AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
WESTMORELAND COAL COMPANY
(Name of the Issuer and Person Filing Statement)
DEPOSITARY SHARES, EACH REPRESENTING ONE QUARTER OF
A SHARE OF SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
(Title of Class of Securities)
960878 30 4
(CUSIP Number of Class of Securities)
THEODORE E. WORCESTER
SENIOR VICE PRESIDENT OF LAW AND ADMINISTRATION
AND GENERAL COUNSEL
WESTMORELAND COAL COMPANY
2 NORTH CASCADE, 14TH FLOOR
COLORADO SPRINGS, COLORADO 80903
(719) 442-2600
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person Filing Statement)
Please Address a Copy of All Communications to:
MICHAEL J. LEVITIN
WINTHROP, STIMSON, PUTNAM & ROBERTS
1133 CONNECTICUT AVENUE, NW
WASHINGTON, D.C. 20036
(202) 775-9800
----------------------------------------
SEPTEMBER 16, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
========================================= ======================================
TRANSACTION VALUATION AMOUNT OF FILING FEE
- ----------------------------------------- --------------------------------------
$11,989,000* $2,397.80**
- ----------------------------------------- --------------------------------------
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration Nos.: N/A Date Filed: N/A
* Assumes purchase of 631,000 depositary shares at $19.00 per share.
** Calculated based on the transaction value multiplied by one-fiftieth of one
percent.
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Westmoreland Coal Company, a
Delaware corporation (the "Company"). The address of its principal executive
office is 2 North Cascade, 14th Floor, Colorado Springs, Colorado 80903.
(b) The exact title of the class of securities being sought is
Depositary Shares, each representing one quarter of a share of Series A
Convertible Exchangeable Preferred Stock of the Company. Reference is made to
the front cover page, "Introduction", Section 4. "Number of Shares; Proration;
Expiration Date; Extension of the Offer", and Section 12. "Transactions and
Arrangements Concerning the Depositary Shares" of the Offer to Purchase, a copy
of which is attached hereto as Exhibit 99.A (the "Offer to Purchase"), which are
incorporated herein by reference.
(c) Reference is made to the front cover page, "Introduction", and
Section 9. "Price Range of the Depositary Shares; Dividends" in the Offer to
Purchase, which are incorporated herein by reference.
(d) This statement is being filed by the issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Reference is made to Section 11. "Source and Amount of Funds"
in the Offer to Purchase, which is incorporated herein by reference.
(b) Inapplicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS
OF THE ISSUER OR AFFILIATE.
(a)-(j) Reference is made to Section 1. "Background to the Offer;
Purpose of the Offer; Certain Effects of the Offer; Plans of the Company after
the Offer" in the Offer to Purchase, which is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Reference is made to Section 12. "Transactions and Arrangements
Concerning the Depositary Shares" in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES.
Reference is made to Section 12. "Transactions and Arrangements
Concerning the Depositary Shares" in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Reference is made to Section 14. "Fees and Expenses" in the Offer to
Purchase, which is incorporated herein by reference.
<PAGE>
ITEM 7. FINANCIAL INFORMATION.
(a) Reference is made to Section 10. "Certain Information
Concerning the Company" in the Offer to Purchase, which is incorporated herein
by reference.
(b) Reference is made to Section 10. "Certain Information
Concerning the Company" in the Offer to Purchase, which is incorporated herein
by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) Reference is made to Section 3. "Certain Legal Matters;
Regulatory and Foreign Approvals; No Appraisal Rights" in the Offer to Purchase,
which is incorporated herein by reference.
(c) Reference is made to Section 1. "Background to the Offer;
Purpose of the Offer; Certain Effects of the Offer; Plans of the Company after
the Offer" in the Offer to Purchase, which is incorporated herein by reference.
(d) None.
(e) Reference is made to the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits 99.A and
99.C, respectively, which are incorporated in their entirety herein by
reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) Offer to Purchase dated September 16, 1999 (Exhibit 99.A);
Press Release issued by the Company on September 16, 1999 (Exhibit 99.B); Form
of Letter of Transmittal (Exhibit 99.C); Form of Letter to Clients (Exhibit
99.D); Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees (Exhibit 99.E); Form of Letter to Shareholders (Exhibit 99.F);
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 (Exhibit 99.G); and Summary Instructions for Participation in Tender
Offer (Exhibit 99.H).
(b) None.
(c) None.
(d) None.
(e) Inapplicable.
(f) None.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: September 16, 1999
WESTMORELAND COAL COMPANY
By: /s/ Robert J. Jaeger
-------------------------
Name: Robert J. Jaeger
Title: Senior Vice President - Finance
and Treasurer
<PAGE>
INDEX TO EXHIBITS
PAGE IN
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION COPY
- ------- ------------------------------------------------------ ------------
99.A Offer to Purchase dated September 16, 1999
99.B Press Release issued by the Company on
September 16, 1999
99.C Form of Letter of Transmittal
99.D Form of Letter to Clients
99.E Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
99.F Form of Letter to Shareholders
99.G Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9
99.H Summary Instructions for Participation in Tender Offer
<PAGE 1>
EXHIBIT 99.A
OFFER TO PURCHASE
WESTMORELAND COAL COMPANY
OFFER TO PURCHASE FOR CASH
UP TO 631,000 DEPOSITARY SHARES (CUSIP 960878 30 4),
EACH REPRESENTING ONE QUARTER OF A SHARE OF ITS SERIES A
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, AT
$19.00 PER DEPOSITARY SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, OCTOBER 26, 1999,
UNLESS THE OFFER IS EXTENDED.
Westmoreland Coal Company, a Delaware corporation (the "Company"), is
offering to purchase up to 631,000 Depositary Shares ("Depositary Shares"), each
representing one quarter of a share of its Series A Convertible Exchangeable
Preferred Stock, par value $1.00 per share ("Series A Preferred Stock"),
liquidation preference equal to $25 per Depositary Share plus accumulated and
unpaid dividends, at $19.00 per Depositary Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which, as amended and supplemented
from time to time, together constitute the "Offer").
The offer is not conditioned upon any minimum number of Depositary
Shares being tendered. The Offer is, however, subject to certain other
conditions. See Section 8. "Certain Conditions of the Offer."
The Depositary Shares are currently listed and traded on the American
Stock Exchange ("AMEX") under the symbol "WLB.pr". On June 30, 1999, the last
trading day before the Company announced its intention to make the Offer, the
closing sales price of the Depositary Shares as reported on the AMEX composite
tape was $18 1/4 per Depositary Share. On September 15, 1999, the last trading
day before the Company announced the Offer, the closing sales price of the
Depositary Shares as reported on the AMEX composite tape was $18 1/8 per
Depositary Share. Shareholders are urged to obtain a current market quotation
for the Depositary Shares.
The payment of $19.00 per Depositary Share shall be in full
satisfaction of claims to cumulative dividends on the Depositary Shares that
have not previously been paid. As of September 15, 1999, the amount of
accumulated and unpaid dividends on the Depositary Shares aggregated $12,590,631
(approximately $10.09 per Depositary Share). See Section 9. "Price Range of the
Depositary Shares; Dividends." Unless the context requires otherwise, all
references to the Depositary Shares shall include any claims to cumulative
dividends on such shares that have not previously been paid.
<PAGE 2>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
THE COMPANY, ITS BOARD OF DIRECTORS, AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OR ALL OF SUCH
SHAREHOLDER'S DEPOSITARY SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST
DECIDE WHETHER TO TENDER DEPOSITARY SHARES AND, IF SO, HOW MANY DEPOSITARY
SHARES TO TENDER.
The date of this Offer to Purchase is September 16, 1999.
The Information Agent for the Offer is:
MORROW & CO., INC.
<PAGE>
IMPORTANT
Any shareholder desiring to tender all or any portion of such
shareholder's Depositary Shares should either (1) complete the Letter of
Transmittal or a facsimile copy thereof, in accordance with the instructions in
the Letter of Transmittal, mail or deliver it and any other required documents
to First Chicago Trust Company of New York (the "Depositary"), and either mail
or deliver the depositary receipts for such Depositary Shares to the Depositary
along with the Letter of Transmittal or follow the procedure for book-entry
transfer set forth in Section 5, or (2) request such shareholder's broker,
dealer, commercial bank, trust company, or nominee to effect the transaction for
such shareholder. Shareholders having Depositary Shares registered in the name
of a broker, dealer, commercial bank, trust company, or other nominee must
contact such person if they desire to tender their Depositary Shares.
Questions and requests for assistance or for additional copies of this
Offer to Purchase or the Letter of Transmittal may be directed to Morrow & Co.,
Inc. (the "Information Agent") at the addresses and telephone numbers set forth
on the back cover of this Offer to Purchase.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
DEPOSITARY SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY
PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER
OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.
<PAGE i>
TABLE OF CONTENTS
Page
Summary.......................................................................1
Introduction..................................................................4
Special Factors...............................................................5
Section 1. Background to the Offer; Purpose of the Offer;
Certain Effects of the Offer; Plans of the Company
after the Offer.............................................5
Background to the Offer.....................................5
Purpose of the Offer.......................................10
Certain Effects of the Offer; Plans of the Company
after the Offer............................................11
Section 2. Certain U.S. Federal Income Tax Consequences...............14
Tax Consequences to the Company............................15
Tax Consequences to Holders of Depositary Shares...........19
Section 3. Certain Legal Matters; Regulatory and Foreign
Approvals; No Appraisal Rights.............................23
The Offer....................................................................23
Section 4. Number of Shares; Proration; Expiration Date;
Extension of the Offer.....................................23
Section 5. Procedure for Tendering Depositary Shares..................25
Proper Tender of Depositary Shares.........................25
Signature Guarantees and Method of Delivery................25
U.S. Federal Backup Withholding............................26
Book-Entry Delivery........................................26
Determinations of Validity; Rejection of Depositary
Shares; Waiver of Defects; No Obligation to Give
Notice of Defects..........................................26
Section 6. Withdrawal Rights..........................................27
Section 7. Acceptance for Payment of Depositary Shares and
Payment of Purchase Price..................................27
Section 8. Certain Conditions of the Offer............................29
Section 9. Price Range of the Depositary Shares; Dividends............31
Price Range of Depositary Shares...........................31
Dividends..................................................32
Section 10. Certain Information Concerning the Company.................33
General....................................................33
Selected Financial Data and Other Data of the Company......34
Additional Information.....................................38
Section 11. Source and Amount of Funds.................................38
Section 12. Transactions and Arrangements Concerning the
Depositary Shares..........................................38
Section 13. Extension of the Tender Period; Termination; Amendments....39
Section 14. Fees and Expenses..........................................40
Section 15. Miscellaneous..............................................40
Annex A: Excerpt from the Company's Form 10-K/A for the Year Ended
December 31, 1999: Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of Operations;
Financial Statements and Supplementary Data..................................A-1
Annex B: The Company's Form 10-Q for the Quarter Ended June 30, 1999........B-1
<PAGE 1>
SUMMARY
This general summary is provided solely for the convenience of holders
of Depositary Shares and is qualified in its entirety by reference to the full
text and more specific details contained in this Offer to Purchase and the
related Letter of Transmittal and any amendments hereto and thereto.
The Company............................. Westmoreland Coal Company.
The Depositary Shares................... Depositary Shares, each representing
one quarter of a share of Series A
Convertible Exchangeable Stock, par
value $1.00 per share, liquidation
preference equal to $25 per
Depositary Share plus accumulated
and unpaid dividends, of the Company.
Number of Depositary Shares Sought...... 631,000.
Purchase Price.......................... $19.00 per Depositary Share, net to
the seller in cash.
Expiration Date of Offer................ October 26, 1999, at 5:00 p.m., New
York City time, unless extended.
How to Tender Depositary Shares......... See Section 5. "Procedure for
Tendering Depositary Shares." For
further information, call the
Information Agent or consult your
broker for assistance.
Purpose of the Offer.................... The Company is making the Offer in
view of (1) the desire of
shareholders to tender additional
Depositary Shares to the Company at
$19.00 per Depositary Share (as
evidenced by the substantial
oversubscription of a tender offer
completed in April, 1999) and (2) the
substantial reduction in the amount
of accumulated and unpaid dividends
on the Depositary Shares and the
amount of dividends on the Depositary
Shares that will accrue in future
periods, that will occur if the Offer
is fully subscribed. See Section 1.
"Background to the Offer; Purpose of
the Offer; Certain Effects of the
Offer; Plans of the Company
after the Offer."
<PAGE 2>
Market Price of Depositary Shares....... On June 30, 1999, the last trading
day before the Company announced its
intention to make the Offer, the
closing sales price per Depositary
Share as reported on the American
Stock Exchange was $18 1/4per
Depositary Share. On September 15,
1999, the closing sales price per
Depositary Share was $18 1/8.
Shareholders are urged to obtain a
current market quotation for the
Depositary Shares. See Section 9.
"Price Range of the Depositary
Shares; Dividends."
Dividends............................... The Company suspended the payment of
dividends on the Series A Preferred
Stock in the second quarter of 1994
pursuant to agreements with its
lenders. Upon the expiration of
these agreements, the Company paid
two quarterly dividends. The
Company again suspended payment of
dividends on the Series A Preferred
Stock in the third quarter of 1995
and has not declared a dividend on
the Series A Preferred Stock since
such that suspension commenced. At
September 15, 1999, accumulated and
unpaid dividends on the Series A
Preferred Stock aggregated
$12,590,631, or approximately $10.09
per Depositary Share. By tendering
Depositary Shares, shareholders agree
to forego any claim for accumulated
and unpaid dividends purchased by the
Company in the Offer. See Section 9.
"Price Range of the Depositary
Shares; Dividends."
Brokerage Commissions................... Tendering shareholders who hold
Shares in their own name and who
tender their Depositary Shares
directly to the Depositary will not
be obligated to pay brokerage
commissions. Shareholders holding
Depositary Shares through brokers
or banks are urged to consult the
brokers or banks to determine whether
a transaction processing fee is
payable to the brokers or banks if
shareholders tender Depositary Shares
through the brokers or banks and not
directly to the Depositary.
Stock Transfer Tax...................... The Company will pay any applicable
stock transfer taxes, except as
provided in Instruction 6 of the
Letter of Transmittal.
Date of Payment to Shareholders......... As soon as practicable after the
Expiration Date of the Offer.
<PAGE 3>
Further Information..................... Additional copies of this Offer to
Purchase and the Letter of
Transmittal may be obtained by
contacting Morrow & Co., Inc.,
445 Park Avenue, 5th Floor,
New York, New York 10022,
telephone: (800) 566-9061(toll free),
(212) 754-8000 (collect),
(800) 662-5200 (banks and brokerage
firms).
<PAGE 4>
To the Holders of Depositary Shares of Westmoreland Coal Company:
INTRODUCTION
Westmoreland Coal Company, a Delaware corporation ("Westmoreland" or
the "Company"), is offering to purchase up to 631,000 outstanding Depositary
Shares (the "Depositary Shares") (including the associated accumulated and
unpaid dividends), each representing one quarter of a share of Series A
Convertible Exchangeable Preferred Stock, par value $1.00 per share (the "Series
A Preferred Stock"), liquidation preference equal to $25 per Depositary Share
plus accumulated and unpaid dividends, of the Company, at $19.00 per Depositary
Share (the "Purchase Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which, as amended and supplemented from time to time,
together constitute the "Offer"). Unless the context requires otherwise, all
references to the Depositary Shares shall include any claims to accumulated and
unpaid dividends on such shares.
THE COMPANY, ITS BOARD OF DIRECTORS, AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OR ALL OF SUCH
SHAREHOLDER'S DEPOSITARY SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST
DECIDE WHETHER TO TENDER DEPOSITARY SHARES AND, IF SO, HOW MANY DEPOSITARY
SHARES TO TENDER.
The Offer is not conditioned upon any minimum number of Depositary
Shares being tendered. The Offer is, however, subject to certain other
conditions. See Section 8. "Certain Conditions of the Offer."
The Depositary Shares are currently listed and traded on the American
Stock Exchange LLC ("AMEX") under the symbol "WLB.pr". On June 30, 1999, the
last trading day before the Company announced its intention to make the Offer,
the closing sales price of the Depositary Shares as reported on the AMEX
composite tape was $18 1/4 per Depositary Share. On September 15, 1999, the last
trading day before the Company announced the Offer, the closing sales price of
the Depositary Shares as reported on the AMEX composite tape was $18 1/8 per
Depositary Share. See Section 9. "Price Range of the Depositary Shares;
Dividends." Shareholders are urged to obtain a current market quotation for the
Depositary Shares. On September 15, 1999, there were 1,247,369 Depositary Shares
issued and outstanding.
The Offer does not constitute a notice of redemption of the Series A
Preferred Stock representing the Depositary Shares pursuant to the Company's
Restated Certificate of Incorporation, nor is the Offer intended to affect a
redemption of the Depositary Shares or the Series A Preferred Stock.
Shareholders are not under any obligation to accept the Offer or to remit the
Depositary Shares to the Company pursuant to the Offer.
Tendering shareholders will not be obligated to pay brokerage
commissions, solicitation fees or, subject to the Instructions to the Letter of
Transmittal, stock transfer taxes on the purchase of Depositary Shares by the
Company; however, a broker, dealer, or other person may charge a fee for
processing transactions on behalf of shareholders. The Company will pay all
charges and expenses of the Depositary and Information Agent incurred in
connection with the Offer.
<PAGE 5>
SPECIAL FACTORS
SECTION 1. BACKGROUND TO THE OFFER; PURPOSE OF THE OFFER; CERTAIN
EFFECTS OF THE OFFER; PLANS OF THE COMPANY AFTER THE OFFER
Background to the Offer
On December 23, 1996, the Company and four of its subsidiaries filed
petitions under Chapter 11 of the Federal bankruptcy code with the U.S.
Bankruptcy Court for the District of Colorado ("Bankruptcy Court"). Two years
later, on December 23, 1998, the Bankruptcy Court granted Westmoreland's motion
to dismiss its case and the related cases involving the Company's subsidiaries.
On March 10, 1999, pursuant to an agreement among the Company, its principal
creditors, and the Official Committee of Equity Security Holders ("Equity
Committee") that facilitated the dismissal of the bankruptcy proceedings, the
Company commenced a tender offer for 1,052,631 Depositary Shares (the "Spring
Tender Offer"). 1,683,903 Depositary Shares were properly tendered and not
withdrawn in that offer, but Westmoreland was subject to contractual limitations
that prevented it from purchasing all of the tendered shares. The contractual
restrictions expired on June 30, 1999, and on July 1, 1999, the Company
announced its intention to make this Offer.
Events leading to the filing of the bankruptcy petitions
Beginning in the second half of 1993, Westmoreland initiated a major
effort to improve results and address growing liquidity issues. Management's
restructuring plan focused on eliminating losses from Westmoreland's eastern
coal operations, investing in more profitable opportunities, and generating
needed cash by reducing costs, terminating or selling under-performing business
lines, and selling non-strategic assets. By the end of 1995, a large part of
this job had been completed. The eastern coal operations had been shut down; the
Company had withdrawn from the coal-brokering and international coal-sales
businesses; and selling, general and administrative costs ("SG&A") had been
significantly reduced through, among other things, personnel reductions, job
consolidations, and the closure, consolidation, and relocation of offices,
including the former corporate headquarters in Philadelphia. Westmoreland had
also sold numerous non-strategic assets, including eastern coal sales contracts,
reserves, and its Kentucky and West Virginia coal operations. Negotiations to
sell virtually all of its idled Virginia operations were nearing completion. As
a result of these efforts, Westmoreland had generated sufficient cash to pay off
its commercial debt, to provide working capital, and to fund profitable,
cash-producing investments (such as its independent power projects and an
increased position in the western coal operations located in the state of
Montana). The Company also had substantial tax assets in the form of net
operating loss carryforwards ("NOLs"), which may be used to reduce a
corporation's taxable income for U.S. federal income tax purposes.
However, Westmoreland's balance sheet and cash flow remained heavily
burdened by the costs of providing retiree and workers' compensation benefits to
former employees and their dependents. These benefits were required by the 1988
National Bituminous Coal Wage Agreement ("1988 NBCWA"), by the Coal Industry
Retirement Health Benefit Act of 1992 ("Coal Act"), 26 U.S.C. ss. 9701 et seq.,
and by state workers' compensation laws. The 1988 NBCWA required Westmoreland to
maintain an Individual Employer Plan ("IEP") for the
<PAGE 6>
purpose of providing health care coverage benefits to specified employees,
former employees and retirees, and their respective dependents. These
contractual obligations were carried forward in all material respects in the
1993 Wage Agreement ("1993 Agreement") between Westmoreland and the United Mine
Workers of America ("UMWA"). The Coal Act created a privately funded and
administered mechanism to provide health care benefits to certain coal industry
retirees and related beneficiaries. The Coal Act imposed upon certain coal
companies that had been signatory to collective bargaining agreements with the
UMWA (including Westmoreland) liability for the health care costs of a specific
universe of beneficiaries receiving benefits under previous collective
bargaining agreements and established mechanisms by which that liability would
be satisfied over time through the payment of premiums to the multiemployer fund
that provides coverage to these individuals. The Coal Act requires a coal
company like Westmoreland to continue to maintain an IEP or provide benefit
funding for a specified population of retirees and dependents who formerly
worked for it. The Coal Act also assigned to coal companies that remained in
business (including Westmoreland) the obligation to provide health benefits to
certain retirees (and their dependents) of coal companies that had ceased doing
business through the payment of premiums to the multiemployer fund that provides
coverage to these individuals. Under the Coal Act, Westmoreland was liable both
to the UMWA 1992 Benefit Plan ("1992 Plan") and UMWA Combined Benefit Fund
("Combined Fund" and together with the 1992 Plan, the "Funds") with respect to
the obligations described herein. The Coal Act's obligations extend to
businesses that are affiliated with the signatory coal operator (so-called
"related parties") as a matter of joint and several liability. In many
situations, Coal Act obligations also apply to successors of signatory coal
operators and/or their related parties. The Coal Act also required the Company
to secure a portion of its projected future obligations to the 1992 Plan by
posting a bond or letter of credit or establishing a cash escrow in favor of the
1992 Plan. Both the IEP required by the 1993 Agreement and the Coal Act provide
virtually free health care to covered beneficiaries through what is, in effect,
a traditional fee-for-service medical plan.
Faced with the cost of maintaining its IEP and paying premiums to the
Combined Fund and the 1992 Plan, the related requirement to provide security to
the 1992 Plan, and other liabilities, including significant obligations under
state workers' compensation laws, Westmoreland recognized that it could not
indefinitely satisfy these cash obligations, which exceeded $20 million per
year, on the terms or in the amounts demanded without additional reinvestment
and sources of cash flow. In the fall of 1995, Westmoreland initiated
discussions with the Funds with a view toward promptly achieving alternative
arrangements for the satisfaction of its obligations to the Funds so that its
restructuring could be completed.
By October of 1996, with cash resources depleting due to continued full
funding of benefits, amounts escrowed with the Funds during negotiations
unavailable for use, limited remaining assets to sell in the near term, and no
progress in the negotiations with the Funds, Westmoreland began to fall behind
in its payments to Healthsource Provident ("Provident"), the third-party
administrator responsible for medical claims under the IEP. The Combined Fund
then advised Westmoreland that the Company would be required to pay the Combined
Fund $7.9 million in 1997, which included a one-time supplemental charge. The
Combined Fund's $7.9 million assessment was in addition to $8 million that the
Company projected it would need to pay to maintain the IEP in 1997. Westmoreland
unsuccessfully sought an accelerated consummation of negotiations with the Funds
and release of escrowed funds. Westmoreland
<PAGE 7>
made a last payment to Provident on October 28, 1996. Shortly thereafter, with
unreimbursed expenses of about $1.8 million, Provident stopped paying claims
under the IEP.
On November 27, 1996, the 1992 Plan commenced litigation against
Westmoreland and four of its subsidiaries in the U.S. District Court for the
Western District of Virginia, requesting, among other things, a preliminary
injunction requiring Westmoreland to "reinstate" the IEP. On December 4, 1996,
the district court denied the requested relief. The district court noted
Westmoreland's serious financial difficulties and, in an effort to protect the
ability of the 1992 Plan to collect any ultimate judgment, required Westmoreland
to pay the 1992 Plan security in the amount of $200,000 per week. Several weeks
later, the Company and its four principal subsidiaries filed their Chapter 11
petitions. The Company filed those cases in order to prevent liquidation of its
businesses at distress values and to give it an opportunity to complete
implementation of its restructuring plan.
Developments during the bankruptcy cases
The Company's financial position improved significantly during the
course of the bankruptcy proceedings as its business plan further took hold.
Developments at Westmoreland Energy, Inc. ("WEI"), the Company's independent
power subsidiary, and Westmoreland Resources, Inc. ("WRI"), the Company's
Montana-based mining subsidiary, along with certain corporate initiatives,
resulted in the accumulation of significant amounts of new cash and improved
cash flows.
In the summer of 1998, two independent power projects in which WEI
owned interests -- the Rensselaer project and the Fort Drum project --
successfully restructured their contractual relationships with Niagara Mohawk
Power Corporation, a New York utility ("NiMo"). As a result of these
restructurings, WEI received approximately $31 million in cash and an interest
in an "Index Swap Contract" between the Rensselaer project and NiMo. In
addition, continued improvement in the performance of WEI's other projects
produced $12.2 million in cash during 1997, an increase of $2.4 million over the
preceding year. This increase was due to reduced forced outage days and lower
operating and maintenance costs.
The Company also benefitted from substantial growth in sales and
production at its western coal subsidiary, WRI. The Company enhanced its return
on these improvements by increasing its ownership interest in WRI to 80% in
October of 1996. This allowed the Company to consolidate WRI's financial results
with those of the Company and its other consolidating subsidiaries for tax
purposes. Its increased ownership, improved performance at WRI, and the ability
to consolidate, and thereby apply the Company's NOLs to WRI's taxable income,
increased the Company's cash flow from WRI by over 50%. WRI produced and shipped
a record 7.1 million tons of coal in 1997, resulting in cash available to
shareholders of $6.8 million.
At the corporate level, management continued to reduce costs and
developed strategies to tap new sources of cash. The Company liquidated
additional assets, recovered sums owed to Westmoreland by third parties, and
reduced ongoing operating and reclamation expenses, as well as SG&A. In early
1998, the Company successfully terminated its overfunded Salaried Retiree
Pension Plan, thereby accessing $12.5 million in cash, net of lump sum payments,
purchase of annuities, establishment of a replacement plan, and payment of
excise taxes. The Company also
<PAGE 8>
developed a plan to access $10 million of surplus cash in its Black Lung Trust
and apply that amount to other retiree health costs. This redeployment of the
surplus from the Black Lung Trust is expected to occur in two installments: the
first installment occurred in 1998, and the second is expected to occur by 2001.
Filing of the Motions to Dismiss and Convert
Based on these developments, on July 28, 1998, the Company filed a
motion to dismiss its bankruptcy case. In its motion, the Company asserted that
it was able to pay all claims allowable under the bankruptcy code in full, in
cash, with interest at the rate applicable under the bankruptcy code, and that
it would be able to meet its obligations on an ongoing basis for the foreseeable
future. The Funds and the Equity Committee opposed the Company's motion.
On August 19, 1998, the Equity Committee filed a motion to convert the
Company's case to a case under Chapter 7. In Chapter 7, the Company would have
been liquidated. The proceeds of the liquidation would have been paid first to
persons holding administrative claims (including Coal Act beneficiaries), then
to general creditors, and then to holders of the Depositary Shares. Funds
remaining, if any, would have been distributed to holders of the Company's
common stock. The Company and the Funds opposed the Equity Committee's motion.
(In the course of the bankruptcy proceedings, the Funds had proposed a plan of
reorganization, which contemplated that ownership of all of the stock of the
Company would be transferred to a trust for the benefit of the Funds. The
Company also vigorously opposed that plan. The Funds withdrew their plan prior
to hearings scheduled on the motions to dismiss and convert.)
The Settlement Term Sheet; dismissal of the bankruptcy cases
Arguments on the Company's motion to dismiss and the Equity Committee's
motion to convert were scheduled for October 14, 1998. On that date, and after
extensive negotiations, the Company, its four principal subsidiaries, the Equity
Committee, the Funds, the UMWA, and a third employee benefit plan, the UMWA 1974
Pension Trust ("1974 Plan") executed a settlement term sheet ("Settlement Term
Sheet").
In connection with the negotiation of the Settlement Term Sheet, the
Company proposed making an offer for all of the Depositary Shares for
consideration that included cash, Common Stock, and debt securities issued by
the Company. Rejecting that proposal, the Equity Committee proposed that the
Company conduct a partial tender offer for Depositary Shares for consideration
consisting entirely of cash. The Equity Committee conditioned its support of the
Settlement Term Sheet on the Company's agreement to conduct such a partial
tender offer. The Funds negotiated to minimize the amount of cash to be paid by
the Company in the tender. The Settlement Term Sheet provided that, contingent
on the sale of the Company's remaining interest in the Rensselaer project, the
Company would conduct a tender offer for the number of Depositary Shares that
could be purchased for $20 million, at a price per Depositary Share designated
by the Equity Committee. The Settlement Term Sheet also provided that the price
per Depositary Share could not exceed $20. The Equity Committee subsequently
designated an offer price of $19 per Depositary Share.
<PAGE 9>
As part of the process of implementing the Settlement Term Sheet, on
December 23, 1998, the Company and the Funds stipulated, and the Equity
Committee consented, to the entry of judgments in two contested matters pending
before the Bankruptcy Court, and the Bankruptcy Court dismissed the bankruptcy
cases involving the Company and its subsidiaries. Pursuant to the Federal
bankruptcy rules, the dismissal was stayed for 10 days.
Effectiveness of the dismissal; the Master Agreement
The stay expired, and the dismissal of the bankruptcy cases became
effective, on January 4, 1999. Through January, the parties continued to
negotiate the terms of an overall settlement, and on January 29, they executed
the Master Agreement dated as of January 4, 1999 (the "Master Agreement") among
the Company, WEI, WRI, Westmoreland Terminal Company, Westmoreland Coal Sales
Company, the UMWA, the Funds, the 1974 Plan, and the Equity Committee. The
Master Agreement was effective as of January 4, 1999. The Master Agreement
contained the following terms, among others:
o The Company agreed to pay in full, with interest, all arrearages due
under the Coal Act and all undisputed creditor claims. Pursuant to
this commitment, the Company paid in early January, 1999,
approximately $18.1 million to the 1992 Plan, approximately $19.4
million to the Combined Fund, and approximately $5.7 million to
holders of undisputed claims. The Company also agreed to pay, and paid
in early February, 1999, $4 million to the Funds in full satisfaction
of all other asserted claims for damages, liquidated damages,
penalties, charges, fees, and costs.
o The Company agreed to pay its future obligations to the Funds as and
when due.
o The Company agreed to secure its obligations to the Funds by
providing the Funds with a Contingent Promissory Note ( "Note "). The
original principal amount of the Note is $12 million; the principal
amount of the Note decreases to $6 million in 2002. The Note is
payable only in the event the Company does not meet its Coal Act
obligations, fails to meet certain ongoing financial tests specified
in the Note, fails to maintain the required balance in the escrow
account established under an escrow agreement (the "Escrow
Agreement"), or fails to comply with certain covenants set forth in a
security agreement (the "Security Agreement"). (These covenants
require the Company to give the Funds access to the books and records
of WEI and certain of its subsidiaries, to execute and deliver a
financing statement noting the security interest created by the
Security Agreement, and to deliver to the Funds financial reports
concerning WEI and certain of its subsidiaries.) The Note includes
certain notice and cure provisions. If no default occurs, the Note
terminates on January 1, 2005. To secure its obligations to the Funds
under the Note, the Company entered into a Security Agreement and an
Escrow Agreement. In the Security Agreement, the Company pledged the
annual cash flow to which it is entitled from the Roanoke Valley I
project. Pursuant to the Escrow Agreement, the Company placed $6
million into an escrow account. In 2002, when the amount of the Note
is reduced to $6 million, the amount in the escrow account may be
adjusted so that the amount in escrow will be $8 million minus the
amount of Westmoreland's cash flow from the Roanoke Valley I project
in the preceding year. In no event will the amount of the required
balance in the escrow account be more than $6 million or less than
zero. If the Company is not required to make payment under the
<PAGE 10>
Note, the Security Agreement and the Escrow Agreement terminate upon
the termination of the Note. The Company executed and delivered the
Note, the Security Agreement, and the Escrow Agreement to the Funds on
January 29, 1999.
o Provided that the sale of the Company's remaining interest in the
Rensselaer project occurred (which it did), the Company agreed to make
a public tender for 1,052,631 Depositary Shares at $19 per Depositary
Share.
o Except for the payment to preferred shareholders in the tender offer,
the Company agreed not to make any other cash distribution to
preferred or common shareholders for any purpose prior to June 30,
1999.
Annex A to this Offer to Purchase contains the complete text of Item 6
("Selected Financial Data"), Item 7 ("Management's Discussion and Analysis of
Financial Condition and Results of Operations"), and Item 8 ("Selected Financial
Data") from the Company's Form 10-K/A for the year ended December 31, 1998. The
principal terms of the Master Agreement are set forth under the caption
"Bankruptcy Proceeding" in Annex A.
The Spring Tender Offer
The Company commenced the Spring Tender Offer on March 10, 1999. On
March 16, 1999, the partnership that owned the Rensselaer project completed the
sale of its remaining interest in the project. Through WEI, the Company owned a
50% interest in that partnership. (This transaction is referred to as the
"Rensselaer Phase II Transaction" to distinguish it from the transaction
involving the Rensselaer project that occurred in the summer of 1998. The
closing of the Rensselaer Phase II Transaction was a condition to the closing of
the Spring Tender Offer.) Westmoreland's share of the net proceeds from the
Rensselaer Phase II Transaction was in excess of $33 million.
The Spring Tender Offer expired at 5:00 p.m., New York City time, on
April 7, 1999. 1,683,903 Depositary Shares were properly tendered and not
withdrawn in that offer. The Company accepted for payment (and thereby
purchased) 1,052,631 Depositary Shares and paid First Chicago Trust Company of
New York, the depositary for that offer, $19,999,989 in full payment for those
shares.
Purpose of the Offer
Following the completion of the Spring Tender Offer, Westmoreland's
Board of Directors continued to weigh the interests and concerns of holders of
the Series A Preferred Stock, taking into account the significant
oversubscription of the Spring Tender Offer, in light of the Company's strategic
position and the Board's determination to try to increase the value of the
Company for all shareholders. At its meeting of June 29, the Board authorized a
tender offer for up to 631,000 Depositary Shares, the amount by which the Spring
Tender Offer was oversubscribed, at $19.00 per Depositary Share, the price per
Depositary Share paid in the Spring Tender Offer. The Board also authorized the
purchase, in the event the Offer is oversubscribed, of an additional number of
Depositary Shares not exceeding 2% of the Depositary Shares outstanding at the
date hereof (24,947 shares), which shares may be purchased without extension of
the Offer pursuant to regulations of the Securities and Exchange
<PAGE 11>
Commission (the "Commission"). See Section 13. "Extension of the Tender Period;
Termination; Amendments." The Board also decided to continue to review the
resumption of payment of dividends on the Series A Preferred Stock but stated
that (a) this Offer is the only action that the Company intends to take with
respect to preferred dividends at this time, and (b) it appears that in the near
term other available cash should be used for reinvestment rather than
distributed in order to enhance the long-term value of the Company for all
shareholders and maintain compliance with the Master Agreement and the Note. In
reaching this decision, the Board considered a number of factors, including: (1)
the Company's strategic position and business opportunities that may be
available to the Company; (2) the projected benefit to the Company from the
Offer as compared with the projected benefit to the Company from current
investment returns on the cash to be paid in the Offer; (3) current market
conditions and the market price of the Series A Preferred Stock; (4) the
concerns of the holders of the Series A Preferred Stock; (5) projections
regarding the Company's future financial condition and estimates regarding
future results of operations; (6) the financial ratio requirements set forth in
the Note; (7) the reduction in shareholder's equity that will result from the
Offer and the likelihood that, if the Company purchases 631,000 Depositary
Shares pursuant to the Offer, it will have a shareholders' deficit immediately
following the Offer; and (8) the Company's obligations to other constituencies,
including its statutory obligation to pay retiree health benefits. The Board
concluded that the Offer is in the best interests of Westmoreland and its
shareholders, and it believes that the Offer will enhance shareholder value in
the short term and the long term. The Board also concluded that the Company's
financial condition and outlook and current market conditions make this an
attractive time to purchase the number of Depositary Shares that were tendered
in the Spring Tender Offer but that the Company was not able to purchase at that
time because of the restrictions imposed by the Master Agreement. In reaching
these conclusions, the Board took into account, in addition to the factors
discussed above, that upon retirement of the Series A Preferred Stock
represented by the Depositary Shares purchased hereby, the amount of accumulated
and unpaid dividends at the date hereof will be reduced from $12,590,631 to
$6,221,475 and that the rate at which dividends on the Series A Preferred Stock
will continue to accumulate will be reduced from $662,665 to $327,446 per
quarter (in each case assuming that 631,000 Depositary Shares are properly
tendered and not withdrawn). The Board also took note of the fact that the Offer
affords to those holders of Series A Preferred Stock who desire liquidity an
opportunity to sell all or a portion of their Depositary Shares without the
usual transaction costs associated with open market sales.
The Company had cash and cash equivalents of $32.6 million at June 30,
1999. Cash will be reduced by approximately $12.0 million as a result of the
consummation of the Offer if 631,000 Depositary Shares are properly tendered and
not withdrawn. The Board of Directors of the Company has authorized the Offer.
Certain Effects of the Offer; Plans of the Company after the Offer
If the Company purchases 631,000 Depositary Shares pursuant to the
Offer, then upon the retirement of the Series A Preferred Stock represented by
such Depositary Shares, the amount of accumulated and unpaid dividends will be
reduced from $12,590,631 to $6,221,475 (based on the accumulated and unpaid
dividends at the date hereof) and the rate at which dividends on the Series A
Preferred Stock will continue to cumulate will be reduced from $662,665 to
$327,446 per quarter. If the Company purchases 631,000 Depositary Shares
pursuant to the Offer, shareholders' equity will be reduced by approximately
$12.0 million, and,
<PAGE 12>
based on the Company's shareholders' equity of $10.5 million as of June 30,
1999, a shareholders' deficit will result. The Company would then be prohibited
from paying dividends until such time as positive shareholders' equity is
attained and other requirements under Delaware law are met.
Following the consummation of the Offer, the business and operations of
the Company will be continued by the Company substantially as they are currently
being conducted. Except as disclosed in this Offer to Purchase, the Company has
no present plans or proposals that would result in (i) the acquisition by any
person of additional securities of the Company, or the disposition of securities
of the Company other than in the ordinary course of business, (ii) an
extraordinary corporate transaction, such as a merger, reorganization,
liquidation or sale or transfer of a material amount of assets, involving the
Company or any of its subsidiaries, (iii) any change in the present Board of
Directors of the Company or management of the Company, including, but not
limited to, a plan or proposal to change the number or term of the directors, to
fill any existing vacancy on the Board of Directors, or to change any material
term of the employment contract of any executive officer, (iv) any material
change in the present dividend rate or policy or indebtedness or capitalization
of the Company, (v) any other material change in the Company's corporate
structure or business, or (vi) any changes in the Company's charter, bylaws, or
instruments corresponding thereto or any other actions which may impede the
acquisition of control of the Company by any person.
On March 9, 1999, Messrs. Frank E. Williams, Jr., R. Bentley Offutt,
and Guy Orlando Dove III, and Wynnefield Partners Small Cap Value L.P. I,
Wynnefield Partners Small Cap Value L.P., and Wynnefield Small Cap Offshore Fund
Ltd. ("Group") filed a Schedule 13D which stated, "The Group seeks to remove the
present Board of Directors and replace some or all of that Board with nominees
to be chosen by the Group, which in all likelihood will include members of the
Group." The Group subsequently solicited proxies for the election of directors
of the Company at a Special Meeting of Shareholders of the Company held May 12,
1999 in lieu of an annual meeting of shareholders (the "Special Meeting"). At
the Special Meeting, the Company's shareholders re-elected the Company's
incumbent directors and the Group's nominees were defeated.
The Company has an executive severance policy, but none of the
Company's executive officers is party to an employment contract with the
Company. On January 26, 1999, 40,000 shares of restricted stock and 65,000
shares of stock options were granted to a group of employees, including one
senior executive officer, R. Page Henley, Jr. Robert E. Killen, a director of
the Company, has expressed an interest in purchasing additional shares of Common
Stock. Mr. Killen has advised the Company that any possible future purchases of
Common Stock will depend on many factors, including the market price of the
Common Stock, the Company's business and financial position, alternative
investment opportunities, and general economic and market conditions. Each of
the Company's directors and executive officers has expressed an interest in
purchasing shares of Common Stock that are subject to options granted by the
Company. Each of the directors and executive officers has advised the Company
that any possible future exercise of options will depend on many factors,
including the market price of the Common Stock.
Following the expiration of the Offer, the Company may, in its sole
discretion, determine to purchase any remaining Depositary Shares through
privately negotiated transactions, open
<PAGE 13>
market purchases, or another tender offer or otherwise, on such terms and at
such prices as the Company may determine from time to time, the terms of which
purchases or offers could differ from those of the Offer, except that the
Company will not make any such purchases of Depositary Shares until the
expiration of ten business days after the termination of the Offer. The Company
has no present plans to do so. Any possible future purchases of Depositary
Shares by the Company will depend on many factors, including the market price of
the Depositary Shares, the Company's business and financial position,
alternative investment opportunities available to the Company, the results of
the Offer, and general economic and market conditions. However, the Company will
also remain subject to all limitations of Delaware law plus contractual
restrictions under the Master Agreement and the Note. Going forward, the
Company's Board of Directors will review the Company's options in light of these
restrictions and in consideration of the shareholders' best interests. It is
likely that for some period most available cash will be reinvested rather than
distributed in order to enhance the long-term value of the Company for all
shareholders. The Company expects to focus first on its core businesses for such
reinvestment, as it did in 1996 when it increased its ownership of WRI. In view
of the foregoing, the Company does not presently anticipate that, following the
consummation of the Offer, any cash would be paid to holders of Depositary
Shares in any additional transaction that could be completed in the near term.
The purchase of Depositary Shares pursuant to the Offer may reduce the
number of holders of Depositary Shares, will reduce the number of Depositary
Shares that might otherwise trade publicly, and, depending upon the number of
Depositary Shares so purchased, could adversely affect the liquidity and market
value of the remaining Depositary Shares held by the public.
The Depositary Shares are currently listed and traded on the AMEX. The
Company has reviewed the AMEX's published guidelines for the continued listing
of securities and discussed these guidelines with officials of the AMEX. Based
on these published guidelines and conversations, the Company does not believe
that its purchase of Depositary Shares pursuant to the Offer will cause the
Depositary Shares to fail to meet the continued listing requirements of the
AMEX.
The Depositary Shares are currently "margin securities" under the rules
of the Board of Governors of the Federal Reserve System. This has the effect,
among other things, of allowing brokers to extend credit on the collateral of
Depositary Shares. The Company believes that, following the purchase of
Depositary Shares pursuant to the Offer, the Depositary Shares will continue to
be "margin securities" for purposes of the margin regulations of the Board of
Governors of the Federal Reserve System.
The Depositary Shares are currently registered under the Securities
Exchange Act of 1934 (the "Exchange Act"). Registration of the Depositary Shares
under the Exchange Act may be terminated upon application of the Company to the
Securities and Exchange Commission (the "Commission") if the Depositary Shares
are neither held by 300 or more holders of record nor listed on a national
securities exchange. If registration of the Depositary Shares under the Exchange
Act were terminated, certain provisions of the Exchange Act, such as the
requirements of Rule 13e-3 thereunder with respect to "going private"
transactions, would no longer be applicable in respect of the Depositary Shares,
and the Depositary Shares would no longer be "margin securities". As of the date
hereof, the Depositary Shares were not held of record by 300
<PAGE 14>
or more persons but, as discussed above, were listed on a national securities
exchange. The Company has no current plan to terminate the registration of the
Depositary Shares under the Exchange Act.
All Depositary Shares purchased by the Company pursuant to the Offer
will be exchanged by the Company for the related Series A Preferred Stock which
will in turn be retired, cancelled, and thereafter returned to the status of
authorized but unissued shares of the Company's preferred stock. Any share of
Series A Preferred Stock (and the corresponding Depositary Shares) remaining
outstanding after the Offer will continue to be redeemable or exchangeable, in
each case at the option of the Company, on the terms specified in the
Certificate of Designation creating the Series A Preferred Stock. Upon
liquidation or dissolution of the Company, holders of the Series A Preferred
Stock are entitled to receive a liquidation preference of $100 per share of
Series A Preferred Stock (equal to $25 per Depositary Share), plus an amount
equal to accrued and unpaid dividends thereon to the date of payment, prior to
the payment of any amounts to the holders of the Company's Common Stock.
THE COMPANY, ITS BOARD OF DIRECTORS, AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OR ALL OF SUCH
SHAREHOLDER'S DEPOSITARY SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST
DECIDE WHETHER TO TENDER DEPOSITARY SHARES AND, IF SO, HOW MANY DEPOSITARY
SHARES TO TENDER.
SECTION 2. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The discussion below summarizes only certain of the U.S. federal income
tax consequences associated with the Offer. The summary discusses only
Depositary Shares held as capital assets within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and
does not address all of the tax consequences that may be relevant to particular
shareholders in light of their particular circumstances, or to certain types of
shareholders (such as certain financial institutions, broker dealers, insurance
companies, tax-exempt organizations, or persons who hold Depositary Shares as a
position in a "straddle" or as part of a "hedging," "constructive sale," or
"conversion" transaction for U.S. federal income tax purposes). This discussion
also does not address state, local, or foreign tax consequences or the
consequences of any U.S. federal tax other than the U.S. federal income tax.
The following discussion is based upon the provisions of the Internal
Revenue Code, the regulations promulgated thereunder, existing judicial
decisions, and administrative rulings, all of which are subject to change
(possibly with retroactive effect). Certain tax consequences of the Offer are
uncertain due to the lack of applicable legal authority and may be subject to
judicial or administrative interpretations that differ from the discussion
below.
SHAREHOLDERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS CONTEMPLATED BY THE
OFFER, INCLUDING FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES.
<PAGE 15>
Tax Consequences to the Company
The Company's purchase of Depositary Shares pursuant to the Offer may
affect its ability to utilize its NOLs. The Company carried forward
approximately $224 million of consolidated NOLs for U.S. federal income tax
purposes from the tax year ending December 31, 1997 into the tax year ending
December 31, 1998. The Company used approximately $110 million of these NOLs in
1998, and it reported for U.S. federal income tax purposes approximately $114
million of consolidated NOLs carrying forward from the tax year ending December
31, 1998 into the tax year ending December 31, 1999. The Company does not expect
to utilize any of these NOLs in connection with the Rensselaer Phase II
Transaction because it is anticipated that the transaction will not generate any
taxable income for U.S. federal income tax purposes. The Company also expects to
generate additional NOLs during 1999 as a result of the payments required by the
Master Agreement. As a result, at December 31, 1999, the Company expects to have
approximately $114 million of NOLs generated prior to 1999 and $40 million of
NOLs generated in 1999.
In general, a corporation may reduce its taxable income in any year by
using NOLs generated in prior periods. Subject to requirements relating to
alternative minimum taxation, for Westmoreland, the value of the NOLs is equal
to the amount of the reduction of the Company's taxable income multiplied by the
Company's marginal tax rate. (The highest current marginal U.S. federal
corporate tax rate is 35%.)
The amount of the Company's NOLs for U.S. federal income tax purposes
is subject to review and adjustment upon audit by the Internal Revenue Service
("IRS"). In addition, the foregoing estimates of the Company's NOLs are subject
to legal and factual uncertainty. The Company's ability to use its NOLs for U.S.
federal income tax purposes may also be affected by Section 382 of the Internal
Revenue Code ("Section 382").
Section 382 limits the use of a corporation's NOLs for U.S. federal
income tax purposes if an "ownership change" within the meaning of the Internal
Revenue Code ("Ownership Change") occurs with respect to that corporation. In
general, an Ownership Change occurs if, among other things, "5-percent
shareholders" within the meaning of the Internal Revenue Code ("5-Percent
Shareholders") increase their percentage ownership of the corporation's stock by
more than 50 percentage points over any three-year period. A 5-Percent
Shareholder is any person who owns 5 percent or more of the value of the
corporation's stock, and the value of the corporation's stock is the sum of the
market values of all of the corporation's outstanding shares. As an example of
the foregoing, if, at the start of any period, 5-Percent Shareholders own 10
percent of the value of a corporation's stock, and if they increase their
ownership interest in the corporation to 51 percent during the next three years,
then an Ownership Change has not occurred. However, if 5-Percent Shareholders
own 10 percent of the value of a corporation's stock at the beginning of the
relevant period and more than 60 percent of the value of the corporation's stock
at any time in the following three years, then that corporation has experienced
an Ownership Change. In other words, it is the change in ownership, not the
absolute level of ownership, that matters for purposes of determining whether an
Ownership Change has occurred.
For the reasons discussed below, there can be no assurance that the
Company will experience an Ownership Change -- or will not experience an
Ownership Change -- either prior to or after the Offer.
<PAGE 16>
If an Ownership Change does occur, whether in connection with the Offer
or otherwise, the Company's ability to use the NOLs generated prior to the
Ownership Change will be significantly limited. In general, if an Ownership
Change occurs, the Company will be able to use, in each year following the
Ownership Change, an amount of pre-Ownership Change NOLs equal to (i) the
Company's "value" on the date the Ownership Change occurs, multiplied by (ii)
the long-term tax-exempt rate. The long-term tax-exempt rate is based on
statutory criteria and computed by the IRS on a monthly basis; it currently
approximates 5.26 percent. The Company's "value" is the value of all of its
outstanding stock immediately prior to the occurrence of the Ownership Change.
If the Ownership Change takes place upon the consummation of the Offer, the
Company anticipates that the Company's "value" will be reduced by the amount
paid in the Offer. The limitation described in this paragraph is referred to
below as the "Section 382 Limitation."
The Section 382 Limitation would not be applicable to NOLs generated
following the Ownership Change. Generally, losses generated in the year in which
the Ownership Change occurs are allocated ratably to the pre-Ownership Change
and post-Ownership Change periods. For example, if an Ownership Change occurred
on October 31, 1999, approximately 83 percent of any NOLs generated in 1999
would be allocated to the pre-change period (and subject to the Section 382
Limitation) and approximately 17 percent would be allocated to the post-change
period (and not subject to the Section 382 Limitation).
In addition, if, on the date an Ownership Change occurs, Westmoreland
has "net unrealized built-in gain" of at least $10 million or 15 percent of the
value of its non-cash assets, then the Section 382 Limitation will be increased
in any year by the amount of any "recognized built-in gain" for that year. "Net
unrealized built-in gain" is equal to the difference between (i) the fair market
value of a corporation's assets immediately before an Ownership Change and (ii)
the aggregated adjusted basis of such assets at such time. "Recognized built-in
gain" is gain recognized by a corporation on the disposition of an asset, if (i)
the corporation owned the asset on the date the Ownership Change occurred and
(ii) it sells the asset in the five-year period beginning on the date the
Ownership Change occurs. Numerous factual and legal uncertainties arise in
connection with the application of the rules governing "net unrealized built-in
gain" to the Company. In view of these uncertainties, there can be no assurance
that, if Westmoreland experiences an Ownership Change, the Company will have
"net unrealized built-in gain" or that it will be able to take advantage of the
rules relating to "recognized built-in gain."
For most of the period during which the Company's bankruptcy
proceedings were pending, the Company requested that persons who knew that they
were 5-Percent Shareholders voluntarily refrain from trading in the Company's
securities. In December 1998, the Company ceased making that request after the
Equity Committee declined to join the Company in making it. Accordingly, the
Company took no position on whether persons who were 5-Percent Shareholders
should tender in response to the Spring Tender Offer, and the Company takes no
position on whether persons who are 5-Percent Shareholders should tender in
response to this Offer.
The Company determined to cease requesting that 5-Percent Shareholders
voluntarily refrain from trading, and to take no position on whether persons who
are 5-Percent Shareholders should tender in response to the Spring Tender Offer,
after reviewing numerous Ownership
<PAGE 17>
Change scenarios with its tax advisors and after consulting with the Equity
Committee. The Company made that determination in part because it had no
assurance that, even if it requested that 5-Percent Shareholders voluntarily
refrain from trading, an Ownership Change would not occur. Among the factors
that influenced the Company were the following:
o First, the Company encountered significant informational obstacles
in identifying the persons who are and were 5-Percent Shareholders and
determining what percentage ownership they hold and held, individually
and collectively. Because the Company has both Common Stock and Series
A Preferred Stock outstanding, determination of a person's status as a
5-Percent Shareholder is based on the number of the Depositary Shares
and shares of Common Stock that person owns and the market prices for
such Depositary Shares and shares of Common Stock. A person may be a
5-Percent Shareholder for purposes of Section 382 even if that person
owns less than 5 percent of the number of shares of either the
Company's Common Stock or its Series A Preferred Stock. Although the
Company would ordinarily be apprised of the identity and shareholdings
of persons who own 5 percent or more of the number of shares of a
single class of the Company's stock, the Company would not necessarily
be apprised of the identity and shareholdings of a person who owns
less than 5 percent of the number of shares of a class of the
Company's stock. Moreover, the Company had no assurance that its
information on shareholdings was or will be current: Section 13 of the
Exchange Act and the rules and regulations thereunder only require
certain institutional investors who own 5 percent of the number of
shares of either the Company's Common Stock or Series A Preferred
Stock to file reports of ownership within 45 calendar days after the
end of the year. Finally, because the Company's value changes with its
market capitalization, which varies with the price of the Common Stock
and Depositary Shares, and because the percentage of the Company owned
by persons who are 5-Percent Shareholders varies with the market price
of the Common Stock and Series A Preferred Stock, and because the
prices of those securities move independently of each other, changes
in the relative prices of the Common Stock and the Depositary Shares
made the calculations under Section 382 challenging.
o Second, the Company's ability to predict whether an Ownership Change
will occur in connection with the Offer was complicated by the
Company's inability to predict the relative prices of the Common Stock
and the Depositary Shares following the completion of the Offer. As
noted above, the Company's value and the percentage ownership of the
Company's securities held by different shareholders varies with the
relative market prices of the Company's Common Stock and Depositary
Shares; thus, calculations under Section 382 will be sensitive to,
among other things, the relative prices of the Common Stock and the
Depositary Shares following the Offer.
o Third, the Company's ability to predict whether an Ownership Change
will occur in connection with the Offer was complicated by the
Company's inability to predict which of its shareholders will tender
their Depositary Shares and what percentage of their Depositary Shares
they will tender. Indeed, an Ownership Change might occur, even if no
5-Percent Shareholder tenders in response to the Offer. Such a result
could occur -- whether or not any 5-Percent Shareholders tender -- by
altering the Company's market capitalization and the relative prices
of the Common Stock and Depositary Shares. In addition, depending on
the identity of the shareholders who do and do not tender and the
<PAGE 18>
nature of their respective shareholdings, additional 5-Percent
Shareholders may be created by the purchase of Depositary Shares in
the Offer.
o Fourth, in early December, 1998, the Equity Committee declined to join
the Company in requesting that 5-Percent Shareholders voluntarily
refrain from trading in the Company's securities.
o Fifth, in light of the Equity Committee's position and in view of
other information available to it, the Company had no assurance that
all of its 5-Percent Shareholders would continue to refrain from
trading in the Company's securities prior to, in connection with, and
after the Offer.
o Sixth, the Company used, for U.S. federal income tax purposes,
approximately $110 million of the NOLs that it carried forward from
the tax year ending December 31, 1997 into the tax year ending
December 31, 1998.
o Seventh, if an Ownership Change occurs in 1999, the Section 382
Limitation would be applied to NOLs generated prior to 1999 and a pro
rata portion of the NOLs generated in 1999. The Section 382 Limitation
would not apply to a pro rata portion of the NOLs generated in 1999 or
thereafter, unless another Ownership Change were to occur. In other
words, the Company believes that substantial NOLs could now be
retained even if an Ownership Change occurred in connection with the
Offer.
Taking into account the foregoing and other factors, the Company
determined to adopt a policy of neutrality towards trading by 5-Percent
Shareholders. Consistent with that policy, the Company neither encouraged nor
discouraged 5-Percent Shareholders, or any other shareholder, from tendering
Depositary Shares in response to the Spring Tender Offer.
The Company has reviewed matters related to Section 382, including the
factors described above, and consulted with its tax advisors in connection with
this Offer. On the basis of the foregoing and other considerations, the Company
has determined to reiterate its policy of neutrality towards trading by
5-Percent Shareholders and neither encourages nor discourages 5-Percent
Shareholders, or any other shareholder, from tendering Depositary Shares in this
Offer.
For the reasons noted above, there can be no assurance that an
Ownership Change will occur or will not occur in connection with the Offer or in
1999. Nonetheless, based on the information available to Westmoreland, including
an analysis of the available information concerning the Company's stock
ownership and any reported changes therein together with the effect of the
Spring Tender Offer and the potential effect of this Offer, the Company does not
believe that an Ownership Change took place upon the completion of the Spring
Tender Offer, and the Company does not expect that an Ownership Change will
occur upon completion of this Offer. The Company continues to monitor the
trading in its securities and to consult with its tax advisors on strategies to
maximize the value of its tax attributes, including its NOLs.
<PAGE 19>
Tax Consequences to Holders of Depositary Shares
Sales of Depositary Shares by shareholders pursuant to the Offer will
be taxable transactions, the consequences of which will be determined under the
stock redemption rules of Section 302 of the Internal Revenue Code ("Section
302"). These rules are described below.
U.S. Holders
For purposes of this discussion, a "U.S. Holder" means a beneficial
owner of a Depositary Share that is, for U.S. federal income tax purposes, (i) a
citizen or resident of the United States; (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States;
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of its source; or (iv) any trust if a court within the United States
is able to exercise primary supervision over the administration of such trust
and one or more U.S. persons have the authority to control all substantial
decisions of such trust. A "Non-U.S. Holder" is a beneficial owner of a
Depositary Share that is not a U.S. Holder.
Treatment as a Sale or Exchange
Under Section 302, a transfer of Depositary Shares to the Company
pursuant to the Offer will, as a general rule, be treated as a sale or exchange
of the Depositary Shares (rather than as a dividend distribution) if the receipt
of cash upon the sale (a) is "substantially disproportionate" with respect to
the U.S. Holder, (b) results in a "complete termination" of the U.S. Holder's
interest in the Company, or (c) is "not essentially equivalent to a dividend"
with respect to the U.S. Holder. These tests (the "Section 302 tests") are
explained more fully below.
If any of the Section 302 tests is satisfied, a tendering U.S. Holder
will recognize capital gain or loss equal to the difference between the amount
of cash received by the U.S. Holder pursuant to the Offer and such U.S. Holder's
basis in the Depositary Shares sold pursuant to the Offer. Gain recognized by a
U.S. Holder on Depositary Shares held for 12 months or less will be taxable at
the short-term capital gains rate, while Depositary Shares held more than 12
months will be taxable at the long-term capital gains rate. Capital losses are
subject to certain limitations.
Constructive Ownership of Stock
In determining whether any of the Section 302 tests is satisfied, a
U.S. Holder must take into account not only Depositary Shares and Common Stock
actually owned by him, but also Depositary Shares and Common Stock that are
constructively owned pursuant to Section 318 of the Internal Revenue Code
("Section 318"). Under Section 318, a U.S. Holder may constructively own
Depositary Shares and Common Stock actually owned, and in some cases
constructively owned, by certain related individuals and certain entities in
which the U.S. Holder has an interest, or, in the case of U.S. Holders that are
entities, by certain individuals or entities that have an interest in such U.S.
Holder, as well as any Depositary Shares and Common Stock the U.S. Holder has a
right to acquire by exercise of an option or by the conversion or exchange of a
security. With respect to option and convertible security attribution, the IRS
takes the position that stock constructively owned by a U.S. Holder by reason of
a right on the U.S. Holder's part to acquire shares from the Company are not to
be considered outstanding for
<PAGE 20>
purposes of applying the Section 302 tests to other U.S. Holders; however, there
are both contrary and supporting judicial decisions with respect to this issue.
The Section 302 Tests
One of the following tests must be satisfied in order for the transfer
of Depositary Shares pursuant to the Offer to be treated as a sale rather than
as a dividend distribution.
Although the issue is not free from doubt, a U.S. Holder may be able to
take into account acquisitions or dispositions of Depositary Shares and Common
Stock (including market purchases and sales) substantially contemporaneous with
the Offer in determining whether any of the Section 302 tests is satisfied.
In the event that the Offer is oversubscribed, the Company's purchase
of Depositary Shares pursuant to the Offer will be prorated. Thus, in such case
even if all the Depositary Shares actually and constructively owned by a U.S.
Holder are tendered pursuant to the Offer, not all of the Depositary Shares will
be purchased by the Company, which in turn may affect such U.S. Holder's ability
to satisfy the Section 302 tests.
Substantially Disproportionate Test. Under Section 302(b)(2) of the
Internal Revenue Code, a sale of Depositary Shares pursuant to the Offer, in
general, will be "substantially disproportionate" as to a U.S. Holder if the
ratio of the outstanding voting stock of the Company actually and constructively
owned by the U.S. Holder compared to all of the Company's voting stock
outstanding immediately after all sales of Depositary Shares pursuant to the
Offer is less than 80% of the ratio of voting stock actually and constructively
owned by such U.S. Holder compared to all of the Company's voting stock
outstanding immediately before such sales. The U.S. Holder's ownership of Common
Stock after and before all sales of Depositary Shares pursuant to the Offer must
also meet the 80 percent requirement of the preceding sentence. In addition, in
order to meet the "substantially disproportionate test," a U.S. Holder must
immediately after the Offer own less than 50 percent of the total combined
voting power of all the Company's classes of stock entitled to vote.
Complete Termination Test. The receipt of cash by a U.S. Holder
pursuant to the Offer will be a complete termination of the U.S. Holder's
interest if at the conclusion of the Offer either (i) the U.S. Holder actually
and constructively owns no Depositary Shares or Common Stock, or (ii) the U.S.
Holder actually owns no Depositary Shares or Common Stock and the U.S. Holder is
eligible to waive, and effectively waives, the attribution of Depositary Shares
and Common Stock constructively owned by the U.S. Holder in accordance with the
procedures described in Section 302(c)(2) of the Internal Revenue Code.
Not Essentially Equivalent to a Dividend Test. The receipt of cash by
a U.S. Holder pursuant to the Offer will not be essentially equivalent to a
dividend if the U.S. Holder's exchange of Depositary Shares pursuant to the
Offer results in a "meaningful reduction" of the U.S. Holder's proportionate
interest in the Company. Whether the receipt of cash by a U.S. Holder will
result in a meaningful reduction of the U.S. Holder's proportionate interest
will depend on the U.S. Holder's particular facts and circumstances. However, in
the case of a small minority U.S. Holder, even a small reduction may satisfy
this test where, as with the Offer, payments are not expected to be pro rata
with respect to all outstanding Depositary Shares. The
<PAGE 21>
IRS has held in a published ruling that, under the particular facts of that
ruling, a very small reduction in the percentage stock ownership of a
shareholder constituted a "meaningful reduction" when the shareholder owned an
insignificant percentage of the corporation's stock before and after a
redemption and did not exercise any control over corporate affairs.
Treatment as a Dividend or Otherwise as a Distribution
If none of the Section 302 tests is satisfied and if the Company has
sufficient current or accumulated earnings and profits, as calculated for U.S.
federal income tax purposes, a tendering U.S. Holder will be treated as having
received a dividend includible in gross income in an amount equal to the entire
amount of cash received by such U.S. Holder pursuant to the Offer. This amount
will not be reduced by the U.S. Holder's basis in the Depositary Shares
exchanged pursuant to the Offer, and (except as described below for corporate
U.S. Holders eligible for the dividends-received deduction) the U.S. Holder's
basis in those Depositary Shares will be added to such U.S. Holder's basis in
the remaining Depositary Shares and Common Stock retained by such U.S. Holder.
No assurance can be given that any of the Section 302 tests will be satisfied as
to any particular U.S. Holder, and thus no assurance can be given that any
particular U.S. Holder will not be treated as having received a dividend taxable
as ordinary income.
Notwithstanding the discussion immediately above, if none of the
Section 302 tests is satisfied, any cash received for Depositary Shares pursuant
to the Offer in excess of the Company's current or accumulated earnings and
profits, as calculated for U.S. federal income tax purposes, will be treated,
first, as a non-taxable return of capital to the extent of, and in reduction of,
the U.S. Holder's basis for such U.S. Holder's Depositary Shares and,
thereafter, as a capital gain to the extent it exceeds such basis. Gain
recognized by a U.S. Holder on Depositary Shares held for 12 months or less will
be taxable at the short-term capital gains rate, while Depositary Shares held
more than 12 months will be taxable at the long-term capital gains rate.
Although it is not entirely free from doubt, the Company does not
anticipate having positive current or accumulated earnings and profits, as
calculated for U.S. federal income tax purposes, during its 1999 taxable year.
Consequently, if none of the Section 302 tests is satisfied, a U.S. Holder is
likely to be subject to the U.S. federal income tax treatment described in the
immediately preceding paragraph as to any cash received for Depositary Shares
pursuant to the Offer.
Special Rules for Corporate U.S. Holders
If the exchange of Depositary Shares by a corporate U.S. Holder
qualifies as a dividend, which the Company believes is not likely, see " --
Treatment as a Dividend or Otherwise as a Distribution", such corporate U.S.
Holder generally will be entitled to a dividends-received deduction, subject to
applicable limitations. Also, since it is expected that purchases pursuant to
the Offer will not be pro rata as to all shareholders, any amount treated as a
dividend to a corporate U.S. Holder will constitute an "extraordinary dividend"
subject to the provisions of Section 1059 of the Internal Revenue Code (except
as may otherwise be provided in regulations yet to be promulgated by the
Treasury Department). Corporate U.S. Holders should consult their own advisors
as to the implications of the "extraordinary dividend" provisions to their own
situations.
<PAGE 22>
Non-U.S. Holders
Although the Company believes that no holder will receive a dividend,
for U.S. federal income tax purposes, because of the anticipated lack of
positive current or accumulated earnings and profits, as calculated for U.S.
federal income tax purposes, applicable Treasury regulations require the Company
to assume that any exchange pursuant to the Offer will be a dividend as to all
Non-U.S. Holders. Consequently, the Depositary will withhold U.S. federal income
tax at a rate equal to 30% of the gross proceeds paid to a Non-U.S. Holder or
his agent pursuant to the Offer, unless the Depositary determines that a reduced
rate of withholding is available pursuant to a tax treaty or that an exemption
from withholding is applicable because the gross proceeds are effectively
connected with the conduct of a trade or business by the Non-U.S. Holder within
the United States.
Generally, the determination of whether a reduced rate of withholding
is applicable is made by reference to a Non-U.S. Holder's address or to a
properly completed IRS Form 1001 furnished by the Non-U.S. Holder, and the
determination of whether an exemption from withholding is available on the
grounds that gross proceeds paid to a Non-U.S. Holder are effectively connected
with a United States trade or business is made on the basis of a properly
completed IRS Form 4224 furnished by the Non-U.S. Holder. The Depositary will
determine a Non-U.S. Holder's eligibility for a reduced rate of, or exemption
from, withholding by reference to the Non-U.S. Holder's address and any IRS
Forms 1001 or 4224 submitted to the Depositary by a Non-U.S. Holder unless facts
and circumstances indicate that such reliance is not warranted or unless
applicable law requires some other method for determining whether a reduced rate
of withholding is applicable. These forms can be obtained from the Information
Agent. See the instructions to the Letter of Transmittal.
A Non-U.S. Holder with respect to whom tax has been withheld may be
eligible to obtain a refund of all or a portion of the withheld tax if the
Non-U.S. Holder satisfies one of the Section 302 tests for capital gain
treatment or is otherwise able to establish that no tax or a reduced amount of
tax was due. Non-U.S. Holders are urged to consult their own tax advisors
regarding the application of U.S. federal income tax withholding, including
eligibility for a withholding tax reduction or exemption, the availability of a
refund and the refund procedure.
Although it is not completely clear, the Company believes that it is
not, and has not been, during a 5-year look-back period, a United States real
property holding corporation ("USRPHC"), within the meaning of Section 897(c) of
the Internal Revenue Code. A Non-U.S. Holder should consult its own tax advisor
as to the consequences to it, if any, of the Company's being a USRPHC.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY
AND SIGN THE SUBSTITUTE IRS FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR,
IN THE CASE OF A FOREIGN SHAREHOLDER, IRS FORM W-8 OBTAINABLE FROM THE
INFORMATION AGENT) MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE
PURSUANT TO THE OFFER.
<PAGE 23>
BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX AND A SHAREHOLDER MAY BE
ELIGIBLE FOR A REFUND OR CREDIT IN RESPECT OF SUCH TAX.
SECTION 3. CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS;
NO APPRAISAL RIGHTS
The Company is not aware of any license or regulatory permit that
appears to be material to its business that might be adversely affected by its
acquisition of Depositary Shares as contemplated in the Offer or of any approval
or other action by any government or governmental, administrative or regulatory
authority, or agency, domestic or foreign, that would be required for the
Company's acquisition or ownership of Depositary Shares pursuant to the Offer.
Should any such approval or other action be required, the Company currently
contemplates that it will seek such approval or other action. The Company cannot
predict whether it may determine that it is required to delay the acceptance for
payment of, or payment for, Depositary Shares tendered pursuant to the Offer
pending the outcome of any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to the Company's
business. The Company intends to make all required filings under the Exchange
Act. The Company's obligation under the Offer to accept for payment, or make
payment for, Depositary Shares is subject to certain conditions. See Section 8.
"Certain Conditions of the Offer."
There is no shareholder vote required in connection with the Offer.
No appraisal rights are available to holders of Depositary Shares in
connection with the Offer.
THE OFFER
SECTION 4. NUMBER OF SHARES; PRORATION; EXPIRATION DATE; EXTENSION OF
THE OFFER
Upon the terms and subject to the conditions of the Offer, the Company
will accept for payment (and thereby purchase) 631,000 Depositary Shares, or
such lesser number of Depositary Shares as are properly tendered on or before
the Expiration Date (and not withdrawn in accordance with Section 6), at the
Purchase Price. The term "Expiration Date" means 5:00 p.m., New York City time,
on Tuesday, October 26, 1999, unless and until the Company shall have extended
the period of time during which the Offer is open, in which event the term
"Expiration Date" shall refer to the latest time and date at which the Offer, as
so extended by the Company, shall expire. See Section 13. "Extension of the
Tender Period; Termination; Amendments" for a description of the Company's right
to extend the time during which the Offer is open and to delay, terminate, or
amend the Offer. See also Section 8.
"Certain Conditions of the Offer."
The Company expressly reserves the right, in its sole discretion, (a)
to purchase more than 631,000 Depositary Shares pursuant to the Offer and (b) at
any time or from time to time, to extend the period of time during which the
Offer is open by giving oral followed by written notice of such extension to the
Depositary and making a public announcement thereof. See
<PAGE 24>
Section 13. "Extension of the Tender Period; Termination; Amendments." There can
be no assurance, however, that the Company will purchase more than 631,000 or
exercise its right to extend the Offer.
If (a) the Company (i) increases or decreases the price to be paid for
Depositary Shares or (ii) increases or decreases the number of Depositary Shares
being sought and (b) the Offer is scheduled to expire at any time earlier than
the tenth business day from and including the date that notice of such increase
or decrease is first published, sent, or given in the manner specified in
Section 13, the Offer will be extended until the expiration of such ten business
day period; provided, however, that in accordance with regulations of the
Securities and Exchange Commission ("Commission"), no such extension is required
if the Company purchases pursuant to the Offer an additional number of
Depositary Shares not to exceed 2% of the number of Depositary Shares
outstanding as of the date hereof. For purposes of the Offer, "business day"
means any day other than a Saturday, Sunday, or Federal holiday and consists of
the time period from 12:01 a.m. through 12:00 midnight, Eastern Standard Time.
See Section 13. "Extension of the Tender Period; Termination; Amendments."
All Depositary Shares purchased pursuant to the Offer will be purchased
at the Purchase Price, net to the seller in cash. All Depositary Shares not
purchased pursuant to the Offer, including Depositary Shares tendered and
withdrawn, will be returned to the tendering shareholders at the Company's
expense as promptly as practicable.
If more than 631,000 Depositary Shares are properly tendered and not
withdrawn prior to the Expiration Date, and if the Company does not increase the
number of Depositary Shares purchased, proration will be required. In the event
that proration of tendered Depositary Shares is required, the Company will
determine the proration factor as soon as practicable following the Expiration
Date. Proration for each shareholder tendering Depositary Shares shall be based
on the ratio of the number of Depositary Shares properly tendered and not
withdrawn by such shareholder to the total number of Depositary Shares properly
tendered and not withdrawn by all shareholders, subject to adjustment to avoid
the purchase of fractional shares. Because of the difficulty in determining the
number of Depositary Shares properly tendered and not withdrawn, the Company
does not expect that it will be able to announce the final proration factor or
commence payment to shareholders for any Depositary Shares purchased pursuant to
the Offer until approximately five NYSE trading days after the Expiration Date.
(A NYSE trading day is any day on which the New York Stock Exchange, Inc. is
open for trading.) The preliminary results of any proration will be announced by
press release as promptly as practicable after the Expiration Date. Shareholders
may obtain such preliminary information from the Information Agent and may be
able to obtain such information from their brokers. Broker-dealers may require
additional time to credit the Company's payment to the accounts of their clients
who hold Depositary Shares in street name. See also Section 7. "Acceptance of
Payment for Depositary Shares and Payment of Purchase Price."
As described in Section 2. "Certain Federal Income Tax Consequences,"
the number of Shares that the Company will purchase from a shareholder may
affect the United States Federal income tax consequences to the shareholder of
such purchase and, therefore, may be relevant to a shareholder's decision
whether or not to tender Shares.
<PAGE 25>
This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Depositary Shares and will be furnished to brokers,
banks, and similar persons whose names, or the names of whose nominees, appear
on the Company's shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Depositary Shares.
SECTION 5. PROCEDURE FOR TENDERING DEPOSITARY SHARES
Proper Tender of Depositary Shares
For Depositary Shares to be properly tendered pursuant to the Offer,
the depositary receipts for such Depositary Shares (or confirmation of receipt
of such Depositary Shares pursuant to the procedures for book-entry transfer set
forth below), together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) with any required signature guarantees (or
in the case of book-entry transfer, an Agent's Message (as defined below)), and
any other documents required by the Letter of Transmittal, must be received
before the Expiration Date by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase.
The term "Agent's Message" means a message, transmitted by The
Depository Trust Company ("DTC") to, and received by, the Depositary and forming
a part of the confirmation of book-entry transfer, which states that DTC has
received an express acknowledgement from the participant in DTC tendering the
Depositary Shares that such participant has received and agrees to be bound by
the terms of the Letter of Transmittal and that the Company may enforce such
agreement against the participant.
A tender of Depositary Shares made pursuant to any method of delivery
set forth herein will constitute a binding agreement between the tendering
shareholder and the Company upon the terms and subject to the conditions of the
Offer.
Signature Guarantees and Method of Delivery
Except as otherwise provided below, all signatures on the Letter of
Transmittal must be guaranteed by a financial institution (including most banks,
savings and loan associations, and brokerage houses) that is a participant in
the Security Transfer Agents Medallion Program (each of the foregoing being
referred to as an "Eligible Institution"). Signatures on the Letter of
Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by
the registered holder of the Depositary Shares tendered therewith and such
holder has not completed the box entitled "Special Payment Instructions" on the
Letter of Transmittal or (b) the Depositary Shares tendered therewith are
tendered for the account of an Eligible Institution. If Depositary Shares are
registered in the name of a person other than the signatory on the Letter of
Transmittal, or if unpurchased Depositary Shares are to be issued to a person
other than the registered holder(s), the depositary receipts representing
tendered Depositary Shares must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name or names of the registered
holder(s) appear on the depositary receipts with the signature(s) on the
depositary receipts or stock powers guaranteed as aforesaid. THE METHOD OF
DELIVERY OF ALL DOCUMENTS, INCLUDING DEPOSITARY RECEIPTS, THE LETTER OF
TRANSMITTAL, AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION
<PAGE 26>
AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. In all cases,
sufficient time should be allowed to ensure timely delivery.
U.S. Federal Backup Withholding
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of U.S. federal income tax, the Depositary will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a shareholder or other payee pursuant to the Offer unless the
shareholder or other payee provides such person's tax identification number
(social security number or employer identification number) and certifies that
such number is correct. Each tendering U.S. shareholder should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal, so as to provide the information and certification
necessary to avoid backup withholding, unless an applicable exemption exists and
is proved in a manner satisfactory to the Company and the Depositary. Foreign
shareholders should generally complete and sign a Form W-8, Certificate of
Foreign Status, a copy of which may be obtained from the Depositary, in order to
avoid backup withholding.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the proper information is submitted to the IRS.
Book-Entry Delivery
The Depositary will establish an account with respect to the Depositary
Shares at DTC for purposes of the Offer within two business days after the date
of this Offer to Purchase. Any financial institution that is a participant in
DTC's system may make book-entry delivery of the Depositary Shares by causing
DTC to transfer such Depositary Shares into the Depositary's account in
accordance with DTC's procedure for such transfer. Prior to the applicable
Expiration Date, an Agent's Message in connection with any book-entry transfer
must be transmitted to, and received by, the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase. DELIVERY OF DOCUMENTS TO
DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Determinations of Validity; Rejection of Depositary Shares; Waiver of Defects;
No Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance for payment of any tender of Depositary Shares will be
determined by the Company, in its sole discretion, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any or all tenders it determines not to be in proper form or the
acceptance for payment of which may, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Offer and any defect or irregularity in the tender of any
particular Depositary Shares. No tender of Depositary Shares will be deemed to
be properly made until all defects or irregularities have been cured or waived.
None of the Company, the Depositary, the Information Agent, or any
<PAGE 27>
other person is or will be obligated to give notice of any defects or
irregularities in tenders, and none of them will incur any liability for failure
to give any such notice.
SECTION 6. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 6, a tender of Depositary
Shares pursuant to the Offer is irrevocable. Depositary Shares tendered pursuant
to the Offer may be withdrawn at any time before the Expiration Date and, unless
theretofore accepted for payment by the Company, may also be withdrawn after
12:00 midnight, New York City time, on November 11, 1999.
For a withdrawal to be effective, the Depositary must timely receive
(at one of its addresses set forth on the back cover of this Offer to Purchase)
a written or facsimile transmission notice of withdrawal. Such notice of
withdrawal must specify the name of the person having tendered the Depositary
Shares to be withdrawn, the number of Depositary Shares to be withdrawn, and the
name of the registered owner, if different from that of the person who tendered
such Depositary Shares. If the depositary receipts have been delivered or
otherwise identified to the Depositary, then, prior to the release of such
depositary receipts, the tendering shareholder must also submit the serial
numbers shown on the particular depositary receipts evidencing the Depositary
Shares, and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution (except in the case of Depositary Shares tendered by an
Eligible Institution). If Depositary Shares have been delivered pursuant to the
procedure for book-entry transfer set forth in Section 5. "Procedure for
Tendering Depositary Shares," the notice of withdrawal must specify the name and
the number of the account at DTC to be credited with the withdrawn Depositary
Shares and otherwise comply with the procedures of DTC.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding on all parties. None
of the Company, the Depositary, the Information Agent, or any other person is or
will be obligated to give any notice of any defects or irregularities in any
notice of withdrawal, and none of them will incur any liability for failure to
give any such notice. A withdrawal of a tender of Depositary Shares may not be
rescinded, and Depositary Shares properly withdrawn will thereafter be deemed
not validly tendered for purposes of the Offer. Withdrawn Depositary Shares may,
however, be retendered before the Expiration Date by again following any of the
procedures described in Section 5. "Procedure for Tendering Depositary Shares."
SECTION 7. ACCEPTANCE FOR PAYMENT OF DEPOSITARY SHARES AND PAYMENT OF
PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer, promptly
after the Expiration Date, the Company will accept for payment and will pay the
Purchase Price for 631,000 Depositary Shares (subject to certain matters
discussed in Section 4. "Number of Shares; Proration; Expiration Date; Extension
of the Offer" and Section 13. "Extension of the Tender Period; Termination;
Amendments") or such lesser number of Depositary Shares as are properly tendered
and not withdrawn as permitted in Section 6. "Withdrawal Rights." For purposes
of the Offer, the Company will be deemed to have accepted for payment (and
thereby purchased) Depositary Shares which are tendered and not withdrawn when,
as, and if it gives oral followed
<PAGE 28>
by written notice to the Depositary of its acceptance of such Depositary Shares
for payment pursuant to the Offer.
In the event of proration, the Company will determine the proration
factor and pay for those tendered Depositary Shares accepted for payment as soon
as practicable after the Expiration Date; however, the Company does not expect
to be able to announce the final results of any proration and commence payment
to shareholders for Depositary Shares purchased until approximately five NYSE
trading days after the Expiration Date. Certificates for all Depositary Shares
tendered and not purchased, including all Depositary Shares not purchased due to
proration, will be returned (or, in the case of Depositary Shares tendered by
book-entry transfer, such Depositary Shares will be credited to the account
maintained with the applicable Book-Entry Transfer Facility by the participant
therein who so delivered such Depositary Shares) to the tendering stockholder at
the Company's expense as promptly as practicable after the Expiration Date
without expense to the tendering shareholders.
Payment for Depositary Shares purchased pursuant to the Offer will be
made by depositing the aggregate Purchase Price therefor with the Depositary,
which will act as agent for tendering shareholders for the purpose of receiving
payment from the Company and transmitting payment to the tendering shareholders.
Notwithstanding any other provision hereof, payment for Depositary Shares
accepted for payment pursuant to the Offer will in all cases be made only after
timely receipt by the Depositary of depositary receipts for such Depositary
Shares (or a timely confirmation by DTC of book-entry transfer of such
Depositary Shares to the Depositary), a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) with any required signature
guarantees (or, in the case of book-entry transfer, an Agent's Message), and any
other required documents. Under no circumstances will interest be paid on the
Purchase Price of the Depositary Shares to be paid by the Company, regardless of
any delay in making such payment.
The Company will pay any stock transfer taxes with respect to the
transfer and sale of Depositary Shares to it pursuant to the Offer. If, however,
payment of the Purchase Price is to be made to, or if depositary receipts for
Depositary Shares not tendered or accepted for purchase are to be registered in
the name of, any person other than the registered holder, or if tendered
depositary receipts are registered in the name of any person other than the
person signing the Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder or such person) payable on account of
the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted. See Instruction 6 of the Letter of Transmittal.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN
THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE CASE
OF A FOREIGN SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE INFORMATION AGENT) MAY BE
SUBJECT TO REQUIRED U.S. FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS
PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE
SECTION 5. "PROCEDURE FOR TENDERING DEPOSITARY SHARES."
<PAGE 29>
SECTION 8. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, and in addition to
(and not in limitation of) the Company's right to extend or amend the Offer at
any time in its reasonable discretion, the Company shall not be required to
accept for payment or make payment for any Depositary Shares tendered, and may
terminate or amend the Offer, if on or prior to the Expiration Date any of the
following shall have occurred (or shall have been determined by the Company to
have occurred):
(a) there shall have been threatened, instituted or pending any
action or proceeding by any government or governmental,
regulatory, or administrative agency or authority or
tribunal or any other person, domestic or foreign, before
any court or governmental, regulatory, or administrative
authority, agency or tribunal, domestic or foreign, which
(i) challenges the making of the Offer, the acquisition of
Depositary Shares pursuant to the Offer, or otherwise
relates in any manner to the Offer; or (ii) in the
reasonable judgment of the Company, could materially
adversely affect the business, condition (financial or
other), income, operations, or prospects of the Company and
its subsidiaries, taken as a whole, or otherwise materially
impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries or
materially impair the Offer's contemplated benefits to the
Company;
(b) there shall have been any action threatened, pending or
taken, or approval withheld, or any statute, rule,
regulation, judgment, order or injunction threatened,
proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the Offer or the
Company or any of its subsidiaries, by any court or any
government or governmental, regulatory, or administrative
authority, agency, or tribunal, domestic or foreign, which,
in the Company's reasonable judgment, would or might
directly or indirectly (i) make the acceptance for payment
of, or payment for, Depositary Shares illegal or otherwise
restrict or prohibit consummation of the Offer; (ii) delay
or restrict the ability of the Company, or render the
Company unable, to accept for payment, or pay for,
Depositary Shares; (iii) materially impair the contemplated
benefits of the Offer to the Company; (iv) materially
adversely affect the business, condition (financial or
other), income, operations, or prospects of the Company and
its subsidiaries, taken as a whole, or otherwise materially
impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries; or (v)
the Company shall have determined in its reasonable judgment
that the Depositary Shares could likely fail to meet the
continued listing requirements of AMEX following the Offer
(as stated above in Section 1. "Background to the Offer;
Purpose of the Offer; Certain Effects of the Offer; Plans of
the Company after the Offer", the Company believes it will
meet the continued listed requirements of the AMEX upon the
closing of the Offer and thus has no present reason to
believe that it would make such a determination);
(c) there shall have occurred after September 15, 1999, (i) any
general suspension of trading in, or limitation on prices
for, securities on any United States national securities
exchange or in the over-the-counter market (excluding any
coordinated trading halt triggered solely as a result of a
specified decrease in a market index),
<PAGE 30>
(ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United
States, (iii) the commencement of a war, armed hostilities,
or other international or national crisis directly or
indirectly involving the United States, (iv) any limitation
(whether or not mandatory) by any governmental, regulatory,
or administrative agency or authority on, or any event
which, in the reasonable judgment of the Company, might
affect the extension of credit by banks or other lending
institutions in the United States, (v) any significant
decline in the market price of the Depositary Shares, (vi)
any change in the general political, market, economic, or
financial conditions in the United States or abroad that
could, in the reasonable judgment of the Company, have a
material adverse effect on the Company's business,
operations, prospects, or the trading in the Depositary
Shares, or (vii) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof;
(d) after September 15, 1999, any tender or exchange offer with
respect to the Depositary Shares or any other class of the
Company's equity securities, or any merger, acquisition,
business combination, or other similar transaction with or
involving the Company or any subsidiary, shall have been
proposed, announced, or made by another person;
(e) after September 15, 1999, any change shall occur or be
threatened in the business, condition (financial or other),
income, operations, or prospects of the Company and its
subsidiaries taken as a whole (including, without
limitation, any downgrade in the credit ratings of any
securities of the Company or any of its subsidiaries by
Moody's or S&P or any announcement by Moody's or S&P that it
has placed any such rating under surveillance or review with
possible negative implications), which, in the reasonable
judgment of the Company, is or may be materially adverse to
the Company; or
(f) (i) any person, entity, or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) shall have acquired,
or proposed to acquire, beneficial ownership of more than
20% of the Company's outstanding Common Stock, (ii) any
group shall have been formed which beneficially owns more
than 20% of the Company's outstanding Common Stock, or (iii)
any person, entity, or group shall have filed a Notification
and Report Form under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, or made a public announcement
reflecting an intent to acquire the Company or any of its
subsidiaries or any of their respective assets or
securities;
and, in the reasonable judgment of the Company, in any such case and regardless
of the circumstances (including any action or inaction by the Company) giving
rise to such condition, such event makes it undesirable or inadvisable to
proceed with the Offer or with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances (including any
action or inaction by the Company) giving rise to any such condition, and any
such condition may be waived by the Company, in whole or in part, at any time
and from time to time in its sole discretion. The Company's failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
<PAGE 31>
right; the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances; and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. The Company's failure at any time to
exercise any of the foregoing rights shall not be deemed an admission that the
facts or events entitling the Company to assert such right do not exist or have
not occurred and shall not be deemed a waiver to the Company's assertion in any
forum or against any person that the facts or events entitling the Company to
assert such right do exist or have occurred. Any determination by the Company
concerning the events described above and any related judgment by the Company
regarding the undesirability or inadvisability of proceeding with the acceptance
for payment or payment for any tendered Depositary Shares will be final and
binding on all parties.
SECTION 9. PRICE RANGE OF THE DEPOSITARY SHARES; DIVIDENDS
Price Range of Depositary Shares
The Depositary Shares are currently listed and traded on the AMEX under
the symbol "WLB.pr". Trading on the AMEX began April 16, 1999. From February 6,
1997 through April 16, 1999, the Depositary Shares were traded on the
over-the-counter market, and bid and ask prices for the Depositary Shares in
such market were reported on the OTC Bulletin Board under the symbol "WMCLP".
The following table sets forth, for each period shown, the high and low sales
price as reported on the AMEX composite tape (for the period during which
Depositary Shares are listed and traded on the AMEX) and high and low bid prices
(for the period during which Depositary Shares were listed and traded on the
over the counter market) as reported by the National Association of Securities
Dealers Composite Feed or other qualified interdealer medium. The Depositary
Shares were first traded on or about July 9, 1992.
DEPOSITARY SHARE
PRICE RANGE
--------------------------------
HIGH LOW
---- ---
1997
1st Quarter.............. $ 5 3/4 $ 2
2nd Quarter.............. 5 1/2 5
3rd Quarter.............. 6 3/4 5 1/8
4th Quarter.............. 7 3/8 4 7/8
1998
1st Quarter.............. 14 1/4 5 1/8
2nd Quarter.............. 14 1/2 4 11/16
3rd Quarter.............. 14 5/8 4 5/8
4th Quarter.............. 17 1/2 10 3/8
1999
1st Quarter.............. 18 16 1/4
2nd Quarter.............. 19 3/4 17
3rd Quarter (through September 15, 1999) 19 18 1/8
On June 30, 1999, the last trading day before the Company announced its
intention to make the Offer, the closing sales price of the Depositary Shares as
reported on the AMEX composite tape was $18 1/4 per Depositary Share. On
September 15, 1999, the last trading day
<PAGE 32>
before the Company announced the Offer, the closing sales price of the
Depositary Shares as reported on the AMEX composite tape was $18 1/8 per
Depositary Share. Shareholders are urged to obtain a current market quotation
for the Depositary Shares.
Dividends
Holders of shares of the Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors out of funds of the
Company legally available therefor, cumulative cash dividends on the shares of
the Series A Preferred Stock at the rate of $8.50 per annum per share of Series
A Preferred Stock (equal to $2.125 per Depositary Share). Dividends are payable
in equal quarterly installments on April 1, July 1, October 1, and January 1 in
each year and are cumulative from the date of original issue of each share of
the Series A Preferred Stock. Each such dividend is payable to holders of record
of the shares of the Series A Preferred Stock as they appear on the stock
records of the Company on such record date, which shall be not more than 30 days
nor less than 10 days preceding the dividend payment date thereof, as shall be
fixed by the Company's Board of Directors or a duly authorized committee
thereof. If dividends are not paid in full, or declared in full and sums set
apart in payment thereof, they cumulate.
Preferred stock dividends were paid quarterly from the third quarter of
1992 through the first quarter of 1994. The declaration and payment of preferred
stock dividends were suspended in the second quarter of 1994 in connection with
extension agreements of the Company's principal lenders. Upon the expiration of
these extension agreements, the Company paid a quarterly dividend on April 1,
1995 and July 1, 1995. Pursuant to the requirements of Delaware law, described
below, the preferred stock dividend was suspended in the third quarter of 1995
as a result of recognition of losses and the subsequent shareholders' deficit.
The nineteen quarterly dividends which are accumulated and unpaid at the date
hereof (dividend payment dates July 1, 1994, October 1, 1994, January 1, 1995,
October 1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, October 1, 1996,
January 1, 1997, April 1, 1997, July 1, 1997, October 1, 1997, January 1, 1998,
April 1, 1998, July 1, 1998, October 1, 1998, January 1, 1999, April 1, 1999,
and July 1, 1999) amount to $12,590,631 in the aggregate (approximately $40.38
per share of Series A Preferred Stock or approximately $10.09 per Depositary
Share). On October 1, 1999, another dividend will cumulate. The Company does not
intend to declare or pay a dividend during this Offer. After giving effect to
the dividend that will cumulate on October 1, 1999, but before giving effect to
the reduction in the number of outstanding Depositary Shares as a result of this
Offer, accumulated and unpaid dividends will aggregate $13,253,296
(approximately $42.50 per share of Series A Preferred Stock or approximately
$10.62 per Depositary Share).
There are statutory restrictions limiting the payment of preferred
stock dividends under Delaware law, the state in which the Company is
incorporated. Under Delaware law, the Company is permitted to pay preferred
stock dividends only: (1) out of surplus, surplus being the amount of
shareholders' equity in excess of the par value of the Company's two classes of
stock; or (2) in the event there is no surplus, out of net profits for the
fiscal year in which a preferred stock dividend is declared (and/or out of net
profits from the preceding fiscal year), but only to the extent that
shareholders' equity exceeds the par value of the preferred stock ($311,843 at
June 30, 1999). The Company had shareholders' equity at June 30, 1999, of
$10,536,000 and the par value of all outstanding Depositary Shares and shares of
Common Stock aggregated $17,961,000 at June 30, 1999.
<PAGE 33>
If 631,000 Depositary Shares are properly tendered and not withdrawn in
this Offer, both shareholders' equity and the Company's total assets will be
reduced by approximately $12 million and, as a result, the Company expects (1)
that it will not have surplus within the meaning of Delaware law and (2) that
shareholders' equity will not exceed the par value of the Series A Preferred
Stock. Accordingly, the Company anticipates that, immediately following a
purchase of 631,000 Depositary Shares in the Offer, it will be prohibited by
Delaware law from paying dividends on the Series A Preferred Stock, and the
Company is unable to predict when it may again be able to pay dividends on such
stock.
The payment of $19.00 per Depositary Share shall be in full
satisfaction of claims to cumulative dividends on the Depositary Shares that
have not previously been paid. Accordingly, no person will be entitled to
receive accumulated and unpaid dividends with respect to Depositary Shares (or
the Series A Preferred Stock represented thereby) purchased in the Offer.
The Company does not intend to declare or pay a dividend during this
tender offer. Going forward, the Company's Board of Directors will review the
payment of quarterly preferred stock dividends, accumulated and unpaid preferred
stock dividends, and common stock dividends, in light of the above restrictions
and the financial ratios specified in the Note and in consideration of the
shareholders' best interests as the Board evaluates the business opportunities
available to the Company. In light of these considerations, this Offer is the
only action the Company intends to take with respect to the preferred stock
dividends and accumulated and unpaid preferred stock dividends at this time. The
Company may not pay dividends on its Common Stock until it has paid all
accumulated and unpaid preferred stock dividends.
SECTION 10. CERTAIN INFORMATION CONCERNING THE COMPANY
General
The Company is the oldest independent coal company in the United
States. The Company presently has three principal lines of business: (i) the
production and sale of coal from the Powder River Basin in eastern Montana; (ii)
the ownership of interests in cogeneration and other non-regulated independent
power plants; and (iii) the leasing of capacity at Dominion Terminal Associates,
a coal storage and vessel loading facility.
WRI is 80% owned by the Company and 20% by Morrison Knudsen
Corporation, which also mines coal for WRI on a contract basis. WRI operates one
large surface mine on approximately 15,000 acres of subbituminous coal reserves
in the Powder River Basin. WRI shipped 6,458,000 tons, 7,051,000 tons, 4,668,000
tons, and 4,426,000 tons, of coal in 1998, 1997, 1996 and 1995, respectively.
WEI owns and manages interests in independent power projects. After
giving effect to the Rensselaer Phase II Transaction, WEI, through various
subsidiaries, has interests in seven such power projects, all of which are
currently operational. Independent power projects sell electricity through long
term power contracts to utilities, or in some cases, to large industrial users.
There are three types of independent power projects: cogeneration projects which
provide two types of useful energy (e.g., electricity and steam) sequentially
from a single primary fuel (e.g., coal); small power producers which utilize
waste, biomass or other renewable resources as
<PAGE 34>
fuel; and exempt wholesale generators which provide electrical energy without
the requirement to sell thermal energy or use waste or renewables as fuel
sources. Through WEI, the Company has invested in projects that provide two
types of useful energy sequentially from a single primary fuel and in projects
that are exempt wholesale generators.
Westmoreland Terminal Company, a wholly owned subsidiary of the
Company, owns a 20% interest in Dominion Terminal Associates ("DTA"), the owner
of a coal storage and vessel-loading facility in Newport News, Virginia. DTA's
annual throughput capacity is 22,000,000 tons, with a ground storage capacity of
1,700,000 tons. DTA loaded 11,511,000, 14,075,000, and 16,444,000 tons in 1998,
1997, and 1996, respectively. The Company's portion of these tons was 2,069,000,
2,682,000, and 3,278,000 in 1998, 1997, and 1996, respectively. Prior to 1995,
the Company utilized the terminal for most of its coal exporting and
intracoastal business. Presently, the Company leases ground storage space and
vessel-loading capacity and facilities to others and provides related support
services.
Selected Financial Data and Other Data of the Company
Set forth below is certain selected consolidated financial data and
other data with respect to the Company excerpted or derived from financial
information contained in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1998 (the "1998 10-K Report") and from the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (the
"1999 Second Quarter 10-Q Report"). More comprehensive financial information is
included in the 1998 10-K Report and other documents filed by the Company with
the Commission. The financial and other information set forth herein is
qualified in its entirety by reference to the 1998 10-K Report, the 1999 Second
Quarter 10-Q Report, and such other documents, including the financial
statements and related notes therein. The 1998 10-K Report, the 1999 Second
Quarter 10-Q Report, and such other documents are available for inspection and
copies thereof can be obtained in the manner set forth below. Item 6 ("Selected
Financial Data"), Item 7 ("Management's Discussion and Analysis of Financial
Condition and Results of Operations"), and Item 8 ("Financial Statements and
Supplementary Data") from the 1998 10-K Report are attached as Annex A to this
Offer to Purchase. The 1999 Second Quarter 10-Q Report is attached as Annex B to
this Offer to Purchase.
The table below sets forth historical and pro forma summary
consolidated financial information of the Company and its subsidiaries. The
historical information at and for the years ended December 31, 1998 and 1997
(except pro forma amounts) have been derived from the Company's audited
financial statements, which are included as Annex A to this Offer to Purchase.
The historical financial information at and for the six months ended June 30,
1999 and 1998 has been derived from the 1999 Second Quarterly 10-Q Report, which
is included as Annex B to this Offer to Purchase.
The unaudited pro forma financial data gives effect to the purchase of
1,052,631 Depositary Shares for $20 million and the sale of the remaining assets
of the Rensselaer project, since the purchase of those shares was contingent
upon the completion of the sale of the Rensselaer project, and to the purchase
of 631,000 Depositary Shares for $12 million.
The summary historical financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the audited
financial statements and the related notes
<PAGE 35>
thereto from which it has been derived which are included in the 1998 10-K
Report. The pro forma financial information should be read in conjunction with
the historical consolidated financial information. It does not purport to be
indicative of the results that would actually have been obtained had the sale of
the Rensselaer project and the purchase of such shares pursuant to the Spring
Tender Offer and this Offer been completed at the dates indicated or that may be
obtained in the future.
All forward-looking statements made by the Company (including those
made in its press releases and repeated herein) involve material risks and
uncertainties and are subject to change based on various important factors which
may be beyond the Company's control. Accordingly, the Company's future
performance and financial results may differ materially from those expressed or
implied in any such forward looking statements. Although the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 do not apply
to forward-looking statements made in connection with tender offers, factors
which may affect future performance and financial results include, but are not
limited to, those set forth in the Company's press releases (portions of which
have been repeated herein) and other filings with the Commission. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
<PAGE 36>
<TABLE>
Summary Historical and Unaudited Pro Forma Financial Data
(Amounts in thousands, except per share data)
Year Ended December 31, Six Months Ended June 30,
---------------------------------- ----------------------------------
1997 1998 1998 1998 1999 1999
Pro Pro
Forma (1) Forma (5)
- ----------------------------------------------------------------------------------------------- ----------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 65,832 $ 108,569 $ 126,761 $ 78,807 $ 43,223 $ 43,223
Cost and expenses 32,212 91,497 91,497 31,540 34,760 34,760
- ----------------------------------------------------------------------------------------------- ----------------------------------
Operating income 33,620 17,072 35,264 47,267 8,463 8,463
Other income (expense)
Interest expense (320) (190) (190) (95) (598) (598)
Reorganization items, net (932) (11,466) (11,466) (107) - -
Other, net 590 1,699 1,699 1,133 482 482
- ----------------------------------------------------------------------------------------------- ----------------------------------
Income before income taxes 32,958 7,115 25,307 48,198 8,347 8,347)
Provision for income taxes - (3,787) (3,787) - (45) (45)
Discontinued operations (4,802) - - - - -
Cumulative effect of change in accounting principle - (9,876) (9,876) (9,876) - -
Net income 28,156 (6,548) 11,644 38,322 8,302 8,302
Less preferred stock dividends in arrears 4,888 4,888 1,310 2,444 1,326 655
- ----------------------------------------------------------------------------------------------- ----------------------------------
Net income (loss) applicable to common shareholders $ 23,268 $ (11,436) $ 10,334 $ 35,878 $ 6,976 $ 7,647
=============================================================================================== ==================================
Net income (loss) per share - basic and diluted $ 3.34 $ (1.64) $ 1.48 $ 5.15 $ 0.99 $ 1.10
=============================================================================================== ==================================
Weighted average shares outstanding -
basic and diluted 6,965 6,965 6,965 6,965 7,020 7,020
=============================================================================================== ==================================
Ratio of earnings to combined fixed charges
and preferred stock dividends (2) 1.4 17.0 4.6 7.1
</TABLE>
<TABLE>
As of December 31, 1998 As of June 30, 1999
----------------------- ---------------------
Pro Pro
Actual Forma(3) Actual Forma(6)
- ----------------------------------------------------------------------------------------------- ----------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Working capital $ 15,054 $ 22,154 $ 15,081 $ 3,081
Total assets 215,606 201,798 155,095 143,095
Long term debt, net of current maturities 1,562 1,562 1,323 1,323
Stockholders' equity (deficit) 21,845 8,037 10,536 (1,464)
Book value per common share (4) - - - -
- ----------------------------------------------------------------------------------------------- ----------------------------------
</TABLE>
See Accompanying Notes to Summary Historical and Unaudited Pro Forma
Financial Data
<PAGE 37>
Notes To Summary Historical and Unaudited
Pro Forma Financial Data
1) Revenues, operating income, and preferred dividends have been adjusted as
if the Rensselaer Phase II transaction (representing a gain of $18,192,000)
and the purchase of 1,683,631 Depositary Shares for $32 million occurred on
January 1, 1998.
2) For purposes of computing this ratio, earnings consist of income from
continuing operations before income taxes plus fixed charges. Fixed charges
consist of interest on debt and the amount of pre-tax earnings required to
cover preferred stock dividend requirements. Excluding the gain from the
Rensselaer Phase II transaction, the 1998 pro forma ratio would have been
4.9. The 1999 historical and pro forma ratios, excluding the gain from the
Renssealaer Phase II transaction, would have been less than zero.
3) The pro forma balance sheet amounts were adjusted for the Rensselaer Phase
II Transaction and the purchase of the 1,683,631 Depositary Shares for $32
million.
4) Book value per common share was calculated by dividing total Stockholders'
equity reduced by the liquidation value of the preferred stock by the
number of shares outstanding. After considering the liquidation value of
the preferred stock, the book value per common share is less than zero and
therefore is not shown.
5) Preferred dividends have been adjusted as if the purchase of 631,000
Depositary Shares for $12 million occurred on January 1, 1999.
6) The pro forma balance sheet amounts were adjusted for the purchase of the
631,000 Depositary Shares for $12 million.
<PAGE 38>
Additional Information
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy and
information statements, and other information with the Commission. The Company
has also filed an Issuer Tender Offer Statement on Schedule 13E-4 with the
Commission that includes certain additional information relating to the Offer.
Such reports, statements, and other information filed by the Company
with the Commission can be inspected and copied at the public reference
facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison St.,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding registrants that file
electronically, such as the Company. The address of the Commission's Web site is
http://www.sec.gov.
SECTION 11. SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 631,000 Depositary Shares pursuant
to the Offer, the total amount required by the Company to purchase such
Depositary Shares and pay related fees and expenses will be approximately $12
million. See Section 14. "Fees and Expenses." The Company will fund the purchase
of Depositary Shares pursuant to the Offer and the payment of related fees and
expenses from available cash of the Company.
SECTION 12. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE DEPOSITARY
SHARES
The Depositary Shares were issued by the Company in an underwritten
public offering for cash that was registered under the Securities Act of 1933,
as amended. The offering, which commenced on July 1, 1992, was for 2,300,000
Depositary Shares (including 300,000 Depositary Shares purchased upon exercise
of the over-allotment option) at a price to the public of $25 per Depositary
Share, and the Company received aggregate proceeds of $55,487,500 after
deducting the aggregate underwriting discount of $2,012,500, but before
expenses.
Based upon the Company's records and upon information provided to the
Company by its directors, executive officers, and affiliates, neither the
Company nor any of its subsidiaries nor, to the best of the Company's knowledge,
any of the directors or executive officers of the Company or any of its
subsidiaries, nor any associates of any of the foregoing, has effected any
transactions in the Depositary Shares during the past 40 business days.
Except as set forth in this Offer to Purchase, neither the Company nor,
to the best of the Company's knowledge, any of its affiliates, directors, or
executive officers, or any of the executive officers or directors of its
subsidiaries, is a party to any contract, arrangement, understanding, or
relationship with any other person relating, directly or indirectly, to the
Offer with respect to any securities of the Company (including, but not limited
to, any contract,
<PAGE 39>
arrangement, understanding, or relationship concerning the transfer or the
voting of any such securities, joint ventures, loan or option arrangements, puts
or calls, guarantees of loans, guarantees against loss, or the giving or
withholding or proxies, consents, or authorizations). As of August 31, 1999: (i)
Christopher K. Seglem, the Chairman, Chief Executive Officer, and President of
the Company, owned 1,100 Depositary Shares directly and 308 units of the
Westmoreland Preferred Stock Fund, representing 96 Depositary Shares, which
units were held by Mellon Bank as Trustee of the Westmoreland Coal Company and
Affiliated Companies Savings/Retirement Plan, (ii) Pemberton Hutchinson, a
director of the Company, owned 1,200 Depositary Shares, and (iii) Robert E.
Killen, a director of the Company, owned 750 Depositary Shares as a personal
investment, and The Killen Group, Inc., of which Mr. Killen is an affiliate, had
dispositive power over 11,219 Depositary Shares held in various client accounts.
Mr. Hutchinson has advised the Company that he intends to tender all Depositary
Shares he owns pursuant to the Offer. Mr. Killen has advised the Company that
because of his position as a Director elected by holders of Depositary Shares,
he does not intend to tender the Depositary Shares he owns personally, but that
The Killen Group, Inc. intends to tender all Depositary Shares over which it
exercises dispositive power. Mr. Seglem has advised the Company that he does not
intend to tender any of the Depositary Shares he owns because most of the shares
were purchased relatively recently (June 1999), and because, as an officer and
Director of the Company, he wishes to maintain his investments in both classes
of the Company's stock.
SECTION 13. EXTENSION OF THE TENDER PERIOD; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion, at
any time or from time to time and regardless of whether or not any of the events
set forth in Section 8. "Certain Conditions of the Offer" shall have occurred or
shall be deemed by the Company to have occurred, to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of, or
payment for, any Depositary Shares by giving oral or written notice of such
extension to the Depositary and making a public announcement thereof. During any
such extension, all Depositary Shares previously tendered and not purchased or
withdrawn will remain subject to the Offer, except to the extent that such
Depositary Shares may be withdrawn as set forth in Section 6. "Withdrawal
Rights." The Company also expressly reserves the right, in its sole discretion,
to terminate the Offer, not accept for payment, and not make payment for any
Depositary Shares not theretofore accepted for payment or paid for upon the
occurrence of any of the conditions specified in Section 8 by giving oral or
written notice of such termination to the Depositary and making a public
announcement thereof. Subject to compliance with applicable law, the Company
further reserves the right, in its sole discretion, and regardless of whether or
not any of the events set forth in Section 8 shall have occurred or shall be
deemed by the Company to have occurred, to amend the Offer in any respect
(including, without limitation, by decreasing or increasing the consideration
offered in the Offer to owners of Depositary Shares or by decreasing the number
of Depositary Shares being sought in the Offer). Amendments to the Offer may be
made at any time or from time to time effected by public announcement thereof,
such announcement, in the case of an extension, to be issued no later than 9:00
a.m., Eastern Standard Time, on the next business day after the previously
scheduled Expiration Date. Any public announcement made pursuant to the Offer
will be disseminated promptly to shareholders in a manner reasonably designed to
inform shareholders of such change. Without limiting the manner in which the
Company may choose to make a public announcement, except as required by
applicable law, the Company shall have no obligation to
<PAGE 40>
publish, advertise, or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service.
If (a) the Company (i) increases or decreases the price to be paid for
Depositary Shares or (ii) increases or decreases the number of Depositary Shares
being sought and (b) the Offer is scheduled to expire at any time earlier than
the expiration of a period ending on the tenth business day from and including
the date that notice of such increase or decrease is first published, sent or
given, the Offer will be extended until the expiration of such period of ten
business days; provided, however, that in accordance with regulations of the
Commission, no such extension is required if the Company purchases pursuant to
the Offer an additional number of Depositary Shares not to exceed 2% of the
number of Depositary Shares outstanding as of the date hereof (24,947 shares).
In addition, if a material change occurs in the information set forth herein,
the Company shall disseminate promptly disclosure of such change in a manner
reasonably calculated to inform holders of Depositary Shares of such changes and
extend the Offer if and as appropriate.
SECTION 14. FEES AND EXPENSES
The Company has retained First Chicago Trust Company of New York as
Depositary and Morrow & Co., Inc. as Information Agent in connection with the
Offer. The Information Agent will assist shareholders who request assistance in
connection with the Offer and may request brokers, dealers, and other nominee
shareholders to forward materials relating to the Offer to beneficial owners.
The Depositary and Information Agent will receive reasonable and customary
compensation for their services in connection with the Offer and will also be
reimbursed for reasonable out-of-pocket expenses, including attorneys' fees. The
Company has agreed to indemnify the Depositary and Information Agent against
certain liabilities in connection with the Offer, including certain liabilities
under the Federal securities laws. Neither the Depositary nor the Information
Agent has been retained to make solicitations or recommendations, in either case
with respect to the Offer, in their respective roles as Depositary and
Information Agent.
The Company will not pay fees or commissions to any broker, dealer,
commercial bank, trust company, or other person for soliciting any Depositary
Shares pursuant to the Offer. The Company will, however, on request, reimburse
such persons for customary handling and mailing expenses incurred in forwarding
materials in respect of the Offer to the beneficial owners for which they act as
nominees. No broker, dealer, bank, trust company, or fiduciary shall be deemed
to be the agent of the Company, the Depositary, or the Information Agent for
purposes of the Offer.
The Company will pay (or cause to be paid) any stock transfer taxes on
its purchase of Depositary Shares, except as otherwise provided in Instruction 6
of the Letter of Transmittal.
SECTION 15. MISCELLANEOUS
The Offer is not being made to, nor will the Company accept tenders
from, owners of Depositary Shares in any jurisdiction in which the Offer or its
acceptance would not be in compliance with the laws of such jurisdiction. The
Company is not aware of any jurisdiction where the making of the Offer or the
tender of Depositary Shares would not be in compliance
<PAGE 41>
with applicable law. If the Company becomes aware of any jurisdiction where the
making of the Offer or the tender of Depositary Shares is not in compliance with
any applicable law, the Company will make a good faith effort to comply with
such law. If, after such good faith effort, the Company cannot comply with such
law, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Depositary Shares residing in such jurisdiction. In
any jurisdiction in which the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer will be deemed to be
made on the Company's behalf by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
WESTMORELAND COAL COMPANY
September 16, 1999
<PAGE A-1>
ANNEX A
-------
EXCERPTS FROM THE COMPANY'S FORM 10-K/A NO. 2
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998:
SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS;
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
- --------------------------------------------------------------------------------
Selected Financial Data------------------------------------------------------A-2
Management's Discussion and Analysis of Financial
Condition and Results of Operations------------------------------------------A-3
Consolidated Balance Sheets-------------------------------------------------A-13
Consolidated Statements of Operations---------------------------------------A-15
Consolidated Statements of Shareholders' Equity (Deficit)-------------------A-17
Consolidated Statements of Cash Flows---------------------------------------A-18
Summary of Significant Accounting Policies----------------------------------A-20
Notes to Consolidated Financial Statements----------------------------------A-22
Independent Auditor's Report------------------------------------------------A-56
<PAGE A-2>
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
Westmoreland Coal Company and Subsidiaries
Five Year Review
- --------------------------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995 1994
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Consolidated Statement of Operations (in thousands except per share data)
Information
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenue - Coal $ 44,010 $ 47,182 $ 44,152 $109,114 $ 368,715
- Independent Power and other 64,559 18,650 16,162 15,886 5,443
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Total revenues 108,569 65,832 60,314 125,000 374,158
Cost and expenses 78,250 66,383 80,104 156,732 391,476
Pension expense (benefit) 111 (5,547) (3,601) (2,440) -
Unusual charges (credits) 2,000 (27,214) (11,896) 66,623 (2,100)
Doubtful accounts recoveries (1,028) (1,410) (3,449) (967) -
DTA impairment charge 12,164 - - - -
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Operating income (loss) 17,072 33,620 (844) (94,948) (15,218)
Gains on the sales of assets 475 969 24,238 9,088 41,130
Interest expense (190) (320) (400) (1,164) (5,425)
Minority interest (775) (1,092) (890) (1,368) (583)
Interest and other income 1,999 713 3,491 3,761 2,540
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Income (loss) before reorganization items
and income taxes 18,581 33,890 25,595 (84,631) 22,444
Reorganization legal and consulting fees (9,872) (2,484) - - -
Reorganization interest income (expense) (1,594) 1,552 - - -
Income tax expense (3,787) - (575) (1,488) (2,291)
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Income (loss) from continuing operations 3,328 32,958 25,020 (86,119) 20,153
Discontinued operations:
Operating loss - (1,284) (1,049) (267) -
Impairment and loss on disposal - (3,518) - - -
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Loss from discontinued operations - (4,802) (1,049) (267) -
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Cumulative effect of change in accounting
principle (9,876) - 14,372 - -
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Net income (loss) (6,548) 28,156 38,343 (86,386) 20,153
Less preferred stock dividends:
Declared - - - 2,444 1,222
In arrears 4,888 4,888 4,888 2,444 3,666
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
Net income (loss) applicable to
common shareholders $(11,436) $ 23,268 $ 33,455 $(91,274) $ 15,265
============================================== ============== ============ ============ ============== =============
Net income (loss) per share applicable to
common shareholders $ (1.64) $ 3.34 $ 4.80 $ (13.11) $ 2.19
Weighted average number of common
and common equivalent shares 6,965 6,965 6,965 6,965 6,965
============================================== ============== ============ ============ ============== =============
Balance Sheet Information
Working capital (deficit) $ 15,054 $ 38,512 $ 10,185 $(16,458) $ (1,481)
Net property, plant and equipment 36,950 35,687 42,700 59,868 89,728
Total assets 215,606 181,997 153,971 167,107 229,739
Total debt 1,762 458 1,324 4,593 15,931
Liabilities subject to compromise - 132,667 136,191 - -
Shareholders' equity (deficit) 21,845 28,393 237 (38,106) 50,724
- ---------------------------------------------- -------------- ------------ ------------ -------------- -------------
</TABLE>
(1) On December 23, 1996, Westmoreland Coal Company and four subsidiaries,
Westmoreland Resources, Inc., Westmoreland Coal Sales Company,
Westmoreland Energy, Inc., and Westmoreland Terminal Company (the
"Debtor Corporations"), filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the District of Colorado. The Debtor
Corporations were in possession of their respective properties and
assets and operated as debtors in possession pursuant to provisions of
the Bankruptcy Code. The cases were dismissed on December 23, 1998.
Refer to Note 1 to the Consolidated Financial Statements for further
information.
<PAGE A-3>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
Years Ended December 31, 1998, 1997 and 1996
Forward-Looking Disclaimer
- --------------------------
Certain statements in this report which are not historical facts or information
are "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, but not limited to, the information set forth in Management's
Discussion and Analysis of Financial Condition and Results of Operations. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, levels of activity,
performance or achievements of the Company, or industry results, to be
materially different from any future results, 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 losses; the completion of the
sale of a significant asset; 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. As a result of the foregoing and
other factors, no assurance can be given as to the future results and
achievement of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these statements.
Bankruptcy Proceeding
- ---------------------
Westmoreland Coal Company and four subsidiaries, Westmoreland Resources, Inc.,
Westmoreland Coal Sales Company, Westmoreland Energy, Inc., and Westmoreland
Terminal Company ("the Debtor Corporations"), filed voluntary petitions for
protection under Chapter 11 of the Bankruptcy Code on December 23, 1996. On
December 23, 1998, the Bankruptcy Court granted the Debtors' Motion to Dismiss
the cases. The automatic stay period pursuant to the Federal Rules of Bankruptcy
Procedure expired on January 4, 1999.
<PAGE A-4>
Continued financial improvement of the Debtors during the bankruptcy provided
the basis for dismissal and settlement with the UMWA Health and Benefit Funds,
the Company's principal creditors. On October 15, 1998, the Company, the Funds,
the United Mine Workers of America ("UMWA") and the Official Committee of Equity
Security Holders ("Equity Committee") reached agreement on a settlement term
sheet, which contained the principal terms of an agreement among them and
provided for, among other things, the resolution of the Chapter 11 cases. The
agreement, which facilitated a consensual dismissal of the bankruptcy cases, was
announced during scheduled hearings on Westmoreland's Motion to Dismiss and the
Equity Committee's Motion to Convert to Chapter 7, and the hearings were
subsequently recessed. The agreement was subsequently documented in certain
stipulated judgments and in a Master Agreement among the Company, the Funds, the
UMWA, and the Equity Committee. On October 30, 1998, the Debtor Corporations,
the Funds, the UMWA, and the Equity Committee filed a joint motion with the
Bankruptcy Court, setting forth the outline of a procedure for dismissal of the
Chapter 11 Cases combined with the entry of "consent judgments" in connection
with certain of the pending litigation. The Debtor Corporations filed motions
requesting approval of the consent judgments on or around November 18, 1998.
Notices of the filing of these motions were mailed to creditors as directed by
the Bankruptcy Court. There were no allowable objections and dismissal of the
Chapter 11 Cases occurred on December 23, 1998. The Master Agreement was
executed on January 29, 1999.
The key terms of the Master Agreement are summarized as follows:
o The Funds, the UMWA, and the Equity Committee withdrew their objections to
the Company's Motion to Dismiss the Chapter 11 cases and joined in the
entry of stipulated judgments and the execution of a Master Agreement which
preserve the Company as an ongoing enterprise with undiluted ownership
vested in its existing shareholders.
o The Company agreed that it would not file, institute nor support any action
under state or federal bankruptcy liquidation, insolvency or reorganization
statutes for a period of five years.
o The Company agreed to pay in full, with interest, all undisputed creditor
claims and satisfy all other ongoing obligations. Pursuant to this
commitment, the Company paid approximately $5.7 million to holders of
undisputed claims in early January, 1999.
o The Company agreed to pay in full all arrearages, with interest, under the
Coal Industry Retirement Health Benefit Act of 1992 ("Coal Act"). Pursuant
to this commitment, the Company paid approximately $18.1 million to the
UMWA 1992 Benefit Plan ("1992 Plan") and approximately $19.4 million to the
UMWA Combined Fund ("Combined Fund," and together with the 1992 Plan, the
"Funds") in early January, 1999.
o The Company agreed to pay $4 million to the Funds in full satisfaction of
all other asserted claims for damages, liquidated damages, penalties,
charges, fees and costs. The Company made this payment on February 1, 1999.
o The Company agreed to reinstate its Individual Employer Plan for 1992
Plan retirees.
o The Company agreed to pay its future obligations to the Funds as and when
due.
o The UMWA 1974 Pension Trust ("1974 Plan") had asserted a claim for
withdrawal liability in the amount of approximately $13.8 million against
the Company to which the Company objects. The Company and the 1974 Plan
agreed to resolve this dispute through arbitration, as provided by law.
<PAGE A-5>
o As required under the Coal Act, the Company agreed to secure its obligation
to provide retiree health benefits under the 1992 Plan by posting a bond,
letter of credit, or cash collateral in the amount of three years benefits
(or $20.8 million). The Company has 60 days from January 4, 1999 to provide
this security.
o In addition, the Company agreed to secure its obligations to the Funds by
providing the Funds with a Contingent Promissory Note ("Note"). The
original principal amount of the Note is $12 million; the principal amount
of the Note decreases to $6 million in 2002. The Note is payable only in
the event the Company does not meet its Coal Act obligations, fails to meet
certain ongoing financial tests specified in the Note, fails to maintain
the required balance in the escrow account established under an escrow
agreement ("Escrow Agreement"), or fails to comply with certain covenants
set forth in a security agreement ("Security Agreement"). Certain notice
and cure provisions are included in the Note. If no default occurs, the
Note terminates on January 1, 2005. To secure its obligations to the Funds
under the Note, the Company entered into a Security Agreement and an Escrow
Agreement. In the Security Agreement, the Company pledged the annual cash
flow to which it is entitled from the Roanoke Valley I project. Pursuant to
the Escrow Agreement, the Company placed $6 million into an escrow account
on February 1, 1999. In the year 2002, when the amount of the Note is
reduced to $6 million, the amount in the escrow account may be adjusted so
that the amount in escrow will be $8 million minus the amount of
Westmoreland`s cash flow from the Roanoke Valley I project in the preceding
year. In no event will the amount of the required balance in the escrow
account be more than $6 million or less than zero. If the Company is not
required to make payment under the Note, the Security Agreement and the
Escrow Agreement terminate upon the termination of the Note. The Company
executed and delivered the Note, the Security Agreement, and the Escrow
Agreement to the Funds on January 29, 1999.
o The Company agreed not to initiate further litigation to challenge the Coal
Act or seek to initiate legislation to amend or reject the Coal Act.
o The Company agreed to make payments for retiree health benefits as if it
continued to be obligated under the 1993 UMWA Wage Agreement for eligible
retirees and beneficiaries for a period of five years. At the expiration of
such five year period, the Company is free to initiate litigation
contesting its obligation to continue to provide such benefits, and the
Company will continue to provide such benefits after the expiration of the
five year period until it obtains a ruling from a Court of competent
jurisdiction that it is not obligated to provide such benefits.
o Provided that the pending sale of the Company's remaining interest in the
Rensselaer project occurs and subject to the terms of the Master Agreement,
a public tender for 1,052,631 depositary shares will be implemented, each
representing one quarter of a share of the Company's outstanding Series A
Convertible Exchangeable Preferred Stock, at $19 per depositary share.
Assuming 1,052,631 depositary shares are tendered in the offer, the Company
would be required to pay $20 million in consideration for these shares. The
tender shall occur in the first quarter of 1999, or as soon thereafter as
is practicable, following the date of the asset sale.
o Unless the tender offer is initiated in time to be completed by early
April, the Company will hold a meeting of shareholders by March 31, 1999,
at which shareholders may nominate and elect directors and bring other
matters before the shareholders. The Company presently anticipates that the
shareholders' meeting will take place by May 11, 1999.
o The Equity Committee would dissolve on February 3, 1999.
<PAGE A-6>
o Except for the payment to preferred shareholders in the tender offer,
the Company may not make any other cash distribution to preferred or common
shareholders for any purpose prior to June 30, 1999.
Refer to Note 1 of the Consolidated Financial Statements for additional
information concerning the bankruptcy.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $55,894,000 and $19,931,000 in 1998
and 1997, respectively. Cash used by operating activities totaled $14,949,000 in
1996. The increase of $35,963,000 in cash provided by operations in 1998
compared to 1997 is mainly a result of the following: proceeds from the
restructuring of the Rensselaer project, termination of the over-funded salaried
pension plan, increased operating revenues at WRI, and increased cash
distributions from independent power projects. The increase in cash provided by
operations in 1997 as compared to 1996 is principally due to decreased payments
relating to heritage costs as a result of the automatic stay associated with the
bankruptcy.
Cash used in investing activities was $2,434,000 in 1998. This is the result of
additions to property, plant and equipment of $2,945,000, offset by proceeds
from sales of Virginia Division assets of $511,000. Cash provided by investing
activities in 1997 and 1996 was $2,093,000 and $14,684,000, respectively. The
reduction in cash provided from investing activities in 1997 as compared to 1996
is primarily a result of a decrease in proceeds from sales of Virginia Division
assets in 1997. In 1997, the Company continued to sell various assets of the
Virginia Division for aggregate net proceeds of $2,757,000. The Company received
$19,689,000 from the sale of various Virginia Division assets in 1996.
Offsetting these cash inflows was a cash outlay of $4,200,000 for the purchase
of an additional interest in WRI in 1996.
Cash used in financing activities in 1998, 1997 and 1996 totaled $51,000,
$151,000, and $2,655,000, respectively. Cash used in 1998, 1997 and 1996
primarily related to the repayment of debt of WRI and dividends paid to minority
shareholders of WRI in 1996.
Consolidated cash and cash equivalents at December 31, 1998 totaled $84,073,000
(including $14,712,000 at WRI.) At December 31, 1997, cash and cash equivalents
totaled $30,664,000 (including $11,378,000 at WRI). The cash at WRI, an
80%-owned subsidiary, is available to the Company only through dividends. In
addition, the Company had restricted cash, which was not classified as cash or
cash equivalents, of $4,140,000 at December 31, 1998 and $6,665,000 at December
31, 1997. The restricted cash represents an interest-bearing cash deposit
account, which collateralizes the Company's outstanding surety bonds for its
workers compensation self-insurance programs. The Company also has $8,000,000 in
debt reserve accounts for certain of the Company's independent power projects.
This cash is restricted as to its use and is classified as part of the
investment in independent power projects. In addition, there is a surplus in the
Company's black lung trust, approximately $10,900,000, that may be available to
pay postretirement health benefits dependent upon future actuarial calculations.
Refer to Note 9 to the Consolidated Financial Statements for additional
information on this item.
<PAGE A-7>
Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from
the third quarter of 1992 through the first quarter of 1994. The declaration and
payment of preferred stock dividends was suspended in the second quarter of 1994
in connection with extension agreements entered into with the Company's
principal lenders. Upon the expiration of these extension agreements, the
Company paid a quarterly dividend on April 1, 1995 and July 1, 1995. Pursuant to
the requirements of Delaware law, described below, the preferred stock dividend
was suspended in the third quarter of 1995 as a result of the recognition of
losses related to the idling of the Virginia division and the resulting
shareholders' deficit. The seventeen quarterly dividends which are in arrears
(those dividends whose payment dates would have been July 1, 1994, October 1,
1994, January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996, July 1,
1996, October 1, 1996, January 1, 1997, April 1, 1997, July 1, 1997, October 1,
1997, January 1, 1998, April 1, 1998, July 1, 1998, October 1, 1998 and January
1, 1999) amount to $20,772,000 in the aggregate ($36.13 per preferred share or
$9.03 per depositary share).
The use of cash is restricted under the Master Agreement. Except for the
$20,000,000 tender offer referred to above, the Company may not redeem any
equity security for cash or make any cash distributions to preferred or common
shareholders for any purpose prior to June 30, 1999. Thereafter, covenant
limitations included in the Master Agreement regarding liquidity, operating cash
flow and debt coverage could restrict the amount of cash available for dividends
for a period of six years.
There are also statutory restrictions limiting the payment of preferred stock
dividends under Delaware law, the state in which the Company is incorporated.
Under Delaware law, the Company is permitted to pay preferred stock dividends
only: (1) out of surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or (2) in the
event there is no surplus, out of net profits for the fiscal year in which a
preferred stock dividend is declared (and/or out of net profits for the
preceding fiscal year), but only to the extent that shareholders' equity exceeds
the par value of the preferred stock ($575,000). The Company had shareholders'
equity at December 31, 1998 of $21,845,000.
Going forward the Company's Board of Directors will review the payment of
quarterly preferred stock dividends, the preferred stock dividends which are in
arrears, and common stock dividends, in light of the above restrictions and
consideration of the shareholders' best interests.
<PAGE A-8>
Liquidity Outlook
- -----------------
The major factors impacting the Company's liquidity outlook are its significant
"heritage costs" and its ongoing and future business needs. These heritage costs
consist primarily of cash payments for postretirement medical benefits, workers'
compensation costs and UMWA pension benefits. The Company also is obligated for
pension and pneumoconiosis benefits; however, both of these future obligations
have a funding surplus at present. The Company has ongoing cash expenditures in
excess of $16,000,000 per year for postretirement medical benefits which will
remain fairly constant over the next five years and then decline to zero over
the next approximately thirty-seven years. In addition, the Company has cash
expenditures of approximately $3,000,000 per year for workers' compensation
benefits which will steadily decline to zero over the next approximately twenty
years. Since the UMWA pension plan is a multiemployer plan under ERISA a
contributing company is liable for its share of unfunded vested liabilities upon
termination or withdrawal from the plan. The Company believes the plan was fully
funded at the time of the Company's withdrawal in 1998. However, the plan has
asserted a claim of $13,800,000, which the Company vigorously contests. The
Company is contesting this amount through arbitration, as provided under ERISA.
Should it ultimately be determined that the Company is liable for this or some
lesser amount, the Company would be required to fund the obligation over no more
than nine and one half years.
Under the Coal Act, the Company is required to provide postretirement medical
benefits for UMWA miners by making premium payments into three benefit plans:
(i) the UMWA Combined Benefit Fund (the "Combined Fund"), a multiemployer plan
which benefits miners who retired before January 1, 1976 or who retired
thereafter but whose last employer did not provide benefits pursuant to an
operator-specific Individual Employer Plan ("IEP"), (ii) an IEP for miners who
retired after January 1, 1976 and (iii) the 1992 UMWA Benefit Plan, a
multiemployer plan which benefits (A) miners who were eligible to retire on
February 1, 1993, who did retire on or before September 30, 1994 and whose
former employers are no longer in business, (B) miners receiving benefits under
an IEP whose former employer goes out of business and ceases to maintain the
IEP, and (C) new spouses or new dependents of retirees in the Combined Fund who
would be eligible for coverage thereunder but for the fact that the Combined
Fund closed to new beneficiaries as of July 20, 1992. The premiums paid by the
Company cover its own retirees and its allocated portion of the pool of retired
miners whose previous employers have gone out of business.
The Company, as a result of its improved financial position and subsequent
dismissal from bankruptcy, satisfied all of its premium obligations to the
Combined Fund through the end of 1998, and made a prepayment to the Combined
Fund for its premiums for the first quarter of 1999. The payment was made on
January 4, 1999. The Company's current annual premiums to the Combined Fund of
approximately $6,000,000 are included in the annual cash expenditures of
$16,000,000 for postretirement medical benefits described above.
In addition, the Coal Act authorized the Trustees of the 1992 UMWA
Benefit Plan to implement security provisions pursuant to the Act. In 1995, the
Trustees issued security provisions which give contributors to the Plan several
options for satisfying the Coal Act's security requirements, and set the level
of security to be provided by the Company at approximately $21,000,000. The
Company must secure its obligation to provide retiree health benefits under the
1992 Plan by posting a bond, letter of credit, or cash collateral in the amount
of three years benefits (or $20.8 million). The Company has 60 days from January
4, 1999 to provide this security under terms of the Master Agreement signed on
January 29, 1999.
<PAGE A-9>
The Company's current principal sources of cash flow include cash distributions
from its independent power projects, dividends from WRI, cash from operations of
DTA and interest earned on its cash reserves. In addition, the Company will
receive its share of the judgment in the ROVA litigation if VEPCO's appeal to
the Virginia Supreme Court is unsuccessful and its share of the proceeds of the
sale of the remaining assets of the Rensselaer facility if it is completed.
Management believes that cash generated from these sources and cash reserves
should be sufficient to pay the Company's heritage costs and fund its ongoing
operations and other capital requirements for the foreseeable future.
Capital commitments include a requirement to spend up to a total of $4,800,000
to repair the dragline at WRI. Approximately $2,000,000 was expended in 1998
with the remainder to be expended in 1999. The Company has undertaken to spend
these amounts in order to assure continued, uninterrupted production at WRI, but
the Company believes the obligation to repair the dragline is solely
Morrison-Knudsen's and, therefore, is in discussion with them on this and a
variety of matters, including enforcement of the Company's right to require
Morrison-Knudsen to pay for the repair.
The Company hopes to further improve its long-term liquidity in a number of
ways, including the development of additional cash flow from existing and new
business operations, selling the remaining Virginia Division assets and
monetizing assets where proceeds on sale would exceed the expected return from
continued operation. The Company also plans to seek further cost reductions
wherever feasible and prudent, and attempt to reduce certain postretirement
medical, workers' compensation and related payments. Although management expects
to improve the Company's profitability, the time required to realize such
increases cannot be estimated at this time nor can assurances be given that the
Company can achieve any such improvements.
Year 2000
- ---------
The Year 2000 ("Y2K") problem concerns the inability of information and
technology-based operating systems to properly recognize and process
date-sensitive information beyond December 31, 1999. This could result in
systems failures and miscalculations which could cause business disruptions.
Equipment that uses a date, such as computers and operating control systems, may
be affected. This includes equipment used by our customers and suppliers, as
well as the Company's independent power projects.
Some of the Company's systems and related software are already Y2K compliant.
The Company is actively reviewing all hardware and software associated with its
computers, personal computers and client/servers, telecommunications and
embedded systems found in equipment throughout its operations. This program
consists of identifying and inventorying all software applications and systems,
making required replacements, modifications, and testing.
The Company recently successfully completed testing at one of the independent
power projects. The project operated normally with only minor errors in the
reporting process. Similar test methods will be used at the remaining projects
with a scheduled completion date of September 30, 1999, for testing at all
facilities.
<PAGE A-10>
Computer systems at WRI's coal operations have been or will be replaced or
appropriately modified by mid-1999. WRI's mining contractor and rail supplier
have embarked on aggressive campaigns to bring these systems into compliance and
the Company is carefully monitoring those activities.
Compliance at the Company's terminal operations has been nearly completed
through replacement of non-compliant systems. Efforts to upgrade the few
remaining systems will be completed by mid-1999. The terminal is dependent on
efficient and timely rail service and the Company is closely monitoring the
compliance efforts of the terminal's rail service providers.
The nature of the Company's operations make substantive contingency plans
extremely difficult. No reasonable alternatives exist for the inability of the
railroads to provide timely service to WRI and the DTA terminal. As previously
mentioned, the Company is closely following the compliance efforts of the
railroads and other major suppliers and, if necessary, will participate in those
efforts.
Based on information currently available, it is estimated that the costs to
replace and modify Company systems to achieve Y2K compliance will not exceed
$125,000, of which approximately $5,000 has been incurred through December 31,
1998.
The goal is to have all critical Company systems Y2K compliant during the first
half of 1999. This should allow time before December 31, 1999, to validate the
system modifications and complete contingency plans for customers, suppliers and
others who may not be Y2K compliant. While there can be no assurance that all
such modifications and plans will be successful, the Company does not expect
that any disruptions will have a material adverse effect on its overall
financial position, results of operations, or liquidity.
The foregoing constitutes a "forward-looking statement" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. It is based on management's current expectations,
estimates and projections, which could ultimately prove to be inaccurate.
Factors which could affect the Company's ability to be Y2K compliant by the end
of 1999 include the failure of customers, suppliers, governmental entities and
others to achieve compliance and the inaccuracy of certifications received from
them.
New Accounting Standards
- ------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), was issued in June 1998 by the
Financial Accounting Standards Board. SFAS 133 establishes new accounting and
reporting standards for derivative instruments and for hedging activities. This
statement requires an entity to establish at the inception of a hedge, the
method it will use for assessing the effectiveness of the hedging derivative and
the measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing risk.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. The
Company does not expect adoption of SFAS 133 to have a material effect on its
consolidated financial statements.
<PAGE A-11>
Results of Operations
1998 Compared to 1997
- --------------------------------------------------------------------------------
Coal Operations. Coal revenues in 1998 were $44,010,000 compared to $47,182,000
in 1997. The change is due to a slight decrease in tons sold in 1998 compared to
1997's record setting level. Prices received were comparable in the two periods.
Independent Power Operations. Equity in earnings of independent power operations
in 1998 was $64,465,000 compared to $17,770,000 in 1997. The increase is mainly
due to increased earnings at WEI's Rensselaer project as a result of the
restructuring of its power purchase contract with Niagara Mohawk.
Dominion Terminal Associates. Equity in earnings from Dominion Terminal
Associates was $94,000 in 1998 compared to $880,000 in 1997. The decrease is due
to a decrease in throughput as a result of a decline in export coal sales from
the U.S. In 1998, as a result of the continuing decline in the export market,
the Company recognized a $12,164,000 impairment charge relating to its
investment in DTA. DTA is dependent upon its customer's coal export business to
maintain an acceptable level of throughput. The coal export business has
recently experienced a significant decline due to intense competitive pressure
from coal suppliers in other nations. At this time the Company does not believe
that those competitive pressures will abate in the near term. The fair value
assigned to DTA was based on a recently completed sale of a similar nearby
terminal.
Selling and administrative expenses were $7,040,000 in 1998 compared to
$5,932,000 in 1997. The increase is due to additional franchise taxes paid to
the State of New York as a result of the Rensselaer project restructuring.
Heritage costs were $31,449,000 in 1998 compared to $16,673,000 in 1997. The
increase is due to $17,230,000 of Combined Fund benefit accruals made as a
result of the bankruptcy dismissal discussed in Notes 1 and 12.
In 1998, the Company recorded an unusual charge of $2,000,000 relating to a term
of the Master Agreement described in Note 1 to the Consolidated Financial
Statements. Under that Agreement, the Company agreed to make payments for
retiree health benefits as if it continued to be obligated under the 1993 UMWA
Wage Agreement for eligible retirees and beneficiaries for a period of five
years. At the expiration of such five year period, the Company is free to
initiate litigation contesting its obligation to continue to provide such
benefits and the Company will continue to provide such benefits after the
expiration of the five year period until it obtains a ruling from a Court of
competent jurisdiction that it is not obligated to provide such benefits.
In 1997, the Company recorded an unusual credit of $27,214,000 which included a
curtailment gain of $14,199,000 associated with the anticipated expiration of
the 1993 Wage Agreement and a benefit of $13,015,000 due to a charge in the
estimated liability for pneumoconiosis benefits.
<PAGE A-12>
Gains on the sale of assets were $475,000 for 1998 most of which related to the
sales of various equipment from the idled Virginia Division. Gains on the sales
of assets were $969,000 during 1997, which was net of a loss of $1,609,000
related to the removal and final sale of a longwall mining machine at the idled
Virginia Division. Cash proceeds of $3,200,000 were received from the sale of
the longwall mining machine but were offset by $2,000,000 of costs to remove the
machine, $1,500,000 of remaining book value, and $1,300,000 relating to the
buy-out of the lease on the machine. Proceeds of $1,400,000 were received from
the sale of various equipment from the idled Virginia Division in 1997, all of
which was recorded as a gain.
Results of Operations
1997 Compared to 1996
- --------------------------------------------------------------------------------
Coal Operations. Coal revenues for 1997 were $47,182,000 as compared to
$44,152,000 in 1996. This increase is a direct result of an increase of
2,391,000 in tons produced and sold at Westmoreland Resources, Inc. Expenses
associated with coal revenues decreased as a result of the winding down of
operations at the Virginia Division in 1996 and the subsequent reduction of
costs associated with idle properties.
Independent Power Operations. Equity in earnings of independent power projects
in 1997 were $17,770,000 compared to $15,335,000 in 1996. This 16% increase is
attributable to an increase in project earnings primarily as a result of
increased capacity payments, and reductions in operating and maintenance
expenses.
Terminal Operations. The equity in earnings of DTA of $880,000 in 1997 was
comparable to the equity in earnings of $827,000 in 1996.
Selling and administrative costs decreased $4,287,000 or 42% as a result of the
continued wind-down of Virginia Division operations, a further Company wide
reduction in personnel and related expenses, and lower travel, legal and
consulting expenses. All expenses relating to the Company's reorganization under
the Bankruptcy Code are classified separately.
Heritage costs expensed for 1997 of $16,673,000 were comparable to the
$16,686,000 of heritage costs in 1996. The majority of these liabilities were
subject to compromise and were to be determined in the bankruptcy process.
In 1997, the Company recorded an unusual credit of $27,214,000 which included a
curtailment gain of $14,199,000 associated with the anticipated expiration of
the 1993 Wage Agreement and a benefit of $13,015,000 due to a change in the
estimated liability for pneumoconiosis benefits. In 1996, the Company recorded
an unusual credit of $11,896,000, representing an adjustment of $5,896,000 to
the liability for post-retirement medical benefits recorded when the Hampton
Division was sold in 1995, and an adjustment of $6,000,000 related to an updated
actuarial valuation of the UMWA pension withdrawal liability.
In September, 1997, the Company completed the sale of the Corona Group which
provided technical repair and maintenance services to the power generating
industry. The impairment and loss on disposal of $3,518,000 in 1997, and the
operating losses of $1,284,000 in 1997 and $1,049,000 in 1996, have been
reflected as discontinued operations.
<PAGE A-13>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31, 1998 1997
- --------------------------------------------------------------------------- ------------------ ------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 84,073 $ 30,664
Receivables:
Trade 2,566 4,483
Terminated pension plan, net 500 13,040
Other 2,730 1,026
- --------------------------------------------------------------------------- ------------------ ------------------
5,796 18,549
Other current assets 691 402
- --------------------------------------------------------------------------- ------------------ ------------------
Total current assets 90,560 49,615
- --------------------------------------------------------------------------- ------------------ ------------------
Property, plant and equipment:
Land and mineral rights 10,990 11,684
Plant and equipment 94,989 94,265
- --------------------------------------------------------------------------- ------------------ ------------------
105,979 105,949
Less accumulated depreciation and depletion 69,029 70,262
- --------------------------------------------------------------------------- ------------------ ------------------
36,950 35,687
Investment in independent power projects 62,386 54,152
Investment in Dominion Terminal Associates (DTA) 5,475 18,680
Workers' compensation bond 4,140 6,665
Prepaid pension cost 3,748 3,528
Excess of trust assets over pneumoconiosis benefit
obligation 10,891 11,700
Other assets 1,456 1,970
- --------------------------------------------------------------------------- ------------------ ------------------
Total Assets $ 215,606 $ 181,997
=========================================================================== ================== ==================
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
(Continued)
</TABLE>
<PAGE A-14>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Continued)
- --------------------------------------------------------------------------------
December 31, 1998 1997
- --------------------------------------------------------------------------- ------------------ -----------------
(in thousands)
<CAPTION>
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 200 $ 51
Accounts payable and accrued expenses:
Trade 4,213 2,894
Taxes, other than income taxes 3,893 5,208
Workers compensation 3,800 -
Postretirement medical costs 11,066 -
Reorganization expenses 7,900 1,645
Consent judgment payment obligation 39,006 -
Other accrued expenses 3,143 1,205
Reclamation costs 100 100
Income taxes 2,185 -
- --------------------------------------------------------------------------- ------------------ -----------------
Total current liabilities 75,506 11,103
- --------------------------------------------------------------------------- ------------------ -----------------
Liabilities subject to compromise - 132,667
Long-term debt, less current installments 1,562 407
Accrual for workers compensation 17,338 -
Accrual for postretirement medical costs 73,143 -
1974 UMWA Pension Plan obligations 13,776 -
Accrual for reclamation costs, less current portion 3,046 3,182
Other liabilities 2,370 -
Minority interest 7,020 6,245
Commitments and contingent liabilities
Shareholders' equity
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 575,000 shares 575 575
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued and outstanding 6,965,328 shares 17,413 17,413
Other paid-in capital 94,630 94,630
Accumulated deficit (90,773) (84,225)
- --------------------------------------------------------------------------- ------------------ -----------------
Total shareholders' equity 21,845 28,393
- --------------------------------------------------------------------------- ------------------ -----------------
Total Liabilities and Shareholders' Equity $ 215,606 $ 181,997
=========================================================================== ================== =================
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE A-15>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------- ------------------- ------------------ --------------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Revenues:
Coal $ 44,010 $ 47,182 $ 44,152
Independent power projects - equity in earnings 64,465 17,770 15,335
Dominion Terminal Associates ("DTA") - equity in
earnings 94 880 827
- -------------------------------------------------------- ------------------- ------------------ --------------------
108,569 65,832 60,314
- -------------------------------------------------------- ------------------- ------------------ --------------------
Cost and expenses:
Cost of sales - coal 37,472 42,063 50,863
Depreciation, depletion and amortization 2,289 1,715 2,336
Selling and administrative 7,040 5,932 10,219
Heritage costs 31,449 16,673 16,686
Pension expense (benefit) (including termination
gain of $1,512,000 in 1997) 111 (5,547) (3,601)
Unusual charges (credits) 2,000 (27,214) (11,896)
Doubtful accounts recoveries (1,028) (1,410) (3,449)
DTA impairment charge 12,164 - -
- -------------------------------------------------------- ------------------- ------------------ --------------------
91,497 32,212 61,158
- -------------------------------------------------------- ------------------- ------------------ --------------------
Operating income (loss) 17,072 33,620 (844)
Other income (expense):
Gains on sales of assets (including $10,700,000
from Penn Virginia Corporation in 1996) 475 969 24,238
Interest expense (190) (320) (400)
Interest income - - 1,455
Minority interest (775) (1,092) (890)
Other income 1,999 713 2,036
- -------------------------------------------------------- ------------------- ------------------ --------------------
1,509 270 26,439
- -------------------------------------------------------- ------------------- ------------------ --------------------
Income from continuing operations before
reorganization items and income taxes 18,581 33,890 25,595
Reorganization items:
Legal and consulting fees (9,872) (2,484) -
Interest expense (5,188) - -
Interest income 3,594 1,552 -
- -------------------------------------------------------- ------------------- ------------------ --------------------
Income before income taxes 7,115 32,958 25,595
Income tax expense 3,787 - 575
- -------------------------------------------------------- ------------------- ------------------ --------------------
Income from continuing operations 3,328 32,958 25,020
Discontinued operations:
Operating loss - (1,284) (1,049)
Impairment and loss on disposal - (3,518) -
- -------------------------------------------------------- ------------------- ------------------ --------------------
Loss from discontinued operations - (4,802) (1,049)
Cumulative effect of changes in accounting principles (9,876) - 14,372
- -------------------------------------------------------- ------------------- ------------------ --------------------
Net income (loss) (6,548) 28,156 38,343
Less preferred stock dividends
in arrears 4,888 4,888 4,888
- -------------------------------------------------------- ------------------- ------------------ --------------------
Net income (loss) applicable to common
shareholders $(11,436) $ 23,268 $ 33,455
======================================================== =================== ================== ====================
(Continued)
</TABLE>
<PAGE A-16>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Continued)
- --------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------- ------------------- ------------------ --------------------
<CAPTION>
<S> <C> <C> <C>
Income (loss) per share applicable to (in thousands except per share data)
common shareholders:
Continuing operations $ (.22) $ 4.03 $ 2.89
Discontinued operations - (0.69) (.15)
Cumulative effect of changes in accounting
principles (1.42) - 2.06
- -------------------------------------------------------- ------------------- ------------------ --------------------
$ (1.64) $ 3.34 $ 4.80
======================================================== =================== ================== ====================
Pro forma amounts assuming the changes in accounting principles are applied
retroactively:
Net income (loss) applicable to common
shareholders $ (1,560) $ 19,083
Income (loss) per share applicable to common
shareholders $ (.22) $ 2.74
======================================================== =================== ================== ====================
Weighted average number of common
shares outstanding - basic and diluted 6,965 6,965 6,965
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE A-17>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 1996, 1997, and 1998
- --------------------------------------------------------------------------------
Class A
Convertible Total
Exchangeable Other Shareholders'
Preferred Common Paid-In Accumulated Equity
Stock Stock Capital Deficit (Deficit)
- ------------------------------------ ------------------- ----------- -------------- --------------- -----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 575 17,413 94,630 (150,724) (38,106)
Net income - - - 38,343 38,343
- ------------------------------------ ------------------- ----------- -------------- --------------- -----------------
Balance at December 31, 1996 575 17,413 94,630 (112,381) 237
Net income - - - 28,156 28,156
- ------------------------------------ ------------------- ----------- -------------- --------------- -----------------
Balance at December 31, 1997 575 17,413 94,630 (84,225) 28,393
Net loss - - - (6,548) (6,548)
==================================== =================== =========== ============== =============== =================
Balance at December 31, 1998 $ 575 17,413 94,630 (90,773) 21,845
==================================== =================== =========== ============== =============== =================
See accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE A-18>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------- ----------------- ----------------- -----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,548) $ 28,156 $ 38,343
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Equity in earnings of independent power projects (64,465) (17,770) (15,335)
Cash distributions from independent power projects 46,355 14,995 12,971
Equity earnings from Dominion Terminal Associates (94) (880) (827)
Cash generated by Dominion Terminal
Associates facility 2,952 4,865 3,786
Cash contributions to Dominion Terminal
Associates (1,877) (2,883) (3,187)
DTA impairment charge 12,164 - -
Depreciation, depletion and amortization 2,289 1,715 2,336
Gain on termination of pension plan - (1,512) -
Unusual charges (credits) 2,000 (27,214) (11,896)
Gains on sales of assets (475) (969) (24,238)
Cash from pension termination, net 12,540 - -
Distribution from pneumoconiosis trust 2,634 - -
Minority interest 775 1,092 890
Deferred income tax benefit - - (579)
Impairment and loss on disposition of
discontinued operations - 3,518 -
Cumulative effect of change in accounting principle 9,876 - (14,372)
Other (358) 96 2,747
Changes in assets and liabilities:
Receivables, net of allowance for
doubtful accounts 213 1,392 (1,331)
Inventories - 660 252
Prepaid pension cost (220) (4,035) -
Excess of trust assets over pneumoconiosis
benefit obligation (1,825) 1,188 127
Accounts payable and accrued expenses 1,690 880 (9,037)
Income taxes payable 2,185 - (2,905)
Accrual for workers' compensation (678) - (6,285)
Accrual for postretirement medical costs (2,502) - 7,250
Consent judgment payment obligation 39,006 - -
Other liabilities (5,998) 15 (914)
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Net cash provided by (used in) operating activities
before 49,639 3,309 (22,204)
reorganization items
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Changes in reorganization items:
Trade and other liabilities subject to compromise - 14,977 7,255
Reorganization expenses 6,255 1,645 -
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Net change in reorganization items 6,255 16,622 7,255
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Net cash provided by (used in) operating activities 55,894 19,931 (14,949)
- ------------------------------------------------------------- ----------------- ----------------- -----------------
(Continued)
</TABLE>
<PAGE A-19>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
- --------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------- ----------------- ----------------- -----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Cash flows from investing activities:
Additions to property, plant and equipment (2,945) (174) (664)
(Increase) decrease in notes receivable - - (141)
Purchase of additional interest in WRI - - (4,200)
Net proceeds from sales of investments and assets 511 2,757 19,689
Cash held by subsidiary disposed of - (490) -
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Net cash (used in) provided by investing activities (2,434) 2,093 14,684
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt (51) (151) (1,662)
Dividends paid to minority shareholders of subsidiary - - (993)
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Net cash used in financing activities (51) (151) (2,655)
- ------------------------------------------------------------- ----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents 53,409 21,873 (2,920)
Cash and cash equivalents, beginning of year 30,664 8,791 11,711
============================================================= ================= ================= =================
Cash and cash equivalents, end of year $ 84,073 $ 30,664 $ 8,791
============================================================= ================= ================= =================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 27 $ 31 $ 228
Income taxes 120 - 1,140
</TABLE>
In September 1997, the Company completed the sale of the Corona Group Inc.
("Corona"). Corona was sold for $895,000 in notes receivable, the Company
retained a 15% interest in Corona, and the purchaser assumed a contingent
liability.
In September 1996, the Company completed a non-cash transaction for the transfer
of several of its idled Virginia Division mining operations. In exchange for
these operations, the purchaser assumed responsibility for certain reclamation
obligations amounting to approximately $2,200,000. The entire amount of the
obligations assumed was recorded as a gain on the sale of assets.
In May 1996, the Company completed non-cash transactions for the sale of its
idled Wentz and Pine Branch Mining operations. The purchasers of those assets
assumed reclamation and other liabilities totaling approximately $3,000,000 as
part of those transactions.
The entire amount of the obligations assumed was recorded as a gain on the sale
of assets.
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
<PAGE A-20>
Westmoreland Coal Company and Subsidiaries
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Consolidation Policy
- --------------------
The consolidated financial statements of Westmoreland Coal Company (the
"Company") include the accounts of the Company and its majority-owned
subsidiaries, after elimination of intercompany balances and transactions. The
Company uses the equity method of accounting for companies where its ownership
is between 20% and 50% and for partnerships and joint ventures in which less
than a controlling interest is held.
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent liabilities in order to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results will likely differ from those estimates.
Cash Equivalents
- ----------------
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. All such instruments
are carried at cost. Cash equivalents consists of Eurodollar time deposits,
money market funds and bank repurchase agreements.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are carried at cost and include expenditures for
new facilities and those expenditures that substantially increase the productive
lives of existing plant and equipment. Development costs of mines are
capitalized until commercial operations commence. Maintenance and repair costs
are expensed as incurred. Mineral rights and development costs are depleted
based upon estimated recoverable proven and probable reserves. Plant and
equipment are depreciated straight-line over the assets' estimated useful lives,
ranging from 3 to 40 years. The Company assesses the carrying value of its
property, plant and equipment for impairment by comparing estimated undiscounted
cash flows expected to be generated from such assets with their net book value.
If net book value exceeds estimated cash flows, the asset is written down to
fair value. When an asset is retired or sold, its cost and related accumulated
depreciation and depletion are removed from the accounts. The difference between
unamortized cost and proceeds on disposition is recorded as a gain or loss.
Fully depreciated plant and equipment still in use are not eliminated from the
accounts.
Workers' Compensation and Pneumoconiosis Benefit Liabilities
- ------------------------------------------------------------
The Company is self-insured for workers' compensation claims incurred prior to
1996 and federal and state pneumoconiosis benefits for current and former
employees. Workers compensation claims incurred after January 1, 1996 are
covered by a third party insurance provider.
<PAGE A-21>
The liability for workers' compensation claims is an actuarially determined
estimate of the ultimate losses incurred on such claims based on the Company's
experience, and includes a provision for incurred but not reported losses.
Adjustments to the probable ultimate liability are made continually based on
subsequent developments and experience and are included in operations as
incurred.
Effective January 1, 1996 and as discussed in Note 9, the Company changed its
method of accounting for pneumoconiosis benefits to recognize actuarial gains
and losses related to the pneumoconiosis benefit obligation, as actuarially
determined, in the period in which they occur. Previously, the Company accrued
for the projected costs of pneumoconiosis benefits, on an actuarial basis, over
the period which benefits were expected to be paid. An independent trust has
been established to pay these benefits.
Post Retirement Benefits Other than Pensions
- --------------------------------------------
The Company accounts for health care and life insurance benefits provided to
certain retired employees and their dependents by accruing the cost of such
benefits over the service lives of employees. The Company is amortizing its
transition obligation, for past service costs relating to these benefits, over
twenty years. For UMWA represented union employees who retired prior to 1976,
the Company provides similar medical and life insurance benefits by making
payments to a multiemployer union trust fund. The Company expenses such payments
when made.
Coal Revenues
- -------------
The Company recognizes coal sales revenue at the time title passes to the
customer. The Company also records as revenue amounts received from coal related
activities, such as proceeds from coal contract buy-outs and coal option
payments. Coal revenues include the sale of mined coal and sales of coal
produced by unaffiliated mining companies where the Company is a sales agent or
broker. The Company recognizes revenue for the coal sold for unaffiliated
companies since the Company assumes the credit risk for the sale, performs other
services such as invoicing, quality control and shipment monitoring, and in most
cases takes title to the coal. The Company had no revenue pertaining to coal
sold for others during 1998 or 1997. Coal revenues pertaining to coal sold for
other companies amounted to $11,598,000 in 1996.
Reclamation
- -----------
Reclamation costs at WRI are fixed and are being recognized evenly over a 15
year period. Total expected reclamation costs at idled sites were fully accrued
at the time of idling. Estimates at idle sites are periodically reviewed and
adjustments are made in accruals to provide for changes in expected future
costs.
Income Taxes
- ------------
The Company accounts for deferred income taxes using the asset and liability
method. Deferred tax liabilities and assets are recognized for the expected
future tax consequences of events that have been reflected in the Company's
financial statements based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities, using enacted tax
rates in effect in the years in which the differences are expected to reverse.
<PAGE A-22>
Income (Loss) Per Share Applicable to Common Shareholders
- ---------------------------------------------------------
Income (loss) per share applicable to common shareholders has been calculated
based on the weighted average number of common shares outstanding during the
period in accordance with the Statement of Financial Accounting Standards No.
128, issued in February 1997.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1. Nature of Operations
The Company's principal activities, conducted within the United States are: (i)
the production and sale of coal from a contractor operated mine in the Powder
River Basin in Eastern Montana; (ii) the ownership of interests in cogeneration
and other non-regulated independent power plants; and (iii) the leasing of
capacity at Dominion Terminal Associates, a coal storage and vessel loading
facility.
Chapter 11 Reorganization Proceedings
- -------------------------------------
On December 23, 1996 ("Petition Date"), Westmoreland Coal Company and four
subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal Sales Company,
Westmoreland Energy, Inc., and Westmoreland Terminal Company (the "Debtor
Corporations"), filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Colorado (the "Chapter 11 Cases"). By order of the Bankruptcy Court
entered on December 23, 1998, pursuant to the request of the Debtor
Corporations, the Chapter 11 Cases were dismissed. There were no objections
during the ten day stay period that expired on January 4, 1999. Upon the
dismissal, the Debtor Corporations were and are no longer subject to the
protections afforded or restrictions imposed by the Bankruptcy Code. Prior to
the dismissal, the Debtor Corporations were in possession of their respective
properties and assets and were operating as debtors in possession pursuant to
provisions of the Bankruptcy Code. During the Chapter 11 Cases, the Debtor
Corporations engaged in litigation with the 1992 UMWA Benefit Plan (the "1992
Plan"), the UMWA Combined Benefit Fund (the "Combined Fund") and the 1974 UMWA
Pension Plan (the "1974 Plan") (sometimes collectively referred to as the
"Funds") as well as the UMWA regarding various matters. With respect to the 1992
Plan and the Combined Fund, the key issues in dispute were
<PAGE A-23>
(i) whether the postpetition assessments of the 1992 Plan and the Combined Fund
under the Coal Industry Retirement Health Benefits Act of 1992 (the "Coal Act")
are entitled to administrative priority in the Chapter 11 Cases; (ii) if the
1992 Plan's and the Combined Fund's claims are not entitled to administrative
priority but instead constitute general unsecured non-priority claims, what is
the allowed amount of those claims for bankruptcy purposes; and (iii) whether
the claims and assessments of the 1992 Plan and the Combined Fund violate the
United States Constitution. The Debtor Corporations and the 1992 Plan also
disputed whether the Company could be compelled to "reinstate" its individual
employer plan (the "IEP") for those beneficiaries who were eligible and were
receiving benefits under the IEP as of February 1, 1993 and who retired before
October 1, 1994, and their dependents. With respect to the 1974 Plan, the key
issue was the date of withdrawal and the Company's liability for its share of
unfunded vested liabilities, if any, upon termination or withdrawal from the
plan. With respect to the UMWA, the key issue was the effect of the expiration
of the 1993 Collective Bargaining Agreement on the Company's obligation to
provide health care benefits to the beneficiaries covered by that agreement.
During the Chapter 11 Cases, pursuant to an order entered on September 5, 1997,
the Bankruptcy Court ruled that the 1992 Plan's claims were not entitled to
administrative priority but instead constituted general unsecured non-priority
claims, and that the 1992 Plan could not compel reinstatement of the IEP.
Thereafter, by order dated June 11, 1998, the Bankruptcy Court determined, among
other things, that the 1992 Plan held a prepetition general unsecured claim
against the Debtor Corporations in the amount of $146,103,383.
During the Chapter 11 Cases, both the Debtor Corporations and the Funds filed
plans of reorganization (the "Competing Plans"). Each Competing Plan was
premised upon the treatment of the 1992 Plan's and Combined Fund's claims as
general unsecured non-priority claims. After the Bankruptcy Court issued the
above-noted ruling regarding the amount of the 1992 Plan's general unsecured
claim, the Bankruptcy Court deemed the Debtor Corporations' Competing Plan
withdrawn as unconfirmable absent a change in law or circumstances.
On July 9, 1998, the United States Court of Appeals for the Tenth Circuit
("Tenth Circuit") decided UMWA 1992 Plan v. Rushton (In re Sunnyside), 146 F.3d
1273 (10th Cir. 1998) ("Sunnyside"). In Sunnyside, the Tenth Circuit held that
the premium assessments for the 1992 Plan at issue in that case are taxes
entitled to administrative priority in bankruptcy. Although the Debtor
Corporations previously contended that the facts in Sunnyside were
distinguishable from the facts in the Debtor Corporations' case, the Tenth
Circuit's broad decision appeared to dictate that the postpetition assessments
of the 1992 Plan (and the Combined Fund) are entitled to administrative priority
in the Chapter 11 Cases to the extent allowed. As a result, on July 28, 1998,
the Debtor Corporations filed a motion before the United States District Court
of Colorado (the "District Court"), moving to reverse the Bankruptcy Court's
September 5, 1997 order which held that the claims of the 1992 Plan were general
unsecured prepetition claims. The District Court granted the Debtor
Corporation's motion, thereby reversing the Bankruptcy Court's September 5, 1997
ruling with respect to the priority of the 1992 Plan's assessments but otherwise
vacating and remanding back to the Bankruptcy Court the remaining aspects of the
Bankruptcy Court's rulings involving the 1992 Plan including the determination
that the 1992 Plan's allowed claim was $146,103,383. Thereafter, the Funds
advised the Bankruptcy Court that the Funds had withdrawn their Competing Plan.
<PAGE A-24>
On July 28, 1998, the Debtor Corporations filed a motion ("Dismissal Motion")
before the Bankruptcy Court to dismiss these Chapter 11 Cases based upon the
foregoing substantial changes in law, the improvement in their financial
condition and their belief that dismissal would benefit all creditors and
shareholders. As a condition to dismissal, the Debtor Corporations proposed to:
(i) pay in full all undisputed claims, including the assessments of the 1992
Plan and the Combined Fund through the effective date of dismissal ("Dismissal
Date"); (ii) provide such security as is required by section 9712(d)(1)(C) of
the Coal Act; (iii) pay all future premiums assessed by the 1992 Plan and the
Combined Fund on an ongoing basis as and when due; and (iv) not pay dividends to
preferred or common shareholders based on funds on hand or earnings prior to the
Dismissal Date and only to pay dividends in the future if and to the extent that
the Debtor Corporations have current earnings which would permit the payment of
such dividends under applicable Delaware law. Westmoreland Coal also proposed to
continue to maintain its individual employee plan ("IEP") for the benefit of
retirees under the 1993 collective bargaining agreement between Westmoreland
Coal and the UMWA even beyond the expiration of that agreement in August of
1998, unless and until a forum of competent jurisdiction determined that it was
not required to do so. The Dismissal Motion stated that the Debtor Corporations
reserved their right to contest the constitutionality of the Coal Act and/or to
seek to recover any payments made to the 1992 Plan or the Combined Fund in any
appropriate forum. The Equity Committee (see below) and the Funds opposed this
motion.
On June 29, 1998, the Office of the United States Trustee granted certain
shareholders' request to appoint an Official Committee of Equity Security
Holders ("Equity Committee") pursuant to Bankruptcy Code section 1102(a)(1). The
Equity Committee retained its own counsel and financial advisor, subject to the
Company's obligation under the Bankruptcy Code to pay their reasonable and
necessary fees and expenses. On July 28, 1998, the Equity Committee filed a
motion ("Conversion Motion") before the Bankruptcy Court to convert the Debtor
Corporations' cases to Chapter 7, contending that pursuant to Sunnyside,
liquidation of the Company would maximize recovery for shareholders since the
Funds' allowable claims would be limited to those accruing during the bankruptcy
and that the Funds' amended plan of reorganization was not confirmable. The
Debtor Corporations opposed the Conversion Motion, as did the Funds.
On October 15, 1998 the Company, the Funds, the UMWA, and the Equity Committee
reached agreement on a settlement term sheet, which contained the principal
terms of an agreement among them and provided for, among other things, the
resolution of the Chapter 11 cases. The agreement was read into the record
during scheduled hearings on the Dismissal Motion and the Conversion Motion, and
following such announcement the hearings were recessed.
On October 30, 1998, the Debtor Corporations, the Funds, and the Equity
Committee filed a joint motion with the Bankruptcy Court, setting forth the
outline of a procedure for dismissal of the Chapter 11 Cases combined with the
entry of "consent judgments" in connection with certain of the pending
litigation. The Bankruptcy Court approved the proposed procedure at a hearing
held before the Bankruptcy Court on November 10, 1998. The procedure called for
the consensual, unconditional dismissal of the chapter 11 cases in conjunction
with certain consent judgments related to contested matters with the Funds and
resolution of all remaining items by contractual settlement agreement among the
parties.
<PAGE A-25>
The parties negotiated and documented certain additional agreements, a consent
judgment in the prepetition litigation in the Virginia District Court (imposing
obligations that duplicate the obligations imposed under the above-referenced
consent judgments) and documents to further memorialize the parties' agreement.
These documents and agreements include: the Master Agreement; various pleadings
filed in Micheal Buckner, et. al. v. Westmoreland Coal Co., et al., Civil Action
No. 96-0187-A, in the United States District Court for the Western District of
Virginia, comprised of the Joint Motion to Join the Combined Benefit Fund, the
Joint Motion for Stipulated Final Order, the Memorandum in Support of Joint
Motion for Stipulated Final Order and the Stipulated Final Order; the Contingent
Note, the Escrow Agreement for the Contingent Note; and the Security Agreement
for the Contingent Note. These agreements and documents imposed certain material
obligations on the Debtor Corporations. Thereafter, the Debtor Corporations
filed motions with the Bankruptcy Court requesting approval of the consent
judgments, which motions were granted (and the consent judgments and dismissal
order were entered) on December 23, 1998.
The key terms of the Master Agreement are summarized as follows:
o The Funds, the UMWA, and the Equity Committee withdrew their objections to
the Company's Motion to Dismiss the Chapter 11 cases and joined in the
entry of stipulated judgments and the execution of a Master Agreement which
preserve the Company as an ongoing enterprise with undiluted ownership
vested in its existing shareholders.
o The Company agreed that it would not file, institute nor support any action
under state or federal bankruptcy liquidation, insolvency or reorganization
statutes for a period of five years.
o The Company agreed to pay in full, with interest, all undisputed creditor
claims and satisfy all other ongoing obligations. Pursuant to this
commitment, the Company paid approximately $5.7 million to holders of
undisputed claims in early January, 1999.
o The Company agreed to pay in full all arrearages, with interest, under the
Coal Industry Retirement Health Benefit Act of 1992 ("Coal Act"). Pursuant
to this commitment, the Company paid approximately $18.1 million to the
UMWA 1992 Benefit Plan ("1992 Plan") and approximately $19.4 million to the
UMWA Combined Fund ("Combined Fund," and together with the 1992 Plan, the
"Funds") in early January, 1999.
o The Company agreed to pay $4 million to the Funds in full satisfaction of
all other asserted claims for damages, liquidated damages, penalties,
charges, fees and costs. The Company made this payment on February 1, 1999.
o The Company agreed to reinstate its Individual Employer Plan for 1992 Plan
retirees.
o The Company agreed to pay its future obligations to the Funds as and when
due.
o The UMWA 1974 Pension Trust ("1974 Plan") had asserted a claim for
withdrawal liability in the amount of approximately $13.8 million against
the Company to which the Company objects. The Company and the 1974 Plan
agreed to resolve this dispute through arbitration, as provided by law.
o As required under the Coal Act, the Company agreed to secure its obligation
to provide retiree health benefits under the 1992 Plan by posting a bond,
letter of credit, or cash collateral in the amount of three years benefits
(or $20.8 million). The Company has 60 days from January 4, 1999 to provide
this security.
<PAGE A-26>
o In addition, the Company agreed to secure its obligations to the Funds by
providing the Funds with a Contingent Promissory Note ("Note"). The
original principal amount of the Note is $12 million; the principal amount
of the Note decreases to $6 million in 2002. The Note is payable only in
the event the Company does not meet its Coal Act obligations, fails to meet
certain ongoing financial tests specified in the Note, fails to maintain
the required balance in the escrow account established under the Escrow
Agreement, or fails to comply with certain covenants set forth in a
security agreement. Certain notice and cure provisions are included in the
Note. If no default occurs, the Note terminates on January 1, 2005. To
secure its obligations to the Funds under the Note, the Company entered
into a Security Agreement and an Escrow Agreement. In the Security
Agreement, the Company pledged the annual cash flow to which it is entitled
from the Roanoke Valley I project. Pursuant to the Escrow Agreement, the
Company placed $6 million into an escrow account on February 1, 1999. In
the year 2002, when the amount of the Note is reduced to $6 million, the
amount in the escrow account may be adjusted so that the amount in escrow
will be $8 million minus the amount of Westmoreland`s cash flow from the
Roanoke Valley I project in the preceding year. In no event will the amount
of the required balance in the escrow account be more than $6 million or
less than zero. If the Company is not required to make payment under the
Note, the Security Agreement and the Escrow Agreement terminate upon the
termination of the Note. The Company executed and delivered the Note, the
Security Agreement, and the Escrow Agreement to the Funds on January 29,
1999.
o The Company agreed not to initiate further litigation to challenge the Coal
Act or seek to initiate legislation to amend or reject the Coal Act.
o The Company agreed to make payments for retiree health benefits as if it
continued to be obligated under the 1993 UMWA Wage Agreement for eligible
retirees and beneficiaries for a period of five years. At the expiration of
such five year period, the Company is free to initiate litigation
contesting its obligation to continue to provide such benefits, and the
Company will continue to provide such benefits after the expiration of the
five year period until it obtains a ruling from a Court of competent
jurisdiction that it is not obligated to provide such benefits.
o Provided that the pending sale of the Company's remaining interest in the
Rensselaer project occurs and subject to the terms of the Master Agreement,
a public tender for 1,052,631 depositary shares will be implemented, each
representing one quarter of a share of the Company's outstanding Series A
Convertible Exchangeable Preferred Stock, at $19 per depositary share.
Assuming 1,052,631 depositary shares are tendered in the offer, the Company
would be required to pay $20 million in consideration for these shares. The
tender shall occur in the first quarter of 1999, or as soon thereafter as
is practicable, following the date of the asset sale.
o Unless the tender offer is initiated in time to be completed by early
April, the Company will hold a meeting of shareholders by March 31, 1999,
at which shareholders may nominate and elect directors and bring other
matters before the shareholders. The Company presently anticipates that the
shareholders' meeting will take place by May 11, 1999.
o The Equity Committee would dissolve on February 3, 1999.
o Except for the payment to preferred shareholders in the tender offer, the
Company may not make any other cash distribution to preferred or common
shareholders for any purpose prior to June 30, 1999.
<PAGE A-27>
On October 30, 1998, the Debtor Corporations, the Funds, and the Equity
Committee filed a joint motion with the Bankruptcy Court, setting forth the
outline of a procedure for dismissal of the Chapter 11 Cases combined with the
entry of "consent judgments" in connection with certain of the pending
litigation. The Bankruptcy Court approved the proposed procedure at a hearing
held before the Bankruptcy Court on November 10, 1998. Thereafter, the Debtor
Corporations filed motions with the Bankruptcy Court requesting approval of the
consent judgments, which motions were granted (and the consent judgments and
dismissal order were entered) on December 23, 1998.
The consent judgment in respect of the 1992 Plan required the payment of: (i) an
allowed unsecured non-priority claim against the Debtor Corporations in the
amount of $1,097,000, plus interest at the rate established under Internal
Revenue Code ("I.R.C.") ss. 6621 on this claim from December 23, 1996 through
the date of payment, less $200,000 (together with interest thereon) deposited
with the 1992 Plan pursuant to certain prepetition litigation before the United
States District for the Western District of Virginia (the "Virginia District
Court"); and (ii) premiums payable to the 1992 Plan under Section 9712 of the
Coal Act for the time periods beginning on and after December 23, 1996 and
ending on such payment date, in the amount of approximately $16,500,000, plus
interest at the rate established pursuant I.R.C. ss. 6621 from October 15, 1998
through the date of payment. In addition, this consent judgment requires the
Debtor Corporations to post security in the amount of $20,800,000 pursuant to
Section 9712(d)(1)(C) of the Coal Act, within sixty (60) days of the
effectiveness of such judgment. The consent judgment in respect of the Combined
Fund required the payment of: (i) an allowed unsecured non-priority claim
against the Debtor Corporations in the amount of $8,581,000, plus interest at
the rate established under I.R.C.ss. 6621, on this claim from December 23, 1996
through the date of payment; and (ii) all Combined Fund premiums accrued with
respect to the Debtor Corporations for the plan years beginning October 1, 1997
in the amount of $5,581,000, plus interest on such amount pursuant I.R.C. ss.
6621, for the period beginning October 1, 1997 through the date of payment. In
addition, the Debtor Corporations were required to pay one-half the Combined
Fund's October 1, 1998 annual premium assessment of $6,111,000, subject to
certain discount/interest calculations. The total payments by the Company to the
1992 Plan and the Combined Fund made on January 4, 1999 were approximately
$37,500,000. All of these charges were recognized as expenses and accrued on the
balance sheet in 1998, with the exception of the 1992 Plan premiums, which were
previously recognized in accordance with FAS 106.
During 1998, the Company recognized $9,872,000 in legal and consulting fees
related to the bankruptcy, including fees attributable to the activities of the
Equity Committee which, under Federal Bankruptcy Law, must be funded by the
Company. In February, 1999, pursuant to the Master Agreement, the Company paid
to the 1992 Plan and the Combined Fund an additional $4 million (which had been
accrued in 1998) in full and final satisfaction of additional claims, including
claims for attorney's fees, that arose prior to that date and paid bonuses
totaling $2,600,000.
Liabilities Subject to Compromise
- ---------------------------------
As discussed above, the Company was a debtor-in-possession from December 23,
1996 through December 23, 1998, at which time the Bankruptcy Court dismissed the
case. The following discussion relating to liabilities subject to compromise
applies only to liabilities at December 31, 1997, while the Company was in
bankruptcy. None of the Company's liabilities at December 31, 1998, are subject
to compromise and have been classified accordingly.
<PAGE A-28>
The filing of the Chapter 11 Cases by the Debtor Corporations (i) automatically
stayed actions by creditors and other parties in interest to recover any claim
that arose prior to the commencement of the cases, and (ii) served to
accelerate, for purposes of allowance, all prepetition liabilities of the
Company, whether or not those liabilities were liquidated or contingent as of
the Petition Date. In accordance with AICPA Statement of Position 90-7
("Financial Reporting by Entities in Reorganization under the Bankruptcy Code")
liabilities subject to compromise were segregated from those that were not in
the accompanying balance sheet. The following table sets forth the liabilities
of the Company that were subject to compromise as of December 31, 1997:
December 31, 1997
-----------------------------------------------------------------------------
Trade and other liabilities $ 7,035,000
Long-term debt 1,607,000
1974 UMWA Pension Plan 13,800,000
Workers' compensation 24,341,000
1992 UMWA Benefit Plan 40,469,000
1993 Wage Agreement Plan 32,067,000
UMWA Combined Benefit Fund -
Salaried Plan 12,175,000
SERP 1,173,000
-------------------------------------------------- --------------------------
Total $ 132,667,000
================================================== ==========================
2. Acquisitions
Westmoreland Resources, Inc.
- ----------------------------
During 1996, the Company increased its ownership in Westmoreland Resources, Inc.
("WRI") from 60% to 80% through the completion of separate transactions with
Morrison Knudsen ("MK") and Penn Virginia Corporation ("Penn Virginia"). As a
result of these transactions, MK is now a 20% minority owner of WRI and will
continue as the contract operator for WRI.
Westmoreland purchased a 4% share of WRI from MK for $1,200,000 cash on
September 30, 1996. Westmoreland also exercised a previously negotiated option
with Penn Virginia Corporation for the purchase of Penn Virginia's 16% share of
WRI for $3,000,000 cash on October 1, 1996, increasing Westmoreland's ownership
to 80%. The transactions were accounted for as purchases and the excess of the
share of the book value of the assets acquired over the cost of the interests
purchased is reflected as a reduction in the carrying value of land and mineral
rights.
3. Dispositions
The Corona Group
- ----------------
On September 9, 1997 the Company completed the sale of the Corona Group which
provides technical repair and maintenance services to the power generating
industry. Revenues for the discontinued operations were $3,814,000, and
$7,800,000 in 1997 and 1996, respectively. The Company recorded a loss on
disposition of $418,000 during the third quarter of 1997. The Company previously
recorded an impairment of $3,100,000 relating to its investment in Corona in the
second quarter of 1997. Consideration received from the sale included secured
promissory notes receivable of $895,000, of which $570,000 was paid in 1997. The
remaining $325,000 is due no later than September 10, 1999. The Company also
retained a 15% interest in the Corona Group.
<PAGE A-29>
Virginia Division
- -----------------
In 1998 and 1997, the Company sold various assets of the Virginia Division for
aggregate net proceeds of $511,000 and $2,757,000, respectively, and recorded
gains of $475,000 and $969,000, respectively. The purchasers assumed certain
reclamation liabilities associated with these assets.
During 1996, the Company realized proceeds of $19,689,000 from the sale of
Virginia Division in nine separate transactions. The gain on these transactions
was $24,238,000 which included $5,224,000 in reclamation obligations that were
assumed by the various purchasers.
4. Unusual CHARGES OR CREDITS
1996
- ----
In 1996, the Company recorded an unusual credit of $11,896,000 for the
adjustment of accrued post-retirement medical benefits of $5,896,000 recorded
when the Hampton Division was sold in 1995 and an adjustment of $6,000,000
related to an updated actuarial valuation of the UMWA pension withdrawal
liability. See Notes 10 and 11.
1997
- ----
In 1997, the Company recorded an unusual credit of $14,199,000 for a curtailment
gain relating to the 1993 Wage Agreement. See Note 10. In 1997, the Company also
recorded an unusual credit of $13,015,000 due to a change in the estimated
liability for pneumoconiosis benefits. See Note 9.
1998
- ----
On January 29, 1999, the Company executed the Master Agreement described in Note
1 to the Consolidated Financial Statements. Under that Agreement, the Company
agreed to make payments for retiree health benefits as if it continued to be
obligated under the 1993 UMWA Wage Agreement for eligible retirees and
beneficiaries for a period of five years. At the expiration of such five year
period, the Company is free to initiate litigation contesting its obligation to
continue to provide such benefits, and the Company will continue to provide such
benefits after the expiration of the five year period until it obtains a ruling
from a Court of competent jurisdiction that it is not obligated to provide such
benefits. The estimated present value of the Company's obligation to provide
these benefits for the five year period is approximately $2,000,000, and was
charged to expense in 1998. The Company currently expects that it will be
necessary to litigate this matter at the conclusion of the five year period. On
the advice of counsel, management believes that the Company should prevail in
any such litigation, although, as in any litigation, there can be no assurance.
Should the UMWA's position be ultimately upheld, the Company would be required
to provide retiree health benefits to such beneficiaries after the expiration of
the five year period. The estimated present value of this contingent liability,
calculated as of December 31, 1998, is approximately $11,600,000.
<PAGE A-30>
5. Westmoreland Energy, Inc.
Westmoreland Energy, Inc., ("WEI"), a wholly owned subsidiary of the Company,
holds general and limited partner interests in partnerships which were formed to
develop and own cogeneration and other non-regulated independent power plants.
Equity interests in these partnerships range from 1.25 percent to 50 percent.
WEI has interests in eight operating projects as listed and described in the
Project Summary below. The lenders to these partnerships have recourse only
against these projects and the income and revenues therefrom. The debt
agreements contain various restrictive covenants including restrictions on
making cash distributions to the partners, with which the partnerships are in
compliance. The type of restrictions on making cash distributions to the
partners vary from one project lender to another.
<PAGE A-31>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Project Ft. Drum Altavista Hopewell Southampton Ft. Lupton
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Watertown Altavista Hopewell Southampton Ft. Lupton
Location: New York Virginia Virginia Virginia Colorado
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Gross Megawatt
Capacity: 55.5 MW 70 MW 70 MW 70 MW 290 MW
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
WEI Equity
Ownership: 1.25% 30.0% 30.0% 30.0% 4.49%
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Electricity Public Service
Purchaser: Niagara Mohawk Virginia Power Virginia Power Virginia Power of Colorado
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
The Lane Firestone Tire Rocky Mtn.
Steam Host: US Army Company, Inc. & Rubber Co. Hercules, Inc. Produce, Ltd
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Fuel Type: Coal Coal Coal Coal Natural Gas
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Cyprus Amax Westmoreland United Coal United Coal Thermo Fuels,
Fuel Supplier: Coal Co. Coal Company Company Company Inc.
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Commercial
Operations Date: 1989 1992 1992 1992 1994
-------------------- ----------------- ---------------- ----------------- ---------------- -----------------
(TABLE CONTINUED)
Roanoke Roanoke
Project Rensselaer Valley I Valley II
-------------------- ---------------- ---------------- ------------------
Rensselaer Weldon Weldon
Location: New York North Carolina North Carolina
-------------------- ---------------- ---------------- ------------------
Gross Megawatt
Capacity: 81 MW 180 MW 50 MW
-------------------- ---------------- ---------------- ------------------
WEI Equity
Ownership: 50.0% 50.0% 50.0%
-------------------- ---------------- ---------------- ------------------
Electricity
Purchaser: Niagara Mohawk Virginia Power Virginia Power
-------------------- ---------------- ---------------- ------------------
Patch Rubber Patch Rubber
Steam Host: BASF Company Company
-------------------- ---------------- ---------------- ------------------
Fuel Type: Natural Gas Coal Coal
-------------------- ---------------- ---------------- ------------------
Western Gas TECO Coal/ TECO Coal/
Fuel Supplier: Marketing, Ltd CONSOL CONSOL
-------------------- --------------- ---------------- ------------------
Commercial
Operations Date: 1994 1994 1995
-------------------- --------------- ---------------- ------------------
</TABLE>
<PAGE A-32>
The following is a summary of aggregated financial information for all
investments owned by WEI and accounted for under the equity method:
<TABLE>
Balance Sheets
December 31, 1998 1997
- ------------------------------------------------------------------------- --------------------- --------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets $ 127,901 $ 140,510
Property, plant and equipment, net 599,293 670,090
Other assets 50,406 76,238
========================================================================= ===================== ====================
Total assets $ 777,600 $ 886,838
========================================================================= ===================== ====================
Liabilities and equity
Current liabilities $ 54,526 $ 50,107
Long-term debt and other liabilities 458,787 648,000
Equity 264,287 188,731
========================================================================= ===================== ====================
Total liabilities and equity $ 777,600 $ 886,838
========================================================================= ===================== ====================
WEI's share of equity $ 63,156 $ 53,803
Capitalized start-up costs - 1,012
Other, net (770) (663)
========================================================================= ===================== ====================
WEI's investment in independent power operations $ 62,386 $ 54,152
========================================================================= ===================== ====================
</TABLE>
The Partnerships and the Company adopted Statement of Position No 98-5,
Reporting the Costs of Start-Up Activities as of January 1, 1998. The statement
requires companies to expense the costs of start-up activities as incurred. The
statement also requires certain previously capitalized start-up costs to be
charged to expense at the time of adoption and reported as the cumulative effect
of a change in accounting principle. The cumulative effect on WEI's share of
earnings of the Partnerships and the recognition of its start-up costs was
$9,876,000 and was recorded separately in the Consolidated Statements of
Operations.
The Company's capitalized start-up costs were being amortized straight-line over
the term of the power contract for the related project.
<TABLE>
Income Statements
For years ended December 31, 1998 1997 1996
- ----------------------------------------------- --------------- ---------------- -----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Revenues $247,015 $270,887 $271,237
Operating income 128,302 136,226 137,872
=============================================== =============== ================ =================
Net income $252,191 $ 54,423 $ 55,382
=============================================== =============== ================ =================
WEI equity in earnings $ 64,465 $ 17,770 $ 15,335
Cumulative effect of change in
accounting principle (9,876) - -
- ----------------------------------------------- --------------- ---------------- -----------------
WEI's share of earnings $ 54,589 $ 17,770 $ 15,335
=============================================== =============== ================ =================
</TABLE>
<PAGE A-33>
WEI performs project development and venture and asset management services for
the partnerships and has recognized related revenues of $510,000, $531,000, and
$499,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Management fees, net of related costs, are recorded as other income when the
service is performed.
Southampton Project - WEI owns a 30% general partnership interest in
LG&E-Westmoreland Southampton ("Southampton Partnership"), which owns the
Southampton Project. The Southampton Project, which was engaged in start-up and
testing operations from September 1991 through March 1992, failed to meet
Federal Energy Regulatory Commission ("FERC") operating standards for a
qualifying facility ("QF") in 1992. The failure was due to three factors: (i)
the facility was not dispatched by its power customer, Virginia Electric and
Power Company ("Virginia Power"), on a baseload schedule as anticipated, (ii)
the facility was engaged in start-up and testing operations during a portion of
that year, and (iii) the facility operator mistakenly delivered non-sequential
steam to the host over a significant period of time. On February 23, 1994, the
Southampton Partnership filed a request with the FERC for a waiver of the FERC's
QF operating standard for 1992. Virginia Power intervened in the FERC
proceeding, opposed the granting of a waiver, and alleged that its power
contract with the Southampton Partnership had been breached due to the failure
of the facility to maintain QF status in 1992.
On July 7, 1994, the FERC issued an order (1) denying the application of the
Southampton Partnership for a waiver of the FERC's QF operating standard in 1992
with respect to the Southampton Project and (2) directing the Southampton
Partnership to show cause why it should not be required to file rate schedules
with the FERC governing its 1992 electricity sales for resale to Virginia Power.
In 1994 the Southampton Project established a reserve for the anticipated refund
obligations relating to this issue. On August 9, 1994, the Southampton
Partnership filed a request for rehearing of FERC's order or, alternatively, a
motion for reconsideration.
On August 1, 1996, FERC entered its decision in the Southampton case. FERC
determined that the Partnership's request for reconsideration should be treated
as timely filed, but that the Southampton facility was not in complete
compliance with the QF requirements for 1992. FERC ordered Southampton to comply
with Section 205 for the Federal Power Act ("FPA"), and file, for FERC's review,
rates for calendar year 1992 for wholesale power sales to Virginia Power.
Otherwise, the Southampton project remains exempt from regulation under the
Public Utility Holding Company Act ("PUHCA"), utility laws of Virginia and the
other provisions of the FPA. In August 1996, the Partnership filed a motion
seeking clarification of the August 1, 1996 order. The Partnership also filed an
additional request for rehearing. On May 13, 1998 the FERC entered an Order
clarifying its August 1, 1996 decision in the Southampton case. While affirming
the requirement to make a refund to Virginia Power, the FERC ruled that Virginia
Power must compensate Southampton for every hour in which the unit was available
for dispatch, but not actually dispatched. FERC appointed a settlement Judge to
assist the parties in evaluating and negotiating a settlement.
In October, 1998, the Southampton Partnership and Virginia Power entered into a
settlement agreement which resolved these issues. The settlement provided for,
among other items, payments by the Southampton Partnership to Virginia Power of
$1,000,000 annually for the years 1999-2001, followed by a reduction in capacity
payments from Virginia Power to the Southampton Partnership of $500,000 for the
years 2002-2008. Following 2008, Virginia Power may elect to terminate its power
purchases from the Southampton Partnership or continue to receive the $500,000
annual reduction in capacity payments for the remainder of the power purchase
agreement. The settlement has been approved by the FERC.
<PAGE A-34>
A limited partner of LG&E-Southampton, L.P. has made a demand on the Southampton
Partnership and the related LG&E and Westmoreland entities for reimbursement in
the amount of $1,979,000 in connection with its share of the settlement. The
Westmoreland entities anticipate making a similar demand against the LG&E
entities in the amount of $3,000,000.
ROVA I Project - WEI owns a 50% partnership interest in Westmoreland-LG&E
Partners (the "ROVA Partnership"). The ROVA Partnership's principal customer,
Virginia Power contracted to purchase the electricity generated by ROVA I, one
of two units included in the ROVA partnership, under a long-term contract. In
the second quarter of 1994, that customer disputed the ROVA Partnership's
interpretation of the provisions of the contract dealing with the payment of the
capacity purchase price when the facility experiences a "forced outage" day. A
forced outage day is a day when ROVA I is not able to generate a specified level
of electrical output. The ROVA Partnership believes that the customer is
required to pay the ROVA Partnership the full capacity purchase price unless
forced outage days exceed a contractually stated allowed annual number. The
customer asserts that it is not required to do so.
From May, 1994, through October, 1998, Virginia Power withheld approximately
$14,800,000 of these capacity payments during periods of forced outages. To
date, the Company has not recognized any revenue on its 50% portion of the
capacity payments being withheld by Virginia Power. In October 1994, The ROVA
Partnership filed a complaint against Virginia Power seeking damages, contending
that Virginia Power breached the Power Purchase Agreement in withholding such
payments. In December, 1994, Virginia Power filed a motion to dismiss the
complaint and in March, 1995, the court granted this motion. The ROVA
Partnership filed an amended complaint in April, 1995. Virginia Power filed
another motion to dismiss the complaint and in June 1995, the Circuit Court of
the City of Richmond, Virginia denied Virginia Power's motion to dismiss the
complaint. In November, 1995, Virginia Power filed with the court a motion for
summary judgment, and a hearing on the motion was held in early December, 1995.
In late January, 1996, the court denied Virginia Power's motion for summary
judgment. Virginia Power filed a second summary judgment motion on March 1,
1996. On March 18, 1996, the Court granted Virginia Power's second summary
judgment motion and effectively dismissed the complaint. The ROVA Partnership
appealed the Court's decision granting summary judgment to the Virginia Supreme
Court. On June 6, 1997 the Virginia Supreme Court reversed the trial court's
decision to grant Virginia Power's summary judgment motion and remanded the
matter for trial. The case was tried on October 26, 1998. The trial judge
requested the parties to submit post trial briefs and on December 2, 1998
entered judgment in the ROVA Partnership's favor for the amount of $14,800,000
plus interest for a total of $19,336,214. On December 21, 1998, Virginia Power
posted its appeal bond and on December 29, 1998, noted its appeal of the Court's
decision to the Virginia Supreme Court. The Court has not indicated whether it
will hear the appeal. Due to the uncertainty of the appeal, the financial
statements do not reflect any portion of this judgment.
<PAGE A-35>
Rensselaer - On June 30, 1998, LG&E - Westmoreland Rensselaer ("LWR"), completed
the restructuring of the Rensselaer Project under the terms of a Master
Restructuring Agreement with Niagara Mohawk. LWR received $157 million in cash
as consideration for terminating its original Power Purchase Agreement. After
satisfying project finance debt obligations and renegotiating project related
contracts for fuel supply and transportation and steam supply, WEI's share of
the remaining consideration was approximately $30 million, which it subsequently
received. The LWR Partnership also entered into a ten year transition power
supply agreement with Niagara Mohawk Power Corporation and retained ownership of
the plant. LWR has recently been negotiating the sale of the remaining assets of
the Rensselaer Project. The prospective purchaser would acquire the power plant,
inventories, environmental permits, and the material operating contracts. The
signing of a definitive purchase agreement could occur as early as late
February, 1999, with closing of the transaction soon thereafter.
6. Dominion Terminal Associates
Westmoreland Terminal Company ("WTC"), a wholly-owned subsidiary of the Company,
has a 20% interest in Dominion Terminal Associates ("DTA"), a partnership formed
for the construction and operation of a coal-storage and vessel-loading facility
in Newport News, Virginia. DTA's annual throughput capacity is 22 million tons,
and its ground storage capacity is 1.7 million tons. Each partner is responsible
for its share of throughput and expenses at the terminal. Total throughput tons
for DTA were 11,511,000, 14,075,000 and 16,440,000 for 1998, 1997 and 1996,
respectively. The Company currently leases the terminal's ground storage space
and vessel-loading facilities to certain unaffiliated parties who are engaged in
the export business and provides related support services.
The following is a summary of financial information for DTA:
<TABLE>
Balance Sheets
December 31, 1998 1997
- ------------------------------------------------------------------------- --------------------- --------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets $ 4,816 $ 5,705
Non-current assets 86,175 89,484
========================================================================= ===================== ====================
Total assets $ 90,991 $ 95,189
========================================================================= ===================== ====================
Liabilities and partners' deficit
Current liabilities $ 1,967 $ 1,760
Long-term debt and other liabilities 115,660 116,109
Partners' deficit (26,636) (22,680)
========================================================================= ===================== ====================
Total liabilities and partners' deficit $ 90,991 $ 95,189
========================================================================= ===================== ====================
WTC's share of partners' deficit $(10,586) $ (9,667)
DTA Bonds 26,560 26,560
Goodwill, net of amortization 1,189 1,249
Impairment allowance (12,164) -
Other, net 476 538
- ------------------------------------------------------------------------- --------------------- --------------------
Investment in DTA $ 5,475 $ 18,680
========================================================================= ===================== ====================
</TABLE>
<PAGE A-36>
The Company is amortizing the goodwill using the straight-line method over 30
years.
<TABLE>
Income Statements
For the Years ended December 31, 1998 1997 1996
- -------------------------------------------------------- ---------------- --------------------- --------------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Contribution from Partners $ 15,393 $ 20,164 $ 21,354
Total expenses 19,349 22,789 24,294
======================================================== ================ ===================== ====================
Excess of expenses over partners' contributions $ (3,956) $ (2,625) $ (2,940)
======================================================== ================ ===================== ====================
Revenues from DTA $ 2,890 $ 4,201 $ 4,640
Company share of DTA costs 2,796 3,321 3,813
- -------------------------------------------------------- ---------------- --------------------- --------------------
Equity in earnings from DTA $ 94 $ 880 $ 827
======================================================== ================ ===================== ====================
</TABLE>
WTC and the Company have a joint and several obligation for interest and
principal obligations with respect to its share of certain DTA bonds
($26,560,000 principal amount at December 31, 1998 and 1997). These obligations
were supported by a letter of credit on which the Company was the ultimate
obligor. In 1994, the Company was in violation of certain covenant requirements
in connection with the DTA letter of credit. As a result, on June 9, 1994 the
DTA letter of credit was drawn. The proceeds of the draw were used to purchase
$26,560,000 (par value) of DTA bonds. The Company repaid the amounts drawn under
the DTA letter of credit on December 22, 1994. The $26,560,000 of DTA bonds are
now owned by WTC and have been accounted for as an increase in the investment in
DTA.
The Company actively markets its 20% share of the terminal's facilities.
Accordingly, the Company's equity in earnings (share of losses) from DTA
represents the revenue received net of the Company's share of the expenses
incurred attributable to the terminal's coal-storage and vessel loading
operations.
The DTA partners have a Throughput and Handling Agreement whereby WTC is
committed to fund its proportionate share of DTA's operating expenses and
capital expenditures. WTC's total cash funding requirements, were $1,877,000,
$2,883,000 and $3,187,000 for 1998, 1997 and 1996, respectively.
In 1998, the Company recognized a $12,164,000 impairment charge relating to its
investment in DTA to reduce its carrying value to its estimated fair value. DTA
is dependent upon its customer's coal export business to maintain an acceptable
level of throughput. The coal export business has recently experienced a
significant decline due to intense competitive pressure from coal suppliers in
other nations. At this time the Company does not believe that those competitive
pressures will abate in the near term. The fair value assigned to DTA was based
on a recently completed sale of a similar nearby terminal.
<PAGE A-37>
7. Debt
The Company's debt is summarized as follows:
<TABLE>
December 31, 1998 1997
- ---------------------------------------------------------------------------- ------------------- -------------------
(in thousands)
WRI:
<CAPTION>
<S> <C> <C>
Long term debt subject to compromise $ - $ 1,607
Contracts for deed and mortgage notes payable with interest rates
ranging from 4% to 7%, net of unamortized discount of $169,000
in 1998 and $220,000 in 1997, secured by property plant and
equipment 1,762 458
- ---------------------------------------------------------------------------- ------------------- -------------------
Total debt 1,762 2,065
Less current installments (including $122,000 subject to
compromise in 1997) 200 173
============================================================================ =================== ===================
Long-term debt, less current installments $ 1,562 $ 1,892
============================================================================ =================== ===================
</TABLE>
The secured contracts for deed and mortgage notes payable by WRI are secured by
land and surface rights with a net book value of $1,444,000 at December 31,
1998.
All long term debt subject to compromise at December 31, 1997, was brought
current on January 4, 1999. On that date all arrearages, with interest, were
paid.
Principal payments due on long-term debt, for the next five years and thereafter
are as follows:
Year Ending Amount
----------------------------------------------------- -------------------
(in thousands)
December 31, 1999 $ 200
December 31, 2000 220
December 31, 2001 241
December 31, 2002 265
December 31, 2003 291
After December 31, 2003 545
----------------------------------------------------- -------------------
8. Workers' Compensation Benefits
The Company was self-insured for workers' compensation benefits prior to and
through December 31, 1995. Beginning in 1996, the Company is covered by third
party insurance for new workers' compensation claims and is no longer
self-insured. Based on updated actuarial and claims data, $469,000 was credited
to earnings in 1998, $753,000 was charged to earnings in 1997 and $1,300,000 was
credited to earnings during 1996. The cash payments for workers' compensation
benefits were $3,540,000, $3,752,000, and $5,010,000 in 1998, 1997 and 1996,
respectively.
The Company was required to obtain surety bonds in connection with its
self-insured workers' compensation plan. The Company's surety bond underwriter
required cash collateral for such bonding. As of December 31, 1998 and 1997,
$4,140,000 and $6,665,000 respectively, was held in the cash collateral account.
<PAGE A-38>
In connection with its dismissal from bankruptcy, the Company has been engaged
in settlement discussions with the Commonwealth of Virginia and the State of
West Virginia. Under the settlement with the Commonwealth of Virginia, the
Company will post a new bond in the amount of approximately $8,000,000 and
resume paying benefits directly. The outcome of these discussions with the State
of West Virginia is unknown at this time.
The workers compensation benefits obligation was classified as a liability
subject to compromise in 1997. During the bankruptcy proceedings, workers'
compensation claims were paid out of the surety bond cash collateral account.
9. Pneumoconiosis (Black lung) Benefits
The Company is self-insured for federal and state pneumoconiosis benefits for
current and former employees and has established an independent trust to pay
these benefits.
The following table sets forth the funded status of the Company's obligation:
<TABLE>
December 31, 1998 1997
------------------------------------------------------------------ ------------------- ---------------
(in thousands)
<CAPTION>
<S> <C> <C>
Actuarial present value of benefit obligation:
Expected claims from terminated employees $ 10,726 $ 11,900
Claimants 17,878 17,900
------------------------------------------------------------------ ------------------- ---------------
Total present value of benefit obligation 28,604 29,800
Plan assets at fair value, primarily government-backed
securities 39,495 41,500
------------------------------------------------------------------ ------------------- ---------------
Excess of trust assets over pneumoconiosis benefit
obligation $ 10,891 $ 11,700
================================================================== =================== ===============
</TABLE>
The discount rate used in determining the accumulated pneumoconiosis benefit as
of December 31, 1998 and 1997 was 6.75% and 7.0%, respectively.
As a result of the closing down of the Company's eastern coal operations (as
discussed in Notes 3 and 4) and the termination of all employees eligible for
pneumoconiosis benefits, the Company changed its method of accounting for
pneumoconiosis benefits during the fourth quarter of 1996, and applied such
change retroactively to January 1, 1996. Previously, the Company accrued for the
projected costs of pneumoconiosis benefits, on an actuarial basis, over the
period which benefits were expected to be paid. Under the newly adopted method
of accounting, the Company recognizes all actuarial gains or losses related to
the pneumoconiosis benefit obligation in the period in which they occur. The
cumulative effect of the change at January 1, 1996, was a credit of $14,372,000.
Adoption of this new accounting method decreased net income by $2,562,000 in
1996. Management believes the newly adopted accounting method is preferable
since, with the shutdown of its eastern operations, new obligations for
pneumoconiosis benefits will not be incurred.
In 1997 the Company recorded a benefit of $13,015,000 due to a change in the
estimated liability for pneumoconiosis benefits, which has been recorded as a
component of unusual credits in 1997.
<PAGE A-39>
10. Postretirement Medical and Life Insurance Benefits
Single-Employer Plans
- ---------------------
The Company and its subsidiaries provide certain health care and life insurance
benefits for retired employees and their dependents. Substantially all of the
Company's current employees may become eligible for these benefits if certain
age and service requirements are met at the time of termination or retirement as
specified in the plan agreement. These benefits are provided through
self-insured programs. The Company adopted SFAS 106 effective January 1, 1993
and elected to amortize its unrecognized, unfunded accumulated postretirement
benefit obligation over a 20-year period.
The Company maintains three plans subject to FAS 106: the Salaried Plan, the
1993 Wage Agreement Plan, and the 1992 Plan. The Salaried Plan provides certain
health and life insurance benefits for salaried retired employees and their
dependents. The 1993 Wage Agreement Plan is the plan that resulted from the 1993
Wage Agreement between the Company and the UMWA. That agreement required the
Company to establish and provide health care benefits under an individual
employer plan for age- and service-eligible employees (and their dependents) who
retired during the term of the 1993 Wage Agreement. The 1992 Plan was
established as a result of the Coal Act. The Company is required to provide
health care benefits for beneficiaries (and their dependents) who were age- and
service-eligible to receive benefits under the Coal Act as of February 1, 1993,
and who retired before October 1, 1994.
Prior to 1997, the calculation of the present value of the Company's obligation
under the 1993 Wage Agreement assumed that the Company would enter into
successor wage agreements to the 1993 Wage Agreement and would thereby continue
to provide retiree health benefits to such beneficiaries. During 1997, the
Company determined that it would not need to enter into a successor wage
agreement. Accordingly, the Company reduced the liability for the 1993 Wage
Agreement and recorded a curtailment gain of $14,199,000 in 1997, which has been
recorded as a component of unusual credits.
The UMWA contests the Company's right to terminate benefits at the expiration of
the collective bargaining agreement and further asserts that former employees
will be entitled to such benefits as they reach age 55. As a condition for not
opposing dismissal of the bankruptcy, the UMWA demanded and pursuant to the
terms of the Master Agreement discussed in Note 1, the Company agreed to
continue to provide benefits to participants of the 1993 Wage Agreement for a
period of five years from the dismissal of the bankruptcy. The estimated present
value of the Company's obligation to provide these benefits for the five year
period was charged to expense in 1998 as an unusual charge. At the expiration of
such five year period, the Company is free to initiate litigation contesting its
obligation to continue to provide such benefits, and the Company will continue
to provide such benefits after the expiration of the five year period until it
obtains a ruling from a Court of competent jurisdiction that it is not obligated
to provide such benefits. The Company currently expects that it will be
necessary to litigate this matter at the conclusion of the five year period. On
the advice of counsel, management believes that the Company should prevail in
any such litigation, although, as in any litigation, there can be no assurance.
Should the UMWA's position be ultimately upheld, the Company would be required
to provide retiree health benefits to such beneficiaries after the expiration of
the five year period. The estimated present value of this contingent liability,
calculated as of December 31, 1998, is approximately $11,600,000.
<PAGE A-40>
The following table sets forth the actuarial present value of postretirement
benefit obligations and amounts recognized in the Company's financial
statements:
<TABLE>
Salaried Plan 1993 Wage Agreement 1992 Plan
--------------------------- --------------------------- ----------------------------
- -------------------------------- ------------- ------------- ------------ -------------- ------------- --------------
December 31, 1998 1997 1998 1997 1998 1997
- -------------------------------- ------------- ------------- ------------ -------------- ------------- --------------
(in thousands)
Assumptions:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.00% 6.75% 7.00% 6.75% 7.00%
Change in benefit obligation:
Net benefit obligation at
beginning of year $ 10,505 $ 8,592 $ 33,418 $ 48,386 $ 114,406 $ 100,078
Service cost 57 48 - - - -
Interest cost 701 737 2,461 2,250 7,721 7,893
Plan amendments - - 1 ,865 - - -
Actuarial (gain) loss 148 2,166 1,688 (2,135) 19,997 6,435
Curtailments - - - (14,199) - -
Gross benefits paid (788) (1,038) (725) (884) - -
- -------------------------------- ------------- ------------- ------------ -------------- ------------- --------------
10,623 10,505 38,707 33,418 142,124 114,406
Change in plan assets:
Employer contributions 788 1,038 725 884 - -
Gross benefits paid (788) (1,038) (725) (884) - -
- -------------------------------- ------------- ------------- ------------ -------------- ------------- --------------
Fair value of plan assets at end
of year - - - - - -
Funded status at end of year (10,623) (10,505) (38,707) (33,418) (142,124) (114,406)
Unrecognized net actuarial
(gain) (3,207) (3,526) 3,040 1,351 33,492 14,305
loss
Unrecognized prior service cost - - - - - -
Unrecognized net transition
obligation (asset) 1,732 1,856 - - 55,670 59,632
================================ ============= ============= ============ ============== ============= ==============
Net amount recognized at end of
year (recorded as accrued
benefit cost in the
accompanying $(12,098) $(12,175) $(35,667) $(32,067) $(52,962) $(40,469)
balance sheet)
================================ ============= ============= ============ ============== ============= ==============
</TABLE>
(1) This includes $16,518,000 classified as Consent judgment payment obligations
in the accompanying balance sheet. Refer to Note 12.
<PAGE A-41>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
Salaried Plan 1993 Wage Agreement 1992 Plan
- ---------------------------- --------------------------- --------------------------- -------------------------------
Year ended
December 31, 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------- -------- -------- --------- -------- -------- --------- -------- ---------- -----------
(in thousands)
Assumptions:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.00% 7.50% 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Components of net periodic
benefit cost:
Service cost $ 56 $ 48 $ 66 $ - $ - $ - $ - $ - $ -
Interest cost 701 737 614 2,461 2,250 3,469 7,721 7,893 7,103
Amortization of:
Transition obligation 124 124 124 - - - 3,976 3,976 3,976
Prior service cost - - - 1,865 - - - - -
Actuarial (gain) loss (170) (196) (266) - - 109 812 485 199
============================ ======== ======== ========= ======== ========= ======== ======== ========== ===========
Total net periodic benefit
cost $ 711 $ 713 $ 538 $4,326 $2,250 $3,578 $12,509 $12,354 $11,278
============================ ======== ======== ========= ======== ========= ======== ======== ========== ===========
Sensitivity of retiree
welfare results:
Effect of a one percentage
point increase in assumed
health care cost trend
- - on total service and
interest cost components $ 44 - - $ 444 - - $ 903 - -
- - on postretirement
benefit 428 - - 6,875 - - 13,190 - -
obligation
Effect of a one percentage
point decrease in assumed
health care cost trend
- - on total service and
interest cost components (44) - - (444) - - (903) - -
- - on postretirement
benefit obligation (428) - - (6,875) - - (13,190) - -
</TABLE>
Postretirement benefits include medical benefits for retirees and their spouses
(and Medicare Part B reimbursement for certain retirees) and retiree life
insurance.
The health care cost trend assumed on covered charges were 6.0%, 6.5%, and 7.0%
for 1998, 1997 and 1996, respectively decreasing to an ultimate trend of 5.0% in
2001 and beyond.
Cash payments for medical and life insurance benefits were $1,452,000,
$1,823,000, and $8,929,000 in 1998, 1997 and 1996, respectively.
All postretirement benefit obligations were liabilities subject to compromise on
December 31, 1997.
<PAGE A-42>
Multiemployer Plan
- ------------------
Until December, 1996, and before the commencement of the Chapter 11 cases for
the Debtor Corporations, the Company made payments to the Combined Benefit Plan,
which is a multiemployer health plan neither controlled nor administered by the
Company. The Combined Benefit Plan is designed to pay benefits to UMWA workers
(and dependents) who retired prior to 1976. Prior to February 1993, the amount
paid by the Company was based on hours worked or tons processed (depending on
the source of the coal) in accordance with the national contract with the UMWA.
Beginning February 1993 the Company was required by the Coal Act to make monthly
premium payments into the Combined Benefit Plan. These payments were based on
the number of beneficiaries assigned to the Company, the Company's UMWA
employees who retired prior to 1976 and the Company's pro-rata assigned share of
UMWA retirees whose companies are no longer in business. The net present value
of the Company's future cash payments is estimated to be $36,200,000. The
Company expenses payments to the Combined Benefit Plan when they are made.
As a result of the bankruptcy, no payments were made during 1998 or 1997.
Payments of $2,805,000 were made in 1996. In January, 1999, in accordance with
the Master Agreement, the Company made payments totaling $19,408,000 to the
Combined Benefit Plan. This payment included $15,715,000 for delinquent
premiums, $2,178,000 for interest on those premiums and $1,515,000 for premiums
due for the first three months of 1999, discounted at 6%. The delinquent
premiums and interest were recognized as expense in 1998. The Company will
resume monthly payments to the Combined Benefit Plan beginning in April, 1999.
All of the postretirement medical and life insurance benefit obligations
discussed above were classified as liabilities subject to compromise in 1997.
11. Retirement Plans
Defined Benefit Pension Plans
- -----------------------------
During 1997, the Company elected to terminate its over-funded non-contributory
defined benefit pension plan. Pension income for 1997 included a gain on
termination of approximately $1,512,000. Upon termination of the plan, the
excess fund assets reverted to the Company. The reversion to the Company was
approximately $13,040,000, net of excise taxes payable of $3,135,000. The
Company received $12,540,000 of the funds and paid the excise taxes in February,
1998. The remaining $500,000 is being held in escrow to pay any final
termination costs related to the plan.
Simultaneously with the termination of this plan, the Company adopted a new plan
that provides for essentially the same benefits as the old plan for current
employees. For the purpose of the benefit calculation under the new plan,
credited service under the old plan is combined with credited service under the
new plan and a benefit amount is calculated. The amount of the accrued benefit
under the old plan, calculated as of the old plan termination date, is
subtracted to arrive at the benefit amount payable under the new plan.
Benefits are based on years of service and the employee's average annual
compensation for the highest five continuous years of employment as specified in
the plan agreement. The Company's funding policy is to contribute annually the
minimum amount prescribed, as specified by applicable regulations. Prior service
costs and actuarial gains are amortized over plan participants' expected future
period of service using the straight-line method.
<PAGE A-43>
Supplemental Executive Retirement Plan
- --------------------------------------
Effective January 1, 1992, the Company adopted the Westmoreland Coal Company
Supplemental Executive Retirement Plan ("SERP"). The SERP is an unfunded
non-qualified deferred compensation plan which provides benefits to certain
employees that are not eligible under the Company's defined benefit pension plan
beyond the maximum limits imposed by the Employee Retirement Income Security Act
("ERISA") and the Internal Revenue Code.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the periods ending December 31,
1998 and 1997 and the amounts recognized in the Company's financial statements
for both the defined benefit pension and SERP Plans:
<TABLE>
Qualified Pension Benefits SERP Benefits
-------------------------------------------- ----------------- ----------------- ---------------- ----------------
December 31, 1998 1997 1998 1997
-------------------------------------------- ----------------- ----------------- ---------------- ----------------
(in thousands)
Assumptions:
<CAPTION>
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
Change in benefit obligation:
Net benefit obligation at beginning of year $ 1,429 $ 54,632 $ 1,349 $ 1,266
Service cost 183 185 56 59
Interest cost 89 3,959 86 86
Actuarial gain (271) - (98) (62)
Settlements - 8,159 (1) - -
Gross benefits paid (12) (65,506)(2) - -
-------------------------------------------- ----------------- ----------------- ---------------- ----------------
Net benefit obligation at end of year 1,418 1,429 1,393 1,349
Change in plan assets:
Fair value of plan assets at beginning of
year 5,225 84,177 - -
Actual return on plan assets 273 5,220 - -
Gross benefits paid (11) (84,172)(3) - -
-------------------------------------------- ----------------- ----------------- ---------------- ----------------
Fair value of plan assets at end of year 5,487 5,225 - -
Funded status at end of year 4,069 3,796 (1,393) (1,349)
Unrecognized net actuarial gain (507) (490) (563) (517)
Unrecognized prior service cost 222 264 577 693
Unrecognized net transition asset (36) (42) - -
-------------------------------------------- ----------------- ----------------- ---------------- ----------------
Net amount recognized at end of year 3,748 3,528 (1,379) (1,173)
Amounts recognized in the accompanying
balance sheet consist of:
Prepaid benefit cost 3,748 3,528 - -
Accrued benefit cost (included in
other liabilities) - - (1,379) (1,173)
============================================ ================= ================= ================ ================
Net amount recognized at end of year $ 3,748 $ 3,528 $ (1,379) $ (1,173)
============================================ ================= ================= ================ ================
</TABLE>
(1) Represents additional PBO created in order to purchase annuities and pay
lump sums ($62,789,000 - $54,630,000).
(2) Represents purchase of annuities, payment of lump sums, and regular monthly
payments.
(3) Represents purchase of annuities, payment of lump sums, regular monthly
payments, related expenses, and reversion to Company
<PAGE A-44>
The components of net periodic pension cost (benefit) are as follows:
<TABLE>
Qualified Pension Benefits SERP Benefits
- ---------------------------------- ------------- ------------- ------------- ------------ ------------- -------------
Year ended December 31, 1998 1997 1996 1998 1997 1996
- ---------------------------------- ------------- ------------- ------------- ------------ ------------- -------------
(in thousands)
Assumptions:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Components of net periodic
benefit cost
Service cost $ 183 $ 185 $ 267 $ 56 $ 59 $ 59
Interest cost 88 3,958 4,103 86 86 79
Expected return on assets (491) (7,393) (7,370) - - -
Amortization of:
Transition asset (6) (284) (285) - - -
Prior service cost 42 42 42 116 116 116
Actuarial gain (36) (543) (358) (52) (45) (43)
================================== ============= ============= ============= ============ ============= =============
Total net periodic pension cost
(benefit) $ (220) $(4,035) $(3,601) $ 206 $ 216 $ 211
================================== ============= ============= ============= ============ ============= =============
</TABLE>
The SERP obligation was a liability subject to compromise at December 31, 1997.
The bankruptcy dismissal had no effect on SERP benefits.
1974 UMWA Pension Plan
- ----------------------
The Company was required under the 1993 Wage Agreement to pay amounts based on
hours worked or tons processed (depending on the source of the coal) in the form
of contributions to the 1974 UMWA Pension Plan with respect to UMWA represented
employees. The 1974 UMWA Pension Plan is neither controlled nor administered by
the Company.
Under the Multiemployer Pension Plan Act ("MPPA"), a company contributing to a
multiemployer plan is liable for its share of unfunded vested liabilities upon
withdrawal from the plan. In connection with the cessation of mining operations
described in Note 4, the Company recorded an estimate of the liability the
Company would incur upon withdrawal from the 1974 UMWA Pension plan. The
actuarial estimate of this obligation decreased by $6,000,000 in 1996, which was
reflected as an unusual credit to earnings in 1996. The 1974 UMWA Pension Plan
has not provided the Company with an updated actuarial estimate of the
withdrawal liability calculated as of June 30, 1998, the date of the asset
valuation the Company believes should be used to determine the actual withdrawal
liability, in accordance with the provisions of MPPA. The Company is contesting
this withdrawal liability through arbitration. In accordance with MPAA, the
Company must amortize this withdrawal liability, with interest, during the
arbitration process by making payments of approximately $172,500 per month.
These payments are recoverable to the extent the final assessed amount is less
than the amounts paid.
<PAGE A-45>
12. Consent JUDGMENT and other dismissal obligations
On January 4, 1999, pursuant to the consent judgments described in Note 1, the
Company paid the Combined Benefit Fund and the 1992 Benefit Plan $17,230,000 and
$16,518,000, respectively, plus interest of $5,258,000 for a total of
$39,006,000. Included in the amount paid to the Combined Benefit Fund was a
prepayment of approximately $1,515,000 for the first quarter of 1999. The Master
Agreement also required certain other payments to general pre-petition
creditors, the reimbursement of bankruptcy related costs incurred by the Funds
and an annual installment to the 1974 UMWA Pension. These amounts were
$5,686,000 (including interest), $4,000,000, and $1,606,000 (including
interest), respectively. The total amount paid on January 4, 1999, for all
obligations was $50,288,000. Of this amount $26,306,000 was charged to expense
in 1998. Other than the consent judgment obligations, all remaining dismissal
related liabilities are classified at December 31, 1998, as accounts payable and
accrued liabilities.
13. Income Taxes (Benefit)
As discussed in Note 2, on October 1, 1996, the Company increased its ownership
in WRI to 80%, the threshold for including WRI in the Company's consolidated
income tax return. WRI filed a separate tax return for the nine months ended
September 30, 1996 and the Company was not able to offset the Company's net
operating loss carryforwards against WRI's taxable income for that period.
Income tax expense attributable to income (loss) before income taxes consists
of:
1998 1997 1996
- -------------------------------------- -------------- ----------- ------------
(in thousands)
Federal:
Current $ 3,687 $ - $1,150
Deferred - - (579)
- -------------------------------------- -------------- ----------- ------------
$ 3,687 - 571
State:
Current 100 - 4
Deferred - - -
- -------------------------------------- -------------- ----------- ------------
- - 4
- -------------------------------------- -------------- ----------- ------------
Income tax expense $ 3,787 $ - $ 575
====================================== ============== =========== ============
Income tax expense attributable to income (loss) before income taxes differed
from the amounts computed by applying the statutory Federal income tax rate of
34% to pretax income (loss) from continuing operations as a result of the
following:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------- ------------- --------------- ---------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Computed tax expense (benefit) at statutory rate $ (939) $ 9,573 $ 13,232
Increase (decrease) in tax expense resulting from:
Percentage depletion (807) (402) (206)
State income taxes, net - - -
Change in valuation
allowance for net deferred tax assets 5,676 (8,657) (12,255)
Other (143) (514) (196)
====================================================================== ============= =============== ===============
Income tax expense (benefit) $ 3,787 $ - $ 575
====================================================================== ============= =============== ===============
</TABLE>
<PAGE A-46>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below:
<TABLE>
1998 1997
- ------------------------------------------------------------------------------------ -------------- ----------------
Deferred tax assets: (in thousands)
<CAPTION>
<S> <C> <C>
Net operating loss carryforwards $ 38,750 $ 76,484
Alternative minimum tax credit carryforwards 3,702 -
Investment tax credit carryforwards 2,594 4,500
Capital loss carryforwards 1,933 -
DTA impairment 4,136 -
Independent power projects transactions recorded for tax purposes 18,316 -
Deferred income 117 117
Accruals for the following:
Workers' compensation 7,186 8,028
Postretirement benefit obligation 40,011 28,979
Pneumoconiosis benefits 5,273 4,926
Reorganization expenses 1,776 -
Reclamation costs 1,506 1,436
Other accruals (642) (2,346)
- ------------------------------------------------------------------------------------ -------------- ----------------
Total gross deferred assets 124,658 122,124
Less valuation allowance (111,638) (105,962)
==================================================================================== ============== ================
Net deferred tax assets $ 13,020 $ 16,162
==================================================================================== ============== ================
Deferred tax liabilities:
Plant and equipment, differences due to depreciation and amortization $(12,807) $ (13,983)
Prepaid pension cost - (1,966)
Advanced royalties, capitalized for financial purposes (110) (110)
Unamortized discount on long-term debt for financial purposes (103) (103)
- ------------------------------------------------------------------------------------ -------------- ----------------
Total gross deferred tax liabilities (13,020) (16,162)
- ------------------------------------------------------------------------------------ -------------- ----------------
Net deferred tax liability $ - $ -
==================================================================================== ============== ================
</TABLE>
The Company and subsidiaries have available net operating loss carryforwards to
reduce future taxable income and investment tax credit carryforwards to offset
future taxes payable. Following are the expiration date and amounts of the net
operating loss carryforwards for both regular and alternative minimum tax
purposes:
-------------------- -------------- --------------
Expiration Date Regular Tax Minimum Tax
-------------------- -------------- --------------
(in thousands)
2007 $ 7,409 $ -
2008 13,014 -
2009 4,754 -
2010 51,986 -
after 2011 36,807
-------------------- -------------- --------------
Total $113,970 $ -
==================== ============== ==============
The Company has investment tax credit carryforwards of $2,594,000 which expire
by the year 2000.
<PAGE A-47>
14. Capital Stock
Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from
the third quarter of 1992 through the first quarter of 1994. The declaration and
payment of preferred stock dividends was suspended in the second quarter of 1994
in connection with extension agreements with the Company's principal lenders.
Upon the expiration of these extension agreements, the Company paid a quarterly
dividend on April 1, 1995 and July 1, 1995. Pursuant to the requirements of
Delaware law, described below, the preferred stock dividend was suspended in the
third quarter of 1995 as a result of recognition of losses and the subsequent
shareholders' deficit. The seventeen quarterly dividends which are in arrears
(dividend payment dates July 1, 1994, October 1, 1994, January 1, 1995, October
1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, October 1, 1996, January
1, 1997, April 1, 1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1,
1998, July 1, 1998, October 1, 1998, and January 1, 1999) amount to $20,772,000
in the aggregate ($36.13 per preferred share or $9.03 per depositary share).
Common stock dividends may not be declared until the preferred stock dividends
that are in arrears are made current.
There are statutory restrictions limiting the payment of preferred stock
dividends under Delaware law, the state in which the Company is incorporated.
Under Delaware law, the Company is permitted to pay preferred stock dividends
only: (1) out of surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or (2) in the
event there is no surplus, out of net profits for the fiscal year in which a
preferred stock dividend is declared (and/or out of net profits from the
preceding fiscal year), but only to the extent that shareholders' equity exceeds
the par value of the preferred stock ($575,000). The Company had shareholders'
equity at December 31, 1998, of $21,845,000.
As a result of the filing of voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code, the Company was prohibited from
paying dividends, either common or preferred. The terms of the Master Agreement,
including various financial covenants over the next six years, discussed in Note
1 to the Consolidated Financial Statements, further prohibit the payment of
dividends, either common or preferred, until after June 30, 1999, in any event.
15. Incentive Stock Option and Stock Appreciation Rights Plans
As of December 31, 1998, the Company had options and restricted stock
outstanding from three Incentive Stock Option ("ISOs") and Stock Appreciation
Rights ("SARs") Plans for employees.
The 1982 and 1985 Plans provide for the granting of ISOs and SARs and the 1995
Plan provides for the granting of ISOs and restricted stock. The 1985 and 1995
Plans also provide for the grant of non-qualified options, if so designated, and
contains the terms specified for non-qualified options. A SAR gives the holder
the right to receive, without payment to the Company, its "value" in cash. The
"value" of an SAR for this purpose would be the excess, if any, of the fair
market value of one share of common stock of the Company on the date the right
is exercised over the exercise price of the SAR. Restricted stock is an award
payable in shares of common stock subject to forfeiture under certain
conditions. ISOs granted under the 1982, 1985 and 1995 Plans may not have an
option price that is less than the fair market value of the stock on the date of
grant. ISOs and SARs under the 1982 and 1985 Plans may not be exercised until
two years from the date of grant as to 50% of the total number granted and as to
the remaining 50% not until three years from the date of grant; the right to
exercise ISOs and SARs terminates after eight years from the date of grant. The
maximum number of shares of the Company's common stock and SARs that could be
issued or granted under the Plans is as follows:
<PAGE A-48>
<TABLE>
1982 Plan 1985 Plan 1995 Plan
------------------------------------------ --------------------- ----------------- ----------------
<CAPTION>
<S> <C> <C> <C>
Shares of common stock 200,000 400,000 350,000
Stock appreciation rights 470,000 940,000 N/A
------------------------------------------ --------------------- ----------------- ----------------
</TABLE>
The 1982 Plan expired on January 4, 1992, and the 1985 Plan expired on January
7, 1995. Therefore, no further ISOs or SARs may now be granted from either of
those plans. Information for 1998, 1997 and 1996 with respect to the Plans is as
follows:
<TABLE>
Weighted
Stock Stock Average
Issue Price Restricted Option Appreciation Exercise
Range Stock Shares Rights Price
- ------------------------------------------ ---------------- ------------- ----------- --------------- --------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1995 $ 2.63-18.50 5,000 545,899 2,766 $ 6.89
Expired or forfeited in 1996 2.63-18.50 - (56,342) - 6.93
- ------------------------------------------ ---------------- ------------- ----------- --------------- --------------
Outstanding at December 31, 1996 2.63-18.50 5,000 489,557 2,766 6.88
Expired or forfeited in 1997 2.63-14.50 - (140,471) (2,766) 6.10
========================================== ================ ============= =========== =============== ==============
Outstanding at December 31, 1997
and 1998 $ 2.63-18.50 5,000 349,086 - $ 7.20
========================================== ================ ============= =========== =============== ==============
</TABLE>
On January 26, 1999, 40,000 shares of restricted stock and 65,000 shares of
stock options were granted to a group of employees, including one officer. The
options were granted at an exercise price of $4.00 per share and are exercisable
upon grant.
The 1991 Non-Qualified Stock Option Plan for Non-Employee Directors provides for
the granting on September 1 of each year of options to purchase 1,500 shares of
the Company's common stock. The maximum number of shares of the Company's common
stock that may be issued pursuant to options granted under the plan is 200,000
shares and the options expire ten years after the date of grant. Options granted
pursuant to this plan vest after the completion of one year of board service
following the date of grant. Grants under this plan were suspended in 1996 and
at December 31, 1996, 1997 and 1998, there were options outstanding exercisable
for 18,000 shares of common stock at a weighted average exercise price per share
of $8.76.
In 1996, the shareholders approved a stock option plan for directors. As
described in the Proxy Statement for the 1996 Annual Meeting of Shareholders,
the plan provides for the grant of non-qualified stock options to directors on
an annual basis beginning on the date of the 1996 Annual Meeting with options
for 20,000 shares to be granted to each director on that date or after a
director is first elected or appointed, and options for 10,000 shares to be
granted to each director after each annual meeting thereafter. The maximum
number of shares of the Company's common stock that may be issued or granted
under the plan is 350,000 and the options expire not later than ten years after
the date of grant. Options granted pursuant to this plan vest 25% per year over
a four year period, so that 25% vest after the first year, another 25% after the
second year, another 25% after the third year and the final 25% after the fourth
year. Options granted during a director's period of active service continue to
vest pursuant to this schedule if a director leaves the board due to reaching
retirement age. In the event of a change of control of the Company, any option
that was not previously exercisable and vested will become fully exercisable and
vested.
As it has already done with all other creditors and shareholders, it is the
Company's intention to restore the directors as nearly as possible to the
position they would have enjoyed now that the bankruptcy has been successfully
ended. However, none of the awards made will be exercisable prior to the
forthcoming meeting of shareholders.
<PAGE A-49>
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's three stock-based
compensation plans been determined on the fair value at the grant dates for
awards under those plans consistent with the FASB Statement 123, the Company's
net income (loss) and income (loss) per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
1998 1997 1996
----------------------------------------- ------------------- -------------------- ------------------
(in thousands, except per share data)
<CAPTION>
<S> <C> <C> <C>
Net Income (loss):
As reported $(11,436) $ 23,268 $ 33,455
Pro forma $(11,600) $ 23,104 $ 33,273
Basic and diluted income (loss) per share:
As reported $ (1.64) $ 3.34 $ 4.80
Pro forma $ (1.67) $ 3.32 $ 4.78
----------------------------------------- ------------------- -------------------- ------------------
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for options granted in 1995: no dividend yield; expected
volatility of 124%; risk-free interest rate of 5.59%; and expected life of 8
years. There were no options granted in 1996, 1997 or 1998.
16. Business Segment Information
The Company's operations have been classified into three segments: coal,
independent power operations and terminal operations. The coal segment includes
the production and sale of coal from the Powder River Basin in eastern Montana.
It also includes coal mining operations in the eastern United States which were
idled in the third quarter of 1995. The independent power operations includes
the ownership of interests in cogeneration and other non-regulated independent
power plants. The terminal operation segment consists of the leasing of capacity
at Dominion Terminal Associates, a coal storage and vessel loading facility.
Summarized financial information by segment for 1998, 1997 and 1996 is as
follows:
<PAGE A-50>
<TABLE>
Independent Terminal Discontinued
Coal Power Operation Corporate Operations Total
- ------------------------------- ------------- --------------- -------------- ----------- --------------- ------------
1998
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Revenues $44,010 $ 64,465 $ 94 $ - $ - $108,569
Earnings of equity
investees 64,465 94 64,559
- - -
Operating income (loss) 1,918 61,805 (985) (45,666) - 17,072
Depreciation, depletion and
amortization 1,472 39 648 130 - 2,289
DTA impairment charge - - 12,164 - - 12,164
Interest expense 270 70 9 5,029 - 5,378
Interest income 674 1,917 87 916 - 3,594
Investment in equity
investees - 62,386 5,475 - - 67,861
Total assets 61,555 124,617 7,040 22,394 - 215,606
Capital expenditures 2,935 8 - 2 - 2,945
1997
Revenues 47,182 17,770 880 - - 65,832
Earnings of equity
investees - 17,770 880 - - 18,650
Operating income (loss) 2,593 15,126 (615) 16,516 - 33,620
Depreciation, depletion and
amortization 1,499 96 60 60 139 1,854
Interest expense 180 113 - 27 - 320
Interest income 381 551 68 552 - 1,552
Investment in equity
investees - 54,152 18,680 - - 72,832
Total assets 53,420 70,546 20,683 37,348 - 181,997
Capital expenditures 151 8 - 15 - 174
1996
Revenues 44,152 15,335 827 - - 60,314
Earnings of equity
investees - 15,335 827 - - 16,162
Operating income (loss) (1,305) 13,569 (611) (12,497) - (844)
Depreciation, depletion and
amortization 1,687 100 73 129 347 2,336
Interest expense 196 91 - 113 - 400
Interest income 168 438 61 788 - 1,455
Investment in equity
investees - 51,386 19,841 - - 71,227
Total assets 46,495 53,276 20,636 25,786 7,778 153,971
Capital expenditures 338 28 - 85 213 664
- ------------------------------- ------------- --------------- -------------- ----------- --------------- ------------
</TABLE>
<PAGE A-51>
Reconciliation of operating income to income from continuing operations before
income taxes:
<TABLE>
Independent Terminal
Coal Power Operation Corporate Total
- ------------------------------------ --- ----------- ----------------- ------------ -------------- -------------
1998
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating income $ 1,918 $ 61,805 $ (985) $ (45,666) $ 17,072
Gains on sale of assets - - - 475 475
Interest expense (270) (70) (9) (5,029) (5,378)
Interest income 674 1,917 87 916 3,594
Minority interest (775) - - - (775)
Other income 35 - - 1,964 1,999
Reorganization costs - - - (9,872) (9,872)
=========== ================= ============ ============== =============
Income from continuing
operations before income taxes $ 1,582 $ 63,652 $ (907) $ (57,212) $ 7,115
=========== ================= ============ ============== =============
1997
Operating income $ 2,593 $ 15,126 $ (615) $ 16,516 $ 33,620
Gains on sale of assets - - - 969 969
Interest expense (180) (113) - (27) (320)
Interest income 381 551 68 552 1,552
Minority interest (1,092) - - - (1,092)
Other income 128 - - 585 713
Reorganization costs - - - (2,484) (2,484)
=========== ================= ============ ============== =============
Income from continuing
operations before income taxes $ 1,830 $ 15,564 $ (547) $ 16,111 $ 32,958
=========== ================= ============ ============== =============
1996
Operating income $ (1,305) $ 13,569 $ (611) $ (12,497) $ (844)
Gains on sale of assets - - - 24,238 24,238
Interest expense (196) (91) - (113) (400)
Interest income 168 438 61 788 1,455
Minority interest (890) - - - (890)
Other income 51 14 - 1,971 2,036
Reorganization costs - - - - -
=========== ================= ============ ============== =============
Income from continuing
operations before income taxes $ (2,172) $ 13,930 $ (550) $ 14,387 $ 25,595
=========== ================= ============ ============== =============
</TABLE>
<PAGE A-52>
17. Commitments and Contingencies
Protection of the Environment
- -----------------------------
The Company believes its mining operations are in compliance with applicable
federal, state and local environmental laws and regulations, including those
relating to surface mining and reclamation, and it is the policy of the Company
to operate in compliance with such standards. The Company maintains compliance
primarily through maintenance and monitoring activities. WRI has an agreement
with its mining contractor, Morrison Knudsen Company, Inc. (which owns 20% of
the stock of WRI), which determined the Company's maximum liability for
reclamation costs associated with final mine closure. It calls for the Company
to pay approximately $1,700,000 over a 15 year period which began in December
1990. All remaining liability is that of customers who are obligated to pay
final reclamation costs under provisions of their respective coal sales
contracts or Morrison Knudsen. In addition, per ton reclamation fees imposed by
the Federal Surface Mining Control and Reclamation Act of 1977 (the "Surface
Mining Act") amounted to approximately $2,241,000, $2,455,000 and $1,707,000 in
1998, 1997 and 1996, respectively.
The Company estimates the total cost for the reclamation of its remaining
Virginia Division properties is $2,736,000, all of which has been accrued as of
December 31, 1998. No assurance can be given that the amount accrued accurately
reflects the actual cost of reclamation activities that may be required. Costs
incurred to perform reclamation in 1998, 1997, and 1996 amounted to $153,000,
$257,000, and $148,000 respectively.
In the event final reclamation is not performed in accordance with state and
federal regulations, the Company has $10,600,000 and $5,434,000 of reclamation
bonds in place in Montana and Virginia, respectively, to assure compliance with
all applicable regulations.
Adventure Resources, Inc.
- -------------------------
The Company has both secured and unsecured claims against Adventure Resources,
Inc. ("Adventure") in the United States Bankruptcy Court for the Southern
District of West Virginia. The secured claims approximate $3,776,000 and are
collateralized by first and subordinated liens on certain assets of Adventure.
Cash payments of $1,028,000 were received during 1998 and the Company is seeking
to recover remaining amounts. As of December 31, 1998, all remaining claims
against Adventure have been fully reserved due to the uncertainty of collection.
Lease Obligations
- -----------------
The Company leases coal lands from third-parties. Under the terms of these
agreements, the Company is subject to minimum annual royalties aggregating
$198,000 plus real estate taxes, until the reserves are exhausted.
WRI has an agreement to lease coal reserves from the Crow Tribe of Indians which
is in effect until exhaustion of the underlying reserves. This lease requires
annual rentals, recoupable minimum royalty and production royalty payments. The
royalty rate varies from 6% of the F.O.B. mine price to a 12.5% rate net of all
production-based taxes.
<PAGE A-53>
Royalties and rentals charged to expense under all lease agreements, including
those in effect for WRI, amounted to $3,591,000, $3,742,000, and 3,438,000 in
1998, 1997 and 1996, respectively.
The Company has operating lease commitments expiring at various dates, primarily
for real property and equipment. Minimum rental obligations existing under these
leases at December 31, 1998 are as follows:
---------------------------------------
(in thousands)
1999 $ 344
2000 251
2001 129
2002 12
----------------------- ---------------
Long-Term Sales Commitments
- ---------------------------
The following table presents total sales tonnage the Company expects to ship
under existing long-term contracts for the next five years from the Company's
mining operations (all from WRI):
-------------------------------------------------------------
Projected Sales Tonnage Under
Existing Long-Term Contracts (000s)
-------------------------------------------------------------
1999 6,200
2000 3,700
2001 3,700
2002 3,700
2003 3,700
-------------------------------- ----------------------------
WRI has also entered into an option agreement with Northern States Power whereby
it has agreed to sell up to an additional 200,000,000 tons of coal. As
compensation for granting the option, WRI receives 1 1/4 cents, payable
quarterly (with applicable price adjustments) for each optioned ton. The option
may be exercised at any time in whole or in part through December 31, 2005. If
exercised, the sales price will be based on the market price at the time the
option is exercised. WRI recorded income totaling $3,171,000, $3,128,000, and
$3,067,000 during 1998, 1997 and 1996, respectively, relative to the option
agreement. No coal has been delivered under the option agreement.
18. Transactions with Affiliated Companies
The Company leases coal lands from Penn Virginia Coal Company whose parent
company, Penn Virginia Corporation ("Penn Virginia") held a 10.85% voting
interest in the Company at December 31, 1996. In January, 1997, Penn Virginia
reduced its ownership interest in the Company to an insignificant level and is
no longer considered an affiliate. The Company paid no royalties to Penn
Virginia for coal sold during 1998 or 1997. Amounts paid to Penn Virginia for
royalties on coal was $1,301,000 for the year ended December 31, 1996. In 1996
and 1995 the Company sold certain mineral leases back to Penn Virginia. Refer to
Note 3 to the Consolidated Financial Statements for additional information
regarding the sale of these leases.
Westmoreland Resources, Inc., a 80% owned subsidiary, has a coal mining contract
with Morrison Knudsen Company, Inc., one of its stockholders. Mining costs
incurred under the contract were $22,654,000, $24,295,000, and $16,552,000 in
1998, 1997 and 1996, respectively.
<PAGE A-54>
19. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1998 and 1997 are as follows:
<TABLE>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
(in thousands except per share data)
1998
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $ 16,962 $ 61,845 $ 15,485 $ 14,277
Costs and expenses (16,198) (15,342) (15,226) (44,731)
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
Operating income 764 46,503 259 (30,454)
Gain (loss) on sale of assets 136 51 204 84
Income from continuing operations
before reorganization items and
income taxes 2,084 46,221 715 (30,439)
Reorganization items:
Legal and consulting fees (659) (776) (1,321) (7,116)
Interest expense - - - (5,188)
Interest income 637 691 1,102 1,164
Income from continuing operations
before income taxes 2,062 46,136 496 (41,579)
Income tax expense - - (197) (3,590)
Cumulative effect of change in
accounting principle - (9,876) - -
Net income (loss) 2,062 36,260 299 (45,169)
Less preferred stock dividends
in arrears (1,222) (1,222) (1,222) (1,222)
============================================== ================= ================= ================ ================
Income (loss) applicable to common
shareholders $ 840 $ 35,038 $ (923) $(46,391)
============================================== ================= ================= ================ ================
Income (loss) per share applicable to common shareholders:
Continuing operations $ .12 $ 6.45 $ (.13) $ (6.66)
Cumulative effect of change in
accounting principle - (1.42) - -
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
$ .12 $ 5.03 $ (.13) $ (6.66)
============================================== ================= ================= ================ ================
Number of common and common
equivalent shares outstanding
(weighted average) 6,965 6,965 6,965 6,965
============================================== ================= ================= ================ ================
</TABLE>
<PAGE A-55>
<TABLE>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
(in thousands except per share data)
1997
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $ 16,534 $ 16,688 $ 18,994 $ 13,616
Costs and expenses (14,216) (14,226) (14,172) 10,402
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
Operating income 2,318 2,462 4,822 24,018
Gain (loss) on sale of assets (905) 732 99 1,043
Income from continuing operations
before reorganization items and
income taxes 2,478 3,542 4,978 22,892
Reorganization items:
Legal and consulting fees (750) (1,034) (900) 200
Interest income 324 327 403 498
Income from continuing operations
before income taxes 1,880 2,766 4,320 23,992
Loss from discontinued operations (521) (3,320) (813) (148)
Net income (loss) 1,359 (554) 3,507 23,844
Less preferred stock dividends
in arrears (1,222) (1,222) (1,222) (1,222)
============================================== ================= ================= ================ ================
Income (loss) applicable to common
shareholders $ 137 $ (1,776) $ 2,285 $ 22,622
============================================== ================= ================= ================ ================
Income (loss) per share applicable to common shareholders:
Continuing operations $ 09 $ .22 $ .45 $ 3.27
Discontinued operations (.07) (.48) (.12) (.02)
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
$ .02 $ (.26) $ .33 $ 3.25
============================================== ================= ================= ================ ================
Number of common and common
equivalent shares outstanding
(weighted average) 6,965 6,965 6,965 6,965
============================================== ================= ================= ================ ================
</TABLE>
<PAGE A-56>
Independent Auditor's Report
The Board of Directors and Shareholders
Westmoreland Coal Company:
We have audited the accompanying consolidated balance sheets of Westmoreland
Coal Company and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Westmoreland Coal
Company and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 9 to the consolidated financial statements, the
Company changed its method of accounting for start-up costs in 1998 and its
method of accounting for pneumoconiosis benefits in 1996.
KPMG LLP
Denver, Colorado
February 18, 1999
<PAGE B-1>
ANNEX B
-------
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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
0-752
WESTMORELAND COAL COMPANY
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1128670
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 North Cascade Avenue 14th Floor, Colorado Springs, Colorado 80903
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, area code 719-442-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1999: 7,059,663
<PAGE B-2>
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
<TABLE>
Westmoreland Coal Company and Subsidiaries
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(Unaudited)
June 30, 1999 December 31, 1998
- ----------------------------------------------------------------------------- -------------------- -----------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 32,641 $ 84,073
Receivables:
Trade 2,390 2,566
Terminated pension plan, net 500 500
Other 919 2,730
- ----------------------------------------------------------------------------- -------------------- ----------------------
3,809 5,796
Other current assets 2,473 691
- ----------------------------------------------------------------------------- -------------------- ----------------------
Total current assets 38,923 90,560
- ----------------------------------------------------------------------------- -------------------- ----------------------
Property, plant and equipment:
Land and mineral rights 10,990 10,990
Plant and equipment 96,647 94,989
- ----------------------------------------------------------------------------- -------------------- ----------------------
107,637 105,979
Less accumulated depreciation and depletion 69,775 69,029
- ----------------------------------------------------------------------------- -------------------- ----------------------
37,862 36,950
Investment in independent power projects 44,947 62,386
Investment in Dominion Terminal Associates (DTA) 4,930 5,475
Workers' compensation bond 3,776 4,140
Prepaid pension cost 3,858 3,748
Excess of trust assets over pneumoconiosis benefit
obligation 9,137 10,891
Security deposits 10,148 -
Other assets 1,514 1,456
- ----------------------------------------------------------------------------- -------------------- ----------------------
Total Assets $ 155,095 $ 215,606
============================================================================= ==================== ======================
(Continued)
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE B-3>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
- --------------------------------------------------------------------------------
(Unaudited)
June 30, 1999 December 31, 1998
- ----------------------------------------------------------------------------- --------------------- ----------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 217 $ 200
Accounts payable and accrued expenses 7,927 11,249
Workers compensation 3,200 3,800
Postretirement medical costs 11,066 11,066
Reorganization expenses 1,257 7,900
Consent judgment payment obligation - 39,006
Reclamation costs 100 100
Income taxes 75 2,185
- ----------------------------------------------------------------------------- -------------------- ----------------------
Total current liabilities 23,842 75,506
- ----------------------------------------------------------------------------- -------------------- ----------------------
Long-term debt, less current installments 1,323 1,562
Accrual for workers compensation 16,161 17,338
Accrual for postretirement medical costs 78,358 73,143
1974 UMWA Pension Plan obligations 12,463 13,776
Accrual for reclamation costs, less current portion 3,220 3,046
Other liabilities 1,797 2,370
Minority interest 7,395 7,020
Commitments and contingent liabilities
Shareholders' equity
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued 311,843 shares at June 30, 1999, 312 575
575,000 shares at December 31, 1998
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued 7,059,663 shares at June 30, 1999, 17,649 17,413
6,965,328 shares at December 31, 1998
Other paid-in capital 75,046 94,630
Accumulated deficit (82,471) (90,773)
- ----------------------------------------------------------------------------- -------------------- ----------------------
Total shareholders' equity 10,536 21,845
- ----------------------------------------------------------------------------- -------------------- ----------------------
Total Liabilities and Shareholders' Equity $ 155,095 $ 215,606
============================================================================= ==================== ======================
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE B-4>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Income
- --------------------------------------------------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
(in thousands except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues:
Coal $ 8,675 $ 10,891 $ 17,234 $ 23,143
Independent power - equity in earnings 4,116 50,626 26,707 55,419
DTA - equity in earnings (share of losses) (397) 328 (718) 245
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
12,394 61,845 43,223 78,807
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Costs and expenses:
Cost of sales - coal 7,670 9,298 14,963 19,494
Depreciation, depletion and amortization 378 631 744 1,237
Selling and administrative 2,102 1,627 6,777 3,038
Heritage costs 6,882 3,953 12,477 8,104
Pension benefit (55) (52) (110) (105)
Doubtful account recoveries (83) (115) (91) (228)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
16,894 15,342 34,760 31,540
Operating income (loss) (4,500) 46,503 8,463 47,267
Other income (expense):
Gains on sales of assets 50 51 69 187
Interest expense (297) (40) (598) (95)
Interest income 441 - 965 -
Minority interest (149) (193) (375) (510)
Other income (expense) 247 (100) (177) 1,456
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Income (loss) from operations before
reorganization items and income taxes (4,208) 46,221 8,347 48,305
Reorganization legal and consulting fees - (776) - (1,435)
Reorganization interest income - 691 - 1,328
Income taxes - - (45) -
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Income (loss) before cumulative effect of change
in accounting principle (4,208) 46,136 8,302 48,198
Cumulative effect of change in accounting
principle - (9,876) - (9,876)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net income (loss) (4,208) 36,260 8,302 38,322
Less preferred stock dividends (in arrears) (663) (1,222) (1,326) (2,444)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net income (loss) applicable to common
shareholders $ (4,871) $ 35,038 $ 6,976 $ 35,878
====================================================== ================= ================ ================= ================
Net income (loss) per share applicable to common shareholders:
Before cumulative effect of change in accounting
principle $ (.69) $ 6.45 $ .99 $ 6.57
Cumulative effect of change in accounting
principle - (1.42) - (1.42)
====================================================== ================= ================ ================= ================
$ (.69) $ 5.03 $ .99 $ 5.15
====================================================== ================= ================ ================= ================
Weighted average number of common shares
outstanding 7,020 6,965 7,020 6,965
====================================================== ================= ================ ================= ================
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE B-5>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(Unaudited)
Six Months Ended June 30, 1999 1998
- ---------------------------------------------------------------------------------- -------------------- -------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 8,302 $ 38,322
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Equity earnings from independent power projects (26,707) (55,419)
Cash received from independent power projects 44,106 33,136
Equity in losses from DTA 718 (245)
Cash generated by DTA 665 1,298
Cash contributions to DTA (838) (1,066)
Depreciation, depletion and amortization 744 1,237
Combined Benefit Fund prepayments (1,492) -
Gain on disposition of assets (69) (187)
Minority interest 375 510
Cumulative effect of change in accounting principle - 9,876
Other (308) (490)
Changes in assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts 1,987 14,411
Workers' compensation bond 364 1,428
Prepaid pension asset (110) (105)
Excess of trust assets over pneumoconiosis benefit obligation 1,754 50
Security deposits (10,148) -
Accounts payable and accrued expenses (3,322) (1,300)
Income tax payable (2,110) -
Accrual for workers compensation (1,777) -
Accrual for postretirement medical costs 5,215 -
Accrual for reorganization expenses (6,643) -
Consent judgment payment obligation (39,006) -
Other liabilities (399) -
1974 UMWA Pension Plan obligations (1,313) -
- ---------------------------------------------------------------------------------- -------------------- -------------------
Net cash provided by (used in) operating activities before reorganization items (30,012) 41,456
- ---------------------------------------------------------------------------------- -------------------- -------------------
Changes in reorganization items - 5,856
- ---------------------------------------------------------------------------------- -------------------- -------------------
Net cash provided by (used in) operating activities (30,012) 47,312
- ---------------------------------------------------------------------------------- -------------------- -------------------
Cash flows provided by (used in) investing activities:
Fixed asset additions (1,656) (125)
Net proceeds from sales of assets 69 196
- ---------------------------------------------------------------------------------- -------------------- -------------------
Net cash provided by (used in) investing activities (1,587) 71
- ---------------------------------------------------------------------------------- -------------------- -------------------
Cash flows provided by (used in) financing activities:
Repayment of long-term debt (222) (47)
Issuance of common stock 389 -
Purchase of preferred stock (20,000) -
- ---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in financing activities (19,833) (47)
- ---------------------------------------------------------------------------------- -------------------- -------------------
Net increase (decrease) in cash and cash equivalents (51,432) 47,336
Cash and cash equivalents, beginning of period 84,073 30,664
================================================================================== ==================== ===================
Cash and cash equivalents, end of period $ 32,641 $ 78,000
================================================================================== ==================== ===================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 5,446 $ 27
Taxes $ 2,110 $ -
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE B-6>
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Notes contained herein should be read in conjunction with the Notes to the
Company's Consolidated Financial Statements filed on Form 10-K/A for the year
ended December 31, 1998. The financial information contained in this Form 10-Q
is unaudited but reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial information for
the periods shown. Such adjustments are of a normal recurring nature. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
1. Nature of Operations
The Company's principal activities, conducted within the United States are: (i)
the production and sale of coal from a contractor operated mine in the Powder
River Basin in Eastern Montana; (ii) the ownership of interests in cogeneration
and other non-regulated independent power plants; and (iii) the leasing of
capacity at Dominion Terminal Associates, a coal storage and vessel loading
facility.
Chapter 11 Reorganization Proceedings
- -------------------------------------
On December 23, 1996 ("Petition Date"), Westmoreland Coal Company and four
subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal Sales Company,
Westmoreland Energy, Inc., and Westmoreland Terminal Company (the "Debtor
Corporations"), filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Colorado (the "Chapter 11 Cases"). By order of the Bankruptcy Court
entered on December 23, 1998, pursuant to the request of the Debtor
Corporations, the Chapter 11 Cases were dismissed. There were no objections
during the ten day stay period that expired on January 4, 1999. Upon the
dismissal, the Debtor Corporations were and are no longer subject to the
protections afforded or restrictions imposed by the Bankruptcy Code.
2. Contingencies
Westmoreland Energy, Inc. ("WEI") - WEI Project Contingencies
- -------------------------------------------------------------
Southampton Project - In October, 1998, the Southampton Partnership and Virginia
Power Company ("VEPCO") entered into a settlement agreement of their
administrative proceeding before the Federal Energy Regulatory Commission
concerning the project's compliance with Qualifying Facility ("QF") criteria and
payments arising out of plant performance in 1992. The settlement provided for,
among other items, payments by the Southampton Partnership to Virginia Power of
$1,000,000 annually for the years 1999-2001, followed by a reduction in capacity
payments from Virginia Power to the Southampton Partnership of $500,000 for the
years 2002-2008. Following 2008, Virginia Power may elect to terminate its power
purchases from the Southampton Partnership or continue to receive the $500,000
annual reduction in capacity payments for the remainder of the power purchase
agreement. The settlement was approved by the FERC.
Resolution of the FERC QF issue provides the Southampton Partnership an answer
about QF status in 1992, regulatory certainty regarding application of the
Federal Power Act to both the Southampton project and the upstream partners and
owners, including WEI and Westmoreland, and, assuming continued compliance with
loan covenants and appropriate project financial performance, the ability to
distribute earnings to the project partners.
A limited partner of LG&E-Southampton, L.P. has made a demand on the Southampton
Partnership and related LG&E and Westmoreland entities for reimbursement in the
amount of $1,979,000 in connection
<PAGE B-7>
with its share of the settlement. The Westmoreland entities have made a similar
demand against the LG&E entities. The parties have agreed to attempt to resolve
the dispute through non-binding mediation and a mediator has been appointed.
ROVA I Project - WEI owns a 50% partnership interest in Westmoreland-LG&E
Partners (the "ROVA Partnership"). The ROVA Partnership's principal customer,
Virginia Power, contracted to purchase the electricity generated by ROVA I, one
of two units included in the ROVA partnership, under a long-term contract. In
the second quarter of 1994, that customer disputed the ROVA Partnership's
interpretation of provisions of the contract dealing with the payment of the
capacity purchase price when the facility experiences a "forced outage" day. A
forced outage day is a day when ROVA I is not able to generate a specified level
of electrical output. The ROVA Partnership believes that the customer is
required to pay the ROVA Partnership the full capacity purchase price unless
forced outage days exceed a contractually stated allowed annual number. The
customer asserts that it is not required to do so.
From May, 1994, through June, 1999, Virginia Power withheld approximately
$16,700,000 of these capacity payments during periods of forced outages. To
date, the Company has not recognized any revenue on its 50% portion of the
capacity payments being withheld by Virginia Power. In October 1994, the ROVA
Partnership commenced litigation against Virginia Power seeking damages,
contending that Virginia Power breached the Power Purchase Agreement in
withholding such payments. The case was tried beginning on October 26, 1998 in
the Circuit Court of the City of Richmond, Virginia. On December 2, 1998, the
Court entered judgment in the ROVA Partnership's favor for the amount of
$14,800,000 (the amount that Virginia Power had withheld at the trial date) plus
interest for a total of $19,336,214. On December 21, 1998, Virginia Power posted
its appeal bond and on December 29, 1998, noted its appeal of the Court's
decision to the Virginia Supreme Court. The Supreme Court agreed to hear
Virginia Power's appeal. Briefs are being prepared. The Court will likely set a
date for Oral Argument before the end of 1999 and a decision is expected to
follow in early 2000. Due to the uncertainty of the appeal, the financial
statements do not reflect any portion of this judgment.
Rensselaer - On March 15, 1999, LG&E-Westmoreland Rensselaer ("LWR") completed
the sale of the Rensselaer Project to Fulton Cogeneration Associates, L.P.
("Fulton"). LWR received approximately $68,000,000 in cash as consideration for
the sale of the Rensselaer plant and operating contracts. After payment of
expenses and remaining debts, Westmoreland Energy Inc.'s share of the proceeds
was approximately $33,000,000.
Other
- -----
In accordance with a Master Agreement entered into among the Company, the UMWA
Health and Benefit Funds, the Official Committee of Equity Security Holders, and
the United Mine Workers of America ("UMWA"), pursuant to which the parties
supported Westmoreland's dismissal from bankruptcy, the Company agreed to pay
"the reasonable and necessary professional fees and expenses of the Equity
Committee professionals, Andrews and Kurth, L.L.P. and Putnam Hayes and
Bartlett, for services rendered in connection with the Chapter 11 cases". The
Company paid a large portion of those fees but has disputed and not paid
remaining amounts which total approximately $488,000.
On April 7, 1999, Andrews & Kurth, L.L.P. and Putnam Hayes and Bartlett filed
suit in District court in the State of Colorado seeking payment of the amounts
allegedly owed. The Company believes the charges were not reasonable and
necessary in accordance with the Bankruptcy Code and the Master Agreement and
will vigorously contest the case. The parties have agreed to attempt to resolve
the dispute through mediation. If that is not successful, the case is scheduled
for trial commencing May 15, 2000. The likely outcome of the dispute is unknown
at this time. The Company has accrued the entire amount demanded.
<PAGE B-8>
3. Capital Stock
Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from
the third quarter of 1992 through the first quarter of 1994. The declaration and
payment of preferred stock dividends was suspended in the second quarter of 1994
in connection with extension agreements with the Company's principal lenders.
Upon the expiration of these extension agreements, the Company paid a quarterly
dividend on April 1, 1995 and July 1, 1995. Pursuant to the requirements of
Delaware law, described below, the preferred stock dividend was suspended in the
third quarter of 1995 as a result of recognition of losses and the subsequent
shareholders' deficit. The nineteen quarterly dividends which are accumulated
but unpaid (dividend payment dates July 1, 1994, October 1, 1994, January 1,
1995, October 1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, October 1,
1996, January 1, 1997, April 1, 1997, July 1, 1997, October 1, 1997, January 1,
1998, April 1, 1998, July 1, 1998, October 1, 1998, January 1, 1999, April 1,
1999, and July 1, 1999) amount to $12,591,000 in the aggregate ($40.38 per
preferred share or $10.09 per depositary share). Common stock dividends may not
be declared until the preferred stock dividends that are accumulated but unpaid
are made current.
On March 10, 1999, the Company offered to purchase up to 1,052,631 depositary
shares, each representing one quarter of a share of its Series A Convertible
Exchangeable Preferred Stock ("Series A Preferred Stock"). The offer price of
$19 per share was in full satisfaction of claims to accumulated but unpaid
dividends on the depositary shares tendered. On April 7, 1999, the offer expired
and 1,683,903 depositary shares were tendered in response to the offer. Because
the number of shares tendered exceeded the maximum number of shares the Company
had offered to purchase, a proration factor of approximately 62.5% was applied
to all shares tendered. A total of 1,052,631 depositary shares were purchased
for $20,000,000. The balance sheet effect of this transaction was to reduce cash
and shareholders' equity by $20,000,000. Following completion of the tender
offer, the depositary shares purchased in the offer were converted into shares
of Series A Preferred Stock, the shares of Series A Preferred Stock were
retired, and the capital of the Company was reduced by the par value of the
shares of Series A Preferred Stock retired. This reduced the number of shares of
Series A Preferred Stock outstanding from 575,000 to 311,843, accumulated but
unpaid dividends to $11,928,000, and the ongoing quarterly preferred dividend
from $1,222,000 to $663,000.
There are statutory restrictions limiting the payment of preferred stock
dividends under Delaware law, the state in which the Company is incorporated.
Under Delaware law, the Company is permitted to pay preferred stock dividends
only: (1) out of surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or (2) in the
event there is no surplus, out of net profits for the fiscal year in which a
preferred stock dividend is declared (and/or out of net profits from the
preceding fiscal year), but only to the extent that shareholders' equity exceeds
the par value of the preferred stock ($312,000 at June 30, 1999). The Company
had shareholders' equity at June 30, 1999 of $10,536,000 and the par value of
all outstanding depositary shares and shares of common stock aggregated
$17,961,000 at June 30, 1999.
The Company is also subject to certain financial ratio tests under the terms of
the Master Agreement. The Company agreed to secure its obligations under the
Master Agreement by providing a Contingent Promissory Note ("Note"). The
original principal amount of the Note is $12 million; the principal amount of
the Note decreases to $6 million in 2002. The Note is payable only in the event
the Company does not meet its Coal Act obligations, fails to meet certain
ongoing financial tests specified in the Note, fails to maintain the required
balance in the escrow account established under an escrow agreement or fails to
comply with certain covenants set forth in a security agreement.
4. DISPOSITION
On July 27, 1999, the Company sold all remaining recorded assets of its idled
Virginia Division. The assets consisted of the Bullitt Preparation Plant and
Transloader Complex. The Company received
<PAGE B-9>
approximately $650,000 in cash and the purchaser assumed reclamation liabilities
of approximately $600,000. The transaction resulted in a net gain of
approximately $360,000. The Company continues in its efforts to sell the
Virginia Division refuse site as a source of coal fines. The site has no
recorded asset value.
5. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into three segments: coal,
independent power operations and terminal operations. The coal segment includes
the production and sale of coal from the Powder River Basin in eastern Montana.
The independent power operations segment includes the ownership of interests in
cogeneration and other non-regulated independent power plants. The terminal
operation segment consists of the leasing of capacity at Dominion Terminal
Associates, a coal storage and vessel loading facility. Summarized financial
information by segment for the quarter and six months ended June 30, 1999 and
1998, is as follows:
<TABLE>
------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
Independent
Power Terminal
Coal Operations Operations Corporate Total
------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
(in thousands)
Three months ended June 30, 1999:
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total assets $ 58,257 $ 51,832 $ 5,843 $ 39,163 $ 155,095
Revenues 8,675 4,116 (397) - 12,394
Operating income (loss) 297 3,615 201 (8,633) (4,500)
Reconciliation of operating income to income from operations before income taxes:
Operating income (loss) 297 3,615 201 (8,633) (4,500)
Gains on sale of assets - - - 50 50
Interest expense (36) - - (261) (297)
Interest income 158 53 21 209 441
Minority interest (149) - - - (149)
Other income (expense) 28 (17) 86 150 247
==================================== == ============== ================= ================ =============== ================
Income (loss) from operations
before income taxes $ 298 $ 3,651 $ 328 $ (8,485) $ (4,208)
==================================== == ============== ================= ================ =============== ================
Three months ended June 30, 1998:
Total assets $ 56,658 $115,703 $ 20,343 $ 32,538 $ 225,242
Revenues 10,891 50,626 328 - 61,845
Operating income (loss) 618 49,886 (223) (3,778) 46,503
Reconciliation of operating income to income from operations before income taxes:
Operating income (loss) 618 49,886 (223) (3,778) 46,503
Gains on sale of assets - - - 51 51
Interest expense (41) 7 - (6) (40)
Interest income 169 255 44 223 691
Minority interest (193) - - - (193)
Other income (expense) 14 57 - (171) (100)
Reorganization costs - - - (776) (776)
------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
Income (loss) from operations
before income taxes $ 567 $ 50,205 $ (179) $ (4,457) $ 46,136
==================================== == ============== ================= ================ =============== ================
<PAGE B-10>
------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
Independent
Power Terminal
Coal Operations Operations Corporate Total
------------------------------------ -- -------------- ----------------- ---------------- --------------- ----------------
(in thousands)
Six months ended June 30, 1999:
Total assets $ 58,257 $ 51,832 $ 5,843 $ 39,163 $ 155,095
Revenues 17,234 26,707 (718) - 43,223
Operating income (loss) 1,308 25,366 (503) (17,708) 8,463
Reconciliation of operating income to income from operations before income
taxes:
Operating income (loss) 1,308 25,366 (503) (17,708) 8,463
Gains on sale of assets - - - 69 69
Interest expense (72) - - (526) (598)
Interest income 292 290 24 359 965
Minority interest (375) - - - (375)
Other income (expense) 21 (502) 114 190 (177)
==================================== == ============== ================= ================ =============== ================
Income (loss) from operations
before income taxes $ 1,174 $ 25,154 $ (365) $(17,616) $ 8,347
==================================== == ============== ================= ================ =============== ================
Six months ended June 30, 1998:
Total assets $ 56,658 $ 115,703 $ 20,343 $ 32,538 $ 225,242
Revenues 23,143 55,419 245 - 78,807
Operating income (loss) 1,899 54,186 (727) (8,091) 47,267
Reconciliation of operating income to income from operations before income
taxes:
Operating income (loss) 1,899 54,186 (727) (8,091) 47,267
Gains on sale of assets - - - 187 187
Interest expense (82) - - (13) (95)
Interest income 319 494 49 466 1,328
Minority interest (510) - - - (510)
Other income 20 - 24 1,412 1,456
Reorganization costs - - - (1,435) (1,435)
==================================== == ============== ================= ================ =============== ================
Income (loss) from operations
before income taxes $ 1,646 $ 54,680 $ (654) $ (7,474) $ 48,198
==================================== == ============== ================= ================ =============== ================
</TABLE>
<PAGE B-11>
Item 2
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Material Changes in Financial Condition From December 31, 1998 to June 30, 1999
Forward-Looking Disclaimer
- --------------------------
This Quarterly Report on Form 10-Q 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. Among such statements are comments regarding
the Company's projected cash balance, the Company's projected earnings, the
magnitude of future claims on the Company, the Company's ability to use its
NOLs, and the Company's future prospects, condition, and value. In addition, the
terms "anticipate," "believe," "estimate," "maintain," "intend," "may," "will,"
and "expect" and similar expressions, as they relate to the Company, are
intended to identify forward-looking statements. These statements are qualified
by important factors that could cause actual results to differ materially from
those in the forward-looking statements, including without limitation, general
economic and competitive conditions and the ability to reinvest excess cash at
an acceptable rate of return. Additional factors that could cause actual results
to differ materially from those in the forward-looking statements, or that could
contribute to such a difference, are identified in the Company's 1998 Form
10-K/A.
Bankruptcy Proceeding
- ---------------------
Westmoreland Coal Company and four subsidiaries, Westmoreland Resources, Inc.,
Westmoreland Coal Sales Company, Westmoreland Energy, Inc., and Westmoreland
Terminal Company ("the Debtor Corporations"), filed voluntary petitions for
protection under Chapter 11 of the Bankruptcy Code on December 23, 1996. On
December 23, 1998, the Bankruptcy Court granted the Debtors' Motion to Dismiss
the cases. The automatic stay period pursuant to the Federal Rules of Bankruptcy
Procedure expired on January 4, 1999.
Continued financial improvement of the Debtors during the bankruptcy provided
the basis for dismissal and settlement with the UMWA Health and Benefit Funds
("Funds"), the Company's principal creditors. On October 15, 1998, the Company,
the Funds, the United Mine Workers of America ("UMWA") and the Official
Committee of Equity Security Holders ("Equity Committee") reached agreement on a
settlement term sheet, which contained the principal terms of an agreement among
them and provided for, among other things, the resolution of the Chapter 11
cases. The agreement, which facilitated a consensual dismissal of the bankruptcy
cases, was announced during scheduled hearings on Westmoreland's Motion to
Dismiss and the Equity Committee's Motion to Convert to Chapter 7, and the
hearings were subsequently recessed. The agreement was subsequently documented
in certain stipulated judgments and in a Master Agreement among the Company, the
Funds, the UMWA, and the Equity Committee. On October 30, 1998, the Debtor
Corporations, the Funds, the UMWA, and the Equity Committee filed a joint motion
with the Bankruptcy Court, setting forth the outline of a procedure for
dismissal of the Chapter 11 Cases combined with the entry of "consent judgments"
in connection with certain of the pending litigation. The Debtor Corporations
filed motions requesting approval of the consent judgments on or around November
18, 1998. Notices of the filing of these motions were mailed to creditors as
directed by the Bankruptcy Court. There were no allowable objections and
dismissal of the Chapter 11 Cases occurred on December 23, 1998. The Master
Agreement was executed on January 29, 1999.
<PAGE B-12>
Liquidity and Capital Resources
- -------------------------------
Cash used in operating activities was $30,012,000 for the six months ended June
30, 1999. Cash provided by operating activities was $47,312,000 for the six
months ended June 30, 1998. The decrease in cash from operations in 1999
compared to 1998 is mainly due to cash received from the Rensselaer
restructuring at WEI and the termination of the salaried pension plan in 1998,
as well as the payment of pre-petition liabilities and reorganization costs and
the funding of security deposits in 1999. Equity in the earnings of Rensselaer,
net of restructuring revenues, was approximately $2,700,000 in 1998.
Cash used in investing activities was $1,587,000 for the six months ended June
30, 1999. Cash provided by investing activities for the six months ended June
30, 1998 was $71,000. Cash used in investing activities in 1999 included fixed
asset additions of $1,633,000 at WRI offset by proceeds from sales of assets of
$69,000. Cash provided by operations in 1998 of $71,000 included $196,000 of
proceeds from sales of assets offset by fixed asset additions at WRI of
$125,000.
Cash used in financing activities for the six months ended June 30, 1999 and
1998 totaled $19,833,000 and $47,000, respectively. Cash used in financing
activities in 1999 related primarily to the purchase of preferred stock.
Consolidated cash and cash equivalents at June 30, 1999 totaled $32,641,000
(including $14,362,000 at WRI). At December 31, 1998, cash and cash equivalents
totaled $84,073,000 (including $14,712,000 at WRI). The cash at WRI, an
80%-owned subsidiary, is available to the Company only through dividends. In
addition, the Company had restricted cash, which was not classified as cash or
cash equivalents, of $13,924,000 at June 30, 1999 and $4,140,000 at December 31,
1998. The restricted cash represents interest-bearing cash deposit accounts
which collateralize the Company's Contingent Note ($6,000,000) required by the
Master Agreement and the surety bond for the security required by the 1992 UMWA
Benefit Plan ($4,148,000), as well as $3,776,000 that collateralizes the
outstanding surety bonds for its workers compensation self-insurance programs.
The restricted cash in 1998 represents collateral for the outstanding surety
bonds for its workers compensation self-insurance programs. The Company also has
$8,000,000 in interest-bearing debt reserve accounts for certain of the
Company's independent power projects. This cash is restricted as to its use and
is classified as part of the investment in independent power projects. In
addition, there is a surplus in the Company's pneumoconiosis trust of
approximately $9,137,000, that may be available to pay postretirement health
benefits dependent upon future actuarial calculations as well as $3,900,000 in
salaried pension plan overfunding.
Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from
the third quarter of 1992 through the first quarter of 1994. The declaration and
payment of preferred stock dividends was suspended in the second quarter of 1994
in connection with extension agreements entered into with the Company's
principal lenders. Upon the expiration of these extension agreements, the
Company paid a quarterly dividend on April 1, 1995 and July 1, 1995. Pursuant to
Delaware law, the preferred stock dividend was suspended in the third quarter of
1995 as a result of the recognition of losses related to the idling of the
Virginia division and the resulting shareholders' deficit. The nineteen
quarterly dividends which are in arrears (those dividends whose payment dates
would have been July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995,
January 1, 1996, April 1, 1996, July 1, 1996, October 1, 1996, January 1, 1997,
April 1, 1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1, 1998 and
July 1, 1998, October 1998, January 1, 1999, April 1, 1999 and July 1, 1999)
amount to $12,591,000 in the aggregate ($40.38 per preferred share or $10.09 per
depositary share).
<PAGE B-13>
There are statutory restrictions limiting the payment of preferred stock
dividends under Delaware law, the state in which the Company is incorporated.
Under Delaware law, the Company is permitted to pay preferred stock dividends
only: (1) out of surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or (2) in the
event there is no surplus, out of net profits for the fiscal year in which a
preferred stock dividend is declared (and/or out of net profits for the
preceding fiscal year), but only to the extent that shareholders' equity exceeds
the par value of the preferred stock ($312,000 at June 30, 1999). The Company
had shareholders' equity at June 30, 1999 of $10,536,000 and the par value of
all outstanding depositary shares and shares of common stock aggregated
$17,961,000 at June 30, 1999.
In July 1999, the Company announced that it expected to conduct an additional
tender offer at $19 per depositary share for approximately 600,000 shares, the
amount by which its tender offer earlier in 1999 was oversubscribed. The
schedule and details of the tender offer have not been finalized, but it is the
Company's intention to commence the tender offer as soon as practicable taking
into effect various factors such as income tax consequences. If fully
subscribed, the impact of the tender offer would be to reduce cash and
shareholders equity by approximately $11,400,000. In addition, if fully
subscribed at July 1, 1999, accumulated but unpaid dividends would have been
reduced to $6,534,000 and the annual ongoing dividend obligation would be
reduced to $1,376,000.
Liquidity Outlook
- -----------------
The major factors impacting the Company's liquidity outlook are its significant
"heritage costs" and its ongoing and future business needs. These heritage costs
consist primarily of cash payments for postretirement medical benefits, workers'
compensation costs and UMWA pension benefits. The Company also is obligated for
pension and pneumoconiosis benefits; however, both of these future obligations
have a funding surplus at present. The Company has ongoing cash expenditures of
approximately $16,000,000 per year for postretirement medical benefits which
will remain fairly constant over the next five years and then decline to zero
over the next approximately thirty-seven years. In addition, the Company has
cash expenditures of approximately $3,000,000 per year for workers' compensation
benefits which will steadily decline to zero over the next approximately twenty
years. Since the UMWA pension plan is a multiemployer plan under ERISA, a
contributing company is liable for its share of unfunded vested liabilities upon
termination or withdrawal from the plan. The Company believes the plan was fully
funded at the time of the Company's withdrawal in 1998. However, the plan has
asserted a claim of $13,800,000, which the Company vigorously contests. The
Company is contesting this amount through arbitration, as provided under ERISA.
In accordance with the Multiemployer Pension Plan Amendments Act of 1980, the
Company has made monthly principal and interest payments to the plan while it
pursues its rights and will continue to make such monthly payments until
arbitration is completed. Depending upon the results of arbitration, the Company
may be entitled to a refund or it could be required to pay any remaining
obligation over no more than nine and one-half years.
Under the Coal Act, the Company is required to provide postretirement medical
benefits for UMWA miners by making payments into three benefit plans: (i)
premiums to the UMWA Combined Benefit Fund (the "Combined Fund"), a
multiemployer plan which benefits miners who retired before January 1, 1976 or
who retired thereafter but whose last employer did not provide benefits pursuant
to an operator-specific Individual Employer Plan ("IEP"), (ii) payments to
maintain an IEP for miners who retired after January 1, 1976 and (iii) premiums
to the 1992 UMWA Benefit Plan, a multiemployer plan which benefits (A) miners
who were eligible to retire on February 1, 1993, who did retire on or before
September 30, 1994 and whose former employers are no longer in business, (B)
miners receiving benefits under an IEP whose former employer has gone out of
business and ceased to maintain the IEP, and (C) new spouses or new dependents
of retirees in the Combined Fund who would be eligible for coverage thereunder
but
<PAGE B-14>
for the fact that the Combined Fund closed to new beneficiaries as of July 20,
1992. The premiums paid by the Company cover its own retirees and its allocated
portion of the pool of retired miners whose previous employers have gone out of
business.
The Company, on January 4, 1999, as a result of its improved financial position
and subsequent dismissal from bankruptcy, satisfied all of its premium
obligations to the Combined Fund through the end of 1998, and has made
prepayments to the Combined Fund for its premiums for the first three quarters
of 1999. Normal monthly payments will resume on October 1, 1999. Beginning on
October 25, 1999, the Company will begin receiving premium differential credits
of approximately $1,400,000. The credits will be offset against Combined Fund
premiums at a rate of approximately $200,000 per month through April, 2000.
In addition, the Coal Act authorized the Trustees of the 1992 UMWA Benefit Plan
to implement security provisions pursuant to the Act. In 1995, the Trustees
issued security provisions which give contributors to the Plan several options
for satisfying the Coal Act's security requirements, and set the level of
security to be provided by the Company at approximately $21,000,000. In 1999,
the Company secured its obligation to provide retiree health benefits under the
1992 Plan by posting a bond in the amount of three years benefits (or $22.7
million). The bond is collateralized by U.S. Government-backed securities. The
amount to be secured and the bond amount will be reviewed and adjusted on an
annual basis.
The Company's current principal sources of cash flow include cash distributions
from its independent power projects, dividends from WRI, cash from operations of
DTA and interest earned on its cash reserves. In addition, the Company will
receive its share of the judgment in the ROVA litigation if VEPCO's appeal to
the Virginia Supreme Court is unsuccessful. Distributions from the overfunded
pneumoconiosis trust to pay post retirement health benefits are also possible
depending on future actuarial calculations. Management believes that cash
generated from these sources and cash reserves should be sufficient to pay the
Company's heritage costs and fund its ongoing operations and other capital
requirements for the foreseeable future.
Capital commitments include $4,200,000 to repair the dragline at WRI.
Approximately $2,000,000 was expended in 1998 with the majority of the remainder
expended by June 30, 1999. The Company has undertaken to pay for the repair to
assure continued, uninterrupted production at WRI, but the Company believes the
obligation to repair the dragline is solely Morrison-Knudsen's and, therefore,
is in discussion with them on this and other matters, including enforcement of
the Company's right to require Morrison-Knudsen to pay for the repair.
The Company hopes to further improve its long-term liquidity in a number of
ways, including the development of additional cash flow from existing and new
business operations and monetizing assets where proceeds on sale would exceed
the expected return from continued operation. The Company also plans to seek
further cost reductions wherever feasible and prudent, and will attempt to
reduce certain postretirement medical, workers' compensation and related
payments. The Company is also monitoring certain legislative developments, such
as the proposed inclusion of prescription drug costs under Medicare coverage,
which could significantly reduce the Company's retiree health care expenses.
Although management expects to improve the Company's profitability, the time
required to realize such increases cannot be estimated at this time nor can
assurances be given that the Company can achieve any such improvements.
<PAGE B-15>
Year 2000
- ---------
The Year 2000 ("Y2K") problem concerns the inability of information and
technology-based operating systems to properly recognize and process
date-sensitive information beyond December 31, 1999. This could result in
systems failures and miscalculations which could cause business disruptions.
Equipment that uses a date, such as computers and operating control systems, may
be affected. This includes equipment used by our customers and suppliers, as
well as the Company's independent power projects. Most of the Company's systems
and related software are already Y2K compliant. The Company has actively
reviewed all hardware and software associated with its computers, personal
computers and client/servers, telecommunications and embedded systems found in
equipment throughout its operations. This program consists of identifying and
inventorying all software applications and systems, making required
replacements, modifications, and testing.
All of the independent power projects have completed Y2K testing. The projects
operated normally with only minor errors in the reporting process.
Computer systems at WRI and its mining contractor have been replaced or
appropriately modified. WRI's rail supplier has embarked on an aggressive
campaign to bring its systems into compliance by the end of the third quarter.
The Company is monitoring those activities.
Compliance at Dominion Terminal Associates ("DTA") has been nearly completed
through replacement of non-compliant systems. The Company expects that efforts
to upgrade the few remaining systems will be completed by September 30, 1999.
The terminal is dependent on efficient and timely rail service and DTA is
closely monitoring the compliance efforts of the terminal's rail service
providers.
The nature of the Company's operations make substantive contingency plans
extremely difficult. No reasonable alternatives exist for the inability of the
railroads to provide timely service to WRI and the DTA terminal. As previously
mentioned, the Company is closely following the compliance efforts of the
railroads and other major suppliers.
Based on information currently available, it is estimated that the costs to
replace and modify Company systems to achieve Y2K compliance will not exceed
$125,000, of which approximately $27,000 has been incurred through June 30,
1999.
The goal is to have all critical Company systems Y2K compliant by September 30,
1999. This should allow time before December 31, 1999, to validate the system
modifications and complete contingency plans for customers, suppliers and others
who may not be Y2K compliant. While there can be no assurance that all such
modifications and plans will be successful, the Company does not expect that any
disruptions will have a material adverse effect on its overall financial
position, results of operations, or liquidity.
The foregoing constitutes a "forward-looking statement" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. It is based on management's current expectations,
estimates and projections, which could ultimately prove to be inaccurate.
Factors which could affect the Company's ability to be Y2K compliant by the end
of 1999 include the failure of customers, suppliers, governmental entities and
others to achieve compliance and the inaccuracy of certifications received from
them.
<PAGE B-16>
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998.
Revenues for the quarter ending June 30, 1999 were $12,394,000 compared to
$61,845,000 for the quarter ending June 30, 1998. The decrease is due to the
significant earnings in 1998 at WEI's Rensselaer project as a result of the
restructuring of its power purchase contract with Niagara Mohawk, slightly
decreased sales volumes at WRI due to scheduled plant maintenance at a major
customer's facility and decreased earnings from terminal operations due to a
decline in the export market.
Costs and expenses for the quarter ending June 30, 1999 were $16,894,000
compared to $15,342,000 for the quarter ending June 30, 1998. The majority of
the increase is due to an increase in the accrual for heritage costs. Upon the
termination of the bankruptcy the Company was required to resume monthly
payments of approximately $500,000 to the Combined Benefit Fund. In addition,
there was approximately $1,300,000 in Workers Compensation expense and market
related adjustments to the Black Lung Trust. Sales volumes at WRI have decreased
slightly, decreasing costs and expenses accordingly. Selling and administrative
costs in 1999 increased as a result of approximately $500,000 of charges
relating to the proxy contest and tender offer.
Gains on the sales of assets were $50,000 during the quarter ending June 30,
1999, compared to $51,000 for the quarter ending June 30, 1998. The gains relate
primarily to sales of various assets from the Company's idled Virginia Division.
Interest expense was $297,000 and $40,000 for the three months ended June 30,
1999 and 1998, respectively. The increase is due to installment payments being
made monthly to the 1974 UMWA Pension Plan as provided for in the Master
Agreement.
Interest income was $441,000 for the three months ended June 30, 1999. No
interest income was recorded for operations in 1998 as all such income was
considered a reorganization item.
Other income was $247,000 for the three months ended June 30, 1999. Other
expense was $100,000 for the three months ended June 30, 1998. The increase is
due to dividends received from the Company's Fort Lupton project and receipts of
a court ordered payment from a former coal customer of $114,000 in 1999.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Revenues for the six months ending June 30, 1999 were $43,223,000 compared to
$78,807,000 for the six months ending June 30, 1998. The decrease is mainly due
to elevated 1998 earnings at WEI's Renssalaer project as a result of the
restructuring of its power purchase contract with Niagara Mohawk and slightly
decreased sales volumes at WRI as well as decreased earnings at the terminal
operations.
Costs and expenses for the six months ending June 30, 1999 were $34,760,000
compared to $31,540,000 for the six months ending June 30, 1998. The majority of
the increase is due to an increase in the accrual for heritage costs. Upon the
termination of the bankruptcy the Company was required to resume monthly
payments of approximately $500,000 to the Combined Benefit Fund. In addition
there was approximately $1,300,000 in Workers Compensation expense and market
related adjustments to the Black Lung Trust. Sales volumes at WRI have decreased
slightly, decreasing costs and expenses accordingly. Selling and administrative
costs increased in 1999 as a result of approximately $2,700,000 of bonuses paid
to employees as well as approximately $600,000 in final
<PAGE B-17>
bankruptcy, proxy contest and tender offer expenses. The Company also incurred
approximately $270,000 in expenses related to the exercise of stock options and
payment of stock bonuses.
Gains on the sale of assets were $69,000 and $187,000 for the six months ended
June 30, 1999 and 1998, respectively, all of which related to the sales of
various equipment from the idled Virginia Division.
Interest expense was $598,000 and $95,000 for the six months ended June 30, 1999
and 1998, respectively. The increase is due to installment payments being made
monthly to the 1974 UMWA Pension Plan as provided for in the Master Agreement.
Interest income was $965,000 for the six months ended June 30, 1999. No interest
income was recorded for operations in 1998 as all such income was considered a
reorganization item.
Other expense was $177,000 for the six months ended June 30, 1999. Other income
was $1,456,000 for the six months ended June 30, 1998. The 1998 period included
income relating to a production tax holdback of $650,000 and $750,000 received
for the buyout of a royalty agreement from a former contract miner.
<PAGE B-18>
PART II - OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
See Note 1 "Chapter 11 Reorganization Proceedings" and Note 2 "Contingencies" of
Notes to Condensed Consolidated Financial Statements, which are incorporated by
reference herein.
ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------------------------------------
(C) Recent Sales of Unregistered Securities
The Company issued shares of its Common Stock, $2.50 par value, in the following
transactions exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933:
o On March 12, 1999, the Company issued 22,182 shares to directors in lieu of
directors' fees in the total amount of $47,993 and issued 2,153 shares to a
former director pursuant to a directors' deferred compensation plan.
o On March 19, 1999, the Company issued 27,000 shares to executives
as compensation pursuant to an incentive stock plan.
o On March 22, 1999, the Company issued 25,000 shares to executives upon
exercise of incentive stock options for which the aggregate exercise price
was $65,625 and issued 18,000 shares to executives as compensation pursuant
to an incentive stock plan.
ITEM 4
SUBMISION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Stockholders in lieu of an Annual Meeting was held on May
12, 1999. Proxies for the meeting were solicited pursuant to Section 14A of the
Securities Exchange Act of 1934, and there was a solicitation in opposition to
management's solicitation. Two proposals were voted upon at the meeting.
The first proposal was to elect five members to the Board of Directors to
represent common stockholders. The tabulation of the votes cast with respect to
each of the nominees for election as a Director is set forth as follows:
------------------------------ ------------------- --------------------
Name Votes For Votes Withheld
------------------------------ ------------------- --------------------
Pemberton Hutchinson 3,128,280 33,247
William R. Klaus 3,133,729 27,798
Thomas W. Ostrander 3,140,229 21,298
Christopher K. Seglem 3,138,638 22,889
Edwin E. Tuttle 3,134,929 26,598
Robert A. Fowler 2,634,923 1,940
Nelson Obus 2,634,923 1,940
R. Bentley Offutt 2,634,923 1,940
Matthew S. Sakurada 2,634,923 1,940
William J. Sim 2,634,923 1,940
------------------------------ ------------------- --------------------
Messrs. Hutchinson, Klaus, Ostrander, Seglem, and Tuttle were elected.
<PAGE B-19>
CT Corporation System, the independent inspector of election, did not report any
abstentions or broker non-votes.
The second proposal was to elect two directors to the Board of Directors to
represent preferred stockholders. Each depositary share represents one-quarter
share of the Company's Series A Convertible Exchangeable Preferred Stock
("Series A Preferred Stock"), the terms of which entitle the holders to elect
two directors if the Company is in arrears on six or more Preferred Stock
dividends. The tabulation of the votes cast with respect to each of the nominees
for election as a Director, expressed in terms of the number of shares of Series
A Preferred Stock, is set forth as follows:
------------------------------ ------------------- --------------------
Name Votes For Votes Withheld
------------------------------ ------------------- --------------------
Robert E. Killen 87,063 35,961
James W. Sight 87,013 36,011
Guy O. Dove, III 70,002 0
Frank E. Williams, Jr. 70,002 0
------------------------------ ------------------- --------------------
Messrs. Killen and Sight were elected.
CT Corporation System, the independent inspector of election, did not report any
abstentions or broker non-votes.
Item 5
OTHER INFORMATION
- --------------------------------------------------------------------------------
As reported in a Current Report on Form 8-K filed June 21, 1999 (the "June 21
8-K"), the Board of Directors of the Company approved amendments to the
Company's bylaws on June 18, 1999. The full text of the bylaws as amended (the
"Bylaws") was included as an exhibit to the Form 8-K.
Among other things, the Bylaws provide that, at an annual meeting of
stockholders, business may be conducted only if it is properly brought before
the meeting. The Bylaws specify how a stockholder may properly bring business
before an annual meeting. The stockholder must give timely notice of the
stockholder's proposal to the Secretary of the Company. In general, to be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 90 days nor more
than 120 days in advance of the anniversary date of the preceding year's annual
meeting of stockholders (or special meeting in lieu of an annual meeting). Thus,
for a stockholder to make a timely proposal to conduct business at the 2000
Annual Meeting of Stockholders of the Company, the stockholder must deliver a
notice to the Company, or the notice must be delivered to or mailed and received
at the principal executive offices of the Company, not earlier than January 12,
2000 nor later than February 11, 2000. A stockholder's notice regarding the
conduct of business at an annual meeting must contain the information required
by Section 2.5 of the Bylaws. In addition, a stockholder proposing to conduct
business at an annual meeting must comply with the other requirements specified
in the Bylaws, including Section 2.5 thereof, and, if applicable, Federal law.
Business not properly brought before an annual meeting shall not be transacted
at the meeting.
The Bylaws also provide that only persons who are nominated in accordance with
the procedures set forth in Section 2.6 thereof shall be eligible for election
as directors of the Company. Among other requirements, for a nomination to be
properly brought before a meeting by a stockholder, the stockholder must give
timely notice thereof to the Secretary of the Company. In general, to be timely
with respect to an election to be held at an annual meeting of stockholders, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 90
<PAGE B-20>
days nor more than 120 days in advance of the anniversary date of the preceding
year's annual meeting of stockholders (or special meeting in lieu of an annual
meeting). Thus, for a stockholder to nominate a person for election to the
Company's Board of Directors at the 2000 Annual Meeting of Stockholders, the
stockholder must deliver a notice to the Company, or the notice must be
delivered to or mailed and received at the principal executive offices of the
Company, not earlier than January 12, 2000 nor later than February 11, 2000. A
stockholder's notice regarding the nomination of a person for election to the
Board of Directors must contain the information required by Section 2.6 of the
Bylaws. In addition, a stockholder proposing to nominate a person for election
to the Board of Directors must comply with the other requirements specified in
Section 2.6 of the Bylaws, and, if applicable, Federal law. If a nomination is
not made in accordance with the provisions of Section 2.6 of the Bylaws, the
defective nomination shall be disregarded.
The description of the Bylaws set forth above is a summary only, does not
purport to be complete, and is qualified in its entirety by the Bylaws, which
were included as an exhibit to the Form 8-K.
Item 6
Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
a) Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K - On June 4, 1999, the Company filed a report on
Form 8-K announcing that it had received certified results of the
recent proxy contest in connection with the election of common and
preferred directors.
On June 21, 1999, the Company filed a report on Form 8-K stating that
the Virginia Supreme Court had agreed to hear the appeal by Virginia
Power of the December 2, 1998, decision of the Circuit Court of the
City of Richmond and filed an exhibit that included the full text of
the Bylaws of the Company as amended on June 18, 1999.
On July 1, 1999, the Company filed a report on Form 8-K announcing that
it expects to conduct an additional tender offer at $19 per depositary
share for approximately 600,000 shares.
On July 28, 1999, the Company filed a report on Form 8-K announcing the
sale of its Bullitt preparation plant and transloader complex to
Mountain, LLC for approximately $650,000 in cash and the assumption
$600,000 of associated reclamation liabilities.
<PAGE B-21>
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.
WESTMORELAND COAL COMPANY
Date: 08/16/99 /s/ Robert J. Jaeger
---------------------------------
Robert J. Jaeger
Senior Vice President - Finance and
Treasurer
/s/ Larry W. Mikkola
---------------------------------
Larry W. Mikkola
Controller
<PAGE>
The Letter of Transmittal, depositary receipts for Depositary Shares
and any other required documents should be sent or delivered by each shareholder
of the Company or such shareholder's broker, dealer, commercial bank, or trust
company to the Depositary at one of its addresses set forth below. Facsimile
copies of the Letter of Transmittal, properly completed and duly executed, will
be accepted from Eligible Institutions only.
<TABLE>
The Depositary for the Offer is:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By Facsimile Transmission (for Eligible Institutions only):
(201) 222-4720 or (201) 222-4721
Confirm by Telephone: (201) 222-4707
<CAPTION>
<S> <C> <C> <C>
By Overnight Courier: By Mail: By Hand:
--------------------- -------- --------
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Corporate Actions Department Corporate Actions Department Corporate Actions Department
Suite 4680 Suite 4660 c/o Securities Transfer and Reporting
14 Wall Street, 8th Floor P.O. Box 2569 Services
New York, NY 10005 Jersey City, NJ 07303-2569 100 William St., Galleria
New York, NY 10038
</TABLE>
Any questions or requests for assistance or for additional copies of this
Offer to Purchase or the Letter of Transmittal may be directed to the
Information Agent. Shareholders may also contact their broker, dealer,
commercial bank, trust company, or other nominee for assistance concerning the
Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue, 5th Floor
New York, New York 10022
Toll Free (800) 566-9061
Call Collect (212) 754-8000
Banks and Brokerage Firms Please Call:
(800) 662-5200
<PAGE>
EXHIBIT 99.B
----------------------
Westmoreland Offers to
Purchase Series A
Preferred Stock
----------------------
Colorado Springs, CO - September 16, 1999 - Westmoreland Coal Company (AMEX:
WLB) today launched its previously announced offer to purchase up to 631,000
Depositary Shares, each representing one quarter of a share of its Series A
Convertible Exchangeable Preferred Stock. The offer price is $19.00 per
Depositary Share.
The offer and withdrawal rights will expire at 5:00 p.m. New York City time on
October 26, 1999, unless the offer is extended.
On September 15, the Depositary Shares closed at $18 1/8 per share on the
American Stock Exchange ("AMEX"). On June 30, the last day before the Company
announced that it expected to conduct the offer, the Depositary Shares closed at
$18 1/4 per share on the AMEX.
The offer is being made pursuant to an offer to purchase and letter of
transmittal, which is being mailed to holders of Depositary Shares. Holders of
the Depositary Shares may call Morrow & Co., Inc. at (800) 566-9061 (toll free)
or (212) 754-8000 (collect) for further details about the offer. Banks and
brokerage firms may contact Morrow & Co., Inc. at (800) 662-5200.
# # #
For further information contact Diane Jones (719) 442-2600
<PAGE>
EXHIBIT 99.C
LETTER OF TRANSMITTAL
TO TENDER DEPOSITARY SHARES (CUSIP 960878 30 4) ("DEPOSITARY SHARES"),
EACH REPRESENTING ONE QUARTER OF A SHARE OF SERIES A
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,
(INCLUDING THE ASSOCIATED ACCUMULATED AND UNPAID DIVIDENDS)
OF
WESTMORELAND COAL COMPANY
PURSUANT TO THE OFFER TO PURCHASE DATED SEPTEMBER 16, 1999
THE OFFER, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON TUESDAY, OCTOBER 26, 1999,
UNLESS THE OFFER IS EXTENDED.
To: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail:
By Overnight Courier: (registered mail recommended) By Hand:
--------------------- ---------------------------- --------
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Corporate Actions Department Corporate Actions Department Corporate Actions Department
Suite 4680 Suite 4660 c/o Securities Transfer and Reporting
14 Wall Street, 8th Floor P.O. Box 2569 Services
New York, NY 10005 Jersey City, NJ 07303-2569 100 William St., Galleria
New York, NY 10038
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Depositary
Shares, either (i) if depositary receipts for Depositary Shares are to be
delivered herewith or (ii) unless an Agent's Message (as defined in the
accompanying Offer to Purchase of Westmoreland Coal Company (the "Company") (as
amended or supplemented (including documents incorporated by reference), the
"Offer to Purchase") is utilized, if tenders of Depositary Shares are to be made
by book-entry transfer into the account of First Chicago Trust Company of New
York, as Depositary (the "Depositary"), at The Depository Trust Company ("DTC"),
pursuant to the procedures described in Section 5 of the Offer to Purchase.
Holders of Depositary Shares who tender Depositary Shares by book-entry transfer
are referred to herein as "Book-Entry Shareholders."
<PAGE>
FOR HELP WITH COMPLETING THIS LETTER OF TRANSMITTAL, CONTACT MORROW &
CO., INC., THE INFORMATION AGENT, TOLL FREE AT (800) 566-9061 OR COLLECT AT
(212) 754-8000. BANKS AND BROKERAGE FIRMS MAY CONTACT MORROW & CO., INC. AT
(800) 662-5200.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most banks, savings and loan associations, and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program
(each of the foregoing being referred to as an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed if (a) this
Letter of Transmittal is signed by the registered holder of the Depositary
Shares tendered herewith and such holder has not completed the box entitled
"Special Payment Instructions" on this Letter of Transmittal or (b) the
Depositary Shares tendered herewith are tendered for the account of an Eligible
Institution. If Depositary Shares are registered in the name of a person other
than the signatory on this Letter of Transmittal, or if unpurchased Depositary
Shares are to be issued to a person other than the registered holder(s), the
tendered depositary receipts must be endorsed or accompanied by appropriate
stock powers, in either case signed exactly as the name or names of the
registered holder(s) appear on the depositary receipts with the signature(s) on
the depositary receipts or stock powers guaranteed as aforesaid. See Instruction
5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND DEPOSITARY SHARES. This
Letter of Transmittal is to be completed by holders of Depositary Shares either
if depositary receipts are to be delivered herewith or, unless an Agent's
Message (as defined in Section 5 of the Offer to Purchase) is utilized, if
tenders are to be made pursuant to the procedure for tender by book-entry
transfer set forth in Section 5 of the Offer to Purchase. Depositary receipts
for Depositary Shares, or timely confirmation (a "Book-Entry Confirmation") of a
book-entry transfer of such Depositary Shares into the Depositary's account at
DTC, as well as this Letter of Transmittal (or a facsimile hereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message in the case of a book-entry delivery, and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth herein prior to the Expiration Date. Delivery of
documents to DTC in accordance with DTC's procedures does not constitute
delivery to the Depositary.
Unless the Depositary Shares being tendered by the above-described
method are deposited with the Depositary within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents) or a confirmation of book-entry transfer of such
Depositary Shares into the Depositary's account at DTC in accordance with DTC's
Automated Tender Offer Program ("ATOP") procedures is received, the Company may,
at its option, reject the tender.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING DEPOSITARY RECEIPTS,
THIS LETTER OF TRANSMITTAL, AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION
AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
<PAGE>
No alternative, conditional, or contingent tenders will be accepted. By
executing this Letter of Transmittal (or facsimile hereof), the tendering holder
waives any right to receive any notice of the acceptance of the Depositary
Shares for purchase.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
depositary receipt numbers and/or the number of Depositary Shares should be
listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to Book-Entry Shareholders) If
fewer than all the Depositary Shares represented by any depositary receipt
delivered to the Depositary are to be tendered, fill in the number of Depositary
Shares which are to be tendered in the box entitled "Number of Depositary Shares
Tendered". In such case, a new depositary receipt for the remainder of the
Depositary Shares represented by the old depositary receipt will be sent to the
person(s) signing this Letter of Transmittal, unless otherwise provided in the
appropriate box on this Letter of Transmittal, as promptly as practicable
following the Expiration Date. All Depositary Shares represented by depositary
receipts delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Depositary Shares tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the depositary receipts without alteration,
enlargement or any change whatsoever.
If any of the Depositary Shares tendered hereby are held of record by
two or more persons, all such persons must sign this Letter of Transmittal.
If any of the Depositary Shares tendered hereby are registered in
different names on different depositary receipts, it will be necessary to
complete, sign, and submit as many separate Letters of Transmittal as there are
different registrations of depositary receipts.
If this Letter of Transmittal is signed by the registered holder(s) of
the Depositary Shares tendered hereby, no endorsements of depositary receipts or
separate stock powers are required unless Depositary Shares not tendered or not
purchased are to be returned in the name of any person other than the registered
holder(s). Signatures on any such depositary receipts or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Depositary Shares tendered hereby, depositary
receipts must be endorsed or accompanied by appropriate stock powers, in either
case, signed exactly as the name(s) of the registered holder(s) appear(s) on the
depositary receipts for such Depositary Shares. Signature(s) on any such
depositary receipts or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any depositary receipt or stock power
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and proper
evidence satisfactory to the Company of the authority of such person so to act
must be submitted.
<PAGE>
6. STOCK TRANSFER TAXES. The Company will pay all stock transfer
taxes, if any, applicable to the sale of any Depositary Shares pursuant to the
Offer. If, however, depositary receipts representing Depositary Shares not
tendered or not purchased are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Depositary Shares
tendered or if a transfer tax is imposed for any reason other than the sale of
Depositary Shares pursuant to the Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If any Depositary Shares
not tendered or not purchased are to be issued or to be returned to a person
other than the person(s) signing this Letter of Transmittal or any depositary
receipts for Depositary Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal at an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
8. SUBSTITUTE FORM W-9. Under U.S. federal income tax law, the Company
may be required to withhold 31% of the amount of any payments made to certain
shareholders or other payees with respect to the Depositary Shares purchased in
the Offer. In order to avoid such backup withholding, each tendering
shareholder, and, if applicable, each other payee, must provide such
shareholder's or payee's correct taxpayer identification number and certify that
such shareholder or payee is not subject to such backup withholding by
completing the Substitute Form W-9 set forth below. In general, if a shareholder
or payee is an individual, the taxpayer identification number is the social
security number of such individual. If the Company is not provided with the
correct taxpayer identification numbers, the shareholder or payee may be subject
to a $50 penalty imposed by the Internal Revenue Service. Certain shareholders
or payees (including, among others, all corporations and certain foreign
individual(s)) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Company that a foreign shareholder
qualifies as an exempt recipient, such shareholder or payee must submit a Form
W-8, signed under penalties of perjury, attesting to that individual's exempt
status. Such Form W-8 can be obtained from the Information Agent. For further
information concerning backup withholding and instructions for completing the
Substitute Form W-9 (including how to obtain a taxpayer identification number if
you do not have one and how to complete the Substitute Form W-9 if Depositary
Shares are held in more than one name), consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
9. WITHHOLDING ON NON-U.S. HOLDERS. Even if a Non-U.S. Holder (as
defined in Section 2 of the Offer to Purchase) has provided the required
certification to avoid backup withholding, the Depositary will withhold U.S.
federal income tax at a rate equal to 30% of the gross proceeds paid to a
Non-U.S. Holder or his agent pursuant to the Offer, unless the Depositary
determines, by reference to the Non-U.S. Holder's address and any IRS Forms 1001
or 4224 submitted to the Depositary by a Non-U.S. Holder (unless facts and
circumstances indicate that such reliance is not warranted or unless applicable
law requires some other method for determining whether a reduced rate of
withholding is applicable), that a reduced rate of
<PAGE>
withholding is available pursuant to a tax treaty or that an exemption from
withholding is applicable because the gross proceeds are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States. IRS Forms 1001 and 4224 may be obtained from the Information Agent. See
Section 2 of the Offer to Purchase.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance or additional copies of the Offer to Purchase and this Letter of
Transmittal may be obtained from the Information Agent at its address or
telephone numbers set forth below.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Westmoreland Coal Company, a Delaware
corporation (the "Company"), the below-described Depositary Shares (including
the associated accumulated and unpaid dividends), each representing one quarter
of a share of the Company's Series A Convertible Exchangeable Preferred Stock,
par value $1.00 per share ("Series A Preferred Stock"), liquidation preference
equal to $25 per Depositary Share plus accumulated and unpaid dividends,
pursuant to the Company's offer to purchase up to 631,000 Depositary Shares at a
price of $19.00 per Depositary Share (the "Purchase Price"), net to the seller
in cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated September 16, 1999 (the "Offer to Purchase"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which, together with the
Offer to Purchase, and as they may be amended and supplemented from time to
time, constitute the "Offer"). Unless the context requires otherwise, all
references to the Depositary Shares shall include any claims to cumulative
dividends on such shares that have not previously been paid.
Subject to and effective upon acceptance for payment of the Depositary
Shares tendered herewith in accordance with the terms of the Offer (including,
if the Offer is extended or amended, the terms and conditions of any such
extension or amendment), the undersigned hereby sells, assigns, and transfers to
or upon the order of the Company all right, title, and interest in and to all
the Depositary Shares that are being tendered hereby that are purchased pursuant
to the Offer and hereby irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Depositary Shares, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), to (a)
deliver depositary receipts for such Depositary Shares or transfer ownership of
such Depositary Shares on the account books maintained by The Depository Trust
Company ("DTC"), together, in any such case, with all accompanying evidences of
transfer and authenticity, to or upon the order of the Company, (b) present
depositary receipts for such Depositary Shares for cancellation and transfer on
the books of the Company, and (c) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Depositary Shares, all in accordance
with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign, and transfer the Depositary
Shares tendered hereby and that, when the undersigned's Depositary Shares are
accepted for purchase, the Company will acquire good, marketable, and
unencumbered title to such tendered Depositary Shares, free and clear of
<PAGE>
all liens, restrictions, charges, and encumbrances and not subject to any
adverse claim. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the sale, assignment, and transfer of tendered Depositary Shares.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy, or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, legal
representatives, successors, assigns, executors, and administrators of the
undersigned. Except as stated in the Offer, this tender is irrevocable.
The undersigned understands and agrees that tenders of Depositary
Shares pursuant to any one of the procedures described in Section 5 of the Offer
to Purchase and in the instructions hereto will constitute agreements between
the undersigned and the Company upon the terms and subject to the conditions of
the Offer, including its proration provisions, and the Company will return all
other Depositary Shares not purchased pursuant to the Offer, including
Depositary Shares not purchased because of proration. The undersigned
understands and agrees that if the Company accepts the tender of such Depositary
Shares, all claims by and rights of the undersigned or any other person to
receive dividends (including accumulated and unpaid dividends) with respect to
the Depositary Shares (or the Series A Preferred Stock represented by such
Depositary Shares) purchased by the Company are forever extinguished and that
the payment of $19.00 per Depositary Share is in full satisfaction of all claims
to accumulated and unpaid dividends on the Depositary Shares (and the Series A
Preferred Stock represented thereby) purchased in the Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the Purchase Price and/or return or issue the depositary
receipt(s) evidencing any Depositary Shares not tendered, not accepted for
payment, or for which payment is not made, in the name(s) of the undersigned
(and, in the case of Depositary Shares tendered by book-entry transfer, by
credit to the account at DTC). Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail the check for the Purchase Price
and/or the depositary receipt(s) evidencing any Depositary Shares not tendered,
not accepted for payment, or for which payment is not made (and accompanying
documents, as appropriate), to the undersigned at the address shown below the
undersigned's signature(s). If both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the check for the Purchase
Price and/or issue or return the depositary receipt(s) evidencing any Depositary
Shares not tendered, not accepted for payment, or for which payment is not made,
in the name(s) of, and deliver said check and/or depositary receipt(s) to, the
person(s) so indicated (and in the case of Depositary Shares tendered by
book-entry transfer, by credit to the account at DTC). The undersigned
recognizes that the Company has no obligation, pursuant to the "Special Payment
Instructions," to transfer any Depositary Shares from the name(s) of the
registered holder(s) thereof if the Company does not accept for payment or make
payment for any of the Depositary Shares so tendered.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[COMPLETE THIS BOX.]
- ---------------------------------------------------------------- -----------------------------------------------------------------
Depositary Shares Tendered
-----------------------------------------------------------------
Number of Depositary Number of
Name(s) and Address(es) of Registered Holder(s) Depositary Receipt Shares Represented by Depositary Shares
(Please fill in, if blank) Number(s) Depositary Receipt(s) Tendered *
- ---------------------------------------------------------------- -------------------- ------------------------ -------------------
-------------------- ------------------------ -------------------
-------------------- ------------------------ -------------------
-------------------- ------------------------ -------------------
-------------------- ------------------------ -------------------
-----------------------------------------------------------------
Total number of Depositary Shares Tendered:
- ---------------------------------------------------------------- -----------------------------------------------------------------
* Unless otherwise indicated, the holder will be deemed to have tendered the full number of Depositary Shares represented by the
tendered depositary receipts. See Instruction 4.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------- -----------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 4, 5, 6, and 7) (See Instructions 1, 4, 5, and 7)
To be completed ONLY if the check for To be completed ONLY if the check for
the aggregate Purchase Price of the aggregate Purchase Price of
Depositary Shares purchased and/or Depositary Shares purchased and/or
depositary receipts for Depositary depositary receipts for Depositary
Shares not tendered or not purchased, Shares not tendered or not purchased,
are to be issued in the name of someone are to be mailed to someone other
other than the undersigned. undersigned, or to the undersigned at an
address other than that shown below the
undersigned's signature(s).
Issue Check and Depositary Receipts to:
Mail Check and Depositary Receipts to:
Name(s)________________________________
(Please Print) Name__________________________________
(Please Print)
Address__________________________________
Address__________________________________
_________________________________________
__________________________________
_________________________________________
(Include Zip Code) __________________________________
(Include Zip Code)
Telephone Number________________________
(Include Area Code)
___________________________________________
(Tax Identification or Social Security No.)
- ------------------------------------------------------------- -----------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
________________________________________________________________________________
________________________________________________________________________________
Date: ____________________________, 1999
Must be signed by the registered holder(s) exactly as name(s) appear(s)
on depositary receipts for Depositary Shares or on a security position listing
or by person(s) authorized to become registered holder(s) by endorsed depositary
receipt(s) or stock powers transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, please set
forth full title and see Instruction 5.
Name(s)_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Daytime Area Code and Telephone No. (________)__________________________________
Tax Identification or Social Security Nos.______________________________________
Please complete
Substitute Form W-9
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by
Instructions 1 and 5)
Authorized Signature____________________________________________________________
Dated___________________________________________________________________________
Name and Title__________________________________________________________________
(Please Print)
Name of Firm____________________________________________________________________
Address_________________________________________________________________________
Area Code and Telephone Number__________________________________________________
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
[COMPLETE THIS FORM.]
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
- -------------------------------------- -------------------------------------------------- -------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW ___________________________________
Social Security Number
OR __________________________________
Employer Identification Number
-------------------------------------------------- -------------------------------------
SUBSTITUTE
Form W-9 Part 2--Certification--Under Penalties of Part 3--Awaiting TIN [ ]
Department of the Treasury Perjury, I certify that:
Internal Revenue Service
(1) The number shown on this form is my
Payer's Request for Taxpayer correct taxpayer identification number (or
Identification Number (TIN) I am waiting for a number to be issued to
me) and
(2) I am not subject to backup withholding
either because I have not been notified by
the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as
a result of a failure to report all
interest or dividends, or the IRS has
notified me that I am no longer subject to
backup withholding.
Certificate instructions--You must
cross out item (2) in Part 2 above if you
have been notified by the IRS that you
are subject to backup withholding because
of underreporting interest or dividends
on your tax return. However, if after
being notified by the IRS that you were
subject to backup withholding you receive
another notification from the IRS stating
that you are no longer subject to backup
withholding, do not cross out item (2)
SIGNATURE_________________________________
DATE_______________________________________
- -------------------------------------- -------------------------------------------------- --------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT
TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed
or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter
will be withheld until I provide such a number.
_______________________________________________________ _____________________________
Signature Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
WESTMORELAND COAL COMPANY
2 North Cascade, 14th Floor
Colorado Springs, Colorado 80903
THE INFORMATION AGENT FOR THE OFFER IS:
MORROW & CO., INC.
445 Park Avenue, 5th Floor
New York, New York 10022
Toll Free (800) 566-9061
Call Collect (212) 754-8000
Banks and Brokerage Firms Please Call:
(800) 662-5200
September 16, 1999
<PAGE>
EXHIBIT 99.D
WESTMORELAND COAL COMPANY
OFFER TO PURCHASE FOR CASH
UP TO 631,000 DEPOSITARY SHARES (CUSIP 960878 30 4),
EACH REPRESENTING ONE QUARTER OF A SHARE OF ITS
SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,
(AND THE ASSOCIATED ACCUMULATED AND UNPAID DIVIDENDS) AT
$19.00 PER DEPOSITARY SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, OCTOBER 26, 1999,
UNLESS THE OFFER IS EXTENDED.
September 16, 1999
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated
September 16, 1999 (the "Offer to Purchase") and the related Letter of
Transmittal (which, as amended and supplemented from time to time, together
constitute the "Offer") in connection with the Offer by Westmoreland Coal
Company, a Delaware corporation (the "Company"), to purchase up to 631,000
Depositary Shares ("Depositary Shares") (including the associated accumulated
and unpaid dividends), each representing one quarter of a share of its Series A
Convertible Exchangeable Preferred Stock, par value $1.00 per share, liquidation
preference equal to $25 per Depositary Share plus accumulated and unpaid
dividends, at a price of $19.00 per Depositary Share, net to the seller in cash,
upon the terms and subject to the conditions of the Offer. The Company will
purchase 631,000 Depositary Shares (or such lesser number of Depositary Shares
as are validly tendered and not withdrawn), upon the terms and subject to the
conditions of the Offer, including the proration provisions thereof. Unless the
context requires otherwise, all references to the Depositary Shares shall
include any claims to cumulative dividends on such shares that have not
previously been paid.
Depositary Shares not purchased because of proration will be returned
at the Company's expense to the shareholders who tendered such Depositary
Shares. The Company reserves the right, in its sole discretion, to purchase more
than 631,000 Depositary Shares pursuant to the Offer. See Section 4. "Number of
Shares; Proration; Expiration Date; Extension of the Offer" and Section 13.
"Extension of the Tender Period; Termination; Amendments" of the Offer to
Purchase.
If the number of Depositary Shares validly tendered and not withdrawn
on or prior to the Expiration Date is less than or equal to 631,000 Depositary
Shares (or such greater number of Depositary Shares as the Company may elect to
purchase pursuant to the Offer), the Company will, upon the terms and subject to
the conditions of the Offer, purchase all Depositary Shares so tendered.
Upon the terms and subject to the conditions of the Offer, if at the
Expiration Date more than 631,000 Depositary Shares (or such greater number of
Depositary Shares as the Company
<PAGE>
may elect to purchase pursuant to the Offer) are properly tendered and not
withdrawn, the Company will buy Depositary Shares on a pro rata basis from all
other shareholders who properly tender Depositary Shares (and do not withdraw
them prior to the Expiration Date). See Section 4. "Number of Shares; Proration;
Expiration Date; Extension of the Offer" and Section 5. "Procedure for Tendering
Depositary Shares" of the Offer to Purchase.
The payment of $19.00 per Depositary Share for Depositary Shares
purchased by the Company is in full satisfaction of all claims with respect to
such Depositary Shares (and the Series A Preferred Stock represented by such
Depositary Shares), including claims for accumulated and unpaid dividends, and
all claims by and rights of the owner of Depositary Shares or any other person
to receive dividends (including accumulated and unpaid dividends) will be
extinguished with respect to such Depositary Shares (and the Series A Preferred
Stock represented by such Depositary Shares) upon payment by the Company
therefor.
We are the holder of record of Depositary Shares held for your account.
A tender of such Depositary Shares can be made only by us as the holder of
record and pursuant to your instructions. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER DEPOSITARY
SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all
of the Depositary Shares held by us for your account, upon the terms and subject
to the conditions set forth in the Offer to Purchase and the Letter of
Transmittal.
Your attention is invited to the following:
1. The Offer and withdrawal rights expire at 5:00 p.m., New
York City time, on Tuesday, October 26, 1999, unless the Offer is
extended.
2. The offer price is $19.00 per Depositary Share.
3. The Offer is not conditioned upon any minimum number of
Depositary Shares being tendered. The Offer is, however, subject to
certain other conditions, as described in Section 8 of the Offer to
Purchase.
4. Any stock transfer taxes applicable to the sale of
Depositary Shares to the Company pursuant to the Offer will be paid by
the Company, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
THE COMPANY, ITS BOARD OF DIRECTORS, AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OR ALL OF SUCH
SHAREHOLDER'S DEPOSITARY SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST
DECIDE WHETHER TO TENDER DEPOSITARY SHARES AND, IF SO, HOW MANY DEPOSITARY
SHARES TO TENDER.
Upon the terms and subject to the conditions of the Offer, if more than
631,000 Depositary Shares have been properly tendered and not withdrawn prior to
the Expiration Date,
<PAGE>
the Company will purchase properly tendered Shares on a pro rata basis (with
appropriate adjustments to avoid purchases of fractional Depositary Shares) as
described in Section 4. "Number of Shares; Proration; Expiration Date; Extension
of the Offer" of the Offer to Purchase.
If you wish to have us tender any or all of your Depositary Shares,
please so instruct us by completing, executing, and returning to us the attached
instruction form. An envelope to return your instructions to us is enclosed. If
you authorize tender of your Depositary Shares, all such Depositary Shares will
be tendered unless otherwise specified on the attached instruction form. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf by the expiration of the Offer.
THE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON
BEHALF OF, HOLDERS OF DEPOSITARY SHARES IN ANY JURISDICTION IN WHICH THE MAKING
OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF
SUCH JURISDICTION.
<PAGE>
INSTRUCTIONS
WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 631,000 DEPOSITARY SHARES
(CUSIP 960878 30 4), EACH REPRESENTING ONE QUARTER OF A SHARE OF SERIES A
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, (AND THE ASSOCIATED ACCUMULATED AND
UNPAID DIVIDENDS) OF WESTMORELAND COAL COMPANY
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated September 16, 1999 and the related Letter of Transmittal
(which, as amended and supplemented from time to time, together constitute the
"Offer") in connection with the Offer by Westmoreland Coal Company, a Delaware
corporation (the "Company"), to purchase up to 631,000 Depositary Shares
("Depositary Shares") (including the associated accumulated and unpaid
dividends), each representing one quarter of a share of its Series A Convertible
Exchangeable Preferred Stock, par value $1.00 per share, liquidation preference
equal to $25 per Depositary Share plus accumulated and unpaid dividends, at
$19.00 per Depositary Share, net to the undersigned in cash.
This will instruct you to tender the number of Depositary Shares
indicated below (or, if no number is indicated below, all Depositary Shares)
which are held by you for the account of the undersigned, upon the terms and
subject to the conditions of the Offer.
NUMBER OF DEPOSITARY SHARES TENDERED
[ ] By checking this box, all Depositary Shares held by you for the
account of the undersigned, including fractional shares, will be
tendered in the Offer. If fewer than all Depositary Shares are to be
tendered, the undersigned has checked the box below and indicated the
aggregate number of Depositary Shares to be tendered by you.
[ ]_________________ Depositary Shares*
___________________
* Unless otherwise indicated, it will be assumed that all Depositary
Shares held by us for your account are to be tendered.
SIGN HERE
- ------------------------------------ ------------------------------------
Signature Signature
- ------------------------------------ ------------------------------------
Name Name
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
Address Address
- ------------------------------------ ------------------------------------
Social Security or Taxpayer ID No. Social Security or Taxpayer ID No.
Dated: ______________, 1999
<PAGE>
EXHIBIT 99.E
WESTMORELAND COAL COMPANY
OFFER TO PURCHASE FOR CASH
UP TO 631,000 DEPOSITARY SHARES (CUSIP 960878 30 4),
EACH REPRESENTING ONE QUARTER OF A SHARE OF ITS
SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,
(AND THE ASSOCIATED ACCUMULATED AND UNPAID DIVIDENDS) AT
$19.00 PER DEPOSITARY SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, OCTOBER 26, 1999,
UNLESS THE OFFER IS EXTENDED.
September 16, 1999
To Brokers, Dealers, Commercial Banks, Trust Companies, and Other Nominees:
We have been appointed to act as Information Agent by Westmoreland Coal
Company, a Delaware corporation (the "Company"), in connection with the
Company's offer to purchase up to 631,000 Depositary Shares ("Depositary
Shares") (including the associated accumulated and unpaid dividends), each
representing one quarter of a share of its Series A Convertible Exchangeable
Preferred Stock, par value $1.00 per share, liquidation preference equal to $25
per Depositary Share plus accumulated and unpaid dividends, at a price of $19.00
per Depositary Share (the "Purchase Price"), upon the terms and subject to the
conditions set forth in the Company's Offer to Purchase dated September 16, 1999
(the "Offer to Purchase") and the related Letter of Transmittal (which, as
amended and supplemented from time to time, together constitute the "Offer").
Unless the context requires otherwise, all references to the Depositary Shares
shall include any claims to cumulative dividends on such shares that have not
previously been paid. The Company will purchase 631,000 Depositary Shares (or
such lesser number of Depositary Shares as are validly tendered and not
withdrawn), upon the terms and subject to the conditions of the Offer, including
the proration provisions thereof.
Depositary Shares not purchased because of proration will be returned
at the Company's expense to the shareholders who tendered such Depositary
Shares. The Company reserves the right, in its sole discretion, to purchase more
than 631,000 Depositary Shares pursuant to the Offer. See Section 4. "Number of
Shares; Proration; Expiration Date; Extension of the Offer" and Section 13.
"Extension of the Tender Period; Termination; Amendments" of the Offer to
Purchase.
If the number of Depositary Shares validly tendered and not withdrawn
on or prior to the Expiration Date is less than or equal to 631,000 Depositary
Shares (or such greater number of Depositary Shares as the Company may elect to
purchase pursuant to the Offer), the Company will, upon the terms and subject to
the conditions of the Offer, purchase all Depositary Shares so tendered.
Upon the terms and subject to the conditions of the Offer, if at the
Expiration Date more than 631,000 Depositary Shares (or such greater number of
Depositary Shares as the Company may elect to purchase pursuant to the Offer)
are properly tendered and not withdrawn, the Company will buy Depositary Shares
on a pro rata basis from all shareholders who properly
<PAGE>
tender Depositary Shares (and do not withdraw them prior to the Expiration
Date). See Section 4. "Number of Shares; Proration; Expiration Date; Extension
of the Offer" and Section 5. "Procedure for Tendering Depositary Shares" of the
Offer to Purchase.
The payment of $19.00 per Depositary Share for Depositary Shares
purchased by the Company is in full satisfaction of all claims with respect to
such Depositary Shares (and the Series A Preferred Stock represented by such
Depositary Shares), including claims for accumulated and unpaid dividends, and
all claims by and rights of the owner of Depositary Shares or any other person
to receive dividends (including accumulated and unpaid dividends) will be
extinguished with respect to such Depositary Shares (and the Series A Preferred
Stock represented by such Depositary Shares) upon payment by the Company
therefor.
The Offer is not conditioned on any minimum number of Depositary
Shares being tendered. The Offer is, however, subject to certain other
conditions. See Section 8. "Certain Conditions of the Offer" of the Offer to
Purchase.
For your information and for forwarding to your clients for whom you
hold Depositary Shares registered in your name or in the name of your nominee,
we are enclosing the following documents:
1. Offer to Purchase;
2. Letter of Transmittal for your use and for the information of your
clients, together with Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 providing information relating to backup federal
income tax withholding;
3. A form of letter that may be sent to your clients for whose accounts
you hold Depositary Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions;
4. A letter from Christopher K. Seglem, President, Chairman and Chief
Executive Officer of the Company, to holders of Depositary Shares that we
request be sent to your clients; and
5. Summary instructions for participation in the Offer.
<PAGE>
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER
AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY,
OCTOBER 26, 1999, UNLESS THE OFFER IS EXTENDED.
THE COMPANY, ITS BOARD OF DIRECTORS, AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OR ALL OF SUCH
SHAREHOLDER'S DEPOSITARY SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST
DECIDE WHETHER TO TENDER DEPOSITARY SHARES AND, IF SO, HOW MANY DEPOSITARY
SHARES TO TENDER.
No broker, dealer, bank, trust company, or fiduciary shall be deemed to
be the agent of the Company, First Chicago Trust Company of New York (the
"Depositary"), or the Information Agent for purposes of the Offer.
The Company will, upon request, reimburse brokers, dealers, commercial
banks, and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding materials to their customers. The Company will
pay all stock transfer taxes applicable to the sale of Depositary Shares to the
Company pursuant to the Offer, subject to Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Offer should be
addressed to, and additional copies of the enclosed materials may be obtained
from, the undersigned at the address and telephone numbers set forth on the back
cover of the Offer to Purchase.
Very truly yours,
MORROW & CO., INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU THE AGENT OF THE COMPANY, THE INFORMATION AGENT, OR THE DEPOSITARY, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
EXHIBIT 99.F
September 17, 1999
Dear Preferred Shareholder:
Westmoreland Coal Company is offering to purchase up to 631,000
Depositary Shares, each representing one quarter of a share of the Company's
Series A Convertible Exchangeable Preferred Stock, and the accumulated and
unpaid dividends associated with such shares for $19.00 per Depositary Share.
The Company's intention to conduct this offer was first announced on July 1,
1999, immediately following the expiration of a restriction on distributions to
shareholders specified in the Master Agreement which documented certain
settlement terms for the consensual dismissal of the Company's Chapter 11 cases.
Your Board and Management remain sensitive to the interests and
concerns of preferred shareholders. The Company has elected to make this second
tender offer because the prior tender offer completed in April was substantially
oversubscribed, signaling a desire on the part of shareholders to tender
additional shares at $19.00 per Depositary Share. The Company also believes that
this tender offer is an attractive, appropriate use of available cash at this
time.
The Company is conducting this offer in compliance with applicable
Delaware law, and remains subject to all limitations concerning dividends under
Delaware law as well as the contractual restrictions in the Master Agreement and
the associated Note. Going forward, the Board of Directors will review the
Company's options in light of these constraints, and in consideration of all
shareholders' best interests. It remains likely that for some period most
remaining available cash will be reinvested in order to enhance the long-term
value of the Company.
There are 1,247,369 depositary shares currently outstanding and
eligible to participate in this tender offer. The Company believes that the
Depositary Shares will meet the continued listing criteria for the American
Stock Exchange when the tender is completed. However, depending on the level of
participation in the tender offer, the number of outstanding shares could be
significantly reduced and this could affect the liquidity and market price of
the Depositary Shares.
The Company, its Board of Directors, and its executive officers make
no recommendation as to whether you should tender your Depositary Shares. We
encourage you to read the enclosed Offer to Purchase before deciding whether to
tender your shares. If you choose to participate in the offer, please follow the
instructions in the enclosed materials.
If you have any questions, please call the Information Agent, Morrow & Co., at
the telephone numbers on the back cover of the enclosed Offer to Purchase. Thank
you.
Very truly yours,
Christopher K. Seglem
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE>
EXHIBIT 99.G
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer.--Social Security numbers have nine digits separated by two hyphens, i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen, i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------- ------------------------- ---------------------------------- -----------------------
Give The Give the EMPLOYER
Social Security IDENTIFICATION
For this type of account: number of-- For this type of account: number of--
- ----------------------------------------- ------------------------- ---------------------------------- -----------------------
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number
2. Two or more individuals (joint The actual owner of the of the personal
account) account or, if combined representative or
funds, any one of the trustee unless the
individuals(1) legal entity itself
is not designated in
the account title.)(5)
3. Husband and wife (joint account) The actual owner of the
account or, if joint
funds, either person (1)
4. Custodian account of a minor The minor (2) 10. Corporate account The corporation
(Uniform Gift to Minors Act)
11. Religious, charitable, or The organization
5. Adult and minor (joint account) The adult or, if the educational organization
minor is the only account
contributor, the minor (1)
12. Partnership account held in The partnership
the name of the business
6. Account in the name of guardian or The ward, minor, or 13. Association, club, or other The organization
committee for a designated ward, incompetent person (3) tax-exempt organization
minor, or incompetent person
7. a. The usual revocable savings The grantor-trustee (1) 14. A broker or registered The broker or nominee
trust account (grantor is also nominee
trustee)
15. Account with the Department The public entity
b. So-called trust account that is The actual owner (1) of Agriculture in the name
not a legal or valid trust of a public entity (such a
under State law State or local government,
school district, or prison)
that receives agricultural
8. Sole proprietorship account The Owner(4) program payments
- ----------------------------------------- ------------------------- ---------------------------------- ----------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security number.
(3) Circle the ward's, minor's, or incompetent person's name and furnish such
person's Social Security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
OBTAINING A NUMBER o Payments described in section 6049(b)(5) to
If you don't have a taxpayer nonresident aliens.
identification number or you o Payments on tax-free covenant
don't know your number, obtain bonds under section 1451.
Form SS-5, Application for a o Payments made by certain foreign organizations.
Social Security Number Card, or o Payments made to a nominee.
Form SS-4, Application for Exempt payees described above should file Form W-9
Employer Identification Number, at to avoid possible erroneous backup withholding.
the local office of the Social FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
Security Administration or the IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE
Internal Revenue Service and apply OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS
for a number. ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup
withholding on ALL payments include the
following: Certain payments other than interest, dividends, and
o A corporation patronage dividends, that are subject to
o A financial institution information reporting are also not subject to backup
o An organization exempt from tax under withholding. For details, see the regulations under
section 501(a), or an individual sections 6041, 6041A(a), 6045, and 6050A.
retirement plan.
o The United States or any agency or Privacy Act Notice. - Section 6109 requires most
instrumentality thereof recipients of dividends, interest, or other
o A State, the District of Columbia, a payments to give taxpayer identification numbers
possession of the United States, or of payers who must report the payments to the IRS.
any subdivision or instrumentality The IRS uses the numbers for identification purposes.
thereof Payers must be given the numbers whether or not
o A foreign government, a political recipients are required to file tax returns. Payers
subdivision of a foreign government, must generally withhold 31% of taxable
or any agency or instrumentality interest, dividend, and certain other payments to a payee
thereof. who does not furnish a taxpayer identification number to a
o A registered dealer in securities or payer. Certain penalties may also apply.
commodities registered in the U.S. or
a possession of the U.S.
o An international organization or any Penalties
agency or instrumentality thereof. (1) Penalty for Failure to Furnish Taxpayer
o A real estate investment trust. Identification Number. -- If you fail to furnish your
o A common trust fund operated by a bank taxpayer identification number to a payer, you are subject
under section 584(a). to a penalty of $50 for each such failure unless your
o An exempt charitable remainder trust, failure is due to reasonable cause and not to willful
or an non-exempt trust described in neglect.
section 4947(a) (1). (2) Failure to Report Certain Dividend and Interest
o An entity registered at all times under Payments. -- If you fail to include any portion of an
the Investment Company Act of 1940. includible payment for interest, dividends, or patronage
o A foreign central bank of issue. dividends in gross income, such failure will be treated as
Payments of dividends and patronage being due to negligence and will be subject to a penalty of
dividends not generally subject to backup 5% on any portion of an under-payment attributable to that
withholding include the following: failure unless there is clear and convincing evidence to
o Payments to nonresident aliens subject to the contrary.
withholding under section 1441. (3) Civil Penalty for False Information With Respect to
o Payments to partnerships not engaged Withholding. -- If you make a false statement with no
in a trade or business in the U.S. reasonable basis which results in no imposition of backup
and which have at least one withholding, you are subject to a penalty of $500.
nonresident partner. (4) Criminal Penalty for Falsifying Information. -
o Payments of patronage dividends where Falsifying certifications or affirmations may subject you
the amount received is not paid to criminal penalties including fines and/or imprisonment.
in money.
o Payments made by certain foreign FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
organizations. CONSULTANT OR THE INTERNAL REVENUE SERVICE
o Payments made to a nominee.
Payments of interest not generally
subject to backup withholding include
the following:
o Payments of interest on obligations
issued by individuals.
Note: You may be subject to backup
withholding if this interest is $600 or
more and is paid in the course of
the payer's trade or business and you
have not provided your correct taxpayer
identification number to the payer.
o Payments of tax-exempt interest (including
exempt-interest dividends under section 852).
</TABLE>
<PAGE>
EXHIBIT 99.H
SUMMARY INSTRUCTIONS FOR PARTICIPATION IN TENDER OFFER
1. CHECK CONTENTS OF PACKAGE. Before proceeding, please ensure that
this package contains the following materials:
o Letter from Christopher K. Seglem, Chairman of the Board of
Directors, President and Chief Executive Officer of
Westmoreland Coal Company
o Offer to Purchase dated September 16, 1999
o Letter of Transmittal (printed on blue paper) bearing a
pre-printed label with your account number and address
(accompanied by Guidelines for Certification of Taxpayer
Identification number of Substitute Form W-9 (printed on
white paper))
o Return envelope addressed to First Chicago Trust Company of
New York, the Depositary for the Offer
2. REVIEW MATERIALS CAREFULLY BEFORE DECIDING TO TENDER. Please review
all enclosed materials carefully before deciding to participate in the Offer. If
your Depositary Shares are held by a broker or bank for your account and you
decide to participate, you must contact your broker or bank and instruct them to
tender your Depositary Shares on your behalf. (If you have so instructed your
bank or broker, you do not need to proceed with instructions 3 and 4 below.) If
your Depositary Shares are registered in your name and you decide to
participate, you must continue with instruction 3 and 4 below.
3. COMPLETE THE LETTER OF TRANSMITTAL. You must do the following to
complete the Letter of Transmittal:
o Read the body of the transmittal letter and the
"Instructions".
o Complete the box entitled "Description of Depositary Shares
Tendered".
o Complete, sign and date the box entitled "Sign Here".
o Complete, sign and date the "Substitute Form W-9" and, if
applicable, the box entitled "Certificate of Awaiting
Taxpayer Identification Number".
Some portions of the Letter of Transmittal should only be completed if
applicable:
o If you would like any of your tendered but unpurchased
Depositary Shares, or the check for your purchased
Depositary Shares, to be issued in the name of someone other
than the current holder or to be mailed to someone other
than the current holder (or to the current holder at an
address other than that shown following their signature),
complete, as applicable, the boxes entitled "Special Payment
Instructions" and "Special Delivery Instructions".
<PAGE>
4. MAIL UNSIGNED DEPOSITARY SHARE RECEIPTS AND THE SIGNED LETTER OF
TRANSMITTAL TO THE DEPOSITARY. Send the Letter of Transmittal together with your
depositary receipt(s) representing the Depositary Shares to First Chicago Trust
Company of New York, the Depositary, at the mailing address shown on the Letter
of Transmittal. (For your convenience, a return envelope is included in this
package.) Use of registered mail is recommended. If you choose to use a courier
service, use the overnight courier address shown on the Letter of Transmittal.
(Eligible Institutions may tender by book-entry transfer. See instruction 2 in
the Letter of Transmittal and the box entitled "Book-Entry Transfer".)
IF YOU HAVE ANY QUESTIONS, HAVE NOT RECEIVED THE LETTER OF TRANSMITTAL OR OTHER
DOCUMENTS PERTAINING TO THE OFFER, OR NEED OTHER ASSISTANCE IN COMPLETING THE
LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT: MORROW & CO., INC.,
TOLL FREE AT (800) 566-9061. BANKS AND BROKERAGE FIRMS MAY CONTACT MORROW & CO.,
INC. AT (800) 662-5200.
