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EXHIBIT 10.7

	  

 

AMENDED AND RESTATED AGREEMENT OF SALE

 

between

 

THE INDUSTRIAL DEVELOPMENT BOARD

OF THE CITY OF FAIRFIELD (ALABAMA),

as Issuer

 

and

 

UNITED STATES STEEL CORPORATION

 

$17,120,000

Environmental Improvement Revenue Refunding Bonds, Series 2011

(United States Steel Corporation Project)

Dated as of November 1, 2011

 

	  

  

  

  

TABLE OF CONTENTS

	  	  	  	  	
Page

	  	  	  	  	  
	 ARTICLE I
	DEFINITIONS
	  	  	  	  	  
	
Section 1.01.

	  	
Use of Defined Terms

	  	
2

	
Section 1.02.

	  	
Definitions

	  	
2

	
Section 1.03.

	  	
Interpretation

	  	
4

	
Section 1.04.

	  	
Captions and Headings

	  	
4

	  	  	  	  	  
	ARTICLE II
	REPRESENTATIONS
	  	  	  	  	  
	
Section 2.01.

	  	
Representations and Covenants of Issuer

	  	
4

	
Section 2.02.

	  	
Representations and Covenants of Company

	  	
5

	  	  	  	  	  
	ARTICLE III
	COMPLETION OF PROJECT FACILITIES; ISSUANCE OF THE BONDS
	  	  	  	  	  
	
Section 3.01.

	  	
Completion of Project Facilities

	  	
6

	
Section 3.02.

	  	
Issuance of Bonds; Application of Proceeds

	  	
6

	
Section 3.03.

	  	
Company Required to Provide Additional Moneys in Event Moneys Insufficient to Redeem Refunded Bonds

	  	
7

	
Section 3.04.

	  	
Investment of Fund Moneys

	  	
7

	
Section 3.05.

	  	
Issuer’s Fees

	  	
7

	  	  	  	  	  
	ARTICLE IV
	LOAN BY ISSUER; REPAYMENT OF LOAN INCLUDING ADDITIONAL PAYMENTS
	  	  	  	  	  
	
Section 4.01.

	  	
Loan of Proceeds; Installment Payments

	  	
8

	
Section 4.02.

	  	
Additional Payments

	  	
8

	
Section 4.03.

	  	
Deposit of Moneys in Bond Fund; Moneys for Purchase and Redemption

	  	
9

	
Section 4.04.

	  	
Obligations Unconditional

	  	
9

	
Section 4.05.

	  	
Assignment by Company

	  	
9

	
Section 4.06.

	  	
Assignment by Issuer

	  	
10

	  	  	  	  	  
	ARTICLE V
	ADDITIONAL AGREEMENTS AND COVENANTS
	  	  	  	  	  
	
Section 5.01.

	  	
Lease, Sale or Grant of Use by Company

	  	
10

	
Section 5.02.

	  	
Indemnification of Issuer and Trustee

	  	
10

	
Section 5.03.

	  	
Company Not to Adversely Affect Exclusion from Gross Income of Interest on Bonds

	  	
11

	
Section 5.04.

	  	
Company to Maintain its Existence; Mergers or Consolidations

	  	
12

	
Section 5.05.

	  	
Reports and Audits

	  	
12

	
Section 5.06.

	  	
Insurance

	  	
12

 

  

  

  

 

	ARTICLE VI
	OPTIONS; PREPAYMENT OF LOAN
	  	  	  	  	  
	
Section 6.01.

	  	
Options to Terminate

	  	
12

	
Section 6.02.

	  	
Option to Prepay Upon Extraordinary Optional Redemption Under Indenture

	  	
13

	
Section 6.03.

	  	
Actions by Issuer

	  	
13

	
Section 6.04.

	  	
Release on Exercise of Option To Prepay Loan

	  	
13

	  	  	  	  	  
	ARTICLE VII
	EVENTS OF DEFAULT AND REMEDIES
	  	  	  	  	  
	
Section 7.01.

	  	
Events of Default

	  	
13

	
Section 7.02.

	  	
Remedies on Default

	  	
14

	
Section 7.03.

	  	
No Remedy Exclusive

	  	
15

	
Section 7.04.

	  	
Agreement to Pay Fees and Expenses

	  	
15

	
Section 7.05.

	  	
No Waiver

	  	
15

	
Section 7.06.

	  	
Notice of Default

	  	
15

	  	  	  	  	  
	ARTICLE VIII
	MISCELLANEOUS
	  	  	  	  	  
	
Section 8.01.

	  	
Term of Agreement

	  	
15

	
Section 8.02.

	  	
Amounts Remaining in Funds

	  	
16

	
Section 8.03.

	  	
Notices

	  	
16

	
Section 8.04.

	  	
Extent of Covenants of Issuer; No Personal Liability

	  	
16

	
Section 8.05.

	  	
Binding Effect

	  	
16

	
Section 8.06.

	  	
Amendments and Supplements

	  	
16

	
Section 8.07.

	  	
Execution Counterparts

	  	
16

	
Section 8.08.

	  	
Severability

	  	
16

	
Section 8.09.

	  	
Governing Law

	  	
17

	
Section 8.10.

	  	
Further Assurances and Corrective Instruments

	  	
17

	
Section 8.11.

	  	
Issuer and Company Representatives

	  	
17

	
Section 8.12.

	  	
Immunity of Incorporators, Stockholders, Officers and Directors

	  	
17

	
Section 8.13.

	  	
Section Headings

	  	
17

	  	  	  	  	  
	EXHIBIT A    PROJECT FACILITIES

 

  

ii

  

AMENDED AND RESTATED AGREEMENT OF SALE

 

THIS AMENDED AND RESTATED AGREEMENT OF SALE (this “Agreement”) made and entered into as of November 1, 2011, by and between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF FAIRFIELD (ALABAMA) (the “Issuer”), a public body corporate and politic duly organized and existing under the laws of the State of Alabama (the “State”), acting through its duly appointed board, duly organized and validly existing under and by virtue of Act No. 648 enacted at the 1949 Regular Session of the Legislature of Alabama (Code of Alabama 1975 § 11-54-80, et seq., as amended) (the “Act”) and UNITED STATES STEEL CORPORATION, a corporation duly organized and existing under and pursuant to the laws of the State of Delaware, and duly qualified to own property and transact business in the State (the “Company”), under the following circumstances summarized in the following recitals (capitalized terms not defined in the recitals being used therein as defined in Article 1):

 

WHEREAS, by virtue of the Act, the Issuer is authorized to enter into this Agreement and to do or cause to be done all the acts and things herein or in the Indenture, as defined herein, provided or required to be done by it, to issue the Bonds, as defined herein, and to loan the proceeds of such Bonds to the Company, (which had assumed the obligation for the hereinafter-defined Refunded Bonds from Marathon Oil Corporation, formerly known as USX Corporation, and the successor by merger to the previously existing USX Corporation, from which the Company separated on December 31, 2001), for the purpose of refinancing the $6,175,000 outstanding aggregate principal amount of The Industrial Development Board of the City of Fairfield (Alabama) Variable Rate Environmental Improvement Revenue Bonds (USX Corporation Project), Refunding Series of 1995 (the “Series 1995 Bonds”) and the $10,945,000 outstanding aggregate principal amount of The Industrial Development Board of the City of Fairfield (Alabama) Environmental Improvement Revenue Bonds (USX Corporation Projects), Refunding Series of 1998 (the “Series 1998 Bonds”, and together with the Series 1995 Bonds, the “Refunded Bonds”), which Series 1995 Bonds were issued to refund the Issuer’s Floating Rate Environmental Improvement Revenue Bonds, 1980 Series B (United States Steel Corporation Project) (the “1980 Bonds”) and which Series 1998 Bonds were issued to refund the Issuer’s Environmental Improvement Revenue Bonds, 1977 Series A (United States Steel Corporation Project) (the “1977 Bonds”) and the Issuer’s Environmental Improvement Revenue Bonds, 1978 Series A (United States Steel Corporation Project) (the “1978 Bonds”) proceeds of which 1980 Bonds, 1977 Bonds and 1978 Bonds were used to finance the acquisition, construction, equipping and installation of certain air and water pollution control facilities (the “Project”), which facilities are generally described in Exhibit A hereof (the “Project Facilities”), in order to better ensure compliance with environmental standards, and which financing will promote the economic welfare of the State; and; and

 

WHEREAS, in order to provide the funds necessary to refund the Refunded Bonds, the Issuer has determined to issue and sell its Bonds in the aggregate principal amount of $17,120,000 pursuant to the terms of a Trust Indenture (the “Indenture”) dated as of November 1, 2011, between the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), for the purposes described therein and has determined to enter into this Agreement and secure the Bonds by the pledge and assignment of Installment Payments to be made hereunder; and

 

  

  

  

 

WHEREAS, the Company has also agreed under this Agreement to pay, or cause to be paid, when due certain expenses and other costs incurred by the Issuer and the Trustee in connection with this Agreement and the issuance of the Bonds; and

 

WHEREAS, all acts and things have been done and performed which are necessary to make the Bonds, when executed and delivered by the Issuer, the legal, valid and binding limited obligations of the Issuer in accordance with the terms thereof;

 

NOW, THEREFORE, for and in consideration of the premises, the respective representations and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto, recognizing that under the Act this Agreement shall not in any way obligate the State or any agency or political subdivision thereof, including, without limitation, the Issuer, to raise any money by taxation or use other public moneys for any purpose in relation to the Project or Project Facilities and that neither the State nor any agency or political subdivision thereof, including, without limitation, the Issuer, shall pay or promise to pay any debt or meet any financial obligation to any Person at any time in relation to the Project or the Project Facilities, except from moneys received or to be received under the provisions of this Agreement or derived from the exercise of the rights of the Issuer hereunder, agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01.  Use of Defined Terms.  In addition to the words and terms defined elsewhere in this Agreement, or by reference to another document, the words and terms set forth in Section 1.02 shall have the meanings set forth therein unless the content or use clearly indicates another meaning or intent.  In addition, all capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture.

 

Section 1.02.  Definitions.  The following terms shall have the following meanings:

 

“Additional Payments” means payments due hereunder in addition to the Installment Payments.

 

“Agreement” means this Amended and Restated Agreement of Sale as amended or supplemented from time to time.

 

“Bonds” means the Issuer’s $17,120,000 Environmental Improvement Revenue Refunding Bonds, Series 2011 (United States Steel Corporation Project).

 

“Event of Default” means any of the events described as an Event of Default in Section 7.01.

 

“Indenture” has the meaning set forth in the recitals to this Agreement.

 

  

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“Issuer” has the meaning set forth in the first paragraph of this Agreement.

 

“Loan” means the loan of Bond proceeds from the Issuer to the Company as provided in Section 4.01.

 

“Notice Address” means:

 

(a)          As to the Issuer:

 

The Industrial Development Board of the City of Fairfield (Alabama)

c/o Calvin D. Biggers, Esq.

4412 Gary Ave

Fairfield, Alabama 35064

Attention: Calvin Biggers

Cell  205-259-9239

Office  205-307-5342

Email: calvinbiggers@gmail.com

 

(b)          As to the Company:

 

United States Steel Corporation

Room 1311

600 Grant Street

Pittsburgh, PA  15219–4776

Attention:  Assistant Treasurer–Finance and Risk Management

Facsimile:  (412) 433–4765

 

(c)          As to the Trustee:

 

The Bank of New York Mellon Trust Company, N.A.

525 William Penn Place

38th Floor

Pittsburgh, PA 15259

Attention:  Corporate Trust Administration

Facsimile:  (412) 236–0870

 

or such additional or different address, notice of which is given under Section 8.03.

 

“Person” or words importing persons mean any individual, corporation, partnership, joint venture, association, joint–stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

 

“Prior Bonds” means the 1977 Bonds, the 1978 Bonds and the 1980 Bonds, as defined in the recitals to this Agreement.

 

“Project” means the refinancing of the costs of the Project Facilities through the current refunding of the Refunded Bonds, as defined in the recitals to this Agreement.

 

  

3

  

 

“Project Facilities” means, generally, the pollution control facilities financed or refinanced from the proceeds of the Prior Bonds, which were refunded from the proceeds of the Refunded Bonds, as such Project Facilities are listed and described in Exhibit A hereto, and may also be limited, when appropriate in the context, to those specific capital assets and equipment, if any, remaining in the ownership of the Company and in the physical state, condition and manner of operation existing on the date of issuance of the Bonds.  [At the date of this Agreement, the Company does not own or operate any of the Project Facilities].

 

“Refunded Bonds” shall have the meaning given in the first recital hereof.

 

“Refunded Bonds Trustee” means The Bank of New York Mellon, successor trustee to PNC Bank, National Association, as trustee for the Refunded Bonds.

 

“Tax Regulatory Agreement” means that certain Tax Regulatory Agreement and No Arbitrage Certificate in respect of the Bonds and dated as of the date of delivery of the Bonds, and any permitted amendments or supplements thereto.

 

All other terms used in this Agreement that are defined in the Indenture have the same meanings assigned them in the Indenture unless the context clearly requires otherwise.

 

Section 1.03.  Interpretation.  Unless the context clearly indicates otherwise, the capitalized terms defined in this Article 1 and in the Indenture, for all purposes of this Agreement and all agreements supplemental hereto, have the meanings hereby ascribed to them.  Such terms, together with all other provisions of this Agreement, shall be read and understood in a manner consistent with the provisions of the Act.  Words or phrases importing the masculine gender shall be read and understood to include the feminine and neuter genders and those importing number shall include singular or plural, both as appropriate to the context.

 

Any reference herein to the Issuer, to its board or to any designated officer includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions.

 

Any reference to a section, provision or chapter of the laws of the State or to any statute of the United States of America includes that section, provision or chapter or statute as amended, modified, revised, supplemented or superseded from time to time; provided, that no such amendment, modification or similar change shall apply solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the Issuer, the Bondholders, the Trustee or the Company under this Agreement.

 

Section 1.04.  Captions and Headings.  The captions and headings in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any articles, sections, subsections, paragraphs, subparagraphs or clauses hereof.

 

  

4

  

 

ARTICLE II

 

REPRESENTATIONS

 

Section 2.01.  Representations and Covenants of Issuer.  The Issuer represents that (a) it is duly organized and validly existing under the Constitution and laws of the State, including the Act; (b) it has duly accomplished all conditions necessary to be accomplished by it prior to the issuance and delivery of the Bonds and the execution and delivery of this Agreement, the Indenture and the Tax Regulatory Agreement; (c) it is not in violation of or in conflict with any provisions of the laws of the State which would impair its ability to carry out its obligations contained in this Agreement, the Indenture or the Tax Regulatory Agreement; (d) it is empowered to enter into the transactions contemplated by this Agreement, the Indenture and the Tax Regulatory Agreement; (e) it has duly authorized the execution, delivery and performance of this Agreement, the Indenture and the Tax Regulatory Agreement; (f) to the best of its knowledge and belief, based upon the application submitted by the Company, and other representations made, information presented and testimony given by the Company, the Bonds will further the public purposes of the Act and of the Issuer; and (g) it will do all things in its power in order to maintain its existence or assure the assumption of its obligations under this Agreement, the Indenture and the Tax Regulatory Agreement by any successor public body.

 

Section 2.02.  Representations and Covenants of Company.  The Company represents and covenants that:

 

(a)           It is a corporation duly organized and existing under and pursuant to the laws of the State of Delaware.  The Company is qualified to do business in the State.

 

(b)           It has full power and authority to execute, deliver and perform its obligations under this Agreement and the Tax Regulatory Agreement and to enter into and carry out the transactions contemplated by those documents; such execution, delivery and performance does not, and will not, violate any provision of law applicable to the Company or the Company’s articles of incorporation, code of regulations, bylaws or other corporate charter or similar instrument each as may be amended, and does not, and will not, conflict with or result in a default under any agreement or instrument to which the Company is a party or by which it is bound; this Agreement and the Tax Regulatory Agreement have, by proper action, been duly authorized, executed and delivered by the Company and all steps necessary have been taken to constitute this Agreement and the Tax Regulatory Agreement valid and binding obligations of the Company.

 

(c)           Each of the Project Facilities was, at the time originally placed in service, a “pollution control facility” used in whole or in part to control, reduce, abate or prevent, air, noise, water or general environmental pollution, and was designed to meet applicable federal, state and local requirements for the control of air or water pollution in effect at or about the time the Prior Bonds were issued.  The Project Facilities were constructed, for no significant purpose other than the control of air or water pollution, and not principally designed to result in any increase in production or capacity, or in a material extension of the useful life of a manufacturing or production facility or a part thereof that is owned, operated or used by the Company.

 

  

5

  

 

(d)           At the times of issuance of the Prior Bonds, and at the time of issuance of the Refunded Bonds and at all times subsequent thereto, the Company has complied with all applicable requirements of the Internal Revenue Code of 1954, as amended, the Internal Revenue Code of 1986, as amended, and all applicable regulations, rulings and successor laws necessary to ensure the continuing tax–exempt status of such Prior Bonds and of the Refunded Bonds.

 

(e)           All of the proceeds of the Bonds will be used exclusively to retire the Refunded Bonds within 90 days of the date of issuance of the Bonds.  None of the proceeds of the Bonds will be used to provide working capital or pay costs of issuance of the Bonds.

 

(f)           Each one and all of the representations and warranties of the Company contained in the Tax Regulatory Agreement, as executed and delivered simultaneously with this Agreement, are true and correct.

 

(g)           The Company will comply with the applicable requirements of Rule 15c2-12 as promulgated by the Securities and Exchange Commission and recognizes that the Issuer is not an “obligated person” within the meaning of said Rule.

 

ARTICLE III

 

COMPLETION OF PROJECT FACILITIES;

ISSUANCE OF THE BONDS

 

Section 3.01.  Completion of Project Facilities.  The Company represents that the acquisition and/or construction of the Project Facilities have been completed and that the proceeds derived from the sale of the Prior Bonds and the Refunded Bonds used to refund the Prior Bonds, including any investment thereof, were expended in accordance with the provisions of all bond authorization, security and tax regulatory agreements and/or certificates executed in respect of all such bonds, including the Refunded Bonds, and in respect of the installation, operation or use of the Project Facilities and the refunding of the Prior Bonds.

 

Section 3.02.  Issuance of Bonds; Application of Proceeds.  To provide funds for the purpose of refunding the Refunded Bonds, the Issuer will issue, sell and deliver the Bonds.  The Bonds will be issued in accordance with and pursuant to the Indenture in the aggregate principal amount, will bear interest at the rate or rates, will mature and will be subject to redemption as set forth therein.  The Company hereby approves the terms and conditions of the Indenture, and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered.

 

The proceeds from the sale of the Bonds shall be paid to the Trustee and deposited as follows (a) a sum equal to accrued interest, if any, shall be deposited in the Bond Fund and (b) the balance shall be deposited in the Clearing Fund.

 

Disbursements of moneys in the Clearing Fund shall be made by the Trustee in order to defease and/or redeem the Refunded Bonds pursuant to written instructions delivered by the Company to the Trustee and to the Refunded Bonds Trustee, provided, in all events, all moneys in the Clearing Fund shall be fully disbursed for the redemption of the Refunded Bonds on or before 90 days following the date of issuance of the Bonds.  Upon deposit of adequate funds with the Refunded Bonds Trustee, the Company shall be permitted to seek a release of the lien of any and all documents providing for the payment of the Refunded Bonds, including particularly the trust indenture and the loan agreement securing the same, and may seek repayment of any unrequired funds on deposit in the Clearing Fund, pursuant to Section 5.07 of the Indenture.

 

  

6

  

 

Section 3.03.  Company Required to Provide Additional Moneys in Event Moneys Insufficient to Redeem Refunded Bonds.  If moneys disbursed from the Clearing Fund to the Refunded Bonds Trustee are not sufficient to defease or redeem the Refunded Bonds, the Company shall, nonetheless, not later than the date fixed for redemption of the Refunded Bonds, pay to the Refunded Bonds Trustee, in immediately available funds, any such additional moneys as shall be needed, including, without limitation, amounts for interest accrued to that date, from its own funds to defease or redeem the Refunded Bonds.  The Company shall not be entitled to any reimbursement therefor from the Issuer, the Trustee or any Holder; nor shall it be entitled to any abatement, diminution or postponement of the Installment Payments as a consequence of such payment.  The Company acknowledges and agrees that there is no implied or express warranty by the Issuer that the proceeds of the Bonds will be sufficient to redeem the Refunded Bonds.

 

Section 3.04.  Investment of Fund Moneys.  At the written direction of the Authorized Company Representative, any moneys held in the Clearing Fund, the Bond Fund and the Rebate Fund shall be invested or reinvested by the Trustee in Eligible Investments.  Each of the Issuer and the Company hereby covenants that it will restrict any investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code.

 

The Company shall provide the Issuer with a certificate of an appropriate officer, employee or agent of or consultant to the Company for inclusion in the transcript of proceedings for the Bonds, setting forth the reasonable expectations of the Company on the date of delivery of and payment for the Bonds regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which those expectations are based.

 

The Company agrees that at no time shall any funds constituting gross proceeds of the Bonds be used in any manner to cause or result in a prohibited payment under applicable regulations pertaining to, or in any other fashion as would constitute failure of compliance with, Section 148 of the Code.

 

If there is any amount required to be paid to the United States pursuant to Section 148(f) of the Code or Section 5.03 of the Indenture, the Company shall pay such amount to the Trustee for deposit to the Rebate Fund created under Section 5.03 of the Indenture, who will submit the payment to the United States.

 

Section 3.05.  Issuer’s Fees.  The Company will pay the Issuer’s closing fee in the amount of $20,000 and the Issuer’s counsel fee in the amount of $10,000, including disbursements, on the date of issuance of the Bonds.  The Company will also pay any other administrative expenses incurred in connection with the refinancing of the Refunded Bonds, and any such additional fees and expenses (including reasonable attorney’s fees) incurred by the Issuer or the Trustee in connection with inquiring into, or enforcing, the performance of the Company’s obligations hereunder, within 30 days of receipt of a statement from the Issuer requesting payment of such amount.

 

  

7

  

 

ARTICLE IV

 

LOAN BY ISSUER; REPAYMENT OF LOAN

INCLUDING ADDITIONAL PAYMENTS

 

Section 4.01.  Loan of Proceeds; Installment Payments.  The Issuer agrees, upon the terms and conditions contained in this Agreement, to lend to the Company the proceeds received by the Issuer from the sale of the Bonds.  Such proceeds shall be disbursed to or on behalf of the Company as provided in Section 3.02.

 

On each date on which any payment of principal of or interest on the Bonds shall become due (whether at maturity, or upon redemption or acceleration or otherwise), the Company will pay or cause to be paid to the Trustee, in immediately available funds, an amount which, together with other moneys held by the Trustee under the Indenture and available therefor, will enable the Trustee to make such payment in full in a timely manner (“Installment Payments”).

 

In furtherance of the foregoing, so long as any Bonds are outstanding, the Company will pay or cause to be paid all amounts required to prevent any deficiency or default in any payment with respect to the Bonds, including any deficiency caused by an act or failure to act by the Trustee, the Company, the Issuer or any other Person.

 

The Issuer assigns all amounts payable under this Section by the Company to the Trustee pursuant to the Indenture for the benefit of the Bondholders.  The Company assents to such assignment.  Accordingly, the Company will pay directly to the Trustee at its designated office all payments payable by the Company pursuant to this Section.

 

Section 4.02.  Additional Payments.  The Company will also pay the following upon demand after receipt of a bill therefor.

 

(a)           The reasonable and documented out–of–pocket fees and expenses, including reasonable attorneys’ fees, of the Issuer incurred in connection with this Agreement, the Indenture, the Tax Regulatory Agreement and the Bonds, and the making of any amendment or supplement thereto, including, but not limited to: (i) those described in Section 3.05 (which includes, among other fees and expenses, the fees and expenses associated with the initial drafting, execution and delivery of this Agreement,  the Indenture, the Tax Regulatory Agreement and the Bonds), (ii) those described in Section 7.04 and (iii) any other payments or indemnification required under Section 5.02; and

 

(b)           The fees and expenses of the Trustee under the Indenture, including reasonable attorneys’ fees of the Trustee for any services rendered by it under the Indenture, including those described in Section 7.04, and any other payments or indemnification required under Section 5.02, such fees, expenses and payments to be paid directly to the Trustee for its own account as and when such fees and expenses become due and payable.

 

  

8

  

 

The Company further agrees to pay all reasonable and documented out–of–pocket costs and expenses (including reasonable attorney’s fees and expenses) of the Issuer incurred after the initial issuance of the Bonds in the preparation of any responses, reproduction of any documentation or participation in any inquiries, investigations or audits from any Person solely or primarily in connection with the Bonds, including without limitation, the Internal Revenue Service, the Securities Exchange Commission or other governmental agency.

 

Section 4.03.  Deposit of Moneys in Bond Fund; Moneys for Purchase and Redemption.  The Company may at any time deposit moneys in the Bond Fund, without premium or penalty, to be held by the Trustee for application to Installment Payments not yet due and payable, and the Issuer agrees that the Trustee shall accept such deposits when tendered by the Company.  Such deposits shall be credited against the Installment Payments, or any portion thereof, in the order of their due dates.  In addition, the Company may at any time deliver moneys to the Trustee in addition to such deposits with written instructions to the Trustee to use such moneys for the purpose of making open market purchases of Bonds.  Such deposits or such delivery of moneys for Bond purchases shall not in any way alter or suspend the obligations of the Company under this Agreement during the term hereof as provided in Section 8.01.

 

In addition, the Company may deliver moneys to the Trustee for use for optional redemption of Bonds pursuant to Sections 6.01 and 6.02 and shall deliver moneys to the Trustee for mandatory redemption of Bonds as required by Section 4.02(c) of the Indenture.

 

Section 4.04.  Obligations Unconditional.  The obligations of the Company to make payments required by Sections 4.01, 4.02 and 4.03 and to perform its other agreements contained herein shall be absolute and unconditional, and the Company shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever.

 

Section 4.05.  Assignment by Company.  Rights granted to the Company under this Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of the Issuer or the Trustee, subject, however, to each of the following conditions:

 

(a)           unless waived by the Issuer or the Trustee, the Company shall notify the Issuer and the Trustee in writing of the identity of any assignee at least 30 days prior to the effective date of such assignment;

 

(b)           no assignment shall relieve the Company from primary liability hereunder for its obligations hereunder, and the Company shall continue to remain primarily liable for the payment of the Installment Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it;

 

(c)           any assignment from the Company must retain for the Company such rights and interests as will permit it to perform its obligations under this Agreement;

 

  

9

  

 

(d)           the Company shall, within 30 days after execution thereof, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy of each such assignment; and

 

(e)           any assignment from the Company shall not materially impair fulfillment of the purposes to be accomplished by operation of the Project Facilities as a project, the financing of which is permitted under the Act.

 

Section 4.06.  Assignment by Issuer.  The Issuer will assign its rights under and interest to this Agreement (except for Unassigned Issuer’s Rights) to the Trustee pursuant to the Indenture as security for the payment of the Bonds.  Otherwise, the Issuer will not sell, assign or otherwise dispose of its rights under or interest in this Agreement nor create or permit to exist any lien, encumbrance or security interest thereon.

 

ARTICLE V

 

ADDITIONAL AGREEMENTS AND COVENANTS

 

Section 5.01.  Lease, Sale or Grant of Use by Company.  Subject to the provisions of Section 5.03, the Company may lease, sell or grant the right to occupy and use the remaining Project Facilities, in whole or in part, to others, provided that:

 

(a)           no such grant, sale or lease shall relieve the Company from its obligations under this Agreement;

 

(b)           the Company shall retain such rights and interests as will permit it to comply with its obligations under this Agreement; and

 

(c)           no such grant, sale or lease shall impair the purposes of the Act.

 

Section 5.02.  Indemnification of Issuer and Trustee.  The Company will indemnify and hold the Issuer and Trustee, their members, officers and employees, and the State of Alabama, including its members, officers and employees, free and harmless from any loss, claim, damage, tax, penalty, liability, disbursement, litigation expenses, attorneys’ fees and expenses or court costs arising out of, or in any way relating to, the execution or performance of the Indenture, this Agreement, the Bond Purchase Agreement (the “Bond Purchase Agreement”) among the Underwriter, the Issuer and the Company or any other documents in connection therewith, or any other cause whatsoever pertaining to the Project Facilities (including without limitation any loss, claim, damage, tax penalty, liability, disbursement, litigation expenses, attorneys’ fees and expenses or court costs asserted or arising under any federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating or relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material), or the Bonds, including the issuance or sale of the Bonds, or failure to issue or sell the Bonds, actions taken under the Bonds, the Indenture, this Agreement, the Bond Purchase Agreement or any other documents in connection therewith or any other cause whatsoever pertaining to the Project Facilities, except in any case as a result of the gross negligence or willful misconduct of the Issuer or Trustee.

 

  

10

  

 

The Company may, at its cost and in its name or in the name of the Issuer, prosecute or take any other action involving third persons which the Company deems necessary in order to ensure or protect the Company’s rights under this Agreement; in such event, the Issuer will reasonably cooperate with the Company, but at the sole expense of the Company.

 

In case any actions or proceedings are brought against the Issuer or the Trustee in respect of which indemnity may be sought hereunder, the party seeking indemnity shall promptly (but in any event, within 15 days of receipt of service), give notice of that action or proceeding to the Company enclosing copies of all papers served, and the Company upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure of a party to give that notice shall not relieve the Company from any of its obligations under this Section unless that failure materially prejudices the defense of the action or proceeding by the Company.  At its own expense, an indemnified party may employ separate counsel and participate in the defense.  The Company shall not be liable for any settlement made without its written consent.

 

Notwithstanding anything contained herein to the contrary, the Company shall not be obligated to indemnify or hold harmless the Issuer or the Trustee for their gross negligence or willful misconduct.

 

The foregoing indemnification is intended to and shall include the indemnification of all affected officials, directors, trustees, officers and employees of the Issuer and the Trustee, respectively.  That indemnification is intended to and shall be enforceable by the Issuer and the Trustee, respectively, to the full extent permitted by law and the foregoing indemnification shall survive beyond the termination or discharge of the Indenture or payment of the Bonds.

 

Section 5.03.  Company Not to Adversely Affect Exclusion from Gross Income of Interest on Bonds.  The Company hereby represents that it has taken and caused to be taken, and covenants that it will take and cause to be taken, all actions that may be required of it, alone or in conjunction with the Issuer, for the interest on the Bonds to be and to remain excludable from gross income for federal income tax purposes, and represents that it has not taken or permitted to be taken on its behalf, and covenants that it will not take or permit to be taken on its behalf, any action that would adversely affect such excludability under the provisions of the Code.

 

The Company also covenants that it will restrict the investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code.

 

The Company hereby covenants that on or before the 90th day following the date any of the Project Facilities are no longer being operated as qualifying exempt facilities under the Code (unless such facilities have simply ceased to be operated), or such later date as provided in the Indenture, the Company shall cause a related amount of Bonds to be redeemed pursuant to the Mandatory Redemption provision of the Bonds.

 

  

11

  

 

Section 5.04.  Company to Maintain its Existence; Mergers or Consolidations.  The Company covenants that it will not merge or consolidate with any other legal entity or sell or convey all or substantially all of its assets to any other legal entity, except that the Company may merge or consolidate with, or sell or convey all or substantially all of its assets to any other legal entity, provided that (a) the Company shall be the continuing legal entity or the successor legal entity (if other than the Company) shall be a legal entity organized and existing under the laws of the United States of America or a state thereof, qualified to do business in the State and such legal entity shall expressly assume the due and punctual payment of the Installment Payments hereunder in order to ensure timely and proper payment of the principal of and  interest on all the Bonds, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Agreement to be performed by the Company and (b) the Company or such successor legal entity, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition and no event which with the lapse of time, the giving of notice or both would constitute an Event of Default under Section 7.01 shall have occurred and be continuing.

 

In case any such consolidation, merger, sale or conveyance and upon the assumption by the successor legal entity of the obligations under this Agreement and on the Bonds in accordance with the foregoing, such successor legal entity shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as a party hereto, and the Company shall thereupon be relieved of any further obligations or liabilities hereunder and upon the Bonds and the Company as the predecessor legal entity may thereupon or at any time thereafter be dissolved, wound-up or liquidated.

 

Section 5.05.  Reports and Audits.  The Company shall as soon as practicable but in no event later than six months after the end of each of its fiscal years, file with the Trustee and the Issuer, audited financial statements of the Company prepared as of the end of such fiscal year; provided that the Company may satisfy this requirement by its filing of such information with the Securities and Exchange Commission (www.sec.gov) and the Municipal Securities Rulemaking Board (www.emma.msrb.org) in accordance with their respective filing requirements.

 

Section 5.06.  Insurance.  The Company shall maintain, or cause to be maintained, insurance covering such risks and in such amounts as is customarily carried by similar industries as the Company, and which insurance may be, in whole or in part, self–insurance.

 

ARTICLE VI

 

OPTIONS; PREPAYMENT OF LOAN

 

Section 6.01.  Options to Terminate.  The Company shall have, and is hereby granted, an option to prepay and terminate the Loan, upon satisfaction of the following conditions at any time prior to full payment of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture):  (a) in accordance with Article 1X of the Indenture, by paying to the Trustee an amount which, when added to the amount on deposit in the funds established under the Indenture and available therefor, will be sufficient to pay, retire and, pursuant to the Indenture, redeem all the outstanding Bonds in accordance with the provisions of the Indenture (including, without limiting the generality of the foregoing, principal of and interest to maturity or the earliest applicable redemption date, as the case may be, and expenses of redemption and the Trustee’s fees and expenses due hereunder or under the Indenture), and in case of redemption making arrangements satisfactory to the Trustee for the giving of the required notice of redemption, (b) by giving the Issuer notice in writing of such termination and (c) by making full payment of Additional Payments due under Section 4.02; thereafter such termination shall forthwith become effective.

 

  

12

  

 

Any prepayment pursuant to this Section 6.01 shall either comply with the provisions of Article 1X of the Indenture or result in redemption of the Bonds within 90 days of the date of prepayment.  Nothing contained in this Section 6.01 shall prevent the payment of part of any of the Bonds pursuant to Article 1V or Section 9.02 of the Indenture.

 

Section 6.02.  Option to Prepay Upon Extraordinary Optional Redemption Under Indenture.  The Company shall also have the option, upon the occurrence of certain extraordinary circumstances described therein, to prepay the loan in whole or in part upon the terms and conditions set forth in Section 4.02(b)(i) of the Indenture.

 

Section 6.03.  Actions by Issuer.  At the request of the Company or the Trustee, the Issuer shall take all steps required of it under the applicable provisions of the Indenture or the Bonds to effect the redemption of all or a portion of the Bonds pursuant to this Article VI; provided that, in such event, the Company shall reimburse the Issuer for its reasonable expenses, including attorneys’ fees, incurred in complying with such request.

 

Section 6.04.  Release on Exercise of Option To Prepay Loan.  Upon the payment of all amounts due hereunder pursuant to any option to prepay the loan granted in this Agreement, the Issuer shall upon receipt of the prepayment, deliver to the Company, if necessary, a release from the Trustee of the lien of the Indenture.

 

ARTICLE VII

 

EVENTS OF DEFAULT AND REMEDIES

 

Section 7.01.  Events of Default.  Each of the following shall be an Event of Default:

 

(a)           The Company shall fail to pay the amounts required to be paid under Section 4.01 or 4.02 on the date specified therein;

 

(b)           Failure by the Company to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in Section 7.01(a), (other than certain representations, warranties and covenants regarding various matters relating to the tax status of the Bonds) for a period of 60 days after written notice specifying such failure and requesting that it be remedied shall have been given to the Company by the Issuer or the Trustee, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by the Company within the applicable period and is being diligently pursued until the default is corrected;

 

  

13

  

 

(c)           The dissolution or liquidation of the Company or the voluntary initiation by the Company of any proceeding under any federal or state law relating to bankruptcy, insolvency, arrangement, reorganization, readjustment of debt or any other form of debtor relief, or the initiation against the Company of any such proceeding which shall remain undismissed for 60 days, or failure by the Company to promptly have discharged any execution, garnishment or attachment of such consequence as would materially impair the ability of the Company to carry on its operations, or assignment by the Company for the benefit of creditors, or the entry by the Company into an agreement of composition with creditors or the failure generally by the Company to pay its debts as they become due; or

 

(d)           The occurrence of an Event of Default as defined in the Indenture.

 

Any declaration of default under subparagraph (c) and the exercise of remedies upon any such declaration will be subject to any applicable limitations of federal bankruptcy law affecting or precluding that declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation or reorganization proceedings.

 

Section 7.02.  Remedies on Default.  Whenever an Event of Default shall have happened and be existing, any one or more of the following remedial steps may be taken:

 

(a)           if acceleration of the principal amount of the Bonds has been declared pursuant to Section 7.03 of the Indenture, the Issuer or the Trustee shall declare all Installment Payments to be immediately due and payable, whereupon the same shall become immediately due and payable; or

 

(b)           the Issuer or the Trustee may pursue all remedies now or hereafter existing at law or in equity to collect all amounts then due and thereafter to become due under this Agreement or to enforce the performance and observance of any other obligation or agreement of the Company under those instruments.

 

Notwithstanding the foregoing, the Trustee shall not be obligated to take any step that in its reasonable opinion will or might cause it to expend time or money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to the Trustee at no cost or expense to it.  Any amounts collected pursuant to action taken under this Section (except for amounts payable directly to the Issuer or the Trustee pursuant to Section 4.02, 5.02 or 7.04) shall be paid into the Bond Fund and applied in accordance with the provisions of the Indenture or, if the Outstanding Bonds have been paid and discharged in accordance with the provisions of the Indenture, shall be paid as provided in Section 9.01 of the Indenture for transfers of remaining amounts in the Bond Fund.

 

The provisions of this Section are subject to the further limitation that the rescission by the Trustee of its declaration that all of the Bonds are immediately due and payable also shall constitute an annulment of any corresponding declaration made pursuant to paragraph (a) of this Section and a waiver and rescission of the consequences of that declaration and of the Event of Default with respect to which that declaration has been made, provided that no such waiver or rescission shall extend to or affect any subsequent or other default or impair any right consequent thereon.

 

  

14

  

 

Section 7.03.  No Remedy Exclusive.  No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, now or hereafter existing at law, in equity or by statute.  No delay or omission to exercise any right or power accruing upon any default shall impair that right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient.  In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than any notice required by law or for which express provision is made herein.

 

Section 7.04.  Agreement to Pay Fees and Expenses.  If an Event of Default should occur and the Issuer or the Trustee should incur expenses, including attorneys’ fees, in connection with the enforcement of this Agreement or the collection of sums due thereunder, the Company shall reimburse the Issuer and the Trustee, as applicable, from the reasonable expenses so incurred upon demand.

 

Section 7.05.  No Waiver.  No failure by the Issuer or the Trustee to insist upon the performance by the Company of any provision hereof shall constitute a waiver of their right to performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Company to observe or comply with any provision hereof.

 

Section 7.06.  Notice of Default.  The Company shall notify the Trustee immediately and in writing if it becomes aware of the occurrence of any Event of Default hereunder or of any fact, condition or event which, with the giving of notice or passage of time or both, would become an Event of Default.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.01.  Term of Agreement.  This Agreement shall be and remain in full force and effect from the date of issuance of the Bonds until such time as all of the Bonds shall have been fully paid (or provision made for such payment) pursuant to the Indenture and all other sums payable by the Company under this Agreement shall have been paid, except for obligations of the Company under Section 4.02, 5.02 and 7.04, which shall survive any termination of this Agreement.

 

Notwithstanding any termination of this Agreement, any payment of any or all of the Bonds or any discharge of the Indenture, if Bonds are redeemed pursuant to the mandatory redemption upon determination of taxability, the Company shall pay all additional amounts required to be paid under Section 4.01 of the Indenture at the time provided therein.

 

  

15

  

 

Section 8.02.  Amounts Remaining in Funds.  Any amounts in the Bond Fund remaining unclaimed by the Holders of Bonds (whether at stated maturity, by redemption or pursuant to any mandatory sinking fund requirements or otherwise), shall be deemed to belong, and shall be paid, to the proper party pursuant to applicable escheat laws.  Further, any other amounts remaining in the Bond Fund, the Clearing Fund and any other special fund for accounts created under this Agreement or the Indenture after all of the outstanding Bonds shall be deemed to have been paid and discharged under the provisions of the Indenture and all other amounts required to be paid under this Agreement and the Indenture have been paid, shall be paid to the Company to the extent that those moneys are in excess of the amounts necessary to effect the payment and discharge of the outstanding Bonds.

 

Section 8.03.  Notices.  All notices, certificates, requests or other communications hereunder shall be in writing and shall be deemed to be sufficiently given when received or upon refusal of delivery at the applicable Notice Address.  The Issuer, the Company or the Trustee may, by providing written notice to each other, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent.

 

Section 8.04.  Extent of Covenants of Issuer; No Personal Liability.  All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law.  No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, trustee, officer, agent or employee of the Issuer in other than his official capacity, and no official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture.

 

Section 8.05.  Binding Effect.  This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Issuer, the Company and their respective permitted successors and assigns.

 

Section 8.06.  Amendments and Supplements.  Except as otherwise expressly provided in this Agreement or the Indenture, subsequent to the issuance of the Bonds and prior to all conditions provided for in the Indenture for release of the Indenture having been met, this Agreement may not be effectively amended, changed, modified, altered or terminated except in accordance with the provisions of Article XI of the Indenture, as applicable.

 

Section 8.07.  Execution Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument.

 

Section 8.08.  Severability.  If any provision of this Agreement, or any covenant, obligation or agreement contained herein is determined by a court to be invalid or unenforceable, that determination shall not affect any other provision, covenant, obligation or agreement, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein.  That invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision, covenant, obligation or agreement shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law.

 

  

16

  

 

Section 8.09.  Governing Law.  This Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State.

 

Section 8.10.  Further Assurances and Corrective Instruments.  The Issuer and the Company agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may reasonably be required for the further assurance, correction or performance of the expressed intention of this Agreement.

 

Section 8.11.  Issuer and Company Representatives.  Whenever under the provisions of this Agreement the approval of the Issuer or the Company is required or the Issuer or the Company is required to take some action at the request of the other, such approval or such request shall be given for the Issuer by a Designated Officer and for the Company by an Authorized Company Representative.  The Trustee shall be authorized to act on any such approval or request.

 

Section 8.12.  Immunity of Incorporators, Stockholders, Officers and Directors.  No recourse under or upon any obligation, covenant or agreement contained in this Agreement or in any agreement supplemental hereto, or in the Bonds, or because of any indebtedness evidenced thereby, shall be had against any incorporator, or against any stockholder, member, officer or director, as such, past, present or future, of the Company or of any predecessor or, subject to Section 5.04, successor legal entity, either directly or through the Company or any predecessor or successor legal entity, 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 of the Bonds by the Holders thereof and as part of the consideration for the issuance of the Bonds.

 

Section 8.13.  Section Headings.  The table of contents and headings of the various articles and sections of this Agreement are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof.  References to article and section numbers are references to articles and sections in this Agreement unless otherwise indicated.

 

[Remainder of page intentionally left blank]

 

  

17

  

IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be duly executed in their respective names, all as of the date hereinbefore written.

 

	  	
THE INDUSTRIAL DEVELOPMENT

BOARD OF THE CITY OF FAIRFIELD

(ALABAMA)

	  	  	  
	  	
By:

	
/s/ Bobby Palmore 

	  	
Name:

	
Bobby Palmore

	  	  	
Chairman

 

	
ATTEST:

	  
	  	  
	
Otis Smith

	  
	
Secretary

	  

 

	  	
UNITED STATES STEEL CORPORATION

	  	  	  
	  	
By:

	
/s/ John J. Quaid

	  	  	
John J. Quaid

	  	  	
Vice President and Treasurer

 

[Signature page to U.S. Steel Loan Agreement]

 

  

18

  

EXHIBIT A

 

PROJECT FACILITIES

 

The facilities below were refinanced in whole or in part by the following Refunded Bonds.

 

$6,175,000

The Industrial Development Board

of the City of Fairfield (Alabama)

Variable Rate Environmental Improvement Revenue Bonds

(USX Corporation Projects)

Refunding Series of 1995

 

	
1.

	
Air Pollution Control for No. 8 Blast Furnace

 

A casthouse emission control system was installed for the No. 8 blast furnace at the Fairfield Works.  It included a 300,000 cfm baghouse dust collector with localized control, with hoods installed over each taphole, skimmer and iron spout, and designed to limit filterable particulate emissions from the baghouse to no more than 0.010 gr/scid.

 

	
2.

	
Concord Mining Preparation Plant Installed WOC Facilities

 

Water quality control facilities were installed at the Concord Mine preparation plant for collection, treatment and disposal of surface waters from the refuse disposal area.  Such facilities included three (3) collection ponds, pumps and pipe lies, a surge-equalization basin, a water treatment facility (consisting primarily of a clarification unit, a neutralization chamber and a sludge dewatering unit), access roads and power lines.  Also included were facilities for removal of coal fines from the reservoir and for the prevention of the discharge of coal fines to the reservoir, such facilities included dredging, pumping, dewatering and disposal equipment.

 

The facilities below were refinanced in whole or in part by the following Refunded Bonds.

 

$10,945,000

The Industrial Development Board

of the City of Fairfield (Alabama)

Environmental Improvement Revenue Bonds

(USX Corporation Projects)

Refunding Series of 1998

 

The Project Facilities financed with the Series 1998 Bonds consist generally of the following air and/or water pollution control facilities to be installed at the Corporations Fairfield Works near the City of Fairfield in Jefferson County, Alabama:

 

(1)           The following air quality control facilities for Sinter Lines 1, 2 and 3:

 

  

  

  

 

	
  

	
(a)

	
Extension of hoods over existing discharge chutes to collect the dust caused by hot sinter dropping onto the chutes and also upon impact at the discharge of the railroad car; and

 

	
  

	
(b)

	
A fabric filter dust collector and duct system for the hot-line conveyors to pick up the dust generated at the conveyors, the oscillating conveyors and vibrating fees.

 

(2)           The following air quality control facilities for Sinter Line No. 4:

 

	
  

	
(a)

	
the dismantling of the present dust collector, and the replacement thereof with a new fabric filter type dust collector and duct system; and

 

	
  

	
(b)

	
a fabric filter type dust collector and duct system in the area of the cooler discharge.

 

	
  

	
(3)

	
New water cooled doors for the “C,” “X” and “U” Q-Bop Furnaces, and the modifications of air seals and furnace enclosures.

 

	
  

	
(4)

	
The following portions of a pushing emission control system for No. 9 Coke Oven Battery:

 

	
  

	
(a)

	
two (2) new single spot (hooded) quench cars;

 

	
  

	
(b)

	
a fume collection duct with mechanical gates to transport fume from coke guide hood and quench car to a new fabric filter type gas cleaner located at one end of the battery; and

 

	
  

	
(c)

	
modifications to the coal charging cars on No. 9 Coke Oven Battery to control emissions during charging.

 

	
  

	
(5)

	
A new pumping station necessary piping for No. 2 Coke Battery to convey the blow-down waster water from the coal preheat scrubbers and coal charging scrubbers to the existing biological waste water treatment facility for treatment prior to discharge.

 

	
  

	
(6)

	
An evacuated hot car system for the No. 2 coke oven battery, said system to consist principally of a special quench car, propulsion unit, gas cleaning system and an enclosed coke guide.

 

	
  

	
(7)

	
Air quality control facilities for the No. 4 sinter line, said facilities to consist principally of a new section for an existing electrostatic precipitator, new inlet breeching and certain auxiliary equipment.

 

A mixer fume control system consisting of a dust collector, emission collection hoods, inter-connecting ductwork and exhaust fan to collect fugitive emissions that occur when molten iron is poured into or out of the North hot metal mixer in the Q-BOP Shop

 

  

A-2Option and Joint Development Agreement

(Nickletown Project)

This Option and Joint Development Agreement (the “Agreement”) is made and entered into, effective as of August __, 2011 (the “Effective Date”), by and among EnerJex Resources, Inc., a Nevada corporation (“EnerJex” or the “Company”)” and MorMeg, LLC, a Kansas limited liability company (“MorMeg”, and together with the Company, the “Parties”), with reference to the following facts:

Recitals:

 

A.           MorMeg owns certain working interests in producing oil leases commonly identified as the “Nickletown Leasehold” (the “Project”), as further described in Exhibit A to that certain Joint Operating Agreement dated concurrently herewith by and among the Company and Haas Petroleum, LLC (“Haas”) (the “Joint Operating Agreement”).

 

B.           The Project consists of three components:  Nickletown East (“Phase I”), Nickletown West (“Phase II”), and Nickletown North (“Phase III”).

 

C.           The Parties have agreed to execute this Agreement in order to memorialize the terms and conditions on which (i) the Company and MorMeg shall jointly own, finance, manage and develop the Project in order to produce oil on an economic basis, and (ii) MorMeg shall grant to the Company an option to acquire a 90% working interest in the Project on the terms specified herein.

 

Agreements:

 

Now, Therefore, the Parties hereto, intending to be legally bound, do hereby agree as follows:

 

1.          JOINT OPERATING AGREEMENT.  The Parties acknowledge and agree that this Agreement is contingent in all respects to Haas continuing to be the operator of record for the Project in accordance with the terms of the Joint Operating Agreement.  In the event that Haas shall be terminated without good cause under the Joint Operating Agreement, this Agreement (and any options remaining hereunder) shall terminate immediately upon the effective date of termination of the Joint Operating Agreement.  However, if Haas shall be terminated with good cause under the Joint Operating Agreement (with the parties acknowledging that good cause shall include the death or permanent disability of Mark Haas), then this Agreement shall remain in full force and effect in accordance with its terms.

 

2.          OPTION TO ACQUIRE 90% WORKING INTEREST IN ENTIRE PROJECT

 

2.1         Grant of Option.   MorMeg hereby grants to the Company three (3) separate options (each, an “Option”) to purchase a 90% working interest in each of Phase I, Phase II and Phase III of the Project (the working interest in Phase I, Phase II and Phase III shall each herein be referred to as the “Working Interest”), each such Option on the terms and subject to the conditions set forth in this Agreement.

 

2.2        Option Payment.  In consideration of MorMeg’s grant of the Options hereunder, the Company shall pay to MorMeg, immediately upon the execution of this Agreement, a nonrefundable option payment (the “Option Payment”) in the amount of fifty thousand dollars ($50,000).

 

  

 

  

3.          PHASE I OF PROJECT.

 

3.1         Exercise of Option.  The Company may exercise the Option to purchase the Working Interest in Phase I by delivering to MorMeg on or before 5:00 p.m. CST on the 90th day following the Effective Date (the “Phase I Expiration Date”), a written notice confirming the Company’s election to exercise the Option to purchase the Working Interest in Phase I.  If that exercise notice is timely delivered by the Company on or before the Phase I Expiration Date, then MorMeg thereupon shall be obligated to convey the Working Interest in Phase I to the Company, and the Company thereupon shall be obligated to purchase the Working Interest in Phase I.   If that exercise notice is not timely delivered by the Company on or before the Phase I Expiration Date, then as of 5:01 p.m., Central Time on the Phase I Expiration Date, the Option shall expire with respect to all three phases, and the Company shall forfeit all further right to the Working Interest and the Option Payment, which shall remain and be the sole and absolute property of MorMeg.

 

3.2         Purchase Price. The purchase price for the Working Interest in Phase I shall be the sum of (x) four hundred fifty thousand dollars ($450,000), plus (y) the Option Payment, plus (z) one hundred thousand (100,000) shares of the Company’s common stock (the “Shares” and, together with such $450,000 payment and the Option Payment, the “Phase I Purchase Consideration”).  If the Company timely exercises the Option pursuant to Section 3.1, above, then at Phase I Closing (as defined below), the Phase I Purchase Consideration shall be paid and issued as follows:

(a)          Issuance of Shares.  The Company shall deliver to its transfer agent irrevocable instructions to issue the Shares to MorMeg.  As a condition of the Company’s obligation to issue those Shares, MorMeg shall make, execute, and deliver such documents and instruments as the Company may reasonably require in order to memorialize the issuance of such Shares in compliance with applicable federal and state securities laws.

 

(b)          Additional Payment. The Company shall deliver to MorMeg the additional sum of four hundred fifty thousand dollars ($450,000) by wire transfer of immediately available funds in accordance with wiring instructions provided by MorMeg.

 

3.3         Phase I Closing.   The closing of the purchase and sale of the Working Interest in Phase I (the “Phase I Closing”) shall be held at the offices of the Company (or by delivery of closing documents and items by email, facsimile, or overnight courier, and delivery of closing funds by wire transfer) on the date which shall be ten (10) business days following delivery of the Company’s exercise notice in accordance with Section 2.3, above.  At Phase I Closing:

 

(a)          Company Deliveries.  The Company shall deliver:

 

(i)          A copy of its irrevocable instructions to its stock transfer agent in accordance with Section 3.2(a), above;

 

(ii)         The funds due under Section 3.2(b), above in immediately available funds by cashier’s check or wire transfer, at the option of MorMeg; and

 

(iii)        Such other documents and instruments as may be reasonably required by MorMeg to effectuate the Phase I Closing in accordance with this Agreement.

 

  

2

  

(b)          MorMeg Deliveries.  MorMeg shall deliver:

 

(i)          An Assignment of Oil and Gas lease for the Working Interest conveying title to the Working Interest in Phase I, free and clear of all liens and encumbrances as reasonably requested by Enerjex or otherwise agreed by the parties in a separate writing;

 

(ii)         Such documents and instruments as the Company may reasonably require in order to memorialize the issuance of such Shares in compliance with applicable federal and state securities laws;

 

(iii)        Such other documents and instruments as may be reasonably necessary to effectuate the Phase I Closing in accordance with this Agreement.

 

3.4         Phase I Ownership and Obligations of the Parties. Subject to the Company’s exercise of the Option to purchase the Working Interest in Phase I pursuant to the foregoing provisions of this Section 3:

 

(a)          EnerJex Capital Expenditures.  The Company shall spend at least Seven Million Five Hundred Thousand Dollars ($7,500,000) of “Capital Expenditures” (as such term is defined in Exhibit B attached hereto and incorporated herein by reference) associated with Phase 1 within four (4) years following the date of the Phase I Closing.  The Company and MorMeg agree in good faith to reduce this amount of Capital Expenditures if, in the mutual and reasonable opinion of the Company and MorMeg, the continuation of the development of Phase I in the manner set forth herein is not feasible from a commercial and economic standpoint, it being expressly agreed that such determination shall be made by taking into consideration only the profitability of the development of Phase I of the Project.

 

(i)          The Company shall be obligated to deliver to MorMeg a working interest (“Reversionary Interest”) (defined in Section 3.4(d), below) in Phase I in the event the Company fails to timely satisfy the Capital Expenditures requirement imposed by this Section 3.4(a).

 

(ii)         For the purposes of this Agreement, the term “Capital Expenditures” shall be defined as set forth in Exhibit B attached hereto and incorporated herein by reference.

 

(b)          Company’s Right of First Refusal.  The Company or its assignee(s) shall have a right of first refusal to purchase 90% of any working interest in any oil and gas lease or leases which are located adjacent to Phase I that MorMeg or any of its affiliates hereafter acquires (each working interest in which the Company will have a right of refusal to purchase 90% of, in each Phase, is herein referred to as a “ROFR Working Interest”) based on the same terms under which MorMeg or any of its affiliates acquired the ROFR Working Interest, subject to the terms and conditions set forth in this Section (the “Right of First Refusal”).

 

(i)           Notice of Right of First Refusal.  MorMeg shall (a) deliver to the Company a written notice (the “Notice”) for each ROFR Working Interest that MorMeg or any of its affiliates acquires within 30 days of completing such acquisition, stating: (i) the description of such ROFR Working Interest; and (ii) the bona fide cash price or other consideration for which MorMeg or any of its affiliates purchased the ROFR Working Interest (the “Acquisition Price”); and (b) offer the Company or its assignee(s) the right to purchase 90% of the ROFR Working Interest at the Acquisition Price.

 

(ii)          Exercise of Right of First Refusal.  At any time within ten (10) business days after receipt of the Notice, the Company may, by giving written notice to MorMeg (the “Exercise Notice”), elect to purchase 90%, but not less than 90%, of the ROFR Working Interest.

 

  

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(iii)         Purchase Price.  The purchase price (“Purchase Price”) for the ROFR Working Interest purchased by the Company or its assignee(s) under this Section shall be equivalent to the Company’s 90% share of the aggregate Acquisition Price, including 90% of any legal fees incurred by MorMeg associated with such acquisition. The closing of the purchase of the ROFR Working Interest shall occur not later than thirty (30) days after the date of actual delivery of the Exercise Notice.  If the Acquisition Price includes consideration other than cash the cash equivalent value of the non-cash consideration shall be determined by MorMeg in good faith.  For the avoidance of doubt, the parties agree that the Purchase Price for any ROFR Working Interest paid by the Company may not exceed the purchase price paid by MorMeg or any of its affiliates to acquire such ROFR Working Interest.

 

(iv)        Purchase Price.  Payment of the Purchase Price shall be made in immediately available cash in any case in accordance with the Terms, within thirty (30) days after delivery of the Exercise Notice by the Company.

 

(v)         MorMeg’s Right to Transfer.  If all of the ROFR Working Interest proposed in a given Notice is not purchased by the Company and/or its assignee(s) as provided in this Section, then MorMeg may sell or otherwise transfer such ROFR Working Interest to another party at its discretion.

 

(vi)        Exception for Affiliate or Estate Planning Transfers.  Anything to the contrary contained in this Section notwithstanding, the transfer of a ROFR Working Interest to an affiliate of MorMeg, as well as any bona fide estate planning transfers of the ROFR Working Interest, shall be exempt from the provisions of this Section.  In such case, the transferee or other recipient shall receive and hold such ROFR Working Interest so transferred subject to the provisions of this Agreement, and there shall be no further transfer of such ROFR Working Interest except in accordance with the terms of this Agreement. For the avoidance of doubt, the ROFR Working Interest referenced in this Section 3.4(b)(vi) refers only to MorMeg’s or any of its affiliates’ share of such ROFR Working Interest.

 

(vii)       Termination of Right of First Refusal.  The Right of First Refusal shall terminate as to any specific ROFR Working Interest immediately if the Company has not provided Mormeg with the Exercise Notice within ten (10) business days after the Company’s receipt of the Notice.

 

(h)         Assignment of Right of First Refusal.  The Right of First Refusal shall not be assignable by the Company without the express written consent of MorMeg.

 

(c)          MorMeg Working Interest and Carried Interests.  MorMeg shall retain a 10% working interest in Phase I and the Company shall pay for MorMeg’s 10% share of Capital Expenditures associated with Phase I (“Phase I Carried Interest”).  The Company’s obligation to pay MorMeg’s share of Capital Expenditures shall terminate upon the earlier of (A) cumulative Capital Expenditures associated with Phase I total $7.5 million, or (B) the Parties mutually agree to cease development of Phase I.  MorMeg shall pay its pro rata share (10%) of Capital Expenditures associated with Phase I at the time which the Company pays a total of $7.5 million in Capital Expenditures.  MorMeg shall pay its pro rata share (10%) of lease operating expenses in Phase I.

 

(d)          MorMeg Reversionary Interest.  For the purposes of this provision, the Company shall have four (4) years from the Phase I Closing to spend $7.5 million of Capital Expenditures associated with Phase I in accordance with Exhibit A attached hereto (the “Phase I Reversionary Interest Term”).

 

  

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(i)          MorMeg may earn a Reversionary Interest in Phase I at the end of the Phase I Reversionary Interest Term, if applicable.  The maximum amount (“Max Amount”) shall equal a 15% 8/8ths working interest.  The Max Amount shall be reduced by 0.2% 8/8ths for every $100,000 of Capital Expenditures (the “Phase I Reduction Amount”) the Company spends associated with Phase I during the Phase I Reversionary Interest Term.  The Reversionary Interest shall equal the Max Amount minus the Phase I Reduction Amount.  Per this equation, the Reversionary Interest shall equal 0.0% if the cumulative Capital Expenditures associated with Phase I is equal to or exceeds $7.5 million at the time of expiration of the Phase I Reversionary Interest Term.  No additional working interest will be assigned to MorMeg if the Reversionary Interest is equal to 0.0%.

 

(ii)         Solely for purposes of illustrating the foregoing by example, assume that $3 million of Capital Expenditures are incurred associated with Phase I during the Phase I Reversionary Interest Term.  At the expiration of the Phase I Reversionary Interest Term, the Reversionary Interest shall be calculated as follows: $3 million CAPEX/$100,000 = 30; 30 x 0.20% = 6.0% 8/8ths Phase I Reduction Amount.  The Reversionary Interest shall equal 9.0% in this example.  15.0% (Max Amount) minus 6.0% (Phase I Reduction Amount) = 9.0% Reversionary Interest assigned to MorMeg).

 

(e)          MorMeg After Payout ORRI Assignment.  The Parties agree that MorMeg shall be assigned a 5.0% (8/8ths) Overriding Royalty Interest (“ORRI”) in Phase I once the Company receives 100% return of (i) the amount of Phase I Capital Expenditures actually made by the Company, (ii) the $50,000 Option Payment, and (iii) the $450,000 cash payment pursuant to Section 3.2(b), above (“Phase I Payout”). Phase I Payout shall be defined as the point in time, following the expiration of the Phase I Reversionary Interest Term, that pre-tax cash flow net to the Company from Phase I totals the sum of the Capital Expenditures.  The Company shall calculate and make the required ORRI payment on a monthly basis commencing after expiration of the Phase I Reversionary Interest Term.

 

4.           PHASE II OF PROJECT

 

4.1         EnerJex Option to Purchase Phase II Leasehold.  The Company may exercise the Option to purchase the Working Interest in Phase II only if:

 

(a)          Phase I Option Exercised.  The Company shall have exercised the Option to purchase the Working Interest in Phase I pursuant to Section 3, above and shall have fully satisfied its obligations to purchase the Phase I Working Interest;

 

(b)          Phase I Capital Expenditures.  Either (i) the Company shall have satisfied the requirement for Capital Expenditures with respect to Phase I in accordance with Section 3.4(a), above, or (ii) the Company and MorMeg shall have agreed to cease further development of Phase I (the earlier to occur of (i) or (ii) shall represent the “Phase I Completion Date”); and

(c)          Exercise Notice. The Company delivers to MorMeg, within 30 days of the Phase I Completion Date, a written notice confirming its election to exercise the Option to purchase the Working Interest in Phase II.

(i)          Notwithstanding the foregoing, (A) the parties may mutually agree to extend the Option for the Working Interest in Phase II  at anytime; and (B) MorMeg shall agree to extend the term of the Option for the Working Interest in Phase II if, during the above-described 30-day period, the NYMEX 12-month strip prices for oil are less than $65 per barrel; provided, however, the extension period shall not exceed 180 days after the end of the above-described 30-day period.

 

  

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4.2         Purchase Price.  The purchase price for the Working Interest in Phase II shall be One Hundred Thousand Dollars ($100,000) (“Phase II Purchase Consideration”).

 

4.3         Phase II Closing.   The closing of the purchase and sale of the Working Interest in Phase II (the “Phase II Closing”) shall be held at the offices of the Company (or by delivery of closing documents and items by email, facsimile, or overnight courier, and delivery of closing funds by wire transfer) on a mutually acceptable date within three (3) business days following delivery of the Company’s exercise notice in accordance with Section 4.1(c), above.    At the Phase II Closing:

 

(a)          Company Deliveries.  The Company shall deliver:

 

(i)          The purchase price due under Section 4.2, above; and

 

(ii)         Such other documents and instruments as may be reasonably necessary to effectuate the Phase II Closing in accordance with this Agreement.

 

(b)          MorMeg Deliveries.  MorMeg shall deliver:

 

(i)          An Assignment of Oil and Gas Lease for the Working Interest conveying title to the Working Interest in Phase II, free and clear of all liens and encumbrances as reasonably requested by Enerjex or otherwise agreed by the parties in a separate writing; and

 

(ii)         Such other documents and instruments as may be reasonably necessary to effectuate the Phase II Closing in accordance with this Agreement.

 

4.4         Phase II Ownership Obligations.   Subject to the Company’s exercise of its Option to purchase the Working Interest in Phase II:

(a)          EnerJex Capital Expenditures.  The Company shall spend at least Three Million Dollars ($3,000,000) of “Capital Expenditures” (as defined in Section 4.4(a)(ii), below) associated with Phase II within three (3) years following the exercise of the Option to purchase the Working Interest in Phase II, all in accordance with Exhibit A attached hereto.

(i)          MorMeg shall earn a Reversionary Interest (defined in Section 4.4(e), below) in Phase II in the event the Company fails to satisfy the Capital Expenditures requirement contained in this Section 4.4(a).

(ii)         For purposes of Section 4, the term “Capital Expenditures” shall mean and include (i) all Capital Expenditures (as defined in Section 3.4(a)(ii), above).

 

(b)          EnerJex Right of First Refusal on Lease Purchases.  MorMeg hereby grants to the Company a right of first refusal to purchase 90% of any working interest in any oil and gas lease(s) which are located adjacent to Phase II that MorMeg or any of its affiliates hereafter acquires, such right of first refusal to be exercised in accordance with the provisions of Section 3.4(b) hereof.

 

(c)          MorMeg Working Interest and Carried Interests.  MorMeg shall retain a 10% working interest Phase II and the Company shall carry MorMeg’s 10% working interest (“Phase II Carried Interest”) on all Capital Expenditures on Phase II.  The Phase II Carried Interest shall terminate at the earlier of (A) cumulative Capital Expenditures on Phase II total $3.0 million, or (B) the Parties mutually agree to cease development of Phase II.  MorMeg shall pay its pro rata share (10%) of Capital Expenditures upon termination of the Phase II Carried Interest.  MorMeg shall pay its pro rata share (10%) of lease operating expenses in Phase II.

 

  

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(d)          MorMeg Reversionary Interest.  For the purposes of this provision, the Company shall have three (3) years from the execution date of its option to purchase the Phase II Working Interest to spend $3 million of Capital Expenditures associated with Phase II (the “Phase II Reversionary Interest Term”).

(i)          MorMeg shall earn a Reversionary Interest in Phase II at the end of the Phase II Reversionary Interest Term, if applicable.  The Max Amount shall equal a 15% 8/8ths working interest.  The Max Amount shall be reduced 0.5% 8/8ths for every $100,000 of Capital Expenditures (the “Phase II Reduction Amount”) the Company spends associated with Phase II during the Phase II Reversionary Interest Term.  The Reversionary Interest shall equal the Max Amount minus the Phase II Reduction Amount.  Per this equation, the Reversionary Interest shall equal 0.0% if the Company’s cumulative Capital Expenditures is equal to or exceeds $3 million at the time of expiration of the Phase II Reversionary Interest Term.  No additional working interest will be assigned to MorMeg if the Reversionary Interest is equal to 0.0%.

 

(ii)         Solely for purposes of illustrating the foregoing by example, assume that the Company invests $2 million of Capital Expenditures in the Project prior to the expiration of the Phase II Reversionary Interest Term.  At the expiration of the Phase II Reversionary Interest Term, the Reversionary Interest shall be calculated as follows: $2 million CAPEX/$100,000 = 20; 20 x 0.50% = 10.0% 8/8ths Phase II Reduction Amount.  The Reversionary Interest shall equal 5.0% in this example.  15.0% (Max Amount) minus 10.0% (Phase II Reduction Amount) = 5.0% Reversionary Interest assigned to MorMeg).  

 

(e)          MorMeg After Payout ORRI Assignment.  The Parties agree that MorMeg shall be assigned a 5.0% (8/8ths) Overriding Royalty Interest in Phase II once the Company receives 100% return of (i) the amount of Phase II Capital Expenditures actually made by the company, and (ii) the Phase II Purchase Consideration (“Phase II Payout”).  Phase II Payout shall be defined as the point in time, following the expiration of the Phase II Reversionary Interest Term, that pre-tax cash flow net to the Company from Phase II totals the sum of (i) cumulative Capital Expenditures spent on Phase II, plus (ii) the Phase II Purchase Consideration.  The Company shall calculate the outstanding payout balance on a monthly basis upon expiration of the Phase II Reversionary Interest Term.

5.           PHASE III OF PROJECT

 

5.1         EnerJex Option to Purchase Phase III Leasehold.  The Company may exercise the Option to purchase the Working Interest in Phase III only if:

 

(a)          Phase I and II Options Exercised.  The Company shall have exercised the Options to purchase the Working Interest in Phase I and Phase II pursuant to Sections 3 and 4, above;

 

(b)          Phase II Capital Expenditures.  Either (i) the Company shall have satisfied the requirement for Capital Expenditures with respect to Phase II in accordance with Section 4.4(a), above, or (ii) the Company and MorMeg shall have agreed to cease further development of Phase II (the earlier to occur of (i) or (ii) shall represent the “Phase II Completion Date”) ; and

(c)          Exercise Notice. The Company delivers to MorMeg, within 30 days of the Phase II Completion Date, a written notice confirming its election to exercise the Option to purchase the Working Interest in Phase III.

 

  

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(i)          Notwithstanding the foregoing, (A) the Parties may mutually agree to extend this option date at anytime; and (B) MorMeg shall agree to extend the term of the Option for the Working Interest in Phase III if, during the above-described 30-day period, the NYMEX 12-month strip prices for oil are less than $65 per barrel; provided, however, the extension period shall not exceed 180 days after the initial 30 day option period.

5.2         Purchase Price.  The purchase price for the Working Interest in Phase II shall be One Hundred Thousand Dollars ($100,000) (the “Phase III Purchase Consideration”).

 

5.3         Phase III Closing.   The closing of the purchase and sale of the Working Interest in Phase III (the “Phase III Closing”) shall be held at the offices of the Company (or by delivery of closing documents and items by email, facsimile, or overnight courier, and delivery of closing funds by wire transfer) on a mutually acceptable date within three (3) business days following delivery of the Company’s exercise notice in accordance with Section 4.1(c), above.  At the Phase III Closing:

 

(a)          Company Deliveries.  The Company shall deliver:

 

(i)          The purchase price due under Section 5.2, above; and

 

(ii)         Such other documents and instruments as may be reasonably necessary to effectuate the Phase III Closing in accordance with this Agreement.

 

(b)          MorMeg Deliveries.  MorMeg shall deliver:

 

(i)          An Assignment of Oil and Gas Lease for the Working Interest conveying title to the Working Interest in Phase III, free and clear of all liens and encumbrances as reasonably requested by Enerjex or otherwise agreed by the parties in a separate writing; and

 

(ii)         Such other documents and instruments as may be reasonably necessary to effectuate the Phase III Closing in accordance with this Agreement.

 

5.4         Ownership Obligations.  Subject to the Company’s exercise of its Option to purchase the Working Interest in Phase III:

(a)          EnerJex Capital Expenditures.  The Company shall spend at least Two Million Dollars ($2,000,000) of “Capital Expenditures” (as defined in Section 5.4(a)(ii), below) associated with Phase III within three (3) years following the exercise of the Option to purchase the Working Interest in Phase III, all in accordance with Exhibit A attached hereto.

(i)          MorMeg shall earn a Reversionary Interest (defined in Section 5.4(e), below) in Phase III in the event the Company fails to satisfy the Capital Expenditures requirement contained in this Section 5.4(a).

(ii)         For purposes of Section 5, the term “Capital Expenditures” shall mean and include all Capital Expenditures (as defined in Section 3.4(a)(ii), above).

 

(b)          EnerJex Right of First Refusal on Lease Purchases.  MorMeg hereby grants to the Company a right of first refusal to purchase 90% of any working interest in any oil and gas lease(s) which are located adjacent to Phase III that MorMeg or any of its affiliates hereafter acquires, such right of first refusal to be exercised in accordance with the provisions of Section 3.4(b) hereof.

 

  

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(c)          MorMeg Working Interest and Carried Interests.  MorMeg shall retain a 10% working interest in Phase III and the Company shall carry MorMeg’s 10% working interest (“Phase II Carried Interest”) on all Capital Expenditures on Phase III.  The Phase III Carried Interest shall terminate at the earlier of (A) cumulative Capital Expenditures on Phase III totals $2.0 million, or (B) the Parties mutually agree to cease development of Phase III.  MorMeg shall pay its pro rata share (10%) of Capital Expenditures upon termination of the Phase III Carried Interest.  MorMeg shall pay its pro rata share (10%) of lease operating expenses in Phase III.

(d)          MorMeg Reversionary Interest.  For the purposes of this provision, the Company shall have three (3) years from the execution date of its option to purchase Phase III to spend $2 million of Capital Expenditures associated with Phase III (the “Phase III Reversionary Interest Term”).

(i)          MorMeg shall earn a Reversionary Interest in Phase III at the end of the Phase III Reversionary Interest Term, if applicable.  The Max Amount shall equal a 15% 8/8ths working interest.  The Max Amount shall be reduced 0.75% 8/8ths for every $100,000 of Capital Expenditures (the “Phase III Reduction Amount”) the Company spends associated with Phase III during the Phase III Reversionary Interest Term.  The Reversionary Interest shall equal the Max Amount minus the Phase III Reduction Amount.  Per this equation, the Reversionary Interest shall equal 0.0% if the Company’s cumulative Capital Expenditures is equal to or exceeds $2 million at the time of expiration of the Phase III Reversionary Interest Term.  No additional working interest will be assigned to MorMeg if the Reversionary Interest is equal to 0.0%.

(ii)         Solely for purposes of illustrating the foregoing by example, assume that the Company invests $1 million of Capital Expenditures in the Project prior to the expiration of the Phase III Reversionary Interest Term.  At the expiration of the Phase III Reversionary Interest Term, the Reversionary Interest shall be calculated as follows: $1 million CAPEX/$100,000 = 10; 10 x 0.75% = 7.5% 8/8ths Phase III Reduction Amount.  The Reversionary Interest shall equal 7.5% in this example.  15.0% (Max Amount) minus 7.5% (Phase III Reduction Amount) = 7.5% Reversionary Interest assigned to MorMeg).  

(e)          MorMeg After Payout ORRI Assignment.  The Parties agree that MorMeg shall be assigned a 5.0% (8/8ths) Overriding Royalty Interest in Phase III once the Company receives a 100% return of (i) the amount of Phase III Capital Expenditures actually made by the Company, and (ii) the Phase III Purchase Consideration (“Phase III Payout”).  Phase III Payout shall be defined as the point in time, following the expiration of the Phase III Reversionary Interest Term, that pre-tax cash flow net to the Company from Phase III totals the sum of (i) cumulative Capital Expenditures spent on Phase III, plus (ii) the Phase III Purchase Consideration.  The Company shall calculate the outstanding payout balance on a monthly basis upon expiration of the Phase III Reversionary Interest Term.

 

6.           Mormeg’s Option to Re-Acquire Working Interests.

 

(a)          Grant of Option.  In the event of a “Termination Event” (as hereinafter defined), the Company hereby grants to MorMeg the option (the “Repurchase Option”) to purchase, in whole but not in part, any and all working interests acquired by the Company hereunder in each of Phase I, Phase II and Phase II of the Project (such working interests herein referred to as the “Repurchased Working Interest”).  “Termination Event” shall be deemed to occur in any of the following instances:  (i) the breach or default by the Company of any of its obligations under this Agreement or the Joint Operating Agreement, so long as MorMeg has notified the Company of any such breach and provided the company with a period of thirty (30) days to cure or remedy such breach; (ii) the termination without good cause of Haas as the operator under the Joint Operating Agreement; (iii) the failure by the Company to meet the specified Capital Expenditures for each phase (for the avoidance of doubt, the specified Capital Expenditures are $7.5 million for Phase I, $3 million for Phase II, and $2 million for Phase III), or (iv) if the Company elects or fails to exercise any or all of the options granted hereunder by MorMeg.

 

  

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(b)          Exercise of Option.  MorMeg may exercise the Repurchase Option by delivering to the Company on or before 5:00 p.m. CST on the 90th day following the Termination Event (the “Repurchase Option Expiration Date”), a written notice confirming MorMeg’s election to exercise the Repurchase Option to purchase the Repurchased Working Interest.  If that exercise notice is timely delivered by MorMeg on or before the Repurchase Option Expiration Date, then the Company thereupon shall be obligated to convey the Repurchased Working Interest to MorMeg, and MorMeg thereupon shall be obligated to purchase the Repurchased Working Interest.   If that exercise notice is not timely delivered to the Company on or before the Repurchase Option Expiration Date, then as of 12:01 a.m., Central Time on the day immediately subsequent to the Repurchase Option Expiration Date, the Option shall expire and MorMeg shall forfeit all further right to the Repurchase Option, which shall remain and be the sole and absolute property of the Company.

 

(c)          Purchase Price.  The purchase price for the Repurchased Working Interest shall be the fair market value of the Repurchased Working Interest which shall be determined by a qualified appraiser agreed to by the Company and MorMeg.  In the event that the Company and MorMeg cannot agree on the appointment of a qualified appraiser, then each of them shall appoint a qualified appraiser who in turn shall appoint the qualified appraiser who shall make the determination of the fair market value of the Repurchased Working Interest in good faith consistent with arms-length transactions occurring in the industry at that time.  The purchase price for the Repurchased Working Interest shall be paid in cash at the time of closing.  At the closing, the Company shall deliver an Assignment of Oil and Gas Lease for the Repurchased Working Interest conveying title to the Repurchased Working Interest free and clear of all liens and encumbrances, together with such other documents and instruments as may be reasonably necessary or required by MorMeg to effectuate the closing of the acquisition of the Repurchased Working Interest by MorMeg hereunder.

 

7.           Investment Representations.  In consideration of the agreement of the Company to issue 100,000 Shares of its common stock as further described in Section 3.2(a), above, each entity comprising “MorMeg” hereunder (each, a “Purchaser”) represents and warrants to the Company that:

 

7.1        Authorization.  Such Purchaser has full limited liability company power and authority to enter into this Agreement and all limited liability company action on the part of such Purchaser, its officers, directors, managers or partners necessary for the purchase of the Shares has been taken, and this Agreement constitutes the legally binding and valid obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (iii) to the extent that the indemnification provisions contained in the Rights Agreements may be limited by applicable federal or state securities laws.

 

7.2         Brokers and Finders. Such Purchaser has not retained any investment banker, broker or finder in connection with the transactions contemplated by this Agreement.

 

  

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7.3         Purchase Entirely for Own Account. This Agreement is made with such Purchaser in reliance upon such Purchaser’s representation to the Company, which by such Purchaser’s execution of this Agreement such Purchaser hereby confirms, that the Shares to be received by such Purchaser will be acquired for investment for such Purchaser’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same.  By executing this Agreement, such Purchaser further represents that it has no contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participation to such Person or to any third Person, with respect to any of the Shares.

 

7.4         Restricted Securities. Such Purchaser understands and acknowledges that the offering of the Shares pursuant to this Agreement will not be registered under the Securities Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration pursuant to Section 4(2) of the Securities Act, and that the Company’s reliance upon such exemption is predicated, in part, upon such Purchaser’s representations set forth in this Agreement.

 

7.5         Limitations on Disposition.  In no event will such Purchaser dispose of any of its Units (other than pursuant to an effective registration statement under the Act or pursuant to Rule 144 promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act (“Rule 144”) or any similar or analogous rule), unless and until (i) such Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel satisfactory in form and substance to the Company and the Company’s counsel to the effect that (x) such disposition will not require registration under the Securities Act and (y) appropriate action necessary for compliance with the Securities Act and any applicable state, local or foreign law has been taken.

 

7.6         Investment Experience and Disclosure of Information. Such Purchaser (i) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Shares; and (ii) is able to bear the economic risk of its investment and to hold the Shares for an indefinite period of time.

 

7.7         Accredited Investor. Purchaser is an “accredited investor,” as such term is defined for purposes of Regulation D promulgated by the United States Securities and Exchange Commission.

 

8.           Confidential Information and Indemnification.

 

8.1         Third-Party Confidential Information.  Each of the Parties hereto acknowledges that neither of the Parties hereto desires to obtain improperly any proprietary or confidential information owned by any company or other person with whom either of them now has or heretofore has had a consulting engagement or employment relationship, and therefore agrees that (a) Neither party shall bring to the other or share with any employee or other representative of the other party any written, electronic, or other materials containing any confidential information belonging to any such current or former employer or other person, and (b) Neither party shall provide any such information in any other form to the other (or any representative of the other party) in violation of any agreements or any other obligations that either party may owe to any other persons.

 

8.2         Company Confidential Information.   Each of the Parties hereto (the “Releasing Party”)  covenants and agrees that except with the prior express written consent of the other party hereto (the “Disclosing Party”), the Releasing Party (a) shall keep secret and confidential, and shall hold in strictest confidence and trust, all confidential and proprietary information of the Disclosing Party disclosed to or otherwise acquired by the Releasing Party, and (b) shall not, either directly or indirectly, (i) disclose such confidential and proprietary information to any third party, or (ii) use (or permit any other person to use) any such confidential and proprietary information for any purpose other than evaluating whether to enter into a business relationship with the Disclosing Party. It is hereby acknowledged that the Company is publicly traded, and should this Agreement be executed by the Company and MorMeg, the Company is permitted to publicly disclose information related to the Agreement and the Project at its discretion.

 

  

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9.           MISCELLANEOUS

 

9.1         Notices.  All notices permitted or required by this Agreement shall be in writing, and shall be deemed to have been delivered and received (a) when personally delivered, (b) on the third (3rd) business day after the date on which deposited in the United States mail, postage prepaid, certified or registered mail, return receipt requested, (c) on the date on which transmitted by facsimile, email, or other electronic means producing a tangible receipt evidencing a successful transmission , or (d) on the next business day after the day on which deposited with a regulated public carrier (e.g., Federal Express), freight prepaid, addressed to the party for whom intended at the address, facsimile number, or email address set forth on the signature page of this Agreement, or such other address, facsimile number, or email address, notice of which has been delivered in a manner permitted by this Section 8.1.  For the avoidance of doubt, the Parties acknowledge that the Joint Operating Agreement specifically defines operational notice requirements for notices permitted or required to be delivered thereunder, and agree that all such notices permitted or required to be delivered under that Joint Operating Agreement shall be governed by the terms of that Joint Operating Agreement and not by this Section 8.1.

 

9.2         Further Assurances. Each party agrees, upon the request of the other party, to make, execute, and deliver such additional documents, and to take such additional actions, as may be reasonably necessary to effectuate the purposes of this Agreement.  Without limiting the generality of the foregoing, the Company agrees to deliver and make available to MorMeg all information, documents and materials requested by MorMeg which are reasonably necessary or appropriate to establish compliance with the Company’s payment obligations hereunder and to otherwise support the Company’s calculations required under this Agreement.

 

9.3         Severability.  If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity, or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired thereby, and the remainder of the provisions of this Agreement will remain in full force and effect.

 

9.4         Assignment.  Neither party may assign this Agreement or any rights hereunder, whether by operation of law or otherwise, without the prior written consent of the other party, except that the Company may assign this Agreement, with prior notice but without MorMeg’s written consent, to a party with whom the Company or EnerJex merges or consolidates or to whom the Company or EnerJex sells substantially all or substantially all of its assets relating to this Agreement, so long as such assignee agrees to be bound by all provisions of this Agreement applicable to the Company, and has the financial capacity to satisfy the Company’s obligations hereunder.  Any attempted or purported assignment or delegation by either Party in violation of this Section 5.4 will be null and void.

 

9.5         Force Majeure.  Any delay in or failure of performance by either Party under this Agreement (other than failure to pay amounts owed) will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such Party, including but not limited to fires, floods, epidemics, famines, earthquakes, hurricanes and other natural disasters or acts of God; regulation or acts of any civilian or military authority or act of any self-regulatory authority; wars, terrorism, riots, civil unrest, sabotage, or theft or other criminal acts of third Parties; failure of electronic or mechanical equipment; and fluctuations in or failures of electric power, heat, light, telecommunications and shortages of relied-upon services or supplies.

 

  

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9.6         Waiver and Modifications.  All waivers must be in writing.  Any waiver of or failure to enforce a provision of this Agreement on one occasion will not be deemed a waiver of any other provision or such provision on any other occasion.

 

9.7         Attorneys’ Fees.  If any action is commenced to construe this Agreement or to enforce any of the rights and duties created herein, then the party prevailing in that action shall be entitled to recover its costs and reasonable attorneys’ fees in that action, as well as all costs and fees of enforcing any judgment entered therein.

 

9.8         Governing Law.  This Agreement shall be governed by and construed in accordance with applicable provisions of Kansas law (other than its conflict-of-law principles), and each party hereby consents to the jurisdiction of the courts of the State of Kansas for purposes of all actions commenced to construe or enforce this Agreement.

 

9.9         Arbitration.  Unless the relief sought requires the exercise of the equity powers of a court of competent jurisdiction, any dispute arising in connection with the interpretation or enforcement of the provisions of this Agreement, or the application or validity thereof, shall be submitted to arbitration by one (1) arbitrator with at least 10 years’ experience with oil and gas business transactions.  Such arbitration proceedings shall be held in Overland Park, Kansas, in accordance with the rules then obtaining of the American Arbitration Association.  This agreement to arbitrate shall be specifically enforceable.  Any award rendered in any such arbitration proceedings shall be final and binding on each of the Parties hereto, and judgment may be entered thereon in any court of competent jurisdiction.  The arbitrator shall have discretion to award the costs and fees of the arbitration in such manner as the arbitrator determines to be appropriate.

 

9.10       Complete Agreement; Amendments. This Agreement and the Joint Operating Agreement (a) contain the entire agreement and understanding between the Parties regarding the subject matter hereof, and supersedes and replace all prior and contemporaneous agreements and understandings, whether oral or written, concerning Operator’s engagement by the Company to provide the Services described herein, and (b) shall not be modified or amended, except by a written instrument executed after the Effective Date hereof by the party sought to be charged with such amendment or modification.

 

9.11       Counterparts; Electronic Signatures. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which, taken together, shall be one and the same instrument, binding on each signatory.  A copy of this Agreement that is executed by a party and transmitted by that party to the other party by facsimile or email shall be binding on the signatory to the same extent as a copy hereof containing the signatory’s original signature.

 

In Witness Whereof, the Parties hereto have executed this Agreement, effective as of the date set forth above.

	
“Company:”

	  	
“MorMeg:”

	  	  	  
	
EnerJex Resources, Inc., a Nevada corporation

	  	
MorMeg, LLC, a Kansas limited liability company

	  	  	  
	
By

	  	  	
By

	  
	  	
Name & title:

	  	  	
Name & title:

	  	  	  
	  	  	  
	
Date

	  	
Date

 

  

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Address and Facsimile No. for Notices:

	  	
Address and Facsimile No. for Notices:

	  	  	  
	
EnerJex Resources, Inc.

	  	
MorMeg, LLC

	
c/o Black Sable Energy, LLC

	  	
Attn: Mark Haas, Managing Member

	
123 Evans Avenue

	  	
800 West 47th Street, Suite 716

	
San Antonio, Texas 78209

	  	
Kansas City, Missouri 64112

	  	  	  
	
Facsimile No.:  (210) ___________________

	  	
Facsimile No.:  (816) 753-0140

	
Email:  robert.watson@blacksableenergy.com

	  	
Email:  mark@haaspetroleum.com

	  	  	  
	  	  	
With Copies to:

	  	  	  
	  	  	
Vincent Fontg & Hansen LLC

	  	  	
Attn:   Ricardo E. Fontg, Esq.

	  	  	
330 West 47th Street, Suite 250

	  	  	
Kansas City, Missouri 64112

	  	  	  
	  	  	
Facsimile No.: (816) 421-5480

	  	  	
Email: rfontg@vfhllc.com

 

  

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EXHIBIT A

SCHEDULE OF COMMITMENTS TO MAKE CAPITAL EXPENDITURES

The Company agrees to spend a minimum of $1,000,000 in Capital Expenditures (whether under Section 3, 4 or 5 under this Agreement) during each twelve (12) month period following the Phase I Closing (the “Minimum Investment Requirement”) until either (i) the specified Capital Expenditures are met for each phase (for the avoidance of doubt, the specified Capital Expenditures are $7.5 million for Phase I, $3 million for Phase II, and $2 million for Phase III), or (ii) the Parties have mutually agreed to cease development of any and every phase in which the specified Capital Expenditures have not  been met.  If at any time the Company is not in compliance with the Minimum Investment Requirement, then in addition to any other rights or remedies afforded in the Agreement, the allotted time period to fulfill the specified Capital Expenditures for that particular phase will immediately cease and MorMeg will immediately be assigned the Reversionary Interest associated with that particular phase.

Notwithstanding the foregoing annual commitments by the Company, (A) the Parties may mutually agree to extend the timing for making the specified Capital Expenditures hereunder at anytime by mutual written agreement; and (B) MorMeg shall agree to extend the timing of making the specified Capital Expenditures hereunder if the NYMEX 12-month strip prices for oil are less than $65 per barrel; provided, however, the extension period shall not exceed one year in such event.

 

  

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EXHIBIT B

DEFINITION OF CAPITAL EXPENDITURES

The term “Capital Expenditures” shall only include the following items:

	
  

	
1.

	
Drilling Operations

 

All costs associated with services and equipment required to drill new wellbores (either injector wellbores or producer wellbores).  Such costs shall include all drilling rig costs, fuel, cement services, bits, drilling mud, drill site preparation, rig mobilization, surface casing, well logs or other well evaluation services, surface damages paid to surface owners, and any other costs incurred as a direct result of drilling a well to completion depth and evaluating the well as a producer / injector.

 

	
  

	
2.

	
Completion Operations

 

All costs associated with services and equipment required to complete new wellbores as either an injector wellbore or a producer wellbore.  Such costs shall include completion rig costs, swabbing services, fuel, cement services, drill site location work, casing pipe, tubing pipe, pump rods, downhole pumps, pumpjacks, wellhead equipment, acidizing, artificial stimulation services, production testing, and any other costs incurred as a direct result of completing an injector wellbore or producing wellbore as an active well.

	
  

	
3.

	
Leasehold and Infrastructure Expenses

 

All costs associated with developing the leasehold with the goal of producing oil and/or gas.  Such costs shall include roustabout services, laying injection lines, laying production lines, the cost of line pipe and all associated connection equipment, road construction, fence maintenance, surface improvements, and any other costs incurred as a direct result of constructing infrastructure that will be used to produce oil and/or gas from the leased premises.

	
  

	
4.

	
Equipment, Tank Battery, Injection Facilities

 

All costs associated with the construction of surface facilities.  Such costs shall include tank battery construction, the cost of all surface equipment, gun barrels, oil storage tanks, water storage tanks, all line pipe and connection equipment required to “plumb” in the tank battery facilities, and all miscellaneous equipment and services associated with tank battery construction.  Such costs shall also include all costs incurred with the construction of water injection facilities, including water disposal wells, water supply wells, injection line pipe, water shed materials and construction, injection volume gauges, pressure gauges, and all miscellaneous equipment associated with injection facility construction.

 

  

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