COMPLIANCE ORDER ON CONSENT Case No

COLORADO DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT AIR POLLUTION CONTROL DIVISION STATIONARY SOURCES PROGRAM COMPLIANCE ORDER ON CONSENT Case No. 2005-095 The Colorado Department of Public Health and Environment ( CDPHE ), through the Air Pollution Control Division ( Division ), issues this Compliance Order on Consent ( Consent Order ), pursuant to the Division s authority under 25-7-115(3)(b), C.R.S. of the Colorado Air Pollution and Prevention and Control Act ( the Act ) 25-7-101 to 1309, C.R.S., and its implementing regulations, 5 CCR 1001, et seq ( the Regulations ) with the express consent of Cotter Corporation ( Cotter ). The Division and Cotter may be referred to collectively as the Parties. I. STATEMENT OF PURPOSE The mutual objectives of the Parties in entering into this Consent Order are: 1. To establish compliance requirements and criteria for the continued operation of Cotter s Canon City Mill ( Mill or Facility ) located at 0502 County Road 68, Township 19 South, Range 70 West, Fremont County, Colorado; and 2. To resolve the violations of the Act and the Regulations identified herein and as determined by the Division and described below. II. DIVISION S FINDINGS OF FACT AND DETERMINATION OF VIOLATIONS Based upon the Division s investigation into and review of the compliance issues identified herein, and in accordance with 25-7-115(3), C.R.S., the Division has made the following determinations regarding violations of regulatory, statutory and/or permit requirements associated with the Facility. 3. Cotter owns and operates the Mill located at 0502 County Road 68, Township 19 South, Range 70 West, Fremont County, Colorado. Equipment at the Facility includes: one Decomposition Kiln, heat input rated at 4,883,000 BTU/hr; and one natural gas fired Fusion Furnace, heat input rated at 1,700,000 BTU/hr. The Decomposition Kiln and Fusion Furnace work in conjunction in processing vanadium material at the Mill (collectively Vanadium Process ). The Facility is subject to the requirements of Colorado Air Quality Control Commission ( AQCC ) Regulation Nos. 1 and 3, as well as the terms and conditions of

Construction Permit No. 95FR803, Initial Approval Modification 4, issued to Cotter on May 2, 2002 ( Permit No. 95FR803 ). 4. Pursuant to Condition 11 of Permit No. 95FR803, Cotter is required to perform a compliance test on the Decomposition Furnace in order to demonstrate compliance with the applicable permit requirements. General Condition 7 provides that compliance must be demonstrated within 180 days after commencing operation. As a result of a number of operational issues associated with the Decomposition Furnace, Cotter requested and obtained extensions of this deadline. Ultimately the parties agreed that Cotter would perform the compliance testing on the Decomposition Furnace on November 8 & 9, 2005. 5. On November 8 & 9, 2005, Mr. Steven Hine, of the Division, was present at the Facility to observe compliance stack testing of the Decomposition Kiln. 6. During the course of the stack test on November 9 th, Mr. Hine observed visible emissions from the combined process stack for the Decomposition Kiln and Fusion Furnace at the Facility and conducted an opacity reading of the observed emissions in accordance with the requirements of EPA Reference Method 9. The reading showed opacity ranging from 30% to 45% with a high consecutive six-minute average of 39.6% and two separate six-minute averages of 39.2% and 36.7%. Mr. Hine documented his reading on a visible emissions observation form and provided a copy to Jim Cain of Cotter Corporation. As a result of the opacity issues and other problems, Cotter failed to complete the compliance test. 7. While at the Facility, Mr. Hine observed that emissions from the Decomposition Kiln are controlled by one of two baghouses (not two in tandem) and one packed bed scrubber. Additionally, Mr. Hine observed dual combustion stacks for the Decomposition Kiln that are not controlled by any of the control devices and are not referenced in any Construction permit of APEN. Finally, Mr. Hine observed that emissions from the Fusion Furnace are controlled by two packed bed scrubbers and that there is a single baghouse that is not equipped with any fabric filter bags. 8. Based on Mr. Hines inspection, as well as the review of records related to the Facility, the Division issued a Notice of Violation ( NOV ) to Cotter on December 9, 2005. The NOV alleged the following violations of Permit No. 95FR803 and AQCC regulation No. 3: A. On November 9, 2005, the opacity of emissions from the combined stack for the Decomposition and Fusion Furnaces exceeded the opacity limits set forth in AQCC Regulation No. 1, Section II.A.1. and Permit No. 95FR803 Condition 2. 2

B. Cotter failed to conduct timely compliance testing of the Decomposition Furnace, in violation of Permit No. 95FR803 Condition 11 and General Condition 7. C. Cotter failed to utilize two fabric filter baghouses and two packed bed scrubbers to control particulate matter emissions from the Decomposition Kiln in violation of Permit No. 95FR803 Attachment A. D. Cotter emitted air pollutants from the dual combustion stacks for the Decomposition Kiln with out first submitting an APEN or obtaining a Construction Permit for these emission points in violation of AQCC Regulation No. 3, Part A, Section II.A and Part B, Sections I.A. and II.A.1. E. Cotter failed to utilize two fabric filter baghouses to control particulate matter emissions from the Fusion Furnace in violation of Permit No. 95FR803 Attachment A. 9. The Division held a conference on December 28, 2005, to give Cotter an opportunity to respond to the allegations set forth in the NOV. During the conference, Cotter did not dispute that the opacity that Mr. Hine observed exceeded the applicable limit, or that it had failed to complete the compliance testing for the Decomposition Kiln as required. Cotter stated that it had experienced opacity issues prior to the testing, but that its normal practice was to cut back on production when opacity was observed to avoid any exceedance of the standard. Cotter further stated that it had hired a consultant to study operational changes that might eliminate the opacity problem. Cotter indicated that the consultant had prepared a preliminary report, and that Cotter would provide the report to the Division after it had been reviewed and finalized. 10. Regarding the alleged failure to use two baghouses and two packed bed scrubbers to control emissions from the Decomposition Kiln, Cotter asserted that it was always intended that the baghouses would be used in parallel not in tandem, and that while the language of the Permit is not entirely clear on this point, it can be fairly read to say that operation in parallel is all that s required. Cotter also asserted that while the actual language of the Permit does require the use of two packed bed scrubbers, it was always intended that only one scrubber would be used, and that the permit language was the result of a misunderstanding on this point. In support of both these points, Cotter submitted a series of correspondence between Cotter and the Division discussing how emissions from the Decomposition Kiln would be controlled. Cotter further indicated that it had submitted an application to modify Permit No. 95 FR803 to provide that emissions from the Decomposition Kiln should be controlled by two baghouses in parallel and one packed bed scrubber. 11. With respect to the combustion stacks for the Decomposition Kiln, Cotter indicated that it had submitted an APEN for these emission points and that it was their 3

understanding that the emissions from these points were included in the permit limits for the Decomposition Kiln as a whole. 12. Regarding the alleged failure to use two fabric filter baghouses to control emissions from the Fusion Furnace, Cotter indicated that there has always been only one baghouse and that during the compliance test for the Fusion Furnace it had demonstrated that it could meet its emission limits without using the baghouse, and had submitted an APEN reflecting that the Fusion Furnace would only be controlled by the scrubbers. 13. During the conference, the Division informed Cotter that in order to continue operations it would need to complete the compliance testing and be able to certify compliance with the applicable permit requirements. Cotter indicated that it was willing to conduct the compliance testing at a production level below its permit allowed level and then accept a production limit at the tested level until it enacted changes that would allow it to continuously comply with the applicable requirements. Cotter initially committed to conducting the test by mid-january, but postponed the test due to operational problems at the Decomposition Kiln. On January 24, 2006, the Division issued a Notice of Intent to Revoke Permit No. 95FR803 based on Cotter s failure to complete the required compliance testing or certify compliance with the terms and conditions of the permit. As part of the Notice of Intent to Revoke, the Division gave Cotter until February 15, 2006, to complete the required testing and demonstrate compliance. Cotter initially indicated that they would conduct the testing, but on February 6, 2006, informed the Division that they would be shutting down the Decomposition Kiln and Fusion Furnace indefinitely. 14. Based on Mr. Hine s inspection, the review of records related to the Facility and the information presented during the December 28, 2005 NOV Conference, the Division has determined that Cotter committed the following violations: A. On November 9, 2005, the opacity of emissions from the combined stack for the Decomposition and Fusion Furnaces exceeded the opacity limits set forth in AQCC Regulation No. 1, Section II.A.1. and Permit No. 95FR803 Condition 2. B. Cotter failed to conduct timely compliance testing of the Decomposition Furnace or certify compliance for the Decomposition Kiln, in violation of 25-7- 114.5(12), C.R.S., AQCC Regulation No. 3, Part B, Section III.G.2 and Permit No. 95FR803 Condition 11 and General Condition 7. 15. The Division and Cotter entered into settlement discussions to resolve 1) the violations as determined by the Division above 2) the alleged violations set forth in the December 9, 2005 NOV and 3) the Division s Notice of Intent to Revoke Permit No. 95FR803 (hereinafter Matters Addressed Herein ). The Parties reached a settlement agreement that is detailed in this Consent Order. 4

III. ORDER and AGREEMENT Based on the foregoing factual and legal determinations, pursuant to its authority under 25-7- 115, C.R.S., and in satisfaction of the violations identified herein, the Division orders, and Cotter agrees to the following: 16. Cotter agrees to the terms and conditions of this Consent Order. Cotter agrees that this Consent Order constitutes an order issued pursuant to section 25-7-115, C.R.S., and is an enforceable requirement of the Act. Cotter also agrees not to challenge: a. the issuance of this Consent Order; b. the factual and legal determinations made by the Division herein; and c. the Division s authority to bring, or the court s jurisdiction to hear, any action to enforce the terms of this Consent Order under the Act. 17. Notwithstanding the above, Cotter does not admit to any of the factual or legal determinations made by the Division herein, and any action undertaken by Cotter pursuant to this Consent Order shall not constitute an admission of liability by Cotter with respect to the conditions of the Facility. Compliance Requirements 18. Effective immediately, Cotter shall comply with the applicable provisions of the Act, its implementing regulations and Permit No. 95FR803 in the regulation and control of air pollutants from and the operation of the Facility. 19. Effective immediately, Cotter shall shut down the Vanadium Process at the Mill and submit a notification to the Division in accordance with AQCC Regulation No. 3, Part B. Section III.H canceling those portions of Permit No. 95FR803 relating to the Vanadium Process. Administrative Penalty Requirements 20. Based upon the factors set forth in 25-7-122, C.R.S., the Division has determined a penalty in the amount of Three Thousand Eight Hundred Twenty Five Dollars ($3,825.00) against Cotter is appropriate and consistent with the Division s policies for violations of the Act and its implementing regulations cited in Section II of this Consent Order. Cotter agrees to pay the sum of Three Thousand Eight Hundred Twenty Five Dollars ($3,825.00) in administrative penalties. Payment is due within thirty (30) calendar days of the effective date of this Consent Order by certified, corporate or cashier's check drawn to the order of "Colorado Department of Public Health and Environment" and delivered to the attention of the Legal Administrative Specialist, Air Pollution Control Division, 4300 Cherry Creek Drive South, 5

APCD-SS-B1, Denver, Colorado 80246-1530. Supplemental Environmental Project Requirements 21. In order to settle the matters contained herein, and in addition to the penalties identified in the Administrative Penalty Requirements section above, Cotter agrees to perform a Supplemental Environmental Project ( SEP ), which the Parties agree is intended to secure significant environmental or public health protection and improvements. Cotter s total expenditure for the SEP shall be not less than Fifteen Thousand Three Hundred Dollars ($15,300.00). Cotter is currently considering possible SEP projects and will provide the Division with one or more SEP proposals within 60 calendar days of the effective date of this Consent Order. If the Parties are unable to agree to a SEP within 90 calendar days of the effective date of this Consent Order (or other date mutually agreed upon in writing), Cotter shall pay the Fifteen Thousand Three Hundred Dollars ($15,300.00) to the Colorado Department of Public Health and Environment as an administrative penalty in the manner prescribed in Paragraph 20 above, within fifteen days after receiving a written demand for such payment from the Division. 22. Cotter shall not deduct the cost of such SEP for any tax purpose or otherwise obtain any favorable tax treatment of such payment or project. 23. The SEP performed by Cotter may not be any project that it is required to perform or develop by any federal, state or local law or regulation, and it may not be one that Cotter is required to perform or develop by any agreement, grant or injunctive relief in this or any other case. 24. Cotter shall include in any public statement, oral or written making reference to the SEP the following language: This project was undertaken in connection with the settlement of an enforcement action taken by the Colorado Department of Public Health and Environment, Air Pollution Control Division, for violations of air quality laws and regulations as determined by CDPHE. IV. SCOPE AND EFFECT OF CONSENT ORDER 25. The Parties agree and acknowledge that this Consent Order constitutes a full and final resolution of the Matters Addressed Herein, and further agree not to challenge the terms and conditions of this Consent Order in any proceeding before any administrative body or any judicial forum, whether by way of direct judicial review or collateral challenge. 6

26. This Consent Order constitutes a final agency order upon execution by Cotter and the Division and shall be enforceable by either party in the same manner as if the Division had entered this Consent Order without agreement by Cotter. The Parties agree that any violation of the provisions of this Consent Order by Cotter concerning the Act, or its implementing regulations, shall be a violation of a final order of the Division for the purposes of 25-7-115, 121, and 122, C.R.S., and may result in the assessment of civil penalties of up to Fifteen Thousand Dollars ($15,000.00) per day for each day of such violation. 27. The Parties obligations under this Consent Order are limited to the matters expressly stated herein or in approved submissions required hereunder. All submissions made pursuant to this Consent Order are incorporated into this Consent Order and become enforceable under the terms of this Consent Order as of the date of approval by the Division. 28. The Division s approval of any submission, standard, or action under this Consent Order shall not constitute a defense to, or an excuse for, any prior violation of any requirement under the Act, or any implementing regulations under the Act, or any subsequent violation of any requirement of this Consent Order, the Act, or its regulations. 29. Entering into this settlement shall not constitute an admission of violation of the air quality laws by Cotter, nor shall the Division or any third party infer it to be such an admission by Cotter in any administrative or judicial proceeding. The described violation will constitute part of Cotter s compliance history for any purpose for which such history is relevant, including considering the violation described above in assessing a penalty for any subsequent violations, in accordance with the provisions of 25-7-122, C.R.S., against Cotter. 30. Cotter shall comply with all applicable Federal, State, and/or local laws and regulations and shall obtain all necessary approvals or permits to conduct the investigation and remedial activities required by this Consent Order and perform its obligations required hereunder. The Division makes no representation with respect to approval and permits required by Federal, State, or local laws or regulations other than those specifically referred to herein. 31. Nothing herein shall be construed as prohibiting, altering, or in any way limiting the ability of the Division to seek any other remedies or sanctions available by virtue of Cotter s violation of this agreement or of the statutes and regulations upon which this agreement is based, or for Cotter s violation of any applicable provision of law. V. LIMITATION RELEASES AND RESERVATION OF RIGHTS AND LIABILITY 32. Upon the effective date of this Consent Order, and during its term, this Consent Order shall stand in lieu of any other enforcement action by the Division with respect to the Matters Addressed Herein. This Consent Order does not grant any release of liability for any 7

violations, regardless of when they occurred, that are not cited in this Consent Order. The Division reserves the right to bring any action it deems necessary to enforce this Consent Order. 33. Nothing in the preceding paragraph shall preclude the Division from imposing additional requirements necessary to protect human health or the environment pursuant to its authority under 25-7-112, 113, C.R.S. 34. Cotter reserves its rights and defenses regarding liability in any proceedings regarding the Facility other than proceedings to enforce this Consent Order. 35. Upon the effective date of this Consent Order, Cotter releases and covenants not to sue the State of Colorado as to all common law or statutory claims or counterclaims arising from, or relating to, the violations of the Act or the Regulations specifically addressed herein. 36. Cotter shall not seek to hold the Division liable for any injuries or damages to persons or property resulting from acts or omissions of Cotter, or those acting for or on behalf of, including its officers, employees, agents, successors, representatives, contractors or consultants in carrying out activities pursuant to this Consent Order. Cotter shall not hold out the Division as (a) a party to any contract entered into by Cotter in carrying out activities pursuant to this Consent Order; or (b) an owner, operator or generator of hazardous wastes at the Facility. Nothing in this Consent Order shall constitute an express or implied waiver of immunity otherwise applicable to the Division, its employees, agents or representatives. 37. The Division reserves the right to bring any action or to seek civil or administrative penalties for any past, present, or future violations of the Act and its implementing regulations, not specifically addressed herein. Further, the Division has the right to bring any action to enforce this Consent Order and to seek authorized penalties for any violation of this Consent Order. VI. NOTICES 38. Unless otherwise specified, any report, notice or other communication required under the Consent Order shall be sent to: For the Division: Garry Kaufman Legal Administrative Specialist Colorado Department of Public Health and Environment MS: APCD-SS-B1-1400 4300 Cherry Creek Drive South Denver, Colorado 80246-1530 8

For Cotter Corporation: Steve Landau Cotter Corporation 7800 E. Dorado Pl., Suite 210 Englewood, CO 80111 John Hamrick Cotter Corporation P.O. Box 1750 Canon City, CO 81215 VII. OBLIGATIONS UNAFFECTED BY BANKRUPTCY 39. The obligations set forth herein are based on the Division s police and regulatory authority. These obligations require specific performance by Cotter of corrective actions carefully designed to prevent on-going or future harm to public health or the environment, or both. Enforcement of these obligations is not stayed by a petition in bankruptcy. Cotter agrees that the penalties set forth in this Consent Order are not in compensation of actual pecuniary loss. Further, the obligations imposed by this Consent Order are necessary for Cotter and the Facility to achieve and maintain compliance with State law. VIII. MODIFICATIONS 40. This Consent Order may be modified only upon mutual written agreement of the Parties. IX. BINDING EFFECT, AUTHORIZATION TO SIGN AND EFFECTIVE DATE 41. This Consent Order is binding upon the Parties to this Consent Order and their corporate subsidiaries or parents, their officers, directors, agents, attorneys, employees, contractors, successors in interest, and assigns. The undersigned warrant that they are authorized to bind legally their respective principals to this Consent Order. This Consent Order shall be effective upon the date signed by the last party. In the event that a party does not sign this Consent Order within thirty (30) calendar days of the other party's signature, this Consent Order becomes null and void. This Consent Order may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same Consent Order. COLORADO DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT 9

By: Date: Michael Silverstein, Manager Policy and Planning Program Air Pollution Control Division By: Date: Kirsten King, Manager Stationary Sources Program Air Pollution Control Division COTTER CORPORATION By: (Name) (Title) Date: cc: Bob Jorgenson, APCD Steven Hine, APCD Will Allison, Office of Attorney General Cindy Beeler, US EPA File 10