SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-59073
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P&L COAL HOLDINGS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4004153
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Market Street, St. Louis, Missouri 63101-1826
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 342-3400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
----- ------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENT OF CONDENSED CONSOLIDATED OPERATIONS
FOR THE QUARTER AND PERIOD ENDED SEPTEMBER 30, 1998
(In thousands)
Quarter Period
Ended Ended
Sept. 30, 1998 Sept. 30, 1998
---------------- ----------------
REVENUES
Sales $ 537,387 $ 791,134
Other revenues 20,111 29,031
----------------- ----------------
Total revenues 557,498 820,165
OPERATING COSTS AND EXPENSES
Operating costs and expenses 464,534 677,281
Depreciation, depletion and amortization 51,783 77,474
Selling and administrative expenses 16,790 25,748
----------------- ----------------
OPERATING PROFIT 24,391 39,662
Interest expense (52,692) (75,846)
Interest income 6,726 7,753
----------------- ----------------
LOSS BEFORE INCOME TAXES (21,575) (28,431)
Income tax benefit (6,903) (8,472)
------------------ ----------------
NET LOSS $ (14,672) $ (19,959)
================== ================
See accompanying notes to unaudited condensed
consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
September 30, March 31,
1998 1998
---------------- ----------------
(in thousands) (in dollars)
Current assets
Cash and cash equivalents $ 326,250 $ 1
Accounts receivable, less allowance
for doubtful accounts of $9,665 and
$0, respectively 346,473 -
Materials and supplies 62,233 -
Coal inventory 173,029 -
Assets from trading and price risk
management activities 825,241 -
Other current assets 22,503 -
---------------- ----------------
Total current assets 1,755,729 1
Property, plant, equipment and mine
development, net of accumulated
depreciation, depletion and
amortization of $1,626,220
and $0, respectively 4,657,674 -
Investments and other assets 531,426 -
---------------- ----------------
Total assets $ 6,944,829 $ 1
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 73,876 $ -
Income taxes payable 18,010 -
Deferred income taxes 3,153 -
Liabilities from trading and price
risk management activities 473,322 -
Accounts payable and accrued expenses 731,075 -
---------------- ----------------
Total current liabilities 1,299,436 -
Long-term debt, less current maturities 2,304,422 -
Deferred income taxes 873,869 -
Accrued reclamation and other
environmental liabilities 460,744 -
Workers' compensation obligations 222,415 -
Accrued postretirement benefit costs 996,575 -
Obligation to industry fund 62,662 -
Other noncurrent liabilities 278,396 -
---------------- ----------------
Total liabilities 6,498,519 -
Stockholders' equity:
Preferred Stock - $.01 per share par value;
September 30, 1998 - 10,000,000 shares
authorized, 5,000,000 shares issued and
outstanding; March 31, 1998 zero shares
authorized, issued or outstanding 50 -
Common Stock - $.01 per share par value; September
30, 1998 - 25,000,000 shares authorized,
16,000,000 shares issued and outstanding; March 31,
1998 - 1,000 shares authorized, 1 share issued and
outstanding 160 1
Additional paid-in capital 479,790 -
Accumulated other comprehensive loss (13,731) -
Accumulated deficit (19,959) -
---------------- ----------------
Total stockholders' equity 446,310 1
---------------- ----------------
Total liabilities and stockholders'
equity $ 6,944,829 $ 1
================ ================
See accompanying notes to unaudited condensed
consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENT OF CONDENSED CONSOLIDATED CASH FLOWS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (19,959)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation, depletion and amortization 77,474
Deferred income taxes (13,652)
Amortization of debt discount and debt issuance costs 6,133
Net loss on property and equipment disposals 32
Net gain on contract restructuring (592)
Changes in current assets and liabilities,
excluding effects of acquisitions:
Accounts receivable 96,398
Materials and supplies 2,155
Coal inventory 22,025
Other current assets 17,068
Accounts payable and accrued expense (114,570)
Income taxes payable 15,428
Net assets from trading and price risk management activities (6,836)
Accrued reclamation and related liabilities (1,516)
Workers' compensation obligations 676
Accrued postretirement benefit costs 3,239
Obligation to industry fund (1,004)
Royalty prepayment 135,903
Other, net (12,819)
-----------------
Net cash provided by operating activities 205,583
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and mine development (82,464)
Acquisition of P&L Coal subsidiaries, net of $70,359 cash acquired (1,994,635)
Proceeds from contract restructuring 3,881
Proceeds from property and equipment disposals 5,170
-----------------
Net cash used in investing activities (2,068,048)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (154,542)
Proceeds from short-term borrowings and long-term debt 1,863,498
Net capital contribution 480,000
Net change in due to/from affiliates 88
-----------------
Net cash provided by financing activities 2,189,044
Effect of exchange rate changes on cash and cash equivalents (329)
-----------------
Net increase in cash and cash equivalents 326,250
Cash and cash equivalents at beginning of period -
-----------------
Cash and cash equivalents at end of period $ 326,250
=================
See accompanying notes to unaudited condensed
consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
consolidated operations and balance sheets of P&L Coal Holdings Corporation
("P&L Coal"), also known as Peabody Group. These financial statements include
the subsidiaries of Peabody Holding Company, Inc. ("Peabody Holding Company"),
Gold Fields Mining Corporation ("Gold Fields") which owns Lee Ranch Coal Company
("Lee Ranch"), Citizens Power LLC ("Citizens Power") and Peabody Resources
Holdings Pty Ltd. ("Peabody Resources"), an Australian company (collectively,
the "Company"). Through May 19, 1998, the Company was a wholly owned indirect
subsidiary of The Energy Group, PLC ("The Energy Group"). Effective May 20,
1998, the Company was acquired by P&L Coal, which at the time was wholly owned
by Lehman Merchant Banking Partners II and its affiliates ("Lehman Merchant
Banking"), an investment fund affiliated with Lehman Brothers Inc. The
transaction was part of the sale of The Energy Group to Texas Utilities Company.
P&L Coal, a holding company with no direct operations and nominal assets other
than its investment in its subsidiaries, was formed by Lehman Merchant Banking
on February 27, 1998 for the purpose of acquiring the Company and had no
significant activity until the acquisition.
The accompanying condensed consolidated financial statements at September 30,
1998 and for the quarter and period ended September 30, 1998, and the notes
thereto, are unaudited. However, in the opinion of management, these financial
statements reflect all adjustments necessary for a fair presentation of the
results of the periods presented. The results of operations for the period ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the full year.
Prior to the acquisition, "P&L Coal Group" represented the combined operations
of the same subsidiaries currently owned by P&L Coal. The financial statements
should be read in connection with P&L Coal Group's audited financial statements
as of March 31, 1998.
(2) Comprehensive Income
Effective with the quarter ended June 30, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires that noncash
changes in stockholders' equity be combined with net income and reported in a
new financial statement category entitled "comprehensive income." Adoption of
SFAS No. 130 had no impact on the results of the Company's operations. The
following table sets forth the components of comprehensive loss for the quarter
and period ended September 30, 1998 (in thousands):
Quarter ended Period ended
September 30, September 30,
1998 1998
-------------- -------------
Net loss $ (14,672) $ (19,959)
Foreign currency translation adjustment (6,024) (13,731)
-------------- -------------
Comprehensive loss $ (20,696) $ (33,690)
============== =============
(3) Commitments and Contingencies
Environmental claims have been asserted against a subsidiary of the Company at
17 sites in the United States. Some of these claims are based on the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, and on similar state statutes. The majority of these sites are related
to activities of former subsidiaries of the Company.
The Company's policy is to accrue environmental cleanup-related costs of a
noncapital nature when those costs are believed to be probable and can be
reasonably estimated. The quantification of environmental exposures requires an
assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For certain sites, the Company also assesses the financial
capability of other potentially responsible parties and, where allegations are
based on tentative findings, the reasonableness of the Company's apportionment.
The Company has not anticipated any recoveries from insurance carriers or other
potentially responsible third parties in its Consolidated Balance Sheets. The
liabilities for environmental cleanup-related costs recorded in the Consolidated
Balance Sheet at September 30, 1998 were $67.7 million. This amount represents
those costs that the Company believes are probable and reasonably estimable. In
the event that future remediation expenditures are in excess of amounts accrued,
management does not anticipate that they will have a material adverse effect on
the financial position, results of operations or liquidity of the Company.
In addition, the Company at times becomes a party to claims, lawsuits,
arbitration proceedings and administrative procedures in the ordinary course of
business. Management believes that the ultimate resolution of pending or
threatened proceedings will not have a material effect on the financial
position, results of operations or liquidity of the Company.
(4) Indebtedness
As of September 30, 1998, the Company had total indebtedness of $2,378.3
million, consisting of the following:
(In millions)
8.875% Senior Notes due 2008 ("Senior Notes") $ 398.8
9.625% Senior Subordinated Notes due 2008 ("Senior
Subordinated Notes") 498.6
Term loans under Senior Credit Facilities 867.5
5.000% Subordinated Note 205.4
Non-Recourse Debt 301.0
Other 107.0
----------
$ 2,378.3
==========
The Senior Credit Facilities include a Revolving Credit Facility that provides
for aggregate borrowings of up to $150.0 million and letters of credit of up to
$330.0 million. As of September 30, 1998, the Company had no borrowings
outstanding under the Revolving Credit Facility. Interest rates on the revolving
loans under the Revolving Credit Facility are based on the Base Rate (as defined
in the Senior Credit Facilities), or LIBOR (as defined in the Senior Credit
Facilities) at the Company's option. On October 1, 1998, the Company entered
into two interest rate swaps to fix the interest cost on $500 million of
long-term debt outstanding under the Term Loan Facility. The Company will pay a
fixed rate of approximately 7.0% on $300 million of such long-term debt for a
period of three years, and on $200 million of such long-term debt for two years.
The Revolving Credit Facility commitment matures in fiscal year 2005.
The Company made an optional prepayment of $50 million on the Senior Credit
Facilities in July 1998, which it applied against Term Loan B mandatory payments
in order of maturity, and a mandatory payment of $2.5 million on Term Loan A in
September 1998. The following table sets forth the amortization schedule for the
Senior Credit Facilities after giving effect to the payments:
(In millions)
Amortization Term Loan A Term Loan B
------------ ----------- -----------
Fiscal Year:
1999 $ 5.00 $ -
2000 13.75 -
2001 18.75 -
2002 42.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
---------- ----------
$ 267.50 $ 600.00
========== ==========
The indentures governing the Senior Notes and Senior Subordinated Notes permit
the Company and its Restricted Subsidiaries (which include all subsidiaries of
the Company except Citizens Power and its subsidiaries) to incur additional
indebtedness, including secured indebtedness, subject to certain limitations. In
addition, among other customary restrictive covenants, the indentures prohibit
the Company and its Restricted Subsidiaries from creating or otherwise causing
any encumbrance or restriction on the ability of any Restricted Subsidiary that
is not a Guarantor to pay dividends or to make certain other upstream payments
to the Company or any of its Restricted Subsidiaries. The Revolving Credit
Facility and related Term Loan Facility also contain certain restrictions and
limitations including but not limited to financial covenants that will require
the Company to maintain and achieve certain levels of financial performance and
limit the payment of cash dividends and similar restricted payments. In
addition, the Senior Credit Facilities prohibit the Company from allowing its
Restricted Subsidiaries (which include all Guarantors) to create or otherwise
cause any encumbrance or restriction on the ability of any such Restricted
Subsidiary to pay any dividends or make certain other upstream payments subject
to certain exceptions. The Company was in compliance with all of the restrictive
covenants of its loan agreements as of September 30, 1998.
(5) Business Combinations
The acquisition by the Company was funded through borrowings by the Company
pursuant to a $920.0 million senior secured term facility, the offerings of
$400.0 million aggregate principal amount of Senior Notes and $500.0 million
aggregate principal amount of Senior Subordinated Notes, an equity contribution
to P&L Coal by Lehman Merchant Banking of $400.0 million, and an equity
contribution of $80.0 million from other parties, including Lehman Brothers Inc.
Such amounts were used to pay $2,065.0 million for the equity of the Company,
repay debt, increase cash balances and pay transaction fees and expenses
incurred with the acquisition. P&L Coal also entered into a $480.0 million
senior revolving credit facility to provide for the Company's working capital
requirements following the acquisition. The final purchase price is subject to
adjustment to the extent that total assets less current liabilities and
long-term debt as of March 31, 1998 differ from certain projected balances. This
adjustment is not expected to be material to the purchase price and is still
under review by the parties.
The acquisition has been accounted for under the purchase method of accounting.
Accordingly, the cost to acquire the Company has been allocated to the assets
acquired and liabilities assumed according to their respective estimated fair
values. The preliminary estimated fair values were determined based on
management's estimates.
The final purchase price allocation is dependent upon certain valuations that
have not progressed to a stage where there is sufficient information to make a
final allocation. With respect to several valuations, the Company is awaiting
additional information that it has arranged to obtain in order to finalize its
estimates. The Company intends to continue with its internal reviews regarding
asset and liability valuations and also has arranged to obtain independent
appraisals and surveys, as appropriate. In addition, the Company has requested
actuarial valuations to support the final adjustments to its employee-related
liabilities.
The purchase accounting adjustments presented below are preliminary, subject to
finalization of the purchase price, final management review and fair value
determination. Adjustments to the preliminary allocation would likely result in
changes to amounts assigned to property, plant, equipment and mine development
(including land and coal interests) and, accordingly, could impact depletion,
depreciation and amortization charged to future periods. Although not expected
to be material, the full impact of the final allocation is not known.
Below are the Company's historical balance sheet at May 19, 1998, the
preliminary purchase accounting adjustments and the preliminary opening balance
sheet. The historical balance sheet has been adjusted to include the effects of
the financing transactions described above.
Historical
Adjusted for
Effects of Purchase
Financing Accounting Preliminary
May 19, 1998 Adjustments May 19, 1998
------------- ------------- --------------
(In millions)
ASSETS
Total current assets $ 2,243.6 $ (11.5) $ 2,232.1
Property, plant, equipment
and mine development, net 3,668.2 897.9 4,566.1
Investments and other assets 600.9 91.0 691.9
------------- ------------- --------------
Total assets $ 6,512.7 $ 977.4 $ 7,490.1
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 1,801.2 $ 20.0 $ 1,821.2
Long-term debt,
less current maturities 2,287.8 34.9 2,322.7
Deferred income taxes 662.1 229.8 891.9
Other noncurrent liabilities 1,849.2 125.1 1,974.3
------------- ------------- --------------
Total liabilties 6,600.3 409.8 7,010.1
Total stockholders' equity (87.6) 567.6 480.0
------------- ------------- --------------
Total liabilities and
stockholders' equity $ 6,512.7 $ 977.4 $ 7,490.1
============= ============= ==============
The preliminary opening balance sheet reflects the acquisition at a purchase
price of $2,065.0 million. Preliminary purchase accounting adjustments resulted
in a net increase in total assets of $977.4 million. Adjustments to the
preliminary allocation during the current quarter were not material. Various
assets and liabilities were adjusted to reflect their estimated fair value. The
majority of the excess purchase price is reflected as adjustments to the fair
value assigned to various land and coal interests, and the Company does not
anticipate recording any goodwill as a result of the acquisition. The impact of
the preliminary adjustments results in an additional deferred income tax
liability of $229.8 million.
The preliminary purchase accounting adjustments include a $40.0 million
liability for estimated costs associated with a restructuring plan resulting
from the business combination. The estimate is comprised of costs associated
with exiting certain activities and consolidating and restructuring certain
management and administrative functions and includes costs resulting from a plan
to involuntarily terminate or relocate employees. As of September 30, 1998, the
Company has finalized its involuntary termination and employee relocation plan
and continues to finalize the cost of exiting certain business activities. Costs
associated with the exit and restructuring plans are being charged against the
liability as incurred. The net cash outlays and non-cash costs charged against
the liability through September 30, 1998 total approximately $16.8 million and
$2.3 million, respectively. The Company expects the majority of the remaining
charges to occur within the next six months. If the ultimate amount of cost
expended is less than the amount recorded as a liability, the excess will reduce
the cost of the acquisition. Any amount of cost exceeding the amount recorded as
a liability will be recorded as an additional element of the cost of the
acquisition if determined within the allocation period and, thereafter, will be
included as a charge to earnings in the period in which the adjustment is
determined.
The following unaudited pro forma results of operations for the quarter and
periods ended September 30, 1998 and 1997 assume the acquisition had occurred at
the beginning of each fiscal year. The pro forma results of the Company would be
as follows (dollars in thousands):
Period Six Months
Ended Ended
September 30, September 30,
1998 1997
------------- --------------
Total revenues $ 1,112,573 $ 1,144,697
Operating profit 40,502 121,188
Income (loss) before income taxes (54,283) 22,986
Net income (loss) (42,897) 15,834
Guarantor Information
In accordance with the indentures governing the Senior Notes and Senior
Subordinated Notes, certain wholly owned U.S. subsidiaries of the Company have
fully and unconditionally guaranteed the debt associated with the purchase on a
joint and several basis. Separate financial statements and other disclosures
concerning the Guarantor Subsidiaries are not presented because management
believes that such information is not material to investors. The following
condensed historical financial statement information is provided for such
Guarantor/Non-guarantor Subsidiaries.
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Total
revenues $ - $ 519,104 $ 38,394 $ - $ 557,498
Costs and
expenses:
Operating
costs and
expenses - 435,611 28,923 - 464,534
Depreciation,
depletion and
amortization - 44,290 7,493 - 51,783
Selling and
administrative
expenses - 16,392 398 - 16,790
Interest
expense 49,560 2,368 764 - 52,692
Interest
income (1,193) (5,443) (90) - (6,726)
------------ ----------- ------------ ------------ ------------
Income
(loss)
before
income
taxes (48,367) 25,886 906 - (21,575)
Income tax
provision
(benefit) (12,098) 3,962 1,233 - (6,903)
------------ ----------- ------------ ------------ ------------
Net income
(loss) $ (36,269) $ 21,924 $ (327) $ - $ (14,672)
============ =========== ============ ============ ============
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
Period Ended September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Total
revenues $ - $ 753,837 $ 66,328 $ - $ 820,165
Costs and
expenses:
Operating
costs and
expenses - 633,040 44,241 - 677,281
Depreciation,
depletion and
amortization - 66,339 11,135 - 77,474
Selling and
administrative
expenses - 25,105 643 - 25,748
Interest
expense 69,261 5,525 1,060 - 75,846
Interest
income (1,836) (5,817) (100) - (7,753)
------------ ----------- ------------ ------------ ------------
Income
(loss)
before
income
taxes (67,425) 29,645 9,349 - (28,431)
Income tax
provision
(benefit) (17,108) 4,950 3,686 - (8,472)
------------ ----------- ------------ ------------ ------------
Net income
(loss) $ (50,317) $ 24,695 $ 5,663 $ - $ (19,959)
============ =========== ============ ============ ============
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets
September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and
cash
equivalents $ - $ 261,809 $ 64,441 $ - $ 326,250
Accounts
receivable 951 221,888 123,634 - 346,473
Receivables
from affiliates,
net - - - - -
Inventories - 197,011 38,251 - 235,262
Assets from
trading and
price risk
management
activities - - 825,241 - 825,241
Other current
assets - 13,415 9,088 - 22,503
----------- ------------ ------------ ------------ ------------
Total current
assets 951 694,123 1,060,655 - 1,755,729
Property, plant,
equipment and
mine development
at cost - 5,736,788 547,106 - 6,283,894
Less accumulated
depreciation,
depletion
and amortization - (1,435,613) (190,607) - (1,626,220)
----------- ------------ ------------ ------------ ------------
- 4,301,175 356,499 - 4,657,674
Investments and
other assets 2,462,074 304,274 104,026 (2,338,948) 531,426
----------- ------------ ------------ ------------ ------------
Total assets $ 2,463,025 $ 5,299,572 $ 1,521,180 $ (2,338,948)$ 6,944,829
=========== ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term
borrowings
and current
maturities
of long-term
debt $ 10,000 $ 21,635 $ 42,241 $ - $ 73,876
Payable to
affiliates, net 82,463 (79,443) (3,020) - -
Income taxes
payable 6,778 5,648 5,584 - 18,010
Liabilities from
trading and
price risk
management
activities - - 473,322 - 473,322
Accounts payable
and accrued
expenses 136,115 426,294 171,819 - 734,228
----------- ------------ ------------ ------------ ------------
Total current
liabilities 235,356 374,134 689,946 - 1,299,436
Long-term debt,
less current
maturities 1,781,359 181,285 341,778 - 2,304,422
Deferred income
taxes - 813,334 60,535 - 873,869
Other noncurrent
liabilities - 2,006,375 14,417 - 2,020,792
----------- ------------ ------------ ------------ ------------
Total
liabilities 2,016,715 3,375,128 1,106,676 - 6,498,519
Stockholders'
equity 446,310 1,924,444 414,504 (2,338,948) 446,310
----------- ------------ ------------ ------------ ------------
Total
liabilities
and
stockholders'
equity $2,463,025 $5,299,572 $1,521,180 $ (2,338,948)$ 6,944,829
=========== ============ =========== ============ ============
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
Period Ended September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
Net cash provided
by (used in)
operating
activities $ (68,617) $ 271,259 $ 2,941 $ - $ 205,583
----------- ------------ ------------ ------------ ------------
Additions to
property, plant,
equipment and
mine
development - (53,989) (28,475) - (82,464)
Acquisitions of
P&L Coal
Subsidiaries (1,994,635) - - - (1,994,635)
Proceeds from
contract
restructuring - 3,881 - - 3,881
Proceeds from
property and
equipment
disposals - 5,002 168 - 5,170
----------- ------------ ------------ ------------ ------------
Net cash used in
investing
activities (1,994,635) (45,106) (28,307) - (2,068,048)
Payments of
long-term debt (52,500) (76,324) (25,718) - (154,542)
Proceeds from
short-term
borrowings and
Long-term debt 1,817,390 - 46,108 - 1,863,498
Net capital
contribution 398,000 - 82,000 - 480,000
Dividends paid
Net change in
due to/from
affiliates (22,489) 76,677 (54,100) - 88
----------- ------------ ------------ ------------ ------------
Net cash provided
by financing
activities 2,140,401 353 48,290 - 2,189,044
Effect of exchange
rate changes on
cash and cash
equivalents - - (329) - (329)
----------- ------------ ------------ ------------ ------------
Net increase in
cash and cash
equivalents 77,149 226,506 22,595 - 326,250
Cash and cash
equivalents at
beginning of
period - - - - -
----------- ------------ ------------ ------------ ------------
Cash and cash
equivalents at
end of period $ 77,149 $ 226,506 $ 22,595 $ - $ 326,250
=========== =========== =========== =========== ===========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The table presented below summarizes the results of operations and cash flows
for the Company and the "Predecessor Company" (P&L Coal Group) for the periods
presented. The discussion is based on a comparison of the results of P&L Coal
for the quarter and period ended September 30, 1998 versus the P&L Coal Group
results for the three and six-month periods ended September 30, 1997.
The results of operations and cash flows for the period ended September 30, 1998
may not be directly comparable to the other periods indicated as a result of the
effects of restatement of assets and liabilities to their estimated fair market
value in accordance with the application of purchase accounting pursuant to
Accounting Principles Board Opinion No. 16.
Company Predecessor Company
---------------------------- -------------------------------------------
Three Months For The Three Months Six Months
Ended Period Ended Period Ended Ended
September 30, September 30, April 1, 1998 September 30, September 30,
to
1998 1998 May 19, 1998 1997 1997
------------- ------------- -------------- ------------- --------------
Tons sold
(In millions) 44.3 64.8 22.7 42.1 83.5
============== ============= ============== ============= ==============
(In thousands)
Revenues:
Sales $ 537,387 $ 791,134 $ 280,680 $ 503,345 $ 1,022,910
Other
revenues 20,111 29,031 11,728 53,812 121,787
------------- ------------- -------------- ------------- --------------
Total
revenues 557,498 820,165 292,408 557,157 1,144,697
Operating costs
and
expenses 533,107 780,503 285,036 485,333 1,005,418
------------- ------------- -------------- ------------- --------------
Operating
profit $ 24,391 $ 39,662 $ 7,372 $ 71,824 $ 139,279
============= ============= ============== ============= ==============
Net income
(loss) $ (14,672) $ (19,959) $ 476 $ 48,519 $ 95,828
============= ============= ============== ============= ==============
Other Data:
EBITDA (1)$ 76,174 $ 117,136 $ 33,590 $ 126,478 $ 245,165
============= ============= ============== ============= ==============
Cash provided
by (used in):
Operating activities $ 205,583 $ (30,558) $ 50,242
Investing activities (2,068,048) (19,248) (75,060)
Financing activities 2,189,044 23,636 26,293
========== ========== ===========
(1) EBITDA is defined as income before deducting net interest expense, income
taxes, depreciation, depletion and amortization and excludes any non-cash
compensation expense related to management stock transactions. EBITDA has
been reduced by costs associated with reclamation, retiree health care and
workers' compensation. EBITDA is not a substitute for operating income, net
income and cash flow from operating activities as determined in accordance
with generally accepted accounting principles as a measure of profitability
or liquidity. EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's ability to
meet debt service and capital expenditure requirements. Because EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
The amounts presented include EBITDA for Citizens Power of ($4.4 million),
$1.6 million, ($1.3 million), ($1.2 million) and $1.3 million for the
quarter ended September 30, 1998, the period ended September 30, 1998, the
period from April 1 to May 19, 1998, the quarter ended September 30, 1997
and the six months ended September 30, 1997, respectively.
For purposes of the comparisons to prior year operating results, the results of
operations and cash flows for the period ended September 30, 1998 reflect the
results of P&L Coal from April 1 to September 30, 1998 (the Company acquired P&L
Coal Group on May 19, 1998 and prior to such date had no separate operations)
and the results of P&L Coal Group for April 1 to May 19, 1998.
Sales. For the second quarter ended September 30, 1998, the Company had sales of
$537.4 million, an increase of $34.1 million, or 6.8%, compared to the second
quarter ended September 30, 1997. For the period ended September 30, 1998, sales
increased $48.9 million, or 4.8%, over the prior six-month period. The increase
for both periods was primarily due to an increase in brokered tons, as a result
of the Company's strategy to become more active in coal trading. Revenues from
brokered tons increased $33.0 million on a quarterly basis, and $53.3 million
for the period ended September 30, 1998. Sales related to domestic mining
activities experienced significant improvements for both periods at Southern
Appalachia and Southwest regions as a result of production efficiencies, but
these improvements were offset by decreases in revenues relating to Australia
caused by adverse weather conditions and weaker demand.
Other Revenues. Other revenues declined $33.7 million versus the second quarter
ended September 30, 1997, primarily as a result of $18.9 in lower mining
services revenues in Australia and a $9.6 million gain recognized in the prior
year from a coal supply contract restructuring. Other revenues also declined
$81.0 million for the six-month period, mainly due to $38.7 million in lower
revenues from coal supply contract restructurings and $35.7 million in lower
mining services revenues in Australia.
Operating Profit. Operating profit for the quarter ended September 30, 1998 was
$24.4 million, compared with $71.8 million for the prior-year quarter. This
decrease of $47.4 million was primarily due to the following: $14.2 million of
actuarial gains in the prior year associated with certain employee-related
liabilities that are non-recurring as a result of purchase accounting, a $9.6
million gain in the prior year from the restructuring of a coal supply contract,
$5.9 million lower results from Australia due to declining mining services
projects, unfavorable exchange rates and poor weather conditions, $3.8 million
in lower power trading and price risk management activities by Citizens Power,
and $3.5 million of additional depletion and amortization associated with
purchase accounting adjustments to write-up the Company's net assets to fair
value and higher operating expenses.
Operating profit declined $92.2 million to $47.0 million for the six-month
period, primarily due to a $38.7 million gain in the prior year from a coal
supply contract restructuring, $27.3 million of prior year actuarial gains, a
decline in operating profit from Australia of $12.2 million due to declining
mining services projects, unfavorable exchange rates and poor weather
conditions, $5.3 million of additional depletion and amortization associated
with purchase accounting and $2.9 million in lower profit from energy contract
restructuring transactions.
Interest Expense. Interest expense increased $43.7 million to $52.7 million for
the quarter ended September 30, 1998, and increased $61.9 million compared to
the six months ended September 30, 1997. This increase is the result of the
borrowings necessary to fund the acquisition of the P&L Coal Group on May 19,
1998.
Income Taxes. The Company's effective tax rate for the quarter and period ended
September 30, 1998 was 32.0% and 17.5%, respectively. The effective tax rate is
primarily impacted by two factors - the percentage depletion tax deduction
utilized by the Company and its U.S. subsidiaries that creates an alternative
minimum tax (AMT) situation, and the level of contribution by the Australian
business to the consolidated results of operations, which is taxed at a higher
rate than the U.S. Based upon these factors, the Company anticipates that
adjustments to the effective tax rate will be necessary on a quarterly basis.
Liquidity and Capital Resources
Net cash provided by operating activities was $175.0 million, which is comprised
mainly of a royalty prepayment (see discussion below) and a non-cash addition
for depreciation, depletion and amortization, partially offset by working
capital changes.
Net cash used in investing activities was $2,087.3 million, primarily consisting
of $103.1 million of capital expenditures and $2,065.0 for the acquisition of
P&L Coal Group. The Company had $82.6 million of committed capital expenditures
(primarily related to coal reserves and mining machinery) at September 30, 1998.
It is anticipated these capital expenditures will be funded through available
cash and credit facilities.
Net cash provided by financing activities was $2,212.7 million, reflecting a
$480.0 million equity contribution and $1,817.4 million in borrowings to fund
the acquisition. The Company also repaid $174.0 of long-term debt during the
period, including $50.0 million in prepayments and $2.5 million in scheduled
payments on acquisition debt.
On September 30, 1998, the Company received $135.9 million as prepayment of
non-recoupable advance royalty payments related to certain leased coal reserves
in New Mexico pursuant to a prepayment agreement signed on the same date. The
Company also received an interest in a coal reserve lease and other related
mining and contracts rights with an estimated fair value of $27.5 million. No
gain or loss was recognized from the transaction since the net present value of
the future royalties was previously recognized as an asset.
The Company has five qualified single employer defined benefit pension plans,
which the Pension Benefit Guaranty Corporation ("PBGC") calculated as being
underfunded using PBGC methodology. As a result, the Company has entered into an
agreement with the PBGC to alleviate the underfunding of the Company's pension
plans, pursuant to which the Company has agreed to: (i) accelerate minimum
funding payments of $9.6 million that the Company would otherwise have been
required to make during fiscal 1999, (ii) make certain contributions in excess
of such minimum funding and (iii) provide a letter of credit to support a
fraction of the pension plans' unfunded liabilities. The fair market value of
the plans' assets was $468.7 million at March 31, 1998, the date of the last
actuarial valuation determination. The pension funding assumptions included a
9.0% return on plan assets. Future funding and pension expense could be
adversely impacted by changes in the rate of return on plan assets from those
assumed in the actuarial valuation determination.
As of September 30, 1998, the Company had total indebtedness of $2,378.3
million, consisting of the following:
(In millions)
8.875% Senior Notes due 2008 ("Senior Notes") $ 398.8
9.625% Senior Subordinated Notes due 2008 ("Senior
Subordinated Notes") 498.6
Term loans under Senior Credit Facilities 867.5
5.000% Subordinated Note 205.4
Non-Recourse Debt 301.0
Other 107.0
----------
$ 2,378.3
==========
The Senior Credit Facilities include a Revolving Credit Facility that provides
for aggregate borrowings of up to $150.0 million and letters of credit of up to
$330.0 million. As of September 30, 1998, the Company had no borrowings
outstanding under the Revolving Credit Facility. Interest rates on the revolving
loans under the Revolving Credit Facility are based on the Base Rate (as defined
in the Senior Credit Facilities), or LIBOR (as defined in the Senior Credit
Facilities) at the Company's option. On October 1, 1998, the Company entered
into two interest rate swaps to fix the interest cost on $500 million of
long-term debt outstanding under the Term Loan Facility. The Company will pay a
fixed rate of approximately 7.0% on $300 million of such long-term debt for a
period of three years, and on $200 million of such long-term debt for two years.
The Revolving Credit Facility commitment matures in fiscal year 2005.
The Company made an optional prepayment of $50 million on the Senior Credit
Facilities in July 1998, which it applied against Term Loan B mandatory payments
in order of maturity, and a mandatory payment of $2.5 million on Term Loan A in
September 1998. The following table sets forth the amortization schedule for the
Senior Credit Facilities after giving effect to the payments:
(In millions)
Amortization Term Loan A Term Loan B
------------ ------------- -------------
Fiscal Year:
1999 $ 5.00 $ -
2000 13.75 -
2001 18.75 -
2002 42.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
---------- ----------
$ 267.50 $ 600.00
========== ==========
The indentures governing the Senior Notes and Senior Subordinated Notes permit
the Company and its Restricted Subsidiaries (which include all subsidiaries of
the Company except Citizens Power and its subsidiaries) to incur additional
indebtedness, including secured indebtedness, subject to certain limitations. In
addition, among other customary restrictive covenants, the indentures prohibit
the Company and its Restricted Subsidiaries from creating or otherwise causing
any encumbrance or restriction on the ability of any Restricted Subsidiary that
is not a Guarantor to pay dividends or to make certain other upstream payments
to the Company or any of its Restricted Subsidiaries. The Revolving Credit
Facility and related Term Loan Facility also contain certain restrictions and
limitations including but not limited to financial covenants that will require
the Company to maintain and achieve certain levels of financial performance and
limit the payment of cash dividends and similar restricted payments. In
addition, the Senior Credit Facilities prohibit the Company from allowing its
Restricted Subsidiaries (which include all Guarantors) to create or otherwise
cause any encumbrance or restriction on the ability of any such Restricted
Subsidiary to pay any dividends or make certain other upstream payments subject
to certain exceptions. The Company was in compliance with all of the restrictive
covenants of its loan agreements as of September 30, 1998.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires the recognition of all derivatives as assets or liabilities within
the balance sheet, and requires both the derivatives and the underlying exposure
to be recorded at fair value. Any gain or loss resulting from changes in fair
value will be recorded as part of the results of operations, or as a component
of comprehensive income or loss, depending upon the intended use of the
derivative. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company is evaluating the requirements of
this Statement and has not yet determined the impact of adoption on the
financial statements.
Impact of Year 2000 Issue. Some of the Company's older computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognizes a
date using "00" as the year 1900 rather than the Year 2000. This could cause a
system failure or miscalculations resulting in disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in other normal business activities. The Company has
completed an assessment and will have to modify or replace portions of its
software so that its computer systems will function properly with respect to
dates in the Year 2000 and thereafter. The Company has undertaken a company-wide
Year 2000 compliance project, staffed with a diverse team of personnel
representing all levels of the organization. The Company also retained an
outside consulting firm to assist in the assessment and assist in ensuring the
proper project structure to address the Year 2000 issue. With respect to
information technology ("IT") systems, the assessment is complete. The Company
is now in the remediation phase of the project whereby it is updating or
replacing existing applications. The testing and implementation phases of the
project will occur in calendar 1998 and 1999.
Additionally, the Company is also conducting an assessment of its non-IT
technology which consists primarily of embedded technology at the Company's
mining facilities (e.g., security systems, mine monitoring systems, plant
operating systems, coal loading and scale facilities, equipment, etc.). The
Company has also established another task force to address the Year 2000
embedded technology concerns for those applications outside the main frame
systems. The Company is in the assessment phase and plans to have site readiness
action plans for remediation and testing completed by June 1999.
Finally, the Company is conducting an assessment of Year 2000 exposures related
to the Company's suppliers. The Company has identified its key suppliers and has
sent out a request for information on their Year 2000 compliance status. The
Company has dedicated resources to monitor these parties' progress as they
address the Year 2000 issue. Additional requests will be sent, responses will be
tracked and contingency plans will be developed as required to address potential
failures of these parties to be prepared for the Year 2000.
The total cost of the project associated with the Year 2000 issue is estimated
at approximately $6.5 million (21% of the IT budget for fiscal year 1999), which
includes $1.4 million for the purchase of new software and hardware that will be
capitalized and $5.1 million that will be expensed as incurred. To date, the
Company has incurred approximately $1.3 million primarily for assessment of the
Year 2000 issue and development of a modification plan. The Company believes
that the total costs associated with modifying its current systems will not have
a material adverse effect on its results of operations or financial position.
Software modifications are estimated to be 52% complete and the goal of
management is to have all systems and equipment Year 2000 ready by October 1999.
The Company believes that with modifications to existing software and conversion
to new software, the Year 2000 issue will not present significant operational
problems for its computer systems. However, if such modifications and
conversions are not made, or are not completed in a timely fashion, the Year
2000 issue could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the appropriate modifications to deal with the Year 2000 Issue are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events. However, there can be no assurance that these
estimates will be achieved. The Company currently does not have a Year 2000
contingency plan; however, the Company intends to develop one in 1999.
Forward Looking Statements. This quarterly report and certain press releases and
statements the Company makes from time to time include statements of the
Company's and management's expectations, intentions, plans and beliefs that
constitute "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
and are intended to come within the safe harbor protection provided by those
sections. Forward looking statements involve risks and uncertainties, and a
variety of factors could cause actual results to differ materially from the
Company's current expectations, including but not limited to: market conditions
and fluctuations in the demand for coal as an energy source, weather conditions,
the continued availability of long-term coal supply contracts, railroad
performance, foreign currency translation, changes in the government regulation
of the mining industry, risks inherent to mining, changes in the Company's
leverage position, the ability to successfully implement operating strategies,
the impact of Year 2000 compliance by the Company or those entities with which
the Company does business and other factors discussed in the Company's filings
with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to such forward
looking statements that may be made to reflect events or circumstances after the
date hereof, or thereof, as the case may be, or to reflect the occurrence of
anticipated events.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See the Exhibit Index at page 18 of this report.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURE
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.
P&L COAL HOLDINGS CORPORATION
Date: November 12, 1998 By:/s/George J. Holway
------------------------------------------
George J. Holway
Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit
No. Description of Exhibit
------- ----------------------
3.1 Amended and Restated Certificate of Incorporation of P&L Coal Holdings
Corporation (Incorporated by reference to Exhibit 3.1 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.2 By-Laws of P&L Coal Holdings Corporation (Incorporated by reference to
Exhibit 3.2 of the Company's Form S-4 Registration Statement No.
333-59073).
10.9 Royalty Prepayment Agreement by and among Peabody Natural Resources
Company, Gallo Finance Company and Chaco Energy Company, dated
September 30, 1998.
27 Financial Data Schedule (filed electronically with the SEC only).
DocumentEncodingDefault
AGREEMENT
dated as of September 30, 1998
BY AND AMONG
PEABODY NATURAL RESOURCES COMPANY ("PNRC"),
a Delaware general partnership,
GALLO FINANCE COMPANY ("Gallo"),
a Delaware corporation and
CHACO ENERGY COMPANY ("Chaco"),
a New Mexico corporation
<PAGE>
iii
INDEX
Section Page
RECITALS 1
1 Sale and Purchase of the Assets
1.1 Assets 2
1.2 Closing Date 2
1.3 Disclaimer of Warranties 2
2 Prepayment of Advance Royalties and Purchase Price; Payment of
Net Payment
2.1 Prepayment of Advance Royalties 3
2.2 Adjustment to Net Payment 4
2.3 Payment at Closing 4
3 Representations and Warranties
3.1 Chaco's Representations and Warranties 5
3.2 Gallo's and PNRC's Representations and Warranties 9
4 Due Diligence 11
5 Covenants of Chaco
5.1 Conduct of Business Pending Closing 12
5.2 Access 12
5.3 Certain Electric Power Options 13
5.4 Consents Not Obtained 13
5.5 Delivery and Maintenance of Records 13
5.6 No Liquidation, Dissolution or Bankruptcy 14
6 Conditions Precedent
6.1 Gallo's and PNRC's Conditions 14
6.2 Chaco's Conditions 15
7 Closing
7.1 The Closing 16
7.2 Documents to be Delivered at Closing 16
7.3 Execution of Assignment, Notice, and Transfer Documents 17
7.4 Payment of Net Payment 17
8 Assumptions by Gallo 17
9 Tax Prorations 18
10 Termination
10.1 Termination Events 19
10.2 Effect of Termination 19
11 Survival, Indemnification and Liability
11.1 Survival 19
11.2 Gallo's and PNRC's Indemnification 19
11.3 Chaco's Indemnification 20
11. 4 Release and Covenant Not to Sue by Gallo and PNRC 20
11.5 Release and Covenant Not to Sue by Chaco 21
11.6 Limitation of Liability 21
12 Further Assurances 21
13 Access to Records by Chaco 22
14 Notices 22
15 Assignment 22
16 Governing Law 23
17 Expenses and Fees 23
18 Integration 23
19 Modification 23
20 Independent Investigation 23
21 Multiple Originals 24
22 Announcements 24
23 Negotiation of Agreement 25
<PAGE>
EXHIBITS, ATTACHMENTS AND SCHEDULES
EXHIBIT A Schedule of Contracts
EXHIBIT B Description of Properties
EXHIBIT C Description of Other Interests
ATTACHMENT I Assignment, Conveyance, Assumption, Consent And Release Agreement
ATTACHMENT II Special Warranty Deed
<PAGE>
2
AGREEMENT
THIS AGREEMENT ("Agreement") is made effective as of the 30th day of
September, 1998 (the "Effective Date") between Chaco Energy Company, a New
Mexico corporation ("Chaco"), Peabody Natural Resources Company, a Delaware
general partnership (formerly called Hanson Natural Resources Company) ("PNRC")
and Gallo Finance Company, a Delaware corporation and an affiliate of PNRC
("Gallo"). Chaco, PNRC and Gallo will be individually referred to herein as a
"Party" and collectively as the "Parties."
RECITALS:
WHEREAS, Chaco is the lessee under that certain Coal Lease dated and
effective as of April 15, 1977 from Hospah Coal Company, as lessor, to Chaco, as
amended by Modification No. 1 dated February 12, 1981, as amended and restated
by Modification No. 2 effective as of February 28, 1990, and as further amended
by Amendment To Coal Lease dated June 25, 1993 (the Coal Lease, as so amended,
being referred to in this Agreement as the "Lease"); Memoranda of the Lease
being recorded with the Clerk of McKinley County, New Mexico in Book 47 of
Leases, Pages 338 through 342; in Book 52 of Leases, Pages 302 through 305; and
in Book 1 COMP, Pages 6051 through 6054; and
WHEREAS, PNRC has succeeded to the rights of Hospah Coal Company as lessor
under the Lease; and WHEREAS, Chaco is a wholly-owned subsidiary of Texas
Utilities Company ("TUC"), which assured the performance of certain of Chaco's
obligations under the Lease pursuant to that surety agreement dated April 15,
1977, as amended and restated by Amended and Restated Surety Agreement effective
February 28, 1990 between TUC and Hospah Coal Company (the original surety
agreement, as amended and restated, being referred to in this Agreement as the
"Surety Agreement"); and
WHEREAS, Chaco wishes to prepay the net present value of all remaining
advance royalties that may become payable under the Lease and PNRC wishes to
accept such payment; and
WHEREAS, Gallo wishes to acquire from Chaco and to assume all obligations
and liabilities on or after the Closing Date with respect to, and Chaco wishes
to assign to Gallo, all of Chaco's interest in: (i) the Lease, (ii) certain
related contracts and (iii) certain related properties in McKinley County, New
Mexico; and Gallo and PNRC wish to release Chaco and TUC from: (a) all such
obligations and liabilities relating to the Lease, the contracts, the
properties; and (b) the Surety Agreement, as hereinafter described.
NOW, THEREFORE, in consideration of the premises, together with other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged by all Parties, Chaco, PNRC and Gallo agree as follows:
1. Sale and Purchase of the Assets.
1.1 Assets. Subject to the terms and conditions in this Agreement,
Chaco agrees to sell, assign, convey and deliver to Gallo, and Gallo agrees
to accept and receive and to pay $27,500,000.00 (the "Purchase Price") for,
all of Chaco's interest in and to the following (collectively, the
"Assets"):
1.1.1 the Lease;
1.1.2 the contracts (the "Contracts") described in Exhibit A
attached to and made a part of this Agreement;
1.1.3 certain surface lands, oil, gas, coal, mineral and other
interests in McKinley County, New Mexico (the "Properties"), which are
described in Exhibit B attached to and made a part of this Agreement;
and
1.1.4 certain coal leases and rights of way (the "Other
Interests"), which are described in Exhibit C attached to and made a
part of this Agreement.
1.2 Closing Date. The transfer of the Assets from Chaco to Gallo will
occur and be effective at the date of Closing (the "Closing Date").
1.3 Disclaimer of Warranties. Except as specifically set forth in this
Agreement and the Assignment (which is described in Section 7.2.1), the
Deed (which is described in Section 7.2.3), and the Transfer Documents
(which are described in Section 7.2.4), the Assets will be conveyed without
warranties of any kind and EXCEPT TO THE EXTENT SET FORTH IN THIS
AGREEMENT, THE ASSIGNMENT, THE DEED, AND THE TRANSFER DOCUMENTS TO THE
CONTRARY, CHACO EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND, EITHER
STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS, INCLUDING,
WITHOUT LIMITATION, THE DISCLAIMER OF ANY WARRANTIES AS TO TITLE,
HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR THE
PRESENCE OF COAL ON THE LEASED PREMISES, AND ASSIGNEE ACCEPTS THE ASSETS
"WITH ALL FAULTS," "AS-IS," WITHOUT ANY WARRANTIES OF ANY KIND AND WITHOUT
REPRESENTATION OR WARRANTY BY CHACO WITH REGARD TO PHYSICAL DEFECTS
(WHETHER LATENT OR PATENT).
2. Prepayment of Advance Royalties and Purchase Price; Payment of Net Payment.
2.1 Prepayment of Advance Royalties. At Closing, subject to adjustment
as provided in Section 2.2 and the offset of the Purchase Price as provided
in Section 2.3, Chaco will pay to PNRC the "Advance Royalty Prepayment" in
the amount of $163,402,961.00, which is the amount that the Parties agree
is the net present value on September 30, 1998 of the future advance
royalties payable under the Lease, calculated based on an interest rate of
8.1% per annum.
2.2 Adjustment to Net Payment. If Closing does not occur on September
30, 1998, the Advance Royalty Prepayment will be adjusted as follows:
2.2.1 if Closing occurs before September 30, 1998, the Advance
Royalty Prepayment (i.e., the amount of $163,402,961.00) will be
reduced by an amount equal to $36,262.03 multiplied by the number of
days between the Closing Date (including the Closing Date) and
September 30, 1998; and
2.2.2 if Closing occurs after September 30, 1998, the Advance
Royalty Prepayment (i.e., the amount of $163,402,961.00) will be
increased by an amount equal to $36,262.03 multiplied by the number of
days between September 30, 1998 and the Closing Date (including the
Closing Date).
2.3 Payment at Closing. At Closing, Chaco will pay PNRC by wire
transfer in immediately available funds the "Net Payment," which is the
amount of the Advance Royalty Prepayment (as adjusted in accordance with
Section 2.2) offset and reduced by the amount of the Purchase Price to be
paid to Chaco by Gallo. PNRC and Gallo have made appropriate arrangements
between themselves so that such netting may occur. The Net Payment amount
will be $135,902,961.00, if no adjustment is required under Section 2.2.
3. Representations and Warranties.
3.1 Chaco's Representations and Warranties. Chaco represents and
warrants to Gallo and PNRC as follows:
3.1.1 Authority and Enforceability. Chaco is a corporation, duly
formed, validly existing, and in good standing under the laws of the
State of New Mexico. Chaco has full power and authority to enter into
this Agreement, the Deed and the related instruments and agreements
pursuant hereto (the "Related Instruments") and to perform its
obligations under this Agreement, the Deed and the Related
Instruments. The execution, delivery and performance of this
Agreement, the Deed and the Related Instruments by Chaco has been duly
and validly authorized by all requisite action on the part of Chaco.
This Agreement has been duly executed and delivered on behalf of Chaco
and constitutes, and the Deed and the Related Instruments, when
executed and delivered on behalf of Chaco, will constitute, the legal,
valid and binding obligations of Chaco, enforceable in accordance with
their terms, except as enforceability may be limited by applicable
bankruptcy, reorganization or moratorium statutes, equitable
principles or other similar laws affecting Chaco or the rights of
creditors generally.
3.1.2 Litigation and Claims. (a) Chaco has received no notice of
any pending claim, demand, filing, cause of action, administrative
proceeding, lawsuit or other litigation, and (b) to the best knowledge
of Chaco there is no claim, demand, filing, cause of action,
administrative proceeding, lawsuit or other litigation, threatened,
that in either case (a) or (b) would reasonably be expected to: (i)
adversely affect the consummation of this transaction by Chaco; or
(ii) adversely affect the ownership or operation of any of the Assets
to a material extent, other than proceedings relating to the coal
mining industry generally and as to which Chaco is not a named party.
3.1.3 No Violation. This Agreement and the execution and delivery
hereof by Chaco do not, and the fulfillment of and compliance with the
terms and conditions hereof and the consummation of the transactions
contemplated hereby will not:
3.1.3.1 Violate or conflict with any provision of the
certificate of incorporation or bylaws, each as amended to date,
of Chaco;
3.1.3.2 To the best knowledge of Chaco, violate or conflict
with or require any consent, authorization or approval under any
provision of any law or administrative regulation or any
judicial, administrative or arbitration order, award, judgment,
writ, injunction or decree applicable to or binding upon Chaco;
3.1.3.3 Result in a breach of, constitute a default or
violation under (whether with notice or lapse of time or both) or
require any consent, authorization or approval under any
mortgage, indenture, loan or credit agreement or any other
agreement or instrument evidencing indebtedness for money
borrowed to which Chaco is a party or by which any of its
properties or assets is bound;
3.1.3.4 Except with respect to the Other Interests or that
appear of record, require any consent, authorization or approval
by any other third party with respect to which the Assets are
bound; or
3.1.3.5 Result in the creation or imposition of any lien,
charge, security interest or other encumbrance upon the Assets.
3.1.4 Compliance with Laws and Regulations. To the best knowledge
of Chaco, Chaco's ownership of the Assets is in compliance with all
applicable laws, regulations, orders, judgments or decrees of any
Governmental Authority having jurisdiction over the Assets. For the
purposes of this Agreement, "Governmental Authority" shall mean the
United States of America, any state, commonwealth, territory or
possession thereof and any tribe, and any political subdivision of any
of the foregoing, including, but not limited to, courts, departments,
commissions, boards, bureaus, agencies or other instrumentalities.
3.1.5 Taxes. All taxes, assessments and charges by Governmental
Authorities which are currently due and payable by Chaco with respect
to the Assets have been paid.
3.1.6 Environmental.
3.1.6.1 For the purposes of this Agreement, "Environmental
Laws" shall mean federal, state or municipal laws, rules and
regulations governing, regulating or relating to pollution or the
protection of the environment, including, but not limited to, the
Resource Conservation and Recovery Act of 1976, as amended, the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, and all similar state,
municipal and local laws, ordinances, rules, regulations, orders,
directives, determinations and requirements each as in effect on
the Effective Date for purposes of the representations given on
the Effective Date and as in effect on the Closing Date for all
other purposes of this Agreement;
3.1.6.2 Chaco has not received written notice from any
Governmental Authority of any unresolved violation of or pending
or threatened action, suit, inquiry, proceeding or investigation
relating to any Environmental Law applicable to the Assets; and
3.1.6.3 Chaco has not received any currently outstanding
written notice from any Governmental Authority of any license
required under any Environmental Law or legally required
environmental removal, remediation or clean-up obligation with
respect to the Assets.
3.1.7 Contracts; No Notice of Contract Breach. The Contracts
listed in Exhibit A hereto are, to the best knowledge of Chaco, all of
the contracts to which Chaco is a party which in any way relate to the
Lease, the Properties, or the Other Interests; such Contracts, to the
best knowledge of Chaco, are in full force and effect; and Chaco has
not received any notice, whether written or, to the best knowledge of
Chaco, oral, of any breach of any of the Contracts by any party
thereto.
3.1.8 Properties; Encumbrances. The Properties listed in Exhibit
B hereto are all of the properties of Chaco in McKinley County, New
Mexico, which in any way relate to the Lease, the Contracts, or the
Other Interests. Chaco has disclosed to Gallo all unrecorded
mortgages, liens, charges, security interests, overriding royalty
interests or other encumbrances on the Assets. No adverse title claims
are pending or, to the knowledge of Chaco, threatened, with respect to
any portion of the Assets, which are not of record.
3.1.9 No Third Party Options. To the best knowledge of Chaco,
there are no unrecorded existing agreements, options, commitments, or
rights with or to any person to acquire any of the Assets, except as
are referenced in any exhibits to this Agreement.
3.1.10 Funds Available. Chaco has, or will have on the Closing
Date, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to pay the Net Payment.
3.1.11 Mining Permits. Chaco represents and warrants that there
are no mining permits currently in effect with respect to any of the
Assets.
3.1.12 Chaco's Assets. Chaco represents and warrants that the
Assets being conveyed constitute all or substantially all of Chaco's
assets.
3.1.13 Surface Transportation Board. To the best of Chaco's
knowledge, Chaco represents and warrants that Chaco holds no
certificates or permits from the Federal Surface Transportation Board.
3.1.14 Rail Facilities Agreement. Chaco represents and warrants
that it has not modified or amended, and has not knowingly waived or
relinquished, any of its rights under the Amended and Restated Rail
Facilities Agreement identified on Exhibit A hereto, including,
without limitation, the right (if certain events occur or fail to
occur as specified) to receive certain payments from Star Lake
Railroad Company pursuant to Section 3.2(b) thereof. 3.2 Gallo's and
PNRC's Representations and Warranties. Gallo and PNRC represent and
warrant to Chaco as follows: 3.2.1 Authority and Enforceability. Gallo
is a corporation, duly formed, validly existing, and in good standing
under the laws of the state of Delaware and is authorized to do
business and in good standing under the laws of the State of New
Mexico. PNRC is a general partnership duly formed and validly existing
under the laws of Delaware and is authorized to do business under the
laws of the State of New Mexico. Each of Gallo and PNRC has full power
and authority to enter into this Agreement and to perform its
obligations under this Agreement. The execution, delivery and
performance of this Agreement and the Related Instruments by Gallo and
PNRC has been duly and validly authorized by all requisite action on
the part of Gallo and PNRC, respectively. This Agreement has been duly
executed and delivered on behalf of Gallo and PNRC and constitutes,
and the Related Instruments, when executed and delivered on behalf of
Gallo and PNRC, will constitute, the legal, valid and binding
obligations of each of Gallo and PNRC, enforceable in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, reorganization or moratorium statutes, equitable
principles or other similar laws affecting Gallo and PNRC or the
rights of creditors generally. 3.2.2 Independent Investigation. As of
Closing, Gallo and PNRC agree and represent that each of them: (i) has
been given the opportunity to conduct complete and independent
inspections and investigations of the Assets, including, without
limitation, inspections and investigations with respect to title to
the Assets and with respect to environmental conditions; (ii) has
consummated the transactions contemplated by this Agreement on the
basis of its own independent investigation and inspection of the
physical, chemical, and environmental condition of the Assets, as well
as on the basis of the representations, warranties and agreements of
Chaco in this Agreement, the Assignment, the Deed, and the Transfer
Documents; and (iii) with full knowledge of the foregoing and after
conducting its own independent investigation and inspection, EXCEPT TO
THE EXTENT SET FORTH IN THIS AGREEMENT, THE ASSIGNMENT, THE DEED, AND
THE TRANSFER DOCUMENTS, GALLO IS ACQUIRING THE ASSETS AS-IS, WHERE-IS,
WITH ALL FAULTS. 3.2.3 Litigation and Claims. Gallo and PNRC have not
received any notice of any pending claim, demand, filing, cause of
action, administrative proceeding, lawsuit or other litigation, and to
the best knowledge of Gallo and PNRC, there is no claim, demand,
filing, cause of action, administrative proceeding, lawsuit or other
litigation, threatened, that in either case would reasonably be
expected to adversely affect the consummation of this transaction by
Gallo and PNRC, and there are no approvals or consents necessary for
Gallo and PNRC to perform their obligations hereunder that Gallo and
PNRC have not obtained or, unless waived by Chaco, will not have been
obtained prior to Closing.
4. Due Diligence.
4.1 From the date of this Agreement until the earlier of: one day
prior to the date of Closing or November 7, 1998, Gallo and PNRC will have
the right, subject to consent from Chaco, to: (a) inspect the Lease
premises and the Properties; (b) to review documents or records pertaining
to the Lease, the Contracts and the Properties; (c) to conduct an
environmental review of the Lease premises and the Properties; and (d) to
conduct such other reasonable investigations and review of the Assets as
Gallo and PNRC consider appropriate. Subject to Chaco's consent and subject
to the terms of that Confidentiality Agreement dated September 8, 1998
between Chaco and P&L Coal Holdings, Inc., Chaco will: (i) assemble and
make available at reasonable times all records, lease agreements,
transportation agreements, other documents and data related to the Assets;
(ii) allow Gallo, PNRC and their consultants to make physical inspections
of the Lease premises and Properties at reasonable times; and (iii)
reasonably cooperate with Gallo and PNRC's other reasonable due diligence
requests.
4.2 If Gallo and PNRC should determine, in their sole and absolute
discretion, that the Lease, the Contracts and the Properties are not
satisfactory to Gallo or PNRC for any reason, Gallo or PNRC may terminate
this Agreement by delivering written notice of such termination to Chaco
one day prior to Closing. If Gallo or PNRC properly elect to terminate this
Agreement pursuant to the terms hereof, thereafter no Party shall have any
further rights, liabilities or obligations hereunder.
4.3 Should Gallo or PNRC elect to conduct an environmental
investigation of the Lease premises or the Properties, a copy of any
written report will be furnished to Chaco immediately upon Gallo or PNRC's
receipt of same.
4.4 Gallo and PNRC shall not permit any liens to attach to any of the
Assets by reason of the exercise of their rights under this Agreement.
Gallo and PNRC agree to indemnify and hold Chaco harmless from and against
any and all liens by employees, agents, representatives, contractors,
subcontractors, materialmen, laborers and consultants performing such work
and tests for Gallo or PNRC and from and against any and all claims for
damages by Chaco, by Chaco's employees, or by third parties arising out of
the conduct of such tests and entry upon any Chaco property.
5. Covenants of Chaco
5.1 Conduct of Business Pending Closing. Chaco covenants that, from
the date hereof to the Closing Date, Chaco shall: (a) deal with the Assets
in its usual and customary manner, in the ordinary and regular course of
its business; and (b) not otherwise dispose of or encumber any of the
Assets.
5.2 Access. From the date hereof to the Closing Date, Chaco shall
provide Gallo and PNRC and their authorized representatives reasonable
access to the Assets during normal business hours. Chaco shall use best
reasonable efforts to provide accurate and complete information and
documents, but makes no warranties or representations as to the accuracy or
completeness of any information or documents so furnished.
5.3 Certain Electric Power Options. Chaco agrees to facilitate
discussions between Enserch Energy Services ("EES"), an affiliate of Chaco,
and Citizens Power LLC ("Citizens Power"), an affiliate of Gallo and PNRC,
concerning a potential agreement granting Citizens Power the option to
purchase certain electric power options in various locations, although not
within the state of Texas, with the option price and other terms to be as
agreed in the option agreement; provided, however, the Closing of the other
transactions contemplated by this Agreement is not contingent upon EES and
Citizens Power reaching any agreement.
5.4 Consents Not Obtained. To the extent that Chaco is unable to
obtain a third party consent or approval to transfer any interest
constituting a part of the Assets and consequently does not assign or
transfer same to Gallo, Chaco shall reasonably cooperate with Gallo in
obtaining such consent or approval, and shall expeditiously transfer such
asset to Gallo upon obtaining such consent or approval, or otherwise use
its reasonable efforts to make all benefits of such non-assigned interests
available to Gallo without any administrative cost to Gallo, and Chaco
shall not be obligated to incur any cost or expense after the Closing with
respect to such Assets, all of which shall be for the account of Gallo.
5.5 Delivery and Maintenance of Records. As promptly as practicable,
but in any case within 90 days after the Closing Date, or, with respect to
Restricted Records, within 90 days after the date that such Restricted
Records cease to be Restricted Records, Chaco will deliver or cause to be
delivered to Gallo to a location designated by Gallo all such Records;
provided, however, that Chaco may retain:
5.5.1 Originals of all accounting, financial and tax Records for
the Assets attributable to all periods prior to the Closing Date;
provided, however, that Chaco shall provide Gallo with copies of all
such accounting, financial and tax Records that Gallo may reasonably
request; and
5.5.2 Copies of any other Records that Chaco elects to retain.
For the purposes, of this Agreement, "Records" shall mean all existing
financial, accounting, tax, business and other files, documents,
instruments, papers, core drilling records in electronic media format
if requested by Gallo, books, ledgers and records relating to the
Assets but excluding (a) work product of legal counsel, (b) documents
relating to the negotiation and consummation of the transactions
contemplated by this Agreement, (c) computer software and (d)
documents whose disclosure or transfer is prohibited or restricted by
third party agreement, unless the necessary consent of the third party
or parties has been obtained. "Restricted Records" shall mean any
Records that are subject to any transfer restriction. If any
Restricted Records may be transferred to Gallo upon the payment of a
fee or the satisfaction of another condition, and Gallo pays such fee
or satisfies such condition, such Records shall cease to be Restricted
Records.
5.6 No Liquidation, Dissolution or Bankruptcy. Chaco shall cause its
articles of incorporation and by-laws to be amended to provide that Chaco
shall not liquidate, dissolve or file, or permit to be filed, bankruptcy
for a period of three years from the date of this Agreement; and further
covenants that it shall not take any action to liquidate, dissolve or file,
or permit to be filed, bankruptcy within this time period.
6. Conditions Precedent.
6.1 Gallo's and PNRC's Conditions. The obligations of Gallo and PNRC
to be performed at Closing are subject to the fulfillment by Chaco, or the
waiver by Gallo and PNRC, before or at Closing, of each of the following
conditions:
6.1.1 the representations and warranties of Chaco set forth in
this Agreement shall be true and correct in all material respects on
the date of this Agreement and as of the Closing Date;
6.1.2 Chaco must have performed and complied in all material
respects with each of the covenants and conditions required by this
Agreement of which performance or compliance is required prior to or
at the Closing;
6.1.3 Gallo and PNRC receiving approvals from their respective
Boards of Directors;
6.1.4 completion of Gallo's and PNRC's due diligence review in
accordance with Section 4 with results satisfactory to them;
6.1.5 the receipt of all necessary Federal, state and local
governmental and regulatory approvals for the transactions
contemplated by this Agreement;
6.1.6 the receipt of any necessary consents from third parties;
and
6.1.7 the receipt of a legal opinion from Worsham, Forsythe &
Wooldridge, L.L.P. confirming the matters in Section 3.1.1 above.
6.2 Chaco's Conditions. The obligations of Chaco to be performed at
Closing are subject to each of the following conditions, unless waived by
Chaco:
6.2.1 the representations and warranties of Gallo and PNRC set
forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;
6.2.2 Gallo and PNRC must have performed and complied in all
material respects with each of the covenants and conditions required
by this Agreement of which performance or compliance is required prior
to or at the Closing;
6.2.3 Chaco receiving approval from its Board of Directors;
6.2.4 the receipt of all necessary Federal, state and local
governmental and regulatory approvals for the transactions
contemplated by this Agreement;
6.2.5 the receipt of any necessary consents from third parties;
and
6.2.6 the receipt of a legal opinion from the general counsel of
PNRC and Gallo confirming the matters in Section 3.2.1 above.
7. Closing.
7.1 The Closing. The closing of the transactions described in this
Agreement shall be consummated (the "Closing") in Dallas, Texas, at the
offices of Worsham, Forsythe & Wooldridge, L.L.P., 1601 Bryan Street, 30th
Floor, Dallas, Texas 75201 before 2:00 p.m. on the 30th day of September,
1998, or as soon as practicable after receipt or waiver of all necessary
consents and approvals and the satisfaction or waiver of other conditions
precedent (the "Closing Date"); provided that, if Closing does not occur by
December 15, 1998, this Agreement will terminate to the extent set forth in
Section 10.2.
7.2 Documents to be Delivered at Closing. At the Closing, Chaco shall
deliver to Gallo:
7.2.1 an Assignment, Conveyance, Assumption, Consent and Release
Agreement, in the form attached as Attachment I (the "Assignment"),
properly executed and acknowledged by Chaco;
7.2.2 a Notice of Assignment of the Assignment, Conveyance,
Assumption, Consent and Release Agreement (the "Notice") properly
executed and acknowledged by Chaco;
7.2.3 a Special Warranty Deed, in the form attached as Attachment
II (the "Deed"), properly executed and acknowledged by Chaco; and
7.2.4 such forms of transfer documents (the "Transfer Documents")
properly executed by Chaco that are required by the appropriate
federal or state authorities to transfer or assign, without warranties
of any kind, the Other Interests.
7.3 Execution of Assignment, Notice, and Transfer Documents. At the
Closing, Gallo and PNRC shall cause the Assignment, the Notice, and the
Transfer Documents to be properly executed and acknowledged on behalf of
Gallo and PNRC, and shall then cause the fully executed Notice to be
properly recorded in the records of McKinley County, New Mexico. Gallo
shall also obtain the complete execution of the Transfer Documents by any
required parties, and Gallo will properly file or record the fully executed
Transfer Documents and the Deed.
7.4 Payment of Net Payment. At the Closing, Chaco shall pay to PNRC
the Net Payment by wiretransfer in immediately available funds. Account
Name: Peabody Natural Resources Company; Account Number: 323-037259; Bank
Name: Chase Manhattan Bank; Bank Address: New York, New York; ABA Number:
21000021.
8. Assumptions by Gallo. As of the Closing, Gallo assumes: (a) all of the costs,
obligations and liabilities that relate to the Assets and arise on or after the
Closing Date, other than obligations or liabilities incurred, but not yet
required to be performed, or caused by Chaco prior to the Closing Date,
including, without limitation, obligations and liabilities under the Lease and
the Contracts and obligations and liabilities relating to the Properties; (b)
the obligation to comply with any preferential rights to purchase the Assets
that have not been complied with prior to Closing which preferential rights have
been fully disclosed to Gallo by Chaco or appear of record and which arise only
under Contracts shown on Exhibit A; and (c) the obligation to obtain any
consents (subject to the obligation of Chaco hereunder to reasonably cooperate
with Gallo without compensation in obtaining any such consent) that have not
been obtained prior to Closing. Such assumed obligations are hereinafter
referred to as the "Gallo Assumed Obligations". Included in the costs,
obligations and liabilities assumed by Gallo as of the Closing, without limiting
such costs, obligations and liabilities, are all liabilities, obligations,
penalties, fines, losses, costs or expenses, whether direct, indirect, pending,
threatened, contingent or otherwise (collectively, "Costs"), arising from, based
on, associated with, or related to the presence, handling, management, storage,
transportation, processing, treatment, disposal, release, migration or escape of
Environmental Contaminants on or relating to the Assets, resulting from any
action of Gallo on or after the Closing Date, and whether based on negligence,
strict liability or otherwise (collectively, "Environmental Liabilities"). As
used herein, the term "Environmental Contaminants" shall mean any pollutant,
waste, contaminant, or hazardous or toxic material, substance or waste.
9. Tax Prorations. Real and personal property taxes for the Assets for calendar
year 1998 shall be prorated between Gallo and Chaco, as appropriate, as of the
Closing Date. Chaco shall pay Gallo such amounts within thirty (30) days of
receipt of any invoicing by Gallo, showing such amounts being actually paid by
Gallo. Any taxes in addition to the amounts prorated shall be the obligation of
Gallo.
10. Termination.
10.1 Termination Events. Except as otherwise stated herein, if: (i)
any condition to Gallo's or PNRC's obligations hereunder is not satisfied
and such condition is not waived by Gallo or PNRC (as the case may be) at
or prior to the Closing; or (ii) any condition to Chaco's obligations
hereunder is not satisfied and such condition is not waived by Chaco at or
prior to the Closing, then the Party whose obligations are subject to such
unwaived condition, may terminate this Agreement at its option, at or prior
to the Closing Date, by written notice to the other Parties. Closing shall
be deemed conclusive waiver of any conditions precedent(s) to Closing by
the Parties.
This Agreement is also subject to termination as provided in Sections
4.2 and 7.1.
10.2 Effect of Termination. In the event of the termination of this
Agreement as provided or referred to in this Section 10, this Agreement
will terminate and no Party will owe any further obligations to any other
Party, except that the terms of Sections 4 and 17 will survive the
termination of this Agreement.
11. Survival, Indemnification and Liability.
11.1 Survival. The liability of Chaco, Gallo and PNRC under each of
their respective representations, warranties, covenants, agreements and
indemnities shall survive Closing, together with execution and delivery of
the Deed, the Assignment, and the Transfer Documents.
11.2 Gallo's and PNRC's Indemnification. To the extent permitted by
law, Gallo and PNRC, from and after Closing, shall defend, indemnify and
hold Chaco and TUC, or either of them, and each of Chaco's and TUC's
affiliates, together with each of their respective shareholders, officers,
directors, employees and agents (collectively the "Chaco Indemnitees"),
harmless from and against any and all claims, demands, actions,
obligations, and other liabilities threatened against or suffered by the
Chaco Indemnitees as a result of the following ("Claims"): (i) any
Environmental Liabilities arising from the actions of Gallo or PNRC
relating to the Assets on or after the Closing Date; (ii) the ownership or
operation of the Assets by Gallo or PNRC (excluding Environmental
Liabilities) on or after the Closing Date; (iii) any liability or
obligation expressly assumed by Gallo or PNRC pursuant to this Agreement;
or (iv) any fees or commissions arising with respect to brokers or finders
retained or engaged by Gallo or PNRC and resulting from or relating to the
transactions contemplated in this Agreement.
11.3 Chaco's Indemnification. To the extent permitted by law, Chaco,
from and after Closing, shall defend, indemnify and hold Gallo and PNRC, or
either of them, and each of Gallo's and PNRC's affiliates, together with
each of their respective shareholders, officers, directors, employees and
agents (collectively the "Gallo Indemnitees"), harmless from and against
any and all claims, demands, actions, obligations and other liabilities
threatened against or suffered by the Gallo Indemnitees as a result of the
following: (i) any Environmental Liabilities arising from the actions of
Chaco relating to the Assets before the Closing Date; (ii) the ownership or
operation of the Assets by Chaco (excluding Environmental Liabilities)
before the Closing Date, (iii) any liability or obligation expressly
assumed by Chaco pursuant to this Agreement; or (iv) any fees or
commissions arising with respect to brokers or finders retained or engaged
by Chaco and resulting from or relating to the transactions contemplated by
this Agreement (collectively, the "Chaco Retained Obligations").
11.4 Release and Covenant Not to Sue by Gallo and PNRC. If Gallo
acquires the Assets, Gallo and PNRC hereby covenant and agree on behalf of
themselves, together with their successor owners and assigns of the Assets,
not to in any manner whatsoever sue or bring any other action against, or
join any third party's action against, the Chaco Indemnitees, or any of
them for or with respect to, and as of the Closing Date hereby fully
release the Chaco Indemnitees from, any and all Claims that Gallo or PNRC,
its successors and assigns, may now have or in the future may have against
the Chaco Indemnitees that in any way arise from the Gallo Assumed
Obligations; provided, that, with respect to Chaco's obligations to PNRC
under the Lease, this release and covenant not to sue shall extend to
Claims arising under the Lease before, on, or after the Closing Date.
11.5 Release and Covenant Not to Sue by Chaco. If Gallo acquires the
Assets, Chaco hereby covenants and agrees not to in any manner whatsoever
sue or bring any other action against, or join any third party's action
against, the Gallo Indemnitees, or any of them for or with respect to, and
as of the Closing Date hereby fully release the Gallo Indemnitees from, any
and all Claims that Chaco, its successors and assigns, may now have or in
the future may have against the Gallo Indemnitees that in any way arise
from the Lease or the Chaco Retained Obligations.
11.6 Limitation of Liability. Chaco, Gallo and PNRC each waive any
right to recover special, exemplary or consequential damages in any action
or proceeding relating to this Agreement.
12. Further Assurances. After the Closing, each of Chaco, Gallo and PNRC shall
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such instruments, and take such other action, as reasonably may be
necessary to carry out their obligations under this Agreement, or any exhibit,
document, certificate or other instrument delivered pursuant hereto.
13. Access to Records by Chaco. After the Closing Date, Chaco and its authorized
representatives shall have reasonable access (including copying privileges at
Chaco's sole cost and expense) during Gallo's and PNRC's normal business hours
to the books and records of Gallo and PNRC pertaining to the Assets for periods
prior to the Closing Date.
14. Notices. Any notice, communication, request, instruction or other document
required or permitted hereunder shall be given in writing and delivered in
person or sent by U.S. Mail, postage prepaid, return receipt requested, or by
telex, facsimile or telecopy, to the addresses of the Parties set forth below.
Any such notice shall be effective upon receipt.
Chaco: Chaco Energy Company
1601 Bryan Street, 42nd Floor
Dallas, Texas 75201
Attention: Peter B. Tinkham
Gallo: Gallo Finance Company
701 Market Street
Suite 713
St. Louis, MO 63101
Attention: President
PNRC: Peabody Natural Resources Company
701 Market Street
Suite 718
St. Louis, MO 63101
Attention: General Partners
Any Party may, by written notice so delivered, change its address for notice
purposes hereunder.
15. Assignment. None of Chaco, Gallo and PNRC may assign its respective rights,
or delegate its respective duties or obligations, arising under this Agreement,
without the prior written consent of the other Parties.
16. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the State of New Mexico, without the effect of any principles
of conflicts of laws.
17. Expenses and Fees. Whether or not the transactions contemplated by this
Agreement are consummated, each of the Parties will pay the fees and expenses of
their respective counsel, accountants, engineers and other consultants retained
by them incident to the transactions contemplated by this Agreement. Gallo will
pay all fees for the recording of transfer documents, together with any sales,
transfer, stamp or other excise taxes resulting from the transfer of the Assets
to Gallo. All other costs shall be borne by the Party incurring them.
18. Integration. This Agreement, together with the Exhibits hereto and the other
agreements to be entered into by the Parties pursuant hereto, sets forth the
entire agreement and understanding of the Parties in respect to the transactions
referenced herein, and supersedes all other agreements, arrangements and
understandings relating to the subject matter hereof, except with respect to the
Confidentiality Agreement described in Section 4, which remains in full force
and effect.
19. Modification. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by duly
authorized officers of Chaco, Gallo and PNRC, or, in the case of a waiver or
consent, by or on behalf of the Party or Parties waiving compliance or giving
such consent.
20. Independent Investigation. Gallo and PNRC acknowledge that, in entering into
this Agreement, and consummating the transactions contemplated hereby, Gallo and
PNRC have relied on the basis of their own independent inspections and
investigations of the Assets, together with the express written representations
of Chaco set forth in this Agreement, the Assignment, the Deed and the Transfer
Documents. Except as expressly set forth in this Agreement, the Assignment, the
Deed and the Transfer Documents CHACO MAKES NO REPRESENTATIONS OR WARRANTIES
WITH RESPECT TO THE ASSETS. IN ADDITION, GALLO AND PNRC ACKNOWLEDGE THAT CHACO
HAS NOT MADE, AND HEREBY EXPRESSLY DISCLAIMS AND NEGATES, EXCEPT AS EXPRESSLY
PROVIDED FOR IN THIS AGREEMENT, THE DEED, THE ASSIGNMENT AND THE TRANSFER
DOCUMENTS, ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, AT COMMON LAW
OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES
RELATING TO TITLE, HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR CONFORMITY TO MODELS, SAMPLES OR MATERIALS, TOGETHER WITH ANY OTHER
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ASSETS, OR ANY AGREEMENT OR
INSTRUMENT RELATED THERETO.
21. Multiple Originals. This Agreement may be executed in any number of
identical originals. In making proof of this Agreement, it is not necessary to
produce or account for more than one original.
22. Announcements. Prior and subsequent to the Closing Date, none of Chaco,
Gallo and PNRC shall make written announcements or other written public
disclosures or issue press releases relating to the content of this Agreement or
the transactions contemplated hereby without the prior written approval of the
other Parties to this Agreement to the form and content of the release or
disclosure. Notwithstanding the foregoing, each Party shall be entitled to
disclose such information without limitation (i) to its affiliates, attorneys,
financial or lending institutions, outside auditors and insurers, (ii) as may be
required by law or by regulation or order of Governmental Authority, or
contract, or by the rules of any stock exchange applicable to such Party or its
affiliates, or as part of such Party's good faith attempt to comply with
disclosure obligations under any of the same, (iii) to the extent necessary for
such Party to obtain third party consents; and (iv) as may be necessary or
desirable to enforce such Party's rights hereunder.
23. Negotiation of Agreement. This Agreement was negotiated by all Parties, and
not by any Party to the exclusion of the other Parties. The Parties agree that
this Agreement shall not be construed against or interpreted to the disadvantage
of any Party by any court, or other governmental or judicial authority, because
of any Party having, or being deemed to have, prepared, structured or dictated
this Agreement, or any provision herein.
EXECUTED AND EFFECTIVE as of the date first set forth above.
CHACO: GALLO:
CHACO ENERGY COMPANY GALLO FINANCE COMPANY
By:/s/ Peter B. Tinkham By:/s/ W. Howard Carson
- ------------------------------- -----------------------
Name: Peter B. Tinkham Name: W. Howard Carson
Its: Executive Vice President Its: Vice President
PNRC:
PEABODY NATURAL RESOURCES
COMPANY, by its General Partners
Gold Fields Mining Corporation,
General Partner
By:/s/ W. Howard Carson
-----------------------
Name: W. Howard Carson
Its: Vice President
Peabody America, Inc.,
General Partner
By:/s/ W. Howard Carson
-----------------------
Name: W. Howard Carson
Its: Vice President
<PAGE>
A-2
EXHIBIT A
Attached to and made a part of that certain Agreement between
Chaco Energy Company, Peabody Natural Resources
Company and Gallo Finance Company
Schedule of Contracts
1. Exchange Closing Agreement dated June 25, 1993 between Hospah Coal
Company, The Atchison, Topeka and Santa Fe Railroad Company, Chaco
Energy Company, Hanson Natural Resources Company and others.
2. Option to Acquire Interest in Fee and Private Easement Right-Of-Way for
the Baca Coal Spur dated June 25, 1993 between Chaco Energy Company and
Santa Fe Pacific Minerals Corporation.
3. Option to Acquire Interest in State Right-Of-Way for the Baca Coal Spur
dated June 25, 1993 between Chaco Energy Company and Santa Fe Pacific
Minerals Corporation.
4. Agreement to Provide Advance Notice to Chaco of Termination of Ground
Lease for the Baca Coal Spur dated June 25, 1993 between Chaco Energy
Company, Santa Fe Pacific Minerals Corporation and LRCS Limited
Partnership.
5. Amended and Restated Rail Facilities Agreement dated June 25, 1993,
between Chaco Energy Company, The Atchison, Topeka and Santa Fe Railway
Company, Star Lake Railroad Company and Hanson Natural Resources
Company and others.
6. Rail Transportation Agreement dated February 28, 1990 between The
Atchison Topeka and Santa Fe Railway Company and Chaco Energy Company,
as amended by First Amendment to Rail Transportation Agreement dated
June 25, 1993.
7. Amended and Restated San Juan Basin Agreement dated June 25, 1993
between Hospah Coal Company, Hanson Natural Resources Company and Chaco
Energy Company; a Notice and Memorandum of Amended and Restated San
Juan Basin Agreement being recorded with the Clerk of McKinley County,
New Mexico in Book 6 of COMP, pp.9193-9208.
8. Agreement entered into on July 22, 1981 between the Navajo Nation,
also known as the Navajo Tribe, and Chaco Energy Company.
9. Agreement dated October 24, 1980 between Jerry Elkins and Luann Elkins,
husband and wife (as successors to Rollin M. Albers and wife, Imogen
Albers and Betty Albers, individually and as Trustee under the Trust
established under the last Will and Testament of W. B. Albers,
Deceased, collectively doing business as Albers Brothers) and Chaco
Energy Company.
10. Agreement dated April 7, 1978 between Claude Fondaw and wife, Anna
Pauline Fondaw and Chaco Energy Company.
11. Grazing Permit between Tanner, Inc. and Chaco Energy Company dated July
1, 1983, as amended on October 18, 1988 and December 8, 1997.
12. Agreement, dated September 10, 1980, by and between the Pueblo Pintado,
the Whitehorse Lake Chapters, and Chaco Energy Company.
<PAGE>
B-2
EXHIBIT B
Attached to and made a part of that certain Agreement between
Chaco Energy Company, Peabody Natural Resources
Company and Gallo Finance Company
Description of Properties
1. All of Chaco's right, title and interest in the Sections 1 and 3,
Township 16 North, Range 10 West, NMPM, McKinley County, New Mexico,
subject, however, to that certain Agreement dated October 24, 1980
between Jerry Elkins and Luann Elkins, husband and wife (as successors
to Rollin M. Albers and wife, Imogen Albers and Betty Albers,
individually and as Trustee under the Trust established under the last
Will and Testament of W. B. Albers, Deceased, collectively doing
business as Albers Brothers) and Chaco Energy Company.
2. All of Chaco's right, title and interest in that tract of land out of
the NW/4 NE/4 of Section 10, Township 19 North, Range 6 West, NMPM,
McKinley County, New Mexico, more particularly described in that
Warranty Deed dated April 7, 1978 from Claude Fondaw and wife, Anna
Pauline Fondaw, which Deed is recorded at Book 31, Page 911 of the Deed
Records of McKinley County, New Mexico, subject, however, to that
certain Agreement dated April 7, 1978 between Claude Fondaw and wife,
Anna Pauline Fondaw and Chaco Energy Company.
3. All of Chaco's right, title and interest in the following lands:
Township 19 North, Range 6 West, NMPM, McKinley County, New Mexico N/2
Section 9; and Sections 1, 3, 11 and 12; Township 20 North, Range 7
West, NMPM, McKinley County, New Mexico Sections 13, 14, 23, 24 and
25; Township 20 North, Range 6 West, NMPM, McKinley County, New Mexico
SW/4 Section 34 and Sections 29, 31, and 33; subject, however, to that
Agreement entered into on July 22, 1981 between the Navajo Nation,
also known as the Navajo Tribe, and Chaco Energy Company and to
certain option rights described in that Special Warranty Deed dated
July 22, 1981 from the Navajo Tribe to Chaco Energy Company, which is
recorded at Book 32, pp. 339-340 of the Deed Records of McKinley
County, New Mexico.
4. All of Chaco's right, title and interest in the NE/4 of Section 8,
Township 19 North, Range 6 West, NMPM, McKinley County, New Mexico.
5. All of Chaco's right, title and interest in the Section 32, Township
20 North, Range 6 West, NMPM, McKinley County, New Mexico.
<PAGE>
C-1
EXHIBIT C
Attached to and made a part of that certain Agreement between
Chaco Energy Company, Peabody Natural Resources
Company and Gallo Finance Company
Description of Other Interests
1. Right of Way granted by the United States Department of the Interior,
Bureau of Land Management to Chaco Energy Company on October 10, 1980
(BLM ROW NM-041566).
2. Coal Mining Lease between the State of New Mexico and Chaco Energy
Company dated September 15, 1986, covering the S/2 of Section 2,
T19N-R6W, NMPM (Lease No. M-15596-4 (Renewal)).
3. Coal Mining Lease between the State of New Mexico and Chaco Energy
Company dated September 15, 1986, covering Lots 1, 2, 3, 4 and the S/2
N/2 of Section 2, T19N-R6W, NMPM (Lease No. M-15597-4 (Renewal)).
4. State of New Mexico Business Lease covering Section 2, T16N-R10W, NMPM
(BL-1021).
5. New Mexico State Engineer Office, Monitor Well Permit numbers:
SJ-989-1 through SJ989-6.
<PAGE>
I-7
ATTACHMENT I
Attached to and made a part of that certain
Agreement between Chaco Energy Company,
Peabody Natural Resources Company and
Gallo Finance Company.
ASSIGNMENT, CONVEYANCE, ASSUMPTION,
CONSENT AND RELEASE AGREEMENT
THIS ASSIGNMENT, CONVEYANCE, ASSUMPTION, CONSENT AND RELEASE AGREEMENT
("Assignment") is dated this 30th day of September, 1998, by and between Chaco
Energy Company, a New Mexico corporation ("Chaco" or "Assignor"), whose address
is 1601 Bryan Street, Dallas, Texas 75201, Gallo Finance Company, a Delaware
corporation ("Assignee"), whose address is 701 Market Street, Suite 713, St.
Louis, Missouri 63101, and Peabody Natural Resources Company, a Delaware general
partnership ("Lessor" or "PNRC"). Chaco, Assignee and Lessor may be referred to
in this Assignment individually as a "Party" and collectively as the "Parties."
WHEREAS, Chaco is the lessee under that certain Coal Lease dated and
effective as of April 15, 1977 from Hospah Coal Company, as lessor, to Chaco, as
amended by Modification No. 1 dated February 12, 1981, as amended and restated
by Modification No. 2 effective as of February 28, 1990, and as further amended
by Amendment To Coal Lease dated June 25, 1993 (the Coal Lease, as so amended,
being referred to in this Assignment as the "Lease"); Memoranda of the Lease
being recorded with the Clerk of McKinley County, New Mexico in Book 47 of
Leases, Pages 338 through 342; in Book 52 of Leases, Pages 302 through 305; and
in Book 1 COMP, Pages 6051 through 6054; and
WHEREAS, Lessor has succeeded to the rights of Hospah Coal Company as
lessor under the Lease; and
WHEREAS, Assignee wishes to acquire from Chaco all of Chaco's interest
in the Lease and certain related contracts (as more particularly described
below, the "Contracts"), and Chaco wishes to assign and convey to Assignee,
without warranties of any kind except as specified in this Assignment, all of
Chaco's rights in the Lease and the Contracts; and
WHEREAS, Section 21(B) of the Lease provides that, without the prior
written approval of Lessor, Chaco will not assign, in whole or part, its rights
and obligations under the Lease; and
WHEREAS, Texas Utilities Company ("TUC") assured the performance of
certain of Chaco's obligations under the Lease pursuant to that surety agreement
dated April 15, 1977, as amended and restated by Amended and Restated Surety
Agreement effective February 28, 1990 between TUC and Hospah Coal Company (the
original surety agreement, as amended and restated, is referred to in this
Assignment as the "Surety Agreement"); and
WHEREAS, Chaco wishes to assign and convey all of its interest in the
Lease and the Contracts to Assignee, Assignee wishes to assume all obligations
under the Lease and the Contracts, and Lessor and Assignee wish to release Chaco
and TUC from: (a) certain obligations and liabilities under or related to the
Lease and the Contracts; and (b) the Surety Agreement.
NOW THEREFORE, in consideration of ten dollars and other valuable
consideration, the receipt and sufficiency of which is acknowledged by each
Party, Chaco, Assignee and Lessor agree as follows:
1. Subject to all of the other terms of this Assignment, Chaco hereby:
(a) with limited special warranty of title, only assigns, conveys,
transfers and sets over to the Assignee all of Assignor's right,
title and interest in and to the Lease; and
(b) assigns to Assignee, with no warranties of any kind, all of its
right, title and interest in and to the contracts described in
Exhibit A attached to and made a part of this Assignment (the
"Contracts").
2. The Lease and the Contracts (collectively, the "Assets") are assigned
and conveyed, and the limited special warranties of title made in Section 1, are
subject to the following terms, conditions, reservations and exceptions:
(a) all exceptions, conveyances, reservations, easements and
encumbrances that appear in the records of McKinley County, New
Mexico;
(b) all exceptions, limitations, restrictions and matters referenced
in any exhibit attached to this Assignment;
(c) easements, or claims of easements, on or across the Lease
(whether visible or not), which are not recorded in the public
records;
(d) general real estate taxes and special assessments for 1998 and
subsequent years not yet due and payable, and any subsequent tax
assessment, the payment of all of which Assignee assumes; and
(e) EXCEPT TO THE EXTENT SET FORTH IN THIS ASSIGNMENT TO THE CONTRARY
AND AS OTHERWISE PROVIDED FOR IN THE AGREEMENT (DEFINED BELOW),
CHACO EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND, EITHER
STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASE AND THE
CONTRACTS, INCLUDING, WITHOUT LIMITATION, THE DISCLAIMER OF ANY
WARRANTIES AS TO TITLE, HABITABILITY, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, OR THE PRESENCE OF COAL ON THE LEASED
PREMISES, AND ASSIGNEE ACCEPTS THE LEASE AND THE CONTRACTS "WITH
ALL FAULTS," "AS-IS," WITHOUT ANY WARRANTIES OF ANY KIND AND
WITHOUT REPRESENTATION OR WARRANTY BY CHACO WITH REGARD TO
PHYSICAL DEFECTS (WHETHER LATENT OR PATENT).
3. The Assignee hereby assumes, agrees to be bound by, and undertakes to
perform or to have performed each and every one of the terms, covenants, and
conditions contained in the Lease on and after the date of this Assignment.
4. PNRC hereby consents to and recognizes the Assignee as the Assignor's
successor in interest in and to the Lease. The Assignee hereby becomes entitled
to all right, title, and interest of the Assignor in and to the Lease in all
respects as if the Assignee were the original party to the Lease. The term
"Lessee" as used in the Lease shall be hereafter deemed to refer to the Assignee
rather than to the Assignor.
5. PNRC hereby fully releases Assignor, as the original Lessee, from any
and all liability of any kind relating to the Lease, including payment of all
advance royalties due and payable under the Lease.
6. PNRC hereby fully releases Texas Utilities Company from the Surety
Agreement, and the Surety Agreement is hereby deemed terminated.
7. PNRC hereby further releases Assignor from any and all liability
relating to the Lease for any events, actions or inactions of the Assignee
occurring under the Lease on or subsequent to the date of this Assignment.
8. The Assignor hereby releases PNRC from any and all liability relating to
the Lease for any events, actions or inactions of PNRC, as Lessor, under the
Lease occurring prior to, on or subsequent to the date of this Assignment.
9. All notices provided for under the Lease which had previously been given
to Assignor shall be given to Assignee at the following address, unless PNRC is
otherwise notified by Assignee:
Gallo Finance Company
701 Market Street, Ste. 713
St. Louis, Missouri 63101
Attention: President
10. Except as herein modified, the Lease shall otherwise remain in full
force and effect.
11. Assignee hereby accepts and assumes all obligations of Chaco under the
Lease, the Contracts and all instruments affecting the Assets and agrees that is
bound by the terms and conditions of the Lease and the Contracts and each
instrument affecting the Assets as if Assignee were an original signatory party
thereto.
12. Lessor hereby consents to the assignment of the Lease as set forth in
this Assignment.
13. This Assignment is further subject to the terms and conditions of that
Agreement dated September 30, 1998 ("Agreement") between Chaco, Assignee and
Lessor, including without limitation, terms and conditions relating to releases
and indemnifications by the Parties.
IN WITNESS WHEREOF, this Agreement is executed effective as of this 30th
day of September, 1998.
CHACO:
CHACO ENERGY COMPANY
By:____________________________
Name:__________________________
Title:___________________________
ASSIGNEE:
GALLO FINANCE COMPANY
By:_____________________________
Name:__________________________
Title:___________________________
LESSOR:
PEABODY NATURAL RESOURCES COMPANY,
by its General Partners
Gold Fields Mining Corporation,
General Partner
By:____________________________
Name:__________________________
Title:___________________________
Peabody America, Inc.,
General Partner
By:____________________________
Name:__________________________
Title:___________________________
State of Texas ss.
ss.
County of Dallas ss.
This instrument was acknowledged before me on September ___, 1998 by
_____________________________, _______ President of Chaco Energy Company, a
Texas corporation, on behalf of said corporation.
------------------------------
Notary Public, State of Texas
Printed Name:___________________
My Commission expires:__________
State of ________ ss.
ss.
County of ______ ss.
This instrument was acknowledged before me on September ___, 1998 by
_____________________________, _______ President of Gallo Finance Company, a
Delaware corporation, on behalf of said corporation.
------------------------------
Notary Public, State of ___________
Printed Name:___________________
My Commission expires:__________
<PAGE>
State of ________ ss.
ss.
County of ______ ss.
This instrument was acknowledged before me on September ___, 1998 by
_____________________________, _______ President of Gold Fields Mining
Corporation, a general partner of Peabody Natural Resources Company, on behalf
of Peabody Natural Resources Company, a Delaware general partnership.
------------------------------
Notary Public, State of ___________
Printed Name:___________________
My Commission expires:__________
State of ________ ss.
ss.
County of ______ ss.
This instrument was acknowledged before me on September ___, 1998 by
_____________________________, _______ President of Peabody America, Inc., a
general partner of Peabody Natural Resources Company, on behalf of Peabody
Natural Resources Company, a Delaware general partnership.
-----------------------------
Notary Public, State of ___________
Printed Name:___________________
My Commission expires:__________
<PAGE>
A-2
EXHIBIT A
Attached to and made a part of that certain Assignment,
Conveyance, Assumption, Consent and Release Agreement
between Chaco Energy Company,
Peabody Natural Resources Company and Gallo Finance Company
Schedule of Contracts
1. Exchange Closing Agreement dated June 25, 1993 between Hospah Coal Company,
The Atchison, Topeka and Santa Fe Railroad Company, Chaco Energy Company,
Hanson Natural Resources Company and others.
2. Option to Acquire Interest in Fee and Private Easement Right-Of-Way for the
Baca Coal Spur dated June 25, 1993 between Chaco Energy Company and Santa
Fe Pacific Minerals Corporation.
3. Option to Acquire Interest in State Right-Of-Way for the Baca Coal Spur
dated June 25, 1993 between Chaco Energy Company and Santa Fe Pacific
Minerals Corporation.
4. Agreement to Provide Advance Notice to Chaco of Termination of Ground Lease
for the Baca Coal Spur dated June 25, 1993 between Chaco Energy Company,
Santa Fe Pacific Minerals Corporation and LRCS Limited Partnership.
5. Amended and Restated Rail Facilities Agreement dated June 25, 1993, between
Chaco Energy Company, The Atchison, Topeka and Santa Fe Railway Company,
Star Lake Railroad Company and Hanson Natural Resources Company and others.
6. Rail Transportation Agreement dated February 28, 1990 between The Atchison
Topeka and Santa Fe Railway Company and Chaco Energy Company, as amended by
First Amendment to Rail Transportation Agreement dated June 25, 1993.
7. Amended and Restated San Juan Basin Agreement dated June 25, 1993 between
Hospah Coal Company, Hanson Natural Resources Company and Chaco Energy
Company; a Notice and Memorandum of Amended and Restated San Juan Basin
Agreement being recorded with the Clerk of McKinley County, New Mexico in
Book 6 of COMP, pp.9193-9208.
8. Agreement entered into on July 22, 1981 between the Navajo Nation, also
known as the Navajo Tribe, and Chaco Energy Company.
9. Agreement dated October 24, 1980 between Jerry Elkins and Luann Elkins,
husband and wife (as successors to Rollin M. Albers and wife, Imogen Albers
and Betty Albers, individually and as Trustee under the Trust established
under the last Will and Testament of W. B. Albers, Deceased, collectively
doing business as Albers Brothers) and Chaco Energy Company.
10. Agreement dated April 7, 1978 between Claude Fondaw and wife, Anna Pauline
Fondaw and Chaco Energy Company.
11. Grazing Permit between Tanner, Inc. and Chaco Energy Company dated July 1,
1983, as amended on October 18, 1988 and December 8, 1997.
<PAGE>
B-2
<PAGE>
II-2
ATTACHMENT II
Attached to and made a part of that certain
Agreement between Chaco Energy Company,
Peabody Natural Resources Company and
Gallo Finance Company.
RECORDING REQUESTED BY
AND WHEN RECORDED, MAIL
TO SUSAN MCCORMACK, ESQ.
KELEHER & MCLEOD, P.A.
P.O. DRAWER AA, ALBUQUERQUE, NM 87103
SPECIAL WARRANTY DEED
Chaco Energy Company, a New Mexico corporation, ("Grantor") for
consideration paid, grants, gives, bargains, sells, and conveys to Gallo Finance
Company, a Delaware corporation ("Grantee"), whose address is 701 Market Street,
Ste. 713, St. Louis, Missouri 63101 all of that real property situated in
McKinley County, New Mexico, which property is more particularly described in
Exhibit A attached hereto (the "Granted Premises"), subject to those matters
expressly set forth in the description thereof (the "Exceptions").
Grantor, for itself and its successors, covenants with Grantee, its
successors and assigns, that the Granted Premises are free from all encumbrances
made by Grantor, and that Grantor will, and its successors shall, warrant and
defend the same to Grantee, its successors and assigns, forever against the
lawful claims and demands of all persons claiming by, through or under Grantor,
but against none other, provided that any and all exceptions, conveyances,
reservations, easements and encumbrances that appear in the records of McKinley
County, New Mexico are excluded from this warranty.
IN WITNESS WHEREOF, Grantor has executed this SPECIAL WARRANTY DEED as of
the _____ day of September, 1998.
CHACO ENERGY COMPANY
By:____________________________
Name:__________________________
Title:___________________________
ACKNOWLEDGMENT FOR CORPORATION
State of Texas ss.
ss.
County of Dallas ss.
The foregoing instrument was acknowledged before me this _____ day of
September, 1998, by ______________________________________, ________ President
of Chaco Energy Company, a New Mexico corporation, on behalf of said
corporation.
------------------------------
Notary Public, State of ___________
Printed Name:___________________
My Commission expires:__________
<PAGE>
A-2
EXHIBIT "A"
TO
SPECIAL WARRANTY DEED
BY AND BETWEEN
CHACO ENERGY COMPANY ("GRANTOR") AND
GALLO FINANCE COMPANY ("GRANTEE")
Any and all right, title and interest of Grantor in and to the real
property described below (the "Real Property") and all rights, interests,
privileges, hereditaments and appurtenances incident thereto, including, but not
limited to:
a) any and all right, title and interest in minerals, including, without
limitation, gold, coal, silver, precious metals, base metals, oil and
gas, and, to the extent considered minerals under applicable law,
sand, gravel, stone and geothermal steam, and rights appurtenant
thereto;
b) any and all right, title and interest in and to (and all rights to
use) the surface estate;
c) any and all easements, licenses, privileges, uses and rights-of-way;
d) any and all buildings, improvements, structures, fixtures and
facilities located in, on or under, affixed to or erected upon any of
the Real Property;
e) any and all water, water rights, and applications for water rights, in
and to the following Real Property:
1. Sections 1 and 3, Township 16 North, Range 10 West, NMPM, McKinley
County, New Mexico, subject, however, to that certain Agreement dated
October 24, 1980 between Jerry Elkins and Luann Elkins, husband and
wife (as successors to Rollin M. Albers and wife, Imogen Albers and
Betty Albers, individually and as Trustee under the Trust established
under the last Will and Testament of W. B. Albers, Deceased,
collectively doing business as Albers Brothers) and Chaco Energy
Company.
2. A tract of land out of the NW/4 NE/4 of Section 10, Township 19 North,
Range 6 West, NMPM, McKinley County, New Mexico, more particularly
described in that Warranty Deed dated April 7, 1978 from Claude Fondaw
and wife, Anna Pauline Fondaw, which Deed is recorded at Book 31, Page
911 of the Deed Records of McKinley County, New Mexico, subject,
however, to that certain Agreement dated April 7, 1978 between Claude
Fondaw and wife, Anna Pauline Fondaw and Chaco Energy Company.
3. The following lands:
Township 19 North, Range 6 West, NMPM, McKinley County, New Mexico N/2
Section 9; and Sections 1, 3, 11 and 12; Township 20 North, Range 7
West, NMPM, McKinley County, New Mexico
Sections 13, 14, 23, 24 and 25;
Township 20 North, Range 6 West, NMPM, McKinley County, New Mexico SW/4
Section 34 and Sections 29, 31, and 33;
subject, however, to that Agreement entered into on July 22, 1981
between the Navajo Nation, also known as the Navajo Tribe, and Chaco
Energy Company and to certain option rights described in that Special
Warranty Deed dated July 22, 1981 from the Navajo Tribe to Chaco Energy
Company, which is recorded at Book 32, pp. 339-340 of the Deed Records
of McKinley County, New Mexico.
4. The NE/4 of Section 8, Township 19 North, Range 6 West, NMPM, McKinley
County, New Mexico. 5. Section 32, Township 20 North, Range 6 West,
NMPM, McKinley County, New Mexico.
<PAGE>
III-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF SEPTEMBER 30, 1998 AND FOR THE PERIOD
THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001064728
<NAME> P&L COAL HOLDINGS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 326,250
<SECURITIES> 0
<RECEIVABLES> 356,138
<ALLOWANCES> 9,665
<INVENTORY> 173,029
<CURRENT-ASSETS> 1,755,729
<PP&E> 6,283,894
<DEPRECIATION> 1,626,220
<TOTAL-ASSETS> 6,944,829
<CURRENT-LIABILITIES> 1,299,436
<BONDS> 2,304,422
0
50
<COMMON> 160
<OTHER-SE> 446,100
<TOTAL-LIABILITY-AND-EQUITY> 6,944,829
<SALES> 791,134
<TOTAL-REVENUES> 820,165
<CGS> 754,755
<TOTAL-COSTS> 754,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,846
<INCOME-PRETAX> (28,431)
<INCOME-TAX> (8,472)
<INCOME-CONTINUING> (19,959)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,959)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
