<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 January 31, 2000 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.
[ ] Yes [ X ] No
Number of shares outstanding of each of the registrant's classes of common
stock, as of March 16, 2000:
Common stock, $1.00 par value 1000 shares
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
TABLE OF CONTENTS 1
PART I. Financial Information
Item 1 - Financial Statements 2
Consolidated Balance Sheets as of
January 31, 2000 and October 31, 1999 2
Consolidated Statements of Operations for the Three Months Ended
January 31, 2000 and January 31, 1999 3
Consolidated Statements of Cash Flows for the
Three Months Ended January 31, 2000 and January 31, 1999 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 13
PART II. Other Information
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURE 16
</TABLE>
1
<PAGE>
Part I. - Item 1 Financial Statements
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, 2000 October 31, 1999
------------------- -------------------
Assets
<S> <C> <C>
Current assets:
Cash $ 2,981 $ 3,454
Accounts receivable 34,201 39,828
Inventories 16,285 15,780
Prepaid expenses and other 5,161 4,121
------------------- -------------------
Total current assets 58,628 63,183
Property, plant and equipment, net 119,215 109,244
Coal and ash disposal contracts in excess of market, net of accumulated
amortization of $8,340 and $7,685, respectively 38,468 39,123
Other assets 17,325 17,655
------------------- -------------------
$ 233,636 $ 229,205
=================== ===================
Liabilities and Stockholder's Deficit
Current liabilities:
Current installments of long-term obligations (Note 4) $ 32,056 $ 1,033
Accounts payable 41,117 32,052
Accrued expenses 24,743 28,681
------------------- -------------------
Total current liabilities 97,916 61,766
Long-term obligations, excluding current installments 155,824 180,259
Other non-current liabilities 49,123 47,816
------------------- -------------------
Total liabilities 302,863 289,841
------------------- -------------------
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 (73,991) (65,400)
Accumulated other comprehensive loss - minimum pension liability adjustment (237) (237)
------------------- -------------------
Total stockholder's deficit (69,227) (60,636)
Commitments and contingencies
------------------- -------------------
$ 233,636 $ 229,205
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
January 31, 2000 January 31, 1999
------------------ ------------------
<S> <C> <C>
Coal sales and related revenue $ 60,353 $ 57,430
Operating costs:
Cost of revenues 53,555 48,668
Depreciation, depletion and amortization 7,280 6,969
General and administrative 2,532 2,544
------------------ ------------------
63,367 58,181
------------------ ------------------
Operating loss (3,014) (751)
Interest expense, net (5,577) (4,690)
------------------ ------------------
Loss before income taxes
(8,591) (5,441)
Income taxes - -
------------------ ------------------
Net loss $ (8,591) $ (5,441)
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
January 31, 2000 January 31, 1999
-------------------- --------------------
<S> <C> <C>
Net cash provided by (used in) operating activities:
Net loss $ (8,591) $ (5,441)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, depletion, and amortization 7,280 6,969
Loss on sale/disposal of property plant and equipment 37 11
Amortization of deferred financing fees 299 270
Imputed interest 182 114
Changes in operating assets and liabilities:
Accounts receivable 5,627 3,449
Inventories (505) (2,010)
Prepaid expenses and other current assets (1,502) 271
Other assets (83) (1,052)
Accounts payable 9,065 (2,436)
Accrued expenses (4,555) (6,941)
Other non-current liabilities (1,213) (379)
-------------------- --------------------
Net cash provided by (used in) operating activities 6,041 (7,175)
-------------------- --------------------
Cash flows from investing activities:
Payment for acquisitions (4,900) (5,384)
Capital expenditures (7,456) (1,750)
Proceeds from sales of property, plant and equipment - 683
-------------------- --------------------
Net cash used in investing activities (12,356) (6,451)
-------------------- --------------------
Cash flows from financing activities:
Proceeds from supplemental loan 6,700 -
Net reduction in revolving credit facility (565) -
Principal payments on long-term obligations (293) -
-------------------- --------------------
Net cash provided by financing activities 5,842 -
-------------------- --------------------
Net decrease in cash (473) (13,626)
Cash at beginning of year 3,454 14,949
-------------------- --------------------
Cash at end of year $ 2,981 $ 1,323
==================== ====================
Supplemental cash flow disclosures:
Interest paid $ 9,396 $ 8,625
==================== ====================
Debt incurred through acquisition of property, plant and equipment $ 600 $ 5,806
==================== ====================
Other liabilities assumed through acquisition of property, plant and equipment $ 3,100 $ 5,440
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Lodestar Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months ended January 31, 2000 and 1999
(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. Lodestar Holdings, Inc. is a wholly owned
subsidiary of The Renco Group, Inc. (Renco). For tax purposes, Renco is a
Subchapter S Corporation and the Company has been designated a qualified
Subchapter S subsidiary. 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 month period ended January 31, 2000 are not necessarily indicative of
the results to be expected for the full year.
(2) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31, 2000 October 31, 1999
------------------ ------------------
<S> <C> <C>
Coal $ 12,736 $ 12,366
Materials and supplies 3,549 3,414
------------------ ------------------
$ 16,285 $ 15,780
================== ==================
</TABLE>
(3) Acquisition of Assets in November 1999.
On November 12, 1999, Lodestar Energy, Inc. ("Lodestar"), a wholly-owned
subsidiary of the Company, acquired certain mining rights, leases of real
property and equipment in Eastern Kentucky from Quaker Coal Company, Inc.
and affiliates ("Quaker"). The consideration to Quaker was $4.9 million in
cash, a deferred payment obligation of $0.6 million due one year from the
date of the acquisition, and the assumption of certain other liabilities.
This transaction was funded through a supplemental loan under the Company's
$120.0 million senior credit facility (the "Senior Credit Facility"). (See
Note 4). This acquisition provides Lodestar with a surface mining operation
with approximately 15.4 million tons of demonstrated reserves. Lodestar
began production on this property, hereinafter referred to as Bent
Mountain, in December 1999 and expects to generate annual production of
approximately 1.5 million tons.
(4) Amendment to Senior Credit Facility
In order to secure the necessary funds to consummate the Quaker transaction
(See Note 3), Lodestar entered into an amendment to its Senior Credit
Facility providing for a supplemental loan of $6.7 million. This
supplemental loan bears interest at the prime rate plus 0.75% and is
payable in four equal quarterly installments beginning February 1, 2000. In
conjunction with this amendment, the Company, among other things, is now
subject to minimum monthly earnings tests during the remaining life of its
credit facility.
Simultaneous with the amendment, Renco entered into an agreement (the
"Subordinated Loan Letter") with the Company's lenders to provide in
certain circumstances subordinated loans of up to $6.0 million to the
Company should the Company fail to maintain certain financial convenants
required by the current terms of the Senior Credit Facility or should
the Company not meet minimum daily loan availability requirements of
$6.0 million. The proceeds of the subordinated loan must be solely used
to reduce the outstanding borrowings under the Senior Credit Facility
thereby reducing the minimum daily loan availability shortfall, if any,
and in certain cases creating additional availability under the Senior
Credit Facility.
The Senior Credit Facility was further amended in March 2000. In
conjunction with the March amendment, Renco and the lenders agreed that
Renco may at its election provide $5.0 million of cash collateral to the
lenders, in $1.0 million installments from March to July 2000. The
lenders, in turn, will provide additional availability to the Company
equal to the amount of cash collateral provided. The cash collateral
provided will reduce the liability of Renco to make advances under the
Subordinated Loan Letter.
5
<PAGE>
Because the Company failed to meet the minimum monthly earnings test for
the quarter ended January 31, 2000, an event of default occurred. The
lenders agreed to waive the Company's non-compliance with the monthly
earnings test for the period ending January 31, 2000, as well as for the
period ending February 29, 2000, another period that the Company will not
achieve minimum earnings required by the Senior Credit Facility. Based
upon the Company's most recent forecasts, it is expected that permanent
reductions in the minimum earnings requirements as well as revisions in
the Company's minimum net worth requirements will be necessary, possibly
by the end of March 2000, to avoid future non-compliance with the Senior
Credit Facility. Management is making all efforts to work with the lenders
to reach mutually agreeable debt covenant amendments. However, since there
can be no assurance that such covenants can be negotiated, all amounts
outstanding under the Senior Credit Facility have been classified as
current liabilities as of January 31, 2000.
(5) Business
The Company incurred significant net losses and negative cash flows during
fiscal 1999 and 1998. The Company projects ongoing losses in fiscal 2000
with positive cash flow primarily as a result of positive working capital
changes. The amount of the Company's losses has been impacted by generally
unfavorable factors affecting the coal industry in the Eastern United
States, as well as its own specific operational problems, which are in
large part due to its shortage of economically mineable low-sulfur
reserves. During the fiscal year ended October 31, 1999 and including its
Quaker acquisition in November of 1999, the Company expended $16,084 in
cash, has committed $7,851 in debt payments and has assumed short and
long-term obligations of $15,734 in an effort to improve its low-sulfur
reserve base. Approximately 38.5% of the Company's production in fiscal
2000 is expected to be from mining rights which have been acquired since
January 1, 1999.
The Company's continued financial viability is dependent upon its ability
to successfully integrate these newly acquired properties with its existing
operations in a manner which improves operational results and to maintain
adequate levels of liquidity under its Senior Credit Facility until the
necessary operational improvements can be attained. In the event the
Company is unable to improve its operational performance, it will need to
obtain additional financing. (See Note 4).
6
<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 are Lodestar Energy, Inc., Eastern Resources, Inc. and
Industrial Fuels Minerals Company. These subsidiaries have guaranteed the Notes.
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) content and lower in sulfur content and is
marketed in the Eastern, South Central and Great Lakes regions of the United
States. Lodestar's Mountain reserves located in Utah and Colorado, are
super-compliance coal (sulfur dioxide content less than 0.5%) marketed to
regional utilities, as well as in the Midwest and Midsouth utility markets.
Lodestar also owns and operates an ash disposal facility in Eastern Kentucky.
Lodestar's principal source of revenues is from the sale of coal pursuant to
long-term contracts, or through coal sales on the spot market. In addition,
Lodestar derives additional revenue from ancillary services related to its coal
operations, including ash disposal, contract mining, and processing of
third-party coal.
Certain Events and Factors Affecting Profitability
The primary variable factors which affect Lodestar's profitability are: (i)
market conditions; (ii) productivity; (iii) for underground operations, the
ratio of coal available for sale to material extracted (the "salable yield");
(iv) for surface mining operations, the ratio of yards of overburden moved to
tons of coal produced (the "mining ratio"); and (v) the heat and sulfur content
of the coal produced (the "coal quality").
On January 15, 1999, Lodestar acquired 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 $5.4 million in cash paid at
the closing, periodic deferred payments and the assumption of certain
reclamation liabilities from Colonial's prior mining activities. The Company
immediately began mining operations on properties acquired from Colonial,
hereafter referred to as the Tug River operations.
On July 16, 1999, Lodestar acquired certain assets of White Oak Mining and
Construction Company, Inc., Horizon Mining LLC, and Grand Valley Coal Company
("Sellers"), including the White Oak and Horizon Mines in Utah and certain
undeveloped reserves in Colorado. All of the aforementioned mines, hereafter
referred to as the Mountain operations, had been idled by Sellers. The
acquisition of the Mountain operations provides the Company access to coal
reserves, which are lower in sulfur content than its Kentucky reserves, and
which will allow market expansion. The consideration to Sellers was $5.0 million
in cash paid at the closing, assumption of capitalized lease obligations, and
the assumption of certain reclamation and other liabilities associated with
Sellers' prior mining activities. The Company began production at the White Oak
Mine in Utah in August 1999 and at the McClane Canyon mine in Grand Valley,
Colorado, in February 2000. Both mines are underground, single continuous miner
unit operations and on a combined basis upon achieving expected levels of
productivity are capable of generating in excess of 1.5 million tons on an
annual basis.
7
<PAGE>
On November 12, 1999, Lodestar acquired certain mining rights, leases of real
property and equipment in Eastern Kentucky from Quaker Coal Company, Inc. and
affiliates ("Quaker"). The consideration to Quaker was $4.9 million in cash and
a deferred payment of $0.6 million, due one year from the date of the
acquisition. This acquisition provides Lodestar a surface mining operation with
approximately 15.4 million tons of demonstrated reserves. Lodestar began
production on this property, hereinafter referred to as Bent Mountain, in
December 1999 and expects to generate annual production of approximately 1.5
million tons.
Primarily as a result of market conditions, the Smith surface mine in Western
Kentucky, which produced 588,000 tons and 376,000 tons during the twelve month
periods ended October 31, 1997 (the "1997 Period") and 1998 (the "1998 Period"),
respectively, was idled during the Third Quarter of fiscal 1998. Primarily to
efficiently perform its reclamation obligation, mining activity resumed at this
site during the First Quarter of fiscal 2000. This is a contract mining
operation which is expected to produce approximately 500,000 tons annually, and
which requires no capital investment by Lodestar.
During the three months ended January 31, 2000 (the "2000 Period"), and
extending to date into the second quarter of fiscal 2000, Lodestar, as well as
the coal industry operating as a whole, has encountered extremely soft market
demand for coal produced in the Illinois and Appalachian coal basins, partially
as a result of unseasonably mild weather patterns, increased competition from
Western coal sources, increased competition in both import and export arenas, as
well as from customer safety stockpiling in 1999 that occurred in anticipation
of the year 2000 transition ("Y2K"). As a result, Lodestar expects to see
short-term downward pressure on spot market pricing, which may impact operating
results in future periods to the extent that spot market exposure exists. During
the year ended October 31, 1999, 78% of Lodestar's coal shipments were under
long-term contracts and the Company expects to ship 70% of the fiscal 2000
sales under long-term contracts. Primarily, exposure to spot market price
fluctuations exists in the Western Kentucky operation with approximately 2.0
million tons of unsold production projected through the end of the fiscal
year 2000. Current spot market prices in Western Kentucky are approximately
$3.00 to $5.00 per ton below Lodestar's Western Kentucky contract prices.
The cost of workers' compensation and black lung expense is based on historical
claims experience and actuarial studies of workers' compensation and black lung
claims incurred and reported and incurred but not reported. Currently, the U.S.
Department of Labor is considering revised regulations that could alter the
claims process for federal black lung benefit recipients, potentially resulting
in a higher incidence of approval of black lung claims. Furthermore, the
Kentucky legislature is currently considering statutory revisions that could
significantly increase the incidence and recovery amount of both state black
lung and traumatic workers compensation claims. Although the ultimate impact of
these proposed changes can not be determined at this time, regulations which
cause an increase in the approval of black lung or traumatic claims could have a
material adverse effect on the Company's financial position. No additional
adjustment to the reserve has been recorded as of January 31, 2000.
8
<PAGE>
Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------
January 31, 2000 January 31, 1999
------------------------- -------------------------
<S> <C> <C>
Operations and Other Data:
Coal sales and related revenue $ 60,353 $ 57,430
Cost of revenues 53,555 48,668
Depreciation, depletion and amortization 7,280 6,969
Selling, general and administrative 2,532 2,544
------------------------- -------------------------
Operating loss (3,014) (751)
Interest expense, net 5,577 4,690
------------------------- -------------------------
Net loss $ (8,591) $ (5,441)
========================= =========================
EBITDA (1) $ 4,266 $ 6,218
========================= =========================
Other Financial Data:
Net cash provided by (used in) operating activities $ 6,041 $ (7,175)
Net cash used in investing activities $ (12,356) $ (6,451)
Net cash provided by financing activities $ 5,842 $ -
Capital expenditures (2) $ 12,356 $ 7,134
Other Operating Data:
Tons of coal shipped 2,472 2,222
Coal sales and related revenue per ton shipped $ 24.41 $ 25.85
Cost of coal sales and related revenues per ton shipped $ 21.66 $ 21.90
Coal sales revenue per ton shipped $ 23.86 $ 23.38
Cost of coal sales revenues per ton shipped $ 21.49 $ 20.50
</TABLE>
(1) EBITDA represents earnings before net interest expense, other income
(expense), extraordinary items, income taxes and depreciation,
depletion and amortization. The trends of EBITDA generally follow the
trends of operating income. Information regarding EBITDA is presented
because management believes that certain investors use EBITDA as one
measure of an issuer's ability to service its debt. EBITDA should not
be considered an alternative to, or more meaningful than, operating
income, net income or cash flow as defined by generally accepted
accounting principles or as an indicator of an issuer's operating
performance. Furthermore, caution should be used in comparing EBITDA to
similarly titled measures of other companies as the definitions of
these measures may vary.
(2) Capital expenditures for the 2000 Period and the 1999 Period include
$4.9 million and $5.4 million, respectively, in cash payments for
acquisitions.
Production and Revenue Sources:
The following table summarizes the tons shipped by region for the periods
presented:
<TABLE>
<CAPTION>
Three Months ended January 31,
Region 2000 1999
--------------- --------------
<S> <C> <C>
Eastern Kentucky 1,017 918
Western Kentucky 1,140 1,304
Mountain 183 -
Brokered 132 -
--------------- --------------
Total 2,472 2,222
=============== ==============
</TABLE>
9
<PAGE>
Three Months Ended January 31, 2000 Compared to Three Months Ended January 31,
1999
Coal sales and related revenue for the three months ended January 31, 2000 were
$60.4 million, an increase of $2.9 million or 5.1% compared to the three months
ended January 31, 1999 (the "1999 Period"). The $2.9 million increase is
composed of increases of $5.8 million in coal sales revenue as a result of
additional shipped tonnage and $1.2 million resulting from higher coal sales
prices, offset by a decrease of $4.1 million in revenue associated with other
related ancillary services primarily due to the completion of contract mining
activity in Eastern Kentucky during the 1999 Period. Shipped tonnage increased
11.3%, or 250,000 tons, in the 2000 Period as compared to the 1999 Period,
primarily as a result of additional coal production generated from the Mountain
operations and from increased use of brokered coal as a substitute for reduced
coal production from certain higher cost Lodestar operations. Coal sales prices
increased $0.48 per sold ton, or 2%, primarily as a result of the increased
percentage of higher quality Tug River coal in the Eastern Kentucky operations
combined with the decreased percentage of lower quality Smith coal in the
Western Kentucky operations. Tug River and Smith coal shipments were 353,000
tons and zero tons, respectively, in the 2000 Period as compared to zero and
98,000 tons, respectively, in the 1999 Period. The Mountain operation, which
began production in August 1999, shipped 183,000 tons, or 7.4%, of the 2000
Period coal. As the volume of coal shipped from the Mountain operations
continues to increase relative to total shipped tonnage, a lower average
realization for coal sales revenue is anticipated reflecting the inherent coal
basin pricing differences.
Cost of revenues were $53.6 million in the 2000 Period, or $21.66 per sold ton,
as compared to $48.7 million in the 1999 Period, or $21.90 per sold ton, an
increase of $4.9 million or 10%, and a decrease of $0.24 per sold ton. The $4.9
million increase is net of a $2.7 million decrease in cost of revenues primarily
resulting from the completion of contract mining activity during the 1999
Period. The $7.6 million increase in cost of revenues associated with coal
shipments is the result of $5.1 million from increased shipment volume as
discussed above and $2.5 million resulting from higher mining costs in certain
operations. The Eastern Kentucky operation which contributed 41.1% and 41.3% of
coal shipments during the 2000 Period and 1999 Period, respectively, encountered
surface mining ratios of 19.6 for the three months ended January 31, 2000 as
compared to ratios of 17.9 during the three months ended January 31, 1999. This
9.5% increase in mining ratio along with decreased saleable production from the
underground mines, increased cost of revenues for the Eastern Kentucky operation
by $2.05 or 9.3% for the 2000 Period as compared to the 1999 Period. The
Mountain operation experienced adverse geological conditions during the 2000
Period, which delayed attainment of full production capacity and increased
operating costs associated with the ramp-up period. During the 2000 Period, cost
of revenues exceeded coal sales and related revenue by $0.9 million at the
Mountain operation. Cost of revenues decreased by $0.21 per sold ton as compared
to the previous period in the Western Kentucky operation which contributed 46.1%
and 58.7% of coal shipments during the 2000 Period and 1999 Period,
respectively. One factor impacting the Western Kentucky cost of revenues was a
non-recurring adjustment recognized in the 2000 Period reducing transportation
costs by $1.1 million, which was the result of revised mine planning that
extends the expected life of the Baker longwall operation by 14 months. Before
consideration of this adjustment, Western Kentucky cost of revenue per sold ton
was approximately $0.75 higher in the 2000 Period as compared to the 1999 Period
primarily as a result of a 2.79% decreased saleable yield.
Depreciation, depletion, and amortization of $7.3 million for the 2000 Period
increased from the 1999 Period by $0.3 million, or 4.5%. The primary reason for
this increase was additional depreciation, depletion and amortization charges
associated with certain acquired property and mineral reserves that were
actively being mined during the 2000 Period. Adjustments to depreciation,
depletion, and amortization were recorded in the 2000 Period to more
appropriately correlate the remaining economic life of such assets to revised
mine plans which include the expected fourteen month extension of the Baker
mine in Western Kentucky as well as to shorten the lives of assets at certain
higher cost mines in Eastern Kentucky that are scheduled to be idled. As a
result, depreciation was reduced during the 2000 Period by approximately $0.9
million. The annual impact of these adjustments is estimated to be a $3.7
million reduction of depreciation during the 2000 fiscal year.
Selling, general and administrative costs were unchanged at $2.5 million in both
the 2000 Period and the 1999 Period. Increased costs associated with development
of administrative support functions in the Mountain operations and continuing
charges associated with Year 2000 compliance efforts were offset by reductions
in professional fees.
Operating loss for the 2000 Period was $3.0 million as compared to $0.8 million
for the 1999 Period. The $2.2 million increase is the result of a $1.9 million
decrease in gross margin, and a $0.3 million increase in depreciation, depletion
and amortization.
10
<PAGE>
Interest expense, net was $5.6 million for the 2000 Period, an increase of $0.9
million as compared to $4.7 million for the 1999 Period. This is the result of
interest expense associated with increased borrowings on the Company's Senior
Credit Facility and other increased indebtedness relative to acquisitions
occurring since the 1999 Period.
Net loss increased from $5.4 million during the 1999 Period to $8.6 million
during the 2000 Period as a result of the factors described above.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash provided by operating
activities. The Company also has available a $120.0 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. The
Company's liquidity requirements arise from working capital requirements,
capital investments, interest payment obligations, debt service on supplemental
loans outstanding under the Senior Credit Facility and the cost of implementing
its business strategy to grow through strategic acquisitions. As of January 31,
2000, the Senior Credit Facility debt was $30.4 million, and $24.9 million of
letters of credit were outstanding. Based upon eligible collateral as of January
31, 2000, the net unused borrowing and letter of credit availability thereunder
was $4.1 million and $0.6 million, respectively.
Cash provided from the Company's operating activities for the 2000 Period was
$6.0 million, compared to $7.2 million of cash used in the 1999 Period. The $6.0
million of cash provided by operating activities was primarily a result of
working capital changes. The primary components of the working capital changes
were reduced accounts receivable of $5.6 million and an increased level of
accounts payable of $9.1 million as reduced by a decrease in accrued expenses of
$4.5 million. The increased level of payables is the result of approximately
$2.6 million in capital expenditures invoiced but unpaid as of January 31, 2000
as well as a general increased aging of accounts payable. The reduction in
accrued expenses is a factor of the timing of the semi-annual coupon payment,
which was paid on November 15, 1999.
Increasing by $5.9 million, total net cash used in investing activities was
$12.4 million and $6.5 million for the 2000 Period and 1999 Period,
respectively. For the three months ended January 31, 2000, capital expenditures
were $7.5 million as compared to $1.8 million during the 1999 Period. Capital
expenditures in the 2000 Period were abnormally high due to the capitalization
of equipment and development activity occurring both at the Mountain operation
in conjunction with the ramp-up of the White Oak and McClane Canyon mines as
well as in the Eastern Kentucky operation in conjunction with the ramp-up of the
Bent Mountain mine. Additionally, expenditures of $2.5 million for the second of
two new longwall face conveyor systems and $1.5 million for construction of
mainline belting systems occurred at the Western Kentucky Baker mine. The
Company had capital expenditure commitments of approximately $2.6 million at
January 31, 2000 and projects total capital expenditures for fiscal year 2000 to
be between $10.0 million and $12.0 million. Other cash used in investing
activities during the 2000 and 1999 Periods include cash payments of $4.9
million made to the respective sellers in conjunction with the Bent Mountain
acquisition and $5.4 million in conjunction with the Tug River acquisition.
During the 2000 Period, borrowings under the Company's Senior Credit Facility
increased from $24.3 million to $30.4 million and the availability under its
borrowing line decreased from $9.8 million to $4.1 million. Cash provided by
operating activities was not enough to offset the cost of the Bent Mountain
acquisition of $4.9 million, the interest coupon payment of $8.6 million and the
significant first quarter capital expenditures of $7.5 million (of which $2.6
million was unpaid at January 31, 2000). Borrowing availability was temporarily
benefited in November by the supplemental loan as described in detail in Note 4
of the financial statements, however, this loan will result in four $1.675
million quarterly outflows, the first of which was paid on February 1, 2000.
11
<PAGE>
As of March 6, 2000, the Company's availability under its Senior Credit Facility
borrowing line is approximately $1.9 million. Through May 31, 2000, the Company
expects its liquidity to remain under pressure due to the $12.0 million in cash
which will be required to pay outstanding capital obligations, repayments of the
supplemental loan, and the semi-annual interest coupon payment on May 15, 2000.
The Company's lenders have agreed to provide additional availability of up to
$5.0 million as more fully described in Note 4 to the financial statements.
Additionally, it is anticipated that short-term cash obligations will require
management of working capital, most significantly from reduction in coal
inventories. Another potential source of funds to the Company is the pending
resolution of the Cedar Bay litigation. (See "Legal Proceedings").
As more fully described in Note 4 to the consolidated financial statements,
the Company's lenders agreed to waive the event of default which was caused
by the Company's failure to meet minimum monthly earnings tests through the
period ending February 29, 2000. Based upon the Company's most recent
forecasts, it is expected that permanent reductions in the minimum earnings
requirements as well as revisions in the Company's minimum net worth
requirements will be necessary, possibly by the end of March 2000 to avoid
future non-compliance with the Senior Credit Facility. The Company's ability
to meet its future liquidity needs is dependent upon its ability to
successfully renegotiate revised covenants to its Senior Credit Facility or
successfully obtain alternative financing.
The indenture governing the Notes and the Senior Credit Facility contain
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
No operational, financial, or other problems have been encountered in
conjunction with the year 2000 ("Y2K") transition. Total cumulative expenditures
relative to the Y2K effort were approximately $1.0 million.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." This new standard requires recognition of all
derivatives as either assets or liabilities at fair value. The Company does not
believe adoption of the standard will have a material effect on either financial
position or results of operations as it currently possesses no derivative
instruments. The Company plans to adopt the standard effective November 1, 2000,
as required.
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. 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.
12
<PAGE>
Part I. - Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company in the normal course of business, is exposed to inherent market
risks relative to coal prices, which the Company attempts to mitigate through
its portfolio of long-term contracts, which provides stability in pricing for
much of its production.
The Company is exposed to interest rate change market risk with respect to its
borrowings under the Senior Credit Facility (under which the line of credit is
at the prime rate plus 75 basis points), as well as certain other debt and
long-term liabilities, that are recorded at discounted values. Without extreme
interest rate volatility, which has been absent from the current business
environment, fluctuations in interest rates are not expected to have a
significant impact on the Company's operating results.
The Company currently possesses no market sensitive instruments, derivatives or
other financial instruments as defined in S-K Regulation Par. 229.305, nor
participates in any business activity for speculative purposes.
13
<PAGE>
Part II. - Item 1 Legal Proceedings
In October 1999, Lodestar initiated arbitration proceedings against Cedar Bay to
collect approximately $6.0 million in underpayments for coal delivered to Cedar
Bay by Lodestar. Previously, Cedar Bay had been awarded a judgment for
approximately $5.1 million of this amount in its litigation against its customer
Florida Power & Light Company ("FP&L"). (This $5.1 million was part of a larger
judgment and was rendered on what has been referred to as the "energy claim."
See Part 1 - Item 3 Legal Proceedings of the Form 10K for the fiscal year ended
October 31, 1999.) Cedar Bay responded to the arbitration by filing a lawsuit in
the Circuit Court for Duval County, Florida, seeking an injunction to stop the
arbitration proceedings. On December 30, 1999, the court entered an order
enjoining any further arbitration proceedings until FP&L's appeal of Cedar Bay's
aforementioned judgment is final. Lodestar's appeal of that order is pending.
Meanwhile, on March 3, 2000, in a pleading filed in its appeal of the Cedar Bay
judgment, FP&L stated that the energy claim is not at issue on appeal.
Accordingly, Lodestar has filed a motion asking the Duval County Circuit Court
to lift the injunction, allowing Lodestar to proceed with the arbitration. The
management of the Company does not expect the resolution of this legal
proceeding to have a material adverse impact on the results of operations or the
financial condition of the Company.
Lodestar is involved in various other claims and lawsuits incidental to the
ordinary course of its business that are not expected to have a material adverse
effect on the financial condition or results of operations of the Company.
14
<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.
15
<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, principal
financial and accounting officer)
Date: March 16, 2000
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
10 Material Contracts
10.13 Amendment No. 7 dated March 10, 2000, 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
17
<PAGE>
Exhibit 10.13
AMENDMENT NO. 7 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT dated as of March 10, 2000 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 ("Congress"), 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,
Amendment No. 3 to Amended and Restated Loan and Security Agreement, dated
January 13, 1999, Amendment No. 4 to Amended and Restated Loan and Security
Agreement, dated April 30, 1999, Amendment No. 5 to Amended and Restated Loan
and Security Agreement, dated July 16, 1999, Amendment No. 6 to Amended and
Restated Loan and Security Agreement, dated as of November 15, 1999 (and as
further amended hereby 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, The Renco Group, Inc., a New York corporation ("Renco Group") is
pledging certain cash collateral to Agent to secure the obligations of Borrower
to Agent and Lenders pursuant to the Financing Agreements and will from time to
time hereafter pledge further cash collateral to secure such obligations;
WHEREAS, Borrower and Renco Group have requested that Agent and Lenders make
additional loans available to Borrower based on such cash collateral;
WHEREAS, subject to the terms and conditions contained herein, in the Loan
Agreement and in the other Financing Agreements, Agent and Lenders are willing
to make additional loans available to Borrower based on the amount of such cash
collateral from time to time held by Agent in accordance with the terms of the
Renco Group Cash Collateral Agreement (as defined below);
WHEREAS, in connection with such additional loans to be made available to
Borrower, 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. 7" shall mean this Amendment No. 7 to the Amended and
Restated Loan and Security Agreement by and among Borrower, Guarantor, Agent,
Co-Agent and Lenders.
<PAGE>
(b) "Renco Group Cash Collateral" shall mean, at any time and from time to time
the cash collateral delivered in immediately available funds by Renco Group to
and held by Agent to secure the Obligations pursuant to and in accordance with
the terms of the Renco Group Cash Collateral Agreement.
(c) "Renco Group Cash Collateral Agreement" shall mean the Cash Collateral
Pledge Agreement, dated of even date herewith, by Renco Group in favor of Agent,
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(d) "Second Supplemental Loans" shall mean the loans hereafter made by Agent and
Lenders to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2 of this Amendment
No. 7.
(e) "Second Supplemental Loan Limit" shall mean, at any time, the amount equal
to the amount of the Renco Group Cash Collateral then held by Agent (but in no
event shall the amount of the Second Supplemental Loan Limit exceed $5,000,000).
(f) "Second Supplemental Loan Termination Date" shall mean the date that Agent
is not holding any Renco Group Cash Collateral pursuant to and in accordance
with the terms of the Renco Group Cash Collateral Agreement.
1.2 Amendment to Definitions.
(a) All references to the term "Loans" herein and in the Loan Agreement shall be
deemed and each such reference is hereby amended to include, in addition and not
in limitation, the Second Supplemental Loans.
(b) All references to the term "Obligations" herein and in the Loan Agreement
shall be deemed and each such reference is hereby amended to include, in
addition and not in limitation, the Second Supplemental Loans as defined herein.
1.3 Interpretation. For purposes of this Amendment, all terms used herein,
including but not limited to, those terms used and/or defined herein or in the
recitals hereto shall have the respective meanings assigned thereto in the Loan
Agreement.
2. Second Supplemental Loans.
2.1 In addition to the Loans which may be made by Lenders to Borrower pursuant
to Sections 3.1 and 3.2 of the Loan Agreement and the Supplemental Loans which
may be made by Lenders to Borrower pursuant to Section 4.1 of Amendment No. 6,
on or after the date hereof, upon the request of Borrower made at any time after
the date hereof and prior to the Second Supplemental Loan Termination Date, and
subject to and upon the terms and conditions contained herein and in the Loan
Agreement and the other Financing Agreements, Lenders agree to make the Second
Supplemental Loans to Borrower from time to time prior to the Second
Supplemental Loan Termination Date in an amount requested by Borrower, up to the
amount outstanding at any one time equal to the Second Supplemental Loan Limit
as then in effect.
2.2 Except in Agent's discretion, Borrower shall not have any right to request,
and Lenders shall not make, any Second Supplemental Loans in excess of the
Second Supplemental Loan Limit or at any time on or after the Second
Supplemental Loan Termination Date.
2.3 Upon each request for a Second Supplemental Loan, Borrower shall specify in
writing to Agent how much of such Second Supplemental Loan shall be deemed a
Loan for purposes of the Revolving Credit Facility and how much shall be deemed
a Loan for purposes of the Letter of Credit Facility, provided, that, (a) in no
event shall the aggregate amount of the Revolving Loans, plus the Tranche A
Letter of Credit Accommodation, plus such Second Supplemental Loans, at any time
outstanding exceed the Revolving Credit Facility Limit as then in effect and (b)
in no event shall the aggregate amount of the Tranche B Letter of Credit
Accommodations, plus the Supplemental Loans, plus such Second Supplemental
Loans,
2
<PAGE>
at any time outstanding exceed the Letter of Credit Facility Limit as then in
effect. In the event that Borrower does not specify which portion of the Second
Supplemental Loan may be considered part of the Revolving Credit Facility and
which part of the Letter of Credit Facility, Agent shall allocate such Second
Supplemental Loan as it may determine.
2.4 Without limiting any other rights of Agent under the Loan Agreement or
otherwise, Agent may, at its option, (a) treat the portion of the then
outstanding Revolving Loans or Supplemental Loans (subject to allocation between
them as Borrower may specify in accordance with the terms hereof and of the Loan
Agreement and until Agent may receive such allocation from Borrower, then as
Agent may determine) equal to the amount of the Second Supplemental Loan Limit
as Second Supplemental Loans and (b) apply any payments received in respect of
the Obligations first to the Obligations other than those arising pursuant to
the Second Supplemental Loans. The Second Supplemental Loans shall be secured by
all of the Collateral.
2.5 Notwithstanding anything to the contrary contained herein or in the Loan
Agreement or the other Financing Agreements, (a) on each date when any reduction
in the Second Supplemental Loan Limit becomes effective, Borrower agrees
absolutely and unconditionally to automatically and without notice or demand to
make a payment in respect of the Second Supplemental Loans in an amount equal to
the excess, if any, of the aggregate unpaid principal amount of the Second
Supplemental Loans over the Second Supplemental Loan Limit as so reduced, in
immediately available funds and (b) unless sooner demanded by Agent in
accordance with the terms of the Loan Agreement or the other Financing
Agreements, Borrower further agrees that all outstanding and unpaid Obligations
arising pursuant to the Second Supplemental Loans (including without limitation,
principal, interest, fees, costs, expenses and other charges in respect thereof
payable by Borrower to Agent and Lenders) shall automatically, without notice or
demand, be absolutely and unconditionally due and payable and Borrower shall pay
to Agent in immediately available funds all such Obligations on the Second
Supplemental Loan Termination Date. Interest shall accrue and be due, until and
including the next business day, if the amount paid by Borrower to the bank
account designated by Agent for such purpose is received in such bank account
later than 11:00 a.m., New York City time.
2.6 Borrower and Guarantor each acknowledge and agree that, notwithstanding
anything to the contrary contained in the Loan Agreement or the Financing
Agreements, the failure of Borrower to pay such Obligations arising pursuant to
the Second Supplemental Loans on the effective date of any reduction in the
Second Supplemental Loan Limit to the extent set forth in Section 2.5(a) above
or all of such Obligations arising pursuant to the Second Supplemental Loans on
or before the Second Supplemental Loan Termination Date, shall constitute an
Event of Default. Without limiting any other rights of Agent with respect to the
establishment of reserves or otherwise, Borrower acknowledges that Agent may
from time to time, at its option, establish reserves in the amount equal to the
then accrued and unpaid interest in respect of the Second Supplemental Loans.
3. Renco Group Cash Collateral Fee. Notwithstanding anything to the contrary
contained in the Loan Agreement, Agent and Lenders consent to the payment by
Borrower to Renco Group of a monthly fee equal to the amount of the credit by
Agent to the loan account of Borrower maintained by Agent in respect of the
Renco Group Cash Collateral then held by Agent pursuant to the terms of the
Renco Group Cash Collateral Agreement.
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 of Amendment No. 7 and shall be
incorporated into and made a part of the Financing Agreements):
4.1 No Default. No Event of Default exists on the date hereof (after giving
effect to the waiver provided for herein).
4.2 Corporate Power and Authority. This Amendment No. 7 has been duly executed
and delivered by Borrower and Guarantor and is in full force and effect as of
the date hereof and the agreements and obligations of Borrower and Guarantor
contained herein constitute legal, valid and binding obligations of Borrower and
Guarantor enforceable against Borrower and Guarantor in accordance with their
respective terms.
3
<PAGE>
5. Conditions Precedent. The effectiveness of the 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 the Amendment No. 1 to Subordinated Loan Letter, duly authorized, executed
and delivered by Borrower, Guarantor and Renco Group;
5.2 the Renco Group Cash Collateral Agreement by Renco Group in favor of Agent
and Lenders, duly authorized, executed and delivered by Renco Group;
5.3 not less than $1,000,000 of Renco Group Cash Collateral in accordance with
the terms of the Renco Group Cash Collateral Agreement;
5.4 all consents of participants and Lenders required for the amendments
provided for herein;
5.5 evidence that all corporate proceedings with respect to the Cash Collateral
Pledge Agreement and the Amendment No. 1 to Subordinated Loan Letter have been
taken by Renco Group and such agreements are duly authorized, executed and
delivered by Renco Group, including an opinion letter from counsel to Renco
Group; and
5.6 this Amendment No. 7, duly authorized, executed and delivered by Borrower
and Guarantor.
6. Waiver of Event of Default
6.1 Subject to the terms and conditions contained herein, Agent and Lenders
hereby waive any Event of Default arising under the Loan Agreement as a result
of the failure of Borrowers to maintain the EBITDA in the amounts required under
Section 7.25 thereof for the period through February 29, 2000.
6.2 Agent and Lenders have not waived and are not by this Amendment waiving, and
have no present intention of waiving, any other Event of Default, which may have
occurred prior to the date hereof, or may be continuing on the date hereof or
any Event of Default which may occur after the date hereof, whether the same or
similar to the Events of Default described above or otherwise. Agent and Lenders
reserve the right, in their discretion, to exercise any or all of its or their
rights and remedies arising under the Financing Agreements applicable or
otherwise, as a result of any other Events of Default which may have occurred
prior to the date hereof, or are continuing on the date hereof, or any Event of
Default which may occur after the date hereof, whether the same or similar to
the Event of Default described above or otherwise, including any Event of
Default pursuant to the failure of Borrower to comply with Section 7.25 of the
Loan Agreement at any time after February 29, 2000.
7. Fee. In consideration of the amendments provided for in this Amendment No. 7,
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 $30,000, which fee is fully earned
and payable as of the date hereof and shall constitute part of the Obligations.
8. 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 in each case 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).
9. Effect of this Amendment. Except as modified pursuant hereto or as
contemplated herein, 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. The Loan Agreement and this
Amendment No. 7 shall be read and construed as one agreement. To the extent of
conflict between the terms of this Amendment No. 7 and the other Financing
Agreements, the terms of this Amendment No. 7 shall control. Nothing contained
herein shall be construed as a waiver of any existing Event of Default.
4
<PAGE>
10. Further Assurances. The parties hereto shall execute and deliver such
additional documents and take such additional actions as may be reasonably
necessary to effectuate the provisions and purposes of this Amendment No. 7.
11. 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.
12. Binding Effect. This Amendment No. 7 shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
13. Counterparts. This Amendment No. 7 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 No. 7, 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 No. 7 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\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\Robert Strack
-----------------
Title: First Vice President
----------------------
CO-AGENT:
THE CIT GROUP/BUSINESS CREDIT, INC.,
for itself and as Co-Agent
By: \s\ Christopher Hill
----------------------
Title: Vice President
----------------
ACKNOWLEDGED:
THE RENCO GROUP, INC.
5
<PAGE>
By: \s\ Roger Fay
---------------
Title: Vice President
----------------
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 2,981
<SECURITIES> 0
<RECEIVABLES> 34,201
<ALLOWANCES> 0
<INVENTORY> 16,285
<CURRENT-ASSETS> 58,628
<PP&E> 189,465
<DEPRECIATION> 70,250
<TOTAL-ASSETS> 233,636
<CURRENT-LIABILITIES> 97,916
<BONDS> 155,824
0
0
<COMMON> 1
<OTHER-SE> (69,228)
<TOTAL-LIABILITY-AND-EQUITY> 233,636
<SALES> 60,353
<TOTAL-REVENUES> 60,363
<CGS> 53,555
<TOTAL-COSTS> 63,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,577
<INCOME-PRETAX> (8,591)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,591)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
