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International Steel - Cleveland Buy Sell Agreement

PELLET SALE AND PURCHASE AGREEMENT

 

THIS AGREEMENT, entered into, dated and effective as of April 10, 2002

("Agreement"), by and among THE CLEVELAND-CLIFFS IRON COMPANY, an Ohio

corporation ("Iron"), CLIFFS MINING COMPANY, a Delaware corporation ("Mining"),

NORTHSHORE MINING COMPANY, a Delaware corporation ("Northshore"), NORTHSHORE

SALES COMPANY, an Ohio corporation ("Sales"; Iron, Mining, Northshore and Sales

being collectively referred to herein as "Cliffs"), INTERNATIONAL STEEL GROUP

INC., a Delaware corporation ("ISG"), ISG CLEVELAND INC., a Delaware

corporation, ("ISG Cleveland"), and ISG INDIANA HARBOR INC., a Delaware

corporation ("ISG Indiana Harbor"; ISG, ISG Cleveland and ISG Indiana Harbor

being collectively referred to herein as "Steel").

 

RECITALS

 

WHEREAS, Cliffs desires to sell to Steel and Steel desires to purchase

from Cliffs certain quantities of grades of iron ore standard pellets as

follows: (i) such grades of iron ore standard pellets being those produced at

the Empire Iron Mining Partnership iron ore pellet plant ("Empire Pellets"),

located in Palmer, Michigan ("Empire Mine"); (ii) such grades of iron ore

standard pellets being those produced at the Northshore Mining Company iron ore

pellet plant ("Northshore Pellets"), located in Silver Bay, Minnesota

("Northshore Mine"); (iii) such grades of iron ore standard pellets being those

produced at the Hibbing Taconite Company Joint Venture iron ore pellet plant

("Hibbing Pellets"), located in Hibbing, Minnesota ("Hibbing Mine"); or (iv)

such other pellet grades as may be mutually agreed to by the parties hereto

(such Empire Pellets, Northshore Pellets, Hibbing

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Pellets, and other mutually agreed upon pellets collectively being referred to

herein as "Cliffs Pellets"), all on the conditions contained herein.

 

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set

forth, Cliffs and Steel agree as follows:

 

SECTION 1. - DEFINITIONS.

 

The terms quoted in the above parentheses of the first introductory

paragraph of this Agreement and the WHEREAS clause, other terms quoted

throughout this Agreement, and the terms defined below in this Section 1 shall

have the meanings assigned to them for purposes of this Agreement. Attached as

Appendix I to this Agreement is a locator list of all defined terms used

throughout the Agreement.

 

(a). The words, "Steel's Annual Pellet Tonnage Requirements", as used

herein, shall mean for any year a tonnage amount equal to Steel's total annual

iron ore pellet tonnage requirements required for consumption in Steel's iron

and steel making facilities in any year at ISG Cleveland, located in Cleveland,

Ohio ("Cleveland Works") and at ISG Indiana Harbor, located in Indiana Harbor,

Indiana ("Indiana Harbor Works").

 

(b). The word "pellets", as used herein, shall mean iron-bearing products

obtained by the pelletizing of iron ore or iron ore concentrates, suitable for

making iron in blast furnaces.

 

(c). The word "ton", as used herein, shall mean a gross ton of 2,240

pounds avoirdupois natural weight.

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(d). The words "net ton", as used herein, shall mean a ton of 2,000 pounds

avoirdupois natural weight.

 

(e). The word "year", as used herein, shall mean a calendar year

commencing on January 1 and ending December 31.

 

(f). The words "shuttle tons", as used herein, shall mean pellets which

are destined for Cleveland Works deliveries, which are first unloaded from

vessel onto a dock which is not a Steel dock or a dock designated by Steel

pursuant to Section 8(a).

 

SECTION 2. - SALE AND PURCHASE/TONNAGE.

 

During each of the years 2002 through 2016, and each year thereafter as

long as this Agreement remains in effect, Cliffs shall sell and deliver to Steel

and Steel shall purchase and receive from Cliffs and pay for a tonnage of Cliffs

Pellets which tonnage shall be equal to Steel's Annual Pellet Tonnage

Requirements for each such year.

 

SECTION 3. - QUALITY

 

(a). Cliffs Pellets when loaded for shipment will be consistent with the

typical specifications and analysis limits set forth in Exhibit 1.

 

(b). In the event the monthly average vessel analysis exceeds one standard

deviation as set forth in Exhibit 1, Cliffs will take such actions as shall be

necessary to achieve specification conformity. If specification conformity

cannot be achieved, Steel and Cliffs shall negotiate in good faith to determine

what actions or remedies, if any, are appropriate. If any two vessel shipments

made during any calendar month have analysis that exceeds the analysis limits in

the

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specifications set forth in Exhibit 1, Steel may refuse any subsequent vessel

shipments during that calendar month, and Steel shall not be required to accept

any subsequent shipments until Cliffs has taken action to remedy the

non-conformity so that future shipments will be within the analysis limits. If

more than two vessel shipments made during any calendar month have analysis that

exceeds such limits, Cliffs and Steel shall negotiate an appropriate cost

adjustment (if any) for the cargoes in excess of the first cargo that exceeded

the analysis limits, based upon the additional costs (if any) to Steel

associated with the quality specifications in the additional vessel shipments

made during that calendar month that exceeded such analysis limits.

 

(c). Shuttle tons from the Cleveland Bulk Terminal shall be sampled and

analyzed for the - 1/4" size fraction as they are being loaded into a vessel for

delivery to Steel's dock. Shuttle tons shall not have a significant increase in

the - 1/4" size fraction versus the non-shuttle tons delivered to the Cleveland

Works pursuant to Section 8(a). In the event that two shuttle tons vessel

shipments during any month display an increase in the - 1/4" size fraction of [*

* * *] or more versus non-shuttle delivered tons, Steel and Cliffs shall meet to

determine the cause of the significant increase and the corrective action to

reduce the significant increase. If a corrective action cannot be implemented to

reduce the - 1/4" size fraction below the [* * * *] increase, then Steel and

Cliffs shall meet to work out a good faith adjustment.

 

SECTION 4. - NOTIFICATION AND NOMINATION.

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(a). With respect to the tonnage of Cliffs Pellets to be purchased by

Steel for the year 2002, as provided in Section 2, on or before April 30 of the

current year, Steel shall notify Cliffs in writing of Steel's preliminary

tonnage of Steel's Annual Pellet Tonnage Requirements which Steel shall purchase

from Cliffs. Such notification shall include: (i) Steel's Annual Operating Plan

for the balance of the current year detailed by months, as such Annual Operating

Plan relates to Steel's planned monthly consumption of all pellets for such

year; (ii) the tonnage of Cliffs Pellets which Steel expects to purchase in the

current year from Cliffs; and (iii) Steel's planned monthly pellet consumption

for the first four months of the year 2003.

 

(b). With respect to the tonnage of Cliffs Pellets to be purchased by

Steel for each of the years 2003 through 2016, as provided in Section 2, on or

before November 1 of each of the years prior to the years above, Steel shall

notify Cliffs in writing of Steel's preliminary tonnage of Steel's Annual Pellet

Tonnage Requirements which Steel shall purchase from Cliffs. Such notification

shall include: (i) Steel's Annual Operating Plan for the following year detailed

by months, as such Annual Operating Plan relates to Steel's planned monthly

consumption of all pellets for such year ("Steel's AOP"); (ii) the tonnage of

Cliffs Pellets which Steel expects to purchase in the following year from

Cliffs; (iii) Steel's expected total pellet inventory as of December 31 for the

then current year; (iv) Steel's planned total pellet inventory on December 31

for the following year; and (v) Steel's planned monthly pellet consumption for

the first four months of the year which succeeds the following year.

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(c). With respect to the tonnage of Empire Pellets, Northshore Pellets and

Hibbing Pellets which Cliffs will have available for sale to Steel in 2002, on

or before May 31, 2002, and in each succeeding year on or before December 31 of

each year prior to the years in Section 4(b) above, Cliffs shall notify Steel in

writing as to the tonnage of Empire Pellets, Northshore Pellets and Hibbing

Pellets Cliffs shall sell to Steel, which tonnage shall equal Steel's Annual

Pellet Tonnage Requirements for such year.

 

(d). With respect to Steel's Annual Pellet Tonnage Requirements as

provided for in Sections 4(a) and 4(b) above, Steel shall notify Cliffs by the

15th day of each month for the year in determination: (i) Steel's actual

consumption of all pellets for the previous month, and (ii) Steel's planned

monthly consumption of all pellets for the balance of the year and the first

four months of the following year. In the first month's notice of each such

year, as provided for under this Section (d), Steel shall also advise Cliffs of

Steel's actual total pellet inventory as of December 31 for the previous year.

 

(e). If during the course of the year, Steel's Annual Pellet Tonnage

Requirements decrease from Steel's preliminary nomination provided pursuant to

Section 4(b) above, then the tonnage of Cliffs Pellets which Steel shall

purchase from Cliffs shall be reduced by an amount equal to the shortfall of the

actual pellet consumption versus the nominated pellet consumption. In addition,

Steel's Annual Pellet Tonnage Requirements shall not be modified so as to change

Steel's planned total pellet inventory at the end of the then current year

unless such modification is agreed to by Cliffs.

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(f). If, during the course of the year, Steel's Annual Pellet Tonnage

Requirements increase from Steel's preliminary nomination provided pursuant to

Section 4(b) above, then Steel shall notify Cliffs in writing of any such

increase in Steel's Annual Pellet Tonnage Requirements. Cliffs shall advise

Steel in writing within fifteen (15) days of receipt of Steel's notice as to

Cliffs' ability to supply all or any portion of such increased tonnage, which

Cliffs shall sell and Steel shall purchase as provided for in Cliffs notice at

the contract prices provided for in this Agreement. In the event Cliffs cannot

supply any portion of such increased tonnage, Steel and Cliffs shall work

together to attempt to procure such additional tonnage for Steel.

 

(g). In each year after 2004, upon reasonable notification and by mutual

agreement, Steel may, for trial purposes, substitute up to 5% of Steel's Annual

Pellet Tonnage Requirements for Northshore Pellets and/or Empire Pellets with

another grade of Cliffs' produced pellets ("Substitute Pellets"). In the event

an additional cost is incurred by Cliffs in producing or delivering the

Substitute Pellets, then an appropriate price adjustment shall be made to the

contract price for the tonnage of Substitute Pellets.

 

SECTION 5. - PRICE, ADJUSTMENTS AND [****].

 

(a). The price for the Cliffs Pellets, either currently at or to be

delivered to Steel's Cleveland Works or other dock area designated by Steel

pursuant to Section 8(a), shall be as follows: (i) for the year 2002, the

[* * * *] Northshore Pellets and Hibbing Pellets (which are currently located at

Steel's Cleveland Works blast furnace ore yard) sold by Cliffs and purchased by

Steel shall be

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[* * * *] per ton; (ii) the price for the [* * * *] Northshore Pellets and

Hibbing Pellets (which are currently located at the Lorain Pellet Terminal,

Lorain, Ohio) sold by Cliffs and purchased by Steel shall be [* * * *] per ton;

and (iii) except for the price [* * * *] as provided for the specific Cliffs

Pellets as described in Sections 5(a)(i) and 5(a)(ii) above, all other Cliffs

Pellets sold by Cliffs and purchased by Steel in the year 2002 shall have a

final year 2002 price of [* * * *] per iron unit (which at the expected natural

iron content of [* * * *] for Northshore pellets equals [* * * *] per ton).

 

(b). The price for the Cliffs Pellets, either currently at or to be

delivered to Steel's Indiana Harbor Works shall be as follows: (i) for the year

2002, the [* * * *] Empire Pellets (which are currently located at Steel's

Indiana Harbor Works blast furnace ore yard) sold by Cliffs and purchased by

Steel shall be [* * * *] per ton; and (ii) except for the price [* * * *] for

the specific Cliffs Pellets described in Section 5(b)(i) above, all other Cliffs

Pellets sold by Cliffs and purchased by Steel in the year 2002, shall have a

final year 2002 price of [* * * *] per iron unit (which at the expected natural

iron content of [* * * *] for Empire pellets equals [* * * *] per ton).

 

(c). The prices for the specific grades of Cliffs Pellets sold and

purchased in each of the years 2003 and thereafter for the Cleveland Works or

other dock area designated by Steel pursuant to Section 8(a), and the Indiana

Harbor Works shall be based on the 2002 base prices per iron unit as described

in Section 5(a) (iii) and 5(b)(ii) above ("2002 base prices per iron unit for

each of the Cleveland Works and the Indiana Harbor Works"), which 2002 base

prices per iron

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unit for each of the Cleveland Works and the Indiana Harbor Works shall then be

adjusted, up or down, in the year 2003 and each year thereafter by an amount as

determined in accordance with Section 5(d) below.

 

(d). In order to determine the adjusted prices to be paid each year for

the Cliffs Pellets, as provided for under Section 5(c), the 2002 base prices per

iron unit for each of the Cleveland Works and the Indiana Harbor Works and each

of the following respective year's then adjusted prices per iron unit for each

of the Cleveland Works and the Indiana Harbor Works shall be further adjusted,

up or down, each year for the year in determination as follows:

 

(1) Divide (x) the numerator, which is the amount by which the

[* * * *] for the calendar year in determination changes (up

or down) from the immediately preceding calendar year's

[* * * *]; by (y) the denominator, which is the immediately

preceding calendar year's [* * * *], and multiply the result

obtained by [* * * *]; and

 

(2) Multiply the results determined in (1) above by the preceding

year's adjusted prices per iron unit for each of the Cleveland

Works and the Indiana Harbor Works which will then equal the

current year's price adjustment per iron unit for each of the

Cleveland Works and the Indiana Harbor Works; and

 

(3) Add the result determined in (2) above to the preceding year's

adjusted price per iron unit for each of the Cleveland Works

and the Indiana Harbor Works, which then will equal the

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current year's adjusted prices per iron unit for each of the

Cleveland Works and the Indiana Harbor Works.

 

Those adjusted prices per iron unit for each of the Cleveland Works and

the Indiana Harbor Works shall then become the contract's year final price for

the Cliffs Pellets delivered to the Cleveland Works and the Indiana Harbor Works

for the year in determination, and shall be the starting base for determining

the following year's adjusted prices per iron unit for the Cleveland Works and

the Indiana Harbor Works.

 

(e). The price for all tons sold by Cliffs to Steel shall be based on

actual natural iron content shipped. Notwithstanding the previous sentence,

payments for the years 2002 through 2004, as described in Section 6(a), shall be

based on actual natural iron content consumed by Steel.

 

(f). Attached as Exhibit 2 is an example of the adjustment formula

applying the provisions of Sections 5(c) and 5(d).

 

(g). (i) Beginning in 2003, an [* * * *] shall be made in each year,

wherein Cliffs shall pay Steel or Steel shall pay Cliffs, as the case may be, if

[* * * *] average annual [* * * *] for actual [* * * *] in any contract year is

[* * * *] or [* * * *]. The amount of the [* * * *] shall be determined as

follows:

 

(1) In any contract year in which [* * * *] average [* * * *] for

actual [* * * *] is [* * * *], Cliffs shall pay Steel an

amount equal to: (w) the amount [* * * *], (x) multiplied by

[* * * *], (y) multiplied by the contract year's average

weighted pellet price per ton

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for the Cliffs Pellets consumed by Steel, (z) multiplied by

the total tons of Cliffs Pellets which Steel consumed in the

contract year.

 

(2) In any contract year in which [* * * *] average [* * * *] for

actual [* * * *] is [* * * *], Steel shall pay Cliffs an

amount equal to: (w) the amount [* * * *] (x) multiplied by

[* * * *], (y) multiplied by the contract year's average

weighted pellet price per ton for the Cliffs Pellets consumed

by Steel, (z) multiplied by the total tons of Cliffs Pellets

which Steel consumed in the contract year.

 

(3) For the purpose of estimating the [* * * *], a [* * * *]

payment calculation shall be made by [* * * *] following the

end of each quarter, using the formula provided for in

Sections 5(g)(i)(1) and 5(g)(i)(2) above for each quarter.

This calculation (and payment, if any) shall be based on

[* * * *] average [* * * *] for actual [* * * *] for the

quarter and the pellet tonnage consumed by Steel in that

quarter. Within 30 days following each quarter [* * * *] shall

notify [* * * *] in writing of the amount (if any) payable by

Cliffs to Steel or Steel to Cliffs, and a quarterly payment,

if any, shall be made by Cliffs to Steel or Steel to Cliffs,

as the case may be, within 45 days after the end of each

quarter.

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(4) The final [* * * *] calculation shall be made after the end of

the year in accordance with Sections 5(g)(i)(1) and 5(g)(i)(2)

above which will reflect [* * * *] actual average annual [* *

* *] for actual [* * * *] for the full calendar year, and an

adjustment will be made to reflect any difference between the

actual year's [* * * *] and the quarterly estimated payments

that were made during the year. Payment due, from either

party, as a result of the actual annual calculation shall be

made by February 15 of the year following the contract year.

 

(5) Attached as Exhibits 3 and 4 are examples of the calculations

applying the provisions of Sections 5(g)(i) and 5(g)(ii).

 

(ii) In the event that in any year [* * * *] annual total [* * * *]

are less than [* * * *] of [* * * *] total annual [* * * *], then

Cliffs and Steel agree to substitute another [* * * *] for the [* *

* *] which substituted [* * * *] comprises an amount in excess of [*

* * *] of [* * * *] total annual [* * * *] in order to determine the

[* * * *]. The [* * * *] and [* * * *] which are used for the [* * *

*], as provided for in Section 5(g)(i) above, shall be adjusted as

follows: (i) the actual average [* * * *] of [* * * *] substituted

[* * * *] from the previous year, less (ii) the [* * * *] from the

previous year, (iii) with the difference between (i) and (ii) above

being added to both the [* * * *] and the [* * * *] to determine the

revised [* * * *] for the substituted [* * * *] in order to

determine the [* * * *].

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SECTION 6. - PAYMENTS AND ADJUSTMENTS.

 

(a). For the years 2002 through 2004 and for all tonnage delivered through

March 31, 2005, Steel shall pay Cliffs [* * * *], via wire transfer, an amount

to be equal to the result of: (i) Steel's planned pellet consumption for the [*

* * *] period beginning with the [* * * *], less (ii) the pellets which Steel

has in its inventory on [* * * *] for both the Cleveland Works and the Indiana

Harbor Works, (iii) with the difference between (i) and (ii) above being

multiplied by the appropriate estimated price per ton. The appropriate estimated

price per ton shall be calculated by multiplying the contract year's estimated

price per iron unit with Steel's estimated iron content of the Cliffs Pellets

being consumed during the following [* * * *] period.

 

(b). Beginning with vessel deliveries on April 1, 2005, Cliffs shall

invoice Steel for an amount based on the estimated prices per ton for the

contract year for [* * * *] pellet shipment deliveries [* * * *] to Steel's

Cleveland Works and Indiana Harbor Works with payment to be made by Steel to

Cliffs via wire transfer on the [* * * *] following the [* * * *] pellet

deliveries.

 

(c). Following each contract year, final adjustments and payments shall

be determined as follows:

 

(1) The adjustment for the actual average natural iron content of

Cliffs Pellets shall be determined by Cliffs and verified in

detail in writing to Steel by an officer of Cliffs, such

verification due no later than January 31 of the year

following a contract year,

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and the payment from Cliffs to Steel or Steel to Cliffs, as

the case may be, shall be made by February 15 of that year;

 

(2) The final [* * * *] shall be determined by [* * * *] and

verified in detail in writing to [* * * *] by an officer of [*

* * *], such verification due no later than January 31 of the

year following a contract year, and payment from Cliffs to

Steel or Steel to Cliffs, as the case may be, shall be made by

February 15 of that year; and

 

(3) The adjustment to the contract year's price identified

pursuant to Section 5(d) shall be made by [* * * *] by March

15 of the following year (using the most recent final estimate

of the [* * * *] which shall be verified in writing by an

officer of [* * * *]. Cliffs shall issue an invoice or credit

memo, as the case may be, to Steel, and payment from Cliffs to

Steel or Steel to Cliffs, as the case may be, shall be made by

April 15 of that year.

 

(d). During each of the years 2002 through 2005, Cliffs shall have the

right to conduct a minimum of two pellet stockpile surveys each year at each of

the Cleveland Works and Indiana Harbor Works to verify (i) the tonnage of [* * *

*] which Steel has [* * * *] and (ii) the tonnage of [* * * *] currently [* * *

*] in stockpile at the Cleveland Works and the Indiana Harbor Works. In the

event that the pellet stockpile survey results vary by more than [* * * *]

(above or below) from [* * * *] (after taking into account actual iron units

shipped versus actual iron units consumed), then Cliffs shall issue an invoice

or credit memo, as the case may be,

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to Steel, for the amount of the difference in the stockpile survey results that

vary by more than [* * * *] above or below [* * * *], and payment from Cliffs to

Steel or Steel to Cliffs, as the case may be, shall be made within 30 days

following the pellet stockpile survey. If the pellet stockpile survey results

vary by [* * * *] or more (above or below) from [* * * *] (after taking into

account actual iron units shipped versus actual iron units consumed), then

Cliffs and Steel shall have an independent third party conduct another pellet

stockpile survey. The results of the independent third party survey shall be

final and Cliffs shall issue an invoice or credit memo, as the case may be, to

Steel, and payment from Cliffs to Steel or Steel to Cliffs, as the case may be,

shall be made within 30 days following the independent third party's pellet

stockpile survey.

 

(e). At their own expense, Cliffs and/or Steel shall have an annual right

to have the information and calculations relating to the contract price, [* * *

*], and adjustments verified by an independent third party auditor. In the event

Steel shall fail to make payment when due of all amounts, Cliffs, in addition to

all other remedies available to Cliffs in law or in equity, shall have the

right, but not the obligation, to withhold further performance by Cliffs under

this Agreement until all claims Cliffs may have against Steel under this

Agreement are fully satisfied.

 

(f). All payments shall be made in U.S. dollars.

 

SECTION 7. - SAMPLING AND ANALYSES.

 

All pellet sampling procedures and analytical tests conducted on Cliffs

Pellets sold to Steel to demonstrate compliance with typical specifications and

analysis limits shall be performed on each pellet vessel shipment. Test methods

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to be used shall be the appropriate ASTM or ISO standard methods published at

the time of testing or the customary procedures and practices, or any other

procedures and practices that may be mutually agreed to by Cliffs and Steel.

Steel may, at any time and from time to time through one or more authorized

representatives, and with prior notice to Cliffs be present during production,

loading, or to observe sampling and analysis of pellets being processed for

shipment to Steel.

 

SECTION 8. - DELIVERY, STORAGE AND TRANSFER OF OWNERSHIP.

 

(a). Cliffs shall deliver to Steel the annual tonnage of Cliffs Pellets

for the Cleveland Works to the Cleveland Work's blast furnace ore yard or other

vessel dock in the Cleveland, Ohio area that Steel designates. Steel shall make

dock storage space available so that Cliffs can deliver and have in inventory in

[* * * *] name up to [* * * *] tons of pellets at any time and Steel will work

to make more dock storage space available if practicable.

 

(b). Cliffs shall deliver to Steel the annual tonnage of Cliffs Pellets

for the Indiana Harbor Works to the Indiana Harbor Works' blast furnace ore yard

and Steel shall make dock storage space available so that Cliffs can deliver and

have in inventory in [* * * *] up to [* * * *] tons of pellets at any time.

 

(c). Title, and all risk of loss, damage or destruction of Cliffs Pellets

shall transfer to Steel upon [* * * *] or upon [* * * *], as the case may be.

 

SECTION 9. - SHIPMENTS.

 

Shipments of Cliffs Pellets shall be in approximately equal amounts over

the nine month period of April through December each year during the term of

this

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Agreement to ensure an adequate amount of inventory to allow a working pellet

pile at Steel's blast furnace ore docks. Cliffs shall work to annually direct

ship a minimum of [* * * *] of Steel's pellet requirements for Steel's Cleveland

Works.

 

SECTION 10. - WEIGHTS.

 

(a). Except as set forth in Section 10(b) below, vessel bill of lading

weight determined by certified railroad scale weights, certified belt scale

weights, or certified bin scale weights in accordance with the procedures in

effect from time to time at each of the loading ports shall be accepted by the

parties as finally determining the amount of Cliffs Pellets delivered to Steel

pursuant to this Agreement.

 

(b). Steel shall have the right to have a draft survey performed on

vessels by an independent third party contractor at the loading port (where the

pellets are first loaded into a vessel for shipment) at Steel's expense and

Steel shall afford Cliffs an opportunity to have a representative present by

providing Cliffs a minimum of two days' notice prior to having any draft survey

performed. If the vessel bill of lading weight is more than [* * * *] higher or

more than [* * * *] lower than the draft survey weight, then the draft survey

weight shall be the weight used in calculating the value of the cargo. In the

event that the variance is greater than [* * * *], Cliffs and Steel will

investigate and remedy the cause of the variance.

 

SECTION 11. - EMPLOYMENT OF VESSELS.

 

Cliffs assumes the obligation for arranging and providing appropriate

vessels for the transportation of the Cliffs Pellets delivered by Cliffs to

Steel

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hereunder. Steel shall arrange for suitable pellet unloading facilities at the

Cleveland Works and Indiana Harbor Works blast furnace ore yards ports.

 

SECTION 12. - WARRANTIES.

 

THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, WHICH EXTEND BEYOND THE

PROVISIONS OF THIS AGREEMENT, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR

FITNESS FOR INTENDED PURPOSE. All notices for substantial variance in

specifications of the Cliffs Pellets from the specifications and analysis limits

described in Exhibit 1 shall be given in writing delivered to Cliffs within

sixty (60) calendar days after completion of discharge of the Cliffs Pellets at

the Cleveland Works or Indiana Harbor Works blast furnace ore yards, or any

claim arising from any substantial variance shall be deemed waived by Steel.

Each party shall afford the other party prompt and reasonable opportunity to

inspect the Cliffs Pellets as to which any notice is given as above stated. No

claim will be entertained after the Cliffs Pellets have been consumed. The

Cliffs Pellets shall not be returned to Cliffs without prior written consent of

Cliffs. In no event shall Cliffs be liable for Steel's cost of processing, lost

profits, injury to good will or any other special or consequential damages.

 

SECTION 13. - FORCE MAJEURE.

 

No party hereto shall be liable for damages resulting from failure to

produce, deliver or accept all or any of the Cliffs Pellets as described herein,

if and to the extent that such production, delivery or acceptance would be

contrary to or would constitute a violation of any regulation, order or

requirement of a recognized governmental body or agency, or if such failure is

caused by or results directly or

<PAGE>

 

 

 

indirectly from acts of God, war, insurrections, interference by foreign powers,

strikes, labor disputes, fires, floods, embargoes, accidents, acts of terrorism,

or uncontrollable delays at the mines or either steel plant, on the railroads,

docks or in transit, shortage of transportation facilities, disasters of

navigation, or other causes, similar or dissimilar, that are beyond the control

of the party charged with a failure to deliver or to accept the Cliffs Pellets.

A party claiming a force majeure shall give the other party prompt notice of the

force majeure, including the particulars thereof and, insofar as known, the

probable extent and duration of the force majeure. To the extent a force majeure

is claimed hereunder by a party hereto, such shall relieve the other party from

fulfilling its corresponding agreement hereunder to the party claiming such

force majeure, but only for the period affected by and to the extent of the

claimed force majeure, unless otherwise mutually agreed to by the parties. The

party that is subject to a force majeure shall use commercially reasonable

efforts to cure or remove the force majeure event as promptly as possible to

resume performance of its obligations under this Agreement.

 

SECTION 14. - NOTICES.

 

All notices, consents, reports and other documents authorized and required

to be given pursuant to this Agreement shall be given in writing and either

personally served on an officer of the parties hereto to whom it is given or

mailed, postage prepaid, or sent by telegram or facsimile addressed as follows:

 

If to Cliffs:

1100 Superior Avenue - 15th Floor

Cleveland, Ohio 44114-2589

Attention: Secretary

<PAGE>

 

 

 

cc: Vice President-Sales

Facsimile: (216) 694-5385

 

If to Steel:

3100 East 45th Street

Cleveland, Ohio 44127

Attention: Vice President, Finance

 

and Administration

Facsimile: (216) 429-6003

 

provided, however, that any party may change the address to which notices or

other communications to it shall be sent by giving to the other party written

notice of such change, in which case notices and other communications to the

party giving the notice of the change of address shall not be deemed to have

been sufficiently given or delivered unless addressed to it at the new address

as stated in said notice.

 

SECTION 15. - TERM.

 

(a). The term of this Agreement shall commence as of April 10, 2002 and

continue through December 31, 2016. Unless either party has given written notice

of termination to the other party by December 31, 2014 (two years prior to

termination), this Agreement shall continue on an annual basis after December

31, 2016 (original termination year) subject to subsequent termination by either

party upon not less than two years' prior written notification to the other

party, in which case the Agreement shall terminate at the end of the second

succeeding year.

 

(b). This Agreement shall remain valid and fully enforceable for the

fulfillment of obligations incurred prior to termination.

 

SECTION 16. - AMENDMENT.

 

This Agreement may not be modified or amended except by an instrument

<PAGE>

 

 

 

in writing signed by the parties hereto.

 

SECTION 17. - MERGER, TRANSFER AND ASSIGNMENT.

 

(a). Steel shall not merge, consolidate or reorganize with any person,

partnership, corporation or other entity unless the surviving or resulting

person, partnership, corporation or other entity assumes in writing all of

Steel's obligations under this Agreement. Any obligations required to be assumed

by a surviving or resulting person, partnership, corporation or entity in

accordance with this Section 17(a) shall be limited to the Steel obligations

under this Agreement, and this Section 17(a) is not intended (i) to impose and

shall not be deemed to impose upon any such surviving or resulting person,

partnership, corporation or entity, including Steel, any obligation with respect

to any pellet requirements it may have for any facility or facilities it owns or

operates other than the Cleveland Works and the Indiana Harbor Works, nor (ii)

to allow the surviving or resulting person, partnership, corporation or other

entity to substitute any other pellet tonnage available from any other pellet

purchase or pellet equity commitment of such surviving or resulting person,

partnership, corporation or other entity in order to satisfy the assumed

obligations under this Agreement for the Cleveland Works and Indiana Harbor

Works.

 

(b). Steel shall not sell or transfer all or any of the blast furnace

operations at (i) the Cleveland Works, (ii) the Indiana Harbor Works, or (iii)

both the Cleveland Works and the Indiana Harbor Works to any other person,

partnership, corporation, joint venture or other entity ("Transferee") unless

the Transferee assumes in writing all of Steel's obligations under this

Agreement, as

<PAGE>

 

 

 

such obligations relate to the Cleveland Works and/or the Indiana Harbor Works

being sold or transferred. Any obligations required to be assumed by a

Transferee in accordance with this Section 17(b) shall be limited to the Steel

obligations under this Agreement relating to the particular facility or

facilities sold or transferred. This Section 17(b) is not intended (i) to impose

and shall not be deemed to impose upon any such Transferee any obligation with

respect to any pellet requirements such Transferee may have for any facility or

facilities such Transferee owns or operates other than the Cleveland Works

and/or the Indiana Harbor Works, nor (ii) to allow such Transferee to substitute

any other pellet tonnage available from any other pellet purchase or pellet

equity commitment of such Transferee in order to satisfy the assumed obligations

under this Agreement.

 

(c). Steel shall not assign its rights or delegate its obligations under

this Agreement except as provided in Section 17(a) or 17(b).

 

(d). Cliffs shall not merge, consolidate or reorganize with any person,

partnership, corporation or other entity unless the surviving or resulting

person, partnership, corporation or other entity assumes in writing all of

Cliffs' obligations under this Agreement. Cliffs shall not sell or transfer all

or substantially all of its iron ore business to any other person, partnership,

corporation, joint venture or other entity ("Cliffs Transferee") unless the

Cliffs Transferee assumes in writing all of Cliffs' obligations under this

Agreement.

 

(e). Cliffs shall not assign its rights or delegate its obligations under

this Agreement except as provided in Section 17(d).

<PAGE>

 

 

 

(f). All the covenants, stipulations and agreements herein contained shall

inure to the benefit of and bind the parties hereto and their respective

successors, transferees and permitted assigns, and any of the latter's

subsequent successors, transferees and permitted assigns.

 

SECTION 18. - WAIVER.

 

No waiver of any of the terms of this Agreement shall be valid unless in

writing. No waiver or any breach of any provision hereof or default under any

provisions hereof shall be deemed a waiver of any subsequent breach or default

of any kind whatsoever.

 

SECTION 19. - CONFIDENTIALITY.

 

(a). Cliffs and Steel acknowledge that this Agreement contains certain

pricing, adjustment and term provisions which are confidential, proprietary or

of a sensitive commercial nature and which would put Cliffs or Steel at a

competitive disadvantage if disclosed to the public, including without

limitation, Sections 3(b) and (c), Section 5, Section 6 and all of the Schedules

and Exhibits hereto ("Confidential Information"). Cliffs and Steel agree that

all provisions of this Agreement shall be kept confidential and, without the

prior written consent of the other party, shall not be disclosed to any party

not a party to this Agreement except as required by law or governmental or

judicial order and except that disclosure of the existence of this Agreement

shall not be precluded by this Section 19.

 

(b). If either party is required by law or governmental or judicial order

or receives legal process or court or agency directive requesting or requiring

<PAGE>

 

 

 

disclosure of any of the Confidential Information contained in this Agreement,

such party will promptly notify the other party prior to disclosure to permit

such party to seek a protective order or take other appropriate action to

preserve the confidentiality of such Confidential Information. If either party

determines to file this Agreement with the Securities and Exchange Commission

("Commission") or any other federal, state or local governmental or regulatory

authority, or with any stock exchange or similar body, such determining party

will use its best efforts to obtain confidential treatment of such Confidential

Information pursuant to any applicable rule, regulation or procedure of the

Commission and any applicable rule, regulation or procedure relating to

confidential filings made with any such other authority or exchange. If the

Commission (or any such other authority or exchange) denies such party's request

for confidential treatment of such Confidential Information, such party will use

its best efforts to obtain confidential treatment of the portions thereof that

the other party designates. Each party will allow the other party to participate

in seeking to obtain such confidential treatment for Confidential Information.

 

SECTION 20. - GOVERNING LAW.

 

This Agreement shall in all respects, including matters of construction,

validity and performance, be governed by and be construed in accordance with the

laws of the State of Ohio.

 

SECTION 21. - REPRESENTATIONS AND WARRANTIES.

 

(a). Steel represents and warrants to Cliffs that (i) the execution and

delivery of this Agreement by Steel and the performance of its obligations

<PAGE>

 

 

 

hereunder have been duly authorized by all requisite corporate action, (ii)

neither the execution and delivery of this Agreement, nor the performance of its

obligations hereunder by Steel shall, or after the lapse of time or giving of

notice shall, conflict with, violate or result in a breach of, or constitute a

default under the certificate of incorporation or bylaws of Steel or any law,

statute, rule or regulation applicable to it, or conflict with, violate or

result in a breach of or constitute a default under the material agreement to

which it is a party or by which it or any of its properties is bound, or any

judgment, order, award or decree to which Steel is a party or by which it is

bound, or require any approval, consent, authorization or other action by any

court, governmental authority or regulatory body or any creditor of Steel or any

other person or entity, and (iii) this Agreement constitutes a valid and binding

obligation of Steel and is enforceable against Steel in accordance with its

terms.

 

(b). Cliffs represents and warrants to Steel that: (i) the execution and

delivery of this Agreement by Cliffs and the performance of its obligations

hereunder have been duly authorized by all requisite corporate actions, (ii)

neither the execution and delivery of this Agreement nor the performance of its

obligations hereunder by Cliffs shall, or after the lapse of time or giving of

notice shall, conflict with, violate or result in a breach of, or constitute a

default under the certificate of incorporation or bylaws of Cliffs or any law,

statute, rule or regulation applicable to it, or conflict with, violate or

result in the breach of or constitute a default under any material agreement to

which it is a party or by

<PAGE>

 

 

 

which it or any of its properties is bound, or any judgment, order, award or

decree to which Cliffs is a party or by which it is bound, or require any

approval, consent, authorization or other action by any court, governmental

authority or regulatory body or any creditor of Cliffs or any other person or

entity, and (iii) this Agreement constitutes a valid and binding obligation of

Cliffs and is enforceable against Cliffs in accordance with its terms.

 

SECTION 22. - COUNTERPARTS.

 

This Agreement may be executed in one or more counterparts, each of which

shall be deemed an original, but all of which together shall constitute one and

the same instrument.

<PAGE>

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement effective as

of April 10th, 2002.

 

THE CLEVELAND-CLIFFS IRON COMPANY INTERNATIONAL STEEL GROUP INC

 

 

/s/ Donald J. Gallagher /s/ Rodney Mott

--------------------------------- ---------------------------------

Vice President Vice President

 

CLIFFS MINING COMPANY ISG CLEVELAND INC.

 

/s/ Donald J. Gallagher /s/ Rodney Mott

--------------------------------- ---------------------------------

Vice President Vice President

 

NORTHSHORE MINING COMPANY ISG INDIANA HARBOR INC

 

/s/ Donald J. Gallagher /s/ Rodney Mott

--------------------------------- ---------------------------------

Vice President Vice President

 

NORTHSHORE SALES COMPANY

 

/s/ Donald J. Gallagher

 

---------------------------------

Vice President

<PAGE>

CONFIDENTIAL MATERIAL HAS BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION.

ASTERISKS DENOTE SUCH OMISSION

 

APPENDIX 1

 

 

 

 

PAGE

 

----

 

2002 base prices per iron unit for each of the Cleveland Works and the

Indiana Harbor Works.................................................... 9

Agreement................................................................. 1

Cleveland Works........................................................... 2

Cliffs.................................................................... 1

Cliffs Pellets............................................................ 2

Cliffs Transferee......................................................... 23

Commission................................................................ 25

Confidential Information.................................................. 24

Empire Mine............................................................... 1

Empire Pellets............................................................ 1

Hibbing Mine.............................................................. 1

Hibbing Pellets........................................................... 1

Indiana Harbor Works...................................................... 2

Iron...................................................................... 1

ISG....................................................................... 1

ISG Cleveland............................................................. 1

ISG Indiana Harbor........................................................ 1

Mining.................................................................... 1

net ton................................................................... 3

Northshore................................................................ 1

Northshore Pellets........................................................ 1

pellets................................................................... 2

[* * * *]................................................................. 9

Sales..................................................................... 1

shuttle tons.............................................................. 3

[* * * *]................................................................. 10

Steel..................................................................... 1

Steel's Annual Pellet Tonnage Requirements................................ 2

Steel's AOP............................................................... 5

Substitute Pellets........................................................ 7

ton....................................................................... 2

Transferee................................................................ 22

year...................................................................... 3

 

<PAGE>

CONFIDENTIAL MATERIAL HAS BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION.

ASTERISKS DENOTE SUCH OMISSIONS.

 

 

EXHIBIT 1

 

CLEVELAND-CLIFFS STANDARD ACID PELLET TYPICAL ANALYSIS

AS LOADED TO VESSEL FOR SHIPMENT

 

 

 

 

EMPIRE MINE NORTHSHORE MINE

Report [* * * *] [* * * *]

Frequency Typical [* * * *] [* * * *] Typical [* * * *]

MOISTURE V [* * * *] [* * * *]

A. DRY CHEMICAL ANALYSIS

Total Iron V [* * * *] [* * * *]

SiO2 V [* * * *] [* * * *] [* * * *] [* * * *] [* * * *] [* * * *]

AI2O3 V [* * * *] [* * * *]

CaO V [* * * *] [* * * *]

MgO V [* * * *] [* * * *]

Mn V [* * * *] [* * * *]

Phos V [* * * *] [* * * *] [* * * *] [* * * *] [* * * *] [* * * *]

S SA [* * * *] [* * * *]

TiO2 SA [* * * *] [* * * *]

Na2O V [* * * *] [* * * *]

K2O V [* * * *] [* * * *]

 

B. SIZING, WT. %

% + 1/2" V [* * * *] [* * * *]

% - 1/2" x + 3/8" V [* * * *] [* * * *]

% - 3/8" x + 1/4" V [* * * *] [* * * *]

% - 1/4" V [* * * *] [* * * *] [* * * *] [* * * *] [* * * *] [* * * *]

% - 28 mesh

 

C. TUMBLE TEST

% + 1/4" before tumble V [* * * *] [* * * *]

% + 1/4" after tumble V [* * * *] [* * * *] [* * * *] [* * * *] [* * * *] [* * * *]

Q Index V [* * * *] [* * * *]

Tumble Index - 28 mesh V [* * * *] [* * * *]

 

D. COMPRESSION TEST (1)

Minus 1/2" by plus 7/16"

Minus 1/2" by plus 3/8" SA [* * * *] V [* * * *]

% -300 lbs. V [* * * *]

 

 

 

 

 

HIBBING TACONITE

[Analysis

Typical [* * * *] Limits]

MOISTURE [* * * *]

A. DRY CHEMICAL ANALYSIS

Total Iron [* * * *]

SiO2 [* * * *] [* * * *] [* * * *]

AI2O3 [* * * *]

CaO [* * * *]

MgO [* * * *]

Mn [* * * *]

Phos SA [* * * *]

S [* * * *]

TiO2 [* * * *]

Na2O [* * * *]

K2O [* * * *]

 

B. SIZING, WT. %

% + 1/2" [* * * *]

% - 1/2" x + 3/8" [* * * *]

% - 3/8" x + 1/4" [* * * *]

% - 1/4" [* * * *] [* * * *] [* * * *]

% - 28 mesh

 

C. TUMBLE TEST

% + 1/4" before tumble [* * * *]

% + 1/4" after tumble [* * * *] [* * * *] [* * * *] Q Index [* * * *] Tumble

Index - 28 mesh [* * * *]

 

D. COMPRESSION TEST (1)

Minus 1/2" by plus 7/16" V [* * * *]

Minus 1/2" by plus 3/8"

% -300 lbs. V [* * * *]

 

 

TYPICAL ANALYSIS - 2002 EXPECTED AVERAGE CARGO ANALYSIS

[* * * *] - [* * * *]

[* * * *] - [* * * *]

LETTER "V" DENOTES - ANALYSIS TO BE PROVIDED ON EACH VESSEL SHIPMENT OF PELLETS

LETTER "SA" DENOTES - ANALYSIS TO BE DONE ON A COMPOSITE SAMPLE OF SEMI-ANNUAL

VESSEL SHIPMENTS

<PAGE>

CONFIDENTIAL MATERIAL HAS BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION.

ASTERISKS DENOTE SUCH OMISSIONS.

 

EXHIBIT 2

 

PRICE ADJUSTMENT FORMULA

 

EMPIRE, HIBBING, AND NORTHSHORE PELLETS

 

FOR YEARS 2003 THROUGH 2016

 

 

CURRENT YEAR'S PRICE ADJUSTMENT CALCULATION

1. SECTION 5(d)

 

 

[* * * *] X [* * * *] = A

 

[* * * *]

 

 

A X Preceding Year's Adjusted Price Per Iron Unit = Current Year's Price Adjustment Per Iron Unit

 

 

 

CURRENT YEAR'S ADJUSTED PRICE PER IRON UNIT

 

 

 

Current Year's Price Adjustment Per Iron + Preceding Year's Adjusted Price Per Iron = Current Year's Adjusted Price Per Iron

Unit Unit Unit

 

 

CURRENT YEAR'S ESTIMATED PELLET PRICE PER TON

 

 

 

Current Year's Adjusted Price Per Iron X Current Year's Expected Natural Iron = Current Year's Estimated Pellet Price

Unit Content Per Ton

 

<PAGE>

CONFIDENTIAL MATERIAL HAS BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION.

ASTERISKS DENOTE SUCH OMISSIONS.

 

EXHIBIT 3

 

[* * * *] FORMULA

 

EMPIRE, HIBBING, AND NORTHSHORE PELLETS

 

FOR YEARS 2003 THROUGH 2016

 

 

 

 

EXAMPLE 1 EXAMPLE 2 EXAMPLE 3 EXAMPLE 4 EXAMPLE 5 EXAMPLE 6

 

 

 

 

[* * * *] [* * * *] [* * * *] [* * * *] [* * * *] [* * * *] [* * * *]

 

<PAGE>

CONFIDENTIAL MATERIAL HAS BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION.

ASTERISKS DENOTE SUCH OMISSIONS.

 

 

EXHIBIT 4

 

SUBSTITUTE [* * * *] EXAMPLE

[* * * *]

FOR YEARS 2002 THROUGH 2016

 

Contract [* * * *]

 

Contract [* * * *]

 

In The Event That [* * * *] Annual Total [* * * *] Are Less Than [* * * *], Then

Steel And Cliffs Agree To Substitute Another [* * * *]

 

- Substitute [* * * *]

 

DETERMINE SUBSTITUTE [* * * *]

 

(1) Current Year's Actual Average [* * * *] of Substituted [* * * *] - Prior

Year's [* * * *] = A

 

(2) A + [* * * *] = [* * * *]

 

(3) A + [* * * *] = [* * * *]

 

RESULTS FROM (2) AND (3) ABOVE DETERMINE SUBSTITUTE[* * * *]