Document:

EX-4.4

 

Exhibit 4.4

[FORM OF FACE OF DEBT SECURITY]

			
	 	 	 
	No.
	 	$                    

CARDINAL HEALTH, INC.

[%] [Floating Rate] [Note]* Due

     CARDINAL HEALTH, INC., an Ohio corporation (the “Issuer”), for value received, hereby promises
to pay to                                          or registered assigns, at the office or agency of the Issuer in
                                        , the principal sum of                      Dollars on
                    , in such
coin or currency of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest, on                      and
                     of each year, commencing                                         , on said principal sum at said
office or agency, in like coin or currency, at the rate per annum specified in the title of this
Note, from the                      or the                     , as the case may be, next preceding
the date of this Note to which interest has been paid, unless the date hereof is a date to which
interest has been paid, in which case from the date of this Note, or unless no interest has been
paid on these Notes, in which case from                     , until payment of said principal sum
has been made or duly provided for; PROVIDED, that payment of interest may be made at the option of
the Issuer by check mailed to the address of the person entitled thereto as such address shall
appear on the Security register. Notwithstanding the foregoing, if the date hereof is after the
___day of                      or                     , as the case may be, and before the following
                     or                     , this Note shall bear interest from such                     
or                     ; PROVIDED, that if the Issuer shall default in the payment of interest due on
such                      or                     , then this Note shall bear interest from the next
preceding                      or                     , to which interest has been paid or, if no
interest has been paid on these Notes, from                     . The interest so payable on any
                     or                      will, subject to certain exceptions provided in the Indenture
referred to on the reverse
hereof, be paid to the person in whose name this Note is registered at the close of business on the
                     or                     , as the case may be, next preceding such                      or
                    .

 

			
	*	 	Insert title of Debt Security.

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     Reference is made to the further provisions of this Note set forth on the reverse hereof.
Such further provisions shall for all purposes have the same effect as though fully set forth at
this place.

     This Note shall not be valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been signed by the Trustee under the Indenture referred to on the
reverse hereof.

     IN WITNESS WHEREOF, CARDINAL HEALTH, INC. has caused this instrument to be signed by facsimile
by its duly authorized officers and has caused a facsimile of its corporate seal to be affixed
hereunto or imprinted hereon.

Dated:

	 	 	 	 	 
	 	CARDINAL HEALTH, INC.

 	 
	 	By  	 	 
	 	 	 	 
	 	 	 	 
	 	By  	
 	 
	 	 	 	 
	 	 	 	 
	 

[FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION]

     This is one of the Securities of the series designated herein and referred to in the
within-mentioned Indenture.

	 	 	 	 	 
	 	THE BANK OF NEW YORK TRUST COMPANY, N.A.

as Trustee

 
	 	By  	 	 
	 	 	Authorized Officer 	 
	 

[FORM OF REVERSE OF NOTE]

CARDINAL HEALTH, INC.

[%] [Floating Rate] Note Due

     This Note is one of a duly authorized issue of debentures, notes, bonds or other evidences of
indebtedness of the Issuer (hereinafter called the “Securities”) of the series hereinafter
specified, all issued or to be issued under and pursuant to an indenture dated as of                     
(herein called the “Indenture”), duly executed and delivered by the Issuer to THE BANK OF NEW YORK
TRUST COMPANY, N.A., as Trustee (herein called the “Trustee”), to

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which Indenture and all indentures supplemental thereto reference is hereby made for a description
of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee,
the Issuer and the Holders of the Securities. The Securities may be issued in one or more series,
which different series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject to different
redemption provisions (if any), may be subject to different sinking, purchase or analogous funds
(if any), and may otherwise vary as in the Indenture provided. This Note is one of a series
designated as the ___% Notes Due                      of the Issuer, initially limited in aggregate
principal amount to $                    .

     In case an Event of Default with respect to the ___% Notes Due                     , as defined
in the Indenture, shall have occurred and be continuing, the principal hereof may be declared, and
upon such declaration shall become, due and payable, in the manner, with the effect and subject to
the conditions provided in the Indenture.

     The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of
the Holders of not less than a majority in aggregate principal amount of all Outstanding (as
defined in the Indenture) Securities of each series affected, evidenced as in the Indenture
provided, to execute supplemental indentures adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in
any manner the rights of the Holders of the Securities of each such series; PROVIDED, HOWEVER, that
no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend the time of payment
of any interest thereon, or reduce or impair or affect the rights of any Holder to institute suit
for the payment thereof or any right of repayment at the option of the Holder, without the consent
of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities,
the Holders of which are required to consent to any such supplemental indenture, without the
consent of the Holder of each Security affected. It is also provided in the Indenture that, with
respect to certain defaults or Events of Default regarding the Securities of any series, prior to
any declaration accelerating the maturity of such Securities, the Holders of a majority in
aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain
defaults or Events of Default, all or certain series of the Securities) may on behalf of the
Holders of all the Securities of such series (or all or certain series of the Securities, as the
case may be) waive any such past default or Event of Default and its consequences. The preceding
sentence shall not, however, apply to a default in the payment of the principal of or premium, if
any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note
(unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and
upon all future Holders and owners of this Note and any Notes which may be issued in exchange or
substitution herefor, irrespective of whether or not any notation thereof is made upon this Note or
such other Notes.

     No reference herein to the Indenture and no provision of this Note or of the Indenture shall
alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Note in the manner, at the respective times, at
the rate and in the coin or currency herein prescribed.

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     The Notes are issuable in registered form without coupons in denominations of $1,000 and any
multiple of $1,000 at the office or agency of the Issuer referred to on the face hereof and in the
manner and subject to the limitations provided in the Indenture, but without the payment of any
service charge, Notes may be exchanged for a like aggregate principal amount of Notes of other
authorized denominations.

     [The Notes may be redeemed at the option of the Issuer as a whole, or from time to time in
part, on any date after                      and prior to maturity, upon mailing a notice of such
redemption not less than 30 nor more than 60 days prior to the date fixed for redemption to the
Holders of Notes at their last registered addresses, all as further provided in the Indenture, at
the following redemption prices (expressed in percentages of the principal amount) together in each
case with accrued interest to the date fixed for redemption:

If redeemed during the twelve-month period beginning                                         ,

	 	 	 	 	 	 	 
	Year	 	Percentage	 	Year	 	Percentage
	 	 	 	 	 	 	 

     [PROVIDED, HOWEVER, that no such optional redemption may be effected prior to                     
directly or indirectly from or in anticipation of moneys borrowed by or for the account of the
Issuer at an interest cost (calculated in accordance with generally accepted financial practice) of
less than ___% per annum.]

     [The Notes are also subject to redemption, through the operations of the sinking fund as
herein provided on                      and on each                      thereafter to and including                     
on notice as set forth above and at 100% of the principal amount thereof (the sinking fund
redemption price), together with accrued interest to the date fixed for redemption.

     As and for a sinking fund for the retirement of the Notes and so long as any of the Notes
remain outstanding and unpaid, the Issuer will pay to the Trustee in cash (subject to the right to
deliver certain Notes in credit therefor as in the Indenture provided), on or before
                     and on or before                      in each year thereafter to and including an amount
sufficient to redeem $                     principal amount of the Notes (or such lesser amount equal to
the principal amount then Outstanding) at the sinking fund redemption
price.

     At its option the Issuer may pay into the sinking fund for the retirement of Notes, in cash
except as provided in the Indenture, on or before                      and on or before                      in each
year thereafter to and including                     , an amount sufficient to redeem an additional
principal amount of Notes up to but not to exceed $                     at the sinking fund redemption
price. To the extent that the right to such optional sinking fund payment is not exercised in any
year, it shall not be cumulative or carried forward to any subsequent year.]

     Upon due presentment for registration of transfer of this Note at the above-mentioned office
or agency of the Issuer, a new Note or Notes of authorized denominations for an equal

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aggregate principal amount will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Indenture, without charge except for any tax or other governmental
charge imposed in connection therewith.

     The Issuer, the Trustee and any authorized agent of the Issuer or the Trustee may deem and
treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note
shall be overdue and notwithstanding any notation of ownership or other writing hereon) for the
purpose of receiving payment of, or on account of, the principal hereof and premium, if any, and
subject to the provisions on the face hereof, interest hereon, and for all other purposes, and
neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary.

     No reference herein to the Indenture and no provision of this Note or of the Indenture shall
alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Note in the manner, at the respective times, at
the rate and in the coin or currency herein prescribed.

     No recourse under or upon any obligation, covenant or agreement of the Issuer in the Indenture
or any indenture supplemental thereto or in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator, as such or against any
past, present or future stockholder, officer or director, as such, of the Issuer or of any
successor, either directly or through the Issuer or any successor, under any rule of law, statute
or constitutional provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released by the acceptance
hereof and as part of the consideration for the issue hereof.

     This Note shall be governed by and construed in accordance with the laws of the State of New
York.

     Terms used herein which are defined in the Indenture shall have the respective meanings
assigned thereto in the Indenture.

5EX-10.25

 

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

 

 

 

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	 

 ii

 

 

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

3

 

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.

4

 

          “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.

5

 

          “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

6

 

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.

7

 

          “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.

8

 

          “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.

9

 

          “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).

10

 

          “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

11

 

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)

12

 

	 	 	 	 	 
	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)  

13

 

	 	 	 	 	 
	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

14

 

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

15

 

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:

16

 

          (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

17

 

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

18

 

“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

19

 

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

20

 

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

21

 

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

22

 

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”)

23

 

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

24

 

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

25

 

 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.

26

 

          (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.

27

 

          (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.

28

 

          (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

29

 

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

30

 

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.

31

 

          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

32

 

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

33

 

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;

36

 

          (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)

37

 

 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

39

 

          (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,

40

 

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

41

 

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

54

 

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.

55

 

          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

56

 

“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).

57

 

          (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.

58

 

          (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

59

 

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:

60

 

	(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

61

 

	 	 	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

62

 

 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

63

 

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.

64

 

          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

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