UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 _______________________________________________________________________________________________________________________________________________________________________________________________________
FORM 10-Q
(Mark One)
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2012
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                       to                     
Commission file number 1-9172
 
 
NACCO INDUSTRIES, INC.
 
 
 
 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
DELAWARE  
 
34-1505819
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
5875 LANDERBROOK DRIVE, CLEVELAND, OHIO  
 
44124-4069
 
 
(Address of principal executive offices)
 
(Zip code)
 
 
 
 
 
 
 
 
(440) 449-9600
 
 
 
 
(Registrant's telephone number, including area code)
 
 
 
 
 
 
 
 
 
N/A
 
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
 
Accelerated filer   þ  
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

Number of shares of Class A Common Stock outstanding at October 26, 2012 : 6,811,999
Number of shares of Class B Common Stock outstanding at October 26, 2012 : 1,582,311



NACCO INDUSTRIES, INC.
TABLE OF CONTENTS

 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1

Table of Contents

Part I
FINANCIAL INFORMATION
Item 1. Financial Statements

NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
(In millions, except share data)
ASSETS
 

 
 
Current Assets
 

 
 
Cash and cash equivalents
$
155.7

 
$
153.7

Accounts receivable, net
107.7

 
100.7

Inventories, net
205.4

 
161.3

Deferred income taxes
23.9

 
24.5

Prepaid expenses and other
14.9

 
10.6

Assets held for sale
1.5

 
31.4

Current assets of discontinued operations

 
893.9

Total Current Assets
509.1

 
1,376.1

Property, Plant and Equipment, Net
193.5

 
107.2

Goodwill
7.5

 

Coal Supply Agreement and Other Intangibles, Net
71.9

 
57.9

Long-term Deferred Income Taxes

 
0.3

Other Non-current Assets
40.0

 
48.6

Long-term Assets of Discontinued Operations

 
218.6

Total Assets
$
822.0

 
$
1,808.7

LIABILITIES AND EQUITY
 

 
 
Current Liabilities
 

 
 
Accounts payable
$
134.4

 
$
94.2

Revolving credit agreements of subsidiaries - not guaranteed by the parent company
42.0

 
67.0

Current maturities of long-term debt of subsidiaries - not guaranteed by the parent company
7.0

 
6.7

Accrued payroll
18.0

 
19.1

Deferred revenue
1.6

 
1.3

Other current liabilities
40.8

 
41.5

Current liabilities of discontinued operations

 
661.4

Total Current Liabilities
243.8

 
891.2

Long-term Debt of Subsidiaries - not guaranteed by the parent company
158.4

 
74.5

Asset Retirement Obligations
34.6

 
23.4

Pension and other Postretirement Obligations
24.5

 
29.3

Long-term Deferred Income Taxes
24.0

 
20.0

Other Long-term Liabilities
45.6

 
34.6

Long-term Liabilities of Discontinued Operations

 
158.7

Total Liabilities
530.9

 
1,231.7

Stockholders' Equity
 

 
 
Common stock:
 

 
 
Class A, par value $1 per share, 6,803,999 shares outstanding (2011 - 6,778,346 shares outstanding)
6.8

 
6.8

Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,590,311 shares outstanding (2011 - 1,595,581 shares outstanding)
1.6

 
1.6

Capital in excess of par value
24.9

 
22.7

Retained earnings
321.3

 
619.7

Accumulated other comprehensive loss
(63.5
)
 
(74.6
)
Total Stockholders' Equity
291.1

 
576.2

Noncontrolling Interest

 
0.8

Total Equity
291.1

 
577.0

Total Liabilities and Equity
$
822.0

 
$
1,808.7


See notes to unaudited condensed consolidated financial statements.

2

Table of Contents

NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
THREE MONTHS ENDED
 
NINE MONTHS ENDED
 
SEPTEMBER 30
 
SEPTEMBER 30
 
2012
 
2011
 
2012
 
2011
 
(In millions, except per share data)
Revenues
$
210.1

 
$
194.6

 
$
555.2

 
$
516.5

Cost of sales
157.8

 
146.1

 
414.1

 
387.2

Gross Profit
52.3

 
48.5

 
141.1

 
129.3

Earnings of unconsolidated mines
11.5

 
11.1

 
34.1

 
32.7

Operating Expenses
 
 
 
 
 
 
 
Selling, general and administrative expenses
52.1

 
46.4

 
150.1

 
140.4

Gain on sale of assets
(3.1
)
 
(0.1
)
 
(5.4
)
 
(0.2
)
 
49.0

 
46.3

 
144.7

 
140.2

Operating Profit
14.8

 
13.3

 
30.5

 
21.8

Other (income) expense
 

 
 
 
 
 
 
Interest expense
1.5

 
2.3

 
4.7

 
6.8

Applica settlement and litigation costs

 

 

 
(57.2
)
Other
(0.3
)
 
0.7

 
0.6

 
0.8

 
1.2

 
3.0

 
5.3

 
(49.6
)
Income Before Income Taxes
13.6

 
10.3

 
25.2

 
71.4

Income tax provision
3.4

 
2.1

 
6.7

 
21.8

Income From Continuing Operations
10.2

 
8.2

 
18.5

 
49.6

Discontinued operations , net of $1.3 tax benefit and $7.6 tax expense in three and nine months ended September 30, 2012, respectively, and net of $4.1 and $15.8 tax expense in three and nine months ended September 30, 2011, respectively.
27.8

 
17.5

 
66.5

 
58.1

Net Income
$
38.0

 
$
25.7

 
$
85.0

 
$
107.7

 
 

 
 
 
 
 
 
Basic Earnings per Share:
 
 
 
 
 
 
 
Continuing operations
$
1.22

 
$
0.98

 
$
2.21

 
$
5.92

Discontinued operations
$
3.31

 
$
2.08

 
$
7.93

 
$
6.93

Basic Earnings per Share
$
4.53

 
$
3.06

 
$
10.14

 
$
12.85

 
 
 
 
 
 
 
 
Diluted Earnings per Share:
 
 
 
 
 
 
 
Continuing operations
$
1.21

 
$
0.97

 
$
2.20

 
$
5.90

Discontinued operations
$
3.31

 
$
2.08

 
$
7.92

 
$
6.91

Diluted Earnings per Share
$
4.52

 
$
3.05

 
$
10.12

 
$
12.81

 
 
 
 
 
 
 
 
Dividends per Share
$
0.5475

 
$
0.5325

 
$
1.6275

 
$
1.5875

 
 

 
 
 
 
 
 
Basic Weighted Average Shares Outstanding
8.391

 
8.395

 
8.385

 
8.382

Diluted Weighted Average Shares Outstanding
8.409

 
8.416

 
8.401

 
8.407

 
 
 
 
 
 
 
 
Comprehensive Income
$
48.9

 
$
10.3

 
$
96.1

 
$
110.8


See notes to unaudited condensed consolidated financial statements.

3

Table of Contents

NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NINE MONTHS ENDED
 
SEPTEMBER 30
 
2012
 
2011
 
(In millions)
Operating Activities
 

 
 
Net income
$
85.0

 
$
107.7

Income from discontinued operations
66.5

 
58.1

Income from continuing operations
18.5

 
49.6

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 

 
 
Depreciation, depletion and amortization
11.4

 
11.9

Amortization of deferred financing fees
1.0

 
0.8

Deferred income taxes
4.3

 
(2.0
)
Gain on sale of assets
(5.4
)
 
(0.2
)
Other non-current liabilities
2.4

 
8.2

Other
(0.2
)
 
1.7

Working capital changes, excluding the effect of business acquisitions:
 

 
 
Accounts receivable
(7.3
)
 
22.7

Inventories
(44.2
)
 
(21.1
)
Other current assets
(4.6
)
 
(6.0
)
Accounts payable
35.4

 
5.5

Other current liabilities
(0.6
)
 
(8.8
)
Net cash provided by operating activities of continuing operations
10.7

 
62.3

Net cash provided by (used for) operating activities of discontinued operations
68.7

 
(11.0
)
 
 

 
 
Investing Activities
 

 
 
Expenditures for property, plant and equipment
(39.7
)
 
(15.3
)
Acquisition of business
(64.8
)
 

Proceeds from the sale of assets
34.5

 
0.5

Proceeds from note receivable
14.5

 

Net cash used for investing activities of continuing operations
(55.5
)
 
(14.8
)
Net cash used for investing activities of discontinued operations
(10.5
)
 
(10.5
)
 
 

 
 
Financing Activities
 

 
 
Additions to long-term debt
25.0

 

Reductions of long-term debt
(54.6
)
 
(61.9
)
Net additions to revolving credit agreements
86.9

 
14.0

Cash dividends paid
(13.7
)
 
(13.3
)
Cash dividends received from Hyster-Yale
5.0

 
10.0

Financing fees paid
(1.4
)
 

Purchase of treasury shares
(0.6
)
 

Other
0.2

 
(0.4
)
Net cash provided by (used for) financing activities of continuing operations
46.8

 
(51.6
)
Net cash used for financing activities of discontinued operations
(98.9
)
 
(19.1
)
 
 

 
 
Effect of exchange rate changes on cash of continuing operations

 

Effect of exchange rate changes on cash of discontinued operations
0.8

 
0.4

Cash and Cash Equivalents
 

 
 
Decrease for the period
(37.9
)
 
(44.3
)
Net (increase) decrease related to discontinued operations
39.9

 
40.2

Balance at the beginning of the period
153.7

 
92.4

Balance at the end of the period
$
155.7

 
$
88.3

See notes to unaudited condensed consolidated financial statements.

4


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
Class A Common Stock
Class B Common Stock
Capital in Excess of Par Value
Retained Earnings
Foreign Currency Translation Adjustment
Deferred Gain (Loss) on Cash Flow Hedging
Pension and Postretirement Plan Adjustment
Total Stockholders' Equity
Noncontrolling Interest
Total Equity
 
(In millions, except per share data)
Balance, December 31, 2010
$
6.8

$
1.6

$
22.6

$
475.4

 
$
28.1

 
$
(9.0
)
 
$
(78.1
)
 
$
447.4

 
$
0.8

 
$
448.2

Stock-based compensation


1.8


 

 

 

 
1.8

 

 
1.8

Shares issued under stock compensation plans


0.4


 

 

 

 
0.4

 

 
0.4

Net income attributable to stockholders



107.7

 

 

 

 
107.7

 

 
107.7

Cash dividends on Class A and Class B common stock: $1.5875 per share



(13.3
)
 

 

 

 
(13.3
)
 

 
(13.3
)
Current period other comprehensive income (loss)




 
(7.7
)
 
(2.3
)
 
(2.9
)
 
(12.9
)
 

 
(12.9
)
Reclassification adjustment to net income




 

 
7.8

 
8.2

 
16.0

 

 
16.0

Net loss attributable to noncontrolling interest




 

 

 

 

 
(0.1
)
 
(0.1
)
Balance, September 30, 2011
$
6.8

$
1.6

$
24.8

$
569.8

 
$
20.4

 
$
(3.5
)
 
$
(72.8
)
 
$
547.1

 
$
0.7

 
$
547.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
$
6.8

$
1.6

$
22.7

$
619.7

 
$
13.2

 
$
2.6

 
$
(90.4
)
 
$
576.2

 
$
0.8

 
$
577.0

Stock-based compensation


2.2


 

 

 

 
2.2

 

 
2.2

Shares issued under stock compensation plans


0.6


 

 

 

 
0.6

 

 
0.6

Purchase of treasury shares


(0.6
)

 

 

 

 
(0.6
)
 

 
(0.6
)
Net income attributable to stockholders



85.0

 

 

 

 
85.0

 

 
85.0

Cash dividends on Class A and Class B common stock: $1.6275 per share



(13.7
)
 

 

 

 
(13.7
)
 

 
(13.7
)
Stock dividend



(369.7
)
 

 

 

 
(369.7
)
 
(0.8
)
 
(370.5
)
Current period other comprehensive income (loss)




 
0.5

 
7.5

 

 
8.0

 

 
8.0

Reclassification adjustment to net income




 

 
(2.8
)
 
5.9

 
3.1

 

 
3.1

Balance, September 30, 2012
$
6.8

$
1.6

$
24.9

$
321.3

 
$
13.7

 
$
7.3

 
$
(84.5
)
 
$
291.1

 
$

 
$
291.1


See notes to unaudited condensed consolidated financial statements.

5


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(Tabular Amounts in Millions, Except Per Share and Percentage Data)

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, “NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. The Company's subsidiaries operate in the following principal industries: mining, small appliances and specialty retail. The Company manages its subsidiaries primarily by industry.
 
The North American Coal Corporation and its affiliated companies (collectively, “NACoal”) mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) is a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection ® and Le Gourmet Chef ® store names in outlet and traditional malls throughout the United States. On September 28, 2012, the Company spun-off Hyster-Yale Materials Handling, Inc. ("Hyster-Yale"), a former wholly owned subsidiary of the Company. The financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations for all periods presented through the date of the spin-off. See Not e 13 to th e Unaudited Condensed Consolidated Financial Statements for further details regarding the spin-off.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of September 30, 2012 and the results of its operations for the three and nine months ended September 30, 2012 and 2011 and the results of its cash flows and changes in equity for the nine months ended September 30, 2012 and 2011 have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information or notes required by U.S. generally accepted accounting principles for complete financial statements.

Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2012 . Because the HBB and KC businesses are seasonal, a majority of revenues and operating profit typically occurs in the second half of the calendar year when sales of small electric household appliances to retailers and consumers increase significantly for the fall holiday-selling season. For further information regarding seasonality of these businesses, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

Note 2 - Recently Issued Accounting Standards

Accounting Standards Adopted in 2012:

On January 1, 2012, the Company adopted authoritative guidance issued by the Financial Accounting Standards Board ("FASB") on fair value measurement. The guidance resulted in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. generally accepted accounting principles and International Financial Reporting Standards. The adoption of the guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

On January 1, 2012, the Company adopted authoritative guidance issued by the FASB on the presentation of comprehensive income. The guidance provides an entity with the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net

6


income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity. The adoption of the guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

On January 1, 2012, the Company adopted authoritative guidance issued by the FASB on testing goodwill for impairment. The revised accounting standard update is intended to simplify how an entity tests goodwill for impairment and will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The adoption of the guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

On July 1, 2012, the Company adopted authoritative guidance issued by the FASB on testing indefinite-lived intangible assets other than goodwill for impairment. This guidance provides entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The adoption of the guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

Reclassifications: Certain amounts in the prior periods' unaudited condensed consolidated financial statements have been reclassified to conform to the current period's presentation.

Note 3 - Inventories

Inventories are summarized as follows:
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
Coal - NACoal
$
16.4

 
$
13.1

Mining supplies - NACoal
12.8

 
11.1

Total inventories at weighted average
29.2

 
24.2

Sourced inventories - HBB
114.0

 
75.6

Retail inventories - KC
62.2

 
61.5

Total inventories at FIFO
176.2

 
137.1

 
$
205.4

 
$
161.3


Note 4 - Current and Long-Term Financing

On May 31, 2012, HBB entered into an amended and restated credit agreement for a $ 115.0 million secured, floating-rate revolving credit facility (the “HBB Facility”). The HBB Facility expires in July 2017. Borrowings under the HBB Facility were used to repay HBB's previous term loan entered into in 2007. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $ 230 million as of September 30, 2012 .

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate or LIBOR, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective September 30, 2012 , for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.50% , respectively. The applicable margins, effective September 30, 2012 , for base rate loans and bankers' acceptance loans denominated in Canadian dollars was 0.00% and 1.50% , respectively. The HBB Facility also requires a fee of 0.375% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability.

At September 30, 2012 , the borrowing base under the HBB Facility was $110.8 million . Borrowings outstanding under the HBB Facility were $ 52.3 million at September 30, 2012 . Therefore, at September 30, 2012 , the excess availability under the HBB Facility was $58.5 million . The floating rate of interest applicable to the HBB Facility at September 30, 2012 was 2.08% including the floating rate margin.

7



The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are limited to (i) $15.0 million from the closing date of the HBB Facility through December 31, 2012, so long as HBB has excess availability, as defined in the HBB Facility, of at least $30.0 million; (ii) the greater of $20.0 million or excess cash flow from the most recently ended fiscal year in each of the two twelve-month periods following the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of $25.0 million and maintains a minimum fixed charge coverage ratio of 1.0 to 1.0, as defined in the HBB Facility; and (iii) in such amounts as determined by HBB subsequent to the second anniversary of the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of $25.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At September 30, 2012 , HBB was in compliance with the financial covenants in the HBB Facility.

HBB incurred fees and expenses of $1.2 million in the first nine months of 2012 related to the HBB Facility. These fees were deferred and are being amortized as interest expense over the term of the HBB Facility.

On August 7, 2012, KC entered into an amended credit agreement for a five-year, $30.0 million secured revolving line of credit (the “KC Facility”). The KC Facility expires in August 2017. The obligations under the KC Facility are secured by substantially all assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was $85 million as of September 30, 2012.

The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of 1.00% or LIBOR plus a margin of 2.00% . The KC Facility also requires a fee of 0.375% per annum on the unused commitment.

At September 30, 2012, the borrowing base under the KC Facility was $27.0 million . Borrowings outstanding under the KC Facility were $14.7 million at September 30, 2012. Therefore, at September 30, 2012, the excess availability under the KC Facility was $12.3 million . The floating rate of interest applicable to the KC Facility at September 30, 2012 was 2.95% , including the floating rate margin.

The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i) $6.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of 1.1 to 1.0, as defined in the KC Facility; (ii) $2.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of $15.0 million after giving effect to such payment.

KC incurred fees and expenses of $0.2 million in the first nine months of 2012 related to the KC Facility. These fees were deferred and are being amortized as interest expense over the term of the KC Facility.

Note 5 - Financial Instruments and Derivative Financial Instruments

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similar obligations taking into account subsidiary credit risk, which is Level 2 as defined in the fair value hierarchy. At September 30, 2012 , the fair value of revolving credit agreements and long-term debt, excluding capital leases, was $ 204.1 million compared with the book value of $ 203.1 million . At December 31, 2011 , the fair value of revolving credit agreements and long-term debt, excluding capital leases, was $ 146.1 million compared with the book value of $ 145.3 million .

Derivative Financial Instruments

The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with

8


sales and purchases denominated in currencies other than the subsidiaries' functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in accumulated other comprehensive income (loss) (“OCI”). Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of comprehensive income (loss) in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales.

The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company's interest rate swap agreements and its variable rate financings are based upon the three-month LIBOR. Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of comprehensive income (loss) in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line “Other” in the “Other (income) expense” section of the unaudited condensed consolidated statements of comprehensive income (loss).

Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.

The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included on the line “Cost of sales” or “Other” in the “Other (income) expense” section of the unaudited condensed consolidated statements of comprehensive income (loss).

Cash flows from hedging activities are reported in the unaudited condensed consolidated statements of cash flows in the same classification as the hedged item, generally as a component of cash flows from operations.

The Company measures its derivatives at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the LIBOR swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts, and also incorporates the effect of its subsidiary and counterparty credit risk into the valuation.

Foreign Currency Derivatives: HBB held forward foreign currency exchange contracts with total notional amounts of $ 15.4 million , at September 30, 2012 , denominated in Canadian dollars. HBB held forward foreign currency exchange contracts with total notional amounts of $ 15.6 million , at December 31, 2011 , denominated in Canadian dollars. The fair value of these contracts approximated a net liability of $ 0.1 million and a net asset of $ 0.4 million at September 30, 2012 and December 31, 2011 , respectively.

Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in OCI. Based on market valuations at September 30, 2012 , $ 0.1 million of the amount included in OCI is expected to be reclassified as expense into the consolidated statement of comprehensive income (loss) over the next twelve months, as the transactions occur.

Interest Rate Derivatives: HBB has interest rate swap agreements that hedge interest payments on its three-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of active interest rate swap agreements at September 30, 2012 and December 31, 2011 :

 
Notional Amount
 
Average Fixed Rate
 
 
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
Remaining Term at September 30, 2012
HBB
$
25.0

 
$
40.0

 
4.0
%
 
4.6
%
 
Various, extending to June 2013


9


The fair value of all interest rate swap agreements was a net liability of $ 0.7 million and a net liability of $ 1.5 million at September 30, 2012 and December 31, 2011 , respectively. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in OCI. Based on market valuations at September 30, 2012 , $ 0.6 million of the amount included in OCI is expected to be reclassified as expense into the consolidated statement of comprehensive income (loss) over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreements. The interest rate swap agreements held by HBB on September 30, 2012 are expected to continue to be effective as hedges.

The following table summarizes the fair value of derivative instruments reflected on a gross basis at September 30, 2012 and December 31, 2011 as recorded in the unaudited condensed consolidated balance sheets:

 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
Balance Sheet Location
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
Current
Other current liabilities
 
$

 
$

 
Other current liabilities
 
$
0.7

 
$
1.1

Long-term
Other long-term liabilities
 

 

 
Other long-term liabilities
 

 
0.4

Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 

 
0.4

 
Prepaid expenses and other
 
0.1

 

 
Other current liabilities
 

 

 
Other current liabilities
 

 

Total derivatives designated as hedging instruments
 
$

 
$
0.4

 
 
 
$
0.8

 
$
1.5

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
Current
Other current liabilities
 
$

 
$

 
Other current liabilities
 
$

 
$

Long-term
Other long-term liabilities
 

 

 
Other long-term liabilities
 

 

Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 

 

 
Prepaid expenses and other
 

 

 
Other current liabilities
 

 

 
Other current liabilities
 

 

Total derivatives not designated as hedging instruments
 
$

 
$

 
 
 
$

 
$

Total derivatives
 
 
$

 
$
0.4

 
 
 
$
0.8

 
$
1.5


10


The following table summarizes the pre-tax impact of derivative instruments for the three and nine months ended September 30 as recorded in the unaudited condensed consolidated statements of comprehensive income (loss):
 
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
 
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Amount of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
THREE MONTHS
 
NINE MONTHS
 
 
THREE MONTHS
 
NINE MONTHS
 
 
THREE MONTHS
 
NINE MONTHS
Derivatives in Cash Flow Hedging Relationships
2012
 
2011
 
2012
 
2011
 
 
2012
 
2011
 
2012
 
2011
 
 
2012

2011
 
2012
 
2011
Interest rate swap agreements
$

 
$
(0.1
)
 
$
(0.1
)
 
$
(0.4
)
 
Interest expense
$
(0.2
)
 
$
(0.4
)
 
$
(1.0
)
 
$
(1.5
)
 
Other
$


$

 
$


$

Foreign currency exchange contracts
(0.5
)
 
1.9

 
(0.7
)
 
2.0

 
Cost of sales
(0.1
)
 
0.2

 
(0.1
)
 
0.8

 
N/A



 



Total
$
(0.5
)
 
$
1.8

 
$
(0.8
)
 
$
1.6

 
 
$
(0.3
)
 
$
(0.2
)
 
$
(1.1
)
 
$
(0.7
)
 
 
$


$

 
$


$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain or (Loss) Recognized in Income on Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THREE MONTHS
 
NINE MONTHS
Derivatives Not Designated as Hedging Instruments
 
Location of Gain or (Loss) Recognized in Income on Derivative
2012
 
2011
 
2012
 
2011
Interest rate swap agreements
 
N/A
$

 
$

 
$

 
$

Foreign currency exchange contracts
 
Cost of Sales or Other

 

 
(0.2
)
 
(0.1
)
Total
 
 
$

 
$

 
$
(0.2
)
 
$
(0.1
)

Note 6 - Unconsolidated Subsidiaries

Nine of NACoal's wholly owned subsidiaries each meet the definition of a variable interest entity: The Coteau Properties Company ("Coteau"); The Falkirk Mining Company ("Falkirk"); The Sabine Mining Company ("Sabine" and collectively with Coteau and Falkirk, the "project mining subsidiaries"); Demery Resources Company, LLC (“Demery”); Caddo Creek Resources Company, LLC (“Caddo Creek”); Camino Real Fuels, LLC (“Camino Real”); Liberty Fuels Company, LLC (“Liberty”); NoDak Energy Services, LLC ("NoDak") and North American Coal Corporation India Private Limited ("NACC India"). The project mining subsidiaries are capitalized primarily with debt financing, which the utility customers have arranged and guaranteed and which are without recourse to NACCO and NACoal. Demery, Caddo Creek, Camino Real and Liberty (collectively with the project mining subsidiaries, the "unconsolidated mines") were formed to develop, construct and operate surface mines under long-term contracts. NoDak was formed to operate and maintain a coal processing facility. The debt obligations of the unconsolidated mines are without recourse to NACCO and NACoal. NACC India was formed to provide technical advisory services to the third-party owners of a coal mine in India. The contracts with the customers of the nine unconsolidated subsidiaries allow for reimbursement at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee. Although NACoal owns 100% of the equity and manages the daily operations of these entities, the Company has determined that the equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. The customers have a controlling financial interest and have the power to direct the activities that most significantly affect the economic performance of the entities. As a result, NACoal is not the primary beneficiary and therefore does not consolidate these entities' financial position or results of operations. The taxes resulting from the earnings of the unconsolidated mines and NoDak are solely the responsibility of the Company. The pre-tax income from the seven unconsolidated mines is reported on the line “Earnings of unconsolidated mines” in the unaudited condensed consolidated statements of comprehensive income (loss), with related taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the

11


unconsolidated mines above operating profit as they are an integral component of the Company's business and operating results. The pre-tax income from NoDak is reported on the line "Other" in the "Other (income) expense" section of the unaudited condensed consolidated statement of comprehensive income (loss), with the related income taxes included in the provision for income taxes. The net income from NACC India is reported on the line "Other" in the "Other (income) expense" section of the unaudited condensed consolidated statement of comprehensive income (loss). The investment in the nine unconsolidated operations and related tax position was $ 22.5 million and $ 22.0 million at September 30, 2012 and December 31, 2011 , respectively, and is included on the line “Other Non-current Assets” in the unaudited condensed consolidated balance sheets. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 5.2 million and $ 6.3 million at September 30, 2012 and December 31, 2011 , respectively.

Summarized financial information for the nine unconsolidated operations is as follows:
 
THREE MONTHS ENDED
 
NINE MONTHS ENDED
 
SEPTEMBER 30
 
SEPTEMBER 30
 
2012
 
2011
 
2012
 
2011
Revenues
$
144.2

 
$
131.3

 
$
413.6

 
$
364.1

Gross profit
$
19.0

 
$
16.5

 
$
56.4

 
$
52.3

Income before income taxes
$
11.9

 
$
11.4

 
$
35.3

 
$
33.7

Income from continuing operations
$
9.9

 
$
8.9

 
$
28.3

 
$
25.8

Net income
$
9.9

 
$
8.9

 
$
28.3

 
$
25.8


Note 7 - Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses, including product liability, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that material costs will be incurred in excess of accruals already recognized.

HBB is investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it acquired. Based on the current stage of the investigation or remediation at each known site, HBB estimates the total investigation and remediation costs and the period of assessment and remediation activity required for each site. The estimate of future investigation and remediation costs is primarily based on variables associated with site clean-up, including, but not limited to, physical characteristics of the site, the nature and extent of the contamination and applicable regulatory programs and remediation standards. No assessment can fully characterize all subsurface conditions at a site. There is no assurance that additional assessment and remediation efforts will not result in adjustments to estimated remediation costs or the time frame for remediation at these sites.

Past results of operations have not been materially affected by a change in estimate of HBB's environmental exposure at known sites. HBB's estimates of investigation and remediation costs may change if it discovers contamination at additional sites or additional contamination at known sites, if the effectiveness of its current remediation efforts change, if applicable federal or state regulations change or if HBB's estimate of the time required to remediate the sites changes. HBB's revised estimates may differ materially from original estimates.

At September 30, 2012, HBB had accrued approximately $4.8 million for environmental investigation and remediation activities at these sites. In addition, HBB estimates that it is reasonably possible that it may incur additional expenses in the range of $0 to $3.5 million related to the environmental investigation and remediation at these sites.

Note 8 - Product Warranties

HBB provides a standard warranty to consumers for all of its products. The specific terms and conditions of those warranties vary depending upon the product brand. In general, if a product is returned under warranty, a refund is provided to the consumer by HBB's customer, the retailer. Generally, the retailer returns those products to HBB for a credit. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.


12


The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the Company's warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.

Changes in the Company's current and long-term warranty obligations are as follows:
 
2012
Balance at January 1
$
4.2

Current year warranty expense
4.3

Payments made
(4.9
)
Balance at September 30
$
3.6


Note 9 - Income Taxes

The income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on the application of a forecasted annual income tax rate applied to the current quarter's year-to-date pre-tax income or loss. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company's annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company's ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated effective annual income tax rate.

A reconciliation of the Company's consolidated federal statutory and effective income tax on income from continuing operations is as follows:
 
THREE MONTHS ENDED
 
NINE MONTHS ENDED
 
SEPTEMBER 30
 
SEPTEMBER 30
 
2012
 
2011
 
2012
 
2011
Income before income taxes:
$
13.6

 
$
10.3

 
$
25.2

 
$
71.4

Statutory taxes at 35%
$
4.8

 
$
3.6

 
$
8.8

 
$
25.0

Discrete items:
 
 
 
 
 
 
 
Other
(0.3
)
 
(0.2
)
 
(0.3
)
 
(0.4
)
 
(0.3
)
 
(0.2
)
 
(0.3
)
 
(0.4
)
Other permanent items:
 
 
 
 
 
 
 
NACoal percentage depletion
(1.5
)
 
(0.7
)
 
(2.4
)
 
(3.6
)
Foreign tax rate differential
(0.1
)
 
(0.7
)
 
(0.1
)
 
(0.8
)
Other
0.5

 
0.1

 
0.7

 
1.6

 
(1.1
)
 
(1.3
)
 
(1.8
)
 
(2.8
)
Income tax provision
$
3.4

 
$
2.1

 
$
6.7

 
$
21.8

Effective income tax rate
25.0
%
 
20.4
%
 
26.6
%
 
30.5
%

Note 10 - Retirement Benefit Plans

The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. The Company's policy is to make contributions to fund these plans within the range allowed by applicable regulations. Plan assets consist primarily of publicly traded stocks and government and corporate bonds.
Pension benefits are frozen for all employees other than certain NACoal employees of the project mining subsidiaries. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

The Company previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2011 that it expected to contribute approximately $ 8.0 million and $ 5.0 million , which included Hyster-Yale, to its U.S. and non-U.S. pension plans, respectively, in 2012. Excluding the contributions of Hyster-Yale prior to the spin-off, the Company expects to contribute

13


approximately $ 7.0 million to its remaining U.S. pension plans in 2012. The Company does not expect to contribute to its remaining non-U.S. pension plans in 2012.

The Company also maintains health care plans which provide benefits to eligible retired employees. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.

The components of pension and postretirement (income) expense are set forth below:
 
THREE MONTHS ENDED
 
NINE MONTHS ENDED
 
SEPTEMBER 30
 
SEPTEMBER 30
 
2012
 
2011
 
2012
 
2011
U.S. Pension
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
0.8

 
0.9

 
2.4

 
2.6

Expected return on plan assets
(1.1
)
 
(1.1
)
 
(3.3
)
 
(3.4
)
Amortization of actuarial loss
0.7

 
0.6

 
2.1

 
1.8

Amortization of prior service credit

 
(0.1
)
 
(0.1
)
 
(0.1
)
Total
$
0.4

 
$
0.3

 
$
1.1

 
$
0.9

Non-U.S. Pension
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
0.1

 
0.1

 
0.2

 
0.2

Expected return on plan assets
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.3
)
Amortization of actuarial loss

 

 
0.1

 

Total
$

 
$

 
$
0.1

 
$
(0.1
)
Postretirement
 
 
 
 
 
 
 
Service cost
$

 
$

 
$
0.1

 
$
0.1

Interest cost

 

 
0.1

 
0.1

Amortization of prior service credit

 

 
(0.1
)
 
(0.1
)
Total
$

 
$

 
$
0.1

 
$
0.1


14


Note 11 - Business Segments

NACCO is a holding company with the following principal subsidiaries: NACoal, HBB and KC. See Note 1 for a discussion of the Company's industries and product lines. NACCO's non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire Corporation.
 
Financial information for each of NACCO's reportable segments is presented in the following table. The line “Eliminations” in the revenues section eliminates revenues from HBB sales to KC. The amounts of these revenues are based on current market prices of similar third-party transactions. No other sales transactions occur among reportable segments. Other transactions among reportable segments are recognized based on current market prices of similar third-party transactions.
 
THREE MONTHS ENDED
 
NINE MONTHS ENDED
 
SEPTEMBER 30
 
SEPTEMBER 30
 
2012
 
2011
 
2012
 
2011
Revenues from external customers
 
 
 
 
 
 
 
NACoal
$
38.0

 
$
21.0

 
$
81.5

 
$
58.3

HBB
124.8

 
126.7

 
340.4

 
331.6

KC
48.2

 
48.9

 
135.8

 
129.8

NACCO and Other

 

 

 

Eliminations
(0.9
)
 
(2.0
)
 
(2.5
)
 
(3.2
)
Total
$
210.1

 
$
194.6

 
$
555.2

 
$
516.5

 
 
 
 
 
 
 
 
Operating profit (loss)
 

 
 

 
 
 
 
NACoal
$
8.6

 
$
7.0

 
$
29.7

 
$
21.8

HBB
8.7

 
7.9

 
15.9

 
14.8

KC
(1.9
)
 
(0.6
)
 
(11.6
)
 
(10.3
)
NACCO and Other
(0.6
)
 
(0.9
)
 
(3.6
)
 
(4.5
)
Eliminations

 
(0.1
)
 
0.1

 

Total
$
14.8

 
$
13.3

 
$
30.5

 
$
21.8

Income (loss) from continuing operations
 
 
 
 
 
 
 
NACoal
$
8.2

 
$
5.8

 
$
24.5

 
$
17.5

HBB
5.3

 
4.1

 
8.5

 
6.4

KC
(1.2
)
 
(0.5
)
 
(7.2
)
 
(6.5
)
NACCO and Other
(1.1
)
 
(0.7
)
 
(4.2
)
 
33.0

Eliminations
(1.0
)
 
(0.5
)
 
(3.1
)
 
(0.8
)
Total
$
10.2

 
$
8.2

 
$
18.5

 
$
49.6


Note 12 - Acquisitions

On August 31, 2012, NACoal acquired, through a wholly owned subsidiary, four related companies - Reed Minerals, Inc., Reed Hauling Inc., C&H Mining Company, Inc. and Reed Management, LLC - from members of and entities controlled by the Reed family. These companies, known as Reed Minerals, are based in Jasper, Alabama and are involved in the mining of steam and metallurgical coal. The results of Reed Minerals' operations have been included in the Company's consolidated financial statements since August 31, 2012.
Reed Minerals mines and markets steam coal and metallurgical coal for sale primarily into the power generation and steel markets. Steam coal is primarily sold to a cooperative association which provides fuel under a long-term contract with a significant U.S. utility. Metallurgical coal is sold to several customers. Reed Minerals operates three mines on leased reserves in central Alabama. For the year ended December 31, 2011, Reed Minerals sold 0.9 million tons of coal and had revenue of approximately $86.0 million and net income of approximately $4.0 million .
The acquisition, which was funded using borrowings under NACoal's unsecured revolving line of credit, was completed for a
preliminary purchase price of approximately $64.8 million . The terms of the transaction also include an earn-out contingent on
the average coal selling price received on the first 15 million tons of coal sold by NACoal from the Reed Minerals operations average coal selling price received on the first 15 million tons of coal sold by NACoal from the Reed Minerals operations .

15


The earn-out payments will be paid quarterly. No earn-out payments were made during the third quarter of 2012.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed of Reed Minerals at the acquisition date of August 31, 2012. NACoal is in the process of finalizing its accounting for the transaction including obtaining third-party valuations of certain assets and liabilities. In addition, NACoal continues to evaluate the fair value of any contingent consideration which may be paid. Changes in the assumptions used to calculate the preliminary fair values will affect the allocation of the purchase price to the assets and liabilities of the acquisition. Accordingly, these initial measurements are subject to change.
 
At August 31, 2012
 
 
Assets:
 
Property, plant and equipment (including mineral rights)
$
54.6

Other non-current assets
2.5

Goodwill
7.5

Other intangible assets
15.9

Total assets acquired
$
80.5

 
 
Liabilities:
 
Other current liabilities
$
0.7

Other long-term liabilities
15.0

Total liabilities assumed
$
15.7

 
 
Net assets acquired
$
64.8


The results of Reed Minerals included in the Company's unaudited condensed consolidated statement of comprehensive income (loss) from the acquisition date through September 30, 2012 are as follows:
 
September 30, 2012
 
 
Revenues
$
7.7

Operating profit
$

Net income
$


Note 13 - Other Events and Transactions

NACoal : During the second quarter of 2010 and the third quarter of 2011, NACoal entered into agreements to sell $ 31.4 million of assets, primarily two draglines. During the first nine months of 2012, NACoal sold the draglines for $ 31.2 million and recognized a gain on the sale of one dragline of $3.3 million . These assets were previously reported as held for sale on the statement of financial position.

NACCO and Other: In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica Incorporated ("Applica") and individuals and entities affiliated with Applica's shareholder, Harbinger Capital Partners Master Fund, Ltd. The litigation alleged a number of contract and tort claims against the defendants related to the failed transaction with Applica, which had been previously announced. On February 14, 2011, the parties to this litigation entered into a settlement agreement. The settlement agreement provided for, among other things, the payment of $ 60 million to the Company and dismissal of the lawsuit with prejudice. The payment was received in February 2011.
Litigation costs related to the failed transaction with Applica were $ 2.8 million during the first nine months of 2011 .

Hyster-Yale Spin-Off: On September 28, 2012, the Company spun-off Hyster-Yale, a former wholly owned subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock and Class B common stock owned. In accordance with the applicable authoritative accounting guidance, the Company accounted for the spin-off based on the carrying value of Hyster-Yale.

16



In connection with the spin-off of Hyster-Yale, the Company and Hyster-Yale entered into a Transition Services Agreement ("TSA"). Under the terms of the TSA, the Company will obtain various services from Hyster-Yale and provide various services to Hyster-Yale on a transitional basis, as needed, for varying periods after the spin-off.

None of the transition services is expected to exceed one year. The Company or Hyster-Yale may extend the initial transition period for a period of up to three months for any service upon 30 days written notice to the other party prior to the initial termination date. The Company expects to pay net aggregate fees to Hyster-Yale of no more than $0.6 million over the initial term of the TSA.

In addition, the Company entered into an office services agreement pursuant to which Hyster-Yale will provide certain office services to NACCO under certain mutually agreed upon conditions. The fees the Company will pay to Hyster-Yale will be determined on an arm's-length basis. The Company expects to pay approximately $0.2 million annually to Hyster-Yale for these services. The office services agreement will have an initial term of one year and will automatically renew for additional one year periods until terminated by either the Company or Hyster-Yale.

As a result of the spin-off, the financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations through the date of the spin-off in the unaudited condensed consolidated financial statements.

In connection with the spin-off of Hyster-Yale, NACCO and Other recognized expenses of $2.6 million , $2.5 million after-tax, for the three months ended September 30, 2012 and $3.4 million , $3.0 million after-tax, for the nine months ended September 30, 2012, which are reflected as discontinued operations in the unaudited condensed consolidated financial statements.

Discontinued operations includes the following results of Hyster-Yale for the three and nine months ended September 30, 2012 and 2011:
 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
Revenues
$
585.6

 
$
628.8

 
$
1,817.1

 
$
1,863.4

Net income
$
24.9

 
$
17.5

 
$
65.6

 
$
59.0

Basic earnings per share
$
2.97

 
$
2.08

 
$
7.82

 
$
7.04

Diluted earnings per share
$
2.96

 
$
2.08

 
$
7.81

 
$
7.02

 
Note 14 - Subsequent Events

On October 10, 2012, Coyote Creek Mining Company, LLC (“CCMC”), an indirect subsidiary of the Company, entered into a Lignite Sales Agreement (the “LSA”) with Otter Tail Power Company (“OTP”), a wholly owned subsidiary of Otter Tail Corporation, and with OTP’s co-owners in the Coyote Station baseload generation plant, Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., Northern Municipal Power Agency and NorthWestern Corporation. Under the LSA, CCMC will develop a lignite mine in Mercer County, North Dakota and deliver to the Coyote Station co-owners, as an exclusive supplier, the annual fuel requirements of the Coyote Station plant (expected to be approximately 2.5 million tons annually starting in 2016). The term of the LSA consists of two periods: (i) the development period, which is from October 10, 2012 until on or around May 5, 2016, and (ii) the production period, which is from the last day of the development period until December 31, 2040. The production period is subject to automatic 5-year extensions unless either party gives notice of its desire not to extend the LSA or the lignite at the mine is exhausted. The price per ton under the LSA will reflect the cost of production, along with an agreed profit and capital charge. In addition, the LSA provides for certain early termination events following which the Coyote Station co-owners must purchase the membership interests in CCMC. If the termination occurs in 2024 or later, NACoal is obligated to buy CCMC’s dragline and rolling stock as a condition to the sale of the membership interests in CCMC. NACoal provides a payment and performance guaranty of CCMC’s obligations in connection with the LSA.


17


Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Per Share and Percentage Data)

NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, the “Company”) operate in the following principal industries: mining, small appliances and specialty retail. Results of operations and financial condition are discussed separately by subsidiary, which corresponds with the industry groupings.

The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) is a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection ® and Le Gourmet Chef ® store names in outlet and traditional malls throughout the United States.

On September 28, 2012, the Company completed the spin-off of Hyster-Yale Materials Handling, Inc. ("Hyster-Yale"), a former wholly owned subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock and Class B common stock they owned. As a result of the spin-off, the financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations for all periods presented through the date of the spin-off in the unaudited condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties with respect to each subsidiary's operations include, without limitation:
NACoal: (1) the successful integration of the Reed Minerals acquisition, (2) changes in the demand for and market prices of metallurgical coal produced in the Reed Minerals mines, (3) changes in tax laws or regulatory requirements, including changes in mining or power plant emission regulations and health, safety or environmental legislation, (4) changes in costs related to geological conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (5) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (6) weather conditions, extended power plant outages or other events that would change the level of customers' coal or limerock requirements, which would have an adverse effect on results of operations, (7) weather or equipment problems that could affect deliveries to customers, (8) changes in the power industry that would affect demand for NACoal's reserves, (9) changes in the costs to reclaim current NACoal mining areas, (10) costs to pursue and develop new mining opportunities, (11) legal challenges related to Mississippi Power's Ratcliffe Plant in Mississippi and (12) increased competition, including consolidation within the industry.
HBB: (1) changes in the sales prices, product mix or levels of consumer purchases of small electric appliances, (2) changes in consumer retail and credit markets, (3) bankruptcy of or loss of major retail customers or suppliers, (4) changes in costs, including transportation costs, of sourced products, (5) delays in delivery of sourced products, (6) changes in or unavailability of quality or cost effective suppliers, (7) exchange rate fluctuations, changes in the foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which HBB buys, operates and/or sells products, (8) product liability, regulatory actions or other litigation, warranty claims or returns of products, (9) customer acceptance of, changes in costs of, or delays in the development of new products, (10) increased competition, including consolidation within the industry and (11) changes mandated by federal, state and other regulation, including health, safety or environmental legislation.
KC: (1) changes in gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of the uncertain economy, high unemployment rates or other events or conditions that may adversely affect the number of customers visiting Kitchen Collection ® and Le Gourmet Chef ® stores, (2) changes in the sales prices, product mix or levels of consumer purchases of kitchenware, small electric appliances and gourmet foods, (3) changes in costs, including transportation costs, of inventory, (4) delays in delivery or the unavailability of inventory, (5) customer acceptance of new products, (6) the anticipated impact of the opening of new stores, the ability to renegotiate existing leases and effectively and efficiently close unprofitable stores and (7) increased competition.

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Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue recognition: Revenues are generally recognized when title transfers and risk of loss passes as customer orders are completed and shipped. Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered. Reserves for discounts and returns for HBB are maintained for anticipated future claims. The accounting policies used to develop these product discounts and returns include:
Product discounts: The Company records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At HBB, net sales represent gross sales less cooperative advertising, other volume-based incentives, estimated returns and allowances for defective products. At KC, retail markdowns are incorporated into KC's retail method of accounting for cost of sales. If market conditions were to decline or if competition was to increase, the Company may take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenues at the time the incentive is offered. The Company's past results of operations have not been materially affected by a change in the estimate of product discounts and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.
Product returns: Products generally are not sold with the right of return. However, based on the Company's historical experience, a portion of products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of sale based on this historical experience and the limited right of return provided to certain customers. If future trends were to change significantly from those experienced in the past, incremental reductions to revenues may result based on this new experience. The Company's past results of operations have not been materially affected by a change in the estimate of product returns and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.
Retirement benefit plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Pension benefits are frozen for all employees other than certain NACoal employees of the project mining subsidiaries. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans. The Company's policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of publicly traded stocks and government and corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.
The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. The Company has established the expected long-term rate of return assumption for plan assets by considering historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans. The historical rates of return for each of the asset classes used by the Company to determine its estimated rate of return assumption were based upon the rates of return earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for pension plans are based on a calculated market-related value of assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years.
The Company also maintains health care plans which provide benefits to eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.
The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the

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expected obligations under the defined benefit plans and health care plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.
Self-insurance liabilities: The Company is generally self-insured for product liability, environmental liability, medical claims, certain workers’ compensation claims and certain closed mine liabilities. For product liability, catastrophic insurance coverage is maintained for potentially significant individual claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management's judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and actual experience could cause estimates to change in the near term. Changes in any of these factors could materially change the Company's estimates for these self-insurance obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate.
Accounting for Asset Retirement Obligations: The Company's asset retirement obligations are principally for costs to dismantle certain mining equipment as well as for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. Under certain federal and state regulations, the Company is required to reclaim land disturbed as a result of mining. The Company determined the amounts of these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate. The accretion of the liability is being recognized over the estimated life of each individual asset retirement obligation. The Company has capitalized an asset’s retirement cost as part of the cost of the related long-lived asset. These capitalized amounts are subsequently allocated to expense using a systematic and rational method.
Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The Company determined the amounts of these obligations based on estimates adjusted for inflation and then discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the asset retirement obligation. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating income in the period of change in the estimate.
Inventory reserves: The Company writes down its inventory to the lower of cost or market, which includes an estimate for obsolescence or excess inventory based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs.
Allowances for doubtful accounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.


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Table of Contents

THE NORTH AMERICAN COAL CORPORATION

NACoal mines and markets steam and metallurgical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. Coal is surface mined from NACoal's developed mines in North Dakota, Texas, Mississippi, Louisiana and Alabama. Total coal reserves approximate 2.3 billion tons with approximately 1.2 billion tons committed to customers pursuant to long-term contracts. NACoal has two consolidated mining operations: Mississippi Lignite Mining Company (“MLMC”) and Reed Minerals ("Reed"). NACoal has nine unconsolidated subsidiaries: The Coteau Properties Company (“Coteau”), The Falkirk Mining Company (“Falkirk”), The Sabine Mining Company (“Sabine”), Demery Resources Company, LLC (“Demery”), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), Liberty Fuels Company, LLC (“Liberty”), NoDak Energy Services, LLC ("NoDak") and North American Coal Corporation India Private Limited (“NACC India”). Caddo Creek, Camino Real and Liberty are in the development stage and do not currently mine or deliver coal. NACoal also provides dragline mining services for independently owned limerock quarries in Florida.
The contracts with the customers of the nine unconsolidated subsidiaries allow for reimbursement at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee. The unconsolidated operations each meet the definition of a variable interest entity and are accounted for using the equity method.

On August 31, 2012, NACoal acquired, through a wholly owned subsidiary, four related companies - Reed Minerals, Inc., Reed Hauling Inc., C&H Mining Company, Inc. and Reed Management, LLC - from members of and entities controlled by the Reed family. These companies, which will be known as Reed Minerals, are based in Jasper, Alabama and are involved in the mining of steam and metallurgical coal. See Note 12 for further discussion of this acquisition.

On October 10, 2012, Coyote Creek Mining Company, LLC (“CCMC”), an indirect subsidiary of the Company, entered into a Lignite Sales Agreement (the “LSA”) with Otter Tail Power Company (“OTP”), a wholly owned subsidiary of Otter Tail Corporation, and with OTP’s co-owners in the Coyote Station baseload generation plant, Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., Northern Municipal Power Agency and NorthWestern Corporation. Under the LSA, CCMC will develop a lignite mine in Mercer County, North Dakota and deliver to the Coyote Station co-owners, as an exclusive supplier, the annual fuel requirements of the Coyote Station plant (expected to be approximately 2.5 million tons annually starting in 2016). See Note 14 fo r further discussion of this agreement.

FINANCIAL REVIEW

Tons of coal sold by NACoal's operating mines were as follows for the three and nine months ended September 30 :

 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
Coteau
3.2

 
3.2

 
9.7

 
9.8

Falkirk
2.2

 
2.0

 
5.9

 
5.5

Sabine
1.1

 
1.2

 
3.4

 
3.5

Unconsolidated mines
6.5

 
6.4

 
19.0

 
18.8

MLMC
1.0

 
0.7

 
2.3

 
1.9

     Reed Minerals
0.1

 

 
0.1

 

Consolidated mines
1.1

 
0.7

 
2.4

 
1.9

Total tons sold
7.6

 
7.1

 
21.4

 
20.7


The limerock dragline mining operations delivered 4.9 million and 13.0 million cubic yards of limerock in the three and nine months ended September 30, 2012 . This compares with 3.1 million and 10.7 million cubic yards of limerock in the three and nine months ended September 30, 2011 .


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The results of operations for NACoal were as follows for the three and nine months ended September 30 :

 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
Revenues
$
38.0

 
$
21.0

 
$
81.5

 
$
58.3

Operating profit
$
8.6

 
$
7.0

 
$
29.7

 
$
21.8

Interest expense
$
0.9

 
$
0.9

 
$
2.3

 
$
2.3

Other (income) expense
$
(0.4
)
 
$
(0.4
)
 
$
(1.1
)
 
$
(1.2
)
Net income
$
8.2

 
$
5.8

 
$
24.5

 
$
17.5

Effective income tax rate
(a)
 
10.8
%
 
14.0
%
 
15.5
%

(a) The effective income tax rate is not meaningful.

See further discussion of the consolidated effective income tax rate in Note 9 of the unaudited condensed consolidated financial statements.

Third Quarter of 2012 Compared with Third Quarter of 2011

The following table identifies the components of change in revenues for the third quarter of 2012 compared with the third quarter of 2011 :
 
Revenues
2011
$
21.0

Increase in 2012 from:
 
Consolidated mining operations
8.7

Reed Minerals
7.7

Royalty and other income
0.6

2012
$
38.0

Revenues increased to $ 38.0 million for the third quarter of 2012 compared with $ 21.0 million in the third quarter of 2011 due to higher revenues at the consolidated mining operations and an increase in royalty and other income. The increase at the consolidated mining operations was primarily the result of additional revenues from the acquisition of Reed during the third quarter of 2012, an increase in tons delivered at MLMC in the third quarter of 2012 as a result of improvements at a customer's power plant and fewer unplanned customer power plant outage days in the third quarter of 2012 compared with the third quarter of 2011 and increased customer requirements at the limerock dragline mining operations in the third quarter of 2012 compared with the third quarter of 2011.

The following table identifies the components of change in operating profit for the third quarter of 2012 compared with the third quarter of 2011 :
 
Operating Profit
2011
$
7.0

Increase (decrease) in 2012 from:
 
Gain on sale of asset
3.3

Consolidated mining operations
2.8

Earnings of unconsolidated mines
0.4

Royalty and other income
0.2

Other selling, general and administrative expenses
(5.1
)
2012
$
8.6

Operating profit increased to $ 8.6 million in the third quarter of 2012 from $ 7.0 million in the third quarter of 2011 , primarily due to a gain on the sale of assets, previously classified as held for sale, recorded in the third quarter of 2012, increased operating profit at the consolidated mining operations mainly due to the increase in tons delivered at MLMC during the third quarter of 2012 compared with the third quarter of 2011, and improved earnings at the unconsolidated mines mainly from an increase in tons delivered and contractual price escalators. The increase was partially offset by higher other selling, general and administrative expenses, primarily from an increase in employee-related expenses and acquisition-related costs, including professional fees.

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Table of Contents

Net income increased to $ 8.2 million in the third quarter of 2012 from $ 5.8 million in the third quarter of 2011 primarily due to the factors affecting operating profit and favorable income tax expense from the benefit of increased losses from entities in jurisdictions with higher income tax rates.

First Nine Months of 2012 Compared with First Nine Months of 2011

The following table identifies the components of change in revenues for the first nine months of 2012 compared with the first nine months of 2011 :
 
Revenues
2011
$
58.3

Increase in 2012 from:
 
Consolidated mining operations
13.4

Reed Minerals
7.7

Royalty and other income
2.1

2012
$
81.5


Revenues for the first nine months of 2012 increased 39.8% to $ 81.5 million from $ 58.3 million in the first nine months of 2011 primarily as a result of higher revenues at the consolidated mining operations and an increase in royalty and other income. The increase at the consolidated mining operations was primarily the result of an increase in tons delivered at MLMC in the first nine months of 2012 as a result of improvements at a customer's power plant in the first nine months of 2012 compared with 2011, the acquisition of Reed during the third quarter of 2012, and increased customer requirements at the limerock dragline mining operations in the first nine months of 2012 compared with the first nine months of 2011.

The following table identifies the components of change in operating profit for the first nine months of 2012 compared with the first nine months of 2011 :
 
Operating Profit
2011
$
21.8

Increase (decrease) in 2012 from:
 
Gain on sale of asset
5.6

Consolidated mining operations
5.2

Royalty and other income
1.4

Earnings of unconsolidated mines
1.4

Other selling, general and administrative expenses
(5.7
)
2012
$
29.7


Operating profit increased to $ 29.7 million in the first nine months of 2012 from $ 21.8 million in the first nine months of 2011 , primarily as a result of gains on the sale of assets, previously classified as held for sale, recorded in the first nine months of 2012, and an increase in consolidated mining operating profit mainly due to increased deliveries as a result of improvements at a customer's power plant in the first nine months of 2012 compared with 2011. In addition, higher royalty and other income and an increase in earnings of the unconsolidated mines from contractual price escalators contributed to the improvement in operating profit. The increases were partially offset by higher other selling, general and administrative expenses, primarily from an increase in employee-related expenses and acquisition-related costs, including professional fees.

Net income increased to $ 24.5 million in the first nine months of 2012 from $ 17.5 million in the first nine months of 2011 primarily due to the factors affecting operating profit and lower income tax rates from the benefit of increased losses from entities in jurisdictions with higher income tax rates.


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LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following tables detail the changes in cash flow for the nine months ended September 30 :
 
2012
 
2011
 
Change
Operating activities:
 
 
 
 
 
Net income
$
24.5

 
$
17.5

 
$
7.0

Depreciation, depletion and amortization
7.0

 
5.9

 
1.1

Other
2.1

 
4.2

 
(2.1
)
Working capital changes
0.5

 
(3.7
)
 
4.2

Net cash provided by operating activities
34.1

 
23.9

 
10.2

 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(33.9
)
 
(10.6
)
 
(23.3
)
Acquisition of business
(64.8
)
 

 
(64.8
)
Proceeds from the sale of assets
34.5

 
0.5

 
34.0

Proceeds from note receivable
14.4

 

 
14.4

Net cash used for investing activities
(49.8
)
 
(10.1
)
 
(39.7
)
 
 
 
 
 
 
Cash flow before financing activities
$
(15.7
)
 
$
13.8

 
$
(29.5
)

The increase in net cash provided by operating activities was primarily the result of the increase in net income and working capital changes during the first nine months of 2012 compared with the first nine months of 2011 , partially offset by a decrease in other operating activities mainly due to the adjustment of gains on the sale of assets recorded in the first nine months of 2012 from net cash provided by operating activities. The change in working capital was mainly due to an increase in accounts receivable in the first nine months of 2012 partially offset by an increase in accounts payable primarily as a result of the Reed operations since the date of the acquisition. These changes were in contrast to a decrease in accounts receivable and an increase in accounts payable during the first nine months of 2011.

The change in net cash used for investing activities was primarily attributable to the acquisition of Reed in the third quarter of 2012 and an increase in expenditures for property, plant and equipment including the purchase of two draglines in the first nine months of 2012. These items were partially offset by proceeds received from the sale of two different draglines in the first nine months of 2012 and proceeds received under a long-term note related to the prior sale of a dragline.
 
2012
 
2011
 
Change
Financing activities:
 
 
 
 
 
Net additions (reductions) of long-term debt and revolving credit agreements
$
44.6

 
$
(2.3
)
 
$
46.9

Cash dividends paid to NACCO
(25.6
)
 
(15.0
)
 
(10.6
)
Net cash provided by (used for) financing activities
$
19.0

 
$
(17.3
)
 
$
36.3


The increase in net cash provided by (used for) financing activities during the first nine months of 2012 compared with the first nine months of 2011 was primarily due to higher borrowings on NACoal's revolving credit agreements to fund the acquisition of Reed and two draglines, partially offset by an increase in the amount of cash dividends paid to NACCO in the first nine months of 2012 compared with the first nine months of 2011.

Financing Activities

NACoal has an unsecured revolving line of credit (the “NACoal Facility”) of up to $150.0 million that expires in December 2016. Borrowings outstanding under the NACoal Facility were $112.0 million at September 30, 2012 . The excess availability under the NACoal Facility was $36.8 million at September 30, 2012 , which reflects a reduction for outstanding letters of credit of $1.2 million.


24

Table of Contents

The NACoal Facility has performance-based pricing, which sets interest rates based upon achieving various levels of debt to EBITDA ratios of NACoal, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved, as defined in the NACoal Facility. The applicable margins, effective September 30, 2012 , for base rate and LIBOR loans were 0.75% and 1.75%, respectively. The NACoal Facility also has a commitment fee which is also based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.35% on the unused commitment at September 30, 2012 . The floating rate of interest applicable to the NACoal Facility at September 30, 2012 was 1.94% including the floating rate margin.

The NACoal Facility also contains restrictive covenants that require, among other things, NACoal to maintain certain debt to EBITDA and interest coverage ratios, and provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 3.0 to 1.0 in conjunction with maintaining unused availability thresholds of borrowing capacity under a minimum interest coverage ratio, as defined in the NACoal Facility, of 4.0 to 1.0. The current level of availability required to pay dividends is $15 million. At September 30, 2012 , NACoal was in compliance with the financial covenants in the NACoal Facility.

During 2004 and 2005, NACoal issued unsecured notes totaling $45.0 million in a private placement (the “NACoal Notes”), which require annual principal payments of approximately $6.4 million that began in October 2008 and will mature on October 4, 2014. These unsecured notes bear interest at a weighted-average fixed rate of 6.08%, payable semi-annually on April 4 and October 4. The NACoal Notes are redeemable at any time at the option of NACoal, in whole or in part, at an amount equal to par plus accrued and unpaid interest plus a “make-whole premium,” if applicable. NACoal had $19.3 million of the private placement notes outstanding at September 30, 2012 . The NACoal Notes contain certain covenants and restrictions that require, among other things, NACoal to maintain certain net worth, leverage and interest coverage ratios, and limit dividends to NACCO based upon maintaining a maximum debt to EBITDA ratio of 3.5 to 1.0. At September 30, 2012 , NACoal was in compliance with the financial covenants in the NACoal Notes.

NACoal has a demand note payable to Coteau which bears interest based on the applicable quarterly federal short-term interest rate as announced from time to time by the Internal Revenue Service. At September 30, 2012 , the balance of the note was $4.8 million and the interest rate was 0.24%.

NACoal believes funds available from the NACoal Facility and operating cash flows will provide sufficient liquidity to finance its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility in December 2016.

Contractual Obligations, Contingent Liabilities and Commitments

Since December 31, 2011 , except for the additional borrowing of $45.0 million under the NACoal Facility, a $14.2 million increase in purchase and other obligations and a $7.7 million increase in operating lease commitments primarily related to the Reed acquisition, there have been no significant changes in the total amount of NACoal's contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 69 in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

Capital Expenditures

Expenditures for property, plant and equipment were $33.9 million during the first nine months of 2012 . NACoal estimates that its capital expenditures for the remainder of 2012 will be an additional $9.1 million, primarily for mine equipment and development at its mines. These expenditures are expected to be funded from internally generated funds and bank borrowings.


25

Table of Contents

Capital Structure

NACoal's capital structure is presented below:
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
Change
Cash and cash equivalents
$
4.6

 
$
1.3

 
$
3.3

Other net tangible assets
151.8

 
130.9

 
20.9

Goodwill, coal supply agreements and other intangibles, net
79.4

 
57.9

 
21.5

Net assets
235.8

 
190.1

 
45.7

Total debt
(140.4
)
 
(94.0
)
 
(46.4
)
Total equity
$
95.4

 
$
96.1

 
$
(0.7
)
Debt to total capitalization
60
%
 
49
%
 
11
%

The increase in other net tangible assets during the first nine months of 2012 was primarily due to the acquisition of Reed and the purchase of two draglines in the first nine months of 2012, partially offset by the sale of two different draglines and the collection of a note receivable related to the prior sale of a dragline in 2009 in the first nine months of 2012.

In addition, goodwill and other intangible assets increased during the first nine months of 2012 mainly due to the acquisition of Reed.

Total debt increased $46.4 million primarily due to additional borrowings on the NACoal Facility during the first nine months of 2012 to fund the acquisition of Reed and the purchase of two draglines.

Total equity decreased as a result of $25.6 million of cash dividends paid to NACCO during the first nine months of 2012 , mostly offset by NACoal's net income of $24.5 million and a $0.4 million decrease in accumulated other comprehensive loss during the first nine months of 2012.

OUTLOOK
NACoal expects steady operating performance at its coal mining operations in the fourth quarter of 2012 and in 2013. However, a decrease in tons delivered is expected in the fourth quarter of 2012 compared with 2011 as a result of lower customer requirements at the consolidated and unconsolidated lignite mining operations, which are expected to more than offset the increase in tons delivered at the newly acquired Reed Minerals mines. Tons delivered in 2013 are expected to increase over 2012 at both the consolidated and unconsolidated mining operations provided customers achieve currently planned power plant operating levels. Limerock deliveries in the fourth quarter of 2012 are expected to be higher than the fourth quarter of 2011 as customer requirements are expected to increase. However, limerock deliveries are anticipated to decrease in 2013 compared with 2012 as customer requirements are expected to decline moderately. Royalty and other income is expected to be higher in the fourth quarter of 2012 and in 2013 compared with prior periods.
Unconsolidated mines currently in development are expected to continue to generate modest income in the fourth quarter of 2012 and in 2013. Demery has commenced delivering coal to its customer and is expected to ramp up production of coal moderately in 2013. Full production is expected in 2014 with 300,000 to 400,000 tons delivered. NACoal's three other unconsolidated mines in development are not expected to be at full production for several years. Liberty is eventually expected to produce approximately 4.8 million tons of lignite coal annually for Mississippi Power Company's new Ratcliffe power plant currently being built in Mississippi. While completion of the project is still contingent on resolving legal challenges to regulatory approvals for the power plant, the project is currently on track for initial coal deliveries to commence in mid-2014. Caddo Creek is in the permitting stage of a project in Texas for which it expects to mine approximately 650,000 tons of coal annually for a customer that currently purchases its coal from Sabine. Initial deliveries are expected to commence in early 2014. Camino Real is also in the permitting stage of a project in Texas for which it expects to mine approximately 2.7 million tons of coal annually. Initial deliveries are expected to commence in mid-to-late 2014. In addition, in October 2012, NACoal's subsidiary, CCMC, entered into a new agreement with Otter Tail Power Company and with Otter Tail Power Company's co-owners in the Coyote Station baseload generation plant, to develop a lignite mine in Mercer County, North Dakota. CCMC will deliver to the Coyote Station co-owners, as an exclusive supplier, the annual fuel requirements of the Coyote Station plant, which are expected to be approximately 2.5 million tons of coal annually, starting in May 2016.
NACoal also has new project opportunities for which it expects to continue to incur additional expenses in the fourth quarter of 2012 and in 2013. In particular, NACoal continues to move forward to obtain a permit for its Otter Creek reserve in North Dakota in preparation for the anticipated construction of a new mine.

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Table of Contents

Overall, NACoal expects 2012 fourth quarter net income to be lower than fourth quarter 2011 net income. Additional income from the Reed Minerals acquisition is expected to be more than offset by higher selling, general and administrative expenses as a result of increased employee-related costs and development activities and lower operating results, primarily at the unconsolidated mining operations. Net income in 2013 is expected to increase moderately over 2012 due to the expected favorable impact of increased deliveries, especially from the Reed Minerals acquisition, and lower operating expenses are expected to be partially offset by higher interest expense on greater debt levels. Cash flow before financing activities for 2012 is expected to be substantially lower than 2011, mainly as a result of the Reed Minerals acquisition. Cash flow before financing activities in 2013 is expected to be higher than 2012, but not back to the levels of 2011 due to an anticipated increase in capital expenditures to support the Reed Minerals acquisition.

Over the longer term, NACoal expects to continue its efforts to develop new mining projects. NACoal is actively pursuing domestic opportunities for new or expanded coal mining projects, which include prospects for power generation, coal-to-liquids, coal gasification, coal drying and other clean coal technologies. Furthermore, NACoal views its acquisition of Reed Minerals as the first step in developing a metallurgical coal platform and the company believes that exports for coal and other new international value-added mining services projects may become available. NACoal also continues to pursue additional non-coal mining opportunities in aggregates and sand mining.

HAMILTON BEACH BRANDS, INC.

HBB's business is seasonal, and a majority of its revenues and operating profit typically occurs in the second half of the year when sales of small electric appliances to retailers and consumers increase significantly for the fall holiday-selling season.

FINANCIAL REVIEW

The results of operations for HBB were as follows for the three and nine months ended September 30 :
 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
Revenues
$
124.8

 
$
126.7

 
$
340.4

 
$
331.6

Operating profit
$
8.7

 
$
7.9

 
$
15.9

 
$
14.8

Interest expense
$
0.5

 
$
1.3

 
$
2.1

 
$
4.2

Other (income) expense
$
(0.3
)
 
$
0.8

 
$
0.1

 
$
1.0

Net income
$
5.3

 
$
4.1

 
$
8.5

 
$
6.4

Effective income tax rate
37.6
%
 
29.3
%
 
38.0
%
 
33.3
%

See discussion of the consolidated effective income tax rate in Note 9 of the unaudited condensed consolidated financial statements.

Third Quarter of 2012 Compared with Third Quarter of 2011

The following table identifies the components of change in revenues for the third quarter of 2012 compared with the third quarter of 2011 :
 
Revenues
2011
$
126.7

Increase (decrease) in 2012 from:
 
Unit volume and product mix
(2.5
)
Foreign currency
(0.8
)
Average sales price
1.4

2012
$
124.8


Revenues for the third quarter of 2012 decreased 1.5% to $ 124.8 million from $ 126.7 million in the third quarter of 2011 primarily as a result of a decrease in sales volumes in the U.S. consumer and Canadian retail markets as well as unfavorable foreign currency movements as the U.S. dollar strengthened against the Mexican peso and Canadian dollar during the third quarter of 2012 compared with the third quarter of 2011. The decrease was partially offset by higher prices on comparable products sold, primarily in the U.S. consumer retail market.


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Table of Contents

The following table identifies the components of change in operating profit for the third quarter of 2012 compared with the third quarter of 2011 :
 
Operating Profit
2011
$
7.9

Increase (decrease) in 2012 from:
 
Gross profit
1.9

Foreign currency
(0.6
)
Other selling, general and administrative expenses
(0.5
)
2012
$
8.7


HBB's operating profit increased to $ 8.7 million in the third quarter of 2012 from $ 7.9 million in the third quarter of 2011 . Operating profit increased primarily as a result of higher gross profit primarily as a result of a shift in sales to higher-price and higher-margin products and the absence of a $1.3 million charge recorded in the third quarter of 2011 for a capital lease asset no longer being leased, partially offset by higher product costs. The increase in gross profit was partially offset by unfavorable foreign currency movements during the third quarter of 2012 compared with the third quarter of 2011 and higher employee-related costs included in selling, general and administrative expenses.

HBB recognized net income of $ 5.3 million in the third quarter of 2012 compared with $ 4.1 million in the third quarter of 2011 primarily due to the factors affecting operating profit, the favorable effect of foreign currency revaluation and lower interest expense due to lower levels of borrowings during the third quarter of 2012 compared with the third quarter of 2011.

First Nine Months of 2012 Compared with First Nine Months of 2011

The following table identifies the components of change in revenues for the first nine months of 2012 compared with the first nine months of 2011 :
 
Revenues
2011
$
331.6

Increase (decrease) in 2012 from:
 
Unit volume and product mix
9.1

Average sales price
3.0

Foreign currency
(3.3
)
2012
$
340.4


Revenues increased 2.7% to $ 340.4 million in the first nine months of 2012 compared with $ 331.6 million in the first nine months of 2011 primarily due to a shift in sales to products with higher price points and by higher prices on comparable products sold, partially offset by a decrease in sales volumes and unfavorable foreign currency movements as the U.S. dollar strengthened against the Canadian dollar and Mexican peso during the first nine months of 2012 compared with the first nine months of 2011.
 
The following table identifies the components of change in operating profit for the first nine months of 2012 compared with the first nine months of 2011 :
 
Operating Profit
2011
$
14.8

Increase (decrease) in 2012 from:
 
Gross profit
4.9

Foreign currency
(2.3
)
Other selling, general and administrative expenses
(1.5
)
2012
$
15.9


HBB's operating profit increased to $ 15.9 million in the first nine months of 2012 compared with $ 14.8 million in the first nine months of 2011 . Operating profit increased primarily as a result of higher gross profit from a shift in sales to higher-margin and higher-priced products, partially offset by higher product costs and reduced sales volumes. In addition, operating profit was favorably affected by the absence of a $1.3 million charge recorded in the third quarter of 2011 for a capital lease asset no

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Table of Contents

longer being leased and $0.9 million of costs related to moving the HBB distribution center into a larger facility during the second quarter of 2011. These items were partially offset by unfavorable foreign currency movements and an increase in other selling, general and administrative expenses mainly due to higher employee-related costs and increased professional fees in the first nine months of 2012 compared with the first nine months of 2011.

HBB recognized net income of $ 8.5 million in the first nine months of 2012 compared with $ 6.4 million in the first nine months of 2011 primarily due to the factors affecting operating profit, lower interest expense due to lower levels of borrowings during the first nine months of 2012 compared with the first nine months of 2011 and the favorable effect of foreign currency revaluation.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following tables detail the changes in cash flow for the nine months ended September 30 :
 
2012
 
2011
 
Change
Operating activities:
 
 
 
 
 
Net income
$
8.5

 
$
6.4

 
$
2.1

Depreciation and amortization
1.9

 
3.4

 
(1.5
)
Other
3.8

 
3.8

 

Working capital changes
(6.7
)
 
6.5

 
(13.2
)
Net cash provided by operating activities
7.5

 
20.1

 
(12.6
)
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(2.2
)
 
(2.5
)
 
0.3

Net cash used for investing activities
(2.2
)
 
(2.5
)
 
0.3

 
 
 
 
 
 
Cash flow before financing activities
$
5.3

 
$
17.6

 
$
(12.3
)
 
Net cash provided by operating activities decreased $12.6 million in the first nine months of 2012 compared with the first nine months of 2011 primarily due to the change in working capital from a larger increase in inventory and a smaller decrease in accounts receivable during the first nine months of 2012 compared with the first nine months of 2011. These items were partially offset by an increase in accounts payable as a result of the higher levels of inventory and from a smaller decrease in accrued payroll during the first nine months of 2012 compared with the first nine months of 2011 mainly due to lower employee-related payments made in 2012.
 
2012
 
2011
 
Change
Financing activities:
 
 
 
 
 
Reductions to long-term debt and revolving credit agreements
$
(1.9
)
 
$
(60.6
)
 
$
58.7

Cash dividends paid to NACCO
(10.0
)
 

 
(10.0
)
Capital contribution from NACCO

 
4.0

 
(4.0
)
Financing fees paid
(1.2
)
 

 
(1.2
)
Other

 
(0.2
)
 
0.2

Net cash used for financing activities
$
(13.1
)
 
$
(56.8
)
 
$
43.7


The decrease in net cash used for financing activities was primarily the result of repaying $60.6 million of the HBB term loan agreement during the first nine months of 2011. This was partially offset by $10.0 million of cash dividends paid to NACCO in the first nine months of 2012 and the absence of a $4.0 capital contribution from NACCO in the first nine months of 2011.

Financing Activities

HBB has a $115.0 million senior secured floating-rate revolving credit facility that expires in July 2017 (the “HBB Facility”). Borrowings under the HBB Facility were used to repay HBB's previous term loan entered into in 2007. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $230 million as of September 30, 2012 .

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Table of Contents

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate or LIBOR, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective September 30, 2012 , for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.50% , respectively. The applicable margins, effective September 30, 2012 , for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.00% and 1.50%, respectively. The HBB Facility also requires a fee of 0.375% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability.

At September 30, 2012 , the borrowing base under the HBB Facility was $110.8 million . Borrowings outstanding under the HBB Facility were $52.3 million at September 30, 2012 . Therefore, at September 30, 2012 , the excess availability under the HBB Facility was $58.5 million . The floating rate of interest applicable to the HBB Facility at September 30, 2012 was 2.08% including the floating rate margin.

The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are limited to (i) $15.0 million from the closing date of the HBB Facility through December 31, 2012, so long as HBB has excess availability, as defined in the HBB Facility, of at least $30.0 million; (ii) the greater of $20.0 million or excess cash flow from the most recently ended fiscal year in each of the two twelve-month periods following the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of $25.0 million and maintains a minimum fixed charge coverage ratio of 1.0 to 1.0, as defined in the HBB Facility; and (iii) in such amounts as determined by HBB subsequent to the second anniversary of the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of $25.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At September 30, 2012 , HBB was in compliance with the financial covenants in the HBB Facility.

HBB incurred fees and expenses of $1.2 million in the first nine months of 2012 related to the HBB Facility. These fees were deferred and are being amortized as interest expense over the term of the HBB Facility.

HBB believes funds available from cash on hand, the HBB Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the HBB Facility in July 2017.

Contractual Obligations, Contingent Liabilities and Commitments

Since December 31, 2011 , except for the payment of $54.2 million on the HBB term loan agreement and the borrowing of $52.3 million under the HBB Facility, there have been no significant changes in the total amount of HBB's contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 57 in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

Capital Expenditures

Expenditures for property, plant and equipment were $2.2 million for the first nine months of 2012 and are estimated to be an additional $1.5 million for the remainder of 2012 . These planned capital expenditures are primarily for tooling for new products. These expenditures are expected to be funded from internally generated funds.

Capital Structure

Working capital is significantly affected by the seasonality of HBB's business. The following is a discussion of the changes in HBB's capital structure at September 30, 2012 compared with both September 30, 2011 and December 31, 2011 .


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Table of Contents

September 30, 2012 Compared with September 30, 2011
 
SEPTEMBER 30
2012
 
SEPTEMBER 30
2011
 
Change
Cash and cash equivalents
$
1.5

 
$
6.4

 
$
(4.9
)
Other net tangible assets
86.1

 
72.8

 
13.3

Net assets
87.6

 
79.2

 
8.4

Total debt
(52.3
)
 
(54.2
)
 
1.9

Total equity
$
35.3

 
$
25.0

 
$
10.3

Debt to total capitalization
60
%
 
68
%
 
(8
)%
Other net tangible assets increased $13.3 million from September 30, 2011 primarily due to an increase in inventory, which was partially offset by a related increase in accounts payable.
Total equity increased $10.3 million due to HBB's net income of $20.5 million during the twelve months ended September 30, 2012 , partially offset by $10.0 million of dividends to NACCO and a $0.2 million increase in accumulated other comprehensive loss during the twelve months ended September 30, 2012 .

September 30, 2012 Compared with December 31, 2011
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
Change
Cash and cash equivalents
$
1.5

 
$
9.3

 
$
(7.8
)
Other net tangible assets
86.1

 
79.9

 
6.2

Net assets
87.6

 
89.2

 
(1.6
)
Total debt
(52.3
)
 
(54.2
)
 
1.9

Total equity
$
35.3

 
$
35.0

 
$
0.3

Debt to total capitalization
60
%
 
61
%
 
(1
)%

There has been no significant change in capital structure since December 31, 2011.

OUTLOOK

The middle-market portion of the U.S. small kitchen appliance market in which HBB participates has been under pressure since 2009 and is expected to remain stressed through the end of 2012 and into 2013. HBB's target consumer, the middle-market mass consumer, continues to struggle with financial and economic concerns and high unemployment rates. As a result, sales volumes in this segment of the U.S. consumer market are expected to remain challenged and retailers are likely to remain cautious. Nevertheless, HBB expects improved sales volumes from increased promotions and placements in the fourth quarter of 2012 in comparison with the fourth quarter of 2011 and improved sales volumes in 2013 compared with 2012. International and commercial product markets are anticipated to continue to grow in the remainder of 2012 and in 2013 compared with the comparable prior periods.

HBB continues to focus on strengthening its North American consumer market position through product innovation, promotions, increased placements and branding programs, together with appropriate levels of advertising for HBB's highly successful and innovative product lines, such as The Scoop ® , a single-serve coffee maker. HBB expects The Scoop ® , the Two-Way Brewer and the Durathon TM iron product line, all introduced in late 2011, to continue to gain market position over time as broader distribution is attained. HBB is also continuing to introduce innovative products in several small appliance categories. In the third quarter of 2012, HBB launched the Hamilton Beach ® Open Ease TM Automatic Jar Opener and expects to launch the FlexBrew TM single-serve coffee maker in late 2012. These products, as well as other new product introductions in the pipeline for the fourth quarter of 2012 and in 2013, and expected key placements and promotions for the holiday-selling season, are expected to affect both revenues and operating profit positively. As a result of these new products, placements and promotions, and HBB's improving position in commercial and international markets, HBB anticipates an increase in revenues in the fourth quarter of 2012, provided consumer spending is at expected fourth quarter levels, and in 2013 compared with the respective prior year periods.

Overall, HBB expects fourth quarter 2012 and full year 2013 net income to increase compared with the comparable prior periods, primarily driven by anticipated increases in revenue, partially offset by expected increases in operating expenses. HBB expects that 2012 cash flow before financing activities will be lower than 2011 but higher in 2013 as compared with 2012.

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Table of Contents

Longer term, HBB will continue to work to improve revenues and profitability by remaining focused on five strategic initiatives: (1) increasing placements in the North America consumer business through the development of consumer-driven innovative products and strong sales and marketing support, (2) achieving further penetration of the global Commercial market through a commitment to an enhanced global product line aimed at the global hospitality and food service markets, (3) expanding internationally in the emerging Asian and Latin American markets by offering products designed specifically for those market needs, by expanding distribution channels and by increasing the use of the Internet, (4) successfully entering the "only the best" market with a strong brand and broad product line, and (5) enhancing internet sales and support activities.

THE KITCHEN COLLECTION, LLC

KC's business is seasonal, and a majority of its revenues and operating profit typically occurs in the second half of the year when sales of kitchenware to consumers increase significantly for the fall holiday-selling season.

FINANCIAL REVIEW

The results of operations for KC were as follows for the three and nine months ended September 30 :
 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
Revenues
$
48.2

 
$
48.9

 
$
135.8

 
$
129.8

Operating loss
$
(1.9
)
 
$
(0.6
)
 
$
(11.6
)
 
$
(10.3
)
Interest expense
$
0.1

 
$
0.1

 
$
0.3

 
$
0.3

Other (income) expense
$

 
$
0.1

 
$
0.1

 
$
0.1

Net loss
$
(1.2
)
 
$
(0.5
)
 
$
(7.2
)
 
$
(6.5
)
Effective income tax rate
40.0
%
 
37.5
%
 
40.0
%
 
39.3
%

See discussion of the consolidated effective income tax rate in Note 9 of the unaudited condensed consolidated financial statements.

Third Quarter of 2012 Compared with Third Quarter of 2011

The following table identifies the components of change in revenues for the third quarter of 2012 compared with the third quarter of 2011 :
 
Revenues
2011
$
48.9

Increase (decrease) in 2012 from:
 
Closed stores
(2.8
)
KC comparable store sales
(0.4
)
LGC comparable store sales
(0.3
)
Other
(0.2
)
New store sales
3.0

2012
$
48.2


Revenues for the third quarter of 2012 decreased to $ 48.2 million from $ 48.9 million in the third quarter of 2011. The decrease was primarily a result of the effect of closing unprofitable KC and Le Gourmet Chef ("LGC") stores since September 30, 2011 and a decrease in comparable store sales at KC and LGC. The decrease in comparable store sales at both KC and LGC was mainly due to a decrease in store transactions and fewer customer visits, partially offset by a higher average sale transaction value in the third quarter of 2012 compared to the third quarter of 2011. The decrease in revenue was partially offset by sales at newly opened KC stores. At September 30, 2012 , KC operated 264 stores compared with 250 stores at September 30, 2011 and 276 stores at December 31, 2011. At September 30, 2012 , LGC operated 55 stores compared with 62 stores at September 30, 2011 and 61 stores at December 31, 2011.


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Table of Contents

The following table identifies the components of change in operating loss for the third quarter of 2012 compared with the third quarter of 2011 :
 
Operating Loss
2011
$
(0.6
)
(Increase) decrease in 2012 from:
 
KC comparable stores
(1.0
)
LGC comparable stores
(0.3
)
New stores
(0.2
)
Closed stores
0.2

2012
$
(1.9
)
KC recognized an operating loss of $ 1.9 million in the third quarter of 2012 compared with $ 0.6 million in the third quarter of 2011 . The change in the operating loss was primarily due to a decrease in KC and LGC comparable store results and higher store costs from an increase in the number of KC stores in the third quarter of 2012 compared with the third quarter of 2011. The decrease in comparable store results was mainly a result of a shift in sales to lower-margin products at both KC and LGC stores and higher employee-related and travel costs at KC stores. The increase in these costs was mainly the result of the remodeling of 26 KC stores during the third quarter of 2012. These items were partially offset by the favorable effect of closing unprofitable KC and LGC stores.
 
KC reported a net loss of $ 1.2 million in the third quarter of 2012 compared with $ 0.5 million in the third quarter of 2011 primarily due to the factors affecting the operating loss.

First Nine Months of 2012 Compared with First Nine Months of 2011
 
The following table identifies the components of change in revenues for the first nine months of 2012 compared with the first nine months of 2011 :
 
Revenues
2011
$
129.8

Increase (decrease) in 2012 from:
 
New store sales
10.5

KC comparable store sales
2.3

LGC comparable store sales
0.2

Closed stores
(7.0
)
2012
$
135.8


Revenues increased 4.6% to $ 135.8 million for the first nine months of 2012 compared with $ 129.8 million in the first nine months of 2011 . The increase was primarily a result of sales at newly opened KC stores and an increase in comparable store sales at KC. The increase in comparable store sales at KC was primarily due to an increase in store transactions and a higher average sale transaction value. The increase in revenue was partially offset by the effect of closing unprofitable KC and LGC stores since September 30, 2011.

The following table identifies the components of change in operating loss for the first nine months of 2012 compared with the first nine months of 2011 :
 
Operating Loss
2011
$
(10.3
)
(Increase) decrease in 2012 from:
 
New stores
(0.8
)
Selling, general and administrative expenses
(0.7
)
LGC comparable stores
(0.4
)
KC comparable stores
(0.4
)
Warehouse combination costs
0.7

Closed stores
0.3

2012
$
(11.6
)

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KC recognized an operating loss of $ 11.6 million in the first nine months of 2012 and $ 10.3 million in the first nine months of 2011 . The increase in operating loss was primarily the result of higher store costs due to an increase in the number of stores, higher selling, general and administrative expenses primarily from an increase in employee-related expenses, lower comparable store results mainly due to a shift in sales to lower-margin products at both KC and LGC stores, higher rent and employee-related costs at LGC stores and higher employee-related and travel costs at KC stores. The operating loss was favorably affected by the absence of costs incurred in the first nine months of 2011 related to combining KC's two warehouse facilities into one facility and by the favorable effect of closing unprofitable LGC and KC stores during the past twelve months.

KC reported a net loss of $ 7.2 million in the first nine months of 2012 and $ 6.5 million in the first nine months of 2011 primarily due to the factors affecting the operating loss.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following tables detail the changes in cash flow for the nine months ended September 30 :
 
2012
 
2011
 
Change
Operating activities:
 
 
 
 
 
Net loss
$
(7.2
)
 
$
(6.5
)
 
$
(0.7
)
Depreciation and amortization
2.2

 
2.3

 
(0.1
)
Other
0.8

 
0.9

 
(0.1
)
Working capital changes
(17.5
)
 
(17.9
)
 
0.4

Net cash used for operating activities
(21.7
)
 
(21.2
)
 
(0.5
)
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(3.5
)
 
(2.1
)
 
(1.4
)
Net cash used for investing activities
(3.5
)
 
(2.1
)
 
(1.4
)
 
 
 
 
 
 
Cash flow before financing activities
$
(25.2
)
 
$
(23.3
)
 
$
(1.9
)

Expenditures for property, plant and equipment increased primarily due to the addition of new KC stores and the remodeling of certain KC stores during the first nine months of 2012.
 
2012
 
2011
 
Change
Financing activities:
 
 
 
 
 
Net additions to revolving credit agreement
$
14.7

 
$
15.0

 
$
(0.3
)
Cash dividends paid to NACCO

 
(2.5
)
 
2.5

Financing fees paid
(0.2
)
 

 
(0.2
)
Other

 
(0.1
)
 
0.1

Net cash provided by financing activities
$
14.5

 
$
12.4

 
$
2.1


Net cash provided by financing activities increased $2.1 million in the first nine months of 2012 compared with the first nine months of 2011 primarily from the absence of dividends paid to NACCO in the first nine months of 2011.

Financing Activities

On August 7, 2012, KC entered into an amended credit agreement for a five-year, $30.0 million secured revolving line of credit (the “KC Facility”). The KC Facility expires in August 2017. The obligations under the KC Facility are secured by substantially all assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was $85 million as of September 30, 2012.

The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of 1.00% or LIBOR plus a margin of 2.00% as of September 30, 2012. Under KC's previous revolving credit facility,

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the applicable margins, effective June 30, 2012, were 1.75% for base rate loans and 2.75% for LIBOR loans. The KC Facility also requires a fee of 0.375% per annum on the unused commitment. Under KC's previous revolving credit facility, the unused commitment fee was 0.50% per annum.

At September 30, 2012, the borrowing base under the KC Facility was $27.0 million . Borrowings outstanding under the KC Facility were $14.7 million at September 30, 2012. Therefore, at September 30, 2012, the excess availability under the KC Facility was $12.3 million . The floating rate of interest applicable to the KC Facility at September 30, 2012 was 2.95% , including the floating rate margin. The floating rate of interest applicable to KC's previous revolving credit facility at June 30, 2012 was 3.19%.

The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i) $6.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of 1.1 to 1.0, as defined in the KC Facility; (ii) $2.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of $15.0 million after giving effect to such payment.

KC incurred fees and expenses of $0.2 million in the first nine months of 2012 related to the KC Facility. These fees were deferred and are being amortized as interest expense over the term of the KC Facility.

KC believes funds available from cash on hand, the KC Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the KC Facility in August 2017.

Contractual Obligations, Contingent Liabilities and Commitments

Since December 31, 2011 , there have been no significant changes in the total amount of KC's contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 63 in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

Capital Expenditures

Expenditures for property, plant and equipment were $3.5 million for the first nine months of 2012 and are estimated to be an additional $0.7 million for the remainder of 2012. These planned capital expenditures are primarily for improvements to KC's information technology infrastructure. These expenditures are expected to be funded from internally generated funds and bank borrowings.

Capital Structure

Working capital is significantly affected by the seasonality of KC's business. The following is a discussion of the changes in KC's capital structure at September 30, 2012 compared with both September 30, 2011 and December 31, 2011 .

September 30, 2012 Compared with September 30, 2011
 
SEPTEMBER 30
2012
 
SEPTEMBER 30
2011
 
Change
Cash and cash equivalents
$
1.1

 
$
0.8

 
$
0.3

Other net tangible assets
53.1

 
53.3

 
(0.2
)
Net assets
54.2

 
54.1

 
0.1

Total debt
(14.7
)
 
(15.0
)
 
0.3

Total equity
$
39.5

 
$
39.1

 
$
0.4

Debt to total capitalization
27
%
 
28
%
 
(1
)%

There was no significant change in capital structure since September 30, 2011.


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Table of Contents

September 30, 2012 Compared with December 31, 2011
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
Change
Cash and cash equivalents
$
1.1

 
$
11.8

 
$
(10.7
)
Other net tangible assets
53.1

 
34.9

 
18.2

Net assets
54.2

 
46.7

 
7.5

Total debt
(14.7
)
 

 
(14.7
)
Total equity
$
39.5

 
$
46.7

 
$
(7.2
)
Debt to total capitalization
27
%
 
(a)

 
(a)


(a)
Debt to total capitalization is not meaningful.

Other net tangible assets increased $18.2 million at September 30, 2012 compared with December 31, 2011 , primarily from a decrease in intercompany accounts payable and accrued payroll for payments made during the first nine months of 2012 and a decrease in accounts payable due to the seasonality of the business.

Total debt increased as a result of the seasonality of the business and the required funding of operations during the first nine months of 2012 . Total equity decreased as a result of KC's net loss of $7.2 million during the first nine months of 2012 .

OUTLOOK

The outlet mall retail market remains challenging and is expected to continue to be so since the middle market consumer remains under pressure due to high unemployment rates, elevated fuel prices, other consumer financial concerns and distractions from the upcoming election, all of which are expected to continue to dampen consumer sentiment and consumer traffic to outlet mall locations, and limit consumer spending levels for KC's target customer in the fourth quarter of 2012 and in 2013. Nevertheless, KC expects an increase in revenues in the fourth quarter of 2012 compared with 2011 as a result of the opening of 34 seasonal store locations during the fourth-quarter holiday-selling season and sales at new Kitchen Collection ® stores opened since the fourth quarter of 2011, provided consumer spending is at anticipated fourth quarter levels. KC expects 2013 revenues to be comparable to 2012, although the company expects to maintain a lower number of stores through much of 2013 than in 2012.

KC expects an increase in 2012 fourth quarter net income compared with the fourth quarter of 2011 primarily from the increase in the number of stores in 2012, from enhanced sales and margins expected as a result of further improvements in store formats and layouts at both the Kitchen Collection ® and Le Gourmet Chef ® stores, and as a result of further refinements of promotional offers and merchandise mix in both store formats. During 2012, KC reformatted many of its stores to promote a value and trend message at the front of its stores, which is expected to drive customers into the store. KC completed format changes at all of its Le Gourmet Chef ® stores in the first half of the year and is expected to complete the remodeling of a total of 82 Kitchen Collection ® stores in 2012, of which 76 had been completed through the end of the third quarter. Preliminary feedback on these changes is favorable, but making the changes has resulted in higher up-front costs during 2012 which are not expected to recur in 2013. As these new formats gain traction, they are expected to drive improved income in 2013. Cash flow before financing in 2012 is expected to be lower than 2011, but increase in 2013 compared with 2012.

Longer term, KC plans to focus on enhancing sales volume and profitability by building on its profitable Kitchen Collection ® store format through refinement of its store formats and ongoing review of product offerings, merchandise mix, store displays and appearance, while continuing to evaluate and, as lease contracts permit, close underperforming and loss-generating stores. In the near term, KC expects to focus its growth on increasing the number of Kitchen Collection ® stores, with store expansion expected to be focused on identifying the best outlet malls and positions. When adequate profit prospects are demonstrated at the Le Gourmet Chef ® format, the company's expansion focus will shift to increasing the number of these stores as well.


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Table of Contents

NACCO AND OTHER

NACCO and Other includes the parent company operations and Bellaire Corporation ("Bellaire"), a non-operating subsidiary of NACCO.

FINANCIAL REVIEW

Operating Results

The results of operations at NACCO and Other were as follows for the three and nine months ended September 30 :
 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
Revenues
$

 
$

 
$

 
$

Operating loss
$
(0.6
)
 
$
(0.9
)
 
$
(3.6
)
 
$
(4.5
)
Other (income) expense
$
0.4

 
$
0.2

 
$
1.5

 
$
(56.3
)
Income (loss) from continuing operations
$
(1.1
)
 
$
(0.7
)
 
$
(4.2
)
 
$
33.0


Third Quarter of 2012 Compared with Third Quarter of 2011

NACCO and Other recognized an operating loss of $ 0.6 million in the third quarter of 2012 compared with $ 0.9 million in the third quarter of 2011 primarily due to higher management fees charged to subsidiaries and lower professional fees, partially offset by an increase in employee-related expenses during the third quarter of 2012 compared with the third quarter of 2011 . NACCO and Other recognized a loss from continuing operations of $1.1 million in the third quarter of 2012 compared with $ 0.7 million in the third quarter of 2011 primarily due to favorable income tax expense and the factors affecting operating income (loss).

First Nine Months of 2012 Compared with First Nine Months of 2011

NACCO and Other recognized a net loss from continuing operations of $4.2 million in the first nine months of 2012 compared with net income from continuing operations of $ 33.0 million in the first nine months of 2011 primarily due to the settlement of the Applica litigation, as discussed in the Applica Transaction section below.

Hyster-Yale Spin-Off

On September 28, 2012, the Company completed the spin-off of Hyster-Yale, a former wholly owned subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock and Class B common stock they owned. As a result of the spin-off, the financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations for all periods presented through the date of the spin-off in the unaudited condensed consolidated financial statements.

In connection with the spin-off of Hyster-Yale, NACCO and Other recognized expenses of $2.6 million, $2.5 million after-tax, for the three months ended September 30, 2012 and $3.4 million, $3.0 million after-tax, for the nine months ended September 30, 2012, which are reflected as discontinued operations in the unaudited condensed consolidated financial statements.

In connection with the spin-off of Hyster-Yale, the Company and Hyster-Yale entered into a Transition Services Agreement ("TSA"). Under the terms of the TSA, the Company will obtain various services from Hyster-Yale and provide various services to Hyster-Yale on a transitional basis, as needed, for varying periods after the spin-off.

None of the transition services is expected to exceed one year. The Company or Hyster-Yale may extend the initial transition period for a period of up to three months for any service upon 30 days written notice to the other party prior to the initial termination date. The Company expects to pay net aggregate fees to Hyster-Yale of no more than $0.6 million over the initial term of the TSA.

In addition, the Company entered into an office services agreement pursuant to which Hyster-Yale will provide certain office services to NACCO under certain mutually agreed upon conditions. The fees the Company will pay to Hyster-Yale will be determined on an arm's-length basis. The Company expects to pay approximately $0.2 million annually to Hyster-Yale for these

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services. The office services agreement will have an initial term of one year and will automatically renew for additional one year periods until terminated by either the Company or Hyster-Yale.

Applica Transaction

In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica Incorporated ("Applica") and individuals and entities affiliated with Applica's shareholder, Harbinger Capital Partners Master Fund, Ltd. The litigation alleged a number of contract and tort claims against the defendants related to the failed transaction with Applica, which had been previously announced. On February 14, 2011, the parties to this litigation entered into a settlement agreement. The settlement agreement provided for, among other things, the payment of $60 million to the Company and dismissal of the lawsuit with prejudice. The payment was received in February 2011.
Litigation costs related to the failed transaction with Applica were $2.8 million during the first nine months of 2011 .

Management Fees

The parent company charges management fees to its operating subsidiaries for services provided by the parent company. The management fees are based upon estimated parent company resources devoted to providing centralized services and stewardship activities and are allocated among all subsidiaries based upon the relative size and complexity of each subsidiary. To determine the amounts and allocation of management fees among the subsidiaries each year, the parent company reviews the time employees devote to each operating subsidiary and the estimated costs for providing centralized services and stewardship activities. In addition, the parent company reviews the amount of management fees allocated to its operating subsidiaries each quarter to ensure the amount continues to be reasonable based on the actual costs incurred to date. The Company believes the allocation method is consistently applied and reasonable.

Following are the parent company management fees included in each subsidiary's selling, general and administrative expenses for the three and nine months ended September 30 :

 
THREE MONTHS
 
NINE MONTHS
 
2012
 
2011
 
2012
 
2011
NACoal
$
2.0

 
$
1.2

 
$
3.6

 
$
3.5

HBB
$
0.6

 
$
0.8

 
$
1.7

 
$
2.7

KC
$
0.1

 
$

 
$
0.2

 
$
0.1


In addition, the parent company received management fees from Hyster-Yale of $3.1 million and $2.5 million for the three months ended September 30, 2012 and 2011, respectively, and $9.6 million and $7.5 million for the nine months ended September 30, 2012 and 2011, respectively. The parent company will no longer receive management fees or incur expenses related to providing centralized services and stewardship activities to Hyster-Yale due to the spin-off. The Company is currently evaluating the manner in which future management fees will be allocated among the remaining subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Although NACCO's subsidiaries have entered into substantial borrowing agreements, NACCO has not guaranteed any borrowings of its subsidiaries. The borrowing agreements at NACoal, HBB and KC allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by its subsidiaries' borrowing agreements), advances and management fees from its subsidiaries are the primary sources of cash for NACCO. NACoal is currently evaluating its capital structure following the acquisition of Reed in the third quarter of 2012, if NACoal decides to move toward a more conservative capital structure, future dividends to NACCO may be affected.

The Company believes funds available from cash on hand, its subsidiaries' credit facilities and anticipated funds generated from operations are sufficient to finance all of the subsidiaries scheduled principal repayments, its operating needs and commitments arising during the next twelve months and until the expiration of its subsidiaries' credit facilities.

Contractual Obligations, Contingent Liabilities and Commitments

Since December 31, 2011 , there have been no significant changes in the total amount of NACCO and Other contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 73 in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 .

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Table of Contents

Capital Structure

NACCO's consolidated capital structure is presented below:
 
SEPTEMBER 30
2012
 
DECEMBER 31
2011
 
Change
Cash and cash equivalents
$
155.7

 
$
153.7

 
$
2.0

Other net tangible assets
277.0

 
528.2

 
(251.2
)
Goodwill, coal supply agreement and other intangibles, net
79.4

 
57.9

 
21.5

Net assets
512.1

 
739.8

 
(227.7
)
Total debt
(207.4
)
 
(148.2
)
 
(59.2
)
Closed mine obligations, net of tax
(13.6
)
 
(14.6
)
 
1.0

Total equity
$
291.1

 
$
577.0

 
$
(285.9
)
Debt to total capitalization
42
%
 
20
%
 
22
%

EFFECTS OF FOREIGN CURRENCY

HBB operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the variability that arises from exchange rate movements. The effects of foreign currency fluctuations on revenues, operating profit and net income at HBB are addressed in the previous discussions of operating results. See also Item 3, "Quantitative and Qualitative Disclosures About Market Risk,” in Part I of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
The Company's subsidiaries, NACoal, HBB and KC, have entered into certain financing arrangements that require interest payments based on floating interest rates. As such, the Company's financial results are subject to changes in the market rate of interest. To reduce the exposure to changes in the market rate of interest, the Company has entered into interest rate swap agreements for a significant portion of its floating rate financing arrangements. The Company does not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require the subsidiaries to receive a variable interest rate and pay a fixed interest rate. See also Note 5 to the unaudited condensed consolidated financial statements in this Form 10-Q.
In addition, NACoal has fixed rate debt arrangements. For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. The Company assumes that a loss in fair value is an increase to its liabilities. NACoal's fixed rate debt arrangements have a fair value based on Company estimates of $20.3 million at September 30, 2012. Assuming a hypothetical 10% decrease in the effective interest yield on this fixed rate debt, the fair value of this liability would increase by $0.1 million compared with the fair value of this liability at September 30, 2012. The fair value of the Company's interest rate swap agreements was a liability of $0.7 million at September 30, 2012. A hypothetical 10% decrease in interest rates would cause an increase in the fair value of interest rate swap agreements and the resulting fair value would be a liability of $0.8 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
HBB operates internationally and enters into transactions denominated in foreign currencies. As such, their financial results are subject to the variability that arises from exchange rate movements. HBB uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within twelve months and require HBB to buy or sell the functional currency in which the applicable subsidiary operates and buy U.S. dollars at rates agreed to at the inception of the contracts. The fair value of these contracts was a net liability of $0.1 million at September 30, 2012. See also Note 5 to the unaudited condensed consolidated financial statements in this Form 10-Q.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. Assuming a hypothetical 10% weakening of the U.S. dollar compared with other foreign currencies at September 30, 2012, the fair value of foreign currency-sensitive financial instruments, which primarily represent forward foreign currency exchange contracts, would be increased by less than $0.1 million compared with its fair value at September 30, 2012. It is important to note that the change in fair value indicated in this sensitivity analysis would be somewhat offset by changes in the fair value of the underlying receivables and payables.

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Table of Contents

COMMODITY PRICE RISK
The Company uses certain commodities, including diesel fuel, resins and linerboard, in the normal course of its distribution and mining processes. As such, the cost of operations is subject to variability as the markets for these commodities change. The Company monitors these risks and, from time to time, enters into derivative contracts to hedge these risks. The Company does not currently have any such derivative contracts outstanding, nor does the Company have any significant purchase obligations to obtain fixed quantities of commodities in the future.
Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective.

Changes in internal control over financial reporting: During the third quarter of 2012 , other than changes resulting from the acquisition of Reed Minerals discussed below, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

On August 31, 2012, NACoal acquired Reed Minerals. The Company is currently in the process of integrating Reed's operations, processes and internal controls. See Note 12 for additional information regarding the acquisition.

PART II
OTHER INFORMATION

Item 1      Legal Proceedings
None

Item 1A      Risk Factors
No changes for HBB, KC, NACoal or General.

Item 2      Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities
Period
(a)
Total Number of Shares Purchased
(b)
Average Price Paid per Share
(c)
Total Number of Shares Purchased as Part of the Publicly Announced Program
(d)
Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Program (1)
Month #1
(July 1 to 31, 2012)
30,851

$
47,359,610

Month #2
(August 1 to 31, 2012)
30,851

$
47,359,610

Month #3
(September 1 to 30, 2012)
30,851

$
47,359,610

     Total
30,851

$
47,359,610


(1)
On November 8, 2011, the Company announced that the Company's Board of Directors approved the repurchase of up to $50 million of the Company's outstanding Class A common stock. The timing and amount of any repurchases will be determined at the discretion of the Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives and market conditions for the Company's Class A common stock. The

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authorization for the repurchase program expires on December 31, 2012. The share repurchase program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the Company might otherwise be prevented from doing so. As of September 30, 2012 , the Company had repurchased $2.7 million of Class A common stock under this program.

Item 3      Defaults Upon Senior Securities
None

Item 4      Mine Safety Disclosures
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 filed with this Quarterly Report on Form 10-Q for the period ended September 30, 2012 .

Item 5      Other Information
None

Item 6      Exhibits
Incorporated by reference to the Exhibit Index on page 43 of this Quarterly Report on Form 10-Q for the period ended September 30, 2012 .

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
NACCO Industries, Inc.
(Registrant)
 
 
Date:
November 1, 2012
/s/ J.C. Butler, Jr.
 
 
 
J.C. Butler, Jr.
 
 
 
Senior Vice President, Finance, Treasurer and Chief Administrative Officer (Principal Financial Officer)
 


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Table of Contents

Exhibit Index
Exhibit
 
 
Number*
 
Description of Exhibits
 
 
 
10.1
 
Share and Membership Interest Purchase Agreement by and among TRU Energy Services, LLC, as Buyer, the sellers party thereto, and the trustees and beneficiaries party thereto dated as of August 31, 2012 is incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on September 5, 2012, Commission File Number 1-9172.
10.2
 
NACCO Industries, Inc. Executive Excess Retirement Plan (Effective as of September 28, 2012) is incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172).
10.3
 
Amendment No. 1 to The North American Coal Corporation Excess Retirement Plan (Effective January 1, 2008) is incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172).
10.4
 
The NACCO Industries, Inc. Annual Incentive Compensation Plan (Effective as of September 28, 2012), sponsored by NACCO Industries, Inc. is incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172).
10.5
 
Amendment No. 1 to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated Effective March 1, 2012) is incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172).
10.6
 
Form Award Agreement for the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (Amended and Restated Effective March 1, 2012) is incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172).
10.7
 
Separation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc.**
10.8
 
Transition Services Agreement, dated as of September 28, 2012, by and among NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc.**
10.9
 
Tax Allocation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc.**
10.10
 
Amended and Restated Stockholders' Agreement, dated as of September 28, 2012, among the signatories thereto, NACCO Industries, Inc., as depository, and NACCO Industries, Inc. is incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed by the Company on October 4, 2012, Commission File Number 1-9172.
10.11
 
Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1990.** +
10.12
 
First Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of June 1, 1994.** +
10.13
 
Second Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1997.** +
10.14
 
Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the State of North Dakota, dated as of January 1, 1990.**
10.15
 
First Amendment to the Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the State of North Dakota, dated as of June 1, 1994.**
10.16
 
Lignite Sales Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of April 1, 1998.** +
10.17
 
Pay Scale Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of September 29, 2005.**
10.18
 
Second Restatement of Coal Sales Agreement by and between The Falkirk Mining Company and Great River Energy, dated January 1, 2007.** +
10.19
 
Amendment No. 1 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company and Great River Energy, dated as of January 21, 2011.**
10.20
 
Restatement of Option Agreement by and among The Falkirk Mining Company, Cooperative Power Association, United Power Association, and the State of North Dakota, dated as of January 1, 1997.**
10.21
 
Third Restatement of Lignite Mining Agreement by and between The Sabine Mining Company and Southwestern Electric Power Company, dated January 1, 2008.** +
10.22
 
Option Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of January 15, 1981.**
10.23
 
Addendum to option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of January 15, 1981.**
10.24
 
Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of December 2, 1996.**

43

Table of Contents

10.25
 
Second Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Regions Bank, dated as of January 1, 2008.**
10.26
 
Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company, Texas Commerce Bank-Longview, Nortex Mining Company and the Sabine Mining Company, dated as of June 30, 1988.**
10.27
 
Credit Agreement, dated as of April 29, 2010, among The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Retail Finance, LLC and the other lenders thereto.**
10.28
 
First Amendment to Credit Agreement, dated as of August 7, 2012, among The Kitchen Collection, LLC, as successor to The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Bank, National Association, as successor to Wells Fargo Retail Finance, LLC, and the other lenders thereto.**
31(i)(1)
 
Certification of Alfred M. Rankin, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
31(i)(2)
 
Certification of J.C. Butler, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
32
 
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Alfred M. Rankin, Jr. and J.C. Butler, Jr.
95
 
Mine Safety Disclosure Exhibit
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
*    Numbered in accordance with Item 601 of Regulation S-K.
**    Filed herewith.
+     Confidential treatment requested for portions of this document. Portions for which confidential treatment is requested have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested". Material omitted has been filed separately with the Securities and Exchange Commission.

44
Exhibit 10.7
SEPARATION AGREEMENT
This SEPARATION AGREEMENT (this “ Agreement ”), is dated as of September 28, 2012, 2012, by and between NACCO Industries, Inc., a Delaware corporation (“ Parent ”) and Hyster-Yale Materials Handling, Inc. (“ HY ”), a Delaware corporation and wholly owned Subsidiary of Parent. Parent and HY will individually be referred to as a “Party” and collectively as the “Parties.”
RECITALS
A. Parent intends to make a distribution to its stockholders of all of the outstanding shares of capital stock of HY in accordance with the terms hereof (the “ Spin-Off ”).
B. As a consequence of the Spin-Off, HY will cease to be a Subsidiary of Parent.
C. The Parties intend for the Spin-Off to qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended (the “ Code ”).
D. Parent and HY desire to allocate certain rights and responsibilities of Parent, HY and their respective Subsidiaries and successors for periods before and after the Spin-Off.
Accordingly, the Parties agree as follows:
I. DEFINITIONS
1.1      Definitions . In addition to the terms defined elsewhere herein, as used in this Agreement, the following terms will have the meanings specified below when used in this Agreement with initial capital letters:
Action ” means any controversy, claim, action, litigation, arbitration, mediation or any other proceeding by or before any Governmental Entity, arbitrator, mediator or other Person acting in a dispute resolution capacity, or any investigation, subpoena or demand preliminary to any of the foregoing.
Affiliate ” means, with respect to a Person, another Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For purposes of this definition “control” as applied to any Person means the possession, directly or indirectly, of the power to vote five percent or more of the securities entitled to vote or otherwise to direct or cause the direction of, the management and policies of such Person, whether through the ownership of securities entitled to vote, by contract or otherwise. For purposes of this definition, Affiliate will not include any individual controlling HY or Parent and, following the Spin-Off, HY and Parent will not be deemed to be Affiliates.

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Agent ” has the meaning set forth in Section 2.3.
Agreement ” has the meaning set forth in the Preamble.
Business Day ” means any day on which commercial banks in New York, New York and Cleveland, Ohio are not required or authorized to be closed by Law or executive order.
Chairman ” has the meaning in Section 3.1(b).
Code ” has the meaning set forth in Recital C.
Confidential Information ” has the meaning set forth in Section 4.6.
Damages ” has the meaning set forth in Section 5.1.
Dry Aircraft Lease ” means the Non-Exclusive Aircraft Drylease Agreement to be entered into by Parent and HY.
ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
GAAP ” means United States generally accepted accounting principles as in effect at the time of determination, consistently applied.
Governmental Entity ” means any arbitrator, court, judicial, legislative, administrative or regulatory agency, commission, department, board, bureau, body or other governmental authority or instrumentality or any Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, whether foreign, federal, state or local.
HY ” has the meaning set forth in the Preamble.
HY Benefit Plans ” has the meaning set forth in Section 3.3.
HY Class A Common Stock ” means the Class A common stock of HY, par value $0.01 per share.
HY Class B Common Stock ” means the Class B common stock of HY, par value $0.01 per share.
HY Common Stock ” means the HY Class A Common Stock and the HY Class B Common Stock, taken together.
HY Group ” means, as the context may require, (i) HY and (ii) any one or more Affiliates of HY following the Spin-Off.
HY Indemnified Parties ” has the meaning set forth in Section 5.1.
Indemnified Party ” has the meaning set forth in Section 5.5.

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Indemnifying Party ” has the meaning set forth in Section 5.5.
Law ” means any statute, law, ordinance, rule or regulation of any Governmental Entity.
Liability ” or “ Liabilities ” mean all debts, liabilities, losses and obligations whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and whether or not the same would properly be reflected on a balance sheet; provided that, except for references in Articles III and V, “ Liabilities ” will not include any liabilities for or in respect of Taxes, which will be governed solely by the Tax Allocation Agreement, or any liabilities for or in respect of any benefit plans, programs, agreements, and arrangements, which will be governed solely by Articles III and V of this Agreement.
NMHG ” has the meaning set forth in Section 3.1(a).
NMHG Participants ” has the meaning set forth in Section 3.2(b)
NMHG Pension Plan ” has the meaning set forth in Section 3.2(b).
Office Services Agreement ” means the Office Services Agreement by and between Parent and HY in substantially the form attached hereto as Exhibit A .
Order ” means any order, judgment, ruling, decree, writ, permit, license or other requirement of any Governmental Entity.
Parent ” has the meaning set forth in the Preamble.
Parent Benefit Plans ” has the meaning set forth in Section 3.3(b).
Parent Board ” has the meaning set forth in Section 2.1.
Parent Class A Common Stock ” means the Class A common stock of Parent, par value $1.00 per share.
Parent Class B Common Stock ” means the Class B common stock of Parent, par value $1.00 per share.
Parent Common Stock ” means the Parent Class A Common Stock and the Parent Class B Common Stock, taken together.
Parent Group ” means, as the context may require, (i) Parent and (ii) any one or more Affiliates of Parent following the Spin-Off.
Parent Indemnified Parties ” has the meaning set forth in Section 5.2.
Parent Pension Plan ” has the meaning set forth in Section 3.1(b).
Part I Benefits ” has the meaning set forth in Section 3.2(b).
Part III Benefits ” has the meaning set forth in Section 3.2(b).

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Party ” and “Parties” have the meanings set forth in the Preamble.
Pension Plan Obligations ” has the meaning set forth in Section 3.2(b).
Person ” means any individual or legal entity, including any partnership, joint venture, corporation, trust, unincorporated organization, limited liability company or Governmental Entity.
Record Date ” means the close of business on the date to be determined by the Board of Directors of Parent as the record date for determining stockholders of Parent entitled to receive HY Common Stock in the Spin-Off, which date will be a business day preceding the day of the Spin-Off Date.
Retained Name ” has the meaning set forth in Section 4.7.
Share Issuance ” has the meaning set forth in Section 2.2.
Spin-Off ” has the meaning set forth in Recital A.
Spin-Off Date ” means the date on which the Spin-Off occurs.
Stockholders’ Agreement ” means the Stockholders’ Agreement, dated as of the date hereof, by and between HY and certain other parties, the form of which is attached hereto as Exhibit B .
Subsidiary ” of any Person means (i) any Person whose financial results are required to be consolidated with the financial results of the first Person in the preparation of the first Person’s financial statements under GAAP or (ii) for purposes of Article III, any nonconsolidated project mine subsidiary of the North American Coal Corporation.
Tax Allocation Agreement ” means the Tax Allocation Agreement, dated as of the date hereof, by and between Parent and HY, the form of which is attached hereto as Exhibit C .
Taxes ” has the meaning set forth in the Tax Allocation Agreement; provided ; however ; that such term will not include any Liabilities owed to, or imposed by, the Pension Benefit Guaranty Corporation under ERISA.
Termination Date ” has the meaning set forth in Section 7.1.
Transferred Employees ” has the meaning set forth in Section 3.1(a).
Transition Services Agreement ” means the Transition Services Agreement by and between Parent and HY in substantially the form attached hereto as Exhibit D .
1.2      Interpretation . (a) When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference will be to an Article or Section or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and will not affect

4


in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.” Unless the context otherwise requires, (i) “or” is disjunctive but not necessarily exclusive, (ii) words in the singular include the plural and vice versa, (iii) the use in this Agreement of a pronoun in reference to a Party includes the masculine, feminine or neuter, as the context may require, and (iv) terms used herein which are defined in GAAP have the meanings ascribed to them therein. This Agreement will not be interpreted or construed to require any Person to take any action, or fail to take any action, that would violate any applicable Law.
(b)      The Parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.
II.      SPIN-OFF
2.1      The Spin-Off . Subject to the satisfaction, or to the extent permitted by applicable Law, waiver of the conditions set forth in Article VI , the Board of Directors of Parent (the “ Parent Board ”) has established the Record Date and the Spin-Off Date and any procedures it determined to be necessary or appropriate in connection therewith.
2.2      HY Share Issuance . Prior to the Spin-Off Date, Parent will take, or cause to be taken, all actions necessary to issue to Parent such number of shares of HY Common Stock, including, if applicable, by reclassifying the outstanding shares of HY Common Stock (the “ Share Issuance ”), for the purpose of increasing the outstanding shares of HY Common Stock such that, immediately prior to the Spin-Off Date, HY will have not less than an aggregate number of outstanding shares of HY Class A Common Stock and HY Class B Common Stock that is equal to one share of HY Class A Common Stock and one share of HY Class B Common Stock for each share of Parent Common Stock issued and outstanding on the Record Date.
2.3      Delivery of Shares to the Agent . On or prior to the Spin-Off Date, Parent will authorize the book-entry transfer by Parent’s transfer agent, (the “ Agent ”) of all of the outstanding shares of HY Common Stock to be distributed in connection with the Spin-Off. After the Spin-Off Date, upon the request of the Agent, HY will provide all book-entry transfer authorizations that the Agent requires in order to effect the Spin-Off of the shares of HY Common Stock to Parent stockholders.
2.4      The Spin-Off . (a) On the terms and subject to the conditions of this Agreement, following consummation of the Share Issuance, the Parent Board will declare and Parent will distribute and pay all of the shares of HY Common Stock held by Parent to Parent stockholders at a rate of one share of HY Class A Common Stock and one share of HY Class B Common Stock to each holder of Parent Common Stock then outstanding. Until the consummation of the Spin-Off, Parent will own and the Agent will hold the shares of HY Common Stock as nominee on behalf of and for the benefit of Parent. Upon consummation of the Spin-Off, pursuant to, and in accordance with the terms hereof, the Agent will distribute by book-entry transfer (i) in respect of

5


each outstanding share of Parent Class A Common Stock held by holders of record of Parent Class A Common Stock on the Record Date, one share of HY Class A Common Stock and one share of HY Class B Common Stock and (ii) in respect of each outstanding share of Parent Class B Common Stock held by holders of record of Parent Class B Common Stock on the Record Date, one share of HY Class A Common Stock and one share of HY Class B Common Stock.
(b)      In addition, HY will deliver to Parent one share of HY Class A Common Stock and one share of HY Class B Common Stock for each share of Parent Common Stock (if any) reserved for issuance upon exercise of any option, conversion right or other right existing as of the Record Date.
2.5      Fractional Shares . No certificate representing fractional shares of HY Common Stock will be issued as part of the Spin-Off. Each holder of Parent Common Stock who otherwise would have been entitled to a fraction of a share of HY Class A Common Stock or HY Class B Common Stock pursuant to Section 2.4 (after aggregating all of such Person’s shares of HY Class A Common and aggregating all of such Person’s shares of HY Class B Common Stock immediately prior to the consummation of the Spin-Off) will receive a cash payment in lieu of such fractional shares. Parent will instruct the Agent to (i) determine the number of whole shares and fractional shares of HY Class A Common Stock and HY Class B Common Stock allocable to each holder of record or beneficial owner of Parent Common Stock on the Spin-Off Date, (ii) aggregate all such fractional shares into whole shares of HY Class A Common Stock and HY Class B Common Stock, (iii) convert the whole shares of HY Class B Common Stock into shares of HY Class A Common Stock, (iv) sell the whole shares of HY Class A Common Stock obtained in clauses (ii) and (iii) in the open market on behalf of holders of record or beneficial owners who otherwise would be entitled to receive fractional shares of HY Common Stock, and (v) distribute to each such holder or for the benefit of each such beneficial owner such holder’s or owner’s ratable share of the total proceeds (net of total selling and conversion expenses) of such sale; provided , however , that the Agent will have sole discretion to determine when, how, through which broker-dealer and at what price to execute the sales; provided , further , that neither the Agent nor any broker-dealer used by the Agent will be an Affiliate of Parent or HY; provided , further , that no holder of Parent Common Stock will be entitled to receive in cash in excess of the value of two shares of HY Class A Common Stock.
2.6      Intercompany Matters . As of immediately prior to the Spin-Off Date, all rights and Liabilities of, from or to any member of the Parent Group, on the one hand, and any member of the HY Group, on the other hand, will be netted against each other and the resulting balance will be cash settled as applicable, by Parent or HY, as the case may be, and all contracts between or among such parties will terminate, in each case other than under this Agreement or any of the other agreements or instruments contemplated hereby or any Liabilities arising therefrom. In the event any such intercompany amounts are identified following the Spin-Off Date that were not netted as contemplated by the preceding sentence, such amounts will be cash settled when they arise or are identified. In the event of any refund or credit relating to the HY Group or the Parent Group is received by the other group after the Spin-Off Date, such other

6


group will provide the HY Group or Parent Group, as applicable, with the benefit of such refund or credit.
III.      EMPLOYEE MATTERS
3.1      Employees . (a) Parent will designate those employees of NACCO Materials Handling Group, Inc. (“ NMHG ”) located in Cleveland, Ohio who will become employees of Parent as of the Spin-Off Date as transferred employees (the “ Transferred Employees ”).
(b)      All other employees of HY or its Subsidiaries, excluding the Transferred Employees, will remain employed by HY or its Subsidiaries; provided , however , that the Chairman, President and Chief Executive Officer of HY (the “ Chairman ”) will be employed by both Parent and HY or one of their respective Subsidiaries following the Spin-Off Date.
3.2      Pension Benefits . (a) On and following the Spin-Off Date, HY and its Subsidiaries will retain sponsorship of and be solely responsible for the management and administration of, any defined benefit pension plan that was sponsored by HY or one of its Subsidiaries on the Spin-Off Date.
(b)      Employees and former employees of NMHG and its Subsidiaries (the “ NMHG Participants ”) also participate in the Combined Defined Benefit Plan of Parent and its Subsidiaries (the “ Parent Pension Plan ”). Immediately prior to the Spin-Off Date, Parent will spin off the assets and Liabilities of the Parent Pension Plan attributable to the accrued benefits of the NMHG Participants under Part III of the Parent Pension Plan (the “ Part III Benefits ”), to a separate defined benefit pension plan intended to be qualified under Section 401(a) of the Code that will be assumed, sponsored and maintained by NMHG (the “ NMHG Pension Plan ”). The amount of assets transferred to the NMHG Pension Plan and the transfer thereof will comply with the requirements of Sections 411(d)(6), 414(l) and 401(a)(12) of the Code and the regulations issued thereunder; provided that prior to the Spin-Off Date, HY and Parent will mutually agree on the amount that NMHG will be required to contribute to the Parent Pension Plan in order to effectuate the asset transfer and HY will make (or cause NMHG to make) such contribution prior to the Spin-Off Date at such time as agreed upon by Parent and HY. Notwithstanding the foregoing, the assets and Liabilities of the Parent Pension Plan attributable to the accrued benefit of any employee or former employee of HY and its Subsidiaries under Part I of the Parent Pension Plan (the “ Part I Benefits ”) will remain within the Parent Pension Plan, and, as a result thereof, employees or former employees of HY and its Subsidiaries will continue to be entitled to receive any Part I Benefits in accordance with the terms of the Parent Pension Plan, as in effect from time to time. In furtherance of, but without limiting the foregoing, effective as of the Spin-Off Date, (i) HY and its Subsidiaries will have no Liability or obligations, and Parent agrees to assume and pay for any such Liabilities or obligations, under the Parent Pension Plan (the “ Pension Plan Obligations ”), (ii) HY and its Subsidiaries will have no further responsibility for the administration of the Parent Pension Plan, (iii) Parent and its Subsidiaries (other than HY and its Subsidiaries) will have no Liability or obligations, and HY agrees to assume and pay for any such Liabilities or obligations, under the NMHG Pension Plan, and (iv) Parent and its Subsidiaries (other than HY and

7


its Subsidiaries) will have no further responsibility for the administration of the NMHG Pension Plan except as specified in the Transition Services Agreement.
3.3      Other Employee Benefits . (a) The NMHG Participants are currently provided retirement and welfare benefits under employee benefits plans, programs, policies or arrangements that are sponsored and maintained by HY or its Subsidiaries (collectively, the “ HY Benefit Plans ”). On and after the Spin-Off Date, the NMHG Participants (other than the Transferred Employees) will continue to receive benefits under the HY Benefit Plans. Effective as of the Spin-Off Date, Parent and its Subsidiaries (other than HY and its Subsidiaries) (i) will have no Liability or obligations, and HY and its Subsidiaries agree to assume and pay for any Liabilities or obligations, under or relating to the HY Benefit Plans and the NMHG Pension Plan, including as required by, or imposed pursuant to applicable Law and (ii) will have no responsibility for the administration of the HY Benefit Plans and the NMHG Pension Plan.
(b)      Employees of Parent and its Subsidiaries (other than HY and its Subsidiaries) are currently provided retirement and welfare benefits under employee benefit plans, programs, policies or arrangements that are sponsored and maintained by Parent or its Subsidiaries (other than HY and its Subsidiaries) (collectively, the “ Parent Benefits Plans ”). On and after the Spin-Off Date, (i) employees of Parent and its Subsidiaries (but, except as otherwise provided in Section 3.2(b) above, not employees of HY and its Subsidiaries) will continue to receive benefits under the Parent Benefit Plans and (ii) the Transferred Employees will begin to receive benefits under the Parent Benefit Plans, subject to the eligibility rules thereunder.
(c)      Effective as of the Spin-Off Date, HY and its Subsidiaries (i) will have no Liability or obligations, and Parent agrees to assume and pay for any Liabilities or obligations, under or relating to the Parent Benefit Plans and (ii) will have no responsibility for the administration of the Parent Benefit Plans.
(d)      Prior to the Spin-Off Date, HY and Parent will mutually agree to a fair allocation of the Chairman’s compensation and employee benefits for the 2012 calendar year between the two companies.
3.4      Other Benefit Matters .
(a)      Nothing contained herein will in any way alter the right of Parent or HY, before or after the Spin-Off Date, to amend or terminate any Parent Benefit Plan or HY Benefit Plan, as applicable, in accordance with its terms and applicable Law.
(b)      On or before the Spin-Off Date, Parent and HY agree that (i) they will take such actions as they determine are necessary and advisable to establish separate administrative services agreements and funding vehicles for the HY Benefit Plans (including the NMHG Pension Plan) and Parent Benefit Plans and/or to provide for transitional services related thereto and (ii) they will use reasonable, good faith efforts to cooperate with each other and take such steps as are necessary and advisable to implement the actions described in this Article III.

8


(c)      After the Spin-Off Date, Parent and HY will continue to cooperate in good faith and share (to the extent permissible under applicable privacy/data protection laws) all relevant documents, payroll and employment information as needed with respect to the continued administration of the HY Benefit Plans (and the NMHG Pension Plan) and the Parent Benefit Plans; provided that requests for cooperation must be reasonable and not interfere with daily business operations.
IV.      REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1      Representations . Each of Parent and HY, as applicable, represents and warrants to the other as set forth below.
(a)      Each Party has full power and authority to execute and deliver this Agreement and to consummate the Spin-Off. The execution and delivery of this Agreement and the consummation of the Spin-Off have been duly and validly authorized by each Party, and no other proceedings on the part of such Party or any other Person are necessary to authorize the execution and delivery by such Party of this Agreement or the consummation of the Spin-Off. This Agreement has been duly and validly executed and delivered by the Parties, and (assuming the valid execution and delivery of this Agreement by the other Parties) constitutes the legal, valid and binding agreement of such Party enforceable against it in accordance with its terms, except as such obligations and their enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors’ rights generally, (ii) by general principles of equity, or (iii) the power of a court to deny enforcement of remedies based on public policy.
(b)      Each of HY, on the one hand, and Parent, on the other hand, has retained separate legal advisors in connection with the Spin-Off, and the terms of this Agreement, together with the Transition Services Agreement, the Office Services Agreement and the Dry Aircraft Lease have been negotiated by such parties at arm’s length by their respective representatives.

4.2      Litigation Matters . (a) For a period of five years after the Closing Date, each Party will, to aid each other Party in the defense of any third-party Action relating to the business of the other Party to the extent such Party has personnel or information relevant to such business or Action, make available during normal business hours, but without unreasonably disrupting their respective businesses, all personnel and records in their possession, custody and/or control relating to such business reasonably necessary to permit the effective defense or investigation of such Action. If information other than that pertaining to the applicable business that is the subject of the Action is contained in such records, Parent and HY will make reasonable efforts to protect any confidential information, including entering into appropriate confidentiality agreements. To the extent any such Action relates solely to HY’s or any of its Subsidiaries’ businesses, all such documented costs will be borne by HY. To the extent any such Action relates solely to Parent’s or any of its Subsidiaries’ businesses (other than HY or any of its Subsidiaries), all such documented costs will be borne by Parent. To the extent any such Action relates to Parent’s or any of its Subsidiaries’ businesses (other

9


than HY or any of its Subsidiaries) and HY’s or any of its Subsidiaries’ businesses, all such documented costs will be allocated proportionately, based on their respective business interest in such action, between HY and Parent.
4.3      Cooperation . (a) Parent and HY will comply fully with all notification, reporting and other requirements under any Law or Order applicable to the Spin-Off. Parent and HY will use their commercially reasonable efforts to obtain, as soon as practicable, the authorizations that may be or become necessary for the performance of their respective obligations under this Agreement and the consummation of the Spin-Off and will cooperate fully with each other in promptly seeking to obtain such authorizations, except that no such Party will be required to make any material expenditure in connection with its obligations under this Section 4.3. Where the cooperation of third parties such as insurers or trustees would be necessary in order for a Party to completely fulfill its obligations under this Agreement, such Party will use commercially reasonable efforts to cause such third parties to provide such cooperation, except that no Party will be required to make any material expenditure in connection therewith.
(b)      In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties will cooperate with each other and use (and will cause their respective Subsidiaries and Affiliates to use) reasonable best efforts, prior to, at and after the Spin-Off, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary on its part permitted under applicable law to consummate and make effective the transactions contemplated by this Agreement, the Transition Services Agreement, the Tax Allocation Agreement, the Dry Aircraft Lease and the Office Services Agreement as promptly as reasonably practicable.
(c)      After the Spin-Off, except in the case of any Action by one Party or its Affiliates against the other Party or its Affiliates, each Party will use its commercially reasonable efforts to make available to the other, upon written request, the former, current and future directors, officers, employees, other personnel and agents of such Party as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents are reasonably requested in connection with any Action in which the requesting Party may from time to time be involved or any other reasonable business purpose, regardless of whether, in the case of an Action, such Action is a matter with respect to which indemnification may be sought hereunder.
(d)      The obligation of the Parties to provide witnesses pursuant to this Section 4.3 is intended to be interpreted in a manner so as to facilitate cooperation.
4.4      Expenses . Whether or not the Spin-Off is consummated, all costs and expenses incurred in connection with this Agreement and the Spin-Off will be borne by Parent, unless otherwise provided herein or in the Transition Services Agreement. The costs and expenses related to the preparation and filing by HY of the S-1 Registration Statement with the Securities and Exchange Commission will be borne by HY in the

10


event the Spin-Off is consummated. For the avoidance of doubt, each Party will bear its internal and external costs and expenses of complying with any covenant herein, except and solely to the extent otherwise provided herein.
4.5      Certain Insurance Matters . (a) With respect to any Damages suffered by HY or any of its Subsidiaries after the Spin-Off Date relating to, resulting from or arising out of the conduct of HY’s business prior to the Spin-Off Date for which Parent or any of its Subsidiaries would be entitled to assert, or cause any other Person to assert, a claim for recovery under any policy of insurance maintained by Parent or for the benefit of Parent or any of its Subsidiaries in respect of HY’s business, Parent or any of its Subsidiaries, any product of HY’s business or any HY employee, at the request of HY, Parent will use commercially reasonable efforts to assert and administer, or to assist HY or any of its Subsidiaries to assert and administer, one or more claims under such policy of insurance covering such Damage if HY or any of its Subsidiaries is not itself entitled to assert such claim, and any recovery in respect thereof will be paid to the Party suffering such Damages; provided , however , that all of Parent’s reasonable out-of-pocket costs and expenses incurred in connection with the foregoing, including retroactive or other premium increases, are promptly reimbursed by HY. Notwithstanding the foregoing, Parent will have the sole right to administer all such claims in any manner and take any actions as it determines to be appropriate except to the extent any such administration or actions may adversely affect the availability of insurance coverage, the amount of any such coverage, the applicability of any coverage and/or the availability of future coverage or coverage limits with respect to HY or any of its Subsidiaries, in which case any administration or actions by Parent shall only be taken after consultation with, and consent of, HY. Nothing in this Section 4.5. will affect or modify or be deemed to affect or modify in any way any Party’s obligations under Article V of this Agreement.
(b)      As of the Spin-Off Date, Parent and HY will each procure and maintain for not less than six years following the Spin-Off Date (the “ Insurance Period ”), policies of directors’ and officers’ liability insurance and fiduciary liability insurance of at least the same coverage and amounts, and containing terms and conditions which are no less advantageous to the directors and officers and fiduciaries or other trustees of either Parent or HY, with respect to claims arising out of or relating to events which occurred before or on the Spin-Off Date. Each of Parent and HY will cooperate with the other in the procurement of such insurance. In the event that insurance with the identical coverage and amounts is no longer available on a commercially reasonable basis during the Insurance Period, Parent and/or HY may procure and maintain substantially similar coverage for the remainder of the Insurance Period, with the consent of the other Party, which consent will not be unreasonably withheld.
4.6      Confidentiality . The Parties will keep strictly confidential any and all proprietary, technical, business, marketing, sales and other information disclosed to another Party in connection with the performance of this Agreement (the “ Confidential Information ”), and will not disclose the same or any part thereof to any third party, or use the same for their own benefit or for the benefit of any third party. The obligations of secrecy and nonuse as set forth herein will survive the termination of this Agreement for a period of five years. Excluded from this provision is any information available in the

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public domain and any information disclosed to any of the Parties by a third party who is not in breach of confidential obligations owed to another Person or entity. Notwithstanding the foregoing, each Party may disclose Confidential Information (a) to its bankers, attorneys, accountants and other advisors subject to the same confidentiality obligations imposed herein and (b) as may be required by law from time to time.
4.7      Use of Name . HY and its Subsidiaries acknowledge and agree that Parent has prior and superior rights to use the name "NACCO" (the " Retained Name ") and is retaining all of its right, title and interest (including its trademark rights) therein and thereto. Notwithstanding the foregoing, Parent conditionally consents to HY's and its Subsidiaries' perpetual use, after the consummation of the Spin-Off, of the Retained Name solely as (or as a component part of) a corporate or business name and solely for so long as (A) none of the products or services of any such business are of a quality that is reasonably determined to be sub-standard and (B) none of HY or its Subsidiaries (i) use the Retained Name or combine the Retained Name with any other name or mark in any manner that is likely to cause marketplace confusion with the businesses, products or services of Parent or its Affiliates or any of their licensees, (ii) use, either by any act or omission, the Retained Name in any manner that tarnishes, degrades, disparages or reflects adversely on the Parent, its Affiliates or any of their businesses or reputation, or (iii) take any action, either directly or indirectly, to challenge, object to, or interfere with use or registration of the Retained Name by Parent or its Affiliates.
V.      INDEMNIFICATION
5.1      Indemnity by Parent . Following the Spin-Off, Parent will indemnify and hold harmless HY, its Subsidiaries and each of their respective officers, directors, employees, agents and representatives and each of the successors and assigns of any of the foregoing (“ HY Indemnified Parties ”) from and against and will promptly defend such parties from and reimburse such parties for any and all losses, damages, costs, expenses, Liabilities, obligations and claims of any kind, including reasonable attorneys’ fees and other costs and expenses, (“ Damages ”) which such parties may directly or indirectly at any time suffer or incur or become subject to, as a result of or in connection with (a) any breach by Parent of any representation or warranty in this Agreement, (b) the failure by Parent to perform any covenant to be performed by it or its Subsidiaries under this Agreement in whole or in part after the Spin-Off Date, (c) the conduct of any business of Parent or its Subsidiaries other than HY’s business, including any indemnity or Liability thereof or any amount due or to become due in respect of the foregoing, and (d) any Parent Pension Plan Obligation or any obligations or Liabilities under the Parent Benefit Plans.
5.2      Indemnity by HY . Following the Spin-Off, HY will indemnify and hold Parent, its Subsidiaries and each of their respective officers, directors, employees, agents and representatives and each of the successors and assigns of any of the foregoing (“ Parent Indemnified Parties ”) harmless from and against, and will promptly defend such parties from and reimburse such parties for, any and all Damages which such parties may directly or indirectly at any time suffer or incur or become subject to, as a result of or in connection with (a) any breach by HY of any representation or warranty in this Agreement, (b) the failure by HY to perform any covenant to be formed

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by it or its Subsidiaries under this Agreement in whole or in part after the Spin-Off Date, (c) the conduct of any business of HY or its Subsidiaries, including any indemnity or Liability thereof or any amount due or to become due in respect of the foregoing, and (d) any obligations or Liabilities under the NMHG Pension Plan or the HY Benefit Plans. For the avoidance of doubt, following the Spin-Off, no Parent Indemnified Party will be liable for, and HY will indemnify, defend and fully protect each Parent Indemnified Party from and against any action or failure to take action by HY, any of its Subsidiaries or any of their respective directors, officers, employees, agents or representatives in their capacities as such whether prior to or on the Spin-Off Date, including any transaction based in whole or in part on the Spin-Off.
5.3      Insurance Coverage . The indemnification to which any Party is entitled hereunder will be net of all insurance proceeds actually received, if any, by the indemnified Party with respect to the losses for which indemnification is provided in Section 5.1 or Section 5.2.
5.4      Right of Party to Indemnification . Each Party entitled to indemnification hereunder will be entitled to indemnification for losses sustained in accordance with the provisions of this Article V regardless of any Law or public policy that would limit or impair the right of the Party to recover indemnification under the circumstances.
5.5      Indemnification Procedures . Any Party seeking indemnification under this Article V for a third party claim (the “ Indemnified Party ”) must notify the Party from whom such indemnity is sought (the “ Indemnifying Party ”) in writing of any claim, demand, action or proceeding for which indemnification will be sought; provided , however , that the failure to so notify will not adversely impact the Indemnified Party’s right to indemnification hereunder except and solely to the extent that such failure to notify actually prejudices, or prevents the Indemnifying Party’s ability to defend such claim, demand, action or proceeding. The Indemnifying Party will have the right at its expense to assume the defense thereof using counsel reasonably acceptable to the Indemnified Party. The Indemnified Party will have the right (i) to participate, at its own expense, with respect to any claim, demand, action or proceeding that is being diligently defended by the Indemnifying Party and (ii) to assume the defense of any claim, demand, action or proceeding at the cost and expense of the Indemnifying Party if the Indemnifying Party fails or ceases to defend the same. In connection with any such claim, demand, action or proceeding the Parties will cooperate with each other and provide each other with access to relevant books and records in their possession. If a firm written offer is made to the Indemnifying Party to settle any such claim, demand, action or proceeding solely in exchange for monetary sums to be paid by the Indemnifying Party (and such settlement contains a complete release of the Indemnified Party and its Subsidiaries and their respective directors, officers and employees) and the Indemnifying Party proposes to accept such settlement and the Indemnified Party refuses to consent to such settlement, then (A) the Indemnifying Party will be excused from, and the Indemnified Party will be solely responsible for, all further defense of such claim, demand, action or proceeding, (B) the maximum liability of the Indemnifying Party relating to such claim, demand, action or proceeding will be the amount of the proposed settlement if the amount thereafter recovered from the Indemnified Party on such claim, demand, action or proceeding is greater than the amount of the proposed settlement,

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and (C) the Indemnified Party will pay all attorneys’ fees and legal costs and expenses incurred after rejection of such settlement by the Indemnified Party; provided , however , that if the amount thereafter recovered by the third party from the Indemnified Party is less than the amount of the proposed settlement, the Indemnified Party will be reimbursed by the Indemnifying Party for such attorneys’ fees and legal costs and expenses up to a maximum amount equal to the difference between the amount recovered by the third party and the amount of the proposed settlement.
VI.      CONDITIONS
6.1      Conditions to the Spin-Off . The obligations of the Parties to effect the Spin-Off are subject to the fulfillment (or waiver by Parent pursuant to Section 6.2) on or prior to the Spin-Off Date (provided that certain of such conditions will occur substantially contemporaneously with the Spin-Off) if Parent shall have determined on or prior to the Termination Date that the following conditions have been satisfied (or, if applicable, waived pursuant to Section 6.2):
(a)      the Parent Board shall have determined, in its sole discretion, to effect the Spin-Off;
(b)      the receipt by Parent of a written opinion, dated as of the Record Date and confirmation as of the Spin-Off Date, from McDermott, Will & Emery LLP, tax counsel to Parent, satisfactory to Parent, to the effect that the Spin-Off will qualify as a tax-free spin-off under Section 355 and related provisions of the Code. In rendering the foregoing opinion, counsel will be permitted to rely upon and assume the accuracy of certificates executed by officers of Parent and HY containing customary representations and covenants to enable such firm to deliver the legal opinion;
(c)      Parent shall have determined that all actions or filings necessary or appropriate under applicable securities laws in connection with the Spin-Off shall have been taken or made, and, where applicable, have become effective or been accepted by the applicable Governmental Authority;
(d)      the HY Class A Common Stock to be distributed to Parent stockholders in the Spin-Off shall have been accepted for listing on the NYSE or another national securities exchange acceptable to Parent in its discretion, subject to official notice of distribution;
(e)      the Transition Services Agreement, Tax Allocation Agreement, Stockholders’ Agreement and Office Services Agreement shall have been duly executed and delivered by the parties thereto; and
(f)      no order, injunction, decree or regulation issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Spin-Off or any of the transactions related thereto, shall be in effect, and no other event have occurred or failed to occur, including the initiation or threat of litigation, that Parent shall have determined is adverse to Parent or HY.

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6.2      Waiver of Conditions . The conditions set forth in Section 6.1 (excluding the condition set forth in Section 6.1(b)) may be waived in the sole discretion of the Board of Directors of Parent. The conditions set forth in Section 6.1 (excluding the condition set forth in Section 6.1(b)) are for the sole benefit of Parent and will not give rise to or create any duty on the part of Parent or the Board of Directors of Parent to waive or not waive any such conditions.
VII.      TERMINATION
7.1      Termination . This Agreement may be terminated by Parent, in its sole discretion, by action of the Parent Board in its discretion at any time prior to the earlier of the Record Date or June 30, 2013 (the “ Termination Date ”) and notice to HY.
7.2      Effect of Termination . If this Agreement is terminated as provided in Section 7.1, then this Agreement will forthwith become void and there will be no Liability on the part of any Party to any other Party or any other Person in respect hereof regardless of the circumstances.
VIII.      MISCELLANEOUS
8.1      Survival . The representations, warranties and covenants of the Parties contained in this Agreement or made pursuant to this Agreement will continue from and after the Spin-Off Date.
8.2      Amendment . This Agreement may be amended, modified or supplemented only by the written agreement of the Parties.
8.3      Waiver of Compliance . Except as otherwise provided in this Agreement, the failure by any Person to comply with any obligation, covenant, agreement or condition under this Agreement may be waived by the Person entitled to the benefit thereof only by a written instrument signed by the Person granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The failure of any Person to enforce at any time any of the provisions of this Agreement will in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any Person thereafter to enforce each and every such provision. No waiver of any breach of such provisions will be held to be a waiver of any other or subsequent breach.
8.4      Notices . All notices required or permitted pursuant to this Agreement must be in writing and will be deemed to be properly given when actually received by the Person entitled to receive the notice at the address stated below, or at such other address as a Party may provide by notice to the other:

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If to Parent:
NACCO Industries, Inc.
5875 Landerbrook Drive
Cleveland, Ohio 44124-4017
Attention: John Neumann
Facsimile: 440.449.9577
With a copy to:
McDermott Will & Emery LLP
227 West Monroe Street, Suite 4400
Chicago, Illinois 60606
Attention: Thomas J. Murphy
Facsimile: 312.984.7700
If to HY:
Hyster-Yale Materials Handling, Inc.
5875 Landerbrook Drive, Suite 300
Cleveland, Ohio 44124-4017
Attention: Charles A. Bittenbender
Facsimile: 440.449.9561
With a copy to:
Jones Day
222 East 41
st Street
New York, New York 10017
Attention: Randi C. Lesnick
Facsimile: 212.755.7306
8.5      Third-Party Beneficiaries . Except as otherwise expressly provided in this Agreement, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.
8.6      Successors and Assigns . This Agreement will be binding upon and will inure to the benefit of the signatories hereto and their respective successors and permitted assigns. None of the Parties may assign this Agreement, or any of their rights or liabilities hereunder, without the prior written consent of the other Parties hereto, and any attempt to make any such assignment without such consent will be null and void. Any such assignment will not relieve the Party making the assignment from any liability under this Agreement.
8.7      Severability . The illegality or partial illegality of any or all of this Agreement or any provision hereof, will not affect the validity of the remainder of this Agreement, or any provision hereof, and the illegality or partial illegality of this Agreement will not affect the validity of this Agreement in any jurisdiction in which such determination of illegality or partial illegality has not been made, except in either case to the extent such illegality

16


or partial illegality causes this Agreement to no longer contain all of the material provisions reasonably expected by the Parties to be contained therein.
8.8      Governing Law . This Agreement will be governed by and construed in accordance with the internal Laws of the State of Delaware applicable to contracts made and wholly performed within such state, without regard to any applicable conflict of laws principles.
8.9      Submission to Jurisdiction; Waivers . Each Party irrevocably agrees that any legal action or proceeding with respect to this Agreement, the Spin-Off, any provision hereof, the breach, performance, validity or invalidity hereof or for recognition and enforcement of any judgment in respect hereof brought by another Party or its successors or permitted assigns may only be brought and determined in any federal or state court located in the State of Delaware, and each Party hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each Party hereby 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, the Spin-Off, any provision hereof or the breach, performance, enforcement, validity or invalidity hereof, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable Laws, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
8.10      Counterparts . This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and will become effective when counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that each Party need not sign the same counterpart. This Agreement, to the extent signed and delivered by means of a facsimile or other electronic transmission, will be treated in all respects as an original agreement and will be considered to have the same binding legal effect as if it were a signed original.
8.11      Entire Agreement . This Agreement (including the documents and the instruments referred to in this Agreement), constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter of this Agreement.
8.12      Determinations by Parent or HY . Any determination required or permitted hereby to be made or taken by Parent or HY may be made or taken by it in its sole discretion and without consideration to the other or the other’s interests. The Parties hereby expressly disclaim any implied duties of good faith, fair dealing or any similar concept and expressly agree that this Agreement is to be interpreted without giving effect to prior practice or any alleged oral representations or assurances.

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8.13      Exclusivity of Tax Allocation Agreement . The Parties agree that the Tax Allocation Agreement will be the exclusive agreement among the Parties with respect to Tax matters.
[SIGNATURES ON FOLLOWING PAGE]

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IN WITNESS WHEREOF, each of the signatories hereto has caused this Agreement to be signed by its duly authorized officer as of the date first above written.
NACCO INDUSTRIES, INC.
By: /s/ J.C. Butler, Jr.    
Name:
J.C. Butler, Jr.
Title:
Vice President-Corporate Development and Treasurer
HYSTER-YALE MATERIALS HANDLING, INC.
By: /s/ Alfred M. Rankin, Jr.    
Name:
Alfred M. Rankin, Jr.
Title:
Chairman, President and Chief Executive Officer


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Exhibit 10.8
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this “ Agreement ”), dated as of September 28, 2012, by and among NACCO Industries, Inc., a Delaware corporation (“ NACCO ”) and Hyster-Yale Materials Handling, Inc., a Delaware corporation and a wholly owned subsidiary of NACCO (“ Hyster-Yale ”). All capitalized terms used but not defined herein shall have their respective meanings set forth in the Separation Agreement (as defined herein).
RECITALS:
1.      NACCO and Hyster-Yale have entered into a Separation Agreement, dated as of September 28, 2012 (the “ Separation Agreement ”), pursuant to which NACCO will distribute all of the outstanding shares of capital stock of Hyster-Yale to NACCO’s stockholders (the “ Spin-Off ”) ;
2.      In order to facilitate the separation of Hyster-Yale from NACCO and its Subsidiaries (as defined below) pursuant to the Separation Agreement, (a) Hyster-Yale desires, and NACCO is willing to provide or cause its Subsidiaries to provide, certain transition services upon the terms and conditions set forth in this Agreement and (b) NACCO and its Subsidiaries desire, and Hyster-Yale is willing to provide or cause its Subsidiaries to provide, certain transition services upon the terms and conditions set forth in this Agreement. For purposes of this Agreement, a “Subsidiary” of any Person means any Person whose financial results are required to be consolidated with the financial results of the first Person in the preparation of the first Person’s financial statements under United States generally accepted accounting principles as in effect from time to time, consistently applied.
Accordingly, the parties agree as follows:
I. TRANSITION SERVICES
1.1      NACCO Obligations . Subject to the terms and conditions of this Agreement, during the Transition Period (as defined below), NACCO will, or will cause one of its Subsidiaries to, provide to Hyster-Yale and/or a designated Subsidiary of Hyster-Yale the transitional services and assistance (together, the “ NACCO Transition Services ”) set forth on Schedule A hereto.
1.2      Hyster-Yale Obligations . Subject to the terms and conditions of this Agreement, during the Transition Period, Hyster-Yale will, or will cause one of its Subsidiaries to, provide to NACCO and/or a designated Subsidiary of NACCO, as the case may be, the transitional services and assistance (together, the “ Hyster-Yale Transition Services ” and, together with the NACCO Transition Services, the “ Transition Services ”) set forth on Schedule B hereto.
1.3      Term . The obligations of each of NACCO and Hyster-Yale to provide each respective Transition Service or cause such Transition Service to be provided hereunder will begin on October 1, 2012 (the “ Effective Date ”) and will remain in effect for one year

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after the Effective Date (the “ Initial Termination Date ”); provided , however , that with respect to any Transition Service, NACCO or Hyster-Yale may, upon written notice to the other party not less than 30 days prior to the Initial Termination Date, extend the term of such Transition Services for the subsequent transition period; provided , however , that such extension shall not be for a period of more than three months unless the other party consents, in writing, to a period beyond three months (the “ Subsequent Transition Period ”). For the purposes of this Agreement, the (a) term “ Initial Transition Period ” for each Transition Service means the period beginning on the date on which the Spin-Off occurs (the “ Closing Date ”) and ending on the Initial Termination Date, and (b) the terms Initial Transition Period and Subsequent Transition Period are collectively referred to herein as the “ Transition Period .”
1.4      Modification of Transition Services . During the Transition Period, any or all of the Transition Services may be modified in any respect upon mutual written agreement of NACCO and Hyster-Yale, and such written agreement shall be deemed to supplement and amend this Agreement.
1.5      Employee Cooperation . NACCO will cause its or its Subsidiaries’ employees providing the Transition Services (together, the “ NACCO Employees ”) to cooperate with the employees of Hyster-Yale and/or its Subsidiaries (the “ Hyster-Yale Employees ”) during the Transition Period, but neither NACCO nor its Subsidiaries will have any other duty or obligation with respect to such Hyster-Yale Employees. Hyster-Yale will cause the Hyster-Yale Employees providing the Transition Services to cooperate with the NACCO Employees during the Transition Period, but Hyster-Yale will have no other duty or obligation with respect to such NACCO Employees.
1.6      Scope of Services . Neither NACCO nor Hyster-Yale will be obligated to perform, or to cause to be performed, any Transition Services in a volume or quantity that unreasonably interferes with the operation of its business in the ordinary course provided, however, that each such party will be required to provide Transition Services consistent with historical volume or quantity during the two years preceding the Spin-Off and such level of services will not be deemed to unreasonably interfere with the operation of the business of the party supplying such Transition Service.
1.7      Standard of Performance; Standard of Care . Each of NACCO and Hyster-Yale will perform, or will cause to be performed, the Transition Services (a) in such manner as is substantially similar in nature, quality and timeliness to the services provided by NACCO, Hyster-Yale or their respective Subsidiaries, as applicable, prior to the date hereof and (b) in accordance with all applicable Laws.
1.8      Confidentiality The parties hereto shall keep strictly confidential any and all proprietary, technical, business, marketing, sales and other information disclosed to another party hereto in connection with the performance of this Agreement (the “ Confidential Information ”), and shall not disclose the same or any part thereof to any third party, or use the same for their own benefit or for the benefit of any third party. The obligations of secrecy and nonuse as set forth herein shall survive the termination of this Agreement for a period of five years. Excluded from this provision is any information available in the public domain and any information disclosed to any of the parties by a third party who is not in breach of confidential obligations owed to another

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person or entity. Notwithstanding the foregoing, each party hereto may disclose Confidential Information (a) to its bankers, attorneys, accountants and other advisors subject to the same confidentiality obligations imposed herein and (b) as may be required by Law from time to time provided that the party required to disclose provide the other party, to the extent permitted, reasonable notice in order for such party an opportunity to oppose such disclosure.
II.      OFFICE SPACE
2.1      Right to Use . (a) NACCO hereby grants to Hyster-Yale the right to use the space leased by NACCO in the building at 5875 Landerbrook Drive, Cleveland, Ohio 44124 (the “ Office Space ”) beginning on the Effective Date and terminating on the date of NACCO’s transfer of the lease governing the Office Space (the “ Lease ”) to Hyster-Yale or one of its subsidiaries (the “ HY Office Space Term ”). Hyster-Yale will pay NACCO the HY Office Space Fee set forth in Section 3.1(c) for such right.
(b)      Hyster-Yale hereby grants to NACCO the right to use certain offices occupied by NACCO personnel located within the space leased by Hyster-Yale in the building at 5875 Landerbrook Drive, Cleveland, Ohio 44124 (the “ NACCO Office Space ”) beginning on the day following the termination of the HY Office Space Term and terminating on the sooner of (i) Hyster-Yale’s receipt of notice from NACCO that the employees and property of NACCO occupying the NACCO Office Space have been relocated or (ii) three months after the Effective Date (the “ NACCO Office Space Term ”). NACCO will pay Hyster-Yale the NACCO Office Space Fee set forth in Section 3.2(c) for such right.
III.      CONSIDERATION
3.1      Hyster-Yale Fees . (a) In consideration for the Transition Services provided by or on behalf of NACCO under this Agreement during the first six-months of the Transition Period, Hyster-Yale agrees to pay NACCO or a specified Subsidiary the monthly fees set forth in Schedule A attached hereto and, for each remaining month in the Transition Period, Hyster-Yale agrees to pay NACCO or a specified Subsidiary 50% of the monthly fee for such Transition Service set forth in Schedule A or such other amount as may be agreed by the parties in writing (the “ HY Fees ”). Other than the HY Fees and the expenses specified in Section 3.3, neither Hyster-Yale nor any of its Subsidiaries will be responsible for any fees or expenses incurred by NACCO or any of its Subsidiaries in connection with its or their provision of the Transition Services hereunder.
(b)      For any portion of the Transition Period in which a Transition Service is not rendered for an entire month, the HY Fees described in Schedule A or percentage thereof with respect to such Transition Service will be prorated based on the actual number of days in such period, if applicable.
(c)      In consideration for the right to use the Office Space during the HY Office Space Term, Hyster-Yale will pay to NACCO a fee equal to the amount payable by NACCO under the Lease per month of the HY Office Space Term (the “ HY Office Space Fee ”). For any portion of the HY Office Space Term that is less

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than a month, the HY Office Space Fee will be prorated based on the actual number of days in such period.
3.2      NACCO Fees . (a) In consideration for the Transition Services provided by or on behalf of Hyster-Yale under this Agreement during the first six-months of the Transition Period, NACCO agrees to pay Hyster-Yale or a specified Subsidiary the monthly fees set forth in Schedule B attached hereto and, for each remaining month in the Transition Period, NACCO agrees to pay Hyster-Yale 50% of the monthly fee for such Transition Service set forth in Schedule B or such other amount as may be agreed by the parties in writing (the “ NACCO Fees ”). Other than the NACCO Fees and the expenses specified in Section 3.3, neither NACCO nor any of its Subsidiaries will be responsible for any fees or expenses incurred by Hyster-Yale or any of its Subsidiaries in connection with its or their provision of the Transition Services hereunder.
(b)      For any portion of the Transition Period in which a Transition Service is not rendered for an entire month, the NACCO Fees described in Schedule B or percentage thereof with respect to such Transition Service will be prorated based on the actual number of days in such period, if applicable.
(c)      In consideration for the right to use the NACCO Office Space during the NACCO Office Space Term, NACCO will pay to Hyster-Yale a fee equal to $3,185 per month of the NACCO Office Space Term (the “ NACCO Office Space Fee ”). For any portion of the NACCO Office Space Term that is less than a month, the NACCO Office Space Fee will be prorated based on the actual number of days in such period.
3.3      Out-of-Pocket Expenses . All (a) reasonable, documented out-of-pocket expenses (including travel expenses) that arise directly out of the provision of Transition Services pursuant to this Agreement and are incurred by any of the parties or their Subsidiaries (the “Out-of-Pocket Expenses ”) and (b) sales or similar non-income taxes incurred by any of the parties or their Subsidiaries in connection with the provision of Transition Services pursuant to this Agreement (together with the Out-of-Pocket Expenses, “ Expenses ”) will be reimbursed by the party receiving the services; provided , however , that for any Expense described in clause (a) in excess of $10,000 per occurrence or event, the party providing the services will be required to obtain prior approval thereof from the party receiving the services, which approval will not be unreasonably withheld; provided , further , that such consent will not be required for any Expense in excess of $10,000 if such Expense does not exceed the historical cost of such Expense by more than 10%.
3.4      Payment . (a) Each of Hyster-Yale and NACCO will pay or cause to be paid to the other (i) the NACCO Fees or the HY Fees, as applicable, (ii) the NACCO Office Space Fee or the HY Office Space Fee, as applicable, and (iii) Expenses in each calendar month within 30 days following receipt of an invoice therefor which contains customary and reasonable substantiation of the entitlement to payment of such Fees and reimbursement of such Expenses. If either party fails to pay the invoiced amount when due, interest will accrue on the amount payable at a rate equal to the rate of interest publicly announced by Citibank, N.A., from time to time, in The City of New York, as such bank’s base rate (the “ Citibank Base Rate ”) plus 2.50% per month,

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compounded monthly; provided , however , that if any such failure to pay is due to a good faith dispute, any amounts ultimately determined to be payable by the disputing party will instead include interest compounded at a rate equal to the Citibank Base Rate plus 2.00% per month.
IV.      TERMINATION
4.1      Term and Termination . (a) This Agreement will remain in effect with respect to each Transition Service from the Closing Date until the expiration of the Transition Period for such Transition Service unless earlier terminated in accordance with this Section 4.1.
(b)      An authorized officer of either NACCO or Hyster-Yale may terminate this Agreement upon written notice to the other party if:
(i)      the other party has violated any material provision of this Agreement and such violation has not been remedied within 30 days after written notice thereof; or
(ii)      the other party has filed, or has had filed against it, a petition seeking relief under any bankruptcy, insolvency, reorganization, moratorium or similar Law affecting creditors’ rights.
(c)      An authorized officer of either NACCO or Hyster-Yale may terminate the Transition Period with respect to any Transition Service that is being provided by the other party or its Subsidiaries at any time by giving such party 30 days’ prior written notice of its intention to do so.
(d)      Authorized officers of NACCO and Hyster-Yale may terminate this Agreement by mutual written agreement.
(e)      The parties’ obligations pursuant to Sections 1.8, 3.4 and 5.2 will survive the expiration or any termination of this Agreement in accordance with its terms.
V.      MISCELLANEOUS
5.1      Warranty Disclaimer . EXCEPT AS PROVIDED IN SECTION 1.7, NONE OF THE PARTIES MAKES ANY WARRANTY CONCERNING THE TRANSITION SERVICES AND THE WARRANTY IN SUCH SECTION 1.7 IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY THAT THE SERVICES PROVIDED UNDER THIS AGREEMENT WILL BE SUFFICIENT TO ALLOW HYSTER-YALE OR NACCO TO SUCCESSFULLY TRANSITION, MANAGE OR OPERATE ITS BUSINESS.
5.2      Indemnification . (a) Subject to subsection (d) below, each party (the “ Indemnitor ”) will indemnify and hold the other party, its Subsidiaries and each of their respective stockholders, officers, directors, employees, agents and representatives and each of the successors and assigns of any of the foregoing (each, an “ Indemnitee ”) harmless from and against and will promptly defend the Indemnitees from and

5

        

reimburse the Indemnitees for any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including reasonable attorneys’ fees and other costs and expenses) (collectively, “ Damages ”), arising out of or related to (i) a breach by the Indemnitor of this Agreement and (ii) the gross negligence, bad faith or intentional misconduct of the Indemnitor in connection with the provision or receipt of Transition Services under this Agreement.
(b)      The amount of any Damages for which indemnification is provided under this Section 5.2 will be computed net of any insurance proceeds actually received by the Indemnitee pursuant to an insurance policy with respect to such Damages.
(c)      The Indemnitee must notify the Indemnitor in writing of any claim, demand, action or proceeding for which indemnification will be sought under Section 5.2(a), provided, however, that the failure to so notify shall not adversely impact the Indemnitee’s right to indemnification hereunder except to the extent that such failure to notify actually prejudices or prevents the Indemnitor’s ability to defend such claim, demand, action or proceeding. If such claim, demand, action or proceeding is a third party claim, demand, action or proceeding, the Indemnitor will have the right at its expense to assume the defense thereof using counsel reasonably acceptable to the Indemnitee. Indemnitor will notify Indemnitee whether Indemnitor so elects to assume the defense not more than five (5) business days after written notice of the claim. The Indemnitee will have the right (i) to participate, at its own expense, with respect to any such third party claim, demand, action or proceeding that is being defended by the Indemnitor, and (ii) to assume the defense of such third party claim, demand, action or proceeding, at the cost and expense of the Indemnitor if the Indemnitor fails or ceases to defend the same. In connection with any such third party claim, demand, action or proceeding, the parties will cooperate with each other and provide each other with access to relevant books and records in their possession. If a firm written offer is made to the Indemnitor to settle any such third party claim, demand, action or proceeding solely in exchange for monetary sums to be paid by the Indemnitor (and such settlement contains a complete release of the Indemnitee and its Subsidiaries and their respective directors, officers and employees) and the Indemnitor proposes to accept such settlement and the Indemnitee refuses to consent to such settlement, then (i) the Indemnitor will be excused from, and the Indemnitee will be solely responsible for, all further defense of such third party claim, demand, action or proceeding, (ii) the maximum liability of the Indemnitor relating to such third party claim, demand, action or proceeding will be the amount of the proposed settlement if the amount thereafter recovered from the Indemnitee on such third party claim, demand, action or proceeding is greater than the amount of the proposed settlement, and (iii) the Indemnitee will pay all reasonable attorneys’ fees and legal costs and expenses incurred by Indemnitee after rejection of such settlement by the Indemnitee; provided , however , that if the amount thereafter recovered by such third party from the Indemnitee is less than the amount of the proposed settlement, the Indemnitee will be reimbursed by the Indemnitor for such attorneys’ fees and legal costs and expenses up to a maximum amount equal to the difference between the amount recovered by such third party and the amount of the proposed settlement.

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(d)      No party will be entitled to recover any consequential, indirect, special or punitive damages (including lost profits or lost revenues) arising out of the matters covered by this Agreement, regardless of the form of the claim or action, including claims or actions for indemnification, tort, breach of contract, warranty, representation or covenant.
(e)      The Indemnitees’ rights to indemnification as set forth in this Section 5.2 will be their exclusive remedy with respect to any Damages arising out of the matters covered by this Agreement other than to terminate this Agreement as set forth in Section 4.1(b). Each Indemnitee hereto will be entitled to indemnification for Damages sustained in accordance with the provisions of this Section 5.2 regardless of any Law or public policy that would limit or impair the right of the party to recover indemnification under the circumstances.
5.3      Relationship of Parties . Each of Hyster-Yale, NACCO and their respective Subsidiaries will for all purposes be deemed to be an independent contractor with respect to the provision of Transition Services hereunder, will not be considered (nor will any of their directors, officers, employees, contractors or agents be considered) an agent, employee, commercial representative, partner, franchisee or joint venturer of any other party and will have no duties or obligations beyond those expressly provided in this Agreement and the Separation Agreement with respect to the provision of Transition Services. No party will have any authority, absent express written permission from the other party, to enter into any agreement, assume or create any obligations or liabilities, or make representations on behalf of any other party. The provision of the Transition Services shall not alter the classification of, or the compensation and employee benefits provided to the NACCO Employees or the Hyster-Yale Employees. The NACCO Employees shall be employed solely by NACCO or its Subsidiaries, and the Hyster-Yale Employees shall be employed solely by Hyster-Yale or its Subsidiaries. Neither the NACCO Employees nor the Hyster-Yale Employees shall be entitled to any additional compensation for the provision of the Transition Services.
5.4      Interpretation . (a) When a reference is made in this Agreement to Sections or Schedules, such reference will be to a Section of or Schedule to this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.” Unless the context otherwise requires, (i) “or” is disjunctive but not necessarily exclusive, (ii) words in the singular include the plural and vice versa, (iii) the use in this Agreement of a pronoun in reference to a party hereto includes the masculine, feminine or neuter, as the context may require, and (iv) terms used herein which are defined in GAAP have the meanings ascribed to them therein. All Schedules hereto will be deemed part of this Agreement and included in any reference to this Agreement. This Agreement will not be interpreted or construed to require any party to take any action, or fail to take any action, if to do so would violate any applicable Law.
(b)      All parties have participated in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by all parties, and no

7

        

presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
5.5      Amendment . This Agreement may be amended, modified or supplemented only by the written agreement of the parties hereto.
5.6      Waiver of Compliance . Except as otherwise provided in this Agreement, the failure by any party to comply with any obligation, covenant, agreement or condition under this Agreement may be waived by the party entitled to the benefit thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The failure of any party to enforce at any time any of the provisions of this Agreement will in no way be construed to be a waiver of any such provision, or in any way to affect the validity of this Agreement or any part hereof or the right of any party hereafter to enforce each and every such provision. No waiver of any breach of such provisions will be held to be a waiver of any other or subsequent breach.
5.7      Notices . All notices required or permitted pursuant to this Agreement must be given as set forth in the Separation Agreement.
5.8      Third Party Beneficiaries . Except as otherwise provided in this Agreement, nothing in this Agreement, expressed or implied, is intended to confer on any person or entity other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.
5.9      Successors and Assigns . This Agreement will be binding upon and will inure to the benefit of the signatories hereto and their respective successors and permitted assigns. No party may assign this Agreement, or any of its rights or liabilities hereunder, without the prior written consent of the other party hereto, and any attempt to make any such assignment without such consent will be null and void. Any such assignment will not relieve the party making the assignment from any liability under this Agreement.
5.10      Severability . The illegality or partial illegality of any or all of this Agreement, or any provision hereof, will not affect the validity of the remainder of this Agreement, or any provision hereof, and the illegality or partial illegality of this Agreement will not affect the validity of this Agreement in any jurisdiction in which such determination of illegality or partial illegality has not been made, except in either case to the extent such illegality or partial illegality causes this Agreement to no longer contain all of the material provisions reasonably expected by the parties to be contained herein.
5.11      Governing Law . This Agreement will be governed by and construed in accordance with the internal Laws of the State of Delaware applicable to contracts made and wholly performed within such state, without regard to any applicable conflict of Laws principles.

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5.12      Submission to Jurisdiction; Waivers . Each party irrevocably agrees that any legal action or proceeding with respect to this Agreement, the transactions contemplated hereby, any provision hereof, the breach, performance, validity or invalidity hereof or for recognition and enforcement of any judgment in respect hereof brought by another party hereto or its successors or permitted assigns may be brought and determined in any federal or state court located in the State of Delaware, and each party hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each party hereby 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, the transactions contemplated hereby, any provision hereof or the breach, performance, enforcement, validity or invalidity hereof, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable Laws, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper, or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
5.13      Force Majeure . None of the parties will be liable to any other party for failure to perform or delays in performing any part of the Transition Services if such failure or delay results from an act of God, war, terrorism, revolt, revolution, sabotage, actions of a Governmental Entity, Laws, regulations, embargo, fire, strike, other labor trouble or any other cause or circumstance beyond the control of such party other than financial difficulties of the other party. Upon the occurrence of any such event which results in, or will result in, delay or failure to perform according to the terms of this Agreement, each party will promptly give notice to the other parties of such occurrence and the effect and/or anticipated effect of such occurrence. All parties will use their reasonable efforts to minimize disruptions in their performance, to resume performance of their obligations under this Agreement as soon as practicable and to assist the other parties in obtaining, at their sole expense, an alternative source for the affected Transition Services and the receiving party will be released from any payment obligation to the performing party with respect to the affected Transition Services during the period of such force majeure; provided , however , the resolution of any strike or labor trouble will be within the sole discretion of the performing party.
5.14      Counterparts . This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and will become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that each party need not sign the same counterpart.
5.15      Entire Agreement . This Agreement (including the documents and the instruments referred to in this Agreement) and the Separation Agreement, constitute the

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entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement.

[SIGNATURES ON FOLLOWING PAGE]


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IN WITNESS WHEREOF, each of the signatories hereto has caused this Agreement to be signed by its duly authorized officer as of the date first above written.
NACCO INDUSTRIES, INC.
By: /s/ J.C. Butler, Jr.    
Name: J.C. Butler, Jr.
Title: Vice President, Corporate Development and Treasurer
HYSTER-YALE MATERIALS HANDLING, INC.
By: /s/ Alfred M. Rankin, Jr.    
Name: Alfred M. Rankin, Jr.
Title: Chairman, President and Chief Executive Officer



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Schedule A
Transition Services To Be Performed by NACCO and Its Subsidiaries

Description of Transition Service
Monthly Fee(s)
Contact Person / Successor Contact Person*
Tax Support
$5,000
Jehanna Francis-Sable
IT operating system support services for Hyster-Yale
$1,000 plus a proportionate share of any third party costs incurred to separate IT systems, including the Global Compliance Contract and the Concur Contract
TBD
Accounting Support
$1,000
Tom Maxwell

*NACCO may designate a successor contact person upon written notice to Hyster-Yale.



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Schedule B
Transition Services To Be Performed by Hyster-Yale

Description of Transition Service
Monthly Fee(s)
Contact Person / Successor Contact Person*
 
General Accounting Support, including SEC
$
25,000

Ken Schilling/Jennifer Langer
 
Tax Compliance and Consulting Support
$
30,000

Greg Breier
 
Internal Audit – Consulting; Advisory and Audit Services
$
5,000

Ed Wilcox
 
IT operating system support services for NACCO
$1,000 plus a proportionate share of any third party costs incurred to separate IT systems, including the Global Compliance Contract and Concur Contract
John Bartho
 
Public Company Legal Support (SEC, NYSE, Sarbanes-Oxley, etc.)
$
5,000

Chuck Bittenbender/Suzy Taylor
 
Employee Benefit and HR Legal and Consulting Support
$
10,000

Mary Maloney
 
Compensation Support
$
5,000

JoAnn Morano
 


*Hyster-Yale may designate a successor contact person upon written notice to NACCO.




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Exhibit 10.9



TAX ALLOCATION AGREEMENT
BY AND BETWEEN
NACCO INDUSTRIES, INC.
AND
HYSTER-YALE MATERIALS HANDLING, INC.
Dated September 28, 2012
 



TABLE OF CONTENTS


 
 
Page
 
 
 
ARTICLE 1
DEFINITIONS
2

1.1
General
2

 
 
 
ARTICLE 2
PREPARATION, FILING AND PAYMENT OF TAXES AND REFUNDS SHOWN ON TAX RETURNS
8

2.1
Responsibility of Parties to Prepare and File Pre-Closing Income Tax Returns and Straddle Period Income Tax Returns
8

2.2
Tax Return Procedures
9

2.3
Post-Closing Income Tax Returns and Non-Income Tax Returns
10

2.4
Timing of Payments to Taxing Authority
10

2.5
Expenses
10

2.6
Coordination with Article 4
10

 
 
 
ARTICLE 3
PAYMENT OF TAXES AND INDEMNIFICATION
11

3.1
Payment and Indemnification by Parent
11

3.2
Payment and Indemnification by HY
11

3.3
Timing of Tax Payments
11

3.4
Characterization of and Adjustments to Payments
11

 
 
 
ARTICLE 4
REFUNDS, CARRYBACKS, AMENDMENTS AND TAX ATTRIBUTES
12

4.1
Refunds
12

4.2
Carrybacks
12

4.3
Amended Tax Returns
14

4.4
Tax Attributes
15

 
 
 
ARTICLE 5
TAX PROCEEDINGS
15

5.1
Notification of Tax Proceedings
15

5.2
Tax Proceeding Procedures
15

5.3
Tax Proceeding Cooperation
16

5.4
Correlative Adjustments
16

 
 
 
ARTICLE 6
TAX-FREE STATUS OF THE TRANSACTIONS
17

6.1
Representations and Warranties
17

6.2
Limits on Proposed Acquisition Transactions and Other Transactions During Restriction Period
18

6.3
Tax Counsel Advance Conflict Waiver
20

 
 
 
ARTICLE 7
COOPERATION
20


i


TABLE OF CONTENTS


 
 
Page
 
 
 
7.1
General Cooperation
20

7.2
Retention of Records
20

 
 
 
ARTICLE 8
MISCELLANEOUS
21

8.1
Dispute Resolution
21

8.2
Tax Sharing Agreements
21

8.3
Interest on Late Payments
21

8.4
Survival of Covenants
22

8.5
Termination
22

8.6
Severability
22

8.7
Entire Agreement; Exclusivity
22

8.8
Successors and Assigns
22

8.9
Third-Party Beneficiaries
23

8.10
Specific Performance
23

8.11
Amendment
23

8.12
Rules of Construction
23

8.13
Counterparts
23

8.14
Coordination with the Separation Agreement
24

8.15
Effective Date
24

8.16
Governing Law
24

8.17
Force Majeure
24

8.18
Notices
24

8.19
No Circumvention
25

8.20
No Duplication; No Double Recovery
25



ii




TAX ALLOCATION AGREEMENT

THIS TAX ALLOCATION AGREEMENT (this “ Agreement ”), dated as of September 28, 2012, is by and between NACCO Industries, Inc. (“ Parent ”), a Delaware corporation, and NMHG Holding Co. (“ HY ”), a Delaware corporation. Each of Parent and HY is sometimes referred to herein as a “ Party ” and, collectively, as the “ Parties .”
WHEREAS, Parent, through its various subsidiaries, is engaged in the Parent Business and the Lift Truck Business;
WHEREAS, the board of directors of Parent has determined that it is in the best interests of Parent and its shareholders to separate and operate the Lift Truck Business as a publicly traded company;
WHEREAS, in furtherance of the foregoing, HY was merged (or will have merged, prior to the effectiveness of this Agreement) with and into NMHG Holding Co., a Delaware corporation and wholly owned Subsidiary of Parent and the name of the surviving corporation was changed to Hyster-Yale Materials Handling, Inc. (the “Merger”), as more fully described in the Separation Agreement;
WHEREAS, Parent intends, following the Merger, to contribute to HY certain assets related to the Lift Truck Business in exchange for the assumption by HY of liabilities associated with the Lift Truck Business and deemed additional equity of HY (the “Contribution”);
WHEREAS, Parent intends, following the Contribution, to distribute to holders of Parent Common Stock all of the outstanding shares of HY Common Stock by means of a distribution on the basis of one share of HY Class A Common Stock and one share of HY Class B Common Stock for every one share of Parent Class A Common Stock or Parent Class B Common Stock (the “ Distribution ”), and the board of directors of Parent has approved such Distribution;
WHEREAS, for U.S. federal income tax purposes, (i) the Merger is intended to qualify for tax-free treatment under Sections 332 and 337 of the Code and (ii) the Contribution and the Distribution, taken together, are intended to qualify as a reorganization that is described in Sections 355(a) and 368(a)(1)(D) of the Code;
WHEREAS, Parent anticipates receiving an opinion of McDermott Will & Emery LLP to the effect that the Contribution and the Distribution, taken together, will qualify a reorganization that is described in Sections 355(a) and 368(a)(1)(D) of the Code;
WHEREAS, prior to consummation of the Merger, the Contribution, and the Distribution, Parent will be the common parent corporation of an affiliated group of corporations within the meaning of Section 1504 of the Code that includes NMHG and HY; and
WHEREAS, the Parties wish to (a) provide for the payment of Tax liabilities and entitlement to refunds thereof, allocate responsibility for, and cooperation in, the filing of Tax Returns, and provide for certain other matters relating to Taxes, and (b) set forth certain covenants and indemnities relating to the preservation of the tax-free status of the Merger, the Contribution, and the Distribution.

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NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1      General . As used in this Agreement, the following terms shall have the following meanings:
Accounting Firm ” has the meaning set forth in Section 8.1(b) of this Agreement.
Acting Party ” has the meaning set forth in Section 6.2(b).
Adjustment ” means any change in the Tax liability of a taxpayer, determined issue-by-issue or transaction-by-transaction, as the case may be.
Aggregate Carryback Amount ” has the meaning set forth in Section 4.2(c).
Agreement ” has the meaning set forth in the preamble to this Agreement.
Benefited Party ” has the meaning set forth in Section 4.1(b) of this Agreement.
Carryback Amount ” has the meaning set forth in Section 4.2(c).
Coal Mining Business ” has the meaning set forth in the Tax Representation Letter.
Code ” means the Internal Revenue Code of 1986, as amended from time to time.
Contribution ” has the meaning set forth in the preamble to this Agreement.
Counsel ” means McDermott Will & Emery LLP.
Disqualifying Action ” means a Parent Disqualifying Action or a HY Disqualifying Action.
Distribution ” has the meaning set forth in the preamble to this Agreement.
Distribution Date ” means the date on which the Distribution occurs.
Distribution Taxes ” means any Taxes imposed on or by reason of the Merger, the Contribution, or the Distribution (including Transfer Taxes), other than any such Taxes caused by a Disqualifying Action. For the avoidance of doubt, Distribution Taxes include Taxes by reason of deferred intercompany transactions triggered by the Merger, the Contribution, or the Distribution.
Due Date ” means (i) with respect to a Tax Return, the date (taking into account all valid extensions) on which such Tax Return is required to be filed under applicable Law and (ii) with respect to a payment of Taxes, the date on which such payment is required to be made to avoid the incurrence of interest, penalties and/or additions to Tax.
Extraordinary Transaction ” means any action that is not in the Ordinary Course of Business, but shall not include any action described in the Separation Agreement or that is undertaken pursuant to the Merger, the Contribution, or the Distribution.

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Fifty-Percent or Greater Interest ” has the meaning ascribed to such term by Section 355(d)(4) of the Code.
Final Determination ” means the final resolution of liability for any Tax for any taxable period, by or as a result of (i) a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed; (ii) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the entire Tax liability for any taxable period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund or credit may be recovered by the jurisdiction imposing the Tax; or (iv) any other final resolution, including by reason of the expiration of the applicable statute of limitations or the execution of a pre-filing agreement with the IRS or other Taxing Authority.
HY ” has the meaning set forth in the preamble to this Agreement.
HY Allocable Portion ” means, with respect to a Mixed Business Income Tax Return filed after the Distribution Date for either a Pre-Closing Period or Straddle Period, the amount of Taxes due and payable attributable to HY or any HY Entity, calculated on a “with and without basis” consistent with Past Practice.
HY Class A Common Stock ” has the meaning set forth in the Separation Agreement.
HY Class B Common Stock ” has the meaning set forth in the Separation Agreement.
HY Common Stock ” means the HY Class A Common Stock and the HY Class B Common Stock.
HY Disqualifying Action ” means (i) any action (or the failure to take any action) by HY or any HY Entity (including entering into any agreement, understanding or arrangement or any negotiations with respect to any transaction or series of transactions), or (ii) any event (or series of events) involving the capital stock of HY, any assets of HY or any assets of any HY Entity that, in each case, negates the Tax-Free Status of the Transactions in whole or in part, regardless of whether such act or failure to act (x) is covered by a Post-Distribution Ruling or an Unqualified Tax Opinion, or (y) occurs during or after the Restriction Period; provided , however , the term “HY Disqualifying Action” shall not include any action described in the Separation Agreement or that is undertaken pursuant to the Merger, the Contribution, or the Distribution.
HY Entity ” means any Subsidiary of HY immediately after the effective time of the Distribution.
HY Group ” means, individually or collectively, as the case may be, HY and any HY Entity.
HY Indemnified Parties ” has the meaning set forth in the Separation Agreement.
HY Percentage ” means the percentage determined by dividing (i) the average total value of the HY Common Stock for the five business days following the Distribution Date, computed for each day by averaging the intraday high and intraday low trading price of the HY Class A Common Stock and multiplying such amount by the total number of shares of HY Common Stock outstanding on such day, by (ii) the sum of (x) the amount determined in clause (i) and (y)

3



the average total value of the Parent Common Stock for the five business days following the Distribution Date, computed for each day by averaging the intraday high and intraday low trading price of the Parent Class A Common Stock and multiplying such amount by the total number of shares of Parent Common Stock outstanding on such day.
HY Taxes ” means, without duplication, (i) any Taxes imposed on Parent (or any of its Subsidiaries) or HY (or any of its Subsidiaries) attributable to a HY Disqualifying Action, (ii) the HY Percentage of any Taxes imposed on Parent (or any of its Subsidiaries) or HY (or any of its Subsidiaries) attributable to both a HY Disqualifying Action and a Parent Disqualifying Action, (iii) the HY Percentage of any Distribution Taxes imposed on Parent (or any of its Subsidiaries), (iv) the HY Allocable Portion of any Mixed Business Income Taxes in respect of a Mixed Business Income Tax Return governed by Section 2.2(a), (v) any Taxes in respect of any Single Business Tax Return required to be filed by HY or any HY Entity pursuant to Section 2.2(b)(ii), and (vi) any Taxes in respect of any Post-Closing Tax Return or Non-Income Tax Return required to be filed by HY or any HY Entity pursuant to Section 2.3. For the avoidance of doubt, HY Taxes shall not include any Taxes solely attributable to a Parent Disqualifying Action.
Income Tax Return ” means any Tax Return relating to Income Taxes.
Income Taxes ” means any Taxes based upon, measured by, or calculated with respect to: (A) net income or profits or net receipts (including, but not limited to, any capital gains, minimum Tax or any Tax on items of Tax preference, but not including sales, use, real or personal property, or transfer or similar Taxes) or (B) multiple bases (including corporate franchise, doing business and occupation Taxes) if one or more bases upon which such Tax may be based, measured by, or calculated with respect to, is described in clause (A).
Indemnifying Party ” means the Party from which the other Party is entitled to seek indemnification pursuant to the provisions of Article 3.
Indemnified Party ” means the Party which is entitled to seek indemnification from the other Party pursuant to the provisions of Article 3.
Information ” has the meaning set forth in Section 7.1(a).
Information Request ” has the meaning set forth in Section 7.1(a).
IRS ” means the U.S. Internal Revenue Service or any successor thereto, including, but not limited to, its agents, representatives, and attorneys.
Law ” means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, treaty, law, ordinance, regulation, rule, code, administrative pronouncement, order, requirement or rule of law (including common law).
LIBOR ” means the London InterBank Offered Rate as published in the Wall Street Journal.
Lift Truck Business ” has the meaning set forth in the Tax Representation Letter.
Merger ” has the meaning set forth in the preamble to this Agreement.
Mixed Business Income Taxes ” means any U.S. federal, state or local, or foreign Income Taxes attributable to any Mixed Business Income Tax Return.

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Mixed Business Income Tax Return ” means any Income Tax Return including any consolidated, combined or unitary Income Tax Return, that relates to at least one asset or activity that is part of the Parent Business, on the one hand, and at least one asset or activity that is part of the Lift Truck Business, on the other hand.
NMHG ” has the meaning set forth in the preamble to this Agreement.
Non-Acting Party ” has the meaning set forth in Section 6.2(b).
Non-Income Tax Return ” means any Tax Return relating to Taxes other than Income Taxes.
Opinion ” means the opinion of Counsel with respect to certain Tax aspects of the Merger, the Contribution, and the Distribution.
Ordinary Course of Business ” means an action taken by a Person only if such action is taken in the ordinary course of the normal day-to-day operations of such Person.
Parent ” has the meaning set forth in the preamble to this Agreement.
Parent Business ” means the business or businesses conducted by Parent or any of its Subsidiaries before the Distribution other than the Lift Truck Business.
Parent Class A Common Stock ” has the meaning set forth in the Separation Agreement.
Parent Class B Common Stock ” has the meaning set forth in the Separation Agreement.
Parent Common Stock ” means the Parent Class A Common Stock and the Parent Class B Common Stock.
Parent Disqualifying Action ” means (i) any action (or the failure to take any action) within its control by Parent or any Parent Entity (including entering into any agreement, understanding or arrangement or any negotiations with respect to any transaction or series of transactions), or (ii) any event (or series of events) involving the capital stock of Parent, any assets of Parent or any assets of any Parent Entity that, in each case, negates the Tax-Free Status of the Transactions in whole or in part, regardless of whether such act or failure to act (x) is covered by a Post-Distribution Ruling or an Unqualified Tax Opinion, or (y) occurs during or after the Restriction Period; provided , however , the term “Parent Disqualifying Action” shall not include any action described in the Separation Agreement or that is undertaken pursuant to the Merger, the Contribution, or the Distribution.
Parent Entity ” means any Subsidiary of Parent immediately after the Distribution Date.
Parent Group ” means, individually or collectively, as the case may be, Parent and any Parent Entity.
Parent Indemnified Parties ” has the meaning set forth in the Separation Agreement.
Parent Taxes ” means any Taxes of Parent or any Subsidiary or former Subsidiary of Parent for any Pre-Closing Period and, with respect to a Straddle Period, the portion of such period ending on the Distribution Date (determined in accordance with Section 2.2(a)), in each case other than HY Taxes.
Party ” has the meaning set forth in the preamble to this Agreement.

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Past Practice ” has the meaning set forth in Section 2.2(a).
Person ” has the meaning set forth in the Separation Agreement.
Post-Closing Income Tax Returns ” means, collectively, all Income Tax Returns required to be filed by a Party or any of its Subsidiaries for a Post-Closing Period.
Post-Closing Period ” means any taxable period (or portion thereof) beginning after the Distribution Date.
Post-Distribution Ruling ” has the meaning set forth in Section 6.2(b).
Pre-Closing Income Tax Returns ” means, collectively, all Income Tax Returns required to be filed by a Party or any of its Subsidiaries for a Pre-Closing Period.
Pre-Closing Period ” means any taxable period (or portion thereof) ending on or before the Distribution Date.
Proposed Acquisition Transaction ” means a transaction or series of transactions (or any agreement, understanding, arrangement, or substantial negotiations within the meaning of Section 355(e) of the Code and Treasury Regulation Section 1.355-7, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by the applicable Party’s management or shareholders, is a hostile acquisition, or otherwise, as a result of which such Party would merge or consolidate with any other Person or as a result of which one or more Persons would (directly or indirectly) acquire, or have the right to acquire, from such Party and/or one or more holders of outstanding shares of such Party’s capital stock, as the case may be, a number of shares of such Party’s capital stock that would, when combined with any other changes in ownership of such Party’s capital stock pertinent for purposes of Section 355(e) of the Code, comprise 35% or more of (A) the value of all outstanding shares of stock of such Party as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (B) the total combined voting power of all outstanding shares of voting stock of such Party as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series.  Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (A) the adoption by a Party of a shareholder rights plan or (B) issuances by a Party that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulation Section 1.355-7(d).  For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders.  This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly.  Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated in this definition and its interpretation.
Refund ” means any refund (or credit in lieu thereof) of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied to other Taxes payable), including any interest paid on or with respect to such refund of Taxes, provided, however, that for purposes of this Agreement, the amount of any Refund required to be paid to another Party

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shall be reduced by the net amount of any Income Taxes imposed on, related to, or attributable to, the receipt or accrual of such Refund determined based on the assumptions set forth in Section 3.4.
Restriction Period ” means the period beginning at the effective time of the Distribution and ending on the two-year anniversary of the day after the Distribution Date.
Section 6.2(c) Acquisition Transaction ” means any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 25% instead of 35%.
Separation Agreement ” means the Separation Agreement by and between the Parties dated as of September 28, 2012.
Single Business Tax Return ” means any Tax Return including any consolidated, combined or unitary Tax Return, that includes assets or activities relating only to the Parent Business, on the one hand, or the Lift Truck Business, on the other (but not both), whether or not the Person charged by Law to file such Tax Return is engaged in the business to which the Tax Return relates.
Straddle Period ” means any taxable period that begins on or before and ends after the Distribution Date.
Straddle Period Income Tax Returns ” mean, collectively, all Income Tax Returns required to be filed by a Party or any of its Subsidiaries for a Straddle Period.
Subsidiary ” has the meaning set forth in the Separation Agreement.
Tax ” means (i) all taxes, charges, fees, duties, levies, imposts, or other similar assessments, imposed by any U.S. federal, state or local or foreign governmental authority, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added, goods and services, consumption, and other taxes, (ii) any interest, penalties or additions attributable thereto and (iii) all liabilities in respect of any items described in clauses (i) or (ii) payable by reason of assumption, transferee or successor liability, operation of Law or Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law).
Tax Attribute ” means a net operating loss, net capital loss, tax credit, earnings and profits, overall foreign loss, separate limitation loss, previously taxed income, or any item of income, gain, loss, deduction, credit, recapture or other item that may have the effect of increasing or decreasing any Income Tax paid or payable.
Tax Benefit ” means the reduction in Taxes resulting from the payment by a Party (or its Subsidiaries) of amounts that are indemnified by the other Party under this Agreement or the Separation Agreement.
Tax-Free Status of the Transactions ” means the tax-free treatment accorded to the Contribution and the Distribution as set forth in the Opinion.

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Taxing Authority ” means any governmental authority or any subdivision, agency, commission or entity thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).
Tax Materials ” has the meaning set forth in Section 6.1(a).
Tax Matter ” has the meaning set forth in Section 7.1(a)(i).
Tax Package ” means all relevant Tax-related information relating to the operations of the Parent Business or the Lift Truck Business, as applicable, that is reasonably necessary to prepare and file the applicable Tax Return.
Tax Proceeding ” means any audit, assessment of Taxes, pre-filing agreement, other examination by any Taxing Authority, proceeding, appeal of a proceeding or litigation relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.
Tax Representation Letter ” means any letter containing certain representations and covenants issued by Parent or any of its Subsidiaries to Counsel in connection with the Opinion.
Tax Return ” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the payment, determination, assessment or collection of any Tax or the administration of any Laws relating to any Tax and any amended Tax return or claim for refund.
Transfer Taxes ” means all sales, use, transfer, real property transfer, intangible, recordation, registration, documentary, stamp or similar Taxes imposed on the Merger, the Contribution, or the Distribution.
Treasury Regulations ” means the final and temporary (but not proposed) Income Tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Unqualified Tax Opinion ” means a reasoned “will” opinion, without qualifications, of a nationally recognized law firm to the effect that a transaction will not affect the Tax-Free Status of the Transactions. For purposes of this definition, an opinion is reasoned if it describes the reasons for the conclusions and includes the facts, assumptions, and supporting legal analysis.
U.S. ” means the United States of America.
ARTICLE 2
PREPARATION, FILING AND PAYMENT OF
TAXES AND REFUNDS SHOWN ON TAX RETURNS
2.1      Responsibility of Parties to Prepare and File Pre-Closing Income Tax Returns and Straddle Period Income Tax Returns .
(a)      Parent Income Tax Returns . Parent shall prepare and file (or cause a Parent Entity to prepare and file) all Income Tax Returns set forth on Schedule 2.1(a) , and shall

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pay (or cause such Parent Entity to pay) all Taxes shown to be due and payable on such Income Tax Returns.
(b)      HY Income Tax Returns . HY shall prepare and file (or cause a HY Entity to prepare and file) all Income Tax Returns set forth on Schedule 2.1(b), and shall pay (or cause such HY Entity to pay) all Taxes shown to be due and payable on such Income Tax Returns.
2.2      Tax Return Procedures .
(a)      Mixed Business Income Tax Returns .
(i)      In connection with the preparation of any Mixed Business Income Tax Return pursuant to Section 2.1, HY will assist and cooperate with Parent by preparing and providing to Parent pro forma Tax Returns for HY and any HY Entity to be included in such Mixed Business Income Tax Return at least ninety (90) days before the Due Date of such Tax Return. Pro forma Tax Returns shall be prepared in accordance with Parent’s past practices, accounting methods, elections and conventions (“ Past Practice ”), unless otherwise required by Law or agreed to in writing by Parent. At its option and expense, Parent may engage an Accounting Firm of its choice to review the pro forma Tax Return, supporting documentation, and statements submitted by HY and in connection therewith, shall determine whether such Tax Return was prepared in accordance with Past Practice. Prior to engaging such Accounting Firm, Parent shall provide the suggested scope for such accounting review to HY for review and discussion.
(ii)      Parent shall prepare all Mixed Business Income Tax Returns consistent with Past Practice, the Opinion, and the Tax Representation Letter unless otherwise required by Law or agreed to in writing by HY. In the event that there is no Past Practice for reporting a particular item or matter, (x) Parent shall determine the reporting of such item or matter provided that such determination is, in the reasonable opinion of Parent, at least more likely than not to be sustained and provided further that, (y) in respect to any item or matter excluded from (i), Parent and HY shall agree as to the reporting of such item.
(iii)      In connection with any Mixed Business Income Tax Return pursuant to Section 2.1(a), no later than forty-five (45) days prior to the Due Date of each such Tax Return, Parent shall make available or cause to be made available drafts of such Tax Return (together with all related work papers) to HY. HY shall have access to any and all data and information necessary for the preparation of all such Mixed Business Income Tax Returns and the Parties shall cooperate fully in the preparation and review of such Tax Returns. Subject to the preceding sentence, no later than fifteen (15) days after receipt of such Mixed Business Income Tax Returns, HY shall have a right to object to such Mixed Business Income Tax Return (or items with respect thereto) by written notice to Parent; such written notice shall contain such disputed item (or items) and the basis for its objection. HY shall pay to Parent no later than five (5) days prior to the Due Date of each such Tax Return the HY Allocable Portion of Taxes shown as due and payable on such Mixed Business Tax Return (net of any prepayment made against such amount).

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(iv)      With respect to a Mixed Business Income Tax Return delivered by Parent to HY pursuant to Section 2.2(a)(iii), if HY does not object by proper written notice described in Section 2.2(a)(iii), such Mixed Business Income Tax Return shall be deemed to have been accepted and agreed upon, and to be final and conclusive, for purposes of this Section 2.2(a)(iv). If HY does object by proper written notice described in Section 2.2(a)(iii), Parent and HY shall act in good faith to resolve any such dispute as promptly as practicable; provided , however , that, notwithstanding anything to the contrary contained herein, if Parent and HY have not resolved the disputed item or items by the day five (5) days prior to the Due Date of such Mixed Business Income Tax Return, such Tax Return shall be filed as prepared pursuant to this Section 2.2(a) (revised to reflect all initially disputed items that Parent and HY have agreed upon prior to such date). In the event that a Mixed Business Income Tax Return is filed that includes any disputed item for which proper notice was given pursuant to Section 2.2(a)(iii) that was not finally resolved and agreed upon, such disputed item (or items) shall be resolved in accordance with Section 8.1 (interpreted without regard to the requirement that the Accounting Firm render a determination no later than the Due Date of the Tax Return at issue). In the event that the resolution of such disputed item (or items) in accordance with Section 8.1 with respect to a Mixed Business Income Tax Return is inconsistent with such Mixed Business Income Tax Return as filed, Parent (with cooperation from HY, if necessary) shall, as promptly as practicable, amend such Tax Return to properly reflect the final resolution of the disputed item (or items). In the event that the amount of Taxes shown to be due and owing on a Mixed Business Income Tax Return is adjusted as a result of a resolution pursuant to this Section 2.2(a)(iv), proper adjustment shall be made to the amounts previously paid or required to be paid in a manner that reflects such resolution.
(b)      Single Business Tax Returns .
(i)      Parent shall prepare and file (or cause a Parent Entity to prepare and file) any Single Business Tax Return for a Pre-Closing Period or a Straddle Period required to be filed by Parent or a Parent Entity and shall pay, or cause such Parent Entity to pay, all Taxes shown to be due and payable on such Tax Return. For the avoidance of doubt, the Single Business Tax Returns subject to this Section 2.2(b)(i) shall be set forth on Schedule 2.1(a).
(ii)      HY shall prepare and file (or cause a HY Entity to prepare and file) any Single Business Tax Return for a Pre-Closing Period or a Straddle Period required to be filed by HY or a HY Entity and shall pay, or cause such HY Entity to pay, all Taxes shown to be due and payable on such Tax Return. For the avoidance of doubt, the Single Business Tax Returns subject to this Section 2.2(b)(ii) shall be set forth on Schedule 2.1(b).
2.3      Post-Closing Income Tax Returns and Non-Income Tax Returns . The Party or its Subsidiary responsible under applicable Law for filing a Post-Closing Income Tax Return or a Non-Income Tax Return shall prepare and timely file or cause to be prepared and timely filed that Tax Return (at that Party’s own cost and expense) and shall pay all Taxes shown to be due and payable on such Post-Closing Tax Return or Non-Income Tax Return.
2.4      Timing of Payments to Taxing Authority . All Taxes required to be paid or caused to be paid by either Parent, a Parent Entity, HY or a HY Entity, as the case may be, to an

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applicable Taxing Authority, shall be paid on or before the Due Date for the payment of such Taxes.
2.5      Expenses . Except as provided otherwise herein, each Party shall bear its own expenses incurred in connection with this Article 2.
2.6      Coordination with Article 4 . This Article 2 shall not apply to any amended Tax Returns, such amended Tax Returns being governed by Article 4.
ARTICLE 3
PAYMENT OF TAXES AND INDEMNIFICATION
3.1      Payment and Indemnification by Parent . Parent shall pay, and shall indemnify and hold the HY Indemnified Parties harmless from and against, without duplication, (i) all Parent Taxes, (ii) all Taxes incurred by HY or any HY Entity by reason of the breach by Parent of any of its representations, warranties or covenants hereunder, and (iii) any costs and expenses related to the foregoing (including reasonable attorneys’ fees and expenses).
3.2      Payment and Indemnification by HY . HY shall pay, and shall indemnify and hold the Parent Indemnified Parties harmless from and against, without duplication, (i) all HY Taxes, (ii) all Taxes incurred by Parent or any Parent Entity by reason of the breach by HY of any of its representations, warranties or covenants hereunder, and (iii) any costs and expenses related to the foregoing (including reasonable attorneys’ fees and expenses).
3.3      Timing of Tax Payments . Unless otherwise provided in this Agreement, in the event that an Indemnifying Party is required to make a payment to an Indemnified Party pursuant to this Agreement, the Indemnified Party shall deliver written notice of the payments to the Indemnifying Party, including proof of payment to the Taxing Authority, in accordance with Section 8.18 on the last day of the calendar quarter in which the obligation giving rise to the indemnification payment must be satisfied, and the Indemnifying Party shall be required to make payment to the Indemnified Party within ten (10) days after notice of such payment is delivered to the Indemnifying Party.
3.4      Characterization of and Adjustments to Payments .
(a)      For all Tax purposes, Parent and HY agree to treat (i) any payment required by this Agreement (other than payments of expenses, interest pursuant to Section 8.3, and any item described in (ii) below) as a payment of an assumed or retained liability, as the case may be, or as either a contribution by Parent to HY or a distribution by HY to Parent, as the case may be, occurring immediately prior to the Distribution Date and (ii) any payment (x) of Taxes to or Refunds received from a Taxing Authority which either gives rise to a tax deduction or taxable income, or (y) of interest, as tax deductible, or includible in, taxable income, as the case may be, to the Party entitled under this Agreement to retain such payment or required under this Agreement to make such payment, in either case, except as otherwise required by applicable Law.

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(b)      Any indemnity payment under this Article 3 or the Separation Agreement shall be increased to take into account any inclusion in income of the Indemnified Party arising from the receipt of such indemnity payment and shall be decreased to take into account any reduction in income of the Indemnified Party arising from the payment by the Indemnified Party of such indemnified liability. For purposes hereof, any inclusion or reduction shall be determined (i) using the highest applicable marginal U.S. federal corporate income tax rate in effect at the time of the determination (and excluding any state income tax effect of such inclusion or reduction) and (ii) assuming that the Indemnified Party will be liable for Taxes at such rate, has sufficient taxable income to use any tax deduction, and has no Tax Attributes at the time of the determination.
ARTICLE 4
REFUNDS, CARRYBACKS, AMENDMENTS AND TAX ATTRIBUTES
4.1      Refunds .
(a)      Except as provided in Section 4.2, Parent shall be entitled to all Refunds of Taxes for which Parent is or may be liable pursuant to Article 3, and HY shall be entitled to all Refunds of Taxes for which HY is or may be liable pursuant to Article 3. A Party receiving a Refund to which the other Party is entitled pursuant to this Agreement shall pay the amount to which such other Party is entitled within ten (10) days after the receipt of the Refund.
(b)      Notwithstanding Section 4.1(a), to the extent that a Party applies or causes to be applied an overpayment of Taxes as a credit toward or a reduction in Taxes otherwise payable (or a Taxing Authority requires such application in lieu of a Refund) and such overpayment of Taxes, if received as a Refund, would have been payable by such Party to the other Party pursuant to this Section 4.1, such Party shall pay such amount to the other Party no later than the Due Date of the Tax Return for which such overpayment is applied to reduce Taxes otherwise payable.
(c)      In the event of an Adjustment relating to Taxes for which one Party is or may be liable pursuant to Article 3 which would have given rise to a Refund but for an offset against the Taxes for which the other Party is or may be liable pursuant to Article 3 (the “ Benefited Party ”), then the Benefited Party shall pay to the other Party, within ten (10) days of the Final Determination of such Adjustment an amount equal to the lesser of (i) the amount of such hypothetical Refund or (ii) the amount of such reduction in the Taxes of the Benefited Party, in each case plus interest at the rate set forth in Section 6621(a)(1) of the Code on such amount for the period from the filing date of the Tax Return that would have given rise to such Refund to the payment date to the other Party.
(d)      To the extent that the amount of any Refund under this Section 4.1 is later reduced by a Taxing Authority or as the result of a Tax Proceeding, such reduction shall be allocated to the Party that was entitled to such Refund pursuant to this Section 4.1 and an appropriate adjusting payment shall be made by such Party to the other Party if the other Party originally paid the Refund to such Party. For the avoidance of doubt, this Section 4.1(d) is intended to make whole the other Party that was not entitled to the Refund.

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4.2      Carrybacks .
(a)      Each Party shall be permitted (but not required) to carry back (or to cause its Subsidiaries to carry back) a loss, credit, or other Tax Attribute realized in a Post-Closing Period or a Straddle Period to a Pre-Closing Period or a Straddle Period; provided , however , that if such carryback would reasonably be expected to adversely impact the other Party (including through an increase in Taxes or a loss or reduction in the utilization of a loss, credit, or other Tax Attribute regardless of whether or when such loss, credit, or other Tax Attribute otherwise would have been used), such carryback shall not be permitted without first obtaining the prior written consent of such other Party, which consent shall not be unreasonably withheld or delayed.
(b)     
(i)      Subject to Sections 4.2(c) and 4.2(d), in the event that any member of the HY Group chooses to (or is required to under applicable Law), and is permitted to under Section 4.2(a), carry back a loss, credit, or other Tax Attribute, Parent shall cooperate with HY and such member in seeking from the appropriate Taxing Authority any Refund that reasonably would result from a permitted carryback (including by filing an amended Tax Return) at HY’s cost and expense. HY (or such member) shall be entitled to any Refund realized by any member of the Parent Group or HY Group as a result of the carryback reduced by the value of any additional Tax Attributes allocable to any member of the HY Group as a result of the carryback. For purposes of the preceding sentence, the value of additional Tax Attributes shall be computed by assuming that they can be immediately and fully utilized by the HY Group
(ii)      Subject to Sections 4.2(c) and 4.2(d), in the event that any member of the Parent Group chooses to (or is required to under applicable Law), and is permitted to under Section 4.2(a), carry back a loss, credit, or other Tax Attribute, HY shall cooperate with Parent and such member in seeking from the appropriate Taxing Authority any Refund that reasonably would result from a permitted carryback (including by filing an amended Tax Return) at Parent’s cost and expense. Parent shall be entitled to any Refund realized by any member of the HY Group or Parent Group as a result of the carryback reduced by the value of any additional Tax Attributes allocable to any member of the Parent Group as a result of the carryback. For purposes of the preceding sentence, the value of additional Tax Attributes shall be computed by assuming that they can be immediately and fully utilized by the Parent Group.
(c)      Except as otherwise provided by applicable Law, if any loss, credit or other Tax Attribute of the Parent Business and the Lift Truck Business both would be eligible to be carried back or carried forward to the same Pre-Closing Period (had such carryback been the only carryback to such taxable period) (such amount for each of Parent Business and the Lift Truck Business separately referred to as the “ Carryback Amount ” and the sum of both amounts returned to as the “ Aggregate Carryback Amount ”), any Refund resulting therefrom shall be allocated between Parent and HY proportionately based on the ratio of the Parent Business Carryback Amount to the Aggregate Carryback Amount and the Lift Truck Business Carryback Amount to the Aggregate Carryback Amount, respectively, would have been entitled had such carryback been the only carryback to such taxable period. Appropriate adjustments to the allocation of any Refund under the preceding sentence shall be made if the carryback results in

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any additional Tax Attributes being allocated to the Parent Group or the HY Group (for example, under the regulations applicable to U.S. federal consolidated income tax returns) to the extent necessary to cause the Parent Group, on the one hand, and the HY Group, on the other hand, to proportionately benefit from such carryback.
(d)      To the extent the amount of any Refund under this Section 4.2 is later reduced by a Tax Authority or a Tax Proceeding, such reduction shall be allocated to the Party to which such Refund was allocated pursuant to this Section 4.2.
4.3      Amended Tax Returns .
(a)      Mixed Business Income Tax Returns . Parent shall, in its sole discretion, be permitted to amend or file, or to cause HY or any HY Entity to amend or file (and HY shall, if Parent so chooses, amend or file or cause the applicable HY Entity to amend or file), any Mixed Business Income Tax Return for a Pre-Closing Period or a Straddle Period; provided , however , that unless otherwise required by a Final Determination, Parent shall not be permitted to so amend or file any such Mixed Business Income Tax Return to the extent that any such amendment or filing (i) would reasonably be expected to materially adversely impact HY (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), (ii) would be inconsistent with Past Practice, or (iii) would be inconsistent with the Opinion or Tax Representation Letter, in each case without the prior written consent of HY, which consent shall not be unreasonably withheld or delayed. If requested in writing by HY at least sixty (60) days prior to the expiration of the applicable statute of limitations, Parent shall amend or file any Mixed Business Income Tax Return for a Pre-Closing Period or a Straddle Period to reflect changes proposed by HY; provided , however , that HY shall reimburse Parent for all reasonable out-of-pocket costs and expenses incurred by Parent in amending or filing such Mixed Business Income Tax Return; provided , further , that unless otherwise required by a Final Determination, Parent shall not be required to so amend or file any such Mixed Business Income Tax Return to the extent that any such amendment or filing (i) would reasonably be expected to materially adversely impact Parent (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), (ii) would be inconsistent with Past Practice, or (iii) would be inconsistent with the Opinion or Tax Representation Letter.
(b)      Non-Income Tax Returns and Single Business Tax Returns .
(i)      Parent . Parent shall, in its sole discretion, be permitted to amend or file (or cause or permit to be amended) any Non-Income Tax Return or Single Business Tax Return that was filed by Parent (or any Parent Entity) pursuant to Section 2.2(b)(i) or Section 2.3 for a Pre-Closing Period or Straddle Period; provided , however , that if Parent wishes to amend or file any such Tax Return for which HY may be liable for Taxes pursuant to this Agreement, then, unless otherwise required by Law or a Final Determination, Parent shall not be permitted to so amend or file (or cause or permit to be amended or filed) any such Non-Income Tax Return or Single Business Tax Return, as the case may be, to the extent that any such amendment (i) would reasonably be expected to impact HY (through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been

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used), (ii) would be inconsistent with Past Practice, or (iii) would be inconsistent with the Opinion or Tax Representation Letter, in each case without the prior written consent of HY, which consent shall not be unreasonably withheld or delayed.
(ii)      HY . HY shall, in its sole discretion, be permitted to amend or file (or cause or permit to be amended) any Non-Income Tax Return or Single Business Tax Return that was filed by HY (or any HY Entity) pursuant to Section 2.2(b)(ii) or Section 2.3 for a Pre-Closing Period or Straddle Period; provided , however , that if HY wishes to amend or file any such Tax Return for which Parent may be liable for Taxes pursuant to this Agreement, then, unless otherwise required by Law or a Final Determination, HY shall not be permitted to so amend or file (or cause or permit to be amended or filed) any such Non-Income Tax Return or Single Business Tax Return, as the case may be, to the extent that any such amendment (i) would reasonably be expected to impact Parent (through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), (ii) would be inconsistent with Past Practice, or (iii) would be inconsistent with the Opinion or Tax Representation Letter, in each case without the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed.
(c)      Post-Closing Income Tax Returns . A Party (or its Subsidiary) that files a Post-Closing Income Tax Return pursuant to Section 2.3 shall be permitted to amend such Post-Closing Income Tax Return without the consent of the other Party.
4.4      Tax Attributes .
(a)      Tax Attributes arising in a Pre-Closing Period shall be allocated to the Parent Group and the HY Group in accordance with the Code and Treasury Regulations (and any applicable state, local and foreign Law). Parent and HY shall jointly determine the allocation of such Tax Attributes arising in Pre-Closing Periods as soon as reasonably practicable following the Distribution Date, and shall compute all Taxes for Post-Closing Periods consistently with that determination unless otherwise required by a Final Determination.
(b)      Except as otherwise provided herein, to the extent that the amount of any Tax Attribute is later reduced or increased by a Taxing Authority or as a result of a Tax Proceeding, such reduction or increase shall be allocated to the Party to which such Tax Attribute was allocated pursuant to Section 4.4(a).
ARTICLE 5     

TAX PROCEEDINGS
5.1      Notification of Tax Proceedings . Within ten (10) days after an Indemnified Party (or its Subsidiary) becomes aware of the commencement of a Tax Proceeding that may give rise to Taxes for which an Indemnifying Party is responsible pursuant to Article 3, such Indemnified Party shall provide notice to the Indemnifying Party of such Tax Proceeding, and thereafter shall promptly forward or make available to the Indemnifying Party copies of notices and communications relating to such Tax Proceeding. The failure of the Indemnified Party to provide

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notice to the Indemnifying Party of the commencement of any such Tax Proceeding within such ten (10)-day period or promptly forward any further notices or communications shall not relieve the Indemnifying Party of any obligation which it may have to the Indemnified Party under this Agreement except to the extent that the Indemnifying Party is actually prejudiced by such failure.
5.2      Tax Proceeding Procedures . The Indemnifying Party, in its sole discretion, and at its own expense, shall be entitled to control, administer, contest, litigate, compromise and settle any Adjustment proposed, asserted or assessed pursuant to any Tax Proceeding for which the Indemnifying Party is responsible pursuant to Article 3 and any such actions taken by the Indemnifying Party shall be made diligently and in good faith; provided that , the Indemnifying Party shall keep the Indemnified Party informed in a timely manner of all actions proposed to be taken by the Indemnifying Party and shall permit the Indemnified Party to comment in advance on the Indemnifying Party’s oral or written submissions with respect to such Tax Proceeding; provided further that, if such Adjustment (or any actions proposed to be taken with respect thereto) would reasonably be expected to give rise to Taxes in a Post-Closing Period of the Indemnified Party in an amount of $100,000, determined on an annual basis, then, the Indemnifying Party shall (a) prepare all correspondence or filings to be submitted to any Taxing Authority or judicial authority in a manner consistent with the Tax Return, which is the subject of such Adjustment, as filed and timely provide the Indemnified Party with copies of any such correspondence or filings for the Indemnified Party’s prior review and comment, (b) provide the Indemnified Party with written notice reasonably in advance of, and the Indemnified Party shall have the right to attend and participate in, any formally scheduled meetings with any Taxing Authority or hearings or proceedings before any judicial authority with respect to such Adjustment, (c) not enter into any settlement with any Taxing Authority with respect to such Adjustment without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld and (d) not contest such Adjustment before a judicial authority unless (A) such Adjustment would reasonably be expected to give rise to Taxes payable by the Indemnifying Party in an amount greater than $100,000 or (B) the Indemnifying Party has received an opinion of a nationally recognized law firm that it is more likely than not to prevail on the merits.
5.3      Tax Proceeding Cooperation . The Parties shall act in good faith and use their reasonable best efforts to cooperate fully with the other Party (and its Subsidiaries) in connection with such Tax Proceeding and shall provide or cause their Subsidiaries to provide such information to each other as may be necessary or useful with respect to such Tax Proceeding in a timely manner, identify and provide access to potential witnesses, and other persons with knowledge and other information within its control and reasonably necessary to the resolution of the Tax Proceeding. The Indemnified Party shall (and shall cause its Subsidiaries to) execute and deliver to the Indemnifying Party any power of attorney or other document reasonably requested by the Indemnifying Party in connection with any Tax Proceeding described in Section 5.1. Any extension of the statute of limitations for any Taxes or a Tax Return for any Pre-Closing Period or a Straddle Period shall be made by the Indemnified Party at the request of the Indemnifying Party.

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5.4      Correlative Adjustments . If as a result of a Final Determination, a Party (or its Subsidiary) becomes entitled to an increase of an item of deduction, loss, or credit (or a reduction of an item of income or gain) that is included in a Pre-Closing Period or the portion of a Straddle Period ending on the Distribution Date, and another Party (or its Subsidiary) suffers a correlative disallowance of an item of deduction, loss, or credit (or an increase of an item of income or gain) that is included in a Pre-Closing Period or the portion of a Straddle Period ending on the Distribution Date, the former Party shall pay any amount it actually realizes as a result of the Tax benefit to the latter Party, but only to the extent of the latter Party’s detriment. For purposes of this Section 5.4, the computation of any Tax benefit, on the one hand, and Tax detriment, on the other hand, shall be made taking into account any increase or decrease in Tax Attributes allocable to the Parent Group and the HY Group as a result of the Final Determination described in this Section 5.4.
ARTICLE 6
TAX-FREE STATUS OF THE TRANSACTIONS
6.1      Representations and Warranties .
(a)      HY . HY hereby represents and warrants or covenants and agrees, as appropriate, that
(i)      it has examined (A) the Opinion, (B) the Tax Representation Letter, and (C) any other materials delivered or deliverable by Parent or HY in connection with the rendering by Counsel of the Opinion (all of the foregoing, collectively, the “ Tax Materials ”),
(ii)      the facts presented and the representations made therein, to the extent descriptive of the HY Group (including the business purposes for the Merger, the Contribution, and the Distribution as described in the Opinion and the other Tax Materials to the extent that they relate to the HY Group and the plans, proposals, intentions and policies of the HY Group), are, or will be from the time presented or made through and including the Distribution Date and thereafter as relevant, true, correct and complete in all respects,
(iii)      it knows of no fact (after due inquiry) that may negate the Tax-Free Status of the Transactions, and
(iv)      neither it, nor any of its Subsidiaries, has any plan or intent to take any action which is inconsistent with any statements or representations made in the Tax Materials.
(b)      Parent . Parent hereby represents and warrants or covenants and agrees, as appropriate, that
(i)      it has examined the Tax Materials,
(ii)      it has delivered complete and accurate copies of the Tax Materials to HY, and the facts presented and the representations made therein, to the extent descriptive of

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the Parent Group (including the business purposes for the Merger, the Contribution, and the Distribution as described in the Opinion, and the other Tax Materials to the extent that they relate to the Parent Group and the plans, proposals, intentions and policies of the Parent Group), are, or will be from the time presented or made through and including the Distribution Date and thereafter as relevant, true, correct and complete in all respects,
(iii)      it knows of no fact (after due inquiry) that may negate the Tax-Free Status of the Transactions, and
(iv)      neither it, nor any of its Subsidiaries, has any plan or intent to take any action which is inconsistent with any statements or representations made in the Tax Materials.
6.2      Limits on Proposed Acquisition Transactions and Other Transactions During Restriction Period .
(a)      During the Restriction Period, Parent and HY:
(i)      shall continue and cause to be continued the active conduct of the Coal Mining Business and the Lift Truck Business, in each case taking into account Section 355(b)(3) of the Code and as conducted immediately prior to the Distribution;
(ii)      shall not voluntarily dissolve, liquidate, or partially liquidate (including any action that is treated as a liquidation for federal Income Tax purposes);
(iii)      shall not enter into any Proposed Acquisition Transaction or, approve any Proposed Acquisition Transaction, or permit any Proposed Acquisition Transaction to occur;
(iv)      shall not redeem or otherwise repurchase (directly or through an Affiliate) any stock, or rights to acquire stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 as in effect prior to the amendment of such Revenue Procedure by Revenue Procedure 2003-48 ( provided , however , that the fact that any such redemption or repurchase satisfies Section 4.05(1)(b) of Revenue Procedure 96-30 shall not prevent such redemption or repurchase from being considered, or taken into account for purposes of another transaction constituting, a Proposed Acquisition Transaction, in which case clause (iii) shall apply);
(v)      shall not amend its certificate of incorporation (or other organizational documents), or take any other action or approve or permit the taking of any action, whether through a stockholder vote or otherwise, affecting the relative voting rights of the capital stock (including through the conversion of any capital stock into another class of capital stock);
(vi)      shall not issue shares of a new class of nonvoting stock;
(vii)      shall not merge or consolidate with any other Person; provided , however , that if Parent or HY acquires equity of another Person in a transaction that is not

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otherwise described in clauses (i) through (vi), (viii), or (ix) of this Section 6.2(a), then the merger or consolidation of such Person with and into Parent or HY (with Parent or HY surviving), as applicable, shall not constitute a merger or consolidation described in this clause (vii);
(viii)      shall not sell, transfer, or otherwise dispose of or agree to, sell, transfer or otherwise dispose of (including in any transaction treated for U.S. federal Income Tax purposes as a sale, transfer or disposition, and including any sale, transfer or other disposition to an Subsidiary or otherwise) assets (including, any shares of capital stock of a Subsidiary) that, in the aggregate, constitute more than 35% of its consolidated gross or net assets.  The foregoing sentence shall not apply to (A) sales, transfers, or dispositions of assets in the Ordinary Course of Business, (B) any cash paid to acquire assets from an unrelated Person in an arm’s-length transaction, (C) any assets transferred to a Person that is disregarded as an entity separate from the transferor for U.S. federal Income Tax purposes or (D) any mandatory or optional repayment (or pre-payment) of any indebtedness of such company.  The percentages of consolidated gross and net assets sold, transferred, or otherwise disposed of, shall be based on the fair market value of the gross or net assets, as the case may be, of Parent and HY, as applicable, as of the Distribution Date.  For purposes of this Section 6.2(a)(viii), a merger of Parent or HY with and into any Person shall constitute a disposition of all of the assets of Parent or HY, respectively;
(ix)      shall not take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation made in the Tax Materials) which in the aggregate (and taking into account any other transactions described in this Section 6.2(a)) would be reasonably likely to have the effect of causing or permitting one or more Persons (whether or not acting in concert) to acquire directly or indirectly stock representing a Fifty-Percent or Greater Interest in Parent or HY or otherwise jeopardize the Tax-Free Status of the Transactions.
(b)      Notwithstanding the restrictions imposed by Section 6.2(a), during the Restriction Period, Parent and HY shall be permitted to take such action or one or more actions set forth in the foregoing clauses (i) through (ix), if, prior to taking any such actions, the Party taking the action (the “ Acting Party ”) set forth in the foregoing clauses (i) through (ix) shall (1) have received a favorable private letter ruling from the IRS, or a ruling from another appropriate Taxing Authority that confirms that such action or actions will not affect the Tax-Free Status of the Transactions, taking into account such actions and any other relevant transactions in the aggregate (a “ Post-Distribution Ruling ”), in form and substance satisfactory to the other Party (the “ Non-Acting Party ”), or (2) have received an Unqualified Tax Opinion that confirms that such action or actions will not affect the Tax-Free Status of the Transactions, or (3) the Non-Acting Party shall have waived in writing the requirement to obtain such ruling or opinion.  In determining whether a ruling or opinion is satisfactory, the Non-Acting Party shall exercise its discretion, in good faith, solely to preserve the Tax-Free Status of the Transactions and may consider, among other factors, the appropriateness of any underlying assumptions or representations used as a basis for the ruling or opinion and the Non-Acting Party’s views on the substantive merits of such ruling or opinion.  The Acting Party shall provide a copy of the Post-Distribution Ruling or the Unqualified Tax Opinion described in this paragraph to the Non-

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Acting Party as soon as practicable prior to taking or failing to take any action set forth in the foregoing clause (i) through (ix).  The Acting Party shall bear all costs and expenses of securing any such Post-Distribution Ruling or Unqualified Tax Opinion and shall reimburse the Non-Acting Party for all reasonable out-of-pocket costs and expenses that the Non-Acting Party may incur in good faith in seeking to obtain or evaluate any such Post-Distribution Ruling or Unqualified Tax Opinion.
(c)      Certain Issuances of Capital Stock .  If a Party proposes to enter into any Section 6.2(c) Acquisition Transaction or, to the extent such Party has the right to prohibit any Section 6.2(c) Acquisition Transaction, proposes to permit any Section 6.2(c) Acquisition Transaction to occur, in each case, during the Restriction Period, such Party shall provide the other Party, no later than ten (10) days following the signing of any written agreement with respect to any such Section 6.2(c) Acquisition Transaction, with a written description of such transaction (including the type and amount of such Party’s capital stock to be issued in such transaction).
6.3      Tax Counsel Advance Conflict Waiver . Unless prohibited by Law or the ethical rules applicable to attorneys, each of the Parties agrees to waive or to cause its Affiliates to waive in advance any conflicts that must be waived in order to permit McDermott Will & Emery LLP or Jones Day to (i) evaluate whether a Party’s proposed action or actions constitute any of the actions described in clauses (i) through (ix) in Section 6.2(a) or (ii) issue any Unqualified Tax Opinion to be obtained by a Party pursuant to this Article 6.
ARTICLE 7
COOPERATION
7.1      General Cooperation .
(a)      The Parties shall each cooperate fully (and each shall cause its respective Subsidiaries to cooperate fully) with all reasonable requests in writing (“ Information Request ”) from another Party hereto, or from an agent, representative or advisor to such Party, in connection with the preparation and filing of Tax Returns (including the preparation of Tax Packages), claims for Refunds, Tax Proceedings, and calculations of amounts required to be paid pursuant to this Agreement, in each case, related or attributable to or arising in connection with Taxes of any of the Parties or their respective Subsidiaries covered by this Agreement and the establishment of any reserve required in connection with any financial reporting (a “ Tax Matter ”). Such cooperation shall include the provision of any information reasonably necessary or helpful in connection with a Tax Matter (“ Information ”) and shall include, without limitation, at each Party’s own cost:
(i)      the provision of any Tax Returns of the Parties and their respective Subsidiaries, books, records (including information regarding ownership and Tax basis of property), documentation and other information relating to such Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;

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(ii)      the execution of any document (including any power of attorney) in connection with any Tax Proceedings of any of the Parties or their respective Subsidiaries, or the filing of a Tax Return or a Refund claim of the Parties or any of their respective Subsidiaries;
(iii)      the use of the Party’s reasonable best efforts to obtain any documentation in connection with a Tax Matter; and
(iv)      the use of the Party’s reasonable best efforts to obtain any Tax Returns (including accompanying schedules, related work papers, and documents), documents, books, records or other information in connection with the filing of any Tax Returns of any of the Parties or their Subsidiaries.
Each Party shall make its employees, advisors, and facilities available, without charge, on a reasonable and mutually convenient basis in connection with the foregoing matters.
7.2      Retention of Records . Parent and HY shall retain or cause to be retained all Tax Returns, schedules and workpapers, and all material records or other documents relating thereto in their possession, until sixty (60) days after the expiration of the applicable statute of limitations (including any waivers or extensions thereof) of the taxable periods to which such Tax Returns and other documents relate or until the expiration of any additional period that any Party reasonably requests, in writing, with respect to specific material records or documents. A Party intending to destroy any material records or documents shall provide the other Party with reasonable advance notice and the opportunity to copy or take possession of such records and documents. The Parties hereto will provide notice to each other in writing of any waivers or extensions of the applicable statute of limitations that may affect the period for which the foregoing records or other documents must be retained.
ARTICLE 8
MISCELLANEOUS
8.1      Dispute Resolution .
(a)      Except as otherwise provided herein, in the event of any dispute between the Parties as to any matter covered by this Agreement, the dispute shall be governed by the procedures set forth in Section 8.1(b) of this Agreement.
(b)      With respect to any dispute governed by this Section 8.1(b), the Parties shall appoint a nationally recognized independent public accounting firm (the “ Accounting Firm ”) to resolve such dispute. In this regard, the Accounting Firm shall make determinations with respect to the disputed items based solely on representations made by Parent and HY and their respective representatives, and not by independent review, and shall function only as an expert and not as an arbitrator and shall be required to make a determination in favor of one Party only. The Parties shall require the Accounting Firm to resolve all disputes no later than forty-five (45) days after the submission of such dispute to the Accounting Firm, but in no event later than the Due Date for the payment of Taxes or the filing of the applicable Tax Return, if applicable, and agree that all decisions by the Accounting Firm with respect thereto shall be final and conclusive and binding on the Parties. The Accounting Firm shall resolve all disputes in a

21



manner consistent with this Agreement and, to the extent not inconsistent with this Agreement, in a manner consistent with the Past Practices of Parent and its Subsidiaries, except as otherwise required by applicable Law. The Parties shall require the Accounting Firm to render all determinations in writing and to set forth, in reasonable detail, the basis for such determination. The fees and expenses of the Accounting Firm shall be paid by the non-prevailing Party.
8.2      Tax Sharing Agreements . All Tax sharing, indemnification and similar agreements, written or unwritten, as between Parent, on the one hand, and HY or a HY Entity, on the other (other than this Agreement), shall be or shall have been terminated no later than the effective time of the Distribution and, after the effective time of the Distribution, none of Parent, HY or a HY Entity shall have any further rights or obligations under any such Tax sharing, indemnification or similar agreement.
8.3      Interest on Late Payments . With respect to any payment between the Parties pursuant to this Agreement not made by the due date set forth in this Agreement for such payment, the outstanding amount will accrue interest at a rate per annum equal to the 1-month LIBOR plus 350 basis points.
8.4      Survival of Covenants . Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date and remain in full force and effect in accordance with their applicable terms, provided, however, that the representations and warranties and all indemnification for Taxes shall survive until ninety (90) days following the expiration of the applicable statute of limitations (taking into account all extensions thereof), if any, of the Tax that gave rise to the indemnification, provided, further, that, in the event that notice for indemnification has been given within the applicable survival period, such indemnification shall survive until such time as such claim is finally resolved.
8.5      Termination . Notwithstanding any provision to the contrary, this Agreement may be terminated at any time prior to the Distribution Date by and in the sole discretion of Parent without the prior approval of any Person, including HY. In the event of such termination, this Agreement shall become void and no Party, or any of its officers and directors shall have any liability to any Person by reason of this Agreement. After the Distribution Date, this Agreement may not be terminated except by an agreement in writing signed by each of the Parties to this Agreement.
8.6      Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or as a matter of public policy, all other conditions and provisions of this Agreement shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties to this Agreement shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner.
8.7      Entire Agreement; Exclusivity . Except as otherwise expressly provided in this Agreement, this Agreement (including the Schedules thereto) constitutes the entire agreement of the Parties hereto with respect to the subject matter of this Agreement and supersedes all prior

22



agreements and undertakings, both written and oral, between or on behalf of the Parties hereto with respect to the subject matter of this Agreement. Except as specifically set forth in the Separation Agreement, all matters related to Taxes or Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by this Agreement. In the event of a conflict between this Agreement and the Separation Agreement with respect to such matters, this Agreement shall govern and control.
8.8      Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns; provided , however , that the rights and obligations of either Party under this Agreement shall not be assignable by such Party without the prior written consent of the other Party. The successors and permitted assigns hereunder shall include any permitted assignee as well as the successors in interest to such permitted assignee (whether by merger, liquidation (including successive mergers or liquidations) or otherwise).
8.9      Third-Party Beneficiaries . Except as provided in Article 3 with respect to the HY Indemnified Parties and the Parent Indemnified Parties, this Agreement is for the sole benefit of the Parties to this Agreement and their respective Subsidiaries and their permitted successors and assigns and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
8.10      Specific Performance . Subject to the provisions of Section 8.1, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party who is or is to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief (on an interim or permanent basis) of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by the Parties to this Agreement.
8.11      Amendment . No provision of this Agreement may be amended or modified except by a written instrument signed by the Parties to this Agreement. No waiver by any Party of any provision of this Agreement shall be effective unless explicitly set forth in writing and executed by the Party so waiving. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach.
8.12      Rules of Construction . Interpretation of this Agreement shall be governed by the following rules of construction: (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires; (ii) references to the terms Article, Section, paragraph, clause, Exhibit and Schedule are references to the Articles, Sections, paragraphs, clauses, exhibits and schedules of this Agreement unless otherwise specified; (iii) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits

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hereto; (iv) references to “$” shall mean U.S. dollars; (v) the word “including” and words of similar import when used in this Agreement shall mean “including without limitation,” unless otherwise specified; (vi) the word “or” shall not be exclusive; (vii) references to “written” or “in writing” include in electronic form; (viii) provisions shall apply, when appropriate, to successive events and transactions; (ix) the table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (x) Parent and HY have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; and (xi) a reference to any Person includes such Person’s successors and permitted assigns.
8.13      Counterparts . This Agreement may be executed in one or more counterparts each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or portable document format (PDF) shall be as effective as delivery of a manually executed counterpart of any such Agreement. 
8.14      Coordination with the Separation Agreement. To the extent any covenants or agreements between the Parties with respect to employee withholding Taxes are set forth in the Separation Agreement, such Taxes shall be governed exclusively by the Separation Agreement and not by this Agreement.
8.15      Effective Date . This Agreement shall become effective only upon the occurrence of the Distribution.
8.16      Governing Law . This Agreement shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of Laws principles of the State of Delaware.
8.17      Force Majeure . No party hereto (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (i) notify the other Party of the nature and extent of any such Force Majeure condition and (ii) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement as soon as feasible.
8.18      Notices . All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed, by electronic mail with receipt confirmed or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following

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addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8.18 ):
If to Parent, to:
NACCO Industries, Inc.
5875 Landerbrook Dr., Suite 200
Cleveland, OH 44124
Attention:    Frank Brown
        
EMail:    Brown@naccoind.com

if to HY:
Hyster-Yale Materials Handling, Inc.
5875 Landerbrook Dr., Suite 300
Cleveland, OH 44124
Attention:    Greg Breier
        
EMail:    Greg.Breier@nmhg.com

8.19      No Circumvention . Each Party agrees not to directly or indirectly take any actions, act in concert with any Person who takes any action, or cause or allow any of its Subsidiaries to take any actions (including the failure to take any reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification or payment pursuant to the provisions of this Agreement).
8.20      No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer or impose upon any Party a duplicative right, entitlement, obligation, or recovery with respect to any matter arising out of the same facts and circumstances.
[ The remainder of this page is intentionally left blank .]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

NACCO Industries, Inc.
Hyster-Yale Materials Handling, Inc.
 
 
Name:  /s/ Charles A. Bittenbender
Name:  /s/ Suzanne S. Taylor
Title:  Vice President
Title:  Associate General Counsel and Assistant Secretary


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Schedule 2.1(a) Parent Income Tax Returns
All Pre-Closing Period or Straddle Period U.S. federal Income Tax Returns of Parent and its subsidiaries.
All U.S. state Income Tax Returns and non-U.S. Income Tax Returns required to be filed by Parent or any Parent Entity.

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Schedule 2.1(b) HY Income Tax Returns
All U.S. state Income Tax Returns and non-U.S. Income Tax Returns required to be filed by HY or any HY Entity.

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Exhibit 10.11



CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.  PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED HAVE BEEN MARKED WITH THREE ASTERISKS [***] AND A FOOTNOTE INDICATING “CONFIDENTIAL TREATMENT REQUESTED”.  MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.





COTEAU LIGNITE SALES AGREEMENT
dated as of January 1, 1990
by and between
THE COTEAU PROPERTIES COMPANY
and
DAKOTA COAL COMPANY










1


CONTENTS



























2



Exhibits
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
EXHIBIT E
EXHIBIT F
EXHIBIT G
EXHIBIT H


















3


COTEAU LIGNITE SALES AGREEMENT
THIS COTEAU LIGNITE SALES AGREEMENT (Agreement) dated as of January 1, 1990, is by and between THE COTEAU PROPERTIES COMPANY, an Ohio corporation authorized to do business in the State of North Dakota (Coteau) and DAKOTA COAL COMPANY, a North Dakota corporation (Dakota).
W I T N E S S E T H :
WHEREAS, Coteau is a party to the Restatement of Coal Sales Agreement dated as of June 1, 1979, as subsequently amended (the Coal Sales Agreement), by and between Coteau and ANG Coal Gasification Company (ANG);
WHEREAS, as of November 1, 1988, ANG assigned, and Dakota assumed, all of ANG's rights, interests and obligations pursuant to and under the Coal Sales Agreement;
WHEREAS, Dakota has entered into an agreement entitled “Coal Sales Agreement” dated as of November 1, 1988 with Basin Electric Power Cooperative (Basin Electric) pursuant to which Dakota is selling lignite to Basin Electric for use by Basin Electric in its Antelope Valley Station, which consists of two 450 MW generating units and is located near Beulah, North Dakota;
WHEREAS, Dakota has also entered into the Coal Supply Agreement dated as of November 1, 1988 with Dakota Gasification Company (DGC) pursuant to which Dakota is selling lignite to DGC for use by DGC in its Great Plains Coal Gasification Plant, the first phase of which consists of a Lurgi lignite gasification facility with the capability of producing approximately 160 MMSCF of pipeline quality synthetic natural gas per day and is located on a site adjacent to Basin Electric's Antelope Valley Station;
WHEREAS, Dakota may enter into another agreement with Basin Electric or an Affiliate (as hereinafter defined) of Basin Electric pursuant to which Dakota will supply to Basin Electric all of the lignite to be used by Basin Electric in any expansion of the electrical generating capability at the Antelope Valley Station;
WHEREAS, Dakota may enter into another agreement with DGC or an Affiliate of DGC pursuant to which Dakota will supply to DGC all of the lignite used by DGC in any expansion of the Great Plains Coal Gasification Plant;
WHEREAS, Dakota intends to enter into another agreement with Basin Electric or an Affiliate of Basin Electric pursuant to which Dakota will supply to Basin Electric or an Affiliate of Basin Electric the portion of the lignite used at Basin Electric's Leland Olds Station, which consists of a 215 MW generating unit and a 440 MW generating unit and is located near Stanton, North Dakota, which is not supplied by the Glenharold Mine;
WHEREAS, Dakota hopes to enter into agreements with other third parties pursuant to which Dakota will provide all or a portion of the lignite used by said third parties' facilities; and
WHEREAS, in light of the foregoing, the Coal Sales Agreement is being terminated by Coteau and Dakota simultaneously in connection with the execution and delivery of this Agreement, and Coteau and Dakota desire that this Agreement supersede and replace the Coal Sales Agreement.

4


NOW, THEREFORE, Coteau and Dakota agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1      Definitions . As used in this Agreement, the following terms shall have the following meanings:
Additional Dedicated Lignite shall mean those lignite reserves in the areas outside of the Primary Dedicated Lignite which, pursuant to Section 3.3 hereof, are made part of the Dedicated Lignite pursuant to this Agreement by being hereafter (a) acquired or held by Dakota or an Affiliate of Dakota, which then are acquired by, or transferred or subleased to Coteau or (b) acquired by Coteau at the direction of Dakota.
Affiliate shall mean any other person who, directly or indirectly, through ownership of securities, contract or otherwise, controls, is controlled by or is under common control with another person.
Agreed Profit shall have the meanings ascribed to the term in Sections 5.4, 5.5 and 5.7 hereof.
ANG shall mean ANG Coal Gasification Company, a Delaware corporation authorized to do business in the State of North Dakota and a second tier wholly owned subsidiary of Basin Electric.
Basic Agreement shall mean the Basic Agreement dated March 6, 1973, between North American Coal and Michigan Wisconsin Pipe Line Company. Pursuant to an Assignment Agreement dated July 1, 1975, Michigan Wisconsin Pipe Line Company assigned all of its rights and obligations under said Basic Agreement to American Natural Gas Production Company. Pursuant to an Assignment Agreement dated November 2, 1977, American Natural Gas Production Company assigned all of its rights and obligations under said Basic Agreement to WCDC. The Basic Agreement was subsequently restated pursuant to the Restatement of Basic Agreement dated as of June 1, 1979. Subsequently, the Restatement of Basic Agreement was terminated and replaced by the Coal Reserve Agreement. Pursuant to the Coal Reserve Agreement, WCDC transferred its obligations under the Restatement of Basic Agreement to ANG.
Basin Electric shall mean Basin Electric Power Cooperative, a North Dakota electric cooperative corporation.
Business Day shall mean any day other than a Saturday, Sunday or day on which banks in North Dakota or New York City are required or authorized to be closed.
Coal Reserve Agreement shall mean the Coal Reserve Agreement made and entered into as of March 2, 1987, by and among Coteau, Dakota (as successor in interest to ANG), North American Coal, The Missouri Valley Properties Company and WCDC.
Coal Sales Agreement shall mean the Restatement of Coal Sales Agreement dated as of June 1, 1979, and as subsequently amended, by and between Coteau and Dakota (as successor in interest to ANG).
Cost of Production shall have the meaning ascribed to the term in Section 5.2 hereof.
Coteau shall mean The Coteau Properties Company, an Ohio corporation authorized to do business in the State of North Dakota and a wholly owned subsidiary of North American Coal.
Coteau's Mine shall mean all mining areas developed by Coteau in the Dedicated Lignite.
Dakota shall mean Dakota Coal Company, a North Dakota corporation and a wholly owned subsidiary of Basin Electric.

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Dakota's Other Plants shall mean all additional generating units installed by Basin Electric which increase the original generating capacity of the Antelope Valley Station and all additional gasifiers as well as the incremental increased capacity achieved by replacing one or more of the existing gasifiers with a replacement gasifier having a capacity greater than the gasifier being replaced at or near the Great Plains Coal Gasification Plant.
Dakota's Plants shall mean collectively Dakota's Primary Plants, Dakota's Secondary Plant, Dakota's Other Plants and Other Plants.
Dakota's Primary Plants shall mean collectively the Antelope Valley Station, consisting of two 450 MW generating units named Units 1 and 2 and located near Beulah, North Dakota, which is controlled and operated by Basin Electric, and the Great Plains Coal Gasification Plant, the first phase of which consists of a Lurgi lignite gasification facility with the capability of producing approximately 160 MMSCF of pipeline quality synthetic natural gas per day and is located on a site adjacent to the Antelope Valley Station, which is owned and operated by DGC.
Dakota's Requirements shall mean (a) all of the coal requirements of Dakota's Primary Plants and Dakota's Other Plants, (b) except as otherwise provided by Section 2.1 hereof, the portion of the coal used at Dakota's Secondary Plant which is not supplied by the Glenharold Mine and (c) the portion of the coal requirements of Other Plants which Dakota desires Coteau to supply.
Dakota's Secondary Plant shall mean the Leland Olds Station, consisting of a 215 MW generating unit and a 440 MW generating unit, owned by Basin Electric and located near Stanton, North Dakota.
Dedicated Lignite shall mean collectively the Primary Dedicated Lignite and the Additional Dedicated Lignite.
Development Period shall mean, with respect to the development of any mining area of Coteau's Mine for Dakota's Plants, the period from the date of Dakota's written approval of the Mining Plan with respect to such mining area until such date that Dakota shall designate.
DGC shall mean Dakota Gasification Company, a North Dakota corporation and a wholly owned subsidiary of Basin Electric.
Emergency Expenditures shall mean expenditures for Coteau’s Mine which, in the reasonable judgment of Coteau, are necessary as a result of explosion, fire, flood or other emergency and the delay of which, in order to secure Dakota’s prior approval, would either jeopardize life or substantial property of Dakota or Coteau, or result in a material interruption of Couteau’s Mine production.
Escrowed Stock shall mean the one hundred (100) shares of common stock, without par value, issued and outstanding of Coteau.
Glenharold Mine shall mean the lignite reserves delineated in Exhibit A hereto which by this reference is made a part hereof.
Index shall mean the average [* * *] on the base 1982 = 100, published by the Bureau of Labor Statistics of the U.S. Department of Labor, for the twelve (12) months of said calendar year. The base for calculating changes in the Index in Subsections 5.5(a), 5.5(b) and 5.5(c) hereof shall be the Producer Price Index - All Commodities for July, 1988.
Loans and Leases shall have the meaning ascribed to the term in Section 10.1 hereof.
* * * Confidential Treatment Requested


6


Mining Plan shall mean the mining plan furnished to and approved by Dakota in accordance with Section 4.1 hereof and updated pursuant to such Section.
North American Coal shall mean The North American Coal Corporation, a Delaware corporation authorized to do business in the State of North Dakota (formerly Nortex Mining Company).
Option Agreement shall mean the Option and Put Agreement dated as of January 1, 1990, by and among Dakota, North American Coal and the State of North Dakota doing business as the Bank of North Dakota.
Other Plants shall mean any other facility owned by a third party for which Dakota shall contract to provide lignite.
Party shall mean either Coteau or Dakota as indicated by the context.
Parties shall mean Coteau and Dakota.
Premature Termination Mine Closing Costs shall have the meaning ascribed to the term in Section 14.2 hereof.
Primary Dedicated Lignite shall mean those lignite reserves within the areas of interest described in Exhibit B hereto which by this reference is made a part hereof which areas may be changed from time to time pursuant to Section 3.3 hereof.
Primary Truck Dump shall mean the facility presently located at Couteau’s Mine where mine-run lignite is dumped and subsequently crushed before delivery to the Secondary Crusher Building.
Production Payment shall have the meaning ascribed to the term in Section 5.7 hereof.
Secondary Crusher Building shall mean the building constructed by Coteau to house the secondary crusher and to accommodate the transfer of lignite from the Primary Truck Dump to Dakota’s Primary Plants.
Sub-Quality Lignite shall mean lignite with an average calorific content of less than six thousand two hundred (6,200) BTUs per pound on an as-received basis.
Such average computations shall be based upon the analyses of representative samples taken in accordance with the provisions of Subsection 5.5(d) and Section 9.1 hereof.
Ton shall mean a net ton of two thousand (2,000) pounds.
WCDC shall mean ANR Western Coal Development Company, a Delaware corporation.
ARTICLE II
SALE OF LIGNITE
Section 2.1      General . Dakota agrees to purchase and accept and Coteau agrees to sell and deliver lignite pursuant to the terms and conditions of this Agreement. Dakota shall purchase from Coteau all of Dakota’s Requirements pursuant to this Agreement; provided, however, that lignite purchased by Dakota from an Affiliate of Basin Electric from lignite reserves located in the Glenharold Mine for use at Dakota’s Secondary Plant shall be exempt from this requirement; and further provided that, if federal, state or local laws prohibit or, in the reasonable opinion of Basin Electric or an Affiliate of Basin Electric, render uneconomical the use of North Dakota lignite at Dakota’s Secondary Plant, Dakota shall have the right to purchase and use, outside of the scope of this Agreement, alternative fuels or sub-bituminous or bituminous coal at Dakota’s Secondary Plant.

7


Section 2.2      Tonnages . On a time schedule agreed to by the Parties, Dakota shall designate in writing to Coteau Dakota’s Requirements for the following calendar year, including the monthly tonnage requirements from Coteau’s Mine for each of Dakota’s Plants. Dakota shall promptly advise Coteau in writing of any material revisions and modifications to the annual designation of Dakota’s Requirements.
As necessary, Dakota shall consult with Coteau as to projected increases and decreases in Dakota’s Requirements on a long-range basis. If Dakota desires to increase the annual lignite deliveries for any calendar year by more than ten percent (10%) of the preceding year’s lignite requirements, Dakota shall provide Coteau with a written estimated schedule of Dakota’s Requirements on an annual basis for the succeeding five (5) calendar years, including the estimated deliveries from Coteau's Mine for each of Dakota’s Plants. The lignite quantities set forth in such schedule shall be within the limits of Coteau’s productive capability, provided that when any increase in estimated lignite requirements occurs which necessitates the acquisition by Coteau of additional equipment, Coteau shall not be obligated to supply such increased requirements until such time as it is able to acquire and install such additional equipment and do all other things necessary to supply such increased requirements.
Section 2.3      Rate . Scheduled deliveries shall be in approximately equal weekly amounts in each calendar year during the entire term of this Agreement, subject, however, to the right of Dakota to increase or decrease such weekly amounts pursuant to Section 2.2 hereof. The scheduling of such shipments of lignite shall be made by mutual agreement of the Parties. To the extent practicable, Coteau shall coordinate the vacation schedule at Coteau's Mine so as to accommodate the requirements of Dakota's Plants for lignite and other services provided hereunder.
Section 2.4      Point(s) of Delivery . Delivery of lignite shall be made at Dakota's Primary Plants or to such other point(s) designated in writing by Dakota to Coteau. Any transportation beyond said point(s) of delivery shall be arranged by and at the cost of Dakota.
ARTI CLE III
DESCRIPTION OF LIGNITE
Section 3.1      Lignite Quality .
The lignite to be sold and delivered hereunder shall be from Coteau's Mine and shall be mine-run lignite. Coteau shall make all reasonable efforts to avoid shipping extraneous impurities and, upon request of and reasonable written notice from Dakota, shall install lignite cleaning facilities specified by Dakota. Coteau shall not mine lignite from any area estimated by Coteau and Dakota to contain Sub-Quality Lignite unless Dakota shall have given its prior written consent.
Section 3.2      Sub-Quality Lignite.
Dakota shall have the right to reject Sub-Quality Lignite, provided that Dakota shall not have the right to reject Sub-Quality Lignite mined with its consent from an area estimated to contain Sub-Quality Lignite pursuant to Section 3.1 hereof. If Coteau delivers Sub-Quality Lignite without receiving Dakota's prior written consent pursuant to Section 3.1 hereof, Dakota shall have the right, on notice to Coteau confirmed in writing, to suspend deliveries of lignite until Coteau establishes that it will meet specifications. Any Sub-Quality Lignite so rejected and not utilized or sold by Dakota shall be excluded from the tonnages upon which Coteau's Agreed Profit is based.
Section 3.3      Dedicated Lignite.
The lignite to be sold and delivered hereunder shall be from the Dedicated Lignite. At the written direction of Dakota from time to time the geographic boundaries of the Dedicated Lignite may be modified to reflect the addition of Additional Dedicated Lignite to the Dedicated Lignite. At the written direction of Dakota from time to time the geographic boundaries of Primary Dedicated Lignite may be modified to reflect additions to the Primary Dedicated Lignite. With the mutual written approval of Coteau and Dakota, the geographic boundaries of the Dedicated Lignite may be modified from time to time to reflect deletions from the Dedicated

8


Lignite. With the mutual written approval of Coteau and Dakota, the geographic boundaries of the Primary Dedicated Lignite also may be modified from time to time to reflect deletions from the Primary Dedicated Lignite.
ARTICLE IV
MINING PLAN, FINANCIAL PROTECTION TO DAKOTA
Section 4.1      Mining Plan.
From time to time at Dakota's request, Coteau shall provide to Dakota in writing a Mining Plan to furnish Dakota's Requirements from the Dedicated Lignite. The Mining Plan shall be in accordance with sound engineering and design practices and applicable laws, rules and regulations and shall include production schedules, manpower and equipment requirements, estimated costs per Ton, time schedules for mine development, estimated dates of initial production and full production, method of operation, including method of operation of any lignite handling facilities, reclamation and permitting schedules, capital expenditure and operating cost requirements, mine design, mine projection maps, mine progression and reserve studies and such other data as may be reasonably requested by Dakota. The Mining Plan shall be in such detail and format as may be reasonably requested by Dakota. Within seventy-five (75) days after receipt by Dakota of such Mining Plan, Dakota shall give Coteau written notice of Dakota's approval or disapproval of the Mining Plan. If Dakota does not give such notice within such seventy-five (75) days, Dakota shall be deemed to have approved such Mining Plan. If Dakota disapproves the Mining Plan or any portion(s) thereof, Dakota shall state in detail in its notice of disapproval the reason(s) for such disapproval and Coteau and Dakota shall meet promptly and attempt in good faith to settle their differences with respect to the Mining Plan. If Coteau and Dakota are unable to resolve their differences within thirty (30) days after Coteau's receipt from Dakota of such notice of disapproval, Dakota may reasonably direct Coteau, subject to Section 16.4 hereof, as to the revisions to be made in the Mining Plan and Coteau shall make such revisions. The Mining Plan shall be reviewed and revised or expanded annually (or as necessary) with the written approval of Dakota. Such revisions shall be based upon the then current projections developed by Coteau and requirements of applicable law, rules and regulations and shall be subject to approval by Dakota as provided above. No material modification of or deviation from the Mining Plan shall be made without the written approval of Dakota, which approval shall not be unreasonably withheld. It is recognized by the Parties that, subject to the duties imposed upon Coteau pursuant to Section 16.4 hereof, Coteau may make minor modifications of or deviations from the Mining Plan without Dakota's approval. Coteau shall consult with and keep Dakota informed of the progress of the design, development and operation of Coteau's Mine and shall, upon Dakota's request, furnish to Dakota copies of all major and significant drawings and documents relating to such design, development and operation.
Section 4.2      Budgets and Cash Flow Projections.
Coteau shall furnish to Dakota, on a time schedule agreed to by the Parties, the following budgets and cash flow for activities pursuant to this Agreement during the following calendar year:
(a)      An annual capital budget containing estimates of all commitments in excess of $10,000. Such annual capital budget shall be revised quarterly and submitted to Dakota no later than forty-five (45) days prior to the end of each calendar quarter. Within forty-five (45) days after Dakota’s receipt of the foregoing annual capital budget and within thirty (30) days after Dakota’s receipt of the foregoing revised quarterly budgets, Dakota shall give Coteau written notice of Dakota’s approval or disapproval of such capital budgets. If Dakota shall fail to give such notice within such forty-five (45) day or thirty (30) day period, as the case may be, Dakota shall be deemed to have approved such budgets. Dakota’s approval of such capital budgets may be limited to the immediately following calendar quarter. Upon the approval of any capital budget or portion thereof by Dakota, such budget or portion thereof shall be deemed part of the Mining Plan.

9


(b)     An operating budget containing estimates of all operating and production costs. Such operating budget may be modified pursuant to the change order procedure described in Section 4.4 hereof. The annual operating budget shall be presented on a month-by-month basis. Within forty-five (45) days after Dakota’s receipt of the foregoing annual operating budget, Dakota shall give Coteau written notice of Dakota’s approval or disapproval of such operating budget. If Dakota shall fail to give such notice within such forty-five (45) day period, Dakota shall be deemed to have approved such budget. Upon the approval of any operating budget or portion thereof by Dakota, such budget or portion thereof shall be deemed part of the Mining Plan.
(c)      A cash flow statement for all capital expenditures and operating and production costs presented on a month-by-month basis for the following four (4) calendar years. Such cash flow statement shall be revised monthly by Coteau and submitted to Dakota.
Such budgets and cash flow statement, as described in this Section 4.2, shall be in such form and detail acceptable to Dakota.
Section 4.3      Financial Protection to Dakota.

Coteau shall not make any expenditures unless they are generally reflected in a budget, or portion thereof, approved by Dakota as aforesaid; nor shall Coteau make any single expenditure (except for expenditures made to maintain inventory levels as approved by Dakota from time to time) for materials, supplies, equipment, facilities or services in excess of $10,000, or enter into any contracts, agreements or commitments involving more than $10,000, unless such item has been specifically identified in a budget, or portion thereof, approved by Dakota or unless Dakota has otherwise approved thereof.
Any expenditures made by Coteau for capital items which are not made in accordance with the immediately preceding paragraph shall be deemed to have been made for the account of Coteau and shall not be recoverable from Dakota under any of the other provisions of this Agreement. Coteau shall have the right in its sole discretion to dispose of any capital items which are deemed to have been made for the account of Coteau.
Notwithstanding anything to the contrary contained in this Agreement, Coteau shall have the right during any calendar year to make Emergency Expenditures without advance approval by Dakota, provided that Coteau shall subsequently and promptly give Dakota written notice thereof.
If, at any time while an operating budget as approved by Dakota is in effect and Dakota, in good faith, believes that Coteau is not in compliance with any of the provisions of such operating budget, Dakota shall have the right to give Coteau notice of such noncompliance. Such notice shall be in writing and identified as a "Notice of Noncompliance Pursuant to Section 4.3 of the Coteau Lignite Sales Agreement dated as of January 1, 1990", shall cite the provision(s) of the operating budget as to which Dakota believes Coteau is not in compliance, shall state in detail the reasons why Dakota so believes Coteau is not in compliance and shall include all other pertinent information.
No later than fifteen (15) Business Days after Couteau’s receipt of such notice of noncompliance, Coteau shall either (a) give Dakota written notice that Coteau denies that such noncompliance has occurred or is occurring or (b) correct such noncompliance; provided, however, that if Coteau within five (5) Business Days after Coteau's receipt of such notice of noncompliance from Dakota gives Dakota notice confirmed in writing that Coteau needs more than fifteen (15) Business Days in order to correct the noncompliance(s) cited in such notice, together with reasons therefor, Dakota shall give Coteau such reasonable extension as may be necessary in order to make such correction(s).
If Coteau gives Dakota notice denying such noncompliance, Coteau and Dakota shall meet promptly and attempt in good faith to settle their differences. Any matter agreed upon by Coteau and Dakota with respect

10


to such operating budget which requires implementation shall be implemented promptly. If Coteau and Dakota are unable to resolve their differences within thirty (30) days after Dakota’s receipt of notice from Coteau denying such noncompliance, either Party may submit the matter to arbitration as provided in Section 16.2 hereof. If arbitration is sought, Coteau shall not be deemed to be in noncompliance and shall not be required to correct any noncompliance until the matter shall have been determined finally in accordance with the aforesaid arbitration provisions.
If the noncompliance is not corrected or resolved by Coteau and Dakota as aforesaid and (x) arbitration is not so sought, or (y) Coteau subsequently is found in arbitration proceedings to be in noncompliance, then all costs incurred by Coteau following the expiration of five (5) Business Days after Coteau's receipt of notice of noncompliance from Dakota, including costs incurred during the period prior to the completion of any arbitration proceeding, and which costs result directly from such noncompliance with the operating budget as specified in said notice of noncompliance from Dakota, shall be disallowed up to an amount equal to the Agreed Profit due to Coteau for lignite produced during the period of disallowance and computed in accordance with Section 5.4 hereof. Subject to the provisions of Section 16.4 hereof, such disallowance shall be Dakota’s exclusive remedy for such noncompliance.
Section 4.4      Change Orders.
Coteau shall develop a change order procedure acceptable to Dakota. Change orders consistent with such procedures shall be submitted by Coteau to Dakota for Dakota’s approval for (a) any change in the annual operating budget, as approved by Dakota, resulting from changes requested in writing by Dakota in the lignite quantities or design criteria contained in the annual operating budget, (b) any factor which results in a change in the current delivery schedule for lignite and (c) any predicted or actual increase in the annual operating budget, as approved by Dakota.
Section 4.5      Meetings.
Coteau and Dakota shall meet periodically to review the progress of the design, development and operation of Coteau's Mine. Coteau and Dakota anticipate these meetings will be held quarterly. Prior to such meetings, Coteau shall submit to Dakota in a format acceptable to Dakota, such reports, schedules and operating and financial data as may be reasonably requested by Dakota.
Section 4.6      Reports.
Coteau and Dakota shall cooperate to establish, maintain and use a cost and schedule control system with respect to the development of Coteau's Mine adequate for (a) the preparation of a project schedule which shall facilitate the planning of the development of Coteau's Mine and demonstrate production date impact resulting from schedule slippages, if any, in the development of Coteau's Mine, and (b) a cost control system and a physical progress data reporting system which (i) provide actual cost and scheduling status reports to Dakota for the immediately preceding calendar month by the fifteenth (15th) Business Day of every month in which development of Coteau's Mine is in progress, (ii) report the actual progress of the development of Coteau's Mine relative to the Mining Plan and such other schedules as Dakota shall designate and (iii) provide adequate audit trail information. Such control system may include the preparation by Coteau, as requested by Dakota, of the following documents in a format acceptable to Dakota:
1)     Budget Status Report
2)     Projected Expenditures Report (actual/projected)
3)     Cost and Comparison to Estimate Report
4)     Physical Progress Report
5)     Permit Status Report
6)     Project Status Report (written detail, all areas)
7)     Project Development Schedule (bar chart or time-oriented activity diagram);
or such other documents as requested by Dakota. Coteau shall notify Dakota in writing of any proposed changes in the cost and schedule control system previously approved by Dakota.

Section 4.7      Procurement Policies.

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All materials, supplies, equipment, facilities and services, and all contracts, agreements and commitments therefor or in connection therewith required to construct, develop and operate Coteau's Mine shall be acquired, entered into or made only pursuant to formal procurement policies adopted by Coteau and acceptable to Dakota. Coteau shall notify Dakota in writing of any proposed material changes to formal procurement policies previously approved by Dakota.
Section 4.8      Payment of Dividends.
Coteau shall have the right to pay dividends on the Escrowed Stock only from earned surplus.
Section 4.9      Accounting Practices.
Coteau shall maintain accurate books and records in accordance with generally accepted accounting principles and as necessary to support such detailed cost analyses, classifications and allocations as may be requested from time to time by Dakota.
Couteau’s accounting systems, policies and procedures shall conform to Dakota’s specifications, which shall be in accordance with generally accepted accounting principles, and shall be subject to Dakota’s approval. Coteau shall notify Dakota in writing of any proposed material changes to Couteau’s accounting systems, policies and procedures previously approved by Dakota. Couteau’s accounting system shall provide for cost classifications (chart of accounts) as requested by Dakota. Coteau shall develop a cash management system acceptable to Dakota which shall include the maintenance of separate cash accounts to the extent requested by Dakota.
Couteau’s accounting operations with respect to matters related to this Agreement shall be at such location as Dakota shall approve; provided, however, that Coteau shall have the right under this Agreement to conduct such other accounting operations and maintain such other accounting records and systems as Coteau deems necessary to be consistent with the accounting system of Affiliates of Coteau, the cost of which shall be included in the Cost of Production defined in Section 5.2 hereof.
Section 4.10      Other Policies and Practices.
Coteau shall develop formal written policies with respect to executive compensation plans, which policies shall be subject to approval of Dakota. Such approval shall not be withheld if such policies are consistent with those of North American Coal.
Expenditures by Coteau for memberships in national trade associations and state trade associations which are included in the Cost of Production shall be limited to one and two, respectively, unless expenditures for additional memberships are approved by Dakota. Coteau shall keep Dakota apprised of the activities of the trade associations of which Coteau is a member and shall use its influence as a member to support the causes of Dakota.
Coteau shall develop formal written policies with respect to matters such as travel and entertainment, overtime, labor reporting, attendance at seminars, meetings and schools, use of company aircraft and vehicles, mine-related cost allocation methods and equipment replacement policies, all of which policies shall be subject to approval by Dakota.
Coteau shall develop formal written policies with respect to employee insurance, ·relocation expense, vacation and retirement benefits, all of which policies shall be subject to approval by Dakota. Such approval shall not be withheld if such policies are consistent with those of North American Coal and generally consistent with those of the lignite mining industry.
Coteau shall develop formal written policies with respect to donations to charitable and civic organizations and corporate sponsorships, which policies shall be subject to approval by Dakota. Expenditures by Coteau for donations and sponsorships which are included in the Cost of Production shall be limited to not more than $10,000 per year, unless a higher amount is approved in writing by Dakota. Coteau shall provide Dakota a listing of estimated planned expenditures for donations and sponsorships for the following calendar year

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by December 1.
Coteau shall notify Dakota in writing of any proposed material changes to such policies previously approved by Dakota.
Section 4.11      Employment Contracts.
Coteau shall consult with Dakota and consider the advice and counsel provided by Dakota before entering into any employment contracts or any contracts for the employment of consultants in its mining business other than contracts for professional services such as accounting services, architectural services and legal services which normally are performed by independent contractors.
ARTICLE V
PRICING
Section 5.1      Determination of Price.
Subject to the right of Dakota to determine the price during the Development Period pursuant to Section 5.3 hereof and to adjustment as provided in Sections 5.5 and 5.7 hereof, Dakota shall pay for the lignite sold and delivered hereunder a price which annually equals the Cost of Production, as defined in Section 5.2 hereof, plus the Agreed Profit as determined pursuant to Sections5.4, 5.5 and 5.7 hereof.
Section 5.2      Cost of Production.
For the purposes of this Agreement, except as otherwise expressly stated, "Cost of Production" shall mean all the costs actually incurred by Coteau in the design, development, construction and operation of Coteau's Mine and the mining, processing and delivery of lignite under this Agreement. Such costs shall be determined and allocated on an accrual basis in accordance with generally accepted accounting principles (except as otherwise expressly stated herein), consistently applied and shall include but not be limited to the following:
a)
All production, transportation and maintenance costs including without limitation the following types of costs:
i)
Labor costs, which include wages and the costs of all related payroll taxes, benefits and fringes, including welfare plans; group insurance, vacations and other comparable benefits of employees, wherever located, whose labor cost is properly charged directly to Coteau's Mine,
ii)
Materials and supplies,
iii)
Tools,
iv)
Machinery and equipment not capitalized or leased,
v)
With respect to the particular lignite mined, an appropriate allocation of the cost of acquiring interests in lignite reserves and surface lands, whether in fee, by lease or otherwise, prepaid royalties recoverable on mining and other expenses of having kept such interests in effect (not including costs paid by Dakota or its Affiliates pursuant to paragraph 5 of the Coal Reserve Agreement) and current tonnage royalty actually paid, if any,
vi)
Rental of machinery and equipment,
vii)
Power costs,
viii)
Reasonable and necessary services by third parties other than Affiliates of Coteau,

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ix)
Insurance including Worker’s Compensation either in the state fund or self insurance, whichever in the best judgment of Coteau is more advantageous, ·
x)
Taxes, but not including income taxes or alternative minimum income taxes imposed by any governmental unit,
xi)
Cost of reclamation as required by law or at such higher level of reclamation as shall be agreed upon between the Parties,
xii)
Costs incurred by Coteau in connection with or as a result of the enactment, modification, interpretation, repeal or enforcement of all applicable federal, state and local governmental laws, rules and regulations,
xiii)
Development costs, which shall be amortized ratably after the end of the Development Period as provided in Section 5.3 hereof,
xiv)
Amounts payable to WCDC pursuant to paragraph 7 of the Coal Reserve Agreement, and
xv)
Amounts payable to WCDC pursuant to paragraph 8 of the Coal Reserve Agreement.
There shall be credited to costs under this Subsection 5.2(a): (y) any investment tax credit or other tax credits based upon new investment taken by Coteau and any net receipts by Coteau from rental of, or other net income derived by Coteau from, property including surface lands overlying the Dedicated Lignite, and (z) all amounts disallowed in accordance with the last paragraph of Section 4.3 hereof. There shall be credited to costs under this Subsection 5.2(a) any gains, and so charged any losses, on the disposal of any property owned by Coteau related to Couteau’s Mine or the Dedicated Lignite.
b)
General and administrative costs of Coteau's Mine including services rendered by Affiliates of Coteau.
If any of the foregoing items in Subsections 5.2(a) and 5.2(b) hereof include costs incurred by an Affiliate of Coteau and charged to Coteau, they shall be included only at the cost to such Affiliate without addition for any loading, inter-company profit or service charge and shall be allocated to Coteau on the basis of time spent or (in the case of buildings) space used.
c)
Depreciation and amortization on personal property owned by Coteau the rates of which, reflecting salvage, shall be determined by Coteau and Dakota from time to time, and which shall not, except by mutual consent of the Parties, exceed the maximum deduction allowable under applicable federal income tax laws and regulations. Transactions involving capital assets between Coteau and any of its Affiliates shall be reflected in Coteau’s accounts at the higher of the cost of the assets involved, less accrued depreciation, as shown by the accounts of the transferring company or the fair market value of the assets involved.
d) Loan and Lease Expense. Interest on indebtedness and loan and lease commitment fees to the extent not previously paid by Dakota during the Development Period currently due and payable, and amortization of other expenses incurred in connection with Coteau obtaining loans or leases (to the extent not otherwise provided for under Subsection 5.2(c) hereof), accrued by Coteau with respect to such loans and leases, less interest or dividends received by Coteau on its investments.
e) Protective Provisions. If Coteau files consolidated tax returns with an Affiliate or Affiliates of Coteau, it shall collect from such Affiliate or Affiliates any net tax benefit derived by any such Affiliate from such consolidation attributable to Coteau. If Coteau has any surplus cash, it shall invest it in income producing securities or, if requested by Dakota, use such excess to repay indebtedness of Coteau.
Notwithstanding the foregoing, "Cost of Production" shall specifically exclude fines and penalties imposed

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by any governmental agency, administration, commission or body, with the exception of (i) a fine or penalty imposed by a governmental agency, administration, commission or body regulating the mining of lignite or the reclamation of mined lignite lands or (ii) a fine or penalty imposed by any governmental agency, administration, commission or body on activities or conduct specifically directed or otherwise approved by Dakota or one of its Affiliates.
Section 5.3      Price During Development Period.
Dakota shall determine the price to be paid during each Development Period for the lignite sold and delivered hereunder from the relevant portion of Coteau's Mine, which price shall not be less per Ton of lignite than the prior calendar year's Cost of Production per Ton of lignite and which shall be deemed to include the Agreed Profit with respect to lignite delivered from such portion of Coteau's Mine. During each Development Period, the excess of the Cost of Production over the price (less Agreed Profit) paid for such lignite shall be capitalized, for purposes of determining subsequent price. The amount so capitalized shall be recovered by inclusion in the Cost of Production pro rata commencing at the end of each Development Period over a period, designated by Dakota, which shall not be longer than the estimated life of the particular mining area.
Section 5.4      Computation of Agreed Profit.
a)
For lignite sold and delivered hereunder in any calendar year for use at Dakota's Primary Plants, the Agreed Profit, expressed in July 1, 1988 dollars, shall be [* * *] per Ton for all Tons of lignite up to and including [* * *] Tons and shall be [* * *] per Ton for all Tons of lignite which exceed [* * *] Tons, which such amounts of Agreed Profit shall be subject to adjustment as provided in Subsection 5.5(a) hereof.
For the first [* * *] Tons of lignite sold and delivered from the Dedicated Lignite for use at Dakota's Primary Plants following the date of this Agreement, the Agreed Profit per Ton, after adjustment pursuant to Subsection 5.5(a) hereof, shall be reduced by an amount equal to [* * *] adjusted in the manner as provided in paragraph 7 of the Coal Reserve Agreement. An example of the aforesaid calculation is attached hereto as Exhibit C and made a part hereof.
b)
For lignite sold and delivered hereunder for use at Dakota's Other Plants, the Agreed Profit, expressed in July 1, 1988 dollars, shall be [* * *] per Ton, which such amount shall be subject to adjustment as provided in Subsection 5.5(b) hereof, until the quantity of lignite sold and delivered to Dakota's Secondary Plant, Dakota's Other Plants and Other Plants equals the total quantity of economically recoverable lignite reserves contained within the Additional Dedicated Lignite then owned, leased or subleased by Coteau pursuant to this Agreement. Once the aggregate lignite deliveries to Dakota's Secondary Plant, Dakota's Other Plants and Other Plants equal such quantity, the Agreed Profit for all lignite delivered to Dakota for use at Dakota's Other Plants shall be at the rate(s) specified in Subsection 5.4(a) hereof and the adjustment of such Agreed Profit shall be as provided in Subsection 5.5(a) hereof.
c)
For lignite sold and delivered hereunder in any calendar year for use at Dakota's Secondary Plant and at Other Plants, the Agreed Profit, expressed in July 1, 1988 dollars, shall be [* * *] per Ton for all Tons up to and including [* * *] Tons, [* * *] per Ton for all Tons in excess of [* * *] and less than [* * *] Tons, and [* * *] per Ton for all Tons including and in excess of [* * *] Tons, which such amounts of Agreed Profit shall be subject to adjustment as provided in Subsection 5.5(c) hereof, until the quantity of lignite sold and delivered to Dakota's Secondary Plant, Dakota's Other Plants and Other Plants equals the total quantity of economically recoverable lignite reserves contained within the Additional Dedicated Lignite then owned, leased or subleased by Coteau pursuant to this Agreement. Once the aggregate lignite deliveries to Dakota's Secondary Plant, Dakota's Other Plants and Other Plants equal such total quantity, the Agreed Profit for all lignite delivered to Dakota for use at Dakota's Secondary Plant and at Other Plants shall be at the rate(s) specified in Subsection 5.4(a) hereof and the adjustment of such Agreed Profit shall be as provided in Subsection 5.5(a) hereof.
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Section 5.5      Modification of Agreed Profit.
a)
The Agreed Profit per Ton for each Ton of lignite sold and delivered hereunder for use at Dakota's Primary Plants shall be adjusted for each calendar year, as of December 31 of such calendar year, by one hundred percent (100%) of the percentage difference between the Index for the year under consideration and the base Index figure. An example of the aforesaid calculation is attached hereto as Exhibit D and made a part hereof.
b)
Subject to Subsection 5.4(b) hereof, the Agreed Profit per Ton for each Ton of lignite sold and delivered hereunder for use at Dakota's Other Plants shall be adjusted for each calendar year, as of December 31 of such calendar year, by:
i)
Seventy-five percent (75%) of the first four percent (4%) of the change in the Index for the year under consideration relative to the previous year's Index and
ii)
A prorated percentage of that portion of the percentage change in the Index for the year under consideration relative to the previous year's Index which is greater than four percent (4%) but less than eight percent (8%), which proration shall be made linearly, with the prorated percentage being seventy-five percent (75%) for a four and one one-hundredth percent (4.01%) increase or decrease in the Index and with the prorated percentage being one hundred percent (100%) for the eight percent (8%) change in the Index and
iii)
One hundred percent (100%) of that portion of the percentage increase or decrease in the Index relative to the previous year's Index which is equal to or greater than eight percent (8%).
Examples of the aforesaid calculation are attached hereto as Exhibit E and made a part hereof.
c)
Subject to Subsection 5.4(c) hereof, the Agreed Profit per Ton for each Ton of lignite sold and delivered hereunder for use at Dakota's Secondary Plant and Other Plants shall be adjusted for each calendar year, as of December 31 of such calendar year, by seventy-five percent (75%) of the percentage difference between the Index for the year under consideration and the base Index figure. An example of the aforesaid calculation is attached hereto as Exhibit F and made a part hereof.
d)
The Agreed Profit for all Sub-Quality Lignite that is sold and delivered hereunder shall be reduced by multiplying the applicable Agreed Profit by a fraction, the numerator of which shall be the actual BTU content of said Sub-Quality Lignite and the denominator of which shall be six thousand seven hundred fifty (6,750) BTUs per pound. The Agreed Profit rate to which such reductions shall be made shall be the average Agreed Profit rate, before said adjustment, paid by Dakota to Coteau during the month in which the Sub-Quality Lignite is severed by Coteau and sold and delivered to Dakota hereunder. An example of the aforesaid calculation is attached hereto as Exhibit G and made a part hereof. Specific mining areas in which Sub-Quality Lignite is available shall be determined by Coteau and agreed to by Dakota prior to the delivery of such lignite. The actual quantities of Sub-Quality Lignite taken from these specific areas to which the adjustment in this Subsection 5.5(d) shall apply shall be determined by pit survey, and the BTU rating shall be determined from pit samples, utilizing procedures mutually agreed to by Coteau and Dakota.
Section 5.6      Further Modifications.
If at any time during the term of this Agreement it is reasonably believed by either Party that the [* * *] or any index substituted therefor in accordance with the following provisions reflects the true change in
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purchasing power of the United States dollar, then upon the written request of either Party a substituted index or method whereby such change in purchasing power of the United States dollar can be determined shall be substituted by mutual agreement. In the event that the [* * *] or any substituted index is changed in the future to use some
base other than the base of 1982 = 100, then, for the purposes hereof, the [* * *] or any substitute index, as the case may be, shall be adjusted so as to be in correct relationship to the base of 1982 = 100, or some other alternative base which is mutually agreeable to Coteau and Dakota. In the event publication of the [* * *] or any substituted index is no longer made by any federal agency, the index to be used as aforesaid shall be that index agreed to by the Parties which, after necessary adjustment, if any, provides the most reasonable substitute for said index.
Section 5.7      Post-Expiration/Termination Payments.

a)
In the event that, following an expiration of this Agreement pursuant to Section 14.1 hereof, Dakota exercises its right, pursuant to the Option Agreement, to cause the transfer of the Escrowed Stock to Dakota, or in the event that, following a premature termination of this Agreement pursuant to Subsection 14.2(a) hereof, North American Coal exercises its put option under the Option Agreement, Dakota shall then pay to North American Coal or its designee as part of the purchase price for the Escrowed Stock a production payment (Production Payment) in the following amounts under the following circumstances:
i)
Until such time as Dakota shall have paid Agreed Profit as calculated pursuant to Subsection 5.4(a) hereof as adjusted pursuant to Subsection 5.5(a) hereof and/or Production Payments pursuant to the terms of this Agreement for three hundred ninety million (390,000,000) Tons of coal and/or lignite sold and delivered following the date of this Agreement, a Production Payment equal to the Agreed Profit as calculated pursuant to Subsection 5.4(a) hereof as adjusted pursuant to Subsection 5.7(b) hereof for x) coal and/or lignite sold and delivered to Dakota's Primary Plants, regardless of the source of such coal and/or lignite, and/or y) lignite sold and delivered to Dakota's Plants from Primary Dedicated Lignite;
ii)
After the conditions of Subsection 5.7(a)(i) hereof have been satisfied and Dakota shall have paid the specified Agreed Profit and/or Production Payments for three hundred ninety million (390,000,000) Tons, a Production Payment, expressed in January 1, 1990 dollars, equal to [* * *] per Ton for all Tons mined from the Primary Dedicated Lignite and sold to Dakota's Plants, until such time as Dakota shall have paid Agreed Profit pursuant to Subsection 5.4(a) hereof as adjusted pursuant to Subsection 5.5(a) and/or Production Payments pursuant to Subsection 5.7(a)(i) hereof and this Subsection 5.7(a)(ii) as adjusted pursuant to Subsection 5.7(b) hereof for all Tons in excess of three hundred ninety million (390,000,000) Tons of coal and/or lignite but less than four hundred forty million (440,000,000) Tons of coal and/or lignite; and
iii)
Thereafter, a Production Payment, expressed in January 1, 1990 dollars, equal to [* * *] per Ton for all Tons mined from the Primary Dedicated Lignite and sold and delivered to Dakota's Plants, until such time as Dakota shall have paid Agreed Profit pursuant to Subsection 5.4(a) hereof as adjusted pursuant to Subsection 5.5(a) hereof and/or Production Payments pursuant to Subsection 5.7(a)(i) and Subsection 5.7(a)(ii) hereof and this Subsection 5.7(a)(iii) as adjusted pursuant to Subsection 5.7(b) hereof for all Tons in excess of four hundred forty million (440,000,000) but less than five hundred fifty million (550,000,000) Tons of coal and/or lignite;
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at which point Dakota’s obligation to pay the Production Payment shall cease.
b)
The Production Payment per Ton of lignite referenced in Subsection 5.7(a)(i) hereof shall be adjusted for each calendar year, as of December 31 of such calendar year, by one hundred percent (100%) of the percentage difference between the Index for the year under consideration and the Index as of July 1, 1988. The Production Payment per Ton of lignite referenced in Subsections 5.7(a)(ii) and 5.7(a)(iii) hereof shall be adjusted for each calendar year, as of December 31 of such calendar year, by one hundred percent (100%) of the percentage difference between the Index for the year under consideration and the Index as of January 1, 1990.
c)
There shall be included in and counted toward the tonnage figures in Subsection 5.7(a) hereof all Tons of lignite sold by Coteau to third parties as provided in Section 13.1 hereof.
d)
In the event Dakota or North American Coal exercises its right, pursuant to the Option Agreement, to cause the transfer of the Escrowed Stock to Dakota, (i) the obligations of Dakota under this Section 5.7 shall survive any termination or expiration of this Agreement, (ii) Dakota shall not, and shall cause Coteau to not, dissolve or liquidate and (iii) Dakota shall not, and shall cause Coteau to not, merge or consolidate with, or sell all or substantially all of its assets to, any third party unless such third party shall have agreed in writing to be bound by the terms of this Section 5.7 and shall be financially capable of performing Dakota’s obligation under this Section 5.7 and shall otherwise be solvent.
Section 5.8      Mine Closing Costs.
Dakota recognizes that mine closing costs will be incurred by Coteau from time to time. Dakota shall reimburse Coteau for all such mine closing costs. Such costs when determined shall be included within budgets and operating plans submitted to Dakota for its approval and shall be paid as part of the Cost of Production or otherwise be reimbursed to Coteau by Dakota as incurred, which obligation of Dakota shall survive any termination or expiration of this Agreement.
ARTICLE VI
AUDITS AND FINANCIAL REPORTS
Section 6.1      Audits.
Coteau shall annually have an audit of its accounts performed by a firm of independent certified public accountants and shall provide Dakota with a copy of such audit. Dakota shall have the right at any time on reasonable notice in writing to Coteau to examine by its certified public accountants (which may include representatives of Basin Electric or its Affiliate) the records and books of account of Coteau and any Affiliate of Coteau, relating to the items and allocations of cost and production entering into the computation of the Cost of Production. Payment or payments under Article VII of this Agreement shall not be deemed a waiver of any rights of Dakota to have the price hereunder corrected.
Section 6.2      Financial Reports.
On or before the twentieth (20th) day of each month, Coteau shall furnish to Dakota financial statements reflecting Coteau's financial position as of the end of the preceding calendar month and the results of operations of Coteau for the period then ending and a detailed statement of the Cost of Production for the preceding calendar month at Coteau's Mine, including the quantity of lignite delivered and the aggregate man-hours by classification and shifts required for its production. Coteau shall furnish to Dakota detailed cost analyses and other financial reports with respect to Coteau as Dakota may reasonably request. Said statements, analyses and reports shall be in such form and detail as may reasonably be requested by Dakota.


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ARTICLE VII
BILLING AND ADJUSTMENTS
Section 7.1      Billing.
The monthly invoice for lignite sold and delivered hereunder in a calendar month shall be issued by Coteau no earlier than the sixth (6th) day of the next calendar month. Any such invoice received by Dakota after 12:00 Noon, Bismarck time, on any Business Day shall be deemed to have been received by Dakota on the following Business Day. Dakota shall pay such invoice within ten (10) days after its receipt thereof. If such tenth (10th) day is not a Business Day, Dakota shall pay such invoice no later than the next following Business Day.
Section 7.2      Adjustments.
After the end of each Development Period, the monthly billing of lignite sold and delivered from Coteau's Mine to which such Development Period related in each calendar month shall be based upon the estimated Cost of Production applicable to Coteau's Mine during such month, plus the Agreed Profit on lignite mined from Coteau's Mine for such month. Any differences between the estimated Cost of Production, upon which the billing is based, and actual Cost of Production for each calendar month shall be included as an adjustment to the monthly billing of lignite in each subsequent calendar month. Billings for lignite sold and delivered from Coteau's Mine for each calendar month shall be based upon the Agreed Profit for the previous calendar year as recomputed pursuant.to Section 5.5 hereof. As soon as possible after the expiration of each calendar year, the Agreed Profit shall be recomputed on an annual basis for such calendar year and additional payment or refund shall be made accordingly. An example of such recomputation is attached hereto as Exhibit H and made a part hereof.
ARTICLE VIII
RATE OF SHIPMENT, PERFORMANCE
Section 8.1      Rate of Shipment.
If by reason of failure to receive shipping instructions or releases from Dakota under this Agreement, Coteau does not ship the required amount for any particular month, Coteau shall have the option, but shall not be required, to waive the actual delivery of the undelivered tonnage for such month, but any such waiver shall not relieve Dakota from liability to respond in damages for the failure to perform its obligations; provided, however, that Dakota shall not incur any liability to respond in damages if the failure to perform its obligations pursuant to this Agreement is due to an event described in Section 11.2 hereof. If Coteau fails to make deliveries required of it hereunder, Dakota shall have the option, but shall not be required, to waive the actual delivery of the undelivered tonnage, but such waiver shall not relieve Coteau from the liability to respond in damages for the failure to perform its obligations.
Section 8.2      Performance.
Notwithstanding anything to the contrary contained in this Agreement, Coteau shall not incur any liability to respond in damages for failure to perform its obligations pursuant to this Agreement if such failure is due to an event described in Section 11.1 hereof or if such failure is due to control exercised by Dakota in accordance with this Agreement or results from the failure of Dakota to perform its obligations in accordance herewith.
ARTICLE IX
SAMPLING AND ANALYSIS, WEIGHTS
Section 9.1      Sampling and Analysis.
Except for the analyses of pit samples of Sub-Quality Lignite pursuant to Subsection 5.5(d) hereof, the quality of the lignite sold and delivered hereunder from Coteau's Mine shall be determined by analyses of samples taken from at least five thousand (5,000) Tons of lignite at a point or points mutually agreed upon by Coteau

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and Dakota. Sampling and analysis shall be performed by methods which meet the standards of the American Society of Testing Materials, or by such other methods as may be mutually agreed upon by Coteau and Dakota. Each sample shall be divided into two (2) parts and put into suitable air-tight containers. One (1) part shall be submitted to Dakota for analysis and the second part shall be properly sealed and labeled and retained by Dakota for thirty (30) days, to be analyzed if a dispute arises with respect to the results of the analyses of Dakota. Coteau shall be given copies of all analyses made by Dakota and Coteau shall have the right to have a representative present at any and all times to observe the sampling and analyses performed by Dakota.
If any dispute arises with respect to the results of the analyses of Dakota, an analysis of the second part shall be made by an independent commercial testing laboratory mutually chosen by Coteau and Dakota and the analysis of the independent commercial testing laboratory shall be controlling. The cost of the analysis made by such commercial laboratory shall be paid by Coteau and shall be included in the Cost of Production. If any dispute arises with respect to the methods of sampling or analyses performed or being performed by Dakota, Coteau shall so advise Dakota. Coteau and Dakota shall meet promptly and shall, within thirty (30) days of notice of such dispute, mutually agree upon modifications or changes in such method(s) to resolve such dispute.
Section 9.2      Weights.
The weight of the lignite sold and delivered hereunder for use at Dakota's Plants shall be determined by Coteau on scales located on the conveyors between the Primary Truck Dump and the Secondary Crusher Building at Dakota's Primary Plants or at such other location(s) mutually agreed to by the Parties; provided, however, that when Coteau's scales are inoperable, the weight of lignite sold and delivered hereunder for use at Dakota's Primary Plants and Dakota's Other Plants shall be determined by Basin Electric's and/or DGC's scales at Dakota's Primary Plants. Dakota shall be given a record of all weight determinations made by Coteau and shall have the right to have a representative present at any and all times to observe the weighing of lignite sold and delivered hereunder. If Dakota at any time questions the accuracy of the weights, Dakota shall so advise Coteau and Coteau shall permit Dakota's representatives to test and check such scales. If such tests show that any scale is inaccurate, it shall be adjusted by mutual agreement of Coteau and Dakota to an accurate condition.
The weight of lignite redelivered by Dakota to Dakota's Secondary Plant and to Other Plants shall be determined from rail car or truck weight receipts acquired from the transportation contractor(s), or by some other method mutually agreeable to the Parties. The weight of the lignite utilized by Dakota's Primary Plants and Dakota's Other Plants shall be determined by subtracting the weight of the lignite ultimately delivered to Dakota's Secondary Plant and to Other Plants from the total lignite measured on Coteau's scales at the location(s) specified in this Section 9.2. For the weight of all lignite redelivered by Dakota to Dakota's Secondary Plant and Other Plants, Coteau shall be given a record of all weight determinations made by Dakota, and Coteau shall have the right to have a representative present at any or all times to observe the weighing of lignite delivered hereunder. If Coteau should at any time question the accuracy of the weights, Coteau shall so advise Dakota and Dakota shall permit Coteau's representatives to test and check such scales. If such tests show that any scale is inaccurate, it shall be adjusted by mutual agreement of Coteau and Dakota to an accurate condition.
If it is determined that any scale or any other method used to weigh lignite is inaccurate, the quantities of lignite delivered hereunder during the period when such inaccuracy existed shall be adjusted pursuant to procedures agreed to by the Parties.
ARTICLE X
LOAN AND LEASE OBLIGATIONS
Section 10.1      Loan and Lease Obligations.
It will be necessary for Coteau to obtain loans and/or leases for the construction and equipping of Coteau's Mine, which shall be indebtedness or lease obligations of Coteau not guaranteed by North American Coal.

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If Dakota so requests, Coteau shall use its best efforts to obtain long-term loans and/or long-term leases (such loans and leases and such continued or additional loans or leases as may be necessitated by replacement of or addition to Coteau's · equipment, or by the expiration of any lease of equipment to Coteau prior to the expiration of this Agreement being referred to herein collectively as the "Loans and Leases'') in amounts sufficient for the following purposes: developing, equipping and operating of Coteau's Mine, including, without limitation, (a) developing roadways, (b) constructing tipples and cleaning plants, (c) acquiring machinery and (d) maintaining working capital for operating Coteau's Mine; provided, however, that (i) the Loans and Leases and the amounts thereof must be approved by Dakota in its sole discretion and shall be made if directed by Dakota and (ii) if such Loans and Leases are not available to Coteau, or Dakota does not request that Coteau obtain the same or does not approve the same, Dakota shall assume the responsibility for obtaining the Loans and Leases for such amounts and on such terms as it shall reasonably determine to be necessary to meet the foregoing purposes. If Dakota has such responsibility, Dakota itself shall (w) provide the Loans and Leases, (x) arrange for Loans or Leases by Coteau from third persons, (y) direct Coteau to borrow or lease from third persons or (z) combine Dakota's Loans or Leases with those of third persons. If the Loans and Leases shall be arranged with third persons, Dakota shall have the right subsequently to discharge the Loans or Leases and substitute itself as lender or lessor for the balance of the term of such Loans or Leases. Any Loan or Lease provided, arranged for or directed by Dakota in the exercise of its rights under this Section 10.1 shall not be less favorable to Coteau than a Loan or Lease for the same term which could be obtained by Coteau directly. Dakota shall have the right to cause part or all of its obligations under this Section 10.1 with respect to Coteau's Mine to be performed by an Affiliate, but such performance by an Affiliate shall not relieve Dakota of its responsibility for arranging subsequent Loans and Leases for Coteau's Mine.
Section 10.2      Negative Pledge.
Coteau shall not incur any long-term debt or pledge or encumber any assets owned by it in fee or any leasehold interests which it may hold except in connection with financing which has been approved by Dakota or an Affiliate of Dakota.
ARTICLE XI
FORCE MAJEURE
Section 11.1      Force Majeure/Coteau.
In the event of strikes, labor disputes, fires, accidents at Coteau's Mine, failure of equipment, inability of Coteau to obtain necessary equipment by reason of a general short supply thereof, failure of transportation or shortage of transportation equipment, federal, state or local laws or regulations or other contingencies, whether of a like or different nature, beyond the control of Coteau and not due to its negligence, any of which contingencies prevents or interferes with the production or shipment of lignite hereunder, the shipments contracted for may, at the election of Coteau, be suspended or partially suspended as the case may require for the duration of the contingency.
Section 11.2      Force Majeure/Dakota.
In the event of strikes, labor disputes, fires, accidents at Dakota's Plants, failure of equipment, the inability to obtain necessary equipment for Dakota's Plants by reason of a general short supply thereof, failure of transportation or shortage of transportation equipment, federal, state or local laws or regulations or other contingencies, whether of a like or different nature, beyond control of Dakota and not due to its negligence, any of which contingencies prevents or interferes with the taking of delivery of the lignite purchased hereunder at Dakota's Plants to which, under instructions of Dakota, such lignite is then currently being delivered, or which prevents or interferes with the processing of such lignite or the subsequent transportation of the product to be produced at Dakota’s Plants, or in the event that the product to be produced at Dakota’s Plants cannot be sold on an economic basis, then shipments contracted for shall, at the election of Dakota, be suspended or partially suspended as the case may require for the duration of such contingency.
Section 11.3      Idle Mine Expenses.

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Notwithstanding the suspensions of delivery of lignite provided for in Sections11.1 and 11.2 hereof, if Coteau's Mine is substantially idle during a calendar month pursuant to such Sections, or if Dakota takes no deliveries in any calendar month, Dakota shall pay to Coteau as part of the Cost of Production or otherwise reimburse Coteau for the actual out-of-pocket idle mine expenses and depreciation for such month.
Section 11.4      Resumption After Interruption.
Interruptions in tendering delivery or acceptance of shipments and deliveries referred to in this Article XI shall not invalidate the remainder of this Agreement, but upon removal of the cause of such interruptions, delivery shall be resumed at the rate specified herein. In the event of such interruptions, the Party immediately affected by such contingency shall, if possible, give reasonable advance notice confirmed in writing to the other Party of the extent and probable duration thereof, with sufficient detail to enable the other Party to verify the same.
ARTICLE XII
LIGNITE FEE LAND AND LEASE ACQUISITION AND MAINTENANCE
Section 12.1      Leases.
Coteau shall proceed as directed by Dakota to acquire leases or the fee title to lignite reserves within the Dedicated Lignite. Coteau shall drill said areas to the extent that Dakota determines is necessary to establish the estimated quantity and the estimated quality of lignite therein and shall provide Dakota with access to all cores and access to and copies of all logs and other records of such drilling. In its acquisition and drilling program, Coteau shall follow any guidelines stated in writing by Dakota as to terms and conditions as well as the maximum amount it may pay for fee interests or in lease rentals or in tonnage royalties and amounts to be spent for drilling, and shall keep Dakota currently advised as to the progress of such acquisition and drilling programs. Upon the request of Dakota, Coteau shall provide, at the expense of Dakota, good and sufficient evidence of the right, title and interest of Coteau in and to leases and fee title to lignite reserves within the Dedicated Lignite. As to any parcel of land, whether mineral or surface or both, which by reason of its location is within the Dedicated Lignite, if Coteau notifies Dakota of the availability of such parcel for acquisition and Dakota does not request that it be acquired, North American Coal shall be free to acquire the same for its own account in accordance with the Coal Reserve Agreement and it shall not thereafter be considered a part or portion of the Dedicated Lignite.
Section 12.2      Recoverable Tons.
At the time Additional Dedicated Lignite is acquired by Coteau or assigned, transferred or subleased by Dakota to Coteau, Dakota and Coteau shall mutually agree as to the total quantity of economically recoverable Tons of lignite contained in such lignite reserves. If Coteau and Dakota cannot agree on the quantity of economically recoverable Tons of lignite contained within such reserves, Coteau and Dakota shall jointly select a qualified independent consultant to make a final and binding determination of such quantity.
Section 12.3      Protection of Reserves.
Coteau, utilizing lease maintenance and payment procedures approved by Dakota in writing, agrees to make all payments due under those leases acquired by or assigned or transferred to Coteau in the Dedicated Lignite in a timely manner, not to permit any default under said leases to occur, not to surrender said leases in whole or in part without the written consent of Dakota and not to encumber, assign or sublease said leases, except in connection with financing pursuant to Section 10.1 hereof.
Section 12.4      Remedy for Failure to Protect.
If Coteau, without the written consent of Dakota, causes or permits any such lease covering lignite with a calorific content of six thousand two hundred (6,200) BTUs per pound or more, on an as-received basis, to be surrendered, terminated or cancelled prior to the expiration of its term or encumbers, assigns or subleases any such lease, (a) Coteau shall (i) at its sole expense, remove the encumbrance(s), (ii) reinstate such lease or (iii) acquire and make available a substitute lease or leases within the Dedicated Lignite which, to the reasonable satisfaction of Dakota, covers lignite of no less total BTU content than the lignite covered by any

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such lease which was surrendered, terminated, cancelled, assigned or subleased, or (b) Coteau may, at its sole discretion, deliver to Dakota substitute lignite of no less total BTU content than the lignite covered by any such lease which was surrendered, terminated, cancelled, assigned or subleased at a per-Ton cost each month equal to the average of the Cost of Production, as defined in Section 5.2 hereof, for the twelve (12) month period preceding such month in which the substitute lignite is delivered to Dakota plus the applicable Agreed Profit. For the purposes of Subsections 12.4(a)(iii) and 12.4(b) hereof, only lignite with a calorific content of six thousand two hundred (6,200) or more BTUs per pound, on an as-received basis, shall be considered. For the activities described in Subsections 12.4(a)(ii) and 12.4(a)(iii) hereof, Coteau shall pay the acquisition costs (as hereinafter defined), drilling costs, engineering and testing costs, any increase in the annual advance engineering and testing costs and any increase in the annual advance royalty or rental payments and/or the production royalty rates. For the purposes of this Section 12.4 and Article XII hereof, the term 11 acquisition costs11 shall mean the salaries, associated overhead costs and related expenses of employees engaged in the reinstatement of any lease(s) or in the acquisition of a substitute lease(s), bonus or advance royalty for a lease(s), brokerage fees, legal and other expenses in establishing and reviewing titles, closing expenses and all drilling, exploratory, analytical and engineering costs directly related to such acquisition work. It is understood and agreed that in the event of a default by Coteau of its obligations under Section 12.3 hereof, Dakota's sole exclusive remedy shall be the enforcement of the obligations of Coteau set forth in this Section 12.4.
ARTICLE XIII
LIMITATION OF COTEAU'S ACTIVITIES
Section 13.1      Sales to Others.
Coteau shall engage in no business other than the ownership and operation of
Coteau's Mine, the sale of the products thereof and the rental of property which is owned as an incident to its mining business. Coteau shall not sell outside of this Agreement any lignite extracted from the Dedicated Lignite which would make Coteau unable to give first priority to the performance of its obligations under this Agreement, including any extensions thereof. Coteau shall notify Dakota in writing annually of the amount of lignite to be extracted from the Dedicated Lignite, if any, which it proposes to sell outside this Agreement in advance of such sale, and Dakota shall be entitled to prohibit such sale if, in the reasonable judgment of Dakota, such sale would impair Coteau's ability to perform its obligations under this Agreement including any extensions thereof. In addition to the foregoing restrictions, such sales outside this Agreement shall not without written consent of Dakota exceed two million (2,000,000) Tons per calendar year during the first ten (10) calendar years of this Agreement.
Any sale of lignite by Coteau to third parties shall be from lignite reserves within the Dedicated Lignite. All Tons of lignite sold by Coteau to third parties shall be treated as if such Tons were sold and delivered to Dakota's Primary Plants for purposes of Section 5.7 hereof. In consideration of Dakota providing the financing that has enabled and will enable Coteau to acquire equipment which Coteau has used and will use to produce and sell lignite under this Agreement and to third parties, Coteau shall pay to Dakota for each Ton of lignite sold by Coteau during the term of this Agreement to third parties a fee equal to [* * *] per Ton, which fee shall be adjusted as provided in Subsection 5.5(a) hereof. In addition, Coteau shall include in the cost of lignite sold to third parties a cost per Ton not less than the then current Cost of Production per Ton. For all Tons of lignite sold to third parties, Coteau also shall reimburse Dakota or its Affiliate a proportionate amount of the costs that Dakota or such Affiliate has incurred, and for which Dakota has not been reimbursed by Coteau, of providing financing for Coteau's Mine or for which Dakota or its Affiliates anticipate Dakota or its Affiliates will incur during the period of time that said lignite is being sold to said third parties and would not otherwise be reimbursed by Coteau.

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Section 13.2      Other Activities.
Notwithstanding the provisions of Section 13.1 hereof, it is contemplated that Coteau may provide other services to Dakota such as solid waste disposal, disposal of excess lignite fines, snow removal as well as such other services, in each instance as may be mutually agreed upon by Coteau and Dakota. It is further contemplated that Coteau shall provide said services to Dakota at a price agreed to by the Parties.
ARTICLE XIV
TERM, PREMATURE TERMINATION AND EXPIRATION OPTIONS
Section 14.1      Term.
The original term of this Agreement shall commence on the date first written above and shall expire on April 22, 2007, provided that Dakota shall have the option to extend this Agreement for up to ten (10) successive five (5) year periods by giving written notification to Coteau not less than three (3) years before the expiration of the original term or, in the case of renewal terms, eighteen (18) months before the expiration of the renewal term then in effect; provided, however, that this Agreement shall terminate upon the exhaustion of the Dedicated Lignite. The lignite covered by any particular lease shall be deemed to be exhausted upon the expiration of such lease without further right of renewal.
Section 14.2      Premature Termination.

a)
If all of Dakota's Plants are permanently closed or if a federal, state or local law, rule or regulation is enacted or promulgated which, at the time of said enactment or promulgation, permanently prohibits or permanently prevents the mining of lignite in North Dakota, Dakota shall have the right to terminate this Agreement by giving Coteau nine (9) months' prior written notice unless Dakota is prevented from giving such prior notice by such federal, state or local law, rule or regulation in which case if Dakota so notifies Coteau in writing, this Agreement shall terminate upon the permanent closure of all of Dakota's Plants or the effective date when the mining of lignite in North Dakota is prohibited or prevented pursuant to federal, state or local law, rule or regulation as the case may be.
b)
If Dakota exercises its right to terminate this Agreement in accordance with Subsection 14.2(a) hereof and provided North American Coal has not exercised its put option under the Option Agreement, Coteau shall retain title to all machinery, equipment and improvements or other assets of Coteau's Mine and shall retain title to all lignite which has not been mined at the date of such termination and the acquisition cost of which has been reimbursed to Coteau by Dakota or its Affiliates. Provided that (i) Dakota has paid all amounts due hereunder including all indebtedness and lease obligations which have theretofore been incurred by Coteau pursuant to Section 10.1 hereof, (ii) Dakota has reimbursed Coteau for all Premature Termination Mine Closing Costs and (iii) Dakota has assigned to Coteau all leases for equipment, machinery and other things leased or subleased by Dakota to Coteau, then Coteau shall pay to Dakota (x) the fair market value of all machinery, equipment, improvements and other assets then at Coteau's Mine and owned by Coteau (other than surface and/or lignite lands and leases) and (y) an amount equal to the acquisition costs and carrying charges of unmined lignite for which Dakota or one of its Affiliates has reimbursed Coteau for the acquisition costs plus interest on such costs and charges at the prime rate charged from time to time by Ameritrust Company National Association, Cleveland, Ohio, from the date of reimbursement to Coteau by Dakota or an Affiliate to the time of payment by Coteau to Dakota or an Affiliate.
c)
If Dakota exercises its right to terminate this Agreement in accordance with Subsection 14.2(a) hereof and North American Coal elects not to exercise its put option under the Option Agreement, Coteau and Dakota shall meet promptly and negotiate in good faith to determine the amount of the Premature Termination Mine Closing Costs. The Premature Termination Mine Closing Costs shall

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be determined as though Coteau's Mine were closing on the effective date of the termination of this Agreement, regardless of Couteau’s intention regarding the future operation of Coteau’s Mine. If within six (6) months following the commencement of such negotiations the Parties are unable to agree on the amount of any such Premature Termination Mine Closing Costs, the Parties shall mutually select disinterested mining engineers, appraisers, actuaries or other qualified experts on the issues in controversy to determine the amounts of all such disputed mine closing costs. The determination of such experts shall be binding on the Parties.
[* * *]
Section 14.3      Expiration.
In the event of the expiration of this Agreement other than as provided in Section 14.2 hereof, and provided that Dakota has not exercised its rights as provided in Section 14.4 hereof, Dakota shall pay all sums then due to Coteau hereunder and shall expressly assume in writing the primary obligation to pay all remaining indebtedness and lease obligations incurred by Coteau with respect thereto to acquire all machinery, equipment and improvements or other assets (other than lignite lands) held by Coteau in connection with Coteau’s Mine. Coteau shall execute and deliver to Dakota appropriate deeds, assignments, bills of sales and other instruments of transfer without further payment by Dakota. Any expense, including sales or transfer taxes, in connection with such transfer shall be paid by Dakota.
Notwithstanding the foregoing paragraph, Coteau shall have the right to retain title to all or any specified items of such property as shall be specified in writing by notice to Dakota upon payment to Dakota in cash of the fair market value of the property so retained or the amount of liens or lease rentals owing thereon, whichever is greater.
Dakota shall have no right to acquire Coteau’s lignite reserves or surface lands which were owned by it or North American Coal or an Affiliate of North American Coal prior to October 1, 1971.
Coteau shall be entitled to retain the lignite which has not been mined at the date of such termination and the acquisition cost of which has been reimbursed to Coteau by Dakota or its Affiliates upon payment to Dakota of an amount equal to the acquisition costs and carrying charges for such lignite plus an amount equal to interest on such costs and charges at the prime rate charged from time to time by Ameritrust Company National Association, Cleveland, Ohio, from the date of reimbursement to Coteau by Dakota or its Affiliates to the time of payment by Coteau to Dakota or its Affiliates. This right shall apply to all but not part of such lignite.
All lignite lands, the acquisition costs and carrying charges of which were paid by Dakota or its Affiliates which are not retained by Coteau as hereinabove provided in the foregoing paragraph, shall be transferred to Dakota by quitclaim deeds or assignment of leases without recourse, and Dakota shall pay only the expense, including transfer taxes, of such transfer.
Section 14.4      Exercise of Option for Escrowed Stock.
Provided that Dakota has not exercised any of its rights under Section 14.2 hereof, upon the expiration of the original term of this Agreement or expiration of any renewal term of this Agreement, as the case may be, Dakota may exercise its right, pursuant to the Option Agreement, to cause the transfer of the Escrowed Stock to Dakota. To exercise said right, Dakota shall give written notice to Coteau with a copy to the escrow agent under the Option Agreement not less than three (3) years before the expiration of the original term or, in the case of renewal terms, eighteen (18) months before the expiration of the renewal term then in effect and shall otherwise comply with the terms and conditions of the Option Agreement.

* * * Confidential Treatment Requested

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ARTICLE XV
FEDERAL GOVERNMENT PROVISIONS
Section 15.1      Buy American.
Coteau agrees that no funds advanced by Dakota or any of its Affiliates directly or indirectly to Coteau for development of Coteau's Mine shall, without the approval of Dakota, be used to acquire (a) unmanufactured articles, materials or supplies as have been mined or produced outside the United States, or (b) manufactured articles, materials or supplies mined, produced or manufactured outside the United States or manufactured inside the United States substantially all from articles, materials or supplies mined, produced or manufactured, as the case may be, outside the United States.
Section 15.2      Historic Preservation.
Coteau shall not, without the approval of Dakota, use any funds advanced directly or indirectly by Dakota or any of its Affiliates for the development of Coteau's Mine to construct any facilities which will involve any district, site, building, structure or object which is included in the National Register of Historic Places, maintained by the Secretary of the Interior pursuant to the Historic Sites Act of 1935 and the National Historic Preservation Act.
Section 15.3      Nondiscrimination.

a)
Coteau shall not discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin. Coteau shall take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex or national origin. Such action shall include but not be limited to the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. Coteau shall post in conspicuous places, available to employees and applicants for employment, notices to be provided setting forth the provisions of this nondiscrimination clause.
b)
Coteau shall, in all solicitations or advertisements for employees placed by or on behalf of Coteau, state that all qualified applicants shall receive consideration for employment without regard to race, color, religion, sex or national origin.
c)
Coteau shall send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, with respect to Coteau's Mine, a notice to be provided advising the said labor union or workers' representative of Coteau's commitments under this Section 15.3 and shall post copies of the notice in conspicuous places available to employees and applicants for employment.
d)
Coteau shall comply with all provisions of Executive Order 11246 of September 24, 1965, and of the rules, regulations and relevant orders of the Secretary of Labor to the extent applicable to Coteau.
e)
Coteau shall furnish all information and reports required by Executive Order 11246 of September 24, 1965, and by the rules, regulations and orders of the Secretary of Labor applicable thereto or pursuant thereto, and shall permit access to its books, records and accounts by the Rural Electrification Administration and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations and orders.
f)
In the event of Coteau's noncompliance with the nondiscrimination clauses of this Agreement or with any of the said rules, regulations or orders referred to above, this Agreement may be cancelled, terminated or suspended by the U.S. Department of Labor in whole or in part and Coteau may be declared ineligible for further government contracts or federally assisted construction contracts in

26


accordance with procedures authorized in Executive Order 11246 of September 24, 1965, and such other sanctions may be imposed and. remedies invoked as provided in the said Executive Order or by rule, regulation or order of the Secretary of Labor, or as otherwise provided by law.
g)
Coteau shall include the provisions of paragraphs (a) through (g) of this Section 15.3 in every subcontract or purchase order for construction work which is paid for in whole or in part with funds advanced directly or indirectly to Coteau by Dakota or an Affiliate, unless exempted by rules, regulations or orders of the Secretary of Labor issued pursuant to Section 204 of Executive Order 11246, dated September 24, 1965, so that such provisions will be binding upon each such subcontractor or vendor. Coteau shall take such action with respect to any subcontract or purchase order as the U.S. Department of Labor may direct as a means of enforcing such provision, including sanctions for noncompliance; provided, however, that in the event Coteau becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by such agency, Coteau may request Dakota or an Affiliate and the United States to enter into such litigation to protect the interests of Dakota and the United States.
h)
In employing persons to carry out this Agreement, Coteau shall take affirmative action to employ and advance in employment qualified handicapped individuals as defined in Section 7(a) of the Federal Rehabilitation Act of1973 and qualified veterans covered by the Vietnam Era Veterans Readjustment Act of 1974 when applicable.
ARTICLE XVI
GENERAL
Section 16.1      Effect of Waiver.
Waiver by either Party of any breach by the other Party of any of the terms and provisions of this Agreement shall not be deemed to be a waiver of breach on any other occasion of the same, nor a waiver of breach of any other term or condition. No course of dealing by either of the Parties shall operate as a waiver of any rights in respect to this Agreement. No delay or omission on the part of either Party in exercising any right in respect to this Agreement shall operate as a waiver of such right or any other right hereunder.
Section 16.2      Arbitration.
A dispute between the Parties arising out of Section 4.3 hereof shall be tried by arbitration pursuant to the Rules of the American Arbitration Association in effect at the time of such arbitration, with the exceptions, as hereinafter provided for. The request for arbitration shall be in writing, setting forth in detail the claim or claims to be arbitrated, the amount involved, if any, and the remedy sought. It shall be delivered to the other Party within ninety (90) days of the date of the first knowledge of the claiming Party of the occurrence or conditions giving rise to the dispute. Any failure to request arbitration within such ninety (90) day period shall be deemed a waiver of the right to arbitrate the dispute. Within fifteen (15) days after the delivery of the request, the Parties shall agree upon an arbitrator. If the Parties are unable to agree upon the arbitrator within such fifteen (15) days, the arbitrator, who shall be an expert in the field of knowledge wherein the controversy lies, shall be selected by the Senior Judge of the United States Court of Appeals for the Eighth Circuit. The decision of the arbitrator shall be limited to selecting either the position and remedy stated by the Party in its request or the position and remedy stated by the other Party in its response to such request. The arbitrator shall have no power to mediate or compromise any dispute, but shall have only the limited authority herein provided to review the information presented by the Parties and to select the position and remedy proposed by one of the Parties. The award of the arbitrator shall be binding upon the Parties.
It is mutually understood that the existence of a dispute which has or may become the subject of an arbitration shall in no way excuse either Coteau or Dakota from performing its obligations under Section 4.3 hereof, and each of the Parties hereto shall continue to perform in accordance with the terms of this Agreement irrespective of the existence of any such dispute.

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Section 16.3      Assignment.
This Agreement shall not be assigned by either Party without the written consent of the other Party except that either Coteau or Dakota may assign its interest in this Agreement either in connection with the merger, consolidation or sale of substantially all the assets of the assigning Party or under their respective mortgages or indentures to finance any of Coteau's Mine or Dakota's Plants. Any such permitted assignment shall not relieve the assignor of its obligation hereunder.
Section 16.4      Conduct of Operations.
Coteau shall conduct its mining operations hereunder in a careful, good and workmanlike manner according to the best mining practices prevalent in the field. Coteau shall also use its best efforts to operate Coteau's Mine in accordance with the laws, rules and regulations of all applicable federal, state and local governments, or their instrumentalities, if any, relating to mining operations and using of mining premises; provided, however, that Coteau shall have the right to contest in good faith through appropriate legal proceedings the validity or applicability of any such law, rule or regulation so long as Coteau gives Dakota prompt written notice of such proceedings and so long as the exercise of such right does not result in excessive additional costs or does not result in the closure of Coteau's Mine or a substantial portion thereof.
Section 16.5      Right of Inspection.
Dakota or its Affiliates, as Dakota's designees, shall upon reasonable notice have the right and privilege at any time of entering Coteau's Mine in order to inspect or survey the same and Dakota may designate a permanent representative for such purpose; provided, however, that the exercise of such rights shall not interfere with the operation of Coteau's Mine. Coteau shall implement the written recommendations made by Dakota pursuant to written notice in accordance with Section 16.13 hereof with respect to Coteau's mining operations; provided, however, that such suggestions or recommendations are consistent with sound engineering and design practices and in accordance with applicable laws, rules and regulations, unless Coteau shall have responded in writing to Dakota setting forth the reasons for not implementing such recommendations and such reasons must be based on prudent management practices.
Section 16.6      Insurance.
Coteau shall obtain and maintain insurance, to the extent available, with such coverage and of such types, limits and amounts as may be from time to time required and approved by Dakota, including but not limited to public liability, fire insurance with extended coverage and additional extended coverage, insurance covering physical damage to equipment and mine restoration.
Section 16.7      Third Party Beneficiaries.
Coteau and Dakota acknowledge and agree that this Agreement is intended to directly benefit the Affiliates of Dakota, including Basin Electric and DGC, and the Affiliates of Coteau, including North American Coal, which are third party beneficiaries to this Agreement.
Section 16.8      Table of Contents and Headings.
The table of contents, titles and headings of the Articles and Sections of this Agreement have been inserted for the convenience of reference only, are not to be considered part hereof and shall in no way modify or restrict the meaning of the terms or provisions hereof. As used herein, any gender shall include any other gender, the singular shall include the plural and the plural shall include the singular, wherever appropriate.
Section 16.9      Governing Law.
This Agreement and the rights and obligations of the Parties to this Agreement shall be governed and construed in accordance with the laws of the State of North Dakota.
Section 16.10      Amendments.
This Agreement may not be amended, except in each instance pursuant to a written document executed by the Parties.
Section 16.11      Representations and Warranties.

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a)
Coteau represents and warrants to Dakota that: (i) Coteau is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio qualified to do business in the State of North Dakota, (ii) the execution and delivery of this Agreement by Coteau and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, (iii) neither the execution and delivery of this Agreement nor the performance of its obligations hereunder by Coteau shall, or after the lapse of time or with the giving of notice shall, conflict with, violate or result in a breach of, or constitute a default under the Articles of Incorporation or Regulations of Coteau or any law, statute, rule or regulation applicable to it, or except as set forth in that certain letter agreement dated August 3, 1990 among the Parties, North American Coal and Basin Electric conflict with, violate or result in a breach of or constitute a default under any material agreement to which it is a party or by which it or any of its properties is bound, or any judgment, order, award or decree to which Coteau is a party or by which it is bound, or, except as set forth in Section 16.15 hereof require any approval, consent, authorization or other action by any court, governmental authority or regulatory body or any creditor of Coteau or any other person or entity and (iv) this Agreement constitutes a valid and binding obligation of Coteau and this Agreement is enforceable against Coteau in accordance with its terms.
b)
Dakota represents and warrants to Coteau that: (i) Dakota is a corporation duly organized, validly existing and in good standing under the laws of the State of North Dakota, (ii) the execution and delivery of this Agreement by Dakota and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, (iii) neither the execution and delivery of this Agreement nor the performance of its obligations hereunder by Dakota shall, or after the lapse of time or giving of notice shall, conflict with, violate or result in the breach of, or constitute a default under the Articles of Incorporation or Bylaws of Dakota or any law, statute, rule or regulation applicable to it, or except as set forth in that certain letter agreement dated August 3, 1990 among the Parties, North American Coal and Basin Electric conflict with, violate or result in the breach of or constitute a default under any material agreement to which it is a party or by which it or any of its properties is bound, or any judgment, order, award or decree to which Dakota is a party or by which it is bound, or except as set forth in Section 16.15 hereof require any approval, consent, authorization or other action by any court, governmental authority or regulatory body or any creditor of Dakota or any other person or entity and (iv) this Agreement constitutes a valid and binding obligation of Dakota and this Agreement is enforceable against Dakota in accordance with its terms.
Section 16.12      Counterparts.
This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
Section 16.13      Notices.
Coteau and Dakota each shall appoint a designee to receive and give on behalf of Coteau and Dakota all notices and other communications required or permitted under this Agreement.
Except as otherwise expressly stated in this Agreement, any such notice or other communication shall be in writing to the other Party and shall be deemed to have been duly given when delivered in person or posted by United States registered or certified mail, with postage prepaid, addressed to the designated representatives of Coteau and Dakota as follows:
a) To Coteau:
The Coteau Properties Company
P.O. Box 1089
Beulah, ND 58523


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Attention: President

with copies to:


The Coteau Properties Company
2000 Schafer Street
Box No. 5500
Bismarck, ND 58502-5500
Attention: Chairman

and

The North American Coal Corporation
13140 Coit Road
Suite 400
Dallas, TX 75240-5784
Attention: President and
Chief Executive Officer

b)
To Dakota:
Dakota Coal Company
1600 East Interstate Avenue Bismarck, NO 58501-0561 Attention: Vice President and Chief Operating Officer

c) To such other address or addresses as the Parties may from time to time
designate in writing.
Section 16.14      Prior Agreement.
Coteau and Dakota, as assignee of ANG’s rights, interests and obligations under the Coal Sales Agreement, hereby agree that, effective as of the date hereof, the Coal Sales Agreement is hereby terminated and shall be of no further force and effect; provided, however, that Section 5.6 and Section 5.7 of the Coal Sales Agreement are not terminated hereby but shall survive such termination hereunder and shall remain in full force and effect until such time as the Coal Reserve Agreement is of no further force and effect; and provided further, however, that any and all liabilities and obligations of Coteau, ANG and Dakota under the Coal Sales Agreement which have accrued prior to such termination are not terminated hereby but shall survive such termination.
Section 16.15      REA Approval.
The effectiveness of this Agreement is subject to the approval of the Administrator of the Rural Electrification Administration, United States Department of Agriculture, or his designee.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on their behalf by their respective authorized representatives as of the day first written above.
THE COTEAU PROPERTIES COMPANY

By:


/s/ H. D. Jacot
Chairman

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ATTEST:


/s/ Thomas A. Koza
Secretary


DAKOTA COAL COMPANYY

By:


/s/ Robert L. McPhail
President and Chief
Executive Officer


ATTEST:


/s/ Signature Illegible
Secretary





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Exhibits A - I
[* * *]

















































* * * Confidential Treatment Requested

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Exhibit 10.12

CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.  PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED HAVE BEEN MARKED WITH THREE ASTERISKS [***] AND A FOOTNOTE INDICATING “CONFIDENTIAL TREATMENT REQUESTED”.  MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

FIRST AMENDMENT TO COTEAU LIGNITE SALES AGREEMENT
THIS FIRST AMENDMENT TO COTEAU LIGNITE SALES AGREEMENT ("Amendment") dated as of June 1, 1994, is by and between THE COTEAU PROPERTIES COMPANY, an Ohio corporation authorized to do business in the State of North Dakota ( Coteau ) and DAKOTA COAL COMPANY, a North Dakota corporation ( Dakota ).
WITNESSETH:
WHEREAS, Coteau and Dakota are parties to the Coteau Lignite Sales Agreement dated as of January 1, 1990 (the Coteau Lignite Sales Agreement ); and
WHEREAS, the Parties desire to amend the Coteau Lignite Sales Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, the Parties agree as follows:
1. All capitalized terms used in this Amendment shall have the meanings ascribed to them in the Coteau Lignite Sales Agreement unless such terms are otherwise defined herein, or unless the context clearly otherwise requires.
2. Section 1.1 of the Coteau Lignite Sales Agreement hereby is amended by adding the following definition after the definition of the term ANG:
Antelope Valley shall mean the Antelope Valley Station, consisting of two 450 MW generating units named "Unit 1" and "Unit 2", located at a site adjacent to Great Plains near Beulah, North Dakota, and which is controlled and operated by Basin Electric.




3. Section 1.1 of the Coteau Lignite Sales Agreement hereby is amended by adding the
following definition after the definition of the term Dakota :

Dakota Option Agreement shall mean the Dakota Option Agreement dated January 1, 1992 by and among Coteau, Dakota and the State of North Dakota doing business as the Bank of North Dakota (as escrow agent).
4. The definitions of the terms Dakota's Other Plants and Dakota's Primary Plants in
Section 1.1 of the Coteau Lignite Sales Agreement hereby are amended to read in their entirety as
follows:

Dakota's Other Plants shall mean all additional generating units installed by Basin Electric that increase the original generating capacity of Antelope Valley and all additional gasifiers as well as the incremental increased capacity achieved by replacing one or more of the existing gasifiers with a replacement gasifier having a capacity greater than that of the gasifier being replaced at or near Great Plains.
Dakota's Primary Plants shall mean collectively Antelope Valley and Great Plans.
5. Section 1.1 of the Coteau Lignite Sales Agreement hereby is amended by adding the following definition after the definition of the term Escrowed Stock:
GAAP shall mean generally accepted accounting principles .
6. Section 1.1 of the Coteau Lignite Sales Agreement hereby is amended by adding the
following definition after the definition of the term Glenharold Mine :

Great Plains shall mean the Great Plains Coal Gasification Plant, the first phase of which consists of a Lurgi lignite gasification facility with the capability of producing approximately 175 MMSCF/D of pipeline quality synthetic natural gas and is located on a site adjacent to Antelope Valley near Beulah, No4th Dakota, which is owned and operated by DGC.
7. The definition of the term Index in Section 1.1 of the Coteau Lignite Sales Agreement hereby is amended to read in its entirety as follows:

Index shall mean the average Producer Price Index - All Commodities on the base 1982 = 100, published by the Bureau of Labor Statistics of the U.S. Department of Labor, for the months of January through November of said calendar year. The base for calculating changes in the Index in Subsections 5.5(a), 5.5(b) and 5.5(c) hereof shall be the Producer Price Index - All Commodities for July 1988.





8. The fifth paragraph of Section 4.10 of the Coteau Lignite Sales Agreement hereby is
amended to read in its entirety as follows:

Coteau shall develop formal written policies with respect to donations to charitable and civic organizations and corporate sponsorships, which policies shall be subject to approval by Dakota. All expenditures by Coteau for donations and sponsorships that are included in the cost of Production shall be subject to approval by Dakota.
9. Section 5.2(a) of the Coteau Lignite Sales Agreement hereby is amended by deleting
clauses (xiv) and (xv) in their entirety and adding the following in lieu thereof:
xiv)
Acquisition costs and carrying charges payable to Cocteau for surface and coal interests which are within the areas of Dedicated Lignite,
xv)
Amounts payable to WCDC pursuant to paragraph 7 of the Coal Reserve Agreement, and
xvi)
Amounts payable to WCDC pursuant to paragraph 8 of the Coal Reserve Agreement.
10. Subsection 5.4(a) of the Coteau Lignite Sales Agreement hereby is amended to read in
its entirety as follows:
a)
i) For lignite sold and delivered hereunder in any calendar year before January 1, 1994 and after December 31, 2006 for use at Dakota's Primary Plants, the Agreed Profit, expressed in July 1, 1988 dollars, shall be [* * *] per Ton for all Tons of lignite up to and including [* * *] Tons for such year and shall be [* * *] per Ton for all Tons of lignite which exceed [* * *] Tons for such year, which such amounts of Agreed Profit shall be adjusted as provided in Subsection 5.5(a) hereof..

ii) For lignite sold and delivered hereunder in any calendar year between January 1, 1994 and December 31, 2006 for use at Antelope Valley, the Agreed Profit, expressed in July 1, 1988 dollars, shall be [* * *] per Ton for all Tons of lignite until the total quantity of lignite delivered to all of Dakota's Primary Plants equals [* * *] Tons for such year and thereafter shall be [* * *] per Ton for all Tons in excess of [* * *] Tons sold and delivered to Dakota's Primary Plants in such year, which such amounts of Agreed Profit shall be subject to adjustment as provided in Subsection 5.5(a) hereof. Notwithstanding the foregoing sentence, if Great Plains permanently and completely ceases production of
* * * Confidential Treatment Requested





synthetic natural gas on or before December 31, 1997, then for a period of two (2) years following the date on which Great Plains so ceases such production, the Agreed Profit
for lignite sold and delivered hereunder for use at Antelope Valley, after adjustment pursuant to Subsection 5.5 (a) hereof, shall be reduced by [* * *] per Ton, which amount of reduction shall not be subject to any adjustment. If Great Plains permanently and completely ceases production of synthetic natural gas after December 31, 1997, then the Agreed Profit for Lignite sold and delivered hereunder for use at Antelope Valley, after adjustment pursuant to Subsection 5.5(a) hereof, shall not be reduced thereafter by the [* * *] .

iii) For lignite sold and delivered hereunder in any calendar year between January 1, 1994 and December 31, 2006 for use at Great Plains, the Agreed Profit, expressed in July 1, 1988 dollars, shall be [* * *] per Ton, which such amount of Agreed Profit shall be subject to adjustment as provided in Subsection 5.5(a) hereof and after such adjustment shall be reduced by [* * *] per Ton, which amount of reduction shall not be subject to any adjustment.

iv) For the first [* * *] Tons of lignite sold and delivered from the Dedicated Lignite for use at Dakota's Primary Plants following December 31, 1989, the Agreed Profit per Ton, after adjustment pursuant to Subsection 5.5(a) hereof, shall be reduced by an amount equal to [* * *] adjusted in the manner as provided in paragraph 7 of the Coal Reserve Agreement. An example of the aforesaid calculation is attached hereto as Exhibit c and made a part hereof.
11. The references to Subsection 5.4 (a) that are contained in Subsections 5.4(b) and 5.4(c) hereby are amended to mean and refer to Subsection 5.4(a) (i). In addition, the second reference to Subsection 5.4(a) that is contained in clause (i) of Subsection 5.7(a) hereby is amended to mean and refer to Subsection 5.4(a) (i).
12. Section 5.6 of the Coteau Lignite Sales Agreement hereby is amended to read in its entirety
as follows:
Section 5.6     Further Modifications .

If at any time during the term of this Agreement it is reasonably believed by either Party that the [* * *] or any index substituted therefor in accordance with the following provisions no longer reflects the true change in purchasing power of the United States dollar, then upon the written request of either Party a substituted index or method whereby such change in purchasing power of the United States dollar can be determined shall be substituted by mutual agreement. In the event that the [* * *] * * * Confidential Treatment Requested





or any substituted index is changed in the future to use some base other than the base of 1982 = 100, then, for the purposes hereof, the [* * *] or any substitute index, as the case may be, shall be adjusted so as to be in correct relationship to the base of 1982 = 100, or some other alternative base which is mutually agreeable to Coteau and Dakota. In the event publication of the [* * *]

or any substituted index is no longer made by any federal agency, the index to be used as aforesaid shall be that index agreed to by the Parties which, after necessary adjustment, if any, provides the most reasonable substitute for said index.

13. Exhibits C, D, E and F hereto hereby are substituted for Exhibits C, D, E and F to the Coteau Lignite Sales Agreement, respectively, each of which shall be of no further force or effect.
14. Section 13.2 of the Coteau Lignite Sales Agreement hereby is amended to read in its
entirety as follows:
Section 13 .2     Other Activities .
Notwithstanding the provisions of Section 13.1 hereof, it is contemplated that Coteau may provide other services to Dakota or its Affiliates such as solid waste disposal, disposal of excess lignite fines, snow removal as well as such other services, in each instance as may be mutually agreed upon by Coteau and Dakota. It is further contemplated that Coteau shall provide such services to Dakota or its Affiliates at a price agreed to by the Parties.

15. Section 14.1 of the Coteau Lignite Sales Agreement hereby is amended to read in its
entirety as follows: Section 14.1 Term.

a)
The original term of this Agreement shall commence on January 1, 1990 and shall expire on April 22, 2007, provided that Coteau shall have the option to extend this Agreement for up to six (6) successive five (5) year periods by giving written notification to Dakota not less than three (3) years before the expiration of the original term, or in the case of renewal terms, eighteen (18) months before the expiration of the renewal term then in effect.

b)
If Coteau elects to extend this Agreement for all six (6) such periods, then Dakota shall have · the option to extend this Agreement for up to four (4) additional successive five (5) year periods by giving written notification to Coteau not less than eighteen (18) months before the expiration of the renewal term then in effect.
* * * Confidential Treatment Requested





c)
If Coteau does not elect to extend this Agreement for all six (6) such periods, then Dakota shall have no right to extend this Agreement for any additional periods.

d)
Notwithstanding the foregoing, this Agreement shall terminate upon the exhaustion of the Dedicated Lignite. The lignite covered by any particular lease shall be deemed to be exhausted upon the expiration of such lease without further right of renewal.
16. Section 14.4 of the Coteau Lignite Sales Agreement hereby is amended to read in its entirety as follows:

Section 14.4     Exercise of Option of Escrowed Stock .

a)
Upon the expiration of the original term of this Agreement, Dakota may exercise its right pursuant to the option Agreement to cause the transfer of the Escrowed Stock to Dakota, provided that Coteau has not exercised its right to extend the original term of this Agreement pursuant to Section 14.1 hereof and provided, further, that Dakota has not exercised any of its rights under Section 14.2 hereof. To exercise said right, Dakota shall give written notice to Coteau with a copy to the escrow agent under the Option Agreement not less than twenty-four (24) months and not more than thirty-five (35) months before the expiration of the original term and shall otherwise comply with the terms and conditions of the Option Agreement.

b)
Upon the expiration of any renewal term of this Agreement that occurs on or before April 22, 2032, Dakota may exercise its right pursuant to the Option Agreement to cause the transfer of the Escrowed Stock to Dakota, provided that Coteau has not exercised its right to further extend such renewal term of this Agreement pursuant to Section 14.1 hereof and provided, further, that Dakota has not exercised any of its rights under Section 14.2 hereof. To exercise said right, Dakota shall give written notice to Coteau with a copy to the escrow agent under the Option Agreement not less than twelve (12) months and not more than seventeen (17) months before the expiration of such renewal term and shall otherwise comply with the terms and conditions of the Option Agreement.

c)
Upon the expiration of any renewal term of this Agreement that occurs on or after April 22, 2037, Dakota may exercise its right pursuant to the Option Agreement to cause the transfer of the Escrowed Stock to Dakota, provided that Dakota has not exercised any of its rights under Section 14.2 hereof. To exercise said right, Dakota shall give written notice to Coteau with a copy to the escrow agent under the Option Agreement not less than seventeen (17) months before the expiration of such renewal term and shall otherwise comply with the terms and conditions of the Option Agreement.
17. Article XIV of the Coteau Lignite Sales Agreement hereby is amended by adding a new Section 14.5 thereto, which shall read in its entirety as follows:




Section 14.5
Reimbursement for Certain Additional Deferred Tax Liabilities and Assets.

On January 1, 1990, the effective date of this Agreement, GAAP required Coteau to follow Accounting Principles Board Opinion No. 11, entitled "Accounting for Income Taxes” ("APB 11"), or Statement of Financial Accounting Standard No. 96, entitled "Accounting for Income Taxes" ("SFAS 96"). Coteau did not adopt SFAS 96, and no further reference to SFAS 96 is either intended or implied herein. For fiscal years commencing after December 15, 1992, GAAP have required Coteau to adopt Statement of Financial Accounting Standard No. 109, entitled "Accounting for Income Taxes" ("SFAS 109"), which supersedes APB 11. Under SFAS 109, because of the difference between the financial statement and income tax basis of its assets and its liabilities, Coteau is required to record additional net deferred tax liabilities (“ADTL") on its financial statements for certain years that it was not required to record under APB 11. The amount of the ADTL will decrease with time. If Coteau continues in operation for a sufficient period of time, Coteau will not have to pay any portion of the ADTL and may be required to record additional net deferred tax assets ("ADTA") on its financial statements for certain years that it would not be required to record under APB 11.

So long as GAAP requires that ADTL continue to be recorded on Coteau's financial statements, the amount of dividends Coteau is able to pay under Section 4.8 hereof will be reduced, because the amount of the ADTL will reduce the earned surplus from which such dividends may be paid. Accordingly, the Parties agree that if this Agreement terminates and/or if the Escrowed Stock is transferred to Dakota for any reason, then in addition to any other payments by Dakota to North American Coal provided for in this Agreement, the Option Agreement and/or the Dakota Option Agreement, Dakota shall pay to North American Coal an amount equal to the difference between (x) the amount of net deferred tax liabilities recorded on Coteau's financial statements on the date the Escrowed stock is transferred to Dakota and (y) the amount of net deferred tax liabilities that Coteau would have recorded on such date if Coteau had determined such liabilities by the method it used prior to its required adoption of SFAS 109. Under no circumstances shall the amount of the payment by Dakota under this Subsection 14.5 exceed the total Agreed Profit paid to Coteau since its adoption of SFAS 109 less the sum of (i) the dividends paid by Coteau since its adoption of SFAS 109, (ii) the income tax payments made by Coteau with respect to years for which SFAS 109 was adopted, and (iii) the net deferred tax liabilities that would be payable by Coteau following the transfer of the Escrowed Stock in respect of its prior mining operations, if such deferred taxes were determined by the method Coteau used prior to its required adoption of SFAS 109 , so long as GAAP requires that ADTA continue to be recorded on Coteau's financial statements, the amount of dividends Coteau is able to pay under Section 4 hereof will be increased by the amount of the ADTA. Accordingly, the Parties agree that if this Agreement terminates and/or if the Escrowed Stock is transferred to Dakota for any reason, then Coteau shall retain as an asset, and North American Coal shall not cause or permit Coteau to distribute to it as a dividend, an amount equal to the difference between (X) the amount of net deferred tax assets recorded on Coteau's financial statements




on the date the Escrowed Stock is transferred to Dakota and (y) the amount of net deferred tax assets that Coteau would have recorded on such date if Coteau had determined such assets in accordance with SFAS 109. Article XV of the Coteau Lignite Sales Agreement and all references thereto in the Coteau Lignite Sales Agreement hereby are deleted in their entirety effective as of June 1, 1994. Section 16.15 of the Coteau Lignite Sales Agreement hereby is deleted in its entirety effective as of January 1, 1990. All of the other terms and provisions of the Coteau Lignite Sales Agreement not expressly amended hereby shall continue and remain in full force and effect. 21. This Amendment may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall collectively constitute one and the same instrument.





IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed on their behalf by their respective authorized representatives as of the day first written above.

Attest:
THE COTEAU PROPERTIES COMPANY
/s/ Thomas A. Koza
By /s/ Robert L. Benson
Secretary
Robert L. Benson, its President
 
 
Attest:
DAKOTA COAL COMPANY
/s/ Signature Illegible
By /s/ Kent E. Jenssen
Secretary
Title: Vice President & Chief Operating Officer
 
 





Exhibits C, D, E and F
[* * *]





















* * * Confidential Treatment Requested




Exhibit 10.13
CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.  PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED HAVE BEEN MARKED WITH THREE ASTERISKS [***] AND A FOOTNOTE INDICATING “CONFIDENTIAL TREATMENT REQUESTED”.  MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SECOND AMENDMENT
TO
COTEAU LIGNITE SALES AGREEMENT
THIS SECOND AMENDMENT TO THE COTEAU LIGNITE SALES AGREEMENT ("Amendment") dated as of January 1, 1997, is by and between THE COTEAU PROPERTIES COMPANY , an Ohio corporation authorized to do business in the State of North Dakota ("Coteau") , and DAKOTA COAL COMPANY , a North Dakota corporation (“Dakota”).
WITNESSETH :
WHEREAS , Dakota and Coteau are parties to the Coteau Lignite Sales Agreement dated as of January 1, 1990, as amended by the First Amendment dated as of June 1, 1994 (hereinafter referred to as the "Coteau Lignite Sales Agreement"); and
WHEREAS , the Parties desire to further amend the Coteau Lignite Sales Agreement as hereinafter provided .
NOW, THEREFORE , in consideration of the foregoing and the mutual covenants and agreements contained herein, the Parties agree as follows:
1.
All capitalized terms used in this Amendment shall have the meanings ascribed to them in the Coteau Lignite Sales Agreement unless such terms are otherwise defined herein, or unless the context otherwise clearly requires.
2.
Subsection 4.2(a) of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows :

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“a)
An annual capital budget containing estimates of all commitments in excess of $25,000 . Within forty-five (45) days after Dakota's receipt of the foregoing annual capital budget, Dakota shall give Coteau written notice of Dakota's approval or disapproval of such capital budget. If Dakota shall fail to give such notice within such forty-five (45) day period, Dakota shall be deemed to have approved such budget. Coteau may submit proposed capital budgets for previously unforeseen capital expenditures at any time, and Dakota shall give due consideration to such requests and shall respond to such requests within thirty (30) days. Upon the approval of any capital budget or portion thereof by Dakota, such budget or portion thereof shall be deemed part of the Mining Plan."
3.
The first paragraph of Section 4.3 of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:
Co teau shall not make any expenditures unless they are generally reflected in a budget, or portion thereof, approved by Dakota as aforesaid; nor shall Coteau make ) any single expenditure (except for expenditures made to maintain inventory levels as approved by Dakota from time to time) for materials, supplies, equipment, facilities or services in excess of $25,000, or enter into any contracts, agreements or commitments involving more than $25,000, unless such item has been specifically identified in a budget, or portion thereof, approved by Dakota or unless Dakota has otherwise approved thereof.”
4.
Section 4.6 of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:
Coteau and Dakota shall cooperate to maintain and use a cost and physical progress data reporting system which (a) provides actual cost and expenditure scheduling status · reports to Dakota for the immediately preceding calendar month by the fifteenth (15th) Business Day of every month, (b) reports actual cost and operational statistics relative to the Mining Plan and (c) provides adequate audit trail information. Such cost control system may include the preparation by Coteau, as requested by Dakota, or various budget, expenditure and operational

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statistical reports in a format acceptable to Dakota, or such other documents as requested by Dakota.”
5.
Section 4.7 of the Coteau Lignite Sales Agreement is hereby deleted in its entirety.
6.
The second paragraph of Section 4.9 of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:
“Coteau's accounting system and practices shall conform to Dakota's specifications, which shall be in accordance with generally accepted accounting principles, and shall be subject to Dakota's approval. Coteau shall notify Dakota in writing of any proposed material changes to Coteau's accounting system and practices previously approved by Dakota. Coteau's accounting system shall provide for cost classifications (chart of accounts) as requested by Dakota which shall include the maintenance of separate cash accounts to the extent requested by Dakota.”
7.
Section 4.10 of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows :
“Expenditures by Coteau for memberships in trade associations which are included in the Cost of Production shall be limited to the expenditures for one such membership, unless expenditures for additional memberships are approved by Dakota. Coteau shall keep Dakota apprised of the activities of the trade associations of which Coteau is a member and shall use its influence as a member to support the causes of Dakota. Further, Coteau shall consider the advice and counsel of Dakota with regard to national issues concerning coal and the affairs of Dakota's customers.
Coteau's policies and practices with respect to matters such as materials, supplies, facilities, services and equipment procurement, executive compensation plans, travel and entertainment, overtime, labor reporting, attendance at seminars, meetings and schools, use of company vehicles , mine-related cost allocation methods, equipment replacement , employee insurance , relocation expense, donations to charitable and civic organizations, corporate sponsorships and vacation and retirement benefits shall be generally consistent with those of North American

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Coal or the surface coal mining industry. Such policies and practices shall be subject to approval by Dakota, and any material changes to the aforementioned policies and practices shall be subject to approval by Dakota. Such approval shall not be unreasonably withheld if such policies and practices are consistent with those of North American Coal or the surface coal mining industry.”
8.
Subsection 5.2(a)(i) of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:
“(i)
Labor costs, which include wages and the costs of all related payroll taxes, benefits and fringes , including welfare plans, health benefits, vacations and other comparable benefits of employees and corporate officers of Coteau located at Coteau's Mine, and employees of Coteau and Affiliates of Coteau located elsewhere in North Dakota, whose labor costs are properly charged to Coteau's Mine,
9.
Subsection 5.2(a)(ix) of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:
"(ix)
Worker's compensation insurance, either in the state fund or self-insurance, whichever in the best judgment of Coteau is more advantageous,"
10.
Subsection 5.2(a) of the Coteau Lignite Sales Agreement is hereby amended by adding the following provision at the end thereof:
“If any of the foregoing items in Subsection 5.2(a) hereof includes costs incurred by an Affiliate of Coteau and charged to Coteau, they shall be included only at the cost to such Affiliate without addition for loading, inter-company profit or service charge and shall be allocated to Coteau on the basis of time spend or (in the case of buildings) space used.”
11.
Subsection 5.2(b) of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:

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“b)
The sum of [* * *] per Ton of lignite sold and delivered hereunder (subject to adjustment as set forth herein) shall be added to the Cost of Production for general and administrative costs. General and administrative costs which are to be
covered by such amount of [* * *] (and are not to be otherwise included in the Cost of Production) are: (i) general accounting and billing expense for those functions performed at locations other than Coteau's Mine, (ii) salaries and related expenses, such as payroll taxes, pensions and worker's compensation, of corporate officers and employees of Coteau and corporate officers and employees of Affiliates of Coteau not included in Subsection 5.2(a)(i) hereof, unless such expenses are specifically approved by Dakota to be charged to the Cost of Production, (iii) travel, telephone, postage and general office expense for persons or services included in general and administrative costs, (iv) computer hardware and software operated at locations other than Coteau's Mine and other North Dakota facilities, (v) national memberships and contributions of Affiliates of Coteau (vi) audit expense of Coteau and Affiliates of Coteau pursuant to Subsection 6.1(a) hereof and (vii) legal expense of Coteau and Affiliates of Coteau except (A) such legal expense incurred through the use of attorneys who are not employees of Coteau and Affiliates of Coteau (i.e., outside legal counsel) provided that such use of outside legal counsel is approved by the President of Coteau, and (B) such other legal expenses, as are specifically approved by Dakota, in writing, to be charged to the Cost of Production. Such $0.0686 per Ton shall exclude amounts for general insurance expenses.
Beginning on December 31, 1997, for the year 1997, and by each December 31 thereafter for the preceding calendar year, the amount of [* * *] per Ton of lignite sold and delivered hereunder for general and administrative costs shall be adjusted utilizing the [* * *] published by the U.S. Department of Labor, Bureau of Labor Statistics [* * *] for December, 1996 ( [* * *] ) as the base, and using the average of the [* * *] for the first eleven months of each calendar year, by:
i)
One hundred percent (100%) of that portion of the percentage increase or decrease in the average [* * *] relative to the previous year's average [* * *] which is less than or equal to four percent (4%), and
* * * Confidential Treatment Requested

5



i)
Eighty percent (80%) of that portion of the percentage increase or decrease in the average [* * *] relative to the previous year's average [* * *] which is greater than four percent (4%) and less than eight percent (8%) and
(iii)
sixty percent (60%) of that portion of the percentage increase or decrease in the average [* * *] relative to the previous year's average [* * *] which is equal to or greater than eight percent (8%) .
Subsequent to each such adjustment, the amount for general and administrative costs shall never be less than [* * *] per Ton of lignite sold and delivered hereunder. Examples of the aforesaid calculation are attached hereto as Exhibit I and made a part hereof.
In addition to the amount of [* * *] per Ton of lignite sold and delivered hereunder for general and administrative costs, actual general insurance expenses incurred by Coteau or Affiliates of Coteau applicable to Coteau's Mine shall be included in the general and administrative costs category. Actual general insurance expenses shall include property, liability and executive risk (directors' and officers', fiduciary, fidelity) insurance. The types of insurance included in the definition of general insurance may be modified by mutual agreement of Coteau and Dakota.''
12.
Section 6.1 of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows:
“a)
Coteau shall have an audit of its accounts performed annually by a firm of independent certified public accountants and shall provide Dakota with a copy of such audit. Coteau or Affiliates of Coteau further shall have the right at any time to have an audit of Coteau's accounts performed by such other parties as Coteau or Affiliates of Coteau deem necessary.
* * * Confidential Treatment Requested


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b)
Dakota shall have the right at any time on reasonable notice in writing to Coteau to examine by its certified public accountants (which may include representatives of Basin Electric or its Affiliate) the records and books of account of Coteau and any Affiliate of Coteau, relating to the items and allocations of cost and production entering into the computation of the Cost of Production. Payment or payments under Article VII of this Agreement shall not be deemed a waiver of any rights of Dakota to have the price hereunder corrected.”
13.
Section 12.3 of the Coteau Lignite Sales Agreement is hereby amended to read in its entirety as follows :
“Coteau agrees to make all payments due under those leases acquired by or assigned or transferred to Coteau in the Dedicated Lignite in a timely manner, not to permit any default under said leases to occur, not to surrender said leases in whole or in part without the written consent of Dakota and not to encumber, assign or sublease said leases, except in connection with financing pursuant to Section 10.1 hereof.”
14.
All of the other terms and provisions of the Coteau Lignite Sales Agreement not expressly amended hereby shall continue and remain in full force and effect.
15.
This Amendment may be executed in any number of counterparts, each of which , when executed and delivered, shall be an original, but all of which shall collectively constitute one and the same instrument .
IN WITNESS WHEREOF , the Parties have caused this Amendment to be duly executed on their behalf by their authorized representatives as of the day first written above.

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THE COTEAU PROPERTIES COMPANY
By  /s/ Marc M. Schultz
Marc M. Schultz
Its  President
 
Attest
/s/ Thomas A. Koza
    Secretary
 
DAKOTA COAL COMPANY
By  /s/ Kent E. Janssen
Kent E. Janssen
Its  Vice President & Chief Operating Officer
 
Attest
/s/  Mark D. Foss



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Exhibit I

[* * *]










































* * * Confidential Treatment Requested

9
Exhibit 10.14
OPTION AND PUT AGREEMENT
THIS OPTION AND PUT AGREEMENT ("Agreement") is made and entered into as of the 1st day of January, 1990, by and among THE NORTH AMERICAN COAL CORPORATION, a Delaware corporation, hereinafter referred to as "North American Coal"; DAKOTA COAL COMPANY, a North Dakota corporation, hereinafter referred to as "Dakota"; and the STATE OF NORTH DAKOTA, doing business as the Bank of North Dakota, hereinafter referred to as "Escrow Agent''.
In consideration of the agreements herein set forth, and intending to be legally bound hereby, the parties hereto agree as follows:
Section 1.
GRANT OF OPTION AND PUT
1.1      North American Coal hereby grants to Dakota the exclusive right, option and privilege ("Option"), during the term of this Agreement, upon the terms and subject to the conditions herein set forth, to purchase all of the Escrowed Stock of THE COTEAU PROPERTIES COMPANY, an Ohio corporation (hereinafter referred to as "Coteau"), referred to in Section 2 hereof, at the price set forth in Section 5 hereof, subject to the price adjustment set forth in Section 6 hereof.
1.2      Upon notice in writing to Dakota and otherwise upon the terms and subject to the conditions herein set forth, North American Coal may require, at any time prior to April 22, 2007, that Dakota purchase all of the Escrowed Stock ("Put”) referred to in Section 2 hereof, at the price set forth in Section 5 hereof, subject to the price adjustment set forth Section 6 hereof.
Section 2.
TRANSFER OF STOCK; LEGEND
2.1      At the time of the execution and delivery hereof, North American Coal has delivered to Escrow Agent for the purposes herein specified, and Escrow Agent hereby acknowledges the receipt of,



share certificate No. 2 for 100 shares of Common Stock without par value (hereinafter referred to as Escrowed stock") of Coteau, being all of the authorized and issued capital stock of Coteau, together with a duly executed and legally effective stock power therefor, permitting the immediate transfer of said Stock on the books of Coteau into the name of Dakota.
2.2      At the time of the execution and delivery hereof, share certificate No. 2 for the Escrowed Stock shall affixed with the following legend:
"The shares of Common Stock without par value represented by this certificate are subject to an Option and Put Agreement dated as of January 1, 1990, by and among The North American Coal Corporation ("North American Coal"), Dakota Coal Company ("Dakota") and the Bank of North Dakota, pursuant to which Dakota has the right to acquire, and North American Coal has the right to cause Dakota to acquire, such shares upon the occurrence of certain events and the compliance with certain procedures. The Corporation will mail to the holder hereof a copy of such agreement without charge within five days after receipt of a written request therefor."
Section 3.
RIGHTS OF NORTH AMERICAN COAL
So long as the Escrow Agent shall hold the Escrowed Stock, it shall remain registered in the name of North American Coal and North American Coal shall have the right to vote the Stock, receive dividends thereon and otherwise to exercise any and all rights and privileges as record and beneficial owner, except as otherwise provided herein.
Section 4.
DELIVERY BY ESCROW AGENT TO DAKOTA
4.1      The Escrow Agent shall deliver to Dakota, pursuant to the Option, the Escrowed Stock in proper form for transfer upon satisfaction of the following conditions:
(a)      The occurrence of any one of the following events, notice of which shall be given forthwith in writing to the Escrow Agent by North American Coal and Dakota:
(i)
the expiration of the original term of the coteau Lignite Sales Agreement dated January 1, 1990 (hereinafter referred to as the "Lignite Sales Agreement")

2



between Coteau and Dakota, preceded by a written notice by Dakota to North American Coal and the Escrow Agent given at least three (3) years before the expiration of such original term, certified by the President of Dakota and otherwise in accordance with the terms of the Lignite Sales Agreement, exercising the Option; or
(ii)
the expiration of any renewal term of the Lignite Sales Agreement, preceded by a written notice by Dakota to North American Coal and the Escrow Agent given at least eighteen (18) months before the expiration of such renewal term, certified by the President of Dakota and otherwise in accordance with the terms of the Lignite Sales Agreement, exercising the Option; and
(b)     Receipt by the Escrow Agent from Dakota of a certified check payable to the order of North American Coal in the amount equal to the sum of the amounts in clauses (a), (b) and (c) of Section 5.1 hereof and determined in accordance with Section 5.2 hereof.    such certified check shall be delivered to North American Coal by the Escrow Agent concurrently with the delivery of the Escrowed Stock to Dakota.
4.2      The Escrow Agent shall deliver to Dakota, and Dakota shall acquire from the Escrow Agent, pursuant to the Put, the Escrowed Stock in proper form for transfer upon satisfaction of the following conditions:
(a)      Termination of the Lignite Sales Agreement by Dakota in accordance with Section 14.2 thereof, notice of which shall be given forthwith in writing to the Escrow Agent by North American Coal and Dakota; and
(b)      Receipt by the Escrow Agent and Dakota from North American Coal of North American Coal's notice to Dakota that it is exercising the Put, which notice may be given by North American Coal at any time within ninety (90) days following the date of the notice referred to in clause (a) of this Section 4.2.

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4.3      Upon receipt of the Escrowed Stock in accordance with Section 4.2 hereof, Dakota shall deliver a certified check payable to the order of North American Coal in the amount equal to the sum of the amounts in clauses (a), (b) and (c) of Section 5.1 hereof and determined in accordance with Section 5.3 hereof.
Section 5.
PRICE DETERMINATION AND AMOUNT OF PAYMENT
5.1      The price to be paid to North American Coal for the Escrowed Stock shall be an amount equal to the sum of the following:
(a)      $1,000.00, which represents the stated capital of Coteau;
(b)      an amount equal to the amount of capital surplus of Coteau;
(c)      an amount equal to the earned surplus of Coteau; and
(d)      the production payments called for by Section 5.7 of the Lignite Sales Agreement.
5.2      If Dakota exercises the Option to purchase the Escrowed Stock at the end of the original term or a renewal term of the Lignite Sales Agreement, the amounts under clauses (b) and (c) of Section 5.1 shall be determined by Dakota as of the end of the original term or renewal term of the Lignite Sales Agreement, as the case may be, on the basis of the then most recent monthly financial statements furnished to Dakota by Coteau, and the calculation thereof shall be stated in a written notice delivered by Dakota to the Escrow Agent and North American Coal within five (5) days following the end of the original term or renewal term of the Lignite Sales Agreement, as the case may be.
5.3      If Dakota is required to purchase the Escrowed Stock pursuant to the Put, the amounts under clauses (b) and (c) of Section 5.1 shall be determined by Dakota as of the date of its termination of the Lignite Sales Agreement in accordance with Section 14.2 thereof on the basis of the then most recent monthly financial statements furnished to Dakota by coteau, and the calculation thereof shall be stated in a written notice delivered by Dakota to North American Coal within five (5) days following the date of such notice.

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Section 6.
SUBSEQUENT PRICE ADJUSTMENT
Immediately after the delivery of the Escrowed Stock to Dakota as above provided, independent public accountants selected by North American Coal and reasonably satisfactory to Dakota shall make an audit of the results of operations of Coteau for the period beginning with the date of the most recent monthly financial statements furnished to Dakota by Coteau and ending as of the date of delivery of the Escrowed Stock to Dakota and the financial position of Coteau as of such latter date and shall within ninety (90) days after the delivery of the Escrowed Stock report to Dakota and North American Coal the results of said audit. Dakota shall pay promptly by certified check to North American Coal any amount by which the certified check delivered to the Escrow Agent pursuant to Section 4 is less than the amount due to North American Coal as determined by the aforesaid audit by independent public accounts, or North American Coal shall refund promptly by certified check to Dakota any amount by which the certified check delivered to the Escrow Agent is greater than the amount due to North American Coal as so determined by such independent public accountants.
Section 7.
INDEMNIFICATION
7.1      In the event either the Option or the Put herein granted are exercised:
(a)      North American Coal shall indemnify and hold harmless Dakota from and against all claims and liabilities for state and federal income taxes of Coteau which are or shall become due for the period prior to the date of delivery of the Escrowed Stock to Dakota and not resulting from any change in accounting methods of Coteau after such date.
(b)      Dakota shall indemnify and hold harmless North American Coal from and against all claims and liabilities with respect to the obligations, indebtedness or other liabilities of Coteau incurred pursuant to the Lignite Sales Agreement for which Dakota would have been obligated or liable to pay to or reimburse Coteau directly or indirectly if Dakota has not purchased the Escrowed Stock other than claim or liabilities

5



referred to in Subsection (a) of this Section 7.1.
7.2      If any claim or liability is asserted against North American Coal or Dakota after the date of delivery of the Escrowed Stock to Dakota in respect of which indemnity may be sought hereunder by Dakota or North American Coal, the indemnified party, as a condition precedent to the obligations of the indemnifying party under this Section 7, shall promptly so notify the indemnifying party in writing of such claim. The indemnifying party, at its option, may elect to assume the defense of such claim, including the employment of legal counsel and payment of all expenses associated therewith. If the indemnifying party assumes such defense, the indemnified party agrees to cooperate and, in the case of Dakota, to cause Coteau to cooperate fully in such defense, and the indemnified party shall have the right to employ separate legal counsel and participate in such defense, but the fees and expenses of such legal counsel shall not be at the expense of the indemnifying party. If the indemnifying party elects not to assume such defense, the indemnifying party shall promptly so notify the indemnified party and the indemnifying party shall be obligated to pay the reasonable fees and expenses of legal counsel to the indemnified party in such defense.
Section 8.
DELIVERY BY ESCROW AGENT TO NORTH AMERICAN COAL
The Escrow Agent shall forthwith deliver to North American Coal the Escrowed Stock and this Agreement shall terminate upon the receipt by the Escrow Agent from North American Coal of written notification that said Lignite Sales Agreement has terminated without either the conditions set forth in Section 4.1 hereof or the conditions set forth in Section 4.2 hereof having been satisfied.
Section 9.
CUSTODY OF ESCROWED STOCK
The Escrow Agent agrees that it will hold the Escrowed Stock delivered to it by North American Coal in accordance with the provisions of this Agreement and that beneficial and record ownership of said Stock shall remain in North American Coal during the escrow period. No assignment, transfer or conveyance of any right, title or interest in or to the Escrowed Stock shall be made by the Escrow Agent except as provided in this Agreement.

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Section 10.
FEES AND DUTIES OF ESCROW AGENT; SUCCESSOR ESCROW AGENT
10.1      The Escrow Agent shall be compensated for its services hereunder at its customary rate in effect during the term hereof.    such compensation shall be paid by Dakota.
10.2      Should any controversy arise, or should the Escrow Agent have a good faith doubt concerning the right of any person to the Escrowed Stock or any check from Dakota, the Escrow Agent shall have the right, but not the duty, to institute a bill of interpleader in any court of competent jurisdiction to determine the interests of North American Coal and Dakota to the Escrowed Stock. In the event that the Escrow Agent attempts to so institute a bill of interpleader and the court denies or dismisses such bill, then the Escrow Agent shall have the right to refuse to comply with any demands made upon it and to refuse to take any other action hereunder, so long as such controversy shall continue or such doubts exists.
10.3      The Escrow Agent shall not be liable for any action it may take or fail to take as escrow agent while its conduct is in good faith and in the exercise of its own best judgment or upon the advice of its legal counsel.
10.4      The Escrow Agent shall be protected in acting upon any written notice, request, demand, waiver, consent, certificate, receipt, authorization, power of attorney, demand, letter, judgment, other paper or document which the Escrow Agent believes in good faith to be genuine and shall have no obligation to verify the underlying calculation of the amount of a certified check received in accordance with Subsection 4.l (b) or Section 4.3 hereof.
10.5      North American Coal and Dakota may at any time mutually designate in writing another person or corporation as a successor Escrow Agent. The Escrow Agent, upon receipt of such designation of such successor signed by North American Coal and Dakota, shall promptly deliver to such successor the Escrowed Stock and any check from Dakota, and thereafter such successor shall be bound by all of the covenants of the Escrow Agent contained herein.

7



10.6      The duties of the Escrow Agent are only such as are specifically provided in this Agreement, being purely ministerial in nature, and the Escrow Agent shall incur no liability whatever, except for willful misconduct or gross negligence so long as it has acted in good faith.
10.7      The Escrow Agent shall be under no responsibility in respect of the Escrowed Stock and any check from Dakota other than to faithfully follow the instructions contained herein.
The Escrow Agent may consult with its legal counsel and shall be fully protected in any action taken in good faith in accordance with such consultations. The Escrow Agent shall not be required to defend any legal proceedings which may be instituted against it in respect of the subject matter hereof unless requested to do so by the parties hereto and indemnified to its satisfaction against the cost and expense of such defense. The Escrow Agent shall not be required to institute legal proceedings of any kind.
10.8      The Escrow Agent shall have no responsibility for the genuineness or the validity of any document or other item deposited with it or for the identity or legal capacity of any party involved or for the sufficiency of any agency or for the genuineness of signatures to any papers or documents or for any delay in or under this Agreement due to any cause beyond its control, and it shall be fully protected in acting in accordance with any written instruction given to it hereunder and believed by it to have been signed by the proper parties.
10.9      The Escrow Agent shall not be liable in the event it shall be prevented from delivering the Escrowed Stock or any check from Dakota by operation of law or order of a court of competent jurisdiction.
10.10      Provided the terms hereof can be complied with, the Escrow Agent shall not withhold completion and settlement thereof, unless restrained by order of court or served with some legal proceeding having a similar effect, and in so doing, the Escrow Agent will not become liable to the undersigned, or to any other person, for its failure or refusal to comply with conflicting or adverse claims or demands.

8



10.11      In the event of a dispute between the parties, an ambiguity in the provisions hereof or uncertainty on the part of Escrow Agent as to how to proceed with the terms hereof, such that the Escrow Agent, in its sole and absolute judgment, deems it necessary for its protection to do so, Escrow Agent may (a) refrain from taking any action other than to safely keep the Escrowed Stock and any check from Dakota deposited with it until it shall have received joint written instructions from the parties hereto, or (b) deposit the Escrowed Stock and any such check into a court of competent jurisdiction and thereupon have no further duties or responsibilities in connection therewith.
10.12      The Escrow Agent may resign at any time by delivering written notice at least thirty (30) days before the date upon which such resignation is to become effective to the parties hereto, who hereby agree to designate, by a written instrument delivered to the Escrow Agent together with the acceptance of such successor on or before such effective date, a successor Escrow Agent. After the effective date of such resignation, the Escrow Agent shall be under no further obligation to perform any of the duties of Escrow Agent under the terms of this Agreement other than to deliver the Escrowed Stock and any check from Dakota previously delivered to it to a properly designated successor Escrow Agent or to deal with such Escrowed Stock and check as provided in Section 10.11 hereof. Any successor Escrow Agent shall have all of the duties, powers, rights and immunities conferred upon the Escrow Agent hereby. Any successor Escrow Agent may accept as complete and correct and may rely upon any account made by any prior Escrow Agent and shall not be subject to any liability or responsibility with respect to the prior administration by any prior Escrow Agent.
10.13      The Escrow Agent shall be entitled to reimbursement for amounts expended and expenses incurred, including fees for services and expenses of legal counsel, agents and attorneys-in-fact employed by the Escrow Agent.    Such compensation and expenses shall be paid by Dakota.
Section 11.
TERM
This Agreement, unless sooner terminated pursuant to Section 8 hereof, or by the exercise of the

9



Option or Put herein granted, in all events terminates April 23, 2057, at which time the Escrow Agent shall deliver the Escrowed Stock to North American Coal.
Section 12.
REPRESENTATIONS AND WARRANTIES
12.1      North American Coal represents and warrants to Dakota that:    (a) North American Coal is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, (b) the execution and delivery of this Agreement by North American Coal and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, (c) neither the execution and delivery of this Agreement nor the performance of its obligations hereunder by North American coal shall, or after the lapse of time or the giving of notice shall, conflict with, violate or result in any breach of, or constitute a default under the Certificate of Incorporation or By-laws of North American Coal or any law, statute, rule or regulation applicable to it, or conflict, violate or result in any breach of or constitute a default under any material agreement to which it is a party or by which it or any of its properties is bound, or any judgment, order, award or decree to which North American Coal is a party or by which it is bound, or, except as set forth in Section 13.8 hereof, require any approval, consent, authorization or other action by any court, governmental authority or regulatory body or any creditor of North American Coal or any other person or entity, and (d) this Agreement constitutes a valid and binding obligation of North American Coal, and it is enforceable against it in accordance with its terms.
12.2      Dakota represents and warrants to North American Coal that: (a) Dakota is a corporation duly organized, validly existing in good standing under the laws of the State of North Dakota, (b) the execution and delivery of this Agreement by Dakota and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, (c) neither the execution and delivery of this Agreement nor the performance of its obligations hereunder by Dakota shall, or after the lapse of time or the giving of notice shall, conflict with, violate or result in any breach of, or constitute a default under the Articles of Incorporation or Bylaws of Dakota or any law, statute, rule or regulation applicable to it, or

10



conflict with, violate or result in any breach of or default under any material agreement to which it is a party orby orby which it or any of its properties is bound, or any judgment, order, award or decree to which Dakota is a party or by which it is bound, or, except as set forth in Section 13.8 hereof, require any approval, consent, authorization or other action by any court, governmental authority or regulatory body or any creditor of Dakota or any other person or entity, and (d) this Agreement constitutes a valid and binding obligation of Dakota, and it is enforceable against it in accordance with its terms.
Section 13.
MISCELLANEOUS
13.1      This Agreement and the transactions contemplated herein shall be construed, and their validity and effect shall be determined, in accordance with the laws of the State of North Dakota.
13.2      This Agreement shall not be modified or amended except by a writing which is signed by all of the parties hereto.
13.3      All notices, demands or· other communications hereunder made shall be in writing, shall refer specifically to this Agreement and shall be deemed to have been duly given when delivered in person or when actually received (as evidenced by return receipt of the courier or after posting by United States certified Mail, Return Receipt Requested) with postage prepaid and addressed as follows:

TO NORTH AMERICAN
 
COAL:
The North American Coal Corporation
13140 Coit Road, suite 400
Dallas, Texas 75240-5784
Attention:     President and Chief
Executive Officer
 
 
TO DAKOTA:
Dakota Coal Company
1600 East Interstate Avenue
Bismarck, North Dakota 58501-0561
Attention:     Vice President and
Chief Operating Officer

11



TO ESCROW AGENT:
Bank of North Dakota
100 East Main
P. 0. Box 5509
Bismarck, North Dakota 58502-5509
Attention: Manager, Trust Department
Any such address may be changed by written notice of such change delivered to the other parties hereto.
13.4      This Agreement may not be assigned by Dakota or North American Coal without the written consent of North American Coal or Dakota, as the case may be.     This Agreement shall be binding upon and shall obligate the parties hereto and their respective successors and assigns.
13.5      This Agreement shall not be construed or interpreted so as to diminish or limit, or have the effect of diminishing or limiting, any rights or remedies which Coteau or its successors and assigns have or may have under the Lignite Sales Agreement or under law.
13.6      This Agreement may be executed in any number of identical counterparts, each of which, when executed and delivered by the parties hereto, shall be considered to be an original, but all of which shall collectively constitute one and the same instrument.
13.7      During the term of this Agreement, North American Coal shall not permit or allow Coteau to change its stated capital or corporate charter nor issue or authorize any other or additional capital stock and shall not sell, assign or otherwise dispose of or encumber, except pursuant to this Agreement, the Escrowed Stock.
13.8      The effectiveness of this Agreement is subject to the approval of the Administrator of the Rural Electrification Administration, United States Department of Agriculture, or his designee.

12



IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
ATTEST:
 
 
THE NORTH AMERICAN COAL CORPORATION
 
 
 
 
 
/s/ Thomas A. Koza
 
By
/s/ Clifford R. Miercort
Secretary
 
 
 
Clifford R. Miercort, President
 
 
 
 
And Chief Executive Officer
ATTEST:
 
 
DAKOTA COAL COMPANY
 
 
 
 
 
/s/ Michael Hinman
 
By
/s/ Robert L. McPhail
Secretary
 
 
 
Robert L. McPhail, President
 
 
 
 
And Chief Executive Officer



ATTEST:
 
 
 
 
 
 
 
 
 
 
 
ESCROW AGENT:
 
 
 
BANK OF NORTH DAKOTA
/s/ Signature Illegible
 
 
By
/s/ Nancy Glass
Trust Officer
 
 
Title Trust Department Manager


13




POWER OF ATTORNEY TO TRANSFER STOCK

FOR VALUE RECEIVED, The North American Coal Corporation hereby sells, assigns and transfers unto                                  one Hundred Shares (100) shares of the Common Capital Stock of The Coteau Properties Company standing in its name on the books of said Company represented by Certificate No. 2 herewith and do hereby irrevocably constitute and appoint the Bank of North Dakota, as the escrow agent under the Option and Put Agreement made and entered into as of January 1, 1990, by and among The North American Coal Corporation, Dakota Coal Company and Bank of North Dakota, attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises.
Dated     August 3, 1990

THE NORTH AMERICAN COAL CORPORATION
 
 
By
 
 
 
 
H. Dean Jacot
 
 
 
Executive Vice President and
 
 
 
Chief Operating Officer
 
 
 
 
Attest:
 
 
 
 
 
 
 
Thomas A Koza, Secretary
 
 
 
 
 
 
 
 
 
 
 



Exhibit 10.15
FIRST AMENDMENT TO OPTION AND PUT AGREEMENT
THIS FIRST AMENDMENT TO OPTION AND PUT AGREEMENT ("Amendment") dated as of June 1, 1994, is by and among THE NORTH AMERICAN COAL CORPORATION, a Delaware corporation hereinafter referred to as "North American Coal”, DAKOTA COAL COMPANY, a North Dakota corporation, hereinafter referred to as "Dakota"; and the STATE OF NORTH DAKOTA, doing business as the Bank of North Dakota, hereinafter referred to as "Escrow Agent".
WITNESSETH:
WHEREAS, North American Coal, Dakota and Escrow Agent are parties to the Option and Put Agreement dated as of January 1, 1990 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement in certain respects;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, the parties hereto agree as follows:
1.
Subsection 4.l(a) of the Agreement hereby is amended to read in its entirety as follows:
(a)
The occurrence of any of the following events, notice of which shall be given forthwith in writing to the Escrow Agent by North American Coal and Dakota:

(i)
the expiration of the original term of the Coteau Lignite Sales Agreement dated January 1, 1990, as amended (hereinafter referred to as the "Lignite Sales Agreement"),between Coteau and Dakota, preceded by a written notice by Dakota to North American Coal and the Escrow Agent given not less than twenty-four (24) months and not more than thirty-five (35) months before the expiration of the original term certified by the President of Dakota and otherwise in accordance with



the terms of the Lignite Sales Agreement, stating that Coteau has not exercised its right to extend the original term of the Lignite Sales Agreement pursuant to Section14.1 thereof and exercising the Option;

(i)
the expiration of any renewal term of the Lignite Sales Agreement that occurs on or before April 22, 2032, preceded by a written notice by Dakota to North American Coal and the Escrow Agent given not less than twelve (12) months and not more than seventeen (17) months before the expiration of such renewal term certified by the President of Dakota and otherwise in accordance with the terms of the Lignite Sales Agreement, stating that Coteau has not exercised its right to extend such renewal term of the Lignite Sales Agreement pursuant to Section 14.1 thereof and exercising the Option; or

(ii)
the expiration of any renewal term of the Lignite Sales Agreement that occurs on or after April 22, 2037, preceded by a written notice by Dakota to North American Coal and - the Escrow Agent given not less than seventeen (17) months before the expiration of such renewal term certified by the President of Dakota and otherwise in accordance with the terms of the Lignite Sales Agreement, exercising the Option.

1.
Clause (c) of Subsection 5.1 of the Agreement hereby is amended to read in its entirety as follows:

(c)
an amount equal to the earned surplus of Coteau (less any amount that Coteau is obligated to retain pursuant to the third paragraph of Section 14.5 of the Lignite Sales Agreement); and

2.
Section 11 of the Agreement hereby is amended to read in its entirety as follows:
This Agreement, unless sooner terminated pursuant to Section 8 hereof, or by the exercise of the Option or Put herein granted, in all events terminates April 24, 2057, at which time the Escrow Agent shall deliver the Escrowed Stock to North American Coal.
3.
All of the other terms and provisions of the Agreement not expressly amended hereby shall continue and remain in full force and effect.
4.
This Amendment may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall collectively constitute one and the same instrument.



IN WITNESS WHEREOF, the parties have caused this Amendment to be executed on their behalf by their respective authorized representatives as of the day first written above.

ATTEST:
 
THE NORTH AMERICAN COAL CORPORATION
 
 
 
 
/s/ Thomas A. Koza
 
By
/s/ Clifford R. Miercort
Secretary
 
 Clifford R. Miercort, its President and
 
 
 Chief Operating Officer
 
 
 
 
ATTEST:
 
DAKOTA COAL COMPANY
/s/ Michael Hinman
 
 
 
Secretary
 
By
/s/ Kent E. Janssen
 
 
 Kent Janssen, its Vice President and
 
 
 Chief Operating Officer
 
 
 
 
WITNESS:
 
ESCROW AGENT:
 
 
BANK OF NORTH DAKOTA
 
 
 
 
/s/ La Donna Laingang
 
By
/s/ Nancy Glass
 
 
Title:
Trust Manager


3


Exhibit 10.16




CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.  PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED HAVE BEEN MARKED WITH THREE ASTERISKS [***] AND A FOOTNOTE INDICATING “CONFIDENTIAL TREATMENT REQUESTED”.  MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



LIGNITE SALES AGREEMENT



between


MISSISSIPPI LIGNITE MINING COMPANY


and


CHOCTAW GENERATION LIMITED PARTNERSHIP



dated

April 1, 1998




TABLE OF CONTENTS

 
 
Page

ARTICLE 1
DEFINITIONS
1

 
 
 
ARTICLE 2
TERM
6

2.01
Term
6

2.02
Delivery Period
6

2.03
Extension of Term
6

 
 
 
ARTICLE 3
DEDICATION, DEVELOPMENT, AND DELIVERY OF LIGNITE
6

3.01
Dedication of Lignite
6

3.02
Development of Lignite Mine
6

3.03
Delivery and Risk of Loss
6

3.04
Payment of Royalties
7

3.05
Buyer/Seller Indemnity
7

3.06
Shared Permitting Costs
7

3.07
Receipt of Permits
7

 
 
 
ARTICLE 4
LIGNITE QUANTITIES
7

4.01
All Requirements
7

4.02
Adjustment of Lignite Quantities
8

4.03
Revision of Annual Lignite Quantity
10

4.04
Stockpile Lignite
10

4.05
Alternate Fuel Sources
10

4.06
Sale to Others
11

 
 
 
ARTICLE 5
MEASUREMENT OF LIGNITE QUANTITIES,SCALES, RIGHT OF INSPECTION, AND PARTIES' ACCESS
11

5.01
Measurement of Lignite Quantities
11

5.02
Scales, Right of Inspection and Accuracies
12

5.03
Parties= Access
12

 
 
 
ARTICLE 6
FUEL QUALITY
12

6.01
Quality
12

6.02
Sampling and Analysis
13

6.03
Analytical Results
13

6.04
Notice of Sampling Results
13

6.05
Periodic Lignite Specifications and Price Adjustment
13

6.06
Rejectable Fuel
14

6.07
Secondary Fuel Quality Impacts
14

6.08
Testing of Sample System
15

 
 
 



ARTICLE 7
PRICE
15

7.01
Base Price
15

7.02
Billing Price
15

7.03
Modification of Index
15

7.04
Parallel Index Changes and Pass Through Costs under PPOA
15

 
 
 
ARTICLE 8
PAYMENT
 
8.01
Agreement to Pay
16

8.02
Method of Billing and Payment
16

8.03
Minimum Payments
16

8.04
Disputed Invoices
17

8.05
Failure to Pay Undisputed Invoices
17

8.06
Books and Records
17

8.07
Inspection of Price Records
17

 
 
 
ARTICLE 9
NOTICES TO PROCEEDS
 
9.01
Duty to Keep Informed
18

9.02
Buyer Notices
18

9.03
Commencement Date Notice
18

9.04
Copies of Permits
18

 
 
 
ARTICLE 10
DELAY AND SHUTDOWN
 
10.01
Delay of Commencement Date
19

10.02
Delay of Commercial Operation Date and Buyer Shutdown Option
19

10.03
Seller Delay
20

 
 
 
ARTICLE 11
REPRESENTATIONS, WARRANTIES AND COVENANTS
20

11.01
Representations, Warranties and Covenants of Seller
20

11.02
Representations, Warranties and Covenants of Buyer
21

11.03
Opinion
23

11.04
Certificates
23

 
 
 
ARTICLE 12
FORCE MAJEURE
23

12.01
Events of Force Majeure
23

12.02
Suspension of Obligations
24

12.03
Suspension of Lignite Deliveries
24

12.04
Time Limit for Claiming Force Majeure
24

12.05
Long Term Force Majeure
24

 
 
 
 
 
 
 
 
 
 
 
 



ARTICLE 13
DEFAULT
25

13.01
Events of Default
25

13.02
Procedure for Notifying a Party of Default
25

13.03
Limitations on Right of Termination
26

13.04
Step-In Rights
27

13.05
Subordinated Deed of Trust
28

 
 
 
ARTICLE 14
PROPRIETARY AND CONFIDENTIAL DATA
28

14.01
Proprietary and Confidential Data
28

14.02
Disclosure to Governmental Authorities
29

14.03
Press Releases
29

14.04
Liability for Disclosure of Data
29

 
 
 
ARTICLE 15
INSURANCE
29

15.01
Seller's Insurance
29

15.02
Buyer's Insurance
31

15.03
Certificates of Insurance
31

15.04
Issuance of Certificate
31

15.05
Waiver of Subrogation
32

15.06
Other Insurance Coverage
32

15.07
Obligation to Rebuild
32

 
 
 
ARTICLE 16
WAIVERS, REMEDIES, AMENDMENTS
32

16.01
Waivers and Remedies
32

16.02
Remedies Cumulative
33

16.03
Exclusions of Consequential Damages
33

16.04
Amendments
33

 
 
 
ARTICLE 17
NOTICES AND OTHER COMMUNICATIONS;AUTHORIZED REPRESENTATIVES
33

 
 
 
ARTICLE 18
DISPUTE RESOLUTION
34

 
 
 
ARTICLE 19
ARBITRATION
35

19.01
Arbitrators' Panel
35

19.02
Selection of Third Arbitrator
35

19.03
Qualification of Arbitrators
35

19.04
Governing Law
36

19.05
Hearing, Location
36

19.06
Authority of Arbitrator
36

19.07
Record of Hearing
36

19.08
Briefs
36

19.09
Claims of $100,000 or Less - Baseball Arbitration
37




19.10
Payment of Costs
37

19.11
Issuance and Effect of Arbitrators' Decision
37

19.12
Waiver of Jury Trial
37

 
 
 
ARTICLE 20
TAXES AND OTHER CHARGES
37

20.01
Applicable Taxes
37

20.02
Contested Taxes
38

20.03
Other Charges
38

20.04
Broad Industry Taxes or Charges
38

20.05
Income Taxes
38

 
 
 
ARTICLE 21
RIGHT OF FIRST REFUSAL AND ASSIGNMENT OF LEASES
38

21.01
Right of First Refusal
38

21.02
Right to Assignment of Lignite Mining Instruments and Purchase of Fee Lands
39

 
 
 
ARTICLE 22
MISCELLANEOUS
39

22.01
Successors and Assigns
39

22.02
Headings Not to Affect Construction
40

22.03
Written Instrument Contains Entire Agreement
40

22.04
Execution of Counterparts
40

22.05
Construction of Agreement
40

22.06
Severability
40

22.07
Amendments
40

22.08
Survivorship of Obligations
40

22.09
Negation of Partnership
41

22.10
Exhibits
41








LIGNITE SALES AGREEMENT

This Lignite Sales Agreement (this “Agreement”) is entered into and effective as of April 1, 1998, by and between Mississippi Lignite Mining Company, a Texas joint venture between Phillips Coal Company and The North American Coal Corporation (hereafter referred to as “Seller”), authorized to do business in the State of Mississippi, and Choctaw Generation Limited Partnership (hereafter referred to as “Buyer”), a Delaware limited partnership authorized to do business in the State of Mississippi (collectively, the “Parties”).

RECITALS

Buyer plans to construct a lignite-fired 440 MW atmospheric circulating fluidized bed power generation facility in Choctaw County, Mississippi, and Buyer currently estimates that the Facility will begin commercial operations on or before December 1, 2000.

Buyer has entered into a long-term Power Purchase and Operating Agreement dated as of February 20, 1997, with the Tennessee Valley Authority (“TVA”) whereby Buyer will sell electric power produced at its power generation Facility to TVA. Buyer may also enter into a steam supply agreement with one or more industrial customers to provide steam to be used in manufacturing processes at facilities to be constructed adjacent to the Facility.

Seller is in the business of mining and marketing coal and lignite and controls, by virtue of certain leases, substantial uncommitted, economically and commercially recoverable lignite reserves situated in its Chester lignite reserve, located in Choctaw County, Mississippi.

Buyer desires to purchase lignite from Seller, and Seller desires to sell lignite to Buyer.

ACCORDINGLY, in consideration of the foregoing, the benefits to be realized by the Parties, and the mutual promises contained herein, the Parties intending to be legally bound, agree as follows:

ARTICLE 1

DEFINITIONS

Whenever the following terms appear in this Agreement, including without limitation any Exhibit hereto, whether in the singular or in the plural, present or past tense, they shall have the meanings set forth in this Article 1.

“AAA” has the meaning set forth in Section 19.02.

“Adjusted Base Price” means the Base Price, as adjusted in accordance with the escalation formula contained in Exhibit E pursuant to Section 7.02.

“Affiliate” means any person, firm or corporation who or which, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with, another person, firm or corporation. As used in this Agreement, the term “control” shall mean the power, through equity ownership, contract or otherwise, to direct the affairs of another person.




“Agreement” means this Lignite Sales Agreement.

“Alternate Fuel” means any lignite (other than the Dedicated Lignite) or coal, which meets the requirements of Article 6 and which is supplied by Seller to Buyer.

“Annual Lignite Quantity” for any Year means the amount of lignite for such Year initially set forth in Exhibit C, and as may be revised by Buyer from time to time in accordance with this Agreement.

“Annual Projection Notice” means that notice in the form of Exhibit D to be delivered by Buyer to Seller each Year during the Term of this Agreement, pursuant to Section 4.02(c), setting forth the estimated quantity of lignite to be purchased and delivered during the Year.

“Appraisal Procedure” has the meaning set forth in Section 13.04(b).

“Arbitration” means the dispute resolution process set forth in Article 19.

“ASTM” means the American Society for Testing and Materials.

“Authorized Representative” has the meaning set forth in Article 17.

“Base Annual Lignite Quantity” has the meaning set forth in Section 4.01.

“Base Price” means the price per MMBtus for Dedicated Lignite or Alternate Fuel delivered under this Agreement, prior to adjustment in accordance with the formula set forth in Exhibit E and prior to any adjustment required under Article 6.

“Billing Price” means the price per MMBtus to be paid by Buyer to Seller for Dedicated Lignite or Alternate Fuel delivered by Seller as determined in accordance with Section 7.02.

“Business Day” means any day except Saturday, Sunday, or a weekday that is observed by Buyer or Seller as a holiday (holidays currently include New Year's Day, Martin Luther King's Birthday, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, the day following Thanksgiving Day, Christmas Day, and the day following Christmas Day). In the event there is any change in the holidays currently observed by a Party, that Party shall notify the other as soon as practical so that the Business Day designation of the Day(s) in question can be changed accordingly.

“Btu” means a standard British thermal unit reflecting the calorific heating value of lignite, calculated on an Aas received@ basis in accordance with applicable ASTM standards.

“Buyer” means Choctaw Generation Limited Partnership, a Delaware limited partnership, its successors and permitted assigns which are approved in accordance with the terms and conditions of this Agreement.

“Check Scale” has the meaning set forth in Section 5.01.

“Commencement Date” means the date on which Buyer requires commencement of deliveries of Dedicated Lignite to the Facility for testing, which date is anticipated to be July 1, 2000.




“Commercial Operation Date” means with respect to the Facility the same date as the Commercial Operation Date under the PPOA.

“Contractor's Delay Costs” means 110% of the verifiable direct and indirect costs reasonably and prudently incurred resulting from a delay in the construction of the Facility, including but not limited to: additional costs of materials, costs of labor, including premiums and shift differentials, social security, old age and unemployment insurance, as well as fringe benefits required by agreement or custom, worker's compensation insurance, severance and other similar taxes, bond and insurance premiums, rental value of equipment and machinery, all actual and reasonably allocated costs of supervision, field office and home office, and all actual and reasonable costs, if any, of shutdown, delay and start-up; provided, however, that Contractor notifies Buyer if Contractor anticipates such shutdowns, delay and start-up costs in advance.

“Day” means a twenty-four hour period beginning at 12:00 o'clock midnight.

“Dedicated Lignite” means all lignite from the Lignite Property which Seller is required to deliver to Buyer to meet the quantity requirements and the quality specifications of this Agreement.

“Delivery Period” means the period set forth in Section 2.02.

“Effective Date” means the effective date of this Agreement, which is April 1, 1998.

“Electric Customer” means TVA or its successors or assigns under the PPOA.

“Environmental Laws” means any and all permits, applicable codes, laws, rules and regulations relating to actual or potential effect on human health, safety or the environment, the disposal of materials, the discharge or release of chemicals, gases, petroleum or petroleum products or other substances or materials into the environment, or the presence of such materials, chemicals, gases, petroleum or petroleum products or other substances.

“EPC Contract” means the agreement between Buyer and Becon Construction Company, Inc. (“Becon”), dated October 7, 1997, for the design and construction of the Facility.

“EPC Contractor” means Becon, its successors and permitted assigns.

“Event of Default” has the meaning set forth in Section 13.01.

“Excess Lignite Reserves” means the amount of lignite subject to Electric Customer's right of first refusal and Buyer's subordinate right of refusal, as set forth in Article 21.

“Facility” means the electric power generation facility in Choctaw County, Mississippi, to be constructed by Buyer and for which Buyer will purchase lignite under this Agreement.

“Facility Notice to Proceed” means the notification given by Buyer, pursuant to Section 9.02, authorizing Seller to proceed with the development of the Mine.

“Fair Market Value” has the meaning set forth in Section 13.04(b).




“Force Majeure” has the meaning set forth in Section 12.01.

“Hazardous Materials” means any and all "hazardous substances," "hazardous waste," "waste," or "pollutant or contaminant" as any of such terms may be defined in any Environmental Law, or the regulations promulgated thereunder, (including but not limited to "hazardous substances" as defined in 40 C.F.R. 302.4, and “hazardous materials” as defined in 49 C.F.R. 171.8), or case law interpreting the same, or any other pollutant or substance that is regulated under any Environmental Law or that may be the subject of liability for costs of response or remediation under any Environmental Law. Notwithstanding the foregoing, Hazardous Materials does not mean or include any quantity of any substance or material of whatsoever kind or nature that is inherently present in lignite or coal in its natural state prior to mining and sale hereunder.

“Interest” means that rate which is the lesser of (a) the prime rate as published by CitiBank, N.A., New York, New York, plus one percent (1%), or (b) the highest rate allowed by law, in each case as determined on a 365/366-day year rate, prorated daily.

“Joint Venture Agreement” means the Joint Venture Agreement between Phillips Coal Company and The North American Coal Corporation dated September 12, 1997, as amended.

“Lignite Mining Instruments” means the leases, subleases, deeds, agreements or other documents set forth in Exhibit H giving Seller the right to mine the Dedicated Lignite from the Lignite Property.

“Lignite Property” means those properties in Choctaw County, Mississippi depicted on Exhibit A from which Dedicated Lignite will be mined and delivered to Buyer by Seller under this Agreement.

“Maximum Allowable Tolerance” means that tolerance to be established by the Parties pursuant to Section 6.03.

“Mine” means the Red Hills Lignite Mine to be developed and operated by Seller on the Lignite Property.

“Minimum Annual Take Quantity” has the meaning set forth in Section 4.02(e).

“Minimum Annual Take Quantity Credit” has the meaning set forth in Section 4.02(i).

“Month” means a calendar month.

“Parties” means Buyer and Seller, or their successors and permitted assigns.

“Pay Scale” has the meaning set forth in Section 5.01.

“Point of Delivery” for Dedicated Lignite or Alternate Fuel means the horizontal plane immediately below the bottom of the truck support beams at the lignite dump hoppers located at the point described in Exhibit B.

“PPOA” means the Power Purchase and Operating Agreement dated as of February 20, 1997, between Buyer and Electric Customer covering the supply of electrical capacity and energy to Electric



Customer from the Facility for a period of thirty (30) years commencing on the Commercial Operation Date.

“Price Components” mean the individual elements which comprise the adjustment factors to the Base Price for lignite, as set forth in Exhibit E.

“Rejectable Fuel” has the meaning set forth in Section 6.06.

“Seller” means Mississippi Lignite Mining Company, its successors and permitted assigns which are approved in accordance with the terms and conditions of this Agreement.

“Shut Down” means the suspension of operation of the Facility by Buyer pursuant to Section 10.02 because of technological or operational difficulties, other than normal or periodic repair, maintenance or outages.

“Step-In Notice” has the meaning set forth in Section 13.04(a)(2).

“Step-In Rights” has the meaning set forth in Section 13.04.

“Term” means that period of time set forth in Article 2.

“Three-Way Arbitration Agreement” means the arbitration agreement dated April 1, 1998, between Buyer, Seller and TVA, the form of which is attached hereto as Exhibit F.

“Ton” means 2000 pounds avoirdupois.

“TVA” means the Tennessee Valley Authority, a corporate instrumentality and agency of the United States of America.

“Year” means a calendar year that begins on January 1 and ends on the following December 31.

ARTICLE 2

TERM

2.1     Term . The Term of this Agreement shall commence on the Effective Date and, unless sooner terminated in accordance with this Agreement, shall continue until the end of the Delivery Period as provided in Section 2.02 below.

2.2     Delivery Period . The Delivery Period under this Agreement shall begin on the Commencement Date and shall end thirty (30) years after the Commercial Operation Date, unless the Term is sooner terminated in accordance with this Agreement, or unless the Term is extended in accordance with Section 2.03 below.

2.3     Extension of Term . Upon mutual agreement of the Parties, the Term of this Agreement may be extended for up to two (2) additional ten (10) year periods.

ARTICLE 3




DEDICATION, DEVELOPMENT, AND DELIVERY OF LIGNITE

3.1     Dedication of Lignite . Seller dedicates to Buyer pursuant to this Agreement sufficient reserves of Dedicated Lignite lying in, on or under the Lignite Property to satisfy its obligations under this Agreement; provided, however, that Seller shall not be required to dedicate specific portions of the Lignite Property. Upon request of Buyer, Seller shall cooperate with Buyer or its consultant to allow Buyer to substantiate and document such dedication and its plan to mine such reserves to the reasonable satisfaction of Buyer. Seller agrees to notify Buyer of any material changes to the Dedicated Lignite, the plan to mine such reserves or in its interest in the Lignite Property. Exhibit H sets forth all Lignite Mining Instruments in effect as of the Effective Date. On or before each anniversary date of the Effective Date of this Agreement, Seller shall amend and restate Exhibit H to provide a then current listing of the Lignite Mining Instruments.

3.2     Development of Lignite Mine . Upon receipt of the Facility Notice to Proceed from Buyer, Seller will begin and diligently pursue construction of the Mine in a good and workmanlike manner, in accordance with mining standards generally employed and accepted in the lignite mining industry, on a schedule which will assure that Seller (a) will be ready to begin to mine, sell and deliver to Buyer Dedicated Lignite from the Lignite Property on the Commencement Date, and (b) will be capable of mining and delivering Dedicated Lignite from the Lignite Property to Buyer in accordance with the terms and conditions of this Agreement throughout the Delivery Period.

3.3     Delivery and Risk of Loss . Seller shall, throughout the Term of this Agreement, timely deliver to the Point of Delivery Dedicated Lignite which meets the quantity and quality requirements of Articles 4 and 6. The title to and risk of loss of Dedicated Lignite or Alternate Fuel delivered under this Agreement shall pass from Seller to Buyer at the Point of Delivery.
3.4     Payment of Royalties . Seller shall pay any and all royalties and overriding royalties due on the Dedicated Lignite mined and supplied from the Lignite Property to the Facility by, or on behalf of, Seller, including but not limited to any royalty or overriding royalty owned by John David Sistrunk, Jr. Such royalties and overriding royalties shall be included in the Billing Price as the Royalty component, as set forth in Exhibit E.

3.5     Buyer/Seller Indemnity . Seller and Buyer agree to indemnify and hold each other harmless from and against all claims, demands, losses, liabilities and expenses (including reasonable attorneys' fees and expenses and fines or penalties imposed by governmental entities) for personal injury or death to persons and damage to each other's property or facilities or the property of any other person or entity to the extent arising out of, resulting from or caused by (a) the negligent or intentional acts, errors or omissions of, or (b) the introduction to the Facility of any Hazardous Materials by, the indemnifying Party, but not to the extent caused by the negligent or intentional acts, errors or omissions of the indemnified Party. Notwithstanding the foregoing, Seller shall not be required to indemnify Buyer from any claims, demands, losses, liabilities and expenses described above for personal injury or property damage arising out of, resulting from or caused by any substance or material of whatsoever kind or nature that is inherently present in lignite in its natural state prior to mining and sale hereunder, it being the intent of the Parties that Buyer accept and assume liability for any and all substances and materials that are inherently present in such lignite in its natural state.

3.6     Shared Permitting Costs . Buyer and Seller will share, in such proportions as are reasonable, any costs which are necessary to obtain all permits required to construct both the Mine and



the Facility and which are not readily identifiable as associated exclusively with either operation.

3.7     Receipt of Permits . Buyer and Seller agree that time is of the essence for Buyer and Seller to obtain by September 1, 1998, all permits required for the development and operation of the Mine and the Facility. The Parties agree to use their reasonable best efforts to obtain their respective permits by such deadline, subject to Force Majeure.

ARTICLE 4

LIGNITE QUANTITIES

4.1     All Requirements . Except as otherwise expressly permitted herein, Buyer shall purchase only Dedicated Lignite as fuel for the Facility during the Term of this Agreement. Subject to the terms of this Agreement, Seller shall sell and deliver to Buyer, and Buyer shall purchase and receive from Seller and pay for, all Dedicated Lignite required by the Facility during the Term of the Agreement. The projected annual Dedicated Lignite requirement for the Facility from the Commercial Operation Date through the Term of this Agreement is [* * *] MMBtus (“Base Annual Lignite Quantity”). The Base Annual Lignite Quantity shall be adjusted from time to time in accordance with this Agreement.

4.2     Adjustment of Lignite Quantities .

(1)
Test Fuel . At least 180 Days prior to the anticipated Commencement Date designated by Buyer pursuant to Section 9.02, Buyer shall provide Seller with its written notice of the total quantity of lignite Buyer reasonably estimates will be required for testing and for Buyer=s stockpile prior to the Commercial Operation Date.

(2)
First Twenty-four (24) Months Deliveries . At least 180 Days prior to the anticipated Commercial Operation Date designated by Buyer pursuant to Section 9.02, Buyer shall provide written notice to Seller of the quantity of lignite required, by Month, for the first twenty-four Months after the Commercial Operation Date and for the remainder of the Year following the end of such twenty-four Month period, which quantity, subject to Section 4.02(e), shall be prorated for the number of Months in such remainder of the Year. Such estimate may be revised by Buyer within seven (7) Days following completion of its acceptance test results analysis with the EPC Contractor.

(3)
Annual Projection Notices . On or before June 1 of the Year following the Commercial Operation Date, and on or before June 1 of each Year thereafter, Buyer shall furnish Seller with a non-binding Annual Projection Notice, in the form attached hereto as Exhibit D, showing the projected quantity of Dedicated Lignite required by Month for the following Year.

(4)
Consistent Monthly Deliveries . Buyer shall specify in its Annual Projection Notices, to the extent reasonably practical, the projected Monthly quantities of Dedicated Lignite required, recognizing annual Facility preventative maintenance and the seasonal dispatch of energy by the Electric Customer. To assist Seller in
* * * Confidential Treatment Requested




scheduling delivery of Dedicated Lignite hereunder, Buyer shall promptly provide Seller with copies of Electric Customer=s “Monthly Dispatch Estimate” as set forth in the PPOA.

(5)
Minimum Annual Take Quantity Purchases . Beginning with the Year following the Year in which the first twenty-four Months of deliveries following the Commercial Operation Date ends, and each Year thereafter during the Term of this Agreement, Buyer must take, or pay for, in each Year at least [* * *] MMBtus of Dedicated Lignite or Alternate Fuel when delivery of Alternate Fuel is permitted in accordance with the terms of this Agreement (“Minimum Annual Take Quantity”). Such Minimum Annual Take Quantity shall be reduced to the extent (i) Buyer is unable to take Dedicated Lignite due to an approved Scheduled Outage (as defined in the PPOA), (ii) Buyer is unable to use such quantity due to unforseen operational problems at the Facility other than Force Majeure, but in no event shall any such reduction exceed [* * *] MMBtus of Dedicated Lignite or Alternate Fuel per Year, (iii) Buyer is unable to use such quantity due to Force Majeure (including Force Majeure of Electric Customer as defined in the PPOA), (iv) Buyer is unable to take lignite because of Seller=s excused or unexcused failure to deliver, (v) Buyer uses gas for combustion stabilization, and (vi) Buyer uses other fuels permitted under Section 4.05(b) (up to 5% of total Btu requirements of the Facility for the Year).

(6)
Required Monthly Deliveries . Seller shall be obligated to deliver in any Month up to but not more than [* * *] MMBtus of Dedicated Lignite, or Alternate Fuel when delivery of Alternate Fuel is permitted under the terms of this Agreement. At the request of Buyer, Seller shall use commercially reasonable efforts to provide more than [* * *] MMBtus of Dedicated Lignite per Month.

(7)
Minimum Take Deficiency . In the event and to the extent Buyer is prevented from taking and using, in any given Year the full required Minimum Annual Take Quantity of Dedicated Lignite or Alternate Fuel scheduled to be taken and used during such Year, net of adjustments for Section 4.02(e) due to the Electric Customer's failure to meet its “Minimum Take Quantity” requirement under the PPOA, then to the extent Buyer is paid a “Minimum Take Deficiency” payment under terms of the PPOA, Buyer shall remit the Fuel Component portion of the Adjusted Base Price hereunder to Seller. In no event shall Buyer be obligated to pay Seller under this Section 4.02(g) until Electric Customer has paid Buyer the Minimum Take Deficiency under the PPOA. Buyer shall aggressively pursue all claims it may have against Electric Customer for any “Minimum Take Deficiency.”

(8)
Alternate Fuel . Subject to the provisions of Section 4.05(a), as long as the total cost to Buyer of producing electricity utilizing Alternate Fuel is no greater than the total cost to Buyer of producing electricity utilizing Dedicated Lignite of the specifications in Article 6 and such utilization does not violate or erode emission or utilization capacity of any permits, regulations or approvals with which Buyer is required to comply, Buyer agrees to accommodate Seller to the extent possible
* * * Confidential Treatment Requested




by accepting deliveries of Alternate Fuel at the Point of Delivery by whatever mode of transportation is mutually acceptable to the Parties. If, and to the extent, Alternate Fuel is delivered as provided in this Section 4.02(h), such quantities shall be credited against the Parties' obligations regarding Dedicated Lignite or Alternate Fuel to be delivered during such period.

(9)
Credits . (i) Buyer shall receive a lignite quantity credit (on a MMBtus basis) (the “Minimum Annual Take Quantity Credit”) for all Dedicated Lignite or Alternate Fuel quantities purchased by Buyer in any Year in excess of [* * *] MMBtus. Such Minimum Annual Take Quantity Credit may be used by Buyer and applied against deliveries of Dedicated Lignite or Alternate Fuel only in the following two (2) Years and only to the extent that Buyer purchases quantities less than the Minimum Annual Take Quantity for such Year(s) (as adjusted pursuant to Section 4.02(e)). (ii) If in any Year Buyer fails to take the Minimum Annual Take Quantity for such Year (as adjusted pursuant to Section 4.02(e)), Buyer shall receive a Minimum Annual Take Quantity Credit (on a MMBtus basis) for the quantity of Dedicated Lignite paid for but not taken by Buyer which is less than such Minimum Annual Take Quantity. Such credit may be used by Buyer and applied against deliveries of Dedicated Lignite or Alternate Fuel only in the two (2) Years following the Year for which the credit is received and only to the extent such deliveries are in excess of [* * *] MMBtus in the Year such credit is taken.

4.3      Revision of Annual Lignite Quantity .

(1)
The quantities of Dedicated Lignite set forth in Exhibit C are based upon an anticipated Commencement Date of July 1, 2000. In the event for any reason the actual Commencement Date differs from such anticipated date, Seller and Buyer shall meet as soon as practicable to mutually agree upon revisions to Exhibit C to reflect a pro rata revision in the Annual Lignite Quantity for the first and last Years.

(2)
If Electric Customer notifies Buyer of a revision in its expected dispatch of the Facility for any Year, Buyer shall be entitled and required to revise the Annual Projection Notice for such Year (or partial Year).

4.4     Stockpile Lignite . Seller shall maintain a stockpile of run-of-mine Dedicated Lignite consistent with good mining practices for a mine-mouth lignite facility serving the independent power industry sufficient to enable Seller to meet its obligations to deliver Dedicated Lignite to the Facility under this Agreement. Buyer shall maintain a stockpile of Dedicated Lignite at the Facility of such quantity that is consistent with good utility practice (including independent power producers) for mine-mouth generating facilities. Seller=s stockpile of Dedicated Lignite will be sufficient to enable Seller to meet its obligations to make deliveries at all times of the Year taking into account the effects of normal rainfall and temperature upon the Mine operations and seasonal changes such that rainfall and temperature impacts on Mine operations will not prevent Seller from meeting its delivery obligations.

* * * Confidential Treatment Requested



The Parties acknowledge that these stockpiles will fluctuate in size because different quantities of Dedicated Lignite are required on different Days as well as for other reasons.

4.5     Alternate Fuel Sources .

(1)
Seller and Buyer acknowledge that the Facility is being constructed to utilize Dedicated Lignite as its primary fuel. If for any reason, other than Force Majeure, Seller cannot supply sufficient Dedicated Lignite to meet the requirements of this Agreement, Seller shall be responsible for the prompt supply of the necessary Alternate Fuel to enable Buyer to continue to operate the Facility without interruption. Seller shall supply such Alternate Fuel at a cost to Buyer which is the then applicable Billing Price determined in accordance with Article 7. Seller shall have the right, upon 72 hours prior notice to Buyer, to supply Alternate Fuel to Buyer from any source so long as such fuel meets the requirements of Section 4.02(h).

(2)
Buyer shall have the right to procure Mississippi wood or wood-product residue to supply up to, but not more than, five percent (5%) of the total Btu requirements of the Facility for any given Year. If Buyer is asked by the Electric Customer or the Choctaw County economic development officials to burn tires or other suitable waste products, other than Mississippi wood product residue, at its Facility, Buyer and Seller shall renegotiate in good faith the terms of this Agreement to allow Buyer to consume such waste products as fuel in reasonable levels in lieu of Dedicated Lignite. Provided, however, in no event shall Buyer burn Mississippi wood, wood product residue, tires, or other waste product fuels to supply more than five percent (5%) of the total Btu requirements of the Facility in any given Year.

4.6     Sale to Others . Seller shall have the right to sell outside this Agreement lignite from the Lignite Property, provided that Seller can reasonably demonstrate to Buyer that the exercise of such right does not impair Seller's ability to perform its obligations under this Agreement.

ARTICLE 5

MEASUREMENT OF LIGNITE QUANTITIES,
SCALES, RIGHT OF INSPECTION, AND PARTIES' ACCESS

5.1     Measurement of Lignite Quantities . The lignite unloading and handling facilities to be located at the Point of Delivery, including the truck dump, shall be designed, constructed, owned, maintained and operated by Buyer at its sole risk and expense. Buyer shall determine the quantities of lignite delivered by Seller by means of a belt scale (the “Pay Scale”) to be designed, constructed, owned, maintained and operated by Buyer at its sole risk and expense, except for calibration as noted below, in accordance with standards recommended by the equipment manufacturer, and agreed to by the Parties, as may be amended from time to time. If such standards are discontinued, the Parties shall continue to use the last effective standards and shall use reasonable efforts to find and agree to replacement standards. If the Parties are unable to agree, the matter shall be submitted to Arbitration. The last effective standards shall remain effective until the matter is resolved either by agreement or Arbitration. Seller shall have the right to review and comment on the designs of the unloading and handling facilities, and the Parties agree to use reasonable efforts to coordinate design and equipment selection for lignite delivery unloading and



handling. Seller also shall have the right to install a check scale on the conveyor belts at Seller's sole risk and expense (the “Check Scale”). Seller shall be obligated to operate, maintain and calibrate the Check Scale in accordance with standards recommended by the equipment manufacturer and agreed to by the Parties.
5.2     Scales, Right of Inspection and Accuracies . Buyer and Seller shall arrange for an appropriately certified independent third party to calibrate the Pay and Check Scales, respectively, at least twice per year. Both Parties may, by mutual consent, waive third-party calibration of the scales and perform such calibrations jointly. In such event, both Parties agree to be bound by the result of such joint calibration until the next semiannual calibration of the scales takes place. The cost of calibration of the Pay Scale and Check Scale, however accomplished, shall be shared equally by Buyer and Seller. Each Party shall have the right, at its own expense, to inspect the other Party=s lignite sampling, weighing and the laboratory testing facilities, and to observe the other Party=s sampling, weighing and analytical procedures. Either Party may request a calibration of the Pay Scale or Check Scales at any time. If the scales are found to be within manufacturer accuracy limits, the requesting Party will pay for the test; otherwise, the other Party shall pay for the test. If the scales are found to be in error outside the manufacturer=s allowable tolerance by more than one-half percent (0.5%) of the base quantity being measured, the weights and corresponding invoices and payments shall be adjusted accordingly from the point of error, or if such point cannot be agreed upon between the Parties, such adjustment shall be for one-half (2) of the tonnage of Dedicated Lignite or Alternate Fuel delivered since the last determination of accuracy.

5.3     Parties= Access . Each Party shall have the right from time to time during the Term of this Agreement to arrange for its employees, geologists, lenders, consultants and engineers and similar representatives of Electric Customer to visit the Mine and the Facility, on reasonable prior notice to the other Party and so long as it does not unreasonably interfere with the other Party=s operations.

ARTICLE 6

FUEL QUALITY

6.1     Quality . The Dedicated Lignite or Alternate Fuel to be supplied hereunder shall be substantially free from impurities such as, but not limited to, bone, slate, earth, rock, pyrite, wood, tramp metal and mine debris. In addition, the Dedicated Lignite or Alternate Fuel shall not be contaminated with any Hazardous Materials. Seller agrees that the weighted average Aas received@ quality of Dedicated Lignite or Alternate Fuel supplied hereunder over the term of this Agreement will be as follows:

Characteristics
 
Specifications
Moisture, % by weight
 
41.75%
Ash, % by weight
 
14.64%
Sulfur, % by weight
 
 0.58%
Calorific Value, Btu/lb (HHV)
 
5294 Btu/lb.

If the weighted average "as received" quality of Dedicated Lignite or Alternate Fuel delivered to Buyer by Seller over the term of this Agreement does not meet the above specifications, Seller shall not be deemed to be in default hereunder except as provided in Section 6.06 below, and Buyer shall not be



entitled to damages or compensation of any kind, other than the amounts and remedies provided in this Article 6.

6.2     Sampling and Analysis. All sampling and analysis will be performed in accordance with methods approved by ASTM or such alternate written standards and procedures mutually agreed to by the Parties. The quality of Dedicated Lignite or Alternate Fuel delivered to Buyer by Seller shall be determined by analysis of samples taken daily at the Facility by the Buyer at a point mutually agreed to by the Parties. Buyer will take samples by means of an automatic mechanical sampling system to be owned, operated and maintained by Buyer. Buyer shall cause the samples to be transported to a laboratory of Buyer=s choice. Buyer=s laboratory shall participate in round robin testing to verify the accuracy of sample preparation and analysis. If the round robin testing establishes that the laboratory=s sample preparation and analysis is inaccurate, the Parties will agree upon a new laboratory. Each sample shall be processed, split into three equal parts and placed in suitable airtight containers by Buyer or the laboratory. Part one of each sample shall be analyzed by the laboratory at Buyer=s expense. Part two of each sample shall be properly identified and stored at the laboratory for a period of not less than fifteen (15) Business Days for Seller to analyze at its own expense if it so desires. Part three of each sample shall be properly identified and stored for a period of not less than thirty (30) Business Days. The cost of analysis of part three of the sample, if required, shall be borne equally by Buyer and Seller. For deliveries for which a sample is not available or for which a sample is agreed by Buyer and Seller to be incorrect, the weighted average of the immediately preceding three (3) Days= sample analyses which are available shall be utilized.

6.3     Analytical Results. The results of the analyses performed by the laboratory on part one of the samples shall be binding on the Parties and shall be deemed to represent the quality of the Dedicated Lignite or Alternate Fuel delivered hereunder unless one Party notifies the other of a dispute concerning such analysis within the fifteen (15) Business Day period specified in Section 6.02. If the analysis of part one is disputed and the analyses of parts one and two differ by more than a maximum tolerance range as shall be agreed to by the Parties (the “Maximum Allowable Tolerance”), then part three of such sample shall be analyzed by a commercial testing laboratory mutually chosen and using mutually accepted procedures. When all three parts of a sample are analyzed, the average of the two closest sample results will be used to represent the quality of the lignite delivered on the Day such samples were taken; provided, however, that if the two closest sample results differ by more than the Maximum Allowable Tolerance, then the weighted average of the immediately preceding three (3) Days= sample analyses which are available shall be deemed to be the quality of the Dedicated Lignite or Alternate Fuel under consideration. The Billing Price for the Dedicated Lignite or Alternate Fuel represented by such samples shall be adjusted on the next invoice submitted by Seller as specified in Section 8.02

6.4     Notice of Sampling Results. Within the first five (5) Business Days after each daily sample is taken, Buyer shall furnish Seller with a written notice depicting the laboratory results for part one of each sample. Reasons for Rejectable Fuel, as specified in Section 6.06, shall be stated in the notice. If Seller elects to analyze part two of a sample, Seller shall provide written notification to Buyer within the fifteen (15) Business Day period specified in Section 6.02. In addition, Seller shall deliver the results of such analysis to Buyer within five (5) Business Days of receiving such results.

6.5     Periodic Lignite Specifications and Price Adjustment . If the quality of Dedicated Lignite or Alternate Fuel delivered by Seller to Buyer pursuant to this Agreement deviates from the quality specifications listed in Section 6.01 on an “as-received” daily basis, but falls above the minimum and below the maximum specifications listed in this Section 6.05, then for such Dedicated Lignite or Alternate Fuel there shall be a price adjustment for that Day=s delivery:




 
 
Specifications
Characteristics
 
Minimum
 
Maximum
Calorific Value, Btu/lb (HHV)
 
4,400
 
8,000
Moisture, % by weight
 
20
 
49.4
Ash, % by weight
 
5.0
 
23.5
Sulfur, % by weight
 
0.15
 
1.23

The methodology for such adjustment is set forth in Exhibit J, Quality and Property Price Adjustment.

6.6     Rejectable Fuel . If the analysis performed pursuant to Section 6.02 and Section 6.03 reveals that the quality of Dedicated Lignite or Alternate Fuel delivered during any Day is below any minimum or above any maximum specification listed in Section 6.05, then such Dedicated Lignite or Alternate Fuel shall be deemed to be “Rejectable Fuel.” Once delivered, any Rejectable Fuel shall be the property of Buyer. For any Rejectable Fuel consumed by the Facility, Buyer shall be entitled to deduct the charges for that quantity of Rejectable Fuel from Seller=s invoices. Notwithstanding the above, all deliveries of Rejectable Fuel count towards Buyer=s Minimum Annual Take Quantity. If for any cumulative period of 90 Days out of any twelve-Month period the cumulative average for all Dedicated Lignite or Alternative Fuel delivered would be Rejectable Fuel hereunder, an Event of Default by Seller shall have occurred.

6.7     Secondary Fuel Quality Impact . If the quality of Dedicated Lignite or Alternate Fuel delivered by Seller is not within the ranges specified below for the listed characteristics, the Parties shall work together to determine how to ensure that the Dedicated Lignite or Alternate Fuel delivered in the future shall be within such ranges. If the Buyer is fined or penalized by governmental authorities for emission permit violations caused by the Dedicated Lignite or Alternate Fuel delivered by Seller not being within the specified ranges, then Seller shall reimburse Buyer for such fines or penalties.

 
 
Specifications
Characteristics
 
Minimum
 
Maximum
Nitrogen, % by weight    
 
none
 
0.82
Fuel Nitrogen, lbN/MMBtus    
 
none
 
1.5
CaO, % ash mineral analysis
 
2.6
 
none
Potassium Oxide, % ash mineral analysis
 
none
 
2.5
Sodium Oxide, % ash mineral analysis
 
none
 
2.5
Fuel Size, inches
 
2x0, d50=3000 micron
 
24x36x48
Hardgrove Grindability Index
 
23
 
115

6.08 Testing of Sample System. During the first twelve (12) Months after the Commercial Operation Date, Buyer shall perform one (1) bias test of the sampling system. Thereafter, commencing from the date of such bias test, Buyer shall perform additional bias tests of the sampling system at least once every thirty (30) Months or as recommended by the manufacturer=s standards, unless Buyer and Seller mutually agree otherwise. Seller shall have the right to have a representative present at any and all times to observe the sampling. Seller shall also have the right to request a bias test of the sampling system if Seller questions the accuracy of said system. Seller shall pay all costs of any such challenge



bias test unless the sampling system is found to be in error in excess of that specified by the equipment manufacturer, in which case Buyer shall reimburse Seller for the costs of such test. Any errors found in the sampling system by the bias test shall be immediately corrected.

ARTICLE 7

PRICE

7.1     Base Price . The Base Price for all Dedicated Lignite or Alternate Fuel delivered under this Agreement shall be [* * *] per MMBtus F.O.B. Point of Delivery. The Base Price consists of eight (8) indexed components, a power cost component, a pass-through component, a royalty component and a fixed component as set forth in Exhibit E.

7.2     Billing Price . The Billing Price for all Dedicated Lignite or Alternate Fuel delivered under this Agreement shall be determined by taking the Base Price, adjusting that Base Price in accordance with the formula set forth in Exhibit E to determine the Adjusted Base Price, and then applying any quality adjustments pursuant to Article 6.

7.3     Modification of Index . Subject to Section 7.04, should any of the indices used for escalation adjustment as set forth in Exhibit E be revised by the agency publishing such index, then invoices prepared subsequent to the revision shall use the revised index. If the numerical value of any index is changed by the issuing agency subsequent to the initial publication, then any subsequent use of this index in making calculations under this Exhibit will be made using the most recent numerical value of that index. If the referenced index is no longer published, the index designated by the agency responsible for publishing said index as the replacement will be used. If no replacement index is specified, a new index which most accurately reflects changes for the applicable cost components shall be substituted by mutual agreement of the Parties. In the event the Parties fail to agree, such matter shall be submitted to Arbitration. While the Arbitration concerning the appropriate substitute index is pending, the values contained in the relevant index prior to its discontinuance shall be used subject to true-up at the conclusion of the Arbitration.

7.4     Parallel Index Changes and Pass Through Costs under PPOA . Seller and Buyer acknowledge that as to the following rights of Seller under this Agreement, Buyer has similar rights against Electric Customer under the PPOA:
(1)
Changes to the indices used for escalation and adjustments pursuant to Section 7.03; and

(2)
Seller's right to pass through to Buyer as a component of the Billing Price the cost of certain taxes, fees and charges as set forth in Sections 20.01 and 20.04 and Exhibit E.




* * * Confidential Treatment Requested




If Seller claims that any index should be changed or that any tax, fee or charge should be passed through to Buyer, Buyer shall make and diligently pursue negotiations with Electric Customer for the same index change or pass-through under the PPOA, and Seller shall cooperate with, support and assist Buyer in Buyer's efforts to obtain Electric Customer's consent to the same index change or pass-through of tax, fee or charge under the PPOA. Buyer agrees to (1) keep Seller fully informed of such efforts, (2) provide Seller with copies of all documents or portions thereof received by Buyer from Electric Customer pertinent to such index changes, and (3) permit Seller to participate in all meetings and discussions with Electric Customer regarding such efforts. If Buyer=s negotiations with Electric Customer are unsuccessful, then the dispute shall be settled pursuant to the Three-Way Arbitration Agreement.

The foregoing notwithstanding, no change to indices pursuant to this Section 7.04 shall be made unless Electric Customer has agreed to parallel changes in the PPOA or unless a change to indices is required to comply with an Arbitration award or court order.

ARTICLE 8

PAYMENT

8.1     Agreement to Pay . Except as otherwise specifically provided in this Agreement, Buyer shall pay to Seller the Billing Price for Dedicated Lignite or Alternate Fuel, F.O.B. the Point of Delivery, on an Aas-received@ basis.

8.2     Method of Billing and Payment . Seller shall invoice Buyer on or after the tenth (10 th) Day of each Month for Dedicated Lignite or Alternate Fuel delivered during the immediately preceding Month. If there is insufficient information regarding quality, Seller may render an invoice using an estimate of quality with appropriate adjustments to be made as soon as sufficient information is available. Buyer will make payment therefor, by bank wire transfer of funds to a bank account to be designated by Seller on or before the twenty-fifth (25 th ) Day after receipt of each invoice.

8.3     Minimum Payments . If in any Year Buyer fails to purchase the Minimum Annual Take Quantity and such failure to take is not excused pursuant to the terms of this Agreement, then Seller's last invoice for such Year shall include, in addition to the charge for the amount of Dedicated Lignite or Alternate Fuel actually delivered and taken, the charge for the amount of Dedicated Lignite that Buyer must pay for though not taken pursuant to Section 4.02(e) or (g), as the case may be. The charge for Dedicated Lignite not taken shall be based upon the Adjusted Base Price in effect at the time the invoice is sent with no adjustment for quality.

8.4     Disputed Invoices . If Buyer disagrees with the amount of any invoice for any reason, Buyer shall promptly notify Seller in writing of such disagreement so that the difference may be resolved before the due date of payment of the invoice. If Buyer fails to give such notification, or if Buyer and Seller resolve such disagreement before the due date, such invoice shall be paid in full according to its terms or as agreed to by Buyer and Seller on the due date. If Buyer does give such notification and if Buyer and Seller do not resolve such disagreement before the due date, the portions of the invoice not in dispute shall be paid in accordance with the terms of Section 8.02 hereof on the due date, with the remaining portion of the disputed invoice to be withheld subject to adjustment upon final resolution of the disagreement, with any adjustment due Seller to bear Interest for each Day commencing on the due date and continuing until paid. Notwithstanding the above, either Party hereto shall be entitled to a credit or refund for erroneous payments made, whether such payments were made with or without notice of



disagreement, provided that written claim for such credit or refund has been made within twenty-four (24) Months following the date on which the invoice was rendered. Such credit or refund shall bear Interest from the date the erroneous payment was made until the credit is taken or until the refund is paid. Neither Party hereto shall be entitled to take such credit or receive such refund until such other Party hereto shall have agreed to the same or until final resolution of the disagreement relating to any disputed credit or refund.

8.5     Failure to Pay Undisputed Invoices . If Buyer fails to pay any undisputed invoice or undisputed part thereof rendered by Seller, then Buyer shall pay to Seller Interest on the unpaid balance of such invoice, calculated from the due date until the date of payment by the Buyer.

8.06     Books and Records . Seller shall maintain, for a period of at least five (5) Years, books and records of all payments, price revisions, adjustments, credits, debits and all other data relating to its operations hereunder in order that the provisions of this Agreement and, more specifically, the provisions of the attached Exhibit E can be adequately administered.

8.07     Inspection of Price Records . At all reasonable times, upon written notice from Buyer, Seller shall make such records and books of accounts as are needed to verify compliance with the pricing terms of this Agreement available for inspection and audit. Such an audit may be conducted, at Buyer's option, by (a) Buyer's or Electric Customer's internal audit staff, or (b) a firm of certified public accountants to be selected by Buyer or Electric Customer. Buyer's or Electric Customer's auditors shall treat as confidential any and all proprietary information (including auditors' work papers) of Seller, furnished to or examined by them in connection with audit work performed for Buyer. Electric Customer's rights hereunder shall extend only to inspection and audits of pass-through pricing items and taxes that are subject to audit under the PPOA or under federal law.

ARTICLE 9

NOTICES TO PROCEED

9.01     Duty to Keep Informed . During the permitting, development and construction of the Facility and the Mine, both Parties agree to keep the other informed, in writing, on a timely basis on all aspects of development, permitting (including the supply of samples or data) and construction, and any changes to any permitting, development or construction schedules shown in Exhibit I, Permitting and Construction Schedule.

9.02     Buyer Notices . If Buyer pre-releases the EPC Contractor to begin detailed design work for the Facility, Buyer shall so notify Seller. At such time as Buyer issues the final release for the EPC Contractor to begin work at the Facility site, Buyer shall, by issuance of a Facility Notice to Proceed, notify Seller and authorize Seller to proceed with construction of the Mine as set forth in Section 3.02, in accordance with the terms and conditions of this Agreement. The Facility Notice to Proceed shall include confirmation of the anticipated Commencement Date of July 1, 2000 or notify Seller of a different anticipated Commencement Date and the anticipated Commercial Operation Date. Except as set forth in Section 3.06, until such time as Buyer issues such Facility Notice to Proceed to Seller and notifies Seller of the anticipated Commencement Date and the anticipated Commercial Operation Date, Buyer shall have no financial obligation to Seller, and Seller shall have no obligation to Buyer, for construction of the Mine other than for permitting and preconstruction development purposes. Provided that Buyer issues the Facility Notice to Proceed to Seller simultaneously with Buyer's issuance of a final release for the EPC Contractor to begin work at the site in accordance with the PPOA and at the same time notifies Seller of



the anticipated Commencement Date and the anticipated Commercial Operation Date, Seller shall timely proceed with construction of the Mine, and Seller will be ready to commence lignite delivery in accordance with this Agreement.

9.03     Commencement Date Notice . Three Months prior to the anticipated Commencement Date, Buyer shall confirm or revise the date of the anticipated Commencement Date and the anticipated Commercial Operations Date contained in the Facility Notice to Proceed and the lignite quantity required for testing. The anticipated Commencement Date may be moved to an earlier date than that provided in the Facility Notice to Proceed only if it is mutually agreeable. Subject to the last sentence of Section 9.02, Seller agrees to be ready to deliver lignite in sufficient quantities to the Facility, and Buyer agrees to be ready to accept quantities on the Commencement Date for the Facility. Buyer and Seller shall keep each other informed of progress on construction of the Facility and the Mine on a Monthly basis. The Parties acknowledge that the actual date for commencement of lignite deliveries may change as construction of the Facility proceeds. The rights and obligations of the Parties as to any such delays, however, shall be as set forth in Article 10.

9.04     Copies of Permits . Buyer shall provide Seller with copies of all permits and approvals for the Facility as they are obtained. Seller shall give Buyer prompt written notice upon receipt by Seller of all permits and approvals required for the construction, development and initial operation of the Mine and shall provide Buyer with copies of permits and approvals as they are obtained.

ARTICLE 10

DELAY AND SHUTDOWN

10.01     Delay of Commencement Date . To the extent that there is an unexcused delay of Commencement Date beyond the specified anticipated Commencement Date in the Notice to Proceed in Section 9.02 resulting from actions or inactions of Buyer and/or any contractor of Buyer (other than Electric Customer or Seller), and if such delay exceeds two Months, Buyer shall pay to Seller as liquidated damages [* * *] per Day for each Day that the delay continues beyond two Months until the actual Commencement Date.

10.02     Delay of Commercial Operation Date and Buyer Shutdown Option .

(a)
To the extent that a delay of Commercial Operation Date as specified by Buyer in the notice referred to in Section 9.02 results from actions or inactions of Electric Customer and as a result of such delay Electric Customer pays Buyer the capacity payment as provided in Section 4.3(a) of the PPOA, Buyer shall pass through to Seller the "Fixed Component" portion of the Base Price as set forth in Exhibit E. To the extent that an unexcused delay of the Commercial Operation Date results from actions or inactions of Buyer and/or any contractor of Buyer (other than Electric Customer or Seller), Buyer shall pay to Seller as liquidated damages the amount of [* * *] per Day for each Day that the delay continues.

(b)
Seller acknowledges that from time to time during the first twenty-four (24) Months following the Commercial Operation Date, Buyer may desire to temporarily shut down and suspend, either partially or wholly, operation of the Facility because of technological or operational




* * * Confidential Treatment Requested

problems preventing the Facility from performing according to specifications. As a result of such interruptions, Buyer may fail to take the full quantity of Dedicated Lignite requested by Buyer pursuant to Section 4.02(b). Nevertheless, to compensate Seller for having constructed the Mine in a timely fashion to be ready to deliver such quantity during the first twenty-four (24) Months following the Commercial Operation Date, and notwithstanding that Buyer shall have no Minimum Annual Take Quantity obligation during such period, Seller and Buyer agree that, if during either the first half or the second half of the first twenty-four (24) Month period following the Commercial Operation Date Buyer takes and pays for a quantity of Dedicated Lignite or Alternate Fuel having a Billing Price less than [* * *], Buyer shall pay Seller as liquidated damages the difference between [* * *] and the amount of money paid for Dedicated Lignite or Alternate Fuel actually taken during such twelve (12) Month period.

10.03     Seller Delay . To the extent that Seller's unexcused failure to deliver appropriate quantities of lignite of appropriate quality delays the testing of the Facility, then Seller shall be liable to Buyer for damages in an amount equal to [* * *] per Day plus Contractor's Delay Costs pursuant to the EPC Contract for the period of the delay. If such delay results in a delay of the Commercial Operation Date, Seller shall be liable to Buyer for damages in an amount equal to (a) the damages Buyer pays to Electric Customer resulting from such delay, plus Buyer's capacity payments that Buyer would have received from Electric Customer but for Seller's non-delivery (less expenses Buyer would have incurred to operate the Facility), or (b) at Seller's option, the cost to Buyer of replacement fuel sufficient to meet Electric Customer's dispatch of the Facility in excess of the price of Dedicated Lignite under this Agreement.

ARTICLE 11

REPRESENTATIONS, WARRANTIES AND COVENANTS

11.01     Representations, Warranties and Covenants of Seller . Seller makes the following representations, warranties and covenants:

(a)
Seller is a joint venture between Phillips Coal Company (PCC) and The North American Coal Corporation (NAC) duly organized and validly existing in good standing under the laws of the State of Texas and authorized to do business in Mississippi. PCC is a Nevada corporation and NAC is a Delaware corporation. Each of Seller, PCC and NAC has full power and authority to carry on its business as presently conducted and to execute and deliver this Agreement and perform its obligations under this Agreement. Seller is duly qualified to do business and is in good standing in each jurisdiction, including the State of Mississippi, in which Seller is required to qualify to do business as the joint venture that is Seller.

* * * Confidential Treatment Requested





(b)
The execution, delivery and performance by Seller of this Agreement have been duly authorized by all necessary action on the part of Seller, and neither the execution, delivery nor the performance of this Agreement by Seller nor the fulfillment of the terms, provisions and conditions of this Agreement by Seller ( i ) requires any approval or consent of any trustees or holders of any indebtedness or obligations of Seller, other than in connection with obtaining necessary financing for the Mine, ( ii ) subject to receipt of all necessary regulatory approvals with respect to the Mine, contravenes any law or any government rule, regulation, or order binding on Seller, ( iii ) violates the Joint Venture Agreement of Seller or requires any additional approval or consent of the joint venturers, PCC and NAC, or ( iv ) contravenes the provisions of, or constitutes an event of default (or other event which after lapse of time, notice, or both would constitute an event of default) under any indenture, deed of trust, contract, or other agreement to which Seller is a party or by which Seller is affected or bound.

(c)
This Agreement has been duly executed and delivered by Seller and constitutes a legal valid and binding agreement of Seller enforceable against Seller in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(d)
There are no actions, suits or proceedings pending except for pending permit applications with respect to the Mine, nor, to the best of Seller's knowledge, are any actions, suits or proceedings threatened before any court, administrative agency, arbitrator or governmental body which might, if determined adversely to Seller, materially and adversely affect the business or financial condition of Seller or materially and adversely affect the ability of Seller to perform its obligations under this Agreement.

(e)
To the best of Seller's knowledge and belief, Seller is in compliance in all material respects with all applicable statutes and regulations of the United States of America, all states and municipalities and all agencies and instrumentalities of the foregoing, relating to the conduct of its business and ownership of its properties, and Seller shall continue to be in compliance in all material respects until the Term is completed to the extent necessary to perform its obligations under this Agreement.

(f)
Seller has, and shall maintain throughout the Term of this Agreement, good and marketable title to sufficient Dedicated Lignite in, on or under the Lignite Property of a quality and in quantities which will enable Seller to timely satisfy all the requirements of this Agreement. Seller shall make no sales of lignite outside this Agreement which will cause the amount of Dedicated Lignite to fall below that required to fulfill its obligations to Buyer hereunder.

(g)
PCC and NAC each agree that they will not sell or otherwise transfer their interest in Seller or the Mine (other than to Seller or Affiliates of Seller) without the consent of Buyer, which consent of Buyer shall not be unreasonably



withheld.

11.02     Representations, Warranties and Covenants of Buyer . Buyer makes the following representations, warranties and covenants:
(a)
Buyer is a limited partnership duly organized and validly existing in good standing under the laws of the State of Delaware and has full power and authority to carry on its business as presently conducted and to execute and deliver this Agreement and perform its obligations under this Agreement. Buyer is duly qualified to do business and is in good standing in each jurisdiction, including the State of Mississippi, in which Buyer is required to qualify to do business as a foreign limited partnership.

(b)
The execution, delivery and performance by Buyer of this Agreement have been duly authorized by all necessary partnership action on the part of Buyer and neither the execution, delivery or the performance of this Agreement by Buyer, nor the fulfillment of the terms, provisions and conditions of this Agreement by Buyer ( i ) requires any approval or consent of any trustee or holders of any indebtedness or obligations of Buyer other than in connection with obtaining necessary financing for the Facility, ( ii ) subject to receipt of all necessary regulatory approvals with respect to the Facility, contravenes any law or any government rule, regulation or order binding on Buyer, ( iii ) violates the partnership agreement of Buyer, or ( iv ) contravenes the provisions of, or constitutes an event of default (or other event which after lapse of time, notice or both would constitute an event of default) under any indenture, deed of trust, contract or other agreement to which Buyer is a party or by which Buyer is affected or bound.

(c)
This Agreement has been duly executed and delivered by Buyer and constitutes a legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(d)
There are no actions, suits or proceedings pending other than pending permit applications required for the Facility, nor, to the best of Buyer's knowledge, are any actions, suits or proceedings threatened before any court, administrative agency, arbitrator or governmental body which might, if determined adversely to Buyer, materially and adversely affect the business or financial condition of Buyer, or materially and adversely affect the ability of Buyer to perform its obligations under this Agreement.

(e)
Buyer intends to operate the forwarding, receiving and all material handling systems in accordance with OSHA.

(f)
To the best of Buyer's knowledge and belief, Buyer is in compliance in all material respects with all applicable statutes and regulations of the United States of America, all states and municipalities and all agencies and instrumentalities of



the foregoing, relating to the conduct of its business and ownership of its properties to the extent necessary to perform its obligations under this Agreement, and Buyer shall continue to be in compliance in all such material respects until the Term is completed.

11.03     Opinion . Seller agrees to provide opinions of counsel with regard to the above representations, dedication of lignite and enforceability of Seller's right to mine or other matters as Buyer or its lenders may reasonably request if required to secure Buyer financing.

11.04     Certificates . Seller agrees to provide officer's certificates with regard to such matters as Buyer or its lenders may reasonably request.

ARTICLE 12

FORCE MAJEURE

12.01     Events of Force Majeure . The term “Force Majeure” as used in this Agreement shall mean any and all events or causes, whether foreseen or unforeseen, which are beyond the reasonable control and without the fault or negligence of the Party failing to perform and which prevent the mining, producing, processing, transporting and/or delivering of Dedicated Lignite by Seller or the receiving, accepting, and/or utilizing Dedicated Lignite by Buyer at the Facility, or otherwise prevent Seller or Buyer from performing its obligations under this Agreement. Events of Force Majeure include, but are not limited to, acts of God, lightning, storms, sabotage, riot, insurrection, war, strike, labor disputes or labor slowdowns closure of all or part of the Mine or the Facility because of imminent danger to the Mine or the Facility, material breakdowns or material damage to the Mine or the Facility or equipment, fire or accident or explosion or casualty where such fire or accident or explosion or casualty is beyond the reasonable control of the Party claiming Force Majeure, and acts of civil governmental authority (including TVA with regard to its board's record of decision of Environmental Acceptability of the Facility, as defined in the PPOA Articles 1 and 2, or any other action of TVA when acting in its governmental agency EIS review capacity), including without limitation compliance in good faith with any regulation (or change in interpretation or enforcement of a regulation), direction or order (whether valid or later found to be invalid) made by or on behalf of governmental authorities after the Effective Date of this Agreement, which compliance materially and adversely affects the Mine or the Facility.

Notwithstanding the foregoing, “Force Majeure” shall not include (a) a decrease in demand for electric power from the Facility caused by changes in market conditions or economic climate that decreases the demand by the Facility for lignite below the amounts required in Section 4.02 of this Agreement, (b) the enactment, adoption, promulgation or imposition of any legal requirement that restricts or prevents the utilization or burning of Dedicated Lignite supplied by Seller under this Agreement at the Facility, unless such legal requirement completely prevents Buyer from utilizing or burning any such Dedicated Lignite at the Facility under any circumstances or (c) weather conditions other than severe weather conditions.

12.02     Suspension of Obligations . If, because of Force Majeure, either Party hereto is unable to carry out any of its obligations under this Agreement (other than the obligation of a Party to pay money when due in connection with the performance of this Agreement), and if such Party shall promptly give to the other Party written notice of such Force Majeure, then the obligation of the Party giving such notice shall be suspended to the extent made necessary by such Force Majeure and during its continuance, provided, however, that the Party giving such notice shall use its best efforts to eliminate such Force



Majeure insofar as possible with a minimum of delay, except such Party shall not be obligated to settle strikes, labor disputes or labor slowdowns. Any deficiencies in (a) deliveries of Dedicated Lignite hereunder by Seller caused by Force Majeure, or (b) deficiencies in the receipt of Dedicated Lignite by Buyer hereunder caused by Force Majeure, shall not be made up except by mutual consent. In the event Force Majeure causes only a partial reduction in the total quantity of Dedicated Lignite Seller can deliver or Buyer can utilize, Seller shall deliver to Buyer all of the Dedicated Lignite within the Annual Projection Notice which can be produced from the Mine, and Buyer shall receive all of such Dedicated Lignite which can be accepted by Buyer during the continuance of such partial reduction.

12.03     Suspension of Lignite Deliveries . Either Party hereto shall have the right to elect to suspend the purchase or sale of Dedicated Lignite, as the case may be, for the period of time during which such Force Majeure may exist and to the extent of the quantity of Dedicated Lignite affected by Force Majeure. During such period of Force Majeure, Seller shall have the right but not the obligation to supply Alternate Fuel to Buyer in quantities sufficient to fulfill the Facility's MMBtu requirements at no additional cost to Buyer. If Seller elects not to supply such Alternate Fuel, then Buyer, if it so elects, shall have the right during such period to purchase alternate fuel from other sources in quantities sufficient to meet the Facility's fuel requirements.

12.04     Time Limit for Claiming Force Majeure . A Party seeking to claim that it has experienced a Force Majeure must so notify the other Party in accordance with Section 12.02 hereof within forty-eight (48) hours of its discovery of the Force Majeure. If a Party fails to provide notice of a Force Majeure within forty-eight (48) hours of its discovery but subsequently provides notice of the Force Majeure, such Party=s obligations shall be suspended as of the date of such late notice but not for any period prior to the delivery of such late notice.

12.05     Long Term Force Majeure . In the event a Force Majeure occurs and continues for an uninterrupted period of one (1) Year, either Seller or Buyer may terminate this Agreement by giving written notice to the other Party within ninety (90) Days after the expiration of such one (1) Year period; provided, however, in the event a Party can reasonably demonstrate during such one (1) Year period that such Force Majeure can be cured within two (2) Years from the commencement of the Force Majeure, the other Party shall be entitled to terminate this Agreement only if such Force Majeure continues uninterrupted for two (2) Years, otherwise this Agreement shall continue in full force and effect for the full remaining Term thereof.

ARTICLE 13

DEFAULT

13.01     Events of Default . The occurrence of any one of the following shall constitute an Event of Default under this Agreement:

(a)
the failure in any material respect of any Party to perform any material covenant, condition or obligation under this Agreement (including but not limited to Seller's delivery of Dedicated Lignite or Alternate Fuel),

(b)
the breach in any material respect by a Party of a material warranty or representation made by that Party in this Agreement,

(c)
the insolvency of a Party (other than as a result of the other Party's withholding



of payment of disputed charges),

(d)
the filing of a voluntary or involuntary petition in bankruptcy respecting a Party,

(e)
the appointment of a receiver or trustee for the benefit of creditors of a Party, or

(f)
the execution by a Party of an assignment for the benefit of creditors, or

(g)
an Event of Default as described in Section 6.06.

13.02     Procedure for Notifying a Party of Default .

(a)
Upon the occurrence of any Event of Default under Section 13.01 (a) or (b), the non-defaulting Party shall notify the defaulting Party in writing of the occurrence of such Event of Default. Within not more than five (5) Days after such Notice, the defaulting Party shall submit an action plan to cure such Event of Default. The defaulting Party shall have sixty (60) Days from such notice to cure such Event of Default. If such Event of Default cannot be cured with reasonable efforts within such sixty (60) Day period and the defaulting Party is diligently pursuing cure through the action plan, the defaulting Party shall be permitted an additional reasonable period of time not to exceed more than one hundred eighty (180) Days to cure such Event of Default and the non-defaulting Party shall not terminate this Agreement during such additional time period.

(b)
In the event the non-defaulting Party gives notice of an Event of Default occurring under Section 13.01 (a) or (b), and the defaulting Party fails to cure such default within the foregoing sixty (60) Day period (or such longer period as may be approved by the non-defaulting Party, which approval shall not be unreasonably withheld), then the non-defaulting Party shall have the right to terminate this Agreement by giving the defaulting Party notice of such termination. This Agreement shall terminate thirty (30) Days after receipt by the defaulting Party of the notice of termination. In the event of such termination, the non-defaulting Party will have available to it all remedies contained in this Agreement and all remedies allowed by law; provided, however, that the forum for resolution of disputes arising out of this Agreement shall be Arbitration conducted pursuant to the provisions of Article 19. Notwithstanding the foregoing, if the defaulting Party gives the non-defaulting Party notice that the defaulting Party disputes that such Event of Default has occurred and is continuing, and that the defaulting Party is submitting the matter to Arbitration in accordance with Article 18 of this Agreement, then the defaulting Party shall not be deemed in default under this Agreement and the non-defaulting Party shall not have the right to terminate this Agreement until the matter has been so finally determined by Arbitration.




(c)
If there is an Event of Default under Section 13.01(c) through (g), upon giving notice to the defaulting Party, the non-defaulting Party may terminate this Agreement effective upon proper delivery of such notice under the terms of this Agreement. Except as provided in Section 13.04(d), in the event of such termination, the non-defaulting Party will have available to it all remedies contained in this Agreement and all remedies allowed by law; provided, however, that the forum for resolution of disputes arising out of this Agreement shall be Arbitration conducted pursuant to the provisions of Article 19.

13.03     Limitations on Right of Termination . Notwithstanding anything to the contrary contained in this Article 13, neither Party shall have the right to terminate this Agreement on the grounds of a default if such default has occurred and is continuing solely as a result of:

(a)
any material failure by the Party desiring to terminate, or any material failure by an agent of or contractor (other than Buyer or Seller) to such Party to carry out such Party's material obligations under this Agreement;

(b)
any failure to pay any sum due pursuant to this Agreement;

(c)
a reasonable difference with governmental authorities as to the interpretation of applicable governmental laws, rules or regulations or impossibility of compliance therewith, so long as the affected Party is diligently pursuing a resolution of the matter with the governmental authorities.


13.04     Step-In Rights .

(a)
Step-In Triggering Events . If:

(1)
this Agreement is terminated by Buyer pursuant to Section 13.02(b); or

(2)
there is an Event of Default by Seller as described in Section 13.01(c), (d), (e), (f) or (g) and Seller is unable to substantially perform its obligation to deliver Dedicated Lignite or Alternate Fuel,

then Buyer shall have the right, but not the obligation, to give Seller written notice thereof (the AStep-In Notice@) stating that Buyer desires to exercise its rights under this Section 13.04 ("Step-In Rights").

(b)
Step-In . In the event the Step-In Notice is given by Buyer pursuant to subsection 13.04(a)(1) or (2) above, Buyer at its option shall have the right to succeed to all right, title, and interest of Seller in and to the Dedicated Lignite and all mining equipment, permits, rights and other assets for the Mine, and, if elected by Buyer in its Step-In Notice, that portion of the Mine which is necessary for producing the Dedicated Lignite. For all mining equipment, permits, rights, or other assets to which Buyer shall take title pursuant to a Step-In Notice pursuant to subsection 13.04(a)(1) or (2) above, Buyer will pay Seller the Fair Market Value thereof, less any damages or costs incurred by Buyer as a result of Seller's default



as of the date of Buyer's Step-In. The Fair Market Value of any property as of any date shall mean the cash price obtainable in an arm's length sale between an informed and willing buyer (under no compulsion to purchase) and an informed and willing seller (under no compulsion to sell), for the property in question. Such price may be established by a bona fide offer to Seller for the purchase of such property which Seller is willing to accept or by mutual agreement of the Parties. If Fair Market Value cannot be established by the process described above, such Fair Market Value shall be the value determined in accordance with a procedure ("Appraisal Procedure") whereby two independent appraisers, one chosen by Buyer and one by Seller, shall mutually agree upon the Fair Market Value determination described herein. Buyer and Seller shall each deliver a written notice to the other appointing its appraiser within fifteen (15) Days after one Party has notified the other Party of its desire to utilize the Appraisal Procedure to establish a Fair Market Value. If, within thirty (30) Days after their appointment, the two appraisers are unable to agree to the Fair Market Value, a third independent appraiser shall be chosen within ten (10) Days thereafter by the mutual consent of such first two appraisers. However, if such first two appraisers fail to agree upon the appointment of a third appraiser, such appointment shall be made by the AAA, or any successor organization thereof, and shall be a disinterested person qualified in the matter to be determined. The three appraisers shall make the determination of Fair Market Value in accordance with the rules of the AAA or any such successor then in effect, and such determination shall be binding and conclusive on Buyer and Seller. Each Party shall pay the costs of its own appraiser and shall share equally in the costs, if any, of a third appraiser. Seller agrees to execute and record such documents as Buyer may reasonably request to perfect Buyer's Step-In Rights.

(c)
Indemnity . Buyer shall indemnify and hold harmless Seller and its joint venture partners, and each of their respective shareholders, directors, officers, employees and agents from and against any and all claims, costs, causes of action, and liabilities to the extent arising out of or in any way relating to Buyer's (or Buyer=s assignee=s, agent=s or contractor=s) operation of the Mine following Buyer's exercise of its Step-In Rights or following Buyer=s foreclosure under the Subordinated Deed of Trust.

(d)
Sole Remedy . Except as otherwise specified in this Article 13, if Buyer elects to exercise its Step-In Rights or to foreclose under the Subordinated Deed of Trust, such exercise shall constitute Buyer's sole and exclusive remedies for an Event of Default of Seller under this Article 13, except for damages incurred by Buyer prior to the date of exercise of such Step-In Rights or foreclosure, and only with respect to the Event of Default giving rise to the exercise of the Step-In Rights or foreclosure.

13.05     Subordinated Deed of Trust. In order to secure the full performance by Seller of its obligations under this Agreement, and to support Buyer's right to step in pursuant to Section 13.04 of this Agreement, Seller shall grant to Buyer and record within six (6) Months after the Effective Date of this Agreement a lien on and security interest in Seller's property, plant and equipment comprising the Mine by a Subordinated Deed of Trust and Security Agreement substantially in the form attached hereto and made a part hereof as Exhibit G, such UCC financing statements and other actions as Buyer may



reasonably require in order to confirm and continue the validity, priority and perfection of such lien.

ARTICLE 14

PROPRIETARY AND CONFIDENTIAL DATA

14.01     Proprietary and Confidential Data . In the event either Party furnishes the other Party with data which it considers proprietary and/or confidential, such data shall be clearly identified as such. The Parties shall use or disclose to third parties such proprietary and/or confidential data only for the purposes of licensing, construction, operation or maintenance of the Mine or the Facility as is required by applicable law and shall not publish or otherwise disclose such information to third parties without written approval of the other Party. In the event a dispute arises between the Parties with respect to any obligation hereunder, either Party may disclose the other's proprietary and/or confidential data on a confidential basis to any expert provided that such expert signs a statement not to further disclose such proprietary and/or confidential data and promptly furnishes the other Party with a copy of such statement. The term "Confidential Material" does not include information that was or becomes generally available to a Party on a non-confidential basis, provided that the source of such information was not bound by a confidentiality agreement. The term "Confidential Material" also does not include (i) information which is now or hereafter enters the public domain through no action on the part of the respective Parties in violation of the terms or conditions hereof or (ii) information disclosed by a Party to others on an unrestricted, nonconfidential basis after the date hereof.

14.02     Disclosure to Governmental Authorities . Notwithstanding the provisions of Section 14.01, either Party shall have the right to disclose such proprietary and/or confidential data to any Governmental Authorities but shall exert reasonable effort to secure confidential treatment of such data to be so disclosed.

14.03     Press Releases . Buyer and Seller agree to provide the other with an opportunity to review in advance any press releases, advertisements, technical papers, and trade journal articles, including technical papers and trade journal articles that are to be presented at professional conferences, regarding the other Party's operations or facilities.

14.04     Liability for Disclosure of Data . Any breach of the obligations made in this Article 14 shall subject the breaching Party to payment for damages actually sustained by the non-breaching Party.

ARTICLE 15

INSURANCE

15.01     Seller's Insurance . Seller shall maintain the following insurance coverages for the duration of this Agreement:

(a)
Workers' Compensation and Employers Liability Insurance : as required by law

(b)
Comprehensive General Liability:




Bodily Injury and
 
 
Property Damage Combined
 
$500,000 Each Occurrence
 
 
$500,000 Aggregate

Such insurance shall have the following coverage:

1.
Contractual Liability for the contractual liability assumed by the Seller in contracts with Buyer.

2.
Independent Contractors' Liability for any portion of the work that is subcontracted.

3.
Premises & Operations (in progress) Hazard .

4.
Explosion/Collapse/Underground Hazard . Explosion coverage is waived where blasting operations are not involved. Where digging, grading, excavation and like operations are necessary, Underground Hazard and Collapse Hazard coverages are required.

5.
Products and Completed Operations Hazard .

6.
Broad Form Property Damage Liability Including Products and Completed Operations Hazard .

7.
Personal Injury Liability with the deletion of the Employee Exclusion and the Contractual Exclusion .

(c)
Automobile Liability:

Bodily Injury Liability and
 
 
Property Damage Liability
 
 
Combined
 
$500,000 Each Occurrence
 
 
 
Covered Autos:    
 
Any Auto (Comprehensive Form,
Owned, Hired and Non-Owned Autos)

Additional Provisions Required:

1.
Contractual Liability coverage or at least specific Contractual Coverage for the contractual liability assumed by the Seller in contracts with Buyer.

(d)
Excess Liability Insurance: Umbrella coverage with equal or broader coverages than that of underlying policies, including broad form contractual liability with combined single limit for bodily injury and property damage of $10,000,000 per occurrence.

15.02     Buyer's Insurance . Buyer shall maintain the following insurance coverages for the duration of this Agreement:

(a)
Workers' Compensation and Employers Liability Insurance : as required by law




(b)
Comprehensive General Liability:

Bodily Injury and
 
 
Property Damage Combined
 
$500,000 Each Occurrence
 
 
$500,000 Aggregate

(c)
Automobile Liability:

Bodily Injury Liability and
 
 
Property Damage Liability
 
 
Combined
 
$500,000 Each Occurrence
 
 
 
Covered Autos:    
 
Any Auto (Comprehensive Form,
Owned, Hired and Non-Owned Autos)

Additional Provisions Required:

1.
Contractual Liability coverage or at least specific Contractual Coverage for
the contractual liability assumed by the Buyer in contracts with Seller.

(d)
Excess Liability Insurance: Umbrella coverage with equal or broader coverages than that of underlying policies, including broad form contractual liability with combined single limit for bodily injury and property damage of $10,000,000 per occurrence.

15.03     Certificates of Insurance . Seller and Buyer shall provide to each other a certificate of insurance evidencing compliance with the requirements of Section 15.01 and Section 15.02 as applicable.

15.04     Issuance of Certificate . Certificates of insurance are to be issued to Seller at P. O. Box 908, Ackerman, MS 39735-0908, and to Buyer at 1177 W. Loop South, Houston, TX 77027, Attn: Red Hills Generation Facility Project Director. Such certificates of insurance shall include the following information:

(a)
Name of insurance company providing coverages and policy numbers.

(b)
Types and limits of coverages.

(c)
Policy period (includes effective and expiration dates).

(d)
Statement in Remarks Section of Certificate, if not otherwise provided for on certificate that general liability and auto liability policies provide coverage for the contractual liability assumed by the insured in contracts with the other Party.

(e)
A statement guaranteeing thirty (30) Days' written notice to each Party if policies are to be canceled or significantly changed before expiration date.

(f)
Name, address and telephone number of insurance agent, broker or company and signature of authorized representative.

(g)
Description of operations, locations, vehicles, restrictions, special items and remarks.




15.05     Waiver of Subrogation . Seller's policies shall contain a waiver of subrogation by the insurer in favor of Buyer. Buyer's policies shall contain a waiver of subrogation by the insurer in favor of Seller.

15.06     Other Insurance Coverage . Seller and Buyer may carry such other insurance as each respectively deems necessary and all such insurance shall be for the account of the insured Party.

15.07 Obligation to Rebuild . If Seller receives insurance proceeds resulting from or related to damages to the Mine or equipment necessary for the operation of the Mine, Seller shall use such proceeds to restore the Mine and its operations to a level necessary to perform its obligations pursuant to this Agreement, or in lieu thereof shall provide appropriate assurances, acceptable to Buyer, regarding the supply of Dedicated Lignite or Alternate Fuel in accordance with Seller's obligations for the remaining term of this Agreement.

ARTICLE 16

WAIVERS, REMEDIES, AMENDMENTS

16.01     Waivers and Remedies . The failure of either Party hereto to insist in any one or more instances upon strict performance of any provision of this Agreement by the other Party hereto, or to take advantage of any of its rights hereunder, shall not be construed as a waiver by it of any such provision or the relinquishment by it of any such rights in respect of any subsequent nonperformance of such provision, but the same shall continue and remain in full force and effect. The pursuit by either Party of any remedy available under this Agreement shall not constitute an election or waiver of any other remedy available to that Party under this Agreement or at equity or in law by reason of the violation or breach of any of the terms, provisions, covenants, representations or warranties of this Agreement; provided, however, that the forum for resolution of disputes arising out of this Agreement shall be Arbitration conducted pursuant to the provisions of Article 19. No waiver of any violation or breach shall be deemed or construed to constitute a waiver of any other violation or breach, and forbearance to enforce one or more of the remedies available for a violation or breach shall not be deemed to constitute a waiver of that or any other violation or breach.

16.02     Remedies Cumulative . Except as otherwise provided in this Agreement, each remedy specifically provided for under this Agreement shall be taken and construed as cumulative and in addition to every other remedy provided for herein or by law; provided, however, that the exclusive forum for resolution of disputes arising out of this Agreement shall be Arbitration conducted pursuant to the provisions of Article 19.

16.03     Exclusions of Consequential Damages . Notwithstanding any other provision of this Agreement, under no circumstances shall Buyer or Seller be entitled to any special or consequential damages of any kind or nature whatsoever.

16.04     Amendments . Any and all amendments, supplements, and modifications to this Agreement shall be in writing and signed by the Parties hereto.

ARTICLE 17

NOTICES AND OTHER COMMUNICATIONS;
AUTHORIZED REPRESENTATIVES

Buyer and Seller each shall appoint a representative ("Authorized Representative") to receive and give on behalf of Buyer and Seller all notices, approvals, disapprovals and other communications required or permitted under this Agreement.

Except as otherwise expressly stated in this Agreement, any such notice or approval, disapproval



or other communication shall be in writing to the other Party and shall be deemed to have been duly given when delivered in person to the Authorized Representative or upon delivery by telephonic facsimile transmission, or when actually received (as evidenced by return receipt after posting by United States certified mail, return receipt requested), with postage prepaid, addressed to the Authorized Representatives of Buyer and Seller as follows:


As to Seller, the Authorized Representative shall be:
General Manager
Mississippi Lignite Mining Company
P.O. Box 908
Ackerman, MS 39735-0908

Copies of all notices shall be sent to Seller to:
President
Phillips Coal Company
2929 North Central Expressway
Richardson, TX 75080-2043
 
President
The North American Coal Corporation
Signature Place II
14785 Preston Road, Suite 1100
Dallas, TX 75240-7891

As to Buyer, the Authorized Representative shall be:
Project Director
Choctaw Generation Limited Partnership

Copies of all notices shall be sent to Buyer to:
Choctaw Generation Limited Partnership
c/o Tractebel Power, Inc.
1177 West Loop South, Suite 900
Houston, TX 77027

The designation of the Authorized Representative of each Party or the addresses of same may be changed at any time by any Party upon written notification by its Authorized Representative to the other Party's Authorized Representative.




ARTICLE 18

DISPUTE RESOLUTION

18.01    The Parties shall for a period of up to ninety (90) Days after either Party has given notice that a dispute exists engage in good faith discussions and negotiations in an attempt to resolve such dispute. If, by the earlier of the end of such ninety (90) Day period, (unless such period is extended by mutual agreement of the Parties), or such time as the Parties agree the Parties have been unable to resolve such dispute, then they shall submit such dispute to binding Arbitration in accordance with Article 19 below.

ARTICLE 19

ARBITRATION

19.01     Arbitrators' Panel . Any Arbitration hereunder shall be before three (3) neutral arbitrators, one of whom shall be named by Seller, one of whom shall be named by Buyer, and the third of whom shall be selected in accordance with the procedure set forth in Section 19.02. If either Buyer or Seller fails to select an arbitrator within fifteen (15) Days after its receipt of notice of Arbitration under this Article 19, then the other Party shall have the right to appoint an arbitrator for the Party not acting.

19.02     Selection of Third Arbitrator . The third arbitrator shall be chosen by the two arbitrators selected pursuant to Section 19.01, provided that if the arbitrators cannot agree within ten (10) Days on a third arbitrator, the third arbitrator shall be chosen by Buyer and Seller from a panel of the American Arbitration Association ("AAA") as follows:

(a)
Immediately upon the expiration of such ten (10) Day period the Parties shall request the AAA to submit simultaneously to each Party an identical list of persons chosen from the AAA's panel.

(b)
Each Party shall have thirty (30) Days from the date of receipt in which to cross off any names objected to, number the remaining names to indicate the order of preference, and return the list to the AAA. If a Party does not return the list within the time specified, all persons named therein shall be deemed acceptable to that Party.

(c)
From the persons who have been approved on both lists, and in accordance with the designated order of mutual preference, the AAA shall invite the acceptance of an arbitrator to serve as the third arbitrator, or if acceptable arbitrators are unable to act, or if for any other reasons the appointment cannot be made from the submitted lists, the AAA shall have the power to make the appointment from among other members of the panel of the AAA without the submission of any additional list.

19.03     Qualification of Arbitrators . Persons selected as neutral arbitrators hereunder shall have the following minimum qualifications:

(a)
Shall be impartial, disinterested, independent of the Parties and their affiliates and have a reputation for fairness; provided, however, that this definition shall



not exclude the employees of consulting firms that have not performed consulting services having a value in excess of $50,000 in the aggregate for either Party or its Affiliates within the twenty-four (24) Months preceding the commencement of Arbitration. Consulting services do not include publications, reports (including regional reports or studies), data bases and data services which are purchased from the coal/lignite industry or independent non-regulated electric power industry consulting firm and are offered for sale by the consulting firm to multiple customers in a substantially similar form; and

(b)
Shall have expertise in the process of interpreting coal or lignite supply agreements.

19.04     Governing Law . Arbitration proceedings conducted pursuant to this Article 19 will be governed by the laws of the State of Texas (without regard to its choice of law rules) and the Commercial Arbitration Rules of the AAA then in effect, except as specified herein. Within thirty (30) Days of the appointment of the third arbitrator, the complaining Party shall submit a statement of claim. The Party not submitting a statement of claim shall have thirty (30) Days after being served with the statement of claim to submit an answer. Both the statement of claim and the answer shall concisely and with specificity state the Party's position and the basis for that position.

19.05     Hearing, Location . The Arbitration hearing shall be conducted in Houston or Dallas, Texas or such other location as may be agreed to by the Parties and shall begin within sixty (60) Days of submittal of the answer, unless the Parties agree otherwise. The arbitration hearing shall be concluded within one hundred twenty (120) Days of the appointment of the third arbitrator pursuant to Section 19.02 hereof unless the Parties agree otherwise.
19.06     Authority of Arbitrator . The arbitrators' authority shall be limited to the extent that the arbitrators shall be bound by the laws of the State of Texas the facts and issues, and by the Texas Rules of Evidence, to the same extent as a trial court and the arbitrators shall make no decision which is not in accordance with applicable laws and Section 19.10 hereof; depositions may be admitted to the extent testimony would be admissible and this shall not prevent live testimony by any witness who was deposed; and reasonable discovery limited to the issues to be arbitrated shall be available.

19.07     Record of Hearing . A stenographic transcript of the testimony and of the record of such proceedings shall be taken.

19.08     Briefs . The brief of the complaining Party shall be filed with the arbitrators within thirty (30) Days after completion of the hearings, and the brief of the other Party shall be filed within thirty (30) Days after the receipt of the complaining Party's brief. The arbitrators may designate the portion or portions of the record which they require for their decision, but nothing shall prevent a Party from presenting a complete record, if it do desires.

19.09     Claims of $100,000 or Less - Baseball Arbitration . With respect only to disputes where the dollar difference in the position of the Parties is $100,000 or less, the arbitrators shall have no power to mediate or compromise any claim, but shall have only the authority to review the information presented by the Parties and to select the position proposed by one of the Parties.

19.10     Payment of Costs . Each Party shall pay for the services and expenses of its witnesses and



attorneys and the arbitrator it appoints; all other costs incurred in connection with the arbitration shall be paid by equal parts by the Parties, unless the award shall specify a different division of costs.

19.11     Issuance and Effect of Arbitrators' Decision . The award of the arbitrators shall require a majority of the arbitrators, shall be in writing setting forth the arbitrator's reasoning based on the evidence admitted and rendered and served on both Buyer and Seller within thirty (30) Days of filing of the last brief under Section 19.08. The decision of the arbitrators shall be final and binding and enforceable pursuant to the laws of the State of Texas by filing in any court having jurisdiction thereof. It is agreed that during the pendency of any arbitration proceedings, the Parties shall continue to perform their obligations under this Agreement in the same manner as prior to the institution of arbitration proceedings, and neither Party shall depart from the status quo of performance under this Agreement as it existed prior to instituting the arbitration, and such conduct shall not be deemed to be in breach of this Agreement unless and until it is found to be so by the arbitrators' decision. To the extent necessary and proper, the arbitrators' decision may be retroactive.
19.12     Waiver of Jury Trial . The Parties hereto waive trial by jury in connection with proceedings or counterclaims brought by either of the Parties hereto to enforce or appeal an arbitration award rendered under this Article 19.

ARTICLE 20

TAXES AND OTHER CHARGES

20.01     Applicable Taxes . All present or future federal, state, municipal or other lawful taxes (other than those described in Section 20.04 (Broad Industry Taxes and Charges) below)) applicable by reason of the operation of the Mine or assessable on Seller's property or operations other than those listed in Exhibit E, shall be Seller's responsibility. Seller shall have the responsibility to pay the taxes listed in Exhibit E; provided, however, that payment of such taxes by Seller shall be without prejudice to the understanding of the Parties that the cost of such taxes shall be passed through to, and borne by Buyer as a component of the Billing Price for lignite delivered hereunder as provided in said Exhibit E to the extent the Buyer can pass such items through to the Electric Customer. Buyer shall pay all existing and any new sales, use, excise, ad valorem, and any other similar taxes, if any, imposed or levied by a governmental agency on the capacity or energy sold and delivered from the Facility. Buyer shall indemnify, defend, and hold Seller harmless from any liability for all such taxes for which Buyer is responsible. Seller shall indemnify, defend, and hold Buyer harmless from any liability from all such taxes for which Seller is responsible. Buyer shall reimburse Seller promptly on demand for the amount of any such tax that is Buyer's responsibility hereunder that Seller remits, plus any penalties and interest incurred and remitted, except such penalties as result from Seller's conduct. Likewise, Seller shall reimburse Buyer promptly on demand for the amount of any such tax that is Seller's responsibility hereunder that Buyer remits, plus any penalties, interest incurred and remitted, except penalties as a result from Buyer's conduct.

20.02     Contested Taxes . Neither Party shall be required to pay any such tax, assessment, charge, levy, account payable or claim if the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property utilized under this Agreement or any material interference with the use thereof.

20.03     Other Charges. Subject to Section 20.02, Seller and Buyer each will pay and discharge all lawful assessments and governmental charges or levies imposed upon it or in respect to all or any part of its property or business, all trade accounts payable in accordance with usual and customary business



terms, and all claims for work, labor, or materials which, if unpaid might become a lien or charge upon any of its property.

20.04     Broad Industry Taxes or Charges . Notwithstanding the above, if taxes, fees, charges or programs are imposed by any state or federal government on the mining or consumption of fossil fuel for electric generating facilities (e.g., a carbon tax, Btu tax, new offset program), the Parties shall use all reasonable efforts to develop a mitigation plan to reduce the impact of such taxes, fees, charges or programs. If such taxes, fees, charges or impacts of programs result in additional costs that are not otherwise assessed against Buyer, pricing under this Agreement shall be renegotiated, to fully pass through such costs to Buyer and fully reimburse Seller for such amounts, but only to the extent that Buyer is reimbursed for such amounts by the Electric Customer. These pricing renegotiations shall be subject to Arbitration only for the purpose of establishing the amount by which Seller shall be fully compensated for these additional costs. Conversely, any future tax relief (such as a tax credit) to Seller related to such pricing under this Agreement shall be fully passed through to Buyer.

20.05     Income Taxes . In no event shall Seller be entitled to pass through existing, new, or increased income taxes.

ARTICLE 21

RIGHT OF FIRST REFUSAL AND ASSIGNMENT OF LEASES

21.01     Right of First Refusal . Seller agrees to grant Electric Customer as provided in Section 17.4 of the PPOA, an exclusive right of first refusal, and Seller further agrees to grant to Buyer an exclusive right of refusal subordinate to Electric Customer's right, to purchase that portion of the lignite reserves in the Lignite Property which is in excess of the Dedicated Lignite ("Excess Lignite Reserves@). Seller shall execute and record such documents as are reasonably required by Buyer or Electric Customer to grant, perfect and subordinate such rights of refusal, consistent with the notice, exercise periods, and other procedural matters contained in the similar right of refusal of Electric Customer in the PPOA.

21.02     Right to Assignment of Lignite Mining Instruments and Purchase of Fee Lands . Seller has the right to release, in whole or in part, any of the coal leases, subleases or agreements described in Exhibit H, and any extensions and/or renewals thereof; and to sell all or part of the lands owned by Seller (fee lands) and described in Exhibit H, so long as such release or sale does not violate Seller=s commitment to maintain reserves of Dedicated Lignite sufficient to meet its obligations under this Agreement as set forth in Sections 3.01 and 11.01(f). In addition to Buyer=s subordinate right of first refusal as set forth in Section 21.01 above, Seller agrees to give Buyer at least sixty (60) Days advance written notice of its intention to release any of said coal leases, subleases, agreements, or any extensions and/or renewals thereof, or to sell any of said fee lands. Seller shall include in such notice an estimate of the cost (if any) that Buyer would incur to receive an assignment and to maintain such leases, subleases or other agreements, and/or the estimated fair market value of such fee lands, as established by a licensed real estate appraiser, knowledgeable of real estate values in Choctaw County, Mississippi, and jointly selected by the Parties. Seller shall provide to Buyer such geological data which Sellers owns, or has developed to determine the quality and quantity of lignite within such property. In the event that Buyer should request in writing within thirty (30) Days after receipt of such notice, an assignment of the leases, subleases or agreements which Seller proposes to release; and/or to purchase the fee lands which Seller proposes to sell, for the estimated fair market value set out in said notice, Seller will assign such leases, subleases or agreements, and/or sell such fee lands to Buyer at the price offered in said notice. Seller shall not be required to notify Buyer prior to releasing all or any part of a lease, sublease, agreement, or



the sale of any lands, after mining and reclamation thereof has been completed.

ARTICLE 22

MISCELLANEOUS

22.01     Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns; provided, however, this Agreement may not be assigned by either Seller or Buyer without the written consent of the other Party, which consent will not be unreasonably withheld, and provided further that no such consent is necessary in the event of (a) pledge, assignment or other security arrangement to secure indebtedness incurred for the purpose of or in connection with the construction or operation of the Facility or any refinancing thereof, or performance under this Agreement or the PPOA or any indebtedness secured by lien on the Facility or revenue therefrom, or (b) the assignment by either Party of all or any part of its interest in this Agreement to its own parent company or to a subsidiary or subsidiary of such assigning Party's parent company or to a partnership or joint venture in which the assigning Party owns at least a fifty (50) per cent interest, provided such assignee assumes the obligations of the Party under this Agreement to the extent of the interest so assigned. If Buyer assigns its rights and interests hereunder in connection with or as collateral security for a financing or refinancing, then, upon request of Buyer, Seller shall execute and deliver to assignee or its designees a consent to assignment in form and substance typical in project finance transactions as shall be reasonably requested by such assignee.

22.02     Headings Not to Affect Construction . The headings to the respective sections and paragraphs of this Agreement are inserted for convenience of reference, and are neither to be taken to be any part of the provisions hereof nor to control or affect the meaning, construction or effect of the same.

22.03     Written Instrument Contains Entire Agreement . This written instrument, including all exhibits attached hereto, contains the entire agreement between the Parties hereto in respect of the subject matter, and there are no other understandings or agreements between said Parties, or either of them, in respect thereof.

22.04     Execution of Counterparts . This instrument may be simultaneously executed in any number of counterparts, and all such counterparts shall constitute but one and the same instrument.

22.05     Construction of Agreement . This Agreement shall be governed by and construed according to the laws of the State of Texas without giving effect to the conflict of laws principles thereof.

22.06     Severability . In the event that any of the terms, covenants or conditions of this Agreement, other than the obligation to pay money pursuant to the terms of this Agreement, or the application of any such term, covenant or condition, shall be held invalid as to any person or circumstances by any court having jurisdiction in the premises, the remainder of this Agreement and the application of its terms, covenants or conditions to such person or circumstances shall not be affected thereby but shall remain in force and effect.

22.07     Amendments . No amendment to this Agreement or the exhibits hereto shall be effective unless approved in writing by each Party hereto.

22.08     Survivorship of Obligations . The termination or cancellation of this Agreement shall not



discharge any Party from any obligation it owes to the other Party under this Agreement by reason of any transaction, loss, cost, damage, expense or liability which shall occur or arise prior to such termination. It is the intent of the Parties that any such obligation owed (whether the same shall be known or unknown as of the termination or cancellation of this Agreement) will survive the termination or cancellation of this Agreement. The Parties also intend that the indemnification provisions contained in this Agreement shall remain operative and in full force and effect, regardless of any termination or cancellation of this Agreement, except with respect to actions or events occurring or arising after such termination or cancellation is effective.

22.09     Negation of Partnership . None of the terms or provisions of this Agreement shall be deemed to create a partnership between the Parties and their businesses or otherwise, nor shall it cause them to be considered joint venturers or members of any joint enterprise.


22.10 Exhibits . The following exhibits to which reference is made in this Agreement are deemed incorporated into this Agreement in their entirety:


Exhibit A - The Lignite Property [* * *]

Exhibit B - Depiction of Point of Delivery [* * *]

Exhibit C - Annual Lignite Quantity Table

Exhibit D - Form of Annual Projection Notice

Exhibit E - Adjustment to Base Price [* * *]

Exhibit F - Form of Three-Way Arbitration Agreement

Exhibit G - Form of Subordinated Deed of Trust and Security Agreement

Exhibit H - List of Lignite Mining Instruments (current/will be updated over time) [* * *]

Exhibit I - Permitting and Construction Schedule

Exhibit J - Quality and Property Price Adjustment





* * * Confidential Treatment Requested



- 42 -
DM_US 39440124-2.082902.0010


IN WITNESS WHEREOF, each Party has caused this Agreement to be executed on its behalf by its duly authorized representative as of April 1, 1998, to be effective for all purposes as of such date.

SELLER:
 
 
 
MISSISSIPPI LIGNITE MINING COMPANY
 
By Its Joint Venturers:
 
 
 
 
PHILLIPS COAL COMPANY
 
 
 
 
By:
/s/ Paul M. Thompson
 
Title:
President
 
Date:
April 29, 1998
 
 
 
 
THE NORTH AMERICAN COAL CORPORATION
 
 
 
 
By:
Clifford R. Miercort
 
Title:
President and Chief Executive Officer
 
Date:
April 29, 1998

BUYER:
 
 
 
CHOCTAW GENERATION LIMITED PARTNERSHIP
 
By: Choctaw Generation, Inc.
 
Its General Partner
 
 
 
 
By:
/s/ Paul Margaratis
 
Title:
Vice President
 
Date:
24 April 98






EXHIBIT C
TO
LIGNITE SALES AGREEMENT

ANNUAL LIGNITE QUANTITY
 
Facility BTU
 
Year
Burn/Year
Approximate Tonnage
 
(millions)
@5294 Btu/lb
 
 
 
2000
10,811,600
1,021,000
2001
32,881,536
3,105,547
2002
32,881,536
3,105,547
2003
32,881,536
3,105,547
2004
32,881,536
3,105,547
2005
32,881,536
3,105,547
2006
32,881,536
3,105,547
2007
32,881,536
3,105,547
2008
32,881,536
3,105,547
2009
32,881,536
3,105,547
2010
32,881,536
3,105,547
2011
32,881,536
3,105,547
2012
32,881,536
3,105,547
2013
32,881,536
3,105,547
2014
32,881,536
3,105,547
2015
32,881,536
3,105,547
2016
32,881,536
3,105,547
2017
32,881,536
3,105,547
2018
32,881,536
3,105,547
2019
32,881,536
3,105,547
2020
32,881,536
3,105,547
2021
32,881,536
3,105,547
2022
32,881,536
3,105,547
2023
32,881,536
3,105,547
2024
32,881,536
3,105,547
2025
32,881,536
3,105,547
2026
32,881,536
3,105,547
2027
32,881,536
3,105,547
2028
32,881,536
3,105,547
2029
32,881,536
3,105,547
2030
32,881,536
3,105,547
 
 
 
TOTAL
997,257,680
94,187,410

EXHIBIT D



TO
LIGNITE SALES AGREEMENT

ANNUAL PROJECTION NOTICE FOR
 
(year)
 
 
 
ANNUAL LIGNITE QUANTITY
 
 
 
 
 
DATE OF NOTICE
 
 





Month
(A)
Monthly Portion of Annual Lignite Quantity

Average Daily Delivery
January
 
 
February
 
 
March
 
 
April
 
 
May
 
 
June
 
 
July
 
 
August
 
 
September
 
 
October
 
 
November
 
 
December
 
 
TOTAL
 
 
AVERAGE
 
 




.
(A)     Seller shall not be obligated to deliver more than 3,300,000 MM Btus in any.
















EXHIBIT F
TO



LIGNITE SALES AGREEMENT

THREE WAY ARBITRATION AGREEMENT
This Three-Way Arbitration Agreement (this "Agreement") is entered into and effective as of April 1, 1998, by and among the Tennessee Valley Authority, a corporate instrumentality and agency of the United States of America ( "TVA"), Choctaw Generation Limited Partnership, a Delaware limited partnership authorized to do business in the State of Mississippi ("Choctaw"), and Mississippi Lignite Mining Company, a Texas joint venture between Phillips Coal Company and The North American Coal Corporation, authorized to do business in the State of Mississippi ("MLMC"). The term “Party herein shall mean TVA, Choctaw or MLMC as the context indicates, and the term “Parties” shall mean TVA, Choctaw and MLMC.
RECITALS
A.
Choctaw and MLMC are parties to a Lignite Sales Agreement dated April 1, 1998, (the “LSA”), pursuant to which MLMC will sell and Choctaw will purchase lignite as fuel for Choctaw’s lignite-fired 440 MW atmospheric circulating fluidized bed power generation facility (the “Facility”) in Choctaw County, Mississippi.
B.
Choctaw and TVA are parties to a long-term Power Purchase and Operating Agreement dated as of February 20, 1997 (the “PPOA”), whereby Choctaw will sell electric power produced at the Facility to TVA.
C.
Pursuant to both the LSA and PPOA, the parties under those respective Agreements have agreed to resolve certain disputes concerning selection of new escalation indices and the impact on pricing of certain taxes (or tax credits), fee and charges imposed by state or federal government on the mining or consumption of fossil fuel for electric generating facilities (“Pass Through Charges(s)”).

THEREFORE, in consideration of the mutual premises set forth herein, and other good and valuable consideration, receipt of which is acknowledged by the Parties, the Parties agree as follows:
ARTICLE I
DISPUTE RESOLUTION
1.01 For a period of up to ninety (90) days after a Party has made claim that an index used in the LSA and PPOA is no longer published or for a Pass-Through Charge, the Parties shall engage in good faith discussions and negotiations in an attempt to resolve such claim. Such discussions shall include at least one face-to-face meeting of officers of the Parties held for the purpose of resolving the claim. If, by the earlier of the end of such ninety (90) day period (unless such period is extended by mutual agreement of the Parties), of such time as the Parties agree that a dispute exists and they have been unable to resolve such dispute, then they shall submit such dispute to binding arbitration in accordance with Article 2 below.



ARTICLE II
ARBITRATION
2.01 (a) Arbitrators' Panel. Any arbitration hereunder shall be before three (3) neutral arbitrators, who meet the qualifications set forth in Section 2.02 and who have not been employed or retained previously by any Party and do not have a direct or indirect interest in a Party or the subject matter or an arbitration between the Parties. Subject to the provision below for Alternate Arbitration Panel Selection, in the event two Parties substantially agree on the matter to be submitted to arbitration (the two such Parties being referred to as "Concurring Parties" and being considered a single party for purposes of selection of the arbitrators), the Concurring Parties and the third Party (being transferred to as the "Non-Concurring Party") shall select the three arbitrators from a panel of the American Arbitration Association ("AAA") as follows:
1) Immediately upon the expiration of the period in Section 1.01, the Concurring Parties or the Non-Concurring Party shall request the AAA to submit simultaneously to the Concurring Parties and the Non-Concurring Party an identical list of not less than fifteen (15) persons chosen from the AAA's Panel with appropriate information regarding their experience, including past arbitrations in which such person have participated and background of such persons. The Concurring Parties and the Non-Concurring Party shall have the right to provide written questions to such persons as part of the selection process and the Concurring Parties and the Non-Concurring Party shall be provided copies of such questions and such person's answers thereto.
2) Both the Concurring Parties and the Non-Concurring Party shall have thirty (30) days from the date of receipt in which to cross off any names objected to, number the remaining names to indicate the order of preference, and return the list to the AAA. If either the Concurring Parties or the Non-Concurring Party does not return the list within the time specified, all persons named therein shall be deemed acceptable to the Party that does not return the list.
3) From the persons who have been approved on both lists, and in accordance with the designated order of highest mutual preference (or a fair selection of alternating preferences of the Parties, if necessary), the AAA shall invite the acceptance of three arbitrators. If acceptable arbitrators are unable to act, or if for any other reasons the appointment cannot be made from the submitted lists, a senior official of AAA shall have the power to make the appointments from among other persons meeting the qualifications set forth in this Section and in Section 2.02, without the submission of any additional list.
(b) Alternate Arbitration Panel Selection . In the event the two Parties do not substantially agree upon the matter to be submitted to arbitration or upon mutual agreement of all Three Parties, the following method selection of the arbitration panel may be utilized. Any arbitration hereunder shall be before three (3) neutral arbitrators who meet the qualifications set forth in Section 2.02 and who have not been employed or retained previously by any Party and do not have a direct or indirect interest in a Party or the subject matter of an arbitration between the Parties, chosen by MLMC, TVA, and Choctaw from a panel of the American Arbitration Association ("AAA) as follows:



1) Immediately upon the expiration of the period in Section 1.01, MLMC, TVA or Choctaw shall request the AAA to submit simultaneously to MLMC, TVA and Choctaw an identical list of not less than fifteen (15) persons chosen from the AAA's Panel with appropriate information regarding their experience, including past arbitrations in which such persons have participated and background of such persons. Each Party shall have the right to provide written questions to such persons as part of the selection process and all Parties shall be provided copies of such questions and such persons' answers thereto.
2) MLMC, TVA and Choctaw shall have thirty (30) days from the date of receipt in which to cross off any names objected to, number the remaining names to indicate the order of preference, and return the list to the AAA. If any one of MLMC, TVA, or Choctaw does not return the list within the time specified, all persons names therein shall be deemed acceptable to that Party.
3) From the persons who have been approved on all three lists, and in accordance with the designated order of highest mutual preference (or a fair selection of alternating preferences of the Parties, if necessary), the AAA shall invite the acceptance of three arbitrators. If acceptable arbitrators are unable to act, or if for any other reasons the appointment cannot be made from the submitted lists, a senior official of AAA shall have the power to make the appointments from among other persons meeting the qualifications set forth in this Section and in Section 2.02, without the submission of any additional list.
c) Dispute on Arbitration Selection . In the event the Parties are unable to agree on whether two Parties substantially agree upon the matter to be submitted to arbitration, the claim or claims of the Party or Parties to be submitted to arbitration and the arguments of all other Parties and any supporting materials concerning where there is substantial agreement of any two Parties upon such claims or claims shall be submitted in writing to the AAA. The AAA shall select a single arbitrator that meets the qualifications set forth in Section 2.02 and who has not been employed or retained previously by any Party and does not have a direct or indirect interest in a Party or the subject matter of an arbitration between the Parties. Within thirty (30) days of selection, the arbitrator shall make its decision solely on the matter of whether or not there is substantial agreement of any two Parties concerning the matter to be submitted to arbitration. Upon such decision, the arbitration panel's selection shall be made in accordance with Section 2.01(a) or (b) consistent with the arbitrator's written decision.
2.02 Qualification of Arbitrators . Persons selected as arbitrators hereunder shall have the following minimum qualifications:
(a) Shall be impartial, disinterested, independent of the Parties and their Affiliates and have a reputation for fairness; provided, however, that this definition shall not exclude the employees of consulting firms that have not performed consulting services having a value in excess of $50,000 in the aggregate for any Party or its Affiliates with the twenty-four (24) Months preceding the commencement of arbitration (provided that no such firm shall at the time be engaged with any Party or its Affiliates): and
(b) Shall have demonstrated and recognized expertise in the process of interpreting the pricing



provisions customary in coal or lignite supply agreements and power purchase agreements.
2.03 Governing Law . Arbitration proceedings conducted pursuant to this Article 2 will be governed by the federal laws of the United States of America (without regard to its choice of law rules) and the Commercial Arbitration Rules of AAA then in effect, except to the extent such Rules may be inconsistent with this Agreement.
2.04 Claims and Responses . The claims and responses shall be filed as follows: Within thirty (30) days of the appointment of the panel or arbitrators, the Party and Parties making a claim shall submit a statement of their claim to the other Party or Parties and the panel of arbitrators. The receiving Party or Parties shall have thirty (30) days after being served with the statement of claims to submit an answer to the panel of arbitrators and the other Party or Parties. Both the Statement of claims and the answer shall concisely and with specificity state each Party's position and the basis for that position.
2.05 Hearing, Location . The arbitration hearing shall be conducted in alternating locations of the home offices of TVA and Choctaw and MLMC or such other location as may be agreed to by the Parties, provided if no other location is mutually agreeable, the arbitration hearing shall commence with TVA's office in Knoxville, Tennessee and shall begin within sixty (60) days of submittal of the answer, unless the Parties agree otherwise. The arbitration hearing shall be concluded within one hundred twenty (120) days of the appointment of the panel of arbitrators unless the Parties agree otherwise.
2.06 Authority of Arbitrator . The arbitrators' authority shall be limited to the extent that the arbitrators shall be bound by the federal laws of the United States of America, the facts and issues, and by the Federal Rules of Evidence, to the same extent as a trail court, and the arbitrators shall make no decision which is not in accordance with applicable laws and Section 2.09 hereof; depositions may be admitted to the extent testimony would be admissible and this shall not prevent live testimony by any witness who was deposed; and reasonable discovery limited to the issues to be arbitrated shall be available. The decision of the arbitrators shall be limited to a determination on the issues which may be arbitrated as set forth in Section 1.01.
2.07 Record of Hearing . A stenographic transcript of the testimony and of the record of such proceedings shall be taken.
2.08 Briefs The briefs of the Party or Parties submitting a claim shall be filed with the arbitrators within thirty (30) days after completion of the hearings, and the brief of the other Party or Parties shall be filed within thirty (30)days after the receipt of the briefs of the Party or Parties submitting the claims. The arbitrators may designate the portion or portions of the record which they require for their decision, but nothing shall prevent the Parties from presenting a complete record, if it so desires.
2.09 Issuance of Arbitrators' Decision . The award of the arbitrators shall require a majority of the arbitrators, shall be in writing setting forth the arbitrators' reasoning based on the evidence admitted and rendered and served on all Parties within thirty (30) days of filing of the last brief under Section



2.08. If with such thirty (30) day period, a majority of the arbitrators cannot reach agreement on an award, each arbitrator shall present his or her proposed decision as set forth above. Any party may then request that AAA appoint a fourth arbitrator who shall only be permitted to make an award of the proposed decision of one of the arbitrators' decisions previously set forth. Such fourth arbitrator shall render his or her decision within thirty days in writing.
2.10 Payment of Costs . Each of the Parties shall pay for the services and expenses of its representatives, witnesses, and attorneys; all other costs incurred in connection with the arbitration shall be paid as follows: fifty percent by the Non-Concurring Party, with the Concurring Parties each bearing twenty-five percent of the costs; provided that if Alternate Arbitration Panel Selection is utilized such cost shall be paid as follows: (1/3 each) by MLMC, TVA and Choctaw.
2.11 Effect of Arbitrators' Decision . The decision of the arbitrators shall be final and binding upon MLMC, TVA and Choctaw and enforceable pursuant to the laws of the United States of American and judgment thereon may be filed in any court having jurisdiction thereof. It is agreed that during the pendency of any arbitration proceedings, MLMC, TVA and Choctaw shall continue to perform their obligations under the LSA and the PPOA pending the decision of the arbitrators. To the extent necessary and proper, the arbitrators' decision shall be retroactive.
2.12 Waiver of Jury Trial . MLMC, TVA and Choctaw waive any right they may have to trial by jury in connection with proceedings or counterclaims brought by MLMC, TVA or Choctaw to enforce or appeal an arbitration award rendered under this Article 2.
ARTICLE 3
INTERACTION OF LSA AND PPOA
3.01 Parallel Pass-Throughs . MLMC and Choctaw have agreed in the LSA that no change to any indices and no Pass-Through Charge imposed on the mining of fossil fuel for electric generating facilities shall be made under the LSA unless TVA has agreed to parallel changes in the PPOA or unless a change to indices or a Pass-Through Charge is required to comply with an arbitration award or court order entered pursuant to this Agreement.
3.02 TVA Obligations Limited to PPOA . MLMC and Choctaw each acknowledge and agree that TVA has no knowledge of, has not agreed to, and is in no way bound by any provision of the LSA. TVA is obligated under the PPOA and, to the extent of Arbitration of escalation index selection and Pass-Through Charges, obligated to arbitrate pursuant to this Agreement only. In no way does TVA's acceptance of this Agreement expand its obligations as to the PPOA other than to require that the Arbitration of index selection and Pass-Through Charges be conducted among TVA, Choctaw and MLMC so that the indexes and Pass-Through Charges will be parallel between the PPOA and the LSA, but only to the extent consistent with the Provisions of the PPOA.



ARTICLE 4
NOTICES
Any notices provided for in this Agreement must be in writing and shall be effective on the business day following the day on which it is actually received (provided that such day is a business day, otherwise it shall be effective on the business day immediately following such day), in person by U.S. mail or other nationally recognized service, or by facsimile transmission at the following address:
If to TVA
Address:
Tennessee Valley Authority, 1101 Market Street, Chattanooga,
 
Tennessee 37402-2601
Attention:
Executive Vice President, Transmission/Power Supply Group
Phone:
(423) 751-4925
Fax:
(423) 751-8352
If to Choctaw
Address:
Choctaw, Generation Limited Partnership, 1177 West Loop South,
 
Houston, Texas 77027
Attention:
Mississippi Lignite Project Director
Phone:
(713) 599-2656
Fax:
(713) 599-2858





If to MLMC

Address:
Mississippi Lignite Mining Company,
 
Post Office Box 098, Ackerman, Mississippi 39735
Attention:
General Manager
Phone:
(601) 285-0066
Fax:
(601) 285-2372

ARTICLE 5
MISCELLANEOUS
5.01 Except as otherwise specifically defined herein, capitalized items used in this Agreement shall have the same definitions set forth for those terms in the LSA or the PPOA, as the case may be.



5.02 The term of this Agreement shall commence on the effective date herein and shall continue for so long as both the LSA and the PPOA remain in effect.
5.03 No waiver of any breach of this Agreement shall be a waiver of any other or subsequent breach.
5.04 This Agreement, together with the LSA and the PPOA, sets forth all the understandings of the Parties with respect to its subject matter, and any other prior agreements, understandings and representations, whether oral or written, relating to such subject matter are merged into and superseded by this Agreement, provided that as between Choctaw and MLMC in the event of a conflict between provisions of this Agreement and the LSA, the LSA shall control and as between Choctaw and TVA in the event of a conflict between the provisions of this Agreement and the PPOA, the PPOA shall control; provided, however, with regard to the conduct of the arbitration, including sharing the costs of conducting the arbitration, selection of arbitrators and other related matters, all Parties agree that the provisions of this Agreement shall control as to the specific matters submitted to arbitration under this Agreement.
5.05. No amendment to this Agreement shall be effective unless approved in writing by each Party hereto.
THE BALANCE OF THIS PAGE INTENTIONALY LEFT BLANK




IN WITNESS WHEREOF, each Party has caused this Agreement to be executed on its behalf by its duly authorized representative to be effective for all purposes as of the date first set forth above.
 
 
TENNESSEE VALLEY AUTHORITY
 
 
 
 
 
By
 
 
 
Title
 
Witness:
 
Date
 
 
 
CHOCTAW GENERATION LIMITED
PARTNERSHIP
 
 
 
 
 
By:
Choctaw Generation, Inc.
 
 
Its:
General Partner
 
 
 
 
 
 
By
 
 
 
Title
 
Witness:
 
Date
 
 
 
MISSISSIPPI LITNTE MINING COMPANY
 
 
 
 
 
By Its Joint Ventures
 
 
Phillips Coal Company
 
 
 
 
 
 
By
 
 
 
Title
 
Witness:
 
Date
 
 
 
The North American Coal Corporation
 
 
 
 
 
By
 
 
 
Title
 
Witness:
 
Date
 











EXHIBIT G
TO
LIGNITE SALES AGREEMENT

This Subordinated Deed of Trust was prepared by and when recorded mail to:
Mark T. Davis
Watkins Ludlam Winter & Stennis, P.A.
633 North State Street
Jackson, Mississippi 39202
(601) 949- 4900
Indexing Instructions:



EXHIBIT I
TO
LIGNITE SALES AGREEMENT
BETWEEN THE MISSISSIPPI LIGNITE MINING COMPANY AND CHOCTAW GENERATION LIMITED PARTNERSHIP


PERMITTING AND CONSTRUCTION SCHEDULE


JOINT
WEEK OF:
 
 
DEIS Public Meeting
3/9/1998
FEIS NOA
6/22/1998
EIS. Record of Decision
8/17/1998
MDEQ Public Hearing on Permits
6/22/1998


MINE
 
 
 
COE Wetlands Permits (1st five-year area)
8/24/1998
MSHA Pond Approvals
8/24/1998
SHPO Approvals (Section 106)
8/24/1998
Surface Mine Permit
8/24/1998
Facility Notice to Proceed
9/1/1998
Completion of Ponds and Roads
10/1/1999
Commencement Date
7/1/2000


POWER PLANT
 
 
 
PSD Permit
8/24/1998
Water Withdrawal Permit
8/24/1998
NPDES Storm Water Permit
8/24/1998
COE Wetlands Permit
8/24/1998
Solid Waste Permit
8/24/1998
Facility Notice to Proceed
9/1/1998
Start of Construction of Truck Dump
3/1/1999
Commercial Operation
12/1/00*








*This milestone is specific to a particular day, not a week



Exhibit 10.17
PAY SCALE AGREEMENT

This Pay Scale Agreement ("Agreement") is made and entered into between Mississippi Lignite Mining Company ("MLMC"), a Texas joint venture authorized to do business in the State of Mississippi, and Choctaw Generation Limited Partnership by Choctaw Generation, Inc., its general partner, ("CGLP"), a Delaware limited partnership authorized to do business in the State of Mississippi (MLMC and CGLP are referred to collectively as the "Parties"), effective as of the last date acknowledged below.
W I T N E S S E T H :

WHEREAS, MLMC and CGLP are parties to the Lignite Sales Agreement dated April 1, 1998, as amended (the "Lignite Sales Agreement" or "LSA");
WHEREAS, in the Settlement Agreement and Release, effective September 9, 2003 ("Power Escalation Settlement") MLMC and CGLP agreed to change the "Point of Delivery" from the Truck Hopper to the C5A and C5B Conveyors;
WHEREAS, CGLP has requested that the location of the one existing Pay Scale be changed from its current location on the C1 Conveyor and converted into two Pay Scales, one on each of the - C5A and C5B Conveyors;
WHEREAS, MLMC has verbally agreed to the change in the Pay Scale location and the configuration thereof;
WHEREAS, CGLP completed the installation and material testing of the C5A and C5B Conveyor "Pay Scales" on April23, 2004 and performed material tests again in October 2004 and March 2005. The results of these tests showed that the initial Pay Scale calibrations performed by the vendor were not correct. Although this miscalibration resulted in errors in the weight of



the lignite delivered between April2004 and March 2005, CGLP and MLMC agree that those errors are not significant;
WHEREAS, CGLP has requested that LSA Section 5 . 02 be amended to provide that the Pay Scale "error outside the manufacturer's allowable tolerance by more than one-half percent (0 . 5%) of the base quantity being measured" be changed to the Pay Scale "error outside the manufacturer's allowable tolerance of the base quantity being measured";
WHEREAS, MLMC has requested that LSA Section 8.02 be amended to provide that the Seller's invoice to the Buyer be changed from "on or after the tenth (10th) Day of each Month" to "on or after the fifth (5th) Day of each Month"; and
WHEREAS, the Parties desire to compromise and settle all of the claims between them concerning the Pay Scale(s), including without limitation, any credited tonnage as it relates to past invoices (the "Pay Scale Settlement").
NOW, THEREFORE, in consideration of the recitals set forth above, the mutual promises, agreements, covenants and provisions herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
1. Change in Pay Scale Location . Contemporaneously with the execution of this Agreement, the Pay Scales(s) shall be moved from the C1 Conveyor to the C5A and C5B Conveyors. As specified in Section 3 of the Power Escalation Settlement, CGLP shall assume custody and risk of loss of the lignite due to fire at the discharge of the Lignite Handling Feeder Breaker. Lignite ownership shall transfer from MLMC to CGLP at the C5A and C5B Pay Scales.
2. Daily Quantities . With the change in location of the existing Pay Scale, the attached



Exhibits Al and A2 illustrate and depict how the daily quantity of Dedicated Lignite or Alternative Fuel is determined.
3. Amendments of LSA . The Parties further agree that existing LSA Sections 5.02 and 8.02 shall be deleted and replaced with the revised LSA Sections 5.02 and 8 . 02 that are set forth in the attached Exhibit B of this Agreement.
4. Mutual Release . MLMC and CGLP, together with their related entities, partners, parents, subsidiaries, affiliates, past or present officers, officials, directors, employees, agents, representatives, attorneys, successors, and assigns, hereby release, remise, cancel, acquit, relinquish, and forever discharge each other and their related entities, partners, parents, subsidiaries, affiliates, past or present officers, officials, directors, employees, agents, representatives, attorneys , successors, and assigns from any past or present claims and disputes which have arisen under the LSA relating to the Pay Scales.
5. Ownership of Claims . The Parties hereby represent and warrant to one another that each is the sole owner of each and every claim, cause of action, right, and chose in action being released herein, that each has not previously assigned or encumbered same, and that each has the full right, power and authority to enter into this Agreement and to consummate the transactions contemplated by it.
6. No Liability . Nothing in this Agreement shall be construed as or constitute an admission of liability in any way to any of the claims being released herein, the same being expressly denied.
7. Jointly Drafted . This Agreement is a negotiated agreement and shall be construed without regard to the identity of the person(s) who drafted the various provisions thereof. Every provision of this Agreement shall be construed as though all Parties participated equally in the



drafting thereof. Any legal rule of construction that a document is to be construed against the drafting party shall not be applicable and is expressly waived by the Parties.
8. Voluntary Agreement . The Parties agree and represent that they have been represented by counsel of their choosing, have read this Agreement, know and understand its contents, terms and implications, and that it has been executed under free will and action.
9. Integration Clause . This Agreement represents and contains the entire agreement and understanding between the Parties related to the final compromise and settlement of the past and existing matters relating to the Pay Scales and any and all previous statements or understandings, whether express or implied, oral or written, relating to the settlement of any disputes relating to the Pay Scales are fully extinguished and superseded by this Agreement. Further, this Agreement may not be altered or varied except by writing signed by the Parties.
10. Applicable Law . This Agreement is entered into in Texas and is to be governed by and construed under the internal laws of Texas, without giving effect to the conflict of laws principles thereof, and the laws of the United States of America to the extent they preempt or supersede Texas law.
11. Counterparts . This Agreement may be executed in identical counterparts, each of which shall be considered an original for all purposes.
12. Authority to Sign . The Parties hereby represent and warrant that each of them and any person(s) executing this Agreement on their behalf have the full power and authorization to execute this Agreement in the capacity stated therein, and that upon their execution of the same it is and shall be binding upon the Parties thereto and their respective related entities, parents, subsidiaries, affiliates, past or present officers, officials, directors, employees, agents, representatives, attorneys, successors, and assigns.



13. Affirmation of LSA . Except as referred to in Paragraph 3 of this Agreement, this Agreement does not replace, alter, or modify the terms of the LSA, which is still in force and effect, and this Agreement is entered into by CGLP and MLMC without an admission of fault, or liability. Further, this Agreement is intended solely and exclusively for the benefit of the Parties. Nothing in this Agreement shall be construed to confer any rights, benefits, or otherwise, on any third parties, nor shall this Agreement be deemed to create any contractual relationship with or cause of action in favor of any third party.
14. Defined Terms . Capitalized terms in this Agreement shall have the meaning set forth herein or if no definition is provided herein, such terms shall have the meaning as defined in the LSA.

[SIGNATURES NEXT PAGE]




IN WITNESS WHEREOF, the Parties have executed this Agreement as of the last date acknowledged below .

 
 
MISSISSIPPI LIGNITE MINING COMPANY
 
 
 
 
 
 
By:
/s/ Clifford R. Miercort
 
 
 
Clifford R. Miercort
 
 
Its:
Management Committee Member
 
 
CHOCTAW GENERATION LIMITED
 
 
PARTNERSHIP, BY CHOCTAW
 
 
GENERATION, INC., ITS GENERAL
 
 
PARTNER
 
 
 
 
 
 
By:
/s/ Paul J. Cavicchi
 
 
 
Paul J. Cavicchi
 
 
Its:
President





STATE OF TEXAS
 
§
 
 
 
COUNTY OF DALLAS
 
§
BEFORE ME, the undersigned Notary Public in and for the State of Texas, on this day personally appeared Clifford R . Miercort, Management Committee Member of Mississippi Lignite Mining Company, known to me to be the person whose name is subscribed in the foregoing instrument, and acknowledged to me that he has executed the same for the purposes and considerations therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29 th day of September , 2005.

 
 
/s/ Belinda Coleman
 
 
Notary Public, State of Texas
 
 
 
My Commission Expires:
 
 
11/20/2005
 
 





STATE OF TEXAS
 
§
 
 
 
COUNTY OF DALLAS
 
§
BEFORE ME, the undersigned Notary Public in and for the State of Texas, on this day personally appeared Paul J. Cavicchi, President of Choctaw Generation, Inc ., General Partner of Choctaw Generation Limited Partnership, known to me to be the person whose name is subscribed in the foregoing instrument, and acknowledged to me that he has executed the same for the purposes and considerations therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day September, 2005.

 
 
/s/ Stephen R. Walters
 
 
Notary Public, State of Texas
 
 
 
My Commission Expires:
 
 
12/14/2008
 
 





EXHIBIT B
AMENDMENTS TO THE LIGNITE SALES AGREEMENT


Section 5.02     Scales, Right of lnspection and Accuracies . Buyer and Seller shall arrange for an appropriately certified independent third party to calibrate the Pay and Check Scales , resp e ctively, at least twice per year . Both parties may, by mutual consent, waive third party calibration of the scales and perform such calibrations jointly. In such event, both Parties agree to be bound by the result of such joint calibration until the next semiannual calibration of the scales takes place . The cost of calibration of the Pay Scale and Check Scale, however accomplished, shall be shared equally by Buyer and Seller. Each Party shall have the right , at its own expense, to inspect the other Party's lignite sampling, weighing and the laboratory testing facilities, and to observe the other Party's sampling, weighing and analytical procedures . Either Party may request a calibration of the Pay Scale or Check Scales at any time . If the scales are found to be within manufacturer accuracy limits , the requesting Party will pay for the test ; otherwise, the other Party shall pay for the test. If the scales are found to be in error outside the manufacturer's allowable tolerance of the base quantity being measured, the weights and corresponding invoices and payments shall be adjusted accordingly from the point of error, or if such point cannot be agreed upon between the Parties, such adjustment shall be for one-half (1/2) of the tonnage of Dedicated Lignite or Alternative Fuel delivered since the last determination of
accuracy.


Section 8.02 Method of Billing and payment . Seller shall invoice Buyer on or after the fifth (5th) Day of Each Month for Dedicated Lignite or Alternative Fuel delivered during the immediately preceding Month . If there is insufficient information regarding quality, Seller may render an invoice using an estimate of quality using reasonably justifiable fuel quality assumptions, with appropriate adjustments to be made as soon as sufficient information is available. Buyer will make payment therefor, by bank wire transfer of funds to a bank account designated by Seller on or before the twenty-fifth (25th) Day after receipt of each invoice, except if Buyer has yet to receive payment from the Tennessee Valley Authority ("TV A") for the concurrent billing month pursuant to the PPOA , in which case Buyer will pay Seller as soon as is reasonably possible following Buyer's receipt of such payment from TVA.


Exhibit 10.18



CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.  PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED HAVE BEEN MARKED WITH THREE ASTERISKS [***] AND A FOOTNOTE INDICATING “CONFIDENTIAL TREATMENT REQUESTED”.  MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 


SECOND RESTATEMENT OF COAL SALES AGREEMENT
between
THE FALKIRK MINING COMPANY
and
GREAT RIVER ENERGY

dated as of January 1, 2007




 







TABLE OF CONTENTS
 
 
Page

Recitals
 
1

 
 
 
Section 1.
Definitions
1

 
 
 
Section 2.
Term; Tonnage and Rate of Delivery; Use of Coal
3

 
 
 
Section 3.
Description of Coal
3

 
 
 
Section 4.
Loans; Leases
4

 
 
 
Section 5.
Price
5

5.1
Determination of Price
5

5.2
Cost of Production
5

5.3
Computation of Cost of Production
9

5.4
Agreed Profit
9

5.5
Adjustment of Agreed Profit
10

5.6
Revisions to Indices
10

5.7
Post-Mining Costs
10

 
 
 
Section 6.
Point of Deliveries
14

 
 
 
Section 7.
Reports and Audit
14

 
 
 
Section 8.
Billing and Accounts
15

 
 
 
Section 9.
Weights
16

 
 
 
Section 10.
Force Majeure
16

 
 
 
Section 11.
Acquisition of Additional Reserves
17

 
 
 
Section 12.
Termination Options
17

 
 
 
Section 13.
Effect of Waiver
19

 
 
 
Section 14.
Arbitration
19

 
 
 
Section 15.
Assignment
19

 
 
 
Section 16.
Notices
19


i


 
 
 
Section 17.
Protection of Reservesl "Most Favored Nation" Pricing
20

 
 
 
Section 18.
Conduct of Operations; Reclamation; Right of Inspection; Non-Removal of Property
20

 
 
 
Section 19.
Representations and Warranties
21

 
 
 
Section 20.
Confidentiality
21

 
 
 
Section 21.
Amendments
22

 
 
 
Section 22.
Right of Extension
22

 
 
 
Section 23.
Option and Right Upon Termination
22


ANNEXES

Annex A. Map – Underwood and Riverdale Coal Fields

Annex B. Sublease Agreement – The Falkirk Mining Company and North American Coal
Royalty Company

Annex C. Example of Adjustment of General and Administrative Cost Pursuant to
Section 5.2(c)(ii)

Annex D. Example of Adjustment of Agreed Profit Pursuant to
Section 5.5




ii


SECOND RESTATEMENT OF COAL SALES AGREEMENT


THIS SECOND RESTATEMENT OF COAL SALES AGREEMENT (“Agreement”) is made as of January 1, 2007, between THE FALKIRK MINING COMPANY , an Ohio corporation qualified to do business in North Dakota (“Falkirk”), and GREAT RIVER ENERGY , a Minnesota cooperative corporation (“GRE”).

W I T N E S S E T H:

WHEREAS , Cooperative Power Association and United Power Association (the “Cooperatives”) built a coal-fired electric generating station called Coal Creek Station (“Coal Creek Station”) that has two 550 megawatt generating units and is located in Township 145 North, Range 82 West, McLean County, North Dakota;

WHEREAS , Falkirk, a wholly owned subsidiary of The North American Coal Corporation (“North American Coal”), has developed a mine to supply the fuel requirements of the Coal Creek Station;

WHEREAS , Falkirk and the Cooperatives entered into a Coal Sales Agreement dated as of July 1, 1974 (the “Coal Sales Agreement”);

WHEREAS , GRE was formed on January 1, 1999 when the Cooperatives consolidated their operations and assigned all of their interests in the Coal Sales Agreement to GRE;

WHEREAS , Falkirk, GRE and the Cooperatives adopted a Restatement of Coal Sales Agreement effective as of January 1, 2000 to incorporate the various amendments and related letter agreements to the Coal Sales Agreement and to make certain other changes therein;

WHEREAS , the Cooperatives completed a merger with and into GRE effective as of May 1, 2006, with GRE being the surviving entity possessing all of the rights and property and succeeding to all the obligations of the Cooperatives, including but not limited to the Restatement of Coal Sales Agreement, Funding Agreement, Mortgage and Security Agreement and Option Agreement; and

WHEREAS , Falkirk and GRE hereby desire to extend the term of the Restatement of Coal Sales Agreement and to make certain other changes therein.

NOW, THEREFORE , the following Second Restatement of Coal Sales Agreement (“Agreement”) hereby is adopted and supersedes the Restatement of Coal Sales Agreement that Falkirk, GRE and the Cooperatives executed prior to the effective date hereof:

Section 1.     Definitions

As used in this Agreement, the following terms shall have the following meanings:

(a)
“Affiliate” shall mean a person controlling, controlled by or under common control with another person.




(b)
“Agreed Profit” shall have the meaning ascribed to the term in Section 5.4 hereof.

(c)
“Cost of Production” shall have the meaning ascribed to the term in Section 5.2 hereof.

(d)
[* * *]

(e)
“Falkirk’s Mine” shall mean all mining areas developed by Falkirk in the Underwood Coal.

(f)
“FAS 87” shall have the meaning ascribed to the term in Section 5.7(c) hereof.

(g)
“FAS 106” shall have the meaning ascribed to the term in Section 5.7(b)(i) hereof.

(h)
“Funding Agreement” shall mean the Funding Agreement dated as of April 8, 1976, and as subsequently amended, by and between Falkirk and the Cooperatives, or any replacement thereof.

(i)
[* * *]

(j)
“Leases” shall have the meaning ascribed to the term in Section 4(a) hereof.

(k)
“Loans” shall have the meaning ascribed to the term in Section 4(a) hereof.

(l)
“Mortgage and Security Agreement” shall mean the Mortgage and Security Agreement dated as of April 8, 1976, and as subsequently amended, by and between Falkirk and the Cooperatives, or any replacement thereof.

(m)
“Option Agreement” shall mean the Restatement of Option Agreement dated as of January 1, 1997, by and among Falkirk, the Cooperatives and The Bank of North Dakota, or any replacement thereof.

(n)
“Parties” shall mean Falkirk and GRE.

(o)
“Party” shall mean either Falkirk or GRE as indicated by the context.

(p)
“Pension Plan” shall mean the pension plans administered by North American Coal for the benefit of Falkirk employees.

(q)
“Riverdale Coal Field” shall mean that area bounded by the Missouri River to the west and south, County Road 14 to the north and U.S. Highway 83 to the east, as delineated in Annex A, which is attached hereto and made a part hereof.

(r)
“Sublease Agreement” shall mean the Sublease Agreement dated as of December 15, 1993, by and between Falkirk and North American Coal Royalty

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Company, which is attached hereto as Annex B and made a part hereof or any replacement thereof.

(s)
“Ton” shall mean a net ton of 2,000 pounds.

(t)
“Underwood Coal” shall mean all coal within the Underwood Coal Field and the Riverdale Coal Field that (i) Falkirk, North American Coal and other Affiliates of Falkirk had under lease or owned in fee as of January 1, 2007, and (ii) Falkirk acquires hereunder in fee or by leasehold with the approval of GRE.

(u)
“Underwood Coal Field” shall mean that area located within a radius of five (5) miles from the center of Underwood, North Dakota, as delineated in Annex A.

Section 2.     Term; Tonnage and Rate of Delivery; Use of Coal

(a)
GRE hereby agrees to purchase and accept from Falkirk, and, subject to Section 2(b) hereof, Falkirk hereby agrees to sell and deliver to GRE, in accordance with the terms of this Agreement, the coal requirements of the Coal Creek Station (including all expansions and additions thereto) during the term commencing January 1, 2007, and ending December 31, 2045. Except as otherwise expressly provided herein, GRE shall purchase coal only from Falkirk as fuel for the Coal Creek Station during the term of this Agreement.

(b)
The quantity of coal to be mined and delivered by Falkirk shall not exceed the production capability of Falkirk’s Mine. When any increase in GRE’s coal requirements occurs which necessitates the acquisition by Falkirk of additional equipment, Falkirk shall not be obligated to supply such increased requirements until such time as it is able to acquire and install such additional equipment and do all other things necessary to supply such increased requirements. All expansion of Falkirk’s Mine required to produce the coal pursuant to this Section 2(b) shall be subject to GRE’s obligation to finance under Section 4 hereof.

(c)
Scheduled deliveries shall be in approximately equal monthly amounts. GRE shall have the right to reduce shipments during planned shutdowns of a unit of the Coal Creek Station.

(d)
In addition to purchasing coal for use at the Coal Creek Station, GRE may purchase coal hereunder for use at any other generating station in which GRE has a financial interest or at any other facility that is located on Coal Creek Station’s site that utilizes coal that passes through Falkirk’s coal handling systems.

Section 3.     Description of Coal

(a)
The coal to be sold and delivered hereunder shall be from Falkirk’s Mine and shall be crushed mine-run coal having a top size of one and one-half inches (1½”) or such larger size as GRE may specify in a written notice to Falkirk. Exposed coal from different locations in Falkirk’s Mine shall be blended as requested by GRE to the extent feasible.




Falkirk shall deliver the coal so as to be reasonably free from contamination but Falkirk makes no representations or warranties as to the inherent quality and characteristics of the Underwood Coal.

(b)
Falkirk shall consult with GRE from time to time in advance of removing overburden as to the areas in which such removal shall occur so that to the extent practicable the blend of coal delivered under this Agreement shall be most suitable for consumption at the Coal Creek Station. At least annually, Falkirk shall furnish to GRE a projection of its mining plans for one year with a statement of the expected characteristics of the coal which will be exposed by carrying out such mining plan.

(c)
The Parties agree that the quality of coal delivered to the Coal Creek Station has a major impact on the operation and production economics of the Coal Creek Station, and periodically, or at the request of GRE, the Parties shall meet to discuss the quality of delivered coal and to determine what corrective actions, if any, are necessary to improve delivered coal quality.

Section 4.     Loans; Leases

(a)
It will be necessary for Falkirk to obtain loans for the acquisition of mineral coal and surface lands not now controlled by Falkirk or an Affiliate and loans or leases for the construction and equipping of Falkirk’s Mine, which shall be indebtedness or lease obligations of Falkirk not guaranteed by any Affiliate of Falkirk (such loans and leases and such continued or additional loans or leases as may be necessitated by Falkirk’s acquisition of mineral coal and surface lands and by replacement of or addition to Falkirk’s equipment, or by the expiration of any lease of equipment to Falkirk prior to the expiration of this Agreement being referred to herein as the “Loans” and/or “Leases”). GRE agrees to arrange for Loans and Leases in amounts sufficient for developing, equipping and operating Falkirk’s Mine to the capacity required for producing the quantity of coal to be furnished hereunder including, without limitation, (i) acquiring mineral coal and surface lands, (ii) developing haulageways, (iii) constructing tipples and cleaning plants, (iv) electric power distribution systems, (v) water drainage and distribution systems, (vi) acquiring machinery and (vii) maintaining working capital necessary for operating Falkirk’s Mine. Falkirk shall use any cash in its accounts, except an amount equal to its undistributed earnings, for one or more of the above purposes before requesting additional Loans and Leases. GRE shall (w) provide the Loans and Leases, (x) arrange for Loans and Leases by Falkirk from third persons, (y) direct Falkirk to borrow or lease from third persons or (z) combine GRE’s Loans and Leases with those of third persons. So long as this Agreement is in effect, GRE shall be responsible for and shall provide, arrange for or direct such continued or additional Loans and Leases as may be necessitated by Falkirk’s acquisition of mineral coal and surface lands and by replacement of or addition to Falkirk’s equipment, by the expiration of any lease of equipment to Falkirk prior to the expiration of this Agreement or by the need for additional working capital, in each case to equip Falkirk’s Mine to the capacity required for producing the quantity of coal to be furnished hereunder in accordance with GRE’s then requirements and increases, if



any, specified by GRE pursuant to Section 2(b) hereof. Subject to Section 5.7(a) hereof, GRE shall not be required to finance the acquisition of replacement equipment having a greater estimated useful life than the balance of the term of this Agreement. If the Loans and Leases are arranged with third persons, GRE shall have the right subsequently to discharge the Loans and Leases and substitute itself as lender or lessor for the balance of the term of such Loans and Leases. Any Loans and Leases provided, arranged for or directed by GRE in the exercise of its rights and obligations under this Section 4 shall not be less favorable to Falkirk than Loans and Leases for the same term which could be obtained by Falkirk directly. If Falkirk has any objection under the previous sentence to financing proposed by GRE, it shall notify GRE of such objection thirty (30) days before GRE becomes committed to such financing. In connection with any financing pursuant to this Section 4, Falkirk shall create a security interest in any or all assets of Falkirk except its undistributed net earnings in favor of any lender to Falkirk and/or any guarantor of any Loan to Falkirk and/or any lender or guarantor of any lender to GRE with respect to funds which GRE makes available to Falkirk under this Section 4.

(b)
In connection with any guaranty by GRE of Loans and Leases, Falkirk shall create security interests in favor of GRE in all assets of Falkirk except its undistributed net earnings but subject to the security interests in favor of lenders and lessors and subject to the performance by GRE of its obligations under this Agreement. For the protection of GRE, Falkirk agrees that it shall not declare dividends on its stock except out of earned surplus.

(c)
If GRE fails to provide all the funds contemplated by Section 4(a) hereof and in consequence Falkirk is unable to produce the tonnage of coal required by Section 2 hereof, Falkirk shall be deemed to have fulfilled its obligations under Section 2 hereof if it produces and sells to GRE the quantity of coal which can be produced from time to time from Falkirk’s Mine developed with the funds so provided by GRE pursuant to this Section 4.

Section 5.     Price

5.1     Determination of Price . GRE shall pay for the coal sold and delivered hereunder a price which annually equals the Cost of Production plus the Agreed Profit, as adjusted in accordance with Section 5.5 hereof.

5.2     Cost of Production . Except as otherwise expressly stated herein, “Cost of Production” for the purposes of this Agreement shall mean the costs actually incurred by Falkirk in the mining, processing and delivery of Underwood Coal hereunder. Such costs shall be determined and allocated in accordance with generally accepted accounting principles (except as otherwise expressly stated in this Section 5.2), consistently applied and shall include the following:

(a)
All production, maintenance and delivery costs including without limitation the following types of costs, but excluding any costs which are properly includible under Section 5.2(c) hereof:

(i)
Labor costs, which include wages and the costs of all related payroll taxes,



benefits, including post-retirement medical benefits, and fringes, including welfare and pension plans, worker’s compensation coverage (either in the state fund or self-insurance, whichever in the best judgment of Falkirk is more advantageous), group insurance, vacations and other comparable benefits of corporate officers and employees of Falkirk located at Falkirk’s Mine and employees of Affiliates of Falkirk located in North Dakota, whose labor costs are properly charged directly to Falkirk’s Mine;

(ii)
Supplies and major repairs, including materials utilized in the operation of Falkirk’s Mine;

(iii)
Contract services;

(iv)
Rental of machinery and equipment, but excluding any payments under leases included under Section 5.2(d) hereof;

(v)
Miscellaneous costs, including membership costs for membership by Falkirk and Affiliates of Falkirk in one national industry association or trade group (such as the National Mining Association or similar group), or such other industry associations as specifically approved by GRE, in writing, to be charged to the Cost of Production;

(vi)
Reasonable and necessary services by other than Affiliates of Falkirk;

(vii)
Insurance;

(viii)
Taxes and fees, but not including income taxes, imposed by any government or governmental unit;

(ix)
Overhead costs, which include travel, telephone, postage, office machine costs and other office maintenance costs, business expenses and training costs for employees of Falkirk and employees of Affiliates of Falkirk located in North Dakota whose costs are properly charged directly to Falkirk’s Mine;

(x)
Development costs, which shall be amortized ratably; and

(xi)
Reclamation and other costs, including labor and supplies, required to comply with regulations of federal, state or local governments not otherwise included as an element of cost herein.

If any of the foregoing includes costs incurred by an Affiliate of Falkirk and charged to Falkirk, they shall be included only at the cost to such Affiliate without addition for any overhead, loading, intercompany or intracompany profit or service charge. Except as expressly set forth in this Agreement and specifically approved by GRE, GRE shall not be charged for any costs incurred by Affiliates of Falkirk. In determining costs, Falkirk shall give GRE the proportionate benefit of volume purchases participated in by Falkirk and Affiliates of Falkirk.




(b)    Coal and surface costs:

(i)
The tonnage royalty under leases (including a proration of lease bonus payments, rental payments and other capitalized leasehold expenses), current delay rental on coal lands and other current expense of maintaining leaseholds, including reasonable attorneys’ fees and other legal expenses for abstracts and title opinions and for land and lease title curative or research activities but excluding royalty payments made by Falkirk under the Sublease Agreement to any Affiliate of Falkirk and any other overriding or other royalties payable by Falkirk to any Affiliate of Falkirk;

(ii)
Depletion of the capital cost of any coal acquired by Falkirk in fee, based upon estimated reserves; and

(iii)
[* * *] per Ton of either fee or leasehold coal mined from the Underwood Coal Field only, which shall be paid by Falkirk to CSTL LLC, a Delaware limited liability company, or its successors and assigns.

All coal and surface acquired in fee and all coal and surface lease acquisitions, lease bonuses, prepaid royalties and rentals relating to the Underwood Coal Field prior to June 30, 1974, shall be paid for by Falkirk out of its own capital, without financing pursuant to Section 4 hereof and without recovery of interest thereon by Falkirk. All Underwood Coal Field acquisitions, lease bonuses, prepaid royalties and rentals after June 30, 1974, shall be financed pursuant to Section 4 hereof. All coal and surface acquired in fee and all coal and surface lease acquisitions, lease bonuses, prepaid royalties and rentals relating to the Riverdale Coal Field prior to December 15, 1993, shall be paid for by Falkirk out of its own capital, without financing pursuant to Section 4 hereof and without recovery of interest thereon by Falkirk. All Riverdale Coal Field acquisitions, lease bonuses, prepaid royalties and rentals on or after December 15, 1993, shall be financed pursuant to Section 4 hereof.

(c)
General and administrative costs:

(i)
Commencing January 1, 1999, the sum of [* * *] (which shall be adjusted as set forth in Section 5.2(c)(ii) hereof) shall be added for general and administrative costs. General and administrative costs that are to be covered by such [* * *] (and are not to be otherwise included in the Cost of Production) are: (i) general accounting and billing expense for those functions performed at other than Falkirk’s Mine, (ii) except as otherwise provided in Sections 5.2(a)(i) and 5.2(a)(ix) hereof, salaries and related expenses, such as payroll taxes, pensions and worker’s compensation, of corporate officers and employees of Falkirk and officers and employees of Affiliates of Falkirk, unless such expenses are specifically approved by GRE, in writing, to be charged to the Cost of Production or are subject to

* * * Confidential Treatment Requested



Sections 5.2(a)(i) or 5.2(a)(ix) hereof, (iii) travel, telephone, postage and office maintenance expense for persons or services included in general and administrative costs, (iv) memberships and contributions of Affiliates of Falkirk, audit expense of Falkirk and Affiliates of Falkirk, legal expense of Falkirk and Affiliates of Falkirk, except (A) legal expense that is connected with financing of Falkirk and capitalized as part of the financing, and (B) reasonable legal expense associated with the acquisition and maintenance of coal leases or surface lands owned or held by Falkirk, or such other legal expenses that are specifically approved by GRE, in writing, to be charged to the Cost of Production, (v) insurance expense incurred by Affiliates of Falkirk and (vi) franchise taxes.

(ii)
The amount set forth in Section 5.2(c)(i) for general and administrative costs shall be adjusted annually, beginning on January 1, 2000, for the calendar year 2000, and on January 1 of each year thereafter in the percentage by which the CPI-U for December of the previous calendar year differs from the CPI-U for December of 1998. An example calculation illustrating such annual adjustment calculation is set forth in Annex C, which is attached hereto and made a part hereof.

(d)
Capital-related costs:

(i)
Rent paid to a lessor or owner of a lessor under Leases (including interest thereon, if any) incurred pursuant to Section 4 hereof as the same shall become due and payable, excluding, however, any amounts becoming due and payable pursuant to any default, acceleration or optional payment provision of any Lease.

(ii)
Depreciation and/or amortization to which Falkirk is entitled, the rates of which shall be determined by Falkirk from time to time.

No depreciation or amortization shall be included in the Cost of Production with respect to items of property for which a lessor under a Lease has taken depreciation or amortization and included the same in computing the rent under such Lease. Unless the Parties mutually agree otherwise, the rates of such depreciation and/or amortization shall be limited to a straight-line basis over the anticipated useful service life of the assets and shall not exceed the maximum deduction allowable under applicable federal income tax laws and regulations. GRE shall be entitled to the correction from time to time of anticipated useful service lives to conform to experience. The amount of any investment tax credit under Section 38 of the United States Internal Revenue Code or similar subsequent provisions of said Code which is realized by Falkirk shall be credited to current Cost of Production. Falkirk shall claim such investment tax credits, or similar subsequent tax benefits, at the times and in the amounts that will produce the greatest tax savings to Falkirk and resulting credits to GRE. Net gains or losses on the dispositions of capital assets shall be credited or charged, as the case may be, to the Cost of Production. Transactions between Falkirk and any one or more of its Affiliates involving capital assets (including contributions to the capital of Falkirk) shall be reflected in Falkirk’s



accounts at cost to the Affiliates of the assets involved, less accrued depreciation, as shown by the accounts of the transferring company, or salvage value if it is greater than depreciated cost. Falkirk shall submit to GRE annual budgets for the acquisition or leasing of all items of capital assets in each year in excess of $100,000 each. Modifications of such annual budgets for the acquisition of items of capital assets in excess of $100,000 each shall be submitted to GRE. If GRE reasonably disapproves in writing any items in any of said budgets, Falkirk shall not make such disapproved expenditures. All disputes about the reasonableness of GRE’s disapproval shall be resolved by arbitration pursuant to Section 14 hereof. As to any items in any budget or revised budget, approval by GRE shall be conclusively deemed to have been given if GRE does not disapprove in writing within thirty (30) days after receipt thereof in the case of the annual budget, or within two (2) weeks after receipt thereof in the case of modifications of the budget. The foregoing provisions shall not preclude Falkirk from making acquisitions of capital assets to meet emergency conditions in Falkirk’s Mine.

(e)    Interest; Loan and Lease Expense:

The amount of interest, Loan and Lease commitment fees currently due and payable and amortization of other expenses incurred in connection with Falkirk obtaining Loans and Leases (to the extent not otherwise provided for under Section 5.2(d) hereof), accrued by Falkirk with respect to the Loans and Leases less interest or dividends received by Falkirk on its investments.

5.3     Computation of Cost of Production . The Cost of Production shall be computed on a calendar year basis. The Cost of Production shall be determined on a cents per Ton basis by dividing the annual Cost of Production by the number of Tons produced by Falkirk hereunder in such year. During any calendar year in which Falkirk sells Underwood Coal to persons other than GRE, the Cost of Production shall first be determined as to all coal produced at Falkirk’s Mine. The Cost of Production under this Agreement shall be that percentage of the total Cost of Production at Falkirk’s Mine which the number of Tons sold in such year to GRE under this Agreement bears to the total number of Tons produced by Falkirk from Falkirk’s Mine during such year.

5.4     Agreed Profit .

(a)
For all Tons of coal up to and including [* * *] Tons sold and delivered by Falkirk to GRE hereunder in any calendar year, the agreed profit (“Agreed Profit”), expressed in January 1, 2006 dollars, shall be [* * *] per Ton.

(b)
For all Tons of coal in excess of [* * *] Tons sold and delivered by Falkirk to GRE hereunder in any calendar year, the Agreed Profit, expressed in January 1, 2006 dollars, shall be [* * *] per Ton.





* * * Confidential Treatment Requested





5.5     Adjustment of Agreed Profit.

(a)
Adjustment of Agreed Profit for 2007 and 2008:

The Agreed Profit per Ton set forth in Section 5.4 hereof shall be adjusted on January 1, 2007, for the calendar year 2007, and on January 1, 2008, for the calendar year 2008, based upon the weighted average of [* * *] percent of the change in the [* * *] for the twelve months ending in June of the previous year and [* * *] percent of the change in the [* * *] for the twelve months ending in June of the previous year. An example calculation illustrating such annual adjustment calculation is set forth in Annex D, which is attached hereto and made a part hereof.

(b)
Adjustment of Agreed Profit for calendar years commencing with 2009:

The Parties shall negotiate in good faith in an attempt to agree upon a method or methods of adjusting the Agreed Profit set forth in Section 5.4 hereof for three (3) year periods commencing with the calendar year 2009. The method or methods of adjusting the Agreed Profit set forth in Section 5.4 hereof shall be based on criteria that reflects the impact of changes in general inflation in the United States using the [* * *], [* * *] or other government indices or combinations of indices as agreed to by the Parties. If by July 1 of the year preceding the commencement of each such three (3) year period, the Parties cannot agree upon a method of adjusting the Agreed Profit in Section 5.4 hereof for the three (3) year period under consideration, then such Agreed Profit during such three (3) year period shall be resolved by arbitration pursuant to the Rules of the American Arbitration Association in effect at the time of such arbitration. The Parties agree that such binding arbitration shall be completed no later than August 15 of such year. Arbitration under this Section 5.5(b) shall not be subject to arbitration pursuant to Section 14 hereof.

(c)
When the Agreed Profit is adjusted pursuant to Section 5.5 hereof, such Agreed Profit shall be substituted for Agreed Profit provided for in Section 5.4 hereof.

5.6     Revisions to Indices . If at any time during the term of this Agreement the base of the [* * *] or [* * *] is revised from the applicable base set forth in Sections 1(d) and 1(i) hereof or a new base is adopted, then for the purposes hereof, the published index shall be adjusted so as to be in correct relationship to the applicable base set forth in Sections 1(d) and 1(i) hereof. If the [* * *], [* * *] or any equivalent of such index ceases to be published by any federal agency, such index shall be replaced by that index which, after necessary adjustment, if any, provides the most reasonable substitute upon which the Parties mutually agree.

5.7     Post-Mining Costs . The Parties mutually agree that, following termination of coal deliveries hereunder, reclamation, post-retirement medical benefits and pension costs with respect to Falkirk employees, which are covered pursuant to Section 5.2 hereof, shall continue to be paid by GRE as follows:

* * * Confidential Treatment Requested




(a)
Post-mining reclamation costs:

(i)
Upon termination of coal deliveries hereunder, GRE shall pay for the reasonable and verifiable costs incurred by Falkirk that are required to comply with the applicable federal and state laws, rules and regulations with respect to reclamation of all surfaces disturbed by or in connection with Underwood Coal produced by Falkirk and sold hereunder. The reclamation costs payable under this Section 5.7 shall be determined in accordance with the principles for determining the Cost of Production pursuant to Section 5.2 hereof. When requested by GRE, but in any event at least five (5) years prior to and upon termination of this Agreement, Falkirk shall submit to GRE for its review and written approval the proposed plans and budgets for such reclamation activities. GRE shall not unreasonably withhold its approval of such plans and budgets. Until such plans and budgets are approved by GRE, or if such plans and budgets are disapproved by GRE, until the matter is resolved by mutual agreement of the Parties or by arbitration pursuant to Section 14 hereof, GRE shall not be obligated to fund or pay for any reclamation costs under this Section 5.7; provided, however, that GRE shall fund and pay for those reclamation costs incurred pursuant to those portions of any plans and budgets specifically approved in writing by GRE. After GRE’s written approval of such plans and budgets (or portions thereof), Falkirk shall seek GRE’s prior written approval of any changes for any reason to or from such plans and budgets. Falkirk shall submit such reports regarding Falkirk’s activities and reclamation costs incurred as GRE may request from time to time. The reclamation costs payable under this Section 5.7 shall be invoiced by Falkirk to GRE at such times and pursuant to such methods as Falkirk and GRE may mutually agree from time to time. GRE or GRE’s representative shall have the right at any time on notice in writing to Falkirk to examine the records and books of account of Falkirk and any Affiliate of Falkirk relating to the reclamation costs to be borne by GRE under this Section 5.7.

(ii)
GRE shall not be obligated to fund or pay for any costs related to post-mining reclamation activities that GRE believes are (A) not reasonable and verifiable, (B) not reasonably required to comply with applicable reclamation laws, (C) not related to or incurred in connection with surfaces disturbed by or in connection with Underwood Coal produced by Falkirk and sold hereunder or (D) not incurred pursuant to and in accordance with plans and budgets (or portions thereof) approved in writing by GRE. However, if Falkirk disputes GRE’s determination of its obligation to fund and pay for any such costs, the dispute shall be resolved by mutual agreement of the Parties or by arbitration pursuant to Section 14 hereof. Falkirk may invoice GRE for any costs in dispute, but Falkirk shall not apply such costs in dispute against advances or loans made under the Funding Agreement, and GRE shall not be obligated to pay such invoice(s), until the dispute is resolved.

(b)    Post-retirement medical benefits:




(i)
Upon termination of coal deliveries hereunder, GRE shall pay for Falkirk’s unfunded accumulated post-retirement medical benefits obligation with respect to Falkirk employees, as determined in accordance with Statement of Financial Accounting Standard No. 106 of the Financial Accounting Standards Board (or any successor Standard) (“FAS 106”), only to the extent that such costs are properly allocable to work performed by a Falkirk employee in connection with coal mined, processed and delivered to the Coal Creek Station or to other locations specified by GRE pursuant to this Agreement, or reclamation of surfaces disturbed by or in connection therewith. On or before September 1 of each calendar year until Falkirk ceases to accrue any additional employee post-retirement medical benefits obligation, Falkirk shall notify GRE of its unfunded accumulated post-retirement medical benefits obligation as of January 1 of such calendar year, as determined by the actuarial firm designated by Falkirk. Together with such notice, Falkirk shall provide GRE with reasonably detailed information regarding the actuary’s determination of such obligation. Within thirty (30) days after GRE’s receipt of such notice from Falkirk, GRE shall approve or disapprove the increase, if any, in Falkirk’s unfunded accumulated post-retirement medical benefits obligation for such calendar year. Such approval by GRE shall not be unreasonably withheld. In the event of any changes in FAS 106 or the interpretation thereof, Falkirk shall consult with GRE before implementing any change in the manner in which the unfunded accumulated post-retirement medical benefits obligation is determined.

(ii)
The Parties acknowledge that the amount of Falkirk’s unfunded accumulated post-retirement medical benefits obligation is dependent, in part, on the portion of the post-retirement medical benefits that Falkirk elects to pay as an employer contribution. Accordingly, on or before September 1 of each calendar year, Falkirk shall notify GRE of the proposed percentage increase, if any, in Falkirk’s post-retirement medical benefits employer contributions for the following calendar year. Within thirty (30) days of GRE’s receipt of such notice from Falkirk, GRE shall approve or disapprove the percentage increase, if any, in Falkirk’s proposed post-retirement medical benefits employer contributions for the calendar year under consideration from the amount of such contributions by Falkirk for the immediately preceding calendar year. Such approval by GRE shall not be unreasonably withheld. Falkirk agrees to provide such supporting information, as well as such access to its books and records, as GRE may reasonably request in order to review the proposed percentage increase, if any, in Falkirk’s post-retirement medical benefits employer contributions.

(iii)
The Parties acknowledge that the amount of Falkirk’s unfunded accumulated post-retirement medical benefits obligation is dependent, in part, on the post-retirement benefits plans that Falkirk elects to offer to its employees. Accordingly, Falkirk agrees that, without the prior written approval of GRE, it shall not make any modifications in the provisions of Falkirk’s current post-retirement medical benefits plans that would cause an increase in the



amount which GRE is required to pay for Falkirk’s unfunded accumulated post-retirement medical benefits obligation, except for any modifications required by federal or state laws, rules or regulations. Such approval by GRE shall not be unreasonably withheld.

(iv)
Subject to Section 5.7(b)(i) hereof, Falkirk shall record on its books an account receivable from GRE in an amount equal to Falkirk’s unfunded accumulated post-retirement medical benefits obligations. Upon request of Falkirk from time to time, GRE shall provide to Falkirk the funds necessary for Falkirk to pay the actual costs of Falkirk’s post-retirement medical benefits obligation for the calendar year under consideration.

(v)
Disputes, if any, arising from this Section 5.7(b) shall be resolved by mutual agreement of the Parties or by arbitration pursuant to Section 14 hereof; provided, however, GRE shall be obligated to pay the undisputed portion of the post-retirement medical benefits obligation for the calendar year(s) under consideration. If a dispute involves a determination of whether or not GRE has unreasonably withheld its approval under this Section 5.7(b) with respect to Falkirk’s post-retirement medical benefits obligation (other than benefits provided by Falkirk under a collective bargaining agreement), such approval shall be deemed reasonably withheld if Falkirk is proposing to offer a post-retirement medical benefits program that provides net benefits in excess of the average post-retirement medical benefits program offered by other coal mining companies in North Dakota or the Powder River Basin.

(c)
Pension Plan assets and liabilities:

(i)
Upon termination of coal deliveries hereunder, GRE shall pay for the accumulated pension benefit obligation with respect to Falkirk employees, as determined based on the provisions of the Employee Retirement Income Security Act of 1974, as amended, on applicable accounting standards, on the provisions of the Pension Plan in effect upon termination of this Agreement and in accordance with Statement of Financial Accounting Standard No. 87 of the Financial Accounting Standards Board (or any successor Standard) (“FAS 87”). If, upon termination of this Agreement, the accumulated pension obligation with respect to Falkirk employees is less than the market value of assets attributable to contributions made to the Pension Plan with respect to such employees, Falkirk’s account in the Pension Plan shall be regarded as having a credit balance that is owed to GRE. Credit balances shall accrue income from the date of termination of the Agreement until the date that credit balances are eliminated through cash payments to GRE. The income accrued on credit balances shall be in proportion to earnings on total Pension Plan asset balances. Whenever a credit balance offsets the need for cash contributions by other participating employers in the Pension Plan, cash payments shall be remitted promptly to GRE, and the credit balance shall be appropriately reduced. Cash payments shall continue until the credit balance of Falkirk’s account is eliminated; provided, however, the credit balance of Falkirk’s account shall be eliminated not later than three



(3) years following the termination of this Agreement. Notwithstanding the foregoing, if this Agreement terminates prior to December 31, 2008, then the foregoing three (3) year period shall be extended to five (5) years.

(ii)
If, upon termination of this Agreement, the accumulated pension benefit obligation with respect to Falkirk employees exceeds the market value of assets attributable to contributions made to the Pension Plan with respect to such employees, GRE promptly shall make the value of pension fund assets equal to the accumulated pension benefit obligation.

(iii)
The Parties agree that it is Falkirk’s obligation and responsibility to maintain an orderly and appropriate pension funding policy for the duration of this Agreement.

(iv)
In determining the accumulated pension benefit obligation, the Parties shall select the lowest quote for the purchase of an annuity contract from proposals submitted by several insurance companies mutually agreed upon by the Parties.

(v)
The total accumulated pension benefit expense shall be adjusted upon termination of this Agreement to equal the total accumulated pension benefit contributions required since the effective date of the Coal Sales Agreement. The accrued/prepaid pension cost, as defined in FAS 87, shall be charged or credited to the Cost of Production as appropriate.

(d)
This Section 5.7, as well as the other provisions of this Agreement that by their nature extend beyond the termination of this Agreement, shall survive the termination of this Agreement and shall remain in effect until all obligations are satisfied. Such other provisions include, without limitation, Section 4 (Loans; Leases), Section 5.2 (Cost of Production), Section 7 (Reports and Audit), Section 13 (Effect of Waiver), Section 14 (Arbitration), Section 15 (Assignment), Section 16 (Notices) and Section 18 (Conduct of Operations; Reclamation; Right of Inspection; Non-Removal of Property). References in Section 18(a) hereof regarding Falkirk’s mining operations and mining practices shall be deemed to include Falkirk’s reclamation activities. Further, the Funding Agreement and the Mortgage and Security Agreement shall continue until the latest to occur of (i) completion of all post-mining reclamation activities, and (ii) satisfaction of all obligations owed by Falkirk to GRE and all obligations owed by GRE to Falkirk, including those obligations described in this Section 5.7.

Section 6.     Point of Deliveries

Unless otherwise agreed to in writing by GRE and Falkirk, delivery of coal for use at the Coal Creek Station shall be made f.o.b. Falkirk’s silo adjacent to the Coal Creek Station.

Section 7.     Reports and Audit

On or before August 1 of each calendar year, Falkirk shall furnish to GRE an estimate of



the price of coal hereunder during the succeeding calendar year. On or before the twenty-fifth day of each month, Falkirk shall furnish to GRE a detailed statement of the Cost of Production at Falkirk’s Mine for the preceding calendar month. Such statement shall be in a form to be agreed upon from time to time by the Parties. From time to time (but not more frequently than semiannually) Falkirk shall furnish to GRE estimates in the form requested by GRE of future expenditures that will be a part of the Cost of Production as set forth in Section 5.2 hereof. GRE shall have the right at any time on notice in writing to Falkirk to examine the records and books of account of Falkirk and any Affiliate of Falkirk relating to the items and allocations of cost and production included in the computation of the price hereunder. Payment or payments under Section 8 hereof shall not be deemed a waiver of any rights of GRE that the price hereunder be corrected.

Section 8.     Billing and Accounts

The monthly billing of coal sold and delivered hereunder in a calendar month shall be paid by the twenty-fifth day of the calendar month following the month of delivery. The billing of coal sold and delivered in each calendar month shall be based on the actual Cost of Production for the month plus the Agreed Profit as determined in Section 5.4 hereof. In determining the Cost of Production pursuant to this Section 8, the quantity of all coal sold to persons other than GRE shall be included, and it shall be assumed for purposes of such determination that the Cost of Production of coal sold to persons other than GRE was fully recovered from such persons so that no Cost of Production with respect to coal sold to persons other than GRE is charged against GRE. In addition, the following amounts shall be deducted from the final price for each calendar year:

(a)
If Falkirk is not currently paying interest on loans from GRE and GRE is currently paying interest to its lenders of the money loaned by GRE to Falkirk, an amount per Ton of coal sold to persons other than GRE during such year equal to the interest so paid by GRE to its lenders for such year divided by the total number of Tons of coal produced at Falkirk’s Mine during such year multiplied by the number of Tons of coal sold to persons other than GRE; plus

(b)
If GRE is (i) providing electrical power for use at Falkirk’s Mine, (ii) paying lease payments on any equipment used at Falkirk’s Mine, (iii) amortizing any costs for power lines or other facilities installed by GRE for use at Falkirk’s Mine or (iv) paying for any loading or handling costs associated with coal sold to persons other than GRE, an amount per Ton of coal sold to persons other than GRE during such year equal to GRE’s accounts for the foregoing costs for such year divided by the total number of Tons of coal produced at Falkirk’s Mine during such year multiplied by the number of Tons of coal sold to persons other than GRE; plus

(c)
One-half the excess, if any, of (i) the price per Ton of coal sold to persons other than GRE during such year over (ii) the price per Ton payable by GRE hereunder (computed without reference to Sections 8(a), 8(b), or 8(c) hereof) plus the payment per Ton under Sections 8(a) and 8(b) hereof, multiplied by the number of Tons of coal so sold to persons other than GRE.




Section 9.     Weights

(a)
Unless otherwise agreed to in writing by GRE and Falkirk, the weight of the coal delivered to the Coal Creek Station hereunder shall be determined by Falkirk on scales on silo conveyor belts adjacent to the Coal Creek Station near the point where delivery of coal is made. The make of scale to be used and the method(s) of installation shall be subject to the agreement of GRE. GRE shall have the right to have representatives present at any and all times to observe the weighing of coal delivered hereunder. The accuracy of the scales shall be tested and, if necessary, the scales shall be corrected at least once every two (2) weeks. Falkirk shall permit GRE’s representatives to monitor the testing and correcting of said scales; provided, however, if GRE and Falkirk are not able to agree on such tests or adjustments or the methods thereof, the scale or methods of weighing shall be tested and adjusted to a condition of accuracy by the appropriate North Dakota state department or agency, and the costs of such tests and adjustments shall be shared equally between Falkirk and GRE.

(b)
If it is determined that the scale used to weigh coal delivered hereunder has been inaccurate, adjustment of the quantities of coal delivered hereunder shall be made for half the period since the scale was last adjusted to an accurate condition.

Section 10.     Force Majeure

(a)
In the event of strikes, labor disputes, fires, accidents at Falkirk’s Mine, failure of equipment, inability of Falkirk to obtain necessary equipment by reason of a general short supply thereof, failure of transportation or shortage of transportation equipment, federal or state laws or regulations, or other contingencies, whether of a like or different nature, that are beyond the control of Falkirk and are not due to its negligence and that prevent or interfere with production or shipment of coal hereunder, then, at the election of Falkirk, the shipments contracted for may be suspended or partially suspended as the case may require for the duration of the contingency, but Falkirk shall use its best efforts to eliminate the cause of suspension.

(b)
In the event of strikes, labor disputes, fires, accidents, failure of equipment, inability of GRE to obtain necessary equipment by reason of a general short supply thereof, federal or state laws or regulations, or other contingencies, whether of a like or different nature, that are beyond control of GRE and are not due to its negligence, any of which contingencies prevent or interfere with the taking of delivery at the Coal Creek Station of the coal purchased hereunder, then, at the election of GRE, shipments contracted for shall be suspended or partially suspended as the case may require for the duration of such contingency, but GRE shall use its best efforts to eliminate the cause of suspension.

(c)
Notwithstanding the suspensions of delivery provided for in Sections 10(a) and 10(b) hereof, if Falkirk’s Mine is substantially idle during a calendar month pursuant to such Sections 10(a) and 10(b), GRE shall pay to Falkirk not less than the actual out-of-pocket mine idle expense for such month.




(d)
Interruptions in making or acceptance of shipments and deliveries referred to in Sections 10(a), 10(b) and 10(c) hereof shall not invalidate the remainder of the Agreement, but upon removal of the cause of such interruptions, delivery shall be resumed at the rate specified herein. In the event of such interruptions, the Party immediately affected by such contingency, if possible, shall give reasonable advance notice to the other Party of the extent and probable duration thereof, with sufficient detail to enable the other Party to verify the same.

(e)
If GRE’s water permit from the state of North Dakota is suspended or revoked for a cause beyond the control of GRE, then during the period of such suspension or revocation shipments contracted for are suspended or partially suspended at the election of GRE, and if, notwithstanding reasonable efforts, GRE is unable to have said permit reinstated, then GRE, at its election, may terminate its obligations to purchase coal hereunder.

Section 11.     Acquisition of Additional Reserves

As coal becomes available for lease or purchase in the Underwood Coal Field or the Riverdale Coal Field, Falkirk shall request approval by GRE of the proposed bonus payments, tonnage royalty rates, minimum royalty rates or price per acre of coal to be acquired in fee or by leasehold. Within the limits of such approval, Falkirk shall use its best efforts to acquire such coal in the quantities that are available and that GRE requests. However, if the acquisition of such coal is required to meet GRE’s requirements for coal under this Agreement, Falkirk shall acquire such coal on the best available terms, and all costs thereof shall be included in the Cost of Production. Neither North American Coal nor any other Affiliate of Falkirk may acquire for its own account any coal within the Riverdale Coal Field or the Underwood Coal Field until Falkirk first seeks GRE’s approval for Falkirk’s acquisition of the coal. If GRE does not approve such acquisition, any Affiliate of Falkirk may acquire the coal for its own account.

Section 12.     Termination Options

(a)    If:

(i)
as of the end of the most recent calendar year the actual Cost of Production for such calendar year, on a per Ton basis, for any reason other than force majeure exceeds the actual Cost of Production, on a per Ton basis, for the prior calendar year by more than [* * *], provided that the per Ton Cost of Production for purposes of this paragraph shall be determined exclusive of the effects of any special energy generation-related taxes such as a carbon-based tax, BTU-based tax or severance tax any of which is greater than that imposed in the prior calendar year, and provided, further, that the actual Cost of Production for the most recent calendar year shall be adjusted to reflect the impact on the price per Ton resulting from a change of more than [* * *] in the tonnage delivered from


* * * Confidential Treatment Requested



the prior calendar year, as determined by mutual agreement of the Parties, when computing under this paragraph the per Ton Cost of Production differences from one calendar year to the next; or

(ii)
Falkirk materially breaches any of the terms, conditions or provisions, resulting in an event of default as defined in any Loan or Lease and Falkirk fails to remedy such breach before the parties (other than Falkirk) to such Loan or Lease are permitted by such Loan or Lease to exercise their rights with respect to an event of default thereunder; or

(iii)
there exists at any time and for any reason other than force majeure any deficiency in deliveries of coal in excess of [* * *] of the amount required to be delivered hereunder during the immediately preceding [* * *] month period or in excess of [* * *] of the amount required to be delivered hereunder during the immediately preceding [* * *] month period; or

(iv)
by reason of Falkirk’s default in performing its obligations under any Loan or Lease and after ten (10) days’ notice of its intention to do so, GRE or a third party pays or directly assumes Falkirk’s obligation under any such Loan or Lease,

then GRE at its option may acquire certain assets of Falkirk pursuant to the Option Agreement. Upon the acquisition of such assets by GRE or its nominee pursuant to said Option Agreement, this Agreement shall terminate.

(b)
Notwithstanding anything in this Section 12 to the contrary, GRE shall not have the option to acquire certain assets of Falkirk pursuant to the Option Agreement or otherwise if an event of the nature described in Section 12(a) hereof shall have occurred and been continuing:

(i)
as a result of any failure by GRE to carry out its obligations under this Agreement or under any document entered into by GRE in connection with any Loan or Lease entered into pursuant to Section 4 hereof; or

(ii)
as a result of any failure by GRE to pay to Falkirk any sum claimed by Falkirk to be due from GRE pursuant to this Agreement; provided, however, that if liability for such sum is in dispute, such failure by GRE shall be deemed not to have occurred if GRE, without prejudice to its position in such dispute, pays all or such portion of the full sum claimed by Falkirk in good faith to be due as will be sufficient to enable Falkirk to prevent the occurrence of an event of the nature described in Section 12(a) hereof.

(c)
Notwithstanding anything in this Section 12 to the contrary, GRE shall not have the option to acquire certain assets of Falkirk pursuant to the Option Agreement or otherwise by reason of Falkirk’s default of performance of its obligations under


* * * Confidential Treatment Requested



Sections 18(a) and 18(b) hereof if such default is solely because of a reasonable difference with governmental authorities as to the interpretation of governmental rules and regulations, impossibility of performance therewith or GRE’s consent to non-performance thereof.

Section 13.     Effect of Waiver

Waiver by either Party of any breach by the other of any of the terms and provisions hereof or failure to exercise any option or right hereunder shall not be deemed to be a waiver of such breach, option or right on any other occasion of the same, nor a waiver of breach of any other term or condition nor a waiver of any other right to exercise any option or right.

Section 14.     Arbitration

Except as otherwise expressly provided herein, any dispute between the Parties arising out of this Agreement (including failure to agree on matters slated to be determined by agreement) shall be determined by arbitration pursuant to the Rules of the American Arbitration Association in effect at the time of such arbitration, with the exceptions as hereinafter provided for the method of selecting the arbitrator and the rights to appeal the award of the arbitrator. The request for arbitration shall be in writing, setting forth in detail the claim or claims to be arbitrated, the amount involved, if any, and the remedy sought, which may include, without limitation, an award of damages for breach of this Agreement and a prospective determination of what are permissible mining practices under this Agreement. Such request shall be delivered to the other Party within two (2) years of the occurrence or condition giving rise to the dispute. Any failure to request arbitration within such two (2) year period shall be deemed a waiver of the right to arbitrate the dispute. Within fifteen (15) days after the delivery of the request, the Parties shall agree upon an arbitrator. If the Parties are unable to agree upon the arbitrator within such fifteen (15) days, the arbitrator, who shall be an expert in the field of knowledge wherein the controversy lies, shall be selected by the Chief Judge for the United States District Court for North Dakota. The award of the arbitrator may be appealed to any court of competent jurisdiction; in any such appeal the court shall accord the award of the arbitrator the status of a verdict of a jury. The existence of a dispute which has or may become the subject of an arbitration shall in no way excuse either Party from performing its obligations under this Agreement, and each of the Parties shall continue to perform in accordance with the terms of the Agreement regardless of the existence of any such dispute.

Section 15.     Assignment

This Agreement shall not be assignable by either Falkirk or GRE without the written consent of the other, except that either Falkirk or GRE may assign its interest in this Agreement either in connection with the merger, consolidation or sale of substantially all the assets of the assigning Party or under their respective mortgages or indentures.

Section 16.     Notices

All notices to be given from Falkirk to GRE shall be given to Great River Energy, Attention: Chief Executive Officer, 17845 East Highway 10, P.O. Box 800, Elk River, Minnesota 55330-0800, unless and until GRE shall notify Falkirk in writing of its appointment of a substitute agent for such purposes. All notices to be given from GRE to Falkirk shall be given to The Falkirk Mining Company,



Attention: President, 2801 1st. Street SW, P.O. Box 1087, Underwood, North Dakota 58576-1087, with a copy to The North American Coal Corporation, Attention: President and Chief Executive Officer, Signature Place II, 14785 Preston Road, Suite 1100, Dallas, Texas 75254-7891, until Falkirk shall notify GRE in writing of its appointment of a substitute agent for such purposes.

Section 17.     Protection of Reserves; “Most Favored Nation” Pricing

Falkirk shall not sell outside of this Agreement a quantity of Underwood Coal or for a period which would make Falkirk unable to give first priority to the performance of its obligations under this Agreement. Falkirk shall notify GRE annually of the amount of coal that it proposes to sell outside this Agreement during each calendar year. Without the written consent of GRE, Falkirk shall not sell coal outside of this Agreement at a price less than the price then being billed under this Agreement pursuant to Section 8 hereof. Any sale of Underwood Coal outside of this Agreement shall be subject to the provisions of Section 8 hereof.

Section 18.
Conduct of Operations; Reclamation; Right of Inspection; Non-Removal of Property

(a)
Falkirk shall conduct its mining operations hereunder in a careful, good and workmanlike manner according to the best mining practices prevalent in the field in which it is operating and with efficient and economical management and shall use its best efforts to conduct its mining operations according to the laws, rules and regulations of the federal and state governments, or their instrumentalities, if any, relating to mining operations and use of mining premises, including air and water pollution and other environmental laws, rules and regulations. GRE shall not be entitled to claim damages for breach of this Section 18(a) unless it has given Falkirk written notice of a claim of breach and Falkirk has failed to cure the same within ninety (90) days.

(b)
Falkirk shall comply with all applicable laws with respect to reclamation of all surface disturbed by or in connection with mining. Without limiting the generality of the foregoing, Falkirk shall return such land to at least the level of agricultural productivity that existed prior to mining or disturbance and will conduct its mining operation in accordance with the recommendations of the North Dakota State Water Commission with respect to the protection of existing groundwater supplies, water courses, water quality and other water resources related matters. Falkirk is aware that GRE’s water permit from the state of North Dakota involves in several respects the operations of Falkirk in the conduct of its mining and reclamation and Falkirk agrees to take whatever action is possible which is necessary for GRE to comply with the conditions of its said water permit. Falkirk shall supply GRE with all information requested by GRE in order to permit such compliance. GRE shall supply water to Falkirk from its water supply facilities at a reasonable cost in the event successful reclamation requires the application of supplemental water to aid plant growth on lands being reclaimed.

(c)
From time to time Falkirk shall notify GRE of the names of the persons principally responsible for the operation of Falkirk’s Mine. Falkirk shall consider and discuss with GRE any comments it makes with respect to such persons.




(d)
GRE shall have the right and privilege at any time of entering Falkirk’s Mine in order to inspect or survey the same.

(e)
Falkirk shall not without the prior written consent of GRE use any movable property financed pursuant to Section 4 hereof except at Falkirk’s Mine.

Section 19.     Representations and Warranties

(a)
Falkirk represents and warrants to GRE that: (i) Falkirk is a corporation duly organized, validly existing and in good standing under the laws of the state of Ohio and is qualified to do business in the state of North Dakota, (ii) the execution and delivery of this Agreement by Falkirk and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, (iii) neither the execution and delivery of this Agreement nor the performance of its obligations hereunder by Falkirk shall, or after the lapse of time or giving of notice shall, conflict with, violate or result in a breach of, or constitute a default under the Articles of Incorporation or Regulations of Falkirk or any law, statute, rule or regulation applicable to it, or conflict with, violate or result in a breach of or constitute a default under any material agreement to which it is a party or by which it or any of its properties is bound, or any judgment, order, award or decree to which Falkirk is a party or by which it is bound, or require any approval, consent, authorization or other action by any court, governmental authority or regulatory body or any creditor of Falkirk or any other person or entity and (iv) this Agreement constitutes a valid and binding obligation of Falkirk and is enforceable against Falkirk in accordance with its terms.

(b)
GRE represents and warrants to Falkirk that: (i) GRE is a cooperative corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota and is qualified to do business in the state of North Dakota, (ii) the execution and delivery of this Agreement by GRE and the performance of its obligations hereunder have been duly authorized by all requisite corporate action, (iii) neither the execution and delivery of this Agreement nor the performance of its obligations hereunder by GRE shall, or after the lapse of time or giving of notice shall, conflict with, violate or result in a breach of, or constitute a default under the Articles of Incorporation or Bylaws of GRE or any law, statute, rule or regulation applicable to it, or conflict with, violate or result in the breach of or constitute a default under any material agreement to which it is a party or by which it or any of its properties is bound, or any judgment, order, award or decree to which GRE is a party or by which it is bound, or require any approval, consent, authorization or other action by any court, governmental authority or regulatory body or any creditor of GRE or any other person or entity and (iv) this Agreement constitutes a valid and binding obligation of GRE and is enforceable against GRE in accordance with its terms.

Section 20.     Confidentiality

The Parties agree that information exchanged between the parties, including but not limited



to business development strategies, land and leasehold owners, maps, designs, drawings, and Sections 5.2(c), 5.4, 5.5 and Annexes A, B, C and D of this Agreement, shall be kept strictly confidential and shall not be disclosed to any third party without the prior consent of the other Party, except to the Affiliates, attorneys, auditors or financial advisors of a party.

Section 21.     Amendments

Any modification or amendment of the terms and provisions of this Agreement shall be valid and effective only if and when made in writing and duly executed on behalf of the Parties.

Section 22.     Right of Extension

If this Agreement is not terminated before December 31, 2045, then the term of this Agreement shall be extended automatically for periods of one year each for as long as the following conditions exist:

(a)
Falkirk has sufficient Underwood Coal to supply GRE’s fuel requirements during such extension(s);

(b)
the Coal Creek Station continues in operation and is not permanently closed; or

(c)
governmental regulations do not prohibit the Coal Creek Station from utilizing Underwood Coal as a fuel source.

Section 23.     Option and Right Upon Termination

Upon the termination of this Agreement other than as provided in Section 12 hereof, GRE shall have the option within three (3) months after such termination, subject to the rights of any lenders and lessors under Loans and Leases referred to in Section 4 hereof, to purchase all but not part of the real and personal property constituting Falkirk’s Mine, excluding mineral rights, at Falkirk’s net book value thereof, provided that all Loan and Lease obligations pursuant to Section 4 hereof have been paid in full, and provided further that, if GRE desires to exercise such option, Falkirk nevertheless shall have the right to retain all such property if it pays GRE an amount equal to the excess of the fair market value (but not less than net book value) of such property over and above the amount of indebtedness and Loan and Lease obligations incurred under Section 4 hereof and then remaining unpaid. Whether or not GRE exercises such option, it shall be entitled within three (3) months after the termination of this Agreement to remove and keep without payment to Falkirk all coal the Cost of Production of which has been paid for by GRE. Further, even if Falkirk elects to retain such property and pays such amount to GRE, GRE’s mortgage and security interest in such property as granted by the Mortgage and Security Agreement and the Funding Agreement shall continue until the later to occur of (i) completion of all post-mining reclamation activities, and (ii) satisfaction of all obligations owed by Falkirk to GRE and all obligations owed by GRE to Falkirk.





IN WITNESS WHEREOF , the Parties, with the intent to be bound, have executed this Agreement as of the day and year first above written.


THE FALKIRK MINING COMPANY

By
 
/s/ Dan W. Swetich
Its
 
President
 
 
 
Attest
 
/s/ Thomas A. Koza
 
 
Secretary


GREAT RIVER ENERGY

By
 
/s/ David Saggau
Its
 
President and CEO
 
 
 
Attest
 
/s/ Eric J. Olson
 
 
 





Exhibits A, C, D

[* * *]







* * * Confidential Treatment Requested



Document No . 321871
ANNEXB
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Agreement") is made and entered into as of the 15th day of December, 1993, by and between NORTH AMERICAN COAL ROYALTY COMPANY, a Delaware corporation authorized to do business in the state of North Dakota with offices at 2000 Schafer Street, Box No. 5500, Bismarck, North Dakota 58502-5500 (hereinafter called "Sublessor") and THE FALKIRK MINING COMPANY, an Ohio corporation authorized to do business in the state of North Dakota whose address is Post Office Box 1087, Underwood, North Dakota 58576-1087 (hereinafter called "Sublessee").
WITNESSETH THAT:
WHEREAS, Sublessor is the owner of certain leases covering lands situated in McLean County, North Dakota, which leases are described in Exhibit A attached hereto and made a part hereof ("Leases"); and
WHEREAS, Sublessee desires to sublease all of Sublessor's interest in and to the Leases; and
WHEREAS, Sublessor is willing to sublease such interests to Sublessee on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows:
1. Sublessor does hereby sublet unto Sublessee all of Sublessor's right, title and interest in and to all of the Leases.
2. The term of this Agreement shall commence on the date hereof and shall continue in force and effect until all of the Leases have expired, or until terminated in accordance with the provisions set forth in this Agreement, whichever first occurs.
3. Sublessee shall perform on Sublessor's behalf all the covenants, obligations and conditions which are to be performed by Sublessor, as lessee, under the Leases, including, but not limited to, the payment of rentals, advance royalties, tonnage royalties and other sums due under the Leases. Sublessee shall indemnify and hold harmless Sublessor from and against all claims, suits, causes of action, loss, damage, expense and 1iability arising out of Sublessee's non-performance of such covenants, obligations and conditions.
It is understood and agreed that in the event that Sublessee fails to perform on Sublessor's behalf any of the covenants, obligations or conditions under the Leases, including the payment of royalties, Sublessor shall have the right to perform the same, and Sublessee shall promptly



reimburse Sublessor for all costs incurred by Sublessor in connection therewith upon the request of Sublessor and receipt of appropriate documentation evidencing such costs.
Sublessor shall indemnify and hold harmless Sublessee from and against all claims, suits, causes of action, loss, damage, expense and liability arising out of sublessor's non-performance of its obligations under the Leases prior to the date of this Agreement.
4. In consideration of the subleasing by Sublessor hereunder of its interest in the Leases to Sublessee and in further consideration of the costs incurred by Sublessor to acquire and maintain the Leases and to explore the lands covered by the Leases to determine the      quality and quantity of the coal reserves, Sublessee shall pay to sublessor an overriding royalty ("Royalty") in the amount of Fifteen Cents ($0.15) per ton for each and every ton of two thousand (2000) pounds of coal mined and removed from the coal properties covered by the Leases in which Sublessor holds a one hundred percent (100%) interest in the coal estate. If Sublessor holds less than a one hundred percent (100%) interest, such Royalty shall be payable in the proportion which the interest in the coal estate held by Sublessor bears to a one hundred percent (100%) interest in such coal estate. Such Royalty payment shall be made to Sublessor by Sublessee on or before the thirtieth (30th) day of each month for all coal mined and removed by Sublessee during the preceding calendar month from the coal properties covered by the Leases. Such Royalty payment shall be accompanied by a report of the number of tons of coal mined and removed from the coal properties covered by the Leases during such applicable month, the percentage interest held by Sublessor and the Royalty calculations made by Sublessee. All Royalty payments due hereunder shall be made payable to the sublessor and shall be made by mailing or delivering the same to the offices of Sublessor at the address set forth herein.
5. Following the execution and delivery of this Agreement, Sublessee, at its expense, shall notify the lessors under the Leases that Sublessor has subleased its interest in the Leases to Sublessee and that Sublessee, on Sublessor's behalf, will make all payments due under the Leases.
Sublessor represents and warrants that this Agreement and the rights granted hereby do not breach any term or condition of the Leases. Sublessor covenants and agrees to promptly provide to the Sublessee copies of any notice or other communication made or given by the lessors of the Leases.
6. By this Agreement, Sublessor intends to sublease all of Sublessor's rights and interests to the surface and coal within the area shown on the map attached hereto as Exhibit B and made a part hereof ("Area of Interest”), and Sublessor agrees that any right or interest of Sublessor to surface and coal within the Area of Interest which is now held by Sublessor within the Area of Interest shall be deemed to be subleased to Sublessee under this Agreement for the considerations set forth herein. During the term of this Agreement, Sublessor agrees that it shall not voluntarily acquire, without the consent of Sublessee, any interest in land within the Area of Interest. If Sublessor, with the consent of Sublessee, hereafter acquires any additional interests



in surface or coal properties within the Area of Interest, Sublessor will offer to sublease the same to Sublessee on the same terms as provided herein. If Sublessee accepts such offer, the parties will amend this Agreement and Exhibit A to add such properties to this Agreement.
7. Sublessee, upon thirty (30) days prior written notice to Sublessor shall have the right to terminate this Agreement at any time by delivering to Sublessor a notice of such termination, together with a release or releases in recordable form satisfactory to Sublessor, together with payment of all tonnage royalties and Royalty then accrued, and other amounts, if any, payable under the Leases. Such release(s) shall terminate the obligation of Sublessee to make any payment of tonnage royalties and Royalty except those then accrued and due under the Leases and this Agreement.
Further, Sublessee, upon thirty (30) days prior written notice to Sublessor, shall have the right to release from this Agreement any of the Leases by delivering to Sublessor a release or releases in recordable form satisfactory to Sublessor. Such release(s) shall not terminate the obligation of Sublessee to make payment of Royalty as provided in Section 4 of this Agreement or the payments due under the Leases remaining subject to the Agreement as provided in Section 3 hereof.
8. No change or division in ownership of Sublessor's interests under the Leases or Royalty due hereunder, however accomplished, shall operate to enlarge the obligations or diminish the rights of Sublessee. No such change or division in the ownership of such interests or Royalty shall be binding upon Sublessee for any purpose until forty-five (45) days after the person acquiring any such interest shall furnish Sublessee with written notice thereof and the instrument or instruments, or certified copies thereof, evidencing such change, transfer or division of ownership, provided that Sublessee may, at its election, recognize any such change or division prior to the expiration of such forty-five (45) day period of time and make payment to the new owner(s). Except as provided in Section 25 of this Agreement, the rights and obligations of the Sublessee hereunder may not be assigned without the prior written consent of Sublessor, which consent shall not be unreasonably withheld.
9. Sublessor agrees to execute and deliver to Sublessee any and all forms as from time to time may be required by any governmental or other regulatory agency in connection with Sublessee's mining operations hereunder.
10. Sublessee shall pay all taxes, if any, levied against its improvements and all taxes or other fees levied on the mining, production, severance, processing or sale of coal from the properties covered by the Leases. Sublessor shall pay all other taxes, assessments and other fees assessed against its interests under the Leases.
11. Notwithstanding anything to the contrary contained in this Agreement, if Sublessee does not tender to Sublessor on or before the due date any Royalty payment required to be made by Sublessee to Sublessor under this Agreement or if Sublessee otherwise does not comply with any of the provisions of this Agreement, this Agreement shall not terminate or be terminated by



Sublessor except as hereinafter provided.
If Sublessee does not tender to Sublessor, on or before the due date, any Royalty payment required to be made by Sublessee to Sublessor under this Agreement, Sublessor may notify Sublessee in writing of such noncompliance. If, within thirty (30) days from the date Sublessee receives such notice, Sublessee does not tender to Sublessor said Royalty payment due under this Agreement, then Sublessor may, at its option, and in addition to any other rights or remedies that Sublessor may have under this Agreement, terminate this Agreement by notifying Sublessee in writing of such termination.
If Sublessee is not in compliance with any of the provisions of this Agreement, other than the Royalty payment provisions dealt with in the immediately preceding paragraph, Sublessor may notify Sublessee in writing of such noncompliance. If within ninety (90) days from the date Sublessee receives such notice, Sublessee does not commence and diligently pursue bona fide action to correct such noncompliance, provided that compliance or corrective action is not suspended under Section l2 of this Agreement, Sublessor may, at its option, terminate this Agreement by notifying Sublessee of such termination in writing.
Should Sublessor terminate this Agreement pursuant to either of the two preceding paragraphs, Sublessee, within thirty 30) days after receiving such written notice of termination, shall deliver to Sublessor a release or release(s) in recordable form satisfactory to Sublessor together with payment of all tonnage royalties and Royalty then accrued. Such release(s) shall terminate the obligation of Sublessee to make any payment of tonnage royalties and Royalty except those accrued and due under the Leases and this Agreement.
If Sublessee does not begin mining development in, upon or under any of the properties covered by the Leases within seven (7) years of the date of this Agreement, Sublessor shall have the right, at its option, to terminate this Agreement at any time prior to the beginning of such mining development by Sublessee by delivering to Sublessee a written notice of such termination. Upon receipt of such notice, Sublessee shall deliver to Sublessor within thirty (30) days a release or release(s) in recordable form satisfactory to Sublessor, together with payment of all advance royalties and other amounts, if any, then accrued under the Leases. Such release(s) shall terminate the obligation of Sublessee to make the payments due under the Leases.
12. All obligation(s) of Sublessee hereunder, other than those set forth in Sections 3, 4 and 10 hereof, shall be suspended during such period as Sublessee is rendered unable, in whole or in part, to comply therewith by strikes, lockouts, riots, insurrections, severe weather, storms, floods, fires, plant shutdowns, unusual mining conditions, faults in coal seams, damage to or destruction of plant, machinery, equipment or facilities, accidents, governmental laws, rules or regulations, orders or action of any governmental agency, acts of God or any other cause condition or matter, whether of the kind herein enumerated or otherwise, beyond the control of Sublessee, and the period of any delay or interruption of Sublessee's operations occasioned thereby shall be disregarded in computing timely performance by Sublessee of its obligations



hereunder (except with respect to its obligations under Section 3, 4 or 10 of this Agreement).
13. In the event that Cooperative Power Association and United Power Association ("Cooperatives") acquire certain assets of Sublessee pursuant to the Option Agreement dated July 1, 1974, among Sublessee, the Cooperatives, and Society National Bank, and terminate the Coal Sales Agreement, dated July 1, 1974, as amended, between Sublessee and the cooperatives pursuant to Section 12(a) thereof, the cooperatives, as assignee of Sublessee's rights and obligations under this Agreement, at their option shall either (a) continue to pay the Royalty to Sublessor and the payments due under the Leases to the Lessors, or (b) pay to Sublessor in cash the then fair market value of the Leases in which case Sublessor shall execute and deliver to the Cooperatives an assignment of the Leases in recordable form satisfactory to the Cooperatives, or (c) terminate this Agreement in accordance with Section 7 of this Agreement.
14. Any written notice to Sublessor or Sublessee required or permitted hereunder shall be deemed given if delivered personally or by United States Certified Mail, Return Receipt Requested, postage prepaid and addressed as follows:
(a) To Sublessor:
North American Coal Royalty Company
2000 Schafer Street, Box No. 5500
Bismarck, North Dakota 58502-5500
Attention: Manager, Land

(b) To Sublessee:
The Falkirk Mining Company
Post Office Box 1087
Underwood, North Dakota 58576-1087
Attention: President

(c) To such other person(s) or address(es) as the parties hereto may designate in writing.
15. In conducting its operations hereunder, Sublessee shall comply with all applicable laws, rules and regulations and ordinances pertaining thereto. Sublessee reserves and shall have the right to challenge and/or appeal any law, ruling, regulation, order or other determination and to carry on its operations in accordance with Sublessee's interpretation of same, pending final determination.
Sublessee shall fully indemnify and save harmless, Sublessor, and its parent companies, and its and their shareholders, directors, officers, employees and agents, from and against any and all claims, liability, damages or loss to persons or property caused by or alleged to have been caused, directly or indirectly, by any act or omission on the part of Sublessee, any of its contractors, or any of their employees and agents, arising out of or in any way connected with



Sublessee's use or occupancy of the properties covered by the Leases and/or Sublessee's exercise of the rights and privileges herein granted.Sublessee's obligations under this paragraph shall survive the expiration or termination of this Agreement.
16. Sublessee shall keep accurate books and records of the amount of coal severed from the properties covered by the Leases. Upon prior written notice to Sublessee, Sublessor and its agents shall have the right at all reasonable times (a)to inspect, audit and/or copy such books and records in the offices where they are kept and (b) to enter upon the properties covered by the Leases for the purpose of inspecting and surveying the same and/or determining Sublessee's compliance with its obligations under this Agreement; provided, however, that no such inspection of Sublessee's records or the properties covered by the Leases shall unreasonably interfere with Sublessee's operations and activities and provided further that Sublessor shall be responsible for injury to Sublessor and/or Sublessor's agent(s) which occurs on the properties covered by the Leases, except to the extent that such injury is caused by Sublessee's negligence or willful actions.
17. Except as otherwise provided herein, whenever Sublessor has the right to enforce any rights against the lessor under the Leases because of default by lessor, and if within a reasonable period after Sublessee’s request, sublessor fails to enforce such rights, then Sublessee shall have the right, in the name of Sublessee or, if necessary, in the name of Sublessor, to enforce any such rights of Sublessor. Such enforcement shall be at the sole expense of Sublessee, and the amount of any recovery obtained by Sublessee shall be the property of sublessee, except that Sublessor shall be compensated therefrom for any damages sustained by Sublessor as a result of such default or breach on the part of the Lessor under the Leases.
18. Sublessor shall not modify or surrender any of the Leases, which are or remain subject to this Agreement, without the prior written consent of Sublessee.
19. Sublessor covenants that so long as Sublessee is not in default of its obligations under this Agreement, Sublessee shall not be disturbed in its use and possession of the lands covered by the Leases by Sublessor or any party claiming by or through Sublessor, but subject, however, to the terms of the respective Leases.
Sublessor covenants and agrees at all times during the term hereof to keep its interests in, to and under the Leases free and clear of any liens, claims and encumbrances arising from Sublessor's acts or obligations to the extent that such acts or obligations are not assumed by Sublessee under this Agreement.
20. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior negotiations, undertakings, notices, memoranda and agreements between the parties hereto, whether oral or written, with respect to the subject matter hereof. This Agreement may be amended or modified only by a written agreement duly executed by the parties hereto.
21. This Agreement shall be governed by, construed and enforced in accordance with the



laws of the State of North Dakota. As used herein, any gender shall include any other gender, the singular shall include the plural and the plural shall include the singular, wherever appropriate.
22. Reference herein to "Sublessor" and "Sublessee" shall include reference to their respective nominees, successors and assigns.
23. If any provision of this Agreement shall be invalid, illegal or unenforceable in any respect, such provision shall be deemed to be severed from this Agreement, and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected of impaired thereby
24. The failure of either party to insist in any one or more instances upon strict performance of any of the provisions of this Agreement or to take advantage of any of its rights hereunder shall not be construed as a waiver of any such provision or the relinquishment of any such rights, but the same shall continue and remain in full force and effect.
25. Notwithstanding anything herein to the contrary, Sublessee may assign its rights and obligations hereunder to the Cooperatives, in the event the Cooperatives acquire certain assets of Sublessee pursuant to the Option Agreement, dated July 1, 1974, among Sublessee, the Cooperatives, and Society National Bank, and terminate the Coal Sales Agreement, dated July 1, 1974, as amended, between Sublessee and the Cooperatives pursuant to Section 12(a) thereof.
In the event of such an assignment, the Cooperatives shall not have any liability or obligation under this Agreement for Sub lessee's failure to pay the Royalty under Section 4 of this Agreement which accrues on or before the date of such assignment. Further, from and after the date of such assignment, Sublessor covenants and agrees to provide the Cooperatives with copies of any notices or other communications made or given by the lessors of the Leases, and to not amend, modify, terminate or release any of the Leases without the prior written consent of the Cooperatives. Sublessor and Sublessee agree that the provisions of this Agreement regarding the Cooperatives shall inure to the benefit of and be enforceable by the Cooperatives.



IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written:
 
 
SUBLESSOR:
 
 
 
 
 
NORTH AMERICAN COAL ROYALTY COMPANY
 
 
 
 
 
 
By:
/s/ Thomas A. Koza
 
 
Thomas A. Koza, Its President
 
 
SUBLESSEE:
 
 
 
 
 
THE FALKIRK MINING COMPANY
 
 
 
 
 
 
By:
/s/ Dan W. Swetich
 
 
Dan W. Swetich, Its President





Exhibit 10.19
AMENDMENT NO. 1
TO SECOND RESTATEMENT OF COAL SA L ES AGREEMENT


THIS AMENDMENT NO . 1 TO SECOND RESTATEMENT OF COAL SALES AGREEMENT (this "Amendment " ) is made as of January 21 , 2011 , by and between THE FALKIRK MINING COMPANY, a wholly-owned subsidiary of The North American Coal Corporation and an Ohio corporation qualified to do business in North Dakota ("Falkirk") , and GREAT RIVER ENERGY, a Minnesota cooperative corporation ("GRE " ) .

WITNESSETH:

WHEREAS , Falkirk and GRE have entered into a Second Restatement of Coal Sales Agreement, dated as of January 1, 2007 (the "Coal Sales Agreement"); and

WHEREAS, Falkirk and GRE desire to amend the Coal Sales Agreement as hereinafte r provided;

NOW, THEREFORE, it is agreed as follows :

1.
Section 1 of the Coal Sales Agreement is amended to add the following definitions at the end thereof :

"(v)    'Lignite Supply Agreement' shall mean each of: (i) that certain Lignite Supply Agreement to be entered into betwe e n GRE and ProjectCo A pursuant to wh i ch GRE will sell coal to ProjectCo A ; and ( i i) that certain Lignite Suppl y Agreement to be entered into between GRE and ProjectCo B pursuant to which GRE will sell coal to ProjectCo B.

(w)     ' ProjectCo ' shall mean each ofProjectCo A and ProjectCo B.

(x)    'ProjectCo A' shall mean North Dakota Refined Coal Project Company A LLC, a Delaware limited liability company.

(y)     ' ProjectCo B' shall mean North Dakota Refined Coal Project Company B LLC , a Delaware limited liability company .

(z)    'Refined Coal Products' shall mean refined coal products made by the ProjectCos exclusively from coal purchased from GRE under the Lignite Supply Agreements , which coal GRE originally purchased from Falkirk under this Agreement.

(aa)    'Refined Coal Purchase Agreement' shall mean each of (i) that certain Refined Coal Purchase Agreement to be entered into between ProjectCo A and GRE pursuant to which GRE will purchase Refined Coal Products from ProjectCo A and (ii) that certain Refined Coal



Purchase Agreement to be entered into between ProjectCo B and GRE pursuant to which GRE will purchase Refined Coal Products from ProjectCo B."

2.
Section 2 of the Coal Sales Agreement is amended to add new Sections 2(e), 2(f) , 2(g), and 2(h) at the end thereof which shall read as follows:

"(e)     Subject to the conditions in Section 2(f), Refined Coal Products sold by any ProjectCo to GRE and used by GRE only as fuel for the Coal Creek Station shall be deemed to be coal sold and delivered by Falkirk to GRE for purposes of the exclusivity requirements of Section 2(a) .

(f)    Falkirk's agreements in Section 2(e) are subject to each of the following conditions, any of which may be waived by Falkirk in its sole discretion :

(i)
all coal sold by GRE to the ProjectCos for refining and sale to GRE for use at Coal Creek Station shall, subject to Section 2(b) of this Agreement , be purchased from Falkirk pursuant to this Agreement, and no coal from any other source shall be sold to any ProjectCo by GRE for such purpose (it being understood that GRE may sell coal to any ProjectCo from other sources solely for the purpose of supplying refined coal to facilities other than Coal Creek Station);

(ii)
the coal GRE sells to the ProjectCos from Falkirk shall, subject to Section 2(b) of this Agreement , after the ProjectCos refines such coal , meet the coal requirements of the Coal Creek Station (including all expansions and additions thereto) not satisfied directly from coal purchased from Falkirk under this Agreement;

(iii)
(iii) GRE shall , subject to Section 2(b) of this Agreement, purchase from the ProjectCos Refined Coal Products that meet the coal requirements of the Coal Creek Stat i on (including all expansions and additions thereto) not satisfied directly from coal purchased from Falkirk under this Agreement; and, (iv) GREis not in default under this Agreement.

(g)    Without limiting GRE's obligations under Section 2(f) above, coal which is recovered and reclaimed by GRE pursuant to the Lignite Supply Agreements (after GRE has transferred title thereto to ProjectCos under the Lignite Supply Agreements but before the coal has completed the refining process) may be used by GRE at GRE's Spiritwood Cogeneration Station, near Jamestown, North Dakota or any other generating station which is permitted under Section 2(d) to use coal purchased hereunder.

(h)     Annually , on or before January 15 of each year during the term of this Agreement ,



GRE shall deliver to Falkirk a certificate duly executed by a duly authorized officer of GRE certifying that, for the prior year , GRE has complied with each of its agreements in this Section 2 and each of the conditions in this Section 2 applicable to GRE continues to be met. "

3.
Section 13 of the Coal Sales Agreement is amended to add the following as the new first sentence thereof:
"No waiver of any breach of any of the terms of this Agreement shall be effective unless such waiver is in writing and signed by the Party against wh o m such waiver is claimed . "

4 .     Section 1 and Section 2 of this Amendment shall terminate upon expiration of both Refined Coal Purchase Agreements (subject to any extension , renewal o r replacement thereof; provided that prior to any extension , renewal or replacement of a Refined Coal Purchase Agreement, GRE shall, at the request of Falkirk , demonstrate to the reasonable satisfact i on of Falkirk , that the terms of such extension , renewal or replacement will not conflict with GRE's obligations under clauses (i) , (ii) , or (iii) of Section 2(f) above). Notwithstanding the foregoing, GRE shall be obligated to deliver to Falkirk the officer's certificate contemplated by Section 2 of this Amendment in respect of the last year during which Sectio n 2 is effective .

[Remainder of page intentionally left blank)





IN WITNESS WHEREOF , the parties hereto, with the intent to be bound, have executed this Amendment as of the day and year first above written.

 
THE FALKIRK MINING COMPANY
 
 
 
 
 
 
 
By
/s/ Carroll Dewing
 
Its
President
 
 
 
 
Attest
/s/ Thomas A. Koza
 
 
Secretary

 
GREAT RIVER ENERGY
 
 
 
 
By
/s/ Larry L. Schmid
 
 
Larry L. Schmid
 
Its
Vice President and Chief Financial Officer
 
 
 
 
Attest
/s/ Eric J. Olson
 
 
Assistant Secretary





Exhibit 10.20
RESTATEMENT OF OPTION AGREEMENT

THIS RESTATEMENT OF OPTION AGREEMENT ("Agreement") is made and entered into as of January 1, 1997, by and among THE FALKIRK MINING COMPANY , an Ohio corporation qualified to do business in North Dakota (hereinafter referred to as "Seller"), and COOPERATIVE POWER ASSOCIATION , a Minnesota electric cooperative corporation qualified to do business in North Dakota, and UNITED POWER ASSOCIATION , a Minnesota electric cooperative corporation qualified to do business in North Dakota (hereinafter collectively referred to as "Buyer"), and the STATE OF NORTH DAKOTA , doing business as THE BANK OF NORTH DAKOTA ("Escrow Agent").
WITNESSETH:
WHEREAS , Seller, Buyer and KeyCorp, as successor by merger and name change to The Cleveland Trust Company, entered into an Option Agreement dated as of July 1, 1974, pursuant to which Seller granted to Buyer the exclusive right to purchase certain surface tracts and coal tracts and certain property and other interests more particularly described therein, which Option Agreement was amended pursuant to the Amendment to Option Agreement, dated as of December 15, 1993 (hereinafter referred to as the "Option Agreement");
WHEREAS , the Option Agreement was executed and delivered pursuant to a Coal Sales Agreement, also dated as of July 1, 1974, by and between Seller and Buyer, and as subsequently amended from time to time (hereinafter referred to as the "Coal Sales Agreement"); and
WHEREAS , Buyer and Seller intend by this Agreement to amend and restate the Option Agreement.
NOW, THEREFORE , in consideration of the foregoing and the mutual covenants and agreements contained herein, the parties hereto agree as follows:
SECTION 1. GRANT OF OPTION
Seller hereby conveys and grants to Buyer the exclusive right, option and privilege, during the term of this Agreement, upon the terms herein contained, to purchase the surface tracts and coal tracts referred to in Section 2 hereinafter, and to purchase the property and other interests referred to in Section 3 hereinafter, subject, however, to the rights of third parties pursuant to "Loans" and/or "Leases" as those terms are defined in Section 4 of the Coal Sales Agreement.



SECTION 2. DEPOSIT IN ESCROW OF DEEDS
Seller, within thirty (30) days after the execution of this Agreement, shall deposit with the Escrow Agent, for the purposes herein specified, duly executed and acknowledged deeds to all surface tracts and coal tracts, together with the mining rights appurtenant thereto, used in connection with "Seller's Mine" as that term is defined in Section 1(b) of the Coal Sales Agreement, which deeds shall convey such tracts to Buyer as tenants in common having the respective participations indicated by the provisions of Section 13 hereinafter, or to their successors or assigns. In addition, Seller, on or before January 31, 1998, and on or before January 31 of each year thereafter, shall deposit with the Escrow Agent necessary replacement deeds such that on said date there shall be on deposit with the Escrow Agent duly executed and acknowledged deeds from Seller to Buyer, its successors and assigns, to all surface tracts and coal tracts, together with the mining rights appurtenant thereto, used in connection with Seller's Mine as of December 31 of the previous year. Exhibit A hereto contains a legal description of all such surface tracts and coal tracts, together with the mining rights appurtenant thereto, held by Seller as of December 31, 1996. Each deposit by Seller with the Escrow Agent pursuant to this Section 2 shall be accompanied by a certificate from an authorized officer of Seller stating that the deposit is in compliance with this Section 2.
SECTION 3. DEPOSIT IN ESCROW OF ASSIGNMENTS AND BILL OF SALE
Seller, within thirty (30) days after the execution of this Agreement, shall deposit with the Escrow Agent, for the purposes herein specified, (a) duly executed and acknowledged assignments transferring to Buyer all of Seller's interest in all of the leases, subleases, easements and other agreements used in connection with Seller's Mine, and (b) a duly executed and acknowledged General Bill of Sale and Assignment of Personal Property transferring Seller's title to all of Seller's tangible and intangible personal property to Buyer as tenants in common having the respective participations indicated by the provisions of Section 13 hereinafter, or to their successors or assigns. In addition, Seller, on or before January 31, 1998, and on or before January 31 of each year thereafter, shall deposit with the Escrow Agent necessary replacement assignments and a replacement General Bill of Sale and Assignment of Personal Property, such that on said date there shall be on deposit with the Escrow Agent duly executed and acknowledged assignments from Seller to Buyer, its successors and assigns, of all leases, subleases, easements and other agreements used in connection with Seller's Mine and a General Bill of Sale and Assignment of Personal Property covering all tangible and intangible personal property and fixtures used in connection with Seller's Mine as of December 31 of the previous year. Exhibit B hereto contains a description of all such leases and subleases held by Seller as of December 31, 1996, and Exhibit C hereto contains a description of all such easements and other agreements held by Seller as of December 31, 1996. Each deposit by Seller with the Escrow Agent pursuant to this Section 3 shall be accompanied by a certificate from an authorized officer of Seller stating that the deposit is in compliance with this Section 3.

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SECTION 4. DELIVERY BY ESCROW AGENT AND SELLER TO BUYER
The Escrow Agent shall forthwith deliver to Buyer the deeds described in Section 2 hereof and the assignments and the General Bill of Sale and Assignment of Personal Property described in Section 3 hereof (which, collectively, are hereinafter referred to as "Escrowed Documents of Title"), and Seller shall thereupon surrender possession of such property upon receipt by the Escrow Agent of written notice from Buyer of the exercise by Buyer of its rights pursuant to Section 12 of the Coal Sales Agreement and receipt from Buyer of a certified or cashier's check payable to Seller in an amount determined in accordance with the provisions of Section 5 hereinafter and evidence of Buyer's assumption, payment, satisfaction or deeming of satisfaction of the Loans and Leases as provided in said Section 5. In addition, Seller shall forthwith deliver to Buyer any additional deeds, assignments and bills of sale covering all of the real and personal property interests acquired by Seller from the date of the last deposit in escrow provided for in Sections 2 and 3 hereof to the date of the exercise by Buyer of its rights pursuant to Section 12 of the Coal Sales Agreement.
SECTION 5. PRICE DETERMINATION, METHOD AND AMOUNT OF PAYMENT
The price to be paid to Seller for all the assets of Seller described in the Escrowed Documents of Title and any additional documents of title as described in Section 4 hereof, referred to in this Section 5 as the "Assets", shall be the payment or assumption of all of Seller's obligations and the payment to Seller of an amount equal to its shareholders' equity (including undistributed the obligations of Seller under any Loan or Lease referred to in Section 4 of the Coal Sales Agreement and the assumption by Buyer of the overriding lease obligation of Seller to pay ten cents ($0.10) per ton to ANR Western Coal Development Company or its assigns which is referred to in Section 5.2(b) of the Coal Sales Agreement.
Payment of the price shall be made by Buyer assuming, paying or satisfying in full the outstanding obligations of Seller described above and indemnifying and saving harmless Seller from all liability or claims thereunder and by Buyer paying by certified or cashier's check to Escrow Agent an amount equal to the Seller's shareholders' equity. Buyer may offset any loans by Buyer to Seller.
The amount of the certified or cashier's check to be delivered to Escrow Agent as aforesaid shall be determined by Buyer on the basis of the most recent financial statements of Seller. Such certified or cashier's check shall forthwith be delivered to Seller by Escrow Agent.
SECTION 6. SUBSEQUENT PRICE ADJUSTMENT
After the delivery of the Escrowed Documents of Title and any additional documents of title and the certified or cashier's check in accordance with Sections 4 and 5 hereof, Buyer shall pay promptly to Seller any amount by which the certified or cashier's check delivered to the Escrow Agent is less than the excess of the shareholders' equity over the amounts assumed, paid, satisfied

3


or deemed satisfied referred to in Section 5 hereof, or Seller shall refund promptly to Buyer any amount by which the certified or cashier's check aforesaid is greater than the excess of the shareholders' equity over said amounts, as determined by an audit as of the date of delivery of the certified or cashier's check as aforesaid.
SECTION 7. DELIVERY BY ESCROW AGENT TO SELLER
The Escrow Agent shall forthwith deliver to Seller the Escrowed Documents of Title upon receipt by the Escrow Agent from Buyer and Seller of written notification that the Coal Sales Agreement has terminated for any reason other than the provisions of Section 12 thereof. If Buyer, pursuant to the Coal Sales Agreement, instructs Seller to permanently cease delivery of coal shipments from the Riverdale Coal Field, as defined in the Coal Sales Agreement, then Buyer shall, concurrently with giving Seller such instruction, notify the Escrow Agent to deliver to Seller all assignments, deeds and other documents of title covering all of the real property or real property interests to which such instruction pertains and are subject to this Agreement. From and after the date of such instruction, Buyer shall have no right, claim or option in or to any such real property or real property interest under or pursuant to this Agreement.
SECTION 8. CUSTODY OF ESCROWED DOCUMENTS OF TITLE
The Escrow Agent agrees that it shall hold the Escrowed Documents of Title delivered to it by Seller in accordance with the provisions of this Agreement. It is agreed that Seller's interest as lessee and beneficial and record owner of the real and personal property represented by said documents of title shall remain in Seller during the escrow period. No assignment, transfer or conveyance of any right, title or interest in or to the subject matter of the escrow may be made by the Escrow Agent except as provided in this Agreement.
SECTION 9. FEES AND DUTIES OF ESCROW AGENT    
(a)    The Escrow Agent shall receive compensation for services at its customary rate as in effect from time to time and for the services and expenses of legal counsel, agents and attorneys-in­ fact employed by the Escrow Agent in relation to this Agreement; for amounts which it is charged or for which it is held responsible or liable in relation to this Agreement; and for all out-of-pocket expenses in relation to this Agreement, all of which amounts shall be paid by Seller.
(b)    Should any controversy arise, or should the Escrow Agent have a good faith doubt concerning the right of any person to the Escrowed Documents of Title, the Escrow Agent shall have the right, but not the duty, to institute a bill of interpleader in any court of competent jurisdiction to determine the interests of Seller and Buyer to the Escrowed Documents of Title. In the event that the Escrow Agent attempts to so institute a bill of interpleader and the court denies or dismisses such bill, then the Escrow Agent shall have the right to refuse to comply with any

4


demands made upon it and to refuse to take any other action hereunder, so long as such controversy shall continue or such doubt exists.
(c)    The duties of the Escrow Agent are only those which are specifically provided in this Agreement, and the Escrow Agent is not required to institute legal proceedings of any kind. The Escrow Agent is not required to defend any legal proceedings unless requested to do so by the parties and then only if the parties agree to indemnify the Escrow Agent to its satisfaction. The Escrow Agent is not liable for any action it may take or fail to take as escrow agent when its conduct is in good faith and in the exercise of its own best judgment or upon the advice of its legal counsel.
(d)    The Escrow Agent shall be protected in acting upon any written notice, request, demand, waiver, consent, certificate, receipt, authorization, power of attorney, demand, letter, judgment, other paper or document which the Escrow Agent believes in good faith to be genuine.
(e)    In case of the merger or consolidation of the Escrow Agent hereunder, the resultant corporation shall be Escrow Agent without notice to any party. Seller and Buyer may, at any time, mutually designate in writing another person or corporation as a successor Escrow Agent. The Escrow Agent, upon receipt of such designation of such successor signed by Seller and Buyer, shall promptly deliver to such successor the Escrowed Documents of Title, and thereafter such successor shall be bound by all of the covenants of the Escrow Agent contained herein.
(f)     The Escrow Agent shall have no responsibility for the genuineness or the validity of any document deposited with it or for the identity or legal capacity of any party involved, or for the sufficiency of any agency or for the genuineness of signatures to any papers or documents, or for any delay in or under this Agreement due to any cause beyond its control, and it shall be fully protected in acting in accordance with any written instructions given to it hereunder and believed by it to have been signed by the proper parties.
(g)    The Escrow Agent shall not be liable in the event it shall be prevented from delivering any of the Escrowed Documents of Title or any check from Buyer by operation of law or order of a court of competent jurisdiction.
(h)    The Escrow Agent shall not withhold performance under this Agreement, unless restrained by order of court or served with some legal proceeding having a similar effect, and in so doing, the Escrow Agent shall not become liable to the undersigned, or to any other person, for its failure or refusal to comply with conflicting or adverse claims or demands.
(i)    In the event of a dispute between the parties, an ambiguity in the provisions hereof or uncertainty on the part of the Escrow Agent as to how to proceed with the terms thereof, such that the Escrow Agent, in its sole and absolute judgment, deems it necessary for its protection to do so, the Escrow Agent may: (1) refrain from taking any action other than to safely keep the Escrowed Documents of Title deposited with it until it shall have received joint written instructions

5


from the parties hereto; or (2) deposit the Escrowed Documents of Title with a court of competent jurisdiction and thereupon have no further duties or responsibilities in connection therewith.
(j)    The Escrow Agent may resign at any time by delivering written notice at least thirty (30) days before the date upon which such resignation is to become effective to the parties hereto, who hereby agree to designate, by a written instrument delivered to the Escrow Agent together with the acceptance of such successor on or before such effective date, a successor Escrow Agent. After the effective date of such resignation, the Escrow Agent shall be under no further obligation to perform any of the duties of Escrow Agent under the terms of this Agreement other than to deliver the Escrowed Documents of Title and any check from Buyer previously delivered to it to a properly designated successor Escrow Agent or to deal with such Escrowed Documents of Title and check as provided in paragraph (i) of this Section 9. Any successor Escrow Agent shall have all of the duties, powers, rights and immunities conferred upon the Escrow Agent hereby. Any successor Escrow Agent may accept as complete and correct and may rely upon any account made by any prior Escrow Agent and shall not be subject to any liability or responsibility with respect to the prior administration by any prior Escrow Agent.
SECTION 10. TERM
This Agreement, unless sooner terminated pursuant to Section 7 hereof or by the exercise of the option herein granted, shall terminate twenty-one (21) years after the death of the last survivor of the issue living on the date hereof of Ronald J. Larson and the issue living on the date hereof of Antone J. Rude, at which time the Escrow Agent shall thereupon deliver the Escrowed Documents of Title to Seller.
SECTION 11. EFFECT OF EXERCISE OF OPTION
The exercise by Buyer of the option herein shall have no effect on any claims or controversies with respect to the Coal Sales Agreement except as provided herein.
SECTION 12. NOTIFICATION
Except as otherwise expressly stated in this Agreement, any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or by express delivery service or by United States certified mail, return receipt requested, postage prepaid and addressed to the appropriate party as follows:

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(a)
To Seller:
 
The Falkirk Mining Company
 
 
 
PO Box 1087
 
 
 
Underwood, North Dakota 58576-1087
 
 
 
Attention: President
 
 
 
 
with a copy to:
 
The North American Coal Corporation
 
 
 
Signature Place II
 
 
 
14785 Preston Road
 
 
 
Suite 1100
 
 
 
Dallas, Texas 75240-7891
 
 
 
Attent ion: President and Chief
Executive Officer
(b)
To Seller:
 
Cooperative Power Association
 
 
 
14615 Lone Oak Road
 
 
 
Eden Prairie, Minnesota 55344-2287
 
 
 
Attention: General Manager
 
 
 
 
with a copy to:
 
United Power Association
 
 
 
17845 East Highway 10
 
 
 
P.O. Box 800
 
 
 
Elk River, Minnesota 55330-0800
 
 
 
Attention: Executive Vice President and General Manager
(c)
To Escrow Agent:
 
The Bank of North Dakota
 
 
 
700 East Main Street
 
 
 
P.O. Box 5509
 
 
 
Bismarck, North Dakota 58502-5509
 
 
 
Attention: Manager, Trust Department
(d)
To such other address or addresses as the parties may from time to time designate in writing.
SECTION 13. COMMITMENT OF BUYER
The commitment of each of the companies constituting Buyer is several, and not joint, and the obligation and liability of each is limited to the following percentages: Cooperative Power Association fifty-six percent (56%) and United Power Association forty-four percent (44%).

7


IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first above written.
Attest:
 
 
THE FALKIRK MINING COMPANY
 
 
 
 
/s/ Thomas A. Koza
 
By:
/s/ Dan W. Swetich
Secretary
 
 
Dan W. Swetich
 
 
 
Its President
Attest:
 
 
COOPERATIVE POWER ASSOCIATION
 
 
 
 
 
 
By:
/s/ Ronald J. Larson
Secretary
 
 
Ronald J. Larson
 
 
 
Its Acting General Manager
Attest:
 
 
UNITED POWER ASSOCIATION
 
 
 
 
 
 
By:
/s/ Antone J. Rude
Secretary
 
 
Antone J. Rude
 
 
 
Its Executive Vice President
 
 
 
and General Manager
Attest:
 
 
THE BANK OF NORTH DAKOTA
 
 
 
 
/s/ La Donna Laingang
 
By:
/s/ Nancy Glass
Secretary
 
 
Nancy Glass
 
 
 
Its Manager, Trust Department
Note: Copies of the exhibits can be obtained through the Bismarck Land Department or Corporate Records (Dan Mitchell - Dallas).

8

Exhibit 10.21

CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.  PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED HAVE BEEN MARKED WITH THREE ASTERISKS [***] AND A FOOTNOTE INDICATING “CONFIDENTIAL TREATMENT REQUESTED”.  MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
THIRD RESTATEMENT OF
LIGNITE MINING AGREEMENT

BETWEEN

SOUTHWESTERN ELECTRIC POWER COMPANY

AND

THE SABINE MINING COMPANY


Effective as of January 1, 2008



NOTICE:      THIS CONTRACT IS SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION ACT .



CONTENTS
 
Description
Page
ARTICLE I.
Definitions
 
 
 
ARTICLE II.
Term
 
 
 
ARTICLE III.
Scope of Engagement

 
 
ARTICLE IV.
Development and Operation of the Mine
 
 
 
ARTICLE V.
Quantity and Scheduling
 
 
 
ARTICLE VI
Delivery
 

 
ARTICLE VII.
Quality and Recovery
 

 
ARTICLE VIII.
Loan and Lease Obligations
 

 
ARTICLE IX.
Compensation
 
 
 
ARTICLE X.
Sampling and Analysis; Weights
 

 
ARTICLE XI.
Mine Closing Costs
 
 
 
ARTICLE XII.
Billing and Accounts
 
 
 
ARTICLE XIII.
Reports and Audit
 
 
 
ARTICLE XIV.
Force Majeure
 

 
ARTICLE XV.
Conduct of Operations
 

 
ARTICLE XVI.
Insurance
 
 
 
ARTICLE XVII.
Relationship of the Parties
 
 
 
ARTICLE XVIII
Arbitration
 
 
 
ARTICLE XIX.
SABINE Default; Remedy
 
 
 
ARTICLE XX.
Termination of Relationship



CONTENTS CONTINUED

 
Description
Page
ARTICLE XXI.
Notices and Other Communications;
 
 
 
ARTICLE XXII.
Right of Inspection
 
 
 
ARTICLE XXIII.
Limitations of SABINE Functions
 
 
 
ARTICLE XXIV.
Assignment
 
 
 
ARTICLE XXV.
Interpretation
 
 
 
ARTICLE XXVI.
Severability
 
 
 
ARTICLE XXVII.
Entire Agreement
 
 
 
ARTICLE XXVIII.
Amendments
 
 
 
ARTICLE XXIX.
Counterparts
 
 
 
ARTICLE XXX.
Waiver of Remedies
 
 
 
ARTICLE XXXI
Representations, Warranties and
Covenants
 
 
 
ARTICLE XXXII.
Short Form Supplement
 
 
 
ARTICLE XXXIII.
Equal Employment Opportunity
 
 
 
 
Signature Page
 
 
 
 
Supplement A- Certification for
Employment Opportunities Programs for Minorities and Veterans
 


ii


CONTENTS CONTINUED

EXHIBITS:

Exhibit "A"
 
Plat of South Hallsville No. 1 Reserves, South Marshall Reserves, Rusk Reserves and Norit Mine Area
 
 
 
Exhibit "B"
 
Management Fee Escalation Example
 
 
 
Exhibit "C"
 
Post-Production Period Management Fee Schedule
 
 
 
Exhibit "D"
 
General and Administrative Costs Adjustment Examples
 
 
 
Exhibit "E"
 
Invoice Calculation Procedure for Lignite Delivered by SABINE for Use at SWEPCO’s Plant
 
 
 
Exhibit “F”
 
Post-Production Period General and Administrative Costs Schedule
 
 
 
Exhibit “G”
 
Example Calculation of Termination Fee


iii


THIRD RESTATEMENT OF
LIGNITE MINING AGREEMENT


NOTICE: THIS CONTRACT IS SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION ACT


THIS AGREEMENT is made and entered into as of January 1, 2008 by and between SOUTHWESTERN ELECTRIC POWER COMPANY, a Delaware corporation (hereinafter referred to as "SWEPCO"), and THE SABINE MINING COMPANY, a Nevada corporation (hereinafter referred to as "SABINE"), a wholly-owned subsidiary of The North American Coal Corporation, a Delaware corporation, SABINE being incorporated for the sole and single purpose of performing the services, functions, duties and obligations stated herein to be performed by SABINE.
W I T N E S S E T H :

WHEREAS, SWEPCO operates and has an ownership interest in a lignite-fired electric generating station called Henry W. Pirkey Unit No. 1 (hereinafter referred to as "SWEPCO's Plant") near Hallsville, Texas, having an approximate net generating capacity of 650 megawatts; and
WHEREAS, SWEPCO owns or controls (by lease, fee ownership or otherwise) certain lignite reserves located near SWEPCO's Plant, which may (at SWEPCO's election) be all or part of the source of the lignite supply for SWEPCO's Plant or which may be utilized for any other purposes, and lignite removed therefrom may be used at any other locations desired by SWEPCO; and

1


WHEREAS, SWEPCO and SABINE are parties to a Lignite Mining Agreement dated as of January 1, 1981, as amended (the "Lignite Mining Agreement"); and
WHEREAS, pursuant to the Lignite Mining Agreement, SWEPCO engaged SABINE to design, develop, construct and operate in the South Hallsville No. 1 Reserves (as hereinafter defined) a lignite mine having a productive capacity sufficient to supply the lignite requested by SWEPCO within the quantity and quality limits provided for in that agreement; and
WHEREAS, SWEPCO conducted its evaluation of the various future fuel options for SWEPCO’s Plant (the "Pirkey Fuel Study"), which options included the use of sub-bituminous coal mined and delivered to SWEPCO’s Plant from the Powder River Basin Area of Wyoming, the continued mining of the South Hallsville No. 1 Reserves pursuant to the Lignite Mining Agreement, and the proposal of SABINE (the "Proposal") to modify the Lignite Mining Agreement to include within the lignite reserves upon which SABINE is authorized to conduct mining operations certain other lignite reserves controlled by SWEPCO but not covered by the Lignite Mining Agreement (the "South Marshall Reserves", as hereinafter defined); and
WHEREAS, SWEPCO concluded pursuant to the Pirkey Fuel Study that an amendment to and restatement of the Lignite Mining Agreement which authorizes SABINE to conduct lignite surface mining operations in the South Marshall Reserves pursuant to the Proposal currently is the most economical fuel option for SWEPCO’s Plant; and
WHEREAS, the parties by the Restatement of Lignite Mining Agreement dated as of January 1, 1996 (the “RLMA”) made certain amendments in the Lignite Mining Agreement so as to authorize SABINE to design, develop, construct and operate facilities to mine lignite in the South Marshall Reserves in accordance with the Proposal and the Pirkey Fuel Study and in a manner which permits

2


an orderly and economic cessation of the mining operations in the South Hallsville No. 1 Reserves; and
WHEREAS, the parties entered into amendments to the RLMA dated as of October 1, 1998; November 1, 1999; January 6, 2000 and letter agreements dated as of March 2, 1998, and February 9, 2000, amending the RLMA; and
WHEREAS, the parties by the Second Restatement of Lignite Mining Agreement dated as of December 1, 2001 restated the Lignite Mining Agreement again to incorporate such amendments and letter agreements into a single document, to provide for invoice normalization and the addition of the Norit Mine Area, and to make certain other changes to the RLMA;
WHEREAS, the parties by this instrument desire to restate the Lignite Mining Agreement again to include within the lignite reserves upon which SABINE is authorized to conduct mining operations certain other lignite reserves controlled by SWEPCO but not covered by the Second Restatement of Lignite Mining Agreement (the "Rusk Reserves", as hereinafter defined), and to make certain other changes to the RLMA; NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements of the parties as herein set forth, the following Third Restatement of Lignite Mining Agreement hereby is adopted as an amendment and restatement of the Lignite Mining Agreement.
    

3


ARTICLE I
Definitions
For the purposes of this Agreement, the following terms shall have the following meanings:
(a)     "AAA" shall mean the American Arbitration Association.
(b)    "AAA Rules" shall mean the Commercial Arbitration Rules of the AAA, as from time to time amended and in effect.
(c)    "Affiliate of SABINE" shall mean a party or person owning fifty percent (50%) or more of the common stock of SABINE or otherwise controlling SABINE or controlled by or under common control with SABINE.
(d)    "Annual Mining Plan" shall have the meaning set forth in Article IV, Section 2 (b) .
(e)    "Agreement" shall mean this Third Restatement of Lignite Mining Agreement.
(f)    "As-delivered, as-received" shall mean the projected quality or the actual quality, as the case may be, of the mined lignite at the point of delivery to SWEPCO on an "as-received" moisture basis.
(g)    "As-received" moisture basis shall have the meaning, as applicable, set forth in ASTM Standards D2013, D3173 and D3180.
(h)    "ASTM" shall mean the American Society for Testing and Materials.
(i)    "Btu" shall mean a Standard British Thermal Unit.
(j)    "Business Day" shall mean any calendar day other than a Saturday, Sunday or other day on which banks in New York City or Texas are required or authorized to be closed.
(k)    "Cost of Production" shall have the meaning set forth in Article IX, Section 2(a).
(l)    "Deferred Development Costs" shall have the meaning set forth in Article IX, Section 1(a).
(m)    "Designated Representative" shall have the meaning set forth in Article XXI.
(n)    "Development Period" shall mean, with respect to the development of any area of the Mine, the period from the date of SWEPCO's written approval of the Deferred Development Costs with respect to such area until such date that SWEPCO shall designate.
(o)    "Emergency" shall mean a sudden and unexpected occurrence at the Mine, the nature of which requires prompt action in order to preserve or protect life or property, prevent damage, maintain production, or comply with any applicable law, rule or regulation and where there is not

4


sufficient time for SABINE to notify SWEPCO of such occurrence and obtain advance approval of such remedial or preventive action.
(p)    "Force Majeure" shall have the meaning set forth in Article XIV.
(q)    "Laboratory" shall mean the laboratory which is used by SWEPCO to analyze the lignite samples taken by SWEPCO in accordance with the provisions of Article X, Section 1.
(r)    "Life of Mine Plan" shall mean the Mining Plan covering life of mine requirements described in Article IV, Section 2(a).
(s)    "Loan and Lease Obligations" shall mean all obligations of SABINE incurred in connection with loans, leases, extensions of credit and other financial arrangements entered into by SABINE with SWEPCO's advance approval and necessary for, but not limited to, the design, development, construction, equipment, operation and maintenance of the Mine to the capacity required for producing quantities of lignite to be furnished to SWEPCO under this Agreement, whether the same shall become due and owing during the term hereof or otherwise, including fees, if any, interest, rentals, late payment penalties, indemnification payments, and all payments arising as a result of any termination, premature or otherwise, or any default under any such financial arrangements or the agreement or agreements embodying the same.
(t)     "Management Fee" shall have the meaning set forth in Article IX, Section 2 (c).
(u)     "Mine" shall mean the mine developed, constructed and operated by SABINE in SWEPCO's Reserves.
(v)    "Mining Plan" shall mean the Life of Mine Plan and/or Annual Mining Plan approved by SWEPCO as provided in Article IV of this Agreement, as revised and expanded pursuant to such Article IV .
(w)    "mmBtus" shall mean one million Btus on an "as-delivered, as-received" basis.
(x)    "North American Coal" shall mean The North American Coal Corporation (formerly called Nortex Mining Company), a Delaware corporation.
(y)    “Norit” shall mean Norit Americas, Inc., a Georgia corporation.
(z)    “Norit Mine Area” shall mean the area so delineated in Exhibit “A” .
(aa)    “Norit Tons” shall mean Tons of lignite mined by SABINE and delivered into trucks supplied by Norit, its agents or contractors, which quantity shall be no less than 225,000 TPY and no greater than 650,000 TPY.
(bb)    "Option Agreement" shall mean, collectively, that certain Option Agreement, dated as of January 15, 1981, by and among North American Coal, SWEPCO, and Texas Commerce Bank-Longview, National Association (or their respective predecessors-in-interest), as amended by the following: (1) Addendum to Option Agreement, dated as of January 15, 1981, by and among

5


North American Coal, SWEPCO, and Texas Commerce Bank-Longview, National Association (or their predecessors-in-interest), (2) Agreement, dated as of June 30, 1988, by and among North American Coal, SWEPCO, Texas Commerce Bank-Longview, National Association, SABINE, and North American Coal (or their respective predecessors-in-interest), (3) Amendment to Option Agreement, dated as of December 2, 1996, by and among North American Coal, SWEPCO, and Longview National Bank, and (4) Second Amendment to Option Agreement, dated as of ________________, by and among North American Coal, SWEPCO, and Regions Bank.
(cc)    "Pirkey Fuel Study" shall have the meaning set forth in the fifth "WHEREAS" clause of this Agreement.
(dd)    "Post-Production Management Fee" shall have the meaning set forth in Article IX, Section 3.
(ee)    "Post-Production Period" shall mean the period from the date on which the Production Period ends until the end of the term of this Agreement.
(ff)     "Production Period" shall mean the period from January 1, 1996 until the mining and delivery of lignite to SWEPCO hereunder ceases and the final Mine closing and Post-Production Period reclamation commences.
(gg)    "Proposal" shall have the meaning set forth in the fifth "WHEREAS" clause of this Agreement.
(hh)    "Recovery Period" shall mean the period(s) of time designated by SWEPCO over which the Deferred Development Costs for each Development Period are to be repaid by SWEPCO to SABINE in the Cost of Production.
(ii)    "SABINE Default" shall have the meaning set forth in Article XIX, Section 1.
(jj)    "SABINE Qualifying Force Majeure Event" shall mean each event of Force Majeure experienced by SABINE during a calendar year which has a duration greater than three (3) calendar days.
(kk)    "South Hallsville No. 1 Reserves" shall mean the lignite reserves so designated in Exhibit "A" attached hereto and made a part hereof that are located from the surface to a depth of 200 feet below the surface and are owned by, leased to, or otherwise controlled by SWEPCO and shall also mean any additional economically surface mineable lignite to such 200 foot depth which SWEPCO hereafter acquires within the South Hallsville No. 1 Reserves area delineated in Exhibit "A ." At SWEPCO’s option, the 200 foot depth limitation may be extended to a greater depth.
(ll)    "South Marshall Reserves" shall mean the lignite reserves so designated in Exhibit "A" attached hereto and made a part hereof that are located from the surface to a depth of 200 feet below the surface and are owned by, leased to, or otherwise controlled by SWEPCO, including the Norit Mine Area, and shall also mean any additional economically surface mineable lignite to such 200 foot depth which SWEPCO hereafter acquires within the South Marshall Reserves area

6


delineated in Exhibit "A ." At SWEPCO’s option, the 200 foot depth limitation may be extended to a greater depth.
(mm)    “Rusk Reserves” shall mean the lignite reserves so designated in Exhibit "A" attached hereto and made a part hereof that are located from the surface to a depth of 200 feet below the surface and are owned by, leased to, or otherwise controlled by SWEPCO and shall also mean any additional economically surface mineable lignite to such 200 foot depth which SWEPCO hereafter acquires within the Rusk Reserves the area delineated in Exhibit “A. ” At SWEPCO’s option, the 200 foot depth limitation may be extended to a greater depth.
(nn)    "SWEPCO's Reserves" shall mean collectively the South Hallsville No. 1 Reserves, the South Marshall Reserves and the Rusk Reserves.
(oo)    "Ton" shall mean a net ton of 2,000 pounds.
(pp)    "Total Compensation" shall mean the total amount paid each year during the Production Period to SABINE pursuant to Article IX, Section 2 .
(qq)    "TPY" shall mean Tons per year.
(rr)    "Uniform Rounding Practice" shall mean as follows: when the number to the right of the relevant number is four (4) or less, the relevant number shall remain unchanged. When the number to the right of the relevant number is five (5) or more, the relevant number shall be increased to the next higher number.    
ARTICLE II
Term
This Agreement shall commence on the date hereof and shall remain in effect (a) (i) until 2035 and (ii) thereafter until the Mine has been closed, the reclamation work has been completed, the permit bonds have been released, and the permit to mine has been satisfied by successful completion of all reclamation operations in accordance with the approved Mining Plan, or (b) until such earlier time that this Agreement might expire or be terminated as provided herein.
The termination or expiration of this Agreement shall not release either party from any obligations, payments or liabilities of such party that accrued during the term of this Agreement or as a result of operations under this Agreement.

7




ARTICLE III
Scope of Engagement
SWEPCO hereby engages SABINE to continue to design, develop, construct and operate the Mine in accordance with the provisions of this Agreement, and SABINE hereby accepts such engagement and undertakes to use its best efforts, best management and mining skills and best engineering and business judgments to perform its obligations under this Agreement for the compensation herein specified. SABINE shall design, develop, construct and operate the Mine as hereinafter provided and shall furnish, subject to SWEPCO's approval, all engineering, permitting, geological, operating, administrative and supervisory services and personnel necessary therefor. SABINE shall be responsible for preparing, processing, obtaining and shall use its best efforts to comply with the conditions of all permits required in connection with the operations contemplated hereby. After first obtaining SWEPCO's approval of any proposed permit application, exhibits thereto and related documents, SABINE shall process the same in the name of SABINE.    
ARTICLE IV
Development and Operation of the Mine
Section 1. General
The design, development, construction and operation of the Mine shall consist of one or more Development Periods, a Production Period and a Post-Production Period.
During each Development Period, SABINE shall design, engineer, develop and construct the Mine in SWEPCO's Reserves.

8


During the Production Period, SABINE shall operate the Mine and perform all engineering, geological, operational, administrative and other work required or requested by SWEPCO to supply lignite to SWEPCO under this Agreement.
During the Post-Production Period, SABINE shall perform all work and services required or requested by SWEPCO in connection with the final closing of the Mine and completion of final reclamation work. SWEPCO shall have the right at its election at any time during the Post-Production Period (with or without cause) to take over and conduct or complete the Post-Production work by the acquisition by SWEPCO of all the capital stock of SABINE pursuant to the Option Agreement after giving SABINE notice thereof, which notice shall be given at least 365 days in advance. During such notice period SABINE shall fully cooperate regarding the orderly transfer of operations.
SABINE shall have the right to employ consulting organizations approved by SWEPCO to provide engineering, design, environmental and other work required for SABINE to perform its obligations under this Agreement. Further, all charges of such consulting organizations not included in the Approved Annual Mining Plan must be approved in writing by SWEPCO.
Section 2. Mine Development
(a)
Life of Mine Plan .
SABINE has provided to SWEPCO in writing a mining plan covering life of Mine requirements ("Life of Mine Plan") for the design, development, construction and operation of the Mine to furnish from SWEPCO's Reserves the lignite requirements requested by SWEPCO under the provisions of Article V hereof for the period 2008 through 2035. The Life of Mine Plan is in accordance with sound engineering and design practices and applicable laws, rules and regulations and shall include, but not be limited to, production schedules, manpower and equipment requirements, estimated costs per ton and per mmBtus, time schedules for mine development, method of operation, including method of operation of any coal handling facilities, reclamation and permitting schedules, capital expenditures and operating

9


cost requirements, mine design, mine projection maps, mine progression and reserve studies, and other documentation requested by SWEPCO.
On or before October 1 of each calendar year, SABINE shall review and revise or expand, if necessary, the Life of Mine Plan based on the then current designation of annual deliveries provided by SWEPCO in the notice given pursuant to Section 3 of Article V hereof. SABINE, at a minimum, shall emphasize and set forth in specific detail in such revised Life of Mine Plan the next five (5) years of mining operations.
(b)     Annual Mining Plan .
On or before October 1 of each calendar year during the term of this Agreement, SABINE shall provide to SWEPCO in writing a mining plan covering the operation of the Mine for the next calendar year ("Annual Mining Plan"). Such Annual Mining Plan shall include, but not be limited to, the following items for activities during the following calendar year:
(i)
an estimated capital budget containing estimates of all capital expenditures and commitments;
(ii)
an estimate of all operating costs and expenses in such detail as SWEPCO may reasonably request; and
(iii)
an estimated monthly cash flow statement containing estimates of the cash requirements for the capital and operating budgets prepared pursuant to this subsection.
The Annual Mining Plan shall also include the details of an incentive compensation plan for SABINE’s employees (except for SABINE’s employees who are participants in a plan of an Affiliate of SABINE).
(c)     Approval of Annual Mining Plan .
Within sixty (60) days after receipt by SWEPCO of an Annual Mining Plan, including the annual capital budgets, SWEPCO shall give SABINE written notice of SWEPCO's approval or disapproval of such Annual Mining Plan and capital budgets. As part of any such approval, SWEPCO shall agree to contribute any item or items of, or interest in, real property and non-depreciable capital assets, and

10


SWEPCO may stipulate that it will contribute any item or items of, or interest in, depreciable capital assets provided for in such Annual Mining Plan and capital budget and thereupon, to the extent necessary or applicable, grant to SABINE sublease rights or other rights to permit SABINE to use the same as long as necessary in lieu of SABINE incurring any expense or obligation with respect thereto. If SWEPCO does not give SABINE such notice within sixty (60) days after SWEPCO's receipt thereof, SWEPCO shall be deemed to have approved such Annual Mining Plan and capital budgets. If SWEPCO disapproves an Annual Mining Plan, capital budgets or any portion(s) thereof, SWEPCO shall advise SABINE of the reasons for such disapproval, and SWEPCO and SABINE shall meet promptly and attempt in good faith to resolve their differences with respect to the Annual Mining Plan and/or capital budgets. If SWEPCO and SABINE are unable to resolve such differences within thirty (30) days after SWEPCO's disapproval, SABINE shall revise and resubmit the Annual Mining Plan and/or capital budgets as requested by SWEPCO. Under no circumstances shall SABINE acquire any interest in real property or non-depreciable capital assets without the mutual consent of the parties.
SABINE shall consult with and keep SWEPCO informed of the progress of the design, construction, development and operation of the Mine in such manner as SWEPCO may reasonably request.
In the event that any such annual review of the Annual Mining Plan and any revision, adjustments or modification thereof requested by SWEPCO should delay the final approval thereof by SWEPCO past the beginning of the next calendar year, SABINE shall have the right to continue its operations hereunder pursuant to the last approved capital budget and Annual Mining Plan extended (on a pro rata basis) into the next calendar year until the matter causing such delay has been resolved.
SWEPCO and SABINE shall meet at least quarterly (and at such other times as needed or requested by either party) to review the progress of the design, construction, development and operation of the Mine.

11


SABINE shall not make any capital expenditures unless they are generally reflected in a capital budget approved by SWEPCO as part of an Annual Mining Plan or unless otherwise specifically approved by SWEPCO; provided, however, SABINE shall have the right during any calendar year to make capital expenditures required in the event of an Emergency without advance approval by SWEPCO, provided that SABINE shall make all reasonable efforts to obtain the approval of SWEPCO prior to making any such capital expenditure and if the nature of the Emergency and the time elements involved do not allow sufficient time to obtain SWEPCO's approval of such capital expenditure before it is incurred, SABINE shall subsequently and promptly (but not later than two (2) Business Days after such occurrence) give SWEPCO written notice thereof; and further provided, however, SABINE shall have the right to exceed the amount for any specific capital expenditure (i.e., line item) in any budget approved by SWEPCO by up to five percent (5%) but not more than $100,000.00 in any calendar year without the specific approval of SWEPCO.
If SABINE requests approval to exceed an individual capital line item by more than $100,000.00, and if SWEPCO neither approves nor disapproves such request within fifteen (15) days after SWEPCO's receipt thereof, SWEPCO shall be deemed to have approved such request.
Except in the event of an Emergency, no material modification of or deviation from the approved Annual Mining Plan shall be made without the written approval of SWEPCO, which approval shall not be unreasonably withheld. Within two (2) Business Days after the occurrence of any Emergency, SABINE shall notify SWEPCO thereof giving all details including nature, extent and reason for any material modification or deviation from the approved Annual Mining Plan.


ARTICLE V
Quantity and Scheduling
Section 1. Quantity
The quantity of mmBtus of lignite to be mined and delivered to SWEPCO for use at SWEPCO’s Plant and the quantity of Norit Tons to be mined and delivered shall be the quantities

12


requested by SWEPCO in accordance with the provisions of this Agreement; provided, however, the quantity of mmBtus of lignite and the quantity of Norit Tons to be mined and delivered by SABINE shall not exceed the production capability of the Mine; and further provided, however, that when any increase in SWEPCO's mmBtus requirements or in the quantity of Norit Tons occurs which necessitates the acquisition by SABINE of additional equipment, SABINE shall not be obligated to supply any such increased requirements until such time as it is able to acquire and install such additional equipment and do all other things necessary to supply such increased requirements.
Section 2. Rate of Delivery
The delivery of lignite for use at SWEPCO’s Plant shall be made in monthly quantities which approximate the monthly utilization of lignite at SWEPCO's Plant, or as otherwise directed by SWEPCO. The delivery of Norit Tons shall be made in approximately equal monthly quantities or as otherwise directed by SWEPCO.
Section 3. Designation of Annual Deliveries
No later than August 1 of each year during the term of this Agreement, SWEPCO shall notify SABINE in writing of the quantity of mmBtus of lignite to be delivered during the subsequent calendar year for use at SWEPCO’s Plant and an estimate of the quantity requirements during each of the four (4) calendar years thereafter. No later than August 15 of each year during the term of this Agreement, SWEPCO shall notify SABINE in writing of the quantity of Norit Tons to be delivered during the subsequent calendar year and the delivery schedule therefor, which delivery schedule SWEPCO, upon written notice to SABINE, may increase or decrease by up to 5,000 Tons per month.

13


At any time and from time to time, SWEPCO shall have the right, upon written notice to SABINE, to increase or to decrease any previously issued annual nomination to the extent desired by SWEPCO, subject however, to the limitations set forth in Section 1 of this Article V .
If the total mmBtus of lignite actually delivered by SABINE to SWEPCO and Norit for use at SWEPCO’s Plant and Norit’s Plant during two (2) consecutive calendar years is less than [* * *] of the annual quantity of mmBtus designated by SWEPCO or Norit for use at SWEPCO’s Plant or Norit’s Plant for each of such two consecutive calendar years as set forth in the annual nomination in effect at the end of each such year, then the difference in the quantity delivered and [* * *] of the quantity requested for such calendar years shall be considered an "excess deficiency". If such "excess deficiency" is not caused by "Force Majeure" or is not caused by the failure of SWEPCO to accept delivery of such lignite, then in addition to any other remedies available to SWEPCO, it is agreed that SWEPCO shall receive a credit equal to the "per Ton" Management Fee in effect for such calendar years, as adjusted, multiplied by the number of Tons of such "excess deficiency", but not to exceed the total Management Fee paid or due to SABINE for such calendar years, which amount shall be credited to the Management Fee paid or due to SABINE for the next succeeding calendar year.
Section 4. Stockpiling
SABINE may establish and maintain at a location(s) agreed to by SWEPCO a run of mine lignite stockpile(s). SWEPCO shall have the right to limit, at any time, the size of the stockpile(s) by giving written notice to SABINE. SABINE shall maintain such stockpile(s) in accordance with good industry practices and shall take reasonable precautions to prevent spontaneous combustion and water accumulation in the stockpile.
* * * Confidential Treatment Requested

14




ARTICLE VI
Delivery
The lignite for use at SWEPCO’s Plant shall be delivered by SABINE to SWEPCO at the lignite dump hopper at the boundary of the Mine adjacent to SWEPCO's Plant. The Norit Tons shall be delivered to the coal storage facility or other areas in the Mine designated by SWEPCO into trucks supplied by Norit, its agents or contractors.
For truck delivery purposes, the "boundary of the Mine" shall be the horizontal plane immediately below the bottom of the truck support beams at the lignite dump hopper. SABINE shall be responsible for the maintenance of the truck support. For belt delivery purposes, the “boundary of the Mine” shall be the location along the beltline that is designated by SWEPCO.


ARTICLE VII
Quality and Recovery
(a)    The lignite to be supplied to SWEPCO and/or Norit shall be from the Mine in SWEPCO's Reserves and shall be of run-of-mine lignite quality.
SABINE shall deliver the lignite so as to be reasonably free from contamination, BUT SABINE MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE INHERENT QUALITY AND CHARACTERISTICS OF SWEPCO’S RESERVES.
Any unsatisfactory performance of such lignite caused by the inherent quality and characteristics thereof shall not excuse, alter or diminish the obligation of SWEPCO to make the payments provided for in Article XII and, so long as such lignite is mined and blended as requested by SWEPCO, shall not be an event of "Force Majeure" on the part of SWEPCO.

15


(b)    SABINE shall consult with SWEPCO from time to time in advance of stripping overburden as to the locations in which such stripping will occur. SABINE shall drill and analyze samples of lignite at such locations to project "as-delivered, as-received" lignite quality and recovery in advance of stripping overburden and shall provide the results of such drilling and analyses to SWEPCO. SWEPCO shall have the right to review, inspect and approve in advance SABINE's drilling and testing methods and analytical procedures and data provided thereby. On or before October 1 of each year, SABINE shall furnish SWEPCO with a statement of the expected “as delivered-as received” lignite quality, recovery parameters, and other characteristics of the lignite which SABINE plans to mine during the following calendar year.
(c)    Upon request by SWEPCO, SABINE shall analyze the exposed lignite from which the overburden has been stripped in advance of loading and shall furnish such analyses to SWEPCO. SABINE shall blend the exposed lignite so as to deliver, within the inherent characteristics of the exposed lignite, lignite of the characteristics desired by SWEPCO.
(d)     The parties hereto recognize that the quality and recovery of the lignite delivered to SWEPCO and/or Norit hereunder, as opposed to the quality of the lignite "in-place," is directly related to good mine management practices by SABINE. SABINE shall keep SWEPCO fully informed of any significant changes in the lignite quality after mining thereof and its recovery.


ARTICLE VIII
Loan and Lease Obligations
It will be necessary for SABINE from time to time during the term of this Agreement to incur Loan and Lease Obligations. SWEPCO recognizes that such Loan and Lease Obligations will also be required for reasonable replacements at the end of the useful life of certain of SABINE's equipment, for additions to certain of SABINE's equipment, for meeting payment obligations

16


incurred by SABINE in connection with Loan and Lease Obligations and for maintaining working capital necessary for operating the Mine in the most cost effective manner.
SWEPCO shall have the right to direct SABINE in incurring all such Loan and Lease Obligations; provided, however, that SABINE shall not be required to incur any Loan or Lease Obligation directed by SWEPCO if the terms thereof are less favorable to SABINE than the terms of a Loan or Lease Obligation which, for the same term, could be obtained by SABINE without such direction by SWEPCO.
SWEPCO shall have the right to approve or disapprove any agreement in respect of any Loan or Lease Obligation which SABINE proposes to incur to carry out its obligations under this Agreement. SABINE shall submit to SWEPCO a summary of the terms and conditions of any such proposed Loan or Lease Obligation. Within thirty (30) days after receipt by SWEPCO of written notice from SABINE requesting approval or disapproval of such terms and conditions, SWEPCO shall give SABINE written notice of SWEPCO's approval or disapproval thereof. If SWEPCO fails to give such notice within such thirty (30) day period, SWEPCO shall be deemed to have disapproved the same. Upon disapproval by SWEPCO, SABINE shall promptly renegotiate and resubmit to SWEPCO any new or alternate proposed arrangement involving a Loan or Lease Obligation, and the same procedure mentioned above shall be followed. No such Loan or Lease Obligation shall be incurred or agreed to by SABINE without SWEPCO's advance approval.
In connection with any financing pursuant to this Article VIII , SABINE, subject to SWEPCO's prior written approval, which approval shall not be unreasonably withheld, may create a security interest and/or grant a deed of trust or other appropriate lien, or any right of participation in respect thereof, on any or all assets of SABINE, including without limitation all or any portion

17


of its rights hereunder, in favor of any lender or lessor to SABINE and/or any guarantor of any Loan or Lease Obligation of SABINE.
SABINE shall have the right to pay dividends on its stock only from earned surplus. For this purpose, "earned surplus" shall mean without duplication net income for the most recent fiscal period and/or retained income since incorporation less dividends previously paid, as determined in accordance with generally accepted accounting principles and as certified to annually by SABINE's independent public accountants.
ARTICLE IX
Compensation
Section 1. Compensation During Development Period
(a)
Deferred Development Costs .
During each Development Period, SABINE shall accrue all costs and expenses authorized by SWEPCO and associated with the design, development, construction, equipping and operation of any area of the Mine designated by SWEPCO (hereinafter referred to as "Deferred Development Costs"). It is understood and agreed by the parties hereto that the Deferred Development Costs with respect to any mining area of the Mine shall be repaid in full by SWEPCO during the applicable Recovery Period by the inclusion of such Deferred Development Costs in the Cost of Production (as hereinafter defined in Subsection 2(a) of this Article IX ) for such Recovery Period.
(b)     Compensation Under Certain Circumstances
If at any time during the term of this Agreement SABINE has not obtained sufficient financing to repay all Loan and Lease Obligations theretofore incurred by SABINE in connection with the development of the Mine, SWEPCO shall pay SABINE amounts from time to time sufficient to permit SABINE to satisfy Loan and Lease Obligations in accordance with their terms.

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The provisions of this Subsection 1(b) shall be subject to the provisions of Section 2 of Article XII.
Section 2. Compensation During the Production Period
During the Production Period, SWEPCO shall pay SABINE in accordance with the provisions of Article XII for the services provided by SABINE under this Agreement a sum which equals the Cost of Production plus Loan and Lease Obligations plus a Management Fee (as determined hereinafter under Subsections (c) and (d) of this Section 2 ):
(a)     Cost of Production
For the purpose of this Agreement and except as otherwise expressly stated, "Cost of Production" shall mean the costs actually incurred by SABINE in performing its obligations under this Agreement, but shall exclude costs or expenses which have not been authorized pursuant to this Agreement or which have been incurred over the prior disapproval by SWEPCO thereof. Such costs shall be determined and allocated on an accrual basis in accordance with generally accepted accounting principles (except as otherwise expressly stated herein), consistently applied, and shall include but not be limited to the following:
(i)
All production, maintenance, delivery and accounting costs including without limitation the following types of costs:
(aa)
Labor costs, which include wages and the costs of an incentive compensation plan and all related payroll taxes, benefits and fringes, including welfare plans, group insurance, vacations and other comparable benefits of corporate officers and employees of SABINE located at the Mine.
(bb)
Expense of payroll preparation, general accounting and billing performed at the Mine.
(cc)
Consumable materials and supplies.
(dd)
Consumable tools.
(ee)
Machinery and equipment not capitalized or leased.
(ff)
Rental of machinery and equipment, but not including any payments under leases included under Section 2(b) of this Article IX .

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(gg)
Electric power costs.
(hh)
Reasonable and necessary services rendered by persons other than Affiliates of SABINE.
(ii)
Insurance, including workers' compensation as required by law, liability, property damage, and such other insurance as requested by SWEPCO and in amounts and with insurance carriers (or self insurance) approved by SWEPCO, as provided in Article XVI.
(jj)
Taxes, but not including income taxes imposed by any governmental unit, except for income taxes incurred as a result of reimbursement of governmental penalties and fines, and reclamation costs which are not deductible under the United States Internal Revenue Code.
(kk)
Cost of reclamation during the Production Period, including labor and supplies, as required to comply with the lignite leases and all applicable Federal, state, and local governmental laws, rules and regulations or at such higher level of reclamation as may be requested by SWEPCO.
(ll)
Costs incurred by SABINE relating to this Agreement in connection with or as a result of the enactment, modification, interpretation, repeal or enforcement of all applicable Federal, state and local governmental laws, rules and regulations.
(mm)
Usual membership fees of the National Mining Association (allocated to SABINE pro rata based on combined annual coal production of SABINE and its Affiliates) and a reasonable number of other professional, service and civic organization memberships paid for by SABINE which are commonly maintained by mining companies similarly situated in East Texas. Also, any contributions and other memberships that are approved in advance by SWEPCO.
(nn)
Deferred Development Costs, which shall be amortized ratably as provided in Section 1(a) of this Article IX .
(oo)
Cost of reclamation and similar performance bonds as required by any governmental entity obtained by SABINE in connection with the performance of its obligations hereunder.
(pp)
Telephone and office costs, travel expenses and moving expenses of exempt employees of SABINE, provided that no moving expense will be allowed for any non-exempt employee of SABINE without SWEPCO's prior approval.
There shall be credited to costs under this Subsection 2(a) any investment tax credit or other tax credits based upon new investment incurred and taken by SABINE and any net receipts by SABINE from rental of, or other net income derived by SABINE, from real or personal property. There also shall be credited to costs under this Subsection (a) any gains and shall be so charged any losses on the disposal of any property owned by SABINE related to the Mine or SWEPCO's Reserves, any refunds or rebates

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related to the insurance program and any bond adjustments, any refunds or rebates received by SABINE from manufacturers or vendors and any interest or dividends received by SABINE on its investments, except investments of the Management Fee (as determined hereinafter) and undistributed net earnings.
If any of the foregoing includes costs incurred by an Affiliate of SABINE and charged to SABINE and except as otherwise expressly provided, they shall be included only at the cost to such Affiliate without addition for any overhead, loading, intercompany profit or service charge. SABINE, in determining costs, shall give SWEPCO the proportionate benefit of volume purchases participated in by SABINE and Affiliates of SABINE.
(ii)
Real property costs, if any, but none can be incurred without advance written approval by SWEPCO.
(iii)
General and Administrative Costs.
(a)
The following amount (which shall be subject to adjustment as set forth herein) shall be added to the Cost of Production for general and administrative costs each year during the Production Period, [* * *] for calendar year 2008 and subsequent years. SABINE shall invoice SWEPCO for such amounts (as adjusted) each calendar year in equal, consecutive, monthly installments.
(b)
General and administrative costs which are to be covered by such amount of [* * *] (and which shall not otherwise be included in the Cost of Production), are salaries and related expenses such as payroll taxes, pensions and workers' compensation, together with travel, telephone, postage and office rent and office maintenance expense, of officers of SABINE not located at the Mine and of officers and employees of Affiliates of SABINE who perform, and for the time and to the extent they perform, functions relating to SABINE or this Agreement.
* * * Confidential Treatment Requested


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Without limiting the generality of the foregoing, the expenses of executive office support, administrative support, operations management support, business development support and legal support (excluding outside litigation services and other outside legal services described below in clause (3) of Section 2(a)(iii)(c)) , finance and accounting support, management information systems support, technical services support, human resources support and benefits support rendered by employees of Affiliates of SABINE shall be included in such [* * *].
(c)
Notwithstanding anything to the contrary contained in Subsection 2(a)(iii)(b) , general and administrative costs which are not to be covered by such amount of [* * *] and which otherwise shall be included in the Cost of Production are:
(1)
corporate franchise taxes for SABINE paid to the State of Texas, but excluding corporate franchise taxes which SABINE is required to pay to Nevada, its state of incorporation;
(2)
outside audit expense of SABINE;
(3)
litigation and other legal expenses incurred through the use of attorneys who are not employees of SABINE or Affiliates of SABINE;
(4)
actual costs of new reserve mine planning, mine permitting and special studies; and
(5)
actual costs of geologic support on drilling and modeling provided by employees of Affiliates of SABINE.
Any costs associated with work provided by employees of Affiliates of SABINE that are not included in such amount of [* * *] must be approved by SWEPCO in writing.
(d)
Effective for the calendar year 2008 and subsequent years, the amount of [* * *] for general and administrative costs for each such calendar year shall be adjusted in the same percentage by which
* * * Confidential Treatment Requested

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the average of the [* * *] on the base 2000=100, published by the Bureau of Economic Analysis of the U.S. Department of Commerce, for the four calendar quarters consisting of (x) the fourth calendar quarter for the year immediately preceding the calendar year under consideration and (y) the first three calendar quarters of the year under consideration is greater or less than 103.646. If any adjustment of the amount of [* * *] for general and administrative costs made pursuant to this subsection is based upon an index figure which is subsequently revised, there shall be no further adjustment of such amount on the basis of such revision. All adjustments of the amount of [* * *] for general and administrative costs for a given year shall be made prior to the end of March of the year following the year under consideration, and any additional payment to be made by SWEPCO or refund to be made by SABINE shall be made accordingly. An example calculation of such year-end adjustment to the amount of [* * *] for general and administrative costs is set forth in Exhibit “D”, which is attached hereto and made part hereof.
(e)
If at any time during the term of this Agreement it is reasonably believed by either party that neither the [* * *] Index nor any index substituted therefor in accordance with the following provisions reflects the true change in purchasing power of the United States dollar, then upon the written request of either party SWEPCO and SABINE shall undertake good faith negotiations to determine and agree upon a substituted index or method whereby such change in purchasing power of the United States dollar can be determined. When and if such substituted index or method has been determined and mutually agreed upon the same shall be
* * * Confidential Treatment Requested


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substituted and put into effect commencing at a time mutually agreed upon. If the [* * *] Index or any substitute index is changed in the future to use some base other than the base of 2000=100, for the purposes hereof, the [* * *] Index or any substitute index, as the case may be, shall be adjusted so as to be in correct relationship to the base of 2000=100, or some other alternative base which is mutually agreeable to SWEPCO and SABINE. If publication of the [* * *] Index or any substituted index is no longer made by any Federal agency, the index to be used as aforesaid shall be that index agreed to by the parties which after necessary adjustment, if any, provides the most reasonable substitute for said index. If within ninety (90) days the parties hereto cannot agree upon a substitute index which will accomplish the purposes of this Subsection 2(a)(iii) the matter shall be resolved by arbitration pursuant to Article XVIII hereof.
(iv)
Capital Related Costs. Depreciation and/or amortization to which SABINE is entitled, the rates of which shall be determined by SABINE from time to time. No depreciation or amortization shall be included in the Cost of Production with respect to items of property for which a lessor under a lease has taken depreciation or amortization. The rates of such depreciation and/or amortization (unless SWEPCO approves otherwise), for purposes of this paragraph, shall be limited to a straight-line basis over the mutually agreeable anticipated useful service life of the assets. SWEPCO shall be entitled from time to time to the correction of anticipated useful service lives to conform to experience. SABINE shall claim all investment tax credits or similar subsequent tax benefits at the times and in the amounts that will produce the greatest tax savings to SABINE and resulting credits to SWEPCO. Net gains or losses on the disposition of capital assets shall be credited or charged, as the case may be, to the Cost of Production.
* * * Confidential Treatment Requested

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Transactions covered by this Agreement involving capital assets between SABINE and/or any one or more of the Affiliates of SABINE, including contributions to the capital of SABINE, shall be subject to SWEPCO's prior written approval, and such review and approval of any such intercompany transfers shall be based upon needs and financial justification and shall be reflected in SABINE's accounts at cost to the Affiliates of the assets involved, less accrued depreciation, as shown by the accounts of the transferring company. Transactions involving the disposition or transfer of capital assets shall be subject to SWEPCO’s prior written approval.
(v)
Depletion. For any cost depletion from which SABINE obtains a tax benefit, tax credit or other benefit as a result of its performance under this Agreement, such benefit or credit shall be credited, at the statutory federal income tax rate applicable to SABINE, to costs under this Subsection 2(a) and SWEPCO shall receive the benefit therefor.
(b)     Loan and Lease Obligations .
For purposes of this Section 2 , Loan and Lease Obligations shall mean an amount equal to all amounts payable for such period by SABINE in respect of Loan and Lease Obligations but shall not include any amounts payable by SABINE in respect of the repayment of the principal amount of any indebtedness of SABINE for money borrowed except to the extent that SABINE does not at any time have available to it sufficient funds and credit facilities to permit it to meet its obligations in respect of such principal repayments. Any amounts so paid by SWEPCO in respect of principal shall be treated as advance payments by SWEPCO and credited by SABINE against the next succeeding payment obligation of SWEPCO under Section 2(a) of this Article IX .
(c)     Management Fee .
Effective for the calendar year 2008 and subsequent calendar years during the Production Period, SWEPCO shall pay SABINE a base management fee (“Management Fee”) per Ton of lignite delivered to SWEPCO during each calendar year which shall be:

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(i)
[* * *] per Ton of lignite on all Norit Tons,
(ii)
[* * *] per Ton of lignite on all Tons for use at SWEPCO’s Plant up to and including [* * *] Tons per year, and
(iii)
[* * *] per Ton of lignite on all Tons for use at SWEPCO’s Plant over [* * *] Tons per year,
which base Management Fee shall be subject to further adjustment as hereinafter provided in Subsection 2(d) of this Article IX . SABINE shall invoice SWEPCO and SWEPCO shall pay SABINE on a monthly basis for such Management Fee.
(d)     Adjustment of Management Fee .
(i) Effective for the calendar year 2008 and subsequent calendar years, the Management Fee (including the maximum and minimum amounts) for each such calendar year shall be adjusted in the same percentage by which the average of the [* * *] Index on the base 2000 = 100, published by the Bureau of Economic Analysis of the U.S. Department of Commerce, for the four calendar quarters consisting of (x) the fourth calendar quarter for the year immediately preceding the calendar year under consideration and (y) the first three calendar quarters of the year under consideration is greater or less than 103.646. If any adjustment of the Management Fee made pursuant to this subsection is based upon an index figure which is subsequently revised, there shall be no further adjustment of the Management Fee on the basis of the final published figure for such index. All adjustments of the Management Fee for a given year shall be made prior to the end of March of the year following the year under
consideration, and any additional payment to be made by SWEPCO or refund to be made by SABINE shall be made accordingly. An example calculation of such year-end adjustment to Management Fee is set forth in Exhibit “B,” which is attached hereto and made part hereof.
* * * Confidential Treatment Requested


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(ii)     Further Modification of Management Fee .
If at any time during the term of this Agreement it is reasonably believed by either party that neither the [* * *] Index nor any index substituted therefor in accordance with the following provisions reflects the true change in purchasing power of the United States dollar, then upon the written request of either party SWEPCO and SABINE shall undertake good faith negotiations to determine and agree upon a substituted index or method whereby such change in purchasing power of the United States dollar can be determined. When and if such substituted index or method has been determined and mutually agreed upon the same shall be substituted and put into effect commencing at a time mutually agreed upon. In the event the [* * *] Index or any substitute index is changed in the future to use some base other than the base of 2000=100, for the purposes hereof, the [* * *] Index or any substitute index, as the case may be, shall be adjusted so as to be in correct relationship to the base of 2000=100, or some other alternative base which is mutually agreeable to SWEPCO and SABINE. If publication of the [* * *] Index or any substituted index is no longer made by any Federal agency, the index to be used as aforesaid shall be that index agreed to by the parties which after necessary adjustment, if any, provides the most reasonable substitute for said index. If within ninety (90) days the parties hereto cannot agree upon a substitute index which will accomplish the purposes of this Subsection 2(d)(iii) the matter shall be resolved by arbitration pursuant to Article XVIII hereof.
Section 3. Compensation for Mine Closing Operations
During the continuation of SABINE's operations hereunder during the Post Production Period as provided for in the fourth paragraph of Section 1 of Article IV , SWEPCO shall compensate SABINE, which compensation shall include payment of the mine closing costs provided for in Article XI , on the same basis as provided for in Section 2 of this Article IX , except that
(a)
in lieu of the Management Fee provided for in Section 2(c) , SWEPCO shall pay
* * * Confidential Treatment Requested


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(b)
SABINE as additional compensation a Post-Production Management Fee in accordance with the schedule set forth in Exhibit "C" which is attached hereto and made a part hereof; and
(c)
in lieu of the general and administrative costs provided for in Section 2(a)(iii) , SWEPCO shall pay SABINE for general and administrative costs in accordance with the Post-Production General and Administrative Costs Schedule set forth in Exhibit “F” which is attached hereto and made a part hereof.
Such payments described in clauses (a) and (b) above shall be made on a monthly basis. The Post-Production Management Fee set forth in Exhibit "C" shall be adjusted in the same manner in which the Management Fee is adjusted pursuant to Subsection 2(d) of Article IX of this Agreement, and the general and administrative costs set forth in Exhibit “F” shall be adjusted in the same manner in which the general and administrative costs are adjusted pursuant to Section 2(a)(iii)(d) of Article IX of this Agreement.
 
ARTICLE X
Sampling and Analysis; Weights
Section 1. Sampling and Analysis
The quality of lignite delivered to SWEPCO from the Mine for use at SWEPCO’s Plant shall be determined by analyses of samples taken at a point or points mutually agreed upon by SWEPCO and SABINE. Sampling and analyses shall be performed by methods which meet the standards of the ASTM, or by such other methods as may be mutually agreed upon between SWEPCO and SABINE. SWEPCO shall cause the samples to be transported to the Laboratory. Each sample shall be processed, split into three (3) equal parts and placed in suitable airtight containers by SWEPCO or the Laboratory. Part one of each sample shall be analyzed by the Laboratory, and the cost of such analysis shall be included in the Cost of Production. Part two of each sample shall be properly identified and stored in the Laboratory for a period of not less than

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sixty (60) days for either party to analyze at its own expense if it so desires. Part three of each sample shall be properly identified and stored by SWEPCO for a period of not less than sixty (60) days. The cost of analysis of part three of the sample, if required, shall be borne equally by SWEPCO and SABINE. For deliveries for which a sample is not available or for which a sample is agreed by SWEPCO and SABINE to be incorrect, the weighted average of the immediately preceding three (3) days sample analyses which are available shall be utilized.
The results of the analyses performed by the Laboratory on part one of the samples shall be binding on the parties and shall be deemed to represent the quality and characteristics of the lignite delivered hereunder unless one party notifies the other of a dispute concerning such analysis within the sixty (60) day period specified in the preceding paragraph. If the analysis of part one is disputed and the analyses of parts one and two of the sample differ by more than the reproducibility values specified by ASTM or any other mutually agreeable tolerances, then part three of such sample shall be analyzed by a commercial testing laboratory mutually chosen and using ASTM standards or mutually accepted procedures. When all three parts of a sample are analyzed, the average of the two closest sample results will be used to represent the quality of the lignite delivered on the day such samples were taken; provided, however, that if the two closest sample results differ by more than the reproducibility values specified by ASTM or any other mutually agreeable tolerances, then the weighted average of the immediately preceding three (3) days sample analyses which are available shall be deemed to be the quality and characteristics of the daily delivery of lignite under consideration.
As soon as practicable after the end of each month, SABINE shall furnish SWEPCO with a summary of the analyses performed by the Laboratory during the preceding month on part one of each sample. In addition, if either party elects to analyze part two of a sample, that party shall

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deliver the results of such analyses to the other party within seven (7) Business Days of receiving such results.
SABINE and SWEPCO each shall have the right to request a bias test of the sampling system if it questions the accuracy of said system. The party requesting such bias test shall pay all costs of any such challenge bias test unless the sampling system is found to be in error, in which case SWEPCO and SABINE each shall pay fifty percent (50%) of the costs of such test. SABINE shall have the right to have a representative present at any and all times to observe the sampling. If the sampling system is replaced or substantially modified, then SWEPCO shall perform, at its sole cost, a bias test of the sampling system as so replaced, altered or modified.
Section 2. Weighing
The weight of the lignite delivered to SWEPCO from the Mine for use at SWEPCO’s Plant shall be determined on scales properly installed on conveyor belts leading from SWEPCO's lignite dumping facilities or by other means mutually agreed upon by SWEPCO and SABINE. SWEPCO shall consult with SABINE as to design, selection and installation of such scale(s), and the parties shall mutually agree as to such matters. The scales shall be maintained and calibrated in accordance with the manufacturer’s recommended standards. SWEPCO shall calibrate such scale(s) on a regular basis during the Production Period (not less than monthly) and maintain such scale(s) within design tolerance. SABINE shall have the right to have a representative present at any and all times to observe the testing and calibration of the scale(s).
The weight of the Norit Tons shall be determined on scales furnished and maintained by Norit.
The weights thus determined shall be accepted as the quantity of lignite delivered under this Agreement and for which invoices are to be rendered and payments made in accordance with Article

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XII hereof.
SABINE shall be given a record of all weight determinations made by SWEPCO and Norit. If either SWEPCO or SABINE at any time questions the accuracy of SWEPCO’s scales or the Norit scales, such party may request a prompt test and adjustment of such scales by utilizing a material weight test, the procedures for which the parties shall mutually agree, at the requesting party’s expense. If such test reveals error in weight in excess of the manufacturer’s specified tolerances, the scale shall be adjusted to an accurate condition, and an appropriate adjustment shall be made in the invoices and payments affected by such inaccuracy; provided, however, no such adjustment shall be for a period in excess of the lesser of (a) one-half of the period since the date that either party first questioned the accuracy of the weights and the date of the last regularly scheduled test of the scales, or (b) three (3) months.


ARTICLE XI
Mine Closing Costs
SWEPCO recognizes that Mine closing costs will be incurred by SABINE from time to time. SWEPCO shall reimburse SABINE for all such Mine closing costs, which costs shall include, but not be limited to, costs of dismantling and removal of equipment, reclamation of lands disturbed by SABINE's mining operations and activities pursuant to an approved Mining Plan, and actions taken by SABINE to prevent environmental pollution and to comply with applicable laws, rules and regulations of Federal, state and local governments and their instrumentalities. Such costs, when determined, shall be included within budgets and operating plans submitted to SWEPCO for its approval and shall be paid by SWEPCO as incurred and, when conducted during the Production Period, shall be deemed to be included within the Cost of Production in accordance with the provisions set forth herein. SWEPCO shall be given proper credit for all salvage value. SWEPCO

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from time to time may request that SABINE prepare an estimate of the total of the Mine closing costs to be incurred after the Production Period, based on the then current Mining Plan and a Mine closing date approved by SWEPCO. Effective January 1, 2003, Mine closing costs shall be determined in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations”.


ARTICLE XII
Billing and Accounts

Section 1.
Payment Obligations; Billing Accounts;
Billing Procedure
Or before the twentieth (20th) day of each calendar month, SABINE shall furnish SWEPCO with two written invoices which set forth the compensation due SABINE under the provisions of Article IX or Article XX of this Agreement, as the case may be, for the immediately preceding month, one of which shall be for the lignite delivered for use at SWEPCO’s Plant and the other of which shall be for the Norit Tons delivered. The amount of each invoice for the lignite delivered for use at SWEPCO’s Plant shall be determined in accordance with Exhibit “E” hereto, and the amount of each invoice for Norit Tons delivered shall be determined by a mutually agreed cost allocation method based on the compensation due SABINE under the provisions of Article IX of this Agreement for the immediately preceding month with respect to such Norit Tons. SWEPCO shall pay SABINE the amount of such invoices within ten (10) days of SWEPCO's receipt of the same.
All such billings and payments shall provide for credit to SWEPCO with regard to all refunds, rebates, advance payments and discounts of all types and shall be subject to audit by SWEPCO and corrections and adjustments where necessary. The correction and adjustment of any undisputed deficiencies shall be adjusted on the next monthly billing.

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Section 2. Payment Obligations Absolute
Except as provided in Article XIII (and subject to the limitation specified therein) amounts payable by SWEPCO hereunder in respect of the Loan and Lease Obligations shall be payable under any and all circumstances, without set-off, counterclaim, recoupment, abatement, suspension, deduction or defense or other right which SWEPCO may have against SABINE or any other person for any reason whatsoever and shall not be refunded, it being the intention of the parties hereto that the obligations of SWEPCO in respect of such payments shall be absolute and unconditional, shall be separate and independent covenants and agreements and shall survive the expiration or other termination of this Agreement and continue unaffected unless the requirement to pay the same shall have been terminated pursuant to an express provision of this Agreement, provided that the foregoing shall not operate as a waiver by SWEPCO of its rights to pursue by separate action any claims it may have against any third party and any claims it may have against SABINE which are covered by insurance or bonds.
The provisions of this Section 2 of Article XII shall not be subject to the arbitration provisions of this Agreement.


ARTICLE XIII
Reports and Audit
Annually, SABINE shall have an audit of its accounts, made in whatever scope and detail requested by SWEPCO, by independent public accountants acceptable to SWEPCO and shall provide SWEPCO with a copy of such audit.
On or before the twentieth (20th) day of each month, SABINE shall furnish to SWEPCO separate detailed statements of costs incurred by SABINE at the Mine for the preceding month in

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respect of the lignite for use at SWEPCO’s Plant and the Norit Tons. Such statements shall be in such form and detail as requested by SWEPCO and shall list the quantity and costs incurred by SABINE in respect of the lignite for use at SWEPCO’s Plant and the quantity and the costs incurred by SABINE in respect of the Norit Tons, as the case may be.
SWEPCO and its duly authorized representatives shall have the right to inspect all work being performed hereunder including work at the Mine. SABINE shall, at SWEPCO's request, furnish to SWEPCO, or to such person as SWEPCO may designate, a copy of SABINE's reports applicable to the work on which it was engaged and the location of such work.
SABINE shall furnish with any billing containing cost adjustments, data showing the computations and application of such adjustment and shall furnish promptly such additional documents and evidence as SWEPCO may request in support of such adjustment. SABINE agrees to maintain adequate books, payrolls and records satisfactory to SWEPCO in connection with any and all work performed hereunder, including but not limited to the verification of all provisions under this Article XIII . SABINE further agrees to retain all such work records for a period of not less than four (4) years after completion of such work, and SABINE further agrees to consult with SWEPCO prior to SABINE’s disposal of such records. SWEPCO and its duly authorized representative shall have access at all reasonable times to the books, payrolls, records, correspondence and personnel of SABINE and any Affiliate of SABINE relating to any of the work performed hereunder for the purpose of auditing and verifying SABINE's charges for work or for any other reasonable purpose including, but not limited to, compliance by SABINE with other terms and provisions of this Agreement. SABINE agrees that (if and when applicable) these provisions will be included in any consulting services or other subcontracts relating to work performed for SABINE under provisions of this Agreement.

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SWEPCO shall have access and the right to examine all income tax filings of SABINE or in which SABINE is included. SABINE shall have the right to join with any Affiliates of SABINE in the filing of any consolidated tax return, but this right shall be applicable only if the exercise thereof will not increase the cost of lignite to SWEPCO. If SABINE so joins in such filing, SABINE shall promptly furnish SWEPCO a copy of North American Coal’s consolidated tax sharing agreement and shall promptly furnish to SWEPCO a revised copy at any time such agreement is amended. Savings applicable to SABINE as a result of any such consolidation shall be invested by SABINE and will serve to further reduce the cost of lignite to SWEPCO. If SABINE files consolidated tax returns with an Affiliate or Affiliates of SABINE, it shall collect from such Affiliate or Affiliates any net tax benefit derived by any such Affiliate from such consolidation attributable to SABINE. Any net tax benefit collected by SABINE arising from any such consolidation which was directly attributable to SABINE shall be repaid promptly to any such Affiliate(s) in the event such net tax benefit is reversed for whatever reason.
Any correction and adjustment of undisputed audit deficiencies determined by audit shall be made within thirty (30) days after determination thereof. Any disputed audit deficiency shall be finally determined and resolved by a nationally recognized independent accounting firm selected by mutual agreement of SWEPCO and SABINE, and its decision and determination shall be binding on the parties, and the correction and adjustment shall be made within thirty (30) days after such determination. The cost and expense of such third-party audit of a disputed deficiency shall be borne by the losing party, meaning the party whose position is furthest from the final determination, and if SABINE is the losing party such cost and expense of audit shall not be recoupable from SWEPCO.

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Anything to the contrary in the foregoing provisions of this Article XIII notwithstanding, SWEPCO hereby agrees that without the advance written approval of the obligees of all Loan and Lease Obligations then outstanding it will not collect from SABINE, in connection with any claim against SABINE hereunder, any amount in excess of SABINE's net income and retained earnings (determined without duplication), plus all amounts available to or from SABINE under bonding, insurance, and similar arrangements.


ARTICLE XIV
Force Majeure
In the event SWEPCO or SABINE is rendered unable, wholly or in part, by "Force Majeure" as hereinafter defined to carry out any of its obligations under this Agreement, and if such party shall (within two [2] Business Days after the declaring party is aware of the occurrence of such "Force Majeure" relied upon) give the other party concerned written notice and full particulars of such "Force Majeure", then the obligations of the party giving such notice shall be suspended to the extent made necessary by such "Force Majeure" from the inception of the "Force Majeure" and during its continuance, but for no longer; provided, however, that the party giving such notice shall diligently use its best efforts to eliminate the cause and effect of such "Force Majeure" insofar as possible with all reasonable dispatch. Any deficiencies in the production or delivery of lignite hereunder caused by "Force Majeure" shall not be made up under the provisions of this Agreement except by mutual agreement.
The term "Force Majeure" as used in this Agreement shall mean any and all causes beyond the control and without the fault or negligence of the party failing to perform, such as acts of God, strikes, lockouts or other industrial disturbances, labor disputes, labor or material shortages, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, adverse geological

36


conditions, faults in lignite seams, lightning, earthquakes, fires, storms, floods, washouts, major breakdowns of or damage to plant, SWEPCO's Plant, mine equipment, or facilities, interruptions to or contingencies of transportation, orders or acts of a military authority or civil authority (including without limitation, interruptions, whether by action or inaction, by Federal, state or local governments or court orders, present and future, or acts or failures to act of any regulatory body having proper jurisdiction) and any other causes, whether of the kind herein enumerated or otherwise, beyond the control and without the fault or negligence of the party failing to perform, which wholly or partly prevents the mining, producing, processing and delivering of the lignite by SABINE, or the receiving and/or utilizing of the lignite by SWEPCO. It is understood and agreed that the settlement of strikes or lockouts or industrial disputes or disturbances shall be entirely within the discretion of the party having the difficulty and that the above requirement that any "Force Majeure" shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party therein when such course is inadvisable in the discretion of the party having the difficulty.
It is agreed that no such event of "Force Majeure" shall excuse, alter or diminish the obligation of SWEPCO to make the payments provided for in Article XII hereof. During any period of "Force Majeure", SABINE agrees to make a diligent effort to minimize all costs and expenses incurred.
    


ARTICLE XV
Conduct of Operations
SABINE shall conduct its mining operations hereunder in a careful, good workmanlike manner. SABINE shall use its best efforts to design and operate the Mine in accordance with this Agreement and all applicable laws, rules and regulations of Federal, state and local governments

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or their instrumentalities; provided, however, that SABINE shall have the right to contest in good faith through appropriate legal proceedings the validity or applicability of any such law, rule or regulation so long as SABINE gives SWEPCO advance notice of the nature of and reasons for such proposed contest and of such proposed proceedings and obtains SWEPCO's advance approval of the projected cost and expenses thereof, which approval shall not be unreasonably withheld; and further provided, however, SABINE shall not be in default in the performance of its obligations under this Agreement if and to the extent such failure to perform its obligations is due to (1) an event described in Article XIV hereof, (2) control exercised by SWEPCO pursuant to Section 2(c) of Article IV or Article VIII of this Agreement, or (3) the failure of SWEPCO to perform its obligations hereunder.
SABINE represents that its management and supervisory personnel and a major portion of its other employees shall be well qualified and trained personnel with established credentials in engineering, constructing, operating and administering similar projects and that it will utilize and exercise high standards of industry practice and workmanship in the performance of all of its undertakings and obligations reflected in this Agreement. SABINE agrees to the foregoing and agrees that it shall diligently attempt and use its best efforts to:
(a)     mine, recover and deliver the optimum quantity and quality of mineable commercial lignite, as defined in the approved Annual Mining Plan, in the most economical and efficient manner;
(b)    conduct its operations and carefully plan and supervise its capital, operating and all other expenditures and acquisitions pursuant to the advance approval by SWEPCO as provided herein so as not to exceed the pre-approved budgets, as provided herein.


ARTICLE XVI
Insurance
SABINE shall procure or cause to be procured and maintain or cause to be maintained in

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full force and effect all insurance coverages specified in this Agreement. All insurance coverages shall be in accordance with the terms of this Article XVI using companies authorized to do business in the applicable jurisdiction where such services are to be performed. The insurance shall be of such types, limits, coverages and amounts, and deductible amounts and with such insurers as may periodically be required, requested or approved by SWEPCO applicable to the Mine, the equipment and property at the Mine, the operation of the Mine or operations incidental to the Mine and personnel at the Mine or utilized in connection therewith. Such insurance shall include, but shall not be limited to, public liability, contractual liability, all-risk property insurance including coverage for physical damage to equipment, mine reclamation bonds and workers' compensation insurance as required by law and the following:
(a)
Coverage for the legal liability of SABINE and its subcontractors for workers’ compensation and occupational disease under the law of the state in which the work hereunder is to be performed; provided, however,
A.
in states with a workers’ compensation fund, SABINE and its subcontractors shall be contributors to the state workers’ compensation fund and shall furnish a certificate to that effect.
B.
in states without a workers’ compensation fund, SABINE and its subcontractors shall maintain an insurance policy for workers’ compensation from an insurance carrier approved for transacting workers’ compensation business in the state in which the work is performed.
C.
if SABINE or any subcontractor is a legally permitted and qualified self-insurer in the state in which the work is performed, it may furnish proof that it is such a self-insurer in lieu of submitting proof of insurance.

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(b)
commercial general liability insurance with limits of coverage of not less than $1,000,000 per occurrence and annual aggregate;
(c)
commercial automobile liability insurance with limits of coverage for bodily injury and property damage of not less than $1,000,000 for each incident;
(d)
excess or umbrella liability insurance with a combined single limit of coverage of not less than $5,000,000 per occurrence and annual aggregates of at least $10 million for bodily injury and property damage, and including coverage for the excess of Employers Liability and the insurance described in paragraphs (b) and (c) above;
(e)
Property Damage and Boiler and Machinery coverage with combined limits of coverage of not less than $100 Million per occurrence and a deductible of no more than $1,000,000; and
(f)
pollution legal liability insurance with limits of coverage of not less than $1,000,000 per occurrence and annual aggregate.
SWEPCO, its parent, subsidiaries, Affiliates, directors, officers, agents, and employees, shall be named as additional insureds under the insurance policies described in paragraphs (b) through (d) and paragraph (f) above, and as loss payees under the insurance policies described in paragraph (e) above, with respect to SABINE’s operations and the work to be performed under this Agreement. Such insurance shall be primary and non-contributory over any other insurance maintained by SWEPCO, its parent, subsidiaries and Affiliates.
SABINE shall obtain waivers of subrogation on all insurance maintained by SABINE hereunder. Such waivers shall be made for the benefit of SWEPCO, its parent, subsidiaries and Affiliates.
Any policies of insurance written on a “claims-made” basis shall be maintained for a period

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of five (5) years after termination of this Agreement, provided that such coverage is available and that SWEPCO pays all costs of maintaining such insurance.
SABINE shall furnish annually to SWEPCO two (2) copies of acceptable certificates of insurance covering the terms of the insurance policies maintained by SABINE. Such certificates of insurance shall state that the insurer has issued the policies providing for the insurance specified above, that such policies are in force and that the insurer shall give SWEPCO thirty (30) days prior written notice of any material change in, or cancellation of, such policies. If such insurance policies are subject to any exceptions to the terms specified herein, such exceptions shall be fully explained in such certificates. SWEPCO may, at its discretion, require SABINE to obtain insurance policies that are not subject to any exceptions.
SABINE shall require all contractors, subcontractors and its Affiliates engaged in work on or for the Mine to comply with the applicable workers' compensation laws of the State of Texas, or any other applicable state to the end that the employer is protected against any common law action by an employee and to maintain such other insurance as SWEPCO may deem advisable.


ARTICLE XVII
Relationship of the Parties
SWEPCO and SABINE agree that in performing services hereunder SABINE shall be an independent contractor and not the agent, servant or employee of SWEPCO or any of its affiliate companies or of Norit. Nothing contained in this Agreement shall be construed to constitute or create a joint venture, trust, mining partnership, commercial partnership or other relationship between SWEPCO or any of its affiliate companies or Norit and SABINE whereby either party hereto would be liable for the acts and deeds of the other party hereto, except as specifically set forth herein.

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SABINE SHALL INDEMNIFY, HOLD HARMLESS AND DEFEND SWEPCO AND ITS SUBSIDIARIES, AFFILIATES AND THEIR DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS, THE SUCCESSORS AND ASSIGNS OF SWEPCO (COLLECTIVELY, “RELEASEES”), FROM ANY AND ALL LOSS AND LIABILITY AND FOR CLAIMS, DEMANDS, SUITS OR CAUSES OF ACTION AT LAW OR IN EQUITY FOR DAMAGES AND INJURIES (INCLUDING DEATH) OF EVERY KIND AND NATURE TO PERSONS (INCLUDING EMPLOYEES OF SABINE, SWEPCO AND ANY OF THEIR AFFILIATES) AND PROPERTY (INCLUDING LOSS OF USE THEREOF) ARISING OUT OF, OR CLAIMED TO HAVE BEEN CAUSED BY, OR IN ANY MANNER RELATED TO THE OPERATIONS OF SABINE OR OF ANY PERSON UNDER CONTRACT TO IT UNDER THIS AGREEMENT EVEN THOUGH CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY SINGLE RELEASEE OR ANY COMBINATION OF RELEASEES THAT OPERATES CONCURRENTLY WITH THE NEGLIGENCE OF ANY PERSON OR ENTITY THAT IS NOT A RELEASEE, BUT IN NO EVENT FOR THE SOLE NEGLIGENCE OF ANY RELEASEE OR ANY COMBINATION OF RELEASEES; PROVIDED, HOWEVER, THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, SABINE’S INDEMNITY OBLIGATION UNDER THIS PARAGRAPH SHALL BE LIMITED TO $500,000 AND SHALL BE SUPPORTED BY LIABILITY INSURANCE COVERAGE TO BE FURNISHED BY SABINE, AND PROVIDED, FURTHER, HOWEVER, THAT SABINE SHALL NOT BE OBLIGATED TO INDEMNIFY ANY RELEASEE (I) AGAINST ANY LOSS OR LIABILITY WITH RESPECT TO WHICH SABINE IS NOT COVERED BY SUCH INSURANCE, (II) FOR THE AMOUNT OF ANY LOSS OR LIABILITY IN EXCESS OF THE AMOUNT WHICH IS COVERED

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BY SUCH INSURANCE OR (III) FOR ANY LOSS OR LIABILITY WITH RESPECT TO ANY EMPLOYEE OF NORIT OR ANY OF ITS AGENTS OR CONTRACTORS.
Notwithstanding anything to the contrary contained in this Agreement, in the event of a disagreement, controversy or litigation between SABINE and SWEPCO involving this Agreement, any provision hereof or the subject matter hereof, the legal costs and expenses of SABINE in connection therewith shall not be recouped by SABINE or considered a Cost of Production or a reimbursable expense under the terms hereof, unless SABINE is the ultimate successful party in such disagreement, controversy or litigation.
ARTICLE XVIII
Arbitration
Any valid dispute between the parties arising out of this Agreement (including failure to agree on matters slated to be determined by mutual agreement) for which the ultimate resolution is not expressly provided by this Agreement or for which arbitration is not expressly excluded, shall be resolved by arbitration. The parties shall first make a diligent good faith attempt to resolve the dispute by mutual agreement. If unsuccessful, the request for arbitration shall be in writing setting forth in detail the claim or claims to be arbitrated, and the amount involved, if any, and shall specify the position of the party giving the notice, the reasons therefore and the remedy sought and shall name one qualified person to act as an arbitrator. It shall be delivered to the other party within 180 days of the date of the first knowledge of the claiming party of the occurrence or conditions giving rise to the dispute. Any failure to request arbitration within such 180 day period shall be deemed a waiver of the right to arbitrate the dispute.
Within fifteen (15) days after such notice is received, the party receiving the notice shall by written notice to the other party specify its position, the reasons therefor and the remedy sought

43


with respect to such issue and shall name one qualified person to act as an arbitrator. All persons appointed to act as arbitrator (including the third arbitrator selected as provided below) shall be disinterested persons qualified by experience to hear and determine the questions to be arbitrated, and if the nature of any such question shall so require, they shall be geologists or mining engineers experienced in the exploration for or mining of minerals under operating conditions similar to those which may be encountered hereunder.
The two arbitrators so designated shall select a third arbitrator. If the two arbitrators cannot agree within fifteen (15) days as to the designation of a third arbitrator, then said third arbitrator shall be selected pursuant to the AAA Rules. The arbitrators and SWEPCO and SABINE shall hold hearings in Dallas, Texas on the matters to be arbitrated within thirty (30) days after the appointment of the third arbitrator. The arbitrators shall make such examinations and investigations as they may deem necessary and shall render their decision in writing within sixty (60) days following such hearings.
The decision of the arbitrators shall be limited to selecting either the position and remedy stated by SWEPCO in its notice or the position and remedy stated by SABINE in its notice as provided above. The arbitrators shall have no power to mediate or compromise any dispute but shall have only the limited authority herein provided to review the information presented by the parties and to select the position and remedy proposed by one of the parties.
The decision of the arbitrators shall be final and binding on the parties, and judgment thereon may be entered in any court of competent jurisdiction. The cost and expense for the arbitration shall be shared equally between the parties. Except as herein otherwise specified, the arbitration shall be conducted pursuant to the AAA Rules in effect at the time of such arbitration. Unless the

44


parties mutually agree otherwise, each arbitration procedure and hearing shall be limited in scope to one dispute.
Notwithstanding anything to the contrary contained in this Article XVIII , it is agreed that whenever it is provided in this Agreement that any act, event, decision, determination or other matter is or is not to be done, performed or made at the option, election, request or determination or in the opinion of SWEPCO or is subject to the right of approval or disapproval by SWEPCO, such determination, election, request, option, opinion, approval or disapproval by SWEPCO shall not be subject to arbitration hereunder.
It is mutually understood that the existence of a dispute which has or may become the subject of an arbitration shall in no way excuse either SWEPCO or SABINE from performing its obligations under this Agreement, and each of the parties hereto shall continue to perform in accordance with the terms of this Agreement irrespective of the existence of any such dispute.
ARTICLE XIX
SABINE Default; Remedy
Section 1. SABINE Default
For the purposes of this Agreement, any one of the following events is a "SABINE Default":
(a)    there exists at any time during the Production Period for any reason other than Force Majeure, as defined in Article XIV , a deficiency of deliveries of mmBtus of lignite in excess of [* * *] of the amount required to be delivered under Article V for use at SWEPCO’s Plant during the immediately preceding [* * *] month period or a deficiency of deliveries of mmBtus of lignite in excess of [* * *] of the amount required to be delivered under Article V for use at SWEPCO’s Plant during the immediately preceding [* * *] month period;
* * * Confidential Treatment Requested

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(b)    SABINE fails to perform any of its obligations in accordance with the performance standards recited in Article XV hereof, which failure to perform has a material adverse effect on the operations of SWEPCO’s Plant, and such failure continues unremedied for sixty (60) days after written notice thereof shall have been given to SABINE by SWEPCO;
(c)    SABINE materially breaches any of the terms, conditions or provisions which results in an event of default in respect of any Loan or Lease Obligation, which default is not remedied by SABINE prior to the time that any party (other than SABINE) to such Loan or Lease Obligation is permitted by such Loan or Lease Obligation to exercise its rights with respect to such event of default thereunder;
(d)    SABINE or North American Coal commences a voluntary case under any chapter of the Federal Bankruptcy Code or consents to (or fails to controvert in a timely manner) the commencement of an involuntary case against SABINE or North American Coal under said Code;
(e)    SABINE or North American Coal institutes proceedings for liquidation, rehabilitation, readjustment or composition (or for any related or similar purpose) under any law other than the Federal Bankruptcy Code or consents to (or fails to controvert in a timely manner) the institution of any such proceedings against SABINE or North American Coal;
(f)    SABINE or North American Coal is insolvent (within the meaning of any applicable law), or is unable, or admits in writing its inability, to pay its debts generally as they come due or makes an assignment for the benefit of creditors or enters into any arrangement for the adjustment or composition of debts or claims;
(g)    a court or other governmental authority or agency having jurisdiction in the premises enters a decree or order (i) for the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of SABINE or North American Coal or of any part of the

46


property of such person or for the winding-up or liquidation of the affairs of such person, and such decree or order remains in force undischarged and unstayed for a period of more than thirty (30) days, or (ii) for the sequestration or attachment of any property of SABINE or North American Coal without its unconditional return to the possession of such person, or its unconditional release from such sequestration or attachment, within thirty (30) days thereafter;
(h)    a court having jurisdiction in the premises enters an order for relief in an involuntary case commenced against SABINE or North American Coal under the Federal Bankruptcy Code, and such order remains in force undischarged and unstayed for a period of more than thirty (30) days;
(i)    a court or other governmental authority or agency having jurisdiction in the premises enters a decree or order approving or acknowledging as properly filed or commenced against SABINE or North American Coal a petition or proceedings for liquidation, rehabilitation, readjustment or composition (or for any related or similar purpose) under any law other than the Federal Bankruptcy Code, and any such decree or order remains in force undischarged and unstayed for a period of more than thirty (30) days; or
(j)    SABINE or North American Coal takes corporate action for the purpose or with the effect of authorizing, acknowledging or confirming the taking or existence of any action or condition specified in paragraphs (d), (e) or (f) of this Section 1 .
Provided, however, if SWEPCO claims that a SABINE Default of the nature described in this Section 1 has occurred and is continuing, SABINE shall have sixty (60) days (notwithstanding the provisions of Article XVIII hereof) after its receipt of written notice from SWEPCO of such SABINE Default to:

47


(i)    except for a SABINE Default of the nature described in Subsection 1(a) of this Article XIX , which such default is not subject to this paragraph (i), correct such SABINE Default, or, if such SABINE Default is not correctable within said sixty (60) day period, to submit to SWEPCO for its approval, which approval shall not be unreasonably withheld, a plan and timetable for correcting such SABINE Default. If such Default is not corrected within said time, or any extended time approved by SWEPCO, SWEPCO's remedies provided for herein shall thereupon be fully available; or
(ii)    give SWEPCO written notice that SABINE disputes that such SABINE Default has occurred and is continuing and that SABINE is submitting the matter to arbitration in accordance with the provisions of Article XVIII of this Agreement. If arbitration is so sought, SABINE shall not be deemed in default until the matter has been determined finally by arbitration under the provisions of Article XVIII hereof.
Section 2. Remedy of SWEPCO Upon SABINE Default
Upon the occurrence of any SABINE Default, SWEPCO, in its discretion (and in addition to any other rights or remedies available to SWEPCO), may exercise (without any other prerequisites) its rights, options and powers under the Option Agreement, in which event no further Management Fee will be payable to SABINE or North American Coal. Any amounts paid by SWEPCO other than to SABINE in respect of any Loan or Lease Obligation shall be credited against its obligations hereunder to make payments in respect of such Loan or Lease Obligation. The exercise by SWEPCO of any remedy hereunder shall be governed by the last sentence of Article XIII .
Section 3. Limitations on SWEPCO's Rights Under Article XIX
Notwithstanding anything to the contrary contained in this Article XIX, SWEPCO shall not have the right to exercise the Option Agreement if a SABINE Default of the nature described in Section 1 of this Article XIX has occurred and is continuing:

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(a)    as a result of any failure by SWEPCO to carry-out its obligations under this Agreement, or as a result of a failure by SWEPCO to approve any Loan or Lease Obligation which SABINE proposes to enter into pursuant to Article VIII ;
(b)    as a result of any failure by SWEPCO to pay to SABINE any sum due SABINE from SWEPCO pursuant to this Agreement; provided, however, that if SWEPCO's obligation to pay any such sum (or any part thereof) is disputed by SWEPCO and payment of such sum is necessary to enable SABINE to comply with the terms of any Loan or Lease Obligation entered into pursuant to Article VIII hereof or to enable SABINE to prevent the occurrence of a SABINE Default of the nature described in Section 1 of this Article XIX , then SWEPCO shall pay SABINE the full sum claimed by SABINE, and such payment shall be without prejudice to SWEPCO's position in such dispute and its right to obtain reimbursement thereof;
(c)    as a result of SABINE's compliance with any directions and/or prohibitions of SWEPCO to SABINE contrary to SABINE's recommendations and advice as to the design, construction, development and operation of the Mine; or
(d)     because of a reasonable difference with governmental authorities as to the interpretation of applicable governmental laws, rules or regulations, impossibility of compliance therewith, or SWEPCO's consent to non-compliance therewith.
ARTICLE XX
Termination of Relationship
Section 1. Events of Termination
This Agreement shall terminate and SWEPCO and SABINE shall be released, except as provided in this Article XX , Section 1, from their respective obligations thereafter accruing hereunder upon the occurrence of either of the following events:

49


(a)    if SWEPCO takes the action specified in Section 2 of Article XIX hereof, in which event SWEPCO shall be and become obligated to make payments to SABINE from time to time sufficient to permit SABINE to satisfy Loan and Lease Obligations in accordance with their terms; or
(b)    if at any time all economically surface mineable lignite reserves in SWEPCO’s Reserves have been depleted or SWEPCO’s Plant has reached the end of its useful life (estimated to be 2035), in which event SWEPCO shall be and become obligated to make payments to SABINE from time to time sufficient to permit SABINE to satisfy Loan and Lease Obligations in accordance with their terms.
Section 2. Additional Right of Termination
In addition to the events of termination specified in Section 1 of this Article XX and notwithstanding any other provision of this Agreement, SWEPCO and SABINE each shall have the right, in their respective unqualified and unrestricted discretion and without requirement of cause, to terminate the relationship created by this Agreement by giving notice of termination (which notice shall specify the effective date of such termination (“Termination Effective Date”), which shall not be earlier than one year from the date of such notice), in which event SWEPCO shall (i) be and become obligated to make payments to SABINE from time to time sufficient to permit SABINE to satisfy Loan and Lease Obligations in accordance with their terms as the same become due and payable, and (ii) exercise its rights, options and powers under the Option Agreement. If SWEPCO terminates this Agreement pursuant to this Section 2 and the reason therefor is not because of a SABINE Default, or is not due to a shutdown of the Mine because of economic reasons, including, but not limited to, the purchase of fuel from a more cost effective source, governmental requirements or restrictions or otherwise, and SWEPCO mines, or causes to be mined, within two

50


(2) years after the Termination Effective Date lignite from said SWEPCO's Reserves, then North American Coal shall be entitled to, and SWEPCO shall cause the successor mining company to pay, and SWEPCO shall guarantee the payment, to North American Coal or its nominee an amount (the “Termination Fee”) calculated in accordance with the methodology set forth in Exhibit “G,” which is attached hereto and made part hereof.
Such Termination Fee, if payable under this Article XX, Section 2 , (a) shall be due within sixty (60) days following the recommencement of mining in the event that SWEPCO commences or causes another person to commence the mining of lignite from SWEPCO's Reserves within said two (2) years, and (b) shall be determined as of the first day of the calendar quarter in which the recommencement of mining occurs, based on the Termination Fee for the year in which the Termination Effective Date occurs and on the percentage change in the value of the [* * *] Index on the base 2000 = 100 from the fourth calendar quarter of 2008 to the value of such Index for the calendar quarter immediately preceding the calendar quarter in which the recommencement of mining occurs. If the value of the [* * *] Index on the base 2000 = 100 for such immediately preceding calendar quarter is not available when the Termination Fee is due and payable, the most current quarterly value of such Index shall be used for making payment of the Termination Fee, and such payment shall be subject to true-up at the time the final published value of the [* * *] Index on the base 2000 = 100 for such immediately preceding calendar quarter is available.
If at any time during the term of this Agreement it is reasonably believed by either party that neither the [* * *] Index nor any index substituted therefor in accordance with the following provisions reflects the true change in purchasing power of the United States dollar, then upon the
* * * Confidential Treatment Requested


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written request of either party SWEPCO and SABINE shall undertake good faith negotiations to determine and agree upon a substituted index or method whereby such change in purchasing power of the United States dollar can be determined. When and if such substituted index or method has been determined and mutually agreed upon, the same shall be substituted and put into effect commencing at a time mutually agreed upon. In the event the [* * *] Index or any substitute index is changed in the future to use some base other than the base of 2000=100, for the purposes hereof, the [* * *] Index or any substitute index, as the case may be, shall be adjusted so as to be in correct relationship to the base of 2000=100, or some other alternative base which is mutually agreeable to SWEPCO and SABINE. If publication of the [* * *] Index or any substituted index is no longer made by any Federal agency, the index to be used as aforesaid shall be that index agreed to by the parties which after necessary adjustment, if any, provides the most reasonable substitute for said index. If within ninety (90) days the parties hereto cannot agree upon a substitute index which will accomplish the purposes of this Article XX, Section 2, the matter shall be resolved by arbitration pursuant to Article XVIII hereof.
Section 3. Procedures on Termination
Upon the termination of this Agreement as provided in Section 1 or 2 of this Article XX , the provisions of Article XII shall govern the procedures for such payments by SWEPCO and the nature of SWEPCO's obligations in respect thereof.
Section 4. Nature of Termination Rights
The rights of termination set forth in this Article XX shall not be subject to arbitration, and neither party shall have any right in law or equity against the other solely because of any such termination.    
* * * Confidential Treatment Requested

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ARTICLE XXI
Notices and Other Communications;
Designated Representatives
SWEPCO and SABINE each shall appoint a representative ("Designated Representative") to receive and give on behalf of SWEPCO and SABINE all notices, approvals, disapprovals and other communications required or permitted under this Agreement.
Except as otherwise expressly stated in this Agreement, any such notice or approval, disapproval or other communication shall be in writing to the other party and shall be deemed to have been duly given when delivered in person or by facsimile transmission (as evidenced by confirmation of facsimile transmission) to the Designated Representative or when actually received (as evidenced by return receipt after posting by United States certified mail, return receipt requested), with postage prepaid, addressed to the Designated Representatives of SWEPCO and SABINE, as follows:
(a)    to SWEPCO:

Southwestern Electric Power Company
Attn: Manager, Lignite & Business Services
2396 Farm Road 3251
Hallsville, Texas 75650-7723
Telephone:     903/938-0321
Facsimile:     903/927-5820

With copy to:

American Electric Power
Attn: Director of Mining Operations
155 W. Nationwide Blvd.
Columbus, OH 43215
Telephone:    (614) 583-6400
Facsimile:    (614) 583-1602


53



(b)    to SABINE:

The Sabine Mining Company
Attn: President
6501 Farm Road 968 West
Hallsville, Texas 75650
Telephone:    903/660-4200
Facsimile:    903/660-3665

With copy to:

The North American Coal Corporation
Attn: President and Chief Executive Officer
14785 Preston Road, Suite 1100
Dallas, Texas 75254-7891
Telephone:    (972) 239-2625
Facsimile:    (972) 387-1031


(c)    To such other address or addresses as the respective parties hereto may from time to time designate in writing.
It is agreed that wherever this Agreement provides for notice to be given within twenty-four (24) hours of certain occurrences, such notice shall be given verbally and shall subsequently be confirmed in writing in the manner provided for above in this Article XXI .
ARTICLE XXII
Right of Inspection
SWEPCO (upon first giving reasonable notice to the office of SABINE's Designated Representative) at all times and for any purpose shall be afforded complete access to the Mine, Mine records, accounting and financial records, installations, tax returns and operations of SABINE and the right to inspect the Mine, provided that the exercise of such rights does not interfere with the operation of the Mine and that the exercise of such rights shall be at the sole risk, cost and

54


expense of SWEPCO. It is agreed that the personnel and employees of SABINE engaged in the mining are solely the employees of SABINE and that SWEPCO, in the exercise of its right of access and inspection or otherwise, shall have no right to issue instructions to, make demand of, or direct in any way the daily work and daily activities of SABINE's employees.
ARTICLE XXIII
Limitations of SABINE Functions
Until this Agreement expires or is terminated, SABINE shall be chartered as a single purpose corporation to perform, pursuant to this Agreement, the duties and obligations hereof and shall not perform any work or services, enter into any employment contracts, enter into any agreements with third-parties without SWEPCO's advance approval, undertake any obligations or liabilities, or expend any funds, or engage in any activities, except those which are pursuant this Agreement.
Without first obtaining SWEPCO's approval, SABINE shall not purchase or otherwise acquire any real property interests including lignite or other mineral leases and land that would in any way conflict with the interests of SWEPCO.
ARTICLE XXIV
Assignment
Either party may assign this Agreement and its rights hereunder to its parent company or any Affiliate or subsidiary of its parent company or of itself, and only to such a party, without the consent of the other party. Otherwise, this Agreement may not be assigned wholly or in part by either party without the written consent of the other party, which consent shall not be unreasonably withheld. No assignment shall release the assignor from its financial responsibility hereunder, unless expressly agreed to in writing by the other party and its assignees. Subject to the foregoing limitations, all of the provisions of this Agreement shall inure to the benefit of and be binding upon

55


the parties hereto, and their successors and assigns.    
ARTICLE XXV
Interpretation
This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of Texas without giving effect to the conflict of laws and principles thereof. The topical headings used in this Agreement have been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms and provisions of this Agreement. As used herein, any gender shall include any other gender, the singular shall include the plural, and the plural shall include the singular, wherever appropriate.

ARTICLE XXVI
Severability
The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof unless it substantially and adversely affects the value of this Agreement to one of the parties; and in the absence of any such substantial and adverse effect, this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.
ARTICLE XXVII
Entire Agreement
This Agreement constitutes the entire agreement between SWEPCO and SABINE and supersedes all other prior negotiations, undertakings, notices, memoranda and agreements between SWEPCO and SABINE, whether oral or written, with respect to the subject matter hereof; provided , however, the parties recognize that the performance of this Agreement is subject to all necessary regulatory approvals, and that in the event regulatory approval is required for the performance by

56


SWEPCO of its payment obligations hereunder, SABINE shall not be required to incur any Loan or Lease Obligation until such approval is obtained, and further provided, however, that all liabilities and obligations of SWEPCO and SABINE which have accrued prior to the effective date of this Agreement shall survive until satisfied or discharged or until the responsible party has been released therefrom.     
ARTICLE XXVIIl
Amendments
Any modification or amendment of the terms and provisions of this Agreement shall be valid and effective only if and when made in writing and duly executed on behalf of the parties hereto.    
ARTICLE XXIX
Counterparts
The Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall collectively constitute one and the same instrument.    
ARTICLE XXX
Waiver of Remedies
The failure of either SWEPCO or SABINE to insist in any one or more instances upon strict performance of any of the provisions of this Agreement or to take advantage of any of its rights hereunder shall not be construed as a waiver of any such provisions or the relinquishment of any such rights, but the same shall continue and remain in full force and effect.    
ARTICLE XXXI
Representations, Warranties and Covenants
(a)     Representations and Warranties of SABINE . SABINE represents and warrants that:

57


(i)    it is a corporation duly organized and validly existing in good standing under the laws of the State of Nevada, is duly qualified to do business in the State of Texas and has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder;
(ii)    there is no action, proceeding or investigation pending, or, to the best knowledge of SABINE, threatened against it, and there is no term of its charter, by-laws, or any mortgage, indenture, contract, agreement, instrument, judgment, decree, order, statute, rule or regulation to which SABINE or any of its affiliates is a party or by which it is bound, which in any way prevents or interferes with or adversely affects the entering into by it of this Agreement, or the validity of this Agreement as to it, or the carrying out by it of the terms or provisions of this Agreement;
(iii)    no approval, action, waiver or consent of any governmental body is required for the execution and delivery of this Agreement by SABINE (or, if required, all of the same have been obtained), and SABINE will use its best efforts to obtain any governmental approvals, actions, waivers or consents of any governmental body which are or may be required for the performance by SABINE of this Agreement; and
(iv)     this Agreement has been duly and validly authorized by all necessary corporate action and when executed and delivered will constitute a valid and binding agreement of SABINE.
(b)     Representations and Warranties of SWEPCO . SWEPCO represents and warrants that:
(i)    it is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, is duly qualified to do business in the State of Texas and

58


has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder;
(ii)    there is no action, proceeding or investigation pending, or to the best knowledge of SWEPCO threatened against it, and there is no term of its charter, by-laws, or any mortgage, indenture, contract, Agreement, instrument, judgment, decree, order, statute, rule or regulation to which SWEPCO or any of its affiliates is a party or by which it is bound, which in any way prevents or interferes with or adversely affects the entering into by it of this Agreement, or the validity of this Agreement as to it, or the carrying out by it of any of the terms or provisions of this Agreement;
(iii)    no approval, action, waiver or consent of any governmental body is required for the execution and delivery of this Agreement by SWEPCO (or, if required, all of the same have been obtained), and SWEPCO will use its best efforts to obtain any governmental approvals, actions, waivers or consents of any governmental body which are or may be required for the performance by SWEPCO of this Agreement;
(iv)    this Agreement has been duly and validly authorized by all necessary corporate action and when executed and delivered will constitute a valid and binding agreement of SWEPCO;
(v)    that to the best of its knowledge it owns, leases or otherwise controls the lignite, including surface mining rights, which will be mined and delivered by SABINE hereunder. SWEPCO agrees to use its best efforts to maintain in effect during the term of this Agreement all ownership, leasehold or other rights with respect to such lignite which are necessary for SABINE to mine and deliver the lignite covered by this Agreement, and shall indemnify and hold SABINE harmless from and against any and all claims, demands,

59


actions, causes of action by and liability to third parties, excluding North American Coal, arising out of SWEPCO's failure to maintain such rights.
(c)     Covenants of SWEPCO . SWEPCO hereby covenants and agrees that in the event any Loan or Lease Obligation is determined or declared void or unenforceable by any court or regulatory authority due to the fact that SABINE is determined to be a public utility within the meaning of any Federal or Texas, Louisiana or Arkansas statute, or because of the failure of SWEPCO to obtain any regulatory approval necessary to permit the performance by it of its obligations hereunder, SWEPCO shall nevertheless continue to make payments in respect thereof as if such determination, declaration or failure had not occurred.     
ARTICLE XXXII
Short Form Supplement
If needed or requested by either party for purposes of recording, permitting, filing or any other valid reason, the parties hereto shall execute a short form supplement to this Agreement which shall contain the pertinent provisions hereof in mutually satisfactory detail.    
ARTICLE XXXIII
Equal Employment Opportunity
There is attached hereto as "Supplement A" and made a part hereof that certain instrument entitled "CERTIFICATION FOR EMPLOYMENT OPPORTUNITIES PROGRAMS FOR MINORITIES AND VETERANS". SABINE agrees to fully comply with said Supplement A, and throughout said Supplement A, whenever reference is made to "Contractor" it is understood that same refers to SABINE.

60



IN WITNESS WHEREOF, the parties hereto, with intent to be legally bound hereby, have caused this instrument to be executed by their duly authorized officers on the date first above written.


WITNESSES:
 
SOUTHWESTERN ELECTRIC POWER COMPANY by AMERICAN ELECTRIC POWER SERVICE CORPORATION, its agent
 
 

 
/s/ Signature Illegible
 
By:
/s/ Signature Illegible
 
 
Title:
Vice President
 
 
Date:
12/31/2008
 
 
 
 
WITNESSES:
 
THE SABINE MINING COMPANY
 
 
 
 
/s/ Linda Campbell
 
By:
/s/ Rick J. Ziegler
 
 
Rick J. Ziegler, President
 
 
 
 
 
 
Date:
12/31/2008
    

61


ACKNOWLEDGMENTS

THE STATE OF OHIO        

COUNTY OF Franklin

BEFORE ME, the undersigned authority, on this day personally appeared /s/ Timothy K Light , known to me to be the person and agent whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said AMERICAN ELECTRIC POWER SERVICE CORPORATION, a corporation, as agent for SOUTHWESTERN ELECTRIC POWER COMPANY, and that he executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 31st day of December, 2008.


 
/s/ David M. Cohen
 
NOTARY PUBLIC
 
My Commission Expires:

THE STATE OF TEXAS        
COUNTY OF HARRISON        
BEFORE ME, the undersigned authority, on this day personally appeared Rick J. Ziegler, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said THE SABINE MINING COMPANY, a corporation, and that he executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 22nd day of December, 2008.


 
/s/ Catherine L. Pierce
 
NOTARY PUBLIC
 
My Commission Expires:


62


Exhibits A - G

[* * *]







































* * * Confidential Treatment Requested


G-1

Exhibit 10.22
OPTION AGREEMENT
THIS OPTION AGREEMENT is made and entered into on January 15, 1981, by and among THE NORTH AMERICAN COAL CORPORATION, an Ohio corporation with its principal office at Cleveland, Ohio, hereinafter referred to as “NACCO”; and SOUTHESTERN ELECTRIC POWER COMPANY, a Delaware corporation with its principal office at Shreveport, Louisiana, hereinafter referred to as “SWEPCO”, and Longview National Bank, a national banking association with its principal office at Longview, Texas, hereinafter referred to as “Escrow Agent”.
In consideration of the agreements herein set forth, and intending to be legally bound hereby, the parties hereto agree as follows:
Section 1.     GRANT OF OPTION
NACCO hereby grants to SWEPCO the exclusive right, option and privilege, during the term of this Option Agreement, upon the terms herein set forth, to purchase the capital stock of THE SABINE MINING COMPANY, a single purpose Texas corporation (hereinafter referred to as “SABINE”), referred to in Section 2 of this Option Agreement, under and subject, however, to the terms and conditions set forth in the Lignite Mining Agreement dated January 15, 1981 (hereinafter referred to as the “Lignite Mining Agreement”) between SWEPCO and SABINE.
Section 2.     TRANSFER OF STOCK
At the time of execution hereof, NACCO has delivered to Escrow Agent for the purposes herein specified, and Escrow Agent hereby acknowledges the receipt of, Share Certificate No. 1 for 1,000 shares of the capital stock (hereinafter referred to as “escrowed stock”) of SABINE, being all of the authorized and issued capital stock of SABINE, together with a duly executed and legally effective stock power therefor, permitting the immediate transfer of said stock on the books of SABINE into the name of SWEPCO.
Section 3.     RIGHTS OF OWNER



So long as the Escrow Agent shall hold the escrowed stock it shall remain registered in the name of NACCO, and NACCO shall have the right to vote the stock, receive dividends thereon and otherwise to exercise any and all rights and privileges as owner, except as otherwise provided herein.
Section 4.     DELIVERY BY ESCROW AGENT TO SWEPCO
The Escrow Agent shall deliver to SWEPCO the escrowed stock in proper form for transfer ten days after
(1)
The occurrence of any one of the following events notice of which shall be given forthwith in writing together with the documents referred to in (a), (b) and/or (c) below to NACCO by the Escrow Agent:
(a)
Receipt by Escrow Agent of written notice from SWEPCO, certified by one of its officers, that a default under Article XIX of the Lignite Mining Agreement between SWEPCO and SABINE has taken place, stating the nature and time of the default, identifying where applicable the document and provisions thereof under which the default arose, and that (1) SABINE has not completed effective corrective action with respect to such default within the time specified for such corrective action and extensions thereof, if any, in said Article XIX, if such time be specified, and has not sought arbitration with respect to such default, or (2) SABINE has not found in arbitration proceedings with respect to such default to be in default; or
(b)
Receipt by the Escrow Agent of written notice from SWEPCO, certified by one of its officers, that it has exercised its option pursuant to the provisions of Article XX of the Lignite Mining Agreement and that the notice period provided for in Section 2 of such Article XX has expired or that written notice of its option to exercise its rights pursuant to Section 1 of such Article XX, if applicable, has been given to SABINE; or
(c)
Receipt by the Escrow Agent of written notice from SWEPCO, certified by one of its officers, that it has exercised its option pursuant to the provisions of



Article IV, Section 1 of the Lignite Mining Agreement and that the notice period provided for therein has expired, and

(2)
Receipt from SWEPCO of a certified check payable to NACCO in the amount determined in accordance with the provisions of Section 5 of this Option Agreement.
Section 5.         PRICE DETERMINATION AND AMOUNT OF PAYMENT
The price to be paid to NACCO for the escrowed stock and the amount of the certified check to be delivered by SWEPCO to the Escrow Agent shall be an amount equal to the sum of the following:
(a)
the stated capital of SABINE which shall be 1,000 shares of common stock having a stated value of $1,000.00;
(b)
The amount of capital in excess of stated value; and
(c)
An amount equal to the undistributed net earnings of SABINE.
The amount of the certified check to be delivered to the Escrow Agent as aforesaid shall be determined by SWEPCO at the time the option is exercised on the basis of the then most recent monthly financial statements furnished to SWEPCO by SABINE, and the calculation thereof shall be stated in the notice delivered pursuant to Section 4 of this Option Agreement.
Such certified check shall be delivered to NACCO by the Escrow Agent concurrently with the delivery of the escrowed stock to SWEPCO as described in Section 4.
Section 6.     SUBSEQUENT PRICE ADJUSTMENT
Immediately after the delivery of the escrowed stock to SWEPCO as above provided, independent public accountants selected by NACCO and satisfactory to SWEPCO shall make an audit of the results of operations of SABINE for the period ending as of the date of delivery of the escrowed stock to SWEPCO, and the financial position of SABINE as of such date and shall within ninety (90) days after the delivery of the escrowed stock report to SWEPCO and NACCO



the results of said audit. SWEPCO shall pay promptly by certified check to NACCO any amount by which the certified check delivered to the Escrow Agent pursuant to Section 4 is less than the amount due to NACCO as determined by the aforesaid audit by independent public accountants, or NACCO shall refund promptly by certified check to SWEPCO any amount by which the certified check delivered to the Escrow Agent is greater than the amount due to NACCO as so determined by such independent public accountants.
Section 7.         INDEMINIFICATION
In the event the option herein granted is exercised
(1)
NACCO shall indemnify and hold harmless SWEPCO from and against the following:
(a)
all claims and liability for ultra vires acts of SABINE which occur prior to the date of delivery of the escrowed stock to SWEPCO; and
(b)
all claims and liability for state and Federal income taxes of SABINE which are or shall become due for the period prior to the date of delivery of the escrowed stock to SWEPCO and not resulting from any change in accounting methods of SABINE after such date.
(2)
SWEPCO shall indemnify and hold harmless NACCO from and against any claims or liability with respect to the obligations, indebtness or other liabilities of SABINE incurred pursuant to the Lignite Mining Agreement referred to in Section 1 of this Option Agreement for which SWEPCO would have been obligated or liable to pay to or reimburse SABINE directly or indirectly if SWEPCO had not exercised this option other than claims or liabilities referred to in Subsections 1 (a) and (b) of this Section 7.

If any claim or liability is asserted against NACCO or SWEPCO after the date of delivery
of the escrowed stock to SWEPCO in respect of which indemnity may be sought hereunder by SWEPCO or NACCO, the indemnified party shall, as a condition precedent to the obligations of the indemnifying party under this Section 7, promptly so notify the indemnifying party in writing of such claim. The indemnifying party may, at its option, elect to assume the defense of such claim, including the employment of counsel and payment of all expenses associated therewith.



If the indemnifying party assumes such defense, the indemnified party agrees to cooperate and, in the case of SWEPCO to cause SABINE to cooperate fully in such defense, and the indemnified party shall have the right to employ separate counsel and participate in such defense, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party. If the indemnifying party elects not to assume such defense, the indemnifying party shall promptly so notify the indemnified party and the indemnifying party shall be obligated to pay the reasonable fees and expenses of counsel to the indemnified party in such defense.

Section 8.     DELIVERY BY ESCROW AGENT TO NACCO
The Escrow Agent shall forthwith deliver to NACCO the escrowed stock and this Option Agreement shall terminate upon the receipt by the Escrow Agent from SWEPCO and NACCO of written notification that said Lignite Mining Agreement has terminated without the exercise of the option provided for in this Option Agreement.
    
Section 9.     CUSTODY OF ESCROWED STOCK
The Escrow Agent agrees that it will hold the stock delivered to it by NACCO in accordance with the provisions of this Option Agreement and that beneficial and record ownership of said stock shall remain in NACCO during the escrow period. No assignment, transfer or conveyance of any right, title or interest in or to the escrowed stock shall be made by the Escrow Agreement except as provided in this Option Agreement.

Section 10.     FEES AND DUTIES OF ESCROW AGENT
The Escrow Agent will be compensated for performing the functions assigned to it during the period of this Option Agreement by an annual fee of $250, one-half (1/2) of which shall be paid by SWEPCO, and one-half (1/2) by NACCO. The Escrow Agent shall not be liable for any action it may take or fail to take as Escrow Agent while its conduct is in good faith and in the exercise of its counsel. The Escrow Agent may act without liability in reliance upon the genuineness of the signatures and the authority or identity of the persons acting as or for the parties to this Option Agreement or acting as or



for the independent public accountants aforesaid.

Section 11.     TERM
This Option Agreement, unless sooner terminated pursuant to Section 8 hereof, or by the exercise of the option herein granted, in all events terminates twenty-one (21) years after the death of the last surviving lineal descendants living in the date hereof of Paul C. Jones, President of Central and South West Fuels, Inc., at which time the Escrow Agent shall deliver the escrowed stock to NACCO.

Section 12.     SUCCESSOR ESCROW AGENT
In case of the merger or consolidation of the Escrow Agent, the resultant corporation shall be Escrow Agent without notice to any party. NACCO and SWEPCO may at any time mutually designate in writing another person or corporation as successor Escrow Agent. The Escrow Agent, upon receipt from SWEPCO and NACCO of such designation, shall promptly deliver to such successor the escrowed stock, and such successor shall be bound by all the covenants of the Escrow Agent herein set forth.
Section 13.     COUNTERPARTS
This Option Agreement may be executed in any number of identical counterparts, each of which when executed by the parties hereto, shall be considered to be an original.
Section 14.     GOVERNING LAW
This Option Agreement shall be construed and enforced in accordance with the laws of the State of Texas.
Section 15.     MISCELLANEOUS
(a)
During the term of this Option Agreement, NACCO shall not permit or allow
SABINE to change its stated capital or corporate charter nor issues or authorize any other additional capital stock and shall not sell, assign or otherwise dispose of or encumber, except pursuant to this Option Agreement, the stock of SABINE.



(b)
This Option Agreement shall inure to the benefit of the parties hereto, their
successors, assigns and nominees.
IN WITNESS WHEREOF, the parties hereto have executed this instrument the
day and year first above written.


 
 
THE NORTH AMERICAN COAL
CORPORATION
ATTEST:
 
 
 
/s/ Thomas A. Koza
 
By:
/s/ Otes Bennett, Jr.
Secretary
 
 
President

 
 
SOUTHWESTERN ELECTRIC POWER
COMPANY
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ J. Lamar Stahl
Secretary
 
 
President

 
 
LONGVIEW NATIONAL BANK
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ Signature Illegible
Secretary
 
 
President





POWER OF ATTORNEY TO TRANSFER STOCK

KNOW ALL MEN BY THESE PRESENTS, that THE NORTH AMERICAN COAL CORPORATION has, for a valuable consideration, sold to SOUTHWSETERN ELECTRIC POWER COMPANY one thousand (1,000) shares, owned by it, of the capital stock of THE SABINE MINING COMPANY standing in its name as per Certificate No. 1 and does hereby appoint __________________ Attorney for it and in its name to sell and transfer unto said SOUTHWESTERN ELECTRIC POWER COMPANY or to such person or persons as the said SOUTHWESTERN ELECTRIC POWER COMPANY may order the whole or any part of the said stock.

Witness its seal and the signature of its President this 15 th day of January, A.D. 1981.

 
 
THE NORTH AMERICAN COAL
CORPORATION
ATTEST:
 
 
 
 
 
By:
 
Secretary
 
 
President




Exhibit 10.23
STATE OF TEXAS
ADDENDUM TO OPTION AGREEMENT
COUNTY OF GREGG
THIS AGREEMENT is and shall be an Addendum to that certain Option Agreement executed of even date herewith, to which this Addendum is attached, by and among THE NORTH AMERICAN COAL CORPORATION, an Ohio corporation with its principal office at Cleveland, Ohio, hereinafter referred to as "NACCO"; and SOUTHWESTERN ELECTRIC POWER COMPANY, a Delaware corporation with its principal office at Shreveport, Louisiana, hereinafter referred to as "SWEPCO"; and Longview National Bank, a national banking association with its principal office at Longview, Texas, hereinafter referred to as "Escrow Agent", and is intended and shall be an addendum and modification to certain of the terms and provisions of the referenced Option Agreement, and to the extent any term or provision hereof conflicts with a term or provision of said Option Agreement, the terms and provisions hereof shall be superior in all such respects, and is as follows:
1.
It is understood and agreed that the escrowed stock to be delivered to SWEPCO by Escrow Agent as provided in Section 4 of the Option Agreement shall be in the form as such stock and stock power is in as of date of execution hereof and delivery of such stock, with the Escrow Agent making no representation and assuming no liability for the proper or legal form of such stock.
2.
It is understood and agreed that the determination of the price and amount of payment for the escrowed stock as provided in Section 5 of the Option Agreement shall be determined only by SWEPCO and NACCO, with the Escrow Agent having no duty or obligation with regard to such determination, and in no event shall Escrow Agent be required to arbitrate or otherwise exercise any discretionary authority with regard to the amount of such purchase price other than to deliver the escrowed stock to SWEPCO within ten days from the date of receipt by Escrow Agent of the certified check and notices required pursuant to Sections 4 and 6 of the Option Agreement.
3.
It is understood and agreed that the term Escrow Agent as used within the Option Agreement and as specifically used in Section 10 thereof shall also include and refer to any



officer, agent or employee of Escrow Agent. In this regard SWEPCO and NACCO shall, and do hereby, agree to indemnify and hold harmless Escrow Agent from any and all loss, claim, demand, cost or other expense including but not limited to attorneys' fees, that may arise out of, or be connected with or related to, the performance by Escrow Agent of its responsibilities as Escrow Agent pursuant to the Option Agreement, save and except only actual gross negligence of Escrow Agent. Further, any notices or other documents including but not limited to any notice required pursuant to Section 4(1)a, b or c may be relied upon by Escrow Agent as true and correct in all respects, with Escrow Agent having no responsibility to ascertain the truth, accuracy or genuineness of the representations made with such notices, and Escrow Agent shall not be required to represent or verify the truth, accuracy or genuineness of such notice from SWEPCO or other entities.
THIS ADDENDUM is made and entered into on this the 15 th day of January, 1981 and shall be construed as a part of the Option Agreement and shall be binding upon the parties hereto.

 
 
THE NORTH AMERICAN COAL
CORPORATION
ATTEST:
 
 
 
/s/ Thomas A. Koza
 
By:
/s/ Otes Bennett, Jr.
SECRETARY
 
 
President

 
 
SOUTHWESTERN ELECTRIC POWER COMPANY
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ J. Lamar Stahl
SECRETARY
 
 
President

 
 
LONGVIEW NATIONAL BANK
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ Signature Illegible
SECRETARY
 
 
President






Exhibit 10.24
AMENDMENT TO OPTION AGREEMENT

THIS AMENDMENT TO OPTION AGREEMENT (“Amendment”) is made and entered into as of December 2, 1996, by and among THE NORTH AMERICAN COAL CORPORATION , a Delaware corporation with its principal office at Dallas, Texas (hereinafter referred to as “NAC”); and SOUTHWESTERN ELECTRIC POWER COMPANY , a Delaware corporation with its principal office at Shreveport, Louisiana (hereinafter referred to as “SWEPCO”); and LONGVIEW NATIONAL BANK , having an office at Longview, Texas (hereinafter referred to as “Escrow Agent”).
WITNESSETH:
WHEREAS, The North American Coal Corporation (now known as Bellaire Corporation), an Ohio corporation (“Bellaire”), SWEPCO and Escrow Agent entered into an Option Agreement dated as of January 15, 1981, whereby Bellaire granted to SWEPCO the right to purchase the stock of The Sabine Mining Company, a Texas corporation (“SMC-Texas”), upon the occurrence of certain events and Escrow Agent agreed to hold the capital stock of SMC-Texas as escrow agent; and
WHEREAS, Bellaire, SWEPCO and Escrow Agent also entered into an Addendum to said Option Agreement, which Addendum also was dated as of January 15, 1981; and
WHEREAS, NAC, an affiliate of Bellaire, acquired the stock of SMC-Texas from Bellaire on June 30, 1988, and by Agreement dated as of June 30, 1988, NAC assumed the obligations of Bellaire under the Option Agreement dated January 15, 1981 (said Option Agreement, as amended by the Addendum dated January 15, 1981 and by the Agreement dated June 30, 1988, being hereinafter referred to as the “Option Agreement”); and
WHEREAS, effective January 1, 1996 SMC-Texas and SWEPCO entered into a Restatement of Lignite Mining Agreement (hereinafter referred to as the “Restated Lignite Mining Agreement”) for the purpose of amending and restating the Lignite Mining Agreement (as defined in the Option Agreement); and

Page1


WHEREAS, effective as of the dated of this Amendment and with the consent of SWEPCO, SMC-Texas has merged with and into The Sabine Mining Company, a Nevada corporation and an afilliate of SMC-Texas (“SMC-Nevada”), with SMC-Nevada being the surviving corporation;
WHEREAS, the parties desire to amend the Option Agreement solely for the purpose of reflecting such merger;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:
1.
At the time of execution hereof, (a) NAC has delivered to Escrow Agent for the purposes
herein specified, and Escrow Agent hereby acknowledges the receipt of, Share Certificate No. 1 for 1,000 shares of the capital stock of SMC-Nevada, being all of the authorized and issued capital stock of SMC-Nevada, together with a duly executed and legally effective stock power therefor, permitting the immediate transfer of said stock on the books of SMC-Nevada into the name of SWEPCO and (b) Escrow Agent has delivered to NAC, and NAC hereby acknowledges receipt of, Share Certificate No. 3 for 1,000 shares of the capital stock of SMC-Texas, which shares have been canceled as a result of the merger of SMC-Texas with and into SMC-Nevada. The term “escrowed stock” as used in the Option Agreement hereinafter shall mean and refer to the capital stock of SMC-Nevada, as evidenced by such Share Certificate No. 1.
2.
The term “SABINE” as used in the Option Agreement hereafter shall mean and refer
to SMC-Nevada.
3.
The term “Lignite Mining Agreement” as used in the Option Agreement hereafter
shall mean and refer to the Restated Lignite Mining Agreement.
4.
Section 7(b) of the Agreement dated June 30, 1988 is hereby amended to read in its
entirety:
(b) Retain SMC-Nevada as a single-purpose Nevada corporation.
5.
The Option Agreement, as amended hereby, is hereby ratified and confirmed and shall
remain in full force and effect.

Page2


6.
This Amendment may be executed in any number of identical counterparts, each of
which when executed by the parties hereto, shall be considered to be an original.

IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and year first above written.

 
 
THE NORTH AMERICAN COAL
CORPORATION
ATTEST:
 
 
 
/s/ David G. Mitchell
 
By:
/s/ Thomas A. Koza
Assistant Secretary
 
 
Thomas A. Koza, Vice President – Law and Administration, and Secretary

 
 
SOUTHWESTERN ELECTRIC POWER COMPANY
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ A. Dean Fuller
Secretary
 
Printed Name:
A. Dean Fuller
 
 
Title:
Authorized Agent

 
 
LONGVIEW NATIONAL BANK
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ Daniel M. Whitehurst
Title:
 
Printed Name:
Daniel M. Whitehurst
 
 
Title:
VP & Senior Trust Officer


 

Page3

Exhibit 10.25
SECOND AMENDMENT TO OPTION AGREEMENT

THIS SECOND AMENDMENT TO OPTION AGREEMENT (“Amendment”) is made and entered into as of January 1, 2008, by and among THE NORTH AMERICAN COAL CORPORATION (formerly known as Nortex Mining Company) , a Delaware corporation with its principal office at Dallas, Texas (hereinafter referred to as “NACCO”); and SOUTHWESTERN ELECTRIC POWER COMPANY , a Delaware corporation with its principal office at Columbus, Ohio (hereinafter referred to as “SWEPCO”); and REGIONS BANK , having an office at Longview, Texas (hereinafter referred to as “Regions” or “Escrow Agent”).
WITNESSETH:
WHEREAS, The North American Coal Corporation (now known as Bellaire Corporation), an Ohio corporation (“Bellaire”), SWEPCO and Longview National Bank entered into an Option Agreement dated as of January 15, 1981, whereby Bellaire granted to SWEPCO the right to purchase the stock of The Sabine Mining Company, a Texas corporation (“SMC-Texas”), upon the occurrence of certain events, and Longview National Bank agreed to hold the capital stock of SMC-Texas as escrow agent; and
WHEREAS, Bellaire, SWEPCO and Longview National Bank also entered into an Addendum to said Option Agreement, which Addendum also was dated as of January 15, 1981; and
WHEREAS, NACCO, an affiliate of Bellaire, acquired the stock of SMC-Texas from Bellaire on June 30, 1988, and by Agreement dated as of June 30, 1988, NACCO assumed the obligations of Bellaire under the Option Agreement dated January 15, 1981 (said Option

Page1


Agreement, as amended by the Addendum dated January 15, 1981, by the Agreement dated June 30, 1988, and by the Amendment to Option Agreement dated as of December 2, 1996, being hereinafter referred to as the “Option Agreement”); and
WHEREAS, effective January 1, 1996, SMC-Texas and SWEPCO entered into a Restatement of Lignite Mining Agreement for the purpose of amending and restating the Lignite Mining Agreement (as defined in the Option Agreement); and
WHEREAS, effective as of December 2, 1996, and with the consent of SWEPCO, SMC-Texas merged with and into The Sabine Mining Company, a Nevada corporation and an affiliate of SMC-Texas (“SMC-Nevada”), with SMC-Nevada being the surviving corporation;
WHEREAS, effective as of December 2, 1996, the parties to the Option Agreement amended the Option Agreement solely for the purpose of reflecting such merger, which amendment provides in part that the term “SABINE” as used in the Option Agreement shall mean and refer to SMC-Nevada;
WHEREAS, effective as of September 11, 1998, Regions Bank acquired Longview National Bank and succeeded to the obligations of Longview National Bank under the Option Agreement, as amended;
WHEREAS, effective as of December 1, 2001, SMC-Nevada and SWEPCO entered into a Second Restatement of Lignite Mining Agreement (hereinafter referred to as the “Second Restated Lignite Mining Agreement”) for the purpose of further amending and restating the Lignite Mining Agreement;
WHEREAS, effective as of January 1, 2008, SMC-Nevada (also known as The Sabine Mining Company) and SWEPCO entered into a Third Restatement of Lignite Mining

Page2


Agreement (hereinafter referred to as the “Third Restated Lignite Mining Agreement”) for the purpose of further amending and restating the Lignite Mining Agreement; and
WHEREAS, the parties desire to further amend the Option Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

1.
Section 5 of the Option Agreement hereby is amended to read in its entirety as follows:
Section 5. PRICE DETERMINATION AND AMOUNT OF PAYMENT

The price to be paid to NACCO for the escrowed stock and the amount of the certified check to be delivered by SWEPCO to the Escrow Agent shall be an amount equal to the sum of the following:
(a)
the stated capital of SABINE which shall be 1,000 shares of common stock having a stated value of $1,000.00; and
(b)
The amount of capital in excess of stated value; and
(c)
An amount equal to the undistributed net earnings of SABINE; and
(d)
An amount equal to the net deferred income taxes on the books of SABINE related solely to the Henry W. Pirkey Unit No. 1 and property and equipment of SABINE acquired by SWEPCO pursuant to SWEPCO’s exercise of the option.
The amount of the certified check to be delivered to the Escrow Agent as aforesaid shall be determined by SWEPCO at the time the option is exercised on the basis of the then most recent monthly financial statements furnished to SWEPCO by SABINE, and the calculation thereof shall be stated in the notice delivered pursuant to Section 4 of this Option Agreement.
Such certified check shall be delivered to NACCO by the Escrow Agent concurrently with the delivery of the escrowed stock to SWEPCO as

Page3


described in Section 4.
2.
Section 6 of the Option Agreement hereby is amended to read in its entirety as follows:
Immediately after the delivery of the escrowed stock to SWEPCO as above provided, independent public accountants selected by SWEPCO and satisfactory to NACCO shall make an audit of the results of operations of SABINE for the period ending as of the date of delivery of the escrowed stock to SWEPCO, and the financial position of SABINE as of such date and shall within ninety (90) days after the delivery of the escrowed stock report to SWEPCO and NACCO the results of said audit. SWEPCO shall pay promptly by certified check to NACCO any amount by which the certified check delivered to the Escrow Agent pursuant to Section 4 is less than the amount due to NACCO as determined by the aforesaid audit by independent public accountants, or NACCO shall refund promptly by certified check to SWEPCO any amount by which the certified check delivered to the Escrow Agent is greater than the amount due to NACCO as so determined by such independent public accountants.
3.
Section 7 of the Option Agreement is amended to add the following at the end thereof:
Both NACCO and SWEPCO shall join in making a timely, irrevocable and effective election under Section 338(h)(10) of the Internal Revenue Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated under the Code and any similar election under any applicable state, local or foreign income tax law (collectively the “Section 338(h)(10) Elections”) with respect to SWEPCO’s purchase of the escrowed stock of SABINE. To facilitate such election, concurrently with the delivery of the escrowed stock to SWEPCO, NACCO shall deliver to SWEPCO an Internal Revenue Service Form 8023 and any similar forms under applicable state, local or foreign income tax law with respect to SWEPCO‘s purchase of the shares of SABINE, which forms (collectively the “Forms”) shall have been duly executed by an authorized person for NACCO. SWEPCO shall cause the Forms to be duly executed by an authorized person for SWEPCO, shall complete the schedules required to be attached thereto, shall provide a copy of the executed Forms and schedules to NACCO, and shall duly and timely file the Forms as prescribed by Treasury Regulation 1.338(h)(10)-1 and the provisions of applicable state, local or foreign income tax law. NACCO and SWEPCO agree that the purchase price and the liabilities of SABINE (plus other relevant items) shall be allocated to the assets of SABINE for all purposes (including tax and financial accounting purposes) in a manner consistent with Internal Revenue Code §338 and supporting regulations and any other similar state, local or foreign laws and regulations. Such allocations and readjustments required

Page4


under Internal Revenue Code §338 and supporting regulations under any other similar state, local or foreign laws and regulations shall be reflected in the allocation set forth in a schedule to be included in the closing documents and delivered concurrently with the delivery of the escrowed stock to SWEPCO. SWEPCO, SABINE and NACCO shall file all tax returns (including amended returns and claims for refund) and information reports in a manner consistent with the above.
4.
The term “Lignite Mining Agreement” as used in the Option Agreement hereafter shall mean and refer to the Third Restated Lignite Mining Agreement.
5.
The Option Agreement, as amended hereby, is hereby ratified and confirmed and shall remain in full force and effect.
6.
This Amendment may be executed in any number of identical counterparts, each of which, when executed by the parties hereto, shall be considered to be an original.    
[Signatures appear on following page.]

Page5


IN WITNESS HEREOF, the parties hereto have executed this instrument as of the date first above written.

 
 
THE NORTH AMERICAN COAL CORPORATION
 
 
 
 
/s/ Belinda Coleman
 
By:
/s/ Thomas A. Koza
Witness
 
Printed Name:
Thomas A. Koza
 
 
Title:
Vice President - Law and Administration, and Secretary
 
 
SOUTHWESTERN ELECTRIC POWER COMPANY
 
 
 
 
/s/ Signature Illegible
 
By:
/s/ Timothy K. Light
Witness
 
Printed Name:
Timothy K. Light
 
 
Title:
Vice President
 
 
REGIONS BANK
 
 
 
 
/s/ Lisa A. Mayfield
 
By:
/s/ Gordon Northcutt
Witness
 
Printed Name:
Gordon Northcutt
 
 
Title:
VP & Trust Officer


Page6

Exhibit 10.26
AGREEMENT
THIS AGREEMENT (“Agreement”) is made and entered into as of the 30 th day of June, 1988, by and among THE NORTH AMERICAN COAL CORPORATION, an Ohio corporation (hereinafter referred to as “NACCO”); SOUTHWESTERN ELECTRIC POWER COMPANY, a Delaware corporation individually and as Project Manager of the Henry W. Pirkey Power Plant and the associated Lignite Reserves and in behalf of owners thereof (hereinafter referred to as “SWEPCO”); TEXAS COMMERCE BANK-LONGVIEW, NATIONAL ASSOCIATION (successor to Longview National Bank), a national Banking association having an office at Longview, Texas (hereinafter referred to as “Escrow Agent”); NORTEX MINING COMPANY, a Delaware corporation and wholly-owned subsidiary of NACCO (hereinafter referred to as (“NORTEX”); and THE SABINE MINING COMPANY, a Delaware corporation and wholly–owned subsidiary of NACCO (hereinafter referred to as “SABINE”).
WITNESSETH:
WHEREAS, NACCO, SWEPCO and Escrow Agent entered into an Option Agreement dated January 15, 1981 (the “Option Agreement”), whereby NACCO granted to SWEPCO the exclusive right and option to purchase the capital stock of SABINE; and
WHEREAS, the Option Agreement prohibits the assignment of the capital stock of SABINE by NACCO; and
WHEREAS, NACCO desires to assign to NORTEX the capital stock of SABINE and all of NACCO’s interests in the Option Agreement, and NORTEX desires to accept such capital stock and assignment; and
WHEREAS, SWEPCO is willing to consent to such assignment of the capital stock of SABINE and the Option Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows:

- 1 -


1.
Contemporaneously with the execution and delivery of this Agreement, Escrow Agent has
delivered to NACCO, and NACCO hereby acknowledges receipt of, Share Certificate No. 001 for 1,000 shares of capital stock of SABINE and the originally executed stock power which were delivered by NACCO to Escrow Agent pursuant to Section 2 of the Option Agreement.
2.
(a)     NACCO does hereby assign, transfer and convey to NORTEX, and NORTEX does hereby
Accept from NACCO, one thousand (1,000) shares of the capital stock of SABINE. NACCO hereby delivers to NORTEX, and NORTEX hereby acknowledges receipt of, Share Certificate No. 001 together with a duly executed legally effective stock power therefor, permitting the immediate transfer of such capital stock on the books of SABINE into the name of NORTEX.
(b)     NACCO does hereby assign to NORTEX, and NORTEX does hereby accept and expressly assume, all of the rights, obligations and interests accruing to NACCO in, to and under the Option Agreement. NACCO shall act as surety for the timely performance of all obligations which it hereby assigns to NORTEX.
3.
NORTEX hereby delivers to SABINE, and SABINE hereby acknowledged receipt of, Share
Certificate No. 001 and the stock power duly executed by NACCO.
4.
SABINE hereby issues and delivers to NORTEX, and NORTEX hereby acknowledges receipt of,
Share Certificate No. 003 for 1,000 shares of the capital stock of SABINE.
5.
NORTEX hereby delivers to the Escrow Agent, and the Escrow Agent hereby acknowledges
receipt of, Share Certificate No. 003 for 1,000 shares of the capital stock of SABINE, together with a duly executed and legally effective stock power, permitting the immediate transfer of said stock on the books of SABINE, which share certificate and stock power for all purposes under the Option Agreement shall replace and be substituted for Share Certificate No. 001 and the stock power

- 2 -


delivered by NACCO to the Escrow Agent pursuant to Section 2 of the Option Agreement.
6.
The timing of the various transfers set forth in Sections 1 through 5 hereof shall be effected
Sequentially but none shall be deemed to have occurred for any purpose until all have been concluded.
7.
NORTEX covenants, warrants and guarantees to SWEPCO that it will:
(a)
Assume and perform all rights and obligations of whatever nature acquired and
undertaken by NACCO under the Option Agreement and that certain Lignite Mining Agreement dated January 15, 1981, between SABINE and SWEPCO.
(b)
Retain SABINE as s single–purpose Texas corporation.
(c)
Maintain or cause SABINE to maintain separate and complete books and records of all
SABINE transactions of whatever nature, including but not limited to, affiliated intercompany and third party transactions as well as transfers to pension or other employee benefit plans or trusts.
8.
NACCO covenants, warrants and guarantees to SWEPCO the timely performance of any and
all obligations of NACCO contained in that certain Lignite Mining Agreement dated January 15, 1981, between SABINE and SWEPCO, Should NORTEX, as assignee of such obligations, fail or refuse to satisfy or discharge any or all such obligations or liabilities, NACCO shall promptly act to perform such obligations.
9.
NACCO and NORTEX covenant, warrant and guarantee that the buy-out provisions
contained in Section 5 of the Option Agreement shall pertain only to values displayed by the financial statements of SABINE. Should any legal action, suit, claim or involuntary reorganization of NORTEX result in a merger or other combination of the assets, liabilities and shareholders’ equity of SABINE with NORTEX or any other company, or should SABINE cease to exist as a legally separate, single-purpose corporation, regardless of whether such event or reorganization was within the control or ability of NORTEX or NACCO to prevent, NACCO and NORTEX covenant, warrant and agree that they shall be jointly and severally liable to SWEPCO for, and shall jointly and

- 3 -


severally indemnify and hold harmless SWEPCO against, any amounts, claims, expense or causes of action which extend, change or otherwise accrue to SABINE as a result of such merger, combination or carry over of obligations, costs and/or liabilities of SABINE. NACCO and NORTEX shall pay to SWEPCO, at a minimum, that amount of capital in excess of the amount of capital less $1,000 appearing on the latest certified monthly financial statement of SABINE existing prior to any involuntary merger or combination of SABINE assets, liabilities and shareholders’ equity with that of any other company.
    
This indemnification and hold harmless agreement shall continue even though SABINE is involuntarily dissolved or the purposes of the Option Agreement have been otherwise frustrated by actions beyond the control of NACCO and NORTEX.
10.
NACCO and NORTEX agree that SWEPCO’s audit rights under the Lignite Mining Agreement
dated January 15, 1981 shall be extended do that SWEPCO may trace all SABINE transactions involving its assets and expense either forward or backward into or out of any NACCO affiliate. To accomplish this purpose, NACCO and NORTEX agree that SWEPCO may audit the accounts of NACCO or any NACCO affiliate in the same manner as if SWEPCO were exercising its audit rights of SABINE under ARTICLE XIII of the Lignite Mining Agreement dated January 15, 1981.
11.
Notwithstanding anything to the contrary contained in the Option Agreement, SWEPCO
hereby consents and agrees to the transactions contemplated by this Agreement.
12.
The Option Agreement, as modified by the transactions contemplated hereby and Section 7
hereof, is hereby ratified and confirmed and shall remain in full force and effect.
13.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be an original, but all of which shall collectively constitute one and the same instrument.
14.
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their

- 4 -


respective nominees, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and year first above written.
 
 
THE NORTH AMERICAN COAL CORPORATION
ATTEST:
 
 
 
/s/ Thomas A. Koza
 
By:
/s/ Clifford R. Miercort
Secretary
 
 
President

 
 
SOUTHWESTERN ELECTRIC POWER COMPANY, individually and as Project Manager of the Henry W. Pirkey Power Plant and the Associated Lignite Reserves and in behalf of the owners thereof
ATTEST:
 
 
 
/s/ Elizabeth D. Stephens
 
By:
/s/ John W. Turk, Jr.
 
 
 
John W. Turk, Jr.
Secretary
 
 
President

 
 
Texas Commerce BANK-Longview, National Association
ATTEST:
 
 
 
/s/ Signature Illegible
 
By:
/s/ Signature Illegible
Title:
 
 
Vice President

 
 
NORTEX MINING COMPANY
ATTEST:
 
 
 
/s/ Thomas A. Koza
 
By:
/s/ John R. Cook
Secretary
 
 
Vice President – Finance and Administration


- 5 -


 
 
THE SABINE COMPANY
ATTEST:
 
 
 
/s/ Thomas A. Koza
 
By:
/s/ Glen A. Eckhart
Secretary
 
 
President


- 6 -

Exhibit 10.27
 
CREDIT AGREEMENT
Dated as of April 29, 2010
among
THE KITCHEN COLLECTION, INC.,
as the Lead Borrower
for
The Borrowers Named Herein

THE BORROWERS NAMED HEREIN

THE GUARANTORS NAMED HEREIN

WELLS FARGO RETAIL FINANCE, LLC
as Administrative Agent, Collateral Agent, Swing Line Lender,
and
THE OTHER LENDERS NAMED HEREIN

 




TABLE OF CONTENTS
Section

Page
 
 
 
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
 
 
 
1.01
Defined Terms
1.02
Other Interpretive Provisions
1.03
Accounting Terms
1.04
Rounding
1.05
Times of Day
1.06
Letter of Credit Amounts
 
 
 
ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS
 
 
 
2.01
Committed Loans; Reserves
2.02
Borrowings, Conversions and Continuations of Committed Loans.
2.03
Letters of Credit.
2.04
Swing Line Loans.
2.05
Prepayments.
2.06
Termination or Reduction of Commitments.
2.07
Repayment of Loans.
2.08
Interest.
2.09
Fees
2.10
Computation of Interest and Fees
2.11
Evidence of Debt.
2.12
Payments Generally; Administrative Agent’s Clawback.
2.13
Sharing of Payments by
2.14
Settlement Amongst Lenders
2.15
Initial Increase in Commitments.
2.16
Additional Increase in Commitments.
2.17
Extension of Maturity Date
 
 
 
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY; APPOINTMENT OF LEAD BORROWER
 
 
 
3.01
Taxes.
3.02
Illegality
3.03
Inability to Determine Rates
3.04
Increased Costs; Reserves on LIBO Rate Loans.
3.05
Compensation for Losses
3.06
Mitigation Obligations; Replacement of Lenders.
3.07
Survival
3.08
Designation of Lead Borrower as Borrowers’ Agent.
 
 
 
ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
 
 
 
4.01
Conditions of Initial Credit Extension
4.02
Conditions to all Credit Extensions
 
 
 
ARTICLE V REPRESENTATIONS AND WARRANTIES
 
 
 
5.01
Existence, Qualification and Power
5.02
Authorization; No Contravention

( i )


5.03
Governmental Authorization; Other Consents
5.04
Binding Effect
5.05
Financial Statements; No Material Adverse Effect.
5.06
Litigation
5.07
No Default
5.08
Ownership of Property; Liens.
5.09
Environmental Compliance.
5.10
Insurance
5.11
Taxes
5.12
ERISA Compliance.
5.13
Subsidiaries; Equity Interests
5.14
Margin Regulations; Investment Company Act.
5.15
Disclosure.
5.16
Compliance with Laws
5.17
Intellectual Property; Licenses, Etc.
5.18
Labor Matters.
5.19
Security Documents.
5.20
Solvency
5.21
Deposit Accounts; Credit Card Arrangements.
5.22
Brokers
5.23
Customer and Trade Relations
5.24
Material Contracts
5.25
Casualty
 
 
 
ARTICLE VI AFFIRMATIVE COVENANTS
 
 
 
6.01
Financial Statements
6.02
Certificates; Other Information
6.03
Notices
6.04
Payment of Obligations.
6.05
Preservation of Existence, Etc.
6.06
Maintenance of Properties.
6.07
Maintenance of Insurance
6.08
Compliance with Laws
6.09
Books and Records;
6.10
Inspection Rights
6.11
Use of Proceeds
6.12
Additional Loan Parties
6.13
Cash Management.
6.14
Information Regarding the Collateral.
6.15
Physical Inventories.
6.16
Environmental Laws.
6.17
Further Assurances.
6.18
Compliance with Terms of Leaseholds
6.19
Material Contracts

( ii )


 
 
 
ARTICLE VII NEGATIVE COVENANTS
 
 
 
7.01
Liens
7.02
Investments
7.03
Indebtedness; Disqualified Stock.
7.04
Fundamental Changes
7.05
Dispositions
7.06
Restricted Payments
7.07
Prepayments of Indebtedness.
7.08
Change in Nature of Business
7.09
Transactions with Affiliates
7.10
Burdensome Agreements
7.11
Use of Proceeds
7.12
Amendment of Material Documents.
7.13
Fiscal Year.
7.14
Deposit Accounts; Credit Card Processors.
7.15
Minimum Availability
 
 
 
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES
 
 
 
8.01
Events of Default
8.02
Remedies Upon Event of Default
8.03
Application of Funds
 
 

ARTICLE IX ADMINISTRATIVE AGENT
 
 
 
9.01
Appointment and Authority.
9.02
Rights as a Lender
9.03
Exculpatory Provisions
9.04
Reliance by Agents.
9.05
Delegation of Duties
9.06
Resignation of Agents
9.07
Non-Reliance on Administrative Agent and Other Lenders
9.08
[Reserved]
9.09
Administrative Agent May File Proofs of Claim
9.10
Collateral and Guaranty Matters
9.11
Notice of Transfer.
9.12
Reports and Financial Statements.
9.13
Agency for Perfection.
9.14
Indemnification of Agents
9.15
Relation among Lenders
9.16
Defaulting Lender.
 
 
 
ARTICLE X MISCELLANEOUS
 
 
 
10.01
Amendments, Etc.
10.02
Notices; Effectiveness; Electronic Communications.
10.03
No Waiver; Cumulative Remedies

( iii )


10.04
Expenses; Indemnity; Damage Waiver.
10.05
Payments Set Aside
10.06
Successors and Assigns.
10.07
Treatment of Certain Information; Confidentiality
10.08
Right of Setoff
10.09
Interest Rate Limitation
10.10
Counterparts; Integration; Effectiveness
10.11
Survival
10.12
Severability
10.13
Replacement of Lenders
10.14
Governing Law; Jurisdiction; Etc.
10.15
Waiver of Jury Trial
10.16
No Advisory or Fiduciary Responsibility
10.17
Patriot Act Notice
10.18
Foreign Asset Control Regulations
10.19
Time of the Essence
10.20
Press Releases.
10.21
Additional Waivers.
10.22
No Strict Construction.
10.23
Attachments.


( iv )


SCHEDULES
 
1.01
Borrowers
 
1.02
Guarantors
 
1.03
Licensed Department Agreements
 
2.01
Commitments and Applicable Percentages
 
5.01
Loan Parties’ Organizational Information
 
5.05
Supplement to Interim Financial Statements
 
5.06
Litigation
 
5.08(b)(1)
Owned Real Estate
 
5.08(b)(2)
Leased Real Estate
 
5.09
Environmental Matters
 
5.10
Insurance
 
5.13
Subsidiaries; Other Equity Investments; Equity Interests in the Loan Parties
 
5.18
Collective Bargaining Agreements
 
5.21(a)
DDAs
 
5.21(b)
Credit Card Arrangements
 
5.24
Material Contracts
 
6.02
Financial and Collateral Reporting
 
7.01
Existing Liens
 
7.02
Existing Investments
 
7.03
Existing Indebtedness
 
10.02
Administrative Agent’s Office; Certain Addresses for Notices

EXHIBITS
 
 
Form of
 
A
Committed Loan Notice
 
B
Swing Line Loan Notice
 
C-1
Note
 
C-2
Swing Line Note
 
D
Compliance Certificate
 
E
Assignment and Assumption
 
F
DDA Notification
 
G
Credit Card Notification
 
H
Borrowing Base Certificate


( v )


CREDIT AGREEMENT
This CREDIT AGREEMENT (“Agreement”) is entered into as of April 29, 2010, among
THE KITCHEN COLLECTION, INC., a Delaware corporation (the “Lead Borrower”),
the Persons named on Schedule 1.01 hereto (together with the Lead Borrower, collectively and as further defined herein, the “Borrowers”),
the Persons named on Schedule 1.02 hereto (collectively and as further defined herein, the “Guarantors”),
each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and
WELLS FARGO RETAIL FINANCE, LLC, as Administrative Agent, Collateral Agent, and Swing Line Lender.
The Borrowers have requested that the Lenders provide a revolving credit facility, and the Lenders have indicated their willingness to lend and Agent has indicated its willingness to endeavor to cause the L/C Issuer to issue Letters of Credit, in each case on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01      Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:
“Accelerated Borrowing Base Delivery Event” means either (i) the occurrence and continuance of any Event of Default, or (ii) the failure of the Borrowers to maintain Availability at least equal to the greater of (a) twenty percent (20%) of the Loan Cap for five (5) consecutive calendar days, or (b) $3,000,000 at any time. For purposes of this Agreement, the occurrence of an Accelerated Borrowing Base Delivery Event shall be deemed continuing at the Administrative Agent’s option (i) so long as such Event of Default has not been waived, and/or (ii) if the Accelerated Borrowing Base Delivery Event arises as a result of the Borrowers’ failure to achieve Availability as required hereunder, until Availability has exceeded the greater of (x) twenty percent (20%) of the Loan Cap, or (y) $3,000,000, in either case for forty-five (45) consecutive calendar days, in which case an Accelerated Borrowing Base Delivery Event shall no longer be deemed to be continuing for purposes of this Agreement.
“ACH” means automated clearing house transfers.
“Accommodation Payment” as defined in Section 10.21(d) .
“Account” means “accounts” as defined in the UCC, and also means a right to payment of a monetary obligation, whether or not earned by performance, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a policy of insurance issued or to be issued, (d) for a secondary obligation incurred or to be incurred, (e) for energy

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provided or to be provided, (f) for the use or hire of a vessel under a charter or other contract, (g) arising out of the use of a credit or charge card or information contained on or for use with the card, or (h) as winnings in a lottery or other game of chance operated or sponsored by a state, governmental unit of a state, or person licensed or authorized to operate the game by a state or governmental unit of a state. The term “Account” includes health-care-insurance receivables.
“Acquisition” means, with respect to any Person (a) an Investment in, or a purchase of a Controlling interest in, the Equity Interests of any other Person, (b) a purchase or other acquisition of all or substantially all of the assets or properties of, another Person or of any business unit of another Person, (c) any merger or consolidation of such Person with any other Person or other transaction or series of transactions resulting in the acquisition of all or substantially all of the assets, or a Controlling interest in the Equity Interests, of any Person, or (d) any acquisition of any Store locations of any Person, in each case in any transaction or group of transactions which are part of a common plan.
“Acquisition Documents” means, with respect to any Acquisition, the asset purchase agreement, purchase and sale agreement or similar agreement and all other documents, instruments and agreements executed in connection therewith.
“Additional Commitment Lender” shall have the meaning provided in Section 2.16 .
“Additional Increase” shall have the meaning provided in Section 2.16(a) .
“Additional Increase Effective Date” shall have the meaning provided in Section 2.16(d) .
“Additional Increase Request” shall have the meaning provided in Section 2.16(a) .
“Adjusted Aggregate Commitments” means the Aggregate Commitments after giving effect to the Initial Increase described in Section 2.15 hereof, regardless of whether the Initial Increase Effective Date shall have occurred.
“Adjusted LIBO Rate” means:
(a)    for any Interest Period with respect to any LIBO Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of one percent) equal to (i) the LIBO Rate for such Interest Period multiplied by (ii) the Statutory Reserve Rate; and
(b)    for any interest rate calculation with respect to any Base Rate Loan, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of one percent) equal to (i) the LIBO Rate for an Interest Period commencing on the date of such calculation and ending on the date that is thirty (30) days thereafter multiplied by (ii) the Statutory Reserve Rate.
The Adjusted LIBO Rate will be adjusted automatically as of the effective date of any change in the Statutory Reserve Rate.
“Adjustment Date” means the first day of each Fiscal Quarter, commencing with the Fiscal Quarter ending June 30, 2010.
“Administrative Agent” means WFRF in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

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“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify the Lead Borrower and the Lenders.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affiliate” means, with respect to any Person, (i) another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified, (ii) any director, officer, managing member, partner, trustee, or beneficiary of that Person, (iii) any other Person directly or indirectly holding 10% or more of any class of the Equity Interests of that Person, and (iv) any other Person 10% or more of any class of whose Equity Interests is held directly or indirectly by that Person.
“Agent(s)” means, individually, the Administrative Agent or the Collateral Agent, and collectively means both of them.
“Agent Parties” shall have the meaning specified in Section 10.02(c) .
“Aggregate Commitments” means the Commitments of all the Lenders.
“Agreement” means this Credit Agreement.
“Allocable Amount” has the meaning specified in Section 10.21(d) .
“Applicable Lenders” means the Required Lenders, all affected Lenders, or all Lenders, as the context may require.
“Applicable Margin” means:    
(a)      From and after the Closing Date until the first Adjustment Date, the percentages set forth in Level I of the pricing grid below; and
(b)      From and after the first Adjustment Date and on each Adjustment Date thereafter, the Applicable Margin shall be determined from the following pricing grid based upon the Average Daily Availability for the most recent three month period ended immediately preceding such Adjustment Date; provided , however, that notwithstanding anything to the contrary set forth herein, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the direction of the Required Lenders shall, immediately increase the Applicable Margin to that set forth in Level IV (even if the Average Daily Availability requirements for a different Level have been met) and interest shall accrue at the Default Rate; provided further if the foregoing financial statements or any Borrowing Base Certificates are at any time restated or otherwise revised (including as a result of an audit) or if the information set forth in such financial statements or any Borrowing Base Certificates otherwise proves to be false or incorrect such that the Applicable Margin would have been higher than was otherwise in effect during any period, without constituting a waiver of any Default or Event of Default arising as a result thereof, interest due under this Agreement shall be immediately recalculated at such higher rate for any applicable periods and shall be due and payable on demand.

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Level
Average Daily Availability
LIBOR Margin
Base Rate Margin
I
Greater than or equal to 60% of the Loan Cap
2.75%
1.75%
II
Greater than or equal to 45% of the Loan Cap but less than 60% of the Loan Cap
3%
2%
III
Greater than or equal to 25% of the Loan Cap but less than 45% of the Loan Cap
3.25%
2.25%
IV
Less than 25% of the Loan Cap
3.5%
2.5%

“Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the Administrative Agent to endeavor to cause the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“Applicable Rate” means, at any time of calculation, (a) with respect to Commercial Letters of Credit, a per annum rate equal to the Applicable Margin for Loans which are LIBOR Rate Loans minus one-half of one percent (0.50%), and (b) with respect to Standby Letters of Credit, a per annum rate equal to the Applicable Margin for Loans which are LIBOR Rate Loans.
“Appraisal Percentage” means eighty-five percent (85%).
“Appraised Value” means, with respect to the Borrowers’ Eligible Inventory, the appraised orderly liquidation value, net of costs and expenses to be incurred in connection with any such liquidation, which value is expressed as a percentage of Cost of the Borrowers’ Eligible Inventory as set forth in the Borrowers’ inventory stock ledger, which value shall be determined from time to time by the most recent appraisal undertaken by an independent appraiser engaged by the Administrative Agent.
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender, (c) an entity or an Affiliate of an entity that administers or manages a Lender or (d) the same investment advisor or an advisor under common control with such Lender, Affiliate or advisor, as applicable.
“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b) ), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.
“Attributable Indebtedness” means, on any date, (a) in respect of any Capital Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as

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of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease, agreement or instrument were accounted for as a capital lease.
“Auto-Extension Letter of Credit” shall have the meaning specified in Section 2.03(b)(iii) .
“Availability” means, as of any date of determination thereof by the Administrative Agent, the result, if a positive number, of:
(a)    The Loan Cap
Minus
(b)    The aggregate unpaid balance of Credit Extensions to, or for the account of, the Borrowers.
In calculating Availability at any time and for any purpose under this Agreement, the Lead Borrower shall certify to the Administrative Agent that all accounts payable and Taxes are being paid on a timely basis (absent which the Administrative Agent may establish a Reserve therefor).
“Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.06 , and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the Administrative Agent to endeavor to cause the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02 .
“Availability Reserves” means, without duplication of any other Reserves or items to the extent such items are otherwise addressed or excluded through eligibility criteria, such reserves as the Administrative Agent from time to time determines in its Permitted Discretion as being appropriate (a) to reflect the impediments to the Agents’ ability to realize upon the Collateral, (b) to reflect claims and liabilities that the Administrative Agent determines (in its Permitted Discretion) will need to be satisfied in connection with the realization upon the Collateral, (c) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of the Borrowing Base, or the assets, business, financial performance or financial condition of any Loan Party, or (d) to reflect that a Default or an Event of Default then exists and is continuing. Without limiting the generality of the foregoing, Availability Reserves may include, in the Administrative Agent’s Permitted Discretion, (but are not limited to) reserves based on: (i) rent; (ii) customs duties, and other costs to release Inventory which is being imported into the United States; (iii) outstanding Taxes and other governmental charges, including, without limitation, ad valorem, real estate, personal property, sales, and other Taxes which may have priority over the interests of the Collateral Agent in the Collateral; (iv) salaries, wages and benefits due to employees of any Borrower; (v) Customer Credit Liabilities; (vi) reserves for reasonably anticipated changes in the Appraised Value of Eligible Inventory between appraisals; (vii) warehousemen’s or bailee’s charges and other Permitted Encumbrances which may have priority over the interests of the Collateral Agent in the Collateral; (viii) amounts due to vendors on account of consigned goods; (ix) Cash Management Reserves; (x) Bank Products Reserves; (xi) royalties payable in respect of licensed merchandise; and (xii) Debt Maturity Reserve.
“Average Daily Availability” shall mean, with respect to any applicable period, the average daily Availability for such period.

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“Bank Products” means any services of facilities provided to any Loan Party by the Administrative Agent or any of its Affiliates (but excluding Cash Management Services) on account of (a) Swap Contracts, (b) purchase cards, (c) merchant services constituting a line of credit and (d) leasing.
“Bank Product Reserves” means such reserves as the Administrative Agent from time to time determine in its Permitted Discretion as being appropriate to reflect the liabilities and obligations of the Loan Parties with respect to Bank Products then provided or outstanding.
“Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the Adjusted LIBO Rate plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate.” The “prime rate” is a rate set by Wells Fargo based upon various factors including Wells Fargo’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Wells Fargo shall take effect at the opening of business on the day specified in the public announcement of such change.
“Base Rate Loan” means a Loan that bears interest based on the Base Rate.
“Blocked Account” has the meaning provided in Section 6.13(a)(iii) .
“Blocked Account Agreement” means with respect to an account established by a Loan Party, an agreement, in form and substance reasonably satisfactory to the Collateral Agent, establishing control (as defined in the UCC) of such account by the Collateral Agent and whereby the bank maintaining such account agrees, upon the occurrence and during the continuance of a Cash Dominion Event, to comply only with the instructions originated by the Collateral Agent without the further consent of any Loan Party.
“Blocked Account Bank” means each bank with whom deposit accounts (including operating accounts) are maintained in which any funds of any of the Loan Parties from one or more DDAs are concentrated and with whom a Blocked Account Agreement has been, or is required to be, executed in accordance with the terms hereof.
“Borrower Materials” has the meaning specified in Section 6.02 .
“Borrowers” has the meaning specified in the introductory paragraph hereto.
“Borrowing” means a Committed Borrowing or a Swing Line Borrowing, as the context may require.
“Borrowing Base” means, at any time of calculation, an amount equal to:
(a)      an amount equal to the product of (i) the face amount of Eligible Credit Card Receivables minus all outstanding credit card processing fees and charges owing to any credit card processor in respect of such Eligible Credit Card Receivables, multiplied by (ii) the Credit Card Advance Rate;
plus
(b)      the lesser of (i) the Cost of Eligible Inventory, net of Inventory Reserves, multiplied by the product of Appraisal Percentage multiplied by the Appraised Value of Eligible Inventory, or (ii) the Cost of Eligible Inventory, net of Inventory Reserves, multiplied by the Inventory Advance Rate;

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minus
(c)    the then amount of all Availability Reserves.
“Borrowing Base Certificate” means a certificate substantially in the form of Exhibit H hereto (with such changes therein as may be required by the Administrative Agent to reflect the components of and reserves against the Borrowing Base as provided for hereunder from time to time), executed and certified as accurate and complete by a Responsible Officer of the Lead Borrower which shall include appropriate exhibits, schedules, supporting documentation, and additional reports as reasonably requested by the Administrative Agent reasonably in advance of any delivery date for any Borrowing Base Certificate.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any LIBO Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank market.
“Capital Expenditures” means, with respect to any Person for any period, (a) all expenditures made (whether made in the form of cash or other property) or costs incurred for the acquisition or improvement of fixed or capital assets of such Person (excluding normal replacements and maintenance which are properly charged to current operations), in each case that are (or should be) set forth as capital expenditures in a Consolidated statement of cash flows of such Person for such period, in each case prepared in accordance with GAAP, and (b) Capital Lease Obligations incurred by a Person during such period.
“Capital Lease Obligations” means, with respect to any Person for any period, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as liabilities on a balance sheet of such Person under GAAP and the amount of which obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“Capital Stock” means (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, membership interests and (v) any other equity interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
“Cash Collateral Account” means a non-interest bearing account in the name of, the Collateral Agent (as the Collateral Agent shall otherwise direct) and under the sole and exclusive dominion and control of the Collateral Agent, in which deposits are required to be made in accordance with Section 2.03(g) or 8.02(c) .
“Cash Collateralize” has the meaning specified in Section 2.03(g) .
“Cash Dominion Event” means either (i) the occurrence and continuance of any Event of Default, or (ii) the failure of the Borrowers to maintain Availability of at least (A) twenty percent (20%) of the Loan Cap for five (5) consecutive calendar days, or (B) fifteen percent (15%) of the Loan Cap at any time. For purposes of this Agreement, the occurrence of a Cash Dominion Event shall be deemed continuing at the Administrative Agent’s option (i) so long as such Event of Default has not been waived, and/or (ii) if the Cash Dominion Event arises as a result of the Borrowers’ failure to achieve Availability as required hereunder, until Availability has exceeded the required percentage of the Loan Cap for forty-five (45) consecutive Business Days, in which case a Cash Dominion Event shall no longer be deemed to be continuing for purposes

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of this Agreement; provided that a Cash Dominion Event shall be deemed continuing (even if an Event of Default is no longer continuing and/or Availability exceeds the required amount for forty-five (45) consecutive Business Days) at all times after a Cash Dominion Event has occurred and been discontinued two (2) occasion(s) after the Closing Date. The termination of a Cash Dominion Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Cash Dominion Event in the event that the conditions set forth in this definition again arise.
“Cash Management Reserves ” means such reserves as the Administrative Agent, from time to time, determines in its Permitted Discretion as being appropriate to reflect the reasonably anticipated liabilities and obligations of the Loan Parties with respect to Cash Management Services then provided or outstanding.
“Cash Management Services” means any one or more of the following types or services or facilities provided to any Loan Party by the Administrative Agent or any of its Affiliates: (a) ACH transactions, (b) cash management services, including, without limitation, controlled disbursement services, treasury, depository, overdraft, and electronic funds transfer services, (c) foreign exchange facilities, (d) credit or debit cards, (e) credit card processing services, (f) purchase cards and (g) merchant services not constituting a Bank Product.
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.
“CERCLIS” means the Comprehensive Environmental Response, Compensation, and Liability Information System maintained by the United States Environmental Protection Agency.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.
“Change of Control” means an event or series of events by which:
(a)    the Parent shall cease to own and control legally and beneficially (free and clear of all Liens), either directly or indirectly, equity securities in the Lead Borrower representing 100% of the combined voting power of all of Equity Interests entitled to vote for members of the board of directors or equivalent governing body of Lead Borrower on a fully-diluted basis (and taking into account all such securities that the Parent has the right to acquire pursuant to any option right (as defined in clause (b) below));
(b)    any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) other than a Permitted Holder is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “ option right ”)), directly or indirectly, of 25% or more of the Equity Interests of the Lead Borrower entitled to vote for members of the board of directors or equivalent governing body of the Lead Borrower on a fully-diluted basis (and taking into account all such Equity Interests that such “person” or “group” has the right to acquire pursuant to any option right); provided that

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in the event that the Permitted Holders collectively are the beneficial owners of, or have the right to acquire, 33% or more of the voting power of the total outstanding Voting Stock of the Lead Borrower, then such threshold percentage shall be 40% instead of 25%; or
(c)    during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Lead Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or
(d)    the Parent fails at any time to own, directly or indirectly, 100% of the Equity Interests of each Loan Party free and clear of all Liens (other than the Liens in favor of the Collateral Agent), except where such failure is as a result of a transaction permitted by the Loan Documents.
“CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.
“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01 .
“Code” means the Internal Revenue Code of 1986, and the regulations promulgated thereunder, as amended and in effect.
“Collateral” means any and all “Collateral” as defined in any applicable Security Document and all other property that is or is intended under the terms of the Security Documents to be subject to Liens in favor of the Collateral Agent.
“Collateral Access Agreement” means an agreement reasonably satisfactory in form and substance to the Agents executed by (a) a bailee or other Person in possession of Collateral, and (b) each landlord of Real Estate leased by any Loan Party (including, without limitation, a Licensed Department), pursuant to which each such bailee, landlord or other Person (i) acknowledges the Collateral Agent’s Lien on the Collateral, (ii) releases such Person’s Liens in the Collateral held by such Person or located on such Real Estate, (iii) provides the Collateral Agent with access to the Collateral held by such bailee, landlord or other Person or located in or on such Real Estate, (iv) as to any landlord, provides the Collateral Agent with a reasonable time to sell and dispose of the Collateral from such Real Estate, and (v) makes such other agreements with the Collateral Agent as the Agents may reasonably require.
“Collateral Agent” means WFRF, acting in such capacity for its own benefit and the ratable benefit of the other Credit Parties.
“Commercial Letter of Credit” means any Letter of Credit issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by a

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Borrower in the ordinary course of business of such Borrower.
“Commitment” means, as to each Lender, its obligation to (a) make Committed Loans to the Borrowers pursuant to Section 2.01 , (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement, including, without limitation, Section 2.15 or Section 2.16 .
“Committed Borrowing” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of LIBO Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01 .
“Committed Loan” has the meaning specified in Section 2.01 .
“Committed Loan Notice” means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of LIBO Rate Loans, pursuant to 2.01(a), which, if in writing, shall be substantially in the form of Exhibit A .
“Compliance Certificate” means a certificate substantially in the form of Exhibit D .
“Concentration Account” has the meaning provided in Section 6.13(c) .
“Consent” means actual consent given by a Lender from whom such consent is sought; or the passage of seven (7) Business Days from receipt of written notice to a Lender from the Administrative Agent of a proposed course of action to be followed by the Administrative Agent without such Lender’s giving the Administrative Agent written notice of that Lender’s objection to such course of action.
“Consolidated” means, when used to modify a financial term, test, statement, or report of a Person, the application or preparation of such term, test, statement or report (as applicable) based upon the consolidation, in accordance with GAAP, of the financial condition or operating results of such Person and its Subsidiaries.
“Consolidated EBITDA” means, at any date of determination, an amount equal to Consolidated Net Income of the Lead Borrower and its Subsidiaries on a Consolidated basis for the most recently completed Measurement Period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income Taxes and franchise Taxes net of Federal, state, local and foreign income tax credits, (iii) depreciation and amortization expense and (iv) other non-recurring non-cash charges and non-cash charges and expenses (including the cumulative effect of any accounting changes), net of cash charges for such period relating to non-recurring charges and expenses included in the computation of Consolidated EBITDA for any prior Measurement Period), all as determined on a Consolidated basis in accordance with GAAP.
“Consolidated Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of (a) (i) Consolidated EBITDA for such period minus (ii) Capital Expenditures made during such period minus (iii) the aggregate amount of Federal, state, local and foreign income Taxes and franchise Taxes paid in cash during such period to (b) the sum of (i) Debt Service Charges plus (ii) the aggregate amount of all Restricted Payments (other than Restricted Payments made in accordance with Section 7.06(d), Section 7.06(e) or Section 7.06(f) hereof), in each case, of or by Lead Borrower and its Subsidiaries for the most recently

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completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP.
“Consolidated Interest Charges” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Contracts, but excluding any non-cash or deferred interest financing costs, (b) all interest paid or payable with respect to discontinued operations and (c) the portion of rent expense with respect to such period under Capital Lease Obligations that is treated as interest in accordance with GAAP minus (d) interest income during such period (excluding any portion of interest income representing accruals of amounts received in a previous period), in each case of or by the Lead Borrower and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP.
“Consolidated Net Income” means, as of any date of determination, the net income of the Lead Borrower and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP, provided, however, that there shall be excluded (a) extraordinary gains and extraordinary losses for such Measurement Period, (b) the income (or loss) of such Person during such Measurement Period in which any other Person has a joint interest, except to the extent of the amount of cash dividends or other distributions actually paid in cash to such Person during such period, (c) the income (or loss) of such Person during such Measurement Period and accrued prior to the date it becomes a Subsidiary of a Person or any of such Person’s Subsidiaries or is merged into or consolidated with a Person or any of its Subsidiaries or that Person’s assets are acquired by such Person or any of its Subsidiaries, and (d) the income of any direct or indirect Subsidiary of a Person to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its Organization Documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, except that the Lead Borrower’s equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income.
“Contractual Obligation” means, as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Cost” means the lower of cost or market value of Inventory, based upon the Borrowers’ accounting practices, known to the Administrative Agent, which practices are in effect on the Closing Date as such calculated cost is determined from invoices received by the Borrowers, the Borrowers’ purchase journals or the Borrowers’ stock ledger. “Cost” does not include inventory capitalization costs or other non‑purchase price charges (such as freight) used in the Borrowers’ calculation of cost of goods sold.
“Credit Card Advance Rate” means eighty-five percent (85%).
“Credit Card Notifications” has the meaning provided in Section 6.13(a)(ii) .
“Credit Card Receivables” means each “Account” (as defined in the UCC) together with all income, payments and proceeds thereof, owed by a major credit or debit card issuer (including, but not limited to,

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Visa, MasterCard, Discover Card and American Express and such other issuers approved by the Administrative Agent) to a Loan Party resulting from charges by a customer of a Loan Party on credit or debit cards issued by such issuer in connection with the sale of goods by a Loan Party, or services performed by a Loan Party, in each case in the ordinary course of its business.
“Credit Extensions” mean each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
“Credit Party” or “Credit Parties” means (a) individually, (i) each Lender and its Affiliates, (ii) each Agent, (iii) each L/C Issuer, (iv) each beneficiary of each indemnification obligation undertaken by any Loan Party under any Loan Document, (v) any other Person to whom Obligations under this Agreement and other Loan Documents are owing, and (vi) the successors and assigns of each of the foregoing, and (b) collectively, all of the foregoing.
“Credit Party Expenses” means, without limitation, (a) all reasonable out-of-pocket expenses incurred by the Agents and their respective Affiliates, in connection with this Agreement and the other Loan Documents, including without limitation (i) the reasonable fees, charges and disbursements of (A) counsel for the Agents, (B) outside consultants for the Agents, (C) appraisers, (D) commercial finance examinations, and (E) all such reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Obligations, (ii) in connection with (A) the syndication of the credit facilities provided for herein, (B) the preparation, negotiation, administration, management, execution and delivery of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (C) the enforcement or protection of their rights in connection with this Agreement or the Loan Documents or efforts to preserve, protect, collect, or enforce the Collateral, or (D) any workout, restructuring or negotiations in respect of any Obligations, and (b) with respect to the L/C Issuer, and its Affiliates, all reasonable out-of-pocket expenses incurred in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder; and (c) all reasonable out-of-pocket expenses incurred by the Credit Parties who are not the Agents, the L/C Issuer or any Affiliate of any of them, after the occurrence and during the continuance of an Event of Default, provided that such Credit Parties shall be entitled to reimbursement for no more than one counsel representing all such Credit Parties (absent a conflict of interest in which case the Credit Parties may engage and be reimbursed for additional counsel).
“Customer Credit Liabilities” means at any time, the aggregate remaining value at such time of (a) outstanding gift certificates and gift cards of the Borrowers entitling the holder thereof to use all or a portion of the certificate or gift card to pay all or a portion of the purchase price for any Inventory, (b) outstanding merchandise credits of the Borrowers, (c) layaway obligations of the Borrowers, and (d) liabilities in connection with frequent shopping programs of the Borrowers.
“Customer Deposits” means deposits made by customers with respect to the purchase of goods or the performance of services.
“Customs Broker Agreement” means an agreement, in form and substance reasonably satisfactory to the Collateral Agent, among a Borrower, a customs broker or other carrier, and the Collateral Agent, in which the customs broker or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of the Collateral Agent and agrees, upon notice from the Collateral Agent, to hold and dispose of the subject Inventory solely as directed by the Collateral Agent.
“DDA” means each checking, savings or other demand deposit account maintained by any of the Loan Parties. All funds in each DDA shall be conclusively presumed to be Collateral and proceeds of

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Collateral and the Agents and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in any DDA.
“DDA Notification” has the meaning provided therefor in Section 6.13(a)(i) .
“Debt Service Charges” means for any Measurement Period, the sum of (a) Consolidated Interest Charges paid or required to be paid for such Measurement Period, plus (b) principal payments made or required to be made on account of Indebtedness (excluding the Obligations and any Synthetic Lease Obligations but including, without limitation, Capital Lease Obligations) for such Measurement Period, in each case determined on a Consolidated basis in accordance with GAAP.
“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
“Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Margin, if any, applicable to Base Rate Loans, plus (iii) two percent (2.00%) per annum; provided, however, that with respect to a LIBO Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Margin) otherwise applicable to such Loan plus two percent (2.00%) per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate for Standby Letters of Credit or Commercial Letters of Credit, as applicable, plus two percent (2.00%) per annum.
“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one (1) Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one (1) Business Day of the date when due, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.
“Deteriorating Lender” means any Defaulting Lender or any Lender as to which (a) the Administrative Agent, the L/C Issuer or the Swing Line Lender has a good faith belief that such Lender has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) a Person that Controls such Lender has been deemed insolvent or become the subject of a bankruptcy, insolvency or similar proceeding.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction and any sale, transfer, license or other disposition of (whether in one transaction or in a series of transactions) of any property (including, without limitation, any Equity Interests) by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith .
“Disqualified Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund

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obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is ninety-one (91) days after the date on which the Loans mature; provided , however , that (i) only the portion of such Equity Interests which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock and (ii) with respect to any Equity Interests issued to any employee or to any plan for the benefit of employees of the Lead Borrower or its Subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Lead Borrower or one of its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, resignation, death or disability and if any class of Equity Interest of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of an Equity Interest that is not Disqualified Stock, such Equity Interests shall not be deemed to be Disqualified Stock. Notwithstanding the preceding sentence, any Equity Interest that would constitute Disqualified Stock solely because the holders thereof have the right to require a Loan Party to repurchase such Equity Interest upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Lead Borrower and its Subsidiaries may become obligated to pay upon maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock or portion thereof, plus accrued dividends.
“Dollars” and “$” mean lawful money of the United States.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.
“Early Termination Fee” has the meaning set forth in Section 2.09(b) .
“Eligible Assignee” means (a) a Credit Party or any of its Affiliates; (b) a bank, insurance company, or company engaged in the business of making commercial loans, which Person, together with its Affiliates, has a combined capital and surplus in excess of $250,000,000; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, the L/C Issuer and the Swing Line Lender, and (ii) unless an Event of Default has occurred and is continuing, the Lead Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include a Loan Party or any of the Loan Parties’ Affiliates or Subsidiaries.
“Eligible Credit Card Receivables” means Credit Card Receivables due to a Borrower on a non‑recourse basis, in each case acceptable to the Administrative Agent in its Permitted Discretion, as arise in the ordinary course of business, which have been earned by performance, and are deemed by the Administrative Agent in its discretion to be eligible for inclusion in the calculation of the Borrowing Base. Without limiting the foregoing, unless the Administrative Agent otherwise agrees, none of the following shall be deemed to be Eligible Credit Card Receivables:
(a)    Accounts due from major credit card processors and major debit card processors that have been outstanding for more than four (4) Business Days from the date of sale;
(b)    Accounts due from major credit card processors and major debit card processors with respect to which a Loan Party does not have good, valid and marketable title, free and clear of any Lien (other than Liens granted to the Collateral Agent);
(c)    Accounts due from major credit card processors and major debit card processors that are not subject to a first priority security interest in favor of the Collateral Agent (it being the

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intent that chargebacks in the ordinary course by the credit card processors shall not be deemed violative of this clause);
(d)    Accounts due from major credit card processors and major debit card processors which are disputed, are with recourse, or with respect to which a claim, counterclaim, offset or chargeback has been asserted (to the extent of such claim, counterclaim, offset or chargeback);
(e)    Accounts due from major credit card processors as to which the credit card processor has the right under certain circumstances to require a Loan Party to repurchase the Accounts from such credit card processor; or
(f)    Accounts due from major credit card processors and major debit card processors which the Administrative Agent determines in its Permitted Discretion to be uncertain of collection.
“Eligible Inventory” means, as of the date of determination thereof, without duplication, items of Inventory of a Borrower that are finished goods, merchantable and readily saleable to the public in the ordinary course of a Borrower’s business deemed by the Administrative Agent in its Permitted Discretion to be eligible for inclusion in the calculation of the Borrowing Base, in each case that, except as otherwise agreed by the Administrative Agent, complies with each of the representations and warranties respecting Inventory made by the Borrowers in the Loan Documents, and that is not excluded as ineligible by virtue of one or more of the criteria set forth below. Except as otherwise agreed by the Administrative Agent, the following items of Inventory shall not be included in Eligible Inventory:
(a)    Inventory that is not solely owned by a Borrower or a Borrower does not have good and valid title thereto;
(b)    Inventory that is leased by or is on consignment to a Borrower or which is consigned by a Borrower to a Person which is not a Loan Party, provided that Inventory located at a Licensed Department may constitute Eligible Inventory if (i) the applicable Borrower has properly recorded a UCC consignment filing against such Inventory, which UCC consignment filing has been duly assigned to the Collateral Agent for the benefit of the Secured Parties, (ii) a Collateral Access Agreement with respect to such Licensed Department has been duly executed and delivered by the Person owning such Licensed Department and delivered to the Administrative Agent, and (iii) such Inventory otherwise constitutes Eligible Inventory hereunder;
(c)    Inventory that is not located in the United States of America (excluding territories or possessions of the United States);
(d)    Inventory at a location that is not owned or leased by a Borrower, except to the extent that the Borrowers have furnished the Administrative Agent with (i) any UCC financing statements or other documents that the Administrative Agent may determine to be necessary to perfect its security interest in such Inventory at such location, and (ii) a Collateral Access Agreement executed by the Person owning any such location on terms reasonably acceptable to the Administrative Agent;
(e)    Inventory that is located in a distribution center or off-site storage facility leased by a Borrower, unless the applicable lessor has delivered to the Collateral Agent, if requested by the Collateral Agent, a Collateral Access Agreement;
(f)    Inventory that is comprised of goods which (i) are damaged, defective, “seconds,”

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or otherwise unmerchantable, (ii) are to be returned to the vendor, (iii) are obsolete or slow moving, or custom items, work‑in‑process, raw materials, or that constitute spare parts, promotional, marketing, packaging and shipping materials or supplies used or consumed in a Borrower’s business, (iv) are seasonal in nature and which have been packed away for sale in the subsequent season, (v) not in compliance with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, or (vi) are bill and hold goods;
(g)    Inventory that is not subject to a perfected first‑priority security interest in favor of the Collateral Agent;
(h)    Inventory that consists of samples, labels, bags, packaging, and other similar non-merchandise categories;
(i)    Inventory that is not insured in compliance with the provisions of Section 5.10 hereof;
(j)    Inventory that has been sold but not yet delivered or as to which a Borrower has accepted a deposit;
(k)    Inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from which any Borrower or any of its Subsidiaries has received notice of a dispute in respect of any such agreement;
(l)    Inventory consisting of Perishable Inventory which is out-of-date or near dated; or
(m)    Inventory acquired in a Permitted Acquisition or which is not acquired other than for the purpose of sale in a Store in the ordinary course of a Borrower’s business, unless and until the Collateral Agent has completed or received (A) an appraisal of such Inventory from appraisers reasonably satisfactory to the Collateral Agent, establishes an Inventory Advance Rate and Inventory Reserves (if applicable) therefor, and otherwise agrees that such Inventory shall be deemed Eligible Inventory, and (B) such other due diligence as the Agents may require, all of the results of the foregoing to be reasonably satisfactory to the Agents.
“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
“Environmental Liability” means any liability, obligation, damage, loss, claim, action, suit, judgment, order, fine, penalty, fee, expense, or cost, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal or presence of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equipment” has the meaning set forth in the Security Agreement.

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“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
“ERISA” means the Employee Retirement Income Security Act of 1974.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Lead Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Lead Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Lead Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Lead Borrower or any ERISA Affiliate.
“Event of Default” has the meaning specified in Section 8.01 . An Event of Default shall be deemed to be continuing unless and until (i) such Event of Default has been duly waived as provided in Section 10.01 hereof, or (ii) in the case of an Event of Default of the type described in Section 8.01(b)(ii) hereof, such Event of Default has been cured in accordance with the terms of such Section to the extent such Event of Default may be cured pursuant to such Section.
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which any Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under Section 10.13 ), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e) , except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrowers with respect to such withholding tax pursuant to Section 3.01(a) .

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“Executive Order” has the meaning set forth in Section 10.18 .
“Existing Credit Agreement” means that certain Amended and Restated Loan Agreement dated as of October 27, 2006 between the Lead Borrower and The Huntington National Bank, as amended and in effect as of the date hereof.
“Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.
“Facility Guaranty” means any guaranty made by any Guarantor in favor of, among others, the Agents and the Lenders, in form reasonably satisfactory to the Administrative Agent, which guaranty is delivered or required to be delivered to the Administrative Agent pursuant to Section 6.12 .
“Factored Receivables” means any Accounts of a Loan Party which have been factored or sold by an account debtor of a Loan Party to Wells Fargo, WFRF or any of their respective Affiliates pursuant to a factoring arrangement or otherwise.
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Wells Fargo on such day on such transactions as determined by the Administrative Agent.
“Fee Letter” means the letter agreement, dated April __, 2010, among the Lead Borrower and the other Borrowers and the Administrative Agent.
“Fiscal Month” means any fiscal month of any Fiscal Year, which month shall generally end on the last day of each calendar month in accordance with the fiscal accounting calendar of the Loan Parties.
“Fiscal Quarter” means any fiscal quarter of any Fiscal Year, which quarters shall generally end on the last day of each March, June, September and December of such Fiscal Year in accordance with the fiscal accounting calendar of the Loan Parties.
“Fiscal Year” means any period of twelve consecutive months ending on December 31 of any calendar year.
“Foreign Assets Control Regulations” has the meaning set forth in Section 10.18 .
“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Lead Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
“Fronting Fee” has the meaning assigned to such term in Section 2.03(j) .

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“FRB” means the Board of Governors of the Federal Reserve System of the United States.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.
“Guarantor” means each Subsidiary of the Lead Borrower and each other Subsidiary of the Lead Borrower that shall be required to execute and deliver a Facility Guaranty pursuant to Section 6.12 .
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Hamilton Beach” means Hamilton Beach Brands, Inc., a Delaware corporation.
“Holdings” means Housewares Holding Co., a Delaware corporation.
“Honor Date” has the meaning specified in Section 2.03(c)(i) .

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“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a)    all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b)    the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;
(c)    net obligations of such Person under any Swap Contract;
(d)    all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than ninety (90) days after the date on which such trade account payable was due by its original terms or more than one hundred fifty (150) days after such trade account payable was created);
(e)    indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f)    All Attributable Indebtedness in respect of Capital Lease Obligations and Synthetic Lease Obligations of such Person;
(g)    all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person (including, without limitation, Disqualified Stock, or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and
(h)    all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.
“Indemnified Taxes” means Taxes other than Excluded Taxes.
“Indemnitees” has the meaning specified in Section 10.04(b) .
“Information” has the meaning specified in Section 10.07 .
“Initial Increase” shall have the meaning provided therefor in Section 2.15(a) .
“Initial Increase Effective Date” shall have the meaning provided therefor in Section 2.15(b) .
“Initial Increase Request” shall have the meaning provided therefor in Section 2.15(a) .

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“Intellectual Property” means all present and future: trade secrets, know-how and other proprietary information; trademarks, trademark applications, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights and copyright applications; (including copyrights for computer programs) and all tangible and intangible property embodying the copyrights, unpatented inventions (whether or not patentable); patents and patent applications; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.
“Intellectual Property Security Agreements” means (a) the Grant of Security Interest in Trademarks dated as of the Closing Date between the Lead Borrower and the Collateral Agent, evidencing a Lien in the Trademarks (as defined in the Security Agreement) and certain other related assets of the Lead Borrower, and (b) any Security Agreement entered into by any Loan Party and the Collateral hereafter, evidencing a Lien in any Intellectual Property and certain other related assets of such Loan Party.
“Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided , however, that if any Interest Period for a LIBO Rate Loan exceeds three (3) months, the respective dates that fall every three (3) months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the first day after the end of each month and the Maturity Date.
“Interest Period” means, as to each LIBO Rate Loan, the period commencing on the date such LIBO Rate Loan is disbursed or converted to or continued as a LIBO Rate Loan and ending on the date one (1), two (2) or three (3) months thereafter, as selected by the Lead Borrower in its Committed Loan Notice; provided that:
(i)    any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii)    any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period;
(iii)    no Interest Period shall extend beyond the Maturity Date; and
(iv)    notwithstanding the provisions of clause (iii) no Interest Period shall have a duration of less than one (1) month, and if any Interest Period applicable to a LIBO Borrowing would be for a shorter period, such Interest Period shall not be available hereunder.
For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“Internal Control Event” means a material weakness in, or fraud that involves management or other

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employees who have a significant role in, the Lead Borrower’s and/or its Subsidiaries’ internal controls over financial reporting, in each case as described in the Securities Laws.
“Inventory” has the meaning given that term in the UCC, and shall also include, without limitation, all: (a) goods which (i) are leased by a Person as lessor, (ii) are held by a Person for sale or lease or to be furnished under a contract of service, (iii) are furnished by a Person under a contract of service, or (iv) consist of raw materials, work in process, or materials used or consumed in a business; (b) goods of said description in transit; (c) goods of said description which are returned, repossessed or rejected; and (d) packaging, advertising, and shipping materials related to any of the foregoing.
“Inventory Advance Rate” means eighty percent (80%).
“Inventory Reserves” means, without duplication of any of the factors taken into account in determining “Appraised Value”, such reserves as may be established from time to time by the Administrative Agent in the Administrative Agent’s Permitted Discretion with respect to the determination of the saleability, at retail, of the Eligible Inventory or which reflect such other factors as affect the market value of the Eligible Inventory. Without limiting the generality of the foregoing, Inventory Reserves may, in the Administrative Agent’s Permitted Discretion, include (but are not limited to) reserves based on:
(a)    Obsolescence;
(b)    Seasonality;
(c)    Shrink;
(d)    Imbalance;
(e)    Change in Inventory character;
(f)    Change in Inventory composition;
(g)    Change in Inventory mix;
(h)    Markdowns (both permanent and point of sale);
(i)    Retail markons and markups inconsistent with prior period practice and performance, industry standards, current business plans or advertising calendar and planned advertising events; and
(j)    Out-of-date and/or expired Inventory.
“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) any Acquisition, or (d) any other investment of money or capital in order to obtain a profitable return. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
“IRS” means the United States Internal Revenue Service.

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“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
“Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and any Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to any such Letter of Credit.
“Joinder Agreement” means an agreement, in form and substance reasonably satisfactory to the Administrative Agent pursuant to which, among other things, a Person becomes a party to, and bound by the terms of, this Agreement and/or the other Loan Documents in the same capacity and to the same extent as either a Borrower or a Guarantor, as the Administrative Agent may determine.
“Knowledge” means knowledge after due inquiry and diligent investigation.
“Landlord Lien State” means such state(s) in which a landlord’s claim for rent may have priority over the lien of the Collateral Agent in any of the Collateral.
“Laws” means each international, foreign, Federal, state and local statute, treaty, rule, guideline, regulation, ordinance, code and administrative or judicial precedent or authority, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and each applicable administrative order, directed duty, request, license, authorization and permit of, and agreement with, any Governmental Authority, in each case whether or not having the force of law.
“L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.
“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.
“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
“L/C Issuer” means Wells Fargo in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder (which successor may only be a Lender selected by the Administrative Agent in its reasonable discretion). The L/C Issuer may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the L/C Issuer, in which case the term “L/C Issuer” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“L/C Obligations” means, as at any date of determination, the aggregate undrawn amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amounts available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“Lease” means any agreement, whether written or oral, no matter how styled or structured, pursuant to which a Loan Party is entitled to the use or occupancy of any space in a structure, land, improvements or

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premises for any period of time.
“Lender” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender.
“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Lead Borrower and the Administrative Agent.
“Letter of Credit” means each Standby Letter of Credit and each Commercial Letter of Credit issued hereunder.
“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
“Letter of Credit Expiration Date” means the day that is seven (7) days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
“Letter of Credit Fee” has the meaning specified in Section 2.03(i) .
“Letter of Credit Sublimit” means an amount equal to $10,000,000.00. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments. A permanent reduction of the Aggregate Commitments shall not require a corresponding pro rata reduction in the Letter of Credit Sublimit; provided, however, that if the Aggregate Commitments are reduced to an amount less than the Letter of Credit Sublimit, then the Letter of Credit Sublimit shall be reduced to an amount equal to (or, at Lead Borrower’s option, less than) the Aggregate Commitments.
“Level A Pro Forma Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Pro Forma Availability following, and after giving effect to, such transaction or payment, will be equal to or greater than twenty-five percent (25%) of the Loan Cap.
“Level B Pro Forma Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Pro Forma Availability following, and after giving effect to, such transaction or payment, will be equal to or greater than fifty percent (50%) of the Loan Cap.
“LIBO Borrowing” means a Borrowing comprised of LIBO Loans.
“LIBO Rate” means for any Interest Period with respect to a LIBO Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “LIBO Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the LIBO Rate Loan being made, continued or converted by Wells Fargo and with a term equivalent to such Interest Period would be offered to Wells Fargo by major banks in the London interbank eurodollar market in which Wells Fargo participates at their request at approximately 11:00 a.m. (London time) two (2) Business Days prior to the commencement of such Interest Period.

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“LIBO Rate Loan” means a Committed Loan that bears interest at a rate based on the Adjusted LIBO Rate.
“Licensed Departments” means those certain licensed departments operated by the Lead Borrower pursuant to the Licensed Department Agreements.
“Licensed Department Agreements” means (i) those certain License Agreements between the Lead Borrower and VF Outlet, Inc., and (ii) that certain Lease Agreement between the Lead Borrower and Home Accents Direct Outlet Center, Inc., in each case as amended and in effect on the date hereof and as further described on Schedule 1.03 annexed hereto.
“Lien” means (a) any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale, Capital Lease Obligation, Synthetic Lease Obligation, or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing) and (b) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“Liquidation” means the exercise by the Administrative Agent or Collateral Agent of those rights and remedies accorded to such Agents under the Loan Documents and applicable Law as a creditor of the Loan Parties with respect to the realization on the Collateral, including (after the occurrence and continuation of an Event of Default) the conduct by the Loan Parties acting with the consent of the Administrative Agent, of any public, private or “going out of business”, “store closing”, or other similarly themed sale or other disposition of the Collateral for the purpose of liquidating the Collateral. Derivations of the word “Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement.
“Loan” means an extension of credit by a Lender to a Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.
“Loan Account” has the meaning assigned to such term in Section 2.11(a) .
Loan Cap” means, at any time of determination, the lesser of (a) the Aggregate Commitments or (b) the Borrowing Base.
“Loan Documents” means this Agreement, each Note, each Issuer Document, the Fee Letter, all Borrowing Base Certificates, the Blocked Account Agreements, the DDA Notifications, the Credit Card Notifications, the Security Documents, the Facility Guaranty, and any other instrument or agreement now or hereafter executed and delivered in connection herewith, or in connection with any transaction arising out of any Cash Management Services and Bank Products provided by the Administrative Agent or any of its Affiliates, each as amended and in effect from time to time.
“Loan Parties” means, collectively, each Borrower and each Guarantor.
“Management Fees” means any management fees or advisory fees to be paid to the Parent or any of its Affiliates by any Loan Party in respect of management services provided by the Parent or such Affiliates to any Loan Party.
“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, or condition (financial or otherwise) of any Loan Party or the Lead

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Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material impairment of the rights and remedies of the Agent or the Lenders under any Loan Document or a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event in and of itself does not have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect.
“Material Contract” means, with respect to any Person, each contract (other than a Lease) to which such Person is a party that (i) involves a termination fee or penalty upon its termination prior to its scheduled expiration or maturity of more than $500,000, or (ii) is otherwise material to the business, condition (financial or otherwise), operations, performance, or properties of such Person.
“Material Indebtedness” means Indebtedness (other than the Obligations) of the Loan Parties in an aggregate principal amount exceeding $1,000,000. For purposes of determining the amount of Material Indebtedness at any time, (a) the amount of the obligations in respect of any Swap Contract at such time shall be calculated at the Swap Termination Value thereof, (b) undrawn committed or available amounts shall be included, and (c) all amounts owing to all creditors under any combined or syndicated credit arrangement shall be included.
“Maturity Date” means April 29, 2013, as such date may be extended pursuant to Section 2.17 hereof.
“Maximum Rate” has the meaning provided therefor in Section 10.09 .
“Measurement Period” means, at any date of determination, the most recently completed twelve Fiscal Months of the Lead Borrower.
“Minimum Availability Cure Provision” means (i) the issuance of Equity Interests by the Lead Borrower to the Parent or the acceptance by the Lead Borrower of a capital contribution from the Parent, and (ii) subject at all times to a subordination agreement in form and substance reasonably satisfactory to the Administrative Agent, Parent Indebtedness, in each case in an amount sufficient to cure an Event of Default of the type specified in Section 8.01(b)(ii) to the extent such cure is permitted hereunder.
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Lead Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
“Net Proceeds” means (a) with respect to any Disposition by any Loan Party or any of its Subsidiaries, or any Extraordinary Receipt received or paid to the account of any Loan Party or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset by a Lien permitted hereunder which is senior to the Collateral Agent’s Lien on such asset and that is required to be repaid (or to establish an escrow for the future repayment thereof) in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by such Loan Party or such Subsidiary in connection with such transaction (including, without limitation, appraisals, and

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brokerage, legal, title and recording or transfer tax expenses and commissions) paid by any Loan Party to third parties (other than Affiliates)); and
(b)    with respect to the sale or issuance of any Equity Interest by any Loan Party or any of its Subsidiaries, or the incurrence or issuance of any Indebtedness by any Loan Party or any of its Subsidiaries, the excess of (i) the sum of the cash and cash equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by such Loan Party or such Subsidiary in connection therewith.
“Non-Consenting Lender” has the meaning provided therefor in Section 10.01 .
“Non-Extension Notice Date” has the meaning specified in Section 2.03(b)(iii) .
“Note” means (a) a promissory note made by the Borrowers in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C-1 , and (b) the Swing Line Note, as each may be amended, supplemented or modified from time to time.
“NPL” means the National Priorities List under CERCLA.
“Obligations” means (a) all advances to, and debts (including principal, interest, fees, costs, and expenses), liabilities, obligations, covenants, indemnities, and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit (including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral therefor), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest, fees, costs, expenses and indemnities that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest, fees, costs, expenses and indemnities are allowed claims in such proceeding, and (b) any Other Liabilities.
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity, and (d) in each case, all shareholder or other equity holder agreements, voting trusts and similar arrangements to which such Person is a party or which is applicable to its Equity Interests and all other arrangements relating to the Control or management of such Person.
“Other Liabilities” means (a) any obligation on account of (i) any Cash Management Services furnished to any of the Loan Parties or any of their Subsidiaries and/or (ii) any transaction with any Agent or any of their respective Affiliates, which arises out of any Bank Product entered into with any Loan Party and any such Person, as each may be amended from time to time; and (b) any liability with respect to Factored Receivables.
“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other

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Loan Document.
“Outstanding Amount” means (i) with respect to Committed Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by any Borrower of Unreimbursed Amounts.
“Overadvance” means a Credit Extension to the extent that, immediately after its having been made, Availability is less than zero.
“Parent” means NACCO Industries, Inc., a Delaware corporation.
“Parent Indebtedness” means unsecured Indebtedness owing by any Loan Party to the Parent, which (i) is in form and on terms approved in writing by the Administrative Agent and expressly subordinated in right of payment to the prior payment in full of the Obligations pursuant to a subordination agreement in form and substance reasonably satisfactory to the Administrative Agent, and (ii) does not cause or constitute a default or breach under any Material Contract.
“Participant” has the meaning specified in Section 10.06(d) .
“Patriot Act” shall have the meaning provided in Section 10.17 .
“PBGC” means the Pension Benefit Guaranty Corporation.
“PCAOB” means the Public Company Accounting Oversight Board.
“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Borrower or any ERISA Affiliate or to which any Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
“Perishable Inventory” means inventory consisting of meat, dairy, cheese, seafood, produce, prepared meals, delicatessen, non-artificial floral products and bakery goods and other similar categories of Inventory which have a short shelf life.
“Permitted Acquisition” means an Acquisition in which all of the following conditions are satisfied:
(a)    No Event of Default then exists and is continuing or would arise from the consummation of such Acquisition;
(b)    Such Acquisition shall have been approved by the Board of Directors of the Person (or similar governing body if such Person is not a corporation) which is the subject of such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition shall violate applicable Law;

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(c)    The Lead Borrower shall have furnished the Administrative Agent with thirty (30) days’ prior written notice of such intended Acquisition and shall have furnished the Administrative Agent with a current draft of the Acquisition Documents (and final copies thereof as and when executed), a summary of any due diligence undertaken by the Loan Parties in connection with such Acquisition, appropriate financial statements of the Person which is the subject of such Acquisition, pro forma projected financial statements for the twelve (12) month period following such Acquisition after giving effect to such Acquisition (including balance sheets, cash flows and income statements by month for the acquired Person, individually, and on a Consolidated basis with all Loan Parties), and such other information as the Administrative Agent may reasonably require, all of which shall be reasonably satisfactory to the Administrative Agent;
(d)    Either (i) the legal structure of the Acquisition shall be acceptable to the Administrative Agent in its reasonable discretion, or (ii) the Loan Parties shall have provided the Administrative Agent with a favorable solvency opinion from an unaffiliated third party valuation firm reasonably satisfactory to the Administrative Agent;
(f)    After giving effect to the Acquisition, if the Acquisition is an Acquisition of the Equity Interests, a Loan Party shall acquire and own, directly or indirectly, a majority of the Equity Interests in the Person being acquired and shall Control a majority of any voting interests or shall otherwise Control the governance of the Person being acquired;
(g)    Any assets acquired shall be utilized in, and if the Acquisition involves a merger, consolidation or stock acquisition, the Person which is the subject of such Acquisition shall be engaged in, a business otherwise permitted to be engaged in by a Borrower under this Agreement;
(h)    If the Person which is the subject of such Acquisition will be maintained as a Subsidiary of a Loan Party, or if the assets acquired in an acquisition will be transferred to a Subsidiary which is not then a Loan Party, such Subsidiary shall have been joined as a “Borrower” hereunder or as a Facility Guarantor, as the Administrative Agent shall determine, and the Collateral Agent shall have received a first priority security and/or mortgage interest in such Subsidiary’s Equity Interests, Inventory, Accounts, Real Estate and other property of the same nature as constitutes collateral under the Security Documents;
(i)    The total consideration paid for all such Acquisitions (whether in cash, tangible property, notes or other property) after the Closing Date shall not exceed in the aggregate the sum of $10,000,000; and
(j)    The Loan Parties shall have satisfied the Tier I Payment Conditions.
“Permitted Discretion” means the Administrative Agent’s good faith credit judgment based upon any factor or circumstance which it reasonably believes in good faith: (i) will or could reasonably be expected to adversely affect the value of the Collateral, the enforceability or priority of the Collateral Agent’s Liens thereon in favor of the Credit Parties or the amount which the Collateral Agent and the Credit Parties would likely receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral; (ii) suggests that any collateral report or financial information delivered to the Administrative Agent by or on behalf of the Loan Parties is incomplete, inaccurate or misleading in any material respect; (iii) could reasonably be expected to increase the likelihood of a bankruptcy, reorganization or other insolvency proceeding involving any Loan Party; or (iv) creates or reasonably could be expected to create a Default or Event of Default. In exercising such judgment, the Administrative Agent may consider such factors or circumstances already included in or tested by the definitions of Eligible Credit Card

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Receivables or Eligible Inventory, as well as any of the following: (A) the financial and business climate and prospects of any member of the Loan Parties’ industry and general macroeconomic conditions; (B) changes in demand for and pricing of Inventory; (C) changes in any concentration of risk with respect to Inventory; (D) any other factors or circumstances that will or could reasonably be expected to have a Material Adverse Effect; (E) audits of books and records by third parties, history of chargebacks or other credit adjustments; and (F) any other factors that change or could reasonably be expected to change the credit risk of lending to the Borrowers on the security of the Inventory.
“Permitted Disposition” means any of the following:
(a)    dispositions of inventory in the ordinary course of business;
(b)    non-exclusive licenses of Intellectual Property of a Loan Party or any of its Subsidiaries in the ordinary course of business;
(c)    licenses for the conduct of licensed departments within the Loan Parties’ Stores in the ordinary course of business; provided that, if requested by the Agents, the Agents shall have entered into an intercreditor agreement with the Person operating such licensed department on terms and conditions reasonably satisfactory to the Agents;
(d)    dispositions of Equipment in the ordinary course of business that is substantially worn, damaged, obsolete or, in the judgment of a Loan Party, no longer useful or necessary in its business or that of any Subsidiary and is not replaced with similar property having at least equivalent value;
(e)    sales, transfers and dispositions among the Loan Parties or by any Subsidiary to a Loan Party;
(f)    sales, transfers and dispositions of by any Subsidiary which is not a Loan Party to another Subsidiary that is not a Loan Party;
(g)    dispositions of other Equipment or other assets of the Loan Parties (other than those of the type included in the Borrowing Base) having a value not exceeding $100,000 in a single transaction or $250,000 in the aggregate for all Loan Parties in any Fiscal Year; and
(h)    sales of discontinued or past-due accounts (other than those of the type included in the Borrowing Base) in the ordinary course of business.
“Permitted Encumbrances” means:
(a)    Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 6.04 ;
(b)    carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by applicable Law, arising in the ordinary course of business and securing obligations that are not overdue or are being contested in compliance with Section 6.04 ;
(c)    pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations, other than any Lien imposed by ERISA;

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(d)    deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(e)    Liens in respect of judgments that would not constitute an Event of Default hereunder;
(f)    easements, covenants, conditions, restrictions, building code laws, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of a Loan Party and such other minor title defects or survey matters that are disclosed by current surveys that, in each case, do not materially interfere with the current use of the real property;
(g)    Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased, (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is otherwise permitted hereunder);
(h)    Liens on fixed or capital assets acquired by any Loan Party which are permitted under clause (c) of the definition of Permitted Indebtedness so long as (i) such Liens and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition, (ii) the Indebtedness secured thereby does not exceed the cost of acquisition of such fixed or capital assets and (iii) such Liens shall not extend to any other property or assets of the Loan Parties;
(i)    Liens in favor the Collateral Agent;
(j)    landlords’ and lessors’ Liens in respect of rent not in default and customary provisions in leases restricting subletting and assignment thereof;
(k)    possessory Liens in favor of brokers and dealers arising in connection with the acquisition or disposition of Investments owned as of the date hereof and Permitted Investments, provided that such liens (a) attach only to such Investments and (b) secure only obligations incurred in the ordinary course and arising in connection with the acquisition or disposition of such Investments and not any obligation in connection with margin financing;
(l)    Liens arising solely by virtue of any statutory or common law provisions relating to banker’s liens, liens in favor of securities intermediaries, rights of setoff or similar rights and remedies as to deposit accounts or securities accounts or other funds maintained with depository institutions or securities intermediaries;
(m)    Liens arising from precautionary UCC filings regarding “true” operating leases or, to the extent permitted under the Loan Documents, the consignment of goods to a Loan Party;
(n)    voluntary Liens on property (other than property of the type included in the Borrowing Base) in existence at the time such property is acquired pursuant to a Permitted Acquisition or on such property of a Subsidiary of a Loan Party in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition; provided , that such Liens are not incurred in connection with or in anticipation of such Permitted Acquisition and do not attach to any other assets of any

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Loan Party or any Subsidiary;
(o)    Liens on Permitted L/C Facility Cash Collateral to secure Permitted Indebtedness of the type described in clause (j) of the definition thereof; and
(p)    Liens in favor of customs and revenues authorities imposed by applicable Law arising in the ordinary course of business in connection with the importation of goods and securing obligations that are being contested in good faith by appropriate proceedings, (B) the applicable Loan Party or Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (C) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation.
“Permitted Holders” means, collectively, the parties to the Stockholders’ Agreement, dated as of March 15, 1990, by and among National City Bank (Cleveland, Ohio), as depository, the Participating Stockholders (as defined therein) and the Parent, as amended and in effect on the date hereof.
“Permitted Indebtedness” means each of the following as long as no Default or Event of Default exists and is continuing or would arise from the incurrence thereof:
(a)    Indebtedness outstanding on the date hereof and listed on Schedule 7.03 and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder, and the direct or contingent obligor with respect thereto is not changed as a result of or in connection with such refinancing, refunding, renewal or extension, (ii) the result of such extension, renewal or replacement shall not be an earlier maturity date or decreased weighted average life of such Indebtedness, and (iii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;
(b)    Indebtedness of any Loan Party to any other Loan Party;
(c)    purchase money Indebtedness of any Loan Party to finance the acquisition of any fixed or capital assets, including Capital Lease Obligations and Synthetic Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof provided that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing

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or extending Indebtedness does not exceed the then applicable market interest rate, provided , however , that the aggregate principal amount of Indebtedness permitted by this clause (c) shall not exceed $1,000,000 at any time outstanding and further provided that, if requested by the Collateral Agent, the Loan Parties shall cause the holders of such Indebtedness to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Collateral Agent;
(d)    obligations (contingent or otherwise) of any Loan Party or any Subsidiary thereof existing or arising under any Swap Contract, provided that such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates, and not for purposes of speculation or taking a “market view;” provided that the aggregate notional value thereof shall not exceed $20,000,000 at any time outstanding;
(e)    Contingent liabilities under surety bonds or similar instruments incurred in the ordinary course of business in connection with the construction or improvement of Stores;
(f)    the Parent Indebtedness, provided that such Parent Indebtedness is expressly subordinated in right of payment to the prior payment in full of the Obligations pursuant to a subordination agreement in form and substance reasonably satisfactory to the Administrative Agent;
(g)    Indebtedness with respect to the deferred purchase price for any Permitted Acquisition, provided that such Indebtedness does not require the payment in cash of principal (other than in respect of working capital adjustments) prior to the Maturity Date, has a maturity which extends beyond the Maturity Date, and is subordinated to the Obligations on terms reasonably acceptable to the Agents;
(h)    Indebtedness of any Person that becomes a Subsidiary of a Loan Party in a Permitted Acquisition, which Indebtedness is existing at the time such Person becomes a Subsidiary of a Loan Party (other than Indebtedness incurred solely in contemplation of such Person’s becoming a Subsidiary of a Loan Party);
(i)    the Obligations;
(j)    Indebtedness with respect to the Permitted L/C Facility; and
(k)    unsecured Indebtedness not otherwise permitted under this definition not to exceed $250,000 in the aggregate at any one time for all Loan Parties on a consolidated basis, provided that such Indebtedness is subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent.
“Permitted Investments” means each of the following as long as no Default or Event of Default exists and is continuing or would arise from the making of such Investment:
(a)    readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;
(b)    commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s

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or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof;
(c)    time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 180 days from the date of acquisition thereof;
(d)    Fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above (without regard to the limitation on maturity contained in such clause) and entered into with a financial institution satisfying the criteria described in clause (c) above or with any primary dealer and having a market value at the time that such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such counterparty entity with whom such repurchase agreement has been entered into;
(e)    Investments, classified in accordance with GAAP as current assets of the Loan Parties, in any money market fund, mutual fund, or other investment companies that are registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and which invest solely in one or more of the types of securities described in clauses (a) through (d) above;
(f)    Investments existing on the Closing Date, and set forth on Schedule 7.02 , but not any increase in the amount thereof or any other modification of the terms thereof;
(g)    (i) Investments by any Loan Party and its Subsidiaries in their respective Subsidiaries outstanding on the date hereof, and (ii) additional Investments by any Loan Party and its Subsidiaries in Loan Parties (other than the Parent);
(h)    Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(i)    Guarantees constituting Permitted Indebtedness;
(j)    Investments by any Loan Party in Swap Contracts entered into in the ordinary course of business and for bona fide business (and not speculative purposes) to protect against fluctuations in interest rates in respect of the Obligations;
(k)    Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;
(l)    advances to officers, directors and employees of the Loan Parties and Subsidiaries in the ordinary course of business in an amount not to exceed $50,000 to any individual at any time or in an aggregate amount not to exceed $100,000 at any time outstanding, in each case for travel,

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entertainment, relocation and analogous ordinary business purposes;
(m)    Investments constituting Permitted Acquisitions;
(n)    Capital contributions made by any Loan Party to another Loan Party; and
(o)    other Investments not otherwise permitted in an amount not to exceed $250,000 in the aggregate at any time;
provided , however , that notwithstanding the foregoing, no such Investments specified in clauses (a) through (e) shall be permitted unless such Investments are pledged to the Collateral Agent as additional collateral for the Obligations pursuant to such agreements as may be reasonably required by the Collateral Agent.
“Permitted L/C Facility” means a letter of credit facility from time to time established by the Lead Borrower with a financial institution providing for the issuance of letters of credit (other than Letters of Credit issued under this Agreement), which letters of credit may be obtained from such financial institution solely to the extent that the L/C Issuer has failed to issue, within ten (10) days following a Borrower’s request therefor, a Letter of Credit pursuant hereto under circumstances that would otherwise require such issuance in accordance with Section 2.03 hereof; provided that the maximum principal amount of the Permitted L/C Facility shall not exceed $10,000,000 at any time.
“Permitted L/C Facility Cash Collateral” means cash, cash equivalents, and/or marketable securities of the Lead Borrower from time to time deposited or maintained with the financial institution party to the Permitted L/C Facility which are subject to a security interest in favor of such financial institution to secure the Lead Borrower’s obligations under the Permitted L/C Facility.
“Permitted Organizational Status Change” means the potential change of organizational status by Lead Borrower from a corporation organized under the law of the State of Delaware to a limited liability company organized under the law of the State of Ohio.
“Permitted Overadvance” means an Overadvance made by the Administrative Agent, in its discretion, which:
(a)    Is made to maintain, protect or preserve the Collateral and/or the Credit Parties’ rights under the Loan Documents or which is otherwise for the benefit of the Credit Parties; or
(b)    Is made to enhance the likelihood of, or to maximize the amount of, repayment of any Obligation;
(c)    Is made to pay any other amount chargeable to any Loan Party hereunder; and
(d)    Together with all other Permitted Overadvances then outstanding, shall not (i) exceed ten percent (10%) of the Borrowing Base at any time or (ii) unless a Liquidation is occurring, remain outstanding for more than forty-five (45) consecutive Business Days, unless in each case, the Required Lenders otherwise agree.
provided however , that the foregoing shall not (i) modify or abrogate any of the provisions of Section 2.03 regarding the Lender’s obligations with respect to Letters of Credit, or (ii) result in any claim or liability against the Administrative Agent (regardless of the amount of any Overadvance) for Unintentional Overadvances and such Unintentional Overadvances shall not reduce the amount of Permitted Overadvances

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allowed hereunder, and further provided that in no event shall the Administrative Agent make an Overadvance, if after giving effect thereto, the principal amount of the Credit Extensions would exceed the Aggregate Commitments (as in effect prior to any termination of the Commitments pursuant to Section 2.06 hereof).
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, limited partnership, Governmental Authority or other entity.
“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Lead Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
“Platform” has the meaning specified in Section 6.02 .
“Prepayment Event” means:
(a)    Any Disposition (including pursuant to a sale and leaseback transaction) of any property or asset of a Loan Party, but excluding the disposition of Inventory in the ordinary course of business; provided that, so long as no Cash Dominion Event has occurred and is continuing, any Disposition in an amount not in excess of $500,000 in the aggregate for all such Dispositions from and after the Closing Date until the Termination Date shall not be deemed a Prepayment Event;
(b)    Any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of a Loan Party, unless (i) the proceeds therefrom are required to be paid to the holder of a Lien on such property or asset having priority over the Lien of the Collateral Agent or (ii) prior to the occurrence of a Cash Dominion Event, the proceeds therefrom are utilized for purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received within 180 days of the occurrence of the damage to or loss of the assets being repaired or replaced;
(c)    The issuance by a Loan Party of any Equity Interests, other than any such issuance of Equity Interests (i) to a Loan Party, (ii) as consideration for a Permitted Acquisition or (iii) as a compensatory issuance to any employee, director, or consultant (including under any option plan);
(d)    The incurrence by a Loan Party of any Indebtedness for borrowed money other than Permitted Indebtedness of the type described in clause (c) of such definition; or
(e)    The receipt by any Loan Party of any Extraordinary Receipts.
“Pro Forma Availability” shall mean, for any date of calculation, after giving pro forma effect to the transaction then to be consummated, the projected Average Daily Availability for each Fiscal Month during any subsequent projected twelve (12) Fiscal Months.
“Public Lender” has the meaning specified in Section 6.02 .
“Real Estate” means all Leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Loan Party, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.
“Register” has the meaning specified in Section 10.06(c) .

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“Registered Public Accounting Firm” has the meaning specified by the Securities Laws and shall be independent of the Parent and its Subsidiaries as prescribed by the Securities Laws.
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, attorneys, representatives and advisors of such Person and of such Person’s Affiliates.
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30) day notice period has been waived.
“Reports” has the meaning provided in Section 9.12(b) .
“Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.
“Required Lenders” means, as of any date of determination, Lenders holding more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the Administrative Agent to endeavor to cause the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 , Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender or Deteriorating Lender shall be excluded for purposes of making a determination of Required Lenders.
“Reserves” means all (if any) Inventory Reserves and Availability Reserves.
“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party or any of the other individuals designated in writing to the Administrative Agent by an existing Responsible Officer of a Loan Party as an authorized signatory of any certificate or other document to be delivered hereunder. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to such Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment. Without limiting the foregoing, “Restricted Payments” with respect to any Person shall also include all payments made by such Person with any proceeds of a dissolution or liquidation of such Person.
“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
“Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

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“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.
“Security Agreement” means the Security Agreement dated as of the Closing Date among the Loan Parties and the Collateral Agent.
“Security Documents” means the Security Agreement, the Intellectual Property Security Agreements, the Blocked Account Agreements, the DDA Notifications, the Credit Card Notifications, and each other security agreement or other instrument or document executed and delivered to the Collateral Agent pursuant to this Agreement or any other Loan Document granting a Lien to secure any of the Obligations.
“Settlement Date” has the meaning provided in Section 2.14(a) .
“Shareholders’ Equity” means, as of any date of determination, consolidated shareholders’ equity of the Lead Borrower and its Subsidiaries as of that date determined in accordance with GAAP.
“Shrink” means Inventory which has been lost, misplaced, stolen, or is otherwise unaccounted for.
“Shrink Reserve” means an amount reasonably estimated by the Agents to be equal to that amount which is required in order that the Shrink reflected in Borrowers’ stock ledger would be reasonably equivalent to the Shrink calculated as part of the Borrowers’ most recent physical inventory.
“Solvent” and “Solvency” means, with respect to any Person on a particular date, that on such date (a) at fair valuation, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair saleable value of the properties and assets of such Person is not less than the amount that would be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. The amount of all guarantees at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, can reasonably be expected to become an actual or matured liability.
“Specified Financial Statements” means (i) the audited consolidated balance sheet of the Parent and its Subsidiaries for the fiscal year ended December 31, 2009, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such fiscal year of the Parent and its Subsidiaries, including the notes thereto, and (ii) the reviewed balance sheet of the Lead Borrower and its Subsidiaries for the fiscal year ended December 31, 2009, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such fiscal year of the Lead Borrower and its Subsidiaries.
“Standby Letter of Credit” means any Letter of Credit that is not a Commercial Letter of Credit and

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that (a) is used in lieu or in support of performance guaranties or performance, surety or similar bonds (excluding appeal bonds) arising in the ordinary course of business, (b) is used in lieu or in support of stay or appeal bonds, (c) supports the payment of insurance premiums for reasonably necessary casualty insurance carried by any of the Loan Parties, or (d) supports payment or performance for identified purchases or exchanges of products or services in the ordinary course of business.
“Stated Amount” means at any time the maximum amount for which a Letter of Credit may be honored.
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the FRB to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. LIBO Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Store” means any retail store (which may include any real property, fixtures, equipment, inventory and other property related thereto) operated, or to be operated, by any Loan Party.
“Subordinated Indebtedness” means Indebtedness (including, without limitation, the Parent Indebtedness) which is expressly subordinated in right of payment to the prior payment in full of the Obligations and which is in form and on terms approved in writing by the Administrative Agent.
“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares Equity Interests having ordinary voting power for the election of directors or other governing body are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of a Loan Party.
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any

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date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
“Swing Line” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04 .
“Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04 .
“Swing Line Lender” means WFRF, in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.
“Swing Line Loan” has the meaning specified in Section 2.04(a) .
“Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b) , which, if in writing, shall be substantially in the form of Exhibit B .
“Swing Line Note” means the promissory note of the Borrowers substantially in the form of Exhibit C-2 , payable to the order of the Swing Line Lender, evidencing the Swing Line Loans made by the Swing Line Lender.
“Swing Line Sublimit” means an amount equal to the lesser of (a) $3,000,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.
“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Tax Sharing Agreement” means that certain Amended and Restated Tax Sharing Agreement, dated as of December 22, 2007, among the Parent and the other members of the affiliated group of corporations (within the meaning of Section 1504(a) of the Internal Revenue Code), as such Tax Sharing Agreement is in effect as of the date hereof or as hereafter amended, restated, supplemented or otherwise modified in a manner not materially adverse to the Administrative Agent and the other Credit Parties.
“Termination Date” means the earliest to occur of (i) the Maturity Date, (ii) the date on which the maturity of the Obligations is accelerated (or deemed accelerated) and the Commitments are irrevocably terminated (or deemed terminated) in accordance with Article VIII , or (iii) the termination of the Commitments in accordance with the provisions of Section 2.06(a) hereof.
“Tier 1 Payment Conditions” means, at the time of determination with respect to any specified transaction or payment, that (a) no Default then exists and is continuing or would arise as a result of entering into such transaction or the making such payment, (b) after giving effect to such transaction or payment, the

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Level A Pro Forma Availability Condition has been satisfied, and (c) (i) the Consolidated Fixed Charge Coverage Ratio, after giving effect to such transaction or payment, and (ii) the Consolidated Fixed Charge Coverage Ratio, on a pro forma basis calculated monthly for the twelve month period ending on the date of such transaction or payment and determined as if such transaction or payment occurred on the first day of such twelve month period, in each case will be equal to or greater than 1.1:1.0. Prior to undertaking any transaction or payment which is subject to the Tier 1 Payment Conditions, the Loan Parties shall deliver to the Administrative Agent evidence of satisfaction of the conditions contained in clauses (b) and (c) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Administrative Agent.
“Tier 2 Payment Conditions” means, at the time of determination with respect to any specified transaction or payment, that (a) no Default then exists and is continuing or would arise as a result of entering into such transaction or the making such payment, (b) after giving effect to such transaction or payment, the Level A Pro Forma Availability Condition has been satisfied. Prior to undertaking any transaction or payment which is subject to the Tier 2 Payment Conditions, the Loan Parties shall deliver to the Administrative Agent evidence of satisfaction of the conditions contained in clause (b) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Administrative Agent.
“Tier 3 Payment Conditions” means, at the time of determination with respect to any specified transaction or payment, that (a) no Default then exists and is continuing or would arise as a result of entering into such transaction or the making such payment, (b) after giving effect to such transaction or payment, the Level B Pro Forma Availability Condition has been satisfied. Prior to undertaking any transaction or payment which is subject to the Tier 3 Payment Conditions, the Loan Parties shall deliver to the Administrative Agent evidence of satisfaction of the conditions contained in clause (b) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Administrative Agent.
“Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
“Trading with the Enemy Act” has the meaning set forth in Section 10.18 .
“Type” means, with respect to a Committed Loan, its character as a Base Rate Loan or a LIBO Rate Loan.
“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that if a term is defined in Article 9 of the Uniform Commercial Code differently than in another Article thereof, the term shall have the meaning set forth in Article 9; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “Uniform Commercial Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.
“UFCA” has the meaning specified in Section 10.21(d) .
“UFTA” has the meaning specified in Section 10.21(d) .
“Unfunded Pension Liability” means the excess of a Pension Plan's benefit liabilities over the value

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of assets of the Pension Plan. For this purpose, the benefit liabilities of a Pension Plan for a plan year shall be the Pension Plan's "funding target" determined under Section 430(d)(1) of the Code (without regard to Section 430(i)(1) of the Code) for the plan year, and value of the assets for such plan year shall be such value as is used pursuant to Section 430 of the Code for purposes of determining the annual contribution requirements with respect to the Pension Plan for such plan year.
“Unintentional Overadvance” means an Overadvance which, to the Administrative Agent’s knowledge, did not constitute an Overadvance when made but which has become an Overadvance resulting from changed circumstances beyond the control of the Credit Parties, including, without limitation, a reduction in the Appraised Value of property or assets included in the Borrowing Base or misrepresentation by the Loan Parties.
“United States” and “U.S.” mean the United States of America.
“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i) .
“Voting Stock” means, with respect to any Person, Capital Stock issued by such Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
“Wells Fargo” means Wells Fargo Bank, N.A., and its successors.
“WFRF” means Wells Fargo Retail Finance, LLC, and its successors.
1.02      Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a)      The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “ include ,” “ includes ” and “ including ” shall be deemed to be followed by the phrase “without limitation.” The word “ will ” shall be construed to have the same meaning and effect as the word “ shall .” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “ herein ,” “ hereof ” and “ hereunder ,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “ asset ” and “ property ” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

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(b)      In the computation of periods of time from a specified date to a later specified date, the word “ from ” means “ from and including ;” the words “ to ” and “ until ” each mean “ to but excluding ;” and the word “ through ” means “ to and including .”
(c)      Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
1.03      Accounting Terms
(a)      Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Specified Financial Statements, except as otherwise specifically prescribed herein.
(b)      Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Lead Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Lead Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that , until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Lead Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
1.04      Rounding. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05      Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
1.06      Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to be the Stated Amount of such Letter of Credit in effect at such time; provided , however, that with respect to any Letter of Credit that, by its terms of any Issuer Documents related thereto, provides for one or more automatic increases in the Stated Amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum Stated Amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum Stated Amount is in effect at such time.
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01      Committed Loans; Reserves. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “ Committed Loan ”) to the Borrowers from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any

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time outstanding the lesser of (x) the amount of such Lender’s Commitment, or (y) such Lender’s Applicable Percentage of the Borrowing Base; subject in each case to the following limitations:
(i)      after giving effect to any Committed Borrowing, the Total Outstandings shall not exceed the lesser of (A) the Aggregate Commitments, or (B) the Borrowing Base,
(ii)      after giving effect to any Committed Borrowing, the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment,
(iii)      The Outstanding Amount of all L/C Obligations shall not at any time exceed the Letter of Credit Sublimit
Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.01 , prepay under Section 2.05 , and reborrow under this Section 2.01 . Committed Loans may be Base Rate Loans or LIBO Rate Loans, as further provided herein.
(b)      The following are the Inventory Reserves and Availability Reserves as of the Closing Date:
(i)      Additional Inventory Reserves in connection with damaged and defective goods, closed Stores and ineligible departments;
(ii)      Rent Reserve (an Availability Reserve): An amount equal to two (2) months’ rent for all of the Borrowers’ leased locations in each Landlord Lien State, other than leased locations with respect to which the Collateral Agent has received a Collateral Access Agreement in form reasonably satisfactory to the Collateral Agent;
(iii)      Customer Deposits Reserve (an Availability Reserve): An amount equal to one hundred percent (100%) of the Customer Deposits;
(iv)      Customer Credit Liabilities Reserve (an Availability Reserve): An amount equal to fifty percent (50%) of the Customer Credit Liabilities as reflected in the Borrowers’ books and records; and
(v)      Additional Availability Reserves in connection with Texas sales Taxes and Texas personal property Taxes.
(c)      The Administrative Agent shall have the right, at any time and from time to time after the Closing Date in its Permitted Discretion to establish, modify or eliminate Reserves.
2.02      Borrowings, Conversions and Continuations of Committed Loans .
(a)      Committed Loans (other than Swing Line Loans) shall be either Base Rate Loans or LIBO Loans as the Lead Borrower may request subject to and in accordance with this Section 2.02 . All Swing Line Loans shall be only Base Rate Loans. Subject to the other provisions of this Section 2.02 , Committed Borrowings of more than one Type may be incurred at the same time.
(b)      Each Committed Borrowing, each conversion of Committed Loans from one Type

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to the other, and each continuation of LIBO Rate Loans shall be made upon the Lead Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three (3) Business Days prior to the requested date of any Borrowing of, conversion to or continuation of LIBO Rate Loans or of any conversion of LIBO Rate Loans to Base Rate Loans, and (ii) one (1) Business Day prior to the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Lead Borrower pursuant to this Section 2.02(b) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Each Borrowing of, conversion to or continuation of LIBO Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Lead Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of LIBO Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Lead Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Lead Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable LIBO Rate Loans. If the Lead Borrower requests a Borrowing of, conversion to, or continuation of LIBO Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be converted to a LIBO Rate Loan.
(c)      Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Lead Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(b) . In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01 ), the Administrative Agent shall use reasonable efforts to make all funds so received available to the Borrowers in like funds by no later than 4:00 p.m. on the day of receipt by the Administrative Agent either by (i) crediting the account of the Lead Borrower on the books of Wells Fargo with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Lead Borrower; provided , however , that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Lead Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, first , shall be applied to the payment in full of any such L/C Borrowings, and second , shall be made available to the Borrowers as provided above.
(d)      The Administrative Agent, without the request of the Lead Borrower, may advance any interest, fee, service charge, Credit Party Expenses, or other payment to which any Credit Party is entitled from the Loan Parties pursuant hereto or any other Loan Document and may charge the same to the Loan Account notwithstanding that an Overadvance may result thereby. The Administrative Agent shall advise the Lead Borrower of any such advance or charge promptly after the making thereof. Such action on the part of the Administrative Agent shall not constitute a waiver of the Administrative Agent’s rights and the

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Borrowers’ obligations under Section 2.05(c) . Any amount which is added to the principal balance of the Loan Account as provided in this Section 2.02(d) shall bear interest at the interest rate then and thereafter applicable to Base Rate Loans.
(e)      Except as otherwise provided herein, a LIBO Rate Loan may be continued or converted only on the last day of an Interest Period for such LIBO Rate Loan. During the existence and continuation of a Default, no Loans may be requested as, converted to or continued as LIBO Rate Loans without the Consent of the Required Lenders.
(f)      The Administrative Agent shall promptly notify the Lead Borrower and the Lenders of the interest rate applicable to any Interest Period for LIBO Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Lead Borrower and the Lenders of any change in Wells Fargo’s prime rate used in determining the Base Rate promptly following the public announcement of such change.
(g)      After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than five (5) Interest Periods in effect with respect to LIBO Loans.
(h)      The Administrative Agent, the Lenders and the Swing Line Lender shall have no obligation to make any Loan or to endeavor to cause the L/C Issuer to provide any Letter of Credit if an Overadvance would result. The Administrative Agent may, in its discretion, make Permitted Overadvances without the consent of the Lenders, the Swing Line Lender and the L/C Issuer and each Lender shall be bound thereby. Any Permitted Overadvance may constitute a Swing Line Loan. A Permitted Overadvance is for the account of the Borrowers and shall constitute a Base Rate Loan and an Obligation and shall be repaid by the Borrowers in accordance with the provisions of Section 2.05(c) . The making of any such Permitted Overadvance on any one occasion shall not obligate the Administrative Agent or any Lender to make or permit any Permitted Overadvance on any other occasion or to permit such Permitted Overadvances to remain outstanding. The making by the Administrative Agent of a Permitted Overadvance shall not modify or abrogate any of the provisions of Section 2.03 regarding the Lenders’ obligations to purchase participations with respect to Letter of Credits or of Section 2.04 regarding the Lenders’ obligations to purchase participations with respect to Swing Line Loans. The Administrative Agent shall have no liability for, and no Loan Party or Credit Party shall have the right to, or shall, bring any claim of any kind whatsoever against the Administrative Agent with respect to Unintentional Overadvances regardless of the amount of any such Overadvance(s).
2.03      Letters of Credit .
(a)      The Letter of Credit Commitment .
(i)      Subject to the terms and conditions set forth herein, (A) the Administrative Agent, in reliance upon the agreements of the Lenders set forth in this Section 2.03 , shall endeavor to cause the L/C Issuer from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrowers, and to amend or extend Letters of Credit previously issued by it, in accordance with Section 2.03(b) below; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrowers and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the lesser of the Aggregate Commitments or the Borrowing Base, (y) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s

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Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Lead Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrowers that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii)      No Letter of Credit shall be issued if:
(A)      subject to Section 2.03(b)(iii) , the expiry date of such requested Standby Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or
(B)      subject to Section 2.03(b)(iii) , the expiry date of such requested Commercial Letter of Credit would occur more than 150 days after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or
(C)      the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless either such Letter of Credit is Cash Collateralized on or prior to the Letter of Credit Expiration Date or all the Lenders have approved such expiry date.
(iii)      No Letter of Credit shall be issued without the prior consent of the Administrative Agent if:
(A)      any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;
(B)      the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;
(C)      except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is in an initial Stated Amount less than $25,000, in the case of a Commercial Letter of Credit, or $50,000, in the case of a Standby Letter of Credit;
(D)      such Letter of Credit is to be denominated in a currency other than Dollars;
(E)      such Letter of Credit contains any provisions for automatic reinstatement of the Stated Amount after any drawing thereunder; or

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(F)      a default of any Lender’s obligations to fund under Section 2.03(c) exists or any Lender is at such time a Defaulting Lender or Deteriorating Lender hereunder, unless the Administrative Agent or L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer’s risk with respect to such Lender.
(iv)      The Borrowers shall not permit any Letter of Credit to be amended if (A) the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(v)      The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.
(b)      Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit .
(i)      Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Lead Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two (2) Business Days (or such other date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Administrative Agent and the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the Administrative Agent or L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Administrative Agent and the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the Administrative Agent or the L/C Issuer may require. Additionally, the Lead Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.
(ii)      Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one (1) Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, endeavor to issue a Letter of Credit for the account of the applicable Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer's usual and

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customary business practices. Immediately upon the issuance or amendment of each Letter of Credit, each Lender shall be deemed to (without any further action), and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer, without recourse or warranty, a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit. Upon any change in the Commitments under this Agreement, it is hereby agreed that with respect to all L/C Obligations, there shall be an automatic adjustment to the participations hereby created to reflect the new Applicable Percentages of the assigning and assignee Lenders.
(iii)    If the Lead Borrower so requests in any applicable Letter of Credit Application, the Administrative Agent may, in its sole and absolute discretion, endeavor to cause the L/C Issuer to issue a Standby Letter of Credit that has automatic extension provisions (each, an “ Auto-Extension Letter of Credit ”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Standby Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “ Non-Extension Notice Date ”) in each such twelve-month period to be agreed upon at the time such Standby Letter of Credit is issued. Unless otherwise directed by the Administrative Agent or the L/C Issuer, the Lead Borrower shall not be required to make a specific request to the Administrative Agent or the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Standby Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided , however , that the Administrative Agent shall instruct the L/C Issuer not to permit any such extension if (A) the Administrative Agent has determined that it would not be permitted, or would have no obligation, at such time to endeavor to cause the L/C Issuer to issue such Standby Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) the L/C Issuer has received notice (which may be by telephone or in writing) on or before the day that is five (5) Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Lead Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.
(iv)      Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Lead Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(c)      Drawings and Reimbursements; Funding of Participations .
(i)      Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Administrative Agent shall notify the Lead Borrower thereof; provided , however , that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the L/C Issuer and the Lenders with respect to any such payment. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an “ Honor Date ”), the Borrowers shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrowers fail to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “ Unreimbursed Amount ”), and the amount of such Lender’s Applicable Percentage thereof. In such event, the Borrowers shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject

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to the amount of the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
(ii)      Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent’s Office in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii) , each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrowers in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer.
(iii)      With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrowers shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03 .
(iv)      Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Percentage of such amount shall be solely for the account of the L/C Issuer.
(v)      Each Lender’s obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c) , shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided , however , that each Lender’s obligation to make Committed Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Lead Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrowers to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.
(vi)      If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii) , the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the

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foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.
(d)      Repayment of Participations .
(i)      At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c) , if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrowers or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.
(ii)      If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e)      Obligations Absolute . The obligation of the Borrowers to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
(i)      any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;
(ii)      the existence of any claim, counterclaim, setoff, defense or other right that the Borrowers or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii)      any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv)      any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any

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arising in connection with any proceeding under any Debtor Relief Law;
(v)      any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrowers or any of their Subsidiaries; or
(vi)      the fact that any Event of Default shall have occurred and be continuing.
The Lead Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Lead Borrower’s instructions or other irregularity, the Lead Borrower will immediately notify the Administrative Agent and the L/C Issuer. The Borrowers shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
(f)      Role of L/C Issuer . Each Lender and the Borrowers agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; (iii) any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit or any error in interpretation of technical terms; or (iv) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrowers hereby assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided , however , that this assumption is not intended to, and shall not, preclude the Borrowers’ pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.03(e) ; provided , however , that anything in such clauses to the contrary notwithstanding, the Borrowers may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrowers which the Borrowers prove were caused by the L/C Issuer's willful misconduct or gross negligence or the L/C Issuer's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary (or the L/C Issuer may refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit), and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(g)      Cash Collateral . Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing that remains outstanding, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrowers shall, in each case, immediately Cash

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Collateralize the then Outstanding Amount of all L/C Obligations. Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.03 , Section 2.05 and Section 8.02(c) , “ Cash Collateralize ” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances in an amount equal to 105% of the Outstanding Amount of all L/C Obligations, pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby Consented to by the Lenders). The Borrowers hereby grant to the Collateral Agent a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in the Cash Collateral Account. If at any time the Administrative Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Administrative Agent or that the total amount of such funds is less than the aggregate Outstanding Amount of all L/C Obligations, the Borrowers will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate Outstanding Amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the L/C Issuer and, to the extent not so applied, shall thereafter be applied to satisfy other Obligations.
(h)      Applicability of ISP and UCP . Unless otherwise expressly agreed by the L/C Issuer and the Lead Borrower when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each Standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance shall apply to each Commercial Letter of Credit.
(i)      Letter of Credit Fees . The Borrowers shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage a Letter of Credit fee (the “Letter of Credit Fee”) for each Letter of Credit equal to the Applicable Rate times the daily Stated Amount under each such Letter of Credit (whether or not such maximum amount is then in effect under such Letter of Credit). For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of the Letter of Credit shall be determined in accordance with Section 1.06 . Letter of Credit Fees shall be (i) due and payable on the first day after the end of each month commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand, and (ii) computed on a monthly basis in arrears. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under of each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, while any Event of Default exists and is continuing, all Letter of Credit Fees shall accrue at the Default Rate as provided in Section 2.08(b) hereof.
(j)      Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer . The Borrowers shall pay to the Administrative Agent, for the account of the L/C Issuer, a fronting fee (the “ Fronting Fee ”) (i) with respect to each Commercial Letter of Credit, at a rate equal to 0.125% per annum, computed on the amount of such Letter of Credit, and payable upon the issuance or amendment thereof, and (ii) with respect to each Standby Letter of Credit, at a rate equal to 0.125% per annum, computed on the daily amount available to be drawn under such Letter of Credit and on a monthly basis in arrears. Such Fronting Fees shall be due and payable on the first day of each month, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of the Letter of Credit shall be determined in accordance with Section 1.06 . In addition, the Borrowers shall pay

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to the Administrative Agent, for the account of the L/C Issuer, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(k)      Conflict with Issuer Documents . In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
2.04      Swing Line Loans .
(a)      The Swing Line . Subject to the terms and conditions set forth herein, the Swing Line Lender may, in reliance upon the agreements of the other Lenders set forth in this Section 2.04 , make loans (each such loan, a “ Swing Line Loan ”) to the Borrowers from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding Amount of Committed Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Commitment; provided , however , that after giving effect to any Swing Line Loan, (i) the Total Outstandings shall not exceed the lesser of (A) the Aggregate Commitments, or (B) the Borrowing Base, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender at such time, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations at such time, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans at such time shall not exceed such Lender’s Commitment, and provided , further , that the Borrowers shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan, and provided further that the Swing Line Lender shall not be obligated to make any Swing Line Loan at any time when any Lender is at such time a Defaulting Lender or Deteriorating Lender hereunder, unless the Swing Line Lender has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the Swing Line Lender’s risk with respect to such Lender. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.04 , prepay under Section 2.05 , and reborrow under this Section 2.04 . Each Swing Line Loan shall bear interest only at a rate based on the Base Rate. Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Swing Line Loan. The Swing Line Lender shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the Swing Line Lender in connection with Swing Line Loans made by it or proposed to be made by it as if the term “Administrative Agent” as used in Article IX included the Swing Line Lender with respect to such acts or omissions, and (B) as additionally provided herein with respect to the Swing Line Lender.
(b)      Borrowing Procedures . Each Swing Line Borrowing shall be made upon the Lead Borrower’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the

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Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent at the request of the Required Lenders prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.04(a) , or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender may, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrowers at its office by crediting the account of the Lead Borrower on the books of the Swing Line Lender in immediately available funds.
(c)      Refinancing of Swing Line Loans .
(i)      The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrowers (which hereby irrevocably authorize the Swing Line Lender to so request on their behalf), that each Lender make a Base Rate Loan in an amount equal to such Lender's Applicable Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02 , without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02 . The Swing Line Lender shall furnish the Lead Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Lender shall make an amount equal to its Applicable Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agent’s Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii) , each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrowers in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.
(ii)      If for any reason any Swing Line Loan cannot be refinanced by such a Committed Borrowing in accordance with Section 2.04(c)(i) , the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Lenders fund its risk participation in the relevant Swing Line Loan and each Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.
(iii)      If any Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i) , the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

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(iv)      Each Lender’s obligation to make Committed Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrowers or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided , however , that each Lender’s obligation to make Committed Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.02 . No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrowers to repay Swing Line Loans, together with interest as provided herein.
(d)      Repayment of Participations .
(i)      At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s risk participation was funded) in the same funds as those received by the Swing Line Lender.
(ii)      If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay to the Swing Line Lender its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e)      Interest for Account of Swing Line Lender . The Swing Line Lender shall be responsible for invoicing the Borrowers for interest on the Swing Line Loans. Until each Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of the Swing Line Lender.
(f)      Payments Directly to Swing Line Lender . The Borrowers shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.
2.05      Prepayments .
(a)      The Borrowers may, upon irrevocable notice from the Lead Borrower to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three (3) Business Days prior to any date of prepayment of LIBO Rate Loans and (B) on the date of prepayment of Base Rate Loans; and (ii) any prepayment of LIBO Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof, or, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if LIBO Rate Loans, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Lead Borrower, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a LIBO Rate Loan shall be

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accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05 . Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages.
(b)      The Borrowers may, upon irrevocable notice from the Lead Borrower to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (ii) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Lead Borrower, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.
(c)      If for any reason the Total Outstandings at any time exceed the lesser of the Aggregate Commitments or the Borrowing Base, each as then in effect, the Borrowers shall immediately prepay Loans, Swing Line Loans and L/C Borrowings and/or Cash Collateralize the L/C Obligations (other than L/C Borrowings) in an aggregate amount equal to such excess; provided , however , that the Borrowers shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05(c) unless after the prepayment in full of the Loans the Total Outstandings exceed the lesser of the Aggregate Commitments or the Borrowing Base, each as then in effect.
(d)      The Borrowers shall prepay the Loans and Cash Collateralize the L/C Obligations in accordance with the provisions of Section 6.13 hereof.
(e)      The Borrowers shall prepay the Loans and Cash Collateralize the L/C Obligations in an amount equal to the Net Cash Proceeds received by a Loan Party on account of a Prepayment Event, irrespective of whether a Cash Dominion Event then exists and is continuing.
(f)      Prepayments made pursuant to Section 2.05(c), (d) and (e) above, first , shall be applied ratably to the L/C Borrowings and the Swing Line Loans, second , shall be applied ratably to the outstanding Committed Loans, third , shall be used to Cash Collateralize the remaining L/C Obligations; and, fourth, the amount remaining, if any, after the prepayment in full of all L/C Borrowings, Swing Line Loans and Committed Loans outstanding at such time and the Cash Collateralization of the remaining L/C Obligations in full may be retained by the Borrowers for use in the ordinary course of its business. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrowers or any other Loan Party) to reimburse the L/C Issuer or the Lenders, as applicable.
2.06      Termination or Reduction of Commitments .
(a)      The Borrowers may, upon irrevocable notice from the Lead Borrower to the Administrative Agent, terminate the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit or from time to time permanently reduce the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five (5) Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $1,000,000 or any whole multiple of $500,000 in excess thereof, (iii) the Borrowers shall not terminate or reduce (A) the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, (B) the Letter of Credit Sublimit if, after giving effect thereto, the Outstanding Amount of L/C Obligations not fully Cash Collateralized hereunder would exceed the Letter of Credit

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Sublimit, and (C) the Swing Line Sublimit if, after giving effect thereto, and to any concurrent payments hereunder, the Outstanding Amount of Swing Line Loans hereunder would exceed the Swing Line Sublimit, and (iv) the Borrowers shall not reduce the Aggregate Commitments prior to the first anniversary of the Closing Date.
(b)      If, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Commitments, such Letter of Credit Sublimit or Swing Line Sublimit shall be automatically reduced by the amount of such excess.
(c)      The Administrative Agent will promptly notify the Lenders of any termination or reduction of the Letter of Credit Sublimit, Swing Line Sublimit or the Aggregate Commitments under this Section 2.06 . Upon any reduction of the Aggregate Commitments, the Commitment of each Lender shall be reduced by such Lender’s Applicable Percentage of such reduction amount. All fees (including, without limitation, commitment fees, Early Termination Fees, and Letter of Credit Fees) and interest in respect of the Aggregate Commitments accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination.
2.07      Repayment of Loans .
(a)      The Borrowers shall repay to the Lenders on the Termination Date the aggregate principal amount of Committed Loans outstanding on such date.
(b)      To the extent not previously paid, the Borrowers shall repay the outstanding balance of the Swing Line Loans on the Termination Date.
2.08      Interest .
(a)      Subject to the provisions of Section 2.08(b) below, (i) each LIBO Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the LIBO Rate for such Interest Period plus the Applicable Margin; (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Margin; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Margin.
(b)      (i)    If any amount payable under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii)      If any other Event of Default exists and is continuing, then the Administrative Agent may, and upon the request of the Required Lenders shall, notify the Lead Borrower that all outstanding Obligations shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate and thereafter such Obligations shall bear interest at the Default Rate to the fullest extent permitted by applicable Laws.
(iii)      Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

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(c)      Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
2.09      Fees. In addition to certain fees described in subsections (i) and (j) of Section 2.03 :
(a)      Commitment Fee . The Borrowers shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to one-half of one percent (0.50%) times the actual daily amount by which the Aggregate Commitments exceed the sum of (i) the Outstanding Amount of Loans and (ii) the Outstanding Amount of L/C Obligations. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable monthly in arrears on the first day after the end of each month, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period. The commitment fee shall be calculated monthly in arrears.
(b)      Early Termination Fee . In the event that the Termination Date occurs, for any reason, prior to the second anniversary of the Closing Date, or in the event that the Borrowers reduce (but do not terminate) the Aggregate Commitments by an amount in excess of $10,000,000 prior to the second anniversary of the Closing Date, the Borrowers shall pay to the Administrative Agent, for the ratable benefit of the Lenders, a fee (the “ Early Termination Fee ”) in respect of amounts which are or become payable by reason thereof equal to one percent (1.00%) of (i) in the case of the occurrence of the Termination Date, the greater of (A) the Adjusted Aggregate Commitments, or (B) the Aggregate Commitments then in effect (without regard to any termination thereof), or (ii) in the case of a reduction of the Aggregate Commitments, the amount of such reduction in the Aggregate Commitments, as applicable. All parties to this Agreement agree and acknowledge that the Lenders will have suffered damages on account of the early termination of this Agreement or any portion of the Commitments and that, in view of the difficulty in ascertaining the amount of such damages, the Early Termination Fee constitutes reasonable compensation and liquidated damages to compensate the Lenders on account thereof.
(c)      Other Fees . The Borrowers shall pay to the Administrative Agent for its own account fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
2.10      Computation of Interest and Fees. All computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a) , bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
2.11      Evidence of Debt .
(a)      The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by the Administrative Agent (the “ Loan Account ”) in the ordinary course of business. In addition, each Lender may record in such Lender’s internal records, an appropriate notation evidencing the date and amount of each Loan from such Lender, each payment and prepayment of principal of any such Loan, and each payment of interest, fees and other amounts due in connection with the Obligations due to such Lender. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the

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Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto. Upon receipt of an affidavit of a Lender as to the loss, theft, destruction or mutilation of such Lender’s Note and upon cancellation of such Note, the Borrowers will issue, in lieu thereof, a replacement Note in favor of such Lender, in the same principal amount thereof and otherwise of like tenor.
(b)      In addition to the accounts and records referred to in Section 2.11(a) , each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.12      Payments Generally; Administrative Agent’s Clawback .
(a)      General . All payments to be made by the Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrowers hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m., at the option of the Administrative Agent, shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(b)      (i)     Funding by Lenders; Presumption by Administrative Agent . Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of LIBO Rate Loans (or in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02 ) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Committed Borrowing available to the Administrative Agent, then the applicable Lender and the Borrowers severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in

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accordance with banking industry rules on interbank compensation plus any administrative processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrowers, the interest rate applicable to Base Rate Loans. If the Borrowers and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrowers the amount of such interest paid by the Borrowers for such period. If such Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Committed Loan included in such Committed Borrowing. Any payment by the Borrowers shall be without prejudice to any claim the Borrowers may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii)      Payments by Borrowers; Presumptions by Administrative Agent . Unless the Administrative Agent shall have received notice from the Lead Borrower prior to the time at which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Lead Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c)      Failure to Satisfy Conditions Precedent . If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II , and such funds are not made available to the Borrowers by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof (subject to the provisions of the last paragraph of Section 4.02 hereof), the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d)      Obligations of Lenders Several . The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 10.04(c) .
(e)      Funding Source . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
2.13      Sharing of Payments by Lenders. If any Credit Party shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of, interest on, or other amounts with respect to, any of the Obligations resulting in such Lender’s receiving payment of a proportion

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of the aggregate amount of such Obligations greater than its pro rata share thereof as provided herein (including as in contravention of the priorities of payment set forth in Section 8.03 ), then the Credit Party receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Obligations of the other Credit Parties, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Credit Parties ratably and in the priorities set forth in Section 8.03 , provided that:
(i)      if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii)      the provisions of this Section shall not be construed to apply to (x) any payment made by the Loan Parties pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to the Borrowers or any Subsidiary thereof (as to which the provisions of this Section shall apply).
Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.
2.14      Settlement Amongst Lenders
(a)      The amount of each Lender’s Applicable Percentage of outstanding Loans (including outstanding Swing Line Loans, shall be computed weekly (or more frequently in the Administrative Agent’s discretion) and shall be adjusted upward or downward based on all Loans (including Swing Line Loans) and repayments of Loans (including Swing Line Loans) received by the Administrative Agent as of 3:00 p.m. on the first Business Day (such date, the “ Settlement Date ”) following the end of the period specified by the Administrative Agent.
(b)      The Administrative Agent shall deliver to each of the Lenders promptly after a Settlement Date a summary statement of the amount of outstanding Committed Loans and Swing Line Loans for the period and the amount of repayments received for the period. As reflected on the summary statement, (i) the Administrative Agent shall transfer to each Lender its Applicable Percentage of repayments, and (ii) each Lender shall transfer to the Administrative Agent (as provided below) or the Administrative Agent shall transfer to each Lender, such amounts as are necessary to insure that, after giving effect to all such transfers, the amount of Committed Loans made by each Lender shall be equal to such Lender’s Applicable Percentage of all Committed Loans outstanding as of such Settlement Date. If the summary statement requires transfers to be made to the Administrative Agent by the Lenders and is received prior to 1:00 p.m. on a Business Day, such transfers shall be made in immediately available funds no later than 3:00 p.m. that day; and, if received after 1:00 p.m., then no later than 3:00 p.m. on the next Business Day. The obligation of each Lender to transfer such funds is irrevocable, unconditional and without recourse to or warranty by the Administrative Agent. If and to the extent any Lender shall not have so made its transfer to the Administrative Agent, such Lender agrees to pay to the Administrative Agent, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent, equal to the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank

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compensation plus any administrative, processing, or similar fees customarily charged by the Administrative Agent in connection with the foregoing.
2.15      Initial Increase in Commitments .
(a)      Request for Initial Increase . On or before the first anniversary of the Closing Date, upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Lead Borrower shall on a one-time basis request an increase in the Aggregate Commitments (the “ Initial Increase ”) by an amount equal to $5,000,000.00 (such request, the “ Initial Increase Request ”). Unless the Initial Increase Effective Date (as defined below) shall have occurred on or before the first anniversary of the Closing Date, the Aggregate Commitments shall be increased by the amount of the Initial Increase on the first anniversary of the Closing Date, without further action or notice required by any Loan Party, any Agent or any other Person.
(b)      Initial Increase Effective Date and Allocations . Upon the increase of the Aggregate Commitments in accordance with this Section, the Administrative Agent, in consultation with the Lead Borrower, shall determine the effective date, which effective date shall be no later than the first anniversary of the Closing Date (such effective date, the “ Initial Increase Effective Date ”). If the Lead Borrower has failed to make the Initial Increase Request on or prior to the first anniversary of the Closing Date, the Initial Increase Effective Date shall be the first anniversary of the Closing Date. The allocations of the Initial Increase shall be made in accordance with the Commitment Percentages of the Lenders as in effect immediately prior to the Initial Increase Effective Date. On the Initial Increase Effective Date (i) the Aggregate Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Initial Increase, and (ii) Schedule 2.01 shall be deemed modified, without further action or notice required by any Loan Party, any Agent or any other Person, to reflect the revised Commitments and Applicable Percentages of the Lenders.
(c)      Condition to Effectiveness of Initial Increase . As a condition precedent to such increase, no Default or Event of Default shall then exist and be continuing. The Borrowers shall prepay any Committed Loans outstanding on the Initial Increase Effective Date (and pay any additional amounts required pursuant to Section 3.05 ) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section.
(d)      Conflicting Provisions . This Section shall supersede any provisions in Sections 2.13 or 10.01 to the contrary.
2.16      Additional Increase in Commitments .
(a)      Request for Additional Increase . Provided no Default then exists and is continuing or would arise therefrom, upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Lead Borrower may from time to time on or after the Initial Increase Effective Date request an increase in the Aggregate Commitments (each, an “ Additional Increase ”) by an amount (for all such requests) not exceeding $10,000,000.00 (each such request, an “ Additional Increase Request ”); provided that (i) any such request for an increase shall be in a minimum amount of $2,000,000.00, and (ii) the Lead Borrower may make a maximum of three (3) such Additional Increase Requests. At the time of sending such notice, the Lead Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten (10) Business Days from the date of delivery of such notice to the Lenders).
(b)      Lender Elections to Increase . Each Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Commitment and, if so, whether by an amount

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equal to, greater than, or less than its Applicable Percentage of such Additional Increase Request. Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment.
(c)      Notification by Administrative Agent; Additional Lenders . The Administrative Agent shall notify the Lead Borrower and each Lender of the Lenders’ responses to each Additional Increase Request. To achieve the full amount of an Additional Increase and subject to the approval of the Administrative Agent, the L/C Issuer and the Swing Line Lender (which approvals shall not be unreasonably withheld), to the extent that the existing Lenders decline to increase their Commitments, or decline to increase their Commitments to the amount requested by the Lead Borrower, the Administrative Agent, in consultation with the Lead Borrower, will use its reasonable efforts to arrange for other Eligible Assignees to become a Lender hereunder (each such additional lender, an “ Additional Commitment Lender ”) and to issue commitments in an amount equal to the amount of the increase in the Aggregate Commitments requested by the Lead Borrower pursuant to the applicable Additional Increase Request and not accepted by the existing Lenders (and the Lead Borrower may also invite additional Eligible Assignees to become Lenders), provided , however , that without the consent of the Administrative Agent, at no time shall the Commitment of any Additional Commitment Lender be less than $5,000,000.
(d)      Additional Increase Effective Date and Allocations . If the Aggregate Commitments are increased in accordance with this Section with respect to an Additional Increase, the Administrative Agent, in consultation with the Lead Borrower, shall determine the effective date (each, an “ Additional Increase Effective Date ”) and the final allocation of such Additional Increase. The Administrative Agent shall promptly notify the Lead Borrower and the Lenders of the final allocation of such Additional Increase and the applicable Additional Increase Effective Date, and on the applicable Additional Increase Effective Date (i) the Aggregate Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Additional Increase, and (ii) Schedule 2.01 shall be deemed modified, without further action, to reflect the revised Commitments and Applicable Percentages of the Lenders.
(e)      Conditions to Effectiveness of Additional Increase . As a condition precedent to each Additional Increase, (i) the Lead Borrower shall deliver to the Administrative Agent a certificate of each Loan Party dated as of applicable Additional Increase Effective Date signed by a Responsible Officer of such Loan Party (A) certifying and attaching the resolutions adopted by such Loan Party approving or consenting to such Additional Increase, and (B) in the case of the Borrowers, certifying that, before and after giving effect to such Additional Increase, the representations and warranties contained in Article V and the other Loan Documents are true and correct in all material respects on and as of the applicable Additional Increase Effective Date, except to the extent that (x) such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date, and (y) such representations and warranties are qualified by “materiality” or “Material Adverse Effect”, in which case they are true and correct in all respects, and except that for purposes of this Section 2.16 , the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 , (ii) the Borrowers, the Administrative Agent, and any Additional Commitment Lender shall have executed and delivered a joinder to the Loan Documents in such form as the Administrative Agent shall reasonably require; (iii) the Borrowers shall have paid such fees and other compensation to the Additional Commitment Lenders as the Lead Borrower and such Additional Commitment Lenders shall agree; (iv) the Borrowers shall have paid such fees to the Administrative Agent as are specified in the Fee Letter; (v) upon the request of the Administrative Agent, the Borrowers shall deliver to the Administrative Agent and the Lenders an opinion or opinions, in form and substance reasonably satisfactory to the Administrative Agent, from counsel to the Borrowers reasonably satisfactory to the Administrative Agent and dated such date; (vi) the Borrowers and the Additional Commitment Lender shall have delivered such other instruments, documents and agreements

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as the Administrative Agent may reasonably have requested; and (vii) no Default or Event of Default exists and is continuing. The Borrowers shall prepay any Committed Loans outstanding on the applicable Additional Increase Effective Date (and pay any additional amounts required pursuant to Section 3.05 ) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section.
(f)      Conflicting Provisions . This Section shall supersede any provisions in Sections 2.13 or 10.01 to the contrary.
2.17      Extension of Maturity Date. The Lead Borrower may, on one occasion following the Closing Date, request an extension of the Maturity Date for a period of one (1) year, provided that the Lead Borrower shall provide written notice to the Administrative Agent of such request on or before six (6) months prior to the Maturity Date then in effect. Provided that, following such request, (i) the Administrative Agent and the Lenders have received all necessary or appropriate credit approvals with respect to such extension, (ii) the Borrowers have paid such fees to the Administrative Agent as are specified in the Fee Letter with respect to such extension, and (iii) no Event of Default then exists and is continuing, the Maturity Date shall be so extended.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY;
APPOINTMENT OF LEAD BORROWER
3.01      Taxes .
(a)      Payments Free of Taxes . Any and all payments by or on account of any obligation of the Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrowers shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b)      Payment of Other Taxes by the Borrowers . Without limiting the provisions of subsection (a) above, the Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c)      Indemnification by the Loan Parties . The Loan Parties shall indemnify the Administrative Agent, each Lender and the L/C Issuer, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Lead Borrower by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error. The Lead Borrower shall have the right, at its own expense, to apply or request the applicable Lender to appeal a request for reimbursement for such Indemnified Taxes or Other Taxes.

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(d)      Evidence of Payments . As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers to a Governmental Authority, the Lead Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e)      Status of Lenders . Any Foreign Lender hereunder must be entitled to a complete exemption from withholding tax under the law of the jurisdiction in which any Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document, and each such Foreign Lender shall deliver to the Lead Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Lead Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding. Such delivery shall be provided on the Closing Date and on or before such documentation expires or becomes obsolete or after the occurrence of an event requiring a change in the documentation most recently delivered. In addition, any Lender, if requested by the Lead Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Lead Borrower or the Administrative Agent as will enable the Lead Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
Without limiting the generality of the foregoing, in the event that any Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Lead Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Lead Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i)      duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,
(ii)      duly completed copies of Internal Revenue Service Form W-8ECI,
(iii)      in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrowers within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or
(iv)      any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Lead Borrower to determine the withholding or deduction required to be made.
(f)      Treatment of Certain Refunds . If the Administrative Agent, any Lender or the L/C Issuer determines, in its reasonable discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section, it shall pay to the Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all reasonable out-of-pocket

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expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrowers, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agree to repay the amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrowers or any other Person.
3.02      Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund LIBO Rate Loans, or to determine or charge interest rates based upon the LIBO Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Lead Borrower through the Administrative Agent, any obligation of such Lender to make or continue LIBO Rate Loans or to convert Base Rate Loans to LIBO Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Lead Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all LIBO Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such LIBO Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBO Rate Loans. Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.
3.03      Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a LIBO Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank market for the applicable amount and Interest Period of such LIBO Rate Loan, (b) adequate and reasonable means do not exist for determining the LIBO Rate for any requested Interest Period with respect to a proposed LIBO Rate Loan , or (c) the LIBO Rate for any requested Interest Period with respect to a proposed LIBO Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Lead Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBO Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Lead Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of LIBO Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.
3.04      Increased Costs; Reserves on LIBO Rate Loans .
(a)      Increased Costs Generally . If any Change in Law shall:
(i)      impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBO Rate) or the L/C Issuer;
(ii)      subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any LIBO

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Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer); or
(iii)      impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or LIBO Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any LIBO Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
(b)      Capital Requirements . If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender’s or the L/C Issuer’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the L/C Issuer’s capital or on the capital of such Lender’s or the L/C Issuer’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the L/C Issuer’s policies and the policies of such Lender’s or the L/C Issuer’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company for any such reduction suffered.
(c)      Certificates for Reimbursement . A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Lead Borrower shall be conclusive absent manifest error. The Borrowers shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d)      Delay in Requests . Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s or the L/C Issuer’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Lead Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the L/C Issuer’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

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(e)      Reserves on LIBO Rate Loans . The Borrowers shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), additional interest on the unpaid principal amount of each LIBO Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Lead Borrower shall have received at least ten (10) days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice ten (10) days prior to the relevant Interest Payment Date, such additional interest shall be due and payable ten (10) days from receipt of such notice.
3.05      Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrowers shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a)      any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b)      any failure by the Borrowers (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Lead Borrower; or
(c)      any assignment of a LIBO Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Lead Borrower pursuant to Section 10.13 ;
excluding any loss of anticipated profits but including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05 , each Lender shall be deemed to have funded each LIBO Rate Loan made by it at the LIBO Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such LIBO Rate Loan was in fact so funded.
3.06      Mitigation Obligations; Replacement of Lenders .
(a)      Designation of a Different Lending Office . If any Lender requests compensation under Section 3.04 , or the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 , or if any Lender gives a notice pursuant to Section 3.02 , then such Lender shall use commercially reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04 , as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02 , as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

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(b)      Replacement of Lenders . If any Lender requests compensation under Section 3.04 , or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 , the Borrowers may replace such Lender in accordance with Section 10.13 .
3.07      Survival. All of the Borrowers’ obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.
3.08      Designation of Lead Borrower as Borrowers’ Agent.
(a)      Each Borrower hereby irrevocably designates and appoints the Lead Borrower as such Borrower’s agent to obtain Credit Extensions, the proceeds of which shall be available to each Borrower for such uses as are permitted under this Agreement. As the disclosed principal for its agent, each Borrower shall be obligated to each Credit Party on account of Credit Extensions so made as if made directly by the applicable Credit Party to such Borrower, notwithstanding the manner by which such Credit Extensions are recorded on the books and records of the Lead Borrower and of any other Borrower. In addition, each Loan Party other than the Borrowers hereby irrevocably designates and appoints the Lead Borrower as such Loan Party’s agent to represent such Loan Party in all respects under this Agreement and the other Loan Documents.
(b)      Each Borrower recognizes that credit available to it hereunder is in excess of and on better terms than it otherwise could obtain on and for its own account and that one of the reasons therefor is its joining in the credit facility contemplated herein with all other Borrowers. Consequently, each Borrower hereby assumes and agrees to discharge all Obligations of each of the other Borrowers.
(c)      The Lead Borrower shall act as a conduit for each Borrower (including itself, as a “Borrower”) on whose behalf the Lead Borrower has requested a Credit Extension. Neither the Administrative Agent nor any other Credit Party shall have any obligation to see to the application of such proceeds therefrom.
ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

4.01      Conditions of Initial Credit Extension. The obligation of each Lender to make its initial Credit Extension and of the Administrative Agent to endeavor to cause the L/C Issuer to issue its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:
(a)      The Administrative Agent’s receipt of the following, each of which shall be originals, telecopies or other electronic image scan transmission (e.g., “pdf” or “tif ” via e-mail) (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance reasonably satisfactory to the Administrative Agent:
(i)      executed counterparts of this Agreement sufficient in number for distribution to the Administrative Agent, each Lender and the Lead Borrower;
(ii)      a Note executed by the Borrowers in favor of each Lender requesting a Note;
(iii)      such certificates of resolutions or other action, incumbency certificates and/

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or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing (A) the authority of each Loan Party to enter into this Agreement and the other Loan Documents to which such Loan Party is a party or is to become a party and (B) the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to become a party;
(iv)      copies of each Loan Party’s Organization Documents and such other documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to so qualify in such jurisdiction could not reasonably be expected to have a Material Adverse Effect;
(v)      a favorable opinion of Jones Day, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to such matters concerning the Loan Parties and the Loan Documents as the Administrative Agent may reasonably request;
(vi)      a certificate signed by a Responsible Officer of the Lead Borrower certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied, (B) that there has been no event or circumstance since the date of the Specified Financial Statements of the type described in clause (ii) of the definition thereof that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, (C) to the Solvency of the Loan Parties as of the Closing Date after giving effect to the transactions contemplated hereby, and (D) either that (1) no consents, licenses or approvals are required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, or (2) that all such consents, licenses and approvals have been obtained and are in full force and effect;
(vii)      evidence that all insurance required to be maintained pursuant to the Loan Documents and all endorsements in favor of the Agents required under the Loan Documents have been obtained and are in effect;
(viii)    a payoff letter from The Huntington National Bank under the Existing Credit Agreement reasonably satisfactory in form and substance to the Administrative Agent evidencing that the Existing Credit Agreement has been or concurrently with the Closing Date is being terminated, all obligations thereunder are being paid in full, and all Liens securing obligations under the Existing Credit Agreement have been or concurrently with the Closing Date are being released;
(ix)      the Security Documents and certificates evidencing any stock being pledged thereunder, together with undated stock powers executed in blank, each duly executed by the applicable Loan Parties;
(x)      all other Loan Documents, each duly executed by the applicable Loan Parties;
(xi)      (A)    appraisals (based on net liquidation value) by a third party appraiser acceptable to the Collateral Agent of all Inventory of the Borrowers, the results of which

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are reasonably satisfactory to the Collateral Agent; (B) a written report regarding the results of a commercial finance examination of the Loan Parties, which shall be reasonably satisfactory to the Collateral Agent; and (C) other due diligence materials (including, without limitation, with respect to the Loan Parties’ and their Affiliates’ organizational structure and appropriate background checks) reasonably requested by the Administrative Agent;
(xii)      results of searches or other evidence reasonably satisfactory to the Collateral Agent (in each case dated as of a date reasonably satisfactory to the Collateral Agent) indicating the absence of Liens on the assets of the Loan Parties, except for Permitted Encumbrances and Liens for which termination statements and releases, and releases or subordination agreements reasonably satisfactory to the Collateral Agent are being tendered concurrently with such extension of credit or other arrangements reasonably satisfactory to the Collateral Agent for the delivery of such termination statements and releases, satisfactions and discharges have been made;
(xiii)      (A)    all documents and instruments, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Collateral Agent to be filed, registered or recorded to create or perfect the first priority Liens intended to be created under the Loan Documents and all such documents and instruments shall have been so filed, registered or recorded to the satisfaction of the Collateral Agent, (B) the DDA Notifications, Credit Card Notifications, and Blocked Account Agreements required pursuant to Section 6.13 hereof, (C) control agreements with respect to the Loan Parties’ securities and investment accounts, and (D) Collateral Access Agreements as required by the Collateral Agent; and
(xiv)      such other assurances, certificates, documents, consents or opinions as the Agents reasonably may require.
(b)      After giving effect to (i) the first funding under the Loans, (ii) any charges to the Loan Account made in connection with the establishment of the credit facility contemplated hereby and (iii) all Letters of Credit to be issued at, or immediately subsequent to, such establishment, Availability shall be not less than $10,000,000.
(c)      The Administrative Agent shall have received a Borrowing Base Certificate dated the Closing Date, relating to the month ended on March 31, 2010, and executed by a Responsible Officer of the Lead Borrower.
(d)      The Administrative Agent shall be reasonably satisfied that any financial statements delivered to it fairly present the business and financial condition of the Loan Parties and that there has been no Material Adverse Effect since the date of the most recent financial information delivered to the Administrative Agent.
(e)      The Administrative Agent shall have received and be satisfied with (i) a detailed forecast for the period commencing on the Closing Date and ending with the end of the Fiscal Year of the Lead Borrower and its Subsidiaries ending December 31, 2010, which shall include an Availability model, Consolidated income statement, balance sheet, and statement of cash flow, by month, each prepared in conformity with GAAP and consistent with the Loan Parties’ then current practices and (b) such other information (financial or otherwise) reasonably requested by the Administrative Agent.

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(f)      There shall not be pending any litigation or other proceeding, the result of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
(g)      There shall not have occurred any default of any Material Contract of any Loan Party.
(h)      The consummation of the transactions contemplated hereby shall not violate any Applicable Law or any Organization Document.
(i)      The Lead Borrower and its Subsidiaries shall have maintained a capital structure satisfactory to the Administrative Agent in its reasonable discretion.
(j)      The Administrative Agent shall have received evidence, in form and substance reasonably satisfactory to the Administrative Agent, that all of the Loan Parties’ accounts payable are within stated invoice terms as of the Closing Date, or as permitted in the ordinary course of the Loan Parties’ business consistent with past practices.
(k)      All fees required to be paid to the Agents on or before the Closing Date (including, without limitation, any such fees set forth in the Fee Letter), shall have been paid in full, and all fees required to be paid to the Lenders on or before the Closing Date shall have been paid in full.
(l)      The Borrowers shall have paid all fees, charges and disbursements of counsel to the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrowers and the Administrative Agent).
(m)      The Administrative Agent shall have received all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the Patriot Act.
Without limiting the generality of the provisions of Section 9.04 , for purposes of determining compliance with the conditions specified in this Section 4.01 , each Lender that has signed this Agreement shall be deemed to have Consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be Consented to or approved by or acceptable or reasonably satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.02      Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of LIBO Rate Loans) and of the Administrative Agent to endeavor to cause each L/C Issuer to issue each Letter of Credit is subject to the following conditions precedent:
(a)      The representations and warranties of each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects on and as of the date of such Credit Extension, except to the extent that (i) such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects

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as of such earlier date, and (ii) such representations are qualified by “materiality” or “Material Adverse Effect”, in which case they shall be true and correct in all respects, and except that for purposes of this Section 4.02 , the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 .
(b)      No Default or Event of Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c)      The Administrative Agent and, if applicable, the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.
(d)      No event or circumstance which could reasonably be expected to result in a Material Adverse Effect shall have occurred.
(e)      No Overadvance shall result from such Credit Extension.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of LIBO Rate Loans) submitted by the Borrowers shall be deemed to be a representation and warranty by the Borrowers that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension. The conditions set forth in this Section 4.02 are for the sole benefit of the Credit Parties but until the Required Lenders otherwise direct the Administrative Agent to cease making Committed Loans, the Lenders will fund their Applicable Percentage of all Loans and L/C Advances and participate in all Swing Line Loans and Letters of Credit whenever made or issued, which are requested by the Lead Borrower and which, notwithstanding the failure of the Loan Parties to comply with the provisions of this Article IV , agreed to by the Administrative Agent, provided, however, the making of any such Loans or the issuance of any Letters of Credit shall not be deemed a modification or waiver by any Credit Party of the provisions of this Article IV on any future occasion or a waiver of any rights or the Credit Parties as a result of any such failure to comply.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Credit Parties to enter into this Agreement and to make Loans and to issue Letters of Credit hereunder, each Loan Party represents and warrants to the Administrative Agent and the other Credit Parties that:
5.01      Existence, Qualification and Power. Each Loan Party and each Subsidiary thereof (a) is a corporation, limited liability company, partnership or limited partnership, duly incorporated, organized or formed, validly existing and, where applicable, in good standing under the Laws of the jurisdiction of its incorporation, organization, or formation (b) has all requisite power and authority and all requisite governmental licenses, permits, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, where applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. Schedule 5.01 annexed hereto sets forth, as of the Closing Date, each Loan Party’s name as it appears in official filings in its state of incorporation or organization, its state of incorporation or organization, organization type, organization number, if any, issued by its state of incorporation or organization, and its federal employer identification

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number.
5.02      Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is or is to be a party, has been duly authorized by all necessary corporate or other organizational action, and does not and will not (a) contravene the terms of any of such Person's Organization Documents; (b) conflict with or result in any breach, termination, or contravention of, or constitute a default under, or require any payment to be made under (i) any Material Contract or any agreement, instrument or document evidencing any Material Indebtedness to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any material order, injunction, writ or decree of any Governmental Authority or any material arbitral award to which such Person or its property is subject; (c) result in or require the creation of any Lien upon any asset of any Loan Party (other than Liens in favor of the Collateral Agent under the Security Documents); or (d) violate any Law.
5.03      Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, except for (a) the perfection or maintenance of the Liens created under the Security Documents (including the first priority nature thereof) or (b) such as have been obtained or made and are in full force and effect.
5.04      Binding Effect. This Agreement has been, and each other Loan Document, when delivered, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
5.05      Financial Statements; No Material Adverse Effect .
(a)      The Specified Financial Statements of the type described in clause (ii) of the definition thereof (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Lead Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all Material Indebtedness and other liabilities, direct or contingent, of the Lead Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(b)      The unaudited Consolidated balance sheet of the Lead Borrower and its Subsidiaries dated March 31, 2010, and the related Consolidated statements of income or operations, Shareholders’ Equity and cash flows for the Fiscal Quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Lead Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. Schedule 5.05 sets forth all Material Indebtedness and other liabilities, direct or contingent, of the Loan Parties and their Consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Material Indebtedness.

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(c)      Since December 31, 2009, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
(d)      To the best Knowledge of the Lead Borrower, no Internal Control Event exists or has occurred since December 31, 2009 that has resulted in or could reasonably be expected to result in a misstatement in any material respect, in any financial information delivered or to be delivered to the Administrative Agent or the Lenders, of (i) covenant compliance calculations provided hereunder or (ii) the assets, liabilities, financial condition or results of operations of the Lead Borrower and its Subsidiaries on a Consolidated basis.
(e)      The Consolidated forecasted balance sheet and statements of income and cash flows of the Lead Borrower and its Subsidiaries delivered pursuant to Section 6.01(c) were prepared in good faith on the basis of the assumptions which in the reasonable belief of the Lead Borrower were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Loan Parties’ best estimate of its future financial performance, it being understood that forecasts are estimates and such forecasts are not facts and that actual results may differ materially from any such forecasts.
5.06      Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the Knowledge of the Loan Parties, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or any of its Subsidiaries or against any of its properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) except as specifically disclosed in Schedule 5.06 , either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect, and there has been no adverse change in the status, or financial effect on any Loan Party or any Subsidiary thereof, of the matters described on Schedule 5.06 .
5.07      No Default. No Loan Party or any Subsidiary is in default under or with respect to, or party to, any Material Contract or any Material Indebtedness. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
5.08      Ownership of Property; Liens .
(a)      Each of the Loan Parties and each Subsidiary thereof has good record and marketable title in fee simple to or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business. Each of the Loan Parties and each Subsidiary has good and marketable title to, valid leasehold interests in, or valid licenses to use all personal property and assets material to the ordinary conduct of its business.
(b)      Schedule 5.08(b)(1) sets forth as of the Closing Date the address (including street address, county and state) of all Real Estate that is owned by the Loan Parties and each of their Subsidiaries, together with a list of the holders of any mortgage or other Lien thereon as of the Closing Date. Each Loan Party and each of its Subsidiaries has good, marketable and insurable fee simple title to the real property owned by such Loan Party or such Subsidiary, free and clear of all Liens, other than Permitted Encumbrances. Schedule 5.08(b)(2) sets forth as of the Closing Date the address (including street address, county and state) of all Leases of the Loan Parties, together with a list of the lessor and its contact information with respect to each such Lease as of the Closing Date. Each of such Leases is in full force and effect and the Loan Parties are not in default of the terms thereof, except with respect to any such default that could not reasonably be expected to have a Material Adverse Effect.

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(c)      Schedule 7.01 sets forth as of the Closing Date a complete and accurate list of all Liens (other than Permitted Encumbrances of the type set forth in clauses (a), (b), (f), or (i) through (l) of the definition thereof) on the property or assets of each Loan Party and each of its Subsidiaries, showing as of the Closing Date the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto. The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Permitted Encumbrances.
(d)      Schedule 7.02 sets forth as of the Closing Date a complete and accurate list of all Investments held by any Loan Party or any Subsidiary of a Loan Party on the Closing Date, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof.
(e)      Schedule 7.03 sets forth a complete and accurate list of all Indebtedness of each Loan Party or any Subsidiary of a Loan Party on the Closing Date, showing as of the date hereof the amount, obligor or issuer and maturity thereof.
5.09      Environmental Compliance .
(a)      Except as specifically disclosed in Schedule 5.09 , no Loan Party or any Subsidiary thereof (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability, except, in each case, as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b)      Except as otherwise set forth in Schedule 5.09 , (i) none of the properties currently or formerly owned or operated by any Loan Party or any Subsidiary thereof is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; (ii) there are no and never have been any underground or above-ground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned or operated by any Loan Party or any Subsidiary thereof or, to the best Knowledge of the Loan Parties, on any property formerly owned or operated by any Loan Party or Subsidiary thereof that could result in a material Environmental Liability; (iii) to the best Knowledge of the Loan Parties, there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or Subsidiary thereof in violation in any material respect of any Environmental Law; and (iv) Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any Subsidiary thereof in violation in any material respect of any Environmental Law.
(c)      Except as otherwise set forth on Schedule 5.09 , no Loan Party or any Subsidiary thereof is undertaking, and no Loan Party or any Subsidiary thereof has completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and to the best Knowledge of the Loan Parties, all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any Subsidiary thereof have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any Subsidiary thereof.

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5.10      Insurance. The properties of the Loan Parties and their Subsidiaries are insured with financially sound and reputable insurance companies which are not Affiliates of the Loan Parties, in such amounts, with such deductibles and covering such risks (including, without limitation, workmen’s compensation, public liability, business interruption and property damage insurance) as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Loan Parties or the applicable Subsidiary operates. Schedule 5.10 sets forth as of the Closing Date a description of all insurance maintained by or on behalf of the Loan Parties and their Subsidiaries as of the Closing Date. Each insurance policy listed on Schedule 5.10 is in full force and effect and all premiums in respect thereof that are due and payable have been paid.
5.11      Taxes. The Loan Parties and their Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings being diligently conducted, for which adequate reserves have been provided in accordance with GAAP, as to which Taxes no Lien has been filed and which contest effectively suspends the collection of the contested obligation and the enforcement of any Lien securing such obligation. There is no proposed tax assessment against any Loan Party or any Subsidiary that would, if made, have a Material Adverse Effect. No Loan Party or any Subsidiary thereof is a party to any tax sharing agreement other than the Tax Sharing Agreement.
5.12      ERISA Compliance .
(a)      Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best Knowledge of the Lead Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. The Loan Parties and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. No Lien imposed under the Code or ERISA exists or is likely to arise on account of any Plan.
(b)      There are no pending or, to the best Knowledge of the Lead Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c)      Except as could not reasonably be expected to result in a Material Adverse Effect, (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither any Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
5.13      Subsidiaries; Equity Interests. The Loan Parties have no Subsidiaries other than those

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specifically disclosed in Part (a) of Schedule 5.13 , which Schedule sets forth the legal name, jurisdiction of incorporation or formation and authorized Equity Interests of each such Subsidiary. All of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by a Loan Party (or a Subsidiary of a Loan Party) in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except for those created under the Security Documents. Except as set forth in Schedule 5.13 , there are no outstanding rights to purchase any Equity Interests in any Subsidiary. The Loan Parties have no equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13 . All of the outstanding Equity Interests in the Loan Parties have been validly issued, and are fully paid and non-assessable and are owned in the amounts specified on Part (c) of Schedule 5.13 free and clear of all Liens except for those created under the Security Documents. The copies of the Organization Documents of each Loan Party and each amendment thereto provided pursuant to Section 4.01 are true and correct copies of each such document, each of which is valid and in full force and effect.
5.14      Margin Regulations; Investment Company Act.
(a)      No Loan Party is engaged or will be engaged, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. None of the proceeds of the Credit Extensions shall be used directly or indirectly for the purpose of purchasing or carrying any margin stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry any margin stock or for any other purpose that might cause any of the Credit Extensions to be considered a “purpose credit” within the meaning of Regulations T, U, or X issued by the FRB.
(b)      None of the Loan Parties, any Person Controlling any Loan Party, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.
5.15      Disclosure. Each Loan Party has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Loan Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
5.16      Compliance with Laws. Each of the Loan Parties and each Subsidiary is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
5.17      Intellectual Property; Licenses, Etc. The Loan Parties and their Subsidiaries own, or possess the right to use, all of the Intellectual Property, licenses, permits and other authorizations that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best Knowledge of the Lead Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by

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any Loan Party or any Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the best Knowledge of the Lead Borrower, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
5.18      Labor Matters .
Except as could not reasonably be expected to result in a Material Adverse Effect, there are no strikes, lockouts, slowdowns or other material labor disputes against any Loan Party or any Subsidiary thereof pending or, to the Knowledge of any Loan Party, threatened. The hours worked by and payments made to employees of the Loan Parties comply in all material respects with the Fair Labor Standards Act and any other applicable federal, state, local or foreign Law dealing with such matters. No Loan Party or any of its Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Act or similar state Law which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as could not reasonably be expected to result in a Material Adverse Effect, all payments due from any Loan Party and its Subsidiaries, or for which any claim may be made against any Loan Party or any of its Subsidiaries, on account of wages and employee health and welfare insurance and other benefits, have been paid or properly accrued in accordance with GAAP as a liability on the books of such Loan Party. Except as set forth on Schedule 5.18 , no Loan Party or any Subsidiary is a party to or bound by any collective bargaining agreement, management agreement, employment agreement, bonus, restricted stock, stock option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement. There are no representation proceedings pending or, to any Loan Party’s Knowledge, threatened to be filed with the National Labor Relations Board, and no labor organization or group of employees of any Loan Party or any Subsidiary has made a pending demand for recognition. Except as could not reasonably be expected to result in a Material Adverse Effect, there are no complaints, unfair labor practice charges, grievances, arbitrations, unfair employment practices charges or any other claims or complaints against any Loan Party or any Subsidiary pending or, to the Knowledge of any Loan Party, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any employee of any Loan Party or any of its Subsidiaries. The consummation of the transactions contemplated by the Loan Documents will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any of its Subsidiaries is bound.
5.19      Security Documents .
(a)      The Security Agreement creates in favor of the Collateral Agent, for the benefit of the Secured Parties referred to therein, a legal, valid, continuing and enforceable security interest in the Pledged Securities and Intercompany Notes (in each case as defined in the Security Agreement), the enforceability of which is subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law, and the Pledged Securities and Intercompany Notes (in each case as defined in the Security Agreement) have been delivered to the Collateral Agent (together with stock powers or other appropriate instruments of transfer executed in blank form). The Collateral Agent has a fully perfected first priority Lien on, and security interest in, to and under all right, title and interest of each pledgor thereunder in such Collateral, and such security interest is in each case prior and superior in right and interest to any other Person other than Permitted Encumbrances entitled to priority by operation of law.
(b)      The Security Agreement creates in favor of the Collateral Agent, for the benefit of the Secured Parties referred to therein, a legal, valid, continuing and enforceable security interest in the Collateral, the enforceability of which is subject to applicable bankruptcy, insolvency,

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reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The financing statements, releases and other filings are in appropriate form and have been or will be filed in the offices specified in the Perfection Certificate. Upon such filings and/or the obtaining of “control” (as defined in the UCC), the Collateral Agent will have a perfected Lien on, and security interest in, to and under all right, title and interest of the grantors thereunder in all Collateral that may be perfected by filing, recording or registering a financing statement or analogous document (including without limitation the proceeds of such Collateral subject to the limitations relating to such proceeds in the UCC) or by obtaining control, under the UCC (in effect on the date this representation is made) in each case prior and superior in right to any other Person other than Permitted Encumbrances entitled to priority by operation of law.
(c)      When the Intellectual Property Security Agreements are filed in the United States Patent and Trademark Office and the United States Copyright Office and when financing statements, releases and other filings in appropriate form are filed in the offices specified on the Perfection Certificate, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the applicable Loan Parties in the Intellectual Property Collateral (as defined in the Security Agreement) in which a security interest may be perfected by filing, recording or registering a security agreement, financing statement or analogous document in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, in each case prior and superior in right to any other Person (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a Lien on registered trademarks, trademark applications and copyrights acquired by the Loan Parties after the date hereof) other than Permitted Encumbrances entitled to priority by operation of law.
5.20      Solvency
After giving effect to the transactions contemplated by this Agreement, and before and after giving effect to each Credit Extension, the Loan Parties, on a Consolidated basis, are Solvent. No transfer of property has been or will be made by any Loan Party and no obligation has been or will be incurred by any Loan Party in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Loan Party.
5.21      Deposit Accounts; Credit Card Arrangements .
(a)      Annexed hereto as Schedule 5.21(a) is a list of all DDAs maintained by the Loan Parties as of the Closing Date, which Schedule includes, with respect to each DDA (i) the name and address of the depository; (ii) the account number(s) maintained with such depository; (iii) a contact person at such depository, and (iv) the identification of each Blocked Account Bank.
(b)      Annexed hereto as Schedule 5.21(b) is a list describing all arrangements as of the Closing Date to which any Loan Party is a party with respect to the processing and/or payment to such Loan Party of the proceeds of any credit card charges and debit card charges for sales made by such Loan Party.
5.22      Brokers . No broker or finder brought about the obtaining, making or closing of the Loans or transactions contemplated by the Loan Documents, and no Loan Party or Affiliate thereof has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.
5.23      Customer and Trade Relations . Except as could not reasonably be expected to result in

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a Material Adverse Effect, there exists no actual or, to the Knowledge of any Loan Party, threatened, termination or cancellation of, or any adverse modification or change in the business relationship of any Loan Party with any supplier material to its operations.
5.24      Material Contracts . Schedule 5.24 sets forth all Material Contracts to which any Loan Party is a party or is bound as of the Closing Date. The Loan Parties have delivered true, correct and complete copies of such Material Contracts to the Administrative Agent on or before the date hereof. The Loan Parties are not in breach or in default in any material respect of or under any Material Contract and have not received any notice of the intention of any other party thereto to terminate any Material Contract.
5.25      Casualty . Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Loan Parties shall, and shall (except in the case of the covenants set forth in Sections 6.01 , 6.02 , and 6.03 ) cause each Subsidiary to:
6.01      Financial Statements. Deliver to the Administrative Agent, in form and detail reasonably satisfactory to the Administrative Agent:
(a)      as soon as available, (i) but in any event within ninety (90) days after the end of each Fiscal Year of the Parent (commencing with the Fiscal Year ended December 31, 2009), a Consolidated balance sheet of the Parent and its Subsidiaries as at the end of such Fiscal Year, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report of a Registered Public Accounting Firm of nationally recognized standing, which report shall be prepared in accordance with generally accepted auditing standards, and (ii) as soon as available, but in any event within ninety (90) days after the end of each Fiscal Year of the Lead Borrower (commencing with the Fiscal Year ended December 31, 2009), a Consolidated balance sheet of the Lead Borrower and its Subsidiaries as at the end of such Fiscal Year, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be reviewed by a Registered Public Accounting Firm of nationally recognized standing reasonably acceptable to the Administrative Agent and certified by a Responsible Officer of the Lead Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Lead Borrower and its Subsidiaries;
(b)      as soon as available, but in any event within thirty (30) days after the end of each of the Fiscal Months of each Fiscal Year of the Lead Borrower (commencing with the Fiscal Month ended January 31, 2010, a consolidated balance sheet of the Lead Borrower and its Subsidiaries as

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at the end of such Fiscal Month, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Month, and for the portion of the Lead Borrower’s Fiscal Year then ended, setting forth in each case in comparative form the figures for (A) such period set forth in the projections delivered pursuant to Section 6.01(c) hereof, (B) the corresponding Fiscal Month of the previous Fiscal Year and (C) the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be certified by a Responsible Officer of the Lead Borrower as fairly presenting the financial condition, results of operations, Shareholders’ Equity and cash flows of the Lead Borrower and its Subsidiaries as of the end of such Fiscal Month in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnote; and
(c)      (i) as soon as available, but in any event not later than the earlier of (A) the date which is two weeks following the board meeting of the Lead Borrower’s Board of Directors (the “ Board ”) at which the Board shall have approved forecasts prepared by management of the Lead Borrower of the type described in this clause (c), and (B) sixty (60) days after the end of each Fiscal Year of the Lead Borrower, forecasts prepared by management of the Lead Borrower, in form reasonably satisfactory to the Administrative Agent, of consolidated balance sheets and statements of income or operations and cash flows of the Lead Borrower and its Subsidiaries on a monthly basis for the immediately following Fiscal Year (including the Fiscal Year in which the Maturity Date occurs), and (ii) as soon as available, any significant revisions to such forecast with respect to such Fiscal Year.
6.02      Certificates; Other Information. Deliver to the Administrative Agent, in form and detail satisfactory to the Administrative Agent:
(a)    concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the Fiscal Month ended January 31, 2010, a duly completed Compliance Certificate signed by a Responsible Officer of the Lead Borrower, and in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Lead Borrower shall also provide a statement of reconciliation conforming such financial statements to GAAP, and (ii) a copy of management’s discussion and analysis with respect to such financial statements;
(b)      on the seventh (7 th ) Business Day of each Fiscal Month (or, if such day is not a Business Day, on the next succeeding Business Day), a Borrowing Base Certificate showing the Borrowing Base as of the close of business as of the last day of the immediately preceding Fiscal Month, each Borrowing Base Certificate to be certified as complete and correct by a Responsible Officer of the Lead Borrower; provided that at any time that an Accelerated Borrowing Base Delivery Event has occurred and is continuing, such Borrowing Base Certificate shall be delivered on Wednesday of each week (or, if Wednesday is not a Business Day, on the next succeeding Business Day), as of the close of business on the immediately preceding Saturday;
(c)      promptly upon receipt, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Lead Borrower or any other Loan Party by its Registered Public Accounting Firm in connection with the accounts or books of the Lead Borrower, any other Loan Party or any Subsidiary, or any audit of any of them, including, without limitation, specifying any Internal Control Event;
(d)      promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Loan Parties, and copies

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of all annual, regular, periodic and special reports and registration statements which any Loan Party may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934 or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;
(e)      The financial and collateral reports described on Schedule 6.02 hereto, at the times set forth in such Schedule;
(f)    promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02 ;
(g)      as soon as available, but in any event within thirty (30) days after the end of each fiscal year of the Loan Parties, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for each Loan Party and its Subsidiaries and containing such additional information as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably specify;
(h)      promptly after the Administrative Agent’s request therefor, copies of all Material Contracts and documents evidencing Material Indebtedness;
(i)    promptly, and in any event within five (5) Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from any Governmental Authority (including, without limitation, the SEC (or comparable agency in any applicable non-U.S. jurisdiction)) concerning any proceeding with, or investigation or possible investigation or other inquiry by such Governmental Authority regarding financial or other operational results of any Loan Party or any Subsidiary thereof or any other matter which, if adversely determined, could reasonably expected to have a Material Adverse Effect; and
(j)      promptly, such additional information regarding the business affairs, financial condition or operations of any Loan Party or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.
Documents required to be delivered pursuant to Section 6.01(a) or (b), or Section 6.02(c) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Lead Borrower posts such documents, or provides a link thereto on the Lead Borrower’s website on the Internet at the website address listed on Schedule 10.02 ; or (ii) on which such documents are posted on the Lead Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Lead Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Lead Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Lead Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions ( i.e. , soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Lead Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. The Administrative Agent shall have no obligation to request the delivery or to

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maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Loan Parties with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
The Loan Parties hereby acknowledge that (a) the Administrative Agent will make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Loan Parties hereunder (collectively, “ Borrower Materials ”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “ Platform ”) and (b) certain of the Lenders may be “public-side” Lenders ( i.e. , Lenders that do not wish to receive material non-public information with respect to the Loan Parties or their securities) (each, a “ Public Lender ”). The Loan Parties hereby agree that they will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Loan Parties shall be deemed to have authorized the Administrative Agent, the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Loan Parties or their securities for purposes of United States Federal and state securities laws ( provided , however , that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07 ); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor”; and (z) the Administrative Agent shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”
6.03      Notices. Promptly notify the Administrative Agent:
(a)      of the occurrence of any Default upon any Responsible Officer’s obtaining Knowledge thereof;
(b)      of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Material Contract or with respect to Material Indebtedness of any Loan Party or any Subsidiary thereof; (ii) any dispute, litigation, investigation, proceeding or suspension between any Loan Party or any Subsidiary thereof and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting any Loan Party or any Subsidiary thereof, including pursuant to any applicable Environmental Laws, in each case upon any Responsible Officer’s obtaining Knowledge thereof;
(c)      of the occurrence of any ERISA Event upon any Responsible Officer’s obtaining Knowledge thereof;
(d)      of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof;
(e)      of any change in any Loan Party’s senior executive officers;
(f)      of the discharge by any Loan Party of its present Registered Public Accounting Firm or any withdrawal or resignation by such Registered Public Accounting Firm;
(g)      of any collective bargaining agreement or other labor contract to which a Loan Party becomes a party, or the application for the certification of a collective bargaining agent;

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(h)      of the filing of any Lien for unpaid Taxes against any Loan Party upon any Responsible Officer’s obtaining Knowledge thereof;
(i)      of any casualty or other insured damage to any material portion of the Collateral or the commencement of any action or proceeding for the taking of any interest in a material portion of the Collateral under power of eminent domain or by condemnation or similar proceeding or if any material portion of the Collateral is damaged or destroyed, in each case upon any Responsible Officer’s obtaining Knowledge thereof;
(j)      of (i) the entry by a Loan Party into a Material Contract, (ii) the incurrence by a Loan Party of Material Indebtedness, (iii) the voluntary grant of any Lien upon any property of a Loan Party, (iv) any Responsible Officer’s obtaining Knowledge of any involuntary grant of any Lien upon any property of a Loan Party, or (v) the making of any Investments by a Loan Party (other than any Investments constituting deposits of cash into a DDA, Blocked Account or Concentration Account to the extent permitted pursuant to Section 6.13 hereof); and
(k)      of any failure by any Loan Party to pay rent at any one (1) or more of such Loan Party’s locations if such failure continues for more than ten (10) days following the day on which such rent first came due and such failure, individually or in the aggregate, would be reasonably likely to result in a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Lead Borrower setting forth details of the occurrence referred to therein and stating what action the Lead Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04      Payment of Obligations. Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, (b) all lawful claims (including, without limitation, claims of landlords, warehousemen, customs brokers, and carriers) which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness, except, in each case, where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, (ii) such Loan Party has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (iii) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation, (iv) no Lien has been filed with respect thereto and (v) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Nothing contained herein shall be deemed to limit the rights of the Agents with respect to determining Reserves pursuant to this Agreement.
6.05      Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization or formation except in a transaction permitted by Section 7.04 or 7.05 ; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its Intellectual Property, except to the extent such Intellectual Property is no longer used or useful in the conduct of the business of the Loan Parties.
6.06      Maintenance of Properties. (a) Maintain, preserve and protect all of its material properties

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and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; and (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
6.07      Maintenance of Insurance.
(a)      Maintain with financially sound and reputable insurance companies reasonably acceptable to the Administrative Agent not Affiliates of the Loan Parties, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business and operating in the same or similar locations or as is required by applicable Law, of such types and in such amounts (after giving effect to any self-insurance compatible with the following standards) as are customarily carried under similar circumstances by such other Persons and as are reasonably acceptable to the Administrative Agent;
(b)      Fire and extended coverage policies maintained with respect to any Collateral shall be endorsed or otherwise amended to include (i) a non-contributing mortgage clause (regarding improvements to real property) and lenders’ loss payable clause (regarding personal property), in form and substance satisfactory to the Collateral Agent, which endorsements or amendments shall provide that the insurer shall pay all proceeds otherwise payable to the Loan Parties under the policies directly to the Collateral Agent, (ii) a provision to the effect that none of the Loan Parties, Credit Parties or any other Person shall be a co-insurer and (iii) such other provisions as the Collateral Agent may reasonably require from time to time to protect the interests of the Credit Parties. Commercial general liability policies shall be endorsed to name the Collateral Agent as an additional insured. Business interruption policies shall name the Collateral Agent as a loss payee and shall be endorsed or amended to include (i) a provision that, from and after the Closing Date, the insurer shall pay all proceeds otherwise payable to the Loan Parties under the policies directly to the Collateral Agent, (ii) a provision to the effect that none of the Loan Parties, the Administrative Agent, the Collateral Agent or any other party shall be a co‑insurer and (iii) such other provisions as the Collateral Agent may reasonably require from time to time to protect the interests of the Credit Parties. Each such policy referred to in this Section 6.07(b) shall also provide that it shall not be canceled, modified or not renewed (i) by reason of nonpayment of premium except upon not less than thirty (30) days’ prior written notice thereof by the insurer to the Collateral Agent (giving the Collateral Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason except upon not less than thirty (30) days’ prior written notice thereof by the insurer to the Collateral Agent. The Lead Borrower shall deliver to the Collateral Agent, prior to the cancellation, modification or non-renewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent, including an insurance binder) together with evidence satisfactory to the Collateral Agent of payment of the premium therefor.
(c)      None of the Credit Parties, or their agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section 6.07 . Each Loan Party shall look solely to its insurance companies or any other parties other than the Credit Parties for the recovery of such loss or damage and such insurance companies shall have no rights of subrogation against any Credit Party or its agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Loan Parties hereby agree, to the extent permitted by law, to waive their right of recovery, if any, against the Credit Parties and their agents and employees. The designation of any form, type or amount of insurance coverage by the any Credit Party under this Section 6.07 shall in no event be deemed a

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representation, warranty or advice by such Credit Party that such insurance is adequate for the purposes of the business of the Loan Parties or the protection of their properties.
(d)      Maintain for themselves and their Subsidiaries, a Directors and Officers insurance policy, and a “Blanket Crime” policy including employee dishonesty, forgery or alteration, theft, disappearance and destruction, robbery and safe burglary, property, and computer fraud coverage with responsible companies in such amounts as are customarily carried by business entities engaged in similar businesses similarly situated, and will upon request by the Administrative Agent furnish the Administrative Agent certificates evidencing renewal of each such policy.
(e)      Permit any representatives that are designated by the Collateral Agent to inspect the insurance policies maintained by or on behalf of the Loan Parties and to inspect books and records related thereto and any properties covered thereby. The Loan Parties shall pay the reasonable fees and expenses of any representatives retained by the Collateral Agent to conduct any such inspection.
(f)      The Administrative Agent acknowledges that the insurance policies described on Schedule 5.10 are satisfactory to it as of the Closing Date and are in compliance with the provisions of this Section 6.07 .
6.08      Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been set aside and maintained by the Loan Parties in accordance with GAAP; (b) such contest effectively suspends enforcement of the contested Laws, and (c) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
6.09      Books and Records; Accountants.
(a)      Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Loan Parties or such Subsidiary, as the case may be; and (ii) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Loan Parties or such Subsidiary, as the case may be.
(b)      at all times retain a Registered Public Accounting Firm which is are reasonably satisfactory to the Administrative Agent and shall instruct such Registered Public Accounting Firm to cooperate with, and be available to, the Administrative Agent or its representatives to discuss the Loan Parties’ financial performance, financial condition, operating results, controls, and such other matters, within the scope of the retention of such Registered Public Accounting Firm, as may be raised by the Administrative Agent.
(c)      The Administrative Agent acknowledges that RSM McGladrey, Inc., the Loan Parties’ Registered Public Accounting Firm as of the Closing Date, is satisfactory to it as of the Closing Date.
6.10      Inspection Rights.
(a)      Permit representatives and independent contractors of the Administrative Agent to

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visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and Registered Public Accounting Firm, all at the expense of the Loan Parties and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Lead Borrower; provided , however , that when an Event of Default exists the Administrative Agent (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Loan Parties at any time during normal business hours and without advance notice. The inspection rights pursuant to this Section 6.10(a) shall be in addition to the rights of the Administrative Agent pursuant to Section 6.10(b) and Section 6.15 .
(b)      Upon the request of the Administrative Agent after reasonable prior notice, permit the Administrative Agent or professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Administrative Agent to conduct appraisals, commercial finance examinations and other evaluations, including, without limitation, of (i) the Lead Borrower’s practices in the computation of the Borrowing Base and (ii) the assets included in the Borrowing Base and related financial information such as, but not limited to, sales, gross margins, payables, accruals and reserves. The Loan Parties shall pay the fees and expenses of the Administrative Agent and such professionals with respect to one (1) commercial finance examination and one (1) appraisal in each Fiscal Year; provided that if during any Fiscal Year, Availability shall be greater than or equal to twenty five percent (25%) of the Loan Cap but less than fifty percent (50%) of the Loan Cap for more than five (5) consecutive calendar days on two (2) occasions during such Fiscal Year, then the Loan Parties shall pay the fees and expenses of the Administrative Agent and such professionals with respect to two (2) inventory appraisals and two (2) commercial finance examinations during such Fiscal Year; provided further that if Availability shall be less than twenty five percent (25%) of the Loan Cap for more than five (5) consecutive calendar days on two (2) occasions during any Fiscal Year, then the Loan Parties shall pay the fees and expenses of the Administrative Agent and such professionals with respect to three (3) inventory appraisals and three (3) commercial finance examinations during such Fiscal Year. Notwithstanding the foregoing, the Administrative Agent may cause additional appraisals and commercial finance examinations to be undertaken (i) as it in its Permitted Discretion deems necessary or appropriate, at its own expense or, (ii) if required by applicable Law or if a Default shall have occurred and be continuing, at the expense of the Loan Parties.
6.11      Use of Proceeds. Use the proceeds of the Credit Extensions (a) to refinance existing Indebtedness on the Closing Date, (b) to finance the acquisition of working capital assets of the Borrowers, including the purchase of inventory and equipment, in each case in the ordinary course of business, (c) to finance Capital Expenditures of the Borrowers, and (d) for general corporate purposes of the Loan Parties, in each case to the extent expressly permitted under applicable Law and the Loan Documents.
6.12      Additional Loan Parties. Notify the Administrative Agent at the time that any Person becomes a Subsidiary, and promptly thereafter (and in any event within fifteen (15) days), cause any such Person (a) to (i) become a Loan Party by executing and delivering to the Administrative Agent a Joinder to this Agreement or a counterpart of the Facility Guaranty or such other document as the Administrative Agent shall deem appropriate for such purpose, (ii) grant a Lien to the Collateral Agent on such Person’s assets to secure the Obligations, and (iii) deliver to the Administrative Agent documents of the types referred to in clauses (iii) and (iv) of Section 4.01(a) and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clause (a)), and (b) if any Equity Interests or Indebtedness of such Person are owned by or on behalf of any Loan Party, to pledge such Equity Interests and promissory notes evidencing such Indebtedness (except

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that, if such Subsidiary is a CFC, the Equity Interests of such Subsidiary to be pledged may be limited to 65% of the outstanding voting Equity Interests of such Subsidiary and 100% of the non-voting Equity Interests of such Subsidiary and such time period may be extended based on local law or practice), in each case in form, content and scope reasonably satisfactory to the Administrative Agent. In no event shall compliance with this Section 6.12 waive or be deemed a waiver or Consent to any transaction giving rise to the need to comply with this Section 6.12 if such transaction was not otherwise expressly permitted by this Agreement or constitute or be deemed to constitute, with respect to any Subsidiary, an approval of such Person as a Borrower or permit the inclusion of any acquired assets in the computation of the Borrowing Base.
6.13      Cash Management .
(a)      Within the time periods set forth below:
(i)      On or prior to thirty (30) days following the Closing Date, deliver to the Administrative Agent copies of notifications (each, a “ DDA Notification ”) substantially in the form attached hereto as Exhibit F which have been executed on behalf of such Loan Party and delivered to each depository institution listed on Schedule 5.21(a) ;
(ii)      On or prior to the Closing Date, deliver to the Administrative Agent copies of notifications (each, a “ Credit Card Notification ”) substantially in the form attached hereto as Exhibit G which have been executed on behalf of such Loan Party and delivered to such Loan Party’s credit card clearinghouses and processors listed on Schedule 5.21(b) ; and
(iii)      On or prior to the Closing Date, enter into a Blocked Account Agreement reasonably satisfactory in form and substance to the Agents with each Blocked Account Bank (collectively, the “ Blocked Accounts ”).
(b)      The Loan Parties shall ACH or wire transfer no less frequently than Monday and Friday of each week (or, in each case, on the next succeeding Business Day if any such Monday or Friday is not a Business Day) (or with such greater frequency as is necessary such that at no time is there a balance in any individual DDA in excess of $5,000), consistent with past practices (and whether or not there are then any outstanding Obligations) to a Blocked Account all amounts on deposit in each such DDA and all payments due from credit card processors; provided that, upon the occurrence of a Cash Dominion Event, the Loan Parties shall ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to a Blocked Account the then contents of each DDA (net of the sum of (A) any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject DDA by the depository institution at which such DDA is maintained, plus (B) other amounts received after 4:00 p.m. on any day of an ACH or wire transfer).
(c)      Each Blocked Account Agreement (other than with respect to operating accounts) shall require after the occurrence and during the continuance of a Cash Dominion Event the ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to the concentration account maintained by the Collateral Agent at Wells Fargo (the “ Concentration Account ”), of all cash receipts and collections, including, without limitation, the following:
(i)      all available cash receipts from the sale of Inventory and other assets (whether or not constituting Collateral);
(ii)      all proceeds of collections of Accounts;

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(iii)      all Net Proceeds, and all other cash payments received by a Loan Party from any Person or from any source or on account of any sale or other transaction or event, including, without limitation, any Prepayment Event;
(iv)      the then contents of each DDA (net of the sum of (A) any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject DDA by the depository institution at which such DDA is maintained, plus (B) other amounts received after 4:00 p.m. on any day of an ACH or wire transfer));
(v)      the then entire ledger balance of each Blocked Account (net of the sum of (A) any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject DDA by the depository institution at which such DDA is maintained, plus (B) other amounts received after 4:00 p.m. on any day of an ACH or wire transfer); and
(vi)      the proceeds of all credit card charges.
(d)      The Concentration Account shall at all times be under the sole dominion and control of the Collateral Agent. The Loan Parties hereby acknowledge and agree that (i) the Loan Parties have no right of withdrawal from the Concentration Account, (ii) the funds on deposit in the Concentration Account shall at all times be collateral security for all of the Obligations and (iii) the funds on deposit in the Concentration Account shall be applied as provided in this Agreement. In the event that, notwithstanding the provisions of this Section 6.13 , any Loan Party receives or otherwise has dominion and control of any such proceeds or collections, such proceeds and collections shall be held in trust by such Loan Party for the Collateral Agent, shall not be commingled with any of such Loan Party’s other funds or deposited in any account of such Loan Party and shall, not later than the Business Day after receipt thereof, be deposited into the Concentration Account or dealt with in such other fashion as such Loan Party may be instructed by the Collateral Agent.
(e)      Upon the request of the Administrative Agent, the Loan Parties shall cause bank statements and/or other reports to be delivered to the Administrative Agent not less often than monthly, accurately setting forth all amounts deposited in each Blocked Account to ensure the proper transfer of funds as set forth above.
(f)      Within ninety (90) days following the Closing Date, the Loan Parties shall have (i) closed all DDAs consisting of concentration accounts and all operating accounts maintained by the Loan Parties at The Huntington National Bank or any of its Affiliates, and (ii) provided to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, evidence demonstrating the closure of such concentration accounts and operating accounts.
6.14      Information Regarding the Collateral .
(a)      Furnish to the Administrative Agent at least thirty (30) days’ prior written notice (except as provided in clause (iii) below) of any change in: (i) any Loan Party’s name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties; (ii) the location of any Loan Party’s chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility); (iii) any Loan Party’s organizational structure or jurisdiction of incorporation or formation, provided that with respect to the Permitted Organizational Status Change, fifteen (15) days’ prior written notice shall be required; or (iv) any Loan Party’s Federal Taxpayer Identification Number or organizational identification number assigned to it by its state of

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organization. The Loan Parties agree not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the UCC or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected first priority security interest in all the Collateral for its own benefit and the benefit of the other Credit Parties.
(b)      Should any of the information on any of the Schedules hereto become inaccurate or misleading in any material respect as a result of changes after the Closing Date, the Lead Borrower shall advise the Administrative Agent in writing of such revisions or updates as may be necessary or appropriate to update or correct the same. From time to time as may be reasonably requested by the Administrative Agent, or at any time at the Lead Borrower’s option, the Lead Borrower shall supplement each Schedule hereto, or any representation herein or in any other Loan Document, with respect to any matter arising after the Closing Date that, if existing or occurring on the Closing Date, would have been required to be set forth or described in such Schedule or as an exception to such representation or that is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements to any Schedule, such Schedule shall be appropriately marked to show the changes made therein). Notwithstanding the foregoing, no supplement or revision to any Schedule or representation shall be deemed the Credit Parties’ consent to the matters reflected in such updated Schedules or revised representations nor permit the Loan Parties to undertake any actions otherwise prohibited hereunder or fail to undertake any action required hereunder from the restrictions and requirements in existence prior to the delivery of such updated Schedules or such revision of a representation; nor shall any such supplement or revision to any Schedule or representation be deemed the Credit Parties’ waiver of any Default or Event of Default resulting from the matters disclosed therein.
6.15      Physical Inventories .
(a)      Cause not less than one (1) physical inventory to be undertaken, at the expense of the Loan Parties, in each twelve (12) month period and periodic cycle counts, in each case consistent with past practices, conducted by such inventory takers as are reasonably satisfactory to the Collateral Agent and following such methodology as is consistent with the methodology used in the immediately preceding inventory or as otherwise may be reasonably satisfactory to the Collateral Agent. The Lead Borrower, within thirty (30) days following the completion of such inventory, shall provide the Collateral Agent with a reconciliation of the results of such inventory (as well as of any other physical inventory or cycle counts undertaken by a Loan Party) and shall post such results to the Loan Parties’ stock ledgers and general ledgers, as applicable.
(b)      The Collateral Agent, at the expense of the Loan Parties, may participate in and/or observe each scheduled physical count of Inventory which is undertaken on behalf of any Loan Party; provided that the Loan Parties shall only be responsible for costs and expenses incurred by the Collateral Agent in connection with the Collateral Agent’s participation in and/or observation of such physical count of (i) any distribution center, and (ii) ten (10) stores. Notwithstanding the foregoing, the Collateral Agent may participate in and/or observe additional physical counts of Inventory (i) as it in its Permitted Discretion deems necessary or appropriate, at its own expense or, (ii) if required by applicable Law or if a Default shall have occurred and be continuing, at the expense of the Loan Parties.
(c)      Without limiting the Collateral Agent’s rights under clause (b) hereof, permit the Collateral Agent, in its reasonable discretion, if any Default or Event of Default exists and is continuing, to cause additional such inventories to be taken as the Collateral Agent determines (each, at the expense of the Loan Parties).
6.16      Environmental Laws .

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(a)      Conduct its operations and keep and maintain its Real Estate in material compliance with all Environmental Laws; (b) obtain and renew all environmental permits necessary for its operations and properties; and (c) implement any and all investigation, remediation, removal and response actions that are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws pertaining to the presence, generation, treatment, storage, use, disposal, transportation or release of any Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, provided , however , that neither a Loan Party nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and adequate reserves have been set aside and are being maintained by the Loan Parties with respect to such circumstances in accordance with GAAP.
6.17      Further Assurances.
(a)      Execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements and other documents), that may be required under any applicable Law, or which any Agent may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. The Loan Parties also agree to provide to the Agents, from time to time upon request, evidence reasonably satisfactory to the Agents as to the perfection and priority of the Liens created or intended to be created by the Security Documents.
(b)      If any material assets are acquired by any Loan Party after the Closing Date (other than assets constituting Collateral under the Security Documents that become subject to the Lien of the Security Documents upon acquisition thereof), notify the Agents thereof, and the Loan Parties will cause such assets to be subjected to a Lien securing the Obligations and will take such actions as shall be necessary or shall be requested by any Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section 6.17 , all at the expense of the Loan Parties. In no event shall compliance with this Section 6.17(b) waive or be deemed a waiver or Consent to any transaction giving rise to the need to comply with this Section 6.17 if such transaction was not otherwise expressly permitted by this Agreement or constitute or be deemed to constitute Consent to the inclusion of any acquired assets in the computation of the Borrowing Base.
(c)      Use, and cause each of the Subsidiaries to use, their commercially reasonable efforts to obtain lease terms in any lease entered into by any Loan Party after the date hereof not expressly prohibiting the recording in the relevant real estate filing office of an appropriate memorandum of lease and the encumbrancing of the leasehold interest of such Loan Party in the property that is the subject of such lease.
(d)      Upon the request of the Collateral Agent, use commercially reasonable efforts to cause each of its customs brokers to deliver an agreement (including, without limitation, a Customs Broker Agreement) to the Collateral Agent covering such matters and in such form as the Collateral Agent may reasonably require.
(e)      Upon the request of the Collateral Agent, use commercially reasonable efforts to cause any of its landlords to deliver a Collateral Access Agreement to the Collateral Agent in such form as the Collateral Agent may reasonably require.
6.18      Compliance with Terms of Leaseholds . Except as otherwise expressly permitted hereunder, (i) make all payments and otherwise perform all obligations in respect of all Leases of real property to which any Loan Party or any of its Subsidiaries is a party, keep such Leases in full force and effect and

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not allow such Leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, in each case except in the Loan Parties’ ordinary course of business consistent with past practices, and (ii) notify the Administrative Agent of any material default or termination notice by any party with respect to such Leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so.
6.19      Material Contracts . (i) Except as could not reasonably be expected to result in a Material Adverse Effect, perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect and enforce each such Material Contract in accordance with its terms, and (ii) following the occurrence and during the continuation of an Event of Default, take all such action to such end as may be from time to time reasonably requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirectly:
7.01      Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired or sign or file or suffer to exist under the UCC or any similar Law or statute of any jurisdiction a financing statement that names any Loan Party or any Subsidiary thereof as debtor; sign or suffer to exist any security agreement authorizing any Person thereunder to file such financing statement; sell any of its property or assets subject to an understanding or agreement (contingent or otherwise) to repurchase such property or assets with recourse to it or any of its Subsidiaries; or assign or otherwise transfer any accounts or other rights to receive income, other than, as to all of the above, Permitted Encumbrances.
7.02      Investments. Make any Investments, except Permitted Investments.
7.03      Indebtedness; Disqualified Stock.
(a) Create, incur, assume, guarantee, suffer to exist or otherwise become or remain liable with respect to, any Indebtedness, except Permitted Indebtedness or (b) issue Disqualified Stock.
7.04      Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, (or agree to do any of the foregoing), except that, so long as no Default or Event of Default shall have occurred and be continuing prior to or immediately after giving effect to any action described below or would result therefrom:
(a)      any Subsidiary which is not a Loan Party may merge with (i) a Loan Party, provided that the Loan Party shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries which are not Loan Parties, provided that when any wholly-owned Subsidiary is merging with another Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving Person;
(b)      any Subsidiary which is a Loan Party may merge into any Subsidiary which is a

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Loan Party or into any Borrower, provided that in any merger involving any Borrower, such Borrower shall be the continuing or surviving Person;
(c)      in connection with a Permitted Acquisition, any Subsidiary of a Loan Party may merge with or into or consolidate with any other Person or permit any other Person to merge with or into or consolidate with it; provided that (i) the Person surviving such merger shall be a wholly-owned Subsidiary of a Loan Party and (ii) in the case of any such merger to which any Loan Party is a party, such Loan Party is the surviving Person;
(d)      any CFC that is not a Loan Party may merge into any CFC that is not a Loan Party; and
(e)      subject to the provisions of Section 6.14 hereof, the Lead Borrower may consummate the Permitted Organizational Status Change.
7.05      Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except Permitted Dispositions.
7.06      Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests or accept any capital contribution (other than with respect to a Minimum Availability Cure Provision to the extent permitted hereunder), except that, so long as no Default or Event of Default shall have occurred and be continuing prior to or immediately after giving effect to any action described below or would result therefrom.
(a)      each Subsidiary of a Loan Party may make Restricted Payments to any Loan Party;
(b)      (i) if the Tier 1 Payment Conditions are satisfied, the Lead Borrower may make Restricted Payments to the Parent, in an amount not to exceed, when aggregated with the Restricted Payments described in clause (ii) below and payments of the Parent Indebtedness made pursuant to Section 7.07(c)(i) and Section 7.07(c)(ii) , $6,000,000.00 in the aggregate in any twelve-month period; (ii) if the Tier 2 Payment Conditions are satisfied, the Lead Borrower may make Restricted Payments to the Parent, in an amount not to exceed, when aggregated with all Restricted Payments made pursuant to clause (i) above and payments of the Parent Indebtedness made pursuant to Section 7.07(c)(i) and Section 7.07(c)(ii) , $2,000,000.00 in the aggregate in any twelve-month period; and (iii) if the Tier 3 Payment Conditions are satisfied, the Lead Borrower may make other Restricted Payments to the Parent; and
(c)      the Loan Parties and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;
(d)      the Lead Borrower may pay Management Fees to the extent permitted pursuant to Section 7.09 hereof;
(e)      the Lead Borrower may make such payments as are required under the Tax Sharing Agreement to the extent permitted pursuant to Section 7.09 hereof; and
(f)      the Lead Borrower may make dividends or distributions to Holdings consistent with past practices (i) to pay franchise taxes and other amounts allocable to the Lead Borrower and its Subsidiaries required by Holdings or the Parent to maintain the Lead Borrower’s corporate existence,

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(ii) to pay the Parent fees, determined on an arms’ length basis at comparable market rates, for services provided by the Parent in the ordinary course of business to the Lead Borrower and its Subsidiaries consistent with past practices that would otherwise have been performed by third parties, and (iii) to reimburse the Parent for the payment of reasonable and necessary amounts actually incurred by the Parent relating to travel and entertainment expenses and legal, consulting, software, accounting, auditing, actuarial and other similar services provided by third parties and directly relating to the Lead Borrower or any of its Subsidiaries in the ordinary course of business; provided that in no event shall such amounts described in this clause (iii) exceed in the aggregate in any Fiscal Year $1,250,000 minus any payments to Hamilton Beach made in accordance with Section 7.09(e) hereof.
7.07      Prepayments of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any Indebtedness, or make any payment in violation of any subordination terms of any Subordinated Indebtedness, except (a) as long as no Event of Default then exists and is continuing, regularly scheduled or mandatory repayments, repurchases, redemptions or defeasances of Permitted Indebtedness (other than Subordinated Indebtedness), (b) as long as no Event of Default then exists and is continuing, repayments and prepayments of Subordinated Indebtedness (other than Parent Indebtedness) in accordance with the subordination terms thereof, (c)(i) as long as the Tier 1 Payment Conditions are satisfied, repayments of the Parent Indebtedness in an amount not to exceed, when aggregated with all Restricted Payments made pursuant to Section 7.06(b)(i) and Section 7.06(b)(ii) and payments of the Parent Indebtedness made pursuant to clause (ii) below), $6,000,000.00 in the aggregate in any twelve-month period; (ii) as long as the Tier 2 Payment Conditions are satisfied, repayments of the Parent Indebtedness in an amount not to exceed, when aggregated with all Restricted Payments made pursuant to Section 7.06(b)(i) and Section 7.06(b)(ii) and payments of the Parent Indebtedness made pursuant to clause (i) above, $2,000,000.00 in the aggregate in any twelve-month period; and (iii) if the Tier 3 Payment Conditions are satisfied, other repayments of the Parent Indebtedness, in each case in accordance with the subordination terms thereof, (d) voluntary prepayments, repurchases, redemptions or defeasances of Permitted Indebtedness (but excluding on account of any Subordinated Indebtedness) as long as the Tier I Payment Conditions are satisfied, and (e) refinancings and refundings of such Indebtedness in compliance with Section 7.02(e) .
7.08      Change in Nature of Business. Engage in any line of business substantially different from the business conducted by the Loan Parties and their Subsidiaries on the date hereof or any business substantially related or incidental thereto.
7.09      Transactions with Affiliates. Enter into, renew, extend or be a party to any transaction of any kind with any Affiliate of any Loan Party, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Loan Parties or such Subsidiary as would be obtainable by the Loan Parties or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate, provided that the foregoing restriction shall not apply to:
(a)      a transaction between or among the Loan Parties,
(b)      reasonable payments on account of Management Fees payable to the Parent on a quarterly basis in advance after the Closing Date in an amount not to exceed $500,000.00 in any calendar year, provided that no such payments on account of Management Fees may be made if any Event of Default then exists or would arise therefrom,
(c)      payments by the Lead Borrower under the Tax Sharing Agreement to the extent such payments do not exceed the amount of federal income Taxes the Lead Borrower would be

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obligated to pay in the absence of such Tax Sharing Agreement,
(d)      to the extent Hamilton Beach is a Subsidiary of the Parent, payments by the Lead Borrower to Hamilton Beach for the reimbursement of reasonable and necessary amounts actually incurred by Hamilton Beach relating to self-insured medical and dental claims directly relating to the Lead Borrower or any of its Subsidiaries in the ordinary course of business; provided that in no event shall such amounts described in this clause (d) exceed the sum of the amount of such claims actually paid by Hamilton Beach plus interest incurred thereon at a rate per annum not in excess of the greater of (i) then Applicable Margin for Base Rate Loans, and (ii) the then applicable interest rate applicable to loans substantially similar to Base Rate Loans provided to Hamilton Beach pursuant to any documents evidencing Indebtedness owing by Hamilton Beach to one or more lenders for the purpose of financing working capital and other general corporate purposes, and
(e)      to the extent Hamilton Beach is a Subsidiary of the Parent, payments by the Lead Borrower to Hamilton Beach for the reimbursement of reasonable and necessary amounts actually incurred by Hamilton Beach relating to legal, auditing, actuarial and other similar services provided by third parties and directly relating to the Lead Borrower or any of its Subsidiaries in the ordinary course of business; provided that in no event shall such amounts described in this clause (e) exceed in the aggregate in any Fiscal Year $1,250,000 minus any payments to the Parent made in accordance with Section 7.06(f)(iii) hereof.
7.10      Burdensome Agreements. Enter into or permit to exist any Contractual Obligation (other than this Agreement or any other Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments or other distributions to any Loan Party or to otherwise transfer property to or invest in a Loan Party, (ii) of any Subsidiary to Guarantee the Obligations, (iii) of any Subsidiary to make or repay loans to a Loan Party, or (iv) of the Loan Parties or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person in favor of the Collateral Agent; provided , however , that this clause (iv) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under clause (c) of the definition of Permitted Indebtedness solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.
7.11      Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, (a) to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund Indebtedness originally incurred for such purpose; or (b) for purposes other than those permitted under this Agreement.
7.12      Amendment of Material Documents .
Amend, modify or waive any of a Loan Party’s rights under (a) its Organization Documents in a manner materially adverse to the Credit Parties, or (b) any Material Contract or Material Indebtedness (other than on account of any refinancing thereof otherwise permitted hereunder), in each case to the extent that such amendment, modification or waiver would be reasonably likely to have a Material Adverse Effect.
7.13      Fiscal Year .
Change the Fiscal Year of any Loan Party, or the accounting policies or reporting practices of the Loan Parties, except as required by GAAP.

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7.14      Deposit Accounts; Credit Card Processors .
(a)      Open new DDAs or Blocked Accounts unless the Loan Parties shall have delivered to the Collateral Agent appropriate DDA Notifications or Blocked Account Agreements consistent with the provisions of Section 6.13 and otherwise reasonably satisfactory to the Collateral Agent.
(b)      Engage any new credit card processors unless the Loan Parties shall have delivered to the Collateral Agent, Credit Card Notifications consistent with the provisions of Section 6.13 and otherwise reasonably satisfactory to the Collateral Agent.
(c)      No Loan Party shall maintain any bank accounts or enter into any agreements with credit card processors other than the ones expressly contemplated herein or in Section 6.13 hereof.
7.15      Minimum Availability. Permit Availability at any time to be less than the greater of (a) ten percent (10%) of the Loan Cap, or (b) (i) from and after the Closing Date to (but not including) the Initial Increase Effective Date, $2,500,000.00, and (ii) from and after the Initial Increase Effective Date, $3,000,000.00.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01      Events of Default. Any of the following shall constitute an Event of Default:
(a)      Non-Payment . The Borrowers or any other Loan Party fails to pay when and as required to be paid herein, (i) any amount of principal of any Loan or any L/C Obligation, or deposit any funds as Cash Collateral in respect of L/C Obligations, or (ii) any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) any other amount payable hereunder or under any other Loan Document; or
(b)      Specific Covenants . (i) Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Section 6.01 , 6.02 , 6.03 , 6.05 , 6.07 , 6.10 , 6.11, 6.12 , 6.13 , 6.14 6.18 or Article VII (other than Section 7.15 ); or (ii) any Loan Party fails to perform or observe any term, covenant or agreement contained in Section 7.15 , provided that the Event of Default described in this clause (b)(ii) shall be deemed cured without further action by any Person if within five (5) Business Days of such failure, the Parent shall have effected a Minimum Availability Cure Provision, provided further that the Parent may not effect more than one (1) Minimum Availability Cure Provision during any calendar year or more than two (2) Minimum Availability Cure Provisions from the Closing Date through and including the Maturity Date; or
(c)      Other Defaults . Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days; or
(d)      Representations and Warranties . Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith (including, without limitation, any Borrowing Base Certificate) shall be incorrect or misleading in any material respect when made or deemed made; or
(e)      Cross-Default . (i) Any Loan Party or any Subsidiary thereof (A) fails to make any

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payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Material Indebtedness (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement), or (B) fails to observe or perform any other agreement or condition relating to any such Material Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Material Indebtedness or the beneficiary or beneficiaries of any Guarantee thereof (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined); or
(f)      Insolvency Proceedings, Etc. Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or a proceeding shall be commenced or a petition filed, without the application or consent of such Person, seeking or requesting the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed and the appointment continues undischarged, undismissed or unstayed for thirty (30) calendar days or an order or decree approving or ordering any of the foregoing shall be entered; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for thirty (30) calendar days, or an order for relief is entered in any such proceeding; or
(g)      Inability to Pay Debts; Attachment . (i) Any Loan Party or any Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts as they become due in the ordinary course of business, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person; or
(h)      Judgments . There is entered against any Loan Party or any Subsidiary thereof (i) one or more judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding $500,000 (to the extent not covered by independent third-party insurance as to which the insurer is rated at least “A” by A.M. Best Company, has been notified of the potential claim and does not dispute coverage), or (ii) any one or more non-monetary judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of ten (10) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect; or
(i)      ERISA . (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer

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Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC which would reasonably likely result in a Material Adverse Effect, or with respect to which an action is commenced to attach or levy upon any assets of any Loan Party to enforce or secure any such liability, or (ii) a Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan which would reasonably likely result in a Material Adverse Effect, or with respect to which an action is commenced to attach or levy upon any assets of any Loan Party to enforce or secure any such liability; or
(j)      Invalidity of Loan Documents . (i) Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document or seeks to avoid, limit or otherwise adversely affect any Lien purported to be created under any Security Document; or (ii) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party or any other Person not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Security Document; or
(k)      Change of Control . There occurs any Change of Control; or
(l)      Cessation of Business . Except as otherwise expressly permitted hereunder, any Loan Party shall take any action to suspend the operation of its business in the ordinary course, liquidate all or a material portion of its assets or Store locations, or employ an agent or other third party to conduct a program of closings, liquidations or “Going-Out-Of-Business” sales of any material portion of its business; or
(m)      Loss of Collateral . There occurs any uninsured loss to any portion of the Collateral in an amount greater than $500,000; or
(n)      Breach of Contractual Obligation . Any Loan Party or any Subsidiary thereof fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Material Contract or fails to observe or perform any other agreement or condition relating to any such Material Contract or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the counterparty to such Material Contract to terminate such Material Contract; or
(o)      Indictment . The indictment or institution of any legal process or proceeding against, any Loan Party or any Subsidiary thereof, under any federal, state, municipal, and other criminal statute, rule, regulation, order, or other requirement having the force of law for a felony;
(p)      Guaranty . The termination or attempted termination of any Facility Guaranty except as expressly permitted hereunder or under any other Loan Document;
(q)      Subordination . (i) The subordination provisions of the documents evidencing or governing any Subordinated Indebtedness (the “ Subordinated Provisions ”) shall, in whole or in part,

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terminate, cease to be effective or cease to be legally valid, binding and enforceable against any holder of the applicable Subordinated Indebtedness; or (ii) any Borrower or any other Loan Party shall, directly or indirectly, disavow or contest in any manner (A) the effectiveness, validity or enforceability of any of the Subordination Provisions, (B) that the Subordination Provisions exist for the benefit of the Credit Parties, or (C) that all payments of principal of or premium and interest on the applicable Subordinated Indebtedness, or realized from the liquidation of any property of any Loan Party, shall be subject to any of the Subordination Provisions.
8.02      Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent may, or, at the request of the Required Lenders shall, take any or all of the following actions:
(a)      declare the Commitments of each Lender to make Loans and any obligation of the Administrative Agent to endeavor to cause the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such Commitments and obligation shall be terminated;
(b)      declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Loan Parties;
(c)      require that the Loan Parties Cash Collateralize the L/C Obligations; and
(d)      whether or not the maturity of the Obligations shall have been accelerated pursuant hereto, proceed to protect, enforce and exercise all rights and remedies of the Credit Parties under this Agreement, any of the other Loan Documents or applicable Law, including, but not limited to, by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations are evidenced, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Credit Parties;
provided , however , that upon the entry of an order for relief with respect to any Loan Party or any Subsidiary thereof under any Debtor Relief Laws, the obligation of each Lender to make Loans and any obligation of the Administrative Agent to endeavor to cause the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Loan Parties to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
No remedy herein is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of Law.
8.03      Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02 ), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
First , to payment of that portion of the Obligations (excluding the Other Liabilities)

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constituting fees, indemnities, Credit Party Expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and the Collateral Agent and amounts payable under Article III ) payable to the Administrative Agent and the Collateral Agent, each in its capacity as such;
Second , to payment of that portion of the Obligations (excluding the Other Liabilities) constituting indemnities, Credit Party Expenses, and other amounts (other than principal, interest and fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer and amounts payable under Article III ), ratably among them in proportion to the amounts described in this clause Second payable to them;
Third , to the extent not previously reimbursed by the Lenders, to payment to the Lenders of that portion of the Obligations constituting principal and accrued and unpaid interest on any Permitted Overadvances, ratably among the Lenders in proportion to the amounts described in this clause Third payable to them;
Fourth , to the extent that Swing Line Loans have not been refinanced by a Committed Loan, payment to the Swing Line Lender of that portion of the Obligations constituting accrued and unpaid interest on the Swing Line Loans;
Fifth , to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans L/C Borrowings and other Obligations, and fees (including Letter of Credit Fees but excluding any Early Termination Fees), ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Fifth payable to them;
Sixth , to the extent that Swing Line Loans have not been refinanced by a Committed Loan, to payment to the Swing Line Lender of that portion of the Obligations constituting unpaid principal of the Swing Line Loans;
Seventh , to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Seventh held by them;
Eighth , to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit;
Ninth , to payment of all other Obligations (including without limitation the cash collateralization of unliquidated indemnification obligations as provided in Section 10.04(g) , but excluding any Other Liabilities), ratably among the Credit Parties in proportion to the respective amounts described in this clause Ninth held by them
Tenth , to payment of that portion of the Obligations arising from Cash Management Services to the extent secured under the Security Documents, ratably among the Credit Parties in proportion to the respective amounts described in this clause Tenth held by them;
Eleventh , to payment of all other Obligations arising from Bank Products to the extent secured under the Security Documents, ratably among the Credit Parties in proportion to the respective amounts described in this clause Eleventh held by them;
Twelfth , to payment of all other Other Liabilities, ratably among the Credit Parties in

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proportion to the respective amounts described in this clause Twelfth held by them; and
Last , the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Loan Parties or as otherwise required by Law.
Subject to Section 2.03(c) , amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Seventh above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
ARTICLE IX
ADMINISTRATIVE AGENT
9.01      Appointment and Authority .
(a)      Each of the Lenders and the Swing Line Lender hereby irrevocably appoints WFRF to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and no Loan Party or any Subsidiary thereof shall have rights as a third party beneficiary of any of such provisions.
(b)      Each of the Lenders (in its capacities as a Lender) and the Swing Line Lender hereby irrevocably appoints WFRF as Collateral Agent and authorizes the Collateral Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Collateral Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Collateral Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Collateral Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c)) , as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents, as if set forth in full herein with respect thereto.
9.02      Rights as a Lender. The Persons serving as the Agents hereunder shall have the same rights and powers in their capacity as a Lender as any other Lender and may exercise the same as though they were not the Administrative Agent or the Collateral Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent or the Collateral Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Loan Parties or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent or the Collateral Agent hereunder and without any duty to account therefor to the Lenders.
9.03      Exculpatory Provisions. The Agents shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Agents:

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(a)      shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b)      shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent or the Collateral Agent, as applicable, is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that no Agent shall be required to take any action that, in its respective opinion or the opinion of its counsel, may expose such Agent to liability or that is contrary to any Loan Document or applicable law; and
(c)      shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Loan Parties or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent, the Collateral Agent or any of its Affiliates in any capacity.
No Agent shall be liable for any action taken or not taken by it (i) with the Consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02 ) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a final and non-appealable judgment of a court of competent jurisdiction.
The Agents shall not be deemed to have knowledge of any Default unless and until notice describing such Default is given to such Agent by the Loan Parties, a Lender or the L/C Issuer. Upon the occurrence of an Event of Default, the Agents shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Applicable Lenders. Unless and until the Agents shall have received such direction, the Agents may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to any such Default or Event of Default as it shall deem advisable in the best interest of the Credit Parties. In no event shall the Agents be required to comply with any such directions to the extent that any Agent believes that its compliance with such directions would be unlawful.
The Agents shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or the creation, perfection or priority of any Lien purported to be created by the Security Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agents.
9.04      Reliance by Agents .
Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including, but not limited to, any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by

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the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received written notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. Each Agent may consult with legal counsel (who may be counsel for any Loan Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05      Delegation of Duties. Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub‑agents appointed by such Agent. Each Agent and any such sub‑agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub‑agent and to the Related Parties of the Agents and any such sub‑agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as such Agent.
9.06      Resignation of Agents. Either Agent may at any time give written notice of its resignation to the Lenders and the Lead Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with the consent of the Lead Borrower (which consent shall not be unreasonably withheld, delayed or conditioned) so long as no Default or Event of Default has occurred and is continuing, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent gives notice of its resignation, then the retiring Agent may on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent or Collateral Agent, as applicable, meeting the qualifications set forth above; provided that if the Administrative Agent or the Collateral Agent shall notify the Lead Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any Collateral held by the Collateral Agent on behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring Collateral Agent shall continue to hold such collateral security until such time as a successor Collateral Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent or Collateral Agent, as applicable, hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Lead Borrower and such successor. After the retiring Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Agent, its sub‑agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as Administrative Agent or Collateral Agent hereunder.
Any resignation by WFRF as Administrative Agent pursuant to this Section shall also constitute its resignation as Swing Line Lender and the resignation of Wells Fargo as L/C Issuer. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (a) such successor shall succeed to and

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become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and Swing Line Lender, (b) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (c) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.
9.07      Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Agents or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Agents or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. Except as provided in Section 9.12 , the Agents shall not have any duty or responsibility to provide any Credit Party with any other credit or other information concerning the affairs, financial condition or business of any Loan Party that may come into the possession of the Agents.
9.08      [Reserved]
9.09      Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Loan Parties) shall be entitled and empowered, by intervention in such proceeding or otherwise
(a)      to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer, the Administrative Agent and the other Credit Parties (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer, the Administrative Agent, such Credit Parties and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer the Administrative Agent and such Credit Parties under Sections 2.03(i) , 2.03(j) , 2.09 and 10.04 ) allowed in such judicial proceeding; and
(b)      to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04 .
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or the L/C Issuer or to

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authorize the Administrative Agent to vote in respect of the claim of any Lender or the L/C Issuer in any such proceeding.
9.10      Collateral and Guaranty Matters. The Credit Parties irrevocably authorize the Agents, at their option and in their reasonable discretion,
(a)      to release any Lien on any property granted to or held by the Collateral Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations for which no claim has been asserted) and the expiration or termination of all Letters of Credit, (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii) if approved, authorized or ratified in writing by the Applicable Lenders in accordance with Section 10.01 ;
(b)      to subordinate any Lien on any property granted to or held by the Collateral Agent under any Loan Document to the holder of any Lien on such property that is permitted by clause (h) of the definition of Permitted Encumbrances; and
(c)      to release any Guarantor from its obligations under the Facility Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder.
Upon request by any Agent at any time, the Applicable Lenders will confirm in writing such Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Facility Guaranty pursuant to this Section 9.10 . In each case as specified in this Section 9.10 , the Agents will, at the Loan Parties’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Security Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Facility Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.
9.11      Notice of Transfer .
The Agents may deem and treat a Lender party to this Agreement as the owner of such Lender’s portion of the Obligations for all purposes, unless and until, and except to the extent, an Assignment and Acceptance shall have become effective as set forth in Section 10.06 .
9.12      Reports and Financial Statements .
By signing this Agreement, each Lender:
(a)      agrees to furnish the Administrative Agent, on the first day of each month (and at such other times as the Administrative Agent may reasonably request) with a summary of all Other Liabilities due or to become due to such Lender. In connection with any distributions to be made hereunder, the Administrative Agent shall be entitled to assume that no amounts are due to any Lender on account of Other Liabilities unless the Administrative Agent has received written notice thereof from such Lender;
(b)      is deemed to have requested that the Administrative Agent furnish such Lender, promptly after they become available, copies of all financial statements required to be delivered by the Lead Borrower hereunder and all commercial finance examinations and appraisals of the

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Collateral received by the Agents (collectively, the “ Reports ”);
(c)      expressly agrees and acknowledges that the Administrative Agent makes no representation or warranty as to the accuracy of the Reports, and shall not be liable for any information contained in any Report;
(d)      expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the Agents or any other party performing any audit or examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties' books and records, as well as on representations of the Loan Parties' personnel;
(e)      agrees to keep all Reports confidential in accordance with the provisions of Section 10.07 hereof; and
(f)      without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold the Agents and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any Credit Extensions that the indemnifying Lender has made or may make to the Borrowers, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a Loan or Loans; and (ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including attorney costs) incurred by the Agents and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.
9.13      Agency for Perfection .
Each Lender hereby appoints each other Lender as agent for the purpose of perfecting Liens for the benefit of the Agents and the Lenders, in assets which, in accordance with Article 9 of the UCC or any other applicable Law of the United States can be perfected only by possession. Should any Lender (other than the Agents) obtain possession of any such Collateral, such Lender shall notify the Agents thereof, and, promptly upon the Collateral Agent's request therefor shall deliver such Collateral to the Collateral Agent or otherwise deal with such Collateral in accordance with the Collateral Agent's instructions.
9.14      Indemnification of Agents . The Lenders hereby agree to indemnify the Agents, the L/C Issuer and any Related Party, as the case may be (to the extent not reimbursed by the Loan Parties and without limiting the obligations of Loan Parties hereunder), ratably according to their Applicable Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted to be taken by any Agent in connection therewith; provided , that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s gross negligence or willful misconduct as determined by a final and nonappealable judgment of a court of competent jurisdiction.
9.15      Relation among Lenders . The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agents) authorized to act for, any other Lender.

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9.16      Defaulting Lender.
(a)      If for any reason any Lender shall fail or refuse to abide by its obligations under this Agreement, including without limitation its obligation to make available to Administrative Agent its Applicable Percentage of any Loans, expenses or setoff or purchase its Applicable Percentage of a participation interest in the Swing Line Loans or L/C Borrowings and such failure is not cured within one (1) Business Day after receipt from the Administrative Agent of written notice thereof, then, in addition to the rights and remedies that may be available to the other Credit Parties, the Loan Parties or any other party at law or in equity, and not at limitation thereof, (i) such Defaulting Lender’s right to participate in the administration of, or decision-making rights related to, the Obligations, this Agreement or the other Loan Documents shall be suspended during the pendency of such failure or refusal, and (ii) a Defaulting Lender shall be deemed to have assigned any and all payments due to it from the Loan Parties, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining non-Defaulting Lenders for application to, and reduction of, their proportionate shares of all outstanding Obligations until, as a result of application of such assigned payments the Lenders’ respective Applicable Percentages of all outstanding Obligations shall have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency, and (iii) at the option of the Administrative Agent, any amount payable to such Defaulting Lender hereunder (whether on account of principal, interest, fees or otherwise) shall, in lieu of being distributed to such Defaulting Lender, be retained by the Administrative Agent as cash collateral for future funding obligations of the Defaulting Lender in respect of any Loan or existing or future participating interest in any Swing Line Loan or Letter of Credit. The Defaulting Lender’s decision-making and participation rights and rights to payments as set forth in clauses (i) and (ii) hereinabove shall be restored only upon the payment by the Defaulting Lender of its Applicable Percentage of any Obligations, any participation obligation, or expenses as to which it is delinquent, together with interest thereon at the rate set forth in Section 2.08(b) hereof from the date when originally due until the date upon which any such amounts are actually paid.
(b)      The non-Defaulting Lenders shall also have the right, but not the obligation, in their respective, sole and absolute discretion, to cause the termination and assignment, without any further action by the Defaulting Lender for no cash consideration ( pro rata , based on the respective Commitments of those Lenders electing to exercise such right), of the Defaulting Lender’s Commitment to fund future Loans. Upon any such purchase of the Applicable Percentage of any Defaulting Lender, the Defaulting Lender’s share in future Credit Extensions and its rights under the Loan Documents with respect thereto shall terminate on the date of purchase, and the Defaulting Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest, including, if so requested, an Assignment and Acceptance.
(c)      Each Defaulting Lender shall indemnify the Administrative Agent and each non-Defaulting Lender from and against any and all loss, damage or expenses, including but not limited to reasonable attorneys’ fees and funds advanced by the Administrative Agent or by any non-Defaulting Lender, on account of a Defaulting Lender’s failure to timely fund its Applicable Percentage of a Loan or to otherwise perform its obligations under the Loan Documents.
ARTICLE X
MISCELLANEOUS
10.01      Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no Consent to any departure by any Loan Party therefrom, shall be effective unless in writing signed by the Administrative Agent, with the Consent of the Required Lenders, and the

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Lead Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or Consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no such amendment, waiver or consent shall:
(a)      extend or, increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02 ) without the written Consent of such Lender;
(b)      as to any Lender, postpone any date fixed by this Agreement or any other Loan Document for (i) except as provided in Section 2.17 , any scheduled payment (including the Maturity Date) or mandatory prepayment of principal, interest, fees or other amounts due hereunder or under any of the other Loan Documents without the written Consent of such Lender entitled to such payment, or (ii) any scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any other Loan Document without the written Consent of such Lender;
(c)      as to any Lender, reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01 ) any fees or other amounts payable hereunder or under any other Loan Document, without the written Consent of each Lender entitled to such amount; provided , however , that only the Consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any obligation of the Borrowers to pay interest or Letter of Credit Fees at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder;
(d)      as to any Lender, change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written Consent of such Lender;
(e)      change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written Consent of each Lender;
(f)      except as expressly permitted hereunder or under any other Loan Document, release, or limit the liability of, any Loan Party without the written Consent of each Lender;
(g)      except for Permitted Dispositions, release all or substantially all of the Collateral from the Liens of the Security Documents without the written Consent of each Lender;
(h)      except as provided in Section 2.15 and Section 2.16 , increase the Aggregate Commitments without the written Consent of each Lender;
(i)      change the definition of the term “Borrowing Base” or any component definition thereof if as a result thereof the amounts available to be borrowed by the Borrowers would be increased without the written Consent of each Lender, provided that the foregoing shall not limit the ability of the Administrative Agent to change, establish or eliminate any Reserves, in each case in its Permitted Discretion;
(j)      modify the definition of Permitted Overadvance so as to increase the amount thereof or, except as provided in such definition, the time period for a Permitted Overadvance without the written Consent of each Lender; and

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(k)      except as expressly permitted herein or in any other Loan Document, subordinate the Obligations hereunder or the Liens granted hereunder or under the other Loan Documents, to any other Indebtedness or Lien, as the case may be without the written Consent of each Lender;
and, provided further , that (i) no amendment, waiver or Consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or Consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or Consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) no amendment, waiver or Consent shall, unless in writing and signed by the Collateral Agent in addition to the Lenders required above, affect the rights or duties of the Collateral Agent under this Agreement or any other Loan Document, and (v) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or Consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
If any Lender does not Consent (a “ Non-Consenting Lender ”) to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the Consent of each Lender and that has been approved by the Required Lenders, the Lead Borrower may replace such Non-Consenting Lender in accordance with Section 10.13 ; provided that such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Lead Borrower to be made pursuant to this paragraph).
10.02      Notices; Effectiveness; Electronic Communications .
(a)      Notices Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i)      if to the Loan Parties, the Agents, the L/C Issuer or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02 ; and
(ii)      if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b)      Electronic Communications . Notices and other communications to the Lenders and

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the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e‑mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Lead Borrower may, in its reasonable discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c)      The Platform . THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Agents or any of their Related Parties (collectively, the “ Agent Parties ”) have any liability to any Loan Party, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Loan Parties’ or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided , however , that in no event shall any Agent Party have any liability to any Loan Party, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d)      Change of Address, Etc . Each of the Loan Parties, the Agents, the L/C Issuer and the Swing Line Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Lead Borrower, the Agents, the L/C Issuer and the Swing Line Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

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(e)      Reliance by Agents, L/C Issuer and Lenders . The Agents, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of the Loan Parties even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Loan Parties shall indemnify the Agents, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Loan Parties. All telephonic notices to and other telephonic communications with the Agents may be recorded by the Agents, and each of the parties hereto hereby consents to such recording.
10.03      No Waiver; Cumulative Remedies. No failure by any Credit Party to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided herein and in the other Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.
10.04      Expenses; Indemnity; Damage Waiver .
(a)      Costs and Expenses . The Borrowers shall pay all Credit Party Expenses.
(b)      Indemnification by the Loan Parties . The Loan Parties shall indemnify the Agents (and any sub-agent thereof), each other Credit Party, and each Related Party of any of the foregoing Persons (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless (on an after tax basis) from, any and all losses, claims, causes of action, damages, liabilities, settlement payments, costs, and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Agents (and any sub-agents thereof) and their Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to any Loan Party or any of its Subsidiaries, (iv) any claims of, or amounts paid by any Credit Party to, a Blocked Account Bank or other Person which has entered into a control agreement with any Credit Party hereunder, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by any Borrower or any other Loan Party or any of the Loan Parties’ directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not

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caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by a Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document, if the Borrowers or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.
(c)      Reimbursement by Lenders . Without limiting their obligations under Section 9.14 hereof, to the extent that the Loan Parties for any reason fail to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it, each Lender severally agrees to pay to the Agents (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Agents (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Agents (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d) .
(d)      Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable Law, the Loan Parties shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
(e)      Payments . All amounts due under this Section shall be payable on demand therefor.
(f)      Survival . The agreements in this Section shall survive the resignation of any Agent and the L/C Issuer, the assignment of any Commitment or Loan by any Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
10.05      Payments Set Aside. To the extent that any payment by or on behalf of the Loan Parties is made to any Credit Party, or any Credit Party exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Credit Party in its reasonable discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment

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had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Agents upon demand its Applicable Percentage (without duplication) of any amount so recovered from or repaid by the Agents, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
10.06      Successors and Assigns .
(a)      Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder or under any other Loan Document without the prior written Consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of Section 10.06(b) , (ii) by way of participation in accordance with the provisions of subsection Section 10.06(d) , or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.06(f) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Credit Parties) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)      Assignments by Lenders . Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment(s) and the Loans (including for purposes of this Section 10.06(b) , participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i)      Minimum Amounts
(A)      in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, no minimum amount need be assigned; and
(B)      in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Default has occurred and is continuing, the Lead Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided , however , that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;
(ii)      Proportionate Amounts . Each partial assignment shall be made as an

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assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to the Swing Line Lender’s rights and obligations in respect of Swing Line Loans;
(iii)      Required Consents . No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A)      the consent of the Lead Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) a Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and
(B)      the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitment if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.
(iv)      Assignment and Assumption . The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500, provided , however , that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v)      Minimum Hold . At all times, WFRF and/or its Affiliates shall hold at least fifty percent (50%) of the Aggregate Commitments except with the consent of the Lead Borrower (not to be unreasonably withheld or delayed); provided that no such consent shall be required if an Event of Default shall have occurred and be continuing.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01 , 3.04 , 3.05 , and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrowers (at their expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d) .
(c)      Register . The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, absent manifest error, and the Loan Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this

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Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Lead Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice.
(d)      Participations . Any Lender may at any time, without the consent of, or notice to, the Loan Parties or the Administrative Agent, sell participations to any Person (other than a natural person or the Loan Parties or any of the Loan Parties’ Affiliates or Subsidiaries) (each, a “ Participant ”) in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Loan Parties, the Agents, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any Participant shall agree in writing to comply with all confidentiality obligations set forth in Section 10.07 as if such Participant was a Lender hereunder.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Loan Parties agree that each Participant shall be entitled to the benefits of Sections 3.01 , 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.06(b) . To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.
(e)      Limitations upon Participant Rights . A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Lead Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Lead Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Loan Parties, to comply with Section 3.01(e) as though it were a Lender.
(f)      Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g)      Electronic Execution of Assignments . The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
(h)      Resignation as L/C Issuer or Swing Line Lender after Assignment . Notwithstanding

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anything to the contrary contained herein, if at any time WFRF assigns all of its Commitment and Loans pursuant to subsection (b) above, Wells Fargo may, (i) upon thirty (30) days’ notice to the Lead Borrower and the Lenders, resign as L/C Issuer and/or (ii) upon thirty (30) days’ notice to the Lead Borrower, WFRF may resign as Swing Line Lender. In the event of any such resignation as L/C Issuer or Swing Line Lender, the Lead Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swing Line Lender hereunder; provided , however , that no failure by the Lead Borrower to appoint any such successor shall affect the resignation of Wells Fargo as L/C Issuer or of WFRF as Swing Line Lender, as the case may be. If Wells Fargo resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c) ). If WFRF resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c) . Upon the appointment of a successor L/C Issuer and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Wells Fargo to effectively assume the obligations of Wells Fargo with respect to such Letters of Credit.
10.07      Treatment of Certain Information; Confidentiality. Each of the Credit Parties agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, funding sources, attorneys, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Loan Party and its obligations, (g) with the consent of the Lead Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to any Credit Party or any of their respective Affiliates on a non-confidential basis from a source other than the Loan Parties.
For purposes of this Section, “Information” means all information received from the Loan Parties or any Subsidiary thereof relating to the Loan Parties or any Subsidiary thereof or their respective businesses, other than any such information that is available to any Credit Party on a non-confidential basis prior to disclosure by the Loan Parties or any Subsidiary thereof, provided that, in the case of information received from any Loan Party or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

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Each of the Credit Parties acknowledges that (a) the Information may include material non-public information concerning the Loan Parties or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.
10.08      Right of Setoff. If an Event of Default shall have occurred and be continuing or if any Lender shall have been served with a trustee process or similar attachment relating to property of a Loan Party, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent or the Required Lenders, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrowers or any other Loan Party against any and all of the Obligations now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, regardless of the adequacy of the Collateral, and irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrowers or such Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Lead Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
10.09      Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “ Maximum Rate ”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrowers. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
10.10      Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01 , this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, pdf or other electronic transmission shall be as effective as delivery of a manually executed counterpart of this Agreement.
10.11      Survival. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Credit Parties, regardless of any investigation made by any Credit Party or on

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their behalf and notwithstanding that any Credit Party may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding. Further, the provisions of Sections 3.01 , 3.04 , 3.05 and 10.04 and Article IX shall survive and remain in full force and effect regardless of the repayment of the Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. In connection with the termination of this Agreement and the release and termination of the security interests in the Collateral, the Agents may require such indemnities and collateral security as they shall reasonably deem necessary or appropriate to protect the Credit Parties against (x) loss on account of credits previously applied to the Obligations that may subsequently be reversed or revoked, (y) any obligations that may thereafter arise with respect to the Other Liabilities and (z) any Obligations that may thereafter arise under Section 10.04 .
10.12      Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
10.13      Replacement of Lenders. If any Lender requests compensation under Section 3.04 , or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 , or if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06 ), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(a)      the Borrowers shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b) ;
(b)      such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05 ) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);
(c)      in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01 , such assignment will result in a reduction in such compensation or payments thereafter; and
(d)      such assignment does not conflict with applicable Laws.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

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10.14      Governing Law; Jurisdiction; Etc .
(a)      GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(b)      SUBMISSION TO JURISDICTION . EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE LOAN PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE LOAN PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ANY CREDIT PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c)      WAIVER OF VENUE . EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE LOAN PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d)      SERVICE OF PROCESS . EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02 . NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(e)      ACTIONS COMMENCED BY LOAN PARTIES . EACH LOAN PARTY AGREES THAT ANY ACTION COMMENCED BY ANY LOAN PARTY ASSERTING ANY CLAIM OR COUNTERCLAIM ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT SOLELY IN A COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AS THE ADMINISTRATIVE AGENT MAY ELECT IN ITS SOLE DISCRETION AND CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS WITH RESPECT TO ANY SUCH ACTION.
10.15      Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR

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RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND WHETHER INITIATED BY OR AGAINST ANY SUCH PERSON OR IN WHICH ANY SUCH PERSON IS JOINED AS A PARTY LITIGANT). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.16      No Advisory or Fiduciary Responsibility . In connection with all aspects of each transaction contemplated hereby, the Loan Parties each acknowledge and agree that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Loan Parties, on the one hand, and the Credit Parties, on the other hand, and each of the Loan Parties is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, the each Credit Party is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Loan Parties or any of their respective Affiliates, stockholders, creditors or employees or any other Person; (iii) none of the Credit Parties has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Loan Parties with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any of the Credit Parties has advised or is currently advising any Loan Party or any of its Affiliates on other matters) and none of the Credit Parties has any obligation to any Loan Party or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Credit Parties and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Loan Parties and their respective Affiliates, and none of the Credit Parties has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Credit Parties have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and each of the Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Loan Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against each of the Credit Parties with respect to any breach or alleged breach of agency or fiduciary duty.
10.17      Patriot Act Notice. Each Lender that is subject to the Patriot Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Loan Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Patriot Act ”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Patriot Act. Each Loan Party is in compliance, in all material respects, with the Patriot Act. No part of the proceeds of the Loans will be used by the Loan Parties, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977,

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as amended.
10.18      Foreign Asset Control Regulations. Neither of the advance of the Loans nor the use of the proceeds of any thereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the " Trading With the Enemy Act ") or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the " Foreign Assets Control Regulations ") or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the " Executive Order ") and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)). Furthermore, none of the Borrowers or their Affiliates (a) is or will become a "blocked person" as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such "blocked person" or in any manner violative of any such order.
10.19      Time of the Essence. Time is of the essence of the Loan Documents.
10.20      Press Releases .
(a)      Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of Administrative Agent or its Affiliates or referring to this Agreement or the other Loan Documents without at least two (2) Business Days’ prior notice to Administrative Agent and without the prior written consent of Administrative Agent unless (and only to the extent that) such Credit Party or Affiliate is required to do so under applicable Law and then, in any event, such Credit Party or Affiliate will consult with Administrative Agent before issuing such press release or other public disclosure.
(b)      Each Loan Party consents to the publication by Administrative Agent or any Lender of advertising material relating to the financing transactions contemplated by this Agreement using any Loan Party’s name, product photographs, logo or trademark. Administrative Agent or such Lender shall provide a draft reasonably in advance of any advertising material to the Lead Borrower for review and comment prior to the publication thereof. Administrative Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.
10.21      Additional Waivers .
(a)      The Obligations are the joint and several obligation of each Loan Party. To the fullest extent permitted by Applicable Law, the obligations of each Loan Party shall not be affected by (i) the failure of any Credit Party to assert any claim or demand or to enforce or exercise any right or remedy against any other Loan Party under the provisions of this Agreement, any other Loan Document or otherwise, (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, this Agreement or any other Loan Document, or (iii) the failure to perfect any security interest in, or the release of, any of the Collateral or other security held by or on behalf of the Collateral Agent or any other Credit Party.
(b)      The obligations of each Loan Party shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations after the termination of the Commitments), including any claim of waiver, release, surrender, alteration or

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compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Loan Party hereunder shall not be discharged or impaired or otherwise affected by the failure of any Agent or any other Credit Party to assert any claim or demand or to enforce any remedy under this Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, any default, failure or delay, willful or otherwise, in the performance of any of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Loan Party or that would otherwise operate as a discharge of any Loan Party as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations after the termination of the Commitments).
(c)      To the fullest extent permitted by applicable Law, each Loan Party waives any defense based on or arising out of any defense of any other Loan Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Loan Party, other than the indefeasible payment in full in cash of all the Obligations and the termination of the Commitments. The Collateral Agent and the other Credit Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with any other Loan Party, or exercise any other right or remedy available to them against any other Loan Party, without affecting or impairing in any way the liability of any Loan Party hereunder except to the extent that all the Obligations have been indefeasibly paid in full in cash and the Commitments have been terminated. Each Loan Party waives any defense arising out of any such election even though such election operates, pursuant to applicable Law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Loan Party against any other Loan Party, as the case may be, or any security.
(d)      Each Borrower is obligated to repay the Obligations as joint and several obligors under this Agreement. Upon payment by any Loan Party of any Obligations, all rights of such Loan Party against any other Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations and the termination of the Commitments. In addition, any indebtedness of any Loan Party now or hereafter held by any other Loan Party is hereby subordinated in right of payment to the prior indefeasible payment in full of the Obligations and no Loan Party will demand, sue for or otherwise attempt to collect any such indebtedness. If any amount shall erroneously be paid to any Loan Party on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of any Loan Party, such amount shall be held in trust for the benefit of the Credit Parties and shall forthwith be paid to the Administrative Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement and the other Loan Documents. Subject to the foregoing, to the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting Revolving Loans made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an " Accommodation Payment "), then the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower's Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the " Allocable Amount " of each Borrower shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (a) rendering such Borrower "insolvent" within the meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Transfer

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Act (" UFTA ") or Section 2 of the Uniform Fraudulent Conveyance Act (" UFCA "), (b) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA, or Section 5 of the UFCA.
10.22      No Strict Construction.
The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.
10.23      Attachments.
The exhibits, schedules and annexes attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein, except that in the event of any conflict between any of the provisions of such exhibits and the provisions of this Agreement, the provisions of this Agreement shall prevail.
[signature pages follow]


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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

 
THE KITCHEN COLLECTION, INC. , as Lead Borrower and as a Borrower
 
 
 
 
By:
/s/ Jan A. Kennedy, Jr.
 
Name:
Jan A. Kennedy, Jr.
 
Title:
Secretary and Treasurer


Signature Page to Credit Agreement



 
WELLS FARGO RETAIL FINANCE, LLC,  as Administrative Agent and as Collateral Agent
 
 
 
 
By:
/s/ Cory Loftus
 
Name:
Cory Loftus
 
Title:
Director
 
 
 
 
WELLS FARGO RETAIL FINANCE, LLC,  as a Lender and Swing Line Lender
 
 
 
 
By:
/s/ Cory Loftus
 
Name:
Cory Loftus
 
Title:
Director










Signature Page to Credit Agreement


Schedule 1.01
Borrower

The Kitchen Collection, Inc., a Delaware corporation.





Schedules 1.02
Guarantors

None.






Schedules 1.03
Licensed Department Agreements



1.
Lease Agreement, dated as of February 21, 2007, by and between Home Accents Direct Outlet Center, Inc. and KCI for the premises known as Home Accents Direct Outlet Center, Inc., located at 2270 Two Rivers Blvd., Sevierville, Tennessee, 37876. (Store 301)
2.
License Agreement, dated as of August 19, 2005, as modified by that First Amendment to License Agreement, dated as of September 21, 2006 by and between VF Outlet, Inc. (“ VF ”) and The Kitchen Collection, Inc. (“ KCI ”) for the store commonly known as Outlet MarketPlace and located at Penn Hills Shopping Center, 11660 Keleket Drive, Pittsburgh, Pennsylvania, 15235. (Store 302)
3.
License Agreement, dated as of August 19, 2005, as amended by that First Amendment to License Agreement, dated as of September 21, 2006, by and between VF and KCI for the store commonly known as Outlet Marketplace and located at County Line Plaza, Route 113 (Souderton Road) and North County Line, Souderton, Pennsylvania, 18964. (Store 303)
4.
License Agreement, dated as of October 6, 2005, by and between VF and KCI for the store commonly known as Outlet Marketplace and located at 1700 Snow Road , Parma, Ohio 44134. (Store 304)
5.
License Agreement, dated October 6, 2005, as amended by that First Amendment to License Agreement, dated as of September 21, 2006, by and between VF and KCI for the store commonly known as Outlet MarketPlace and located at 6060 East Main Street, Columbus, Ohio 43213. (Store 305)
6.
License Agreement, dated as of November 29, 2005, as amended by that First Amendment to Lience Agreement, dated as of September 21, 2006, as amended by that Second Amendment to License Agreement, dated as of March 25, 2008, by and between VF and KCI for the store commonly known as Outlet MarketPlace and located at Chardon Bishop Plaza, 28301 Chardon Road, Wickliffe, Ohio, 44092-2711. (Store 307)
7.
License Agreement, dated as of November 20, 2005, as amended by that First Amendment to License Agreement, dated as of August 6, 2009, by and between VF and KCI for space in the VF Outlet Store located at 1103 Route 130, South Cinnaminson, New Jersey 08077. (Store 308)





Schedules 5.01
Loan Parties Organizational Information


Loan Party
State of Incorporation
Organizational Type
Organizational Number
FEIN
The Kitchen Collection, Inc.
Delaware
Corporation
949,619
52-1276696




Signature Page to Credit Agreement


Schedules 5.05
Supplement to Interim Financial Statements

None.





Schedule 5.06
Litigation

None.





Schedule 5.08(b)(1)
Owned Real Estate

None.




Schedule 5.08(b)(2)
Leased Real Estate


Address
Landlord
Landlord Contact Information
71 E. Water Street,
Chillicothe, Ohio 45601
Ross County
71 East Water, LLC
289 E. Water Street,
Chillicothe, Ohio 45601
Attn: Rodney Winegardner
133 Redd Street
Chillicothe, Ohio 45601
Ross County
WRH Company
289 E. Water Street,
Chillicothe, Ohio 45601
Attn: Rodney Winegardner
24200 US Route 23 South
Circleville, Ohio 43113
Pickaway County
IRG Circleville, LLC

US 23 Circleville, LLC (formerly known as Circleville Pickaway, LLC)
IRG Circleville, LLC and
US 23 Circleville, LLC (formerly known as Circleville Pickaway, LLC)
c/o Industrial Realty Group, Inc.
12214 Lakewood Boulevard
Downey, CA 90242
Attn: Stuart Lichter

Ohio Realty Advisors, LLC
3623 Brecksville Road, Suite A
Richfield, Ohio 44286
Attn: Mark Miley


See attached list of store leases.





Schedule 5.09
Environmental Matters

None.





Schedule 5.10
Insurance

See attached.



Schedule 5.13
Subsidiaries; Other Equity Investments; Equity Interests in the Loan Parties

(a) None.

(b) None.

(c) None.



Schedule 5.18
Collective Bargaining Agreements, etc.

1.
The Kitchen Collection, Inc. Retirement Savings Plan (As Amended and Restated Effective January 1, 2007), and as further amended.
2.
The Kitchen Collection, Inc. Excess Retirement Plan (Effective January 1, 2008)
3.
The Kitchen Collection, Inc. Annual Incentive Compensation Plan
4.
The Kitchen Collection, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2010)
5.
The KCI Marketing Incentive Plan
6.
The KCI Store Manager Bonus Plan



Schedule 5.21(a)
DDAs

See attached list of DDAs.





Schedule 5.21(b)
Credit Card Arrangements

7.
Sales Agreement, dated as of October 8, 2002, by and among Huntington Merchant Services L.L.C. (“ HMS ”), The Huntington National Bank (“ Bank ”) and The Kitchen Collection, Inc. (“KCI”), as amended by that certain Addendum to Agreement, dated as of July 18, 2005, by and among HMS, Bank and KCI.
8.
Automated Clearing House Debit Agreement, dated as of February 22, 2007, by and between PayPal, Inc. and The Kitchen Collection, Inc. for The Kitchen Collection, Inc. internet sales transactions, account number VSV0001028607.
9.
Automated Clearing House Debit Agreement, dated as of February 22, 2007, by and between PayPal, Inc. and The Kitchen Collection, Inc. for Le Gourmet Chef internet sales transactions, account number VSV0001137731.




Schedule 5.24
Material Contracts

None.





Schedule 7.01
Existing Liens

Debtor
Secured Party
Type/
File Number/
File Date
Collateral
Description
The Kitchen Collection Inc.
71 East Water Street
Chillicothe, OH 45601
Xerox Corporation
UCC-1
#52367291
August 1, 2005
Leased Xerox equipment
The Kitchen Collection, Inc.
71 East Water Street
Chillicothe, OH 45601
Xerox Corporation
UCC-1
#2008 1876547
June 2, 2008
Leased Xerox equipment
The Kitchen Collection, Inc.
71 East Water Street
Chillicothe, OH 45601
Presidio Technology Capital, LLC
UCC-1
#2008 3604665
October 27, 2008
Leased equipment
The Kitchen Collection, Inc.
71 East Water Street
Chillicothe, OH 45601
Popular Equipment Finance, Inc.

Presidio Technology Capital, LLC
UCC-1
#2008 3973482
December 1, 2008

UCC-3 Amendment
#2008 3973763
December 1, 2008
[added additional Secured Party]
Leased equipment





Schedules 7.02
Existing Investments


None.





Schedule 7.03
Existing Indebtedness

Loan Agreement (the “ Loan Agreement ”), dated as of May 8, 2000, by The Kitchen Collection, Inc. in favor of NACCO Industries, Inc. As of the Closing Date, there is no outstanding indebtedness under the Loan Agreement.

Fluctuating Balance Promissory Note (the “ Note ”), dated as of the hereof, by The Kitchen Collection, Inc. in favor of NACCO Industries, Inc. pursuant to the Loan Agreement. As of the Closing Date, there is no outstanding indebtedness under this Note.





1
EXHIBIT A
Form of Committed Loan Notice
COMMITTED LOAN NOTICE


Date: ____________, ______
To:
Wells Fargo Retail Finance, LLC, as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”) by and among (i) The Kitchen Collection, Inc., a Delaware corporation, for itself and as Lead Borrower (in such capacity, the “ Lead Borrower ”) for the other Borrowers party thereto from time to time (together with the Lead Borrower, individually, a “ Borrower ” and, collectively, the “ Borrowers ”), (ii) the Borrowers, (iii) the Guarantors party thereto from time to time, (iv) the Lenders party thereto from time to time, and (v) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender. Capitalized terms used but not defined herein shall have the meanings set forth in the Credit Agreement.
The Lead Borrower hereby requests a Committed Borrowing      A Committed Borrowing must be a borrowing, conversion or continuation consisting of Committed Loans on a single date of the same Type and, in the case of LIBO Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01 of the Credit Agreement.
:     
1.      On      (a Business Day)      Each notice of a Committed Borrowing must be received by the Administrative Agent not later than 11:00 a.m. (i) three (3) Business Days prior to the requested date of any Borrowing of, conversion to or continuation of LIBO Rate Loans or of any conversion of LIBO Rate Loans to Base Rate Loans, and (ii) one (1) Business Day prior to the requested date of any Borrowing of Base Rate Loans.

2.      In the amount of $_____________________      Each Borrowing of, conversion to or continuation of LIBO Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof.




3.      Comprised of          (Type of Committed Loan)      Committed Loans may be either Base Rate Loans or LIBO Rate Loans. If the Type of Committed Loan is not specified, then the applicable Committed Loans will be made as Base Rate Loans.

4.      For LIBO Rate Loans: with an Interest Period of ____ months      The Lead Borrower may request a Committed Borrowing of LIBO Rate Loans with an Interest Period of one (1), two (2), or three (3) months. If no election of Interest Period is specified, then the Lead Borrower will be deemed to have specified an Interest Period of one (1) month.
The Lead Borrower hereby represents and warrants that (a) the Committed Borrowing requested herein complies with the provisions of Section 2.02 of the Credit Agreement and (b) the conditions specified in Sections 4.02(a) and 4.02(b) of the Credit Agreement have been satisfied on and as of the date of the applicable Committed Borrowing.
THE KITCHEN COLLECTION, INC., as Lead Borrower

By: __________________________________
Name: _________________________________
Title: __________________________________






EXHIBIT B
Form of Swing Line Loan Notice
SWING LINE LOAN NOTICE

Date: ___________, _____
To:
Wells Fargo Retail Finance, LLC, as Swing Line Lender
Wells Fargo Retail Finance, LLC, as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”) by and among (i) The Kitchen Collection, Inc., a Delaware corporation, for itself and as Lead Borrower (in such capacity, the “ Lead Borrower ”) for the other Borrowers party thereto from time to time (together with the Lead Borrower, individually, a “ Borrower ” and, collectively, the “ Borrowers ”), (ii) the Borrowers party thereto from time to time, (iii) the Guarantors party thereto from time to time, (iv) the Lenders party thereto from time to time, and (v) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender. Capitalized terms used but not defined herein shall have the meanings set forth in the Credit Agreement.
The Lead Borrower hereby requests a Swing Line Borrowing:
1.      On      (a Business Day)      Each notice of a Swing Line Borrowing must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested date of any Swing Line Borrowing.
2.      In the amount of $______________________      Each Swing Line Borrowing shall be in a minimum amount of $100,000.
The Lead Borrower hereby represents and warrants that the Swing Line Borrowing requested herein complies with the provisions of Section 2.04 of the Credit Agreement.
THE KITCHEN COLLECTION, INC., as Lead Borrower
By: __________________________________
Name: _________________________________
Title: _________________________________1

DM_US 39487235-1.087501.0019



Exhibit C-1
Form of Revolving Note



REVOLVING NOTE



$________________      ____________, 2010


FOR VALUE RECEIVED, the undersigned (individually, a “ Borrower ”, and collectively, the “ Borrowers ”) jointly and severally promise to pay to the order of _________________________________ (hereinafter, with any subsequent holders, the “ Lender ”), c/o Wells Fargo Retail Finance, LLC, One Boston Place, 18 th Floor, Boston, Massachusetts 02108, the principal sum of _____________________________ DOLLARS ($_____________), or, if less, the aggregate unpaid principal balance of Loans made by the Lender to or for the account of the Borrowers pursuant to the Credit Agreement dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”) by and among (i) the Borrowers, (ii) the Guarantors party thereto from time to time, (iii) the Lenders party thereto from time to time, and (iv) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender, with interest at the rate and payable in the manner stated therein.
This “Revolving Note” is a “Note” to which reference is made in the Credit Agreement and is subject to all terms and provisions thereof. The principal of, and interest on, this Revolving Note shall be payable at the times, in the manner, and in the amounts as provided in the Credit Agreement and shall be subject to prepayment and acceleration as provided therein. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
The Administrative Agent's books and records concerning the Loans, the accrual of interest thereon, and the repayment of such Loans, shall be prima facie evidence of the indebtedness to the Lender hereunder.
No delay or omission by any Agent or the Lender in exercising or enforcing any of such Agent's or the Lender's powers, rights, privileges, remedies, or discretions hereunder shall operate as a waiver thereof on that occasion nor on any other occasion. No waiver of any Event of Default shall operate as a waiver of any other Event of Default, nor as a continuing waiver of any such Event of Default.
Each Borrower, and each endorser and guarantor of this Revolving Note, waives presentment, demand, notice, and protest, and also waives any delay on the part of the holder hereof. Each Borrower



assents to any extension or other indulgence (including, without limitation, the release or substitution of Collateral) permitted by any Agent and/or the Lender with respect to this Revolving Note and/or any Collateral or any extension or other indulgence with respect to any other liability or any collateral given to secure any other liability of any Borrower or any other Person obligated on account of this Revolving Note.
This Revolving Note shall be binding upon each Borrower, and each endorser and guarantor hereof, and upon their respective successors, assigns and representatives, and shall inure to the benefit of the Lender and its successors, endorsees, and assigns.
The liabilities of each Borrower, and of any endorser or guarantor of this Revolving Note, are joint and several, provided, however , the release by any Agent or the Lender of any one or more such Persons shall not release any other Person obligated on account of this Revolving Note. Each reference in this Revolving Note to any Borrower, any endorser, and any guarantor, is to such Person individually and also to all such Persons jointly. No Person obligated on account of this Revolving Note may seek contribution from any other Person also obligated unless and until all of the Obligations have been paid in full in cash.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
EACH Borrower iRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING NOTE OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS REVOLVING NOTE OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR THE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS REVOLVING NOTE OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
EACH Borrower IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING NOTE OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO ABOVE. EACH BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
Each Borrower makes the following waiver knowingly, voluntarily, and intentionally, and understands that the Agents and the Lender, in the establishment and maintenance of their respective relationship with the Borrowers contemplated by this Revolving Note, are each relying thereon. EACH



BORROWER, EACH GUARANTOR, ENDORSER AND SURETY, AND THE LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS REVOLVING NOTE OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND WHETHER INITIATED BY OR AGAINST ANY SUCH PERSON OR IN WHICH ANY SUCH PERSON IS JOINED AS A PARTY LITIGANT). EACH BORROWER AND THE LENDER, BY ITS ACCEPTANCE HEREOF, (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE CREDIT AGREE-MENT AND THIS REVOLVING NOTE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
[ SIGNATURE PAGES FOLLOW ]

IN WITNESS WHEREOF, each Borrower has caused this Revolving Note to be duly executed as of the date set forth above.

BORROWERS :

THE KITCHEN COLLECTION, INC.


By:      _______________________________
Name:     
Title:      _______________________________











Exhibit C-2
Form of Swing Line Note



SWING LINE NOTE



$________________      ____________, 2010


FOR VALUE RECEIVED, the undersigned (individually, a “ Borrower ”, and collectively, the “ Borrowers ”) jointly and severally promise to pay to the order of WELLS FARGO RETAIL FINANCE, LLC (hereinafter, with any subsequent holders, the “ Swing Line Lender ”), One Boston Place, 18 th Floor, Boston, Massachusetts 02108, the principal sum of _____________________________ DOLLARS ($_____________), or, if less, the aggregate unpaid principal balance of Swing Line Loans made by the Swing Line Lender to or for the account of the Borrowers pursuant to the Credit Agreement dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”) by and among (i) the Borrowers, (ii) the Guarantors party thereto from time to time, (iii) the Lenders party thereto from time to time, and (iv) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender, with interest at the rate and payable in the manner stated therein.
This “Swing Line Note” is the “Swing Line Note” to which reference is made in the Credit Agreement and is subject to all terms and provisions thereof. The principal of, and interest on, this Swing Line Note shall be payable at the times, in the manner, and in the amounts as provided in the Credit Agreement and shall be subject to prepayment and acceleration as provided therein. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
The Administrative Agent's books and records concerning the Swing Line Loans, the accrual of interest thereon, and the repayment of such Swing Line Loans, shall be prima facie evidence of the indebtedness to the Swing Line Lender hereunder.
No delay or omission by any Agent or the Swing Line Lender in exercising or enforcing any of such Agent's or the Swing Line Lender's powers, rights, privileges, remedies, or discretions hereunder shall operate



as a waiver thereof on that occasion nor on any other occasion. No waiver of any Event of Default shall operate as a waiver of any other Event of Default, nor as a continuing waiver of any such Event of Default.
Each Borrower, and each endorser and guarantor of this Swing Line Note, waives presentment, demand, notice, and protest, and also waives any delay on the part of the holder hereof. Each Borrower assents to any extension or other indulgence (including, without limitation, the release or substitution of Collateral) permitted by any Agent and/or the Swing Line Lender with respect to this Swing Line Note and/or any Collateral or any extension or other indulgence with respect to any other liability or any collateral given to secure any other liability of any Borrower or any other Person obligated on account of this Swing Line Note.
This Swing Line Note shall be binding upon each Borrower, and each endorser and guarantor hereof, and upon their respective successors, assigns and representatives, and shall inure to the benefit of the Swing Line Lender and its successors, endorsees, and assigns.
The liabilities of each Borrower, and of any endorser or guarantor of this Swing Line Note, are joint and several, provided, however , the release by any Agent or the Swing Line Lender of any one or more such Persons shall not release any other Person obligated on account of this Swing Line Note. Each reference in this Swing Line Note to any Borrower, any endorser, and any guarantor, is to such Person individually and also to all such Persons jointly. No Person obligated on account of this Swing Line Note may seek contribution from any other Person also obligated unless and until all of the Obligations have been paid in full in cash.
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
EACH Borrower iRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SWING LINE NOTE OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SWING LINE NOTE OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR THE SWING LINE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS SWING LINE NOTE OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
EACH Borrower IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SWING LINE NOTE OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO ABOVE. EACH BORROWER HEREBY IRREVOCABLY WAIVES, TO THE



FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
Each Borrower makes the following waiver knowingly, voluntarily, and intentionally, and understands that the Agents and the Swing Line Lender, in the establishment and maintenance of their respective relationship with the Borrowers contemplated by this Swing Line Note, are each relying thereon. EACH BORROWER, EACH GUARANTOR, ENDORSER AND SURETY, AND THE SWING LINE LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS SWING LINE NOTE OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND WHETHER INITIATED BY OR AGAINST ANY SUCH PERSON OR IN WHICH ANY SUCH PERSON IS JOINED AS A PARTY LITIGANT). EACH BORROWER AND THE SWING LINE LENDER, BY ITS ACCEPTANCE HEREOF, (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE CREDIT AGREE-MENT AND THIS SWING LINE NOTE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
[ SIGNATURE PAGES FOLLOW ]

DM_US 39487235-1.087501.0019
IN WITNESS WHEREOF, each Borrower has caused this Swing Line Note to be duly executed as of the date set forth above.

BORROWERS :

THE KITCHEN COLLECTION, INC.


By:      _______________________________
Name:     
Title:      _______________________________






Exhibit D
Form of Compliance Certificate
COMPLIANCE CERTIFICATE

Date of Certificate: ______________

To:      Wells Fargo Retail Finance, LLC, as Administrative Agent

Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”) by and among (i) The Kitchen Collection, Inc., a Delaware corporation, for itself and as Lead Borrower (in such capacity, the “ Lead Borrower ”) for the other Borrowers party thereto from time to time (together with the Lead Borrower, individually, a “ Borrower ” and, collectively, the “ Borrowers ”), (ii) the Borrowers party thereto from time to time, (iii) the Guarantors party thereto from time to time, (iv) the Lenders party thereto from time to time, and (v) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender. All capitalized terms used herein and not otherwise defined shall have the same meaning herein as in the Credit Agreement.
The undersigned, in his capacity as a duly authorized and acting Responsible Officer of the Lead Borrower, hereby certifies on behalf of the Lead Borrower and each of the other Loan Parties as of the date hereof the following:
1.      No Defaults or Events of Default.
(a)      Since __________ (the date of the last Compliance Certificate delivered pursuant to Section 6.02 of the Credit Agreement, or, in the case of the first Compliance Certificate delivered after the Closing Date, the Closing Date), and except as set forth in Appendix I, no Default or Event of Default has occurred and is continuing.
(b)      If a Default or Event of Default has occurred and is continuing since __________ (the date of the last Compliance Certificate delivered pursuant to Section 6.02 of the Credit Agreement, or, in the case of the first Compliance Certificate delivered after the Closing Date, the Closing Date), the Loan Parties have taken or propose to take those actions with respect to such Default or Event of Default as described on said Appendix I.



2.      Financial Calculations. The Loan Parties are in compliance with the minimum Availability covenant set forth in Section 7.15 of the Credit Agreement and have been in compliance with such covenant at all times during the period covered by the financial statements delivered herewith. Attached hereto as Appendix II are reasonably detailed calculations demonstrating the Consolidated Fixed Charge Coverage Ratio, calculated in accordance with the terms of the Credit Agreement, with respect to the Measurement Period most recently ended.
3.      Financial Statements.
[Use following paragraph (a) for Fiscal Year-end financial statements]
(a)      (i)      Attached hereto as Appendix III(a) are the audited Consolidated balance sheet of the Parent and its Subsidiaries, as required by Section 6.01(a)(i) of the Credit Agreement for the Fiscal Year ending ____________, and the related Consolidated statements of income or operations, Shareholders' Equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and accompanied by such materials as are required to be delivered pursuant to Section 6.01(a)(i) of the Credit Agreement (all of the foregoing, collectively, the “Parent Financial Statements”). Such Parent Financial Statements have been prepared in accordance with the requirements of Section 6.01(a)(i) of the Credit Agreement.
(ii)      Attached hereto as Appendix III(b) are the reviewed Consolidated balance sheet of the Lead Borrower and its Subsidiaries, as required by Section 6.01(a)(ii) of the Credit Agreement for the Fiscal Year ending ____________, and the related Consolidated statements of income or operations, Shareholders' Equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and accompanied by such materials as are required to be delivered pursuant to Section 6.01(a)(ii) of the Credit Agreement (all of the foregoing, collectively, the “Lead Borrower Financial Statements”). Such Lead Borrower Financial Statements have been prepared in accordance with the requirements of Section 6.01(a)(ii) of the Credit Agreement.
[Use following paragraph (b) for Fiscal Month-end financial statements]

(b)      Attached hereto as Appendix III are the Consolidated balance sheet of the Lead Borrower and its Subsidiaries, as required by Section 6.01(b) of the Credit Agreement for the Fiscal Month ending ___________, and the related Consolidated statements of income or operations, Shareholders' Equity and cash flows for such Fiscal Month and for the portion of the Lead Borrower's Fiscal Year then ended, setting forth in each case in comparative form the figures for (A) such period set forth in the projections delivered pursuant to Section 6.01(c) of the Credit Agreement, (B) the corresponding Fiscal Month of the previous Fiscal Year and (C) the corresponding portion of the previous Fiscal Year, all in reasonable detail and accompanied by such materials as are required to be delivered pursuant to Section 6.01(b) of the Credit Agreement (all of the foregoing, collectively, the “Monthly Financial Statements”). Such Monthly Financial Statements have been prepared in accordance with the requirements of Section 6.01(b) of the Credit Agreement.
4      No Material Accounting Changes, Etc.



(a)      The [Lead Borrower Financial Statements][Monthly Financial Statements] furnished to the Administrative Agent for the [Fiscal Year/Fiscal Month] ending ___________ were prepared in accordance with GAAP and present fairly in all material respects the financial condition, results of operations, Shareholders' Equity and cash flows of the Lead Borrower and its Subsidiaries, as of the end of the period(s) covered, subject only to with respect to the monthly financial statements, normal year-end audit adjustments and the absence of footnotes.
(b)      Except as set forth in Appendix IV, there has been no change in generally accepted accounting principles used in the preparation of the [Lead Borrower Financial Statements][Monthly Financial Statements] furnished to the Administrative Agent for the [Fiscal Year/Fiscal Month] ending ___________. If any such change has occurred, a statement of reconciliation conforming such financial statements to GAAP is attached hereto in Appendix IV.
5.      Management Discussion. Attached hereto as Appendix V is a discussion and analysis prepared by management of the Lead Borrower with respect to the [Lead Borrower Financial Statements][Monthly Financial Statements] delivered herewith.
[signature page follows]IN WITNESS WHEREOF, a duly authorized and acting Responsible Officer of the Lead Borrower, on behalf of the Lead Borrower and each of the other Loan Parties, has duly executed this Compliance Certificate as of __________________, 20__.

LEAD BORROWER:     

THE KITCHEN COLLECTION, INC.
  

By:      ________________________________
Name:      ________________________________
Title:      ________________________________






APPENDIX I
Except as set forth below, no Default or Event of Default has occurred and is continuing. [If a Default or Event of Default has occurred and is continuing, the following describes the nature of the Default or Event of Default in reasonable detail and the steps, if any, being taken or contemplated by the Loan Parties to be taken on account thereof.]





APPENDIX II
(Consolidated Fixed Charge Coverage Ratio)

1.      Consolidated EBITDA for such Measurement Period:

(a)
Consolidated Net Income of the Lead Borrower
and its Subsidiaries on a Consolidated basis for
the most recently completed Measurement Period:          __________________

Plus the following, to extent deducted in calculating
such Consolidated Net Income:

(b)      Consolidated Interest Charges:                  __________________

Plus

(c)      the provision for Federal, state, local and foreign income
Taxes and franchise Taxes net of Federal, state, local
and foreign income tax credits:                  __________________

Plus

(d)      depreciation and amortization expense:              __________________

Plus



    
(e)      other non-recurring non-cash charges and non-cash charges
and expenses (including the cumulative effect of any
accounting changes), net of cash charges for such period
relating to non-recurring charges and expenses included in
the computation of Consolidated EBITDA for any prior
Measurement Period):                          __________________

(f)      Consolidated EBITDA [the sum of Line 1(a) through
Line 1(e)]:                              __________________

2.      Minus :

(a)      Capital Expenditures made during such Measurement
Period:                                  __________________

Plus

(b)      the aggregate amount of Federal, state, local and foreign
income Taxes and franchise Taxes paid in cash during such
Measurement Period:                          __________________

(c)      The sum of Lines 2(a) and 2(b):                  __________________

3.      CASH FLOW AVAILABLE FOR FIXED CHARGES
[Line 1(f) minus Line 2(c)]:                      __________________




4.      Debt Service Charges during such Measurement Period:

(a)      Consolidated Interest Charges paid or required
to be paid for such Measurement Period:              __________________

Plus

(b)      principal payments made or required to be made on account
of Indebtedness (excluding the Obligations and any
Synthetic Lease Obligations but including, without limitation,
Capital Lease Obligations) for such Measurement Period:      __________________

(c)      Debt Service Charges [The sum of Lines 4(a) and 4(b)]:      __________________

5.      Plus the following :

(a)      the aggregate amount of all Restricted Payments
during such Measurement Period:                  __________________

6.      FIXED CHARGES [The sum of Line 4(c) and Line 5(a)]:      __________________

7.      CONSOLIDATED FIXED CHARGE COVERAGE RATIO
[Line 3 divided by Line 6]:                  __________________




APPENDIX III
(Financial Statements)
[see attached]



APPENDIX IV
(GAAP)



[see attached]



APPENDIX V

(MD&A)


[see attached]





EXHIBIT E
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this “ Assignment and Assumption ”) is dated as of the Effective Date set forth below and is entered into by and between [the][each] For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. Assignor identified in item 1 below ([the][each, an] “ Assignor ”) and [the][each] For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language. Assignee identified in item 2 below ([the][each, an] “ Assignee ”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] Select as appropriate. hereunder are several and not joint.] Include bracketed language if there are either multiple Assignors or multiple Assignees. Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the “ Credit Agreement ”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor's][the respective Assignors'] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and the other Loan Documents to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including, without limitation, participations in L/C Obligations and Swing Line Loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable Law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other Loan Documents or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “ Assigned Interest ”). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.
1.      Assignor[s] :      ______________________________
______________________________

2.
Assignee[s] :      ______________________________
______________________________

3.
Borrowers :      The Kitchen Collection, Inc., a Delaware corporation, as Lead Borrower (the “ Lead Borrower ”) for itself and the other Borrowers party thereto from time to time (together with the Lead Borrower, individually, a “ Borrower ”, and collectively, the “ Borrowers ”).




4.
Administrative Agent : Wells Fargo Retail Finance, LLC, as the administrative agent under the Credit Agreement.

5.
Credit Agreement :      Credit Agreement, dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time), by and among (i) the Lead Borrower, (ii) the Borrowers, (iii) the Guarantors party thereto from time to time, (iv) the Lenders party thereto from time to time, and (v) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender.

6.      Assigned Interest[s] :




Assignor[s]  List each Assignor, as appropriate.



Assignee[s]  List each Assignee, as appropriate.
Facility Assigned  Fill in appropriate terminology for each applicable type of facility under the Credit Agreement that is being assigned under this Assignment, i.e., Revolving Loans.
Amount of Assignor's
Commitment /Loans  Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
Amount of
Commitment/ Loans
Assigned  Subject to minimum amount requirements pursuant to Section 10.06(b)(i) of the Credit Agreement and subject to proportionate amount requirements pursuant to Section 10.06(b)(ii) of the Credit Agreement.
Percentage
of Assignor's
Commitment/ Loans Assigned  Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
Resulting Commitment/Loans Amount for Assignor
Resulting Commitment/Loans Amount for Assignee
 
 
 
 
 
 
 
 
 
 
 
$_________
$______
_________%
$______
$_______
 
 
 
$_________
$______
_________%
$______
$_______
 
 
 
$_________
$______
_________%
$______
$_______
[7. Trade Date :__________________] To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.



Effective Date: __________________, 20__ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]

By: _____________________________
Name:
Title:

ASSIGNEE
[NAME OF ASSIGNEE]

By: _____________________________
Name:
Title:

[Consented to and] Accepted:

Wells fargo retail finance, llc, as
Administrative Agent

By: _________________________________
Name:
Title:

[Consented to:] To the extent required under Sections 10.06(b)(i)(B) and 10.06(b)(iii)(A) of the Credit Agreement.

THE KITCHEN COLLECTION, INC., as Lead Borrower

By: ________________________________
Name:
Title:



 




ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
Reference is made to the Credit Agreement dated as of April 29, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “ Credit Agreement ”), by and among (i) the Kitchen Collection, Inc., a Delaware corporation, as Lead Borrower (in such capacity, the “ Lead Borrower ”) for itself and the other Borrowers party thereto from time to time (together with the Lead Borrower, individually, a “ Borrower ”, and collectively, the “ Borrowers ”), (ii) the Borrowers, (iii) the Guarantors party thereto from time to time, (iv) the Lenders party thereto from time to time, and (v) Wells Fargo Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender.
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.      Representations and Warranties .
1.1.      Assignor . [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Loan Parties or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Loan Parties or any other Person of any of their respective obligations under any Loan Document.
1.2.      Assignee . [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an Eligible Assignee under the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent, Collateral Agent, or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, the Collateral Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance



with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2.      Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued up to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.
3.      General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York, without giving effect to principles of conflicts of laws thereof.
4.      Fees . Unless waived by the Administrative Agent in accordance with Section 10.06(b)(iv) of the Credit Agreement, this Assignment and Assumption shall be delivered to the Administrative Agent with a processing and recordation fee of $3,500.
5.      Delivery .      If the Assignee is not a Lender, the Assignee shall deliver to the Administrative Agent an Administrative Questionnaire.






EXHIBIT F

FORM OF DDA NOTIFICATION


PREPARE ON OBLIGOR LETTERHEAD - ONE FOR EACH DEPOSITORY

________, 2010


To:
[Name and Address of Bank]

Re:      [__________________________]
The Account Numbers referenced on Exhibit A annexed hereto

Dear Sir/Madam:

This letter relates to the Account Numbers referenced on Exhibit A annexed hereto and any other depository account(s) (collectively the “ Account ”) which The Kitchen Collection, Inc., a Delaware Corporation with offices at 71 East Water Street, Chillicothe, Ohio 45601 (the “ Obligor ”), now or hereafter maintains with you. The term “Account” shall also mean any certificates of deposit, investments, or other evidence of indebtedness heretofore or hereafter issued by you to or for the account of the Obligor.
Under various agreements by and between, among others, the Obligor and Wells Fargo Retail Finance, LLC, a Delaware limited liability company having an office at One Boston Place, 18 th Floor, Boston, Massachusetts 02108, as collateral agent (in such capacity, herein the “ Collateral Agent ”) for its own benefit and the benefit of a syndicate of lenders and certain other credit parties (the “ Credit Parties ”), the Obligor has granted to the Collateral Agent (for its own benefit and the benefit of the Credit Parties) security interests in and to, among other things, the Obligor's accounts, accounts receivable, inventory, and proceeds therefrom, including, without limitation, the proceeds now or hereafter deposited in the Account or evidenced thereby. Consequently, the present and all future contents of the Account constitute the Collateral Agent's collateral.
Subject to the immediately succeeding sentence, until you receive written notification from the Collateral Agent that the interest of the Collateral Agent and the other Credit Parties in the Account has been



terminated, all funds from time to time on deposit in the Account shall be transferred no less frequently than Monday and Friday of each week (or, in each case, on the next succeeding business day if any such Monday or Friday is not a business day) (or with such greater frequency as is necessary such that at no time is there a balance in the Account in excess of $5,000.00) only as follows:
(a)      By ACH, Depository Transfer Check, or Electronic Depository Transfer to:
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94104
ABA # xxx-xxx-xxx
Account No. xxxxxxx129
Account Name: The Kitchen Collection, Inc.
or
(b)      As you may be otherwise instructed from time to time in writing by an officer of the Collateral Agent.
Notwithstanding the foregoing, upon written notice from the Collateral Agent or the Obligor, all funds from time to time on deposit in the Account shall be transferred no less frequently than daily (net of the sum of (A) any minimum balance, not to exceed $2,500.00, as may be required to be kept in the Account by you, plus (B) other amounts received after 4:00 p.m. on any day of an ACH or wire transfer) in accordance with the instructions set forth in clauses (a) and (b) above.
Upon request of the Collateral Agent, a copy of each statement issued with respect to the Account should be provided to the Collateral Agent at the following addresses (which address may be changed upon seven (7) days' written notice given to you by the Collateral Agent):
Wells Fargo Retail Finance, LLC
One Boston Place, 18 th Floor
Boston, Massachusetts 02108
Attention: Mr. Cory Loftus
Re: The Kitchen Collection, Inc.

with a copy to:

Wells Fargo Bank, N.A.



2450 Colorado Avenue, Suite 3000 West
Santa Monica, California 90404
Attention: Treasury Department
Phone: (310) 453-7300
Re: The Kitchen Collection, Inc.

You shall be fully protected in acting on any order or direction by the Collateral Agent respecting the Accounts without making any inquiry whatsoever as to the Collateral Agent's right or authority to give such order or direction or as to the application of any payment made pursuant thereto. Nothing contained herein is intended to, nor shall it be deemed to, modify the rights and obligations of the Obligor and the Collateral Agent under the terms of the loan arrangement and the loan documents executed in connection therewith between, among others, the Obligor and the Collateral Agent.
This letter may be amended only by notice in writing signed by the Obligor and an officer of the Collateral Agent and may be terminated solely by written notice signed by an officer of the Collateral Agent.
[signature page follows]Very truly yours,


THE KITCHEN COLLECTION, INC., as Obligor


By:
___________________________
Name:
___________________________
Title:
___________________________


cc:      Wells Fargo Retail Finance, LLC





Exhibit A

Accounts
[see attached]





Exhibit 10.28
FIRST AMENDMENT TO CREDIT AGREEMENT

This First Amendment to Credit Agreement (the “ First Amendment ”) is made as of the 7 th day of August, 2012, by and among:

THE KITCHEN COLLECTION, LLC , an Ohio limited liability company (as successor by merger to The Kitchen Collection, Inc., a Delaware corporation), for itself and as Lead Borrower (in such capacity, the “Lead Borrower”) for the other Borrowers party thereto from time to time (together with the Lead Borrower, individually, a “ Borrower ”, and collectively, the “ Borrowers ”),

the BORROWERS party hereto,

the GUARANTORS party hereto,

the LENDERS party hereto, and

WELLS FARGO BANK, NATIONAL ASSOCIATION (as successor by merger to Wells Fargo Retail Finance, LLC), a national banking association having a place of business at One Boston Place, Boston, Massachusetts 02108, as Administrative Agent, Collateral Agent, and Swing Line Lender (in such capacity, the “ Agent ”).
 
in consideration of the mutual covenants herein contained and benefits to be derived herefrom.
WITNESSETH

WHEREAS, the Borrowers, the Guarantors, the Lenders, and the Agent, among others, have entered into a Credit Agreement dated as of April 29, 2010 (as amended and in effect, the “ Credit Agreement ”);

WHEREAS, the Borrowers, the Guarantors, the Agent and the Lenders have agreed to amend certain provisions of the Credit Agreement, on the terms and conditions set forth herein.

NOW THEREFORE, it is hereby agreed as follows:

1.
Defined Terms. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Credit Agreement, unless otherwise defined.
2.
Representations and Warranties . Each Loan Party hereby represents and warrants that after giving effect to this First Amendment, (i) no Default or Event of Default exists under the Credit Agreement or under any other Loan Document, and (ii) all representations and warranties contained in the Credit Agreement and in the other Loan Documents are true and correct in all material respects (except in the case of any representation or warranty qualified or modified by materiality, which is true and correct as so qualified or modified) as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date.




3.
Ratification of Loan Documents . The Credit Agreement, as hereby amended, and all other Loan Documents, are hereby ratified and re-affirmed in all respects and shall continue in full force and effect. Each Loan Party hereby ratifies, confirms, and reaffirms that the Collateral continues to secure all of the Obligations, as modified by this First Amendment.
4.
Amendments to Article I . The provisions of Article I of the Credit Agreement are hereby amended as follows:
a.
The definition of “ Applicable Margin ” is hereby deleted in its entirety and the following substituted in its stead:
“Applicable Margin” means: (a) as to any Base Rate Loan, one percent (1.00%) per annum, and (b) as to any LIBOR Rate Loan, two percent (2.00%) per annum.
b.
The definition of “ Change in Law ” is hereby deleted in its entirety and the following substituted in its stead:
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
c.
The definition of “ Commitment ” is hereby deleted in its entirety and the following substituted in its stead:
“Commitment” means, as to each Lender, its obligation to (a) make Committed Loans to the Borrowers pursuant to Section 2.01 , (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement, including, without limitation, Section 2.16 .
d.
The definition of “Excluded Taxes” is hereby amended by adding the following at the end thereof:




and (d) any U.S. federal withholding tax imposed under FATCA.
e.
The definition of “ Fee Letter ” is hereby deleted in its entirety and the following substituted in its stead:
“Fee Letter” means the letter agreement, dated April 29, 2010, as amended and restated by a letter agreement, dated August 7, 2012, among the Lead Borrower and the other Borrowers and the Administrative Agent, as such letter may from time to time be amended, restated, supplemented or otherwise modified.
f.
The definition of “ Maturity Date ” is hereby deleted in its entirety and the following substituted in its stead:
“Maturity Date” means August 7, 2017.
g.
The following new definitions are hereby added to the Credit Agreement in appropriate alphabetical order:
“FATCA” means current Section 1471 through 1474 of the Code or any amended version or successor provision that is substantively similar and, in each case, any regulations promulgated thereunder and any interpretation and other guidance issued in connection therewith.
“First Amendment Effective Date” means August 7, 2012.
h.
By deleting the definitions of “Adjustment Date”, “Adjusted Aggregate Commitments”, “Initial Increase”, “Initial Increase Effective Date” and “Initial Increase Request” in their entirety.
5.
Amendment to Article II .
a.
Section 2.09 of the Credit Agreement is hereby amended by deleting clauses (a) and (b) thereof in their entirety and by substituting the following in their stead:
(a)     Commitment Fee . The Borrowers shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to (i) prior to the First Amendment Effective Date, one-half of one percent (0.50%) per annum and (ii) after the First Amendment Effective Date, three-eighths of one percent (0.375%) per annum, times the actual daily amount by which the Aggregate Commitments exceed the sum of (i) the Outstanding Amount of Loans and (ii) the Outstanding Amount of L/C Obligations. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable monthly in arrears on the first day after the end of each month, commencing with the first such date to occur after the First Amendment Effective Date, and on the last day of the Availability Period. The commitment fee




shall be calculated monthly in arrears.
(b)     Early Termination Fee . In the event that the Termination Date occurs, for any reason, prior to the second anniversary of the First Amendment Effective Date, or in the event that the Borrowers reduce (but do not terminate) the Aggregate Commitments by an amount in excess of $10,000,000 prior to the second anniversary of the First Amendment Effective Date, the Borrowers shall pay to the Administrative Agent, for the ratable benefit of the Lenders, a fee (the “ Early Termination Fee ”) in respect of amounts which are or become payable by reason thereof equal to one percent (1.00%) of (i) in the case of the occurrence of the Termination Date, the Aggregate Commitments then in effect (without regard to any termination thereof), or (ii) in the case of a reduction of the Aggregate Commitments, the amount of such reduction in the Aggregate Commitments, as applicable. All parties to this Agreement agree and acknowledge that the Lenders will have suffered damages on account of the early termination of this Agreement or any portion of the Commitments and that, in view of the difficulty in ascertaining the amount of such damages, the Early Termination Fee constitutes reasonable compensation and liquidated damages to compensate the Lenders on account thereof.
b.
Section 2.15 of the Credit Agreement is hereby amended by deleting Section 2.15 thereof in its entirety and by substituting the following in its stead:
2.15     [Reserved.]
c.
Section 2.16 of the Credit Agreement is hereby amended by deleting clause (a) thereof in its entirety and by substituting the following in its stead:
(a)     Request for Additional Increase . Provided no Default then exists and is continuing or would arise therefrom, upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Lead Borrower may from time to time on or after the First Amendment Effective Date request an increase in the Aggregate Commitments (each, an “ Additional Increase ”) by an amount (for all such requests) not exceeding $10,000,000.00 (each such request, an “ Additional Increase Request ”); provided that (i) any such request for an increase shall be in a minimum amount of $2,000,000.00, and (ii) the Lead Borrower may make a maximum of three (3) such Additional Increase Requests. At the time of sending such notice, the Lead Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten (10) Business Days from the date of delivery of such notice to the Lenders).
d.
Section 2.17 of the Credit Agreement is hereby amended by deleting Section 2.17 thereof in its entirety and by substituting the following in its stead:
2.17     [Reserved.]
6.
Amendment to Article VI . Section 6.10 of the Credit Agreement is hereby amended by deleting clauses (a) and (b) thereof in their entirety and by substituting the following in their stead:




(a)    Permit representatives and independent contractors of the Administrative Agent to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and Registered Public Accounting Firm, and permit the Administrative Agent or professionals (including investment bankers, consultants, accountants, and lawyers) retained by the Administrative Agent to conduct evaluations of the Loan Parties’ business plan, forecasts and cash flows, all at the expense of the Loan Parties and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Lead Borrower; provided, however, that when an Event of Default exists the Administrative Agent (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Loan Parties at any time during normal business hours and without advance notice. The inspection rights pursuant to this Section 6.10(a) shall be in addition to the rights of the Administrative Agent pursuant to Section 6.10(b) and Section 6.15 .
(b)    Upon the request of the Administrative Agent after reasonable prior notice, permit the Administrative Agent or professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Administrative Agent to conduct appraisals, commercial finance examinations and other evaluations, including, without limitation, of (i) the Lead Borrower’s practices in the computation of the Borrowing Base and (ii) the assets included in the Borrowing Base and related financial information such as, but not limited to, sales, gross margins, payables, accruals and reserves. The Loan Parties shall pay the fees and expenses of the Administrative Agent and such professionals with respect to one (1) commercial finance examination and one (1) appraisal in each Fiscal Year; provided that if during any Fiscal Year, Availability shall be less than (i) for the months of December through September, forty percent (40%) of the Loan Cap or (ii) for the months of October and November, thirty-five percent (35%) of the Loan Cap, in each case for more than five (5) consecutive Business Days on two (2) occasions during such Fiscal Year, then the Loan Parties shall pay the fees and expenses of the Administrative Agent and such professionals with respect to two (2) inventory appraisals and two (2) commercial finance examinations during such Fiscal Year; provided further that if Availability shall be less than twenty five percent (25%) of the Loan Cap for more than five (5) consecutive Business Days on two (2) occasions during any Fiscal Year, then the Loan Parties shall pay the fees and expenses of the Administrative Agent and such professionals with respect to three (3) inventory appraisals and three (3) commercial finance examinations during such Fiscal Year. Notwithstanding the foregoing, the Administrative Agent may cause additional appraisals and commercial finance examinations to be undertaken (i) as it in its Permitted Discretion deems necessary or appropriate, at its own expense or, (ii) if required by applicable Law or if a Default shall have occurred and be continuing, at the expense of the Loan Parties.
7.
Amendment to Article VII . Section 7.15 of the Credit Agreement is hereby amended by deleting Section 7.15 thereof in its entirety and by substituting the following in its stead:
Minimum Availability . Permit Availability at any time to be less than the greater of (a) ten percent (10%) of the Loan Cap, or (b) $3,000,000.00.




8.
Amendment to Article X . Section 10.01 of the Credit Agreement is hereby amended by deleting clause (b) and (h) thereof in their entirety and by substituting the following in their stead:
(b)    as to any Lender, postpone any date fixed by this Agreement or any other Loan Document for (i) any scheduled payment (including the Maturity Date) or mandatory prepayment of principal, interest, fees or other amounts due hereunder or under any of the other Loan Documents without the written Consent of such Lender entitled to such payment, or (ii) any scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any other Loan Document without the written Consent of such Lender;
(h)     except as provided in Section 2.16 , increase the Aggregate Commitments without the written Consent of each Lender;
Amendments to Schedules to Credit Agreement . The Loan Parties represent and warrant that the information set forth in the other Schedules annexed to the Credit Agreement are true and complete in all respects as of the date hereof, except to the extent such information has been updated in accordance with the Schedules annexed hereto as Exhibit A .
9.
Amendment to Exhibits to Credit Agreement . The Exhibits to the Credit Agreement are hereby amended by deleting Exhibit H in its entirety therefrom and substituting in its stead the Exhibit H annexed hereto.
10.
Conditions to Effectiveness . This First Amendment shall not be effective until each of the following conditions precedent has been fulfilled to the satisfaction of (or waived by) the Agent:
a.
All action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan Parties of this First Amendment shall have been duly and effectively taken. The Agent shall have received from the Loan Parties true copies of their respective resolutions authorizing the transactions described herein, each certified by the secretary or other appropriate officer of such Loan Party to be true and complete.
b.
The Agent shall have received, in form and substance reasonably satisfactory to the Agent and duly executed by the Borrowers, a Note in favor of Wells Fargo and reflecting the Commitment of Wells Fargo after giving effect to this First Amendment.
c.
The Agent shall have received a favorable opinion of Jones Day LLP, counsel to the Loan Parties, addressed to the Agent and each other Lender, as to such matters concerning the Loan Parties, this First Amendment and the other Loan Documents as the Agent may reasonably request.
d.
The Borrowers shall have paid the fees set forth in the Fee Letter.
e.
No Default or Event of Default shall have occurred and be continuing.




f.
The Agent shall have received those instruments, documents and agreements described on the First Amendment Document Agenda annexed hereto.
11.
Miscellaneous .
a.
The Loan Parties shall reimburse the Agent for all Credit Party Expenses incurred by the Agent in connection herewith.
b.
This First Amendment may be executed in several counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Amendment and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all contemporaneous or previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page to this First Amendment by telecopy or other electronic transmission shall be effective as delivery of a manually executed counterpart of this First Amendment.
c.
This First Amendment and the Credit Agreement together shall constitute one agreement. This First Amendment and the Credit Agreement together express the entire understanding of the parties with respect to the matters set forth herein and supersede all prior discussions or negotiations hereon.
d.
The Loan Parties represent and warrant that they have consulted with independent legal counsel of their selection in connection with this First Amendment and are not relying on any representations or warranties of the Agent or the other Credit Parties or their respective counsel in entering into this First Amendment.
e.
If any provision of this First Amendment is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this First Amendment shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
f.
This First Amendment shall constitute a Loan Document for all purposes.
g.
THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS THEREOF.





IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed as of the date first above written.
 
 
THE KITCHEN COLLECTION, LLC,  an Ohio limited liability company (as successor by merger to The Kitchen Collection, Inc., a Delaware corporation), as Lead Borrower and as a Borrower
 
By:
/s/ Jan A. Kennedy, Jr.
 
Name:
Jan A. Kennedy, Jr.
 
Title:
Secretary and Treasurer

Signature Page to First Amendment to Credit Agreement





 
 
WELLS FARGO BANK, NATIONAL ASSOCIATION (as successor by merger to Wells Fargo Retail Finance, LLC), as Administrative Agent and Collateral Agent, as Swing Line Lender and as a Lender
 
By:
/s/ Michele L. Ayou
 
Name:
Michele L. Ayou
 
Title:
Authorized Agent


Signature Page to First Amendment to Credit Agreement




Exhibit A

Updated Schedules to Credit Agreement

[see attached]








SCHEDULE 2.01

Commitments and Applicable Percentages

Lender
Commitment
Applicable Percentage
Wells Fargo Bank, National Association
$30,000,000
100%
TOTAL
$30,000,000
100%






Schedule 10.02
Administrative Agent's Office; Certain Addresses for Notices

Administrative Agent's Office:

Wells Fargo Bank, National Association, as Administrative Agent
One Boston Place, 18th Floor
Boston, Massachusetts 02108
Attention:      Michele L. Ayou
Telephone:      (617) 854-7246
Facsimile:      (617) 523-4029
E-mail:      michele.l.ayou@wellsfargo.com


Certain Addresses for Notices:

1.
If to any Loan Party:
The Kitchen Collection, LLC
71 East Water Street
Chillicothe, Ohio 45601
Attention:      Jan A. Kennedy, Jr.
Telephone:      (740) 774-0662
Facsimile:           (740) 774-0762
E-mail:          ljkennedy@kitcol.com

with a copy to:

Jones Day LLP
North Point
901 Lakeside Avenue
Cleveland, OH 44114-1190
Attention:          Laura A. DeLong, Esq.
Telephone:      (216) 586-7471
Facsimile:           (216) 579-0212
E-mail:           ladelong@jonesday.com


2.
If to the Administrative Agent, the Collateral Agent, the L/C Issuer or the Swing Line Lender:
Wells Fargo Bank, National Association, as Administrative Agent
One Boston Place, 18th Floor
Boston, Massachusetts 02108
Attention:      Michele L. Ayou
Telephone:      (617) 854-7246
Facsimile:      (617) 523-4029




E-mail:      michele.l.ayou@wellsfargo.com


with a copy to:

Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention:          David S. Berman, Esq.
Telephone:      (617) 523-9000
Facsimile:           (617) 880-3456
E-mail:           dberman@riemerlaw.com



Lead Borrower's Website:

http://www.kitchencollection.com





Exhibit H

Updated Form of Borrowing Base Certificate








Exhibit 31(i)(1)

Certifications

I, Alfred M. Rankin, Jr., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of NACCO Industries, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:
November 1, 2012
/s/ Alfred M. Rankin, Jr.
 
 
 
Alfred M. Rankin, Jr.
 
 
 
Chairman, President and Chief Executive Officer (Principal Executive Officer)
 





Exhibit 31(i)(2)

Certifications

I, J.C. Butler, Jr., c ertify that:

1.
I have reviewed this quarterly report on Form 10-Q of NACCO Industries, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:
November 1, 2012
/s/ J.C. Butler, Jr.
 
 
 
J.C. Butler, Jr.
 
 
 
Senior Vice President, Finance, Treasurer and Chief Administrative Officer (Principal Financial Officer)
 





Exhibit 32



CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Quarterly Report of NACCO Industries, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2012 , as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.


Date:
November 1, 2012
/s/ Alfred M. Rankin, Jr.
 
 
 
Alfred M. Rankin, Jr.
 
 
 
Chairman, President and Chief Executive Officer (Principal Executive Officer)
 


Date:
November 1, 2012
/s/ J.C. Butler, Jr.
 
 
 
J.C. Butler, Jr.
 
 
 
Senior Vice President, Finance, Treasurer and Chief Administrative Officer (Principal Financial Officer)
 





Exhibit 95

MINE SAFETY DISCLOSURES

NACCO Industries, Inc. and its wholly owned subsidiaries (the “Company”) believes that The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) is an industry leader in safety. NACoal has health and safety programs in place that include extensive employee training, accident prevention, workplace inspection, emergency response, accident investigation, regulatory compliance and program auditing. The objectives for NACoal's programs are to eliminate workplace incidents, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a coal or other mine is required to include certain mine safety results in its periodic reports filed with the Securities and Exchange Commission. The operation of NACoal's mines is subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). MSHA inspects NACoal's mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. The Company has presented information below regarding certain mining safety and health matters for NACoal's mining operations for the quarter ended September 30, 2012 . In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and from mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes vacated.

During the quarter ended September 30, 2012 , neither NACoal's current mining operations nor Bellaire's closed mines: (i) were assessed any Mine Act section 104(b) orders for alleged failure to totally abate the subject matter of a Mine Act section 104(a) citation within the period specified in the citation; (ii) were assessed any Mine Act section 104(d) citations or orders for an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence) to comply with a mining safety standard or regulation; (iii) were assessed any Mine Act section 110(b)(2) penalties for failure to correct the subject matter of a Mine Act section 104(a) citation within the specified time period, which failure was deemed flagrant (i.e., reckless or repeated failure to make reasonable efforts to eliminate a known violation that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury); (iv) received any Mine Act section 107(a) imminent danger orders to immediately remove miners; or (v) received any MSHA written notices under Mine Act section 104(e) of a pattern of violation of mandatory health or safety standards or of the potential to have such a pattern. In addition, there were no fatalities at NACoal's mining operations or Bellaire's closed mines during the quarter ended September 30, 2012 .







The following table sets forth the total number of specific citations and orders, the total dollar value of the proposed civil penalty assessments that were issued by MSHA, the total number of legal actions initiated and resolved before the Federal Mine Safety and Health Review Commission ("FMSHRC") during the quarter ended September 30, 2012 , and the total number of legal actions pending before the FMSHRC at September 30, 2012 , pursuant to the Mine Act, by individual mine at NACoal:
Name of Mine or Quarry (1)
 
Mine Act Section 104 Significant & Substantial Citations (2)(3)
 
Total Dollar Value of Proposed MSHA Assessments
 
Number of Legal Actions Initiated before the FMSHRC for the quarter ended at September 30, 2012
 
Number of Legal Actions Resolved before the FMSHRC for the quarter ended at September 30, 2012
 
Number of Legal Actions Pending before the FMSHRC at September 30, 2012 (4)
 
 
 
 
 
 
 
 
 
 
 
MLMC (Red Hills Mine)
 

 

 

 

 

Coteau (Freedom Mine)
 

 

 

 

 

Falkirk (Falkirk Mine)
 

 

 

 

 

Sabine (South Hallsville No. 1 Mine)
 
1

 

 

 

 
1

Demery (Five Forks Mine)
 

 

 

 

 

Caddo Creek (Marshall Mine)
 

 

 

 

 

Camino Real (Eagle Pass Mine)
 

 

 

 

 

Liberty (Liberty Mine)
 

 

 

 

 

Reed Minerals:
 
 
 
 
 
 
 
 
 
 
Fishtrap Mine
 

 

 

 

 

Jap Creek Mine
 

 

 

 

 

Burton Bend Mine
 

 

 

 

 

Lindbergh Mine
 

 

 

 

 

Florida Limerock Operations:
 
 
 
 
 
 
 
 
 
 
White Rock Quarry - North
 

 

 

 

 

White Rock Quarry - South
 

 

 

 

 

Krome Quarry
 

 

 

 

 

Alico Quarry
 

 

 

 

 

FEC Quarry
 

 

 

 

 

SCL Quarry
 

 

 

 

 

Card Sound Quarry
 

 

 

 

 

Pennsuco Quarry
 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Total
 
1

 
$

 

 

 
1


(1) Bellaire's closed mines are not included in the table above and did not receive any of the indicated citations.
(2) Mine Act section 104(a) significant and substantial citations are for alleged violations of a mining safety standard or regulation where there exists a reasonable likelihood that the hazard contributed to or will result in an injury or illness of a reasonably serious nature.
(3)
Proposed penalties related to this citation at Sabine have not yet been assessed.
(4) Sabine is contesting a citation received in 2012 and the $687 proposed penalty related to this citation. The parties involved have been ordered to enter into settlement discussion before a hearing will be scheduled before the FMSHRC.