<PAGE>
UNITED STATES
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 Quarterly Period Ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 1-13105
ARCH COAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-0921172
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CityPlace One, Suite 300, St. Louis, Missouri 63141
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (314) 994-2700
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
------- -------
At May 5, 2000, there were 38,164,482 shares of registrant's common stock
outstanding.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
- -----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999................................................. 1
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999...................................... 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999........................ 3
Notes to Condensed Consolidated Financial Statements.................. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk................................................. 22
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings............................................. 23
Item 4. Submission of Matters to a Vote of Securities Holders......... 23
Item 6. Exhibits and Reports on Form 8-K.............................. 23
</TABLE>
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 3,088 $ 3,283
Trade accounts receivable 145,014 162,802
Other receivables 24,494 25,659
Inventories 63,573 62,382
Prepaid royalties 1,621 1,310
Deferred income taxes 21,600 21,600
Other 8,784 8,916
---------- ----------
Total current assets 268,174 285,952
---------- ----------
Property, plant and equipment, net 1,487,063 1,479,171
---------- ----------
Other assets
Prepaid royalties 16,000 -
Coal supply agreements 142,192 151,978
Deferred income taxes 187,142 182,500
Investment in Canyon Fuel 211,191 199,760
Other 34,452 33,013
---------- ----------
Total other assets 590,977 567,251
---------- ----------
Total assets $2,346,214 $2,332,374
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 121,596 $ 109,359
Accrued expenses 159,631 145,561
Current portion of debt 86,000 86,000
---------- ----------
Total current liabilities 367,227 340,920
Long-term debt 1,106,093 1,094,993
Accrued postretirement benefits other than
pension 343,332 343,993
Accrued reclamation and mine closure 130,568 129,869
Accrued workers' compensation 98,865 105,190
Accrued pension cost 22,369 22,445
Other noncurrent liabilities 53,687 53,669
---------- ----------
Total liabilities 2,122,141 2,091,079
---------- ----------
Stockholders' equity
Common stock 397 397
Paid-in capital 473,335 473,335
Accumulated deficit (230,688) (213,466)
Treasury stock, at cost (18,971) (18,971)
---------- ----------
Total stockholders' equity 224,073 241,295
---------- ----------
Total liabilities and
stockholders' equity $2,346,214 $2,332,374
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues
Coal sales $344,399 $405,952
Income from equity investment 3,631 4,029
Other revenues 9,771 11,145
-------- --------
357,801 421,126
-------- --------
Costs and expenses
Cost of coal sales 329,985 379,920
Selling, general and administrative expenses 9,756 12,498
Amortization of coal supply agreements 10,096 10,622
Other expenses 5,066 4,103
-------- --------
354,903 407,143
-------- --------
Income from operations 2,898 13,983
Interest expense, net:
Interest expense (22,920) (23,992)
Interest income 295 329
-------- --------
(22,625) (23,663)
-------- --------
Loss before income taxes and cumulative effect of
accounting change (19,727) (9,680)
Benefit from income taxes (4,700) (7,300)
-------- --------
Loss before cumulative effect of accounting change (15,027) (2,380)
Cumulative effect of accounting change, net of taxes - 3,813
-------- --------
Net income (loss) $(15,027) $ 1,433
======== ========
Basic and diluted earnings (loss) per common share:
Loss before cumulative effect of accounting change $ (0.39) $ (0.06)
Cumulative effect of accounting change, net of taxes - 0.10
-------- --------
Basic and diluted earnings (loss) per common share $ (0.39) $ 0.04
======== ========
Weighted average shares outstanding 38,164 39,004
======== ========
Dividends declared per share $ 0.0575 $ 0.1150
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------
2000 1999
Operating activities ------------ -------------
<S> <C> <C>
Net income (loss) $ (15,027) $ 1,433
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 51,769 62,342
Prepaid royalties expensed 1,590 4,333
Net gain on disposition of assets (2,343) (731)
Income from equity investment (3,631) (4,029)
Distributions from (contributions to) equity investment (7,800) 50,742
Cumulative effect of accounting change - (3,813)
Changes in:
Receivables 18,953 (54,112)
Inventories (1,191) (9,782)
Accounts payable and accrued expenses 26,307 38,929
Income taxes (4,642) (7,548)
Accrued postretirement benefits other than pension (661) 1,499
Accrued reclamation and mine closure 699 1,714
Accrued workers' compensation benefits (6,325) (630)
Other (1,711) 6,449
------------ -------------
Cash provided by operating activities 55,987 86,796
------------ -------------
Investing activities
Additions to property, plant and equipment (50,129) (22,245)
Proceeds from dispositions of property, plant and equipment 2,942 13,272
Proceeds from coal supply agreements - 14,874
Additions to prepaid royalties (17,901) (19,348)
------------ -------------
Cash used in investing activities (65,088) (13,447)
------------ -------------
Financing activities
Net proceeds from (payments on) revolver and lines of credit 11,101 (65,159)
Payments on term loans - (15,745)
Dividends paid (2,195) (4,447)
Purchases of treasury stock - (7,886)
------------ -------------
Cash provided by (used in) financing activities 8,906 (93,237)
------------ -------------
Decrease in cash and cash equivalents (195) (19,888)
Cash and cash equivalents, beginning of period 3,283 27,414
------------ -------------
Cash and cash equivalents, end of period $ 3,088 $ 7,526
============ =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMETNS
MARCH 31, 2000
(UNAUDITED)
Note A - General
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations, but are
subject to any year-end adjustments which may be necessary. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Results of operations for
the period ended March 31, 2000 are not necessarily indicative of results to be
expected for the year ending December 31, 2000. Arch Coal, Inc. (the "Company")
operates one reportable segment: the production of steam and metallurgical coal
from surface and deep mines throughout the United States, for sale to utility,
industrial and export markets. The Company's mines are located in the central
Appalachian and western regions of the United States. All subsidiaries (except
as noted below) are wholly owned. Significant intercompany transactions and
accounts have been eliminated in consolidation.
Arch Western Resources, LLC ("Arch Western"), a subsidiary of the Company, is
99% owned by the Company and 1% owned by Atlantic Richfield Company ("ARCO").
The principal operating units of Arch Western are Thunder Basin Coal Company,
L.L.C., owned 100% by Arch Western, which operates two coal mines in the
Southern Powder River Basin in Wyoming; Mountain Coal Company, L.L.C., owned
100% by Arch Western, which operates one coal mine in Colorado; Canyon Fuel
Company, LLC ("Canyon Fuel"), 65% owned by Arch Western and 35% by ITOCHU Coal
International Inc., a subsidiary of ITOCHU Corporation, which operates three
coal mines in Utah; and Arch of Wyoming, LLC, owned 100% by Arch Western, which
operates two coal mines in the Hanna Basin of Wyoming.
The Company's 65% ownership of Canyon Fuel is accounted for on the equity method
in the Condensed Consolidated Financial Statements as a result of certain super-
majority voting rights in the joint venture agreement. Income from Canyon Fuel
is reflected in the Condensed Consolidated Statements of Operations as income
from equity investment (see additional discussion in "Investment in Canyon Fuel"
in Note C).
Note B - Change in Accounting Method
Through December 31, 1998, plant and equipment have principally been depreciated
on the straight-line method over the estimated useful lives of the assets, which
range from three to twenty years. Effective January 1, 1999, depreciation on the
Company's preparation plants and loadouts was computed using the units-of-
production method, which is based upon units produced, subject to a minimum
level of depreciation. These assets are usage-based assets and their economic
lives are typically based and measured on coal throughput. The Company believes
the units-of-production method is preferable to the method previously used
because the new method recognizes that depreciation of this equipment is related
substantially to physical wear due to usage and also to the passage of time.
This method, therefore, more appropriately matches production costs over the
lives of the preparation plants and loadouts with coal sales revenue and results
in a more accurate allocation of the cost of the physical assets to the periods
in which the assets are consumed. The cumulative effect of applying the new
method for years prior to 1999 is an increase to income of $3.8 million net-of-
tax ($6.3 million pre-tax) reported as a cumulative effect of accounting change
in the Condensed Consolidated Statement of Operations for the three months ended
March 31, 1999.
Note C - Investment in Canyon Fuel
The following table presents unaudited summarized financial information for
Canyon Fuel which, as part of the Company's June 1, 1998 acquisition of ARCO's
coal operations (the "Arch Western transaction"), is accounted for on the equity
method:
4
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
Condensed Income Statement Information 2000 1999
- -------------------------------------- --------- ---------
(in thousands)
<S> <C> <C>
Revenues $ 65,292 $ 58,381
Total costs and expenses 61,227 53,242
--------- ---------
Net income $ 4,065 $ 5,139
========= =========
65% of Canyon Fuel net income $ 2,642 $ 3,340
Effect of purchase adjustments 989 689
--------- ---------
Arch Coal's income from its equity
investment in Canyon Fuel $ 3,631 $ 4,029
========= =========
</TABLE>
The Company's income from its equity investment in Canyon Fuel represents 65% of
Canyon Fuel's net income after adjusting for the effect of its investment in
Canyon Fuel. The Company's investment in Canyon Fuel reflects purchase
adjustments primarily related to the reduction in amounts assigned to sales
contracts, mineral reserves and other property, plant and equipment.
Note D - Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(in thousands)
<S> <C> <C>
Coal $ 30,279 $ 28,183
Repair parts and supplies 33,294 34,199
--------- ---------
$ 63,573 $ 62,382
========= =========
</TABLE>
Note E - Debt
Debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(in thousands)
<S> <C> <C>
Indebtedness to banks under lines of credit $ 1,100 $ -
Indebtedness to banks under revolving credit
agreement, expiring May 31, 2003 375,000 365,000
Variable rate term loan payable quarterly
from July 1, 2001 through May 31, 2003 135,000 135,000
Variable rate term loan payable May 31, 2003 675,000 675,000
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Other 5,993 5,993
------------ ------------
1,192,093 1,180,993
Less current portion 86,000 86,000
------------ ------------
Long-term debt $ 1,106,093 $ 1,094,993
============ ============
</TABLE>
In connection with the Arch Western transaction, the Company entered into two
five-year credit facilities: a $675 million non-amortizing term loan in the name
of Arch Western, the entity owning the right to the coal reserves and operating
assets acquired in the Arch Western transaction, and a $900 million credit
facility in the name of the Company, including a $300 million fully amortizing
term loan and a $600 million revolver. Borrowings under these credit facilities
were used to finance the acquisition of ARCO's Colorado and Utah coal
operations, to pay related fees and expenses, to refinance existing corporate
debt and for general corporate purposes. Borrowings under the Arch Western
credit facility were used to fund a portion of a $700 million cash distribution
by Arch Western to ARCO, which distribution occurred simultaneously with ARCO's
contribution of its Wyoming coal operations and certain other assets to Arch
Western. The $675 million term loan is secured by Arch Western's membership
interests in its subsidiaries. The Arch Western credit facility is not
guaranteed by the Company. The rate of interest on the borrowings under the
agreements is, at the Company's option, the PNC Bank base rate or a rate based
on LIBOR. At March 31, 2000, the Company's debt is approximately 84% of capital
employed.
Terms of the Company's credit facilities and leases contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, pay dividends, effect acquisitions or dispositions and borrow additional
funds and require the Company to, among other things, maintain various financial
ratios and comply with various other financial covenants. Failure by the
Company to comply with such covenants could result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company. At
December 31, 1999, as a result of the effect of the write-down of impaired
assets and other restructuring costs incurred during 1999, the Company did not
comply with certain of these restrictive covenant requirements, for which the
Company received an amendment on January 21, 2000. These amendments contain,
among other things, provisions for the payment of fees of .25% and an increase
in the interest rate of .375% associated with the Company's term loan and the
$600 million revolver. In addition, the amendments require the pledging of
assets to collateralize the term loan and the $600 million revolver by May 17,
2000. The parties are continuing to negotiate the terms of the pledging of these
assets. The assets to be pledged are expected to include equity interests in
wholly owned entities, certain real property interests, accounts receivable and
inventory of the Company and such wholly owned entities.
The Company enters into interest-rate swap agreements to modify the interest-
rate characteristics of the Company's outstanding debt. At March 31, 2000, the
Company had interest-rate swap agreements having a total notional value of $765
million. These swap agreements were used to convert variable-rate debt to
fixed-rate debt. Under these swap agreements, the Company pays a weighted-
average fixed-rate of 5.70% (before the credit spread over LIBOR) and is
receiving a weighted-average variable-rate based upon 30-day and 90-day LIBOR.
At March 31, 2000, the remaining term of the swap agreements ranged from 29 to
53 months.
Note F - Stockholder Rights Plan
On March 3, 2000, the Board of Directors adopted a stockholder rights plan under
which preferred share purchase rights were distributed as a dividend to the
Company's stockholders of record on March 20, 2000. The rights are exercisable
only if a person or group acquires 20% or more of the Company's Common Stock (an
"Acquiring Person") or announces a tender or exchange offer the consummation of
which would result in ownership by a person or group of 20% or more of the
Company's Common Stock. Each right entitles the holder to buy one one-hundredth
of a share of a series of junior participating preferred stock at an exercise
price of $42, or in certain circumstances allows the holder (except for the
Acquiring Person) to purchase the Company's Common Stock or
6
<PAGE>
voting stock of the Acquiring Person at a discount. At its option, the Board of
Directors may allow some or all holders (except for the Acquiring Person) to
exchange their rights for Company Common Stock. The rights will expire on March
20, 2010, subject to earlier redemption or exchange by the Company as described
in the plan.
Note G - Contingencies
The Company is a party to numerous claims and lawsuits with respect to various
matters. The Company provides for costs related to contingencies, including
environmental matters, when a loss is probable and the amount is reasonably
determinable. The Company estimates that its probable aggregate loss as a
result of such claims as of March 31, 2000 is $4.5 million (included in other
noncurrent liabilities). The Company estimates that its reasonably possible
aggregate losses from all material litigation that is currently pending could be
as much as $.5 million (before taxes) in excess of the probable loss previously
recognized. After conferring with counsel, it is the opinion of management that
the ultimate resolution of these claims, to the extent not previously provided
for, will not have a material adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.
Note H - Changes in Estimates and Other Non-Recurring Revenues and Expenses
The Company's operating results for the three months ended March 31, 1999
reflect a charge of $6.5 million related to the planned temporary shut down of
its Dal-Tex mine in Logan County, West Virginia on July 23, 1999. The charge
consisted principally of severance costs, obligations for non-cancelable lease
payments and a change in the reclamation liability due to the temporary shut
down. The shut down was due to a delay in obtaining mining permits resulting
from legal action in the U.S. District Court for the Southern District of West
Virginia (for a discussion of the legal action, see the "Contingencies - Legal
Contingencies - Dal-Tex Litigation" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations in this report).
During 1999, the Company recorded pre-tax charges totaling $23.1 million
(including the $6.5 million charge discussed above) related to (i) the
restructuring of its administrative workforce; (ii) the closure of its Dal-Tex
mine in West Virginia due to permitting problems; and (iii) the closure of
several small mines in Kentucky (Coal-Mac) and the one remaining underground
mine in Illinois (Arch of Illinois) due to depressed coal prices, caused in part
by increased competition from western coal mines. The following are the
components of severance and other exit costs included in the restructuring
charge along with related activity:
<TABLE>
<CAPTION>
Utilized
During First Balance at
1999 Utilized in Quarter March 31,
(in thousands) Charge 1999 2000 2000
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee costs $ 7,354 $ 704 $ 3,370 $2,919
Obligations for non-cancelable
lease payments 9,858 484 8,366 1,009
Reclamation liabilities 3,667 1,200 310 2,157
Depreciation acceleration 2,172 2,172 - -
--------------------------------------------------------------
$ 23,051 $4,560 $12,406 $6,085
==============================================================
</TABLE>
Except for the charge related to depreciation acceleration, all of the 1999
restructuring charge will require the Company to use cash. Also, the Company
expects to utilize the balance of the amounts reserved for employee cost during
the remainder of 2000, while obligations for non-cancelable lease payments and
reclamation liabilities will be utilized in future periods as lease payments are
made and reclamation procedures are performed.
7
<PAGE>
Note I - Sale and Leaseback
On January 29, 1998, the Company sold mining equipment for approximately $74.2
million and leased back the equipment under an operating lease with a term of
three years. This included the sale and leaseback of equipment purchased under
an existing operating lease that expired on the same day. The proceeds of the
sale were used to purchase the equipment under the expired lease for $28.3
million and to pay down debt. At the end of the lease term, the Company has the
option to renew the lease for two additional one-year periods or purchase the
equipment. Alternatively, the equipment may be sold to a third party. In the
event of such a sale, the Company will be required to make a payment to the
lessor in the event, and to the extent, that the sale proceeds are below a
certain threshold. The gain on the sale and leaseback of $10.7 million was
deferred and is being amortized over the base of the lease as a reduction of
lease expense. The Company has elected to renew the lease for an additional one
year period as described above. Also, effective February 4, 2000, the Company
purchased for $10.3 million several pieces of equipment under lease that were
included in this transaction and transferred them to the Company's Wyoming
operations. A pro-rata portion of the deferred gain, $.3 million, was offset
against the cost of the assets. After the effect of this and previous purchases,
at the end of the renewed lease term, the remaining assets can be purchased for
$28.3 million or sold to a third party with the Company required to make a
payment to the lessor in the event, and to the extent that, proceeds are below
$22.6 million. Future non-cancelable rental payments remaining under this lease
are expected to be approximately $3.5 million for the remainder of 2000 and $3.9
million in 2001.
Note J - Earnings (Loss) per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per common share from continuing operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
---------- ----------
(in thousands, except per share
data)
<S> <C> <C>
Numerator:
Loss before extraordinary item and
cumulative effect of accounting change $ (15,027) $ (2,380)
Cumulative effect of accounting change, net of taxes - 3,813
----------- ----------
Net income (loss) $ (15,027) $ 1,433
=========== ==========
Denominator:
Weighted average shares - denominator for basic 38,164 39,004
Dilutive effect of employee stock options - -
----------- ----------
Adjusted weighted average shares - denominator
for diluted 38,164 39,004
=========== ==========
Basic and diluted loss per common share before
cumulative effect of accounting change $ (.39) $ (.06)
=========== ==========
Basic and diluted earnings (loss) per common share $ (.39) $ .04
=========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements in the "Outlook" and "Liquidity and
Capital Resources" sections below. Words such as "anticipates," "believes,"
"estimates," "expects,"
8
<PAGE>
"is likely," "predicts," "may" and variations of such words and similar
expressions are intended to identify such forward-looking statements. Although
the Company believes that its expectations are based on reasonable assumptions,
it cannot assure that the expectations contained in such statements will be
achieved. Important factors which could cause actual results to differ
materially from those contained in such statements are discussed in the
"Contingencies" and "Certain Trends and Uncertainties" sections below.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2000, Compared
to Quarter Ended March 31, 1999
The Company incurred a net loss of $15.0 million for the quarter ended March 31,
2000 compared to net income of $1.4 million for the quarter ended March 31,
1999. Results for the quarter were adversely impacted by the idling of the West
Elk mine in Gunnison County, Colorado. The mine was idled on January 28, 2000,
following the detection of combustion gasses in a portion of the mine. During
the current quarter, the mine contributed $8.9 million and a loss of $11.9
million to coal sales and operating income, respectively, compared to $27.2
million and $1.5 million to coal sales and operating income, respectively,
during the quarter ended March 31, 1999.
Total revenues for the quarter ended March 31, 2000 decreased 15% from the
quarter ended March 31, 1999 as a result of several factors. Those factors
include reduced sales at the Company's West Elk mine as a result of the January
28 idling described above. In addition, the Company closed its Dal-Tex, Wylo and
Arch of Illinois operations and two surface mines in Kentucky during 1999.
The Company idled the Dal-Tex operation on July 23, 1999 due to a delay in
obtaining new mining permits which resulted from legal action in the U.S.
District Court for the Southern District of West Virginia (see additional
discussion in the "Contingencies - Legal Contingencies - Dal-Tex Litigation"
section of this report). The Wylo operation ceased production in December 1999
due to the depletion of its recoverable reserves. The Arch of Illinois operation
was closed due to a lack of demand for the mine's high-sulfur coal. Demand for
high-sulfur coal has declined rapidly as a result of the stringent Clean Air Act
requirements that are driving a shift to low-sulfur coal. The two small surface
mines in Kentucky are affiliated with the Coal-Mac operation and were closed as
a result of its cost structure not being competitive in the current market.
These factors were partially offset by increased production and sales at the
Company's Black Thunder mine in Wyoming. On a per-ton-sold basis, the Company's
average selling price of $12.40 decreased $2.24 from the same period in the
prior year primarily as a result of the expected shift of coal sales from the
Company's eastern operations to its western operations. Western coal has a
significantly lower average sales price than that provided from the Company's
eastern coal operations, due in part to the lower Btu content of Powder River
Basin coal.
Excluding the loss from operations resulting from the temporary idling of the
West Elk mine described above, income from operations increased $.8 million for
the quarter ended March 31, 2000 when compared to the same period in the prior
year. The increase is attributable to improved performance at several of the
Company's mines which resulted from the Company's continued focus on reducing
costs and improving productivity, and reduced costs in the current quarter
resulting from the closure of the Dal-Tex operation in July 1999. This was
partially offset by continuing difficult market conditions that prevailed in
U.S. coal markets during the quarter along with increased fuel costs experienced
in the current quarter. Income from operations also declined at the Company's
Mingo Logan longwall operation (Mountaineer Mine) where, despite another strong
first quarter and the contribution of $13.1 million to the Company's income from
operations, results were below the $16.3 million of income from operations from
the first quarter of 1999. The decrease was primarily caused by continuing
depressed coal prices, generally less favorable mining conditions and increased
mine development expenses associated with the start-up of the Alma seam
operation. Other factors that affected quarter to quarter comparisons of income
from operations included production shortfalls, deterioration of mining
conditions and resulting lower income contributions from the Company's Dal-Tex
mine complex during the first quarter of 1999 which culminated in the idling of
that operation on July 23, 1999. As a result of the idling, the Company recorded
a charge of $6.5 million during the first quarter of 1999, comprised principally
of severance costs, obligations for non-cancelable lease
9
<PAGE>
payments and a change in the reclamation liability due to the idling (see
additional discussion below).
Selling, general and administrative expenses decreased $2.7 million from the
first quarter of 1999. The decrease is attributable to cost savings resulting
from the restructuring of the Company's administrative workforce that occurred
during the fourth quarter of 1999 and also due to reduced legal and media
expenses incurred during the first quarter of 2000 when compared to the first
quarter of 1999.
Interest expense decreased $1.1 million due to lower average debt levels
outstanding during the first quarter of 2000 when compared to the first quarter
of 1999 partially offset by higher interest rates during the current quarter.
The Company's effective tax rate is sensitive to changes in annual profitability
and percentage depletion. During the fourth quarter of 1999, the Company
determined that as it relates to future income taxes, the Company does not
anticipate recognizing all of its alternative minimum tax credit carry-forwards
in the future and expects to recognize part of the benefit of its deferred tax
asset at the alternative minimum tax rate of approximately 24%.
EBITDA (income (loss) from operations before the effect of changes in accounting
principles and extraordinary items; merger-related costs, unusual items, asset
impairment and restructuring charges; net interest expense; income taxes;
depreciation, depletion and amortization of Arch Coal, its subsidiaries and its
ownership percentage in its equity investments) was $63.6 million for the
current quarter compared to $86.0 million for the first quarter of 1999. The
decrease in EBITDA was primarily attributable to the temporary idling of the
West Elk mine and Mingo Logan's performance, as described above. EBITDA is a
widely accepted financial indicator of a company's ability to incur and service
debt, but EBITDA should not be considered in isolation or as an alternative to
net income, operating income or cash flows from operations or as a measure of a
company's profitability, liquidity or performance under generally accepted
accounting principles. The Company's method of computing EBITDA also may not be
the same method used to compute similar measures reported by other companies, or
EBITDA may be computed differently by the Company in different contexts (e.g.,
public reporting versus computations under financing agreements).
OUTLOOK
West Elk Mine. The Company temporarily idled its West Elk underground mine in
Gunnison County, Colorado, on January 28, 2000 following the detection of
higher-than-normal levels of carbon monoxide in a portion of the mine. Higher-
than-normal levels of carbon monoxide indicate that combustion is present
somewhere within the affected portion of the mine. The Company has isolated the
combustion, constructed a number of water-tight seals around the combustion and
flooded that area with water. Since then, air readings have returned to normal
levels.
With the approval of the Mine Safety and Health Administration ("MSHA"), the
Company has re-entered the mine. None of the major equipment, including the
longwall, appears to have been damaged during the extended idling of the mine,
and the Company has completed the longwall move that was interrupted by the
idling. Currently, the Company is completing its recovery efforts at the mine
and is also implementing ventilation changes required by MSHA. As previously
announced, the Company expects to incur after-tax losses of $4 million to $6
million per month at the operation while it is idled. Based on the progress made
to date, the Company expects that the mine may resume production by the end of
the second quarter. The Company has business interruption insurance and believes
that a substantial portion of the losses related to the West Elk mine will be
covered by an insurance settlement later in the year. There can be no assurance
of recovery however, until the claim is resolved with the insurance carrier.
West Virginia Operations. On October 20, 1999, the U.S. District Court for the
Southern District of West Virginia permanently enjoined the West Virginia
Division of Environmental Protection (the "West Virginia DEP") from issuing any
permits that authorize the construction of valley fills as part of coal mining
operations. The West Virginia DEP complied with the injunction by issuing an
order banning the issuance of nearly all new permits for valley fills and
prohibiting the further advancement of nearly all existing fills. On October 29,
1999, the district court granted a stay of its injunction, pending the outcome
of an appeal of the court's decision filed by the West
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Virginia DEP with the U.S. Court of Appeals for the Fourth Circuit. The West
Virginia DEP rescinded its order in response to the stay granted by the court.
It is impossible to predict the outcome of the West Virginia DEP's appeal to the
Fourth Circuit. If, however, the district court's ruling is not overturned or if
a legislative or other solution is not achieved, then the ability of the Company
and other coal producers to mine coal in West Virginia would be seriously
compromised.
The injunction discussed above was entered as part of the litigation that caused
the delay in obtaining mining permits for the Company's Dal-Tex operation (see
additional discussion of this litigation in the "Contingencies - Legal
Contingencies - Dal-Tex Litigation" section of this report). As a result of such
delay, the Company idled its Dal-Tex mining operation on July 23, 1999. The
Company remains hopeful that it can reopen the Dal-Tex operation after all
necessary permits are obtained, which is not expected to occur until mid-2001 at
the earliest. Reopening the mine is, however, contingent upon the district
court's injunction being overturned or a legislative or other solution being
achieved, as well as then-existing market conditions.
Coal Markets. The Company continues to be adversely affected by the weak
conditions that have prevailed in U.S. coal markets during the past 16 months,
especially in the east. Signs that market conditions for coal may improve are,
however, beginning to appear. These signs include the following: electric output
is up approximately 4% so far this year; nuclear plant outages for refuelings
have increased approximately 25% over last year; hydro conditions are weaker
than normal due to dry conditions; petroleum and gas prices are higher; and the
National Weather Service has predicted a warmer-than-normal summer. Because most
of the Company's production is already committed and priced for the current
year, the Company expects its performance for the remainder of the year to
reflect the current market weakness. However, the signs indicating a possible
improved market may translate into improved pricing during 2001.
Low-Sulfer Coal Producer. Despite the current weak market and other ongoing
challenges facing the coal industry, the Company continues to believe that it is
uniquely positioned to capitalize on the continuing growth in demand for
electricity. With Phase II of the Clean Air Act in effect, the Company believes
that in the long term, compliance coal will command a premium in the
marketplace. Compliance coal is coal that meets the requirements of Phase II of
the Clean Air Act without the use of expensive scrubbing technology. All of
Arch's western coal production and approximately half of its eastern production
is compliance quality.
The Company continues to develop its assets at its western operations, including
the Black Thunder mine near Gillette, Wyoming. The Company has completed the
construction of a fourth dragline at the operation and has begun production on
the Thundercloud federal lease tract, a large contiguous block of reserves
containing 370 million tons of recoverable coal. These actions should allow the
mine to increase production 20% this year to approximately 60 million tons. The
Company hopes to maintain that level of production for the foreseeable future in
light of the increased demand for Powder River Basin coal. Demand for Powder
River Basin coal has more than doubled in the past decade and continues to grow
at a far higher rate than that of the coal market overall.
Chief Financial Objectives. The Company continues to focus on realizing the
substantial potential of its assets and maximizing shareholder value by making
decisions based upon its five chief financial objectives: (i) aggressively
paying down debt, (ii) further strengthening cash generation, (iii) improving
earnings, (iv) increasing productivity and (v) reducing costs throughout the
Company.
The Company's total debt increased $11 million during the current quarter due in
large part to the second of five annual payments of $31.6 million for the
Thundercloud federal reserve lease, which was acquired in 1998, as well as
reduced cash generation and increased expenditures related to the idling of the
West Elk mine. Given the timing of the payments for the Thundercloud lease and
the temporary idling of the West Elk mine, the Company expects to make most of
its progress toward reducing debt in the second half of 2000.
As part of its corporate-wide effort to reduce costs, the Company streamlined
the structure of its organization during the fourth quarter of 1999 and as a
result eliminated approximately 81 administrative jobs, 58 of which were
corporate and the remainder of which were subsidiary positions. The elimination
of jobs occurred through layoffs and attrition. The Company believes that the
corporate-wide restructuring will likely reduce future
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operating costs by approximately $11 million a year compared to 1999.
Ashland Distribution. On March 29, 2000, Ashland Inc. ("Ashland"), which owned
approximately 58% of the outstanding common stock of the Company, distributed
17.4 million of its 22.1 million shares of Arch Coal, Inc. common stock to its
shareholders as a taxable dividend. Ashland has announced that it plans to
dispose of its remaining 4.7 million shares of Company common stock in a tax-
efficient manner during the year following the distribution, subject to existing
market conditions. Ashland's distribution did not impact the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
The following is a summary of cash provided by or used in each of the indicated
types of activities during the three months ended March 31, 2000 and 1999:
2000 1999
-------- --------
(in thousands)
Cash provided by (used in):
Operating activities $ 55,987 $ 86,796
Investing activities (65,088) (13,447)
Financing activities 8,906 (93,237)
Cash provided by operating activities decreased in the first quarter of 2000
compared to the same period in 1999 due to: a decrease in cash provided from
equity investments and reduced cash from coal sales and increased costs
resulting from the West Elk mine combustion. These were partially offset by
increased receivable collections in the current quarter when compared to the
prior year's quarter. The decrease in cash provided from equity investments
results primarily from the amendment in the prior year's quarter of a coal
supply agreement with the Intermountain Power Agency, which was a significant
portion of the $50.7 million cash distribution from Canyon Fuel. During the
current quarter, the Company contributed $7.8 million to Canyon Fuel to fund
cash requirements.
Cash used in investing activities increased in the first quarter of 2000
compared to the first quarter of 1999 primarily as a result of the Company
making the second of five annual payments on the Thundercloud federal lease
which is part of the Black Thunder mine in Wyoming. The first payment was due at
the time of the acquisition of the lease in 1998. The remaining four payments
are due each January of the years 2000 through 2003. Quarter over quarter
comparisons are also affected by the amendment of another coal supply agreement
during 1999. The amendment changed the contract terms from above-market to
market-based pricing. As a result of the amendment, the Company received
proceeds of $14.1 million (net of royalty and tax obligations) during the first
quarter of 1999 from the customer.
Cash provided by financing activities reflects net borrowings of $11.1 million
in the current quarter compared to net payments of $80.9 million in the previous
year's quarter. In addition, requirements for dividend payments have decreased
$2.3 million in the current quarter as compared to the prior year's quarter,
resulting from a decrease in shares outstanding, and a reduction in the
quarterly dividend from 11.5 cents per share to 5.75 cents per share. The
dividend reduction is attributable to the Company's goal to aggressively pay
down debt.
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The Company periodically establishes uncommitted lines of credit with banks.
These agreements generally provide for short-term borrowings at market rates. At
March 31, 2000, there were $25 million of such agreements in effect, of which
$1.1 million were outstanding.
The Company is exposed to market risk associated with interest rates. At March
31, 2000, debt included $1.186 billion of floating-rate debt, which is, at the
Company's option, the PNC Bank base rate or a rate based on LIBOR and current
market rates for bank lines of credit. To manage these exposures, the Company
enters into interest-rate swap agreements to modify the interest-rate
characteristics of outstanding Company debt. At March 31, 2000, the Company had
interest-rate swap agreements having a total notional value of $765 million.
These swap agreements are used to convert variable-rate debt to fixed-rate debt.
Under these swap agreements, the Company pays a weighted average fixed rate of
5.70% (before the credit spread over LIBOR) and receives a weighted average
variable rate based upon 30-day and 90-day LIBOR. The Company accrues amounts to
be paid or received under interest-rate swap agreements over the lives of the
agreements. Such amounts are recognized as adjustments to interest expense over
the lives of agreements, thereby adjusting the effective interest rate on the
Company's debt. The fair value of the swap agreements are not recognized in the
financial statements. Gains and losses on terminations of interest-rate swap
agreements are deferred on the balance sheet (in other long-term liabilities)
and amortized as an adjustment to interest expense over the remaining term of
the terminated swap agreement. The remaining terms of the swap agreements at
March 31, 2000 ranged from 29 to 53 months. All instruments are entered into for
other than trading purposes.
The discussion below presents the sensitivity of the market value of the
Company's financial instruments to selected changes in market rates and prices.
The range of changes reflects the Company's view of changes that are reasonably
possible over a one-year period. Market values are the present value of
projected future cash flows based on the market rates and prices chosen. The
major accounting policies for these instruments are described in Note 1 to the
consolidated financial statements of the Company as of and for the year ended
December 31, 1999 as filed on Form 10-K with the Securities and Exchange
Commission.
Changes in interest rates have different impacts on the fixed-rate and variable-
rate portions of the Company's debt portfolio. A change in interest rates on the
fixed portion of the debt portfolio impacts the net financial instrument
position but has no impact on interest incurred or cash flows. A change in
interest rates on the variable portion of the debt portfolio impacts the
interest incurred and cash flows but does not impact the net financial
instrument position.
The sensitivity analysis related to the fixed portion of the Company's debt
portfolio assumes an instantaneous 100-basis-point move in interest rates from
their levels at March 31, 2000 with all other variables held constant. A 100-
basis-point decrease in market interest rates would result in an increase in the
net financial instrument position of the fixed portion of debt of $18.3 million
at March 31, 2000. Based on the variable-rate debt included in the Company's
debt portfolio as of March 31, 2000, after considering the effect of the swap
agreements, a 100-basis-point increase in interest rates would result in an
annualized additional $4.2 million of interest expense incurred based on
quarter-end debt levels.
CONTINGENCIES
Reclamation
The federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA") and
similar state statutes require that mine property be restored in accordance with
specified standards and an approved reclamation plan. The Company accrues for
the costs of final mine closure reclamation over the estimated useful mining
life of the property. These costs relate to reclaiming the pit and support
acreage at surface mines and sealing portals at deep mines. Other costs of final
mine closure common to surface and underground mining are related to reclaiming
refuse and slurry ponds, eliminating sedimentation and drainage control
structures and dismantling or demolishing equipment or buildings used in mining
operations. The Company also accrues for significant reclamation that is
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completed during the mining process prior to final mine closure. The
establishment of the final mine closure reclamation liability and the other
ongoing reclamation liability are based upon permit requirements and require
various estimates and assumptions, principally associated with costs and
productivities.
The Company reviews its entire environmental liability periodically and makes
necessary adjustments, including permit changes and revisions to costs and
productivities to reflect current experience. These recosting adjustments are
recorded to cost of coal sales. No such adjustments were recorded in the three
months ended March 31, 2000 or in the three months ended March 31, 1999. The
Company's management believes it is making adequate provisions for all expected
reclamation and other associated costs.
Legal Contingencies
The Company is a party to numerous claims and lawsuits with respect to various
matters, including those discussed below. The Company provides for costs related
to contingencies, including environmental matters, when a loss is probable and
the amount is reasonably determinable. The Company estimates that its probable
aggregate loss as a result of such claims as of March 31, 2000 is $4.5 million
(included in other noncurrent liabilities). The Company estimates that its
reasonably possible aggregate losses from all material litigation that is
currently pending could be as much as $.5 million (before taxes) in excess of
the probable loss previously recognized. After conferring with counsel, it is
the opinion of management that the ultimate resolution of these claims, to the
extent not previously provided for, will not have a material adverse effect on
the consolidated financial condition, results of operations or liquidity of the
Company.
Dal-Tex Litigation. On July 16, 1998, ten individuals and The West Virginia
Highlands Conservancy filed suit in U.S. District Court for the Southern
District of West Virginia against the director of the West Virginia DEP and
officials of the Corps alleging violations of SMCRA and the Clean Water Act. The
plaintiffs alleged that the West Virginia DEP and the Corps have violated their
duties under SMCRA and the Clean Water Act by authorizing the construction of
"valley fills" under certain surface coal mining permits. These fills are the
large, engineered works into which the excess earth and rock extracted during
surface mining are placed. The plaintiffs also alleged that the West Virginia
DEP has failed to require (i) that lands mined are restored to "approximate
original contour" and (ii) that approved post-mining land uses are enforced
following reclamation.
Four indirect, wholly owned subsidiaries of the Company hold nine permits that
were identified in the complaint as violating the legal standards that the
plaintiffs requested the district court interpret. In addition, a pending permit
application for the Company's Dal-Tex operation (known as the "Spruce Fork
Permit") was specifically identified as a permit the issuance of which should be
enjoined. Three subsidiaries of the Company intervened in the lawsuit in support
of the Corps and the West Virginia DEP on August 6, 1998.
A partial settlement between the plaintiffs and the Corps was reached on
December 23, 1998. Pursuant to that settlement, all claims were dismissed
against the Corps for its alleged failure to execute its duties under the Clean
Water Act. The settlement agreement reached between the Corps and the plaintiffs
requires the preparation of a programmatic environmental impact statement (an
"EIS") under the National Environmental Policy Act of 1969 ("NEPA") to evaluate
the environmental effects of mountaintop mining. This EIS is scheduled to be
completed by January 2001. Until it is completed, any proposed fill greater than
250 acres in size must secure an individual Clean Water Act Section 404 "dredge
and fill" permit, instead of a general permit like the one the Corps indicated
it would issue for the Dal-Tex operation under its nationwide authorization
program. The Spruce Fork Permit was not included in the settlement, and the
claims against the Corps with respect to that permit were not dismissed.
On March 3, 1999, the district court issued a preliminary injunction which
prohibited the Corps from issuing a general Clean Water Act Section 404 dredge
and fill permit for the Dal-Tex operation and enjoined the Company from future
operations on the permit until a full trial on the merits could be held. As a
result of the entry of the preliminary injunction, the Company idled the Dal-Tex
mine on July 23, 1999.
On July 26, 1999, the plaintiffs and the West Virginia DEP tendered to the
district court a proposed consent decree which would resolve most of the
remaining issues in the case. Pursuant to the proposed consent decree, the West
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Virginia DEP agreed in principle to amend its regulations and procedures to
correct alleged deficiencies. In addition, the parties agreed in principle on a
new definition of approximate original contour as it applies to mountaintop
mining, as well as to certain regulatory changes involving post-mining land
uses. After inviting public comment of the proposed consent decree, the court
entered the consent decree in a final order on February 17, 2000.
The Company's Hobet Mining subsidiary agreed as part of the consent decree to
revise portions of its Spruce Fork Permit application to conform to the new
definition of approximate original contour to be adopted by the West Virginia
DEP. Hobet Mining also agreed to seek an individual Clean Water Act Section 404
dredge and fill permit from the Corps as part of its future mining operation.
Before issuing that permit, the Corps must first complete an EIS to comply with
the provisions of NEPA. The completion of this EIS and issuance of all permits
are not expected until mid-2001 at the earliest.
The plaintiffs' allegation that the West Virginia DEP violated its duties under
the Clean Water Act by authorizing the construction of valley fills under
certain coal mining permits was not resolved by the consent decree. On October
20, 1999, the district court entered a permanent injunction against the West
Virginia DEP prohibiting the issuance of any new permits that authorize the
construction of valley fills as part of mining operations. The court concluded
that the excess earth and rock that is placed in a valley fill during mining is
not fill material, but rather is waste, which may not be placed in intermittent
and perennial streams because the disposal of such material cannot meet
applicable water quality standards.
The West Virginia DEP immediately complied with the district court's injunction
by issuing an administrative order banning the expansion of nearly all existing
valley fills as well as prohibiting the issuance of nearly all new permits for
valley fills. The West Virginia DEP also filed an appeal of the district court's
decision with the U.S. Court of Appeals for the Fourth Circuit. On October 29,
1999, the district court granted a stay of its decision, pending the outcome of
the appeal. The West Virginia DEP rescinded its administrative order on November
1, 1999 in response to the district court's action.
It is impossible to predict the outcome of the West Virginia DEP's appeal. If,
however, the district court's decision is upheld, the Company and other coal
producers may be forced to close all or a portion of their mining operations in
West Virginia because of the prohibition on constructing valley fills for their
existing and future mines.
Cumulative Hydrologic Impact Assessment ("CHIA") Litigation. On January 20,
2000, two environmental organizations, the Ohio Valley Environmental Coalition
and the Hominy Creek Watershed Association, filed suit against the West Virginia
DEP in U.S. District Court in Huntington, West Virginia. In addition to
allegations that the West Virginia DEP violated state law and provisions of the
Clean Water Act, the plaintiffs allege that the West Virginia DEP's issuance of
permits for surface and underground coal mining has violated certain non-
discretionary duties mandated by SMCRA. Specifically, the plaintiffs allege that
the West Virginia DEP has failed to require coal operators seeking permits (i)
to conduct water monitoring to verify stream flows and ascertain water quality,
(ii) to always include certain water quality information in their permit
applications and (iii) to analyze the probable hydrologic consequences of their
operations. The plaintiffs also allege that the West Virginia DEP has failed to
analyze the cumulative hydrologic impacts of mining operations on specific
watersheds.
The plaintiffs seek an injunction to prohibit the West Virginia DEP from issuing
any new permits which fail to comply with all of the elements identified in
their complaint. The complaint identifies, and seeks to enjoin, three pending
permits that are sought by the Company's Mingo Logan subsidiary to continue
existing surface mining operations at the Phoenix reserve. If the permits are
not issued, it is possible that those operations will have to be suspended early
in 2001. On May 1, 2000, the court denied the West Virginia DEP's motion to
dismiss all claims in the lawsuit.
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It is impossible to predict whether this litigation will result in a suspension
of the affected surface mining operations. If, however, the operations are
suspended, the Company's financial condition and results of operations could be
adversely affected and, depending upon the length of the suspension, the effect
could be material.
Lone Mountain Litigation. On October 24, 1996, the rock strata overlaying an
abandoned underground mine adjacent to the coal-refuse impoundment used by the
Lone Mountain preparation plant failed, resulting in the discharge of
approximately 6.3 million gallons of water and fine coal slurry into a tributary
of the Powell River in Lee County, Virginia.
The U.S. Department of the Interior has notified the Company that it intends to
file a civil action under the Clean Water Act and the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") to recover the
natural resource damages suffered as a result of the discharge. The Interior
Department alleges that fresh water mussels listed on the federal Endangered
Species List that reside in the Powell River were affected as a consequence of
the discharge. The Company and the Interior Department have reached an agreement
in principle to settle this matter, which would require a payment of $2.5
million by the Company. The settlement is subject to the Company and the
Interior Department entering into a definitive agreement. The Company's
consolidated balance sheet as of March 31, 2000 reflects a reserve for the full
amount of this settlement.
Other Litigation. On October 31, 1997, the EPA notified a Company subsidiary
that it was a potentially responsible party in the investigation and remediation
of two hazardous waste sites located in Kansas City, Kansas, and Kansas City,
Missouri. The Company's involvement arises from the subsidiary's sale, in the
mid-1980's, of fluids containing small quantities of polychlorinated biphenyls
("PCBs") to a company authorized to engage in the processing and disposal of
these wastes. Some of these waste materials were sent to one of the sites for
final disposal. The Company responded to the information request submitted by
the EPA on December 1, 1997. Any liability which might be asserted by the EPA
against the Company is not believed to be material because of the de minimis
quantity and concentration of PCBs linked to the Company. Moreover, the party
with which the subsidiary contracted to dispose of the waste material has agreed
to indemnify the Company for any costs associated with this action.
CERTAIN TRENDS AND UNCERTAINTIES
Substantial Leverage; Variable Interest Rate; Restrictive Covenants
The Company has substantial leverage and significant debt service and lease and
royalty payment obligations. As of March 31, 2000, the Company had outstanding
consolidated indebtedness of approximately $1.2 billion, representing
approximately 84% of the Company's total capitalization.
The Company's ability to satisfy its debt service and lease payment obligations
will depend upon the future operating performance of its subsidiaries, which
will be affected by prevailing economic conditions in their markets, as well as
financial, business and other factors, certain of which are beyond their
control. Based upon current levels of operations, the Company believes that cash
flow from operations and available cash, together with available borrowings
under the Company's credit facilities, will be adequate to meet the Company's
future liquidity needs for at least the next several years. However, there can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future borrowings will be available in an amount
sufficient to enable the Company to fund its debt service and lease payment
obligations or its other liquidity needs.
The degree to which the Company is leveraged could have material consequences to
the Company and its business, including, but not limited to: (i) making it more
difficult for the Company to satisfy its debt service, lease payment and other
obligations; (ii) increasing the Company's vulnerability to general adverse
economic and industry conditions; (iii) limiting the Company's ability to obtain
additional financing to fund future acquisitions, working capital, capital
expenditures or other general corporate requirements; (iv) reducing the
availability of cash flow from operations to fund acquisitions, working capital,
capital expenditures or other general corporate purposes; (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry in which
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it competes and (vi) placing the Company at a competitive disadvantage when
compared to competitors with less debt.
A significant portion of the Company's indebtedness bears interest at variable-
rates that are linked to short-term interest rates. If interest rates rise, the
Company's costs relative to those obligations would also rise.
Terms of the Company's credit facilities and leases contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, pay dividends, effect acquisitions or dispositions and borrow additional
funds and require the Company to, among other things, maintain various financial
ratios and comply with various other financial covenants. Failure by the Company
to comply with such covenants could result in an event of default which, if not
cured or waived, could have a material adverse effect on the Company.
Environmental and Regulatory Factors
Federal, state and local governmental authorities regulate the coal mining
industry on matters as diverse as employee health and safety, air quality
standards, water pollution, groundwater quality and availability, plant and
wildlife protection, the reclamation and restoration of mining properties, the
discharge of materials into the environment and surface subsidence from
underground mining. In addition, federal legislation mandates certain benefits
for various retired coal miners represented by the United Mine Workers of
America ("UMWA"). These regulations and legislation have had and will continue
to have a significant effect on the Company's costs of production and
competitive position.
New legislation, regulations or orders may be adopted or become effective which
may adversely affect the Company's mining operations, its cost structure or the
ability of the Company's customers to use coal. For example, new legislation,
regulations or orders may require the Company to incur increased costs or to
significantly change its operations. New legislation, regulations or orders may
also cause coal to become a less attractive fuel source, resulting in a
reduction in coal's share of the market for fuels used to generate electricity.
Any such regulation, legislation or order could have an adverse effect on the
Company's business, results of operations and financial condition and, depending
upon the nature and scope of the legislation, regulations or orders, the effect
could be material.
Permits. Mining companies must obtain numerous permits that impose strict
regulations on various environmental and health and safety matters in connection
with coal mining, including the emission of air and water borne pollutants, the
manner and sequencing of coal extractions and reclamation, the storage, use and
disposal of non-hazardous and hazardous substances, and the construction of
fills and impoundments. Because regulatory authorities have considerable
discretion in the timing of permit issuance and because both private individuals
and the public at large possess rights to comment on and otherwise engage in the
permitting process, including through intervention in the courts, no assurance
can be made that permits necessary for mining operations will be issued or, if
issued, that such issuance will be timely or that permitting requirements will
not be changed or interpreted in a manner that would have a material adverse
effect on the Company's financial condition or results of operations.
As indicated by the legal action involving the Company's Dal-Tex operation which
is discussed in "Contingencies - Legal Contingencies - Dal-Tex Litigation"
above, the regulatory environment in West Virginia is changing with respect to
coal mining. No assurance can be made that the Fourth Circuit will overturn the
district court's decision in such legal action or that a legislative or other
solution will be achieved. If the district court's ruling is not overturned or a
legislative or other solution is not achieved, there could be a material adverse
effect on the Company's financial condition or results of operations.
NOx Emissions. The use of explosives in surface mining causes oxides of nitrogen
("NOx") to be emitted into the air. The emission of NOx from the use of
explosives at surface mines in the Powder River Basin is gaining increased
scrutiny from regulatory agencies and the public. The Company has taken steps to
monitor the level of NOx emitted during blasting activities at its surface mines
in the Powder River Basin and is continuing efforts to find a method of reducing
these NOx emissions. Any increase in the regulation of NOx emissions from
blasting
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activities could have an adverse effect on the Company's Powder River Basin
surface mines. Depending upon the nature and scope of any such regulations, the
effect on the mines could be material.
Kyoto Protocol. On December 11, 1997, the U.S. government representatives at the
climate change negotiations in Kyoto, Japan, agreed to reduce the emissions of
greenhouse gases (including carbon dioxide and other gas emissions that are
believed to be trapping heat in the atmosphere and warming the earth's climate)
in the United States. The U.S. adoption of the requirements of the Kyoto
protocol is subject to conditions which may not occur and is also subject to the
protocol's ratification by the U.S. Senate. The U.S. Senate has indicated that
it will not ratify an agreement unless certain conditions, not currently
provided for in the Kyoto protocol, are met. At present, it is not possible to
predict whether the Kyoto protocol will attain the force of law in the United
States or what its impact would be on the Company. Further developments in
connection with the Kyoto protocol could have a material adverse effect on the
Company's financial condition and results of operations.
Customers. In July 1997, the EPA proposed that twenty-two eastern states,
including states in which many of the Company's customers are located, make
substantial reductions in nitrous oxide emissions. The EPA expects the states to
achieve these reductions by requiring power plants to reduce their nitrous oxide
emissions by an average of 85%. To achieve such reductions, power plants would
be required to install reasonably available control technology ("RACT") and
additional control measures. Installation of RACT and additional control
measures required under the EPA's proposal would make it more costly to operate
coal-fired utility power plants and, depending on the requirements of individual
state implementation plans and the development of revised new source performance
standards, could make coal a less attractive fuel alternative in the planning
and building of utility power plants in the future.
The EPA is also proposing to implement stricter ozone standards by 2003. The
U.S. Court of Appeals for the District of Columbia Circuit has, however,
enjoined the EPA from implementing the new ozone standards on constitutional and
other legal grounds. Implementation of the standards may be delayed or precluded
because of the injunction. The injunction may also result in modification of the
proposed ozone standards.
The U.S. Department of Justice, on behalf of the EPA, has filed a lawsuit
against seven investor-owned utilities and brought an administrative action
against one government-owned utility for alleged violations of the Clean Air
Act. The EPA claims that over thirty of these utilities' power stations have
failed to obtain permits required under the Clean Air Act for major improvements
which have extended the useful service of the stations or increased their
generating capacity. The Company supplies coal to seven of the eight utilities.
It is impossible to predict the outcome of this legal action. Any outcome that
adversely affects the Company's customers or makes coal a less attractive fuel
source could, however, have a material adverse effect on the Company's financial
condition or results of operations.
Reserve Degradation and Depletion
The Company's profitability depends substantially on its ability to mine coal
reserves that have the geologic characteristics that enable them to be mined at
competitive costs. There can be no assurance that replacement reserves,
particularly in central Appalachia, will be available when required or, if
available, that such replacement reserves can be mined at costs comparable to
those characteristic of the depleting mines. Exhaustion of reserves at
particular mines can also have an adverse effect on operating results that is
disproportionate to the percentage of overall production and operating income
represented by such mines. Mingo Logan's Mountaineer Mine is estimated to
exhaust its longwall mineable reserves in 2002. The Mountaineer Mine generated
$13.1 million of the Company's total operating income for the three months ended
March 31, 2000.
Reliance on and Terms of Long-Term Coal Supply Contracts
The Company sells a substantial portion of its coal production pursuant to long-
term coal supply agreements and, as a consequence, may experience fluctuations
in operating results due to the expiration or termination of, or sales price
redeterminations or suspensions of deliveries under such coal supply agreements.
Other short- and long-term contracts define base or optional tonnage
requirements by reference to the customer's requirements, which are
18
<PAGE>
subject to change as a result of factors beyond the Company's (and in certain
instances the customer's) control, including utility deregulation. In addition,
certain price adjustment provisions permit a periodic increase or decrease in
the contract price to reflect increases and decreases in production costs,
changes in specified price indices or items such as taxes or royalties. Price
reopener provisions provide for an upward or downward adjustment in the contract
price based on market factors. The Company has from time to time renegotiated
contracts after execution to extend the contract term or to accommodate changing
market conditions. The contracts also typically include stringent minimum and
maximum coal quality specifications and penalty or termination provisions for
failure to meet such specifications and force majeure provisions allowing
suspension of performance or termination by the parties during the duration of
certain events beyond the control of the affected party. Contracts occasionally
include provisions that permit a utility to terminate the contract if changes in
the law make it illegal or uneconomic for the utility to consume the Company's
coal or if the utility has unexpected difficulties in utilizing the Company's
coal. Imposition of new nitrous oxide emissions limits in connection with Phase
II of the Clean Air Act could result in price adjustments or in affected
utilities seeking to terminate or modify long-term contracts in reliance on such
termination provisions. If the parties to any long-term contracts with the
Company were to modify, suspend or terminate those contracts, the Company could
be adversely affected to the extent that it is unable to find alternative
customers at a similar or higher level of profitability.
From time to time, disputes with customers may arise under long-term contracts
relating to, among other things, coal quality, pricing and quantity. The Company
may thus become involved in arbitration and legal proceedings regarding its
long-term contracts. There can be no assurance that the Company will be able to
resolve such disputes in a satisfactory manner.
Although the Company cannot predict changes in its costs of production and coal
prices with certainty, the Company believes that in the current economic
environment of low to moderate inflation, the price adjustment provisions in its
older long-term contracts will largely offset changes in the costs of providing
coal under those contracts, except for those costs related to changes in
productivity. However, the increasingly short terms of sales contracts and the
consequent absence of price adjustment provisions in such contracts also make it
more likely that inflation related increases in mining costs during the contract
term will not be recovered by the Company through a later price adjustment.
Potential Fluctuations in Operating Results; Seasonality
The Company may experience significant fluctuations in operating results in the
future, both on an annual and quarterly basis, as a result of one or more
factors beyond its control, including expiration or termination of, or sale
price redeterminations or suspensions of deliveries under, coal supply
agreements; disruption of transportation services; changes in mine operating
conditions; changes in laws or regulations, including permitting requirements;
unexpected results in litigation; work stoppages or other labor difficulties;
competitive and overall coal market conditions; and general economic conditions.
The Company's mining operations are also subject to factors beyond its control
that can negatively or positively affect the level of production and thus the
cost of mining at particular mines for varying lengths of time. These factors
include weather conditions, equipment replacement and repair requirements;
variations in coal seam thickness, amount of overburden, rock and other natural
materials; and other surface or subsurface conditions. Such production factors
frequently result in significant fluctuations in operating results.
Third quarter results of operations are frequently adversely affected by lower
production and resultant higher costs due to scheduled vacation periods at the
majority of the Company's mines. In addition, costs are typically somewhat
higher during vacation periods because of maintenance activity carried on during
those periods. These adverse effects may prevent the third quarter from being
comparable to the other quarters and also prevent the third quarter results from
being indicative of results to be expected for the full year.
Certain Contractual Arrangements
19
<PAGE>
The Company owns a 99% interest in Arch Western Resources, LLC ("Arch Western"),
a joint venture that was formed in connection with the Company's acquisition of
the U.S. coal operations of Atlantic Richfield Company on June 1, 1998. The
Limited Liability Company Agreement pursuant to which Arch Western was formed
provides that a subsidiary of the Company, as the managing member of Arch
Western, generally has exclusive power and authority to conduct, manage and
control the business of Arch Western. However, if Arch Western at the time has a
debt rating less favorable than Ba3 from Moody's Investors Service or BB- from
Standard & Poors Ratings Group or does not meet certain specified indebtedness
and interest coverage ratios, then a proposal that Arch Western make certain
distributions, incur indebtedness, sell properties or merge or consolidate with
any other entity would require the consent of all the members of Arch Western.
In connection with the Arch Western transaction, the Company entered into an
agreement pursuant to which the Company agreed to indemnify another member of
Arch Western against certain tax liabilities in the event that such liabilities
arise as a result of certain actions taken prior to June 1, 2013, including the
sale or other disposition of certain properties of Arch Western, the repurchase
of certain equity interests in Arch Western by Arch Western or the reduction
under certain circumstances of indebtedness incurred by Arch Western in
connection with the Arch Western transaction. Depending on the time at which any
such indemnification obligation were to arise, it could have a material adverse
effect on the business, results of operations and financial condition of the
Company.
The membership interests in Canyon Fuel are owned 65% by Arch Western and 35% by
a subsidiary of ITOCHU Corporation, a Japanese corporation. The agreement which
governs the management and operations of Canyon Fuel provides for a Management
Board to manage its business and affairs. Generally, the Management Board acts
by affirmative vote of the representatives of the members holding more than 50%
of the membership interests. However, certain actions require either the
unanimous approval of the members or the approval of representatives of members
holding more than 70% of the membership interests. The Canyon Fuel agreement
also contains various restrictions on the transfer of membership interests in
Canyon Fuel.
Pursuant to a stockholders agreement among the Company, Ashland and Carboex S.A.
("Carboex"), the Company has agreed to nominate for election as a director of
the Company a person designated by Carboex, and Ashland has agreed to vote its
shares of common stock in a manner sufficient to cause the election of such
nominee, in each case for so long (subject to earlier termination in certain
circumstances) as shares of common stock owned by Carboex represent at least 63%
of the shares of common stock acquired by Carboex in the Company's merger with
Ashland's subsidiary, Ashland Coal, Inc. The Agreement terminates as to Ashland
once Ashland ceases to be the beneficial owner (as defined in Rule 13d-3(a)
under the Securities Exchange Act of 1934) of 10% or more of the Company's
common stock. In addition, for so long as the various trusts for the benefit of
descendants of H.L. and Lyda Hunt and various corporations owned by trusts for
the benefit of descendants of H.L. and Lyda Hunt (collectively the "Hunt
Entities") have the collective voting power to elect one or more persons to
serve on the Board of Directors of the Company, the Company has agreed to
nominate for election as directors of the Company that number of persons
designated by certain of the Hunt Entities that could be elected to the Board by
the Hunt Entities by exercise of such voting power.
The Company's Amended and Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least two-thirds of outstanding common
stock voting thereon to approve a merger or consolidation and certain other
fundamental actions involving or affecting control of the Company. The Company's
Bylaws require the affirmative vote of at least two-thirds of the members of the
Board of Directors of the Company in order to declare dividends and to authorize
certain other actions.
Transportation
The coal industry depends on rail, trucking and barge transportation to deliver
shipments of coal to customers. Disruption of these transportation services
could temporarily impair the Company's ability to supply coal to its customers
and thus adversely affect the Company's business and operating results. In
addition, transportation costs are a significant component of the total cost of
supplying coal to customers and can significantly affect a coal
20
<PAGE>
producer's competitive position and profitability. Increases in the Company's
transportation costs, or changes in such costs relative to transportation costs
incurred by providers of competing coal or of other fuels, could have an adverse
effect on the Company's business and results of operations.
Reliance on Estimates of Reserves; Title
There are numerous uncertainties inherent in estimating quantities of
recoverable reserves, including many factors beyond the control of the Company.
Estimates of economically recoverable coal reserves and net cash flows
necessarily depend upon the number of variable factors and assumptions, such as
geological and mining conditions (which may not be fully identified by available
exploration data and/or differ from experience in current operations),
historical production from the area compared with production from other
producing areas, the assumed effects of regulation by governmental agencies and
assumptions concerning coal prices, operating costs, severance and excise taxes,
development costs and reclamation costs, all of which may cause estimates to
vary considerably from actual results.
For these reasons, estimates of the economically recoverable quantities
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of net cash flows expected
therefrom prepared by different engineers or by the same engineers at different
times may vary substantially. Actual coal tonnage recovered from identified
reserve areas or properties and revenues and expenditures with respect to the
Company's reserves may vary from estimates, and such variances may be material.
No assurance can be given that these estimates are an accurate reflection of the
Company's actual reserves.
The Company's mining operations are conducted on properties owned or leased by
the Company. The loss of any lease could adversely affect the Company's ability
to develop the applicable reserves. Because title to most of the Company's
leased properties and mineral rights is not usually verified until a commitment
is made by the Company to develop a property, which may not occur until after
the Company has obtained necessary permits and completed exploration of the
property, the Company's right to mine certain of its reserves may be adversely
affected if defects in title or boundaries exist. In addition, there can be no
assurance that the Company can successfully negotiate new leases or mining
contracts for properties containing additional reserves or maintain its
leasehold interests in properties on which mining operations are not commenced
during the term of the lease.
Factors Routinely Affecting Results of Operations
Any one or a combination of the following factors may occur at times or in a
manner that causes results of the Company's operations to deviate from
expectations: changing demand; fluctuating selling prices; contract penalties,
suspensions or terminations; operational, geologic, transportation and weather-
related factors; unexpected regulatory changes; results of litigation; or labor
disruptions. Any event disrupting substantially all production at any of the
Company's principal mines for a prolonged period would have a material adverse
effect on the Company's current and projected results of operations. The effect
of such a disruption at the Mingo Logan operations would be particularly severe
because of the high volume of coal produced by those operations and the
relatively high contribution to operating income from the sale of such coal.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report and is incorporated herein by reference.
22
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The information required by this Item is contained in the second through
sixteenth paragraphs of the "Contingencies - Legal Contingencies" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report and is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on May 4, 2000, at
the Company's headquarters at CityPlace One, Suite 300, St. Louis,
Missouri, at 10:00 a.m.
(b) At such Annual Meeting, the holders of the Company's common stock elected
the following nominees for director:
<TABLE>
<CAPTION>
Nominee Total Votes For Total Votes Withheld
- ------- --------------- --------------------
<S> <C> <C>
Philip W. Block 33,271,856 3,754,466
James R. Boyd 33,271,860 3,754,462
Ignacio Dominguez Urquijo 34,032,500 2,993,822
Thomas L. Feazell 34,032,416 2,993,906
Robert L. Hintz 34,031,518 2,994,804
Douglas H. Hunt 34,032,522 2,993,800
Steven F. Leer 33,271,840 3,754,482
James L. Parker 34,032,522 2,993,800
A. Michael Perry 34,031,522 2,994,800
Theodore D. Sands 34,032,522 2,993,800
</TABLE>
At such Annual Meeting, the Company's stockholders, by a vote of 29,732,655 for
and 4,806,483 against, with 5,710 abstentions, also approved and adopted an
Amended and Restated Certificate of Incorporation.
At such Annual Meeting, the Company's stockholders, by a vote of 37,018,095 for
and 7,476 against, with 751 abstentions, also ratified the appointment of Ernst
& Young LLP as the Company's independent auditors for 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
2.1 Purchase and Sale Agreement dated as of March 22, 1998 among Atlantic
Richfield Company, ARCO Uinta Coal Company, Arch Coal, Inc. and Arch
Western Acquisition Corporation (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed June 15,
1998)
23
<PAGE>
2.2 Contribution Agreement among Arch Coal, Inc., Arch Western Acquisition
Corporation, Atlantic Richfield Company, Delta Housing, Inc., and Arch
Western Resources LLC, dated as of March 22, 1998 (incorporated herein by
reference to Exhibit 2.2 of the Company's Current Report on Form 8-K filed
June 15, 1998)
3.1 Amended and Restated Certificate of Incorporation of Arch Coal, Inc. (filed
herewith)
3.2 Amended and Restated Bylaws of Arch Coal, Inc. (filed herewith)
4.1 Stockholders Agreement, dated as of April 4, 1997, among Carboex
International, Ltd. Ashland Inc. and Arch Coal, Inc. (formerly Arch Mineral
Corporation) (incorporated herein by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-4 (Registration No. 333-28149)
filed on May 30, 1997)
4.2 Assignment of Rights, Obligations and Liabilities under the Stockholders
Agreement between Carboex International, Limited and Carboex, S.A.
effective as of October 15, 1998 (incorporated herein by reference to
Exhibit 4.2 of the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1998)
4.3 Registration Rights Agreement, dated as of April 4, 1997, among Arch Coal,
Inc. (formerly Arch Mineral Corporation), Ashland Inc., Carboex
International, Ltd. and the entities listed on Schedules I and II thereto
(incorporated herein by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-4 (Registration No. 333-28149) filed on
May 30, 1997, except for amended Schedule I thereto, incorporated herein by
reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1998)
4.4 Assignment of Registration Rights between Carboex International, Limited
and Carboex, S.A. effective as of October 15, 1998 (incorporated herein by
reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1998)
4.5 Agreement Relating to Nonvoting Observer, executed as of April 4, 1997,
among Carboex International, Ltd., Ashland Inc., Ashland Coal, Inc. and
Arch Coal, Inc. (formerly Arch Mineral Corporation) (incorporated herein by
reference to Exhibit 4.3 of the Company's Registration Statement on Form
S-4 (Registration No. 333-28149) filed on May 30, 1997)
4.6 Assignment of Right to Maintain a Non-Voting Observer at Meetings of the
Board of Directors of Arch Coal, Inc. between Carboex International,
Limited and Carboex, S.A. effective as of October 15, 1998 (incorporated
herein by referenced to Exhibit 4.6 of the Company's Annual Report on Form
10-K for the Year Ended December 31, 1998)
4.7 Agreement for Termination of the Arch Mineral Corporation Voting Agreement
and for Nomination of Directors, dated as of April 4, 1997, among Hunt Coal
Corporation, Petro-Hunt Corporation, each of the trusts listed on Schedule
I thereto, Ashland Inc. and Arch Mineral Corporation (incorporated herein
by reference to Exhibit 4.4 of the Company's Registration Statement on Form
S-4 (Registration No. 333-28149) filed on May 30, 1997)
4.8 $600,000,000 Revolving Credit Facility, $300,000,000 Term Loan Credit
Agreement by and among Arch Coal, Inc., the Lenders party thereto, PNC
Bank, National Association, as Administrative Agent, Morgan Guaranty Trust
Company of New York, as Syndication Agent, and First Union National Bank,
as Documentation Agent, dated as of June 1, 1998 (incorporated herein by
reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed
June 15, 1998)
4.9 Amendment 1 to Credit Agreement by and among Arch Coal, Inc., the Lenders
party thereto, PNC Bank, National Association, as Administrative Agent,
Morgan Guaranty Trust Company of New York, as
24
<PAGE>
Syndication Agent, and First Union National Bank, as Documentation Agent,
dated as of January 21, 2000 (incorporated herein by reference to Exhibit
4.9 of the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1999)
4.10 $675,000,000 Term Loan Credit Agreement by and among Arch Western
Resources, LLC, the Banks party thereto, PNC Bank, National Association,
as Administrative Agent, Morgan Guaranty Trust Company of New York, as
Syndication Agent, and NationsBank N.A., as Documentation Agent dated as
of June 1, 1998 (incorporated herein by reference to Exhibit 4.2 of the
Company's Current Report on Form 8-K filed June 15, 1998)
4.11 Omnibus Amendment Agreement dated as of June 1, 1998 in respect to Arch
Coal Trust no. 1998-1, Parent Guaranty and Suretyship Agreement, Lease
Intended as Security, Subsidiary Guaranty and Suretyship Agreement, each
dated as of January 15, 1998, among Apogee Coal Company, Catenary Coal
Company, Hobet Mining, Inc. Arch Coal, Inc., Great-West Life & Annuity
Insurance Company, Bank of Montreal, Barclays Bank, PLC, First Union
National Bank, BA Leasing and Capital Corporation, First Security Bank,
National Association, Arch Coal Sales Company, Inc., Ark Land Company and
Mingo Logan Coal Company (incorporated herein by reference to Exhibit 4.3
of the Company's Current Report on Form 8-K filed June 15, 1998)
4.12 Lease Intended as Security dated as of January 15, 1998, among Apogee Coal
Company, Catenary Coal Company and Hobet Mining, Inc., as Lessees; The
First Security Bank, National Association, as Lessor, and the Certificate
Purchasers named therein (incorporated herein by reference to Exhibit 4.5
of the Company's Annual Report on Form 10-K for the Year Ended December
31, 1997)
4.13 Form of Rights Agreement, dated March 3, 2000, between Arch Coal, Inc. and
First Chicago Trust Company of New York, as Rights Agent (incorporated
herein by reference to Exhibit 1 to a Current Report on Form 8-A filed on
March 9, 2000)
18 Preferability Letter of Ernst & Young LLP dated May 11, 1999 (incorporated
herein by reference to Exhibit 18 of the Company's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1999)
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated March 9, 2000 (announcing the Board of
Directors' declaration of a dividend of one preferred share purchase right
for each outstanding share of the Company's common stock, payable to
stockholders of record on March 20, 2000) was filed during the quarter
ended March 31, 2000.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCH COAL, INC.
---------------
(Registrant)
Date: May 12, 2000 /s/ John W. Lorson
---------------------
John W. Lorson
Controller
(Chief Accounting Officer)
Date: May 12, 2000 /s/ Robert G. Jones
----------------------
Robert G. Jones
Vice President, Law and General Counsel
(Duly Authorized Officer)
26
<PAGE>
Arch Coal, Inc.
Form 10-Q for Quarter Ended March 31, 2000
INDEX TO EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of Arch Coal, Inc. (filed
herewith)
3.2 Amended and Restated Bylaws of Arch Coal, Inc. (filed herewith)
27 Financial Data Schedule
27
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARCH COAL, INC.
* * * * *
1. The name of the Corporation is Arch Coal, Inc. The Corporation's
original Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on June 20, 1969.
2. This Amended and Restated Certificate of Incorporation restates
and integrates and also further amends in certain respects the Corporation's
Restated Certificate of Incorporation.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the applicable provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
* * * * *
FIRST: The name of the Corporation is Arch Coal, Inc. (hereinafter referred
to as the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
and the name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a Corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Hundred Ten Million
(110,000,000), which shall be divided into two classes as follows:
A. One Hundred Million (100,000,000) shares of Common Stock, the par value
of which shares is One Cent ($.01) per share; and
B. Ten Million (10,000,000) shares of Preferred Stock, the par value of
which shares is One Cent ($.01) per share. The Corporation's Board of Directors
is hereby expressly authorized to provide by resolution or resolutions from time
to time for the issuance of the Preferred Stock in one or more series, the
shares of each of which series to have such voting rights and the terms
<PAGE>
and conditions for the exercise thereof, provided that the holders of shares of
Preferred Stock (1) will not be entitled to more than the lesser of (x) one vote
per $100 of liquidation value or (y) one vote per share, when voting as a class
with the holders of shares of other capital stock, and (2) will not be entitled
to vote on any matter separately as a class, except to the extent required by
law or as specified with respect to each series with respect to (x) any
amendment or alteration of the provisions of this Certificate of Incorporation
that would adversely affect the powers, preferences, or special rights of the
applicable series of Preferred Stock or (y) the failure of the Corporation to
pay dividends on any series of Preferred Stock in full for any six quarterly
dividend payment periods, whether or not consecutive, in which event the number
of directors may be increased by two and the holders of outstanding shares of
Preferred Stock then similarly entitled shall be entitled to elect the two
additional directors until full accumulated dividends on all such shares of
Preferred Stock shall have been paid; and such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be permitted under the General
Corporation Law of the State of Delaware and as shall be stated in the
resolution or resolutions providing for the issuance of such stock adopted by
the Board of Directors pursuant to the authority expressly vested in the Board
of Directors in the Bylaws.
FIFTH:
A. The business and affairs of the Corporation shall be managed by or
under the direction of a board of directors consisting of such number of
directors as is determined from time to time by resolution adopted by
affirmative vote of not less than two-thirds of the members of the entire board
of directors; provided, however, that in no event shall the number of directors
be less than three (3). Effective upon the filing of this Amended and Restated
Certificate of Incorporation, the directors shall be divided into three (3)
classes, designated Class I, Class II and Class III. Class I directors shall
initially serve for a term ending at the annual meeting of stockholders of the
Corporation held in year 2001, Class II directors shall initially serve for a
term ending at the annual meeting of stockholders of the Corporation held in
year 2002 and Class III directors shall initially serve for a term ending at the
annual meeting of stockholders of the Corporation held in year 2003. At each
succeeding annual meeting of stockholders beginning with the annual meeting of
stockholders held in year 2001, successors to the class of directors whose term
expires at such annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, incapacitation
or removal from office, and except as otherwise required by law. In the event
such election is not held at an annual meeting of stockholders, it shall be held
at any adjournment thereof or at a special meeting.
<PAGE>
B. Except as otherwise required by law, any vacancy on the board of
directors that results from an increase in the number of directors shall be
filled only by a majority of the board of directors then in office, provided
that a quorum is present, and any other vacancy occurring in the board of
directors shall be filled by a majority of the directors then in office, even if
less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor.
C. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Amended and Restated Certificate of Incorporation applicable thereto and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH, in each case unless expressly provided by such terms.
SIXTH: Except as otherwise fixed pursuant to the provisions of ARTICLE
FOURTH hereof relating to the voting rights of the holders of any class or
series of Preferred Stock:
1. The affirmative vote of the holders of not less than two-thirds of the
shares of Common Stock voting thereon, in the manner and to the extent permitted
in the Bylaws, shall be required to:
(i) Adopt an agreement or plan of merger or consolidation;
(ii) Authorize the sale, lease or exchange of all or substantially all
of the property and assets of the Corporation;
(iii) Authorize the disposition of the Corporation or the distribution
of all or substantially all of the assets of the Corporation to its
stockholders; or
(iv) Amend, alter, supplement, repeal or adopt any provision
inconsistent with Article FOURTH, Article FIFTH, this ARTICLE SIXTH or Article
TENTH.
2. On all other matters, the affirmative vote of a majority of the shares
of Common Stock voting therein will be required unless a greater vote is
required by law.
3. Voting by the stockholders for the election of directors or on any
other matter need not be by written ballot.
SEVENTH: All actions required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation must be taken at a
duly called annual or special meeting of stockholders, and cannot be taken by a
consent in writing without a meeting.
<PAGE>
EIGHTH: Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by any two or more directors. Such
special meetings may not be called by any other person or persons or in any
other manner. Only such business will be conducted at any such special meeting
as is brought before the meeting in accordance with the notice of the meeting.
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the Bylaws of the Corporation as therein provided.
TENTH: The Corporation hereby expressly elects not to be governed by
Section 203 of the General Corporation Law of the State of Delaware.
ELEVENTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the General Corporation Law of the State
of Delaware or (iv) for any transaction from which such director derived an
improper personal benefit. No repeal of or amendment to this Article ELEVENTH
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such repeal or amendment. If the General Corporation
Law of the State of Delaware is amended to authorize corporate action further
eliminating the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as amended.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Amended and Restated Certificate of Incorporation in
the manner from time to time prescribed herein and by the laws of the State of
Delaware. All rights herein conferred are granted subject to this reservation.
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
ARCH COAL, INC.
<PAGE>
BYLAWS
of
ARCH COAL, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I - MEETINGS OF STOCKHOLDERS...................................1
- ------------------------------------
Section 1. Annual Meeting............................................1
- --------- --------------
Section 2. Special Meeting...........................................1
- --------- ---------------
Section 3. Notice of Meetings........................................1
- --------- ------------------
Section 4. Quorum....................................................2
- --------- ------
Section 5. Conduct of Business.......................................2
- --------- -------------------
Section 6. Proxies and Voting........................................2
- --------- ------------------
Section 7. Waiver of Notice..........................................3
- --------- ----------------
Section 8. Adjournments..............................................3
- --------- ------------
Section 9. Record Date...............................................3
- --------- -----------
Section 10. Inspectors of Election....................................4
- ---------- ----------------------
Section 11. List of Stockholders Entitled to Vote.....................5
- ---------- -------------------------------------
Section 12. Advisory Stockholder Votes................................5
- ---------- --------------------------
ARTICLE II - BOARD OF DIRECTORS........................................6
- --------------------------------
Section 1. Power of the Directors....................................6
- --------- ----------------------
Section 2. Number and Term of Office; Election.......................6
- --------- -----------------------------------
Section 3. Notice of Stockholder Business and Nominations............7
- --------- ----------------------------------------------
Section 4. Election..................................................9
- --------- --------
Section 5. Vacancies.................................................9
- --------- ---------
<PAGE>
Section 6. Resignation................................................9
- --------- -----------
Section 7. Removal...................................................10
- --------- -------
Section 8. Regular Meetings..........................................10
- --------- ----------------
Section 9. Special Meetings..........................................10
- --------- ----------------
Section 10. Notice of Meeting.........................................10
- ---------- -----------------
Section 11. Quorum....................................................10
- ---------- ------
Section 12. Manner of Acting..........................................10
- ---------- ----------------
Section 13. Participation in Meetings by Conference Telephone.........11
- ---------- -------------------------------------------------
Section 14. Action by Consent.........................................12
- ---------- -----------------
Section 15. Organization..............................................12
- ---------- ------------
Section 16. Executive Committee.......................................12
- ---------- -------------------
Section 17. Audit Committee...........................................12
- ---------- ---------------
Section 18. Other Committees..........................................13
- ---------- ----------------
Section 19. Waiver of Notices.........................................13
- ---------- -----------------
Section 20. Compensation of Directors.................................13
- ---------- -------------------------
ARTICLE III - OFFICERS................................................14
- ----------------------
Section 1. Election and Appointment; Term of Office..................14
- --------- ----------------------------------------
Section 2. Resignation; Removal; Vacancies...........................14
- --------- -------------------------------
Section 3. Duties and Functions......................................14
- --------- --------------------
ARTICLE IV - NOTES, LOAN AGREEMENTS, CHECKS, BANK ACCOUNTS, ETC. .....16
- ---------------------------------------------------------------
Section 1. Execution of Documents....................................16
- --------- ----------------------
Section 2. Deposits..................................................17
- --------- --------
ARTICLE V - INDEMNIFICATION...........................................17
- ---------------------------
Section 1. Indemnification of Directors and Officers.................17
- --------- -----------------------------------------
Section 2. Right to Indemnification..................................18
- --------- ------------------------
Section 3. Expenses..................................................18
- --------- --------
Section 4. Other Rights..............................................18
- --------- ------------
ii
<PAGE>
ARTICLE VI - SHARES AND THEIR TRANSFER................................19
- --------------------------------------
Section 1. Certificates for Shares...................................19
- --------- -----------------------
Section 2. Transfer..................................................19
- --------- --------
Section 3. Record....................................................20
- --------- ------
ARTICLE VII - THIRD PARTIES...........................................20
- ---------------------------
ARTICLE VIII - SEAL...................................................20
- -------------------
ARTICLE IX - FISCAL YEAR..............................................20
- -------------------------
ARTICLE X - AMENDMENTS................................................20
- -----------------------
ARTICLE XI - NOTICES..................................................20
- ---------------------
ARTICLE XII - COMPUTATION OF TIME PERIODS.............................21
- ------------------------------------------
iii
<PAGE>
BYLAWS
of
ARCH COAL, INC.
*******
ARTICLE I - MEETINGS OF STOCKHOLDERS
------------------------------------
Section 1. Annual Meeting.
--------- --------------
The annual meeting of the stockholders of the Corporation shall be held at
such date, time and place as shall be designated by the Board of Directors and
stated in the notice of the meeting.
Section 2. Special Meeting.
--------- ---------------
Special meetings of the stockholders may be called at any time by any two
or more members of the Board of Directors to be held at such date, time and
place within the United States as shall be designated in the notice thereof.
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date and time of each meeting of the
stockholders shall be given in the manner provided in Article XII, not less than
ten nor more than sixty days before the date on which the meeting is to be held,
to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the General Corporation Law of Delaware). The notice of any
special meeting shall state the purpose or purposes for which the special
meeting is called and shall indicate that such notice is being issued upon the
request of the person or persons calling the meeting.
Upon the written request of the person or persons calling any special
meeting, notice of such meeting shall be given by the Secretary of the
Corporation on behalf of such person or persons. Every request to the Secretary
for the giving of notice of a special meeting of stockholders shall state the
purpose or purposes of such meeting.
If mailed, such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
<PAGE>
Section 4. Quorum.
--------- ------
Subject to the requirements of applicable law, the Restated Certificate of
Incorporation, as amended from time to time (hereafter the Certificate of
Incorporation), and these Bylaws in respect of the vote required for a specified
action, at any meeting of the stockholders, the holders of a majority of the
outstanding shares of stock entitled to vote, present in person or by proxy,
shall constitute a quorum for the transaction of business.
Notwithstanding the foregoing, if a quorum shall fail to attend any
meeting, the presiding person of the meeting or the holders of a majority of the
stock, present in person or by proxy, may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 5. Conduct of Business.
--------- -------------------
The Board of Directors of the Corporation may adopt by resolution such
rules and regulations for the conduct of the meeting of stockholders as it shall
deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the Corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
Section 6. Proxies and Voting.
- --------- ------------------
Except as may be otherwise provided by law, the Certificate of
Incorporation or these Bylaws, (i) each stockholder of record present in person
or by proxy shall be
2
<PAGE>
entitled, at every stockholders' meeting, to one vote for each share of capital
stock having voting power standing in the name of such stockholder on the books
of the Corporation, and (ii) the affirmative vote of a majority of the shares
voting thereon at a duly organized meeting and entitled to vote on the subject
matter shall be the act of the stockholders.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy, authorized by an instrument in writing or in such
manner as may be prescribed by the Delaware General Corporation Law, filed in
accordance with the procedure established for the meeting.
Section 7. Waiver of Notice.
--------- ----------------
Notices of meetings need not be given to any stockholder who submits a
written waiver of notice, signed in person or by proxy, whether before or after
the meeting. The purpose or purposes of any meeting of stockholders shall be
specified in any such waiver of notice. Attendance of a stockholder at a
meeting, in person or by proxy, shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 8. Adjournments.
--------- ------------
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty nor less than ten days before the date of any meeting of stockholders, nor
more than sixty days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding
3
<PAGE>
the day on which notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 10. Inspectors of Election.
---------- ----------------------
The Corporation may, and shall if required by law, in advance of any
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Corporation, to act at the meeting or any adjournment thereof
and to make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. In
the event that no inspector so appointed or designated is able to act at a
meeting of stockholders, the person presiding at the meeting shall appoint one
or more inspectors to act at the meeting. Each inspector, before entering upon
the discharge of such inspector's duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of such inspector's ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of shares of capital stock of the
Corporation outstanding and the voting power of each such share, (ii) determine
the shares of capital stock of the Corporation represented at the meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares of capital stock of the Corporation
represented at the meeting and such inspectors' count of all votes and ballots.
Such certification and report shall specify such other information as may be
required by law. In determining the validity and counting of proxies and ballots
cast at any meeting of stockholders of the Corporation, the inspectors may
consider such information as is permitted by applicable law. No person who is a
candidate for an office at an election may serve as an inspector at such
election.
Section 11. List of Stockholders Entitled to Vote.
---------- -------------------------------------
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to
4
<PAGE>
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the Directors to produce such a list at any meeting for
the election of Directors, they shall be ineligible for election to any office
at such meeting. Except as otherwise provided by law, the stock ledger shall be
the only evidence as to who are the stockholders entitled to vote in person or
by proxy at any meeting of stockholders or to examine the stock ledger, the list
of stockholders or the books of the Corporation.
Section 12. Advisory Stockholder Votes.
---------- --------------------------
In order for stockholders to adopt or approve any precatory proposal
submitted to them for the purpose of requesting the Board of Directors to take
certain actions, the affirmative vote of the holders of shares of capital stock
having at least a majority of the vote which could be cast by the holders of all
shares of capital stock entitled to vote thereupon, voting as a single class,
must be voted in favor of the proposal.
5
<PAGE>
ARTICLE II - BOARD OF DIRECTORS
-------------------------------
Section 1. Power of the Directors.
--------- ----------------------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors, which may exercise all the powers of
the Corporation and do all lawful acts and things which are not conferred upon
or reserved to the stockholders by law or by the Certificate of Incorporation.
Section 2. Number and Term of Office; Election.
--------- -----------------------------------
Subject to the provisions of the Certificate of Incorporation and the
restriction that the number of Directors shall not be less than the number
required by the laws of the State of Delaware, the number of Directors shall be
fixed, from time to time, by a resolution adopted by the affirmative vote of not
less than two-thirds of the members of the entire Board of Directors; provided,
however, that in no event shall the number of Directors be less than three (3).
The Directors shall be divided into three (3) classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the whole number of the Board of Directors. Class I Directors
shall initially serve for a term ending at the annual meeting of stockholders of
the Corporation held in year 2001, Class II Directors shall initially serve for
a term ending at the annual meeting of stockholders of the Corporation held in
year 2002 and Class III Directors shall initially serve for a term ending at the
annual meeting of stockholders of the Corporation held in year 2003. At each
succeeding annual meeting of stockholders beginning with the annual meeting of
stockholders held in year 2001, successors to the class of Directors whose term
expires at such annual meeting shall be elected for a three-year term. If the
number of Directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of Directors in each class as
nearly equal as possible, and any additional Director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of Directors shorten the term of any incumbent
Director. A Director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, incapacitation
or removal from office, and except as otherwise required by law. In the event
such election is not held at an annual meeting of stockholders, it shall be held
at any adjournment thereof or at a special meeting. This paragraph of Article
II, Section 2 is also contained in Article FIFTH, Section (A) of the
Corporation's Certificate of Incorporation, and accordingly, may be altered,
amended or repealed only to the extent and at the time the comparable
Certificate Article is altered, amended or repealed.
6
<PAGE>
Section 3. Notice of Stockholder Business and Nominations.
--------- ----------------------------------------------
A. Annual Meetings of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting delivered pursuant to Section 3 of Article I
of these Bylaws, (b) by or at the direction of the Chairman or the Board of
Directors, (c) with respect to those persons to be elected by any class or
classes of Preferred Stock of the Corporation, by any holder of such class or
classes of Preferred Stock, or (d) other than with respect to those persons to
be elected by any class or classes of Preferred Stock of the Corporation, by any
stockholder of the Corporation who is entitled to vote at the meeting who
complied with the procedures set forth in this Bylaw and who was a stockholder
of record at the time such notice is delivered to the Secretary of the
Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (d) of subparagraph (A) (1)
of this Bylaw, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not less than seventy days nor more than ninety days prior to the
first anniversary of the preceding year's Annual Meeting; provided, however,
that in the event that the date of the Annual Meeting is advanced by more than
twenty days, or delayed by more than seventy days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such Annual Meeting and not later than the close of
business on the later of the seventieth day prior to such Annual Meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
Director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
7
<PAGE>
(3) Notwithstanding anything in the second sentence of subparagraph
(A) (2) of this Bylaw to the contrary, in the event that the number of Directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for Director or
specifying the size of the increased Board of Directors made by the Corporation
at least eighty days prior to the first anniversary of the preceding year's
Annual Meeting, a stockholder's notice required by this Bylaw shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
B. Special Meetings of Stockholders.
Only such business shall be conducted at a Special Meeting of stockholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting pursuant to Section 3 of Article I of these Bylaws.
Nominations of persons for election to the Board of Directors may be made at a
Special Meeting of stockholders at which Directors are to be elected pursuant to
the Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is entitled to vote
at the meeting, who complies with the notice procedures set forth in this Bylaw
and who is a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation. Nominations by stockholders of persons for
election to the Board of Directors may be made at such a Special Meeting of
stockholders if the stockholder's notice as required by subparagraph (A) (2) of
this Bylaw shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth day prior to such
Special Meeting and not later than the close of business on the later of the
seventieth day prior to such Special Meeting or the tenth day following the day
on which public announcement is first made of the date of the Special Meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting.
C. General.
(1) Only persons who are nominated in accordance with the procedures set
forth in this Bylaw shall be eligible to serve as Directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Bylaw. Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, the Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this Bylaw and,
if any proposed nomination or business is not in compliance with this Bylaw, to
declare that such defective proposal or nomination shall be disregarded.
8
<PAGE>
(2) For purposes of this Bylaw, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of
stockholders to request inclusion of or the obligation of the Corporation to
include proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
Section 4. Election.
--------- --------
Except as otherwise provided in the Certificate of Incorporation, at each
meeting of the stockholders for the election of a class of Directors at which a
quorum is present, the persons receiving the greatest number of votes shall be
elected as Directors of such class.
Section 5. Vacancies.
--------- ---------
Except as otherwise fixed pursuant to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect Directors:
(a) Except as otherwise required by law, any vacancy on the Board of
Directors that results from an increase in the number of Directors shall be
filled only by a majority of the Board of Directors then in office, provided
that a quorum is present, and any other vacancy occurring in the Board of
Directors shall be filled by a majority of the Directors then in office, even if
less than a quorum, or by a sole remaining Director.
(b) Any Director elected to fill a vacancy not resulting from an increase
in the number of Directors shall have the same remaining term as that of his or
her predecessor.
This Article II, Section 5 is also contained in Article FIFTH, Section (B)
of the Corporation's Certificate of Incorporation, and accordingly, may be
altered, amended or repealed only to the extent and at the time such provision
of the Certificate of Incorporation is altered, amended or repealed.
Section 6. Resignation.
--------- -----------
9
<PAGE>
Any Director may resign at any time by giving written notice of resignation
to the Board of Directors, the Chairman of the Board, the President or the
Secretary. Any such resignation shall take effect at the time specified therein,
or, if the time when it shall become effective shall not be specified therein,
then it shall take effect when accepted by action of the Board of Directors.
Except as aforesaid, the acceptance of such resignation shall not be necessary
to make it effective.
Section 7. Removal.
--------- -------
A Director or Directors may be removed from office only as provided in the
Corporation's Certificate of Incorporation and if not so provided, then in
accordance with the provisions of applicable law.
Section 8. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall be established
by the Board of Directors and publicized among all Directors.
Section 9. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by any two of the
Directors, the Chairman of the Board, the President or Chief Executive Officer
and shall be held at such place within the United States, on such date and at
such time as the person or persons calling the meeting shall fix.
Section 10. Notice of Meeting.
---------- -----------------
Notice of the date, place, time and purpose or purposes of each meeting of
the Directors shall be given to each Director in the manner provided in Article
XII at such Director's usual place of business at least three business days
before the day on which the meeting is to be held. Upon written request of the
person or persons calling any special meeting, notice of such meeting shall be
given by the Secretary on behalf of such person or persons and shall indicate
the person or persons calling the meeting.
Section 11. Quorum.
---------- ------
At all meetings of the Board of Directors, the presence of a majority of
the whole Board of Directors fixed by or in the manner provided in these Bylaws
shall constitute a quorum for the transaction of business.
Section 12. Manner of Acting.
---------- ----------------
A. Except as otherwise provided in subsection B of this Section 12, the
vote of a majority of the Directors present at a meeting at which a quorum is
present shall be
10
<PAGE>
necessary for the passage of any resolution or act of the Board of Directors.
B. The vote of not less than two-thirds of the entire Board of Directors
shall be necessary for the passage of any resolution or act of the Board of
Directors in respect of the following:
(i) the declaration of a dividend or distribution on any capital stock
of the Corporation not otherwise entitled to such dividend or distribution
pursuant to the terms thereof;
(ii) the approval of the Corporation's annual budget or operating plan
and any material modification thereof, including any capital expenditure in
excess of Ten Million Dollars ($10,000,000) not provided for in the annual
budget;
(iii) the election or removal of the Chief Executive Officer, Chief
Financial Officer or Chief Operating Officer (if any) of the Corporation;
(iv) except for the issuance of Common Stock pursuant to a
compensation plan approved by the Board of Directors, the issuance of more than
One Million (1,000,000) shares of Common Stock or any shares of Preferred Stock
in any one transaction or a series of related transactions;
(v) the adoption of a share purchase rights plan of a nature commonly
referred to as a stockholders right plan;
(vi) the repurchase or redemption of any capital stock of the
Corporation;
(vii) an establishment or change in the number of Directors of the
Corporation;
(viii) the appointment of members to or dissolution of the Executive
Committee; or
(ix) the amendment of this Section 12 of these Bylaws.
Section 13. Participation in Meetings by Conference Telephone.
---------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear and speak to each other, and such
participation shall constitute the presence in person at such meeting.
11
<PAGE>
Section 14. Action by Consent.
---------- -----------------
Any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting, prior
notice, or vote if a consent in writing, which writing may be in counterparts
which may bear telecommunicated facsimile signatures, setting forth the action
so taken, is signed by all members of the Board or committee, and such writing
is filed with the minutes of the proceedings of the Board or committee.
Section 15. Organization.
---------- ------------
Meetings of the Board of Directors shall be presided over by the Chairman
of the Board or in the Chairman's absence by the Chief Executive Officer, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in the Secretary's absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 16. Executive Committee.
---------- -------------------
The Board of Directors may establish an Executive Committee to consist of
such Directors as the Board shall from time to time designate. The Executive
Committee shall to the extent permitted by law have and may exercise such powers
and authority as the Board shall from time to time determine. The Executive
Committee shall record minutes of each of its meetings and shall submit the same
to the Board at the first meeting of the Board held subsequent to such meeting
of the Executive Committee. At all meetings of the Executive Committee, a
majority of the total number of the members thereof shall constitute a quorum
for the transaction of business. A majority vote of the members of the Executive
Committee who are present shall be the act of the Executive Committee.
Section 17. Audit Committee.
---------- ---------------
The Board may by resolution designate an Audit Committee consisting of
three or more Directors. Vacancies on the Audit Committee may be filled by the
Board at any time and any member of the Audit Committee shall be subject to
removal, with or without cause, at any time by resolution passed by the Board.
The Audit Committee shall review with the independent public accountants
for the Corporation the scope of their examination, receive copies of the
reports of such accountants, meet with representatives of such accountants for
the purpose of reviewing and considering questions relating to such accountants'
examination and such reports, review, either directly or through such
accountants, the internal accounting and auditing procedures of the Corporation,
report the results of the foregoing to the Board and act upon such other matters
as may be referred to it by the Board.
12
<PAGE>
At each meeting of the Board the Audit Committee shall make a report of all
action taken by it since its last report to the Board.
The Audit Committee shall meet as often as may be deemed necessary and
expedient at such times and places as shall be determined by the members of the
Audit Committee. A majority of the members of the Audit Committee shall
constitute a quorum. In the absence of the Chairman of the Audit Committee, the
Audit Committee may appoint any member to preside at meetings thereof.
Section 18. Other Committees.
---------- -----------------
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more other committees, each of which shall consist of
one or more Directors. The Board may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Each such committee shall have and may
exercise such powers and authority of the Board of Directors in the management
of the business and affairs of the Corporation as the Board shall provide in the
resolution designating such committee, except as otherwise provided by statute.
Section 19. Waiver of Notices.
---------- -----------------
Notice of a meeting need not be given to any Director who submits a written
waiver of notice signed by such Director, including a telecommunicated facsimile
waiver, whether before or after the meeting. The purpose or purposes of any
meeting of the Directors must be specified in any such waiver of notice.
Attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except when the Director attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 20. Compensation of Directors.
---------- -------------------------
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, the Board of Directors shall have the authority to fix the compensation
of Directors. The Directors may be paid their expenses, if any, for attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director, or both. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
13
<PAGE>
ARTICLE III - OFFICERS
----------------------
Section 1. Election and Appointment; Term of Office.
--------- ----------------------------------------
The officers of the Corporation shall be a Chairman of the Board, a President,
one or more Vice Presidents (the number thereof to be determined from time to
time by the Board), a Treasurer, a Secretary and a Controller. The Board shall
designate either the Chairman of the Board or the President as the Chief
Executive Officer of the Corporation. Each such officer shall be elected by the
Board at its annual meeting to serve at the will and pleasure of the Board and
shall hold office until the next annual meeting of the Board and until such
officers' successor is elected or until such officer's earlier death,
resignation or removal in the manner hereinafter provided. The Board may elect
or appoint such other officers (including one or more Assistant Treasurers and
one or more Assistant Secretaries) as it deems necessary who shall have such
authority and shall perform such duties as the Board may prescribe. If
additional officers are elected or appointed during the year, each of them shall
hold office until the next annual meeting of the Board at which officers are
regularly elected or appointed and until such officer's successor is elected or
appointed or until such officer's earlier death, resignation or removal in the
manner hereinafter provided. To the extent the Board shall deem appropriate,
more than one of the offices authorized herein may be held by the same person.
Section 2. Resignation; Removal; Vacancies.
--------- -------------------------------
A. Resignation. Any officer may resign at any time by giving written notice
to the Chief Executive Officer or the Secretary of the Corporation, and such
resignation shall take effect upon receipt unless specified therein to be
effective at some other time (subject always to the provisions of Section 2.B).
No acceptance of any such resignation shall be necessary to make it effective.
B. Removal. All officers and agents elected or appointed by the Board shall
be subject to removal at any time by the Board with or without cause.
C. Vacancies. A vacancy in any office may be filled for the unexpired
portion of the term in the same manner as provided for election or appointment
to such office.
Section 3. Duties and Functions.
--------- --------------------
A. Chairman of the Board. The Chairman of the Board shall preside at all
meetings of the stockholders and Directors and shall perform such other duties
as the Board may prescribe.
B. President. In the absence, refusal or incapacity of the Chairman of the
Board, or the Chief Executive Officer (if the President shall not be designated
as such) the President shall perform the duties of such office, except those of
presiding at meetings of Directors. If the President shall not be designated as
the Chief Executive
14
<PAGE>
Officer by the Board pursuant to Section 1, the President shall act under the
control of the Chief Executive Officer.
C. Chief Executive Officer. Subject to the direction and control of the
Board, the Chief Executive Officer shall have responsibility for the management
and control of the affairs and business of the Corporation and shall perform all
duties and have all powers which are commonly incident to the office of the
Chief Executive Officer, including the power to enter into commitments, execute
and deliver contracts and do and perform all such other acts and things as are
necessary and appropriate to accomplish the Corporation's business and
operations and to manage the business and affairs of the Corporation. The Chief
Executive Officer may assign such duties to other officers of the Corporation as
the Chief Executive Officer deems appropriate.
D. Chief Operating Officer. In the event the President is not designated as
Chief Executive Officer pursuant to Section 1, the President may, in the Board's
discretion, be designated as the Chief Operating Officer of the Corporation and
shall have such powers and duties as the Board, or Chief Executive Officer, may
prescribe.
E. Vice Presidents. The Vice Presidents shall have such powers and perform
such duties as the Board or the Chief Executive Officer may prescribe. One or
more Vice Presidents may be given and shall use as part of the title such other
designations, including, without limitation, the designations "Executive Vice
President" and "Senior Vice President," as the Board or the Chief Executive
Officer may designate from time to time. One of the Vice Presidents may also be
given and shall use as part of the title such other designations as may be
descriptive of descriptive responsibilities, including, without limitation,
designations such as "Chief Financial Officer" or "General Counsel," as the
Board or the Chief Executive Officer may designate from time to time. In the
absence, refusal or incapacity of the Chairman of the Board and the President,
the powers and duties of the Chief Executive Officer shall be vested in and
performed by such Vice Presidents as have the designation "Executive Vice
President," in the order of their seniority or as otherwise established by
action of the Board from time to time, or by such other officer as the Board or
the Chief Executive Officer shall have most recently designated for that purpose
in a writing filed with the Secretary.
F. Treasurer. The Treasurer shall act under the direction of the Chief
Executive Officer. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the Corporation and the deposit
thereof in the name and to the credit of the Corporation in such depositories as
may be designated by the Board or by the Treasurer pursuant hereto. The
Treasurer shall be authorized at any time, and from time to time, by a writing
countersigned by the Chief Executive Officer, to open bank accounts in the name
of the Corporation in any bank or trust company for the deposit therein of any
funds, drafts, checks or other orders for the payment of money to the
Corporation; and the Treasurer shall be authorized at any time, and from time to
time, by a writing countersigned by the Chairman of the Board, to authorize and
empower any representative or agent of the Corporation to draw upon or sign for
the Corporation
15
<PAGE>
either manually or by the use of facsimile signature, any and all checks, drafts
or other orders for the payment of money against such bank accounts which any
such bank or trust company may pay without further inquiry.
G. Secretary. The Secretary shall act under the direction of the Chairman
of the Board. The Secretary shall attend all meetings of the Board, the
Executive Committee and the stockholders and record the proceedings in a book to
be kept for that purpose and shall perform like duties for committees designated
by the Board. The Secretary shall duly give or cause to be given, in accordance
with the provisions of these Bylaws or as required by law, notice of all
meetings of the stockholders and special meetings of the Board. The Secretary
shall be the custodian of the records and the corporate seal or seals of the
Corporation and shall cause the corporate seal to be affixed to all documents,
the execution of which, on behalf of the Corporation, under its seal, is duly
authorized and when so affixed may attest to same. The Secretary may sign, with
the Chief Executive Officer or with the President, certificates of stock of the
Corporation.
H. Controller. The Controller shall act under the direction of the Chief
Financial Officer of the Corporation, or, if none, the Chief Executive Officer.
Subject to the direction of the Chief Financial Officer of the Corporation or,
if none, the Chairman of the Board, the Controller shall have charge of the
accounting records of the Corporation, shall keep full and accurate accounts of
all receipts and disbursements in books belonging to the Corporation, shall
maintain adequate internal control of the Corporation's accounts, and may
perform such other duties as may be prescribed by the Chief Financial Officer of
the Corporation or, if none, the Chief Executive Officer, and by the Board.
ARTICLE IV - NOTES, LOAN AGREEMENTS,
------------------------------------
CHECKS, BANK ACCOUNTS, ETC.
---------------------------
Section 1. Execution of Documents.
--------- ----------------------
The Board shall from time to time by resolution authorize the officers,
employees and agents of the Corporation to execute and deliver checks and other
orders for the payment of money and notes, bonds and other securities, together
with mortgages, loan agreements and other instruments securing or relating
thereto and other contracts and commitments for and in the name of the
Corporation and may authorize such officers, employees and agents to delegate
such power (including authority to redelegate) by written instrument to other
officers, employees or agents of the Corporation.
16
<PAGE>
Section 2. Deposits.
--------- --------
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation or otherwise as the Board or any
officer of the Corporation to whom power in that respect shall have been
delegated by the Board shall select.
ARTICLE V - INDEMNIFICATION
---------------------------
Section 1. Indemnification of Directors and Officers.
--------- -----------------------------------------
A. Every person who is or was a Director or officer of the Corporation, or
of any other corporation or entity which such person served as such at the
request of the Corporation shall in accordance with Section 2 of this Article V
be indemnified by the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any claim, action, suit or proceeding (other
than any claim, action, suit or proceeding brought by or in the right of the
Corporation), civil or criminal, administrative or investigative, or in
connection with an appeal relating thereto, in which such person may be
involved, as a party or otherwise, by reason of such person being or having been
a Director or officer of the Corporation or such other corporation or entity, or
by reason of any action taken or not taken in such capacity as such Director or
officer, whether or not such person continues to be such at the time such
liability or expense shall have been incurred, provided that such person acted,
in good faith, and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful. The termination of any claim, action, suit or proceeding,
civil or criminal, by judgment, order, settlement (whether with or without court
approval), conviction or upon a plea of guilty or nolo contendere, or its
equivalent shall not create a presumption that a Director or officer did not
meet the standards of conduct set forth in this Section l.A.
B. Every person who is or was a Director or officer of the Corporation, or
of any other corporation or entity which such person served as such at the
request of the Corporation, shall in accordance with Section 2 of Article V be
indemnified by the Corporation against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of any claim, action, suit or proceeding brought by or in the
right of the Corporation, or in connection with an appeal or otherwise, by
reason of such person being or having been a Director or officer of the
Corporation or such other corporation or entity, or by reason of any action
taken or not taken in such person's capacity as such Director or officer,
whether or not such person continues to be such at the time such expense shall
have been incurred, provided that such person acted in good faith, and in a
manner such person reasonably believed to be the best interests of the
Corporation, and provided further,
17
<PAGE>
that no indemnification shall be made in respect of any claim, action, suit or
proceeding as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such claim,
action, suit or proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 2. Right to Indemnification.
--------- ------------------------
Every person referred to in Section 1 or Section 2 of this Article V who
has been wholly successful, on the merits or otherwise, with respect to any
claim, action, suit or proceeding of the character described in said Sections
shall be entitled to indemnification as of right. Except as provided in the
preceding sentence, any indemnification under Section 1 or Section 2 of this
Article V may be made by the Board of Directors, in its discretion, but only if
(a) the Board of Directors, acting by a quorum consisting of Directors who are
not parties to such claim, action, suit or proceeding, shall have found that the
Director or officer has met the applicable standard of conduct set forth in
Section 1 or Section 2, as the case may be, of this Article V or (b) there be no
such disinterested quorum, independent legal counsel (who may be the regular
outside counsel of the Corporation) shall have delivered to the Corporation
written advice to the effect that in their judgment such applicable standard has
been met, or (c) by the stockholders of the Corporation.
Section 3. Expenses.
--------- --------
Expenses incurred with respect to any claim, action, suit or proceeding of
the character described in Section 1 of this Article V may be paid by the
Corporation prior to the final disposition thereof upon receipt of an
undertaking by or on behalf of the Director or officer to repay such amount
unless it shall ultimately be determined that such person is entitled to
indemnification by the Corporation.
Section 4. Other Rights.
--------- ------------
The rights of indemnification provided in this Article V shall be in
addition to any other rights to which a Director or officer of the Corporation
or such other corporation or entity may otherwise be entitled by contract, vote
of disinterested stockholders or Directors or otherwise or as a matter of law;
and in the event of such person's death, such rights shall extend to such
person's heirs and legal representatives.
18
<PAGE>
ARTICLE VI - SHARES AND THEIR TRANSFER
--------------------------------------
Section 1. Certificates for Shares.
--------- -----------------------
The stock of the Corporation shall be represented by certificates signed in
the name of the Corporation by (a) either the Chairman of the Board of Directors
or the President or a Vice President and (b) either the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, or
in any act amending, supplementing or substituted for such Section, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Any of or all the signatures on a certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed.
Section 2. Transfer.
--------- --------
Upon surrender to the Corporation or its transfer agent of a certificate
for shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
19
<PAGE>
Section 3. Record.
--------- ------
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII - THIRD PARTIES
---------------------------
Any party dealing with the Corporation shall be entitled to rely
conclusively as to the due authorization of any act of the Corporation upon a
certificate provided to it and signed by (a) the President or any Vice President
and (b) the Secretary or any Assistant Secretary to the effect that such act was
duly authorized by all necessary action of the Corporation.
ARTICLE VIII - SEAL
-------------------
The Board of Directors may by resolution provide for a suitable seal,
containing the name of the Corporation, which seal shall be in the charge of the
Secretary.
ARTICLE IX - FISCAL YEAR
------------------------
The fiscal year of the Corporation shall end on the last calendar day of
each year.
ARTICLE X - AMENDMENTS
----------------------
Subject to the provisions of Article II, these Bylaws may be adopted,
repealed, altered or amended by the Board of Directors at any regular or special
meeting thereof. Except as otherwise fixed pursuant to the provisions of the
Certificate of Incorporation hereof relating to the voting rights of the holders
of any class or series of Preferred Stock, the stockholders of the Corporation
shall have the power to adopt, repeal, alter or amend Article II of these Bylaws
by the affirmative vote of not less than two-thirds of the shares of the Common
Stock voting thereon.
ARTICLE XI - NOTICES
--------------------
All notices and other communications hereunder shall be in writing and
delivered personally or sent, if in the United States by first class mail return
receipt requested, or if outside the United States by air mail, return receipt
requested, or in either case by
20
<PAGE>
telex, telecopy, or other facsimile telecommunications. Any notice or other
communication so transmitted shall be deemed to have been given at the time of
delivery, in the case of a communication delivered personally, on the business
day following receipt of answer back, telecopy, or facsimile confirmation, in
the case of a communication sent by telex, telecopy or other facsimile
telecommunication, respectively, or as provided in Section 3 of Article I of
these Bylaws in the case of a communication sent by mail.
ARTICLE XII - COMPUTATION OF TIME PERIODS
-----------------------------------------
The words "day" or "days" as used in these Bylaws with respect to the
computation of periods of time shall mean calendar days and the words "business
day" or "business days" as used in these Bylaws with respect to the computation
of periods of time shall mean any day that is not a Saturday, Sunday or other
holiday in New York, New York; provided, however, that if the last day of any
period of time shall fall on a day other than a business day, such period shall
be extended to include the next succeeding business day in each such location.
All computations of time shall be based on New York, New York time.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,088
<SECURITIES> 0
<RECEIVABLES> 169,508
<ALLOWANCES> 0
<INVENTORY> 63,573
<CURRENT-ASSETS> 268,174
<PP&E> 2,243,848
<DEPRECIATION> 756,785
<TOTAL-ASSETS> 2,346,214
<CURRENT-LIABILITIES> 367,227
<BONDS> 0
0
0
<COMMON> 397
<OTHER-SE> 223,676
<TOTAL-LIABILITY-AND-EQUITY> 2,346,214
<SALES> 344,399
<TOTAL-REVENUES> 357,801
<CGS> 329,985
<TOTAL-COSTS> 354,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,625
<INCOME-PRETAX> (19,727)
<INCOME-TAX> 4,700
<INCOME-CONTINUING> (15,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,027)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
