SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|X| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WESTMORELAND COAL COMPANY
-------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
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computed pursuant to Exchange Act Rule 0-11 (set forth the
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|_| Check box if any part of the fee is offset as provided by Exchange Act
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WESTMORELAND COAL COMPANY
April 7, 1999
Dear Fellow Shareholders and Friends:
Continued outstanding performance from the core operations of our restructured
Company and the accomplishment of several new strategic objectives reflect well
the persistent focus and vibrancy of our business plan and its successful,
dynamic implementation since first introduced in 1993. Following our notice to
the federal court in July that protection under Chapter 11 was no longer
necessary, we have been able to move in rather rapid order from the tasks of
preserving the Company and protecting your equity interests to concentrating
more on the ongoing, primary goal of enhancing shareholder value. Let me
highlight recent events of greatest interest.
1998 Financial Results - Operating income for 1998 was $17.1 million compared to
operating income of $33.6 million for 1997. Positively affecting operating
income in 1998 was the continued strong performance of our independent power and
coal operations, including production of 6.5 million tons at Westmoreland
Resources, Inc. ("WRI"). Increased earnings at the Rensselaer Project as a
result of the strategic restructuring of its power purchase contract with
Niagara Mohawk Power Company and improved earnings at several of the other power
projects raised the Company's equity in earnings of independent power projects
from $17.8 million in 1997 to $64.5 million at the end of 1998. Two one-time
charges significantly reduced operating income in 1998: as part of its dismissal
from Chapter 11, the Company recorded a $15.7 million make-up accrual for UMWA
Combined Benefit Fund retiree healthcare obligations not recognized during the
two year Court imposed stay of claims; and, the Company concluded that the
carrying value of Dominion Terminal should be reduced by $12.2 million to
reflect reduced throughput in 1998 and tonnage projections for future export of
American coal. Operating income for 1997 included $27.2 million of unusual
credits for reductions in estimated black lung benefit liabilities and in
actuarially determined liabilities under the 1993 UMWA Wage Agreement.
In 1998 the Company also incurred $9.9 million in expense for Chapter 11 related
legal and consulting fees of the Equity Committee, the Funds, and the Company,
$5.2 million in expense for interest paid to creditors upon dismissal, and a
non-cash cumulative charge of $9.9 million resulting from a change in accounting
principle to recognize previously incurred start-up costs associated with
Westmoreland Energy, Inc. ("WEI") projects. These additional one-time charges of
$25 million resulted in a net loss for 1998 of $6.5 million compared to net
income for 1997 of $28.2 million.
For financial statement purposes, the Company also presents earnings applicable
to common shareholders after taking into consideration dividends on preferred
shares outstanding, whether declared or not, which currently amount to about
$4.9 million per year. If the Company were liquidated, preferred shareholders
would be entitled to a distribution preference over common shareholders of an
amount equal to their liquidation preference plus dividends in arrears.
Moreover, dividends may not be paid on common stock until all preferred
arrearages are settled. With the recognition of an additional $4.9 million for
preferred dividends not declared or paid in 1998, net loss applicable to common
shareholders was $11.4 million or a loss per share of $1.64 compared to net
income applicable to common shareholders of $23.3 million, or income per share
of $3.34 for 1997. A total of $22.0 million of preferred dividends are currently
in arrears, which combined with the liquidation preference of the preferred
stock, gives the preferred stock a liquidation preference of approximately $79
million at this time. We anticipate that this will be substantially reduced upon
completion of the tender offer discussed below. At December 31, 1998, the
Company had shareholders' equity of $21.8 million compared to $28.4 million at
December 31, 1997.
Cash provided by operating activities increased to $55.9 million in 1998 from
$19.9 million in 1997 driven by proceeds from the termination of the over-funded
salaried pension plan, increased operating revenues at WRI, the Rensselaer
transaction and increased cash distributions from WEI's independent power
projects. Consolidated cash and cash equivalents as of December 31, 1998 totaled
$84.1 million, including $14.7 million at WRI. The cash at WRI is only available
through dividends. The use of cash on a consolidated basis is restricted under
the terms of the Master Agreement. In January, 1999, the Company paid
approximately $52 million in connection with the dismissal of the bankruptcy
case which included payments to creditors, including the UMWA Funds.
Sale of Rensselaer Project - Consistent with our commitment of maximizing the
value of assets for shareholders, the Company's remaining interests in the
Rensselaer Project were sold to Fulton Cogeneration Associates, L.P., an
affiliate of The Coastal Corporation, on March 15, 1999. The Company's share of
the net proceeds from this sale was in excess of $33 million and the transaction
will provide a pre-tax contribution to earnings of approximately $17 million in
1999. These amounts are in addition to the $30 million cash received in June
1998 as a result of the restructuring of the Project's power purchase agreement,
for total proceeds of over $60 million.
We are very pleased with the value realized from this strategic sale. Three
factors were crucial in our successfully generating such value: 1) the foresight
to identify, capacity to develop, and talent to manage the project's value; 2)
our successful use of judicial protection under the Bankruptcy Code and
subsequent emergence as a secure ongoing enterprise able to capitalize on the
value of assets from a position of legal and financial strength; and 3) the
unique opportunity to free this investment from Coal Act liability as part of
the Master Agreement so that its greatest value could be realized and part of
the proceeds distributed to preferred shareholders as described below.
Tender Offer - You will recall that the UMWA Funds sought to take control of the
Company through transfer of stock ownership to a UMWA directed trustee, while
the Equity Committee sought to liquidate the Company and distribute any residual
value to shareholders in order of preference. During negotiations, the Company
proposed to purchase all of the outstanding depositary shares for a combination
of cash, debt and common stock. The cash component of that proposal was $23
million. The Company believed that such an approach would deliver value,
certainty and security to preferred shareholders while providing more
predictability and stability to the Company, which in turn could enhance the
value of the Company for retirees and all shareholders including common equity
holders and shareholders with higher cost bases. Representatives of the Equity
Committee rejected this proposal and demanded instead a partial, $20 million
all-cash tender offer. The Board of Directors concluded that the Company's
agreement to the terms of the settlement, including the partial tender offer,
was in the best interest of the Company and its shareholders because it
facilitated the consensual dismissal of the Company's bankruptcy case, was
within the cash capacity of the Company, and carried an attractive rate of
return to the Company by eliminating approximately $15 per share of liquidation
preference as well as $2.2 million per year in future dividends if the offer was
fully subscribed. On March 10, 1999, the Company initiated a $20 million cash
public tender offer for 1,052,631 depositary shares at $19 per share. The offer
was conditioned upon successful completion of the Rensselaer sale.
The agreement gave the Equity Committee the right to designate the price per
share to be offered, which the Equity Committee designated as $19 per share on
December 9, 1998. At the time, the market price for depositary shares was
between $13 and $14. At $19 per share the tender offer gave preferred
shareholders the choice to sell at least some of their depositary shares for
cash at a premium over the market price.
As of the expiration of the tender offer 1,683,903 depositary shares were
tendered. Because the number of shares tendered exceeded the maximum number of
shares offered to be purchased by the Company, a proration factor will be
applied.
With respect to depositary shares not tendered, or shares tendered in excess of
the total which may be purchased in the tender offer, the right to dividends in
arrears and future dividends prior to the payment of any common stock dividends
will remain. However, the Company will also remain subject to all limitations of
Delaware law plus contractual restrictions under the Master Agreement with
respect to the payment of such preferred dividends. Going forward, the Company's
Board will review payment of quarterly preferred stock dividends in light of
these restrictions and in consideration of the shareholders' best interests. It
is likely that in the near term most available cash not restricted by the Master
Agreement should be reinvested rather than distributed in order to enhance the
long-term value of the Company for all shareholders. The Company will continue
to focus first on its core businesses for such reinvestment, as it did in 1996
when it increased its ownership in WRI.
AMEX Listing Approved - We are also extremely pleased to report that following
the dismissal of our Chapter 11 case we have quickly and successfully relisted
the Company's stock on a major exchange. The Company's application to list its
common stock and depositary shares on the American Stock Exchange ("AMEX") has
been approved and trading is expected to begin very shortly. (Until trading
begins on the AMEX, Westmoreland shares will continue to trade on the OTC
Bulletin Board under the current symbols WMCL and WMCLP.) This listing
represents yet another significant step in our mission to restore and enhance
the Company's value to our shareholders.
Shareholder Meeting, 1998 Annual Report and Form 10-K/A - The Company will hold
a shareholders' meeting following completion of the tender offer. The meeting
will take place on May 12, 1999. In addition, the Company has filed its 1998
Form 10-K/A with the Securities and Exchange Commission ("SEC"). You will be
mailed a 1998 Annual Report which includes the 1998 Form 10-K/A in advance of
the shareholders' meeting; however, you are welcome to request a copy of the
Form 10-K/A from the Company at any time.
As you may know, a dissident group of shareholders, comprised primarily of some
former members of the Equity Committee, has filed a Schedule 13-D with the SEC
professing its intention to nominate a separate slate of directors and to
"redirect" the Company's business. This group will seek SEC review of proxy
materials so that, following the review, it can solicit your vote. Management
strongly urges you to reject any solicitation from this group and to support
your existing dedicated management and Board of Directors which has successfully
navigated your Company through the dire challenges it faced just a few years
ago. We will communicate further with you in this regard in the near future.
Because of the potential for a proxy contest, however, the Company is obligated
to attach certain information set forth on the next page. We apologize for the
added burden this places on you as a result.
Thank you again for the continuing words of support and appreciation from so
many of you.
Chris Seglem
Chairman of the Board - President & CEO
Cautionary Statement on Forward-Looking Statements
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Forward-looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, are made throughout this document, and sometimes are
preceded by, followed by or include the words "intends," "believes," "expects,"
"anticipates," "should," or similar expressions. Such forward-looking statements
are based on management's current views and assumptions and involve known and
unknown risks, uncertainties, and other factors which may cause the Company's
actual results of operations, liquidity status, levels of activity, performance,
or achievements, or industry results, to be materially different from any future
results of operations, liquidity status, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business strategy; the
Company's access to financing; the Company's ability to successfully identify
new business opportunities; the Company's ability to achieve anticipated cost
savings and profitability targets; changes in the industry; competition; the
Company's ability to utilize its tax net operating loss carryforwards; the
ability to reinvest excess cash at an acceptable rate of return; weather
conditions; the availability of transportation; price of alternative fuels;
costs of coal produced by other countries; the effect of regulatory and legal
proceedings; and other factors discussed in Item 1 of the Company's Form 10-K/A
for the fiscal year ended December 31, 1998. As a result of the foregoing and
other factors, no assurance can be given as to the future results and
achievements of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these statements.
Certain information required by the Rules of the Securities and Exchange
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Commission ("SEC")
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Westmoreland Coal Company (the "Company") and the following Directors of the
Company may be deemed to be participants in the Company's solicitation of
proxies for its upcoming meeting of stockholders: Pemberton Hutchinson, William
R. Klaus, Thomas W. Ostrander, Christopher K. Seglem, Edwin E. Tuttle, Robert E.
Killen and James W. Sight. Employee participants may include Gregory M. Daniels
(Vice President Human Resources and President, Virginia Division of the
Company), Paul W. Durham (Assistant General Counsel and Assistant Secretary),
Charles H. Finkenstadt, Jr. (Corporate Secretary), R. Page Henley, Jr. (Senior
Vice President, Acquisitions and Development and Government Affairs, President
Westmoreland Coal Sales Company), Robert J. Jaeger (Senior Vice President of
Finance and Treasurer), Diane S. Jones (Manager, Business Development &
Corporate Relations), Larry W. Mikkola (Controller of the Company and Vice
President Westmoreland Resources), Christopher K. Seglem (Chairman of the Board,
President and Chief Executive Officer), and Theodore E. Worcester (Senior Vice
President of Law and Administration, General Counsel and Assistant Secretary).
Subsidiary Director participants may include Clyde Joseph Presley and Ronald W.
Stucki. Subsidiary employee participants may include Edward J. Demeter (Vice
President - Distribution, Westmoreland Coal Sales), W. Michael Lepchitz
(President and General Counsel, Westmoreland Energy, Inc.), David W. Simpson
(President, Westmoreland Resources, Inc.) and Gregory S. Woods (Executive Vice
President, Westmoreland Energy, Inc.). The above named individuals collectively
beneficially own approximately 1,536,078 shares, or approximately 21.0% of the
Company's outstanding common stock (excluding shares of common stock that may be
obtained upon conversion of the Company's Depositary Shares). Such individuals
also collectively beneficially own approximately 48,650 Depositary Shares, or
approximately 2.1% of the outstanding Depositary Shares, which are convertible
into 83,094 shares of the Company's common stock. For a description of certain
other interests of the foregoing individuals, please see the Company's
preliminary proxy statement for the upcoming stockholders meeting filed with the
SEC on April 1, 1999.
