<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
to . ------------------
--------------------
COMMISSION FILE NUMBER 333-59037
LODESTAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3903875
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
30 ROCKEFELLER PLAZA, SUITE 4225
NEW YORK, NEW YORK 10112
(Address of principal executive offices) (Zip Code)
(606) 255-4006
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] YES [ ] NO
Number of shares outstanding of each of the registrant's classes of common
stock, as of June 14, 1999:
COMMON STOCK, $1.00 PAR VALUE 1000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
TABLE OF CONTENTS 1
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets
April 30, 1999 and October 31, 1998 2
Consolidated Statements of Operations
Three Months Ended April 30, 1999 and 1998 3
Consolidated Statements of Operations
Six Months Ended April 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
Six Months Ended April 30, 1999 and 1998 5
Notes To Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 17
</TABLE>
<PAGE>
PART I. - ITEM 1 FINANCIAL STATEMENTS
LODESTAR HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 30,1999 October 31, 1998
------------- ----------------
ASSETS (in thousands, except share data)
<S> <C> <C>
Current assets:
Cash $ 2,467 $ 14,949
Accounts receivable 23,391 29,874
Inventories 20,102 9,550
Prepaid expensess and other current assets 3,686 4,092
--------- ---------
Total current assets 49,646 58,465
Property, plant and equipment, net 104,542 95,498
Coal and ash disposal contracts in excess of market, net of
accumulated amortization of $6,372 and $5,058, respectively 40,437 41,750
Other assets 18,194 18,065
--------- ---------
$ 212,819 $ 213,778
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current installments of long-term debt $ 750 $ -
Accounts payable 26,536 25,161
Accrued expenses 27,974 32,411
--------- ---------
Total current liabilities 55,260 57,572
Long-term obligations, excluding current installments 158,854 150,000
Other non-current liabilities 44,433 40,789
--------- ---------
Total liabilities 258,547 248,361
--------- ---------
Stockholder's deficit:
Common stock, $1.00 par value. Authorized, issued and
outstanding 1,000 shares 1 1
Additional paid-in capital 5,000 5,000
Accumulated deficit (49,573) (38,428)
Accumulated other comprehensive loss - minimum
pension liability adjustment (1,156) (1,156)
--------- ---------
Total stockholder's deficit (45,728) (34,583)
--------- ---------
$ 212,819 $ 213,778
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LODESTAR HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30, 1999 April 30, 1998
-------------- --------------
(in thousands)
<S> <C> <C>
Coal sales and related revenue $ 47,314 $ 64,650
-------- --------
Operating costs:
Cost of revenues 38,707 56,858
Depreciation, depletion
and amortization 7,183 5,865
Selling, general and administrative 2,318 2,310
-------- --------
48,208 65,033
-------- --------
Operating loss (894) (383)
Interest expense, net (4,811) (2,336)
-------- --------
Loss before income taxes (5,705) (2,719)
Income tax benefit -- 1,087
-------- --------
Net loss $ (5,705) $ (1,632)
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LODESTAR HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1999 April 30, 1998
-------------- --------------
(in thousands)
<S> <C> <C>
Coal sales and related revenue $ 104,744 $ 136,238
--------- ---------
Operating costs:
Cost of revenues 87,375 114,644
Depreciation, depletion
and amortization 14,152 11,829
Selling, general and administrative 4,862 4,875
--------- ---------
106,389 131,348
--------- ---------
Operating income (loss) (1,645) 4,890
Interest expense, net (9,501) (4,757)
--------- ---------
Income (loss) before income taxes (11,146) 133
Income tax provision -- (54)
--------- ---------
Net income (loss) $ (11,146) $ 79
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LODESTAR HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1999 April 30, 1998
-------------- --------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(11,146) $ 79
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation, depletion and amortization 14,152 11,829
Loss (gain) on sale/disposal of property plant
and equipment 13 (75)
Amortization of deferred financing fees 549 327
Imputed interest 284 1,062
Changes in operating assets and liabilities:
Accounts receivable 6,483 8,581
Inventories (10,203) (390)
Prepaid expenses and other current assets 341 (1,252)
Other assets (884) (1,006)
Accounts payable 1,375 (3,257)
Accrued expenses (5,198) (1,499)
Other non-current liabilities (1,198) (851)
-------- --------
Net cash provided by (used in) operating activities (5,432) 13,548
-------- --------
Cash flows from investing activities:
Cost of acquisitions, net of liabilities incurred (5,384) --
Capital expenditures (5,417) (2,917)
Proceeds from sales of property, plant and
equipment 73 190
-------- --------
Net cash used in investing activities (10,728) (2,727)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 3,757 --
Principal payments on long-term obligations (79) (8,473)
-------- --------
Net cash provided by (used in) financing activities 3,678 (8,473)
-------- --------
Net increase (decrease) in cash (12,482) 2,348
Cash at beginning of period 14,949 3,056
-------- --------
Cash at end of period $ 2,467 $ 5,404
-------- --------
-------- --------
Supplemental cash flow disclosures:
Interest paid $ 8,674 $ 3,322
-------- --------
-------- --------
Property, plant and equipment and inventory
acquired through debt incurred and liabilities
assumed $ 11,246 $ --
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
LODESTAR HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months ended April 30, 1999 and 1998
(Unaudited - in thousands)
(1) Basis of Presentation
The accompanying consolidated financial statements have been prepared from
the accounting records of Lodestar Holdings, Inc. and its subsidiaries (the
Company), without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Lodestar Holdings, Inc. is a wholly
owned subsidiary of The Renco Group, Inc. (Renco). The consolidated
financial statements reflect all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim periods presented. The
results of operations presented for the three and six month periods ended
April 30, 1999 are not necessarily indicative of the results to be expected
for the full year.
(2) Inventories
Inventories consist of the following at April 30,1999 and October 31,1998:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
---------- ------------
<S> <C> <C>
Coal $16,621 $ 6,067
Materials and supplies 3,481 3,483
------- -------
$20,102 $ 9,550
------- -------
</TABLE>
(3) Acquisition of Assets of Colonial Coal Company, Inc.
On January 15, 1999, Lodestar acquired coal inventory, mining rights,
leases of real property, and equipment from Colonial Coal Company, Inc.
(Colonial), a mining company in Eastern Kentucky. The consideration to
Colonial was $5,384 in cash paid at the closing, periodic deferred payment
obligations of $5,806, and the assumption of $5,440 in reclamation and
other liabilities.
6
<PAGE>
LODESTAR HOLDINGS, INC.
AND SUBSIDIARIES
(4) Subchapter S Corporation Election
On January 15, 1999, Renco filed an election with the consent of its
shareholders with the Internal Revenue Service to change its taxable status
from that of a subchapter C corporation to that of a subchapter S
corporation, effective November 1, 1998. At the same time, Renco elected
for the Company to be treated as a qualified subchapter S subsidiary
(QSSS). Most states in which the Company operates will follow similar tax
treatment. QSSS status requires the ultimate shareholders to include their
pro rata share of the Company's income or loss in their individual tax
returns. The Company will continue to provide for state and local income
taxes for the taxing jurisdictions which do not recognize QSSS status;
however, management believes this is not material to the Company.
(5) Commitments and Contingencies
A significant customer (the Customer) of the Company is involved in
litigation, which is scheduled for trial in July 1999, with the utility for
which the Customer generates power. The Customer is alleging underpayment
by the utility pursuant to the contract in place. The Customer's ability to
meet its financial obligations, including those under its contract with the
Company, may be adversely affected to the extent the Customer is not
successful in its litigation. As of April 30, 1999, the Company has
receivables from the Customer totaling $9,549 ($4,248 of which is
classified as current and $5,301 of which is classified long term). The
Company also has contracts with the Customer to sell coal and dispose of
coal ash. These contracts were part of the intangible asset recorded in
connection with the March 14, 1997 purchase of the capital stock of Costain
Coal Inc. and its subsidiaries (subsequently renamed Lodestar Energy, Inc.)
by the Company. As of April 30, 1999, the net amount capitalized for these
contracts with the Customer is $15,493. Management of the Company does not
consider any loss with regard to these assets probable at this time.
7
<PAGE>
PART I. - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Lodestar Holdings, Inc. (the Company) was formed in August 1996 to acquire all
of the capital stock of Costain Coal Inc. from Costain America Inc. (the
Acquisition). The Acquisition, which was effective March 14, 1997, was accounted
for using the purchase method of accounting. After the Acquisition, Costain
Coal, Inc. was renamed Lodestar Energy, Inc. (Lodestar). On May 15, 1998, the
Company sold and issued (the Notes Offering) $150.0 million of 11.5% Senior
Notes due 2005 (the Notes).
Lodestar Holdings, Inc. is a holding company whose wholly-owned direct and
indirect subsidiaries include Lodestar Energy, Inc. (Lodestar), Eastern
Resources, Inc. and Industrial Fuels Minerals Company. These subsidiaries have
guaranteed the Notes. The assets, equity, income and cash flows of other
non-guarantor subsidiaries are inconsequential (I.E. individually and combined
less than 3% of the Lodestar Holdings, Inc. totals). Lodestar Holdings, Inc. has
no operations or assets separate from its investment in its subsidiaries.
Accordingly, separate financial information of the subsidiaries is not
considered necessary to include, as in management's opinion, it would not be
material to investors.
The Company, through its wholly-owned subsidiary, Lodestar, is engaged in the
mining and marketing of bituminous coal used principally for the generation of
electricity, as well as for other industrial applications. Lodestar's Western
Kentucky coal product is mid to high sulfur and competes primarily in the
regional utility market. Lodestar's Eastern Kentucky coal product, as compared
to its Western Kentucky coal product, is generally higher in energy (as measured
in British thermal units (Btu's)) content and lower in sulfur content and is
marketed in the Eastern, South Central and Great Lakes regions of the United
States. Lodestar also owns and operates an ash disposal facility in Eastern
Kentucky.
During fiscal year 1998, Lodestar closed a surface mining operation in the
Western Kentucky region and all mining operations located in West Virginia. As
of April 30, 1999, Lodestar controlled the mineral rights through lease or
ownership at sixteen active mines. Three of the active mines are in Western
Kentucky (all underground) and thirteen in Eastern Kentucky (eight underground
and five surface). The Eastern Kentucky operation includes one surface and four
underground mines acquired from Colonial in 1999, and referred to hereafter as
the Tug River properties.
During Lodestar's second quarter of fiscal year 1999, the coal industry
experienced soft market conditions which combined with Lodestar's voluntary
deferral of shipments on certain coal contracts resulted in a significant
increase in Lodestar's coal inventory. In an effort to mitigate this increase,
Lodestar temporarily suspended production at two of its five Eastern Kentucky
surface mines. Combined, these mines produced approximately 60,000 salable tons
of coal per month; contributing approximately 15% of the total monthly average
salable coal production. One of the mines has resumed production during the
third quarter of fiscal year 1999, while the other is expected to resume mining
before the end of calendar year 1999.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999 COMPARED WITH THREE MONTHS ENDED APRIL 30,
1998.
The following table summarizes the tons shipped by region and other operating
data for the Company for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
April 30, 1999 April 30, 1998
-------------- --------------
(TONS IN THOUSANDS)
<S> <C> <C>
REGION
Brokered 101 --
Eastern Kentucky 917 932
Western Kentucky 903 1,607
West Virginia -- 47
------------ ------------
Total 1,921 2,586
------------ ------------
OTHER OPERATING DATA:
Coal sales and related revenue per
ton shipped $ 24.63 $ 25.00
Cost of coal sales and related
revenues per ton shipped $ 20.15 $ 21.99
Coal sales revenues per
ton shipped $ 23.85 $ 22.97
Cost of coal sales revenues per
ton shipped $ 19.95 $ 20.15
</TABLE>
COAL SALES AND RELATED REVENUE for the three months ended April 30, 1999 (the
1999 Quarter) were $47.3 million, a decrease of $17.3 million, or 26.8%,
compared to the three months ended April 30, 1998 (the 1998 Quarter). The
related revenue component was $1.5 million in the 1999 Quarter and $5.2 million
in the 1998 Quarter, representing $3.7 million of the total $17.3 million
decrease. This decrease is attributable to the completion of a contract mining
operation in Eastern Kentucky. Coal sales revenue decreased by $13.6 million,
which primarily was the result of a 25.7% decrease in the volume of tons
shipped.
Due to a generally soft coal market resulting from the relatively mild winter
weather during the 1998-1999 season, Lodestar elected to reduce spot market coal
sales until prices stabilize. Despite the increased production from the recently
acquired Tug River properties, coal production was negatively impacted by
reduced production levels at the Western Kentucky Smith underground operation,
the closure of the Western Kentucky Smith surface operation and the West
Virginia mining operations (both in fiscal year 1998), and the temporary idling
of two of the Company's Eastern Kentucky surface operations during the 1999
Quarter. Finally, shipment volumes in the Western Kentucky region were reduced
by approximately 168,000 tons when Lodestar voluntarily agreed to accept a
shipment deferral request from a significant customer. As a result of the
aforementioned, total coal shipped during the 1999 Quarter was 665,000 tons less
than during the 1998 Quarter resulting in a corresponding increase of 453,000
tons of coal inventory. Coal sales revenue per ton shipped was $23.85 in the
1999 Quarter compared to $22.97 in the 1998 Quarter. This increase of $.88 per
ton shipped is the result of fewer spot market shipments, higher prices
associated with the Tug River coal sales, and a greater ratio of Eastern
Kentucky coal sales to Western Kentucky coal sales during the 1999 Quarter.
9
<PAGE>
COST OF REVENUES for the 1999 Quarter was $38.7 million, a decrease of $18.2
million, or 31.9%, compared to the 1998 Quarter. The $18.2 million reduction in
cost is primarily the result of 665,000 fewer tons shipped during the 1999
Quarter combined with an overall decrease in the cost per ton shipped of $1.84
compared to the 1998 Quarter. The 1999 Quarter cost of revenues reflects the
benefit of a $2.8 million reduction in equipment lease expense associated with
the buyout of those obligations with the proceeds of the Notes. Adjusted for
such benefit, cost of revenues was $.76 per ton less during the 1999 Quarter.
The most significant factor contributing to the decreased cost per ton was the
reduction in cost related to contract mining revenue in the 1999 Quarter. Due to
improved geological conditions and operating factors, productivity increased
during the 1999 Quarter at the Western Kentucky operations reducing cost of
revenues by approximately $2.10 per ton. The cost per ton shipped at the Eastern
Kentucky operations were approximately $2.34 higher in the 1999 Quarter
primarily due to higher mining ratios (overburden removed to salable tons of
coal produced), encountered at certain surface operations.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the 1999 Quarter increased from
the 1998 Quarter by $1.3 million. The primary reason for this increase was
depreciation as a result of capital equipment additions during the interim
twelve months including $27.5 million, which was capitalized in conjunction with
the buyout of leases with the proceeds of the Notes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES during the 1999 Quarter were
relatively unchanged when compared to the 1998 Quarter. Increased costs
associated with year 2000 compliance efforts have been offset by favorable
variances in other administrative areas.
OPERATING LOSS increased from $.4 million during the 1998 Quarter to $.9 million
during the 1999 Quarter, primarily as a result of the impact of reduced
shipments during the 1999 Quarter.
INTEREST EXPENSE, NET was $4.8 million for the 1999 Quarter, an increase of $2.5
million over the 1998 Quarter, which reflects the impact of interest on the
Notes.
INCOME TAXES for the 1999 Quarter were $0 as compared to a $1.1 million tax
benefit recorded during the 1998 Quarter. Due to the Company's change in tax
status (See Note 4 of Notes to Consolidated Financial Statements), the Company
is no longer subject to income taxes, and accordingly, no provision or credit
for income taxes has been recorded during the 1999 Quarter.
NET LOSS increased from $1.6 million during the 1998 Quarter to $5.7 million
during the 1999 Quarter as a result of the factors described above.
10
<PAGE>
SIX MONTHS ENDED APRIL 30, 1999 COMPARED WITH SIX MONTHS ENDED APRIL 30, 1998.
The following table summarizes the tons shipped by region and other operating
data for the Company for the periods presented.
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1999 April 30, 1998
-------------- --------------
(TONS IN THOUSANDS)
<S> <C> <C>
REGION
Brokered 117 -
Eastern Kentucky 1,819 1,979
Western Kentucky 2,207 3,231
West Virginia - 199
-------- --------
Total 4,143 5,409
-------- --------
OTHER OPERATING DATA:
Coal sales and related revenue per
ton shipped $ 25.28 $ 25.19
Cost of coal sales and related
revenues per ton shipped $ 21.09 $ 21.20
Coal sales revenue per ton shipped $ 23.60 $ 23.13
Cost of coal sales revenues per
ton shipped $ 20.25 $ 19.47
</TABLE>
COAL SALES AND RELATED REVENUE for the six months ended April 30, 1999 (the 1999
Period) were $104.7 million, a decrease of $31.5 million, or 23.1%, compared to
the six months ended April 30, 1998 (the 1998 Period). The related revenue
component was $7.0 million in the 1999 Period and $11.1 million in the 1998
Period, representing $4.1 million of the total $31.5 million decrease. This
decrease is primarily attributable to the completion of the contract mining
operation in Eastern Kentucky.
Coal sales revenue decreased by $27.4 million, which primarily was the result of
a 23.4% decrease in the volume of tons shipped. Coal sales revenue per ton
shipped was $23.60 in the 1999 Period compared to $23.13 in the 1998 Period,
increasing as a result of less spot market shipments as well as a greater ratio
of Eastern Kentucky coal sales to Western Kentucky coal sales. The 1.3 million
ton decline in coal shipped for the 1999 Period versus the 1998 Period is the
result of Lodestar's decision to reduce spot shipments during a weak coal
market, the reduced production levels at certain mine sites in both the Western
and Eastern Kentucky operations during the second quarter of 1999, the closure
of mines during fiscal year 1998, and the deferral of certain contracted
customer shipments.
COST OF REVENUES for the 1999 Period was $87.4 million, a decrease of $27.3
million, or 23.8%, compared to the 1998 Period. The $27.3 million reduction in
cost of revenues is primarily the result of fewer sold tons during the 1999
Period. Additionally, a $5.7 million reduction in cost of revenues due to the
completion of the contract mining operation in Eastern Kentucky benefited the
1999 Period. Cost of coal sales revenue increased $.78 per ton shipped primarily
due to lower salable yield from the Western Kentucky Baker underground mine and
higher surface mining ratios (cubic yards of overburden removed to salable tons
of coal produced) at certain Eastern Kentucky surface mines, net of the benefit
of a $5.6 million reduction in equipment lease expense associated with the
buyout of those obligations with the proceeds of the Notes.
11
<PAGE>
DEPRECIATION, DEPLETION, AND AMORTIZATION for the 1999 Period increased from the
1998 Period by $2.3 million. The primary reason for this increase was
depreciation as a result of capital equipment additions during the interim
twelve months including $27.5 million, which was capitalized in conjunction with
the buyout of leases with the proceeds of the Notes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES during the 1999 Period were
relatively unchanged when compared to the 1998 Period. Variances between periods
related to expenses incurred as part of the year 2000 compliance effort in the
1999 Period have been offset by favorable variances in legal expenses and other
administrative charges.
OPERATING INCOME (LOSS) decreased from a profit of $4.9 million during the 1998
Period to a loss of $1.6 million during the 1999 Period primarily as a result of
the impact of reduced shipments during the 1999 Period.
INTEREST EXPENSE, NET was $9.5 million for the 1999 Period, an increase of $4.7
million over the 1998 Period, which reflects the impact of interest on the
Notes.
INCOME TAXES for the 1999 Period are $0. Due to the Company's change in tax
status (See Note 4 of Notes to Consolidated Financial Statements), the Company
is no longer subject to income taxes, and accordingly, no provision or credit
for income taxes has been recorded during the 1999 Period.
NET INCOME (LOSS) decreased from a profit of $.1 million during the 1998 Period
to a loss of $11.1 million during the 1999 Period as a result of the factors
described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from working capital requirements,
capital investments, interest payment obligations and costs of implementing its
business strategy to grow through strategic acquisitions. The Company's primary
source of liquidity is cash provided by operating activities. The Company also
has available a $120 million senior credit facility (the Senior Credit Facility)
that provides for advances by the lender to a maximum of $90.0 million, based on
specific percentages of eligible receivables and inventories, and for letters of
credit of up to $30.0 million, based on a percentage of appraised value of
equipment and mineral reserves. As of April 30, 1999, the Senior Credit Facility
debt was $3.8 million, and $16.2 million of letters of credit were outstanding.
Based upon eligible collateral as of April 30, 1999, the net unused borrowing
and letter of credit availability thereunder was $26.1 million and $9.9 million,
respectively.
Cash used in the Company's operating activities for the 1999 Period was $5.4
million, compared to $13.5 million provided from the 1998 Period operating
activities. The $5.4 million of cash used in operating activities during the
1999 Period reflects the negative impact on cash resulting from reduced sales
volume and the build up of inventory experienced during the six months ended
April 30, 1999.
As a result of various factors as described herein, the Company's coal inventory
has increased by $10.2 million since November 1, 1998. In addition to temporary
production reductions at certain mine locations, Lodestar has implemented an
aggressive marketing strategy to relieve this inventory without significantly
compromising the realization earned per sold ton. Based upon current production
levels and new sales order commitments accepted to date, the Company projects
coal inventory will return to normal levels by the end of fiscal 1999.
12
<PAGE>
For the six months ended April 30, 1999, capital expenditures and the cost of
acquisitions funded with cash were $10.8 million. As of April 30, 1999, the
Company had capital expenditure commitments of approximately $6.1 million,
including $2.5 million for a replacement panline, which is a major component of
the Western Kentucky Baker mine longwall unit. This expenditure is expected to
occur in the third quarter of fiscal 1999. Total capital expenditures and the
cost of expected acquisitions funded with cash for fiscal 1999 are projected to
be less than $20.0 million.
The Company has significant indebtedness outstanding at April 30, 1999.
Management believes that cash flow from operations, in addition to availability
under the Senior Credit Facility, will be sufficient to provide for the
Company's liquidity needs for the foreseeable future. In addition, management
believes that such cash availability will be sufficient to finance projects that
will allow the implementation of its business strategy to grow through strategic
acquisitions. In general, management expects that such projects would be
financed with specifically targeted available funds and would meet their
criteria for cash self-sufficiency. There can be no assurance that the Company
will be successful in consummating such acquisitions.
The indenture governing the Notes and the Senior Credit Facility contains
numerous covenants and prohibitions that impose limitations on the liquidity of
the Company, including requirements that the Company satisfy certain financial
ratios and limitations on the incurrence of additional indebtedness. The ability
of the Company to meet its debt service requirements and to comply with such
covenants will be dependent upon future operating performance and financial
results which will be subject to financial, economic, political, competitive and
other factors affecting the Company, many of which are beyond its control.
YEAR 2000
The Company established an internal committee in 1998 responsible for monitoring
year 2000 (Y2K) compliance. The committee, in conjunction with an independent
consulting firm, has developed a detailed work schedule designed to minimize the
Company's risk to business interruptions related to Y2K issues. This plan has
been diligently administered during the 1999 Period, and the initial phase of
system inventory and analysis is complete.
The Company's information systems (IS) have been completely evaluated, and Y2K
remediation work to be performed in that area is minimal.
The primary non-IS risk areas are the embedded systems affecting mining
equipment, preparation plant systems, scale system interfaces, laboratory
equipment, and other facility-specific equipment. Testing was prioritized based
on evaluated risk. Evaluation of the most critical areas was completed in April
1999, with all testing scheduled to be completed by July 1, 1999. Remediation
efforts, which are not expected to be of a material nature, began in the second
quarter of 1999 on selected noncompliant items. Projections at this time
indicate that all remediation work that is required will be accomplished before
the end of the calendar year.
Additionally, the Company is in the process of a comprehensive review of the Y2K
compliance efforts of its most critical vendors and customers. Although
management believes that it is unlikely that its operations will be disrupted,
contingency plans are currently being developed to address the areas in which
potential disruptions could be most serious. All contingency plans will be
finalized during the third quarter of fiscal 1999.
To accelerate project completion and to enhance the thoroughness of its Y2K
efforts, the Company has increased its reliance on third party consultants.
Dependent upon the magnitude of required remediation efforts, and without
consideration of internal labor costs (which are not expected to be
significant), the expenditures to achieve Y2K compliance are projected to be
less than $1.0 million. As of April 30, 1999, approximately $485,000 has been
spent in Y2K compliance efforts.
13
<PAGE>
While every effort is being made to ensure Y2K compliance within the
controllable scope of the Lodestar operations, there can be no assurance that
business interruptions resulting from Y2K issues initiated from external systems
can be prevented.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This Statement is
effective for the Company in its 1999 fiscal year. The Company does not expect
the implementation of this Statement to have a material effect on its
consolidated financial statements.
FORWARD - LOOKING STATEMENTS
This report includes "forward-looking statements," within the meaning of the
Private Securities Litigation Reform Act of 1995, which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry capacity; demand; industry trends, including coal pricing; competition;
the loss of any significant customers or long-term contracts; availability of
qualified personnel; major equipment failures; changes in, or failure or
inability to comply with, government regulation, including, without limitation,
environmental regulations; outcome of litigation; and other factors referenced
in this report. For a detailed discussion of these factors, please refer to the
information under the caption "Risk Factors" in the Company's Registration
Statement No. 333-59037 (effective November 12, 1998). These forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
14
<PAGE>
PART II. - ITEM 1 LEGAL PROCEEDINGS
In 1997, Cedar Bay Generating Company Limited Partnership (Cedar Bay), one of
the Company's five largest customers, brought a lawsuit in the Circuit Court
for Duval County, Florida, against Florida Power & Light Company (FP&L), the
utility for which Cedar Bay generates power, alleging, among other things,
that FP&L was in breach of its contract with Cedar Bay for underpaying
invoices from Cedar Bay by amounts which FP&L disputed were properly due
under the contract. While such lawsuit has been pending, FP&L has withheld
payment to Cedar Bay of the portion of the invoices disputed by FP&L and
Cedar Bay has, in turn, withheld a portion of the amounts invoiced by the
Company to Cedar Bay for coal used by Cedar Bay to generate power for FP&L.
Were Cedar Bay not successful in its litigation with FP&L, Cedar Bay might
assert that the payments it had withheld from the Company, a portion of which
are recorded as current receivables by the Company, are not properly owed,
and, more significantly, Cedar Bay's ability to meet its financial
obligations to the Company and others might be impaired. See Note (5) re
Commitments and Contingencies in the Financial Statements included herein. In
order to protect its financial interest in this matter, the Company sought
approval from the court to intervene in the litigation between Cedar Bay and
FP&L generally in support of Cedar Bay's position. In April 1999, the court
granted the Company's application. The Company is unable to determine whether
Cedar Bay will be successful in the litigation and is unable to estimate any
losses the company would experience were Cedar Bay to lose such litigation.
15
<PAGE>
PART II. - ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
A list of exhibits required to be filed as part of this Report Form
10-Q is set forth in the "Exhibit Index", which immediately precedes
such exhibits, and is incorporated herein by reference.
Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under
signed thereunto duly authorized.
Lodestar Holdings, Inc.
(Registrant)
By: /s/ Michael E. Donohue
-------------------------------------------------
MICHAEL E. DONOHUE
Vice President and Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
Date: June 14, 1999
-------------------------------------------------
17
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10 MATERIAL CONTRACTS
10.1 Amendment No. 1, dated as of October 22, 1998,
to Amended and Restated Loan and Security Agreement, dated
May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
Lodestar Holdings, Inc., as Guarantor, the financial institutions
named therein as lenders, Congress Financial Corporation, as Agent,
and The CIT/Business Credit, Inc., as Co-Agent.
10.2 Amendment No. 2, dated as of December 4, 1998,
to Amended and Restated Loan and Security Agreement, dated
May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
Lodestar Holdings, Inc., as Guarantor, the financial institutions
named therein as lenders, Congress Financial Corporation, as Agent,
and The CIT/Business Credit, Inc., as Co-Agent.
10.3 Amendment No. 3, dated as of January 15, 1999,
to Amended and Restated Loan and Security Agreement, dated
May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
Lodestar Holdings, Inc., as Guarantor, the financial institutions
named therein as lenders, Congress Financial Corporation, as Agent,
and The CIT/Business Credit, Inc., as Co-Agent.
10.4 Amendment No. 4, dated as of April 30, 1999,
to Amended and Restated Loan and Security Agreement, dated
May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
Lodestar Holdings, Inc., as Guarantor, the financial institutions
named therein as lenders, Congress Financial Corporation, as Agent,
and The CIT/Business Credit, Inc., as Co-Agent.
27 FINANCIAL DATA SCHEDULE
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under
signed thereunto duly authorized.
Lodestar Holdings, Inc.
(Registrant)
By: /s/ Michael E. Donohue
-------------------------------------------------
MICHAEL E. DONOHUE
Vice President and Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
Date: June 14, 1999
-------------------------------------------------
19
<PAGE>
Exhibit 10.1
AMENDMENT NO. 1 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT dated as of October 22, 1998 by and among Lodestar Energy,
Inc., a Delaware corporation ("Borrower"), Lodestar Holdings, Inc., a
Delaware corporation ("Guarantor"), the financial institutions from time to
time parties to the Loan Agreement (as hereinafter defined) as lenders
(individually, a "Lender" and collectively, the "Lenders"), Congress
Financial Corporation, a Delaware corporation, in its capacity as
administrative agent and collateral agent for the Lenders (in such capacity,
the "Agent") and The CIT Group/Business Credit, Inc., a New York corporation,
in its capacity as co-agent for Lenders (in such capacity, the "Co-Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Agent, Co-Agent, Lenders, Borrower and Guarantor have entered
into financing arrangements pursuant to which Lenders, or Agent on behalf of
Lenders, have made and may make loans and advances and provide other
financial accommodations to Borrower as set forth in the Amended and Restated
Loan and Security Agreement, dated May 15, 1998, by and among Agent,
Co-Agent, Lenders, Borrower and Guarantor (as amended by this Amendment and
as the same may be further amended, modified, supplemented, extended,
renewed, restated or replaced, the "Loan Agreement") and the agreements,
documents and instruments at any time executed and/or delivered in connection
therewith or related thereto (collectively, together with the Loan Agreement,
the "Financing Agreements");
WHEREAS, Borrower has requested that Lenders and Agent agree to an
amendment to the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
and covenants set forth herein, and for other good and valuable consideration,
the adequacy and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. INTERPRETATION. For purposes of this Amendment, all terms used
herein, including but not limited to, those terms used and/or defined in the
recitals hereto shall have the respective meanings assigned thereto in the
Loan Agreement.
2. AMENDMENT.
2.1 CONSOLIDATED NET WORTH.
(a) Section 7.10(a) of the Loan Agreement is hereby deleted in
its entirety and the following substituted therefor:
"(a) From the date hereof through
and including October 30, 1998 ($35,000,000)"
<PAGE>
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lenders and Agent pursuant to the other Financing
Agreements, Borrower hereby represents, warrants and covenants with and to
Lenders and Agent as follows (which representations, warranties and covenants
are continuing and shall survive the execution and delivery hereof and shall
be incorporated into and made a part of the Financing Agreements):
3.1. NO DEFAULT. No Event of Default exists on the date of this
Amendment (after giving effect to the Amendment to the Loan Agreement made by
the Amendment).
3.2. CORPORATE POWER AND AUTHORITY. This Amendment has been duly
executed and delivered by Borrower and is in full force and effect as of the
date hereof and the agreements and obligations of Borrower contained herein
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
4. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, no
other waivers, changes or modifications to the Financing Agreements are
intended or implied, and in all other respects, the Financing Agreements are
hereby specifically ratified, restated and confirmed by all parties hereto as
of effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment
shall control.
5. FURTHER ASSURANCES. The parties hereto shall execute and deliver
such additional documents and take such additional actions as may be
necessary to effectuate the provisions and purposes of this Amendment.
6. GOVERNING LAW. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of New York.
7. BINDING EFFECT. This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns. Any acknowledgment or consent contained herein shall not be
construed to constitute a consent to any other or further action by Borrower
or to entitle Borrower to any other consent. The Loan Agreement and this
Amendment shall be read and construed as one agreement.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed
by each of the parties thereto.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their authorized officers as of the date and
year first above written.
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ M. E. Donohue
--------------------------
Title: CFO
-----------------------
LODESTAR HOLDINGS, INC.
By: /s/ John W. Hughes
-------------------------
Title: PRESIDENT
-----------------------
AGENT:
CONGRESS FINANCIAL CORPORATION, for
itself and as Agent
By: /s/ Lawrence S. Forte
-------------------------------
Title: FIRST VICE PRESIDENT
----------------------------
THE CIT GROUP/BUSINESS CREDIT, INC., for
itself and as Agent
By: /s/ Christopher Hill
-------------------------------
Title: ASSISTANT VICE PRESIDENT
-------------------------------
-3-
<PAGE>
Exhibit 10.2
[12/04/98]
AMENDMENT NO. 2 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT dated as of December 4, 1998 by and among Lodestar
Energy, Inc., a Delaware corporation ("Borrower"), Lodestar Holdings, Inc., a
Delaware corporation ("Guarantor"), the financial institutions from time to
time parties to the Loan Agreement (as hereinafter defined) as lenders
(individually, a "Lender" and collectively, the "Lenders"), Congress
Financial Corporation, a Delaware corporation, in its capacity as
administrative agent and collateral agent for the Lenders (in such capacity,
the "Agent") and The CIT Group/Business Credit, Inc., a New York corporation,
in its capacity as co-agent for Lenders (in such capacity, the "Co-Agent").
W I T N E S S E T H
WHEREAS, Agent, Co-Agent, Lenders, Borrower and Guarantor have
entered into financing arrangements pursuant to which Lenders, or Agent on
behalf of Lenders, have made and may make loans and advances and provide
other financial accommodations to Borrower as set forth in the Amended and
Restated Loan and Security Agreement, dated May 15, 1998, by and among Agent,
Co-Agent, Lenders, Borrower and Guarantor (as amended by this Amendment and
as the same may be further amended, modified, supplemented, extended,
renewed, restated or replaced, the "Loan Agreement") and the agreements,
documents and instruments at any time executed and/or delivered in connection
therewith or related thereto (collectively, together with the Loan Agreement,
the "Financing Agreements");
WHEREAS, Borrower has requested that Lenders and Agent agree to an
amendment to the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements and covenants set forth herein, and for other good and valuable
consideration, the adequacy and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. INTERPRETATION. For purposes of this Amendment, all terms used
herein, including but not limited to, those terms used and/or defined in the
recitals hereto, shall have the respective meanings assigned thereto in the
Loan Agreement.
2. AMENDMENT.
2.1 CONSOLIDATED NET WORTH.
(a) Sections 7.10 (b), (c) and (d) of the Loan Agreement are
each hereby deleted in their entirety and the following substituted therefor:
<TABLE>
<S> <C>
"(b) On and after October 31, 1998 ($45,000,000)
through and including
October 30, 1999
(c) On and after October 31, 1999 ($52,000,000)
through and including
October 30, 2000
(d) On and after October 31, 2000 ($53,600,000)
and all times thereafter"
</TABLE>
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lenders and Agent pursuant to the other Financing
<PAGE>
Agreements, Borrower hereby represents, warrants and covenants with and to
Lenders and Agent as follows (which representations, warranties and covenants
are continuing and shall survive the execution and delivery hereof and shall
be incorporated into and made a part of the Financing Agreements):
3.1. NO DEFAULT. No Event of Default exists on the date of this
Amendment (after giving effect to the amendments to the Loan Agreement made
by this Amendment).
3.2. CORPORATE POWER AND AUTHORITY. This Amendment has been duly
executed and delivered by Borrower and is in full force and effect as of the
date hereof and the agreements and obligations of Borrower contained herein
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
4. FEE. In consideration of the Amendment set forth herein,
Borrower shall on the date hereof, pay to Agent, for the ratable benefit of
Lenders, and Agent may at its option, charge to the account of Borrower
maintained by Agent, a fee in the amount of $25,000, which fee is fully
earned and payable as of the date hereof and shall constitute part of the
Obligations.
5. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto,
no other changes or modifications to the Financing Agreements are intended or
implied, and in all other respects, the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment
shall control.
6. FURTHER ASSURANCES. The parties hereto shall execute and
deliver such additional documents and take such additional actions as may be
necessary to effectuate the provisions and purposes of this Amendment.
7. GOVERNING LAW. The rights and obligations hereunder of each of
the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of New York.
8. BINDING EFFECT. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors
and assigns. Any acknowledgment or consent contained herein shall not be
construed to constitute a consent to any other or further action by Borrower
or to entitle Borrower to any other consent. The Loan Agreement and this
Amendment shall be read and construed as one agreement.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed
by each of the parties thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their authorized officers as of the date and year
first above written.
Very truly yours,
LODESTAR ENERGY, INC.
By:/s/ M.E. Donohue
-----------------------------
Title: Chief Financial Officer
--------------------------
<PAGE>
LODESTAR HOLDINGS, INC.
By:/s/ Roger Fay
-----------------------------
Title: Vice President
--------------------------
AGENT:
CONGRESS FINANCIAL CORPORATION, for
itself and as Agent
By:/s/ Lawrence S. Forte
--------------------------------
Title: First Vice President
-----------------------------
THE CIT GROUP/BUSINESS CREDIT, INC., for
itself and as Co-Agent
By:/s/ Christopher Hill
--------------------------------
Title: Assistant Vice President
-----------------------------
<PAGE>
Exhibit 10.3
[01/15/99]
AMENDMENT NO. 3 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT dated as of January 15, 1999 by and among Lodestar Energy,
Inc., a Delaware corporation ("Borrower"), Lodestar Holdings, Inc., a
Delaware corporation ("Guarantor"), the financial institutions from time to
time parties to the Loan Agreement (as hereinafter defined) as lenders
(individually, a "Lender" and collectively, the "Lenders"), Congress
Financial Corporation, a Delaware corporation, in its capacity as
administrative agent and collateral agent for the Lenders (in such capacity,
the "Agent") and The CIT Group/Business Credit, Inc., a New York corporation,
in its capacity as co-agent for Lenders (in such capacity, the "Co-Agent").
W I T N E S S E T H
WHEREAS, Agent, Co-Agent, Lenders, Borrower and Guarantor have
entered into financing arrangements pursuant to which Lenders, or Agent on
behalf of Lenders, have made and may make loans and advances and provide
other financial accommodations to Borrower as set forth in the Amended and
Restated Loan and Security Agreement, dated May 15, 1998, by and among Agent,
Co-Agent, Lenders, Borrower and Guarantor (as amended by this Amendment and
as the same may hereafter be further amended, modified, supplemented,
extended, renewed, restated or replaced, the "Loan Agreement") and the
agreements, documents and instruments at any time executed and/or delivered
in connection therewith or related thereto (collectively, together with the
Loan Agreement, the "Financing Agreements");
WHEREAS, Borrower has entered into agreements to purchase certain
mineral leases and other assets from the Colonial Companies (as hereinafter
defined), the McDonalds (as hereinafter defined) and Empire Kentucky Land,
Inc., a Kentucky corporation as set forth in the Colonial Purchase Agreements
(as hereinafter defined);
WHEREAS, in connection with such transactions, Borrower has
requested that Agent and Lenders agree to certain amendments to the Loan
Agreement and Agent and Lenders are willing to agree to such amendments,
subject to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements and covenants set forth herein, and for other good and valuable
consideration, the adequacy and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
1.1 ADDITIONAL DEFINITIONS. As used herein, the following terms
shall have the respective meanings given to them below and the Loan Agreement
shall be deemed and is hereby amended to include, in addition and not in
limitation of, each of the following definitions:
(a) "AMENDMENT NO. 3" shall mean this Amendment No. 3 to the
Amended and Restated Loan and Security Agreement by and among Borrower,
Guarantor, Agent, Co-Agent and Lenders.
(b) "COLONIAL ASSET PURCHASE AGREEMENT" shall mean the Asset
Purchase Agreement, dated of even date herewith, among the Colonial Companies
and Borrower, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(c) "COAL INVENTORY" shall mean all coal inventory located on
or about the Colonial Real Property.
(d) "COLONIAL COMPANIES" shall mean, collectively, each of the
following (and their respective successors and assigns): (i) Colonial Coal
Company, Inc., a Kentucky corporation, (ii) P.B. Coal Company, Inc., a
<PAGE>
Kentucky corporation, (iii) Tau Coal Company, Inc., a Kentucky corporation,
(iv) Limited Corporation, a Kentucky corporation, and (v) Zephyer Coal
Company, Inc., a Kentucky corporation.
(e) "COLONIAL ASSETS" shall mean all of the assets and
properties acquired, leased or subleased by Borrower from the Colonial
Companies pursuant to the Colonial Purchase Agreements, including, but not
limited to, the Surface Easements, Surface Leases, Surface Property, Coal
Leases, Real Property, Permits, Tangible Assets, Coal Inventory, Assigned
Contracts and Records as each such term is defined in the Colonial Asset
Purchase Agreement (as in effect on the date hereof).
(f) "COLONIAL COLLATERAL" shall mean the equipment, fixtures,
supplies and parts as described on Exhibit A hereto, provided, that the term
"Colonial Collateral" shall not include any Coal Inventory or other Inventory
or any Accounts.
(g) "COLONIAL PURCHASE AGREEMENTS" shall mean, individually and
collectively, the Colonial Asset Purchase Agreement, the Colonial Sublease,
Noncompetition Agreement, together with bills of sale, quitclaim deeds,
assignment and assumption agreements, lease, sublease and such other
instruments of transfer or lease as are referred to therein and all side
letters with respect thereto, and all agreements, documents and instruments
executed and/or delivered in connection therewith, as all of the foregoing
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced; provided, that, the term "Colonial Purchase
Agreements" as such term is defined herein shall not include any of the
"Financing Agreements" as such term is defined herein.
(h) "COLONIAL REAL PROPERTY" shall mean the Real Property
described on Exhibit B hereto.
(i) "COLONIAL SUBLEASE" shall mean the Sublease and Lease
Agreement, dated of even date herewith, by and among Colonial and Limited
Corporation, as sublessors, and Borrower, as sublessee, as the same now
exists and may hereafter be amended, modified, supplemented, extended,
renewed, restated and replaced.
(j) "DEFERRED COLONIAL PAYMENT" shall mean the maximum sum of
$9,500,000 to be paid by Borrower to the Colonial Companies in accordance
with Section 1.3(c) of the Colonial Asset Purchase Agreement as in effect on
the date hereof.
(k) "MCDONALDS" shall mean, collectively, B.W. McDonald, Greg
McDonald, Tim McDonald and Empire Kentucky Land, Inc., a Kentucky corporation.
(l) "NONCOMPETITION AGREEMENT" shall mean the Noncompetition and
Nondisclosure Agreement, dated of even date herewith, by and among each of
the McDonalds and Borrower, as the same exists and may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.2 INTERPRETATION. For purposes of this Amendment, all terms used
herein, including but not limited to, those terms used and/or defined in the
recitals hereto shall have the respective meanings assigned thereto in the
Loan Agreement.
2. CONSENTS. Subject to the terms and conditions contained herein,
Agent and Lenders hereby consent to the following: (a) the purchase by
Borrower of the Colonial Assets pursuant to the Colonial Purchase Agreements
as in effect on the date hereof: (b) the Indebtedness of Borrower to the
Colonial Companies in respect of the Deferred Colonial Payment; (c) the grant
of a security interest in and lien upon the Colonial Collateral by Borrower
to Colonial to secure up to $3,000,000 of the Deferred Colonial Payment;
(d) the payment by Borrower to the Colonial Companies of $15,500,000 to the
extent such payment constitutes a Capital Expenditure shall not be included
in the amount of Capital Expenditures which Borrower is otherwise permitted
to make in its fiscal year ending October 31, 1999 pursuant to Section 7.11
of the Loan Agreement; (e) the Colonial Sublease as in effect on the date
hereof; and (f) the Noncompetition Agreement as in effect on the date hereof;
provided THAT, each of the foregoing shall have occurred by no later than
January 29, 1999.
3. AMENDMENTS.
<PAGE>
3.1 INDEBTEDNESS. Section 7.3 of the Loan Agreement is hereby
amended by adding a new Section 7.3(r) as follows:
"(r) Indebtedness of Borrower to the Colonial Companies arising
pursuant to the Colonial Purchase Agreements as in effect on the
date of Amendment No. 3 or as otherwise permitted herein or
consented to in writing by Agent and Lenders; PROVIDED, THAT,
(i) such Indebtedness is and shall only be secured by the security
interests in and liens upon the assets of Borrower permitted under
Section 7.4(h) hereof, (ii) the terms and conditions of such
Indebtedness shall be acceptable in all respects to Agent,
(iii) such Indebtedness shall not exceed $9,500,000 (less the
aggregate amount of all repayments in respect thereof),
(iv) Borrower shall not, directly or indirectly, make any payments in
respect of such Indebtedness, including, but not limited to, any
prepayments or other non-mandatory payment; except that Borrower may
make: (A) regularly scheduled monthly payments and semi-annual
minimum payments in respect of the Deferred Colonial Payment, in
accordance with Section 1.3(c) of the Colonial Asset Purchase
Agreement as in effect on the date of Amendment No. 3 or as
otherwise permitted herein or consented to in writing by Agent and
Lenders so long as the aggregate amount of all such payments shall
not exceed $9,500,000 and (B) the prepayment permitted by Section
1.3(c) of the Colonial Asset Purchase Agreement; provided, THAT,
with respect to payments permitted under clauses (A) and (B) hereof,
as of the date of each such payment and after giving effect thereto,
no Event of Default or act, condition or event which with notice or
passage or time or both would constitute an Event of Default shall
exist or have occurred and be continuing, (v) Borrower shall not,
directly or indirectly, (A) amend, modify, alter or change any terms
of such Indebtedness or any of the provisions of any agreement,
document or instrument to the extent such provision governs or
affects the Indebtedness as in effect on the date of Amendment No. 3
or as otherwise permitted herein or consented to in writing by Agent
and Lenders; EXCEPT, THAT, Borrower may, after prior written notice
to Agent, amend the Colonial Asset Purchase Agreement so as to
extend the maturity of any Deferred Colonial Payment or defer the
timing of any payments in respect thereof, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose, and
(vi) Borrower shall furnish to Agent all notices or demands in
connection with such Indebtedness either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower
or on its behalf, concurrently with the sending thereof, as the case
may be."
3.2 LIMITATION ON LIENS. Section 7.4 of the Loan Agreement is
hereby amended to add a new Section 7.4(h) as follows:
"(h) the security interests in and liens upon the Colonial
Collateral in favor of Colonial to secure the Indebtedness of Borrower
to the Colonial Companies permitted under Section 7.3(r) hereof,
provided, THAT: (i) Borrower shall not directly or indirectly amend,
modify, alter or change any terms of such security interests and liens
in favor of Colonial; (ii) the Colonial Collateral shall not include
the Coal Inventory or any other Inventory or any Accounts; (iii) the
aggregate amount of all Indebtedness secured by such liens or security
interests shall not exceed $3,000,000 in respect of the Deferred
Colonial Payment (less the aggregate amount of all repayments or
repurchases); (iv) Borrower shall provide written notice to Agent
within five (5) days of the payment by Borrower to the Colonial
Companies of $3,000,000 in respect of the Deferred Colonial Payment;
and (v) within sixty (60) days of the notice required by subsection
(iv) hereof, Agent and Lenders shall have received evidence of the
termination of the security interests and liens of Colonial in the
Colonial Collateral."
3.3 LOANS, INVESTMENTS, GUARANTEES. Section 7.5 of the Loan Agreement
is hereby amended to add a new Section 7.5(o) as follows:
"(o) the purchase by Borrower of the Colonial Assets pursuant to
the Colonial Purchase Agreements (as in effect on the date of
Amendment No. 3)."
3.4 CAPITAL EXPENDITURES. Section 7.11 of the Loan Agreement is hereby
amended to add a new Section
<PAGE>
7.11(c) as follows:
"and (c) such limitation shall not apply to the Capital
Expenditures by Borrower of up to $15,500,000, paid to the Colonial
Companies for the purchase price pursuant to the Colonial Purchase
Agreements as in effect on the date of Amendment No. 3."
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lenders and Agent pursuant to the other Financing
Agreements, Borrower hereby represents, warrants and covenants with and to
Lenders and Agent as follows (which representations, warranties and covenants
are continuing and shall survive the execution and delivery hereof and shall be
incorporated into and made a part of the Financing Agreements):
4.1 ACQUISITION OF COLONIAL ASSETS.
(a) The Colonial Purchase Agreements and the transactions
contemplated thereunder have been duly executed, delivered and performed in
accordance with their terms by the respective parties thereto in all
respects, including the fulfillment (not merely the waiver, except as have
been disclosed to Agent and Lenders and consented to in writing by Agent and
except as to those listed on Exhibit C hereto) of all conditions precedent
set forth therein. After giving effect to the Colonial Purchase Agreements,
Borrower has acquired good and marketable title or a valid leasehold interest
to the Colonial Assets. All amounts paid by Borrower pursuant to the Colonial
Purchase Agreements have been paid with the existing cash balances of
Borrower and the proceeds of the Loans.
(b) All of the Colonial Assets (other than intangible property)
to be acquired, leased or subleased by Borrower pursuant to the Colonial
Purchase Agreements are on premises being acquired, leased or subleased by
Borrower from the Colonial Companies, and the Colonial Assets are free and
clear of all liens, claims, encumbrances and security interests other than
(i) the liens and security interests of Colonial in the Colonial Collateral
permitted under the Loan Agreement (as amended hereby) and (ii) any tax,
mechanics, materialmen and landlord statutory liens otherwise permitted under
the Loan Agreement. The foregoing shall not be construed to apply to the
ownership or leasehold interests of the Colonial Companies in real property
being leased or subleased by the Colonial Companies to Borrower.
(c) All actions and proceedings required by the Colonial
Purchase Agreements, applicable law or regulation have been taken and the
transactions contemplated thereunder have been duly and validly consummated.
Except as listed on Exhibit C hereto, Borrower has received all necessary
consents and approvals of third parties to the transactions contemplated by
the Colonial Purchase Agreements.
(d) No court of competent jurisdiction has issued any
injunction, restraining order or other order which prohibits consummation of
the transactions described in the Colonial Purchase Agreements and no
governmental or other action or proceeding has been threatened or commenced,
seeking any injunction, restraining order or other order which seeks to void
or otherwise modify the transactions described in the Colonial Purchase
Agreements.
(e) Borrower has delivered, or caused to be delivered, to Agent
true, correct and complete copies of the Colonial Purchase Agreements.
4.2 NO DEFAULT. No Event of Default exists on the date of Amendment
No. 3 (after giving effect to the amendment to the Loan Agreement made by the
provisions of Amendment No. 3).
4.3 CORPORATE POWER AND AUTHORITY. This Amendment has been duly
executed and delivered by Borrower and is in full force and effect as of the
date hereof and the agreements and obligations of Borrower contained herein
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
4.4 ADDITIONAL ITEMS TO BE DELIVERED.
(a) Borrower hereby agrees that, in addition to all other
terms, conditions and provisions set
<PAGE>
forth in the Financing Agreements, Borrower shall use its best efforts
(without the payment of money) to deliver Collateral Access Agreements with
respect to any of the premises of Borrower acquired, leased or subleased
pursuant to the Colonial Purchase Agreements, in each case, duly executed and
delivered by the owner, lessor or sublessor of such premises other than the
Colonial Companies.
(b) Borrower hereby agrees that, in addition to all other terms,
conditions of the Financing Agreements, on or before February 26, 1999,
deliver to Agent UCC-3 termination statements for each of the UCC-1 financing
statements, filed of record, by and between each of the parties set forth on
Exhibit D, as secured party, and the Colonial Companies, as debtor, duly
authorized, executed and delivered by such secured parties.
5. CONDITIONS PRECEDENT. The effectiveness of the consents,
waivers and other terms and conditions contained herein shall be subject to
the receipt by Agent of each of the following, in form and substance
satisfactory to Agent:
5.1 evidence that the Colonial Purchase Agreements have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of the Colonial Purchase Agreements
have been consummated prior to or contemporaneously with the execution of
this Amendment;
5.2 Collateral Access Agreements with respect to any of the
premises of Borrower acquired, leased or subleased pursuant to the Colonial
Purchase Agreements, by Borrower from any of the Colonial Companies, in each
case, duly executed and delivered by the Colonial Companies as the owner and
lessor of such premises;
5.3 the opinion letters of counsel to Borrower with respect to the
Colonial Purchase Agreements, upon which Agent and Lenders are permitted to
rely, and such other matters as Agent and/or Lenders may request;
5.4 evidence that the liens and security interest of the parties
listed on Exhibit D hereto have been terminated; and
5.5 an original of this Amendment, duly authorized, executed and
delivered by Borrower.
6. ADDITIONAL EVENTS OF DEFAULT. The parties hereto acknowledge,
confirm and agree that the failure of Borrower to comply with the covenants,
conditions and agreements contained herein shall constitute an Event of
Default under the Financing Agreements (subject to the applicable cure
period, if any, with respect thereto provided for in the Loan Agreement as in
effect on the date hereof).
7. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto,
no other waivers, changes or modifications to the Financing Agreements are
intended or implied, and in all other respects, the Financing Agreements are
hereby specifically ratified, restated and confirmed by all parties hereto as
of effective date hereof. Any acknowledgment or consent contained herein
shall not be construed to constitute a consent to any other or further action
by Borrower or to entitle Borrower to any other consent. The Loan Agreement
and this Amendment shall be read and construed as one agreement. To the
extent of conflict between the terms of this Amendment and the other
Financing Agreements, the terms of this Amendment shall control.
8. FURTHER ASSURANCES. The parties hereto shall execute and
deliver such additional documents and take such additional actions as may be
necessary to effectuate the provisions and purposes of this Amendment.
9. GOVERNING LAW. The rights and obligations hereunder of each of
the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of New York.
10. BINDING EFFECT. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors
and assigns.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed
by each of the parties thereto.
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their authorized officers as of the date
and year first above written.
Very truly yours,
LODESTAR ENERGY, INC.
By:/s/ M.E. Donohue
--------------------------------
Title: Vice - President
-----------------------------
LODESTAR HOLDINGS, INC.
By:/s/ M.E. Donohue
--------------------------------
Title: Vice - President
-----------------------------
AGENT:
CONGRESS FINANCIAL CORPORATION, for
itself and as Agent
By:/s/ Lawrence S. Forte
--------------------------------
Title: First Vice President
-----------------------------
CO-AGENT:
THE CIT GROUP/BUSINESS CREDIT, INC., for
itself and as Co-Agent
By:/s/ Christopher Hill
--------------------------------
Title: Assistant Vice President
-----------------------------
<PAGE>
Exhibit 10.4
AMENDMENT NO. 4 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT dated as of April 30, 1999 by and among Lodestar Energy,
Inc., a Delaware corporation ("Borrower"), Lodestar Holdings, Inc., a
Delaware corporation ("Guarantor"), the financial institutions from time to
time parties to the Loan Agreement (as hereinafter defined) as lenders
(individually, a "Lender" and collectively, the "Lenders"), Congress
Financial Corporation, a Delaware corporation, in its capacity as
administrative agent and collateral agent for the Lenders (in such capacity,
the "Agent") and The CIT Group/Business Credit, Inc., a New York corporation,
in its capacity as co-agent for Lenders (in such capacity, the "Co-Agent").
W I T N E S S E T H
WHEREAS, Agent, Co-Agent, Lenders, Borrower and Guarantor have
entered into financing arrangements pursuant to which Lenders, or Agent on
behalf of Lenders, have made and may make loans and advances and provide
other financial accommodations to Borrower as set forth in the Amended and
Restated Loan and Security Agreement, dated May 15, 1998, by and among Agent,
Co-Agent, Lenders, Borrower and Guarantor, as amended pursuant to Amendment
No. 1 to Amended and Restated Loan and Security Agreement, dated October 22,
1998, Amendment No. 2 to Amended and Restated Loan and Security Agreement,
dated December 21, 1998 and Amendment No. 3 to Amended and Restated Loan and
Security Agreement, dated January 15, 1999 (as amended by this Amendment and
as the same may be further amended, modified, supplemented, extended,
renewed, restated or replaced, the "Loan Agreement") and the agreements,
documents and instruments at any time executed and/or delivered in connection
therewith or related thereto (collectively, together with the Loan Agreement,
the "Financing Agreements");
WHEREAS, Borrower has requested that Lenders and Agent agree to an
amendment to the Loan Agreement;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements and covenants set forth herein, and for other good and valuable
consideration, the adequacy and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. INTERPRETATION. For purposes of this Amendment, all terms used
herein, including but not limited to, those terms used and/or defined in the
recitals hereto shall have the respective meanings assigned thereto in the
Loan Agreement.
2. AMENDMENT.
2.1 RESTRICTED PAYMENTS.
(a) Section 7.7(b)(iii)(C) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
" (C) as of the date of any such payments and after giving effect
thereto, the aggregate amount of all such payments made subsequent to
the date hereof shall not exceed the amount equal to fifty (50%)
percent of: (1) the cumulative Consolidated Net Income of Borrower (or
if cumulative Consolidated Net Income shall be a loss, minus one
hundred (100%) percent of such loss) earned subsequent to the date
hereof and prior to the date the payment occurs (treating such period
as a single accounting period) minus (2) all payments made to Guarantor
by Borrower pursuant to Section 7.7(b)(x) below for federal, state and
local income taxes based on the taxable income of the immediately
preceding fiscal year, and"
(b) Section 7.7(b)(ix) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
<PAGE>
" (ix) Borrower may make payments to Guarantor or to Renco Group
or an affiliate of Renco Group on behalf of Guarantor, itself and its
Subsidiaries pursuant to the tax sharing agreement between Guarantor,
Borrower and its Subsidiaries and Renco Group (as in effect on the date
hereof); provided, that, (A) Borrower, Guarantor and their Subsidiaries
are included in the consolidated federal income tax return filed by
Renco Group as to which Borrower is making such payments for the 1998
tax year or any prior year, or for any taxable period during which
Borrower, Guarantor and their Subsidiaries join with Renco Group or an
affiliate of Renco Group in filing any combined or consolidated (or
similar) state or local income tax return for a jurisdiction which does
not recognize Borrower, Guarantor and their Subsidiaries as a QSSS (as
defined in Section 7.7(b)(x) hereof), (B) the payments in any year
shall not exceed the tax liability that Borrower would have been liable
for if Borrower had filed its tax returns on a stand-alone basis except
that Borrower will not have the benefit of any of its tax loss carry
forwards and any intercompany items shall, for tax liability purposes,
be recorded on a cash basis rather than on an accrual basis, and
(C) such payments shall be made by Borrower no earlier than five
(5) days prior to the date on which Renco Group or an affiliate of
the Renco Group is required to make its payments to the Internal
Revenue Service or a state or local jurisdiction described in
Section 7.7(b)(ix)(A) hereof; and"
(c) The following is hereby added as a new Section 7.7(b)(x) to
the Loan Agreement:
" (x) With respect to any year that Borrower, Guarantor and their
Subsidiaries have effectively been designated as a qualified
Subchapter S subsidiary company ("QSSS") under the Code, Borrower may
pay cash dividends to Guarantor, from legally available funds
therefor, to the extent taxable income of Borrower is required to be
included in the taxable income shown by Renco Group as reported in
its subchapter S tax returns ("Form 1120S"), subject to the
following:
(A) Such cash dividends shall be with respect to any such
period, in an amount up to the product of (1) the taxable income of
Borrower and its Subsidiaries for such period which is the basis for
Renco Group being required to include such taxable income in its Form
1120S, as amended or modified or determined by audit, and the required
estimated taxable income related thereto and the comparable state and
local taxable income reports and estimated taxable income, multiplied
by (2) the corporate Federal, State and local tax rates, whether
calculated on regular taxable income or alternative minimum taxable
income, as applicable, in effect for the taxable period applicable to
Borrower and its Subsidiaries using the rates that would be applicable
if Borrower was not a QSSS and calculated in accordance with the tax
sharing arrangement by and among Guarantor, Borrower and its
Subsidiaries and Renco Group (as in effect on the date hereof),
(B) Borrower may pay such cash dividends to Guarantor with
respect to any such period so long as (1) in such period, Borrower,
Guarantor and their Subsidiaries are effectively designated a QSSS,
(2) the product of the taxable income of Borrower and its
Subsidiaries for such period multiplied by the applicable tax rates
as described above shall be reduced by any applicable tax credits or
deductions calculated in accordance with the tax sharing arrangement
by and among Guarantor, Borrower and its Subsidiaries and Renco
Group (as in effect on the date hereof) available to Borrower and
its Subsidiaries which would reduce the amount of the income taxes
payable by Borrower and its Subsidiaries, (3) any such dividends
shall be paid no more than five (5) days prior to the date that
Renco Group's shareholders are required to make payment of the taxes
based on the taxable income of Borrower and its Subsidiaries,
(4) not less than five (5) days prior to the payment of any such
dividends, Agent shall have received a certificate signed by the
chief financial officer of Borrower, in form and substance
satisfactory to Agent, stating the calculation of the amount which
is the basis for tax distributions permitted hereunder through such
period (if any) and providing full information and computations with
respect thereto and (5) such dividend shall not be in violation of
applicable law or any other agreement to which Borrower is a party
or by which Borrower or its assets are bound, and
(C) In no event shall dividends be paid to Guarantor based on
taxable income of Borrower and its Subsidiaries for jurisdictions
which do not recognize Borrower and its
<PAGE>
Subsidiaries as a QSSS and where (1) Borrower and its Subsidiaries
are required to file and pay their individual taxes, and (2) where
Renco Group is not required to pay, or by virtue of a consolidated
(or similar) return does not make payments in respect of, the tax
liabilities of the Borrower or any of its Subsidiaries in such
jurisdictions;"
2.2 CONSOLIDATED NET WORTH. Sections 7.10(b), (c) and (d) of the
Loan Agreement are hereby deleted in their entirety and the following
substituted therefor:
<TABLE>
<S> <C>
"(b) On and after October 30, 1998 ($56,000,000)
and all times thereafter"
</TABLE>
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lenders and Agent pursuant to the other Financing
Agreements, Borrower hereby represents, warrants and covenants with and to
Lenders and Agent as follows (which representations, warranties and covenants
are continuing and shall survive the execution and delivery hereof and shall
be incorporated into and made a part of the Financing Agreements):
3.1 NO DEFAULT. No Event of Default exists on the date of this
Amendment (after giving effect to the Amendment to the Loan Agreement made by
the Amendment).
3.2 CORPORATE POWER AND AUTHORITY. This Amendment has been duly
executed and delivered by Borrower and is in full force and effect as of the
date hereof and the agreements and obligations of Borrower contained herein
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
4. FEE. In consideration of the Amendment set forth herein,
Borrower shall on the date hereof, pay to Lenders, and Lenders may, at their
option, charge the account of Borrower maintained by Lenders, a fee in the
amount of $25,000, which fee is fully earned and payable as of the date
hereof and shall constitute part of the Obligations.
5. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto,
no other waivers, changes or modifications to the Financing Agreements are
intended or implied, and in all other respects, the Financing Agreements are
hereby specifically ratified, restated and confirmed by all parties hereto as
of the effective date hereof. To the extent of conflict between the terms of
this Amendment and the other Financing Agreements, the terms of this
Amendment shall control.
6. FURTHER ASSURANCES. The parties hereto shall execute and
deliver such additional documents and take such additional actions as may be
necessary to effectuate the provisions and purposes of this Amendment.
7. GOVERNING LAW. The rights and obligations hereunder of each of
the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of New York.
8. BINDING EFFECT. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors
and assigns. Any acknowledgment or consent contained herein shall not be
construed to constitute a consent to any other or further action by Borrower
or to entitle Borrower to any other consent. The Loan Agreement and this
Amendment shall be read and construed as one agreement.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed
by each of the parties thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their authorized officers as of the date and year
first above written.
<PAGE>
Very truly yours,
LODESTAR ENERGY, INC.
By: /s/ Roger Fay
--------------------------------
Title: Vice President
-----------------------------
LODESTAR HOLDINGS, INC.
By: /s/ Roger Fay
--------------------------------
Title: Vice President
-----------------------------
AGENT:
CONGRESS FINANCIAL CORPORATION, for
itself and as Agent
By: /s/ Lawrence S. Forte
------------------------------------
Title: First Vice President
---------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC., for
itself and as Agent
By: /s/ Christopher Hill
------------------------------------
Title: Assistant Vice President
---------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 2,467
<SECURITIES> 0
<RECEIVABLES> 23,391
<ALLOWANCES> 0
<INVENTORY> 20,102
<CURRENT-ASSETS> 49,646
<PP&E> 153,056
<DEPRECIATION> 48,514
<TOTAL-ASSETS> 212,819
<CURRENT-LIABILITIES> 55,260
<BONDS> 158,854
0
0
<COMMON> 1
<OTHER-SE> (45,729)
<TOTAL-LIABILITY-AND-EQUITY> 212,819
<SALES> 47,314
<TOTAL-REVENUES> 47,314
<CGS> 38,707
<TOTAL-COSTS> 48,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,811
<INCOME-PRETAX> (5,705)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,705)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
