UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): January 12, 2015

 

 

SUNCOKE ENERGY PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001- 35782   35-2451470
(State of Incorporation)   (Commission File Number)   (IRS Employer Identification No.)

 

1011 Warrenville Road, Suite 600  
Lisle, Illinois   60532
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: (630) 824-1000

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01. Entry into a Material Definitive Agreement.

Contribution Agreement

On January 12, 2015, SunCoke Energy Partners, L.P. (the “Partnership”), SunCoke Energy, Inc. (“SunCoke”), Sun Coal & Coke LLC (“Sun Coal & Coke”) and Gateway Energy & Coke Company, LLC (“Gateway”) entered into a contribution agreement (the “Contribution Agreement”), pursuant to which the Partnership agreed to acquire a 75 percent limited liability company membership interest in Gateway (the “Gateway Transaction”) in exchange for a total transaction value of approximately $245.0 million. The Gateway Transaction is expected to close on January 13, 2015, subject to customary closing conditions. Gateway owns and operates a 120-oven cokemaking facility, located on 41 acres in Granite City, Illinois, adjacent to United States Steel Corporation’s (“US Steel”) Granite City Works.

In connection with the Contribution Agreement, the Partnership intends to issue approximately $50.6 million of common units to Sun Coal & Coke and approximately $1.0 million of general partner interests to SunCoke Energy Partners GP LLC, its general partner (the “General Partner”), to maintain the General Partner’s 2% general partner interest in the Partnership. In addition, the Partnership plans to assume and repay approximately $135.0 million principal amount of the outstanding $240.0 million principal amount of SunCoke’s 7.625% senior unsecured notes due August 2019 (the “SunCoke 2019 Notes”), and expects to pay approximately $5.6 million of accrued but unpaid interest on these notes to the date of redemption plus the applicable redemption premium of approximately $7.7 million.

SunCoke has agreed that, at the Partnership’s direction, it will exercise its right to optionally redeem the SunCoke 2019 Notes, and the Partnership expects that settlement of such redemption will occur approximately 30 days after the Partnership’s assumption of the SunCoke 2019 Notes. The Partnership will be responsible for certain transaction costs in connection with the redemption of the SunCoke 2019 Notes, including payment of accrued but unpaid interest up to the date of redemption. The Partnership expects to fund the redemption of the SunCoke 2019 Notes with net proceeds from a private placement of $200 million principal amount of its 7.375% Senior Notes due 2020.

The foregoing description of the Contribution Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the Contribution Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K.

Coke Sales and Feed Water Processing Agreement

In connection with the Gateway Transaction, Gateway, Gateway Cogeneration Company LLC (“Gateway Cogeneration”) and US Steel entered into the Third Amendment to the Coke Sale and Feed Water Processing Agreement (the “Coke Sales Agreement”) to, among other things, add Gateway Cogeneration as a party. Under the Coke Sales Agreement, which runs through 2025 (with a five-year renewal at the option of US Steel), US Steel is required to purchase, on a “take-or-pay” basis, substantially all of the coke produced by the Gateway facility. The Gateway cokemaking facility has the capacity to produce approximately 650,000 tons of coke per year and delivers coke directly to the nearby US Steel blast furnace on a conveyor belt. Under the Coke Sales Agreement, the price per ton of coke includes the following components:

 

    a coal cost component (including transportation and blending services), adjusted to account for all coal consumed during coke production;

 

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    an operating cost component which includes the expected costs of operating the Gateway cokemaking facility and which, under certain circumstances, provides for the sharing of operating cost overages and savings;

 

    a fixed cost component; and

 

    a tax component which includes taxes related to the purchase of coke from Gateway and net property taxes attributable to the Gateway cokemaking facility.

US Steel is entitled to receive a portion of the realized value of certain applicable nonconventional fuels tax credits, to the extent such credits are available. In addition, US Steel is obligated to reimburse Gateway for a portion of government-mandated additional expenditures under certain circumstances.

Under the Coke Sales Agreement, US Steel is entitled to designate a member of a “coal committee,” which selects the coal blends used to produce coke at the Gateway cokemaking facility. Substantially all of the metallurgical coal requirements for the Gateway cokemaking facility are purchased from third-party suppliers pursuant to one- to two-year agreements. Purchased coal is delivered by rail or barge operators under short-term agreements to a nearby coal terminal and blending facility owned by a third-party. The individual coals are then blended by the terminal owner and delivered to the Gateway cokemaking facility by truck. The coal handling, blending and coal blend transportation services are provided by the third party terminal owner under a long-term agreement with the same initial term as the Coke Sales Agreement and subject to Gateway’s option to renew the agreement for subsequent five-year terms.

Using the flue gases and waste heat from the coke ovens, Gateway Cogeneration also produces over 500,000 pounds per hour of superheated steam, which US Steel is obligated to purchase under the Coke Sales Agreement. This steam is delivered to US Steel’s adjacent electrical cogeneration facility, which provides a source of electrical power for US Steel’s operations.

 

Item 7.01. Regulation FD Disclosure.

On January 13, 2015, the Partnership announced that it executed the Contribution Agreement. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

On January 13, 2015, the Partnership also announced that it commenced a private placement of $200 million principal amount of its 7.375% Senior Notes due 2020 (the “Notes Offering”). A copy of the press release is furnished as Exhibit 99.2 to this Current Report on Form 8-K.

Omnibus Agreement Amendment

Simultaneously with the closing of the Gateway Transaction, the Partnership, the General Partner and SunCoke will amend the Omnibus Agreement (as defined in the Contribution Agreement). Under the amended Omnibus Agreement, SunCoke will indemnify the Partnership for known remediation costs arising from environmental matters discovered and identified as requiring remediation prior to the closing of the Gateway Transaction, except for any liability or increase in liability as a result of changes in environmental regulations.

If, prior to the fifth anniversary of the Partnership’s initial public offering, an environmental matter that was discovered either before or after the closing of the Gateway Transaction is identified as requiring remediation, SunCoke will indemnify the Partnership for such remediation costs, except for any liability or increase in liability resulting from changes in environmental regulations; provided, however, that the Partnership must bear the first $5 million of such remediation costs, and SunCoke’s liability for such currently unknown remediation costs will not exceed $50 million.

Following the Gateway Transaction, the Partnership will indemnify SunCoke for events relating to the Partnership’s operations except to the extent that the Partnership is entitled to indemnification by SunCoke. SunCoke will fully indemnify the Partnership with respect to any tax liability arising prior to or

 

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in connection with the closing of the Gateway Transaction. SunCoke will either cure or fully indemnify the Partnership for losses resulting from material title defects at the properties owned by Gateway or Gateway Cogeneration, to the extent that such defects interfere with, or could reasonably be expected to interfere with, the operations of the Gateway cokemaking facility.

In addition, under the amended Omnibus Agreement, until the fifth anniversary of the Partnership’s initial public offering, SunCoke will make the Partnership whole, in certain circumstances, to the extent a customer of Gateway fails to satisfy its purchase and payment obligations pursuant to a coke sales agreement in effect as of the closing of the Gateway Transaction, or to the extent any such customer obligations are reduced.

Preliminary Fourth Quarter and Year End Financial and Operating Results

For Regulation FD purposes, in connection with the Notes Offering, the Partnership wishes to disclose the summary preliminary financial information and operating data set forth below, which is contained in the Offering Memorandum for the Notes Offering.

The Partnership has not yet finalized its financial statements for the three months and year ended December 31, 2014. In connection with the completion of these activities, the Partnership may identify items that would require the Partnership to make adjustments to its preliminary estimates that are set forth below.

The Partnership has prepared these estimates in good faith based upon our internal reporting as of and for the three months ended December 31, 2014. Given the timing of these estimates, the Partnership has not completed its customary quarterly close and review procedures as of and for the three months and year ended December 31, 2014, and there can be no assurance that the Partnership’s final results for these periods will not differ from these estimates. During the course of the preparation of the consolidated financial statements and related notes as of and for the three months and year ended December 31, 2014, the Partnership may identify items that could cause the final reported results to be materially different from the preliminary estimates presented herein. The Partnership’s independent registered public accounting firm has not performed review procedures with respect to the summary preliminary financial data set forth below, nor have they expressed any opinion or provided any other form of assurance on the data. This summary is not intended to be a comprehensive statement of the Partnership’s audited financial results for this period.

2014 Estimated Adjusted EBITDA

 

     2014E  
(Dollars in millions, except production data)    Low      High  

Adjusted EBITDA

     

SXCP

   $ 145       $ 151   

Granite City

     35         40   

SXCP Reconciliation of 2014 Expected EBITDA

 

     2014E  
     Low     High  

Net Income

   $ 59      $ 70   

Depreciation and amortization expense

     43        41   

Interest expense, net

     42        39   

Income tax expense

     1        1   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 145      $ 151   

Adjusted EBITDA attributable to noncontrolling interest (1)

     (19     (19
  

 

 

   

 

 

 

Adjusted EBITDA attributable to SXCP

   $ 126      $ 132   

Less:

    

Ongoing capex (SXCP share)

     (15     (15

Replacement capex accrual

     (5     (5

Cash interest accrual

     (23     (23
  

 

 

   

 

 

 

Distributable cash flow

   $ 83      $ 89   
  

 

 

   

 

 

 

 

(1) Adjusted EBITDA attributable to noncontrolling interest represents SunCoke’s 35% interest in Haverhill and Middletown’s Adjusted EBITDA for January 1 - May 9, 2014 and its 2% interest in these facilities projected Adjusted EBITDA for May 10 - December 31, 2014.

Granite City Reconciliation of 2014 Expected EBITDA (1)

 

     2014E*  
     Low      High  

Net Income

   $ 13       $ 16   

Depreciation and amortization expense

     14         14   

Interest expense, net

     —           —     

Income tax expense

     8         10   
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 35       $ 40   

 

     Year Ended December 31,      Three Months Ended
December 31,
 
         2014E          2013              2014E          2013      

On-Going Capital Expenditures (100%):

           

SXCP

   $ 17.4       $ 14.2       $ 3.3       $ 7.7   

Granite City

     3.8         4.2         1.0         2.6   

Coke Production Data (thousands of tons):

           

SXCP

     1,746         1,790         452         445   

Granite City

     689         686         177         172   

 

(1) Adjusted EBITDA, on-going capital expenditures and coke production is stated at 100%.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements and information in this Current Report on Form 8-K may constitute “forward-looking statements.” Forward-looking statements include all statements that are not historical facts and may be identified by the use of such words as “believe,” “expect,” “plan,” “project,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions. Forward-looking statements are inherently uncertain and involve significant known and unknown risks and uncertainties (many of which are beyond the control of the Company) that could cause actual results to differ materially. These forward-looking statements include, without limitation, satisfaction of the conditions to the closing of the Gateway Transaction and the possibility that the Gateway Transaction will not close; timing of the completion of the proposed Gateway Transaction; and the Partnership’s plans for financing the Gateway Transaction. These forward-looking statements are based on the Partnership’s current expectations and beliefs concerning future developments and their potential effect on the Partnership. While the Partnership believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Partnership will be those that the Partnership currently anticipates. All subsequent written and oral forward-looking statements concerning the Partnership, the General Partner Gateway, the proposed transactions or other matters, and attributable to the Partnership, the General Partner or Gateway or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. The Partnership undertakes no

 

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obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

 

Item 8.01 Other Events.

The unaudited pro forma combined financial statements of the Partnership reflecting the Gateway Transaction are file as Exhibit 99.3 to this Current Report on Form 8-K and incorporated by reference into this Item 8.01.

 

Item 9.01 Financial Statements and Exhibits.

 

  (d) Exhibits

 

Exhibit
No.

  

Description

2.1*    Contribution Agreement, dated January 12, 2015, by and among Sun Coal & Coke LLC, SunCoke Energy Partners, L.P., SunCoke Energy Inc. and agreed to for purposes of Section 2.9 thereof by Gateway Energy & Coke Company, LLC
23.1    Consent of Ernst & Young LLP
99.1    Press Release dated January 13, 2015
99.2    Press Release dated January 13, 2015
99.3    Unaudited Pro Forma Combined Financial Statements of SunCoke Energy Partners, L.P.
99.4    Gateway Energy & Coke Company, LLC Audited Financial Statements
99.5    Gateway Energy & Coke Company, LLC Financial Statements (Unaudited)

 

* The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Partnership will furnish copies of such schedules to the Securities and Exchange Commission upon request.

 

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SIGNATURES

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

 

SUNCOKE ENERGY PARTNERS, L.P.

By: SunCoke Energy Partners GP LLC,

its General Partner

By:   /s/ Fay West
 

Fay West

Senior Vice President and

Chief Financial Officer

Date: January 13, 2015

 

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EXHIBIT INDEX

 

Exhibit
No.

  

Description

2.1*    Contribution Agreement, dated January 12, 2015, by and among Sun Coal & Coke LLC, SunCoke Energy Partners, L.P., SunCoke Energy Inc. and agreed to for purposes of Section 2.9 thereof by Gateway Energy & Coke Company, LLC
23.1    Consent of Ernst & Young LLP
99.1    Press Release dated January 13, 2015
99.2    Press Release dated January 13, 2015
99.3    Unaudited Pro Forma Combined Financial Statements of SunCoke Energy Partners, L.P.
99.4    Gateway Energy & Coke Company, LLC Audited Financial Statements
99.5    Gateway Energy & Coke Company, LLC Financial Statements (Unaudited)

 

* The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Partnership will furnish copies of such schedules to the Securities and Exchange Commission upon request.

 

7

Exhibit 2.1

Execution Version

CONTRIBUTION AGREEMENT

by and among

SUN COAL & COKE LLC

SUNCOKE ENERGY PARTNERS, L.P.

and

SUNCOKE ENERGY INC.

and agreed to for purposes of Section 2.9 hereof by

GATEWAY ENERGY & COKE COMPANY, LLC

Dated January 12, 2015


TABLE OF CONTENTS

 

ARTICLE I  
DEFINITIONS   

Section 1.1

  

Definitions

     1   

Section 1.2

  

Headings

     9   
ARTICLE II   
CONTRIBUTION OF INTERESTS   

Section 2.1

  

Transfer of Gateway Interest

     9   

Section 2.2

  

Consideration

     9   

Section 2.3

  

Other Transaction Costs and Expenses

     10   

Section 2.4

  

Registration

     10   

Section 2.5

  

Delivery of Title

     10   

Section 2.6

  

Federal Income Tax Treatment

     10   

Section 2.7

  

Amendment to Omnibus Agreement

     11   

Section 2.8

  

SunCoke Obligations

     11   

Section 2.9

  

Acquisition of Subsequent Gateway Interest

     11   
ARTICLE III   
THE CLOSING   

Section 3.1

  

Closing

     11   

Section 3.2

  

Deliverables by SC&C and SunCoke

     11   

Section 3.3

  

Deliverables by SXCP

     12   
ARTICLE IV   
REPRESENTATIONS AND WARRANTIES OF SC&C AND SUNCOKE   

Section 4.1

  

Organization and Good Standing

     13   

Section 4.2

  

Due Authorization

     13   

Section 4.3

  

No Consents

     14   

Section 4.4

  

No Conflict

     14   

Section 4.5

  

Title to Gateway Contributed Interest

     15   

Section 4.6

  

Securities Representations

     16   

Section 4.7

  

SunCoke Credit Agreement and Indenture Representations and Warranties

     16   

Section 4.8

  

Laws and Regulations; Litigation

     17   

Section 4.9

  

Environmental Matters

     17   

Section 4.10

  

Operating Assets and Real Property

     18   

Section 4.11

  

Permits

     20   

Section 4.12

  

Insurance

     20   

Section 4.13

  

Brokerage Arrangements

     21   

Section 4.14

  

Taxes

     21   

Section 4.15

  

Financial Statements

     21   

Section 4.16

  

Material Contracts

     22   

Section 4.17

  

No Adverse Changes

     23   

Section 4.18

  

Management Projections and Disclosure

     24   

Section 4.19

  

Suppliers and Customers

     24   

 

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Section 4.20   

Indebtedness

     25   
Section 4.21   

Absence of Undisclosed Liabilities

     25   
Section 4.22   

Labor Matters

     25   
Section 4.23   

Employee Benefits Matters

     26   
Section 4.24   

No Other Representations or Warranties; Schedules

     27   
ARTICLE V   
REPRESENTATIONS AND WARRANTIES OF SXCP   
Section 5.1   

Organization and Good Standing

     27   
Section 5.2   

Due Authorization

     27   
Section 5.3   

No Consent

     27   
Section 5.4   

Title to Common Units and GP Interest

     27   
Section 5.5   

No Other Representations or Warranties; Schedules

     28   
ARTICLE VI   
COVENANTS   
Section 6.1   

Conduct of the Business

     28   
Section 6.2   

Financial Statements; Financing Cooperation

     30   
Section 6.3   

Access

     30   
Section 6.4   

Post-Closing Receivables and Payments

     30   
Section 6.5   

Further Assurances

     30   
Section 6.6   

Tax Covenants

     31   
Section 6.7   

Consents

     32   
Section 6.8   

Permits

     33   
Section 6.9   

Employee Benefits Matters

     33   
ARTICLE VII   
CONSUMMATION OF THE CLOSING   
Section 7.1   

Conditions Precedent to Each Party’s Obligations to Closing

     33   
Section 7.2   

Conditions Precedent to Obligations of SXCP

     34   
Section 7.3   

Conditions Precedent to Obligations of SC&C

     34   
ARTICLE VIII   
NO COMMISSION; SURVIVAL; INDEMNIFICATION   
Section 8.1   

No Fees or Commissions

     35   
Section 8.2   

No Expiration

     35   
Section 8.3   

Breaches by SXCP

     35   
Section 8.4   

Breaches by SC&C or Suncoke

     35   
Section 8.5   

Redemption of Notes

     35   
ARTICLE IX   
NOTICES   
Section 9.1   

Notices

     36   

 

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ARTICLE X  
GENERAL   

Section 10.1

  

Expenses

     36   

Section 10.2

  

Assignment/Successors and Assigns

     36   

Section 10.3

  

Governing Law

     36   

Section 10.4

  

Further Assurances

     36   

Section 10.5

  

Public Notices

     37   

Section 10.6

  

Counterparts

     37   

Section 10.7

  

Amendment and Termination

     37   

EXHIBITS

 

Exhibit A    Form of Assignment Agreement
Exhibit B    Form of Assumption Agreement
Exhibit C    Gateway Coke Sales Agreement Amendment
Exhibit D    Form of Omnibus Agreement Amendment
Exhibit E    Form of Restated Operating Company Agreement

SCHEDULES

 

Schedule 1.1(a)    Contributing Parties’ Knowledge
Schedule 4.3    Consents
Schedule 4.4    No Conflict
Schedule 4.5(b)    Title to Gateway Contributed Interest
Schedule 4.8    Laws and Regulations; Litigation
Schedule 4.10(b)    Real Property
Schedule 4.10(c)    Title to Real Property
Schedule 4.10(d)    Permitted Liens
Schedule 4.10(h)    Third-Party Rights to Real Property
Schedule 4.10(m)    Pending or Threatened Changes to Zoning; Notices of Violation
Schedule 4.10(n)    Exceptions to Required Rights
Schedule 4.10(o)    Exceptions to Leased Tangible Personal Property
Schedule 4.14(c)    Tax Returns
Schedule 4.14(d)    Taxes with respect to Operating Company
Schedule 4.16(a)    Material Contracts
Schedule 4.17    No Adverse Changes
Schedule 4.19(b)    Significant Suppliers
Schedule 4.23(c)    Employee Benefit Plan

 

Page iii


CONTRIBUTION AGREEMENT

This Contribution Agreement is made effective as of January 12, 2015 by and among SUN COAL & COKE LLC, a Delaware limited liability company and wholly owned subsidiary of SUNCOKE ENERGY, INC., having an office at 1011 Warrenville Road, Suite 600, Lisle, IL 60532 (“ SC&C ”), SUNCOKE ENERGY PARTNERS, L.P., a Delaware limited partnership having an office at 1011 Warrenville Road, Suite 600, Lisle, IL 60532 (“ SXCP ”), and SUNCOKE ENERGY, INC., a Delaware corporation having an office at 1011 Warrenville Road, Suite 600, Lisle, IL 60532 (“ SunCoke ”), and is agreed to for purposes of Section 2.9 hereof by Gateway Energy & Coke Company, LLC, a Delaware limited liability company having an office at 1011 Warrenville Road, Suite 600, Lisle, IL 60532 (the “ Operating Company ”).

WHEREAS , SC&C owns the one hundred percent (100.0%) of the Gateway Interest; and

WHEREAS , SunCoke intends to cause SC&C to contribute 71.01% of the Gateway Interest (the “ Initial Gateway Interest ”) to SXCP (a portion of which is contributed on behalf of the General Partner) and, in exchange therefor, SXCP will issue to SC&C a number of common units representing limited partner interests in SXCP (the “ Common Units ”) and issue to the General Partner a number of general partner units representing general partner interests in SXCP (the “ GP Units ”); and

WHEREAS , SXCP will assume responsibility for certain transaction costs and other expenses, as contemplated herein, and following Closing, the Operating Company will issue an additional 3.99% Gateway Interest (the “ Subsequent Gateway Interest ”) to SXCP in exchange for a capital contribution from SXCP in the amount of $45,000,000, which together with the Initial Gateway Interest, will equal 75% of the Gateway Interest (the “ Gateway Contributed Interest ”), on the terms and conditions set forth herein.

NOW , THEREFORE , the Parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions .

Act ” means the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101, et seq ., as amended from time to time;

Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with, such specified Person through one or more intermediaries or otherwise; provided , however , that (a) with respect to SC&C and SunCoke, the term “Affiliate” shall not include any member of SXCP Group, (b) with respect to SXCP Group, the term “Affiliate” shall exclude SC&C and SunCoke and their Affiliates, and (c) the Operating Company shall be deemed to be an Affiliate of SC&C and SunCoke (and not of any member of SXCP Group) before the Closing Date and an Affiliate of SXCP Group (and not of SC&C or SunCoke) on and after the Closing Date;

 

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Agreement ” means this Contribution Agreement;

Assignment Agreement ” means an agreement by and between SXCP and SC&C in the form attached as Exhibit A hereto, whereby SC&C assigns the Initial Gateway Interest to SXCP, and SXCP is admitted to the Operating Company as a member of the Operating Company.

Assumption Agreement ” means an agreement by and between SXCP and SunCoke in the form attached as Exhibit B hereto, whereby SXCP agrees to assume the payment obligations with regard to the principal amount of certain of SunCoke’s senior unsecured long-term debt specified therein;

Audited Financial Statements ” has the meaning set forth in Section 4.15(a);

Balance Sheet Date ” has the meaning set forth in Section 4.15(a);

Business ” means the manufacture and sale of metallurgical coke and the production and sale of superheated steam, as conducted by the Operating Company and by Gateway Cogeneration, respectively, on the date of this Agreement;

Business Day ” means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close;

Business Permits ” has the meaning set forth in Section 4.11;

Closing ” means the closing of the contribution of the Initial Gateway Interest on the Closing Date, at the offices of SXCP;

Closing Date ” means the Business Day on which the Closing occurs;

Code ” means the Internal Revenue Code of 1986, as amended;

Commission ” means the United States Securities and Exchange Commission.

Common Unit Portion ” shall have the meaning ascribed to such term in Section 2.2(a) hereof;

Common Units ” shall have the meaning ascribed to such term in the foregoing recitals to this Agreement;

Consent ” has the meaning set forth in Section 4.3.

Consideration ” shall have the meaning ascribed to such term in Section 2.2 hereof;

Contract ” means any contract, commitment, instrument, undertaking, lease, sublease, note, mortgage, conditional sales contract, license, sublicense, franchise agreement, indenture, settlement, Permit or other legally binding agreement, whether written or oral;

Contributing Parties’ Knowledge ” and any variations thereof or words to the same effect means the actual knowledge of the persons set forth on Schedule 1.1(a) , after due inquiry.

 

Page 2 of 37


For purposes of the foregoing definition, “due inquiry” shall mean (i) a reasonable investigation of documents in the files of SC&C, SunCoke and their Affiliates and (ii) reasonable inquiry of those employees of, or Persons performing similar functions for, SC&C, SunCoke or their Affiliates, who have responsibility for the matter as to which a particular representation or warranty relates;

Control ” means, where used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “ Controlling ” and “ Controlled ” have correlative meanings;

Damages ” means any and all damages (including exemplary damages and penalties), losses, deficiencies, costs, expenses, obligations, fines, expenditures, claims and liabilities, including court costs and reasonable attorneys’, accountants’ and other experts’ fees and expenses of investigation, defending and prosecuting Litigation;

Debt ” means (a) any indebtedness or other obligation for borrowed money; (b) any indebtedness evidenced by any note, bond, debenture or other security or similar instrument; (c) any Liabilities for the deferred purchase price of property or other assets (including any “earn-out” or similar payments) (other than trade account payables incurred in the ordinary course of business consistent with past practice); (d) any Liabilities in respect of any lease of real or personal property (or a combination thereof), which Liabilities are required to be classified and accounted for under U.S. generally accepted accounting principles as capital leases (other than truck leases and leases for equipment); (e) any accrued interest, premiums, termination payments, penalties, “breakage costs,” redemption fees, make-whole payments and other obligations relating to the foregoing; and (f) any guarantee of indebtedness referred to in clauses (a) through (e);

Environmental Laws ” means any and all applicable federal, state and local Laws and other legally enforceable requirements and rules of common law relating to the prevention of pollution or protection of human health, safety, natural resources or the environment or imposing liability or standards of conduct concerning any presence, handling, disposal or other release, or transportation of, or exposure to, Hazardous Materials;

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended;

Financial Advisor ” means Tudor, Pickering, Holt & Co. Advisors, LLC, financial advisor to the SXCP Conflicts Committee;

Financial Statements ” has the meaning set forth in Section 4.15(a);

Fundamental Representations ” means the representations and warranties of SC&C or SunCoke set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 and 4.15;

Gateway Coke Sales Agreement ” shall mean and refer to that certain Coke Sale and Feed Water Processing Agreement, dated as of February 28, 2008, by and between the Operating Company and US Steel, as amended by Amendment No. 1 thereto, dated as of November 1, 2010, and as further amended by Amendment No. 2 thereto, dated as of July 6, 2011 (as the same now exists or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced);

 

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Gateway Coke Sales Agreement Amendment ” shall mean and refer to the Amendment to the Gateway Coke Sales Agreement in the form attached hereto as Exhibit C ;

Gateway Cogeneration ” means Gateway Cogeneration Company, LLC, a Delaware limited liability company;

Gateway Contributed Interest ” shall have the meaning ascribed to such term in the foregoing recitals to this Agreement;

Gateway Interest ” means the limited liability company interests in the Operating Company;

General Partner ” means SunCoke Energy Partners GP LLC, a Delaware limited liability company and the general partner of SXCP;

General Partner Interest ” has the meaning set forth in the First Amended and Restated Agreement of Limited Partnership of SXCP;

GP Interest Portion ” shall have the meaning ascribed to such term in Section 2.2(b) hereof;

GP Units ” shall have the meaning ascribed to such term in the foregoing recitals to this Agreement;

Governmental Approval ” has the meaning set forth in Section 4.3;

Governmental Authority ” means (a) any supranational, national, federal, state, local, municipal, foreign or other governmental or quasi-governmental authority and (b) any department, agency, commission, board, subdivision, bureau, instrumentality, court or other tribunal of any of the foregoing in clause (a);

Hazardous Material ” means (a) any “hazardous substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (b) any “hazardous waste” as defined in the Resource Conservation and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any applicable Environmental Law;

Initial Gateway Interest ” shall have the meaning ascribed to such term in the foregoing recitals to this Agreement;

Interim Financial Statements ” has the meaning set forth in Section 4.15(a);

 

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Law ” means all laws (including common law), statutes, rules, regulations, ordinances, directives, Orders or any similar provisions having the force or effect of Law of any Governmental Authority;

Land Contracts ” has the meaning set forth in Section 4.10(b);

Liability ” or “ Liabilities ” means any direct or indirect liability, indebtedness, Damages, Tax, interest, penalty, amount paid in settlement, judgment, assessment, deficiency, guaranty or endorsement of or by any Person, in the case of each of the foregoing, whether absolute or contingent, matured or unmatured, asserted or unasserted, accrued or unaccrued, due or to become due, liquidated or unliquidated;

Liability Portion ” shall have the meaning ascribed to such term in Section 2.2(c) hereof;

Lien ” means any lien, mortgage, security interest, pledge, deposit, option, easement, right of way, charge or encumbrance, encroachment, conditional sales agreement, deed of trust, deed to secure indebtedness or other similar restriction;

Litigation ” has the meaning set forth in Section 4.8;

Material Adverse Effect ” shall mean any event, change, fact, circumstance, effect or condition that, individually or in the aggregate, has, or could reasonably be expected to have, a material and adverse effect on (a) the assets, properties, business, results of operations or condition (financial or otherwise) of the Business, the Operating Company or Gateway Cogeneration, or (b) the ability of SC&C or SXCP to consummate the transactions contemplated hereby or satisfy its obligations hereunder, other than any event, change, fact, circumstance or condition arising out of or resulting from (i) any adverse change to the United States economy in general, or (ii) any adverse change to financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index);

Material Contract ” has the meaning set forth in Section 4.16(a);

Omnibus Agreement ” shall mean and refer to that certain Omnibus Agreement, dated as of January 24, 2013, by and among SXCP, the General Partner and SunCoke, as amended by Amendment No. 1 thereto, dated as of March 17, 2014 (as the same now exists or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced);

Omnibus Agreement Amendment ” has the meaning set forth in Section 2.7;

Operating Assets ” means all of the assets of the Operating Company and Gateway Cogeneration;

Operating Company ” shall have the meaning ascribed to such term in the preamble to this Agreement;

Operating Company Employees ” has the meaning set forth in Section 4.22(a);

 

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Order ” means any order, proceeding, decision, judgment, settlement, writ, injunction, information request, decree, award, Permit or other determination of any Governmental Authority, as applicable;

Organizational Documents ” means, with respect to any Person, the articles of incorporation, certificate of incorporation, certificate of formation, certificate of limited partnership, bylaws, limited liability company agreement, operating agreement, partnership agreement, stockholders’ agreement, and all other similar documents, instruments or certificates executed, adopted or filed in connection with the creation, formation or organization of such Person, including any amendments thereto;

Parties ” means SC&C, SXCP and SunCoke collectively, and “ Party ” means any of them;

Partnership Agreement ” means that certain First Amended and Restated Agreement of Limited Partnership of SunCoke Energy Partners, L.P., dated as of January 24, 2013, by and among the General Partner, SunCoke and the other parties thereto (as the same now exists or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced);

Permits ” means permits, licenses, certificates, approvals, authorizations, grants, consents, concessions, warrants, franchises, registrations, exemptions, variances, permissions and similar rights and privileges;

Permitted Liens ” has the meaning set forth in Section 4.10(d);

Person ” means an individual or a corporation, firm, limited liability company, partnership, joint venture, trust, unincorporated organization, association, Governmental Authority or political subdivision thereof or other entity;

Plans ” has the meaning set forth in Section 4.23(a);

Real Property ” has the meaning set forth in Section 4.10(b);

Required Rights ” has the meaning set forth in Section 4.10(n);

Restated Operating Limited Liability Company Agreement ” means the Second Amended & Restated Limited Liability Company Agreement of the Gateway Energy & Coke Company LLC, in the form attached hereto as Exhibit E;

SC&C ” shall have the meaning ascribed to such term in the preamble to this Agreement;

Securities Act ” has the meaning set forth in Section 4.6;

Significant Supplier ” has the meaning set forth in Section 4.19(b);

Subsequent Gateway Contribution ” has the meaning set forth in Section 2.9;

 

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Subsequent Gateway Interest ” shall have the meaning ascribed to such term in the foregoing recitals to this Agreement;

Subsidiary ” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person or a combination thereof, (b) a partnership (whether general or limited) in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the partnership interests of such partnership (considering all of the partnership interests of the partnership as a single class) is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof; or (c) any other Person (other than a corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person; provided , however , that (a) with respect to SC&C and SunCoke, the term “Subsidiary” shall not include any member of SXCP Group, (b) with respect to SXCP Group, the term “Subsidiary” shall exclude SC&C, SunCoke and their Affiliates, and (c) the Operating Company and Gateway Cogeneration shall be deemed to be a Subsidiary of SC&C and SunCoke (and not of any member of SXCP Group) before the Closing Date and Subsidiaries of SXCP (and not of SC&C or SunCoke) on and after the Closing Date;

SunCoke ” shall have the meaning ascribed to such term in the preamble to this Agreement;

SunCoke Credit Agreement ” means the Credit Agreement, dated as of July 26, 2011, among SunCoke, the lenders party thereto from time to time, The Royal Bank of Scotland PLC and Keybank National Association, as revolving facility co-documentation agents, Bank of America, N.A., as revolving facility syndication agent and term loan facility documentation agent, Credit Suisse Securities (USA) LLC, as term loan syndication agent, J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint bookrunners for the term loan facility, J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint bookrunners for the revolving facility, and J.P. Morgan Chase Bank, N.A., as administrative agent, as amended by Amendment No. 1 thereto, dated as of January 24, 2013 (as the same now exists or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced);

SunCoke Indenture ” means the Indenture by and among SunCoke, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, dated July 26, 2011(as the same now exists or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced);

SXCP ” shall have the meaning ascribed to such term in the preamble to this Agreement;

 

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SXCP Conflicts Committee ” means the Conflicts Committee of the Board of Directors of the General Partner;

SXCP Credit Agreement ” means the Credit Agreement, dated as of January 24, 2013, executed by SXCP, Haverhill Coke Company LLC, Middletown Coke Company, LLC, Haverhill Cogeneration Company LLC, Middletown Cogeneration Company LLC, JPMorgan Chase Bank, N.A., Bank of America, N.A., Barclays Bank PLC, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Royal Bank of Canada, The Royal Bank of Scotland plc, Goldman Sachs Bank USA and Branch Banking and Trust Company, as amended by Amendment No. 1 thereto, dated as of August 28, 2013, and as further amended by Amendment No. 2 thereto, dated as of May 9, 2014.

SXCP Group ” means SXCP and its Subsidiaries;

Tax ” or “ Taxes ” means (a) any federal, state, local or foreign income tax, ad valorem tax, excise tax, sales tax, use tax, franchise tax, real or personal property tax, transfer tax, gross receipts tax or other tax, assessment, duty, fee, levy or other governmental charge, together with and including, any and all interest, fines, penalties, assessments, and additions to tax resulting from, relating to, or incurred in connection with any of those or any contest or dispute thereof; and (b) any liability for any item described in (a) payable by reason of contract, assumption, transferee liability, operation of law or otherwise.

Tax Authority ” means any Governmental Authority having jurisdiction over the payment or reporting of any Tax;

Tax Proceeding ” has the meaning set forth in Section 6.6(d);

Tax Return ” means any report, statement, form, return or other document or information required to be supplied to a Tax Authority in connection with Taxes;

Transaction Documents ” means this Agreement, the Assignment Agreement, the Assumption Agreement, the Omnibus Agreement Amendment, the Gateway Coke Sales Agreement Amendment, any documents of title, and each of the other documents and certificates to be delivered at Closing or contemplated by this Agreement;

Transaction Taxes ” has the meaning set forth in Section 2.3(b);

Trustee ” means The Bank of New York Mellon Trust Company, N.A., as trustee under the SunCoke Indenture;

Unions ” has the meaning set forth in Section 4.22(b);

US Steel ” means United States Steel Corporation, a Delaware corporation, with a principal office and place of business located at 600 Grant Street, Pittsburgh, Pennsylvania 15219-2800; and

 

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US Steel Guaranty ” shall mean and refer to that certain Guaranty, dated as of February 28, 2008, made by SunCoke and SC&C, for the benefit of US Steel, guaranteeing the obligations of the Operating Company, pursuant to the Gateway Coke Sales Agreement;

US Steel Guaranty Amendment ” shall mean and refer to that certain Amendment No. 1 to Guaranty, dated as of January 12, 2015, which amends the US Steel Guaranty by adding SXCP as an additional guarantor.

WARN Act ” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.

Section 1.2 Headings . Headings contained in this Agreement are included solely for convenience, are not intended to be full or accurate descriptions of the content of any Section or Paragraph and shall not be considered to be part of this Agreement.

ARTICLE II

CONTRIBUTION OF INTERESTS

Section 2.1 Transfer of Gateway Interest . At the Closing, SC&C shall contribute to SXCP, and SXCP shall accept and receive from SC&C, the Initial Gateway Interest, free and clear of all Liens (other than restrictions under applicable state and federal securities laws), and SXCP shall be admitted as a member of the Operating Company; provided , however , that a portion of the Initial Gateway Interest shall be contributed by SC&C to SXCP on behalf of the General Partner in exchange for the GP Interest Portion of the Consideration as set forth in Section 2.2 below.

Section 2.2 Consideration . In consideration for the contribution of the Initial Gateway Interest on the terms and subject to the conditions set forth herein, SXCP shall deliver to SC&C at the Closing an aggregate amount of consideration equal to One Hundred Ninety-Two Million, Two Hundred Seventy-Nine Thousand, Three Hundred and Fifty Dollars ($192,279,350), in the forms and amounts as further described below (the “ Consideration ”):

(a) SXCP shall issue to SC&C, by means of a private placement in accordance with Section 5.6(a) of the Partnership Agreement, 1,877,697 Common Units (the “ Common Unit Portion ”) having an agreed upon value of approximately Fifty Million, Six Hundred Forty-One Thousand Four Hundred Seventy-Six Dollars ($50,641,476), based upon the average closing price of such Common Units on the New York Stock Exchange for the period of ten (10) consecutive trading days immediately prior to the execution hereof;

(b) SXCP shall issue to the General Partner 38,320 GP Units (the “ GP Interest Portion ”) having an agreed upon value of approximately One Million, Thirty-Three Thousand, Five Hundred Dollars ($1,033,500).

 

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(c) Pursuant to the Assumption Agreement, SXCP shall assume certain of SunCoke’s outstanding debt obligations under the SunCoke Indenture, including repayment of principal and payment of accrued interest aggregating approximately One Hundred Forty Million, Six Hundred Four Thousand, Three Hundred Seventy Five Dollars ($140,604,375) (the “ Liability Portion ”), as follows:

(i) One Hundred Thirty Five Million Dollars ($135,000,000) principal amount of SunCoke’s 7.625% senior unsecured notes due August 2019 (the “ Notes ”) issued under the SunCoke Indenture; and

(ii) approximately Five Million, Six Hundred Four Thousand, Three Hundred and Seventy-Five Dollars ($5,604,375) of accrued but unpaid interest on the Notes prior to the date of redemption.

Section 2.3 Other Transaction Costs and Expenses . In addition to the Consideration, SXCP also will be responsible for payment of the following:

(a) Certain transaction costs in connection with any subsequent redemption of the Notes, including the applicable redemption premium of Seven Million, Seven Hundred Twenty Thousand, Six Hundred and Fifty Dollars ($7,720,650). SunCoke will cooperate with SXCP in order to call the Notes for redemption pursuant to the applicable procedures for optional redemption prior to maturity set forth in Sections 3.01 and 3.02 of the SunCoke Indenture and Section 3 of the form of Notes attached as Exhibit A thereto.

(b) All sales, use, transfer, filing, recordation, registration and similar Taxes arising from or associated with the transactions contemplated by this Agreement (“ Transaction Taxes ”) shall be borne entirely by SunCoke and SC&C. The Parties shall provide such certificates and other information and otherwise cooperate to the extent reasonably required to minimize Transaction Taxes.

Section 2.4 Registration . At the Closing, SXCP shall pay and deliver to SC&C, the equity portion of the Consideration by:

(a) registering the Common Unit Portion of the Consideration in the name of SC&C on SXCP’s books and records; and

(b) recording the GP Interest Portion of the Consideration in the name of the General Partner on SXCP’s books and records.

Section 2.5 Delivery of Title . Promptly upon receipt of the Consideration, SC&C shall deliver to SXCP any documents of title for the Initial Gateway Interest, evidencing ownership thereof in the name of SXCP, and otherwise do all things necessary to have the Initial Gateway Interest transferred to SXCP and reflected on the books and records of the Operating Company, including the execution of the Assignment Agreement.

Section 2.6 Federal Income Tax Treatment . The Parties agree that the contribution from SC&C to SXCP of the Initial Gateway Interest shall, for all U.S. federal income tax purposes (and for any applicable state or local tax purposes that follow the U.S. federal income tax treatment) unless otherwise required by applicable law, be treated as a transaction consistent with the requirements of Section 721(a) of the Code subject to the requirements of Section 707 of the Code and the SXCP’s assumption of the Liability Portion shall be treated as an assumption of “qualified” liabilities within the meaning of Treasury Regulations Section 1.707-5(a)(6).

 

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Section 2.7 Amendment to Omnibus Agreement . At Closing, SunCoke and SXCP shall execute and deliver an amendment to the Omnibus Agreement in the form attached as Exhibit D hereto (the “ Omnibus Agreement Amendment ”).

Section 2.8 SunCoke Obligations . For the avoidance of doubt, SunCoke hereby agrees and confirms that its obligations under Articles III and IV of the Omnibus Agreement shall remain in full force and effect, and that SunCoke’s obligations to “make the Partnership Group whole” as set forth in Articles III and IV of the Omnibus Agreement shall apply with respect to the entire interest in the Operating Company held by SXCP following the Closing.

Section 2.9 Acquisition of Subsequent Gateway Interest . No later than 5 days after the Closing, SXCP shall contribute Forty-Five Million Dollars ($45,000,000) in cash (the “ Subsequent Gateway Contribution ”) to the Operating Company to be used to fund certain environmental remediation projects and in exchange therefor the Operating Company shall issue to SXCP the Subsequent Gateway Interest, free and clear of all Liens (other than restrictions under applicable state and federal securities laws). SXCP shall pay and deliver to the Operating Company the Subsequent Gateway Contribution by wire transfer in immediately available funds. Promptly upon receipt of the Subsequent Gateway Contribution , the Operating Company shall do all things necessary to have the Subsequent Gateway Interest issued to SXCP and reflected on the books and records of the Operating Company.

ARTICLE III

THE CLOSING

Section 3.1 Closing . The Closing shall be held at the offices of SXCP and shall occur no later than 11:59 PM (Central Time) on the date on which the satisfaction or waiver of all of the conditions precedent to the Closing set forth in Article VII occur, unless otherwise agreed by the Parties in writing.

Section 3.2 Deliverables by SC&C and SunCoke . At the Closing, SC&C and SunCoke will deliver (or cause to be delivered) the following:

(a) a counterpart to the Assumption Agreement, duly executed by SunCoke;

(b) a counterpart of the Assignment Agreement, duly executed by SC&C;

(c) a counterpart of the Omnibus Agreement Amendment, duly executed by SunCoke;

(d) a counterpart of the Gateway Coke Sales Agreement Amendment, duly executed by U.S. Steel, the Operating Company and Gateway Cogeneration;

(e) a counterpart of the U.S. Steel Guaranty Amendment duly executed by SunCoke and SC&C and acknowledged by the Operating Company and Gateway Cogeneration;

 

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(f) a counterpart of the Restated Operating Limited Liability Company Agreement, duly executed by SC&C;

(g) the certificate(s) required by Sections 7.2(a)(iii) and 7.2(b), duly executed by an officer of SC&C and SunCoke;

(h) the written opinion of Vinson & Elkins L.L.P. or another nationally-recognized tax counsel dated as of the Closing Date and addressed to SXCP, in form and substance reasonably satisfactory to the SXCP Conflicts Committee, to the effect that, for U.S. federal income tax purposes, 90% or more of the gross income of SXCP on a pro forma basis (meaning that it includes SXCP’s actual gross income from its existing business and SXCP’s pro rata portion of the income attributable to its ownership interest in the Operating Company and Gateway Cogeneration, taking into account the election to treat Gateway Cogeneration as a corporation for U.S. federal income tax purposes) for the most recent four complete calendar quarters ending before the Closing Date for which the necessary financial information is available are from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code (the “Tax Opinion”). In rendering such opinion, such counsel shall be entitled to receive and rely upon representations of officers of SunCoke and any of their respective Affiliates as to such matters as such counsel may reasonably request; and

(i) such other documents or instruments as SXCP may reasonably request consistent with SC&C’s and SunCoke’s obligations under this Agreement.

Section 3.3 Deliverables by SXCP . At the Closing, SXCP will deliver (or cause to be delivered), the following:

(a) a counterpart of the Assumption Agreement, duly executed by SXCP;

(b) a counterpart of the Assignment Agreement, duly executed by SXCP;

(c) a counterpart of the Omnibus Agreement Amendment, duly executed by SXCP;

(d) a counterpart of the U.S. Steel Guaranty Amendment duly executed by SXCP;

(e) a counterpart of the Restated Operating Limited Liability Company Agreement, duly executed by SXCP;

(f) the certificates required by Sections 7.3(a)(ii) and 7.3(b), duly executed by an officer of the General Partner;

(g) evidence reasonably satisfactory to SC&C of the issuance by SXCP of the Common Unit Portion and the GP Interest Portion of the Consideration in book-entry form; and

(h) such other documents or instruments as SC&C may reasonably request consistent with SXCP’s obligations under this Agreement.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SC&C AND SUNCOKE

SC&C and SunCoke, jointly and severally, make the following representations and warranties to SXCP, and acknowledge that SXCP is relying on these representations and warranties in entering into this Agreement, the Assignment Agreement, the Assumption Agreement, the Omnibus Agreement Amendment and the Restated Operating Limited Liability Company Agreement:

Section 4.1 Organization and Good Standing . SC&C is a limited liability company duly organized and validly existing in good standing under the laws of the State of Delaware. SunCoke is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware. The Operating Company and Gateway Cogeneration have been duly organized and are validly existing and in good standing under the laws of the jurisdiction of its organization, with full power and authority to own, lease, use and operate the properties and assets it now owns, leases, uses and operates and to carry on its business as and where such properties and assets are now owned or held and such business is now conducted. The Operating Company and Gateway Cogeneration are duly qualified to transact business and are in good standing as a foreign entity in each other jurisdiction in which such qualification is required for the conduct of its business, except where the failure to so qualify or to be in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There is no pending, or threatened, action for the dissolution, liquidation or insolvency of the Operating Company or Gateway Cogeneration.

Section 4.2 Due Authorization . Each of SC&C, SunCoke and the Operating Company has all necessary power, authority and capacity to execute and deliver each of the Transaction Documents to which it will be a party, to consummate the transactions contemplated hereby and thereby and to perform all the terms and conditions hereof or thereof to be performed by it. The execution and delivery by each of SC&C, SunCoke and the Operating Company of any Transaction Document to which it will be a party, the performance of all the terms and conditions hereof or thereof to be performed by it, and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by all necessary limited liability company or corporate, as applicable, action. Each Transaction Document to which SC&C, SunCoke or the Operating Company is or will be a party will constitute, upon execution and delivery by it, its valid and binding obligation, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity (whether applied in a proceeding at law or in equity).

 

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Section 4.3 No Consents . Other than as set forth in Schedule 4.3 (each item so listed, a “ Consent ”), no consent, approval, license, Order, waiver, or authorization of, or registration, declaration, or filing with any Governmental Authority (each a “ Governmental Approval ”) or other Person is required to be obtained or made by or with respect to SC&C, SunCoke, the Operating Company or Gateway Cogeneration, or the Operating Assets in connection with:

(a) the execution, delivery, and performance of this Agreement or the other Transaction Documents, or the consummation of the transactions contemplated hereby and thereby;

(b) the enforcement against SC&C, SunCoke or the Operating Company of its obligations under this Agreement or the other Transaction Documents; or

(c) the conduct by the Operating Company and Gateway Cogeneration of the Business immediately following the Closing as was conducted prior to the execution of this Agreement on the date hereof.

Section 4.4 No Conflict . Other than as set forth on Schedule 4.4 , the Transaction Documents to which each of SC&C, SunCoke and the Operating Company is or will be a party will not, the execution and delivery hereof or thereof by it will not, and the fulfillment and compliance with the terms and conditions hereof or thereof and the consummation of the transactions contemplated hereby and thereby will not:

(a) conflict with any of the provisions of the Organizational Documents of SC&C, SunCoke, the Operating Company or Gateway Cogeneration;

(b) conflict with any provision of any Law or Order applicable to SC&C, SunCoke, the Operating Company or Gateway Cogeneration;

(c) conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both) or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, or give others the right to terminate any indenture, mortgage, Lien or Contract to which SC&C, SunCoke, the Operating Company or Gateway Cogeneration is a party or by which it is bound or to which the Gateway Interests or any of the Operating Assets are subject;

(d) result in the creation of, or afford any Person the right to obtain, any Lien on the capital stock or other equity interests, property or assets of the Operating Company or Gateway Cogeneration under any such Contract; or

(e) result in the revocation, cancellation, suspension or material modification, individually or in the aggregate, of any Governmental Approval possessed by the Operating Company or Gateway Cogeneration that is necessary or desirable for the ownership, lease or operation of the Operating Assets or the Business as now conducted in all material respects, including any Governmental Approvals under any applicable Environmental Law;

except, in the case of clauses (b) through (e), as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect.

 

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Section 4.5 Title to Gateway Contributed Interest . (a) (i) The Initial Gateway Interest together with the Subsequent Gateway Interest (A) will constitute 75% of the limited liability company interests in the Operating Company and (B) are (or, in the case of the Subsequent Gateway Interest, will be) duly authorized and validly issued and fully paid (to the extent required by the Operating Company’s Organizational Documents) and non-assessable (except as such non-assessability may be limited by Sections 18-607 and 18-804 of the Delaware Limited Liability Company Act), and (ii) SC&C is the sole member of the Operating Company. The Initial Gateway Interest is not subject to and was not issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of local or state law applicable to such interests, the Operating Company’s Organizational Documents, or any Contract to which SC&C, SunCoke or any of its Subsidiaries is a party or to which it or any of its properties or assets is otherwise bound. The Subsequent Gateway Interest is not subject to and will not be issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of local or state law applicable to such interests, the Operating Company’s Organizational Documents, or any Contract to which SC&C, SunCoke or any of its Subsidiaries is a party or to which it or any of its properties or assets is otherwise bound.

(b) Other than as set forth on Schedule 4.5(b), SC&C has good and valid record and beneficial title to the Initial Gateway Interest, free and clear of any and all Liens, and, except for restrictions under applicable federal and state securities laws, the Initial Gateway Interest is free and clear of any restrictions on transfer, Taxes, or claims. Except as set forth in this Agreement, there are no options, warrants, purchase rights, Contracts or other securities exercisable or exchangeable for any equity interests in the Operating Company or Gateway Cogeneration, any other commitments or Contracts providing for the issuance of additional equity interests, or for the repurchase or redemption of the Initial Gateway Interest or equity interests in Gateway Cogeneration, or any Contracts of any kind which may obligate the Operating Company or Gateway Cogeneration to issue, purchase, register for sale, redeem or otherwise acquire any of its equity interests. Immediately after the Closing Date, SXCP will have good and valid record and beneficial title to the Initial Gateway Interest, free and clear of any Liens, and, except for restrictions under applicable federal and state securities laws, free and clear of any restrictions on transfer, Taxes, or claims. Immediately after the contribution to the Operating Company of the Subsequent Gateway Contribution, SXCP will have good and valid record and beneficial title to the Subsequent Gateway Interest, free and clear of any Liens, and, except for restrictions under applicable federal and state securities laws, free and clear of any restrictions on transfer, Taxes, or claims.

(c) The Operating Company does not own, directly or indirectly, (i) any shares of outstanding capital stock of any other Person or securities convertible into or exchangeable for capital stock of any other Person or (ii) any equity or other participating interest in the revenues or profits of any Person other than Gateway Cogeneration, and the Operating Company is not subject to any obligation to acquire any such interest. The Operating Company has good and valid record and beneficial title to all of the outstanding equity interests in Gateway Cogeneration, free and clear of any and all Liens, and, except for restrictions under applicable federal and state securities laws, all outstanding equity interests in Gateway Cogeneration are free and clear of any restrictions on transfer, Taxes, or claims.

 

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Section 4.6 Securities Representations . SC&C is acquiring the Common Unit Portion of the Consideration solely for the account of SC&C, and the General Partner is acquiring the GP Interest Portion of the Consideration solely for the account of the General Partner, and in each case not with a view to, or for resale in connection with, a distribution of all or any part of the Common Units or the GP Units. SC&C and SunCoke agree to the placement of a legend on any Common Unit certificate or on the records of the transfer agent to the effect that the Common Units may not be sold without registration with the Commission or an exemption from registration. Each of SC&C and SunCoke is an “accredited investor” as such term is defined in Rule 501 promulgated under the Securities Act, as amended (the “ Securities Act ”). Each of SC&C and SunCoke is familiar with investments of the nature of the Common Units and the GP Units, understands that this investment involves substantial risks, has adequately investigated SXCP and the Common Units and the GP Units, and has substantial knowledge and experience in financial and business matters such that it is capable of evaluating, and has evaluated, the merits and risks inherent in purchasing the Common Units and the GP Units, and is able to bear the economic risks of such investment. Each of SC&C and SunCoke has had the opportunity to visit with SXCP and meet with the officers of the General Partner and other representatives to discuss the business, assets, liabilities, financial condition, and operations of SXCP, has received all materials, documents and other information that each of SC&C and SunCoke deems necessary or advisable to evaluate SXCP and the Common Units and the GP Units, and has made its own independent examination, investigation, analysis and evaluation of SXCP and the Common Units and the GP Units, including its own estimate of the value of the Common Units and the GP Units. Each of SC&C and SunCoke has undertaken such due diligence (including a review of the properties, liabilities, books, records and contracts of SXCP) as each of SC&C and SunCoke deems adequate. Each of SC&C and SunCoke acknowledges that the Common Unit Portion and the GP Interest Portion have not been registered under applicable federal and state securities laws and that the Common Units and the GP Interest Portion may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition is registered under applicable federal and state securities laws or pursuant to an exemption from registration under any federal or state securities laws.

Section 4.7 SunCoke Credit Agreement and Indenture Representations and Warranties .

(a) SXCP is, and each of the Operating Company and Gateway Cogeneration will become, at or prior to the Closing, an Unrestricted Subsidiary as defined in the SunCoke Credit Agreement and the SunCoke Indenture and, at or after the Closing, neither the Operating Company nor Gateway Cogeneration will be a Guarantor (as defined under the SunCoke Indenture and the SunCoke Credit Agreement) under either the SunCoke Indenture or the SunCoke Credit Agreement.

(b) No Event of Default (as defined in the SunCoke Credit Agreement) has occurred and is continuing under the SunCoke Credit Agreement, and no breach of the SunCoke Credit Agreement and no such Event of Default shall occur as a result of the execution and delivery by SunCoke of this Agreement or the performance by SunCoke or SC&C of their obligations hereunder.

(c) No Event of Default (as defined in the SunCoke Indenture) has occurred and is continuing under the SunCoke Indenture, and no breach of the SunCoke Indenture and no such Event of Default shall occur as a result of the execution and delivery by SunCoke of this Agreement or the performance by SunCoke or SC&C of their obligations hereunder.

 

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Section 4.8 Laws and Regulations; Litigation . Except as set forth in Schedule 4.8 there are no pending or, to the Contributing Parties’ Knowledge, threatened claims, fines, actions, suits, litigation, demands, assertions, hearings, audits, investigations or proceedings (whether civil, criminal, administrative or investigative) or any arbitration or binding dispute resolution proceeding (collectively, “ Litigation ”) against SC&C, SunCoke or any of their Subsidiaries relating to or affecting the Operating Company, Gateway Cogeneration, the Business or the Operating Assets or the ownership and operation of the Business, the Operating Assets or the Gateway Contributed Interest. Each of the Operating Company and Gateway Cogeneration and the Business is, and during the last three years has been, in compliance with all Laws of any Governmental Authority applicable to it, other than any noncompliance which is not material to Operating Company, Gateway Cogeneration or the Business. No Litigation is pending or, to Contributing Parties’ Knowledge, threatened to which SC&C, SunCoke or any of its Subsidiaries is or may become a party that questions or involves the validity or enforceability of any of its respective obligations under this Agreement or the other Transaction Documents or seeks to prevent or delay, or damages in connection with, the consummation of the transactions contemplated by this Agreement and the other Transaction Documents.

Section 4.9 Environmental Matters . With respect to the Business, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, SC&C, SunCoke and their Subsidiaries’ ownership, operation or other use of the Operating Assets and Real Property (i) are and, during the relevant time periods specified in all applicable statutes of limitations, have been in compliance with Environmental Laws, (ii) are not the subject of any outstanding unresolved Order, agreement or arbitration award from any Governmental Authority under any Environmental Law relating to the Operating Assets, Real Property, or the Business, (iii) have received all Permits required of them under applicable Environmental Laws necessary to conduct the Business and own and operate the Operating Assets and Real Property as presently conducted or in light of the current stage of occupation, development or construction, (iv) are in compliance with all terms and conditions of any such Permits, (v) are not subject to any pending or, to the Contributing Parties’ Knowledge, threatened Litigation under any Environmental Law with respect to which SC&C, SunCoke or any of its Subsidiaries has been contacted in writing by or on behalf of the actual or potential plaintiff or claimant, (vi) do not have any Liability in connection with the presence, disposal or other release into the environment of, or exposure to, any Hazardous Material, and (vii) have provided or made available to SXCP or its representatives any significant reports, analyses or correspondence relating to environmental matters relating to the Business or the Operating Assets or the Real Property that are in the possession or control of SC&C, SunCoke or their Subsidiaries and have been prepared within the past three (3) years.

 

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Section 4.10 Operating Assets and Real Property . (a) The Operating Assets are sufficient to conduct the Business as such Business is currently being conducted. The Business is the only business operation carried on by the Operating Company and Gateway Cogeneration. At the Closing, the Operating Company and Gateway Cogeneration shall have sufficient net working capital to operate the Business in the ordinary course consistent with past practices.

(b) Schedule 4.10(b) sets forth a true and complete list of all of the real property owned, leased, used, franchised, licensed or otherwise held, including, without limitation, easement rights utilized in connection with the operation and ownership of the Business (the “ Real Property ”) and indicates the nature of the Real Property interest. SunCoke has provided SXCP with, or access to, copies of all material agreements affecting the Real Property, including all the leases identified on Schedule 4.10(b) , if any (“ Land Contracts ”), and all title reports, commitments, policies and surveys, to the extent any such items are material to the use and operation of the Real Property.

(c) Except as set forth in Schedule 4.10(c) , the Operating Company or Gateway Cogeneration has good, valid and marketable title in fee to all owned Real Property and valid leasehold interests in all leased Real Property, if any (including rights of way), in each case, except as would not materially interfere with the use or occupancy of the Real Property as it is currently being used or occupied.

(d) Other than as set forth on Schedule 4.10(d) , the Operating Company or Gateway Cogeneration owns or leases all such Real Property and interests in Real Property free and clear of any Liens except (i) those set forth in Schedule 4.10(d) , (ii) mechanics’, carriers’, workmen’s, repairmen’s or other similar Liens arising or incurred in the ordinary course of business consistent with past practices and that are not yet delinquent or can be paid without penalty or are being contested in good faith and by appropriate proceedings in respect thereof and for which an appropriate reserve has been established in accordance with U.S. generally accepted accounting principles, (iii) Liens for current Taxes that are not yet due and payable or are being contested in good faith and by appropriate proceedings in respect thereof and for which an appropriate reserve has been established in accordance with U.S. generally accepted accounting principles, and (iv) other imperfections of title or encumbrances that would not, individually or in the aggregate, reasonably be expected to materially interfere with the use or occupancy of the Real Property as it is currently being used or occupied (the Liens described in clauses (i), (ii), (iii), and (iv) above, being referred to collectively as “ Permitted Liens ”).

(e) Each of the Land Contracts is in full force and effect and constitutes a valid and binding obligation of the Operating Company or Gateway Cogeneration and of the other parties thereto.

(f) Neither the Operating Company nor Gateway Cogeneration is in breach or default in any material respect under any Land Contract, and to the Contributing Parties’ Knowledge, no other party to any of the Land Contracts is in breach or default in any material respect thereunder.

 

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(g) There is or will be at the Closing current access to public roads from the Real Property.

(h) Other than as set forth on Schedule 4.10(h) , each of the Operating Company and Gateway Cogeneration is not a party to or bound by, any outstanding third-party rights to purchase, lease or in any way acquire any of the owned Real Property or interests therein (including without limitation any rights of first refusal, options or other similar right of any kind) nor has the Operating Company or Gateway Cogeneration granted a possessory right or a right of occupancy with respect to the owned Real Property other than as disclosed by any matters of record.

(i) There is no pending, or, to the Contributing Parties’ Knowledge, threatened, Litigation relating to the Real Property.

(j) No condemnation or eminent domain proceeding has been commenced or, to the best of the Contributing Parties’ Knowledge, is about to be commenced against the Real Property or any portion thereof.

(k) There are no pending tax appeals with respect to the real property taxes or assessments against the Real Property.

(l) The Operating Company and Gateway Cogeneration currently maintains, and shall maintain through the Closing Date, property and casualty insurance with respect to the Real Property in an amount not less than the full replacement cost of the Real Property and the fixtures and equipment thereon, after taking into account the self-insurance programs maintained by the Operating Company and Gateway Cogeneration, and, to the Contributing Parties’ Knowledge, there are no unrepaired casualty losses.

(m) Other than as set forth on Schedule 4.10(m), to the Contributing Parties’ Knowledge, there are no pending or threatened changes in the zoning applicable to the Real Property prior to the effective date of this Agreement. Other than as set forth on Schedule 4.10(m), neither the Operating Company nor Gateway Cogeneration has received written notice of, nor, to the Contributing Parties’ Knowledge, has there been any violation of any covenant or restriction applicable to the Real Property, or any part thereof, from any Governmental Authority or third party or notice of any violation of any zoning, building, fire or health code or any other Law applicable (or alleged to be applicable) to the Real Property, or any part thereof, in each case which remains uncured as of the date hereof.

(n) Other than as specifically set forth to the contrary on Schedule 4.10(n) , each of the Operating Company and Gateway Cogeneration has:

(i) such consents, easements, rights-of-way, approvals, rights, Permits and licenses from all Governmental Authorities and other Persons as are sufficient to use the Real Property and continue to carry out the operations associated therewith, in all material respects, substantially in the manner in which the Real Property is currently used and operated (collectively, “ Required Rights ”); and;

(ii) fulfilled and performed all its material obligations with respect to any Required Rights and no default or other event has occurred that allows (or after notice or lapse of time would allow) revocation or termination thereof or would result in any impairment of the rights of the holder of any Required Rights, except for such revocations, terminations and impairments that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(o) Other than as set forth on Schedule 4.10(o) , the Operating Company or Gateway Cogeneration has good title to all owned and valid interests in all leased tangible personal property included in the Operating Assets, free and clear of all Liens, except Permitted Liens, other than tangible personal property owned on the date of this Agreement but subsequently sold or otherwise disposed of in the ordinary course of business consistent with prior practice. All tangible personal property included in the Operating Assets is in good operating condition and repair (normal wear and tear excepted) and has been maintained in accordance with generally accepted industry practice, and is sufficient for the purposes for which it is currently being used or held for use.

Section 4.11 Permits . Each of the Operating Company and Gateway Cogeneration holds or has a valid right to use, all Permits that are necessary for the conduct of the Business and the ownership and operation of the Operating Assets (the “ Business Permits ”), each in compliance with applicable Laws, except for those the failure of which to have would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. SC&C, SunCoke, the Operating Company, Gateway Cogeneration and their Affiliates have complied in all material respects with all terms and conditions of the Business Permits. None of such Business Permits will be subject to suspension, modification, revocation or nonrenewal as a result of the execution and delivery of this Agreement or the other Transaction Documents or the consummation of the transactions contemplated hereby or thereby. There is no outstanding written notice, nor to the Contributing Parties’ Knowledge, any other notice of revocation, cancellation or termination of any Business Permit, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Litigation is pending or, to the Contributing Parties’ Knowledge, threatened with respect to any alleged failure by SC&C, SunCoke, the Operating Company or Gateway Cogeneration or their Affiliates to have any Business Permit necessary for the conduct of the Business and the ownership and operation of the Operating Assets or to be in compliance with such Business Permits, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 4.12 Insurance . SC&C, SunCoke or their Affiliates maintain policies of fire and casualty, liability and other forms of property and liability insurance related to the Operating Assets and the Business in such amounts, with such deductibles, and against such risks and losses as are, in their reasonable business judgment, reasonable for the Business and the Operating Assets. All such policies are in full force and effect, all premiums due and payable thereon have been paid, and no notice of cancellation, termination or non-renewal has been received, or, to the Contributing Parties’ Knowledge, threatened, with respect to any such policy that has not been replaced on substantially similar terms prior to the date of such cancellation.

 

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To the Contributing Parties’ Knowledge, the activities and operations of the Business have been conducted in a manner so as to conform in all material respects to all applicable provisions of those insurance policies.

Section 4.13 Brokerage Arrangements . None of SC&C, SunCoke or any of their Affiliates has entered, directly or indirectly, into any Contract with any Person that would obligate any member of SXCP Group to pay any commission, brokerage or “finder’s fee” or other fee in connection with this Agreement, the other Transaction Documents or the transactions contemplated hereby or thereby.

Section 4.14 Taxes . (a) All Tax Returns that are required to be filed by or with respect to the Operating Company or Gateway Cogeneration or the Operating Assets on or prior to the Closing Date (taking into account any valid extension of time within which to file) have been or will be timely filed on or prior to the Closing Date and all such Tax Returns are or will be true, correct and complete in all material respects.

(b) All Taxes due and payable by or with respect to the Operating Company or Gateway Cogeneration or the Operating Assets (whether or not shown on any Tax Return) have been fully paid and all deficiencies asserted or assessments made with respect to such Tax Returns have been paid in full or properly accrued for by SC&C or SunCoke, as applicable.

(c) Except as set forth on Schedule 4.14(c) , no examination, audit, claim, assessment, levy, or administrative or judicial proceeding regarding any of the Tax Returns described in Section 4.10 or any Taxes of or with respect to the Operating Company or Gateway Cogeneration or the Operating Assets are currently pending or have been proposed in writing or have been threatened.

(d) Except as set forth on Schedule 4.14(d) , no waivers or extensions of statutes of limitations have been given or requested in writing with respect to any amount of Taxes of or with respect to the Operating Company or Gateway Cogeneration or the Operating Assets or any Tax Returns of or with respect to the Operating Company or Gateway Cogeneration or the Operating Assets.

(e) The Operating Company and Gateway Cogeneration will, at Closing, be treated as entities disregarded as entities separate from their owner for federal income Tax purposes pursuant to Treasury Regulation Section 301.7701-2(c)(2)(i).

Section 4.15 Financial Statements . (a) SC&C has delivered to SXCP (i) the audited consolidated balance sheets as of December 31, 2013 and 2012 and audited consolidated statements of operations, cash flows and changes in equity for the years ended December 31, 2013 and 2012, in each case, with respect to the Business and the Operating Assets (the “ Audited Financial Statements ”) and (ii) the unaudited consolidated balance sheet as of September 30, 2014 (the “ Balance Sheet Date ”) and unaudited consolidated statements of operations, cash flows and changes in equity for the nine months ended September 30, 2014, in each case, with respect to the Business and the Operating Assets (the “ Interim Financial Statements ” and, together with the Audited Financial Statements, the “ Financial Statements ”).

(b) The Financial Statements have been prepared from the books and records of SC&C, SunCoke and its Subsidiaries in accordance with U.S. generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby (except that the Interim Financial Statements do not include normal recurring year-end adjustments and footnotes required by U.S. generally accepted accounting principles for complete financial statements) and present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of or attributable to the Business and the Operating Assets as of the dates and for the periods stated in such Financial Statements.

 

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Section 4.16 Material Contracts . (a) Set forth in Schedule 4.16(a) is a list, as of the date hereof, of each of the following Contracts to which SC&C, SunCoke or any of its Affiliates is a party related to the Business or to which any of the Operating Assets are bound (each a “ Material Contract ”):

(i) any Contract limiting the right of the Business to engage in or compete in any geographical area;

(ii) any Contract for Debt to which the Operating Company or Gateway Cogeneration is a party or to which any of the Operating Assets are bound;

(iii) any Contract relating to the acquisition or disposition of any business (whether by merger, consolidation, recapitalization, share exchange, sale of stock, sale of assets or otherwise, and whether through proceedings in bankruptcy or otherwise) entered into in the past five years requiring the payment of an amount in excess of $1,000,000;

(iv) any Contract under which the Operating Company or Gateway Cogeneration is lessor or lessee of any Real Property;

(v) any Contract with a Significant Supplier;

(vi) any Contract with U.S. Steel;

(vii) any Contract containing any preferential rights to purchase or similar rights relating to the Operating Assets;

(viii) any other Contract (other than any Contract granting any Permits, servitudes, easements or rights-of-way) materially affecting the ownership or operation of the Business or the ownership, use or operation of the Operating Assets, the loss of which would, individually or in the aggregate, have a Material Adverse Effect;

(ix) any Contract between SC&C, SunCoke or their Affiliates (other than the Operating Company or Gateway Cogeneration), on the one hand, and the Operating Company or Gateway Cogeneration, on the other hand;

 

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(x) any Contract under which any Person has directly or indirectly guaranteed Debt, liabilities or obligations of the Operating Company or Gateway Cogeneration;

(xi) any Contract with a Union, employment Contract, Contracts with individual independent contractors, and Contracts providing for change in control, retention, or severance payments to any employees of the Operating Company or Gateway Cogeneration;

(xii) any Contract with any Governmental Authority (other than Permits);

(xiii) any interest rate, commodity or currency protection agreement (including any swaps, collars, caps or similar hedging obligations); and

(xiv) any Contract (or group of related Contracts with a single counterparty or, to the Contributing Parties’ Knowledge, Affiliated counterparties) not described in (i) through (xiii) above, that as of the date hereof, is reasonably expected to provide for revenues, payments or obligations in an amount greater than $1,000,000 during any calendar year or $5,000,000 in the aggregate.

(b) SunCoke has made available to SXCP a correct and complete copy of each Material Contract. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, each Material Contract is a legal, valid and binding on and enforceable against SC&C, SunCoke or their Affiliates that are a party thereto, and, to the Contributing Parties’ Knowledge, the counterparty thereto, and each Material Contract will continue to be legal, valid and binding on and enforceable against SC&C, SunCoke or their Affiliates that are a party thereto, and, to the Contributing Parties’ Knowledge, the counterparty thereto, on identical terms following the consummation of the transactions contemplated by this Agreement and the other Transaction Documents. Each Material Contract is in full force and effect, and none of SC&C, SunCoke or its Affiliates, as the case may be, or, to the Contributing Parties’ Knowledge, any counterparty thereto, is in breach or default thereunder and no event has occurred that upon receipt of notice or lapse of time or both would constitute any breach or default thereunder, except for such breaches or defaults as would not, individually or in the aggregate, reasonably be expected to have a material impact on the Business. None of SC&C, SunCoke or their Affiliates has given or received from any third party any written notice of any action or intent to terminate or amend in any material respect any Material Contract.

Section 4.17 No Adverse Changes . Except as set forth in Schedule 4.17 , since September 30, 2014:

(a) there has not been a Material Adverse Effect;

(b) the Business and the Operating Assets have been operated and maintained in the ordinary course of business consistent with past practices;

 

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(c) there has not been any damage to or destruction or loss of the Operating Assets, whether or not covered by insurance, that individually or in the aggregate exceeds $1,000,000;

(d) there has been no acceleration or delay in, or postponement of, the payment of any Liabilities related to the Business or the Operating Assets, individually or in the aggregate, in excess of $1,000,000;

(e) there has been no acceleration or delay in the collection of any payment related to the Business or the Operating Assets, individually or in the aggregate, in excess of $1,000,000;

(f) there has been no declaration or payment of any non-cash dividend or other non-cash distribution in respect of the Gateway Contributed Interest or the equity interests in Gateway Cogeneration; and

(g) there is no Contract to do any of the foregoing.

Section 4.18 Management Projections and Disclosure . (a) The projections and budgets provided to the SXCP Conflicts Committee (including those provided to the Financial Advisor) as part of the SXCP Conflicts Committee’s review in connection with this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby were prepared and delivered in good faith, are based on reasonable assumptions, are materially consistent with SunCoke’s and SC&C’s management’s current expectations regarding the Business and are materially consistent with the provisions of the Contracts affecting the Business.

(b) No representation or warranty or other statement made by SC&C or SunCoke in this Agreement, the Schedules, any supplement to the Schedules, the certificates delivered pursuant to this Agreement or otherwise in connection with the transactions contemplated by this Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make the statements in this Agreement or therein, in light of the circumstances in which they were made, not misleading.

Section 4.19 Suppliers and Customers . (a) U.S. Steel is the sole customer of the Business. Neither SC&C, SunCoke nor any of their Affiliates has received notice from the U.S. Steel to the effect that such customer will not buy products or services in respect of the Business in the future from SC&C, SunCoke or its Affiliates, as the case may be, or the Operating Company or Gateway Cogeneration following the Closing or that such customer intends to terminate or materially modify, or discuss the termination or material modification of, existing agreements with SC&C, SunCoke or its Affiliates, as the case may be, or the Operating Company or Gateway Cogeneration following the Closing with respect to the Business. The U.S. Steel has not (i) asserted any claims of breach of contract or warranty with regard to products or services previously provided by the Business, nor do SC&C, SunCoke or their Affiliates have any indemnity Liability for any such products or services to customers, or (ii) notified SC&C, SunCoke or its Affiliates in writing of any request for indemnification.

(b) Schedule 4.19(b) sets forth, for the twelve (12) months ended September 30, 2014, the names of the ten (10) largest suppliers of the Business based on the total amounts paid or payable by SC&C, SunCoke or their Affiliates (the “ Significant Suppliers ”). Neither SC&C, SunCoke nor any of their Affiliates has received written notice from any Significant Supplier to the effect that any such supplier will not supply products or services in respect of the Business in the future to SC&C, SunCoke or their Affiliates, as the case may be, or the Operating Company or Gateway Cogeneration following the Closing or that such supplier intends to terminate or materially modify existing agreements with SC&C, SunCoke or their Affiliates, as the case may be, or the Operating Company or Gateway Cogeneration following the Closing with respect to the Business.

 

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Section 4.20 Indebtedness . Neither the Operating Company nor Gateway Cogeneration has any Debt other than Debt which will be paid, settled, cancelled, discharged or otherwise released on or prior to the Closing Date.

Section 4.21 Absence of Undisclosed Liabilities . The Business does not have, and the Operating Assets are not subject to, any Liability, except Liabilities (a) that are reflected in the Interim Financial Statements, or (b) incurred since the Balance Sheet Date in the ordinary course of business consistent with past practice and, as of the Closing Date, were permitted to be incurred by this Agreement.

Section 4.22 Labor Matters . (a) As of the date hereof, all individuals performing services for the Operating Company or Gateway Cogeneration are either employed by SC&C, SunCoke or their Affiliates (other than the Operating Company and Gateway Cogeneration) or are individual contractors engaged by SC&C, SunCoke or their Affiliates (the “ Operating Company Employees ”) and there are no outstanding agreements, understandings or commitments of the Operating Company or Gateway Cogeneration with respect to any unpaid compensation, commissions or bonuses that were due and payable prior to the date hereof.

(b) Neither the Operating Company nor Gateway Cogeneration is, or has been for the past five years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “ Union ”), and there is not, and has not been for the past five years, any Union representing or, to the Contributing Parties’ Knowledge, purporting to represent any Operating Company Employee, and, to the Contributing Parties’ Knowledge, no Union or group of Operating Company Employees is seeking to organize Operating Company Employees for the purpose of collective bargaining. Neither the Operating Company nor Gateway Cogeneration has any duty to bargain with any Union except to the extent required by applicable Law. There has not been, nor, to the Contributing Parties’ Knowledge, has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting the Operating Company or Gateway Cogeneration or any of the Operating Company Employees during the past five years.

(c) SC&C, SunCoke and their Affiliates are in compliance with all Contracts with current and former Operating Company Employees. All individuals characterized

 

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and treated by SC&C, SunCoke or its Affiliates as independent contractors that are Operating Company Employees are properly treated as independent contractors under all applicable Laws. All Operating Company Employees classified as exempt under the Fair Labor Standards Act and state and local wage and hour Laws are properly classified.

(d) The Operating Company and Gateway Cogeneration are in compliance with the WARN Act, and it has no current plans to undertake any action before the Closing Date that would trigger obligations under the WARN Act.

Section 4.23 Employee Benefits Matters . (a) Neither the Operating Company nor Gateway Cogeneration maintains or has any obligation to sponsor or maintain, or has within the past six years sponsored or maintained, or has any material liability with respect to, any compensation or benefit plan, agreement, program or policy (whether written or oral, formal or informal), including any “employee benefit plan” as defined in Section 3(3) of ERISA (the foregoing are referred to herein as “ Plans ”). All Plans in which the Operating Company Employees participate or have participated are sponsored or maintained by SC&C, SunCoke or of its Affiliates (other than the Operating Company or Gateway Cogeneration).

(b) Each Plan in which Operating Company Employees participate is intended to be qualified under Section 401(a) of the Code and has been so qualified in form, and each Plan in which Operating Company Employees participate is and has been operated and maintained in material compliance with its terms and the provisions of all applicable Laws, including, without limitation, ERISA and the Code.

(c) Except as disclosed on Schedule 4.23(c) , with respect to any Plan that SC&C, SunCoke or its Affiliates has sponsored or maintained within the last six years or has had any obligation to contribute to within the past six years, except as would not have a material impact on the Business, (i) there has been no “reportable event,” as that term is defined in Section 4043 of ERISA, for which the thirty (30) day reporting requirement has not been waived, and the transactions contemplated by this Agreement will not result in such a “reportable event” for which a waiver does not apply, (ii) other than Liability for premiums to the Pension Benefit Guaranty Corporation (which premiums have been timely paid when due), none of SC&C, SunCoke or their Affiliates (including the Operating Company and Gateway Cogeneration) has incurred any direct or indirect Liability under Title IV of ERISA or Section 412 of the Code that has not been satisfied in full, and no event has occurred and no condition exists that presents a material risk to SC&C, SunCoke or their Affiliates (including the Operating Company and Gateway Cogeneration) incurring any such Liability, and (iii) no event has occurred and no condition exists that would subject the Operating Company or Gateway Cogeneration, either directly or by reason of its affiliation with SC&C, SunCoke or their Affiliates, to any tax, fine, lien, penalty or other Liability imposed by ERISA, the Code or other applicable Laws. None of SC&C, SunCoke or their Affiliates (including the Operating Company and Gateway Cogeneration) contributes to, or has an obligation to contribute to, and has not within six years prior to the Closing Date contributed to, or had an obligation to contribute to, a “multiemployer plan” within the meaning of Section 3(37) of ERISA.

(d) Except as would not result in any Liability to the Operating Company or Gateway Cogeneration, the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any subsequent employment-related event) result in any payment becoming due under a Plan, result in the acceleration of the time of payment or vesting of any benefits under a Plan, or result in the incurrence or acceleration of any other obligation related to the Plans or to any Operating Company Employee or former Operating Company Employee.

 

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Section 4.24 No Other Representations or Warranties; Schedules . Except as set forth in this Article IV, neither SC&C nor SunCoke makes any other express or implied representation or warranty with respect to the Gateway Contributed Interest, the Operating Assets or the transactions contemplated by this Agreement, and disclaims any other representations or warranties. The disclosure of any matter or item in any schedule to this Agreement shall not be deemed to constitute an acknowledgment that any such matter is required to be disclosed.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SXCP

SXCP makes the following representations and warranties to SC&C, and acknowledges that SC&C is relying on these representations and warranties in entering into this Agreement:

Section 5.1 Organization and Good Standing . SXCP is a limited partnership duly organized and validly existing in good standing under the laws of the State of Delaware.

Section 5.2 Due Authorization . SXCP has all necessary power, authority and capacity to enter into this Agreement and to perform its obligations hereunder; the execution and delivery of this Agreement has been duly authorized by all necessary partnership action on the part of SXCP; and this Agreement has been duly executed by SXCP.

Section 5.3 No Consent . No consent, approval or authorization of any third party is required for consummation by SXCP of the transactions contemplated by this Agreement, and the execution and delivery of this Agreement and the performance of the transactions contemplated hereby do not violate, conflict with, or cause a default under any contract, agreement, document, or instrument, any law, rule, regulation or any judicial or administrative decision to which SXCP may be subject.

Section 5.4 Title to Common Units and GP Interest . Upon the Closing, in accordance with the terms of this Agreement:

(a) good and marketable title to all of the Common Unit Portion of the Consideration, free and clear of all mortgages, liens, security interests, pledges, charges, encumbrances or claims of any kind will be sold to and vest in SC&C, and the Common Units included in the Common Unit Portion of the Consideration will be duly authorized and validly issued, fully paid and non-assessable (except as such non-assessability may be limited by Sections 17-303, 17-607 and 17-804 of the Act), and will not have been issued in violation of any preemptive or similar rights, and

(b) the GP Interest Portion of the Consideration will vest in the General Partner, free and clear of any title defects, mortgages, pledges, security interests, liens, charges, encumbrances or rights or claims of any kind whatsoever (other than, in each case, as set forth in the Partnership Agreement or under the Act).

 

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Section 5.5 No Other Representations or Warranties; Schedules . Except as set forth in this Article V, SXCP makes no other express or implied representation or warranty with respect to the Common Unit Portion or the GP Interest Portion of the Consideration or the transactions contemplated by this Agreement, and disclaims any other representations or warranties. The disclosure of any matter or item in any schedule to this Agreement shall not be deemed to constitute an acknowledgment that any such matter is required to be disclosed.

ARTICLE VI

COVENANTS

Section 6.1 Conduct of the Business . SC&C and SunCoke covenant and agree that from and after the execution of this Agreement and until the Closing, except (i) as contemplated by this Agreement, (ii) as required by applicable Law or (iii) with the prior written consent of SXCP, which consent of SXCP shall require the prior consent of the SXCP Conflicts Committee (and which consent of SXCP shall not be unreasonably withheld, conditioned or delayed):

(a) Neither SC&C nor SunCoke will, nor will they permit any of SunCoke’s other Subsidiaries to, sell, transfer, assign, convey or otherwise dispose of (I) the Gateway Contributed Interest, (II) the equity interest in Gateway Cogeneration or (III) except in the ordinary course of business consistent with past practice, the Operating Assets;

(b) Neither SC&C nor SunCoke will, nor will they permit any of SunCoke’s other Subsidiaries to, issue, sell or deliver any capital stock, membership interests or other equity securities of the Operating Company or Gateway Cogeneration, or issue or sell any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any capital stock, limited liability company interests or other equity securities of the Operating Company or Gateway Cogeneration, or form any subsidiaries of the Operating Company or Gateway Cogeneration;

(c) Each of SC&C and SunCoke will, and will cause each of their respective Affiliates to, use commercially reasonable efforts to maintain the Operating Assets in such working order and condition as is consistent with past practice;

(d) Each of SC&C and SunCoke will, and will cause each of their respective Affiliates to, use commercially reasonable efforts to conduct the Business in the ordinary course consistent with past practices;

(e) Each of SC&C and SunCoke will, and will cause each of their respective Affiliates to, use commercially reasonable efforts to preserve its relationships with customers, suppliers, licensors, licensees, advertisers, distributors, shippers and others having business dealings relating to the Business;

 

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(f) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, permit any Lien, other than Permitted Liens, to be imposed on the Operating Assets or the Gateway Contributed Interest, or the equity interests in Gateway Cogeneration;

(g) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, accelerate, delay or postpone the payment of any Liabilities or the collection of any payment, related to the Business or the Operating Assets that are, individually or in the aggregate, material;

(h) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, amend, modify or terminate any Material Contract, or otherwise waive, release or assign any rights, claims or benefits thereunder, or enter into any Contract that, if entered into prior to the date of this Agreement, would constitute a Material Contract;

(i) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, take or omit to take any action that would reasonably be expected to result in a Material Adverse Effect;

(j) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, declare or pay a dividend on, or make any other distribution in respect of, the Operating Company’s or Gateway Cogeneration’s equity securities;

(k) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, cause the Operating Company or Gateway Cogeneration to (A) hire any employee or (B) become liable with respect to any Plan;

(l) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, terminate or cancel any material insurance policy naming the Operating Company or Gateway Cogeneration as a beneficiary or a loss payee;

(m) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, cause the Operating Company or Gateway Cogeneration to make or change any material Tax election (except as expressly contemplated by Section 4.14 with respect to the tax election of Gateway Cogeneration), enter into any agreement relating to Taxes, including closing agreements with any Governmental Authority or settle or compromise any material Tax claim or liability;

(n) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, cause the Operating Company or Gateway Cogeneration to acquire or agree to acquire in any manner (whether by merger or consolidation, the purchase of an equity interest in or a material portion of the assets of or otherwise) any business or any corporation, partnership, association or other business organization or division thereof of any other Person; and

(o) Neither SC&C nor SunCoke will, nor will they permit their respective Affiliates to, agree in writing or otherwise to do anything contained in this Section 6.1.

 

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Section 6.2 Financial Statements; Financing Cooperation . SunCoke shall permit SXCP and its representatives to contact SunCoke’s accountants, auditors and employees, and shall cause such accountants, auditors and employees to discuss, cooperate and provide information reasonably requested by SXCP or its representatives, in order for SXCP to prepare audited and unaudited historical financial statements for the Business and pro forma financial statements of SXCP, in each case that meet the requirements of Regulation S-X promulgated under the Securities Act. SunCoke shall cause its accountants, auditors and employees to cooperate with SXCP with regards to responding to any comments from the Commission on the financial statements of the Business. From and after the date of this Agreement, SunCoke shall, and shall cause each of its Subsidiaries to, use commercially reasonable efforts to cause its and their representatives (including their auditors) to provide all customary cooperation as reasonably requested by SXCP to assist SXCP in the arrangement of any debt or equity financing necessary or desirable to fund the Liability Portion of the Consideration, including any necessary offering documents related thereto.

Section 6.3 Access . From the date of this Agreement until the Closing Date, SunCoke shall, upon reasonable advance notice by SXCP, (a) provide SXCP and its representatives reasonable access, during normal business hours, to the Operating Assets and (b) furnish to SXCP such documents and information in the possession or control of SunCoke or its Affiliates concerning the Operating Assets as SXCP from time to time may reasonably request, but only to the extent that SunCoke may comply with the covenants in clause (a) and (b) above without breaching any confidentiality obligation binding on SunCoke or its Affiliates. With respect to the Real Property, such access shall be subject to the rights of parties in possession and the terms of any instruments under which SunCoke uses or occupies such Real Property.

Section 6.4 Post-Closing Receivables and Payments . (a) Should SC&C or SunCoke or any of their Subsidiaries receive any payments attributable to accounts receivable of the Operating Company or Gateway Cogeneration or the Business that relate to the operations of the Business after the Closing Date, then SC&C and SunCoke shall or shall cause its applicable Subsidiary to, within thirty (30) days of receipt of such payments, forward such payments to the Operating Company or Gateway Cogeneration, as applicable. Should SXCP or any of its Subsidiaries receive any payments attributable to accounts receivable of the Operating Company or Gateway Cogeneration or the Business that relate to the operations of the Business on or prior to the Closing Date, then SXCP shall or shall cause its applicable Subsidiary to, within thirty (30) days of receipt of such payments, forward the amount of such payments to SC&C.

(b) If any demand is made on SunCoke or any of its Subsidiaries to pay any invoice or other account payables incurred in connection with the operation of the Business after the Closing Date, then SXCP shall be responsible for the same. If any demand is made on SXCP or any of its Subsidiaries to pay any invoice or other account payables incurred in connection with the operation of the Business on or prior to the Closing Date, then SunCoke shall be responsible for the same.

Section 6.5 Further Assurances . On and after the Closing Date, the Parties shall cooperate and use their respective commercially reasonable efforts to take or cause to be taken all appropriate actions and do, or cause to be done, all things necessary or appropriate to make effective the transactions contemplated by this Agreement and the other Transaction Documents,

 

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including the execution of any additional assignment or similar documents or instruments of transfer of any kind, the obtaining of consents which may be reasonably necessary or appropriate to carry out any of the provisions hereof or thereof and the taking of all such other actions as such party may reasonably be requested to take by the other parties from to time to time, consistent with the terms of this Agreement and the other Transaction Documents, in order to effectuate the provisions and purposes of this Agreement and the other Transaction Documents and transactions contemplated hereby and thereby.

Section 6.6 Tax Covenants . (a) The Parties agree that SC&C and SunCoke shall bear the liability for any Taxes imposed on or incurred by or with respect to the Operating Company or Gateway Cogeneration, the Business or the Operating Assets for any taxable period or portion therefor ending on or prior to the Closing Date. The parties hereto further agree that the Operating Company (including its members in accordance with their membership interest) shall bear the liability for any Taxes imposed on or incurred by or with respect to the Operating Company and Gateway Cogeneration, the Business or the Operating Assets for any taxable period or portion therefor beginning after the Closing Date.

(b) The parties hereto agree that whenever it is necessary for purposes of this Section 6.6 to determine the amount of any Taxes imposed on or incurred by or with respect to the Operating Company and Gateway Cogeneration, the Business or the Operating Assets for a taxable period beginning before and ending after the Closing Date (a “ Straddle Period ”) which is allocable to the portion of the Straddle Period ending on or before the Closing Date, the determination shall be made, in the case of property or ad valorem or franchise Taxes (which are measured by, or based solely upon capital, debt or a combination of capital and debt), by prorating such Taxes ratably on a per diem basis and, in the case of other Taxes, by assuming that such portion of the Straddle Period ending on or prior to the Closing Date constitutes a separate taxable period applicable to the Operating Company or Gateway Cogeneration and by taking into account the actual taxable events occurring during such period (except that exemptions, allowances and deductions for a taxable period beginning before and ending after the Closing Date that are calculated on an annual or periodic basis, such as the deduction for depreciation, shall be apportioned to the period prior to and including the Closing Date ratably on a per diem basis).

(c) With respect to any Tax Return attributable to a Straddle Period that is required to be filed after the Closing Date with respect to the Operating Company or Gateway Cogeneration, the Business or the Operating Assets, SXCP shall cause such Tax Return to be prepared, cause to be included in such Tax Return all items of income, gain, loss, deduction and credit required to be included therein, furnish a copy of such Tax Return to SunCoke, cause such Tax Return to be filed timely with the appropriate Tax Authority, and the Operating Company shall be responsible for the timely payment of all Taxes due with respect to the period covered by such Tax Return (but shall have a right to recover from SunCoke the amount of Taxes attributable to the portion of the taxable period ending on or prior to the Closing Date pursuant to Section 6.6(a)).

(d) The parties hereto shall cooperate fully, and cause their Affiliates to cooperate fully, as and to the extent reasonably requested by the other party, (i) to

 

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accomplish the apportionment of income described pursuant to this Section 6.6, (ii) to respond to requests for the provision of any information or documentation within the knowledge or possession of such party as reasonably necessary to facilitate compliance with financial reporting obligations arising under FASB Statement No. 109 (including compliance with Financial Accounting Standards Board Interpretation No. 48), and (iii) in connection with any audit, litigation or other proceeding (each a “ Tax Proceeding ”) with respect to Taxes. Such cooperation shall include access to, the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any Tax Return or Tax Proceeding, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. SXCP and SunCoke will use their respective commercially reasonable efforts to retain all books and records with respect to Tax matters pertinent to the Business and the Operating Assets relating to any taxable period beginning before the Closing Date until the later of six years after the Closing Date or the expiration of the applicable statute of limitations of the respective taxable periods (including any extensions thereof), and to abide by all record retention agreements entered into with any Tax Authority. SXCP and SunCoke each agree, upon request, to use their respective commercially reasonable efforts to obtain any certificate or other document from any Tax Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed with respect to the transactions contemplated by this Agreement.

(e) Gateway Cogeneration shall make an election on Form 8832 to be treated as a corporation for federal income tax purposes effective January 1, 2015.

Section 6.7 Consents . (a) SunCoke shall use commercially reasonable efforts to obtain the Consents listed on Schedule 4.3 .

(b) If and to the extent that the valid, complete and perfected transfer or assignment of any Operating Asset (including any Contract) indirectly as part of the contribution of the Gateway Contributed Interest to SXCP would be a violation of applicable Law, or require any Consent in connection with the contribution of the Gateway Contributed Interest that have not been obtained or made by the Closing, then, unless the parties shall otherwise mutually determine, the transfer or assignment of such Operating Asset shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Consents have been obtained or made. Notwithstanding the foregoing, any such Operating Assets shall continue to constitute Operating Assets for all other purposes of this Agreement.

(c) If any transfer or assignment of any Operating Asset intended to be transferred or assigned hereunder, as the case may be, is not consummated on or prior to the Closing, then, insofar as reasonably possible, SunCoke or its applicable Subsidiary retaining such Operating Asset shall thereafter hold such Operating Asset for the use, benefit and/or burden of SXCP (at the expense of SunCoke and for the account of SXCP) until such time as such transfer or assignment can be completed; provided , however , that SunCoke or its applicable Subsidiary shall hold such Operating Asset for the use, benefit

 

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and/or burden of SXCP at SunCoke’s expense if the reason the transfer or assignment is not consummated is the failure to obtain any Consent. In addition, SunCoke or its applicable Subsidiary shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Operating Asset in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by SXCP in order to place SXCP in a substantially similar position as if such Operating Asset had been transferred or assigned as contemplated hereby and so that all the benefits and burdens relating to such Operating Asset, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Operating Asset, as the case may be, and all costs and expenses related thereto, shall inure from and after the Closing to SXCP.

Section 6.8 Permits . To the extent that any Business Permit is nontransferable and must be reissued, SunCoke shall, and shall cause its Affiliates to, use commercially reasonable efforts to assist SXCP and its Affiliates in having such Business Permit reissued.

Section 6.9 Employee Benefits Matters . SunCoke or its appropriate Affiliate shall take all actions necessary to ensure that, immediately after the Closing, the Operating Company Employees continue to participate in all Plans under which they were participating immediately prior to the Closing, with no gap or lapse of coverage under any such Plans.

ARTICLE VII

CONSUMMATION OF THE CLOSING

Section 7.1 Conditions Precedent to Each Party’s Obligations to Closing . The respective obligations of each Party to consummate the transactions contemplated by this Agreement on the Closing Date are subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions precedent:

(a) no Order or Law shall have been issued, enacted, entered, promulgated or enforced by any statute, rule, regulation, non-appealable judgment, court or Governmental Authority of competent jurisdiction which is in effect and prohibits or restricts the consummation of the transactions contemplated by this Agreement;

(b) there shall not have been instituted, threatened or be pending any action, proceeding or investigation, whether formal or informal (or there shall not have been any material adverse development with respect to any action or proceeding currently instituted, threatened or pending), before or by any court, Governmental Authority, or by any other Person, in connection with the transactions contemplated by this Agreement that either (i) is, or is reasonably likely to be, materially adverse to the transactions contemplated by this Agreement, or (ii) will, or is reasonably likely to, prohibit, prevent, restrict or delay consummation of this Agreement;

(c) all required filings with and Consents of any Governmental Authority (if any) shall have been made or obtained on terms and conditions reasonably acceptable to SXCP;

(d) the Consents listed on Schedule 4.3 shall have been obtained; and

(e) U.S. Steel shall have delivered to SXCP and SunCoke a counterpart of the Gateway Coke Sales Contract Amendment, duly executed by U.S. Steel.

 

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Section 7.2 Conditions Precedent to Obligations of SXCP . The obligation of SXCP to consummate the transactions contemplated by this Agreement on the Closing Date is subject to the satisfaction (or waiver by SXCP) at or prior to the Closing of the following conditions precedent:

(a) (i) the Fundamental Representations shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as if made on and as of such date (other than representations and warranties that address matters only as of a certain date, which shall be true and correct as of such certain date), (ii) the other representations and warranties of SC&C and SunCoke contained in Article IV of this Agreement shall be true and correct (without regard to qualifications as to materiality or Material Adverse Effect contained therein) as of the date of this Agreement and as of the Closing Date as if made on and as of such date (other than representations and warranties that address matters only as of a certain date, which shall be true and correct as of such certain date), except in the case of clause (ii) where the failure of the representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and (iii) SC&C and SunCoke shall have delivered to SXCP a certificate to such effect dated as of the Closing Date and executed on behalf of each of SC&C and SunCoke by a duly authorized officer thereof;

(b) the covenants and agreements of SC&C and SunCoke to be performed on or prior to the Closing shall have been duly performed in all material respects, and SXCP shall have received a certificate to such effect dated the Closing Date and executed on behalf of each of SC&C and SunCoke by a duly authorized officer thereof;

(c) SXCP shall have received each of the deliveries of SC&C and SunCoke set forth in Section 3.2;

(d) SXCP shall have priced, on terms and conditions satisfactory to it, a private placement of long-term debt;

(e) the SXCP Conflicts Committee shall have received the written opinion of the Financial Advisor that the Consideration is fair, from a financial point of view, to SXCP and its subsidiaries taken as a whole; and

(f) between the date of this Agreement and the Closing Date, there shall have been no Material Adverse Effect.

Section 7.3 Conditions Precedent to Obligations of SC&C . The obligation of SC&C and SunCoke to consummate the transactions contemplated by this Agreement on the Closing Date is subject to the satisfaction (or waiver by SC&C) at or prior to the Closing of the following conditions precedent:

(a) (i) the representations and warranties of SXCP shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as if made on and

 

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as of such date (other than representations and warranties that address matters only as of a certain date, which shall be true and correct as of such certain date), and (ii) SXCP shall have delivered to SC&C a certificate to such effect dated as of the Closing Date and executed on behalf of SXCP by a duly authorized officer of the General Partner;

(b) the covenants and agreements of SXCP to be performed on or prior to the Closing shall have been duly performed in all material respects, and SC&C shall have received a certificate to such effect dated the Closing Date and executed on behalf of SXCP by a duly authorized officer of the General Partner; and

(c) SC&C shall have received each of the deliveries of SXCP set forth in Section 3.3 hereof.

ARTICLE VIII

NO COMMISSION; SURVIVAL; INDEMNIFICATION

Section 8.1 No Fees or Commissions . Each Party represents and warrants to the other Party that no individual, partnership, or corporation is entitled to a brokerage commission, finder’s fee or other like payment in connection with the contribution of the Gateway Contributed Interest, except for any compensation that may become payable to Tudor, Pickering, Holt & Co., in its capacity as independent financial advisor to the SXCP Conflicts Committee.

Section 8.2 No Expiration . All representations and warranties made herein shall survive the Closing without expiration.

Section 8.3 Breaches by SXCP . To the fullest extent permitted by law, SXCP agrees to indemnify and hold SC&C harmless from any and all losses, damages, claims, actions and proceedings, including any reasonable legal or other expenses, arising out of any breach of any representation or warranty made by, or covenant of, SXCP herein.

Section 8.4 Breaches by SC&C or Suncoke . To the fullest extent permitted by law, SC&C and SunCoke agree to indemnify and hold SXCP harmless from any and all losses, damages, claims, actions and proceedings, including any reasonable legal or other expenses, arising out of any breach of any representation or warranty made by, or covenant of, SC&C or SunCoke herein.

Section 8.5 Redemption of Notes . To the fullest extent permitted by law, SunCoke agrees to indemnify and hold harmless SXCP, and its directors, officers, employees and agents, from any and all losses, damages, claims, actions and proceedings (including any reasonable legal or other expenses), incurred in connection with, or arising out of, any redemption of the Notes effected by or through SXCP as contemplated by Section 2.3(a).

 

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ARTICLE IX

NOTICES

Section 9.1 Notices . Any notice, direction or other instrument required or permitted to be given by either Party under this Agreement shall be in writing and shall be sufficiently given if delivered personally, sent by prepaid first class mail or transmitted by facsimile or other form of electronic communication during the transmission of which no indication of failure of receipt is communicated to the sender:

 

  (a) in the case of a notice to SC&C at:

1011 Warrenville Road, Suite 600

Lisle, IL 60532 Attn: General Counsel

 

  (b) in the case of a notice to the SXCP at:

1011 Warrenville Road, Suite 600

Lisle, IL 60532 Attn: General Counsel

with a copy to:

1011 Warrenville Road, Suite 600

Lisle, IL 60532 Attn: Conflicts Committee Chair

ARTICLE X

GENERAL

Section 10.1 Expenses . Except as otherwise agreed in writing by the Parties, costs and expenses (including, without limitation, the fees and disbursements of legal counsel) incurred in connection with this Agreement and the transactions contemplated under this Agreement shall be paid by the Party incurring such expenses.

Section 10.2 Assignment/Successors and Assigns . Neither this Agreement nor any rights or obligations under this Agreement shall be assignable by either Party without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. Subject to that condition, this Agreement shall inure to the benefit of and be binding upon the Parties and their respective heirs, executors, administrators, successors (including any successor by reason of amalgamation of any Party) and permitted assigns.

Section 10.3 Governing Law . This Agreement shall be governed by and construed under the laws of the State of Delaware.

Section 10.4 Further Assurances . Each Party agrees that upon the written request of the other Party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as the other Party may from time to time reasonably request be done and executed as may be required to consummate the transactions contemplated under this Agreement, or as may be necessary or desirable to effect the purpose of this Agreement or any document, agreement or instrument delivered under this Agreement and to carry out their provisions or to better or more properly or fully evidence or give effect to the transactions contemplated under this Agreement.

 

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Section 10.5 Public Notices . All notices to third parties and all other publicity concerning the transactions contemplated by this Agreement shall be jointly planned and coordinated by SC&C and SXCP, and no Party shall act unilaterally in this regard without the prior approval of the other Party (such approval not to be unreasonably delayed or withheld), except where required to do so by law or by the applicable regulations or policies of any regulatory agency of competent jurisdiction or any stock exchange.

Section 10.6 Counterparts . This Agreement may be executed by the Parties in separate counterparts each of which when so executed and delivered shall be an original, and all such counterparts shall together constitute one and the same instrument.

Section 10.7 Amendment and Termination . This Agreement may not be amended except in a writing signed by SXCP (and approved by the SXCP Conflicts Committee), SC&C and SunCoke. This Agreement shall automatically terminate and be of no further force and effect at 11:59 PM (Central Time) on the third (3rd) Business Day after the date on which the satisfaction or waiver of all of the conditions precedent to the Closing set forth in Article VII occur, unless otherwise agreed by the Parties (and approved by the SXCP Conflicts Committee) in writing.

[COUNTERPART SIGNATURE PAGES FOLLOW]

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF the Parties have duly executed this Agreement as of the date first written above.

 

SUN COAL & COKE LLC
By   /s/ Ryan D. Osterholm
Name:   Ryan D. Osterholm
Title:   Vice President and Treasurer
SUNCOKE ENERGY, INC.
By   /s/ Fay West
Name:   Fay West
Title:   Senior Vice President and Chief Financial Officer
SUNCOKE ENERGY PARTNERS, L.P.
By:   SunCoke Energy Partners GP LLC,
  its general partner
By   /s/ Fay West
Name:   Fay West
Title:   Senior Vice President and Chief Financial Officer
Solely for purposes of agreeing to perform its obligations set forth in Section 2.9 hereof
GATEWAY ENERGY & COKE COMPANY, LLC
By   /s/ Ryan D. Osterholm
Name:   Ryan D. Osterholm
Title:   Vice President and Treasurer

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-194213) of SunCoke Energy Partners, L.P. (“the Partnership”) and in the related Prospectus of our report dated January 12, 2015, with respect to the financial statements of Gateway Energy & Coke Company, LLC, included in this Current Report on Form 8-K of SunCoke Energy Partners, L.P. filed on January 13, 2015 with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Chicago, Illinois

January 13, 2015

Exhibit 99.1

 

LOGO

Investors:

Lisa Ciota: 630-824-1907

Media:

Steve Carlson: 630-824-1783

SUNCOKE ENERGY PARTNERS, L.P. EXECUTES AGREEMENT TO ACQUIRE

75 PERCENT INTEREST IN THE GRANITE CITY COKEMAKING FACILITY

 

    Executed agreement to acquire a 75 percent interest in SunCoke Energy Inc.’s Granite City, Ill., cokemaking facility for a total transaction value of $245 million

 

    Acquisition is expected to be immediately accretive, increasing distributable cash flow per limited partner unit by $0.10 to $0.11 on an annual basis

Lisle, Ill. (January 13, 2015) – On January 12, 2015, SunCoke Energy Partners, L.P. (NYSE: SXCP) entered into a contribution agreement with its sponsor, SunCoke Energy, Inc. (NYSE: SXC), to acquire a 75 percent interest in SXC’s Granite City, Ill., cokemaking facility for a total transaction value of $245 million.

The Granite City cokemaking facility, which began operations in 2009, has annual cokemaking capacity of 650,000 tons and produces super-heated steam for power generation. Both the coke and power is provided to United States Steel Corporation under a long-term take-or-pay contract that expires in 2025.

“The Granite City facility is an attractive addition to SXCP, diversifying our customer base, contracts and assets,” said Fritz Henderson, Chairman and Chief Executive Officer of SunCoke Energy Partners, L.P.” In 2015, we expect this 75 percent interest in the Granite City operations will contribute approximately $30 million to Adjusted EBITDA and add $11 million to $12 million to distributable cash flow, thereby supporting our goal to grow cash distributions per unit by 8 to 10 percent through 2016 via the dropdown of SXC’s existing cokemaking assets alone.”

In connection with this agreement, SXCP intends to issue approximately $50.6 million of limited partner interest and $1 million of general partner interest to SXC. In addition, SXCP plans to assume and redeem $135 million principal amount of SXC’s outstanding 7.625 percent senior notes and expects to pay $5.6 million of accrued interest and $7.7 million of redemption premium in connection therewith. To fund this debt assumption and redemption, SXCP anticipates raising approximately $200 million of long-term debt via an offering of its 7.375 percent unsecured senior notes. The remaining cash from the debt raised will be used to pre-fund SXC’s approximately $45 million obligation to indemnify SXCP for the anticipated cost of an environmental project at Granite City, pay transaction costs, and for general partnership purposes.


SunCoke Energy Partners, L.P.

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“We structured the size and financing of this transaction to take advantage of our strong balance sheet and in view of the current market environment,” Henderson added. “We believe this approach will optimize long-term valuation while not exceeding our targeted debt metrics.”

The close of the Granite City facility acquisition is subject to customary closing conditions for such transactions. The terms of the agreement, and the acquisition of the interests in the Granite City Operation, have been approved by the Conflicts Committee of our general partner’s Board of Directors, which consists entirely of independent directors. The Conflicts Committee was advised by Tudor, Pickering, Holt & Co.

UPCOMING EVENTS

SXCP plans to issue fourth quarter 2014 earnings and 2015 guidance before market opens and host an investor conference call at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Thursday, January 29, 2015. This conference call will be webcast live and archived for replay in the Investor Relations section of www.sxcpartners.com. Investors may participate on this call by dialing 1-800-446-2782 in the U.S. or 1-847-413-3235 if outside the U.S., confirmation code 38744444.

ABOUT SUNCOKE ENERGY PARTNERS, L.P.

SunCoke Energy Partners, L.P. (NYSE: SXCP) is a publicly-traded master limited partnership that manufactures coke used in the blast furnace production of steel and provides coal handling services to the coke, steel and power industries. Our advanced, heat recovery cokemaking process produces consistently high-quality coke, captures waste heat to generate steam or electricity and reduces environmental impacts. Our coal handling terminals have the collective capacity to blend and transload more than 30 million tons of coal annually and are strategically located to enable material delivery to U.S. ports in the Gulf Coast, East Coast and Great Lakes. Our General Partner is a wholly owned subsidiary of SunCoke Energy, Inc. (NYSE: SXC), the largest independent producer of coke in the Americas, with 50 years of cokemaking experience and an international reputation for leadership, innovation and environmental stewardship in our industry.

DEFINITIONS

 

 

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization (“EBITDA”) adjusted for asset and goodwill impairment and sales discounts. EBITDA reflects sales discounts included as a reduction in sales and other operating revenue. The sales discounts represent the sharing with customers of a portion of nonconventional fuel tax credits, which reduce our income tax expense. These credits expired in 2012. However, we believe our Adjusted EBITDA would be inappropriately penalized if these discounts were treated as a reduction of EBITDA since they


SunCoke Energy Partners, L.P.

Page | 3

 

 

represent sharing of a tax benefit thatis not included in EBITDA. Accordingly, in computing Adjusted EBITDA, we have added back these sales discounts. EBITDA and Adjusted EBITDA do not represent and should not be considered alternatives to net income or operating income under GAAP and may not be comparable to other similarly titled measures in other businesses. Management believes Adjusted EBITDA is an important measure of the operating performance of SXCP’s net assets and provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and because it eliminates items that have less bearing on our operating performance. Adjusted EBITDA is a measure of operating performance that is not defined by GAAP, does not represent and should not be considered a substitute for net income as determined in accordance with GAAP. Calculations of Adjusted EBITDA may not be comparable to those reported by other companies.

 

  Adjusted EBITDA attributable to SXC/SXCP equals Adjusted EBITDA less Adjusted EBITDA attributable to noncontrolling interests.

 

  Distributable Cash Flow equals Adjusted EBITDA less net cash paid for interest expense, ongoing capital expenditures, accruals for replacement capital expenditures, and cash distributions to noncontrolling interests; plus amounts received under the Omnibus Agreement and acquisition expenses deemed to be Expansion Capital under our Partnership Agreement. Distributable Cash Flow is a non-GAAPsupplemental financial measure that management and external users of SXCP’s financial statements, such as industry analysts, investors, lenders and rating agencies use to assess:

 

    SXCP’s operating performance as compared to other publicly traded partnerships, without regard to historical cost basis;

 

    the ability of SXCP’s assets to generate sufficient cash flow to make distributions to SXCP’s unitholders;

 

    SXCP’s ability to incur and service debt and fund capital expenditures; and

 

    the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that Distributable Cash Flow provides useful information to investors in assessing SXCP’s financial condition and results of operations. Distributable Cash Flow should not be considered an alternative to net income, operating income, cash flows from operating activities, or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (GAAP). Distributable Cash Flow has important limitations as an analytical tool because it excludes some, but not all, items that affect net income and net cash provided by operating activities and used in investing activities. Additionally, because Distributable Cash Flow may be defined differently by other companies in the industry, our definition of Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.


SunCoke Energy Partners, L.P.

Page | 4

 

FORWARD LOOKING STATEMENTS

Some of the statements included in this press release constitute “forward looking statements.” Forward-looking statements include all statements that are not historical facts and may be identified by the use of such words as “believe,” “expect,” “plan,” “project,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions. Forward-looking statements are inherently uncertain and involve significant known and unknown risks and uncertainties (many of which are beyond the control of SXCP) that could cause actual results to differ materially.

Such risks and uncertainties include, but are not limited to domestic and international economic, political, business, operational, competitive, regulatory, and/or market factors affecting SXCP, as well as uncertainties related to: pending or future litigation, legislation, or regulatory actions; liability for remedial actions or assessments under existing or future environmental regulations; gains and losses related to acquisition, disposition or impairment of assets; recapitalizations; access to, and costs of, capital; the effects of changes in accounting rules applicable to SXCP; and changes in tax, environmental and other laws and regulations applicable to the SXCP’s businesses.

Forward-looking statements are not guarantees of future performance, but are based upon the current knowledge, beliefs and expectations of SXCP management, and upon assumptions by SXCP concerning future conditions, any or all of which ultimately may prove to be inaccurate. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. SXCP does not intend, and expressly disclaims any obligation, to update or alter its forward-looking statements (or associated cautionary language), whether as a result of new information, future events or otherwise after the date of this press release except as required by applicable law.

SXCP has included in its filings with the Securities and Exchange Commission cautionary language identifying important factors (but not necessarily all the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by SXCP. For information concerning these factors, see SXCP’s Securities and Exchange Commission filings such as its annual and quarterly reports and current reports on Form 8-K, copies of which are available free of charge on SXCP’s website at www.sxcpartners.com . All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. Unpredictable or unknown factors not discussed in this release also could have material adverse effects on forward-looking statements.

###

Exhibit 99.2

 

LOGO

Investors:

Lisa Ciota: 630-824-1907

Media:

Steve Carlson: 630-824-1783

SUNCOKE ENERGY PARTNERS, L.P., ANNOUNCES COMMENCEMENT OF

PRIVATE $200 MILLION DEBT OFFERING

Lisle, Ill. (January 13, 2015) – SunCoke Energy Partners, L.P., (NYSE: SXCP) announced today that it and its wholly owned subsidiary, SunCoke Energy Partners Finance Corp. (“Finance Corp.” and together, the “Issuers”), intend to offer to eligible purchasers an additional $200 million aggregate principal amount of their 7.375 percent senior unsecured notes due 2020 (the “New Notes”). The New Notes are being offered as additional notes under an indenture pursuant to which the Issuers previously issued $150 million aggregate principal amount in January 2013 and $250 million aggregate principal amount in May 2014. The New Notes will be fully and unconditionally guaranteed by all of SXCP’s current subsidiaries (other than Finance Corp.) and certain of its future subsidiaries.

SXCP intends to use the majority of the net proceeds received from this offering to repay certain debt assumed from its sponsor, SunCoke Energy, Inc. (NYSE: SXC), in connection with the acquisition of a 75 percent interest in SXC’s Granite City, Ill., cokemaking facility and to prefund an environmental project at this facility. SXCP intends to use the remainder of the proceeds to pay transaction costs for the acquisition and for general partnership purposes.

The New Notes will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Securities Act and applicable state securities laws. The New Notes may be resold by the initial purchasers pursuant to Rule 144A and Regulation S under the Securities Act. This press release is being issued pursuant to Rule 135c under the Securities Act.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the New Notes nor shall there be any sale of the New Notes in any jurisdiction in which the offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction.

ABOUT SUNCOKE ENERGY PARTNERS, L.P.

SunCoke Energy Partners, L.P. (NYSE: SXCP) is a publicly-traded master limited partnership that manufactures coke used in the blast furnace production of steel and provides coal handling services to the coke, steel and power industries. Our advanced, heat recovery cokemaking process produces


SunCoke Energy Partners, L.P.

Page | 2

 

consistently high-quality coke, captures waste heat to generate steam or electricity, and reduces environmental impacts. Our coal handling terminals have the collective capacity to blend and transload more than 30 million tons of coal annually and are strategically located to enable material delivery to U.S. ports in the Gulf Coast, East Coast and Great Lakes. Our General Partner is a wholly owned subsidiary of SunCoke Energy, Inc. (NYSE: SXC), the largest independent producer of coke in the Americas, with 50 years of cokemaking experience and an international reputation for leadership, innovation and environmental stewardship in our industry.

FORWARD LOOKING STATEMENTS

Some of the statements included in this press release constitute “forward looking statements.” Forward-looking statements include all statements that are not historical facts and may be identified by the use of such words as “believe,” “expect,” “plan,” “project,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “will,” “should” or the negative of these terms or similar expressions. Forward-looking statements are inherently uncertain and involve significant known and unknown risks and uncertainties (many of which are beyond the control of SXCP) that could cause actual results to differ materially.

Such risks and uncertainties include, but are not limited to domestic and international economic, political, business, operational, competitive, regulatory, and/or market factors affecting SXCP, as well as uncertainties related to: pending or future litigation, legislation or regulatory actions; liability for remedial actions or assessments under existing or future environmental regulations; gains and losses related to acquisition, disposition or impairment of assets; recapitalizations; access to, and costs of, capital; the effects of changes in accounting rules applicable to SXCP; and changes in tax, environmental and other laws and regulations applicable to SXCP’s businesses.

Forward-looking statements are not guarantees of future performance, but are based upon the current knowledge, beliefs and expectations of SXCP management, and upon assumptions by SXCP concerning future conditions, any or all of which ultimately may prove to be inaccurate. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. SXCP does not intend, and expressly disclaims any obligation, to update or alter its forward-looking statements (or associated cautionary language), whether as a result of new information, future events or otherwise after the date of this press release except as required by applicable law.

SXCP has included in its filings with the Securities and Exchange Commission cautionary language identifying important factors (but not necessarily all the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by SXCP. For information concerning these factors, see SXCP’s Securities and Exchange Commission filings such as its


SunCoke Energy Partners, L.P.

Page | 3

 

annual and quarterly reports and current reports on Form 8-K. All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. Unpredictable or unknown factors not discussed in this release also could have material adverse effects on forward-looking statements.

###

Exhibit 99.3

INDEX TO FINANCIAL STATEMENTS

 

SUNCOKE ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

  

Pro Forma Combined Balance Sheet As of September 30, 2014.

     F-3   

Pro Forma Combined Statement of Operations For the Years Ended December 31, 2013, 2012 and 2011

     F-4   

Pro Forma Combined Statement of Operations For the Nine Months Ended September 30, 2014 and 2013

     F-7   

Notes to Unaudited Pro Forma Combined Financial Statements

     F-9   

 

F-1


SUNCOKE ENERGY PARTNERS, L.P.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The unaudited pro forma combined financial statements of SunCoke Energy Partners, L.P. (the “Partnership”) consist of a Combined Balance Sheet as of September 30, 2014 and Combined Statements of Operations for the fiscal years ended December 31, 2013, 2012 and 2011 and for the nine months ended September 30, 2014 and 2013. The unaudited pro forma combined financial statements included herein have been derived from the historical financial statements of the Partnership and Gateway Energy & Coke Company, LLC (“Gateway”). The unaudited pro forma combined financial statements do not necessarily reflect what our financial position and results of operations would have been if we had operated as an independent, publicly-traded partnership during the periods shown. In addition, they are not necessarily indicative of our future results of operations or financial condition. The assumptions and adjustments give pro forma effect to events, described below, that are (i) directly attributable to those events, (ii) factually supportable and (iii) with respect to the pro forma combined financial statements, expected to have a continuing impact on the Partnership. The actual adjustments may differ from the pro forma adjustments.

The contribution by Sun Coal & Coke LLC (“Sun Coal & Coke”), a wholly owned subsidiary of SunCoke Energy Inc. (“SunCoke”), to the Partnership of its 75.0 percent interest in Gateway will be recorded at SunCoke’s historical cost as it is considered to be a reorganization of entities under common control. The pro forma adjustments in the following unaudited pro forma Combined Statement of Operations for the fiscal years ended December 31, 2013, 2012, and 2011 and the nine months ended September 30, 2014 and 2013 have been prepared as if Sun Coal & Coke contributed its 75.0 percent interest in Gateway to the Partnership on January 1, 2011. The pro forma adjustments in the following unaudited pro forma Combined Statements of Operations for the fiscal years ended December 31, 2013, 2012, and 2011 and the nine months ended September 30, 2014 and 2013 have been prepared as if the completion of a $200.0 million senior notes offering by the Partnership (the “Senior Notes Offering”) occurred on January 1, 2013. The pro forma adjustments in the following unaudited pro forma Combined Balance Sheet as of September 30, 2014 have been prepared as if both Sun Coal & Coke’s contribution of its 75.0 percent interest in Gateway to the Partnership and the Senior Notes Offering occurred on September 30, 2014. The unaudited pro forma combined financial statements should be read in conjunction with the notes accompanying such unaudited pro forma combined financial statements and with the audited historical financial statements of the Partnership and of Gateway incorporated by reference herein.

The unaudited pro forma combined financial statements give effect to the following transactions:

 

    the issuance (i) to Sun Coal & Coke of approximately $50.6 million of common units, representing a 4.7% limited partner interest in us and (ii) to our general partner of $1.0 million of general partner interests in us to maintain its 2% general partner interest;

 

    the contribution of a 75.0 percent interest in Gateway and corresponding creation of a noncontrolling interest representing SunCoke’s retained 25.0 percent interest in Gateway;

 

    the issuance of $200.0 million aggregate principal amount of the Partnership’s senior notes (the “Senior Notes”) with an issuance premium of $4.0 million under the Senior Notes Offering;

 

    the payment of debt financing fees and other transaction costs related to the Senior Notes Offering of $5.9 million;

 

    the elimination of intercompany sales from Kanawha River Terminals (“KRT”) to Gateway of $0.9 million and $0.1 million for the nine months ended September 30, 2014 and the twelve months ended December 31, 2013, respectively. The Partnership acquired KRT, a leading metallurgical and thermal coal blending and handling service provider, during the fourth quarter of fiscal year 2013.

 

    the application of the net proceeds of the Senior Notes Offering, as described in “Use of Proceeds”;

 

    a reduction in parent net equity for tax credits and net operating loss carryforwards generated by Gateway, which were used by SunCoke; and

 

    the change in tax status of Gateway to a non-taxable entity as part of the Partnership.

 

F-2


SunCoke Energy Partners, L.P.

Pro Forma Combined Balance Sheet (Unaudited)

As of September 30, 2014

($ in millions)

 

     Partnership
Historical
     Gateway
Historical
     Pro Forma
Adjustments
    Partnership
Pro Forma
 

Assets

          

Cash and cash equivalents

   $ 26.9       $ —         $ 204.0 (a)    $ 76.7   
           (5.9 )(b)   
           (148.3 )(c)   

Receivables

     26.2         6.1         (6.1 )(f)      26.2   

Receivables from affiliates, net

     0.8         —             0.8   

Inventories

     71.2         24.8           96.0   

Other current assets

     2.0         0.4           2.4   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     127.1         31.3         43.7        202.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Properties, plants and equipment, net

     894.3         322.3         (7.1 )(d)      1,209.5   

Goodwill and other intangible assets, net

     15.3         —             15.3   

Deferred income taxes

     —           27.0         (135.4 )(d)      —     
           108.4 (e)   

Deferred charges and other assets

     14.1         —           5.3 (b)      19.4   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,050.8       $ 380.6       $ 14.9      $ 1,446.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Equity

          

Accounts payable

   $ 46.7       $ 19.9       $        $ 66.6   

Accrued liabilities

     6.5         5.5           12.0   

Short-term debt

          

Interest payable

     4.9         —             4.9   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     58.1         25.4         —          83.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

Long-term debt

     412.0         —           204.0 (a)      616.0   
           148.3 (c)   
           (148.3 )(c)   

Deferred income taxes

     3.7         —           38.3 (e)      42.0   

Asset retirement obligations

     —           5.2           5.2   

Other deferred credits and liabilities

     1.1         0.1           1.2   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     474.9         30.7         242.3        747.9   
  

 

 

    

 

 

    

 

 

   

 

 

 

Equity

          

Parent net equity

     —           349.9         (0.6 )(b)      —     
           (148.3 )(c)   
           (142.5 )(d)   
           70.1 (e)   
           (6.1 )(f)   
           (122.5 )(g)   

Held by public:

          

Common units

     238.8         —             238.8   

Held by parent:

          

Common units

     113.8         —           26.8 (g)      140.6   

Subordinated units

     203.4         —           61.9 (g)      265.3   

General partner interest

     8.9         —           3.2 (g)      12.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Parent net equity/partners’ capital attributable to SunCoke Energy Partners, L.P.

     564.9         349.9         (258.0     656.8   

Noncontrolling interests

     11.0         —           30.6 (g)      41.6   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total parent net equity/partners’ capital

     575.9         349.9         (227.4     698.4   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,050.8       $ 380.6       $ 14.9      $ 1,446.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

F-3


SunCoke Energy Partners, L.P.

Pro Forma Combined Statement of Operations (Unaudited)

For the Year Ended December 31, 2013

($ in millions)

 

     Partnership
Historical
     Gateway
Historical
    Pro Forma
Adjustments
    Partnership
Pro Forma
 

Revenues

         

Sales and other operating revenue

   $ 687.3       $ 244.5      $ (0.1 )(j)    $ 931.7   
  

 

 

    

 

 

   

 

 

   

 

 

 

Costs and operating expenses

         

Cost of products sold and operating expenses

     510.1         205.4        (0.1 )(j)      715.4   

Selling, general and administrative expenses

     21.4         6.9          28.3   

Depreciation and amortization expense

     33.0         13.6          46.6   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and operating expenses

     564.5         225.9        (0.1     790.3   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     122.8         18.6        —          141.4   

Interest expense

     15.4         —          1.1 (h)      30.6   
          14.1 (i)   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     107.4         18.6        (15.2     110.8   

Income tax expense (benefit)

     4.5         (2.7     3.1 (e)      4.9   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 102.9       $ 21.3      $ (18.3   $ 105.9   

Less: Net income attributable to the noncontrolling interests

     40.8         —          4.6 (k)      45.4   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to SunCoke Energy Partners, L.P./Predecessor

     62.1         21.3        (22.9     60.5   

Less: Predecessor net income prior to the initial public offering on January 24, 2013

     3.5         —          —          3.5   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to SunCoke Energy Partners, L.P., subsequent to initial public offering

   $ 58.6       $ 21.3      $ (22.9   $ 57.0   
  

 

 

    

 

 

   

 

 

   

 

 

 

General partner’s interest in net income

   $ 1.6       $ 21.3      $ (22.9   $ —     

Limited partner’s interest in net income

   $ 57.0       $ —        $ —        $ 57.0   

Net income per common unit (basic and diluted)

   $ 1.81           $ 1.62   

Net income per subordinated unit (basic and diluted)

   $ 1.81           $ 1.81   

Weighted average common units outstanding (basic and diluted)

     15.7             17.6   

Weighted average subordinated units outstanding (basic and diluted)

     15.7             15.7   

 

F-4


SunCoke Energy Partners, L.P.

Pro Forma Combined Statement of Operations (Unaudited)

For the Year Ended December 31, 2012

($ in millions)

 

     Predecessor
Historical
     Gateway
Historical
    Partnership
Pro Forma
 

Revenues

       

Sales and other operating revenue

   $ 740.2       $ 273.7      $ 1,013.9   
  

 

 

    

 

 

   

 

 

 

Costs and operating expenses

       

Cost of products sold and operating expenses

     593.5         227.6        821.1   

Selling, general and administrative expenses

     22.0         8.0        30.0   

Depreciation expense

     33.2         13.2        46.4   
  

 

 

    

 

 

   

 

 

 

Total costs and operating expenses

     648.7         248.8        897.5   
  

 

 

    

 

 

   

 

 

 

Operating income

     91.5         24.9        116.4   

Interest expense

     10.3         —          10.3   
  

 

 

    

 

 

   

 

 

 

Income before income tax expense

     81.2         24.9        106.1   

Income tax expense (benefit)

     24.4         (1.1     23.3   
  

 

 

    

 

 

   

 

 

 

Net income attributable to SunCoke Energy Partners, L.P./Predecessor

   $ 56.8       $ 26.0      $ 82.8   
  

 

 

    

 

 

   

 

 

 

 

F-5


SunCoke Energy Partners, L.P.

Pro Forma Combined Statement of Operations (Unaudited)

For the Year Ended December 31, 2011

($ in millions)

 

     Predecessor
Historical
     Gateway
Historical
    Partnership
Pro Forma
 

Revenues

       

Sales and other operating revenue

   $ 449.8       $ 251.3      $ 701.1   
  

 

 

    

 

 

   

 

 

 

Costs and operating expenses

       

Cost of products sold and operating expenses

     367.2         219.9        587.1   

Selling, general and administrative expenses

     25.7         7.7        33.4   

Depreciation expense

     18.6         13.1        31.7   
  

 

 

    

 

 

   

 

 

 

Total costs and operating expenses

     411.5         240.7        652.2   
  

 

 

    

 

 

   

 

 

 

Operating income

     38.3         10.6        48.9   

Interest expense

     4.7         —          4.7   
  

 

 

    

 

 

   

 

 

 

Income before income tax expense

     33.6         10.6        44.2   

Income tax expense

     2.8         (8.5     (5.7
  

 

 

    

 

 

   

 

 

 

Net income attributable to SunCoke Energy Partners, L.P.

   $ 30.8       $ 19.1      $ 49.9   
  

 

 

    

 

 

   

 

 

 

 

F-6


SunCoke Energy Partners, L.P.

Pro Forma Combined Statement of Operations (Unaudited)

For the Nine Months Ended September 30, 2014

($ in millions)

 

     Partnership
Historical
     Gateway
Historical
     Pro Forma
Adjustments
    Partnership
Pro Forma
 

Revenues

          

Sales and other operating revenue

   $ 480.8       $ 169.1       $ (0.9 )(j)    $ 649.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

Costs and operating expenses

          

Cost of products sold and operating expenses

     353.5         132.6         (0.9 )(j)      485.2   

Selling, general and administrative expenses

     16.4         4.4           20.8   

Depreciation and amortization expense

     30.1         10.2           40.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total costs and operating expenses

     400.0         147.2         (0.9     546.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     80.8         21.9         —          102.7   

Interest expense

     30.1         —           0.8 (h)      41.4   
           10.5 (i)   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income tax

     50.7         21.9         (11.3     61.3   

Income tax expense (benefit)

     1.0         7.7         (7.6 )(e)      1.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 49.7       $ 14.2       $ (3.7   $ 60.2   

Less: Net income attributable to the noncontrolling interests

     15.1         —           5.4 (k)      20.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income attributable to SunCoke Energy Partners, L.P.

   $ 34.6       $ 14.2       $ (9.1   $ 39.7   
  

 

 

    

 

 

    

 

 

   

 

 

 

General partner’s interest in net income

   $ 1.4       $ 14.2       $ (9.1   $ 6.5   

Limited partner’s interest in net income

   $ 33.2       $ —         $ —        $ 33.2   

Net income per common unit (basic and diluted)

   $ 1.01            $ 0.92   

Net income per subordinated unit (basic and diluted)

   $ 0.89            $ 0.89   

Weighted average common units outstanding (basic and diluted)

     19.0              20.9   

Weighted average subordinated units outstanding (basic and diluted)

     15.7              15.7   

 

F-7


SunCoke Energy Partners, L.P

Pro Forma Combined Statement of Operations (Unaudited) For the Nine Months Ended September 30, 2013

($ in millions)

 

    Partnership
Historical
    Gateway
Historical
    Pro Forma
Adjustments
    Partnership
Pro Forma
 

Revenues

       

Sales and other operating revenue

  $ 514.6      $ 186.7      $ —        $ 701.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Costs and operating expenses

       

Cost of products sold and operating expenses

    383.3        158.0        —          541.3   

Selling, general and administrative expenses

    16.5        5.1        —          21.6   

Depreciation and amortization expense

    23.5        9.9        —          33.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and operating expenses

    423.3        173.0        —          596.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    91.3       13.7        —          105.0   

Interest expense

    12.3        —          0.8 (h)      23.6   
      10.5 (i)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax

    79.0        13.7        (11.3     81.4   

Income tax expense (benefit)

    4.2        (1.7     2.0 (e)      4.5   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 74.8      $ 15.4      $ (13.3   $ 76.9   

Less: Net income attributable to noncontrolling interests

    30.0        —          3.3 (k)      33.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to SunCoke Energy Partners, L.P./Predecessor

    44.8       15.4        (16.6     43.6   

Less: Predecessor net income prior to initial public offering on January 24, 2013

    3.5        —          —          3.5   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SunCoke Energy Partners, L.P. subsequent to initial public offering

  $ 41.3      $ 15.4      $ (16.6   $ 40.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

General partner’s interest in net income

  $ 0.9      $ 15.4      $ (16.6   $ (0.3

Limited partners’ interest in net income

  $ 40.4      $ —        $ —        $ 40.4   

Net income per common unit (basic and diluted)

  $ 1.29          $ 1.15   

Net income per subordinated unit unit (basic and diluted)

  $ 1.29          $ 1.29   

Weighted average common units outstanding (basic and diluted)

    15.7            17.6   

Weighted average subordinated units outstanding (basic and diluted)

    15.7            15.7   

 

F-8


Notes to Unaudited Pro Forma Financial Statements

1. Basis of Presentation

The unaudited pro forma combined financial statements of SunCoke Energy Partners, L.P. (the “Partnership”) consist of a Combined Balance Sheet as of September 30, 2014 and Combined Statements of Operations for the fiscal years ended December 31, 2013, 2012 and 2011 and for the nine months ended September 30, 2014 and 2013. The unaudited pro forma combined financial statements included herein have been derived from the historical financial statements of the Partnership and Gateway Energy & Coke Company, LLC (“Gateway”). The unaudited pro forma combined financial statements do not necessarily reflect what our financial position and results of operations would have been if we had operated as an independent, publicly-traded partnership during the periods shown. In addition, they are not necessarily indicative of our future results of operations or financial condition. The assumptions and adjustments give pro forma effect to events, described below, that are (i) directly attributable to the those events, (ii) factually supportable and (iii) with respect to the pro forma combined financial statements, expected to have a continuing impact on the Partnership. The actual adjustments may differ from the pro forma adjustments.

The unaudited pro forma combined financial statements give effect to the following transactions:

 

    the issuance (i) to Sun Coal & Coke of approximately $50.6 million of common units, representing a 4.7% limited partner interest in us and (ii) to our general partner of $1.0 million of general partner interests in us to maintain its 2% general partner interest;

 

    the contribution of a 75.0 percent interest in Gateway and corresponding creation of a noncontrolling interest representing SunCoke’s retained 25.0 percent interest in Gateway;

 

    the issuance of $200.0 million aggregate principal amount of the Partnership’s senior notes (the “Senior Notes”) with an issuance premium of $4.0 million under the Senior Notes Offering

 

    the payment of debt financing fees and other transaction costs related to the Senior Notes Offering of $5.9 million;

 

    the elimination of intercompany sales from Kanawha River Terminals (“KRT”) to Gateway of $0.9 million and $0.1 million for the nine months ended September 30, 2014 and the twelve months ended December 31, 2013, respectively. The Partnership acquired KRT, a leading metallurgical and thermal coal blending and handling service provider, during the fourth quarter of fiscal year 2013.

 

    the application of the net proceeds of the Senior Notes Offering, as described in “Use of Proceeds”;

 

    a reduction in parent net equity for tax credits and net operating loss carryforwards generated by Gateway, which were used by SunCoke; and

 

    the change in tax status of Gateway to a non-taxable entity as part of the Partnership.

2. Pro Forma Adjustments and Assumptions

A general description of these transactions and adjustments is provided as follows:

(a) reflects the issuance of $200.0 million aggregate principal amount of Senior Notes with an issuance premium of $4.0 million.

(b) reflects payment of $5.3 million in debt financing fees related to the Senior Notes Offering and $0.6 million in other structuring and transaction costs.

(c) represents $198.1 million in net proceeds from the Senior Notes Offering, which the Partnership will use to pay off $148.3 million in debt (“SunCoke 2019 Notes”) assumed by the Partnership, inclusive of $5.6  million of accrued interest and a $7.7 million call premium incurred as a result of the debt extinguishment. All interest expense was historically settled through intercompany transactions with SunCoke.

 

F-9


The accrued interest was reflected on Gateway’s historical balance sheet within parent net equity as Gateway was not historically obligated to make cash payments for interest. In addition, $45.0 million of proceeds will be retained by the Partnership to fund future environmental liabilities with the remaining $4.8 million of proceeds being retained for general corporate purposes.

(d) reflects a reduction in parent net equity for tax credits and net operating loss carryforwards and other tax-related items not contributed to the Partnership.

(e) reflects the change in the effective tax rate of the Partnership as a result of the acquisition of Gateway, which had the following effects:

(i) the elimination of Gateway’s historical non-current deferred income tax liability of $70.1 million and the reclassification of the remaining $38.3 million of historical non-current deferred income tax liabilities related to Gateway Cogeneration Company LLC, which were historically included within Gateway’s net non-current deferred income tax asset; and

(ii) income tax expense of $7.6 million has been eliminated for the nine months ended September 30, 2014 and income tax benefit of $3.1 million and $2.0 million have been eliminated for the year ended December 31, 2013 and the nine months ended September 30, 2013, respectively.

(f) reflects the amount of the accounts receivable balance of Gateway that will be retained by Sun Coal & Coke at the closing of the Senior Notes Offering.

(g) represents $30.6 million of parent net equity attributable to noncontrolling interest and $91.9 million of remaining parent net equity. The Partnership will own a 75% interest in Gateway with SunCoke owning the remaining 25% . The Partnership will consolidate the financial results of Gateway and has recorded a noncontrolling interest in the pro forma Combined Balance Sheet and Statements of Operations with respect to the 25% interest held by SunCoke.

The net equity attributable to the controlling and noncontrolling interests was calculated based on Gateway’s historical parent net equity of $349.9 million as adjusted for the transactions to be effected at the closing of the Senior Notes Offering as if they had occurred on September 30, 2014 as detailed in footnotes (c) through (f) above.

The controlling and noncontrolling interests are calculated as follows:

 

     Gateway
Historical
     Pro Forma
Adjustments
    Total  

Parent net equity

   $ 349.9         (0.6 )(b)   
        (148.3) (c)   
        (142.5) (d)   
        70.1 (e)   
        (6.1) (f)   

Parent net equity to allocate to the controlling and noncontrolling interests

   $ 349.9       $ (226.6)      $ 122.5   
  

 

 

    

 

 

   

 

 

 

Controlling interest

        (227.4)        91.9   

Noncontrolling interest

          30.6   

(h) reflects the amortization of $1.1 million, $0.8 million and $0.8 million for the year ended December 31, 2013 and the nine months ended September 30, 2014 and 2013, respectively, associated with the debt financing fee amortized over the life of the Senior Notes.

(i) reflects the interest expense related to the Senior Notes as if such debt was issued on January 1, 2013. The interest expense for the senior notes, including amortization of the $4.0 million issuance premium, was $14.1 million, $10.5 million and $10.5 million for the year ended December 31, 2013 and the nine months

 

F-10


ended September 30, 2014 and 2013, respectively, and was computed using an assumed interest rate of 7.375%. A 0.125% increase in the assumed interest rate on the Senior Notes would increase annual interest expense by $0.1 million, while a 0.125% decrease in the assumed interest rate would decrease annual interest expense by $0.3 million.

(j) reflects the elimination of intercompany sales from Kanawha River Terminals (“KRT”) to Gateway of $0.9 million and $0.1 million for the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively. The Partnership acquired Kanawha River Terminals, a leading metallurgical and thermal coal blending and handling service provider, during the fourth quarter of fiscal year 2013.

(k) reflects net income attributable to the 25% ownership in Gateway held by noncontrolling interest. Net income attributable to noncontrolling interest excludes costs discussed in footnotes (h) and (i) above.

3. Pro Forma Net Income per Unit

Our historical allocation of net income to limited partners and net income per unit included under the “Partnership Historical” column in the unaudited pro forma combined statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 and 2013 was determined using net income attributable to the Partnership subsequent to its initial public offering of units on January 24, 2013.

Pro forma net income per limited partner unit is determined by dividing the pro forma net income available to the limited partners by the number of common units and subordinated units outstanding after the Gateway Transaction using the two class method. For purposes of this calculation, we assumed that the aggregate weighted average number of units outstanding was 17.6 million common units and 15.7 million subordinated units for the year ended December 31, 2013 and the nine months ended September 30, 2013. We assumed that the aggregate weighted average number of units outstanding was 20.9 million common units and 15.7 million subordinated units for the nine months ended September 30, 2014. The principal difference between our common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Please read “How We Make Distributions To Our Partners.”

Pro forma net income per unit has not been presented for the years ended December 31, 2012 and 2011, as the Partnership did not complete its initial public offering of limited partner units until January 24, 2013 and no units were outstanding prior to the initial public offering.

 

F-11

Exhibit 99.4

 

GATEWAY ENERGY & COKE COMPANY, LLC

  

AUDITED FINANCIAL STATEMENTS

  

Report of Independent Auditors

     2   

Statement of Operations for the Year Ended December 31, 2013

     3   

Balance Sheet at December 31, 2013

     4   

Statement of Cash Flows For the Year Ended December 31, 2013

     5   

Statement of Parent Net Equity For the Year Ended December 31, 2013

     6   

Notes to Financial Statements

     7   


Report of Independent Auditors

To the Board of Directors and Shareholders

SunCoke Energy, Inc.

We have audited the accompanying financial statements of Gateway Energy & Coke Company, LLC, which comprise the balance sheet as of December 31, 2013, and the related statements of operations, changes in parent net equity and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the Unites States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gateway Energy & Coke Company, LLC at December 31, 2013, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

January 12, 2015

Chicago, Illinois

 

2


Gateway Energy & Coke Company, LLC

Statement of Operations

 

     Year ended
December 31, 2013
 
     (Dollars in millions)  

Revenues

  

Sales and other operating revenue

   $ 244.5   
  

 

 

 

Costs and operating expenses

  

Cost of products sold and operating expenses

     205.4   

Selling, general and administrative expenses

     6.9   

Depreciation and amortization

     13.6   
  

 

 

 

Total costs and operating expenses

     225.9   

Income before income tax

     18.6   

Income tax expense (benefit)

     (2.7
  

 

 

 

Net income

   $ 21.3   
  

 

 

 

(See Accompanying Notes)

 

3


Gateway Energy & Coke Company, LLC

Balance Sheet

 

     December 31, 2013  
     (Dollars in millions)  

Assets

  

Accounts receivable

   $ 6.0   

Inventories

     21.7   

Other current assets

     0.1   
  

 

 

 

Total current assets

     27.8   
  

 

 

 

Properties, plans and equipment, net

     328.6   

Deferred income taxes

     34.8   
  

 

 

 

Total assets

   $ 391.2   
  

 

 

 

Liabilities and Parent Net Equity

  

Accounts payable

   $ 20.7   

Accrued liabilities

     18.2   
  

 

 

 

Total current liabilities

     38.9   
  

 

 

 

Asset retirement obligations

     4.9   

Other deferred credits and liabilities

     0.3   
  

 

 

 

Total liabilities

     44.1   
  

 

 

 

Parent Net Equity

  
  

 

 

 

Total parent net equity

     347.1   
  

 

 

 

Total liabilities and parent net equity

   $ 391.2   
  

 

 

 

(See Accompanying Notes)

 

4


Gateway Energy & Coke Company, LLC

Statement of Cash Flows

 

     Year ended
December 31, 2013
 
     (Dollars in millions)  

Cash flows from operating activities:

  

Net income

   $ 21.3   

Adjustments to reconcile net income to net cash provided by operating activities

  

Depreciation and amortization

     13.6   

Deferred income tax

     (2.7

Accretion expense

     0.3   

Stock compensation expense

     0.1   

Changes in working capital pertaining to operating activities:

  

Accounts receivable

     0.5   

Inventories

     6.4   

Accounts payable and accrued liabilities

     (4.1

Other

     0.1   
  

 

 

 

Net cash provided by operating activities

     35.5   
  

 

 

 

Cash flows from investing activities:

  

Capital expenditures

     (4.7
  

 

 

 

Net cash used in investing activities

     (4.7
  

 

 

 

Cash flows from financing activities:

  

Net transfers to parent

     (30.8
  

 

 

 

Net cash used in financing activities

     (30.8
  

 

 

 

Net change in cash

     —     
  

 

 

 

Cash at beginning of year

     —     
  

 

 

 

Cash at end of year

   $ —     
  

 

 

 

(See Accompanying Notes)

 

5


Gateway Energy & Coke Company, LLC

Statement of Changes in Parent Net Equity

 

     Parent Net
Equity
 
     (Dollars in millions)  

At January 1, 2013

   $ 356.6   

Net income from January 1, 2013 to December 31, 2013

     21.3   

Net decrease in parent net equity

     (30.8
  

 

 

 

At December 31, 2013

   $ 347.1   
  

 

 

 

(See Accompanying Notes)

 

6


Gateway Energy & Coke Company, LLC

Notes to Financial Statements

1. General

Description of Business and Basis of Presentation

The accompanying financial statements of Gateway Energy & Coke Company, LLC (“Granite City” or the “Company”) have been prepared in connection with the sale of a 75.0 percent equity interest in Granite City from SunCoke Energy, Inc. (“SunCoke”) to SunCoke Energy Partners, L.P. (the “Partnership”), which was formed in Delaware on July 30, 2012. The Partnership is a publicly-traded master limited partnership which was established to acquire ownership in certain operations that comprised a portion of the domestic cokemaking operations of SunCoke. At December 31, 2013, SunCoke, through its subsidiary, owns a 55.9 percent partnership interest in the Partnership and owns and controls the Partnership’s general partner.

To effect this transaction, SunCoke expects to sell its 75.0 percent interest in Granite City to the Partnership in exchange for $51.6 million of the Partnership’s equity interests and the assumption of 148.3 million of SunCoke’s senior notes, inclusive of accrued interest of $5.6 million and a $7.7 million call premium. Concurrently, the Partnership expects to issue $200.0 million in private placement notes (the “Debt Offering”). The contributed cokemaking operations are comprised of the cokemaking operations and related assets of SunCoke’s Gateway Energy & Coke Company LLC, located in Granite City, Illinois, which is referred to in the historical SunCoke financial statements as the “Granite City facility.” Construction of the Granite City facility began in May 2008 and coke production began in November 2009. Granite City is principally engaged in the business of manufacturing and selling coke which is the primary raw material in the blast furnace steelmaking process.

The financial statements were prepared using SunCoke’s historical basis in the assets and liabilities of Granite City, and include all revenues, costs, assets, and liabilities attributed to Granite City. The historical financial statements also include allocations of certain costs incurred by SunCoke. Management believes the assumptions and methodology underlying the allocation of general corporate overhead expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by Granite City if it had operated as an independent entity during the periods prior to the transaction or of the costs expected to be incurred in the future. In the opinion of management, the adjustments necessary for a fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) have been made. See Note 3 for further information regarding allocated expenses.

Granite City participates in centralized financing and cash management programs maintained at the SunCoke level. Accordingly, none of SunCoke’s cash or interest income has been included in Granite City’s financial statements. Transfers of cash to and from SunCoke’s financing and cash management program are reflected as a component of parent net equity on the Balance Sheet.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimates.

Revenue Recognition

Granite City sells coke as well as steam and electricity to a third party customer. Revenues related to the sale of products are recognized when title passes, which generally occurs when products are shipped or delivered in accordance with the terms of the respective sales agreements. Revenues are not recognized until sales prices are fixed or determinable and collectability is reasonably assured.

Substantially all of the coke produced by Granite City is sold pursuant to a long-term contract with its customer. Granite City evaluated the contract to determine whether the arrangement contains a lease under the applicable accounting standards. If the specific facts and circumstances indicate that it is remote that parties other than the contracted customer will take more than a minor amount of the coke that will be produced by the property,

 

7


plant and equipment during the term of the coke supply agreement, and the price that the customer is paying for the coke is neither contractually fixed per unit nor equal to the current market price per unit at the time of delivery, then the long-term contract is deemed to contain a lease. The lease component of the price of coke represents the rental payment for the use of the property, plant and equipment, and all such payments are accounted for as contingent rentals as they are only earned by the Company when the coke is delivered and title passes to the customer. The total amount of revenue recognized by the Company for these contingent rentals represents approximately 10 percent of combined sales and other operating revenues for the year ended December 31, 2013.

Cash

During the period presented, Granite City participated in SunCoke’s cash management system. Cash receipts attributed to Granite City’s operations were collected by SunCoke, and cash disbursements were funded by SunCoke. Granite City did not record interest income or expense related to these cash balance transfers. The net effect of these transactions was included in parent net equity in the financial statements.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method, except for materials and supplies inventory, which are determined using the average-cost method.

Granite City utilizes the selling prices under its long-term coke supply contract to record lower of cost or market inventory adjustments.

Properties, Plants and Equipment, Net

Plants and equipment are depreciated on a straight-line basis over their estimated useful lives. Coke and energy plant, machinery and equipment are depreciated over 25 to 30 years. Depreciation is excluded from cost of products sold and operating expenses and is presented separately in the Statements of Operations. Gains and losses on the disposal or retirement of fixed assets are reflected in earnings when the assets are sold or retired. Amounts incurred that extend an asset’s original useful life, increase its productivity or add production capacity are capitalized. Direct costs, such as outside labor, materials, internal payroll and benefits costs, incurred during the construction of a new facility are capitalized; indirect costs are not capitalized. Normal repairs and maintenance costs are expensed as incurred.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset, or group of assets, is considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset, or group of assets, are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets.

Income Taxes

Granite City, as a component of SunCoke, was included in the consolidated federal and certain consolidated, combined or unitary state income tax returns filed by SunCoke. However, Granite City’s provision for income taxes and the deferred income tax amounts reflected in the financial statements have been determined on a theoretical separate-return basis.

Granite City recognizes the financial statement effects of tax positions when it is more likely than not, based on the technical merits, that the tax positions will be sustained upon examination by the tax authorities. Benefits from tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Interest accrued related to unrecognized tax benefits are included in interest cost and penalties accrued related to unrecognized tax benefits are included in income taxes in the Statement of Operations.

Deferred tax asset and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are projected to be recovered or settled.

 

8


Asset Retirement Obligations

The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the asset and depreciated over its remaining estimated useful life. Granite City’s asset retirement obligations primarily relate to costs associated with restoring land to its original state.

Shipping and Handling Costs

Shipping and handling costs are included in cost of products sold and operating expenses.

Fair Value Measurements

Granite City determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required, Granite City utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy included in current accounting guidance. Granite City generally applies the “market approach” to determine fair value. This method uses pricing and other information generated by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety.

Recently Issued Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. Under this ASU, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently reviewing the provisions of ASU 2014-09 but does not expect it to have a material effect on the Company’s financial condition, results of operations, and cash flows.

Labor Concentrations

As of December 31, 2013, Granite City had approximately 112 employees. Approximately 82 or 73%, of Granite City’s employees are currently represented by the United Steelworkers.

3. Related Party Transactions

The related party transactions with SunCoke and its affiliates are described below.

Purchases from Affiliate

During the year ended December 31, 2013, Granite City had purchases of $0.1 million from Kanawaha River Terminal, LLC (“KRT”), a leading metallurgical and thermal coal blending and handling service provider that provides services to SunCoke subsidiaries and other third parties. KRT is a wholly-owned subsidiary of the Partnership and was acquired by the Partnership on October 1, 2013.

During the year ended December 31, 2013, Granite City had purchases of $2.8 million from Indiana Harbor Coke Company, L.P. (“Indiana Harbor”), a cokemaking facility located in East Chicago, Indiana. SunCoke owns approximately 84.2% of Indiana Harbor, with the remaining 14.8% held by DTE Energy Company. SunCoke includes the operations of the Indiana Harbor cokemaking facility in its consolidated financial statements.

 

9


Allocated Expenses

Amounts were allocated from SunCoke for costs attributable to the operations of Granite City. The expenses incurred by SunCoke include costs from certain corporate and shared services functions provided by SunCoke to Granite City. The amounts allocated include all charges that were incurred by SunCoke that were specifically identified as being attributable to Granite City. These costs include legal, accounting, tax, treasury, engineering, information technology, insurance, employee benefit costs, communications, human resources, and procurement. All corporate costs that were specifically identifiable to Granite City have been allocated to Granite City and included in its Statement of Operations. Where specific identification of charges to Granite City was not practicable, a reasonable method of allocation was applied to all remaining general corporate overhead costs. The allocation methodology for all remaining corporate overhead costs is based on management’s estimate of the proportional level of effort devoted by corporate resources that is attributable to Granite City. In the opinion of management, general corporate overhead costs are consumed by the operating facilities principally in equal proportions. The allocation to each facility is further adjusted for certain specific factors identified by management that impact the services provided to or benefits received by each operating facility such as the type of operations and products produced as well as contract and business complexity at each facility. In the opinion of management, the cost allocations have been determined on a basis considered to be a reasonable reflection of all costs of doing business by Granite City. The amounts that would have been or will be incurred on a stand-alone basis could differ from the amounts allocated due to economies of scale, management judgment, or other factors. Management does not believe, however, that it is practicable to estimate what these expenses would have been had the business operated as an independent entity.

Parent Net Equity

Parent net equity represents SunCoke’s historical investment in us, our accumulated net earnings after tax, and the net effect of transactions with and allocations from SunCoke, including cash pooling and general financing activities, cash transfers for capital expenditures and allocations of SunCoke costs, including income taxes.

4. Customer Concentrations

Substantially all coke sales from the Granite City cokemaking facility are made pursuant to a long-term contract with U.S. Steel. Granite City generally does not require any collateral with respect to its accounts receivable. At December 31, 2013, Granite City’s accounts receivable balances were primarily due from U.S. Steel. As a result, Granite City experiences concentrations of credit risk in its accounts receivable with this customer; these concentrations of credit risk may be affected by changes in economic or other conditions affecting the steel industry. At December 31, 2013, receivables due from U.S. Steel were $6.0 million.

Sales to U.S. Steel, in total, accounted for $244.4 million, or 99.9%, of Granite City’s total revenues for the year ended December 31, 2013.

5. Income Taxes

Prior to 2013, Granite City received federal income tax credits for coke production from its cokemaking facility. These tax credits were earned for each ton of coke produced and sold during the four years after the initial coke production at the facility. The eligibility to generate tax credits for coke production expired in November 2013.

The provision for income taxes in the financial statements has been determined on a theoretical separate-return basis. The tax losses and tax credits generated by Granite City have been used by SunCoke and will remain with SunCoke after the transactions described in Note 1. Granite City’s theoretical separate-return basis operating loss and tax credit carry backs may not reflect the tax positions taken or to be taken by SunCoke.

The components of income tax expense are as follows:

 

     Year Ended December 31,  
     2013  
     (Dollars in millions)  

Deferred tax (benefit):

  

U.S. federal

   $ (3.6 )

State

     0.9   
  

 

 

 
   $ (2.7 )
  

 

 

 

 

10


The reconciliation of the income tax expense (benefit) at the U.S. statutory rate to the income tax expense (benefit) is as follows:

 

     Year Ended
December 31,
 
     2013  
     (Dollars in millions)  

Income tax expense (benefit) at 35 percent U.S. statutory rate

   $ 6.5   

Increase (reduction) in income taxes resulting from:

  

Nonconventional fuel credit

     (9.6 )

State taxes

     0.5   

Other

     (0.1
  

 

 

 
   $ (2.7
  

 

 

 

The tax effects of temporary differences that comprise the net deferred income tax asset are as follows:

 

     December 31,  
     2013  
     (Dollars in millions)  

Deferred tax assets:

  

Federal net operating loss carryforward

   $ 48.9   

State net operating loss carryforward

     8.3   

Nonconventional fuel credit carryforward

     85.9   

Other liabilities not yet deductible

     3.0   
  

 

 

 

Deferred tax asset

   $ 146.1   

Less valuation allowance

     (2.9
  

 

 

 

Deferred tax asset, net

   $ 143.2   
  

 

 

 

Deferred tax liabilities:

  

Properties, plants and equipment

   $ (108.4
  

 

 

 

Deferred tax liability

   $ (108.4
  

 

 

 

Net deferred tax asset

   $ 34.8   
  

 

 

 

The net deferred income tax asset is classified in the Balance Sheets as follows:

 

     December 31,  
     2013  
     (Dollars in millions)  

Noncurrent asset

     34.8  
  

 

 

 
   $ 34.8  
  

 

 

 

Sunoco’s consolidated federal income tax returns, which include SunCoke’s federal income tax return, have been examined by the Internal Revenue Service (“IRS”) for all years through the return for the year ended October 4, 2012, the last year for which Sunoco filed a consolidated federal income tax return. Except for refund claims, unrelated to SunCoke, filed by Sunoco for the years 2004 through 2011, agreement has been reached with the IRS on all issues for all years. All years 2007 through October 4, 2012 remain open and it is believed that the years 2004 through 2006 also remain open under certain circumstances. There are no outstanding tax controversies applicable to SunCoke or Granite City which would require recognition of a liability for unrecognized tax benefits at December 31, 2013 and neither SunCoke nor Granite City has recorded liabilities for unrecognized tax benefits, interest or penalties during the year ended December 31, 2013.

6. Inventories

Granite City’s inventory consists of metallurgical coal, which is the principal raw material for Granite City’s cokemaking operations; coke, which is the finished good sold by Granite City to its customers; and materials, supplies and other.

 

11


These components of inventories were as follows:

 

     December 31, 2013  
     (Dollars in millions)  

Coal

   $ 15.7  

Coke

     0.5  

Materials, supplies and other

     5.5  
  

 

 

 
   $ 21.7  
  

 

 

 

7. Properties, Plants and Equipment, Net

The components of net properties, plants and equipment were as follows:

 

     December 31, 2013 (1)  
     (Dollars in millions)  

Coke and energy plant, machinery and equipment

   $ 357.6  

Land and land improvements

     12.5  

Construction-in-progress

     1.1  

Other

     9.1  
  

 

 

 

Gross investment, at cost

     380.3  

Less: accumulated depreciation

     (51.7
  

 

 

 

Total properties, plants and equipment, net

   $ 328.6  
  

 

 

 

 

  (1) Includes assets, consisting mainly of coke and energy plant, machinery and equipment, with a gross investment totaling $371.9 million and accumulated depreciation of $50.6 million at December 31, 2013, respectively, which are subject to long-term contracts to sell coke and are deemed to contain operating leases.

Depreciation expense for the year ended December 31, 2013 was $13.6 million.

8. Asset Retirement Obligations

Granite City’s asset retirement obligations relate to certain contractual obligations, including the retirement and removal of long-lived assets from certain properties. Granite City does not have any unrecorded asset retirement obligations.

The following table provides a reconciliation of changes in the asset retirement obligation during the year ended December 31, 2013 (Dollars in millions):

 

Balance at January 1, 2013

   $ 4.6   

Accretion expense (1)

     0.3   
  

 

 

 

Balance at December 31, 2013

   $ 4.9   
  

 

 

 

 

  (1) Included in cost of products sold and operating expenses.

9. Retirement Benefits Plan

Certain employees of Granite City participate in defined contribution plans sponsored by SunCoke which provide retirement benefits. These plans have been accounted for in the financial statements as multi-employer plans. Granite City’s contributions, which are principally based on its allocable portion of our sponsor’s pretax income and the aggregate compensation levels of participating employees and are charged against income as incurred, amounted to $0.6 million for the year ended December 31, 2013.

 

12


10. Accrued Liabilities

Accrued liabilities consisted of following:

 

     December 31, 2013  
     (Dollars in millions)  

Accrued sales discounts

   $ 13.6  

Accrued benefits

     0.5  

Other taxes payable

     2.6   

Other

     1.5  
  

 

 

 

Total

   $ 18.2  
  

 

 

 

11. Commitments and Contingent Liabilities

The Company, as lessee, has noncancelable operating leases for land, office space and equipment. Total rental expense was $0.5 million for the year ended December 31, 2013.

The aggregate amount of future minimum annual rentals applicable to noncancelable operating leases is as follows:

 

     Minimum
Rental
Payments
 
     (Dollars in millions)  

Year ending December 31:

  

2014

   $ 0.1   

2015

     0.1   

2016

     0.1   

2017 – Thereafter

     0.0   
  

 

 

 

Total

   $ 0.3   
  

 

 

 

The United States Environmental Protection Agency (the “EPA”) has issued Notices of Violations (“NOVs”) for the Granite City cokemaking facility which stem from alleged violations of Granite City’s air emission operating permits for this facility. Granite City is currently working in a cooperative manner with the EPA and the Illinois Environmental Protection Agency to address the allegations, and have lodged a Consent Decree in federal district court that is undergoing review. Settlement may require payment of a civil penalty for alleged past violations as well as the capital projects underway to improve the reliability of the energy recovery systems and enhance environmental performance at the Granite City facility. Granite City anticipates spending approximately $44 million related to these projects and has spent approximately $1 million for the year ended December 31, 2013. Granite City anticipates spending approximately $5 million in 2014 and approximately $39 million in the 2015 to 2016 timeframe.

Granite City is a party to certain other pending and threatened claims. Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of these claims could be resolved unfavorably to Granite City. Management of Granite City believes that any liability which may arise from claims would not be material in relation to the financial position, results of operations or cash flows of Granite City at December 31, 2013.

12. Guarantees

On July 26, 2011, SunCoke issued $400.0 million aggregate principal of senior notes (the “Notes”) in a private placement. The Notes bear interest at a rate of 7.625 percent per annum and will mature in 2019 with all principal paid at maturity. Interest on the Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, commencing on February 1, 2012. The proceeds from the Notes were used to repay certain intercompany indebtedness to Sunoco, to pay related fees and expenses and for general corporate purposes. In connection with SunCoke’s contribution of an additional 33.0 percent interest in the Haverhill and Middletown facilities to the Partnership on May 9, 2014, the Partnership assumed and repaid $160.0 million of the Notes.

 

13


The Notes were offered in the U.S. to qualified institutional buyers in reliance on Rule 144A under the Securities Act, and outside the U.S. to non-U.S. persons in reliance on Regulation S under the Securities Act. On January 25, 2012, SunCoke completed an exchange offer for the Notes for an equal principal amount of the Notes whose sale is registered under the Securities Act.

SunCoke was permitted to redeem some or all of the Notes prior to August 1, 2014 by paying a “make-whole” premium. SunCoke was also permitted to redeem some or all of the Notes on or after August 1, 2014 at specified redemption prices. In addition, prior to August 1, 2014, the Company was permitted to redeem up to 35 percent of the Notes using proceeds of certain equity offerings. As described in Note 1, the Partnership will assume $140.6 million of the Notes, inclusive of $5.6 million of accrued interest, in connection with SunCoke’s contribution of Granite City to the Partnership and the Partnership expects to redeem the Notes upon the close of the transaction at a call premium of $7.7 million.

SunCoke was obligated to offer to purchase the Notes at a price of (a) 101 percent of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase, upon the occurrence of certain change of control events and (b) 100 percent of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase, with the proceeds from certain asset dispositions. These restrictions and prohibitions are subject to certain qualifications and exceptions set forth in the Indenture, including without limitation, reinvestment rights with respect to the proceeds of asset dispositions.

The Notes were SunCoke’s senior unsecured obligations and were guaranteed on a senior unsecured basis by each of SunCoke’s existing and future subsidiaries that guaranteed SunCoke’s credit facilities (collectively, the “Notes Guarantors”). The Notes ranked equally in right of payment to all of SunCoke’s existing and future unsecured unsubordinated debt and senior in right of payment to all of SunCoke’s existing and future debt that was by its terms expressly subordinated in right of payment to the Notes. The Notes were subordinated to indebtedness under SunCoke’s Credit Agreement as well as any future secured debt to the extent of the value of the assets securing such debt.

In connection with its initial public offering, on July 26, 2011 SunCoke also entered into a credit agreement that provided for a seven-year term loan in a principal amount of $300.0 million (the “Term Loan”), repayable in equal quarterly installments at a rate of 1.00 percent of the original principal amount per year, with the balance payable on the final maturity date. Granite City, along with other certain SunCoke subsidiaries, guaranteed certain of SunCoke’s obligations, including the Term Loan and the Notes, and was subject to certain covenants and restrictions under the Term Loan and Notes entered into by SunCoke, as discussed below.

Term Loan

The Term Loan contains certain covenants, restrictions and events of default including, but not limited to, maintaining a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio and limitations on the ability of SunCoke and certain of SunCoke’s subsidiaries, including Granite City, to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates and (viii) consolidate or merge. In addition, under certain circumstances, the Term Loan is subject to mandatory principal prepayments.

The obligations under the Term Loan are guaranteed by certain of SunCoke’s subsidiaries, including Granite City, and secured by liens on substantially all of SunCoke’s and the guarantors’ assets pursuant to a Guarantee and Collateral Agreement, dated as of July 26, 2011, among SunCoke, the subsidiaries of SunCoke party thereto and JPMorgan Chase Bank, N.A, as administrative agent.

 

14


Notes

The Notes contain covenants that, among other things, limit Granite City’s ability and the ability of certain of SunCoke’s subsidiaries, including Granite City, to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates and (viii) consolidate or merge. These covenants are subject to a number of exceptions and qualifications set forth in the Indenture.

As of December 31, 2013, SunCoke was in compliance with all applicable debt covenants contained in the Term Loan and the Notes. The Company does not anticipate violation of these covenants nor does it anticipate that any of these covenants will restrict the Company’s operations or ability to obtain additional financing.

13. Subsequent Events

The Company performed an evaluation of subsequent events through January 12, 2015, the date the financial statements were available to be issued, and determined there were no recognized or unrecognized subsequent events that would require adjustment or additional disclosure in the financial statements as of December 31, 2013.

 

15

Exhibit 99.5

 

GATEWAY ENERGY & COKE COMPANY, LLC

  

FINANCIAL STATEMENTS (UNAUDITED)

  

Statements of Operations (Unaudited) For the Nine months ended September 30, 2014 and 2013

     2   

Balance Sheet at September 30, 2014 (Unaudited) and December 31, 2013

     3   

Statements of Cash Flows (Unaudited) For the Nine months ended September 30, 2014 and 2013

     4   

Statements of Parent Net Equity (Unaudited) For the Nine months ended September 30, 2014 and 2013

     5   

Notes to Financial Statements (Unaudited)

     6   


Gateway Energy & Coke Company, LLC

Statements of Operations

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2014      2013  
     (Dollars in millions)  

Revenues

     

Sales and other operating revenue

   $ 169.1       $ 186.7   
  

 

 

    

 

 

 

Costs and operating expenses

     

Cost of products sold and operating expenses

     132.6         158.0   

Selling, general and administrative expenses

     4.4         5.1   

Depreciation and amortization

     10.2         9.9   
  

 

 

    

 

 

 

Total costs and operating expenses

     147.2         173.0   

Income before income tax

     21.9         13.7   

Income tax expense (benefit)

     7.7         (1.7
  

 

 

    

 

 

 

Net income

   $ 14.2       $ 15.4   
  

 

 

    

 

 

 

(See Accompanying Notes)

 

2


Gateway Energy & Coke Company, LLC

Balance Sheets

(Unaudited)

 

     September 30,
2014
     December 31,
2013
 
     (Unaudited)         
     (Dollars in millions)  

Assets

     

Accounts receivable

   $ 6.1       $ 6.0   

Inventories

     24.8         21.7   

Other current assets

     0.4         0.1   
  

 

 

    

 

 

 

Total current assets

     31.3         27.8   
  

 

 

    

 

 

 

Properties, plans and equipment, net

     322.3         328.6   

Deferred income taxes

     27.0         34.8   
  

 

 

    

 

 

 

Total assets

   $ 380.6       $ 391.2   
  

 

 

    

 

 

 

Liabilities and Parent Net Equity

     

Accounts payable

   $ 19.9       $ 20.7   

Accrued liabilities

     5.5         18.2   
  

 

 

    

 

 

 

Total current liabilities

     25.4         38.9   
  

 

 

    

 

 

 

Asset retirement obligations

     5.2         4.9   

Other deferred credits and liabilities

     0.1         0.3   
  

 

 

    

 

 

 

Total liabilities

     30.7         44.1   
  

 

 

    

 

 

 

Parent Net Equity

     
  

 

 

    

 

 

 

Total parent net equity

     349.9         347.1   
  

 

 

    

 

 

 

Total liabilities and parent net equity

   $ 380.6       $ 391.2   
  

 

 

    

 

 

 

(See Accompanying Notes)

 

3


Gateway Energy & Coke Company, LLC

Statements of Cash Flows

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2014     2013  
     (Dollars in millions)  

Cash flows from operating activities:

    

Net income

   $ 14.2      $ 15.4   

Adjustments to reconcile net income to net cash provided by operating activities

    

Depreciation and amortization

     10.2        9.9   

Deferred income tax

     7.7        (1.7

Stock compensation expense

     0.1        0.1   

Changes in working capital pertaining to operating activities:

    

Accounts receivable

     —          (0.4

Inventories

     (3.1     5.4   

Accounts payable and accrued liabilities

     (13.6     (7.8
  

 

 

   

 

 

 

Other

     (0.1     0.3   
  

 

 

   

 

 

 

Net cash provided by operating activities

     15.4        21.2   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (4.0     (2.1
  

 

 

   

 

 

 

Net cash used in investing activities

     (4.0     (2.1
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net transfers to parent

     (11.4     (19.1
  

 

 

   

 

 

 

Net cash used in financing activities

     (11.4     (19.1
  

 

 

   

 

 

 

Net change in cash

     —          —     
  

 

 

   

 

 

 

Cash at beginning of period

     —          —     
  

 

 

   

 

 

 

Cash at end of period

   $ —        $ —     
  

 

 

   

 

 

 

(See Accompanying Notes)

 

4


Gateway Energy & Coke Company, LLC

Statements of Changes in Parent Net Equity

(Unaudited)

 

     Parent Net
Equity
 
     (Dollars in millions)  

At January 1, 2013

   $ 356.6   

Net income from January 1, 2013 to September 30, 2013

     15.4   

Net decrease in parent net equity

     (19.1

At September 30, 2013

   $ 352.9   
  

 

 

 

At January 1, 2014

   $ 347.1   
  

 

 

 

Net income from January 1, 2014 to September 30, 2014

     14.2   

Net decrease in parent net equity

     (11.4
  

 

 

 

At September 30, 2014

   $ 349.9   
  

 

 

 

(See Accompanying Notes)

 

5


Gateway Energy & Coke Company, LLC

Notes to Financial Statements

(Unaudited)

1. General

Description of Business and Basis of Presentation

The accompanying financial statements of Gateway Energy & Coke Company, LLC (“Granite City”) have been prepared in connection with the sale of a 75.0 percent equity interest in Granite City from SunCoke Energy, Inc. (“SunCoke”) to SunCoke Energy Partners, L.P. (the “Partnership”), which was formed in Delaware on July 30, 2012. The Partnership is a publicly-traded master limited partnership which was established to acquire ownership in certain operations that comprised a portion of the domestic cokemaking operations of SunCoke. At September 30, 2014, SunCoke, through its subsidiary, owns a 54.0 percent partnership interest in the Partnership and owns and controls the Partnership’s general partner.

To effect this transaction, SunCoke expects to sell its 75.0 percent interest in Granite City to the Partnership in exchange for $51.6 million of the Partnership’s equity interests and the assumption of $148.3 million of SunCoke’s senior notes, inclusive of accrued interest of $5.6 million and a call premium of $7.7 million. Concurrently, the Partnership expects to issue $200.0 million in private placement notes (the “Debt Offering”). The contributed cokemaking operations are comprised of the cokemaking operations and related assets of SunCoke’s Gateway Energy & Coke Company LLC, located in Granite City, Illinois, which is referred to in the historical SunCoke financial statements as the “Granite City facility”. Construction of the Granite City facility began in May 2008 and coke production began in November 2009. Granite City is principally engaged in the business of manufacturing and selling coke which is the primary raw material in the blast furnace steelmaking process.

The financial statements were prepared using SunCoke’s historical basis in the assets and liabilities of Granite City, and include all revenues, costs, assets, and liabilities attributed to Granite City. The historical financial statements also include allocations of certain costs incurred by SunCoke. Management believes the assumptions and methodology underlying the allocation of general corporate overhead expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by Granite City if it had operated as an independent entity during the periods prior to the transaction or of the costs expected to be incurred in the future. In the opinion of management, the adjustments necessary for a fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) have been made. See Note 2 for further information regarding allocated expenses.

Granite City participates in centralized financing and cash management programs maintained at the SunCoke level. Accordingly, none of SunCoke’s cash or interest income has been included in Granite City’s financial statements. Transfers of cash to and from SunCoke’s financing and cash management program are reflected as a component of parent net equity on the Balance Sheet.

2. Related Party Transactions

The related party transactions with SunCoke and its affiliates are described below.

Purchases from Affiliate

During the nine months ended September 30, 2014, Granite City had purchases of $0.9 million from Kanawaha River Terminal, LLC (“KRT”), a leading metallurgical and thermal coal blending and handling service provider that provides services to SunCoke subsidiaries and other third parties. KRT is a wholly-owned subsidiary of the Partnership and was acquired by the Partnership on October 1, 2013. Granite City did not have any purchases from KRT for the nine months ended September 30, 2013.

During the nine months ended September 30, 2013, Granite City had purchases of $2.4 million from Indiana Harbor Coke Company, L.P. (“Indiana Harbor”), a cokemaking facility located in East Chicago, Indiana. SunCoke owns approximately 84.2% of Indiana Harbor, with the remaining 14.8% held by DTE Energy Company. SunCoke includes the operations of the Indiana Harbor cokemaking facility in its consolidated financial statements. Granite City did not have any purchases from Indiana Harbor for the nine months ended September 30, 2014.

 

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Allocated Expenses

Amounts were allocated from SunCoke for costs attributable to the operations of Granite City. The expenses incurred by SunCoke include costs from certain corporate and shared services functions provided by SunCoke to Granite City. The amounts allocated include all charges that were incurred by SunCoke that were specifically identified as being attributable to Granite City. These costs include legal, accounting, tax, treasury, engineering, information technology, insurance, employee benefit costs, communications, human resources, and procurement. All corporate costs that were specifically identifiable to Granite City have been allocated to Granite City and included in its statement of operations. Where specific identification of charges to Granite City was not practicable, a reasonable method of allocation was applied to all remaining general corporate overhead costs. The allocation methodology for all remaining corporate overhead costs is based on management’s estimate of the proportional level of effort devoted by corporate resources that is attributable to Granite City. In the opinion of management, general corporate overhead costs are consumed by the operating facilities principally in equal proportions. The allocation to each facility is further adjusted for certain specific factors identified by management that impact the services provided to or benefits received by each operating facility such as the type of operations and products produced as well as contract and business complexity at each facility. In the opinion of management, the cost allocations have been determined on a basis considered to be a reasonable reflection of all costs of doing business by Granite City. The amounts that would have been or will be incurred on a stand-alone basis could differ from the amounts allocated due to economies of scale, management judgment, or other factors. Management does not believe, however, that it is practicable to estimate what these expenses would have been had the business operated as an independent entity.

Parent Net Equity

Parent net equity represents SunCoke’s historical investment in us, our accumulated net earnings after tax, and the net effect of transactions with and allocations from SunCoke, including cash pooling and general financing activities, cash transfers for capital expenditures and allocations of SunCoke costs, including income taxes.

3. Income Taxes

Prior to 2013, Granite City received federal income tax credits for coke production from its cokemaking facility. These tax credits were earned for each ton of coke produced and sold during the four years after the initial coke production at the facility. The eligibility to generate tax credits for coke production expired in November 2013.

The provision for income taxes in the financial statements has been determined on a theoretical separate-return basis. The tax losses and tax credits generated by Granite City have been used by SunCoke and will remain with SunCoke after the transactions described in Note 1. Granite City’s theoretical separate-return basis operating loss and tax credit carry backs may not reflect the tax positions taken or to be taken by SunCoke.

At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the rate as necessary.

Granite City’s effective tax rate for the nine months ended September 30, 2014 was higher than the U.S. federal statutory rate of 35 percent, primarily due to income tax benefits related to tax credits.

Granite City’s effective tax rate for the nine months ended September 30, 2013 was lower than the U.S. federal statutory rate of 35 percent, primarily due to nonconventional fuel credits.

4. Inventories

Granite City’s inventory consists of metallurgical coal, which is the principal raw material for Granite City’s cokemaking operations; coke, which is the finished good sold by Granite City to its customers; and materials, supplies and other.

These components of inventories were as follows:

 

     September 30,
2014
     December 31,
2013
 
     (unaudited)         
     (Dollars in millions)  

Coal

   $ 18.3       $ 15.7  

Coke

     0.6         0.5  

Materials, supplies and other

     5.9         5.5  
  

 

 

    

 

 

 
   $ 24.8       $ 21.7  
  

 

 

    

 

 

 

 

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5. Retirement Benefits Plan

Certain employees of Granite City participate in defined contribution plans sponsored by SunCoke which provide retirement benefits. These plans have been accounted for in the financial statements as multi-employer plans. Granite City’s contributions, which are principally based on its allocable portion of our sponsor’s pretax income and the aggregate compensation levels of participating employees and are charged against income as incurred, amounted to $0.4 million and $0.5 million for the nine months ended September 30, 2014 and 2013, respectively.

6. Accrued Liabilities

Accrued liabilities consisted of following:

 

     September 30,
2014
     December 31,
2013
 
     (unaudited)         
     (Dollars in millions)  

Accrued sales discounts

   $ —         $ 13.6  

Accrued benefits

     0.4         0.5  

Accrued tax payables

     3.3         2.6   

Other

     1.8         1.5  
  

 

 

    

 

 

 

Total

   $ 5.5       $ 18.2  
  

 

 

    

 

 

 

7. Commitments and Contingent Liabilities

The United States Environmental Protection Agency (the “EPA”) has issued Notices of Violations (“NOVs”) for the Granite City cokemaking facility which stem from alleged violations of Granite City’s air emission operating permits for this facility. Granite City is currently working in a cooperative manner with the EPA and the Illinois Environmental Protection Agency to address the allegations, and have lodged a Consent Decree in federal district court that is undergoing review. Settlement may require payment of a civil penalty for alleged past violations as well as the capital projects underway to improve the reliability of the energy recovery systems and enhance environmental performance at the Granite City facility. Granite City anticipates spending approximately $44.4 million related to these projects and has spent approximately $1.2 million for the nine months ended September 30, 2014. We anticipate spending approximately $0.9 million during the remaining three months of 2014 and approximately $41.5 million in the 2015 to 2017 timeframe.

Granite City is a party to certain other pending and threatened claims. Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of these claims could be resolved unfavorably to Granite City. Management of Granite City believes that any liability which may arise from claims would not be material in relation to the financial position, results of operations or cash flows of Granite City at December 31, 2013.

8. Subsequent Events

Granite City performed an evaluation of subsequent events through January 12, 2015, the date the financial statements were available to be issued and determined there were no recognized or unrecognized subsequent events that would require adjustment or additional disclosure in the financial statements as of September 30, 2014.

 

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