<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-39643
ANKER COAL GROUP, INC.
(Exact Name Of Registrant As Specified in Its Charter)
Delaware 52-1990183
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2708 Cranberry Square
Morgantown, West Virginia 26508
(Address Of Principal Executive Offices)
(304) 594-1616
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X_ No __
Indicate the number of outstanding shares of each of the registrant's
classes of common stock, as of the latest practicable date: Common Stock, $.01
per share par value, 9,150 shares (August 13, 1999)
<PAGE> 2
ANKER COAL GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1999 and 1998 .... 1
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 .................. 2
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 .............. 3
Notes to Consolidated Financial Statements .................. 4-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................... 7-12
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 13
SIGNATURE PAGE .......................................................... 14
FORWARD-LOOKING DISCLAIMER
This report contains statements which constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements include statements regarding the intent, belief or current
expectations of the performance of the Company, the ability of the Company to
implement its business plan or related industry developments. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Readers are further cautioned
that actual results, levels of activity, performance or achievements of the
Company, or industry results may differ materially from those described or
implied in the forward-looking statements as a result of various factors, many
of which are beyond the control of the Company. These factors include, but are
not limited to: general economic and business conditions; the ability of the
Company to implement its business plan; the availability of liquidity and
capital resources; the ability of the Company to achieve anticipated cost
savings; the ability of the Company to secure new mining permits; changes in the
industry; weather; unexpected maintenance problems; variations in coal seam
thickness; variations in rock and soil overlying the coal deposit; variations in
rock and other natural minerals; a disruption in or an increase in the cost of
transportation services; early modification or termination of the Company's
long-term coal supply contracts; competition within the coal production and
electricity generation industries; regulatory uncertainties; price fluctuations;
and labor disruptions.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
----- ----- ----- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Coal sales and related revenue $ 57,271 $ 76,320 $ 114,223 $ 147,894
Expenses:
Cost of operations and selling expenses 53,114 72,894 103,448 140,931
Depreciation, depletion and amortization 4,447 4,439 8,839 8,217
General and administrative 2,010 2,457 3,945 5,088
Loss on impairment and restructuring 3,461 -- 3,461 1,829
--------- --------- --------- ---------
Total expenses 63,032 81,286 119,693 156,065
Operating loss (5,761) (4,966) (5,470) (8,171)
Interest, net of $106 capitalized for the three months
ended June 30, 1998 and net of $386 capitalized
for the six months ended June 30, 1998 (3,854) (3,253) (7,479) (6,120)
Other income, net 831 317 1,421 548
--------- --------- --------- ---------
Loss before income taxes (8,784) (7,902) (11,528) (13,743)
Income tax benefit -- 2,213 200 3,848
--------- --------- --------- ---------
Net loss (8,784) (5,689) (11,328) (9,895)
Less mandatorily redeemable preferred stock dividends (351) (334) (703) (669)
Less mandatorily redeemable preferred stock accretion (150) (150) (300) (300)
--------- --------- --------- ---------
Net loss available to common
stockholders $ (9,285) $ (6,173) $ (12,331) $ (10,864)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
1
<PAGE> 4
ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8 $ 15
Accounts receivable:
Trade 25,304 27,845
Affiliates 116 42
Inventories 6,134 5,876
Current portion of long-term notes receivable 682 986
Prepaid expenses and other 2,858 1,989
Deferred income taxes 3,683 3,683
--------- ---------
Total current assets 38,785 40,436
Properties:
Coal lands and mineral rights 62,799 62,398
Machinery and equipment 72,093 72,355
--------- ---------
134,892 134,753
Less allowances for depreciation, depletion and amortization 31,002 26,161
--------- ---------
103,890 108,592
Other assets:
Assets held for sale 10,000 10,000
Advance minimum royalties 5,498 4,453
Goodwill, net of accumulated amortization of $3,305 and $2,517 at
June 30, 1999 and December 31, 1998, respectively 20,784 21,572
Other intangible assets, net of accumulated amortization of $1,159 and $694
At June 30, 1999 and December 31, 1998, respectively 6,261 6,268
Notes receivable 3,548 3,735
Other assets 6,510 6,664
--------- ---------
Total assets $ 195,276 $ 201,720
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade 10,571 10,982
Affiliates 634 480
Cash overdraft 2,960 5,111
Accrued interest 3,711 3,365
Accrued expenses and other 12,677 11,287
Accrued leasehold termination 3,957 3,957
Accrued reclamation expenses 4,815 5,234
Current maturities of long-term debt 2,631 2,777
Common stock available for repurchase 1,505 1,505
--------- ---------
Total current liabilities 43,461 44,698
Long-term debt 149,650 139,934
Other liabilities:
Accrued reclamation expenses 15,627 17,367
Deferred income taxes 8,242 8,242
Other 4,417 6,272
--------- ---------
Total liabilities 221,397 216,513
Commitments and contingencies -- --
Mandatorily redeemable preferred stock 25,591 24,588
Common stock available for repurchase 8,495 8,495
Stockholders' equity:
Preferred stock 23,000 23,000
Common stock -- --
Paid-in capital 47,900 47,900
Treasury stock (5,100) (5,100)
Accumulated deficit (126,007) (113,676)
--------- ---------
Total stockholders' equity (60,207) (47,876)
--------- ---------
Total liabilities and stockholders' equity $ 195,276 $ 201,720
========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
2
<PAGE> 5
ANKER COAL GROUP, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1999 1998
----- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (11,328) $ (9,895)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Loss on impairment and restructuring 3,461 1,829
Depreciation, depletion and amortization 8,839 8,217
Loss on sale of property, plant and equipment 27 1,312
Changes in operating assets and liabilities:
Accounts receivable 2,467 (2,794)
Inventories, prepaid expenses and other (1,127) (90)
Advance minimum royalties (1,428) (1,357)
Accounts payable, accrued expenses and other (272) (3,313)
Accrued reclamation (2,159) --
Other liabilities (1,855) (142)
--------- ---------
Net cash used in operating activities (3,375) (6,233)
--------- ---------
Cash flows from investing activities:
Purchases of properties (4,079) (5,390)
Proceeds from sales of property, plant and equipment 184 145
Payments received on notes receivable 491 911
Other assets 61 (442)
Investment in affiliate -- (333)
--------- ---------
Net cash used in investing activities (3,343) (5,109)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving line of credit and
long-term debt 129,809 44,100
Principal payments on revolving line of credit and
long-term debt (120,239) (43,793)
Cash overdraft (2,151) 1,465
Debt issuance costs (708) (421)
Proceeds received from life insurance -- 10,000
--------- ---------
Net cash provided by financing activities 6,711 11,351
--------- ---------
(Decrease) increase in cash and cash equivalents (7) 9
Cash and cash equivalents at beginning of period 15 --
--------- ---------
Cash and cash equivalents at end of period $ 8 $ 9
========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
3
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The unaudited interim consolidated financial statements presented
herein have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q and do not include
all of the information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, these consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position, results of operations and
cash flows. These unaudited interim consolidated financial statements should be
read in conjunction with the other disclosures contained herein and with the
Company's audited consolidated financial statements and notes thereto contained
in the Company's Annual Form 10-K for the year ended December 31, 1998.
Operating results for interim periods are not necessarily indicative of results
that may be expected for the entire fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
2. INCOME TAXES
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year. The Company has established a full valuation
allowance on the net operating loss carryforwards, capital loss carryforwards
and contribution carryforwards because the realization of these assets are
uncertain.
3. INVENTORIES
Coal inventories are stated at the lower of average cost or market and
amounted to approximately $5,635,000 and $4,415,000 at June 30, 1999 and
December 31, 1998, respectively. Supply inventories are stated at the lower of
average cost or market and amounted to approximately $499,000 and $1,461,000 at
June 30, 1999 and December 31, 1998, respectively.
4. LOSS ON IMPAIRMENT AND RESTRUCTURING
During the second quarter of 1999 the Company reviewed the carrying
value of computer software and determined that with the addition of contract
miners at the deep mine operations certain software would not be utilized in
operations. The Company recorded an impairment loss of $1.1 million in
connection with the discontinuance of the use of the software. In addition, the
Company recorded an impairment of $2.4 million relating to properties located
in Tazwell County, Virginia.
5. SUBSEQUENT EVENTS
In July, 1999, the Company sold certain coal reserves in Preston and
Taylor Counties, West Virginia for $1.25 million in cash plus royalties on
future production. A gain of approximately $492,000 from this sale will be
recognized in the third quarter of 1999.
Under the Put Agreement, dated August 25, 1999, between the Company
and JJF Group Limited Liability Company ("JJF Group"), JJF Group has the right
to require the Company to purchase shares of its common stock at a specified
price per share in August, 1999, 2000 and 2001. If exercised, the total purchase
price to be paid by the Company to JJF Group on each of those dates is
approximately $1,505,000, $1,604,000 and $6,891,000, respectively, plus accrued
interest. On July 20, 1999, JJF Group exercised its right to require the Company
to purchase 305 shares of common stock for an aggregate price of approximately
$2.1 million including interest. Closing of the purchase was scheduled to occur
on August 15, 1999. However, the Company and JJF Group have agreed to extend the
required closing date until September 30, 1999. The Company and JJF Group have
also agreed to continue negotiations regarding a possible restructuring of the
Put Agreement on terms satisfactory to the Company and JJF Group. There can be
no assurance that the Company and JJF Group will reach agreement on terms
acceptable to the Company, if at all.
The Foothill Loan Agreement provides that in order to advance funds to
the Company and other Guarantors, the borrowers under such Agreement must have
borrowing availability of at least $5 million after giving effect to such
advances and for the thirty days immediately preceding such advances. During the
month of July, 1999 the Company's borrowing base declined below $5 million on
five separate days. The borrowers have continued to advance funds to the Company
and the Guarantors, which advances constitute a violation of the intercompany
loan covenant under the Foothill Loan Agreement. Foothill is aware of the
violation and is currently discussing this matter with the Company. Foothill
has not declared a default under the Foothill Loan Agreement as a result of
this covenant violation.
4
<PAGE> 7
6. SUBSIDIARY GUARANTEES
The Company is a holding company with no assets other than its
investments in its subsidiaries. The Company's $125 million Senior Notes due
October 2007 (the "Senior Notes") are guaranteed by certain subsidiaries of the
Company (collectively, the "Guarantor Subsidiaries"). Each of the Guarantor
Subsidiaries is a wholly-owned subsidiary of the Company and has fully and
unconditionally guaranteed the Senior Notes on a joint and several basis. The
following tables summarize the financial position, results of operations and
cash flows for the Company, the Guarantor Subsidiaries and the subsidiaries of
the Company which did not guarantee the Senior Notes (collectively,
"Non-Guarantor Subsidiaries"). The Company has not presented separate financial
statements and other disclosure regarding the Guarantor Subsidiaries because
management has determined that such information is not material to investors.
The restrictions affecting the ability of the Guarantor Subsidiaries to make
distributions to the Company or other Guarantor Subsidiaries are set forth in
the Loan and Security Agreement dated November 21, 1998, among the Company,
Foothill Capital Corporation and others (the "Foothill Loan Agreement"). The
ability of the Guarantor Subsidiaries to make distributions is also affected by
law generally (e.g., adequate capital to pay dividends under corporate law).
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30, 1999
-----------------------------------------------------------------------
(IN THOUSANDS)
ANKER COAL
ANKER COAL GUARANTOR NON-GUARANTOR CONS. GROUP
GROUP SUBS. SUBS. ADJUST. CONS.
----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Total current assets $ 3,683 $ 32,142 $ -- $ 2,960 $ 38,785
Investment in subsidiaries 55,925 -- -- (55,925) --
Properties, net -- 96,600 7,290 -- 103,890
Other assets
-- 52,601 -- -- 52,601
--------- --------- --------- --------- ---------
Total assets $ 59,608 $ 181,343 $ 7,290 $ (52,965) $ 195,276
========= ========= ========= ========= =========
Total current liabilities 1,950 38,225 326 2,960 43,461
Long-term debt -- 149,650 -- -- 149,650
Intercompany payable (receivable), net (54,169) 46,280 7,889 -- --
Other long-term liabilities 6,745 21,541 -- -- 28,286
Mandatorily redeemable preferred stock 25,591 -- -- -- 25,591
Common stock available for repurchase 8,495 -- -- -- 8,495
Total stockholders' equity 70,996 (74,353) (925) (55,925) (60,207)
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 59,608 $ 181,343 $ 7,290 $ (52,965) $ 195,276
========= ========= ========= ========= =========
STATEMENT OF OPERATIONS
Coal sales and related revenues -- $ 114,223 -- -- $ 114,223
Cost of operations and operating expenses -- 119,573 $ 120 -- 119,693
--------- --------- --------- --------- ---------
Operating loss -- (5,350) (120) -- (5,470)
Other expense $ (279) (5,779) -- -- (6,058)
--------- --------- --------- --------- ---------
Loss before taxes (279) (11,129) (120) -- (11,528)
Income tax benefit 200 -- -- -- 200
--------- --------- --------- --------- ---------
Net loss $ (79) $ (11,129) $ (120) -- $ (11,328)
========= ========= ========= ========= =========
STATEMENT OF CASH FLOWS
Net cash used in operating activities -- $ (3,375) -- -- $ (3,375)
========= ========= ========= ========= =========
Net cash used in investing activities -- $ (3,343) -- -- $ (3,343)
========= ========= ========= ========= =========
Net cash provided by financing activities -- $ 6,711 -- -- $ 6,711
========= ========= ========= ========= =========
</TABLE>
5
<PAGE> 8
7. COMMITMENTS AND CONTINGENCIES
In 1998, certain subsidiaries of the Company (the "Plantiffs") sued
Consolidation Coal Company ("Consol"), the Social Security Administration (the
administrator of the 1992 Coal Act, also known as the Rockefeller Bill), and
the Trustees of the United Mine Workers of America Combined Benefit fund (the
"Trustees") in the United States District for the Western District of
Pennsylvania claiming that (i) Consol is responsible for paying certain of the
Plantiffs 1992 Coal Act premiums relating to employees that were affected by
Consol's breach of several contract mining agreements in the early 1980's
(approximately 1/3 of the Plantiffs entire premium); (ii) the Social Security
Administration should be enjoined from continuing to invoice the Company for
these payments that should be made by Consol; and (iii) the 1992 Coal Act is
unconstitutional. The Trustee's filed a counterclaim against the Plantiffs for
the amount of premiums they have failed to pay as a result of their claim
against Consol. The court granted the Trustees motion for summary judgment on
their counterclaim, and the court granted the motions to dismiss filed by
Consol and the Social Security Administration.
The Plaintiffs appealed to the United States Third Circuit Court of
Appeals. The appeals court reversed the trial court ruling with respect to
Consol. However, the appeals court affirmed all other trial court rulings.Thus,
the appeals court ruled that the Plaintiffs can pursue their reimbursement
claim against Consol, but while that claim is proceeding they must pay the
disputed portion of their 1992 Coal Act premiums. At this time, the disputed
portion of premiums, including interest and penalties, is approximately $1.3
million. Interest accrues at the post judgment rate of 9% per year.
The Plaintiffs filed a writ of certiorari with the United States
Supreme Court on August 12, 1999. The Third Circuit's judgment has been stayed
pending the Supreme Court's denial of the writ or otherwise ruling against the
Plaintiffs. Because the Supreme Court is currently in recess until October,
1999, it is unlikely that the Plaintiffs will be required to pay the judgment
before October, 1999. The entire judgement has been fully accrued by the
Company in prior years. In the event the Plaintiffs are required to pay the
judgment, the Plaintiffs will fund the judgment with borrowings under the
Foothill Loan Agreement, if available.
The Plaintiffs is a party to various other lawsuits and claims
incidental to its business. While it is not possible to predict accurately the
outcome of these matters, management believes that none of these actions will
have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES; GOING CONCERN OPINION
The Company's independent public accountants issued a going concern
opinion with respect to the Company's Consolidated Financial Statements for the
year ended December 31, 1998. Specifically, the independent public accountants
stated that because the Company has, among other things, experienced recurring
losses and negative cash flow from operations and has a retained deficit, they
had substantial doubt about its ability to continue as a going concern. See Item
8, Consolidated Financial Statements, of the Company's Form 10-K for the period
ended December 31, 1998, for the opinion of the Company's independent public
accountants.
The Foothill Loan Agreement contains a covenant that requires the
Company to deliver an unqualified audit opinion on its annual financial
statements. The issuance of the going concern opinion by the Company's
independent public accountants for the year ended December 31, 1998 constituted
a default of that covenant. Foothill has waived that default. It should be noted
that the failure of the Company to obtain an unqualified audit opinion does not
constitute a default under the indenture governing the Senior Notes.
Under the indenture governing the Senior Notes, the Company was
obligated to make a semi-annual interest payment in the approximate amount of
$6.1 million on April 1, 1999. The Company elected to defer making the interest
payment at that time. However, on April 29, 1999, prior to the expiration of the
grace period under the indenture, the Company made the interest payment due
under the Senior Notes.
The following table sets forth the amounts outstanding and borrowing
availability under the Foothill Loan Agreement as of certain dates:
<TABLE>
<CAPTION>
REVOLVING REVOLVING
CREDIT CREDIT
DATE TERM LOAN BORROWINGS AVAILABILITY
---- --------- ---------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
12/31/98 $ 15.0 $ 1.9 $ 15.5
01/31/99 14.8 4.5 14.3
02/28/99 14.6 1.9 14.3
03/31/99 14.4 1.4 16.5
04/30/99 14.2 12.9 6.3
05/31/99 14.1 11.8 5.4
06/30/99 13.9 12.9 6.9
07/31/99 12.5 11.0 7.0
08/13/99 12.3 12.4 5.9
</TABLE>
The term loan changes are based on the normal amortization of the loan and the
application of $1,250,000 from the sale of certain assets in Preston County,
West Virginia. The increase in the revolving credit borrowings is primarily
related to the Company's borrowing to make the interest payment under the Senior
Notes on April 29, 1999, performing reclamation in Webster County, West Virginia
and capital expenditures. Revolving credit availability has been reduced as a
result of increases in borrowings and lower coal production and coal shipments.
Future revolving credit availability will be impacted by changes in coal
production and the resulting changes in coal inventory and accounts receivable.
In accordance with the Company's business plan, the Company has been
implementing contract mining services at its underground operations. The
transition from company run mines to contractor run mines may result in
decreased coal production. In addition, the contract miner for the Company's
Barbour County operation is moving the production units from the eastern
portion of the reserve to the western portion. This may also result in lower
coal production. The Company believes it can manage this transition to avoid
any material decline in production. However, no assurance can be made that coal
production will remain stable during this transition and in the future. A
decrease in coal production will cause a decline in revolving credit
availability.
The Foothill Loan Agreement provides that in order to advance funds to
the Company and other Guarantors, the borrowers under such Agreement must have
borrowing availability of at least $5 million after giving effect to such
advances and for the thirty days immediately preceding such advances. During
the month of July, 1999, the Company's borrowing base declined below $5 million
on five separate days. The borrowers have continued to advance funds to the
Company and the Guarantors, which advances constitute a violation of the
intercompany loan covenant under the Foothill Loan Agreement. Foothill is aware
of the violation and is currently discussing this matter with the Company.
Foothill has not declared a default under the Foothill Loan Agreement as a
result of this covenant violation.
7
<PAGE> 10
The Company has budgeted approximately $9.3 million for capital
expenditures for 1999. Of this amount, approximately $1.4 million relates to the
development of new mining operations in Upshur County, West Virginia. As of June
30, 1999, the Company has incurred approximately $4.1 million of capital
expenditures. With the transition to contractor run mines certain capital
expenditures will no longer be necessary resulting in lower expected capital
expenditures.
In addition to capital expenditures, operating expenses and debt
service requirements, the Company expects to incur exit costs with respect to
its Webster County operations, equipment leasehold termination costs, potential
cash security requirements to obtain reclamation bonds for new mining permits
and payments required under the Put Agreement.
Under the Put Agreement, JJF Group has the right to require the Company
to purchase shares of its common stock at a specified price per share in August,
1999, 2000 and 2001. If exercised, the total purchase price to be paid by the
Company to JJF Group on each of those dates is approximately $1,505,000,
$1,604,000 and $6,891,000, respectively plus accrued interest. On July 20, 1999,
JJF Group exercised its right to require the Company to purchase 305 shares of
common stock for an aggregate price of approximately $2.1 million including
interest. Closing of the purchase was scheduled to occur on August 15, 1999.
However, the Company and JJF Group have agreed to extend the required closing
date until September 30, 1999. The Company and JJF Group have also agreed to
continue negotiations regarding a possible restructuring of the Put Agreement on
terms satisfactory to the Company and JJF Group. There can be no assurance that
the Company and JJF Group will reach an agreement on terms acceptable to the
Company, if at all.
In late 1998, the Company developed a plan designed to improve its
financial performance and provide adequate short and long-term liquidity. The
Company's plan consists of four components: (1) obtain more flexible senior
financing; (2) improve cash flow from operations; (3) raise cash by selling
certain assets; and (4) reduce the Company's debt and secure additional
liquidity.
The first component of the plan was completed in November 1998, upon
the closing of the Foothill Loan Agreement. As more fully described in the Form
10-K for the year ended December 31, 1998, the Foothill Loan Agreement provides
for up to a $40 million working capital revolver and a $15 million term loan.
Commitments under the Foothill Loan Agreement will expire in 2002. Borrowings
are secured by a lien on substantially all of the assets of the Company. The
working capital revolver is an "asset based" facility, meaning that borrowings
are based on 85% of eligible accounts receivable and 65% of eligible inventory,
subject to certain limitations and qualifications. In addition to regularly
scheduled amortizing principal and interest payments, the Foothill Loan
Agreement requires that the Company apply the first $5 million of proceeds from
certain designated asset sales to the repayment of the $15 million term loan
facility. Proceeds from the designated asset sales in excess of $5 million may
be used by the Company for working capital. Proceeds used to repay the term loan
cannot be reborrowed.
The second component of the Company's plan is to improve cash flow by
using contract mining services for its underground mining operations. The
Company believes that by utilizing contract miners it will reduce operating
expenses, general and administrative expenses and month-to-month cost
fluctuations. In addition, the Company will have reduced capital costs because
the contract miners will be responsible for mine development and maintenance
capital expenditures. The Company has made progress on this component of the
plan. In early April, the Company entered into a contract mining agreement for
the operations in Garrett County, Maryland, and the contract miner began
operations on April 12, 1999. In addition, the Company entered into contract
mining agreements for its mining operations in Upshur County and Barbour County,
West Virginia. The contract miner for these mines began operations on June 1,
1999. The Company has also entered into a contract mining agreement with another
contract miner for the operations in Raleigh County, West Virginia. The contract
miner began operations at that mine on July 5, 1999.
The third component of the Company's plan involves the sale of certain
non-operating assets and non-strategic operating properties. The non-operating
assets which the Company is seeking to sell are those that require substantial
development costs and/or have significant holding costs. The operating
properties which the Company plans to sell either complement non-operating
assets being held for sale or are not integral to the Company's long-term
operating strategy. The Company has been discussing the sale of these properties
with third parties. In July 1999, the Company sold coal reserves in Preston and
Taylor Counties, West Virginia for $1.25 million in cash plus royalties on
future production. The cash proceeds from this asset sale were applied to reduce
the term loan facility. The Company believes that its efforts to market other
properties to date have been hampered by its financial condition. The Company
plans to continue its efforts to dispose of these assets and believes that it
will be successful in selling all or a part of these assets during the next
twelve to twenty-four months. However, there can be no assurance that asset
sales will be completed on terms acceptable to the Company, if at all. The
Company is also planning to evaluate reasonable offers on other assets as
opportunities develop. The coal reserves in Preston and Taylor Counties, West
Virginia which the Company recently sold were not included in the designated
asset sales. Therefore, cash proceeds from this sale were not credited against
the $5 million asset sale basket.
8
<PAGE> 11
The fourth and final component of the plan involves reducing the
Company's overall debt level has been and securing additional liquidity. To
that end, since mid-April, 1999, the Company has been in discussion with
Rothschild Recovery Fund, L.P. ("Rothschild") regarding a restructuring
of its Senior Notes. The transaction initially under discussion was aimed
primarily at reducing the Company's outstanding debt by offering holders of
Senior Notes an incentive, in the form of collateral and advance funding of
three semi-annual interest payments, to exchange them for a smaller principal
amount of new notes. In the course of those discussions, however, the Company
determined that it required approximately $15 million of additional liquidity
to implement its business plan and meet working capital needs. In order to
accomplish these needs, the Company is currently negotiating with Rothschild
and various other parties concerning a transaction in which (i) the Company
would privately issue new senior secured notes ("New Money Notes") and (ii) as
previously disclosed, existing Senior Notes would be exchanged for newly issued
12.50% senior secured notes due 2007 (the "Exchange Notes") with a principal
amount equal to 75% of the principal amount of the Senior Notes being
exchanged. The New Money Notes and the Exchange Notes would be secured by liens
on certain assets of the Company and its subsidiaries junior to the lien under
the Foothill Loan Agreement. The lien securing the Exchange Notes would be
junior to the lien securing the New Money Notes. Exchanging holders will be
asked to consent to certain modifications of the covenants contained in the
indenture for the Senior Notes. The Company expects to offer the opportunity to
exchange Senior Notes for Exchange Notes initially to certain qualified buyers
in a private transaction and subsequently to all remaining holders of Senior
Notes in accordance with applicable securities laws under which the Exchange
Notes issued in the subsequent exchange would be freely tradable.
A portion of the proceeds of sale of the New Money Notes would be (i)
used to pay accrued interest on the Senior Notes exchanged for Exchange Notes;
(ii) escrowed with the indenture trustee for the Exchange Notes to pay the
first three interest payments on the Exchange Notes; and (iii) escrowed with
the indenture trustee for the New Money Notes to pay the first 18 months
interest payments on the New Money Notes. All remaining proceeds would be used
by the Company to pay down outstanding amounts under the revolving credit
facility under the Foothill Loan Agreement and for the Company's working
capital and cash flow needs. Purchasers of the New Money Notes would also
receive warrants to purchase a minority equity stake in the Company.
As noted above, the Company has not completed negotiations of this
potential restructuring and sale of New Money Notes. Moreover, it should be
noted that consummation of the proposed exchange, indenture amendments and
private sale will be subject to a number of conditions, including, without
limitation, approval of the modifications to the indenture for the Senior Notes
by holders of a majority of the outstanding Senior Notes, negotiation of
definitive documentation satisfactory to the Company and participation in the
private exchange offer of a satisfactory level of holders of Senior Notes.
There can be no assurance that the Company will complete the restructuring of
the Senior Notes or the sale of the New Money Notes as described above. The
Company is currently evaluating the accounting and tax implications of this
restructuring.
The Company structured and is currently implementing the plan as
described above to address its liquidity needs. Pending completion of the
proposed restructuring and the infusion of additional capital, the Company
requires additional short-term funding for its operations. The Company is in
negotiations to secure $3 million of interim funding structured as a
participation in the Foothill Loan Agreement. The Company cannot predict
whether or not these negotiations will be successfully completed. In the
absence of the availability of interim funding or the closing of the proposed
restructuring and private placement, the Company expects its borrowing ability
and cash reserves to be exhausted within the next 30 days. The Company will be
monitoring the borrowing availability under the Foothill Loan Agreement and the
Company's liquidity position, and evaluating financial and operating
alternatives to stabilize its borrowing availability.
Even assuming the Company overcomes its current liquidity problems
outlined above, the Company's ability to generate sufficient liquidity for 1999
and comply with financial covenants under its debt arrangements will depend on
the successful implementation of all aspects of the Company's plan as outlined
above, the improvement of future operating performance, the consummation of
asset sales, and the waiver of conditions under the Foothill Loan Agreement, as
well as prevailing economic conditions and financial, business and other
factors, many of which are beyond the Company's control. There can be no
assurance that the Company can accomplish these objectives or that it will not
be adversely affected by matters beyond its control.
9
<PAGE> 12
The description of the proposed restructuring of the Senior Notes and
the issuance of New Money Notes is not and shall not be deemed to constitute an
offer to sell or the solicitation of an offer to buy any security or the
solicitation of any consent. The Exchange Notes and the New Money Notes have not
been registered under the Securities Act of 1933 and will not be offered or sold
in the United States absent registration or an applicable exemption from
registration, nor shall there be any sale of such securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1998
COAL SALES AND RELATED REVENUES. Coal sales and related revenues were
$57.3 and $114.2 million for the three and six months ended June 30, 1999
compared to $76.3 and $147.9 million for the same periods of 1998, decreases of
24.9% and 22.8%, respectively. Coal sales volume was 2.6 and 5.2 million tons
for the three and six months ended June 30, 1999 compared to 3.2 and 6.2 million
tons for the same periods a year ago, decreases of 18.8% and 16.1%,
respectively. The decreases are due to the following:
1) Tonnage levels were lower in the first and second quarters of
1999 due to idling the Company's Webster County surface mine
in December 1998. The Company is currently reclaiming the
properties associated with the idled surface mine. The
contract deep mine in Webster County continues to operate;
however, production from the deep mine is expected to cease in
the third quarter of 1999 as the reserves are fully depleted.
2) Tonnage levels were lower in the first and second quarters of
1999 due to idling the Grant County surface mine in December
1998. This surface mine was idled because the Company had
mined all of its then permitted reserves and was not able to
obtain a new mining permit for its adjacent properties which
would have allowed for the continuation of the surface mining
operation. Moreover, with the idling of the surface mine, the
Company was unable to sell the portion of production from its
Grant County deep mine which had previously been blended with
coal from the surface mine. As a result of this and other
factors, the Company idled the deep mine in February 1999,
which also caused an additional decline in coal production.
The Company is currently working with the appropriate
regulatory agencies to secure the new mining permit for the
surface operation. The issuance of this permit will depend on
numerous factors, many of which are beyond the control of the
Company. There can be no assurance that this will occur or
that the operations in Grant County will resume.
3) Tonnage levels were lower in the first and second quarters of
1999 due to the completion of one contract mining operation in
Preston County during the fourth quarter of 1998. Production
is expected to cease at the remaining contract deep mine in
Preston County at the end of 1999 due to the depletion of the
reserve base.
4) Tonnage levels were lower in the first and second quarters of
1999 due to the implementation of a reduced production
schedule at the Company's Raleigh County deep mine. The
reduced production schedule became necessary to control
growing inventory levels resulting from the weak metallurgical
coal market. The Raleigh County deep mine will continue to
produce at a reduced tonnage level throughout 1999.
While the Company experienced lower production at certain mines as
described above, tonnage levels during the first and second quarters of 1999 as
compared to the same periods for 1998 increased at the Company's Upshur County,
West Virginia deep mine and Garrett County, Maryland deep mine.
COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and
selling expenses totaled $53.1 and $103.4 million for the three and six months
ended June 30, 1999 compared to $72.9 and $140.9 million for the same periods of
1998, decreases of 27.2% and 26.6%, respectively. The cost of operations and
selling expenses was $20.42 per ton shipped for the three months ended June 30,
1999 compared to $22.78 per ton for the three months ended June 30, 1998, a
decrease of 10.4% and for the six months ended June 30, 1999 the cost of
operations and selling expenses was $19.88 per ton shipped compared to $22.73
for the six months ended June 30, 1998, a decrease of 12.5%. The decreases
resulted from the implementation of the Company's plans to restructure the
operation of its underground mining operation, and the idling of some of the
Company's higher cost mines.
OTHER OPERATING EXPENSES. Other operating expenses for the three and
six months ended June 30, 1999 were $6.5 and $12.8 million compared to $6.9 and
$13.3 million for the three and six months ended June 30, 1998. Included in
other operating expenses are general and administrative expenses and
depreciation, depletion and amortization.
10
<PAGE> 13
General and administrative expenses decreased 20% for the three months
ended June 30, 1999 to $2.0 million compared to $2.5 million for the three
months ended June 30, 1998. In addition, general and administrative expenses
decreased 23.5% for the six months ended June 30, 1999 to $3.9 million compared
to $5.1 million for the six months ended June 30, 1998. The decrease in general
and administrative expenses primarily resulted from management changes made as
the Company restructured its mining operations.
Remaining consistent for the three months ended June 30, 1999 and 1998
were depreciation, depletion and amortization of $4.4 million. For the six
months ended June 30, 1999, depreciation, depletion and amortization increased
7.3% to $8.8 million compared to $8.2 million for the six months ended June 30,
1998. Due to the restructuring of the Company's mining operations that took
place in 1998, the Company reviewed the carrying value of long-lived assets,
based on whether they are recoverable from future undiscounted operating cash
flows and appropriately impaired the necessary assets in 1998 and adjusted
prospectively the remaining asset life based on the cash flow analysis.
Accordingly, the useful life of goodwill was reduced from 40 years to a
prospective period ranging from 3 to 20 years and certain fixed assets had a
reduction in the useful life resulting in a higher depreciation, depletion and
amortization.
LOSS ON IMPAIRMENT AND RESTRUCTURING CHARGES. During the first quarter
of 1998, the Company recorded an additional impairment loss of $0.3 million to
adjust the Company's investment in Oak Mountain to its fair market value. There
were no additional investments in Oak Mountain in the second quarter of 1998.
Also during the second quarter of 1998, the Company initiated steps to reduce
general and administrative expenses and restructure the mine operating plans. In
connection with this effort, the Company recorded $0.1 million of restructuring
charges relating to management changes and $1.4 million relating to impairment
losses on certain pieces of mining equipment.
During the second quarter of 1999 the Company reviewed the carrying
value of computer software and determined that with the addition of contract
miners at the deep mine operations certain software would not be utilized in
operations. The Company recorded an impairment loss of $1.1 million in
connection with the discontinuance of the use of the software. In addition, the
Company recorded an impairment of $2.4 million relating to properties located
in Tazwell County, Virginia.
INTEREST EXPENSE. Interest expense was $3.9 and $7.5 million for the
three and six months June 30, 1999 compared to $3.3 and $6.1 million for the
three and six months ended June 30, 1998, an increase of 18.2% and 23%,
respectively. The increases were due to an increase in the average outstanding
indebtedness and average effective interest rate in the respective periods.
INCOME TAXES. The income tax benefit for the three and six months ended
June 30, 1999 is based on the effective tax rate expected to be applicable for
the full year. The Company has established a full valuation allowance on the net
operating loss carryforwards, capital loss carryforwards and contribution
carryforwards because the realization of these assets is uncertain. In addition,
the Company received a refund of $0.2 million in the first quarter of 1999
related to a prior year federal tax deposit.
NET LOSS. For the three and six months ended June 30, 1999, the
Company's net loss was $8.8 and $11.3 million compared to a net loss of $5.7 and
$9.9 million for the same periods of 1998, a decrease of $3.1 and $1.4 million,
respectively. The decreases in net loss are primarily due to the reduction of
operating and selling expenses as mentioned above.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs that
were written using two digits, rather than four, to define the applicable year.
Any of the Company's computers, computer programs, mining or administration
equipment that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If any of the Company's systems or
equipment has date-sensitive software using only two digits, system failures or
miscalculations may result causing disruptions of operations or disruptions in
normal business activities.
During 1998, the Company created an internal project team to assess the
Y2K issue and identified risks in four general categories: internal business
software and systems, mine operating equipment, coal processing facilities and
other.
Internal Business Software and Systems. During July and August of 1998,
file servers, hubs, switches, routers and individual PCs and workstations, were
tested for Y2K compliance. As of June 30, 1999, the process was substantially
complete. A final review of all internal systems as described in the initial Y2K
plan is to be conducted during the beginning of the fourth quarter of 1999. The
Company's estimated cost for 1999 is $0.2 million and will be funded through
normal operating cash.
Mine Operating Equipment. The Y2K project team has evaluated each piece
of operational mining equipment to ensure compliance for the Y2K issue. In this
process, a person from the project team is serving as the coordinator between
the mining operations and vendors to assess compliance. At the mining locations,
a person familiar with the equipment has been chosen to assess any computer
embedded chips within each piece of equipment. The coordinator has compiled a
list from each location. The assessment and remediation on mine operating
equipment has been completed as of June 30, 1999.
Coal Processing Facilities. The Y2K project team has also identified a
person to serve as coordinator between the mine sites and vendors to assess Y2K
compliance in relation to the Company's coal processing facilities. Coal
processing facilities are composed of various components such as electronic belt
scales, analyzers and controllers. Each plant and its components have been
assessed. The Company's estimated cost has been estimated not to exceed budgeted
amounts. As of June 30, 1999 the assessment has been completed at all coal
processing facilities. The remediation on coal processing facilities should be
complete by September 30, 1999.
11
<PAGE> 14
Other. In addition to the three major categories above, the Company is
in the process of identifying and contacting its critical suppliers, customers
and service providers to ensure their readiness for the year 2000. As of March
31, 1999, the Company had completed its identification process and is in the
process of contacting these critical parties with respect to their Y2K
compliance. As of June 30, 1999, 85% of critical suppliers, customers and
service providers have been reviewed. This process is continuing as planned.
Delays have been attributed to obtaining responses from non critical vendors and
the transfer to contract mining operations. The process is expected to be
completed by the end of the third quarter 1999.
Currently, the Company, due to compliance of Y2K issues, does not
expect to develop contingency plans for any operation. To date, expenditures on
Y2K have been minimal and funded by operating cash. Based on preliminary
information, the majority of the project cost will be attributed to the purchase
of new software to meet future industry requirements and will be capitalized.
The total remaining project cost will be expended as incurred over the next five
months. Management believes that the Company is devoting the necessary resources
to identify and resolve significant Y2K issues in a timely manner.
DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES
For a discussion of dividend restrictions affecting subsidiaries, see
notes 5 and 6 to the financial statements contained in Item 1 of the Form 10-Q
and Item 2 "Liquidity and Capital Resources; Going Concern Opinion."
12
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Number Description of Exhibit
10.1 Amendment No. 1 to Loan Documents dated as of August
4, 1999 amending the Loan and Security Agreement,
dated as of November 21, 1998 by and among certain
Subsidiaries of Anker Coal Group, Inc. (the
"Borrowers"), certain financial institutions party
thereto (the "Lenders") and Foothill Capital
Corporation, as agent (the "Agent")
10.2 Contract Mining Agreement dated as of June 25, 1999
by and between Anker West Virginia Mining Company,
Inc. ("AWVMC") and Baylor Mining, Inc. for contract
mining services to be provided at the underground
coal mining operation and related surface facilities
in Raleigh County, West Virginia, known as the
"BayBeck Mine."*
10.3 Contract Mining Agreement dated as of June 24, 1999
by and between AWVMC and BJM Coal Company for
contract mining services to be provided in connection
with coal reserves in the Middle Kittanning seam in
Upshur County, West Virginia.*
10.4 Contract Mining Agreement dated as of April 9, 1999
by and between AWVMC and Steyer Fuel, Inc. for
contract mining services to be provided at the
underground mining operation in the Bakerstown seam
of coal in Garrett County, Maryland, known as the
"Steyer Mine."*
10.5 Employment Agreement dated as of May 1, 1999 by and
between Anker Energy Corporation and William D.
Kilgore.
27 Financial Data Schedule
* A portion of the exhibit, as indicated therein, has be
redacted pursuant to a request for confidential treatment
filed with the Commission.
(b) Reports on Form 8-K.
Form 8-K, dated April 1, 1999, reporting on Item 5, regarding an agreement in
principle with Rothschild Recovery Fund, L.P.
Form 8-K, dated April 16, 1999, reporting on Item 5, regarding negotiations with
Rothschild Recovery Fund, L.P. in connection with a proposed exchange
transaction with respect to the Company's 9-3/4% Senior Notes due 2007.
Form 8-K, dated April 30, 1999, reporting on Item 5, regarding appointment of
William D. Kilgore as Chairman and Chief Executive Officer.
Form 8-K, dated May 5, 1999, reporting on Item 5, regarding contract mining
agreements entered into by the Company.
Form 8-K, dated May 28, 1999, reporting on Item 5, regarding the Company's
decision to explore alternatives to obtain additional sources of liquidity.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANKER COAL GROUP, INC.
/s/ Bruce Sparks
-------------------------------------
Bruce Sparks
President
/s/ Michael Matesic
-------------------------------------
Michael Matesic
Treasurer and Chief Financial Officer
DATE: August 16, 1999
14
<PAGE> 1
AMENDMENT NO. 1 TO LOAN DOCUMENTS
August __, 1999
Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025
Gentlemen:
Foothill Capital Corporation, as agent ("Agent"), the financial
institutions party to the Loan Agreement referred to herein (each, individually
a "Lender" and collectively, "Lenders") and certain Subsidiaries of Anker Coal
Group, Inc. (each, individually, a "Borrower" and collectively "Borrowers") have
entered into certain financing arrangements as set forth in the Loan and
Security Agreement, dated as of November 21, 1998, by and among Borrowers,
Lenders and Agent (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan Agreement"),
and all other agreements, documents and instruments referred to therein or at
any time executed and/or delivered in connection therewith or related thereto,
including, but not limited to, this Amendment (as all of the foregoing now
exist, are modified hereby or are hereafter amended, modified, supplemented,
extended, renewed, restated or replaced, collectively, the "Loan Documents").
Borrowers have requested that Agent and Lenders consent to Juliana
Mining Company, Inc. ("Juliana") no longer being a Borrower under the Loan
Agreement, agree to amend certain provisions of the Loan Agreement and waive
certain Events of Default and Agent and Lenders are willing to consent to
Juliana no longer being a Borrower under the Loan Agreement and to such
amendments and waive such Events of Default, subject to the terms and conditions
contained herein.
In consideration of the foregoing and the respective agreements and
covenants herein, the parties hereto agree as follows:
1. Termination as Borrower. Effective as of the Amendment No. 1 Closing
Date (as hereinafter defined), Juliana shall cease to be a "Borrower" under the
Loan Agreement and the other Loan Documents and shall be deemed to be solely a
"Guarantor" under the Loan Agreement and the other Loan Documents. From and
after the Amendment No. 1 Closing Date, Juliana shall not be permitted to
receive or request Advances under Section 2 of the Loan Agreement, and Lenders,
Agent and Foothill shall have no obligation to make any Advances to Juliana
under the Loan Documents. Any Advances (including, without limitation, Agent
<PAGE> 2
Advances and Foothill Loans) or Term Loans made to or on behalf of Juliana
outstanding on the Amendment No. 1 Closing Date shall be repaid in full in cash
or other immediately available funds, together with any accrued interest
thereon, on or before the Amendment No. 1 Closing Date.
2. Definitions.
2.1 Amendments to Definitions.
(a) The definition of "Borrower" and "Borrowers" contained
in the Loan Agreement and the other Financing Documents are each hereby amended
to delete any reference to Juliana.
(b) The definition of "Guarantors" set forth in Section 1.1
of the Loan Agreement is hereby deleted in its entirety and the following
substituted therefor:
"'Guarantor' means, individually and collectively, jointly
and severally, the Parent and Anker Group, Inc., a Delaware
corporation, Simba Group, Inc., a Delaware corporation, Anker
Power Services, Inc., a West Virginia corporation, Bronco Mining
Company, Inc., a West Virginia corporation, Vantrans, Inc., a West
Virginia corporation, King Knob Coal Co., Inc., a West Virginia
corporation, Heather Glen Reserves, Inc., a West Virginia
corporation, Hawthorne Coal Company, Inc., a West Virginia
corporation, Upshur Property, Inc., a West Virginia corporation,
Melrose Coal Company, Inc., a West Virginia corporation, New
Allegheny Land Holding Company, Inc., a West Virginia corporation,
and Juliana Mining Company, Inc., a West Virginia corporation, and
any other Subsidiary of Parent that shall now or hereafter
guarantee the payment and performance of the Obligations to Lender
Group."
(c) The definition of "Security Agreement" set forth in
Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the
following substituted therefor:
"'Security Agreement' means, individually and collectively,
(i) the General Security Agreement separately executed and
delivered on the Closing Date by each Guarantor (other than
Juliana) in favor of Foothill and (ii) the General Security
Agreement executed and delivered by Juliana on the Amendment No. 1
Closing Date in favor of Foothill, in each case in form and
substance satisfactory to Agent, for the benefit of Lender Group,
pursuant to which, among other things, such Guarantor shall grant
to Agent, for the benefit of Lender Group, a first priority lien
on all of its Guarantor Collateral more particularly described
therein."
- 2 -
<PAGE> 3
(d) The definition of Eligible Accounts is hereby amended by
deleting clause (ii) of Section (i) thereof in its entirety and substituting the
following therefor:
"(ii) owing by Courtney Foos and/or Potomac Electric Power Company
evidencing total obligations collectively owing to Borrowers by
such Account Debtors in excess of: (A) 40% of all Eligible
Accounts during the period commencing on August __, 1999 and
ending on December 31, 1999; (B) 35% of all Eligible Accounts
during the period commencing January 1, 2000 and ending on
September 30, 2000; (C) 30% of all Eligible Accounts during the
period commencing on October 1, 2000 and ending on November 30,
2000; and (D) 25% of all Eligible Accounts thereafter".
2.2 Additional Definitions. Section 1.1 of the Loan Agreement is
hereby amended by adding the following new definitions in the appropriate
alphabetical order:
"'Amendment No.1' means Amendment No. 1 to Loan Documents,
dated August __, 1999, by and among Borrowers, Guarantors, Agent
and Lenders."
"'Amendment No. 1 Closing Date' means the date that each of
the conditions set forth in Section 8 of Amendment No. 1 have been
satisfied in a manner satisfactory to Agent."
"'Juliana' means Juliana Mining Company, Inc., a West
Virginia corporation, and a Guarantor of the Obligations."
2.3 Construction. All capitalized terms used herein shall have the
meanings assigned thereto in the Loan Agreement, unless otherwise defined
herein.
3. Investments; Loans. Section 7.13(c)(ix) of the Loan Agreement is
hereby amended by adding to the chart set forth therein the following new clause
(10):
"(10) Juliana Mining Company, Inc. $7,000,000 for fiscal year
1999 and $500,000 for each
fiscal year thereafter"
4. Schedule of Litigation. Schedule 5.10 of the Loan Agreement is
hereby deleted in its entirety and Schedule 4 to this Amendment substituted
therefor.
- 3 -
<PAGE> 4
5. Continuing Guaranty. The Continuing Guaranty by Juliana in favor of
Agent is hereby amended by deleting Juliana from the definitions of "Borrower"
and "Borrowers" set forth in Recital A thereto.
6. Mortgages. Juliana shall execute and deliver to Agent on behalf of
Lender Group amendments to the Mortgages executed and delivered by Juliana, in
form and substance satisfactory to Agent ("Mortgage Amendments"), amending the
Mortgages executed and delivered by Juliana to reflect that from and after the
Amendment No. 1 Closing Date Juliana shall be solely a Guarantor and not a
Borrower.
7. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrowers to Lender Group pursuant to the Loan Documents, each Borrower
and each Guarantor hereby jointly and severally represents, warrants and
covenants with and to Lender Group as follows (which representation, warranties
and covenants are continuing and shall survive the execution and delivery hereof
and shall be incorporated into and made a part of the Loan Documents):
7.1 No Default or Event of Default exists as of the date of this
Amendment No. 1 after giving effect to the amendments and waivers set forth
herein.
7.2 This Amendment has been duly executed and delivered by each
Borrower and each Guarantor and is in full force and effect as of the date
hereof, and the agreements and obligations of each Borrower and each Guarantor
contained herein and therein constitute legal, valid and binding obligations of
Borrowers enforceable against each Borrower and each Guarantor in accordance
with their respective terms.
7.3 All of the representations and warranties set forth in the
Loan Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date hereof as if made on the date hereof, except to
the extent any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
as of such date.
8. Conditions Precedent. The amendments herein shall be effective as of
March 1, 1999 upon the satisfaction of each of the following conditions
precedent in a manner satisfactory to Agent (the date of satisfaction of such
conditions, the "Amendment No. 1 Closing Date"):
8.1 Agent shall have received evidence, in form and substance
satisfactory to Agent, that Agent has valid perfected and first priority
security interests in and liens upon the Collateral owned by Juliana and any
other property of Juliana which is intended to be security for the Obligations
or the liability of any Obligor in respect thereof, subject only to the security
interests and liens permitted herein or in the other Loan Documents;
- 4 -
<PAGE> 5
8.2 the receipt by Agent of an original of this Amendment, duly
authorized, executed and delivered by each Borrower, each Guarantor and each
Lender;
8.3 the receipt by Agent of an original of the Security Agreement
to be executed by Juliana, duly authorized, executed and delivered by the
Juliana;
8.4 the receipt by Agent of originals of the Mortgage Amendments
to be executed by Juliana, each duly authorized, executed and delivered by the
Juliana;
8.5 the receipt by Agent of Solvency Certificates in respect of
Borrowers and Parent and Compliance Certificates in each case for each of March,
April, May and June, 1999 including a calculation in reasonable detail showing
compliance with the covenants set forth in Section 7.20 of the Loan Agreement;
8.6 all requisite corporate action and proceedings in connection
with this Amendment and the other Loan Documents to be executed and delivered in
connection herewith shall be satisfactory in form and substance to Agent, and
Agent shall have received all information and copies of all documents, including
records of requisite corporate action and proceedings which Agent may have
requested in connection therewith, such documents where requested by Agent or
its counsel to be certified by appropriate corporate officers or governmental
authorities; and
8.7 except as set forth in Section 9 hereof, no Event of Default
shall have occurred and be continuing and no event shall have occurred or
condition be existing and continuing which, with notice or passage of time or
both, would constitute an Event of Default.
9. Waiver. Borrowers hereby acknowledge, confirm and agree that (a)
Parent and Borrowers have failed to deliver the Solvency Certificates for March,
April, May and June, 1999 required to be delivered pursuant to Section 6.2(a)(i)
of the Loan Agreement, the Compliance Certificates as of the last day of March,
April, May and June of 1999 required to be delivered pursuant to Section 6.3 of
the Loan Agreement and (b) as a result of the foregoing, an Event of Default has
occurred and is continuing under Section 8.2(a) of the Loan Agreement (the
"Subject Default"). At the request of Borrowers and Guarantors, Agent, at the
written request of the Required Lenders, hereby waives the Subject Default,
provided, however, that (x) Parent and Borrowers deliver to Agent on the date
hereof such Solvency Certificates (which, in the case of Parent, may reflect
that Parent, in the event it is unable to obtain certain additional financing
and restructure the Senior Notes, will be unable to pay certain of its
obligations as they mature) and such Compliance Certificates and (y) nothing
contained herein shall constitute a waiver of any other existing Event of
Default or any future noncompliance with Section 6.2(a)(i) or Section 6.3 of the
Loan Agreement or any other term, condition or agreement contained in the Loan
Agreement or any Loan Document. Nothing contained herein shall limit, impair,
waive or otherwise affect any other term, provision or condition of the Loan
Agreement or any other Loan Document, all of which remain in full force and
effect in accordance with all of their respective existing terms and conditions.
- 5 -
<PAGE> 6
10. Fee. As partial consideration for Lender Group's entering into this
Amendment, Borrowers shall pay to Agent for the ratable benefit of Lender Group
a fee in the amount of $10,000, which shall be fully earned and payable as of
the date hereof.
11. Miscellaneous.
11.1 Headings. The headings listed herein are for convenience only
and do not constitute matters to be considered in interpreting this Amendment.
11.2 Effect of this Amendment. Except as modified pursuant hereto,
the Loan Documents are hereby specifically ratified, restated and confirmed by
all parties hereto as of the effective date hereof. To the extent of a conflict
between the terms of this Amendment and the other Loan Documents, the terms of
this Amendment shall control.
11.3 Governing Law. The validity, interpretation and enforcement
of this Amendment shall be governed by the internal laws of the State of New
York (without giving effect to principles of conflicts of law).
11.4 Further Assurances. Borrowers and Guarantors shall execute
and deliver such additional documents and take such additional action as may be
necessary or desirable, as determined by Agent, to effectuate the provisions and
purposes of this Amendment.
11.5 Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement.
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereby this Amendment, as accepted by Agent and Lenders, shall
become a binding agreement among Borrowers, Guarantors and Lender Group.
Very truly yours,
ANKER ENERGY CORPORATION
By:________________________
Title:_____________________
[SIGNATURES CONTINUE ON NEXT PAGE]
- 6 -
<PAGE> 7
[SIGNATURES CONTINUED FROM PRIOR PAGE]
MARINE COAL SALES COMPANY
By:_____________________________
Title:__________________________
ANKER WEST VIRGINIA MINING
COMPANY, INC.
By:_____________________________
Title:__________________________
PATRIOT MINING COMPANY, INC.
By:_____________________________
Title:__________________________
VINDEX ENERGY CORPORATION
By:_____________________________
Title:__________________________
ANKER VIRGINIA MINING COMPANY, INC.
By:_____________________________
Title:__________________________
JULIANA MINING COMPANY, INC.
By:_____________________________
Title:__________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
- 7 -
<PAGE> 8
[SIGNATURES CONTINUED FROM PRIOR PAGE]
ANKER COAL GROUP, INC.,
as Guarantor and Borrower Agent
By:_____________________________
Title:__________________________
ANKER GROUP, INC.
By:_____________________________
Title:__________________________
SIMBA GROUP, INC.
By:_____________________________
Title:__________________________
ANKER POWER SERVICES, INC.
By:_____________________________
Title:__________________________
BRONCO MINING COMPANY, INC.
By:_____________________________
Title:__________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
- 8 -
<PAGE> 9
[SIGNATURES CONTINUED FROM PRIOR PAGE]
VANTRANS, INC.
By:_____________________________
Title:__________________________
KING KNOB COAL CO., INC.
By:_____________________________
Title:__________________________
HEATHER GLEN RESOURCES, INC.
By:_____________________________
Title:__________________________
HAWTHORNE COAL COMPANY, INC.
By:_____________________________
Title:__________________________
UPSHUR PROPERTY, INC.
By:_____________________________
Title:__________________________
MELROSE COAL COMPANY, INC.
By:_____________________________
Title:__________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
- 9 -
<PAGE> 10
[SIGNATURES CONTINUED FROM PRIOR PAGE]
NEW ALLEGHENY LAND HOLDING
COMPANY, INC.
By:________________________
Title:_____________________
AGREED AND ACKNOWLEDGED:
FOOTHILL CAPITAL CORPORATION
as Agent and as a Lender
By:__________________________
Title:_______________________
CONGRESS FINANCIAL CORPORATION
By:__________________________
Title:_______________________
SUNROCK CAPITAL CORP.
By:__________________________
Title:_______________________
- 10 -
<PAGE> 1
BAYBECK
CONTRACT MINING AGREEMENT
THIS CONTRACT MINING AGREEMENT (this "Agreement"), is made and entered
into as of this 25th day of June, 1999 (the "Effective Date"), by and between
ANKER WEST VIRGINIA MINING COMPANY, INC., a West Virginia corporation ("AWVMC")
and BAYLOR MINING, INC., a West Virginia corporation ("Independent Contractor").
WHEREAS, AWVMC owns and currently operates an underground coal mining
operation and related surface facilities in Raleigh County, West Virginia, known
as the "BayBeck Mine";
WHEREAS, AWVMC desires to engage Independent Contractor as a contract
miner to perform Work (as defined herein) in accordance with and subject to the
terms and conditions set forth herein; and
WHEREAS, AWVMC and Independent Contractor have agreed that Independent
Contractor will begin to perform the Work upon the expiration of the WARN notice
period.
NOW, THEREFORE, in consideration of the strict and mutual performance
and observance of the terms, conditions, covenants, stipulations, guarantees and
agreements hereinafter set forth, and intending to be legally bound, AWVMC and
Independent Contractor agree as follows:
ARTICLE I
Definitions
As used herein, the following terms shall have the following meanings
(all terms defined in this Article I or in other provisions of this Agreement in
the singular shall have the same meaning when used in the plural and vice
versa):
<PAGE> 2
"AWVMC" shall mean Anker West Virginia Mining Company, Inc., a West
Virginia corporation.
"AWVMC Property" shall mean the facilities, assets and equipment that
are identified and described on the attached Schedule I.
"Clean Coal" shall mean or refer to the amount of Washed Coal shipped
from the Preparation Plant and received by customers in any month.
"Coal" shall mean the mineable and merchantable coal within and from
the Beckley seam of coal in, on and underlying the Premises.
"Commencement Date" shall mean June 28, 1999.
"Contract Price" shall have the meaning set forth in Section 6.1 of
this Agreement. "Designated Monthly Quantity" shall have the meaning set forth
in Section 5.3 of this Agreement.
"Effective Date" shall mean June 25, 1999.
"Estimated Payment" shall mean the payment of the Contract Price for an
applicable payment period as set forth in Section 6.2 based on weights
determined by the clean coal belt scales at the Preparation Plant.
"Equipment" shall mean, collectively: (i) the AWVMC Property, (ii) the
Independent Contractor Equipment and (iii) the Parts and Supplies.
"Event of Default" shall have the meaning set forth in Section 11.1 of
this Agreement.
"Fair Market Value" shall mean the value of Property in its place at
the BayBeck Mine as determined by an appraisal, the cost of which shall be borne
equally by AWVMC and Independent Contractor, conducted by a qualified and
independent underground mining
-2-
<PAGE> 3
equipment appraiser who is reasonably satisfactory to both AWVMC and Independent
Contractor.
"Independent Contractor" shall mean Baylor Mining, Inc., a West
Virginia corporation.
"Independent Contractor Equipment" shall mean all equipment, tools,
machinery, parts, supplies and other items obtained and utilized from time to
time by Independent Contractor to perform the Work; provided, however, it shall
not include: the AWVMC Property or the Parts and Supplies.
"Independent Contractor Equipment List" shall mean a written list of
the Independent Contractor Equipment and the related parts and supplies located
at the BayBeck Mine, including the make, model and serial number of each item on
the list.
"Information" shall have the meaning set forth in Section 8.7 of this
Agreement.
"Lien" shall mean any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind.
"Monthly Designation" shall mean and include, with respect to Coal
designated by AWVMC or its designee to be delivered during the next month, the
amount of, and ash and sulfur specifications for, Clean Coal to be delivered by
Independent Contractor to the Preparation Plant. Except in the event of Force
Majeure, the amount of Clean Coal designated by AWVMC or its designee to be
delivered shall be between [*]1 and [*]1 tons per month. The Monthly
Designations shall be included in the Delivery Schedules. Independent Contractor
hereby covenants and agrees to comply with the quantity and quality provisions
of the Monthly Designations. In addition to and not in limitation of any other
rights or remedies which
- --------------
(1) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-3-
<PAGE> 4
AWVMC may possess, AWVMC shall have the right to refuse or revoke its acceptance
of all or any portion of Coal delivered by Independent Contractor that does not
comply with the quantity or quality provisions set forth in the Monthly
Designations, and AWVMC shall have no obligation to pay Independent Contractor
for any of the Coal for which AWVMC's acceptance is either refused or revoked.
In the event AWVMC refuses to accept or revokes its acceptance of any coal
pursuant to this paragraph, Independent Contractor shall have the right to
purchase such unacceptable Coal from AWVMC at the point of rejection at a price
negotiated by AWVMC and Independent Contractor at the time of rejection. Only
upon purchase and payment therefore shall title to such Coal pass to Independent
Contractor.
"Parts and Supplies" shall have the meaning set forth in Section 4.3 of
this Agreement.
"Payment Adjustment" shall mean the adjustments to the Estimated
Payments made in previous payment periods as set forth in Section 6.2 based on
railroad weights obtained by the railroad carrying the Coal to the customers.
"Premises" shall have the meaning set forth in Section 2.3 of this
Agreement.
"Preparation Plant" shall mean the coal preparation plant owned by
AWVMC at the BayBeck Mine.
"Records" shall have the meaning set forth in Section 8.5 of this
Agreement.
"BayBeck Mine" shall mean the underground coal mine owned by AWVMC on
the Premises.
"Termination Notice" shall have the meaning set forth in Section 11.9
of this Agreement.
"Termination Notice Date" shall mean the earlier of (i) the date
Independent Contractor actually receives the Termination Notice, and (ii) three
days after the Termination Notice Date is placed in the U.S. mail.
-4-
<PAGE> 5
"Three (3) Month Estimate" shall mean the estimate of the amount of
Clean Coal AWVMC will designate for delivery pursuant to this Agreement during
the next three (3) months. The Three (3) Month Estimates shall be included in
the Delivery Schedules for informational and planning purposes only and shall
not be binding on AWVMC or Independent Contractor.
"Value of the Parts and Supplies" shall have the meaning set forth in
Section 4.3 of this Agreement. "Work" shall have the meaning set forth in
Section 2.1 of this Agreement.
ARTICLE II
Engagement, Term and Nature of Mining
Section 2.1 -- Engagement of Independent Contractor. AWVMC hereby
engages Independent Contractor as an independent contractor in accordance with
and subject to the terms and conditions hereinafter set forth, and Independent
Contractor hereby covenants and agrees as follows: (i) to mine and remove the
Coal by usual and accepted underground mining methods and in accordance with the
mining plans and projections described in Section 8.3 of this Agreement, and as
otherwise herein specified, (ii) to deliver the Coal to AWVMC or its designee on
the slope belt at the surface; and (iii) to perform all of the other duties,
responsibilities and obligations required of Independent Contractor under this
Agreement (all of said work is hereinafter collectively referred to as the
"Work"). Independent Contractor expressly agrees to begin to perform the Work on
the Commencement Date and thereafter to continue to perform the Work in a
diligent and professional manner and in accordance with the terms and conditions
of this Agreement and any and all of the permits and governmental approvals now
or hereafter required for the performance of the Work.
-5-
<PAGE> 6
Section 2.2 -- Term. This Agreement shall be effective as of the
Effective Date and shall continue in full force and effect, unless sooner
terminated as provided herein or under applicable law, until the earlier of (i)
May 31, 2002, or (ii) all of the mineable and merchantable Coal has been removed
from the Premise; provided, however, unless all of the mineable and merchantable
Coal has been removed from the Premises, this Agreement shall automatically
renew from year to year after May 31, 2002, unless either party provides the
other with written notice of its intent to terminate on or before January 31,
2002, or January 31 of the then current one year renewal term as the case may
be.
Section 2.3 -- Area Designated for Mining. The area to be mined by
Independent Contractor under this Agreement will be designated by AWVMC in the
Beckley coal seam in, or under those certain tracts or parcels of land in
Raleigh County, West Virginia, which are shown on the map attached hereto and
made a part hereof as Exhibit A and all subsequent revision map(s) (the
"Premises"). Independent Contractor acknowledges and agrees that Exhibit A is
not intended to indicate expressly or by implication that all areas depicted
therein are or will be designated by AWVMC for mining by Independent Contractor,
nor is Exhibit A intended to indicate expressly or by implication that AWVMC
owns or otherwise possesses the right to mine all of the Coal on the Premises.
In addition, other areas may be added to the area to be mined, and the
description and boundaries of the area to be mined by Independent Contractor may
otherwise be changed from time to time by the mutual written agreement of the
parties. This Agreement shall be applicable to such additional areas, if any, as
if the same were initially described herein, and such areas shall be deemed a
part of the Premises.
-6-
<PAGE> 7
ARTICLE III
Representations and Warranties
Section 3.1 -- Representations and Warranties of AWVMC. AWVMC MAKES NO,
AND HEREBY DISCLAIMS ANY, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE QUANTITY, QUALITY OR CONDITION OF THE COAL LOCATED IN OR RECOVERABLE FROM
THE PREMISES OR THE EQUIPMENT TO BE USED BY OR SUBLEASED TO INDEPENDENT
CONTRACTOR PURSUANT TO THIS AGREEMENT. AWVMC ALSO MAKES NO, AND HEREBY DISCLAIMS
ANY, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DURATION,
ECONOMIC FEASIBILITY OR LIKELIHOOD OF SUCCESS OF THE WORK TO BE PERFORMED BY
INDEPENDENT CONTRACTOR UNDER THIS AGREEMENT. INDEPENDENT CONTRACTOR HEREBY
EXPRESSLY ACKNOWLEDGES AND UNDERSTANDS THAT THE DESIGNATION BY AWVMC OF ANY
AREA(S) TO BE MINED SHALL NOT CONSTITUTE ANY REPRESENTATION OR WARRANTY
WHATSOEVER BY AWVMC THAT THE AREA(S) SO DESIGNATED ARE SUITABLE FOR OR CONDUCIVE
TO MINING OR PRODUCING COAL OF A QUANTITY OR QUALITY REQUIRED UNDER THIS
AGREEMENT. INDEPENDENT CONTRACTOR FURTHER ACKNOWLEDGES THAT AWVMC HAS NOT MADE
ANY REPRESENTATION OR WARRANTY WITH REGARD TO ANY OF THE FOREGOING MATTERS OR
THE CONDITION OR EXISTENCE OF ANY SURFACE AREAS, PRIOR WORKINGS, COAL SEAMS,
WORK PLACES, STRUCTURES, FACILITIES, FIXTURES, EQUIPMENT OR OTHER MATTERS
RELATING TO THE PREMISES, THE COAL, THE EQUIPMENT, THE WORK OR THE BAYBECK MINE.
-7-
<PAGE> 8
Section 3.2 -- Representations and Warranties of Independent
Contractor. As a material inducement for AWVMC to enter into this Agreement,
Independent Contractor represents and warrants to AWVMC as follows:
(a) Independent Contractor is a corporation duly organized, validly
existing and in good standing under the laws of the State of West Virginia.
Independent Contractor has full power and authority to execute, deliver and
perform this Agreement. This Agreement has been duly authorized, executed and
delivered by Independent Contractor, is a valid and binding obligation of
Independent Contractor and is enforceable against Independent Contractor in
accordance with its terms, subject only to bankruptcy, insolvency and other laws
affecting creditors' rights generally. The execution, delivery and performance
of this Agreement by Independent Contractor will not, with or without the lapse
of time or the giving of any notice, or both, result in any breach, default or
violation by Independent Contractor of any law, rule, regulation or agreement or
other commitment to which Independent Contractor is a party or by which it is
bound.
(b) Neither Independent Contractor nor any of its assets are subject to
any judgment, order, writ, decree, citation or injunction. Independent
Contractor is not a party to any judicial, administrative, investigative or
arbitration proceeding, now pending, or to the best of its knowledge,
threatened, which could have a material adverse impact on this Agreement or its
ability to perform the Work under this Agreement.
(c) Independent Contractor is in the business of underground coal
mining, has substantial experience as an underground coal mine operator, and has
personnel that are knowledgeable regarding and have substantial experience in
underground mining conditions similar to those in the BayBeck Mine.
-8-
<PAGE> 9
(d) Independent Contractor has and will continue to have throughout the
term of this Agreement sufficient working capital, machinery, equipment and
skilled personnel to perform and complete the Work under this Agreement,
including, without limitation, the production of the monthly tonnages of Coal
from the Premises contemplated by this Agreement.
(e) Independent Contractor has carefully inspected and examined and is
familiar with the Premises, all areas surrounding the Premises, the AWVMC
Property, the Parts and Supplies and the facilities, equipment, fixtures and
workings of the BayBeck Mine.
(f) Independent Contractor has fully informed itself as to all existing
conditions and limitations of the Premises, all areas surrounding the Premises,
the facilities, equipment, fixtures and workings of the BayBeck Mine, and all
laws, ordinances, rules, regulations, dangerous conditions, prior mining,
location of old workings and latent dangers that may affect the Work to be
performed under this Agreement, and hereby accepts those conditions and
limitations and the risks associated therewith.
(g) All of the issued and outstanding shares of capital stock of
Independent Contractor are owned and held of record by Robert L. Worley.
ARTICLE IV
Equipment; Parts and Supplies; Mining Operations
Section 4.1 -- Use of AWVMC Property. In performing the Work, and so
long as Independent Contractor is in compliance with the terms and conditions of
this Agreement, Independent Contractor shall have the right to use the AWVMC
Property. In consideration for AWVMC's agreement to provide Independent
Contractor with the use of the AWVMC Property, Independent Contractor hereby
covenants and agrees: (i) to pay, or reimburse AWVMC for the
-9-
<PAGE> 10
payment of, all personal property taxes that may be assessed against or with
respect to the AWVMC Property during the term of this Agreement, (ii) to
reimburse AWVMC for the premiums paid by AWVMC to obtain and maintain all-risk
physical damage insurance and comprehensive general liability insurance in such
amounts as AWVMC shall reasonably determine with respect to the AWVMC Property,
and (iii) to reimburse AWVMC for all deductibles paid by AWVMC for claims made
under its insurance policies covering the AWVMC Property during the term of this
Agreement as a result of or in connection with AWVMC's agreement to provide
Independent Contractor with use of the AWVMC Property. AWVMC shall have the
right to deduct the payments or other amounts described in this Section 4.1 from
the payment of the Contract Price under Section 6.2.
Title to the AWVMC Property shall not, at any time, be vested in
Independent Contractor. Independent Contractor may not, voluntarily or
involuntarily, subject the AWVMC Property to any Liens, and Independent
Contractor may not without the prior written consent of AWVMC, remove or permit
the removal of any of the AWVMC Property from the Premises.
Section 4.2 -- Independent Contractor Equipment. Independent Contractor
shall be required to furnish all of the equipment, tools, machinery, parts,
supplies and other items that may be required from time to time to perform the
Work. Independent Contractor acknowledges and agrees that it shall be free to
use or not to use all or any item of the AWVMC Property in performing the Work
pursuant to the terms and conditions of this Agreement. Independent Contractor
further acknowledges and agrees that it shall be solely responsible for
determining the fitness, suitability, type and amount of equipment, tools,
machinery, parts, supplies and other items that may be required from time to
time to perform the Work. Independent Contractor further acknowledges and agrees
that even if it elects to utilize all of the AWVMC Property,
-10-
<PAGE> 11
Independent Contractor will be required to obtain and utilize the Independent
Contractor Equipment.
Section 4.3 -- Parts and Supplies. The parties anticipate that on the
Commencement Date AWVMC will have an inventory of parts and supplies at the
BayBeck Mine. After the Commencement Date, AWVMC shall prepare a list of the
parts and supplies as of the Commencement Date (the "Parts and Supplies"), and
the parties shall agree, in good faith, upon the fair market value of the Parts
and Supplies (the "Value of the Parts and Supplies"). Independent Contractor
shall have the right to use the Parts and Supplies after the Commencement Date,
and Independent Contractor shall, upon the expiration or termination of this
Agreement, pay AWVMC the Value of the Parts and Supplies plus interest thereon
at the rate of eight percent (8%) per annum. Such interest shall accrue from the
Commencement Date until the Value of the Parts and Supplies has been paid in
full. AWVMC shall have the right to deduct the Value of the Parts and Supplies
and the applicable interest thereon from the last Contract Price payment.
Section 4.4 -- No Warranties; Use of Equipment. Independent Contractor
hereby acknowledges and agrees that the AWVMC Property and the Parts and
Supplies have been or will be furnished to it "as is" and "where is" without any
representations or warranties of any kind by or on behalf of AWVMC. AWVMC, not
being the manufacturer of any of the AWVMC Property or the Parts and Supplies,
nor manufacturer's agent, makes no warranty or representation, either express or
implied, as to the fitness, quality, design, condition, capacity, suitability,
merchantability or performance thereof or of the material or workmanship with
respect thereto, it being agreed that all risks, as between AWVMC and
Independent Contractor, are to be borne by Independent Contractor at its sole
risk and expense. Independent Contractor
-11-
<PAGE> 12
accordingly agrees not to assert any claim whatsoever against AWVMC based
thereon. Independent Contractor further agrees, regardless of cause, not to
assert any claim whatsoever against AWVMC for loss of anticipatory profits or
consequential damages. AWVMC shall have no obligation to install, erect, test,
adjust or service any of the Equipment. Independent Contractor shall be solely
responsible for determining the suitability and fitness of all items of
Equipment that may be utilized under this Agreement and for developing and
training its employees in safe and proper use and operating procedures with
respect to each item of the Equipment.
Section 4.5 - Maintenance of Equipment. Independent Contractor
covenants and agrees to at all times keep and maintain the Equipment in good and
safe working order, condition and repair, ordinary wear and tear excepted, and
in compliance with all applicable warranties or contractual obligations relating
thereto and all federal, state, and local laws, rules, regulations and
ordinances. Independent Contractor further covenants and agrees to keep and
maintain accurate maintenance programs and schedules with respect to the
Equipment. The obligation of Independent Contractor to maintain and keep the
Equipment in good working order, condition and repair (ordinary wear and tear
excepted) includes performing, at Independent Contractor's sole cost and
expense, all routine or scheduled maintenance thereof. In order that AWVMC may
be able to determine that Independent Contractor is in compliance with the
maintenance and repair requirements of this Agreement, Independent Contractor
shall, upon AWVMC's request: (i) permit the Equipment to be inspected by AWVMC
or its designee, and (ii) permit AWVMC or its designee to inspect and copy all
maintenance records and any other records that may pertain to the Equipment.
-12-
<PAGE> 13
Section 4.6 -- Expense of Operations. Except as expressly set forth in
Section 4.1, Independent Contractor shall be responsible for the payment of all
costs, expenses and liabilities accruing or resulting from the Work performed
under this Agreement, including, without limitation, utilities, and AWVMC shall
have no responsibility therefor. AWVMC shall install an electric metering system
to measure the usage of electricity by Independent Contractor in performing
Work.
Section 4.7 - Diligence; Mining Practices. Independent Contractor
agrees to begin to perform the Work on the Commencement Date and thereafter to
diligently prosecute the Work in a skillful and workmanlike manner in accordance
with the terms and conditions of this Agreement and modern and approved mining
methods, and Independent Contractor agrees to use only competent, skilled
personnel and management in performing the Work. Unless Independent Contractor
first provides AWVMC with notice and a reasonable explanation as to why it can
not do so, Independent Contractor shall mine Coal down to a thickness of at
least 36", and Independent Contractor shall otherwise perform the Work so as to
produce and recover the maximum quantities of merchantable and mineable coal
from the Beckley seam in, on and underlying the Premises.
Section 4.8 -- Notice of Suspended Operations. Independent Contractor
shall report promptly in writing to AWVMC any suspension, slowdown or
interference with any aspect of the Work, and Independent Contractor shall
specifically identify the reasons therefor and the expected duration thereof.
Section 4.9 -- Engineering Services. Independent Contractor shall be
solely responsible for obtaining all engineering services that are or may be
required: (i) to prepare the mining plans and projections required pursuant to
Section 8.3, (ii) to protect AWVMC's interest in the Coal,
-13-
<PAGE> 14
the Premises and the Equipment, and (iii) to perform the Work pursuant to the
terms and conditions of this Agreement.
Section 4.10 -- Purchase and Removal of Independent Contractor
Equipment. Upon the expiration or termination of this Agreement pursuant to
Section 11.2, AWVMC shall have the right to purchase all or any part of the
Independent Contractor Equipment and the related parts and supplies located at
the BayBeck Mine on the expiration or termination date for its Fair Market
Value. At least thirty (30) days before the expiration of this Agreement, or
within three (3) days of a termination, Independent Contractor shall provide
AWVMC with the Independent Contractor Equipment List. AWVMC shall exercise its
right to purchase under this Section 4.10 by providing written notice of its
intent to purchase to Independent Contractor on or before the later of (i) the
expiration date (if applicable), or (ii) thirty (30) days after AWVMC's receipt
of the Independent Contractor Equipment List. AWVMC shall pay for the
Independent Contractor Equipment and the related parts and supplies upon
delivery by Independent Contractor of a bill of sale and assignment, reasonably
acceptable to AWVMC, transferring title to the Independent Contractor Equipment
and the related parts and supplies which AWVMC is purchasing under this Section
4.10 free and clear of all Liens. Independent Contractor hereby covenants and
agrees to deliver such bill of sale and assignment immediately upon AWVMC's
request. In the event AWVMC does not exercise its option to purchase all of the
Independent Contractor Equipment and the related parts and supplies, Independent
Contractor shall remove the Independent Contractor Equipment and the related
parts and supplies not purchased hereunder from the Premises within thirty (30)
days of AWVMC's notice.
-14-
<PAGE> 15
ARTICLE V
Production
Section 5.1 -- Source of Coal. Independent Contractor covenants and
agrees that: (i) the Coal delivered to AWVMC pursuant to this Agreement shall be
produced solely from the Beckley coal seam in, on and underlying the Premises,
(ii) it shall not commingle any coal mined or removed from other properties with
the Coal mined and removed from the Premises, and (iii) it shall not tender,
deliver or sell any of the Coal mined from the Premises to any person or entity
without the prior written consent of AWVMC.
Section 5.2 -- Production and Delivery of the Designated Monthly
Quantity; Delivery Schedules. During each calendar month of this Agreement,
Independent Contractor shall produce a sufficient amount of Coal from the
Premises to deliver a total of [*](2)-[*](2) tons of Clean Coal (the "Designated
Monthly Quantity") to AWVMC. On or before the 15th day of each month, AWVMC or
its designee shall provide Independent Contractor with a written schedule (the
"Delivery Schedule") showing the Monthly Designation and the Three (3) Month
Estimate.
Section 5.3 -- Weights. The Clean Coal belt scale weights at the
Preparation Plant will be used to determine the Estimated Payments, and the
railroad weights obtained by the railroad carrying the Coal to the customers
shall be used to determine the Payment Adjustments.
Section 5.4 -- No Foreign Material, Etc. Independent Contractor agrees
to mine, produce and deliver Coal which is free from foreign material, trash,
excess moisture, slate, rock, excessive out of seam dilution and other
impurities and which is of merchantable and saleable quality. If AWVMC
determines, in its reasonable opinion, that Coal delivered to it by
(2) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-15-
<PAGE> 16
Independent Contractor is unacceptable given such parameters, then AWVMC shall
have the right to refuse or revoke its acceptance of all or any portion of the
unacceptable Coal, and AWVMC shall have no obligation to pay Independent
Contractor for any of the Coal for which AWVMC's acceptance is either refused or
revoked. In the event AWVMC refuses to accept or revokes its acceptance of any
Coal pursuant to this Section 5.4, Independent Contractor shall have the right
to purchase such unacceptable Coal from AWVMC, at the point of rejection, at a
price negotiated by Independent Contractor and AWVMC at the time of rejection.
Only upon purchase and payment therefor shall title to such Coal pass to
Independent Contractor.
Section 5.5 -- Title to Coal, Depletion. Independent Contractor
acknowledges and agrees that title to all Coal mined under this Agreement shall
be vested in AWVMC and Independent Contractor shall have no right to dispose of
any of the Coal except after purchasing such Coal as provided in Section 5.4
above. Unless otherwise expressly provided herein, Independent Contractor shall
not acquire and shall not have an economic interest in any of the Coal and AWVMC
shall have the full right to claim depletion for income tax or other purposes
with respect to all of the Coal mined, produced and delivered hereunder.
Independent Contractor expressly acknowledges and agrees that it will make no
claim whatsoever to depletion for income tax or any other purposes with respect
to the Coal mined under this Agreement and acknowledge that AWVMC's exclusive
right to depletion for any and all purposes was taken into account by the
parties hereto in fixing the Contract Price under this Agreement.
Section 5.6 -- Boundaries. Independent Contractor shall fully comply
with all federal, state and local laws, regulations, rules, ordinances and the
governmental permits regarding any matter relating to mining near the boundaries
of the Premises. Notwithstanding the foregoing, however, Independent Contractor
shall not, except with the prior written consent of AWVMC,
-16-
<PAGE> 17
mine any Coal within sixty (60) feet of the outside boundaries of the Premises
or within two hundred (200) feet of any mine workings in or adjacent to the
Premises, and Independent Contractor shall not cut any boundary corner on the
Premises except with the prior written consent of AWVMC.
In the event such consent is given by AWVMC, Independent Contractor shall use
such precautions as are necessary to preserve and monument the location of such
boundary corner as AWVMC may require.
ARTICLE VI
Payment
Section 6.1 -- Contract Price. In consideration for the Work performed
by Contractor hereunder, AWVMC shall pay Independent Contractor $[*](3) per ton
of Clean Coal delivered to AWVMC (the "Contract Price").
Section 6.2 -- Payment. AWVMC shall pay Independent Contractor on or
before the 10th day of each month for all Coal delivered to and accepted by
AWVMC from the 16th day to the end of the previous month, and AWVMC shall pay
Independent Contractor on or before the 25th day of each month for all Coal
delivered to and accepted by AWVMC from the 1st through the 15th day of such
month. Each such payment will provide for (i) Estimated Payments for the
applicable payment period, and (ii) Payment Adjustments for any previous payment
periods for which the Payment Adjustments have not applied.
Section 6.3 -- Right to Set Off. AWVMC shall have the right to charge
against and deduct from payments due hereunder, and Independent Contractor
hereby assigns to AWVMC,
(3) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-17-
<PAGE> 18
any amount or amounts which are then due and payable to
AWVMC from Independent Contractor under this Agreement or any other agreement.
ARTICLE VII
Relationship of Parties
Section 7.1 -- Independent Contractor. It is expressly agreed and
understood that Independent Contractor shall perform the Work specified in this
Agreement as an independent contractor. Independent Contractor shall exercise
exclusive direction and control over its work force and labor relations
policies, and subject only to AWVMC's right to designate the areas to be mined
and approve the mining plans and projections pursuant to Section 8.3,
Independent Contractor shall direct the manner, method, mode of performance and
all other aspects of the Work. Independent Contractor expressly agrees that it
shall not represent or hold itself out as an affiliate, subsidiary, partner,
joint venturer, representative or agent of AWVMC, and Independent Contractor
further agrees to indemnify, hold harmless and defend AWVMC against any claims,
of whatever kind, arising from any act or representation of it contrary to the
provisions of this Section 7.1. This covenant of indemnity shall survive the
termination or expiration of this Agreement.
Section 7.2 -- Employees. The employees of Independent Contractor shall
be its employees and not the employees of AWVMC. Independent Contractor shall
exercise complete and exclusive control over and responsibility for all aspects
of hiring, employment, supervision, direction, hours, working conditions,
compensation, discipline and discharge for all individuals engaged to perform
the Work under this Agreement. Independent Contractor shall comply with all
present and future federal, state and local laws, ordinances, rules and
regulations pertaining to the duties and obligations arising out of the
employer-employee relationship, including, without
-18-
<PAGE> 19
limitation, unemployment compensation, Social Security, withholding taxes, State
Workers' Compensation, wage and hour laws, wage payment and collection laws,
federal and state safety laws, occupational disease compensation and all other
applicable rules and regulations promulgated thereunder. Independent Contractor
shall maintain accurate supporting records showing evidence of its compliance
with the requirements set out in this Section 7.2 and shall make these records
available to AWVMC for inspection upon request, and Independent Contractor shall
certify to AWVMC, on a quarterly basis, in writing, Independent Contractor's
compliance therewith on all Coal produced and tendered under this Agreement.
ARTICLE VIII
Inspection, Record Keeping and Reporting Requirements
Section 8.1 -- Contemporaneous Access to the Premises. Independent
Contractor acknowledges and agrees that AWVMC or its designee may place and
install or cause to be placed and installed on the Premises various structures,
equipment and materials, and AWVMC may carry on, either directly or through its
designee, such other operations on the Premises as AWVMC may deem necessary or
desirable for its own purposes as long as it does not interfere with Independent
Contractor's ability to perform the Work under this Agreement. AWVMC shall
ensure that all activity on the Premises by AWVMC or its designee shall be
conducted in accordance with all applicable laws, rules and regulations,
including, without limitation, all MSHA requirements.
Section 8.2 -- Inspection of the Premises and Equipment. Independent
Contractor acknowledges and agrees that AWVMC and its designees may enter upon,
inspect, map, sample, test and survey the Premises, the BayBeck Mine, the
Equipment, the Coal and the Work being
-19-
<PAGE> 20
performed under this Agreement, and any other aspect of Independent Contractor's
operations relating to this Agreement. Independent Contractor shall provide
AWVMC and its designees with safe access to the Premises, the BayBeck Mine and
the Equipment, and cooperate with AWVMC and its designees in carrying out such
inspection.
Section 8.3 -- Mining Plans. For the purpose of allowing AWVMC to
protect its economic interest in and to the Premises, the BayBeck Mine, the Coal
and the Equipment, Independent Contractor shall, beginning on or before the
Commencement Date and continuing thereafter on or before January 1 and July 1 of
each year during the term of this Agreement, prepare mining plans and
projections for the next succeeding 6-month period and submit such plans and
projections to AWVMC for its written approval; provided, however, the proposed
mining plans and projections submitted on or before the Commencement Date shall
show plans and projections to December, 1999, only. The mining plans and
projections shall take into consideration the amount of Coal which Independent
Contractor is or may be required to deliver to AWVMC and the entire area
proposed to be mined by Independent Contractor, and the mining plans and
projections shall make suitable provisions for the reasonable and proper removal
of all of the mineable and merchantable coal from the Premises. Independent
Contractor shall not begin to perform Work in any area of the Premises unless
and until AWVMC approves, in writing, such mining plans and projections so that
AWVMC may, among other things, verify its title to or right to mine Coal from
the areas of the Premises which may be subject to the proposed mining plans and
projections. Upon approval of the mining plans and projections, Independent
Contractor shall diligently follow such plans and projections in performing the
Work under this Agreement. In the event Independent Contractor is unable to
continue performing Work in accordance with the approved mining plans and
projections, Independent Contractor shall
-20-
<PAGE> 21
immediately notify AWVMC in writing of its inability to continue and set forth
in reasonable detail the reasons therefore. Independent Contractor shall submit
revised mining plans and projections for approval by AWVMC as soon as possible.
Independent Contractor shall employ a competent licensed land surveyor
or registered professional engineer to make surveys, plans and maps of its
operations within the Premises, and Independent Contractor shall furnish AWVMC
promptly with two (2) copies of all maps required by any federal, state or local
law, rule or regulation. In addition, on or before the 5th day of each month
during the term of this Agreement, Independent Contractor shall provide AWVMC
with an up-to-date mine map showing the advancement for the preceding month and
the mine plan for the next succeeding 1-month period.
Section 8.4 -- Safety. AWVMC and Independent Contractor recognize the
importance of safety procedures and safe working conditions. Independent
Contractor agrees to comply with all present and future federal, state and local
safety laws, ordinances, rules and regulations, and Independent Contractor shall
ensure that its employees are trained in safe working procedures and shall cause
its employees to abide by all safety and security rules in force on the
Premises. AWVMC and its designees shall have the right (but not the obligation)
to review the safety records of Independent Contractor on a quarterly basis.
Independent Contractor agrees to indemnify, hold harmless and defend AWVMC
against any claims, of whatever kind, arising from any act or omission to act by
Independent Contractor contrary to the provisions of this Section 8.4. This
covenant of indemnity shall survive the termination or expiration of this
Agreement.
Section 8.5 -- Testing and Reports. Independent Contractor shall
maintain accurate records regarding the mining conditions encountered, drill
cores, tests and sampling with respect
-21-
<PAGE> 22
to the Premises, the Coal and the Work (the "Records"), and Independent
Contractor shall provide AWVMC or its designee with copies thereof. Upon the
termination or expiration of this Agreement, Independent Contractor shall
promptly deliver to AWVMC or its designee all of such records.
Section 8.6 -- Books of Account and Records. Independent Contractor
shall at all times maintain accurate books and records of account covering the
Work performed under this Agreement in accordance with generally accepted
accounting principles. AWVMC shall have the right to inspect, audit and copy
Independent Contractor's books and records for the purpose of verifying
compliance with all terms, conditions and provisions of this Agreement.
Independent Contractor shall keep and preserve such books and records for at
least five years after the termination or expiration of this Agreement.
Section 8.7 -- Confidentiality of Information. Independent Contractor
acknowledges that in performing the Work under this Agreement it may have access
to proprietary information and trade secrets of a confidential nature pertaining
to AWVMC, its affiliates and their businesses, the Premises, the Coal and the
BayBeck Mine. Independent Contractor agrees that it shall treat all maps, plans,
data, reports, drilling logs, core samples, leases and other information
relating to AWVMC and its business, the Premises, the Coal or the BayBeck Mine
(the "Information") as confidential, and it shall not divulge, transmit or
otherwise disclose any of the Information to any person, firm, corporation or
other entity unless at the time of disclosure to Independent Contractor, the
information was public knowledge or becomes public knowledge through no act of
Independent Contractor. Upon the termination or expiration of this Agreement for
any cause whatsoever, Independent Contractor shall promptly deliver to AWVMC all
of the Information given to Independent Contractor.
-22-
<PAGE> 23
ARTICLE IX
Observance of Laws, Regulations and Other Legal Requirements
Section 9.1 -- Conformity with Laws. Independent Contractor agrees that
in performing the Work under this Agreement, particularly in the actual mining
process and in regard to its responsibility for the construction, installation,
inspection, maintenance and removal, if necessary, of all facilities,
structures, and equipment used in or about the Premises, it shall be familiar
with and shall fully obey and comply with all applicable federal, state and
local laws and ordinances, and with all applicable rules, regulations, orders
and directives of any federal, state or local official, agency or department
relating to such mining operations and activities or to such facilities,
structures, land areas, utilities, equipment and including, without limitation,
all such laws, ordinances, rules, regulations, orders and directives now in
effect or hereafter made, promulgated, enacted or issued.
Section 9.2 -- Permits and Bonds. Following the execution of this
Agreement, Independent Contractor shall diligently seek to obtain all approvals
and consents from any federal, state or local governmental agency to Independent
Contractor performing the Work on the Premises, including, without limitation,
the transfer or assignment of all applicable mining and mining related permits.
Upon the expiration or termination of this Agreement, Independent Contractor
shall surrender or relinquish all such approvals and permits. Independent
Contractor shall secure, maintain and comply with all permits and bonds required
to perform the Work, and Independent Contractor shall perform all remedial or
abatement work and pay all fines and assessments related to its failure to
comply therewith. Independent Contractor shall not be responsible for violations
of any governmental permits that occurred prior to the Commencement Date. Copies
of all applications made to and of all licenses, permits, bonds, amendments,
-23-
<PAGE> 24
modifications, inspection reports and compliance, non-compliance or other orders
issued by any governmental authority, and any plans and maps or other
information compiled, made and filed by Independent Contractor with or furnished
to any governmental authority or communication had therewith concerning any of
the foregoing shall be made available to AWVMC before they are filed with or
furnished to the governmental authority or immediately upon receipt from any
governmental authority. Independent Contractor shall indemnify, hold harmless
and defend AWVMC and its affiliates from and against all claims, costs and
expenses, including reasonable attorneys' fees, in connection with or arising
out of these documents or any dispute relating to these documents that may occur
during the term of this Agreement. This covenant of indemnity shall survive
termination or expiration of this Agreement.
Section 9.3 -- Citations or Penalties. Independent Contractor shall be
solely responsible and liable for the complete and timely payment of any and all
citations, assessments, penalties or fines imposed by any federal, state or
local agency for the violation of any federal, state or local law, ordinance,
rule or regulation arising out of or relating, directly or indirectly, to the
Work performed under the Agreement. Independent Contractor shall not jeopardize
any of the governmental permits held, if any, by AWVMC, Independent Contractor,
or its and their affiliates, contractors or lessees. Independent Contractor
shall be totally and solely responsible for and shall hold harmless, indemnify
and defend AWVMC from and against any and all liability for any citations,
assessments, fines, damages, withdrawal orders or civil and criminal penalties
assessed against either Independent Contractor or AWVMC which are caused,
directly or indirectly, in whole or in part, by the actions or omissions of
Independent Contractor, its employees, agents, contractors or representatives.
In the event that AWVMC or Independent Contractor is assessed, fined or
penalized for any violation arising out of Independent
-24-
<PAGE> 25
Contractor's conduct, or the conduct of its agents, contractors or
representatives, AWVMC may, in its sole direction, settle or pay such
assessment, fine or penalty without Independent Contractor's prior approval, and
AWVMC may deduct and withhold from any monies due or which shall become due in
the future to Independent Contractor for Work performed under the Agreement an
amount sufficient to cover any such assessments, fines and penalties, together
with expenses, including reasonable attorneys' fees, incurred. If, regardless of
the reason, such citations or assessments should go unresolved and any of
AWVMC's mining related permits are canceled, revoked, suspended, terminated or
withdrawn, Independent Contractor shall be liable to AWVMC for all costs,
expenses, losses and damages, including, without limitation, attorneys' fees,
directly or indirectly, incurred by such permit cancellation, revocation,
suspension, termination or withdrawal. Independent Contractor reserves the right
to lawfully contest any such fine or assessment provided it does not jeopardize
the mining operations contemplated under this Agreement.
Section 9.4 -- Fees and Taxes. Except as expressly provided in Section
9.5 below, Independent Contractor shall make complete and timely payment of all
federal, state and local fees and taxes which may be imposed or assessed against
it, its operations hereunder, the Equipment, or the Premises in connection with
the Work performed under this Agreement, including, without limitation, all
payments or benefits arising from the Black Lung Benefits Reform Act of 1977, as
amended, the workers' compensation fund or similar benefit program under the
laws of the State of West Virginia, personal property taxes, employment taxes,
and income taxes. Personal property taxes shall be prorated on a calendar year
basis for any period during this Agreement which is less than one calendar year.
In the event Independent Contractor fails to pay any of such fees or taxes,
AWVMC shall be entitled, at its option, to pay said fees or
-25-
<PAGE> 26
taxes and to recover the amount of such payment by deducting sufficient funds
from sums due or which shall become due to Independent Contractor for Work
performed under this Agreement.
Section 9.5 - Excise, Reclamation and Severance Taxes. Independent
Contractor shall not be responsible for the payment of real property taxes
assessed against the Premises, the federal excise tax payable under 26 U.S.C.
Section 4121 with respect to the Black Lung Disability Trust Fund, the federal
reclamation fees payable to the Office of Surface Mining and the severance taxes
and state reclamation fees assessed by the State of West Virginia on the Coal
mined hereunder by Independent Contractor.
Section 9.6 -- Liens. In the event any employee of Independent
Contractor or any other third party files a notice of intent to claim a Lien
upon any asset of AWVMC or any other property or interest of AWVMC as the result
of Independent Contractor's non-payment of wages or other monies due to such
employee or other third party, and in the event such Lien or filing is in
AWVMC's reasonable opinion legally valid or enforceable, then AWVMC may, at its
option, pay such employees or third parties directly and deduct the amount of
such payment from any monies due or to become due to Independent Contractor
under this Agreement. This provision shall not be construed as a promise for the
benefit of any employee of Independent Contractor or any third party and shall
not constitute an agreement by AWVMC to pay any such employee or third party.
Section 9.7 -- Reclamation. Independent Contractor shall not be
responsible for performing reclamation of the Premises as required by any
applicable federal, state and local laws, rules, regulations and permits.
-26-
<PAGE> 27
ARTICLE X
Indemnification and Insurance
Section 10.1 -- Indemnification. Independent Contractor shall
indemnify, hold harmless and defend AWVMC, its affiliates and its and their
officers, directors, managers and employees from and against any and all suits,
actions, liabilities, demands, losses, claims, awards, damages, fines,
penalties, judgments, settlements, costs and expenses of every kind and nature
(including, without limitation, reasonable attorney's fees and related costs
incurred by an indemnified party in connection with its efforts to enforce this
indemnity), including, without limitation, the injury to or death of any person
or persons, damage to or loss of property, or mining outside the Premises or
otherwise, arising out of or relating, directly or indirectly, to (i) the acts
or omissions of Independent Contractor, its officers, employees, agents or
representatives under or in connection with this Agreement, or (ii) a breach or
default by Independent Contractor of any covenant, section, representation,
warranty or other term or condition of this Agreement, or (iii) the use of any
of the Equipment by Independent Contractor or its employees, agents or
representatives, together with any and all costs and expenses, including
reasonable attorneys' fees, that may be incurred by an indemnified party in
connection with its defense. Independent Contractor shall defend the indemnified
party, or, at the option of the indemnified party, pay to have the indemnified
party defended, against all such suits, actions, liabilities, demands, losses,
claims, awards, damages, fines, penalties, judgments, settlements, costs and
expenses, whether groundless or not. The foregoing obligations shall be in
addition to and not in limitation of any other specific agreements or
obligations in other sections of this Agreement, and shall survive the
expiration or termination of this Agreement.
-27-
<PAGE> 28
Section 10.2 -- Insurance. Independent Contractor shall maintain, at
its sole cost and expense, and shall require any subcontractors or other
entities or individuals it may engage to perform the Work under this Agreement
to maintain, at all times while performing the Work, and for a period of ninety
(90) days after the expiration or termination of this Agreement, the insurance
coverages set forth below with full policy limits applying, but not less than as
stated:
a. Commercial general public liability and property
damage insurance with each underlying limit being not
less than (i) One Million Dollars in respect of
bodily injury to or death of one person, (ii) Five
Million Dollars in respect of bodily injury to or
death of more than one person in any one occurrence,
and (iii) One Million Dollars in respect of damage to
or destruction of property.
b. Employer's liability insurance protecting against
employee claims for bodily injury, intentional tort
actions and all other employee claims against
employers with each underlying limit being not less
than One Million Dollars per person and Five Million
Dollars for each occurrence.
c. Automobile bodily injury liability insurance in the
same bodily injury liability limits as set forth in
Section 10.2.a. above, and automobile property damage
liability insurance in an amount of not less than
Five Hundred Thousand Dollars.
d. Workers' Compensation insurance, occupational disease
insurance, including state and federal black lung
coverage, unemployment compensation and all other
insurance coverages for occupational injury, disease
or hazards as required by the laws and regulations
applicable to
-28-
<PAGE> 29
and covering employees of Independent Contractor
engaged in the performance of Work under this
Agreement.
Independent Contractor's obligation to obtain the insurance coverages as
provided in this Section 10.2 shall not in any way be construed so as to limit,
amend or otherwise modify its indemnity obligations as provided elsewhere in
this Agreement.
Section 10.3 -- Form of Insurance. All insurance coverages required
under Section 10.2 above shall be with a reputable insurer, licensed to do
business in the State of West Virginia, and AWVMC shall have the right to
approve such insurer. All policies or certificates of insurance obtained by
Independent Contractor under this Agreement shall name AWVMC as an additional
insured and shall contain a provision for notice to AWVMC of any overdue or
unpaid insurance premium and thirty (30) days advance notice to AWVMC of any
proposed cancellation or substantial change in coverage. Every insurance policy
required under Section 10.2 above shall contain a waiver of subrogation by the
insurer against AWVMC, its owners, affiliates and subsidiaries. Each policy of
insurance shall be written as an "occurrence" contract unless the policy is
available only on a "claims made" basis, in which case Independent Contractor
shall continue such insurance policy for a period of two years after the
expiration or termination of this Agreement.
Section 10.4 -- Proof of Insurance Coverage. Independent Contractor
shall furnish to AWVMC copies of all certificates and policies which provide the
insurance coverages required by Section 10.2 above, including, but not limited
to, copies of any bonds which may be required for such coverages, prior to
commencing the Work under this Agreement and thereafter upon request by AWVMC.
Independent Contractor shall also provide satisfactory written evidence to AWVMC
that, if required by the laws of the State of West Virginia, it has entered into
-29-
<PAGE> 30
appropriate trust or bonding arrangements setting aside or providing sufficient
funds to assure payments of accrued back wages and fringe benefits to
Independent Contractor's employees in the event Independent Contractor ceases
operations under this Agreement.
Section 10.5 -- Payment of Premiums. AWVMC shall have the right, in its
sole discretion, to pay any overdue premium for the insurance coverages required
of Independent Contractor under this Agreement, or to take out and maintain such
insurance coverages, and AWVMC is hereby authorized to collect the cost of
obtaining and maintaining any such insurance coverages from monies due to or to
become due to Independent Contractor under the terms of this Agreement.
Independent Contractor expressly agrees and acknowledges that its inability,
failure, neglect or refusal to carry, maintain and keep current, at all times
during the term of this Agreement, any of the insurance coverages required under
this Agreement, and its inability, failure, neglect or refusal to be and remain
at all times during the term of this Agreement a subscriber or self-insurer in
good standing with the West Virginia workers' compensation fund or other similar
fund, state and federal black lung funds or any other occupational disease and
disability insurance fund shall constitute a breach of this Agreement and give
AWVMC the right, in its discretion, to terminate this Agreement pursuant to
Article XI below.
ARTICLE XI
Default and Termination
Section 11.1 -- Default. Independent Contractor shall be in default of
this Agreement upon the occurrence of any of the following events (each an
"Event of Default"):
a. Except as set forth in Section 11.1.b. below, any breach or
violation of, or failure to perform, any term, condition, provision,
representation, warranty, covenant, stipulation or
-30-
<PAGE> 31
agreement set forth herein or in any other written agreement by and between
AWVMC and Independent Contractor which is not cured within ten (10) days of
Independent Contractor's receipt of written notice thereof from AWVMC;
b. Any failure by Independent Contractor to comply, for any reason
except a validly asserted Force Majeure Event, with the Monthly Designations as
set forth in the Delivery Schedules twice during any six (6) consecutive month
period.
c. If any action by Independent Contractor in performing the Work under
this Agreement, complying with any of the terms under this Agreement, or the
presence of any agent, employee, contractor or representative of Independent
Contractor upon the Premises, or the execution of this Agreement by it shall
cause interference with or disrupt or threaten to interfere with or disrupt
AWVMC's operations in any manner or the operations of any of AWVMC's affiliates,
subsidiaries, or any other contractor(s), at any location whatsoever, for any
reason, and if such interference, disruption or threat continues for ten (10)
days after Independent Contractor's receipt of written notice from AWVMC;
d. In the event Independent Contractor is adjudicated bankrupt or
insolvent, whether through involuntary or voluntary proceedings, or if any
receiver, trustee, assignee or other person or persons are appointed by any
court to take charge of Independent Contractor's assets;
e. If any order, decree, judgment or directive is issued by any
regulatory authority, tribunal or court revoking, suspending, terminating or
withdrawing any of its mining related permits or bonds, whether secured in
connection with mining on the Premises or not, or requiring Independent
Contractor to cease mining operations for a period of more than ten (10) days,
or if two such directives are issued in any calendar year, regardless of their
duration;
-31-
<PAGE> 32
f. If Independent Contractor is determined to be "permit blocked" or is
otherwise unable for any reason to obtain or maintain mining or mining related
permits in connection with any program conducted by the Federal Office of
Surface Mining (or its successor) or any other state or federal agency or body.
Section 11.2 - Termination Based Upon an Event of Default. In addition
to and not in limitation of its right to terminate this Agreement as provided in
other sections of this Agreement, AWVMC shall have the right to terminate this
Agreement upon the occurrence of an Event of Default by giving written notice to
Independent Contractor of such termination.
Section 11.3 - Right to Cure. If Independent Contractor is in breach or
default of any of the terms or conditions of this Agreement, whether or not said
breach or default gives rise to an Event of Default, AWVMC shall have the right,
but not the duty, to make any payment or to perform any act or complete or
correct the Work required of Independent Contractor under this Agreement and, in
exercising such right, to incur, for and on behalf of Independent Contractor,
necessary or incidental costs and expenses, including reasonable attorneys'
fees. In exercising the foregoing right, AWVMC may offset and deduct all
payments made and all costs and expenses incurred against such sums of money, if
any, due or to become due to Independent Contractor under this Agreement and
proceed against Independent Contractor under the provisions of Section 10.1
relating to indemnity. AWVMC's right to cure Independent Contractor's default or
breach as described in this Section 11.3 shall not imply any obligation on the
part of AWVMC to make any payment or to perform any act required of Independent
Contractor, and the exercise of such right by AWVMC shall not constitute a
release or waiver of any default or breach by Independent Contractor.
-32-
<PAGE> 33
Section 11.4 -- Waiver of Performance or Default. The failure of either
AWVMC or Independent Contractor to insist in any one or more instances upon
strict performance of any of the covenants, terms or conditions imposed upon or
assumed by either party under this Agreement, or the failure of AWVMC or
Independent Contractor to exercise any particular option or right granted by the
Agreement, shall not be construed as a waiver or relinquishment for the future
performance of any such covenant, term or condition, or as to the exercise of
any such option or right. Moreover, a waiver by either party of a default or
breach hereunder must be in writing and shall not be deemed to be a waiver of
any subsequent default or breach, and any delay in asserting a right hereunder
shall not be deemed a waiver of such right. Nothing contained in this Agreement
shall be construed as a waiver of any applicable statute of limitations.
Section 11.5 -- Remedies. The rights and remedies of AWVMC set forth in
this Agreement shall not be exclusive, but shall be taken and construed as
cumulative and in addition to any and all other rights and remedies accorded to
AWVMC at law or equity.
Section 11.6 -- Removal of Property. In the event of an Event of
Default, and for so long as the Event of Default shall continue, Independent
Contractor shall not remove or permit to be removed or taken from the Premises
any of the Equipment.
Section 11.7 -- Condition of the Premises. Upon the expiration or
termination of this Agreement, for any reason, at the option of AWVMC,
Independent Contractor shall leave the Premises and the BayBeck Mine in the same
normal working condition, under which the Work was being performed.
Section 11.8 -- Termination or Transfer of Permits and Licenses.
Immediately upon the expiration or termination of this Agreement for any reason
whatsoever, or at such other time as
-33-
<PAGE> 34
AWVMC may direct, Independent Contractor shall release the licenses and permits
required by law for the performance of the Work under this Agreement, if any,
and take all other steps necessary to terminate such licenses or permits or, at
AWVMC's option, to assign, transfer and convey these licenses or permits to
AWVMC or its designee.
Section 11.9 - Termination by AWVMC Without Cause. Beginning on the
first anniversary of the Effective Date of this Agreement, AWVMC shall have the
right to terminate this Agreement for any reason and at any time by providing
Independent Contractor with at least 60 days' prior written notice (the
"Termination Notice").
ARTICLE XII
Assignment, Subcontracting and Transfer of Ownership
Section 12.1 -- Rights Personal to Independent Contractor. This
Agreement is personal to Independent Contractor requiring the exercise of its
own services, skills and judgment.
Section 12.2 -- Assignment and Subcontracting. Independent Contractor
may not assign, subcontract or otherwise transfer or delegate all or any part of
this Agreement, the Work, or any rights, duties, obligations or interests herein
without obtaining the prior written consent of AWVMC, which consent may be
withheld by AWVMC in its sole discretion. Independent Contractor may not assign
any monies due or to become due to it under this Agreement, nor may it pledge,
encumber or mortgage all or any part of its interests in this Agreement without
the prior written consent of AWVMC, which consent may be withheld by AWVMC in
its sole discretion.
Section 12.3 -- Transfer of Ownership Interest. Without the prior
written consent of AWVMC, which consent may be withheld by AWVMC in its sole
discretion, no holder of any capital stock or other ownership interest in
Independent Contractor may sell, assign, give, pledge
-34-
<PAGE> 35
or otherwise transfer, whether voluntarily or by operation of law, any such
capital stock or other ownership interest in Independent Contractor to any other
person or entity. Additionally, without the prior written consent of AWVMC,
which consent may be withheld by AWVMC in its sole discretion, Independent
Contractor may not cause or permit to be issued any additional equity or other
ownership interest during the term of this Agreement. In the event AWVMC
consents to the sale, assignment, gift, pledge or other transfer of any such
capital stock or ownership interest, or to the issuance of any additional equity
or other ownership interest in Independent Contractor, then Independent
Contractor shall obtain the written agreement and consent of any such person or
entity to whom the interest shall be conveyed or issued to be bound by the
provisions of this Section 12.3.
Section 12.4 -- Waiver of Consent. In the event AWVMC consents to one
or more assignments, subcontracts or other transfer of all or any part of this
Agreement, the Work, or any rights or interests herein, or a transfer of any
ownership interest in Independent Contractor, such consent shall not be
construed as waiving the requirement of obtaining written consent to additional
assignments, subcontracts or transfers, and no consent to assignment,
subcontract or transfer shall relieve Independent Contractor of any obligations
specified in this Agreement.
Section 12.5 -- Transfer of AWVMC's Interest in the Premises. AWVMC may
not sell or otherwise transfer its ownership interest in the Premises if such
sale or other transfer would have a material adverse effect on Independent
Contractor's interest in the Agreement unless: (i) Independent Contractor
consents to such sale or other transfer, or (ii) the buyer or transferee of
AWVMC's interest in the Premises agrees to be bound by the terms of this
Agreement as if it were AWVMC.
-35-
<PAGE> 36
ARTICLE XII
Miscellaneous
Section 13.1 -- Notices. Any and all notices, payments, reports,
consents or other communications between the parties shall be in writing and
deemed given and received on the date delivered personally, on the date
deposited if sent by registered or certified United States mail, postage
prepaid, return receipt requested, or on the date transmitted by facsimile,
provided the same is also mailed on said date by registered or certified United
States mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as set forth below, which addresses shall remain in effect
until notice of change is given, in writing:
If to AWVMC: Anker West Virginia Mining Company, Inc.
2708 Cranberry Square
Morgantown, WV 26508
Telecopy No.: (304) 594-3695
Attention: President
If to Independent Contractor: Baylor Mining, Inc.
P. O. Box 1435
Beckley, WV 25801
Attention: President
Section 13.2 -- Integration. This Agreement contains the entire
understanding and agreement of the parties with regard to the transactions
contemplated hereunder and it supersedes all prior agreements, arrangements and
understandings between the parties relating to the subject matter of this
Agreement.
Section 13.3 -- Modification. This Agreement shall not be modified,
changed or terminated, in whole or in part, except by written agreement, signed
by all parties hereto or their respective successors-in-interest.
-36-
<PAGE> 37
Section 13.4 -- Choice of Law. This Agreement shall be governed and
construed in accordance with the laws of the State of West Virginia.
Section 13.5 -- Production is of the Essence. The time, quality and
quantities of Coal production set forth in Article V hereof are of the essence
of this Agreement.
Section 13.6 -- Headings. The headings appearing in this Agreement are
for convenience of reference only and shall not be considered or construed as
affecting in any way the meaning of the provisions of this Agreement.
Section 13.7 -- Counterparts. This Agreement may, for convenience, be
executed in several counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one Agreement.
Section 13.8 -- Severability. In the event that any provision of this
Agreement conflicts with the laws of the State of West Virginia or any other
jurisdiction, or is held invalid by a court with jurisdiction over the parties
to this Agreement, such provision shall be deleted from the Agreement and the
Agreement shall be construed to give effect to its remaining provisions.
Section 13.9 - Force Majeure.
(a) If AWVMC or Independent Contractor is rendered wholly or partly
unable to perform its obligations under this Agreement by reason of a Force
Majeure Event, AWVMC or Independent Contractor, as the case may be, will be
excused from whatever performance is affected by the Force Majeure Event to the
extent so affected, provided that (i) the party relying on the Force Majeure
Event notifies the other as soon as practicable of the Force Majeure Event and
its cause; (ii) the suspension of performance is of no longer duration than is
required by the Force Majeure Event; (iii) no obligations of either party which
arose before the Force Majeure Event causing the suspension of performance are
excused as a result of the Force Majeure
-37-
<PAGE> 38
Events; and (iv) the non-performing party exercises due diligence to remove the
cause of the Force Majeure Event or to lessen its effect and resumes performance
at the earliest practicable time.
(b) In no event will this Section 13.9 be construed to relieve either
party of any obligations hereunder solely because of increased costs or other
adverse economic consequences that may be incurred through the performance of
such obligations of the parties. Notwithstanding the above, adverse economic
consequences from governmental actions will be considered a Force Majeure Event
if it results from an item listed in the definition of a Force Majeure Event.
For the purposes of this Agreement only, the term "Force Majeure Event" shall
mean or refer to any act or event that (i) prevents AWVMC or its coal sales
agent from selling any of the Coal mined or to be mined hereunder at a
reasonable profit or otherwise perform its obligations under any agreement for
the sale or re-sale of Coal, and (ii) any other act or event which is beyond the
reasonable control of AWVMC or Independent Contractor and which renders
performance of this Agreement, in whole or in part impossible. Such acts or
events include, without limitation, an act of God, nuclear emergency, explosion,
fire, epidemic, landslide, lightning, earthquake, flood or similar cataclysmic
occurrence, an act of public enemy, war, blockade, insurrection, strike, riot,
civil disturbance, restrictions or restraints imposed by law or by rule,
regulation or order of governmental authorities, whether federal, state or
local, delays or interruptions in transportation, major breakdown or other
restrictions on the use of equipment, or any cause, whether of the same of a
different nature, existing or future, foreseen or unforeseen. Unless resulting
from any of the events listed in the preceding sentence, economic hardship or
failure by Independent Contractor to produce Coal in such quantities as required
under this Agreement will not constitute a Force Majeure Event.
-38-
<PAGE> 39
(c) No Force Majeure Event will invalidate this Agreement and, on
termination of the Force Majeure Event, deliveries of Coal will resume pursuant
to the terms and conditions hereof. Shipments not made or not accepted due to a
Force Majeure Event will not be made up unless AWVMC in its sole discretion
elects to do so.
(d) The term of this Agreement shall, in AWVMC's sole discretion, be
extended for a period equal to the sum of all periods during which a Force
Majeure prevented either party from performing this Agreement.
IN WITNESS WHEREOF, the parties have caused their corporate names to be
signed hereto by their officers duly authorized.
ANKER WEST VIRGINIA MINING
COMPANY, INC.
By: _______________________________
Ben H. Daud
President
BAYLOR MINING, INC.
By: _______________________________
Robert L. Worley
President
-39-
<PAGE> 1
SPRUCE MINE NO. 2
CONTRACT MINING AGREEMENT
THIS CONTRACT MINING AGREEMENT (this "Agreement"), is made and entered
into on this 24th day of June, 1999 (the "Effective Date"), by and between ANKER
WEST VIRGINIA MINING COMPANY, INC., a West Virginia corporation ("AWVMC") and
BJM COAL COMPANY, a West Virginia corporation ("Independent Contractor").
WHEREAS, AWVMC owns or otherwise controls coal reserves in the Middle
Kittanning seam in Upshur County, West Virginia; and
WHEREAS, in accordance with and subject to the terms and conditions set
forth herein, AWVMC desires to engage Independent Contractor as a contract miner
to perform Work (as defined herein) in connection with such coal reserves.
NOW, THEREFORE, in consideration of the strict and mutual performance
and observance of the terms, conditions, covenants, stipulations, guarantees and
agreements hereinafter set forth, and intending to be legally bound, AWVMC and
Independent Contractor agree as follows:
ARTICLE I
Definitions
As used herein, the following terms shall have the following meanings
(all terms defined in this Article I or in other provisions of this Agreement in
the singular shall have the same meaning when used in the plural and vice
versa):
"AWVMC" shall mean Anker West Virginia Mining Company, Inc., a West
Virginia corporation.
<PAGE> 2
"Clean Coal" shall mean or refer to the amount of Coal delivered to
AWVMC by Independent Contractor multiplied by the Clean Coal Conversion Factor.
"Clean Coal Conversion Factor" shall be determined by the following
formula:
C = 100-(R + X)
-----------
100
Where C = Clean Coal Conversion Factor
R = Average % dry ash present in the Coal
delivered to AWVMC by Independent
Contractor
X = 7%
The factor "X" is the factor that allows for the loss of coal and other
operational inefficiencies inherent in the processing of coal. The parties have
agreed that this factor will be 7% as of the Commencement Date, and will be 7%
until December 31, 1999. The parties will analyze the Preparation Plant
performance, market quality requirements, and other factors that may reasonably
affect clean coal recovery every six (6) months during the term of this
Agreement, and the value of "X" will be adjusted to more accurately reflect its
value based upon the results of such analysis.
Sampling and analysis shall be performed in accordance with the
attached Schedule I.
"Coal" shall mean the mineable and merchantable coal within and from
the Middle Kittanning seam of coal in, on and underlying the Premises.
"Coal Stockpile Area" shall mean the area upon the surface of the
Premises as designated from time to time by AWVMC upon which Independent
Contractor shall stockpile the mined Coal.
"Commencement Date" shall mean the date on which Independent Contractor
will be required by AWVMC to begin performing the Work. AWVMC shall provide
Independent Contractor with at least five (5) day's prior notice of the
Commencement Date.
-2-
<PAGE> 3
"Contract Price" shall have the meaning set forth in Section 6.1 of
this Agreement.
"Delivery Schedule" shall have the meaning set forth in Section 5.2 of
this Agreement.
"Designated Monthly Quantity" shall have the meaning set forth in
Section 5.2 of this Agreement.
"Effective Date" shall mean June 24, 1999.
"Event of Default" shall have the meaning set forth in Section 11.1 of
this Agreement.
"Fair Market Value" shall mean the value of property in its place at
the Spruce Mine No. 2 as determined by an appraisal, the cost of which shall be
borne equally by AWVMC and Independent Contractor, conducted by a qualified and
independent underground mining equipment appraiser who is reasonably
satisfactory to both AWVMC and Independent Contractor.
"Independent Contractor" shall mean BJM Coal Company, a West Virginia
corporation.
"Independent Contractor Equipment" shall mean all equipment, tools,
machinery, parts, supplies and other items obtained and utilized from time to
time by Independent Contractor to perform the Work.
"Independent Contractor Equipment List" shall mean a written list of
the Independent Contractor Equipment and the related parts and supplies located
at the Spruce Mine No. 2, including the make, model and serial number of each
item on the list.
"Information" shall have the meaning set forth in Section 8.7 of this
Agreement.
"Lien" shall mean any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind.
"Monthly Designation" shall mean and include the amount of Coal
designated by AWVMC or its designee to be delivered by Independent Contractor to
AWVMC during the next
-3-
<PAGE> 4
month. The Monthly Designations shall be included in the Delivery Schedules.
Independent Contractor hereby covenants and agrees to comply with the Monthly
Designations.
"Premises" shall have the meaning set forth in Section 2.3 of this
Agreement.
"Preparation Plant" shall mean the Sawmill Run coal preparation plant
currently owned by Hawthorne Coal Company, Inc., near Sago, Upshur County, West
Virginia.
"Records" shall have the meaning set forth in Section 8.5 of this
Agreement.
"Spruce Mine No. 2" shall mean the underground coal mine on the
Premises.
"Termination Notice" shall have the meaning set forth in Section 11.9
of this Agreement.
"Termination Notice Date" shall mean the earlier of (i) the date
Independent Contractor actually receives the Termination Notice, and (ii) three
days after the Termination Notice Date is placed in the U.S. mail.
"Three (3) Month Estimate" shall mean the estimate of the amount of
Coal AWVMC will designate for delivery pursuant to this Agreement during the
next three (3) months. The Three (3) Month Estimates shall be included in the
Delivery Schedules for informational and planning purposes only and shall not be
binding on AWVMC or Independent Contractor.
"Work" shall have the meaning set forth in Section 2.1 of this
Agreement.
ARTICLE II
Engagement, Term and Nature of Mining
Section 2.1 -- Engagement of Independent Contractor. AWVMC hereby
engages Independent Contractor as an independent contractor in accordance with
and subject to the terms and conditions hereinafter set forth, and Independent
Contractor hereby covenants and agrees as follows: (i) to mine and remove the
Coal by usual and accepted underground mining methods in accordance with the
mining plans and projections described in Section 8.3 of this Agreement and the
mining guidelines set forth on the attached Schedule III, and as otherwise
herein specified,
-4-
<PAGE> 5
(ii) to stockpile the Coal at the Coal Stockpile Area as instructed from time to
time by AWVMC, (iii) to maintain the Coal Stockpile Area, the haulroads located
on the Premises and all other areas of the Premises which may be used by
Independent Contractor under this Agreement in a clean and safe manner and in
accordance with all applicable laws, (iv) to deliver the mined Coal to AWVMC as
herein provided, (v) to prepare or have prepared accurate property maps and
other reports showing the tracts and the owners of the tracts from which Coal
has been mined and the amounts of Coal mined from each tract; and (vi) to
perform all of the other duties, responsibilities and obligations required of
Independent Contractor under this Agreement (all of said work is hereinafter
collectively referred to as the "Work"). Independent Contractor expressly agrees
to begin to perform the Work on the Commencement Date and thereafter to continue
to perform the Work in a diligent and professional manner and in accordance with
the terms and conditions of this Agreement and any and all of the permits and
governmental approvals now or hereafter required for the performance of the
Work, including, without limitation, West Virginia Division of Environmental
Protection Permit Number U-2016-98.
Section 2.2 -- Term. This Agreement shall be effective as of the
Effective Date and shall continue in full force and effect until May 31, 2002,
unless sooner terminated as provided herein or under applicable law; provided,
however, this Agreement shall automatically renew from year to year after May
31, 2002, unless either party provides the other with written notice of its
intent to terminate on or before January 31, 2002, or January 31 of the then
current one year renewal term as the case may be.
Section 2.3 -- Area Designated for Mining. The area to be mined by
Independent Contractor under this Agreement will be designated by AWVMC in the
Middle Kittanning coal seam at the Spruce Mine No. 2 in or under those certain
tracts or parcels of land in Upshur
-5-
<PAGE> 6
County, West Virginia, which are shown on the map attached hereto and made a
part hereof as Exhibit A and all subsequent revision map(s) (the "Premises").
Independent Contractor acknowledges and agrees that Exhibit A is not intended to
indicate expressly or by implication that all areas depicted therein are or will
be designated by AWVMC for mining by Independent Contractor, nor is Exhibit A
intended to indicate expressly or by implication that AWVMC owns or otherwise
possesses the right to mine all of the Coal on the Premises. In addition, other
areas may be added to the area to be mined, and the description and boundaries
of the area to be mined by Independent Contractor may otherwise be changed from
time to time by the mutual written agreement of the parties. This Agreement
shall be applicable to such additional areas, if any, as if the same were
initially described herein, and such areas shall be deemed a part of the
Premises.
ARTICLE III
Representations and Warranties
Section 3.1 -- Representations and Warranties of AWVMC. AWVMC MAKES NO,
AND HEREBY DISCLAIMS ANY, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE QUANTITY, QUALITY OR CONDITION OF THE COAL LOCATED IN OR RECOVERABLE FROM
THE PREMISES. AWVMC ALSO MAKES NO, AND HEREBY DISCLAIMS ANY, REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE DURATION, ECONOMIC FEASIBILITY OR
LIKELIHOOD OF SUCCESS OF THE WORK TO BE PERFORMED BY INDEPENDENT CONTRACTOR
UNDER THIS AGREEMENT. INDEPENDENT CONTRACTOR HEREBY EXPRESSLY ACKNOWLEDGES AND
UNDERSTANDS THAT THE DESIGNATION BY AWVMC OF ANY AREA(S) TO BE MINED SHALL NOT
CONSTITUTE ANY REPRESENTATION OR WARRANTY WHATSOEVER BY AWVMC THAT THE AREA(S)
SO DESIGNATED ARE
-6-
<PAGE> 7
SUITABLE FOR OR CONDUCIVE TO MINING OR PRODUCING COAL OF A QUANTITY OR QUALITY
REQUIRED UNDER THIS AGREEMENT. INDEPENDENT CONTRACTOR FURTHER ACKNOWLEDGES THAT
AWVMC HAS NOT MADE ANY REPRESENTATION OR WARRANTY WITH REGARD TO ANY OF THE
FOREGOING MATTERS OR THE CONDITION OR EXISTENCE OF ANY SURFACE AREAS, PRIOR
WORKINGS, COAL SEAMS, WORK PLACES, STRUCTURES, FACILITIES, FIXTURES OR OTHER
MATTERS RELATING TO THE PREMISES, THE COAL, THE WORK OR THE SPRUCE MINE NO. 2.
Section 3.2 -- Representations and Warranties of Independent
Contractor. As a material inducement for AWVMC to enter into this Agreement,
Independent Contractor represents and warrants to AWVMC as follows:
(a) Independent Contractor is a corporation duly organized, validly
existing and in good standing under the laws of the State of West Virginia.
Independent Contractor has full power and authority to execute, deliver and
perform this Agreement. This Agreement has been duly authorized, executed and
delivered by Independent Contractor, is a valid and binding obligation of
Independent Contractor and is enforceable against Independent Contractor in
accordance with its terms, subject only to bankruptcy, insolvency and other laws
affecting creditors' rights generally. The execution, delivery and performance
of this Agreement by Independent Contractor will not, with or without the lapse
of time or the giving of any notice, or both, result in any breach, default or
violation by Independent Contractor of any law, rule, regulation or agreement or
other commitment to which Independent Contractor is a party or by which it is
bound.
-7-
<PAGE> 8
(b) Neither Independent Contractor nor any of its assets are subject to
any judgment, order, writ, decree, citation or injunction. Independent
Contractor is not a party to any judicial, administrative, investigative or
arbitration proceeding, now pending, or to the best of its knowledge,
threatened, which could have a material adverse effect on this Agreement or
Independent Contractor's ability to perform the Work under this Agreement.
(c) Independent Contractor is in the business of underground coal
mining, has substantial experience as an underground coal mine operator, and has
personnel that are knowledgeable regarding and have substantial experience in
underground mining conditions similar to those in the Spruce Mine No. 2.
(d) Independent Contractor has and will continue to have throughout the
term of this Agreement sufficient working capital, machinery, equipment and
skilled personnel to perform and complete the Work under this Agreement,
including, without limitation, the production of the monthly tonnages of Coal
from the Premises contemplated by this Agreement.
(e) Independent Contractor has carefully inspected and examined and is
familiar with the Premises and all areas surrounding the Premises.
(f) Independent Contractor has fully informed itself as to all existing
conditions, potential conditions and limitations of the Premises (including,
without limitation, potential geologic conditions), all areas surrounding the
Premises, and all laws, ordinances, rules, regulations, dangerous conditions,
prior mining, location of old workings and latent dangers that may affect the
Work to be performed under this Agreement, and hereby accepts those conditions
and limitations and the risks associated therewith.
(g) Independent Contractor will, at all times during the term of this
Agreement, possess the capital, equipment, tools, personnel and other items
necessary to comply with and perform its
-8-
<PAGE> 9
obligations and duties under this Agreement, including, without limitation, the
production and delivery obligations set forth in Section 5.2 and Schedule II.
(h) Harold A. Sigler and Bruce W. Sigler will, at all times during the
term of this Agreement, collectively own and control a majority of the issued
and outstanding capital stock of Independent Contractor, and Harold A. Sigler
and Bruce W. Sigler will, at all times during the term of this Agreement,
collectively maintain complete voting control of the capital stock of
Independent Contractor.
ARTICLE IV
Equipment; Mining Operations
Section 4.1 -- Independent Contractor Equipment. Independent Contractor
shall be required to furnish all of the equipment, tools, machinery, parts,
supplies and other items that may be required from time to time to perform the
Work. Independent Contractor further acknowledges and agrees that it shall be
solely responsible for determining the fitness, suitability, type and amount of
equipment, tools, machinery, parts, supplies and other items that may be
required from time to time to perform the Work.
Section 4.2 -- Expense of Operations; Utilities. Except for the
responsibility to reclaim the Premises upon the termination of mining activities
as set forth in Section 9.8, all costs, expenses and liabilities accruing or
resulting from the Work performed under this Agreement shall be borne by
Independent Contractor, and AWVMC shall have no responsibility therefor.
Independent Contractor shall, at its sole cost and expense, obtain in its name
all utilities necessary for the performance of the Work.
Section 4.3 -- Diligence. Independent Contractor agrees to begin to
perform the Work on the Commencement Date and thereafter to diligently prosecute
the Work in a skillful and
-9-
<PAGE> 10
workmanlike manner in accordance with the terms and conditions of this Agreement
and modern and approved mining methods. Independent Contractor further agrees to
use only competent, skilled personnel and management in performing the Work, and
Independent Contractor shall perform the Work so as to produce and recover the
maximum quantities of merchantable and mineable coal from the Middle Kittanning
seam in, on and underlying the Premises.
Section 4.4 -- Notice of Suspended Operations. Independent Contractor
shall report promptly in writing to AWVMC any suspension, slowdown or
interference with any aspect of the Work, and Independent Contractor shall
specifically identify the reasons therefor and the expected duration thereof.
Section 4.5 -- Engineering Services. Independent Contractor shall be
solely responsible for obtaining all engineering services that are or may be
required: (i) to prepare the mining plans and projections required pursuant to
Section 8.3, (ii) to protect AWVMC's interest in the Coal and the Premises, and
(iii) to perform the Work pursuant to the terms and conditions of this
Agreement.
Section 4.6 -- Purchase and Removal of Independent Contractor
Equipment. Upon the expiration of this Agreement, or upon the termination of
this Agreement pursuant to Section 11.2, AWVMC shall have the right to purchase
all or any part of the Independent Contractor Equipment and the related parts
and supplies located at the Spruce Mine No. 2 on the expiration or termination
date for its Fair Market Value. At least thirty (30) days before the expiration
of this Agreement, or, in the event of a termination pursuant to Section 11.2
upon Independent Contractor's receipt of the notice of default pursuant to
Section 11.2, Independent Contractor shall provide AWVMC with the Independent
Contractor Equipment List. AWVMC shall exercise its right to purchase under this
Section 4.6 by providing written notice of its intent to
-10-
<PAGE> 11
purchase to Independent Contractor on or before the later of (i) the expiration
date (if applicable), or (ii) thirty (30) days after AWVMC's receipt of the
Independent Contractor Equipment List. AWVMC shall pay for the Independent
Contractor Equipment and the related parts and supplies upon delivery by
Independent Contractor of a bill of sale and assignment, reasonably acceptable
to AWVMC, transferring title to the Independent Contractor Equipment and the
related parts and supplies which AWVMC is purchasing under this Section 4.6 free
and clear of all Liens. Independent Contractor hereby covenants and agrees to
deliver such bill of sale and assignment immediately upon AWVMC's request. In
the event AWVMC does not exercise its option to purchase all of the Independent
Contractor Equipment and the related parts and supplies, Independent Contractor
shall remove the Independent Contractor Equipment and the related parts and
supplies not purchased hereunder from the Premises within thirty (30) days of
AWVMC's notice.
ARTICLE V
Production and Delivery of Coal
Section 5.1 -- Source of Coal. Independent Contractor covenants and
agrees that: (i) the Coal delivered to AWVMC pursuant to this Agreement shall be
produced solely from the Middle Kittanning coal seam in, on and underlying the
Premises, (ii) it shall not commingle any coal mined or removed from other
properties with the Coal mined and removed from the Premises, and (iii) it shall
not tender, deliver or sell any of the Coal mined from the Premises to any
person or entity without the prior written consent of AWVMC.
Section 5.2 -- Production and Delivery of the Designated Monthly
Quantity; Delivery Schedules. During each calendar month of this Agreement,
Independent Contractor shall
-11-
<PAGE> 12
produce a sufficient amount of Coal from the Premises to deliver a total of
[*](1) tons of Clean Coal (the "Designated Monthly Quantity") to AWVMC. AWVMC
shall have the right to unilaterally increase or decrease the Designated Monthly
Quantity by ten percent (10%); provided, however, from the Commencement Date
until December 31, 2000, Coal production will begin at lower levels and will
progressively increase on a monthly basis, all as set forth on the attached
Schedule II. Beginning on December 15, 2000, and on or before the 15th day of
each month thereafter, AWVMC or its designee shall provide Independent
Contractor with a written schedule (the "Delivery Schedule") showing the Monthly
Designation and the Three (3) Month Estimate.
Section 5.3 -- Stockpiling and Transporting Coal. Independent
Contractor shall, at its sole cost and expense: (i) stockpile the Coal mined
under this Agreement at the Coal Stockpile Area as designated by AWVMC, and (ii)
at AWVMC's option, either (a) deliver the Coal by truck to AWVMC at the
Preparation Plant, or (b) deliver the Coal to AWVMC at the Coal Stockpile Area.
Independent Contractor shall have the right to engage an independent
contractor[s] to truck the Coal from the Coal Stockpile Area to the Preparation
Plant provided that Independent Contractor requires the independent
contractor[s] to comply with the minimum trucking guidelines specified on
Exhibit B attached hereto and made a part hereof.
Section 5.4 -- Weights. For purposes of this Agreement, the Coal shall
be weighed at the certified truck scales located at or near the Preparation
Plant, unless the parties otherwise mutually agree. The weight of the Coal so
determined shall be deemed valid, conclusive and binding for all purposes under
this Agreement. For a period of one year after the weights are
(1) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-12-
<PAGE> 13
ascertained, AWVMC shall keep a record of the weights of all Coal delivered by
Independent Contractor. Independent Contractor shall, at its expense, be
permitted during regular business hours to observe, inspect and verify the
accuracy of the scales and records of weights.
Section 5.5 -- No Foreign Material, Etc. Independent Contractor agrees
to mine, produce and deliver Coal which is free from foreign material, trash,
excess moisture, slate, rock, excessive out of seam dilution and other
impurities and which is of merchantable and saleable quality. If AWVMC
determines, in its reasonable opinion, that a shipment of Coal is unacceptable
given such parameters, then AWVMC shall have the right to refuse or revoke its
acceptance of all or any portion of the unacceptable shipment, and AWVMC shall
have no obligation to pay Independent Contractor for any of the Coal for which
AWVMC's acceptance is either refused or revoked. In the event AWVMC refuses to
accept or revokes its acceptance of any Coal under this Agreement, Independent
Contractor shall have the right to purchase such unacceptable Coal from AWVMC,
at the point of rejection, at a price negotiated by Independent Contractor and
AWVMC at the time of rejection. Only upon purchase and payment therefor shall
title to such Coal pass to Independent Contractor. In the event any Coal
delivered to the Preparation Plant is not accepted by AWVMC, Independent
Contractor shall, at its sole cost and expense, be responsible for loading and
transporting such Coal from the Preparation Plant to the Spruce Mine No. 2 or
such other location mutually agreed upon by AWVMC and Independent Contractor.
Section 5.6 -- Title to Coal, Depletion. Independent Contractor
acknowledges and agrees that title to all Coal mined under this Agreement shall
be vested in AWVMC and Independent Contractor shall have no right to dispose of
any of the Coal except after purchasing such Coal as provided in Section 5.5
above. Unless otherwise expressly provided herein, Independent
-13-
<PAGE> 14
Contractor shall not acquire and shall not have an economic interest in any of
the Coal and AWVMC shall have the full right to claim depletion for income tax
or other purposes with respect to all of the Coal mined, produced and delivered
hereunder. Independent Contractor expressly acknowledges and agrees that it will
make no claim whatsoever to depletion for income tax or any other purposes with
respect to the Coal mined under this Agreement and acknowledge that AWVMC's
exclusive right to depletion for any and all purposes was taken into account by
the parties hereto in fixing the Contract Price under this Agreement.
Section 5.7 -- Boundaries. Independent Contractor shall fully comply
with all federal, state and local laws, regulations, rules, ordinances and the
governmental permits regarding any matter relating to mining near the boundaries
of the Premises. Notwithstanding the foregoing, however, Independent Contractor
shall not, except with the prior written consent of AWVMC, mine any Coal within
sixty (60) feet of the outside boundaries of the Premises or within two hundred
(200) feet of any mine workings in or adjacent to the Premises, and Independent
Contractor shall not cut any boundary corner on the Premises except with the
prior written consent of AWVMC. In the event such consent is given by AWVMC,
Independent Contractor shall use such precautions as are necessary to preserve
and monument the location of such boundary corner as AWVMC may require.
ARTICLE VI
Payment
Section 6.1 -- Contract Price. In consideration for the Work performed
by Contractor hereunder, AWVMC shall pay Independent Contractor as follows
(collectively, the "Contract
-14-
<PAGE> 15
Price"): (i) [*](2) per ton of Clean Coal delivered by Independent Contractor to
AWVMC at the Coal Stockpile Area, and (ii) [*](2) per ton of Clean Coal
delivered by Independent Contractor to AWVMC at the Preparation Plant.
Section 6.2 -- Payment. AWVMC shall pay Independent Contractor on or
before the 10th day of each month for all Coal delivered to and accepted by
AWVMC from the 16th day to the end of the previous month, and AWVMC shall pay
Independent Contractor on or before the 25th day of each month for all Coal
delivered to and accepted by AWVMC from the 1st through the 15th day of such
month.
Section 6.3 -- Right to Set Off. AWVMC shall have the right to charge
against and deduct from payments due hereunder, and Independent Contractor
hereby assigns to AWVMC, any amount or amounts which are then due and payable to
AWVMC from Independent Contractor under this Agreement or any other agreement
(including, without limitation, agreements entered into on or after the
Effective Date of this Agreement).
ARTICLE VII
Relationship of Parties
Section 7.1 -- Independent Contractor. It is expressly agreed and
understood that Independent Contractor shall perform the Work specified in this
Agreement as an independent contractor. Independent Contractor shall exercise
exclusive direction and control over its work force and labor relations
policies, and subject only to AWVMC's right to designate the areas to be mined,
adjust the Designated Monthly Quantity pursuant to Section 5.2, and approve the
mining plans and projections pursuant to Section 8.3, AWVMC shall have no right
to direct the
(2) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-15-
<PAGE> 16
manner, method, mode of performance or any other aspect of the Work. Independent
Contractor expressly agrees that it shall not represent or hold itself out as an
affiliate, subsidiary, partner, joint venturer, representative or agent of
AWVMC, and Independent Contractor further agrees to indemnify, hold harmless and
defend AWVMC against any claims, of whatever kind, arising from any act or
representation of it contrary to the provisions of this Section 7.1. This
covenant of indemnity shall survive the termination or expiration of this
Agreement.
Section 7.2 -- Employees. The employees of Independent Contractor shall
be its employees and not the employees of AWVMC. Independent Contractor shall
exercise complete and exclusive control over and responsibility for all aspects
of hiring, employment, supervision, direction, hours, working conditions,
compensation, discipline and discharge for all individuals engaged to perform
the Work under this Agreement. Independent Contractor shall comply with all
present and future federal, state and local laws, ordinances, rules and
regulations pertaining to the duties and obligations arising out of the
employer-employee relationship, including, without limitation, unemployment
compensation, Social Security, withholding taxes, State Workers' Compensation
(including the Black Lung component), wage and hour laws, wage payment and
collection laws, federal and state safety laws, occupational disease
compensation and all other applicable rules and regulations promulgated
thereunder. Independent Contractor shall maintain accurate supporting records
showing evidence of its compliance with the requirements set out in this Section
7.2 and shall make these records available to AWVMC for inspection upon request,
and Independent Contractor shall certify to AWVMC, on a quarterly basis, in
writing, Independent Contractor's compliance therewith on all Coal produced and
tendered under this Agreement.
-16-
<PAGE> 17
ARTICLE VIII
Inspection, Record Keeping and Reporting Requirements
Section 8.1 -- Contemporaneous Access to the Premises. Independent
Contractor acknowledges and agrees that AWVMC or its designee may place and
install or cause to be placed and installed on the Premises various structures,
equipment and materials, and AWVMC may carry on, either directly or through its
designee, such other operations on the Premises as AWVMC may deem necessary or
desirable for its own purposes as long as it does not interfere with Independent
Contractor's ability to perform the Work under this Agreement. AWVMC shall
ensure that all activity on the Premises by AWVMC or its designee shall be
conducted in accordance with all applicable laws, rules and regulations,
including, without limitation, all MSHA requirements.
Section 8.2 -- Inspection of the Premises and Equipment. Independent
Contractor acknowledges and agrees that AWVMC and its designees may, upon notice
to Independent Contractor, enter upon, inspect, map, sample, test and survey the
Premises, the Spruce Mine No. 2, the Coal and the Work being performed under
this Agreement, and any other aspect of Independent Contractor's operations
relating to this Agreement. Independent Contractor shall provide AWVMC and its
designees with safe access to the Premises and the Spruce Mine No. 2, and
cooperate with AWVMC and its designees in carrying out such inspection.
Section 8.3 -- Mining Plans. For the purpose of allowing AWVMC to
protect its economic interest in and to the Premises, the Spruce Mine No. 2 and
the Coal, Independent Contractor shall, beginning on or before the Commencement
Date and continuing thereafter on or before January 1 and July 1 of each year
during the term of this Agreement, prepare mining plans and projections for the
next succeeding 6-month period and submit such plans and
-17-
<PAGE> 18
projections to AWVMC for its written approval; provided, however, the proposed
mining plans and projections submitted on or before the Commencement Date shall
show plans and projections to December 31, 1999. The mining plans and
projections shall take into consideration the amount of Coal which Independent
Contractor is or may be required to deliver to AWVMC and the entire area
proposed to be mined by Independent Contractor, and the mining plans and
projections shall make suitable provisions for the reasonable and proper removal
of all of the mineable and merchantable coal from the Premises. Independent
Contractor shall not begin to perform Work in any area of the Premises unless
and until AWVMC approves, in writing, such mining plans and projections so that
AWVMC may, among other things, verify its title to or right to mine Coal from
the areas of the Premises which may be subject to the proposed mining plans and
projections. Upon approval of the mining plans and projections, Independent
Contractor shall diligently follow such plans and projections in performing the
Work under this Agreement. In the event Independent Contractor is unable to
continue performing Work in accordance with the approved mining plans and
projections, Independent Contractor shall immediately notify AWVMC in writing of
its inability to continue and set forth in reasonable detail the reasons
therefore. Independent Contractor shall submit revised mining plans and
projections for approval by AWVMC as soon as possible.
Independent Contractor shall employ a competent licensed land surveyor
or registered professional engineer to make surveys, plans and maps of its
operations within the Premises, and Independent Contractor shall furnish AWVMC
promptly with two (2) copies of all maps required by any federal, state or local
law, rule or regulation. In addition, on or before the 5th working day of each
month during the term of this Agreement, Independent Contractor shall
-18-
<PAGE> 19
provide AWVMC with an up-to-date mine map showing the advancement for the
preceding month and the mine plan for the next succeeding 1-month period.
Section 8.4 -- Safety. AWVMC and Independent Contractor recognize the
importance of safety procedures and safe working conditions. Before commencing
any Work under this Agreement, Independent Contractor must obtain an MSHA
identification number. Independent Contractor agrees to comply with all present
and future federal, state and local safety laws, ordinances, rules and
regulations, and Independent Contractor shall ensure that its employees are
trained in safe working procedures and shall cause its employees to abide by all
safety and security rules in force on the Premises. AWVMC and its designees
shall have the right (but not the obligation) to review the safety records of
Independent Contractor on a quarterly basis. Independent Contractor agrees to
indemnify, hold harmless and defend AWVMC against any claims, of whatever kind,
arising from any act or omission to act by Independent Contractor contrary to
the provisions of this Section 8.4. This covenant of indemnity shall survive the
termination or expiration of this Agreement.
Section 8.5 -- Testing and Reports. Independent Contractor shall
maintain accurate records regarding the mining conditions encountered, drill
cores, tests and sampling with respect to the Premises, the Coal and the Work
(the "Records"), and Independent Contractor shall provide AWVMC or its designee
with copies thereof. Upon the termination or expiration of this Agreement,
Independent Contractor shall promptly deliver to AWVMC or its designee all of
such records.
Section 8.6 -- Books of Account and Records. Independent Contractor
shall at all times maintain accurate books and records of account covering the
Work performed under this Agreement in accordance with generally accepted
accounting principles. AWVMC shall have
-19-
<PAGE> 20
the right to inspect, audit and copy Independent Contractor's books and records
for the purpose of verifying compliance with all terms, conditions and
provisions of this Agreement. Independent Contractor shall keep and preserve
such books and records for at least five years after the termination or
expiration of this Agreement.
Section 8.7 -- Confidentiality of Information. Independent Contractor
acknowledges that in performing the Work under this Agreement it may have access
to proprietary information and trade secrets of a confidential nature pertaining
to AWVMC, its affiliates and their businesses, the Premises, the Coal and the
Spruce Mine No. 2. Independent Contractor agrees that it shall treat all maps,
plans, data, reports, drilling logs, core samples, leases and other information
relating to AWVMC and its business, the Premises, the Coal or the Spruce Mine
No. 2 (the "Information") as confidential, and it shall not divulge, transmit or
otherwise disclose any of the Information to any person, firm, corporation or
other entity unless at the time of disclosure to Independent Contractor, the
information was public knowledge or becomes public knowledge through no act of
Independent Contractor. Upon the termination or expiration of this Agreement for
any cause whatsoever, Independent Contractor shall promptly deliver to AWVMC all
of the Information given to Independent Contractor.
ARTICLE IX
Observance of Laws, Regulations and Other Legal Requirements
Section 9.1 -- Conformity with Laws. Independent Contractor agrees that
in performing the Work under this Agreement, particularly in the actual mining
process and in regard to its responsibility for the construction, installation,
inspection, maintenance and removal, if necessary, of all facilities,
structures, and equipment used in or about the Premises, it shall be familiar
with and shall fully obey and comply with all applicable federal, state and
local laws and
-20-
<PAGE> 21
ordinances, and with all applicable rules, regulations, orders and directives of
any federal, state or local official, agency or department relating to such
mining operations and activities or to such facilities, structures, land areas,
utilities, equipment and including, without limitation, all such laws,
ordinances, rules, regulations, orders, directives, permits and bonds now in
effect or hereafter made, promulgated, enacted or issued.
Section 9.2 -- Permits and Bonds. Following the execution of this
Agreement, Independent Contractor shall diligently seek to obtain all approvals
and consents from any federal, state or local governmental agency to Independent
Contractor performing the Work on the Premises, including, without limitation,
all applicable mining and mining related permits. Upon the expiration or
termination of this Agreement, Independent Contractor shall surrender or
relinquish all such approvals, permits and operator reassignments. Independent
Contractor shall secure, maintain and comply with all permits required to
perform the Work, and Independent Contractor shall perform all remedial or
abatement work and pay all fines and assessments related to its failure to
comply therewith. Independent Contractor shall not be responsible for violations
of any governmental permits that occurred prior to the Commencement Date. Copies
of all applications made to and of all licenses, permits, bonds, amendments,
modifications, inspection reports and compliance, non-compliance or other orders
issued by any governmental authority, and any plans and maps or other
information compiled, made and filed by Independent Contractor with or furnished
to any governmental authority or communication had therewith concerning any of
the foregoing shall be made available to AWVMC before they are filed with or
furnished to the governmental authority or immediately upon receipt from any
governmental authority. Independent Contractor shall indemnify, hold harmless
and defend AWVMC and its affiliates from and against all claims, costs and
expenses, including reasonable attorneys' fees, in
-21-
<PAGE> 22
connection with or arising out of these documents or any dispute relating to
these documents that may occur during the term of this Agreement. This covenant
of indemnity shall survive termination or expiration of this Agreement.
Section 9.3 -- Citations or Penalties. Independent Contractor shall be
solely responsible and liable for the complete and timely payment of any and all
citations, assessments, penalties or fines imposed by any federal, state or
local agency for the violation of any federal, state or local law, ordinance,
rule or regulation arising out of or relating, directly or indirectly, to the
Work performed under the Agreement. Independent Contractor shall not jeopardize
any of the governmental permits held, if any, by AWVMC, Independent Contractor,
or its and their affiliates, contractors or lessees. Independent Contractor
shall be totally and solely responsible for and shall hold harmless, indemnify
and defend AWVMC from and against any and all liability for any citations,
assessments, fines, damages, withdrawal orders or civil and criminal penalties
assessed against either Independent Contractor or AWVMC which are caused,
directly or indirectly, in whole or in part, by the actions or omissions of
Independent Contractor, its employees, agents, contractors or representatives.
In the event that AWVMC or Independent Contractor is assessed, fined or
penalized for any violation arising out of Independent Contractor's conduct, or
the conduct of its agents, contractors or representatives, AWVMC may, in its
sole direction, settle or pay such assessment, fine or penalty without
Independent Contractor's prior approval, and AWVMC may deduct and withhold from
any monies due or which shall become due in the future to Independent Contractor
for Work performed under the Agreement an amount sufficient to cover any such
assessments, fines and penalties, together with expenses, including reasonable
attorneys' fees, incurred. If, regardless of the reason, such citations or
assessments should go unresolved and any of AWVMC's mining related permits are
-22-
<PAGE> 23
canceled, revoked, suspended, terminated or withdrawn, Independent Contractor
shall be liable to AWVMC for all costs, expenses, losses and damages, including,
without limitation, attorneys' fees, directly or indirectly, incurred by such
permit cancellation, revocation, suspension, termination or withdrawal.
Independent Contractor reserves the right to lawfully contest any such fine or
assessment provided it does not jeopardize the mining operations contemplated
under this Agreement.
Section 9.4 --Haulroads, Drainage and Grading. Independent Contractor
shall be solely responsible for the maintenance and upkeep of the haulroads on
the Premises and for draining and grading all surface areas and for controlling
all surface run-off on or with respect to the Premises as required by any
federal, state or local law, rule, regulation or permit, or as reasonably
required by AWVMC.
Section 9.5 -- Fees and Taxes. Except as expressly provided in Section
9.6 below, Independent Contractor shall make complete and timely payment of all
federal, state and local fees and taxes which may be imposed or assessed against
it, its operations hereunder, the Equipment, or the Premises in connection with
the Work performed under this Agreement, including, without limitation, all
payments or benefits arising from the Black Lung Benefits Reform Act of 1977, as
amended, the workers' compensation fund or similar benefit program under the
laws of the State of West Virginia, personal property taxes, employment taxes,
and income taxes. Personal property taxes shall be prorated on a calendar year
basis for any period during this Agreement which is less than one calendar year.
In the event Independent Contractor fails to pay any of such fees or taxes,
AWVMC shall be entitled, at its option, to pay said fees or taxes and to recover
the amount of such payment by deducting sufficient funds from sums due or which
shall become due to Independent Contractor for Work performed under this
Agreement.
-23-
<PAGE> 24
Section 9.6 -- Excise, Reclamation and Severance Taxes. In addition to
the Contract Price set forth in Section 6.1 above, AWVMC shall pay real property
taxes assessed against the Premises, the federal excise tax payable under 26
U.S.C. Section 4121 with respect to the Black Lung Disability Trust Fund, the
federal reclamation fees payable to the Office of Surface Mining and the
severance taxes and state reclamation fees assessed by the State of West
Virginia on the Coal mined hereunder by Independent Contractor.
Section 9.7 -- Liens. In the event any employee of Independent
Contractor or any other third party files a notice of intent to claim a Lien
upon any asset of AWVMC or any other property or interest of AWVMC as the result
of Independent Contractor's non-payment of wages or other monies due to such
employee or other third party, and in the event such Lien or filing is in
AWVMC's reasonable opinion legally valid or enforceable, then AWVMC may, at its
option, pay such employees or third parties directly and deduct the amount of
such payment from any monies due or to become due to Independent Contractor
under this Agreement. This provision shall not be construed as a promise for the
benefit of any employee of Independent Contractor or any third party and shall
not constitute an agreement by AWVMC to pay any such employee or third party.
Section 9.8 -- Reclamation. AWVMC shall be responsible, at its sole
cost and expense, for reclaiming the Premises as required by any applicable
federal, state and local laws, rules, regulations and permits upon the
termination of mining activities.
ARTICLE X
Indemnification and Insurance
Section 10.1 -- Indemnification. Independent Contractor shall
indemnify, hold harmless and defend AWVMC, its affiliates and its and their
officers, directors, managers and employees
-24-
<PAGE> 25
from and against any and all suits, actions, liabilities, demands, losses,
claims, awards, damages, fines, penalties, judgments, settlements, costs and
expenses of every kind and nature (including, without limitation, reasonable
attorney's fees and related costs incurred by an indemnified party in connection
with its efforts to enforce this indemnity), including, without limitation, the
injury to or death of any person or persons, damage to or loss of property, or
mining outside the Premises or otherwise, arising out of or relating, directly
or indirectly, to (i) the acts or omissions of Independent Contractor, its
officers, employees, agents or representatives under or in connection with this
Agreement, or (ii) a breach or default by Independent Contractor of any
covenant, section, representation, warranty or other term or condition of this
Agreement, or (iii) the use of any of the Equipment by Independent Contractor or
its employees, agents or representatives, together with any and all costs and
expenses, including reasonable attorneys' fees, that may be incurred by an
indemnified party in connection with its defense. Independent Contractor shall
defend the indemnified party, or, at the option of the indemnified party, pay to
have the indemnified party defended, against all such suits, actions,
liabilities, demands, losses, claims, awards, damages, fines, penalties,
judgments, settlements, costs and expenses, whether groundless or not. The
foregoing obligations shall be in addition to and not in limitation of any other
specific agreements or obligations in other sections of this Agreement, and
shall survive the expiration or termination of this Agreement.
Section 10.2 -- Insurance. Independent Contractor shall maintain, at
its sole cost and expense, and shall require any subcontractors or other
entities or individuals it may engage to perform the Work under this Agreement
(including, without limitation, any independent truckers engaged to haul Coal to
the Preparation Plant) to maintain, at all times while performing the Work, and
for a period of ninety (90) days after the expiration or termination of this
Agreement,
-25-
<PAGE> 26
the insurance coverages set forth below with full policy limits applying, but
not less than as stated:
a. Comprehensive general liability insurance with minimum
limits of $5,000,000 per occurrence and $5,000,000 general aggregate
for bodily injury and property damage, which insurance shall include
coverage for (but not limited to) the following: (i) Premises'
operations, (ii) contractual liability, (iii) cross-liability, (iv)
products and completed operation, (v) explosion collapse and
underground property damage, (vi) subsidence, (vii) waiver of
subrogation, and (viii) punitive damages.
b. Employer's liability insurance protecting against employee
claims for bodily injury, intentional tort actions and all other
employee claims against employers with each underlying limit being not
less than One Million Dollars per person and Five Million Dollars for
each occurrence.
c. Automobile bodily injury liability insurance including
owned, non-owned and hired vehicle coverage with limits of liability of
not less than $5,000,000 combined single limits for bodily injury and
property damage claims.
d. Workers' Compensation insurance, occupational disease
insurance, including state and federal black lung coverage,
unemployment compensation and all other insurance coverages for
occupational injury, disease or hazards as required by the laws and
regulations applicable to and covering employees of Independent
Contractor engaged in the performance of Work under this Agreement.
-26-
<PAGE> 27
e. Pollution liability insurance of not less than $500,000 per
incident. Independent Contractor's obligation to obtain the insurance
coverages as provided in this Section 10.2 shall not in any way be
construed so as to limit, amend or otherwise modify its indemnity
obligations as provided elsewhere in this Agreement.
Section 10.3 -- Form of Insurance. All insurance coverages required
under Section 10.2 above shall be with a reputable insurer, licensed to do
business in the State of West Virginia, and AWVMC shall have the right to
approve such insurer. All policies or certificates of insurance obtained by
Independent Contractor under this Agreement shall name AWVMC as an additional
insured and shall contain a provision for notice to AWVMC of any overdue or
unpaid insurance premium and thirty (30) days advance notice to AWVMC of any
proposed cancellation or substantial change in coverage. Every insurance policy
required under Section 10.2 above shall contain a waiver of subrogation by the
insurer against AWVMC, its owners, affiliates and subsidiaries. Each policy of
insurance shall be written as an "occurrence" contract unless the policy is
available only on a "claims made" basis, in which case Independent Contractor
shall continue such insurance policy for a period of two years after the
expiration or termination of this Agreement.
Section 10.4 -- Proof of Insurance Coverage. Independent Contractor
shall furnish to AWVMC copies of all certificates and policies which provide the
insurance coverages required by Section 10.2 above, including, but not limited
to, copies of any bonds which may be required for such coverages, prior to
commencing the Work under this Agreement and thereafter upon request by AWVMC.
Independent Contractor shall also provide satisfactory written evidence to AWVMC
that, if required by the laws of the State of West Virginia, it has entered into
-27-
<PAGE> 28
appropriate trust or bonding arrangements setting aside or providing sufficient
funds to assure payments of accrued back wages and fringe benefits to
Independent Contractor's employees in the event Independent Contractor ceases
operations under this Agreement.
Section 10.5 -- Payment of Premiums. AWVMC shall have the right, in its
sole discretion, to pay any overdue premium for the insurance coverages required
of Independent Contractor under this Agreement, or to take out and maintain such
insurance coverages, and AWVMC is hereby authorized to collect the cost of
obtaining and maintaining any such insurance coverages from monies due to or to
become due to Independent Contractor under the terms of this Agreement.
Independent Contractor expressly agrees and acknowledges that its inability,
failure, neglect or refusal to carry, maintain and keep current, at all times
during the term of this Agreement, any of the insurance coverages required under
this Agreement, and its inability, failure, neglect or refusal to be and remain
at all times during the term of this Agreement a subscriber or self-insurer in
good standing with the West Virginia workers' compensation fund or other similar
fund, state and federal black lung funds or any other occupational disease and
disability insurance fund shall constitute a breach of this Agreement and give
AWVMC the right, in its discretion, to terminate this Agreement pursuant to
Article XI below.
ARTICLE XI
Default and Termination
Section 11.1 -- Default. Independent Contractor shall be in default of
this Agreement upon the occurrence of any of the following events (each an
"Event of Default"):
a. Except as set forth in Section 11.1.b. below, any breach or
violation of, or failure to perform, any term, condition, provision,
representation, warranty, covenant, stipulation or
-28-
<PAGE> 29
agreement set forth herein or in any other written agreement by and between
AWVMC and Independent Contractor which is not cured within ten (10) days of
Independent Contractor's receipt of written notice thereof from AWVMC;
b. Any failure by Independent Contractor to comply, for any reason
except a validly asserted Force Majeure Event, with the Monthly Designations as
set forth in the Delivery Schedules twice during any six (6) consecutive month
period;
c. If any action by Independent Contractor in performing the Work under
this Agreement, complying with any of the terms under this Agreement, or the
presence of any agent, employee, contractor or representative of Independent
Contractor upon the Premises, or the execution of this Agreement by it shall
cause interference with or disrupt or threaten to interfere with or disrupt
AWVMC's operations in any manner or the operations of any of AWVMC's affiliates,
subsidiaries, or any other contractor(s), at any location whatsoever, for any
reason, and if such interference, disruption or threat continues for ten (10)
days after Independent Contractor's receipt of written notice from AWVMC;
d. In the event Independent Contractor is adjudicated bankrupt or
insolvent, whether through involuntary or voluntary proceedings, or if any
receiver, trustee, assignee or other person or persons are appointed by any
court to take charge of Independent Contractor's assets;
e. If any order, decree, judgment or directive is issued by any
regulatory authority, tribunal or court revoking, suspending, terminating or
withdrawing any of its mining related permits or bonds, whether secured in
connection with mining on the Premises or not, or requiring Independent
Contractor to cease mining operations for a period of more than ten (10) days,
or if two such directives are issued in any calendar year, regardless of their
duration; or
-29-
<PAGE> 30
f. If Independent Contractor is determined to be "permit blocked" or is
otherwise unable for any reason to obtain or maintain mining or mining related
permits in connection with any program conducted by the Federal Office of
Surface Mining (or its successor) or any other state or federal agency or body.
Section 11.2 -- Termination Based Upon an Event of Default. In addition
to and not in limitation of its right to terminate this Agreement as provided in
other sections of this Agreement, AWVMC shall have the right to terminate this
Agreement upon the occurrence of an Event of Default by giving written notice to
Independent Contractor of such termination.
Section 11.3 -- Right to Cure. If Independent Contractor is in breach
or default of any of the terms or conditions of this Agreement, whether or not
said breach or default gives rise to an Event of Default, AWVMC shall have the
right, but not the duty, to make any payment or to perform any act or complete
or correct the Work required of Independent Contractor under this Agreement and,
in exercising such right, to incur, for and on behalf of Independent Contractor,
necessary or incidental costs and expenses, including reasonable attorneys'
fees. In exercising the foregoing right, AWVMC may offset and deduct all
payments made and all costs and expenses incurred against such sums of money, if
any, due or to become due to Independent Contractor under this Agreement and
proceed against Independent Contractor under the provisions of Section 10.1
relating to indemnity. AWVMC's right to cure Independent Contractor's default or
breach as described in this Section 11.3 shall not imply any obligation on the
part of AWVMC to make any payment or to perform any act required of Independent
Contractor, and the exercise of such right by AWVMC shall not constitute a
release or waiver of any default or breach by Independent Contractor.
-30-
<PAGE> 31
Section 11.4 -- Waiver of Performance or Default. The failure of either
AWVMC or Independent Contractor to insist in any one or more instances upon
strict performance of any of the covenants, terms or conditions imposed upon or
assumed by either party under this Agreement, or the failure of AWVMC or
Independent Contractor to exercise any particular option or right granted by the
Agreement, shall not be construed as a waiver or relinquishment for the future
performance of any such covenant, term or condition, or as to the exercise of
any such option or right. Moreover, a waiver by either party of a default or
breach hereunder must be in writing and shall not be deemed to be a waiver of
any subsequent default or breach, and any delay in asserting a right hereunder
shall not be deemed a waiver of such right. Nothing contained in this Agreement
shall be construed as a waiver of any applicable statute of limitations.
Section 11.5 -- Remedies. The rights and remedies of AWVMC set forth in
this Agreement shall not be exclusive, but shall be taken and construed as
cumulative and in addition to any and all other rights and remedies accorded to
AWVMC at law or equity.
Section 11.6 -- Removal of Property. In the event of an Event of
Default, and for so long as the Event of Default shall continue, Independent
Contractor shall not remove or permit to be removed or taken from the Premises
any of the Equipment.
Section 11.7 -- Condition of the Premises. Upon the expiration or
termination of this Agreement, for any reason, at the option of AWVMC,
Independent Contractor shall leave the Premises and the Spruce Mine No. 2 in the
same normal working condition, under which the Work was being performed.
Section 11.8 -- Termination or Transfer of Permits and Licenses. No
later than thirty (30) days after the expiration or termination of this
Agreement for any reason whatsoever, or at such
-31-
<PAGE> 32
other time as AWVMC may direct, Independent Contractor shall release the
licenses and permits required by law for the performance of the Work under this
Agreement, if any, and take all other steps necessary to terminate such licenses
or permits or, at AWVMC's option, to assign, transfer and convey these licenses
or permits to AWVMC or its designee.
Section 11.9 -- Termination by AWVMC Without Cause. Beginning on the
first anniversary of the Effective Date of this Agreement, AWVMC shall have the
right to terminate this Agreement for any reason and at any time by providing
Independent Contractor with at least 180 days' prior written notice (the
"Termination Notice"). In the event AWVMC elects to terminate this Agreement
pursuant to this Section 11.9, AWVMC shall be required to purchase from
Independent Contractor, and Independent Contractor shall be required to sell to
AWVMC all of the Independent Contractor Equipment and any related parts and
supplies located in the Spruce Mine No. 2 on the Termination Notice Date for its
Fair Market Value. Within ten (10) days of the Termination Notice Date,
Independent Contractor shall provide AWVMC the Independent Contractor Equipment
List. AWVMC shall pay for the Independent Contractor Equipment and the related
parts and supplies upon delivery by Independent Contractor of a bill of sale and
assignment, reasonably acceptable to AWVMC, transferring title to the
Independent Contractor Equipment and the related parts and supplies which AWVMC
is purchasing under this Section 11.9 free and clear of all Liens.
AWVMC shall have the right to withdraw the Termination Notice for any
reason within thirty (30) days of its receipt of the Independent Contractor
Equipment List.
ARTICLE XII
Assignment, Subcontracting and Transfer of Ownership
Section 12.1 -- Rights Personal to Independent Contractor. This
Agreement is personal to
-32-
<PAGE> 33
Independent Contractor requiring the exercise of its own services, skills and
judgment.
Section 12.2 -- Assignment and Subcontracting. Except for engaging a
contract trucking company to transport the Coal from the Coal Stockpile Areas to
the Preparation Plant, Independent Contractor may not assign, subcontract or
otherwise transfer or delegate all or any part of this Agreement, the Work, or
any rights, duties, obligations or interests herein without obtaining the prior
written consent of AWVMC, which consent may be withheld by AWVMC in its sole
discretion. Independent Contractor may not assign any monies due or to become
due to it under this Agreement, nor may it pledge, encumber or mortgage all or
any part of its interests in this Agreement without the prior written consent of
AWVMC, which consent may not be unreasonably withheld.
Section 12.3 -- Transfer of Ownership Interest. Without the prior
written consent of AWVMC, which consent may be withheld by AWVMC in its sole
discretion, no holder of any capital stock or other ownership interest in
Independent Contractor may sell, assign, give, pledge or otherwise transfer,
whether voluntarily or by operation of law, any such capital stock or other
ownership interest in Independent Contractor to any other person or entity if
Harold A. Sigler and Bruce W. Sigler would not, after giving affect to such
sale, assignment, gift, pledge or other transfer, collectively own and control a
majority of the issued and outstanding capital stock or other ownership interest
in Independent Contractor or maintain complete voting control of the capital
stock or other ownership interest of Independent Contractor. Additionally,
without the prior written consent of AWVMC, which consent may be withheld by
AWVMC in its sole discretion, Independent Contractor may not cause or permit to
be issued any additional equity or other ownership interest during the term of
this Agreement. In the event AWVMC consents to the sale, assignment, gift,
pledge or other transfer of any such capital stock or ownership interest,
-33-
<PAGE> 34
or to the issuance of any additional equity or other ownership interest in
Independent Contractor, then Independent Contractor shall obtain the written
agreement and consent of any such person or entity to whom the interest shall be
conveyed or issued to be bound by the provisions of this Section 12.3.
Section 12.4 -- Waiver of Consent. In the event AWVMC consents to one
or more assignments, subcontracts or other transfer of all or any part of this
Agreement, the Work, or any rights or interests herein, or a transfer of any
ownership interest in Independent Contractor, such consent shall not be
construed as waiving the requirement of obtaining written consent to additional
assignments, subcontracts or transfers, and no consent to assignment,
subcontract or transfer shall relieve Independent Contractor of any obligations
specified in this Agreement.
ARTICLE XII
Miscellaneous
Section 13.1 -- Notices. Any and all notices, payments, reports,
consents or other communications between the parties shall be in writing and
deemed given and received on the date delivered personally, on the date
deposited if sent by registered or certified United States mail, postage
prepaid, return receipt requested, or on the date transmitted by facsimile,
provided the same is also mailed on said date by registered or certified United
States mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as set forth below, which addresses shall remain in effect
until notice of change is given, in writing:
If to AWVMC: Anker West Virginia Mining Company, Inc.
2708 Cranberry Square
Morgantown, WV 26508
Telecopy No.: (304) 594-3695
Attention: President
-34-
<PAGE> 35
If to Independent Contractor: BJM Coal Company
158 Turnpike Road
Summersville, WV 26651
Attention: President
Section 13.2 -- Integration. This Agreement contains the entire
understanding and agreement of the parties with regard to the transactions
contemplated hereunder and it supersedes all prior agreements, arrangements and
understandings between the parties relating to the subject matter of this
Agreement.
Section 13.3 -- Modification. This Agreement shall not be modified,
changed or terminated, in whole or in part, except by written agreement, signed
by all parties hereto or their respective successors-in-interest.
Section 13.4 -- Choice of Law. This Agreement shall be governed and
construed in accordance with the laws of the State of West Virginia.
Section 13.5 -- Production is of the Essence. The time, quality and
quantities of Coal production set forth in Article V hereof are of the essence
of this Agreement.
Section 13.6 -- Headings. The headings appearing in this Agreement are
for convenience of reference only and shall not be considered or construed as
affecting in any way the meaning of the provisions of this Agreement.
Section 13.7 -- Counterparts. This Agreement may, for convenience, be
executed in several counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one Agreement.
Section 13.8 -- Severability. In the event that any provision of this
Agreement conflicts with the laws of the State of West Virginia or any other
jurisdiction, or is held invalid by a court with jurisdiction over the parties
to this Agreement, such provision shall be deleted from the Agreement and the
Agreement shall be construed to give effect to its remaining provisions.
-35-
<PAGE> 36
Section 13.9 -- Force Majeure.
(a) If AWVMC or Independent Contractor is rendered wholly or partly
unable to perform its obligations under this Agreement by reason of a Force
Majeure Event, AWVMC or Independent Contractor, as the case may be, will be
excused from whatever performance is affected by the Force Majeure Event to the
extent so affected, provided that (i) the party relying on the Force Majeure
Event notifies the other as soon as practicable of the Force Majeure Event and
its cause; (ii) the suspension of performance is of no longer duration than is
required by the Force Majeure Event; (iii) no obligations of either party which
arose before the Force Majeure Event causing the suspension of performance are
excused as a result of the Force Majeure Events; and (iv) the non-performing
party exercises due diligence to remove the cause of the Force Majeure Event or
to lessen its effect and resumes performance at the earliest practicable time.
(b) In no event will this Section 13.9 be construed to relieve either
party of any obligations hereunder solely because of increased costs or other
adverse economic consequences that may be incurred through the performance of
such obligations of the parties. Notwithstanding the above, adverse economic
consequences from governmental actions will be considered a Force Majeure Event
if it results from an item listed in the definition of a Force Majeure Event.
For the purposes of this Agreement only, the term "Force Majeure Event" shall
mean or refer to any act or event that (i) prevents AWVMC or its coal sales
agent from selling any of the Coal at a reasonable profit or performing its
obligations under any other agreement for the sale or re-sale of Coal, and (ii)
any other act or event which is beyond the reasonable control of AWVMC or
Independent Contractor and which renders performance of this Agreement, in whole
or in part impossible. Such acts or events include, without limitation,
-36-
<PAGE> 37
an act of God, nuclear emergency, explosion, fire, epidemic, landslide,
lightning, earthquake, flood or similar cataclysmic occurrence, an act of public
enemy, war, blockade, insurrection, strike, riot, civil disturbance,
restrictions or restraints imposed by law or by rule, regulation or order of
governmental authorities, whether federal, state or local, delays or
interruptions in transportation, major breakdown or other restrictions on the
use of equipment, or any cause, whether of the same of a different nature,
existing or future, foreseen or unforeseen. Unless resulting from any of the
events listed in the preceding sentence, economic hardship or failure by
Independent Contractor to produce Coal in such quantities as required under this
Agreement will not constitute a Force Majeure Event.
(c) No Force Majeure Event will invalidate this Agreement and, on
termination of the Force Majeure Event, deliveries of Coal will resume pursuant
to the terms and conditions hereof. Shipments not made or not accepted due to a
Force Majeure Event will not be made up unless AWVMC in its sole discretion
elects to do so.
(d) The term of this Agreement shall, in AWVMC's sole discretion, be
extended for a period equal to the sum of all periods during which a Force
Majeure prevented either party from performing this Agreement.
IN WITNESS WHEREOF, the parties have caused their corporate names to be
signed hereto by their officers duly authorized.
ANKER WEST VIRGINIA MINING
COMPANY, INC.
By: ___________________________________
Ben H. Daud
President
-37-
<PAGE> 38
BJM COAL COMPANY
By: _______________________
Harold A. Sigler
President
-38-
<PAGE> 1
CONTRACT MINING AGREEMENT
THIS CONTRACT MINING AGREEMENT (this "Agreement"), is made and entered
into as of the 9th day of April, 1999, and shall be effective as of April 12,
1999 (the "Effective Date"), by and between ANKER WEST VIRGINIA MINING COMPANY,
INC., a West Virginia corporation ("AWVMC"), and STEYER FUEL, INC., a Maryland
corporation ("Independent Contractor").
WHEREAS, AWVMC owns and operates an underground mining operation in the
Bakerstown seam of coal in Garrett County, Maryland, and known as the "Steyer
Mine"; and
WHEREAS, AWVMC desires to engage Independent Contractor as a contract
miner for the Steyer Mine;
NOW, THEREFORE, that for and in consideration of the strict and mutual
performance and observance of the
terms, conditions, covenants, stipulations, guarantees and agreements
hereinafter set forth, and intending to be legally bound, the parties agree as
follows:
ARTICLE I
Term and Nature of Mining
Section 1.1 -- Engagement of an Independent Contractor. AWVMC does
hereby engage Independent Contractor as an independent contractor upon the terms
and conditions hereinafter set forth, and Independent Contractor covenants and
agrees (i) to mine and remove, by usual and accepted underground mining methods,
and as otherwise herein specified, all of the mineable and merchantable coal
within and from the Bakerstown seam of coal in, on and underlying those certain
tracts or parcels of real property described in Section 1.3 of this Agreement
(the "Coal"), (ii) to screen the run of mine Coal on areas at or near the Steyer
Mine; (iii) to stockpile the Coal and Refuse (as hereinafter defined) on areas
at or near the Steyer Mine as designated by AWVMC from time to time, (iv) to
transport the Coal and Refuse as herein provided, and (v)
<PAGE> 2
maintain the Refuse Disposal Area(s) (as hereinafter defined) (all of said work
is hereinafter collectively referred to as the "Work"). Independent Contractor
expressly agrees to perform the Work in a diligent and professional manner and
in accordance with the terms and conditions of this Agreement and any and all of
the permits now or hereafter acquired for the Steyer Mine, including, without
limitation, Maryland Bureau of Mine Permit Number DM-90-109, Maryland Department
of the Environment, Air and Radiation Management Administration, Permit Number
990128, and NPDES Permit Number MD0062081 (collectively, the "Permits").
Section 1.2 -- Term. This Agreement shall be effective as of
the Effective Date and shall continue in full force and effect until the earlier
of (i) December 31, 2002, (ii) the expiration or termination of the Mettiki
Agreement (as hereinafter defined) or (ii) the date on which all of the mineable
and merchantable Coal has been mined and removed from the Premises (the
"Termination Date"), unless sooner terminated as provided herein or under
applicable law. Prior to the Termination Date, the parties agree to discuss the
extension of the term of this Agreement and the other terms and conditions
hereof; provided, however, this term or other provisions shall not be amended
except upon terms and conditions mutually agreeable to the parties.
Notwithstanding anything herein to the contrary, AWVMC may terminate this
Agreement at any time for any reason or no reason upon ninety (90) days prior
written notice to Independent Contractor. In the event Independent Contractor is
experiencing problems in performing the Work or anticipates the it will be
unable to perform the Work with a reasonable level of profit, Independent
Contractor shall notify AWVMC thereof and identify the current or anticipated
problems facing Independent Contractor (the "Initial Notice"). During the 30-day
period following the Initial Notice, AWVMC and Independent Contractor shall meet
to discuss said current or anticipated problems and any potential solutions to
said problems. If at the end of said 30-day period AWVMC and Independent
Contractor have been unable to resolve the current
-2-
<PAGE> 3
or anticipated problems in a mutually satisfactory manner and Independent
Contractor is unable to perform the Work under this Agreement with a reasonable
level of profit, Independent Contractor shall have the right to terminate this
Agreement by providing written notification to AWVMC that it is electing to
terminate this Agreement (the "Termination Notice"). If Independent Contractor
provides the Termination Notice to AWVMC, this Agreement shall terminate upon
the 45th day following the date of receipt of such Notice by AWVMC. If requested
in writing by AWVMC at least 10 days prior to the effective date of the
termination of this Agreement as provided in the preceding sentence, Independent
Contractor shall continue to perform the Work under this Agreement following
said termination upon the same terms and conditions hereof for a period of up to
60 days, provided that AWVMC reimburses Independent Contractor for the losses it
incurs in performing the Work during such period. Independent Contractor shall
submit an invoice to AWVMC for reimbursement of such losses, together with
financial statements and other documentation which supports the request for
reimbursement. AWVMC shall reimburse Independent Contractor for such losses
within five days of its receipt of the request for reimbursement. AWVMC shall
have the right to inspect, audit and copy the books and records of Independent
Contractor to assist it in verifying the amount of losses claimed by Independent
Contractor. .
Section 1.3 -- Area Designated for Mining. The area to be
mined by Independent Contractor under this Agreement will be designated by AWVMC
in the Bakerstown seam of coal in or under those certain tracts or parcels of
land in Garrett County, Maryland, which are shown on the map attached hereto and
made a part hereof as Exhibit A and all subsequent revision map(s) (the
"Premises"). Exhibit A is not intended to indicate expressly or by implication
that all areas depicted on said map are hereby being designated or will
hereafter be designated by AWVMC for mining by Independent Contractor. In
addition, other areas may be added to the
-3-
<PAGE> 4
area to be mined, and the description and boundaries of the area to be mined by
Independent Contractor may otherwise be changed from time to time by attaching a
revised map or maps to this Agreement which have been mutually agreed upon by
both parties. This Agreement shall be applicable to such additional areas, if
any, as if the same were initially described herein, and such areas shall be
deemed a part of the Premises.
Section 1.4 -- Non-exclusive Right to Mine. Independent
Contractor acknowledges that AWVMC may engage one or more individuals or
entities in addition to Independent Contractor on a non-exclusive basis to mine
and deliver the Coal from the Premises and to utilize facilities located on or
adjacent to the Premises under separate agreements in which the financial terms
may vary in each case. Independent Contractor further acknowledges that neither
the designation by AWVMC of any particular area from which Independent
Contractor is to mine the Coal nor anything else contained in or done pursuant
to this Agreement shall imply or create any right, exclusive or otherwise, in
Independent Contractor to mine all of the Coal in such area, and Independent
Contractor shall have the right to mine only so much of the Coal as AWVMC may,
from time to time, direct or permit. It is expressly understood and agreed,
however, that AWVMC shall not exercise nor shall AWVMC have the right to
exercise any supervision or control whatsoever over the Work performed by
Independent Contractor under this Agreement.
ARTICLE II
Representations and Warranties
Section 2.1 -- Representations and Warranties of AWVMC. AWVMC MAKES NO,
AND HEREBY DISCLAIMS ANY, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE QUANTITY, QUALITY OR CONDITION OF THE COAL LOCATED IN OR RECOVERABLE FROM
THE PREMISES OR THE EQUIPMENT TO BE USED BY
-4-
<PAGE> 5
OR LEASED TO INDEPENDENT CONTRACTOR. AWVMC ALSO MAKES NO, AND HEREBY DISCLAIMS
ANY, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DURATION,
ECONOMIC FEASIBILITY OR LIKELIHOOD OF SUCCESS OF THE WORK TO BE PERFORMED BY
INDEPENDENT CONTRACTOR UNDER THIS AGREEMENT. INDEPENDENT CONTRACTOR HEREBY
EXPRESSLY ACKNOWLEDGES AND UNDERSTANDS THAT THE DESIGNATION BY AWVMC OF ANY
AREA(S) TO BE MINED SHALL NOT CONSTITUTE ANY REPRESENTATION OR WARRANTY
WHATSOEVER BY AWVMC THAT THE AREA(S) SO DESIGNATED ARE SUITABLE FOR OR CONDUCIVE
TO MINING OR PRODUCING COAL OF A QUANTITY OR QUALITY REQUIRED UNDER THIS
AGREEMENT. INDEPENDENT CONTRACTOR FURTHER ACKNOWLEDGES THAT AWVMC HAS NOT MADE
ANY REPRESENTATION OR WARRANTY WITH REGARD TO ANY OF THE FOREGOING MATTERS OR
THE CONDITION OR EXISTENCE OF ANY SURFACE AREAS, PRIOR WORKINGS, COAL SEAMS,
WORK PLACES, REFUSE DISPOSAL AREAS, STRUCTURES, FACILITIES, FIXTURES, EQUIPMENT
OR OTHER MATTERS RELATING TO THE PREMISES, THE COAL, THE WORK OR THE STEYER
MINE.
Section 2.2 -- Representations and Warranties of Independent
Contractor. As a material inducement for AWVMC to enter into this Agreement,
Independent Contractor represents and warrants to AWVMC as follows:
(a) Independent Contractor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland.
Independent Contractor has full power and authority to execute, deliver and
perform this Agreement. This Agreement has been duly authorized, executed and
delivered by Independent Contractor, is a valid and binding obligation of
Independent Contractor and is enforceable against Independent Contractor in
accordance with
-5-
<PAGE> 6
its terms, subject only to bankruptcy, insolvency and other laws affecting
creditors' rights generally. The execution, delivery and performance of this
Agreement by Independent Contractor will not, with or without the lapse of time
or the giving of any notice, or both, result in any breach, default or violation
by Independent Contractor of any law, rule, regulation or agreement or other
commitment to which Independent Contractor is a party or by which it is bound.
(b) Neither Independent Contractor nor any of its assets are subject to
any judgment, order, writ, decree, citation or injunction. Independent
Contractor is not a party to any judicial, administrative, investigative or
arbitration proceeding, now pending, or to the best of its knowledge,
threatened, which could have a material adverse impact on this Agreement or its
ability to perform the Work under this Agreement.
(c) Independent Contractor is in the business of underground coal
mining, has substantial experience as an underground coal mine operator, and has
personnel that are knowledgeable regarding and have substantial experience in
underground mining conditions similar to those in the Steyer Mine.
(d) Independent Contractor has and will continue to have throughout the
term of this Agreement sufficient working capital, machinery, equipment and
skilled personnel to perform and complete the Work under this Agreement,
including, without limitation, the production of the monthly tonnages of Coal
from the Premises contemplated by this Agreement and in accordance with the
Specifications (as hereinafter defined).
(e) Independent Contractor has carefully inspected and examined and is
familiar with the Premises, all areas surrounding the Premises, and the
facilities, equipment, fixtures and workings of the Steyer Mine, and has not
relied upon any oral or written statements or
-6-
<PAGE> 7
information made or furnished by AWVMC in determining whether or not to enter
into this Agreement.
(f) Independent Contractor has fully informed itself as to all existing
conditions and limitations of the Premises, all areas surrounding the Premises,
the facilities, equipment, fixtures and workings of the Steyer Mine, and all
laws, ordinances, rules, regulations, dangerous conditions, prior mining,
location of old workings and latent dangers that may affect the Work to be
performed under this Agreement, and hereby accepts those conditions and
limitations and the risks associated therewith.
(g) All of the issued and outstanding shares of capital stock of
Independent Contractor are owned and held of record by David Maynard.
ARTICLE III
Mining Operations
Section 3.1 -- Use of Existing Fixed Assets and Equipment. In the
performance of the Work hereunder, Independent Contractor shall have the right
to use, without payment of further rental, all of the existing fixed assets and
equipment that are in or on the Premises or the Steyer Mine and which are
identified and described on Exhibit B (collectively, the "Existing Assets"). The
Existing Assets shall not include the Leased Equipment or the Parts and Supplies
(as such terms are hereinafter defined). Independent Contractor and AWVMC agree
that the map attached to Exhibit B (and marked Exhibit B-1) fairly and
accurately represents the location of and extent to which that portion of the
Existing Assets consisting of advancement items have been used in the Steyer
Mine. The Existing Assets are and shall at all times remain the property of
AWVMC.
-7-
<PAGE> 8
Section 3.2 -- Lease of Equipment. AWVMC hereby leases to Independent
Contractor, and Independent Contractor hereby leases from AWVMC, the following
three items of equipment (hereinafter collectively the "Leased Equipment"):
<TABLE>
<CAPTION>
Equipment Description Serial No. Monthly Equipment Rental
<S> <C> <C>
NMS 6 Wheel Personnel Car 15400100 [*](1)
Stamler Feeder Breaker 12233 [*](1)
Misc. Rail Equipment N/A [*](1)
Rebuilt Stamler Feeder 11462 [*](1)
</TABLE>
The term of this equipment lease shall begin on the Effective Date and, unless
sooner terminated as provided herein or under applicable law, shall continue in
full force and effect until the Termination Date, at which time said equipment
lease shall expire. The monthly rental for the each item of Leased Equipment is
set forth above (the "Equipment Rental"). The Equipment Rental shall be paid by
Independent Contractor to AWVMC on the 10th day of each month for the use of
Leased Equipment for the immediately preceding calendar month. Independent
Contractor shall pay the Equipment Rental to AWVMC for each item of Leased
Equipment for so long as AWVMC is obligated to make payments on such Leased
Equipment to a third party or parties and until AWVMC has fully recovered any
and all amounts paid by it in respect of such Leased Equipment, including,
without limitation, amounts paid to purchase or buy such Leased Equipment. AWVMC
shall have the right to deduct the Equipment Rental from the payment of the
Contract Price under Section 5.2. The Equipment Rental shall be prorated for any
period of less than one month based on the number of days this equipment lease
is in effect for any such month and the number of days in such month. AWVMC
shall have the right to terminate this
- --------
1 Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-8-
<PAGE> 9
equipment lease in the event Independent Contractor fails to perform any
covenant set forth in this Agreement with respect to the Leased Equipment upon
ten (10) days written notice to Independent Contractor.
Section 3.3 -- Parts and Supplies. AWVMC has an inventory of parts and
supplies at the Steyer Mine. AWVMC shall prepare a list of the unused parts and
supplies on the Effective Date (the "Parts and Supplies"). Independent
Contractor shall purchase the Parts and Supplies at their fair market value as
agreed upon by the parties (the "Parts and Supplies Purchase Price"). The Parts
and Supplies Purchase Price shall be paid by Independent Contractor to AWVMC in
six (6) equal, consecutive monthly installments beginning on the 25th day of the
month following the month of the Effective Date and continuing on the 25th day
of the next five succeeding months. AWVMC shall have the right to deduct each
installment of the Parts and Supplies Purchase Price from the payment of the
Contract Price under Section 5.2.
Section 3.4 -- Construction and Maintenance. Independent Contractor, at
its sole cost and expense, covenants and agrees with AWVMC that Independent
Contractor shall be solely responsible in all respects for the construction,
installation, inspection, maintenance and repair of all facilities, structures,
fixtures and equipment situate within, near or in the vicinity of the Premises
which are used by Independent Contractor in the performance of the Work under
this Agreement, including, without limitation, the Existing Assets and the
Leased Equipment. Independent Contractor shall obtain the prior written approval
of AWVMC before commencing construction of facilities, structures, fixtures,
roads or utilities on the Premises.
Section 3.5 -- Machinery, Equipment, Supplies and Tools. In addition to
the Existing Assets, the Leased Equipment and the Parts and Supplies,
Independent Contractor shall, at its sole cost and expense, furnish all of the
machinery, equipment, assets, parts, supplies, fuel and tools that may be
required to perform Work under this Agreement (the "Independent Contractor's
-9-
<PAGE> 10
Machinery and Equipment"). Independent Contractor agrees to at all times keep
and maintain its Machinery and Equipment, the Existing Assets and the Leased
Equipment in good and safe working order, condition and repair, ordinary wear
and tear excepted, and in compliance with all applicable warranties or
contractual obligations relating thereto and all federal, state, and local laws,
rules, regulations and ordinances. The obligation of Independent Contractor to
maintain and keep the aforementioned items in good working order, condition and
repair (ordinary wear and tear excepted) includes performing, at Independent
Contractor's sole cost and expense, all routine or scheduled maintenance
thereof. In the event any of the Existing Assets or the Leased Equipment must be
rebuilt to stay in service or for productivity or safety reasons, Independent
Contractor shall have the right to purchase the same from AWVMC at its fair
market value as agreed upon by AWVMC and Independent Contractor. If the parties
are unable to agree upon fair market value or Independent Contractor elects not
to purchase the Existing Asset or Leased Equipment, as the case may be,
Independent Contractor shall, at its sole cost and expense, remove the same from
the Steyer Mine and purchase, lease or otherwise acquire substitute equipment.
Section 3.6 -- Expense of Operations; Utilities. All costs, expenses
and liabilities accruing or resulting from the Work performed under this
Agreement shall be borne by Independent Contractor, and AWVMC shall have no
responsibility therefor. Independent Contractor shall, at its sole cost and
expense, obtain and supply to the Steyer Mine all utilities necessary for the
performance of the Work.
Section 3.7 -- Diligence. Independent Contractor agrees to diligently
prosecute the Work in a skillful and workmanlike manner in accordance with
modern and approved mining methods, and to use only competent, skilled personnel
and management. Independent Contractor shall perform the Work so as to produce
and recover the maximum quantities of merchantable and
-10-
<PAGE> 11
mineable coal from the Bakerstown seam in, on and underlying the Premises.
Independent Contractor acknowledges and understands that AWVMC has the right to
mine the coal under and pursuant to the instruments identified and described on
Exhibit C attached hereto and made a part hereof (the "Instruments").
Independent Contractor acknowledges that AWVMC has provided Independent
Contractor with a copy of each of the Instruments, and represents that it has
reviewed and understands the terms and conditions in the Instruments.
Independent Contractor shall conduct the Work and all activities associated
therewith in accordance with the Instruments and the terms and conditions
therein.
Section 3.8 -- Notice of Suspended Operations. Independent Contractor
shall report promptly in writing to AWVMC any suspension, slowdown or
interference with any aspect of the Work, and shall specifically identify the
reasons therefor and the expected duration thereof.
Section 3.9 -- Engineering Services. The parties hereto agree that
AWVMC has the right, but not the duty, to furnish such engineering services as
may, in its judgment, be required to protect AWVMC's interest in the Coal and
the Premises.
Section 3.10 -- Purchase and Removal of Equipment. Upon the expiration
or termination of this Agreement, AWVMC shall have the right to purchase all or
any part of the Independent Contractor's Machinery and Equipment (other than
Machinery and Equipment used on the surface at the Steyer Mine) at a price equal
to eighty percent (80%) of fair market value as determined in writing by an
appraiser mutually agreed upon by AWVMC and Independent Contractor, which
determination shall be final and binding upon the parties hereto (the "Machinery
and Equipment Purchase Price"). AWVMC shall exercise its rights hereunder by
providing written notice to Independent Contractor within thirty (30) days of
the expiration or termination hereof. AWVMC shall pay the Machinery and
Equipment Purchase Price to Independent Contractor upon delivery by Independent
Contractor of a bill of sale and
-11-
<PAGE> 12
assignment, reasonably acceptable to AWVMC, transferring the Independent
Contractor's Machinery and Equipment which AWVMC is purchasing under this
Section 3.10 free and clear of all liens and encumbrances. In the event AWVMC
does not exercise its option to purchase all of Independent Contractor's
Machinery and Equipment, Independent Contractor shall remove the Machinery and
Equipment not purchased hereunder within ninety (90) days of AWVMC's notice to
Independent Contractor.
Section 3.11 Water Sampling. AWVMC agrees to perform all water sampling
and related reporting required under the Permits. Independent Contractor shall
pay AWVMC the sum of $400.00 per month for such water sampling services. Said
fees shall be paid on the 10th day of each month for the water sampling services
provided in the previous month. AWVMC shall have the right to deduct said fees
from the payment of the Contract Price under Section 5.2.
ARTICLE IV
Production, Specifications and Transportation
Section 4.1 -- Source of Coal. Independent Contractor covenants and
agrees that (i) the Coal delivered to the Processing Plant pursuant to this
Agreement shall be produced solely from the Bakerstown seam in, on and
underlying the Premises, (ii) it shall not commingle any coal mined or removed
from other properties with the Coal mined and removed from the Premises, and
(iii) it shall not tender, deliver or sell any of the Coal mined from the
Premises to any person or entity without the prior written consent of AWVMC.
Section 4.2 -- Production and Specifications. During each calendar
month during the term of this Agreement, Independent Contractor shall produce
from the Premises and deliver to the coal processing plant owned and operated by
Mettiki Coal Corporation, a Delaware corporation ("Mettiki"), located at
Mettiki's mine near Oakland, Maryland (the "Processing
-12-
<PAGE> 13
Plant") between [*](2) and [*](2) tons (one ton equals 2,000 pounds) of Coal as
designated in writing by AWVMC to Independent Contractor at least five (5) days
prior to the beginning of such calendar month. AWVMC shall have the right, from
time to time during each calendar month, to increase or decrease the designated
tonnage amount based on amounts required to be delivered under the Mettiki
Agreement. Independent Contractor agrees that the Coal delivered hereunder shall
meet, based on an as-received analysis performed by Mettiki pursuant to that
certain Coal Processing and Transportation Agreement dated April 17, 1997,
between Mettiki, Anker Energy Corporation and AWVMC (the "Mettiki Agreement"),
the guaranteed quality specifications set forth on Exhibit D attached hereto and
made a part hereof (the "Specifications"). The method of sampling and resulting
analyses as set forth in and determined under the Mettiki Agreement shall be
final, conclusive and binding for all purposes of this Agreement.
Section 4.3 -- Annual and Monthly Volume Estimates. On or before
February 1 of each year during the term of this Agreement, Independent
Contractor shall provide to AWVMC a non-binding written forecast of the volumes
of Coal which Independent Contractor expects to produce pursuant to this
Agreement and deliver to the Processing Plant during the next twelve (12)
months. On or before the twentieth (20th) day of each month during the term of
this Agreement, Independent Contractor shall provide to AWVMC a written estimate
of the volumes of Coal which Independent Contractor will deliver to the
Processing Plant each day during the following month.
Section 4.4 -- Stockpiling and Transporting Coal. Independent
Contractor shall, at its sole cost and expense, stockpile the Coal mined under
this Agreement on areas within the Premises as designated by AWVMC (the "Coal
Stockpile Area"). Independent Contractor shall,
- ----------
2 Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-13-
<PAGE> 14
at its sole cost and expense, load the Coal into trucks at the Coal Stockpile
Area and transport the Coal from the Coal Stockpile Area to the Processing
Plant. Independent Contractor shall have the right to engage an independent
contractor to truck the Coal from the Coal Stockpile Area to the Processing
Plant. In the event Independent Contractor elects to engage a contract trucking
company for such purpose, Independent Contractor shall require the contract
trucking company to agree to abide by the minimum trucking guidelines specified
on Exhibit E attached hereto and made a part hereof.
Section 4.5 -- Stockpiling and Trucking Refuse. Independent Contractor
shall stockpile all rock, slate, refuse or other material removed as part of the
Work performed under this Agreement (the "Refuse") on areas within the Premises
as designated by AWVMC (the "Refuse Stockpile Area"). Independent Contractor
shall, at its sole cost and expense, load the Refuse from the Refuse Stockpile
Area into trucks and transport and dispose of the Refuse on an area or areas
designated by AWVMC (the "Refuse Disposal Area"). Independent Contractor shall,
at its sole cost and expense, distribute the Refuse within the Refusal Disposal
Area and maintain such Area in accordance with all applicable federal and state
laws, rules, regulations, ordinances and permits, including, without limitation,
the Permits. Independent Contractor shall have the right to engage an
independent contractor to truck the Refuse from the Refuse Stockpile Area to the
Refuse Disposal Area and to maintain such Refuse Disposal Area. In the event
Independent Contractor elects to engage a contract trucking company for such
purpose(s), Independent Contractor shall require the contract trucking company
to agree to abide by the minimum trucking guidelines specified on Exhibit E
attached hereto and made a part hereof.
Section 4.6 -- Weights. For purposes of this Agreement, the weight of
the Coal delivered to the Processing Plant shall be the weight determined by the
truck scales located near the Processing Plant or such other scales or
engineering method or methods agreed upon by
-14-
<PAGE> 15
AWVMC and Mettiki pursuant to the Mettiki Agreement. The weight of the Coal so
determined shall be deemed valid, conclusive and binding for all purposes under
this Agreement. For a period of one year, AWVMC shall keep a record of the
weights of all Coal delivered by Independent Contractor. AWVMC shall use its
best efforts to enable Independent Contractor, during regular business hours,
and at Independent Contractor's expense, to observe, inspect and verify that the
accuracy of Mettiki's scales and records of weights.
Section 4.7 -- Tonnage Shortfall Penalties. Independent Contractor
acknowledges and understands that AWVMC is obligated to deliver certain minimum
tonnages of Coal to Mettiki under the Mettiki Agreement. For purposes of this
Agreement, "Tonnage Shortfall" shall mean the actual aggregate tons of coal
processed by Mettiki at the Processing Plant and delivered to the Mount Storm
Power Station less the actual aggregate tons of Coal delivered by AWVMC to
Mettiki under the Mettiki Agreement. Independent Contractor acknowledges and
understands that AWVMC is required to pay Mettiki [*](3) per ton for each ton by
which the Tonnage Shortfall, if any, exceeds [*](3) As of March 31, 1999, the
"Tonnage Shortfall" under the Mettiki Agreement equals approximately [*](3)
tons. Each month during the term of this Agreement, AWVMC shall notify
Independent Contractor of the current Tonnage Shortfall. As a material
inducement to AWVMC entering into this Agreement and in consideration for the
Contract Price to be paid by AWVMC to Independent Contractor, Independent
Contractor hereby agrees that it shall reimburse AWVMC one-half (1/2) of any
amounts that AWVMC is actually pays or incurs under the Mettiki Agreement with
respect to the Tonnage Shortfall. AWVMC shall have the right to such amounts
which Independent Contractor is required to pay AWVMC under this Section 4.7
from the payment of the Contract Price under Section 5.2.
- ----------
3 Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-15-
<PAGE> 16
Section 4.8 - Failure to Meet Specifications. Independent Contractor
agrees to mine, produce and deliver to the Processing Plant Coal which meets the
Specifications. AWVMC reserves the right, at its expense, to keep and maintain
inspector(s) to inspect each shipment of the Coal, and AWVMC shall have the
right to reject or revoke its acceptance of all or any portion of any
unacceptable shipment of the Coal which such inspector determines has foreign
material, trash, excess moisture, slate, rock or other impurities and is not of
merchantable and saleable quality. If AWVMC determines, in its sole and absolute
discretion, that a shipment of Coal is unacceptable, then AWVMC shall have the
right to refuse or revoke its acceptance of all or any portion of the
unacceptable shipment, and AWVMC shall have no obligation to pay Independent
Contractor for any of the Coal for which AWVMC's acceptance is either refused or
revoked. In the event AWVMC refuses to accept or revokes its acceptance of any
Coal under this Agreement, Independent Contractor shall have the right to
purchase such unacceptable Coal from AWVMC, at the point of rejection, at a
price negotiated by Independent Contractor and AWVMC at the time of rejection.
Only upon purchase and payment therefor shall title to such Coal pass to
Independent Contractor. In the event any Coal delivered to the Processing Plant
is not accepted by AWVMC or Mettiki, Independent Contractor shall, at its sole
cost and expense, be responsible for loading and transporting such Coal from the
Processing Plant to the Steyer Mine or such other location mutually agreed upon
by AWVMC and Independent Contractor.
In addition to the foregoing, if Coal delivered to the Processing Plant
over any ten (10) day period fails to meet the Specifications, AWVMC may provide
to Independent Contractor notice of such noncompliance and request that
Independent Contractor provide to AWVMC assurances satisfactory to AWVMC that
future Coal shipments will comply with the Specifications. Pending receipt of
such assurances, or in the event Independent Contractor provides assurances but
any subsequent shipments over any ten (10) day period fail to meet the
-16-
<PAGE> 17
Specifications, AWVMC may direct Independent Contractor to suspend further
shipments of Coal. Before permitting Independent Contractor to resume regular
shipments, AWVMC may insist that Independent Contractor demonstrate its ability
to perform in the future by shipping two (2) consecutive provisional shipments
(each not less 2,000 tons) which meet all of the Specifications. Shipments
suspended pursuant to this Section 4.8 may be made up at AWVMC's option.
Sampling, analysis and testing of the Coal in the provisional shipments shall be
conducted prior to shipment to the Processing Plant by an independent firm
acceptable to AWVMC and shall be in accordance with commercially reasonable
procedures acceptable to AWVMC. Independent Contractor shall bear the cost and
expense of such sampling, analysis and testing. Independent Contractor promptly
shall provide AWVMC with the written results of such analysis and tests. If the
results of the analysis and tests show that Coal in any of the provisional
shipments fails to comply with one or more of the Specifications, Independent
Contractor shall not ship any portion of such Coal to the Processing Plant and
AWVMC shall not be required to pay for such Coal.
In the event that (i) Independent Contractor fails or refuses to
provide the assurances requested pursuant to this Section 4.8 within three (3)
calendar days after receiving AWVMC's notice and request for such assurances,
(ii) Independent Contractor fails to ship two (2) consecutive provisional
shipments as provided above which meet all of the Specifications, or (iii)
during one of three (3) consecutive months following the month in which the
problem giving rise to the noncompliance is corrected, Coal delivered to the
Processing Plant fails to comply with any of the Specifications, AWVMC, in the
exercise of its sole judgment, may, in addition to and not in lieu of any other
remedy, (a) cancel and/or suspend receipt of further shipments of Coal to the
Processing Plant and/or (b) immediately terminate this Agreement. Independent
Contractor acknowledges and agrees that the exercise by AWVMC of its rights set
forth in this Section 4.8
-17-
<PAGE> 18
shall in no way reduce, alter or modify AWVMC's rights to receive sums under
Section 4.7 for a shortfall in Coal tonnage.
Section 4.9 -- Title to Coal, Depletion. Independent Contractor
acknowledges and agrees that title to all Coal mined under this Agreement shall
be vested in AWVMC and Independent Contractor shall have no right to dispose of
any of the Coal except after purchasing such Coal as provided in Section 4.8
above. Unless otherwise expressly provided herein, Independent Contractor shall
not acquire and shall not have an economic interest in any of the Coal and AWVMC
shall have the full right to claim depletion for income tax or other purposes
with respect to all of the Coal mined, produced and delivered hereunder.
Independent Contractor expressly acknowledges and agrees that it will make no
claim whatsoever to depletion for income tax or any other purposes with respect
to the Coal mined under this Agreement and acknowledge that AWVMC's exclusive
right to depletion for any and all purposes was taken into account by the
parties hereto in fixing the Contract Price under this Agreement.
Section 4.10 -- Premiums and Penalties. If AWVMC actually receives a
premium payment for any Coal delivered from the Premises to the Processing Plant
under the Mettiki Agreement, AWVMC shall pay to Independent Contractor an amount
equal to [*](4) of such premium payment within twenty (20) days of receipt of
the same by AWVMC. If AWVMC actually pays a penalty for any Coal delivered from
the Premises to the Processing Plant under the Mettiki Agreement, Independent
Contractor shall pay to AWVMC an amount equal to [*](4) of such penalty within
twenty (20) days of receipt by Independent Contractor of written notice of such
penalty from AWVMC. AWVMC shall have the right to deduct such amount from the
payment of the Contract Price under Section 5.2.
- ----------
4 Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission (the
"Commission"). The omitted portions, marked by "[*]", have been filed separately
with the Commission.
-18-
<PAGE> 19
Section 4.11 -- Boundaries. Independent Contractor shall fully comply
with all federal, state and local laws, regulations, rules, ordinances and the
Permits regarding any matter relating to mining near the boundaries of the
Premises. Notwithstanding the foregoing, however, Independent Contractor shall
not, except with the prior written consent of AWVMC, mine any Coal within sixty
(60) feet of the outside boundaries of the Premises or within two hundred (200)
feet of any mine workings in or adjacent to the Premises, and Independent
Contractor shall not cut any boundary corner on the Premises except with the
prior written consent of AWVMC. In the event such consent is given by AWVMC,
Independent Contractor shall use such precautions as are necessary to preserve
and monument the location of such boundary corner as AWVMC may require.
ARTICLE V
Payment
Section 5.1 -- Contract Price. In consideration for the Work performed
by Contractor hereunder, AWVMC shall pay Independent Contractor the per ton
amount (the "Contract Price") for each ton of Coal which meets the
Specifications and is delivered to the Processing Plant during the periods set
forth below:
<TABLE>
<CAPTION>
Period Contract Price
- ------ --------------
<S> <C>
Effective Date thru December 31, 2000 [*](5)/ton of Coal
January 1, 2000 thru December 31, 2000 [*](5)/ton of Coal
January 1, 2001 thru December 31, 2001 [*](5)/ton of Coal
January 1, 2002 thru December 31, 2002 [*](5)/ton of Coal
</TABLE>
In the event AWVMC receives a net positive benefit as a result of an inflation
adjustment under the Mettiki Agreement, the parties agree to discuss an
adjustment of the Contract Price such that
- ----------
5 Portions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and Exchange Commission
(the "Commission"). The omitted portions, marked by "[*]", have been filed
separately with the Commission.
-19-
<PAGE> 20
a portion of the net positive benefit received by AWVMC is shared with or passed
on to Independent Contractor.
Section 5.2 -- Payment. For Coal delivered to the Processing Plant and
accepted by AWVMC between the 1st and 15th day of each calendar month during the
term of this Agreement, AWVMC shall pay Independent Contractor the Contract
Price for such Coal on or before the 10th day of the next succeeding calendar
month. For all Coal delivered to the Processing Plant and accepted by AWVMC
between the 16th and last day of each calendar month during the term of this
Agreement, AWVMC shall pay Independent Contractor the Contract Price for such
Coal on or before the 25th day of the next succeeding calendar month. Each
payment shall be accompanied with a statement showing the amount of Coal
delivered to the Processing Plant and accepted by AWVMC during the applicable
period and the deductions from the Contract Price.
Section 5.3 -- Sale of Refuse. AWVMC may, from time to time, attempt to
sell all or part of the Refuse from the Refuse Stockpile Area prior to it being
deposited in the Refuse Disposal Area. In the event AWVMC sells all or a part of
the Refuse from the Refuse Stockpile Area, Independent Contractor agrees to load
such Refuse from the Refuse Stockpile Area into trucks and AWVMC agrees to pay
Independent Contractor an amount equal to $1.50 per ton for each ton of Refuse
from the Refuse Stockpile Area sold by AWVMC. Independent Contractor
acknowledges and agrees that AWVMC has no obligation to market or sell, or
attempt to market or sell, any Refuse. The services provided by Independent
Contractor under this Section 5.3 shall be deemed a part of the Work hereunder.
ARTICLE VI
Relationship of Parties
Section 6.1 -- Independent Contractor. It is expressly agreed and
understood that Independent Contractor shall perform the Work specified in this
Agreement as an independent
-20-
<PAGE> 21
contractor. Subject to AWVMC's right to designate the areas to be mined, the
Coal and Refuse Stockpile Areas, and the mining plans to be used under this
Agreement, Independent Contractor shall exercise exclusive direction and control
over its work force and labor relations policies and direct the manner, method,
mode of performance and all other aspects of the Work. Independent Contractor
expressly agrees that it shall not represent or hold itself out as an affiliate,
subsidiary, partner, joint venturer, representative or agent of AWVMC, and
further agrees to indemnify, hold harmless and defend AWVMC against any claims,
of whatever kind, arising from any act or representation of it contrary to the
provisions of this Section 6.1. This covenant of indemnity shall survive the
termination or expiration of this Agreement.
Section 6.2 -- Employees. The employees of Independent Contractor shall
be its employees and not the employees of AWVMC. Independent Contractor shall
exercise complete and exclusive control over and responsibility for all aspects
of hiring, employment, supervision, direction, hours, working conditions,
compensation, discipline and discharge for all individuals engaged to perform
the Work under this Agreement. Independent Contractor shall comply with all
present and future federal, state and local laws, ordinances, rules and
regulations pertaining to the duties and obligations arising out of the
employer-employee relationship, including, without limitation, unemployment
compensation, Social Security, withholding taxes, State Workers' Compensation,
wage and hour laws, wage payment and collection laws, federal and state safety
laws, occupational disease compensation and all other applicable rules and
regulations promulgated thereunder. Independent Contractor shall maintain
accurate supporting records showing evidence of its compliance with the
requirements set out in this Section 6.2 and shall make these records available
to AWVMC for inspection upon request, and Independent Contractor shall certify
to AWVMC, on a quarterly basis, in writing, Independent Contractor's compliance
therewith on all Coal produced and tendered under this Agreement.
-21-
<PAGE> 22
ARTICLE VII
Inspection, Record Keeping and Reporting Requirements
Section 7.1 -- Contemporaneous Access to the Premises. Independent
Contractor acknowledges and agrees that AWVMC may place and install or cause to
be placed and installed on the Premises various structures, equipment and
materials, and may carry on, either directly or through other contractors, such
other operations as AWVMC may deem necessary or desirable for its own purposes
as long as it does not interfere with Independent Contractor's ability to
perform the Work under this Agreement.
Section 7.2 -- Inspection of the Premises. Independent Contractor
acknowledges and agrees that AWVMC may, at all reasonable times, enter upon,
inspect, map, sample, test and survey the Premises, the Coal and the Work being
performed under this Agreement, and any other aspect of Independent Contractor's
operations relating to this Agreement. Independent Contractor shall provide and
maintain safe access to the Premises and cooperate with AWVMC in inspecting all
portions of the Premises, the Coal and the Work performed hereunder.
Section 7.3 -- Mining Plans. For the purpose of allowing AWVMC to
coordinate the overall use and operations on the Premises, Independent
Contractor shall, on an annual basis beginning on the Effective Date, prepare
mining plans and projections for the next succeeding 12-month period and submit
such plans and projections to AWVMC for its written approval. Independent
Contractor shall not begin to perform Work in any area of the Premises unless
and until AWVMC approves, in writing, such mining plans and projections. Upon
approval of the mining plans and projections, Independent Contractor shall
diligently follow such plans and projections in performing the Work under this
Agreement. In the event Independent Contractor is unable to continue mining in
accordance with the approved mine plan, Independent Contractor shall immediately
notify AWVMC detailing the reasons why it cannot continue mining in
-22-
<PAGE> 23
accordance with such plans, and shall promptly submit a revised mine plan for
approval by AWVMC.
Independent Contractor shall employ a competent licensed land surveyor
or registered professional engineer to make surveys, plans and maps of its
operations within the Premises, and Independent Contractor shall furnish AWVMC
promptly with two (2) copies of all maps required by any federal, state or local
law, rule or regulation. In addition, on or before the 5th day of each month
during the term of this Agreement, Independent Contractor shall provide AWVMC
with an up-to-date mine map showing the advancement for the preceding month and
the mine plan for the next succeeding 1-month period.
Section 7.4 -- Safety. AWVMC and Independent Contractor recognize the
importance of safety procedures and safe working conditions. Independent
Contractor agrees to comply with all present and future federal, state and local
safety laws, ordinances, rules and regulations, and Independent Contractor shall
ensure that its employees are trained in safe working procedures and shall cause
its employees to abide by all safety and security rules in force on the
Premises. AWVMC shall have the right (but not the obligation) to review the
safety records of Independent Contractor on a quarterly basis. Independent
Contractor agrees to indemnify, hold harmless and defend AWVMC against any
claims, of whatever kind, arising from any act or omission to act by Independent
Contractor contrary to the provisions of this Section 7.4. This covenant of
indemnity shall survive the termination or expiration of this Agreement.
Section 7.5 -- Testing and Reports. Independent Contractor shall
maintain accurate records regarding the mining conditions encountered, drill
cores, tests and sampling (the "Records"), and provide AWVMC or its
representatives with copies thereof. Upon the termination or expiration of this
Agreement, Independent Contractor shall promptly deliver to AWVMC all of such
records.
-23-
<PAGE> 24
Section 7.6 -- Books of Account and Records. Independent Contractor
shall at all times maintain accurate books and records of account covering the
Work performed under this Agreement in accordance with generally accepted
accounting principles. AWVMC shall have the right, within five (5) days of
written request by AWVMC, to inspect, audit and copy Independent Contractor's
books and records for the purpose of verifying compliance with all terms,
conditions and provisions of this Agreement. Independent Contractor shall keep
and preserve such books and records for at least five years after the
termination or expiration of this Agreement.
Section 7.7 -- Confidentiality of Information. Independent Contractor
acknowledges that in performing the Work under this Agreement it will have
access to proprietary information and trade secrets of a confidential nature
pertaining to AWVMC, its affiliates and their businesses, the Premises and the
Steyer Mine. Independent Contractor agrees that it shall treat all maps, plans,
data, reports, drilling logs, core samples, leases and other information
relating to AWVMC and its business, the Premises or the Steyer Mine (the
"Information") as confidential, and it shall not divulge, transmit or otherwise
disclose any of the Information to any person, firm, corporation or other entity
unless at the time of disclosure to Independent Contractor, the information was
public knowledge or becomes public knowledge through no act of Independent
Contractor. Upon the termination or expiration of this Agreement for any cause
whatsoever, Independent Contractor shall promptly deliver to AWVMC all of the
Information given to Independent Contractor.
ARTICLE VIII
Observance of Laws, Regulations and Other Legal Requirements
Section 8.1 -- Conformity with Laws. Independent Contractor agrees that
in performing the Work under this Agreement, particularly in the actual mining
process and in regard to its
-24-
<PAGE> 25
responsibility for the construction, installation, inspection, maintenance and
removal, if necessary, of all facilities, structures, and equipment used in or
about the Premises, it shall be familiar with and shall fully obey and comply
with all applicable federal, state and local laws and ordinances, and with all
applicable rules, regulations, orders and directives of any federal, state or
local official, agency or department relating to such mining operations and
activities or to such facilities, structures, land areas, utilities, equipment
and including, without limitation, all such laws, ordinances, rules,
regulations, orders and directives now in effect or hereafter made, promulgated,
enacted or issued.
Section 8.2 -- Permits and Bonds. Following the execution of this
Agreement, Independent Contractor shall diligently seek to obtain all approvals
and consents from any federal, state or local governmental agency to Independent
Contractor performing the Work on the Permits, including, without limitation, an
operator reassignment of the Permits with the Maryland Bureau of Mines or other
applicable state or federal agency. Upon termination of this Agreement,
Independent Contractor shall surrender or relinquish the operator reassignment
with the Maryland Bureau of Mines. Independent Contractor shall comply with all
permits, including, without limitation, the Permits, required to perform the
Work, and Independent Contractor shall perform all remedial or abatement work
and pay all fines and assessments related to its failure to comply therewith.
Independent Contractor shall not be responsible for violations of the Permits
prior to the Effective Date. Copies of all applications made to and of all
licenses, permits, bonds, amendments, modifications, inspection reports and
compliance, non-compliance or other orders issued by any governmental authority,
and any plans and maps or other information compiled, made and filed by
Independent Contractor with or furnished to any governmental authority or
communication had therewith concerning any of the foregoing shall be made
available to AWVMC before they are filed with or furnished to the governmental
authority or immediately
-25-
<PAGE> 26
upon receipt from any governmental authority. Independent Contractor shall
indemnify, hold harmless and defend AWVMC and its affiliates from and against
all claims, costs and expenses, including reasonable attorneys' fees, in
connection with or arising out of these documents or any dispute relating to
these documents that may occur during the term of this Agreement. This covenant
of indemnity shall survive termination or expiration of this Agreement.
Section 8.3 -- Citations or Penalties. Independent Contractor shall be
solely responsible and liable for the complete and timely payment of any and all
citations, assessments, penalties or fines imposed by any federal, state or
local agency for the violation of any federal, state or local law, ordinance,
rule or regulation arising out of or relating, directly or indirectly, to the
Work performed under the Agreement. Independent Contractor shall not jeopardize
any of the Permits or any other permit held, if any, by AWVMC, Independent
Contractor, or its and their affiliates, contractors or lessees. Independent
Contractor shall be totally and solely responsible for and shall hold harmless,
indemnify and defend AWVMC from and against any and all liability for any
citations, assessments, fines, damages, withdrawal orders or civil and criminal
penalties assessed against either Independent Contractor or AWVMC which are
caused, directly or indirectly, in whole or in part, by the actions or omissions
of Independent Contractor, its employees, agents, contractors or
representatives. In the event that AWVMC or Independent Contractor is assessed,
fined or penalized for any violation arising out of Independent Contractor's
conduct, or the conduct of its agents, contractors or representatives, AWVMC
may, in its sole direction, settle or pay such assessment, fine or penalty
without Independent Contractor's prior approval, and AWVMC may deduct and
withhold from any monies due or which shall become due in the future to
Independent Contractor for Work performed under the Agreement an amount
sufficient to cover any such assessments, fines and penalties, together with
expenses, including reasonable attorneys' fees, incurred. If, regardless of the
reason, such citations or assessments should go
-26-
<PAGE> 27
unresolved and any of AWVMC's mining related permits are canceled, revoked,
suspended, terminated or withdrawn, Independent Contractor shall be liable to
AWVMC for all costs, expenses, losses and damages, including, without
limitation, attorneys' fees, directly or indirectly, incurred by such permit
cancellation, revocation, suspension, termination or withdrawal. Independent
Contractor reserves the right to lawfully contest any such fine or assessment
provided it does not jeopardize the mining operations contemplated under this
Agreement.
Section 8.4 -- Drainage and Grading. Independent Contractor shall be
solely responsible for draining and grading all surface areas related to the
Permits and shall control surface run-off as required by the Permits and any
federal, state or local law, rule or regulation, or as reasonably required by
AWVMC.
Section 8.5 -- Fees and Taxes. Except as expressly provided in Section
8.6 below, Independent Contractor shall make complete and timely payment of all
federal, state and local fees and taxes which may be imposed or assessed against
it, its operations hereunder, the Existing Assets, the Leased Equipment,
Independent Contractor's Machinery and Equipment or the Premises in connection
with the Work performed under this Agreement, including, without limitation, all
payments or benefits arising from the Black Lung Benefits Reform Act of 1977, as
amended, the workers' compensation fund or similar benefit program under the
laws of the State of Maryland, personal property taxes, employment taxes, and
income taxes. Personal property taxes shall be prorated on a calendar year basis
for any period during this Agreement which is less than one calendar year. In
the event Independent Contractor fails to pay any of such fees or taxes, AWVMC
shall be entitled, at its option, to pay said fees or taxes and to recover the
amount of such payment by deducting sufficient funds from sums due or which
shall become due to Independent Contractor for Work performed under this
Agreement.
-27-
<PAGE> 28
Section 8.6 - Excise, Reclamation and Severance Taxes. In addition to
the Contract Price set forth in Section 5.1 above, AWVMC shall pay real property
taxes assessed against the Premises, the federal excise tax payable under 26
U.S.C. Section 4121 with respect to the Black Lung Disability Trust Fund, the
federal reclamation fees payable to the Office of Surface Mining and the
severance taxes assessed by the State of Maryland on the Coal mined hereunder by
Independent Contractor.
Section 8.7 -- Liens. In the event any employee of Independent
Contractor or any third party files a notice of intent to claim a lien upon any
asset of AWVMC or any other property or interest of AWVMC as the result of
Independent Contractor's non-payment of wages or other monies due to third
parties, and in the event such lien or filing is demonstrated to be legally
valid or enforceable, then AWVMC may, at its option, pay such employees or third
parties directly and deduct the amount of such payment from any monies due or to
become due to Independent Contractor under this Agreement. This provision shall
not be construed as a promise for the benefit of any employee of Independent
Contractor or any third party and shall not constitute an agreement by AWVMC to
pay any such employee or third party.
Section 8.8 Reclamation. AWVMC shall be responsible, at its sole cost
and expense, for performing all reclamation of the Premises as required by the
Permits and all applicable federal, state and local laws, rules and regulations.
AWVMC shall indemnify, hold harmless and defend Independent Contractor from and
against all claims, cost and expenses, including reasonable attorney's fees,
incurred by Independent Contractor in connection with the reclamation of the
Premises. This covenant of indemnity shall survive the expiration or termination
of this Agreement.
-28-
<PAGE> 29
ARTICLE IX
Indemnification and Insurance
Section 9.1 -- Indemnification. Independent Contractor shall
indemnify, hold harmless and defend AWVMC, its affiliates and its and their
officers, directors, managers and employees from and against any and all suits,
actions, liabilities, demands, losses, claims, awards, damages, fines,
penalties, judgments, settlements, costs and expenses of every kind and nature,
including, without limitation, the injury to or death of any person or persons,
damage to or loss of property, or mining outside the Premises or otherwise,
arising out of or relating, directly or indirectly, to (i) the acts or omissions
of Independent Contractor, its officers, employees, agents or representatives in
connection with any of its activities or operations under this Agreement, or
(ii) a breach or default by Independent Contractor of any covenant, section,
representation, warranty or other term or condition of this Agreement, together
with any and all costs and expenses, including reasonable attorneys' fees, that
may be incurred by an indemnified party in connection with its defense.
Independent Contractor shall defend the indemnified party, or, at the option of
the indemnified party, pay to have the indemnified party defended, against all
such suits, actions, liabilities, demands, losses, claims, awards, damages,
fines, penalties, judgments, settlements, costs and expenses, whether groundless
or not. The foregoing obligations shall be in addition to any other specific
agreements or obligations in other sections of this Agreement, and shall survive
the expiration or termination of this Agreement.
Section 9.2 -- Insurance. Independent Contractor shall maintain, at its
sole cost and expense, and shall require any subcontractors or other entities or
individuals it may engage to perform the Work under this Agreement to maintain,
at all times while performing the Work, and for a period of ninety (90) days
after the expiration or termination of this Agreement, the insurance coverages
set forth below with full policy limits applying, but not less than as stated:
-29-
<PAGE> 30
a. Commercial general public liability and property
damage insurance with each underlying limit being not
less than (i) One Million Dollars in respect of
bodily injury to or death of one person, (ii) Five
Million Dollars in respect of bodily injury to or
death of more than one person in any one occurrence,
and (iii) One Million Dollars in respect of damage to
or destruction of property.
b. Employer's liability insurance protecting against
employee claims for bodily injury, intentional tort
actions and all other employee claims against
employers with each underlying limit being not less
than One Million Dollars per person and Five Million
Dollars for each occurrence.
c. Automobile bodily injury liability insurance in the
same bodily injury liability limits as set forth in
Section 9.2.a. above, and automobile property damage
liability insurance in an amount of not less than
Five Hundred Thousand Dollars.
d. Workers' Compensation insurance, occupational disease
insurance, including state and federal black lung
coverage, unemployment compensation and all other
insurance coverages for occupational injury, disease
or hazards as required by the laws and regulations
applicable to and covering employees of Independent
Contractor engaged in the performance of Work under
this Agreement.
Independent Contractor's obligation to obtain the insurance coverages as
provided in this Section 9.2 shall not in any way be construed so as to limit,
amend or otherwise modify its indemnity obligations as provided elsewhere in
this Agreement.
-30-
<PAGE> 31
Section 9.3 -- Form of Insurance. All insurance coverages required
under Section 9.2 above shall be with a reputable insurer, licensed to do
business in the State of Maryland, and AWVMC shall have the right to approve
such insurer. All policies or certificates of insurance obtained by Independent
Contractor under this Agreement shall name AWVMC as an additional insured and
shall contain a provision for notice to AWVMC of any overdue or unpaid insurance
premium and thirty (30) days advance notice to AWVMC of any proposed
cancellation or substantial change in coverage. Every insurance policy required
under Section 9.3 above shall contain a waiver of subrogation by the insurer
against AWVMC, its owners, affiliates and subsidiaries. Each policy of insurance
shall be written as an "occurrence" contract unless the policy is available only
on a "claims made" basis, in which case Independent Contractor shall continue
such insurance policy for a period of two years after the expiration or
termination of this Agreement.
Section 9.4 -- Proof of Insurance Coverage. Independent Contractor
shall furnish to AWVMC copies of all certificates and policies which provide the
insurance coverages required by Section 9.2 above, including, but not limited
to, copies of any bonds which may be required for such coverages, prior to
commencing the Work under this Agreement and thereafter upon request by AWVMC.
Independent Contractor shall also provide satisfactory written evidence to AWVMC
that, if required by the laws of the State of Maryland, it has entered into
appropriate trust or bonding arrangements setting aside or providing sufficient
funds to assure payments of accrued back wages and fringe benefits to
Independent Contractor's employees in the event Independent Contractor ceases
operations under this Agreement.
Section 9.5 -- Payment of Premiums. AWVMC shall have the right, in its
sole discretion, to pay any overdue premium for the insurance coverages required
of Independent Contractor under this Agreement, or to take out and maintain such
insurance coverages, and AWVMC is
-31-
<PAGE> 32
hereby authorized to collect the cost of obtaining and maintaining any such
insurance coverages from monies due to or to become due to Independent
Contractor under the terms of this Agreement. Independent Contractor expressly
agrees and acknowledges that its inability, failure, neglect or refusal to
carry, maintain and keep current, at all times during the term of this
Agreement, any of the insurance coverages required under this Agreement, and its
inability, failure, neglect or refusal to be and remain at all times during the
term of this Agreement a subscriber or self-insurer in good standing with the
Maryland workers' compensation fund or other similar fund, state and federal
black lung funds or any other occupational disease and disability insurance fund
shall constitute a breach of this Agreement and give AWVMC the right, in its
discretion, to terminate this Agreement pursuant to Article XI below.
9.6 Reimbursement. AWVMC shall maintain property damage insurance
coverage during the term of this Agreement on that portion of the Existing
Assets and the Leased Equipment which is insured by AWVMC as of the Effective
Date. In consideration for maintaining such insurance, Independent Contractor
shall reimburse AWVMC a monthly amount which the parties shall agree upon as
soon as possible. AWVMC shall have the right to deduct such agreed upon amount
from the payment of the Contract Price as set forth under Section 5.2.
ARTICLE X
Default and Termination
Section 10.1 -- Default. Independent Contractor shall be in default of
this Agreement upon the occurrence of any of the following events (each an
"Event of Default"):
a. Any breach or violation of, or failure to perform, any term,
condition, provision, representation, warranty, covenant, stipulation or
agreement set forth herein which is not cured within ten (10) days of
Independent Contractor's receipt of written notice thereof from AWVMC;
-32-
<PAGE> 33
b. If any action by Independent Contractor in performing the Work under
this Agreement, complying with any of the terms under this Agreement, or the
presence of any agent, employee, contractor or representative of Independent
Contractor upon the Premises, or the execution of this Agreement by it shall
cause interference with or disrupt or threaten to interfere with or disrupt
AWVMC's operations in any manner or the operations of any of AWVMC's affiliates,
subsidiaries, or any other contractor(s), at any location whatsoever, for any
reason, and if such interference, disruption or threat continues for ten (10)
days after Independent Contractor's receipt of written notice from AWVMC;
c. In the event Independent Contractor is adjudicated bankrupt or
insolvent, whether through involuntary or voluntary proceedings, or if any
receiver, trustee, assignee or other person or persons are appointed by any
court to take charge of Independent Contractor's assets; or
d. If any order, decree, judgment or directive is issued by any
regulatory authority, tribunal or court revoking, suspending, terminating or
withdrawing any of its mining related permits or bonds, whether secured in
connection with mining on the Premises or not, or requiring Independent
Contractor to cease mining operations for a period of more than ten (10) days,
or if two such directives are issued in any calendar year, regardless of their
duration.
Section 10.2 -- Termination. In addition to and not in lieu of the
right to terminate this Agreement as provided in other sections of this
Agreement, AWVMC shall have the right to terminate this Agreement upon the
occurrence of an Event of Default by giving written notice to Independent
Contractor of such termination.
Section 10.3 - Right to Cure. If Independent Contractor is in breach or
default of any of the terms or conditions of this Agreement, whether or not said
breach or default gives rise to an Event of Default, AWVMC shall have the right,
but not the duty, to make any payment or to perform any act or complete or
correct the Work required of Independent Contractor under this
-33-
<PAGE> 34
Agreement and, in exercising such right, to incur, for and on behalf of
Independent Contractor, necessary or incidental costs and expenses, including
reasonable attorneys' fees. In exercising the foregoing right, AWVMC may offset
and deduct all payments made and all costs and expenses incurred against such
sums of money, if any, due or to become due to Independent Contractor under this
Agreement and proceed against Independent Contractor under the provisions of
Section 9.1 relating to indemnity. AWVMC's right to cure Independent
Contractor's default or breach as described in this Section 10.3 shall not imply
any obligation on the part of AWVMC to make any payment or to perform any act
required of Independent Contractor, and the exercise of such right by AWVMC
shall not constitute a release or waiver of any default or breach by Independent
Contractor.
Section 10.4 -- Waiver of Performance or Default. The failure of either
AWVMC or Independent Contractor to insist in any one or more instances upon
strict performance of any of the covenants, terms or conditions imposed upon or
assumed by either party under this Agreement, or the failure of AWVMC or
Independent Contractor to exercise any particular option or right granted by the
Agreement, shall not be construed as a waiver or relinquishment for the future
performance of any such covenant, term or condition, or as to the exercise of
any such option or right. Moreover, a waiver by either party of a default or
breach hereunder must be in writing and shall not be deemed to be a waiver of
any subsequent default or breach, and any delay in asserting a right hereunder
shall not be deemed a waiver of such right. Nothing contained in this Agreement
shall be construed as a waiver of any applicable statute of limitations.
Section 10.5 -- Remedies. The rights and remedies of AWVMC set forth in
this Agreement shall not be exclusive, but shall be taken and construed as
cumulative and in addition to any and all other rights and remedies accorded to
AWVMC at law or equity.
-34-
<PAGE> 35
Section 10.6 -- Sale of Property. In the event of an Event of Default,
and for so long as the Event of Default shall continue, Independent Contractor
shall not remove or permit to be removed or taken from the Premises any of
Independent Contractor's Machinery and Equipment, and AWVMC shall have the right
to sell or otherwise dispose of the same to the extent necessary to recover the
amount of damages suffered by AWVMC as a result of the Event of Default.
Section 10.7 -- Condition of the Premises. Upon the expiration or
termination of this Agreement, for any reason, at the option of AWVMC,
Independent Contractor shall leave the Premises in the same normal working
condition, under which the Work was being performed.
Section 10.8 -- Termination or Transfer of Permits and Licenses. No
later than thirty (30) days after the expiration or termination of this
Agreement for any reason whatsoever, or at such other time as AWVMC may direct,
Independent Contractor shall release the licenses and permits required by law
for the performance of the Work under this Agreement, if any, and take all other
steps necessary to terminate such licenses or permits or, at AWVMC's option, to
assign, transfer and convey these licenses or permits to AWVMC or its designee.
ARTICLE XI
Assignment, Subcontracting and Transfer of Ownership
Section 11.1 -- Rights Personal to Independent Contractor. This
Agreement is personal to Independent Contractor requiring the exercise of its
own services, skills and judgment.
Section 11.2 -- Assignment and Subcontracting. Except for engaging a
contract trucking company to transport the Coal from the Coal Stockpile Area to
the Processing Plant, to transport the Refuse from the Refuse Stockpile Area to
the Refuse Disposal Area, and to maintain the Refuse Disposal Area, Independent
Contractor shall not assign, subcontract or otherwise transfer or delegate all
or any part of this Agreement, the Work, or any rights or interests herein
without obtaining the prior written consent of AWVMC, which may be withheld by
AWVMC in its sole
-35-
<PAGE> 36
discretion. Independent Contractor shall not assign any monies due or to become
due to it under this Agreement, nor shall it pledge, encumber or mortgage all or
any part of its interests in this Agreement without the prior written consent of
AWVMC, which may be withheld by AWVMC in its sole discretion.
Section 11.3 -- Transfer of Ownership Interest. Except as specifically
provided in this Section 11.3, without the prior written consent of AWVMC, which
may be withheld by AWVMC in its sole discretion, no holder of any capital stock
or other ownership interest in Independent Contractor shall sell, assign, give,
pledge or otherwise transfer, whether voluntarily or by operation of law, any
such capital stock or other ownership interest in Independent Contractor to any
other person or entity. Additionally, without the prior written consent of
AWVMC, which may be withheld by AWVMC in its sole discretion, Independent
Contractor shall not cause or permit to be issued any additional equity or other
ownership interest during the term of this Agreement. In the event AWVMC
consents to the sale, assignment, gift, pledge or other transfer of any such
capital stock or ownership interest, or to the issuance of any additional equity
or other ownership interest in Independent Contractor, then Independent
Contractor shall obtain the written agreement and consent of any such person or
entity to whom the interest shall be conveyed or issued to be bound by the
provisions of this Section 11.3. Notwithstanding the foregoing, David Maynard
may transfer, assign or give shares of the capital stock of Independent
Contractor to Suzie Maynard, David Ernest Maynard and Emily Gibson Maynard
solely for estate planning purposes, provided that, after any such transfer,
assignment or gift, David Maynard owns and controls throughout the term of this
Agreement a majority of the issued and outstanding capital stock of Independent
Contractor.
Section 11.4 -- Waiver of Consent. In the event AWVMC consents to one
or more assignments, subcontracts or other transfer of all or any part of this
Agreement, the Work, or any
-36-
<PAGE> 37
rights or interests herein, or a transfer of any ownership interest in
Independent Contractor, such consent shall not be construed as waiving the
requirement of obtaining written consent to additional assignments, subcontracts
or transfers, and no consent to assignment, subcontract or transfer shall
relieve Independent Contractor of any obligations specified in this Agreement.
ARTICLE XII
Miscellaneous
Section 12.1 -- Notices. Any and all notices, payments, reports,
consents or other communications between the parties shall be in writing and
deemed given and received on the date delivered personally, on the date
deposited if sent by registered or certified United States mail, postage
prepaid, return receipt requested, or on the date transmitted by facsimile,
provided the same is also mailed on said date by registered or certified United
States mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as set forth below, which addresses shall remain in effect
until notice of change is given, in writing:
If to AWVMC: Anker West Virginia Mining Company, Inc.
2708 Cranberry Square
Morgantown, WV 26508
Telecopy No.: (304) 594-3695
Attention: President
If to Independent Contractor: Steyer Fuel, Inc.
P. O. Box 549
Dellslow, WV 26531
Telecopy No.: (304) 292-2770
Attention: Dave Maynard
Section 12.2 -- Integration. This Agreement contains the entire
understanding and agreement of the parties with regard to the transactions
contemplated hereunder and it supersedes all prior agreements, arrangements and
understandings between the parties relating to the subject matter of this
Agreement.
-37-
<PAGE> 38
Section 12.3 -- Modification. This Agreement shall not be modified,
changed or terminated, in whole or in part, except by written agreement, signed
by all parties hereto or their respective successors-in-interest.
Section 12.4 -- Choice of Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Maryland.
Section 12.5 -- Production is of the Essence. The time, quality and
quantities of Coal production set forth in Article IV hereof are of the essence
of this Agreement.
Section 12.6 -- Headings. The headings appearing in this Agreement are
for convenience of reference only and shall not be considered or construed as
affecting in any way the meaning of the provisions of this Agreement.
Section 12.7 -- Counterparts. This Agreement may, for convenience, be
executed in several counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one Agreement.
Section 12.8 -- Severability. In the event that any provision of this
Agreement conflicts with the laws of the State of Maryland or any other
jurisdiction, or is held invalid by a court with jurisdiction over the parties
to this Agreement, such provision shall be deleted from the Agreement and the
Agreement shall be construed to give effect to its remaining provisions.
IN WITNESS WHEREOF, the parties have caused their corporate names to be
signed hereto by their officers duly authorized.
ANKER WEST VIRGINIA MINING
COMPANY, INC.
By: ___________________________________
Its: ___________________________________
-38-
<PAGE> 39
STEYER FUEL, INC.
By: ___________________________________
Its: ___________________________________
-39-
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of May 1,
1999 (the "Effective Date") by and between William D. Kilgore, Jr., an
individual ("Executive"), and Anker Energy Corporation, a Delaware corporation
(the "Company"), and is joined in by Anker Coal Group, Inc., a Delaware
corporation ("ACGI"), for the sole and limited purpose of agreeing to be bound
by the provisions of Section 3(b)(iii)(C) of this Agreement.
1. Employment by the Company and Term.
(a) Full Time and Best Efforts. Subject to the terms set forth
herein, the Company agrees to employ Executive as Chief Executive Officer and
Chairman of the Board of Directors (the "Board"), and Executive hereby accepts
such employment. Executive will render such other services for the Company and
corporations controlled by, under common control with, or controlling, directly
or indirectly, the Company, and to successor entities and assignees of the
Company, including without limitation ACGI (collectively, the "Company's
Affiliates") as the Company may from time to time reasonably request, consistent
with Executive's duties and experience. While employed by the Company, Executive
will devote substantially all of his business time and use his best efforts to
advance the business and welfare of the Company, and, except for dividends and
distributions which Executive may receive from investments which Executive has
on the Effective Date (the "Existing Permitted Investments"), a list of which
shall be provided by Executive to the Company upon execution of this Agreement,
will not engage in any other employment or business activities for any direct or
indirect remuneration that would be directly harmful or detrimental to, or that
would materially interfere with, his duties hereunder.
(b) Company Policies. The employment relationship between the
parties will be governed by the general employment policies and practices of the
Company, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement are in conflict with the Company's general employment
policies or practices, this Agreement will control.
(c) Term. The initial term of Executive's employment under
this Agreement will begin as of the Effective Date and end on December 31, 2002
(the "Initial Term"), subject to the provisions for termination set forth herein
and renewal as provided in Section 1(d) below.
(d) Renewal. Unless either party shall have given the other
notice that this Agreement will not be renewed at least 90 days prior to the end
of the Initial Term, the term of this Agreement will be automatically extended
for a period of one year, such procedure to be followed in each such successive
period. Each extended term will continue to be subject to the provisions for
termination set forth herein.
2. Compensation and Benefits.
(a) Base Salary. Executive will receive for services to be
rendered hereunder an annual base salary equal to Three Hundred Fifteen Thousand
Dollars ($315,000) payable at least as frequently as monthly and subject to
payroll deductions as may be necessary or
<PAGE> 2
customary in respect of the Company's salaried employees (the "Base Salary").
The Board of Employer shall increase the Base Salary commensurate with any cost
of living increases generally available for other employees.
(b) Participation in Benefit Plans. Executive will be entitled
to participate in any group insurance, hospitalization, medical, dental, health,
accident, disability, or similar plan or program of the Company now existing or
established hereafter to the extent that he is eligible under the general
provisions thereof. The Company may, in its sole discretion and from time to
time, amend, eliminate, or establish additional benefit programs as it deems
appropriate. Executive also may participate in all fringe benefits offered by
the Company to any of its executives at such executives' level.
(c) Vacation. Executive will be entitled to a period of annual
vacation time equal to three weeks per 12-month period, to accrue pro rata
during the course of each such 12-month period. The days selected for
Executive's vacation must be mutually and reasonably agreeable to Company and
Executive. In no event will Executive's total accrued vacation exceed three
weeks. When Executive's total accrued vacation reaches the maximum of three
weeks, Executive will stop accruing any further vacation and will only resume
accruing vacation when and to the extent Executive's total accrued vacation is
reduced below three weeks.
(d) Relocation Expenses. The Company will reimburse Executive
for actual and reasonable expenses incurred in connection with the relocation of
Executive's personal residence, up to a maximum reimbursement of $30,000. Items
that are eligible for reimbursement under the preceding sentence include packing
and moving expenses, storage, temporary living accommodations, and home sale and
home purchase closing costs (including without limitation real estate
commissions). In addition, if Executive decides to sell his current residence
located in Grundy, Virginia (the "Residence"), and puts the Residence on the
market on or before December 31, 1999, and subsequently sells the Residence, the
Company shall reimburse Executive an amount equal to (i) the appraised value of
the Residence as determined pursuant to a written appraisal prepared by an
independent real estate appraiser reasonably acceptable to the Company (the
"Appraised Value") less (ii) the selling price of the Residence, without
deduction of any commission, cost or expense (the "Selling Price"); provided,
however, that the amount of the reimbursement pursuant to this sentence shall
not exceed $35,000, and provided further that if the Selling Price equals or
exceeds the Appraised Value, Executive will not be entitled to any reimbursement
under this sentence. Reimbursements under this Section 2(d) will be reported as
compensation to Executive and may be subject to state and/or federal taxation.
To the extent reimbursement of such expenses pursuant to this Section 2(d) is
subject to state or federal taxation, the Company will pay an additional amount
(the "Gross-Up Payment") such that after payment of all state and federal taxes
on the reimbursement and the Gross-Up Payment, Executive will retain an amount
equal to the reimbursement. Executive will fully and completely cooperate with
the Company with respect to all matters associated with the taxation and
potential taxation of reimbursements made pursuant to this Section.
Notwithstanding anything else to the contrary, total reimbursement and Gross-Up
Payments pursuant to this Section will not exceed $125,000.00.
2
<PAGE> 3
3. Bonuses.
(a) Cash Bonus. The Company may from time to time, at the sole
discretion of the Board, award Executive cash bonuses to supplement his Base
Salary.
(b) Incentive Bonus.
(i) Definitions. For purposes of this Agreement, the
following definitions shall apply:
"Annual EBITDA" means, for a calendar year, the
consolidated earnings of ACGI and its direct and indirect subsidiaries for such
period, before provision is made for interest, taxes, depreciation or
amortization.
"Bonus" means the incentive bonus payable by the
Company to the Executive hereunder.
"Change of Control" means a transaction in which ACGI
shall sell, convey, or otherwise dispose of all or substantially all of the
property or business of ACGI and its direct and indirect subsidiaries or merge
into or consolidate with any other corporation (other than a wholly owned
subsidiary) or effect any other transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of ACGI is disposed of,
provided that it shall not mean a merger effected solely for the purpose of
changing the domicile of ACGI.
"Equity Proceeds" means the aggregate proceeds that
would be receivable by all holders of ACGI's outstanding capital stock,
including preferred stock, in a Change of Control transaction, even if less than
all of such stockholders are transferring their shares in a Change of Control
transaction, and shall be determined by the Board of Directors of ACGI
contemporaneously with its approval of any Change of Control transaction, or, if
no such approval is required, upon the consummation of such transaction.
"Target EBITDA" means the average annual consolidated
EBITDA for ACGI and its direct and indirect subsidiaries for the calendar years
ending December 31, 2001 and December 31, 2002.
(ii) Vesting and Payment. The Executive will be
entitled to a Bonus vested and payable, if at all, upon the earlier of (A) a
Change of Control transaction, or (B) the expiration of the Initial Term (the
"Vesting Date").
(iii) Calculation. The Bonus will be calculated based
solely on the Equity Proceeds received in a Change of Control transaction, if
such a transaction occurs prior to the expiration of the Initial Term.
Otherwise, the Bonus will be calculated based solely on the Target EBITDA. The
Bonus will be payable as follows:
(A) If the Equity Proceeds are less than
$15,000,000, or the Target EBITDA is less than $25,000,000, no Bonus will be
payable.
3
<PAGE> 4
(B) If the Equity Proceeds are between
$15,000,000 and $45,000,000, or the Target EBITDA is between $25,000,000 and
$30,000,000, then the amount of the Bonus will be $1,000,000 plus the product of
either x and z or y and z, as applicable, where x equals Equity Proceeds in
excess of $15,000,000 divided by $30,000,000, y equals Target EBITDA in excess
of $25,000,000 divided by $5,000,000, and z equals $1,500,000; except that the
total Bonus in either case will not exceed $2,500,000.
(C) If the Equity Proceeds are greater than
$45,000,000 or the Target EBITDA is greater than $30,000,000, the amount of the
Bonus shall be equal to $2,500,000. In addition, ACGI shall upon the Vesting
Date grant to Executive an option to purchase up to 5% of the then outstanding
common stock of ACGI at an exercise price of $1.00 per share. Such options shall
be fully vested upon grant, shall be exercisable between the Vesting Date and
the tenth anniversary thereof and, notwithstanding any termination of
Executive's employment hereunder, shall not otherwise terminate.
4. Reasonable Business Expenses.
The Company will reimburse Executive in accordance with established
Company policy for all reasonable business expenses incurred by Executive in
promoting the business of the Company, provided that to the extent that such
expenditures qualify as proper income tax deductions, Executive will furnish to
the Company adequate documentation to substantiate each such expenditure as an
income tax deduction.
5. Termination of Employment. The date on which Executive's employment
by the Company ceases, under any of the following circumstances, will be defined
herein as the "Termination Date."
(a) Termination for Cause. The Board may terminate Executive's
employment with the Company at any time for Cause as defined below, immediately
upon notice to Executive of the circumstances leading to such termination for
Cause. In the event that Executive's employment is terminated for Cause,
Executive will receive payment for accrued Base Salary and benefits through the
Termination Date, which in this event will be the date upon which notice of
termination is given. The Company will have no further obligation to pay
severance of any kind whether under this Agreement or otherwise.
"Cause" means the occurrence or existence of any of the
following with respect to Executive, as determined in good faith by a majority
of the disinterested directors of the Board:
(i) a material breach by Executive of any of his
material obligations hereunder that remains uncured after the lapse of 30 days
following the date that the Company has given Executive written notice thereof;
(ii) a material breach by Executive of his duty not
to engage in any transaction that represents, directly or indirectly,
self-dealing that has not been approved by a majority of the disinterested
directors of the Board, if in any such case such material breach remains uncured
after the lapse of 30 days following the date that the Company has given
Executive written notice thereof;
4
<PAGE> 5
(iii) the repeated material breach by Executive of
any material duty referred to in clause (i) or (ii) above as to which at least
two written notices have been given pursuant to clause (i) or (ii) above;
(iv) any act of misappropriation, embezzlement,
intentional fraud, or similar conduct involving the Company or any of the
Company's Affiliates;
(v) the conviction or the plea of nolo contendere or
the equivalent in respect of a felony involving moral turpitude;
(vi) intentional infliction of any damage of a
material nature to any property of the Company or any of the Company's
Affiliates; or
(vii) the repeated non-prescription abuse of any
controlled substance or the repeated abuse of alcohol or any other
non-controlled substance that the Board reasonably determines renders Executive
unfit to serve in his capacity as an officer or employee of the Company or the
Company's Affiliates.
(b) Termination Upon Disability. The Company may terminate
Executive's employment in the event Executive suffers a disability that renders
Executive unable to perform the essential functions of his position, even with
reasonable accommodation, for 60 consecutive days or for 90 days within any
180-day period. After the Termination Date, which in this event will be the date
upon which notice of termination is given, no further compensation will be
payable under this Agreement except such Base Salary and benefits as have
accrued prior to the Termination Date, less standard withholdings for tax and
social security purposes.
(c) Termination Without Cause. The Company may terminate
Executive's employment at any time for other than Cause or disability, provided
that Executive will receive the accrued portion of any Base Salary and benefits
hereunder through the Termination Date and subject to the following termination
payment requirements:
(i) Termination payments during the Initial Term. In
the event that, during the first or second year of the Initial Term, Executive's
employment is terminated without Cause, the Company will pay Executive as
severance the amount of his Base Salary for the number of months that results
when the number of months that have elapsed since the Effective Date is
subtracted from 36. In the event that, during the third year of the Initial
Term, Executive's employment is terminated without Cause, the Company will pay
Executive as severance an amount equal to 12 months of his Base Salary. Except
as provided below, such severance, less standard withholdings for tax and social
security purposes, will be paid over the number of months on which the severance
is based in monthly pro rata payments commencing as of the Termination Date. For
purposes of this Section 5(c)(i), a Change of Control transaction which occurs
prior to the expiration of the Initial Term shall be deemed to be a termination
of Executive's employment without Cause. In that event, the severance payable
hereunder, less standard withholdings for tax and social security purposes,
shall be paid in one lump sum upon the Termination Date.
(ii) Termination payments after the Initial Term. In
the event that the term of this Agreement is extended pursuant to Section 1(d)
hereof and, at any time thereafter,
5
<PAGE> 6
Executive's employment is terminated by the Company without Cause, the Company
will pay Executive as severance an amount equal to 12 months of his then Base
Salary, less standard withholdings for tax and social security purposes, payable
over such 12-month period in monthly pro rata payments commencing as of the
Termination Date.
(iii) The Company will not be obligated to make any
termination payments under Sections 5(c)(i) or 5(c)(ii) above if Executive
breaches the provisions of Sections 6, 7, or 8 below.
(d) Termination by Executive. Executive may, at his election,
terminate his employment with the Company by giving written notice to the
Company to that effect. After the Termination Date, which in this event will be
the date upon which notice of termination is given, no further compensation will
be payable under this Agreement except such Base Salary and benefits as have
accrued prior to the Termination Date, less standard withholdings for tax and
social security purposes. Executive acknowledges and agrees that the provisions
of this Section 5(d) state his entire and exclusive rights, entitlements, and
remedies against the Company, the Company's Affiliates, and their successors,
assigns, employees, and representatives if he voluntarily terminates his
employment with the Company.
(e) Termination Upon Death. If Executive dies prior to the
expiration of the Initial Term, the Company will (i) continue coverage of
Executive's dependents (if any) under all benefit plans or programs of the type
listed above in Section 2(b) for a period of six months, and (ii) pay to
Executive's estate the accrued portion of any Base Salary and benefits through a
date six months after the Termination Date, less standard withholdings for tax
and social security purposes.
(f) Benefits Upon Termination. All benefits (other than fringe
benefits) provided under Section 2(b) hereof will be extended, at Executive's
election and cost, to the extent permitted by the Company's insurance policies
and benefit plans, for one year after Executive's Termination Date, except (a)
as otherwise required by law (e.g., COBRA health insurance continuation
election) or (b) in the event of a termination described in Section 5(a).
6. Proprietary Information Obligations.
During the term of employment under this Agreement, Executive
will have access to and become acquainted with the Company's and the Company's
Affiliates' confidential and proprietary information, including, but not limited
to, information or plans regarding the Company's and the Company's Affiliates'
financial operations and methods; trade secrets; formulas; devices; secret
inventions; processes; and other compilations of information, records, and
specifications (collectively "Proprietary Information"). Executive will not
disclose any of the Company's or the Company's Affiliates' Proprietary
Information directly or indirectly, or use it in any way, either during the term
of this Agreement or at any time thereafter, except as required in the course of
his employment for the Company or as authorized in writing by the Company. All
files, records, documents, computer-recorded information, drawings,
specifications, equipment, and similar items relating to the business of the
Company or the Company's Affiliates, whether prepared by Executive or otherwise
coming into his possession, will remain the exclusive property of the Company or
the Company's Affiliates, as the case may
6
<PAGE> 7
be, and must not be removed from the premises of the Company under any
circumstances whatsoever without the prior written consent of the Company,
except when (and only for the period) necessary to carry out Executive's duties
hereunder, and if so removed must be immediately returned to the Company upon
any termination of his employment; provided, however, that Executive may retain
copies of documents reasonably related to his interest as a shareholder and any
documents that were personally owned, which copies and the information contained
therein Executive agrees not to use for any business purpose. Notwithstanding
the foregoing, Proprietary Information shall not include (i) information that is
or becomes generally public knowledge or public except through disclosure by
Executive in violation of this Agreement and (ii) information that may be
required to be disclosed by applicable law.
7. Noninterference. While employed by the Company and for a period of
18 months after termination of Executive's employment with the Company for any
reason, Executive agrees not to interfere with the business of the Company or
any of the Company's Affiliates by directly or indirectly soliciting, attempting
to solicit, inducing, or otherwise causing any employee of the Company or any
Company Affiliate to terminate his or her employment in order to become an
employee, consultant, or independent contractor to or for any other employer.
8. Noncompetition. Executive agrees that while employed by the Company
and for as long as he receives severance from the Company (or would receive
severance, but for the provisions of Section 5(c)(iii)), or for a period of two
years after the termination of his employment pursuant to Section 5(a) or
Section 5(d), Executive will not, without the prior consent of the Company,
directly or indirectly, have an interest in, be employed by, or be connected
with, as an employee, consultant, officer, director, partner, stockholder, or
joint venturer, any person or entity owning, managing, controlling, operating,
or otherwise participating or assisting in any business that is in competition
with the business of the Company (i) during the term of his employment with the
Company, in any location, and (ii) for the two-year period following the
termination of his employment with the Company, in any county in which the
Company or any of the Company's Affiliates was conducting business at the date
of termination of Executive's employment and continues to do so thereafter;
provided, however, that the foregoing will not prevent Executive from
participating in the Existing Permitted Investments (as defined in Section 1(a))
or activities or investments otherwise approved by the Board, or from being a
stockholder of less than one percent of the issued and outstanding securities of
any class of a corporation listed on a national securities exchange or
designated as national market system securities on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
9. Miscellaneous.
(a) Notices. Any notices provided hereunder must be in writing
and will be deemed effective upon the earlier of two days following personal
delivery (including personal delivery by telecopy or telex), or the fourth day
after mailing by first class mail to the recipient at the address indicated
below:
To the Company:
7
<PAGE> 8
Anker Energy Corporation
2708 Cranberry Square
Morgantown, WV 26508
Attention: President
With a copy to:
Anker Coal Group, Inc.
2708 Cranberry Square
Morgantown, WV 26508
Attention: President
8
<PAGE> 9
And
First Reserve Corporation
1801 California Street, Suite 4110
Denver, CO 80202
Attention: Thomas R. Denison, Esq.
To Executive:
Mr. William D. Kilgore, Jr.
P. O. Box 1761
Grundy, VA 24614
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(b) Severability. Any provision of this Agreement that is
deemed invalid, illegal, or unenforceable in any jurisdiction will, as to that
jurisdiction and subject to this Section 9(b) be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provisions of this Agreement invalid, illegal, or unenforceable in any
other jurisdiction. If any covenant should be deemed invalid, illegal, or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum extent
necessary to render the modified covenant valid, legal, and enforceable.
(c) Entire Agreement. This document and the list of Existing
Permitted Investments constitutes the final, complete, and exclusive embodiment
of the entire agreement and understanding between the parties related to the
subject matter hereof and supersedes and preempts any prior or contemporaneous
understandings, agreements, or representations by or between the parties,
written or oral. No amendments or other modifications to this Agreement may be
made except by a writing signed by both parties.
(d) Counterparts. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
(e) Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors and assigns, except that Executive may not assign
any of his duties hereunder and he may not assign any of his rights hereunder
without the prior written consent of the Company.
(f) Choice of Law. All questions concerning the construction,
validity, and interpretation of this Agreement will be governed by the laws of
the State of West Virginia without giving effect to principles of conflicts of
law.
9
<PAGE> 10
10. Arbitration. Any disputes or claims arising out of or
concerning Executive's employment or termination by the Company, whether arising
under theories of liability or damages based upon contract, tort, or statute,
will be determined exclusively by arbitration before a single arbitrator in
accordance with the employment arbitration rules of the American Arbitration
Association. The Company will pay the fees and expenses of the arbitrator. Each
party will pay its own attorney fees and costs including, without limitation,
fees and costs of any experts. However, attorney fees and costs incurred by the
party that prevails in any such arbitration or any judicial action or proceeding
seeking to enforce the agreement to arbitrate disputes or seeking to enforce any
order or award of any arbitration commenced pursuant to this Section 10 may be
awarded to the prevailing party in such manner as the arbitrator or the court
determines to be appropriate under the circumstances. If any party prevails on a
statutory claim that entitles the prevailing party to reasonable attorney fees
(with or without expert fees) as part of the costs, the arbitrator may award
reasonable attorney fees (with or without expert fees) to the prevailing party
in accord with such statute. Any controversy over whether a dispute is an
arbitrable dispute or as to the interpretation or enforceability of this Section
10 with respect to such arbitration will be determined by the arbitrator.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Effective Date.
ANKER ENERGY CORPORATION
By:
Name:
Title:
WILLIAM D. KILGORE, JR.
ACGI hereby joins into this Agreement for the sole and limited purpose
of agreeing to the provisions of Section 3(b)(iii)(C) hereof.
ANKER COAL GROUP, INC.
By:
Name:
Title:
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 29,650
<ALLOWANCES> 0
<INVENTORY> 6,134
<CURRENT-ASSETS> 38,785
<PP&E> 134,892
<DEPRECIATION> 31,002
<TOTAL-ASSETS> 195,276
<CURRENT-LIABILITIES> 43,461
<BONDS> 152,281
25,591
23,000
<COMMON> 0
<OTHER-SE> (83,207)
<TOTAL-LIABILITY-AND-EQUITY> 195,276
<SALES> 114,223
<TOTAL-REVENUES> 114,223
<CGS> 103,448
<TOTAL-COSTS> 119,693
<OTHER-EXPENSES> (1,421)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,479
<INCOME-PRETAX> (11,528)
<INCOME-TAX> (200)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,328)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
