax, is required by applicable Law, prior to the date a
payment is required to be made, then Parent, Purchaser, the Surviving
Corporation and the Paying Agent shall withhold and deduct the amount that they
have determined is required under applicable Law, and if the affected payee or
the Stockholders’ Representative objects in writing to such withholding, Parent
shall engage a nationally recognized Law firm mutually acceptable to Parent, the
Stockholders’ Representative and such payee to render an opinion, addressed to
Parent, as to whether such withholding was required under applicable Law, which
opinion, absent manifest error, shall be conclusive and binding. If the Law firm
renders an opinion that such withholding was not required under applicable Law,
then Parent shall pay to the Stockholders Representative for further payment to
such payee such an amount as may be necessary so that, after giving effect to
all additional withholdings or deductions on such amount, such payee receives an
after-Tax amount equal to the amount that such payee would have been entitled to
receive in the absence of the imposition of the non-required withholding. The
costs incurred in connection with the engagement of such Law firm shall be paid
by the party whose position was not sustained by such Law firm. For the
avoidance of doubt, none of Parent, Purchaser, the Surviving Corporation or the
Paying Agent shall be liable for any Tax or obligated to make payments to a
payee solely as a result of its failure to give the notice of withholding
described in this subsection (b). Notwithstanding the foregoing, the parties
agree that the terms of this subsection (b) shall not apply with respect to any
withholding under Sections 1445, 4999 or 409A of the Internal Revenue Code.

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          (c) Notwithstanding anything to the contrary herein, the parties
acknowledge and agree that (i) payments made pursuant to Section 2.02(b) and
this Article III will not be subject to withholding under Section 1445 of the
Internal Revenue Code provided that, based on the valuations provided and the
methodologies used in the FIRPTA Report, the Company delivers to Parent at the
Closing a certificate (the “FIRPTA Certificate”) completed in accordance with
Treasury regulation sections 1.897-2(h)(1) and 1.1445-2(c)(3) and an executed
IRS notice (the “IRS Notice”) completed in accordance with Treasury regulations
section 1.897-2(h) (together with any attachments or supplements thereto,
including any statements required under Treasury regulations section
1.897-2(h)(5)), and provided further that the FIRPTA Report is delivered to
Parent on or prior to the Closing Date, and that Parent has not received a bona
fide notice described in Treasury regulations section 1.1445-2(c)(3)(ii), and
(ii) in the event that the Company does not timely provide such FIRPTA
Certificate, the IRS Notice or statements in accordance with clause (i) (or
Parent has received a bona fide notice described in Treasury regulations section
1.1445-2(c)(3)(ii)), such payments that are made to a payee will not be subject
to withholding under Section 1445 of the Internal Revenue Code provided that
such payee delivers to Parent at the Closing or on an earlier date a
certification that it is not a foreign person, completed in accordance with
Treasury regulations section 1.1445-2(b)(2), and provided further that Parent
has not received the notice described in Treasury regulations section
1.1445-2(b)(4)(iii). If such withholding occurs, the amounts withheld shall be
timely paid to the person required to remit the withheld amounts to the
appropriate Governmental Entity, and such Person shall timely remit such amounts
to the appropriate Governmental Entity. If such withholding does not occur and
the IRS finally determines that withholding was required under Section 1445 and
Parent or the Surviving Corporation provides the Stockholders’ Representative
with reasonably sufficient evidence of such final determination, (i) Parent
shall be entitled to deduct an amount equal to the amount of any Taxes, interest
and penalties incurred directly as a result of such failure to withhold, plus
interest accrued thereon at a rate of 5% per year compounded annually from the
date such Taxes, interest and penalties are paid through the date of such
deduction (the “FIRPTA Amount”) from the Construction Milestone Payment or a
Coal Milestone Payment as provided in Section 3.05(b) of this Agreement;
provided, however, that the foregoing indemnity shall not apply to any
additional Taxes, interest and penalties incurred after the date of the final
determination as a result of Parent’s failure to pay such Taxes, interest and
penalties when due under the final determination and (ii) Parent, the Surviving
Corporation or the Paying Agent, as the case may be, shall be entitled to
withhold and deduct amounts required to be withheld under Section 1445 of the
Internal Revenue Code from any payments made pursuant to Section 2.02(b) and
this Article III on or after the date of such final determination from such
future payments.
          (d) Notwithstanding anything to the contrary herein, to the extent
that Parent, Purchaser, the Surviving Corporation or the Paying Agent is
required to withhold or deduct any Canadian Taxes from any payment made pursuant
to Section 2.02(b) or this Article III, the amount payable under such provisions
shall be increased as may be necessary so that, after giving effect to all
withholdings or deductions of Canadian Taxes (including withholdings or
deductions of Canadian Taxes in respect of additional amounts payable under this
Section 3.06(d)), the relevant payee receives an after-Tax amount equal to the
amount that such payee would have been entitled to receive in the absence of the
imposition of such Canadian Taxes.

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          (e) Notwithstanding anything to the contrary herein, the parties
acknowledge and agree that certain payments made to “disqualified individuals”
within the meaning of Section 280G of the Internal Revenue Code may be subject
to Section 280G of the Internal Revenue Code and, hence would be subject to
withholding pursuant to Section 4999 of the Internal Revenue Code. The Company
shall within fifteen Business Days of the date hereof deliver to Parent a report
of its independent accountants (the “280G Report”), based on the Common Equity
Consideration and including a “reasonable compensation” analysis, disclosing the
amounts constituting the total, on an individual basis for each “disqualified
individual” as defined in Q&A 15 of Treasury Reg. §1.280G-1 and in the aggregate
(a) “parachute payments” within the meaning of Section 280G(b)(2) of the
Internal Revenue Code, (b) “base amounts” within the meaning of
Section 280G(b)(3) of the Internal Revenue Code and (c) “excess parachute
payments” within the meaning of Section 280G(a) of the Internal Revenue Code.
Item (a) of the preceding sentence shall be shown before and after any reduction
determined by such accountants to be available pursuant to Section 280G(b)(4)(A)
of the Internal Revenue Code and items (b) and (c) of the preceding sentence
shall be shown both before and after any reduction determined by such
accountants to be available pursuant to Section 280G(b)(4)(B) of the Internal
Revenue Code. The 280G Report also shall (i) disclose, on the same basis
described above, the amounts subject to withholding pursuant to Section 4999 of
the Internal Revenue Code, (ii) contain such detail and supporting documentation
so as to allow an independent party to confirm the calculations contained
therein and the facts relied upon in preparing such report and (iii) be
accompanied by a written tax opinion of the Company’s independent accountants
supporting the positions used in such calculations, including a statement that
the Company shall be entitled to file its federal income and employment tax
returns for the periods in which such payments are made in reliance upon such
report. The amounts withheld by the Company shall be based on the conclusions
reached in the 280G Report. If the Internal Revenue Service finally determines
that additional withholding was required under Section 4999 of the Internal
Revenue Code and the Surviving Corporation provides the Stockholders’
Representative with reasonably sufficient evidence of such final determination,
Parent shall be entitled to deduct an amount equal to the Taxes, interest and
related penalties incurred directly as a result of such failure to adequately
withhold, together with interest accrued thereon at a rate of 5% per year
compounded annually from the date such Taxes, interest and penalties are paid
through the date of the deduction (the “280G Amounts”) from the Construction
Milestone Payment or a Coal Milestone Payment as provided in Section 3.05(b) of
this Agreement; provided, however, that the foregoing indemnity shall not apply
to any additional Taxes, interest and penalties incurred after the date of such
final determination as a result of the Surviving Corporation’s failure to timely
pay any such Taxes, interest and penalties when due under the final
determination. Any amounts payable after the Closing Date to persons identified
as “disqualified individuals” in the 280G Report and treated as compensation for
U.S. federal income tax purposes that are considered by the Surviving
Corporation in reasonable good faith to be subject to Section 280G of the
Internal Revenue Code shall be treated by the Surviving Corporation as subject
to 280G of the Internal Revenue Code and the withholding required by
Section 4999 of the Internal Revenue Code shall be made and notice thereof shall
be given to the applicable payee and the Stockholders’ Representative if such
treatment and withholding is inconsistent with the recommendations set forth in
the 280G Report.
          (f) Notwithstanding anything to the contrary herein, the parties
acknowledge and agree that certain compensation earned and deferred prior to the
Closing Date may be

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subject to Section 409A of the Internal Revenue Code and, hence, includible in
employees’ gross income and subject to regular withholding. If the Internal
Revenue Service finally determines that additional withholding was required with
respect to amounts includible in any employee’s gross income pursuant to
Section 409A of the Internal Revenue Code and the Surviving Corporation provides
the Stockholders’ Representative with reasonably sufficient evidence of such
final determination, Parent shall be entitled to deduct an amount equal to the
Taxes and related penalties (including interest) incurred directly as a result
of such failure to adequately withhold, together with interest accrued thereon
at a rate of 5% per year compounded annually from the date such Taxes and
penalties (including interest) are finally determined by the Internal Revenue
Service through the date of the deduction (the “409A Amounts”) from the
Construction Milestone Payment or a Coal Milestone Payment as provided in
Section 3.05(b) of this Agreement; provided, however, that the foregoing
indemnity shall not apply to any additional Taxes, interest and penalties
incurred after the date of such final determination as a result of the Surviving
Corporation’s failure to timely pay any such Taxes, interest and penalties when
due under the final determination.
          (g) Except as may be provided in the Gross-up Escrow Agreement, any
amounts held in the Gross-up Escrow Account at the expiration of the applicable
statue of limitations with respect to the matters which are subject to the
Gross-Up Agreement shall be paid to the Stockholders’ Representative and the
Stockholders’ Representative shall distribute such amounts, less any applicable
amounts required to be distributed to any Consultants, among the Equityholders
in proportion to their respective Equityholders’ Percentage or as otherwise
agreed among the Equityholders and the Stockholders’ Representative.
          SECTION 3.07. No Dissenter’s Rights. In accordance with Schwabacher v.
United States, 334 U.S. 192 (1948), holders of Shares will not have any
dissenter’s rights, provided, however, that if the STB, the successor agency to
the Interstate Commerce Commission, (or any successor agency) or a court of
competent jurisdiction determines that dissenter’s rights are available to
holders of Shares, then holders of such Shares shall be provided with
dissenter’s rights in accordance with the DGCL.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
          The Company represents and warrants to Purchaser, except as set forth
on the Disclosure Schedule, as of the date of this Agreement or, if a
representation or warranty is made as of a specified date, as of such date, as
follows:
          SECTION 4.01. Authority of the Company. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and the
Definitive Agreements, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Definitive Agreements by the Company, the
performance by the Company of its obligations hereunder and thereunder and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all requisite corporate action on

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the part of the Company (including all necessary action by the Board of
Directors and Equityholders). This Agreement and the Definitive Agreements have
been duly executed and delivered by the Company, and (assuming due
authorization, execution and delivery by the other parties hereto) this
Agreement and the Definitive Agreements constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms.
          SECTION 4.02. Incorporation and Qualification and the Company and the
Subsidiaries. Each of the Company and the Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power and authority to own, operate
or lease the properties and assets now owned, operated or leased by it and to
carry on the Business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary, except for such failures which do not have a Material
Adverse Effect. No other jurisdiction has demanded, requested or otherwise
indicated in writing that the Company or any Subsidiary is required so to
qualify on account of the ownership or leasing of its assets and properties or
the conduct of the Business. True and complete copies of the Certificate of
Incorporation and By-laws of the Company and the Subsidiaries, as amended to the
date of this Agreement, have been made available to Purchaser.
          SECTION 4.03. Capital Stock of the Company and the Subsidiaries. The
entire authorized and outstanding capital stock of the Company and the
Subsidiaries, as of the date of this Agreement, is as set forth in Section 4.03
of the Disclosure Schedule. All of such outstanding shares of capital stock are
duly authorized, validly issued, fully paid and nonassessable, and none of such
shares were issued in violation of any preemptive or other rights. Except as set
forth in Section 4.03 of the Disclosure Schedule, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character issued
or authorized by the Company or the Subsidiaries relating to the issued or
unissued capital stock of the Company or any Subsidiary or obligating the
Company or any Subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, the Company or any Subsidiary. All Shares subject to
issuance as set forth in Section 4.03 of the Disclosure Schedule, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding contractual obligations of the Company
or the Subsidiaries to repurchase, redeem or otherwise acquire any Shares or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any person. Except as set forth in Section 4.03
of the Disclosure Schedule, there are no voting trusts, shareholder agreements,
commitments, undertakings, understandings, proxies or other restrictions to
which the Company or any Subsidiary is a party which directly or indirectly
restrict or limit in any manner, or otherwise relate to, the voting, sale or
other disposition of any shares or securities of the Company or any Subsidiary.
          SECTION 4.04. Subsidiaries. Except for the Subsidiaries, which are
wholly owned, directly or indirectly, by the Company, the Company has no
subsidiaries, equity investments or interests in joint ventures or any other
Person.

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          SECTION 4.05. No Conflict. Except as set forth in Section 4.06 of this
Agreement or in Section 4.05 of the Disclosure Schedule, the execution, delivery
and performance of this Agreement and the Definitive Agreements by the Company
do not and will not (a) violate or conflict with the Certificate of
Incorporation or By-laws of the Company or any Subsidiary, (b) conflict with or
violate any Law or Governmental Order applicable to the Company or any
Subsidiary or their assets, (c) result in any breach of, or constitute a default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of the Company or any Subsidiary pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument relating to such assets or properties to
which the Company or any Subsidiary is a party or by which any of such assets or
properties are bound or affected, except as would not, in the case of either
(b) or (c) above, individually or in the aggregate, delay the consummation of
the transactions contemplated by this Agreement or have a Material Adverse
Effect.
          SECTION 4.06. Consents, Approvals, Licenses, Etc. (a) No consent,
approval, authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Person is required to be made or
obtained by the Company or any Subsidiary in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, except: (a) any applicable requirements of the
ICCTA and the regulations of the STB and, if applicable, compliance with the HSR
Act; (b) any applicable non-United States consents, approvals, authorizations,
filings and notifications required under any applicable antitrust, competition
or trade regulation Law, except where the failure to obtain such consents,
approvals, authorizations, licenses, orders or permits, or to make such
declarations, filings or registrations or notifications would not
(i) individually or in the aggregate, prevent the Company from performing its
obligations under this Agreement or (ii) have a Material Adverse Effect. The
Company and the Subsidiaries hold all Licenses, except Licenses the failure of
which to have been obtained has not had and would not reasonably be expected to
have a Material Adverse Effect (the “Company Licenses”). Section 4.06 of the
Disclosure Schedule sets forth a list of said Company Licenses. Except as set
forth in Section 4.06 of the Disclosure Schedule, (i) to the knowledge of the
Company no event has occurred or condition or state of facts exists which
constitutes or, after notice or lapse of time or both, would constitute a breach
or default under any such Company License or which permits or, after notice or
lapse of time or both, would permit revocation or termination of any such
Company License, or which might materially and adversely affect the rights of
the Company or any Subsidiary under any such Company License; (ii) no written
notice of cancellation, of default or of any dispute concerning any Company
License, or of any event, condition or state of facts described in the preceding
clause, has been received by the Company or any Subsidiary; and (iii) each of
the Company Licenses is valid, subsisting and in full force and effect and may
be assigned and transferred in accordance with this Agreement and will continue
in full force and effect thereafter, in each case without (x) the occurrence of
any breach, default or forfeiture of rights thereunder, or (y) the consent,
approval, or act of, or the making of any filing with, any Governmental Entity.
          (b) To the knowledge of the Company, there are no material STB
authorizations or material Environmental Permits required to complete the PRB
Expansion that

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have not been disclosed to the Purchaser and, to the knowledge of the Company,
there exists no fact or circumstance that materially and adversely affects the
PRB Expansion or makes it unlikely that the PRB Expansion can be completed
within the time period contemplated by the construction plan identified on
Section 4.06(b) of the Disclosure Schedule.
          SECTION 4.07. Financial Statements; Budgets. (a) The Audited Financial
Statements and Unaudited Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis, with only such deviations from GAAP as
are referred to in the notes thereto, and fairly present in all material
respects the consolidated financial position, results of operations and cash
flows of the Company and the Subsidiaries as of each date and for each period
covered thereby, except that the Unaudited Financial Statements are subject to
normal and recurring year-end adjustments which are not expected to be material
in amount.
          (b) Except as and to the extent set forth on a balance sheet of the
Company included in the Audited Financial Statements or the Unaudited Financial
Statements, or the notes thereto, neither the Company nor any Subsidiary has any
material liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a balance
sheet, or in the notes thereto, prepared in accordance with GAAP, except for any
and all debts, liabilities and obligations, whether accrued or fixed, absolute
or contingent, matured or unmatured or determined or determinable disclosed
herein or liabilities of the same nature as those set forth in the Audited
Financial Statements and reasonably incurred in the ordinary course of Business
after December 31, 2006 consistent with past practice.
          (c) Section 4.07(c) of the Disclosure Schedule sets forth (i) as of
the date hereof a true and correct copy of the Company’s July unaudited
financial statements and forecast, which sets forth the budgets of capital,
construction, payroll and other expenditures of the Company and the Subsidiaries
prepared in the ordinary course of business for the calendar years ending
December 31, 2007 and (ii) the total capital expenditures through July 31, 2007
for each capital expenditure project for which funds are proposed to be expended
through December 31, 2007 (collectively, the “2007 Budget”).
          SECTION 4.08. Absence of Certain Changes. (a) During the period from
December 31, 2006 through the date of this Agreement, except as set forth in
Section 4.08(a) of the Disclosure Schedule, the Business has been conducted in
the ordinary course consistent with past practice and neither the Company nor
any Subsidiary has:
          (i) made any loan to, guaranteed any Indebtedness of or otherwise
created, incurred or assumed any Indebtedness on behalf of any Person;
          (ii) entered into any transaction with any Equityholder or any
Affiliate of any Equityholder (other than a Subsidiary) or redeemed or agreed to
redeem any of its capital stock or declared or agreed to declare, made or paid
or agreed to make or pay any dividends or distributions (whether in cash,
securities or other property) to any Equityholder or otherwise;
          (iii) (A) granted any increase, or announced any increase, in the
wages, salaries, compensation, bonuses, incentives, pension or other benefits
payable by the

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Company to any of its employees, including, without limitation, any increase or
change pursuant to any Benefit Plan or (B) established or increased or promised
to increase any benefits under any Benefit Plan, except as required by Law or
any collective bargaining agreement and in either case except for annual merit
increases in the ordinary course of business consistent with the past practices
of the Company;
          (iv) written down or written up (or failed to write down or write up
in accordance with GAAP consistent with past practice) the value of any
receivables or revalued any assets of the Company other than in the ordinary
course of business consistent with past practice and in accordance with GAAP;
          (v) made any change in any method of accounting or accounting practice
or policy used by the Company;
          (vi) created, incurred or assumed any Indebtedness, in excess of
$1,000,000 in the aggregate;
          (vii) (a) sold, leased to others or otherwise disposed of, or
mortgaged or pledged, or imposed or suffered to be imposed any Lien on, any of
its assets other than in the ordinary course of business or (b) entered into any
contractual obligation relating to (i) the purchase of assets constituting a
business, (ii) any merger, consolidation or other business combination or
(iii) the acquisition of real property or undertaking capital expenditures
exceeding the amounts set forth with respect thereto in the 2007 Budget by
$100,000 in the aggregate;
          (viii) cancelled any debts owed to or claims held (including the
settlement of any claims or litigation) other than in the ordinary course of the
Business consistent with past practice;
          (ix) accelerated or delayed collection of notes or accounts receivable
in advance of or beyond their regular due dates or the dates when the same would
have been collected in the ordinary course of the Business consistent with past
practice;
          (x) delayed or accelerated payment of any account payable or other
liability beyond or in advance of its due date or the date when such liability
would have been paid in the ordinary course of the Business consistent with past
practice;
          (xi) entered into a collective bargaining agreement;
          (xii) abandoned or discontinued service on all or any part of the rail
lines; or
          (xiii) entered into any agreement or contractual obligation to do any
of the things referred to in clauses (i) through (xii) above or any other
material transaction except in the ordinary course of Business.
          (b) Since December 31, 2006, there has not been any event or
occurrence which has had a Material Adverse Effect.

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          SECTION 4.09. Employee Benefit Plans; Labor Matters. (a) Section 4.09
of the Disclosure Schedule contains a true and complete list of each employee
benefit plan, program, arrangement and contract (including, without limitation,
any “employee benefit plan”, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”)) maintained or
contributed to by the Company and the Subsidiaries or with respect to which the
Company or any Subsidiary has any liability (the “Benefit Plans”). With respect
to each Benefit Plan, the Company has made available to Purchaser a true and
correct copy of (i) the most recent annual report (Form 5500) filed with the
IRS, (ii) such Benefit Plan, (iii) each trust agreement or insurance contract
relating to such Benefit Plan, (iv) each contract with any third party by which
any such Benefit Plan is administered, (v) the most recent summary plan
description for each Benefit Plan for which a summary plan description is
required and (vi) the most recent determination or opinion letter issued by the
IRS with respect to any Benefit Plan qualified under Section 401(a) of the
Internal Revenue Code. There are no organizations other than the Subsidiaries
which, together with the Company, are treated as a single employer pursuant to
Section 414 of the Internal Revenue Code. No Benefit Plan is subject to Title IV
of ERISA, and neither the Company nor any Subsidiary has any liability of any
kind whatsoever under Title IV of ERISA.
          (b) With respect to the Benefit Plans, no event has occurred and, to
the knowledge of the Company, there exists no condition or set of circumstances
in connection with which the Company or the Subsidiaries could be subject to any
liability under the terms of such Benefit Plans, ERISA, the Internal Revenue
Code or any other applicable Law which would have a Material Adverse Effect.
          (c) Except with respect to the Train and Engine Crafts of the Company,
no collective bargaining agreement is currently being negotiated by the Company
or any Subsidiary. As of the date hereof, and since December 31, 2006, there is
no labor dispute, strike, lockout, or work stoppage, or material grievance
actually pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary except as set forth in Section 4.08(a)(xii) of the
Disclosure Schedule. As of the date hereof, to the knowledge of the Company, the
Company and its Subsidiaries are, and have at all times been, in compliance with
all applicable Laws respecting employment and employment practices, terms and
conditions of employment, equal opportunity, nondiscrimination, immigration,
labor, wages, affirmative action, hours of work and occupational safety and
health, and have not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law or any statutory disputes
under the Railway Labor Act or other applicable law; and there is no charge or
complaint against the Company or any Subsidiary by the National Labor Relations
Board or any comparable state agency pending or threatened in writing.
          (d) Section 4.09 of the Disclosure Schedule sets forth (i) copies of
all employment agreements with officers of the Company and the Subsidiaries and
agreements with non-union employees that provides for annual compensation in
excess of $150,000; (ii) copies of all severance agreements, programs and
policies of the Company and the Subsidiaries with or relating to its employees;
(iii) copies of all plans, programs, agreements, policies and other arrangements
of the Company and the Subsidiaries with or relating to its employees which
contain change in control provisions; (iv) all collective bargaining agreements
and other agreements with labor organizations or other employee representative
bodies. Except as set forth

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in Section 4.09 of the Disclosure Schedule, (i) each contract or agreement set
forth on Section 4.09 of the Disclosure Schedule is valid and binding on the
Company and to the knowledge of the Company, on the respective parties thereto
and is in full force and effect and, upon consummation of the transactions
contemplated by this Agreement, shall continue in full force and effect without
penalty or other adverse consequence without the consent, approval or act of, or
the making of any filing with, any other Person, (ii) neither the Company nor
any Subsidiary is in breach of, or default under, any of such agreements or
contracts and no event has occurred which with notice or lapse of time would
constitute such a breach or default or permit termination, modification or
acceleration thereunder, (iii) to the knowledge of the Company, no other party
to any of such agreements or contracts is in breach thereof or default
thereunder and no event has occurred which with notice or lapse of time would
constitute such a breach or default or permit termination, modification or
acceleration thereunder and (iv) no Person has taken any action that has the
effect of creating or triggering any entitlement to benefits under the terms of
any agreement with any of its employees.
          (e) Except as required by Law, no Benefit Plan provides retiree
medical or retiree life insurance benefits to any person.
          (f) Since December 31, 2005, the Company and its Subsidiaries have not
effectuated (i) a “plant closing” as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (the “WARN Act”) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company or any Subsidiary, or (ii) a “mass layoff”
as defined in the WARN Act affecting any site of employment or facility of the
Company or any of its Subsidiaries. Since December 31, 2005, neither the Company
nor any of its Subsidiaries have been affected by any transaction or engaged in
layoffs or employment terminations sufficient in number to trigger application
of any federal, state or local law similar to the WARN Act.
          SECTION 4.10. Absence of Litigation. Except as set forth in
Section 4.10 of the Disclosure Schedule, as of the date of this Agreement, there
are no Actions pending or, to the knowledge of the Company, threatened against
the Company, the Subsidiaries or any of the assets or properties of the Company
or the Subsidiaries involving a claim in an amount in excess of $1,000,000 or
that reasonably would be expected to materially and adversely affect the
Company’s ability to affect the PRB Expansion or to prevent the Company from
consummating the transactions contemplated hereby, and (b) the Company, the
Subsidiaries and its and their assets and properties are not subject to any
Governmental Order.
          SECTION 4.11. Compliance with Laws. The Company and the Subsidiaries
have each conducted and continue to conduct the Business in compliance with all
applicable Laws in all material respects, except as would not be materially
adverse to the Business.
          SECTION 4.12. Taxes. Except as set forth in Section 4.12 of the
Disclosure Schedule:
          (a) All Tax Returns required to be filed by or with respect to the
Company or any of its Subsidiaries have been properly and timely filed (taking
into account any applicable extension periods), and all such Tax Returns were
complete and correct in all material respects;

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          (b) The Company and its Subsidiaries have fully and timely paid all
Taxes required to be paid by or with respect to them, and have made adequate
provision in the financial statements of the Company (in accordance with GAAP)
for Taxes not yet due and payable;
          (c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Returns required to be
filed by or with respect to the Company and its Subsidiaries;
          (d) None of the Tax Returns of or with respect to the Company or any
of its Subsidiaries is currently being audited or examined by any taxing
authority;
          (e) The Company and its Subsidiaries have withheld and paid all
material Taxes required to have been withheld and paid in connection with
amounts paid to any employee, creditor, stockholder or other third party;
          (f) No Encumbrances for material amounts of Taxes have been filed
against the Company or any of its Subsidiaries, except for Encumbrances for
Taxes not yet due or payable or for Taxes being contested in good faith;
          (g) There are no material unresolved deficiencies or additions to
Taxes that have been proposed, asserted or assessed in writing against the
Company or any of its Subsidiaries;
          (h) Neither the Company nor any Subsidiary is a party to any
indemnification, allocation or sharing agreement with respect to Taxes that
could give rise to a material payment or indemnification obligation (other than
agreements among the Company and its Subsidiaries and other customary Tax
indemnifications contained in credit or other commercial agreements the primary
purpose of which does not relate to Taxes). Neither the Company nor any of its
Subsidiaries has any liability for the Taxes of any Person under Treasury
regulation section 1.1502-6 (or any similar provision of state, local or foreign
law), or as a transferee or successor;
          (i) Neither the Company nor any of its Subsidiaries has entered into
any closing agreement pursuant to Section 7121 of the Internal Revenue Code or
any similar provision of any state, local or foreign law;
          (j) Since January 1, 2005, neither the Company nor any of its
Subsidiaries has been a Controlled corporation or a distributing corporation in
respect of a distribution to which Section 355 of the Internal Revenue Code was
intended to apply;
          (k) Neither the Company nor any of its Subsidiaries has participated
in a transaction that is described as a “listed transaction” within the meaning
of Treasury regulation section 1.6011-4(b)(2); and
          (l) Neither the Company nor any of its Subsidiaries has, since
October 3, 2004, (A) granted to any person an interest in a nonqualified
deferred compensation plan (as defined in Section 409A(d)(1) of the Internal
Revenue Code) which interest has been or, upon the lapse of a substantial risk
of forfeiture with respect to such interest, will be subject to the Taxes
imposed by Sections 409A(a)(1)(B) or (b)(4)(A) of the Internal Revenue Code, or
(B)

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modified the terms of any nonqualified deferred compensation plan in a manner
that could cause an interest previously granted under such plan to become
subject to the Taxes imposed by Sections 409(A)(a)(1)(B) or (b)(4)(A) of the
Internal Revenue Code.
          SECTION 4.13. Material Contracts. (a) Section 4.13(a) of the
Disclosure Schedule is a true and complete list of all of the following
contracts and agreements entered into as of the date of this Agreement by the
Company or a Subsidiary (the “Material Contracts”):
          (i) each contract and agreement for the purchase of goods or for the
furnishing of services to the Company under the terms of which the Company:
(A) is likely to pay or otherwise give consideration of more than $750,000 in
the aggregate during the calendar year ended December 31, 2007 or (B) is likely
to pay or otherwise give consideration of more than $3,000,000 in the aggregate
over the remaining term of such contract;
          (ii) all contracts and agreements relating to Indebtedness of the
Company or any Subsidiary evidencing or which constitute a guarantee of any
Indebtedness of any Person;
          (iii) all material contracts and agreements with any Governmental
Entity;
          (iv) all contracts and agreements that limit or purport to limit the
ability of the Company or any Subsidiary to compete in any line of business or
with any Person or in any geographic area or during any period of time;
          (v) each lease of real property involving more than $1,000,000 in the
aggregate of rent over the remaining term of the lease;
          (vi) each lease of personal property involving more than $1,000,000 in
the aggregate of rent over the remaining term of the lease;
          (vii) all contracts and agreements between or among the Company or any
Subsidiary and any of the Equityholders or any Affiliate of any of such
Equityholders;
          (viii) all contracts and agreements providing for benefits under any
Benefit Plan;
          (ix) all contracts and agreements under which the Company or any
Subsidiary is or may become obligated to pay any brokerage, finder’s or similar
fees or expenses in connection with this Agreement or consummation of the
transactions contemplated hereby;
          (x) all contracts and agreements to sell or otherwise dispose of any
assets having a fair market value in excess of $750,000 other than in the
ordinary course of business;

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          (xi) all contracts and agreements under which the Company or any
Subsidiary is or may become obligated to pay any amount in respect of deferred
or conditional purchase price (other than ordinary trade terms), indemnification
obligations, purchase price adjustment or otherwise in connection with any
(a) acquisition or disposition of all or substantially all of the assets or
securities constituting a line of business of any Person, (b) merger,
consolidation or other business combination, or (c) series or group of related
transactions or events of a type specified in subclauses (a) and (b);
          (xii) all contracts and agreements for the pending purchase or sale of
real property in excess of $100,000;
          (xiii) all contracts and agreements that contain exclusivity, most
favored nation or similar types of provisions;
          (xiv) all material guarantees of the obligations of customers,
suppliers, officers, directors, employees, Affiliates or others entered into
other than in the ordinary course of business;
          (xv) all material contracts and agreements containing “paper barriers”
as such term is generally understood in the railroad industry;
          (xvi) all material contracts and agreements granting demurrage relief
to a shipper entered into other than in the ordinary course of business;
          (xvii) all material contracts and agreements imposing car or other
equipment supply obligations entered into other than in the ordinary course of
business;
          (xviii) all material contracts and agreements granting another common
carrier the right to use all or any portion of the Real Property or rail lines,
yards or other facilities of the Company or any Subsidiary (including yard(s)
and other facilities) or the right to serve industries located on the Real
Property or rail lines, yards or other facilities of the Company or any
Subsidiary;
          (xix) all material contracts and agreements granting the right to use
all or any portion of the rail line, yards or other facilities of another common
carrier which relate to the Real Property;
          (xx) all material contracts and agreements that relate to trackage
rights, haulage, interchange, joint facility, switching and similar agreements
which relate to the Real Property;
          (xxi) all material contracts and agreements with shippers for rail
transportation;
          (xxii) all written contracts and agreements imposing a construction
obligation that would cost more than $500,000; and

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          (xxiii) all other contracts and agreements whether or not made in the
ordinary course of business, which are material to the Company and the
Subsidiaries or the absence of which would have a Material Adverse Effect.
          (b) Each Material Contract is valid and binding on the Company and, to
the knowledge of the Company, the other parties thereto and is in full force and
effect and, upon consummation of the transactions contemplated by this
Agreement, shall continue in full force and effect without any change in control
or prepayment expense or penalty, other penalty or other adverse consequence and
without the consent, approval or act of, or the making of any filing with, any
other Person, and neither the Company nor any Subsidiary is in breach of, or
default under, any Material Contract and no event has occurred which with notice
or lapse of time would constitute such a breach or default or permit
termination, modification or acceleration thereunder; provided, however, that
all Material Contracts described in clause (vii) above, other than those set
forth on Schedule 4.13(b) of the Disclosure Schedule, shall terminate on or
prior to the Effective Time without any ongoing obligation, change in control or
prepayment expense or penalty, other penalty or other adverse consequence and
without the consent, approval or act of, or the making of any filing with, any
other Person.
          (c) To the knowledge of the Company, no other party to any Material
Contract is in material breach thereof or material default thereunder and no
event has occurred which with notice or lapse of time would constitute such a
breach or default or permit termination, modification or acceleration
thereunder.
          (d) Except for the Financial Agreement, there is no contract,
agreement or other arrangement granting any Person any preferential right to
purchase, other than in the ordinary course of business consistent with past
practice, any of the properties or assets of the Company and the Subsidiaries.
The terms of Section 2 of the Financial Agreement and any right of first refusal
set forth in said agreement shall not be applicable to the transactions
contemplated by this Agreement provided the Closing occurs on or before
February 26, 2008.
          (e) Neither the Company nor any Subsidiary is currently renegotiating
any of the Material Contracts or paying liquidated damages in lieu of
performance thereunder. Complete and correct copies of each Material Contract
have been made available to Purchaser.
          SECTION 4.14. Environmental Matters. (a) Except as set forth in
Section 4.14 of the Disclosure Schedule or as would not have a Material Adverse
Effect:
          (i) The Company and each Subsidiary are in compliance with, and for
the past three years has been in compliance with, all applicable Environmental
Laws and all Environmental Permits. All past noncompliance with Environmental
Laws or Environmental Permits has been resolved without any pending, ongoing or
future obligation, cost or liability, and there is no requirement proposed for
adoption or implementation under any Environmental Law or Environmental Permit.
          (ii) There are no underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Materials are being or have been treated, stored or disposed of on any of the
Real Property or,

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during the period of the Company’s or any Subsidiary’s ownership, lease, use or
occupancy thereof, on any property formerly owned, leased, used or occupied by
the Company or any Subsidiary and neither the Company nor any Subsidiary has
engaged in operation or activities upon any of the Real Property for the purpose
of, or in any way involving, the handling, manufacture, treatment, processing,
storage, use, generation, release, discharge, emission, dumping or disposal of
any Hazardous Materials, at, on, or under such Real Property, except in
compliance in all material respects with al applicable Environmental Laws.
          (iii) There has been no Release of any Hazardous Material on any of
the Real Property or, during the period of the Company’s or any Subsidiary’s
ownership, lease, use or occupancy thereof, on any property formerly owned,
leased, used or occupied by the Company or any Subsidiary.
          (iv) Neither the Company nor any Subsidiary is conducting, and none of
them has undertaken or completed, any Remedial Action relating to any Release or
threatened Release of any Hazardous Material at the Real Property or at any
other site, location or operation, either voluntarily or pursuant to the order
of any Governmental Entity or the requirements of any Environmental Law or
Environmental Permit.
          (v) There is no asbestos or asbestos-containing material on any of the
Real Property.
          (vi) None of the Real Property is listed or, to the knowledge of the
Company, proposed for listing, or adjoins any other property that is listed or,
to the knowledge of the Company, proposed for listing, on the National
Priorities List or CERCLIS or on any analogous federal, state or local list.
          (vii) There are no Environmental Claims pending or, to the knowledge
of the Company, threatened against the Company, any Subsidiary or the Real
Property, and, to the knowledge of the Company, there are no circumstances that
can reasonably be expected to form the basis of any such Environmental Claim,
including with respect to any off-site disposal location currently or formerly
used by the Company or any Subsidiary or any of its predecessors or with respect
to previously owned or operated facilities.
          (b) The Company has provided Purchaser with copies of (i) any
environmental assessment or audit reports or other similar studies or analyses
relating to the Business, the Real Property, the Company or any Subsidiary
prepared since January 1, 2005, and (ii) all insurance policies issued at any
time that may currently provide coverage to the Company or any Subsidiary or the
Business for environmental matters.
          SECTION 4.15. Tangible Personal Property and Real Property. (a) Except
as set forth in Schedule 4.15(a) of the Disclosure Schedule and except for
Permitted Encumbrances, the Tangible Personal Property and the Real Property
owned or leased by the Company and the Subsidiaries is owned or leased free and
clear of all Encumbrances and such assets and

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properties owned or leased by the Company and the Subsidiaries constitute all
the assets and properties used in or necessary for the operation of the
Business.
          (b) Section 4.15(b) of the Disclosure Schedule sets forth with respect
to (x) each item of real property owned, leased or otherwise held and/or used by
the Company or any of its Subsidiaries and (y) each material track, marshalling
yard, trailer/container and automobile loading and unloading facility, operating
office, shop and service building and other railway property outside of normal
right of way owned, leased or otherwise held and/or used by the Company or any
of its Subsidiaries: (i) the address of such real property, if applicable;
(ii) whether such property is a Stabilized Property, a Development Property or a
Land Holding; (iii) the specific owner/interest-holder, the type of interest
that is held (other than with respect to railroad property) and the percentage
interest held by such Person; (iv) the use of such real property; and
(v) whether such Real Property is to the knowledge of the Company used or
occupied by any Person other than the Company or any of its Subsidiaries or
either the Company or a Subsidiary does not have, with respect to each item of
real property described in Section 4.15(b) of the Disclosure Schedule, good and
marketable fee title, or a valid leasehold, easement, right of way or other
interest or otherwise has a valid right of possession which is sufficient to
permit such Persons to conduct such business as is currently conducted or
carried on without undue charge or expense, in each case free and clear of all
Encumbrances, except for Permitted Encumbrances.
          SECTION 4.16. Intellectual Property. Section 4.16(a) of the Disclosure
Schedule sets forth a true and complete list of all Intellectual Property owned
by the Company (the “Company Intellectual Property”). To the knowledge of the
Company, (i) no person is engaging in any activity that infringes any Company
Intellectual Property, and (ii) no claim has been asserted to the Company that
the use of any Company Intellectual Property infringes the patents, trademarks,
or copyrights of any third party. Except as would not have a Material Adverse
Effect, with respect to each item of Company Intellectual Property, the Company
or a Subsidiary is the owner of the entire right, title and interest in and to
such Company Intellectual Property. Section 4.16(b) of the Disclosure Schedule
sets forth a true and complete list of all material licenses of Intellectual
Property to the Company from any third party, excluding licenses of
Off-the-Shelf Software or “shrink-wrap” and “click-wrap” licenses. To the
knowledge of the Company, the use of the Company Intellectual Property by the
Company in connection with the operation of the Business as presently conducted
does not infringe or misappropriate the Intellectual Property rights of any
third party in any manner that would have a Material Adverse Effect.
          SECTION 4.17. Brokers. Except for certain of the amounts to be set
forth on the Closing Date Payment Schedule, no broker, finder, legal or
financial adviser or consultant is entitled to any brokerage, finder’s or other
fee or commission in connection with the consummation of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
          SECTION 4.18. Insurance. The Company and its Subsidiaries own or hold
policies of insurance that provide coverage in the amounts and against the risks
required to comply with applicable Law. With respect to each insurance policy
owned or held by the Company or any of its Subsidiaries, except as, individually
or in the aggregate, would not have a

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Material Adverse Effect: (i) such policy is valid and binding on the Company or
the Subsidiary of the Company party thereto and, to the knowledge of the Company
as of the date of this Agreement, each other party thereto, and, except for any
policy that has expired in accordance with its terms, is in full force and
effect (and were in full force and effect during the periods of time such
insurance policies were purported to be in effect) and all premiums due and
payable thereon have been paid, (ii) none of the Company or any Subsidiary of
the Company has received written notice of default under any such policy by the
Company or any of its Subsidiaries and, to the knowledge of the Company as of
the date of this Agreement, there is no default by any other party thereto, and
no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by the Company or any of its
Subsidiaries or, to the knowledge of the Company as of the date of this
Agreement, by any other party thereto and (iii) to the knowledge of the Company
as of the date of this Agreement, no notice of cancellation or termination has
been received other than in connection with ordinary renewals.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
          Guarantor, Parent and Purchaser, jointly and severally, represent and
warrant to the Company as follows:
          SECTION 5.01. Incorporation and Authority of Purchaser. Each of
Guarantor, Parent and Purchaser are corporations duly incorporated, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation and have all necessary corporate power and authority to enter
into this Agreement and the Definitive Agreements, to carry out their respective
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Definitive Agreements by each of Guarantor, Parent and Purchaser, the
performance by each of Guarantor, Parent and Purchaser of their respective
obligations hereunder and thereunder and the consummation by Guarantor, Parent
and Purchaser of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action on the part of each of Guarantor,
Parent and Purchaser. This Agreement and the Definitive Agreements have been
duly executed and delivered by Guarantor, Parent and Purchaser, and, assuming
due authorization, execution and delivery by the other parties hereto,
constitutes legal, valid and binding obligations of Guarantor, Purchaser
enforceable against Purchaser in accordance with their terms.
          SECTION 5.02. No Conflict. Except as set forth in Section 5.02 of the
Purchaser Disclosure Letter, the execution, delivery and performance of this
Agreement and the Definitive Agreements by each of Guarantor, Parent and
Purchaser do not and will not (a) violate or conflict with the Certificate of
Incorporation or By-laws of any of Guarantor, Parent or Purchaser, (b) conflict
with or violate any Law or Governmental Order applicable to any of Guarantor,
Parent or Purchaser or (c) result in any breach of, or constitute a default (or
event which with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the

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creation of any Encumbrance on any of the assets or properties of any of
Guarantor, Parent or Purchaser pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties to which any of Guarantor, Parent or
Purchaser is a party or by which any of such assets or properties is bound or
affected, except as would not, in the case of either (b) or (c) above,
individually or in the aggregate, delay the consummation of the transactions
contemplated by this Agreement or have a material adverse effect on the ability
of any of Guarantor, Parent or Purchaser to consummate the transactions
contemplated hereby.
          SECTION 5.03. Consents and Approvals. No consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Entity, is required to
be made or obtained by any of Guarantor, Parent or Purchaser or any of their
respective Affiliates in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby,
except: (a) any applicable requirements of the ICCTA and the regulations of the
STB and, if applicable, compliance with the HSR Act; (b) any applicable
non-United States consents, approvals, authorizations, filings and notifications
required under any applicable antitrust, competition or trade regulation Law,
except where the failure to obtain such consents, approvals, authorizations,
licenses, orders or permits, or to make such declarations, filings or
registrations or notifications would not, (i) individually or in the aggregate,
delay the consummation of the transactions contemplated hereby or thereby or
(ii) have an adverse effect on the ability of any of Guarantor, Parent or
Purchaser to consummate the transactions contemplated hereby or thereby and
(c) as may be necessary as a result of any facts or circumstances relating
solely to the Company.
          SECTION 5.04. Absence of Litigation. No Action is pending or, to the
knowledge of the General Counsel, Chief Executive Officer or the Chief Financial
Officer of any of Guarantor, Parent or Purchaser, threatened, against any of
Guarantor, Parent or Purchaser or any of the assets or properties of any of
Guarantor, Parent or Purchaser that would, individually or in the aggregate,
reasonably would be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement or have an adverse effect on the
ability of Purchaser to consummate the transactions contemplated by this
Agreement.
          SECTION 5.05. Investment Purpose. Each of Parent and Purchaser is
acquiring the Shares solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof.
          SECTION 5.06. Financing. Each of Parent and Purchaser will have at the
Closing all funds necessary to consummate the transactions contemplated by this
Agreement.
          SECTION 5.07. Brokers. No broker, finder or investment banker other
than Morgan Stanley & Co Incorporated and RBC Capital Markets is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any of Guarantor, Parent and Purchaser or any Person acting on
their behalf.

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ARTICLE VI
ADDITIONAL AGREEMENTS
          SECTION 6.01. Conduct of Business Prior to the Closing. (a) Except as
set forth in Section 6.01(a) of the Disclosure Schedule, or as permitted or
required under this Agreement the Company agrees that it will from the date of
this Agreement until the Closing, and shall cause each Subsidiary to, conduct
its business in the ordinary course and consistent with past practice. Without
limiting the generality of the foregoing, the Company shall, and shall cause
each Subsidiary to, (i) use its commercially reasonable best efforts to
(A) preserve intact its business organizations and the business organization of
the Business, (B) keep available the services of the employees of the Company
and each Subsidiary, (C) continue in full force and effect without material
modification all existing policies or binders of insurance currently maintained
in respect of the Company, each Subsidiary and the Business and (D) preserve its
current relationships with its customers, suppliers and other persons with which
it has significant business relationships; and (ii) exercise, but only after
notice to Purchaser and receipt of Purchaser’s prior written approval, any
rights of renewal pursuant to the terms of any of the leases set forth in
Section of the Disclosure Schedule which by their terms would otherwise expire.
          (b) The Company agrees that, except as described in Section 6.01(b) of
the Disclosure Schedule or except as permitted or required pursuant to the terms
of this Agreement, from the date hereof until the Closing, without the prior
written consent of Purchaser, neither the Company nor any Subsidiary will:
          (i) permit or allow any of its assets or properties (whether tangible
or intangible) to be subjected to any Encumbrance, other than Permitted
Encumbrances and, other than Encumbrances that will be released at or prior to
the Closing, other than in the ordinary course of business consistent with past
practice;
          (ii) make any loan to, guarantee any Indebtedness of or otherwise
create, incur or assume, or agree to create, incur or assume, any Indebtedness
on behalf of any Person, other than loans between the Company and any Subsidiary
or between Subsidiaries;
          (iii) enter into any transaction with any Equityholder or any
Affiliate of any Equityholder or redeem any of the capital stock or declare,
make or pay any dividends or distributions (whether in cash, securities or other
property) to any Equityholder or otherwise, except for redemptions, dividends or
distributions (whether in cash, securities or other property) by any Subsidiary
solely to the Company or to another Subsidiary;
          (iv) make any changes in the customary methods of operations of the
Company or any Subsidiary, including, without limitation, practices and policies
relating to purchasing, inventories, marketing, selling and pricing, other than
in the ordinary course of business consistent with past practice;

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          (v) merge with, enter into a consolidation with, or acquire an
interest, in any Person or acquire a substantial portion of the assets or
business of any Person or any division or line of business thereof, or otherwise
acquire any assets or acquire or condemn real property in connection with the
PRB Expansion in an amount in excess of that set forth in Section 6.01(b)(v) of
the Disclosure Schedule;
          (vi) make any capital or other expenditure or commitment for any
capital or other expenditure except as set forth in the 2007 Budgets;
          (vii) sell, transfer, lease, sublease, license or otherwise dispose of
any properties or assets, real, personal or mixed (including, without
limitation, leasehold interests and intangible assets), other than in the
ordinary course of business consistent with past practice;
          (viii) issue or sell any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of, or
any other interest in, the Company or any Subsidiary;
          (ix) enter into, renew, extend, or renegotiate any agreement with any
of its directors, officers, employees, labor organizations, or Equityholder (or
with any relative, beneficiary, spouse or Affiliate of such Person) or take any
action that has the effect of creating or triggering, any entitlement to
benefits under the terms of any such agreement;
          (x) (A) grant any increase, or announce any increase, in the wages,
salaries, compensation, bonuses, incentives, pension or other benefits payable
by the Company or any Subsidiary to any of its employees, including, without
limitation, any increase or change pursuant to any Benefit Plan or (B) establish
or increase or promise to increase any benefits under any Benefit Plan, except
as required by Law or any collective bargaining agreement;
          (xi) make any change in any method of accounting or accounting
practice or policy used by the Company or any Subsidiary, other than such
changes required by Law or GAAP;
          (xii) allow any permit or Environmental Permit that was issued or
relates to the Company or any Subsidiary or otherwise relates to any asset to
lapse or terminate or fail to renew any such permit or Environmental Permit or
any insurance policy that is scheduled to terminate or expire prior to the
Closing, other than Encumbrances that will be released at or prior to the
Closing, in each case other than in the ordinary course of business consistent
with past practice;
          (xiii) create, incur, guarantee or assume any Indebtedness other than
under the Revolver;
          (xiv) amend or restate the Certificate of Incorporation or the By-laws
of the Company or any Subsidiary;

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          (xv) terminate, discontinue, close or dispose of any facility or other
business operation, or lay off any employees (other than layoffs of less than 70
employees in any six-month period in the ordinary course of business consistent
with past practice) or implement any early retirement or separation plan (other
than any early retirement or separation plan or action already announced or in
effect as of the date of this Agreement) or announce any such action or plan for
the future;
          (xvi) other than in the ordinary course of business consistent with
past practice, make any express or deemed election or settle or compromise any
liability, with respect to material Taxes of the Company or any Subsidiary;
          (xvii) amend or otherwise modify the Warrant Purchase Agreement, the
Termination Agreement or any Release Agreement;
          (xviii) agree, whether in writing or otherwise, to take any of the
actions specified in this Section 6.01 or grant any options to purchase, rights
of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 6.01,
except as expressly contemplated by this Agreement;
          (xix) enter into any transaction, agreement or term sheet with any
utility or energy company regarding a coal transportation contract or agreement
related to the PRB Expansion;
          (xx) enter into any contract for a term of more than one year with any
customer; or
          (xxi) agree, whether in writing or otherwise, to take any action or
enter into any agreement which would have been required to be set forth on
Section 4.13 of the Disclosure Schedule if in effect on the date hereof or
otherwise enter into any other material transaction.
          (c) Section 280G. To the extent practicable and as would be effective
under applicable Law, prior to the Effective Time, the Company and the
Stockholders’ Representative shall, and shall cause each Subsidiary to, use
commercially reasonable best efforts to take any and all action as shall be
necessary to obtain the consent of any Affiliates, officers, employees or
directors, so that amounts payable by the Company on account of the transactions
contemplated by this Agreement, which otherwise would be “parachute payments”
under Sections 280G(b)(2) of 4999 of the Internal Revenue Code are exempt from
treatment as parachute payments pursuant to Section 280G(b)(5) of the Internal
Revenue Code.
          SECTION 6.02. Access to Information. (a) From the date hereof until
the Closing, upon reasonable notice, the Company shall (i) afford the officers,
employees and authorized agents and representatives of Purchaser reasonable
access, during normal business hours, to the offices, properties, books and
records of the Company and the Subsidiaries and (ii) furnish to the officers,
employees and authorized agents and representatives of Purchaser such additional
financial and operating data and other information regarding the assets,
properties, goodwill and business of the Company and the Subsidiaries as
Purchaser may from time to time

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reasonably request in order to assist Purchaser in fulfilling its obligations
under this Agreement and facilitating the consummation of the transactions
contemplated hereby, subject to a customary confidentiality agreement to be
entered into between the Company and Purchaser; provided, however, that
Purchaser shall not unreasonably interfere with any of the businesses or
operations of the Company or any Subsidiary.
          (b) Parent and Purchaser agree that they shall preserve and keep all
Books and Records relating to the business or operations of the Company and the
Subsidiaries on or before the Closing in Purchaser’s possession for a period of
at least eight years from the Closing.
          SECTION 6.03. Confidentiality. Subject to this Section 6.03,
Guarantor, Parent, Purchaser and the Company hereby agree to keep this
Agreement, including but not limited to, any amounts to be paid pursuant hereto,
confidential. Guarantor, the Company and Parent shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any of the transactions contemplated by the
Definitive Agreements and shall not issue any such press release or make any
such public statement without the prior consent of the other party, which
consent shall not be unreasonably withheld or delayed; provided, however, that a
party may, without the prior consent of the other party, issue such press
release or make such public statement as may be required by Law (including
pursuant to any application to be filed with the STB by Parent), the applicable
rules of any stock exchange or any listing agreement with any stock exchange. In
the event that Purchaser, Parent or the Company, or any of its or their
Controlled Affiliates or advisors, otherwise are requested to disclose any other
information concerning the Company which has not been previously disclosed
publicly, then Parent, Purchaser, the Company or the Surviving Corporation and
any such Controlled Affiliates and advisors agree to use commercially reasonable
best efforts to provide the Company with prompt notice of such request or
requirement in order to enable the Company to (i) seek an appropriate protective
order or other remedy (and if such an order is sought, the Company, the
Surviving Corporation, Parent or Purchaser, as applicable, will provide such
cooperation as is reasonably requested), (ii) consult with Purchaser or Parent,
as applicable, with respect to the taking of steps to resist or narrow the scope
of such request or legal process, or (iii) waive compliance, in whole or in
part, with the terms of this Agreement. In the event that such protective order
or other remedy is not obtained, or compliance, in whole or in part, with the
terms of this agreement is waived, the party making such request will disclose
only that portion of the information requested that such party is advised in
writing by counsel is legally required to be disclosed and will use commercially
reasonable best efforts, as applicable, to ensure that all such information so
disclosed will be accorded confidential treatment. Notwithstanding the
foregoing, the Company, the Stockholders’ Representative, Parent and Purchaser
may disclose to their respective Affiliates, and their Affiliates respective
managers, partners, directors, officers, employees, agents and advisors any
information which is otherwise restricted under this Section 6.03.
          SECTION 6.04. Regulatory and Other Authorizations; Consents. (a) The
Company, Parent and Purchaser shall each use its commercially reasonable best
efforts to (i) consummate and make effective the Merger and the other
transactions contemplated by this Agreement, (ii) obtain promptly all
authorizations, consents, orders and approvals of and to make all filings with
and to give all notices to all Governmental Entities and officials required to
consummate the Merger and the other transactions contemplated by this Agreement;
provided,

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however, Parent and Purchaser shall use their commercially reasonable best
efforts to prepare, and obtain the approval of the STB with respect to, the
Voting Trust Agreement, (iii) cooperate fully with the other party in promptly
seeking to obtain all such authorizations, consents, orders and approvals and to
make such filings, (iv) provide such other information to any Governmental
Entity as such Governmental Entity may reasonably request in connection
therewith. Each of Parent, Purchaser and the Company agrees to make promptly,
but in no event later than within 20 Business Days of the Date of this
Agreement, and any required filings in connection with the Merger pursuant to
the ICCTA and to the STB and, to the extent required by Law, file
contemporaneously with the Federal Trade Commission and the Department of
Justice, Antitrust Division, copies of all documents, application forms, and all
written submissions of any type whatsoever provided to the STB. Each of Parent,
Purchaser and the Company hereby agrees to (A) make, if applicable, any
subsequent record filings with or presentations to the STB in connection with
seeking any STB approval, exemption or other authorization necessary to permit
Purchaser lawfully to exercise Control over the Company’s Business and, to the
extent required by Law, submit contemporaneously to the Federal Trade Commission
and the Department of Justice Antitrust Division, copies of all such filings and
presentations; (B) prosecute any such filings and other presentations with
diligence, (C) oppose any objections to, appeals from or petitions to reconsider
or reopen any such STB approval by persons not party to this Agreement, and
(D) take all such further action as in Purchaser’s judgment reasonably may
facilitate obtaining any necessary final order or orders of the STB approving,
exempting or otherwise authorizing such Control consistent with this Agreement.
Purchaser will pay all fees or make all other payments to any Governmental
Entity in order to obtain any such authorizations, consents, orders or
approvals.
          (b) Without limiting the generality of Parent’s and Purchaser’s
undertakings pursuant to Section 6.04(a), Parent and Purchaser shall:
          (i) use their commercially reasonable best efforts to take promptly
any and all steps necessary to eliminate any objections or concerns asserted
with respect to the transactions contemplated hereby by any Governmental Entity
with jurisdiction over the enforcement of any Laws applicable to Purchaser’s
acquisition of the Shares so as to enable the parties hereto to consummate the
Merger and the other transactions contemplated hereby prior to the Termination
Date, including but not limited to: entering into negotiations, providing
information, making proposals, entering into and performing agreements or
submitting to judicial or administrative orders, or selling or otherwise
disposing of, or holding separate (through the establishment of a trust or
otherwise), particular assets or categories of assets, or businesses, of
Purchaser or any of its subsidiaries or Affiliates or of the Company’s assets or
businesses to be acquired by Purchaser pursuant hereto;
          (ii) use their commercially reasonable best efforts to take promptly,
in the event that a permanent or preliminary injunction or order has been issued
in a judicial or administrative proceeding brought under any Law by any
Governmental Entity or any other party that would make consummation of the
transactions contemplated at the Closing in accordance with the terms of this
Agreement unlawful or that would prevent or delay such consummation prior to the
Termination Date, any and all reasonable steps necessary to vacate, modify or
suspend such injunction or order so as to permit such

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consummation prior to the Termination Date, including, without limitation,
entering into a voting trust arrangement and taking the steps contemplated by
Section 6.04(b)(i); and
          (iii) use their commercially reasonable best efforts to take promptly
all other actions and do all other things necessary and proper to avoid or
eliminate each and every impediment under any Law that may be asserted by any
Governmental Entity or any other party to the consummation of the transactions
contemplated at the Closing in accordance with the terms of this Agreement;
provided, however, that, notwithstanding anything set forth herein to the
contrary, in no event shall Parent or Purchaser be obligated to agree, as a
condition for resolving any such matter, (i) to dispose of or hold separate any
of its properties or other assets, or the properties or other assets of the
Company and its Subsidiaries after the Effective Time, (ii) to grant to any
other carrier trackage rights, haulage rights or other commercial access to any
rail lines of Parent, the Company, or their respective Affiliates or (iii) to
subject itself to any material restriction on the operation of its business or
the business of the Company and its Subsidiaries after the Effective Time.
          (c) Prior to the Closing, each of Parent, Purchaser and the Company
shall cooperate fully with one another in keeping the other party reasonably
informed, including by providing the other party a copy of any communication it
or any of its Affiliates receives from any Governmental Entity relating to the
matters set forth in subsection (a) above to the extent related to the Merger.
Parent, Purchaser and the Company will coordinate and cooperate fully with each
other in exchanging such information and providing such assistance as the other
party may reasonably request in connection with the foregoing and in seeking
early termination of any applicable waiting periods, including, if applicable,
under the rules and regulations of the STB and, if applicable, under the HSR
Act. Prior to the Closing, none of the parties to this Agreement shall agree to
participate in any meeting with any Governmental Entity in respect of any
filings, investigation (including any settlement of the investigation),
litigation or other inquiry made in connection with the Merger, unless it
consults with the other parties in advance and, to the extent permitted by such
Governmental Entity, gives the other parties the opportunity to attend and
participate at such meeting. Prior to the Closing, the parties to this Agreement
will provide each other with copies of all correspondence, filings or
communications between them or any of their representatives, on the one hand,
and any Governmental Entity or members of its staff, on the other hand, prior to
the Closing with respect to this Agreement and the transactions contemplated by
this Agreement; provided, however, that materials may be redacted (x) to remove
references concerning the valuation of the Business, (y) as necessary to comply
with contractual arrangements, and (z) as necessary to address reasonable
attorney-client or other privilege or confidentiality concerns.
          SECTION 6.05. Investigation. (a) Parent and Purchaser acknowledge and
agree that (i) they have made their own inquiry and investigation into, and,
based thereon, have formed an independent judgment concerning, the Company and
the Business, (ii) they have been furnished with or given adequate access to
such information about the Company, the Subsidiaries and the Business as it has
requested and (iii) other than the representations and warranties made in
Article III, none of the Company, its Affiliates, or any of their respective
officers, directors, employees or representatives make or have made any
representation or warranty, express or

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implied, at law or in equity, with respect to the Company, the Subsidiaries, the
Shares or the Business, including as to (A) merchantability or fitness for any
particular use or purpose, (B) the operation of the Business by Purchaser after
the Closing in any manner other than as used and operated by the Company and the
Subsidiaries, (C) the probable success or profitability of the Business after
the Closing or (D) the ability of the Company to complete the PRB Expansion.
          (b) Certain information set forth in the Disclosure Schedule is
included solely for informational purposes and may not be required to be
disclosed pursuant to this Agreement. The disclosure of any information shall
not be deemed to constitute an acknowledgement that such information is required
to be disclosed in connection with the representations and warranties made by
the Company in this Agreement, nor shall such information be deemed to establish
a standard of materiality.
          SECTION 6.06. Further Action. (a) Subject to the terms and conditions
herein provided, each of the parties hereto covenants and agrees to use its
commercially reasonable best efforts to deliver or cause to be delivered such
documents and other papers and to take or cause to be taken such further actions
as may be necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated hereby.
          (b) The Company shall use its commercially reasonable best efforts to
receive all consents or waivers necessary in connection with the Stockholders’
Agreement in order to consummate and make effective the transactions
contemplated hereby.
          SECTION 6.07. Directors’ and Officers’ Indemnification. (a) For a
period of six years from the Effective Time, the Certificate of Incorporation
and By-laws of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in the Certificate
of Incorporation and By-laws of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who, at or prior to the Effective Time, were directors or
officers of the Company or any of its Subsidiaries, unless such modification
shall be required by law and then only to the minimum extent required by law.
          (b) After the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless, each
present and former director and officer of the Company and each Subsidiary
(collectively, the “Indemnified Parties”) against all costs and expenses
(including attorneys’ fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), whether civil, criminal, administrative or investigative, arising out of
or pertaining to any action or omission in their capacity as an officer or
director, whether occurring before or after the Effective Time, for a period of
six years after the date hereof to the same extent as provided in the
Certificate of Incorporation of the Company or any other applicable contract or
agreement in effect on the date hereof. In the event of any such claim, action,
suit, proceeding or investigation, (i) the Surviving Corporation shall pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably satisfactory to the Surviving Corporation,
promptly after statements therefor are received and (ii) the Surviving

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Corporation shall cooperate in the defense of any such matter; provided,
however, that, in the event that any claim for indemnification is asserted or
made within such six year period, all rights to indemnification in respect of
such claim shall continue until the disposition of such claim.
          (c) Parent shall cause the Surviving Corporation to perform all of the
obligations of the Surviving Corporation under this Section 6.07.
          SECTION 6.08. Stockholders’ Representative Appointment. (a) On or
prior to the Closing Date, the Board of Directors of the Company shall designate
a Person (the “Stockholders’ Representative”) to serve as the Stockholders’
Representative and the Stockholders’ Representative shall execute and deliver to
the Company, Purchaser and Parent a signature page to this Agreement, which
shall constitute its acknowledgment and agreement that it is bound by the terms
of this Agreement applicable to the Stockholders’ Representative and thereafter
the Stockholders’ Representative shall be deemed a party hereto. The
Stockholders’ Representative shall be the initial agent, proxy and
attorney-in-fact for each Equityholder to take all actions required or permitted
under the Definitive Agreements (including full power and authority to act on
such Equityholder’s behalf under this Agreement). Without limiting the
generality of the foregoing, but subject to the immediately preceding proviso
and to Section 9.09, the Stockholders’ Representative will be authorized to:
          (i) in connection with the Closing, execute and receive all documents,
instruments, certificates, statements and agreements on behalf of and in the
name of the Equityholders necessary to effectuate the Closing and consummate the
transactions contemplated by the Definitive Agreements;
          (ii) take all actions on behalf of the Equityholders in connection
with any claims made hereunder to defend or settle such claims and to make or
receive and disburse payments in respect of such claims;
          (iii) take all actions on behalf of the Equityholders in connection
with the Escrow Account, the Gross-up Escrow Account and the Closing Date
Payment Schedule and all distributions in connection with, and all adjustments
and payments described in, Sections 3.04 and 3.05 of the Agreement; and
          (iv) take all other actions to be taken by or on behalf of the
Equityholders and exercise any and all rights which the Equityholders are
permitted or required to do or exercise under the Definitive Agreements.
          (b) Except as otherwise agreed by the Stockholders’ Representative and
the Equityholders, (i) the Stockholders’ Representative will not be liable to
any Equityholders for any action taken by it, or its failure to take any action,
pursuant to this Agreement in good faith and without gross negligence or willful
misconduct, and the Equityholders shall jointly and severally indemnify the
Stockholders’ Representative from any and all damages, dues, penalties, fines,
costs, losses, and expenses (“Stockholders’ Representative’s Losses”) arising
out of its serving as the Stockholders’ Representative hereunder except to the
extent the Stockholders’ Representative acts, or fails to act, other than in
good faith or with gross negligence or willful

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misconduct; provided, however, with respect to any Stockholders’
Representative’s Losses for which an Equityholder (a “Paying Equityholder”)
makes a payment to the Stockholders’ Representative, the Paying Equityholder
shall be indemnified and held harmless by each other Equityholder to the extent
of the amount by which the Paying Equityholder’s payment exceeds its
Equityholder’s Percentage of the Stockholders’ Representative’s Losses;
(ii) each Equityholder shall pay to the Stockholders’ Representative, promptly
upon request and in any event within ten (10) days of such request, such
Equityholder’s Equityholder’s Percentage of any amounts paid, or required to be
paid, by the Stockholders’ Representative on behalf of such Equityholder and
agrees to pay its Equityholder’s Percentage of any and all costs and expenses
(including counsel and legal fees and expenses) incurred by the Stockholders’
Representative in connection with the protection, defense, enforcement or other
expense of any rights under this Agreement; and (iii) the Stockholders’
Representative shall have a right of set off against any Milestone Payments with
respect to its reasonable costs and expenses. Except as otherwise set forth in
this Agreement or as required by Law, any and all payments made by any
Equityholder under this Section 6.08 shall be made free and clear of any present
or future taxes, deductions, charges or withholdings and all liabilities with
respect thereto. The Stockholders’ Representative shall serve in such capacity
solely for purposes of administrative convenience, and shall not be deemed
personally liable in such capacity for any of the obligations of the
Equityholders hereunder, and Parent and Purchaser agree that they shall not look
to the personal or corporate assets of the Stockholders’ Representative, acting
in such capacity, for the satisfaction of any obligations to be performed by the
Equityholders hereunder.
          (c) Any Person or Persons constituting the Stockholders’
Representative may resign at any time or be removed by the vote or written
consent of the Equityholders who collectively hold more than 50% (or such other
percentage as may be agreed among the Equityholders from time to time) of the
Equityholder’s Percentages (the “Required Equityholders”) provided however, that
such resignation or removal shall not be effective until such time as the Person
or Persons succeeding such individual shall have been elected. In the event of
the death, resignation or removal of any of the Person or Persons who constitute
the Stockholders’ Representative, a successor shall be elected (and may be
removed and replaced) by the remaining Person or Persons who constitute the
Stockholders’ Representative; provided that if no such Person or Persons remain,
such successor shall be elected (and may be removed and replaced) (i) at any
time prior to the Closing, by the Company and (ii) at any time after the
Closing, by the vote or written consent of the Required Equityholders at such
time, such election (or removal and replacement) to become effective upon the
written acceptance thereof by such new Person or Persons. The election described
in the preceding clause (ii) shall be conducted by the Equityholder who holds
the greatest Equityholder’s Percentage at such time who is willing to conduct
the election, and shall be paid for by the Equityholders. Upon any such election
or removal, the Company or the Required Equityholders, as appropriate, shall
deliver to Parent and, if applicable, the Surviving Corporation a certificate
identifying such newly elected Stockholders’ Representative and Parent, the
Surviving Corporation, the Escrow Agent, the Gross-up Escrow Agent and the
Paying Agent and any other Person shall be entitled to rely on such certificate.
The Stockholders’ Representative shall, at the expense of the Equityholders, be
entitled to engage such counsel, experts and other agents and consultants as he
or she shall deem necessary in connection with exercising his or her powers and
performing his or her function hereunder.

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          (d) All decisions and actions by the Stockholders’ Representative will
be binding upon each Equityholder and no Equityholder will have the right to
object, dissent, protest or otherwise contest the same. Parent and Purchaser
will be able to rely conclusively on the written instructions of the
Stockholders’ Representative as to such decisions and actions taken by the
Stockholders’ Representative hereunder.
          SECTION 6.09. Preserve Accuracy of Representations and Warranties;
Notification of Certain Matters. Each party hereto shall refrain from taking any
action which would render any representation or warranty contained in Article IV
or V inaccurate as of the Closing Date. Each party shall promptly notify the
other of (i) any event or matter that would reasonably be expected to cause any
of its representations or warranties to be untrue in any material respect or
(ii) any action, suit or proceeding that shall be instituted or threatened
against such party to restrain, prohibit or otherwise challenge the legality of
any transaction contemplated by this Agreement. During the period prior to the
Closing Date, the Company will notify Purchaser of (i) any Material Adverse
Effect, (ii) any lawsuit, claim, proceeding or investigation that is threatened,
brought, asserted or commenced against the Company or any Subsidiary which would
have been listed in Section 4.10 of the Disclosure Schedule if such lawsuit,
claim, proceeding or investigation had arisen prior to the date hereof,
(iii) any notice or other communication from any third Person alleging that the
consent of such third Person is or may be required in connection with the
transactions contemplated by this Agreement, and (iv) any material default under
any material Contract or event which, with notice or lapse of time or both,
would become such a default on or prior to the Closing Date and of which the
Company has knowledge.
          SECTION 6.10. Acquisition Proposals. Neither the Company nor any
Subsidiary will, and neither the Company nor any Subsidiary will authorize or
permit any officer, director or employee of the Company or any Subsidiary or any
Affiliate of the Company or any Subsidiary or authorize any investment banker,
attorney, accountant or other representative retained by the Company or any
Subsidiary or any Affiliate of the Company or any Subsidiary to, directly or
indirectly, solicit or encourage, or furnish information with respect to the
Company or any Subsidiary, or engage in any discussions with any Person in
connection with, any proposal for the acquisition of any portion of the capital
stock or assets or properties of the Company or any Subsidiary, other than as
contemplated by this Agreement. The Company and each Subsidiary will promptly
cease or cause to be terminated any existing activities or discussions with any
Person (other than Parent, Purchaser or their Affiliates) with respect to any of
the foregoing and will promptly request the return of any confidential
information provided to any Person in connection with a prospective acquisition
of the capital stock, assets or properties of the Company or any Subsidiary.
          SECTION 6.11. Indemnity.
          (a) To the extent any Equityholders have not executed and delivered a
Release and/or a Termination Agreement to which such Non-Releasing Equityholders
are to be a party (each, a “Non-Releasing Equityholder”) before the Construction
Milestone Payment is due and payable under Section 3.05, an amount equal to two
times the aggregate Per Share Merger Consideration which such Non-Releasing
Equityholders were entitled to receive at the Closing

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shall be deposited into the Escrow Account (the “Non-Releasing Equityholder
Indemnity Amount”).
          (b) Parent, Purchaser, Surviving Corporation and their Affiliates
shall be indemnified and held harmless from the Non-Releasing Equityholder
Indemnity Amount from and against any and all losses, damages, costs and
expenses (including reasonable attorneys fees) (a “Loss”) arising out of or
resulting from any written claim made by a Non-Releasing Equityholder, up to the
amount of the Non-Releasing Equityholder Indemnity Amount, to the extent such
claim arises out of the Merger or this Agreement and is solely related to such
Non-Releasing Equityholder’s status as a former Equityholder of the Company
including, without limitation, claims made with respect to the following:
(a) the capital structure of the Company and the Subsidiaries, including the
number of outstanding shares, options, warrants, share units, (b) the issuance
of any capital stock, warrants, share units or options by the Company or the
Subsidiaries, (c) the violation of any covenants granting preemptive or similar
rights with respect to the capital stock of the Company or the Subsidiaries,
(d) all claims with respect to such Non-Releasing Equityholder’s Preferred
Stock, Share Units, and/or Company Options, (e) any action of the Board of
Directors or any officer of the Company entering into the Merger Agreement,
(f) any alleged breach by any director of the Company of his or her fiduciary
duties to the Company or (g) the determination of the Equityholder’s Percentage,
the Closing Date Payment Schedule or Section 4.03 of the Disclosure Schedule (a
“Claim”). Parent shall give the Stockholders’ Representative prompt notice of
any Claim, and in any event within 3 Business Days, after receipt. The
Stockholders’ Representative shall be entitled to participate in the defense of
any Claim and neither Parent and its Affiliates nor the Stockholders’
Representative shall settle any Claim without the consent of Parent or its
Affiliates, on the one hand, or the Stockholders’ Representative, on the other
hand, as applicable which shall not be unreasonably withheld or delayed. If the
Stockholders’ Representative acknowledges in writing its obligation to indemnify
Parent against any Losses that may result from such Claim, the Stockholders’
Representative shall be entitled to assume the defense of such Claim at its own
cost. In any case, the Stockholders’ Representative and Parent and its
Affiliates shall cooperate in the defense of any such Claim.
          (c) Parent, Purchaser, Surviving Corporation and their Affiliates
shall be indemnified and held harmless from any and all Losses arising out of
the transactions (the “Koch Transactions”) which are the subject of the Track
Maintenance Agreement, dated as of October 15, 2005, by and among DM&E, IC&E and
KM Strategic Investments, LLC, as amended through the date of this Agreement
(the “Track Maintenance Agreement”), including, without limitation, any amount
that KM Strategic Investments, LLC or its permitted successors or assigns draws
down from the Letter of Credit, or a similar letter of credit established by the
Surviving Corporation or Parent to replace the Letter of Credit (provided such
replacement letter of credit contains a similar draw amount and is implemented
in accordance with the terms of the Track Maintenance Agreement), on or prior to
the expiration of DM&E’s and IC&E’s indemnification obligations thereunder (the
“LC Amount”); provided, however, the foregoing indemnification obligations shall
terminate immediately if the Surviving Corporation or any of its Affiliates
enters into any transaction similar to the Koch Transaction with any Affiliate
of KM Strategic Investments Inc. or Koch Industries Inc.

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          SECTION 6.12. Guaranty. Guarantor irrevocably and unconditionally
guarantees to the Stockholders’ Representative, Equityholders and the Company
(a) the due and punctual payment of each payment required to be made by Parent
or Purchaser pursuant to Section 2.02(b) or Article III hereof, all of which
payments, whether made by the Guarantor, Parent or Purchaser, shall be made from
an entity formed under the laws of a state within the United States of America,
and (b) the due and punctual performance, observance of, and compliance with,
all covenants, agreements and obligations of Parent and Purchaser in this
Agreement, as the foregoing may be amended from time to time (all obligations
referred to in the proceeding clauses (a) and (b) being collectively referred
therein as the “Guaranteed Obligations”). This is a guaranty of full and
punctual performance and payment and not merely a guaranty of collection, is in
no way conditional or contingent and the Guarantor is liable as a primary
obligor. If any of the Guaranteed Obligations are not punctually performed or
paid when due the Guarantor shall immediately perform or cause the performance
of the Guaranteed Obligations that are required and performable. The Guarantor’s
obligations under this Section 6.12 shall continue to be in effective or be
reinstated, as the case may be, if any payment from any source of the Guaranteed
Obligations must be refunded for any reason including any bankruptcy proceeding.
          SECTION 6.13. Consents; Reports.
          (a) If requested by Purchaser or Parent, the Company shall, from the
date of this Agreement through the Closing Date, (i) seek the consents, in form
and substance reasonably satisfactory to Purchaser, to the transactions
contemplated hereby from the parties to the contracts identified on Section 6.13
of the Disclosure Schedule (the “Applicable Contracts”) or (ii) take such steps
as are necessary under the terms of the Applicable Contracts to terminate any
such Applicable Contract. If the Company is unable to obtain the consent or
terminate any Applicable Contract as requested by Purchaser or Parent prior to
the date on which the Closing Date would have occurred, either Purchaser or the
Company shall be entitled to make a one-time election to delay the Closing Date
for up to 15 days from such date (the “Extended Consent Closing Date”) and if
such delayed Closing Date would occur on or after the Termination Date, the
Termination Date shall be deemed to be the first Business Day after the Extended
Consent Closing Date. Notwithstanding the fact that each Applicable Contract may
not have been terminated or the consent described in clause (i) above obtained
as Parent or Purchaser has requested by the Extended Consent Closing Date, the
Closing shall occur on the Extended Consent Closing Date, or if such day is not
a Business Day then on the Business Day next succeeding the Extended Consent
Closing Date, provided the other conditions set forth in Sections 7.01 and 7.02
and the provisions set forth in clause (b) below have been satisfied or waived.
If this Agreement is terminated by the Company, Parent or Purchaser pursuant to
Section 8.01, Parent and Purchaser shall indemnify and hold harmless the Company
for any and all Losses of the Company arising from the Company’s termination of
any Applicable Contract at the request of Parent or Purchaser.
          (b) Prior to the Closing, the Company shall use its commercially
reasonable best efforts to obtain each of (i) the FIRPTA Report and (ii) the
280G Report (collectively, the “Expert Reports”). If the Company is unable to
obtain any Expert Report prior to the date on which the Closing Date would have
occurred, either Purchaser or the Company shall be entitled to make a one-time
election to delay the Closing Date for up to 15 days from such date (the

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“Extended Report Closing Date”) and if such delayed Closing Date would occur on
or after the Termination Date, the Termination Date shall be deemed to be the
first Business Day after the Extended Report Closing Date. Notwithstanding the
fact that each Expert Report may not have been obtained by the Extended Report
Closing Date, the Closing shall occur on the Extended Report Closing Date, or if
such day is not a Business Day then on the Business Day next succeeding the
Extended Report Closing Date, provided the other conditions set forth in
Sections 7.01 and 7.02 and the provisions set forth in clause (a) above have
been satisfied or waived.
          SECTION 6.14. Gross-Up Escrow Account. (a) If at any time amounts are
distributed from the Gross-Up Escrow Account to the Stockholders’
Representative, the Stockholders’ Representative shall distribute such amounts
to the Equityholders according to their respective Equityholder’s Percentages or
as otherwise agreed among the Equityholders and the Stockholders’
Representative.
          (b) The parties to the Gross-Up Agreement shall amend and modify the
Gross-Up Agreement to the extent reasonably necessary to reflect the principles
set forth on Schedule 6.14 of the Disclosure Schedule; provided, however, that
if the Gross-Up Agreement as so amended and modified does not in Parent’s good
faith judgment reasonably reflect the principles set forth on Schedule 6.14 of
the Disclosure Schedule, the parties to the Gross-Up Agreement shall amend and
modify the Gross-Up Agreement as reasonably directed by Parent to reflect the
principles set forth on Schedule 6.14 of the Disclosure Schedule and to retain
the economic intent of the Gross Up Agreement as between Kevin Schieffer and the
Equityholders.
ARTICLE VII
CONDITIONS TO CLOSING
          SECTION 7.01. Conditions to Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:
          (a) Representations and Warranties; Covenants. (i) Each of the
representations and warranties of the Parent and Purchaser contained in this
Agreement (A) that are not qualified as to “materiality” shall be true and
correct in all material respects as of the Closing and (B) that are qualified as
to “materiality” shall be true and correct in all respects as of the Closing,
except to the extent such representations and warranties are made as of another
date, in which case such representations and warranties shall be true and
correct in all material respects or true and correct in all respects, as the
case may be, as of such other date, and (ii) Parent and Purchaser shall have
performed and complied in all material respects with all of their respective
covenants and agreements required by this Agreement to be performed or complied
with by them prior to or at the Closing and (iii) the Company shall have
received a certificate of Purchaser as to the matters set forth in clauses
(i) and (ii) above signed by a duly authorized officer of Purchaser;
          (b) Payments. Parent or Purchaser shall have made the payments to the
Company described in Section 2.02(b).

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          (c) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any Governmental Order which is in effect and
has the effect of making the transactions contemplated by this Agreement illegal
or otherwise prohibiting consummation of such transactions. No Action shall have
been instituted prior to the Closing by any Governmental Entity relating to this
Agreement or any of the transactions contemplated hereby, the result of which
would prevent or make illegal the consummation of any such transactions.
          (d) Approvals. The STB shall have approved the Voting Trust and the
Voting Trust Agreement pursuant to which the Shares shall be placed into an
irrevocable voting trust as of the Effective Time pending final STB approval or
exemption, as the case may be.
          SECTION 7.02. Conditions to Obligations of Parent and Purchaser. The
obligations of Parent and Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment or waiver, at or prior to
the Closing, of each of the following conditions:
          (a) Representations and Warranties; Covenants. (i)(A) Except with
respect to the representations and warranties addressed in clauses (B) and
(C) below, each of the representations and warranties of the Company contained
in this Agreement without giving effect to any “materiality” or “Material
Adverse Effect” qualifiers contained therein shall be true and correct as of the
Closing Date (other than such representations and warranties that are made as of
another date, in which case such representations and warranties shall be true
and correct as of such other date), except where any failure of such
representations and warranties to be so true and correct, individually or in the
aggregate, has resulted in, or is reasonably expected to result in, (y) a
reduction in operating income in 2007 or 2008 as compared to the 2007 Budget in
an amount equal to or greater than $10,000,000 or (z) a reduction of $50,000,000
or more in the net worth of the Company, determined in accordance with GAAP,
consistently applied; (B) the representations and warranties of the Company set
forth in Section 4.01 shall be true and correct as of the Closing; and (C) the
representations and warranties of the Company set forth in Section 4.06(b) shall
be true and correct; (ii) the Company shall have performed and complied in all
material respects with all of its covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing; and
(iii) Purchaser shall have received a certificate of the Company as to the
matters set forth in clauses (i) and (ii) above signed by a duly authorized
officer of the Company.
          (b) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other Governmental Order which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise prohibiting
consummation of such transactions and no Action shall have been instituted or
threatened at or prior to the Closing by any Governmental Entity, relating to
this Agreement or any of the transactions contemplated hereby, the result of
which would prevent or make illegal the consummation of any such transactions;
provided, however, that prior to asserting the failure of the condition set
forth in this Section 7.02(b) to be satisfied, Parent and Purchaser must have
complied with their obligations under Section 6.04.

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          (b) Approvals. The STB shall have approved the Voting Trust and the
Voting Trust Agreement pursuant to which the Shares shall be placed into an
irrevocable voting trust as of the Effective Time pending final STB approval or
exemption, as the case may be.
          (c) Agreements. (i) One-hundred percent of the members of the
Company’s Board of Directors, and the Equityholders they represent and their
respective Controlled Affiliates, (ii) one-hundred percent of the employees of
the Company to whom Bonus Shares have been granted and (iii) fifty percent of
the remaining Equityholders (other than the members of the Company’s Board of
Directors (and the Equityholders they represent and their respective Controlled
Affiliates) and the employees of the Company to whom Bonus Shares have been
granted), in each case shall have executed and delivered each of the Releases
and/or the Termination Agreement to which such member and such employee is to be
a party.
          (d) No Material Adverse Effect. Between the date hereof and the
Closing Date, there shall have been no Material Adverse Effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
          SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the Closing:
          (a) by the Company, Parent or Purchaser if the Effective Time shall
not have occurred by October 31, 2007 (the “Termination Date”); provided,
however, that the right to terminate this Agreement under this Section 8.01(a)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Closing to occur on or prior to such date, including Parent’s
or Purchaser’s failure to fulfill its obligations under Section 6.04;
          (b) by the mutual written consent of Parent, Purchaser and the
Company;
          (c) by the Company, Parent or Purchaser if any Governmental Entity
with jurisdiction over such matters shall have issued a Governmental Order
restraining, enjoining or otherwise prohibiting any of the transactions
contemplated by Article II hereof, and such order, decree, ruling or other
action shall have become final and unappealable; provided, however, that prior
to asserting the failure of the condition set forth in this Section 8.01(c) to
be satisfied, Parent and Purchaser must have complied with their obligations
under Section 6.04;
          (d) by the Company if a failure to perform any covenant or agreement
on the part of Parent or Purchaser set forth in this Agreement (including an
obligation to consummate the Closing) shall have occurred that would, if
occurring or continuing on the Closing Date, cause the conditions set forth in
Sections 7.01(a) or (b) not to be satisfied, and such condition is not cured, or
is incapable of being cured, within 20 days (but not later than the Termination
Date) of receipt of written notice by the Company to Purchaser of such breach or
failure provided that the Company shall not have the right to terminate this
Agreement pursuant to this

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Section 8.01(d) if the Company is then in material breach of any of its
representations, warranties, covenants or agreements hereunder; or
          (e) by Purchaser if a failure to perform any covenant or agreement on
the part of the Company set forth in this Agreement (including an obligation to
consummate the Closing) shall have occurred that would, if occurring or
continuing on the Closing Date, cause the condition set forth in Section 7.01(a)
not to be satisfied, and such condition is not cured, or is incapable of being
cured, within 20 days (but not later than the Termination Date) of receipt of
written notice by the Company to Purchaser of such breach or failure provided
that Purchaser shall not have the right to terminate this Agreement pursuant to
this Section 8.01(e) if Purchaser is then in material breach of any of its
representations, warranties, covenants or agreements hereunder.
          SECTION 8.02. Effect of Termination. In the event of termination of
this Agreement as provided in Section 8.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except that (a) Sections 4.17, 5.07, 6.03 and Article IX shall survive any
termination and (b) that nothing herein shall relieve any party from liability
for any breach hereof prior to the date of such termination.
          SECTION 8.03. Waiver. At any time prior to the Closing, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
          SECTION 9.01. Expenses. Except as provided in Article II with respect
to the Consulting Fees Payable, all costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors, engineering
consultants and accountants, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses, whether or not the Closing shall have occurred; provided, however,
that Purchaser shall be responsible for, and shall pay, all transfer and similar
Taxes arising as a result of the transactions contemplated by this Agreement
          SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this
Section 9.02:

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(a)   if to the Company:       c/o DM&E Railroad
140 N. Phillips Avenue
Sioux Falls, SD 57104
Attention: President & CEO
Telecopier: (605) 782-1213
Telephone: (605) 782-1214       with a copy to:       Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Attention: Peter D. Lyons, Esq.
Telecopier: (212) 848-7179
Telephone: (212) 848-7666   (b)   if to the Stockholders’ Representative:      
to an address to be specified by the Stockholders’ Representative designated
pursuant to Section 6.08.       with a copy to:       Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Attention: Peter D. Lyons, Esq.
Telecopier: (212) 848-7179
Telephone: (212) 848-7666   (c)   if to Parent or Purchaser:       c/o Soo Line
Holding Company
501 Marquette Ave. South, Suite 420
Minneapolis, MN 55402
Attention: Vice-President and Controller
Telecopier: (612) 851-5619
Telephone: (612) 851-5658

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    with a copy to:       Leonard Street and Deinard
150 South 5th Street, Suite 2300
Minneapolis, Minnesota 55402
Attention: James J. Bertrand, Esq.
Telecopier: (612) 335-1657
Telephone: (612) 335-1651       And       Sidley Austin LLP
One South Dearborn
Chicago, Illinois 60603
Attention: Michael A. Gordon, Esq.
Telecopier: (312) 853-7036
Telephone: (312) 853-2217

          SECTION 9.03. Survival. The representations and warranties of the
parties hereto contained herein shall not survive the Closing.
          SECTION 9.04. Public Announcements. The parties shall jointly announce
the transaction contemplated hereby when they mutually determine it is
reasonably appropriate to do so, and the parties shall cooperate as to the
timing and contents of any such announcement.
          SECTION 9.05. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
          SECTION 9.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
          SECTION 9.07. Entire Agreement. This Agreement (including the
Disclosure Schedule and Definitive Agreements) constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and undertakings, both written and oral between the Company
and Purchaser with respect to the subject matter hereof and except as otherwise
expressly provided herein.
          SECTION 9.08. Assignment. Neither this Agreement nor any of the rights
and obligations of the parties hereunder may be assigned by any of the parties
hereto without the prior consent of each other parties hereto, except that
Purchaser may assign any or all of its rights

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hereunder to any of Parent’s direct or indirect wholly-owned subsidiaries, and
any such subsidiary may assign such rights to another direct or indirect
wholly-owned subsidiary of Purchaser or of Parent to Purchaser or to Parent.
Notwithstanding the foregoing, Purchaser shall remain liable for all of its
obligations under this Agreement. Subject to the first sentence of this
Section 9.08, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns and no other
person shall have any right, obligation or benefit hereunder.
          SECTION 9.09. No Third-Party Beneficiaries. This Agreement is for the
sole benefit of the Company, Parent, Purchaser and the Stockholders’
Representative (solely in such Person’s capacity as the Stockholders’
Representative) and their permitted assigns and nothing herein, expressed or
implied, is intended to or shall confer upon any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, except (a) for the right of (i) the Equityholders to
receive the Per Share Merger Consideration as a result of the Merger and any
Construction Milestone Payment or Coal Milestone Payment which becomes payable
under Section 3.05(b), and (ii) the holders of the Preferred Stock to receive
the Preferred Redemption Amount immediately prior to the Merger, and, in each
case, to recover damages from Parent for their failure to receive such amounts,
and (b) for the officers and directors of the Company for purposes of enforcing
Section 6.07. In the case of clauses (a)(i) and (ii) above, (a) prior to the
Closing, only the Company shall be permitted to determine whether to bring an
action against Parent or Purchaser, and only the Company may be permitted to
bring such action, on behalf of the Equityholders and the Preferred Stockholders
hereunder and (b) following the Closing only the Stockholders’ Representative
shall be permitted to determine whether to bring an Action against Parent,
Purchaser or the Surviving Corporation on behalf of the Equityholders and only
the Stockholders’ Representative may be permitted to bring such an action.
          SECTION 9.10. Waivers and Amendments. This Agreement may be amended or
modified, and the terms and conditions hereof may be waived, only by a written
instrument signed by the parties hereto or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder,
nor any single or partial exercise of any other right, power or privilege
hereunder, preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
any party may otherwise have at law or in equity.
          SECTION 9.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
required to be performed prior to the Closing was not performed in accordance
with the terms hereof and that, prior to the Closing, the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
          SECTION 9.12. Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. (a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to contracts executed in and
to be performed in that State. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN,
ALL ACTIONS AND

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PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND
DETERMINED IN A NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK,
AND THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH
COURTS IN ANY SUCH ACTION OR PROCEEDING AND IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING.
          (b) Each of the parties hereto hereby waives to the fullest extent
permitted by applicable Law any right it may have to a trial by jury with
respect to any litigation directly or indirectly arising out of, under or in
connection with this Agreement, the Merger or the transactions contemplated
hereby. Each of the parties hereto (i) certifies that no representative, agent
or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce that
foregoing waiver and (ii) acknowledges that it and the parties other hereto have
been induced to enter into this Agreement, the Merger and the transactions
contemplated hereby, as applicable, by, among other things, the mutual waivers
and certifications in this Section 9.12.
          SECTION 9.13. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

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          IN WITNESS WHEREOF, the Company, Purchaser, Parent and Guarantor have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

                  SOO LINE HOLDING COMPANY
 
           
 
  By:   /s/ John Huber    
 
           
 
      Name: John Huber    
 
      Title: Vice-President Finance and Controller    
 
                SOO LINE PROPERTIES COMPANY
 
           
 
  By:   /s/ John Huber    
 
           
 
      Name: John Huber    
 
      Title: Vice-President Finance and Controller    
 
                CANADIAN PACIFIC RAILWAY COMPANY
 
           
 
  By:   /s/ Fred Green    
 
           
 
      Name: Fred Green    
 
      Title: President and Chief Executive Officer    
 
           
 
  By:   /s/ Mike Lambert    
 
           
 
      Name: Mike Lambert    
 
      Title: Chief Financial Officer    
 
                DAKOTA, MINNESOTA & EASTERN     RAILROAD COMPANY
 
           
 
  By:   /s/ Kevin V. Schieffer    
 
           
 
      Name: Kevin V. Schieffer    
 
      Title: President and Chief Executive Officer