IN RE C. W. MINING COMPANY

ar of the Encumbrances because, in each case, one or more of the standards set forth in § 363(f) of the Bankruptcy Code has been satisfied. Those holders of Encumbrances who did not object to the sale of the Sale Motion are deemed to have consented pursuant to § 363(f)(2) of the Bankruptcy Code. With respect to the holders of Encumbrances who did object to the Sale motion the sale proceeds of the sale of the Mine Assets exceeds the aggregate value of Encumbrances that are not in bone fide dispute as required by § 363(f)(3) and are adequately protected by having their Encumbrances, if any, attach to the proceeds of the sale of the Mine Assets, or the Encumbrances are in bone fide dispute and § 363(f)(4) is applicable.

24. Specifically, but without limitation, the Court finds that the following Encumbrances are in bona fide dispute for purposes of 11 U.S.C. § 363(f)(4):

a. The interest of P.P.M.C., Inc. ("PPMC") as to attorneys' fees under such security interests in favor of the Bank of Utah that are now held by PPMC on the "Bank of Utah Equipment" shown in Exh. E-1 to the form of Order attached to the Sale Agreement;

b. The interest of Emery County, Utah ( "Emery County") as to 2009 property taxes for the following parcel:

Parcel No. Amount Nominal "Owner" 09-0300-0410 $443,447.31 Hiawatha Coal Co-Bear Canyon

c. The interests of ABM, Inc. ( "ABM"), Fidelity Funding Company ("Fidelity Funding"), Security Funding, Inc. ("Security Funding"), Standard Industries, Inc. ("Standard") and World Enterprises ("World") that are purportedly perfected by the following financing statements (the "2007 Financing Statements"):

Date Filing No. Secured Party(ies) 05/18/2007 320212200769 Security Funding, ABM, World 08/17/2007 326395200701 Security Funding, ABM, World 10/31/2007 331350200794 World, ABM, Security Funding, Fidelity Funding 11/21/2007 332771200704 ABM 11/21/2007 332773200700 Standard 11/21/2007 332766200704 Fidelity Funding 11/21/2007 332772200707 Security Funding 11/21/2007 332770200701 World

d. The interests claimed by Security Funding, Standard, World and Fidelity Funding and evidenced by the following real property security interests that encumber all or part of the COP Real Property or the ANR Real Property:

i. Real Property Security Agreement dated November 14, 2007, signed by C. W. Mining Company and World Enterprises and recorded December 7, 2007 in the office of the Emery County, Utah Recorder as Entry No. 388434;

ii. Real Property Security Agreement dated November 14, 2007, signed by C. W. Mining Company and Security Funding and recorded December 7, 2007 in the office of the Emery County, Utah Recorder as Entry No. 388435;

iii. Real Property Security Agreement dated November 14, 2007, signed by C. W. Mining Company and Standard Industries, Inc. and recorded December 7, 2007 in the office of the Emery County, Utah Recorder as Entry No. 388435; and

iv. Real Property Security Agreement dated effective June 24, 2008, signed by Hiawatha Coal Company, Inc. ("Hiawatha") and Fidelity Funding and recorded November 13, 2008 in the office of the Emery County, Utah Recorder as Entry No. 392523.

e. Any interests of the secured parties shown in the table below under financing statements ("Hiawatha Financing Statements") naming Hiawatha as debtor as they relate to the Mine Assets:

Date Filing No. Secured Party(ies) 8/30/2008 350275200800 Security Funding 8/30/2008 350276200803 ABM 8/30/2008 350277200806 World 9/29/2008 351750200805 Fidelity Funding 9/29/2008 351776200803 A-Fab 11/10/2008 354044200806 John Deere 1/6/2009 356698200904 Bank of Utah (and/or PPMC as assignee) 10/12/2009 370283200938 N.W.R. Limited Partnership 10/12/2009 370284200939 Standard 10/30/2009 371136200941 M.B.S.C. LLC 10/30/2009 371144200941 ABM 10/30/2009 371145200942 World 10/30/2009 371146200943 World 10/30/2009 371147200944 N.W.R. Limited Partnership

f. Any lessor's lien claimed under Utah Code Annotated § 38-3-1, et seq. that is claimed for rents due prior to the Closing date either by COP under the COP Mine Operating Agreement or by ANR under the ANR Mine Operating Agreement.

25. Any interest asserted by Charles Reynolds or his dependents in the scale house is being dealt with separately in Adversary Proceeding No. 09-02798.

Assumption of the Mine Operating Agreements

26. Assumption of the Coal Operating Agreement between the Debtor and COP (the "COP Mine Operating Agreement") and the Coal Operating Agreement between the Debtor and ANR (the "ANR Mine Operating Agreement", together with the COP Mine Operating Agreement collectively referred to herein as the "Mine Operating Agreements") and assignment thereof to the Buyer are appropriate and permissible. The previous authorization of the assumption of the Mine Operating Agreements was conditioned upon the closing of the transaction with Bear Canyon in order that the cure payments, if any, could be made by the Debtor from the purchase price paid by Bear Canyon. There is no material difference in the current circumstances that would warrant a different finding on the Assumption Motion at this time. As such, assumption of the Mine Operating Agreements is appropriate for the reasons and those set forth in the additional findings below.

Cure of Monetary Defaults under Mine Operating Agreements

27. Pursuant to prior orders of this Court, the Court has determined the amounts necessary and methods to cure the monetary defaults under the Mine Operating Agreements. In its December 10, 2009 Order and Judgment on Trustee's Objection to C.O.P Coal Development Company's Proof of Claim No. 9, Proof of Cure Claim No. 26 and Trustee's First, Third and Fourth Claims for Relief Against C.O.P. Coal Development Company in Adversary Proceeding #09-2248 (Dkt No. 1057), this Court allowed COP's cure claim in the amount of $1,320,930.89 subject to any setoffs permitted by later orders of the Court. In its December 10, 2009 Amended Order and Judgment on Trustee's Objection to ANR, Inc's Proof of Claim No. 27 and Trustee's Second Claim for Relief Against ANR, Inc. in Adversary Proceeding #09-2248 (Dkt No. 1060), the Court disallowed ANR's cure claim in its entirety, and there exists no monetary default under the ANR Mine Operating Agreement.

28. The Purchase Price to be paid to the Trustee at Closing is more than sufficient to provide an escrow to assure payment of COP's cure claim as previously ordered. Thus, the cure of past monetary defaults under the COP Mine Operating Agreement will be promptly effected at and through the Closing and such escrow. The Trustee may offset amounts owed COP to cure as the Court has previously ruled.

29. With respect to offsets, the Court has ruled as follows:

On that portion of the Trustee's Sixth Claim for Relief in Adversary Proceeding 09-02248, requesting an offset against any amounts owed to COP as a cure required by 11 U.S.C. § 365, it is hereby ORDERED, ADJUDGED AND DECREED as follows: COP remains in willful violation of the automatic stay and in contempt of orders of this Court as explained in the Court's Findings and Conclusions, which have caused damages to this estate, including but not limited to, any amounts paid or payable by this estate to MMS for delinquent royalties (based on coal mined while the mine has been in the possession of Hiawatha), and the same may be offset against COP's cure claim in connection with any assignment, by the Trustee of COP's Coal Operating Agreement with the Debtor to a purchaser of the estate's mine operating rights. Additional damages may be awarded to the Trustee and this estate against COP, Standard, Hiawatha and others as previously stipulated by the parties (. . .) as further proceedings in Adversary Proceeding No. 09-02375 warrant.

See Dkt No. 1158 at p. 5.

Adequate Assurance of Future Performance

30. There is no current default under paragraph 5 of the Mine Operating Agreements.

31. The issues before the Court is whether there is adequate assurance that Buyer can "comply with all applicable Federal, State and local laws that apply to Operator's mining operation and . . . conduct its mining operations and take all actions and perform all duties required to maintain the Federal and State mining permits and approvals relating to the Premises."

32. As part of its Findings of Fact and Conclusions of law on the Sale Motion, the Court specifically adopts and incorporates herein the Court's findings of fact and conclusions of law contained in paragraphs 1-20 of the Findings of Fact and Conclusions of Law Arising From the Trial on November 16, 17, 23 and 24, 2009 (Dkt No. 1053).

33. As part of its Findings of Fact and Conclusions of law on the Sale Motion the Court specifically adopts and incorporates herein the Court's findings of fact and conclusions of law contained in paragraphs 59-66 of the Findings of Fact and Conclusions of Law Arising From the Trial on December 10, 2009 and January, 12, 14 and 19, 2010 (Dkt No. 1156).

34. COP and ANR have not presented a coherent alternative to the BLM standard with respect to "continued operation" or "maximum economic recovery".

35. Although the Mine Operating Agreements use the term "diligently and continuously operate" the term is not defined by the Mine Operating Agreements in terms of annual production of coal or in terms of dollars generated.

36. Although the Mine Operating Agreements use the term "ultimate maximum economic recovery" the term is not defined by the Mine Operating Agreements in terms of annual production of coal or in terms of dollars generated.

37. COP's and ANR's monetary benefits are covered by the royalties section of the Mine Operating Agreements. The purpose of paragraph 5 of the Mine Operating Agreements is to ensure that the "Operator . . . in the operation and development of the premises, comply with all applicable Federal, State and local laws that apply to Operator's mining operation and . . . conduct its mining operations and take all actions and perform all duties required to maintain the Federal and State mining permits and approvals relating to the Premises."

38. Charles Reynolds testified that, in his opinion, there are numerous safety and mining violations on the premises. There was no evidence or testimony that the coal leases, any permits or approvals relating to the premises have not been maintained.

39. COP argues that the contents of a Resource Recovery and Protection Plan ("R2P2") submitted by the Debtor to the BLM in 2006 (the "2006 R2P2") and subsequently approved by the BLM amount in substance to an amendment of the COP Mine Operating Agreement or otherwise somehow have become unalterable obligations of the Operator under that agreement. In particular, COP contends that the 2006 R2P2 requires the "maximum economic recovery" ("MER") from the entire LMU to be realized within a time limit of 40 years from April 1990, when the original version of the LMU Application was filed. COP further contends that Buyer's decision not to use longwall mining equipment to extract coal from the Tank Seam renders it impossible for Buyer to mine out the entire reserves within the LMU within the remaining part of the 40-year mine-out period.

40. Charles Reynolds testified that Rhino's production schedule does not comply with the approved R2P2 or the approved logical mining unit ("LMU") and Rhino's coal production will not meet the continued operation requirement of the BLM and Rhino therefore can not perform under the Mine Operating Agreements.

41. The stipulations imposed by the BLM and accepted by the Trustee in connection with the LMU Decision (Exh. TR 607 and 610) require in part that "Prior to commencement of mining on the Bear Canyon LMU, an update to the [2006] R2P2 shall be required" ("Buyer's R2P2"). Such R2P2 plans are routinely amended to adapt to changing conditions encountered during mining, and such amendments are routinely approved by the BLM. Neither COP nor ANR has any veto power or other right of control as to the contents or approval of such plans.

42. The BLM can grant extensions to the 40 year life-of-mine mine-out requirements. Charles Reynolds testified that it is common for amendments to an R2P2 or an LMU to be approved by the BLM. He also testified that compliance with the BLM continued operation clauses can be accomplished in a number of ways including meeting the 1% of recoverable reserves test, applying for, and obtaining a waiver from the BLM and through payment of advance royalty payments in lieu of production.

43. The uncontested evidence is that the BLM determines whether an operator is in compliance with the "continued operation" and "maximum economic recovery" requirements contained in the Code of Federal Regulations and that this Court has no jurisdiction over the BLM's decisions on that matter.

44. The BLM and other Federal, State and local agency responsible for enforcing mining regulations have the jurisdiction to interpret their regulations and requirements and compliance with the same. It is inappropriate for this Court to speculate with respect to future actions of these agencies or to enter an order that may be inconsistent with or infringe on the jurisdiction of these agencies.

45. So long as Buyer mines in accordance with an R2P2 as approved by the BLM and satisfies the requirements of applicable Federal, State and local laws the Buyer is not in default under the Mine Operating Agreements.

46. Buyer is an experienced coal producer with operations in Colorado, Kentucky, West Virginia, and Ohio and produced approximately 5 million tons of coal in 2009. Included in Buyer's operations is the McClane Canyon Mine near Grand Junction, Colorado. Buyer had revenues in excess of $415 million in 2009 and EBITDA of $61.9 million in 2009 (Exh. TR 600).

47. The acquisition of the mine by Buyer for the price of $15,000,000.00 cash evidences a significant economic stake that will only be recovered through the diligent and continuous operation of the mine in a manner that will realize the ultimate maximum economic recovery on the investment.

48. Buyer produced evidence of its experience and expertise and ability to comply with federal and state mining and safety regulations.

49. Based on the foregoing, the Trustee has demonstrated adequate assurance of Buyer's future performance under the Mine Operating Agreements and Buyer's ability and motivation to "comply with all applicable Federal, State and local laws that apply to Operator's mining operation and . . . conduct its mining operations and take all actions and perform all duties required to maintain the Federal and State mining permits and approvals relating to the Premises," including the BLM continuous mining requirements and to avoid forfeiture of any BLM lease.

50. Based on the foregoing, the Trustee has demonstrated adequate assurance of future performance by Buyer with respect to the Mine Operating Agreements within the meaning of § 365(b)(1)(C) of the Bankruptcy Code.

51. In addition, to provide additional assurance that the BLM's "continued operation" requirement may be satisfied if coal production prior to the Closing prove to be inadequate, the Court will require the Trustee to hold, in reserve, funds in an amount sufficient to cover advance royalty payments for COY09 and COY10 until such time as the Trustee can demonstrate that the reserves are no longer necessary to comply with the BLM's "continued operation" requirement for those years.

52. The Trustee has met the requirements necessary to assume the Mine Operating Agreements pursuant to 11 U.S.C. § 365(a)-(b) and simultaneously assign them to Buyer in accordance with the terms of the Sale Agreement pursuant to 11 U.S.C. § 365(f)(2).

53. The Mine Operating Agreements are assignable notwithstanding any provision contained therein to the contrary pursuant to § 365(f) of the Bankruptcy Code. The assumption and assignment of the Mine Operating Agreements are integral to the Sale Agreement, are in the best interests of the Estate, and represent the exercise of sound and prudent business judgment by the Trustee.

Issues Raised by ANR Concerning Hiawatha's Mining Permit and Reclamation Duties

54. Hiawatha holds a mining permit (the "Hiawatha Permit") issued by DOGM (Exh. ANR 13) affecting both the ANR Real Property and a more extensive area of other real property owned or leased by ANR in which the Estate has no interest.

55. The Debtor has never conducted underground mining operations or other activities on the ANR Real Property which require a permit and has no mining permit in force with respect to such property. The Debtor's operations with respect to the ANR Real Property to date have been done in conjunction with the LMU Application to include the ANR Real Property in a logical mining unit with the COP Real Property. All of this has been consistent with the parties' agreements and expectations as previously found by the Court.

56. The Hiawatha Permit is not property of the Estate, and the Debtor has no duty to perform any requirement imposed on Hiawatha by DOGM with respect to the Hiawatha Permit.

57. There is no evidence before the Court that the maintenance or preservation of the Hiawatha Permit would be of any value or benefit to the Estate or to Buyer.

58. There is no evidence that the operation of the ANR Real Property by Buyer or the conducting of Buyer's mining operations will require the maintenance or preservation of the Hiawatha Permit or have any effect on such permit.

59. Any reclamation obligations that Hiawatha may have incurred by obtaining a DOGM permit affecting the ANR Real Property or that otherwise result from the actions of ANR and/or Hiawatha do not result from any act of the Debtor and are the obligations of Hiawatha or ANR and not the Debtor.

60. ANR has demonstrated no standing on its part to complain of reclamation burdens that may fall on Hiawatha. ANR has failed to demonstrate that it has any liability for reclamation work on the ANR Real Property.

61. The Court finds that, to the extent that any reclamation obligations may be imposed on the Debtor or its Estate with respect to the ANR Real Property as a result of Hiawatha's failure to perform its duties under the DOGM Hiawatha Permit, such obligations do not arise under the ANR Mine Operating Agreement.

62. There is nothing in the ANR Mine Operating Agreement that requires the Operator thereunder to post a bond for reclamation work that may be required at some future time on the ANR Real Property as a result of prior mining activities by U.S. Fuels.

71. No permit is required of the Operator with respect to the ANR Real Property under the ANR Mine Operating Agreement until mining activity is to be commenced on such property.

72. Neither the Trustee nor Buyer is required, as part of the assumption and assignment of or as future performance under the ANR Mine Operating Agreement, to perform any reclamation duties arising from prior mining activities by U.S. Fuels or to compensate ANR or Hiawatha for the cost of any such reclamation work.

Issues Raised by ANR Regarding the Exclusion of 60 Acres from the LMU

73. ANR's federal coal lease no. USL-02543lincludes 60 acres (the "60-Acre Parcel") that are not contiguous with any other lands as to which ANR holds any coal rights being leased (or sub-leased) to the Debtor under the ANR Mine Operating Agreement or otherwise (Exh. TR 605).

74. In the ANR Mine Operating Agreement, ANR purported to grant to the Debtor the right to mine coal from a parcel of land marked with pink crosshatching in Exh. TR 605 (the "Bridge Parcel"). If ANR had owned coal rights for the Bridge Parcel, the 60-Acre Parcel would have been contiguous with the remainder of the LMU. In fact, ANR had only surface rights to the Bridge Parcel.

75. The BLM regulations governing logical mining units require that all property included within a logical mining unit be contiguous and under the control of a single operator.

76. Charles Reynolds testified that if he had realized that the 60-Acre Parcel was not contiguous with the remainder of the LMU area, he would not have included it in the LMU Application. He further acknowledged that the LMU Application was required to comply with federal law and that the BLM had the right to exclude the 60-Acre Parcel.

77. The ANR Mine Operating Agreement contains no reference to an LMU and does not state any specific requirements with respect to an LMU.

78. In seeking the BLM's approval of the Debtor's LMU Application, the Trustee (through no fault of his or the Debtor's) could not satisfy the contiguity requirement with respect to the 60-Acre Parcel and, at the BLM's direction, excluded it from the final amendment to the LMU Application. Failure to obtain approval of the LMU would have exposed all of the Federal Coal Leases of ANR on lands included in the LMU, as well as some of COP's Federal Coal Leases, to forfeiture based on lack of production.

79. ANR is estopped to claim that the Trustee has defaulted by complying with federal regulations requiring exclusion of the 60-Acre Parcel from the LMU in order to achieve the important objective of obtaining approval of the LMU, thereby mitigating the Trustee's damages caused by ANR's misrepresentation and preserving the remaining Federal Coal Leases covered by the ANR Mine Operating Agreement.

80. The Trustee's compliance with BLM regulations governing logical mining units does not constitute a breach or default of the ANR Mine Operating Agreement.

81. Although ANR contends that it could have leased to the Trustee other coal lands that could then be included in the LMU and thereby make the 60-Acre Parcel contiguous, the Trustee has no rights to such other lands, and ANR has not made any offer to the Trustee to amend the ANR Mine Operating Agreement to include such lands.

82. The Trustee's counsel represented to the Court that, if ANR would amend the ANR Mine Operating Agreement to include additional coal reserves that would make the 60-Acre Parcel contiguous with the remainder of the LMU, the Trustee would accept that amendment. It may have been within ANR's power to make the 60-Acre Parcel contiguous, but it was not within the Trustee's power to do so.

83. No coal reserves within the 60-Acre Parcel were shown to exist in the 2006 R2P2, nor has ANR provided credible evidence that minable reserves exist thereon in commercial quantities.

Hiawatha's Claims to Own 550(e) Improvements

88. In its Memorandum Decision Denying Hiawatha Coal Company, Inc.'s Motion for Partial Summary Judgment, Granting the Chapter 7 Trustee's Cross-Motion for Summary Judgment, and Striking the Trial Dates of May 27 and 28, 2009 (Dkt No. 51 — Adv. Proc. 0802338), entered on May 8, 2009, the Court determined that Hiawatha Coal Company, Inc. ("Hiawatha") failed to adequately raise a genuine issue of material fact regarding its claim that it gave value to the Debtor for the assets (the "549 Assets") transferred to Hiawatha in connection with the June 24, 2008 Purchase and Sale Agreement between the Debtor and Hiawatha and therefore granted the Trustee's Motion for Partial Summary Judgment avoiding the transfer of the 549 Assets pursuant to 11 U.S.C. § 549.

89. In the same adversary proceeding the Court entered its Order and Judgment Arising from Trial on November 16, 17, 23 and 24, 2009 (Dkt No. 139 of Adv. Proc. 08-02338) wherein the Court dismissed Hiawatha Coal Company, Inc.'s Counterclaim seeking an improver's lien under 11 U.S.C. § 550(e) on the grounds that Hiawatha is not a "good faith" transferee or improver of the 549 Assets and is not entitled to a lien encumbering assets improved, repaired, changed, replaced or added to during Hiawatha's possession of the mine.

90. The Court has also ruled that where improvements, additions, replacements and repairs to assets originally obtained by Hiawatha from the Debtor are at issue, all such improvements, additions, replacements and repairs belonged to the Estate free and clear of any encumbrance or ownership of (Dkt No. 1188 in the main case).

"Such assets include every item constituting an "improvement" made thereto within the meaning of 11 U.S.C. § 550(e)(2), all of which are property of the Debtor's estate. The Trustee may sell all of the estate's right, title, and interest in such assets including those improvements. The Court makes no determination at this time as to what specific items of equipment constitute improvements or as to ownership of specific items of equipment allegedly owned by Hiawatha to the extent they do not constitute improvements. With respect thereto, the Court ORDERS the parties to cooperate in good faith to resolve such ownership issues." (Dkt No. 1158)

91. Hiawatha has objected to the Sale Motion and asserts that those specific items of personal property identified in Hiawatha's Exh. H-23 ("Disputed Assets"), are assets purchased by Hiawatha after it acquired possession of the mine from the Debtor on or about June 24, 2008 and are not "improvements" to the Debtor's property but are owned by Hiawatha.

92. Hiawatha's assertion of ownership of the improvements was previously addressed by the Court in the trial and evidentiary hearing concluding in January 2010 (Dkt No. 152 — Adv. Proc. 08-02338) wherein the Court clarified that all "improvements" were property of the Estate and sellable by the Trustee as follows:

"ORDERED, that the Trustee's § 550(a) claim is GRANTED for recovery of the transferred property rather than its value. The recovered property shall be turned over promptly and without damage beyond normal wear and tear and shall consist of all assets of any kind transferred pursuant to the Hiawatha Purchase Agreement, including any transfers of mere possession. Such assets include every item constituting an "improvement" made thereto within the meaning of 11 U.S.C. § 550(e)(2), all of which are property of the Debtor's estate. The Trustee may sell all of the estate's right, title and interest in such assets including those improvements. The Court makes no determination at this time as to what specific items of equipment constitute improvements or as to ownership of specific items of equipment allegedly owned by Hiawatha to the extent they do not constitute improvements. With respect thereto, the Court ORDERS the parties to cooperate in good faith to resolve such ownership issues."

93. The parties did negotiate as ordered, but were unable to come to agreement on the ownership of all assets identified by Hiawatha as being claimed by it. The Trustee therefore asks this Court, in connection with the present Sale Motion, to determine which of the assets identified by Hiawatha are property of the Estate and which were not. Hiawatha objects to the Court doing so on procedural grounds, but nevertheless presented its evidence and arguments on the merits of its ownership claims at the evidentiary hearings conducted with respect to the present sale motion.

94. The Court is excluding the following assets from the Disputed Assets because Trustee has stipulated that the following assets set forth on Exh. H-23 are not property of the Debtor or the Estate and the Trustee is not proposing to sell these assets:

3 Mine rescue chambers (partially purchased)

46 cap lamps purchased by Hiawatha

1 HP Plotter

7 computers purchased by Hiawatha (5 on the excluded list)

Truck 106 (excluded)

Truck 107 (excluded)

Truck 115 (excluded)

Truck 5 — Isuzu gas truck (excluded)

IR Air Compressor (excluded)

Longwall Cans

3 pallets cap pieces

4 pallets crib blocks

Box check frames

2 pallets crib blocks

Longwall cables (belongs to A-Fab)

Winch Controller (belongs to A-Fab)

Eimco 936 Bucket (belongs to A-Fab)

Longwall hose trailer (belongs to A-Fab)

Fuel Tank by 3 mine (belongs to Haycock)

89 Truck (owned by Mark Reynolds)

90 Truck (owned by Luke Brown)

Pneumatic Trailers (owned by Altco Trucking)

Chairs purchased by Charles Reynolds

95. Procedurally, Hiawatha asserts, based on Bankruptcy Rule 7001, that the Court may only interpret and apply its prior order to the facts of this case if the Trustee files another adversary proceeding asking the Court to determine ownership of the Disputed Assets.

96. Section 363 does not require an adversary proceeding be filed in connection with a proposed sale of property of a bankruptcy estate. The Trustee may only sell property of the bankruptcy estate and if there is a bona fide dispute as to ownership an adversary proceeding may be required. However, if there is not a bona fide dispute as to ownership of estate property, an objecting party should not be permitted to thwart a proposed sale by asserting ownership of property proposed to be sold.

97. Having now taken additional evidence regarding the specific nature of the assets in dispute, and incorporating the evidence already taken during the previous days of trial in adversary proceeding 08-02338, it is apparent that Hiawatha's assertions of ownership of the particular assets at issue does not raise a bona fide dispute and cannot be sustained for several reasons.

98. Hiawatha has consistently maintained that virtually all of the assets at issue are "improvements." In Hiawatha Coal Company, Inc.'s Memorandum in Opposition to Trustee's Motion for Order Authorizing Sale of Mine Assets and Assignment of Executory Contracts under §§ 363 and 365 and in Opposition to Trustee's § 547 Takeover Claim and Trustee's § 550(a) Claim (Dkt No. 1045) at 27-28, Hiawatha stated the following:

4. As a practical matter, much of the mining equipment is difficult, if not impossible, to recover from the mine. For example, the continuous belt system, by which the coal is removed from the mine, is worn, old and undersized for mining under the longwall system, and its removal will cost more than its value. Furthermore, the system itself is a fixture in that it is permanently attached into the rock face of the mine.

Additionally, Hiawatha has made reasonable and necessary alterations and repairs to elements of the mining system in the form of additions which have rendered the system so inextricably interconnected and integrated that the additions cannot be removed or retrieved without rendering the elements unworkable. As an example, virtually all internal parts of the belt drive system have been replaced.

99. It is Hiawatha's burden to show that the assets it claims to own are not "improvements." In fact the evidence produced by Hiawatha established that most of the Disputed Assets were improvements to the Debtor's property.

100. The evidence at trial showed that most of the Disputed Assets in question were physically located on the mine site, incorporated into various pieces of equipment, or attached to the ground in various ways.

101. Mr. Reynolds testified, for example, that the coal load-out and sampling buildings were "upgrades" to assets previously used in the Debtor's operations and were affixed to the ground in concrete footings, that the new coal crusher attached to the tipple was welded thereto and was attached to the tipple for the purpose of improving the tipples capacity.

102. The definition of "improvements" under § 550(e) is not bounded or limited by state law defining accessions. Rather, 550(e) has its own definition of "improvements" which leaves to the trial court considerable discretion as to what is "included" within the definition. In most cases, this broad definition of "improvements" will inure to the benefit of entities who find themselves liable to return to the estate property previously acquired from the Debtor. An "accession" under state law would also be an "improvement" under § 550(e), but the reverse is not true. There is no requirement under 550(e) that "physical changes" or "additions" to the property be of an irreversible nature in order to be considered "improvements."

103. Even if § 550(e) were not applicable in this case, the majority of Disputed Assets are, nevertheless, property of the Estate. Hiawatha has not argued, and has not cited any legal authority for, the proposition that ownership of an asset is transferred or changed as a result of an "improvement" to or "repair" of the asset.

104. There was no evidence produced by Hiawatha to establish that removal of the Disputed Assets would not have a negative impact on the mine operation or make the mine inoperable. Most of the Disputed Assets are more than "accessions" to the Debto's property and Hiawatha's evidence failed to establish that, other than set forth below, the Disputed Assets are owned by Hiawatha.

105. With respect to inventory, the testimony of Charles Reynolds and the other undisputed evidence established the following:

i. Hiawatha received $1,922,000 of inventory from the Debtor.

ii. Hiawatha used the inventory it received from the Debtor in Hiawatha's operation of the mine.

iii. During the operation of the mine Hiawatha purchased inventory in the amount of $491,940.91

iv. Hiawatha used more than $491,940.91 of inventory in its operation of the mine

106. Reynolds admitted that the specific items of inventory listed in Hiawatha's inventory list (Exh. H-24) are essentially the same kinds of materials, tools, parts and equipment that were received from the Debtor.

107. Hiawatha's position is that, notwithstanding the fact that it used inventory during its operation of the mine, it did not use any inventory that it purchased. The unstated conclusion is that Hiawatha consumed the Debtor's inventory during Hiawatha's operation of the mine.

108. Hiawatha is using the "first in-first out" ("FIFO") method of tracing the inventory it claims to own.

109. Hiawatha failed to produce any evidence, that it used less inventory than it purchased while operating the mine. It is apparent that the Trustee has recovered and is selling to Rhino only a fraction of the inventory that was originally transferred to Hiawatha by the Debtor. The Court determines that the "last in-first out" ("LIFO") method is the appropriate accounting method to apply in this case.

110. Based on the foregoing, the following Disputed Assets are found to be property of the Estate and not property of Hiawatha:

Pile 4 1 Loadout belt housing/structures

Pile 4 1 Loadout belt scales

Pile 4 1 Loadout Belt Drive, Motor Gearbox

Coal Sampler splitting System

Belt 1 upgrade including Gearboxes and lagging on drums

Belt 2 upgrade including Gearboxes and lagging on drums

Belt 3, upgrade including Gearboxes and motors replaced

Belt 4 upgrade including Fabric

Belt 4 Gearboxes and lagging on drums

Secondary Crusher

Tipple Control Room Door

Upper Crossover Belt Fabric

Dust Belt Drive

South Tower Belts gearboxes and motors

Air Compressor on Loadout

Tank for Air Compressor (53 North)

Richwood Air Wiper

Belt Structure hardware

Continental Controller

North Main Belt Drive Wiper

Rebuilt Drive

13 hp Water Pump

1.5 hp Water Pump controller

4 Left Belt Structure

4 left Belt Fabric

4 Left Water Line

Omega Blocks — 4 Overcasts

Rebuilt Controller

Parts and Supplies Inventory (Warehouse and Shop)

Tipple Welders

Desks (4)

Truck sensor system

Coal Sampling Room Heater

Rock Dust Air Compressor

Pile 4 1 Loadout Sweep Sampler

4 mine fan motors and controllers

New Roll Leaky Feeder Cable

111. The Court determines that the foregoing Disputed Assets are "improvements," "additions," "changes" or "repairs" to the Mine Assets acquired by Hiawatha from the Debtor which have been ordered returned to the Estate pursuant to §§ 549 and 550 of the Bankruptcy Code and are property of the Estate.

112. Based on the foregoing, the following Disputed Assets are found to be property of Hiawatha and are not property of the Estate:

13 Ocenco self rescuers purchased by Hiawatha

84 CSE self rescuers purchased by Hiawatha

12 Kenwood Radios 46 cap lamps purchased by Hiawatha.

Removal Of Equipment Left At Or In The Mine

113. At present there is in the mine a massive longwall system comprised of the items of equipment described in footnote 1 to the form of Order attached to the Sale Agreement. The longwall system might be an asset that the Trustee may recover pursuant to §§ 547 or 548 of the Bankruptcy Code from A-FAB Engineering, which claims to own the longwall system and to have leased the longwall system to the Debtor in late 2007 (a few weeks before the Involuntary Petition date) pursuant to a sale and lease back arrangement with the Debtor.

114. The longwall system will be expensive to remove from the mine, but must be removed in order to continue mining operations, since it partially blocks the mine corridors.

115. The value of the longwall system is in doubt given its age and history, and the Trustee has not yet determined whether to seek recovery of the longwall system pursuant to the Trustee's avoiding powers.

116. Until the longwall system is recovered by the Trustee, if ever, those claiming the right to immediately possess the longwall system should be responsible to remove it from the mine at their own expense.

117. If the longwall system is left within the mine or on the mine premises for longer than 90 days after the sale of the Mine Assets closes, the Trustee should be allowed to remove the equipment.

118. The Trustee should be granted a lien for the cost of removing the longwall system and may retain the equipment for the benefit of this Estate until such lien is satisfied by payment or foreclosure.

119. Removal of any other equipment, in addition to the longwall system, which this Court determines pursuant to this Sale Motion to belong to A-Fab or Hiawatha and not this Estate, should be dealt with in the same way and under the same terms as the longwall system.

II. CONCLUSIONS OF LAW

1) All of the Mine Assets are owned by the Debtor except for the following: 3 Mine rescue chambers (partially purchased) 46 cap lamps purchased by Hiawatha 1 HP Plotter 7 computers purchased by Hiawatha (5 on the excluded list) Truck 106 (excluded) Truck 107 (excluded) Truck 115 (excluded) Truck 5 — Isuzu gas truck (excluded) IR Air Compressor (excluded) Longwall Cans 3 pallets cap pieces 4 pallets crib blocks Box check frames 2 pallets crib blocks Longwall cables (belongs to A-Fab) Winch Controller (belongs to A-Fab) Eimco 936 Bucket (belongs to A-Fab) Longwall hose trailer (belongs to A-Fab) Fuel Tank by 3 mine (belongs to Haycock) 89 Truck (owned by Mark Reynolds) 90 Truck (owned by Luke Brown) Pneumatic Trailers (owned by Altco Trucking) Chairs purchased by Charles Reynolds 13 Ocenco self rescuers purchased by Hiawatha 84 CSE self rescuers purchased by Hiawatha 12 Kenwood Radios 46 cap lamps purchased by Hiawatha. 2) There is no bona fide dispute as to the Estate's ownership of the Mine Assets and § 363 does not require an adversary proceeding be filed in connection with a proposed sale of property of a bankruptcy estate. 3) Except as may otherwise be provided in the Order, the Trustee may sell the Mine Assets free and clear of the Encumbrances because, in each case, one or more of the standards set forth in § 363(f) of the Bankruptcy Code has been satisfied. 4) All holders of Encumbrances who have come forward at the hearings shall have their Encumbrances attach to the net proceeds of the sale of the Mine Assets received by the Trustee in the order of their priority, with the same validity, force and effect which they now have as against the Mine Assets and subject to any offsets, claims and defenses the Trustee or other parties may possess with respect thereto. 5) Holders of Encumbrances who did not object to the sale of the Sale Motion are deemed to have consented pursuant to § 363(f)(2) of the Bankruptcy Code. 6) With respect to Holders of Encumbrances that are not in bona fide dispute and who objected to the Sale motion, because the sale proceeds exceeds the aggregate value of Encumbrances that are not in bone fide dispute, their claims are adequately protected because, under § 363(f)(3), their Encumbrances attach to the proceeds of the sale of the Mine Assets. 7) With respect to Holders of Encumbrances that are in bona fide dispute and who objected to the Sale Motion, the Sale Motion is authorized under § 363(f)(4). 8) The following Encumbrances are in bona fide dispute for purposes of 11 U.S.C. § 363(f)(4): a) The interest of P.P.M.C., Inc. (" PPMC") as to attorneys' fees under such security interests in favor of the Bank of Utah that are now held by PPMC on the " Bank of Utah Equipment" shown in Exh. E-1 to the form of Order attached to the Sale Agreement; b) The interest of Emery County, Utah (" Emery County") as to 2009 property taxes for the following parcel: Parcel No. Amount Nominal "Owner" 09-0300-0410 $443,447.31 Hiawatha Coal Co-Bear Canyon c) The interests of ABM, Inc. (" ABM"), Fidelity Funding Company (" Fidelity Funding"), Security Funding, Inc. (" Security Funding"), Standard Industries, Inc. (" Standard") and World Enterprises (" World") that are purportedly perfected by the following financing statements (the " 2007 Financing Statements"): Date Filing No. Secured Party(ies) 05/18/2007 320212200769 Security Funding, ABM, World 08/17/2007 326395200701 Security Funding, ABM, World 10/31/2007 331350200794 World, ABM, Security Funding, Fidelity Funding 11/21/2007 332771200704 ABM 11/21/2007 332773200700 Standard 11/21/2007 332766200704 Fidelity Funding 11/21/2007 332772200707 Security Funding 11/21/2007 332770200701 World d) The interests claimed by Security Funding, Standard, World and Fidelity Funding and evidenced by the following real property security interests that encumber all or part of the COP Real Property or the ANR Real Property: i) Real Property Security Agreement dated November 14, 2007, signed by C. W. Mining Company and World Enterprises and recorded December 7, 2007 in the office of the Emery County, Utah Recorder as Entry No. 388434; ii) Real Property Security Agreement dated November 14, 2007, signed by C. W. Mining Company and Security Funding and recorded December 7, 2007 in the office of the Emery County, Utah Recorder as Entry No. 388435; iii) Real Property Security Agreement dated November 14, 2007, signed by C. W. Mining Company and Standard Industries, Inc. and recorded December 7, 2007 in the office of the Emery County, Utah Recorder as Entry No. 388435; and iv) Real Property Security Agreement dated effective June 24, 2008, signed by Hiawatha Coal Company, Inc. (" Hiawatha") and Fidelity Funding and recorded November 13, 2008 in the office of the Emery County, Utah Recorder as Entry No. 392523. e) Any interests of the secured parties shown in the table below under financing statements ( "Hiawatha Financing Statements") naming Hiawatha as debtor as they relate to the Mine Assets: Date Filing No. Secured Party(ies) 8/30/2008 350275200800 Security Funding 8/30/2008 350276200803 ABM 8/30/2008 350277200806 World 9/29/2008 351750200805 Fidelity Funding 9/29/2008 351776200803 A-Fab 11/10/2008 354044200806 John Deere 1/6/2009 356698200904 Bank of Utah (and/or PPMC as assignee) 10/12/2009 370283200938 N.W.R. Limited Partnership 10/12/2009 370284200939 Standard 10/30/2009 371136200941 M.B.S.C. LLC 10/30/2009 371144200941 ABM 10/30/2009 371145200942 World 10/30/2009 371146200943 World 10/30/2009 371147200944 N.W.R. Limited Partnership f) Any lessor's lien claimed under Utah Code Annotated § 38-3-1, et seq. that is claimed for rents due prior to the Closing date either by COP under the COP Mine Operating Agreement or by ANR under the ANR Mine Operating Agreement. 9) At the present time, there exists no default under the Continuous Operations Clause. 10) After Closing, Buyer shall not be in default under the Continuous Operations Clause so long as Buyer complies with all applicable Federal, State and local laws that apply to the operation of the Mine and maintains the Federal Coal Leases. 11) The BLM and other Federal, State and local agency responsible for enforcing mining regulations have the jurisdiction to interpret their regulations and requirements and compliance with the same. It is inappropriate for this Court to speculate with respect to future actions of these agencies or to enter an order that may be inconsistent with or infringe on the jurisdiction of these agencies. 12) The Trustee has demonstrated adequate assurance of Buyer's future performance under the Mine Operating Agreements and Buyer's ability and motivation to "comply with all applicable Federal, State and local laws that apply to Operator's mining operation and . . . conduct its mining operations and take all actions and perform all duties required to maintain the Federal and State mining permits and approvals relating to the Premises," including the BLM continued operation requirements and to avoid forfeiture of Federal Coal Leases. 13) The Trustee has satisfied all requirements under §§ 365(b)(1) and 365(f)(2) of the Bankruptcy Code to provide adequate assurance of future performance under the Mine Operating Agreements. 14) The Trustee has satisfied all requirements under §§ 365(b)(1) to cure or provide adequate assurance that he will promptly cure all monetary defaults under the COP Mine Operating Agreement. 15) No monetary or other default exists under the ANR Mine Operating Agreement. 16) Assumption of the Mine Operating Agreements and assignment thereof to the Buyer are appropriate and permissible. 17) The Trustee has met the requirements necessary to assume the Mine Operating Agreements pursuant to 11 U.S.C. § 365(a)-(b) and simultaneously assign them to Buyer in accordance with the terms of the Sale Agreement pursuant to 11 U.S.C. § 365(f)(2). 18) The Mine Operating Agreements are assignable notwithstanding any provision contained therein to the contrary pursuant to § 365(f) of the Bankruptcy Code. 19) The sale of the Mine Assets, the terms and conditions of the Sale Agreement (including all schedules and exhibits affixed thereto), and the transactions contemplated thereby, as modified by the Order, are authorized and approved in all respects. 20) Once assumed and assigned, the Mine Operating Agreements are deemed valid and binding and in full force and effect. 21) To the extent that any reclamation obligations may be imposed on the Debtor or its Estate with respect to the ANR Real Property as a result of Hiawatha's failure to perform its duties under the DOGM Hiawatha Permit, such obligations do not arise under the ANR Mine Operating Agreement. 22) Neither the Trustee nor Buyer is required, as part of the assumption and assignment of or as future performance under the ANR Mine Operating Agreement, to perform any reclamation duties arising from prior mining activities by U.S. Fuels or to compensate ANR or Hiawatha for the cost of any such reclamation work. 23) The Trustee's compliance with BLM regulations governing logical mining units, including the exclusion of the 60-Acre Parcel from the LMU, does not constitute a breach or default of the ANR Mine Operating Agreement. 24) The definition of "improvements" under § 550(e) is not bounded or limited by state law defining accessions. Rather, 550(e) has its own definition of "improvements" which leaves to the trial court considerable discretion as to what is "included" within the definition. There is no requirement under 550(e) that "physical changes" or "additions" to the property be of an irreversible nature in order to be considered "improvements." 25) Objections made with respect to the sale of the Estate's right, title and interest in water rights, if any, appurtenant to the COP Real Property or the ANR Real Property have no merit inasmuch as the Court is making no determination as to the existence, scope or ownership of appurtenant water rights.