Document:

exhibit10-1.htm

EXHIBIT 10.1

 

THE LIMITED LIABILITY COMPANY INTERESTS EVIDENCED BY THIS DOCUMENT ARE SUBJECT TO RESTRICTIONS ON ASSIGNMENT AND TRANSFER SET FORTH HEREIN.  THE INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNTIL REGISTERED OR UNTIL THE BOARD OF MANAGERS HAS RECEIVED AN OPINION OF LEGAL COUNSEL, OR OTHER ASSURANCES SATISFACTORY TO THE BOARD, THAT AN INTEREST MAY LEGALLY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION, ALL AS PROVIDED IN THIS DOCUMENT.

 

AMENDED AND RESTATED

 

OPERATING AGREEMENT

 

OF

 

MAGNETATION LLC

 

Dated as of October 4, 2011

 

 

 

  

  

  

	
TABLE OF CONTENTS

	  	  	
Page

	
ARTICLE 1.

	
ORGANIZATIONAL MATTERS

	
1 

	
1.1

	
Formation of the Company; Term

	
1

	
1.2

	
Name

	
2

	
1.3

	
Purpose of the Company

	
2

	
1.4

	
Powers of the Company

	
3

	
1.5

	
Principal Place of Business

	
3

	
1.6

	
Supersedes Prior Agreements

	
3

	
1.7

	
Exclusivity

	
3

	  	  	  
	
ARTICLE 2.

	
INITIAL CAPITAL CONTRIBUTIONS AND MEMBERSHIP UNITS

	
4

	
2.1

	
Capital Contributions

	
4

	
2.2

	
Membership Units

	
6

	
2.3

	
Failure to Make Article 2 Capital Contributions

	
6

	  	  	  
	
ARTICLE 3.

	
ADDITIONAL CAPITAL CONTRIBUTIONS

	
7

	
3.1

	
Additional Capital Contributions

	
7

	  	  	  
	
ARTICLE 4.

	
CAPITAL ACCOUNTS AND ALLOCATIONS

	
10

	
4.1

	
Capital Accounts

	
10

	
4.2

	
Allocations of Book Income and Loss

	
10

	
4.3

	
Tax Allocations

	
10

	
4.4

	
Membership Units

	
10

	
4.5

	
No Interest

	
10

	
4.6

	
No Withdrawal

	
10

	  	  	  
	
ARTICLE 5.

	
DISTRIBUTIONS

	
10

	
5.1

	
Tax Distributions

	
10

	
5.2

	
Quarterly Distributions

	
11

	
5.3

	
Limitations on Distributions

	
11

	
5.4

	
Limitation on Payment of Distributions

	
11

	
5.5

	
Other Distributions

	
12

	  	  	  
	
ARTICLE 6.

	
MANAGEMENT AND GOVERNANCE

	
12

	
6.1

	
Board of Managers

	
12

 

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TABLE OF CONTENTS

(continued)

	  	  	
Page

	
6.2

	
Authority of the Board of Managers

	
13

	
6.3

	
Actions by the Board of Managers

	
14

	
6.4

	
Meetings of the Board of Managers

	
18

	
6.5

	
Officers of the Company

	
19

	
6.6

	
Duties of the Officers

	
19

	
6.7

	
Project Teams

	
20

	
6.8

	
Insurance

	
21

	  	  	  
	
ARTICLE 7.

	
POWERS AND DUTIES OF AND LIMITATIONS ON THE MEMBERS

	
21

	
7.1

	
No Participation in Management

	
21

	
7.2

	
Rights of the Members

	
21

	
7.3

	
Limited Liability of the Members

	
21

	
7.4

	
Voting Rights of Members

	
21

	
7.5

	
Exercise of Rights over Affiliate Agreements; Indemnification

	
21

	
7.6

	
Conflict of Interest

	
22

	
7.7

	
Fiduciary Duties

	
22

	
7.8

	
Indemnification by the Members

	
22

	  	  	  
	
ARTICLE 8.

	
TRANSFERS OF INTEREST; CHANGE OF CONTROL; OFFER TO PURCHASE OR SELL

	
23

	
8.1

	
General Restriction

	
23

	
8.2

	
Involuntary Transfers

	
23

	
8.3

	
Certain Permitted Transfers

	
23

	
8.4

	
Requirements for Transfer

	
24

	
8.5

	
Bona Fide Offer

	
24

	
8.6

	
Closing of the Bona Fide Offer

	
25

	  	  	  
	
ARTICLE 9.

	
TERMINATION EVENTS, DISSOLUTION OF THE COMPANY AND DISTRIBUTIONS UPON TERMINATION OR DISSOLUTION

	
26

	
9.1

	
Dissolution

	
26

	
9.2

	
Consequences of Dissolution

	
27

  

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TABLE OF CONTENTS

(continued)

	  	  	
Page

	
9.3

	
Termination Events

	
27

	
9.4

	
Consequences of Termination Event

	
27

	
9.5

	
Winding-up and Liquidation of the Company

	
28

	
9.6

	
Time for Winding-Up

	
29

	
9.7

	
Final Accounting

	
29

	  	  	  
	
ARTICLE 10.

	
AMENDMENT OF AGREEMENT

	
29

	
10.1

	
Amendments to This Agreement

	
29

	  	  	  
	
ARTICLE 11.

	
MEMBER REPRESENTATIONS AND WARRANTIES

	
29

	
11.1

	
Organization and Authority

	
30

	
11.2

	
Enforceability

	
30

	
11.3

	
Consents

	
30

	
11.4

	
No Conflicts

	
30

	
11.5

	
Litigation

	
30

	
11.6

	
Member Interest Not Subject to Lien or Security Interest

	
31

	
11.7

	
Investment Experience

	
31

	  	  	  
	
ARTICLE 12.

	
MAGNETATION REPRESENTATIONS AND WARRANTIES

	
31

	
12.1

	
Sufficiency of Assets; Authorization

	
31

	
12.2

	
Financial Statements

	
31

	
12.3

	
No Undisclosed Liabilities

	
32

	
12.4

	
Compliance with Laws; Permits. As of the Effective Date and as of the dates Magnetation makes its Plant 1 Capital Contributions and contributes Plant 1:

	
32

	
12.5

	
Environmental Matters

	
32

	
12.6

	
Insurance

	
33

	
12.7

	
Majority Ownership of Magnetation

	
33

	
12.8

	
Full Disclosure

	
33

	  	  	  
	
ARTICLE 13.

	
COVENANTS

	
33

	
13.1

	
Further Assurances

	
33

	  	  	  
	
ARTICLE 14.

	
CLOSING CONDITIONS

	
34

 

  

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TABLE OF CONTENTS

(continued)

	  	  	
Page

	
14.1

	
Conditions Precedent to Obligations of AKS

	
34

	
14.2

	
Conditions Precedent to Obligations of Magnetation

	
34

	  	  	  
	
ARTICLE 15.

	
DEFAULTS AND REMEDIES

	
35

	
15.1

	
Events of Default

	
35

	
15.2

	
Notice and Rights upon Default

	
35

	  	  	  
	
ARTICLE 16.

	
CONFIDENTIALITY

	
35

	
16.1

	
Confidentiality — Company Information

	
35

	
16.2

	
Definitions – Company Information and Other

	
36

	
16.3

	
Certain Exceptions

	
36

	
16.4

	
Permitted Disclosure to Advisors

	
37

	
16.5

	
Continuing Protection Under Law

	
37

	
16.6

	
Attorney-Client Privilege

	
37

	  	  	  
	
ARTICLE 17.

	
REPORTING AND ACCOUNTING PROVISIONS

	
38

	
17.1

	
Books and Records

	
38

	
17.2

	
Other Accounting and Tax Provisions

	
38

	
17.3

	
Distribution of Annual Operating and Capital Budgets, Financial Statements and Tax Information

	
38

	
17.4

	
Right of Inspection

	
39

	  	  	  
	
ARTICLE 18.

	
MISCELLANEOUS PROVISIONS

	
40

	
18.1

	
Notices

	
40

	
18.2

	
Indemnification of AKS

	
40

	
18.3

	
Tax Matters Partner; Notice of Tax Examinations

	
41

	
18.4

	
Entire Agreement

	
41

	
18.5

	
Governing Law

	
41

	
18.6

	
Settlement of Disputes

	
41

	
18.7

	
Binding Nature

	
42

	
18.8

	
Invalidity

	
42

	
18.9

	
Counterparts

	
43

	
18.10

	
Construction

	
43

	
18.11

	
No Third-Party Beneficiaries

	
43

	  	  	  

  

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TABLE OF CONTENTS

(continued)

	  	  	
Page

	
18.12

	
Press Releases

	
43

	  	  	  
	
ARTICLE 19.

	
DEFINITIONS

	
43

	  	  	  
	
APPENDIX A

	
MAGNETATION LLC TAX MATTERS

	
1

  

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APPENDICES

 

	  	  	  
	
Appendix A

	
Tax Matters

 

	  
	  	  	  

 

	
SCHEDULES

	
Schedule 2.1(a)

	
Initial Capital Contributions

	  
	
Schedule 2.2

	
Membership Units

	  
	
Schedule 5.4

	
Magnetation Capital Reserve Account

	  
	
Schedule 9.4

	
Procedure for Purchasing the Other Member’s Interest

	  

 

  

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AMENDED AND RESTATED

OPERATING AGREEMENT

OF MAGNETATION LLC

 

This Amended and Restated Operating Agreement (“Agreement”) is made and entered effective as of the 4th day of  October, 2011 (the “Effective Date”), by and among Magnetation LLC, a Delaware limited liability company (“Company”), Magnetation, Inc., a Minnesota corporation (“Magnetation”) and AK Iron Resources, LLC, a Delaware limited liability company (“AKS”) (Magnetation and AKS may individually be referred to as a “Member” and collectively as the “Members”).

 

RECITALS

 

WHEREAS, Magnetation is a producer of iron ore concentrate and has developed a patented mineral reclamation process to extract iron oxide particles from hematite materials contained within impoundment basins;

WHEREAS, AKS’ affiliates are fully-integrated producers of flat-rolled carbon, stainless and electrical steels and tubular products primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets;

WHEREAS, Magnetation and AKS desire to enter into a joint venture (the “Joint Venture”) for the purpose of owning and operating an existing iron oxide production plant and developing, constructing, owning and operating additional iron oxide production plants as well as an iron conversion facility capable of producing iron ore flux pellets useable in AKS’ affiliates’ operations;

WHEREAS, the Company has been formed under the Delaware Limited Liability Company Act (the “Act”);

WHEREAS, AKS and Magnetation desire to enter into this Agreement to set forth certain agreements relating to the funding, ownership, management and operation of the Company; and

 

 

WHEREAS, certain capitalized terms are used in this Agreement as defined in Article 19 or other provisions of this Agreement set forth below.

 

 

NOW, THEREFORE, in mutual consideration of the promises contained in this Agreement, and subject to the terms and conditions hereof, the Company and the Members agree as follows:

 

ARTICLE 1.

ORGANIZATIONAL MATTERS

 

1.1 Formation of the Company; Term.

 

(a) The Company was organized as a Delaware limited liability company by filing a Certificate of Formation with the Secretary of State of the State of Delaware on May 26, 

 

  

  

  

 

2010 pursuant to Section 18-201 of the Act.  Unless dissolved pursuant to Article 9, the duration of the Company is perpetual.

 

(b) Subject to Section 6.3(b)(11), the Company shall file and record any amendments or restatements to the Certificate of Formation of the Company as are required by the Act to reflect the terms and conditions of this Agreement.  The Company shall be qualified in any jurisdiction in which the Company conducts business where such qualification is required.  The Company shall also file all other documents as may be required or appropriate under the Laws of the State of Delaware and of any other jurisdiction in which the Company may conduct business.  The Company shall, on request, provide any Member with copies of each such document as filed and recorded.

 

(c) Each Officer of the Company appointed by the Board pursuant to Section 6.5 is hereby designated as an “authorized person,” within the meaning of Section 18-201 of the Act, to execute, deliver and file, or cause the execution, delivery and filing of, all certificates, notices or other instruments (and any amendments or restatements thereof) required or permitted by the Act to be filed in the office of the Secretary of State of the State of Delaware in connection with the formation of the Company and any other certificate, notice or other instrument (and any amendment or restatement thereof) that is necessary for the Company to do business in a jurisdiction in which the Company may wish to conduct business and where such qualification is required.

 

(d) The Members shall have the rights and liabilities as provided in the Act, except as is otherwise expressly provided herein.  As of the Effective Date, Magnetation shall continue as a Member of the Company and AKS is admitted as a Member of the Company.

 

(e) This Agreement constitutes the limited liability company agreement (as defined in the Act) of the Company.

 

1.2 Name.  The name of the Company is:  Magnetation LLC.

 

1.3 Purpose of the Company.  The purposes for which the Company is organized are to:

 

(a) design, develop, construct, own and operate (1) facilities (each individually, a “Plant”) to produce iron oxide concentrate from iron-bearing hematite materials contained within impoundment basins and other iron-bearing materials (“Basins”), including, without limitation, by utilizing Intellectual Property and Technology licensed by Magnetation to the Company pursuant to the Technology License Agreement (collectively, the “Licensed Technology”) and (2) a facility to produce iron ore flux pellets, each such activity as described in more detail below;

 

(b) own and operate the existing Plant currently owned and operated by Magnetation located south of Keewatin, Minnesota (“Plant 1”) and to complete construction of and own and operate an additional Plant located in between the Holman and East Trout Lake Basins south of Taconite, Minnesota (“Plant 2”) (collectively, “Phase I”);

 

  

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(c) identify, secure rights to, design, develop, construct, own and operate (1) no less than two (2) additional Plants (“Plant 4” and “Plant 5”), and (2) one (1) pellet plant (“Pellet Plant”) capable of producing approximately three million tons of iron ore flux pellets annually, or such other conversion plant as the Members may agree upon (collectively, “Phase II”); and

 

(d) engage in all lawful activities and to enter into, exercise the rights to enjoy the benefits under, and discharge the obligations of the Joint Venture pursuant to, all contracts, agreements and other instruments which the Company shall determine (pursuant to such approvals, if any, required of the Board of Managers or of the Members contemplated by this Agreement or required by the Act) to be necessary or suitable for or incidental to the accomplishment and conduct of the foregoing purposes set forth in clauses (a), (b), and (c) above (collectively the “Business”).

 

1.4 Powers of the Company.  The Company shall possess and may exercise all the powers and privileges granted by the Act, by any other applicable Law, and by this Agreement, together with any powers incidental thereto, including such powers and privileges as may be necessary or suitable for or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company.

 

1.5 Principal Place of Business.  The principal place of business and mailing address of the Company is Red Rock Business Center, 832 First Street, Suite 130, Nashwauk, Minnesota 55769, or at such other location as may be specified from time to time by the Board of Managers.  The Company also may establish additional places of business or offices for maintenance of records as the Board of Managers determines are necessary or appropriate.

 

1.6 Supersedes Prior Agreements.  This Agreement supersedes and replaces all prior versions of any operating agreement or limited liability company agreement for the Company.

 

1.7 Exclusivity.  Other than (a) a certain Technology  License Agreement dated August 19, 2011 (“MR License”), existing as of the Effective Date between Magnetation and Mining Resources, LLC and (b) any license or licenses that Magnetation may elect to provide to or in connection with joint ventures with Cargill, Inc. (“Cargill Licenses”), consistent with a certain Letter of Intent between Magnetation and Cargill, Inc., dated December 9, 2010, a true and correct copy of which has been provided to AKS, Magnetation agrees that, as further set forth in and subject to the terms and conditions of the Technology License Agreement, it will not use the Licensed Technology in the United States or license or grant any rights under or to the Licensed Technology to any other Person for such use in the United States for the production of iron ore concentrate for a period that shall commence on the Effective Date and terminate on the earliest of (w) an Uncured AKS Contribution Default, (x) the Phase II Abandonment Date, (y) the Phase II Completion Date, or (z) the tenth (10th) anniversary of the Effective Date. Magnetation further agrees not to amend or otherwise modify the MR License in any manner, through amendment, waiver, modification, or otherwise, if such amendment would adversely and materially impact the Company, without prior written consent from AKS, which consent may be withheld, conditioned or delayed by AKS in its sole discretion, provided that, for purposes of clarity, the foregoing restriction does not apply to any extensions or renewals of the MR License or any of the Cargill Licenses in accordance with their terms. The Parties acknowledge that the 

 

  

3

  

 

aforementioned exclusivity restriction shall not limit Magnetation and AKS from mutually agreeing, each in their sole discretion, to collaborate on projects, whether within the Company or to be governed by other future binding agreements, which could include, inter alia, granting a license to the Licensed Technology to other Persons.

 

ARTICLE 2.

INITIAL CAPITAL CONTRIBUTIONS AND MEMBERSHIP UNITS

 

2.1 Capital Contributions.

 

(a) Magnetation has previously made the Capital Contributions described on Schedule 2.1(a) and on the AKS Initial Funding Date will make the Capital Contributions described on Schedule 2.1(a) relating to Plant 1 (“Plant 1 Capital Contributions”) pursuant to the JV Formation Agreement.  On or prior to January 3, 2012, Magnetation will take all necessary actions to make a Capital Contribution of Plant 1, as such asset is described on Schedule 2.1(a), pursuant to the JV Formation Agreement (Plant 1, together with the Capital Contributions in the preceding sentence, the “Contributed Magnetation Assets”).

 

(b) AKS will make an aggregate Capital Contribution of Two Hundred Ninety-Seven Million Five Hundred Thousand Dollars ($297,500,000.00) (“AKS Capital Contributions”), allocated One Hundred Forty-Seven Million Five Hundred Thousand Dollars ($147,500,000.00) to Phase I (the “Phase I Portion”) and One Hundred Fifty Million Dollars ($150,000,000.00) to Phase II (the “Phase II Portion”), which shall be made in cash and in accordance with the following schedules:

 

(1) One Hundred Million Dollars ($100,000,000.00) of the Phase I Portion on October 4, 2011 (the “AKS Initial Funding Date”), subject to the satisfaction (or waiver by AKS, in its sole discretion) of the conditions set forth in Article 14;

 

(2) Forty Seven Million Five Hundred Thousand Dollars ($47,500,000.00) (the “Phase I Balance”) of the Phase I Portion not later than the tenth (10th) day following the satisfaction (or waiver by AKS, in its sole discretion) of the conditions set forth in the Supplemental Letter (the “Phase I Conditions”) and the receipt by AKS of the documents set forth in Section 2.1(c) below; and

 

(3) The Phase II Portion (“Phase II Portion”) upon the satisfaction (or waiver by AKS, in its sole discretion) of the conditions set forth in the Supplemental Letter (the “Phase II Conditions”) and at the times and upon the receipt by AKS of the documents set forth in Section 2.1(d) below.  Notwithstanding the foregoing, AKS shall not be obligated to pay any portion of the Phase II Portion if all of the Phase II Conditions have not been satisfied or waived by AKS on or prior to the fifth (5th) anniversary of the Effective Date.

 

(c) The obligation of AKS to make the Phase I Balance Capital Contribution is subject to its receipt of a certificate executed on behalf of the Board of Managers to the 

 

  

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effect that the Board of Managers has determined that the Phase I Conditions have been satisfied.

 

(d) (1) Other than as provided in Section 2.1(d)(2) below, the obligation of AKS to make the Phase II Portion Capital Contribution is subject to its receipt of one or more written requests from the Board of Managers for all or a portion of the Phase II Portion as specified in such written requests.  Each such request of the Board of Managers (i) must be accompanied by a certificate executed on behalf of the Board of Managers to the effect that (A) the Board of Managers has determined that the Phase II Conditions have been satisfied (which certification need accompany only the first request made pursuant to this Section 2.1(d)(1)) and (B) the Company has a present need for the cash funds specified in the request to meet its capital and operating expenses as they will become due and payable and (ii) may not direct AKS to make the specified Capital Contribution prior to the date that is the tenth (10th) day following the date of AKS’ receipt of such request.

 

(2)           Notwithstanding that AKS may not have received written requests pursuant to Section 2.1(d)(1) above for the following amounts by the following times, AKS shall make the following Phase II Portion Capital Contributions no later than the corresponding dates indicated below:

 

	
Amount

	
Date of Capital Contribution

	
$50 million

	
Six (6) months after the satisfaction (or waiver by AKS, in its sole discretion) of the Phase II Conditions

	
$50 million

	
Twelve (12) months after the satisfaction (or waiver by AKS, in its sole discretion) of the Phase II Conditions

	
$50 million

	
Twenty Four (24) months after the satisfaction (or waiver by AKS, in its sole discretion) of the Phase II Conditions

 

(3)           Phase II Portion Capital Contributions made by AKS pursuant to Section 2.1(d)(1) above shall be credited against AKS’ obligations pursuant to Section 2.1(d)(2).

 

(e) For the avoidance of doubt, the failure of either or both of the Phase I Conditions and the Phase II Conditions to be satisfied and the consequence that AKS does not make either or both of the Phase I Balance or Phase II Portion Capital Contributions shall not affect or dilute AKS’ Percentage Interest.

 

(f) The Capital Contributions described in Section 2.1(a) have an agreed value as of the Effective Date of this Agreement of $298,692,400.  Immediately after the occurrence of the last of the AKS Capital Contributions of the Phase II Portion, there shall be a revaluation of all Company property in accordance with Section 2.02 of Appendix A with any appreciation or depreciation being allocated between Magnetation and AKS so as to

 

  

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cause the Capital Account balances of Magnetation and AKS to stand in the same ratio to one another as their respective Percentage Interests bear to one another to the maximum extent possible.

 

2.2 Membership Units.  In consideration of the Capital Contributions made or to be made by the Members pursuant to Section 2.1 hereof, Magnetation and AKS will be issued effective on the Effective Date the respective number of Units of ownership interest in the Company set forth opposite its name in Schedule 2.2(inclusive, with respect to Magnetation, of any Interest currently held by Magnetation in the Company).

 

2.3 Failure to Make Article 2 Capital Contributions.

 

(a) If Magnetation fails to make the Plant 1 Capital Contributions to the Company as required by Section 2.1(a), and such failure has not been cured on or prior to January 11, 2012, then, beginning January 12, 2012, distributions that would have otherwise accrued to Magnetation under this Agreement shall instead be credited to AKS’ Capital Account at a rate of Fifteen Thousand Dollars ($15,000) per calendar day, continuing until Magnetation makes the Plant 1 Capital Contributions to the Company as required by Section 2.1(a), and, in addition, in the event such failure by Magnetation is not cured on or prior to April 1, 2012, AKS shall have allocated to it ten thousand one (10,001) additional Units above those specified in Section 2.2 for each day that such failure exists after April 1, 2012 without the need for payment by AKS of any additional consideration or Capital Contribution to the Company.  Such allocation of additional Units to AKS shall not affect Magnetation’s obligation to contribute Plant 1 to the capital of the Company or the provisions of Section 15.1 as they relate to Magnetation’s failure to make such Capital Contribution.  Notwithstanding the foregoing, in the event that Magnetation is unable to fully contribute the Plant 1 Capital Contributions to the Company as the result of its inability to procure required consents to transfer the assets or a similar event which is beyond the control of Magnetation, and in the event Magnetation and AKS mutually agree in good faith to an alternative to transfer which provides the Company with substantially the same economic benefit as if the Plant 1 Capital Contribution had been fully made, then from and after the date of the implementation of such agreed upon alternative, Magnetation shall be deemed to have satisfied its obligations to make the Plant 1 Capital Contributions and shall not be in breach such obligations, and the remedies set forth in this Section 2.3(a) shall not apply.  For purposes of this Section 2.3(a), AKS shall not unreasonably withhold, condition or delay its agreement to any alternative that may be proposed by Magnetation, provided that AKS may in its sole discretion withhold its agreement if such alternative is incapable of being implemented by July 1, 2012.

 

(b) If AKS fails to make the Phase I Balance or all or any part of the Phase II Portion Capital Contributions when due and (1) AKS is not disputing in good faith its obligation to make such Capital Contributions pursuant to the provisions of Section 18.6 and (2) such failure continues for sixty (60) days after such contributions are due hereunder, then, effective on the sixty-first (61st) day after such contributions were due, Magnetation shall be allocated two (2) additional Units above those specified in Section 2.2 for each $1 of Capital Contribution that AKS has failed to make without the need for payment by 

 

  

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Magnetation of any additional consideration or Capital Contribution to the Company, provided that AKS’ Percentage Interest shall not, by reason of this Section 2.3(b), be reduced to less than thirty-three percent (33%).  Such allocation of additional Units to Magnetation shall be deemed to cure the default resulting from AKS’ failure to make its Capital Contributions pursuant to Article 2 and, from and after the sixty-first (61st) day referenced above, the provisions of Section 15.1 shall no longer be applicable to such past default.

 

(c) If (i) AKS fails to contribute the Phase I Balance or all or any portion of the Phase II Portion Capital Contributions when due and (ii) AKS is not disputing in good faith its obligation to make such Capital Contributions pursuant to the provisions of Section 18.6 and (iii) such failure continues for sixty (60) days after such contributions are due, then Magnetation may take the action of a Member who has participated in a call for Additional Capital Contributions pursuant to Section 3.1(h).

 

ARTICLE 3.

ADDITIONAL CAPITAL CONTRIBUTIONS

 

3.1 Additional Capital Contributions.

 

(a) From time to time, the Board will consider and discuss whether the Company is in need of additional cash funds beyond those funds made available through the AKS Phase I Balance and the Phase II Portion Capital Contributions.  If the Board determines that the Company has such need, the Board shall consider and discuss the amounts of the needed additional funds and the most appropriate funding of those needed amounts (e.g., whether such amounts should be obtained through borrowings, additional cash contributions from the Members or through other means).  If, following such consultations, the Board determines that Capital Contributions beyond those contemplated by Article 2 (“Additional Capital Contributions”) are necessary for the Company to pay its capital and operating expenses as they will become due and payable, then the Board may make one (1) or more calls for Additional Capital Contributions from the Members.  Calls for Additional Capital Contributions made by the Board pursuant to this Section 3.1(a) shall be made by written notice delivered to the Members and will be due and owing sixty (60) days after the date of such call.

 

(b) In addition to the foregoing, at any time following the satisfaction of the Phase II Conditions and prior to the Phase II Abandonment Date, in the event either Member determines that the Company is in need of additional cash funds in order for the Company to complete Phase II, such Member may request a meeting of the Board to discuss such funding needs.  The Board shall consider in good faith such needs and shall determine the most beneficial method for meeting the funding needs, which may include securing loans from third party financing sources, securing loans from Members, or calling for Additional Capital Contributions pursuant to Section 3.1(c).

 

(c) If within ninety (90) days of the date of any meeting of the Board held pursuant to Section 3.1(b), the Company has not obtained all of the additional funding and either Member reasonably determines that any material aspect of Phase II is being altered or 

 

  

7

  

 

delayed in any material manner as a result of insufficient cash resources, then such Member (the “Calling Member”) may seek additional financing sources for the Company pursuant to Section 3.1(d).

 

(d) The Calling Member may seek the additional funds from the following sources, provided it shall seek such funds solely in the following order:

 

(i) The Board or the Calling Member shall first make a call for an Additional Capital Contribution from the Members up to the amount of funds equal to 1.996 times the amount of funds in the Magnetation Capital Reserve Account, until such funds are exhausted, and pursuant to such call, Magnetation and AKS shall make Additional Capital Contributions as described in Sections 3.1(g)(1) and (2);

 

(ii) If the funds provided pursuant to clause (i) above are not sufficient, then the Board or the Calling Member on behalf of the Company shall seek a loan from a third party financing source or sources on commercially reasonable terms;

 

(iii) If the funds provided pursuant to clause (i) and, if available, clause (ii) above are not sufficient, then the Board or the Calling Member on behalf of the Company shall seek a loan from a Member or Members on commercially reasonable terms, which either Member is entitled to decline in its sole discretion; and

 

(iv) If the funds provided pursuant to clause (i), and, if available, clauses (ii) and (iii) above are not sufficient, then the Board or the Calling Member may make one (1) or more calls for Additional Capital Contributions in excess of the amount set forth in clause (i) above from the Members by written notice to the Members; provided, however, that AKS shall not be entitled to call for Additional Capital Contributions pursuant to this Section 3.1(d)(iv) unless AKS has provided a loan to the Company pursuant to Section 3.1(d)(iii) in at least the original principal amount of $25 million.

 

(e) Any Additional Capital Contributions pursuant to Section 3.1(d)(i) or 3.1(d)(iv) will be due and owing thirty (30) days after the date of such call.  The other provisions of this Section 3.1 shall apply to any calls for Additional Capital Contributions made by a Calling Member pursuant to such sections to the same extent as calls for Additional Capital Contributions made by the Board pursuant to Section 3.1(a).

 

(f) Unless agreed to otherwise by all of the Members at such time, each Member shall fund its pro rata portion of the aggregate Additional Capital Contributions specified in the notice delivered pursuant to Section 3.1(a) or 3.1(d) in accordance with its respective Percentage Interests at the time of the call.  Each Member making Additional Capital Contributions pursuant to this Article 3 shall receive one (1) additional Unit for each dollar of Additional Capital Contributions made by such contributing Member. For 

 

  

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purposes of clarity, the limitations on dilution of AKS’ Percentage Interest contemplated by Section 2.3(b) hereof shall not apply to any dilution with respect to Additional Capital Contributions.

 

(g) 

 

(1) With respect to Magnetation, Additional Capital Contributions up to the amount of funds held by the Company in the Magnetation Capital Reserve Account shall be mandatory, and the Company, on behalf of Magnetation, shall release funds from the Magnetation Capital Reserve Account in the amounts for which Magnetation is responsible pursuant to this Article 3 to an unrestricted account of the Company (unless Magnetation for some or all of its pro rata portion of the Additional Capital Contributions in its discretion contributes cash or other assets acceptable to AKS, in its sole discretion, valued at the fair market value thereof as of the applicable dates, in which event the amount released from the Magnetation Capital Reserve Account shall be adjusted accordingly).  Additional Capital Contributions by Magnetation in excess of the amounts held in the Magnetation Capital Reserve Account shall be voluntary, subject to clause (3) below.

 

(2) With respect to AKS, Additional Capital Contributions up to ninety nine and six tenths percent (99.6%) of the amount of funds held in the Magnetation Capital Reserve Account (the “AKS Matching Amount”) shall be mandatory.  Additional Capital Contributions by AKS in excess of such amount shall be voluntary, subject to clause (3) below.

 

(3) The Calling Member shall be obligated to fund its pro rata portion of the aggregate Additional Capital Contributions specified in its notice delivered pursuant to Section 3.1(d)(iv).

 

(h) If any Member does not participate in any call for Additional Capital Contributions or participates in an amount that is less than its pro rata amount as set forth in Section 3.1(f) above, then each other Member who has so participated may, at its sole discretion and option, fund such amounts that have not been contributed to the capital of the Company by:

 

(1) Making Additional Capital Contributions on a pro rata basis in accordance with the Percentage Interests of all Members participating in making up such shortfall, or

 

(2) In lieu of making Additional Capital Contributions, causing the shortfall amount to be funded by loans extended by the participating Member(s) to the Company, such loans to have commercially reasonable terms (and which loans shall not be subject to the provisions of Section 6.3(b)(6) or otherwise subject to the approval of the Board of Managers).

 

  

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ARTICLE 4.

CAPITAL ACCOUNTS AND ALLOCATIONS

 

4.1 Capital Accounts. Each Member will have a Capital Account maintained as set forth in Appendix A.

 

4.2 Allocations of Book Income and Loss.  Except as stated in Appendix A and Section 2.1(f):

 

(a) Book Income:  Except for the components of the Company’s Book income that are specially allocated pursuant to Section 4.1(c) below, the Company’s Book income for any Fiscal Year shall be allocated between the Members in proportion to their respective Percentage Interests.

 

(b) Book Loss:  Except for the components of the Company’s Book loss that are specially allocated pursuant to Section 4.1(c) below, the Company’s Book loss for any Fiscal Year shall be allocated between the Members in proportion to their respective Percentage Interests.

 

(c) Book Depreciation, Amortization and Loss on Disposition In Respect of Section 2.1(a) Assets:  For any Fiscal Year, Book depreciation and amortization in respect of the assets contributed by Magnetation pursuant to Section 2.1(a) and any loss on disposition of such assets shall be allocated (i) first, 100% to Magnetation until the Capital Account balances of the Members stand in the same ratio to one another as their respective Percentage Interests bear to one another, and (ii) thereafter, between the Members in proportion to their respective Percentage Interests.

 

4.3 Tax Allocations.  Except as stated in Appendix A, each item of income, gain, loss and deduction is to be allocated for federal income tax purposes in the same manner as the corresponding allocation for Book purposes.

 

4.4 Membership Units.  A Member’s limited liability company interest in the Company shall be represented by the “Units” held by such Member.  With respect to capital contributions made by the Members as contemplated in Articles 2 and 3 of this Agreement, each Unit represents one U.S. dollar of capital contributed to the Company (in cash or other property or in services, in which case such other property or services shall be valued at its fair market value as determined by the Board of Managers).  Each Unit shall have equal rights and preferences except as otherwise provided herein.

 

4.5 No Interest.  No interest shall be paid by the Company on Capital Contributions, balances in a Member’s Capital Account or any other funds contributed to the Company as capital or distributed by the Company under this Agreement.

 

4.6 No Withdrawal.  In accordance with the Act, a Member, under certain circumstances, may be required to return to the Company, for the benefit of the Company or the Company’s creditors, amounts previously wrongfully distributed to such Member out of such Member’s Capital Account.

 

  

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ARTICLE 5.

DISTRIBUTIONS

 

5.1 Tax Distributions.

 

(a) Within thirty (30) days after the end of each calendar quarter, the Company shall make a distribution in cash to the Members in proportion to their respective Percentage Interests.  The aggregate amount of such distribution shall be the smallest amount necessary so that each Member’s share of the distribution is not less than the product of (i) the Effective Tax Rate, multiplied by (ii) the amount of the Company’s expected net taxable income (if any) allocated to such Member for the applicable calendar quarter, as determined by the Board of Managers in good faith.

 

(b) After the filing of the Company’s tax return for each Fiscal Year, the Board of Managers shall reconcile the estimated tax distributions actually made to each Member under Section 5.1(a) for such Fiscal Year against the tax distributions that would have been distributable to such Member under Section 5.1(a) on the basis of the amount of net taxable income actually reported on federal Schedule K-1, Form 1065, as issued to such Member with respect to such Fiscal Year, and the Board of Managers shall cause to be distributed to such Member the excess, if any, of such amount over the estimated tax distributions made to such Member under Section 5.1(a) during such Fiscal Year; provided, however, that all distributions pursuant to this Section 5.1(b) shall be made to the Members in proportion to their respective Percentage Interests.

 

(c) In the event that a Member Transfers all or part of its Interest in accordance with this Agreement, amounts allocated or distributed hereunder to the transferor Member during the year of transfer in respect of the transferred Interest shall be treated as being previously allocated or distributed, as the case may be, to the transferee Member.

 

(d) Each of Magnetation and AKS represent to the Company that it is not subject to any requirement that the Company withhold taxes from distributions to it.

 

5.2 Quarterly Distributions.  Unless otherwise agreed by the Members, and subject to the provisions of Sections 5.3 and 5.4, on the first Business Day of each calendar quarter (commencing April 2, 2012), the Company shall distribute the Net Available Cash of the Company to the Members in accordance with their respective Percentage Interests.

 

5.3 Limitations on Distributions.  All distributions to the Members under this Agreement shall be subject in all respects to, and limited or prohibited to the extent provided by, applicable Law (including, without limitation, § 18-607 of the Act, as the same may be amended from time to time) or loan or other agreements entered into by the Company from time to time.  Distributions of cash under this Article 5 are to be made only to the extent cash is available to the Company without requiring (a) the sale of Company assets or the pledge of Company assets at a time or on terms that the Board of Managers believes are not in the best interests of the Company, or (b) a reduction in reserves that the Board of Managers determines are necessary or desirable for working capital, capital expenditures or other Company purposes.

 

  

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5.4 Limitation on Payment of Distributions.  The Company shall not make distributions to Magnetation under Section 5.2 or 5.5 which, in the aggregate, exceed Thirty Million Dollars ($30,000,000.00) prior to the earlier of the Phase II Abandonment Date or the Phase II Completion Date. (For purposes of clarification, distributions made pursuant to Section 5.1 shall not be included for purposes of calculating such Thirty Million Dollar ($30,000,000.00) limitation.)  Nothing in this Section 5.4 is intended to prevent the Company from authorizing a pro rata distribution for the account of Magnetation pursuant to the provisions of Sections 5.2 or 5.5; rather, any such amounts in excess of Thirty Million Dollars ($30,000,000.00) shall not be distributed to Magnetation but instead shall be held by the Company in a segregated account (the “Magnetation Capital Reserve Account”) as a source for Additional Capital Contributions to be made by Magnetation pursuant to Section 3.1 until such time as the limitations of this Section 5.4 are lifted (“Deferred Distributions”).  Funds held in the Magnetation Capital Reserve Account shall be invested only in the instruments set forth in Schedule 5.4.  Prior to the earlier of (i) the Phase II Abandonment Date, (ii) the Phase II Completion Date, (iii) the tenth (10th) anniversary of the date of this Agreement, or (iv) the date of any Uncured AKS Contribution Default, no such funds shall be released from such account except pursuant to Article 3 or with the consent of AKS; provided that to the extent the income (if any) on the Deferred Distributions is allocable to Magnetation, then the Company shall distribute to Magnetation within thirty (30) days of each calendar quarter that portion of the Deferred Distributions equal to the Effective Tax Rate multiplied by the amount of such allocated income to the extent such distributions were not previously made or duplicated pursuant to Section 5.1(a).  Within five (5) Business Days of the earlier of (i) the Phase II Abandonment Date, (ii) the Phase II Completion Date, (iii) the tenth (10th) anniversary of the date of this Agreement, or (iv) the date of any Uncured AKS Contribution Default, any funds held in the Magnetation Capital Reserve Account shall be released to Magnetation.  Notwithstanding the foregoing, the limitations in this Section 5.4 shall not apply to any distributions pursuant to Section 5.1 or Section 9.5(b) of this Agreement.

 

5.5 Other Distributions.  Subject to the provisions of Sections 5.3 and 5.4, the Company shall distribute such other amounts in addition to the distributions described in Section 5.2 as determined from time to time by the Board of Managers by a Super Majority Vote of the Board, to the Members pro rata in accordance with their Percentage Interests;  provided, however, that notwithstanding anything to the contrary contained herein, (a) the Company shall make no distribution of the assets contributed by Magnetation pursuant to Section 2.1(a) (or the proceeds thereof) prior to the earlier of (i) the occurrence of Capital Account Proportionality or (ii) the liquidation of the Company, and (b) distributions in connection with a liquidation of the Company shall be made exclusively pursuant to Section 9.5(b)(5).

 

ARTICLE 6.

MANAGEMENT and GOVERNANCE

 

6.1 Board of Managers.

 

(a) The Company shall be managed by a Board of Managers consisting of seven (7) individuals.  The members of the Board of Managers are sometimes referred to herein as a “Manager” or “Board Representative”.

 

  

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(b) The Member owning a majority of the Units shall appoint four (4) individuals to the Board of Managers and the Member owning a minority of the Units shall appoint three (3) individuals to the Board of Managers.  Each Manager shall, to the maximum extent permitted by Law, be entitled to represent solely the interests of the Member that shall have appointed such Manager.  Each Manager appointed by a Member shall be an employee of, or otherwise affiliated with, such Member or its Affiliates and shall otherwise be familiar with the Business.

 

(c) As of the date of this Agreement, the Board of Managers consists of the following seven (7) Managers: Larry Lehtinen, Matthew Lehtinen, David Chappie and Danilo Bibancos, appointed by Magnetation, and John F. Kaloski, Roger K. Newport and Maurice A. Reed, appointed by AKS.

 

(d) Each Board Representative is to serve until the earlier of his or her death, resignation or removal.  Each Member shall have the exclusive right to (1) remove (with or without cause and with or without prior notice) any of its appointed Managers at any time and appoint their respective successors, and (2) appoint an individual to fill any vacancies created by reason of the removal, resignation, or death of such Member’s appointed Manager.  Appointments and removals of Managers made pursuant to this Section 6.1(d) shall be evidenced by an instrument in writing signed by a duly authorized representative of the appointing Member.

 

(e) No Manager shall be entitled to any form of remuneration or reimbursement of expenses from the Company, and no former Manager nor the family members or dependents thereof shall have any right to receive benefits from the Company, in each case in such Person’s capacity as Manager or former Manager.  Nothing contained in this Agreement shall be construed to preclude any Manager from serving the Company in any other capacity and receiving compensation for such service.

 

(f) In the event that the Member holding a majority of the outstanding Units is diluted (the “Diluted Member”) pursuant to the provisions of this Agreement such that it no longer holds a majority of the Units, then, effective on the first Business Day of the next succeeding calendar quarter, one (1) Manager appointed by such Diluted Member shall resign and the other Member shall appoint an individual to fill such vacancy.  The Diluted Member shall thereafter be entitled to appoint three (3) individuals to the Board while the other Member shall be entitled to appoint four (4) individuals to the Board.

 

6.2 Authority of the Board of Managers.

 

(a) The Board shall, subject to provisions of this Agreement, and except for matters or decisions requiring Member approval under the Act, have full and complete discretion and authority to manage and control (and, as provided in this Agreement, delegate the management or control of) the business and affairs of the Company, to make all decisions affecting the business and affairs of the Company and to take all such actions as it deems necessary or appropriate to accomplish the purposes of the Company as set forth herein.  The Board, acting as a body pursuant to this Agreement, shall constitute a “manager” for 

 

  

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purposes of the Act, and the actions of the Board taken in accordance with the provisions of this Agreement shall bind the Company.

 

(b) The Board will act only as a body, and no Board Representative will have any power to bind the Company or authorize any action, except as a part of the Board.

 

(c) The Board of Managers may delegate to the Officers, other employees, committees, professional managers and agents of the Company the authority to conduct the business of the Company in the ordinary course in accordance with this Agreement and any policy of delegation, which may be adopted and revised from time to time by the Board of Managers by a Super Majority Vote of the Board.

 

(d) Subject to Section 6.3(b)(24), the Board may establish one or more committees. Each such committee shall contain such number of Managers or other individuals as shall be designated by the Board in resolutions establishing such committee.  Any such committee shall have such powers and authority as the Board may provide by resolution.  Unless provided otherwise by Board Approval, any action of such committee shall require approval by the majority vote of the members of the committee.

 

6.3 Actions by the Board of Managers.

 

(a) Majority Vote of the Board.  Each Board Representative shall have one (1) vote.  Subject to Section 6.3(b) or as otherwise expressly set forth in this Agreement, wherever Approval by or authorization of the Board is required by this Agreement or by the Act or otherwise the Board takes action or a vote, such Approval or authorization shall consist of a Majority Vote of the Board.

 

(b) Actions Requiring Super Majority Vote of the Board for Approval.  Notwithstanding anything contained herein to the contrary, the Super Majority Vote of the Board is required to authorize the Company to take the following actions:

 

(1) engaging in a business other than the Business;

 

(2) approving the annual budget (or a budget for any other timeframe) and strategic plan for the Company (“Approved Budget”), provided, however, that if such annual budget and strategic plan is not approved by Super Majority Vote of the Board prior to the first calendar day of any Fiscal Year (the “Relevant Year”), the operating budget of the Company contained in the Approved Budget for the previous Fiscal Year (annualized, if such previous year’s Approved Budget is in respect of a period less than one year) shall be the operating budget for the Relevant Year, adjusted to increase by five percent (5%) over the preceding Fiscal Year each line item set forth in the operating budget for the preceding Fiscal Year unless and until an annual budget and strategic plan for the Relevant Year shall be approved by Super Majority Vote of the Board;

 

(3) admitting a new Member to the Company;

 

  

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(4) other than as otherwise specifically provided for in this Agreement, issuing any additional Units to a Member;

 

(5) other than as otherwise specifically provided for in this Agreement, redemption by the Company of any Units from a Member;

 

(6) incurring debt for borrowed money other than as contemplated in the Approved Budget or Section 3.1(d)(ii) or Section 3.1(h);

 

(7) making in any fiscal year any individual capital expenditures (other than as contemplated in the Approved Budget) in excess of $2,000,000;

 

(8) selling all or substantially all the assets of the Company;

 

(9) using the name “Magnetation” or “AK Steel,” collectively or separately in connection with the Business, provided that as long as Magnetation holds more than fifty percent (50%) of the Units, approval by the Super Majority Vote of the Board regarding the use of the name “Magnetation” by the Company in the ordinary course of business is not required;

 

(10) guaranteeing the indebtedness of a third party, other than as set forth in financial instruments entered into in the ordinary course of business;

 

(11) amending this Agreement or the JV Formation Agreement;

 

(12) obligating the Company to be party to a reorganization, merger, share exchange, consolidation, combination or other similar transaction;

 

(13) entering into voluntary Bankruptcy;

 

(14) the making of any acquisitions, investments or disposals (including sale-leasebacks) (other than as contemplated in the Approved Budget) with a value in excess of $2,000,000;

 

(15) the entering into any sales contracts (other than as contemplated in the Approved Budget) that contemplate the sale or commitment of twenty-five percent (25%) or more of the Company’s then-current total design capacity with a term in excess of two (2) years;

 

(16) the entering into, modification or termination of any single agreement or arrangement (other than as contemplated in the Approved Budget) with a value in excess of $2,000,000;

 

(17) the entering into of any partnership, joint venture, strategic alliance or profit sharing arrangement with any person;

 

(18) commencing, settling or approving any strategy with respect to any litigation or arbitration proceedings, other than litigation with a Member of the 

 

  

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Company, with (i) any person where the aggregate amount in dispute exceeds  $250,000 or (ii) any government agency;

 

(19) the entering into, material modification or termination of any labor agreement that, pursuant to its terms, directly or indirectly imposes any obligations on AK Steel or any of its Affiliates with respect to their employees;

 

(20) appointing or removing any Officer of the Company or the delegation of any powers of the Board to any Officer of the Company;

 

(21) the remuneration and compensation of any Officer of the Company (other than pursuant to a Project Agreement), or alteration of any terms of employment or benefits of any Officer of the Company;

 

(22) the indemnification by the Company of any Board Representative, Officer, committee member, employee, or agent of the Company and any employee or Affiliate of any Member, other than as required by any applicable Law;

 

(23) the taking of any action by the Tax Matters Partner that could have a material impact on the other Members, the making (or modification) of any agreement with any revenue authorities or other taxing authority or the making, granting, modifying or allowing of any claim, disclaimer, surrender, election or consent for taxation purposes, the adoption (or modification) of any position in respect of any tax matter (by way of the filing of a tax return or otherwise) and the approval of any strategy with respect to any tax matter;

 

(24) appointing any committee of the Board or delegating any of the powers of the Board of Managers to any committee;

 

(25) other than as otherwise specifically provided for in this Agreement, the determination to make a call for Additional Capital Contributions;

 

(26) other than as otherwise specifically provided in this Agreement, making any distributions to the Members;

 

(27) the entering into or the amendment, modification or termination of any agreement, arrangement or understanding with (i) any Member or any of the respective Affiliates of a Member, (iii) directors, officers or supervisors of any Member, any of the respective Affiliates of a Member or the Company, (iv) shareholders holding or having the ability to exercise control over more than five percent (5%) of any class of securities of either Member, their respective Affiliates or the Company, or (v) any person or entity controlled by the aforementioned persons;

 

(28) appointment and dismissal of the Company’s independent outside auditor;

 

  

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(29) knowingly taking any action or omitting to take any action that would cause the Company to become an association taxable as a corporation for U.S. income tax purposes;

 

(30) any agreement (other than as contemplated in the Approved Budget) relating to any swap, cap, floor, collar, option, forward, cross right or obligation, or combination thereof or similar transaction, with respect to interest rate, foreign exchange, currency, commodity (including without limitation iron ore or energy), credit or equity risk;

 

(31) making any research and development expenditures (other than as contemplated in the Approved Budget) in excess of $200,000; and

 

(32) dissolving or liquidating the Company (other than as provided in Article 9).

 

(c) Additional Actions Requiring Super Majority Vote of the Board for Approval During Phase II.  Notwithstanding anything contained herein to the contrary, from and after the commencement of Phase II, the Super Majority Vote of the Board is required to authorize the Company to take the following actions, which are in addition to the requirements under Section 6.3(b):

 

(1) approval of the design of the Pellet Plant;

 

(2) approval of the Pellet Plant capital budget;

 

(3) approval of the Pellet Plant general arrangement and flow sheet;

 

(4) approval of any material changes to the Pellet Plant; and

 

(5) approval of site selection for the Pellet Plant.

 

(d) Material Operational Decisions.  The Chief Executive Officer of the Company, or such other Officer as delegated by the Board, shall have the general authority for ordinary course operational decisions, provided that any material operational decision shall be discussed in advance with a designated AKS Board Representative and a designated Magnetation Board Representative, and if approved by such designees, shall be deemed approved and acceptable to AKS and Magnetation, respectively.  The Chief Executive Officer will use his or her best efforts to send a confirmation message via electronic mail within three (3) Business Days of each such approval to all of the Managers summarizing the material facts of the approved decision in order to maintain a proper record that such decision was duly authorized.  The following actions shall be deemed to be, but are not an exclusive listing of, material operational decisions requiring approval pursuant to this Section (unless approval is required pursuant to Section 6.3(b)):

 

(1) making in any fiscal year any individual capital expenditures (other than as contemplated in the Approved Budget) in excess of $500,000;

 

  

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(2) the making of any acquisitions, investments or disposals (including sale-leasebacks) (other than as contemplated in the Approved Budget) with a value in excess of $500,000;

 

(3) the entering into any sales contracts (other than as contemplated in the Approved Budget) that contemplate the sale or commitment of ten percent (10%) or more of the Company’s then-current total design capacity with a term in excess of one (1) year;

 

(4) the entering into, modification or termination of any single agreement or arrangement (other than as contemplated in the Approved Budget) with a value in excess of $500,000; and

 

(5) making any research and development expenditures (other than as contemplated in the Approved Budget) in excess of $50,000.

 

6.4 Meetings of the Board of Managers.

 

(a) Board Meetings; Regular and Special Meetings.

 

(1) Regular Meetings.  Regular meetings of the Board of Managers are to be held at such times and places as may be fixed upon reasonable notice by the Board of Managers.

 

(2) Special Meetings.  Special meetings of the Board may be called by any single Board Representative.  Notice of the time and place of a special meeting of the Board is effective if delivered to each Board Representative by hand, telephone, electronic mail (with return receipt) or recognized overnight delivery service at least 48 hours (two (2) days) prior to the time of such special meeting.  Notices of special meetings of the Board shall identify the purpose of the special meeting.  No actions other than those specified in the notice may be considered at a special meeting unless approved by a Super Majority Vote of the Board.  Notice of adjournment of a meeting and the time and place of the adjourned meeting shall be given to all members of the Board, unless such time and place were announced at the meeting at which the adjournment was taken.

 

(b) Location of Board Meetings; Participation by Telephone.  Board meetings may be held at any location, within or without the United States, as shall be specified in the notice of such meeting; provided, however, that for each calendar year, at least one (1) Board meeting shall be held in (1) the office of Magnetation in or near Grand Rapids, Minnesota or such other office of Magnetation within the United States, and (2) the office of AKS in West Chester, Ohio.  Managers may participate in a meeting of the Board by means of telephone or video conference or similar communications equipment by means of which all Managers participating in the meeting can hear each other (collectively “Remote Participation”), and such participation in a meeting is presence in person at the meeting.

 

  

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(c) Waiver of Notice of Meeting.  Whenever notice of a Board meeting is required to be given under this Agreement, a written waiver of notice, signed by the Board Representative entitled to notice, whether before or after the time of the meeting, is equivalent to notice.  A Board Representative’s attendance at a meeting, whether in person or by Remote Participation, is a waiver of notice of that meeting unless the Board Representative at the beginning of the meeting (or promptly upon the Board Representative’s arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting.

 

(d) Quorum for Board Meetings.  The presence of at least three (3) Board Representatives appointed by Magnetation and two (2) Board Representatives appointed by AKS shall constitute a quorum for the transaction of business at a meeting of the Board.

 

(e) Voting.  No Board Representative is disqualified from voting or otherwise acting on any matter because the Member that appointed him or her is interested in the matter to be acted upon by the Board.

 

(f) Action of the Board of Managers Without a Meeting.  Any action required or permitted to be taken at a meeting of the Board of Managers may be taken without a meeting if one or more proposed written consents, setting forth the action so taken or to be taken, (i) is sent to all of the Managers, (ii) is signed by at least three (3) of the Magnetation Board Representatives and at least two (2)  of the AKS Board Representatives, and (iii) is delivered to the Secretary to be included in the Company’s permanent records.  Unless the written consent specifies that it is effective as of an earlier or later date, action taken under this Section 6.4(f) will be effective when all Managers (or the duly authorized representatives thereof) have been provided a copy of the proposed written consent, and the Managers required to Approve the action have signed the proposed written consent or counterpart thereof and delivered the same to the Secretary.  The written consent (which may be signed in one or more counterparts) of the Board of Managers on any matter under this Section 6.4(f) has the same force and effect as if that matter were voted upon at a duly called and constituted meeting of the Board of Managers and may be described as such in any document or instrument.

 

6.5 Officers of the Company.

 

(a) The Company may have such officers as are appointed, from time to time, by the Board of Managers, including, without limitation, the following:  Chief Executive Officer, Chief Financial Officer and Secretary (each, an “Officer”).

 

(b) Each Officer is to hold office until his or her successor is appointed or elected or until his or her earlier death, resignation or removal.  The Board of Managers, by Super Majority Vote of the Board, may remove an Officer at any time.  Any officer may resign at any time by delivering his or her written resignation to the Board.

 

(c) The Officers shall have the authority, responsibilities and duties as the Board, by Super Majority Vote of the Board, may delegate, from time to time, to the Officers.  

 

  

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From time to time, the Board may establish, increase, reduce or otherwise modify responsibilities for the Officers or may create or eliminate offices, as the Board considers appropriate.  The same person may hold any number of offices.

 

6.6 Duties of the Officers.  In addition to obligations imposed by other provisions of this Agreement and any employment agreement to which an Officer might be a party, each Officer is to devote to the Company such time as is reasonably necessary and his or her reasonable best efforts to carry out the business of the Company and to accomplish its purposes.

 

(a) The Chief Executive Officer, either personally or through such Persons as he or she may designate, shall carry out such actions and perform such duties as the Board of Managers may from time to time direct.

 

(b) The Chief Financial Officer either personally or through such Persons as he or she may designate, shall:

 

(1) furnish to each Member the financial statements and reports described in Article 17;

 

(2) arrange for the preparation and filing of all necessary federal, state and local tax forms and returns required to be filed by or on behalf of the Company;

 

(3) maintain such financial and accounting internal and disclosure controls with respect to the Company as may be required for the Company to comply with applicable Law, including without limitation the Sarbanes-Oxley Act of 2002; and

 

(4) carry out such actions and perform such duties as the Board of Managers may from time to time direct.

 

(c) The Secretary shall carry out such actions and perform such duties as the Board of Managers may from time to time direct.

 

6.7 Project Teams.  During Phase II, and subject to (i) AKS being current in its obligations to contribute the Phase II Portion and (ii) Magnetation or its Board Representatives not preventing the contribution from the Magnetation Capital Reserve Account of all amounts due and owing for Magnetation’s pro rata portion of an Additional Capital Call pursuant to Section 3.1(g) hereof up to the balance in the Magnetation Capital Reserve Account, Magnetation and AKS shall cooperate in establishing a project team (“Project Team”) comprised of an equal number of members appointed by each of Magnetation and AKS with the responsibility for the construction and operation of the Pellet Plant (and such other projects as the Board of Managers may designate) and with the following authority:

 

(a) Major Decisions:  Each Project Team shall have the responsibility to evaluate and make recommendations to the Board of Managers with respect to decisions that would reasonably be expected to be material to the applicable project, including without limitation, the following matters (“Major Decisions”):

 

  

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(1) Equipment selection;

 

(2) Selection of sites for additional Plants;

 

(3) Grade and quality of concentrate;

 

(4) Expenditures in excess of $500,000 (other than those approved in the Annual Budget);

 

(5) Transportation of products from the Plants; and

 

(6) Engineering matters.

 

(b) Ordinary Course Decisions:  Other than the Major Decisions and the matters set forth in Sections 6.3(b) and (c), each Project Team will be authorized to make such decisions in the ordinary course of the project delegated to such Project Team.

 

(c) Decision Approval and Deadlocks:  Any decision by a Project Team shall be made by majority vote of the members of the Project Team, with each Project Team member having one (1) vote, provided that at least one (1) member appointed by each of the Members approves each decision.  In the event that the Project Team is deadlocked after reasonable efforts to resolve such deadlock, the matter shall be submitted to the Board of Managers for action.

 

6.8 Insurance.  The Company may purchase and maintain insurance on behalf of any Person who is or was or has agreed to become a Board Representative against any liability asserted against him or her and incurred by him or her or on his or her behalf arising out of his or her status as a Board Representative, whether or not the Company would otherwise have the power to indemnify him or her against the liability under the provisions of this Agreement.

 

ARTICLE 7.

POWERS AND DUTIES OF AND LIMITATIONS ON THE MEMBERS

 

7.1 No Participation in Management.  Subject to any requirements of applicable Law, no Member (in its capacity as a Member) has the right to take any part whatsoever in the management and control of the business of the Company or sign for or bind the Company, compel a sale or appraisal of Company assets, or sell or assign its Interest in the Company, except as otherwise provided in this Agreement.

 

7.2 Rights of the Members.  Each Member is entitled to receive the financial statements and tax reporting information referred to in Section ‎6.6(b) and Article 17 and has such additional rights as are elsewhere provided in this Agreement or mandated by applicable Law.

 

7.3 Limited Liability of the Members.  Except for contributions specifically required under Articles 2 and 3 and as otherwise specifically agreed in writing by the Members or as provided elsewhere herein, the Members have no obligation to make Capital Contributions and no liability for any Company obligations.

 

  

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7.4 Voting Rights of Members.  For purposes of this Agreement, a vote of the Members is only required if required by the Act or this Agreement.

 

7.5 Exercise of Rights over Affiliate Agreements; Indemnification.  Notwithstanding anything to the contrary contained in this Agreement or any Project Agreement, (a) if the Company shall have any claim, right or remedy of whatever nature against a Member or any Affiliate of a Member (a “Related Counterparty”) arising under or relating to a Related Party Transaction, then the other Member shall have the right (at its election) to exercise or enforce any such claim, right or remedy on behalf of and at the Company’s reasonable cost and expense; and (b) if the Company becomes involved in any action against any Related Counterparty or becomes a defendant in any action brought by any Related Counterparty based upon or relating to any Related Party Transaction, the other Member shall have the right (at its election) to control the commencement, defense, management and disposition of such legal proceeding on behalf of the Company, and shall be reimbursed by the Company for its reasonable costs and expenses incurred in connection therewith.  The provisions of this Section 7.5 also apply to any matter for which the Company is entitled to be indemnified pursuant to Sections 7.8 or 18.2.

 

7.6 Conflict of Interest.  Without in any way limiting each Member’s obligations under this Agreement and the Project Agreements, to the maximum extent permitted by the Act and any other applicable Law, the doctrine of corporate opportunity, or any analogous doctrine, shall not apply with respect to each Member, and each Member or any of its respective Affiliates, shall not be obligated to present to the Company any particular investment or business opportunity, regardless of whether such investment or opportunity is of a character that the Company could take advantage of if it were presented to the Company, but instead each Member or its respective Affiliates, shall have the right to pursue such opportunity independently and for its own account, and neither the Company nor any other Member shall have, by virtue of this Agreement, any rights or interests in or to such opportunity or the revenue, income or profit derived therefrom.  Except as provided in this Agreement, any Project Agreement or any other legally binding commitment, neither Member nor its respective Affiliates has any obligation to refrain from any activities that are the same as or similar to those conducted by the Company or from developing or exploiting any products or services that are or may be competitive with those of the Company or investing or otherwise having an interest in any other entity engaged in such activities.  Notwithstanding the foregoing, this Section 7.6 shall not affect the provisions of Section 1.7.

 

7.7 Fiduciary Duties.  The Members acknowledge and agree that (a) the Managers are designees of the Members that appoint them, and are acting as proxies for such Members with respect to the management of the Company, and (b) the Members and the Managers do not have any duties (including fiduciary duties) to any other Member or the Company, and that any duties or implied duties (including fiduciary duties) of a Member or Manager to the Company or to any other Member that would otherwise apply at Law or in equity are hereby eliminated to the maximum extent permitted under the Act and any other applicable Law, and each Member hereby waives all rights to, and releases each other Member and Manager from, any such duties; provided, however, that (1) the foregoing shall not eliminate the obligation of the Members to act in compliance with the express terms of this Agreement and (2) the foregoing shall not be deemed to eliminate the implied contractual covenant of good faith and fair dealing of the Members.  Notwithstanding anything to the contrary contained in this Agreement, each Member hereby acknowledges and agrees that each Member or Manager, in determining whether or not to 

 

  

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vote in support of or against any particular decision for which Member or Board consent, respectively, is required, may act in and consider its own best interest or the best interest of the Member who appointed such Manager, respectively, and shall not be required to act in or consider the best interests of the Company or the other Members.  Except as otherwise expressly provided in this Agreement, nothing contained in this Agreement shall be deemed to constitute any Manager or Member an agent or legal representative of any other Member or to create any fiduciary relationship for any purpose whatsoever.  Except as otherwise expressly provided in this Agreement, a Member shall not have any authority to act for, or to assume any obligation or responsibility on behalf of, any other Member or the Company.

 

7.8 Indemnification by the Members.  Each Member hereby agrees to indemnify and hold harmless the Company and each other Member from and against any and all losses, claims, damages, liabilities, charges, costs and expenses (including reasonable attorneys’ fees) actually sustained by any such Person arising out of any breach by such indemnifying Member of any of its representations, covenants, obligations or agreements contained in this Agreement or any Project Agreement.

 

ARTICLE 8.

TRANSFERS OF INTEREST; CHANGE OF CONTROL; OFFER TO PURCHASE OR SELL

 

8.1 General Restriction.  Except as expressly and specifically provided in this Article 8, no Member may sell, exchange, transfer, pledge as security or collateral for a debt, grant or otherwise allow a lien or other security interest to attach to, or otherwise dispose of (each a “Transfer”) all or any portion of such Member’s Interest. The Company shall not recognize any Transfer of Interest otherwise than in accordance with the terms and provisions of this Agreement.  Notwithstanding the foregoing, a general grant of a security interest by a Member in all of its personal property or general intangibles shall not constitute a Transfer so long as the secured party does not have possession of any certificate of membership interest, has not made a UCC filing specifically identifying the Interest and does not notify the Company of any such lien or security interest.

 

8.2 Involuntary Transfers.

 

(a) In the event a third party shall become the owner of Interests through a Transfer not in accordance with the terms of this Agreement, including as a result of an involuntary Transfer, then the transferee shall be deemed an “Assignee” of Interests subject to such Transfer and shall assume all of the rights and obligations of the transferring Member under this Agreement, provided, however, that the transferring Member shall remain fully liable for all of its obligations under this Agreement unless the non-assigning Member has given its consent to such Transfer, which consent may be given or withheld in the non-assigning Member’s discretion.  Further, any such Assignee shall not possess any of the rights previously held by the transferring Member other than the right to receive distributions allocated to the transferring Member’s Units hereunder.  An Assignee shall have no right to vote on any issues relating to the Company (including, without limitation, issues governed by Section 6.3(b) of this Agreement), to appoint a 

 

  

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Board Representative or to participate in the management of the business and affairs of the Company.

 

(b) If a Transfer described in Section 8.2(a) is effected, then the Managers appointed by the transferring Member shall resign, the Board shall be reconstituted to be comprised of such number of Managers appointed solely by the non-assigning Member as the non-assigning Member determines in its sole discretion, and the Assignee shall have the right to appoint one (1) observer to the Board.

 

8.3 Certain Permitted Transfers.  No Member may Transfer its Interest except for Transfers of all, but not less than all, its Interest:  (a) to any of its controlled Affiliates; (b) in accordance with Section 8.5 below; or (c) pursuant to Approval by a Super Majority Vote of the Board.  Notwithstanding the foregoing, (1) during the pendency of an Uncured AKS Contribution Default, Magnetation shall not be bound by the restriction on transfers provided by this Article 8 and (2) notwithstanding the provisions of Section 8.5, Magnetation shall not, for so long as it is a Member, Transfer its Interest to a Person engaged in the production of iron ore or steel or to a Person who is an Affiliate of any such Person engaged in the production of iron ore or steel.

 

8.4 Requirements for Transfer.  If there is to be any Transfer of Units pursuant to Section 8.3, such Transfer shall be permitted only after compliance with the following requirements:  (a) the transferee must execute and deliver to the Company such documents as the Company may require, including, without limitation, (1) an opinion of counsel in form and substance satisfactory to the Company, to the effect that the Transfer of the Units does not violate the Securities Act or any state securities law and (2) evidence, reasonably satisfactory to the Company, that the transferee has the financial capacity to carry out its obligations under this Agreement and (b) the transferee must execute and deliver a counterpart of this Agreement and expressly assume the duties and obligations of the transferor hereunder.  Upon compliance with the foregoing conditions and Transfer of the Units, the transferee will be admitted as a Member and the transferor will cease to be a Member, provided that, unless otherwise agreed by a Super Majority Vote of the Board, the transferor shall remain liable for any liabilities arising from a breach of this Agreement or other actions by such transferor prior to the Transfer of its Units.

 

8.5 Bona Fide Offer.

 

(a) If, at any time after the Phase II Abandonment Date or Phase II Completion Date, as applicable, a Member (the “Selling Member”) receives a Bona Fide Offer to purchase all, but not less than all, of the Selling Member’s Interest, the Selling Member shall give the other Member (the “Non-Selling Member”) written notice of the Bona Fide Offer (the “Bona Fide Offer Notice”) which notice shall include an offer to sell the Selling Member’s Interest to the Non-Selling Member on the same terms and conditions set forth in the Bona Fide Offer (subject to the last sentence of this Section 8.5(a)).  The Bona Fide Offer Notice shall also include the name and address of the person or entity making the Bona Fide Offer and shall state the price, terms and conditions set forth in the Bona Fide Offer.  The Non-Selling Member shall have the right, but not the obligation, for a period of ninety-five (95) days beginning on the date the Non-Selling Member receives the Bona Fide Offer Notice, to accept the Selling Member’s offer therein.  The Non-Selling 

 

  

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Member shall accept the Selling Member’s offer, if at all, by delivery of written notice to the Company and the Selling Member, of its intent to purchase the Selling Member’s Interest, and in such event the Selling Member shall be obligated to sell its Interest to the Non-Selling Member.  Any provision in the Bona Fide Offer to the effect that the prospective purchaser reserves the right to make a further offer or give additional monetary consideration, any non-monetary term and any side agreement or separate arrangement shall be disregarded for purposes of this Agreement.  No offer for less than all of a Member’s Interest shall be considered a Bona Fide Offer.

 

(b) If the Non-Selling Member does not accept the Selling Member’s offer made pursuant to Section 8.5(a) within the time provided therein, or notifies the Selling Member in writing before the end of the time provided in Section 8.5(a) that it will not purchase the offered Interest, then the Selling Member that received the Bona Fide Offer shall be free to sell its Interest to the person or entity making the Bona Fide Offer in accordance with the price, terms and conditions of the Bona Fide Offer upon first giving the Non-Selling Member written notice if its intention to accept the Bona Fide Offer (the “Acceptance Notice”); provided, however, (1) the Selling Member shall permit the Non-Selling Member to participate in such Bona Fide Offer on a pro rata basis in accordance with their respective Percentage Interests on the same terms and conditions and (2) if such sale is not completed within ninety (90) days after the date the Non-Selling Member receives the Bona Fide Offer Notice or if the terms of sale change in any material respect from the terms set forth in the Bona Fide Offer Notice, then the Member that received the Bona Fide Offer shall not Transfer its Interest without again complying with the terms and conditions of this Section 8.5.  A sale is “completed,” for this purpose, when the Selling Member has received the full consideration (a note is “received,” for this purpose, when it is delivered, even if installments are to be paid at a later date).

 

8.6 Closing of the Bona Fide Offer.

 

(a) The closing (the “Closing”) of the purchase by the Non-Selling Member of the Selling Member’s Interest pursuant to Section 8.5(a) will take place on or before the thirtieth (30th) day following the date on which the Selling Member receives written notice of the Non-Selling Member’s intent to purchase the Selling Member’s Interest in accordance with Section 8.5(a) above, or, if that day is not a business day, on the next following business day (the “Closing Date”).  The Closing Date will be extended to the extent necessary for either party to secure any required governmental approval or consent to a date five (5) Business Days following the approval or consent so long as the party is using its best efforts to pursue the approval or consent and every thirty (30) days during the extension delivers to the other party a certificate that such approval is being so pursued.  For purposes of this provision, “governmental approval or consent” includes expiration of the Hart-Scott-Rodino waiting period and similar merger control provisions that do not constitute formal approvals or consents.

 

(b) At the Closing, the Selling Member will deliver to the Non-Selling Member the following executed documentation in form reasonably acceptable to other Member:

 

(1) an assignment of its Interest to the Selling Member;

 

  

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(2) the resignation of each of its Board Representatives who are acting as members of the Board;

 

(3) representations and warranties by the Selling Member that it owns and has good title to its Interest free and clear of all liens, claims and encumbrances, and has the proper authority to transfer the Interest, which representations and warranties will survive the Closing and will continue indefinitely;

 

(4) all confidential documents relating to the Company in Selling Member’s possession;

 

(5) all property belonging to the Company; and

 

(6) such other documentation as the Non-Selling Member may reasonably require in order to vest in the Selling Member full right, title and interest in and to the Selling Member’s Interest, free and clear of all liens, claims, and encumbrances.

 

(c) At the Closing, the Non-Selling Member will deliver to the Selling Member:

 

(1) the Purchase Price in immediately available funds, subject to the following:

 

(A) if the Selling Member owes money to the Company, then the purchase price will be reduced by the amount of the principal and accrued but unpaid interest on such indebtedness; and

 

(B) if the Company owes money to the Selling Member, then the Company will pay to the Selling Member the full amount of the principal and accrued but unpaid interest on such indebtedness.

 

(2) an indemnity agreement, in form reasonably acceptable to the Selling Member, indemnifying the Selling Member against any claims arising from the conduct of the Business of the Company from and after the Closing.

 

ARTICLE 9.

TERMINATION EVENTS, DISSOLUTION OF THE COMPANY AND DISTRIBUTIONS UPON TERMINATION OR DISSOLUTION

 

9.1 Dissolution.  The Company dissolves only upon the occurrence of any of the following events, whether or not the event would cause a dissolution under the Act:

 

(a) the sale of all or substantially all of the Company’s assets pursuant to the terms of this Agreement;

 

(b) the Board elects to dissolve pursuant to a Super Majority Vote by the Board;

 

  

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(c) the Bankruptcy of the Company;

 

(d) the entry of a decree of judicial dissolution; or

 

(e) a Member elects to dissolve the Company pursuant to Section 9.4.

 

9.2 Consequences of Dissolution.  Upon dissolution of the Company pursuant to Section 9.1, the Company shall be liquidated in accordance with Section 9.5, unless otherwise mutually agreed by the Members.

 

9.3 Termination Events.  Each of the following shall constitute a “Termination Event” hereunder:

 

(a) at the election of AKS, in the event of Larry Lehtinen’s retirement or his voluntary removal from active and regular involvement in management with Magnetation and the Company, without the prior consent of AKS, prior to the earliest of (1) the Phase II Abandonment Date, (2) the Phase II Completion Date, (3) the fifth (5th) anniversary of the Effective Date, or (4) the date of an Uncured AKS Contribution Default.  (For purposes of clarity, the death or disability of Larry Lehtinen shall not give rise to a Termination Event.)

 

(b) at the election of a non-defaulting Member, in the event the defaulting Member is in breach of a representation and warranty or covenant set forth herein or in a Project Agreement, which breach has not been cured for a period of ninety (90) days from the date of notice of such default from the non-defaulting Member and which default has resulted in a Material Adverse Effect;

 

(c) at the election of the non-Bankrupt Member, in the event of a Bankruptcy of any Member, or in the case of a Member that does not have substantial assets other than its Interest, a Bankruptcy of an Affiliate controlling such Member;

 

(d) at the election of AKS, in the event of a Sale of Magnetation, provided that the right of AKS to make such election is subject to there being no Uncured AKS Contribution Default; or

 

(e) at the election of Magnetation, in the event of an AKS Change of Control, provided that upon the date of the consummation of such AKS Change of Control Magnetation in not in default under this Agreement pursuant to the provisions of Article 15.

 

9.4 Consequences of Termination Event.  Upon the election of the electing Member to treat any of the events set forth in Section 9.3 as a Termination Event, such Member (the “Electing Member”) shall have the right and option, in its sole and absolute discretion, by written notice to the other Member (the “Other Member”), to either:

 

(a) dissolve the Company;

 

  

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(b) if the Termination Event occurs pursuant to Section 9.3(a), (b), or (c), or pursuant to Section 9.3(d) or (e) prior to the fifth anniversary of the Effective Date, the Electing Member may exercise its right to purchase the Other Member’s Interest at a price equal to ninety percent (90%) of the fair market value of the Other Member’s Interest pursuant to the valuation and other procedures set forth on Schedule 9.4 (“Initial Price”), provided that if within three (3) years of the closing of such purchase the Electing Member sells all or a portion of the Other Member’s Interest at a price (“Subsequent Sale Price”) in excess of the Initial Price (determined on a per Unit basis and adjusted (if applicable) for any splits or recapitalizations), then within five (5) Business Days of the closing of such subsequent sale or sales, the Electing Member shall pay the Other Member as additional consideration for the Other Member’s Interest an amount equal to (1) the positive difference (if any) between the Subsequent Sale Price and the Initial Price on a per Unit basis, times (2) the number of Units previously owned by the Other Member sold in such subsequent sale, times (3) the following percentages as applicable: (i) ninety percent (90%) if the subsequent sale occurs on or prior to the first anniversary of the closing of the initial sale, (ii) fifty percent (50.00%) if the subsequent sale occurs on or prior to the second anniversary of the closing of the initial sale, and (iii) twenty five percent (25.00%) if the subsequent sale occurs on or prior to the third anniversary of the closing of the initial sale; or

 

(c) if the Termination Event occurs pursuant to Section 9.3(d) or (e) on or after the fifth anniversary of the Effective Date, the Electing Member may exercise its right to purchase the Other Member’s Interest at a price equal to one hundred percent (100%) of the fair market value of the Other Member’s Interest pursuant to the valuation and other procedures set forth on Schedule 9.4; or

 

(d) if the Termination Event occurs pursuant to Section 9.3 (b) or (c), or pursuant to Section 9.3(d) prior to the fifth anniversary of the Effective Date, the Electing Member may elect to continue the Joint Venture but to thereafter treat the Other Member as an Assignee with the consequences set forth in Section 8.2 hereof; for the avoidance of doubt, this Section 9.4(d) shall be inapplicable to a Termination Event pursuant to Section 9.3(a); or

 

(e)  if the Termination Event occurs pursuant to Section 9.3(d) on or after the fifth anniversary of the Effective Date, and if the Sale of Magnetation has resulted in Control of Magnetation by a Person engaged in the production of iron ore or steel or a Person who is an Affiliate of any such Person engaged in the production of iron ore or steel, the Electing Member may elect to continue the Joint Venture but to thereafter treat the Other Member as an Assignee with the consequences set forth in Section 8.2 hereof.

 

9.5 Winding-up and Liquidation of the Company.

 

(a) Upon an event of dissolution described in Section 9.1, the Board of Managers shall diligently proceed to cause the Company to wind up its affairs and liquidate and distribute its assets in accordance with this Agreement.  During the time prior to liquidation, the Company shall continue as a continuing limited liability company bound 

 

  

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by the terms of this Agreement and the Board of Managers shall have the right to do all acts authorized by Law for the purpose of winding up the affairs of the Company.

 

(b) In connection with the liquidation of the Company, the Board of Managers shall take the following steps:

 

(1) first, use its reasonable best efforts to sell the business of the Company as a going concern;

 

(2) second, to the extent the Board of Managers determines not to sell the Company in its entirety as a going concern, dispose of all Company properties and assets at the best cash price obtainable therefor;

 

(3) third, pay the debts and liabilities of the Company and the expenses of liquidation and establish any reserves deemed necessary by the Board of Managers;

 

(4) fourth, repay any loans and advances by Members and all accrued interest thereon; and

 

(5) fifth, distribute any remaining Company assets to the Members in accordance with their respective positive Capital Account balances; provided, however, that liquidating distributions made after the occurrence of Capital Account Proportionality shall be made in proportion to the Members' Percentage Interests.

 

(c) If any reserves are established in connection with the liquidation, the Board of Managers may pay over the amounts reserved to an escrow agent to be held by it for the purposes of disbursing the reserves in payment of any contingencies that may arise and, at the expiration of any period as the Board of Managers considers advisable, for distribution of the balance of the funds in the same manner and with the same priorities as are provided in Section ‎9.5(b)(5).  The Members are to look solely to the assets of the Company for the return of their Capital Contributions.

 

9.6 Time for Winding-Up.  A reasonable time will be allowed for the orderly liquidation of assets of the Company and the discharge of liabilities to creditors so as to enable the Board of Managers to minimize the normal losses attendant upon liquidation.

 

9.7 Final Accounting.  Each of the Members is to be furnished with a statement setting forth the assets and liabilities, if any, of the Company as of the date of the complete liquidation, which is to be audited and certified to by the Company’s independent public accountants.  Upon compliance by the Board of Managers with the distribution provisions of this Agreement, the Members shall cease to be Members and the Company shall cease to exist.

 

  

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ARTICLE 10.

AMENDMENT OF AGREEMENT

 

10.1 Amendments to This Agreement.  This Agreement may be amended only by unanimous written consent of all of the Members.

 

ARTICLE 11.

MEMBER REPRESENTATIONS AND WARRANTIES

 

Each Member hereby represents and warrants to the other Member as follows:

 

11.1 Organization and Authority.  The Member is a legal entity duly organized and validly existing under the Laws of the state of its incorporation or organization.  The Member has the requisite legal capacity, power and authority to (a) execute, deliver and perform its obligations under this Agreement and each Project Agreement to which it is a party and (b) consummate the transactions contemplated hereby and thereby.

 

11.2 Enforceability.  This Agreement and each of the Project Agreements to which it is a party have been duly authorized, executed and delivered by the Member and constitutes the legal, valid and binding obligation of the Member, enforceable against it in accordance with its terms, except as such enforceability may be affected by bankruptcy, reorganization, insolvency, moratorium or similar Laws affecting the enforcement of creditors’ rights generally and the possible unavailability of certain equitable remedies, including the remedy of specific performance.

 

11.3 Consents.  All authorizations, approvals and consents, if any, required to be obtained from, and all registrations, declarations and filings, if any, required to be made with, all governmental authorities and regulatory bodies to permit the Member to execute and deliver, and to perform its obligations under, this Agreement and each of the Project Agreements to which it is a party have been obtained or made, as the case may be, and all such authorizations, approvals, consents, registrations, declarations and filings are in full force and effect.  All terms and conditions contained in, or existing in respect of, such authorizations, approvals, consents, registrations, declarations and filings have been, to the extent necessary prior to the date of this Agreement, duly satisfied and performed.

 

11.4 No Conflicts.  Neither the execution or delivery by the Member of this Agreement nor any of the Project Agreements to which it is a party nor the consummation by the Member of the transactions contemplated hereby and thereby, nor the fulfillment by the Member of the terms and provisions hereof, (a) will conflict with, violate or result in a breach of any of the terms, conditions or provisions of any Law applicable to the Member, (b) will conflict with, violate or result in a breach of, or constitute a default under, any of the terms, conditions or provisions of its organizational documents or of any loan agreement, indenture, trust deed, or other agreement or instrument to which it is a party or by which it or any of its assets is bound, or (c) except as provided herein, result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature whatsoever upon any of its properties or assets.

 

11.5 Litigation.  There is no action, suit or proceeding pending or, to the Member’s knowledge, threatened, against the Member or any of its properties in any court or before or by 

 

  

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any governmental department, board, agency, instrumentality or arbitrator which, if adversely determined, would materially impair its ability to perform its obligations under this Agreement or any of the Project Agreements to which it is a party, and it is not in default under any applicable order, writ, injunction, decree or award of any court, any governmental department, board, agency, instrumentality or any arbitrator, other than any such violations that, individually or in the aggregate, do not impair in any material way (or involve any substantial possibility, so far as the Member can foresee, of impairing in any material way) the Member’s ability to perform its obligations under this Agreement or any of the Project Agreements.

 

11.6 Member Interest Not Subject to Lien or Security Interest.  The Member owns its Interest free and clear of any liens, security interests, or encumbrances.  Without limiting the foregoing, the Member has not pledged as collateral or granted or otherwise allowed a lien or security interest in or to attach to the Member’s Interest.

 

11.7 Investment Experience.  The Member:  (a) has sufficient knowledge, sophistication and experience in financial and business matters as are necessary to evaluate the risks and merits of an investment in the Company; (b) is acquiring its Interest for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; and (c) understands that (1) the Interest have not been registered under the Securities Act and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering and (2) its Interest must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration.

 

ARTICLE 12.

MAGNETATION REPRESENTATIONS AND WARRANTIES

 

Magnetation hereby represents and warrants to AKS as of the Effective Date and as of any other dates specifically set forth below (as applicable), subject to the matters disclosed in the Supplemental Letter, as follows:

 

12.1 Sufficiency of Assets; Authorization.  As of the Effective Date and as of the dates Magnetation makes its Plant 1 Capital Contributions and contributes Plant 1, the Contributed Magnetation Assets and the Licensed Technology constitute all of the assets (including, without limitation, Technology) and Intellectual Property, rights and privileges which, when considering the Technology License Agreement, have been held by Magnetation and are necessary for the Company to conduct the Business as it has been conducted by Magnetation and the Company through each of such dates.  After contribution of the Contributed Magnetation Assets, the Company will have good and marketable title to, or will hold pursuant to valid and binding leases, all of the Contributed Magnetation Assets, free and clear of any and all liens, security interests or encumbrances.  All such Contributed Magnetation Assets which, individually or in the aggregate, are necessary to the operation of the business as it has been conducted by Magnetation through each of such dates, are in good condition and in a state of good maintenance and repair (ordinary wear and tear excepted) and are suitable for the purposes used.

 

12.2 Financial Statements.  AKS has been provided with (a) the audited consolidated balance sheets of Magnetation as at December 31, 2008, 2009 and 2010 and the related audited consolidated statements of income, stockholders’ equity and cash flows of Magnetation for the fiscal years then ended, together with the notes thereto and the report thereon of RSM

 

  

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McGladrey and (b) the unaudited consolidated balance sheets of Magnetation as at August 31, 2011 and the related unaudited consolidated statements of income, stockholders’ equity and cash flows of Magnetation for the eight-month period then ended (such audited and unaudited statements, including the related notes and schedules thereto, are referred to herein as the “Financial Statements”).  Each of the Financial Statements is complete and correct in all material respects, has been prepared in accordance with GAAP and presents fairly in all material respects the consolidated financial position, results of operations and cash flows of Magnetation as at the dates and for the periods indicated therein, subject (1) in the case of the audited Financial Statements, as set forth in the notes thereto and (2) in the case of the unaudited Financial Statements, the absence of footnote disclosures and other presentation items and changes resulting from normal year-end adjustments.

 

12.3 No Undisclosed Liabilities.  The Company currently does not have, and following the contribution of the Contributed Magnetation Assets will not have, any indebtedness or liabilities or obligations other than those incurred in the ordinary course of business prior to the date of this Agreement or incurred as part of Phase I.

 

12.4 Compliance with Laws; Permits. As of the Effective Date and as of the dates Magnetation makes its Plant 1 Capital Contributions and contributes Plant 1:

 

(a) Each of Magnetation and the Company is in compliance, in all material respects, with all Laws applicable to the Business as it has been conducted by Magnetation through each of such dates.  Neither Magnetation nor the Company has received any notice of or been charged with the violation of any Laws with respect to the Business as it has been conducted by Magnetation through each of such dates and the Contributed Magnetation Assets.  To the knowledge of Magnetation, (1) neither Magnetation nor the Company is under investigation with respect to the violation of any Laws with respect to the Business as it has been conducted by Magnetation through each of such dates or the Contributed Magnetation Assets, (2) there are no facts or circumstances which could form the basis for any such violation and (3) no facts, circumstances or conditions currently exist that could adversely affect such continued compliance with any Laws with respect to the Business as it has been conducted by Magnetation through each of such dates.

 

(b) Each of Magnetation and the Company has all permits required for the operation of the Business as it has been conducted by Magnetation through each of such dates and the Company will have all such required permits after contribution of the Contributed Magnetation Assets, each of which is duly issued to Magnetation or the Company, and each of which is in full force and effect in all material respects, other than those the failure of which to possess is immaterial to the operation of the business as it has been conducted by Magnetation through each of such dates.  Neither Magnetation nor the Company is in default or violation, and no event has occurred which, with or without notice or lapse of time or both, would constitute a default or violation, in any material respect, of any term, condition or provision of any such permit described in this Section 12.4(b) and no action or proceeding is pending or, to the knowledge of Magnetation, threatened to revoke, modify or terminate any such permit and there are no facts or circumstances that could form the basis for any such default or violation.  None of such 

 

  

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permits will be impaired or in any way affected by the consummation of the transactions contemplated by this Agreement or any of the Project Agreements.

 

12.5 Environmental Matters.  As of the Effective Date and as of the dates Magnetation makes its Plant 1 Capital Contributions and contributes Plant 1:

 

(a) Each of Magnetation and the Company is, and to the reasonable knowledge of Magnetation has been for the three (3) years prior to the Effective Date, in compliance, in all material respects, with all environmental Laws applicable to the Business as it has been conducted by Magnetation and the Company through each of such dates, which compliance includes obtaining and maintaining all permits required under such environmental Laws.

 

(b) To the knowledge of Magnetation, no facts, circumstances or conditions exist with respect to Magnetation or the Company, any of their respective predecessors, or any of the Contributed Magnetation Assets which is real property, which resulted in arrangements for the disposal or treatment of Hazardous Materials that could reasonably be expected to result in Magnetation or the Company incurring Environmental Costs or Liabilities.

 

(c) There are no investigations of the Business or the Contributed Magnetation Assets pending or, to the knowledge of Magnetation, threatened which could lead to the imposition on the Company of any Environmental Costs or Liabilities or liens under any applicable Law.

 

12.6 Insurance.  As of the Effective Date and as of the dates Magnetation makes its Plant 1 Capital Contributions and contributes Plant 1, each of Magnetation and the Company has insurance policies in full force and effect for such amounts as are sufficient, in all material respects, for all requirements of Law and all agreements to which each of Magnetation and the Company is a party or by which it is bound, in each case with respect to the Business as it has been conducted by Magnetation and the Company through each of such dates and such insurance policies will be in full force and effect as described in this Section 12.6 after contribution of the Contributed Magnetation Assets (the “Applicable Insurance Policies”).  No event has occurred, including the failure by each of Magnetation and the Company to give any notice or information, or Magnetation or the Company giving any inaccurate or erroneous notice or information, which limits or impairs the rights of Magnetation or the Company under any such Applicable Insurance Policies.

 

12.7 Majority Ownership of Magnetation.  As of the Effective Date, Larry Lehtinen and his Affiliates collectively own or control the vote of a majority in voting shares of capital stock issued and outstanding in Magnetation.

 

12.8 Full Disclosure.  No representation or warranty of Magnetation contained in this Agreement or any of the Project Agreements and no written statement made by or on behalf of Magnetation to AKS or any of its Affiliates pursuant to this Agreement or any of the Project Agreements contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.  Magnetation has 

 

  

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no knowledge of any fact which is not in the public domain and which Magnetation has not disclosed to AKS in writing, which could reasonably be expected to have a Material Adverse Effect.

 

ARTICLE 13.

COVENANTS

 

13.1 Further Assurances.  The Members and the Company shall use their commercially reasonable efforts to take, or cause to be taken, all actions necessary or appropriate to consummate the transactions contemplated by this Agreement.  As promptly as practicable after the date of this Agreement, the Members and the Company shall (a) make all filings and give all notices reasonably required to be made and given by such party in connection with the transactions contemplated by this Agreement, and (b) use all commercially reasonable efforts to obtain all consents required to be obtained (pursuant to any applicable Law, contract or otherwise) by such party in connection with the transactions contemplated by this Agreement.

 

ARTICLE 14.

CLOSING CONDITIONS

 

14.1 Conditions Precedent to Obligations of AKS.  The obligation of AKS to make its Capital Contribution on the AKS Initial Funding Date is subject to the fulfillment, on or prior to such date, of each of the following conditions precedent (any or all of which may be waived in writing by AKS in whole or in part to the extent permitted by applicable Law):

 

(a) the representations and warranties of Magnetation qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the AKS Initial Funding Date, except to the extent such representations and warranties expressly speak as of an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date);

 

(b) Magnetation and the Company shall have performed and complied in all material respects with all obligations and agreements required in this Agreement to be performed or complied with by them as of the AKS Initial Funding Date; and

 

(c) Magnetation and the Company shall have duly executed and delivered to AKS each Project Agreement to which they are a party.

 

14.2 Conditions Precedent to Obligations of Magnetation.  The obligation of Magnetation to make its Capital Contribution pursuant to Section 2.1(a) is subject to the fulfillment, on or prior to the AKS Initial Funding Date, of each of the following conditions precedent (any or all of which may be waived in writing by Magnetation in whole or in part to the extent permitted by applicable Law):

 

(a) the representations and warranties of AKS set forth herein and in each of the Project Agreements qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, in each case, as of 

 

  

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the date of this Agreement and as of the AKS Initial Funding Date, except to the extent such representations and warranties expressly speak as of an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date);

 

(b) AKS shall have performed and complied in all material respects with all obligations and agreements required in this Agreement to be performed or complied with by it as of the AKS Initial Funding Date; and

 

(c) AKS shall have duly executed and delivered to Magnetation each Project Agreement to which it is a party.

 

ARTICLE 15.

DEFAULTS AND REMEDIES

 

15.1 Events of Default.  A Member shall be in default under this Agreement upon the failure by any Member to perform or satisfy any of its material obligations or liabilities under this Agreement, or a material violation or material breach by any such Member of any provision of this Agreement or the JV Formation Agreement (including the representations and warranties contained herein or therein).

 

15.2 Notice and Rights upon Default.

 

(a) If any Member is in default as provided in Section 15.1, any other Member shall be entitled to notify in writing such Member of such default.  Failure of any Member to give any such notice shall not waive such default or release the defaulting Member from any of its obligations or liabilities under this Agreement.  In the case of defaults of payment obligations under Articles 2 and 3, the defaulting Member shall owe interest on past due amounts at a rate that is twice the prime rate as published in the “Money Rates” section of the Wall Street Journal (“Prime Rate”) commencing on the date such payment was due and continuing through and including the date payment is made or the default is deemed cured.

 

(b) If a default shall continue for a period of thirty (30) days after such notice, then, unless and until such failure shall have been cured, unless otherwise agreed to by the non-defaulting Members, the defaulting Member shall not receive distributions under this Agreement during the period of such default; provided, however, that any distributions that otherwise would have been due and owing to the defaulting Members during such period of default shall be paid to such defaulting Member upon cure of such default.

 

  

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ARTICLE 16.

CONFIDENTIALITY

 

16.1 Confidentiality — Company Information.  Except as otherwise expressly permitted by this Article 16:

 

(a) Obligations of the Members.  Each Member shall keep confidential the Company Information and shall not use or exploit such Company Information other than for the benefit of the Company.

 

(b) Obligations of the Company.  The Company shall keep confidential the Company Information.  The Company shall adopt written commercially reasonable procedures in connection with its use of Company Information that are reasonably expected to prevent the Company Information from becoming disclosed to any Person other than the Members, other than as permitted by such procedures.  The foregoing does not limit the Company’s obligations otherwise set forth in this Article 16, including those in Section 16.4 (Permitted Disclosures to Advisors).

 

16.2 Definitions – Company Information and Other.

 

(a) Company Information.  “Company Information” means all information (whether written, oral or in another form) that consists of, or includes, Trade Secrets and Confidential Information as defined in Section 16.2(b) and Section 16.2(c) below.

 

(b) Trade Secrets.  “Trade Secrets” means trade secrets under applicable trade secret or other Law of the Company and, to the extent available for use by the Company, of each of its Members; and includes, however documented, concepts, ideas, designs, know-how, methods, data, processes, formulae, compositions, improvements, inventions, discoveries, product specifications, past, current and planned research and development and manufacturing or distribution methods and processes, lists of actual or potential customers or suppliers, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, and structures and architectures.

 

(c) Confidential Information.  “Confidential Information” means confidential or proprietary information of or concerning the Company and, to the extent available for use by the Company, concerning each Member; and, to the extent consistent with the foregoing definition, includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans.

 

16.3 Certain Exceptions.  The prohibitions in Section 16.1 do not apply to the extent that:

 

(a) Becomes Public.  The Company Information is currently publicly available or has become publicly available and such public availability does not result from (1) the misappropriation or improper disclosure of such Company Information by the disclosing Person or (2) the obtaining of such Company Information by improper means of the disclosing Person;

 

  

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(b) Independently Developed.  The disclosing Person demonstrates that the Company Information was developed independently by the disclosing Person without the use of the Company Information;

 

(c) Legal Obligation to Disclose.  The disclosing Person demonstrates that applicable Law requires it to disclose the Company Information, but then only (1) to the extent disclosure is required and (2) after giving the Company and each Member notice of the obligation so that it may seek a protective order or other similar or appropriate relief;

 

(d) Enforcement of Agreement.  The disclosing Person demonstrates that it is reasonably necessary for the disclosing Person to make the disclosure to enforce this Agreement, and then only if the disclosing Person undertakes in good faith to limit the manner and extent of disclosure;

 

(e) Stock Exchange Rules and Securities Laws.  The disclosure is necessary or desirable in order to comply with applicable stock exchange rules or federal or state securities Laws; or

 

(f) Sale of Member Interest.  Disclosure is made by a Member or the Company in connection with the sale, transfer or other disposition, in whole or in part, of an Interest or the assets of the Company in accordance with this Agreement (but then only if disclosure is subject to (i) a non-disclosure agreement then customary in such transactions and, (ii) if the proposed sale is to a competitor of the Company, a non-competition agreement, all as to which the Company, the other Member and each of its Affiliates is a third party beneficiary).

 

16.4 Permitted Disclosure to Advisors.  Notwithstanding the prohibitions of this Article 16, each Member and the Company may disclose the terms of this Agreement and Company Information to its Advisors directly involved with the Company but:

 

(a) only to the extent necessary for the Advisor to accomplish his or her assigned tasks and otherwise strictly on a need to know basis; and

 

(b) only if the Advisor is advised or is otherwise aware (1) that he or she is obligated to keep confidential, not disclose and retain in strictest confidence the Company Information strictly in accordance with terms of this Article 16 and (2) that the Company or any Member may directly enforce the obligation.

 

Each disclosing Person will be responsible for violations of this Article 16 by its Advisors regardless of whether the Company or any Member has rights against the Advisor.  The term “Advisors” means a Person’s directors, officers, employees, agents, consultants, advisors or other representatives, including lawyers, accountants and financial advisors.

 

16.5 Continuing Protection Under Law.  This Agreement does not limit any rights or remedies that the Company may have in connection with any Company Information under applicable Law.

 

  

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16.6 Attorney-Client Privilege.  To the extent that any Company Information includes materials subject to the attorney-client privilege, the Company is not waiving and will not be deemed to have waived or diminished its attorney work-product protections, attorney-client privileges or similar protections and privileges as a result of disclosing any Company Information (including Company Information related to pending or threatened litigation) to a Member, whether or not the Company has asserted, or is or may be entitled to assert, those privileges and protections.  The Company and the Members: (a) share a common legal and commercial interest in all such Company Information that is subject to such privileges and protections; (b) are or may become joint defendants in proceedings to which such Company Information covered by those protections and privileges relates; and (c) intend that those privileges and protections remain intact if the Company or any Member becomes subject to any actual or threatened proceeding to which such Company Information covered by such protections and privileges relates.  In furtherance of the foregoing, no Member shall claim or contend, in proceedings involving the Company or any Member that the Company waived its attorney work-product protections, attorney-client privileges or similar protections and privileges as a result of disclosing any Company Information (including Company Information related to pending or threatened litigation) to the Member.

 

ARTICLE 17.

REPORTING AND ACCOUNTING PROVISIONS

 

17.1 Books and Records.  The Company shall make and keep the records required by the Act, as may be amended from time to time. Such books and records shall include separate books of account for each Member that shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Business in accordance with GAAP (or such other then-generally accepted accounting standard having replaced GAAP (e.g., International Financial Reporting Standards)) to the standard required for US public companies consistently applied, and, to the extent not inconsistent therewith, in accordance with this Agreement.  In addition, such books and records shall at all times be kept at the Company’s principal office or such other locations as approved by the Board.

 

17.2 Other Accounting and Tax Provisions.  Appendix A contains additional accounting and tax provisions applicable to the Company.

 

17.3 Distribution of Annual Operating and Capital Budgets, Financial Statements and Tax Information.

 

(a) Annual Operating and Capital Budgets.  No later than fifteen (15) days after the Effective Date, the Company and Magnetation shall jointly establish an initial budget for the portion of the calendar year ending December 31, 2011 remaining after the Effective Date.  For each Fiscal Year beginning with the Fiscal Year commencing on January 1, 2012, the Chief Financial Officer shall deliver an annual operating budget and an annual capital budget to the Board for approval no later than forty-five (45) days prior to the end of each Fiscal Year of operation of the Company.  As soon as practical and in any event, within five (5) Business Days following the adoption of such annual operating budget and annual capital budget by the Board, including each Approved Budget, copies 

 

  

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of such annual operating budget and annual capital budget will be distributed to each Member.

 

(b) Auditing.  The audit of the Company shall be conducted by an independent outside auditor approved by the Board (the “Company Auditor”) in accordance with Section 6.3(b)(28). Audit reports prepared by the Company Auditor shall be submitted to the Board and each Member no later than forty-five (45) days following the last day of each Fiscal Year.

 

(c) Financial Information.  As soon as practical and in any event:

 

(1) within five (5) Business Days following the last day of each month, the Company will distribute to each Member: a balance sheet as of, and profit and loss statements and statements of income and cash flow for, the month then ended, as applicable, prepared in accordance with GAAP and including a comparison to the budgeted results for the periods then ended, and any other information required by applicable Law;

 

(2) within five (5) Business Days following the last day of each quarter, the Company will distribute to each Member: a balance sheet as of, profit and loss statements and statements of income and cash flow for, the quarter then ended, as applicable, prepared in accordance with GAAP and including a comparison to the budgeted results for the periods then ended, and any other information required by applicable Law;

 

(3) within seventy-five (75) days following the last day of the Fiscal Year for 2011 and within forty-five (45) days following the last day of each Fiscal Year thereafter, the Company will distribute to each Member: an audited balance sheet as of, and audited profit and loss statements and audited statements of income and cash flow for, the Fiscal Year then ended, as applicable, prepared in accordance with GAAP and including a comparison to the budgeted results for the periods then ended, and any other information required by applicable Law. Such financial statements shall have been audited and certified by the Company Auditor under GAAP to the standards required for United States public companies, at the Company’s cost;

 

(4) as promptly as possible, and no later than within one (1) Business Day of the Company making any year-end changes to the financial statements provided hereunder, the Company will provide each Member with such changes;

 

(5) within thirty (30) days following the last day of each Fiscal Year, the Company will distribute to each Member a statement indicating each Member’s share of each item of income, gain, loss, deduction or credit for such Fiscal Year for income tax purposes, to the extent applicable;

 

(6) as promptly as possible, and no later than within ten (10) days following a Member’s request, or as promptly as practicable thereafter, other information as may be necessary to timely comply with all tax and accounting 

 

  

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rules and regulations applicable to, and the reasonable requirements of auditors and tax professionals of, the Members and their respective Affiliates; and

 

(7) as promptly as possible, and no later than within ten (10) days following AKS’ request, or as promptly as practicable thereafter, the Company will distribute any information that is reasonably necessary for AKS to comply with its reporting obligations under the federal securities Laws.

 

(d) Annual Tax Returns.  The Company will cause its tax returns to be timely prepared and filed in accordance with applicable U.S. federal, state and local Law.  The Company will cause its tax returns to be reviewed by the Company’s independent certified public accountants, and will timely distribute to each Member that information which will be required to permit the Member to prepare its tax return within sixty (60) days after the audited financial statements have been prepared.

 

17.4 Right of Inspection.  At all reasonable times, each Member and its representatives have the right (i) to inspect, audit and make copies of all books, records, financial results, data, procedures and other information of the Company (including without limitation all Company data concerning or in connection with the Project Agreements) and (ii) to reasonable access to the officers, employees and agents of the Company to discuss the Company’s operations and the Business. In addition, the Company shall make all efforts to cause the Company Auditor to provide reasonable access to their workpapers prepared in conjunction with the audit of the Company’s financial statements or any timely review of interim financial statements to the auditor of each Member, as reasonably requested by the inspecting Member. The inspecting Member will bear all expenses incurred in the inspection or examination.

 

ARTICLE 18.

MISCELLANEOUS PROVISIONS

 

18.1 Notices.  All notices to the Company are to be sent by nationally recognized overnight courier or by facsimile (with confirmation of successful transmission), addressed to the Board of Managers of the Company at the Company’s principal place of business.  All notices to a Member are to be sent by nationally recognized overnight courier or by facsimile (with confirmation of successful transmission), addressed to such Member at the address as may be specified by such Member from time to time in a notice to the Company or as set forth below, with a copy of each material notice to be delivered concurrently to such Member’s outside counsel, as specified by such Member from time to time in a notice to the Company or as set forth below.  All notices given pursuant to this Agreement shall be deemed to have been duly given (i) on the second (2nd) business day following the day such notice was sent by nationally recognized overnight courier, or (ii) on the date of service if delivered by facsimile (with the confirmation of successful transmission acting as confirmation of service).

 

  

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If to AKS:

AK Iron Resources, LLC

c/o AK Steel Corporation

Legal Department

9227 Centre Pointe Drive

West Chester, Ohio 45069

Attn: David C. Horn, Esq.

      Joseph C. Alter, Esq.

Fax:  513-425-2302

With a copy of each such notice to:

 

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 10153

Attn:  Raymond O. Gietz, Esq.

Phone:  (212) 310-8702

                                          Fax:  (212) 310-8007

 

If to Magnetation:

Magnetation, Inc.

832 1st Street, Suite 130

Red Rock Business Center

Nashwauk, MN  55769

Attention:  Larry Lehtinen, Chairman and CEO

Phone:  218-349-1277

E-mail: larry.lehtinen@magnetation.com

With a copy of each such notice to:

Krieg DeVault LLP

One Indiana Square, Suite 2800

Indianapolis, IN  46204-2079

Attn:  Gregory B. Coy, Esq.

Phone:  (317) 238-6323

Email: gcoy@kdlegal.com

Fax:  317-636-1507

 

18.2 Indemnification of AKS.  Magnetation agrees to defend, indemnify and hold harmless the Company, AKS, its officers, directors, members and employees from and against any liabilities or obligations of the Company arising out of, or resulting from any business or operations of the Company or Magnetation occurring prior to the Effective Date.  Any damages owed to AKS by Magnetation, to the extent any amount remains unpaid on the date that is thirty (30) days after such amounts are found by a court of competent jurisdiction to be payable, shall 

 

  

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be offset by any distributions to be made to Magnetation pursuant to the terms of this Agreement.

 

18.3 Tax Matters Partner; Notice of Tax Examinations.  Magnetation is specifically authorized to act as the “Tax Matters Partner” under the Code and in any similar matter under the state Law.  Any Member receiving notice that any governmental authority intends to examine any income tax return of the Company is to promptly notify the Company and the other Member.

 

18.4 Entire Agreement.  This Agreement, together with the Project Agreements, and any other agreements expressly referenced herein contain the entire understanding between the parties and supersede any prior understanding and agreements between any of them, including the Non-Binding Term Sheet dated as of July 13, 2011, between Magnetation and AK Steel Corporation, as amended through the date hereof.  As of the date hereof, there are no agreements, arrangements or understandings, whether oral or written, between and among the Members relating to the subject matter of this Agreement that are not set forth or expressly referred to herein.

 

18.5 Governing Law.  This Agreement is governed by and is to be construed and enforced in accordance with the Laws of the State of Delaware without giving effect to its rules concerning conflicts of Laws.

 

18.6 Settlement of Disputes.

 

(a) The Members shall make every effort to settle amicably any and all disputes, controversies, conflicts and claims arising out of or relating to or in connection with the Company, this Agreement or any transactions contemplated hereby, the performance or non-performance or timely performance of the obligations set forth herein or asserted breach hereof (including any questions regarding its existence, validity, interpretation, enforceability or termination) (a “Dispute”).

 

(b) (1) Any Dispute among the Members or (2) any disagreement between the Board Representatives appointed by AKS, on the one hand, and the Board Representatives appointed by Magnetation, on the other hand, as to any particular matter voted upon (or sought to be voted upon) at a meeting of the Board, in each case not settled or resolved (a “Deadlock”), may be referred, by written notice setting out brief details of the Dispute or Deadlock (a “Dispute/Deadlock Notice”) given by a Member to the other Member, to Senior Representatives of each Member.

 

(c) In the event that the Senior Representatives do not amicably resolve a Dispute or a Deadlock within forty-five (45) calendar days after the date of dispatch of the Dispute/Deadlock Notice, the Dispute or Deadlock shall upon the election of either Member be referred to the Chief Executive Officer of the ultimate parent company of AKS and the Chief Executive Officer of Magnetation.  Any solution for the Dispute or Deadlock agreed to by the authorized representatives of each Member at any level of the Dispute or Deadlock resolution process described in the preceding sentences of this Section 18.6(c) shall be deemed as final.

 

  

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(d) Other than claims for injunctive relief or a Deadlock, any Dispute which is not resolved pursuant to Section 18.6(b) and (c) within seventy-five (75) calendar days after the date of dispatch of the related Dispute/Deadlock Notice may be referred by any Member to private arbitration conducted by a single arbitrator (to be mutually agreed upon) in accordance with the then-current Commercial Arbitration Rules of the American Arbitration Association.  Within ten (10) days after a notice of intent to arbitrate, the parties shall agree on a single arbitrator and if the parties cannot agree on a single arbitrator, each party shall appoint one arbitrator who shall then jointly appoint a single arbitrator.  Any arbitration proceeding shall be held in Indianapolis, Indiana, and each party hereby consents to such jurisdiction.  Any judgment or decision including without limitation an award of damages or an injunction, resulting from the arbitration decision may be entered in any federal or state court of competent jurisdiction.

 

(e) Arbitration proceedings shall be commenced by a party by serving the other party with a written notice of intent to arbitrate in accordance with the notification procedures set forth in Section 18.1 above.

 

(f) The decision of the arbitrator shall (i) be made within one hundred and twenty (120) days after the arbitrator is selected; (ii) be in writing; and (iii) set forth each of the factors considered by the arbitrator and the impact of each such factor on its decision.

 

(g) All arbitration decisions shall be final and binding upon the parties. Arbitration shall be the sole and exclusive right and remedy of the parties with respect to any and all Disputes under this Agreement, and each party hereby waives its right to institute any judicial proceedings with respect to any such matters; provided, however, a party may institute judicial proceedings to enforce a decision of the arbitrator rendered in accordance with this Section 18.6.  The arbitrator will have no authority to award any amount other than amounts due and payable under this Agreement, such as punitive or consequential damages, and any purported award of any such amounts shall not be enforceable against any party.  The arbitrator shall have the authority to order the specific performance by either party of its obligations under this Agreement.

 

(h) Each party shall bear its own costs and expenses (including, without limitation, all attorneys’ fees, and all costs and expenses of presenting evidence to and calling witnesses before the arbitrator).  The arbitrator shall determine how the parties shall bear all other arbitration costs and expenses.

 

18.7 Binding Nature.  Except as otherwise provided in this Agreement, this Agreement is binding upon and inures to the benefit of the Members and their respective successors, personal representatives, heirs, devisees, guardians and assigns.

 

18.8 Invalidity.  In the event that any provision of this Agreement is held to be invalid, the validity of the remaining provisions of this Agreement shall not in any way be affected thereby.

 

18.9 Counterparts.  This Agreement and any amendment hereto may be executed in multiple counterparts, each of which is an original and all of which constitute one agreement or amendment, as the case may be, notwithstanding that all of the parties are not signatories to the 

 

  

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original or the same counterpart, or that signature pages from different counterparts are combined, and the signature of any party to any counterpart is a signature to and may be appended to any other counterpart.

 

18.10 Construction.  The headings contained in this Agreement are for reference purposes only and do not affect the meaning or interpretation of this Agreement.  All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, include all other genders.  The singular includes the plural and vice versa.  This Agreement has been jointly drafted by the Members and shall not be construed against either Member.

 

18.11 No Third-Party Beneficiaries.  This Agreement is made solely and specifically among and for the benefit of the parties hereto and their respective successors and assigns, and no other Person, unless express provision is made herein to the contrary, is to have any rights, interests or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third-party beneficiary or otherwise.

 

18.12 Press Releases.  None of the Company nor the Members shall make any press release or other public disclosure of information related to the Company or the transactions contemplated hereby without the prior approval by a Super Majority Vote of the Board.  Notwithstanding the foregoing, a Member that is, or that is controlled by a Person that is, publicly traded may issue press releases or make other public disclosures without approval by the Company, the Board or any other Member, provided the other Members are given a reasonable opportunity to review and comment thereon.

 

ARTICLE 19.

DEFINITIONS

 

“Acceptance Notice” has the meaning set forth in Section 8.5(b).

 

“Act” has the meaning set forth in the Recitals.

 

“Advisor” has the meaning set forth in Section 16.4.

 

“Additional Capital Contributions” means additional contributions to the capital of the Company as provided in Section 3.1(a).

 

“Affiliate” or “affiliate” means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with the specified Person.  A Person controls another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the “controlled” Person, whether through ownership of ten percent (10%) or more of the voting securities of the “controlled” Person, by contract, or otherwise.  An immediate family member of a Person includes such Person’s parents, siblings, spouse and children.

 

“Agreement” has the meaning set forth in the preamble.

 

“AKS” has the meaning set forth in the preamble.

 

“AKS Board” has the meaning set forth in the definition of “AKS Change of Control”.

 

“AKS Capital Contributions” has the meaning set forth in Section 2.1(b).

 

  

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“AKS Change of Control” means (i) that individuals who on the date of this Agreement constitute the Board of Directors of AK Steel Holding Corporation (the “AKS Board”), and any new director whose election to the AKS Board or nomination for election to the AKS Board by AK Steel Holding Corporation’s stockholders was approved by a vote of a majority of the directors who either were directors on the date of this Agreement or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the AKS Board; or (ii) any individual or entity, or group of individuals or entities acting as a group, acquire more than fifty percent (50%) of the outstanding common stock of AK Steel Holding Corporation.

 

 “AKS Initial Funding Date” has the meaning set forth in Section 2.1(b)(1).

 

 “Applicable Insurance Policies” has the meaning set forth in Section 12.6.

 

“Approval” means, with respect to a Manager, either the affirmative vote of the Board Representative at a meeting of the Board of Managers, or the written consent of the Board Representative, to take the action for which the vote or written consent is given.  To be “Approved by,” or receive the “Approval of,” the Board of Managers means, with respect to a decision or action to be made or taken by the Board of Managers, that decision or action receiving the level of Approval of that number of the Managers required under this Agreement.

 

“Approved Budget” has the meaning set forth in Section 6.3(b)(2).

 

“Assignee” has the meaning set forth in Section 8.2.

 

“Bankruptcy” means, with respect to any Person:  (a) that Person’s filing a petition or otherwise voluntarily commencing a case or proceeding, or filing an answer not denying the material allegations of a complaint in any proceeding, seeking relief under any federal or state bankruptcy, insolvency or debtors’ reorganization Law; (b) that Person’s being the voluntary or involuntary subject of an order for relief by any court under any such Law; (c) that Person’s being adjudicated a “bankrupt,” “debtor” or “insolvent” under any such Law; (d) there being appointed under any such Law a “trustee,” “receiver” or “custodian” to manage that Person’s business or properties; (e) there being commenced under any such Law a case or proceeding proposing such an order for relief, adjudication or appointment with respect to that Person or its business, which proceeding is consented to by that Person or which is not dismissed within 90 days after being commenced.

 

“Basins” has the meaning set forth in Section 1.3.

 

“Board” or “Board of Managers” means the Board of Managers created under Section ‎6.1.

 

“Board Representative” has the meaning set forth in Section ‎6.1(a).

 

“Book” has the meaning set forth in Appendix A.

 

“Bona Fide Offer” means an offer from a non Affiliated third party to purchase all, but not less than all, the Interest of a Selling Member, which offer the Selling Member intends to accept if the first right of refusal provided in Section 8.5 is not exercised.

 

“Bona Fide Offer Notice” has the meaning set forth in Section 8.5(a).

 

“Business” has the meaning set forth in Section 1.3(d).

 

  

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“Business Day” means any day except a Saturday, Sunday or a day on which banks in any of the States of New York, Ohio or Minnesota are required or permitted by Law to close.

 

“Calling Member” has the meaning set forth in Section 3.1(c).

 

“Capital Account” means the capital account of a Member maintained in accordance with Section ‎4.1.

 

"Capital Account Proportionality" shall be treated as having occurred at the earliest time at which the Members' Capital Account balances bear the same ratio to one another as do their Percentage Interests.

 

“Capital Contribution” means any cash, property, services rendered or other obligation to contribute cash or property or to perform services, contributed to the Company by any Member as provided in Articles 2 or 3.

 

“Cargill Licenses” has the meaning set forth in Section 1.7.

 

“Closing Date” has the meaning set forth in Section 8.6(a).

 

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

 

“Company” has the meaning set forth in the preamble.

 

“Company Auditor” has the meaning set forth in Section 17.3(b).

 

“Company Information,” “Trade Secrets,” and “Confidential Information” have the meanings set forth in Article 16.

 

“Contributed Magnetation Assets” has the meaning set forth in Section 2.1(a).

 

“Deadlock” has the meaning set forth in Section 18.6(b).

 

 “Deferred Distributions” has the meaning set forth in Section 5.4.

 

“Diluted Member” has the meaning set forth in Section 6.1(f).

 

“Dispute” has the meaning set forth in Section 18.6(a).

 

“Dispute/Deadlock Notice” has the meaning set forth in Section 18.6(b).

 

“Effective Date” has the meaning set forth in the preamble.

 

“Effective Tax Rate” means a blended rate representing the maximum marginal United States federal, state and local income tax rate applicable to any Member, taking into account the deduction of state and local income taxes for federal income tax purposes, as determined in good faith by the Board of Managers.  The Effective Tax Rate shall initially be forty-two and one-half percent (42.5%), and may be revised from time to time by the Board of Managers to reflect changes in federal, state or local income taxes.

 

“Electing Member” has the meaning set forth in Section 9.4.

 

“Environmental Costs or Liabilities” means, with respect to any person, all losses (including punitive damages and consequential damages) and all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), incurred as a result of any claim or demand by any other person or in response to any violation of Law, whether known or unknown, accrued or contingent, whether based in contract, tort, implied 

 

  

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or express warranty, strict liability, criminal or civil statute or otherwise, to the extent based upon, related to, or arising under or pursuant to any Law, permit, order or agreement with any governmental body or other person, which relates to any environmental, health or safety condition, violation of Law or a release or threatened release of Hazardous Materials.

 

“Financial Statements” has the meaning set forth in Section 12.2.

 

“Fiscal Year” means the fiscal year of the Company as determined by the Board of Managers from time to time and, initially, means a fiscal year ending on December 31.

 

“GAAP” means the United States’ generally accepted accounting principles.

 

“Hazardous Material” means any substance, material or waste that is regulated, classified, or otherwise characterized under or pursuant to any Law as “hazardous,” “toxic” or “radioactive” or as a “pollutant” or “contaminant” or words of similar meaning or effect, including petroleum and its by-products, methane gas, asbestos and polychlorinated biphenyls.

 

“Intellectual Property” means all the following whether arising under the laws of the USA or of any other jurisdiction: (a) patents, patent applications (including patents issued thereon) and statutory invention registrations, including reissues, divisions, continuations, continuations in part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions; (b) copyrights, moral rights, mask work rights, database rights and design rights, whether or not registered, and registrations and applications for registration thereof, and all rights therein provided by international treaties or conventions; (c) trade secrets; (d) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, corporate names, trade styles, and other source or business identifiers and general intangibles of a like nature, together with the goodwill associated with any of the foregoing, along with all applications, registrations, renewals and extensions thereof; (e) intellectual property rights arising from or in respect of domain names; and (f) all other intellectual property rights arising from or in respect of Technology.

 

“Interest” means a Member’s limited liability company interest in the Company, including all of its Interest and all financial and governance rights, and any and all benefits to which a Member may be entitled, and the obligations and liabilities of a Member, under this Agreement.

 

“Joint Venture” has the meaning set forth in the Recitals.

 

“JV Formation Agreement” means the Formation Agreement Regarding Joint Venture among Magnetation, AKS and the Company to be executed simultaneously with the execution of this Agreement.

 

“Law” means any law, statute, ordinance, rule, regulation, order, writ, decree or injunction having the force of law enacted, adopted, promulgated or applied by any court or any federal, state, county, municipal, local or foreign government or any governmental agency, bureau, commission, authority or body.

 

“Magnetation” has the meaning set forth in the preamble.

 

“Magnetation Capital Reserve Account” has the meaning set forth in Section 5.4.

 

“Major Decisions” has the meaning set forth in Section 6.7(a). 

 

  

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“Majority Vote of the Board” means, with respect to a decision to be made or an action to be taken by a Majority Vote of the Board, the Approval by Managers entitled to vote more than fifty percent (50%) of the total number of votes eligible to be cast.

 

“Management Services Agreement” means the Management Services Agreement between the Company and Magnetation to be executed simultaneously with the execution of this Agreement.

 

“Manager” has the meaning set forth in Section 6.1(a).

 

“Material Adverse Effect” means any event, circumstance, change in or effect that, either alone or in combination, is or would reasonably be expected to be materially adverse to the Business, assets, properties, liabilities, results of operations or condition (financial or otherwise) of the Company, including the completion of Phase II.

 

“Members” means all of the Persons and their respective assigns and successors in interest who are admitted from time to time as members of the Company, including AKS and Magnetation.  A “Member” means any one of the Members so long as that Person holds an Interest and any Member that was or is its predecessor or successor in interest.

 

“MR License” has the meaning set forth in Section 1.7.

 

“Net Available Cash” means, at any time, all cash of the Company, subject to (a) any mandatory provisions of applicable Law, (b) restrictions or payment requirements set forth in any credit or other agreement that is binding on the Company, and (c) a reasonable reserve requirement for, among other things, estimated operating and capital expenses and expenditures contemplated in the Approved Budget.  Net Available Cash shall not include any Capital Contributions by a Member.

 

“Non-Selling Member” has the meaning set forth in Section 8.5(a).

 

“Officer” has the meaning set forth in Section 6.5(a).

 

“Offtake Agreement” means the Form of Pellet Purchase Agreement between the Company and AKS (and/or an Affiliate of AKS), in a form agreed to by the Parties.

 

“Other Member” has the meaning set forth in Section 9.4.

 

“Pellet Plant” has the meaning set forth in Section 1.3(c).

 

“Percentage Interest” of a Member means the ratio, expressed as a percentage, of the Units held by such Member relative to the total number of Units held by all Members.

 

“Person” or “person” means and includes any natural person and any corporation, partnership, trust, estate, limited liability company or other entity.

 

“Phase I” has the meaning set forth in Section 1.3(b).

 

“Phase I Balance” has the meaning set forth in Section 2.1(b)(2).

 

“Phase I Conditions” has the meaning set forth in Section 2.1(b)(2).

 

“Phase I Portion” has the meaning set forth in Section 2.1(b).

 

“Phase II” has the meaning set forth in Section 1.3(c).

 

  

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“Phase II Abandonment Date” means the (a) date on which AKS and Magnetation, by written agreement, agree not to complete Phase II or (b) fifth (5th) anniversary of the Effective Date if the Phase II Conditions have not been waived or satisfied by that date.

 

“Phase II Completion Date” means the date of the first commercial production of iron ore flux pellets by the Pellet Plant for sale.

 

“Phase II Conditions” has the meaning set forth in Section 2.1(b)(3).

 

“Phase II Portion” has the meaning set forth in Section 2.1(b)(3).

 

“Plant” has the meaning set forth in Section 1.3(a).

 

“Plant 1” has the meaning set forth in Section 1.3(b).

 

“Plant 1 Capital Contributions” has the meaning set forth in Section 2.1(a).

 

“Plant 2” has the meaning set forth in Section 1.3(b).

 

“Plant 4” has the meaning set forth in Section 1.3(c).

 

“Plant 5” has the meaning set forth in Section 1.3(c).

 

“Prime Rate” has the meaning set forth in Section 15.2.

 

“Project Agreements” means (i) this Agreement, (ii) the Technology License Agreement, (iii) the Offtake Agreement, (iv) the Sales and Marketing Agreement, (vi) the Resource Agency Agreement, (vii) the Management Services Agreement and (viii) the JV Formation Agreement.

 

“Project Team” has the meaning set forth in Section 6.7.

 

“Related Counterparty” has the meaning set forth in Section 7.5.

 

“Related Party Transaction” means any agreement, arrangement or understanding (including any purchase, sale, lease, investment, loan, service or management agreement or other transaction) of the Company, whether oral or written, directly or indirectly, with (i) any Member, (ii) any of the respective Affiliates of a Member, (iii) directors, officers or supervisors of any Member, any of the respective Affiliates of a Member or the Company, (iv) shareholders holding or having the ability to exercise control over more than five percent (5%) of any class of securities of either Member, their respective Affiliates or the Company, or (v) any person or entity controlled by the aforementioned Persons.

 

“Relevant Year” has the meaning set forth in Section 6.3(b)(2).

 

“Remote Participation” has the meaning set forth in Section 6.4(b).

 

“Resource Agency Agreement” means that certain Resource Agency Agreement by and between the Company and Magnetation to be executed simultaneously with the execution of this Agreement.

 

“Sales and Marketing Agreement” means that certain Sales and Marketing Agreement by and between the Company and Magnetation to be executed simultaneously with the execution of this Agreement.

 

“Sale of Magnetation” means any occurrence that results in Larry Lehtinen, his immediate family, and his and their Affiliates, ceasing to own, in the aggregate (a) the largest percentage of outstanding voting stock of Magnetation owned by any Person (together with its Affiliates) or (b) 

 

  

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at least forty percent (40%) of the outstanding voting stock of Magnetation ((a) and (b) shall constitute “Control of Magnetation”) other than such sales or occurrences to which AKS shall have given its prior consent, in AKS’s sole discretion.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Selling Member” has the meaning set forth in Section 8.5.

 

“Senior Representative” with respect to a Member, means an authorized senior representative of such Member, or Affiliate thereof, appointed and duly authorized by such Member to act as a Senior Representative hereunder, who must not be a Board Representative or Officer and shall not directly or indirectly report to any Board Representative or Officer.

 

“Subsequent Sales Price” has the meaning set forth in Section 9.4(b).

 

“Super Majority Vote of the Board” means, with respect to a decision to be made or an action to be taken by a Super Majority Vote of the Board, the Approval by at least three (3) of the Magnetation Board Representatives and at least two (2) of the AKS Board Representatives.

 

“Supplemental Letter” means that supplemental letter agreement between AKS, Magnetation and the Company, dated of even date herewith.

 

“Technology” means all concepts, ideas, designs, know-how, methods, data, processes, formulae, compositions, improvements, inventions (whether patentable or unpatentable and whether or not reduced to practice), discoveries, product specifications, past, current and planned research and development and manufacturing or distribution methods and processes, lists of actual or potential customers or suppliers, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, structures and architectures, documentation and any other embodiments of the above, in any form whether or not specifically listed herein.

 

“Technology License Agreement” means that certain nonexclusive Technology License Agreement between Magnetation, Inc., as licensor and Company as licensee to use the Technology to be executed simultaneously with the execution of this Agreement.

 

“Termination Event” has the meaning set forth in Section 9.3.

 

“Transfer” has the meaning set forth in Section ‎8.1.

 

“Uncured AKS Contribution Default” means the failure of AKS to pay either (a) the Phase I Balance when required by Section 2.1(b)(2) hereof or (b) the Phase II Portion when required by Section 2.1(b)(3) hereof, but only if (1) AKS is not disputing in good faith its obligation to make any such payments pursuant to the provisions of Section 18.6 and (2) such failure continues for more than thirty (30) days beyond (i) the due date for such payment as set forth in this Agreement if AKS is not disputing in good faith its obligation to make such payment or (ii) if AKS is so disputing such obligation, the resolution of such dispute.

 

“Units” means all ownership interests in the Company, which shall be designated and have the attributes specified in Section 4.4.

 

 

(Signature page follows)

 

 

  

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IN WITNESS WHEREOF, the undersigned have caused their respective duly authorized officers to execute this Agreement as of the date first above written.

 

 

	
MAGNETATION LLC

 

	
MAGNETATION, INC.

 

	
By:  

	
/s/ Matthew Lehtinen

	
By:  

	
/s/Larry Lehtinen

	  	
Matthew Lehtinen, Vice President

	  	
Larry Lehtinen, Chairman and CEO

	
AK IRON RESOURCES, LLC

 

	 
	
By:  

	
/s/ John F. Kaloski

	 
	  	
John F. Kaloski, Vice President

	 

 

 

  

51  

  

APPENDIX A

Magnetation LLC

 

 

TAX MATTERS

 

This Appendix A is attached to and is a part of the Amended and Restated Operating Agreement dated October 4, 2011 (the “Agreement”) of Magnetation LLC (the “Company”).  The parties to the Agreement intend that the Company be classified as a partnership for federal income tax purposes pursuant to section 7701(a)(2) of the Code and the regulations thereunder.  The provisions of this Appendix A are intended to comply with the requirements of Treas. Reg. § 1.704-l(b)(2)(iv) and Treas. Reg. § 1.704-2 with respect to maintenance of capital accounts and allocations, and shall be interpreted and applied accordingly.

 

ARTICLE 1.

DEFINITIONS

 

1.01 Definitions.  For purposes of this Appendix A, the capitalized terms listed below shall have the meanings indicated.  Capitalized terms not listed below and not otherwise defined in this Appendix A shall have the meanings specified in the Agreement.

 

“Account Reduction Item” means (i) any adjustment described in Treas. Reg. § 1.704-1(b)(2)(ii)(d)(4); (ii) any allocation described in Treas. Reg. § 1.704-1(b)(2)(ii)(d)(5), other than a Nonrecourse Deduction or a Member Nonrecourse Deduction; or (iii) any distribution described in Treas. Reg. § 1.704-1(b)(2)(ii)(d)(6), other than a Nonrecourse Distribution or a Member Nonrecourse Distribution.

 

“Adjusted Capital Account Balance” means, as of the end of any taxable year, a Member’s Capital Account balance as of the end of such taxable year (taking into account all contributions made by such Member and distributions made to such Member during such taxable year and any special allocations required by Sections ‎3.02, ‎3.03, ‎3.04(a), 3.04(b), ‎3.04(d), and ‎3.06 of this Appendix A, increased by the sum of (i) such Member’s share of Company Minimum Gain and (ii) such Member’s share of Member Nonrecourse Debt Minimum Gain, both determined after taking into account any such special allocations.

 

“Adjusted Fair Market Value” of an item of Company property means the greater of (i) the fair market value of such property (as determined by the Board of Managers) or (ii) the amount of any nonrecourse indebtedness to which such property is subject within the meaning of Section 7701(g) of the Code.

 

“Book” means the method of accounting prescribed for compliance with the capital account maintenance rules set forth in Treas. Reg. § 1.704-1(b)(2)(iv) as reflected in Articles 2 and 3 of this Appendix A, as distinguished from any accounting method which the Company may adopt for other purposes such as financial reporting.

 

  

  

  

 

“Book Value” means, with respect to any item of Company property, the book value of such property within the meaning of Treas. Reg. § l.704-l(b)(2)(iv)(g)(3); provided, however, that if the Company adopts the remedial allocation method described in Treas. Reg. § 1.704-3(d) with respect to any item of Company property, the Book Value of such property shall be its book basis determined in accordance with Treas. Reg. § 1.704-3(d)(2).

 

“Code” means the Internal Revenue Code of 1986, as amended.  References to specific sections of the Code include references to corresponding provisions of any succeeding internal revenue law of the United States of America.

 

“Company Minimum Gain” has the meaning set forth in Treas. Reg. § 1.704-2(d).

 

“Deemed Liquidation” means a liquidation of the Company that is deemed to occur pursuant to Treas. Reg. § 1.708-l(b)(4) in the event of a termination of the Company pursuant to Section 708(b)(1)(B) of the Code.

 

“Excess Deficit Balance” means the amount, if any, by which the balance in a Member’s Capital Account as of the end of the relevant taxable year is more negative than the amount, if any, of such negative balance that such Member is treated as obligated to restore to the Company pursuant to Treas. Reg. § 1.704-l(b)(2)(ii)(c), Treas. Reg. § 1.704-1(b)(2)(ii)(h), Treas. Reg. § 1.704-2(g)(1), or Treas. Reg. § 1.704-2(i)(5).  Solely for purposes of computing a Member’s Excess Deficit Balance, such Member’s Capital Account shall be reduced by the amount of any Account Reduction Items that are reasonably expected as of the end of such taxable year.

 

“Excess Nonrecourse Liabilities” means excess nonrecourse liabilities within the meaning of Treas. Reg. § 1.752-3(a)(3).

 

“Exculpatory Liability” means a liability that is recourse to the Company as an entity, and for which no Member or Related Person bears the economic risk of loss under Treas. Reg. § 1.752-2.

 

“Member Nonrecourse Debt” has the meaning set forth in Treas. Reg. § 1.704-2(b)(4).

 

“Member Nonrecourse Debt Minimum Gain” means minimum gain attributable to Member Nonrecourse Debt pursuant to Treas. Reg. § 1.704-2(i)(3).

 

“Member Nonrecourse Deduction” means any item of Book loss or deduction that is a partner nonrecourse deduction within the meaning of Treas. Reg. § 1.704-2(i)(1) and (2).

 

“Member Nonrecourse Distribution” means a distribution to a Member that is allocable to a net increase in such Member’s share of Member Nonrecourse Debt Minimum Gain pursuant to Treas. Reg. § 1.704-2(i)(6).

 

“Nonrecourse Deduction” has the meaning set forth in Treas. Reg. § 1.704-2(c).

 

“Nonrecourse Distribution” means a distribution to a Member that is allocable to a net increase in Company Minimum Gain pursuant to Treas. Reg. § l.704-2(h)(l).

 

“Nonparticipating Members” means each Member who (a) is entitled to receive notice of the proceedings from the Service, (b) is a member of a notice group defined in Section 6223(b)(2) of the Code, and (c) has timely filed a statement with the Secretary of 

 

  

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Treasury (or his delegate), provided that the Tax Matters Partner shall not have authority to bind such Member.

 

“Regulatory Allocation” means (i) any allocation made pursuant to Section ‎3.04(a) of this Appendix A to the extent that such allocation is attributable to a prior distribution that is treated as a Nonrecourse Distribution (after taking into account Section ‎5.03(a) of this Appendix A); (ii) any allocation made pursuant to Section ‎3.04(b) of this Appendix A to the extent that such allocation is attributable to a prior distribution that is treated as a Member Nonrecourse Distribution (after taking into account Section ‎5.03(b) of this Appendix A); (iii) any reallocation made pursuant to Section 3.04(d) or ‎3.04(e) of this Appendix A; or (iv) any allocation or reallocation made pursuant to Section ‎3.05 of this Appendix A.

 

“Related Person” means, with respect to a Member, a person that is related to such Member pursuant to Treas. Reg. § 1.752-4(b).

 

“Revaluation Event” means (i) a liquidation of the Company (within the meaning of Treas. Reg. § 1.704-l(b)(2)(ii)(g) but not including a Deemed Liquidation); or (ii) any other contribution of more than a de minimis amount of money or other property to the Company by a new or existing Member or a distribution of more than a de minimis amount of money or other property to a retiring or continuing Member where such contribution or distribution alters the Percentage Interest of any Member.

 

“Section 705(a)(2)(B) Expenditures” means nondeductible expenditures of the Company that are described in Section 705(a)(2)(B) of the Code, and organization and syndication expenditures and disallowed losses to the extent that such expenditures or losses are treated as expenditures described in Section 705(a)(2)(B) of the Code pursuant to Treas. Reg. § 1.704-1(b)(2)(iv)(i).

 

“Section 751 Property” means unrealized receivables and substantially appreciated inventory items within the meaning of Treas. Reg. § 1.751-l(a)(1).

 

“Service” means the Internal Revenue Service, or its successor administrative agency, under the Laws of the United States.

 

“Tax Basis” means, with respect to any item of Company property, the adjusted basis of such property as determined in accordance with the Code.

 

“Tax Matters Partner” means the Member appointed to that office by the Board of Managers who has the rights and powers set forth in Article 6 of this Appendix A.

 

“Treasury Regulation” or “Treas. Reg.” means the temporary or final regulation(s) promulgated pursuant to the Code by the U.S. Department of the Treasury.

 

ARTICLE 2.

CAPITAL ACCOUNTS

 

2.01 Maintenance.  A single Capital Account shall be maintained for each Member in accordance with this Article 2.

 

  

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(a) Each Member’s Capital Account shall from time to time be increased by:

 

(i) the amount of money contributed by such Member to the Company (including the amount of any Company liabilities which the Member assumes (within the meaning of Treas. Reg. § l.704-1(b)(2)(iv)(c)), but excluding liabilities assumed in connection with the distribution of Company property and excluding increases in such Member’s share of Company liabilities pursuant to Section 752 of the Code);

 

(ii) the fair market value of property contributed by such Member to the Company (as determined by the Board of Managers) (net of any liabilities secured by such property that the Company is considered to assume or take subject to pursuant to Section 752 of the Code);

 

(iii) allocations to such Member of Company Book income and gain (or the amount of any item or items of income or gain included therein);

 

(iv) upon the revaluation of Company property pursuant to Section 2.02(a) of this Appendix A, the Book gain (if any) that would have been allocated to such Member if such Company property had been sold at its Adjusted Fair Market Value as of the date of such revaluation except as otherwise provided in Section 2.1(f) of the Agreement; and

 

(v) upon the distribution of Company property to a Member, if Company property is not revalued pursuant to Section ‎2.02(a) of this Appendix A, the Book gain (if any) that would have been allocated to such Member if such Company property had been sold at its Adjusted Fair Market Value immediately prior to the distribution.

 

(b) Each Member’s Capital Account shall from time to time be reduced by:

 

(i) the amount of money distributed to such Member by the Company (including the amount of such Member’s individual liabilities for which the Company becomes personally and primarily liable but excluding liabilities assumed in connection with the contribution of property to the Company and excluding decreases in such Member’s share of Company liabilities pursuant to Section 752 of the Code);

 

(ii) the fair market value of property distributed to such Member by the Company (as determined by the Board of Managers) (net of any liabilities secured by such property that such Member is considered to assume or take subject to pursuant to Section 752 of the Code);

 

  

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(iii) allocations to such Member of Company Book loss and deduction (or items thereof, including, without limitation, the amounts specially allocated pursuant to Section 4.2(c) of the Agreement);

 

(iv) upon the revaluation of Company property pursuant to Section ‎2.02(a) of this Appendix A, the Book loss (if any) that would have been allocated to such Member if such Company property had been sold at its Adjusted Fair Market Value as of the date of such revaluation except as otherwise provided in Section 2.1 (f) of the Agreement; and

 

(v) upon the distribution of Company property to a Member, if Company property is not revalued pursuant to Section ‎2.02(a) of this Appendix A, the Book loss (if any) that would have been allocated to such Member if such Company property had been sold at its Adjusted Fair Market Value immediately prior to the distribution.

 

(c) The Company shall make such other adjustments to the Capital Accounts of the Members as are necessary to comply with the provisions of Treas. Reg. § 1.704-1(b)(2)(iv).

 

2.02 Revaluation of Company Property.  Only to the extent not previously taken into account under Section 2.01 of this Appendix A:

 

(a) Upon the occurrence of a Revaluation Event, the Board of Managers may revalue all Company property (whether tangible or intangible) for Book purposes to reflect the Adjusted Fair Market Value of Company property immediately prior to the Revaluation Event.  In the event that Company property is so revalued, the Capital Accounts of the Members shall be adjusted in accordance with Treas. Reg. § 1.704-1(b)(2)(iv)(f).

 

(b) Upon the distribution of Company property to a Member, if Company property is not revalued pursuant to Section ‎2.02(a) of this Appendix A, the property to be distributed shall be revalued for Book purposes to reflect the Adjusted Fair Market Value of such property immediately prior to such distribution, and the Capital Accounts of all Members shall be adjusted in accordance with Treas. Reg. § 1.704-1(b)(2)(iv)(e).

 

2.03 Restoration of Negative Balances.  No Member with a deficit balance in its Capital Account shall have any obligation to the Company, to any other Member or to any third party to restore or repay said deficit balance.

 

2.04 Transfers of Interest.

 

(a) Upon the transfer of a Member’s entire Interest in the Company, the Capital Account of such Member shall carry over to the transferee.

 

  

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(b) Upon the transfer of a portion of a Member’s Interest in the Company, the portion of such Member’s Capital Account attributable to the transferred portion shall carry over to the transferee.  In the event that the document effecting such transfer specifies the portion of such Member’s Capital Account to be transferred, such portion shall be deemed to be the portion attributable to the transferred portion of such Member’s Interest for purposes of this Section 2.04(b).

 

ARTICLE 3.

ALLOCATION OF BOOK INCOME AND LOSS

 

3.01 Book Income And Loss.

 

(a) The Book income or loss of the Company for purposes of determining allocations to the Capital Accounts of the Members shall be determined in the same manner as the determination of the Company’s taxable income, except that (i) items that are required by Section 703(a)(1) of the Code to be separately stated shall be included; (ii) items of income that are exempt from inclusion in gross income for federal income tax purposes shall be treated as Book income, and related deductions that are disallowed under Section 265 of the Code shall be treated as Book deductions; (iii) Section 705(a)(2)(B) Expenditures shall be treated as deductions; (iv) items of gain, loss, depreciation, amortization, or depletion that would be computed for federal income tax purposes by reference to the Tax Basis of an item of Company property shall be determined by reference to the Book Value of such item of property; (v) the effects of upward and downward revaluations of Company property pursuant to Section ‎2.02 of this Appendix A shall be treated as gain or loss respectively from the sale of such property; and (vi) items that are specially allocated under this Article 3 or Section 4.2(c) of the Agreement shall be excluded from Book income or loss.

 

(b) Subject to the special allocation provisions contained in this Article 3, in the event that the Book Value of any item of Company property differs from its Tax Basis, the amount of Book depreciation, depletion, or amortization for a period with respect to such property shall be computed so as to bear the same relationship to the Book Value of such property as the depreciation, depletion, or amortization computed for tax purposes with respect to such property for such period bears to the Tax Basis of such property.  If the Tax Basis of such property is zero, the Book depreciation, depletion, or amortization with respect to such property shall be computed by using a method consistent with the method that would be used for tax purposes if the Tax Basis of such property were greater than zero.

 

(c) Allocations to the Capital Accounts of the Members shall be based on the Book income or loss of the Company as determined pursuant to this Section 3.01.  Such allocations shall be made as provided in Section 4.2 of the Agreement except to the extent modified by the provisions of this Article 3.

 

  

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3.02 Allocation of Nonrecourse Deductions.  Notwithstanding any other provisions of the Agreement, Nonrecourse Deductions shall be allocated among the Members in proportion to their respective Percentage Interests.

 

3.03 Allocation Of Member Nonrecourse Deductions.  Notwithstanding any other provisions of the Agreement, any item of Member Nonrecourse Deduction with respect to a Member Nonrecourse Debt shall be allocated to the Member or Members who bear the economic risk loss for such Member Nonrecourse Debt in accordance with Treas. Reg. § 1.704-2(i).

 

3.04 Chargebacks Of Income And Gain.  Notwithstanding any other provisions of the Agreement:

 

(a) Company Minimum Gain.  In the event that there is a net decrease in Company Minimum Gain for a taxable year of the Company, then before any other allocations are made for such taxable year, each Member shall be allocated items of Book income and gain for such year (and, if necessary, for subsequent years) to the extent required by Treas. Reg. § 1.704-2(f).

 

(b) Member Nonrecourse Debt Minimum Gain.  In the event that there is a net decrease in Member Nonrecourse Debt Minimum Gain for a taxable year of the Company, then after taking into account allocations pursuant to paragraph (a) immediately preceding, but before any other allocations are made for such taxable year, each Member with a share of Member Nonrecourse Debt Minimum Gain at the beginning of such year shall be allocated items of Book income and gain for such year (and, if necessary, for subsequent years) to the extent required by Treas. Reg. § 1.704-2(i)(4).

 

(c) Application for Waiver.  In the event that the Board of Managers determines that the application of the provisions of Section 3.04(a) or Section 3.04(b) of this Appendix A would cause a distortion in the economic arrangement among the Members, any Officer may, on behalf of the Company, request a waiver of the application of either or both of such provisions pursuant to Treas. Reg. § 1.704-2(f)(4) or Treas. Reg. § 1.704-2(i)(4).

 

(d) Qualified Income Offset.  In the event that any Member unexpectedly receives any Account Reduction Item that results in an Excess Deficit Balance at the end of any taxable year after taking into account all other allocations and adjustments under this Agreement other than allocations under Section 3.04(e) of this Appendix A, then items of Book income and gain for such year (and, if necessary, for subsequent years) will be reallocated to each such Member in the amount and in the proportions needed to eliminate such Excess Deficit Balance as quickly as possible.

 

(e) Gross Income Allocation.  If, at the end of any taxable year, the Capital Accounts of any Members have Excess Deficit Balances after taking into 

 

  

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account all other allocations and adjustments under this Agreement, then items of Book income and gain for such year will be reallocated to such Members in the amount and in the proportions needed to eliminate such Excess Deficit Balances as quickly as possible.

 

3.05 Reallocation To Avoid Excess Deficit Balances.  Notwithstanding any other provisions of the Agreement, no Book loss or deduction shall be allocated to any Member to the extent that such allocation would cause or increase an Excess Deficit Balance in the Capital Account of such Member.  Such Book loss or deduction shall be reallocated away from such Member and to the other Members in accordance with the Agreement, but only to the extent that such reallocation would not cause or increase Excess Deficit Balances in the Capital Accounts of such other Members.

 

3.06 Corrective Allocation.  Subject to the provisions of Sections ‎3.02, ‎3.03, ‎3.04 and ‎3.05 of this Appendix A, but notwithstanding any other provision of the Agreement, in the event that any Regulatory Allocation is made pursuant to this Appendix A for any taxable year, then remaining Book items for such year (and, if necessary, Book items for subsequent years) shall be allocated or reallocated in such amounts and proportions as are appropriate to restore the Adjusted Capital Account Balances of the Members to the position in which such Adjusted Capital Account Balances would have been if such Regulatory Allocation had not been made.

 

3.07 Other Allocations.

 

(a) If during any taxable year of the Company there is a change in any Member’s Interest in the Company, allocations of Book income or loss for such taxable year shall take into account the varying Interests of the Members in the Company in a manner consistent with the requirements of Section 706 of the Code.

 

(b) If and to the extent that any distribution of Section 751 Property to a Member in exchange for property other than Section 751 Property is treated as a sale or exchange of such Section 751 Property by the Company pursuant to Treas. Reg. § l.751-l(b)(2), any Book gain or loss attributable to such deemed sale or exchange shall be allocated only to Members other than the distributee Member.

 

(c) If and to the extent that any distribution of property other than Section 751 Property to a Member in exchange for Section 751 Property is treated as a sale or exchange of such other property by the Company pursuant to Treas. Reg. § l.751-l(b)(3), any Book gain or loss attributable to such deemed sale or exchange shall be allocated only to Members other than the distributee Member.

 

  

8

  

 

ARTICLE 4.

ALLOCATION OF TAX ITEMS

 

4.01 In General.  Except as otherwise provided in this Article 4, all items of income, gain, loss, and deduction shall be allocated among the Members for federal income tax purposes in the same manner as the allocation for Book purposes.

 

4.02 Section 704(c)(1)(A) Allocations.  In the event that the Book Value of an item of Company property differs from its Tax Basis, allocations of depreciation, depletion, amortization, gain, and loss with respect to such property will be made for federal income tax purposes in a manner that takes account of the variation between the Tax Basis and Book Value of such property in accordance with Section 704(c)(1)(A) of the Code and Treas. Reg. § 1.704-1 (b)(4)(i).  The Board of Managers shall use the traditional method with curative allocations (as provided in Treas. Reg. § 1.704-3(c)) to correct (to the maximum extent possible) the distortions created by the ceiling rule in respect of the assets contributed by Magnetation pursuant to Section 2.1(a);  provided, however, that such curative allocations shall be limited to (a) allocations of gain from the disposition of such contributed assets, and (b) allocations of gain or loss from the disposition of any assets in connection with the liquidation of the Company (or the sale of all or substantially all of the Company’s assets).

 

4.03 Tax Credits.  Tax credits shall be allocated among the Members in accordance with Treas. Reg. § l.704-1(b)(4)(ii).

 

ARTICLE 5.

OTHER TAX MATTERS

 

5.01 Excess Nonrecourse Liabilities.  For the purpose of determining the Members’ Percentage Interests of the Company’s Excess Nonrecourse Liabilities pursuant to Treas. Reg. §§ l.752-3(a)(3) and 1.707-5(a)(2)(ii), and solely for such purpose, the Members’ Interests in profits are hereby specified to be their respective Percentage Interests.

 

5.02 Exculpatory Liabilities.  The Board of Managers may (a) treat deductions attributable to Exculpatory Liabilities as deductions that are not Nonrecourse Deductions, and (b) disregard Exculpatory Liabilities in the determination of Company Minimum Gain.

 

5.03 Treatment Of Certain Distributions.

 

(a) In the event that (i) the Company makes a distribution that would (but for this Subsection (a)) be treated as a Nonrecourse Distribution; and (ii) such distribution does not cause or increase a deficit balance in the Capital Account of the Member receiving such distribution as of the end of the Company’s taxable year in which such distribution occurs; then the Board of Managers may treat 

  

9

  

 

such distribution as not constituting a Nonrecourse Distribution to the extent permitted by Treas. Reg. § 1.704-2(h)(3).

 

(b) In the event that (i) the Company makes a distribution that would (but for this Subsection (b)) be treated as a Member Nonrecourse Distribution; and (ii) such distribution does not cause or increase a deficit balance in the Capital Account of the Member receiving such distribution as of the end of the Company’s taxable year in which such distribution occurs; then the Board of Managers may treat such distribution as not constituting a Member Nonrecourse Distribution to the extent permitted by Treas. Reg. § 1.704-2(i)(6).

 

5.04 Reduction Of Basis.  In the event that a Member’s Interest in the Company may be treated in whole or in part as depreciable property for purposes of reducing such Member’s basis in such Interest pursuant to Section 1017(b)(3)(C) of the Code, the Board of Managers may, upon the request of such Member, make a corresponding reduction in the basis of its depreciable property with respect to such Member.  Such request shall be submitted to the Company in writing, and shall include such information as may be reasonably required in order to effect such reduction in basis.

 

5.05 Entity Classification.  Neither the Company nor any Member shall file or cause to be filed any election, the effect of which would be to cause the Company to be classified as other than a partnership for federal income tax purposes, without the prior written consent of all Members.

 

ARTICLE 6.

TAX MATTERS PARTNER

 

6.01 Authority and Duties.  Subject to Section 6.3(b)(23), the Tax Matters Partner has the power to (i) enter into a settlement agreement with the Service with respect to determinations of Company tax items which shall bind each Member other than the Nonparticipating Members, which settlement may be on such terms as the Tax Matters Partner determines in its sole discretion to be in the best interests of the Members as a class; (ii) in its sole discretion, decide whether or not to commence judicial action for review of Company items included in a notice of final Company administrative adjustment, with the selection of the appropriate court and the Company items to be contested to be determined in the sole discretion of the Tax Matters Partner; (iii) in its sole discretion, determine whether to appeal from an adverse decision in an action commenced under clause (ii) immediately preceding and prosecute any such appeal; (iv) in its sole discretion, intervene on behalf of the Company in any judicial action commenced by any other Member or notice group defined in Section 6223(b)(2) of the Code as to Company tax items; (v) file a request with the Service for an administrative adjustment as a substituted Company return, or otherwise, and to request judicial review on behalf of the Company as to any part of a request for administrative adjustment not allowed by the Service, with the selection of the appropriate court, the Company items to be contested, and the decision whether to appeal from an adverse decision in any such action to be determined in the sole discretion of the Tax Matters Partner; (vi) in its sole 

 

  

10

  

 

discretion, enter into an agreement with respect to all present or former Members to extend the period for assessing any tax which is attributable to any Company item (and no other person is authorized to enter into such an agreement); (vii) upon receipt of a notice of the commencement of administrative proceedings by the Service, furnish to the Service the name, address, profits interest, and taxpayer identification number of each person who was a Member in the Company at any time during the applicable Company taxable year and such revised or additional information as may be required by Law; and (viii) conform to any tax administrative requirements as may be placed on the Tax Matters Partner by Treasury Regulations adopted after the date hereof as to income tax or any other federal tax applicable to the Company. If the Tax Matters Partner receives notice that any governmental authority intends to examine any income tax return of the Company, the Tax Matters Partner shall promptly notify the Company and the other Members.

 

  

11

  

 

 

Schedule 2.1(a)

 

Magnetation LLC

 

Magnetation, Inc. Capital Contributions

 

Capital Contributions to the Company on or Prior to Effective Date

 

    Cash:           $2,194,397.98

 

    Other non-booked assets and value associated with establishing business and development of operational platform as reflected in part by the list of Purchase Order Commitments generated through the actions by Magnetation for the benefit of the Company as described more fully in the Supplemental Letter.

 

    The transactions contemplated by this Agreement, including the Technology License Agreement.

 

 

Plant 1 Capital Contributions on or prior to January 3, 2012

 

 

Non-Cash Assets (as described more fully in the Supplemental Letter):

 

	
Building:

	
$

	  2,788,344.78
	
Capitalized Interest:

	
$

	  1,396,310.69
	
Land and Leasehold:

	
$

	  331,927.95
	
Mobile Equipment:

	
$

	  6,483,045.62
	
Plant Equipment:

	
$

	  23,965,114.58
	
Vehicles:

	
$

	  37,884.25
	 	 	 

    Contracts and Permits (as more fully described in the Supplemental Letter)

 

Goodwill (allocated across all contributions): $261,495,374.15

 

TOTAL VALUE:    $298,692,400

  

  

  

 

Schedule 2.2

 

Magnetation LLC

 

Membership Units

 

The following table reflects the number of Units and the Percentage Interest as of the Effective Date and is subject to update pursuant to the terms of the Operating Agreement:

 

 

	
Member

	
Units

	
Percentage Interest

	
Magnetation, Inc.

	
298,692,400

	
50.1%

	
AK Iron Resources, LLC

	
297,500,000

	
49.9%

	
TOTAL

	
596,192,400

	
100.0%

 

 

 

2  

  

  

Schedule 5.4

 

Magnetation LLC

 

Magnetation Capital Reserve Account

 

Funds held in the Magnetation Capital Reserve Account shall be invested only in the instruments as set forth below:

 

	
(a)  

	
marketable obligations of, or obligations guaranteed by, the United States of America;

 

	
(b)  

	
U.S. Money Market Funds (as defined below);

 

	
(c)  

	
certificates of deposit, bank repurchase agreements or banker’s acceptances of commercial banks with capital exceeding $1 billion (based on the most recent financial statement of such bank which are then publicly available); and

 

	
(d)  

	
other investments mutually determined in writing by Magnetation and AK Iron.

 

The term “U.S. Money Market Funds” means interests in any open-end or closed-end management type investment company or investment trust registered under the Investment Company Act of 1940, the portfolio of which is limited to obligations of, or obligations guaranteed by, the United States or any agency thereof (“Federal Obligations”) and to agreements to repurchase Federal Obligations that are 100% collateralized by Federal Obligations marked to market on a daily basis with daily liquidity.

 

 

  

  

  

Schedule 9.4

 

Magnetation LLC

 

Procedure for Purchasing the Other Member’s Interest

 

The following terms and provisions will apply to the exercise of the Electing Member’s right and option to purchase the Other Member’s Interest pursuant to Section 9.4(b) or Section 9.4(c) of this Agreement:

 

	
(e)  

	
The Electing Member will exercise its right and option to purchase the Other Member’s Interest pursuant to Section 9.4(b) or Section 9.4(c) of this Agreement by the giving of notice of exercise to the Other Member (the “Election Notice”).  The Election Notice will specify the number of Units as to which the option is exercised.

 

	
(f)  

	
The closing of the purchase of the Other Member’s Interest shall take place on the thirtieth (30th) day following the date of delivery of the Election Notice, or, if there is an appraisal of Fair Market Value, fifteen (15) days after receipt of the appraisal of the Interest to be purchased (or if such date is not a Business Day, the first day thereafter that is a Business Day) at 10:00 a.m., CDT, in the principal office of the Company, or on such other date and at such other time and place as may be agreed to by the Electing Member and the Other Member (the “Closing”).

 

	
(g)  

	
For the purposes of this Schedule 9.4, “Fair Market Value” means the fair market value as determined in good faith by mutual agreement of the Electing Member and the Other Member.  Within thirty (30) days following delivery of an Election Notice, the Electing Member and the Other Member shall negotiate in good faith in determining the Fair Market Value of the Other Member’s Interest to be acquired.

 

	
(h)  

	
If the Electing Member and the Other Member fail to agree on the Fair Market Value of the Other Member’s Interests to be acquired pursuant to Subsection (c) above, either the Electing Member or the Other Member may deliver to the other Party a written notice of objection (the “Objection Notice”) within ten (10) days following the end of the thirty (30) day period referenced in paragraph (c).  Upon receipt of such Objection Notice, such Fair Market Value shall be determined by an independent appraiser (the “Independent Appraiser”) jointly selected by the Electing Member and the Other Member.  If the Electing Member and the Other Member are unable to agree on an Independent Appraiser within fifteen (15) days after delivery of the Objection Notice, within seven (7) days after the end of such fifteen (15) day period, each of the Electing Member and the Other Member shall submit the names of two independent appraisers, and each Party shall be entitled to strike one name from the other Party’s list of firms, and the Independent Appraiser shall 

 

  

2

  

 

	
 

	
be selected by lot from the remaining firms.  Such Independent Appraiser shall submit to the Electing Member and the Other Member a written report within thirty (30) days of its engagement setting forth such determination, based upon an analysis of comparable companies in the same line of business and size as the Company and other characteristics deemed relevant by the Independent Appraiser.  The expenses of the Independent Appraiser shall be borne by the Company.  The determination of such Independent Appraiser as to Fair Market Value shall be final and binding upon the Company, the Electing Member and the Other Member.

 

	
(i)  

	
At the Closing, the Other Member will deliver to the Electing Member the following executed documentation in form reasonably acceptable to the Electing Member:

 

	
(1)  

	
an assignment of its Interest to the Electing Member;

 

	
(2)  

	
the resignation of each of its Board Representatives who are acting as members of the Board;

 

	
(3)  

	
representations and warranties by the Other Member that it owns and has good title to its Interest free and clear of all liens, claims, and encumbrances, and has the proper authority to transfer the Interest, which representations and warranties will survive the closing and will continue indefinitely;

 

	
(4)  

	
all confidential documents relating to the Company in the Other Member’s possession;

 

	
(5)  

	
all property belonging to the Company; and

 

	
(6)  

	
such other documentation as the Electing Member may reasonably require in order to vest in the Electing Member full right, title and interest in and to the Other Member’s Interest free and clear of all liens, claims and encumbrances.

 

	
(j)  

	
At the Closing, the Electing Member will deliver to the Other Member:

 

	
(1)  

	
the purchase price in immediately available funds, subject to (A) if the Other Member owes money to the Company, then the purchase price will be reduced by the amount of the principal and accrued but unpaid interest on such indebtedness and (B) if the Company owes money to the Other Member, then the Company will pay to the Other Member the full amount of the principal and accrued but unpaid interest on such indebtedness; and

 

 

  

3

  

 

	
(2)  

	
an indemnity agreement, in form proposed by the Other Member and reasonably acceptable to the Electing Member, indemnifying the Other Member against any claims arising from the conduct of the Business of the Company from and after the Closing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4exhibit10-2.htm

 

 

EXHIBIT 10.2

 

 

STOCK PURCHASE AGREEMENT

 

BY AND AMONG

 

DAVID L. DINNING,

 

RONALD A. CORL,

 

DAVID C. KLEMENTIK,

 

RANGER INVESTMENT COMPANY,

 

SOLAR FUEL COMPANY, INC.

 

AND

 

AK STEEL NATURAL RESOURCES, LLC

 

DATED AS OF OCTOBER 4, 2011

 

 

  

  

  

 

STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (including the Exhibits and Disclosure Schedules hereto, this “Agreement”) is made as of  October 4, 2011, by and among David L. Dinning, an individual (“Dinning”), Ronald A. Corl, an individual (“Corl”), David C. Klementik, an individual (“Klementik”), Ranger Investment Company, a Delaware corporation (“Ranger,” and together with Dinning, Corl and Klementik, the “Sellers”), Solar Fuel Company, Inc., a Pennsylvania corporation (the “Company”), and AK Steel Natural Resources, LLC, a Delaware limited liability company (the “Purchaser”).  The Sellers, the Company and the Purchaser may also be referred to herein as the “Parties” and each individually as a “Party.”

 

RECITALS

 

WHEREAS, the authorized capital stock of the Company consists of 750 shares of common stock, par value $100.00 per share (“Common Stock”), 750 of which are issued and outstanding, and the Sellers are the owners of all of the issued and outstanding shares of Common Stock (the “Shares”);

 

WHEREAS, the Sellers desire to sell, and the Purchaser desires to purchase, all of the Shares for the consideration and on the terms and conditions set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants, and agreements contained herein, the Parties hereby agree as follows:

 

ARTICLE 1                      

 

DEFINITIONS AND INTERPRETATION

 

Section 1.1 Definitions.

 

(a) As used in this Agreement, the following terms have the meanings set forth below:

 

“Affiliate” of any specified Person means any other Person directly or indirectly controlling, controlled by or under common control with such specified Person.  For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.  For purposes of defining Affiliates of Sellers and the Company (in the case of Company, only prior to the Closing) all Sellers shall be treated jointly as one Person to determine control of a Person by any Seller or Affiliated status with any or all Sellers.

 

 “Business” means the ownership, leasing and sale of coal and related activities (including without limitation those with respect to Outleases, Real Property and Real Property Leases, but excluding mining operations of any lessee or sublessee of the Company or the

 

  

1

  

Company Subsidiary, except with respect to Section 4.16, in which case the operations of lessees and sublessees is included in this definition) and all other business conducted by the Company and the Company Subsidiary.

 

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in New York City, NY.

 

“Code” means the United States Internal Revenue Code of 1986, as amended.

 

“Company Disclosure Schedule” means the disclosure schedule delivered to the Purchaser by the Sellers concurrently with the execution hereof and arranged in sections corresponding to the lettered and numbered sections in this Agreement, as applicable.  The disclosures set forth in any particular section relate only to the provisions on the Section of this Agreement to which they expressly relate and not to any other provision in this Agreement.

 

“Company Material Adverse Effect” means any event, circumstance, change or effect that, individually or in the aggregate with any other events, circumstances, changes or effects, is or is reasonably likely to be materially adverse to  (a) the Business, condition (financial or otherwise), assets, liabilities, prospects or results of operations of the Company and the Company Subsidiary or (b) the ability of the Company to consummate the transactions contemplated by this Agreement or fulfill the conditions to closing set forth in Article 7.

 

“Company Subsidiary” means Gray Mining Company, Inc.

 

“Confidentiality Agreement” means the Confidentiality Agreement by and between Company and Purchaser dated as of even date herewith, but effective as of June 22, 2011.

 

“Contract” means any contract, lease, Outlease, Real Property Lease, license, evidence of indebtedness, mortgage, indenture, purchase order, binding bid, letter of credit, security agreement, or other legally binding arrangement either written or oral.

 

“Debt” means the debt described on Schedule 4.30 of the Company Disclosure Schedule.

 

“Environmental Law” means any Law in effect as of the Closing Date concerning: (a) the environment, including any Law related to pollution, contamination, cleanup, preservation, protection, and reclamation of the environment; or (b) any disposal, Release or threatened Release of any Hazardous Substance, including the investigation, monitoring, clean up, removal, treatment, or any other action to address such Release or threatened Release.  Environmental Laws shall include, but not be limited to, the Surface Mining Control and Reclamation Act of 1977, as amended, 30 U.S.C. § 1201 et seq. (“SMCRA”), the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. § 801 et seq., the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq. (“CERCLA”), the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. § 6901 et seq. (“RCRA”), the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11001 et seq. (“EPCRA”), the Clean Air Act, as amended, 42 U.S.C. § 7401 et seq., the Federal Water Pollution Act, as amended, 33 U.S.C. § 1251 et seq., the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601 et seq. (“TSCA”), the Safe Drinking Water Act, as amended, 42

 

  

2

  

U.S.C. § 300 et seq., the Federal Hazardous Materials Transportation Law, 49 U.S.C. § 5101 et seq., and all other similar federal, state, and local Laws, and their implementing rules and regulations, as well as the terms and conditions of any Permit issued pursuant to any of the foregoing. 

 

“Environmental Liabilities” means any claims, judgments, orders, injunctions, verdicts, awards, settlements, damages, fines, penalties, costs (including response, investigative, remedial, or inspection costs), obligations, losses or liabilities arising from, under, or in connection with (a) any Environmental Laws, (b) a claim by any private Person or Governmental Authority arising out of any exposure of any Person or property to Hazardous Substances, or (c) any threat, event or circumstance reasonably expected to give rise to either (a) or (b).

 

 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, modified or restated from time to time or any successor statute, together with the regulations thereunder.

 

“GAAP” means United States generally accepted accounting principles applied on a consistent basis.

 

“Governmental Authority” means any federal, state, municipal, local, or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, court, tribunal, arbitrator, or arbitral body.

 

“Hazardous Substance” means (a) any substances or materials that are designated or defined (either by inclusion on a list or by reference to characteristics), or regulated by any Governmental Authority, as hazardous, toxic or dangerous, or as a pollutant, contaminant, or waste, under any Environmental Laws, and (b) any substance (including petroleum and its byproducts) that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Authority requires environmental investigation, monitoring or remediation.

 

 “Initial Portion of the Purchase Price” means Twenty Four Million Dollars ($24,000,000) less the initial deposit of One Hundred Thousand Dollars ($100,000) previously paid to Sellers by Purchaser or its Affiliates.

 

“Law” means any constitutional provision, statute, code, ordinance, common law, rule, and regulation adopted, enacted, or promulgated by any Governmental Authority and any written decree, injunction, judgment, order, ruling, assessment, or writ of any Governmental Authority.

 

“Lien” means any lien, encumbrance, security interest, pledge, mortgage, hypothecation, charge, lease, restriction on transfer of title, or other similar encumbrance, except for any restriction arising under any applicable securities Law.

 

“Multiemployer Plan” means a multiemployer plan as defined in Sections 3(37) and/or 4001(a)(3)(A) of ERISA.

 

  

3

  

“Pension Plan” means any “employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) that is subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.

 

“Permit” means any permit, license, approval, waiver, consent, variance, grant, exemption, registration, operating certificate, order, or other authorization issued by or from any Governmental Authority.

 

“Permitted Liens” means (a) Liens for current Taxes which are not yet due and payable or which are being contested in good faith by appropriate proceedings, but only to the extent disclosed on Schedule 1.1(p) of the Company Disclosure Schedule, (b) landlord’s, mechanic’s, materialmen’s, warehousemen’s, repairmen’s, carriers’ and similar Liens securing payments not delinquent or payments which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in the Records, (c) easements, encumbrances, restrictions and minor imperfections of record that do not interfere with extraction of coal, (d) zoning and environmental regulations, (e) all electric, telephone, sanitary sewer, storm sewer, water and utility lines, service lines and facilities now located on, over or under the Real Property or the Leased Real Property, but only to the extent such utilities do not materially interfere with coal extraction, (f) all existing public roads and streets, and all railroad lines affecting the Real Property or the Leased Real Property, (g) inchoate Liens securing rental payments under the  Real Property Leases, and (h) Liens in existence on the date hereof to be extinguished prior to, or contemporaneously with, the Closing.

 

“Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust, or other entity or organization, including any government and any agency or instrumentality thereof.

 

“Pre-Closing Partial Tax Period” means the portion of any Straddle Period beginning before and ending on the Closing Date.

 

“Pre-Closing Tax Period” means any taxable period that ends on or prior to the Closing Date.

 

“Purchase Price” means Thirty Six Million Dollars ($36,000,000), adjusted as set forth in Section 2.3 and in the definition of Initial Portion of the Purchase Price, and as adjusted pursuant to the terms of the Purchase Price Note.

 

“Purchase Price Note” means a promissory note substantially in the form of Exhibit A hereto, and on the terms and conditions set forth therein.

 

“Purchaser Material Adverse Effect” means any effect, change, event, condition, development or circumstance that materially and adversely affects the ability of the Purchaser to consummate the transactions contemplated by this Agreement or fulfill the conditions to Closing set forth in Article 7.

 

“Real Property Leases” means the leases and other documents and agreements that grant Company and Company Subsidiary their rights in the Leased Real Property.

 

  

4

  

“Records” means any and all of the books, records, contracts, agreements and files of the Company existing on the Closing Date, and all increases and additions thereto after the Closing Date relating to periods prior to the Closing Date, including computer records and electronic copies of such information, whether maintained by the Sellers, the Purchaser, the Company, or any of their respective Affiliates.

 

“Release” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, escape or leaching of any Hazardous Substance into the environment, whether intentional or unintentional.

 

 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.

 

“Sellers Disclosure Schedule” means the disclosure schedule delivered to the Purchaser by the Sellers concurrently with the execution hereof and arranged in sections corresponding to the lettered and numbered sections in this Agreement, as applicable.  The disclosures set forth in any particular section relate only to the provisions on the Section of this Agreement to which they expressly relate and not to any other provision in this Agreement.

 

“Seller Material Adverse Effect” means any effect, change, event, condition, development or circumstance that materially and adversely affects the ability of the Sellers to consummate the transactions contemplated by this Agreement or fulfill the conditions to Closing set forth in Article 7.

 

“SMCRA” means the Surface Mining Control and Reclamation Act of 1977.

 

“Straddle Period” means any taxable period that begins before and ends after the Closing Date.

 

“Subsidiary” when used with respect to any Party means any corporation, limited liability company or other organization, whether incorporated or unincorporated, of which such Party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors, the board of managers, the officers or others performing similar functions with respect to such corporation or other organization (or to direct the management of such Party if it is managed directly by its members or owners), or any organization of which such Party is a general partner or managing member.

 

“Tax” means (a) all federal, state, local net income, adjusted gross income, alternative or add-on minimum, excise, gross receipts, ad valorem, sales or use, employment-related (including employee withholding or employer payroll, FICA and FUTA), franchise, profits, gains, personal property, real property, capital stock, severance, transfer, license, intangibles or other taxes, fees, stamp taxes, duties, levies or similar assessments, together with any interest and any penalties, additions to tax or additional amounts imposed by any Governmental Authority with respect thereto; and (b) any liability for the payment of any amounts of the type described in clause (a) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group for any period.

 

  

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“Tax Return” means any return, declaration, report, claim for refund, or information return or statement, including any schedule or attachment thereto, and including any amendment thereof, filed or required to be filed with a Governmental Authority in connection with the determination, assessment or collection of Taxes.

 

 “Treasury Regulations” means the regulations promulgated by the United States Treasury Department under the Code.

 

(b) The following terms have the meanings defined for such terms in the Sections set forth below:

 

	
Affiliate Agreement

	  	
Section 4.22

	
Agreement

	  	
Preamble

	
Audited Financial Statements

	  	
Section 4.7

	
Basket

	  	
Section 9.4(c)(i)

	
Cap

	  	
Section 9.4(c)(i)

	
CERCLIS

	  	
Section 4.16

	
Closing

	  	
Section 2.2

	
Closing Date

	  	
Section 2.2

	
Collateral Source

	  	
Section 9.4(a)

	
Common Stock

	  	
Recitals

	
Company

	  	
Preamble

	
Company Plan

	  	
Section 4.13(a)

	
Disclosure Schedule

	  	
Section 11.13

	
Financial Statements

	  	
Section 4.7

	
Guarantee

	  	
Section 2.3(a)

	
Indebtedness to Sellers

	  	
Section 2.1(c)

	
Indemnified Party

	  	
Section 9.3(a)

	
Interim Financial Statements

	  	
Section 4.7

	
Knowledge

	  	
Section 1.2(d)

	
Leased Real Property

	  	
Section 4.14(b)

	
Litigation Control Conditions

	  	
Section 9.3(c)

	
Losses

	  	
Section 9.2(a)

	
Material Contract

	  	
Section 4.9(a)

	
NPL

	  	
Section 4.16

	
Outleases

	  	
Section 4.14(b)

	
Parties

	  	
Preamble

	
Party

	  	
Preamble

	
Pre-Closing and Straddle Tax Returns

	  	
Section 10.2

	
Prime Rate

	  	
Section 9.7

	
Purchaser

	  	
Preamble

	
Purchaser Indemnitees

	  	
Section 9.2(a)

	
Real Property

	  	
Section 4.14(b)

	
Reference Date

	  	
Section 4.7

	
Responsible Party

	  	
Section 9.3(a)

 

                                                                 

  

6

  

 

	
Sellers

	  	
Preamble

	
Seller Indemnitees

	  	
Section 9.2(b)

	
Shares

	  	
Recitals

	
Third Party Claim

	  	
Section 9.3(b)

Section 1.2 Interpretation.  In this Agreement:

 

(a) Unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders.

 

(b) The words “include”, “includes,” and “including” are not limiting.

 

(c) The words “hereby,” “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole, including the exhibits and Disclosure Schedules hereto, and not to any particular provision of this Agreement.

 

(d) The phrase “to the knowledge of” and similar phrases relating to knowledge of (i) the Sellers shall mean the actual knowledge of those Persons listed on Schedule 1.2(d)(i) of the Company Disclosure Schedule and what each such individual would reasonably be expected to have known after reasonable inquiry and after specific inquiry with respect to investigation regarding the accuracy of any representation or warranty contained in this Agreement, including being aware of facts, circumstances or events that would lead a reasonable Person to conclude that any representation or warranty in this Agreement is not correct, and (ii) the Company shall mean the actual knowledge of those Persons listed on Schedule 1.2(d)(ii) of the Company Disclosure Schedule and what each such individual would reasonably be expected to have known after reasonable inquiry and after specific inquiry with respect to investigation regarding the accuracy of any representation or warranty contained in this Agreement, including being aware of facts, circumstances or events that would lead a reasonable Person to conclude that any representation or warranty in this Agreement is not correct.

 

A Person (other than an individual) will be deemed to have Knowledge of a particular fact or other matter if any individual who is serving, or who has at any time served, as a director, officer, employee, shareholder, partner, executor or trustee of that Person (or in any similar capacity) has, or at any time had, Knowledge of that fact or other matter (as set forth in section (d) above), and any such individual (and any individual party to this Agreement) will be deemed to have conducted a reasonably comprehensive investigation regarding the accuracy of the representations and warranties made herein by that Person or individual.

 

(e) Unless otherwise expressly noted to the contrary, all references in this Agreement to “dollars” or “$” shall mean United States dollars.

 

ARTICLE 2                      

 

PURCHASE AND SALE OF SHARES

 

Section 2.1 Purchase and Sale of Shares. Indebtedness to Sellers.

 

  

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(a) On the terms and subject to the conditions set forth in this Agreement, the Sellers agree to sell to the Purchaser, and the Purchaser agrees to purchase from the Sellers, the Shares.

 

(b) On the terms and subject to the conditions set forth in this Agreement, as consideration for the Shares, on the Closing Date, (i) the Purchaser shall pay, or cause to be paid, to the Sellers, by wire transfer of immediately available funds, the Initial Portion of the Purchase Price, and (ii) the Purchaser shall deliver to the Sellers the Purchase Price Note (the “Initial Portion of the Purchase Price and the Purchase Price Note together, the “Purchase Price”).

 

(c) At Closing, the Sellers shall each pay to Company the amount of $289,084.02 (for a total payment by all Sellers to the Company of $1,156,336.08).  Company shall immediately pay to Sellers the amounts set forth below by such Seller’s name.  Such payments shall extinguish all Affilate Debt of Company and Company Subsidiary (collectively, the “Indebtedness to Sellers”):

 

	
Seller

	 	
Principal Balance

	 	 	
Accrued Interest

	 
	
David L. Dinning

	 	$	33,936.26	 	 	 	 
	
Ronald A. Corl

	 	$	176,653.16	 	 	 	 
	
David C. Klementik

	 	$	64,243.35	 	 	 	 
	
Ranger Investment Company

	 	$	290,720.02	 	 	$	590,783.26	 

 

Section 2.2 Closing.  Subject to the terms and conditions of this Agreement, the closing (the “Closing”) shall take place (i) at the offices of John T. Boyd Company, 4000 Town Center Blvd., Suite 300, Canonsburg, PA 15317, at 10:00 a.m., local time, on a date agreed to between the Parties, which day shall be no later than the tenth (10th) Business Day following the date on which the last conditions set forth in Article 7 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to fulfillment or waiver of those conditions) shall be fulfilled or waived in accordance herewith or (ii) at such other time, date or place as the Parties may agree in writing; provided, however, that notwithstanding anything to the contrary in this Agreement, in no event shall the Closing take place earlier than October 4, 2011.  The date on which the Closing occurs is hereinafter referred to as the “Closing Date.”

 

Section 2.3 Closing Deliveries.

 

(a) At the Closing, the Purchaser shall deliver, or cause to be delivered, to the Sellers, the following, each in form and substance reasonably satisfactory to the Sellers:

 

(i) a certificate, duly executed by an officer or authorized Person of the Purchaser, dated as of the Closing Date, certifying that the conditions specified in Section 7.2 have been fulfilled;

 

(ii) a fully executed original of the Purchase Price Note;

 

(iii) a wire transfer of immediately available funds in an amount equal to the Initial Portion of the Purchase Price to such account as shall be designated by the Sellers; and

 

  

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(iv) a fully executed parent guaranty (“Guarantee”) from AK Steel Corporation, a Delaware corporation, in the form attached hereto as Exhibit B.

 

(b) At the Closing, the Sellers and the Company, as applicable, shall deliver, or cause to be delivered, to the Purchaser the following, each in form and substance reasonably satisfactory to the Purchaser:

 

(i) one or more original certificates representing the Shares and the shares of all the Company Subsidiaries, duly endorsed in blank with respect to the Shares (or accompanied by duly executed stock powers);

 

(ii) a certificate, duly executed by an officer or authorized Person of Ranger and by each other Seller, dated as of the Closing Date, certifying that the conditions specified in Section 7.3 have been fulfilled and (B) a certificate, duly executed by an officer of the Company, dated as of the Closing Date, certifying that the conditions specified in Section 7.3 have been fulfilled;

 

(iii) a certificate, duly executed by an officer or authorized Person of Ranger, dated as of the Closing Date, certifying (A) that the resolutions adopted by the board of directors and Shareholders of Ranger authorizing this Agreement and the transactions contemplated hereby, as attached to such certificate, were duly adopted by all necessary action and remain in full force and effect, and have not been amended, rescinded or modified, and (B) as to the incumbency of the officers executing this Agreement on behalf of Ranger and setting forth certified copies of the articles of incorporation, bylaws and certificate of good standing of Ranger;

 

(iv) a certificate, duly executed by an officer or authorized Person of the Company, dated as of the Closing Date, certifying (A) that the resolutions adopted by the board of directors and Shareholders of the Company authorizing this Agreement and the transactions contemplated hereby, as attached to such certificate, were duly adopted by all necessary action and remain in full force and effect, and have not been amended, rescinded or modified, and (B) as to the incumbency of the officers executing this Agreement on behalf of the Company and setting forth certified copies of the articles of incorporation, bylaws and certificate of good standing of the Company;

 

(v) fully executed resignations of the officers and directors identified on Schedule 2.3(b)(v) of the Company Disclosure Schedule;

 

(vi) fully executed originals of all consents set forth on Schedule 4.3(a) of the Company Disclosure Schedule in form and substance reasonably acceptable to Purchaser;

 

(vii) copies of such agreements and documents described in Section 7.3 as are required to be provided by Sellers;

 

(viii) a written document in the form attached as Exhibit 2.3(b)(viii) that irrevocably extinguishes the Indebtedness to Sellers and obligates Sellers to cause the

 

  

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 actions set forth in Section 6.19 to be taken immediately prior to transfer of the Shares to Purchaser;

 

(ix) a valid and binding written termination of any agreement between Unionvale, on the one hand, and Company or the Company Subsidiary, on the other;

 

(x) a valid, binding and enforceable agreement in form acceptable for recordation, subordinating any rights of Green Energy Gas, LLC and its successors, assigns and lessees to drill and extract oil and gas within the areas depicted on Schedule 4.14(d) to the rights of Company and Company Subsidiary to extract coal from the same areas; and

 

(xi) an executed affidavit as required by Section 1445(b)(2) of the Code and Section 1.1445-2(b) of the Treasury Regulations stating, under penalties of perjury, the Sellers’ taxpayer identification numbers or social security numbers and that the Sellers are not foreign Persons.

 

ARTICLE 3                      

 

REPRESENTATIONS AND WARRANTIES

 

OF THE SELLERS

 

Each of the Sellers hereby represents and warrants, jointly and severally, to the Purchaser that, as of the date hereof and as of the Closing Date (except where a different date is indicated):

 

Section 3.1 Corporate Existence.  Ranger (a) is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; and (b) has all requisite corporate power and authority to own, lease and operate its assets and carry on its business as currently being conducted.  Ranger is qualified to do business in all jurisdictions in which the ownership, leasing or operation of its assets or the conduct of its business makes such qualification necessary.

 

Section 3.2 Enforceability.  The Sellers have the power, competency and authority to execute, deliver and perform their obligations under this Agreement.  This Agreement constitutes a legal, valid, and binding obligation of the Sellers, enforceable against the Sellers in accordance with its terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors’ rights and by general equitable principles.

 

Section 3.3 No Breach; Approvals.

 

(a) The execution, delivery, and performance by the Sellers of this Agreement and compliance with the terms and provisions hereof do not and will not violate or conflict with (with or without notice or lapse of time or both), or result in a breach of, or require any consent under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of benefit under, or result in the creation of a Lien under, (i) the articles of incorporation and bylaws of Ranger, (ii) any applicable Law, order, decree or injunction or any Permit or (iii) any Contract, agreement, undertaking or license to which the Sellers are a party or by which they or their property is bound or subject.

 

  

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(b) No filing or registration with, or consent or approval of, any Governmental Authority or other Person is or will be necessary for the execution, delivery, or performance of this Agreement by the Sellers or the validity or enforceability thereof.

 

Section 3.4 No Brokers.  Except as listed on Schedule 3.4 to the Company Disclosure Schedule, there are no Contracts, agreements or understandings between any Seller or the Company, on the one hand, and any Person, on the other hand, that would give rise to a valid claim against the Company or the Purchaser for a brokerage commission, finder’s fee or other like payment in connection with the transactions contemplated by this Agreement.

 

Section 3.5  Company Shares.  The Sellers are the record owners and hold beneficially all of the shares of Common Stock free and clear of all Liens.  There are no options, warrants, purchase rights or other Contracts or commitments (other than this Agreement) obligating the Sellers to sell, transfer, pledge or otherwise dispose of any capital stock of the Company.  The Sellers are not party to any voting trusts or similar agreements with respect to the voting of any capital stock or other voting securities of the Company.

 

Section 3.6 Permit Blocking.  Neither the Sellers, nor any Person “owned or controlled” by the Sellers or any Person “owning or controlling” the Company or the Company Subsidiary, has been notified by any Governmental Authority administering SMCRA, or any comparable state law, and has no reason to expect to receive any notification, that such party is currently (a) ineligible to receive additional surface mining Permits, (i.e., “permit-blocked”), (b) under investigation to determine whether its eligibility to receive such Permits should be revoked, or (c) listed on the Applicant Violator System.  As used in this Section 3.6, “owned or controlled” shall be defined as set forth in 30 C.F.R. Section 773.5. 

 

Section 3.7 Solvency. Immediately after giving effect to the transactions contemplated by this Agreement, each Seller shall be able to pay its debts as they become due and shall own property having a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities).  Immediately after giving effect to the transactions contemplated by this Agreement, each Seller shall have adequate capital to carry on its business or its life, as applicable.  No transfer of property is being made and no obligation is being incurred by any Seller or its Affiliates in connection with the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of such Seller or the Company.

 

Section 3.8 Full Disclosure.  Neither this Agreement, the Sellers Disclosure Schedule nor the Company Disclosure Schedule contains or will contain any untrue statement of material fact or omits or will omit to state a material fact required to be stated herein or therein or necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.

 

    Section 3.9Disclaimer.  Except for the specific representations and warranties of Sellers and Company expressly set forth in this Agreement, the Purchaser acknowledges and agrees with Sellers and Company as follows:

 

  

11

  

(a)  Sellers and the Company specifically disclaim any warranty, guaranty or representation, oral or written, past or present, express or implied, concerning (i) the value, nature, quality or condition of the coal underlying the Real Property and the Leased Real Property, including, without limitation, the mineability of such coal, and (ii) the income, if any, to be derived from the Company.

 

(b)  Certain information provided by or on behalf of Sellers and the Company to Purchaser, as referenced on Schedule 3.9 to the Sellers Disclosure Schedule was prepared by John T. Boyd Company, Inc. and Resultant Management Group, L.L.C., and that Sellers have not made any independent investigation or verification of such information and make no representations or warranties as to the accuracy or completeness of such information.

 

ARTICLE 4                      

 

REPRESENTATIONS AND WARRANTIES

 

REGARDING THE COMPANY AND THE COMPANY SUBSIDIARY

 

The Sellers and the Company jointly and severally (until the Closing has occurred, after which the Sellers only, and not the Company, jointly and severally) hereby represent and warrant to the Purchaser that, as of the date hereof and as of the Closing Date (except where a different date is indicated in the text of this Article 4):

 

Section 4.1 Corporate Existence.  Each of the Company and the Company Subsidiary (a) is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or organization; and (b) has all requisite organizational power and authority to own, lease and operate its assets and carry on the Business as currently being conducted.  Each of the Company and the Company Subsidiary is qualified to do Business in all jurisdictions in which the ownership, leasing or operation of its assets or the conduct of its Business makes such qualification necessary.

 

Section 4.2 Enforceability.  The Company has the corporate power and authority to execute, deliver and perform its obligations under this Agreement.  All corporate and stockholder action required to be taken for the due and proper authorization, execution and delivery by the Company of this Agreement has been duly and validly taken, and all such action required to be taken for the consummation by it of the transactions contemplated by this Agreement will have been duly and validly taken prior to the Closing.  This Agreement constitutes a legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms.

 

Section 4.3 No Breach; Consents; Approvals.

 

(a) Except as set forth on Schedule 4.3(a) to the Company Disclosure Schedule, the execution, delivery, and performance by the Company of this Agreement and compliance with the terms and provisions hereof do not and will not violate or conflict with (with or without notice or lapse of time or both), or result in a breach of, or require any consent under, or give rise to a right of termination, cancellation, default, event of default, suspension or acceleration of any obligation or loss of benefit under, or result in the creation of a Lien under, (i) the articles of

 

  

12

  

incorporation or bylaws or other organizational documents of the Company or the Company Subsidiary, (ii) any applicable Law, order, decree or injunction or any Permit, or (iii) any Contract, Real Property Leases, Outlease, agreement, undertaking or license to which the Company or the Company Subsidiary is a Party or by which any of them or their respective properties are bound or subject.

(b) No  filing, notice or registration with, or consent or approval of, any Governmental Authority or other Person is or will be necessary for the execution, delivery, or performance of this Agreement by the Sellers, the Company or the Company Subsidiary or the validity or enforceability thereof, or to prevent termination, default, event of default, right of termination, acceleration of the maturity of or the triggering or acceleration of any rights or occurrence under any Contract or Permit to which the Company or the Company Subsidiary is a party except as set forth on Schedule 4.3(a) to the Company Disclosure Schedule.  Schedule 4.3(b) to the Company Disclosure Schedule contains a list of all payments, notices or actions owing to or by the Company and the Company Subsidiary and triggered by the consummation of the transactions contemplated by this Agreement.

 

Section 4.4 Capital Stock.  The authorized capital stock of the Company consists solely of 750 shares of Common Stock and no preferred stock or other class of stock of any kind.  There are 750 shares of Common Stock issued and outstanding, all of which are owned by the Sellers in the amounts set forth on Schedule 4.4 to the Company Disclosure Schedule.  All of the outstanding shares of capital stock of the Company (which are no more and no less than the Shares and the Common Stock) have been duly and validly authorized, fully paid and non-assessable and were issued in compliance with all applicable state, federal and foreign securities laws and not in violation of or subject to any preemptive or similar right that entitles any Person to acquire from the Company or the Company Subsidiary any capital stock or other security of the Company or the Company Subsidiary or any security convertible into, or exercisable or exchangeable for, capital stock or any other such security.  There are no options, warrants, calls, subscriptions, conversion or other rights, agreements or commitments relating to the Common Stock (other than this Agreement) or the capital stock of the Company Subsidiary or obligating the Company, or the Company Subsidiary, to issue any additional shares of capital stock or any other securities convertible into, exercisable or exchangeable for or evidencing the right to subscribe for any shares of capital stock of the Company or the Company Subsidiary.  There are no stock equivalents, interests in the earnings of stock, stock appreciation, phantom stock, or other similar rights with respect to the capital stock of the Company or the Company Subsidiary.  There are no outstanding or authorized contractual obligations of the Company or the Company Subsidiary to repurchase, redeem or otherwise acquire any capital shares or other voting securities of or other equity interest in the Company or the Company Subsidiary or to provide a material amount of funds to, or make any material investment (in the form of a loan, capital contribution or otherwise) in, the Company Subsidiary.  There are no voting trusts or similar agreements to which the Company or the Company Subsidiary is a party with respect to the voting of any capital shares or other voting securities of or other equity interest in the Company or the Company Subsidiary.  The Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exchangeable or exercisable for securities having the right to vote) with the shareholders of the Company on any matter.  An organization chart of the Company and the Company Subsidiary is

 

  

13

  

set forth on Schedule 4.4 to the Company Disclosure Schedule which such chart sets forth the ownership of the Company and the Company Subsidiary.  Upon delivery to Purchaser of the Shares, Purchaser will acquire title to the Shares free and clear of any and all liens, claims or encumbrances except for those set forth on Schedule 4.4 of the Company Disclosure Schedule.  No ownership interest in the Company or the Company Subsidiary has ever been challenged, and, to the Sellers’ and the Company’s Knowledge, no Person has ever threatened to challenge such interest.

 

Section 4.5 Subsidiaries.  The Company Subsidiary is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has the corporate power and authority to operate, own and lease its properties and to carry on its Business as it is now being conducted, and is duly qualified to transact Business and is in good standing in each jurisdiction in which the ownership, operation or lease of its property or the conduct of its Business requires such qualification and the Company Subsidiary is the only Subsidiary of the Company.  All of the outstanding shares of capital stock of the Company Subsidiary is duly authorized, validly issued, fully paid and nonassessable, and is owned, by the Company free and clear of all Liens, except to the extent of any Liens set forth on Schedule 4.5 of the Company Disclosure Schedule.  Except for the Company Subsidiary, neither the Company nor the Company Subsidiary holds any ownership or other interest, nominal or beneficial, direct or indirect, in any corporation, partnership, joint venture or other Person.

 

Section 4.6 Governing Documents.  True and complete copies, with all amendments, of the articles of incorporation of the Company and the Company Subsidiary (certified as of a recent date by the Secretary of State of the applicable state of incorporation or organization), the bylaws of the Company and the Company Subsidiary (certified as of the date hereof by the Secretary of the Company or the Company Subsidiary), and the minute books of the Company and the Company Subsidiary have been furnished to the Purchaser.  The Sellers are not retaining any books or records of the Company or the Company Subsidiary after the Closing.  All such books and records shall be retained by the Company and the Company Subsidiary at and after the Closing.  Neither the Company nor the Company Subsidiary is in violation of its articles of incorporation or organization, or its bylaws or operating agreement.  All corporate actions required of the Company and the Company Subsidiary have been taken, and all reports or returns required to be filed by the Company and the Company Subsidiary relating to its respective existence have been filed and all amounts due and owing thereunder have been paid in full.

 

Section 4.7 Financial Statements.  (a) The audited consolidated statements of operations, balance sheet, statement of stockholders’ equity, and cash flows of the Company for and as of the years that ended December 31, 2008and December 31, 2009, including the notes thereto (the “Audited Financial Statements”); and (b) the unaudited consolidated statements of operations, balance sheet, statement of stockholders equity, and cash flows for the Company for the year that ended December 31, 2010and as of the 6 month period that ended June 30, 2011 (the “Reference Date”), including the notes thereto (the “Interim Financial Statements” and together with the Audited Financial Statements the “Financial Statements”) have been made available to the Purchaser and are attached hereto as Schedule 4.7 to the Company Disclosure Schedule. The Financial Statements are true and correct in all respects, and present fairly the consolidated financial position of the Company and the Company Subsidiaries as of the dates

 

  

14

  

indicated and the consolidated results of their operations and their consolidated cash flows for the periods specified, using accounting methods applied on a consistent basis throughout the periods covered thereby, and, in the case of the Interim Financial Statements, subject to normal year-end adjustments.  

Section 4.8 Absence of Certain Changes.

 

(a) Since the Reference Date, the Company and the Company Subsidiary have conducted their Business in the ordinary course and, during such period, there has not been (i) any change by the Company or the Company Subsidiary in any of its accounting methods, principles or practices (except for changes required by any laws applicable to the Company or the Company Subsidiary), or any of their Tax methods, practices or elections; (ii) any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of the Company, or any direct or indirect redemption, purchase or any other acquisition by the Company of any such stock; (iii) any change in the capital stock or in the number of shares or classes of the Company’s authorized or outstanding capital stock; (iv) any change in the condition (financial or otherwise), assets, liabilities, earnings, business, prospects, operations or affairs of the Company or the Company Subsidiary, other than minor changes in the ordinary course of business, none of which either individually or in the aggregate has been materially adverse; (v) any material damage, destruction, loss or other similar occurrence (whether or not insured against), and the Sellers do not know, or have any reasonable grounds to know, of any such threatened occurrence; or (vi) any adoption, amendment, modification or termination of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan for the benefit of any directors, officers or key employees of the Company or the Company Subsidiary.

 

(b) Except as set forth on Schedule 4.8(b) of the Company Disclosure Schedule, since the Reference Date, neither the Company nor the Company Subsidiary has:

 

(i) Created or incurred any liability of Ten Thousand Dollars ($10,000) or more;

 

(ii) Mortgaged, pledged or subjected to any Lien or otherwise encumbered any of its assets, whether tangible or intangible;

 

(iii) Discharged or satisfied any Lien, or paid any liability other than current liabilities due and payable in the ordinary course of business;

 

(iv) Made any investment in or loan to another Person totaling more than Ten Thousand Dollars ($10,000) or outside the ordinary course of business or paid down any debt, including Debt, in an aggregate amount totaling more than Ten Thousand Dollars ($10,000);

 

(v) Entered into, modified, amended or terminated any employment contract, collective bargaining agreement, or Contract with any agent, representative or contractor;

 

  

15

  

(vi) Waived any rights, canceled any debt or claim, or terminated, modified or amended, or suffered the termination, modification or amendment of, any Contract, lease, agreement or license involving an annual consideration of Ten Thousand Dollars ($10,000) or more;

 

(vii) Made any capital expenditures or any capital additions or betterments which in the aggregate exceeded Ten Thousand Dollars ($10,000);

 

(viii) Sold, leased, transferred or otherwise disposed of any tangible or intangible assets for an aggregate consideration of Ten Thousand Dollars ($10,000) or more;

 

(ix) Sold, leased, transferred or otherwise disposed of any interest in Real Property;

 

(x) Delayed or postponed the payment of accounts payable or other liabilities;

 

(xi) Cancelled, compromised, waived or released any right or claim;

 

(xii) Renewed, amended, became bound by or entered into any Contract, commitment or transaction other than in the ordinary course of business which will be binding upon the Company or the Company Subsidiary after the Closing; or

 

(xiii) Committed, whether on a binding or non-binding basis, to doing any of the foregoing.

 

Section 4.9 Agreements.

 

(a) Schedule 4.9(a) of the Company Disclosure Schedule lists all of the Contracts to which the Company or the Company Subsidiary is a party, or by which any of their respective properties or assets are bound or by which that are materially affected, involving payments, including contingent payments, to or by the Company or the Company Subsidiary in excess of Ten Thousand Dollars ($10,000) or that are material to the Business of the Company or the Company Subsidiary (collectively, the “Material Contracts”), including, but not limited to, any of the following: (i) leases, royalty agreements; (ii)  mining agreements; (iii) coal supply agreements; (iv) employment agreements; (v) bonus, profit-sharing, deferred compensation, severance, golden parachute, hospitalization, retirement, insurance, pension, welfare, stock option or stock purchase plans, arrangements or agreements or any other plans, arrangements or agreements providing for employee benefits or for the remuneration by the Company or the Company Subsidiary of its stockholders, members, managers, directors, officers or employees; (vi) agreements with any shareholder, member, manager, director or officer of the Company or the Company Subsidiary; (vii) agreements containing covenants by the Company or the Company Subsidiary not to compete in any lines of business or commerce; (viii) loan, credit or financing agreements, including all agreements for any commitments for future loans, credit or financing; (ix) guarantees; (x) mortgages, deeds of trust or security agreements; (xi) agreements requiring the Company or the Company Subsidiary to “take or pay” for goods or services; (xii) agreements to purchase raw materials or services; (xiii) any put or call options with respect to

 

  

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 assets (xiv) hedging or forward contracts; (xv) agreements that would result in the payment of money or transfer of property due to a change in control of the Company; or (xvi) agreements to sell the products or services provided by any Person. Schedule 4.9(a) of the Company Disclosure Schedule includes the expiration date of each Material Contract and a summary of the terms of any such unwritten contract, agreement or commitment to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets are bound.

(b) Except as set forth on Schedule 4.9(b) of the Company Disclosure Schedule, neither the Company nor the Company Subsidiary is in violation of or in default under (nor does there exist any condition which with the passage of time or the giving of notice or both would cause such a violation of or default under) any Material Contract.  Each Material Contract is in full force and effect, and is a legal, valid and binding obligation of the Company or the Company Subsidiary, as applicable, and, to the Knowledge of the Company, each of the other parties thereto, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors’ rights and by general equitable principles.  To the Knowledge of the Company, no condition exists or event has occurred that (whether with or without notice or lapse of time or both) would reasonably be expected to constitute a default by any other party thereto under any Material Contract or that would result in a right of termination of any Material Contract.

 

(c) True and complete copies of all Material Contracts have been delivered to the Purchaser previously and there are no amendments to or modifications of, or other agreements of the parties relating to, any such Material Contract which have not been delivered to the Purchaser.

 

(d) The prices which the Company or the Company Subsidiary shall receive or pay under all outstanding Material Contracts have been determined in the ordinary course of business and on arms-length terms.

 

(e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Company or the Company Subsidiary under current or completed Material Contracts with any Person and no such Person has made written demand for such renegotiation.

 

(f) Schedule 4.9(f) of the Company Disclosure Schedule lists all Contracts that would result in the payment of money or transfer of property due to a change in control of the Company.

 

(g) Schedule 4.9(g) of the Company Disclosure Schedule summarizes the subject matters of all agreements with respect to which the Company, since the Reference Date, has engaged in negotiations or that the Sellers reasonably consider to be pending, though not yet signed, Contracts.

 

Section 4.10 Undisclosed Liabilities.  Except as set forth on Schedule 4.10 of the Company Disclosure Schedule, neither the Company, the Company Subsidiary or any of their respective assets or properties is subject to any liability, commitment, indebtedness or obligation of any kind whatsoever, whether absolute, accrued, contingent, matured or unmatured, which is

 

  

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not shown and reserved against in the Financial Statements.

Section 4.11 Permits.

 

(a) The Company and the Company Subsidiary possess all Permits or rights thereto, necessary for the conduct of their respective Businesses substantially as currently conducted, and the Company and the Company Subsidiary have posted and maintained, or arranged for the posting and maintenance, in full force and effect, all surety bonds, reclamation bonds, letters of credit and similar instruments required by such Permits.  Schedule 4.11(a) of the Company Disclosure Schedule sets forth a true, correct, and complete list, as of the date of this Agreement, of all of the Company’s and the Company Subsidiary’s Permits, and any pending Permits for which applications have been submitted to any Governmental Authority (including revisions or modifications of existing Permits), including, but not limited to, any Permits issued or required pursuant to any Environmental Laws, and such schedule includes the name of the Governmental Authority or entity issuing such Permit.  All such Permits which are not noted as pending, are valid and in full force and effect; and except as set forth on Schedule 4.11(a) of the Company Disclosure Schedule, the Company and the Company Subsidiary have not violated, and are not in violation of, or in default under any such Permit; and no condition exists that with notice or lapse of time or both would constitute a violation of or default under such Permits, and none of such Permits will be terminated or impaired or become terminable, in whole or in part, as a result of the transactions contemplated by this Agreement.  All applications required to have been filed for the renewal of any Permits required for the conduct of the Business have been duly filed on a timely basis with the appropriate Governmental Authorities, and all other filings required to have been made with respect to such Permits have been duly made on a timely basis with the appropriate Governmental Authorities.  None of the Company nor the Company Subsidiary has reasonable cause to expect any action or challenge to revoke or terminate any of its Permits, or to deny any pending Permit application.  The information set forth in each application and all other written material submitted by the Company and each Company Subsidiary to any Governmental Authority in connection with each Permit set forth in Schedule 4.11(a) of the Company Disclosure Schedule was materially accurate and complete and did not omit to state any material fact necessary to make such information not misleading.

 

(b) Neither the Company nor the Company Subsidiary, nor any Person “owned or controlled” by the Company or the Company Subsidiary or any Person “owning or controlling” the Company or the Company Subsidiary, has been notified by any Governmental Authority administering SMCRA, or any comparable state law, and has no reason to expect to receive any notification, that such party is currently (i) ineligible to receive additional surface mining Permits, (i.e., “permit-blocked”), (ii) under investigation to determine whether its eligibility to receive such Permits should be revoked, or (iii) listed on the Applicant Violator System.  As used in this Section 4.11(b), “owned or controlled” shall be defined as set forth in 30 C.F.R. Section 773.5.

 

(c) Schedule 4.11(c) of the Company Disclosure Schedule sets forth a true, complete and accurate list of all assets, bonds (including surety bonds and reclamation bonds), letters of credit or other collateral pledged by the Company to any Governmental Authority as a requirement to obtaining the Permits listed in Schedule 4.11(a) of the Company Disclosure Schedule and lists all bonding agreements related to such collateral (collectively, the “Bonds”).

 

  

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Except as listed on Schedule 4.11(c) of the Company Disclosure Schedule, such Bonds are all owned by the Company or the Company Subsidiary and shall remain in place following the Closing, except as set forth on Schedule 4.11(c) of the Company Disclosure Schedule.  Schedule 4.11(c) of the Company Disclosure Schedule contains a listing of all existing or future mine reclamation liabilities of the Company or the Company Subsidiary pursuant to SMCRA or any comparable state law, including any assets, bonds, letters of credit or other collateral pledged to satisfy such reclamation liability.  Such reclamation liabilities shall include, but not be limited to, the cost of any perpetual water treatment required pursuant to SMCRA, any comparable state law, or any other Environmental Law.

Section 4.12 Taxes.

 

(a) All income Tax Returns and all other  Tax Returns of the Company or the Company Subsidiary that were required to be filed with any Governmental Authority (i) have been filed in a timely manner (taking into account any applicable extension periods); (ii) are true and correct and complete and were prepared in substantial compliance with all applicable Laws and regulations; and (iii) all Taxes, whether or not shown to be due and payable on such Tax Returns have been paid, except for instances in which the Company is disputing the basis for such Taxes in good faith.  No claim has ever been made by an authority in a jurisdiction where the Company or the Company Subsidiary does not file Tax Returns that the Company or any of it Subsidiaries is or may be subject to taxation by that jurisdiction.

 

(b) There is no audit, action, suit, proceeding or investigation now pending or, to the Company’s Knowledge, threatened in writing in respect of any Tax owed by the Company or the Company Subsidiary.  Neither the Company nor the Company Subsidiary has received from any Governmental Authority (including jurisdictions where the Company or its Subsidiaries have not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Governmental Authority against the Company or  the Company Subsidiary.

 

(c) The Company and the Company Subsidiary have withheld and paid all Taxes required to have been withheld and collected by Law and have paid over such Taxes to the appropriate governmental authorities to the extent due and payable including, without limitation, in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.

 

(d) Since January 1, 2002, neither the Company nor the Company Subsidiary has constituted either a “distributing corporation” or  a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a transaction that was purported or represented on any Tax Return to be  governed by Section 355(a) of the Code.

 

(e) Neither the Company nor the Company Subsidiary has been a member of an affiliated group (within the meaning of Section 1504(a) of the Code) filing a consolidated federal income Tax Return (other than a group the common parent of which is the Company). Neither the Company nor the Company Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, in each

 

  

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case with respect to any taxable period that remains open and excluding any extension that arises as a result of filing a Tax Return by the extended due date. Neither the Company nor the Company Subsidiary currently is the beneficiary of any extension of time within which to file any Tax Return.

(f) Except for Taxes not yet delinquent, the Company and the Company Subsidiary have paid all Taxes due and owing which if not paid could constitute a lien on the Real Property or Leased Real Property or impose liability on Purchasers.  The Company and the Company Subsidiary have not received notice of or become aware of any proposed special assessment which would adversely affect the Real Property or Leased Real Property. Except as set forth on Schedule 4.12(f) of the Company Disclosure Schedule, the Company and the Company Subsidiary have not received written notice of or become aware of any increase of Taxes or assessments affecting the Real Property.

 

(g) Through the Reference Date, all Taxes due and owing by the Company and each Company Subsidiary have been paid, accrued or reserved on the Interim Financial Statements.

 

(h) Neither the Company nor any Company Subsidiary will incur any liability for Taxes after the Reference Date through the Closing Date other than in the ordinary course of business.

 

(i) Neither the Company nor the Company Subsidiary has at any time changed any of its methods of reporting income or deductions for Tax purposes from those employed in the preparation of its Tax Returns.

 

(j) Neither the Company nor the Company Subsidiary has engaged in any transaction that would constitute a “reportable transaction” as defined in Section 6706A(c)(1) of the Code and Treas. Reg. §1.6011-4(b)” or a “tax shelter” within the meaning of Section 6011, 6111, or 6662 of the Code that has not been disclosed on an applicable Tax Return.

 

(k) No power of attorney is currently in effect with respect to any Tax matter relating to the Company or the Company Subsidiary.

 

(l) Neither the Company nor the Company Subsidiary has at any time made, changed or rescinded any express or deemed election relating to Taxes that is not reflected in a Tax Return.

 

(m) Neither the Company nor the Company Subsidiary (A) has any liability for the Taxes of another Person as a transferee or successor, by Contract or otherwise; or (B) will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period, or portion thereof, ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date,  (ii) a “closing agreement” as described in Section 7121 of the Code (or any correspondence or similar provision of state, local, or non-U.S. income Tax law) executed on or prior to the Closing Date, (iii) intercompany transactions or excess loss account described in the Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or feign income Tax law), (iv) installment sale or open transaction disposition made on or

 

  

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prior to the Closing Date, (v) prepaid amount received on or prior to the Closing Date, other than in the ordinary course of business and consistent with past practices (vi) an election under section 108(i) of the Code, or (vii) other action taken prior to the Closing Date.

(n) For Tax purposes, the Company and the Company Subsidiary have at all times been classified as a C corporation as defined by Section 1361(a)(2) of the Code.

 

(o) Neither the Company nor the Company Subsidiary is a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state, local, or non-U.S. Tax law) and (ii) any amount that will not be fully deductible as a result of Section 162(m) of the Code (or any corresponding provision of state, local, or non-U.S. Tax law).  Neither the Company nor the Company Subsidiary has been a United States real property holding corporation within the meaning of Section 897 (c)(1)(A)(ii) of the Code.  The Company and the Company Subsidiary have each disclosed on their federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.

 

(p) Neither the Company nor the Company Subsidiary (i) is a “controlled foreign corporation” as defined in Section 957 of the Code, (ii) is a “passive foreign investment company” within the meaning of Section 1297 of the Code, or (iii) has a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise has an office or fixed place of business in a country other than the country in which it is organized.

 

(q) Neither the Company nor the Company Subsidiary has received any private letter ruling, technical advice memoranda or similar agreement or rulings from the Internal Revenue Service (or any comparable ruling from any other Governmental Authority).

 

(r) Schedule 4.12 of the Company Disclosure Schedule sets forth the following information with respect to the Company and the Company Subsidiary (or, in the case of clause (ii) below, with respect to the Company’s Subsidiary) as of the most recent practicable date (as well as on an estimated pro forma basis as of the Closing giving effect to the consummation of the transactions contemplated hereby); (i) the basis of the Company or the Company Subsidiary in its assets; (ii) the basis of the stockholder(s) of the Company’s Subsidiary in its stock (or the amount of any excess loss account); (iii) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax credit, or excess charitable contribution allocable to the Company or the Company Subsidiary; and (iv) the amount of any deferred gain or loss allocable to the Company or the Company Subsidiary arising out of any intercompany transaction.

 

(s) The Company has claimed deductions for accrued interest that remains outstanding in connection with the Indebtedness to Sellers, and each Seller’s adjusted basis for the portion of Indebtedness to Sellers owed to that Seller is equal to the principal balance of the indebtedness owed to that Seller.

  

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Section 4.13 Employee Benefits.

 

(a) Neither the Company nor the Company Subsidiary sponsors, maintains or contributes to (or is otherwise a party to), and has not sponsored, maintained or contributed to within the last six (6) years, any qualified and/or non-qualified pension plan, profit-sharing plan, welfare benefit plan, Multiemployer Plan and/or any other type of retirement and/or similar benefit plan for its employees other than the health insurance program for certain of the Company’s employees (“Company Plan”), as more fully described in Schedule 4.13 of the Company Disclosure Schedule.

 

(b) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will obligate the Company or the Company Subsidiary to pay any separation, severance, termination or similar benefit to, or increase the amount of compensation due to, any director, employee, officer, former employee or former officer of the Company or the Company Subsidiary.

 

(c) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in the amendment, modification or termination of any Company Plan or other employee benefit program listed on Schedule 4.13 of the Company Disclosure Schedule.  No written or oral representation has been made to any employee or former employee promising or guaranteeing any employer payment or funding for the continuation of medical, dental, life or other insurance coverage after the date of Closing (except to the extent of coverage required under COBRA).

Section 4.14 Rights in Properties; Liens.

 

(a) The Company and the Company Subsidiary each have good and indefeasible title to or valid leasehold interests in their respective personal properties and assets (other than the Real Property and the Leased Real Property), and no such personal property, asset or leasehold interest is subject to any Lien, other than Permitted Liens. The Company and the Company Subisidiary, as applicable, have good, marketable title to all Real Property and Leased Real Property, and no such property is subject to any Lien, other than Permitted Liens. Except as set forth on Schedule 4.14(a) to the Company Disclosure Schedule, there are no outstanding options or rights to purchase any Real Property or Leased Real Property owned by the Company or the Company Subsidiary, or any interest therein.  Neither the Company nor the Company Subsidiary has any contractual obligation to purchase any real property.  There is no pending, or to the Knowledge of the Company, the Sellers and the Company Subsidiary, threatened dispute relating to boundary lines, ingress and egress, adverse possession, trespass, lack of mining rights or mining related rights, breach of the terms of the applicable agreements, or similar issues with respect to the Real Property or Leased Real Property.  There are no pending condemnation, eminent domain or similar proceedings, or, to the Knowledge of the Company, the Sellers or the Company Subsidiary, any threatened condemnation, eminent domain or similar proceedings that affect any Real Property or the Leased Real Property.

 

(b) Schedule 4.14(b) of the Company Disclosure Schedule sets forth a true, correct, and complete list, as of the date of this Agreement, of, and specifies, as applicable (i) all real property owned, in whole or in part, by the Company or the Company Subsidiary (“Real

 

  

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Property”); (ii) all real property leased, subleased, or controlled by easement, license or other agreement in whole or in part, by the Company or the Company Subsidiary (“Leased Real Property”); (iii) all leases, licenses and other agreements wherein the Company or the Company Subsidiary is a lessor, sublessor, licensor or otherwise a grantor of real property rights (collectively, “Outleases”); (iv) a description for each parcel as to whether the Company controls surface, mineral, partial mineral or fee; (v) all Leased Real Property with respect to which all co-tenants are not subject to a lease with the Company or the Company Subsidiary; and (vi) all royalties payable with respect to the Real Property and such schedule also describes all escrow arrangements currently in place with respect to co-tenants of Leased Real Property.  The Company has made available to the Purchaser true, correct and complete copies of all documents (including deeds, leases and amendments thereto) conveying Real Property and Leased Real Property to or by the Company and the Company Subsidiary.    Each deed, lease or other title document listed on Schedule 4.14(b) of the Company Disclosure Schedule (other than Outleases) has been validly recorded (or a valid memorandum thereof has been properly recorded in the case of Real Property Leases) in the records of Somerset County, Pennsylvania.  Schedule 4.14(b) of the Company Disclosure Schedule includes the expiration date of each of the Real Property Leases.

(c) To the Knowledge of the Company, the Sellers and the Company Subsidiary, there exists no material default under any Real Property Lease or Outlease.

 

(d) The maps and schedules attached hereto as Schedule 4.14(d) of the Company Disclosure Schedule depict the location, boundaries and interest (whether surface or mineral, including a notation if control of mineral is limited by seam) of the Real Property, Leased Real Property and Outleases. Except as set forth on Schedule 4.14(d) of the Company Disclosure Schedule, there are no improvements on the Real Property or Leased Real Property.

 

(e) Except as set forth on Schedule 4.14(e) of the Company Disclosure Schedule, the lessors and sublessors, as applicable, under each Real Property Lease granting Leased Real Property interests to the Company or the Company Subsidiary have good and marketable title to such property.

 

(f) Schedule 4.14(f) of the Company Disclosure Schedule sets forth a true, correct and complete list of all consents required pursuant to the terms of the Real Property Leases or Outleases in order to effect the transactions contemplated by the Agreement without triggering a default, event of default, termination right or penalty under such agreements.

 

(g) Schedule 4.14(g) of the Company Disclosure Schedule sets forth a true, correct and complete list of all Real Property Leases which expire in the next five (5) years, without provision for further renewal or extension.

 

(h) Except as set forth on Schedule 4.14(h) of the Company Disclosure Schedule, the Company, the Company Subsidiary and their lessees have not mined any coal to which they had no legal right.

 

(i) With respect to all Leased Real Property surface rights, the Company and the Company Subsidiary have the right, notwithstanding the termination of any lease, to enter upon

 

  

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the Leased Real Property covered by such lease for the purpose of complying with all reclamation obligations of the Company, the Company Subsidiary, or their lessees arising under or pursuant to any law.

(j) Schedule 4.14(j) of the Company Disclosure Schedule sets forth a true and complete list of all royalty payments made by the Company or the Company Subsidiary that have not been cashed or have been returned or rejected by the lessor, other than payments made within the last thirty (30) days.

 

(k) Except as set forth on Schedule 4.14(k) of the Company Disclosure Schedule, the Company has received no notice of claims by or disputes between Company and any Persons (including any Persons owning or occupying lands or realty adjoining or near any of the Real Property or Leased Real Property) pending or threatened in writing regarding mining activities, title, location of boundary lines, encroachments, mineral rights, royalties, subsidence, water quantity or quality, blasting damage, transportation of coal or other materials, nuisances or any other similar matter.

 

(l) To the Company’s Knowledge, use of the Real Property for the various purposes for which it is presently being used by the Company and the Company Subsidiary is permitted under all applicable zoning legal requirements. The Real Property and Leased Real Property, taken as a whole, abuts on and has direct vehicular access to public roads or has access to public roads via permanent, irrevocable, appurtenant easements benefiting it and comprising a part of the Real Property or Leased Real Property.

 

Section 4.15 Tangible Assets.

 

(a) Schedule 4.15(a) of the Company Disclosure Schedule sets forth a true and complete list (including serial numbers to the extent applicable) of all items of machinery, equipment, vehicles, and other tangible Personal property owned by the Company or the Company Subsidiary (the “Owned Assets”).  The Company and the Company Subsidiary each has good and marketable title to its Owned Assets, free and clear of all Liens.  The execution and delivery of this Agreement, and the consummation of the transactions contemplated by this Agreement, will not result in the creation of any Lien on any of the Owned Assets.  The Owned Assets are (i) in good condition and repair (ordinary wear and tear excepted) and (ii) in the state of maintenance, repair and operating condition required for the proper operation and use thereof in the ordinary course of business.

 

(b) Schedule 4.15(b) of the Company Disclosure Schedule sets forth a true and complete list of all items of machinery, equipment, vehicles, and other tangible personal property leased by the Company or the Company Subsidiary, (the “Leased Assets”).  The Company and the Company Subsidiary each has good and marketable leasehold interests in its Leased Assets, free and clear of all Liens, in each case under valid leases enforceable against the lessors thereunder. The execution and delivery of this Agreement, and the consummation of the transactions contemplated by this Agreement, will not result in the creation of any Lien on any of the Leased Assets or constitute a breach or default under the underlying lease agreement.  The Leased Assets are (i) in good condition and repair (ordinary wear and tear excepted) and (ii) in the state of maintenance, repair and operating condition required for the proper operation and use

 

  

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thereof in the ordinary course of business.

 

Section 4.16 Environmental Matters.

 

As of the date of this Agreement and the Closing Date:  (i) the operations of the Company and the Company Subsidiary have been, and are, in substantial compliance with all applicable Environmental Laws; (ii) no judicial or administrative proceedings are pending or, to the Knowledge of the Sellers or the Company, threatened against the Company or the Company Subsidiary alleging the violation of any Environmental Laws, or alleging any liability or corrective or remedial obligation arising under any Environmental Laws, or any other Environmental Liabilities; (iii) all Permits required under any applicable Environmental Laws for the operation of the Business, have been duly obtained or filed and are in full force and effect, and the Company and the Company Subsidiary have been, and are, in substantial compliance with the terms and conditions of all such Permits; (iv) except as listed on Schedule 4.16 of the Company Disclosure Schedule, there have been no Releases of Hazardous Substances in violation of any Environmental Laws by any of the Company or the Company Subsidiaries, or to the Knowledge of the Sellers and the Company, by any other Person, at, on, in from, under, over or in any way affecting any of the Real Property or Leased Real Property, or any other real property that was owned, leased, controlled, or used in connection with the Business in the past by any of the Company or the Company Subsidiaries; (v) all of the Real Property and Leased Real Property is free of all Hazardous Substances, except for such Hazardous Substances that are present in the ordinary course of business and in compliance with applicable Environmental Laws and are scheduled on Schedule 4.16 of the Company Disclosure Schedules; (vi) there are no actual, or to the Knowledge of the Sellers or the Company, threatened claims, orders, complaints, directives, citations, notices of non-compliance, notices of violation, revocation proceedings, or cessation orders from any Governmental Authority pending against the Company or the Company Subsidiary and arising under any Environmental Laws; and (vii) neither the Company nor the Company Subsidiary has received any written notification from any source advising the Company or the Company Subsidiary that it is a potentially responsible party under CERCLA or any other applicable Environmental Laws, with respect to (a) any real property that is identified or proposed for listing as a federal National Priorities List (“NPL”) (or state-equivalent) site or a Comprehensive Environmental Response, Compensation and Liability Information System (“CERCLIS”) (or state-equivalent) site, or (b) any facility to which it currently transports or otherwise arranges for or to which it has transported or arranged for the disposal of Hazardous Substances, which is identified or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or state-equivalent) site.  The Company has made available to Purchaser all information in its possession or control or the possession or control of the Sellers or the Company Subsidiary pertaining to the history of the Company, the Company Subsidiary, the Business, the Real Property, and the Leased Real Property with respect to compliance with the requirements of, and any liability arising under, any Environmental Law.

 

Section 4.17 Intellectual Property.  The Company and the Company Subsidiary own or possess all necessary licenses or other valid rights to use all patents, patent rights, trademarks, trademark rights, and proprietary information used in their respective Businesses as currently being conducted, and neither the Company nor the Company Subsidiary has received any written

 

  

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notice of any assertions or claims challenging the validity of any of the foregoing.  Neither the Company nor the Company Subsidiary has granted to any other Person any license to use any of the foregoing.  The conduct of the Company’s and the Company Subsidiary’s respective Businesses as currently conducted does not conflict with any patents, licenses, trademarks, or copyrights of others.  To the Knowledge of the Sellers, there is no infringement of any proprietary right owned by or licensed by the Company or any of the Company Subsidiaries.

Section 4.18 Insurance.

 

(a) Sellers have delivered to Purchaser:

 

(i) accurate and complete copies of all policies of insurance (and correspondence relating to coverage thereunder) to which the Company or the Company Subsidiary is a party or under which the Company or the Company Subsidiary is or has been covered at any time since January 1, 2005, a list of which is included in Schedule 4.18(a) of the Company Disclosure Schedule;

 

(ii) accurate and complete copies of all pending applications by the Company and the Company Subsidiary for policies of insurance; and

 

(iii) any statement by the auditor of the Company’s or the Company Subsidiary’s financial statements or any consultant or risk management advisor with regard to the adequacy of the Company’s or and the Company Subsidiary’s coverage or of the reserves for claims.

 

(b) Schedule 4.18(b) of the Company Disclosure Schedule describes:

 

(i) any self-insurance arrangement by or affecting the Company or the Company Subsidiary, including any reserves established thereunder;

 

(ii) any Contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk to which the Company or the Company Subsidiary is a party or which involves the Business of the Company or the Company Subsidiary; and

 

(iii) all obligations of the Company or the Company Subsidiary to provide insurance coverage to, or provide proof of certain levels of insurance coverage to, third parties (for example, under Leases or service agreements) and identifies the policy under which such coverage is provided.

 

(c) Schedule 4.18(c) of the Company Disclosure Schedule sets forth, by year, for the current policy year and each of the three (3) preceding policy years:

 

(i) a summary of the loss experience under each policy of insurance;

 

(ii) a statement describing each claim under a policy of insurance for an amount in excess of Fifty Thousand dollars ($50,000.00), which sets forth:

 

	 	 the name of the claimant;	 

 

  

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a description of the policy by insurer, type of insurance and period of coverage; and

 

	 
	 	the amount and a brief description of the claim; and	 

     

(iii) a statement describing the loss experience for all claims that were self-insured, including the number and aggregate cost of such claims.

 

(d) Except as set forth in Schedule 4.18(d) of the Company Disclosure Schedule:

 

(i) all policies of insurance to which the Company or any Company Subsidiary is a party or that provide coverage to the Company or the Company Subsidiary:

 

	 	
are valid, outstanding and enforceable with no defaults;

 

	 
	 	
are issued by an insurer that is financially sound and reputable;

 

	 
	 	
taken together, provide adequate insurance coverage, including deductible amounts, for the assets and the operations of the Company or any Company Subsidiary for all risks normally insured against by a Person carrying on the same business or businesses as the Company or any Company Subsidiary in the same location, specifically  including coverage for workers compensation and black lung coverage; and

 

	 
	 	are sufficient for compliance with all Legal Requirements and Contracts;	 

                            

(ii) neither the Company nor the Company Subsidiary has received (A) any refusal of coverage or any notice that a defense will be afforded with reservation of rights or (B) any notice of cancellation or any other indication that any policy of insurance is no longer in full force or effect or that the issuer of any policy of insurance is not willing or able to perform its obligations thereunder;

 

(iii) the Company and the Company Subsidiary has paid all premiums due, and have otherwise performed all of their obligations, under each policy of insurance to which they are a party or that provides coverage to the Company or the Company Subsidiary; and

 

(iv) the Company and the Company Subsidiary has given notice to the insurer of all claims that may be insured thereby.

 

(e) Except as set forth in Schedule 4.18(e) of the Company Disclosure Schedule:

 

  

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(i) all policies of insurance shall survive the change of control of the Company and each Company Subsidiary without default or notice to the insurer.

 

Section 4.19 Employment and Labor.

 

(a) There are no complaints against the Company or the Company Subsidiary threatened or pending before the National Labor Relations Board or any similar state or local labor agency by or on behalf of any employee of the Company or the Company Subsidiary.  Neither the Company nor the Company Subsidiary is a party to any collective bargaining agreement nor any other agreement with a labor organization.  Neither the Company nor any Company Subsidiary is required to recognize any labor union or other collective bargaining or labor representative, nor has any labor union or other collective bargaining or labor representative been certified as the exclusive bargaining representative of any employees of the Company or the Company Subsidiary.

 

(b) Neither the Company nor the Company Subsidiary knows, or has any grounds to know, of any union organizational or representational activities underway among any of its employees.  Neither the Company nor the Company Subsidiary has committed any violation of the WARN Act.  There are no existing or, to the Sellers’ Knowledge threatened, labor strikes, slowdowns, lockouts, disputes, grievances or disturbances affecting or which might affect operations at, or deliveries from or into, any operation or facility of the Company or any Company Subsidiary.  No work stoppage against the Company or the Company Subsidiary or its Business is pending or, to the Sellers’ Knowledge threatened, and no such work stoppage has ever occurred.

 

(c) To the Company’s Knowledge, neither the Company nor the Company Subsidiary is subject to any liability, current or potential, nor has the Company or the Company Subsidiary violated any federal, state or local Law related to miner safety and health, pension and medical benefits, or other labor or employment issues, including but not limited to ERISA or the Code or similar legislation as it affects any employee benefit or welfare plan of the Company or any Company Subsidiary, the Immigration Reform and Control Act of 1986, the National Labor Relations Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1991, the Occupational Safety and Health Act, MSHA, the WARN Act, Executive Order 11246, the Family and Medical Leave Act of 1993, the Fair Labor Standards Act, the Rehabilitation Act of 1973, black lung matters and all regulations under such Acts, and all other federal, state and local Laws relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining, the payment of Social Security and similar taxes, unemployment and workers’ compensation laws, any labor relations laws, or any governmental regulations promulgated thereunder, as the same affect relationships or obligations of the Company or the Company Subsidiary with respect to any of its employees.  Neither the Company nor the Company Subsidiary is liable for any arrearage of wages or taxes or penalties for failure to comply with any of the foregoing, and there are no proceedings before any court, governmental agency, instrumentality or arbitrator relating to such matters, including any unfair labor practice claims, either pending or threatened.

 

(d) Except as listed on Schedule 4.19(d) of the Company Disclosure Schedule,

 

  

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neither the Company nor the Company Subsidiary is subject to or has any Liability current or potential under the Coal Industry Retiree Health Benefit Act of 1992, as amended, nor are any eligible beneficiaries assigned to the Company, any “related Person” to the Company or the Company Subsidiary.

(e) No Person is employed by the Company or the Company Subsidiary other than at the will of the Company or the Company Subsidiary for an indefinite period of time, and at the option of the Company or the Company Subsidiary, the employment of such employee may be terminated with or without cause and with or without notice at any time and no employee’s employment is subject to an employment agreement.  In addition, to the Sellers’ Knowledge, none of the employees of the Company or the Company Subsidiary are bound by or are subject to any non compete, confidentiality or similar Agreement other than for the benefit of the Company or the Company Subsidiary.  Schedule 4.19(e) of the Company Disclosure Schedule contains a true and complete list of all employees employed by the Company or the Company Subsidiary as of August 31, 2011, and said list correctly reflects their salaries, wages, other compensation, dates of employment, and positions and benefit plans in which they participate or are eligible to participate, and there has been no change thereto since August 31, 2011.  There are no discrimination or harassment charges (relating to sex, age, religion, race, national origin, ethnicity, disability, or veteran status), wage or other employment related claims existing, pending or, to the best of the Sellers’ Knowledge, threatened, before any federal or state agency or authority against the Company or the Company Subsidiary and, to the Sellers’ Knowledge, there is no basis therefor.

 

Section 4.20 Compliance with Law.  Except as set forth on Schedule 4.20 of the Company Disclosure Schedule, the Company and the Company Subsidiary have substantially complied with all Laws (including, without limitation, all reclamation Laws), and are not in default under, have filed all notices and compliance reports required to be filed under, have not been charged with any violation of, and have not received written notice of, or been threatened or, to their Knowledge, placed under any investigation with respect to any charge concerning any violation of any provision of any federal, state, local or other Law, which would, individually or in the aggregate, have an adverse effect of Fifty Thousand Dollars ($50,000) or more (or, with respect to MSHA or similar state legislation, Twenty Five Thousand Dollars ($25,000) or more) on the Company or the Company Subsidiary, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice which would, either individually or in the aggregate, have an adverse effect of Fifty Thousand Dollars ($50,000) or more (or, with respect to MSHA or similar state legislation, Twenty Five Thousand Dollars ($25,000) or more) on the Company or the Company Subsidiary has been filed or commenced, or, to the Sellers’ Knowledge, threatened.  Except as set forth on Schedule 4.20 of the Company Disclosure Schedule, neither the Company nor the Company Subsidiary has any outstanding violations in connection with any state and federal mining safety and health requirements, laws or regulations.  Notwithstanding anything contained in this Section 4.20, no representation or warranty shall be deemed to have been made in this Section 4.20 in respect of any matter specifically covered in Section 4.12 (Taxes), Section 4.13 (Employee Benefits) or Section 4.16 (Environmental Matters).

 

Section 4.21 Litigation and Judgments.  Except as set forth on Schedule 4.21 to the

 

  

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Company Disclosure Schedule, there is no action, suit or proceeding before or by any Governmental Authority pending (in respect of which process has been served on the Company or the Company Subsidiary), or, to the Knowledge of the Company, threatened against or affecting the Company or the Company Subsidiary seeking injunctive or equitable relief or damages in excess of Twenty Five Thousand Dollars ($25,000); and there are no judgments, decrees, injunctions, rules or orders of any Governmental Authority outstanding against the Company or the Company Subsidiary or any of their respective directors or officers (in their capacities as such) or assets.

Section 4.22 No Undisclosed Relationships.  There are no direct or indirect transactions, agreements, arrangements, relationships, guarantees or understandings between (a) the Company or the Company Subsidiary, on the one hand, and (b) the Sellers or their Affiliates (other than any of the Company and the Company Subsidiary) or any of their respective officers, directors, direct or indirect shareholders or members and family members, managers or employees, and such shareholders’ members’, managers’ and employees’ family members, on the other hand (an “Affiliate Agreement”).

 

Section 4.23 Shareholder/Affiliate Indebtedness.  All indebtedness of the Company or the Company Subsidiary, on the one hand, and any Affiliate, officer, director, direct and indirect shareholder, member, manager or employee of the Company or the Company Subsidiary, and such shareholders’ members’, managers’ and employees’ family members on the other hand, is listed on Schedule 4.23 of the Company Disclosure Schedule.  On the Closing date, all such indebtedness shall have been paid in full.

 

Section 4.24 [Reserved.]

 

Section 4.25 Powers of Attorney.  There are no outstanding powers of attorney executed on behalf of the Company or the Company Subsidiary.

 

Section 4.26 Full Disclosure.  Neither this Agreement, the Sellers Disclosure Schedule, nor the Company Disclosure Schedule contains or will contain any untrue statement of material fact or omits or will omit to state a material fact required to be stated herein or therein or necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.

 

Section 4.27Notes and Accounts Receivable.  Except as set forth on Schedule 4.27 of the Company Disclosure Schedule, all notes, accounts receivable, and employee advances of the Company or the Company Subsidiary have been collected or are collectible in the ordinary course of business (in the case of any such note substantially in accordance with its terms), at the recorded amounts thereof on the books and records of the Company and the Company Subsidiary.  No note or account receivable of the Company or the Company Subsidiary is subject to counterclaim or set off.  All accounts receivable that are reflected on the Balance Sheet as of the Reference Date or on the accounting Records of the Company as of the Closing Date represent or will represent valid obligations arising from sales actually made or services actually performed by the Company in the ordinary course of business. Except to the extent paid prior to the Closing Date, such accounts receivable are or will be as of the Closing Date current and collectible. Each of such accounts receivable either has been or will be collected in full, without

 

  

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any setoff, within ninety (90) days after the day on which it first becomes due and payable. There is no contest, claim, defense or right of setoff, other than returns in the ordinary course of business of the Company, under any Contract with any account debtor of an account receivable relating to the amount or validity of such account receivable. Schedule 4.27 of the Company Disclosure Schedule contains a complete and accurate list of all accounts receivable as of the date first set forth above.

Section 4.28 Banks, Directors and Officers.  Schedule 4.28 of the Company Disclosure Schedule sets forth:  (a) a list of all banks with which the Company or the Company Subsidiary has an account, deposit, certificate of deposit, or safe deposit box along with identifying numbers and the names of all Persons authorized to draw thereon or have access thereto; and (b) the names of all incumbent managers, directors and officers of the Company or any Company Subsidiary.

 

Section 4.29 No Brokers.   Except as set forth on Schedule 3.4 of the Company Disclosure Schedule, there are  no Contracts,  agreements  or   understandings between the Company and any Person that would give rise to a valid claim against Purchaser or the Company for a brokerage commission, finder’s fee or other like payment in connection with the transactions contemplated by this Agreement.

 

Section 4.30  Debt and Accounts Payable.  Schedule 4.30 of the Company Disclosure Schedule sets forth a true, complete and accurate description of all debt owed by the Company or the Company Subsidiary under any loan agreement or other lending transaction or guaranty, and also lists any notes payable with respect thereto, the terms of such debt and the payees (collectively, the “Debt”).  Whether specifically listed on Schedule 4.30 or not, Debt includes all Indebtedness to Sellers.  All Indebtedness to Sellers shall be paid in full, prior to transfer of the Shares at Closing to Purchaser, by means of capital contributions by each Seller to the Company in the amount of $289,084.02 (for a total payment by all Sellers to the Company of $1,156,336.08) and payment by Company to each Seller of the amount set forth below by such Seller’s name.  Such payments shall extinguish all Affiliate Debt of Company and Company Subsidiary and all Indebtedness to Sellers.

 

	
Seller

	 	
Principal Balance

	 	 	
Accrued Interest

	 
	
David L. Dinning

	 	$	33,936.26	 	 	 	 
	
Ronald A. Corl

	 	$	176,653.16	 	 	 	 
	
David C. Klementik

	 	$	64,243.35	 	 	 	 
	
Ranger Investment Company

	 	$	290,720.02	 	 	$	590,783.26	 

 

Schedule 4.30(a) of the Company Disclosure Schedule sets forth a true, complete and accurate description of all accounts payable due and owing, including the amount, and due date for such accounts payable.

 

Section 4.31 Books and Records.  The books of account of the Company and the Company Subsidiary have been maintained in accordance with sound business practices and are complete and correct.

 

  

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ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF

THE PURCHASER

 

The Purchaser hereby represents and warrants to the Company and the Sellers that, as of the date hereof and as of the Closing Date (except where a different date is indicated):

 

Section 5.1 Company Existence.  The Purchaser (a) is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware; (b) has all requisite organizational power and authority to own, lease and operate its assets and carry on its business as currently being conducted; and (c) is qualified to do business in all jurisdictions in which the ownership, leasing or operation of its assets or the nature of its business makes such qualification necessary.

 

Section 5.2 Enforceability.  The Purchaser has the company power and authority to execute, deliver and perform its obligations under this Agreement.  All action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement has been duly and validly taken, and all such action required to be taken for the consummation by it of the transactions contemplated by this Agreement will have been duly and validly taken prior to the Closing.  This Agreement constitutes a legal, valid, and binding obligation of the Purchaser, enforceable against it in accordance with its terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors’ rights and by general equitable principles.

 

Section 5.3 No Breach; Approvals.

 

(a) The execution, delivery, and performance by the Purchaser of this Agreement and compliance with the terms and provisions hereof do not and will not violate or conflict with (with or without notice or lapse of time or both), or result in a breach of, or require any consent under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of benefit under, (i) the organization documents of the Purchaser, (ii) any applicable Law or any Permit or (iii) any Contract, agreement, undertaking or license to which the Purchaser is a party or by which it or its property is bound or subject.

 

(b) No material filing or registration with, or consent or approval of, any Governmental Authority or other Person is or will be necessary for the execution, delivery, or performance of this Agreement by the Purchaser or the validity or enforceability thereof.

 

Section 5.4 No Brokers.  There are no Contracts, agreements or understandings between the Purchaser and any Person that would give rise to a valid claim against the Company or the Sellers for a brokerage commission, finder’s fee or other like payment in connection with the transactions contemplated by this Agreement.

 

Section 5.5  Investment Intent.  Purchaser is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act.

  

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Section 5.6  Certain Proceedings.  There is no proceeding pending against Purchaser that challenges, or could have the effect of preventing, delaying, making illegal, imposing limitations or conditions on, or otherwise interfering with the transactions contemplated by this Agreement.

Section 5.7Funds.  Purchaser presently has, or will have at Closing and thereafter, all funds or financing in place necessary to pay and deliver to Sellers the Purchase Price.

ARTICLE 6

COVENANTS

 

Section 6.1 Conduct of Business.  Prior to the Closing, except as set forth in Schedule 6.1 of the Company Disclosure Schedule, or as consented to in writing by the Purchaser, in its reasonable discretion, the Company shall, and shall cause the Company Subsidiary to (and the Sellers shall cause the Company and the Company Subsidiary to) conduct its operations in the ordinary course of business.  The Sellers, the Company and the Company Subsidiary shall use their best efforts to (a) preserve the possession and control of all of the assets of the Company and the Company Subsidiary; (b) to preserve the good will of suppliers, customers and others having business relations with the Company and the Company Subsidiary; and (c) keep and preserve the Business of the Company and the Company Subsidiary existing on the date of this Agreement.  Without limiting the generality of the foregoing, between the date hereof and the Closing or other termination or expiration hereof, except as set forth in Schedule 6.1 of the Company Disclosure Schedule, or as required by applicable Law, the Company shall not, and shall not permit the Company Subsidiary to (and the Sellers shall not cause or permit the Company or the Company Subsidiary to), without the prior written consent of the Purchaser:

 

(a) amend its certificate of incorporation or bylaws or any similar governing instruments;

 

(b) (i) issue, deliver, sell, pledge, dispose of or encumber any shares of its capital stock; (ii) grant, confer or award any option, warrant, conversion right or other right (including restricted stock, stock appreciation rights, phantom stock and similar instruments) to acquire or relating to any shares of its capital stock; (iii) increase or accelerate the payment or vesting of any compensation or benefits of (A) any executive officer or director of the Company or the Company Subsidiary or (B) any employee of the Company or the Company Subsidiary; (iv) enter into or amend any employment agreement or severance agreement with any of its executive officers of the Company or the Company Subsidiary; or (v) adopt any new employee benefit plan applying to the employees of the Company or the Company Subsidiary (including any stock option, stock benefit or stock purchase plan) or amend any existing Company Plan;

 

(c) (i) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock (other than any dividends or other distributions by the Company Subsidiary to the Company), or (ii) issue, sell, transfer, dispose of, redeem, purchase or otherwise acquire any shares of its capital stock or capital stock of the Company Subsidiary or any option, warrant, conversion right or other right to acquire such shares, or make any commitment for any such action;

 

  

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(d) sell, lease, encumber or otherwise dispose of any of its assets (including capital stock of the Company Subsidiary), except for the sale of coal in the ordinary course of business;

 

(e) (i) authorize, propose, agree to, enter into or consummate any merger, consolidation or business combination transaction or (ii) acquire or agree to acquire by merging or consolidating with, or by purchasing an equity interest in or a substantial amount of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof;

 

(f) change any of the accounting principles, policies or practices used by it;

 

(g) change or revoke any Tax election, amend any Tax Return, change its Tax reporting principles, methods or policies, enter into any settlements or closing agreements or compromises with respect to any Tax liability or make any change in any method of accounting for Tax purposes, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company or the Company Subsidiary, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax if any of the foregoing actions would increase the Tax liability of the Company or the Company Subsidiary after the Closing Date;

 

(h) agree to or otherwise settle, compromise or otherwise resolve in whole or in part any litigation, actions, suits, actual, potential or threatened claims, investigations or proceedings, whether pending on the date hereof or hereafter made or brought, which settlement, compromise or resolution would result in (i) damages, fines or other penalties payable to or by the Company or the Company Subsidiary in excess of Ten Thousand Dollars ($10,000) (without regard to insurance or indemnity proceeds received or recoverable), individually or in the aggregate, or (ii) non-monetary relief, including debarment, corporate integrity agreements, any other undertaking of any kind, deferred prosecution agreements, consent decrees, plea agreements or mandatory or permissive exclusion (other than agreements to effect operational changes which are not material;

 

(i) (A) incur any indebtedness or similar obligations (except for working capital purposes in the ordinary course of business under credit lines in existence as of the date of this Agreement) or guarantee any debt or issue or sell any debt securities or warrants or rights to acquire any debt securities of such party or the Company Subsidiaryor guarantee any debt securities of others, or (B) make or commit to make aggregate capital expenditures in excess of those set forth in Schedule 6.1(i) of the Company Disclosure Schedule;

 

(j) amend or terminate, or waive, release, breach or assign any rights or claims with respect to, any Material Contract;

 

(k) enter into any Contract that would have been a Material Contract if it existed on the date of this Agreement;

 

(l) enter into a new line of business or create any additional subsidiaries;

 

(m) enter into, amend or terminate any agreement with any holder of Company capital

 

  

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stock with respect to holding, voting or disposing of shares of Company capital stock;

(n) split, combine, subdivide, adjust, recapitalize or reclassify its outstanding shares of capital stock, or amend the terms of any rights, warrants or options to acquire any equity securities;

 

(o) enter into, sell or monetize any hedging contracts;

 

(p) enter into any Contracts or arrangements, including employee benefit plans, that would have payments or other actions triggered by consummation of the transactions contemplated herein;

 

(q) make any investment in or loan to another Person totaling more than Five Thousand Dollars ($5,000) or outside the ordinary course of business or pay down any debt, including Debt, in an aggregate amount totaling more than Five Thousand Dollars ($5,000) in the aggregate;

 

(r) pay any bonuses or increase any salaries;

 

(s) permit the damage or destruction of any tangible personal property;

 

(t) cause the cancellation of any insurance policies;

 

(u) fail to maintain Books and Records;

 

(v) violate any Law;

 

(w) take any action (or fail to take any action) that would result in a breach of any representation or warranty hereunder;

 

(x) allow any  lease, Outlease or other Material Contract to expire or forego the right to extend the same pursuant to its terms without providing the Purchaser at least ten (10) days advance written notice; or

 

(y) enter into an agreement or otherwise take action to cause any of the foregoing actions to occur.

 

Section 6.2 Filings.

 

(a) Subject to the terms and conditions herein provided, the Company and the Sellers, as applicable, shall:

 

(i) at the reasonable request of the Purchaser, use their commercially reasonable efforts to cooperate with the Purchaser in (A) determining which filings are required to be made prior to or after the Closing with, and which consents, approvals, permits or authorizations are required to be obtained prior to or after the Closing from, Governmental Authorities of the United States, and the several states, in connection with the execution and delivery of this Agreement and the consummation of the transactions

 

  

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contemplated hereby; and (B) timely making all such filings and timely seeking all such consents, approvals, Permits or authorizations, including the filing of change in control notices with respect to the Permits.

(ii) promptly notify the Purchaser of any communication concerning this Agreement or the transactions contemplated hereby to that Party from any Governmental Authority and, subject to applicable legal limitations and the instructions of any Governmental Authority, permit counsel for the Purchaser to review in advance any proposed communication competitively sensitive documents concerning this Agreement or the transactions contemplated hereby to any Governmental Authority;

 

(iii) subject to applicable legal limitations, not agree to participate in any meeting or discussion with any Governmental Authority in respect of any filings, investigation or other inquiry concerning this Agreement or the transactions contemplated hereby unless it consults with the Purchaser in advance and, to the extent permitted by such Governmental Authority, give the Purchaser the opportunity to attend and participate in such meeting or discussion;

 

(iv) subject to applicable legal limitations and the instructions of any Governmental Authority, furnish the Purchaser with copies of all correspondence and communications (other than competitively sensitive documents) between them and their Affiliates and their respective representatives, on the one hand, and any Governmental Authority or members or their respective staffs, on the other hand, with respect to this Agreement and the transactions contemplated hereby; and

 

(v) furnish the Purchaser with such necessary information and reasonable assistance as such other Parties and their respective Affiliates may reasonably request in connection with their preparation of necessary filings, registrations or submissions of information to any Governmental Authorities.

 

(b) Without limiting Section 6.2(a), the Company, the Sellers and the Purchaser shall:

 

(i) each use its commercially reasonable efforts to avoid the entry of, or to have vacated or terminated, any decree, order or judgment that would restrain, prevent or delay the Closing, including defending through litigation on the merits any claim asserted in any court by any party; and

 

(ii) each use its commercially reasonable efforts to avoid or eliminate each and every impediment under any antitrust, competition or trade regulation Law that may be asserted by any Governmental Authority with respect to the transactions contemplated by the Agreement so as to enable the Closing to occur as soon as reasonably possible.

 

Section 6.3 Commercially Reasonable Efforts.  Subject to the terms and conditions set forth in this Agreement, each of the Company, the Sellers and the Purchaser shall use commercially reasonable efforts (subject to, and in accordance with, applicable Law) to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties hereto in doing, all things necessary, proper or advisable under applicable Laws to

 

  

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consummate, and make effective, in the most expeditious manner practicable, the transactions contemplated by the Agreement, and no Party hereto shall take or cause to be taken any action which would reasonably be expected to prevent, impede or delay the consummation of the transactions contemplated by the Agreement.  Without limiting the foregoing, promptly following the Closing, the Sellers, the Company and the Company Subsidiary shall use commercially reasonable efforts to obtain all consents set forth on Schedule 4.3 of the Company Disclosure Schedule.

Section 6.4 Notification.

 

(a) At all times until the earlier of the termination of this Agreement pursuant to Article 8 and the Closing, each of the Company, the Sellers shall give prompt notice (orally and in writing) to the Purchaser:

 

(i) upon becoming aware that any representation or warranty made by it in this Agreement has become untrue or inaccurate in any material respect, or of any failure of such Party to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, or of any occurrence, event or matter that could reasonably lead to the non-satisfaction by such Party of any of the conditions to the transactions contemplated by this Agreement set forth in Article 7, including, without limitation, the occurrence of a Company Material Adverse Effect, or a Seller Material Adverse Effect;;

 

(ii) of any notice or other communication received by it from any Governmental Authority in connection with the transactions contemplated by the Agreement, or from any Person, subsequent to the date of this Agreement, alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; and

 

(iii) of the institution of any litigation or Governmental Authority complaints, investigations or hearings (or communications in writing indicating the same may be contemplated) relating to this Agreement, the Company Permits or the Company Subsidiary Permits or the transactions contemplated hereby.

 

Section 6.5 Inspection.  From the date hereof to the Closing, the Company shall (and the Sellers shall cause the Company to), and the Sellers and the Company shall cause the Company Subsidiary to, allow all designated officers, attorneys, accountants and other representatives of the Purchaser reasonable access at all reasonable times upon reasonable notice to the books, records and files, correspondence, audits and properties, as well as to all information relating to commitments, Contracts, titles and financial position, or otherwise pertaining to the Business and affairs of the Company and the Company Subsidiaries, including inspection of such properties.  The Purchaser shall have the right to send representatives to inspect and measure coal inventory and inspect all Real Property, Leased Real Property and mining operations.

 

Section 6.6 Publicity.  The Company, the Sellers and the Purchaser will consult with each other regarding any press releases or public announcements pertaining to this Agreement or

 

  

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the transactions contemplated hereby and Sellers and the Company shall not issue any press release or make any public announcements without the written consent of Purchaser.  Purchaser’s Affiliates are obligated under the Securities Exchange Act of 1934 and related rules and regulations to disclose the existence of this Agreement upon execution and at other times, from time to time, and Sellers and the Company will reasonably assist Purchaser in preparing such required disclosures.  The Sellers and the Company shall use their best efforts to (a) preserve the possession and control of all of the assets of the Company and the Company Subsidiary; (b) to preserve the goodwill of suppliers, customers and others having business relations with the Company and the Company Subsidiary; and (c) keep and preserve the Business existing on the date of this Agreement.

Section 6.7 Expenses.  Except as expressly set forth herein, each Party hereto shall bear its own expenses incurred in connection with this Agreement and the transactions contemplated hereby whether or not such transactions shall be consummated, including, without limitation, all fees of its legal counsel, financial advisers, and accountants.

 

Section 6.8 [Reserved.]

 

Section 6.9 Acquisitions.  The Company and Sellers shall use commercially reasonable efforts to obtain leases, on terms and conditions acceptable to Purchaser, for the property described on Schedule 6.9 of the Company Disclosure Schedules.  The Company and Sellers shall consult with Purchaser during negotiations of such leases throughout the process and shall not agree to terms that are not, in Purchaser’s reasonable discretion, acceptable.

 

Section 6.10 Affiliate Agreements.  Sellers shall use commercially reasonable efforts to obtain the agreements described in Sections 7.3(k), (l) and (m).

 

Section 6.11 Permits.  Sellers shall use commercially reasonable efforts to assist Purchaser and Company in making any filings necessary with respect to the Permits.

 

Section 6.12 Discussions with Other Purchasers.  None of the Sellers, the Company or the Company Subsidiary, or any of their respective directors, officers, shareholders, members, managers, agents or employees shall solicit, authorize the solicitation of, or enter into any discussions with any Person (a) to purchase any of the capital stock of the Company or the Company Subsidiary, any option or warrant to purchase any capital stock of the Company or the Company Subsidiary, any securities convertible into capital stock of the Company or the Company Subsidiary, or any other equity security of the Company or the Company Subsidiary; (b) to purchase, lease or otherwise acquire all or a substantial portion of the assets of the Company or the Company Subsidiary; or (c) to merge, consolidate, engage in a share exchange or otherwise combine with the Company or the Company Subsidiary.  The Sellers shall not transfer any securities of the Company.  Sellers shall provide prompt written notice of any solicitation to enter into a transaction described above, or similar to the transactions described in this Section 6.12.

 

Section 6.13   Covenant Not to Engage in Certain Activities. For a period of two years following the Closing, the Sellers agree as follows:

(a)           In consideration of the transactions contemplated by this Agreement, each Seller agrees on its own behalf, and on behalf of each Affiliate of a Seller, that they will not directly or

  

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indirectly, influence or attempt to influence any customers, distributors or suppliers of the Company to divert their business to any competitor of the Company or in any way interfere with the relationship between any such customer, distributor or supplier and the Company (including making any disparaging or negative statements or communications about the Company, the Purchaser or their business).  Sellers shall not, directly or indirectly, take any action that is designed or intended to have the effect of discouraging any lessor, licensor, or other business associate of the Company from maintaining the same business relationships after the Closing as it maintained prior to the Closing. Notwithstanding the foregoing, Purchaser acknowledges and agrees that in the course of performing his duties as a Judge of the Court of Common Pleas of Somerset County, Pennsylvania, Klementik may be required to take actions which could have an effect on the Company or the Purchaser, and Purchaser agrees that such actions shall not be considered to be breaches of this Section 6.13.

(b)           In consideration of the transactions contemplated by this Agreement, Sellers agree that they shall not, individually or in association with or as an officer, principal, member, advisor, agent, partner, director, stockholder, employee or consultant of, any Person, work on the acquisition or development of any property or project, or engage in any line of business or conduct, which is, directly or indirectly, competitive with or adverse to the Business, or the business contemplated to be conducted by the Company and Purchaser after the Closing, but limited to the properties or locations generally described on Schedule 6.9 of the Company Disclosure Schedule and any properties or locations that are surrounded by the Real Property or Leased Real Property; provided, that the provisions of this Section 6.13 (b) shall not apply to current surface mining leases or operations of Ranger or any of its Affiliates in areas that are surrounded by the Real Property or Leased Real Property, and further provided, that Ranger and any of its Affiliates shall be permitted to pursue additions to or extensions of its current surface mining leases or operations in areas that are surrounded by the Real Property or Leased Real Property; and further provided, that the provisions of this Section 6.13 (b) shall not apply to coal reserves of approximately 350 acres in Quemahoning and Stonycreek Townships, Somerset County, currently owned by Somerset Coal Energy, LLC, in which each of Dinning and Corl own an equity interest.

(c)           Sellers agree and acknowledge that: (i) the provisions of this Section  do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Purchaser; (ii) such provisions contain reasonable limitations as to time, geographical area and scope of activity to be restrained; and (iii) the consideration provided under this Agreement, including any amounts or benefits provided under Article 2 of this Agreement, is sufficient to compensate such Seller for the restrictions contained in this Section.  Sellers each agree that they will not assert that, and it should not be considered that, any provision of this Section is otherwise void, voidable or unenforceable or should be voided or held unenforceable.  It is the intention of the Parties that, if any court, arbitrator or tribunal construes any provision or clause of this Section to be illegal, void or unenforceable because of the duration of such provision or the area or subject matter covered thereby, such court, arbitrator or tribunal shall reduce the duration, area, or subject matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced.

  

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(d)           Each Seller agrees that (i) any breach by it of any of the provisions contained in this Section would cause irreparable damage to the Company and the Purchaser for which monetary damages and other remedies at law may not be adequate, and (ii) Purchaser and the Company will be entitled to seek a restraining order, an injunction, specific performance, or other form of equitable or extraordinary relief from any court of competent jurisdiction to restrain any threatened or further breach of this Section or to require such Seller to perform its obligations under this Section, which right to equitable or extraordinary relief will not be exclusive of, but will be in addition to, all other remedies to which Purchaser and the Company may be entitled under this Agreement, at law, or in equity (including, the right to recover monetary damages).

Section 6.14  Estoppels.  The Company and Sellers shall use commercially reasonable efforts to obtain estoppel letters, in form and substance reasonably acceptable to Purchaser, from the lessors and lessees that are counterparties to the Real Property Leases and Outleases, as applicable, set forth on Schedule 6.14 of the Company Disclosure Schedule.

Section 6.15  Pile Litigation.  Sellers shall obtain a full settlement and release of any liability of Company or any Company Subsidiary arising out of or in connection with  the litigation listed on Schedule 4.21 of the Company Disclosure Schedule at no cost or expense to Company, the Company Subsidiary or Purchaser.

Section 6.16  Green Energy Note Receivable.  Immediately after the Closing, Sellers shall cause Green Energy Gas, LLC to pay in full the amount owing under the debt obligation between Company and Green Energy Gas, LLC which equals $110,000.00.

Section 6.17  Boyd Completion of detailed Real Property Schedule.  The parties acknowledge that Schedule 4.14(b) will not have a detailed list of the tracts constituting the Real Property at Closing, but instead will have a generic description of a portion of the Real Property such that it is a list that covers, specifically or generically, all of the Real Property on the maps attached as Schedule 4.14(d) to the Company Disclosure Schedule.  As such, Sellers shall cause John T. Boyd Company, Inc. to produce a full, detailed list of the tracts constituting the Real Property, covering all of the items required by Section 4.14(b), and that shall be tied to the tract numbers and names shown on Schedule 4.14(d) to the Company Disclosure Schedule (“Substitute Schedule 4.14(b)”), within fifteen (15) days of the Closing at Sellers’ sole cost and expense. Purchaser agrees that upon receipt of Substitute Schedule 4.14(b), the same shall be accepted as a full and complete replacement for Schedule 4.14(b) to the Company Disclosure Schedule as attached to this Agreement at Closing; provided, however, that Substitute Schedule 4.14(b) shall not reduce or limit the scope of the Real Property or Leased Real Property, which shall be equal to the property ownership indicated on Schedule 4.14(d) and Schedule 4.14(b), at Closing, it shall only provide additional, detailed information about the nature and source of the Real Property and Leased Real Property.  To the extent Substitute Schedule 4.14(b) limits in any way the Real Property or Leased Real Property or notes any encumbrances, such limitations and encumbrances shall be ignored for purposes of this Agreement.

Section 6.18  Resultant Management Group and John T. Boyd Payments.  Sellers shall pay all amounts that may be owing by the Company or Company Subsidiary to Resultant

  

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Management Group, L.L.C. and John T. Boyd Company, Inc., or any of their Affiliates, arising out of services rendered, or agreements entered into, prior to the Closing by Sellers, Company or Company Subsidiary, including any broker commissions or other payments triggered by the consummation of the transactions described herein (including under that Agremeent, dated November 6, 2008, as amended and extended), and all analysis prepared in conjunction with the marketing and sale of the Company and Company Subsidiary.

Section 6.19  Payoff of Indebtedness to Sellers.  All Indebtedness to Sellers shall be paid in full, prior to transfer of the Shares at Closing to Purchaser, by means of capital contributions by each Seller to the Company in the amount of $289,084.02 (for a total payment by all Sellers to the Company of $1,156,336.08) and payment by Company to each Seller of the amount set forth below by such Seller’s name.  Such payments shall extinguish all Affiliate Debt of Company and Company Subsidiary and all Indebtedness to Sellers.

 

	
Seller

	 	
Principal Balance

	 	 	
Accrued Interest

	 
	
David L. Dinning

	 	$	33,936.26	 	 	 	 
	
Ronald A. Corl

	 	$	176,653.16	 	 	 	 
	
David C. Klementik

	 	$	64,243.35	 	 	 	 
	
Ranger Investment Company

	 	$	290,720.02	 	 	$	590,783.26	 

 

 

ARTICLE 7

CONDITIONS

 

Section 7.1 Conditions to Each Party’s Obligations under the Agreement.  The respective obligations of each Party to effect the transactions contemplated by the Agreement shall be subject to the fulfillment or waiver in writing by mutual agreement of the Parties at or prior to the Closing Date of the following conditions:

 

(a) Any mandatory waiting period or required consent under any other applicable Law shall have expired or been obtained except where the failure to observe such waiting period or obtain a consent referred to in this clause (a) would not reasonably be expected to delay or prevent the consummation of the transactions contemplated by this Agreement or have an adverse effect on the expected benefits of the transactions contemplated hereby to the Sellers or the Purchaser.

 

(b) None of the Parties shall be subject to any decree, order or injunction of a United States federal or state court or foreign court of competent jurisdiction, which prohibits the consummation of the transactions contemplated by the Agreement, and no statute, rule or regulation shall have been enacted by any Governmental Authority which prohibits or makes unlawful the consummation of the transactions contemplated by the Agreement.

 

(c) No action, suit, investigation or proceeding before any Governmental Authority seeking to prevent or prohibit the consummation of the transactions contemplated by the Agreement shall be pending.

 

  

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Section 7.2 Conditions to Obligations of the Company and the Sellers under the Agreement.  The obligation of the Company and the Sellers to effect the transactions contemplated by the Agreement shall be subject to the fulfillment or waiver in writing by the Company and the Sellers at or prior to the Closing Date of the following conditions:

 

(a) (i) The Purchaser shall have performed all of its covenants and agreements contained in this Agreement required to be performed on or prior to the Closing Date and (ii) the representations and warranties of the Purchaser contained in this Agreement and in any document delivered in connection herewith, disregarding any qualification by a Purchaser Material Adverse Effect or any other materiality qualification for purposes of this Section 7.2(a), shall be true and correct in all respects as of the Closing Date (except for representations and warranties made as of a specified date, which must be true and correct only as of the specified date).

 

(b) Since the date of this Agreement, there shall not have occurred any Purchaser Material Adverse Effect.

 

(c) The Purchaser shall have made all deliveries required by Section 2.3(a) of this Agreement.

 

Section 7.3 Conditions to Obligations of the Purchaser under the Agreement.  The obligation of the Purchaser to effect the transactions contemplated by the Agreement shall be subject to the fulfillment or waiver in writing by the Purchaser at or prior to the Closing Date of the following conditions:

 

(a) (i) Each of the Sellers and the Company shall have performed all of their respective covenants and agreements contained in this Agreement required to be performed on or prior to the Closing Date and (ii) the representations and warranties of the Sellers and the Company contained in this Agreement and in any document delivered in connection herewith, , shall be true and correct in all respects as of the Closing Date (except for representations and warranties made as of a specified date, which must be true and correct only as of the specified date).

 

(b) Since the date of this Agreement, there shall not have occurred any Company Material Adverse Effect.

 

(c) Since the date of this Agreement, there shall not have occurred any Seller Material Adverse Effect.

 

(d) Each of the Sellers and the Company shall have made all deliveries required by Section 2.3(b) of this Agreement.

 

(e) The Company and Sellers shall have obtained all consents set forth on Schedule 4.3 of the Company Disclosure Schedule.

 

(f) There shall not have been made or threatened by any Person any claim asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to

 

  

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obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in the Company or the Company Subsidiary or (b) is entitled to all or any portion of the Purchase Price payable for the Shares.

(g) Purchaser shall have received unconditional and binding commitments to issue policies of title insurance (“Title Commitments”) in form and substance satisfactory to Purchaser, in its sole discretion.

 

(i) Each Title Commitment shall include the Title Insurer's requirements for issuing its title policy, which requirements shall be met by the Company on or before the Closing Date (including those requirements that must be met by releasing or satisfying monetary Liens.

 

(ii) If any of the following shall occur (collectively, a “Title Objection”):

 

(a) any Title Commitment or other evidence of title or search of the appropriate real estate records discloses that any party other than the Company has title to the insured estate covered by the Title Commitment;

 

(b) any title exception is disclosed in Schedule B to any Title Commitment that is not one of the Permitted Real Estate Encumbrances or one that Sellers specifies when reviewing the Title Commitment provided by Purchaser as one that the Company will cause to be deleted from the Title Commitment concurrently with the Closing, including (A) any exceptions that pertain to Encumbrances securing any loans that do not constitute an Assumed Liability and (B) any exceptions that Purchaser reasonably believes could materially and adversely affect Purchaser's use and enjoyment of the Real Property described therein; or

 

(c) any Survey discloses any matter that Purchaser reasonably believes could materially and adversely affect Purchaser's use and enjoyment of the Real Property described therein;

 

then Purchaser shall notify Sellers in writing (“Purchaser’s Notice”) of such matters within ten (10) Business Days after receiving all of the Title Commitment, Survey and copies of  recorded documents for the properties covered thereby or within thirty (30) Business Days of receiving notice of a Title Objection, whichever occurs first.

 

(iii) Sellers shall use their best efforts to cure each Title Objection and take all steps required by the Title Insurer to eliminate each Title Objection as an exception to the Title Commitment. Any Title Objection that the Title Company is willing to insure over on terms acceptable to Sellers and Purchaser is herein referred to as an “Insured Exception.”  The Insured Exceptions, together with any title exception or matters disclosed by the Survey not objected to by Purchaser in the manner aforesaid shall be deemed to be acceptable to Purchaser.

 

  

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(iv) Nothing herein waives Purchaser’s right to claim a breach of Section 4.14 or to claim a right to indemnification as provided in Section 9.2(a) if Purchaser suffers Damages as a result of a misrepresentation with respect to the condition of title to the Real Property.

 

(h) The satisfactory completion of all business, legal, environmental, title and other due diligence by Purchaser and its representatives and agents.

 

(i) The execution by the Company and the relevant counterparty of leases for the property described on Schedule 6.9 of the Company Disclosure Schedules in form and substance acceptable to Purchaser;

 

(j) Delivery of fully executed Estoppels for the Real Property Leases and Outleases scheduled on Schedule 6.14 of the Company Disclosure Schedules;

 

(k) A binding letter shall have been executed and delivered to Company and Purchaser setting forth the terms of conversion to equity of all Indebtedness to Sellers with such letter to be in the form of Exhibit 2.3(b)(viii) and payoff letters for all other Debt of Company and Company Subsidiary;

 

(l) Delivery to Purchaser of a valid, binding and enforceable written termination of any agreement between Unionvale Coal Company, on the one hand, and Company or the Company Subsidiary, on the other shall have been delivered to Purchaser; and

 

(m) Delivery to Purchaser of a valid, binding and enforceable agreement in form acceptable for recordation, subordinating any rights of Green Energy Gas, LLC or its Affiliates to drill and extract oil and gas within the areas depicted on Schedule 4.14(d) to the Company Disclosure Schedule to the rights of Company and Company Subsidiary to extract coal from the same areas.

 

ARTICLE 8

TERMINATION

 

Section 8.1 Termination by Mutual Consent.  This Agreement may be terminated at any time prior to the Closing by the mutual written agreement of the Sellers and the Purchaser approved by action of their respective stockholders or members, as appropriate.

 

Section 8.2 Termination by the Sellers or the Purchaser.  At any time prior to the Closing, this Agreement may be terminated by the Sellers or the Purchaser, if:

 

(a) a United States federal or state court of competent jurisdiction or United States Governmental Authority shall have issued an order, decree or ruling or taken any other action (including the enactment of any statute, rule, regulation, decree or executive order) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Agreement and such order, decree, ruling or other action (including the enactment of any statute, rule, regulation, decree or executive order) shall have become final and non-appealable; provided, however, that the Party seeking to terminate this Agreement pursuant to this Section 8.2 shall

 

  

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have complied in all material respects with Section 6.2 and 6.3 and shall have used its commercially reasonable efforts to remove such injunction, order or decree; or

(b) the Closing shall not have occurred before October 31, 2011, unless, (i) in the case a termination by the Sellers, either the Sellers or the Company, at such time, is in breach of any representation, warranty, covenant or agreement set forth in this Agreement such that the conditions set forth in Section 7.3(a) shall not be satisfied, and (ii) in the case of a termination by the Purchaser, the Purchaser, at such time, is in breach of any representation, warranty, covenant or agreement set forth in this Agreement such that the conditions set forth in Section 7.2(a) shall not be satisfied.

 

Section 8.3 Termination by the Sellers.  At any time prior to the Closing, this Agreement may be terminated by the Sellers if there has been a breach by the Purchaser of any representation, warranty, covenant or agreement set forth in this Agreement or if any representation or warranty of the Purchaser shall have become untrue.

 

Section 8.4 Termination by the Purchaser.  At any time prior to the Closing, this Agreement may be terminated by the Purchaser if there has been a breach by the Sellers or the Company of any representation, warranty, covenant or agreement set forth in this Agreement or if any representation or warranty of the Sellers or the Company shall have become untrue.

 

Section 8.5 Effect of Termination.  In the event of termination of this Agreement pursuant to this Article 8, all rights and obligations of the Parties shall terminate, except (i) the obligations of the Parties pursuant to Section 6.6 (Publicity), Section 6.7 (Expenses) and except for the provisions of Section 1.2 (Interpretation), this Section 8.5 (Effect of Termination), Section 11.1 (Notices), Section 11.2 (Assignment; Binding Effect), Section 11.3 (No Third Party Beneficiaries), Section 11.4 (Entire Agreement), Section 11.6 (Governing Law); Section 11.7 (Headings), Section 11.8 (Waivers), Section 11.9 (Severability), Section 11.10 (Enforcement; Jurisdiction; Venue), Section 11.11 (Attorneys Fees), Section 11.12 (No Presumption) and Section 11.15 (No Recourse), (ii) the obligations of the Parties pursuant to the Confidentiality Agreement, and (iii) for rights and remedies under applicable Law with respect to a breach of any representation, warranty, covenant, or agreement set forth in this Agreement or to any other obligation of a Party with respect to this Agreement or the transactions contemplated hereby.  Each Party’s right of termination under Article 8 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies.

 

ARTICLE 9

INDEMNIFICATION AND CERTAIN TAX MATTERS

 

Section 9.1 Survival.  The Parties agree that the representations and warranties of the Parties shall survive the Closing and terminate on the date which is thirty-nine (39) months following the Closing Date, except that (a) the representations and warranties contained in Article 3 and Sections 4.1 (Corporate Existence), 4.2 (Enforceability), 4.3 (No Breach; Consents; Approvals), 4.4 (Capital Stock), 4.5 (Subsidiaries), 4.30 (No Brokers), 5.1 (Corporate Existence), 5.2 (Enforceability), 5.3 (No Breach; Approvals) and 5.4 (No Brokers) shall survive indefinitely and (b) the representations and warranties contained in Sections 4.12 (Taxes) and 4.16

 

  

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(Environmental Matters) will survive the Closing Date until sixty (60) days following expiration of the applicable statute of limitations (as may be extended by agreement with any Governmental Authority).  The covenants of the Parties shall survive the Closing and continue in perpetuity, unless terminated earlier in accordance with the express terms of this Agreement.  Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

Section 9.2 Indemnification.

 

(a) Subject to the limitations set forth in this Article 9, from and after the Closing Date, the Sellers, severally but not jointly, shall indemnify and hold harmless, to the fullest extent permitted by Law, the Purchaser, the Company, the Company Subsidiary and their respective officers, directors, direct and indirect stockholders and members, employees and agents (collectively, the “Purchaser Indemnitees”) from, against and in respect of all losses, including, but not limited to, damages, lien amount, ordered penalties, fines, decrees, court costs, taxes caused by any payment for Losses, liabilities, obligations, interest or expenses (including, without limitation, reasonable attorneys’ fees and expenses) (collectively, “Losses”) incurred by Purchaser Indemnitees as a result of: (i) any breach of, or inaccuracy in, any representation or warranty made by the Sellers or by the Company in this Agreement or any of the Company or Sellers Disclosure Schedules or any other document executed in connection herewith (or any alleged breach); (ii) any breach by the Company, Green Energy Gas, LLC, Unionvale Coal Company or the Sellers of any covenant or agreement of the Company or the Sellers in this Agreement or any of the Company or Sellers Disclosure Schedules or any other document executed in connection herewith (with respect to the Company, that is to be performed at or prior to the Closing); and (iii) all Taxes of the Company and  the Company Subsidiary or relating to the business of the Company and its the Company Subsidiary for all Pre-Closing Tax Periods including, without limitation, any liability for Taxes that the Company or the Company Subsidiary may have under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law and any and all Taxes of any person imposed on the Company arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring in any Pre-Closing Tax Periods.

 

(b) Subject to the limitations set forth in this Article 9, from and after the Closing Date, the Company and the Purchaser shall, jointly and severally, indemnify and hold harmless, to the fullest extent permitted by Law, the Sellers and its officers, directors, direct and indirect stockholders and members, employees and agents (collectively, the “Seller Indemnitees”) from, against and in respect of Losses incurred as a result of: (i) any breach of, or inaccuracy in, any representation or warranty made by the Purchaser in this Agreement or any other document executed in connection herewith; and (ii) any breach by the Purchaser of any covenant or agreement of the Purchaser or the Company in this Agreement or any other document executed in connection herewith (with respect to the Company, that is to be performed after the Closing).

 

(c) For purposes of this Article 9, any inaccuracy in or breach of any representation or warranty shall be determined without regard to any materiality, Company Material Adverse

 

  

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Effect or other similar qualification contained in or otherwise applicable to such representation or warranty, including use of the word “substantial”.

Section 9.3 Procedures.

 

(a) Any Person desiring indemnification under this Article 9 and entitled thereto (an “Indemnified Party”) shall, within the relevant limitation period provided for in Section 9.1, promptly upon becoming aware thereof, give written notice thereof to the Party obligated to indemnify such Indemnified Party (such notified Party, the “Responsible Party”).  Such notice by such Indemnified Party shall state the amount of the claim, if known, and the method of computation thereof, the nature of such claim and a reference to the provision of this Agreement upon which such claim is based, all with reasonable particularity.

 

(b) If a claim, action, suit or proceeding by a Person other than a Party hereto or its respective Affiliates (a “Third Party Claim”) is made against any Indemnified Party, and if such Indemnified Party intends to seek indemnification with respect thereto under this Article 9, such Indemnified Party shall promptly notify, in writing, the Responsible Party of such claims; provided that the failure to so notify shall not relieve the Responsible Party of its obligations hereunder, except to the extent that the Responsible Party is actually prejudiced thereby.

 

(c) The Responsible Party shall have thirty (30) days after receipt of such notice to assume the conduct and control, at the expense of the Responsible Party, of the settlement or defense thereof, and the Company and the Indemnified Party shall cooperate with it in connection therewith; provided that the Responsible Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by such Indemnified Party and the reasonable fees and expenses of such counsel shall be borne by the Indemnified Party.  Notwithstanding the foregoing, the Responsible Party shall not be entitled to assume control of the defense as to any matter, and if subject to indemnification under this Article 9, shall pay the reasonable fees and expenses of counsel selected and retained by the Indemnified Party, if: (i) the Responsible Party does not undertake the defense of such Third Party Claim within thirty (30) days after the receipt of the Indemnified Party’s notice of a claim for indemnification hereunder; (ii) the claim for indemnification relates to or arises in connection with any criminal proceeding, action, indictment, allegations or investigation against the Indemnified Party; or (iii) the Indemnified Party reasonably shall have concluded (upon written advice of its counsel) that, with respect to such claims, the Indemnified Party and the Responsible Party may have conflicting interests (collectively, the “Litigation Control Conditions”).  If the Indemnified Party assumes the control of the defense of such claim because the claim meets one or more of the Litigation Control Conditions, the Indemnified Party shall have the right to assume control of the defense of the claim but shall not thereby waive any right to indemnification therefor pursuant to this Agreement.

 

(d) Notwithstanding any other provision of this Agreement, the Responsible Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 9.3(d).  If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party

 

  

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Claim and the Responsible Party desires to accept and agree to such offer, the Responsible Party shall give written notice to that effect to the Indemnified Party.  If the Indemnified Party fails to consent to such firm offer within ten (10) days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Responsible Party as to such Third Party Claim shall not exceed the amount of such settlement offer.  If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Responsible Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim.  If the Indemnified Party has assumed the defense pursuant to Section 9.3(c), it shall not agree to any settlement without the written consent of the Responsible Party (which consent shall not be unreasonably withheld or delayed).

(e) Any Action by an Indemnified Party on account of Losses which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Responsible Party reasonably prompt written notice thereof, but in any event not later than ten (10) days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Responsible Party of its indemnification obligations. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Losses that have been or may be sustained by the Indemnified Party. The Responsible Party shall have fifteen (15) days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Responsible Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Responsible Party’s investigation by giving such information and assistance (including access to the Company's premises and Personnel and the right to examine and copy any accounts, documents or records) as the Responsible Party or any of its professional advisors may reasonably request. If the Responsible Party does not so respond within such fifteen (15) day period, the Responsible Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Responsible Party on the terms and subject to the provisions of this Agreement.  The Indemnified Party and Responsible Party agree that they will each make available a senior official or representative with power to bind  the respective parties in order to attempt, in good faith, to settle any Direct Claim at least ten (10) days prior to the expiration of the fifteen (15) day period after receipt of notice of any Direct Claim.

 

(f) Any Indemnified Party shall cooperate in all reasonable respects with the Responsible Party and its attorneys in the investigation, trial and defense of any Third Party Claim and any appeal arising therefrom and, at the expense of the Responsible Party, shall furnish such books, records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith.  Such cooperation shall include access during normal business hours afforded to the Responsible Party and its agents and representatives to, and reasonable retention by the Indemnified Party of, books, records and information which have been identified by the Responsible Party as being reasonably relevant to such Third Party Claim, causing the Company

 

  

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to make available to the Sellers or its representative Tax Returns and related work papers, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  The Parties shall cooperate with each other in any notifications to insurers.

Section 9.4 Limitations on Indemnification Obligations.  The rights of the Purchaser Indemnitees and the Seller Indemnitees to indemnification pursuant to the provisions of Section 9.2 are subject to the following limitations:

 

(a) The amount of any and all Losses will be determined net of any amounts actually recovered by the Indemnified Party under indemnification agreements or arrangements with third parties or under insurance policies (net of out-of-pocket costs of collecting such insurance proceeds) with respect to such Losses (each such source named in this clause a “Collateral Source”).

 

(b) Each Indemnified Party shall (and shall cause its Affiliates to) use commercially reasonable efforts to mitigate any claim for Losses that an Indemnified Party asserts under this Article 9.

 

(c) Notwithstanding anything in this Agreement to the contrary, but subject to Section 9.4(d):

 

(i) (A)  The Purchaser Indemnitees shall not be entitled to recover Losses pursuant to Section 9.2(a)(i) until the total amount which the Purchaser Indemnitees would recover under such Section (as limited by the other provisions of Section 9.4) exceeds One Hundred Eighty Thousand Dollars ($180,000) (the “Basket”) and then Seller shall be liable from the first dollar of Losses.

 

(B)  Subject to Section 9.4(d), the Purchaser Indemnitees shall not be entitled to recover pursuant to Section 9.2(a)(i) an aggregate amount in excess of  Twelve- Million Dollars ($12,000,000.00) (the “Cap”); provided, however, that the Cap shall be reduced to (i) Ten Million Dollars ($10,000,000.00) as of the beginning of the 18th month following the month in which the Closing Date falls, and (ii) Seven Million Dollars ($7,000,000.00) as of the second anniversary of the Closing Date.

 

(ii) (A)  The Seller Indemnitees shall not be entitled to recover Losses pursuant to Section 9.2(b)(i) until the total amount which the Seller Indemnitees would recover under such Section (as limited by the other provisions of Section 9.4) exceeds the Basket and then Purchaser shall be liable from the first dollar of Losses.

 

(B)  Subject to Section 9.4(d), the Seller Indemnitees shall not be entitled to recover pursuant to Section 9.2(b)(i) an aggregate amount in excess of the Cap.

 

(d) The provisions of Section 9.4(c) shall not apply to (i) Losses incurred as a result of a breach of any of the representations and warranties specifically listed in Section 9.1(a), (ii) Losses asserted under Section 9.2(a)(ii), 9,2(a)(iii), or 9.2(b)(ii), or (iii) Losses arising out of the fraud, willful misconduct or intentional misrepresentation of a Party.

 

  

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Section 9.5 Exclusive Remedy.  Notwithstanding anything else contained in this Agreement to the contrary, after the Closing, except in the case of any equitable remedies as provided in Section 11.10 or Section 6.13 (a) indemnification pursuant to the provisions of this Article 9 shall be the Parties’ exclusive remedy for any misrepresentation or breach of any warranty, covenant or other provision contained in this Agreement or in any certificate delivered pursuant hereto and (b) in furtherance of the foregoing, each Party hereby waives, to the fullest extent permitted under applicable Law, any and all rights, claims and causes of action it may have pursuant to this Agreement against any Person arising under or based upon any Law, except pursuant to the indemnification provisions set forth in this Article 9 and except for any rights, claims or causes of action arising out of the fraud, willful breach, or intentional misrepresentation of any Party.

 

Section 9.6  Treatment of Certain Indemnity Payments.  In the event that any Purchaser Indemnitee makes a claim, following the notice procedures in Section 9.3(a), that it is entitled to receive a payment for Losses from the Sellers pursuant to the Sellers’ obligations under this Article 9, Purchaser’s recourse for payment of such Losses shall be, to the extent payments are outstanding under the Purchase Price Note, to suspend payments thereunder in the amount of the estimate of the Losses arising from the claim, which shall satisfy the Sellers’ obligation with respect to such indemnification obligation, and the Purchase Price Note shall be amended and restated to reflect such change in the balance due thereunder if such Losses are agreed to by Sellers or finally determined to be payable.  If such Losses are finally determined to not be valid claims for indemnification, Purchaser shall make such suspended payments promptly.  Purchaser agrees to move forward all indemnity claims and Third-Party Claims giving rise to Losses or potential Losses in good faith and expeditiously as possible to the extent it has control of the timing of resolution of such claims.

 

Section 9.7Payment of Indemnity Payments. Except as otherwise provided in Section 9.6, once Losses are agreed to by the Responsible Party or finally determined to be payable pursuant to this Article 9, the Responsible Party shall satisfy its obligations within fifteen (15) Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds. The parties hereto agree that should an Indemnifying Party not make full payment of any such obligations within such fifteen (15) Business Day period, any amount payable shall accrue interest from and including the date of agreement of the Indemnifying Party or final, non-appealable adjudication to but excluding the date such payment has been made at a rate per annum equal to the lesser of the maximum rate that may be charged under applicable Law or twice the prime rate as published in the “Money Rates” section of the Wall Street Journal (“Prime Rate”). Such interest shall be calculated daily on the basis of a three hundred sixty five (365) day year and the actual number of days elapsed.

 

Section 9.8.  Limitation of Liability.  In no event shall any Seller, or Purchaser, be responsible to the other(s) for incidental, special or consequential damages, including without limitation, damages for loss of use, revenues or profits, arising out of a default in the performance of any obligations under this Agreement or any documents or instruments executed in connection therewith.

 

  

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ARTICLE 10

TAX MATTERS

 

 

Section 10.1 Responsibility for Payment of Taxes.  The Sellers shall pay any Taxes of the Company and the Company Subsidiary that are due and payable with respect to any Pre-Closing Tax Period and any Pre-Closing Partial Tax Period.  The Purchaser shall pay, or cause to be paid, any Taxes of the Company and the Company Subsidiary that are due and payable with respect to any period that begins after the Closing Date and the portion of any Straddle Period that begins after the Closing Date.

 

Section 10.2 Responsibility for Filing Tax Returns.  After the Closing, the Purchaser shall cause the Company and the Company Subsidiary to prepare and duly file all income and franchise Tax Returns for the Company and the Company Subsidiary that are required to be filed with respect to any Pre-Closing Tax Periods and any Straddle Periods and Purchaser shall cause the Company and the Company Subsidiary to prepare and duly file all other Tax Returns for the Company and the Company Subsidiary that are required to be filed with respect to any Pre-Closing Tax Periods and any Straddle Periods (all such income, franchise and other Tax Returns, the “Pre-Closing and Straddle Tax Returns”).  Except to the extent otherwise required by law, all Pre-Closing and Straddle Tax Returns shall be prepared on a basis consistent with the past practices of the Company and the Company Subsidiary.

 

Section 10.3 Cooperation on Tax Matters.

 

(a) The Purchaser, the Company and the Sellers shall cooperate fully, as and to the extent reasonably requested by the other Party hereto, in connection with the filing of Tax Returns pursuant to this Article 10 and any audit, litigation or other proceeding with respect to Taxes.  Such cooperation shall include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to filing any Tax Return that pertains to the Company or the Company Subsidiary, to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  The Purchaser and the Company agree (A) to retain all books and records with respect to Tax matters pertinent to the Company or any Company Subsidiary relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, (B) to give the other Parties hereto reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, the Purchaser or the Sellers, as the case may be, shall allow the other Party to take possession of such books and records, and (C) make such books and records available after the Closing for inspection and copying by the Sellers or any representative of Sellers, at Sellers’ expense, during normal business hours of Purchaser, upon reasonable request and reasonable notice.

 

(b) The Purchaser and the Sellers further agree, upon request, to provide the other Party with all information that either Party may be required to report pursuant to the Code and all Treasury Regulations promulgated thereunder.

 

  

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Section 10.4 Contests.  The Purchaser shall promptly notify the Sellers in writing upon receipt by the Purchaser or any of its Affiliates of notice of any pending or threatened Tax audits, examinations or assessments which may affect any Tax liability for which the Sellers are liable or has an indemnification obligation, provided that failure to comply with this provision shall not affect the Purchaser’s right to payment or indemnification hereunder except to the extent such failure impairs the Sellers’ ability to contest any such Tax liabilities.  Such notice shall state the amount of the claim, if known, and the method of computation thereof, the nature of such claim and a reference to the provision of this Agreement upon which such claim is based, all with reasonable particularity.  The Sellers shall have the sole right to (i) control and conduct any such Tax audit or administrative or court proceeding relating to a Pre-Closing Tax Period that has no effect on a subsequent period (and if any such Tax audit or administrative or court proceeding has an effect on a subsequent period, the Purchaser and the Sellers shall jointly control such Tax audit or administrative or court proceeding), (ii) to employ counsel of its choice at its expense, and (iii) settle, either administratively or after the commencement of litigation, any such Tax audit or administrative or court proceeding; provided, however, that the Sellers shall not compromise or settle any such Tax audit or administrative or court proceeding if such compromise or settlement could reasonably be expected to increase the Tax liability of the Purchaser or any of its Affiliates in a tax period that begins after the Closing Date without obtaining the prior written consent of the Purchaser, which consent shall not be unreasonably withheld.  With respect to any Tax audit or similar proceeding relating to a Straddle Period, the Purchaser and the Sellers shall jointly control such audit or similar proceeding.  Neither the Purchaser nor any of its Affiliates may agree to settle any tax claim which the Sellers are responsible for or which settlement could reasonably be expected to increase the Tax liability of the Sellers (or its beneficial owners) in respect of any Pre-Closing Tax Period or Straddle Period without the prior written consent of the Sellers, which consent shall not be unreasonably withheld.

 

Section 10.5 Straddle Period Allocation.  For purposes of this Agreement, in the case of any Straddle Period, (i) the amount of any Taxes allocated to the portion of such Straddle Period ending on the Closing Date shall (A) in the case of ad valorem or property Taxes, be deemed to be the amount of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of calendar days during the Straddle Period before and including the Closing Date and the denominator of which is the total number of calendar days in the Straddle Period, and (B) in the case of all other Taxes be determined based on an interim closing of the books method as of the close of business on the Closing Date and (ii) the amount of any Taxes allocated to the portion of such Straddle Period beginning after the Closing Date shall be deemed to be the amount of such Taxes for the entire Straddle Period less the amount of such Taxes that is allocated to the portion of the Straddle Period that ends on the Closing Date.

 

Section 10.6 Transfer Taxes.  All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be shared equally between Purchaser and Sellers..  The parties hereto will cooperate in the preparation and filing of all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges and each party will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation, in accordance with applicable law.

 

  

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Section 10.7 Treatment of Indemnity Payments.  The Parties shall treat any indemnity payments made under this Agreement as an adjustment to the Purchase Price for Tax purposes.

 

Section 10.8 Termination of Tax Agreements.  The Sellers will cause any Tax sharing agreement, Tax indemnity agreement or similar arrangement to be terminated, effective as of the Closing Date, to the extent that any such agreement related to the Company or the Company Subsidiary, and after the Closing Date, The Sellers will indemnify the Company and each Company Subsidiary from liability under any such agreement or arrangement.

 

Section 10.9 Payment of Indebtedness to Sellers.  The payment of Indebtedness to Sellers that will occur at Closing will be treated by the Company and all of the Parties as having occurred prior to the purchase and sale of the Shares contemplated by this Agreement.

 

 

ARTICLE 11

GENERAL PROVISIONS

 

Section 11.1 Notices.  Any notice required to be given hereunder shall be sufficient if in writing, and sent by Personal delivery or overnight courier service (with proof of service), addressed as follows:

 

(a)   if to the Sellers after the Closing:

 

James W. Cooper

210 East Main Street

Ligonier, PA 15658

Tel: (724) 238-6601

Fax: (714) 238-4585

jimcooper@unionvalecoal.com

 

Green Energy Gas, LLC

139 Barclay Street

P.O. Box 955

Somerset, PA 15501

Tel: (814) 233- 4650

Attn: David L. Dinning

  

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with a copy to:

Bradley E. Smith, Esq.

McCann Garland Ridall & Burke

816 Ligonier Street, Suite 600

P. O. Box 1039

Latrobe, PA 15650

Tel: (724) 539-7996

Fax: (724) 539-1887

bsmithmgrb@comcast.net

(b)   if to the Company following the Closing, or if to the Purchaser at any time:

 

AK Steel Natural Resources, LLC

9227 Centre Pointe Drive

West Chester, Ohio 45069

(513) 425-5000

Attention:          Al Ferrara

Chris Ross

David C. Horn, Esq.

Joseph C. Alter, Esq.

E-Mail:             david.horn@aksteel.com

joe.alter@aksteel.com

with a copy to:

 

Frost Brown Todd LLC

250 West Main Street, Suite 2800

Lexington, KY 40507

Attention:         Warren J. Hoffmann

E-Mail:             whoffmann@fbtlaw.com

or to such other address as any Party shall specify by written notice so given.  Any such notice shall be deemed to have been delivered and received (a) in the case of Personal delivery, on the date of such delivery, or (b) in the case of a nationally-recognized overnight courier who guarantees next Business Day delivery, on the next Business Day after the date when sent.

 

Section 11.2 Assignment; Binding Effect.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties hereto (whether by operation of law or otherwise) without the prior written consent of the other Party; provided, however, that the Purchaser may assign this Agreement and any or all rights, or obligations hereunder (including, without limitation, the Purchaser’s rights to seek indemnification hereunder) to any Affiliate of the Purchaser.  Subject to the foregoing, no assignment shall relieve the Purchaser from any obligations hereunder.  Upon any such permitted assignment, the references in this Agreement to the Purchaser shall also apply to such assignee unless the context

 

  

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otherwise requires.  This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns.

Section 11.3 No Third Party Beneficiaries.  Except as otherwise provided in Article 9 of this Agreement, notwithstanding anything else contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties hereto any claims, rights, remedies, obligations or liabilities under or by reason of this Agreement.  The representations and warranties in this Agreement are the product of negotiations among the Parties hereto and are for the sole benefit of the Parties.  Persons other than the Parties hereto, the Purchaser Indemnitees and the Seller Indemnitees may not rely upon the representations and warranties in this Agreement.  Any breach of such representations and warranties are subject to waiver by the Parties hereto without notice or liability to any other Person.  Without limiting the foregoing, it is expressly agreed that, except as otherwise provided in Article 9 of this Agreement, no employee of any of the Parties to this Agreement, except for Dinning in his capacity as a Seller, or other Person shall have any rights or remedies pursuant to this Agreement (including any right of employment or any right under any employee benefit plan), and no Person is intended to be a third party beneficiary thereunder.

 

Section 11.4 Entire Agreement.  This Agreement, the Purchase Price Note, the Guarantee, the Confidentiality Agreement and any other agreements contemplated hereby constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the Parties with respect thereto (including the Non-Binding Term Sheet Regarding Proposed Acquisition of Solar Fuel Company, Inc., dated as of August 17, 2011).  No addition to or modification of any provision of this Agreement shall be binding upon any Party hereto unless made in writing and signed by all Parties.  The terms of this Agreement supersede and terminate any disclaimer of representations, or disclaimers of liability arising under representations and warranties included in the Confidentiality Agreement or in any other agreement.

 

Section 11.5 Amendments.  This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties.

 

Section 11.6 Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its conflicts of laws rules.

 

Section 11.7 Headings. Headings of the Articles and Sections of this Agreement are for the convenience of the Parties only, and shall be given no substantive or interpretative effect whatsoever.

 

Section 11.8 Waiver.  Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by the Party waiving such term or condition.  No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

  

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Section 11.9 Severability.  Any term or provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement.  If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable, and the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated by the Agreement are fulfilled to the fullest extent possible.

 

Section 11.10 Enforcement; Jurisdiction; Venue.

 

(a) The Parties agree that irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that, in addition to any other remedy to which they are entitled at law or in equity, the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.

 

(b) All proceedings arising out of or relating to this Agreement or the transactions contemplated hereby shall be heard and determined exclusively in any federal court sitting in Allegheny County, Pennsylvania; provided, however, that if such court does not have jurisdiction over such action, such action shall be heard and determined exclusively in the Court of Common Pleas of Allegheny County, Pennsylvania.  Consistent with the preceding sentence, each Party hereto hereby irrevocably submits with regard to any such proceeding relating to this Agreement or any of the transactions contemplated hereby for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid court and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than the aforesaid court and to accept service of process in any manner permitted by such court.  Each Party irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (i) any claim that it is not personally subject to the jurisdiction of the above named court for any reason other than the failure to lawfully serve process, (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such court (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (iii) to the fullest extent permitted by the applicable Law, any claim that (A) the action or proceeding in such court is brought in an inconvenient forum, (B) the venue of such action or proceeding is improper or (C) this Agreement, or the subject matter of this Agreement, may not be enforced in or by such court.

 

EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND

 

  

56

  

CERTIFICATIONS IN THIS SECTION 11.10(b).

(c) The Sellers and Purchaser hereby consent and agree that service of any process, summons, notice or document made through the notice provisions with respect to the Sellers or Purchaser, as applicable, set forth in Section 11.1 shall be effective service of process for any suit or proceeding in connection with this Agreement or the transactions contemplated hereby.

 

Section 11.11 Attorneys’ Fees.  If any breach occurs under this Agreement, the non-prevailing party in any litigation arising therefrom shall pay to the prevailing party its reasonable attorneys’ fees and legal costs incurred in enforcing or attempting to enforce this Agreement or enforcing its rights hereunder, to the fullest extent allowed by the laws of the State of Delaware.

 

Section 11.12 No Presumption.  Each Party has agreed to the use of the particular language in the provisions of this Agreement, and any questions of doubtful interpretation shall not be resolved by any rule or interpretation against the draftsman, but rather in accordance with the intention of the Parties with respect thereto, having due regard to the benefits and rights intended to be conferred upon the Parties and the limitations and restrictions upon such rights and benefits intended to be provided.

 

Section 11.13 Disclosure Schedules.  The Parties acknowledge and agree that in the event of any inconsistency between the statements in the body of this Agreement and those in the the Sellers Disclosure Schedule and the Company Disclosure Schedule (each a “Disclosure Schedule”) (other than an exception expressly set forth as such in the Disclosure Schedules with respect to a specifically identified representation or warranty), that statements in the body of this Agreement will control.

 

Section 11.14 Further Assurances.  The Sellers shall, at any time and from time to time on and after the Closing Date, upon request by Purchaser, take or cause to be taken such actions and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such instruments, documents, transfers and conveyances as may be required for the conveying, transferring, assigning and delivering of the Shares to Purchaser and compliance with the other covenants set forth herein.

 

Section 11.15 No Recourse.  This Agreement may only be enforced against, and any claim or cause of action based upon, arising out of, or related to this Agreement may only be brought against an entity that is expressly named herein as a Party and then only with respect to the specific obligations set forth herein with respect to such Party.  Except to the extent a named Party to this Agreement (and then only to the extent of the specific obligations undertaken by such named Party in this Agreement and not otherwise), no past, present or future director, officer, employee, incorporator, member, partner, stockholder, Affiliate, agent, attorney or their respective Affiliates shall have any liability (whether in contract or tort) for any one or more of the representations, warranties, covenants, agreements or other obligations or liabilities of any one or more of the Sellers or the Purchaser under this Agreement (whether for indemnification or otherwise) or for any claim based on, in respect of, or by reason of, the transactions contemplated by the Agreement other than claims for fraud, willful misconduct or intentional misrepresentation.

 

  

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Section 11.16 Time of the Essence.  With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

 

Section 11.17 Counterparts.  This Agreement may be executed in two or more counterparts (including by means of facsimile or e-mail signature pages), each of which shall be deemed to be an original, but all of which together shall be deemed to be one and the same instrument.

 

Section 11.18 Independent Significance.   The Parties intend that each representation, warranty, and covenant contained in this Agreement shall have independent significance.  If any Party has breached any representation, warranty, or covenant, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty or covenant.

 

Section 11.19 Disclosure Schedules.  Nothing in the Company or Sellers Disclosure Schedules shall be deemed adequate to disclose an exception to a representation or warranty made unless the Company or Sellers Disclosure Schedules identifies the exception with reasonable particularity and reasonably describes the relevant facts.  Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself.)

 

 [SIGNATURE PAGE FOLLOWS]

  

58

  

IN WITNESS WHEREOF, the Parties have executed this Agreement and caused the same to be duly delivered on their behalf on the date first written above.

	
SELLERS:

	  	
/s/ David L. Dinning

	  	  	
David L. Dinning

	  	  	  
	  	  	
/s/ Ronald A. Corl

	  	  	
Ronald A. Corl

	  	  	  
	  	  	
/s/ David C. Klementik

	  	  	
David C. Klementik

	  	  	  
	  	  	  
	  	  	
RANGER INVESTMENT COMPANY

	  	  	  
	  	
By:  

	
/s/ James W. Cooper

	  	
Name:  

	
James W. Cooper

	  	
Title:  

	
President

	  	  	  
	  	  	  
	
COMPANY:

	  	
SOLAR FUEL COMPANY, INC.

	  	  	  
	  	
By:  

	
/s/ Ronald A. Corl

	  	
Name:  

	
Ronald A. Corl

	  	
Title:  

	
President

	  	  	  
	  	  	  
	
PURCHASER:

	  	
AK STEEL NATURAL RESOURCES, LLC

	  	  	  
	  	
By:  

	
/s/ Albert E. Ferrara, Jr.

	  	
Name:  

	
Albert E. Ferrara, Jr.

	  	
Title:  

	
President

	  	  	  

59

Signature Page - SPA

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