<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1999.
Registration No. 333-59073
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
P&L COAL HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1222 13-4004153
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Number)
organization) Code Number)
------------------------
701 Market Street
St. Louis, MO 63101-1826
(314) 342-3400
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
Jeffery L. Klinger, Esq.
P&L Coal Holdings Corporation
701 Market Street
St. Louis, MO 63101-1826
(314) 342-3400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
With a copy to:
Rise B. Norman, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
<PAGE>
================================================================================
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
Address including Zip
Code, and Telephone
Exact Name of State or Other I.R.S. Number Including Area
Registrant Guarantor Jurisdiction of Employer Code, of Registrant
as Specified Incorporation Identification Guarantor's Principal
in its Charter or Organization Number Executive Offices
-------------------- --------------- -------------- -------------------------------------
<S> <C> <C> <C>
Affinity Mining Company West Virginia 25-1207512 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
Arid Operations, Inc. Delaware 84-1199578 14062 Denver West Parkway,
Suite 110
Golden, CO 80401-3301, (760-337-5552)
Big Sky Coal Company Delaware 81-0476071 P.O. Box 97
Coalstrip, MT 59323 (406-748-5750)
Blackrock First Capital West Virginia 55-0695451 800 Laidley Tower, P.O. Box 1233
Corporation Charleston, WV 25324, (304-344-0300)
Bluegrass Coal Company Delaware 43-1540253 701 Market Street, Suite 710
St. Louis, MO 63101-1826, (314-342-3400)
Caballo Coal Company Delaware 83-0309633 Caller Box 3037
Gillette, WY 82717, (307-687-6900)
Charles Coal Company Delaware 04-2698757 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
Coal Properties Corp. Delaware 04-2702708 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
Colony Bay Coal Company West Virginia 55-0604613 800 Laidley Tower
P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
Cook Mountain Coal Company Delaware 55-0732291 800 Laidley Tower, P.O. Box 3506
Charleston, WV 25324, (304-344-0300)
Cottonwood Land Company Delaware 43-1721982 301 N. Memorial Drive, Suite 334
St. Louis, MO 63102, (314-342-7610)
Darius Gold Mine Inc. Delaware 13-2899722 14062 Denver West Parkway
Suite 110
Golden, CO 63102, (303-271-3600)
EACC Camps, Inc. West Virginia 25-0600150 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
Eastern Associated Coal Corp. West Virginia 25-1125516 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
Eastern Royalty Corp. Delaware 04-2698759 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (304-344-0300)
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Address including Zip
Code, and Telephone
Exact Name of State or Other I.R.S. Number Including Area
Registrant Guarantor Jurisdiction of Employer Code, of Registrant
as Specified Incorporation Identification Guarantor's Principal
in its Charter or Organization Number Executive Offices
-------------------- --------------- -------------- -------------------------------------
<S> <C> <C> <C>
Gold Fields Chile, S.A. Delaware 13-3004607 14062 Denver West Parkway
Suite 110
Golden, CO 63102, (303-271-3600)
Gold Fields Mining Corporation Delaware 36-2079582 14062 Denver West Parkway
Suite 110
Golden, CO 63102, (303-271-3600)
Gold Fields Operating Co.--Ortiz Delaware 22-2204381 14062 Denver West Parkway
Suite 110
Golden, CO 80401-3301, (303-271-3600)
Grand Eagle Mining, Inc. Kentucky 61-1250622 19070 Highway 1078 South
Henderson, KY 42420, (502-546-7926)
Hayden Gulch Terminal, Inc. Delaware 86-0719481 P.O. Box 882323
Steamboat Springs, CO 80488, (314-342-3400)
Independence Material Handling Delaware 43-1750064 701 Market Street, Suite 840
Company St. Louis, MO 63101-1826, (314-342-3400)
Interior Holdings Corp. Delaware 43-1700075 701 Market Street, Suite 730
St. Louis, MO 63101-1826, (314-342-3400)
James River Coal Terminal Delaware 55-0643770 701 Market Street, Suite 712
Company St. Louis, MO 63101-1826, (314-342-7600)
Juniper Coal Company Delaware 43-1744675 701 Market Street, Suite 716
St. Louis, MO 63101-1826, (314-342-3400)
Kayenta Mobile Home Park, Inc. Delaware 86-0773596 P.O. Box 605
Kayenta, AZ 86033 (520-677-3201)
Martinka Coal Company Delaware 55-0716084 815 Laidley Tower, PO Box 1233
Charleston, WV 25324-0004, (304-344-0300)
Midco Supply and Equipment Illinois 43-6042249 P.O. Box 14542
Corporation St. Louis, MO 63178, (314-342-3400)
Mountain View Coal Company Delaware 25-1474206 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25334-0004, (304-344-0300)
North Page Coal Corp. West Virginia 31-1210133 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25334-0004, (304-344-0300)
Ohio County Coal Company Kentucky 61-1176239 19070 Highway 1078 South
Henderson, KY 42420, (502-546-7561)
Patriot Coal Company, L.P. Delaware 61-1258748 19070 Highway 1078 South
Henderson, KY 42420, (502-546-9430)
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Address including Zip
Code, and Telephone
Exact Name of State or Other I.R.S. Number Including Area
Registrant Guarantor Jurisdiction of Employer Code, of Registrant
as Specified Incorporation Identification Guarantor's Principal
in its Charter or Organization Number Executive Offices
-------------------- --------------- -------------- -------------------------------------
<S> <C> <C> <C>
Peabody America, Inc. Delaware 93-1116066 701 Market Street, Suite 720
St. Louis, MO 63101-1826, (303-271-3600)
Peabody Coal Company Delaware 13-2606920 800 Laidley Tower
Charleston, WV 25301, (502-827-0800)
Peabody COALSALES Company Delaware 43-1610419 701 Market Street, Suite 830
St. Louis, MO 63101-1826, (314-342-7600)
Peabody COALTRADE, Inc. Delaware 43-1666743 4405 Cox Road, Suite 220
Glen Allen, VA 23050-3395, (804-935-0345)
Peabody Development Company Delaware 43-1265557 301 North Memorial Drive
St. Louis, MO 63102, (314-342-7610)
Peabody Energy Solutions, Inc. Delaware 43-1753832 701 Market Street, Suite 830
St. Louis, MO 63101, (314-342-7600)
Peabody Holding Company, Inc. New York 13-2871045 701 Market Street, Suite 700
St. Louis, MO 63101-1826, (314-342-3400)
Peabody Natural Resources Delaware 51-0332232 701 Market Street, Suite 718
Company St. Louis, MO 63101, (314-342-3400)
Peabody Terminals, Inc. Delaware 31-1035824 701 Market Street, Suite 712
St. Louis, MO 63101, (314-342-3400)
Peabody Venezuela Coal Corp. Delaware 43-1609813 701 Market Street, Suite 715
St. Louis, MO 63101-1826, (314-342-3400)
Peabody Western Coal Company Delaware 86-0766626 P.O. Box 605
Kayenta, AZ 86033 (520-677-3201)
Pine Ridge Coal Company Delaware 55-0737187 810 Laidley Tower
Charleston, WV 25324, (304-344-0300)
Powder River Coal Company Delaware 43-0996010 1013 East Boxelder
Gillette, WY 82718, (307-687-6900)
Rio Escondido Coal Corp. Delaware 74-2666822 P.O. Box 66746
St. Louis, MO 63166, (314-342-3400)
Seneca Coal Company Delaware 84-1273892 Drawer D
Hayden, CO 81639 (970-276-3707)
Sentry Mining Company Delaware 43-1540251 701 Market Street, Suite 700
St. Louis, MO 63101-1826, (314-342-3400)
Snowberry Land Company Delaware 43-1721980 301 N. Memorial Drive, Suite 333
St. Louis, MO 63102, (314-342-3400)
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Address including Zip
Code, and Telephone
Exact Name of State or Other I.R.S. Number Including Area
Registrant Guarantor Jurisdiction of Employer Code, of Registrant
as Specified Incorporation Identification Guarantor's Principal
in its Charter or Organization Number Executive Offices
-------------------- --------------- -------------- -------------------------------------
<S> <C> <C> <C>
Sterling Smokeless Coal Company West Virginia 55-0463558 800 Laidley Tower, P.O. Box 1233
Charleston, WV 25324, (314-344-0300)
701 Market Street, Suite 815
Thoroughbred, L.L.C. Delaware 43-1686687 St. Louis, MO 63101-1826, (314-342-3400)
</TABLE>
iv
<PAGE>
PROSPECTUS
P&L Coal Holdings Corporation
8 7/8% Series B Senior Notes due 2008
and
9 5/8% Series B Senior Subordinated Notes due 2008
------------------------------------
This prospectus has been prepared for and is to be used by Lehman Brothers
Inc. in connection with offers and sales in market-making transactions of the
notes. We will not receive any of the proceeds from those sales. Lehman Brothers
Inc. may act as a principal or agent in those transactions. The notes may be
offered in negotiated transactions or otherwise.
There is no existing trading market for the notes and we cannot assure you
that one will develop.
Neither the U.S. Securities and Exchange Commission nor any state
securities commission in the United States has approved or disapproved of these
securities or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offence.
For a discussion of factors that should be considered in connection with
an investment in the notes, see "Risk Factors" beginning on page 9.
------------------------------------
LEHMAN BROTHERS
------------------------------------
, 1999
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
You should assume that the information contained in this prospectus is
accurate only as of the date on the front cover of this prospectus. Our
business, results of operations, financial condition and prospects may change
after that date.
We are not making an offer of the notes to any person in any jurisdiction
except where such an offer or solicitation is permitted.
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................2
Risk Factors...................................................................9
Use of Proceeds...............................................................17
Capitalization................................................................17
Selected Financial Data.......................................................18
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................20
Coal Industry Overview........................................................28
Business......................................................................39
Regulatory Matters............................................................54
Management....................................................................61
Ownership of Capital Stock....................................................68
The Acquisition...............................................................69
Related Party Transactions....................................................71
Description of the Senior Notes...............................................74
Description of the Senior Subordinated Notes.................................102
Plan of Distribution.........................................................132
Experts......................................................................132
Available Information........................................................132
Glossary of Selected Terms...................................................134
Organizational Charts........................................................O-1
Index to Financial Statements................................................F-1
<PAGE>
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PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus before making an investment decision.
All references to "tons" are references to short tons and all references to low
sulfur coal are references to coal with a sulfur content of 1% or less by
weight. References to years relate to calendar years, unless otherwise noted.
Our management estimated the market data presented in this prospectus using
various third party sources where available. While management believes that
these estimates are reasonable and reliable, in a number of cases, we cannot
verify them with information from independent sources. Accordingly, we cannot
assure you that market data are accurate in all material respects. You should
carefully consider the information presented under the heading "Risk Factors."
The Company
Overview
We are among the world's largest providers of low cost fuel for the
generation of electricity and are also engaged in power trading and power and
coal contract restructuring services. During the 1990s, we transformed from a
largely high sulfur, high-cost coal producer to a more broadly based energy
company providing predominantly low sulfur, low-cost coal from operations in the
United States and Australia, as well as a number of fuel/power products to the
electricity market.
In fiscal 1999, we sold 176.0 million tons of coal worldwide. These
products were used to generate more than 9% of the electricity produced in the
United States and nearly 2.5% of the world's electricity. Through our Citizens
Power unit, we ranked among the top ten U.S. power marketers in calendar 1998
and were the leader in restructuring electricity contracts with independent
power producers. Our share of the U.S. coal market was approximately 16.0% in
1998. We have approximately 10.3 billion tons of proven and probable coal
reserves, which is the largest reserve base of any private sector coal producing
company in the United States.
We currently own interests in more than 35 active mines in the United
States and Australia, and also sell coal produced by third-party contractors and
suppliers. In fiscal 1999, we produced approximately 71% of our coal in the
Western United States, 25% from the eastern half of the United States and 4%
from Australia. Our coal production in the Western United States has grown from
37 million tons in 1990 to 119 million tons in fiscal 1999. Our highly
productive western operations produce very low sulfur coal, which is attractive
to utilities for purposes of complying with more stringent standards resulting
from the Clean Air Act.
Our large and diverse customer base includes more than 150 electricity
generating plants in the United States as well as steam and metallurgical
customers in 15 other countries. In fiscal 1999, we supplied 93% of our U.S.
production to U.S. electric utilities, 4% to the export market and 3% to the
U.S. industrial sector.
Over the last ten years, coal consumption in the United States has
generally experienced steady annual growth, reaching a record level of more than
1.1 billion tons in 1998. This steady growth in coal consumption is correlated
to similar growth in the electric generation industry that in 1998 accounted for
more than 87% of domestic coal consumption. In 1998, coal-fired power plants
generated approximately 56% of the nation's electricity, followed by nuclear
(21%), hydroelectric (10%) and gas-fired (10%) facilities. Furthermore, because
coal is one of the least expensive and most abundant and reliable resources for
the production of electricity, we believe coal will become increasingly
important as electricity markets are deregulated in the United States and
privatized around the world. See "Coal Industry Overview."
A substantial majority of our equity is owned by Lehman Brothers Merchant
Banking Partners II L.P., LBI Group Inc. and their affiliated co-investors
(collectively, "Lehman Merchant Banking"), each of which is an affiliate of
Lehman Brothers.
The Acquisition and the Financings
On May 19, 1998, we acquired Peabody Holding Company, Inc. and other
related subsidiaries from The Energy Group PLC. The acquisition was funded by
(1) $920.0 million of borrowings by us under a $920.0 million senior secured
term facility, (2) the offerings of $400.0 million aggregate principal amount of
senior notes and $500.0 million aggregate principal amount of senior
subordinated notes and (3) an equity contribution to us by Lehman Merchant
Banking of $480.0 million. These amounts were used to (a) pay $2003.6 million
for the equity of the acquired companies, (b) pay $73.0 million of obligation of
Citizens Power, (c) capitalize Citizens Power's energy trading operations with
an additional $50.0 million,
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2
<PAGE>
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(d) increase cash balances by $109.8 million and (e) pay $61.0 million in
transaction fees and expenses incurred in connection with these transactions. We
also entered into a $480.0 million senior revolving credit facility to provide
for our working capital requirements following the acquisition. We also assumed
(1) a 5% subordinated note of $201.8 million and (2) $75.0 million of debt of
Peabody Resources, our Australian subsidiary. The revolving credit facility and
the term loan facility (collectively the "senior credit facilities") are
provided by a group of banks led by Lehman Commercial Paper Inc., an affiliate
of Lehman Brothers Inc. We refer to the senior credit facilities and the
offerings of the notes collectively as the "Financings." We refer to the
acquisition, the Financings and a number of distributions to The Energy Group
made prior to the consummation of the acquisition and the Financings as the
"Transactions." See "The Acquisition," "Use of Proceeds," "Capitalization" and
"Description of Indebtedness."
The sources and uses of the funds for the Transactions, consummated on May
19, 1998, are shown on the table below.
Sources of Funds
Amount
-------------
(In millions)
Senior Credit Facilities
Term Loan Facility ............................................... $ 920.0
8 7/8% Senior Notes ................................................ 398.8
9 5/8% Senior Subordinated Notes ................................... 498.6
Assumption of 5% Subordinated Note ................................. 201.8
Assumption of Peabody Resources Debt(1) ............................ 75.0
Equity Contribution ................................................ 480.0
--------
Total Sources ................................................... $2,574.2
========
Uses of Funds
Purchase of Equity of the Acquired Companies ....................... $2,003.6
Assumption of Peabody Resources Debt(1) ............................ 75.0
Assumption of 5% Subordinated Note ................................. 201.8
Capitalization of Citizens Power ................................... 50.0
Payment of Citizens Power Obligations(2) ........................... 73.0
Increase in Cash Balance ........................................... 109.8
Transaction Fees and Expenses ...................................... 61.0
--------
Total Uses ...................................................... $2,574.2
========
(1) Peabody Resources' pro rata share of indebtedness incurred in the
expansion of the Warkworth mine and the development of the Bengalla mine.
Peabody Resources has a 43.75% interest in the Warkworth joint venture and
a 37% interest in the Bengalla joint venture and manages both joint
ventures. Includes $32.3 million of indebtedness incurred in April 1998.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
(2) Payment of remaining purchase price obligations to the former owners of
Citizens Power, which was acquired on May 19, 1997. See "Related Party
Transactions."
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3
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Description of the Notes
Senior Notes
Maturity Date............... May 15, 2008.
Interest.................... 8 7/8% per year, payable in cash.
Interest Payment Dates...... May 15 and November 15, commencing November 15,
1998.
Mandatory Redemption........ We are not required to make mandatory redemption
or sinking fund payments.
Optional Redemption......... Prior to May 15, 2003, we may redeem the senior
notes at a redemption price equal to 100% of their
principal amount plus the applicable make whole
premium, plus, to the extent not included in the
make whole premium, accrued and unpaid interest to
the date of redemption.
On or after May 15, 2003, we may redeem the senior
notes at the redemption prices described in this
prospectus, plus accrued and unpaid interest to
the applicable date of redemption. In addition, at
any time prior to May 15, 2001, on any one or more
occasions we may, at our option, redeem up to 35%
of the aggregate principal amount of the senior
notes at a redemption price equal to 108.875% of
their principal amount, plus accrued and unpaid
interest to the applicable date of redemption,
with the net cash proceeds of one or more equity
offerings; provided that at least 65% aggregate
principal amount of senior notes remains
outstanding immediately after each of those
redemptions. See "Description of the Senior
Notes--Optional Redemption."
Change of Control........... Upon of a change of control, each holder of senior
notes will have the right to require us, and we
must offer, to purchase all or any part of that
holder's senior notes for 101% of their aggregate
principal amount, plus accrued and unpaid interest
to the date of purchase. See "Description of the
Senior Notes--Repurchase at the Option of
Holders--Change of Control."
Ranking..................... The senior notes are our general unsecured
obligations, rank senior in right of payment to
all of our subordinated Indebtedness and rank
equally in right of payment with all of our
current and future unsecured senior Indebtedness,
including all borrowings under the senior credit
facilities. However, all borrowings under the
senior credit facilities are secured by a first
priority lien on some of our assets and specified
Domestic Subsidiaries. As of March 31, 1999, we
had $840.0 million of Indebtedness outstanding
under the senior credit facilities. See "Risk
Factors--Risks Relating to the Notes--Our
Financial Performance Could be Affected by our
Substantial Debt."
Senior Note Guarantees...... Some of our current and future Restricted
Subsidiaries that are Domestic Subsidiaries fully
and unconditionally, and jointly and severally,
guarantee, or will guarantee, our payment
obligations under the senior notes on a senior
basis. The senior subsidiary guarantees will rank
senior to all existing and future subordinated
Indebtedness of the senior subsidiary guarantors
and equally with all other unsecured senior
indebtedness of the senior subsidiary guarantors,
including the guarantees of Indebtedness under the
senior credit facilities. Each senior subsidiary
guarantor's obligations under the senior credit
facilities, however, will be secured by a first
priority lien on specified assets of that
guarantor, and the senior note indenture
restricts, but does not prohibit, the senior
subsidiary guarantors from incurring additional
secured indebtedness. Accordingly, that secured
indebtedness will rank prior to the senior
subsidiary guarantees with respect to those
assets. See "Description of the Senior
Notes--Senior Note Guarantees."
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4
<PAGE>
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The senior notes will not be guaranteed by some of
our Domestic Subsidiaries or by any of our current
or future Foreign Subsidiaries. For fiscal 1999,
after giving effect to the Transactions, the
non-guarantor subsidiaries accounted for 12% and
24% of revenues and EBITDA, respectively, and, as
of March 31, 1999, the non-guarantor subsidiaries
accounted for 29% of assets.
Covenants................... The senior note indenture contains covenants that,
among other things, limit our ability to (1) incur
additional indebtedness and issue preferred stock,
(2) pay dividends or make other restricted
payments, (3) create liens, (4) enter into
transactions with affiliates, (5) sell our assets
or (6) enter into mergers and consolidations. In
addition, under certain circumstances, we will be
required to offer to purchase the senior notes
with the net cash proceeds of sales and other
dispositions of assets at a price equal to 100% of
the principal amount of the senior notes, plus
accrued and unpaid interest to the date of
purchase. Citizens Power is designated as an
Unrestricted Subsidiary and is not subject to many
of the covenants under the senior note indenture.
See "Description of the Senior Notes--Covenants."
Senior Subordinated Notes
Maturity.................... May 15, 2008.
Interest.................... 9 5/8% per year, payable in cash.
Interest Payment Dates...... May 15 and November 15, commencing November 15,
1998.
Mandatory Redemption........ We are not required to make mandatory redemption
or sinking fund payments with respect to the
senior subordinated notes.
Optional Redemption......... Prior to May 15, 2003, we may redeem the senior
subordinated notes at a redemption price equal to
100% of their principal amount plus the applicable
make whole premium, plus, to the extent not
included in the make whole premium, accrued and
unpaid interest to the date of redemption.
On or after May 15, 2003, we may redeem the senior
subordinated notes at the redemption prices
described in this prospectus plus accrued and
unpaid interest to the applicable date of
redemption. In addition, at any time prior to May
15, 2001, on any one or more occasions we may, at
our option, redeem up to 35% of the aggregate
principal amount of senior subordinated notes at a
redemption price equal to 109.625% of their
principal amount, plus accrued and unpaid interest
to the applicable date of redemption, with the net
cash proceeds of one or more equity offerings;
provided that at least 65% aggregate principal
amount of senior subordinated notes remains
outstanding immediately after each of those
redemptions. See "Description of the Senior
Subordinated Notes--Optional Redemption."
Change of Control........... Upon a change of control, each holder of senior
subordinated notes will have the right to require
us, and we must offer, to purchase all or any part
of that holder's senior subordinated notes at a
price in cash equal to 101% of their aggregate
principal amount, plus accrued and unpaid interest
to the date of purchase. See "Description of the
Senior Subordinated Notes--Repurchase at the
Option of Holders--Change of Control."
Ranking..................... The senior subordinated notes are our general
unsecured obligations and rank subordinate in
right of payment to all existing and future Senior
Debt and senior in
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5
<PAGE>
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right of payment to or equally with all of our
other indebtedness. As of March 31, 1999, we had
$2,542.4 million of indebtedness outstanding
(including $333.9 million of non-recourse
indebtedness of Citizens Power), of which $1,519.2
million would have been Senior Debt under the
senior credit facilities (excluding letters of
credit) and the senior notes. See "Description of
the Senior Subordinated Notes--Subordination."
Senior Subordinated Note
Guarantees.................. Our payment obligations under the senior
subordinated notes are fully and unconditionally,
and jointly and severally, guaranteed on a senior
subordinated basis by the senior subordinated note
guarantors. See "Description of the Senior
Subordinated Notes--Senior Subordinated
Guarantees."
The senior subordinated notes are not guaranteed
by some of our Domestic Subsidiaries or by any of
our current or future Foreign Subsidiaries. For
fiscal 1999, after giving effect to the
acquisition and related financings, the non-
guarantor subsidiaries accounted for 12% and 24%
of revenues and EBITDA, respectively, and, as of
March 31, 1999, the non-guarantor subsidiaries
accounted for 29% of assets.
Covenants................... The senior subordinated note indenture contains
covenants that, among other things, limit our
ability to (1) incur additional indebtedness and
issue preferred stock, (2) pay dividends or make
other restricted payments, (3) create liens, (4)
enter into transactions with affiliates, (5) sell
our assets or (6) enter into mergers and
consolidations. In addition, under certain
circumstances, we will be required to offer to
purchase the senior subordinated notes with the
net cash proceeds of sales and other dispositions
of assets at a price equal to 100% of the
principal amount of the senior subordinated notes,
plus accrued and unpaid interest to the date of
purchase. Citizens Power is designated as an
Unrestricted Subsidiary and is not subject to many
of the covenants under the senior subordinated
note indenture. See "Description of the Senior
Subordinated Notes--Covenants."
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6
<PAGE>
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Summary Financial Data
The following table presents summary financial data. We purchased our
operating subsidiaries on May 19, 1998, and prior to that date had no
substantial operations. The period ended March 31, 1999 is thus a full fiscal
year, but includes results of operations only from May 20, 1998 forward. The
prior years' results of operations of the operating subsidiaries acquired are
defined as the "Predecessor Company" and are included for comparative purposes.
In early 1999, we increased our interest in Black Beauty Coal Company to 81.7%.
The results of operations include the consolidated results of Black Beauty Coal
Company, effective January 1, 1999. Prior to that date, our investment in Black
Beauty Coal Company was accounted for under the equity method.
<TABLE>
<CAPTION>
Predecessor Company
(tons sold and dollars in millions) -------------------------------------------------
Period From Twelve Six
May 20, Period From Months Months
Total 1998 to April 1, 1998 Year Ended Ended Ended
Fiscal March 31, to May 19, March 31, March 31, March 31,
1999(1) 1999 1998 1998 1997 1997
======== ======== ======== ======== ======== ========
<S> <C> <C> <C> <C> <C> <C>
Results of Operations Data:
Tons Sold 176.0 154.3 21.7 167.5 167.4 81.4
======== ======== ======== ======== ======== ========
Revenues:
Sales $2,249.9 $1,971.0 $278.9 $2,048.7 $2,121.6 $1,000.4
Other Revenues 136.7 123.2 13.5 195.8 120.7 63.7
-------- -------- -------- -------- -------- --------
Total Revenues 2,386.6 2,094.2 292.4 2,244.5 2,242.3 1,064.1
Operating Costs and Expenses 2,200.5 1,915.5 285.0 1,975.3 688.7 962.0
-------- -------- -------- -------- -------- --------
Impairment of Long-Lived Assets(2) -- -- -- -- 890.8 --
Operating Profit (Loss) $186.1 $178.7 $7.4 $269.2 (662.8) $102.1
======== ======== ======== ======== ======== ========
Net Income (Loss) $10.7 $10.2 $.5 $160.3 (449.3) $58.4
======== ======== ======== ======== ======== ========
Balance Sheet Data:
Working Capital $487.0 $487.0 $374.5 $536.0 167.1 $167.1
Total Assets 7,023.9 7,023.9 6,403.2 6,343.0 5,025.8 5,025.8
Recourse Debt 2,208.5 2,208.5 339.6 308.4 321.7 321.7
Non-Recourse Debt 333.9 333.9 293.9 293.9 -- --
Stockholders' Equity/Invested
Capital 495.2 495.2 1,497.4 1,687.8 1,676.8 1,676.8
Other Data:
EBITDA(3) $396.5 $362.9 $33.6 $471.8 $431.6 $203.8
Net Cash Provided by (Used in):
Operating Activities 240.0 270.5 (30.5) 181.7 323.2 62.8
Investing Activities (2,257.0) (2,237.8) (19.2) (129.9) (106.6) (56.2)
Financing Activities 2,184.8 2,161.3 23.5 (235.4) (77.4) 94.2
Depreciation, Depletion and
Amortization 210.4 184.2 26.2 202.6 203.6 101.7
Capital Expenditures 195.9 174.9 21.0 166.3 148.5 76.5
Ratio of Earnings to Fixed Charges(4) 1.13x 1.11x 1.71x 5.77x -- 3.63x
<CAPTION>
Predecessor Company
(tons sold and dollars in millions) --------------------------------
Fiscal Years Ended
September 30,
--------------------------------
1996 1995 1994
======== ======== ========
<S> <C> <C> <C>
Results of Operations Data:
Tons Sold 163.0 151.0 101.6
======== ======== ========
Revenues:
Sales $2,075.1 $2,087.6 $1,763.4
Other Revenues 118.4 88.2 81.0
-------- -------- --------
Total Revenues 2,193.5 2,175.8 1,844.4
Operating Costs and Expenses 1,954.1 1,930.2 1,698.8
-------- -------- --------
Impairment of Long-Lived Assets(2) 890.8 -- --
Operating Profit (Loss) $(651.3) $245.6 $145.6
======== ======== ========
Net Income (Loss) $(446.3) $100.4 $79.4
======== ======== ========
Balance Sheet Data:
Working Capital $(129.5) $(104.3) $280.5
Total Assets 4,916.7 5,676.9 5,560.1
Recourse Debt 456.9 316.8 294.4
Non-Recourse Debt -- -- --
Stockholders' Equity/Invested
Capital 1,383.7 1,651.0 1,656.6
Other Data:
EBITDA(3) $(453.4) $435.9 $315.8
Net Cash Provided by (Used in):
Operating Activities 211.5 272.5 153.1
Investing Activities (105.6) (462.1) (108.5)
Financing Activities 16.0 179.0 (4.0)
Depreciation, Depletion and
Amortization 197.9 190.3 170.2
Capital Expenditures 152.1 188.0 135.7
Ratio of Earnings to Fixed Charges(4) -- 3.63x 2.13x
</TABLE>
(1) For comparative purposes, the total fiscal 1999 column has been derived by
adding the period from May 20, 1998 to March 31, 1999 to the Predecessor Company
results for the period from April 1, 1998 to May 19, 1998. The effects of
purchase accounting have not been reflected in the results of the Predecessor
Company. This shows the results of operations for our operating subsidiaries for
the entire twelve months ended March 31, 1999.
(2) Reflects a one-time non-cash charge made pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which had no effect on our
cash flow.
(3) EBITDA is defined as income before deducting net interest expense, income
taxes and depreciation, depletion and amortization. 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 our 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 $17.5 million, ($1.3 million) and $10.8 million for the period
from May 20, 1998 to March 31, 1999, the period from April 1 to May 19, 1998 and
the year ended March 31, 1998, respectively.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
(4) For purposes of this computation, earnings consist of income before income
taxes plus fixed charges. Fixed charges consist of interest expense on all
indebtedness plus the interest component of lease rental expense. Earnings were
insufficient to cover fixed charges by $702.3 million and $702.5 million for the
twelve months ended March 31, 1997 and the fiscal year ended September 30, 1996,
due to the SFAS No. 121 charge described above.
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
An investment in the notes involves risks. You should consider carefully,
in addition to the other information contained in this prospectus, the following
risk factors before deciding to purchase any notes.
RISKS RELATING TO THE NOTES
Our Financial Performance Could Be Affected By our Substantial Debt
We are highly leveraged and, at March 31, 1999, had total indebtedness of
$2,542.4 million, including $333.9 million of Citizens Power non-recourse debt,
of which (1) $840.0 million consisted of indebtedness under the senior credit
facilities, (2) $398.9 million consisted of the senior notes, (3) $498.6 million
consisted of the senior subordinated notes and (4) the balance primarily
consisted of a 5% subordinated note and borrowings of Peabody Resources and
Black Beauty. In addition, we had available borrowings of up to $150.0 million
under the senior credit facilities, and $59.7 million and $54.6 million under
credit facilities maintained by our Australian subsidiary, Peabody Resources,
and Black Beauty, respectively. We and our Restricted Subsidiaries are permitted
to incur additional indebtedness in the future. See "Capitalization."
Our ability to pay principal and interest on each series of the notes and
to satisfy our other debt service obligations will depend upon the future
operating performance of our subsidiaries, which will be affected by prevailing
economic conditions in the markets they serve and other factors, some of which
are beyond their control. Based upon the current level of operations, management
believes that cash flow from operations and available cash, together with
available borrowings under the senior credit facilities, will be adequate to
meet our future liquidity needs for at least the next several years. We cannot
assure you that our business will generate sufficient cash flow from operations
or that future borrowings will be available under the senior credit facilities
in an amount sufficient to enable us to service our indebtedness, including each
series of the notes, or to fund our other liquidity needs. We may need to
refinance all or a portion of the principal of each series of the notes on or
prior to maturity. We cannot assure you that we will be able to effect any such
refinancing on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The degree to which we are leveraged could have important consequences to
holders of each series of the notes, including, but not limited to:
o making it more difficult for us to satisfy our obligations with
respect to each series of the notes;
o increasing our vulnerability to general adverse economic and
industry conditions;
o limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, research and development or
other general corporate requirements;
o requiring the dedication of a substantial portion of our cash flow
from operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of that cash flow to
fund working capital, capital expenditures, research and development
or other general corporate purposes;
o limiting our flexibility in planning for, or reacting to, changes in
our business and the industries in which we compete; and
o placing us at a competitive disadvantage compared to less leveraged
competitors. In addition, the indentures and the senior credit
facilities contain financial and other restrictive covenants that
limit our ability to, among other things, borrow additional funds.
Our failure to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on us. In
addition, the degree to which we are leveraged could prevent us from
repurchasing all of the notes tendered to us upon the occurrence of a change of
control.
Your Right to Receive Payment on the Notes is Subordinated to that of Holders of
our Secured Debt
While holders of senior subordinated notes are contractually subordinated
to Senior Debt, holders of any of our secured indebtedness have claims that are
prior to the claims of the holders of each series of the notes with respect to
the assets securing that other indebtedness. Notably, the senior credit
facilities are secured by liens on specified assets of the guarantors.
9
<PAGE>
The senior notes are effectively subordinated to all of that secured
Indebtedness. In the event of any distribution or payment of our assets in any
foreclosure, dissolution, winding-up, liquidation, reorganization or other
bankruptcy proceeding, holders of secured Indebtedness will have a prior claim
to our assets that constitute their collateral. Holders of the senior notes will
participate ratably with all holders of our unsecured Indebtedness that is
deemed to be of the same class as the senior notes, and potentially with all of
our other general creditors, based upon the respective amounts owed to each
holder or creditor, in our remaining assets. In any of the foregoing events, we
cannot assure you that we would have sufficient assets to pay amounts due on the
senior notes. As a result, holders of senior notes may receive less, ratably,
than holders of secured indebtedness.
Citizens Power and its subsidiaries are currently our only Unrestricted
Subsidiaries. As of March 31, 1999, Citizens Power had an aggregate of $333.9
million of indebtedness which is non-recourse to us and our other subsidiaries.
The covenants under the indentures do not restrict the ability of Unrestricted
Subsidiaries to incur additional non-recourse indebtedness.
As of March 31, 1999, $840.0 million of our secured Indebtedness (all of
which are borrowings under the senior credit facilities) was outstanding, and
$150.0 million was available for additional borrowing and $281.2 million of
letters of credit was available under the senior credit facilities. The
indentures permit us to incur substantial additional secured indebtedness in the
future.
Your Right to Receive Payments on the Senior Subordinated Notes is Subordinate
to that of Holders of our Senior Debt
The senior subordinated notes are subordinated in right of payment to all
of our current and future Senior Debt, which includes borrowings under the
senior credit facilities and the senior notes. However, the senior subordinated
note indenture provides that we will not, and will not permit any of the senior
subordinated note guarantors to, incur or otherwise become liable for any
indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the senior subordinated
notes or any of the senior subordinated note guarantees. Upon any distribution
to our creditors in a liquidation or dissolution or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to us or
our property, the holders of Senior Debt will be entitled to be paid in full in
cash or cash equivalents before any payment may be made with respect to the
senior subordinated notes. In addition, the subordination provisions of the
senior subordinated note indenture provide that payments with respect to the
senior subordinated notes will be blocked in the event of a payment default on
Senior Debt and may be blocked for up to 179 days each year in the event of
specified non-payment defaults on Senior Debt. In the event of our bankruptcy,
liquidation or reorganization, holders of the senior subordinated notes will
participate equally with all holders of our subordinated indebtedness that are
deemed to be of the same class as the senior subordinated notes, and potentially
with all of our other general creditors, based upon the respective amounts owed
to each holder or creditor, in our remaining assets. In any of the foregoing
events, we cannot assure you that there would be sufficient assets to pay
amounts due on the senior subordinated notes. As a result, holders of senior
subordinated notes may receive less, ratably, than the holders of Senior Debt.
As of March 31, 1999, the aggregate amount of our Senior Debt (including
borrowings under the senior credit facilities) was $1,519.2 million, and $150.0
million was available for additional borrowing and $281.2 million of letters of
credit was available under the senior credit facilities. The senior subordinated
note indenture permits us to incur substantial additional indebtedness,
including Senior Debt in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Our Obligations Are Effectively Subordinated to the Obligations of our
Subsidiaries
We have no operations of our own and derive substantially all of our
revenue from our subsidiaries. Holders of indebtedness of, and trade creditors
of, our subsidiaries would generally be entitled to payment of their claims from
the assets of the affected subsidiaries before those assets were made available
for distribution to us. Each of the indentures permits us to incur substantial
additional indebtedness, permits us to make significant investments and requires
specified Restricted Subsidiaries that are Domestic Subsidiaries to guarantee
each series of the notes. In the event of a bankruptcy, liquidation or
reorganization of a subsidiary, holders of any of that subsidiary's indebtedness
will have a claim to the assets of the subsidiary that is prior to our interest
in those assets.
As of March 31, 1999, the aggregate amount of indebtedness and other
liabilities of our Restricted Subsidiaries (including trade payables, land
reclamation and environmental liabilities, workers' compensation liabilities and
retiree health
10
<PAGE>
care liabilities) was approximately $5,464.3 million and $431.2 million was
available to the subsidiaries for additional borrowings under the senior credit
facilities including letters of credit. If any subsidiary indebtedness were to
be accelerated, we cannot assure you that the assets of that subsidiary would be
sufficient to repay that indebtedness or that our assets would be sufficient to
repay in full our indebtedness, including the notes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The notes are not guaranteed by some of our Domestic Subsidiaries or by
any Foreign Subsidiaries. In fiscal 1999, after giving effect to the
Transactions, the non-guarantor subsidiaries accounted for 12% and 24% of
revenues and EBITDA, respectively, and as of March 31, 1999, the non-guarantor
subsidiaries accounted for 29% of assets. The claims of creditors (including
trade creditors) of any non-guarantor subsidiary will generally have priority as
to the assets of such subsidiaries over the claims of the holders of the notes.
As of March 31, 1999, the amount of liabilities of such non-guarantor
subsidiaries was $1,471.3 million.
Our Debt Agreements Restrict our Ability to Borrow Additional Funds
The indentures and the senior credit facilities contain covenants that
restrict our ability to incur additional indebtedness, pay dividends, make
specified investments and capital expenditures, enter into transactions with
affiliates, allow our Restricted Subsidiaries to make specified payments, make
specified asset dispositions, merge or consolidate with, or transfer
substantially all of our assets to another person, encumber assets under
specified circumstances or restrict dividends and other payments from Restricted
Subsidiaries. In addition, the senior credit facilities restrict us from
prepaying some of our indebtedness, including the notes. Under the senior credit
facilities, we are also required to maintain specified financial covenants,
including a minimum fixed charge coverage ratio and maximum leverage ratio (each
as defined in the senior credit facilities). We cannot assure you that our
future operating results will be sufficient to enable us to comply with those
covenants, or in the event of a default, to remedy that default. In the event of
a default under the senior credit facilities, we could be prohibited from making
payments of principal and interest on the notes and all amounts due under the
senior credit facilities could be declared immediately due and payable. The
indentures and the senior credit facilities contain cross-default provisions
under which defaults under other indebtedness constitute events of default.
Our Ability to Offer to Purchase Your Notes in the Event of a Change of Control
may be Limited
Upon a change of control, you will have the right to require us to
purchase all or a portion of your notes at a price equal to 101% of their
principal amount, plus accrued and unpaid interest to the purchase date. The
provisions of the indentures may not protect you in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving us, if that transaction does not result in a change of
control. A change in control may result in a default under the senior credit
facilities. Upon a default under the senior credit facilities or other future
Senior Debt, the lenders could prohibit us from repurchasing the notes or could
require us to repay all of that Senior Debt before repurchasing the notes. The
senior subordinated indenture requires that prior to our repurchasing the senior
subordinated notes upon a change of control, we must either repay all
outstanding indebtedness under the senior credit facilities or obtain any
required consent to that repurchase. If we do not obtain that consent or repay
our outstanding indebtedness under the senior credit facilities, we would be
prohibited from offering to purchase the senior subordinated notes. In that
case, our failure to offer to purchase the senior subordinated notes could
become an Event of Default under the senior subordinated indenture. If a change
of control were to occur, we cannot assure you that we would have sufficient
funds or would be able to arrange financing to repay all of our obligations
under the senior credit facilities, the Indentures and other indebtedness that
may become payable upon the occurrence of the change of control.
There is no Trading Market for the Notes
There is no existing trading market for the notes, and we cannot assure
you that one will develop. If a market were to develop, the notes could trade at
prices that may be higher or lower than their initial offering price depending
on many factors, including prevailing interest rates, our operating results and
the market for similar securities. Although it is not obligated to do so, Lehman
Brothers Inc. intends to make a market in the notes. Lehman Brothers Inc. may
discontinue any market-making activity at any time, for any reason, without
notice in its sole discretion. We cannot assure that there will be a liquid
trading market for the notes.
Lehman Brothers Inc. may be deemed to be an affiliate of ours and, as an
affiliate, may be required to deliver a prospectus in connection with its
market-making activities in the notes. We have agreed to file and maintain a
registration statement that would allow Lehman Brothers Inc. to engage in
market-making transactions in the notes. Subject to some
11
<PAGE>
exceptions, the registration statement will remain effective for as long as
Lehman Brothers Inc. may be required to deliver a prospectus in connection with
market-making transactions in the notes. We have agreed to bear substantially
all the costs and expenses related to the registration statement.
Your Rights under the Notes could be Limited by Fraudulent Conveyance Laws
Under federal bankruptcy law and state fraudulent transfer law, if any of
our company or the note guarantors, at the time it incurred the indebtedness
evidenced by each series of the notes or a guarantee:
o (a) was or is insolvent or rendered insolvent by reason of that
incurrence or (b) was or is engaged in a business or transaction for
which its remaining assets constituted unreasonably small capital or
(c) intended or intends to incur, or believed or believes that it
would incur, debts beyond its ability to pay those debts as they
mature and
o we or that guarantor received or receives less than reasonably
equivalent value or fair consideration for the incurrence of that
indebtedness, then each series of the notes and the guarantees, and
any pledge or other security interest securing that indebtedness,
could be voided, or claims in respect of either series of the notes
or the guarantees could be subordinated to all other debts of our
company or that guarantor, as the case may be.
In addition, the payment of interest and principal by us under either
series of the notes or the payment of amounts by a guarantor under a guarantee
could be voided and required to be returned to the person making that payment,
or to a fund for the benefit of the creditors of ours or that guarantor, as the
case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, a company would be considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater
than the saleable value of all of its assets at a fair valuation or
if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that on a consolidated basis after giving effect
to the Transactions, we were solvent at the time the notes were issued and
continue to be solvent, do not have unreasonably small capital for the business
in which we are engaged and will not incur debts beyond our ability to pay those
debts as they mature. We cannot assure you, however, as to what standard a court
would apply in making those determinations or that a court would agree with our
conclusions in this regard.
Some of our subsidiaries that are providing guarantees on each series of
the notes have significant liabilities associated with reclamation, workers'
compensation (including black lung), and retiree health care. See "Regulatory
Matters." We have not analyzed the solvency of these subsidiaries with respect
to the standards a court would apply in making a determination as to the
solvency of those subsidiaries on a stand-alone basis. We cannot assure you that
funds may be realized on those guarantees or that the guarantees issued by that
guarantor (if a court were to determine that that guarantor did not receive fair
consideration or reasonably equivalent value for that guarantee) would not be
voided or subordinated under constructive fraudulent conveyance laws.
RISKS RELATING TO OUR COMPANY
Long-Term Coal Supply Agreements could be Terminated
A substantial portion of our sales are made under coal supply agreements,
which are important to the stability and profitability of our operations. The
execution of a satisfactory coal supply agreement is frequently the basis on
which we undertake the development of coal reserves required to be supplied
under the contract. Peabody has a large portfolio of coal supply agreements. In
fiscal 1999, 87% of our sales volume was sold under coal supply agreements. At
March 31, 1999, our coal supply agreements had terms ranging from one to 15
years and had an average volume-weighted remaining term of more than four years.
Many of our coal supply agreements contain price reopener provisions that
provide for the contract price to be adjusted upward or downward at specified
times. Failure of the parties to agree on a price under those reopener
provisions may lead to early termination of the contracts. Over the last few
years, several of our coal supply agreements have been renegotiated,
12
<PAGE>
bringing the contract prices closer to the then current market prices, thus
leading to a reduction in the revenues from those contracts. A similar reduction
in contract prices has also been experienced in relation to the replacement of
expiring contracts. The coal supply agreements also typically contain force
majeure provisions allowing temporary suspension of performance by us or the
customer during the duration of specified events beyond the control of the
affected party. Most coal supply agreements contain provisions requiring us to
deliver coal within specified ranges for specific coal characteristics such as
Btus, sulfur, ash, grindability and ash fusion temperature. Failure to meet
these specifications could result in economic penalties or termination of the
contracts.
We restructure coal supply agreements in the normal course of business. In
connection with those restructurings, we recognized a gain of $5.3 million in
fiscal 1999 and $49.3 million in fiscal 1998. We cannot assure you that we will
be able to realize these gains in connection with future coal supply agreement
restructurings.
The operating profit margins we realize under coal supply agreements
depend on a variety of factors. In addition, price adjustment, price reopener
and other provisions may reduce the insulation from any short-term coal price
volatility provided by those contracts. If a substantial portion of our coal
supply agreements were modified or terminated, we could be materially adversely
affected to the extent that we are unable to find alternate buyers for our coal
at the same level of profitability. Because the price of coal has declined in
recent years, many of our coal supply agreements are for prices above current
spot market prices. We cannot assure you that we will be able to replace these
contracts at the same prices or with similar profit margins when they expire. In
addition, some coal supply agreements are the subject of ongoing litigation and
arbitration.
We Rely on a Few Major Customers for a Significant Portion of our Revenues
In fiscal 1999, we derived 31% of our total coal revenues from sales to
our five largest customers, under 14 coal supply agreements that expire in
various years from 1999 to 2014. We are currently engaged in discussions with
several customers to either extend or enter into new long-term agreements upon
expiration of existing agreements. We cannot assure you these customers either
will extend or enter into new long-term agreements or, in the absence of
long-term agreements, that they will continue to purchase the same amount of
coal as they have in the past or on terms, including pricing terms, as favorable
to us as under existing agreements. The concurrent loss of several coal supply
agreements, reductions in the amounts of coal that all five of these customers
purchase under those agreements, or the terms under which they buy could have a
material adverse effect on our financial condition and results of operations.
Our Ability to Sell Coal Depends upon Transportation Being Available and
Affordable
Coal producers depend upon rail, barge, trucking, overland conveyor and
other systems to provide access to markets. While customers typically arrange
and pay for transportation of coal from the mine to the point of use, disruption
of these transportation services because of weather-related problems, strikes,
lock-outs or other events could temporarily impair our ability to supply coal to
our customers and thus could adversely affect our results of operations. For
example, the high volume of coal shipped from all southern Powder River Basin
mines could create temporary congestion on the rail system accessing that
region.
Transportation costs represent a significant portion of the total cost of
coal, and as a result, the cost of delivery is a critical factor in a customer's
purchasing decision. Increases in transportation costs could make coal a less
competitive source of energy or could make some of our operations less
competitive than other sources of coal. Those increases could have a material
adverse effect on our ability to compete and on our financial condition and
results of operations.
In Australia, we transport coal using the Hunter River Valley Railroad and
the coal loading terminal at the Port of Newcastle. The Port of Newcastle has
had problems with ship congestion in the past. That congestion could delay
shipments from our Warkworth and Bengalla mines.
Risks Inherent to Mining Could Increase the Cost of Operating our Business
Our mining operations are subject to conditions beyond our control which
can increase the cost of mining at particular mines for varying lengths of time.
These conditions include weather and natural disasters, unexpected maintenance
problems, key equipment failures, variations in coal seam thickness, variations
in the amount of rock and soil overlying the coal deposit, variations in rock
and other natural materials and variations in geological and other conditions.
13
<PAGE>
We Cannot Predict the Effect of the Restructuring of the Australian Coal
Industry on Us
The coal mining industry in Australia is going through a process of
restructuring in an effort to improve the industry's international
competitiveness. This restructuring is directed at improving workforce
flexibility through training workers to perform multiple tasks and eliminating
existing inflexibilities in work practices. Some major coal mining companies,
including Peabody Resources, have also attempted to employ non-union labor under
individual contracts of employment. While to date these changes have been
accomplished without major industrial disruption, we cannot assure you that this
state of affairs will continue or that further restructuring will not cause
major work stoppages in the future.
Our Mining Operations are Subject to Extensive Government Regulation
General. The coal mining industry is subject to regulation by federal,
state and local authorities on matters such as employee health and safety,
permitting and licensing requirements, air quality standards, water pollution,
plant and wildlife protection, reclamation and restoration of mining properties
after mining is completed, the discharge of materials into the environment,
surface subsidence from underground mining and the effects that mining has on
groundwater quality and availability. In addition, the industry is affected by
significant legislation mandating specified benefits for current and retired
coal miners. Numerous governmental permits and approvals are required for mining
operations. We may be required to prepare and present to federal, state or local
authorities data pertaining to the effect or impact that any proposed
exploration for or production of coal may have upon the environment. The costs,
liabilities and requirements associated with these regulations may be costly and
time-consuming and may delay commencement or continuation of exploration or
production operations. The possibility exists that new legislation and/or
regulations and orders may be adopted which may materially adversely affect our
mining operations, our cost structure and/or our customers' ability to use coal.
New legislation, including proposals related to the protection of the
environment which would further regulate and tax the coal industry, may also
require us or our customers to change their operations significantly or incur
increased costs. Such factors and legislation, if enacted, could have a material
adverse effect on our financial condition and results of operations. See
"Regulatory Matters."
Our Future Success Depends upon Our Ability to Find, Develop or Acquire
Additional Coal Reserves that are Economically Recoverable
Our recoverable reserves will generally decline as reserves are depleted,
except to the extent that we conduct successful exploration and development
activities or acquire properties containing recoverable reserves. To increase
reserves and production, we must continue our development, exploration and
acquisition activities or undertake other replacement activities. Our current
strategy includes increasing our reserve base through acquisitions of government
leases and other leases and producing properties and continuing to exploit our
existing properties. The federal government continually leases coal reserves
through a competitive bidding process. Companies such as ours may nominate
specific areas to be leased by the government by application. Companies that
have operations adjacent to these nominated lease areas have advantages in the
bid process since their mining infrastructure is in place and they could avoid
the cost of developing a new mine. Through this process, in June 1998, we
acquired an additional 532 million tons of low sulfur coal reserves in a lease
auction in the Powder River Basin adjacent to our North Antelope/Rochelle Mine.
We also purchased a state coal lease in the vicinity of the North
Antelope/Rochelle Mine containing 95.9 million tons of low sulfur coal. We
cannot assure you that we will be able to continue successfully leasing
additional reserves from the federal government. Additionally, we cannot assure
you that our planned development and exploration projects and acquisition
activities will result in significant additional reserves or that we will have
continuing success developing additional mines. Most of our mining operations
are conducted on properties owned or leased by us. Because title to most of our
leased properties and mineral rights are not thoroughly verified until a permit
to mine the property is obtained, our right to mine some of our reserves may be
materially adversely affected if defects in title or boundaries exist. In
addition, we cannot assure you that we can successfully negotiate new leases
from the government or private parties or mining contracts for properties
containing additional reserves or maintain our leasehold interest in properties
on which mining operations are not commenced during the term of the lease.
Our Results of Operations are Highly Dependent upon the Prices Received for our
Coal
Although in fiscal 1999, 87% of our sales were made under coal supply
agreements, many of our coal supply agreements contain price reopener provisions
which provide for the contract price to be adjusted upward or downward at
specified times. Any significant decline in prices for coal could have a
material adverse effect on our financial condition and results of operations,
and quantities of reserves recoverable on an economic basis. Should the industry
experience significant
14
<PAGE>
price declines from current levels or other adverse market conditions, we may
not be able to generate sufficient cash flow from operations to meet our
obligations and make planned capital expenditures.
The availability of a ready market for our coal production also depends on
a number of factors, including the demand and supply of low sulfur coal and the
availability and cost of sulfur dioxide emission allowances.
We Operate in a Highly Competitive Industry
The coal industry is highly competitive, with numerous producers in all
coal producing regions. We compete with other large producers and hundreds of
small producers in the United States and abroad. Many of our customers are also
customers of our competitors. The markets in which we sell our coal are highly
competitive and affected by factors beyond our control. Continued demand for our
coal and the prices that we will be able to obtain will depend primarily on coal
consumption patterns of the domestic electric utility industry, which in turn
are affected by the demand for electricity, coal transportation costs,
environmental and other governmental regulations and orders, technological
developments and the availability and price of competing alternative energy
sources such as oil, natural gas, nuclear energy and hydroelectric energy. In
addition, during the mid-1970s and early 1980s, a growing coal market and
increased demand for coal attracted new investors to the coal industry and
spurred the development of new mines and added production capacity throughout
the industry. Although demand for coal has grown over the recent past, the
industry has since been faced with overcapacity, which in turn has increased
competition and lowered prevailing coal prices. Moreover, because of greater
competition for electricity and increased pressure from customers and regulators
to lower electricity prices, public utilities are lowering fuel costs and
requiring competitive prices on their purchases of coal.
A Large Portion of Our Labor Force is Unionized
Approximately 48% of Peabody's and our joint venture's U.S. coal
employees, who accounted for 31% of Peabody's U.S. coal sales in fiscal 1999,
are represented by the United Mine Workers of America. The Australian coal
mining industry is highly unionized and the majority of workers employed at
Peabody Resources are members of trade unions. Some of our competitors have
non-union work forces. Because of the increased risk of strikes and other
work-related stoppages in addition to higher labor costs which may be associated
with union operations in the coal industry, our non-unionized competitors may
have a competitive advantage in areas where they compete with our unionized
operations. If some or all of the company's current non-union operations were to
become unionized, we could incur an increased risk of work stoppages, reduced
productivity and higher labor costs. The ten month long United Mine Workers of
America strike in 1993 had a material adverse effect on us. Our subsidiaries,
Peabody Coal Company and Eastern Associated Coal Corp., operate under a union
contract which is in effect through December 31, 2002 and our Peabody Western
Coal Company subsidiary operates under a union contract which is in effect
through August 31, 2000. Peabody Resources' Warkworth Mine operates under a
labor agreement that expires in September 1999. Peabody Resources,' Ravensworth
and Narama mines entered into two-year labor agreements in May 1999. We cannot
assure you that our unionized labor will not go on strike upon expiration of
existing contracts.
Our Operations Could Be Adversely Affected If We Fail To Maintain Required
Surety Bonds
Federal and state laws require bonds to secure our obligations to reclaim
lands disturbed for mining, to pay federal and state workers' compensation and
to satisfy other miscellaneous obligations. As of March 31, 1999, we had
outstanding surety bonds with third parties for post-mining reclamation totaling
$534.9 million, with an additional $240.5 million in self-bonding obligations.
Furthermore, surety bonds valued at an additional $80.5 million are in place for
federal and state workers' compensation obligations and other miscellaneous
obligations. These bonds are typically renewable on a yearly basis. We cannot
assure you that the surety bond issuers and holders will continue to renew the
bonds or refrain from demanding additional collateral upon those renewals.
Furthermore, as a result of the acquisition financings, we are highly leveraged,
making it questionable whether we will be able to continue our self-bonding
program and thus requiring us to obtain additional third-party surety bonds. The
failure to maintain or the inability to acquire sufficient surety bonds, as
required by state and federal law, would have a material adverse effect on us.
That failure could result from a variety of factors including the following:
o lack of availability, higher expense or unreasonable terms of new
surety bonds;
o restrictions on the demand for collateral by current and future
third-party surety bond holders due to the terms of the indentures
or the senior credit facilities; and
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<PAGE>
o the exercise by third-party surety bond holders of their right to
refuse to renew the surety.
We Depend on Key Personnel
Our business is managed by a number of key personnel, the loss of which
could have a material adverse effect on us. In addition, as our business
develops and expands, we believe that our future success will depend greatly on
our continued ability to attract and retain highly skilled and qualified
personnel. We cannot assure you that key personnel will continue to be employed
by us or that we will be able to attract and retain qualified personnel in the
future. We currently have not obtained key person life insurance to cover our
executive officers. Failure by us to retain or attract key personnel could have
a material adverse effect on us.
16
<PAGE>
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes by
Lehman Brothers Inc. in market-making transactions. We will not receive any of
the proceeds from these transactions.
CAPITALIZATION
The following table presents our capitalization, excluding non-recourse
long-term debt of Citizens Power of $333.9 million as of March 31, 1999.
As of
March 31, 1999
--------------
(In millions)
Senior Credit Facilities
Revolving Credit Facility ........................... $ --
Term Loan Facility .................................. 840.0
Senior Notes ........................................... 398.9
Senior Subordinated Notes .............................. 498.6
Existing U.S. Long-Term Debt ........................... 158.4
Peabody Resources Debt ................................. 102.3
5% Subordinated Note ................................... 190.6
Citizens Power Obligations ............................. 19.7
--------
Total Debt .......................................... $2,208.5
Stockholder's equity ................................... 495.2
--------
Total Capitalization ............................. $2,703.7
========
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SELECTED FINANCIAL DATA
The following table presents selected financial data. We purchased our
operating subsidiaries on May 19, 1998, and prior to that date had no
substantial operations. The period ended March 31, 1999 is thus a full fiscal
year, but includes results of operations only from May 20, 1998 forward. The
prior years' results of operations of the operating subsidiaries acquired are
defined as the "Predecessor Company" and are included for comparative purposes.
In early 1999, we increased our interest in Black Beauty Coal Company to 81.7%.
The results of operations include the consolidated results of Black Beauty Coal
Company, effective January 1, 1999. Prior to that date, our investment in Black
Beauty Coal Company was accounted for under the equity method.
<TABLE>
<CAPTION>
Predecessor Company
(tons sold and dollars in millions) -------------------------------------------------
Period From Twelve Six
May 20, Period From Months Months
Total 1998 to April 1, 1998 Year Ended Ended Ended
Fiscal March 31, to May 19, March 31, March 31, March 31,
1999(1) 1999 1998 1998 1997 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations Data:
Tons Sold 176.0 154.3 21.7 167.5 167.4 81.4
======== ======== ======== ======== ======== ========
Revenues:
Sales $2,249.9 $1,971.0 $278.9 $2,048.7 $2,121.6 $1,000.4
Other Revenues 136.7 123.2 13.5 195.8 120.7 63.7
-------- -------- -------- -------- -------- --------
Total Revenues 2,386.6 2,094.2 292.4 2,244.5 2,242.3 1,064.1
Operating Costs and Expenses 2,200.5 1,915.5 285.0 1,975.3 688.7 962.0
-------- -------- -------- -------- -------- --------
Impairment of Long-Lived Assets(2) -- -- -- -- 890.8 --
Operating Profit (Loss) $186.1 $178.7 $7.4 $269.2 (662.8) $102.1
======== ======== ======== ======== ======== ========
Net Income (Loss) $10.7 $10.2 $.5 $160.3 (449.3) $58.4
======== ======== ======== ======== ======== ========
Balance Sheet Data:
Working Capital $487.0 $487.0 $374.5 $536.0 167.1 $167.1
Total Assets 7,023.9 7,023.9 6,403.2 6,343.0 5,025.8 5,025.8
Recourse Debt 2,208.5 2,208.5 339.6 308.4 321.7 321.7
Non-Recourse Debt 333.9 333.9 293.9 293.9 -- --
Stockholders' Equity/Invested
Capital 495.2 495.2 1,497.4 1,687.8 1,676.8 1,676.8
Other Data:
EBITDA(3) $396.5 $362.9 $33.6 $471.8 $431.6 $203.8
Net Cash Provided by (Used in):
Operating Activities 240.0 270.5 (30.5) 181.7 323.2 62.8
Investing Activities (2,257.0) (2,237.8) (19.2) (129.9) (106.6) (56.2)
Financing Activities 2,184.8 2,161.3 23.5 (235.4) (77.4) 94.2
Depreciation, Depletion and
Amortization 210.4 184.2 26.2 202.6 203.6 101.7
Capital Expenditures 195.9 174.9 21.0 166.3 148.5 76.5
Ratio of Earnings to Fixed Charges(4) 1.13x 1.11x 1.71x 5.77x -- 3.63x
<CAPTION>
Predecessor Company
(tons sold and dollars in millions) --------------------------------
Fiscal Years Ended
September 30,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Results of Operations Data:
Tons Sold 163.0 151.0 101.6
======== ======== ========
Revenues:
Sales $2,075.1 $2,087.6 $1,763.4
Other Revenues 118.4 88.2 81.0
-------- -------- --------
Total Revenues 2,193.5 2,175.8 1,844.4
Operating Costs and Expenses 1,954.1 1,930.2 1,698.8
-------- -------- --------
Impairment of Long-Lived Assets(2) 890.8 -- --
Operating Profit (Loss) $(651.3) $245.6 $145.6
======== ======== ========
Net Income (Loss) $(446.3) $100.4 $79.4
======== ======== ========
Balance Sheet Data:
Working Capital $(129.5) $(104.3) $280.5
Total Assets 4,916.7 5,676.9 5,560.1
Recourse Debt 456.9 316.8 294.4
Non-Recourse Debt -- -- --
Stockholders' Equity/Invested
Capital 1,383.7 1,651.0 1,656.6
Other Data:
EBITDA(3) $(453.4) $435.9 $315.8
Net Cash Provided by (Used in):
Operating Activities 211.5 272.5 153.1
Investing Activities (105.6) (462.1) (108.5)
Financing Activities 16.0 179.0 (4.0)
Depreciation, Depletion and
Amortization 197.9 190.3 170.2
Capital Expenditures 152.1 188.0 135.7
Ratio of Earnings to Fixed Charges(4) -- 3.63x 2.13x
</TABLE>
(1) For comparative purposes, the total fiscal 1999 column has been derived by
adding the period from May 20, 1998 to March 31, 1999 to the Predecessor Company
results for the period from April 1, 1998 to May 19, 1998. The effects of
purchase accounting have not been reflected in the results of the Predecessor
Company. This shows the results of operations for our operating subsidiaries for
the entire twelve months ended March 31, 1999.
(2) Reflects a one-time non-cash charge made pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which had no effect on our
cash flow.
(3) EBITDA is defined as income before deducting net interest expense, income
taxes and depreciation, depletion and amortization. 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 our 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 $17.5 million, ($1.3 million) and $10.8 million for the period
from May 20, 1998 to March 31, 1999, the period from April 1 to May 19, 1998 and
the year ended March 31, 1998, respectively.
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<PAGE>
(4) For purposes of this computation, earnings consist of income before income
taxes plus fixed charges. Fixed charges consist of interest expense on all
indebtedness plus the interest component of lease rental expense. Earnings were
insufficient to cover fixed charges by $702.3 million and $702.5 million for the
twelve months ended March 31, 1997 and the fiscal year ended September 30, 1996,
due to the SFAS No. 121 charge described above.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the audited and unaudited combined/consolidated
financial statements and related notes included elsewhere in this prospectus.
Except for the financial statements for the period ended March 31, 1999, the
financial statements contained in this prospectus are of our predecessors.
For purposes of comparisons to the prior year operating results in the
discussion below, the results of operations and cash flows for the period ended
March 31, 1999 reflect our results from April 1, 1998 to March 31, 1999 and the
results of our Predecessor Company for April 1 to May 19, 1998. P&L Coal
Holdings Corporation acquired the Predecessor Company on May 19, 1998 and prior
to that date had no separate operations. In addition, the results of operations
and cash flows for the period ended March 31, 1999 may not be directly
comparable to prior periods 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 under Accounting Principles Board Opinion No.
16.
Total Fiscal 1999 Compared with Fiscal Year Ended March 31, 1998
Sales. For fiscal 1999, sales increased 9.8%, or $201.2 million, over the
prior twelve-month period. Excluding Black Beauty's results, sales increased
$120.5 million, or 5.9%. We experienced an increase of $114.4 million in broker
transactions, and had sales improvements in the following United States mining
operating regions - Powder River ($19.1 million), Southern Appalachia ($20.4
million) and the Southwest region ($8.2 million).
The increase in brokered coal activity relates primarily to higher export
volumes, an increased emphasis on broker transactions, newly added capacity for
brokered shipments and the realization of a full year of sales from agreements
entered into late in fiscal 1998.
With respect to the U.S. mining operations, Powder River experienced a
5.0% increase in sales volume from continued growth in demand for coal from this
region, while Southern Appalachia sales volumes improved 13.0%, primarily due to
longwall productivity increases as a result of capital improvements. Sales
increases in the Southwest region are due mainly to improved pricing. Finally,
the Midwest region declined $21.9 million due to the depletion and closing of a
surface mine late in the prior fiscal year, lower shipments in the current year
caused by customer unit outages for maintenance, and higher prior year sales due
to a customer settlement.
Sales in Australia declined $28.3 million versus the prior year, due to
weaker demand, lower pricing and the effects of foreign currency translation.
Other Revenues. Other revenues declined $59.0 million to $136.7 million
for fiscal 1999, due mainly to $44.0 million in lower revenues from coal
contract restructurings and $29.1 million in lower mining services revenues from
Australia, partially offset by an increase of $12.5 million in revenues from
Citizens Power, due to a higher volume of power contract restructurings and
improved trading revenues. We cannot assure you we will be able to realize
similar gains from future coal contract restructurings.
Operating Profit. For fiscal 1999, operating profit declined $83.1 million
to $186.1 million. Operating profit from the U.S. mining operations improved by
$59.9 million during the period, mainly as a result of improved results at the
Powder River, Southern Appalachia and Southwest operating regions discussed
above, and the inclusion of Black Beauty as a consolidated entity beginning with
the fourth quarter of fiscal 1999. However, operating profit from Australia
declined $9.2 million due to lower demand and prices for coal, lower mining
services revenues and the effect of foreign currency translation.
Additionally, the prior year results included $44.0 million of actuarial
gains associated with some employee-related liabilities that are non-recurring,
$44.0 million in higher gains from coal supply contract restructurings mentioned
above and $21.5 million in higher gains on the sale of property, plant and
equipment. Current year results of operations include: $8.5 million of
additional depletion and amortization associated with purchase accounting
adjustments to write-up our net assets to fair value; $3.9 million of
compensation expense associated with the grant of 554,125 shares of Class B
common stock to some members of management in conjunction with the May 19, 1998
acquisition of Peabody; $3.7 million in additional profit as a result of the
successful resolution of billing disputes with a customer in Australia; changes
in U.S.
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<PAGE>
employee benefits that resulted in accrual reductions of $10.2 million; a
reduction in cost from a multiemployer benefit plan refund of $2.6 million; a
reduction in reclamation accruals of $2.7 million due to improved equipment
efficiencies; and $3.9 million in additional income due to the monetization of a
royalty stream in October 1998.
Interest Expense. Interest expense increased $146.7 million for fiscal
1999. This increase is the result of the borrowings necessary to fund the
acquisition on May 19, 1998, and higher borrowings in Australia to fund the
construction of the Bengalla Mine.
Income Taxes. Our effective book income tax rate for fiscal 1999 was
51.6%. The effective tax rate is primarily impacted by two factors - the
percentage depletion tax deduction utilized by us and our U.S. subsidiaries that
creates an alternative minimum tax situation, and the level of contribution by
the Australian business to the consolidated results of operations, which is
taxed at a higher rate than in the United States. The effective tax rate for
fiscal 1999 reflects tax expense in Australia not completely offset by tax
benefits in the United States.
Fiscal Year Ended March 31, 1998 Compared with Twelve Months Ended March 31,
1997
For the year ended March 31, 1998, we had revenues of $2.2 billion and
operating profit of $269.2 million. The 1998 revenues were $2.1 million higher
and operating profit increased $932.0 million compared to the same period in the
prior year. The lower earnings in 1997 primarily resulted from a one-time
non-cash charge of $890.8 million due to the adoption of the valuation
methodology of Statement of Financial Accounting Standards ("SFAS") No. 121,
which related to the impairment of some inactive and undeveloped coal reserves.
Most of the impairment write-down resulted from reduced values for specific
properties with indications of unfavorable market conditions primarily relating
to various properties containing coal reserves with a sulfur content that does
not meet the air emissions limitations under the Clean Air Act Amendments.
Excluding the impact of this charge, operating income would have been $228.0
million for the twelve months ended March 31, 1997.
Coal sales of 167.5 million tons for the fiscal year ended March 31, 1998
approximated volume for the year ended March 31, 1997. Low sulfur coal sales
represented 81% of total sales volume for the fiscal year ended March 31, 1998
and sales under coal supply agreements of one year or more represented 92% of
sales volume for the same period. Management estimates we had a U.S. market
share of approximately 14.4% during the period. Our mines in Australia had coal
sales of 7.3 million tons for both the fiscal year ended March 31, 1998 and the
twelve months ended March 31, 1997.
Revenues of $2.2 billion for the fiscal year ended March 31, 1998
increased $2.1 million compared to the prior year, primarily as a result of
restructuring the Tucson Electric Power contract at our Lee Ranch operation
($49.3 million additional revenue in that period) partially offset by lower
export pricing and softer markets in Australia and the Powder River Basin. We
also realized $11.6 million in gains from a coal supply agreement restructuring
for the twelve months ended March 31, 1997. The Tucson Electric Power contract
restructuring consisted of up-front payments in exchange for terminating the
existing coal supply agreement and the subsequent agreement to a new long-term
contract. We were able to realize a gain on the restructuring of this coal
supply agreement since the termination fee required no future performance. The
new contract, containing provisions at prevailing market terms, met the
customer's desire for a reduced price of coal in the future. We determined that
this payment was adequate compensation after considering the risk-adjusted
discounted net present values, the impact of relaxed quality standards on mining
costs and the benefits of a new agreement with a longer term.
Operating profit of $269.2 million for the fiscal year ended March 31,
1998 was $41.2 million more than the prior year, excluding the $890.8 million
SFAS No. 121 charge. The improved earnings were primarily due to recognizing a
$49.3 million gain on the Tucson Electric Power contract restructuring combined
with $8.4 million of operating profit contributed by Citizens Power from power
trading activities during the period and increased gains on property sales.
Operating difficulties at the Eastern Associated mines, lower export pricing and
lower prices in the Powder River Basin adversely impacted operating income. Our
productivity in the United States remained strong, with an average of almost 92
tons per manshift for the period, while the Australian operations increased
productivity by approximately 7% over the prior year. This had the effect of
increasing gross profit margins, excluding Citizens Power, to 14.5% of revenues
for the fiscal year ended March 31, 1998 as compared to 13.3% for the prior
year. Selling and administrative expenses were 3.7% of revenues in 1998 compared
to 3.6% in the prior year. The net gain on property and equipment disposals was
$15.8 million favorable to the prior year primarily due to a $14.7 million gain
on a sale of property. Our Australian operations contributed $44.8 million of
operating profit for the fiscal year ended March 31, 1998 and $47.4 million in
the prior year.
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<PAGE>
Effective January 1998, we purchased an additional 10% interest in Black
Beauty for $37.7 million in cash and as a result, increased our ownership in the
partnership to 43.3%.
Six Months Ended March 31, 1997 Compared with Six Months Ended March 31, 1996
For the six months ended March 31, 1997, we had revenues of $1.1 billion
and operating profit of $102.1 million. Revenues and operating profit were
slightly lower ($5.8 million and $3.9 million, respectively) compared to the six
months ended March 31, 1996. The impact of the increased sales volume of 4.4
million tons during the six months ended March 31, 1997 was more than offset by
unfavorable pricing variances and lower gains from surplus property sales as
compared to the prior period.
Coal sales of 81.4 million tons for the six months ended March 31, 1997
increased 6% from 77.0 million tons for the six months ended March 31, 1996. The
higher volume was primarily from the Powder River operations, as volumes
increased over 10% due to improved customer demand and the installation of a
crusher conveyor system. Our mines in Australia had coal sales of 3.5 million
tons for the six months ended March 31, 1997, an increase of 19% from the
previous period, resulting from favorable customer demand. Low sulfur coal sales
represented 81% of total sales volume for the six months ended March 31, 1997
and sales under coal supply agreements represented 89% of total sales volume in
that period.
Revenues of $1.1 billion for the six months ended March 31, 1997 decreased
slightly from the six months ended March 31, 1996. The positive impact of a 6%
growth in sales volume was more than offset by a decline in pricing during the
period. The decline in pricing was primarily at Powder River as expiring and
repriced contracts and a soft spot market reduced the average price per ton. We
also realized gains from coal supply agreement restructurings of $11.6 million
and $22.0 million for the six month period ended March 31, 1997 and 1996,
respectively.
Operating profit of $102.1 million was $3.9 million lower than for the six
months ended March 31, 1996. Our cost reduction measures and productivity (i.e.,
tons per manshift) enhancements continued to have a positive impact on operating
profit which was more than offset by a decline in coal prices and lower gains
from surplus property sales. The success of the cost reduction initiative
improved productivity approximately 13%, with our U.S. operating companies
averaging 93 tons per employee per manshift for the six month period which
represented a Peabody record. Our Australian productivity also showed
significant improvement increasing more than 17% from the equivalent period in
the previous year. This had the impact of improving gross profit margins to
13.1% of revenues for the six months ended March 31, 1997, as compared to 12.8%
of revenues for the six months ended March 31, 1996. Selling and administrative
expenses remained substantially stable at 3.9% and 3.7% of revenues for 1997 and
1996, respectively. Our Australian operations contributed $22.3 million of
operating profit in the six months ended March 31, 1997, up from $16.1 million
for the comparable period in 1996.
Fiscal Year Ended September 30, 1996 Compared with Fiscal Year Ended September
30, 1995
For the fiscal year ended September 30, 1996, we had revenues of $2.2
billion and an operating loss of $651.3 million. The 1996 revenues increased
$17.8 million from 1995 levels, while operating profit decreased $896.9 million
from 1995. The lower earnings in 1996 were primarily due to a one-time, non-cash
charge of $890.8 million as a result of adopting the valuation methodology of
SFAS No. 121, principally related to the impairment of some inactive and
undeveloped coal reserves, primarily high sulfur coal reserves, affected by the
Clean Air Act Amendments. Excluding the impact of this charge, operating income
would have been $239.5 million for the fiscal year ended September 30, 1996.
Coal sales of 163.0 million tons in the fiscal year ended September 30,
1996 increased 8% from 151.0 million tons in the fiscal year ended September 30,
1995. The higher volume was primarily attributable to an 18.5% increase in our
Powder River Basin production volume including a full year's contribution from
the Caballo and Rawhide mines acquired in November 1994. Our Australian
operations sold 6.7 million tons of coal in the fiscal year ended September 30,
1996, compared to 7.3 million tons in 1995. Our overall production reflected the
impact of our continued investment aimed at improving productivity, in
particular at Powder River. Low sulfur coal sales represented 82% of total sales
volume in the year ended September 30, 1996, up from 80% in 1995. Sales under
long-term contracts represented 88% of sales volume in 1996 and management
estimates Peabody's market share in the United States rose from 14% in the
fiscal year ended September 30, 1995 to 15% in the fiscal year ended September
30, 1996.
Revenues were $2.2 billion in the fiscal year ended September 30, 1996,
which were $17.8 million higher than revenues for the fiscal year ended
September 30, 1995. The positive impact of higher sales volumes in 1996 was
offset by lower pricing of three high sulfur coal contracts at Peabody Coal
Company (estimated at $25 to $30 million) as price per ton was 10%
22
<PAGE>
lower than the prior year. Revenues were also adversely affected by reduced
demand at our western operations, as customers purchased lower priced
hydroelectric generation that was available due to unusually high rain and
snowfall in the Western United States. Stabilizing spot prices in the higher
sulfur markets in the last six months of the year also favorably impacted
profits. We also realized gains from coal supply agreement restructurings
totaling $22.0 million and $23.9 million for the fiscal years ended September
30, 1996 and 1995, respectively.
Excluding the one-time, non-cash charge of $890.8 million arising from the
implementation of SFAS No. 121, operating income of $239.5 million for the
fiscal year ended September 30, 1996 decreased $6.1 million from $245.6 million
for the fiscal year ended September 30, 1995. The 1996 operating results were
affected by lower customer demand at our western operations, the re-pricing of a
number of high sulfur coal contracts, which management estimates accounted for a
decrease in profit of $25 to $30 million, and operational difficulties at
Peabody Coal Company and Eastern Associated during the first nine months of the
year. Offsetting the above impacts was a reduction in costs due to measures
implemented during 1996 as part of continuing efforts to reduce production
costs. These included employee reductions, improvements in working practices
permitted under new union contracts and the effects of investment in more
efficient equipment. The success of our cost reduction initiatives was evidenced
by an improvement in productivity, as tons per manshift improved 17% in absolute
terms over 1995 and 3% on a weighted average mine by mine basis taking into
account the shift in sources of production. Operating profit in 1996 also
included the benefit of $23.3 million related to the reversal of an excess
accrual of our liability for the United Mine Workers of America Combined Fund
established under the Coal Industry Retiree Health Benefit Act of 1992. This
reversal resulted from our successful appeal of United States government
beneficiary assignments and our active participation in the administrative
process with respect to this fund. The effect of these items was to reduce gross
profit margins to 13.8% in 1996 from 14.4% of revenues for 1995. Selling and
administrative costs were $5.6 million lower than in 1995 as we continued to
streamline and consolidate support functions. As a percentage of revenues,
selling and administrative expenses were 3.5% in 1996 and 3.7% in 1995.
Our Australian operating profits of $48.5 million for the fiscal year
ended September 30, 1996 increased from $37.9 million for the fiscal year ended
September 30, 1995. The improved earnings were primarily related to increased
volume of mining services projects during 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $240.1 million, which is
comprised mainly of a $135.9 million royalty prepayment that occurred during the
second quarter of fiscal 1999 and cash from current operations, partially offset
by working capital changes.
Net cash used in investing activities was $2,257.1 million, primarily
consisting of $2,076.9 million for the acquisition of our Predecessor Company
and a controlling interest in Black Beauty and $195.8 million of capital
expenditures. We expect to spend approximately $200 million for fiscal 2000
capital expenditures. We had $139.4 million of committed capital expenditures
(primarily related to coal reserves and mining machinery) at March 31, 1999. It
is anticipated these capital expenditures will be funded through available cash
and credit facilities.
Net cash provided by financing activities was $2,184.8 million, reflecting
a $480 million capital contribution and $1,817.4 million in borrowings to fund
the acquisition of our Predecessor Company. In addition, we have borrowed
approximately $160 million to fund domestic capital expenditures, the
construction of a new mine in Australia and working capital requirements. We
repaid $100 million of long-term debt during the period, including $75 million
in prepayments and $5 million in scheduled payments on acquisition debt.
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<PAGE>
As of March 31, 1999, we had total indebtedness of $2,542.4 million,
consisting of the following:
(In millions)
Term loans under senior credit facilities $ 840.0
8.875% Senior Notes due 2008 398.9
9.625% Senior Subordinated Notes due 2008 498.6
5.000% Subordinated Note 190.6
Non-Recourse Debt 333.9
Other 280.4
--------
$2,542.4
========
The senior credit facilities include a revolving credit facility that
provides for aggregate borrowings of up to $150 million and letters of credit of
up to $330 million. As of March 31, 1999, we 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 our
option. On October 1, 1998, we entered into two interest rate swaps to fix the
interest cost on $500 million of long-term debt outstanding under the term loan
facility. We will pay a fixed rate of approximately 7.0% on $300 million of that
long-term debt for a period of three years, and on $200 million of that
long-term debt for two years. The revolving credit facility commitment matures
in fiscal 2005.
During fiscal 1999, we made optional prepayments of $75 million on the
senior credit facilities, which we applied against mandatory Term Loan A and B
payments in order of maturity, and mandatory payments of $5 million on Term Loan
A. The following table sets forth the amortization schedule for the senior
credit facilities after giving effect to the payments:
(In millions)
Term Loan A Term Loan B
----------- -----------
Fiscal Year:
1999 $ -- $ --
2000 -- --
2001 10.00 --
2002 42.50 --
2003 68.75 --
2004 93.75 --
2005 25.00 64.00
2006 -- 408.25
2007 -- 127.75
------- -------
$240.00 $600.00
======= =======
The indentures governing the senior notes and senior subordinated notes
permit us and our Restricted Subsidiaries, which include all of our subsidiaries
except Citizens Power and its subsidiaries, to incur additional indebtedness,
including secured indebtedness, subject to limitations. In addition, among other
customary restrictive covenants, the indentures prohibit us and our 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 other specified upstream payments to us or any of our
Restricted Subsidiaries, subject to exceptions. The revolving credit facility
and related term loan facility also contain restrictions and limitations
including but not limited to financial covenants that will require us to
maintain and achieve specified levels of financial performance and limit the
payment of cash dividends and similar restricted payments. In addition, the
senior credit facilities prohibit us from allowing our Restricted Subsidiaries,
which include all guarantors, to create or otherwise cause any encumbrance or
restriction on the ability of any of those Restricted Subsidiaries to pay any
dividends or make other specified upstream payments subject to specified
exceptions. We were in compliance with all of the restrictive covenants of our
loan agreements as of March 31, 1999.
24
<PAGE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued 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. The Financial Accounting Standards Board recently issued SFAS No.
137, which defers the effective date of SFAS No. 133 to all fiscal quarters of
fiscal years beginning after June 15, 2000 (effective April 1, 2001 for us). We
are evaluating the requirements of this Statement and have not yet determined
the impact of adoption on the financial statements.
Impact of Year 2000 Issue
We are preparing for the impact of the arrival of the Year 2000 on our
business, as well as on the businesses of our customers, suppliers and business
partners. The "Year 2000 Issue" is a term used to describe the problems created
by computer systems that are unable to accurately interpret dates after December
31, 1999. These problems are derived predominantly from the fact that many
software programs have historically categorized the "year" in a two-digit
format. The Year 2000 Issue creates potential risks in the Information
Technology, or IT, and non-IT systems that we use in our business operations. We
may also be exposed to risks from third parties with which we interact that fail
to adequately address their own Year 2000 issues.
Our State of Readiness - In 1998, we organized a company-wide Year 2000
compliance project, staffed with a diverse team of personnel representing all
levels of the organization. We also retained an outside consulting firm to
assist in the Year 2000 risk assessment and to help ensure an effective project
structure to address the Year 2000 Issue. In addition, we assessed our software
and identified portions that will have to be modified or replaced so that our
computer systems will function properly with respect to dates in the Year 2000
and thereafter. With respect to IT systems, an assessment was completed and we
are now in the remediation, testing and implementation phases of the project
whereby it is updating or replacing existing impacted applications. These phases
of the project began in calendar 1998 and will continue in calendar 1999.
Additionally, we are also assessing our non-IT technology which consists
primarily of embedded technology at our mining facilities (such as security
systems, mine monitoring systems, plant operating systems and coal loading and
scale facilities). We are in the assessment and remediation phases and plan to
have all of our sites Year 2000 compliant by October 1999.
Software modifications are estimated to be 82% complete, a measurement
primarily based upon overall labor hours. The goal of management is to have all
systems and equipment Year 2000 ready by October 1999. We believe that with
modifications to existing software and conversion to new software, the Year 2000
Issue will not present significant operational problems for our computer
systems.
Finally, we are assessing our Year 2000 exposures related to our
suppliers. We have identified our key suppliers and have sent a request for
information on their Year 2000 compliance status. We have 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 Costs to Address Our Year 2000 Issues - The total cost of the project
associated with the Year 2000 Issue is estimated at approximately $9.1 million,
which includes $3.0 million for the purchase of new software and hardware that
will be capitalized and $6.1 million that will be expensed as incurred. To date,
we have incurred approximately $2.8 million primarily for assessment of the Year
2000 Issue, development of a modification plan, and updating noncompliant
programs. We believe that the total costs associated with modifying our current
systems will not have a material adverse effect on our financial position,
results of operations or liquidity.
The Risks of Our Year 2000 Issues - We cannot assure you that we will be
completely successful in our efforts to address Year 2000 issues. If some of our
systems are not Year 2000 compliant, we could suffer a disruption of operations
(including delivery of coal under sales contracts) or other negative
consequences, including, but not limited to, diversion of resources, damage to
our reputation and increased litigation, any of which could materially adversely
affect our financial position, results of operations or liquidity.
25
<PAGE>
We are also dependent on third parties such as our customers, suppliers,
service providers and other business partners. If these or other third parties
with which we conduct business fail to adequately address Year 2000 issues, we
could experience a negative impact on our financial position, results of
operations or liquidity. For example, the failure of transportation providers,
power generators and/or telecommunications companies to have Year 2000 compliant
internal systems could impact our production and/or shipment of coal.
Contingency Plans - We are in the process of developing a comprehensive
contingency plan to address situations that may result if we or any of the third
parties upon which we are dependent is unable to achieve Year 2000 readiness.
This effort is ongoing and will continue to be evaluated as new information
becomes available.
Year 2000 Cautionary Statement - Year 2000 issues are widespread and
complex. The costs of the project and the date on which we believe we 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, we cannot assure you that these estimates
will be achieved.
Forward Looking Statements
This document, our annual report and a number of press releases and
statements we make from time to time include statements of our and management's
expectations, intentions, plans and beliefs that constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act 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 our current expectations, including but not limited to
the risks described under "Risk Factors."
Trading Activities
We market and trade electric power and energy-related commodities and
provide services to the electric power industry through our subsidiary, Citizens
Power. These activities give rise to market risk, which represents the potential
loss that can be caused by a change in the market value of a particular
commitment. Market risks are actively measured, monitored and controlled to
ensure compliance with management policies. Polices are in place that limit the
amount of total exposure we may enter into at any point in time. In addition, we
have implemented procedures that allow us to measure, monitor and control all
commitments and positions, with daily reporting to management.
These activities are accounted for using the fair value method, whereby
financial instruments with third parties (such as forwards, futures, options and
swaps) are reflected at market value in the consolidated financial statements.
Non-trading
Commodity price risk
We manage our commodity price risk for non-trading purposes through the
use of long-term coal supply agreements, rather than through the use of
derivative instruments. Approximately 87% of our sales volume was sold under
long-term coal supply agreements in fiscal 1999.
Some products used in our mining activities are subject to price
volatility. We use forward contracts to manage the volatility related to this
exposure. Commodity price risk associated with these products used in our mining
activities is not material to our consolidated financial position, results of
operations or liquidity.
Interest rate risk
We have exposure to changes in interest rates due to our existing level of
indebtedness. As of March 31, 1999, we had $2.2 billion of fixed-rate borrowings
and approximately $397 million of variable-rate borrowings outstanding. To
minimize our exposure to changes in interest rates, we entered into two interest
rate swaps during fiscal 1999 with a total notional amount of $500 million for a
2-3 year term.
Foreign currency risk
Our Australian subsidiary, Peabody Resources, utilizes the Australian
dollar as its functional currency. Peabody Resources exports coal to the Asian
market under U.S. dollar-denominated supply agreements, creating exposure to
fluctuations in exchange rates upon subsequent translation of those export sales
to U.S. dollars in the consolidated financial
26
<PAGE>
statements. Peabody Resources utilizes a combination of forward currency and
option contracts to hedge the impact of these exchange rate fluctuations.
Sensitivity Analysis of Market Risks:
Foreign currency risk
The net amount of our derivative financial instruments and foreign
currency transaction exposure of approximately $200 million, after considering
$217 million of existing foreign exchange contracts, has been subjected to an
assumed 10% appreciation and 10% depreciation in the value of the Australian
dollar versus the U.S. dollar over a period not exceeding the average expected
maturity of the related foreign exchange contract. Assuming the U.S. dollar
appreciates 10% against the Australian dollar, the resulting foreign exchange
gain would be approximately $24 million. If the U.S. dollar were to decline 10%
against the Australian dollar, the resulting foreign exchange loss would be
approximately $24 million.
Interest rate risk
After taking into account the interest rate swap transactions discussed
above, one percentage point increase in interest rates would result in an
annualized increase to interest expense of approximately $4 million on our
variable-rate borrowings. With respect to our fixed-rate borrowings, a one
percentage point increase in interest rates would result in a $55 million
decrease in the fair value of those borrowings.
27
<PAGE>
COAL INDUSTRY OVERVIEW
The information provided in "Coal Industry Overview" regarding future coal
consumption was obtained from the Energy Information Administration, the
independent statistical and analytical agency within the U.S. Department of
Energy, and Resource Data Institute. The assumptions upon which the Energy
Information Administration's forecasts are based include, among other things,
assumptions regarding trends in various economic sectors (residential,
transportation, industrial, etc.), economic growth rates, technological
improvements and demand for other energy sources and are described more fully in
the Energy Information Administration's Annual Energy Outlook 1999. Resource
Data Institute does not describe the assumptions upon which their projections
are based. Although we believe that these sources are reliable, we cannot assure
you that those projections will prove to have been correct. See "Risk Factors."
Introduction
Coal is one of the world's major energy sources whose primary role is to
provide fuel for the generation of electricity. According to the Energy
Information Administration, in 1995 25% of the world's primary energy supply
came in the form of coal and coal was responsible for approximately 38% of the
world's electricity generation. In the United States, coal's share of the
domestic primary energy supply was 32% in 1997, while coal's share of U.S.
electricity generation has risen to 56% in 1998.
The major coal producers in the world are China, the United States,
Russia, Ukraine, India and Australia, although coal is produced in some 60
countries worldwide. The United States enjoys the world's largest reserve base,
with an estimated 27% of the world's recoverable bituminous and subbituminous
coal reserves, followed by the former Soviet Union, China, India, South Africa
and Australia. An estimated 70% of the world's fossil energy resources are in
the form of coal.
The U.S. coal industry operates under a highly developed regulatory regime
which governs all mining and mine safety activities, including environmental
issues and land reclamation after completion of mining activities. These include
laws requiring that mined lands be restored to a condition equal to or better
than that existing before mining. While inherently dangerous, coal mining in the
United States has become a relatively safe occupation, relying on sophisticated
technology and a skilled work force to become one of the safest, most productive
coal markets in the world. See "Regulatory Matters."
In recent years the coal industry has experienced significant gains in
coal mine productivity, changes in air quality laws, growth in utility coal
consumption and industry consolidation. According to the Energy Information
Administration, the number of operating mines declined 52% over the last ten
years, while overall coal production increased approximately 14%. During the
same period, average coal mine productivity has nearly doubled due to changes in
work practices, new technologies and an increase in production in Wyoming's
Powder River Basin coal region, where thick, easily accessible coal seams result
in high productivity. The overall productivity gains have contributed to
stability in coal prices in recent years. A major trend in the industry has been
the shift to low sulfur coal production, particularly in Wyoming's Powder River
Basin, driven by the Clean Air Act Amendments, which imposed significant
restrictions on sulfur dioxide emissions from coal-fired power plants.
Coal Characteristics
There are four types of coal: lignite, subbituminous, bituminous and
anthracite. Each has characteristics that make it more or less qualified for
different end uses. In general, coal of all geological composition is
characterized by end use as either "steam coal" or "metallurgical coal,"
sometimes known as "met coal." Steam coal is used by utilities for electricity
generation and by industrial facilities to produce steam, electricity or both.
Metallurgical coal is refined into coking coal, which is used in the production
of steel. Heat value and sulfur content, the most important variables in the
profitable marketing and transportation of coal, determine the best end use of a
particular type of coal.
Heat Value
The heat value of coal is commonly measured in British thermal units. A
British thermal unit (Btu) is the amount of heat needed to raise one pound of
water one degree Fahrenheit. Coal found in the eastern and midwestern regions of
the United States tends to have a heat content ranging from 10,000 to 13,400
Btus per pound. Most coal found in the western United States ranges from 8,000
to 10,000 Btus per pound.
Lignite is a brownish-black coal with a heat content that generally ranges
from 6,500 to 8,300 Btus per pound. Major lignite operations are located in
Texas, North Dakota, Montana and Louisiana. Lignite is used almost exclusively
in power
28
<PAGE>
plants located adjacent to or near such mines because any transportation costs,
coupled with mining costs, would render its use uneconomical. We do not have any
lignite reserves.
Subbituminous coal is a black coal with a heat content that ranges from
7,800 to 9,500 Btus per pound. Most subbituminous reserves are located in
Montana, Wyoming, Colorado, New Mexico, Washington and Alaska. Subbituminous
coal is used almost exclusively by electric utilities and some industrial
consumers. We have extensive subbituminous reserves in the Powder River Basin of
Wyoming.
Bituminous coal is a "soft" black coal with a heat content that ranges
from 10,500 to 14,000 Btus per pound. This coal is located primarily in
Appalachia, Arizona, the Midwest, Colorado and Utah, and is the type most
commonly used for electric power generation in the United States. Bituminous
coal is used for utility and industrial steam purposes, and as a feed stock for
coke, which is used in steel production. All of the company's reserves in
Arizona, Colorado, Illinois, Indiana, Kentucky and West Virginia, as well as its
reserves in New South Wales, Australia, are ranked as bituminous coal.
Anthracite coal is a "hard" coal with a heat content that can be as high
as 15,000 Btus per pound. A limited amount of anthracite deposits is located
primarily in the Appalachian region of Pennsylvania, and is used primarily for
industrial and home heating purposes. We do not have any anthracite reserves.
Sulfur Content
Sulfur content can vary from seam to seam and sometimes within each seam.
When coal is burned, it produces sulfur dioxide, the amount of which varies
depending on the chemical composition and the concentration of sulfur in the
coal. Low sulfur coal has a variety of definitions, but it is used in this
document to refer to coal with a sulfur content of 1% or less by weight. Demand
for low sulfur coal has increased, and is expected to continue to increase, as
electric utilities strive to reduce sulfur dioxide emissions. Phase II
requirements are expected to create additional demand for low sulfur coal. U.S.
sulfur dioxide emissions from electric power generation have decreased 28% from
1980 levels, while U.S. coal consumption has increased 46%. See "Risk
Factors--Risks Relating to the Company--Government Regulation of the Mining
Industry--Impact of Clean Air Act Amendments on Coal Consumption."
Subbituminous coal typically has a lower sulfur content than bituminous
coal, but some bituminous coal in southern West Virginia, eastern Kentucky,
Colorado and Utah, also has low sulfur content.
Higher sulfur coal can be burned in plants equipped with sulfur-reduction
technology, as the scrubbing process reduces sulfur dioxide emissions by 50% to
90%. Plants without scrubbers can burn high sulfur coal by purchasing emission
allowances on the open market, which allow the user to emit a ton of sulfur
dioxide. Some older coal-fired plants have been retrofitted with scrubbers. Any
new coal-fired generation built in the United States will likely use clean coal
burning technology.
Other Important Characteristics
Ash. Ash is the inorganic residue remaining after combustion of coal. As
with sulfur content, ash content varies from seam to seam. Ash content is also
an important characteristic of coal because power plants must handle and dispose
of ash following combustion.
Moisture. Moisture content of coal varies by the type of coal, the region
where it is mined and the location of coal within a seam. In general, high
moisture content decreases the heat value and increases the weight of the coal,
thereby making it more expensive to transport.
Location/Ease of Extraction. It is generally easier to mine a coal seam
that is thick and close to the surface. Typically, coal mining operations will
begin at the part of the coal seam that is easiest and most economical to mine.
In the coal industry, this characteristic is referred to as "low ratio." As the
seam is mined, it becomes more difficult and expensive to mine because the seam
either becomes thinner or protrudes more deeply into the earth, requiring
removal of the material over the seam (the "overburden"). For example, many
seams of coal in the Midwest are 5 to 10 feet thick and hundreds of feet below
the surface. In contrast, seams in the Powder River Basin of Wyoming may be 80
feet thick and only 50 feet below the surface.
Coking Properties of Metallurgical Coal. When some types of coal are
super-heated in the absence of oxygen, they form a hard, dry, caking form of
coal called coke, which is chiefly used in the steel production process as a
fuel and reducing agent to smelt iron ore in a blast furnace.
29
<PAGE>
Coal Costs
Cost Comparison of Fuel Types
Coal generated 56% of the electricity in the United States in 1998. Coal
attained this dominant market share because of its relatively low cost and its
availability throughout the United States. On an average, all-in cost per
megawatt-hour (MWh) basis, coal-fired generation is less expensive than
electricity generated from natural gas or nuclear power. Hydroelectric power is
inexpensive but is limited geographically and there are few suitable sites for
new hydroelectric power dams.
The table below illustrates the relative cost advantage of coal over some
other power generation sources.
1990(2) 1998(3)
------ ------
Coal $20.06 $16.95
Nuclear 23.36 18.69
Hydro 3.04 6.45
Natural Gas 28.84 30.51
(1) Average annual generating costs per MWh produced for all U.S. power
plants; costs are all-in and include the cost of fuel, depreciation of
plant, and overhead and maintenance.
(2) Source: Research Data Institute PowerData, 1996, Federal Energy Regulatory
Commission Form 1 Data.
(3) Source: Monthly operating data from Research Data Institute.
Cost Structure
Coal Prices
Coal prices vary dramatically and are affected by a number of factors. Two
general characteristics are particularly important; first, coal prices vary
widely depending upon the region in which the coal is produced, and second,
utility purchases of coal, in which both mine-mouth coal prices and
transportation are considered, strongly influence other coal prices. Other
factors that influence coal prices are geological characteristics such as seam
thickness, overburden ratios and depth of underground reserves, transportation
costs, regional coal production capacity relative to demand and coal quality
characteristics such as heat value, ash, moisture and sulfur content. Powder
River Basin coal is relatively inexpensive to mine, or $3 to $5 per ton, based
on our estimates, because the seams are thick and typically close to the
surface. As a result, open- cast mining methods are used. The large capital
costs associated with dragline mining and truck and shovel mining (a dragline
can cost up to $50 million) are amortized over millions of tons of coal
produced. Powder River Basin mines are highly productive and labor is a much
smaller component of the cost structure. Eastern U.S. coal is more expensive to
mine, $15 to $25 per ton, based on our estimates, than western U.S. coal because
it has a high percentage of underground coal and its surface coal tends to have
thinner coal seams. Additionally, underground mining has higher labor, including
reserves for labor benefits and health care, and capital costs, including modern
mining equipment and construction of extensive ventilation systems, than those
of surface mining.
Industrial coal generally costs more to produce and is shipped in smaller
volumes and thus is priced $3 to $5 per ton more than steam coal used by
utilities. Metallurgical coal has higher carbon and lower ash content and is
usually priced $4 to $10 per ton higher than steam coal produced in the same
regions. Even higher prices are paid for special coking coal with low volatility
characteristics. The following chart summarizes recent steam coal prices by
supply region. As indicated, in 1997 steam coal prices ranged from $3 to $27 per
ton, depending upon the quality and source region of the coal. The chart also
indicates generally stable prices over the past three years, after a period in
which average coal prices declined by 12% from 1990 to 1995, in nominal dollars.
30
<PAGE>
Historical Steam Coal Spot Prices
(Nominal Dollars per Ton, Free on Board at Mine)
<TABLE>
<CAPTION>
Pounds
Sulfur dioxide
Btus per per million Estimated
Region/Basin Pound Btus 1995 1996 1997 1998
- ------------------------ --------------------- --------------------------------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Central Appalachia (less than) 12,500 (greater than or equal to) 1.2 $25.00 $26.35 $25.01 26.93
(greater than) 12,500 1.21-1.70 24.63 25.46 24.89 25.84
(greater than) 12,500 1.71-2.5 24.27 24.62 23.92 24.63
(less than) 12,500 (less than or equal to) 1.2 22.06 22.31 23.22 24.77
(less than) 12,500 1.21-1.70 21.17 21.77 22.85 22.31
(less than) 12,500 1.71-2.5 21.13 21.20 21.24 22.99
Northeastern Appalachia (greater than) 12,750 1.2-2.5 $22.62 $22.91 $24.12 23.20
(greater than) 12,750 (less than) 2.5 21.92 22.14 22.07 21.64
Illinois Basin (less than) 11,000 (greater than) 2.5 $18.62 $19.55 $19.69 20.47
(less than) 11,000 (greater than) 2.5 17.17 17.50 18.89 18.26
Southern Powder River (greater than) 8,800 (less than or equal to) 1.2 $ 4.34 $ 4.27 $ 4.04 4.40
Basin
(less than) 8,800 (less than or equal to) 1.2 3.27 3.23 3.25 3.30
Northern Powder River (greater than) 8,800 (less than or equal to) 1.2 $ 6.09 $ 6.24 $ 6.14 6.73
Basin
Four Corners (greater than 9,500 (less than or equal to) 1.2 $13.79 $15.80 $17.56 15.56
</TABLE>
Source: Research Data Institute, Outlook for Coal & Competing Fuels, Winter
1998-1999.
Transportation
Coal for domestic consumption is generally sold at the mine and
transportation costs are normally borne by the purchaser. Export coal is usually
sold at the loading port, and coal producers are responsible for shipment to the
export coal-loading facility and the buyer pays the ocean freight. Coal for
electricity generation is purchased on the basis of its delivered cost per
million Btus. Most utilities arrange long-term shipping contracts with rail or
barge companies to assure stable delivered costs.
Transportation is often a large component of the buyer's cost. Although
the customer pays the freight, transportation cost is still important to coal
mining companies because the customer may choose a supplier largely on the cost
of transportation. According to Resource Data Institute, in 1995, transportation
costs represented 69%, 28% and 25% of the overall cost of coal produced in the
western United States, eastern United States and mid-western United States,
respectively.
According to the National Mining Association, in 1997, approximately 75%
of all U.S. coal was shipped by rail or barge, making these modes the keys to
domestic coal distribution. Trucks and overland conveyors are used to haul coal
over shorter distances, while lake carriers and ocean colliers move coal to
export markets, although some domestic coal is shipped over the Great Lakes.
Railroads move more coal than any other commodity, and in 1997 coal accounted
for 22% of total U.S. rail freight revenue and more than 40% of total freight
tonnage. Most coal mines are served by a single rail company, but much of the
Powder River Basin is served by two competing rail carriers, the BNSF
(Burlington Northern/Santa Fe) and the Union Pacific. Rail competition in this
major coal producing region is important, since rail costs constitute up to 75%
of the delivered cost of Powder River Basin coal in remote markets. Rail rates
for the Powder River Basin are lower when evaluated
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on a ton per mile basis because the relatively flat and straight rail routes out
of the region allow heavily loaded trains to operate with less manpower and
locomotive power than rail routes in other regions.
Coal Regions
Coal is mined from coalfields throughout the United States, with the major
production centers located in the Powder River Basin, Central Appalachia,
Northern Appalachia, the Illinois Basin and in other western coalfields. We
operate mines in all of these major coal producing regions.
Powder River Basin
The Powder River Basin contains some of the most attractive coal reserves
in the world. The Powder River Basin covers more than 12,000 square miles in
northeastern Wyoming and 7,000 square miles in southeastern Montana.
Demonstrated coal reserves total approximately 165 billion tons. Quality varies
between lignite and subbituminous, with current production of subbituminous coal
averaging 9,100 Btus per pound and 0.5% sulfur in Montana, to 8,600 Btus per
pound and 0.3% sulfur in Wyoming. The mines just north and south of Gillette,
Wyoming, are categorized as southern Powder River Basin mines. The coal in the
southern Powder River Basin is ranked as subbituminous with an extremely
favorable sulfur content.
Production in the southern Powder River Basin has increased from
approximately 7 million tons in 1970 to 295 million tons in 1998, and now
accounts for over 30% of U.S. electric utility coal consumption by volume. The
southern Powder River Basin has grown into the largest coal supply region in the
United States. From 1989 to 1998, the region's compounded annual production
growth rate was 7.7% compared to an overall compounded annual production growth
rate of 1.6% for the total U.S. coal industry. The southern Powder River Basin
markets 98% of its coal to U.S. electric utilities, principally in the region
between the Rocky Mountains and the Appalachian Mountains. We have three active
mining operations in the Powder River Basin: one in Montana and two in
northeastern Wyoming.
Central Appalachia
Central Appalachia contains coalfields in eastern Kentucky, southwestern
Virginia and central and southern West Virginia. Production in Central
Appalachia has decreased slightly from approximately 289 million tons in 1990 to
291 million tons in 1998. Production declined in all major sections of Central
Appalachia except for southern West Virginia, which has grown due to the
expansion of more economically attractive surface mines. The region has
experienced significant consolidation in the last several years due to modest
demand growth and strong competition from western coal. Central Appalachian
operations market approximately 60% of their coal to electrical utilities,
principally in the South Atlantic region. Central Appalachia also sells
extensively to the export market and industrial customers. Geologic conditions
in Central Appalachia led to the creation of over 100 significant coal-beds, 60
of which are currently mined. A variety of mining techniques are used as seams
are found on mountaintops and below valley floors. The coal of Central
Appalachia has an average heat content of 12,500 Btus per pound and is generally
low sulfur. We operate five underground mines in southern West Virginia
producing low sulfur steam and metallurgical coal.
Northern Appalachia
High and medium sulfur coal is found in the Northern Appalachian
coalfields of western Pennsylvania, southeastern Ohio and northern West
Virginia. Coal demand in the region has increased slightly in recent years and,
according to Research Data Institute, is expected to remain stable. Production
in the region was approximately 162 million tons in 1998, up from 145 million
tons in 1995. Much of the production in this region is concentrated in a few
highly productive longwall mining operations in southeastern Pennsylvania and
northern West Virginia. Despite its medium sulfur content (1.5% to 2.0% sulfur),
coal from the Pittsburgh seam produced from these mines is considered attractive
to utility coal customers because of its high heat content (approximately 13,000
Btus per pound). We operate one mine in this region.
Illinois Basin
The Illinois Basin is approximately 48,000 square miles in aerial extent
under most of Illinois, western Indiana and western Kentucky. The area has
experienced significant consolidation in the last several years. The Illinois
Basin is a declining production center due to the region's relatively high
sulfur coal and competition from lower sulfur western coal. Production in the
Illinois Basin peaked at 141 million tons in both 1984 and 1990. Since 1990,
production has decreased by 20% due to displacement by lower sulfur, lower cost
coal. In 1996, production stabilized in several of the Illinois Basin's
subregions, including Central Illinois, due to stabilizing demand and limited
capacity. Illinois Basin production is marketed
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primarily to local utility and industrial customers. The Southwestern Illinois
sub-region has an expanded customer base, including "scrubbed" utilities in
Indiana and Florida. Demonstrated reserves total an estimated 120 billion tons
of bituminous coal. The coal seams dip toward the center of the basin and
outcrop along its border. Approximately 20 coal seams have been identified in
the region. Current production quality ranges from 10,000 to 12,500 Btus per
pound and 1% to 4% sulfur, with production averaging 11,300 Btus per pound and
2.6% sulfur. We have extensive reserves and nine active mining operations (four
surface mines and five underground mines) in the Illinois Basin coal region: six
in western Kentucky, two in Indiana and one in Illinois. In addition, the
company has a 81.7% interest in Black Beauty, Indiana's largest coal producer.
Western Bituminous Coal Regions
The western bituminous coal regions include the Hanna Basin in Wyoming,
the Uinta Basin of northwestern Colorado and Utah, the Four Corners Region in
New Mexico and Arizona and the Raton Basin in southern Colorado. These regions
produce high quality, low sulfur steam coal for selected markets in the region,
for export through West Coast ports and for shipments to some Midwestern power
plants for which Powder River Basin's subbituminous coals are not suitable.
Production in these regions has increased from 104 million tons in 1995 to 110
million tons in 1998. We have extensive reserves in these regions, as well as
four operating mines.
Lignite Production Regions
Lignite is mined in North Dakota, Texas and Louisiana. We do not have any
lignite reserves.
Australia
The location and quantity of coal reserves in Australia are also well
established, and economical coalfields have been identified in all states in
Australia except Tasmania and the Northern Territory. The majority of
Australia's coal reserves have high heat content, are low sulfur and are located
near ocean ports, making Australia the world's leading coal exporter, exporting
primarily to the Pacific Rim. The majority of Australian coal production is
concentrated in the Bowen Basin in Queensland, in the Hunter River Valley and
Southern coalfields of New South Wales and in Northern Victoria. We operate four
mines in New South Wales.
World Coal Production
Global coal production was approximately 5.1 billion tons in 1995,
according to the Organization for Economic Cooperation and Development and the
International Energy Agency. The leading producers, in order of volume, are
China, the United States, the former Soviet Union (primarily Russia and
Ukraine), India and Australia, although coal is produced in many countries.
According to the Energy Information Administration world coal consumption will
increase 46% between 1995 and 2020. Because coal is used primarily as a fuel for
the generation of electricity (coal is currently responsible for 38% of
worldwide electricity generation), the growth in coal demand is being driven by
worldwide electricity demand, which is projected to increase by 67% between 1995
and 2020, according to the Energy Information Administration. Much of this
growth is projected to occur in the developing countries of Asia and the Pacific
Rim.
Coal Mining Techniques
Coal mining operations commonly use four distinct techniques to extract
coal from the ground. The most appropriate technique is determined by coal seam
characteristics such as location, logistics and recoverable reserve base. Drill
hole data are used initially to define the size, depth and quality of the coal
reserve area before committing to a specific extraction technique. All coal
mining techniques rely heavily on technology; consequently, technological
improvements have resulted in increased productivity. The four most common
mining techniques are continuous mining, longwall mining, truck and shovel
mining and dragline mining.
Continuous Mining. Continuous mining is an underground mining method in
which main airways and transportation entries are evacuated and
remote-controlled continuous miners extract coal from "rooms," leaving "pillars"
to support the roof. Shuttle cars are used to transport coal from the face to
the conveyor belt for transport to the surface. This method is often used to
mine smaller coal blocks or thin seams and seam recovery is typically
approximately 50%. Productivity for continuous mining averages 25 to 50 tons per
manshift.
Longwall Mining. Longwall mining is an underground mining method that uses
hydraulic jacks or shields, varying from five feet to 12 feet in height, to
support the roof of the mine while a mobile cutting sheerer advances through the
coal. Chain belts then move the coal to a standard deep mine conveyer system for
delivery to the surface. Continuous mining is used to
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<PAGE>
develop access to long rectangular panels of coal which are then mined with
longwall equipment, allowing controlled subsidence behind the advancing
machinery. Longwall mining is highly productive, but it is effective only for
large blocks of medium to thick coal seams. High capital costs associated with
longwall mining demand a large, contiguous reserve base. Seam recovery using
longwall mining is typically 70% and productivity averages 48 to 80 tons per
manshift.
Truck and Shovel Mining. Truck and shovel mining is an open-cast method
which uses large electric-powered shovels to remove overburden which is used to
backfill pits after the coal is removed. Shovels load coal in haul trucks for
transportation to the preparation plant or rail loadout. Seam recovery using the
truck and shovel method is typically 90%. Productivity depends on equipment,
geological composition and mining ratios and varies between 250 to 400 tons per
manshift in the Powder River Basin and 30 to 80 tons per manshift in eastern
U.S. regions.
Dragline Mining. Dragline mining is an open-cast method which uses large
capacity electric-powered draglines to remove overburden to expose the coal
seams. Shovels load coal in haul trucks for transportation to the preparation
plant and then to the rail loadout. Truck capacity can range from 80 to 300 tons
per load. Seam recovery using the dragline method is typically 90% or more and
productivity levels are similar to those for truck and shovel mining.
Once the raw coal is mined, it is often crushed, sized and washed in
preparation plants where the product consistency and heat content are improved.
This process involves crushing the coal to the required size, removing
impurities and, where necessary, blending with other coal to match customer
specification. A coal mine's yield is defined as the ratio of clean output
tonnage to raw material tonnage.
Technology
Coal mining technology is continually evolving, improving, among other
things, underground mining systems and larger earth-moving equipment for surface
mines. For example, longwall mining technology has increased the average
recovery of coal from large blocks of underground coal from 50% to 70%. At
larger surface mines, haul trucks have capacities of 240 to 320 tons, which is
nearly double the maximum capacity of the largest haul trucks used a decade ago.
This increase in capacity, along with larger shovels and draglines, has
increased overall mine productivity. According to Energy Information
Administration data, overall coal mine productivity, measured in tons produced
per manshift, has increased 120% from 1985 to 1997.
Coal Markets
World Coal Market
Approximately 5.0 billion tons of coal were consumed worldwide in 1995.
According to the Energy Information Administration's International Energy
Outlook 1999, demand is expected to grow at 1.6% per year through 2015. Coal
demand in developing nations is expected to grow at roughly eight times that in
industrialized nations. The chart below illustrates historical and projected
coal demand.
Total World Consumption, 1995-2015
1995-2015
Region 1995 2000P 2005P 2010P 2015P CAGR
- --------------------- ----- ----- ----- ----- ----- ---------
(Tons in millions)
Industrialized 2,710 2,796 2,818 2,789 2,770 0.1%
Developing 2,310 2,616 3,098 3,592 4,075 3.0%
----- ----- ----- ----- -----
Total 5,020 5,412 5,916 6,381 6,845 1.6%
===== ===== ===== ===== =====
Source: Energy Information Administration, International Energy Outlook 1999.
U.S. Market
Over 1.1 billion tons of coal were consumed in the United States in 1998
and, according to Research Data Institute's Outlook for Coal & Competing Fuels
Winter 1998-1999, domestic consumption is expected to grow at 1.1% annually from
1995 through 2015. Domestic utility demand for coal, currently 87% of domestic
consumption, is projected to increase at an average annual rate of 1.3% from
1995 to 1.1 billion tons in 2015. Overall, coal use at coke plants and steel
mills is projected
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<PAGE>
to decrease, but steam coal consumption at these plants is expected to increase
by 10 million tons as a result of deregulation in the market for electricity.
Historical and Projected U.S. Coal Consumption, 1996-2015
<TABLE>
<CAPTION>
CAGR
Sector 1996 1998P 2000P 2005P 2010P 2015P 1996 2015
----- ----- ----- ----- ----- ----- ---------
(Tons in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Utility 873 929 979 1,032 1,063 1,094 1.3 %
Industrial 68 68 68 68 66 67 (0.1)%
Non-Utility Generators 22 24 25 25 26 26 0.9 %
Coke Plants/Steel Mills
Met Quality 32 31 30 19 18 15 (4.1)%
Steam Quality 5 8 9 15 16 18 7.4 %
----- ----- ----- ----- ----- -----
Total Domestic 1,000 1,060 1,111 1,159 1,189 1,220 1.1 %
Export 91 79 76 75 76 77 (0.9)%
----- ----- ----- ----- ----- -----
Total 1,091 1,139 1,187 1,234 1,265 1,297 1.0 %
===== ===== ===== ===== ===== =====
</TABLE>
Source: Research Data Institute, Outlook for Coal & Competing Fuels, Winter
1998-1999.
U.S. Electricity Market
As the table below indicates, coal generated 56% of the electricity in the
United States in 1998.
Domestic Electricity Fuel Sources Comparison
1990 1996 1998
---- ---- ----
Coal 55% 56% 56
Nuclear 21 22 21
Hydro 10 11 10
Natural Gas 9 9 10
Other 5 2 3
--- --- ---
Total 100% 100% 100
=== === ===
Source: Energy Information Administration Monthly Energy Review.
The domestic coal industry's principal end market users are domestic
electric utilities. According to Research Data Institute, these utilities are
expected to experience a growing demand for coal as demand for electricity
increases. Coal-fired generation is used in most cases to meet base-load
requirements, so coal use generally grows at the pace of electricity growth.
However, in recent years, coal's share of the generation market has gradually
increased due to its relative low cost. Although it is anticipated that few, if
any, new coal-fired generation plants will be built, coal-fired plants can still
take market share (or at least maintain market share in a growing market) due to
the potential for increased capacity utilization. In aggregate, domestic
coal-fired plants currently run at 65% capacity utilization (optimal sustainable
capacity utilization is 85% for a typical plant, though most can run at higher
rates for short periods). By 2010, coal-fired plants would have to run at
approximately 82% of capacity, assuming all the same plants were running at
today's efficiency levels and that market share remains constant. Gas-fired
electricity generation, which is used for intermediate and peak-load demand, is
anticipated to gain market share at the expense of nuclear generation, or where
peak-load capacity is needed.
Over the past several years, largely as a result of sulfur dioxide gas
emissions limitations mandated by the Clean Air Act, demand has shifted toward
lower sulfur coal.
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<PAGE>
Regional Coal Markets
In 1995, Phase I of the Clean Air Act required high sulfur coal plants to
reduce their emissions of sulfur dioxide. As a result of large-scale switching
to very low sulfur Powder River Basin coal, many Phase I-affected plants
overcomplied with the sulfur dioxide requirements, creating a surplus of
emission allowances. This industry-wide surplus led to the formation of a market
for sulfur dioxide emissions credits. In 2000, Phase II of the Clean Air Act
will tighten restrictions on sulfur emissions from 2.5 to 1.2 lbs. of sulfur
dioxide per million Btus or lower. Surplus emission credits from Phase I will
allow some generators to delay retrofitting old plants with expensive scrubbers.
Eventually, owners of these plants will have to retrofit or switch to Phase II
compliance coal, most likely Powder River Basin or other western low sulfur
coal, as the following exhibit indicates.
U.S. Coal Demand by Production Region(1)
<TABLE>
<CAPTION>
1996-2015
1996 1998P 2000P 2005P 2010P 2015P CAGR
----- ----- ----- ----- ----- ----- ---------
(Tons in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Northern Appalachia 155 162 154 156 161 166 .4%
Central/Southern Appalachia 310 316 321 311 316 324 .2%
Illinois Basin 118 113 107 101 101 104 (.7)%
Southern Powder River Basin 258 295 347 406 413 422 2.8%
Northern Powder River Basin 38 43 46 56 62 65 3.0%
Other Western United States 106 110 112 113 119 123 .6%
Lignite 90 85 85 77 79 79 (.7)%
Other 10 10 9 9 8 8 (1.2)%
----- ----- ----- ----- ----- -----
Total 1,085 1,134 1,181 1,229 1,259 1,291 1.0 %
===== ===== ===== ===== ===== =====
</TABLE>
Source: Research Data Institute Outlook for Coal & Competing Fuels, Winter
1998-1999.
(1) Does not equal consumption due to imports and changes in stockpiles.
According to Standard & Poor's DRI World Energy Service--U.S. Outlook Fall
1997, to date, the majority of the utilities affected by the Clean Air Act
Amendments have chosen to switch to low sulfur coals at the expense of high
sulfur coal due to the high cost of scrubbers and the availability of low cost,
low sulfur coal in the Powder River Basin.
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Export Market
The international coal trade outlook for exporters is shown below.
Export Market--The International Coal Trade Outlook for Exporters
<TABLE>
<CAPTION>
Importers
------------------------------------------------------------------
1995 Actual 2020 Projected
------------------------------- -------------------------------
Europe Asia Other Total Europe Asia Other Total
------ ---- ----- ----- ------ ---- ----- -----
(Tons in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Australia 22 120 8 150 32 210 10 252
United States 53 18 18 89 38 13 27 78
South Africa 41 21 4 66 36 42 3 81
South America 17 0 9 26 40 0 18 58
Canada 5 27 6 38 3 39 5 47
China 3 24 1 28 0 49 0 49
Other 39 38 11 88 24 70 0 94
--- --- -- --- --- --- -- ---
Total 180 248 57 485 173 423 63 659
=== === == === === === == ===
</TABLE>
Source: Energy Information Administration International Energy Outlook, 1997 &
1999.
As shown in the above table, according to the Energy Information
Administration, the international market for coal is predicted to expand. The
primary beneficiaries from this expansion will be Australia, which serves the
growing Asian markets, and the new, low sulfur coal producers such as Indonesia,
Colombia and Venezuela. The largest growth in coal use is projected to come from
Indonesia, India and China, which have extensive coal reserves and are currently
investing heavily in new generating plants. The Pacific Rim countries, namely
Japan, Taiwan and Korea, are forecast to have some of the fastest growing import
demand for coal through 2020; consequently, the countries supplying this area
will benefit from this growth. Australia's exports are expected to increase by
over 68% during this period, linked primarily to this demand. The demand for
metallurgical coal in the international export market has historically been
higher than the demand for steam coal. However, metallurgical coal's share of
total world coal export market is projected to fall from its 1995 level of 40%
to 34% by 2020 as the demand for steam coal by electric utilities is projected
to increase more rapidly than the demand for metallurgical coal.
We are not aware of any new studies that attempt to reflect the impact of
the current Asian financial crisis on the long-term growth of coal demand. While
growth near term may be negatively impacted, the need for industrial expansion
and electricity generation may not change and the projected long-term coal
demands may remain strong. The Asian market has been one of the fastest growing
regions for electricity and coal.
Deregulation of the Electric Utility Industry
In October 1992, the National Energy Policy Act was signed in the United
States, giving wholesale suppliers access to the transmission lines of power
generators. In April 1996, the Federal Energy Regulatory Commission issued
orders establishing rules providing for open access to electricity transmission
systems, thereby initiating consumer choice in electricity purchasing and
encouraging competition in the generation of electricity. While the underlying
deregulation process is still proceeding at a federal level, the detailed
implementation and planning has been left to the individual states.
As the timing of deregulation has been left to the states, the pace of
change differs significantly from state to state. To date, ten states have
enacted programs leading to the full deregulation of the retail electricity
market; 39 other states are considering similar programs. Due to the uncertainty
around timing and implementation of deregulation in each state, it is difficult
to predict the impact on the electric utilities.
Full-scale deregulation of the power industry, when implemented, will
enable both industrial and residential customers to shop for the lowest cost
supply of power and the best service available. This fundamental change in the
power industry is expected to compel electric utilities to be more aggressive in
developing and defending market share, to be more focused on their pricing and
cost structures and to be more flexible in reacting to changes in the market.
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<PAGE>
A possible consequence of the deregulation is anticipated downward
pressure on fuel prices. In addition, there has been a move by the utility
companies towards shorter-term contracts compared to the relatively long-term
contracts of the recent past that locked in volume and pricing terms. However,
because coal-fired generation is competitive with most other forms of
generation, a competitive electricity market may stimulate greater demand for
coal to be burned in plants with currently unused capacity. We estimate that as
much as 200 million tons of additional coal could be consumed annually if the
electricity market were rationalized and the most efficient coal-fired power
plants were used to their full capacity.
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<PAGE>
BUSINESS
Overview
We are among the world's largest providers of low cost fuel for the
generation of electricity and are also engaged in power trading and power and
coal contract restructuring services. During this decade, we have transformed
from a largely high sulfur, high-cost coal producer to a more broadly based
energy company providing predominantly low sulfur, low-cost coal from operations
in the United States and Australia, as well as a number of fuel/power products
to the electricity market.
In fiscal 1999, we sold 176.0 million tons of coal worldwide. These
products were used to generate more than 9% of the electricity produced in the
United States and nearly 2.5% of the world's electricity. Through our Citizens
Power unit, we ranked among the top ten United States power marketers in
calendar 1998 and were the leader in restructuring electricity contracts with
independent power producers. Our share of the U.S. coal market was approximately
16.0% in calendar 1998. We have approximately 10.3 billion tons of proven and
probable coal reserves, which is the largest reserve base of any private sector
coal producing company in the United States.
We currently own interests in more than 35 active mines in the United
States and Australia, and also sell coal produced by third-party contractors and
suppliers. In fiscal 1999, we produced approximately 71% of our coal in the
Western United States, 25% from the eastern half of the United States and 4%
from Australia. Our coal production in the Western United States has grown from
37 million tons in 1990 to 119 million tons in fiscal 1999. Our highly
productive western operations produce very low sulfur coal, which is attractive
to utilities for purposes of complying with more stringent standards resulting
from the Clean Air Act.
Our large and diverse customer base includes more than 150 electricity
generating plants in the United States as well as steam and metallurgical
customers in 15 other countries. In fiscal 1999, we supplied 93% of our U.S.
production to U.S. electric utilities, 4% to the export market and 3% to the
U.S. industrial sector.
Company History
Peabody, Daniels and Co. was founded in 1883 as a retail coal supplier,
entering the mining business in 1888 as Peabody & Co. with our first mine in
Illinois. In 1926, Peabody Coal Company was listed on the Chicago Stock Exchange
and, beginning in 1949, on the New York Stock Exchange. In 1955, Peabody Coal
Company, primarily an underground mine operator, merged with Sinclair Coal
Company, a major surface mining company. In 1968, Peabody Coal Company was
acquired by Kennecott Copper Company, and in 1977, it was sold to Peabody
Holding Company, a holding company formed by a consortium consisting of Newmont
Mining Corporation, The Williams Companies, Bechtel Investments, Inc., The
Boeing Company, Fluor Corporation and The Equitable Life Assurance Society of
the United States.
In July 1990, Hanson acquired Peabody Holding Company. In February 1997,
Hanson spun off its energy-related businesses including Eastern Group and
Peabody Holding Company into The Energy Group. The Energy Group was a publicly
traded company in the United Kingdom. On May 19, 1997, The Energy Group, through
Peabody, purchased Citizens Power, initiating its entry into the rapidly growing
United States power marketing industry.
On May 19, 1998, Lehman Merchant Banking Partners II, an affiliate of
Lehman Brothers, purchased Peabody Holding Company and its affiliates, Peabody
Resources Limited and Citizens Power, now collectively called Peabody Group, in
a transaction coinciding with the purchase by Texas Utilities of the remainder
of The Energy Group.
Acquisitions and Expansion
During the 1980's, we grew through expansion and acquisition, opening the
North Antelope Mine in Wyoming's coal-rich Powder River Basin in 1983 and the
Rochelle Mine in 1985. In 1986, we acquired the West Virginia coal properties of
ARMCO Steel and the following year purchased Coal Properties Corp. and Eastern
Associated Coal Corp., which included seven operating mines and substantial low
sulfur coal reserves, also in West Virginia.
From 1993 to 1999, we made twelve major acquisitions. In 1993, a major
coal operation, including interests in three mines in New South Wales,
Australia, was acquired from Costain Group in anticipation of the growing
Pacific Rim market for coal. The properties included 100% ownership of the
Ravensworth Mine, a 50% interest in the Narama Mine and a 37.5% interest in the
Warkworth Mine, subsequently raised to 43.75%. We also subsequently developed a
fourth mine, Bengalla, which began shipments in early 1999. Our stake in the
Bengalla joint venture was raised to 37% in 1998.
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<PAGE>
In 1993, the Lee Ranch Mine in New Mexico was acquired. The following
year, a one-third ownership in Black Beauty Coal Company ("Black Beauty"),
Indiana's largest coal producer, was purchased. Our interest in Black Beauty was
increased to 43.3% in February 1998 and to 81.7% in January 1999.
In 1994, we acquired the Caballo and Rawhide mines in Wyoming's Powder
River Basin from Exxon Coal USA Inc. This acquisition, along with the expansion
of the North Antelope and Rochelle Mines, positioned Peabody as the leading
producer in the Powder River Basin, the nation's largest and fastest growing
coal region. Our sales volume from the Basin increased from 31 million tons in
1993 to 98 million tons in fiscal 1999.
Since 1990, our coal sales volumes have grown from 93 million annual tons
to 176 million annual tons, an increase of 89%. During this period, we
transformed ourselves from a largely high sulfur, high cost coal producer to a
more broadly based energy company providing predominantly low sulfur fuels and
other products and services to the electricity industry.
Our Businesses
Through our interests in Peabody Resources in Australia, and Black Beauty,
now operating in Indiana and Illinois, we have interests in joint ventures that
expand the scope of our operations. Also, our ownership of Citizens Power and
the development of coal and sulfur dioxide emission allowance trading have
transformed us into a leading provider of low cost coal products and services,
including power contract restructuring services, to the electricity industry.
Today, we are engaged in coal mining, marketing and transportation,
electricity and coal contract restructuring, and coal, power and sulfur dioxide
emission allowance trading. We also offer innovative fuel/power products and
services to an electricity market that is in the process of being deregulated.
Power Marketing and Electricity Contract Restructuring
Our subsidiary, Citizens Power, headquartered in Boston, Massachusetts, is
engaged in electricity contract restructuring and electricity, gas and oil
trading. For purposes of our financing, Citizens Power and its subsidiaries are
unrestricted subsidiaries.
Citizens Power obtained the first power trading license issued by the
Federal Energy Regulatory Commission in 1989, and in calendar 1998, Citizens
Power was among the top ten United States power marketing companies. Citizens
Power is also a leader in electricity contract restructuring. During fiscal
1999, three contract restructurings were completed. Typically, Citizens Power
acts, through subsidiary companies, as a third party facilitator to obtain
non-recourse financing, the proceeds of which are used to purchase, and then
obtain lower cost replacement power, for long-term electricity supply contracts
between independent power producers and electric utility companies.
Coal Reserves
We had an estimated 10.3 billion tons of proven and probable reserves as
of April 1, 1999, of which approximately 52% were low sulfur coal. We own
approximately 43% of these reserves and lease the remaining 57%.
Below is a table summarizing the locations and reserves of our major
operating units.
<TABLE>
<CAPTION>
Proven and Probable
Reserves as of April 1, 1999(1)
(Tons in millions)
-------------------------------
Owned Leased Total
Operating Regions Locations Tons Tons Tons
- ----------------- -------------------------------- ----- ----- ------
<S> <C> <C> <C>
Powder River Basin Wyoming and Montana 244 3,325 3,569
Southwestern Arizona, Colorado and New Mexico 728 598 1,326
Southern Appalachia West Virginia 258 640 898
Northern Appalachia West Virginia 62 -- 62
Midwest Illinois, Indiana and Kentucky 3,028 991 4,019
Australia New South Wales 120 311 431
----- ----- ------
Total 4,440 5,865 10,305
===== ===== ======
</TABLE>
(1) Reserves have been adjusted to take into account losses involved in
producing a saleable product. The amounts include our share of reserves in
joint ventures.
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Reserve estimates are based on geological data assembled and analyzed by
our staff, which includes various geologists and engineers. The reserve
estimates are periodically updated to reflect production of coal from the
reserves and new drilling or other data received. Accordingly, reserve estimates
will change from time to time reflecting mining activities, analysis of new
engineering and geological data, changes in reserve holdings, modification of
mining methods and other factors. Reserve information, including the quantity
and quality (where available) of reserves as well as production rates, surface
ownership, lease payments and other information relating to our coal reserve and
land holdings, is maintained through a computerized land management system that
we developed.
Our reserve estimates are predicated on information obtained from our
extensive drilling program, which totals nearly 500,000 individual drill holes.
Data from individual drill holes are compiled into a computerized drill hole
system from which the depth, thickness and, where core drilling is used, the
quality of the coal are determined. The density of the drill pattern determines
whether the reserves will be classified as proven or probable. The drill hole
data are then input into the computerized land management system which overlays
the geological data with data on ownership or control of the mineral and surface
interests to determine the extent of the reserves in a given area. In addition,
we periodically engage independent mining and geological consultants to review
estimates of our coal reserves. The most recent of these reviews, which was
completed on October 1, 1996 by the John T. Boyd Company, includes a review of
the procedures used by us to prepare our internal reserve estimates, verifying
the accuracy of selected property reserve estimates and retabulating reserve
groups according to standard classifications of reliability.
We have numerous federal coal leases that are administered by the United
States Department of the Interior under the Federal Coal Leasing Amendments Act
of 1976. These leases cover our principal reserves in Wyoming and other reserves
in Montana and Colorado. Each of these leases continues indefinitely provided
there is diligent development of the lease and continued operation of the
related mine or mines. The Bureau of Land Management has asserted the right to
adjust the terms and conditions of these leases, including rent and royalties,
after the first 20 years of their life and at ten yearly intervals thereafter.
Annual rents under our federal coal leases are now set at $3.08 per acre.
Production royalties on federal leases are set by statute at 12.5% of the gross
proceeds of coal mined and sold for surface mined coal and 8% for underground
mined coal. Similar provisions govern three coal leases with the Navajo and Hopi
Indian tribes. These leases cover coal contained in 65,000 acres of land in
northern Arizona lying within the boundaries of the Navajo National and Hopi
Indian reservations. We also lease coal from various state governments.
Private coal leases normally have terms of between 10 and 20 years, and
usually give us the right to renew the lease for a stated period or to maintain
the lease in force until the exhaustion of mineable and merchantable coal
contained on the relevant site. These private leases provide for royalties to be
paid to the lessor either as a fixed amount per ton or as a percentage of the
sales price. Many leases also require payment of a lease bonus or minimum
royalty, payable either at the time of execution of the lease or in periodic
installments.
The terms of private leases are normally extended by active production on
or near the end of the lease term. Leases containing undeveloped reserves may
expire or those leases may be renewed periodically. With a portfolio of
approximately 10.3 billion tons, we believe that we have sufficient reserves to
replace capacity from depleting mines for the foreseeable future and that our
reserve base is one of our strengths. We believe that the current level of
production at our major mines is sustainable.
Consistent with industry practice, we conduct only limited investigation
of title to our coal properties prior to leasing. Title to lands and reserves of
the lessors or grantors and the boundaries of our leased properties are not
completely verified until we prepare to mine those reserves.
Mining and exploration in Australia is generally carried on under leases
or licenses granted by state governments. Mining leases, which are typically for
an initial term of up to 21 years (but which may be renewed), contain conditions
relating to matters such as minimum annual expenditures, restoration and
rehabilitation. Surface rights are typically acquired directly from landowners
and, in the absence of agreement, there is an arbitration provision in the
mining law.
Peabody Resources holds or has rights to coal mining leases at Warkworth,
Bengalla, Narama and Ravensworth East. Ravensworth is mined under contract from
coal reserves owned by Macquarie Generation. Warkworth's mining lease has been
renewed until 2023 with Bengalla and Narama leases valid until 2017 and 2012,
respectively. Ravensworth East's lease expires in 1999 and an application for
renewal for a 21 year period has been made. Peabody Resources also holds an
exploration license for Ravensworth West and has applied for a mining lease.
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Mining Operations
The following provides a description of the operating characteristics of
the principal mines and reserves of each of our U.S. and Australian mining
units.
U.S. OPERATIONS
[GRAPHIC]
United States
Within the United States, operations are divided into five operating
regions: Powder River Basin; Southwest; Midwest; Southern Appalachia and
Northern Appalachia. Our sales of coal in and from the United States are managed
by our sales and marketing subsidiary, Peabody COALSALES, as well as Peabody
COALTRADE. Together, United States coal sales totaled 168.6 million tons in
fiscal 1999.
Powder River Basin Operations
We own and manage three low sulfur, non-union surface mining complexes in
Wyoming that sold approximately 97.5 million tons of coal in fiscal 1999, or
approximately 55% of our total coal sales. The North Antelope/Rochelle and
Caballo mines are serviced by the Burlington Northern/Santa Fe and Union Pacific
railroads, while the Rawhide Mine is served by the Burlington Northern/Santa Fe.
We control approximately 3.6 billion tons of coal reserves in the southern
Powder River Basin, which enables us to increase or decrease production among
our mines in that region to respond to market conditions. We recently suspended
operations at the Rawhide Mine, shifting production under a number of coal
supply agreements to the Caballo Mine and the newly combined North
Antelope/Rochelle Mine.
Our Wyoming Powder River Basin reserves are classified as surface
mineable, subbituminous coal with seam thickness varying from 70 to 105 feet.
The sulfur content of the coal in current production ranges from 0.2% to 0.4%
and the heat value ranges from 8,250 to 8,850 Btus per pound.
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We also operate the Big Sky Mine in Montana in the northern Powder River
Basin. Coal from this mine is shipped to customers in the upper Midwest and
served by the Burlington Northern/Santa Fe railroad. Hourly workers at the Big
Sky Mine are members of the United Mine Workers of America.
North Antelope/Rochelle
The North Antelope/Rochelle Mine is located 65 miles south of Gillette,
Wyoming. Two mines were combined into a single mining complex in fiscal 1999 to
achieve operational and administrative synergies. As separate mines, Rochelle
and North Antelope were consistently ranked among the most productive in the
United States. The combined North Antelope/Rochelle Mine now ranks as the
largest coal mining operation in the United States, shipping 66.8 million tons
during fiscal 1999.
The North Antelope/Rochelle Mine produces premium quality coal with a
sulfur content averaging 0.22% and a heat value ranging from 8,500 to 8,800 Btus
per pound. It produces the lowest sulfur coal in the United States. The mine
uses a dragline along with five truck and shovel fleets to mine coal.
Caballo
The Caballo Mine is located 20 miles south of Gillette, Wyoming. In fiscal
1999, it sold approximately 27.3 million tons of coal. Caballo is a truck and
shovel operation with a coal handling system that includes two 12,000-ton silos
and two 11,000-ton silos. Dual loop tracks are in place connecting with the
Burlington Northern/Santa Fe and Union Pacific railroads.
Rawhide
The Rawhide Mine is located ten miles north of Gillette, Wyoming and uses
truck and shovel mining methods. In fiscal 1999, it sold approximately 3.4
million tons of low sulfur coal. Rawhide has four 11,000-ton silos and two
12,000-ton silos. Operations at the Rawhide Mine were suspended in 1999, pending
improved market conditions for its lower-Btu coal.
Big Sky
The Big Sky Mine is located in the northern end of the Powder River Basin
near Colstrip, Montana and uses dragline mining equipment. The mine sold 3.3
million tons of low sulfur coal in fiscal 1999. The coal is shipped by rail to
several major electric utility customers in the upper Midwestern United States.
This mine is near the exhaustion of its economically recoverable reserves and
may be closed in the next several years, depending upon market and mining
conditions.
Southwestern Operations
We own and manage two mines in Arizona and one each in Colorado and New
Mexico. Each supply low sulfur coal under long-term coal supply agreements to
electricity generating stations in the region. Together, these mines sold 18.4
million tons of coal in fiscal 1999.
Black Mesa
The Black Mesa Mine, which uses two draglines and is located on the Navajo
and Hopi Indian reservations in Arizona, sold 4.5 million tons of steam coal in
fiscal 1999. Its coal is crushed, mixed with water and then transported 273
miles through the underground Black Mesa Pipeline to Southern California
Edison's Mohave Generating Station near Laughlin, Nevada. The mine and the
pipeline were designed to deliver coal exclusively to the power plant, which has
no other source of coal. The Mohave coal supply agreement extends until 2005.
Hourly workers at this mine are members of the United Mine Workers of America.
Kayenta
The Kayenta Mine is adjacent to the Black Mesa Mine and uses three
draglines in three mining areas. It sold approximately 7.5 million tons of steam
coal in fiscal 1999. The coal is crushed, then carried 17 miles by conveyor belt
to storage silos where it is loaded on to a private rail link and transported 83
miles to the Navajo Generating Station, operated by the Salt River Project near
Page, Arizona. The mine and the railroad were designed to deliver coal
exclusively to the power plant, which has no other source of coal. The Navajo
coal supply agreement extends until 2011. Hourly workers at this mine are
members of the United Mine Workers of America.
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Seneca
The Seneca Mine near Hayden, Colorado shipped 1.5 million tons of low
sulfur steam coal in fiscal 1999, operating with two draglines in two separate
mining areas. The Seneca Mine's coal is hauled by truck to the nearby Hayden
Generating Station, operated by Public Service of Colorado, under a coal supply
agreement that extends until 2011. Hourly workers at this mine are members of
the United Mine Workers of America.
Lee Ranch Coal Company
The Lee Ranch Mine, located near Grants, New Mexico, sold approximately
4.9 million tons of low sulfur coal in fiscal 1999. Lee Ranch shipped its coal
to two customers in Arizona and New Mexico under coal supply agreements
extending until 2010 and 2014, respectively. Lee Ranch is a non-union surface
mine that uses a combination of dragline and truck-and-shovel mining techniques.
Southern Appalachia Operations
We own and manage three operating units and related facilities in southern
West Virginia. In fiscal 1999, these operations sold approximately 13.3 million
tons of low sulfur steam and metallurgical coal to customers in the United
States and abroad. Hourly workers at these operations are members of the United
Mine Workers of America.
Big Mountain/Robin Hood Operating Unit
The Big Mountain/Robin Hood Operating Unit is based near Prenter, West
Virginia. In fiscal 1999, the Big Mountain No. 16 and Robin Hood No. 9 mines
sold approximately 1.8 million tons of steam coal. Both are underground mines
using continuous mining equipment. Processed coal is loaded on the CSX railroad.
Pond Fork Operating Unit and Contract Mines
The Pond Fork Operating Unit consists of the Harris No. 1 Mine and the
Rocklick preparation plant. Together, these units sold approximately 7.6 million
tons of low sulfur steam and metallurgical coal in fiscal 1999. The Harris No. 1
Mine, near Bald Knob, West Virginia, sold approximately 3.6 million tons of low
sulfur steam coal in fiscal 1999. This mine uses both longwall and continuous
mining equipment. The Rocklick preparation plant, located near Wharton, West
Virginia, processed coal produced by the Harris Mine and contract mining
companies from coal reserves we own. This preparation plant shipped
approximately 4.0 million tons of steam and metallurgical coal in fiscal 1999.
Processed coal is loaded at the plant site on the CSX railroad or transferred
via conveyor to the Kopperston loadout facility on the Norfolk Southern
railroad.
Wells Operating Unit
The Wells Operating Unit, in Boone County, West Virginia, sold
approximately 3.9 million tons of metallurgical and steam coal during fiscal
1999. The unit consists of the Lightfoot No. 1 and No. 2 mines and the Wells
preparation plant, all located near Wharton, West Virginia. The mines use
continuous miners to produce coal from reserves we own. The Lightfoot No. 1 mine
closed on February 11, 1999 after depleting its mineable reserves. Processed
coal is loaded on the CSX railroad.
Northern Appalachia Operations
Federal No. 2 Mine
The Federal No. 2 Mine near Fairview, West Virginia, uses longwall-mining
equipment and shipped approximately 4.7 million tons of steam coal in fiscal
1999. Coal shipped from the Federal No. 2 Mine has a sulfur content only
slightly above that of low sulfur coal and, as a result, is more marketable than
some other high sulfur coals. The mine is served jointly by the CSX and Norfolk
Southern railroads, through which processed coal is sold to a variety of U.S.
and Canadian utilities. Hourly workers at these operations are members of the
United Mine Workers of America.
Midwest Operations
We own and operate eight mines in the Midwestern United States, which
collectively sold 19.7 million tons of coal in fiscal 1999. Included are five
underground and three surface mines, along with five preparation plants and four
barge loading facilities, located in western Kentucky, southern Illinois and
southwestern Indiana. Coal from these mines is primarily shipped to electric
utilities in the Midwest, while some coal is sold to industrial customers that
generate their own power. Approximately 51% of the high sulfur coal sold from
these mining operations is shipped to electric generating stations
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equipped with desulfurization units. Most hourly workers are members of the
United Mine Workers of America; Patriot Coal Company operates union-free.
We operate an additional 12 mines in the Midwestern United States through
our 81.7% joint venture interest in Black Beauty.
Camp Operating Unit
The Camp Operating Unit, located near Morganfield, Kentucky, operates two
underground mines and a large preparation and barge loading facility. Together,
these operations sold 6.2 million tons of coal in fiscal 1999. The Camp No. 1
Mine uses continuous mining equipment with both continuous haulage systems and
shuttle car haulage. The Camp No. 11 Mine uses both longwall and continuous
mining equipment. Most of the production is sold to the Tennessee Valley
Authority under a contract that expires in March 2000. Discussions for a
follow-on contract are currently underway.
Hawthorn Operating Unit
The Hawthorn Operating Unit near Carlisle, Indiana uses three draglines
and sold 3.0 million tons of steam coal in fiscal 1999. Processed coal is
shipped to local utilities via the CSX railroad. Future production at this mine
may be affected by the implementation of Phase II of the Clean Air Act
Amendments since most of the coal is being sold to power plants that have not
been retrofitted with scrubbers. We are examining the possibility of shipping
coal to the Hawthorn Mine's principal customer from other facilities we own
which are better able to meet the customer's future coal quality requirements.
Lynnville Operating Unit
The Lynnville Operating Unit, near Lynnville, Indiana, sold approximately
3.1 million tons of coal in fiscal 1999. The Lynnville Operating Unit uses three
draglines and an electric shovel. Coal is processed at the Lynnville preparation
plant and shipped via rail or barge to customers in Indiana and Kentucky.
Marissa Operating Unit
The Marissa Operating Unit, located near Marissa, Illinois, consists of
the Marissa underground mine, the Randolph preparation plant and associated
transportation facilities. The Marissa Operating Unit shipped 4.4 million tons
of coal and uses six continuous miners. Most of the production is currently
being shipped to Illinois Power Company, who announced its intention to begin
using Powder River Basin coal in late 1999. This mine will close in fiscal 2000
unless we obtain new customers.
Midwest Operating Unit
The Midwest Operating Unit near Graham, Kentucky, sold 1.2 million tons of
coal in fiscal 1999. The unit includes the Martwick underground mine, which uses
continuous mining equipment, and several small surface mining operations. The
unit is also responsible for closed or suspended mining operations throughout
Peabody's North American operations. These properties are managed from bond
release until final reclamation requirements are met. Future production may be
affected by implementation of Phase II of the Clean Air Act Amendments.
Patriot Coal Company
Patriot Coal Company operates one surface mine and one underground mine in
Henderson County, Kentucky, and sold approximately 1.8 million tons of coal in
fiscal 1999. The underground mine uses continuous mining equipment, and the
surface mine uses truck and shovel equipment. Patriot Coal Company also operates
a preparation plant and a dock. The Big Run surface mine in Ohio County,
Kentucky, closed in fiscal 1999 due to exhaustion of reserves.
Black Beauty Coal Company
Peabody also owns 81.7% of Black Beauty, which operates nine mines in
Indiana and also has interests in three mines in southern Illinois. Together
these operations sold 17.0 million tons of low, medium and high sulfur steam
coal in fiscal 1999. We purchased a one-third interest in Black Beauty in 1994,
and added another 10% in 1998 and a 38.3% interest in early 1999. Black Beauty
Resources, Inc., owned by some members of Black Beauty's executive management
team, owns the remaining interest.
Black Beauty's principal operating units include Air Quality No. 1 Mine, a
low sulfur underground coal mine located near Monroe City, Indiana. In calendar
1998, Air Quality No.1 Mine shipped 1.4 million tons of low sulfur coal. Among
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other mines in Indiana, Black Beauty also operates the Farmersburg Mine, a
surface mine that produced 2.2 million tons of medium sulfur coal in calendar
1998, the Francisco Mine, a 2.1 million tons per year surface mine, and the
Somerville Mine, a 1.3 million tons per year surface mine.
Black Beauty owns a 50% interest in Arclar Coal Company, which operates
two underground mines in southern Illinois, and a 75% equity interest in Sugar
Camp Coal, LLC, a 2 million tons per year surface mine also located in southern
Illinois.
Black Beauty controls approximately 230 million tons of coal reserves,
including the largest coal reserve in Indiana that will meet the Phase II Clean
Air Act restrictions of 1.2 lbs. sulfur dioxide per million Btus required
beginning after 1999.
Australia
Peabody, through our subsidiary Peabody Resources which is headquartered
in Sydney, Australia, own interests in coal mining operations and a mining
services company in Australia. Peabody Resources manages and owns or holds joint
venture interests in four operating surface coal mines in the Hunter Valley, New
South Wales. All of these mines use draglines to uncover the coal seams. The
mines sold 11.5 million short tons during fiscal 1999, of which Peabody
Resources' entitlement was approximately 7.4 million tons. Approximately 70% of
the coal is sold domestically via long-term contracts, and 30% is exported to
Asia-Pacific markets.
AUSTRALIAN MINING OPERATIONS
[GRAPHIC]
Ravensworth Mine
Located 12 miles northwest of Singleton, New South Wales, the Ravensworth
Mine is 100% owned and managed by Peabody Resources under a long-term contract
that runs to the year 2001 and requires the production of approximately 4.4
million tons per year from coal reserves owned by Macquarie Generation. The coal
is trucked from the pit to a crushing plant and transported by overland conveyor
to nearby Bayswater and Liddell power stations.
Narama Mine
The Narama Mine opened in January 1993 and is operated by Peabody
Resources as an extension of the adjacent Ravensworth facility using similar
mining techniques in the same coal seams. The Narama joint venture, of which
Peabody Resources owns 50%, holds a 20 year contract extending through 2012 to
supply approximately 2.3 million tons annually to Macquarie Generation.
Warkworth Mine
Located seven miles southwest of Singleton, the Warkworth Mine opened in
1981 and produces about 5.0 million tons per year of thermal and semi-soft
coking coal each year, primarily for export. Peabody Resources manages the mine
and owns 43.75% of the Warkworth Associates joint venture. The coal is processed
at Warkworth Mine's preparation plant and blended
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to customer specifications before being transported by overland conveyor to the
Mount Thorley rail loop and then by rail to the Port of Newcastle. Warkworth
owns 13.9% of the Mount Thorley facility and 4.2% of the Port of Newcastle Coal
Loading Terminal.
Bengalla Mine
The Bengalla Mine is located near Muswellbrook, New South Wales and is
owned by the Bengalla joint venture, in which Peabody Resources holds a 37%
interest. Construction of the first stage of a 6.1 million ton per year surface
mine and facility is nearing completion, and production commenced in April 1999.
The joint venture includes Taiwanese and Korean power utilities and a major
trading house in Japan. Coal is removed by a system of loaders and conveyors and
delivered to a modern coal preparation plant, then transported via rail to the
Port of Newcastle for export.
Mining Services Division
Peabody Resource's Mining Services division is based in Brisbane,
Queensland, and provides specialized tunneling and underground contract mining
services to the mining and civil engineering industries. The Mining Services
division has been involved in underground development work for a number of
Australian mining companies and civil works projects, including BHP Minerals at
Cannington, Western Mining Corporation at Olympic Dam, Placer Pacific at
Osborne, and Plutonic Resources Limited at Darlot.
Long-Term Coal Supply Agreements
United States
We have a large portfolio of coal supply agreements. For the year ended
March 31, 1999, 87% of our sales volume was sold under coal supply agreements.
We currently have coal supply agreements totaling approximately one billion tons
of coal with terms ranging from one to 15 years and with an average
volume-weighted remaining term of more than 4 years. This contract tonnage total
does not include coal supply agreements of Black Beauty, which total
approximately 120 million tons. In fiscal 1999, we sold coal to approximately
150 power plants in the United States and Canada and exported to 14 countries
abroad.
Contract Terms
Typically, customers enter into coal supply agreements to secure reliable
sources of coal at predictable prices, while we seek stable sources of revenue
to support the investments required to open, expand and maintain or improve
productivity at mines needed to supply those contracts. The terms of coal supply
agreements result from bidding and extensive negotiations with customers.
Consequently, the terms of those contracts typically vary significantly in many
respects, including price adjustment features, price reopener terms, coal
quality requirements, quantity parameters, flexibility and adjustment mechanics,
permitted sources of supply, treatment of environmental constraints, extension
options and force majeure, termination and assignment provisions.
Price reopeners are present in most of the recently negotiated contracts
greater than three years in duration and usually occur midway through a contract
or every two to three years, depending upon the length of the contract. Price
reopeners allow the contract price to be renegotiated in order to correspond
with the market price prevailing at the time. If the parties do not agree on a
new price, the purchaser or seller often has an option to terminate the
contract.
Base prices are set at the start of a contract and are oftentimes adjusted
at quarterly or annual intervals for changes due to inflation and/or changes in
actual costs such as taxes, fees and royalties. The inflation adjustments are
measured by public indices, the most common of which is the implicit price
deflator for the gross domestic product as published by the United States
Department of Commerce.
Quality and volumes for the coal are stipulated in coal supply agreements,
although buyers normally have the option to vary annual or monthly volumes by up
to 10%, if necessary. Variations to the quality and volumes of coal may lead to
adjustments in the contract price. Coal supply agreements typically stipulate
procedures for quality control, sampling and weighing. Most coal supply
agreements contain provisions requiring us to deliver coal within specified
ranges for specific coal characteristics such as heat content (Btus), sulfur,
ash, grindability and ash fusion temperature. Failure to meet these
specifications can result in economic penalties or termination of the contracts.
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Contract provisions in some cases set out how coal volumes will be
temporarily reduced or delayed in the event of a force majeure, including
specified events such as strikes, adverse mining conditions or serious
transportation problems that affect the seller or unanticipated plant outages
that may affect the buyer. More recent contracts stipulate that this tonnage can
be made up by mutual agreement or at the discretion of the buyer. Buyers often
insert similar clauses covering changes in environmental laws. We often
negotiate the right to supply coal that complies with a new environmental
requirement to avoid contract termination. Coal supply agreements typically
contain termination clauses if either party fails to comply with the terms and
conditions of the contract.
In some contracts, we have a right of substitution, allowing us to provide
coal from different mines as long as the replacement coal is within a specified
quality and will be sold at the same delivered cost. Contracts usually contain
specified sampling locations: in the Eastern United States, approximately 50% of
customers require that the coal is sampled and weighed at the destination,
whereas in the Western United States samples are usually taken at the shipping
source.
Contract Expirations
Our coal supply agreements have an average volume-weighted remaining term
of more than 4 years. As our coal supply agreements expire, we intend to
negotiate new contracts in order to maintain our high percentage of volume sold
through coal supply agreements and low percentage of volume sold into the spot
market. When contracts expire, a coal producer is exposed to the risk of selling
coal into the spot market, which may be subject to lower and more volatile
prices, or to closing the mine if follow-on business cannot be obtained.
The total sales commitments corresponding to the coal supply agreements
currently total approximately one billion tons of coal, assuming all the
contracts run through to their expiration date. Contracts for coal from the
mines in the Powder River Basin comprise approximately 65% of this total
commitment.
Australia
In fiscal 1999, approximately 70% of Peabody Resources' 7.4 million ton
share of coal produced by Australian mines was sold under coal supply agreements
to the New South Wales power utility, Macquarie Generation. The remainder was
exported to Pacific Rim countries. Coal from the Ravensworth and the Narama
mines is sold to Macquarie Generation under contracts which expire in 2001 and
2012, respectively. The contracts contain price adjustment provisions based on
the qualities of coal delivered and changes in indices of mining costs.
All coal from the Warkworth mine is exported. Approximately 75% is sold
under contracts, including contracts with the other joint venture partners in
Warkworth, and the remaining 25% is sold on the spot market. Peabody Resources'
export contracts normally provide for annual price renegotiations.
The new Bengalla Mine began selling coal in early 1999 under annual
contracts and in the spot market. Some of Bengalla's sales will be directed to
the mine's joint venture partners, including Taiwan Power and Korea Electric.
Transportation
Coal for domestic consumption is generally sold at the mine and
transportation costs are normally borne by the purchaser. Export coal is usually
sold at the loading port, and coal producers are responsible for shipment to the
export coal-loading facility and the buyer pays the ocean freight. Coal for
electricity generation is purchased on the basis of its delivered cost per
million Btus. Most utilities arrange long-term shipping contracts with rail or
barge companies to assure stable delivered costs.
Transportation is often a large component of the buyer's cost. Although
the cost of freight is absorbed by the customer, transportation cost is still
important to coal mining companies because the customer may choose a supplier
largely based on the cost of transportation. According to Research Data
Institute Coaldat, in 1998 transportation costs represented 56 %, 25% and 23% of
the overall cost of coal produced in the Western, Eastern and Midwestern United
States, respectively.
According to Research Data Institute Coaldat, in 1998 approximately 83% of
all United States coal was shipped by rail or barge, making these modes the keys
to domestic coal distribution. Trucks and overland conveyors are used to haul
coal over shorter distances, while lake carriers and ocean colliers move coal to
export markets, although some domestic coal is shipped over the Great Lakes.
Railroads move more coal than any other commodity, and in 1997 coal accounted
for 22% of total United States rail freight revenue and 44% of total freight
tonnage. Most coal mines are served by a single rail company, but much of the
Powder River Basin is served by two competing rail carriers, the Burlington
Northern/Santa Fe and the Union
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Pacific. Rail competition in this major coal producing region is important,
since rail costs constitute up to 75% of the delivered cost of Powder River
Basin coal in remote markets. Rail rates for the Powder River Basin are lower
when evaluated on a ton-per-mile basis because the relatively flat and straight
rail routes out of the region allow heavily loaded trains to operate with less
manpower and locomotive power than rail routes in other regions.
Sales and Marketing
Our subsidiaries, Peabody COALSALES and Peabody COALTRADE, undertake the
sales and marketing functions for our United States operating subsidiaries,
including exports from the United States. Peabody COALSALES acts as an agent in
the sale and marketing of the coal produced by each mining subsidiary, and it
generates profits through its brokering and agency activities. Peabody COALTRADE
buys and resells coal produced by a number of third parties, and trades coal
options and sulfur dioxide emission allowances in the developing
over-the-counter markets. As of March 31, 1999, they had 43 employees located at
five sites. They annually prepare a marketing plan that sets out the sales
targets for the next five years by region, coal type and markets. The strategic
plan formulates and concentrates the ongoing work carried out by the sales and
marketing teams to sell the mines' production through different sales and
marketing initiatives.
Competition
The markets in which we sell our coal are highly competitive. The top ten
coal producers in the United States produce approximately 61% of total domestic
coal, although there are approximately 900 coal producers in the United States.
Our principal competitors in coal operations are other large coal producers. Our
largest competitors are Arch Coal, Inc., Kennecott Energy Co., Cyprus Amax Coal
Company (which is being sold to a United States unit of RAG AG), CONSOL Energy
Inc., AEI Resources, Inc. and A.T. Massey Coal Company, which collectively
produced approximately 46% of total U.S. coal production in 1998.
The markets in which we sell our coal are affected by a number of factors
beyond our control. Continued demand for our coal and the prices obtained by us
depend primarily on the coal consumption patterns of the electricity industries
in the United States and the Pacific Rim countries, the availability, location
(and thus the cost of transportation) and price of competing coal and
alternative electricity generation and fuel supply sources such as natural gas,
oil, nuclear and hydroelectric. Coal consumption patterns are affected primarily
by the demand for electricity, environmental and other governmental regulations
and technological developments. In recent years, there has been excess coal
production capacity due to increased development of large surface mining
operations in the Western United States, more efficient mining equipment and
techniques and reduced consumption of high sulfur coal. We compete on the basis
of coal quality, delivered price, customer service and support and reliability.
Suppliers
The main types of goods we purchase are mining equipment and replacement
parts, explosives, fuel, tires and lubricants. We also purchase coal from third
parties to satisfy some of our customer contracts. Purchases of capital goods,
materials and services are approximately $550 million per annum, which is
approximately 25% of our annual revenue. The supplier base providing these goods
has been relatively consistent in recent years as we have many long established
relationships with our key suppliers.
Between 25% and 30% of goods and services are supplied by the top ten
suppliers, and some 70% of goods and services are provided by the top 100
suppliers. We do not have any supply arrangements with related parties, and all
transactions are carried out on an arm's length basis. We consider all suppliers
of a particular category of supplies to be interchangeable and do not believe we
are vulnerable to over-dependence on any one supplier.
Legal Proceedings
From time to time, we are involved in legal proceedings arising in the
ordinary course of business. We believe we are adequately reserved for these
liabilities and that there is no individual case pending that could have a
material adverse effect on our financial condition or results of operations. Our
significant legal proceedings are discussed below. Concurrent adverse resolution
of those proceedings could have a material effect on the results of operations
for a particular interim or annual period.
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The Navajo Nation
On June 18, 1999, The Navajo Nation served our subsidiaries, Peabody
Holding Company, Inc., Peabody Coal Company and Peabody Western Company, with a
complaint which had been filed in the U. S. District Court for the District of
Columbia. Other defendants in the litigation are two utilities, two current
employees and one former employee. The Navajo Nation has alleged sixteen claims
including civil Racketeers Influenced and Corrupt Organizations Act, or RICO,
claims, fraud and tortious interference with contractual relationships. The
plaintiff is seeking various remedies including actual damages of at least $600
million which could be trebled under the RICO counts, punitive damages of at
least $1 billion, a determination that Peabody Western Coal Company's two coal
leases for the Kayenta and Black Mesa mines have terminated due to the failure
of a condition and a reformation of the two coal leases to adjust the royalty
rate to 20%. We believe this matter will be resolved without a material adverse
effect on our financial condition or results of operations.
Eastern Enterprises
On November 1, 1993, Eastern Enterprises filed suit in the U.S. District
Court for the District of Massachusetts against the Social Security
Administration and the Combined Fund claiming that the Coal Act, as applied to
Eastern Enterprises, violated the due process and taking clauses of the Fifth
Amendment. In 1994, Eastern Enterprises filed a third party complaint against
Peabody Holding Company, Eastern Associated and Eastern Associated's parent
company, Coal Properties Corp., seeking indemnification or contribution with
respect to any liability that Eastern Enterprises may have under the Coal
Industry Retirees Health Benefit Act of 1992, or the Coal Act. Eastern
Enterprises claimed that the amount of its Coal Act liabilities was
approximately $100 million.
The District Court held in 1996 that the Coal Act was constitutional.
Eastern Enterprises filed an appeal with the First Circuit Court of Appeals,
which affirmed the district court's decision. The U.S. Supreme Court accepted
Eastern Enterprises' petition for certiorari on the constitutional claims. In a
plurality decision issued on June 26, 1998, the Supreme Court found that the
Coal Act as applied to Eastern Enterprises violated the takings clause of the
Fifth Amendment. The United Mine Workers of America beneficiaries that were
assigned to Eastern Enterprises will continue to receive retiree health care
benefits from the Combined Fund without cost to us.
Eastern Enterprises advised Peabody Holding Company that it was unwilling
to dismiss the third-party complaint and intended to seek reimbursement for its
attorneys fees and prejudgment interest. We settled the third party claim for an
immaterial amount.
Salt River Project Agricultural Improvement and Power District
The Salt River Agricultural Improvement and Power District and the other
owners of the Navajo Generating Station, or Salt River, filed a lawsuit on
September 27, 1996 in the Superior Court of Maricopa County in Arizona seeking a
declaratory judgment that specified costs relating to final reclamation,
environmental monitoring work and mine decommissioning, and costs relating to
life insurance and retiree health care benefits are not recoverable by our
subsidiary, Peabody Western Coal Company, under the terms of a coal supply
agreement dated February 18, 1977. The contract expires in 2011.
Peabody Western filed a Motion to Compel Arbitration of these claims,
which was partially granted by the trial court. The trial court ruled that the
mine decommissioning costs were subject to arbitration but that the retiree
health care costs were not subject to arbitration. Peabody Western has filed an
appeal of the order denying arbitration of the retiree health care costs with
the Arizona Court of Appeals, which was denied by the Court. Peabody Western
then filed an appeal with the Arizona Supreme Court, which was denied. Peabody
Western and Salt River will arbitrate the mine decommissioning costs issue and
will litigate the retiree health care costs issue.
If Salt River is successful in the arbitration and litigation, our
financial condition and results of operations may be adversely affected.
However, based on our preliminary evaluation of the issues and the potential
impact on us, and while the outcome of litigation and arbitration is subject to
uncertainties, we believe that the matter will be resolved without a material
adverse affect on our financial condition or results of operations.
Southern California Edison Company
In response to a demand for arbitration by one of our subsidiaries,
Peabody Western Coal Company ("Peabody Western"), Southern California Edison
Company and the other owners of the Mohave Generating Station, or Edison, filed
a lawsuit on June 20, 1996 in the Superior Court of Maricopa County, Arizona.
The lawsuit sought a declaratory judgment that mine decommissioning costs and
retiree health care costs are not recoverable by Peabody Western under the terms
of a coal supply agreement dated May 26, 1976. The contract will expire in 2005.
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Peabody Western filed a Motion to Compel Arbitration, which was granted by
the trial court. Edison appealed this order to the Arizona Court of Appeals,
which denied its appeal. Edison appealed the order to the Arizona Supreme Court
which remanded the case to the Arizona Court of Appeals and ordered the
appellate court to determine whether the trial court was correct in determining
that Peabody Western's claims are arbitrable. The parties have agreed to a stay
of the arbitration pending the resolution of the arbitrability of these issues
under the coal supply agreement.
If Edison is successful in the matter, our financial condition and results
of operations may be adversely affected. However, based on a preliminary
evaluation of the issues and the potential impact on us, we believe that the
matter will be resolved without a material adverse affect on our financial
condition or results of operations.
Public Service Company of Colorado
In August 1996, Seneca Coal Company, a subsidiary of Peabody Western Coal
Company, filed a demand for arbitration in accordance with the terms of an
Amended Revised Coal Supply Agreement dated December 1, 1971 between Seneca and
three electric utilities, Public Service Company of Colorado, Salt River Project
Agricultural Improvement District and PacifiCorp, or the Hayden Participants.
The Hayden Participants own the Hayden Electric Generating Station at Hayden,
Colorado. The arbitration demand requested the entry of an award for Seneca and
against the Hayden Participants for amounts attributable to final reclamation,
mine decommissioning and environmental monitoring of the Seneca mine and life
insurance and post-retirement health care.
In September 1996, the Hayden Participants filed a complaint for
declaratory judgment in the District Court for the City and County of Denver
seeking a judicial declaration that they were not responsible for post-mine
closure costs as a matter of law. The Hayden Participants also requested
declaratory and other relief with respect to other claims against Seneca Coal
Company including a determination that the contract expires in approximately
2005.
The arbitration provision in the 1971 Agreement limits the jurisdiction of
the arbitrators to resolution of disputed issues of fact but the arbitrators are
to determine the arbitrability of any dispute in the first instance.
Accordingly, Seneca Coal Company filed a motion to stay the judicial proceedings
with respect to the issue of responsibility under the 1971 Agreement for
post-mine closure costs pending the outcome of the arbitration. The District
Court granted the motion in January 1997.
The arbitration hearing was held in March 1999. In June 1999, the
arbitrators issued their Findings of Fact in favor of the interests of Seneca
Coal Company. The Denver District Court must now apply legal principles to the
Findings of the arbitrators. We continue to believe that the dispute will be
resolved without a material adverse effect on our financial condition or results
of operations.
Macquarie Generation
In September 1997, our subsidiary, Peabody Resources, filed a lawsuit
against Macquarie Generation in the Supreme Court of New South Wales, Commercial
Division, seeking damages for coal deliveries which were not paid by Macquarie
Generation and for a declaratory judgment regarding the assignment to Macquarie
Generation of two long-term coal supply agreements for the Ravensworth and
Narama mines. The contracts expire in 2001 and 2012, respectively. Macquarie
Generation later agreed that the two contracts were properly assigned to it.
Macquarie Generation subsequently filed a cross- claim against Peabody Resources
alleging that Peabody Resources breached the labor escalation provisions in the
coal supply agreements, committed misrepresentations regarding the labor costs
and violated the Australian trade practices and fair trading laws in relation to
the Narama contract. Macquarie Generation sought to terminate or rescind the
Narama coal supply agreement and has sought damages from Peabody Resources for
alleged breaches of both contracts. Even though we continued to deliver coal,
Macquarie Generation unilaterally reduced the price that it is paying for coal
deliveries under the Narama contract. A trial regarding these issues began on
September 7, 1998 and concluded on September 25, 1998. On September 22, 1998,
Macquarie Generation withdrew its breach of contract claims.
The Supreme Court of New South Wales issued a decision on November 19,
1998 rejecting Macquarie Generation's claims to terminate the coal supply
agreement for the Narama mine. The Court also rejected Macquarie Generation's
claim for damages. The Court ordered Macquarie Generation to pay Peabody
Resources the portion of the price that it had unilaterally withheld, with
interest. Macquarie Generation has made that payment to Peabody Resources and is
paying Peabody Resources for deliveries of coal at the contract prices.
Macquarie Generation has filed an appeal of the decision. We continue to believe
that the matter will be resolved without a material adverse effect on our
financial condition or results of operations.
Minerals Management Service
The Minerals Management Service issued a preliminary administrative
decision in August 1992, determining that our subsidiary, Powder River Coal
Company, had underpaid royalties owed to the federal government. If the
preliminary decision is ultimately determined to be correct, the total alleged
royalty deficiency amounts to approximately $7.5 million without
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interest. Since that time, no further action has been taken by the agency to
issue a final, appealable decision. Pending that decision, we plan to appeal.
Criminal and civil investigations were begun by the federal government in 1993
and 1996, respectively, to examine Powder River's activities with respect to the
transactions at issue in the administrative matter. Powder River has fully
cooperated with these investigations by providing documents and witnesses for
interview. The federal government recently advised Powder River that it decided
not to bring criminal charges against our company. To date, no civil complaint
has been brought against us. If those claims are made and a case is successfully
argued against us, our financial condition and results of operations may be
adversely affected. However, based on our preliminary evaluation of the issues
and the potential impact on us, and while the outcome of any potential
litigation is subject to uncertainties, we believe that the matter will be
resolved without a material adverse affect on our financial condition or results
of operations.
Saline Valley Conservancy District
Saline Valley Conservancy District filed a lawsuit against our subsidiary,
Peabody Coal Company, on April 5, 1999 in the Circuit Court of Saline County,
Illinois. Saline Valley alleges that Peabody Coal Company's coal refuse pits at
the closed Eagle No. 2 mine in Saline County, Illinois constitute a public and
private nuisance and a trespass, and that Peabody Coal Company engaged in
various negligent acts at the coal refuse pits. Saline Valley is seeking up to
$124 million of compensatory damages, $125 million of punitive damages and
injunctive relief. Peabody Coal Company has removed the case to the United
States District Court for the Southern District of Illinois. At a settlement
meeting held in April 1999, the parties agreed to tentatively settle the matter.
Subsequently, the parties failed to agree on the definitive settlement agreement
and the dispute is now being litigated. We recently filed two counterclaims
against Saline Valley seeking in excess of $1 million in damages. We do not
believe this matter will have a material adverse effect on our financial
condition or results of operations.
In addition, the state of Illinois has filed an administrative complaint
against Peabody Coal Company alleging that our coal refuse pits have violated
state water pollution control laws and regulations. The state is seeking daily
fines from Peabody Coal Company for these alleged violations. We believe this
matter will be resolved without a material adverse effect on our financial
condition or results of operations.
Environmental
Federal and State Superfund Statutes
The Comprehensive Environmental Response, Compensation and Liability Act
and similar state laws create liability for investigation and remediation in
response to releases of hazardous substances in the environment and for damages
to natural resources. Under that legislation and many state Superfund statutes,
joint and several liability may be imposed on waste generators, site owners and
operators and others regardless of fault.
Our subsidiary, Gold Fields, its predecessors and its former parent
company are or may become parties to environmental proceedings which have
commenced or may commence in the United States in relation to a number of sites
previously owned or operated by those entities or companies associated with
them. We have agreed to indemnify Gold Fields' former parent company for any
environmental claims resulting from any activities, operations or conditions
that occurred prior to the sale of Gold Fields to us. Gold Fields is currently
involved in environmental investigation or remediation at seven sites and is a
defendant in litigation with private parties involving one site. Gold Fields
settled in February 1999 a lawsuit filed by Asarco Incorporated involving sites
at Columbus, Ohio and Hillsboro, Illinois. Under the settlement, Gold Fields
paid $3.25 million in fiscal 1999 and agreed to pay $3.25 million in fiscal 2000
for past costs at the Columbus, Ohio and Hillsboro, Illinois sites. The
settlement also resolved the apportionment of liability for future costs at both
sites.
These 10 sites were formerly owned or operated by Gold Fields. The
Environmental Protection Agency has placed three of these sites on the National
Priorities List, promulgated under that legislation, and one of the sites is on
a similar state priority list. There are a number of further sites in the United
States that were previously owned or operated by those companies that could give
rise to environmental proceedings in which Gold Fields could incur liabilities.
Where those sites were identified, independent environmental consultants
were employed in 1997 in order to assess the estimated total amount of the
liability per site and the proportion of those liabilities that Gold Fields is
likely to bear. The available information on which to base this review was very
limited since all of the sites except for three sites (on which no remediation
is currently taking place) are no longer owned by Gold Fields. We have
provisions of $61.8 million as of March 31, 1999 for the above environmental
liabilities relating to Gold Fields. Significant uncertainty exists as to
whether these claims will be pursued against Gold Fields in all cases, and where
they are pursued, the amount of the eventual costs and liabilities, which could
be greater or less than this provision. We believe that the remaining amount of
the provision is adequate to cover these environmental liabilities.
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Although waste substances generated by coal mining and processing are
generally not regarded as hazardous substances for the purposes of that
legislation, some products used by coal companies in operations, such as
chemicals, and the disposal of those products are governed by the statute. Thus,
coal mines currently or previously owned or operated by us, and sites to which
we have sent waste materials, may be subject to liability under that legislation
and similar state laws.
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REGULATORY MATTERS
Our operations are subject to extensive regulation in the United States
and Australia regarding production, sale, distribution, health and safety and
environmental matters.
United States
The U.S. coal mining industry is subject to regulation by federal, state
and local authorities on matters such as employee health and safety, permitting
and licensing requirements, air quality standards, water pollution, plant and
wildlife protection, the reclamation and restoration of mining properties after
mining has been completed, the discharge of materials into the environment,
surface subsidence from underground mining and the effects of mining on
groundwater quality and availability. In addition, the industry is affected by
significant legislation mandating benefits for current and retired coal miners.
Numerous federal, state and local governmental permits and approvals are
required for mining operations. We believe that all permits currently required
to conduct our present mining operations have been obtained. We may be required
to prepare and present to federal, state or local authorities data pertaining to
the effect or impact that a proposed exploration for or production of coal may
have on the environment. Those requirements could prove costly and
time-consuming, and could delay commencing or continuing exploration or
production operations. Future legislation and administrative regulations may
emphasize the protection of the environment and, as a consequence, our
activities may be more closely regulated. That legislation and those
regulations, as well as future interpretations and more rigorous enforcement of
existing laws, may require substantial increases in equipment and operating
costs to us and delays, interruptions or a termination of operations, the extent
of which cannot be predicted.
We endeavor to conduct our mining operations in compliance with all
applicable federal, state and local laws and regulations. However, because of
extensive and comprehensive regulatory requirements, violations during mining
operations occur from time to time in the industry. None of the violations to
date or the monetary penalties assessed upon us have been material.
Mine Health and Safety
Stringent health and safety standards have been in effect since the Coal
Mine Health and Safety Act of 1969 was adopted by Congress. The Federal Mine
Health and Safety Act of 1977 significantly expanded the enforcement of health
and safety standards and imposed health and safety standards on all aspects of
mining operations.
Most of the states in which we operate have state programs for mine health
and safety regulation and enforcement. In combination, federal and state health
and safety regulation in the coal mining industry is perhaps the most
comprehensive and pervasive system for protection of employee health and safety
affecting any segment of United States industry. While regulation has a
significant effect on our operating costs, our U.S. competitors are subject to
the same degree of regulation.
Our goal is to achieve excellent health and safety performance. We measure
our success in this area primarily through the use of accident frequency rates.
We believe that this goal is inherently tied to achieving our productivity and
financial goals. We seek to implement this goal by: training employees in safe
work practices; openly communicating with employees; establishing, following and
improving safety standards; involving employees in establishing safety
standards; and recording, reporting and investigating all accidents, incidents
and losses to avoid reoccurrence.
Black Lung
Under the Black Lung Benefits Revenue Act of 1977 and the Black Lung
Benefits Reform Act of 1977, as amended in 1981, each coal mine operator is
required to secure payment of federal black lung benefits to claimants who are
current and former employees and to a trust fund for the payment of benefits and
medical expenses to claimants who last worked in the coal industry prior to July
1, 1973. Less than 7% of the miners currently seeking federal black lung
benefits are awarded those benefits by the federal government. The trust fund is
funded by an excise tax on production of up to $1.10 per ton for deep-mined
coal and up to $0.55 per ton for surface-mined coal; neither amount to exceed
4.4% of the sales price. This tax is passed on to the purchaser under many of
our coal supply agreements.
Legislation on black lung reform has been introduced in this session of
Congress. The legislation would restrict the evidence that can be offered by a
mining company, establish a standard for evaluation of evidence that greatly
favors black lung claimants, allow claimants who have been denied benefits at
any time since 1981 to refile their claims for consideration under the new law,
make surviving spouse benefits significantly easier to obtain and retroactively
waive repayment of preliminarily awarded benefits that are later determined to
have been improperly paid. If this or similar legislation is passed, the number
of claimants who are awarded benefits could significantly increase.
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The United States Department of Labor has issued proposed amendments to
the regulations implementing the federal black lung laws which, among other
things, establish a presumption in favor of a claimant's treating physician and
limit a coal operator's ability to introduce medical evidence regarding the
claimant's medical condition.
Coal Industry Retiree Health Benefit Act of 1992
The Coal Industry Retiree Health Benefit Act of 1992, also known as the
Coal Act, was enacted to provide for the funding of health benefits for
specified United Mine Workers of America retirees. The Coal Act established the
Combined Fund into which "signatory operators" and "related persons" are
obligated to pay annual premiums for beneficiaries. The Coal Act also created a
second benefit fund for miners who retired between July 21, 1992 and September
30, 1994 and whose former employers are no longer in business. Companies that
are liable under the Coal Act must pay premiums to the Combined Fund. Annual
payments made by some of our subsidiaries under the Coal Act totaled $9.2
million in fiscal 1999.
In October 1998, the Combined Fund sent a premium notice to all assigned
operators subject to the fund which included retroactive death benefit and
health benefit premiums dating back to February 1, 1993. On November 13, 1998,
ten employers (including two of our subsidiaries, Peabody Coal Company and
Eastern Associated Coal Corp.) challenged the fund's retroactive rebilling in a
lawsuit filed in the Northern District Court of Alabama. The ten employers have
recently filed an amended complaint which adds another plaintiff and the United
States Department of the Interior as a defendant. The case is still pending. Our
subsidiaries' retroactive premium amounts to approximately $1.3 million.
Environmental Laws
We are subject to various federal, state and foreign environmental laws.
These laws require approval of many aspects of coal mining operations, and both
federal and state inspectors regularly visit our mines and other facilities to
ensure compliance.
Surface Mining Control and Reclamation Act. The Surface Mining Control and
Reclamation Act, which is administered by the Office of Surface Mining
Reclamation and Enforcement, establishes mining and reclamation standards for
all aspects of surface mining as well as many aspects of deep mining. The
Surface Mining Control and Reclamation Act and similar state statutes, among
other things, require that mined property be restored in accordance with
specified standards and an approved reclamation plan. In addition, the Abandoned
Mine Land Fund, which is part of the Surface Mining Control and Reclamation Act,
imposes a fee on all current mining operations, the proceeds of which are used
to restore mines closed before 1977. The maximum tax is $0.35 per ton on
surface-mined coal and $0.15 per ton on deep-mined coal.
The Surface Mining Control and Reclamation Act also requires that
comprehensive environmental protection and reclamation standards be met during
the course of, and upon completion of, mining activities. For example, it
requires us to restore a surface mine to the approximate original contour as
contemporaneously as practicable with surface coal mining operations. A mine
operator must submit a bond or otherwise secure the performance of these
reclamation obligations. Mine operators must receive permits and permit renewals
for surface mining operations from the Office of Surface Mining Reclamation and
Enforcement or, where state regulatory agencies have adopted federally approved
state programs under the act, the appropriate state regulatory authority. We
accrue for the liability associated with all end-of-mine reclamation on a
ratable basis as the coal reserve is being mined. The estimated cost of
reclamation, and the corresponding accrual on our financial statements, is
adjusted annually.
All states in which our active mining operations are located have achieved
primary control of enforcement through approved state programs. Although we do
not anticipate significant permit issuance or renewal problems, we cannot assure
you that our permits will be renewed or granted in the future or that permit
issues will not adversely affect operations. Under previous regulations of the
act, our responsibility for any coal operator currently in violation of the act
could be imputed to other companies deemed, according to regulations, to "own or
control" the coal operator. Sanctions included being blocked from receiving new
permits and rescission or suspension of existing permits. Because of a recent
federal court action invalidating these ownership and control regulations, the
scope and potential impact of the "ownership and control" requirements on us are
unclear. The Office of Surface Mining Reclamation and Enforcement has responded
to the court action by promulgating interim regulations, which more narrowly
apply the ownership and control standards to coal companies. Although the
federal action could have, by analogy, a precedential effect on state
regulations dealing with "ownership and control," which are in many instances
similar to the invalidated federal regulations, it is not certain what impact
the federal court decision will have on these state regulations.
The Clean Air Act. The Clean Air Act and the Clean Air Act Amendments, and
corresponding state laws that regulate the emissions of materials into the air,
affect coal mining operations both directly and indirectly. Direct impacts on
coal mining and processing operations may occur through Clean Air Act permitting
requirements and/or emissions control requirements relating to particulate
matter, such as fugitive dust, including future regulation of fine particulate
matter
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measuring 2.5 micrometers in diameter or smaller. In July 1997, the
Environmental Protection Agency adopted new, more stringent National Ambient Air
Quality Standards for particulate matter and ozone. As a result, some states
will be required to change their existing implementation plans to attain and
maintain compliance with the new air quality standards. Because coal mining
operations emit particulate matter, our mining operations and utility customers
are likely to be directly affected when the revisions to the air quality
standards are implemented by the states. State and federal regulations relating
to implementation of the new air quality standards may restrict our ability to
develop new mines or could require us to modify our existing operations. The
extent of the potential direct impact of the new air quality standards on the
coal industry will depend on the policies and control strategies associated with
the state implementation process under the Clean Air Act, but could have a
material adverse effect on our financial condition and results of operations.
The Court of Appeals for the District of Columbia ruled in May 1999 that the 10
micrometer particulate and eight hour standards were invalid. The Court also
ordered a new briefing on the validity of the fine particulate standard. The
effect of this decision on us and our customers is unknown at this time.
The Clean Air Act indirectly affects coal mining operations by extensively
regulating the air emissions of sulfur dioxide and other compounds, including
nitrogen oxides, emitted by coal-fueled utility power plants. Title IV of the
Clean Air Act Amendments places limits on sulfur dioxide emissions from electric
power generation plants. The limits set baseline emission standards for those
facilities. Reductions in those emissions occurred in Phase I in 1995 and
additional reductions will occur in Phase II in 2000 and will apply to all
coal-fired power plants, including those subject to the 1995 restrictions. The
affected utilities have been and may be able to meet these requirements by,
among other ways, switching to lower sulfur fuels, installing pollution control
devices, such as scrubbers, reducing electricity generating levels or purchasing
or trading sulfur dioxide emission allowances. Specific emission sources will
receive these sulfur dioxide emission allowances, which utilities and industrial
concerns can trade or sell to allow other units to emit higher levels of sulfur
dioxide. The effect of these provisions of the Clean Air Act Amendments on us
cannot be completely ascertained at this time. We believe that implementation of
Phase II will likely exert a downward pressure on the price of higher sulfur
coal, as additional coal-burning utility power plants become subject to the
restrictions of Title IV.
The Clean Air Act Amendments also require utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone nonattainment areas
install reasonably available control technology for nitrogen oxides, which are
precursors of ozone. In addition, the recently issued, stricter ozone standards,
as discussed above, are expected to be implemented by the Environmental
Protection Agency by 2003. The Ozone Transport Assessment Group, formed to make
recommendations to the Environmental Protection Agency for addressing ozone
problems in the Eastern United States, submitted its final recommendations to
the Environmental Protection Agency in June 1997. Based on their
recommendations, the Environmental Protection Agency recently announced the
final rules that would require 22 Eastern states to make substantial reductions
in nitrogen oxide emissions. Under this rule, the Environmental Protection
Agency expects that states will achieve these reductions by requiring power
plants to make substantial reductions in their nitrogen oxide emissions.
Installation of reasonably available control technology and additional control
measures required under the final rules will make it more costly to operate
coal-fired utility power plants and, depending on the requirements of individual
state attainment plans and the development of revised new source performance
standards, could make coal a less attractive fuel alternative in the planning
and building of utility power plants in the future. In a decision on May 1999,
the Court of Appeals for the District of Columbia enjoined enforcement of the
final rules pending a final court decision in a related lawsuit.
In accordance with Section 126 of the Clean Air Act, eight Northeastern
states filed petitions requesting the Environmental Protection Agency to make
findings and require decreases in nitrogen oxide emissions from certain sources
in a number of upwind states that might contribute to ozone nonattainment in the
petitioning states. The Environmental Protection Agency has proposed to grant
the petitions of certain states claiming that specified sources are contributing
to ozone nonattainment in certain of the petitioning states, and the
Environmental Protection Agency has proposed levels of nitrogen oxide control
for the named sources. Our customers are among the named sources and, if the
petitions are granted, the requirement to install control equipment could impact
the amount of coal supplied to those customers if they decide to switch to other
sources of fuel which would result in lower emission of nitrogen oxides.
The Clean Air Act Amendments set a national goal for the prevention of any
future and the remedying of any existing impairment of visibility in 156
national parks and wildlife areas across the country. Visibility in these areas
is to be returned to natural conditions by 2064 through plans that must be
developed by the states. The state plans may require the application of "Best
Available Retrofit Technology" after 2010 on sources found to be contributing to
visibility impairment of regional haze in these areas. The control technology
requirements could cause our customers to install equipment to control sulfur
dioxide and nitrogen oxide emissions. The requirement to install control
equipment could impact the amount of coal supplied to those customers if they
decide to switch to other sources of fuel which use would result in lower
emission of sulfur oxides and nitrogen oxides.
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In addition, the Clean Air Act Amendments require a study of utility power
plant emissions of specified toxic substances, including mercury, and direct the
Environmental Protection Agency to regulate these substances, if warranted. In a
recent report, the Environmental Protection Agency indicated that although it
plans to further study the issue, it does not plan to propose regulations in the
near future. However, future federal or state regulatory or legislative activity
may seek to reduce mercury emissions and such requirements, if enacted, could
result in reduced use of coal if utilities switch to other sources of fuel.
On July 1, 1999, the U.S. Environmental Protection Agency issued new
regulations to improve visibility, or visual air quality, in 156 national parks
and wilderness areas. The regulations require states to develop long term
strategies for reducing emissions of the particles and gases that cause
visibility impairment. The impact of these regulations on the ability of our
customers to continue to combust coal is uncertain, but any impacts will not
occur until after 2008.
Clean Water Act. The Clean Water Act of 1972 affects coal mining
operations by imposing restrictions on effluent discharge into water. Regular
monitoring, reporting requirements and performance standards are preconditions
for the issuance and renewal of permits governing the discharge of pollutants
into water.
Resource Conservation and Recovery Act. The Resource Conservation and
Recovery Act, which was enacted in 1976, affects coal mining operations by
imposing requirements for the treatment, storage and disposal of hazardous
wastes. Coal mining operations covered by the Surface Mining Control and
Reclamation Act permits are exempted from regulation under the Resource
Conservation and Recovery Act by statute; however we cannot predict whether this
exclusion will continue.
Federal and State Superfund Statutes on Coal Mining Operations and Past
Hard Rock Mining Operations. Risks of environmental liability are inherent with
respect to both current and past coal mining and hard rock mining activities.
The Comprehensive Environmental Response, Compensation and Liability Act, or
Superfund, and similar state laws create liability for investigation and
remediation in response to releases of substances hazardous to the environment
and for damages to natural resources. Under the Comprehensive Environmental
Response, Compensation and Liability Act and many state Superfund statutes,
joint and several liability may be imposed on waste generators, site owners and
operators and others regardless of fault.
We assumed environmental obligations associated with certain former
non-coal mining operations of our subsidiary, Gold Fields, and our former parent
company. Gold Fields, its predecessors and its former parent company are or may
become parties to environmental proceedings which have commenced or may commence
in the United States in relation to certain sites previously owned or operated
by those entities or companies associated with them. We have agreed to indemnify
Gold Field's former parent company for any environmental claims resulting from
any activities, operations or conditions that occurred prior to the sale of Gold
Fields to us. Gold Fields is currently involved in environmental investigation
or remediation at seven sites and is a defendant in litigation with private
parties involving one other site. These sites were formerly owned or operated by
Gold Fields. The Environmental Protection Agency has placed three of these sites
on the National Priorities List, promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act, and one of the sites is
on a similar state priority list. There are a number of other sites in the
United States which were previously owned or operated by such companies and
which could give rise to environmental proceedings in which Gold Fields could
incur liabilities.
Where such sites were identified, independent environmental consultants
were employed in 1997 in order to assess the estimated total amount of the
liability per site and the proportion of those liabilities that Gold Fields is
likely to bear. The available information on which to base this review was very
limited since all of the sites except for three sites (on which no remediation
is currently taking place) are no longer owned by Gold Fields. We have
provisions of $61.8 million as of March 31, 1999 for the above environmental
liabilities relating to Gold Fields. Significant uncertainty exists as to
whether these claims will be pursued against Gold Fields in all cases, and where
they are pursued, the amount of the eventual costs and liabilities, which could
be greater or less than this provision. We believe that the remaining amount of
the provision is adequate to cover these environmental liabilities.
Although waste substances generated by coal mining and processing are
generally not regarded as hazardous substances for the purposes of the
Comprehensive Environmental Response, Compensation and Liability Act, some
products used by coal companies in operations, such as chemicals, and the
disposal of such products are governed by the statute. Thus, coal mines
currently or previously owned or operated by us, and sites to which we sent
waste materials, may be subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state laws.
In addition to the Gold Fields liabilities associated with the Comprehensive
Environmental Response, Compensation and Liability Act and similar state laws,
our current and former coal mining operations presently incur, and will continue
to incur, expenditures associated with the investigation and remediation of
environmental matters, including acid mine drainage, land subsidence,
underground storage tanks, solid and hazardous waste disposal and other matters.
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While we believe that we have identified costs likely to be incurred for
these environmental matters, and that those costs are not likely to have a
material adverse effect upon our financial condition or results of operations,
we cannot assure you that total costs and liabilities for these environmental
matters will not increase in the future. The magnitude of such additional
liabilities and the costs of complying with these environmental laws cannot be
predicted with certainty due to the lack of specific information available with
respect to many sites, the potential for new or changed laws and regulations and
for the development of new remediation technologies and the uncertainty
regarding the timing of work with respect to particular sites. As a result, we
cannot assure you that material liabilities or costs related to environmental
matters will not be incurred in the future or that our liquidity will not be
adversely impacted by such environmental liabilities or costs.
Global Climate Change. The United States, Australia and over 160 other
nations are signatories to the 1992 Framework Convention on Global Climate
Change which is intended to limit or capture emissions of greenhouse gases such
as carbon dioxide. In December 1997 in Kyoto, Japan, the signatories to the
convention established a binding set of emissions targets for developed nations.
Although the specific emission targets vary from country to country, the United
States would be required to reduce emissions to 93% of 1990 levels over a
five-year budget period from 2008 through 2012. Although the United States has
not ratified the emission targets and no comprehensive regulations focusing on
greenhouse gas emissions are in place, those restrictions, whether through
ratification of the emission targets or other efforts to stabilize or reduce
greenhouse gas emissions, could adversely impact the price and demand for coal.
According to the Energy Information Administration's Annual Energy Outlook for
1998, coal accounts for 36% of greenhouse gas emissions in the United States,
and efforts to control greenhouse gas emissions could result in reduced use of
coal if electric generators switch to lower carbon sources of fuel.
Australia
The Australian mining industry is regulated by Australian federal, state
and local governments with respect to environmental issues such as land
reclamation, water quality, air quality, dust control and noise, planning issues
such as approvals to expand existing mines or to develop new mines, and health
and safety issues. The Australian federal government retains control over the
level of foreign investment and export approvals. Industrial relations are
regulated under both federal and state laws. Australian state governments also
require coal companies to post deposits or give other security against land
which is being used for mining, with those deposits being returned or security
released after satisfactory rehabilitation.
Mining and exploration in Australia is generally carried on under leases
or licenses granted by state governments. Mining leases, which are typically for
an initial term of up to 21 years (but which may be renewed), contain conditions
relating to matters such as minimum annual expenditures, restoration and
rehabilitation. Surface rights are typically acquired directly from landowners
and, in the absence of agreement, there is an arbitration provision in the
mining law.
Environmental
Primary responsibility for environmental regulation in Australia is vested
in the state, rather than the federal system. Each state and territory in
Australia has its own environmental and planning regime for the development of
mines. In addition, each state and territory also has a specific act dealing
with mining in particular, regulating the granting of mining licenses and
leases. The mining legislation in each state and territory operates concurrently
with environmental and planning legislation. The mining legislation governs
mining licenses and leases, including the restoration of land, following the
completion of mining activities. Apart from the grant of the rights to mine
itself (which are covered by the mining statutes), all licensing, permitting,
consent and approval requirements are contained in the various state and
territory environmental and planning statutes.
The particular provisions of the various state and territory environmental
and planning statutes vary depending upon the jurisdiction. Despite the
variation in particulars, each state and territory has a system involving at
least two major phases: (1) obtaining the developmental application and, if that
is granted, obtaining the detailed operational pollution control licenses (which
authorize emissions up to a maximum level); and (2) pollution control approvals
(which authorize the installation of pollution control equipment and devices).
In the first regulatory phase, an application to a regulatory authority is
filed. The relevant authority will either grant a conditional consent, an
unconditional consent, or deny the application based on the details of the
application and on any submissions or objections lodged by members of the
public. If the developmental application is granted, the detailed pollution
control license may then be issued and that license may regulate: emissions to
the atmosphere; emissions in waters; noise impacts, including impacts from
blasting; dust impacts; the generation, handling, storage and transportation of
waste; and requirements for rehabilitation and restoration of land.
Each state and territory in Australia also has either a specific statute
or sections in other environmental and planning statutes relating to the
contamination of land and vesting powers in the various regulatory authorities
in respect of the remediation of contaminated land. Those statutes are based on
varying policies - the primary difference between the statutes
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is, that in some states and territories, liability for remediation is placed
upon the occupier of land, regardless of the culpability of that occupier for
the contamination. In other states and territories, primary liability for
remediation is placed on the original polluter, whether or not the polluter
still occupies the land. If the original polluter cannot itself carry out the
remediation, then a number of the statutes contain provisions which enable
recovery of the costs of remediation from the polluter as a debt.
Many of the environmental planning statutes across the states and
territories contain "third party" appeal rights in relation, particularly, to
the first regulatory phase. This means that any party has a right to take
proceedings for a threatened or actual breach of the statute, without first
having to establish that any particular interest of that person (other than as a
member of the public) stands to be affected by the threatened or actual breach.
As a result, this makes third party challenges to consents for the carrying out
of development relatively common.
Accordingly, in most states and territories throughout Australia, mining
activities involve a number of regulatory phases. Following exploratory
investigations under a mining license, the activity proposed to be carried out
must be the subject of an application for the activity or development. This
phase of the regulatory process, as noted above, usually involves the
preparation of extensive documents to constitute the application, addressing all
of the environmental impacts of the proposed activity. It also generally
involves extensive notification and consultation with other relevant statutory
authorities and members of the public. Once a decision is made to allow a mine
to be developed by the grant of a development consent, permit or other approval,
then a formal mining lease can be obtained under the mining statute. In
addition, operational licenses and approvals can then be applied for and
obtained in relation to pollution control devices and emissions to the
atmosphere, to waters and for noise. The obtaining of licenses and approvals,
during the operational phase, generally does not involve any extensive
notification or consultation with members of the public, as most of these issues
are anticipated to be resolved in the first regulatory phase.
Occupational Health and Safety
The combined effect of various state and federal statutes requires an
employer to ensure that persons employed in a mine are safe from injury risks by
providing: a safe working environment and systems of work; safe machinery,
equipment, plant and substances; and appropriate information, instruction,
training and supervision.
In recognition of the specialized nature of mining and mining activities,
specific occupational health and safety obligations have been mandated under
state legislation that deals specifically with the coal mining industry. Mining
employers, owners, directors and managers, persons in control of work places,
mine managers, supervisors and employees are all subject to these duties.
It is mandatory for an employer to have insurance coverage in respect of
the compensation of injured workers; similar schemes are in effect throughout
Australia which are of a no fault nature and which provide for benefits up to a
prescribed level. The specific benefits vary from jurisdiction to jurisdiction,
but generally include the payment of weekly compensation to an incapacitated
employee, together with payment of medical, hospital and related expenses. The
injured employee has a right to sue his or her employer for further damages if a
case of negligence can be established.
Deregulation of the Electric Utility Industry
In October 1992, the Energy Policy Act of 1992 was enacted. To stimulate
competition in the electricity market, the Act gave wholesale suppliers access
to the transmission lines of U.S. electric utility companies. In April 1996, the
Federal Energy Regulatory Commission issued the first of a series of orders
establishing rules providing for open access to electricity transmission
systems. While the Federal Energy Regulatory Commission proceeds to open access
to wholesale electric markets, individual states are proceeding with the opening
of retail access.
The pace of change differs significantly from state to state. To date, 10
states have enacted programs leading to the deregulation of the retail
electricity market; 39 other states are considering similar programs. Due to the
uncertainty around timing and implementation of deregulation in each state, it
is difficult to predict the impact on individual electric utilities.
When ultimately implemented, full-scale deregulation of the power industry
will enable both industrial and residential customers to shop for the lowest
cost supply of power and the best service available. This fundamental change in
the power industry is expected to compel electric utilities to be more
aggressive in developing and defending market share, to be more focused on their
pricing and cost structures and to be more flexible in reacting to changes in
the market.
A possible consequence of the deregulation is anticipated downward
pressure on fuel prices. However, because coal-fired generation is competitive
with most other forms of generation, a competitive electricity market may
stimulate greater demand for coal to be burned in plants with currently unused
capacity. In 1998, for example, the average cost of generating electricity in
coal-based generating units was less than one half the average cost of
generating electricity in gas-fired units, and coal-based generation accounted
for 56.3% of all electricity produced in the United States last year. Because
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of our cost advantage and because some coal-based generating facilities are
underutilized in the current regulated electricity market, we estimate that
additional coal demand could arise if the electricity market were rationalized
and the most efficient coal-fired power plants were used to their full capacity.
Estimates of this additional demand for coal vary between 100 and more than 200
million tons annually for the coal industry as a whole.
In the early 1990's, the Australian Federal Government commenced
deregulation of the electricity market as part of Australia's ongoing
micro-economic reform.
The commencement of the National Electricity Market in 1998 was to
introduce competition in the wholesale supply and purchase of electricity
combined with an open access regime for the use of electricity networks across
the Eastern states of Australia. Introduction of competition was to be achieved
by: restructuring the supply industry into the separate elements of generation,
transmission and distribution, and retail supply; privatization of generation
and retail supply; and enhancement and extension of the Eastern states
interconnection of power systems.
Some states, in particular Victoria, have privatized power generation,
transmission and distribution, and retail supply as part of the ongoing
deregulation of the industry. In New South Wales the market is dominated by
incorporated government utilities.
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MANAGEMENT
Directors and Executive Officers
Listed below are the names, ages as of March 31, 1999 and current
positions with us and our subsidiaries of our executive officers and directors.
The terms of our directors will expire upon the election and qualification of
successors at the annual meeting of stockholders.
Name Age Position
- ---------------------- ---- -----------------------------------------------
Irl F. Engelhardt 52 Chairman, Chief Executive Officer and Director
Richard M. Whiting 44 President, Chief Operating Officer and Director
W. Howard Carson 48 Chief Commercial Officer
Roger B. Walcott, Jr. 43 Executive Vice President
Mark Maisto 43 Chief Executive Officer and President, Citizens
Power
Christopher G. Farrand 58 Vice President, Corporate Affairs
Larry H. Fox 59 Vice President-Powder River Basin Operations
George J. Holway 49 Vice President, Chief Financial Officer
Robert D. Humphris 56 Managing Director-Australia
Jeffery L. Klinger 52 Vice President, Legal Services and Secretary
Richard A. Navarre 38 Vice President, Sales & Marketing and President
of Peabody COALSALES Company
Sharon K. Schergen 42 Vice President-Human Resources
Roger H. Goodspeed 48 Director
Henry E. Lentz 54 Director
Alan H. Washkowitz 58 Director
Irl F. Engelhardt served as President and Chief Executive Officer of our
company from 1990 to 1995 and Chairman and Chief Executive Officer of our
company since 1993, and has been a director of our company since June 1998.
Since joining Peabody in 1979, he has held various officer level positions in
the executive, sales, business development and administrative areas, including
serving as Chairman of Peabody Resources Ltd. (Australia) and Chairman of
Citizens Power. Mr. Engelhardt also served as an executive director of The
Energy Group from February 1997 to May 1998, Chairman of Cornerstone
Construction & Materials, Inc. from September 1994 to May 1995 and Chairman of
Suburban Propane Company from May 1995 to February 1996. He also served as a
Director and Group Vice President of Hanson Industries from 1995 to 1996. Mr.
Engelhardt is past chairman of the National Mining Association, Chairman of the
Coal Industry Advisory Board of the International Energy Agency, Chairman of the
Center for Energy and Economic Development and a director of Mercantile Bank of
St. Louis, N.A.
Richard M. Whiting has served as President and Chief Operating Officer of
our company since January 1998 and has been a director of our company and a
member of the Management Committee since June 1998. He served as President of
Peabody COALSALES Company from June 1992 to January 1998. Since joining our
company in 1976, Mr. Whiting has held a number of operations, sales and
engineering positions both at the corporate offices and at field locations. From
1989 to 1990, Mr. Whiting served as Vice President of Engineering and Operations
Support. Mr. Whiting is currently Chairman of the Bituminous Coal Operators'
Association and Chairman of the National Mining Association's Safety and Health
Committee.
W. Howard Carson was named Chief Commercial Officer and a member of our
company's Management Committee in June 1998. Prior to that, he had been
President of Peabody Western since 1993. Previously, he has served as Vice
President of Finance and Administration for PCC from 1991 to 1993. He joined our
company in 1979 from Arthur Andersen & Co. and has held numerous financial
positions including Vice President of Accounting and Vice President of Corporate
Planning for Peabody. Mr. Carson holds an MBA from Saint Louis University.
Roger B. Walcott, Jr. joined our company in June 1998 as Executive Vice
President and a member of our company's Management Committee. From 1981 to 1998,
he was a Senior Vice President & Director with The Boston Consulting Group where
he served a variety of clients in strategy and operational assignments. He was
also Chairman of The Boston Consulting Group's Human Resource Capabilities
Committee. Mr. Walcott holds an MBA with high distinction from the Harvard
Business School.
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Mark Maisto was named Chief Executive Officer of Citizens Power in
September 1998. He was also named a member of our company's Management Committee
at that time. He has been President of Citizens Power since February 1998. He
joined our company in 1997 as Executive Vice President of Citizens Power. Prior
to joining Citizens Power he was a Senior Vice President at Lehman Brothers. At
Lehman Brothers, he specialized in corporate and project finance working with
electric utility companies. Prior to joining Lehman Brothers in 1987, Mr. Maisto
was employed at GE Capital, where he was Director-Utility Finance. Mr. Maisto
holds an MBA from New York University.
Christopher G. Farrand has been Vice President of Corporate Affairs of our
company since June 1992. From April 1991 to June 1992, he served as President of
Peabody Development Company. Between 1981 and 1992 he worked as Vice President
of Government Relations for both Peabody Coal Company and Peabody Holding
Company. Mr. Farrand joined our company as Director of Corporate Planning for
Peabody Coal Company in 1978. Prior to working for Peabody, Mr. Farrand held
several positions in the United States Department of Interior, including Deputy
Under Secretary in 1977 and 1978 and Deputy Assistant Secretary from 1974 to
1976.
Larry H. Fox was named Vice President-Powder River Basin Operations in
June 1998. Prior to that, he was President of Powder River Coal Company since
1989. Mr. Fox previously served as Vice President of Powder River Coal Company
and General Manager of North Antelope Coal Company. Prior to that he also held
several mine operations positions within Peabody, including Mine Superintendent
at the Big Sky mine in Montana and Director of Operations for the Rocky Mountain
Division. He joined our company in 1962. Mr. Fox currently serves as President
of the Wyoming Mining Association and is a member of the Wyoming Coal Operators
Committee.
George J. Holway was appointed to his current position as Vice President
and Chief Financial Officer in June 1998. Prior to that, he had been Vice
President of Corporate Development with responsibilities for our mining business
development and land functions. After first joining our company in 1980, Mr.
Holway served in several financial positions at Peabody Holding Company
including Vice President and Controller from 1990 to 1992. In 1992, he left
Peabody to become Chief Financial Officer of Zeigler Coal Holding Company, a
position he held until he rejoined Peabody in November 1996. Prior to joining
our company in 1980, Mr. Holway was employed by Arthur Andersen & Co. Mr. Holway
is a CPA and holds an MBA from Saint Louis University.
Robert D. Humphris has been Managing Director-Australia and a member of
our company's Management Committee since May 1998. Prior to that, he had been
Managing Director of Peabody Resources since April 1993. He has held management
positions at various mining companies in the United Kingdom and Australia,
including Managing Director of mining operations for Costain Australia Limited,
which was subsequently acquired by Hanson. He was actively involved in Costain's
real estate and construction activities in Australia. Mr. Humphris is Chairman
of the New South Wales Minerals Council and past Chairman of the Australian Coal
Association and the Newcastle Coal Shippers. He is a member of the Coal Industry
Advisory Board of the International Energy Agency and the State Minerals
Advisory Council.
Jeffery L. Klinger was named Vice President of Legal Services and
Secretary in May 1998. Prior to that, he had been Vice President, Secretary and
Chief Legal Officer since October 1990. From 1986 to October 1990, he served as
Eastern Regional Counsel for Peabody Holding Company and from 1982 to 1986 as
Director of Legal and Public Affairs, Eastern Division of Peabody Coal Company
and joined our company as Director of Legal and Public Affairs, Indiana Division
of Peabody Coal Company from 1978 to 1982. He is a past President of the Indiana
Coal Council and is currently a trustee and member of the Executive Committee of
the Eastern Mineral Law Foundation.
Richard A. Navarre was named Vice President of Sales & Marketing in May
1998, and has also been President of Peabody COALSALES Company since January of
1998. He previously served as President of Peabody Energy Solutions, Inc. from
1996 to 1997, he was Vice President of Finance and prior to that served as Vice
President and Controller of Peabody. He joined Peabody in 1993 as Director of
Financial Planning. Prior to joining our company, Mr. Navarre was with KPMG Peat
Marwick. Mr. Navarre is a member of the Trade and International Affairs
Committee and the Transportation Committee of the National Mining Association.
Sharon K. Schergen has been Vice President-Human Resources since 1991 with
executive responsibility for employee development, benefits, compensation,
employee relations and affirmative action programs. She joined our company in
1981 as Manager-Salary Administration and has held a series of employee
relations, compensation, and salaried benefits positions. Prior to joining
Peabody, Ms. Schergen, who earned degrees in social work and psychology and an
MBA, was a personnel representative for Ford Motor Company. Ms. Schergen is a
member of the National Mining Association's Human Resource Committee.
Roger H. Goodspeed became a director in May 1998. He is also a Managing
Director of Lehman Brothers. He joined Lehman Brothers in 1974 and became a
Managing Director in 1984. During his tenure at Lehman Brothers, he has served
in
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management positions for several different groups. In 1994, he became Chairman
of Citizens Lehman Power, an electric power marketing joint venture 50% owned by
Lehman Brothers until the joint venture was sold to The Energy Group in 1997.
Mr. Goodspeed remains a director of the ongoing entity, Citizens Power. Mr.
Goodspeed received an MBA from the University of California, Los Angeles.
Henry E. Lentz became a director in February 1998. He is also a Managing
Director of Lehman Brothers and a principal of the firm's Merchant Banking
Group. Mr. Lentz joined Lehman Brothers in 1971 and became a Managing Director
in 1976. In 1988, Mr. Lentz left Lehman Brothers to serve as Vice Chairman of
Wasserstein Perella Group, Inc. In 1993, he returned to Lehman Brothers as a
Managing Director and, prior to joining the Merchant Banking Group, served as
head of the firm's worldwide energy practice. Mr. Lentz is currently a director
of Rowan Companies, Inc. and Imperial Sugar Company. Mr. Lentz holds an MBA,
with honors, from the Wharton School of the University of Pennsylvania.
Alan H. Washkowitz became a director in May 1998. He is also a Managing
Director of Lehman Brothers and the head of the firm's Merchant Banking Group,
responsible for the oversight of Lehman Brothers Merchant Banking Portfolio
Partnership L.P. Mr. Washkowitz joined Kuhn Loeb & Co. in 1968 and became a
general partner of Lehman Brothers in 1978 when Kuhn Loeb & Co. was acquired.
Prior to joining the Merchant Banking Group, Mr. Washkowitz headed Lehman
Brothers' Financial Restructuring Group. He is currently a director of L-3
Communications Corporation, K&F Industries, Inc. and McBride plc. Mr. Washkowitz
holds an MBA from Harvard University and a JD from Columbia University.
Executive Compensation
The following table sets forth the annual compensation for our chief
executive officer and the four most highly compensated executive officers (the
"Named Executive Officers") other than the chief executive officer for their
services to our company during fiscal 1999 and 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Fiscal Salary Bonus Compensation Award(s) Options/SARs Payments Compensation
Year ($) ($) ($) (#)(1) (#)(2) ($)(3) ($)(4)
------ ------- ---------- ------------ ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Irl F. Engelhardt 1999 681,264 700,000 -- 154,639 499,855 441,240 23,998
Chairman, Chief 1998 550,000 412,500 -- -- -- 42,644 15,754
Executive Officer
and Director
Richard M. Whiting 1999 385,834 400,000 -- 51,546 179,828 168,051 12,238
President, Chief 1998 244,851 182,501 -- -- -- 12,326 7,058
Operating Officer
and Director
W. Howard Carson 1999 312,633 325,000 -- 51,546 179,828 169,716 37,055
Chief Commercial 1998 225,750 130,368 -- -- -- 20,391 6,773
Officer
Roger B. Walcott, Jr. 1999 291,667 350,000 -- -- 179,828 -- 8,374
Executive Vice 1998 -- -- -- -- -- -- --
President
Mark Maisto 1999 282,485 450,000 -- -- 179,828 -- 10,650
President and Chief 1998 208,333 300,000 -- -- -- -- 9,167
Executive Officer
Citizens Power LLC
</TABLE>
(1) Represents number of shares of our Class B common stock granted to
executives as of May 19, 1998.
(2) Represents number of shares of our Class A common stock underlying options
issued as of May 19, 1998.
(3) Represents certain long-term incentive payments earned during the fiscal
year that relate to Predecessor Company compensation plans.
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(4) Annual matching contributions to qualified and non-qualified savings and
investment plans, group term life insurance and relocation benefits for
Mr. Carson in fiscal 1999.
Pension Benefits
Our Salaried Employees Retirement Plan, or pension plan, is a "defined
benefit" plan. The pension plan provides a monthly annuity to salaried employees
when they retire. A salaried employee must have at least five years of service
to be vested in the pension plan. A full benefit is available to a retiree at
age 62. A retiree can begin receiving a benefit as early as age 55; however, a
4% reduction factor applies for each year a retiree receives a benefit prior to
age 62.
An individual's retirement benefit under the pension plan is equal to the
sum of (1) 1.112% of the average monthly earnings over 60 consecutive months up
to the "covered compensation limit" multiplied by the employee's years of
service, not to exceed 35 years, and (2) 1.5% of the average monthly earnings
over 60 consecutive months over the "covered compensation limit" multiplied by
the employee's years of service, not to exceed 35 years.
We announced in February 1999 that the pension plan would be phased out
beginning January 1, 2001. Some transition benefits were introduced based on the
age and/or service of the employee at December 31, 2000: (1) employees age 50 or
older will continue to accrue service at 100%; (2) employees between the ages
of 45 and 49 or with 20 years or more of service will accrue service at the rate
of 50% for each year of service worked after December 31, 2000; and (3)
employees under age 45 with less than 20 years of service will have their
pension benefit frozen. In all cases, final average earnings for retirement plan
purposes will be capped at December 31, 2000 levels.
We have three supplemental retirement plans, which provide pension
benefits to executives whose pay exceeds legislative limits for qualified
pension plans.
The estimated annual benefits payable upon retirement at age 62, the
normal retirement age, for the CEO and named executive officers are as follows:
Irl F. Engelhardt $411,686
Richard M. Whiting 203,861
W. Howard Carson 172,113
Roger B. Walcott, Jr. 12,911
Mr. Maisto is not eligible for the pension plan.
Other Benefit Plans
In addition to the pension plan, we maintain various other benefit plans
covering employees and retirees. We announced in February 1999 that we were
restructuring several of these plans over the next four years. The benefits
associated with the medical plan and savings and long term investment plan will
be most significantly impacted.
The changes to the medical plan include the following as of January 1,
2000: (1) a decrease in employee/retiree contributions; (2) an increase in
medical contributions for dependents; (3) a decrease in medical coverage for
specified expenses; (4) additional medical plan options; and (5) changes to
dependent eligibility rules for retirees. In addition, the medical plan was
restructured so that employees leaving Peabody on or after January 1, 2003 (age
55 or older with ten years of service) will be covered under a medical premium
reimbursement plan instead of the current medical plan.
Effective January 1, 2001, we will increase the company match for the
savings and long-term investment plan, and beginning with fiscal 2000, we will
also add a new performance contribution feature.
Management Incentive Compensation Plans
We have established an incentive compensation plan that provides a bonus
to selected employees based on the participant's base salary, target level, and
the attainment of specified organizational and individual targets. The
organizational targets are a ratio of net debt (long-term debt minus cash)
divided by earnings before interest, income taxes and depreciation, depletion
and amortization expense, or EBITDA.
Employment Agreements
We have entered into employment agreements with Mr. Engelhardt, the
Chairman and Chief Executive Officer, or CEO, and Messrs. Whiting, Carson,
Walcott, Maisto and eight other key executive officers. The CEO's employment
agreement
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provides for an initial term of three years and the other executives' employment
agreements provide for initial terms of two years, each of which extend
thereafter on a day-to-day basis such that the CEO's employment agreement
continually has a three year term and the other executives, subsequent to their
initial one year of employment, continually have a one-year term. Upon a
termination without cause or resignation for good reason, the executive is
entitled to the following benefits during the continuation period, described
below: (1) base salary; (2) bonus actually paid in the year prior to that
termination, except that, instead of that actual bonus amount, the CEO shall
receive an amount equal to 100% of his final base salary in each of the three
years following that termination; (3) a one-time prorated bonus for the year of
termination (based on actual performance multiplied by a fraction, the numerator
of which is the number of business days that executive was employed during the
year of termination and the denominator of which is the total number of business
days during that year); and (4) continuation of qualified and nonqualified
pension, life insurance, medical, hospitalization and other benefits; provided,
however, that we shall not be obligated to provide any benefits under tax
qualified plans which are not permitted by the terms of each of those plans or
by applicable law or could jeopardize the plan's tax status; provided, further,
that any of that coverage shall terminate to the extent that executive is
offered or obtains comparable coverage from any other employer. The
"continuation period" is three years for the CEO and for the other executives,
the balance of the initial two-year term if termination occurs during the first
year of the initial term, or for a period of one year after that. The employment
agreements provide for confidentiality during employment and at all times
thereafter, and include a noncompetition and nonsolicitation agreement that is
effective during the employment term and for one year thereafter.
Equity Agreements
The executives and 20 other employees acquired, in the aggregate,
approximately 3% of our initial fully-diluted equity, issued as Class B common
stock in connection with our acquisition on May 19, 1998. With respect to these
Class B shares, we provided a full recourse loan for the amount of the tax
liability to each executive, and to some of these executives, an additional full
recourse loan for the amount of the value of the stock, with a five-year
principal balloon payment which accelerates to the date which is six months
following any termination of employment or disposition of the stock, with
interest payable throughout the term of the loan at the applicable federal rate.
Stock Option Plan
We adopted the 1998 Stock Purchase and Option Plan for Key Employees,
under which we granted options to some employees to purchase shares of our
common stock. We granted the executives who received Class B common stock and
other employees our options exercisable for common stock to purchase an
aggregate of 7% of our initial fully-diluted equity; 50% of the options were
granted as "time options" in the form of Incentive Stock Options (as defined in
Section 422 of the Internal Revenue Code), to the extent permitted, and 50% of
the options were granted in the form of nonqualified stock options as
"performance options." Time options become exercisable with respect to 20% of
the shares subject to those options on each of the first five anniversaries of
the date of the closing of the transaction if the executive's employment
continues through and including that date, subject to acceleration upon (1)
death, (2) disability (3) a change of control or (4) a recapitalization event.
Performance options become exercisable at the end of nine and one-half years,
whether or not the applicable performance targets are achieved, but become
exercisable earlier with respect to up to 20% of the shares subject to the
performance options, on each of the first five anniversaries of the date of May
19, 1998, to the extent specified performance targets, as determined by the
Board of Directors and based on net debt and EBITDA, are met or exceeded.
Performance options accelerate upon (1) a change of control, (2) a
recapitalization event or (3) an initial public offering. "Change of control,"
for the purposes of this section, means an acquisition of all or substantially
all of our direct and indirect assets by merger, consolidation, recapitalization
event, stock or asset sale or otherwise, whereby immediately following any of
those transactions (1) Lehman Merchant Banking owns less than 8.1 million of our
outstanding voting securities or (2) any person individually owns more of our
then outstanding voting securities entitled to vote generally than Lehman
Merchant Banking. "Recapitalization event" means a recapitalization,
reorganization, stock dividend or other special corporate restructuring which
results in an extraordinary distribution to the stockholders of cash and/or
securities through the use of leveraging or otherwise but which does not result
in a change of control.
We granted these executives performance-based options exercisable for
common stock to purchase an aggregate of 7% of our initial fully-diluted equity.
Options vest upon the earlier of (1) achievement of specified financial
performance targets and the earliest of completion of (x) an initial public
offering, (y) a change of control or (z) a recapitalization event; and (2) nine
and one-half years from the date of grant. Vesting of options accelerate: (1)
upon completion of an initial public offering during our first 36 months
following the closing of our acquisition, at least 2.5% of these options shall
vest and the balance shall vest in accordance with the achievement of specified
financial performance targets; or (2) upon a change of control or a
recapitalization event during the first 36 months following the closing of our
acquisition, at least 5% of these options shall vest.
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The options have an exercise price of $20.00 per share of the Class A
common stock.
The options have a 10-year term; provided, however, that exercisable
non-performance based options expire earlier upon termination of employment as
follows: (1) upon termination for cause or a resignation without good reason,
immediately upon that termination; or (2) upon termination without cause,
resignation for good reason, death, disability or retirement, one year after
termination of employment. Unexercisable options terminate upon termination of
employment, unless acceleration in connection with that termination is
explicitly provided for.
Upon a change of control, the Board of Directors may terminate the
options, so long as the executives are cashed out at the change of control price
or are permitted to exercise their options prior to the change of control,
except as otherwise provided.
Stock options granted to the CEO and the named executive officers during
1999, and the number of exercisable and unexercisable stock options as of March
31, 1999 are as follows:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential realizable value at assumed
annual rates of stock price
Individual grants appreciation for option term
--------------------------------------------- ---------------------------------------
Number of Percent of
securities total options/
underlying SARS granted Exercise or
options/SARs to employees base price Expiration 5% 10%
Name granted (#) in fiscal year ($/Sh) date ($) ($)
- ----------------------- ------------ --------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Irl F. Engelhardt:
Time 110,000 11.8% 20.00 5/19/08 1,383,569 3,506,228
Performance 110,000 11.6% 20.00 5/19/08 1,383,569 3,506,228
Superperformance I 160,000 11.8% 20.00 5/19/08 2,012,464 5,099,968
Superperformance II 119,855 21.6% 20.00 5/19/08 1,507,524 3,820,354
Richard M. Whiting:
Time 39,962 4.3% 20.00 5/19/08 502,638 1,273,781
Performance 39,962 4.2% 20.00 5/19/08 502,638 1,273,781
Superperformance I 59,942 4.4% 20.00 5/19/08 753,944 1,910,639
Superperformance II 39,962 7.2% 20.00 5/19/08 502,638 1,273,781
W. Howard Carson:
Time 39,962 4.3% 20.00 5/19/08 502,638 1,273,781
Performance 39,962 4.2% 20.00 5/19/08 502,638 1,273,781
Superperformance I 59,942 4.4% 20.00 5/19/08 753,944 1,910,639
Superperformance II 39,962 7.2% 20.00 5/19/08 502,638 1,273,781
Roger B. Walcott, Jr.:
Time 39,962 4.3% 20.00 5/19/08 502,638 1,273,781
Performance 39,962 4.2% 20.00 5/19/08 502,638 1,273,781
Superperformance I 59,942 4.4% 20.00 5/19/08 753,944 1,910,639
Superperformance II 39,962 7.2% 20.00 5/19/08 502,638 1,273,781
Mark Maisto:
Time 39,962 4.3% 20.00 5/19/08 502,638 1,273,781
Performance 39,962 4.2% 20.00 5/19/08 502,638 1,273,781
Superperformance I 59,942 4.4% 20.00 5/19/08 753,944 1,910,639
Superperformance II 39,962 7.2% 20.00 5/19/08 502,638 1,273,781
</TABLE>
FY-End Option/SAR Values
Number of securities underlying
unexercised options/SARs at FY-end
----------------------------------
Name Exercisable Unexercisable
- --------------------------- --------------- -------------
Irl F. Engelhardt 44,000 455,855
Richard M. Whiting 15,985 163,843
W. Howard Carson 15,985 163,843
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Roger B. Walcott, Jr. 15,985 163,843
Mark Maisto 15,985 163,843
On May 19, 1999, 20% of the time options and the performance options held by the
Named Executive Officers and the other executives vested.
Stockholders Agreements
We have entered into stockholders agreements with the executives who
received our Class B common stock and will enter into shareholder agreements
with employees who have options to purchase shares of common stock when those
options have vested and are exercised. Those stockholders agreements contain,
among other things, puts/calls, drag-along, tag-along, voting, corporate
governance and registration rights provisions.
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OWNERSHIP OF CAPITAL STOCK
The following table provides information concerning ownership of the
capital stock as of March 31, 1999 relating to: (1) persons who beneficially own
more than 5% of the outstanding shares of capital stock; (2) each person who is
a director of our company; (3) each person who is a Named Executive Officer; and
(4) all directors and executive officers as a group. Our capital stock consists
of our Class A common stock, our Class B common stock and our Non-Convertible,
Exchangeable Preferred Stock. Class B common stock has voting rights and other
attributes similar to Class A common stock (except that Class A common stock
will have a liquidation preference) and will convert to Class A common stock
upon consummation of a change of control, an initial public offering or a
recapitalization event or, in any event, after nine years. Of the $480 million
equity contribution made in connection with our acquisition on May 19, 1998,
$100 million was in the form of preferred stock. The preferred stock bears the
same voting powers, dividend rights and other rights as, and votes as a single
class with, the common stock, except for the following: (1) upon the occurrence
of any merger, consolidation, sale of all or substantially all assets,
liquidation, dissolution or winding up of our company, the holders of the
preferred stock will receive a preferential distribution of available assets
equal to the cost per share before the holders of the common stock receive any
distributions (following which the holders of common stock will receive a
similar preferential distribution of any remaining available assets equal to the
same cost per share, and thereafter the shares of common stock and preferred
stock will receive equal distributions per share of any remaining available
assets); (2) we may, at any time at our discretion, exchange all or part of the
shares of preferred stock for an equal number of shares of common stock; and (3)
we may, at our discretion and only for the first six months after the issuance
of shares of the preferred stock, redeem all or part of the shares of preferred
stock for an amount equal to the cost per share.
<TABLE>
<CAPTION>
Number of Shares Beneficially Owned
--------------------------------------
Class A Class B Percentage
Common Common Preferred of Stock
Name and Address of Beneficial Owner Stock(1) Stock Stock Outstanding
- --------------------------------------------------- ---------- ------- --------- -----------
<S> <C> <C> <C> <C>
Lehman Brothers Merchant Banking Partners II L.P.,
LBI Group Inc. and their affiliated co-investors 16,000,000 5,000,000 83.7%
c/o Lehman Brothers Holdings Inc.
3 World Financial Center, 200 Vesey Street
New York, NY 10285
Co-Investment Partners, L.P. 2,500,000 10.0%
c/o Lexington Partners Inc.
659 Madison Avenue, 23rd Floor
New York, NY 10021
Irl F. Engelhardt 44,000 154,639 0.8%
Richard M. Whiting 15,985 51,546 0.3%
W. Howard Carson 15,985 51,546 0.3%
Roger B. Walcott, Jr. 15,985 51,546 0.3%
Mark Maisto 15,985 51,546 0.3%
All executives and directors as a group (15 people) 171,878 567,008 2.9%
</TABLE>
(1) Totals for named executive officers include options exercisable effective
May 19, 1999.
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THE ACQUISITION
The Acquisition
The statements made under this heading relating to the acquisition are
summaries of the agreements described. While we believe that these summaries
include the material terms of the acquisition, they are qualified in their
entirety by reference to those agreements.
The Purchase Agreement
Our company and The Energy Group entered into the Purchase Agreement dated
March 2, 1998. The purchase agreement provided, among other things, for the
purchase by us from The Energy Group of the "Acquired Companies," consisting of
the equity interests described below. As consideration for those interests, we
paid $2,003.6 million to The Energy Group. Under the purchase agreement, upon
the consummation of the purchase, we acquired: (1) all of the common stock of
Peabody Holding Company, (2) all of the common stock of Gold Fields, (3) all of
the membership interests of Citizens Power, (4) the 1% interests in CL Hartford,
L.L.C., a Delaware limited liability company, and Citizens Power Sales, a
Delaware general partnership (CP Sales), both subsidiaries of Citizens Power,
(5) all of the shares of Darex Capital Inc., a company incorporated in the
Republic of Panama, and (6) all of the ordinary shares of Peabody Australia
Limited, which together with Darex Capital Inc. owns Peabody Resources.
The acquisition was conditioned upon the tender offer by Texas Utilities
to purchase all the outstanding common shares of The Energy Group becoming or
being declared unconditional in all respects (see "The Participation Agreement"
below) and not at that time being publicly opposed by the board of directors of
The Energy Group. For additional information regarding the relationship between
the acquisition and the Texas Utilities offer, as well as among Lehman Merchant
Banking, us and Texas Utilities, see "The Participation Agreement" below. The
acquisition was further conditioned upon satisfaction or waiver of the following
conditions: (1) the consent to the acquisition by the Australian Foreign
Investment Review Board, (2) the issuance of an approval order by the Federal
Energy Regulatory Commission and (3) the absence of any statute, rule,
regulation, court or executive order, decree, or other order of any kind that
would prohibit, restrain or restrict the acquisition. The Australian Foreign
Investment Review Board provided its consent to the acquisition on April 1, 1998
and the Federal Energy Regulatory Commission provided its consent to the
acquisition on April 24, 1998. On May 19, 1998, the Texas Utilities tender offer
was declared unconditional and the acquisition was consummated.
The purchase agreement contained only limited representations from each
party relating to corporate authorization, due execution and lack of conflict
with organizational documents, material agreements and laws. In addition, The
Energy Group has made further representations regarding title to equity
interests in the Acquired Companies and capitalization of the Acquired Companies
and their subsidiaries.
The Participation Agreement
Lehman Merchant Banking and Texas Utilities entered into the Participation
Agreement, dated March 1, 1998, which, among other things, governs the basis on
which Texas Utilities made the tender offer and we agreed to consummate the
acquisition, and also governs the relationship between The Energy Group and the
Acquired Companies and their subsidiaries after the acquisition. Under the terms
of the participation agreement, Lehman Merchant Banking agreed to cause us to
consummate the acquisition upon satisfaction of the purchase conditions
according to the terms of the purchase agreement. In addition, at the closing,
Lehman Merchant Banking caused us to pay a portion of the Citizens Power
Obligations and to assume all outstanding indebtedness of the Acquired Companies
and their subsidiaries, provided that non-recourse debt will remain
non-recourse. Texas Utilities also agreed to cause The Energy Group to provide
credit support for some of Citizens Power's asset restructuring debt in order to
make effective consents to the acquisition by Citizens Power's note holders.
Lehman Merchant Banking and Texas Utilities further agreed that the
purchase price would be adjusted (1) to the extent the total assets less current
liabilities and long-term debt of the Acquired Companies and their subsidiaries
shown on an audited balance sheet as of March 31, 1998 differ from agreed-upon
projections and (2) to the extent of any dividends or distributions from, or
contributions to, the Acquired Companies and their subsidiaries after March 31,
1998 and before the closing. The participation agreement contains a
representation and warranty to Texas Utilities that, for U.S. federal income
taxation purposes, The Energy Group's adjusted tax basis in the shares of
Peabody Holding Company as of January 31, 1998 was equal to the portion of the
purchase price allocated to those shares, up to $1.8 billion. Following the
closing, we caused the rest of the Acquired Companies and their subsidiaries to
assume that warranty.
Texas Utilities agreed not to revise or amend the terms and conditions of
its tender offer in a manner that could reasonably be expected to materially and
adversely affect Lehman Merchant Banking, the Acquired Companies and their
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<PAGE>
subsidiaries, the acquisition or the Financings and not to waive any conditions
of its tender offer without Lehman Merchant Banking's consent where Lehman
Merchant Banking demonstrates that the matter or circumstance giving rise to the
right to invoke the condition arose after the date of the participation
agreement, could reasonably be expected to materially and adversely affect the
Acquired Companies and their subsidiaries or the purchase of the equity of the
Acquired Companies and their subsidiaries (including the financing of that
purchase) and is of material significance in the context of the tender offer.
Texas Utilities has also agreed not to extend its tender offer to an expiration
date beyond four months from the announcement date of the offer.
We will indemnify Texas Utilities and its affiliates and subsidiaries
(including The Energy Group and its subsidiaries) against all past, present and
future claims, suits or liabilities arising from or out of the Acquired
Companies and their subsidiaries, including environmental and employee benefits
claims or liabilities against the former holding companies for the U.S. Peabody
coal business arising from events occurring prior to the closing. Similarly,
Texas Utilities has agreed to indemnify Lehman Merchant Banking, our company and
their affiliates and subsidiaries against all past, present and future claims,
suits or liabilities relating to The Energy Group, except for those relating to
the Acquired Companies and their subsidiaries.
The parties have agreed that the Acquired Companies and their subsidiaries
will not be liable for any U.S., Australian or United Kingdom tax liability
(including its subdivisions) of the portion of The Energy Group purchased by
Texas Utilities, and The Energy Group will similarly not be liable for that tax
liability of the Acquired Companies and their subsidiaries. The parties have
further agreed that Texas Utilities and The Energy Group, on the one hand and
Lehman Merchant Banking, on the other hand, will not be liable to the other for
any tax imposed by any jurisdiction as a result of the allocation of the
purchase price as between the U.S. and Australian tax jurisdictions. In
conjunction with the signing of the participation agreement, the parties also
agreed upon a Tax Allocation Agreement that was entered into among the former
U.S. holding companies for the U.S. Peabody coal business, our company and some
of their affiliates at the closing and, among other things, allocates the tax
liabilities among them on the basis of the taxes that would have been incurred
if they were stand-alone entities.
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RELATED PARTY TRANSACTIONS
Affiliates of Lehman Brothers Holdings Inc.
Lehman Brothers Merchant Banking Partners II L.P. and other affiliates of
Lehman Brothers Holdings Inc. (collectively, the "Lehman Merchant Banking Fund")
own a substantial majority of our outstanding shares of capital stock. Messrs.
Washkowitz, Lentz and Goodspeed, each directors of Peabody, are investors in the
Lehman Merchant Banking Fund and employees of an affiliate of Lehman Brothers
Holdings Inc.
During fiscal year ended March 31, 1999, affiliates of Lehman Brothers
Holdings Inc. received approximately $90 million in cash for advising on the
acquisition of some of our subsidiaries from The Energy Group plc, including
Citizens Power LLC, on May 19, 1998 and arranging the financing for the
acquisition. In addition, during the fiscal year ended March 31, 1999, we have
paid affiliates of Lehman Brothers Holdings Inc. $0.9 million for other
management, consulting and financial services, as well as reimbursements for
expenses. Affiliates of Lehman Brothers Holdings Inc. also received customary
fees from Texas Utilities Company in connection with advising on and arranging
financing for the purchase of The Energy Group plc by Texas Utilities.
On May 19, 1997, The Energy Group plc purchased Citizens Power through us
from Lehman Brothers Holdings Inc. (which owned 50% of Citizens Power), a number
of employees of Citizens Power (who owned 20% of Citizens Power) and some other
parties (collectively, the "Selling Shareholders") for $120 million, which
included (1) an up-front cash payment of $20 million and (2) up to $100 million
of future cash payments (the "Citizens Power Obligation"). The Citizens Power
Obligation was comprised of (1) a payment based upon the net asset value of
Citizens Power as of the date of the sale to The Energy Group plc (subject to
specified adjustments based upon events occurring between the date of sale and
June 30, 1997) up to a maximum of $30 million and (2) net asset value increase
payments for the fiscal years ending on March 31 or 2000, 2001 and 2002, which
combined with the amount of the initial net asset value payment would be no
greater than $100 million. The agreement for the purchase of Citizens Power
included a provision that protected the selling shareholders in the event of
material changes that would adversely affect the ability of Citizens Power to
attain expected net asset value increases, including a change of control. Due to
the change of control of Citizens Power in our acquisition, we agreed to pay the
selling shareholders $72.96 million on May 19, 1998 and $20.0 million plus
interest on April 3, 2000 in full consideration for the Citizens Power
Obligation. Lehman Brothers Holdings Inc. has guaranteed payment of this
obligation. Mr. Goodspeed, who is a director of our company and an employee of
an affiliate of Lehman Brothers Holdings Inc. and Mr. Maisto, a named executive
officer and an employee of Citizens Power, received a portion of the proceeds
received by Lehman Brothers Holdings Inc.
In connection with our acquisition, Lehman Brothers Holdings Inc. agreed
to provide a guarantee facility to trading counterparties of Citizens Power
Sales, the trading subsidiary of Citizens Power LLC, for trades initiated after
the acquisition. The guaranty facility initially was to be available for 364
days after the date of the acquisition. For establishing the guaranty facility,
Lehman Brothers Holdings Inc. was paid a minimum fee of $0.5 million and
reimbursed for the associated legal and out-of-pocket costs. The guaranty
facility was allowed to terminate according to its terms in November 1998 with
respect to all subsequent transactions of Citizens Power Sales.
Other Transactions with Affiliates
Peabody COALSALES, a subsidiary of ours, purchased 0.3 million tons of
coal from Black Beauty for $5.5 million during the fiscal year ended March 31,
1999 and may continue to purchase coal from Black Beauty in the ordinary course
of business. The terms of these transactions are comparable to those negotiated
with independent third parties. Executive officers of Peabody, which is a
general partner of Black Beauty, serve on the partnership committee of Black
Beauty. The members of the Black Beauty partnership committee do not receive a
fee for their services.
Transactions with Management
During the fiscal year ended March 31, 1999, our executive officers, were
granted, or allowed to purchase shares of our capital stock under the 1998 Stock
Purchase and Option Plan for Key Employees. In connection with these grants and
sales, we, affiliates of Lehman Brothers Holdings Inc. and the executives who
received our Class B common stock entered into a stockholders agreement
providing for piggy-back registration rights and drag-along and tag-along rights
with respect to specified sales of our capital stock by affiliates of Lehman
Brothers Holdings Inc.
In conjunction with the grant or sale of our capital stock, the executive
officers executed term notes as of December 31, 1998. The term notes for
executive officers receiving grants of capital stock are generally due on March
31, 2003 and bear annual interest at an applicable U.S. federal rate utilized by
the Internal Revenue Service for loans to employees. The term
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<PAGE>
notes for executive officers who purchased capital stock are payable in equal
amounts on March 31 of 1999 through 2003 and have a 5% annual interest rate.
Either form of promissory note will accelerate upon the occurrence of specified
events.
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<PAGE>
The following table indicates the amounts due under the term notes for our
executive officers with aggregate indebtedness in excess of $60,000 during the
fiscal year ended March 31, 1999:
Largest Aggregate Indebtedness Outstanding
During Fiscal Indebtedness
Name Year Ended March 31, 1999 at March 31, 1999
- ----------------------- ------------------------------ -----------------
Irl F. Engelhardt $371,415 $371,415
Richard M. Whiting 122,695 122,695
W. Howard Carson 120,104 120,104
Roger B. Walcott, Jr. 369,563 369,563
Mark Maisto 369,563 369,563
Christopher G. Farrand 61,255 61,255
Larry H. Fox 54,500 54,500
George J. Holway 92,021 92,021
Jeffery L. Klinger 61,902 61,902
Richard A. Navarre 91,466 91,466
Sharon K. Schergen 61,532 61,532
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<PAGE>
DESCRIPTION OF THE SENIOR NOTES
The following is a summary of the material terms of the senior notes and
is qualified in its entirety by reference to the indenture (the "senior notes
indenture") between our company and State Street Bank and Trust Company, as
trustee (the "senior notes trustee").
General
The senior notes were issued under the senior note indenture. The terms of
the senior notes include those stated in the senior note indenture and those
made part of the senior note indenture by reference to the Trust Indenture Act
of 1939. The senior notes are subject to all of those terms, and holders of
senior notes are referred to the senior note indenture and the Trust Indenture
Act. The following summary of the material provisions of the senior note
indenture does not purport to be complete and is qualified in its entirety by
reference to the senior note indenture, including the definitions of a number of
terms used below. Copies of the senior note indenture are available as described
below under "Available Information." The definitions of certain terms used in
the following summary are described below under "--Definitions." For purposes of
this summary, the term "our company" refers only to P&L Coal Holdings
Corporation and not to any of its Subsidiaries.
On May 18, 1998, our company issued $400.0 million aggregate principal
amount of senior notes under the senior note indenture. The senior notes are
general unsecured obligations of our company and rank equally in right of
payment with all current and future senior Indebtedness of our company,
including the Senior Credit Facilities. However, our company and its Restricted
Subsidiaries are parties to Senior Credit Facilities and all borrowings
thereunder are secured by a first priority Lien on certain of the assets of our
company and its Restricted Subsidiaries. As a result, the senior notes are
effectively subordinated to the Senior Credit Facilities to the extent of such
collateral. As of March 31, 1999, $840.0 million was outstanding under the
Senior Credit Facilities. The senior note indenture permits substantial
additional borrowings under the Senior Credit Facilities in the future. See
"Risk Factors--Risks Relating to the Notes--Ranking--Your Right to Receive
Payments on the Senior Subordinated Notes is Subordinate to that of Holders of
our Senior Debt."
The operations of our company are conducted through its Subsidiaries and,
therefore, our company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the senior notes. The
senior notes are effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
our company's Subsidiaries. Any right of our company to receive assets of any of
its Subsidiaries upon liquidation or reorganization, and the consequent right of
the holders of the senior notes to participate in those assets, will be
effectively subordinated to the claims of that Subsidiary's creditors, except to
the extent that our company is itself recognized as a creditor of such
Subsidiary, in which case the claims of our company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by our company. As of March 31, 1999, our
company's Subsidiaries had approximately $4,538.7 million of Indebtedness
(including trade payables, land reclamation and environmental liabilities,
workers' compensation liabilities and retiree health care liabilities). See
"Risk Factors--Risks Relating to the Notes--Our Obligations Are Effectively
Subordinated to the Obligations of our Subsidiaries."
All of our company's Subsidiaries other than Citizens Power and its
Subsidiaries are Restricted Subsidiaries. However, under certain circumstances,
our company will be able to designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants contained in the senior note indenture.
Principal, Maturity and Interest
The senior notes are limited in aggregate principal amount to $550.0
million, of which $400.0 million was issued on May 18, 1998, and will mature on
May 15, 2008. Interest on the senior notes accrues at the rate of 8 7/8% per
year and is payable semi-annually in arrears on May 15 and November 15 to
holders of record on the immediately preceding May 1 and November 1. Additional
senior notes may be issued from time to time, subject to the provisions of the
senior note indenture described below under the caption "--Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock." Interest on the senior notes
accrues from the most recent date to which interest has been paid. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages, if any, on the
senior notes are payable at the office or agency of our company maintained for
such purpose within the City and State of New York or, at the option of our
company, payment of interest and liquidated damages, if any, may be made by
check mailed to the holders of the senior notes at their respective addresses
listed in the register of holders of senior notes; provided that all payments of
principal, premium, interest and Liquidated Damages, if any, with respect to
senior notes the holders of which have given wire transfer instructions to our
company are required to be made by wire transfer of immediately available funds
to the accounts specified by the holders thereof. Until otherwise designated by
our company, our
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<PAGE>
company's office or agency in New York will be the office of the senior note
trustee maintained for such purpose. The senior notes were issued in
denominations of $1,000 and integral multiples thereof.
Senior Note Guarantees
Our company's payment obligations under the senior notes are fully and
unconditionally, and jointly and severally, guaranteed by the senior note
guarantors. The obligations of each senior note guarantor under its senior note
guarantee will be limited to the maximum amount that would not constitute a
fraudulent conveyance under applicable law. See "Risk Factors--Risks Relating to
the Notes--Your Rights Under the Notes Could Be Limited By Fraudulent Conveyance
Laws." Notwithstanding the foregoing, no Subsidiary of our company will be
required to endorse a senior note guarantee unless such Subsidiary is required
to, and does, simultaneously execute a guarantee of the Senior Credit
Facilities.
As of June 30, 1999, the senior note guarantors were: Affinity Mining
Company, Arid Operations Inc., Big Sky Coal Company, Blackrock First Capital
Corporation, Bluegrass Coal Company, Caballo Coal Company, Charles Coal Company,
Coal Properties Corp., Colony Bay Coal Company, Cook Mountain Coal Company,
Cottonwood Land Company, Darius Gold Mine, Inc., EACC Camps, Inc., Eastern
Associated Coal Corp., Eastern Royalty Corp., Gallo Finance Company, Gold Fields
Chile, S.A., Gold Fields Mining Corporation , Gold Fields Operating Co.--Oritz,
Grand Eagle Mining, Inc., Hayden Gulch Terminal, Inc., Highland Mining Co.,
Independence Material Handling Company, Interior Holdings Corp., James River
Coal Terminal Company, Juniper Coal Company, Kayenta Mobile Home Park, Inc.,
Martinka Coal Company, Midco Supply and Equipment Corporation, Mountain View
Coal Company, North Page Coal Corp., Ohio County Coal Company, Patriot Coal
Company L.P., Peabody America, Inc., Peabody COALSALES Company, Peabody
COALTRADE, Inc., Peabody Coal Company, Peabody Development Company, Peabody
Energy Solutions, Inc., Peabody Holding Company, Inc., Peabody Natural Resources
Company, Peabody Southwestern Coal Company, Peabody Terminals, Inc., Peabody
Venezuela Coal Corp., Peabody Western Coal Company, Pine Ridge Coal Company,
Power River Coal Company, Rio Escondido Coal Corp., Seneca Coal Company, Sentry
Mining Company, Snowberry Land Company, Sterling Smokeless Coal Company, and
Thoroughbred, L.L.C.
The senior notes are not guaranteed by certain of our company's Domestic
Subsidiaries or by any Foreign Subsidiaries of our company. For the fiscal year
ended March 31, 1999, the Non-Guarantor Subsidiaries accounted for 12% and 24%
of revenues and EBITDA, respectively, and, as of March 31, 1999, the
Non-Guarantor Subsidiaries accounted for 29% of assets. The claims of creditors
(including trade creditors) of any Non-Guarantor Subsidiary will generally have
priority as to the assets of such Subsidiaries over the claims of the holders of
the senior notes. As of March 31, 1999, the amount of liabilities of such
Non-Guarantor Subsidiaries was approximately $1,471.3 million.
The senior note indenture provides that no senior note guarantor may
consolidate with or merge with or into (whether or not such senior note
guarantor is the surviving Person), another corporation, Person or entity
whether or not affiliated with such senior note guarantor unless (1) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such senior note guarantor) assumes
all the obligations of such senior note guarantor under a supplemental indenture
in form and substance reasonably satisfactory to the senior note trustee, under
the senior notes, the senior note indenture and the Senior Registration Rights
Agreement; (2) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (3) our company would be permitted by virtue of
our company's pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
under the Fixed Charge Coverage Ratio test contained in the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
The senior note indenture provides that in the event of (a) a sale or
other disposition of all of the assets of any senior note guarantor, by way of
merger, consolidation or otherwise, (b) a sale or other disposition of all of
the capital stock of any senior note guarantor or (c) the designation of a
senior note guarantor as an Unrestricted Subsidiary in accordance with the terms
of the senior note indenture, then such senior note guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or otherwise,
of all of the capital stock of such senior note guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of such senior note guarantor) will be released and relieved of any
obligations under its senior note guarantee; provided that the Net Proceeds of
any such sale or other disposition are applied in accordance with the applicable
provisions of the senior note indenture and any such designation of a senior
note guarantor as an Unrestricted Subsidiary complies with all applicable
covenants. See "--Repurchase at the Option of Holders--Asset Sales."
"Senior note guarantors" means each of (i) our company's Domestic
Subsidiaries at the date of the closing of the Acquisition, other than Citizens
Power and the Subsidiaries of Citizens Power at the date of the senior note
indenture and (ii) any other subsidiary that executes a subordinated note
guarantee in accordance with the provisions of the senior note indenture, and
their respective successors and assigns.
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Optional Redemption
The senior notes are subject to redemption at any time at the option of
our company, in whole or in part, upon not less than 30 nor more than 60 days'
notice.
Prior to May 15, 2003, the senior notes will be redeemable at a redemption
price equal to 100% of the principal amount thereof plus the applicable Senior
Notes Make Whole Premium, plus, to the extent not included in the Senior Notes
Make Whole Premium, accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption. For purposes of the foregoing, "Senior Notes Make
Whole Premium" means, with respect to a senior note, an amount equal to the
greater of (a) 104.438% of the outstanding principal amount of such senior note
and (b) the excess of (1) the present value of the remaining interest, premium,
if any, and principal payments due on such senior note as if such senior note
were redeemed on May 15, 2003, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (2) the outstanding principal amount of
such senior note.
On or after May 15, 2003, the senior notes are redeemable at the
redemption prices (expressed as percentages of principal amount) provided below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on May 15 of the years indicated below:
Year Percentage
---- ----------
2003 104.438%
2004 102.958%
2005 101.479%
2006 and thereafter 100.000%
Notwithstanding the foregoing, during the first 36 months after the date
of the closing of the Acquisition, our company may on any one or more occasions
redeem up to 35% of the aggregate principal amount of senior notes issued under
the senior note indenture at a redemption price of 108.875% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the redemption date, with the net cash proceeds of one or more Equity
Offerings; provided that at least 65% of the aggregate principal amount of
senior notes issued remain outstanding immediately after the occurrence of such
redemption (excluding senior notes held by our company and its Subsidiaries);
and provided, further, that such redemption shall occur within 120 days of the
date of the closing of such Equity Offering.
Selection and Notice
If less than all of the senior notes are to be redeemed or purchased in an
offer to purchase at any time, selection of senior notes for redemption or
purchase will be made by the senior note trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
senior notes are listed, or, if the senior notes are not so listed, on a pro
rata basis, by lot or by such method as the senior note trustee shall deem fair
and appropriate; provided that no senior notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
senior notes to be redeemed at its registered address. Notices of redemption may
not be conditional. If any senior note is to be redeemed in part only, the
notice of redemption that relates to such senior note shall state the portion of
the principal amount thereof to be redeemed. A new senior note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original senior note. Senior notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on senior notes or portions of
them called for redemption.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of senior notes
will have the right to require our company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's senior notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, our company will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase senior notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice
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is mailed (the "Change of Control Payment Date"), under the procedures required
by the senior note indenture and described in such notice. Our company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the senior notes
as a result of a Change of Control.
On the Change of Control Payment Date, our company will, to the extent
lawful, (1) accept for payment all senior notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all senior
notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the senior note trustee the senior notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of senior notes or
portions thereof being purchased by our company. The Paying Agent will promptly
mail to each holder of senior notes so tendered the Change of Control Payment
for such senior notes, and the senior note trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each holder a new senior
note equal in principal amount to any unpurchased portion of the senior notes
surrendered, if any; provided that each such new senior note will be in a
principal amount of $1,000 or an integral multiple thereof. The senior note
indenture will provide that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, our
company will either repay all outstanding Senior Debt other than the senior
notes or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt other than the senior notes to permit the repurchase of
senior notes required by this covenant. The company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the senior note indenture are applicable.
Except as described above with respect to a Change of Control, the senior note
indenture does not contain provisions that permit the holders of the senior
notes to require that our company repurchase or redeem the senior notes in the
event of a takeover, recapitalization or similar transaction.
Our company's other senior indebtedness contains prohibitions on certain
events that would constitute a Change of Control. In addition, the exercise by
the holders of senior notes of their right to require our company to repurchase
the senior notes could cause a default under such other senior indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchases on our company. Finally, our company's ability to pay cash to
the holders of senior notes upon a repurchase may be limited by our company's
then existing financial resources. See "Risk Factors--Risks Relating to the
Notes--Our Ability to Offer to Purchase Your Notes in the Event of a Change of
Control may be Limited."
The Senior Credit Facilities currently prohibit our company from
purchasing any senior notes or senior subordinated notes, and also provide that
certain change of control events with respect to our company would constitute a
default thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which our company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when our company is prohibited from purchasing senior notes, our company could
seek the consent of its lenders to the purchase of senior notes or could attempt
to refinance the borrowings that contain such prohibition. If our company does
not obtain such a consent or repay such borrowings, our company will remain
prohibited from purchasing senior notes. In such case, our company's failure to
purchase tendered senior notes would constitute an Event of Default under the
senior note indenture which would, in turn, constitute a default under the
Senior Credit Facilities.
Our company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements contained
in the senior note indenture applicable to a Change of Control Offer made by our
company and purchases all senior notes validly tendered and not withdrawn under
such Change of Control Offer or if our company exercises its option to purchase
the senior notes.
"Change of Control" means the occurrence of any of the following: (1) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of our company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Principal or a Related Party of a Principal (as
defined below), (2) the adoption of a plan relating to the liquidation or
dissolution of our company, (3) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of our company (measured by voting power rather than
number of shares) or (4) the first day on which a majority of the members of the
Board of Directors of our company are not Continuing Directors.
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The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of our company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of senior notes to
require our company to repurchase such senior notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of our company and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of our company who (1) was a member of such Board of
Directors on the date of the closing of the Acquisition or (2) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means Lehman Brothers Merchant Banking Partners II L.P., any
of its respective Affiliates and executive officers of our company as of the
date of the closing of the Acquisition.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
Asset Sales
The senior note indenture provides that our company will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(1) our company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value as determined in good faith by our company (evidenced by a resolution of
the Board of Directors contained in an Officers' Certificate delivered to the
senior note trustee with respect to any Asset Sale determined to have a value
greater that $25.0 million) of the assets or Equity Interests issued or sold or
otherwise disposed of and (2) at least 75% of the consideration therefor
received by our company or such Subsidiary is in the form of cash, Cash
Equivalents or Marketable Securities; provided that the following amounts shall
be deemed to be cash: (w) any liabilities (as shown on our company's or such
Restricted Subsidiary's most recent balance sheet), of our company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the senior notes or any guarantee thereof)
that are assumed by the transferee of any such assets under a customary novation
agreement that releases our company or such Restricted Subsidiary from further
liability, (x) any securities, notes or other obligations received by our
company or any such Restricted Subsidiary from such transferee that are
converted by our company or such Restricted Subsidiary into cash within 180 days
following the closing of such Asset Sale (to the extent of the cash received),
(y) any Designated Noncash Consideration received by our company or any of its
Restricted Subsidiaries in such Asset Sale; provided that the aggregate fair
market value (as determined above) of such Designated Noncash Consideration,
taken together with the fair market value at the time of receipt of all other
Designated Noncash Consideration received pursuant to this clause (y) less the
amount of Net Proceeds previously realized in cash from prior Designated Noncash
Consideration is less than 5% of Total Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value) and (z) Additional Assets received
in an exchange of assets transaction.
Within 360 days after the receipt of any cash Net Proceeds from an Asset
Sale, our company or such Restricted Subsidiary, at its option, may apply such
cash Net Proceeds, at its option, (a) to repay Indebtedness of our company or
any Restricted Subsidiary that is not subordinated in right of payment to
Indebtedness under a Credit Facility, (b) to the Acquisition of a majority of
the assets of, or a majority of the Voting Stock of, another Permitted Business,
the making of a capital expenditure or the Acquisition of other assets or
Investments that are used or useful in a Permitted Business or (c) to apply the
cash Net Proceeds from such Asset Sale to an Investment in Additional Assets.
Any cash Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0
million, our company will be required to make an offer to all holders of senior
notes and all holders of other Indebtedness that ranks equally with the senior
notes containing provisions similar to those contained in the senior note
indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets (an "Asset Sale Offer") to purchase the maximum principal amount
of senior notes and such other Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase, in accordance with the procedures
contained in the senior note indenture and such other Indebtedness. To the
extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, our company may use such Excess Proceeds for any
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purpose not otherwise prohibited by the senior note indenture. If the aggregate
principal amount of senior notes and such other Indebtedness tendered into such
Asset Sale Offer surrendered by holders thereof exceeds the amount of Excess
Proceeds, the senior note trustee shall select the senior notes and such other
Indebtedness to be purchased on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds shall be reset at zero.
Covenants
Restricted Payments
The senior note indenture provides that our company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly: (1)
declare or pay any dividend or make any other payment or distribution on account
of our company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving our company or any of its Restricted Subsidiaries) or to
the direct or indirect holders of our company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
our company); (2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving our company) any Equity Interests of our company or any direct or
indirect parent of our company; (3) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the senior notes or any senior note
guarantee, except a payment of interest or principal at Stated Maturity or
Indebtedness permitted under clause (8) of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock;" or (4) make any
Restricted Investment (all such payments and other actions contained in clauses
(1) through (4) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) our company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness under
the Fixed Charge Coverage Ratio test described in the first paragraph of
the covenant described below under caption "Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by our company and its Subsidiaries
after the date of the closing of the Acquisition (excluding Restricted
Payments permitted by clauses (2), (3), (4), (5), (9), (10) and (12) of
the next succeeding paragraph), is less than the sum, without duplication,
of (1) 50% of the Consolidated Net Income of our company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the closing of the Acquisition to the
end of our company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (2) 100% of the aggregate net cash proceeds or
the fair market value of property other than cash received by our company
since the date of the closing of the Acquisition as a contribution to its
common equity capital or from the issue or sale of Equity Interests of our
company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of our company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
our company), plus (3) to the extent that either any Existing Citizens
Power Investment or any Restricted Investment that reduced the amount
available for Restricted Payments under this clause (c) is sold for cash
or otherwise liquidated or repaid for cash or any dividend or payment is
received by our company or a Restricted Subsidiary after the date of the
closing of the Acquisition in respect of such Investment, 100% of the
amount of Net Proceeds or dividends or payments (including the fair market
value of property) received in connection therewith, up to the amount of
the Existing Citizens Power Investment on the date of the closing of the
Acquisition or the Restricted Investment that reduced this clause (c), as
the case may be, and thereafter 50% of the amount of Net Proceeds or
dividends or payments (including the fair market value of property)
received in connection therewith (except that the amount of dividends or
payments received in respect of payments of Obligations in respect of such
Investments, such as taxes, shall not increase the amounts under this
clause (c)), plus (4) to the extent that any Unrestricted Subsidiary of
our company is redesignated as a Restricted Subsidiary after the date of
the closing of the Acquisition, 100% of the fair market value of our
company's Investment in such Subsidiary as of the date of such
redesignation up to the amount of the Restricted Investments made in such
Subsidiary that reduced this clause (c) and 50% of the excess of the fair
market value of our company's Investment in such Subsidiary as of the date
of such redesignation over (i) the amount of the Restricted Investment
that reduced this clause (c) and (ii) any amounts that increased the
amount available as a Permitted Investment; provided, further, that if
Citizens Power or any of its
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Subsidiaries is designated as a Restricted Subsidiary, the amount of the
fair market value of the Investment therein on the date of the senior note
indenture shall also be credited to this clause (c); provided, further,
that any amounts that increase this clause (c) shall not duplicatively
increase amounts available as Permitted Investments.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the senior note indenture;
(2) the redemption, repurchase, retirement, defeasance or other
Acquisition of any subordinated Indebtedness or Equity Interests of our
company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of
our company) of, other Equity Interests of our company (other than any
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other Acquisition shall be excluded from clause
(c)(2) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other Acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) dividends or distributions by a Restricted Subsidiary of our
company so long as, in the case of any dividend or distribution payable on
or in respect of any class or series of securities issued by a Restricted
Subsidiary, our company or a Restricted Subsidiary receives at least its
pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities;
(5) Investments in Unrestricted Subsidiaries having an aggregate
fair market value not to exceed the amount, at the time of such
Investment, substantially concurrently contributed in cash or Cash
Equivalents to the common equity capital of our company after the date of
the closing of the Acquisition; provided that any such amount contributed
shall be excluded from the calculation made pursuant to clause (c) above;
(6) the payment of dividends on our company's common stock,
following the first public offering of our company's common stock after
the date of the closing of the Acquisition, of up to 6% per annum of the
net proceeds received by our company in such public offering, other than
public offerings with respect to our company's common stock registered on
Form S-8;
(7) the repurchase, redemption or other Acquisition or retirement
for value of any Equity Interests of our company or any Restricted
Subsidiary of our company held by any present or former employee or
director of our company (or any of its Restricted Subsidiaries) under any
management equity subscription agreement or stock option agreement or any
other management or employee benefit plan in effect as of the date of the
closing of the Acquisition; provided that (A) the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $2.0 million in any twelve-month period (with unused amounts in
any calendar year being carried over to succeeding calendar years subject
to a maximum (without giving effect to the following proviso) of $5.0
million in any calendar year); provided further that such amount in any
calendar year may be increased by an amount not to exceed (x) the cash
proceeds from the sale of Equity Interests of our company or a Restricted
Subsidiary to members of management and directors of our company and its
Subsidiaries that occurs after the date of the closing of the Acquisition,
plus (y) the cash proceeds of key-man life insurance policies received by
our company and its Restricted Subsidiaries after the date of the closing
of the Acquisition, less (z) the amount of any Restricted Payments
previously made pursuant to clauses (x) and (y) of this subparagraph (7);
and, provided further, that cancellation of Indebtedness owing to our
company from members of management of our company or any of its Restricted
Subsidiaries in connection with a repurchase of Equity Interests of our
company or a Restricted Subsidiary will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other provision of
the senior note indenture and (B) no Default or Event of Default shall
have occurred and be continuing immediately after such transaction;
(8) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(9) the repurchase, redemption or other Acquisition or retirement
for value of the senior subordinated notes under the provisions described
under the caption "Description of the Senior Subordinated Notes--Optional
Redemption;" provided that the amount of any Equity Offering used to
effect such a repurchase, redemption or other Acquisition or retirement
for value shall be excluded from the calculation made pursuant to clause
(c) above;
(10) the repurchase, redemption or other Acquisition or retirement
for value of the senior subordinated notes under the provisions described
under the caption "Description of the Senior Subordinated
Notes--Repurchase at the Option of
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Holders--Change of Control" and "Description of the Senior Subordinated
Notes--Repurchase at the Option of Holders--Asset Sales;" provided that,
as of the date of such repurchase, redemption or other Acquisition or
retirement for value, no Default or Event of Default shall have occurred
and be continuing or, with the passage of time, would occur as a
consequence thereof;
(11) the repurchase, redemption or other Acquisition or retirement
for value of the senior subordinated notes under the provisions described
under the caption "Description of the Senior Subordinated Notes--Escrow of
Proceeds; Special Mandatory Redemption of Senior Subordinated Notes;"
provided that the amount of any such repurchase, redemption, Acquisition
or retirement shall be excluded from the calculation made pursuant to
clause (c) above; and
(12) other Restricted Payments not otherwise prohibited by this
covenant in an aggregate amount not to exceed $25.0 million under this
clause (12).
All of our company's Subsidiaries other than Citizens Power and its
Subsidiaries are Restricted Subsidiaries. The Board of Directors may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such determination, all
outstanding Investments by our company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements in the definition of "Unrestricted Subsidiary" as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the senior note indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of our company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," our company shall be in default of such
covenant). The Board of Directors of our company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of our company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (2) no Default or Event of Default would be in existence
following such designation.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by our company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any noncash Restricted Payment or any adjustment made pursuant
to paragraph (c) of this covenant shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the senior note
trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $25.0 million. Not later than the date of making any
Restricted Payment, our company shall deliver to the senior note trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
If any Restricted Investment is sold or otherwise liquidated or repaid or
any dividend or payment is received by our company or a Restricted Subsidiary
and such amounts may be credited to clause (c) above, then such amounts will be
credited only to the extent of amounts not otherwise included in Consolidated
Net Income and that do not otherwise increase the amount available as a
Permitted Investment.
Incurrence of Indebtedness and Issuance of Preferred Stock
The senior note indenture provides that our company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that our company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that our company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and
our company's Restricted Subsidiaries may incur Indebtedness or issue
Disqualified Stock or preferred stock if the Fixed Charge Coverage Ratio for our
company's most recently ended four full fiscal quarters for which internal
financial statements are available
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immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.0 to 1.0, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by our company of term Indebtedness under Credit
Facilities (and the guarantee thereof by the senior note guarantors);
provided that the aggregate principal amount of all term Indebtedness
outstanding under this clause (1) after giving effect to such incurrence
does not exceed an amount equal to $920.0 million;
(2) the incurrence by our company of revolving credit Indebtedness
and letters of credit (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of our company
and its Restricted Subsidiaries thereunder) under Credit Facilities (and
the guarantee thereof by the senior note guarantors); provided that the
aggregate principal amount of all revolving credit Indebtedness
outstanding under this clause (ii) after giving effect to such incurrence
does not exceed an amount equal to $480.0 million;
(3) the incurrence by our company and its Restricted Subsidiaries of
the Existing Indebtedness;
(4) the incurrence by our company, the senior note guarantors and
the senior subordinated note guarantors of Indebtedness represented by the
senior notes, the senior subordinated notes, the senior note guarantees
and the senior subordinated guarantees limited in aggregate principal
amount, without duplication, to amounts outstanding under the senior note
indenture and the senior subordinated note indenture as of their
respective dates;
(5) (A) the guarantee by our company or any of the senior note
guarantors of Indebtedness of our company or a Restricted Subsidiary of
our company or (B) the incurrence of Indebtedness of a Restricted
Subsidiary to the extent that such Indebtedness is supported by a letter
of credit, in each case that was permitted to be incurred by another
provision of this covenant;
(6) the incurrence by our company or any of its Restricted
Subsidiaries of Indebtedness (including Capital Lease Obligations) to
finance the Acquisition (including by direct purchase, by lease or
indirectly by the Acquisition of the capital stock of a Person that
becomes a Restricted Subsidiary as a result of such Acquisition) or
improvement of property (real or personal) in an aggregate principal
amount which, when aggregated with the principal amount of all other
Indebtedness then outstanding pursuant to this clause (6) and including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (6), does not
exceed an amount equal to 5% of Total Assets at the time of such
incurrence;
(7) the incurrence by our company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted by
the senior note indenture to be incurred under the first paragraph hereof
or clauses (3), (4) or (7) of this paragraph;
(8) the incurrence by our company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among our company and
any of its Restricted Subsidiaries; provided, however, that (1) if our
company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the senior subordinated notes and (2)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than our company or a
Restricted Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either our company or a
Restricted Subsidiary thereof shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by our company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (8);
(9) the incurrence by our company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred in the ordinary
course of business for the purpose of risk management and not for the
purpose of speculation;
(10) the incurrence by our company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of our company that was not permitted by this clause (10), and
the issuance of preferred stock by Unrestricted Subsidiaries;
(11) the incurrence of Indebtedness solely in respect of
performance, surety and similar bonds or completion or performance
guarantees (including, without limitation, performance guarantees under
coal supply agreements or
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equipment leases), to the extent that such incurrence does not result in
the incurrence of any obligation for the payment of borrowed money to
others;
(12) the incurrence of Indebtedness arising from agreements of our
company or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary; provided, however that (1) such Indebtedness is
not reflected on the balance sheet of our company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(1)) and (2) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by our company and its Restricted Subsidiaries in
connection with such disposition;
(13) the guarantee by our company or any of the senior note
guarantors of additional Indebtedness relating to Black Beauty Coal
Company not to exceed $50.0 million in aggregate principal amount
outstanding at any one time under this clause (13);
(14) the incurrence of Indebtedness relating to the Bengalla Joint
Venture or the Warkworth Associates Joint Venture in an aggregate amount
not to exceed $100.0 million in aggregate principal amount outstanding at
any one time under this clause (14); and
(15) the incurrence by our company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (15), not to
exceed $250.0 million.
The senior note indenture also provides that our company will not incur,
and will not permit its Restricted Subsidiaries to incur, any Indebtedness
(including Permitted Debt) that is contractually subordinated in right of
payment to any other Indebtedness of our company or such Restricted Subsidiary
unless such Indebtedness is also contractually subordinated in right of payment
to the senior notes, or the senior note guarantees, as the case may be, on
substantially identical terms; provided, however, that no Indebtedness of our
company or any Restricted Subsidiary shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of our company or any
Restricted Subsidiary solely by virtue of being unsecured.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, our
company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to
be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; provided, in each such case, that the amount thereof
is included in Fixed Charges of our company as accrued.
Liens
The senior note indenture provides that our company will not and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or otherwise cause or suffer to exist or become effective any Lien
of any kind (other than Permitted Liens) upon any of their property or assets,
now owned or hereafter acquired, unless all payments due under the senior note
indenture and the senior notes are secured on an equal and ratable basis with
the obligations so secured until such time as such obligations are no longer
secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The senior note indenture provides that our company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary that is not a senior
note guarantor to (1)(a) pay dividends or make any other distributions to our
company or any of its Restricted Subsidiaries (i) on its capital stock or (ii)
with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to our company or any of its
Restricted Subsidiaries, (2) make loans or advances to our company or any of its
Restricted Subsidiaries or (3) transfer any of its properties or assets to our
company or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of the closing of
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the Acquisition, (b) the Senior Credit Facilities as in effect as of the date of
the closing of the Acquisition, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facilities as in effect
on the date of the closing of the Acquisition, (c) the senior note indenture,
the senior subordinated note indenture, the senior notes and the senior
subordinated notes, (d) applicable law or any applicable rule, regulation or
order, (e) any instrument governing Indebtedness or capital stock of a Person
acquired by our company or any of its Restricted Subsidiaries as in effect at
the time of such Acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such Acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the senior note indenture to be
incurred, (f) customary non-assignment provisions in leases and other agreements
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(3) above on the property so acquired, (h) any agreement for the sale of a
Restricted Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale, (i) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (j) secured
Indebtedness otherwise permitted to be incurred under the provisions of the
covenant described above under the caption "--Liens" that limits the right of
the debtor to dispose of the assets securing such Indebtedness, (k) provisions
with respect to the disposition or distribution of assets or property in joint
venture agreements and other similar agreements entered into in the ordinary
course of business, (l) restrictions on cash or other deposits or net worth
imposed by customers or lessors under contracts or leases entered into in the
ordinary course of business and (m) any encumbrances or restrictions imposed by
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (a) through (l) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of our
company's Board of Directors, not materially more restrictive in the aggregate
with respect to such dividend and other payment restrictions than those
(considered as a whole) contained in the dividend or other payment restrictions
prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
Merger, Consolidation, or Sale of Assets
The senior note indenture provides that our company may not consolidate or
merge with or into (whether or not our company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (1) our company is
the surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than our company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (2) the entity or Person formed
by or surviving any such consolidation or merger (if other than our company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of our
company under the Senior Registration Rights Agreement, the senior notes and the
senior note indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the senior note trustee; (3) immediately after such transaction
no Default or Event of Default exists; and (4) except in the case of a merger of
our company with or into a Wholly Owned Restricted Subsidiary of our company,
immediately after giving pro forma effect to such transaction, as if such
transaction had occurred at the beginning of the applicable four-quarter period,
(A) the entity surviving such consolidation or merger would be permitted to
incur at least $1.00 of additional Indebtedness under the Fixed Charge Coverage
Ratio test contained in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"
or (B) the Fixed Charge Coverage Ratio for our company or the entity or Person
formed by or surviving any such consolidation or merger (if other than our
company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made would, immediately after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, not be less than such Fixed Charge Coverage
Ratio for our company and its Restricted Subsidiaries immediately prior to such
transaction. The senior note indenture also provides that our company may not,
directly or indirectly, lease all or substantially all of its properties or
assets, in one or more related transactions, to any other Person. The provisions
of this covenant will not be applicable to a sale, assignment, transfer,
conveyance or other disposition of assets between or among our company and its
Restricted Subsidiaries.
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Notwithstanding the foregoing clause (4), (1) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to our company and (2) our company may merge with an Affiliate that has
no significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of our company in another State of the
United States or the form of organization of our company so long as the amount
of Indebtedness of our company and its Restricted Subsidiaries is not increased
thereby and provided that the successor assumes all the obligations of our
company under the Senior Registration Rights Agreement, the senior notes and the
senior note indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the senior note trustee.
Transactions with Affiliates
The senior note indenture provides that our company will not, and will not
permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction") involving aggregate payments or consideration in excess of $5.0
million, unless (1) such Affiliate Transaction is on terms that are materially
no less favorable to our company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by our company
or such Restricted Subsidiary with an unrelated Person and (2) our company
delivers to the senior note trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, a resolution of the Board of Directors
contained in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction has been
approved by a majority of the members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $25.0 million, an opinion as to
the fairness to the holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions: (1) any employment agreement or other compensation
plan or arrangement for employees entered into by our company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
the past practice of our company or such Restricted Subsidiary, (2) transactions
between or among our company and/or its Restricted Subsidiaries, (3) payment of
reasonable fees to officers, directors, employees or consultants of our company,
(4) Restricted Payments that are permitted by, and Investments that are not
prohibited by, the provisions of the senior note indenture described above under
the caption "--Restricted Payments," (5) indemnification payments made to
officers, directors and employees of our company or any Restricted Subsidiary
under charter, bylaw, statutory or contractual provisions; (6) the payment of
customary annual management, consulting and advisory fees and related expenses
to Lehman Merchant Bank and its Affiliates; (7) payments by our company or any
of its Restricted Subsidiaries to Lehman Merchant Bank and its Affiliates made
for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with Acquisitions or divestitures which payments are approved by a
majority of the Board of Directors of our company in good faith; (8) the
existence of, or the performance by our company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders' agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the date of the closing of the Acquisition
and any similar agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by our company or any of its
Restricted Subsidiaries of obligations under any future amendment to any such
existing agreement or under any similar agreement entered into after the date of
the closing of the Acquisition shall only be permitted by this clause (8) to the
extent that the terms of any such amendment or new agreement are not otherwise
disadvantageous to the holders in any material respect; (9) transactions under
the terms of the Transaction Documents in effect on the date of the closing of
the Acquisition; (10) transactions with Unrestricted Subsidiaries, customers,
clients, suppliers, joint venture partners or purchasers or sellers of goods or
services, in each case in the ordinary course of business (including, without
limitation, under joint venture agreements) and otherwise in compliance with the
terms of the senior note indenture which are, in the aggregate (taking into
account all the costs and benefits associated with such transactions),
materially no less favorable to our company or its Restricted Subsidiaries than
those that would have been obtained in a comparable transaction by our company
or such Restricted Subsidiary with an unrelated Person, in the reasonable
determination of the Board of Directors of our company or the senior management
thereof, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party; (11) guarantees of performance
by our company and its Restricted Subsidiaries of Unrestricted Subsidiaries in
the ordinary course of business, except for guarantees of Obligations in respect
of borrowed money; and (12) pledges of Equity Interests of Unrestricted
Subsidiaries for the benefit of lenders of Unrestricted Subsidiaries.
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Additional Senior Note Guarantees
The senior note indenture provides that if our company or any of its
Domestic Subsidiaries shall acquire or create another Domestic Subsidiary after
the date of the senior note indenture and such Domestic Subsidiary provides a
guarantee of the Senior Credit Facilities, then such newly acquired or created
Domestic Subsidiary shall execute a supplemental indenture in form and substance
satisfactory to the senior note trustee providing that such Domestic Subsidiary
shall become a senior note guarantor under the senior note indenture, provided,
however, this covenant shall not apply to any Domestic Subsidiary that has been
properly designated as an Unrestricted Subsidiary in accordance with the senior
note indenture for so long as it continues to constitute an Unrestricted
Subsidiary.
Business Activities
Our company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to our company and its Restricted Subsidiaries taken as a
whole.
Payments for Consent
The senior note indenture provides that neither our company nor any of its
Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any holder
of any senior notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the senior note indenture or the senior
notes unless such consideration is offered to be paid or is paid to all holders
of the senior notes that consent, waive or agree to amend in the time frame
provided in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The senior note indenture provides that, whether or not required by the
rules and regulations of the Commission, so long as any senior notes are
outstanding, our company will furnish to the holders of senior notes (1) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if our company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of our company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of our company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of our company) and, with respect to the annual
information only, a report thereon by our company's certified independent
accountants and (2) all current reports that would be required to be filed with
the Commission on Form 8-K if our company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations. In addition, following the consummation of the exchange offer
contemplated by the Senior Registration Rights Agreement, whether or not
required by the rules and regulations of the Commission, our company will file a
copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, our company and the senior note guarantors have agreed
that, for so long as any senior notes remain outstanding, they will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered under Rule 144A(d)(4) under
the Securities Act.
Events of Default and Remedies
The senior note indenture provides that each of the following constitutes
an Event of Default: (1) default for 30 days in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the senior notes; (2)
default in payment when due of the principal of or premium, if any, on the
senior notes; (3) failure by our company or any of its Subsidiaries to make the
offer required or to purchase any of the senior notes as required under the
provisions described under the captions "--Change of Control," or "--Asset
Sales;" (4) failure by our company or any of its Subsidiaries for 30 days after
notice to comply with the provisions of the covenants entitled "--Restricted
Payments" or "--Incurrence of Indebtedness and Issuance of Preferred Stock;" or
failure by our company or any of its Subsidiaries for 60 days after notice to
comply with any of its other agreements in the senior note indenture or the
senior notes; (5) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by our company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by our company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the senior note indenture, which default results in
the acceleration of such Indebtedness prior to its express maturity and the
principal
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amount of any such Indebtedness aggregates $50.0 million or more; (6) failure by
our company or any of its Restricted Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would be a Significant Subsidiary to pay
final judgments aggregating in excess of $50.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (7) except as permitted by
the senior note indenture, any senior note guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any senior note guarantor, or any Person
acting on behalf of any senior note guarantor, shall deny or disaffirm its
obligations under its senior note guarantee; (8) certain events of bankruptcy or
insolvency with respect to our company, any of its Significant Subsidiaries that
are Restricted Subsidiaries or any group of Restricted Subsidiaries that, taken
as a whole, would be a Significant Subsidiary; and (9) any failure of our
company to deposit the required amounts into the Escrow Account under the Escrow
Letter or any failure of the proceeds of the Escrow Account to be applied as
required under the Escrow Letter.
If any Event of Default occurs and is continuing, the senior note trustee
or the holders of at least 25% in principal amount of the then outstanding
senior notes may declare all the senior notes to be due and payable immediately;
provided, that so long as any Indebtedness permitted to be incurred pursuant to
the Senior Credit Facilities shall be outstanding, such acceleration shall not
be effective until the earlier of (1) an acceleration of any such Indebtedness
under the Senior Credit Facilities or (2) five business days after receipt by
our company of written notice of such acceleration of the senior notes.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to our company, any
Significant Subsidiary that is a Restricted Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding senior notes will become due and payable without
further action or notice. Holders of the senior notes may not enforce the senior
note indenture or the senior notes except as provided in the senior note
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding senior notes may direct the senior note trustee
in its exercise of any trust or power. The senior note trustee may withhold from
holders of the senior notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of our company with
the intention of avoiding payment of the premium that our company would have had
to pay if our company then had elected to redeem the senior notes under the
optional redemption provisions of the senior note indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the senior notes. If an Event of
Default occurs prior to May 15, 2003 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of our company with the intention
of avoiding paying the premium upon redemption of the senior notes prior to May
15, 2003, then the premium specified in the senior note indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the senior notes.
The holders of a majority in aggregate principal amount of the senior
notes then outstanding by notice to the senior note trustee may on behalf of the
holders of all of the senior notes waive any existing Default or Event of
Default and its consequences under the senior note indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the senior notes.
Our company is required to deliver to the senior note trustee annually a
statement regarding compliance with the senior note indenture, and our company
is required upon becoming aware of any Default or Event of Default, to deliver
to the senior note trustee a statement specifying such Default or Event of
Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of our company
or any Person controlling such Person, as such, shall have any liability for any
obligations of our company under the senior notes, the subordinated note
guarantors, the senior note indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of senior notes
by accepting a senior note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the senior notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
Legal Defeasance and Covenant Defeasance
Our company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding senior notes ("Legal
Defeasance") except for (1) the rights of holders of outstanding senior notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such senior notes when such payments are due
from the trust referred to below, (2) our company's obligations with respect to
the senior notes concerning issuing temporary senior notes, registration of
senior notes, mutilated, destroyed, lost or stolen senior notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (3) the rights, powers,
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trusts, duties and immunities of the senior note trustee, and our company's
obligations in connection therewith and (4) the Legal Defeasance provisions of
the senior note indenture. In addition, our company may, at its option and at
any time, elect to have the obligations of our company released with respect to
certain covenants that are described in the senior note indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the senior notes.
In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the senior notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (1)
our company must irrevocably deposit with the senior note trustee, in trust, for
the benefit of the holders of the senior notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and Liquidated Damages, if any, on the outstanding senior notes on the
stated maturity or on the applicable redemption date, as the case may be, and
our company must specify whether the senior notes are being defeased to maturity
or to a particular redemption date; (2) in the case of Legal Defeasance, our
company shall have delivered to the senior note trustee an opinion of counsel in
the United States reasonably acceptable to the senior note trustee confirming
that (A) our company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the senior note
indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding senior notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (3) in the case of Covenant Defeasance, our company
shall have delivered to the senior note trustee an opinion of counsel in the
United States reasonably acceptable to the senior note trustee confirming that
the holders of the outstanding senior notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the effective date of such defeasance (5) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the senior note indenture) to which our company or any of its Subsidiaries
is a party or by which our company or any of its Subsidiaries is bound; (6) our
company must have delivered to the senior note trustee, at or prior to the
effective date of such defeasance, an opinion of counsel to the effect that at
the effective date of such defeasance, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (7) our company must deliver to the
senior note trustee an Officers' Certificate stating that the deposit was not
made by our company with the intent of preferring the holders of senior notes
over the other creditors of our company with the intent of defeating, hindering,
delaying or defrauding creditors of our company or others; and (8) our company
must deliver to the senior note trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange senior notes in accordance with the
senior note indenture. The Registrar and the senior note trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and our company may require a holder to pay any taxes and fees
required by law or permitted by the senior note indenture. Our company is not
required to transfer or exchange any senior note selected for redemption. Also,
our company is not required to transfer or exchange any senior note for a period
of 15 days before a selection of senior notes to be redeemed.
The registered holder of a senior note will be treated as the owner of it
for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the senior note
indenture or the senior notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the senior notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, senior notes), and any
existing default or compliance with any provision of the senior note indenture
or the senior notes may be waived with the consent of the holders of a majority
in principal amount of the then outstanding senior notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, senior notes).
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Without the consent of each holder affected, an amendment or waiver may
not (with respect to any senior notes held by a non-consenting holder): (1)
reduce the principal amount of senior notes whose holders must consent to an
amendment, supplement or waiver, (2) reduce the principal of or change the fixed
maturity of any senior note or alter the provisions with respect to the
redemption of the senior notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"), (3)
reduce the rate of or change the time for payment of interest on any senior
note, (4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the senior notes (except a rescission of
acceleration of the senior notes by the holders of at least a majority in
aggregate principal amount of the senior notes and a waiver of the payment
default that resulted from such acceleration), (5) make any senior note payable
in money other than that stated in the senior notes, (6) make any change in the
provisions of the senior note indenture relating to waivers of past Defaults or
the rights of holders of senior notes to receive payments of principal of or
premium, if any, or interest on the senior notes, (7) waive a redemption payment
with respect to any senior note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (8) make any change in the foregoing amendment and waiver provisions
or (9) release any senior subordinated note guarantor from any of its
obligations under its subordinated subsidiary guarantee or this senior
subordinated note indenture, except in accordance with the terms of this senior
subordinated note indenture.
Notwithstanding the foregoing, without the consent of any holder of senior
notes, our company and the senior note trustee may amend or supplement the
senior note indenture or the senior notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated senior notes in addition to or in
place of certificated senior notes, to provide for the assumption of our
company's obligations to holders of senior notes in the case of a merger or
consolidation or sale of all or substantially all of our company's assets, to
make any change that would provide any additional rights or benefits to the
holders of senior notes or that does not adversely affect the legal rights under
the senior note indenture of any such holder, to comply with requirements of the
Commission in order to effect or maintain the qualification of the senior note
indenture under the Trust Indenture Act to provide for the issuance of
additional senior subordinated notes in accordance with the limitations
contained in this senior subordinated note indenture as of the date hereof or to
allow any senior subordinated note guarantor to execute a supplemental senior
subordinated note indenture and/or a subordinated subsidiary guarantee with
respect to the senior subordinated notes.
Concerning the Senior Note Trustee
The senior note indenture contains certain limitations on the rights of
the senior note trustee, should it become a creditor of our company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The senior note trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
senior notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the senior note
trustee, subject to certain exceptions. The senior note indenture provides that
in case an Event of Default shall occur (which shall not be cured), the senior
note trustee will be required, in the exercise of its power, to use the degree
of care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the senior note trustee will be under no obligation to exercise any
of its rights or powers under the senior note indenture at the request of any
holder of senior notes, unless such holder shall have offered to the senior note
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
The certificates representing the senior notes will be issued in fully
registered form. Except as described in the next paragraph, the senior notes
initially will be represented by permanent global senior notes, in definitive,
fully registered form without interest coupons and will be deposited with the
senior note trustee as custodian for The Depositary Trust Company, New York, New
York ("DTC") and registered in the name of a nominee of DTC.
Except as described below, the global senior notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the global senior notes may not be
exchanged for senior notes in certificated form except in the limited
circumstances described below. See "--Exchange of Book-Entry Senior Notes for
Certificated Senior Notes." Except in the limited circumstances described below,
owners of beneficial interests in the global senior note will not be entitled to
receive physical delivery of certificated senior notes (as defined below).
The senior note trustee will act as Paying Agent and Registrar. The senior
notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
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Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. Our company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised our company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The participants include
securities brokers and dealers (including the Initial Purchaser, banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised our company that, pursuant to procedures established
by it, (1) upon deposit of the global senior notes, DTC will credit the accounts
of Participants designated by the Initial Purchaser with portions of the
principal amount of the global senior notes and (2) ownership of such interests
in the global senior notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the global senior notes).
Investors in the global senior note may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations which are Participants in such system. All interests in a
global senior note may be subject to the procedures and requirements of DTC. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global senior note to such persons will be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in a global senior note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the global senior notes
will not have senior notes registered in their names, will not receive physical
delivery of senior notes in certificated form and will not be considered the
registered owners or "holders" thereof under the senior note indenture for any
purpose.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a global senior note registered in the name of
DTC or its nominee will be payable to DTC in its capacity as the registered
holder under the senior note indenture. Under the terms of the senior note
indenture, our company and the senior note trustee will treat the persons in
whose names the senior notes, including the global senior notes, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither our company, the senior
note trustee nor any agent of our company or the senior note trustee has or will
have any responsibility or liability for (1) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the global senior notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the global senior notes or (2) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised our company that its current practice, upon receipt of any payment in
respect of securities such as the senior notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interests in the relevant
security as shown on the records of DTC unless DTC has reason to believe it will
not receive payment on such payment date. Payments by the Participants and the
Indirect Participants to the beneficial owners of senior notes will be governed
by standing instructions and customary practices and will be the responsibility
of the Participants or the Indirect Participants and will not be the
responsibility of DTC, the senior note trustee or our company. Neither our
company nor the senior note trustee will be liable for any delay by DTC or any
of its Participants in identifying the beneficial owners of the senior notes,
and our company and the senior note trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
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The global senior notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "--Same Day
Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds.
DTC has advised our company that it will take any action permitted to be
taken by a holder of senior notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the global
senior notes and only in respect of such portion of the aggregate principal
amount of the senior notes as to which such Participant or Participants has or
have given such direction. However, if there is an Event of Default under the
senior notes, DTC reserves the right to exchange the global senior notes for
legended senior notes in certificated form, and to distribute such senior notes
to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the global senior notes among Participants in DTC, it
is under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither our company nor the
senior note trustee nor any of their respective agents will have any
responsibility for the performance by DTC or its participants or indirect
participants of its obligations under the rules and procedures governing its
operations.
Exchange of Book-Entry Senior Notes for Certificated Senior Notes
A global senior note is exchangeable for definitive senior notes in
registered certificated form ("certificated senior notes") if (1) DTC (x)
notifies our company that it is unwilling or unable to continue as depositary
for the global senior notes and our company thereupon fails to appoint a
successor depositary or (y) has ceased to be a clearing agency registered under
the Exchange Act, (2) our company, at its option, notifies the senior note
trustee in writing that it elects to cause the issuance of the certificated
senior notes or (3) there shall have occurred and be continuing a Default or
Event of Default with respect to the senior notes. In addition, beneficial
interests in a global senior note may be exchanged for certificated senior notes
upon request but only upon prior written notice given to the senior note trustee
by or on behalf of DTC in accordance with the senior note indenture. In all
cases, certificated senior notes delivered in exchange for any global senior
note or beneficial interests therein will be registered in the names, and issued
in any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Exchange of Certificated Senior Notes for Book-Entry Senior Notes
Senior notes issued in certificated form may be exchanged for beneficial
interests in any global senior note.
Same Day Settlement and Payment
The senior note indenture will require that payments in respect of the
senior notes represented by the global senior notes (including principal,
premium, if any, interest and Liquidated Damages, if any) be made by wire
transfer of immediately available funds to the accounts specified by the global
senior note holder. With respect to senior notes in certificated form, our
company will make all payments of principal, premium, if any, interest and
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address. The
senior notes represented by the global senior notes are expected to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such senior notes will, therefore, be required by DTC to be
settled in immediately available funds. We expect that secondary trading in any
certificated senior notes will also be settled in immediately available funds.
Definitions
The following are defined terms used in the senior note indenture.
Reference is made to the senior note indenture for a full disclosure of all such
terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Debt" means, with respect to any specified Person, (1)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (2) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition" means the Acquisition by our company of: (1) all of the
common stock of Peabody Holding Company, (2) all of the common stock of Gold
Fields Mining Corp., (3) all of the membership interests of Citizens Power, (4)
the 1%
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interests in CL Hartford, L.L.C., a Delaware limited liability company, and
Citizens Power Sales, a Delaware general partnership, both subsidiaries of
Citizens Power, (5) all of the shares of Darex Capital Inc., a company
incorporated in the Republic of Panama, and (6) all of the ordinary shares of
Peabody Australia Ltd., which together with Darex Capital, Inc. owns Peabody
Resources.
"Additional Assets" means (1) any property or assets (other than capital
stock, Indebtedness or rights to receive payments over a period greater than 180
days, other than with respect to coal supply contract restructurings) that is
usable by our company or a Restricted Subsidiary in a Permitted Business or (2)
the capital stock of a Person that is at the time, or becomes, a Restricted
Subsidiary as a result of the Acquisition of such capital stock by our company
or another Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (1) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of our company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the senior note indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (2) the issue or sale by our company or any of its Restricted
Subsidiaries of Equity Interests of any of our company's Restricted
Subsidiaries, in the case of either clause (1) or (2), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $5.0 million or (b) for Net Proceeds in excess of $5.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (1) a transfer of assets by our company to a Restricted
Subsidiary or by a Restricted Subsidiary to our company or to another Restricted
Subsidiary, (2) an issuance of Equity Interests by a Restricted Subsidiary to
our company or to another Restricted Subsidiary, (3) a Restricted Payment that
is permitted by, or an Investment that is not prohibited by, the covenant
described above under the caption "--Restricted Payments," (4) a disposition of
Cash Equivalents or obsolete equipment, (5) foreclosures on assets, (6) the sale
or discount, in each case without recourse, of accounts receivable arising in
the ordinary course of business, but only in connection with the compromise or
collection thereof and (7) the factoring of accounts receivable arising in the
ordinary course of business under arrangements customary in the industry.
"Bengalla Joint Venture" means Bengalla Mining Co. Pty Limited, Bengalla
Agricultural Co. Pty Limited and Bengalla Coal Sales Co. Pty Ltd. which are the
joint venture companies related to the Bengalla mine in New South Wales,
Australia.
"Black Beauty Coal Company" means the Indiana general partnership among
Thoroughbred, L.L.C., Black Beauty Resources, Inc. and Pittsburg and Midway Coal
Mining Co., and any Person collectively owned by those three partners including,
but not limited to, Eagle Coal Company and Falcon Coal Company.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of Acquisition issued or fully guaranteed or insured by the
U.S. Government or any agency thereof, (b) certificates of deposit and time
deposits with maturities of one year or less from the date of Acquisition and
overnight bank deposits of any lender under the Senior Credit Facilities or of
any commercial bank having capital and surplus in excess of $500.0 million, (c)
repurchase obligations of any lender under the Senior Credit Facilities or of
any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 90 days with respect to securities
issued or fully guaranteed or insured by the United States Government, (d)
commercial paper of a domestic issuer rated at least A-2 by Standard and Poor's
Rating Group ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or
carrying an equivalent rating by a nationally recognized rating agency if both
of S&P and Moody's cease publishing ratings of investments, (e) securities with
maturities of one year or less from the date of Acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by Moody's, (f)
securities with maturities of one year or less from the date of Acquisition
backed by standby letters of credit issued by any lender under the Senior Credit
Facilities or
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any commercial bank satisfying the requirements of clause (b) of this definition
or (g) shares of money market mutual or similar funds which invest exclusively
in assets satisfying the requirements of clauses (a) through (f) of this
definition.
"Citizens Power" means Citizens Power LLC, a Delaware limited liability
company and its direct and indirect Subsidiaries.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (1) provision
for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (2) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued and whether or not capitalized (including, without
limitation, amortization of debt issuance costs, deferred financing fees and
original issue discount, noncash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (3) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (4) depreciation,
depletion, amortization (including amortization of goodwill and other
intangibles) and other noncash expenses (including, without limitation,
writedowns and impairment of property, plant and equipment and intangibles and
other long-lived assets) (excluding any such noncash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, depletion, amortization and other noncash expenses were deducted
in computing such Consolidated Net Income, minus (5) noncash items increasing
such Consolidated Net Income for such period (other than accruals in accordance
with GAAP), plus (6) without duplication for amounts otherwise included in
Consolidated Cash Flow, the amount of our company's and its Restricted
Subsidiaries' proportionate share of the Consolidated Cash Flow of Black Beauty
Coal Company and its Subsidiaries for such period (calculated in proportion to
our company's and its Restricted Subsidiaries common equity ownership), in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation, depletion and amortization and other noncash expenses
of, a Restricted Subsidiary that is not a senior note guarantor shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to our company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction under the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (1) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Restricted Subsidiary thereof, (2) the Net Income of any
Restricted Subsidiary that is not a senior note guarantor shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (3) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such Acquisition shall
be excluded, (4) the cumulative effect of a change in accounting principles
shall be excluded, and (5) the Net Income (or loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to our company or one
of its Restricted Subsidiaries.
"Credit Facilities" means, with respect to our company or any of its
Restricted Subsidiaries, one or more debt facilities (including, without
limitation, the Senior Credit Facilities) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on the
date on which senior notes are first issued and authenticated under the senior
note indenture shall be deemed to have been incurred on such date in reliance on
the exception provided by clause (1) of the definition of Permitted
Indebtedness.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
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"Designated Noncash Consideration" means the fair market value of noncash
consideration received by our company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of our company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Disqualified Stock" means any capital stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, under a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to the date that is 91 days after the date on which the senior
notes mature; provided, however, that any capital stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
our company to repurchase such capital stock upon the occurrence of a Change of
Control or an Asset Sale shall not constitute Disqualified Stock if the terms of
such capital stock provide that our company may not repurchase or redeem any
such capital stock under such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Domestic Subsidiary" means a Subsidiary that is (1) formed under the laws
of the United States of America or a state or territory thereof or (2) as of the
date of determination, treated as a domestic entity or a partnership or a
division of a domestic entity for United States federal income tax purposes.
"Equity Interests" means capital stock and all warrants, options or other
rights to acquire capital stock (but excluding any debt security that is
convertible into, or exchangeable for, capital stock).
"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Stock) of our company, other than any private sales to
an Affiliate of our company.
"Escrow Account" means the escrow account maintained under the Escrow
Letter.
"Escrow Letter" means that certain escrow letter dated March 2, 1998, by
and among Lazard Brothers & Co., Limited, The Energy Group PLC, Peabody
Investments Inc. and P&L Coal Holdings Corporation.
"Existing Citizens Power Investment" means the Investments in Citizens
Power by our company and its Restricted Subsidiaries as of the date of the
closing of the Acquisition.
"Existing Indebtedness" means up to $292.5 million in aggregate principal
amount of Indebtedness of our company and its Restricted Subsidiaries (other
than Indebtedness under the Senior Credit Facilities, the senior notes, the
senior exchange subordinated notes and related guarantees) in existence on the
date of the closing of the Acquisition, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, noncash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments (if any) under
Hedging Obligations, but excluding amortization of debt issuance costs) and (2)
the consolidated interest of such Person and its Restricted Subsidiaries that
was capitalized during such period, and (3) any interest expense on the portion
of Indebtedness of another Person that is guaranteed by such Person or one of
its Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon) and (4) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of our company (other than Disqualified Stock) or to our
company or a Restricted Subsidiary of our company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
effective combined federal, state and local tax rate of such Person for such
period, expressed as a decimal, in each case, for our company and its Restricted
Subsidiaries on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries for such period. In the
event that the referrent Person or any of its Restricted Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the
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"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(1) Acquisitions that have been made by our company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions and including pro forma cost savings permitted by
Article 11 of Regulation S-X, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be given pro forma effect as if they had occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (3) of the proviso
contained in the definition of Consolidated Net Income, and (2) the Consolidated
Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, and (3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiaries" means Subsidiaries of our company that are not
Domestic Subsidiaries.
"GAAP" means generally accepted accounting principles described in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the senior note indenture.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (1) currency exchange, interest rate or commodity swap
agreements, currency exchange, interest rate or commodity cap agreements and
currency exchange, interest rate or commodity collar agreements and (2) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange, interest rates or commodity prices, in each case for the
purpose of risk management and not for speculation.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, if and
to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person, but excluding from the
definition of "Indebtedness," any of the foregoing that constitutes (1) an
accrued expense, (2) trade payables and (3) Obligations in respect of
reclamation, workers' compensation, including black lung, pensions and retiree
health care, in each case to the extent not overdue for more than 90 days. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness issued with original issue
discount, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees, other than performance guarantees provided for the
benefit of Citizens Power, of any portion of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other Acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If our company or any Restricted Subsidiary of our company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of our company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of our company, our company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
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"Marketable Securities" means, with respect to any Asset Sale, any readily
marketable equity securities that are (1) traded on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market; and (2) issued by a
corporation having a total equity market capitalization of not less than $250.0
million; provided that the excess of (A) the aggregate amount of securities of
any one such corporation held by our company and any Restricted Subsidiary over
(B) ten times the average daily trading volume of such securities during the 20
immediately preceding trading days shall be deemed not to be Marketable
Securities; as determined on the date of the contract relating to such Asset
Sale.
"Net Income" means, with respect to any Person, the net income or loss of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (1) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (2) any extraordinary or nonrecurring gain or loss, together
with any related provision for taxes on such extraordinary or nonrecurring gain
or loss.
"Net Proceeds" means the aggregate proceeds (cash or property) received by
our company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale) or the sale
or disposition of any Investment, net of the direct costs relating to such Asset
Sale, sale or disposition, (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Guarantor Subsidiaries" means (1) Citizens Power and its direct and
indirect Subsidiaries, (2) our company's future Unrestricted Subsidiaries and
(3) our company's current and future Foreign Subsidiaries.
"Non-Recourse Debt" means Indebtedness (1) as to which neither our company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) other than a pledge of the Equity Interests of any Unrestricted
Subsidiaries, (b) is directly or indirectly liable (as a guarantor or otherwise)
other than by virtue of a pledge of the Equity Interests of any Unrestricted
Subsidiaries, or (c) constitutes the lender; and (2) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the senior notes being offered hereby) of our company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
"Obligations" means any principal, premium (if any), interest, penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages,
guarantees and other liabilities and amounts payable under the documentation
governing any Indebtedness or in respect thereto.
"Permitted Business" means coal production, coal mining, coal brokering,
coal transportation, mine development, power marketing, electricity generation,
power/energy sales and trading, energy transactions/asset restructurings, risk
management products associated with energy, fuel/power integration and other
energy related businesses, ash disposal, environmental remediation, coal,
natural gas, petroleum or other fossil fuel exploration, production, marketing,
transportation and distribution and other related businesses, and activities of
our company and its Subsidiaries as of the date of the closing of the
Acquisition and any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or ancillary thereto.
"Permitted Investments" means (a) any Investment in our company or in a
Restricted Subsidiary of our company; (b) any Investment in Cash Equivalents;
(c) any Investment by our company or any Restricted Subsidiary of our company in
a Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of our company or (ii) such Person, in one transaction or a series of
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
our company or a Restricted Subsidiary of our company; (d) any Acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of our company; (e) any Investment existing on the date of
the closing of the Acquisition (an "Existing Investment") and any Investment
that replaces, refinances or refunds an Existing Investment, provided that the
new Investment is in an amount that does not exceed the amount replaced,
refinanced or refunded and is made in the same Person as the Investment
replaced, refinanced or refunded, (f) advances to employees not in excess of
$10.0 million outstanding at any one time; (g) Hedging Obligations permitted
under clause (9) of the "--Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant; (h) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other
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similar expenses, in each case incurred in the ordinary course of business; (i)
any Investment in a Permitted Business (whether or not an Investment in an
Unrestricted Subsidiary) having an aggregate fair market value, when taken
together with all other Investments made pursuant to this clause (i), does not
exceed in aggregate amount the sum of (1) 10% of Total Assets at the time of
such Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value) plus (2)
100% of the Net Proceeds from the sale or disposition of any Investment
previously made pursuant to this clause (i) or 100% of the amount of any
dividend, distribution or payment from any such Investment, net of income taxes
paid or payable in respect thereof, in each case up to the amount of the
Investment that was made pursuant to this clause (i) and 50% of the amount of
such Net Proceeds or 50% of such dividends, distributions or payments, in each
case received in excess of the amount of the Investments made pursuant to this
clause (i); (j) guarantees of Indebtedness permitted under the covenant
"--Incurrence of Indebtedness and Issuance of Preferred Stock;" (k) any
Investment acquired by our company or any of its Restricted Subsidiaries (A) in
exchange for any other Investment or accounts receivable held by our company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of the transfer of
title with respect to any secured Investment in default as a result of a
foreclosure by our company or any of its Restricted Subsidiaries with respect to
such secured Investment; (l) any Investment in Black Beauty Coal Company having
an aggregate fair market value, taken together with all other Investments made
pursuant to this clause (l), that are at the time outstanding not to exceed
$50.0 million (with any write-down or write-off of any such Investment deemed to
remain outstanding); (m) Investments in Citizens Power having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (m), that are at that time outstanding not to exceed $50.0 million at the
time of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value); (n) any Investment in the Bengalla Joint Venture and the Warkworth
Associates Joint Venture having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (n), that are at the
time outstanding, not to exceed $25.0 million (with any write-down or write-off
of any such Investment deemed to remain outstanding); (o) that portion of any
Investment by our company or a Restricted Subsidiary in a Permitted Business to
the extent that our company or such Restricted Subsidiary will receive in a
substantially concurrent transaction an amount in cash equal to the amount of
such Investment (or the fair market value of such Investment), net of any
obligation to pay taxes or other amounts in respect of the receipt of such cash;
provided that the receipt of such cash does not carry any obligation by our
company or such Restricted Subsidiary to repay or return such cash; and (p) the
forgiveness or cancellation of any payable due from Citizens Power and its
direct and indirect Subsidiaries outstanding on the date of the closing of the
Acquisition; provided, however, that with respect to any Investment, our company
may, in its sole discretion, allocate all or any portion of any Investment to
one or more of the above clauses so that the entire Investment would be a
Permitted Investment.
"Permitted Liens" means (1) Liens securing Indebtedness under Credit
Facilities that were permitted by the terms of the senior note indenture to be
incurred; (2) Liens in favor of our company; (3) Liens on property of a Person
existing at the time such Person is merged into or consolidated with our company
or any Restricted Subsidiary of our company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with our company; (4) Liens on property existing at the time of Acquisition
thereof by our company or any Restricted Subsidiary of our company, provided
that such Liens were in existence prior to the contemplation of such
Acquisition; (5) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (6) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security; (7) Liens existing on
the date of the closing of the Acquisition; (8) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (9)
Liens on assets of senior note guarantors to secure Senior Debt of such senior
note guarantors that was permitted by the senior note indenture to be incurred;
(10) Liens incurred in the ordinary course of business of our company or any
Restricted Subsidiary of our company with respect to obligations that (a) are
not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of business)
and (b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business by
our company or such Restricted Subsidiary; (11) Liens on assets of Foreign
Subsidiaries to secure Indebtedness that was permitted by the senior note
indenture to be incurred; (12) statutory liens of landlords, mechanics,
suppliers, vendors, warehousemen, carriers or other like Liens arising in the
ordinary course of business; (13) judgment Liens not giving rise to an Event of
Default so long as any appropriate legal proceeding that may have been duly
initiated for the review of such judgment shall not have been finally terminated
or the period within which such legal proceeding may be initiated shall not have
expired; (14) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred or imposed, as applicable,
in the ordinary course of business and consistent with industry practices which,
in the aggregate, are not substantial in amount, and which do not in
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any case materially detract from the value of the property subject thereto (as
such property is used by our company or its Subsidiaries) or interfere with the
ordinary conduct of the business of our company or such Subsidiaries; provided,
however, that any such Liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or to extend any credit; (15) Liens
to secure Indebtedness (including Capital Lease Obligations) permitted by clause
(6) of the second paragraph of the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock" and other purchase money Liens to finance
property or assets of our company or any Restricted Subsidiary acquired in the
ordinary course of business; provided that such Liens are only secured by such
property or assets so acquired or improved (including, in the case of the
Acquisition of capital stock, of a Person who becomes a Restricted Subsidiary,
Liens on the assets of the Person whose capital stock was so acquired); (16)
Liens securing Indebtedness under Hedging Obligations; provided that such Liens
are only secured by property or assets that secure the Indebtedness subject to
the Hedging Obligation; (17) Liens to secure Indebtedness permitted by clause
(15) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock;" and (18) Liens on the Equity
Interests of Unrestricted Subsidiaries securing obligations of Unrestricted
Subsidiaries not otherwise prohibited by the senior note indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of our company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of our company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (1) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest and premium, if any, on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (2) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the senior notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the senior notes on terms at least
as favorable to the holders of senior notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (4) such Indebtedness is incurred either by
our company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facilities" means those certain Senior Credit Facilities,
dated as of May 18, 1998, by and among our company, the senior note guarantors,
Lehman Commercial Paper Inc., as Arranger, Syndication Agent and the
Administrative Agent and the other lenders party thereto, including any related
notes, guarantees, collateral documents, letters of credit, instruments and
agreements executed in connection therewith (and any appendices, exhibits or
schedules to any of the foregoing), and in each case as amended, modified,
supplemented, restated, renewed, refunded, replaced, restructured, repaid or
refinanced from time to time (whether with the original agents and lenders or
other agents and lenders or otherwise, and whether provided under the original
credit agreement or other credit agreements or otherwise).
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Subsidiary Guarantees" mean the guarantees endorsed on the
senior subordinated notes by the Subordinated Note Guarantors.
"Subsidiary" means, with respect to any Person, (1) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or senior note
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (2) any partnership (a) the sole general partner or the
managing general partner of which is such Person or a Subsidiary of such Person
or (b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
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"Total Assets" means the total assets of our company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of our company
and its Restricted Subsidiaries.
"Transaction Documents" means the documents related to (1) the Acquisition
(including, without limitation, the purchase agreement, the participation
agreement and the escrow agreement), (2) the Senior Credit Facilities and (3)
the original offering of the notes.
"Treasury Rate" means the yield to maturity at the time of the computation
of the United States Treasury securities with a constant maturity (as compiled
by and published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two Business Days prior
to the date fixed for redemption (or if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining average life to May 15, 2003; provided, however,
that if the average life of such senior note is not equal to the constant
maturity of the United States Treasury security for which weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the average life of such senior note is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (1) Citizens Power, any direct or indirect
Subsidiary of Citizens Power on the date of the senior note indenture and (2)
any Subsidiary that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Person: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party
to any agreement, contract, arrangement or understanding with our company or any
Restricted Subsidiary of our company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to our company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of our company; (c) is a Person with respect to
which neither our company nor any of its Restricted Subsidiaries has any
obligation (x) to subscribe for additional Equity Interests in Unrestricted
Subsidiaries or (y) to maintain or preserve such Person's net worth (except with
respect to Permitted Investments); and (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of our
company or any of its Restricted Subsidiaries; provided, however, that our
company and its Restricted Subsidiaries may guarantee the performance of
Unrestricted Subsidiaries in the ordinary course of business except for
guarantees of Obligations in respect of borrowed money. Any such designation by
the Board of Directors shall be evidenced to the senior note trustee by filing
with the senior note trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments."
"Voting Stock" of any Person as of any date means the capital stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Warkworth Associates Joint Venture" means Warkworth Coal Sales Ltd.,
Warkworth Pastoral Co. Pty, Limited and Warkworth Mining Limited, which are the
joint venture companies related to the Warkworth mine in New South Wales,
Australia.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding capital stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding capital stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF THE SENIOR SUBORDINATED NOTES
The following is a summary of the material terms of the senior
subordinated notes and is qualified in its entirety by reference to the
indenture (the "senior subordinated notes indenture") between our company and
State Street Bank and Trust Company, as trustee (the "senior subordinated note
trustee").
General
The senior subordinated notes were issued under the senior subordinated
note indenture. The terms of the senior subordinated notes include those stated
in the senior subordinated note indenture and those made part of the senior
subordinated note indenture by reference to the Trust Indenture Act. The senior
subordinated notes are subject to all such terms, and holders of senior
subordinated notes are referred to the senior subordinated note indenture and
the Trust Indenture Act. The following summary of the material provisions of the
senior subordinated note indenture does not purport to be complete and is
qualified in its entirety by reference to the senior subordinated note
indenture, including the definitions therein of certain terms used below. Copies
of the senior subordinated note indenture are available as described below under
"Available Information." The definitions of certain terms used in the following
summary are described below under "--Definitions." For purposes of this summary,
the term "company" refers only to P&L Coal Holdings Corporation and not to any
of its Subsidiaries.
On May 18, 1998, our company issued $500.0 million aggregate principal
amount of senior subordinated notes under the senior subordinated note
indenture.
The senior subordinated notes are general unsecured obligations of our
company and are subordinated in right of payment to all current and future
Senior Debt. As of March 31, 1999, our company had Senior Debt of $1,519.2
million and $150.0 million of available borrowing capacity and $281.2 million of
letters of credit available under the Senior Credit Facilities. The senior
subordinated note indenture permits the incurrence of additional Senior Debt in
the future.
The operations of our company are conducted through its Subsidiaries and,
therefore, our company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the senior subordinated
notes. The senior subordinated notes are effectively subordinated to all
Indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of our company's Subsidiaries. Any right of our company to
receive assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the holders of the senior
subordinated notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors, except to the extent
that our company is itself recognized as a creditor of such Subsidiary, in which
case the claims of our company would still be subordinate to any security in the
assets of such Subsidiary and any indebtedness of such Subsidiary senior to that
held by our company. As of March 31, 1999, our company's Subsidiaries had
approximately $4,538.7 million of Indebtedness (including trade payables, land
reclamation and environmental liabilities, workers' compensation liabilities and
retiree health care liabilities). See "Our Obligations Are Effectively
Subordinated to the Obligations of our Subsidiaries."
All of our company's Subsidiaries other than Citizens Power and its
Subsidiaries were Restricted Subsidiaries. However, under certain circumstances,
our company will be able to designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants contained in the senior subordinated note
indenture.
Principal, Maturity and Interest
The senior subordinated notes are limited in aggregate principal amount to
$650.0 million, of which $500.0 million was issued in the Offering, and will
mature on May 15, 2008. Interest on the senior subordinated notes accrues at the
rate of 9 5/8% per annum and is payable semi-annually in arrears on May 15 and
November 15, commencing on November 15, 1998, to holders of record on the
immediately preceding May 1 and November 1. Additional senior subordinated notes
may be issued from time to time after the Offering, subject to the provisions of
the senior subordinated note indenture described below under the caption
"--Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
Interest on the senior subordinated notes accrues from the most recent date to
which interest has been paid or, if no interest has been paid, from May 18,
1998. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, premium, if any, and interest and Liquidated Damages,
if any, on the senior subordinated notes are payable at the office or agency of
our company maintained for such purpose within the City and State of New York
or, at the option of our company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the holders of the senior subordinated notes
at their respective addresses listed in the register of holders of senior
subordinated notes; provided that all payments of principal, premium, interest
and Liquidated Damages, if any, with respect to senior subordinated notes the
holders of which have given wire transfer instructions to our company are
required to be made by wire transfer of immediately available funds
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to the accounts specified by the holders thereof. Until otherwise designated by
our company, our company's office or agency in New York will be the office of
the senior subordinated note trustee maintained for such purpose. The senior
subordinated notes were issued in denominations of $1,000 and integral multiples
thereof.
Subordination
The payment of principal of, premium, if any, and interest on the senior
subordinated notes is subordinated in right of payment, as described in the
senior subordinated note indenture, to the prior payment in full in cash of all
Senior Debt, whether outstanding on the date of the senior subordinated note
indenture or thereafter incurred.
Upon any distribution to creditors of our company in a liquidation or
dissolution of our company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to our company or its property, an
assignment for the benefit of creditors or any marshaling of our company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt, whether or not an allowable claim in
any such proceeding) before the holders of senior subordinated notes will be
entitled to receive any payment with respect to the senior subordinated notes,
and until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the holders of senior subordinated notes would be entitled
shall be made to the holders of Senior Debt (except that, in each case, holders
of senior subordinated notes may receive and retain Permitted Junior Securities
and payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance").
We also may not make any payment upon or in respect of the senior
subordinated notes (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (1) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Debt occurs and is continuing or (2) any other default occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity (or that would permit such holders to accelerate with the giving of
notice or the passage of time or both) and the senior subordinated note trustee
receives a notice of such default (a "Payment Blockage Notice") from our company
or the holders of any Designated Senior Debt. Payments on the senior
subordinated notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated. No new period of payment blockage may be
commenced with respect to any particular Designated Senior Debt unless and until
(1) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (2) all scheduled payments of principal, premium, if
any, and interest and Liquidated Damages, if any, on the senior subordinated
notes that have come due have been paid in full in cash. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the senior subordinated note trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
waived for a period of not less than 90 days.
The senior subordinated note indenture will further require that our
company promptly notify holders of Senior Debt if payment of the senior
subordinated notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of senior subordinated notes may recover
less ratably than creditors of our company who are holders of Senior Debt. The
principal amount of Senior Debt outstanding at March 31, 1999, would have been
approximately $1,519.2 million. The senior subordinated note indenture will
limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that our company and its Subsidiaries can
incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Designated Senior Debt" means (1) any Indebtedness of our company or any
of its Restricted Subsidiaries outstanding under Credit Facilities, (2) any
Indebtedness outstanding under the senior note indenture and (3) any other
Senior Debt permitted under the senior subordinated note indenture the principal
amount of which is $25.0 million or more and that has been designated by our
company as "Designated Senior Debt."
"Permitted Junior Securities" means Equity Interests in our company or any
senior subordinated note guarantor or debt securities that are subordinated to
all Senior Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the senior
subordinated notes and the Subordinated Subsidiary guarantees are subordinated
to Senior Debt under Article 10 of the senior subordinated note indenture.
"Senior Debt" means (1) all Indebtedness of our company or any of its
Restricted Subsidiaries outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, (2) any other Indebtedness permitted to be
incurred by our
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company or any of its Restricted Subsidiaries under the terms of the senior
subordinated note indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the senior subordinated notes or any guarantee of the senior
subordinated notes and (3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or owing
by our company or any Subsidiary, (x) any Indebtedness of our company or any
Subsidiary to any Subsidiaries of our company or to our company, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the senior
subordinated note indenture.
Senior Subordinated Note Guarantees
Our company's payment obligations under the senior subordinated notes will
be fully and unconditionally, and jointly and severally, guaranteed by the
senior subordinated note guarantors. The senior subordinated note guarantee of
each senior subordinated note guarantor will be subordinated to the prior
payment in full of all Senior Debt of the senior subordinated note guarantors
and the amounts for which the senior subordinated note guarantors will be liable
under the guarantees issued from time to time with respect to Senior Debt. The
obligations of each senior subordinated note guarantor under its senior
subordinated guarantee will be limited to the maximum amount that would not
constitute a fraudulent conveyance under applicable law. See "Risk
Factors--Risks Relating to the Notes--Your Rights Under the Notes Could Be
Limited By Fraudulent Conveyance Laws." Notwithstanding the foregoing, no
Subsidiary of our company will be required to endorse a senior subordinated note
guarantee unless such Subsidiary is required to, and does, simultaneously
execute a guarantee of the Senior Credit Facilities.
As of June 30, 1999, the senior subordinated note guarantors were:
Affinity Mining Company, Arid Operations Inc., Big Sky Coal Company, Blackrock
First Capital Corporation, Bluegrass Coal Company, Caballo Coal Company, Charles
Coal Company, Coal Properties Corp., Colony Bay Coal Company, Cook Mountain Coal
Company, Cottonwood Land Company, Darius Gold Mine, Inc., EACC Camps, Inc.,
Eastern Associated Coal Corp., Eastern Royalty Corp., Gallo Finance Company,
Gold Fields Chile, S.A., Gold Fields Mining Corporation, Gold Fields Operating
Co.--Oritz, Grand Eagle Mining, Inc., Hayden Gulch Terminal, Inc., Highland
Mining Co., Independence Material Handling Company, Interior Holdings Corp.,
James River Coal Terminal Company, Juniper Coal Company, Kayenta Mobile Home
Park, Inc., Martinka Coal Company, Midco Supply and Equipment Corporation,
Mountain View Coal Company, North Page Coal Corp., Ohio County Coal Company,
Patriot Coal Company L.P., Peabody America, Inc., Peabody COALSALES Company,
Peabody COALTRADE, Inc., Peabody Coal Company, Peabody Development Company,
Peabody Energy Solutions, Inc., Peabody Holding Company, Inc., Peabody Natural
Resources Company, Peabody Southwestern Coal Company, Peabody Terminals, Inc.,
Peabody Venezuela Coal Corp., Peabody Western Coal Company, Pine Ridge Coal
Company, Power River Coal Company, Rio Escondido Coal Corp., Seneca Coal
Company, Sentry Mining Company, Snowberry Land Company, Sterling Smokeless Coal
Company, and Thoroughbred, L.L.C.
The senior subordinated notes are not guaranteed by certain of our
company's Domestic Subsidiaries or by any Foreign Subsidiaries of our company.
For the fiscal year ended March 31, 1999, the Non-Guarantor Subsidiaries
accounted for 12% and 24% of revenues and EBITDA, respectively, and, as of March
31, 1999, the Non-Guarantor Subsidiaries accounted for 29% of assets. The claims
of creditors (including trade creditors) of any Non-Guarantor Subsidiary will
generally have priority as to the assets of such Subsidiaries over the claims of
the holders of the senior subordinated notes. As of March 31, 1999, the amount
of liabilities of such Non-Guarantor Subsidiaries was $1,471.3 million.
The senior subordinated note indenture provides that no senior
subordinated note guarantor may consolidate with or merge with or into (whether
or not such senior subordinated note guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such senior
subordinated note guarantor unless (1) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation or
merger (if other than such senior subordinated note guarantor) assumes all the
obligations of such senior subordinated note guarantor under a supplemental
indenture in form and substance reasonably satisfactory to the senior
subordinated note trustee, under the senior subordinated notes, the senior
subordinated note indenture and the Senior Subordinated Registration Rights
Agreement; (2) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (3) our company would be permitted by virtue of
our company's pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
under the Fixed Charge Coverage Ratio test contained in the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
The senior subordinated note indenture provides that in the event of (a) a
sale or other disposition of all of the assets of any senior subordinated note
guarantor, by way of merger, consolidation or otherwise, (b) a sale or other
disposition of all of the capital stock of any senior subordinated note
guarantor or (c) the designation of a senior subordinated note guarantor as an
Unrestricted Subsidiary in accordance with the terms of the senior subordinated
note indenture, then such senior
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subordinated note guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such senior subordinated note guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all of the assets of
such senior subordinated note guarantor) will be released and relieved of any
obligations under its senior subordinated note guarantee; provided that the Net
Proceeds of any such sale or other disposition are applied in accordance with
the applicable provisions of the senior subordinated note indenture and any such
designation of a senior subordinated note guarantor as an Unrestricted
Subsidiary complies with all applicable covenants. See "--Repurchase at the
Option of Holders--Asset Sales."
"Senior subordinated note guarantors" means each of (1) our company's
Domestic Subsidiaries at the date of the closing of the acquisition, other than
Citizens Power and the Subsidiaries of Citizens Power at the date of the senior
subordinated note indenture and (2) any other subsidiary that executes a senior
subordinated Guarantee in accordance with the provisions of the senior
subordinated note indenture, and their respective successors and assigns.
Optional Redemption
The senior subordinated notes are subject to redemption at any time at the
option of our company, in whole or in part, upon not less than 30 nor more than
60 days' notice.
Prior to May 15, 2003, the senior subordinated notes will be redeemable at
a redemption price equal to 100% of the principal amount thereof plus the
applicable Senior Subordinated Notes Make Whole Premium, plus, to the extent not
included in the Senior Subordinated Notes Make Whole Premium, accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption. For purposes
of the foregoing, "Senior Subordinated Notes Make Whole Premium" means, with
respect to a senior subordinated note, an amount equal to the greater of (a)
104.813% of the outstanding principal amount of such senior subordinated note
and (b) the excess of (1) the present value of the remaining interest, premium,
if any, and principal payments due on such senior subordinated note as if such
senior subordinated note were redeemed on May 15, 2003, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (2) the
outstanding principal amount of such senior subordinated note.
On or after May 15, 2003, the senior subordinated notes are redeemable at
the redemption prices (expressed as percentages of principal amount) provided
below plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on May 15 of the years indicated below:
Year Percentage
---- ----------
2003 104.813%
2004 103.208%
2005 101.604%
2006 and thereafter 100.000%
Notwithstanding the foregoing, during the first 36 months after the date
of the closing of the Acquisition, our company may on any one or more occasions
redeem up to 35% of the aggregate principal amount of senior subordinated notes
issued under the senior subordinated note indenture at a redemption price of
109.625% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of one or more Equity Offerings; provided that at least 65% of the
aggregate principal amount of senior subordinated notes issued remain
outstanding immediately after the occurrence of such redemption (excluding
senior subordinated notes held by our company and its Subsidiaries); and
provided, further, that such redemption shall occur within 120 days of the date
of the closing of such Equity Offering.
Selection and Notice
If less than all of the senior subordinated notes are to be redeemed or
purchased in an offer to purchase at any time, selection of senior subordinated
notes for redemption or purchase will be made by the senior subordinated note
trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the senior subordinated notes are listed, or, if the
senior subordinated notes are not so listed, on a pro rata basis, by lot or by
such method as the senior subordinated note trustee shall deem fair and
appropriate; provided that no senior subordinated notes of $1,000 or less shall
be redeemed in part. Notices of redemption shall be mailed by first class mail
at least 30 but not more than 60 days before the redemption date to each holder
of senior subordinated notes to be redeemed at its registered address. Notices
of redemption may not be conditional. If any senior subordinated note is to be
redeemed in part only, the notice of redemption
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that relates to such senior subordinated note shall state the portion of the
principal amount thereof to be redeemed. A new senior subordinated note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original senior subordinated
note. Senior subordinated notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to
accrue on senior subordinated notes or portions of them called for redemption.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of senior
subordinated notes will have the right to require our company to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of such holder's
senior subordinated notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase (the "Change of Control Payment").
Within ten days following any Change of Control, our company will mail a notice
to each holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase senior subordinated notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), under the procedures required by the senior subordinated
note indenture and described in such notice. Our company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the senior subordinated notes as
a result of a Change of Control.
On the Change of Control Payment Date, our company will, to the extent
lawful, (1) accept for payment all senior subordinated notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
senior subordinated notes or portions thereof so tendered and (3) deliver or
cause to be delivered to the senior subordinated note trustee the senior
subordinated notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of senior subordinated notes or portions thereof
being purchased by our company. The Paying Agent will promptly mail to each
holder of senior subordinated notes so tendered the Change of Control Payment
for such senior subordinated notes, and the senior subordinated note trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each holder a new senior subordinated note equal in principal amount to any
unpurchased portion of the senior subordinated notes surrendered, if any;
provided that each such new senior subordinated note will be in a principal
amount of $1,000 or an integral multiple thereof. The senior subordinated note
indenture will provide that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, our
company will either repay all outstanding Senior Debt other than the senior
notes or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt other than the senior notes to permit the repurchase of
senior subordinated notes required by this covenant. With respect to the senior
subordinated notes, our company may effect a Change of Control under the terms
of the senior subordinated note indenture; provided that our company complies
with the provisions of the senior note indenture under the covenant described
under "Description of the Senior Notes--Repurchase at the Option of
Holders--Change of Control." The company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the senior subordinated note indenture
are applicable. Except as described above with respect to a Change of Control,
the senior subordinated note indenture does not contain provisions that permit
the holders of the senior subordinated notes to require that our company
repurchase or redeem the senior subordinated notes in the event of a takeover,
recapitalization or similar transaction.
Our company's other senior indebtedness contains prohibitions on certain
events that would constitute a Change of Control. In addition, the exercise by
the holders of senior subordinated notes of their right to require our company
to repurchase the senior subordinated notes could cause a default under such
other senior indebtedness, even if the Change of Control itself does not, due to
the financial effect of such repurchases on our company. Finally, our company's
ability to pay cash to the holders of senior subordinated notes upon a
repurchase may be limited by our company's then existing financial resources.
See "Risk Factors--Risks Relating to the Notes--Our Ability to Offer to Purchase
Your Notes in the Event of a Change of Control may be Limited."
The Senior Credit Facilities currently prohibit our company from
purchasing any senior notes or senior subordinated notes, and also provide that
certain change of control events with respect to our company would constitute a
default thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which our company becomes a party
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may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when our company is prohibited from purchasing senior
subordinated notes, our company could seek the consent of its lenders to the
purchase of senior subordinated notes or could attempt to refinance the
borrowings that contain such prohibition. If our company does not obtain such a
consent or repay such borrowings, our company will remain prohibited from
purchasing senior subordinated notes. In such case, our company's failure to
purchase tendered senior subordinated notes would constitute an Event of Default
under the senior subordinated note indenture which would, in turn, constitute a
default under the Senior Credit Facilities. In such circumstances, the
subordination provisions in the senior subordinated note indenture would likely
restrict payments to the holders of senior subordinated notes. See
"--Subordination."
Our company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements contained
in the senior subordinated note indenture applicable to a Change of Control
Offer made by our company and purchases all senior subordinated notes validly
tendered and not withdrawn under such Change of Control Offer or if our company
exercises its option to purchase the senior subordinated notes.
"Change of Control" means the occurrence of any of the following: (1) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of our company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Principal or a Related Party of a Principal (as
defined below), (2) the adoption of a plan relating to the liquidation or
dissolution of our company, (3) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of our company (measured by voting power rather than
number of shares) or (4) the first day on which a majority of the members of the
Board of Directors of our company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of our company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of senior
subordinated notes to require our company to repurchase such senior subordinated
notes as a result of a sale, lease, transfer, conveyance or other disposition of
less than all of the assets of our company and its Subsidiaries taken as a whole
to another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of our company who (1) was a member of such Board of
Directors on the date of the closing of the Acquisition or (2) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means Lehman Brothers Merchant Banking Partners II L.P., any
of its respective Affiliates and executive officers of our company as of the
date of the closing of the Acquisition.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
Asset Sales
The senior subordinated note indenture provides that our company will not,
and will not permit any of its Restricted Subsidiaries to, consummate an Asset
Sale unless (1) our company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value as determined in good faith by our company (evidenced by a
resolution of the Board of Directors described in an Officers' Certificate
delivered to the senior subordinated note trustee with respect to any Asset Sale
determined to have a value greater that $25.0 million) of the assets or Equity
Interests issued or sold or otherwise disposed of and (2) at least 75% of the
consideration therefor received by our company or such Subsidiary is in the form
of cash, Cash Equivalents or Marketable Securities; provided that the following
amounts shall be deemed to be cash: (w) any liabilities (as shown on our
company's or such Restricted Subsidiary's most recent balance sheet), of our
company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by
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their terms subordinated to the senior subordinated notes or any guarantee
thereof) that are assumed by the transferee of any such assets under a customary
novation agreement that releases our company or such Restricted Subsidiary from
further liability, (x) any securities, notes or other obligations received by
our company or any such Restricted Subsidiary from such transferee that are
converted by our company or such Restricted Subsidiary into cash within 180 days
following the closing of such Asset Sale (to the extent of the cash received),
(y) any Designated Noncash Consideration received by our company or any of its
Restricted Subsidiaries in such Asset Sale; provided that the aggregate fair
market value (as determined above) of such Designated Noncash Consideration,
taken together with the fair market value at the time of receipt of all other
Designated Noncash Consideration received pursuant to this clause (y) less the
amount of Net Proceeds previously realized in cash from prior Designated Noncash
Consideration is less than 5% of Total Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value) and (z) Additional Assets received
in an exchange of assets transaction.
Within 360 days after the receipt of any cash Net Proceeds from an Asset
Sale, our company or such Restricted Subsidiary, at its option, may apply such
cash Net Proceeds, at its option, (a) to repay Senior Debt of our company or any
Restricted Subsidiary including, without limitation, Indebtedness under a Credit
Facility and the senior notes, (b) to the Acquisition of a majority of the
assets of, or a majority of the Voting Stock of, another Permitted Business, the
making of a capital expenditure or the Acquisition of other assets or
Investments that are used or useful in a Permitted Business or (c) to apply the
cash Net Proceeds from such Asset Sale to an Investment in Additional Assets.
Any cash Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0
million, our company will be required to make an offer to all holders of senior
subordinated notes and all holders of other Indebtedness that is not Senior Debt
containing provisions similar to those contained in the senior subordinated note
indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets (an "Asset Sale Offer") to purchase the maximum principal amount
of senior subordinated notes and such other Indebtedness that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures contained in the senior subordinated note indenture and such other
Indebtedness. To the extent that any Excess Proceeds remain after consummation
of an Asset Sale Offer, our company may use such Excess Proceeds for any purpose
not otherwise prohibited by the senior subordinated note indenture. If the
aggregate principal amount of senior subordinated notes and such other
Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof
exceeds the amount of Excess Proceeds, the senior subordinated note trustee
shall select the senior subordinated notes and such other Indebtedness to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
Covenants
Restricted Payments
The senior subordinated note indenture provides that our company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (1) declare or pay any dividend or make any other payment or
distribution on account of our company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving our company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of our company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of our company); (2) purchase, redeem or otherwise acquire
or retire for value (including, without limitation, in connection with any
merger or consolidation involving our company) any Equity Interests of our
company or any direct or indirect parent of our company; (3) make any payment on
or with respect to, or purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness that is subordinated to the senior subordinated notes
or any senior subordinated guarantee, except a payment of interest or principal
at Stated Maturity or Indebtedness permitted under clause (8) of the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred Stock;"
or (4) make any Restricted Investment (all such payments and other actions
contained in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) our company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur
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at least $1.00 of additional Indebtedness under the Fixed Charge Coverage
Ratio test described in the first paragraph of the covenant described
below under caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by our company and its Subsidiaries
after the date of the closing of the Acquisition (excluding Restricted
Payments permitted by clauses (2), (3), (4), (5), and (9) of the next
succeeding paragraph), is less than the sum, without duplication, of (1)
50% of the Consolidated Net Income of our company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the closing of the Acquisition to the end of
our company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (2) 100% of the aggregate net cash proceeds or
the fair market value of property other than cash received by our company
since the date of the closing of the Acquisition as a contribution to its
common equity capital or from the issue or sale of Equity Interests of our
company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of our company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
our company), plus (3) to the extent that either any Existing Citizens
Power Investment or any Restricted Investment that reduced the amount
available for Restricted Payments under this clause (c) is sold for cash
or otherwise liquidated or repaid for cash or any dividend or payment is
received by our company or a Restricted Subsidiary after the date of the
closing of the Acquisition in respect of such Investment, 100% of the
amount of Net Proceeds or dividends or payments (including the fair market
value of property) received in connection therewith, up to the amount of
the Existing Citizens Power Investment on the date of the closing of the
Acquisition or the Restricted Investment that reduced this clause (c), as
the case may be, and thereafter 50% of the amount of Net Proceeds or
dividends or payments (including the fair market value of property)
received in connection therewith (except that the amount of dividends or
payments received in respect of payments of Obligations in respect of such
Investments, such as taxes, shall not increase the amounts under this
clause (c)), plus (4) to the extent that any Unrestricted Subsidiary of
our company is redesignated as a Restricted Subsidiary after the date of
the closing of the Acquisition, 100% of the fair market value of our
company's Investment in such Subsidiary as of the date of such
redesignation up to the amount of the Restricted Investments made in such
Subsidiary that reduced this clause (c) and 50% of the excess of the fair
market value of our company's Investment in such Subsidiary as of the date
of such redesignation over (i) the amount of the Restricted Investment
that reduced this clause (c) and (ii) any amounts that increased the
amount available as a Permitted Investment; provided, further, that if
Citizens Power or any of its Subsidiaries is designated as a Restricted
Subsidiary, the amount of the fair market value of the Investment therein
on the date of the senior subordinated note indenture shall also be
credited to this clause (c); provided, further, that any amounts that
increase this clause (c) shall not duplicatively increase amounts
available as Permitted Investments.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the senior subordinated note
indenture;
(2) the redemption, repurchase, retirement, defeasance or other
Acquisition of any subordinated Indebtedness or Equity Interests of our
company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of
our company) of, other Equity Interests of our company (other than any
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other Acquisition shall be excluded from clause
(c)(2) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other Acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) dividends or distributions by a Restricted Subsidiary of our
company so long as, in the case of any dividend or distribution payable on
or in respect of any class or series of securities issued by a Restricted
Subsidiary, our company or a Restricted Subsidiary receives at least its
pro rata share of such dividend or distribution in accordance with its
Equity Interests in such class or series of securities;
(5) Investments in Unrestricted Subsidiaries having an aggregate
fair market value not to exceed the amount, at the time of such
Investment, substantially concurrently contributed in cash or Cash
Equivalents to the common equity capital of our company after the date of
the closing of the acquisition; provided that any such amount contributed
shall be excluded from the calculation made pursuant to clause (c) above;
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(6) the payment of dividends on our company's common stock,
following the first public offering of our company's common stock after
the date of the closing of the acquisition, of up to 6% per annum of the
net proceeds received by our company in such public offering, other than
public offerings with respect to our company's common stock registered on
Form S-8;
(7) the repurchase, redemption or other Acquisition or retirement
for value of any Equity Interests of our company or any Restricted
Subsidiary of our company held by any present or former employee or
director of our company (or any of its Restricted Subsidiaries) under any
management equity subscription agreement or stock option agreement or any
other management or employee benefit plan in effect as of the date of the
closing of the Acquisition; provided that (A) the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $2.0 million in any twelve-month period (with unused amounts in
any calendar year being carried over to succeeding calendar years subject
to a maximum (without giving effect to the following proviso) of $5.0
million in any calendar year); provided further that such amount in any
calendar year may be increased by an amount not to exceed (x) the cash
proceeds from the sale of Equity Interests of our company or a Restricted
Subsidiary to members of management and directors of our company and its
Subsidiaries that occurs after the date of the closing of the Acquisition,
plus (y) the cash proceeds of key-man life insurance policies received by
our company and its Restricted Subsidiaries after the date of the closing
of the Acquisition, less (z) the amount of any Restricted Payments
previously made pursuant to clauses (x) and (y) of this subparagraph (7);
and, provided further, that cancellation of Indebtedness owing to our
company from members of management of our company or any of its Restricted
Subsidiaries in connection with a repurchase of Equity Interests of our
company or a Restricted Subsidiary will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other provision of
the senior subordinated note indenture and (B) no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction;
(8) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options; and
(9) other Restricted Payments not otherwise prohibited by this
covenant in an aggregate amount not to exceed $25.0 million under this
clause (9).
All of our company's Subsidiaries other than Citizens Power and its
Subsidiaries are Restricted Subsidiaries. The Board of Directors may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such determination, all
outstanding Investments by our company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements in the definition of "Unrestricted Subsidiary" as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the senior subordinated note indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of our
company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock," our company
shall be in default of such covenant). The Board of Directors of our company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of our company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (2) no Default or Event
of Default would be in existence following such designation.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by our company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any noncash Restricted Payment or any adjustment made pursuant
to paragraph (c) of this covenant shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the senior
subordinated note trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $25.0 million. Not later
than the date of making any Restricted Payment, our company shall deliver to the
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senior subordinated note trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.
If any Restricted Investment is sold or otherwise liquidated or repaid or
any dividend or payment is received by our company or a Restricted Subsidiary
and such amounts may be credited to clause (c) above, then such amounts will be
credited only to the extent of amounts not otherwise included in Consolidated
Net Income and that do not otherwise increase the amount available as a
Permitted Investment.
Incurrence of Indebtedness and Issuance of Preferred Stock
The senior subordinated note indenture provides that our company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that our company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that our company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and
our company's Restricted Subsidiaries may incur Indebtedness or issue
Disqualified Stock or preferred stock if the Fixed Charge Coverage Ratio for our
company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by our company of term Indebtedness under Credit
Facilities (and the guarantee thereof by the senior subordinated note
guarantors); provided that the aggregate principal amount of all term
Indebtedness outstanding under this clause (1) after giving effect to such
incurrence does not exceed an amount equal to $920.0 million;
(2) the incurrence by our company of revolving credit Indebtedness
and letters of credit (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of our company
and its Restricted Subsidiaries thereunder) under Credit Facilities (and
the guarantee thereof by the senior subordinated note guarantors);
provided that the aggregate principal amount of all revolving credit
Indebtedness outstanding under this clause (2) after giving effect to such
incurrence does not exceed an amount equal to $480.0 million;
(3) the incurrence by our company and its Restricted Subsidiaries of
the Existing Indebtedness;
(4) the incurrence by our company, the senior subordinated note
guarantors and the senior note guarantors of Indebtedness represented by
the senior notes, the senior subordinated notes, the senior subordinated
note guarantees and the senior subordinated note guarantees limited in
aggregate principal amount, without duplication, to amounts outstanding
under the senior note indenture and the senior subordinated note indenture
as of their respective dates;
(5) (A) the guarantee by our company or any of the senior
subordinated note guarantors of Indebtedness of our company or a
Restricted Subsidiary of our company or (B) the incurrence of Indebtedness
of a Restricted Subsidiary to the extent that such Indebtedness is
supported by a letter of credit, in each case that was permitted to be
incurred by another provision of this covenant;
(6) the incurrence by our company or any of its Restricted
Subsidiaries of Indebtedness (including Capital Lease Obligations) to
finance the Acquisition (including by direct purchase, by lease or
indirectly by the Acquisition of the capital stock of a Person that
becomes a Restricted Subsidiary as a result of such Acquisition) or
improvement of property (real or personal) in an aggregate principal
amount which, when aggregated with the principal amount of all other
Indebtedness then outstanding pursuant to this clause (6) and including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (6), does not
exceed an amount equal to 5% of Total Assets at the time of such
incurrence;
(7) the incurrence by our company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted by
the senior subordinated note indenture to be incurred under the first
paragraph hereof or clauses (3), (4) or (7) of this paragraph;
(8) the incurrence by our company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among our company and
any of its Restricted Subsidiaries; provided, however, that (1) if our
company is the obligor on
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such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
senior subordinated notes and (2)(A) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being held by a
Person other than our company or a Restricted Subsidiary thereof and (B)
any sale or other transfer of any such Indebtedness to a Person that is
not either our company or a Restricted Subsidiary thereof shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by our
company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (8);
(9) the incurrence by our company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred in the ordinary
course of business for the purpose of risk management and not for the
purpose of speculation;
(10) the incurrence by our company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of our company that was not permitted by this clause (10), and
the issuance of preferred stock by Unrestricted Subsidiaries;
(11) the incurrence of Indebtedness solely in respect of
performance, surety and similar bonds or completion or performance
guarantees (including, without limitation, performance guarantees under
coal supply agreements or equipment leases), to the extent that such
incurrence does not result in the incurrence of any obligation for the
payment of borrowed money to others;
(12) the incurrence of Indebtedness arising from agreements of our
company or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary; provided, however that (1) such Indebtedness is
not reflected on the balance sheet of our company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(1)) and (2) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by our company and its Restricted Subsidiaries in
connection with such disposition;
(13) the guarantee by our company or any of the senior subordinated
note guarantors of additional Indebtedness relating to Black Beauty Coal
Company not to exceed $50.0 million in aggregate principal amount
outstanding at any one time under this clause (13);
(14) the incurrence of Indebtedness relating to the Bengalla Joint
Venture or the Warkworth Associates Joint Venture in an aggregate amount
not to exceed $100.0 million in aggregate principal amount outstanding at
any one time under this clause (14); and
(15) the incurrence by our company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (15), not to
exceed $250.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, our
company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to
be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; provided, in each such case, that the amount thereof
is included in Fixed Charges of our company as accrued.
Liens
The senior subordinated note indenture provides that our company will not
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness or trade payables
(other than Permitted Liens) upon any of their property or assets, now owned or
hereafter acquired, unless all payments due under the senior subordinated note
indenture and the senior subordinated notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligations are no
longer secured by a Lien.
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Dividend and Other Payment Restrictions Affecting Subsidiaries
The senior subordinated note indenture provides that our company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary that is
not a senior subordinated note guarantor to (1)(a) pay dividends or make any
other distributions to our company or any of its Restricted Subsidiaries (i) on
its capital stock or (ii) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any indebtedness owed to our company
or any of its Restricted Subsidiaries, (2) make loans or advances to our company
or any of its Restricted Subsidiaries or (3) transfer any of its properties or
assets to our company or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
closing of the Acquisition, (b) the Senior Credit Facilities as in effect as of
the date of the closing of the Acquisition, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the Senior
Credit Facilities as in effect on the date of the closing of the Acquisition,
(c) the senior note indenture, the senior subordinated note indenture, the
senior notes and the senior subordinated notes, (d) applicable law or any
applicable rule, regulation or order, (e) any instrument governing Indebtedness
or capital stock of a Person acquired by our company or any of its Restricted
Subsidiaries as in effect at the time of such Acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
Acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the senior
subordinated note indenture to be incurred, (f) customary non-assignment
provisions in leases and other agreements entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (3) above on the property so acquired, (h) any
agreement for the sale of a Restricted Subsidiary that restricts distributions
by that Restricted Subsidiary pending its sale, (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced, (j) secured Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the caption "--Liens"
that limits the right of the debtor to dispose of the assets securing such
Indebtedness, (k) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business, (l) restrictions on cash or
other deposits or net worth imposed by customers or lessors under contracts or
leases entered into in the ordinary course of business and (m) any encumbrances
or restrictions imposed by any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings of
the contracts, instruments or obligations referred to in clauses (a) through (l)
above, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are, in the
good faith judgment of our company's Board of Directors, not materially more
restrictive in the aggregate with respect to such dividend and other payment
restrictions than those (considered as a whole) contained in the dividend or
other payment restrictions prior to such amendment, modification, restatement,
renewal, increase, supplement, refunding, replacement or refinancing.
Merger, Consolidation, or Sale of Assets
The senior subordinated note indenture provides that our company may not
consolidate or merge with or into (whether or not our company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (1) our company is
the surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than our company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (2) the entity or Person formed
by or surviving any such consolidation or merger (if other than our company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of our
company under the Senior Subordinated Registration Rights Agreement, the senior
subordinated notes and the senior subordinated note indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the senior
subordinated note trustee; (3) immediately after such transaction no Default or
Event of Default exists; and (4) except in the case of a merger of our company
with or into a Wholly Owned Restricted Subsidiary of our company, immediately
after giving pro forma effect to such transaction, as if such transaction had
occurred at the beginning of the applicable four-quarter period, (A) the entity
surviving such consolidation or merger would be permitted to incur at least
$1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test
contained in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" or (B)
the Fixed
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Charge Coverage Ratio for our company or the entity or Person formed by or
surviving any such consolidation or merger (if other than our company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made would, immediately after giving pro forma effect thereto as
if such transaction had occurred at the beginning of the applicable four-quarter
period, not be less than such Fixed Charge Coverage Ratio for our company and
its Restricted Subsidiaries immediately prior to such transaction. The senior
subordinated note indenture also provides that our company may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person. The provisions of this
covenant will not be applicable to a sale, assignment, transfer, conveyance or
other disposition of assets between or among our company and its Restricted
Subsidiaries.
Notwithstanding the foregoing clause (4), (1) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to our company and (2) our company may merge with an Affiliate that has
no significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of our company in another State of the
United States or the form of organization of our company so long as the amount
of Indebtedness of our company and its Restricted Subsidiaries is not increased
thereby and provided that the successor assumes all the obligations of our
company under the Senior Subordinated Registration Rights Agreement, the senior
subordinated notes and the senior subordinated note indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the senior
subordinated note trustee.
Transactions with Affiliates
The senior subordinated note indenture provides that our company will not,
and will not permit any of its Restricted Subsidiaries to, make any payment to,
or sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction") involving aggregate payments or consideration in excess of $5.0
million, unless (1) such Affiliate Transaction is on terms that are materially
no less favorable to our company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by our company
or such Restricted Subsidiary with an unrelated Person and (2) our company
delivers to the senior subordinated note trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, a resolution of the Board of
Directors contained in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (1) above and that such Affiliate Transaction
has been approved by a majority of the members of the Board of Directors and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $25.0 million, an
opinion as to the fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions: (1) any employment agreement or other compensation
plan or arrangement for employees entered into by our company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
the past practice of our company or such Restricted Subsidiary; (2) transactions
between or among our company and/or its Restricted Subsidiaries; (3) payment of
reasonable fees to officers, directors, employees or consultants of our company;
(4) Restricted Payments that are permitted by, and Investments that are not
prohibited by, the provisions of the senior subordinated note indenture
described above under the caption "--Restricted Payments;" (5) indemnification
payments made to officers, directors and employees of our company or any
Restricted Subsidiary under charter, bylaw, statutory or contractual provisions;
(6) the payment of customary annual management, consulting and advisory fees and
related expenses to Lehman Merchant Bank and its Affiliates; (7) payments by our
company or any of its Restricted Subsidiaries to Lehman Merchant Bank and its
Affiliates made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with Acquisitions or divestitures which
payments are approved by a majority of the Board of Directors of our company in
good faith; (8) the existence of, or the performance by our company or any of
its Restricted Subsidiaries of its obligations under the terms of, any
stockholders' agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the date of the closing
of the Acquisition and any similar agreements which it may enter into
thereafter; provided, however, that the existence of, or the performance by our
company or any of its Restricted Subsidiaries of obligations under any future
amendment to any such existing agreement or under any similar agreement entered
into after the date of the closing of the Acquisition shall only be permitted by
this clause (8) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the holders in any material
respect; (9) transactions under the terms of the Transaction Documents in effect
on the date of the closing of the Acquisition; (10) transactions with
Unrestricted Subsidiaries, customers, clients, suppliers, joint venture partners
or purchasers or sellers of goods or services, in each case in the ordinary
course of business (including, without limitation, under joint venture
agreements) and otherwise in compliance with the terms of the senior
subordinated note indenture which are, in the aggregate (taking into account all
the costs and benefits associated with such
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transactions), materially no less favorable to our company or its Restricted
Subsidiaries than those that would have been obtained in a comparable
transaction by our company or such Restricted Subsidiary with an unrelated
Person, in the reasonable determination of the Board of Directors of our company
or the senior management thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party; (11)
guarantees of performance by our company and its Restricted Subsidiaries of
Unrestricted Subsidiaries in the ordinary course of business, except for
guarantees of Obligations in respect of borrowed money; and (12) pledges of
Equity Interests of Unrestricted Subsidiaries for the benefit of lenders of
Unrestricted Subsidiaries.
Additional Subordinated Subsidiary Guarantees
The senior subordinated note indenture provides that if our company or any
of its Domestic Subsidiaries shall acquire or create another Domestic Subsidiary
after the date of the senior subordinated note indenture and such Domestic
Subsidiary provides a guarantee of the Senior Credit Facilities, then such newly
acquired or created Domestic Subsidiary shall execute a supplemental indenture
in form and substance satisfactory to the senior subordinated note trustee
providing that such Domestic Subsidiary shall become a senior subordinated note
guarantor under the senior subordinated note indenture, provided, however, this
covenant shall not apply to any Domestic Subsidiary that has been properly
designated as an Unrestricted Subsidiary in accordance with the senior
subordinated note indenture for so long as it continues to constitute an
Unrestricted Subsidiary.
No Senior Subordinated Debt
The senior subordinated note indenture provides that (1) our company will
not incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the senior subordinated
notes, and (2) no senior subordinated note guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to the senior note guarantees and
senior in any respect in right of payment to the senior subordinated note
guarantees.
Business Activities
Our company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to our company and its Restricted Subsidiaries taken as a
whole.
Payments for Consent
The senior subordinated note indenture provides that neither our company
nor any of its Restricted Subsidiaries will, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any senior subordinated notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the senior subordinated note indenture or the senior subordinated notes
unless such consideration is offered to be paid or is paid to all holders of the
senior subordinated notes that consent, waive or agree to amend in the time
frame under the solicitation documents relating to such consent, waiver or
agreement.
Reports
The senior subordinated note indenture provides that, whether or not
required by the rules and regulations of the Commission, so long as any senior
subordinated notes are outstanding, our company will furnish to the holders of
senior subordinated notes (1) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if our company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
our company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of our company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of our company) and, with respect to
the annual information only, a report thereon by our company's certified
independent accountants and (2) all current reports that would be required to be
filed with the Commission on Form 8-K if our company were required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the exchange
offer contemplated by the Senior Subordinated Registration Rights Agreement,
whether or not required by the rules and regulations of the Commission, our
company will file a copy of all such information and reports with the Commission
for public availability within the time periods specified in the Commission's
rules and regulations (unless the Commission will not accept such a filing) and
make such information available to securities analysts
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and prospective investors upon request. In addition, our company and the senior
subordinated note guarantors have agreed that, for so long as any senior
subordinated notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Events of Default and Remedies
The senior subordinated note indenture provides that each of the following
constitutes an Event of Default: (1) default for 30 days in the payment when due
of interest on, or Liquidated Damages, if any, with respect to, the senior
subordinated notes (whether or not prohibited by the subordination provisions of
the senior subordinated note indenture); (2) default in payment when due of the
principal of or premium, if any, on the senior subordinated notes (whether or
not prohibited by the subordination provisions of the senior subordinated note
indenture); (3) failure by our company or any of its Subsidiaries to make the
offer required or to purchase any of the senior subordinated notes as required
under the provisions described under the captions "--Change of Control," or
"--Asset Sales;" (4) failure by our company or any of its Subsidiaries for 30
days after notice to comply with the provisions of the covenants entitled
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" or failure by our company or any of its Subsidiaries for 60
days after notice to comply with any of its other agreements in the senior
subordinated note indenture or the senior subordinated notes; (5) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
our company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by our company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the senior
subordinated note indenture, which default results in the acceleration of such
Indebtedness prior to its express maturity and the principal amount of any such
Indebtedness aggregates $50.0 million or more; (6) failure by our company or any
of its Restricted Subsidiaries or any group of Restricted Subsidiaries that,
taken as a whole, would be a Significant Subsidiary to pay final judgments
aggregating in excess of $50.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (7) except as permitted by the senior
subordinated note indenture, any senior subordinated note guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any senior subordinated note
guarantor, or any Person acting on behalf of any senior subordinated note
guarantor, shall deny or disaffirm its obligations under its senior subordinated
note guarantee; (8) certain events of bankruptcy or insolvency with respect to
our company, any of its Significant Subsidiaries that are Restricted
Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole,
would be a Significant Subsidiary; and (9) any failure of our company to deposit
the required amounts into the Escrow Account under the Escrow Letter or any
failure of the proceeds of the Escrow Account to be applied as required under
the Escrow Letter.
If any Event of Default occurs and is continuing, the senior subordinated
note trustee or the holders of at least 25% in principal amount of the then
outstanding senior subordinated notes may declare all the senior subordinated
notes to be due and payable immediately; provided, that so long as any
Indebtedness permitted to be incurred under the Senior Credit Facilities shall
be outstanding, such acceleration shall not be effective until the earlier of
(1) an acceleration of any such Indebtedness under the Senior Credit Facilities
or (2) five business days after receipt by our company of written notice of such
acceleration of the senior subordinated notes. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to our company, any Significant Subsidiary that is a
Restricted Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding senior
subordinated notes will become due and payable without further action or notice.
Holders of the senior subordinated notes may not enforce the senior subordinated
note indenture or the senior subordinated notes except as provided in the senior
subordinated note indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding senior subordinated notes
may direct the senior subordinated note trustee in its exercise of any trust or
power. The senior subordinated note trustee may withhold from holders of the
senior subordinated notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of our company with
the intention of avoiding payment of the premium that our company would have had
to pay if our company then had elected to redeem the senior subordinated notes
under the optional redemption provisions of the senior subordinated note
indenture, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the senior
subordinated notes. If an Event of Default occurs prior to May 15, 2003 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of our company with the intention of avoiding paying the premium upon redemption
of the senior subordinated notes prior to May 15, 2003, then the premium
specified in the senior subordinated note indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the senior subordinated notes.
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The holders of a majority in aggregate principal amount of the senior
subordinated notes then outstanding by notice to the senior subordinated note
trustee may on behalf of the holders of all of the senior subordinated notes
waive any existing Default or Event of Default and its consequences under the
senior subordinated note indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the senior
subordinated notes.
Our company is required to deliver to the senior subordinated note trustee
annually a statement regarding compliance with the senior subordinated note
indenture, and our company is required upon becoming aware of any Default or
Event of Default, to deliver to the senior subordinated note trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of our company
or any Person controlling such Person, as such, shall have any liability for any
obligations of our company under the senior subordinated notes, the senior
subordinated note guarantees, the senior subordinated note indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of senior subordinated notes by accepting a senior
subordinated note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the senior subordinated notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
Our company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding senior subordinated notes
("Legal Defeasance") except for (1) the rights of holders of outstanding senior
subordinated notes to receive payments in respect of the principal of, premium,
if any, and interest and Liquidated Damages, if any, on such senior subordinated
notes when such payments are due from the trust referred to below, (2) our
company's obligations with respect to the senior subordinated notes concerning
issuing temporary senior subordinated notes, registration of senior subordinated
notes, mutilated, destroyed, lost or stolen senior subordinated notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (3) the rights, powers, trusts, duties and immunities of the
senior subordinated note trustee, and our company's obligations in connection
therewith and (4) the Legal Defeasance provisions of the senior subordinated
note indenture. In addition, our company may, at its option and at any time,
elect to have the obligations of our company released with respect to certain
covenants that are described in the senior subordinated note indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the senior subordinated notes. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the senior subordinated notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (1)
our company must irrevocably deposit with the senior subordinated note trustee,
in trust, for the benefit of the holders of the senior subordinated notes, cash
in U.S. dollars, non-callable Government Securities, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest and Liquidated Damages, if any, on the outstanding senior
subordinated notes on the stated maturity or on the applicable redemption date,
as the case may be, and our company must specify whether the senior subordinated
notes are being defeased to maturity or to a particular redemption date; (2) in
the case of Legal Defeasance, our company shall have delivered to the senior
subordinated note trustee an opinion of counsel in the United States reasonably
acceptable to the senior subordinated note trustee confirming that (A) our
company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the senior subordinated note
indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding senior subordinated notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance,
our company shall have delivered to the senior subordinated note trustee an
opinion of counsel in the United States reasonably acceptable to the senior
subordinated note trustee confirming that the holders of the outstanding senior
subordinated notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred; (4) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the effective date of the defeasance; (5) such Legal Defeasance
or Covenant Defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument
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(other than the senior subordinated note indenture) to which our company or any
of its Subsidiaries is a party or by which our company or any of its
Subsidiaries is bound; (6) our company must have delivered to the senior
subordinated note trustee, at or prior to the effective date of such defeasance,
an opinion of counsel to the effect that at the effective date of such
defeasance, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (7) our company must deliver to the senior subordinated note
trustee an Officers' Certificate stating that the deposit was not made by our
company with the intent of preferring the holders of senior subordinated notes
over the other creditors of our company with the intent of defeating, hindering,
delaying or defrauding creditors of our company or others; and (8) our company
must deliver to the senior subordinated note trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Transfer and Exchange
A holder may transfer or exchange senior subordinated notes in accordance
with the senior subordinated note indenture. The Registrar and the senior
subordinated note trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and our company may require a
holder to pay any taxes and fees required by law or permitted by the senior
subordinated note indenture. Our company is not required to transfer or exchange
any senior subordinated note selected for redemption. Also, our company is not
required to transfer or exchange any senior subordinated note for a period of 15
days before a selection of senior subordinated notes to be redeemed.
The registered holder of a senior subordinated note will be treated as the
owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the senior
subordinated note indenture or the senior subordinated notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the senior subordinated notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, senior subordinated notes), and any existing default or
compliance with any provision of the senior subordinated note indenture or the
senior subordinated notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding senior subordinated notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, senior subordinated notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any senior subordinated notes held by a non-consenting
holder): (1) reduce the principal amount of senior subordinated notes whose
holders must consent to an amendment, supplement or waiver, (2) reduce the
principal of or change the fixed maturity of any senior subordinated note or
alter the provisions with respect to the redemption of the senior subordinated
notes (other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"), (3) reduce the rate of or
change the time for payment of interest on any senior subordinated note, (4)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the senior subordinated notes (except a rescission of
acceleration of the senior subordinated notes by the holders of at least a
majority in aggregate principal amount of the senior subordinated notes and a
waiver of the payment default that resulted from such acceleration), (5) make
any senior subordinated note payable in money other than that stated in the
senior subordinated notes, (6) make any change in the provisions of the senior
subordinated note indenture relating to waivers of past Defaults or the rights
of holders of senior subordinated notes to receive payments of principal of or
premium, if any, or interest on the senior subordinated notes, (7) waive a
redemption payment with respect to any senior subordinated note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders"), (8) make any change in the foregoing
amendment and waiver provisions or (9) release any senior subordinated note
guarantor from any of its obligations under its senior subordinated note
guarantee or the senior subordinated note indenture, except in accordance with
the terms of the senior subordinated note indenture. In addition, any amendment
to the provisions of Article 10 of the senior subordinated note indenture (which
relate to subordination) will require the consent of the holders of at least 75%
in aggregate principal amount of the senior subordinated notes then outstanding
if such amendment would adversely affect the rights of holders of senior
subordinated notes.
Notwithstanding the foregoing, without the consent of any holder of senior
subordinated notes, our company and the senior subordinated note trustee may
amend or supplement the senior subordinated note indenture or the senior
subordinated notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated senior subordinated notes in addition to or in place of
certificated senior subordinated notes, to provide for the assumption of our
company's obligations to holders of senior subordinated notes in the case of a
merger or consolidation or sale of all or substantially all of our company's
assets, to make any change that would provide any additional rights or benefits
to the holders of senior subordinated notes or that
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does not adversely affect the legal rights under the senior subordinated note
indenture of any such holder, to comply with requirements of the Commission in
order to effect or maintain the qualification of the senior subordinated note
indenture under the Trust Indenture Act, to provide for the issuance of
additional senior subordinated notes in accordance with the limitations
contained in this senior subordinated note indenture as of the date hereof or to
allow any senior subordinated note guarantor to execute a supplemental senior
subordinated note indenture and/or a senior subordinated note guarantee with
respect to the senior subordinated notes.
Concerning the Senior Subordinated Note Trustee
The senior subordinated note indenture contains certain limitations on the
rights of the senior subordinated note trustee, should it become a creditor of
our company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The senior subordinated note trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
senior subordinated notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
senior subordinated note trustee, subject to certain exceptions. The senior
subordinated note indenture provides that in case an Event of Default shall
occur (which shall not be cured), the senior subordinated note trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the senior
subordinated note trustee will be under no obligation to exercise any of its
rights or powers under the senior subordinated note indenture at the request of
any holder of senior subordinated notes, unless such holder shall have offered
to the senior subordinated note trustee security and indemnity satisfactory to
it against any loss, liability or expense.
Book-Entry, Delivery and Form
The certificates representing the senior subordinated notes will be issued
in fully registered form. Except as described in the next paragraph, the senior
subordinated notes initially will be represented by permanent global senior
subordinated notes, in definitive, fully registered form without interest
coupons and will be deposited with the senior subordinated note trustee as
custodian for DTC and registered in the name of a nominee of DTC.
Except as described below, the global senior subordinated notes may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the global senior
subordinated notes may not be exchanged for senior subordinated notes in
certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Senior Subordinated Notes for Certificated Senior
Subordinated Notes." Except in the limited circumstances described below, owners
of beneficial interests in the global senior subordinated notes will not be
entitled to receive physical delivery of certificated senior subordinated notes
(as defined below).
The senior subordinated note trustee will act as Paying Agent and
Registrar. The senior subordinated notes may be presented for registration of
transfer and exchange at the offices of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. Our company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised our company that DTC is a limited-purpose trust company
created to hold securities for the Participants and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchaser, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised our company that, pursuant to procedures established
by it, (i) upon deposit of the global senior subordinated notes, DTC will credit
the accounts of Participants designated by the Initial Purchaser with portions
of the principal amount of the global senior subordinated notes and (ii)
ownership of such interests in the global senior
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subordinated notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interest in the global senior subordinated notes).
Investors in the global senior subordinated notes may hold their interests
therein directly through DTC, if they are Participants in such system, or
indirectly through organizations which are Participants in such system. All
interests in a global senior subordinated note may be subject to the procedures
and requirements of DTC. The laws of some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a global senior
subordinated note to such persons will be limited to that extent. Because DTC
can act only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a global senior subordinated note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Except as described below, owners of interests in the global senior
subordinated note will not have senior subordinated notes registered in their
names, will not receive physical delivery of senior subordinated notes in
certificated form and will not be considered the registered owners or "holders"
thereof under the senior subordinated note indenture for any purpose.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a global senior subordinated note registered in
the name of DTC or its nominee will be payable to DTC in its capacity as the
registered holder under the senior subordinated note indenture. Under the terms
of the senior subordinated note indenture, our company and the senior
subordinated note trustee will treat the persons in whose names the senior
subordinated notes, including the global senior subordinated notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither our company,
the senior subordinated note trustee nor any agent of our company or the senior
subordinated note trustee has or will have any responsibility or liability for
(1) any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the global senior subordinated notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
global senior subordinated notes or (2) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants. DTC
has advised our company that its current practice, upon receipt of any payment
in respect of securities such as the senior subordinated notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of senior
subordinated notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the senior subordinated
note trustee or our company. Neither our company nor the senior subordinated
note trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the senior subordinated notes, and our
company and the senior subordinated note trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its nominee for all
purposes.
Interests in the global senior subordinated notes are expected to be
eligible to trade in DTC's Same-Day Funds Settlement System and secondary market
trading activity in such interests will, therefore, settle in immediately
available funds, subject in all cases to the rules and procedures of DTC and its
Participants. See "--Same Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds.
DTC has advised our company that it will take any action permitted to be
taken by a holder of senior subordinated notes only at the direction of one or
more Participants to whose account DTC has credited the interests in the global
senior subordinated notes and only in respect of such portion of the aggregate
principal amount of the senior subordinated notes as to which such Participant
or Participants has or have given such direction. However, if there is an Event
of Default under the senior subordinated notes, DTC reserves the right to
exchange the global senior subordinated notes for legended senior subordinated
notes in certificated form, and to distribute such senior subordinated notes to
its Participants.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the global senior subordinated notes among
Participants in DTC, it is under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither our company nor the senior subordinated note
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trustee nor any of their respective agents will have any responsibility for the
performance by DTC, or its participants or indirect participants of its
obligations under the rules and procedures governing its operations.
Exchange of Book-Entry Senior Subordinated Notes for Certificated Senior
Subordinated Notes
A global senior subordinated note is exchangeable for definitive senior
subordinated notes in registered certificated form ("certificated senior
subordinated notes") if (1) DTC (x) notifies our company that it is unwilling or
unable to continue as depositary for the global senior subordinated notes and
our company thereupon fails to appoint a successor depositary or (y) has ceased
to be a clearing agency registered under the Exchange Act, (2) our company, at
its option, notifies the senior subordinated note trustee in writing that it
elects to cause the issuance of the certificated senior subordinated notes or
(3) there shall have occurred and be continuing a Default or Event of Default
with respect to the senior subordinated notes. In addition, beneficial interests
in a global senior subordinated note may be exchanged for certificated senior
subordinated notes upon request but only upon prior written notice given to the
senior subordinated note trustee by or on behalf of DTC in accordance with the
senior subordinated note indenture. In all cases, certificated senior
subordinated notes delivered in exchange for any global senior subordinated note
or beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear the applicable
restrictive legend referred to in "Notice to Investors," unless our company
determines otherwise in compliance with applicable law.
Exchange of Certificated Senior Subordinated Notes for Book-Entry Senior
Subordinated Notes
Senior subordinated notes issued in certificated form may be exchanged for
beneficial interests in any global senior subordinated note upon request.
Same Day Settlement and Payment
The senior subordinated note indenture requires that payments in respect
of the senior subordinated notes represented by the global senior subordinated
notes (including principal, premium, if any, interest and Liquidated Damages, if
any) be made by wire transfer of immediately available funds to the accounts
specified by the global senior subordinated note holder. With respect to senior
subordinated notes in certificated form, our company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. The senior subordinated notes represented by the
global senior subordinated notes are expected to trade in DTC's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
senior subordinated notes will, therefore, be required by DTC to be settled in
immediately available funds. We expect that secondary trading in any
certificated senior subordinated notes will also be settled in immediately
available funds.
Definitions
The following are defined terms used in the senior subordinated note
indenture. Reference is made to the senior subordinated note indenture for a
full disclosure of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (1)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (2) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition" means the Acquisition by our company of: (1) all of the
common stock of Peabody Holding Company, (2) all of the common stock of Gold
Fields Mining Corp., (3) all of the membership interests of Citizens Power, (4)
the 1% interests in CL Hartford, L.L.C., a Delaware limited liability company,
and Citizens Power Sales, a Delaware general partnership.
"Additional Assets" means (1) any property or assets (other than capital
stock, Indebtedness or rights to receive payments over a period greater than 180
days, other than with respect to coal supply contract restructurings) that is
usable by our company or a Restricted Subsidiary in a Permitted Business or (2)
the capital stock of a Person that is at the time, or becomes, a Restricted
Subsidiary as a result of the Acquisition of such capital stock by our company
or another Restricted Subsidiary.
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"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (1) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of our company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the senior subordinated note indenture described above under the caption
"--Change of Control" and/or the provisions described above under the caption
"--Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (2) the issue or sale by our company or any of its
Restricted Subsidiaries of Equity Interests of any of our company's Restricted
Subsidiaries, in the case of either clause (1) or (2), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $5.0 million or (b) for Net Proceeds in excess of $5.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (1) a transfer of assets by our company to a Restricted
Subsidiary or by a Restricted Subsidiary to our company or to another Restricted
Subsidiary, (2) an issuance of Equity Interests by a Restricted Subsidiary to
our company or to another Restricted Subsidiary, (3) a Restricted Payment that
is permitted by, or an Investment that is not prohibited by, the covenant
described above under the caption "--Restricted Payments," (4) a disposition of
Cash Equivalents or obsolete equipment, (5) foreclosures on assets, (6) the sale
or discount, in each case without recourse, of accounts receivable arising in
the ordinary course of business, but only in connection with the compromise or
collection thereof and (7) the factoring of accounts receivable arising in the
ordinary course of business under arrangements customary in the industry.
"Bengalla Joint Venture" means Bengalla Mining Co. Pty Limited, Bengalla
Agricultural Co. Pty Limited and Bengalla Coal Sales Co. Pty Ltd. which are the
joint venture companies related to the Bengalla mine in New South Wales,
Australia.
"Black Beauty Coal Company" means the Indiana general partnership among
Thoroughbred, L.L.C., Black Beauty Resources, Inc. and Pittsburg and Midway Coal
Mining Co., and any Person collectively owned by those three partners including,
but not limited to, Eagle Coal Company and Falcon Coal Company.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of Acquisition issued or fully guaranteed or insured by the
U.S. Government or any agency thereof, (b) certificates of deposit and time
deposits with maturities of one year or less from the date of Acquisition and
overnight bank deposits of any lender under the Senior Credit Facilities or of
any commercial bank having capital and surplus in excess of $500.0 million, (c)
repurchase obligations of any lender under the Senior Credit Facilities or of
any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 90 days with respect to securities
issued or fully guaranteed or insured by the United States Government, (d)
commercial paper of a domestic issuer rated at least A-2 by S&P or P-2 by
Moody's, or carrying an equivalent rating by a nationally recognized rating
agency if both of S&P and Moody's cease publishing ratings of investments, (e)
securities with maturities of one year or less from the date of Acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the securities of which
state, commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A by
Moody's, (f) securities with maturities of one year or less from the date of
Acquisition backed by standby letters of credit issued by any lender under the
Senior Credit Facilities or any commercial bank satisfying the requirements of
clause (b) of this definition or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
"Citizens Power" means Citizens Power LLC, a Delaware limited liability
company and its direct and indirect Subsidiaries.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (1) provision
for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (2) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued and whether or not capitalized (including, without
limitation, amortization of debt issuance costs, deferred financing fees and
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original issue discount, noncash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) under Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net Income,
plus (3) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (4) depreciation, depletion,
amortization (including amortization of goodwill and other intangibles) and
other noncash expenses (including, without limitation, writedowns and impairment
of property, plant and equipment and intangibles and other long-lived assets)
(excluding any such noncash expense to the extent that it represents an accrual
of or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such depreciation,
depletion, amortization and other noncash expenses were deducted in computing
such Consolidated Net Income, minus (5) noncash items increasing such
Consolidated Net Income for such period (other than accruals in accordance with
GAAP), plus (6) without duplication for amounts otherwise included in
Consolidated Cash Flow, the amount of our company's and its Restricted
Subsidiaries' proportionate share of the Consolidated Cash Flow of Black Beauty
Coal Company and its Subsidiaries for such period (calculated in proportion to
our company's and its Restricted Subsidiaries common equity ownership), in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation, depletion and amortization and other noncash expenses
of, a Restricted Subsidiary that is not a senior subordinated note guarantor
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent that a corresponding amount would be permitted at the date of
determination to be dividended to our company by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction under the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (1) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Restricted Subsidiary thereof, (2) the Net Income of any
Restricted Subsidiary that is not a senior subordinated note guarantor shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (3) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such Acquisition shall
be excluded, (4) the cumulative effect of a change in accounting principles
shall be excluded, and (5) the Net Income (or loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to our company or one
of its Restricted Subsidiaries.
"Credit Facilities" means, with respect to our company or any of its
Restricted Subsidiaries, one or more debt facilities (including, without
limitation, the Senior Credit Facilities) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on the
date on which senior subordinated notes are first issued and authenticated under
the senior subordinated note indenture shall be deemed to have been incurred on
such date in reliance on the exception provided by clause (1) of the definition
of Permitted Indebtedness.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by our company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of our company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Disqualified Stock" means any capital stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, under a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof,
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in whole or in part, on or prior to the date that is 91 days after the date on
which the senior subordinated notes mature; provided, however, that any capital
stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require our company to repurchase such capital stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such capital stock provide that our company
may not repurchase or redeem any such capital stock under such provisions unless
such repurchase or redemption complies with the covenant described above under
the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means a Subsidiary that is (1) formed under the laws
of the United States of America or a state or territory thereof or (2) as of the
date of determination, treated as a domestic entity or a partnership or a
division of a domestic entity for United States federal income tax purposes.
"Equity Interests" means capital stock and all warrants, options or other
rights to acquire capital stock (but excluding any debt security that is
convertible into, or exchangeable for, capital stock).
"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Stock) of our company, other than any private sales to
an Affiliate of our company.
"Escrow Account" means the escrow account maintained under the Escrow
Letter.
"Escrow Letter" means that certain escrow letter dated March 2, 1998, by
and among Lazard Brothers & Co., Limited, The Energy Group PLC, Peabody
Investments Inc. and P&L Coal Holdings Corporation.
"Existing Citizens Power Investment" means the Investments in Citizens
Power by our company and its Restricted Subsidiaries as of the date of the
closing of the Acquisition.
"Existing Indebtedness" means up to $292.5 million in aggregate principal
amount of Indebtedness of our company and its Restricted Subsidiaries (other
than Indebtedness under the Senior Credit Facilities, the senior notes, the
senior subordinated notes and related guarantees) in existence on the date of
the closing of the Acquisition, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, noncash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments (if any) under
Hedging Obligations, but excluding amortization of debt issuance costs) and (2)
the consolidated interest of such Person and its Restricted Subsidiaries that
was capitalized during such period, and (3) any interest expense on the portion
of Indebtedness of another Person that is guaranteed by such Person or one of
its Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon) and (4) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of our company (other than Disqualified Stock) or to our
company or a Restricted Subsidiary of our company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
effective combined federal, state and local tax rate of such Person for such
period, expressed as a decimal, in each case, for our company and its Restricted
Subsidiaries on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries for such period. In the
event that the referrent Person or any of its Restricted Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (1) Acquisitions that have been made
by our company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions and including
pro forma cost savings permitted by Article 11 of Regulation S-X, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (3) of the proviso contained in the definition of Consolidated Net
Income, and (2) the Consolidated Cash Flow
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attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"Foreign Subsidiaries" means Subsidiaries of our company that are not
Domestic Subsidiaries.
"GAAP" means generally accepted accounting principles described in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the senior subordinated note
indenture.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (1) currency exchange, interest rate or commodity swap
agreements, currency exchange, interest rate or commodity cap agreements and
currency exchange, interest rate or commodity collar agreements and (2) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange, interest rates or commodity prices, in each case for the
purpose of risk management and not for speculation.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, if and
to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person, but excluding from the
definition of "Indebtedness," any of the foregoing that constitutes (1) an
accrued expense, (2) trade payables and (3) Obligations in respect of
reclamation, workers' compensation, including black lung, pensions and retiree
health care, in each case to the extent not overdue for more than 90 days. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness issued with original issue
discount, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees, other than performance guarantees provided for the
benefit of Citizens Power of any portion of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other Acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If our company or any Restricted Subsidiary of our company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of our company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of our company, our company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Marketable Securities" means, with respect to any Asset Sale, any readily
marketable equity securities that are (1) traded on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market; and (2) issued by a
corporation having a total equity market capitalization of not less than $250.0
million; provided that the excess of (A) the aggregate amount of securities of
any one such corporation held by our company and any Restricted Subsidiary over
(B) ten times the average daily trading volume of such securities during the 20
immediately preceding trading days shall be deemed not to be Marketable
Securities; as determined on the date of the contract relating to such Asset
Sale.
"Net Income" means, with respect to any Person, the net income or loss of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (1) any gain or loss,
together
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with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (2) any extraordinary or nonrecurring gain or loss, together
with any related provision for taxes on such extraordinary or nonrecurring gain
or loss.
"Net Proceeds" means the aggregate proceeds (cash or property) received by
our company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale) or the sale
or disposition of any Investment, net of the direct costs relating to such Asset
Sale, sale or disposition, (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Guarantor Subsidiaries" means (1) Citizens Power and its direct and
indirect Subsidiaries, (2) our company's future Unrestricted Subsidiaries and
(3) our company's current and future Foreign Subsidiaries.
"Non-Recourse Debt" means Indebtedness (1) as to which neither our company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) other than a pledge of the Equity Interests of any Unrestricted
Subsidiaries, (b) is directly or indirectly liable (as a guarantor or otherwise)
other than by virtue of a pledge of the Equity Interests of any Unrestricted
Subsidiaries, or (c) constitutes the lender; and (2) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the senior subordinated notes being offered hereby) of our company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity.
"Obligations" means any principal, premium (if any), interest, penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages,
guarantees and other liabilities and amounts payable under the documentation
governing any Indebtedness or in respect thereto.
"Permitted Business" means coal production, coal mining, coal brokering,
coal transportation, mine development, power marketing, electricity generation,
power/energy sales and trading, energy transactions/asset restructurings, risk
management products associated with energy, fuel/power integration and other
energy related businesses, ash disposal, environmental remediation, coal,
natural gas, petroleum or other fossil fuel exploration, production, marketing,
transportation and distribution and other related businesses, and activities of
our company and its Subsidiaries as of the date of the closing of the
Acquisition and any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or ancillary thereto.
"Permitted Investments" means (a) any Investment in our company or in a
Restricted Subsidiary of our company; (b) any Investment in Cash Equivalents;
(c) any Investment by our company or any Restricted Subsidiary of our company in
a Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of our company or (ii) such Person, in one transaction or a series of
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
our company or a Restricted Subsidiary of our company; (d) any Acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of our company; (e) any Investment existing on the date of
the closing of the Acquisition (an "Existing Investment") and any Investment
that replaces, refinances or refunds an Existing Investment, provided that the
new Investment is in an amount that does not exceed the amount replaced,
refinanced or refunded and is made in the same Person as the Investment
replaced, refinanced or refunded, (f) advances to employees not in excess of
$10.0 million outstanding at any one time; (g) Hedging Obligations permitted
under clause (9) of the "--Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant; (h) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar expenses, in
each case incurred in the ordinary course of business; (i) any Investment in a
Permitted Business (whether or not an Investment in an Unrestricted Subsidiary)
having an aggregate fair market value, when taken together with all other
Investments made pursuant to this clause (i), does not exceed in aggregate
amount the sum of (1) 10% of Total Assets at the time of such Investment (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value) plus (2) 100% of the Net
Proceeds from the sale or disposition of any Investment previously made pursuant
to this clause (i) or 100% of the amount of any dividend, distribution or
payment from any such Investment, net of income taxes paid or payable in respect
thereof, in each case up to the amount of the Investment that was made pursuant
to this clause (i) and 50% of the amount of such Net Proceeds or 50% of such
dividends, distributions or payments, in each case received in excess of the
amount of the Investments made pursuant to this clause (i);
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(j) guarantees of Indebtedness permitted under the covenant "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" (k) any Investment acquired by
our company or any of its Restricted Subsidiaries (A) in exchange for any other
Investment or accounts receivable held by our company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (B) as a result of the transfer of title with respect to
any secured Investment in default as a result of a foreclosure by our company or
any of its Restricted Subsidiaries with respect to such secured Investment; (l)
any Investment in Black Beauty Coal Company having an aggregate fair market
value, taken together with all other Investments made pursuant to this clause
(l), that are at the time outstanding not to exceed $50.0 million (with any
write-down or write-off of any such Investment deemed to remain outstanding);
(m) Investments in Citizens Power having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (m), that are
at that time outstanding not to exceed $50.0 million at the time of such
Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value); (n) any
Investment in the Bengalla Joint Venture and the Warkworth Associates Joint
Venture having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (n), that are at the time outstanding,
not to exceed $25.0 million (with any write-down or write-off of any such
Investment deemed to remain outstanding); (o) that portion of any Investment by
our company or a Restricted Subsidiary in a Permitted Business to the extent
that our company or such Restricted Subsidiary will receive in a substantially
concurrent transaction an amount in cash equal to the amount of such Investment
(or the fair market value of such Investment), net of any obligation to pay
taxes or other amounts in respect of the receipt of such cash; provided that the
receipt of such cash does not carry any obligation by our company or such
Restricted Subsidiary to repay or return such cash; and (p) the forgiveness or
cancellation of any payable due from Citizens Power and its direct and indirect
Subsidiaries outstanding on the date of the closing of the Acquisition;
provided, however, that with respect to any Investment, our company may, in its
sole discretion, allocate all or any portion of any Investment to one or more of
the above clauses so that the entire Investment would be a Permitted Investment.
"Permitted Liens" means (1) Liens securing Indebtedness under Credit
Facilities that were permitted by the terms of the senior subordinated note
indenture to be incurred; (2) Liens in favor of our company; (3) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with our company or any Restricted Subsidiary of our company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with our company; (4) Liens on property
existing at the time of Acquisition thereof by our company or any Restricted
Subsidiary of our company, provided that such Liens were in existence prior to
the contemplation of such Acquisition; (5) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (6)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance or other kinds of social
security; (7) Liens existing on the date of the closing of the Acquisition; (8)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (9) Liens on assets of senior subordinated note guarantors
to secure Senior Debt of such senior subordinated note guarantors that was
permitted by the senior subordinated note indenture to be incurred; (10) Liens
incurred in the ordinary course of business of our company or any Restricted
Subsidiary of our company with respect to obligations that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by our company or such
Restricted Subsidiary; (11) Liens on assets of Foreign Subsidiaries to secure
Indebtedness that was permitted by the senior subordinated note indenture to be
incurred; (12) statutory liens of landlords, mechanics, suppliers, vendors,
warehousemen, carriers or other like Liens arising in the ordinary course of
business; (13) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceeding that may have been duly initiated for the
review of such judgment shall not have been finally terminated or the period
within which such legal proceeding may be initiated shall not have expired; (14)
easements, rights-of-way, zoning and similar restrictions and other similar
encumbrances or title defects incurred or imposed, as applicable, in the
ordinary course of business and consistent with industry practices which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto (as such
property is used by our company or its Subsidiaries) or interfere with the
ordinary conduct of the business of our company or such Subsidiaries; provided,
however, that any such Liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or to extend any credit; (15) Liens
to secure Indebtedness (including Capital Lease Obligations) permitted by clause
(6) of the second paragraph of the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock" and other purchase money Liens to finance
property or assets of our company or any Restricted Subsidiary acquired in the
ordinary course of business; provided that such Liens are only secured by such
property or assets so acquired or improved (including, in the case of the
Acquisition of capital stock of a Person who becomes a Restricted Subsidiary,
Liens on the assets of the Person whose capital stock was so
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acquired); (16) Liens securing Indebtedness under Hedging Obligations; provided
that such Liens are only secured by property or assets that secure the
Indebtedness subject to the Hedging Obligation; (17) Liens to secure
Indebtedness permitted by clause (15) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" and (18)
Liens on the Equity Interests of Unrestricted Subsidiaries securing obligations
of Unrestricted Subsidiaries not otherwise prohibited by the senior subordinated
notes indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of our company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of our company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (1) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest and premium, if any, on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (2) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the senior subordinated notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the senior
subordinated notes on terms at least as favorable to the holders of senior
subordinated notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (4) such Indebtedness is incurred either by our company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facilities" means those certain Senior Credit Facilities,
dated as of May 18, 1998, by and among our company, the senior note guarantors,
Lehman Commercial Paper Inc., as Arranger, Syndication Agent and the
Administrative Agent and the other lenders party thereto, including any related
notes, guarantees, collateral documents, letters of credit, instruments and
agreements executed in connection therewith (and any appendices, exhibits or
schedules to any of the foregoing), and in each case as amended, modified,
supplemented, restated, renewed, refunded, replaced, restructured, repaid or
refinanced from time to time (whether with the original agents and lenders or
other agents and lenders or otherwise, and whether provided under the original
credit agreement or other credit agreements or otherwise).
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (1) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or senior
subordinated note trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (2) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
"Total Assets" means the total assets of our company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of our company
and its Restricted Subsidiaries.
"Transaction Documents" means the documents related to (1) the Acquisition
(including, without limitation, the purchase agreement, the participation
agreement and the escrow agreement), (2) the Senior Credit Facilities and (3)
the original offering of the notes.
"Treasury Rate" means the yield to maturity at the time of the computation
of the United States Treasury securities with a constant maturity (as compiled
by and published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two Business Days prior
to the date fixed for redemption (or if such Statistical Release
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is no longer published, any publicly available source of similar market data))
most nearly equal to the then remaining average life to May 15, 2003; provided,
however, that if the average life of such senior subordinated note is not equal
to the constant maturity of the United States Treasury security for which weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the average life of such senior subordinated note is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (1) Citizens Power, any direct or indirect
Subsidiary of Citizens Power on the date of the senior subordinated note
indenture and (2) any Subsidiary that is designated by the Board of Directors as
an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the
extent that such Person: (a) has no Indebtedness other than Non-Recourse Debt;
(b) is not party to any agreement, contract, arrangement or understanding with
our company or any Restricted Subsidiary of our company unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable to
our company or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of our company; (c) is a Person
with respect to which neither our company nor any of its Restricted Subsidiaries
has any obligation (x) to subscribe for additional Equity Interests in
Unrestricted Subsidiaries (except with respect to Permitted Investments) or (y)
to maintain or preserve such Person's net worth; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
our company or any of its Restricted Subsidiaries; provided, however, that our
company and its Restricted Subsidiaries may guarantee the performance of
Unrestricted Subsidiaries in the ordinary course of business except for
guarantees of Obligations in respect of borrowed money. Any such designation by
the Board of Directors shall be evidenced to the senior subordinated note
trustee by filing with the senior subordinated note trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Certain Covenants--Restricted Payments."
"Voting Stock" of any Person as of any date means the capital stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Warkworth Associates Joint Venture" means Warkworth Coal Sales Ltd.,
Warkworth Pastoral Co. Pty, Limited and Warkworth Mining Limited, which are the
joint venture companies related to the Warkworth mine in New South Wales,
Australia.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding capital stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding capital stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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PLAN OF DISTRIBUTION
This prospectus is to be used by Lehman Brothers Inc. in connection with
offers and sales of the notes in market-making transactions effected from time
to time. Lehman Brothers Inc. may act as a principal or agent in those
transactions, including as agent for the counterparty when acting as principal
or as agent for both counterparties, and may receive compensation in the form of
discounts and commissions, including from both counterparties when it acts as
agent for both. These sales will be made at prevailing market prices at the time
of sale, at prices related thereto or at negotiated prices.
As of May 19, 1999, affiliates of Lehman Brothers Inc. beneficially owned
83.7% of our capital stock. See "Ownership of Capital Stock." Because Lehman
Brothers Inc. may purchase and sell notes, and because this prospectus may be
used by Lehman Brothers Inc. in connection with future offers and sales of notes
in market-making transactions effected from time to time, no estimate can be
given as to the number and percentage of notes that will be held by Lehman
Brothers Inc. upon termination of any of those sales. Lehman Brothers Inc. has
informed us that it does not intend to confirm sales of the notes to any
accounts over which it exercises discretionary authority without the prior
specific written approval of those transactions by the customer.
We have been advised by Lehman Brothers Inc. that, subject to applicable
laws and regulations, Lehman Brothers Inc. currently intends to make a market in
the notes. However, Lehman Brothers Inc. is not obligated to do so and any
market-making may be interrupted or discontinued at any time without notice. In
addition, that market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active trading market will develop or be sustained. See "Risk Factors--There Is
No Trading Market for the Notes."
Lehman Brothers Inc. has provided investment banking services to us in the
past and may provide those services and financial advisory services to us in the
future. Lehman Brothers Inc. acted as purchaser in connection with the initial
sale of the notes and received an underwriting discount of $27.0 million in
connection therewith. See "Related Party Transactions."
Lehman Brothers Inc. has entered into a registration rights agreement with
us with respect to the use by Lehman Brothers Inc. of this prospectus. Under
that agreement, we agreed to bear all registration expenses incurred under that
agreement, and we agreed to indemnify Lehman Brothers Inc. against specified
liabilities, including liabilities under the Securities Act.
EXPERTS
The reserve reports and estimates of the company's proven and probable
coal reserves included herein have, to the extent described herein, been
prepared by the company and reviewed by the John T. Boyd Company.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as of March 31, 1999 and for the period ended
March 31, 1999, and the combined financial statements and schedule of P&L Coal
Group (the Predecessor Company) as of March 31, 1998 and the year then ended,
and for the period ended May 19, 1998, the six months ended March 31, 1997 and
the year ended September 30, 1996, as set forth in their report. We've included
our financial statements and schedules in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC. You may access and read our SEC filings, including the complete
registration statement and all of the exhibits to it, through the SEC's Internet
site at www.sec.gov. This site contains reports and other information regarding
issuers that we file electronically with the SEC. You may also read and copy any
document we file at the SEC's public reference room located at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room.
We have filed with the SEC a registration statement under the Securities
Act with respect to the notes offered by this prospectus. This prospectus, which
constitutes part of the registration statement, does not contain all of the
information presented in the registration statement and its exhibits and
schedules. Our descriptions in this prospectus of the provisions of documents
filed as exhibits to the registration statement or otherwise filed with the SEC
are only summaries of the documents' material terms. If you want a complete
description of the content of the documents, you should obtain the documents
yourself by following the procedures described above.
You may request copies of the filings, at no cost, by telephone at (314)
342-3400 or by mail at: P&L Coal Holdings Corporation, 701 Market Street, Suite
700, St. Louis, Missouri 63101, attention: Public Relations.
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GLOSSARY OF SELECTED TERMS
Anthracite. The highest rank of economically usable coal with moisture
content less than 15% by weight and heating value as high as 15,000 Btus per
pound. It is jet black with a high luster. It is mined primarily in
Pennsylvania.
Appalachian Region. Coal producing states of Alabama, Georgia, eastern
Kentucky, Maryland, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia and
West Virginia.
Ash. Impurities consisting of iron, alumina and other incombustible matter
that are contained in coal. Since ash increases the weight of coal, it adds to
the cost of handling and can affect the burning characteristics of coal.
Bituminous Coal. The most common type of coal with moisture content less
than 20% by weight and heating value of 10,500 to 14,000 Btus per pound. It is
dense and black and often has well-defined bands of bright and dull material.
British Thermal Unit ("Btu"). A measure of the energy required to raise
the temperature of one pound of water one degree Fahrenheit.
Clean Air Act Amendments of 1990. A comprehensive set of amendments to the
federal law governing the nation's air quality. The Clean Air Act was originally
passed in 1970 to address significant air pollution problems in our cities. The
1990 amendments broadened and strengthened the original law to address specific
problems such as acid deposition, urban smog, hazardous air pollutants and
stratospheric ozone depletion.
Coal Seam. Coal deposits occur in layers. Each layer is called a "seam."
Coke. A hard, dry carbon substance produced by heating coal to a very high
temperature in the absence of air. Coke is used in the manufacture of iron and
steel. Its production results in a number of useful byproducts.
Coking Coal. Coal used to make coke and interchangeably referred to as
metallurgical coal.
Continuous Mining. A form of underground room-and-pillar mining which uses
a continuous mining machine to cut coal from the seam and load it onto conveyors
or into shuttle cars in a continuous operation.
Deep Mine. An underground coal mine.
Draglines. A large excavating machine used in the surface mining process
to remove overburden.
Dragline Mining. A form of mining where large capacity electric-powered
draglines remove overburden to expose the coal seam. Smaller shovels load coal
in haul trucks for transportation to the preparation plant and then to the rail
loadout.
Federal Energy Regulatory Commission ("FERC"). A regulatory agency within
the Department of Energy that has jurisdiction over interstate electricity
sales, wholesale electric rates, hydro-electric licensing, natural gas pricing,
oil pipeline rates and gas pipeline certification.
Fossil Fuel. Fuel such as coal, petroleum or natural gas formed from the
fossil remains of organic material.
Greenfield. Undeveloped coal reserves.
Hard Rock Mine. A mine for hard rock minerals, which include copper, lead,
zinc, magnesium, nickel and gold. Coal mines are not considered hard rock mines.
Illinois Basin. Coal producing area in Illinois, western Indiana and
western Kentucky.
Interior Region. Coal producing states of Arkansas, Illinois, Indiana,
Iowa, Kansas, Michigan, western Kentucky, Louisiana, Missouri, Oklahoma and
Texas.
Lignite. The lowest rank of coal with a high moisture content of up to 45%
by weight and heating value of 6,500 to 8,300 Btus per pound. It is brownish
black and tends to oxidize and disintegrate when exposed to air.
Longwall Mining. A form of underground mining in which a panel or block of
coal, generally 700 feet wide and often over one mile long, is completely
extracted. The working area is protected by a moveable, powered roof support
system.
Metallurgical Coal. The various grades of coal suitable for carbonization
to make coke for steel manufacture. Also known as "met" coal, it possesses four
important qualities: volatility, which affects coke yield; the level of
impurities, which affects coke quality; composition, which affects coke
strength; and basic characteristics, which affect coke oven safety. Met coal has
a particularly high Btu, but low ash content.
129
<PAGE>
Nitrogen Oxide (NO2). A gas formed in high temperature environments such
as coal combustion. It is a harmful pollutant that contributes to acid rain.
Non-utility Generator (NUG). Non-utility generator that sells power to a
regulated utility under a long term contract.
Organization for Economic Cooperation and Development (OECD). Members of
the OECD include Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdom and the United States and its territories (Guam, Puerto Rico and the
U.S. Virgin Islands).
Overburden. Layers of earth and rock covering a coal seam. In surface
mining operations, overburden is removed prior to coal extraction.
Overburden Ratio/Stripping Ratio. The amount of overburden that must be
removed to excavate a given quantity of coal. It is commonly expressed in cubic
yards per ton of coal or as a ratio comparing the thickness of the overburden
with the thickness of the coal bed.
Pillar. An area of coal left to support the overlying strata in a mine;
sometimes left permanently to support surface structures.
Powder River Basin. Coal producing area in northeastern Wyoming and
southeastern Montana. This is the largest known source of coal reserves and the
largest producing region in the United States.
Preparation Plant. Usually located on a mine site, although one plant may
serve several mines. A preparation plant is a facility for crushing, sizing and
washing coal to prepare it for use by a particular customer. The washing process
has the added benefit of removing some of the coal's sulfur content.
Probable Reserves. In relation to coal, means reserves for which there is
a moderate degree of geological assurance. Coal tonnages are computed by
projection data from available seam measurements for a distance beyond coal
classed as measured or proven. The assurance, although lower than for proven
coal, is high enough to assume continuity between points of measurement. The
maximum acceptable distance for projection of indicated probable tonnage is
one-half to three-quarters mile from points of observation. Further exploration
is necessary to place these reserves in a proven category.
Proven Reserves. In relation to coal, means reserves for which there is
the highest degree of geological assurance. The sites for measurement are so
closely spaced and the geological character so well defined that the thickness,
real extent, size, shape and depth of coal are well established. The maximum
acceptable distance for projections from seam data points varies with the
geological nature of the coal seam being studied, but generally, a radius of
one-quarter mile is recognized as the standard. Proven reserves may also be
referred to as measured.
Reclamation. The process of restoring land and the environment to their
original state following mining activities. The process commonly includes
"recontouring" or reshaping the land to its approximate original appearance,
restoring topsoil and planting native grass and ground covers. Reclamation
operations are usually underway before the mining of a particular site is
completed. Reclamation is closely regulated by both state and federal law.
Recoverable Reserves. The amount of coal that can be recovered from the
reserve base. The average recovery factor for underground mines and surface
mines is about 57% and 80%, respectively. Using these percentages, there are
about 300 billion tons of recoverable reserves in the United States, enough to
last more than 300 years at current consumption levels.
Roof. The stratum of rock or other mineral above a coal seam; the overhead
surface of a coal working place. Same as "back" or "top."
Roof Bolt. A long steel bolt driven into the roof of underground
excavations to support the roof, preventing and limiting the extent of roof
falls. The unit consists of the bolt (up to four feet long), steel plate,
expansion shell, and pal nut. The use of roof bolts eliminates the need for
timbering by fastening together, or "laminating," several weaker layers of roof
strata to build a "beam."
Roof Support. Posts, jacks, roof bolts and beams used to support the rock
overlying a coal seam in an underground mine. A good roof support plan is part
of mine safety and coal extraction.
Room and Pillar Mining. The most common method of underground mining in
which the mine roof is supported mainly by coal pillars left at regular
intervals. Rooms are placed where the coal is mined; pillars are areas of coal
left between the rooms. Room-and-pillar mining is done either by conventional or
continuous mining.
130
<PAGE>
Scrubber (flue gas desulfurization unit). Any of several forms of
chemical/physical devices which operate to neutralize sulfur compounds formed
during coal combustion. These devices combine the sulfur in gaseous emissions
with other chemicals to form inert compounds, such as gypsum, which must then be
removed for disposal. Although effective in substantially reducing sulfur from
combustion gases, scrubbers require about six to seven % of a power plant's
electrical output and thousands of gallons of water to operate.
Steam Coal. Coal used by power plants and industrial steam boilers to
produce electricity or process steam. It generally is lower in Btu heat content
and higher in volatile matter than metallurgical coal.
Subbituminous Coal. Dull, black coal that ranks between lignite and
bituminous coal. Its moisture content is between 20% and 30% by weight, and its
heat content ranges from 7,800 to 9,500 Btus per pound of coal.
Sulfur. One of the elements present in varying quantities in coal that
contributes to environmental degradation when coal is burned. Sulfur dioxide is
produced as a gaseous by-product of coal combustion.
Sulfur Content. Coal is commonly described by its sulfur content due to
the importance of sulfur in environmental regulations. "Low sulfur" coal has a
variety of definitions but typically is used to describe coal consisting of 1.0%
or less sulfur. A majority of the company's Appalachian and Powder River Basin
reserves are of low sulfur grades.
Surface Mine. A mine in which the coal lies near the surface and can be
extracted by removing the covering layer of soil (see "Overburden"). About 60%
of total U.S. coal production comes from surface mines.
Tons. A "short" or net ton is equal to 2,000 pounds. A "long" or British
ton is 2,240 pounds; a "metric" ton is approximately 2,205 pounds. The short ton
is the unit of measure referred to in this document.
Truck and Shovel Mining. A form of mining where large shovels are used to
remove overburden, which is used to backfill pits after the coal is removed.
Smaller shovels load coal in haul trucks for transportation to the preparation
plant or rail loadout.
Underground Mine. Also known as a "deep" mine. Usually located several
hundred feet below the earth's surface, an underground mine's coal is removed
mechanically and transferred by shuttle car or conveyor to the surface. Most
underground mines are located east of the Mississippi River and account for
about 40% of annual U.S. coal production.
Unit Train. A train of 100 or more cars carrying only coal. A typical unit
train can carry at least 10,000 tons of coal in a single shipment.
Western Bituminous Coal Regions. Coal producing area including, the Hanna
Basin in Wyoming, the Uinta Basin of northwestern Colorado and Utah, the Four
Corners Region in New Mexico and Arizona and the Raton Basin in southern
Colorado.
131
<PAGE>
ORGANIZATIONAL CHARTS
P&L COAL HOLDING CORPORATION
[GRAPHIC]
CITIZENS POWER SUBSIDIARIES
[GRAPHIC]
AUSTRALIAN GROUP STRUCTURE
[GRAPHIC]
0-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors...............................................F-2
Financial Statements:
Statements of Operations..................................................F-3
Balance Sheets............................................................F-4
Statements of Cash Flows..................................................F-5
Statements of Changes in Stockholders' Equity / Invested Capital..........F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
P&L Coal Holdings Corporation
We have audited the accompanying consolidated balance sheet of P&L Coal Holdings
Corporation (the Company) as of March 31, 1999 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows of the
Company for the period then ended. We have also audited the accompanying
combined balance sheet of P&L Coal Group (the Predecessor Company) as of March
31, 1998, and the related combined statements of operations, changes in invested
capital and cash flows of the Predecessor Company for the period ended May 19,
1998, the year ended March 31, 1998, the six months ended March 31, 1997 and the
year ended September 30, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of P&L Coal Holdings
Corporation at March 31, 1999, the combined financial position of P&L Coal Group
at March 31, 1998, the consolidated results of operations and cash flows of the
Company for the period ended March 31 1999, and the combined results of
operations and cash flows of the Predecessor Company for the period ended May
19, 1998, the year ended March 31, 1998, the six months ended March 31, 1997 and
the year ended September 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1996 the Predecessor
Company changed its method of accounting for the impairment of long-lived assets
and for long-lived assets to be disposed of.
Ernst & Young LLP
April 30, 1999
St. Louis, Missouri
F-2
<PAGE>
P&L COAL HOLDINGS CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales $ 1,970,957 $ 278,930 $ 2,048,694 $ 1,000,419 $ 2,075,142
Other revenues 123,269 13,478 195,768 63,674 118,444
----------- ----------- ----------- ----------- -----------
Total revenues 2,094,226 292,408 2,244,462 1,064,093 2,193,586
OPERATING COSTS AND EXPENSES
Operating costs and expenses 1,663,626 247,129 1,710,801 822,938 1,693,543
Depreciation, depletion and amortization 184,191 26,218 202,640 101,730 197,853
Selling and administrative expenses 67,688 12,017 83,640 41,421 75,699
Impairment of long-lived assets -- -- -- -- 890,829
----------- ----------- ----------- ----------- -----------
Net gain on property and equipment disposals -- (328) (21,806) (4,091) (13,042)
OPERATING PROFIT (LOSS) 178,721 7,372 269,187 102,095 (651,296)
Interest expense (176,105) (4,222) (33,635) (24,700) (62,526)
Interest income 18,527 1,667 14,977 8,590 11,355
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 21,143 4,817 250,529 85,985 (702,467)
Income tax provision (benefit) 9,047 4,341 90,193 27,553 (256,185)
Minority interest 1,887 -- -- -- --
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 10,209 $ 476 $ 160,336 $ 58,432 $ (446,282)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
P&L COAL HOLDINGS CORPORATION
BALANCE SHEETS
AS OF MARCH 31,
<TABLE>
<CAPTION>
Predecessor
Company
-----------
(Dollars in thousands) 1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 194,078 $ 96,821
Accounts receivable, less allowance of $177 and $9,100, respectively 312,748 326,540
Receivables from affiliates, net -- 112,763
Materials and supplies 53,978 67,343
Coal inventory 195,919 197,480
Assets from power trading activities 1,037,300 1,295,169
Deferred income taxes 8,496 --
Other current assets 29,942 30,036
----------- -----------
Total current assets 1,832,461 2,126,152
Property, plant, equipment and mine development
Land and coal interests 3,988,742 3,075,916
Building and improvements 316,163 721,883
Machinery and equipment 651,728 1,441,140
Less accumulated depreciation, depletion and amortization (193,492) (1,565,397)
----------- -----------
Property, plant, equipment and mine development, net 4,763,141 3,673,542
Investments and other assets 428,329 543,315
----------- -----------
Total assets $ 7,023,931 $ 6,343,009
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY/INVESTED CAPITAL
Current liabilities
Short-term borrowings and current maturities of long-term debt $ 72,404 $ 46,616
Income taxes payable 7,308 2,388
Deferred income taxes -- 6,036
Liabilities from power trading activities 638,062 947,467
Accounts payable and accrued expenses 627,734 587,674
----------- -----------
Total current liabilities 1,345,508 1,590,181
Long-term debt, less current maturities 2,469,975 555,660
Deferred income taxes 780,175 661,572
Accrued reclamation and other environmental liabilities 498,032 416,361
Workers' compensation obligations 207,544 248,670
Accrued postretirement benefit costs 956,714 876,244
Obligation to industry fund 63,107 97,045
Other noncurrent liabilities 183,736 209,434
----------- -----------
Total liabilities 6,504,791 4,655,167
Minority interest 23,910 --
Stockholders' equity/invested capital:
Preferred stock--$0.01 per share par value; March 31, 1999--10,000,000 shares authorized,
5,000,000 shares issued and outstanding 50 --
Common stock--Class A, $0.01 per share par value; March 31, 1999--30,000,000 shares
authorized, 19,000,000 shares issued and outstanding 190 --
Common stock--Class B, $0.01 per share par value; March 31, 1999--3,000,000 shares
authorized, 708,767 shares issued and outstanding 7 --
Additional paid-in capital 484,772 --
Employee stock loans (2,331) --
Accumulated other comprehensive income (loss) 2,333 (42,184)
Retained earnings 10,209 --
Invested capital -- 1,730,026
----------- -----------
Total stockholders' equity/invested capital 495,230 1,687,842
----------- -----------
Total liabilities and stockholders' equity/invested capital $ 7,023,931 $ 6,343,009
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
P&L COAL HOLDINGS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------------------------------
(Dollars in thousands) Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 10,209 $ 476 $ 160,336 $ 58,432 $ (446,282)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation, depletion and amortization 184,191 26,218 202,640 101,730 197,853
Deferred income taxes (679) 2,835 65,508 17,529 (281,651)
Amortization of debt discount and debt
issuance costs 16,120 1,379 11,205 5,767 10,378
Net gain on property and equipment disposals -- (328) (21,806) (4,091) (13,042)
Gain on contract restructurings (5,300) -- (49,270) (11,624) (22,000)
Impairment of long-lived assets -- -- -- -- 890,829
Stock compensation 3,924 -- -- -- --
Minority interest 1,887 -- -- -- --
Changes in current assets and liabilities,
excluding effects of acquisitions:
Accounts receivable 173,793 (132,065) (70,326) (17,718) 45,908
Materials and supplies 3,620 881 (438) (2,526) 8,482
Coal inventory 5,781 (2,807) (16,160) (25,930) (3,373)
Other current assets 7,218 (10,701) (3,385) 6,550 (9,736)
Accounts payable and accrued expenses (216,987) 87,814 61,707 (25,496) (68,525)
Income taxes payable 173 1,234 (12,447) (10,964) (31,079)
Net assets from power trading activities (54,155) 5,289 (107,102) -- --
Accrued reclamation and related liabilities (4,468) (1,622) (18,509) (15,385) (28,678)
Workers' compensation obligations (10,449) (2,156) (23,106) (7,618) (38,036)
Accrued postretirement benefit costs 6,094 6,092 15,292 7,324 12,165
Obligation to industry fund (3,619) (2,379) (26,771) (13,867) (32,532)
Royalty prepayment 135,903 -- -- -- --
Other, net 17,257 (10,619) 14,310 716 20,854
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 270,513 (30,459) 181,678 62,829 211,535
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and
mine development (174,872) (20,950) (166,336) (76,460) (152,106)
Acquisitions, net of $77,351 cash acquired
during period ended March 31, 1999 (2,076,920) -- (58,715) -- --
Proceeds from contract restructurings 2,515 328 57,460 15,466 29,211
Proceeds from property and equipment disposals 11,450 1,374 37,732 4,824 17,255
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (2,237,827) (19,248) (129,859) (56,170) (105,640)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of short-term borrowings and
long-term debt (235,504) (19,423) (363,566) (503,138) (862,113)
Proceeds from short-term borrowings and
long-term debt 1,923,512 53,597 359,391 367,093 1,037,716
Capital contribution 480,000 -- -- 269,168 284,156
Dividends paid to minority interests (3,080) -- -- -- --
Dividends paid -- (173,330) (65,109) -- (72,830)
Transactions with affiliates
Repayment of affiliated loan and interest -- -- -- -- (302,104)
Loan to affiliate -- -- (141,000) -- --
Proceeds from affiliated loan -- 141,000 -- -- --
Advances from affiliates -- 21,693 16,882 -- --
Repayments to affiliates (3,647) -- -- (7,275) (22,724)
Invested capital transactions with
affiliates -- -- (41,987) (31,670) (46,114)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 2,161,281 23,537 (235,389) 94,178 15,987
Effect of exchange rate changes on cash and
cash equivalents 111 (292) (718) (1,261) 5,886
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 194,078 (26,462) (184,288) 99,576 127,768
Cash and cash equivalents at beginning of
period -- 96,821 281,109 181,533 53,765
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 194,078 $ 70,359 $ 96,821 $ 281,190 $ 181,533
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
P&L COAL HOLDINGS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/INVESTED CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Employee
Preferred Common Paid-in Stock
Stock Stock Capital Loans
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
May 20, 1998 $ -- $ -- $ -- $ --
Capital contribution 50 190 479,760 --
Comprehensive income:
Net income -- -- -- --
Foreign currency translation adjustments -- -- -- --
Minimum pension liability (net of $1,248 tax) -- -- -- --
Comprehensive income
Stock grants to employees -- 5 3,919 (1,236)
Stock purchases by employees -- 2 1,093 (1,095)
March 31, 1999 $ 50 $ 197 $ 484,772 $ (2,331)
=========== =========== =========== ===========
==========================================================================================================
Predecessor Company
March 31, 1997 $ -- $ -- $ -- $ --
Comprehensive income:
Net income -- -- -- --
Foreign currency translation adjustments -- -- -- --
Comprehensive income
Dividend paid -- -- -- --
Net transactions with affiliates -- -- -- --
----------- ----------- ----------- -----------
March 31, 1998 $ -- $ -- $ -- $ --
Comprehensive income:
Net income -- -- -- --
Foreign currency translation adjustments -- -- -- --
Comprehensive loss
Dividend paid -- -- -- --
Net transactions with affiliates -- -- -- --
----------- ----------- ----------- -----------
May 19, 1998 $ -- $ -- $ -- $ --
=========== =========== =========== ===========
<CAPTION>
Accumulated
Other Total
Compre- Stockholders'
hensive Equity/
Income Retained Invested Invested
(Loss) Earnings Capital Capital
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
May 20, 1998 $ -- $ -- $ -- $ --
Capital contribution -- -- -- 480,000
Comprehensive income:
Net income -- 10,209 -- 10,209
Foreign currency translation adjustments 4,128 -- -- 4,128
Minimum pension liability (net of $1,248 tax) (1,795) -- -- (1,795)
-----------
Comprehensive income 12,542
Stock grants to employees -- -- -- 2,688
Stock purchases by employees -- -- -- --
March 31, 1999 $ 2,333 $ 10,209 $ -- $ 495,230
=========== =========== =========== ===========
=============================================================================================================
Predecessor Company
March 31, 1997 $ -- $ -- $ 1,676,786 $ 1,676,786
Comprehensive income:
Net income -- -- 160,336 160,336
Foreign currency translation adjustments (42,184) -- -- (42,184)
-----------
Comprehensive income 118,152
Dividend paid -- -- (65,109) (65,109)
Net transactions with affiliates -- -- (41,987) (41,987)
----------- ----------- ----------- -----------
March 31, 1998 $ (42,184) $ -- $ 1,730,026 $ 1,687,842
Comprehensive income:
Net income -- -- 476 476
Foreign currency translation adjustments (17,974) -- -- (17,974)
Comprehensive loss (17,498)
Dividend paid -- -- (173,330) (173,330)
Net transactions with affiliates -- -- 360 360
----------- ----------- ----------- -----------
May 19, 1998 $ (60,158) $ -- $ 1,557,532 $ 1,497,374
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
P & L COAL HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except where noted and per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the consolidated results of
operations and balance sheet of P&L Coal Holdings Corporation (the
"Company"), 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 Limited ("Peabody Resources"), an Australian
company (collectively, the "Predecessor Company"). The combined financial
statements include the combined results of operations of the Predecessor
Company from April 1, 1998 to May 19, 1998, the fiscal year ended March
31, 1998, the six months ended March 31, 1997 and the fiscal year ended
September 30, 1996.
Until May 19, 1998, the Predecessor Company was a wholly owned indirect
subsidiary of The Energy Group, PLC ("The Energy Group"). Effective May
20, 1998, the Predecessor Company was acquired by the Company, 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 Holdings Corporation, 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 Predecessor Company and
had no significant activity until the acquisition.
Prior to March 7, 1997, the Company was a wholly owned indirect subsidiary
of Hanson PLC (collectively referred to as "Hanson"). During 1996 and
1997, Hanson demerged its operations into four separate companies. As part
of this tax-free distribution plan ("spin-off"), on February 24, 1997
Hanson demerged The Energy Group to hold the energy businesses of Hanson.
In addition, on March 7, 1997, a subsidiary of Hanson sold the outstanding
common stock of Peabody Holding Company to a subsidiary of The Energy
Group and combined it with other Hanson energy companies to form The
Energy Group.
Description of Business
The Company is principally engaged in the mining of coal for sale
primarily to electric utilities. The Company also markets and trades
electric power and energy-related commodity price risk management
products.
New Pronouncements
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards (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 "accumulated other comprehensive income."
The Company also adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," and SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" effective
April 1, 1998. SFAS No. 131 and SFAS No. 132 address the disclosures
required for the Company's operating segments and employee benefit
obligations, respectively.
The adoption of SFAS Nos. 130, 131 and 132 had no effect on the Company's
results of operations.
Joint Ventures
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Joint ventures are accounted for using the equity method except for
undivided interests in Australia, which are reported using pro rata
consolidation whereby the Company reports its proportionate share of
assets, liabilities, income and expenses. All significant intercompany
transactions have been eliminated in consolidation.
The financial statements include the following asset and operating amounts
for Australian entities utilizing pro rata consolidation:
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------------------------------------
Year Ended
Period Ended Period Ended Year Ended Six Months Ended September 30,
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 1996
-------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Total revenue $72,057 $10,996 $76,406 $ 41,058 $ 78,388
Operating income 18,767 3,695 17,731 8,386 20,632
<CAPTION>
Predecessor
Company
-------------
Period Ended Year Ended
March 31, 1999 March 31, 1998
-------------- -------------
<S> <C> <C>
Total assets $189,363 $139,200
</TABLE>
Accounting for Power Trading
The Company engages in price risk management activities for both trading
and non-trading purposes. Activities for trading purposes, generally
consisting of services provided to the power sector through Citizens
Power's operations, are accounted for using the fair value method. Under
such method, the derivative commodity instruments (forwards, futures,
options and swaps) with third parties are reflected at market value and
are included in "Assets and liabilities from power trading activities" in
the balance sheets. In the absence of quoted value, financial commodity
instruments are valued at fair value, considering the net present value of
the underlying sales and purchase obligations, volatility of the
underlying commodity, appropriate reserves for market and credit risks and
other factors, as determined by the Company's management. Subsequent
changes in market value are recognized as gains or losses in "Other
revenues" in the period of change.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to hedge the impact
of exchange rate fluctuations on anticipated future sales as well as to
hedge the impact of interest rate movements on floating rate debt. The
Company uses forward currency contracts to manage its exposure against
foreign currency fluctuations on sales denominated in U.S. dollars. These
financial instruments are accounted for using hedge accounting. Changes in
the market value of these transactions are deferred until the gain or loss
on the hedged item is recognized. If the future sale is no longer
anticipated, the changes in market value of the forward currency contracts
would be recognized as a gain or loss in the period of change.
Sales
The Company incurs certain "add-on" taxes and fees on coal sales. Coal
sales are reported including taxes and fees charged by various federal and
state governmental bodies. The Company recognizes revenue from coal sales
when title passes to the customer.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Other Revenues
Other revenues include royalties related to coal lease agreements,
earnings in joint ventures, management fees, farm income, contract
restructuring payments, trading activities and revenues from contract
mining services. Royalty income generally results from the lease or
sub-lease of mineral rights to third parties. These agreements generally
provide for payments based upon a percentage of the selling price or an
amount per ton of coal produced. Certain agreements require minimum annual
lease payments regardless of the extent to which minerals are produced
from the leasehold. The terms of these agreements generally range from
specified periods of 5 to 20 years, or can be for an unspecified period
until all reserves are depleted. Revenues from trading activities are
recognized for the differences between contract and market prices.
Revenues from price risk management activities are recognized by
discounting the estimated net cash flows from the underlying long-term
sales and purchase agreements after providing for appropriate reserves for
credit, market risk and other future costs.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates fair
value. Cash equivalents consist of highly liquid investments with an
original maturity of three months or less.
Inventories
Materials and supplies and coal inventory are valued at the lower of
average cost or market. Coal inventory costs include labor, supplies,
equipment costs, operating overhead and other related costs.
Property, Plant, Equipment and Mine Development
Property, plant, equipment and mine development are recorded at cost.
Interest costs applicable to major asset additions are capitalized during
the construction period, including $3.0 million and $0.2 million for the
periods ended March 31, 1999 and May 19, 1998, respectively, $1.5 million
for the year ended March 31, 1998 and $0.1 million for the six months
ended March 31, 1997. No interest was capitalized for the year ended
September 30, 1996.
Expenditures which extend the useful lives of existing plant and equipment
are capitalized. Maintenance and repairs are charged to operating costs
and expenses as incurred. Costs incurred to develop coal mines or to
expand the capacity of operating mines are capitalized. Development costs
incurred to maintain current production capacity at a mine and exploration
expenditures are charged to expense as incurred. Certain costs to acquire
computer hardware and the development and/or purchase of software for
internal use are capitalized and depreciated over the estimated useful
lives.
Depletion of coal lands is computed using the units-of-production method
utilizing only proven and probable reserves in the depletion base. Mine
development costs are principally amortized over the estimated lives of
the mines using the straight-line method. Depreciation of plant and
equipment (excluding life of mine assets) is computed using the
straight-line method over the estimated useful lives as follows:
Years
-----
Building and improvements 10 to 20
Machinery and equipment 2 to 30
Leasehold improvements Life of Lease
In addition, certain plant and equipment assets associated with mining are
depreciated using the straight-line method over the estimated life of the
mine, which varies from 3 to 49 years.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Accrued Reclamation and Other Environmental Liabilities
The Company records a liability for the estimated costs to reclaim land as
the acreage is disturbed during the ongoing surface mining process. The
estimated costs to reclaim support acreage and to perform other related
functions at both surface and underground mines are recorded ratably over
the lives of the mines. As of March 31, 1999, the Company had $534.9
million in surety bonds outstanding related to reclamation. The amount of
reclamation self-bonding in certain states in which the Company qualifies
approximated $240.5 million at March 31, 1999.
Accruals for other environmental matters are recorded in operating
expenses when it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Accrued liabilities
are exclusive of claims against third parties and are not discounted. In
general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized only to the extent the
capitalization criteria of Emerging Issues Task Force 90-8 "Capitalization
of Costs to Treat Environmental Contamination" are met (see note 17).
Income Taxes
Income taxes are accounted for using a balance sheet approach known as the
liability method. The liability method accounts for deferred income taxes
by applying statutory tax rates in effect at the date of the balance sheet
to differences between the book and tax basis of assets and liabilities.
Postemployment Benefits
The Company provides postemployment benefits to qualifying employees,
former employees and dependents under the provisions of various benefit
plans or as required by state, federal or Australian law. The Company
accounts for workers' compensation obligations and other Company provided
postemployment benefits on the accrual basis of accounting.
Concentration of Credit Risk and Market Risk
The Company's power trading and price risk management activities give rise
to market risk, which represents the potential loss caused by a change in
the market value of a particular commitment. Market risks are actively
monitored to ensure compliance with price risk management policies of the
Company. Policies are in place that limit the amount of total net exposure
the Company may enter into at any point in time. Procedures exist which
allow for monitoring of all commitments and positions with daily reporting
to senior management.
A portion of the Company's long-term indebtedness bears interest at rates
that fluctuate based upon certain indices. The Company utilizes financial
instruments such as interest rate swap agreements to mitigate the impact
of changes in interest rates on its floating rate debt.
The Company's concentration of credit risk is substantially with
electricity producers and marketers and electric utilities. The Company's
policy is to independently evaluate each customer's creditworthiness prior
to entering into transactions and to constantly monitor the credit
extended. In the event that the Company engages in a transaction with a
counterparty that does not meet its credit standards, the Company will
protect its position by requiring the counterparty to provide appropriate
credit enhancement.
As a writer of options, the Company receives a premium at the outset and
then bears the risk of unfavorable changes in the price of the financial
instruments underlying the option. Forwards, swaps and over-the-counter
options are traded in unregulated markets.
Futures and exchange-traded options are typically liquidated by entering
into offsetting contracts. Over-the-counter forwards, options and swaps
are either liquidated with the same counterparty or held to settlement
date. For the financial
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
instruments, except for price risk management contracts, the unrealized
gain or loss, rather than the contract amounts, represent the approximate
future cash requirements.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
During fiscal 1996, the Company elected early adoption of the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires impairment
losses to be recognized on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated under various assumptions by those assets are
less than the assets' carrying amount. Impairment losses under SFAS No.
121 are measured by comparing the estimated fair value of the assets to
their carrying amount.
In fiscal 1996, a noncash charge of $890.8 million ($525.7 million after
income taxes) was recorded as a result of adopting the evaluation
methodology of SFAS No. 121, principally related to the impairment of
certain inactive and undeveloped coal reserves.
Prior to the adoption of this pronouncement, asset impairment was
evaluated at an operating company level based on the contribution of
operating profits and undiscounted cash flows being generated from those
operations. Under the Company's previous policy, assets used in operations
were evaluated for impairment based on gross margins and cash flows
generated by each separate operating company in a given business cycle.
SFAS No. 121 requires the impairment review to be performed at the lowest
level of asset grouping for which there are identifiable cash flows, a
change from the higher level at which the Company's previous accounting
policy measured impairment. The Company's economic grouping of assets was
based on the markets in which the operations compete and consisted of both
active and inactive mines, as well as undeveloped properties. Evaluation
of assets at the lower grouping level indicated an impairment of certain
of those assets. A significant factor contributing to the estimated
impairment was a decline in certain coal markets caused by weak demand and
lower prices. Coal market conditions have also been adversely impacted by
the effects of the Clean Air Act Amendments of 1990.
Goodwill
Goodwill of $96.8 million and $78.4 million at March 31, 1999 and 1998,
respectively, included in "Investments and other assets" represents the
excess of the cost over the net tangible and identifiable intangible
assets of the acquisition of Citizens Power (see note 2), and is stated at
cost. The Company assesses the recoverability of goodwill based upon
several factors, including management's intention with respect to the
operations to which the goodwill relates and those operations' projected
future income and undiscounted cash flows. Write-downs of goodwill are
recognized when it is determined that the value of such asset has been
impaired. Amortization expense was $4.6 million for the period ended March
31, 1999, $0.6 million for the period ended May 19, 1998 and $2.2 million
for the year ended March 31, 1998.
Foreign Currency Translation
Assets and liabilities of foreign affiliates are generally translated at
current exchange rates, and related translation adjustments are reported
as a component of comprehensive income. Income statement accounts are
translated at the average rates during the period.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Reclassifications
Certain amounts in prior periods have been reclassified to conform with
the report classifications of the period ended March 31, 1999, with no
effect on previously reported net income, stockholders' equity or invested
capital.
(2) BUSINESS COMBINATIONS
Black Beauty Coal Company
Effective January 1, 1999, the Company purchased an additional 38.3%
interest in Black Beauty Coal Company ("Black Beauty"), raising its
ownership percentage to 81.7%. Total consideration paid for the additional
interest was $150.7 million. The acquisition was accounted for as a
purchase and, accordingly, the operating results of Black Beauty have been
included in the Company's financial statements since the effective date of
acquisition. Prior to the acquisition, the Company accounted for its
ownership using the equity method of accounting. The Company has made a
preliminary allocation of the cost of the acquisition to the assets
acquired and liabilities assumed based upon estimated fair value. The
preliminary fair values were determined based upon management's estimates.
The Predecessor Company purchased an additional 10.0% interest in Black
Beauty for $37.7 million in cash, and as a result, increased its ownership
in the partnership to 43.3%, effective January 1, 1998.
P&L Coal Group
The acquisition of P&L Coal Group 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 the Company by Lehman
Merchant Banking of $400.0 million, and an equity contribution of $80.0
million from other parties, including Lehman Brothers Holdings Inc. Such
amounts were used to pay $2,003.6 million for the equity of the Company,
repay debt, increase cash balances and pay transaction fees and expenses
incurred with the acquisition. The Company also entered into a $480.0
million senior revolving credit facility to provide for the Company's
working capital requirements following the acquisition.
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.
Below are the Company's historical balance sheet at May 19, 1998, the
purchase accounting adjustments and the opening balance sheet. The
historical balance sheet has been adjusted to include the effects of the
financing transactions described above.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Historical Adjusted for
Effects of Financing Purchase Accounting
May 19, 1998 Adjustments May 19, 1998
------------------------ -------------------- ------------
<S> <C> <C> <C>
ASSETS
Total current assets $ 2,447,312 $ (10,877) $ 2,436,435
Property, plant, equipment and mine development, net 3,642,551 746,961 4,389,512
Investments and other assets 687,977 32,334 720,311
----------- ----------- -----------
Total assets $ 6,777,840 $ 768,418 $ 7,546,258
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 1,931,924 $ 17,468 $ 1,949,392
Long-term debt, less current maturities 2,360,771 33,779 2,394,550
Deferred income taxes 662,064 93,940 756,004
Other noncurrent liabilities 1,849,244 117,068 1,966,312
----------- ----------- -----------
Total liabilities 6,804,003 262,255 7,066,258
Total stockholders' equity (26,163) 506,163 480,000
----------- ----------- -----------
Total liabilities and stockholders' equity $ 6,777,840 $ 768,418 $ 7,546,258
=========== =========== ===========
</TABLE>
The Company finalized its purchase price allocation at March 31, 1999
based upon the receipt of all the information it had arranged to obtain in
order to complete its estimates. This included independent appraisals on
property, plant, equipment and mine development (including land and coal
interests) and actuarial valuations supporting final adjustments to its
employee-related liabilities. In addition, agreement on the final purchase
price was reached with Texas Utilities Company.
Various assets and liabilities were adjusted to reflect their estimated
fair value. The purchase accounting adjustments resulted in a net increase
in total assets of $768.4 million. The majority of the excess purchase
price is reflected as adjustments to the fair value assigned to various
land and coal interests.
The purchase accounting adjustments include a $39.4 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 ("exit plan") and consolidating and
restructuring certain management and administrative functions
("restructuring plan") and includes costs resulting from a plan to
involuntarily terminate or relocate employees. As of March 31, 1999, the
Company has finalized its involuntary termination and employee relocation
plan as well as its plans to exit certain business activities. Costs
associated with the restructuring and exit plans are being charged against
the liability as incurred. The net cash outlays and non-cash costs charged
against the liability through March 31, 1999 are as follows:
Cash Outlays Non-cash Costs Total
------------ -------------- -------
Restructuring plan $20,536 -- $20,536
Exit plan 4,648 3,648 8,296
------- ------- -------
$25,184 $ 3,648 $28,832
======= ======= =======
The liability was reduced by $0.6 million from the original $40.0 million
estimate in conjunction with the finalization of the purchase price
allocation. This amount was recorded as an adjustment of the cost of the
acquisition. The Company expects to utilize the majority of the $10.6
million remaining liability ($5.7 million related to the restructuring
plan and $4.9 million related to the exit plan) during the first half of
fiscal 2000. If the ultimate amount of cost expended is less than the
amount recorded as a liability, the excess will further reduce the cost of
the acquisition. Any amount of cost
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
exceeding the amount recorded as a liability 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 assumed the
acquisitions had occurred as of April 1, 1998:
Total revenues $ 2,642,251
Operating profit 196,753
Loss before income taxes 3,858
Net loss (6,343)
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.
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Period Ended March 31, 1999
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ -- $ 1,829,438 $ 266,544 $ (1,756) $ 2,094,226
Costs and expenses:
Operating costs and expenses -- 1,494,487 170,895 (1,756) 1,663,626
Depreciation, depletion and amortization -- 150,584 33,607 -- 184,191
Selling and administrative expenses 3,924 60,142 3,622 -- 67,688
Interest expense 160,068 11,292 4,745 -- 176,105
Interest income (5,716) (11,897) (914) -- (18,527)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (158,276) 124,830 54,589 -- 21,143
Income tax provision (benefit) (36,873) 31,213 14,707 -- 9,047
Minority interest -- -- 1,887 -- 1,887
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (121,403) $ 93,617 $ 37,995 $ -- $ 10,209
=========== =========== =========== =========== ===========
</TABLE>
Unaudited Supplemental Condensed Statements of Combined Operations
For the Period Ended May 19, 1998
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Total revenues $ 269,776 $ 22,632 $ 292,408
Costs and expenses:
Operating costs and expenses 229,711 17,418 247,129
Depreciation, depletion and amortization 22,475 3,743 26,218
Selling and administrative expenses 11,523 494 12,017
Net gain on property and equipment disposals (308) (20) (328)
Interest expense 3,856 366 4,222
Interest income (1,615) (52) (1,667)
--------- --------- ---------
Income before income taxes 4,134 683 4,817
Income tax provision 3,185 1,156 4,341
--------- --------- ---------
Net income (loss) $ 949 $ (473) $ 476
========= ========= =========
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Statements of Combined Operations
For the Year Ended March 31, 1998
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Total revenues $ 1,993,969 $ 250,493 $ 2,244,462
Costs and expenses:
Operating costs and expenses 1,552,176 158,625 1,710,801
Depreciation, depletion and amortization 169,623 33,017 202,640
Selling and administrative expenses 78,249 5,391 83,640
Net (gain) loss on property and equipment disposals (22,079) 273 (21,806)
Interest expense 30,684 2,951 33,635
Interest income (13,984) (993) (14,977)
----------- ----------- -----------
Income before income taxes 199,300 51,229 250,529
Income tax provision 74,649 15,544 90,193
----------- ----------- -----------
Net income $ 124,651 $ 35,685 $ 160,336
=========== =========== ===========
</TABLE>
Unaudited Supplemental Condensed Statements of Combined Operations
For the Six Months Ended March 31, 1997
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Total revenues $ 943,554 $ 120,539 $ 1,064,093
Costs and expenses:
Operating costs and expenses 744,079 78,859 822,938
Depreciation, depletion and amortization 84,094 17,636 101,730
Selling and administrative expenses 39,623 1,798 41,421
Net gain on property and equipment disposals (4,023) (68) (4,091)
Interest expense 17,699 7,001 24,700
Interest income (4,947) (3,643) (8,590)
----------- ----------- -----------
Income before income taxes 67,029 18,956 85,985
Income tax provision 19,379 8,174 27,553
----------- ----------- -----------
Net income $ 47,650 $ 10,782 $ 58,432
=========== =========== ===========
</TABLE>
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Statements of Combined Operations
For the Year Ended September 30, 1996
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Total revenues $ 1,966,171 $ 227,415 $ 2,193,586
Costs and expenses:
Operating costs and expenses 1,550,141 143,402 1,693,543
Depreciation, depletion and amortization 165,256 32,597 197,853
Selling and administrative expenses 71,722 3,977 75,699
Impairment of long-lived assets 890,829 -- 890,829
Net gain on property and equipment disposals (11,942) (1,100) (13,042)
Interest expense 48,587 13,939 62,526
Interest income (4,858) (6,497) (11,355)
----------- ----------- -----------
Income (loss) before income taxes (743,564) 41,097 (702,467)
Income tax provision (benefit) (268,295) 12,110 (256,185)
----------- ----------- -----------
Net income (loss) $ (475,269) $ 28,987 $ (446,282)
=========== =========== ===========
</TABLE>
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Consolidated Balance Sheets
As of March 31, 1999
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ -- $ 130,861 $ 63,217 -- $ 194,078
Accounts receivable -- 220,287 107,770 (15,309) 312,748
Inventories -- 202,749 47,148 -- 249,897
Assets from power trading activities -- -- 1,037,300 -- 1,037,300
Deferred income taxes -- 8,496 -- -- 8,496
Other current assets -- 15,797 14,145 -- 29,942
Total current assets -- 578,190 1,269,580 (15,309) 1,832,461
Property, plant, equipment and mine development --
at cost -- 4,298,203 658,430 -- 4,956,633
Less accumulated depreciation, depletion and
amortization -- (158,295) (35,197) -- (193,492)
-- 4,139,908 623,233 -- 4,763,141
Investments and other assets 2,461,362 1,464,147 171,693 (3,668,873) 428,329
----------- ----------- ----------- ----------- -----------
Total assets $ 2,461,362 $ 6,182,245 $ 2,064,506 $(3,684,182) $ 7,023,931
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities of
long-term debt $ 19,670 $ 21,666 $ 31,068 $ -- $ 72,404
Payable to affiliates, net 152,364 (151,199) (1,165) -- --
Income taxes payable -- 229 7,079 -- 7,308
Liabilities from power trading activities -- -- 638,062 -- 638,062
Accounts payable and accrued expenses 56,562 440,331 146,150 (15,309) 627,734
----------- ----------- ----------- ----------- -----------
Total current liabilities 228,596 311,027 821,194 (15,309) 1,345,508
Long-term debt, less current maturities 1,737,536 173,364 559,075 -- 2,469,975
Deferred income taxes -- 711,932 68,243 -- 780,175
Other noncurrent liabilities -- 1,886,337 22,796 -- 1,909,133
----------- ----------- ----------- ----------- -----------
Total liabilities 1,966,132 3,082,660 1,471,308 (15,309) 6,504,791
Minority interest -- -- -- 23,910 23,910
Stockholders' equity 495,230 3,099,585 593,198 (3,692,783) 495,230
Total liabilities and stockholders' equity $ 2,461,362 $ 6,182,245 $ 2,064,506 $(3,684,182) $ 7,023,931
=========== =========== =========== =========== ===========
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Combined Balance Sheets
As of March 31, 1998
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 83,812 $ 13,009 $ 96,821
Accounts receivable 211,383 115,157 326,540
Receivables from affiliates, net 142,961 (30,198) 112,763
Inventories 219,598 45,225 264,823
Assets from power trading activities -- 1,295,169 1,295,169
Other current assets 21,483 8,553 30,036
----------- ----------- -----------
Total current assets 679,237 1,446,915 2,126,152
Property, plant, equipment and mine development - at cost 4,649,463 589,476 5,238,939
Less accumulated depreciation, depletion and amortization (1,359,442) (205,955) (1,565,397)
----------- ----------- -----------
3,290,021 383,521 3,673,542
Investment and other assets 463,500 79,815 543,315
----------- ----------- -----------
Total assets $ 4,432,758 $ 1,910,251 $ 6,343,009
=========== =========== ===========
LIABILITIES AND INVESTED CAPITAL
Current liabilities
Short-term borrowings and current maturities of long-term debt $ 21,844 $ 24,772 $ 46,616
Income taxes payable (5,915) 8,303 2,388
Liabilities from power trading activities -- 947,467 947,467
Accounts payable and accrued expenses 432,966 160,744 593,710
----------- ----------- -----------
Total current liabilities 448,895 1,141,286 1,590,181
Long-term debt, less current maturities 241,921 313,739 555,660
Deferred income taxes 591,114 70,458 661,572
Other noncurrent liabilities 1,827,191 20,563 1,847,754
Accumulated other comprehensive loss -- (42,184) (42,184)
Invested capital 1,323,637 406,389 1,730,026
----------- ----------- -----------
Total liabilities and invested capital $ 4,432,758 $ 1,910,251 $ 6,343,009
=========== =========== ===========
</TABLE>
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
Period ended March 31, 1999
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Parent Company Subsidiaries Subsidiaries Consolidated
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (140,674) $ 399,053 $ 12,134 $ 270,513
----------- ----------- ----------- -----------
Additions to property, plant, equipment and mine
development -- (108,186) (66,686) (174,872)
Acquisitions, net (1,933,178) (143,742) -- (2,076,920)
Proceeds from contract restructurings -- 2,515 -- 2,515
Proceeds from property and equipment disposals -- 10,494 956 11,450
----------- ----------- ----------- -----------
Net cash used in investing activities (1,933,178) (238,919) (65,730) (2,237,827)
Payments of short-term borrowings and long-term debt (158,263) (21,470) (55,771) (235,504)
Proceeds from short-term borrowings and long-term debt 1,817,390 -- 106,122 1,923,512
Capital contribution 324,406 73,594 82,000 480,000
Dividends paid to minority interests -- 9,096 (12,176) (3,080)
Transactions with affiliates 90,319 (90,493) (3,473) (3,647)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 2,073,852 (29,273) 116,702 2,161,281
Effect of exchange rate changes on cash and equivalents -- -- 111 111
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents -- 130,861 63,217 194,078
Cash and cash equivalents at beginning of period -- -- -- --
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ -- $ 130,861 $ 63,217 $ 194,078
=========== =========== =========== ===========
</TABLE>
Unaudited Supplemental Condensed Statements of Combined Cash Flows
Period Ended May 19, 1998
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ (43,766) $ 13,307 $ (30,459)
--------- --------- ---------
Additions to property, plant, equipment and mine development (13,582) (7,368) (20,950)
Proceeds from contract restructurings 308 20 328
Proceeds from property and equipment disposals 1,374 -- 1,374
--------- --------- ---------
Net cash used in investing activities (11,900) (7,348) (19,248)
Payments of short-term borrowings and long-term debt (464) (18,959) (19,423)
Proceeds from short-term borrowings and long-term debt -- 53,597 53,597
Dividends paid (141,000) (32,330) (173,330)
Transactions with affiliates 141,831 20,862 162,693
--------- --------- ---------
Net cash provided by financing activities 367 23,170 23,537
Effect of exchange rate changes on cash and equivalents -- (292) (292)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (55,299) 28,837 (26,462)
Cash and cash equivalents at beginning of period 83,812 13,009 96,821
--------- --------- ---------
Cash and cash equivalents at end of period $ 28,513 $ 41,846 $ 70,359
========= ========= =========
</TABLE>
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Statements of Combined Cash Flows
Year Ended March 31, 1998
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ 266,174 $ (84,496) $ 181,678
--------- --------- ---------
Additions to property, plant, equipment and mine development (112,383) (53,953) (166,336)
Acquisitions and equity investments (58,715) -- (58,715)
Proceeds from contract restructurings 57,460 -- 57,460
Proceeds from property and equipment disposals 36,948 784 37,732
--------- --------- ---------
Net cash used in investing activities (76,690) (53,169) (129,859)
Payments of short-term borrowings and long-term debt (162,420) (201,146) (363,566)
Proceeds from short-term borrowings and long-term debt 90,000 269,391 359,391
Capital contribution (distribution) (50,230) 50,230 --
Dividends paid (65,109) -- (65,109)
Transactions with affiliates (184,529) 18,424 (166,105)
--------- --------- ---------
Net cash provided by (used in) financing activities (372,288) 136,899 (235,389)
Effect of exchange rate changes on cash and equivalents -- (718) (718)
--------- --------- ---------
Net decrease in cash and cash equivalents (182,804) (1,484) (184,288)
Cash and cash equivalents at beginning of period 266,616 14,493 281,109
--------- --------- ---------
Cash and cash equivalents at end of period $ 83,812 $ 13,009 $ 96,821
========= ========= =========
</TABLE>
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited Supplemental Condensed Statements of Combined Cash Flows
Six Months Ended March 31, 1997
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Net cash provided by operating activities $ 36,460 $ 26,369 $ 62,829
Additions to property, plant, equipment and mine development (59,531) (16,929) (76,460)
Proceeds from contract restructurings 15,466 -- 15,466
Proceeds from property and equipment disposals 4,176 648 4,824
--------- --------- ---------
Net cash used in investing activities (39,889) (16,281) (56,170)
Payments of short-term borrowings and long-term debt (15,741) (487,397) (503,138)
Proceeds from short-term borrowings and long-term debt 55,020 312,073 367,093
Capital contributions 269,168 -- 269,168
Transactions with affiliates (32,680) (6,265) (38,945)
--------- --------- ---------
Net cash provided by (used in) financing activities 275,767 (181,589) 94,178
Effect of exchange rate changes on cash and equivalents -- (1,261) (1,261)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 272,338 (172,762) 99,576
Cash and cash equivalents at beginning of period 2,338 179,195 181,533
--------- --------- ---------
Cash and cash equivalents at end of period $ 274,676 $ 6,433 $ 281,109
========= ========= =========
</TABLE>
Unaudited Supplemental Condensed Statements of Combined Cash Flows
Year Ended September 30, 1996
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------------------
Guarantor Non-guarantor
Subsidiaries Subsidiaries Combined
------------ ------------ --------
<S> <C> <C> <C>
Net cash provided by operating activities $ 169,736 $ 41,799 $ 211,535
Additions to property, plant, equipment and mine development (115,292) (36,814) (152,106)
Proceeds from contract restructurings 29,211 -- 29,211
Proceeds from property and equipment disposals 15,258 1,997 17,255
----------- ----------- -----------
Net cash used in investing activities (70,823) (34,817) (105,640)
Payments of short-term borrowings and long-term debt (11,354) (850,759) (862,113)
Proceeds from short-term borrowings and long-term debt 2,534 1,035,182 1,037,716
Capital contribution 284,000 156 284,156
Dividends paid -- (72,830) (72,830)
Transactions with affiliates (375,473) 4,531 (370,942)
----------- ----------- -----------
Net cash provided by (used in) financing activities (100,293) 116,280 15,987
Effect of exchange rate changes on cash and equivalents -- 5,886 5,886
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,380) 129,148 127,768
Cash and cash equivalents at beginning of period 3,718 50,047 53,765
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,338 $ 179,195 $ 181,533
=========== =========== ===========
</TABLE>
F-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Citizens Power
In May 1997, the Company acquired all of the ownership interests in
Citizens Lehman Power L.L.C. ("Citizens Power") and its subsidiaries for
$120 million. Citizens Power, located in Boston, Massachusetts, markets
and trades electric power and energy-related commodity price risk
management products. Citizens Power also provides services and price risk
management capabilities to the electric power industry (see note 1).
The acquisition was accounted for as a purchase and accordingly, the
operating results of Citizens Power have been included in the Company's
combined financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net assets
acquired of approximately $80.6 million is being amortized on a
straight-line basis over 20 years.
(3) COAL INVENTORY
Coal inventory consisted of the following as of March 31:
Predecessor
Company
-----------
1999 1998
-------- --------
Saleable coal $ 50,293 $ 51,443
Raw coal 23,299 25,422
Work in process 122,327 120,615
-------- --------
$195,919 $197,480
======== ========
Raw coal represents coal stockpiles that may be sold in current condition
or may be further processed prior to shipment to a customer. Work in
process consists of the average cost to remove overburden above an unmined
coal seam as part of the surface mining process.
(4) LEASES
The Company leases equipment and facilities under various noncancelable
lease agreements. Certain lease agreements require the maintenance of
specified ratios and contain restrictive covenants which limit
indebtedness, subsidiary dividends, investments, sales of assets and other
actions of the Company. Rental expense under operating leases was $35.5
million and $5.6 million for the periods ended March 31, 1999 and May 19,
1998, respectively, $40.6 million for the year ended March 31, 1998, $17.1
million for the six months ended March 31, 1997 and $36.5 million for the
year ended September 30, 1996. The cost of property, plant, equipment and
mine development assets acquired under capital leases was $34.8 million
and $56.0 million at March 31, 1999 and 1998, respectively. The related
accumulated amortization was $2.2 million and $27.1 million at March 31,
1999 and 1998, respectively. Amortization of capital leases is included in
"Depreciation, depletion and amortization" in the Statements of
Operations.
The Company also leases coal reserves under agreements that require
royalties to be paid as the coal is mined. Total royalty expense was
$123.2 million and $17.3 million for the periods ended March 31, 1999 and
May 19, 1998, respectively, $132.9 million for the year ended March 31,
1998, $64.2 million for the six months ended March 31, 1997 and $136.2
million for the year ended September 30, 1996. Certain agreements also
require minimum annual royalties to be paid regardless of the amount of
coal mined during the year.
A substantial amount of the coal mined by the Company is produced from
reserves leased from the owner of the coal. One of the major lessors is
the U.S. government, from which the Company leases substantially all of
the coal mined in Wyoming, Montana and Colorado under terms set by
Congress and administered by the U.S. Bureau of Land Management. The terms
of these leases are generally for an initial term of 10 years but may be
extended by diligent development and mining of the reserve until all
economically recoverable reserves are depleted. The Company has met the
diligent development requirements for substantially all of these federal
leases either directly through production or by including the lease as a
part of a logical mining unit with other leases upon which development had
occurred. Annual production on these federal leases must total at least 1%
of the original amount of coal in the entire logical mining unit.
Royalties are payable monthly at a rate of 12.5 % of the gross realization
from the sale of the coal mined using surface
F-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
mining methods and at the rate of 8.0 % of the gross realization for coal
produced using underground mining methods. The Company also leases the
coal production at its Arizona mines from The Navajo Nation and the Hopi
Tribe under leases that are administered by the U.S. Department of the
Interior. These leases expire once mining activities cease. The royalty
rates are also generally based upon a percentage of the gross realization
from the sale of coal. These rates are subject to redetermination every
ten years under the terms of the leases. The remainder of the leased coal
is generally leased from state governments, land holding companies and
various individuals. The duration of these leases varies greatly.
Typically, the lease terms are automatically extended as long as active
mining continues. Royalty payments are generally based upon a specified
rate per ton or a percentage of the gross realization from the sale of the
coal. Many of these leases require the Company to pay minimum annual
royalty payments.
Future minimum lease and royalty payments as of March 31, 1999 are as
follows:
Capital Operating Coal
Fiscal Year Ending March 31, Leases Leases Reserves
-------------------------------------- -------- -------- --------
2000 $ 3,914 $ 71,307 $ 39,050
2001 3,248 63,343 36,127
2002 3,017 58,768 33,373
2003 3,330 51,078 31,967
2004 4,011 37,948 9,607
2005 and thereafter 16,846 71,653 37,919
-------- -------- --------
Total minimum lease payments 34,366 $354,097 $188,043
======== ======== ========
Less interest 7,485
--------
Present value of minimum capital lease
payments $ 26,881
========
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of
March 31:
Predecessor
Company
--------
1999 1998
-------- --------
Trade accounts payable $211,993 $234,277
Accrued taxes other than income 77,839 75,791
Accrued payroll and related benefits 71,508 72,844
Accrued health care 63,422 58,649
Accrued interest 41,219 3,700
Workers' compensation obligations 38,542 39,927
Accrued royalties 22,425 16,401
Accrued lease payments 11,536 9,321
Other accrued expenses 89,250 76,764
-------- --------
Total accounts payable and accrued expenses $627,734 $587,674
======== ========
F-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
(6) INCOME TAXES
Pre-tax income (loss) consisted of:
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Pretax income (loss):
United States $ (10,465) $ 2,181 $ 207,884 $ 67,029 $(743,564)
Foreign 31,608 2,636 42,645 18,956 41,097
--------- --------- --------- --------- ---------
$ 21,143 $ 4,817 $ 250,529 $ 85,985 $(702,467)
========= ========= ========= ========= =========
</TABLE>
Total income tax provision (benefit) consisted of:
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Current:
U.S. federal $ -- $ -- $ -- $ 2,216 $ 8,752
Foreign 9,700 1,427 21,001 8,261 14,896
State 26 79 3,684 (453) 1,818
--------- --------- --------- --------- ---------
Total current 9,726 1,506 24,685 10,024 25,466
--------- --------- --------- --------- ---------
Deferred:
U.S. federal (2,705) 1,985 65,463 16,058 (239,014)
Foreign 2,026 -- (5,457) (86) (2,786)
State -- 850 5,502 1,557 (39,851)
--------- --------- --------- --------- ---------
Total deferred (679) 2,835 65,508 17,529 (281,651)
--------- --------- --------- --------- ---------
Total provision (benefit) $ 9,047 $ 4,341 $ 90,193 $ 27,553 $(256,185)
========= ========= ========= ========= =========
</TABLE>
The income tax rate on income (loss) differed from the U.S. federal
statutory rate as follows:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0% 35.0%
Changes in valuation allowance 77.5 124.8 5.7 3.3 0.7
Foreign earnings 3.2 10.5 0.4 1.8 0.3
State income taxes, net of U.S.
federal tax benefit (14.0) 54.2 2.8 0.7 5.5
Depletion (63.0) (45.3) (8.3) (8.8) 1.8
Effect of tax sharing arrangement
with Hanson -- -- -- -- (6.8)
Other, net 4.1 (89.1) 0.4 -- --
----- ----- ----- ----- -----
42.8% 90.1% 36.0% 32.0% 36.5%
===== ===== ===== ===== =====
</TABLE>
F-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Beginning March 7, 1997, Peabody Investments, Inc. ("PII"), parent of Gold
Fields, filed a consolidated U.S. federal income tax return with its
subsidiaries. At March 31, 1997, U.S. federal and state income taxes were
determined on that basis. Prior to March 7, 1997 there were two separate
U.S. federal consolidated groups, Peabody Holding Company and PII.
For the year ended September 30, 1996, Peabody Holding Company was
included in a consolidated federal income tax return with other Hanson
affiliates. Peabody Holding Company had a tax sharing arrangement with
Hanson whereby federal income taxes were computed as part of a
consolidated group of companies. For purposes of these financial
statements, Peabody Holding Company determined its federal tax provision
(benefit) based on its expected allocated share of the consolidated group
tax position. State taxes were determined on a separate return basis.
Under the tax sharing arrangement, Hanson allocated the consolidated
federal income tax liability to the members of the consolidated group by
applying a ratio of each member's separate taxable income to the sum of
the separate taxable incomes of all members having taxable income for the
years. If the consolidated group had taxable income, a member having a
taxable loss did not receive a benefit for that loss. If the consolidated
group had a taxable loss, only members having a taxable loss received a
benefit for that loss. PII was the common parent of a separate
consolidated tax group. The group included its interest in the operations
of HNRC, a partnership, which historically included the operations of Lee
Ranch, Cavenham Timber and Western Rock Quarries. For purposes of these
statements, PII determined its federal and state tax provision as if Lee
Ranch was the only operation included for the year ended September 30,
1996.
F-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities consisted of the
following as of March 31:
<TABLE>
<CAPTION>
Predecessor
Company
-----------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued long-term reclamation and mine closing liabilities $ 104,777 $ 57,773
Accrued long-term workers' compensation liabilities 99,776 114,280
Postretirement benefit obligations 401,994 358,137
Tax credits and loss carryforwards 84,862 105,100
Obligation to industry fund 39,389 51,410
Others 79,986 74,217
----------- -----------
Total gross deferred tax assets $ 810,784 $ 760,917
----------- -----------
Deferred tax liabilities:
Property, plant, equipment and mine development principally due to
differences in depreciation, depletion and asset writedowns 1,226,002 959,037
Long-term debt, principally due to amortization of debt discount 19,756 35,636
Others 267,787 341,668
Total gross deferred tax liabilities 1,513,545 1,336,341
Valuation allowance (68,918) (92,184)
----------- -----------
Net deferred tax liability $ (771,679) $ (667,608)
=========== ===========
</TABLE>
Deferred taxes consisted of the following as of March 31:
Predecessor
Company
-----------
1999 1998
--------- ---------
Current deferred income taxes $ 8,496 $ (6,036)
Noncurrent deferred income taxes (780,175) (661,572)
--------- ---------
Net deferred tax liability $(771,679) $(667,608)
========= =========
The Company's deferred tax assets include alternative minimum tax ("AMT")
credits of $50.6 million and net operating loss ("NOL") carryforwards of
$34.3 million at March 31, 1999. The AMT credits have no expiration date
and the NOL carryforwards expire in the year 2019. The AMT credits and NOL
carryforwards are offset by a valuation allowance of $68.9 million.
The Company made no U.S. federal tax payments for the periods ended March
31, 1999 and May 19, 1998, and $0.1 million for the year ended March 31,
1998. The Company paid state and local income taxes totaling $0.7 million
for the period ended March 31, 1999, $0.8 million for the year ended March
31, 1998, $3.3 million for the six months ended March 31, 1997 and $2.7
million for the year ended September 30, 1996. No state or local income
tax payments were made for the period ended May 19, 1998.
Foreign tax payments were $11.9 million and $0.3 million for the periods
ended March 31, 1999 and May 19, 1998, respectively, $18.3 million for the
year ended March 31, 1998, $13.4 million for the six months ended March
31, 1997 and $27.5 million for the year ended September 30, 1996.
F-26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
(7) SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following as of March 31:
Predecessor
Company
-----------
1999 1998
------- -------
Commercial paper $ -- $10,080
Short-term credit facility 9,521 342
------- -------
Short-term borrowings $ 9,521 $10,422
======= =======
At March 31, 1999, Peabody Resources maintained four, 365-day corporate
debt facilities with several banks totaling $110.0 million Australian
dollars (approximately $70.0 million U.S. dollars). The interest rate is
determined at the time of borrowing based on the Bank Bill Swap Rate plus
a margin. At March 31, 1999, the effective annual interest rate was 5.9%.
The amount of interest paid was $1.4 million and $0.2 million for the
periods ended March 31, 1999 and May 19, 1998, respectively, $1.8 million
for the year ended March 31, 1998, $6.6 million for the six months ended
March 31, 1997 and $12.8 million for the year ended September 30, 1996.
(8) LONG-TERM DEBT
Long-term debt consisted of the following as of March 31:
<TABLE>
<CAPTION>
Predecessor
Company
-----------
1999 1998
----------- -----------
<S> <C> <C>
Term loans under Senior Credit Facilities $ 840,000 $ --
9.625% Senior Subordinated Notes ("Senior Subordinated Notes") due 2008 498,649 --
8.875% Senior Notes ("Senior Notes") due 2008 398,887 --
Non-Recourse Debt 333,867 293,922
5.000% Subordinated Note 190,567 192,627
Senior unsecured notes under various agreements 107,143 --
Project finance facility 66,588 14,632
Capital lease obligations 26,881 21,568
Other 70,276 69,105
----------- -----------
Total long-term debt 2,532,858 591,854
Less current maturities (62,883) (36,194)
----------- -----------
Long-term debt, less current maturities $ 2,469,975 $ 555,660
=========== ===========
</TABLE>
The Senior Credit facilities, which are secured by a first priority lien
on certain assets of the Company and its domestic subsidiaries, 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. During the
period from May 20, 1998 to March 31, 1999, 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. The applicable rate
was 9.0% at March 31, 1999. The Revolving Credit Facility commitment
matures in fiscal 2005. During fiscal 1999, the Company made optional
prepayments of $75.0 million on the Senior Credit Facilities, which it
applied against mandatory Term Loan A and B payments in order of maturity,
and mandatory payments of $5.0 million on Term Loan A. Scheduled payments
resume in fiscal 2001 ($10.0 million); the majority of the remaining
payments occur in fiscal 2006 (48.6%) and fiscal 2007 (15.2%).
F-27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The Senior Subordinated Notes are general unsecured obligations of the
Company and are subordinate in right of payment to all existing and future
senior debt (as defined), including borrowings under the Senior Credit
Facilities and the Senior Notes. The Senior Notes are general unsecured
obligations of the Company, rank senior in right of payment to all
subordinated indebtedness (as defined) and rank equally in right of
payment with all current and future unsecured indebtedness of the Company.
On October 1, 1998, the Company entered into two interest rate swap
agreements to fix the interest cost on $500.0 million of long-term debt
outstanding under the Term Loan Facility. The Company will pay a fixed
rate of approximately 7.0% on $300.0 million of such long-term debt for a
period of three years, and on $200.0 million of such long-term debt for
two years.
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 (subject to certain
exceptions). The Revolving Credit Facility and related term loans 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.
Non-recourse debt is payable in installments through fiscal 2017. The
weighted average interest rate is 7.6%.
The 5.0% Subordinated Note, which had an original face value of $400.0
million, is recorded net of discount at an effective annual interest rate
of approximately 12.0%. Interest and principal are payable each March 1
and scheduled principal payments of $20.0 million per year are due from
2000 through 2006 with any unpaid amounts due March 1, 2007. The 5.0%
Subordinated Note is expressly subordinated in right of payment to all
prior indebtedness (as defined), including borrowings under the Senior
Credit Facility and the Senior Notes.
The senior unsecured notes represent obligations of Black Beauty and
include $47.1 million of senior notes and three series of notes with an
aggregate principal amount of $60.0 million. The senior notes bear
interest at 9.2%, payable quarterly, and are prepayable in whole or in
part at any time, subject to certain make-whole provisions. The three
series of notes include Series A, B and C Notes, totaling $45.0 million,
$5.0 million, and $10.0 million, respectively. The Series A Notes bear
interest at an annual rate of 7.5% and are due in fiscal 2008. The Series
B Notes bear interest at an annual rate of 7.4% and are due in fiscal
2004. The Series C Notes bear interest at an annual rate of 7.4% and are
due in fiscal 2003.
Peabody Resources entered into a project finance facility in 1998 to
finance the construction of its 37.0% interest in the Bengalla mine. The
facility, which is denominated in U.S. dollars, expires in 2010 and the
maximum drawdown is $88.3 million. In accordance with the facility
agreement, the loan will be repaid from the net proceeds derived from coal
sales from the Bengalla Mine. There were borrowings against the facility
of $48.8 million and $3.2 million for the periods ended March 31, 1999 and
May 19, 1998, respectively, with an effective annual interest rate of
approximately 6.75% for both periods. In fiscal 1998, there were
borrowings of $14.6 million against the facility with an effective annual
interest rate of approximately 7.0%.
Capital lease obligations are payable in installments through 2009 with a
weighted average effective interest rate of 4.4%. Other, principally notes
payable, are due in installments through 2002 with a weighted average
effective interest rate of 4.4%.
F-28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The aggregate amounts of long-term debt maturities subsequent to March 31,
1999 are as follows:
2000 $ 62,883
2001 62,093
2002 141,304
2003 144,411
2004 210,413
2005 and thereafter 1,911,754
----------
$2,532,858
==========
The amount of interest paid was $138.8 million and $0.5 million for the
periods ended March 31, 1999 and May 19, 1998, respectively, $44.6 million
for the year ended March 31, 1998, $18.0 million for the six months ended
March 31, 1997 and $20.8 million for the year ended September 30, 1996.
(9) WORKERS' COMPENSATION OBLIGATIONS
The workers' compensation obligations consisted of the following as of
March 31:
Predecessor
Company
-----------
1999 1998
--------- ---------
Occupational disease costs $ 154,311 $ 205,198
Traumatic injury claims 90,361 81,614
State assessment taxes 1,414 1,785
--------- ---------
Total obligations 246,086 288,597
Less current portion (38,542) (39,927)
--------- ---------
Noncurrent obligations $ 207,544 $ 248,670
========= =========
Workers' compensation obligations consist of amounts accrued for loss
sensitive insurance premiums, uninsured claims, and related taxes and
assessments under traumatic injury and occupational disease workers'
compensation programs. As of March 31, 1999, the Company had $22.2 million
in letters of credit and $80.5 million in surety bonds outstanding to
secure workers' compensation obligations.
In Australia, workers' compensation funds are either separately
administered industry funds or externally insured. Premiums are paid as a
percentage of salary and labor costs. The administration of claims and the
liability for payment of workers' compensation is the responsibility of
the industry fund or the insurance company.
Certain subsidiaries of the Company are subject to the Federal Coal Mine
Health & Safety Act of 1969, and the related workers' compensation laws in
the states in which they operate. These laws require the subsidiaries to
pay benefits for occupational disease resulting from coal workers'
pneumoconiosis ("CWP"). The provision for CWP claims (including projected
claims costs and interest discount accruals) was a charge of $11.1 million
for the period ended March 31, 1999 and a benefit of $0.4 million for the
period ended May 19, 1998, a benefit of $9.4 million for the year ended
March 31, 1998, a benefit of $3.8 million for the six months ended March
31, 1997 and a benefit of $10.3 million for the year ended September 30,
1996. The benefits recorded in prior years were primarily attributable to
favorable loss experience factors and changes in certain actuarial
assumptions.
The liability for occupational disease claims represents the present value
of known claims and an actuarially-determined estimate of future claims
that will be awarded to current and former employees. The projections at
March 31, 1999 were based on a 7.25% per annum interest discount rate and
a 3.5% estimate for the annual rate of
F-29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
inflation, and the projections at March 31, 1998 were based on a 7.5% per
annum interest discount rate and a 4.0% estimate for the annual rate of
inflation. Traumatic injury workers' compensation obligations are
estimated from both case reserves and actuarial determinations of
historical trends, discounted at approximately 7.25 and 7.5% per annum at
March 31, 1999 and 1998, respectively.
(10) PENSION AND SAVINGS PLANS
Peabody Holding Company sponsors a defined benefit pension plan covering
substantially all salaried U.S. employees (the "Peabody Plan"). A Peabody
Holding Company subsidiary also has a defined benefit pension plan
covering eligible employees who are represented by the United Mine Workers
of America under the Western Surface Agreement of 1996 (the "Western
Plan"). Peabody Holding Company and Gold Fields sponsor separate unfunded
supplemental retirement plans to provide senior management with benefits
in excess of limits under the federal tax law and increased benefits to
reflect a service adjustment factor. Powder River Coal Company, a wholly
owned subsidiary, sponsored a defined benefit pension plan for its
salaried employees that was merged into the Peabody Plan effective January
1, 1999. Pension benefits were not affected by the merger. Lee Ranch
sponsors two defined benefit pension plans, one which covers substantially
all Lee Ranch hourly employees (the "Lee Ranch Hourly Plan") and one which
covers substantially all Lee Ranch salaried employees (the "Lee Ranch
Salaried Plan"). Peabody Resources participates in a number of
superannuation funds and contributes on various percentages of employee
compensation. Members of the funds may voluntarily contribute additional
amounts to their accounts. Fund members are variously entitled to benefits
on retirement, withdrawal, disability or death.
Benefits under the Peabody Plan and the Lee Ranch Salaried Plan are
computed based on the number of years of service and compensation during
certain years. Benefits under the Western Plan are computed based on the
number of years of service with the subsidiary or other specified
employers. Benefits under the Lee Ranch Hourly Plan are computed based on
job classification and years of service.
Annual contributions to the plans are made as determined by consulting
actuaries based upon the Employee Retirement Income Security Act of 1974
minimum funding standard. As a result of the acquisition of the
Predecessor Company, the Company entered into an agreement with the
Pension Benefit Guaranty Corporation which requires the Company to
maintain minimum funding requirements. Assets of the plans are primarily
invested in various marketable securities, including U.S. Government
bonds, corporate obligations and listed stocks. The funds are part of a
master trust arrangement managed by the Company.
F-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Net periodic pension costs included the following components:
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Service cost for benefits earned $ 9,098 $ 2,323 $ 10,282 $ 5,361 $ 10,331
Interest cost on projected benefit
obligation 29,640 7,543 33,095 16,447 30,574
Expected return on plan assets (48,546) (9,125) (50,755) (7,969) (29,335)
Other amortizations and deferrals 12,083 -- 16,135 (8,865) (1,437)
-------- -------- -------- -------- --------
Net periodic pension costs $ 2,275 $ 741 $ 8,757 $ 4,974 $ 10,133
======== ======== ======== ======== ========
</TABLE>
During the period ended March 31, 1999, the Company made an amendment to
phase out the Peabody Plan beginning January 1, 2000. This plan amendment
resulted in a curtailment gain of $7.1 million. During fiscal years 1998
and 1996, early retirement and reduction in force programs were offered to
certain employees as part of company-wide restructuring and cost reduction
efforts. As a result of the special termination benefits offered, charges
of $0.6 million and $15.3 million were recognized during fiscal years 1998
and 1996, respectively, in accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits."
The following summarizes the change in benefit obligation, change in plan
assets and funded status of the Company's plans:
Predecessor
Company
-----------
March 31, March 31,
1999 1998
--------- ---------
Change in benefit obligation:
Benefit obligation at beginning of year $ 496,037 $ 460,426
Service cost 9,098 10,282
Interest cost 29,640 33,095
Plan amendments (5,803) --
Special termination benefits -- 615
Benefits paid (23,235) (26,037)
Curtailments (20,701) --
Actuarial loss 7,831 (15,326)
--------- ---------
Benefit obligation at end of year 492,867 463,055
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year 473,922 414,760
Actual return on plan assets 18,296 74,457
Employer contributions 5,402 5,489
Benefits paid (23,235) (26,037)
--------- ---------
Fair value of plan assets at end of year 474,385 468,669
--------- ---------
F-31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Funded Status (18,482) 5,614
Unrecognized actuarial gain (loss) 12,262 (7,518)
Unrecognized prior service cost (5,683) (6,624)
-------- --------
Accrued pension expense $(11,903) $ (8,528)
======== ========
Amounts recognized in the balance sheets:
Prepaid benefit cost $ 488 $ 1,052
Accrued benefit liability (15,434) (17,815)
Intangible asset -- 4,892
Additional minimum pension liability 3,043 3,343
-------- --------
Net amount recognized $(11,903) $ (8,528)
======== ========
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $57.0 million, $56.9 million,
and $43.1 million, respectively, as of March 31, 1999 and $50.6 million,
$48.6 million, and $31.1 million, respectively, as of March 31, 1998.
The provisions of SFAS No. 87, "Employers' Accounting for Pensions,"
require the recognition of an additional minimum liability and related
intangible asset to the extent that accumulated benefits exceed plan
assets. At March 31, 1999 and 1998, the Company recorded adjustments of
$3.0 million and $8.2 million, respectively, which were required to
reflect the Company's minimum liability.
The assumptions used to determine the above projected benefit obligation
at the end of each fiscal period were as follows:
Predecessor
Company
-----------
March 31, March 31,
1999 1998
-------- --------
Discount rate 7.125% 7.5%
Rate of compensation increase 3.75% 3.75%
Expected rate of return on plan assets 9.0% 9.0%
Certain subsidiaries make contributions to multiemployer pension plans,
which provide defined benefits to substantially all hourly coal production
workers represented by the United Mine Workers of America other than those
covered by the Western Plan. Benefits under the United Mine Workers of
America plans are computed based on service with the subsidiaries or other
signatory employers. The amounts contributed to the plans and included in
operating costs were $1.1 million and $0.6 million for the periods ended
March 31, 1999 and May 19, 1998, $4.9 million for the year ended March 31,
1998, $2.4 million for the six months ended March 31, 1997 and $5.0
million for the year ended September 30, 1996.
The Company sponsors savings and long-term investment plans for eligible
salaried U.S. employees. The Company matches 50% of voluntary
contributions up to a maximum matching contribution between 3 and 4% of a
participant's salary. Effective January 1, 2001, the Company will increase
the matching contribution to a maximum of 6% of a participant's salary.
The expense for these plans was $4.1 million and $0.6 million for the
periods ended March 31, 1999 and May 19, 1998, respectively, $4.2 million
for the year ended March 31, 1998, $2.1 million for the six months ended
March 31, 1997 and $4.7 million for the year ended September 30, 1996.
F-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The amount contributed and expensed by Peabody Resources to superannuation
funds was $0.9 million and $0.4 million for the periods ended March 31,
1999 and May 19, 1998, respectively, $2.9 million for the year ended March
31, 1998, $1.5 million for the six months ended March 31, 1997 and $2.8
million for the year ended September 30, 1996.
(11) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company currently provides health care and life insurance benefits to
qualifying salaried and hourly retirees and their dependents from defined
benefit plans established by the Company. Employees of Gold Fields are
only eligible for life insurance benefits as provided by the Company. Plan
coverage for the health and life insurance benefits is provided to future
hourly retirees in accordance with the applicable labor agreement. The
Company accounts for postretirement benefits using the accrual method.
Retirees of Peabody Resources are provided similar benefits by plans
sponsored by the Australian government. As a result, no liability is
recorded for this plan.
Net periodic postretirement benefits costs for the period ended March 31
included the following components:
F-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Service cost for benefits earned $ 4,750 $ 897 $ 6,569 $ 3,540 $ 12,094
Interest cost on accumulated
postretirement benefit obligation 60,519 10,075 69,614 34,068 63,806
Prior service cost amortization (625) (242) (10,071) (9,625) (20,855)
-------- -------- -------- -------- --------
Net periodic postretirement
benefit costs $ 64,644 $ 10,730 $ 66,112 $ 27,983 $ 55,045
======== ======== ======== ======== ========
</TABLE>
The following table sets forth the plans' combined funded status
reconciled with the amounts shown in the balance sheets:
Predecessor
Company
-----------
1999 1998
----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year $ 995,265 $ 947,024
Service cost 4,750 6,569
Interest cost 60,519 69,614
Plan amendments (21,777) --
Benefits paid (49,088) (48,663)
Actuarial loss 19,033 5,277
----------- -----------
Benefit obligation at end of year $ 1,008,702 $ 979,821
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year -- --
Employer contributions 49,088 48,663
Benefits paid (49,088) (48,663)
----------- -----------
Fair value of plan assets at end of year -- --
----------- -----------
Funded Status $(1,008,702) $ (979,821)
Unrecognized actuarial loss 19,076 70,704
Unrecognized prior service cost (21,777) (16,057)
----------- -----------
Accrued postretirement benefit obligation $(1,011,403) $ (925,174)
=========== ===========
F-34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The assumptions used to determine the accumulated postretirement benefit
obligation as of March 31 were as follows:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------
1999 1998
-------------------------------- ------------------------------
<S> <C> <C>
Discount rate 7.125% 7.5%
Salary increase rate for life insurance benefit 3.75% 3.75%
Heath care trend rate:
Pre-65 6.95% down to 4.75% over 4 years 7.6% down to 5.0% over 5 years
Post-65 6.13% down to 4.75% over 4 years 6.5% down to 5.0% over 5 years
Medicare 5.68% down to 4.75% over 4 years 5.9% down to 5.0% over 5 years
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage-point change in
the assumed health care cost trend would have the following effects:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
Point Increase Point Decrease
--------------- ---------------
<S> <C> <C>
Effect on total service and interest cost components $ 11,211 ($ 10,980)
Effect on postretirement benefit obligation $ 149,230 ($144,158)
</TABLE>
Retirees formerly employed by certain subsidiaries and their predecessors,
who were members of the United Mine Workers of America, last worked before
January 1, 1976 and were receiving health benefits on July 20, 1992,
receive health benefits provided by the Combined Fund, a fund created by
the Coal Industry Retiree Health Benefit Act of 1992 (the "Coal Act"). The
Coal Act requires former employers (including certain subsidiaries of the
Company) and their affiliates to contribute to the Combined Fund according
to a formula. In addition, certain Federal Abandoned Mine Lands funds will
be used to pay benefits to orphaned retirees through 2004.
The Company has recorded an actuarially determined liability representing
the amounts anticipated to be due for the United Mine Workers of America
Combined Fund. The "Obligation to industry fund" reflected in the balance
sheets at March 31, 1999 and 1998 was $63.1 million and $97.0 million,
respectively. The current portion related to this obligation reflected in
"Accounts payable and accrued expenses" in the balance sheets at March 31,
1999 and 1998 was $9.2 million and $8.8 million, respectively.
Expense of $4.5 million was recognized for the period ended March 31, 1999
due to the interest discount accrual. A benefit of $0.9 million was
recognized for the period ended May 19, 1998 which included amortization
of an actuarial gain of $1.7 million, net of the interest discount accrual
of $0.8 million. A benefit of $15.9 million was recognized for the year
ended March 31, 1998 which included amortization of an actuarial gain of
$21.4 million, net of the interest discount accrual of $5.5 million. A
benefit of $8.7 million was recognized for the six months ended March
31,1997 which included amortization of an actuarial gain of $11.7 million,
net of the interest discount accrual of $3.0 million. A benefit of $15.4
million was recognized for the year ended September 30, 1996 which
included amortization of an actuarial gain of $23.3 million, net of the
interest discount accrual of $7.9 million.
In January 1999, the Company adopted reductions to the salaried employee
medical coverage levels for employees retiring before January 1, 2003. For
employees retiring on or after January 1, 2003 the current medical plan is
replaced with a medical premium reimbursement plan. This plan change does
not apply to Powder River or Lee Ranch salaried employees. The change in
the retiree health care plan resulted in a $22.4 million reduction to the
salaried retiree health care liability. The Company is recognizing the
effect of the plan amendment over nine years beginning January 1, 1999.
Therefore, the effect for the three months ended March 31, 1999 was $0.6
million.
The Coal Act also established a multiemployer benefit plan ("1992 Plan")
which will provide medical and death benefits to persons who are not
eligible for the Combined Fund, whose employer and any affiliates are no
longer in business and who retired prior to October 1, 1994. A prior labor
agreement established the 1993 United Mine Workers
F-35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
of America Benefit Trust ("1993 Plan") to provide health benefits for
retired miners not covered by the Coal Act. The 1992 Plan and the 1993
Plan qualify under SFAS No. 106 as multiemployer benefit plans which
allows the Company to continue to recognize expense as contributions are
made. The amounts expensed related to these funds were $0.7 million and
$0.2 million for the periods ended March 31, 1999 and May 19, 1998, $4.5
million for the year ended March 31, 1998, $3.7 million for the six months
ended March 31, 1997 and $1.5 million for the year ended September 30,
1996.
Pursuant to the provisions of the Coal Act and the 1992 Plan, the Company
is required to provide security in an amount equal to three times the cost
of providing health care benefits for one year for all individuals
receiving benefits from the 1992 Plan who are attributable to the Company,
plus all individuals receiving benefits from an individual employer plan
maintained by the Company who are entitled to receive such benefits. In
accordance with the Coal Act and the 1992 Plan, the Company has
outstanding surety bonds at March 31, 1999 of $77.4 million and
outstanding letters of credit at March 31, 1998 of $91.2 million. The
surety bonds represent security for a portion of the postretirement
liability included on the balance sheets.
(12) STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 10,000,000 authorized shares of $0.01 par value preferred
stock. The Board of Directors is authorized to issue any or all of the
preferred stock. Shares of preferred stock are exchangeable into shares of
Class A common stock upon resolution by the Board of Directors.
Common Stock
The Company has 30,000,000 authorized shares of $0.01 par value Class A
common stock, and 3,000,000 authorized shares of $0.01 par value Class B
common stock. Holders of the Class A and Class B common stock are entitled
to one vote for each share held on all matters submitted to a vote of the
stockholders.
Subject to the rights of the holders of the preferred stock, holders of
Class A and Class B common stock are entitled to ratably receive such
dividends as may be declared by the Board of Directors. In the event of
liquidation, dissolution or winding up of the Company, holders of the
Class A common stock are entitled to share ratably in the distribution of
all assets remaining after payment of liabilities, subject to the rights
of the preferred stockholders. Holders of Class B common stock have a
junior liquidation right to the holders of Class A common stock.
Stock Option Plan
Effective May 19, 1998, the Company adopted the "1998 Stock Purchase and
Option Plan for Key Employees of P&L Coal Holdings Corporation" (the
"Plan"), making 4,027,800 shares of the Company's common stock available
for grant. The Board of Directors may provide such grants in the form of
either non-qualified or incentive stock options.
During the period ended March 31, 1999, the Company granted 3,795,873
options to purchase Class A common stock, 931,885 of which are incentive
stock options that vest at a rate of 20% per year for five years, and
2,863,988 of non-qualified stock options that vest in full or in part at a
rate of 20% per year based upon the attainment of performance goals
determined by the Board of Directors.
F-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of the outstanding options as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average Weighted Average Fair
Shares Exercise Price Value of Options Granted
------ -------------- ------------------------
<S> <C> <C> <C>
Beginning balance --
Granted 3,795,873 $20.00 $6.60
Exercised -- --
Forfeited -- --
Options outstanding at March 31, 1999 3,795,873 $20.00
========= ======
Options exercisable at March 31, 1999 -- --
========= ======
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. Accordingly, no compensation cost has been
recognized for non-qualified or incentive stock options granted under the
Plan. Had compensation cost been determined for the Company's
non-qualified or incentive stock options based on the fair value at the
grant dates consistent with the alternative method set forth under SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net
income would have decreased by approximately $3.3 million for the period
ended March 31, 1999.
(13) RELATED PARTY TRANSACTIONS
The "Receivables from affiliates, net" reflected in the balance sheet at
March 31, 1998 represents amounts due to/from The Energy Group and other
affiliates. No interest is earned by the Company on the balance with The
Energy Group.
In fiscal 1998, the Company paid a $65.1 million dividend and provided a
$141.0 million loan to a subsidiary of The Energy Group with a five year
term at a 5.0% interest rate.
During the six months ended March 31, 1997, the Company received a capital
contribution of $269.2 million from The Energy Group.
In August 1990, the Company borrowed $284.0 million from Hanson. The funds
were used to prepay certain senior indebtedness. The note payable to
Hanson carried interest at the rate of 10.0% per annum through September
1994 and 8.5% per annum through September 2000. This intercompany note was
contributed by Hanson to capital during 1996. The amount of interest paid
on the note was $18.1 million for the year ended September 30, 1996.
(14) CONTRACT RESTRUCTURINGS
The Company has periodically agreed to terminate coal supply agreements in
return for payments by the customer. The amounts included in "Other
revenues" were $5.3 million for the period ended March 31, 1999, $49.3
million for the year ended March 31, 1998, $11.6 million for the six
months ended March 31, 1997 and $22.0 million for the year ended September
30, 1996. There were no gains related to coal supply agreement
terminations for the period ended May 19, 1998.
(15) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company owns a 30% interest in a partnership that leases a coal export
terminal from the Peninsula Ports Authority of Virginia under a 30-year
lease that permits the partnership to purchase the terminal at the end of
the lease term for a nominal amount. The partners have severally (but not
jointly) agreed to make payments under various agreements which in the
aggregate provide the partnership with sufficient funds to pay rents and
to cover the principal
F-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
and interest payments on the floating-rate industrial revenue bonds issued
by the Peninsula Ports Authority, and which are supported by letters of
credit from a commercial bank. The Company's reimbursement obligation to
the commercial bank is in turn supported by a letter of credit totaling
$45.8 million.
Peabody Resources uses forward currency contracts to manage its exposure
against foreign currency fluctuations on sales denominated in U.S.
dollars. Realized gains and losses on these contracts are recognized in
the same period as the hedged transactions. The Company had unrealized
gains and (losses) recorded of $16.2 million and $33.6 million for the
periods ended March 31, 1999 and May 19, 1998, respectively, ($17.3
million) for the year ended March 31, 1998, $11.7 million for the six
months ended March 31, 1997 and $14.2 million for the year ended September
30, 1996, related to the forward currency contracts. The Company had
forward currency contracts outstanding at March 31, 1999 and 1998 of
$217.1 million and $244.0 million, respectively.
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk, such as bank letters of credit,
performance bonds and other guarantees, which are not reflected in the
accompanying balance sheets. Such financial instruments are to be valued
based on the amount of exposure under the instrument and the likelihood of
performance being required. In the Company's past experience, virtually no
claims have been made against these financial instruments. Management does
not expect any material losses to result from these off-balance-sheet
instruments and, therefore, is of the opinion that the fair value of these
instruments is zero.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, accounts receivable, receivables from
affiliates, and accounts payable and accrued expenses have carrying
values which approximate fair value due to the short maturity or the
financial nature of these instruments.
Notes payable fair value estimates are based on estimated borrowing
rates to discount the cash flows to their present value. The 5.0%
Subordinated Note carrying amount is net of unamortized note
discount.
Other noncurrent liabilities include a deferred purchase obligation
related to the prior purchase of a mine facility. The fair value
estimate is based on the same assumption as notes payable.
Investments and other assets include certain notes receivable with
customers at various interest rates. Notes receivable fair value
estimates are based on estimated borrowing rates to discount the
cash flows to their present values.
F-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The carrying amounts and estimated fair values of the Company's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
Predecessor Company
-----------------------
1999 1998
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable $ 4,754 $ 4,754 $ 182,671 $ 200,923
Note receivable from affiliate -- -- 141,000 137,161
Interest rate swaps -- 6,764 -- --
Long-term debt 2,532,858 2,629,601 591,854 642,290
Deferred purchase obligation 30,331 30,039 33,443 35,309
</TABLE>
The fair value of the financial instruments related to power trading
activities as of March 31, 1999, which include energy commodities, and
average fair value of those instruments held are set forth below:
Fair Value
-------------------------------
Assets Liabilities
---------- -----------
Forward contracts $1,031,931 $ 632,696
Future contracts -- 32
Option contracts 1,277 1,675
Swap agreements 2,093 1,660
---------- ----------
Total $1,035,301 $ 636,063
========== ==========
The approximate gross contract or notional amounts of financial
instruments are as follows:
Assets Liabilities
---------- -----------
Forward contracts $1,750,108 $1,049,779
Future contracts -- 7,875
Option contracts 1,530 1,728
Swap agreements 5,330 --
The net gain arising from trading and price risk management activities was
$36.9 million and $1.7 million for the periods ended March 31, 1999 and
May 19, 1998, respectively, and $26.4 million for the year ended March 31,
1998. The change in unrealized gain from power trading activities for the
period ended March 31, 1999 was $10.1 million.
(17) COMMITMENTS AND CONTINGENCIES
Environmental claims have been asserted against a subsidiary of the
Company at 18 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
F-39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
reasonableness of the Company's apportionment. The Company has not
anticipated any recoveries from insurance carriers or other potentially
responsible third parties in its balance sheets. The undiscounted
liabilities for environmental cleanup-related costs recorded in the
balance sheets at March 31, 1999 and 1998 were $61.8 million and $68.6
million, respectively. This amount represents those costs that the Company
believes are probable and reasonably estimable.
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.
At March 31, 1999, purchase commitments for capital expenditures were
approximately $139.4 million.
(18) SEGMENT INFORMATION
The Company operates primarily in the coal industry. "Other" data
represents an aggregation of the remainder of the Company's business
including Citizens Power and the Company's other non-mining entities. The
Company's industry and geographic data for continuing operations are as
follows:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------------------------------------------
Period Ended Period Ended Year Ended Six Months Ended Year Ended
March 31, 1999 May 19, 1998 March 31, 1998 March 31, 1997 September 30, 1996
-------------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
U.S. Mining $ 1,903,214 $ 269,597 $ 1,987,719 $ 942,954 $ 1,964,278
Non U.S. Mining 145,687 20,882 224,053 120,539 227,415
Other 45,325 1,929 32,690 600 1,893
----------- ----------- ----------- ----------- -----------
$ 2,094,226 $ 292,408 $ 2,244,462 $ 1,064,093 $ 2,193,586
=========== =========== =========== =========== ===========
Operating profit (loss):
U.S. Mining $ 132,027 $ 6,929 $ 211,967 $ 80,482 $ (700,097)
Non U.S. Mining 32,676 2,950 44,812 22,314 48,539
Other 14,018 (2,507) 12,408 (701) 262
----------- ----------- ----------- ----------- -----------
$ 178,721 $ 7,372 $ 269,187 $ 102,095 $ (651,296)
=========== =========== =========== =========== ===========
Depreciation, depletion and amortization:
U.S. Mining $ 155,220 $ 22,475 $ 169,623 $ 84,094 $ 165,256
Non U.S. Mining 23,962 3,041 30,546 17,636 32,597
Other 5,009 702 2,471
----------- ----------- ----------- ----------- -----------
$ 184,191 $ 26,218 $ 202,640 $ 101,730 $ 197,853
=========== =========== =========== =========== ===========
Total assets:
U.S. Mining $ 5,141,661 $ 4,684,518
Non U.S. Mining 494,123 461,745
Other 1,388,147 1,196,746
----------- -----------
$ 7,023,931 $ 6,343,009
=========== ===========
Revenues:
United States $ 1,948,539 $ 271,526 $ 2,020,409 $ 943,554 $ 1,966,171
Foreign 145,687 20,882 224,053 120,539 227,415
----------- ----------- ----------- ----------- -----------
$ 2,094,226 $ 292,408 $ 2,244,462 $ 1,064,093 $ 2,193,586
=========== =========== =========== =========== ===========
Operating profit (loss):
United States $ 146,045 $ 4,422 $ 224,375 $ 79,781 $ (699,835)
Foreign 32,676 2,950 44,812 22,314 48,539
----------- ----------- ----------- ----------- -----------
$ 178,721 $ 7,372 $ 269,187 $ 102,095 $ (651,296)
=========== =========== =========== =========== ===========
Total assets:
United States $ 6,529,808 $ 5,881,264
Foreign 494,123 461,745
----------- -----------
$ 7,023,931 $ 6,343,009
=========== ===========
</TABLE>
F-40
<PAGE>
P&L COAL HOLDINGS CORPORATION
8 7/8% Series B Senior
Notes due 2008 and
9 5/8% Series B Senior Subordinated
Notes due 2008
_______________________
PROSPECTUS
_______________________
LEHMAN BROTHERS INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that, among other things, a corporation may indemnify directors and officers as
well as other employees and agents of the corporation against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative, or investigative (other than action by or in the right
of the corporation a "derivative action"), if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
by-laws, disinterested director vote, stockholder vote, agreement or otherwise.
Article IV of the Registrant's By-laws requires indemnification to the
fullest extent permitted by Delaware law. The Registrant has also obtained
officers' and directors' liability insurance which insures against liabilities
that officers and directors of the Registrant, in such capacities, may incur.
The Registrant's Amended and Restated Certificate of incorporation (the
"Certificate of Incorporation") requires the advancement of expenses incurred by
officers or directors in relation to any action, suit or proceeding.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL (certain
illegal distributions) or (iv) for any breach of a director's duty of loyalty to
the Company or its stockholders. Article Seven of the Certificate of
Incorporation includes such a provision.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
No. Description of Exhibit
- ------- ----------------------
**1 Purchase Agreement dated as of May 13, 1998, between P&L Coal
Holdings Corporation and Lehman Brothers Inc.
**2.1 Participation Agreement dated March 1, 1998 between Texas Utilities
Company and Lehman Brothers Merchant Banking Partners II L.P.
**2.2 Purchase Agreement between The Energy Group PLC and P&L Coal Holdings
Corporation as Purchaser.
*3.1 Second Amended and Restated Certificate of Incorporation of P&L Coal
Holdings Corporation.
**3.2 By-Laws of P&L Coal Holdings Corporation.
**3.3 Certificate of Incorporation of Affinity Mining Company.
**3.4 By-Laws of Affinity Mining Company.
**3.5 Certificate of Incorporation of Arid Operations Inc.
**3.6 By-Laws of Arid Operations Inc.
**3.7 Certificate of Incorporation of Big Sky Coal Company.
**3.8 By-Laws of Big Sky Coal Company.
**3.9 Articles of Incorporation of Blackrock First Capital Corporation.
**3.10 By-Laws of Blackrock First Capital Corporation.
**3.11 Certificate of Incorporation of Bluegrass Coal Company.
II-1
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
**3.12 By-Laws of Bluegrass Coal Company.
**3.13 Certificate of Incorporation of Caballo Coal Company.
**3.14 By-Laws of Caballo Coal Company.
**3.15 Certificate of Incorporation of Charles Coal Company.
**3.16 By-Laws of Charles Coal Company.
**3.17 Certificate of Incorporation of Coal Properties Corp.
**3.18 By-Laws of Coal Properties Corp.
**3.19 Exhibit Intentionally Omitted
**3.20 Amended and Restated Venture Agreement of Colony Bay Coal Company.
**3.21 Certificate of Incorporation of Cook Mountain Coal Company.
**3.22 By-Laws of Cook Mountain Coal Company.
**3.23 Certificate of Incorporation of Cottonwood Land Company.
**3.24 By-Laws of Cottonwood Land Company.
**3.25 Certificate of Incorporation of Orion Mines, Inc. (now known as
Darius Gold Mine Inc.)
**3.26 By-Laws of Darius Gold Mine Inc.
**3.27 Certificate of Incorporation of Koppers Recreation Camps (now known
as EACC Camps, Inc.)
**3.28 By-Laws of Koppers Recreation Camps, Inc. (now known as EACC Camps,
Inc.)
**3.29 Certificate of Incorporation of Eastern Associated Coal Corp.
**3.30 By-Laws of Eastern Associated Coal Corp.
**3.31 Certificate of Incorporation of Eastern Royalty Corp.
**3.32 By-Laws of Eastern Royalty Corp.
**3.33 Certificate of Incorporation of Exploraciones y Minerales Sierra
Morena S.A. (now known as Gold Fields Chile, S.A.)
**3.34 By-Laws of Exploraciones y Minerales Sierra Morena S.A. (now known as
Gold Fields Chile, S.A.)
**3.35 Restated Certificate of Incorporation of Gold Fields Mining
Corporation.
**3.36 By-Laws of Gold Fields Mining Corporation.
**3.37 Certificate of Incorporation of East Tennessee Coal Company (now
known as Gold Fields Operating Co.--Ortiz).
**3.38 By-Laws of Gold Fields Operating Co.--Ortiz.
**3.39 Articles of Incorporation of Grand Eagle Mining, Inc.
**3.40 By-Laws of Grand Eagle Mining, Inc.
**3.41 Certificate of Incorporation of Hayden Gulch Terminal, Inc.
**3.42 By-Laws of Hayden Gulch Terminal, Inc.
**3.43 Certificate of Incorporation of Independence Material Handling
Company
**3.44 By-Laws of Independence Material Handling Company
**3.45 Certificate of Incorporation of Interior Holdings Corp.
**3.46 By-Laws of Interior Holdings Corp.
**3.47 Certificate of Incorporation of A.T. Two, Inc. (now known as James
River Coal Terminal Company).
II-2
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
**3.48 Restated By-Laws of James River Coal Terminal Company.
**3.49 Certificate of Incorporation of Juniper Coal Company.
**3.50 By-Laws of Juniper Coal Company.
**3.51 Certificate of Incorporation of Kayenta Mobile Home Park, Inc.
**3.52 By-Laws of Kayenta Mobile Home Park, Inc.
**3.53 Certificate of Incorporation of Martinka Coal Company.
**3.54 By-Laws of Martinka Coal Company.
**3.55 Articles of Incorporation of Midco Supply and Equipment Corporation.
**3.56 By-Laws of Midco Supply and Equipment Corporation.
**3.59 Certificate of Incorporation of Nueast Mining Corp. (now known as
Mountain View Coal Company).
**3.60 By-Laws of Nueast Mining Corp. (now known as Mountain View Coal
Company).
**3.61 Articles of Incorporation of North Page Coal Corp.
**3.62 By-Laws of North Page Coal Corp.
**3.63 Articles of Incorporation of Ohio County Coal Company.
**3.64 By-Laws of Ohio County Coal Company.
**3.65 Certificate of Limited Partnership of Patriot Coal Company, L.P.
**3.66 Limited Partnership Agreement of Patriot Coal Company, L.P.
**3.67 Certificate of Incorporation of Peabody America, Inc.
**3.68 By-Laws of Peabody America, Inc.
**3.69 Certificate of Incorporation of Peabody Coal Company.
**3.70 Restated By-Laws of Peabody Coal Company.
**3.71 Certificate of Incorporation of Peabody COALSALES Company.
**3.72 By-Laws of Peabody COALSALES Company.
**3.73 Certificate of Incorporation of COALTRADE Inc. (now known as Peabody
COALTRADE, Inc.).
**3.74 By-Laws of COALTRADE Inc. (now known as Peabody COALTRADE, Inc.)
**3.75 Certificate of Incorporation of Premier Coal Sales Company, (now
known as Peabody Development Company).
**3.76 Restated By-Laws of Peabody Development Company.
**3.77 Certificate of Incorporation of Peabody Powertrade, Inc. (now known
as Peabody Energy Solutions, Inc.).
**3.78 By-Laws of Peabody Powertrade, Inc. (now known as Peabody Energy
Solutions, Inc.).
**3.79 Restated Certificate of Incorporation of Peabody Holding Company,
Inc.
**3.80 Restated By-Laws of Peabody Holding Company, Inc.
**3.81 Exhibit Intentionally Omitted
**3.82 Second Amended and Restated Partnership Agreement re: Peabody Natural
Resources Company.
**3.83 Certificate of Incorporation of Armco Terminal Company (now known as
Peabody Terminals, Inc.)
**3.84 By-Laws of Peabody Terminals, Inc.
**3.85 Certificate of Incorporation of Peabody Venezuela Coal Corp.
**3.86 By-Laws of Peabody Venezuela Coal Corp.
**3.87 Certificate of Incorporation of Peabody Western Coal Company.
II-3
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
**3.88 By-Laws of Peabody Western Coal Company.
**3.89 Certificate of Incorporation of Pine Ridge Coal Company.
**3.90 By-Laws of Pine Ridge Coal Company.
**3.91 Certificate of Incorporation of Powder River Coal Company.
**3.92 Restated By-Laws of Powder River Coal Company.
**3.93 Certificate of Incorporation of Rio Escondido Coal Corp.
**3.94 By-Laws of Rio Escondido Coal Corp.
**3.95 Certificate of Incorporation of Seneca Coal Company.
**3.96 By-Laws of Seneca Coal Company.
**3.97 Certificate of Incorporation of Sentry Mining Company.
**3.98 By-Laws of Sentry Mining Company.
**3.99 Certificate of Incorporation of Snowberry Land Company.
**3.100 By-Laws of Snowberry Land Company.
**3.101 Agreement of Incorporation of Low Volatile Coals, Inc. (now known as
Sterling Smokeless Company).
**3.102 By-Laws of Sterling Smokeless Company.
**3.103 Certificate of Formation of Thoroughbred, L.L.C.
**3.104 Operating Agreement of Thoroughbred, L.L.C.
**4.1 Senior Note Indenture dated as of May 18, 1998 between P&L Coal
Holdings Corporation and State Street Bank and Trust Company, as
Senior Note Trustee.
**4.2 Senior Subordinated Note Indenture dated as of May 18, 1998 between
P&L Coal Holdings Corporation and State Street Bank and Trust
Company, as Senior Subordinated Note Trustee.
**4.3 First Supplemental Senior Note Indenture dated as of May 19, 1998
among the Guaranteeing Subsidiary (as defined therein), P&L Coal
Holdings Corporation the other Senior Note Guarantors (as defined in
the Senior Note Indenture) and State Street Bank and Trust Company,
as Senior Note Trustee.
**4.4 First Supplemental Senior Subordinated Note Indenture dated as of May
19, 1998 among the Guaranteeing Subsidiary (as defined therein), P&L
Coal Holdings Corporation, the other Senior Subordinated Note
Guarantors (as defined in the Senior Subordinated Note Indenture) and
State Street Bank and Trust Company, as Senior Subordinated Note
Trustee.
**4.5 Notation of Senior Note Guarantee dated as of May 19, 1998 among the
Senior Note Guarantors (as defined in the Senior Note Indenture).
**4.6 Notation of Subordinated Subsidiary Guarantee dated as of May 19,
1998 among the Senior Subordinated Note Guarantors (as defined in the
Senior Subordinated Note Indenture).
**4.7 Senior Note Registration Rights Agreement dated as of May 18, 1998
between P&L Coal Holdings Corporation and Lehman Brothers Inc.
**4.8 Senior Subordinated Note Registration Rights Agreement dated as of
May 18, 1998 between P&L Coal Holdings Corporation and Lehman
Brothers Inc.
**5 Opinion of Simpson Thacher & Bartlett.
**10.1 Amended and Restated Credit Agreement dated as of June 9, 1998 among
P&L Coal Holdings Corporation, as Borrower, Lehman Brothers Inc., as
Arranger, Lehman Commercial Paper Inc., as Syndication Agent,
Documentation Agent, and Administrative Agent, and the lenders party
thereto.
**10.2 Guarantee and Collateral Agreement dated as of May 14, 1997 made by
the Guarantors, in favor of Lehman Commercial Paper, Inc., as
Administrative Agent for the banks and other financial institutions.
II-4
<PAGE>
Exhibit
No. Description of Exhibit
- ------- ----------------------
**10.3 Federal Coal Lease WYW0321779: North Antelope/Rochelle Mine.
**10.4 Federal Coal Lease WYW119554: North Antelope/Rochelle Mine.
**10.5 Federal Coal Lease WYW5036: Rawhide Mine.
**10.6 Federal Coal Lease WYW3397: Caballo Mine.
**10.7 Federal Coal Lease WYW83394: Caballo Mine.
**10.8 Federal Coal Lease WYW136142.
*10.9 Royalty Prepayment Agreement by and among Peabody Natural Resources
Company, Gallo Finance Company and Chaco Energy Company, dated
September 30, 1998
*10.10 1998 Stock Purchase and Option Plan for Key Employees of P&L Coal
Holding Corporation
*10.11 Employment Agreement between Irl F. Engelhardt and the Company dated
May 19, 1998.
*10.12 Employment Agreement between Richard M. Whiting and the Company dated
May 19, 1998.
*10.13 Employment Agreement between W. Howard Carson and the Company dated
May 19, 1998.
*10.14 Employment Agreement between Roger B. Walcott, Jr. and the Company
dated May 19, 1998.
*10.15 Employment Agreement between Mark Maisto and the Company dated
May 19, 1998.
*12 Computation of Ratio of Earnings to Fixed Charges.
*21 List of Subsidiaries.
**23.1 Consent of Simpson Thacher & Bartlett (included as part of its
opinion filed as Exhibit 5 hereto).
*23.2 Consent of Ernst & Young LLP, independent certified public
accountants, regarding P&L Coal Holdings Corporation and P&L Coal
Group.
**23.4 Consent of John T. Boyd Company.
**24 Powers of Attorney.
**25.1 Form T-1 Statement of Eligibility under Trust Indenture Act of 1939
of State Street Bank and Trust Company, as Senior Notes Trustee.
**25.2 Form T-1 Statement of Eligibility under Trust Indenture Act of 1939
of State Street Bank and Trust Company, as Senior Subordinated Notes
Trustee.
**27 Financial Data Schedule.
**99.1 Form of Senior Letter of Transmittal.
**99.2 Form of Senior Subordinated Letter of Transmittal.
**99.3 Form of Senior Notice of Guaranteed Delivery.
**99.4 Form of Senior Subordinated Notice of Guaranteed Delivery.
- -----------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedule
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
P&L Coal Holdings Corporation
We have audited the consolidated financial statements of P&L Coal Holdings
Corporation (the Company) as of March 31, 1999 and for the period ended March
31, 1999 and the combined financial statements of P&L Coal Group (the
Predecessor Company) as of March 31, 1998, and for the period ended May 19,
1998, the year ended March 31, 1998, the six months ended March 31, 1997 and the
year ended September 30, 1996, and have issued our report thereon dated April
30, 1999. Our audits also included the financial statement schedule listed in
Item 21(b). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
April 30, 1999
St. Louis, Missouri
II-6
<PAGE>
P & L Coal Holdings Corporation
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance Charged Balance
(In thousands) at to at
Beginning Costs and End
Description of Period Expenses Deductions(1) Other of Period
- ----------------------------------- ------------ ---------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Period May 20, 1999 through
March 31, 1999
Reserves deducted from asset
accounts:
Land and coal interests $ 51,455 $ 3,138 $ (316) $ 54,277
Reserve for materials and supplies 6,087 (1,037) 11,508(2) 16,558
Allowance for doubtful accounts 9,073 (8,980) 84(3) 177
(PREDECESSOR COMPANY)
Period April 1, 1998 through
May 19, 1998
Reserves deducted from asset
accounts:
Land and coal interests 67,884 124 (10) (16,543)(4) 51,455
Reserve for materials and supplies 6,316 (229) 6,087
Allowance for doubtful accounts 9,100 (27) 9,073
Year ended March 31, 1998
Reserves deducted from asset
accounts:
Land and coal interests $ 61,276 $ 9,256 $ (2,648) $ 67,884
Reserve for materials and supplies 9,433 35 (2,908) (244)(5) 6,316
Allowance for doubtful accounts 5,525 (378) 3,953(4) 9,100
Six months ended March 31, 1997
Reserves deducted from asset
accounts:
Land and coal interests 52,825 3,323 (3,424) 8,552(4) 61,276
Reserve for materials and supplies 10,383 (2,591) 1,641(4) 9,433
Allowance for doubtful accounts 5,072 453 5,525
Year ended September 30, 1996
Reserves deducted from asset
accounts:
Land and coal interests 64,815 4,600 (16,590) 52,825
Reserve for materials and supplies 6,010 2,528 (406) 2,251(4) 10,383
Allowance for doubtful accounts 8,170 (3,098) 5,072
</TABLE>
(1) Reserves utilized, unless otherwise indicated.
(2) Balances changed as part of 5/19/98 purchase accounting.
(3) Balances acquired in Black Beauty purchase.
(4) Balances transferred from other accounts.
(5) Balances disposed of in Western Associated sale.
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the DGCL, the Certificate of
Incorporation and By-laws, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
The Registrant hereby undertakes:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) that every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 present change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the Company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
P&L COAL HOLDINGS CORPORATION
By: *
-------------------------------------
Irl F. Engelhardt
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* Chairman, Chief Executive Officer and
- ----------------------------------- Director
Irl F. Engelhardt
* President, Chief Operating Officer and
- ----------------------------------- Director
Richard M. Whiting
/s/ G. J. HOLWAY Vice President and Chief Financial
- ----------------------------------- Officer
George J. Holway
* Vice President, Assistant Secretary and
- ----------------------------------- Director
Henry E. Lentz
* Director
- -----------------------------------
Roger H. Goodspeed
* Director
- -----------------------------------
Alan H. Washkowitz
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
AFFINITY MINING COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President & Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
ARID OPERATIONS, INC.
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
BIG SKY COAL COMPANY
By: *
-------------------------------------
Curtis M. Belden
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President
- -----------------------------------
Curtis M. Belden
* Treasurer and Assistant Secretary
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
L. H. Fox
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
BLACKROCK FIRST CAPITAL CORPORATION
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No.1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
BLUEGRASS COAL COMPANY
By: *
-------------------------------------
John C. Hill
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
John C. Hill
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
CABALLO COAL COMPANY
By: *
-------------------------------------
L. H. Fox
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
L. H. Fox
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
CHARLES COAL COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
* By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
COAL PROPERTIES CORP.
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
* By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
COLONY BAY COAL COMPANY
By Eastern Associated Coal Corp., its
General Partner
By: *
-------------------------------------
J. A. Beck
President
of Eastern Associated Coal Corp.
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
EASTERN ASSOCIATED COAL CORP.
A General Partner
By: * President and Director of Eastern
- ----------------------------------- Associated Coal Corp.
J. A. Beck
* Vice President and Treasurer of Eastern
- ----------------------------------- Associated Coal Corp.
T. L. Bethel
* Director of Eastern Associated Coal
- ----------------------------------- Corp.
R. B. Walcott Jr.
* Director of Eastern Associated Coal
- ----------------------------------- Corp.
R. M. Whiting
CHARLES COAL COMPANY
A General Partner
By: * President and Director of Charles Coal
- ----------------------------------- Company
J. A. Beck
* Vice President and Treasurer of Charles
- ----------------------------------- Company
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
II-18
<PAGE>
Signature Title
--------- -----
* Director
- -----------------------------------
R. M. Whiting
* By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
COOK MOUNTAIN COAL COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
COTTONWOOD LAND COMPANY
By: *
-------------------------------------
J. L. Lautenschlager
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. L. Lautenschlager
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
DARIUS GOLD MINE, INC.
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
EACC CAMPS, INC.
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
EASTERN ASSOCIATED COAL CORP.
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
EASTERN ROYALTY CORP.
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
GOLD FIELDS CHILE, S.A.
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
*
- ----------------------------------- President and Director
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
GOLD FIELDS MINING CORPORATION
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
GOLD FIELDS OPERATING CO.--ORTIZ
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
GRAND EAGLE MINING, INC.
By: *
-------------------------------------
John C. Hill
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
John C. Hill
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
HAYDEN GULCH TERMINAL, INC.
By: *
-------------------------------------
D. A. Wagner
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. A. Wagner
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
INDEPENDENCE MATERIAL HANDLING COMPANY
By: *
-------------------------------------
J. L. Lautenschlager
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. L. Lautenschlager
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
INTERIOR HOLDINGS CORP.
By: *
-------------------------------------
I. F. Engelhardt
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
I. F. Engelhardt
/s/ G. J. HOLWAY Vice President, Treasurer and Director
- -----------------------------------
G. J. Holway
* Director
- -----------------------------------
W. H. Carson
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
JAMES RIVER COAL TERMINAL COMPANY
By: *
-------------------------------------
R. A. Navarre
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
R. A. Navarre
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
JUNIPER COAL COMPANY
By: *
-------------------------------------
J. L. Lautenschlager
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President
- -----------------------------------
J. L. Lautenschlager
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
KAYENTA MOBILE HOME PARK, INC.
By: *
-------------------------------------
D. A. Wagner
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. A. Wagner
* Treasurer and Assistant Secretary
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
MARTINKA COAL COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
MIDCO SUPPLY AND EQUIPMENT CORPORATION
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
MOUNTAIN VIEW COAL COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
NORTH PAGE COAL CORP.
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
OHIO COUNTY COAL COMPANY
By: *
-------------------------------------
J. C. Hill
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. C. Hill
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PATRIOT COAL COMPANY, L.P.
By: *
-------------------------------------
Bluegrass Coal Company
Its Managing Partner
By: *
-------------------------------------
John C. Hill
President of Bluegrass Coal Company
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
BLUEGRASS COAL COMPANY
Its Managing Partner
By: * President and Director of Bluegrass Coal
-------------------------------- Company
J. C. Hill
* Vice President and Treasurer of
- ----------------------------------- Bluegrass Coal Company
S. F. Schaab
* Director of Bluegrass Coal Company
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director of Bluegrass Coal Company
- -----------------------------------
G. J. Holway
SENTRY MINING COMPANY
A Partner
By: * President and Director of Sentry Mining
- -----------------------------------
J. C. Hill
* Vice President and Treasurer of Sentry
- ----------------------------------- Mining Company
T. L. Bethel
* Director of Sentry Mining Company
- -----------------------------------
W. H. Carson
II-41
<PAGE>
Signature Title
--------- -----
/s/ G. J. HOLWAY Director of Sentry Mining Company
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY AMERICA, INC.
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY COALSALES COMPANY
By: *
-------------------------------------
R. A. Navarre
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
R. A. Navarre
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY COALTRADE, INC.
By: *
-------------------------------------
P. H. Vining
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President
- -----------------------------------
P. H. Vining
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
* Director
- -----------------------------------
R. A. Navarre
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY COAL COMPANY
By: *
-------------------------------------
M. A. Haaga
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
M. A. Haaga
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY DEVELOPMENT COMPANY
By: *
-------------------------------------
J. L. Lautenschlager
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. L. Lautenschlager
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-47
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY ENERGY SOLUTIONS, INC.
By: *
-------------------------------------
R. A. Navarre
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
R. A. Navarre
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY HOLDING COMPANY, INC.
By: *
-------------------------------------
I. F. Engelhardt
Chairman & Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of PEABODY HOLDING, INC., do
hereby constitute and appoint Felix Herlihy, Christopher G. Farrand, Jeffery L.
Klinger and George J. Holway, or any of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our names in the capacities indicated below, which said attorneys and
agents, or either of them, may deem necessary or advisable to enable said
Corporation to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorneys and agents,
or any of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* Chairman, Chief Executive Officer and
- ----------------------------------- Director
I. F. Engelhardt
/s/ G. J. HOLWAY Vice President and Chief Financial
- ----------------------------------- Officer
G. J. Holway
/s/ W.H. Carson Director
- -----------------------------------
W.H. Carson
/s/ R.B. Walcott, Jr. Director
- -----------------------------------
R.B. Walcott, Jr.
s/ R.M. Whiting Director
- -----------------------------------
R.M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement or
to be signed on its behalf by the undersigned, thereunto duly authorized, on
July 22, 1999.
PEABODY NATURAL RESOURCES COMPANY
By:
-------------------------------------
Gold Fields Mining Corporation
Its General Partner
By: *
-------------------------------------
D. C. Hegger
President of Gold Fields Mining
Corporation
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
GOLD FIELDS MINING CORPORATION
A General Partner
By: * President and Director of Gold Fields
- ----------------------------------- Mining Corporation
D. C. Hegger
* Director of Gold Fields Mining
- ----------------------------------- Corporation
W. H. Carson
/s/ G. J. HOLWAY Director of Gold Fields Mining
- ----------------------------------- Corporation
G. J. Holway
PEABODY AMERICA, INC.
A General Partner
By: * President and Director of Peabody
-------------------------------- America, Inc.
D. C. Hegger
* Vice President and Treasurer of Peabody
- ----------------------------------- America, Inc.
S. F. Schaab
* Director of Peabody America, Inc.
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director of Peabody America, Inc.
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
-------------------------------
George J. Holway
Attorney-In-Fact
II-50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY TERMINALS, INC.
By: *
-------------------------------------
R. A. Navarre
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
R. A. Navarre
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY VENEZUELA COAL CORP.
By: *
-------------------------------------
D. C. Hegger
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. C. Hegger
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PEABODY WESTERN COAL COMPANY
By: *
-------------------------------------
D. A. Wagner
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. A. Wagner
* Treasurer and Assistant Secretary
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
PINE RIDGE COAL COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-54
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
POWDER RIVER COAL COMPANY
By: *
-------------------------------------
L. H. Fox
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
L. H. Fox
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
RIO ESCONDIDO COAL CORP.
By: *
-------------------------------------
D. A. Wagner
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. A. Wagner
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-56
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
SENECA COAL COMPANY
By: *
-------------------------------------
D. A. Wagner
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
D. A. Wagner
* Treasurer and Assistant Secretary
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-57
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
SENTRY MINING COMPANY
By: *
-------------------------------------
J. C. Hill
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. C. Hill
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-58
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
SNOWBERRY LAND COMPANY
By: *
-------------------------------------
J. L. Lautenschlager
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. L. Lautenschlager
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
* Director
- -----------------------------------
W. H. Carson
/s/ G. J. HOLWAY Director
- -----------------------------------
G. J. Holway
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-59
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
STERLING SMOKELESS COAL COMPANY
By: *
-------------------------------------
J. A. Beck
President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* President and Director
- -----------------------------------
J. A. Beck
* Vice President and Treasurer
- -----------------------------------
T. L. Bethel
* Director
- -----------------------------------
R. B. Walcott Jr.
* Director
- -----------------------------------
R. M. Whiting
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
22, 1999.
THOROUGHBRED, L.L.C.
By: *
-------------------------------------
I. F. Engelhardt
Chairman
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed on the 22nd day of
July, 1999 by the following persons in the capacities indicated:
Signature Title
--------- -----
* Chairman
- -----------------------------------
I. F. Engelhardt
* Vice President and Treasurer
- -----------------------------------
S. F. Schaab
*By: /s/ GEORGE J. HOLWAY
- -----------------------------------
George J. Holway
Attorney-In-Fact
II-61
<PAGE>
Exhibit 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
P&L COAL HOLDINGS CORPORATION
P&L COAL HOLDINGS CORPORATION (the "Corporation"), a corporation organized
and existing under the laws of the State of Delaware, DOES HEREBY CERTIFY:
1. The name of the corporation is P&L Coal Holdings Corporation. The date
of the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was February 27, 1998 under the name of P&L Coal
Holdings Corporation, and the date of the filing of its Amended and Restated
Certificate of Incorporation with the Secretary of State of Delaware was May 15,
1998 under the name of P&L Coal Holdings Corporation.
2. This Second Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with Sections 103, 242 and 245 of the General
Corporation Law of the State of Delaware. The Corporation has received payment
for its stock.
3. The Board of Directors of the Corporation, pursuant to a unanimous
written action in lieu of a meeting pursuant to Section 141(f) of the General
Corporation Law of the State of Delaware, adopted resolutions proposing and
declaring advisable that the Corporation amend and restate its Amended and
Restated Certificate of Incorporation to read in its entirety as follows:
FIRST: The name of the Corporation is P&L Coal Holdings Corporation.
SECOND: The registered office and registered agent of the Corporation is
The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock that the Corporation shall
have the authority to issue is 43,000,000 shares, consisting of 30,000,000
shares of Class A Common Stock, par value $0.01 per share (the "Class A Common
Stock"), 3,000,000 shares of Class B Common Stock, par value $0.01 per share
(the "Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock"), and 10,000,000 shares of Non-Convertible, Exchangeable
Preferred Stock, par value of $0.01 per share (the "Preferred Stock"). Set forth
below with respect to each type of stock of the Corporation is a statement of
the voting powers and the designations, preferences, rights, qualifications,
limitations and restrictions thereof:
A. Class A Common Stock.
<PAGE>
1. Voting Rights. Except as may otherwise be required by law, each
holder of Class A Common Stock (together with the holders of Class B
Common Stock and the holders of Preferred Stock) shall have one vote in
respect of each share of Class A Common Stock held on all matters voted
upon by the stockholders of the Corporation.
2. Dividends. The holders of Class A Common Stock (together with the
holders of Class B Common Stock and the holders of Preferred Stock) shall
be entitled to receive such dividends as may be declared from time to time
by the Board of Directors of the Corporation ratably in proportion to the
number of shares of Class A Common Stock (and Class B Common Stock and
Preferred Stock) held by them.
3. Distributions. Subject to the limitations set forth in Section
C.3 of this Article FOURTH, in the event of any Liquidation Event,
following Payment in Full of the Preference Amount to the holders of
Preferred Stock, the holders of Class A Common Stock shall be entitled to
receive all of the remaining Available Assets ratably in proportion to the
number of shares of Class A Common Stock held by them until they receive
Payment in Full of the Preference Amount. If such remaining Available
Assets shall be insufficient to distribute to the holders of shares of
Class A Common Stock the Payment in Full of the Preference Amount to which
they are entitled (after Payment in Full of the Preference Amount to the
holders of shares of Preferred Stock), the holders of shares of Class A
Common Stock shall share ratably in any distribution of Available Assets
in proportion to the number of shares of Class A Common Stock held by
them. After Payment in Full of the Preference Amount to the holders of
shares of Preferred Stock pursuant to Section C.3, to the holders of
shares of Class A Common Stock pursuant to this Section A.3 and to the
holders of shares of Class B Common Stock pursuant to Section B.3, the
holders of Class A Common Stock shall be entitled (together with the
holders of Class B Common Stock and the holders of Preferred Stock) to
receive any remaining Available Assets ratably in proportion to the number
of shares of Class A Common Stock (and Class B Common Stock and Preferred
Stock) held by them.
B. Class B Common Stock.
1. Voting Rights. Except as may otherwise be required by law, each
holder of Class B Common Stock (together with the holders of Class A
Common Stock and the holders of Preferred Stock) shall have one vote in
respect of each share of Class B Common Stock held on all matters voted
upon by the stockholders of the Corporation.
2. Dividends. The holders of Class B Common Stock (together with the
holders of the Class A Common Stock and the holders of Preferred Stock)
shall be entitled to receive such dividends as may be declared from time
to time by the Board of Directors of the Corporation ratably in proportion
to the number of shares of Class B Common Stock (and Class A Common Stock
and Preferred Stock) held by them.
3. Distributions. Subject to the limitations set forth in Sections
A.3 and C.3 of this Article FOURTH, in the event of any Liquidation Event,
following Payment in Full of the Preference Amount to the holders of
Preferred Stock and the holders of Class A Common
<PAGE>
Stock, the holders of Class B Common Stock shall be entitled to receive
all of the remaining Available Assets ratably in proportion to the number
of shares of Class B Common Stock held by them until they receive Payment
in Full of the Preference Amount. If such remaining Available Assets shall
be insufficient to distribute to the holders of shares of Class B Common
Stock the Payment in Full of the Preference Amount to which they are
entitled (after Payment in Full of the Preference Amount to the holders of
shares of Class A Common Stock and the holders of Preferred Stock), the
holders of shares of Class B Common Stock shall share ratably in any
distribution of Available Assets in proportion to the number of shares of
Class B Common Stock held by them. After Payment in Full of the Preference
Amount to the holders of shares of Preferred Stock pursuant to Section
C.3, to the holders of shares of Class A Common Stock pursuant to Section
A.3 and to the holders of shares of Class B Common Stock pursuant to this
Section B.3, the holders of Class B Common Stock shall be entitled
(together with the holders of Class A Common Stock and the holders of
Preferred Stock) to receive any remaining Available Assets ratably in
proportion to the number of shares of Class B Common Stock (and Class A
Common Stock and Preferred Stock) held by them.
4. Conversion.
a. Immediately following the earliest of (i) the ninth anniversary
of the initial issuance of shares of Class B Common Stock, (ii) the
consummation of a Change of Control, an Initial Public Offering or a
Recapitalization Event and (iii) the date of an election by the Board of
Directors of the Corporation to convert the outstanding shares of Class B
Common Stock into Class A Common Stock, all of the shares of Class B
Common Stock shall be converted, without action on the part of any holder
thereof, into the same number of shares of Class A Common Stock.
b. Each conversion of shares of Class B Common Stock into the same
number of shares of Class A Common Stock shall be completed by the
surrender of the certificate or certificates representing the shares (the
"Shares for Conversion") converted at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may from time to time designate by notice in writing to the
holders of Class B Common Stock) at any time during normal business hours.
Such conversion shall be deemed to have been effected as of the open of
business on the first business day immediately following the date of the
event giving rise to the conversion pursuant to this Section B.4 (the
"Class B Conversion Date"). From and after the Class B Conversion Date,
(i) the rights of the holder of the Shares for Conversion in respect
thereof will cease (other than the right to receive any dividend or other
distribution that has been declared by the Board of Directors of the
Corporation to be payable on or following the Class B Conversion Date to
holders of record of the class of Common Stock of which the Shares for
Conversion are a part on a date prior to the Class B Conversion Date),
(ii) the person or persons in whose name or names the certificate or
certificates for the shares to be issued (the "Converted Shares") upon
such conversion of the Shares for Conversion shall be deemed to have
become the holder or holders of record of the Converted Shares represented
thereby and (iii) any certificate or certificates representing the Shares
for Conversion
<PAGE>
shall thereafter, and without any action on the part of holder thereof, be
deemed to represent the shares of Class A Common Stock into which they are
convertible.
c. Promptly after the Class B Conversion Date, the Corporation will
issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates for the Converted Shares
issuable upon conversion.
d. The Corporation will at all times reserve and keep available out
of its authorized but unissued shares of Class A Common Stock, solely for
the purpose of issuance upon the conversion of Class B Common Stock as
provided herein, the maximum number of shares as shall then be issuable
upon the conversion of all then outstanding shares of Class B Common
Stock.
e. If the Corporation in any manner subdivides or combines the
outstanding shares of Class A Common Stock or Class B Common Stock, the
outstanding shares of the other class will be proportionately subdivided
or combined.
f. The issuance of certificates representing Converted Shares will
be made without charge to the holders of such shares for any issuance tax
in respect thereof or other cost incurred by the Corporation in connection
with such conversion and issuance; provided that the holder of such
Converted Shares shall be responsible for any transfer taxes due in
connection with the conversion thereof. The Corporation will not close its
books against the transfer of its Common Stock in any manner which would
interfere with the timely conversion of any class of Common Stock.
C. Preferred Stock. Subject to the limitations and modifications set forth
below, each share of Preferred Stock shall have the voting powers and the
designations, preferences, rights, qualifications, limitations and restrictions
of a share of Common Stock.
1. Voting Rights. Each holder of a share of Preferred Stock shall
have the same voting rights as the holder of a share of Common Stock, and
all holders of shares of Preferred Stock shall vote as a single class with
all holders of shares of Common Stock, and not as a separate class, upon
all matters in which the holders of the Common Stock are entitled to vote.
2. Dividends. The holders of the shares of Preferred Stock (together
with the holders of any Common Stock) shall be entitled to receive such
dividends as may be declared from time to time by the Board of Directors
of the Corporation ratably in proportion to the number of shares of
Preferred Stock (and Common Stock) held by them.
3. Distributions. In the event of any Liquidation Event, the holders
of Preferred Stock shall be entitled to receive all of the Available
Assets ratably in proportion to the number of shares of Preferred Stock
held by them, in priority to any distribution to the holders of Common
Stock, until such holders of Preferred Stock receive Payment in Full of
the Preference Amount. If the Available Assets shall be insufficient to
distribute to the holders of shares of Preferred
<PAGE>
Stock the Payment in Full of the Preference Amount to which they are
entitled, the holders of shares of Preferred Stock shall share ratably in
any distribution of Available Assets in proportion to the number of shares
of Preferred Stock held by them. After Payment in Full of the Preference
Amount to the holders of shares of Preferred Stock pursuant to the
foregoing provisions and to the holders of shares of Class A Common Stock
pursuant to Section A.3 and to the holders of shares of Class B Common
Stock pursuant to Section B.3 of this Article FOURTH, the holders of
Preferred Stock shall be entitled (together with the holders of Common
Stock) to receive any remaining Available Assets ratably in proportion to
the number of shares of Preferred Stock (and Common Stock) held by them.
4. Exchange.
a. At any time and from time to time, the Corporation may exchange,
at the option of the Corporation in its sole discretion, in whole or in
part, the shares of Preferred Stock, share for share, into shares of Class
A Common Stock.
b. The Corporation may exercise the right to exchange shares of
Preferred Stock into shares of Class A Common Stock by resolution of the
Board of Directors to that effect (which may specify an event or events
upon which such exercise and exchange will be effective).
c. On the date for the exchange of the shares of Preferred Stock
into shares of Class A Common Stock (the "Exchange Date"), such shares of
Preferred Stock (the "Exchanged Shares") shall be exchanged, share for
share, for shares of Class A Common Stock. As a condition of receipt of
the certificate or certificates representing such Class A Common Stock,
each holder of Exchanged Shares must surrender the certificate or
certificates representing the Exchanged Shares to the Corporation. Each
surrendered certificate shall be canceled and retired promptly after
receipt by the Corporation and the capital stock evidenced thereby may be
reissued by the Corporation.
d. From and after the Exchange Date, (i) the rights of the holders
of Exchanged Shares in respect thereof will cease (other than the right to
receive any dividend or other distribution that has been declared by the
Board of Directors of the Corporation to be payable on or following the
Exchange Date to holders of record of Preferred Stock on a date prior to
the Exchange Date), (ii) the person or persons in whose name or names the
certificate or certificates for the Exchanged Shares were issued shall be
deemed to have become the holder or holders of record of an equivalent
number of shares of Class A Common Stock and (iii) any certificate or
certificates representing Exchanged Shares shall thereafter, and without
any action on the part of the holder thereof, be deemed to represent an
equivalent number of shares of Class A Common Stock.
e. If the Corporation in any manner subdivides or
<PAGE>
combines the outstanding shares of Class A Common Stock or Preferred
Stock, the outstanding shares of the other class will be proportionately
subdivided or combined.
f. The Corporation shall at all times reserve and keep available out
of its authorized and unissued Class A Common Stock, solely for the
purpose of effecting the exchange of the Preferred Stock, such number of
shares of Class A Common Stock as shall from time to time be sufficient to
effect the exchange of all then outstanding shares of Preferred Stock. The
Corporation shall from time to time, subject to and in accordance with the
laws of Delaware, increase the authorized amount of Class A Common Stock
if at any time the number of authorized shares of Class A Common Stock
remaining unissued shall not be sufficient to permit the exchange at such
time of all then outstanding shares of Preferred Stock.
5. Redemption.
a. At any time during the six-month period immediately following the
issuance of shares of Preferred Stock by the Corporation and from time to
time during such period, the Corporation may redeem, at the option of the
Corporation in its sole discretion, in whole or in part, the shares of
Preferred Stock for a price of $20 per share without interest thereon (the
"Redemption Price").
b. The Corporation may exercise the right to redeem shares of
Preferred Stock by resolution of the Board of Directors to that effect
(which may specify an event or events upon which such exercise and
redemption will be effective).
c. On the date for the redemption of the shares of Preferred Stock
(the "Redemption Date"), the full Redemption Price shall become payable in
cash for the shares of Preferred Stock being redeemed on such Redemption
Date (the "Redeemed Shares"). As a condition of payment of the Redemption
Price, each holder of Redeemed Shares must surrender the certificate or
certificates representing the Redeemed Shares to the Corporation. Each
surrendered certificate shall be canceled and retired promptly after
receipt by the Corporation and the capital stock evidenced thereby may be
reissued by the Corporation.
d. On the Redemption Date, unless the Corporation defaults in the
payment in full of the Redemption Price, all rights of holders of the
Redeemed Shares shall terminate (other than the right to receive any
dividend or other distribution that has been declared by the Board of
Directors of the Corporation to be payable on or following the Redemption
Date to holders of record of Preferred Stock on a date prior to the
Redemption Date and the right to receive the Redemption Price).
e. If the Corporation in any manner subdivides or
<PAGE>
combines the outstanding shares of Preferred Stock, the Redemption
Price will be adjusted proportionately.
D. Certain Definitions. For purposes of this Article FOURTH, the following
terms shall have the following meanings:
"Available Assets" means (i) in the case of a Business Combination,
all cash, securities and other assets to be received by stockholders of
the Corporation pursuant thereto and (ii) in the case of any other
Liquidation Event, all assets of the Corporation, tangible and intangible,
of whatever kind available for distribution to stockholders.
"Business Combination" means any acquisition of the Corporation by
means of merger or other form of corporate reorganization in which
outstanding shares of the Corporation are exchanged for cash, securities
or other consideration issued or given, or caused to be issued or given,
by the acquiring corporation or its subsidiary (other than a mere
reincorporation transaction).
"Change of Control" shall mean an acquisition of all or
substantially all of the direct and indirect assets of the Company and its
subsidiaries (by merger, consolidation, stock or asset sale or otherwise),
whereby immediately following any such transaction (i) the Lehman Fund and
its affiliates own, in the aggregate less than 50% of the Corporation's
outstanding voting securities that the Lehman Fund owned in the aggregate
immediately following the consummation of the transactions pursuant to the
Purchase Agreement, dated as of March 2, 1998, by and between the
Corporation and The Energy Group PLC (excluding the anticipated sell down
of approximately $75 million to occur subsequent to such consummation) or
(ii) any Person individually owns more of the Corporation's then
outstanding voting securities entitled to vote generally than is owned in
the aggregate by the Lehman Fund and its affiliates.
"Initial Public Offering" shall mean the initial sale of shares of
any class of the Corporation's stock to the public pursuant to an
effective registration statement (other than a registration statement on
Form S-4 or S-8 or any similar or successor form) filed under the
Securities Act of 1933, as amended, which results in an active trading
market of the lesser of 25% of the outstanding shares of the Corporation's
Common Stock and a $250 million float in the marketplace. There shall be
deemed to be an "active trading market" if the Corporation's Common Stock
is listed or quoted on a national exchange or the NASDAQ National Market.
"Lehman Fund" means Lehman Brothers Merchant Banking Partners II
L.P., Lehman Brothers Offshore Investment Partners II L.P., LB I Group
Inc., Lehman Brothers Capital Partners III, L.P., Lehman Brothers Capital
Partners IV, L.P. and Lehman Brothers MBG Partners 1998 (A) L.P.,
collectively.
"Liquidation Event" means any of the following: (i) any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
(ii) any Business Combination, or (iii) a sale or disposition by the
Corporation or any subsidiary of the Corporation, if
<PAGE>
any, of all or substantially all of the assets of the Corporation or such
subsidiary (if, with respect to such subsidiary, the assets so sold would
have constituted all or substantially all of the assets of the Corporation
if the assets were held directly by the Corporation).
"Payment in Full of the Preference Amount" is deemed to have been
made at such time as the holders of the shares of Preferred Stock, Class A
Common Stock or Class B Common Stock, as the case may be, shall have
received in respect of each such share an aggregate amount of cash, or
securities or other assets, or any combination thereof, with a fair market
value equal to $20 in connection with a Liquidation Event (without giving
effect to prior unrelated dividends or distributions), and in the event
that the Corporation in any manner subdivides or combines the outstanding
shares of Class A Common Stock or Preferred Stock, such Payment in Full of
the Preference Amount shall be adjusted accordingly.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, limited liability company, unincorporated
association, joint venture or other entity of whatever nature.
"Recapitalization Event" shall mean a recapitalization,
reorganization, stock dividend or other special corporate restructuring
which results in an extraordinary distribution to the stockholders of cash
and/or securities through the use of leveraging or otherwise but which
does not result in a Change of Control.
FIFTH: The Board of Directors of the Corporation, acting by the
affirmative vote of a majority of the directors then in office, may alter, amend
or repeal the Bylaws of the Corporation.
SIXTH: The number of directors of the Corporation shall be determined in
the manner provided in the Bylaws of the Corporation.
SEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated by the Board of Directors or in the Bylaws of the Corporation.
EIGHTH: Unless and except to the extent that the Bylaws of the Corporation
shall so require, the election of the directors of the Corporation need not be
by written ballot.
NINTH: Notwithstanding the provisions of Section 228 of the General
Corporation Law of the State of Delaware, the stockholders of the Corporation
may take action by written consent only if all of the stockholders entitled to
vote on the matter sign such consent. This Article NINTH may not be amended
without the unanimous consent of all stockholders entitled to vote on the
matter.
TENTH: To the fullest extent permitted by the laws of the
<PAGE>
State of Delaware:
A. The Corporation shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(brought in the right of the Corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal, including
appeals, by reason of the fact that such person is or was a director or officer
of the Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, limited liability company or other enterprise, for and against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals. Notwithstanding the preceding sentence, the Corporation shall
be required to indemnify a person described in such sentence in connection with
any action, suit or proceeding (or part thereof) commenced by such person only
if the commencement of such action, suit or proceeding (or part thereof) by such
person was authorized by the Board of Directors of the Corporation. The
Corporation may indemnify any person (and such person's heirs, executors or
administrators) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (brought in the
right of the Corporation or otherwise), whether civil, criminal, administrative
or investigative, and whether formal or informal, including appeals, by reason
of the fact that such person is or was an employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise, for and against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals.
B. The Corporation shall promptly pay expenses incurred by any person
described in the first sentence of Section A. of this Article TENTH in defending
any action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding, including appeals, upon presentation of appropriate
documentation.
C. The Corporation may purchase and maintain insurance on behalf of any
person described in Section A. of this Article TENTH against any liability
asserted against such person, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article TENTH or otherwise.
D. The provisions of this Article TENTH shall be applicable to all
actions, claims, suits or proceedings made or commenced after the adoption
hereof, whether arising from acts or omissions to act occurring before or after
its adoption. The provisions of this Article TENTH shall be deemed to be a
contract between the Corporation and each director or officer who serves in such
capacity at any time while this Article TENTH and the relevant provisions of the
laws of the State of Delaware and other applicable law, if any, are in effect,
and any repeal or modification hereof shall not affect any rights or obligations
then existing with respect to any state of facts or any action, suit or
proceeding then or theretofore existing, or any action, suit or proceeding
<PAGE>
thereafter brought or threatened based in whole or in part on any such state of
facts. If any provision of this Article TENTH shall be found to be invalid or
limited in application by reason of any law or regulation, it shall not affect
the validity of the remaining provisions hereof. The rights of indemnification
provided in this Article TENTH shall neither be exclusive of, nor be deemed in
limitation of, any rights to which an officer, director, employee or agent may
otherwise be entitled or permitted by contract, this Second Amended and Restated
Certificate of Incorporation, vote of stockholders or directors or otherwise, or
as a matter of law, both as to actions in such person's official capacity and
actions in any other capacity while holding such office, it being the policy of
the Corporation that indemnification of any person whom the Corporation is
obligated to indemnify pursuant to the first sentence of Section A. of this
Article TENTH shall be made to the fullest extent permitted by law.
E. For purposes of this Article TENTH, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries.
ELEVENTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
4. In Lieu of a meeting and vote of the stockholders, the stockholders
have given written consent to such amendment and restatement of the Amended and
Restated Certificate of Incorporation of the Corporation in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Second Amended and
Restated Certificate of Incorporation this 12th day of November 1998.
P&L COAL HOLDINGS CORPORATION
By: /s/ Irl F. Engelhardt
-------------------------------------
Name: Irl F. Engelhardt
Title: Chairman and Chief
Executive Officer
<PAGE>
Exhibit 10.9
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
<PAGE>
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
<PAGE>
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;
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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;
<PAGE>
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
<PAGE>
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,
<PAGE>
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;
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
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
<PAGE>
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
<PAGE>
(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.
<PAGE>
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:_________________________
<PAGE>
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
<PAGE>
Exhibit 10.10
1998 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
P&L COAL HOLDINGS CORPORATION
1 Purpose of Plan
The 1998 Stock Purchase and Option Plan for Key Employees of P&L Coal
Holdings Corporation and Subsidiaries (the "Plan") is designed:
(a) to promote the long term financial interests and growth of P&L Coal
Holdings Corporation (the "Company") and its subsidiaries by attracting and
retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of the Company's
business;
(b) to motivate management personnel by means of growth-related incentives
to achieve long range goals; and
(c) to further the alignment of interests of participants with those of
the stockholders of the Company through opportunities for increased stock, or
stock-based, ownership in the Company.
2 Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Active Trading Market" shall mean, as to the Company's Common Stock,
that the Company's Common Stock is listed or quoted on a national exchange or
the NASDAQ National Market.
(b) "Board of Directors" shall mean the Board of Directors of the Company.
(c) "Change of Control" shall mean an acquisition of all or substantially
all of the direct and indirect assets of the Company and its Subsidiaries (by
merger, consolidation, recapitalization event, stock or asset sale or
otherwise), whereby immediately following any such transaction (i) the Lehman
Fund owns, in the aggregate, less than 50 percent of the Company's outstanding
voting securities that the Lehman Fund owned (excluding the sell down of
approximately $75 million anticipated to occur after the Closing Date or (ii)
any Person individually owns more of the Company's then outstanding voting
securities entitled to vote generally than is owned in the aggregate by the
Lehman Fund and its affiliates.
(d) "Class B Stock" shall mean the $.01 par value Company stock which
shall have voting rights and other attributes similar to Common Stock, except
that Common Stock will have a liquidation preference. Class B Stock shall be
converted to Common Stock upon a Change of Control, an IPO or a Recapitalization
Event.
(e) "Closing Date" shall mean May 19, 1998.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Compensation Committee of the Board of
Directors.
(h) "Common Stock" shall mean the $.01 par value common stock of the
Company which may be authorized but unissued, or issued and reacquired.
(i) "Employee" shall mean a person, including an officer, in the regular
full-time employment of the Company or one of its Subsidiaries who, in the
opinion of the Committee, is, or is expected to be, involved with the
management, growth or protection of some part or all of the business of the
Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" shall mean (i) prior to a Public Offering, the
fair market value of the equity of the Company, as determined by the Board of
Directors in good faith, taking into account all relevant factors, including the
Company's historic financial performance, its business prospects and recent
sales or valuations of similar companies; (ii) after a Public Offering, the
average of the closing prices of the shares of Common Stock for the 20 trading
days immediately preceding the determination date; provided, however, at the
time of the Public Offering, the offering price per share of Common Stock; and
(iii) notwithstanding the foregoing, in the event of a Change in Control, the
per share value of equity based on amounts paid in the Change of Control.
(l) "Grant" shall mean an award made to a Participant under this Plan,
including an award of Options and/or Purchase Stock, as such term is defined in
paragraph 5(b) hereof.
(m) "Grant Agreement" shall mean an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
Grants pursuant to the Plan.
<PAGE>
(n) "Lehman Fund" shall mean the initial purchasers listed on the
signature pages to the Stockholders Agreement dated as of the Closing Date
between the Participant and the Company and any other entity owned or controlled
directly or indirectly by Lehman Brothers Holdings, Inc.
(o) "Option" shall mean an option to purchase shares of the Common Stock
which may be an "Incentive Stock Option" or a "Non-Qualified Stock Option", as
such terms are defined in paragraph 5(a) hereof.
(p) "Participant" shall mean an Employee, or other person having a
relationship with the Company or one of its Subsidiaries, to whom one or more
Grants have been made and such Grants have not all been forfeited or terminated
under the Plan, or a person to whom such Grant was transferred pursuant to a
trust provided for by the Grant Agreement; provided, however, that a
non-employee director of the Company or one of its Subsidiaries may not be a
Participant.
(q) "Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
(r) "Public Offering" shall mean the sale of shares of any class of the
Company's stock to the public pursuant to an effective registration statement
<PAGE>
(other than a registration statement on Form S-4 or S-8 or any similar or
successor form) filed under the Securities Act of 1933 which results in an
Active Trading Market of the lesser of 25% of the outstanding shares of Common
Stock and an aggregate value of outstanding securities that are registered equal
to $250 million; provided, however, that the first such Public Offering shall be
called an "IPO".
(s) "Share" shall mean Common Stock or Class B Stock, as the case may be.
(t) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations, or group of
commonly controlled corporations, other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3 Administration of Plan
(a) The Plan shall be administered by the Committee; provided, however,
that the members of the Committee shall qualify to administer the Plan for
purposes of Rule 16b-3 (and any other applicable rule) promulgated under Section
16(b) of the Exchange Act to the extent that the Company is subject to such
rule. The Committee may adopt its own rules of procedure, and action of a
majority of the members of the Committee taken at a meeting, or action taken
without a meeting by unanimous written consent, shall constitute action by the
Committee. The Committee shall have the power and authority to administer,
construe and interpret the Plan, to make rules for carrying it out and to make
changes in such rules. Any such interpretations, rules and administration shall
be consistent with the basic purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Company its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe, except that only
the Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company, and the
officers and directors of the Company shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
Grants, and all members of the Committee shall be fully protected by the Company
with respect to any such action, determination or interpretation.
4 Eligibility
The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a relationship with the Company or any of its
Subsidiaries, and in such form and having such terms, conditions and limitations
as the Committee may determine consistent, however, with the terms of the Plan.
Grants may be made singly, in combination or in tandem. The terms, conditions
and limitations of each Grant under the Plan shall be set forth in a Grant
<PAGE>
Agreement, in a form approved by the Committee; provided, however, that such
Grant Agreement shall contain provisions dealing with the treatment of Grants in
the event of the termination, death or disability of a Participant, and may also
include provisions concerning the treatment of Grants in the event of a Change
of Control of the Company.
5 Grants
(a) Stock Options - From time to time, the Committee, in its sole
discretion, will determine the forms and amounts of Options to be granted to
Participants. Such Options may take the following forms in the Committee's sole
discretion:
(i) Incentive Stock Options - These are Options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"). In
addition to other restrictions contained in the Plan, an Option granted under
this Paragraph 5(a)(i), (A) may not be exercised more than 10 years after the
date it is granted, (B) may not have an option price less than the Fair Market
Value of Common Stock on the date the Option is granted, (C) must otherwise
comply with Code Section 422, and (D) must be designated as an "Incentive Stock
Option" by the Committee. The maximum aggregate Fair Market Value of Common
Stock (determined at the time of grant) with respect to which Incentive Stock
Options granted to any Participant under the Plan and incentive stock options
granted to such Participant under any other plan maintained by the Company or a
Subsidiary become first exercisable in any calendar year is $100,000. Payment of
the Option price shall be made in cash or in Shares, or a combination thereof,
in accordance with the terms of the Plan, the Grant Agreement, and of any
applicable guidelines of the Committee in effect at the time.
(ii) Non-Qualified Stock Options - These are Options which are not
designated by the Committee as "Incentive Stock Options". At the time of the
Grant the Committee shall determine, and shall include in the Grant Agreement or
other Plan rules, the Option exercise period, the Option price, and such other
conditions or restrictions on the Grant or exercise of the Option as the
Committee deems appropriate. In addition to other restrictions contained in the
Plan, an Option granted under this Paragraph 5(a)(ii), may not be exercised more
than 10 years after the date it is granted. Payment of the Option price shall be
made in cash or in Shares, or a combination thereof, in accordance with the
terms of the Plan, the Grant Agreement and of any applicable guidelines of the
Committee in effect at the time.
Options may be granted prior to the effective date of the Plan (as
determined pursuant to Paragraph 13 herein); provided, however, that no Option
shall be exercisable prior to the date of the approval of the Plan by the
stockholders of the Company; provided, further, that such approval will occur
within 12 months of adoption of the Plan by the Board of Directors for the
purpose of granting Incentive Stock Options.
(b) Purchase Stock - The Committee, in its sole discretion, may grant a
Participant the right to purchase Class B Stock ("Purchase Stock") at such price
as is determined by the Committee.
6 Limitations and Conditions
(a) Subject to adjustments under Paragraphs 8 and 9 hereof, the number
<PAGE>
of shares of authorized Common Stock available under this Plan shall be
4,027,800 shares as of the effective date of the Plan. The number of shares of
authorized Class B Stock available under this Plan shall be 742,268 shares as of
the effective date of the Plan. Unless restricted by applicable law, Shares
related to Grants that are forfeited, terminated, cancelled or expire
unexercised, shall immediately become available to be subject to Grants.
(b) No Grants shall be made under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants made on or before the
expiration of the Plan may extend beyond such expiration. At the time a Grant is
made or amended or the terms or conditions of a Grant are changed, the Committee
may provide for limitations or conditions on such Grant.
(c) Nothing contained herein shall affect the right of the Company to
terminate any Participant's employment at any time or for any reason.
(d) Other than as specifically provided in the forms of Subscription
Agreement and Stockholders Agreement attached hereto as Exhibits A and B with
regard to the death of a Participant, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void. No such benefit
shall, prior to receipt thereof by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements, or torts of the
Participant.
(e) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Company in respect of any Shares purchasable
in connection with any Grant unless and until certificates representing any such
Shares have been issued by the Company to such Participants.
(f) No election as to benefits or exercise of Options may be made during a
Participant's lifetime by anyone other than the Participant except by a legal
representative appointed for or by the Participant.
(g) Absent express provisions to the contrary, any Grant under this Plan
shall not be deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Company or its Subsidiaries and
shall not affect any benefits under any other benefit plan of any kind now or
subsequently in effect under which the availability or amount of benefits is
related to level of compensation. This Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
(h) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Company or any of its
Subsidiaries, nor shall any assets of the Company or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of the Company's
obligations under the Plan.
7 Transfers and Leaves of Absence
For purposes of the Plan, unless the Committee determines otherwise: (a) a
transfer of a Participant's employment without an intervening period of
separation among the Company and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the Company
<PAGE>
or any Subsidiary during such leave of absence.
8 Adjustments
In the event of any change in the outstanding Common Stock or Class B
Stock by reason of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization, consolidation or merger, Change of Control,
or similar event, the Committee shall adjust appropriately the number of Shares
subject to Grants under the Plan and make such other revisions as it deems are
equitably required.
9 Change of Control
Unless otherwise provided in the Grant Agreement, in its absolute
discretion, and on such terms and conditions as it deems appropriate, coincident
with or after any Grant, the Committee may provide that such Grant cannot be
exercised after a Change of Control of the Company, and if the Committee so
provides, it shall also provide, either by the terms of such Grant or by a
resolution adopted prior to the occurrence of such Change of Control that such
Grants will be cashed out at the Change of Control price or that such Grant
shall be exercisable as to all Shares subject thereto prior to such Change of
Control, notwithstanding anything to the contrary herein (but subject to the
provisions of Paragraph 6(b)) and that, upon the occurrence of such event, such
Grant shall terminate and be of no further force or effect; provided, however,
that the Committee may also provide, in its absolute discretion, that even if
the Grant shall remain exercisable after any such event, from and after such
event, any such Grant shall be exercisable only for the kind and amount of
securities and/or other property, or the cash equivalent thereof, receivable as
a result of such event by the holder of a number of Shares for which such Grant
could have been exercised immediately prior to such event.
10 Amendment and Termination
The Committee shall have the authority to make such amendments to any
terms and conditions applicable to outstanding Grants as are consistent with
this Plan provided that, except for adjustments under Paragraph 8 or 9 hereof,
no such action shall modify such Grant in a manner adverse to the Participant
without the Participant's consent.
The Board of Directors may amend, suspend or terminate the Plan except
that no such action, other than an action under Paragraph 8 or 9 hereof, may be
taken which would, without shareholder approval, increase the aggregate number
of Shares subject to Grants under the Plan, decrease the exercise or purchase
price of outstanding Grants, change the requirements relating to the Committee
or extend the term of the Plan, but only to the extent such shareholder approval
would be required by Rule 16b-3 at a time when the Company is subject to Section
16(b) of the Exchange Act.
11 Foreign Grants and Rights
The Committee may make Grants to Employees or other persons having a
relationship with the Company or one of its Subsidiaries who are subject to the
laws of nations other than the United States, which Grants may have terms and
conditions that differ from the terms thereof as provided elsewhere in the Plan
for the purpose of complying with foreign laws.
<PAGE>
12 Withholding Taxes
The Company shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to deliver Shares upon the exercise of an Option or
payment for Purchase Stock that the Participant pay to the Company such amount
as may be requested by the Company for the purpose of satisfying any liability
for such withholding taxes. Any Grant Agreement may provide that the Participant
may elect, in accordance with any conditions set forth in such Grant Agreement,
to pay a portion or all of such withholding taxes in Shares.
13 Effective Date and Termination Dates
The Plan shall be effective on and as of the date of its approval by the
stockholders of the Company and shall terminate ten years later, subject to
earlier termination by the Board of Directors pursuant to Paragraph 10.
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
AGREEMENT, made as of May 19, 1998 by and between P&L Coal
Holdings Corporation, a Delaware corporation (the "Company") and Irl F.
Engelhardt (the "Executive").
RECITALS
In order to induce Executive to continue to serve as the Chief
Executive Officer (the "CEO") and Chairman of the Board of Directors (the
"Board") of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform
services for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as
follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term hereof as its CEO. In his
capacity as the CEO of the Company, Executive shall report to the Board, and
shall have the customary powers, responsibilities and authorities of CEOs of
corporations of the size, type and nature of the Company, as it exists from time
to time, and as are assigned by the Board.
1.2 Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment as the CEO of the Company commencing as of
the date hereof (the "Commencement Date") and agrees, subject to any period of
vacation and sick leave, to devote his full business time and efforts to the
performance of services, duties and responsibilities in connection therewith,
subject at all times to review and control of the Board. In addition, during the
term of employment under this Agreement (the "Term of Employment"), (i) the
Company agrees to nominate Executive for election to the Board and use its best
efforts to cause his election to the Board and Executive agrees to serve on the
Board of the Company and (ii) Executive also agrees to serve, if elected, as an
officer and/or director of any Subsidiary of the Company, without the payment of
any additional compensation therefor. Upon the termination of Executive's
employment for any reason, Executive shall resign as a member of the Board of
the Company or any Subsidiary of the Company.
1.3 Nothing in this Agreement shall preclude Executive from
engaging in charitable work and community affairs, from delivering lectures,
fulfilling speaking engagements or teaching at educational institutions, from
managing any investment made by him or his immediate family with respect to
which Executive or such family member is not substantially involved with the
management or operation of the entity in which Executive has invested (provided
that no such investment in publicly traded equity securities or other property
may exceed 5% of the equity of any entity, without the prior approval of the
<PAGE>
Board) or from serving, subject to the prior approval of the Board, as a member
of boards of directors or as a trustee of any other corporation, association or
entity, to the extent that any of the above activities do not materially
interfere with the performance of his duties hereunder. For purposes of the
preceding sentence, any approval by the Board required therein shall not be
unreasonably withheld. The Company agrees that it has approved Executive serving
in the following capacities: director of Mercantile Bank of St. Louis, N.A.,
Chairman of the Center for Energy and Economic Development and Chairman of the
Coal Industry Advisory Board, and that these positions do not require any
additional approval of the Board.
2. Term of Employment. Executive's Term of Employment shall
commence on the Commencement Date and, subject to termination under the terms
hereunder, shall have a three-year term, which shall extend on a day-to-day
basis for an "evergreen" three-year term.
3. Compensation.
3.1 Salary. During the Term of Employment, the Company shall
pay Executive a base salary ("Base Salary") at an initial rate of $700,000 per
annum. Base Salary shall be payable in accordance with the ordinary payroll
practices of the Company. During the Term of Employment, the Board shall, in
good faith, review, at least annually, Executive's Base Salary in accordance
with the Company's customary procedures and practices regarding the salaries of
senior executives and may, if determined by the Board to be appropriate,
increase Executive's Base Salary following such review; provided, however, that
no such increase shall be made before the Company obtains ratings on its
unsecured debt from Standard & Poor's and Moody's of at least BBB- and Baa3,
respectively ("Investment-Grade Credit Rating"). "Base Salary" for all purposes
herein shall be deemed to be a reference to any such increased amount.
3.2 Annual Bonus. In addition to his Base Salary, Executive
shall, commencing with the 1999 fiscal year and continuing each fiscal year
thereafter, be eligible to receive an annual cash bonus (the "Bonus") during the
term of his employment hereunder to be developed by the Board, based on
achievement of performance targets established by the Board as soon as
practicable at the beginning of the fiscal year for which the performance target
relates. Executive's target Bonus for the 1999 fiscal year shall be equal to
150% of his Base Salary, and such target shall not be increased before the
Company obtains an Investment-Grade Credit Rating. A Bonus award shall be
payable to Executive at the time bonuses are paid to executive officers in
accordance with the Companies policies and practices as set by the Board in
consultation with Executive.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the
execution of this Agreement, the Company and Executive are entering into the
Common Stock Ownership Agreement, the Grant Agreement[s] and the Stockholders
Agreement in the forms attached hereto as Exhibits A, B and C, respectively
(together with any other agreement approved by the Board and designated by the
Board an "Ancillary Document" for purposes of this Agreement, the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
4.2 Employee Benefit Programs, Plans and Practices. The
<PAGE>
Company shall provide Executive while employed hereunder with coverage under
such employee benefits (commensurate with his position in the Company and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, including the Continuation Benefits (as defined herein), D&O insurance,
which covers claims arising out of actions or inactions occurring during the
Term of Employment, in accordance with the D&O insurance policy, and other
employee benefits which the Company may make available to its senior executives
from time to time in its discretion. The Company shall also provide Executive
with perquisites which the Company may make available to its senior executives
from time to time in its discretion.
4.3 Vacation. Executive shall be entitled to that number of
business days paid vacation in each calendar year as determined in accordance
with the Company's applicable vacation policies, which shall be taken at such
times as are consistent with Executive's responsibilities hereunder.
5. Expenses. Subject to prevailing Company policy or such
guidelines as may be established by the Board, the Company will reimburse
Executive for all reasonable expenses incurred by Executive in carrying out his
duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The
Company or Executive may terminate Executive's Term of employment at any time
for any reason by written notice at least thirty (30) days in advance. If
Executive's employment is terminated (i) by the Company other than for Cause (as
defined in Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof)
or death or (ii) by Executive for Good Reason (as defined in Section 6.1(b)
hereof) during the Term of Employment, the Company, as liquidated damages and in
lieu of an other damages therefor, shall (A) continue to pay Executive's Base
Salary for a period of three (3) years (the "Continuation Period") and (B) pay
to Executive a bonus replacement payment in an additional amount equal to 100%
of his Base Salary for each of the three years following such termination (the
"Severance Payments"). The Severance Payments shall be paid in a lump sum. For
the year of termination, Executive shall receive a prorated bonus (the "Prorated
Bonus"), payable when such bonuses are paid to other senior executives of the
Company, calculated as the Bonus Executive would have received in such year
based on the Company's actual performance multiplied by a fraction, the
numerator of which is the number of business days during the year of termination
that Executive was employed and the denominator of which is the total number of
business days during the year of termination. In addition, the Company shall
continue to provide Executive during the Continuation Period with medical,
dental and vision benefits, defined contribution plans (qualified and
non-qualified) benefits, defined benefit plans (qualified and non-qualified)
benefits, life insurance, AD&D insurance, health care reimbursement account and
day care reimbursement account (collectively, the "Continuation Benefits")
comparable to those provided to other senior executives; provided, however, that
the Company shall not be obligated to provide any benefits under tax qualified
plans which are not permitted by the terms of such plan or by applicable law or
could jeopardize the plan's tax status; provided, further, that any such
coverage shall terminate to the extent that Executive is offered or obtains
comparable benefits from any other employer during the Continuation Period.
Notwithstanding the foregoing, if Executive breaches any provision of Section 11
hereof, the remaining balance of the Prorated Bonus and any Continuation
Benefits shall be forfeited.
<PAGE>
(b) For purposes of this Agreement, "Good Reason" shall mean
(i) a reduction by the Company in Executive's Base Salary (in which event
Severance Payments shall be made based upon Executive's Base Salary in effect
prior to any such reduction), (ii) a material reduction in the aggregate program
of employee benefits and perquisites to which Executive is entitled (other than
a reduction which affects all executives), (iii) relocation by more than 50
miles from Executive's workplace, (iv) any material diminution or material
adverse change in Executive's duties, responsibilities or reporting
relationships, or (v) a material decline in Executive's Bonus opportunity.
(c) Termination by Executive for Good Reason shall be made by
delivery to the Company by Executive of written notice, given at least 45 days
prior to such termination, which sets forth the conduct believed to constitute
Good Reason; provided, however, that the Company shall have the opportunity to
cure the Good Reason during the first 30 days of such notice period and if the
Good Reason is cured within such 30-day period, Executive's notice of
termination shall be deemed withdrawn. If no notice is given within 90 days of
the event giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause.
(a) In the event that Executive's employment is terminated (i) by the Company
for Cause, as hereinafter defined, (ii) by Executive other than for Good Reason,
Disability or death or (iii) by Executive for retirement, Executive shall only
be entitled to receive (A) any Base Salary accrued but unpaid prior to such
termination and (B) any vacation accrued but unused prior to such termination
and any other benefits provided under the employee benefit programs, plans and
practices referred to in Section 4.2 hereof, in accordance with their terms.
After the termination of Executive's employment under this Section 6.2, the
obligations of the Company under this Agreement to make any further payments, or
provide any benefits specified herein, to Executive, except as provided in the
previous sentence, shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i)
any material and uncorrected breach by Executive of the terms of this Agreement,
including, but not limited to, engaging in action in violation of Section 11
hereof, (ii) any willful fraud or dishonesty of Executive involving the property
or business of the Company, (iii) a deliberate or willful refusal or failure of
Executive to comply with any major corporate policy of the Company which is
communicated to Executive in writing or (iv) Executive's conviction of, or plea
of nolo contendere to, any felony if such conviction shall result in his
imprisonment; provided that with respect to clauses (i), (ii) or (iii) above,
Executive shall have 10 days following written notice of the conduct which is
the basis for the potential termination for Cause within which to cure such
conduct in order to prevent termination for Cause by the Company.
6.3 Disability. In the event of the Disability (as defined
below) of Executive during the Term of Employment, the Company may terminate
Executive's Term of Employment upon written notice to Executive (or Executive's
personal representative, if applicable) effective upon the date of receipt
thereof (the "Disability Commencement Date"). The obligation of the Company to
make any further payments under this Agreement shall, except for earned but
unpaid Base Salary, amounts attributable to accrued but unused vacation days and
the Prorated Bonus cease as of the Disability Commencement Date. The term
"Disability," for purposes of this Agreement, shall mean Executive's absence
from the full-time performance of Executive's duties pursuant to a reasonable
<PAGE>
determination made in accordance with the Company's disability plan that
Executive is disabled as a result of incapacity due to physical or mental
illness that lasts, or is reasonably expected to last, for at least six months.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.4 Death. In the event of Executive's death during his Term
of Employment hereunder or at any time thereafter while payments are still owing
to Executive under the terms of this Agreement, all obligations of the Company
to make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary, amounts attributable to accrued but unused vacation days and
the Prorated Bonus or any remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive was
entitled at the time of his death, shall terminate upon Executive's death.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.5 No Further Notice or Compensation or Damages. Executive
understands and agrees that he shall not be entitled to any further notice,
compensation or damages upon Termination of Employment under this Agreement,
other than amounts specified in this Section 6 and the Ancillary Documents.
6.6 Executive's Duty to Provide Materials. Upon the
termination of the Term of Employment for any reason, Executive or his estate
shall surrender to the Company all correspondence, letters, files, contracts,
mailing lists, customer lists, advertising materials, ledgers, supplies,
equipment, checks, and all other materials and records of any kind that are the
property of the Company or any of its subsidiaries or affiliates, that may be in
Executive's possession or under his control, including all copies of any of the
foregoing.
7. Notices. All notices or communications hereunder shall be
in writing, addressed as follows:
To the Company:
P&L Coal Holdings Corporation
701 Market Street, Suite 700
St. Louis, Missouri 63101-1826
attn: Chief Legal Officer
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Irl F. Engelhardt
901 Kent Road
St. Louis, MO 63124
with a copy to:
<PAGE>
David R. Shevitz, Esq.
Brian T. Gardner, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the heirs and representatives of Executive
and the assigns and successors of the Company, but neither this Agreement nor
any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company.
10. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
11. Nondisclosure of Confidential Information;
Non-Competition. (a) Executive, both during the term hereof and thereafter, will
not, directly or indirectly, use for himself or use for, or disclose to, any
party other than the Company, or any subsidiary of the Company (other than in
the ordinary course of Executive's duties for the benefit of the Company or any
subsidiary of the Company), any secret or confidential information regarding the
business or property of the Company or its subsidiaries or regarding any secret
or confidential apparatus, process, system, or other method at any time used,
developed, acquired, discovered or investigated by or for the Company or its
subsidiaries, whether or not developed, acquired, discovered or investigated by
Executive. At the termination of Executive's employment or at any other time the
Company or any of its subsidiaries may request, Executive shall promptly deliver
to the Company all memoranda, notes, records, plats, sketches, plans or other
documents made by, compiled by, delivered to, or otherwise acquired by Executive
concerning the business or properties of the Company or its subsidiaries or any
secret or confidential product, apparatus or process used developed, acquired or
investigated by the Company or its subsidiaries.
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
and for a period of twelve (12) months thereafter, without the prior written
consent of the Board, (i) he will not, directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, investor,
lender or employee or in any other capacity, carry on, be engaged in or have any
financial interest in, any entity which is in competition with the business of
<PAGE>
the Company or its subsidiaries and (ii) he shall not, on his own behalf or on
behalf of any person, firm or company, directly or indirectly, solicit or offer
employment to any person who is or has been employed by the Company or its
subsidiaries at any time during the twelve (12) months immediately preceding
such solicitation.
(c) For purposes of this Section 11, an entity shall be deemed
to be in competition with the Company if it is principally involved in the
purchase, sale or other dealing in any property or the rendering of any service
purchased, sold, dealt in or rendered by the Company as a part of the business
of the Company within the same geographic area in which the Company effects such
sales or dealings or renders such services. Notwithstanding this subsection
11(c) or subsection 11(b), nothing herein shall be construed so as to preclude
Executive from investing in any publicly or privately held company, provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is
reasonable under the circumstances and will not interfere with his ability to
earn a living or to otherwise meet his financial obligations. Executive and the
Company agree that if in the opinion of any court of competent jurisdiction such
restraint is not reasonable in any respect, such court shall have the right,
power and authority to excise or modify such provision or provisions of this
covenant as to the court shall appear not reasonable and to enforce the
remainder of the covenant as so amended. Executive agrees that any breach of the
covenants contained in this Section 11 would irreparably injure the Company.
Accordingly, Executive agrees that, in the event a court enjoins Executive from
any activity prohibited by this Section 11, the Company may, in addition to
pursuing any other remedies it may have in law or in equity, cease making any
payments otherwise required by this Agreement and obtain an injunction against
Executive from any court having jurisdiction over the matter restraining any
further violation of this Agreement by Executive.
12. Beneficiaries. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.
13. Dispute Resolution. Any dispute or controversy arising
under or in connection with this Agreement (other than an action to enforce the
covenants in Section 11 hereof) or the Ancillary Documents shall be resolved by
arbitration. Arbitrators shall be selected, and arbitration shall be conducted,
in accordance with the rules of the American Arbitration Association. The
Company shall pay any legal fees in connection with such arbitration in the
event that Executive prevails on a material element of his claim or defense.
14. Governing Law. This Agreement shall be construed,
interpreted and governed in accordance with the laws of the State of New York,
without reference to rules relating to conflicts of law.
15. Effect on Prior Agreements. This Agreement and the
<PAGE>
Ancillary Documents contain the entire understanding between the parties hereto
and supersedes in all respects any prior or other agreement or understanding,
both written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
16. Withholding. The Company shall be entitled to withhold
from payment any amount of withholding required by law.
17. Survival. Notwithstanding the expiration of the term of
this Agreement, the provisions of Section 11 hereunder shall remain in effect as
long as is reasonably necessary to give effect thereto in accordance with the
terms hereof.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original.
P&L Coal Holdings Corporation
By /s/ H. E. Lentz
Name: Henry E. Lentz
Title:
/s/ Irl F. Engelhardt
Irl F. Engelhardt
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
AGREEMENT, as of the date set forth on the signature page hereof, by
and between P&L Coal Holdings Corporation, a Delaware corporation (the
"Company") and the undersigned executive (the "Executive").
RECITALS
In order to induce Executive to continue to serve in the executive
team position set forth on the signature page hereof, the Company desires to
provide Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term hereof in the executive team
position set forth on the signature page hereof. In such capacity, Executive
shall report to the Chief Executive Officer of the Company (the "CEO") and shall
have the customary powers, responsibilities and authorities of executives
holding such positions in corporations of the size, type and nature of the
Company, as it exists from time to time, and as are assigned by the Board of
Directors of the Company (the "Board") and the CEO.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment in the executive team position set forth on the
signature page hereof commencing as of the date hereof (the "Commencement Date")
and agrees, subject to any period of vacation and sick leave, to devote his full
business time and efforts to the performance of services, duties and
responsibilities in connection therewith, subject at all times to review and
control of the Board or the CEO.
1.3 Nothing in this Agreement shall preclude Executive from engaging
in charitable work and community affairs, from delivering lectures, fulfilling
speaking engagements or teaching at educational institutions, from managing any
investment made by him or his immediate family with respect to which Executive
or such family member is not substantially involved with the management or
operation of the entity in which Executive has invested (provided that no such
investment in publicly traded equity securities or other property may exceed 5%
of the equity of any entity, without the prior approval of the CEO or the Board)
or from serving, subject to the prior approval of the CEO or the Board, as a
member of boards of directors or as a trustee of any other corporation,
association or entity, to the extent that any of the above activities do not
materially interfere with the performance of his duties hereunder. For purposes
of the preceding sentence, any approval by the CEO or the Board required therein
shall not be unreasonably withheld.
<PAGE>
2. Term of Employment. Executive's term of employment under this
Agreement (the "Term of Employment") shall commence on the Commencement Date
and, subject to termination by the terms hereunder, shall have an initial term
of two years (the "Initial Term"), which, beginning on the first anniversary of
the Commencement Date, shall extend thereafter on a day-to day basis for an
"evergreen" one-year term.
3. Compensation.
3.1 Salary. During the Term of Employment, the Company shall pay
Executive a base salary ("Base Salary") at an initial rate as set forth on the
signature page hereof. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company. During the Term of Employment, the
Board and the CEO shall, in good faith, review, at least annually, Executive's
Base Salary in accordance with the Company's customary procedures and practices
regarding the salaries of senior executives and may, if determined by the Board
to be appropriate, increase Executive's Base Salary following such review;
provided, however, that no such increase shall be made before the Company
obtains ratings on its unsecured debt from Standard & Poor's and Moody's of at
least BBB- and Baa3, respectively ("Investment-Grade Credit Rating"). "Base
Salary" for all purposes herein shall be deemed to be a reference to any such
increased amount.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall,
commencing with the 1999 fiscal year and continuing each fiscal year thereafter,
be eligible to receive an annual cash bonus (the "Bonus") during the term of his
employment hereunder to be developed by the Board, based on achievement of
performance targets established by the Board in consultation with the CEO as
soon as practicable at the beginning of the fiscal year for which the
performance targets relate. Executive's target Bonus for the 1999 fiscal year is
set forth on the signature page hereof, and such target shall not be increased
before the Company obtains an Investment-Grade Credit Rating. A Bonus award
shall be payable to Executive at the time bonuses are paid to executive officers
in accordance with the Company's policies and practices as set by the Board in
consultation with the CEO.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the execution of
this Agreement, the Company and Executive are entering into the Common Stock
Ownership Agreement, the Option Grant Agreement[s] and the Stockholders
Agreement in the forms attached hereto as Exhibits A, B and C, respectively
(together with any other agreement approved by the Board and designated by the
Board an "Ancillary Document" for purposes of this Agreement, the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
4.2 Employee Benefit Programs, Plans and Practices; Perquisites. The
Company shall provide Executive while employed hereunder with coverage under
such employee benefits (commensurate with his position in the Company and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, including the Continuation Benefits (as defined herein), D&O insurance,
which covers claims arising out of actions or inactions occurring during the
Term of Employment, in accordance with the D&O
<PAGE>
insurance policy, and other employee benefits which the Company may make
available to its senior executives from time to time in its discretion. The
Company shall also provide Executive with perquisites which the Company may make
available to its senior executives from time to time in its discretion.
4.3 Vacation. Executive shall be entitled to the number of business
days paid vacation in each calendar year as determined in accordance with the
Company's applicable vacation policies, which shall be taken at such times as
are consistent with Executive's responsibilities hereunder.
5. Expenses. Subject to prevailing Company policy or such guidelines
as may be established by the Board, the Company will reimburse Executive for all
reasonable expenses incurred by Executive in carrying out his duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive's Term of Employment at any time for any
reason by written notice at least thirty (30) days in advance. If Executive's
employment is terminated (i) by the Company other than for Cause (as defined in
Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof) or death
or (ii) by Executive for Good Reason (as defined in Section 6.1(b) hereof), the
Company, as liquidated damages and in lieu of any other damages therefor, shall
(A) continue to pay to Executive Base Salary through the end of the Initial Term
if such termination occurs during the first year of the Initial Term or for a
period of one year for such termination thereafter (the "Continuation Period"),
with such payments to be made in accordance with the terms of Section 3.1. and
(B) pay to Executive an additional amount equal to the Bonus actually paid in
the year prior to such termination (the "Severance Payments"). The Severance
Payments shall be made in substantially equal installments over the Continuation
Period in accordance with Company payroll practices, unless the CEO or the Board
approves payment in a lump sum. In addition, the Company shall pay to Executive
a prorated bonus (the "Prorated Bonus") for the year of termination, payable
when such bonuses are paid to other senior executives of the Company, calculated
as the Bonus Executive would have received in such year based on the Company's
actual performance multiplied by a fraction, the numerator of which is the
number of business days during the year of termination that Executive was
employed and the denominator of which is the total number of business days
during the year of termination. The Company shall also continue to provide
Executive during the Continuation Period with qualified and nonqualified defined
benefit and defined contribution pension, life insurance, medical and other
benefits set forth on the signature page hereof (collectively, the "Continuation
Benefits"); provided, however, that the Company shall not be obligated to
provide any benefits under tax qualified plans which are not permitted by the
terms of such plan or by applicable law or could jeopardize the plan's tax
status; provided, further, that any such coverage shall terminate to the extent
that Executive is offered or obtains comparable benefits from any other employer
during the Continuation Period. Notwithstanding the foregoing, if Executive
breaches any provision of Section 11 hereof, the remaining balance of the
Severance Payments, the Prorated Bonus and any Continuation Benefits shall be
forfeited.
(b) For purposes of this Agreement, "Good Reason" shall mean (i) a
reduction by the Company in Executive's Base Salary (in which event Severance
Payments shall be made based upon Executive's Base Salary in effect
<PAGE>
prior to any such reduction), (ii) a material reduction in the aggregate program
of employee benefits and perquisites to which Executive is entitled (other than
a reduction which affects all executives and is approved by the initial CEO;
provided, however; that if the initial CEO terminates without Good Reason,
voluntarily retires, dies or has a Disability or if such reduction is necessary
to maintain the financial viability or solvency of the Company, the reduction
does not require the approval of the initial CEO); or, without the approval of
the initial CEO: (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity; provided, however, that after a Change
of Control of the Company or an IPO (as those terms are defined in the 1998
Stock Purchase and Option Plan for Key Employees of P&L Coal Holdings
Corporation), clauses (ii) through (v) above shall be replaced by the following:
(ii) a material reduction in the aggregate program of employee benefits and
perquisites to which Executive is entitled (other than a reduction which affects
all executives), (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity.
(c) Termination by Executive for Good Reason shall be made by
delivery to the Company by Executive of written notice, given at least 45 days
prior to such termination, which sets forth the conduct believed to constitute
Good Reason; provided, however, that the Company shall have the opportunity to
cure the Good Reason during the first 30 days of such notice period and if the
Good Reason is cured within such 30-day period, Executive's notice of
termination shall be deemed withdrawn. If no notice is given within 90 days of
the event giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause. (a) In
the event that Executive's employment is terminated (i) by the Company for
Cause, as hereinafter defined, (ii) by Executive other than for Good Reason,
Disability or death or (iii) by Executive for retirement, Executive shall only
be entitled to receive (A) any Base Salary accrued but unpaid prior to such
termination and (B) any vacation accrued but unused prior to such termination
and any other benefits provided under the employee benefit programs, plans and
practices referred to in Section 4.2 hereof, in accordance with their terms.
After the termination of Executive's employment under this Section 6.2, the
obligations of the Company under this Agreement to make any further payments, or
provide any benefits specified herein, to Executive, except as provided in the
previous sentence, shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i) any
material and uncorrected breach by Executive of the terms of this Agreement,
including, but not limited to, engaging in action in violation of Section 11
hereof, (ii) any willful fraud or dishonesty of Executive involving the property
or business of the Company, (iii) a deliberate or willful refusal or failure of
Executive to comply with any major corporate policy of the Company which is
communicated to Executive in writing or (iv) Executive=s conviction of, or plea
of nolo contendere to, any felony if such conviction shall result in his
imprisonment; provided that with respect to clauses (i), (ii) or (iii) above,
Executive shall have 10 days following written notice of the conduct which is
the basis for the potential termination for Cause within which to cure such
<PAGE>
conduct in order to prevent termination for Cause by the Company. In the event
that Executive is terminated for failure to meet performance goals, as
determined by the initial CEO, such termination shall be considered a
termination for Cause for all purposes relating to his equity (stock and
options), but it shall be considered a termination without Cause for purposes of
such Executive's right to receive Severance Payments, the Prorated Bonus and the
Continuation Benefits.
6.3 Disability. In the event of the Disability (as defined below) of
Executive during the Term of Employment, the Company may terminate Executive's
Term of Employment upon written notice to Executive (or Executive's personal
representative, if applicable) effective upon the date of receipt thereof (the
"Disability Commencement Date"). The obligation of the Company to make any
further payments under this Agreement shall, except for earned but unpaid Base
Salary, amounts attributable to accrued but unused vacation days and the
Prorated Bonus cease as of the Disability Commencement Date. The term
"Disability," for purposes of this Agreement, shall mean Executive's absence
from the full-time performance of Executive's duties pursuant to a reasonable
determination made in accordance with the Company's disability plan that
Executive is disabled as a result of incapacity due to physical or mental
illness that lasts, or is reasonably expected to last, for at least six months.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.4 Death. In the event of Executive's death during his Term of
Employment hereunder or at any time thereafter while payments are still owing to
Executive under the terms of this Agreement, all obligations of the Company to
make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary, amounts attributable to accrued but unused vacation days and
the Prorated Bonus or any remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive was
entitled at the time of his death, shall terminate upon Executive's death.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.5 No Further Notice or Compensation or Damages. Executive
understands and agrees that he shall not be entitled to any further notice,
compensation or damages upon Termination of Employment under this Agreement,
other than amounts specified in this Section 6 and the Ancillary Documents.
6.6 Executive's Duty to Provide Materials. Upon the termination of
the Term of Employment for any reason, Executive or his estate shall surrender
to the Company all correspondence, letters, files, contracts, mailing lists,
customer lists, advertising materials, ledgers, supplies, equipment, checks, and
all other materials and records of any kind that are the property of the Company
or any of its subsidiaries or affiliates, that may be in Executive's possession
or under his control, including all copies of any of the foregoing.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
P&L Coal Holdings Corporation
701 Market Street, Suite 700
<PAGE>
St. Louis, Missouri 63101-1826
attn: Chief Executive Officer
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive at the address set forth on the signature page hereof,
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the heirs and representatives of Executive and
the assigns and successors of the Company, but neither this Agreement nor any
rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company.
10. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
11. Nondisclosure of Confidential Information; Non-Competition. (a)
Executive, both during the term hereof and thereafter, will not, directly or
indirectly, use for himself or use for, or disclose to, any party other than the
Company, or any subsidiary of the Company (other than in the ordinary course of
Executive=s duties for the benefit of the Company or any subsidiary of the
Company), any secret or confidential information regarding the business or
property of the Company or its subsidiaries or regarding any secret or
confidential apparatus, process, system, or other method at any time used,
developed, acquired, discovered or investigated by or for the Company or its
subsidiaries, whether or not developed, acquired, discovered or investigated by
Executive. At the termination of Executive=s employment or at any other time the
Company or any of its subsidiaries may request, Executive shall promptly deliver
to the Company all memoranda, notes, records, plats, sketches, plans or other
documents made by, compiled by, delivered to, or otherwise acquired by Executive
concerning the business or properties of the Company or its subsidiaries or any
secret or confidential product, apparatus or process used developed, acquired or
investigated by the Company or its subsidiaries.
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
<PAGE>
and for a period of one year thereafter, without the prior written consent of
the Board, (i) he will not, directly or indirectly, either as principal,
manager, agent, consultant, officer, stockholder, partner, investor, lender or
employee or in any other capacity, carry on, be engaged in or have any financial
interest in, any entity which is in competition with the business of the Company
or its subsidiaries and (ii) he shall not, on his own behalf or on behalf of any
person, firm or company, directly or indirectly, solicit or offer employment to
any person who is or has been employed by the Company or its subsidiaries at any
time during the twelve (12) months immediately preceding such solicitation.
(c) For purposes of this Section 11, an entity shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a part of the business of the
Company within the same geographic area in which the Company effects such sales
or dealings or renders such services. Notwithstanding this subsection 11(c) or
subsection 11(b), nothing herein shall be construed so as to preclude Executive
from investing in any publicly or privately held company, provided Executive's
beneficial ownership of any class of such company's securities does not exceed
5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is reasonable
under the circumstances and will not interfere with his ability to earn a living
or to otherwise meet his financial obligations. Executive and the Company agree
that if in the opinion of any court of competent jurisdiction such restraint is
not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant as
to the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 11 would irreparably injure the Company. Accordingly,
Executive agrees that, in the event that a court enjoins Executive from any
activity prohibited by this Section 11, the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments
otherwise required by this Agreement and obtain an injunction against Executive
from any court having jurisdiction over the matter restraining any further
violation of this Agreement by Executive.
12. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
13. Dispute Resolution. Any dispute or controversy arising under or
in connection with this Agreement (other than an action to enforce the covenants
in Section 11 hereof) or the Ancillary Documents shall be resolved by
arbitration. Arbitrators shall be selected, and arbitration shall be conducted,
in accordance with the rules of the American Arbitration Association. The
Company shall pay any legal fees in connection with such arbitration in the
event that Executive prevails on a material element of his claim or defense.
<PAGE>
14. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
15. Effect on Prior Agreements. This Agreement and the Ancillary
Documents contain the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding, both
written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
16. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
17. Survival. Notwithstanding the expiration of the term of this
Agreement, the provisions of Section 11 hereunder shall remain in effect as long
as is reasonably necessary to give effect thereto in accordance with the terms
hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
P&L Coal Holdings Corporation
By /s/ I. F. Engelhardt
Name: Irl F. Engelhardt
Title: Chairman and Chief Executive Officer
Signature of Executive: /s/ Richard M. Whiting
Date of Agreement: May 19, 1998
Name of Executive: Richard M. Whiting
Address of Executive: 333 Conway Hill Road
St. Louis, MO 63141
Executive Team Position: President and Chief Operating Officer
Base Salary: $400,000 per annum
Bonus Target: 150% of Base Salary
Continuation Benefits: 1. Medical, dental and vision benefits;
2. Defined contribution plans (qualified and non-
qualified);
3. Defined benefit plans (qualified and non-qualified);
4. Life insurance;
5. AD&D;
6. Health care reimbursement account; and
7. Day care reimbursement account.
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
AGREEMENT, as of the date set forth on the signature page hereof, by
and between P&L Coal Holdings Corporation, a Delaware corporation (the
"Company") and the undersigned executive (the "Executive").
RECITALS
In order to induce Executive to continue to serve in the executive
team position set forth on the signature page hereof, the Company desires to
provide Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term hereof in the executive team
position set forth on the signature page hereof. In such capacity, Executive
shall report to the Chief Executive Officer of the Company (the "CEO") and shall
have the customary powers, responsibilities and authorities of executives
holding such positions in corporations of the size, type and nature of the
Company, as it exists from time to time, and as are assigned by the Board of
Directors of the Company (the "Board") and the CEO.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment in the executive team position set forth on the
signature page hereof commencing as of the date hereof (the "Commencement Date")
and agrees, subject to any period of vacation and sick leave, to devote his full
business time and efforts to the performance of services, duties and
responsibilities in connection therewith, subject at all times to review and
control of the Board or the CEO.
1.3 Nothing in this Agreement shall preclude Executive from engaging
in charitable work and community affairs, from delivering lectures, fulfilling
speaking engagements or teaching at educational institutions, from managing any
investment made by him or his immediate family with respect to which Executive
or such family member is not substantially involved with the management or
operation of the entity in which Executive has invested (provided that no such
investment in publicly traded equity securities or other property may exceed 5%
of the equity of any entity, without the prior approval of the CEO or the Board)
or from serving, subject to the prior approval of the CEO or the Board, as a
member of boards of directors or as a trustee of any other corporation,
association or entity, to the extent that any of the above activities do not
materially interfere with the performance of his duties hereunder. For purposes
of the preceding sentence, any approval by the CEO or the Board required therein
shall not be unreasonably withheld.
<PAGE>
2. Term of Employment. Executive's term of employment under this
Agreement (the "Term of Employment") shall commence on the Commencement Date
and, subject to termination by the terms hereunder, shall have an initial term
of two years (the "Initial Term"), which, beginning on the first anniversary of
the Commencement Date, shall extend thereafter on a day-to day basis for an
"evergreen" one-year term.
3. Compensation.
3.1 Salary. During the Term of Employment, the Company shall pay
Executive a base salary ("Base Salary") at an initial rate as set forth on the
signature page hereof. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company. During the Term of Employment, the
Board and the CEO shall, in good faith, review, at least annually, Executive's
Base Salary in accordance with the Company's customary procedures and practices
regarding the salaries of senior executives and may, if determined by the Board
to be appropriate, increase Executive's Base Salary following such review;
provided, however, that no such increase shall be made before the Company
obtains ratings on its unsecured debt from Standard & Poor's and Moody's of at
least BBB- and Baa3, respectively ("Investment-Grade Credit Rating"). "Base
Salary" for all purposes herein shall be deemed to be a reference to any such
increased amount.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall,
commencing with the 1999 fiscal year and continuing each fiscal year thereafter,
be eligible to receive an annual cash bonus (the "Bonus") during the term of his
employment hereunder to be developed by the Board, based on achievement of
performance targets established by the Board in consultation with the CEO as
soon as practicable at the beginning of the fiscal year for which the
performance targets relate. Executive's target Bonus for the 1999 fiscal year is
set forth on the signature page hereof, and such target shall not be increased
before the Company obtains an Investment-Grade Credit Rating. A Bonus award
shall be payable to Executive at the time bonuses are paid to executive officers
in accordance with the Company's policies and practices as set by the Board in
consultation with the CEO.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the execution of
this Agreement, the Company and Executive are entering into the Common Stock
Ownership Agreement, the Option Grant Agreement[s] and the Stockholders
Agreement in the forms attached hereto as Exhibits A, B and C, respectively
(together with any other agreement approved by the Board and designated by the
Board an "Ancillary Document" for purposes of this Agreement, the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
4.2 Employee Benefit Programs, Plans and Practices; Perquisites. The
Company shall provide Executive while employed hereunder with coverage under
such employee benefits (commensurate with his position in the Company and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, including the Continuation Benefits (as defined herein), D&O insurance,
which covers claims arising out of actions or inactions occurring during the
Term of Employment, in accordance with the D&O
<PAGE>
insurance policy, and other employee benefits which the Company may make
available to its senior executives from time to time in its discretion. The
Company shall also provide Executive with perquisites which the Company may make
available to its senior executives from time to time in its discretion.
4.3 Vacation. Executive shall be entitled to the number of business
days paid vacation in each calendar year as determined in accordance with the
Company's applicable vacation policies, which shall be taken at such times as
are consistent with Executive's responsibilities hereunder.
5. Expenses. Subject to prevailing Company policy or such guidelines
as may be established by the Board, the Company will reimburse Executive for all
reasonable expenses incurred by Executive in carrying out his duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive's Term of Employment at any time for any
reason by written notice at least thirty (30) days in advance. If Executive's
employment is terminated (i) by the Company other than for Cause (as defined in
Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof) or death
or (ii) by Executive for Good Reason (as defined in Section 6.1(b) hereof), the
Company, as liquidated damages and in lieu of any other damages therefor, shall
(A) continue to pay to Executive Base Salary through the end of the Initial Term
if such termination occurs during the first year of the Initial Term or for a
period of one year for such termination thereafter (the "Continuation Period"),
with such payments to be made in accordance with the terms of Section 3.1. and
(B) pay to Executive an additional amount equal to the Bonus actually paid in
the year prior to such termination (the "Severance Payments"). The Severance
Payments shall be made in substantially equal installments over the Continuation
Period in accordance with Company payroll practices, unless the CEO or the Board
approves payment in a lump sum. In addition, the Company shall pay to Executive
a prorated bonus (the "Prorated Bonus") for the year of termination, payable
when such bonuses are paid to other senior executives of the Company, calculated
as the Bonus Executive would have received in such year based on the Company's
actual performance multiplied by a fraction, the numerator of which is the
number of business days during the year of termination that Executive was
employed and the denominator of which is the total number of business days
during the year of termination. The Company shall also continue to provide
Executive during the Continuation Period with qualified and nonqualified defined
benefit and defined contribution pension, life insurance, medical and other
benefits set forth on the signature page hereof (collectively, the "Continuation
Benefits"); provided, however, that the Company shall not be obligated to
provide any benefits under tax qualified plans which are not permitted by the
terms of such plan or by applicable law or could jeopardize the plan's tax
status; provided, further, that any such coverage shall terminate to the extent
that Executive is offered or obtains comparable benefits from any other employer
during the Continuation Period. Notwithstanding the foregoing, if Executive
breaches any provision of Section 11 hereof, the remaining balance of the
Severance Payments, the Prorated Bonus and any Continuation Benefits shall be
forfeited.
(b) For purposes of this Agreement, "Good Reason" shall mean (i) a
reduction by the Company in Executive's Base Salary (in which event Severance
Payments shall be made based upon Executive's Base Salary in effect
<PAGE>
prior to any such reduction), (ii) a material reduction in the aggregate program
of employee benefits and perquisites to which Executive is entitled (other than
a reduction which affects all executives and is approved by the initial CEO;
provided, however; that if the initial CEO terminates without Good Reason,
voluntarily retires, dies or has a Disability or if such reduction is necessary
to maintain the financial viability or solvency of the Company, the reduction
does not require the approval of the initial CEO); or, without the approval of
the initial CEO: (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity; provided, however, that after a Change
of Control of the Company or an IPO (as those terms are defined in the 1998
Stock Purchase and Option Plan for Key Employees of P&L Coal Holdings
Corporation), clauses (ii) through (v) above shall be replaced by the following:
(ii) a material reduction in the aggregate program of employee benefits and
perquisites to which Executive is entitled (other than a reduction which affects
all executives), (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity.
(c) Termination by Executive for Good Reason shall be made by
delivery to the Company by Executive of written notice, given at least 45 days
prior to such termination, which sets forth the conduct believed to constitute
Good Reason; provided, however, that the Company shall have the opportunity to
cure the Good Reason during the first 30 days of such notice period and if the
Good Reason is cured within such 30-day period, Executive's notice of
termination shall be deemed withdrawn. If no notice is given within 90 days of
the event giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause. (a) In
the event that Executive's employment is terminated (i) by the Company for
Cause, as hereinafter defined, (ii) by Executive other than for Good Reason,
Disability or death or (iii) by Executive for retirement, Executive shall only
be entitled to receive (A) any Base Salary accrued but unpaid prior to such
termination and (B) any vacation accrued but unused prior to such termination
and any other benefits provided under the employee benefit programs, plans and
practices referred to in Section 4.2 hereof, in accordance with their terms.
After the termination of Executive's employment under this Section 6.2, the
obligations of the Company under this Agreement to make any further payments, or
provide any benefits specified herein, to Executive, except as provided in the
previous sentence, shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i) any
material and uncorrected breach by Executive of the terms of this Agreement,
including, but not limited to, engaging in action in violation of Section 11
hereof, (ii) any willful fraud or dishonesty of Executive involving the property
or business of the Company, (iii) a deliberate or willful refusal or failure of
Executive to comply with any major corporate policy of the Company which is
communicated to Executive in writing or (iv) Executive=s conviction of, or plea
of nolo contendere to, any felony if such conviction shall result in his
imprisonment; provided that with respect to clauses (i), (ii) or (iii) above,
Executive shall have 10 days following written notice of the conduct which is
the basis for the potential termination for Cause within which to cure such
<PAGE>
conduct in order to prevent termination for Cause by the Company. In the event
that Executive is terminated for failure to meet performance goals, as
determined by the initial CEO, such termination shall be considered a
termination for Cause for all purposes relating to his equity (stock and
options), but it shall be considered a termination without Cause for purposes of
such Executive's right to receive Severance Payments, the Prorated Bonus and the
Continuation Benefits.
6.3 Disability. In the event of the Disability (as defined below) of
Executive during the Term of Employment, the Company may terminate Executive's
Term of Employment upon written notice to Executive (or Executive's personal
representative, if applicable) effective upon the date of receipt thereof (the
"Disability Commencement Date"). The obligation of the Company to make any
further payments under this Agreement shall, except for earned but unpaid Base
Salary, amounts attributable to accrued but unused vacation days and the
Prorated Bonus cease as of the Disability Commencement Date. The term
"Disability," for purposes of this Agreement, shall mean Executive's absence
from the full-time performance of Executive's duties pursuant to a reasonable
determination made in accordance with the Company's disability plan that
Executive is disabled as a result of incapacity due to physical or mental
illness that lasts, or is reasonably expected to last, for at least six months.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.4 Death. In the event of Executive's death during his Term of
Employment hereunder or at any time thereafter while payments are still owing to
Executive under the terms of this Agreement, all obligations of the Company to
make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary, amounts attributable to accrued but unused vacation days and
the Prorated Bonus or any remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive was
entitled at the time of his death, shall terminate upon Executive's death.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.5 No Further Notice or Compensation or Damages. Executive
understands and agrees that he shall not be entitled to any further notice,
compensation or damages upon Termination of Employment under this Agreement,
other than amounts specified in this Section 6 and the Ancillary Documents.
6.6 Executive's Duty to Provide Materials. Upon the termination of
the Term of Employment for any reason, Executive or his estate shall surrender
to the Company all correspondence, letters, files, contracts, mailing lists,
customer lists, advertising materials, ledgers, supplies, equipment, checks, and
all other materials and records of any kind that are the property of the Company
or any of its subsidiaries or affiliates, that may be in Executive's possession
or under his control, including all copies of any of the foregoing.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
P&L Coal Holdings Corporation
701 Market Street, Suite 700
<PAGE>
St. Louis, Missouri 63101-1826
attn: Chief Executive Officer
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive at the address set forth on the signature page hereof,
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the heirs and representatives of Executive and
the assigns and successors of the Company, but neither this Agreement nor any
rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company.
10. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
11. Nondisclosure of Confidential Information; Non-Competition. (a)
Executive, both during the term hereof and thereafter, will not, directly or
indirectly, use for himself or use for, or disclose to, any party other than the
Company, or any subsidiary of the Company (other than in the ordinary course of
Executive=s duties for the benefit of the Company or any subsidiary of the
Company), any secret or confidential information regarding the business or
property of the Company or its subsidiaries or regarding any secret or
confidential apparatus, process, system, or other method at any time used,
developed, acquired, discovered or investigated by or for the Company or its
subsidiaries, whether or not developed, acquired, discovered or investigated by
Executive. At the termination of Executive=s employment or at any other time the
Company or any of its subsidiaries may request, Executive shall promptly deliver
to the Company all memoranda, notes, records, plats, sketches, plans or other
documents made by, compiled by, delivered to, or otherwise acquired by Executive
concerning the business or properties of the Company or its subsidiaries or any
secret or confidential product, apparatus or process used developed, acquired or
investigated by the Company or its subsidiaries.
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
<PAGE>
and for a period of one year thereafter, without the prior written consent of
the Board, (i) he will not, directly or indirectly, either as principal,
manager, agent, consultant, officer, stockholder, partner, investor, lender or
employee or in any other capacity, carry on, be engaged in or have any financial
interest in, any entity which is in competition with the business of the Company
or its subsidiaries and (ii) he shall not, on his own behalf or on behalf of any
person, firm or company, directly or indirectly, solicit or offer employment to
any person who is or has been employed by the Company or its subsidiaries at any
time during the twelve (12) months immediately preceding such solicitation.
(c) For purposes of this Section 11, an entity shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a part of the business of the
Company within the same geographic area in which the Company effects such sales
or dealings or renders such services. Notwithstanding this subsection 11(c) or
subsection 11(b), nothing herein shall be construed so as to preclude Executive
from investing in any publicly or privately held company, provided Executive's
beneficial ownership of any class of such company's securities does not exceed
5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is reasonable
under the circumstances and will not interfere with his ability to earn a living
or to otherwise meet his financial obligations. Executive and the Company agree
that if in the opinion of any court of competent jurisdiction such restraint is
not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant as
to the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 11 would irreparably injure the Company. Accordingly,
Executive agrees that, in the event that a court enjoins Executive from any
activity prohibited by this Section 11, the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments
otherwise required by this Agreement and obtain an injunction against Executive
from any court having jurisdiction over the matter restraining any further
violation of this Agreement by Executive.
12. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
13. Dispute Resolution. Any dispute or controversy arising under or
in connection with this Agreement (other than an action to enforce the covenants
in Section 11 hereof) or the Ancillary Documents shall be resolved by
arbitration. Arbitrators shall be selected, and arbitration shall be conducted,
in accordance with the rules of the American Arbitration Association. The
Company shall pay any legal fees in connection with such arbitration in the
event that Executive prevails on a material element of his claim or defense.
<PAGE>
14. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
15. Effect on Prior Agreements. This Agreement and the Ancillary
Documents contain the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding, both
written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
16. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
17. Survival. Notwithstanding the expiration of the term of this
Agreement, the provisions of Section 11 hereunder shall remain in effect as long
as is reasonably necessary to give effect thereto in accordance with the terms
hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
P&L Coal Holdings Corporation
By /s/ I. F. Engelhardt
Name: Irl F. Engelhardt
Title: Chairman and Chief Executive Officer
Signature of Executive: /s/ W. Howard Carson
Date of Agreement: May 19, 1998
Name of Executive: W. Howard Carson, Jr.
Address of Executive: 425 Pine Bend Drive
Wildwood, MO 63005
Executive Team Position: Chief Commercial Officer
Base Salary: $325,000 per annum
Bonus Target: 150% of Base Salary
Continuation Benefits: 1. Medical, dental and vision benefits;
2. Defined contribution plans (qualified and non-
qualified);
3. Defined benefit plans (qualified and non-qualified);
4. Life insurance;
5. AD&D;
6. Health care reimbursement account; and
7. Day care reimbursement account.
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
AGREEMENT, as of the date set forth on the signature page hereof, by
and between P&L Coal Holdings Corporation, a Delaware corporation (the
"Company") and the undersigned executive (the "Executive").
RECITALS
In order to induce Executive to continue to serve in the executive
team position set forth on the signature page hereof, the Company desires to
provide Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term hereof in the executive team
position set forth on the signature page hereof. In such capacity, Executive
shall report to the Chief Executive Officer of the Company (the "CEO") and shall
have the customary powers, responsibilities and authorities of executives
holding such positions in corporations of the size, type and nature of the
Company, as it exists from time to time, and as are assigned by the Board of
Directors of the Company (the "Board") and the CEO.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment in the executive team position set forth on the
signature page hereof commencing as of the date hereof (the "Commencement Date")
and agrees, subject to any period of vacation and sick leave, to devote his full
business time and efforts to the performance of services, duties and
responsibilities in connection therewith, subject at all times to review and
control of the Board or the CEO.
1.3 Nothing in this Agreement shall preclude Executive from engaging
in charitable work and community affairs, from delivering lectures, fulfilling
speaking engagements or teaching at educational institutions, from managing any
investment made by him or his immediate family with respect to which Executive
or such family member is not substantially involved with the management or
operation of the entity in which Executive has invested (provided that no such
investment in publicly traded equity securities or other property may exceed 5%
of the equity of any entity, without the prior approval of the CEO or the Board)
or from serving, subject to the prior approval of the CEO or the Board, as a
member of boards of directors or as a trustee of any other corporation,
association or entity, to the extent that any of the above activities do not
materially interfere with the performance of his duties hereunder. For purposes
of the preceding sentence, any approval by the CEO or the Board required therein
shall not be unreasonably withheld.
<PAGE>
2. Term of Employment. Executive's term of employment under this
Agreement (the "Term of Employment") shall commence on the Commencement Date
and, subject to termination by the terms hereunder, shall have an initial term
of two years (the "Initial Term"), which, beginning on the first anniversary of
the Commencement Date, shall extend thereafter on a day-to day basis for an
"evergreen" one-year term.
3. Compensation.
3.1 Salary. During the Term of Employment, the Company shall pay
Executive a base salary ("Base Salary") at an initial rate as set forth on the
signature page hereof. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company. During the Term of Employment, the
Board and the CEO shall, in good faith, review, at least annually, Executive's
Base Salary in accordance with the Company's customary procedures and practices
regarding the salaries of senior executives and may, if determined by the Board
to be appropriate, increase Executive's Base Salary following such review;
provided, however, that no such increase shall be made before the Company
obtains ratings on its unsecured debt from Standard & Poor's and Moody's of at
least BBB- and Baa3, respectively ("Investment-Grade Credit Rating"). "Base
Salary" for all purposes herein shall be deemed to be a reference to any such
increased amount.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall,
commencing with the 1999 fiscal year and continuing each fiscal year thereafter,
be eligible to receive an annual cash bonus (the "Bonus") during the term of his
employment hereunder to be developed by the Board, based on achievement of
performance targets established by the Board in consultation with the CEO as
soon as practicable at the beginning of the fiscal year for which the
performance targets relate. Executive's target Bonus for the 1999 fiscal year is
set forth on the signature page hereof, and such target shall not be increased
before the Company obtains an Investment-Grade Credit Rating. A Bonus award
shall be payable to Executive at the time bonuses are paid to executive officers
in accordance with the Company's policies and practices as set by the Board in
consultation with the CEO.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the execution of
this Agreement, the Company and Executive are entering into the Common Stock
Ownership Agreement, the Option Grant Agreement[s] and the Stockholders
Agreement in the forms attached hereto as Exhibits A, B and C, respectively
(together with any other agreement approved by the Board and designated by the
Board an "Ancillary Document" for purposes of this Agreement, the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
4.2 Employee Benefit Programs, Plans and Practices; Perquisites. The
Company shall provide Executive while employed hereunder with coverage under
such employee benefits (commensurate with his position in the Company and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, including the Continuation Benefits (as defined herein), D&O insurance,
which covers claims arising out of actions or inactions occurring during the
Term of Employment, in accordance with the D&O
<PAGE>
insurance policy, and other employee benefits which the Company may make
available to its senior executives from time to time in its discretion. The
Company shall also provide Executive with perquisites which the Company may make
available to its senior executives from time to time in its discretion.
4.3 Vacation. Executive shall be entitled to the number of business
days paid vacation in each calendar year as determined in accordance with the
Company's applicable vacation policies, which shall be taken at such times as
are consistent with Executive's responsibilities hereunder.
5. Expenses. Subject to prevailing Company policy or such guidelines
as may be established by the Board, the Company will reimburse Executive for all
reasonable expenses incurred by Executive in carrying out his duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive's Term of Employment at any time for any
reason by written notice at least thirty (30) days in advance. If Executive's
employment is terminated (i) by the Company other than for Cause (as defined in
Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof) or death
or (ii) by Executive for Good Reason (as defined in Section 6.1(b) hereof), the
Company, as liquidated damages and in lieu of any other damages therefor, shall
(A) continue to pay to Executive Base Salary through the end of the Initial Term
if such termination occurs during the first year of the Initial Term or for a
period of one year for such termination thereafter (the "Continuation Period"),
with such payments to be made in accordance with the terms of Section 3.1. and
(B) pay to Executive an additional amount equal to the Bonus actually paid in
the year prior to such termination (the "Severance Payments"). The Severance
Payments shall be made in substantially equal installments over the Continuation
Period in accordance with Company payroll practices, unless the CEO or the Board
approves payment in a lump sum. In addition, the Company shall pay to Executive
a prorated bonus (the "Prorated Bonus") for the year of termination, payable
when such bonuses are paid to other senior executives of the Company, calculated
as the Bonus Executive would have received in such year based on the Company's
actual performance multiplied by a fraction, the numerator of which is the
number of business days during the year of termination that Executive was
employed and the denominator of which is the total number of business days
during the year of termination. The Company shall also continue to provide
Executive during the Continuation Period with qualified and nonqualified defined
benefit and defined contribution pension, life insurance, medical and other
benefits set forth on the signature page hereof (collectively, the "Continuation
Benefits"); provided, however, that the Company shall not be obligated to
provide any benefits under tax qualified plans which are not permitted by the
terms of such plan or by applicable law or could jeopardize the plan's tax
status; provided, further, that any such coverage shall terminate to the extent
that Executive is offered or obtains comparable benefits from any other employer
during the Continuation Period. Notwithstanding the foregoing, if Executive
breaches any provision of Section 11 hereof, the remaining balance of the
Severance Payments, the Prorated Bonus and any Continuation Benefits shall be
forfeited.
(b) For purposes of this Agreement, "Good Reason" shall mean (i) a
reduction by the Company in Executive's Base Salary (in which event Severance
Payments shall be made based upon Executive's Base Salary in effect
<PAGE>
prior to any such reduction), (ii) a material reduction in the aggregate program
of employee benefits and perquisites to which Executive is entitled (other than
a reduction which affects all executives and is approved by the initial CEO;
provided, however; that if the initial CEO terminates without Good Reason,
voluntarily retires, dies or has a Disability or if such reduction is necessary
to maintain the financial viability or solvency of the Company, the reduction
does not require the approval of the initial CEO); or, without the approval of
the initial CEO: (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity; provided, however, that after a Change
of Control of the Company or an IPO (as those terms are defined in the 1998
Stock Purchase and Option Plan for Key Employees of P&L Coal Holdings
Corporation), clauses (ii) through (v) above shall be replaced by the following:
(ii) a material reduction in the aggregate program of employee benefits and
perquisites to which Executive is entitled (other than a reduction which affects
all executives), (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity.
(c) Termination by Executive for Good Reason shall be made by
delivery to the Company by Executive of written notice, given at least 45 days
prior to such termination, which sets forth the conduct believed to constitute
Good Reason; provided, however, that the Company shall have the opportunity to
cure the Good Reason during the first 30 days of such notice period and if the
Good Reason is cured within such 30-day period, Executive's notice of
termination shall be deemed withdrawn. If no notice is given within 90 days of
the event giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause. (a) In
the event that Executive's employment is terminated (i) by the Company for
Cause, as hereinafter defined, (ii) by Executive other than for Good Reason,
Disability or death or (iii) by Executive for retirement, Executive shall only
be entitled to receive (A) any Base Salary accrued but unpaid prior to such
termination and (B) any vacation accrued but unused prior to such termination
and any other benefits provided under the employee benefit programs, plans and
practices referred to in Section 4.2 hereof, in accordance with their terms.
After the termination of Executive's employment under this Section 6.2, the
obligations of the Company under this Agreement to make any further payments, or
provide any benefits specified herein, to Executive, except as provided in the
previous sentence, shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i) any
material and uncorrected breach by Executive of the terms of this Agreement,
including, but not limited to, engaging in action in violation of Section 11
hereof, (ii) any willful fraud or dishonesty of Executive involving the property
or business of the Company, (iii) a deliberate or willful refusal or failure of
Executive to comply with any major corporate policy of the Company which is
communicated to Executive in writing or (iv) Executive=s conviction of, or plea
of nolo contendere to, any felony if such conviction shall result in his
imprisonment; provided that with respect to clauses (i), (ii) or (iii) above,
Executive shall have 10 days following written notice of the conduct which is
the basis for the potential termination for Cause within which to cure such
<PAGE>
conduct in order to prevent termination for Cause by the Company. In the event
that Executive is terminated for failure to meet performance goals, as
determined by the initial CEO, such termination shall be considered a
termination for Cause for all purposes relating to his equity (stock and
options), but it shall be considered a termination without Cause for purposes of
such Executive's right to receive Severance Payments, the Prorated Bonus and the
Continuation Benefits.
6.3 Disability. In the event of the Disability (as defined below) of
Executive during the Term of Employment, the Company may terminate Executive's
Term of Employment upon written notice to Executive (or Executive's personal
representative, if applicable) effective upon the date of receipt thereof (the
"Disability Commencement Date"). The obligation of the Company to make any
further payments under this Agreement shall, except for earned but unpaid Base
Salary, amounts attributable to accrued but unused vacation days and the
Prorated Bonus cease as of the Disability Commencement Date. The term
"Disability," for purposes of this Agreement, shall mean Executive's absence
from the full-time performance of Executive's duties pursuant to a reasonable
determination made in accordance with the Company's disability plan that
Executive is disabled as a result of incapacity due to physical or mental
illness that lasts, or is reasonably expected to last, for at least six months.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.4 Death. In the event of Executive's death during his Term of
Employment hereunder or at any time thereafter while payments are still owing to
Executive under the terms of this Agreement, all obligations of the Company to
make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary, amounts attributable to accrued but unused vacation days and
the Prorated Bonus or any remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive was
entitled at the time of his death, shall terminate upon Executive's death.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.5 No Further Notice or Compensation or Damages. Executive
understands and agrees that he shall not be entitled to any further notice,
compensation or damages upon Termination of Employment under this Agreement,
other than amounts specified in this Section 6 and the Ancillary Documents.
6.6 Executive's Duty to Provide Materials. Upon the termination of
the Term of Employment for any reason, Executive or his estate shall surrender
to the Company all correspondence, letters, files, contracts, mailing lists,
customer lists, advertising materials, ledgers, supplies, equipment, checks, and
all other materials and records of any kind that are the property of the Company
or any of its subsidiaries or affiliates, that may be in Executive's possession
or under his control, including all copies of any of the foregoing.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
P&L Coal Holdings Corporation
701 Market Street, Suite 700
<PAGE>
St. Louis, Missouri 63101-1826
attn: Chief Executive Officer
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive at the address set forth on the signature page hereof,
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the heirs and representatives of Executive and
the assigns and successors of the Company, but neither this Agreement nor any
rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company.
10. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
11. Nondisclosure of Confidential Information; Non-Competition. (a)
Executive, both during the term hereof and thereafter, will not, directly or
indirectly, use for himself or use for, or disclose to, any party other than the
Company, or any subsidiary of the Company (other than in the ordinary course of
Executive=s duties for the benefit of the Company or any subsidiary of the
Company), any secret or confidential information regarding the business or
property of the Company or its subsidiaries or regarding any secret or
confidential apparatus, process, system, or other method at any time used,
developed, acquired, discovered or investigated by or for the Company or its
subsidiaries, whether or not developed, acquired, discovered or investigated by
Executive. At the termination of Executive=s employment or at any other time the
Company or any of its subsidiaries may request, Executive shall promptly deliver
to the Company all memoranda, notes, records, plats, sketches, plans or other
documents made by, compiled by, delivered to, or otherwise acquired by Executive
concerning the business or properties of the Company or its subsidiaries or any
secret or confidential product, apparatus or process used developed, acquired or
investigated by the Company or its subsidiaries.
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
<PAGE>
and for a period of one year thereafter, without the prior written consent of
the Board, (i) he will not, directly or indirectly, either as principal,
manager, agent, consultant, officer, stockholder, partner, investor, lender or
employee or in any other capacity, carry on, be engaged in or have any financial
interest in, any entity which is in competition with the business of the Company
or its subsidiaries and (ii) he shall not, on his own behalf or on behalf of any
person, firm or company, directly or indirectly, solicit or offer employment to
any person who is or has been employed by the Company or its subsidiaries at any
time during the twelve (12) months immediately preceding such solicitation.
(c) For purposes of this Section 11, an entity shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a part of the business of the
Company within the same geographic area in which the Company effects such sales
or dealings or renders such services. Notwithstanding this subsection 11(c) or
subsection 11(b), nothing herein shall be construed so as to preclude Executive
from investing in any publicly or privately held company, provided Executive's
beneficial ownership of any class of such company's securities does not exceed
5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is reasonable
under the circumstances and will not interfere with his ability to earn a living
or to otherwise meet his financial obligations. Executive and the Company agree
that if in the opinion of any court of competent jurisdiction such restraint is
not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant as
to the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 11 would irreparably injure the Company. Accordingly,
Executive agrees that, in the event that a court enjoins Executive from any
activity prohibited by this Section 11, the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments
otherwise required by this Agreement and obtain an injunction against Executive
from any court having jurisdiction over the matter restraining any further
violation of this Agreement by Executive.
12. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
13. Dispute Resolution. Any dispute or controversy arising under or
in connection with this Agreement (other than an action to enforce the covenants
in Section 11 hereof) or the Ancillary Documents shall be resolved by
arbitration. Arbitrators shall be selected, and arbitration shall be conducted,
in accordance with the rules of the American Arbitration Association. The
Company shall pay any legal fees in connection with such arbitration in the
event that Executive prevails on a material element of his claim or defense.
<PAGE>
14. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
15. Effect on Prior Agreements. This Agreement and the Ancillary
Documents contain the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding, both
written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
16. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
17. Survival. Notwithstanding the expiration of the term of this
Agreement, the provisions of Section 11 hereunder shall remain in effect as long
as is reasonably necessary to give effect thereto in accordance with the terms
hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
P&L Coal Holdings Corporation
By /s/ I. F. Engelhardt
Name: Irl F. Engelhardt
Title: Chairman and Chief Executive Officer
Signature of Executive: /s/ Roger B. Walcott, Jr.
Date of Agreement: May 19, 1998
Name of Executive: Roger B. Walcott, Jr.
Address of Executive: 1200 Lay Road
Ladue, MO 63124
Executive Team Position: Executive Vice President
Base Salary: $350,000 per annum
Bonus Target: 150% of Base Salary
Continuation Benefits: 1. Medical, dental and vision benefits;
2. Defined contribution plans (qualified and non-
qualified);
3. Defined benefit plans (qualified and non-qualified);
4. Life insurance;
5. AD&D;
6. Health care reimbursement account; and
7. Day care reimbursement account.
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
AGREEMENT, as of the date set forth on the signature page hereof, by
and between P&L Coal Holdings Corporation, a Delaware corporation (the
"Company") and the undersigned executive (the "Executive").
RECITALS
In order to induce Executive to continue to serve in the executive
team position set forth on the signature page hereof, the Company desires to
provide Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term hereof in the executive team
position set forth on the signature page hereof. In such capacity, Executive
shall report to the Chief Executive Officer of the Company (the "CEO") and shall
have the customary powers, responsibilities and authorities of executives
holding such positions in corporations of the size, type and nature of the
Company, as it exists from time to time, and as are assigned by the Board of
Directors of the Company (the "Board") and the CEO.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment in the executive team position set forth on the
signature page hereof commencing as of the date hereof (the "Commencement Date")
and agrees, subject to any period of vacation and sick leave, to devote his full
business time and efforts to the performance of services, duties and
responsibilities in connection therewith, subject at all times to review and
control of the Board or the CEO.
1.3 Nothing in this Agreement shall preclude Executive from engaging
in charitable work and community affairs, from delivering lectures, fulfilling
speaking engagements or teaching at educational institutions, from managing any
investment made by him or his immediate family with respect to which Executive
or such family member is not substantially involved with the management or
operation of the entity in which Executive has invested (provided that no such
investment in publicly traded equity securities or other property may exceed 5%
of the equity of any entity, without the prior approval of the CEO or the Board)
or from serving, subject to the prior approval of the CEO or the Board, as a
member of boards of directors or as a trustee of any other corporation,
association or entity, to the extent that any of the above activities do not
materially interfere with the performance of his duties hereunder. For purposes
of the preceding sentence, any approval by the CEO or the Board required therein
shall not be unreasonably withheld.
<PAGE>
2. Term of Employment. Executive's term of employment under this
Agreement (the "Term of Employment") shall commence on the Commencement Date
and, subject to termination by the terms hereunder, shall have an initial term
of two years (the "Initial Term"), which, beginning on the first anniversary of
the Commencement Date, shall extend thereafter on a day-to day basis for an
"evergreen" one-year term.
3. Compensation.
3.1 Salary. During the Term of Employment, the Company shall pay
Executive a base salary ("Base Salary") at an initial rate as set forth on the
signature page hereof. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company. During the Term of Employment, the
Board and the CEO shall, in good faith, review, at least annually, Executive's
Base Salary in accordance with the Company's customary procedures and practices
regarding the salaries of senior executives and may, if determined by the Board
to be appropriate, increase Executive's Base Salary following such review;
provided, however, that no such increase shall be made before the Company
obtains ratings on its unsecured debt from Standard & Poor's and Moody's of at
least BBB- and Baa3, respectively ("Investment-Grade Credit Rating"). "Base
Salary" for all purposes herein shall be deemed to be a reference to any such
increased amount.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall,
commencing with the 1999 fiscal year and continuing each fiscal year thereafter,
be eligible to receive an annual cash bonus (the "Bonus") during the term of his
employment hereunder to be developed by the Board, based on achievement of
performance targets established by the Board in consultation with the CEO as
soon as practicable at the beginning of the fiscal year for which the
performance targets relate. Executive's target Bonus for the 1999 fiscal year is
set forth on the signature page hereof, and such target shall not be increased
before the Company obtains an Investment-Grade Credit Rating. A Bonus award
shall be payable to Executive at the time bonuses are paid to executive officers
in accordance with the Company's policies and practices as set by the Board in
consultation with the CEO.
4. Employee Benefits.
4.1 Equity and Stock Options. Simultaneously with the execution of
this Agreement, the Company and Executive are entering into the Common Stock
Ownership Agreement, the Option Grant Agreement[s] and the Stockholders
Agreement in the forms attached hereto as Exhibits A, B and C, respectively
(together with any other agreement approved by the Board and designated by the
Board an "Ancillary Document" for purposes of this Agreement, the "Ancillary
Documents"). Executive shall not be eligible to receive any stock option or
other equity incentive other than as set forth in the Ancillary Documents.
4.2 Employee Benefit Programs, Plans and Practices; Perquisites. The
Company shall provide Executive while employed hereunder with coverage under
such employee benefits (commensurate with his position in the Company and to the
extent permitted under any employee benefit plan) in accordance with the terms
thereof, including the Continuation Benefits (as defined herein), D&O insurance,
which covers claims arising out of actions or inactions occurring during the
Term of Employment, in accordance with the D&O
<PAGE>
insurance policy, and other employee benefits which the Company may make
available to its senior executives from time to time in its discretion. The
Company shall also provide Executive with perquisites which the Company may make
available to its senior executives from time to time in its discretion.
4.3 Vacation. Executive shall be entitled to the number of business
days paid vacation in each calendar year as determined in accordance with the
Company's applicable vacation policies, which shall be taken at such times as
are consistent with Executive's responsibilities hereunder.
5. Expenses. Subject to prevailing Company policy or such guidelines
as may be established by the Board, the Company will reimburse Executive for all
reasonable expenses incurred by Executive in carrying out his duties.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive's Term of Employment at any time for any
reason by written notice at least thirty (30) days in advance. If Executive's
employment is terminated (i) by the Company other than for Cause (as defined in
Section 6.2(b) hereof), Disability (as defined in Section 6.3 hereof) or death
or (ii) by Executive for Good Reason (as defined in Section 6.1(b) hereof), the
Company, as liquidated damages and in lieu of any other damages therefor, shall
(A) continue to pay to Executive Base Salary through the end of the Initial Term
if such termination occurs during the first year of the Initial Term or for a
period of one year for such termination thereafter (the "Continuation Period"),
with such payments to be made in accordance with the terms of Section 3.1. and
(B) pay to Executive an additional amount equal to the Bonus actually paid in
the year prior to such termination (the "Severance Payments"). The Severance
Payments shall be made in substantially equal installments over the Continuation
Period in accordance with Company payroll practices, unless the CEO or the Board
approves payment in a lump sum. In addition, the Company shall pay to Executive
a prorated bonus (the "Prorated Bonus") for the year of termination, payable
when such bonuses are paid to other senior executives of the Company, calculated
as the Bonus Executive would have received in such year based on the Company's
actual performance multiplied by a fraction, the numerator of which is the
number of business days during the year of termination that Executive was
employed and the denominator of which is the total number of business days
during the year of termination. The Company shall also continue to provide
Executive during the Continuation Period with qualified and nonqualified defined
benefit and defined contribution pension, life insurance, medical and other
benefits set forth on the signature page hereof (collectively, the "Continuation
Benefits"); provided, however, that the Company shall not be obligated to
provide any benefits under tax qualified plans which are not permitted by the
terms of such plan or by applicable law or could jeopardize the plan's tax
status; provided, further, that any such coverage shall terminate to the extent
that Executive is offered or obtains comparable benefits from any other employer
during the Continuation Period. Notwithstanding the foregoing, if Executive
breaches any provision of Section 11 hereof, the remaining balance of the
Severance Payments, the Prorated Bonus and any Continuation Benefits shall be
forfeited.
(b) For purposes of this Agreement, "Good Reason" shall mean (i) a
reduction by the Company in Executive's Base Salary (in which event Severance
Payments shall be made based upon Executive's Base Salary in effect
<PAGE>
prior to any such reduction), (ii) a material reduction in the aggregate program
of employee benefits and perquisites to which Executive is entitled (other than
a reduction which affects all executives and is approved by the initial CEO;
provided, however; that if the initial CEO terminates without Good Reason,
voluntarily retires, dies or has a Disability or if such reduction is necessary
to maintain the financial viability or solvency of the Company, the reduction
does not require the approval of the initial CEO); or, without the approval of
the initial CEO: (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity; provided, however, that after a Change
of Control of the Company or an IPO (as those terms are defined in the 1998
Stock Purchase and Option Plan for Key Employees of P&L Coal Holdings
Corporation), clauses (ii) through (v) above shall be replaced by the following:
(ii) a material reduction in the aggregate program of employee benefits and
perquisites to which Executive is entitled (other than a reduction which affects
all executives), (iii) relocation by more than 50 miles from Executive's
workplace, (iv) any material diminution or material adverse change in
Executive's duties, responsibilities or reporting relationships, which causes
Executive to fall below the level of the executive team, or (v) a material
decline in Executive's Bonus opportunity.
(c) Termination by Executive for Good Reason shall be made by
delivery to the Company by Executive of written notice, given at least 45 days
prior to such termination, which sets forth the conduct believed to constitute
Good Reason; provided, however, that the Company shall have the opportunity to
cure the Good Reason during the first 30 days of such notice period and if the
Good Reason is cured within such 30-day period, Executive's notice of
termination shall be deemed withdrawn. If no notice is given within 90 days of
the event giving rise to Good Reason, the Good Reason shall be deemed waived.
6.2 Voluntary Termination by Executive; Discharge for Cause. (a) In
the event that Executive's employment is terminated (i) by the Company for
Cause, as hereinafter defined, (ii) by Executive other than for Good Reason,
Disability or death or (iii) by Executive for retirement, Executive shall only
be entitled to receive (A) any Base Salary accrued but unpaid prior to such
termination and (B) any vacation accrued but unused prior to such termination
and any other benefits provided under the employee benefit programs, plans and
practices referred to in Section 4.2 hereof, in accordance with their terms.
After the termination of Executive's employment under this Section 6.2, the
obligations of the Company under this Agreement to make any further payments, or
provide any benefits specified herein, to Executive, except as provided in the
previous sentence, shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i) any
material and uncorrected breach by Executive of the terms of this Agreement,
including, but not limited to, engaging in action in violation of Section 11
hereof, (ii) any willful fraud or dishonesty of Executive involving the property
or business of the Company, (iii) a deliberate or willful refusal or failure of
Executive to comply with any major corporate policy of the Company which is
communicated to Executive in writing or (iv) Executive=s conviction of, or plea
of nolo contendere to, any felony if such conviction shall result in his
imprisonment; provided that with respect to clauses (i), (ii) or (iii) above,
Executive shall have 10 days following written notice of the conduct which is
the basis for the potential termination for Cause within which to cure such
<PAGE>
conduct in order to prevent termination for Cause by the Company. In the event
that Executive is terminated for failure to meet performance goals, as
determined by the initial CEO, such termination shall be considered a
termination for Cause for all purposes relating to his equity (stock and
options), but it shall be considered a termination without Cause for purposes of
such Executive's right to receive Severance Payments, the Prorated Bonus and the
Continuation Benefits.
6.3 Disability. In the event of the Disability (as defined below) of
Executive during the Term of Employment, the Company may terminate Executive's
Term of Employment upon written notice to Executive (or Executive's personal
representative, if applicable) effective upon the date of receipt thereof (the
"Disability Commencement Date"). The obligation of the Company to make any
further payments under this Agreement shall, except for earned but unpaid Base
Salary, amounts attributable to accrued but unused vacation days and the
Prorated Bonus cease as of the Disability Commencement Date. The term
"Disability," for purposes of this Agreement, shall mean Executive's absence
from the full-time performance of Executive's duties pursuant to a reasonable
determination made in accordance with the Company's disability plan that
Executive is disabled as a result of incapacity due to physical or mental
illness that lasts, or is reasonably expected to last, for at least six months.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.4 Death. In the event of Executive's death during his Term of
Employment hereunder or at any time thereafter while payments are still owing to
Executive under the terms of this Agreement, all obligations of the Company to
make any further payments, other than the obligation to pay any accrued but
unpaid Base Salary, amounts attributable to accrued but unused vacation days and
the Prorated Bonus or any remaining payments that were payable to Executive by
reason of his termination of employment under Section 6.1 to which Executive was
entitled at the time of his death, shall terminate upon Executive's death.
Benefits under all other employee benefit programs, plans and practices shall be
paid in accordance with their terms.
6.5 No Further Notice or Compensation or Damages. Executive
understands and agrees that he shall not be entitled to any further notice,
compensation or damages upon Termination of Employment under this Agreement,
other than amounts specified in this Section 6 and the Ancillary Documents.
6.6 Executive's Duty to Provide Materials. Upon the termination of
the Term of Employment for any reason, Executive or his estate shall surrender
to the Company all correspondence, letters, files, contracts, mailing lists,
customer lists, advertising materials, ledgers, supplies, equipment, checks, and
all other materials and records of any kind that are the property of the Company
or any of its subsidiaries or affiliates, that may be in Executive's possession
or under his control, including all copies of any of the foregoing.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
P&L Coal Holdings Corporation
701 Market Street, Suite 700
<PAGE>
St. Louis, Missouri 63101-1826
attn: Chief Executive Officer
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive at the address set forth on the signature page hereof,
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of sending shall constitute the time at which notice was given.
8. Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9. Assignment. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the heirs and representatives of Executive and
the assigns and successors of the Company, but neither this Agreement nor any
rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company.
10. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
11. Nondisclosure of Confidential Information; Non-Competition. (a)
Executive, both during the term hereof and thereafter, will not, directly or
indirectly, use for himself or use for, or disclose to, any party other than the
Company, or any subsidiary of the Company (other than in the ordinary course of
Executive=s duties for the benefit of the Company or any subsidiary of the
Company), any secret or confidential information regarding the business or
property of the Company or its subsidiaries or regarding any secret or
confidential apparatus, process, system, or other method at any time used,
developed, acquired, discovered or investigated by or for the Company or its
subsidiaries, whether or not developed, acquired, discovered or investigated by
Executive. At the termination of Executive=s employment or at any other time the
Company or any of its subsidiaries may request, Executive shall promptly deliver
to the Company all memoranda, notes, records, plats, sketches, plans or other
documents made by, compiled by, delivered to, or otherwise acquired by Executive
concerning the business or properties of the Company or its subsidiaries or any
secret or confidential product, apparatus or process used developed, acquired or
investigated by the Company or its subsidiaries.
(b) In consideration of the Company's obligations under this
Agreement, Executive agrees that during the period of his employment hereunder
<PAGE>
and for a period of one year thereafter, without the prior written consent of
the Board, (i) he will not, directly or indirectly, either as principal,
manager, agent, consultant, officer, stockholder, partner, investor, lender or
employee or in any other capacity, carry on, be engaged in or have any financial
interest in, any entity which is in competition with the business of the Company
or its subsidiaries and (ii) he shall not, on his own behalf or on behalf of any
person, firm or company, directly or indirectly, solicit or offer employment to
any person who is or has been employed by the Company or its subsidiaries at any
time during the twelve (12) months immediately preceding such solicitation.
(c) For purposes of this Section 11, an entity shall be deemed to be
in competition with the Company if it is principally involved in the purchase,
sale or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a part of the business of the
Company within the same geographic area in which the Company effects such sales
or dealings or renders such services. Notwithstanding this subsection 11(c) or
subsection 11(b), nothing herein shall be construed so as to preclude Executive
from investing in any publicly or privately held company, provided Executive's
beneficial ownership of any class of such company's securities does not exceed
5% of the outstanding securities of such class.
(d) Executive agrees that this covenant not to compete is reasonable
under the circumstances and will not interfere with his ability to earn a living
or to otherwise meet his financial obligations. Executive and the Company agree
that if in the opinion of any court of competent jurisdiction such restraint is
not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant as
to the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 11 would irreparably injure the Company. Accordingly,
Executive agrees that, in the event that a court enjoins Executive from any
activity prohibited by this Section 11, the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments
otherwise required by this Agreement and obtain an injunction against Executive
from any court having jurisdiction over the matter restraining any further
violation of this Agreement by Executive.
12. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
13. Dispute Resolution. Any dispute or controversy arising under or
in connection with this Agreement (other than an action to enforce the covenants
in Section 11 hereof) or the Ancillary Documents shall be resolved by
arbitration. Arbitrators shall be selected, and arbitration shall be conducted,
in accordance with the rules of the American Arbitration Association. The
Company shall pay any legal fees in connection with such arbitration in the
event that Executive prevails on a material element of his claim or defense.
<PAGE>
14. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
15. Effect on Prior Agreements. This Agreement and the Ancillary
Documents contain the entire understanding between the parties hereto and
supersedes in all respects any prior or other agreement or understanding, both
written and oral, between the Company, any affiliate of the Company or any
predecessor of the Company or affiliate of the Company and Executive.
16. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
17. Survival. Notwithstanding the expiration of the term of this
Agreement, the provisions of Section 11 hereunder shall remain in effect as long
as is reasonably necessary to give effect thereto in accordance with the terms
hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
P&L Coal Holdings Corporation
By /s/ I. F. Engelhardt
Name: Irl F. Engelhardt
Title: Chairman and Chief Executive Officer
Signature of Executive: /s/ Mark Maisto
Date of Agreement: May 19, 1998
Name of Executive: Mark Maisto
Address of Executive: 187 Main Street
Hingham, MA 02043
Executive Team Position: President and CEO Citizens Power
Base Salary: $300,000 per annum
Bonus Target: 200% of Base Salary
Continuation Benefits: 1. Medical, dental and vision benefits;
2. Defined contribution plans (qualified and non-
qualified);
3. Defined benefit plans (qualified and non-qualified);
4. Life insurance;
5. AD&D;
6. Health care reimbursement account; and
7. Day care reimbursement account.
<PAGE>
Exhibit 12
P&L COAL HOLDINGS CORPORATION
Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
Twelve Six
From Period Fiscal Year Months Months
May 20, From April Ended Ended Ended
Total 1998 to 1, 1998 to ---------- ---------- -----------
Fiscal March 31, May 19, March 31, March 31, March 31,
1999 1999 1998 1998 1997 1997
--------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) Before Income Taxes $ 25,960 $ 21,143 $ 4,817 $ 250,529 $(702,286) $ 85,985
Interest Expense 180,327 176,105 4,222 33,635 54,643 24,700
Interest Portion of Rental Expense 19,838 17,318 2,520 18,910 16,000 8,002
--------- --------- --------- --------- --------- ---------
Adjusted Earnings (Loss) $ 226,125 $ 214,566 $ 11,559 $ 303,074 $(631,643) $ 118,687
========= ========= ========= ========= ========= =========
Interest Expense $ 180,327 $ 176,105 $ 4,222 $ 33,635 $ 54,643 $ 24,700
Interest Portion of Rental Expense 19,838 17,318 2,520 18,910 16,000 8,002
--------- --------- --------- --------- --------- ---------
Adjusted Fixed Charges $ 200,165 $ 193,423 $ 6,742 $ 52,545 $ 70,643 $ 32,702
========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 1.13 1.11 1.71 5.77 -- 3.63
========= ========= ========= ========= ========= =========
<CAPTION>
Fiscal Years Ended
September 30,
------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Income (Loss) Before Income Taxes $(702,467) $ 192,739 $ 86,943
Interest Expense 62,526 58,355 63,404
Interest Portion of Rental Expense 17,069 14,981 13,637
--------- --------- ---------
Adjusted Earnings (Loss) $(622,872) $ 266,075 $ 163,984
========= ========= =========
Interest Expense $ 62,526 $ 58,355 $ 63,404
Interest Portion of Rental Expense 17,069 14,981 13,637
--------- --------- ---------
Adjusted Fixed Charges $ 79,595 $ 73,336 $ 77,041
========= ========= =========
Ratio of Earnings to Fixed Charges -- 3.63 2.13
========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF P&L COAL HOLDINGS CORPORATION
AS OF MARCH 31, 1999
Carbones Peabody de Venezuela, C.A.
Darex Capital Inc.
Dolphin Properties Pty Limited
Peabody Australasia Pty Limited
Peabody Australia Limited
Peabody Bengalla Investments Pty Limited
Peabody Bengalla Pty Limited
Peabody Coal Limited
Peabody Finance Limited
Peabody Investments (Australia) Pty Limited
Peabody Minerals Pty. Limited
Peabody Mining Investments Pty Limited
Peabody Mining Services Pty Limited
Peabody Mount Arthur North Pty Limited
Peabody Resources Corporation (Malaysia) Sdn. Bdn.
Peabody Resources Limited
Peabody Resources Staff Retirement Fund Pty. Limited
Peabody Sub Holdings Pty Limited
Peabody Turkish Investments Limited
Ravensworth Coal Trust
Ravensworth Pastoral Co. Pty Limited
Rylandes Insurance Co. Pty Limited
Survga Pty Limited
The Energy Group Australia Pty Limited
CL Funding, L.L.C.
CL Hartford, L.L.C.
CL Power Sales One, L.L.C.
CL Power Sales Two, L.L.C.
CL Power Sales Three, L.L.C.
CL Power Sales Four, L.L.C.
CL Power Sales Five, L.L.C.
CL Power Sales Six, L.L.C.
CL Power Sales Seven, L.L.C.
CL Power Sales Eight, L.L.C.
CL Power Sales Nine, L.L.C.
CL Power Sales Ten, L.L.C.
CL Power Sales Eleven, L.L.C.
CL Power Sales Twelve, L.L.C.
CL Power Sales Thirteen, L.L.C.
CL Power Sales Fourteen, L.L.C.
CL Power Sales Fifteen, L.L.C.
CL Power Sales Sixteen, L.L.C.
CL Power Sales Seventeen, L.L.C.
CL Power Sales Eighteen, L.L.C.
CL Power Sales Nineteen, L.L.C.
CL Power Sales Twenty, L.L.C.
Citizens Power Holdings One, L.L.C.
Chateaugay Holdings, L.L.C.*
Citizens Power L.L.C.
Citizens Power Sales
<PAGE>
Hartford Power Sales, L.L.C.
Arid Operations, Inc.
Darius Gold Mine, Inc.
Gold Fields Chile, S.A.
Gold Fields Mining Corporation
Gold Fields Operating Co. - Ortiz
Peabody America, Inc.
Peabody Holding Company, Inc.
Affinity Mining Company
Big Sky Coal Company
Black Beauty Coal Company
Blackrock First Capital Corporation
Bluegrass Coal Company
Caballo Coal Company
Charles Coal Company
Coal Properties Corp.
Cook Mountain Coal Company
Cottonwood Land Company
EACC Camps, Inc.
Eastern Associated Coal Corp.
Eastern Royalty Corp.
Gallo Finance Company
Grand Eagle Mining, Inc.
Hayden Gulch Terminal, Inc.
Independence Material Holding Company
Interior Holding Corp.
James River Coal Terminal Company
Juniper Coal Company
Kayenta Mobile Home Park, Inc.
Martinka Coal Company
Midco Supply and Equipment Corporation
Mountain View Coal Company
North Page Coal Company
Ohio County Coal Company
Patriot Coal Company L.P.
Peabody COALSALES Company
Peabody COALTRADE, Inc.
Peabody Coal Company
Peabody Development Company
Peabody Energy Solutions, Inc.
Peabody Natural Resources Company
Peabody Terminals, Inc.
Peabody Venezuela Coal Corp.
Peabody Western Coal Company
Pine Ridge Coal Company]Powder River Coal Company
Rio Escondido Coal Corp.
Seneca Coal Company
Sentry Mining Company
Snowberry Land Company
Sterling Smokeless Coal Company
Thoroughbred, L.L.C.
<PAGE>
* subsequently sold to an unrelated party
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 30, 1999, in Post-Effective Amendment No. 1
to the Registration Statement (Form S-4 No. 333-59073) and related Prospectus of
P&L Coal Holdings Corporation for the registration of 8 7/8% Series B Senior
Notes due 2008 and 9 5/8% Series B Senior Subordinated Notes due 2008.
/s/ Ernst & Young LLP
St. Louis, MO
July 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF MARCH 31, 1999 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 CO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 194,078
<SECURITIES> 0
<RECEIVABLES> 312,925
<ALLOWANCES> 177
<INVENTORY> 249,897
<CURRENT-ASSETS> 1,832,461
<PP&E> 4,956,633
<DEPRECIATION> 193,492
<TOTAL-ASSETS> 7,023,931
<CURRENT-LIABILITIES> 1,345,508
<BONDS> 2,469,975
0
50
<COMMON> 197
<OTHER-SE> 494,983
<TOTAL-LIABILITY-AND-EQUITY> 7,023,931
<SALES> 1,970,957
<TOTAL-REVENUES> 2,094,226
<CGS> 1,847,817
<TOTAL-COSTS> 1,847,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,105
<INCOME-PRETAX> 21,143
<INCOME-TAX> 9,047
<INCOME-CONTINUING> 12,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,029
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
