<PAGE>
As filed with the Securities and Exchange Commission on February 5, 1999
Registration No. 333-68987
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________
CONSOL ENERGY INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 1222 51-0337383
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
___________________
CONSOL ENERGY INC.
300 DELAWARE AVENUE, SUITE 567
WILMINGTON, DELAWARE 19801-1622
TELEPHONE: (302) 477-1260
(Address, including zip code, and telephone number of Registrant's principal
executive offices)
___________________
DANIEL L. FASSIO, ESQ.
C/O CONSOL INC.
CONSOL PLAZA, 1800 WASHINGTON ROAD
PITTSBURGH, PENNSYLVANIA 15241
TELEPHONE: (412) 831-4000
(Name, address, including zip code, and telephone number of agent for service)
___________________
Copies to:
STEVEN L. WASSERMAN, ESQ. RICHARD J. SANDLER, ESQ.
THELEN REID & PRIEST LLP DAVIS POLK & WARDWELL
40 WEST 57TH STREET 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017
TELEPHONE: (212) 603-2000 TELEPHONE: (212) 450-4000
___________________
Approximate date of commencement of proposed sale of the securities to the
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
___________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT PRICE(1) REGISTRATION FEE(1)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE 25,990,000 $21.00 $545,790,000 $151,729.62
====================================================================================================================================
</TABLE>
(1) The filing fee has been calculated pursuant to Rule 457(o) promulgated under
the Securities Act of 1933. Includes $2,780 previously paid. The Registrant
hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS SUBJECT TO COMPLETION
DATED FEBRUARY 5, 1999
22,600,000 Shares
CONSOL ENERGY INC. [Logo]
Common Stock
CONSOL Energy Inc. is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our common stock. We
estimate that the initial public offering price will be between $18 and $21 per
share.
We will apply to list the common stock on the New York Stock Exchange under the
symbol "CNX".
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS CONSOL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOL has granted the underwriters the right to purchase up to an additional
3,390,000 shares of common stock to cover over-allotments.
It is expected that delivery of the shares will be made to investors on or about
, 1999.
J. P. MORGAN & CO. MERRILL LYNCH & CO.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary............................................................................................ 3
Risk Factors.................................................................................................. 12
Use of Proceeds............................................................................................... 21
Dividend Policy............................................................................................... 21
Capitalization................................................................................................ 22
Selected Consolidated Financial and Operating Data............................................................ 23
Management's Discussion and Analysis of
Results of Operations and Financial Condition........................................................... 26
Coal Industry Overview........................................................................................ 37
Business...................................................................................................... 47
Regulation.................................................................................................... 67
Management.................................................................................................... 73
Certain Relationships and Related Party Transactions.......................................................... 82
Principal Stockholders........................................................................................ 84
Shares Eligible for Future Sale............................................................................... 85
Description of Capital Stock.................................................................................. 86
Tax Considerations............................................................................................ 88
Underwriting.................................................................................................. 91
Legal Matters................................................................................................. 93
Experts....................................................................................................... 93
Glossary...................................................................................................... 94
</TABLE>
In deciding whether to buy our common stock, you should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information different from that contained in this prospectus.
We are offering to sell, and seeking offers to buy, shares of common stock only
in jurisdictions where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
common stock.
Until , 1999, all dealers that buy, sell or trade common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
This section summarizes certain information about CONSOL Energy Inc. You should
refer to the more detailed information about us contained elsewhere in this
prospectus, including the Consolidated Financial Statements and the related
notes thereto. All references to "tons" are references to short tons. For
definitions of certain coal-related terms, see "Glossary" at page 94. The market
data presented in this prospectus are based upon our management's estimates,
using various third-party sources where available. Unless otherwise indicated,
(1) the information set forth in this prospectus assumes an initial public
offering price of $19.50 per share of common stock and no exercise of the
underwriters' over-allotment option and (2) all share and per share data give
effect to an approximate 1,088-for-one stock split effective on , 1999.
CONSOL ENERGY
We rank among the largest coal companies in the United States based upon total
revenue, net income and operating cash flow. We produced 73 million tons of coal
during 1997. Our production accounted for 7% of the total tons produced in the
United States and 12% of the total tons produced in the eastern United States in
1997. We are one of America's premier coal companies by several measures:
. We mined more high-Btu bituminous coal than any other U.S. producer in
1997.
. We are the largest coal producer east of the Mississippi River.
. We are the largest U.S. producer of coal from underground mines.
. We export more coal from the United States than any other coal
producer or trading company.
. We have the second largest coal reserves among U.S. coal producers.
Our consistent financial performance has enabled us to establish a strong
history of cash generation and dividend payments.
PRINCIPAL MARKETS
Coal is an important source of energy for power generators in the United States.
Coal-fired plants produced 57% of the country's electricity in 1997. In 1997, we
sold 68% of our coal to U.S. electricity generators, most of which were located
east of the Mississippi River. More than two-thirds of the country's capacity
for generating electricity using coal is located east of the Mississippi River.
We can sell coal to these customers at a low delivered cost because of the
following factors:
. Our mines are located close to eastern generating plants.
. Our mines are located on or near the inland waterway system and the
major coal hauling railroads in the eastern United States. This
reduces our customers' cost of transporting coal.
. We are able to use highly productive mining techniques because we have
favorable geologic conditions for mining.
DEMAND FOR CONSOL'S COALS
We believe that eastern, high-Btu coal will continue to be a valued source of
energy and that demand for such coal will continue to grow for the following
reasons.
3
<PAGE>
. The electric utility industry soon will be deregulated in the United
States which should increase competition and influence power companies
to seek the lowest cost fuel for their generating plants. Fuel costs
represent up to 78% of the variable cost of generating electricity at
power plants that burn fossil fuels. Coal is the lowest cost fuel
available to most electricity generators.
. Electricity demand will grow as the economy grows. Generators of
electricity can increase existing capacity at their plants by burning
high-Btu coal. According to RDI, a coal industry consultant, in the
aggregate, domestic coal-fired generating plants currently run at 65%
capacity utilization. The optimal sustainable capacity utilization is
85% for a typical plant, although many can run at higher rates for
short periods of time. Electricity generators that burn coal will seek
to meet increased electricity demand by using the available capacity
of their existing power plants rather than building new power plants.
Expanding capacity at existing power plants using coal makes economic
sense if the price of electricity exceeds variable costs. However, a
new plant would be built only if the price of electricity is expected
to cover all costs, including capital costs.
. A significant portion of the generating plants that use nuclear fuel
is likely to be retired during the next 15 years because the operating
licenses for many plants will expire. We believe that it is likely
that licenses will not be renewed or costly requirements will be
imposed as a condition to renewal. Although natural gas will replace
some of this capacity, we believe that coal also will be used to
replace retired nuclear capacity. Coal producers that can reduce
mining costs and which have access to low-cost transportation should
be well positioned to increase their share of the market.
The Clean Air Act regulates the emission of sulfur dioxide and oxides of
nitrogen from coal combustion. This has led electric utilities to retrofit
generating plants with scrubbers, purchase emission allowances or burn
low-sulfur coal. To the extent that the cost of environmental control technology
continues to decline and environmental regulations tighten, we expect more
electricity generators that use coal to install scrubbers. As scrubbing
increases at existing generating plants, we believe that high- and medium-sulfur
coals with low delivered costs and high-Btu content will become increasingly
attractive to electricity generators because the cost of operating the scrubber
is typically less than 10% of variable costs. We believe that high-Btu content
is an important advantage because it lowers the delivered energy cost of the
coal. Transportation costs are based on tons and not heat content or heat
content per ton. As a result, higher Btu coals can have an inherent
transportation cost advantage, which lowers the delivered cost on a heat content
or energy content basis.
We believe that once a scrubber is built, it can offer economic advantages
because of its relatively low operating costs, combined with the lower fuel
costs that higher sulfur, higher Btu coal can offer at many plants. We already
ship 65% of our high-sulfur coal product to scrubbed generating plants. The
retrofitting of additional generating plants with scrubbers would be an
advantage to us because we have large reserves of coal with a high-Btu
content.
The advantage of retrofitting scrubbers to generating plants should become
apparent as the current bank of sulfur dioxide emission allowances declines and
the more restrictive phase of the Clean Air Act becomes effective in 2000. A
sulfur dioxide emission allowance is an authorization under the Clean Air Act
for a power generating plant to emit one ton of sulfur dioxide. RDI recently
forecast that by 2015 the owners of plants with up to 80,000 megawatts of
existing coal-fired capacity may invest in scrubbers to comply with the new
environmental regulations. The majority of these plants are located east of the
Mississippi River. We believe that we are well positioned to benefit from these
developments. Increased investment in scrubbers may result from the ownership of
generating plants by independent power producers as a result of the deregulation
of the electricity generating industry. For example, in August 1998, Mission
Energy announced its intention to acquire a large generating station in central
Pennsylvania, Homer City, and to install a scrubber and other environmental
control technologies. Mission Energy has stated publicly that its strategy is to
continue to use high-Btu coal from Pennsylvania in order to maintain its
position as a low-cost producer of electricity.
COAL RESERVES AND MINING OPERATIONS
At December 31, 1997, we had 4.8 billion tons of proved and probable coal
reserves. Our reserves are located in northern Appalachia (52%), central
Appalachia (13%), the midwest (21%) and the western United States and Canada
(14%). Approximately 65% of our coal reserves consist of high-Btu coal, which is
favored by many
4
<PAGE>
power generators. In 1998, CONSOL produced 31.8 million tons of high-sulfur
coal, or 42% of our total production, and 33.7 million tons of low-and medium
sulfur coal, or 44% of our total production. In addition we produced 10.5
million tons of metallurgical grade tons, or 14% of our total 1998 production.
Approximately 77% of our coal reserves consist of high- and medium-sulfur coal
and 23% consist of low-sulfur coal. The size, quality and strategic location of
our reserves allow for the cost-effective expansion of many of our existing
mines and for new mine development.
We currently operate 25 mining complexes. We lead the U.S. coal industry in
using longwall systems. Longwall systems are a mechanized, high-extraction
method of underground mining. We use these systems at 14 of our mines. Mines
with longwall systems accounted for 84% of the coal we mined in 1997. We are
able to expand production at longwall mines at very low incremental cost. Our
ability to source coal from our multiple longwall mines provides us with great
flexibility in meeting customer fuel requirements.
STRATEGY
Our objective is to maintain and enhance our position as one of the premier coal
companies in the United States based on our financial strength, operating
capability and reserve position. We believe that we are well-positioned to grow
faster than the industry by reason of our low-cost structure and strong
financial position. Our strategy for achieving long-term growth does not depend
on either the construction of new coal combustion facilities or on high overall
growth in coal demand. Instead, we believe that most growth in demand for coal
will come from the expansion and increased use of existing power generating
facilities. We further believe that there will be a growing demand from
electricity generators for high-Btu fuels available at low delivered cost and
that the sulfur content of coal will not be the principal quality determining
coal demand within many markets. Our strategy reflects our belief that delivered
cost and Btu content will be the chief determinants of coal demand in these
markets. Accordingly, we believe that coal produced in the eastern United States
will continue to be an attractive fuel for electricity producers. Other markets
will continue to expand for lower Btu, low-sulfur coals as well, and we may make
acquisitions to participate in those markets.
Specifically, we will implement our strategy by:
. strengthening our core operating position in northern Appalachia by
continuing to make productivity improvements and by expanding the low-
cost production capacity of existing mines at low incremental
costs;
. developing new mining complexes in locations with reserves controlled
by us where price levels or volume demand would generate attractive
returns and where we can achieve low mining costs;
. making large-scale acquisitions, both in the United States and abroad,
that will enable us to bring our mining expertise to coal markets
where we do not have an existing presence; and
. making opportunistic acquisitions in our existing markets that will
enable us to leverage our existing infrastructure and operations. For
example, we recently acquired the Rochester & Pittsburgh Coal Company
and the Vesta coal reserves in southwestern Pennsylvania. These
acquisitions have strengthened our position in northern Appalachia.
COMPETITIVE STRENGTHS
STRONG FINANCIAL PERFORMANCE
We are one of the most profitable coal companies in the United States and have
shown strong net income growth and cash flow generation.
. Net income has grown since 1994 at a compound annual growth rate of
11% and reached $184 million in 1997. Growth has been in large measure
based on the ability to expand production and improve productivity at
existing mining complexes.
5
<PAGE>
. Net cash provided by operating activities has averaged $361 million
per year since 1994, more than double capital expenditures, which
averaged $173 million per year for the same period. During the same
period, we paid $700 million in dividends, including an extraordinary
dividend of $380 million in 1997, while reducing borrowings by $33
million.
. We have investment-grade debt ratings.
We believe that our financial strength will enable us to be a major
consolidating force in the coal industry. The top ten coal producers have
increased their share of production from 40% in 1990 to 54% in 1997, primarily
by acquiring other producers.
EXPERIENCE IN ACQUIRING AND INTEGRATING COAL PROPERTIES
Since 1990, we have acquired and successfully integrated the Rochester &
Pittsburgh Coal Company, Island Creek Coal Company from Occidental Petroleum,
Kentucky Criterion (now called Mill Creek) from Westmoreland Coal Company,
Greene Hill Coal Company properties from Pennsylvania Power and Light and the
Vesta coal reserves from A.T. Massey Coal Company.
PRODUCTIVITY LEADERSHIP
We have maintained our strong financial performance despite generally lower coal
prices by increasing productivity and reducing unit costs.
. From 1994 to 1997, we maintained annual coal production at
approximately 72 million tons while reducing our workforce by
approximately 20% and reducing the number of mining complexes that we
operate from 30 to 24. Consistent improvement in mine productivity
reflects investment in capital improvements, including deployment of
longwall mining systems, expertise in operations and favorable
geologic conditions.
. Between 1990 and 1996, we achieved a compound annual growth rate in
productivity at our underground mines (measured in tons per manday) of
8.4% compared with a growth rate for the industry for underground
mines of 6.5%. As a result, we reduced costs per ton of coal mined by
9.9% during the period.
. In 1997, our productivity increased by 11.3%.
We operate 25% of the longwall mining systems in the United States. Because of
the high production levels of these mining systems, we operate seven of the 20
largest mines east of the Mississippi River, measured by tons of coal produced
in 1997. These mines have high productivity and low variable cost structures.
Our extensive reserve base supports the expansion and life extension of existing
mines. Expansion of production at our longwall mines can be achieved at low
incremental cost because they are close to our reserves and are highly
mechanized operations. This is in contrast to many other producers with higher
cost structures and less extensive reserves, particularly certain companies
dependent on operations in central Appalachia.
HIGH-QUALITY, STRATEGICALLY LOCATED RESERVE BASE
Our northern Appalachian reserves accounted for 52% of our total reserves at
year-end 1997. These reserves are near many coal users in the United States,
particularly generators of electricity, and are served by major
coal-transporting railroads and low-cost river transportation. Mining from these
reserves accounted for 68% of our production in 1997.
Fifty-two percent of our reserve base is ranked as high-Btu and high-sulfur. The
high energy content of our coals benefits customers because they can produce
more electricity per pound of coal than with lower Btu fuels. However, the
sulfur content of the fuel creates combustion emissions which, by law, must be
controlled. During the past two decades, air quality laws have created some
market advantages for lower sulfur coals by imposing restrictions on
sulfur-dioxide emissions. These usually require high-sulfur coal users to switch
to lower sulfur coals, install scrubbers or, in more recent years, to buy
pollution allowances. Nevertheless, our
6
<PAGE>
high-sulfur coal remains competitive because of our transportation advantage and
generally higher Btu content. In addition, we have maintained our margins by
progressively reducing unit costs and increasing mine productivity. Further, we
believe as more generating plants are retrofitted with scrubbers, the high-Btu
content of our coals will become more desirable to electricity generators.
EXPERIENCED MANAGEMENT TEAM
Our management team is one of the most experienced in the coal industry with an
average of over 24 years of coal industry experience. The management team has
demonstrated its ability to streamline operations and reduce costs. Management
has successfully expanded existing mines, built new mines and acquired
additional operations leading to an increase in our production, productivity and
earnings.
RESEARCH AND DEVELOPMENT CAPABILITIES
We operate the largest private research and development facility in the United
States devoted to the mining and use of coal. Our Research and Development
Department has pioneered several major technical developments in mining
technology. We also are in the forefront of U.S. coal companies in solving
coal-combustion and other challenges for customers which enables us to create
new business opportunities.
The Research and Development Department also works to improve the effectiveness
and the cost of pollution-control technologies. Our facilities and staff,
including 100 scientists and engineers, provide both testing and
field-diagnostic service to customers and potential customers.
BROAD, DIVERSE CUSTOMER BASE
We currently sell coal to more than 160 different customers, including
financially strong domestic utilities. Our three largest customers are Allegheny
Energy, Pennsylvania Power Company and Detroit Edison. During 1998, we will sell
about 61% of our production under contracts with terms exceeding one year. These
contract customers represent a base of nearly 60 companies, both domestic and
foreign, including generators of electricity, steel mills, heavy manufacturers,
chemical plants, cement plants and paper manufacturers.
EXECUTIVE OFFICES
Our principal executive office is located at 300 Delaware Avenue, Suite 567,
Wilmington, Delaware 19801. Our telephone number is (302) 477-1260.
7
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered......................... 22,600,000 shares of our common stock(1)
Common Stock Outstanding After
this Offering............................... 80,267,558 shares of our common stock(1)(2)
Use of Proceeds............................. We estimate that we will receive net proceeds of approximately $417 million (or
$480 million if the underwriters exercise their over-allotment option in full).
We anticipate using these proceeds to repay a portion of $600 million of
commercial paper issued by us in order to finance the acquisition of the
Rochester & Pittsburgh Coal Company, the payment of dividends during 1998 and
the repurchase of common stock. See "Use of Proceeds."
Dividends................................... The Board of Directors currently intends to pay quarterly dividends on our
common stock. We expect the first quarterly dividend to be $.27 per share (a
rate of $1.08 per share annually) to be paid in the third quarter of 1999. See
"Dividend Policy."
Proposed New York Stock Exchange Trading
Symbol for Common
Stock........................................ "CNX"
</TABLE>
___________________________________
(1)This number excludes up to 3,390,000 shares of common stock subject to an
over-allotment option granted by us to the underwriters.
(2)This number excludes shares issuable upon exercise of options to be granted
under our 1999 Equity Incentive Plan upon consummation of this offering, which
will have exercise prices at or above the initial public offering price. It also
excludes an additional shares of common stock reserved for future issuance under
the plan.
8
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table provides summary financial and operating data of CONSOL
Energy for the periods indicated. We have derived the summary financial data for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 from our
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. You may read the report of Ernst & Young LLP elsewhere in
this prospectus with respect to the financial statements at December 31, 1996
and 1997 and for the years ended December 31, 1995, 1996 and 1997. We have
derived the summary financial data for the nine months ended September 30, 1997
and 1998 and at September 30, 1998 from our unaudited interim financial
statements included elsewhere in this prospectus which, in our opinion, include
all adjustments necessary for the fair presentation of such data for the
unaudited interim periods. The results of operations for the nine months ended
September 30, 1998 do not necessarily indicate what the results of operations
will be for the entire year ending December 31, 1998. After this offering, we
expect to change our fiscal year from a calendar year to a year ending on June
30. We will have a transitional fiscal period ending June 30, 1999. Our first
full fiscal year ending June 30 will be the year that starts July 1, 1999 and
ends June 30, 2000. You should read the information in the following tables in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the Consolidated Financial Statements, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------------------------------- -------------------------
1993(1) 1994 1995 1996 1997 1997 1998
------------ ------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands,
except per share data
STATEMENT OF INCOME DATA
Revenue
Sales(2).......... $ 1,730,209 $ 2,326,104 $ 2,269,211 $ 2,336,014 $ 2,285,197 $ 1,684,523 $ 1,680,063
Other income...... 55,743 86,377 45,024 60,940 64,441 50,968 37,450
------------ ------------ ----------- ----------- ---------- ----------- -----------
Total revenue.. 1,785,952 2,412,481 2,314,235 2,396,954 2,349,638 1,735,491 1,717,513
Costs
Costs of goods
sold and other
operating charges 1,490,869 1,703,678 1,600,271 1,687,836 1,592,489 1,189,645 1,157,674
Selling, general
and
administrative
expense......... 50,338 53,546 53,537 53,354 55,353 41,109 40,689
Depreciation,
depletion and
amortization.... 231,655 265,262 253,113 235,159 233,304 171,353 175,575
Interest expense.. 41,770 50,678 53,915 44,510 45,876 34,468 32,496
Taxes other than
income.......... 144,776 204,356 200,605 187,396 188,940 143,208 147,951
------------ ------------ ----------- ----------- ---------- ----------- -----------
Total costs.... 1,959,408 2,277,520 2,161,441 2,208,255 2,115,962 1,579,783 1,554,385
------------ ------------ ----------- ----------- ---------- ----------- -----------
Earnings (loss)
before income taxes (173,456) 134,961 152,794 188,699 233,676 155,708 163,128
Income taxes........ (84,645) 380 22,744 35,970 49,887 35,824 38,431
------------ ------------ ----------- ----------- ---------- ----------- -----------
Net income (loss)... $ (88,811)(3) $ 134,581 $ 130,050 $ 152,729 $ 183,789 $ 119,884 $ 124,697
============ ============ =========== =========== ========== =========== ===========
Pro forma net
income(4)......... - - - - $ 169,751 - $ 122,543
========== ===========
Pro forma net income
per share(5)...... - - - - $ 2.11 - $ 1.53
========== ===========
Pro forma weighted
average number of
common shares
outstanding(5).... - - - - 80,267,559 - 80,267,559
========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
AT DECEMBER 31, AT SEPTEMBER 30, 1998
-------------------------------------------------------- ------------------------------------------
PRO PRO FORMA AS
1993 1994 1995 1996 1997 ACTUAL FORMA(6) ADJUSTED(7)
---------- ---------- ---------- ---------- ---------- --------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA
Working capital........ $ 75,368 $ 208,079 $ 277,678 $ 358,030 $ 77,313 $ (77,615) $ (657,615) $ (240,615)
Total assets .......... 3,664,762 3,952,988 3,871,978 3,857,508 3,548,011 3,989,229 3,989,229 3,989,229
Short-term debt........ 0 132,567 78,166 46,378 55,051 105,476 685,476 268,476
Long-term debt
(including current
portion)............. 435,316 450,332 442,385 449,170 397,275 430,427 430,427 430,427
Total deferred credits
and other liabilities 2,399,378 2,413,510 2,325,262 2,315,397 2,262,702 2,466,108 2,466,108 2,466,108
Stockholders' equity .. 401,616 456,197 506,247 578,976 302,765 427,462 (152,538) 264,462
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- ---------------------------
1993(1) 1994 1995 1996 1997 1997 1998
------ ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA
Tons sold (in
thousands)(8)............ 52,072 74,199 72,741 77,000 75,170 55,302 56,417
Tons produced (in
thousands)............... 45,646 72,140 71,324 71,411 72,505 53,754 54,860
Productivity (tons
per manday).............. 28.35 29.60 31.22 34.57 38.46 37.34 39.99
Average production
cost ($ per ton
produced)................ $26.22 $22.91 $22.31 $21.87 $21.05 $21.33 $21.34
Average sales price
of tons produced ($ per
ton produced)............ $28.36 $27.32 $26.61 $26.29 $26.49 $26.41 $26.59
Coal reserves
(tons in millions)(9) 5,176 4,956 5,072 5,063 4,776 5,009 4,847
Number of mining
complexes (at period
end)..................... 31 30 26 26 24 24 27(10)
Number of employees
(at period end).......... 10,036 9,739 8,743 8,206 7,711 7,852 8,716
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------------------------------------------
1993(1) 1994 1995 1996 1997 1997 1998
---------------- ------------ ------------ ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands
OTHER FINANCIAL DATA
Capital expenditures $ 138,124 $ 144,438 $ 179,022 $ 169,367 $ 200,617 $ 135,330 $ 188,624
EBIT(11)........... (135,033) 167,668 188,715 212,708 256,934 171,341 187,547
EBITDA(11)......... 96,622 432,930 441,828 447,867 490,238 342,694 363,122
Net cash provided by
operating
activities......... 261,182 344,629 298,290 372,582 427,913 243,265 262,517
Net cash provided by
(used in) investing
activities....... (231,441) (357,153) (160,856) (251,236) 52,243 (74,850) (233,424)
Net cash provided by
(used in) financing
activities....... (67,074) 50,418 (140,805) (119,254) (501,354) (87,356) (9,955)
</TABLE>
_______________________________
(1)Results of operations for 1993 reflect the adverse effects of the ten-month
strike by employees represented by the United Mine Workers of America in
connection with the renegotiation of the National Bituminous Wage Agreement
which expired on February 1, 1993. See "Risk Factors--Union Represented Labor
Force" and "Business--Employees and Labor Relations."
(2)Includes sales of Fairmont Supply Company, other than to CONSOL, of $157
million in 1993, $179 million in 1994, $212 million in 1995, $203 million in
1996, and $217 million in 1997, and $161 million in the first nine months of
1997 and $132 million in the first nine months of 1998. Fairmont Supply Company
is a wholly owned subsidiary of CONSOL that distributes mining and industrial
supplies.
10
<PAGE>
(3) Excludes cumulative effect of change in accounting principle. In 1993, we
changed accounting methods of accruing provisions for coal workers'
pneumoconiosis and workers' compensation. These changes were the result of a
reevaluation of measurement methods in light of the issuance of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). We recorded income classified as a
cumulative effect of accounting change of $46.3 million representing income of
$70.3 million (net of contract deferrals of $67.0 million and income taxes of
$47.2 million) for the change in accounting for coal workers' pneumoconiosis,
and a charge of $23.9 million (net of income taxes of $16.1 million) for the
change in accounting for workers' compensation.
(4) Pro forma net income assumes (A) payment of the extraordinary dividend in
1997 and the purchase of stock from DuPont Energy in 1998 as if they had
occurred at the beginning of each period presented and were funded by the
reduction of marketable securities and the issuance of commercial paper and (B)
the application of the net proceeds from the offering.
(5) Pro forma net income per share and pro forma weighted average number of
common shares outstanding assumes the stock split, the purchase of shares of
common stock from DuPont Energy and the issuance of shares of common stock in
the offering.
(6) Gives effect to the purchase by us of shares of our common stock owned by
DuPont Energy and the payment of dividends in 1998 and related borrowings
incurred to finance the purchase and dividend. See "Certain Relationships and
Related Party Transactions."
(7) Gives effect to the receipt and application by us of an estimated $417
million in net proceeds from the offering. See "Use of Proceeds."
(8) Includes sales of coal produced by us and purchased from third parties. We
sold 3.3 million, 3.5 million, 2.7 million, 3.2 million, 3.1 million, 2.2
million and 2.1 million tons of coal that we purchased from third parties during
1993, 1994, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and
1998, respectively.
(9) Represents proved and probable reserves at period end. See "Business?Coal
Reserves" and "Glossary."
(10) In November 1998, we exchanged two mining complexes, Holden and Twin
Branch, with A.T. Massey Coal Company for the Vesta coal reserves located in
southwestern Pennsylvania.
(11) EBIT is defined as earnings, before cumulative effective of accounting
changes, before deducting net interest expense (interest expense less interest
income) and income taxes. EBITDA is defined as earnings, before cumulative
effect of accounting changes, before deducting net interest expense (interest
expense less interest income), income taxes and depreciation, depletion and
amortization. Although EBIT and EBITDA are not measures of performance
calculated in accordance with generally accepted accounting principles,
management believes that they are useful to an investor in evaluating CONSOL
Energy because they are widely used in the coal industry as measures to evaluate
a company's operating performance before debt expense and its cash flow. EBIT
and EBITDA do not purport to represent cash generated by operating activities
and should not be considered in isolation or as a substitute for measures of
performance in accordance with generally accepted accounting principles. In
addition, because EBIT and EBITDA are not calculated identically by all
companies, the presentation here may not be comparable to other similarly titled
measures of other companies. Management's discretionary use of funds depicted by
EBIT and EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties.
11
<PAGE>
RISK FACTORS
You should consider the following factors and the other information in this
prospectus before deciding to invest in the common stock.
THE COAL INDUSTRY IS HIGHLY COMPETITIVE
We sell coal in markets that are highly competitive and affected by factors
beyond our control. We compete with coal producers in various regions of the
United States for domestic sales, and we compete both with domestic and overseas
producers for sales to international markets. Continued demand for our coal and
the prices that we will be able to obtain primarily will depend upon coal
consumption patterns of the domestic electric utility industry. Consumption by
the domestic utility industry is affected by the demand for electricity,
environmental and other governmental regulations, technological developments and
the price of competing coal and alternative fuel supplies including nuclear,
natural gas, oil or renewable energy sources, including hydroelectric power. We
also sell coal to overseas utilities and to the more specialized metallurgical
coal market which is significantly affected by both international demand and
competition. See "Business--Competition."
SIGNIFICANT DECLINES IN COAL PRICES COULD ADVERSELY AFFECT US
Our results of operations are highly dependent upon the prices received for our
coal. Any significant decline in prices for coal could have a material adverse
effect on our business, financial condition, results of operations and
quantities of reserves recoverable on an economic basis. If the industry
experiences significant price declines from current levels or other adverse
market conditions, we may not be able to generate sufficient cash flow from
operations to meet our obligations, including debt service obligations, make
planned capital expenditures and pay dividends. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
WE DEPEND ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES
During 1997, we derived 23% of our total revenue from sales to our two largest
customers, Allegheny Energy and a consortium of utility companies, including
Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison
Company, Pennsylvania Power Company and The Toledo Edison Company, referred to
as the CAPCO companies. Allegheny Energy alone accounted for more than 10% of
our total revenues during 1997. We currently have five contracts with Allegheny
Energy and one with CAPCO. The CAPCO contract expires December 31, 1999. Our
contracts with Allegheny Energy expire in 2001, 2002, 2004 and 2005. We have
engaged in discussions with both customers to either extend existing long-term
contracts or enter into new contracts. There can be no assurance that these
customers either will extend or enter into new long-term contracts or, in the
absence of long-term contracts, that they will continue to purchase the same
amount of coal as they have in the past or on terms, including pricing terms, as
favorable to us as under existing agreements. Based on current market
conditions, we anticipate that the contract expiring in 1999, if renegotiated,
would provide for less favorable pricing terms. The loss of either customer or
changes in the amounts of coal that they purchase from us or the terms on which
they buy could have a material adverse effect on our business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and "Business--Coal
Contracts."
12
<PAGE>
OUR CUSTOMERS MAY NOT EXTEND EXISTING OR ENTER INTO NEW LONG-TERM CONTRACTS
During 1997, sales under long-term coal supply contracts generated approximately
66% of our total revenue from coal sales. These contracts contribute to the
stability and profitability of our operations by providing predictability of
production volumes and sales prices. Changes in regulations governing the
electric utility industry may make it more difficult for us to enter into
long-term contracts with our electric utility customers, as these customers may
become more sensitive to long-term price or quantity commitments in a more
competitive environment. A substantial decrease in the amount of coal sold by us
pursuant to long-term contracts could subject our revenue stream to increased
volatility and adversely affect our profitability. See "Business--Coal
Contracts."
THE EXPIRATION OF LONG-TERM CONTRACTS WITH FAVORABLE PRICING OR CONTRACT
PROVISIONS ALLOWING FOR THE RENEGOTIATION OF PRICES COULD REDUCE OUR
PROFITABILITY
The profitability of our long-term coal supply contracts depends on a variety of
factors, varies from contract to contract and fluctuates during the contract
term, depending on contract provisions, our actual production costs and other
factors. In addition, provisions for adjustment or renegotiation of prices and
other provisions may increase our exposure to short-term coal price volatility.
If a substantial portion of our long-term contracts were modified or terminated,
we would be affected adversely to the extent that we are unable to find other
customers at the same level of profitability. Because the price of coal has
declined in recent years, some of our long-term contracts are for prices above
current spot market prices. The loss of certain of our long-term contracts could
have a material adverse effect on our business, financial condition and results
of operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business--Coal Contracts."
DISPUTES WITH OUR CUSTOMERS CONCERNING CONTRACTS CAN RESULT IN LITIGATION
From time to time we have disputes with our customers over the provisions of
long-term contracts relating to, among other things, coal quality, pricing and
quantity. We currently are involved in litigation with one customer and another
customer has made an arbitration demand. We may become involved in similar
proceedings in the future. There can be no assurance that we will be able to
resolve existing and future disputes in a satisfactory manner. See
"Business--Legal Proceedings."
COAL MINING IS SUBJECT TO UNEXPECTED DISRUPTIONS
Our mining operations are predominantly underground mines using longwall mining
methods. These mines are subject to conditions or events beyond our control that
could disrupt operations and affect the cost of mining at particular mines for
varying lengths of time. These include: fires and explosions from methane;
mining and processing equipment failures; changes in geologic or hydrologic
conditions; inability to acquire mining rights or permits; or other disruptions
to the mining process. We generally do not maintain third-party insurance
against underground mining risks.
DECLINES IN THE PRICES WE RECEIVE REQUIRE THAT WE CONTINUE TO REDUCE OPERATING
COSTS AND IMPROVE EFFICIENCIES
We historically have improved productivity and reduced the costs of our
operations. Such improvements are important because they have enabled us to
maintain margins even despite the expiration of above market long-term
contracts. We intend to continue to reduce operating costs and improve
efficiencies. However, there can be no assurance that such efforts will be
successful. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
13
<PAGE>
UNION REPRESENTED LABOR FORCE
At September 30, 1998, the United Mine Workers of America represented
approximately 50% of our workforce. Of our coal production in 1997, 65% or 47.1
million tons of coal was produced at mines where the maintenance and production
workforce was represented by the United Mine Workers of America. The current
National Bituminous Coal Wage Agreement, the wage agreement which applies to
substantially all of our represented employees at our mining operations, became
effective on January 1, 1998, and continues through December 31, 2002. Certain
of our competitors have lesser levels of representation. Because of the
increased risk of strikes and other related work actions, in addition to higher
labor costs, which may be associated with represented operations in the coal
industry, our non-represented competitors may have a competitive advantage in
areas where they compete with our represented operations. If some or all of our
current non-represented operations were to become represented, we could incur
increased risk of work stoppages and higher labor costs. The ten-month United
Mine Workers of America strike in 1993 had a material adverse effect on our
results of operations. See "Business--Employees and Labor Relations."
TRANSPORTATION DISRUPTIONS COULD IMPAIR OUR ABILITY TO SELL COAL
Coal producers depend upon rail, barge, trucking, overland conveyor and other
systems to provide access to markets. One of our major rail transportation
providers, Conrail, recently was acquired by CSX Transportation, Inc. and
Norfolk Southern Corporation. The integration of Conrail into CSX Transportation
and Norfolk Southern is expected to begin June 1, 1999, although we understand
that certain steps have been taken already. We have had meetings with both rail
carriers to discuss specifically issues relating to the integration of Conrail,
CSX Transportation and Norfolk Southern operations and to seek to ensure
continued service during the period of integration. Although we have not yet
experienced any service disruptions because of the merger, disruptions in
service may occur during the transition period. We do not know how long the
transition period will last. Disruption of transportation services because of
problems arising from the integration process or from weather-related problems,
strikes, lock-outs or other events could temporarily impair our ability to
supply coal to customers and could have a material adverse effect on our
business, financial condition and results of operations.
TRANSPORTATION COSTS ARE CRITICAL TO OUR CUSTOMERS' PURCHASING DECISIONS
Transportation costs represent a significant portion of the total cost of coal
and, as a result, the cost of delivery is a critical factor in a customer's
purchasing decision. Although increases in transportation costs could give our
operations in northern Appalachia a competitive advantage over coal mined in
other regions, such increases could make coal a less competitive source of
energy. Such increases could have a material adverse effect on our ability to
compete with other energy sources and on our business, financial condition and
results of operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
A SUBSTANTIAL PORTION OF OUR COAL HAS HIGH-SULFUR CONTENT WHICH MAY MAKE IT MORE
COSTLY TO USE BECAUSE OF THE CLEAN AIR ACT
The Clean Air Act limits the ability of some of our customers to burn higher
sulfur coals unless they install scrubbers, purchase sulfur dioxide emission
allowances or blend high-sulfur coal with low-sulfur coal. The development of
our high-sulfur coal reserves is dependent on the cost of such emission
allowances, the cost and availability of low-sulfur coal and whether electric
utilities install scrubbers to meet the more stringent SO2 emissions
requirements of the Clean Air Act which will become effective in 2000. See "Coal
Industry Overview" and "Business--Coal Reserves."
14
<PAGE>
THE DEVALUATION OF FOREIGN CURRENCIES COULD ADVERSELY AFFECT THE COMPETITIVENESS
OF OUR COAL ABROAD
We compete in international markets with coal produced in other countries,
including principally Australia, South Africa, Colombia, Venezuela and
Indonesia. Coal is sold internationally in U.S. dollars. As a result, mining
costs in competing producing countries may be reduced in U.S. dollar terms based
on currency exchange rates. Devaluation of currencies in producing countries
could adversely affect the competitiveness of U.S. coal in international markets
and could have a material adverse effect on our business, financial condition
and results of operations. We do not engage in currency hedging transactions.
See "Business--Competition."
WE ACCRUE FOR CERTAIN LONG-TERM LIABILITIES BASED UPON CERTAIN ASSUMPTIONS WHICH
MAY NOT MATERIALIZE
We provide various health and welfare benefits to inactive and retired
employees. These obligations have been estimated by us based on certain
assumptions described in Notes 1, 14 and 15 of the Notes to Consolidated
Financial Statements. At September 30, 1998, the current and non-current
portions of these obligations include: post retirement medical and life
insurance ($1,289 million); coal workers' pneumoconiosis ($496 million);
workers' compensation ($248 million); salary retirement ($23 million), and
long-term disability ($28 million). These obligations are unfunded except for
salary retirement and long-term disability which are partially funded.
We have obligations arising under various federal and state environmental laws
and regulations. These obligations are estimated by us based on permit
requirements and various assumptions concerning costs and production. At
September 30, 1998, the current and non-current portion of these obligations
include mine closing ($286 million) and reclamation ($34 million). These
obligations are unfunded.
If our assumptions do not materialize as expected, cash expenditures and costs
could be materially greater than those reflected in our financial statements.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition."
REGULATORY RISKS ARE INHERENT AND SUBSTANTIAL IN OUR BUSINESS
General Risks. The coal mining industry is subject to regulation by federal,
state and local authorities on matters such as employee health and safety,
permit and licensing requirements, air quality standards, water pollution, plant
and wildlife protection, reclamation and restoration of mining properties after
mining is completed, the discharge of materials into the environment, surface
subsidence from underground mining and the effects that mining has on
groundwater quality and availability. In addition, the industry is affected by
legislation mandating certain benefits for current and retired coal miners.
Numerous governmental permits and approvals are required for mining operations.
We may be required to prepare and present to federal, state and local
authorities data pertaining to the effect or impact that any proposed
exploration for or production of coal may have upon the environment.
Requirements imposed by any such authority may be costly and time-consuming and
may delay commencement or continuation of exploration or production operations.
The possibility also exists that new legislation or regulations and orders may
be adopted which may materially adversely affect our mining operations, our cost
structure or our customers' ability to use coal. New legislation and new
regulations under existing laws related to the protection of the environment,
which would further regulate or tax the coal industry, may also require us or
our customers to change operations significantly or incur increased costs. Such
legislation, if enacted, could have a material adverse effect on our business,
financial condition and results of operations. See "Regulation."
The Clean Air Act Affects Our Operations and Could Influence The Purchasing
Decisions Of Our Customers. The Clean Air Act and corresponding state laws that
regulate emissions into the air affect coal mining
15
<PAGE>
operations. Direct impact on coal mining and processing operations may occur
through the Clean Air Act permit and emissions control requirements relating to
particulate matter including, without limitation, fugitive dust. In July 1997,
the U.S. Environmental Protection Agency adopted new, more stringent National
Ambient Air Quality Standards for particulate matter and ozone which are
expected to be implemented by 2003. The impact of the new National Ambient Air
Quality Standards on the coal industry will depend on the policies and control
strategies implemented by states under the Clean Air Act, but could have a
material adverse effect on our business, financial condition and results of
operations.
The Clean Air Act affects coal mining operations indirectly by extensively
regulating the emission into the air of SO2 and other compounds, including
nitrogen oxides, emitted by coal-fueled power plants. The Clean Air Act places
limits on SO2 emissions from electric power generation plants. The initiation of
a second phase of emission reductions beginning in 2000 could affect adversely
the demand for higher sulfur coal, which currently accounts for a substantial
portion of our sales, as additional coal-burning electric power generation
plants become subject to the restrictions of the Clean Air Act. The extent to
which the switch by utilities to lower sulfur coal or other low-sulfur fuels
would materially adversely affect us would depend upon a number of factors,
including the cost structure of our operations.
The Clean Air Act also affects coal mining operations by requiring utilities
that currently are major sources of nitrogen oxides in moderate or higher ozone
nonattainment areas to install reasonably available control technology. The
Environmental Protection Agency recently announced a proposal that would require
22 eastern states to reduce substantially nitrogen oxide emissions by the year
2003. The effect which such regulations or other requirements that may be
imposed in the future could have on the coal industry in general and on us in
particular cannot be predicted with certainty. No assurance can be given that
the implementation of the Clean Air Act, the new National Ambient Air Quality
Standards or any other future regulatory provisions will not materially
adversely affect our business, financial condition and results of
operation.
The Passage Of Legislation Responsive To The Framework Convention On Global
Climate Change Could Have An Adverse Effect On Our Business. The United States
and more than 160 other nations are signatories to the 1992 Framework Convention
on Global Climate Change which is intended to limit or capture emissions of
greenhouse gases, such as carbon dioxide. Although the U.S. Senate has not yet
ratified the Kyoto Protocol and no comprehensive regulations controlling
greenhouse gas emissions have been enacted, efforts to control greenhouse gas
emissions could result in reduced use of coal if electric power generators
switch to lower carbon sources of fuel. Such restrictions could have a material
adverse effect on our business, financial condition and results of
operations.
We Are Subject to the Clean Water Act Which Imposes Monitoring and Reporting
Obligations. The federal Clean Water Act affects coal mining operations by,
among other things, imposing restrictions on effluent discharge into waters.
Regular monitoring, as well as compliance with reporting requirements and
performance standards, are preconditions for the issuance and renewal of permits
governing the discharge of pollutants into water. We believe that we have
obtained all permits required under the Clean Water Act. However, there can be
no assurance that requirements under the Clean Water Act will not materially
adversely affect our business, financial condition and results of operations.
See "Regulation."
Deregulation of the Electric Utility Industry Could Lead to Efforts to Reduce
Coal Prices. Deregulation of the electric utility industry, when implemented,
will enable industrial, commercial and residential customers to shop for the
lowest cost supply of electricity. This fundamental change in the power industry
may result in efforts to reduce coal prices, which could have a material adverse
effect on our business, financial condition and results of operations.
We Have Significant Employee and Retiree Benefit Obligations. Under Black Lung
benefits legislation, each coal mine operator is required to make payments of
pneumoconiosis (black lung) benefits to (1) current and
16
<PAGE>
former coal miners, (2) certain survivors of a miner who dies from black lung
disease and (3) a trust fund for the payment of benefits and medical expenses to
claimants who last worked in the coal industry prior to January 1, 1970, or
where no responsible coal mine operator has been identified for claims where a
miner's last coal employment was after December 31, 1969. In addition to federal
acts, we are also liable under various state statutes for pneumoconiosis claims.
Our pneumoconiosis (black lung) benefits liabilities totaled approximately $496
million on our balance sheet at September 30, 1998. The impact of these costs
has not been significant for the nine-month period ended September 30, 1998. The
related cash payment for such liability was $7 million.
In recent years, legislation on black lung reform has been introduced but not
enacted in Congress. It is possible that such legislation will be reintroduced
for consideration by Congress. If any of the proposals included in such or
similar legislation is passed, the number of claimants who are awarded benefits
could significantly increase. There can be no assurance that any such changes in
black lung legislation, if approved, will not have a material adverse effect on
our business, financial condition and results of operation.
The U.S. Department of Labor has issued proposed amendments to the regulations
implementing the federal black lung laws which, among other things, establish a
presumption in favor of a claimant's treating physician and limit a coal
operator's ability to introduce medical evidence regarding the claimant's
medical condition. If adopted, the amendments could have an adverse effect on
us, the extent of which cannot be accurately predicted.
Additionally, we are required to compensate employees for work-related injuries.
Our workers' compensation liabilities were $248 million at September 30, 1998.
The amount that was included as a cost for the nine-month period ended September
30, 1998 was $37 million, while the related cash payment for such liability was
$31 million. In addition, several states in which we operate consider changes in
workers' compensation laws from time to time. Such changes, if enacted, could
adversely affect our business, financial condition and results of operation.
The Coal Industry Retiree Health Benefits Act of 1992 requires us to make
payments to fund the cost of health benefits for our and other coal industry
retirees. We made payments of $32 million and $27 million in 1997 and for the
nine months ended September 30, 1998, respectively. See Note 14 of Notes to
Consolidated Financial Statements. As a result of a U.S. Supreme Court decision
rendered in 1998, we may be required to increase our share of such payments.
However, the magnitude of such increase, if any, cannot be determined at this
time.
We Are Subject To Reclamation, Mine Closure and Subsidence Regulations And Must
Accrue For The Estimated Costs Of Complying With Such Regulations. The federal
Surface Mining Control and Reclamation Act of 1977 and similar state statutes
require that we obtain and periodically renew permits for mining operations and
that our mine property be restored in accordance with specified standards and an
approved reclamation plan. States also impose on mine operators the
responsibility for repairing or compensating for damage occurring on the surface
as a result of mining operations.
We accrue for the costs of current mine disturbance and of final mine closure,
including the cost of treating mine water discharge where necessary, over the
estimated useful mining life of the property. The establishment of liability for
the current disturbance and final mine closure reclamation is based upon permit
requirements and requires various estimates and assumptions, principally
associated with costs and production levels. The reclamation costs, mine-closing
costs and other environmental liability accruals were $321 million at September
30, 1998. The amount that was included as an operating expense for the
nine-month period ended September 30, 1998 was $7 million, while the related
cash payment for such liability in such period was $22 million. Although our
management believes it is making adequate provisions for all expected
reclamation and other costs
17
<PAGE>
associated with mine closures, future operating results would be adversely
affected if such accruals were later determined to be insufficient.
We Could Incur Significant Costs Under Federal and State Superfund Statutes.
Risks of environmental liability are inherent with respect to both current and
past coal mining activities. The Comprehensive Environmental Response,
Compensation and Liability Act and similar state laws create liabilities for
investigation and remediation for releases of hazardous substances to the
environment and damages to natural resources. Our current and former coal mining
operations currently incur, and will continue to incur, expenditures associated
with the investigation and remediation of environmental matters, including
underground storage tanks, solid and hazardous waste disposal and other matters
under the Comprehensive Environmental Response, Compensation and Liability Act
and state environmental laws.
From time to time, we have been the subject of administrative proceedings,
litigation and investigations relating to environmental matters. We have been
named as a potentially responsible party at several Superfund sites. Based on
various factors, we believe that the liabilities associated with such Superfund
sites should not have a material adverse effect on our financial condition or
results of operations. However, there can be no assurance that we will not
become involved in future proceedings, litigation or investigations or that such
liabilities will not be material.
While we believe that we have accrued for the costs likely to be incurred for
these environmental matters, and that those costs are not likely to have a
material adverse effect upon our business, financial condition and results of
operations, there can be no assurance that total costs and liabilities for these
environmental matters will not increase in the future. The magnitude of the
liability and the cost of complying with these environmental laws cannot be
predicted with certainty due to the lack of specific information available with
respect to many sites, the potential for new or changed laws and regulations and
for the development of new remediation technologies and the uncertainty
regarding the timing of work with respect to particular sites. As a result,
there can be no assurance that material liabilities or costs related to
environmental matters will not be incurred in the future or that our liabilities
will not be adversely affected by such environmental liabilities or costs. In
addition, there can be no assurance that changes in laws or regulations would
not affect the manner in which we are required to conduct our operations. See
"Regulation."
RHEINBRAUN MAY OWN AS MUCH AS 67.8% OF OUR COMMON STOCK AFTER THE OFFERING AND
WILL BE ABLE TO CONTROL SIGNIFICANT DECISIONS BY CONSOL
After this offering, Rheinbraun A.G. and Rheinbraun US GmbH will together own
67.8% of our outstanding shares of common stock (65% if the underwriters'
over-allotment option is exercised in full). These principal stockholders will
be able to direct the election of all of the members of our Board of Directors
and exercise a controlling influence over our business and affairs, including
any determinations with respect to:
. mergers or other business combinations;
. our acquisition or disposition of assets;
. our incurrence of indebtedness;
. the issuance of any additional shares of our common stock or other
equity securities; and
. the payment of dividends.
18
<PAGE>
Similarly, the principal stockholders will have the power to:
. determine matters submitted to a vote of our stockholders without the
consent of our other stockholders;
. prevent or cause a change in control; or
. take other actions that might be favorable to the principal
stockholders.
In the foregoing situations or otherwise, various conflicts of interest between
us and our principal stockholders could arise. Ownership interests of our
directors or officers in voting securities of our principal stockholders or
their affiliates or service as a director or officer or other employee of both
us and one of our principal stockholders or one of their affiliates could create
or appear to create potential conflicts of interest when directors and officers
and employees are faced with decisions that could have different implications
for us and our principal stockholders. See "Management" and "Principal
Stockholders."
OUR SHARE PRICE MAY DECLINE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
After this offering, a total of 54,403,357 shares of common stock will be owned
by Rheinbraun A.G. and Rheinbraun U.S. GmbH and 3,264,201 shares of common stock
will be owned by DuPont Energy. We cannot predict the effect, if any, that
future sales of shares of our common stock, or the availability of such shares
for sale would have on the market price prevailing from time to time.
Nevertheless, sales by us, Rheinbraun A.G., Rheinbraun U.S. GmbH or DuPont
Energy of substantial amounts of our common stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing market
prices for our common stock offered in this offering. Such a reduction in the
market price of our common stock could impair our ability to raise additional
capital through future public offerings of our equity securities.
Each of Rheinbraun A.G., Rheinbraun U.S. GmbH and DuPont Energy has agreed not
to dispose of its shares for a period of 180 days after the date of this
prospectus without the prior written consent of J.P. Morgan Securities Inc. See
"Shares Eligible for Future Sale."
THE MARKET PRICE OF OUR COMMON STOCK COULD BE VOLATILE
The trading price of our common stock could be subject to wide fluctuations in
response to, among other things, the following factors:
. variations in operating results;
. expectations of securities analysts;
. technological innovations by us or our competitors;
. changes in financial estimates by securities analysts; or
. the operating and stock price performance of other companies that
investors may consider comparable to us.
In addition, the stock market in general has experienced extreme volatility that
often has been unrelated to the operating performance of particular companies
which are traded on the market. These broad market and industry fluctuations may
adversely affect the trading price of our common stock, regardless of our actual
performance.
19
<PAGE>
OUR OPERATIONS COULD BE ADVERSELY AFFECTED BY DATA PROCESSING FAILURES AFTER
DECEMBER 31, 1999
The year 2000 issue is the result of computer programs being written using two
digits rather than four to identify the applicable year and is an issue which
exists for all companies that rely on computers as the year 2000 approaches. The
failure to correct any such programs may result in incorrect results when
computers perform arithmetic operations, comparisons or data field sorting and
some non-information systems functions that rely on computers making
calculations. Based on recent assessments, we have determined that we will be
required to modify or replace some portions of our software, and, to a lesser
extent, our hardware so that those systems will properly utilize dates beyond
December 31, 1999. We do not expect costs in connection with any such
modifications and replacements to be material. However, if such modifications
and replacements are not made, or are not completed in a timely manner, the year
2000 issue may have a material adverse effect on our business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of Year 2000 Issue."
THE ACCURACY OF FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS IS
UNCERTAIN
This prospectus contains certain "forward-looking statements" (as defined in
Section 27A of the Securities Act) that are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. The words "anticipates," "believes," "estimates," "expects,"
"plans," "intends" and similar expressions are intended to identify these
forward-looking statements, but are not the exclusive means of identifying them.
These forward-looking statements reflect the current views of our management and
are subject to certain risks, uncertainties and contingencies which could cause
our actual results, performance or achievements to differ materially from those
expressed in, or implied by, these statements. These risks, uncertainties and
contingencies include, but are not limited to, the following:
. the success or failure of our efforts to implement our business
strategy;
. reliance on major customers and long-term contracts;
. actions of our competitors and our ability to respond to such actions;
. risks inherent to mining;
. the effect of government regulation; and
. the other factors discussed above under the heading "Risk Factors" and
elsewhere in this prospectus.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to CONSOL from the offering, after underwriting discounts,
commissions and expenses payable by CONSOL, are estimated to be approximately
$417 million (assuming an initial public offering price of $19.50 per share and
no exercise of the underwriter's over-allotment option). Such net proceeds will
be used to repay a portion of $600 million of commercial paper issued by CONSOL
in order to finance:
. the November 1998 purchase of shares of common stock from DuPont Energy
Company for $500 million,
. the payment of dividends in 1998 totalling $48.8 million to Rheinbraun
A.G. and Rheinbraun U.S. GmbH and $31.2 million to DuPont Energy
Company and
. the September 1998 acquisition of the Rochester & Pittsburgh Coal
Company for $150 million and the refinancing of certain indebtedness
aggregating $50 million of Rochester & Pittsburgh.
The commercial paper to be repaid has maturities of up to 90 days and currently
bears interest at rates ranging from 5.55% to 5.68% per annum.
DIVIDEND POLICY
The Board of Directors currently intends to declare and pay quarterly dividends
on common stock. It is expected that the first quarterly dividend after the
offering will be $.27 per share (a rate of $1.08 per share annually) and will be
paid in the third quarter of 1999. The declaration and payment of dividends by
CONSOL is subject to the discretion of the Board of Directors, and no assurance
can be given that CONSOL will pay such dividend or any further dividends. The
determination as to the payment of dividends will depend upon, among other
things, general business conditions, CONSOL's financial results, contractual and
legal restrictions regarding the payment of dividends by CONSOL, the credit
ratings of CONSOL, planned investments by CONSOL and such other factors as the
Board of Directors deems relevant.
CONSOL paid ordinary cash dividends to its stockholders of $80 million in each
of 1995, 1996, 1997 and 1998. CONSOL also paid an extraordinary cash dividend to
its stockholders of $380 million in 1997. The dividends historically paid by
CONSOL are not indicative of its future dividend policy, particularly because
CONSOL was closely held prior to the offering. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Liquidity and Capital
Resources."
21
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of CONSOL at
September 30, 1998 (1) on an actual basis, (2) on a pro forma basis reflecting
(A) the purchase by CONSOL of shares of common stock for $500 million held by
DuPont Energy and the payment of dividends totalling $80 million and (B)
borrowings incurred to purchase the shares and pay the dividend and (3) on a pro
forma, as adjusted basis reflecting the offering and the application by CONSOL
of the estimated net proceeds therefrom. See "Principal Stockholders--Certain
Transactions."
<TABLE>
<CAPTION>
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
Dollars in thousands
Short-term debt............................................. $ 105,476 $685,476 $ 268,476
Current portion of long-term debt........................... $ 108,540 $ 108,540 $ 108,540
Long-term debt
Notes due 2002......................................... $ 66,000 $ 66,000 $ 66,000
Notes due 2004......................................... 45,000 45,000 45,000
Notes due 2007......................................... 44,784 44,784 44,784
Baltimore Port Facility revenue
bonds in series due 2010 and 2011.................. 102,865 102,865 102,865
Variable rate notes payable
at various dates through 2001...................... 2,119 2,119 2,119
Advance royalty commitments............................ 26,556 26,556 26,556
Long-term capitalized leases........................... 22,164 22,164 22,164
Other long-term notes maturing --------- --------- ---------
at various dates through 2007...................... 12,399 12,399 12,399
Total long-term debt............................... 321,887 321,887 321,887
Stockholders' equity
Common Stock, $.01 par value, 500,000,000 shares
authorized; Issued and outstanding, actual
108,806,714 shares; issued and outstanding, pro
forma 57,667,559 shares; issued and outstanding, pro
forma as adjusted 80,267,559 shares(1)............. 1,088 577 803
Capital in excess of par value......................... 801,916 302,427 719,201
Retained earnings (deficit)............................ (375,542) (455,542) (455,542)
--------- --------- ---------
Total stockholders' equity........................... 427,462 (152,538) 264,462
--------- --------- ---------
Total capitalization.......................... $ 749,349 $169,349 $ 586,349
========= ========= =========
</TABLE>
- -------------------
(1) The number of shares, pro forma as adjusted, set forth above excludes
shares of common stock issuable upon exercise of options to be granted under the
1999 Equity Incentive Plan upon consummation of the offering and an additional
shares of common stock reserved for future issuance under the 1999 Equity
Incentive Plan. See "Management."
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and operating
data of CONSOL for the periods indicated. The selected consolidated financial
data for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been
derived from the consolidated financial statements of CONSOL which financial
statements have been audited by Ernst & Young LLP, independent auditors. The
report of Ernst & Young LLP with respect to the financial statements at December
31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997
appears elsewhere in this Prospectus. The selected financial data for the nine
months ended September 30, 1997 and 1998 and at September 30, 1998 have been
derived from CONSOL's unaudited interim financial statements included elsewhere
in this Prospectus which, in the opinion of CONSOL, include all adjustments
necessary for the fair presentation of such data for the unaudited interim
periods. The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results of operations to be expected for
the entire year ending December 31, 1998. After the offering, CONSOL expects to
change its fiscal year from a calendar year to a year ending on June 30. CONSOL
will have a transitional fiscal period ending June 30, 1999. CONSOL's first full
fiscal year ending June 30 will be the year that starts July 1, 1999 and ends
June 30, 2000. The information in the following table should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the Consolidated Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------------------------------------------------
1993(1) 1994 1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands,
except per share
data
STATEMENT OF INCOME DATA
Revenue
Sales(2)................. $ 1,730,209 $ 2,326,104 $ 2,269,211 $ 2,336,014 $ 2,285,197 $ 1,684,523 $ 1,680,063
Other income............. 55,743 86,377 45,024 60,940 64,441 50,968 37,450
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total revenue......... 1,785,952 2,412,481 2,314,235 2,396,954 2,349,638 1,735,491 1,717,513
Costs
Costs of goods
sold and other
operating charges...... 1,490,869 1,703,678 1,600,271 1,687,836 1,592,489 1,189,645 1,157,674
Selling, general and
administrative
expense................ 50,338 53,546 53,537 53,354 55,353 41,109 40,689
Depreciation, depletion
and amortization....... 231,655 265,262 253,113 235,159 233,304 171,353 175,575
Interest expense......... 41,770 50,678 53,915 44,510 45,876 34,468 32,496
Taxes other than income.. 144,776 204,356 200,605 187,396 188,940 143,208 147,951
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total costs........... 1,959,408 2,277,520 2,161,441 2,208,255 2,115,962 1,579,783 1,554,385
------------ ----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes............. (173,456) 134,961 152,794 188,699 233,676 155,708 163,128
Income taxes............... (84,645) 380 22,744 35,970 49,887 35,824 38,431
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss).......... $ (88,811)(3) $ 134,581 $ 130,050 $ 152,729 $ 183,789 $ 119,884 $ 124,697
============ =========== =========== =========== =========== =========== ===========
Pro forma net income(4).... - - - - $ 169,751 - $ 122,543
=========== ===========
Pro forma net income
per share(5)............. - - - - $ 2.11 - $ 1.53
=========== ===========
Pro forma weighted
average number of
common shares
outstanding (5).......... - - - - 80,267,559 - 80,267,559
=========== ===========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
AT DECEMBER 31, AT SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
PRO
1993 1994 1995 1996 1997 ACTUAL FORMA(6)
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA
Working capital................ $ 75,368 $ 208,079 $ 277,678 $ 358,030 $ 77,313 $ (77,615) $ (657,615)
Total assets................... 3,664,762 3,952,988 3,871,978 3,857,508 3,548,011 3,989,229 3,989,229
Short-term debt................ 0 132,567 78,166 46,378 55,051 105,476 685,476
Long-term debt (including
current portion)............. 435,316 450,332 442,385 449,170 397,257 430,427 430,427
Total deferred credits and
other liabilities............ 2,399,378 2,413,510 2,325,262 2,315,397 2,262,702 2,466,108 2,466,108
Stockholders' equity .......... 401,616 456,197 506,247 578,976 302,765 427,462 (152,538)
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA
Tons sold (in
thousands)(7)............. 52,072 74,199 72,741 77,000 75,170 55,302 56,417
Tons produced (in
thousands)................ 45,646 72,140 71,324 71,411 72,505 53,754 54,860
Productivity (tons per
manday)................... 28.35 29.60 31.22 34.57 38.46 37.34 39.99
Average production
cost ($ per ton
produced)................. $26.22 $22.91 $22.31 $21.87 $21.05 $21.33 $21.34
Average sales price of
tons produced ($ per
ton produced)............. $28.36 $27.32 $26.61 $26.29 $26.49 $26.41 $26.59
Coal reserves
(tons in
millions)(8).............. 5,176 4,956 5,072 5,063 4,776 5,009 4,847
Number of mining
complexes (at period
end)...................... 31 30 26 26 24 24 27(9)
Number of employees
(at period end)........... 10,036 9,739 8,743 8,206 7,711 7,852 8,716
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands
OTHER FINANCIAL DATA
Capital expenditures........ $ 138,124 $ 144,438 $ 179,022 $ 169,367 $ 200,617 $ 135,330 $ 188,624
EBIT(10).................... (135,033) 167,668 188,715 212,708 256,934 171,341 187,547
EBITDA(10).................. 96,622 432,930 441,828 447,867 490,238 342,694 363,122
Net cash provided by
operating activities..... 261,182 344,629 298,290 372,582 427,913 243,265 262,517
Net cash provided by
(used in) investing
activities............... (231,441) (357,153) (160,856) (251,236) 52,243 (74,850) (233,424)
Net cash provided by
(used in) financing
activities............... (67,074) 50,418 (140,805) (119,254) (501,354) (87,356) (9,955)
</TABLE>
_________________
(1)Results of operations for 1993 reflect the adverse effects of the ten-month
strike by employees represented by the United Mine Workers of America ("UMWA")
in connection with the renegotiation of the National Bituminous Coal Wage
Agreement (the "NBCWA") which expired on February 1, 1993. See "Risk
Factors--Union Represented Labor Force" and "Business--Employees and Labor
Relations."
(2)Includes sales of Fairmont Supply Company, other than to CONSOL, of $157
million in 1993, $179 million in 1994, $212 million in 1995, $203 million in
1996, and $217 million in 1997, and $161 million in the first nine months of
1997 and $132 million in the first nine months of 1998. Fairmont Supply Company
is a wholly owned subsidiary of CONSOL that distributes mining and industrial
supplies.
(3)Excludes cumulative effect of change in accounting principle. In 1993, CONSOL
changed accounting methods of accruing provisions for coal workers'
pneumoconiosis and workers' compensation. These changes were the result of
24
<PAGE>
a reevaluation of measurement methods in light of the issuance of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). CONSOL recorded income classified as a
cumulative effect of accounting change of $46.3 million representing income of
$70.3 million (net of contract deferrals of $67.0 million and income taxes of
$47.2 million) for the change in accounting for coal workers' pneumoconiosis,
and a charge of $23.9 million (net of income taxes of $16.1 million) for the
change in accounting for workers' compensation.
(4)Pro forma net income assumes (A) payment of the extraordinary dividend in
1997 and the purchase of stock from DuPont Energy in 1998 as if they had
occurred at the beginning of the period and were funded by the reduction of
marketable securities and the issuance of commercial paper and (B) the
application of the net proceeds from the offering.
(5)Pro forma net income per share and pro forma weighted average number of
common shares outstanding assumes the stock split, the purchase of shares of
common stock from DuPont Energy and the issuance of shares of common stock in
the offering.
(6)Gives effect to the purchase by CONSOL of shares of common stock owned by
DuPont Energy and the payment of dividends in 1998 and related borrowings
incurred to finance the purchase and dividend. See "Certain Relationships and
Related Party Transactions."
(7)Includes sales of coal produced by CONSOL and purchased from third parties.
CONSOL sold 3.3 million, 3.5 million, 2.7 million, 3.2 million, 3.1 million, 2.2
million and 2.1 million tons of coal that we purchased from third parties during
1993, 1994, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and
1998, respectively.
(8)Represents proved and probable reserves at period end. See "Business--Coal
Reserves" and "Glossary."
(9)In November 1998, CONSOL exchanged two mining complexes, Holden and Twin
Branch, with A.T. Massey Coal Company for the Vesta coal reserves located in
southwestern Pennsylvania.
(10)EBIT is defined as earnings, before cumulative effect of accounting changes,
from continuing operations, before deducting net interest expense (interest
expense less interest income) and income taxes. EBITDA is defined as earnings,
before cumulative effect of accounting changes, before deducting net interest
expense (interest expense less interest income), income taxes and depreciation,
depletion and amortization. Although EBIT and EBITDA are not measures of
performance calculated in accordance with generally accepted accounting
principles, management believes that they are useful to an investor in
evaluating CONSOL because they are widely used in the coal industry as measures
to evaluate a company's operating performance before debt expense and its cash
flow. EBIT and EBITDA do not purport to represent cash generated by operating
activities and should not be considered in isolation or as a substitute for
measures of performance in accordance with generally accepted accounting
principles. In addition, because EBIT and EBITDA are not calculated identically
by all companies, the presentation here may not be comparable to other similarly
titled measures of other companies. Management's discretionary use of funds
depicted by EBIT and EBITDA may be limited by working capital, debt service and
capital expenditure requirements and by restrictions related to legal
requirements, commitments and uncertainties.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
CONSOL ranks among the largest coal companies in the United States based upon
total revenue, net income and operating cash flow. CONSOL is the largest U.S.
producer of high-Btu bituminous coal, the largest producer of coal east of the
Mississippi River, the largest producer from underground mines and the largest
U.S. exporter of coal to international markets. CONSOL sells coal to more than
20 nations and serves markets in Europe, South America, Southeast Asia, Africa,
the Caribbean and North America. Production in 1997 totalled 73 million tons.
CONSOL accounted for 7% of total domestic tons produced and for 12% of tons
produced in the eastern United States during 1997. CONSOL currently operates 25
mining complexes. At December 31, 1997, CONSOL had 4.8 billion tons of proved
and probable coal reserves, the second largest reserve base among U.S. coal
producers.
CONSOL has increased earnings over the last five years by (1) reducing unit
costs of production through productivity improvements, (2) expanding CONSOL
mines by investing in technology, thereby using the resulting production
increases to replace older, higher cost mines with depleted reserves, (3)
investing in acquisitions that complement existing operations, and (4)
successfully selling coal at prices that have enabled CONSOL to maintain margins
despite the expiration of above-market sales contracts. CONSOL will attempt to
continue to use these methods in the future.
CONSOL has maintained the delivered-cost competitiveness of its coals by
increasing productivity. CONSOL operates 25% of all longwall mining systems in
the United States, more than any other coal producer. The distinguishing
characteristic of longwall mines relative to other types of mines is a low
variable-cost structure due to highly mechanized operations. Expansion of
production from these mines can be achieved at low incremental cost. This has
allowed CONSOL to generate positive cash margins even under pricing pressures.
While tons produced by CONSOL have increased in each of 1995, 1996 and 1997,
CONSOL reduced employment at its mining complexes in operation by 11.8% from
December 31, 1995 through December 31, 1997 and the number of mining complexes
in operation from 30 to 24. During the same period, net income increased in each
year, from $130 million in 1995 to $153 million in 1996 and $184 million in
1997, as did net cash provided by operating activities which increased from $298
million in 1995 to $373 million in 1996 and $428 million in 1997.
CONSOL expects to continue to reduce its unit cost of production in the future.
CONSOL currently is expanding the preparation plant that serves the Bailey and
Enlow Fork operation and plans to improve underground haulage to ultimately
increase production nearly 25% from what already is a record level. CONSOL
replaced track haulage with more efficient belt haulage at its McElroy mine in
1997 and its Blacksville mine in 1998. Also at the McElroy mine, CONSOL is
constructing a raw coal silo that will allow greater efficiency at both the
plant and in the mine. At the Blacksville mine, CONSOL plans to accelerate the
lifting of coal from the vertical shaft in the mine, which is the current
bottleneck. CONSOL intends to convert the Shoemaker mine to an all-belt haulage
mine to further reduce its costs. CONSOL has plans to replace the Cardinal River
mine with the lower-cost Cheviot mine subject to satisfactory market conditions.
In 1999, the higher-cost Powhatan mine will deplete its reserves and it is
anticipated that the expanded McElroy and Shoemaker mines will more than offset
the production loss and do so at lower costs. CONSOL incorporates such
improvements routinely in its plans to continue to reduce cost.
CONSOL also will increase its production through acquisitions where CONSOL
believes it has a competitive advantage and can generate value from
underperforming assets. In September 1998, CONSOL acquired Rochester &
Pittsburgh Coal Company. Rochester & Pittsburgh's principal asset is Mine No.
84, which has
26
<PAGE>
similar characteristics to the Bailey and Enlow Fork mines, and has the
potential to become a highly efficient mine.
CONSOL has successfully marketed its coal production, and has been able to
maintain margins despite the implementation in 1995 of the first phase of the
Clean Air Act. The second phase of the implementation of the Clear Air Act will
take effect in the year 2000. CONSOL plans to sell a significant portion of its
high-sulfur coal production after 2000 to scrubbed plants or to export markets.
Its medium-sulfur coals, such as coal produced at the Bailey, Enlow Fork and
Mine 84 mines, will be targeted to power plants that are unscrubbed but that can
continue to burn such coals with sulfur dioxide allowances.
Although the Clean Air Act has had some effect on the price per ton of
high-sulfur coal, CONSOL believes that production costs will continue to be a
significant factor in setting prices. The coal market is a very competitive
market in which prices often are set by marginal cost producers. As producers
deplete their reserves, their cost of mining will increase. To date,
productivity improvements throughout the industry have offset cost pressures
resulting from the depletion of existing reserves. Generally, the price of
high-sulfur coal on a delivered basis is less than the price of low-sulfur coal
on a delivered basis. CONSOL believes that the price difference between high-and
low-sulfur coal likely will widen in the future because low-sulfur producers
will be required to mine higher cost reserves. The price of higher sulfur coals
also will rise because of depletion, but this increase may not be as fast as the
increase in low-sulfur coal. CONSOL believes that it is in a favorable position
in which cost reductions are available through continued productivity
improvements by mining its extensive reserves that are accessible to its
existing mines.
CONSOL believes that many of the unscrubbed power plants also will retrofit
scrubbers when economical. Because of potential further tightening of clean air
regulations, particularly for sulfur dioxide and for mercury control, scrubbers
may be required. To the extent that plants install scrubbers, the cost of
operating a scrubber is approximately $.09 to $.12 per million Btus. In
addition, CONSOL believes that technologically-advantaged clean power plants
using high-Btu, low-delivered-cost coals to be more competitive than plants
generating electricity with natural gas. Because scrubbers are needed for all
new power plants that burn coal and may be required for existing coal burning
plants to continue to operate under tighter air regulations, CONSOL's coals
should sustain their advantage over low-sulfur coal that is produced farther
from CONSOL's markets and, as a result, have higher transportation costs.
LONG-TERM CONTRACTS
During 1997, approximately 66% of CONSOL's total revenue from coal sales
(representing 46.9 million tons) resulted from sales under long-term contracts
(in excess of one year). These contracts contribute to the stability and
profitability of CONSOL's operations by providing predictability of production
volumes and sales prices. In addition, because the price of coal has declined in
recent years, some of CONSOL's long-term contracts are at prices above current
spot market. CONSOL's long-term contracts, existing at September 30, 1998, have
remaining terms ranging from one to 18 years and provide, in the aggregate, for
the delivery of 46 million tons in 1998, 42 million tons in 1999 and 24 million
tons in 2000, subject generally, to the satisfaction of certain conditions and
each contracting party's right to vary the number of tons delivered. The average
original term of our long-term contracts is 6.5 years. The average remaining
term of these contracts is 2.7 years.
CONSOL's net income primarily is generated by low-cost mining operations with
sales volumes at market prices. However, CONSOL has fixed-price and
base-price-plus-escalation steam coal contracts that are above or below current
market prices. The following table sets forth for such contracts that were in
effect in 1997 (1) the number of tons deliverable, (2) the weighted average
price per ton paid or estimated to be payable and (3) the number of contracts.
Where contracts have price reopener provisions, such contracts have been
excluded from the table after the date on which they revert to market prices. Of
our 65 long-term contracts, 40 of these contracts have price reopener
provisions. The price reopener provisions in all but one of these 40 contracts
are
27
<PAGE>
at market price at the time of the reopening. One contract reopener is based on
production costs for labor and supplies for the mines supplying the coal.
BASE-PRICE-PLUS ESCALATION AND FIXED-PRICE SALES CONTRACTS
----------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales volumes 35.0 28.4 25.5 12.8 11.3 8.9
(Millions of tons)
Weighted average price $27.70 $28.90 $29.20 $27.20 $28.60 $31.10
(Free on board at mine)
Number of Contracts 37 25 19 10 9 8
</TABLE>
Contracts that provided for the sale of 22 million tons in 1997 expire or revert
to market price prior to 2000. These contracts generated total revenues of $620
million in 1997. Based on CONSOL's estimate of market prices in 1997, if sales
under these contracts had been at market prices, CONSOL's revenues and net
income in 1997 would have been reduced by approximately $120 million and $75
million, respectively. During the past five years, CONSOL has been able to
offset the effects of the expiration of long-term contracts through cost savings
and productivity improvements. CONSOL anticipates that it will be able to
mitigate the impact of the expiration of such contracts. However, there cannot
be any assurance that it will be able to do so, particularly with the larger
volume expiring in 2000, and the inability to reduce costs and improve
productivity could have a material adverse effect on CONSOL's business,
operations and financial condition.
CHANGE OF FISCAL YEAR
After the offering, CONSOL expects to change its fiscal year from a calendar
year to a year ending on June 30. CONSOL will have a transitional fiscal period
ending June 30, 1999. CONSOL's first full fiscal year ending June 30 will be the
year that starts July 1, 1999 and ends June 30, 2000. CONSOL is undertaking this
change in order to align its fiscal year with that of Rheinbraun. CONSOL is a
consolidated subsidiary of Rheinbraun.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenue. Sales decreased 0.3% to $1,680 million for the nine-month interim
period ended September 30, 1998 from $1,685 million for the nine-month interim
period ended September 30, 1997. The decrease of $5 million was due mainly to a
decrease in sales of industrial supplies by $29 million due to a loss of a sales
contract and a decrease in sales of purchased coal by $10 million due to a loss
of a contract. It also reflected a general decrease in coal purchased by CONSOL
and sold to the export market. These decreases were offset by increased produced
coal sales of $37 million due mainly to a 2.3% increase in the volume of coal
sold. Coal sales prices for the 1998 interim period were comparable to those for
the 1997 interim period.
Other income, which consists of interest income, gain (loss) on the disposition
of assets, service income, royalty income, rental income and certain other
income, decreased 27.5% to $37 million for the 1998 interim period compared with
$51 million for the 1997 interim period. The decrease of $14 million was due
primarily to a
28
<PAGE>
decrease in interest income resulting from a lower level of investment in
marketable securities and a decrease in the gain on sale of assets, partially
offset by a one-time payment received in 1998 pursuant to an agreement that
compensated CONSOL for not mining certain coal reserves.
Costs. Cost of goods sold and other operating charges decreased 2.7% to $1,158
million for the 1998 interim period compared with $1,190 million for the 1997
interim period. The decrease of $32 million primarily reflected lower costs as a
result of decreased industrial supply sales and decreased purchased coal sales.
Coal mine productivity (calculated in tons per manday) increased 7.1% for the
1998 interim period compared with the 1997 interim period. The productivity
increase was driven, in part, by increases in production at the McElroy mine,
which completed installation of a new belt haulage system at the end of 1997,
and the Enlow Fork mine, which installed a new longwall early in 1998.
Selling, general and administrative expenses remained stable at $41 million for
the 1998 interim period and for the 1997 interim period.
Depreciation, depletion and amortization increased 2.9% to $176 million for the
1998 interim period compared with $171 million for the 1997 interim period. The
increase of $5 million was primarily due to the increase in equipment placed in
service in the 1998 interim period.
Interest Expense decreased 5.9% to $32 million for the 1998 interim period
compared with $34 million for the 1997 interim period. The decrease of $2
million was primarily due to a decrease in the average principal amount of
long-term debt outstanding during the period and more interest expense
capitalized in the 1998 interim period than in the 1997 interim period. This
decrease was partially offset by higher interest costs for short term commercial
paper due to higher principal balances outstanding during the 1998 interim
period compared to the 1997 interim period.
Taxes other than income increased 3.5% to $148 million for the 1998 interim
period compared with $143 million for the 1997 interim period. The increase of
$5 million was primarily the result of an increase in production related taxes
due to increased production volumes and the exhaustion of the West Virginia
Business Investment and Jobs Expansion Tax Credit carryforward utilized in 1997.
This increase was partially offset by a reduction of property tax expense due
primarily to reduced assessments at recently closed facilities.
Income Taxes. Income taxes increased 5.6% to $38 million for the 1998 interim
period compared with $36 million for the 1997 interim period, reflecting
increased earnings in the 1998 interim period. The estimated effective tax rate
was 23.6% for the 1998 interim period compared to 23.0% compared to the 1997
interim period.
1997 COMPARED WITH 1996
Revenue. Sales decreased 2.2% to $2,285 million for 1997 compared with $2,336
million for 1996. The decrease of $51 million primarily was due to a decrease of
1.8 million tons, or 2.4%, due to a decrease in the volume of U.S. metallurgical
and international steam coal sold, partially offset by an improvement in average
sales price per ton.
Other income increased 4.9% to $64 million for 1997 compared with $61 million
for 1996. The increase of $3 million primarily was due to an increase in royalty
income from a coal lease in Kentucky that began generating revenue in September
1996 and continued to generate revenue for the full year of 1997.
Costs. Cost of goods sold and other operating charges decreased 5.7% to $1,592
million for 1997 compared with $1,688 million for 1996 primarily as a result of
lower volume of CONSOL-produced coal sold in 1997 and lower average production
costs per ton. Coal mine productivity increased 11.3% in 1997 compared with
1996,
29
<PAGE>
and nine mines set production records in 1997. The productivity improvement is
attributable mainly to investment in a longwall mining system at Shoemaker, in
underground coal haulage at McElroy, and in an underground storage bunker at
Buchanan.
Selling, general and administrative expenses increased 3.8% to $55 million for
1997 compared with $53 million for 1996. The increase of $2 million primarily
was due to an increase in salaries and related benefits.
Depreciation, depletion and amortization decreased 0.9% to $233 million for 1997
compared with $235 million for 1996.
Interest expense increased 2.2% to $46 million for 1997 compared with $45
million for 1996. The increase of $1 million reflected interest charges related
to disputed coal royalty payments offset by lower average debt levels resulting
from the repayment of $44 million of long-term debt during 1997.
Taxes other than income increased 1.1% to $189 million for 1997 compared with
$187 million in 1996. The increase of $2 million resulted from increases in
severance taxes and required tax payments for pneumoconiosis (black lung)
benefits, which arose because of higher production. The increase in severance
taxes also resulted from the expiration in December 1996 of the West Virginia
Business and Job Expansion Tax Credit representing a portion of the tax credit
that was carried forward to 1997. The increase in taxes was partially offset by
a reduction in property tax expense as a result of mine closures.
Income Taxes. Income taxes increased 38.9% to $50 million for 1997 compared with
$36 million for 1996. The increase of $14 million resulted primarily from
increased earnings and an increase in the effective tax rate from 19.1% in 1996
to 21.3% in 1997. The increased effective tax rate for 1997 primarily was
influenced by a decline in the impact of percentage depletion.
1996 COMPARED WITH 1995
Revenue. Sales increased 3.0% to $2,336 million for 1996 compared with $2,269
million for 1995. The increase of $67 million resulted from an increase of 5.9%
in the volume of coal sold. Volumes improved because of continued growth in the
U.S. economy and colder than normal temperatures in the first quarter which
boosted demand for steam coal from electricity generators. Record sales volumes
were recorded for CONSOL.
Other income increased 35.6% to $61 million for 1996 compared with $45 million
for 1995. The increase primarily reflected aggregate gains on sales of assets of
$14 million in 1996 compared to aggregate losses of $5 million on such sales in
1995. The loss in 1995 was influenced by the sale of gas properties in Virginia.
Costs. Cost of goods sold and other operating charges increased 5.5% to $1,688
million for 1996 compared with $1,600 million for 1995. The increase of $88
million primarily reflected increased volume of coal sales during 1996 offset in
part by lower average production costs per ton. Coal mine productivity improved
10.7%. Eight mines set productivity records and nine mines set production
records, including Enlow Fork, which produced 8.7 million tons, the most ever
for a U.S. underground mine. Productivity at Loveridge was enhanced following
the installation of a new longwall mining system.
Selling, general and administrative expenses remained stable at $53 million for
1996 and 1995.
Depreciation, depletion and amortization decreased 7.1% to $235 million for 1996
compared with $253 million for 1995. The decrease of $18 million primarily was
due to the amortization in full of certain capitalized mining costs and to the
sale of certain gas properties in 1995.
30
<PAGE>
Interest expense decreased 16.7% to $45 million for 1996 compared with $54
million for 1995. The decrease of $9 million primarily was due to the lower
average principal amount and lower effective interest rates during 1996 compared
with 1995.
Taxes other than income decreased 7.0% to $187 million for 1996 compared with
$201 million for 1995. The decrease of $14 million was due primarily to the
enactment of the Virginia Coalfield Employment Enhancement Tax Credit in 1996,
which encouraged the creation and maintenance of coal mining jobs, and reduced
severance tax due to mines that were closed in 1995.
Income Taxes. Income taxes increased 56.5% to $36 million for 1996 compared with
$23 million for 1995. The increase of $13 million primarily was due to the
increase in earnings and an increase in the effective tax rate from 14.9% for
1995 to 19.1% for 1996. The effective tax rate increase resulted from a
reduction in alternative fuel tax credits because of the sale in 1995 of coalbed
methane gas operations that were eligible for such credit.
LIQUIDITY AND CAPITAL RESOURCES
CONSOL generally has satisfied its working capital requirements and funded its
capital expenditures and debt-service obligations from cash generated from
operations. CONSOL believes that cash generated from operations and its
borrowing capacity will be sufficient to meet its working capital requirements,
anticipated capital expenditures (other than major acquisitions), scheduled debt
payments and anticipated dividend payments for at least the next several years.
Nevertheless, the ability of CONSOL to satisfy its debt service obligations, to
fund planned capital expenditures or pay dividends will depend upon its future
operating performance, which will be affected by prevailing economic conditions
in the coal industry and financial, business and other factors, certain of which
are beyond CONSOL's control.
CONSOL frequently evaluates potential acquisitions. In the past, CONSOL has
funded acquisitions primarily with cash generated from operations, but CONSOL
may consider a variety of other sources, depending on the size of any
transaction, including debt or equity financing. There can be no assurance that
such additional capital resources will be available to CONSOL on terms which
CONSOL finds acceptable, or at all.
OPERATING CASH FLOWS
Net cash provided by operating activities was $298 million, $373 million and
$428 million in 1995, 1996 and 1997, respectively, and $243 million in the 1997
interim period and $263 million in the 1998 interim period. The increases in net
cash provided by operating activities reflect increases in net income and
changes in certain working capital requirements.
CAPITAL EXPENDITURES
Capital expenditures were approximately $179 million in 1995, $169 million in
1996 and $201 million in 1997. CONSOL made such expenditures for replacement of
mining equipment, the expansion of mining capacity and projects to improve the
efficiency of mining operations. During the 1998 interim period, CONSOL spent
approximately $189 million for capital expenditures excluding the costs
associated with the acquisition of Rochester & Pittsburgh. Capital expenditures
included $42 million for replacement of longwall equipment, $31 million for
expansion of the Bailey preparation plant, $20 million for drilling new wells
and installing associated gas gathering equipment for CONSOL's coalbed methane
joint venture and $96 million for other maintenance-of-production projects,
including air shafts, replacement equipment and equipment rebuilds. Capital
expenditures during the fourth
31
<PAGE>
quarter of 1998 will be for maintenance of production. CONSOL anticipates that
it will spend approximately an additional $47 million for capital expenditures
during the fourth quarter of 1998. CONSOL spent approximately $150 million for
the acquisition of Rochester & Pittsburgh and $50 million to repay certain
indebtedness of Rochester & Pittsburgh. CONSOL used cash generated from
operations and cash made available from the issuance of commercial paper to fund
capital expenditures in the second half of 1998, the acquisition of Rochester &
Pittsburgh and the repayment of indebtedness of Rochester & Pittsburgh. CONSOL
anticipates making capital expenditures of approximately $260 million during
1999 and approximately $314 million during 2000, primarily for maintenance and
replacement of mining equipment and operations, and including $5 million during
1999 for pollution abatement and mine reclamation expenditures. Capital
expenditures for pollution abatement and reclamation currently are projected to
be $6.2 million for 2000 and $4.3 million for 2001. The Company expects to fund
its capital expenditures with cash generated by operations and the issuance of
commercial paper.
DEBT
At September 30, 1998, CONSOL had total long-term debt of $430 million,
including current portion of long-term debt of $109 million. Such long-term debt
consisted of (1) an aggregate principal amount of $256 million of unsecured
notes which bear interest at rates ranging from 7.88% to 8.28% per annum and are
due at various dates between 1999 and 2007, (2) an aggregate principal amount of
$103 million of two series of industrial revenue bonds which were issued in
order to finance CONSOL's Baltimore port facility and bear interest at the rate
of 6.5% per annum and mature in 2010 and 2011, (3) an aggregate principal amount
of $3 million of variable rate notes due at various dates through 2001, (4) $28
million in advance royalty commitments, (5) an aggregate principal amount of $14
million of notes maturing at various dates through 2007 and (6) an aggregate
principal amount of $26 million of capital leases. An aggregate principal amount
of $109 million in long-term debt will come due during 1999. In addition, at
September 30, 1998, CONSOL had an aggregate principal amount of $105 million of
commercial paper outstanding which had maturities ranging up to 30 days and bore
interest at varying rates.
CONSOL issued $600 million in commercial paper in November, 1998 in order to
fund the purchase of shares from DuPont Energy, a dividend of $60 million and
the acquisition of Rochester & Pittsburgh and the refinancing of certain
indebtedness incurred by Rochester & Pittsburgh. The commercial paper pays
interest at varying rates and will be retired in part with the net proceeds of
the offering. At November 30, 1998, there was $543 million principal amount of
commercial paper outstanding. CONSOL will retire outstanding commercial paper
with proceeds of the offering. After retiring the outstanding commercial
paper, CONSOL believes that it will continue to be able to issue commercial
paper.
CONSOL has a Senior Credit Facility available to it under which it may borrow up
to $700 million. At November 30, 1998, there were no borrowings outstanding
under the Senior Credit Facility. To date, CONSOL has used the Senior Credit
Facility to support the payment of its commercial paper. However, CONSOL could
borrow amounts under the Senior Credit Facility for other purposes. Borrowings
under this facility bear interest based on the London Interbank Offer Rate or
the Prime Rate at CONSOL's option. Funds may be borrowed for periods ranging
from one to 360 days, depending upon the interest rate selected by CONSOL.
CONSOL has not engaged in any hedging transactions since 1995.
STOCKHOLDERS' EQUITY AND DIVIDENDS
CONSOL had stockholders' equity of $303 million at December 31, 1997 and $427
million at September 30, 1998. CONSOL paid ordinary cash dividends of $80
million during each of 1995, 1996 and 1997. CONSOL paid a dividend of $60
million in November 1998 and a $20 million dividend in December 1998. CONSOL
also paid an extraordinary cash dividend to its stockholders of $380 million in
1997. The Board of Directors currently intends to pay quarterly dividends on the
common stock. It is expected that the first quarterly dividend will be $ per
share (a rate of per share annually) and will be declared and paid in the third
quarter
32
<PAGE>
of 1999. Current outstanding indebtedness of CONSOL does not restrict CONSOL's
ability to pay cash dividends.
ACCRUALS FOR CERTAIN LONG-TERM LIABILITIES
CONSOL has accrued for the costs it will incur in the future to satisfy certain
obligations. CONSOL had accrued $2,484 million, $2,460 million, $2,433 million
and $2,466 million at December 31, 1995, 1996, 1997 and September 30, 1998 for
deferred credits and other liabilities. These accruals are chiefly comprised of
post retirement health care benefits, workers' compensation, pneumoconiosis
(black lung) benefits and costs associated with closing mines. These obligations
are unfunded. The accruals of these items are based on estimates of future
liabilities, which estimates are periodically reviewed in light of CONSOL's
experience, changes in mining plans and legislation and other developments.
Thus, from time to time, CONSOL's results of operations may be significantly
affected by changes to such deferred credits and other liabilities. See Notes 14
and 15 of the Notes to Consolidated Financial Statements.
CONSOL provides medical and life insurance benefits to retired employees not
covered by the Coal Industry Retiree Health Benefit Act of 1992. Substantially
all of CONSOL's employees may become eligible for these benefits if they have
worked ten years and attained the age of 55. The associated plans are unfunded.
CONSOL had accrued $1,145 million, $1,144 million, $1,145 million and $1,289
million at December 31, 1995, 1996 and 1997 and September 30, 1998,
respectively. The net costs of maintaining CONSOL's post retirement benefits
plans were $47 million, $54 million, $61 million and $55 million during 1995,
1996, 1997 and the nine months ended September 30, 1998, respectively. CONSOL
used a 7.5% annual rate increase in per capita cost of covered health care
benefits in determining such costs for 1997. CONSOL had assumed that the rate of
such increases will gradually decline to 4.5% in 2003 and remain level
thereafter. An increase in the assumed health care cost trend rates by 1% in
each year would increase the accumulated post retirement benefit obligation at
December 31, 1997 by $85 million and increase the aggregate of the service and
interest cost component of net cost of maintaining CONSOL's post retirement
benefits plan for 1997 by $8 million.
CONSOL is required to pay pneumoconiosis (black lung) benefits to eligible
employees and former employees and their dependents under the Black Lung
Benefits Act of 1969 and the Black Lung Benefits Revenue Act of 1977 and the
Black Lung Benefits Reform Act of 1977. CONSOL is also liable under various
state statutes for pneumoconiosis claims. CONSOL provides self-insured accruals
for present and future liabilities for such benefits and determines such
liabilities by employing the projected unit credit method. Under this method,
the costs determined by the actuarial study are amortized over the employees'
requisite service periods. CONSOL amortizes the actuarial gains and losses over
the remainder of the average service life of the employees, which approximates
15.4 years. CONSOL had accrued $518 million, $518 million, $511 million and $496
million for such benefits at December 31, 1995, 1996, 1997 and September 30,
1998. The cost of providing such benefits was $6 million, $12 million and $4
million during 1995, 1996, 1997. The impact of these costs has not been
significant for the 1998 Period. Actual claims paid by CONSOL could change
significantly if current legislation is amended or if new legislation is
enacted. See "Regulation--Employee and Retirement Benefits--Black Lung
Legislation" and Note 14 of Notes to Consolidated Financial Statements.
CONSOL estimates and accrues for costs associated with closing mines and the
perpetual care of mines over the productive life of mines on a
units-of-production basis. CONSOL had accrued $246 million, $244 million, $250
million and $286 million at December 31, 1995, 1996, 1997 and September 30, 1998
for such costs.
CONSOL accrues for workers' compensation claims resulting from traumatic
injuries based on historical claims rates and periodically adjusts these
estimates based on the estimated costs of claims made. CONSOL had accrued $225
million, $215 million, $211 million and $248 million at December 31, 1995, 1996,
1997 and September 30, 1998 for such costs.
33
<PAGE>
INFLATION
Inflation in the United States has been relatively low in recent years and did
not have a material impact on CONSOL's results of operations for the nine months
ended September 30, 1998 or the years ended December 31, 1995, 1996 or
1997.
IMPACT OF YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of CONSOL's computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. The
failure to correct any such programs or hardware could result in system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. Based on recent assessments, CONSOL has
determined that it will be required to modify or replace some portions of its
software, and, to a lesser extent, its hardware so that those systems will
properly utilize dates beyond December 31, 1999. CONSOL believes that with
modification and replacement of existing software and hardware, the year 2000
issue can be substantially mitigated. However, if such modifications and
replacements are not made, or are not completed on a timely basis, which CONSOL
currently does not anticipate, the year 2000 issue could have a material impact
on the operations of CONSOL.
CONSOL's plan to resolve year 2000 issues involves four phases: assessment,
remediation, testing and implementation. In September 1997, CONSOL formed a
committee to address this issue. The committee has completed its assessment of
all material information technology systems that would be affected by the year
2000 issue if not modified and has initiated a program to modify or replace
portions of its software so that CONSOL's computer systems will function
properly in the year 2000 and thereafter. To date, CONSOL is 50% complete on the
remediation and testing phase of the systems. CONSOL expects software
reprogramming and replacement, testing and implementation to be completed by the
second quarter of 1999.
CONSOL is in the process of assessing its operating equipment that uses
microprocessors to determine the extent that they are at risk for year 2000
problems. This equipment includes coal mining, processing and loadout equipment.
The remediation of operating equipment depends primarily on the manufacturers of
that equipment for modifications. CONSOL is also in the process of assessing the
extent to which its suppliers of other products and services will be able to
supply CONSOL through the year 2000. CONSOL has initiated formal communications
with all of its significant equipment vendors and other suppliers. CONSOL has
not obtained timetables of expected completion dates of modification, testing
and implementation from all of the vendors and suppliers. CONSOL does not
control its suppliers and vendors, but is attempting to have such timetables
submitted in the first quarter of 1999. The effect on CONSOL's operations of not
having these systems remediated, while not estimable at this time, could be
significant.
CONSOL conducts transactions that interface directly with systems of suppliers
and customers. There is no guarantee that the systems of other companies on
which CONSOL's systems rely will be timely converted and would not have an
adverse effect on CONSOL's systems. Furthermore, there can be no assurance that
CONSOL's suppliers will not experience material business disruptions that could
affect CONSOL as a result of the year 2000 problem. CONSOL plans to complete
communications with important suppliers and customers, which do not have system
interfaces, as to their year 2000 readiness in the first quarter of 1999. The
communications to date from such third parties to CONSOL's inquiries do not
indicate that these third parties expect, at this time, to be non-compliant by
the year 2000 based on their progress to date. However, the inability of a
substantial number of third parties to complete their year 2000 resolution
process could materially impact CONSOL. For example, the failure to be year 2000
compliant by banks with whom CONSOL has material banking relationships could
cause significant disruptions in CONSOL's ability to make
34
<PAGE>
payments, deposit funds and make investments, which could have a material
adverse effect on CONSOL's financial condition.
CONSOL is utilizing both internal and external resources to reprogram or
replace, test and implement the software and operating equipment for year 2000
modifications. The total cost of the year 2000 project is estimated to be less
than $2 million and is being expensed as incurred and funded through operating
cash flows. In 1998, CONSOL expects to expense $539,000 related to all phases of
the year 2000 project.
CONSOL has not established contingency plans in case of failure of its
information technology systems since it expects to have its material systems in
place by the second quarter of 1999. In connection with CONSOL's assessment of
third party readiness and operating equipment, in the first quarter of 1999
CONSOL will evaluate the necessity of contingency plans based on the level of
uncertainty regarding such compliance. In the event CONSOL's intermediaries or
vendors do not expect to be year 2000 compliant, CONSOL's contingency plan may
include replacing such intermediaries or vendors or conducting the particular
operations itself.
CONSOL plans to complete the year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, and other
factors. Estimates on the status of completion and the expected completion dates
are based on progress to date compared to the timetable established by its year
2000 committee. CONSOL has not employed the services of independent contractors
to verify CONSOL's assessment and estimates related to the year 2000 problem.
There can be no guarantee that these estimates will be achieved and actual
results could differ materially from these plans. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
CONSOL believes that it is difficult to fully assess the risks of the year 2000
issue due to numerous uncertainties surrounding the issue. Management believes
that the primary risks are external to CONSOL and relate to the year 2000
readiness of customers, suppliers, transportation suppliers such as railroads,
barge lines, terminal operators, ocean vessel brokers, and others. The inability
of CONSOL or such third parties to adequately address the year 2000 issues on a
timely basis could result in a material financial risk, including loss of
revenue, substantial unanticipated costs and service interruptions. Accordingly,
CONSOL plans to devote the resources it concludes are appropriate to address all
significant year 2000 issues in a timely manner.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued which
establishes new rules for the reporting and display of comprehensive income and
its components. CONSOL adopted this statement for the year ending December 31,
1998. CONSOL has no significant items of other comprehensive income.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131) was issued which establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes SFAS No. 14 "Financial Reporting for
Segments of a Business Enterprise." The new standard requires that comparative
information from earlier years be restated to conform to requirements. CONSOL
adopted this standard for 1997.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued which improves and standardizes disclosures
by eliminating certain existing reporting requirements and adding new
disclosures. The statement addresses disclosure issues only and does not change
the measurement of recognition provisions specified in previous statements. The
statement supersedes
35
<PAGE>
the disclosure requirements of SFAS No. 87, "Employer's Accounting for
Pensions," SFAS No. 88, "Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." CONSOL
intends to adopt this statement for the year ending December 31, 1998.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued which establishes accounting procedures for derivative
instruments including certain derivative instruments embedded in other contracts
and hedging activities. This statement amends SFAS No. 52, "Foreign Currency
Translation" to permit special accounting for a hedge of a foreign currency
forecasted transaction with a derivative. It supersedes SFAS No. 80, "Accounting
for Futures Contracts, SFAS No. 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk", SFAS No. 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." It also amends
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments" to include
the disclosure provisions about concentration of credit risk from Statement 105.
CONSOL intends to adopt this statement for the year ending December 31, 1998. No
effect from this adoption is anticipated.
36
<PAGE>
COAL INDUSTRY OVERVIEW
Coal is one of the world's major energy sources. The International Energy Agency
estimates that nearly 20% of the world's total primary energy supply came from
coal in 1996. In most parts of the world, coal is primarily used for the
generation of electricity. World-wide, coal combustion accounted for 37% of the
generation of electricity in 1996. In the United States, coal combustion
accounted for 57% of electricity generation in 1997.
The major coal producers in the world are China, the United States, Russia,
Ukraine, India, Australia and South Africa. More than 60 countries produce coal.
The United States has the largest reserve base, with an estimated 29% of the
world's recoverable bituminous and subbituminous coal reserves, followed by
Russia, China, India, South Africa and Australia.
U.S. COAL MARKETS
Production of coal in the United States has increased from 434 million tons in
1960 to 1.1 billion tons in 1997. The following table shows actual consumption
of U.S. produced coal during 1996 and 1997 and projected consumption through
2015.
<TABLE>
<CAPTION>
HISTORICAL AND PROJECTED U.S. COAL CONSUMPTION
----------------------------------------------------------------------------
COMPOUND
ANNUAL
GROWTH
RATE
1996-
SECTOR 1996 1997 2000P 2005P 2010P 2015P 2015
- ---------------------------------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
in millions of tons
Utility........................... 873.2 899.8 979.3 1027.9 1,050.6 1,070.6 1.1 %
Industrial........................ 68.2 68.2 67.7 67.9 66.1 66.5 (0.1)
Non-utility generators........... 22.1 23.0 24.8 29.3 38.3 49.8 4.4
Coke plants/steel mills
Metallurgical quality.......... 31.7 31.0 30.2 19.2 18.4 15.2 (3.8)
Steam quality.................. 5.0 7.2 9.2 15.4 15.8 17.9 6.9
------- ------- ------- ------- ------- -------
Total domestic.............. 1,000.2 1,029.2 1,111.2 1,159.8 1,189.2 1,220.0 1.1
------- ------- ------- ------- ------- -------
90.9 83.5 76.3 74.5 75.4 77.0 (0.9)
------- ------- ------- ------- ------- -------
Export............................
Total....................... 1,091.1 1,112.7 1,187.5 1,234.3 1,264.6 1,297.0 0.9 %
======= ======= ======= ======= ======= =======
</TABLE>
- -----------------------------
Source: RDI, Outlook for Coal, Winter 1998-1999.
GENERATION OF ELECTRICITY
Coal is the predominant fuel used in the generation of electricity. Over the
past 20 years, generators of electricity have increased consumption of coal from
less than 500 million tons per year in 1977 to almost 900 million tons in 1997.
Coal's share of the fuel market for electricity generation has risen from 46% to
57%
37
<PAGE>
during that period. The increase in consumption was due in part to changes
in attitudes toward fuel supply security following the Arab oil embargoes during
the 1970s. More important, coal has a low delivered cost relative to other
competing fuels. The following table shows a comparison of the average
generating costs of electricity for each primary fuel.
<TABLE>
<CAPTION>
AVERAGE PRODUCTION COSTS OF ELECTRICITY GENERATION
---------------
$/megawatt Hour
<S> <C>
Coal.................................. $17.40
Natural Gas........................... $33.67
Nuclear............................... $20.02
Hydro................................. $0.65
</TABLE>
- -----------------------------
Source: RDI Database
On average, coal-fired electricity generation is less expensive than generation
from natural gas or nuclear power. Hydro-electric power is inexpensive but
cannot grow due to a lack of suitable new dam sites.
RDI expects generators of electricity to increase their demand for coal as
demand for electricity increases. Because coal-fired generation is used in most
cases to meet base-load requirements, coal consumption has generally grown at
the pace of growth in demand for electricity. The base-load requirement of a
power generator is the amount of power that is required 24 hours a day. This is
compared to peak requirements that only occur at times during a day when
electricity demand is at its greatest.
The following table shows fuel source comparisons for the generation of
electricity in terms of kilowatts generated.
<TABLE>
<CAPTION>
DOMESTIC ELECTRICITY FUEL SOURCES COMPARISON
--------------------------
1990 1996 1997
------ ------ -----
<S> <C> <C> <C>
Coal....................................................... 55% 56% 57%
Nuclear.................................................... 21 22 20
Hydro...................................................... 10 11 11
Natural Gas................................................ 9 9 9
Other...................................................... 5 2 3
------ ------ -----
Total................................................ 100% 100% 100%
====== ====== =====
</TABLE>
- -----------------------------
Source: Department of Energy, EIA Monthly Energy Review, February 1998.
EXPORTS
Current world seaborne trade in hard coal is about 480 million tons, with about
61% used to generate heat and produce steam, and about 39% used in steel-making
processes. Of the world's coal producing countries, only the United States,
Australia and South Africa are significant exporters. Prior to 1984, the United
States was the world's leading exporter of coal, but in the past 15 years that
role has diminished and traditional markets for
38
<PAGE>
U.S. coal exports have changed. In general, the United States is a swing
producer of coal for international markets. Higher labor costs and
transportation costs in the United States tend to make U.S. coals less
competitive when ample supplies of coal from other producing areas are
available. When supplies are restricted, for example because of a strike of
workers in a producing country, U.S. coal tends to fill the gap because of the
ability of U.S. producers to ship large amounts of coal on short notice. The
quality of U.S. coals, particularly the heat content, ash and coking
capabilities of Appalachian coals, and the well developed transportation
infrastructure in the East, are advantages for the United States. CONSOL
believes that its high-Btu, low ash coals from northern Appalachia and CONSOL's
control of a major export terminal at Baltimore position it to take advantage of
steam coal market opportunities overseas when they occur.
The U.S. Department of Energy estimates that the United States exported 83.5
million tons of coal in 1997. The most coal ever exported by the United States
was in 1981 when exports reached 112.5 million tons. Since 1990, exports have
averaged 90.7 million tons per year. More than 98% of the coal exported by the
United States is bituminous coal, most of which is mined in northern and central
Appalachia. The remainder of the coal exported is anthracite and lignite. In
1997, Canada (14.5 million tons), Japan (7.9 million tons), and Brazil (7.5
million tons) were the three largest purchasers of U.S. coal overseas.
Metallurgical coal historically has been the principal type of coal exported
from the United States. In 1997, more than 63% of the coal exported was
bituminous, metallurgical-grade coal used in steel making. The remainder of the
coal was used for the generation of electricity, cement making and other
industrial processes. Major international purchasers of U.S. metallurgical coals
are Brazil, Canada, Japan, Italy, The Netherlands, Belgium and France.
CONSOL expects growth over the long term in steel making and metallurgical coal
consumption in Brazil, India, Korea and Taiwan to offset a slight decline in
metallurgical coal use in Europe. CONSOL believes that increased steel
production in these countries will lead to increased metallurgical coal
consumption. Europe will continue to be a primary market for U.S. metallurgical
coal because of the transportation advantage U.S. coals have over coals from
Canada or Australia. In addition, aging European coke ovens increasingly will
need high quality, low-expansion coals which produce high carbon content and low
porous structure coke. These features are common in CONSOL's low-volatile
metallurgical coal produced in Virginia. In addition, CONSOL expects its premium
low-volatile metallurgical coal to continue to play an important role in the
coking coal blends of the future. These coals enhance the strength of the coke
produced. This is particularly important to large blast furnaces operated with
low coke rates and with high pulverized-coal, oil or gas injection rates.
COAL IMPORTS
Coal imports into the United States represent a small percentage of the total
U.S. market for coal. In 1997, total consumption of coal in the United States
was 1,021.2 million tons while imports of coal from overseas were 7.4 million
tons, or 0.7%. The largest exporter of coal to the United States was Colombia
with 3.0 million tons in 1997. Imported coal typically competes only in coastal
markets in the eastern United States.
COAL PRODUCTION
U.S. coal production was a record 1,088.6 million tons in 1997. During 1996, the
most recent year for which complete data is available, bituminous coal accounted
for 59% of production, subbituminous coal accounted for 32%, lignite accounted
for 8% and anthracite accounted for 1%.
39
<PAGE>
The following table shows principal U.S. production statistics for the period
1990 to 1997.
U.S. PRODUCTION STATISTICS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
CATEGORY 1990 1991 1992 1993 1994 1995 1996 1997
- -------- ------- ----- ----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL TONS 1,026.3 995.9 997.5 945.4 1,033.5 1,032.9 1,063.8 1,088.6
(in millions)
PERCENTAGE OF TOTAL
TONS
East 61.2% 59.3% 59.0% 54.5% 54.8% 52.7% 52.9% 53.0%
West 38.8 40.7 41.0 45.5 45.2 47.3 47.1 47.0
Underground 41.3 40.9 40.8 37.1 38.6 38.4 38.5 38.5
Surface 58.7 59.1 59.2 62.9 61.4 61.6 61.5 61.5
NUMBER OF MINES
Total 3,430 3,022 2,746 2,475 2,354 2,104 1,903 1,810
Underground 1,690 1,489 1,354 1,196 1,143 977 885 810
Surface 1,740 1,533 1,392 1,279 1,211 1,127 1,018 1,000
NUMBER OF MINE
EMPLOYEES
Total 131,306 120,602 110,196 101,322 97,590 90,252 83,462 78,000
Underground 84,154 78,050 70,907 64,604 61,652 57,879 53,796 51,000
Surface 47,152 42,552 39,289 36,718 35,938 32,373 29,666 27,000
AVERAGE PRODUCTION PER
MINE (in thousands
of tons)
Total 300 330 363 382 439 491 559 N.A.(1)
Underground 251 273 301 268 349 406 463 N.A.(1)
Surface 347 384 424 465 524 565 642 N.A.(1)
</TABLE>
_______________________
Source: U.S. Department of Energy/Energy Information Agency/National Mining
Association
(1)Information was not available at the date of this prospectus.
U.S. coal production increased 3.5% from 1990 to 1996, while the number of
operating mines declined 44.5% during the same period. In part, this reflected a
shift from smaller, high-cost operations to larger, more efficient,
technologically advanced, lower-cost operations. In particular, the production
attributable to large, capital intensive underground mines in the East and large
surface mines in the Powder River Basin in the West
40
<PAGE>
has grown. The cost structure of these mines has contributed to a steady decline
in steam coal prices that has allowed coal to maintain more than half of the
market in the United States for fuel used in generating electricity.
MINING METHODS
Coal is mined by underground or surface methods depending upon several factors,
including the location of the coal seam and the geology of the surrounding area.
In general, coal that is more than 200 feet below the surface is mined by
underground, or "deep" mining methods. Seams closer to the surface are extracted
by surface mining.
Underground mining accounted for 39% of total U.S. coal production in 1996.
There are two principal methods of underground mining: continuous mining, which
accounted for 45% of underground coal produced in 1996, and longwall mining,
which accounted for 47% of underground coal produced in 1996. In continuous
mining, coal is mined by the room-and-pillar system. This involves the
excavation of a series of "rooms" into the coal seam, leaving "pillars" or
columns of coal to help support the mine roof. Mining conditions in certain
areas may allow the coal pillars to be extracted during the "retreat" phase of
mining. A mining machine called a continuous miner tears at the coal in the
seam. Typically, the coal is loaded onto shuttle cars which transport the coal
to a conveyor belt or to rail cars for transport to the surface. The use of
shuttle cars to transport coal from the "section" where mining is taking place
to the belt or rail transportation system, is a bottleneck in the production
cycle and results in lost mining time at the coal seam while the continuous
miner waits for shuttle cars to remove the coal from the working area.
Where geology is favorable, the most efficient method of underground extraction
of coal is with longwall mining systems. With these systems, two sets of
parallel "entries" up to 10,000 feet in length are excavated by continuous
miners on either side of a block of coal to be mined by the longwall equipment.
The entries are joined together at the far end by crosscuts in the coal. The
block of coal thus outlined is called a "panel," and the 1000-1200 foot
dimension of the panel (hence the name "longwall") is referred to as the "face"
where the longwall mining machine will begin cutting coal. A rotating shearer on
a mining machine moves back and forth across the width of the face, cutting and
transporting coal from the face in one operation. The longwall machine has its
own moveable electro-hydraulic roof supports that are advanced down the length
of the block of coal as the shearer cuts the coal away. This method of mining
removes all the coal in the panel without leaving coal in place for roof
support. Mining by longwall methods has revolutionized underground mining
operations in the last 20 years. Over that period, the share of coal mined
underground by longwall mining machines has increased from less than 10% to 47%.
Surface mining consists of the following operations: removal of the covering
layer of rock and soil, called overburden, extraction of the coal using power
shovels, which load the coal into trucks to transport the coal from the "pit,"
backfilling the excavation with earth, and restoring the site to its approximate
original vegetation and appearance. In smaller surface mines, bulldozers and
front-end loaders are often used to remove overburden. Front-end loaders can
also be used to load coal.
After mining, coal often is prepared for shipment in a preparation plant. This
facility utilizes sizing, gravity, centrifugal force and chemical baths to
separate the coal from the non-combustible rock material. This cleaning process
upgrades the quality and heat value of the coal by removing or reducing pyritic
sulfur deposits, rock, clay and other non-combustible, ash producing material.
After cleaning, coal is transported to the customer immediately or stored on the
ground or in large, concrete silos for transportation to customers later.
41
<PAGE>
COAL PRODUCING REGIONS
Coal is mined from coalfields throughout the United States, with the major
production centers located in northern Appalachia, central Appalachia, the
Illinois Basin, the Powder River Basin and in other western coalfields.
[Map of the U.S. indicating the locations of major coal basins]
NORTHERN APPALACHIA
Medium- and high-sulfur coal is found in the northern Appalachia coalfields of
western Pennsylvania, southeastern Ohio and northern West Virginia. Production
in the region was approximately 156 million tons in 1997, up from 147 million
tons in 1996. In 1997, 121 million tons were sold to electric utilities. Coal
production has increased slightly in recent years and production has shifted
from high-cost, inefficient, low-volume operations to lower cost, more
efficient, high-volume operations. As a result, much of the production in this
region is concentrated in a few highly productive longwall mining operations in
southwestern Pennsylvania and northern West Virginia. The coal from northern
Appalachia has a heat content ranging from 12,500 to 13,000 Btus per pound and
generally has medium- to high-sulfur content.
Coal producers in southwestern Pennsylvania enjoy strong competitive advantages
for markets within the state, due to the proximity of many power plants to the
coal producing region. Power plants located along the Monongahela and Ohio
rivers have access to a wide variety of coals, particularly those produced in
West Virginia.
Two other markets in which southwestern Pennsylvania and northern West Virginia
coal producers enjoy a transportation advantage are utility companies with
plants in New York and Maryland that can burn medium- to high-sulfur coal and
are served by railroads. Railroads also offer this coal good access into Ohio
and other Great Lake states.
CENTRAL APPALACHIA
The central Appalachia region includes coalfields in eastern Kentucky,
southwestern Virginia and central and southern West Virginia. Production in
central Appalachia was 288 million tons in 1997 compared with 279 million tons
in 1996. In 1997, 175 million tons produced in central Appalachia were sold to
electric utilities principally in the southeast United States. Central
Appalachia operations also sell to the export market and to industrial
customers. Geologic conditions in central Appalachia led to the creation of over
100 significant coalbeds, 60 of which currently are mined. A variety of mining
techniques are used as seams are found on mountaintops and below valley floors.
The coal from central Appalachia has an average heat content of 12,500 Btus per
pound and generally has low-sulfur content.
The southeast United States has significant potential for the growth of coal
demand. Much of the demand growth in the 1980s was attributable to new
coal-fired power plants. At the same time, however, nuclear plants were being
brought on-line by some utilities. Thus, some utilities were reducing the use of
existing coal plants because of new nuclear plants while other utilities were
increasing coal burn because of new plants. The result is that some utilities
have excess coal-fired capacity despite the growth of electricity demand over
the past ten years.
ILLINOIS BASIN
The Illinois Basin is located under most of Illinois, western Indiana and
western Kentucky. Production in the basin was 112 million tons in 1997 and in
1996. In 1997, 103 million tons were sold to electric utilities. With the
depletion of surface minable reserves, mining today is predominantly done
underground. Coal production in the area has experienced significant
consolidation in the past several years. The Illinois Basin is a declining
42
<PAGE>
production center due to the region's relatively high-sulfur coal and
competition from lower-sulfur western coal. Production in the Illinois Basin
peaked at 141 million tons in both 1984 and 1990. Since 1990, production has
decreased by 20%. In 1996, production stabilized in several of the Illinois
Basin's sub-regions, including central Illinois, due to stabilized demand and
limited capacity. The coal from the Illinois Basin has a heat content ranging
from 10,000 to 12,000 Btus per pound and generally has medium- to high-sulfur
content.
The principal utility markets for Illinois Basin coal are the rail- or
truck-served plants located within the coal producing states of Illinois,
Indiana, and Kentucky that comprise the region and in the neighboring states of
Missouri, Iowa, Kansas, and Wisconsin. Barge-served plants on the lower Ohio,
Cumberland, Tennessee and Mississippi rivers, as well as a few plants in Florida
and along the Gulf Intracoastal waterway are also important markets.
The close proximity of the Illinois Basin to the mouth of the Ohio, Tennessee
and Cumberland rivers and the Port of New Orleans provides the region with
several advantages in serving its primary markets when compared to Northern
Appalachia or other high sulfur producing regions. A shorter transit time for
western Kentucky and southern Illinois coal to these markets minimizes transit
costs.
POWDER RIVER BASIN
The Powder River Basin is located in northeastern Wyoming and southeastern
Montana. Production in 1997 was 306 million tons compared with 299 million tons
in 1996. In 1997, 306 million tons were sold to electric utilities. Quality
varies between lignite and subbituminous coals, with current production of
subbituminous coal averaging 9,100 Btus per pound and 0.5% sulfur in Montana, to
8,600 Btus per pound and 0.3% sulfur in Wyoming.
WESTERN BITUMINOUS COAL REGIONS
The western bituminous coal regions include the Hanna Basin in Wyoming, the
Uinta Basin of northwestern Colorado and Utah, the Four Corners Region in New
Mexico and Arizona and the Raton Basin in southern Colorado. Production in 1997
was 116 million tons compared with 110 million tons in 1996. In 1997, 95 million
tons were sold to electric utilities. These regions produce high quality,
low-sulfur steam coal for selected markets in the region, for export through
West Coast ports and for shipments to some Midwestern power plants for which
Powder River Basin's subbituminous coals are not suitable. Coal from the western
bituminous coal region has a heat content ranging from 9,000 to 11,500 Btus per
pound and generally has low-sulfur content.
COAL CHARACTERISTICS
There are four types of coal: anthracite, bituminous, subbituminous and lignite.
Each has characteristics that make it more or less qualified for different end
uses. In general, coal is characterized by end use as either "steam coal" or
"metallurgical coal." Steam coal is used by utilities for electricity generation
and by industrial activities to produce steam, electricity, or both.
Metallurgical coal is converted into coke, which is used in the production of
steel. Heat value, sulfur content and transportation costs are the most
important variables in the marketing of steam coal.
HEAT VALUE
The heat value of coal is commonly measured in British thermal units, or Btus.
Coal found in the eastern and midwestern regions of the United States tends to
have a heat content ranging from 10,000 to 14,000 Btus per pound. Most coal
found in the western United States yields less than 11,000 Btus per pound. By
comparison,
43
<PAGE>
one barrel of crude oil contains between 4.8 million and 5.4 million Btus and
one cubic foot of natural gas contains between 950 and 1,050 Btus.
Anthracite coal has a heat content as high as 15,000 Btus per pound. A limited
amount of anthracite deposits is located primarily in northeastern Pennsylvania,
and is used primarily for industrial and home heating purposes.
Bituminous coal has a heat content that ranges from 10,500 to 14,000 Btus per
pound. This coal is located primarily in Appalachia, the midwestern United
States, Colorado, Arizona and Utah, and is the type most commonly used for
electric power generation in the United States. Bituminous coal is used for
utility and industrial steam purposes, and as a feedstock for coke.
Subbituminous coal has a heat content that ranges from 7,800 to 9,500 Btus per
pound. Most subbituminous reserves are located in Montana, Wyoming, Colorado,
New Mexico, Washington and Alaska. Subbituminous coal is used almost exclusively
by electric utilities and some industrial consumers.
Lignite has a heat content that generally ranges from 6,500 to 8,300 Btus per
pound. Major lignite operations are located in Texas, North Dakota, Montana and
Louisiana. Lignite is used almost exclusively in power plants located adjacent
to or near such mines because any significant transportation costs, coupled with
mining costs, would render its use uneconomical.
SULFUR
The sulfur content of a coal deposit can vary from seam to seam and within each
seam. When coal is burned, it produces sulfur dioxide, a regulated pollutant,
the amount of which varies depending upon the chemical composition and the
concentration of sulfur in the coal. Low-sulfur coal has a variety of
definitions, but it generally refers to coal with a sulfur content of 1% or less
by weight.
During the past two decades, air quality laws have created some market
advantages for lower-sulfur coals by imposing restrictions on the amount of
sulfur dioxide that can be released into the atmosphere when coal is burned. The
restrictions usually require high-sulfur coal users to install scrubbers or to
buy pollution allowances under the Clean Air Act. CONSOL believes that future
demand for coal will be influenced by the heat content of the coal and by the
proximity of the coal to major electricity generating stations more than by the
sulfur content of the coal. See "Business?Competitive Strengths?High-Quality,
Strategically-Located Reserve Base."
ASH
Ash is the inorganic residue remaining after combustion of coal. As with sulfur
content, ash content varies from seam to seam and within seams. Ash content is
an important characteristic of coal because power plants must handle and dispose
of ash following combustion.
MOISTURE
Moisture content of coal varies by the type of coal, the region where it is
mined and the location of coal within a seam. In general, high moisture content
decreases the heat value and increases the weight of the coal, making it more
expensive to transport.
COKING PROPERTIES OF METALLURGICAL COAL
When some types of coal are super-heated in the absence of oxygen, they form a
hard, dry, caking product called coke, which is chiefly used in the steel
production process as a fuel and reducing agent to smelt iron ore in a blast
furnace.
44
<PAGE>
COST STRUCTURE
COAL PRICES
Coal prices vary dramatically among coals and are affected primarily by the
marginal cost of production and transportation costs to the customer. Factors
that influence coal prices are geological characteristics (such as seam
thickness, overburden ratios and depth to underground reserves), transportation
costs, regional coal production capacity relative to demand and coal quality
characteristics including heat value, ash, moisture and sulfur content.
Industrial coal generally costs more to produce and is shipped in smaller
volumes than steam coal from the same region used by generators of electricity.
As a result, industrial coal's prices are $3 to $5 dollars per ton higher.
Metallurgical coal, with higher carbon content and lower ash content generally
costs more to mine and typically has prices $4 to $10 per ton higher than steam
coal produced from the same region. Even higher prices are paid for premium
metallurgical coal.
The following table summarizes steam coal prices for the generation of
electricity by supply region.
HISTORICAL STEAM COAL SPOT PRICES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Nominal Dollars per Ton, Free on Board at Mine POUNDS SO/2/
BTUS PER PER MILLION
POUND BTUS 1996 1997 1998
REGION/BASIN
- --------------------------------------------- ------------------- ---------------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Central Appalachia....................... greater than 12,500 less than equal to 1.2 $26.35 $25.01 $26.93
greater than 12,500 1.21-1.70 25.46 24.89 25.84
greater than 12,500 1.71-2.5 24.62 23.92 24.63
less than 12,500 less than equal to 1.2 22.31 23.22 24.77
less than 12,500 1.21-1.70 21.77 22.85 23.31
less than 12,500 1.71-2.5 21.20 21.24 22.99
Northeastern Appalachia.................. greater than 12,750 1.2-2.5 $25.98 $25.83 $24.52
greater than 12,750 greater than 2.5 22.91 24.12 23.20
Illinois Basin........................... greater than 11,000 greater than 2.5 $19.55 $19.69 $20.47
less than 11,000 greater than 2.5 17.50 18.89 18.26
Southern Powder River Basin.............. greater than 8,600 less than equal to 1.2 $ 4.27 $ 4.04 $ 4.40
less than 8,600 less than equal to 1.2 3.23 3.25 3.30
Northern Powder River Basin.............. greater than 8,800 less than equal to 1.2 $ 6.24 $ 6.14 $ 6.73
Four Corners............................. greater than 9,500 less than equal to 1.2 $15.80 $17.56 $15.66
</TABLE>
- -----------------------------
Source: RDI, Outlook for Coal, Winter 1998-1999.
45
<PAGE>
TRANSPORTATION
Coal for domestic consumption generally is sold at the mine and transportation
costs are normally borne by the purchaser. Export coal is usually sold at the
loading port. Coal producers are responsible for shipment to the export
coal-loading facility and the buyer pays the ocean freight. Coal for electricity
generation is purchased on the basis of its delivered cost per million Btus.
Most utilities arrange long-term shipping contracts with rail or barge companies
to assure stable delivered costs.
Transportation is often a large component of the buyer's cost. Although the
customer pays the freight, transportation cost is still important to coal mining
companies because the customer may choose a supplier largely based on the cost
of transportation. According to RDI, in 1995, transportation costs represented
69%, 28% and 25% of the overall delivered cost of coal produced in the western
United States, eastern United States and midwestern United States.
According to the National Mining Association in 1997, approximately 77% of all
U.S. coal was shipped by rail or barge, making these modes the keys to domestic
coal distribution. Trucks and overland conveyors are used to haul coal over
shorter distances. Lake carriers and ocean carriers transport coal to export
markets. Some domestic coal is shipped over the Great Lakes to domestic markets.
Railroads move more coal than any other commodity, and in 1996 coal accounted
for 22% of total U.S. rail freight revenue and 44% of total rail freight
tonnage.
DEREGULATION OF THE ELECTRIC UTILITY INDUSTRY
In October 1992, the National Energy Policy Act was signed in the United States,
giving wholesale suppliers access to the transmission lines. In April 1996, the
Federal Energy Regulatory Commission issued orders establishing rules providing
for open access to electricity transmission systems, thereby encouraging
competition in the generation of electricity. While broad deregulation
legislation is still being considered at the federal level, a number of states
have taken significant deregulation initiatives as provided for by the Federal
Energy Regulatory Commission.
Deregulation of the electric utility industry, if and where implemented, would
enable industrial, commercial and residential customers to shop for the lowest
cost supply of power and the best available service. This fundamental change in
the industry is expected to compel electric utilities to be more aggressive in
developing and defending market share, to be more focused on their cost and
pricing structure, and to be more flexible in reacting to changes in the market.
CONSOL believes that the move toward a competitive market for electricity should
prove beneficial to coal demand. According to RDI, 21 of the 25 lowest cost
electric generating stations are coal fired. As deregulation occurs and
competition among generators increases, electricity generators will become
increasingly sensitive to fuel costs because such costs typically represent
about 78% of the variable cost of generating electricity from fossil fuels.
46
<PAGE>
BUSINESS
OVERVIEW
CONSOL ranks among the largest coal companies in the United States based upon
total revenue, net income and operating cash flow. CONSOL is the largest U.S.
producer of high-Btu bituminous coal, the largest coal producer east of the
Mississippi River, the largest producer of coal from underground mines and the
largest U.S. exporter of coal to international markets. Production in 1997
totalled 73 million tons. CONSOL accounted for 7% of total domestic tons
produced and for 12% of tons produced in the eastern United States during 1997.
CONSOL's consistent financial performance has enabled it to establish a strong
history of cash generation and dividend payments.
In 1997, CONSOL sold 68% of the tons of coal it produced directly to domestic
electricity generators, 16% to domestic industrial customers, domestic steel
mills and trading companies and 16% directly to export markets. The electricity
generating market is, by far, the most important market for U.S. coal producers
and for CONSOL, and coal is the fuel of choice for base-load power plants in the
United States. In 1997, coal was used to generate 57% of the electricity in the
United States.
CONSOL's proximity to generating plants, access to low-cost transportation,
favorable geologic conditions for mining and the high-Btu content of its coal
enable it to provide fuel to electricity generators at low delivered cost.
CONSOL's large, highly mechanized eastern mines are located near major
electricity generators in the northeastern, Mid-Atlantic, southeastern and
midwestern United States. In 1997, almost 40% of CONSOL's coal moved on inland
waterways, the mode of transport considered the most cost-effective for bulk
commodities. Approximately 65% of CONSOL's reserves consist of high-Btu coal.
CONSOL had 4.8 billion tons of proved and probable reserves at December 31,
1997, the second largest among U.S. coal producers. Reserves are located in
northern Appalachia (52%), central Appalachia (13%), the midwest (21%) and in
the western United States and Canada (14%). The size, quality and strategic
location of CONSOL's reserves provide a basis for the expansion of many existing
mines and for new mine development.
CONSOL operated 24 mining complexes at December 31, 1997. The Company added
three complexes in September 1998 by acquiring Rochester & Pittsburgh. Two
complexes, Holden and Twin Branch, were exchanged in November 1998, for the
Vesta coal reserves located in southwestern Pennsylvania. CONSOL uses
high-extraction longwall technology at 14 of its mines and leads the industry in
the deployment of longwall systems. The mines operating these advanced mining
systems accounted for approximately 84% of the coal mined by CONSOL in 1997.
CONSOL's ability to source coal from its multiple longwall mines provides it
with great flexibility in meeting customer fuel requirements.
CONSOL can expand production at longwall mines at very low incremental
cost.
CONSOL'S HISTORY
CONSOL Energy Inc. was organized as a Delaware corporation in 1991. CONSOL is a
holding company for 64 direct and indirect wholly owned operating subsidiaries,
including Consolidation Coal Company and CONSOL Inc. Consolidation Coal Company
is CONSOL'S principal operating subsidiary and CONSOL Inc. is CONSOL'S direct
holding company subsidiary that provides executive, management and
administrative services.
47
<PAGE>
CONSOL'S earliest predecessor, Consolidation Coal Company, was formed on March
9, 1860 with the merger of several small western Maryland coal holdings. Formal
incorporation was delayed until April 19, 1864 because of the Civil War. By
1927, Consolidation Coal Company had become the largest bituminous coal producer
in the United States. Consolidation Coal Company merged with Pittsburgh Coal
Company in 1945 to form the then largest coal company in the United States.
During the next 20 years, Consolidation Coal Company continued to grow through
acquisitions. In 1966, Continental Oil Company, a vertically integrated
petroleum company, acquired Consolidation Coal Company. E.I. du Pont de Nemours
and Company acquired Conoco in 1981. In 1991, RWE A.G., through its direct and
indirect wholly owned subsidiaries Rheinbraun A.G. and Rheinbraun U.S. GmbH,
purchased 50% of our common stock. RWE A.G. is a leading international
energy-based industrial conglomerate headquartered in Germany and is the fifth
largest industrial group in Germany based on annual sales. DuPont held its
remaining 50% interest in our common stock through DuPont Energy Company, its
wholly owned subsidiary. In November 1998, CONSOL purchased shares of its common
stock from DuPont Energy. After the purchase, and before this offering,
Rheinbraun A.G. and Rheinbraun U.S. GmbH together owned approximately 94% and
DuPont Energy owned approximately 6% of the outstanding shares of common
stock.
MINING METHODS
CONSOL mines coal using both underground and surface mining methods. In 1997,
94% of CONSOL's production came from underground mines and 6% from surface
mines. The percentage of coal produced by surface mines has declined in recent
years because several CONSOL surface mines have depleted their mineable
reserves, and because production from existing underground mines has increased.
Nevertheless, CONSOL maintains engineering expertise in both mining
methods.
Where the geology is favorable and where reserves are sufficient, CONSOL employs
longwall mining systems in its underground mines. In 1997, 84% of CONSOL's
production came from mines equipped with longwall mining systems. Underground
mines equipped with longwall systems are highly mechanized, capital intensive
operations. These mines have a low variable cost structure compared with other
types of mines and can achieve high productivity levels compared with other
underground mining methods. Because CONSOL has substantial reserves readily
suitable to these operations, and because of their existing cost structure,
these longwall mines can increase capacity at low incremental cost.
CONSOL operates approximately 25% of the U.S. longwall mining systems. Because
of the high production levels of these mining systems, which CONSOL uses at 14
of its mines, it operates seven of the 20 largest underground mines east of the
Mississippi River. The following table ranks the 20 largest underground mines in
the United States by tons of coal produced in 1997.
48
<PAGE>
MAJOR U.S. UNDERGROUND COAL MINES, 1997
<TABLE>
<CAPTION>
in millions of tons ------------------------------------------------------------
MINE NAME OPERATING COMPANY TONNAGE
- --------- ----------------- -------
<S> <C> <C>
Enlow Fork CONSOL 8.4
Bailey CONSOL 7.5
Twenty Mile Twenty Mile Coal Company 7.3
Baker Lodestar Energy Inc. 6.5
Cumberland Cyprus Cumberland Resources Corp. 6.4
Eastern Kentucky MAPCO Coal Company 5.9
Mountaineer Mingo Logan Coal Co. 5.7
West Elk Mountain Coal Co. 5.6
McElroy CONSOL 5.4
Pinnacle U.S. Steel Mining 5.2
Powhatan No. 6 The Ohio Valley Coal Company 5.1
Galatia Kerr-McGee Coal Co. 5.0
SUFCO Canyon Fuel Company 4.9
Loveridge CONSOL 4.8
Shoemaker CONSOL 4.8
Robinson Run CONSOL 4.8
Mine 84 CONSOL 4.8
Upper Big Branch A.T. Massey Coal Company 4.7
Emerald Cyprus Emerald Resources Corp. 4.7
Federal Mine No. 2 Eastern Associated Coal Corp. 4.5
</TABLE>
- -----------------
Source: National Mining Association
CONSOL's Research and Development Department has worked on a number of advances
that have enhanced longwall mining methods. CONSOL has developed proprietary
automation software that allows the shearer to guide itself in the coal seam,
reducing incursions into the rock above and below the seam, thus improving
initial coal quality and improving cutting bit life. The Research and
Development Department has also developed methods for automating shield advances
as mining progresses, which improves overall system efficiency. The Research and
Development Department has done geotechnical studies on pillar design that have
allowed continuous miners to advance more quickly and at lower cost when
developing the panels in advance of longwall mining. CONSOL's Research and
Development Department has developed several technological advances that allow
coal to be moved in more continuous fashion from the coal face, thus improving
utilization for the mining machinery, resulting in lower costs and higher
productivity. See "Business?Research and Development."
49
<PAGE>
The following table shows the growth in production from CONSOL's longwall
operations since 1994.
<TABLE>
<CAPTION>
PRODUCTION BY YEAR
===========================================================
COMPOUND
in millions of tons ANNUAL
GROWTH
MINE 1994 1995 1996 1997 RATE
- ---------------------------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Bailey 6.6 7.3 7.5 7.5 4.4%
Enlow Fork 8.1 8.0 8.7 8.4 1.2%
Dilworth 2.7 3.0 3.6 4.4 17.7%
Buchanan 3.0 3.2 3.6 4.3 12.7%
Shoemaker 1.8 3.8 4.4 4.8 12.4%
McElroy 4.1 4.1 4.2 5.2 8.2%
Loveridge 3.1 2.7 3.1 4.8 15.7%
Blacksville 3.7 3.8 3.5 3.4 (2.8%)
Robinson Run 3.3 3.7 4.2 4.8 13.3%
Rend Lake 2.7 3.3 3.2 4.1 14.9%
VP 8 0.9 2.3 2.8 1.3 21.7%
VP 3 1.7 1.8 1.6 2.2 9.0%
Powhatan No. 4 3.1 2.7 3.4 3.2 1.1%
------- ------- ------- ------- --------
Total 44.8 49.7 53.8 58.4 9.2%
======= ======= ======= ======= ========
</TABLE>
The calculation of the compound amount growth rate for the Shoemaker and VP 8
mines does not include periods during which such mines were shutdown. The
calculation for the McElroy mine excludes 200,000 tons of coal mined in
connection with construction activities.
With the exception of Dilworth, VP 3 and Powhatan No. 4, these mines have the
potential to further expand production through investment in various projects to
debottleneck the coal mine or by instituting continuous work schedules to
maximize utilization of existing equipment. With the exception of Dilworth, VP 3
and Powhatan No. 4, these mines all have access to extensive, CONSOL-controlled
reserves to support expansion in capacity at low incremental cost.
According to an RDI database, CONSOL operated ten of the top 20 most productive
underground mines in 1997, in terms of tons per man day produced, based on an
analysis of production of large eastern U.S. underground mines (with production
greater than 3.0 million tons).
The following graph shows the growth of underground mine productivity at
CONSOL.
[Graph shows tons per manday for each year from 1982 to 1998]
50
<PAGE>
MINING OPERATIONS
CONSOL currently operates 25 mining complexes. At September 30, 1998, CONSOL
operated a total of 27 mining complexes, including a 50% interest in a surface
mine in Alberta, Canada, all located in North America. In November 1998, CONSOL
exchanged the Holden Complex and the Twin Branch Complex with the A.T. Massey
Coal Company for the Vesta coal reserves located in southwestern Pennsylvania.
The exchange of properties reduced the number of mining complexes to 25.
All of CONSOL's mining complexes are underground operations except the Mahoning
Valley and Cardinal River mines which employ only surface mining techniques. The
Mill Creek complex employs a combination of underground and surface mining
systems. Mining machinery used in all of CONSOL's underground mines is powered
by electricity.
Coal is transported from CONSOL's mining complexes to customers by means of
railroad cars, river barges, trucks, conveyor belts or a combination of these
means of transportation. The McElroy and Robinson Run mines transport coal to
customers by conveyor belt. The McElroy, Shoemaker, Dilworth, Powhatan No. 4,
Humphrey, Mahoning Valley and Ohio No. 11 complexes ship coal to customers by
means of river barges. Trucks are used to transport coal from Loveridge,
Blacksville, Powhatan No. 4, Rend Lake, Keystone, Helvetia and Emery complexes.
The Enlow Fork, Bailey, Mine No. 84, Robinson Run, Loveridge, Blacksville,
Buchanan, Mill Creek, VP-3, Jones Fork, VP-8, Amonate, Elk Creek, Rend Lake and
Cardinal River complexes transport coal to customers by rail.
The following table provides the location and a summary of the main
characteristics of CONSOL's mining complexes and the coal reserves associated
with these operations.
51
<PAGE>
<TABLE>
<CAPTION>
CONSOL MINING COMPLEXES
================================================================================================
AVERAGE QUALITY
ON DRY BASIS ASSIGNED RESERVES
1997 ------------------ ----------------------------
PRODUCTION HEAT SULFUR TOTAL
(MILLIONS CONTENT CONTENT (MILLIONS OWNED LEASED
OPERATIONS LOCATION OF TONS)(1) (BTU/LB.) (%) OF TONS) (%) (%)
- ----------------------- --------------------------- ----------- --------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHERN APPALACHIA
Enlow Fork Mine Enon, Pennsylvania 8.4 14,173 1.62 52.4 34 66
Bailey Mine Enon, Pennsylvania 7.5 14,101 1.85 81.6 1 99
McElroy Mine Glen Easton, West Virginia 5.2 13,999 3.18 234.0 100 0
Loveridge Mine Fairview, West Virginia 4.8 13,969 2.40 21.0 100 0
Robinson Run Mine Shinnston, West Virginia 4.8 14,126 3.36 60.6 76 24
Shoemaker Mine Moundsville, West Virginia 4.8 13,860 3.13 79.5 100 0
Mine No. 84 Eighty-Four, Pennsylvania 4.8 14,040 1.84 42.2 75 25
Dilworth Mine Rices Landing, Pennsylvania 4.4 14,126 1.51 24.1 0 100
Blacksville Mine Wana, West Virginia 3.4 14,165 2.87 41.2 100 0
Powhatan No. 4 Mine Clarington, Ohio 3.2 13,545 4.72 5.8 8 92
Keystone Complex Indiana, Pennsylvania 2.1 13,042 1.62 7.0 86 14
Helvetia Complex Blairsville, Pennsylvania 1.7 11,839 2.08 5.4 97 3
Humphrey Mine Maidsville, West Virginia 1.5 13,600 2.75 6.5 100 0
Mahoning Valley Mine Cadiz, Ohio 0.4 12,214 2.31 2.0 93 7
CENTRAL APPALACHIA
Buchanan Mine Mavisdale, Virginia 4.3 14,950 0.78 31.5 1 99
Mill Creek Complex Deane, Kentucky 3.1 13,643 1.18 15.1 100 0
VP-3 Mine Vansant, Virginia 2.2 15,185 0.77 8.1 0 100
Jones Fork Complex Mousie, Kentucky 2.0 13,245 1.00 10.3 85 15
VP-8 Mine Rowe, Virginia 1.3 14,903 0.31 17.3 1 99
Amonate Complex Amonate, Virginia 1.1 14,422 0.77 9.3 64 36
Elk Creek Complex Emmett, Virginia 0.3 13,750 0.78 7.0 27 73
ILLINOIS BASIN
Rend Lake Mine Sesser, Illinois 4.1 13,738 1.02 13.6 100 0
Ohio No. 11 Mine Morganfield, Kentucky 1.4 13,500 3.13 3.9 0 100
WESTERN U.S.
Emery Mine Emery County, Utah 0.0 12,933 0.74 14.8 84 16
WESTERN CANADA
Cardinal River Mine Hinton, Alberta, Canada 1.5 14,000 0.37 4.2 0 100
<CAPTION>
TOTAL
ACCESSIBLE
AND
ASSIGNED YEAR
RESERVES ESTABLISHED
(MILLIONS OR ACQUIRED
OPERATIONS OF TONS) BY CONSOL
- -------------------- ---------- -----------
<S> <C> <C>
NORTHERN APPALACHIA
Enlow Fork Mine 215.8 1990
Bailey Mine 209.3 1984
McElroy Mine 234.0 1968
Loveridge Mine 161.8 1956
Robinson Run Mine 154.0 1966
Shoemaker Mine 146.4 1966
Mine No. 84 159.6 1998
Dilworth Mine 24.1 1984
Blacksville Mine 126.0 1970
Powhatan No. 4 Mine 5.8 1987
Keystone Complex 7.0 1998
Helvetia Complex 11.7 1998
Humphrey Mine 6.5 1956
Mahoning Valley Mine 3.2 1974
CENTRAL APPALACHIA
Buchanan Mine 124.4 1983
Mill Creek Complex 21.5 1994
VP-3 Mine 8.1 1993
Jones Fork Complex 28.7 1992
VP-8 Mine 17.3 1993
Amonate Complex 20.7 1925
Elk Creek Complex 14.9 1993
ILLINOIS BASIN
Rend Lake Mine 49.3 1986
Ohio No. 11 Mine 17.1 1993
WESTERN U.S.
Emery Mine 14.8 1945
WESTERN CANADA
Cardinal River Mine 5.1 1969
</TABLE>
CONSOL acquired (1) the Dilworth mine from USX, (2) the Rend Lake Mine from
Inland Steel, (3) the Powhatan No. 4 mine from North American Coal Company, (4)
the Mill Creek Complex from Kentucky Criterion Coal Company and (5) VP-3 mine,
the Elk Creek Complex, the VP-8 mine and Ohio No. 11 mine from Occidental
Petroleum. CONSOL acquired Mine No. 84, the Keystone Complex and the Helvetia
complex when it acquired the Rochester and Pittsburgh Coal Company. CONSOL
established all other mines and complexes.
52
<PAGE>
The Burning Star No. 4 mine and the Potomac mine, which in the aggregate,
produced 2.0 million tons of coal during 1997, have been closed. Two mining
complexes, Twin Branch Complex and the Holden Complex, which, in the aggregate,
produced 500,000 tons in 1997, were exchanged in November 1998 for the Vesta
coal reserves owned by the A.T. Massey Coal Company. The mines and complexes
sold or exchanged are not shown in the table.
There are, in the aggregate, approximately 680 leases with respect to assigned
coal reserves. The leases have terms extending up to 30 years and generally
provide for renewal through the anticipated life of the associated mine. These
renewals are exercisable by the payment of minimum royalties.
Total accessible and assigned reserves represents proved and probable coal
reserves at December 31, 1997. CONSOL assigns coal reserves to each of its
mining operations, but each mine also may have access to reserves that have not
yet been assigned to any particular mine. Unassigned reserves may be accessed by
more than one mining operation. Information with respect to proved and probable
coal reserves has been determined by CONSOL geologists and mining engineers. See
Note 22 of Notes to the Consolidated Financial Statements.
[Map showing the location of CONSOL's mines in relation to major coal basins.]
The following provides a description of the operating characteristics of
CONSOL's principal mines by geographic region.
NORTHERN APPALACHIA MINES
Enlow Fork. The Enlow Fork mine produces coal from the Pittsburgh #8 Seam using
two longwall systems and six continuous mining machines. Coal is transported to
the surface by conveyor belts. The coal is processed in the Bailey Central
Preparation Plant which can fully wash coal at a rate of 3,600 tons of raw coal
per hour. From January 1, 1996 to September 30, 1998, capital expenditures at
the mine totaled $56 million. The Enlow Fork mine will complete in 1999
installation of a 5,000-ton underground storage bunker that will level the flow
of coal between the producing face and the plant. In addition, a new longwall
system was placed in service in 1997.
Bailey. The Bailey mine produces coal from the Pittsburgh #8 Seam using two
longwall systems and seven continuous mining machines. Coal is transported to
the surface by conveyor belts. The coal is processed in the Bailey Central
Preparation Plant which can fully wash coal at the rate of 3,600 tons of raw
coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures
at the mine totaled $33 million. From January 1, 1996 to September 30, 1998,
capital expenditures at the preparation plant totaled $44 million. The Bailey
Central Preparation Plant, which serves both the Bailey and Enlow Fork mines,
currently is being expanded. When completed, the expansion will increase total
processed coal capacity from 16 million tons per year to 20 million tons per
year.
McElroy. The McElroy mine produces coal from the Pittsburgh #8 Seam using one
longwall system and four continuous mining machines. Coal is transported to the
surface by conveyor belts. The coal is partially washed in a preparation plant
capable of processing 1,400 tons of raw coal per hour. From January 1, 1996 to
September 30, 1998, capital expenditures at the mine totaled $48 million. In
1997, the mine completed the installation of an underground conveying system
that replaced a less efficient underground track haulage system.
Mine No. 84. Mine No. 84 produces coal from the Pittsburgh #8 Seam using one
longwall and three continuous mining machines. Coal is transported to the
surface by conveyor belts. The coal is processed in a preparation
53
<PAGE>
plant capable of processing 2,500 tons of raw coal per hour. Mine No. 84 was
acquired as part of the acquisition of Rochester & Pittsburgh on September 22,
1998.
Robinson Run. The Robinson Run mine produces coal from the Pittsburgh #8 Seam
using one longwall system and four continuous mining machines. Coal is
transported to the surface by conveyor belts. The coal is partially washed in a
preparation plant capable of processing 1,500 tons of raw coal per hour. From
January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled
$21 million. In 1995, the Robinson Run mine installed an underground belt
conveying system to move coal to the surface, replacing a less efficient rail
haulage system as well as increasing the mine's production capacity.
Shoemaker. The Shoemaker mine produces coal from the Pittsburgh #8 Seam using
one longwall system and three continuous mining machines. Coal is transported to
the surface by a conveyor belt and underground track locomotives. The coal is
fully washed in a preparation plant capable of processing 1,275 tons of raw coal
per hour. From January 1, 1996 to September 30, 1998, capital expenditures at
the mine totaled $47 million. In 1997, the mine installed new longwall mining
equipment and added a new yard track-loop system, both of which contributed to
increases in production.
Loveridge. The Loveridge mine produces coal from the Pittsburgh #8 Seam using
one longwall system and four continuous mining machines. Coal is transported to
the surface by a conveyor belt. The coal is fully washed in a preparation plant
capable of processing 1,400 tons of raw coal per hour. From January 1, 1996 to
September 30, 1998, capital expenditures at the mine totaled $44 million. In
1996, the mine installed a new longwall system that included many new automated
functions which improved production rates, enhanced coal quality and reduced
unscheduled maintenance.
Dilworth. The Dilworth mine produces coal from the Pittsburgh #8 Seam using one
longwall system and three continuous mining machines. Coal is conveyed to the
surface with conveyor belts. The coal is transported by barge to the Robena
preparation plant where it is fully washed. The Robena preparation plant can
process 1,200 tons of raw coal per hour. From January 1, 1996 to September 30,
1998, capital expenditures at the mine totaled $13 million. Capital expenditures
at the Robena preparation plant for the same period totaled $9 million. In 1997,
a raw coal storage silo was installed at the Robena preparation plant permitting
direct discharge of raw coal to and from river barges. The silo eliminated the
need for more costly handling and increased flexibility in blending raw coal and
processed coal.
Blacksville. The Blacksville mine produces coal from the Pittsburgh #8 Seam
using one longwall system and three continuous mining machines. Coal is
transported underground by conveyor belts to a skip hoist which lifts the coal
to the surface. The coal is partially or fully washed in a preparation plant
capable of processing 1,000 tons of raw coal per hour. From January 1, 1996 to
September 30, 1998, capital expenditures at the mine totaled $48 million. In
1998, CONSOL completed the construction of a large, underground coal storage
bunker at the mine which allows storage of up to 2,400 tons of coal, leveling
the flow of coal both from the producing coal face and to the preparation plant.
Powhatan No. 4. The Powhatan No. 4 mine produces coal from the Pittsburgh #8
Seam utilizing one longwall system and one continuous mining machine. Coal is
transported to the surface using a combination of conveyor belts and rail
haulage. The coal is washed in a preparation plant capable of processing 1,100
tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital
expenditures at the mine totaled $8 million. The mine will deplete its
economically minable reserves in 1999.
Helvetia Complex. The Helvetia Complex produces coal from the Upper Freeport and
Upper Kittanning seams. Coal is produced at two CONSOL-operated underground
mines and a CONSOL-operated surface mine. Coal is mined with a total of eight
continuous mining machines at the underground mines and with an end-loader at
the surface mine. Coal is transported from the underground mines to the surface
on conveyor belts and is
54
<PAGE>
transported to a small wash plant by truck. Coal from the surface mine is
transported to the wash plant by truck. The small wash plant has a capacity of
250 tons of raw coal per hour. The Helvetia Complex was acquired on September
22, 1998.
Keystone Complex. The Keystone Complex produces coal from the Upper Freeport and
Upper Kittanning seams. Coal is produced at three CONSOL-operated underground
mines. Additional coal is purchased from outside sources to be blended and
processed with CONSOL-produced coal. Coal is mined with a total of 11 continuous
mining machines at the underground mines. Coal is transported to the surface by
conveyor belt and is transported to the preparation plant by overland conveyor
or truck. The coal is processed at a preparation plant capable of processing 900
tons of raw coal per hour. The Keystone Complex was acquired on September 22,
1998.
Humphrey. The Humphrey mine produces coal from the Pittsburgh #8 Seam using two
continuous mining machines. Coal is sold raw. From January 1, 1996 to September
30, 1998, capital expenditures at the mine totaled $2 million. In 1997, the
Humphrey mine reduced production and started using continuous mining equipment
after longwall-minable reserves were depleted.
Mahoning Valley. The Mahoning Valley mine produces coal from the #9 Seam. Coal
is uncovered at this surface mine using a large, electrically powered stripping
shovel. A smaller shovel loads the uncovered coal into trucks for transport from
the pit. CONSOL made no capital expenditures on the mine between January 1, 1996
to September 30, 1998. The mine will deplete its economically mineable reserves
in 1999.
CENTRAL APPALACHIA MINES
Buchanan. The Buchanan mine produces coal from the Pocahontas #3 Seam using one
longwall system and four continuous mining machines. The coal is transported to
a skip hoist by conveyor belts where the coal is then lifted to the surface. The
coal is washed in a preparation plant that is capable of processing 1,000 tons
of raw coal per hour. From January 1, 1996 to September 30, 1998, capital
expenditures at the mine totaled $23 million. In 1997, CONSOL constructed a
large, underground coal-storage bunker at the mine. The bunker allows storage of
up to 4,700 tons of coal, leveling the flow of coal both from the face and to
the preparation plant. Also in 1997, the mine instituted a continuous work
schedule that allowed higher coal-hoisting and preparation plant utilization.
Mill Creek Complex. The Mill Creek complex produces coal from the Hazard #4 Seam
and the Elkhorn #3 Seam. Coal is produced at two CONSOL-operated underground
mines, a CONSOL-operated surface mine and by several small underground and
surface mines operated by independent contractors. Mining at CONSOL-operated
underground mines is done with a continuous mining machine. Coal is conveyed to
the surface using conveyor belts. Mining at CONSOL-operated surface mines is
done with front-end loaders and trucks. Coal from all of the mines is
transported by truck or conveyor belt to a central preparation plant for
processing. The plant has the capacity to process 950 tons of raw coal per hour.
From January 1, 1996 to September 30, 1998, capital expenditures at the mine
totaled $13 million.
VP-3. The VP-3 mine produced coal from the Pocahontas #3 Seam utilizing one
longwall system and three continuous mining machines. Coal was carried
underground by conveyor belts to a skip hoist which lifted the coal to the
surface. The coal was processed in a preparation plant which has a capacity to
process 750 tons of raw coal per hour. From January 1, 1996 to September 30,
1998, capital expenditures at the mine totaled $5 million. VP-3 mine was placed
on long-term shutdown status because of excess production capacity for the type
of coal produced at this mine.
Jones Fork Complex. The Jones Fork mining complex produces coal from the Hazard
#4 Seam and the Elkhorn #3 Seam. Coal is produced from three CONSOL-operated
underground mines and two contractor-operated
55
<PAGE>
underground mines. Mining at CONSOL-operated underground mines is accomplished
with continuous mining machines. Coal is conveyed to the surface with conveyor
belts. Coal from all operations is transported by conveyor belt or by truck to a
central preparation facility which has the capacity to process 825 tons of raw
coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures
at the mine totaled $12 million.
VP-8. The VP-8 mine produces coal from the Pocahontas #3 Seam utilizing one
longwall system and two continuous mining machines. Coal is carried underground
by conveyor belts to a skip hoist which lifts the coal to the surface. The coal
is processed at two preparation plants which together have the capacity to
process 1,350 tons of raw coal per hour. From January 1, 1996 to September 30,
1998, capital expenditures at the mine totaled $9 million.
Amonate Complex. The Amonate mining complex processes coal from the Pocahontas
#3, #5, #8, #10, and #11 and Squire Jim Seams. The coal typically is produced
from approximately ten underground mines operated by independent contractors on
CONSOL-owned reserves. The preparation plant has the capacity to process 700
tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital
expenditures at the complex totaled $2 million.
Elk Creek Complex. The Elk Creek complex produces coal from the Lower Cedar
Grove "C" and the Alma Seams. The coal is produced from two underground mines
operated by independent contractors on CONSOL-controlled reserves. The coal is
taken by truck for processing to the Elk Creek preparation plant, which has the
capacity to process 550 tons of raw coal per hour. The preparation plant also
processes coal that CONSOL purchases from other mine operators. From January 1,
1996 to September 30, 1998, capital expenditures at the complex totaled less
than $1 million.
ILLINOIS BASIN MINES
Rend Lake. The Rend Lake mine produces coal from the Herrin #6 Seam utilizing
two longwall systems and five continuous mining machines. Coal is conveyed
underground by conveyor belts to a skip hoist which lifts the coal to the
surface. The coal is processed at a preparation plant which has the capacity to
process 1,000 tons of raw coal per hour. From January 1, 1996 to September 30,
1998, capital expenditures at the mine totaled $14 million.
Ohio No. 11. The Ohio No. 11 mine produces coal from the West Kentucky #11 Seam
utilizing four continuous mining machines. Coal is conveyed to the surface by
conveyor belts. Coal is processed at a preparation plant which has the capacity
to process 700 tons of raw coal per hour. From January 1, 1996 to September 30,
1998, capital expenditures at the mine totaled $5 million.
WESTERN U.S. MINES
Emery. The Emery mine is capable of producing coal from the I Seam. The mine is
configured for underground mining operations. The mine has been idle for several
years. CONSOL made no capital expenditures at the mine between January 1, 1996
and September 30, 1998.
WESTERN CANADA MINES
Cardinal River. The Cardinal River mine produces coal from the Jewel Seam.
Mining is done with stripping shovels and front-end loaders, which are either
powered with electricity or diesel. Coal is hauled from the pit in large, diesel
or electric powered haul trucks. The coal is processed at a preparation plant
which has the capacity to process 800 tons of raw coal per hour. From January 1,
1996 to September 30, 1998, capital expenditures at the mine totaled $6 million.
The mine is a joint-venture operation with Luscar Ltd. in which CONSOL maintains
a 50% interest.
56
<PAGE>
COAL RESERVES
CONSOL had an estimated 4.8 billion tons of proved and probable reserves at
December 31, 1997. Reserves are the portion of the "demonstrated" tonnage
(equivalent to "proved" and "probable") that meet CONSOL's general economic
criteria regarding mining height, preparation plant recovery, depth of
overburden and stripping ratio. Generally, these reserves would be commercially
minable at year-end price and cost levels.
CONSOL's reserves are located in northern Appalachia (52%), central Appalachia
(13%), the midwestern United States (21%) and in the western United States and
in Canada (14%).
57
<PAGE>
The following table summarizes CONSOL's reserves at December 31, 1997. For
unassigned reserves, CONSOL assumes 60% recovery for reserves that can be mined
using longwall mining, 50% recovery for reserves that will be mined using other
underground methods and 90% recovery for surface mines.
CONSOL RESERVES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
in thousands of LESS THAN 1.20 LBS. GREATER THAN 1.20 LBS.
tons OF SO\\2\\ OF SO\\2\\
PER PER
MILLION BTUS MILLION BTUS PERCENTAGE
--------------------------------- ---------------------------------
BY
REGION AND PRODUCT LOW BTU MEDIUM BTU HIGH BTU LOW BTU MEDIUM BTU HIGH BTU TOTAL REGION
- ------------------ ------- ---------- -------- ------- ---------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NORTHERN APPALACHIA
Steam 0 49,359 0 56,010 135,471 2,031,239 2,272,079
High-vol met 0 0 0 0 0 211,754 211,754
Subtotal 0 49,359 0 56,010 135,471 2,242,993 2,483,833 52.0%
CENTRAL APPALACHIA
Steam 31,350 51,826 2,261 40,577 48,915 61,597 236,526
High-vol met 0 8,642 41,828 0 2,134 12,704 65,308
Medium-vol met 0 4,191 90,947 0 4,537 18,423 118,098
Low-vol met 0 0 205,013 0 0 6,867 211,880
Subtotal 31,350 64,659 340,049 40,577 55,586 99,591 631,812 13.2%
MIDWESTERN U.S.
Steam 0 0 0 130,524 746,391 129,833 1,006,748 21.1%
WESTERN U.S.
PRB steam 0 193,017 248,609 0 0 4,126 445,752
W. Colo. and S. 12,456 0 14,772 0 5,584 9,574 42,386
Ut. steam
Subtotal 12,456 193,017 263,381 0 5,584 13,700 488,138 10.2%
CANADA
Medium-vol met 16,286 119,649 29,172 0 0 0 165,107 3.5%
------- ---------- -------- ------- --------- --------- --------- ------
TOTAL 60,092 426,684 632,602 227,111 943,032 2,486,117 4,775,638 100.0%
======= ========== ======== ======= ========= ========= ========= ======
PERCENTAGE OF
TOTAL BY
BTU CONTENT 5.4% 38.1% 56.5% 6.2% 25.8% 68.0%
------- ---------- -------- ------- --------- ---------
100% 100%
--------------------------------- ---------------------------------
</TABLE>
The following table characterizes the relative Btus value (low, medium and high)
for each coal producing region.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
REGION LOW MEDIUM HIGH
- ---------------------------------------------- --------------- --------------- -------------------
<S> <C> <C> <C>
in Btus per lb.
NORTHERN AND CENTRAL APPALACHIA AND CANADA less than 12,500 12,500 - 13,000 greater than 13,000
MIDWEST less than 11,600 11,600 - 12,000 greater than 12,000
POWDER RIVER BASIN less than 8,400 8,400 - 8,800 greater than 8,800
WESTERN COLORADO AND SOUTHERN UTAH less than 11,000 11,000 - 12,000 greater than 12,000
</TABLE>
58
<PAGE>
Reserve estimates are based on geological data assembled and analyzed by
CONSOL's staff, which includes 14 geologists and more than 40 mining engineers,
located at individual mines, operations offices and at CONSOL's headquarters.
The reserve estimates and general economic criteria upon which they are based
are reviewed and adjusted annually to reflect production of coal from the
reserves, analysis of new engineering and geological data, changes in property
control, modification of mining methods and other factors. Reserve information,
including the quantity and quality of reserves, coal and surface ownership,
lease payments and other information relating to CONSOL's coal reserve and land
holdings, is maintained through a system of interrelated computerized databases
developed by CONSOL.
CONSOL's reserve estimates are predicated on information obtained from its
extensive, ongoing exploration drilling and in-mine channel sampling programs.
Data including elevation thickness and, where samples are available, the quality
of the coal from individual drill holes and channel samples are input into a
computerized geologic database. The information derived from the geologic
database is then combined with data on ownership or control of the mineral and
surface interests to determine the extent of the reserves in a given area.
COAL CONTRACTS
CONSOL sells coal to customers under arrangements that are the result of both
bidding procedures and extensive negotiations. Coal typically is sold by
contracts for terms that range from a single shipment to multi-year agreements
for millions of tons. Many contracts now allow the coal to be sourced from more
than one mine, an advantage to CONSOL because of the number of its mining
complexes, particularly in northern Appalachia. CONSOL currently sells 61% of
its coal under contracts with terms of one year or more. The pricing mechanisms
under these agreements typically consist of (1) base-price-plus-escalation
methods which allow for periodic price adjustments based on inflation indices,
or in some cases, pass-through of actual cost changes or (2) annually negotiated
prices adjusted to market. Certain contracts have features of both types of
contracts, such as limited price reopener provisions within a
base-price-plus-escalation agreement. Such reopener provisions allow both the
customer and CONSOL an opportunity to adjust price to a level close to then
current market conditions. Almost all of CONSOL's existing contracts with
reopener provisions adjust the contract price to market price at the time the
reopener provision is triggered. Market price is generally based on recent
published transactions for similar quantities and quality of coal. Reopener
provisions could result in early termination of a contract or of requirements
that certain volumes be purchased if the parties were to fail to agree on price
and other terms that may be subject to renegotiation.
Contracts also typically contain force majeure provisions allowing suspension of
performance by CONSOL or the customer for the duration of certain events beyond
the control of the affected party, including labor disputes. Certain contracts
may terminate upon continuance of an event of force majeure for an extended
period (generally six to 12 months). Contracts also typically specify certain
minimum and maximum quality specifications regarding the coal to be delivered.
Failure to meet these conditions could result in substantial price reductions or
termination of the contract.
Although the volume to be delivered pursuant to a long-term contract is
stipulated, buyers or CONSOL have the option to vary the volume within specified
limits. In addition, a contract may provide for early termination of all or part
of the specified sales volume due to failure to agree on price or other terms
for which renegotiation is provided or for suspension of performance or
termination by the customer for force majeure events or failure of performance.
59
<PAGE>
The following table shows the tons of coal delivered in 1997 and the total
stated tons of coal deliverable in the year indicated for all contracts held by
CONSOL at September 30, 1998.
CONTRACT TONS OF DELIVERED COAL
<TABLE>
<CAPTION>
=============================================================================
1997 1998 1999 2000 2005 2010
------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
In millions of nominal tons per year
Volume under
long-term
contracts.............. 46.9 45.7 41.7 24.2 5.3 1.1
</TABLE>
CONSOL routinely engages in efforts to renew or extend contracts scheduled to
expire. Although there are no guarantees that contracts will be renewed, CONSOL
frequently has been successful in the past in renewing or extending contracts.
The length of term, volumes specified and price typically are adjusted during
the renegotiation.
MARKETING AND SALES
CONSOL sells coal produced by its mining complexes and additional coal which is
purchased for resale from other producers through a sales force of 20 people.
CONSOL maintains U.S. sales offices in Atlanta, Chicago, Cleveland, Norfolk,
Philadelphia, Pittsburgh and overseas in Brussels, Belgium. In addition, CONSOL
sells coal through agents, brokers and trading companies. In 1997, CONSOL sold
75.2 million tons of coal, 84% of which was sold in domestic markets to
electricity generators, steel companies and other consumers of coal. Direct
sales by CONSOL to domestic electricity generators represented 68% of total
sales and 81% of U.S. sales in 1997. The three largest customers were Allegheny
Energy, Pennsylvania Power Company and Detroit Edison. During 1997, CONSOL
derived 23% of its total revenue from sales to its two largest customers,
Allegheny Energy and a consortium of utility companies referred to as the CAPCO
companies, which includes among others, Pennsylvania Power Company. During 1997,
contracts with Allegheny Energy accounted for more than 10% of CONSOL's
revenues.
More than 100 technical specialists work with the direct sales force to meet the
needs of current and potential customers. Specialists review customer bid
solicitations with the sales force and then identify the coal or coal-blends
that CONSOL could provide. Specialists also may accompany the sales force on
customer calls to suggest, from a technical standpoint, how CONSOL coals could
be used to improve combustion efficiency or lower customers' costs.
If additional technical resources are required, the sales force utilizes
expertise provided by CONSOL's Research and Development Department. CONSOL's
research and development expertise in areas, including combustion, emission
control, coal coking and power plant performance, allows CONSOL to address
customer concerns on detailed technical basis. See "-- Research and
Development."
DISTRIBUTION
CONSOL employs transportation specialists who negotiate freight and equipment
agreements with various transportation suppliers, including railroads, barge
lines, terminal operators, ocean vessel brokers and trucking companies.
60
<PAGE>
In addition, CONSOL's transportation managers coordinate with customers and with
CONSOL's mining complexes to establish shipping schedules and to order
transportation equipment necessary to meet the customer's needs. CONSOL owns or
leases more than 1,100 railroad cars for moving coal either directly to domestic
customers or to the river and sea ports for transloading to barges or vessels.
CONSOL has five towboats and a fleet of nearly 300 barges to serve customers
along the Ohio and Monongahela rivers. The barge operation allows CONSOL to
exercise control of delivery schedules and serves as temporary floating storage
of coal where land storage is unavailable. The towboat and barge fleet is sized
to accommodate the narrower channels and smaller locking facilities along the
Monongahela River on which much of CONSOL's coal is moved.
In 1997, CONSOL transported 14.8 million tons of coal by river. Third-party
shippers transported an additional 13.5 million tons of CONSOL's coal. Nearly
40% of CONSOL-produced coal moved on the inland waterways in 1997. CONSOL
estimates that shipping coal by water is as much as 80% less expensive than rail
transportation. Coal shipped on the Monongahela, Ohio and Mississippi rivers is
transported to electricity generators, steel makers and industrial customers in
the United States and overseas. Water-borne shipments of coal originate from
mines in every state in which CONSOL operates.
International customers and domestic coastal customers receive coal through
CONSOL's terminal at Baltimore, Maryland. The Baltimore Terminal is a 100 acre
site with a throughput capacity of 18 million tons annually and ground storage
capacity for steam and metallurgical coal. The ground storage capacity is
significant to CONSOL for several reasons. First, it provides additional
inventory storage to allow mines to continue to operate at optimal levels.
Second, the large storage capacity allows CONSOL to ensure overseas buyers that
coal will be available for rapid loading when the transporting vessel arrives at
the port, thereby minimizing demurrage charges. Finally, the storage capacity of
the terminal allows CONSOL to inventory coals of various qualities and to then
produce custom blends for overseas customers. The terminal is served by both the
Norfolk Southern and CSX Transportation railroads. The terminal berths have been
dredged to a depth of 50 feet to allow CONSOL to load larger oceangoing
vessels.
RESEARCH AND DEVELOPMENT
CONSOL's Research and Development Department is the largest private research
organization in the United States devoted to coal. The function of the
department is to identify, develop and apply technology to support the
production and marketing objectives of CONSOL's coal and gas operations and to
serve as a technical resource to other staff departments. The Research and
Development Department works closely with CONSOL's mines, preparation plants,
sales offices, engineering, environmental affairs and government relations
departments to address current opportunities and problems while pursuing a
longer term strategic mission to maintain CONSOL's competitive advantage in
mining and sales. The Research & Development Department employs approximately
100 engineers, scientists and staff at two locations and has an annual budget of
$11 million.
The strategic objectives of the Research and Development Department are to
understand and control the geologic factors that can limit productivity or
impair safety, to develop systems and procedures to optimize resource extraction
and utilization, to assess the value of CONSOL's products in the market place
and to address operational and environmental issues that can affect CONSOL's
customers and, as a consequence, limit the market for CONSOL's coal. CONSOL's
research and development effort is directed at both production ("upstream") and
marketing ("downstream") issues. This approach recognizes that profitability is
a function of the ability to control costs of production and the ability to
develop and access the highest value markets for CONSOL's products.
61
<PAGE>
The goal of the upstream research is to reduce costs, to improve productivity
and to enhance the safety of CONSOL's mines and preparation plants. Among the
significant areas of research are the geophysical evaluation of reserves and
mines, the automation of mining systems, including robotic control of longwall
shearers, the improvement of underground haulage technology, the hydrological
modeling of mines and the associated geology, the control of dust and methane in
mines, and the development of computer technology for preparation plants. CONSOL
has developed sophisticated measurement and computer modeling techniques for
ground control and hydrologic modeling. These tools are used to design and
operate safe and productive mines, and to understand better the effect of mining
on the environment. CONSOL also maintains extensive testing and sampling
capabilities at its research and development facilities to address coal quality
issues, and to solve in a cost-effective manner such environmental problems as
acid mine drainage and plant emission controls. In recent years, CONSOL has
obtained (or applied for) various patents, including froth floatation control
systems to improve preparation plant efficiencies and costs, the TramVeyor(TM)
coal haulage systems to increase productivity in continuous miner sections,
devices to extend conveyor belts as mining advances without interrupting belt
operations, and a device that allows continued mine ventilation during periodic
testing.
The downstream program supports CONSOL's coal sales through the development of
improved coal use technologies, and by assigning research and development staff
to participate in the government regulatory process where it affects the use of
coal. The Research and Development Department operates a pilot combustor and a
moveable-wall coke oven to test and qualify coal for virtually any customer
application and to diagnose and solve operating problems at customer facilities
that might otherwise limit the use of CONSOL's coal. The Research and
Development Department has developed the proprietary CONSOL, Coal Quality Cost
Model ("CQCM") as a tool for determining the value of specific coals based on
the busbar power cost when they are used in electricity generating stations.
Alone, or in combination with the pilot combustor, the CQCM allows CONSOL's
sales force and its customers to identify the best coals for a given
application.
CONSOL not only has extensive coal-testing capabilities, but it can provide
customers with field diagnostic services to evaluate and solve coal combustion
problems. These capabilities not only help preserve existing business, but allow
CONSOL to generate new business opportunities. For example, CONSOL recently
resolved concerns about the use of CONSOL coal for blending in an electricity
generating station of an upper midwest electric utility. The station primarily
burned low-Btu, Western coal for blending with a lesser amount of high-sulfur
Eastern coal from another producer. The utility wanted to consider CONSOL's high
Btu, fully-washed, Pittsburgh # 8 seam coal, but was concerned that this coal
would create slagging and fouling problems, if substituted in the blend. By
testing blends in the Research & Development Department's pilot-scale coal
combustion facility and working with the utility's station operators, CONSOL
demonstrated that fully washed, high Btu coal could be part of the blend. As a
result, CONSOL's coal was qualified and ultimately chosen by the customer.
The Research and Development Department's work on the development of coal
utilization technology is directed principally at reducing the cost of
compliance with environmental regulations for existing coal-fired boilers.
CONSOL believes that existing electricity generating stations will be the site
of increased coal use as operators of these stations seek to increase the
utilization of the capacity of the generating units. The Research and
Development Department is engaged in the development and demonstration of
low-cost retrofit technology for the control of sulfur dioxide, oxides of
nitrogen and other post-combustion air emissions and for the control of solid
waste. For example, CONSOL was recently awarded a grant from the U.S. Department
of Energy to construct a pilot plant to turn scrubber sludge into pellets that
can be used as aggregate in road construction. A test of asphalt using sludge
pellets currently is being conducted at a road repair and construction project.
If successful, this technology will transform scrubber sludge, which would
otherwise have to be land-filled into a commercial product, reducing the costs
of using high-sulfur coal.
62
<PAGE>
EMPLOYEES AND LABOR RELATIONS
At September 30, 1998, CONSOL had a total of 8,716 employees, of whom
approximately 4,364 were represented by the UMWA and covered by the terms of the
1998 NBCWA. The NBCWA became effective on January 1, 1998 and will expire on
December 31, 2002. This agreement is negotiated with the UMWA by the Bituminous
Coal Operators' Association on behalf of its members, which includes several
subsidiaries of CONSOL. The NBCWA also serves as a pattern agreement for other
coal producers with UMWA-represented employees. About 41% of the U.S. miners are
represented by the UMWA.
The NBCWA provided moderate wage and benefit increases and pension improvements.
The NBCWA also provided CONSOL with additional scheduling flexibility and will
reduce required contributions to multi-employer benefits funds over the life of
the contract. Since 1984, the UMWA has had only one nationwide strike, which
occurred in 1993.
CONSOL believes that the current labor environment is stable.
COMPETITION
The U.S. coal industry is highly competitive, with numerous producers in all
coal producing regions. CONSOL competes against other large producers and
hundreds of small producers in the United States and overseas. The largest
producer is estimated to have less than 15% (based on tonnage sold) of the total
U.S. market. The U.S. Department of Energy reports 1,810 active coal mines in
the United States in 1997, the latest year for which government statistics are
available. The U.S. coal industry is going through a period of rapid
consolidation. Oil, steel and utility companies have been selling their coal
assets, which have been acquired for the most part by mining companies. The most
important factors on which CONSOL competes are coal price at the mine, coal
quality, transportation costs from the mine to the customer and the reliability
of supply. Continued demand for CONSOL's coal and the prices that CONSOL obtains
are affected by demand for electricity, environmental and government regulation,
technological developments and the availability and price of competing coal and
alternative fuel supplies, including nuclear, natural gas, oil or renewable
energy, including hydroelectric power.
NON-MINING OPERATIONS
CONSOL's non-mining operations started as service, support or ancillary
functions for its mining operations. Several have grown to be stand-alone
businesses that obtain a large part of their revenues from outside customers.
FAIRMONT SUPPLY COMPANY
Fairmont Supply Company, headquartered in Washington, Pennsylvania, is one of
the largest general-line distributors of mining and industrial supplies in the
United States. Fairmont Supply has more than 30 customer service centers
nationwide. All Fairmont Supply sites are linked by computer to manage large
inventories of name-brand parts, supplies and equipment, which helps reduce
Fairmont Supply's distribution and product acquisition costs.
Fairmont Supply also provides integrated supply procurement and management
services. Integrated supply procurement is a materials management strategy that
utilizes a single, full-line distributor to minimize total cost in the MRO
(maintenance, repair and operating) supply chain. Fairmont Supply offers
value-added services including on-site stores management and procurement
strategies.
In 1997, Fairmont Supply received ISO 9002 re-certification at its Wilmington,
Delaware, Charleston, West Virginia and Parkersburg, West Virginia customer
service centers as well as at its purchasing department in Washington,
Pennsylvania. ISO 9002 is an international certification that provides
independent verification that
63
<PAGE>
a company's operating, purchasing and other procedures meet a prescribed
standard. The certification requires annual renewal. CONSOL believes that its
ISO 9002 certification gives Fairmont Supply a marketing advantage because many
customers require that their suppliers meet this standard.
Fairmont Supply provides mine supplies to CONSOL's mining operations.
Approximately 26% of Fairmont Supply's sales in 1997 were made to CONSOL mines.
Fairmont Supply also serves DuPont sites in the United States providing
maintenance and repair services and operating supplies and equipment in a
central location near each plant. About 32% of Fairmont Supply's revenues in
1997 were derived from sales made and services provided to DuPont, based on
contract terms and conditions. See Note 21 of Notes to Consolidated Financial
Statements.
Fairmont Supply operates under a Strategic Alliance Agreement with DuPont.
Fairmont Supply provides various maintenance, repair and operating supplies to
DuPont plant sites both in the United States and abroad. The products supplied
are primarily valves, fittings, bearings, electrical products, safety products
and miscellaneous industrial products. The majority of the products are shipped
to 31 large plant sites in the United States with smaller volume shipments to
approximately another 50 sites in the United States and abroad. Under the
Strategic Alliance Agreement, Fairmont provides other material management
services to 16 of the larger sites in the United States. The additional services
may include a single source integrated supply program, "in-plant" delivery
services, storeroom management, procurement services, and critical material
inspection services. The specific programs are tailored to individual plant
requirements and may vary from site to site. In 1998, DuPont was Fairmont
Supply's second largest customer in sales volume. The terms of the Strategic
Alliance Agreement are comparable to terms negotiated by Fairmont Supply with
unaffiliated parties.
BALTIMORE TERMINAL
More than 90 million tons of coal have been shipped through CONSOL's exporting
terminal in the Port of Baltimore during the terminal's 14 years of operation.
Constructed in the early 1980s at a cost of about $100 million, the terminal can
either store coal or transload coal directly into vessels from rail cars. It is
also one of the few terminals in the United States served by two railroads,
Norfolk Southern and CSX Transportation. In 1997, 8 million tons of coal were
shipped through the terminal. One half of the tonnage shipped was produced by
CONSOL coal mines, the remainder by other coal producers through several coal
trading companies. In 1998, about 33% of the revenue at the terminal was
generated from coal that CONSOL shipped but that had been produced by others.
The terminal has capacity to ship 18 million tons annually.
The terminal's berth has a depth of 50 feet, enabling the facility to handle
larger ocean-going vessels. More than 1 million tons of coal can be stored on
site, which gives the terminal the advantage of having coal available at the
site for immediate loading onto ocean-going vessels or to provide blending
capability.
NEPTUNE BULK TERMINAL
CONSOL also has a 19% interest in the Neptune Bulk Terminal located in
Vancouver, Canada. The terms of the contract governing this joint venture permit
CONSOL to transship its coal through the terminal at cost. CONSOL believes that
this arrangement gives it a competitive advantage in selling coal mined from its
Cardinal River operations.
RIVER OPERATIONS
CONSOL's river operations transport coal from CONSOL mines with river loadout
facilities along the Monongahela River in northern West Virginia and
southwestern Pennsylvania to customers along the Monongahela and Ohio rivers.
The river operations employ five company-owned towboats and nearly 300
64
<PAGE>
barges. Coal is towed directly to customers. In 1997, CONSOL transported 15
million tons of coal by river. Third-party shippers transported an additional
13.5 million tons of CONSOL's coal.
KELLOGG DOCK
Kellogg Dock is located in Moduc, Randolph County on the Mississippi River in
southern Illinois. This facility transfers coal from CONSOL's Rend Lake Mine
from railcars to barges. In 1997, 1 million tons were supplied by rail to the
Kellogg dock and then transported to commercial river shippers.
ALICIA DOCK
Alicia Dock, located on the Monongahela River north of the Dilworth mine, is a
new transshipment facility with design capacity of 6 million tons of coal per
year and potential storage capacity for 0.2 million tons of coal. Coal is
transferred from rail cars to barges for customers that receive coal on the
river system. The facilities include a single-car rotary dump with a positioner,
capable of handling an average of 25 cars per hour. The rail siding provides
space for 105 cars on each side of the dumper. The Alicia Dock facility became
operational in April 1997 and throughput was 1 million tons through the end of
1997.
ASH DISPOSAL
CONSOL operates an ash disposal facility on a 61-acre site in northern West
Virginia to handle ash residues for coal customers that are unable to dispose of
ash on-site at their generating facilities. This facility became operational in
early 1994. The ash disposal facility can process 200 tons of material per hour.
CONSOL has a long-term contract with a cogeneration facility to supply coal and
take the residual fly ash and bottom ash. The fly ash is transported to the
disposal site by CONSOL-leased pressure differential rail cars. Bottom ash is
sold locally for road construction and other purposes.
GAS OPERATIONS
CONSOL has a 50% interest in the Pocahontas Gas Partnership which engages in the
production and transportation of commercial coalbed methane gases. The
Pocahontas Gas Partnership recovers pipeline-quality coalbed methane from mining
activities in southwestern Virginia and transports the gas to the interstate
pipeline system. The production from the Pocahontas Gas Partnership was
approximately 36 million cubic feet per day in 1997. CONSOL serves as operator
of the Pocahontas Gas Partnership and as operator of an adjacent coalbed methane
property. The total gas production supervised by CONSOL from these two ventures
was 53 million cubic feet per day in 1997.
LEGAL PROCEEDINGS
CONSOL is subject to numerous legal proceedings in the ordinary course of its
business. Except as described below, CONSOL does not believe that the outcome of
any such legal proceedings, if adversely determined, would have a material
adverse effect on its business, financial condition or results of operations.
On September 18, 1996, Union Electric, a Missouri corporation, commenced an
action in the U.S. District Court for the Eastern District of Missouri against
Consolidation Coal Company, an indirect wholly owned subsidiary of CONSOL,
CONSOL, Inc., and CONSOL Energy Inc. alleging, among other things, breach of
contract and asserting unjust enrichment claims against each defendant. The
claims relate to a long-term coal supply contract originally entered into
between Union Electric and Consolidation Coal Company on December 30, 1966.
Union Electric claims that Consolidation Coal Company breached the contract by
refusing to agree to price reductions in the per-ton price for coal when
requested to do so by Union Electric under the
65
<PAGE>
contract's gross inequities clause. The defendants dispute all of Union
Electric's allegations and do not believe that Union Electric has suffered any
gross inequity or is entitled to any relief under the contract. Union Electric
has estimated its damages to be $124 million plus $66 million in interest. On
August 31, 1998, CONSOL was awarded a summary judgment dismissing Union
Electric's claims against it. Union Electric has appealed the court's order
dismissing the suit.
CONSOL is engaged in a contract dispute with Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company
and The Toledo Edison Company. CAPCO claims that CONSOL under the terms of the
Mansfield Plant Coal Sales Agreement dated April 10, 1987 made improper
adjustments to the coal price for certain labor, retirement and benefit costs.
CAPCO claims that they were improperly assessed $40 million as a result of the
price adjustments made by CONSOL. CONSOL has responded to CAPCO and has denied
the claims. The agreement provides for resolution of disputes by arbitration.
CONSOL has received a notice from CAPCO of its intention to submit the claims to
arbitration.
AVAILABLE INFORMATION
CONSOL has filed with the Securities and Exchange Commission a registration
statement in order to register the shares of common stock being offered under
the Securities Act and the rules and regulations promulgated thereunder. This
prospectus omits certain information contained in the registration statement and
the exhibits and schedules thereto, and we sometimes refer you to the
registration statement for further information with respect to us and the common
stock. We have summarized the contents of contracts, agreements or other
documents in this prospectus. Although we have disclosed all material elements
of such contracts or documents required to be disclosed in this prospectus, we
qualify each such disclosure in its entirety by reference to the copy of such
contract or document filed as an exhibit to the registration statement.
You may inspect and copy the registration statement and all exhibits filed with
the registration statement at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the regional offices of the Securities and
Exchange Commission at 7 World Trade Center, 13th Floor, New York, New York
10048, and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
also may obtain copies of such material from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Securities and Exchange Commission also
maintains a web site that contains reports, proxy and information statements and
other materials that are filed through the Securities and Exchange Commission's
Electronic Data Gathering, Analysis and Retrieval System. You may access this
web site at http://www.sec.gov. We will apply to list our common stock on The
New York Stock Exchange. Accordingly, our reports and other information also can
be inspected at the offices of The New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
66
<PAGE>
REGULATION
The coal mining industry is subject to regulation by federal, state and local
authorities on matters such as employee health and safety, permitting and
licensing requirements, air quality standards, water pollution, plant and
wildlife protection, the reclamation and restoration of mining properties after
mining is completed, the discharge of materials into the environment, surface
subsidence from the underground mining and the effects of mining on groundwater
quality and availability. In addition, the utility industry is subject to
extensive regulation regarding the environmental impact of its power generation
activities which could affect demand for CONSOL's coal. The possibility exists
that new legislation or regulations may be adopted which may have a significant
impact on CONSOL's mining operations or its customers' ability to use coal and
may require CONSOL or its customers to change their operations significantly or
incur substantial costs.
Numerous governmental permits or approvals are required for mining operations.
CONSOL believes all permits currently required to conduct its present mining
operations have been obtained. CONSOL may be required to prepare and present to
federal, state or local authorities data pertaining to the effect or impact that
any proposed exploration for or production of coal may have upon the
environment. All requirements imposed by any such authority may be costly and
time-consuming and may delay commencement or continuation of exploration or
production operations. Future legislation and administrative regulations may
emphasize the protection of the environment and, as a consequence, the
activities of CONSOL may be more closely regulated. Such legislation and
regulations, as well as future interpretations of existing laws, may require
substantial increases in equipment and operating costs to CONSOL and delays,
interruptions or a termination of operations, the extent of which cannot be
predicted.
CONSOL endeavors to conduct mining operations in compliance with all applicable
federal, state and local laws and regulations. However, because of extensive and
comprehensive regulatory requirements, violations during mining operations are
not unusual in the industry and, notwithstanding compliance efforts, CONSOL does
not believe such violations can be eliminated completely. None of the violations
to date or the monetary penalties assessed have been material.
While it is not possible to quantify the costs of compliance with all applicable
federal and state laws, those costs have been and are expected to continue to be
significant. It is estimated that CONSOL will make capital expenditures for
environmental control facilities in the amount of approximately $4 million in
1998, as compared to $4 million and $5 million in 1996 and 1997, respectively.
These costs are in addition to reclamation costs. Compliance with these laws has
substantially increased the cost of coal mining, but is, in general, a cost
common to all domestic coal producers.
MINE HEALTH AND SAFETY LAWS
Stringent safety and health standards have been imposed by federal legislation
since 1969 when the Federal Coal Mine Health and Safety Act of 1969 was adopted.
The Mine Health and Safety Act of 1969 resulted in increased operating costs and
reduced productivity. The Federal Mine Safety and Health Act of 1977, which
significantly expanded the enforcement of health and safety standards of the
Mine Health and Safety Act of 1969, imposes comprehensive safety and health
standards on all mining operations. Regulations are comprehensive and affect
numerous aspects of mining operations, including training of mine personnel,
mining procedures, blasting, the equipment used in mining operations and other
matters. The Mine Safety and Health Administration monitors compliance with
these federal laws and regulations. In addition, as part of the Mine Health and
Safety Act of 1969 and the Mine Safety and Health Act of 1977, the Black Lung
Acts require payments of benefits by all businesses conducting current mining
operations to coal miners with pneumoconiosis (black lung) and to certain
survivors of a miner who dies from pneumoconiosis.
67
<PAGE>
Most of the states in which CONSOL operates have state programs for mine safety
and health regulation and enforcement. In combination, federal and state safety
and health regulation in the coal mining industry is perhaps the most
comprehensive and pervasive system for protection of employee safety and health
affecting any segment of the industry. Even the most minute aspects of mine
operations, particularly underground mine operations, are subject to extensive
regulation. This regulation has a significant effect on CONSOL's operating
costs. However, CONSOL's competitors in all of the areas in which it operates
are subject to the same degree of regulation.
One of CONSOL's goals is to achieve excellent health and safety performance as
measured by accident frequency rates and other measures. CONSOL believes that
attainment of this goal is inherently tied to the attainment of productivity and
financial goals. CONSOL seeks to implement this goal by training employees in
safe work practices; openly communicating with employees; establishing,
following, and improving safety standards; involving employees in establishing
safety standards; and recording, reporting and investigating all accidents,
incidents and losses to avoid reoccurrences.
BLACK LUNG LEGISLATION
In order to compensate (1) miners who are totally disabled due to pneumoconiosis
and (2) certain survivors of miners who died from the disease and who were last
employed as miners prior to 1970 or where no responsible coal mine operator has
been identified for claims where the miner's last coal employment was after
December 31, 1969, the Black Lung Acts levied a tax on production of $1.10 per
ton for deep-mined coal and $.55 per ton for surface-mined coal, but not to
exceed 4.4% of the sales price. In addition, the Black Lung Acts provide that
certain claims for which coal operators had previously been responsible will be
obligations of the government trust funded by the tax. The Revenue Act of 1987
extended the termination date of the tax from January 1, 1996 to the earlier of
January 1, 2014, or the date on which the government trust becomes solvent. For
miners last employed as miners after 1969 who are determined to have contracted
black lung, CONSOL self insures against potential cost using actuarial
determined estimates of the cost of present and future claims. CONSOL's
subsidiaries are also liable under state statutes for pneumoconiosis (black
lung) claims.
In the past, legislation on black lung reform has been introduced, but not
enacted, in Congress. It is possible that such legislation will be reintroduced.
Such legislation could restrict the evidence that can be offered by a mining
company, establish a standard for evaluation of evidence that greatly favors
black lung claimants, allow claimants who have been denied benefits at any time
since 1981 to refile their claims for consideration under the new law, make
surviving spouse benefits significantly easier to obtain and retroactively waive
repayment of preliminarily awarded benefits that are later determined to have
been improperly paid. If this or similar legislation is passed, the number of
claimants who are awarded benefits could significantly increase. There can be no
assurance that such proposed legislation or other proposed changes in black lung
legislation will not have an adverse effect on CONSOL.
The U.S. Department of Labor has issued proposed amendments to the regulations
implementing the federal black lung laws which, among other things, establish a
presumption in favor of a claimant's treating physician and limit a coal
operator's ability to introduce medical evidence regarding the claimant's
medical condition. If adopted, the amendments could have an adverse impact on
CONSOL, the extent of which cannot be accurately predicted.
68
<PAGE>
WORKERS' COMPENSATION
CONSOL is required to compensate employees for work-related injuries. Several
states in which CONSOL operates consider changes in workers compensation laws
from time to time. Such changes, if enacted, could adversely affect CONSOL's
financial condition and results of operation.
RETIREE HEALTH BENEFITS LEGISLATION
The Coal Industry Retiree Health Benefits Act of 1992 requires CONSOL to make
payments to fund the cost of health benefits for CONSOL's and other coal
industry retirees. As a result of a recent U.S. Supreme Court decision, CONSOL
may be required to increase its share of such payments.
ENVIRONMENTAL LAWS
CONSOL is subject to various Federal environmental laws, including the federal
Surface Mining Control and Reclamation Act of 1977, the Clean Air Act, the Clean
Water Act, the federal Comprehensive Environmental Response, Compensation and
Liability Act, and the federal Resource Conservation Recovery Act as well as
state laws of similar scope in each state in which CONSOL operates. These
environmental laws require permitting and/or approval of many aspects of coal
mining operations, and to that end both federal and state inspectors regularly
visit CONSOL's mines and other facilities to assure compliance. CONSOL has
ongoing compliance and permitting programs to assure compliance with such
Environmental Laws.
Given the retroactive nature of certain environmental laws, CONSOL has incurred
and may in the future incur liabilities in connection with properties and
facilities currently or previously owned or operated as well as sites to which
it sent waste materials.
SURFACE MINING CONTROL AND RECLAMATION ACT
The Surface Mining Control and Reclamation Act establishes operational,
reclamation and closure standards for all aspects of surface mining as well as
many aspects of deep mining. The act requires that comprehensive environmental
protection and reclamation standards be met during the course of and upon
completion of mining activities. Permits for surface mining operations must be
obtained from the federal Office of Surface Mining Reclamation and Enforcement
or, where state regulatory agencies have adopted federally approved state
programs under the act, the appropriate state regulatory authority. All states
in which CONSOL's active mining operations are located have achieved primary
jurisdiction for enforcement of the act through approved state programs.
The Surface Mining Control and Reclamation Act and similar state statutes, among
other things, require that mined property be restored in accordance with
specified standards and approved reclamation plans. The act requires CONSOL to
restore the surface to approximate the original contours as contemporaneously as
practicable with the completion of surface mining operations. The mine operator
must submit a bond or otherwise secure the performance of these reclamation
obligations. The earliest a reclamation bond can be released is five years after
reclamation has been achieved. Some states, including Pennsylvania, impose on
mine operators the responsibility for repairing or compensating for damage
occurring on the surface as a result of mine subsidence, a consequence of
longwall mining. In addition, the Abandoned Mine Lands Act, which is part of the
Surface Mining Control and Reclamation Act, imposes a tax on all current mining
operations, the proceeds of which are used to restore mines closed before 1977.
The maximum tax is $.35 per ton on surface-mined coal and $.15 per ton on
underground-mined coal.
CONSOL accrues for the costs of final mine closure, including the cost of
treating mine water discharge where necessary, over the estimated useful mining
life of the property and for current mine disturbance which will be reclaimed
prior to final mine closure. The establishment of liability for the current
disturbance and final mine
69
<PAGE>
closure reclamation is based upon permit requirements and requires various
estimates and assumptions, principally associated with costs and production
levels. The reclamation costs, mine-closing costs and other environmental
liability accruals were $321 million at September 30, 1998. The amount that was
included as an operating expense for the nine-month period ended September 30,
1998 was $7 million, while the related cash expense for such liability in such
period was $22 million. Although CONSOL's management believes it is making
adequate provisions for all expected reclamation and other costs associated with
mine closures, future operating results would be adversely affected if such
accruals were later determined to be insufficient.
Under the Surface Mining Control and Reclamation Act, responsibility for
unabated violations, unpaid civil penalties and unpaid reclamation fees of
independent contract mine operators can be imputed to other companies which are
deemed, according to the regulations, to have "owned" or "controlled" the
contract mine operator. Sanctions against the "owner" or "controller" are quite
severe and can include being blocked from receiving new permits and revocation
of any permits that have been issued since the time of the violations or, in the
case of civil penalties and reclamation fees, since the time such amounts became
due. CONSOL is not aware of any currently pending or asserted claims relating to
the "ownership" or "control" theories discussed above. However, there can be no
assurance that such claims may or may not develop in the future.
CLEAN AIR ACT
The federal Clean Air Act and similar state laws, which regulate emissions into
the air, affect coal mining and processing operations primarily through
permitting and/or emissions control requirements. In addition, the U.S.
Environmental Protection Agency has issued certain and is considering further
regulations relating to fugitive dust and coal combustion emissions which could
restrict CONSOL's ability to develop new mines or require CONSOL to modify its
operations. In July 1997, the Environmental Protection Agency adopted new, more
stringent National Ambient Air Quality Standards for particulate matter which
may require some states to change existing implementation plans. These National
Ambient Air Quality Standards are expected to be implemented by 2003. Because
coal mining operations emit particulate matter, CONSOL's mining operations and
utility customers are likely to be directly affected when the revisions to the
National Ambient Air Quality Standards are implemented by the states.
Regulations may restrict CONSOL's ability to develop new mines or could require
CONSOL to modify its existing operations, and may have a material adverse effect
on CONSOL's financial condition and results of operations.
The Clean Air Act also indirectly affects coal mining operations by extensively
regulating the air emissions of coal-fueled electric power generating plants.
The Clean Air Act requires reduction of sulfur dioxide emissions from electric
power generation plants in two phases. Only certain facilities are subject to
the Phase I requirements. By the year 2000, Phase II requires nearly all
facilities to reduce such emissions. The affected utilities will be able to meet
these requirements by switching to lower sulfur fuels, by installing pollution
control devices such as scrubbers, by reducing electricity generating levels or
by purchasing or trading so-called pollution "credits." Specific emissions
sources receive these "credits" which utilities and industrial concerns can
trade or sell to allow other units to emit higher levels of sulfur dioxide. In
addition, the Clean Air Act requires a study of utility power plant emission of
certain toxic substances and their eventual regulation, if warranted. The effect
of the Clean Air Act cannot be completely ascertained at this time, although the
sulfur dioxide emissions reduction requirement is projected generally to
increase the demand for low-sulfur coal and potentially decrease demand for high
sulfur coal.
The Clean Air Act also indirectly affects coal mining operations by requiring
utilities that currently are major sources of nitrogen oxides in moderate or
higher ozone nonattainment areas to install reasonably available control
technology for nitrogen oxides, which are precursors of ozone. The Environmental
Protection Agency recently announced a proposal that would require 22 eastern
states to make substantial reductions in nitrogen oxide
70
<PAGE>
emissions by the year 2003. The Environmental Protection Agency expects such
states will achieve these reductions by requiring power plants to make
substantial reductions in their nitrogen oxide emissions. This in turn will
require power plants to install reasonably available control technology and
additional control measures. Installation of reasonably available control
technology and additional measures required under the Environmental Protection
Agency proposal will make it more costly to operate coal-fired plants and,
depending on the requirements of individual state implementation plans and the
development of revised new source performance standards, could make coal a less
attractive fuel alternative in the planning and building of utility power plants
in the future. Any reduction in coal's share of the capacity for power
generation could have a material adverse effect on CONSOL's business, financial
condition and results of operations. The effect such regulations, or other
requirements that may be imposed in the future, could have on the coal industry
in general and on CONSOL in particular cannot be predicted with certainty. No
assurance can be given that the implementation of the Clean Air Act, the new
National Ambient Air Quality Standards or any other future regulatory provisions
will not materially adversely affect CONSOL's business, financial condition or
results of operations.
Impact of the Framework Convention On Global Climate Change. The United States
and more than 160 other nations are signatories to the 1992 Framework Convention
on Global Climate Change which is intended to limit or capture emissions of
greenhouse gases, such as carbon dioxide. In the Kyoto Protocol, the signatories
to the Framework Convention on Global Climate Change established a binding set
of emissions targets for developed nations. The specific limits vary from
country to country. Under the terms of Kyoto Protocol, the United States would
be required to reduce emissions to 93% of 1990 levels over a five-year budget
period from 2008 through 2012. The Clinton Administration signed the protocol in
November 1998. Although the U.S. Senate has not yet ratified the Kyoto Protocol
and no comprehensive regulations focusing on greenhouse gas emissions have been
enacted, efforts to control greenhouse gas emissions could result in reduced use
of coal if electric power generators switch to lower carbon sources of fuel.
Such restrictions, if established through regulation or legislation, could have
a material adverse effect on CONSOL's business, financial condition and results
of operations.
CLEAN WATER ACT
The federal Clean Water Act affects coal mining operations by imposing
restrictions on effluent discharge into waters. Regular monitoring, as well as
compliance with reporting requirements and performance standards, are
preconditions for the issuance and renewal of permits governing the discharge of
pollutants into water. CONSOL believes it has obtained all permits required
under the Clean Water Act and that compliance with the Clean Water Act will not
materially adversely affect its business, financial condition and results of
operations. CONSOL has received several notices of violations from the Ohio
Environmental Protection Agency at its Powhatan Mine No. 4, located near
Clarington, Monroe County, Ohio. In September 1998, CONSOL entered into a
settlement agreement with the Ohio Environmental Protection Agency and finalized
a consent decree with the Ohio Environmental Protection Agency reflecting the
resolution of outstanding issues. This settlement included a payment of $102,620
and a schedule to achieve compliance with its permit. CONSOL is meeting all Ohio
Environmental Protection Agency requirements on the schedule set forth in the
consent decree.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT
The Comprehensive Environmental Response, Compensation and Liability Act and
similar state laws affect coal mining operations by, among other things,
imposing cleanup requirements for threatened or actual releases of hazardous
substances that may endanger public health or welfare or the environment. Under
the Comprehensive Environmental Response, Compensation and Liability Act, joint
and several liability may be imposed on waste generators, site owners and
operators and others regardless of fault or the legality of the original
disposal activity. Although waste substances generated by coal mining and
processing are generally not regarded as hazardous substances for the purposes
of the Comprehensive Environmental Response, Compensation and Liability Act,
some products used by coal companies in operations, such as chemicals, and
71
<PAGE>
the disposal of such products, are governed by the statute. Thus, coal mines
currently or previously owned or operated by CONSOL, and sites to which CONSOL
sent waste materials, may be subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state laws.
CONSOL has been, from time to time, the subject of administrative proceedings,
litigation and investigations relating to environmental matters and has also
been named as a potentially responsible party at several Superfund sites. CONSOL
believes, based on various factors, that the liabilities associated with the
Superfund sites should not have a material adverse effect on its financial
condition or results of operations. However, there can be no assurances that
CONSOL will not become involved in future proceedings, litigation or
investigations or that such liabilities will not be material.
RESOURCE CONSERVATION RECOVERY ACT
The federal Resource Conservation Recovery Act affects coal mining operations by
imposing requirements for the treatment, storage and disposal of hazardous
wastes. Although many mining wastes are excluded from the regulatory definition
of hazardous waste, and coal mining operations covered by the Surface Mining
Control and Reclamation Act permits are exempted from regulation under the
Resource Conservation Recovery Act by statute, the Environmental Protection
Agency may consider the possibility of expanding regulation of mining wastes
under the Resource Conservation Recovery Act. Such expansion could have a
material adverse affect on CONSOL's results of operations and financial
condition.
FEDERAL COAL LEASING AMENDMENTS ACT
Although CONSOL currently does not have mining operations on federal coal
leases, mining operations on federal lands in the West are affected by
regulations of the U.S. Department of the Interior. The Federal Coal Leasing
Amendments Act of 1976 amended the Mineral Lands Leasing Act of 1920 which
authorized the leasing of federal lands for coal mining. The Federal Coal
Leasing Amendments Act increased the royalties payable to the U.S. Government
for federal coal leases and required diligent development and continuous
operations of leased reserves within a specified period of time. Regulations
adopted by the U.S. Department of the Interior to implement such legislation
could affect coal mining by CONSOL from federal leases if operations were
developed on such leases.
72
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and ages at December 1, 1998, of the executive
officers and directors of CONSOL Energy Inc. and certain executive officers of
CONSOL Inc. and Consolidation Coal Company. Consolidation Coal Company is the
principal operating subsidiary of CONSOL Energy Inc. and CONSOL Inc. is the
direct holding company subsidiary of CONSOL Energy Inc. that provides executive,
management and administrative services to CONSOL. No family relationship exists
among these people. Executive officers are appointed by, and hold office at, the
discretion of the Board of Directors of CONSOL Energy Inc., CONSOL Inc. and
Consolidation Coal Company, respectively.
<TABLE>
<CAPTION>
================================================================================================================
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Brett Harvey............................ 48 Director and President and Chief Executive Officer, CONSOL
and CONSOL Inc.
Ronald J. FlorJancic....................... 48 Executive Vice President -- Marketing, CONSOL Inc.
C. Wesley McDonald......................... 59 Executive Vice President -- Operations, CONSOL Inc.
Ronald E. Smith............................ 50 Executive Vice President -- Engineering Services,
Environmental Affairs and Exploration, CONSOL Inc.
Dr. Rolf Zimmermann........................ 54 Executive Vice President of CONSOL Inc. and Director,
CONSOL and CONSOL Inc.
Michael F. Nemser.......................... 48 Vice President and Treasurer, CONSOL and Senior Vice
President -- Administration, CONSOL Inc.
Grayson G. Heard........................... 51 Senior Vice President -- Mining, Consolidation Coal Company
Benjamin M. Statler........................ 47 Senior Vice President -- Mining, Consolidation Coal Company
Daniel L. Fassio........................... 51 Vice President and Secretary, CONSOL and Vice President,
General Counsel and Secretary of CONSOL Inc.
B. R. Brown................................ 66 Director, CONSOL and CONSOL Inc.
Dr. Dieter Henning......................... 62 Director, CONSOL and CONSOL Inc.
Berthold Bonekamp.......................... 48 Director, CONSOL and CONSOL Inc.
Bernd J. Breloer........................... 56 Director, CONSOL and CONSOL Inc.
</TABLE>
J. BRETT HARVEY has been President, Chief Executive Officer and a Director of
CONSOL since January 1998. Prior to joining CONSOL, Mr. Harvey served as the
president and chief executive officer of PacifiCorp Energy Inc., a subsidiary of
PacifiCorp, one of the country's largest electric utility companies, beginning
in 1995. Between 1993 and 1995, Mr. Harvey was president and chief executive
officer of both Interwest Mining Company and PacifiCorp Fuels. Mr. Harvey is a
member of the Board of Directors of the National Mining Association, the
National Coal Council, and the Utah Mining Association. He received a bachelor's
degree in mining engineering from the University of Utah. He is a former
director of the Wasatch Crest Mutual Insurance Company and has served on the
Construction Board of the College of Eastern Utah.
73
<PAGE>
RONALD J. FLORJANCIC has been Executive Vice President-Marketing of CONSOL Inc.
since May 1995. He was Vice President-Supply and Distribution and Vice
President-Sales from January 1992 to December 1993 and December 1993 to May
1995, respectively. From September 1982 to January 1992, he served as Vice
President-Supply and Distribution for Consolidation Coal Company. Prior thereto,
he served in a variety of operations and management positions. Mr. FlorJancic
joined Consolidation Coal Company in 1974. He received a bachelor's degree in
business and a master's degree in business administration, in each case magna
cum laude, from Indiana University (Bloomington). Mr. FlorJancic completed the
Emory University Executive Management Program in 1987.
C. WESLEY MCDONALD has been Executive Vice President--Operations of CONSOL Inc.
since January 1992. He was employed by Consolidation Coal Company in June 1967,
and held numerous operating and management positions from 1975 to 1981,
including Vice President and Assistant to the President for Consolidation Coal
Company from 1980 to 1981. He also served as Senior Vice President--Engineering,
Exploration and Environmental Affairs from 1981 to 1982, Senior Vice
President--Mining from 1982 to 1985 and Executive Vice President--Operations for
Consolidation Coal Company from 1985 to 1992. Mr. McDonald received a bachelor's
degree in mining engineering from the University of Alabama. He attended Harvard
Business School's Program for Management Development. He was named a
Distinguished Engineering Fellow in 1987 at the University of Alabama, and is a
member of the Board of Directors, Capstone Engineering Society, College of
Engineering, at the University. In addition, Mr. McDonald is former Chairman of
the Mineral Engineering Advisory Committee, University of Alabama College of
Engineering. He is also a member of the West Virginia University Visiting
Committee, which advises the University on engineering program matters.
RONALD E. SMITH has been Executive Vice President--Engineering Services,
Environmental Affairs & Exploration of CONSOL Inc. since April 1992. He joined
Consolidation Coal Company in June 1969 and has held numerous operating and
management positions, including Administrative Assistant to the Vice
President--Tazewell Operations in 1981, Vice President and Assistant to the
Executive Vice President in 1987 and Senior Vice President--Engineering
Services, Environmental Affairs & Exploration for Consolidation Coal Company
from April 1990 to January 1992. Mr. Smith received a bachelor's degree in
mining engineering from Virginia Polytechnic Institute and was named a
Distinguished Alumnus in 1998.
DR. ROLF ZIMMERMANN has been Executive Vice President of CONSOL Inc. since
January 1999 and has been on the Board of CONSOL since November 1993, where he
serves as a representative of Rheinbraun AG. In 1973, he served in the Corporate
Planning Department of the oil refinery subsidiary of Rheinbraun A.G. He became
Vice President and head of supply in 1985. He joined Rheinbraun AG in 1989 and
was the head of Corporate Structure and Internal Audit Department until 1990.
From 1990 to 1991, he was a member of the management board of a consulting firm
established to prepare for the privatization of the East German lignite
industry. In 1992, he became Senior Vice President of Rheinbraun and head of the
Business Development, Corporate Structure and Information Processing Division.
Mr. Zimmermann has received a master's degree (Diplom-Volkswirt) in Economics
from Bonn University and holds a doctor's degree (Dr.rer.pol.) in Economics from
Cologne University in Germany.
MICHAEL F. NEMSER has been Vice President and Treasurer for CONSOL since January
1992 and has been Senior Vice President--Administration for CONSOL Inc. since
January 1, 1996. From January 1992 to January 1, 1996, he was Vice President and
Treasurer for CONSOL Inc. Before joining CONSOL, Mr. Nemser was employed by
DuPont from 1974 to 1987, and held a variety of positions in DuPont's
Accounting, Finance, Textile Fibers, International and Polymer Products
Departments. He received a bachelor's degree in economics from Hobart College
and a master's degree of business administration degree from the Wharton School.
Mr. Nemser is a past President of the Financial Executives Institute, Pittsburgh
Chapter, a current member of the National Leadership Board of the Financial
Executives Institute and Chairman of the Finance Advisory Board of the Duquesne
University A.J. Palumbo School of Business.
74
<PAGE>
GRAYSON G. HEARD has been Senior Vice President--Mining and a Director of
Consolidation Coal Company since May 1985. He has been employed by Consolidation
Coal Company since February 1970 and has held numerous operational and
management positions. From 1980 until 1984, he was Vice President of Fairmont
Operations. From 1984 until 1985 he was Vice President and Assistant to the
Executive Vice President--Operations. Mr. Heard received a bachelor's degree in
mining engineering from Penn State University. In 1996, he was honored as a
Centennial Fellow of Penn State University.
BENJAMIN M. STATLER has been Senior Vice President--Mining and a Director of
Consolidation Coal Company since September 1994. He has been employed by
Consolidation Coal Company since February 1970 and has held numerous operational
and management positions. He served as Vice President of Moundsville Operations
from September 1983 to June 1994. From June 1994 until September 1994, he was
Vice President and Assistant to the Executive Vice President of Consolidation
Coal Company. Mr. Statler received a bachelor's degree in mining engineering
from West Virginia University. He is a past director of the Executive Committee
of the Society for Mining, Metallurgy & Exploration, Inc. (SME), Pittsburgh
Chapter. In addition, he is past General Campaign Chairman of the United Way of
the Upper Ohio Valley and has served on the Board of Directors of the Ohio
Valley Medical Center, United Way, Wheeling Chamber of Commerce, and Wheeling
Symphony. He is also a member of the West Virginia University Visiting
Committee, which advises the University on engineering program matters.
DANIEL L. FASSIO has been Secretary for CONSOL and Vice President, General
Counsel and Secretary of CONSOL Inc. since March 1994. He has been Vice
President of CONSOL since November 1998. He joined Consolidation Coal Company in
March 1981 as the Attorney for Consolidation Coal Company's former Eastern
Region and subsequently served as Counsel and Senior Counsel to Consolidation
Coal Company and CONSOL Inc. Prior to March 1981, he was a partner with Rose
Schmidt & Dixon, a law firm in Pittsburgh, Pennsylvania. Mr. Fassio received
bachelor's and master's degrees from the University of Virginia and a doctor of
law degree from Samford University. Besides membership in the American Bar
Association and the Pennsylvania Bar Association, Mr. Fassio is Chairman of the
Lawyers Committee for the Bituminous Coal Operators Association and a Trustee of
the Eastern Mineral Law Foundation.
B.R. BROWN has served as a Director of CONSOL since January 1992. Mr. Brown was
the Chairman of the Board of Directors of CONSOL from January 1992 until January
1999. From January 1992 to January 1996, he served as CONSOL's President and
Chief Executive Officer and has served in the Executive Office of Chairman of
the Board from January 1, 1996. Mr. Brown joined Consolidation Coal Company in
March 1977 as Executive Vice President. He served as President and Chief
Operating Officer from November 1977 to September 1982, as Chairman and Chief
Executive Officer from September 1982 to March 1987 and as President and Chief
Executive Officer from March 1987 to January 1992 of Consolidation Coal Company.
Prior to March 1977 Mr. Brown was employed by Conoco, including most recently as
Senior Vice President -- Personnel. Mr. Brown serves as a Director of Remington
Arms Co., Inc. He also serves as a Director and is Chairman of the Bituminous
Coal Operators Association Negotiating Committee, is a past Chairman of the
National Mining Association, a Director and former Chairman of the Coal Industry
Advisory Board of the International Energy Agency and a Trustee of the Nature
Conservancy. Mr. Brown holds honorary doctorates from several colleges,
including Bluefield State College, Robert Morris College, Waynesburg College,
and Wheeling College. He is a graduate of the University of Arkansas.
DR. ING. DIETER HENNING has been a member of the Board of CONSOL as a
representative of Rheinbraun AG and on the Executive Committee of the Board of
CONSOL since November 1994. He started as Superintendent Mine Operations at the
former Frechen open cast mine of Rheinbraun AG in 1969. After various positions
in the headquarters and mines of Rheinbraun AG, he was promoted to General
Manager of the Hambach open cast mine in 1977. From 1990 to 1993 he served as
Chairman of the Executive Board and Chief Executive Officer of the Lausitzer
Braunkohle AG (LAUBAG), Senftenberg, the major company that was formed as a
result of the privatization of the East-German lignite production. In 1993, he
became Chairman of the Executive Board and
75
<PAGE>
Chief Executive Officer of Rheinbraun AG and is a member of the Executive Board
of RWE AG. Mr. Henning holds a degree (Diplom Ingenieur) in mine engineering
from Clausthal Technical University in Germany. He holds a doctor's degree (Dr.-
Ing.) in mining from Clausthal University and a honorary doctor's degree (Dr.-
Ing.E.h.) from Aachen University.
BERTHOLD BONEKAMP has served on the Board of CONSOL as a representative of
Rheinbraun AG since July 1998. He started at the Accounting Department of
Rheinbraun AG in 1981. He held a variety of positions in the Rheinbraun
Accounting Department and was promoted to Vice President and Division Head -
Corporate Development, Organization and Information Processing in 1994. From
1995 to 1998 he served as Chairman of the Executive Board and Chief Executive
Officer of RV Rheinbraun Handel und Dienstleistungen GmbH, Cologne, the trading
and logistic services branch of the Rheinbraun group. In 1998 he became member
of the Executive Board of Rheinbraun AG, where he serves as Executive Vice
President - International Operations. Mr. Bonekamp holds a mechanical
engineering degree from the Muenster College of Applied Science and holds a
master's degree in business administration (Diplom-Kaufmann) from Muenster
University in Germany.
BERND JOBST BRELOER was appointed to the Board of CONSOL in September 1998,
where he serves as a representative of Rheinbraun AG. Mr. Breloer has held
various executive positions in the RWE AG group's nuclear division. From 1988 to
1992 he served as Chairman of the Executive Board and as Chief Executive Officer
of Nukem GmbH, the group's nuclear fuel cycle services entity. In 1993, he
joined Rheinbraun AG, where he became member of the Executive Board with
responsibility for the Finance and Accounting Division. Mr. Breloer holds a
master's degree in business administration (Diplom-Kaufmann) from Muenster
University in Germany.
Following the offering, CONSOL will have a Board of Directors consisting of the
then current members of the Board of Directors and at least two other persons
who will not be officers or directors of CONSOL or Rheinbraun.
The Board of Directors will appoint members to a compensation committee of the
Board of Directors (the "Compensation Committee") and an audit committee of the
Board of Directors (the "Audit Committee"). Both such committees will be
comprised solely of independent directors. The Compensation Committee will
establish remuneration levels for certain officers of CONSOL and perform such
functions as may be delegated to it under certain benefit and executive
compensation programs. The Audit Committee will select and engage the
independent public accountants to audit CONSOL's annual financial statements.
The Audit Committee will also review and approve the planned scope of the annual
audit. The Board of Directors may from time to time establish certain other
committees to facilitate the management of CONSOL.
DIRECTOR COMPENSATION
Each of Mr. Brown, Dr. Henning and Dr. Zimmermann received a retainer fee of
$18,000 for serving as members of the Board of Directors for 1997. It is
anticipated that directors who are not employees or officers of CONSOL or
Rheinbraun or of any subsidiary of either of them will be paid an annual Board
membership fee of $ , an attendance fee of $ for each meeting of the Board
of Directors, and an annual fee of $ for service on any committee of the Board
of Directors.
76
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses the compensation awarded to or earned by Mr.
Brown, William G. Karis, the former President and Chief Executive Officer of
CONSOL, and the other four most highly compensated executive officers of CONSOL
at December 31, 1997 whose annual salary plus other forms of compensation
exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ----------------
NAME AND ALL OTHER
OTHER ANNUAL LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) PAYMENTS ($) SATION ($)
- ------------------------ ------ ------------- ------------ ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
B.R. Brown 1997 0 425,000 0 0 558,000
Chairman of the Board
William G. Karis 1997 200,000 220,000 0 255,000 3,530,387
President and
Chief Executive Officer
C. Wesley McDonald 1997 277,650 160,000 0 300,000 9,600
Executive Vice President
Ronald J. FlorJancic 1997 193,650 185,000 75,000 0 9,600
Executive Vice President
Ronald E. Smith 1997 205,650 120,000 0 202,500 9,600
Executive Vice President
Benjamin M. Statler 1997 181,860 120,000 0 150,000 9,600
Senior Vice President
</TABLE>
All other compensation for Mr. Brown includes $540,000 paid to Mr. Brown under a
consulting agreement among Mr. Brown and CONSOL and CONSOL Inc. and a $18,000
retainer fee for serving as a Director of CONSOL. Mr. Brown performed the
functions of CONSOL's Chief Executive Officer during the interim period between
the resignation of Mr. Karis and the election of Mr. Harvey as CONSOL's
President and Chief Executive Officer.
All other compensation for Messrs. McDonald, FlorJancic, Smith and Statler
represents matching contributions to CONSOL's employee investment plan. Other
annual compensation for Mr. FlorJanic represents an award payable in 1997 under
CONSOL's Long-Term Incentive Plan but deferred at the election of Mr.
FlorJancic.
Mr. Karis resigned as the President, Chief Executive Officer and a Director of
CONSOL on August 31, 1997 to pursue other opportunities. All other compensation
for Mr. Karis includes $3,510,587 accrued for payment to Mr. Karis under
CONSOL's bonus and long-term compensation plan, severance policy, qualified
retirement plan and vacation benefits. All other compensation also includes a
$12,000 retainer fee for serving as a director and $7,800 in matching
contributions to CONSOL's employee investment plan.
77
<PAGE>
Long-Term Incentive Plan
Certain officers of CONSOL and its subsidiaries participate in a long-term
incentive plan which is administered by the Vice President-Human Resources of
CONSOL Inc. at the direction of the Chairman of the Board of Directors of
CONSOL. The Board of Directors may adjust award targets to reflect certain
extraordinary events, including strategic restructuring and new investments for
capital expansion. The Board of Directors has the discretion to terminate,
suspend, withdraw or modify the Long-Term Incentive Plan in whole or in
part.
Awards under the Long-Term Incentive Plan are based on CONSOL's results of
operations. Performance targets are tied to after tax operating income and
operating cash flow. Awards under the Long-Term Incentive Plan are granted in
units, each of which has a nominal value of $100. The awards have a three-year
term and are payable in the third year. The target for the first year is the
profit objective of CONSOL for that year. Years two and three are based upon
targets stated in CONSOL's long-term business plan in place prior to the
beginning of the award cycle. Awards may vary from 0% to 150% of the nominal
value of the unit depending upon the targeted results of operations for CONSOL.
For example, if the results of operations average 100% of the target for the
relevant period, each unit would have a value of $100.00. If the results of
operations average less than 100% of the target for the relevant period, each
unit would have a value of $0.00. If the results of operations average 150% or
more of the target for the relevant period, each unit would have a value of
$150.00. A recipient may elect to receive payment when an award is earned or he
may defer the payment of such award. Deferred awards accrue compounded interest
at an annual rate equal to Moody's AAA 10-year municipal bond rate.
78
<PAGE>
The following table provides certain information with respect to awards granted
to Mr. Brown, Mr. Harvey and the other four most highly compensated executive
officers of CONSOL Executive Officers during the year ended December 31,
1997.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN TABLE
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
PRICE-BASED PLANS
------------------------------------------
PERFORMANCE
NUMBER OF PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME UNITS PAYOUT (YEARS) ($) ($) ($)
- ----------------------- ---------------- --------------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
B.R. Brown 7,100 3 0 710,000 1,065,000
William G. Karis 0 - - - -
C. Wesley McDonald 1,700 3 0 170,000 255,000
Ronald J. FlorJancic 2,000 3 0 200,000 300,000
Ronald E. Smith 1,400 3 0 140,000 210,000
Benjamin M. Statler 1,200 3 0 120,000 180,000
</TABLE>
1999 Equity Incentive Plan
General
CONSOL has adopted the 1999 Equity Incentive Plan (the "Plan"). A maximum of
shares of common stock has been reserved for issuance under the Plan, generally
subject to equitable adjustment upon the occurrence of any stock dividend, stock
split, subdivision or consolidation.
Pursuant to the Plan, CONSOL may grant Stock Options (including "incentive stock
options" and "nonqualified stock options"), stock appreciation rights ("SARs")
(either in connection with stock options granted under the Plan or independently
of options), performance awards and other stock- or cash-based awards
("Awards"). It is the intent of CONSOL that certain Awards under the Plan will
satisfy applicable requirements of section 162(m) ("Section 162(m)") of the
Code.
The Plan will be administered by the Compensation Committee. The Compensation
Committee has full authority, subject to the provisions of the Plan and except
with respect to nonemployee directors, to, among other things, determine the
persons to whom Awards will be granted, determine the terms and conditions
(including any applicable performance criteria) of such Awards, and prescribe,
amend and rescind rules and regulations relating to the Plan.
Grants of Awards may be made under the Plan to selected employees of CONSOL and
its present or future subsidiaries, in the discretion of the Compensation
Committee.
79
<PAGE>
Stock Options and Appreciation Rights
Stock options may be either "incentive stock options," as such term is defined
in Section 422 of the Code, or nonqualified stock options. The exercise price
per share of Class A common stock subject to an option may not be less than the
fair market value of a share of common stock on the date of grant.
Stock Options and SARs will be exercisable at such times and upon such
conditions as the Compensation Committee may determine, as reflected in the
applicable Award agreement. The exercise period shall be determined by the
Compensation Committee except that, in the case of an incentive stock option,
such exercise period may not exceed ten years from the date of grant of such
incentive stock option.
The Compensation Committee will set forth in the applicable Award agreement the
treatment of stock options and SARs in the event that the employment of a
participant is terminated.
Stock Awards
A Stock Award is an Award of the right to receive cash or common stock at a
future date that may be subject to such restrictions on transferability and
other restrictions as the Compensation Committee may impose at the date of grant
or thereafter, which restrictions may lapse separately or in combination at such
times, under such circumstances (including without limitation a specified period
of employment or the satisfaction of preestablished performance goals), in such
installments, or otherwise, as the Compensation Committee may determine. All
other terms and conditions of Stock Awards will be set forth in the applicable
Award agreement.
Performance Awards
The Performance Award component of the Plan provides for the payment of Awards
to participants if, and only to the extent that, performance goals established
by the Compensation Committee are met with respect to the appropriate applicable
performance period. The Compensation Committee will establish performance goals
expressed in terms of the achievement of one or more performance measures.
Certain Limitations
No participant in the Plan may be granted, in respect of any calendar year,
Stock Options or SARs representing an aggregate of more than shares of common
stock, Stock Awards covering or relating to more than shares of common stock or
Performance Awards having an aggregate value determined on the date of grant in
excess of $ .
Change in Control
Unless otherwise provided in an Award agreement, in the event of a "Change in
Control" of CONSOL (as defined in the Plan), each unvested equity Award
outstanding under the Plan will be vested.
Amendment and Termination
The Plan may, at any time and from time to time, be altered, amended, suspended,
or terminated by the Board of Directors, in whole or in part, except that (i) no
amendment or alteration that would adversely affect the rights of any
participant under any Award previously granted to such participant shall be made
without the consent of such participant and (ii) no amendment or alteration
shall be effective prior to its approval by the stockholders of CONSOL to the
extent such approval is required by applicable law.
80
<PAGE>
Transferability
Except as otherwise determined by the Compensation Committee, awards granted
under the Plan may not be transferred other than by will or by the laws of
descent and distribution.
EMPLOYMENT AGREEMENTS
Employment Agreement With Mr. Harvey. J. Brett Harvey entered into an employment
agreement with CONSOL and CONSOL Inc. on December 11, 1997. Under the terms of
this contract, Mr. Harvey assumed his current positions as the President and
Chief Executive Officer of both companies on January 1, 1998. The employment
agreement terminates on December 31, 2002 unless it is terminated earlier. Mr.
Harvey's employment will terminate if (1) he becomes disabled and would be
eligible to receive disability benefits under CONSOL Inc.'s employee retirement
plan, (2) if either party terminates the agreement or (3) for cause as
determined by the Board of Directors of CONSOL at any time. If the agreement is
terminated other than by CONSOL for cause or if Mr. Harvey resigns, Mr. Harvey
will receive severance payments in an amount equal to any incentive compensation
received in the preceding 12 months and his then current base salary. These
amounts would be paid to Mr. Harvey until the end of the term of the employment
agreement. In the event of termination for cause, Mr. Harvey's compensation and
benefits terminate at the end of the month in which the notice of termination is
given.
As compensation for his services during the term of the employment agreement,
Mr. Harvey receives a yearly base salary of $390,000. He is entitled to
participate in all incentive compensation programs for senior management of
CONSOL Inc., including short-term and long-term incentive pay programs. He also
is eligible for all employee benefit plans and policies applicable to CONSOL
Inc. employees. For employee retirement plans purposes, Mr. Harvey will receive
11 years of additional service credit representing his years of employment at
PacifiCorp, deducting from any such benefits amounts payable to him pursuant to
any retirement or similar plans of PacifiCorp.
Mr. Harvey's employment agreement contains certain confidentiality and non-
competition obligations. Mr. Harvey must keep CONSOL's non-public information
confidential during the term of the employment agreement and for a period of 12
months after his termination. Mr. Harvey has agreed not to compete with the
business of CONSOL for so long as he receives severance benefits under the terms
of the employment agreement.
Consulting Arrangement With Mr. Brown. Mr. Brown entered into a consulting
agreement with CONSOL Inc. on December 9, 1996 which terminated on June 30,
1998. CONSOL Inc. and Mr. Brown have agreed to continue this consulting
arrangement on a month-to-month basis. Mr. Brown will receive a base consulting
fee of $540,000 per year which will be paid in equal monthly installments. The
base fee may be increased by the Board of Directors of CONSOL Inc.
81
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PURCHASE OF SHARES FROM DUPONT ENERGY
Indemnification Under Purchase Agreement. In November 1998, CONSOL purchased
51,139,156 shares of common stock from DuPont Energy for a purchase price of
$500 million. The purchase of shares from DuPont Energy was completed pursuant
to an agreement entered into in September 1998 among DuPont, DuPont Energy,
Rheinbraun and CONSOL. Subject to certain limitations, DuPont agreed to
indemnify Rheinbraun and CONSOL in respect of any losses incurred by Rheinbraun
as a result of the purchase of shares from DuPont Energy, and 47% of any and all
losses incurred by CONSOL and its subsidiaries arising or related to the period
prior to the closing date of the purchase of shares from DuPont Energy with
respect to the following:
. environmental matters (including the failure to obtain any permits or to
comply with laws governing the generation, handling, storage,
transportation, disposal or remediation of hazardous material only to the
extent these losses exceed $50 million),
. litigation, only to the extent losses then exceed $40 million
. taxes, and
. properties of Conoco or its mineral divisions.
Except for indemnification as to the mineral divisions of Conoco, DuPont is only
obligated to indemnify CONSOL and Rheinbraun at such time that all losses exceed
$20 million (calculated on a pre-tax basis). At that time, DuPont's
indemnification will include the first $20 million of such losses. DuPont is
obligated to indemnify CONSOL and Rheinbraun for liabilities arising out of the
mineral division of Conoco on a dollar-for-dollar basis. In no event will
DuPont's indemnification obligations in the aggregate exceed $500 million.
Registration Rights. In connection with the purchase of shares from DuPont
Energy, DuPont and DuPont Energy agreed not to dispose of any of the remaining
shares of common stock held by DuPont Energy (including securities issued in
exchange for, in lieu of or as a dividend on such shares of common stock) during
the 180 days after the closing date of the purchase of shares from DuPont
Energy. After the 180 days, DuPont Energy will have the right to dispose of the
shares
. pursuant to registration rights previously granted to DuPont Energy under
the Shareholders Agreement, or
. in a private sale or sales conforming to the Securities Act.
DuPont Energy may not, and DuPont will cause DuPont Energy not to, effect any
public sale of shares during the seven days prior to and the 90 days after any
underwritten registered financing by CONSOL has become effective or such longer
period (not to exceed 180 days) as the underwriter may require consistent with
customary practice.
The agreement provides that DuPont will have two demand registration rights at
DuPont's expense prior to December 31, 2001.
PAYMENT OF DIVIDENDS
Prior to the closing of the purchase of shares from DuPont Energy, CONSOL paid a
dividend of $60 million, an amount which approximates CONSOL's regular annual
dividend based on 1998 results for the period elapsed
82
<PAGE>
prior to the payment of the purchase price of the shares. In December 1998,
CONSOL paid an additional dividend of $20 million.
REGISTRATION RIGHTS
CONSOL and Rheinbraun A.G. and Rheinbraun US GmbH have entered into a
Registration Rights Agreement that provides that, upon the request of Rheinbraun
A.G. or Rheinbraun US GmbH, CONSOL will use its best efforts to effect the
registration under the applicable federal and state securities laws of any of
the shares of common stock (or any other securities issued with respect to such
common stock). Rheinbraun will also have the right, subject to certain
limitations, to include these securities in certain other registrations of
securities initiated by CONSOL on its own behalf or on behalf of its other
stockholders. CONSOL generally will be required to pay all out-of-pocket costs
and expenses in connection with each such registration. Such registration rights
will be assignable by Rheinbraun. The agreement contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification and contribution granted by the parties
thereunder in connection with such a registration.
OTHER INFORMATION ABOUT RELATED PARTY TRANSACTIONS
See Note 3 of Notes to the Consolidated Financial Statements for information
with respect to certain transactions between CONSOL and affiliates of CONSOL.
83
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth at February 4, 1999 certain information with
respect to beneficial ownership of the common stock before and after the
completion of the offering and the beneficial ownership of shares of Common
Shares of RWE, A.G. (the "RWE Common Shares"). Except as indicated in the
footnotes below, the persons in this table have sole voting and investment power
with respect to all shares beneficially owned by them.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
COMMON STOCK BENEFICIALLY OWNED
---------------------------------------------------------------------------
BEFORE THE AFTER THE
OFFERING OFFERING
------------------------------------ ----------------------------------
NAME AND ADDRESS(1) NUMBER PERCENT NUMBER PERCENT
- ---------------------------------- ------------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
RWE, A.G............................. 54,403,357 (2) 94.3% 54,403,357 67.8%
Opernplatz 1
45128 Essen, Germany
E.I. du Pont de Nemours and Company 3,264,201 (3) 5.7% 3,264,201 4.1%
1007 Market Street
Wilmington, Delaware 19898
B.R. Brown........................... -- -- -- --
J. Brett Harvey...................... -- -- -- --
C. Wesley McDonald................... -- -- -- --
Ronald E. Smith...................... -- -- -- --
Benjamin M. Statler.................. -- -- -- --
Ronald J. FlorJancic................. -- -- -- --
Dr. Dieter Henning................... -- -- -- --
Berthold Bonekamp.................... -- -- -- --
Bernd Breloer........................ -- -- -- --
Dr. Rolf Zimmerman................... -- -- -- --
All directors and executive
officers as a group (persons)........ -- -- -- --
</TABLE>
_____________________
(1) The address of the directors and executive officers of CONSOL is c/o CONSOL
Inc., 1800 Washington Road, Pittsburgh, Pennsylvania 15241.
(2) Represents shares held of record by Rheinbraun A.G. and Rheinbraun U.S.
GmbH, direct and indirect subsidiaries of RWE, A.G.
(3) Represents shares held of record by DuPont Energy, a wholly owned subsidiary
of DuPont.
84
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After the offering, CONSOL will have 80,267,559 shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
CONSOL will have a total of 83,657,559 shares outstanding. All of the common
stock sold in the offering will be freely transferable without restriction or
further registration under the Securities Act of 1933, except for shares
acquired by certain of CONSOL's directors and senior officers. Rheinbraun,
DuPont and certain of CONSOL's directors and senior officers have agreed not to
sell or dispose of any common stock for a period of 180 days after the date of
this prospectus, without J.P. Morgan Securities Inc.'s prior written consent.
CONSOL can give no assurance concerning how long these parties will continue to
hold their common stock after the offering. See "Risk Factors--Shares Eligible
for Future Sale" and "Underwriting."
Any common stock held by one of CONSOL's affiliates will be subject to the
resale limitations required by Rule 144 under the Securities Act of 1933. Rule
144 defines an affiliate as a person that directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, the issuer. After the offering, Rheinbraun will be an affiliate of CONSOL.
Therefore, as long as Rheinbraun remains an affiliate, Rheinbraun may sell its
common stock only:
. pursuant to an effective registration statement under the Securities Act
of 1933;
. in accordance with Rule 144; or
. pursuant to another exemption from registration.
Rheinbraun is not under any contractual obligation to retain its common stock,
except during the 180-day period noted above.
In general, a stockholder subject to Rule 144 who has owned common stock of an
issuer for at least one year may, within any three-month period, sell up to the
greater of (1) 1% of the total number of shares of common stock then outstanding
and (2) the average weekly trading volume of the common stock during the four
weeks preceding the stockholder's required notice of sale. Rule 144 requires
stockholders to aggregate their sales with other affiliated stockholders for
purposes of complying with this volume limitation. A stockholder who has owned
common stock for at least two years, and who has not been an affiliate of the
issuer for at least 90 days, may sell common stock free from the volume
limitation and notice requirements of Rule 144.
DuPont and Rheinbraun each is entitled to require CONSOL to register its shares
for sale under the Securities Act of 1933 after the expiration of the 180-day
period noted above. See "Risk Factors?Shares Eligible for Future Sale."
CONSOL cannot estimate the number of shares of common stock that may be sold
pursuant to the above sale methods because such sales will depend on market
prices, the circumstances of sellers and other factors.
Prior to this offering, there has been no market for the common stock. CONSOL
can make no prediction about the effect, if any, that future sales of common
stock or the availability of such shares for sale would have on the prevailing
market price of the common stock. Nevertheless, future sales by CONSOL,
Rheinbraun or DuPont of substantial amounts of common stock, or the perception
that such sales may occur, could adversely affect the prevailing market price of
the common stock. In addition, sales and the perception of likely sales
86
<PAGE>
could impair CONSOL's ability to raise additional capital through the sale of
additional common stock or other equity securities. See "Certain Relationships
and Related Party Transactions--Registration Rights"
87
<PAGE>
DESCRIPTION OF CAPITAL STOCK
CONSOL's authorized capital stock consists of 500,000,000 shares of common
stock, $.01 par value per share. After giving effect to the offering, the
issued and outstanding capital stock of CONSOL will consist of 80,267,558 shares
of common stock (or 83,657,558 if the Underwriters' over-allotment option is
exercised in full).
COMMON STOCK
As of February 1, 1999, there were 57,667,559 shares of common stock
outstanding, which were held of record by three stockholders. The holders of
common stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders. Cumulative voting of shares of common stock is
prohibited, which means that the holders of a majority of shares voting for the
election of directors can elect all members of the Board of Directors. Except
as otherwise required by applicable law, a majority vote is sufficient for any
act of stockholders. The holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution, or winding up of CONSOL, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities. The holders of common stock have no preemptive or conversion
rights or other subscription rights, and there are no redemption or sinking fund
provisions applicable to the common stock. All of the outstanding shares of
common stock are fully paid and nonassessable, and all of the shares of common
stock offered hereby, when issued, will be fully paid and nonassessable. DuPont
has the right to require CONSOL to effect the registration of its shares under
the Securities Act in certain circumstances.
DELAWARE STATUTE
CONSOL is a Delaware corporation subject to Section 203 of the Delaware General
Corporation Law. Section 203 provides that a corporation generally may not
engage in any business combination with any interested stockholder for a period
of three years following the time that such stockholder became an interested
stockholder. Section 203 applies unless:
. prior to the time a stockholder becomes an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or
. on or after such date the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
An "interested stockholder" is defined to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period
immediately prior to the relevant date; and
88
<PAGE>
. the affiliates and associates of any such person.
Section 203 defines a business combination to include:
. any merger or consolidation involving the corporation and the
interested stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. certain transactions that result in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder;
. any transaction involving the corporation that increases the
proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of any loans, advances,
guarantees, pledges or other financial benefits provided through the
corporation. In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or
person.
Under certain circumstances, Section 203 makes it more difficult for an
interested stockholder to effect various business combinations with a
corporation during the three-year period, although the stockholders may elect to
exclude a corporation from the restrictions imposed under Section 203.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is.
89
<PAGE>
TAX CONSIDERATIONS
The following is a general discussion of certain United States federal tax
considerations applicable to the ownership and disposition of common stock by
"Non-U.S. Holders." In general, a "Non-U.S. Holder" is a beneficial owner of
common stock other than:
. a citizen or resident of the United States,
. a corporation or partnership created or organized in the United States
or under the laws of the United States or of any state,
. an estate or partnership, the income of which is includible in gross
income for United States federal income tax purposes regardless of its
source, or
. a trust the administration of which is subject to the primary
supervision of a court within the United States and for which one or
more U.S. fiduciaries have the authority to control all substantial
decisions.
An individual may, subject to certain exceptions, be deemed a resident of the
United States by virtue of being present in the United States for at least 31
days in the current calendar year and for an aggregate of at least 183 days
during the prior three year period ending in the current calendar year (counting
for such purposes all days present in the current calendar year, one-third of
the days present in the immediately preceding calendar year, and one-sixth of
the days present in the second preceding calendar year). The term "Non-U.S.
Holder" does not include individuals who were United States citizens within the
ten-year period immediately preceding the date of this Prospectus and whose loss
of United States citizenship had as one of its principal purposes the avoidance
of United States taxes.
The following summary deals only with common stock held as capital assets within
the meaning of Section 1221 of the Internal Revenue Code and does not deal with
special situations, such as those of dealers in securities or currencies,
financial institutions, life insurance companies, tax exempt organizations, or
persons holding common stock as a part of a hedging or conversion transaction or
a straddle. Furthermore, the discussion below is based upon the provisions of
the Internal Revenue Code and Treasury regulations, administrative and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified with possible retroactive effect so as to result
in federal income and estate tax consequences different from those discussed
below.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
DIVIDENDS
If dividends are paid on the common stock, these payments will be treated as
dividends for United States federal income tax purposes to the extent of
CONSOL's current or accumulated earnings and profits as determined under U.S.
income tax principles. The portion of a payment that exceeds such earnings and
profits will be treated as a return of capital to the extent of each Non-U.S.
Holder's tax basis in the common stock. The portion of a payment that exceeds
such earnings and profits and tax basis will be treated as a gain from the sale
or other disposition of the common stock to the extent of such excess, with the
tax consequences described below under ".Sale of Common Stock."
90
<PAGE>
In general, any dividends (i.e., distributions to the extent of current or
accumulated earnings and profits for United States federal income tax purposes)
paid to a Non-U.S. Holder of common stock will be subject to United States
withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax
treaty) unless the dividends are either (1) effectively connected with a trade
or business carried on by the Non-U.S. Holder within the United States or (2) if
certain income tax treaties apply, attributable to a permanent establishment in
the United States maintained by the Non-U.S. Holder. For purposes of
determining whether tax is to be withheld at a 30% rate or at a lower rate as
prescribed by an applicable tax treaty, CONSOL will presume, consistent with
currently effective Treasury Regulations, that dividends paid to an address in a
foreign country are paid to a resident of such country absent knowledge that
such presumption is not warranted. However, under United States Treasury
regulations applicable to dividends paid after December 31, 1999, a Non-U.S.
Holder of common stock would be required to satisfy applicable certification and
other requirements in order to claim the benefits of an applicable tax treaty.
Dividends effectively connected with a United States trade or business or
attributable to a United States permanent establishment generally will not be
subject to withholding tax (if the Non-U.S. Holder files certain forms,
including IRS Form 4224, or any successor form, with the payor of the dividend)
and generally will be subject to United States federal tax on a net income
basis, in the same manner as if the Non-U.S. Holder were a resident of the
United States. In the case of a Non-U.S. Holder that is a corporation, such
dividend income so connected or attributable may also be subject to the branch
profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States of its effectively connected earnings and
profits subject to certain adjustments) at a 30% rate (or a lower rate
prescribed by an applicable income tax treaty).
A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the IRS.
SALE OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the disposition of common stock
unless:
. the gain is effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States or, alternatively, if
certain tax treaties apply, attributable to a permanent establishment
in the United States maintained by the Non-U.S. Holder (and in either
such case, the branch profits tax may also apply if the Non-U.S.
Holder is a corporation),
. in the case of a Non-U.S. Holder who is a nonresident alien individual
and holds common stock as a capital asset, such individual is present
in the United States for 183 days or more in the taxable year of
disposition, and either (a) such individual has a "tax home" (as
defined for United States federal income tax purposes) in the United
States or (b) the gain is attributable to an office or other fixed
place of business maintained by such individual in the United
States,
. the Non-U.S. Holder is subject to tax pursuant to the provisions of
the United States tax law applicable to certain United States
expatriates, or
. subject to the exception discussed below, CONSOL is or has been a
United States real property holding corporation for United States
federal income tax purposes (which CONSOL believes that it is) at any
time within the shorter of the five-year period preceding such
disposition or such Non-U.S. Holder's holding period.
If CONSOL is or becomes a United States real property holding corporation, gains
realized upon a disposition of common stock by a Non-U.S. Holder that did not
directly or indirectly own more than 5% of the
91
<PAGE>
common stock during the shorter of the periods described above generally would
not be subject to United States federal income tax so long as the common stock
was "regularly traded" on an established securities market (within the meaning
of Section 897(c)(3) of the Internal Revenue Code and the Treasury regulations
promulgated under such section) at the time of the disposition.
ESTATE TAX
Common stock owned or treated as owned by an individual who is not a citizen or
resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for United States federal estate tax purposes unless an applicable estate
tax treaty provides otherwise, and therefore may be subject to United States
federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
CONSOL must report annually to the IRS the amount of dividends paid to, and the
tax withheld with respect to, each Non-U.S. Holder. These reporting
requirements apply regardless of whether withholding was reduced or eliminated
by an applicable tax treaty. Copies of this information also may be made
available under the provisions of a specific treaty or agreement with the tax
authorities in the country in which the Non-U.S. Holder resides or is
established.
United States backup withholding (which generally is imposed at the rate of 31%
on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) and information
reporting (other than reporting requirements described in the preceding
paragraph) generally will not apply to dividends paid on common stock to a Non-
U.S. Holder at an address outside the United States.
The payment of proceeds from the disposition of common stock to or through a
United States office of a U.S. broker will be subject to information reporting
and United States backup withholding unless the owner, under penalties of
perjury, certifies among other things, its status as a Non-U.S. Holder, or
otherwise establishes an exemption. The payment of proceeds from the
disposition of common stock to or through a non-U.S. office of a U.S. or non-
U.S. broker generally will not be subject to backup withholding and information
reporting, except as noted below. In the case of proceeds from the disposition
of common stock paid to or through a non-United States office of a U.S. broker,
or a non-U.S. broker that is:
. a United States person,
. a "controlled foreign corporation" for United States federal income
tax purposes, or
. a foreign person 50% or more of whose gross income for a specified
three-year period is effectively connected with a United States trade
or business, information reporting (but not backup withholding) will
apply unless the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder (and the broker has no actual knowledge to
the contrary).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
92
<PAGE>
UNDERWRITING
CONSOL and the underwriters named below have entered into an underwriting
agreement covering the common stock to be offered in this offering. J.P. Morgan
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are
acting as representatives of the underwriters. Subject to certain conditions,
each underwriter has agreed to purchase the number of shares of common stock set
forth opposite its name in the following table.
<TABLE>
<CAPTION>
UNDERWRITERS -------------------
NUMBER OF SHARES
-------------------
<S> <C>
J.P. Morgan Securities Inc..........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
-----------
Total.............................................................. 22,600,000
===========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares set forth in the table above, then they must take all of these shares.
No underwriter is obligated to take any shares allocated to a defaulting
underwriter except under the limited circumstances described in the underwriting
agreement.
The underwriters are offering the shares of common stock, subject to the prior
sale of such shares, and when, as and if such shares are delivered to and
accepted by them. The underwriters will initially offer to sell shares to the
public at the initial public offering price set forth on the cover page of this
prospectus. The underwriters may sell shares to securities dealers at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell shares to certain other brokers or dealers at
a discount of up to $ per share from the initial public offering price. After
the initial public offering, the underwriters may vary the public offering price
and other selling terms.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have the option to buy up to an additional
3,390,000 shares of common stock from CONSOL to cover such sales. They may
exercise this option during the 30-day period from the date of this prospectus.
If any shares are purchased pursuant to this option, the underwriters will
purchase shares in approximately the same proportion as set forth in the table
above.
The following table shows the per share and total underwriting discounts and
commissions that CONSOL will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY CONSOL
-----------------------
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per share.................................................................................. $ $
Total...................................................................................... $ $
</TABLE>
93
<PAGE>
The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or slowing a decline in the market price of the common stock while
the offering is in progress. The underwriters may also impose a penalty bid,
which means that an underwriter must repay to the other underwriters a portion
of the underwriting discount received by it. An underwriter may be subject to a
penalty bid if the representatives of the underwriters, while engaging in
stabilizing or short covering transactions, repurchase shares sold by or for the
account of that underwriter. These activities may stabilize, maintain or
otherwise affect the market price of the common stock. As a result, the price
of the common stock may be higher than the price that otherwise might exist in
the open market. If the underwriters commence these activities, they may
discontinue them at any time. The underwriters may carry out these transactions
on the New York Stock Exchange, in the over-the-counter market or
otherwise.
CONSOL estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be $ .
CONSOL has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
CONSOL, Rheinbraun, DuPont and certain directors and senior officers of CONSOL
have agreed with the underwriters not to dispose of or hedge any of their common
stock (or securities convertible into or exchangeable for shares of common
stock) for a period of 180 days after the date of this prospectus, except with
the prior written consent of J.P. Morgan Securities Inc. This agreement does
not apply to any of CONSOL's employee benefit plans existing on or outstanding
as of the date of this prospectus.
At CONSOL's request, the underwriters have reserved shares of common stock for
sale to certain directors, officers, employees and retirees of CONSOL who have
expressed an interest in participating in the offering. CONSOL expects these
persons to purchase no more than 5% of the common stock offered in the offering.
The number of shares available for sale to the general public will be reduced to
the extent such persons purchase such reserved shares. The underwriters will
offer unpurchased reserved shares to the general public on the same basis as the
other offered shares.
CONSOL has applied to list the common stock on the New York Stock Exchange under
the trading symbol "CNX."
There has been no public market for the common stock prior to this offering.
CONSOL and the underwriters will negotiate the initial offering price. In
determining the price, CONSOL and the underwriters expect to consider a number
of factors in addition to prevailing market conditions, including:
. the history of and prospects for the coal industry,
. an assessment of CONSOL's management;
. CONSOL's present operations;
. CONSOL's historical results of operations;
. the trend of CONSOL's revenues and earnings; and
94
<PAGE>
. CONSOL's earnings prospects.
CONSOL and the underwriters will consider these and other relevant factors in
relation to the prices of similar securities of generally comparable companies.
Neither CONSOL nor the underwriters can assure investors that an active trading
market will develop for the common stock, or that the common stock will trade in
the public market at or above the initial offering price.
The underwriters and their affiliates have in the past engaged in commercial and
investment banking transactions with CONSOL and its affiliates in the ordinary
course of business. They may continue to do so in the future.
LEGAL MATTERS
The validity of the common stock will be passed upon for CONSOL by Thelen Reid &
Priest LLP, New York, New York. Certain legal matters in connection with the
offering will be passed upon for the Underwriters by Davis Polk & Wardwell, New
York, New York.
EXPERTS
The Consolidated Financial Statements of CONSOL as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 included
in this Prospectus have been audited by Ernst & Young LLP, independent auditors,
as stated in their report appearing herein, and are included herein in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
95
<PAGE>
GLOSSARY
Accessible Reserves. Coal adjacent to and accessible by an active mine and that
is anticipated to be mined by that active mine but has not yet been assigned.
In some cases, accessible reserves can be accessed by more than one mine.
Assigned Reserves. Coal that is designated to be mined by a specific mine.
Anthracite. The highest rank of economically usable coal with moisture content
less than 15% by weight and heating value as high as 15,000 Btus per pound. It
is jet black with a high luster. It is mined primarily in Pennsylvania.
Ash. Impurities consisting of iron, alumina and other incombustible matter that
are contained in coal. Since ash increases the weight of coal, it adds to the
cost of handling and can affect the burning characteristics of coal.
Bituminous Coal. The most common type of coal with moisture content less than
20% by weight and heating value of 10,500 to 14,000 Btus per pound. It is dense
and black and often has well-defined bands of bright and dull material.
British Thermal Unit ("Btu"). A measure of the energy required to raise the
temperature of one pound of water one degree Fahrenheit.
Coal Seam. Coal deposits occur in layers. Each such layer is called a "seam."
Continuous Mining. A form of underground room-and pillar mining, which involves
the excavation of a series of "rooms" into the coal seam leaving "pillars" or
columns of coal to help support the mine roof. A specialized cutting machine,
the continuous miner, mechanizes the extraction procedure. Continuous miners
tear the coal from the seam and load it onto conveyors or into shuttle cars in a
continuous operation.
Longwall Mining. A form of underground mining in which two sets of parallel
entries, which can be up to 1,000 feet apart, are joined together at their far
ends by a crosscut, called the longwall. The longwall machine consists of a
rotating drum that moves back and forth across the longwall. The loosened coal
falls onto a conveyor for removal from the mine.
Metallurgical Coal. The various grades of coal suitable for carbonization to
make coke for steel manufacture. Also known as "met" coal, it possesses four
important qualities: volatility, which affects coke yield; the level of
impurities, which affects coke quality; composition, which affects coke
strength; and basic characteristics, which affect coke oven safety. Met coal
has a particularly high Btu, but low ash content.
Nitrogen Oxide (NO\\2\\). A gas formed in high temperature environments such as
coal combustion. It is reported to contribute to ground level ozone and
visibility degradation.
Preparation Plant. Usually located on a mine site, although one plant may serve
several mines. A preparation plant is a facility for crushing, sizing and
washing coal to prepare it for use by a particular customer. The washing
process has the added benefit of removing some of the coal's sulfur content.
Probable Reserves. Reserves for which quantity and/or quality are computed from
information similar to that used for proved reserves, but the sites for
inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proved
reserves, is high enough to assume continuity between points of observation.
96
<PAGE>
Proved Reserves. Reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade and/or quality
are computed from the results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well-established.
Reserves. That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Scrubber (flue gas desulfurization unit). Any of several forms of
chemical/physical devices which operate to neutralize sulfur compounds formed
during coal combustion. These devices combine the sulfur in gaseous emissions
with other chemicals to form inert compounds, such as gypsum, which must then be
removed for disposal.
Steam Coal. Coal used by power plants and industrial steam boilers to produce
electricity or process steam. It generally is lower in Btu heat content and
higher in volatile matter than metallurgical coal.
Subbituminous Coal. Dull, black coal that ranks between lignite and bituminous
coal. Its moisture content is between 20% and 30% by weight, and its heat
content ranges from 7,800 to 9,500 Btus per pound of coal.
Sulfur. One of the elements present in varying quantities in coal. Sulfur
dioxide (S0\\2\\) is produced as a gaseous by-product of coal combustion.
Tons. A "short" or net ton is equal to 2,000 pounds. A "long" or British ton
is 2,240 pounds; a "metric" ton is approximately 2,205 pounds. The short ton
is the unit of measure referred to in this document.
Unassigned Reserves. Coal that has not yet been designated for mining by a
specific operation but is part of the proved and probable reserve reported by
the company at year-end.
97
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1997.... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1996 and 1997............................ F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997........ F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997...................... F-7
Notes to Consolidated Financial Statements................... F-8
Unaudited Consolidated Balance Sheets at December 31, 1997
and September 30, 1998...................................... F-29
Unaudited Consolidated Statements of Income for Nine Months
Ended September 30, 1997 and 1998........................... F-31
Unaudited Consolidated Statement of Stockholders'
Equity for the Nine Months Ended September 30, 1998......... F-32
Unaudited Consolidated Statements of Cash Flows for the
Nine Months September 30, 1997 and 1998..................... F-33
Notes to Unaudited Consolidated Financial Statements......... F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CONSOL Energy Inc.
We have audited the consolidated balance sheets of CONSOL Energy Inc. and
subsidiaries (CONSOL) as of December 31, 1996 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of CONSOL's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CONSOL
at December 31, 1996 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania
February 15, 1998, except as to Note 22, as to which the date is _______,1999.
The foregoing report is the form that will be signed upon completion of the
recapitalization described in Note 22.
ERNST & YOUNG LLP
F-2
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------
AT DECEMBER 31,
------------------------------------
1996 1997
------------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents......................................... $ 39,986 $ 18,788
Marketable Securities............................................. 354,273 114,829
Accounts and Notes Receivable
Trade.......................................................... 269,659 252,901
Related Parties (Note 3)....................................... 5,403 6,305
Other Receivables.............................................. 26,721 23,392
Inventories (Note 8).............................................. 132,677 140,724
Deferred Income Taxes (Note 7).................................... 80,939 94,027
Prepaid Expenses.................................................. 16,574 19,273
---------- ----------
Total Current Assets........................................... 926,232 670,239
Property, Plant and Equipment (Note 9)
Property, Plant and Equipment..................................... 4,351,574 4,506,797
Less -- Accumulated Depreciation, Depletion and Amortization...... 1,872,996 2,067,707
---------- ----------
Total Property, Plant and Equipment - Net...................... 2,478,578 2,439,090
Other Assets
Deferred Income Taxes (Note 7).................................... 198,334 201,270
Advance Mining Royalties.......................................... 143,139 131,079
Other............................................................. 111,225 106,333
---------- ----------
Total Other Assets............................................. 452,698 438,682
Total Assets................................................... $3,857,508 $3,548,011
========== ==========
</TABLE>
F-3
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------
AT DECEMBER 31,
------------------------------
1996 1997
--------- ----------
Liabilities and Stockholders' Equity
Current Liabilities
<S> <C> <C>
Accounts Payable............................... $ 189,644 $ 211,059
Short-Term Notes Payable (Note 10)............. 46,378 55,051
Current Portion of Long-Term Debt.............. 54,237 7,639
Accrued Income Taxes........................... 2,770 13,581
Other Accrued Liabilities (Note 13)............ 275,173 305,596
---------- ----------
Total Current Liabilities................... 568,202 592,926
Long-Term Debt (Note 11).......................... 394,933 389,618
Deferred Credits and Other Liabilities
Postretirement Benefits Other Than
Pensions (Note 15)................................ 1,084,617 1,082,061
Pneumoconiosis Benefits (Note 14)................. 506,421 500,429
Mine Closing...................................... 227,011 232,767
Workers' Compensation............................. 183,389 177,453
Reclamation....................................... 39,868 24,331
Other............................................. 274,091 245,661
---------- ----------
Total Deferred Credits and Other Liabilities 2,315,397 2,262,702
Stockholders' Equity
Common Stock, $.01 Par Value; 500,000,000
Shares Authorized; 108,806,714 Shares Issued
and Outstanding............................... 1,088 1,088
Capital in Excess of Par Value................. 801,916 801,916
Retained Earnings Deficit...................... (224,028) (500,239)
---------- ----------
Total Stockholders' Equity.................. 578,976 302,765
---------- ----------
Total Liabilities and Stockholders' Equity.. $3,857,508 $3,548,011
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales (Note 3)................................................ $2,269,211 $2,336,014 $2,285,197
Other Income (Note 4)......................................... 45,024 60,940 64,441
---------- ---------- ----------
Total Revenue.............................................. 2,314,235 2,396,954 2,349,638
Costs of Goods Sold and
Other Operating Charges..................................... 1,600,271 1,687,836 1,592,489
Selling, General and Administrative Expense................... 53,537 53,354 55,353
Depreciation, Depletion and Amortization...................... 253,113 235,159 233,304
Interest Expense (Note 5)..................................... 53,915 44,510 45,876
Taxes Other Than Income (Note 6).............................. 200,605 187,396 188,940
---------- ---------- ----------
Total Costs................................................ 2,161,441 2,208,255 2,115,962
---------- ---------- ----------
Earnings Before Income Taxes.................................. 152,794 188,699 233,676
Income Taxes (Note 7)......................................... 22,744 35,970 49,887
---------- ---------- ----------
Net Income................................................. $ 130,050 $ 152,729 $ 183,789
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
CAPITAL IN RETAINED) TOTAL)
COMMON EXCESS OF PAR EARNINGS) STOCKHOLDERS')
STOCK VALUE DEFICIT) EQUITY)
--------- ------------- --------- --------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 (as
previously reported)......................... $ 100 $802,904 $(346,807) $ 456,197
Recapitalization effected as an
approximate 1,088 to 1 stock split........... 988 (988) - -
-------- -------- --------- ---------
Balance December 31, 1994 (as adjusted)....... 1,088 801,916 (346,807) 456,197
Net Income.................................... - - 130,050 130,050
Dividends..................................... - - (80,000) (80,000)
-------- -------- --------- ---------
Balance December 31, 1995..................... 1088 801,916 (296,757) 506,247
Net Income.................................... - - 152,729 152,729
Dividends..................................... - - (80,000) (80,000)
-------- -------- --------- ---------
Balance December 31, 1996..................... 1088 801,916 (224,028) 578,976
Net Income.................................... - - 183,789 183,789
Dividends..................................... - - (460,000) (460,000)
-------- -------- --------- ---------
Balance December 31, 1997..................... $ 1,800 $801,916 $(500,239) $ 302,765
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------
Year Ended December 31,
---------------------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash Flow from Operations
Net Income............................................. $ 130,050 $ 152,729 $ 183,789
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation, Depletion and Amortization......... 253,113 235,159 233,304
(Gain) Loss on Sale of Assets.................... 4,770 (13,959) (13,134)
Amortization of Advance Mining Royalties......... 12,994 22,809 14,617
Deferred Income Taxes............................ (30,069) (23,149) (16,024)
Changes in Operating Assets
Accounts and Notes Receivable.................... 39,322 (7,787) 19,185
Inventories...................................... (36,015) 60,884 (8,997)
Prepaid Expenses................................. (15,928) 7,396 (2,699)
Changes in Other Assets.......................... 14,166 2,931 4,892
Changes in Operating Liabilities
Accounts Payable................................. 2,115 (24,848) 22,562
Other Operating Liabilities...................... 16,631 (25,603) 39,222
Changes in Other Liabilities..................... (94,421) (13,088) (47,415)
Other.................................................. 1,562 (892) (1,389)
--------- --------- ---------
168,240 219,853 244,124
--------- --------- ---------
Net Cash Provided by Operating Activities.............. 298,290 372,582 427,913
Cash Flow From Investing Activities
Capital Expenditures................................... (179,022) (169,367) (200,617)
Additions to Advance Mining Royalties.................. (4,469) (5,444) (6,119)
Proceeds from Sales of Assets (Note 2)................. 98,432 19,669 19,535
Acquisitions (Note 2).................................. (52,520) - -
Changes in Marketable Securities -- Net................ (23,277) (96,094) 239,444
--------- --------- ---------
Net Cash Provided by (Used in)
Investing Activities................................... (160,856) (251,236) 52,243
Cash Flow from Financing Activities
Payments on Borrowings................................. (60,805) (39,254) (41,354)
Dividends Paid......................................... (80,000) (80,000) (460,000)
--------- --------- ---------
Net Cash Used in Financing Activities.................. (140,805) (119,254) (501,354)
--------- --------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents....................................... (3,371) 2,092 (21,198)
Cash and Cash Equivalents at Beginning of Period.......... 41,265 37,894 39,986
--------- --------- ---------
Cash and Cash Equivalents at End of Period................ $ 37,894 $ 39,986 $ 18,788
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies of CONSOL Energy Inc. and
subsidiaries (CONSOL) is presented below. These, together with the other notes
that follow, are an integral part of the consolidated financial statements.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of majority-owned
subsidiaries. Investments in affiliates owned 20 percent to 50 percent are
accounted for under the equity method. Investments in non-corporate joint
ventures, for which CONSOL owns undivided interests in the assets and
liabilities, are consolidated on a pro rata basis. Other securities and
investments are carried at cost. All significant intercompany transactions and
accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in banks as well as all
highly liquid short-term securities with a maturity of three months or less at
the time of purchase. Overdrafts representing outstanding checks in excess of
funds on deposit are classified as accounts payable.
MARKETABLE SECURITIES
Marketable securities are considered available-for-sale and consist primarily of
financial instruments for which the yield (dividend or interest) is established
periodically through a market auction mechanism. These investments are readily
convertible to cash and are stated at cost plus accrued interest, which
approximates fair value, due to the liquidity provided by the auction process.
At December 31, 1997, these securities generally had no contractual maturity
date but had yield reset periods of less than 30 days. During the three years
ended December 31, 1997, all transactions in the portfolio were at par resulting
in no realized gains or losses from the contractual yields.
INVENTORIES
Inventories are stated at the lower of cost or market.
Cost is determined by the last-in first-out (LIFO) method for 54% and 46% of
coal inventories at December 31, 1996 and December 31, 1997, respectively. The
cost of coal inventories not on LIFO is determined by the first-in, first-out
(FIFO) method. Coal inventory costs include labor, supplies, equipment costs,
overhead, and other related costs. The cost of merchandise for resale is
determined by the LIFO method. The cost of supplies inventory is determined by
the average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Expenditures, which extend
the useful lives of existing plant and equipment, are capitalized. Interest
costs applicable to major asset additions are capitalized during the
construction period. Coal exploration costs are expensed as incurred.
Development costs applicable to the opening of new coal mines and certain mine
expansion projects are capitalized. Costs of additional mine
F-8
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS)
facilities required to maintain production after a mine reaches the production
stage, generally referred to as "receding face costs," are expensed as incurred;
however, the costs of additional airshafts and new portals are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When
properties are retired or otherwise disposed, the related cost and accumulated
depreciation are removed from the respective accounts and any profit or loss on
disposition is credited or charged to income.
Depreciation of plant and equipment, including assets leased under capital
leases, is provided on the straight-line method over their estimated useful
lives or lease terms. Depletion of coal lands and amortization of mine
development costs are computed using the units-of-production method over the
estimated recoverable tons.
ADVANCE MINING ROYALTIES
Advance mining royalties are advance payments made to lessors under terms of
mineral lease agreements that are recoupable against future production. These
advance payments are deferred and charged against income as the coal reserves
are mined.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment of long-lived assets is recorded when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying value. The carrying value of the
assets are then reduced to their estimated fair value which is usually measured
based on an estimate of future discounted cash flows.
INCOME TAXES
The provision for income taxes has been determined under Statement of Financial
Accounting Standards No. 109, which requires use of the asset and liability
approach to accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year and
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation allowances are recorded to reduce deferred tax assets
where it is more likely than not that a deferred tax benefit will not be
realized.
PNEUMOCONIOSIS BENEFITS
CONSOL is required by federal and state statutes to provide benefits to
employees for awards related to coal workers' pneumoconiosis. CONSOL is self-
insured for these benefits. Provisions are made for estimated benefits based on
annual evaluations prepared by outside actuaries.
F-9
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS)
MINE CLOSING COSTS
Estimated final mine closing and perpetual care costs are accrued over the
productive life of mines on a units of production basis.
WORKERS' COMPENSATION
CONSOL is primarily self-insured for workers' compensation. Annual provisions
are made for the estimated liability for awarded and pending claims.
RECLAMATION
Generally, CONSOL records a liability for the estimated costs to reclaim land as
the acreage is disturbed during the ongoing surface mining process.
REVENUE RECOGNITION
Coal sales are recorded at contract prices when title passes to the customer.
Generally, for domestic sales, this occurs when coal is loaded onto
transportation vehicles at mine or offsite storage locations. For most export
sales, this occurs when coal is loaded onto marine vessels at terminal
locations. Industrial supplies and equipment sales are recorded when the
products are shipped.
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made to conform to 1997
classifications.
NOTE 2 - ACQUISITIONS AND DISPOSITIONS
On December 1, 1995, CONSOL sold Reid Holding, Inc. and Oakwood Gathering, Inc.
for $77,483. These operations consist mainly of coal bed methane reserve
properties and gas collection facilities. The carrying amount of assets sold in
connection with this sale amounted to $89,196 resulting in a pre-tax loss of
$11,713. CONSOL continues to serve as operator for these companies, and retains
certain rights for participation in future gas operations. The results of these
operations were not material to the 1995 consolidated financial statement.
On November 20, 1995, CONSOL acquired the Greene Hill Coal Company from Realty
Company of Pennsylvania, a coal reserve holding subsidiary of Pennsylvania Power
& Light Company for $52,520. The acquisition included approximately 183 million
clean recoverable tons of Pittsburgh seam coal in Greene County, Pennsylvania.
This acquisition has been accounted for under the purchase method and
accordingly, the purchase price has been allocated to the assets acquired, based
on the fair values at the date of the acquisition. CONSOL's financial
statements include the results of the acquisition on a consolidated basis
effective November 20, 1995.
F-10
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES
CONSOL is structured as a corporate joint venture owned 50% by E. I. du Pont de
Nemours and Company (DuPont) and 50% by subsidiaries of RWE A.G. of Germany
(collectively Rheinbraun). CONSOL sells coal to DuPont and Rheinbraun and
industrial supplies to DuPont on a basis reflecting the market value of the
products. Related party sales, which are included in Sales, were as follows:
<TABLE>
<CAPTION>
=============================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997
------------------ --------------- ----------------
<S> <C> <C> <C>
Coal sales........................................... $ 37,921 $ 39,212 $ 39,406
Industrial supplies and equipment sales.............. 102,645 89,232 98,855
-------- -------- --------
Total Sales - Related Parties........................ $140,566 $128,444 $138,261
======== ======== ========
</TABLE>
DuPont and CONSOL have entered into an annually renewable service agreement to
provide each other with certain services and functions. Charges are based on
each party's fully allocated cost as distributed to its own organizational units
and are paid currently. Net amounts charged and credited under this agreement
were not significant in 1995, 1996 or 1997.
NOTE 4 -- OTHER INCOME
<TABLE>
<CAPTION>
=======================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Interest income...................................... $17,994 $20,501 $22,618
Gain (loss) on disposition of assets................. (4,770) 13,959 13,134
Service income....................................... 9,954 6,277 5,702
Royalty income....................................... 8,095 9,758 13,338
Rental income........................................ 4,778 6,020 5,165
Other................................................ 8,973 4,425 4,484
------- ------- -------
Total Other Income................................... $45,024 $60,940 $64,441
======= ======= =======
</TABLE>
F-11
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 5 -- INTEREST EXPENSE
<TABLE>
<CAPTION>
=======================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Interest on debt..................................... $41,895 $34,505 $32,021
Interest on other payables........................... 9,630 7,742 9,246
Non-cash interest accretion.......................... 4,788 4,975 6,425
Interest capitalized................................. (2,398) (2,712) (1,816)
------- ------- -------
Total Interest Expense............................... $53,915 $44,510 $45,876
======= ======= =======
</TABLE>
Non-cash interest accretion includes interest accrued on perpetual care
obligations which are stated at present values.
NOTE 6 -- TAXES OTHER THAN INCOME
<TABLE>
<CAPTION>
=======================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Production taxes..................................... $118,160 $113,452 $121,969
Payroll taxes........................................ 41,926 39,632 37,346
Property taxes....................................... 31,292 32,099 27,786
Other................................................ 9,227 2,213 1,839
-------- -------- --------
Total Taxes Other Than Income........................ $200,605 $187,396 $188,940
======== ======== ========
</TABLE>
F-12
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 7 -- INCOME TAXES
Income taxes provided on earnings consisted of:
<TABLE>
<CAPTION>
=======================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Current
U.S. federal....................................... $ 41,783 $ 50,533 $ 52,015
U.S. state......................................... 6,446 5,928 6,677
Non-U.S............................................ 4,584 2,658 7,219
-------- -------- --------
52,813 59,119 65,911
Deferred
U.S. federal....................................... (30,750) (19,288) (14,001)
U.S. state......................................... (532) (3,518) (2,413)
Non-U.S............................................ 1,213 (343) 390
-------- -------- --------
(30,069) (23,149) (16,024)
-------- -------- --------
Total Income Taxes................................... $ 22,744 $ 35,970 $ 49,887
======== ======== ========
</TABLE>
F-13
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
=============================================
DECEMBER 31,
---------------------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
DEFERRED TAX ASSETS
Postretirement benefits other than pensions.............. $ 445,139 $ 445,527
Pneumoconiosis benefits.................................. 201,456 198,939
Mine closing............................................. 94,938 96,965
Workers' compensation.................................... 79,443 78,273
Alternative minimum tax.................................. 48,479 48,307
Reclamation.............................................. 17,030 14,560
Other.................................................... 104,179 111,677
--------- ---------
Total Deferred Tax Assets................................... 990,664 994,248
DEFERRED TAX LIABILITIES
Property, plant and equipment............................ (655,117) (636,756)
Advance mining royalties................................. (41,232) (38,950)
Other.................................................... (15,042) (23,245)
--------- ---------
Total Deferred Tax Liabilities.............................. (711,391) (698,951)
--------- ---------
Net Deferred Tax Asset...................................... $ 279,273 $ 295,297
========= =========
</TABLE>
The following is a reconciliation, stated as a percentage of pretax income of
the U.S. statutory federal income tax rate to CONSOL's effective tax rate:
<TABLE>
<CAPTION>
=======================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate............... 35.0% 35.0% 35.0%
Excess tax depletion................................. (17.4) (17.3) (13.8)
Alternative fuel tax credit.......................... (6.3) (.8) (1.2)
Net effect of state tax.............................. 2.5 .8 1.2
Net effect of foreign tax............................ .1 (.5) 1.3
Other................................................ 1.0 1.9 (1.2)
----- ----- -----
Effective Income Tax Rate............................ 14.9% 19.1% 21.3%
===== ===== =====
</TABLE>
F-14
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
Foreign income before taxes totaled $14,507 in 1995, $10,273 in 1996 and $13,832
in 1997.
NOTE 8 -- INVENTORIES
<TABLE>
<CAPTION>
=================================
DECEMBER 31,
---------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Coal............................................. $ 43,399 $ 57,947
Merchandise for resale........................... 39,794 38,994
Supplies......................................... 49,484 43,783
-------- --------
Total Inventories................................ $132,677 $140,724
======== ========
</TABLE>
Replacement cost of coal inventories exceeded LIFO cost by $8,639 and $10,476 at
December 31, 1996 and 1997, respectively.
Merchandise for resale is valued using the LIFO cost method. The excess of
replacement cost of merchandise for resale inventories over carrying LIFO value
was $6,216 and $6,261 at December 31, 1996 and 1997, respectively.
NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
=================================
DECEMBER 31,
---------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Coal and surface lands............................................. $1,421,795 $1,417,847
Plant and equipment................................................ 2,559,522 2,681,224
Mine development and airshafts..................................... 370,257 407,726
---------- ----------
4,351,574 4,506,797
Less -- Accumulated depreciation, depletion and amortization.... 1,872,996 2,067,707
---------- ----------
Net Property, Plant and Equipment.................................. $2,478,578 $2,439,090
========== ==========
</TABLE>
F-15
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 10 -- SHORT-TERM NOTES PAYABLE
CONSOL has commercial paper notes outstanding of $46,378 and $55,051 (net of
discount of $122 and $114) at December 31, 1996 and 1997, respectively. The
weighted average interest rate of the commercial paper notes outstanding was
5.60 and 6.26 percent with an average maturity of 18 and 14 days at December 31,
1996 and 1997, respectively.
CONSOL has a $199,500 senior revolving credit facility with several banks. This
facility is used to support the commercial paper program. The term of this
facility is 360 days renewable on a 360-day basis. In the aggregate, the total
amount of funds borrowed under this facility and outstanding commercial paper
cannot exceed $199,500. Borrowings under this revolving credit facility bear
interest based on the London Interbank Offer Rate (LIBOR), the CD Rate, or the
Prime Rate at CONSOL's option. Funds may be borrowed for periods of 1 to 360
days depending on the interest rate method. There were no borrowings under this
facility at December 31, 1996 and 1997.
NOTE 11 - LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
=================================
DECEMBER 31,
---------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Baltimore Port Facility revenue bonds in series due 2010 and
2011 at 6.50%....................................................... 102,865 102,865
Unsecured Debt
Notes due 1997 at average of 7.32%.................................. $ 43,995 $ -
Notes due 1999 at 7.88%............................................. 99,942 99,970
Notes due 2002 at average of 8.28%.................................. 66,000 66,000
Notes due 2004 at 8.21%............................................. 45,000 45,000
Notes due 2007 at 8.25%............................................. 44,755 44,771
Variable rate note payable due at various dates through 2001.... 4,340 3,709
Advance royalty commitments..................................... 30,503 28,328
Other long-term notes maturing at various dates through 2007.... 11,571 6,614
-------- --------
448,971 397,257
Less amounts due in one year........................................... 54,038 7,639
-------- --------
Total Long-Term Debt................................................... $394,933 $389,618
======== ========
</TABLE>
F-16
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
The Baltimore Port Facility revenue bonds are guaranteed by DuPont.
The variable rate note, advance royalty commitments, and the other long-term
notes had an average interest rate of approximately 7.4% at December 31, 1996
and 7.5% at December 31, 1997. The bonds and notes are carried net of debt
discount, which is being amortized by the interest method over the life of the
issue.
Annual undiscounted maturities on long-term debt during the next five years are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 $ 7,639
1999 $104,756
2000 $ 2,705
2001 $ 2,718
2002 $ 68,212
</TABLE>
NOTE 12 -- LEASES
CONSOL uses various leased facilities and equipment in its operations.
Currently, no capital leases are in effect. Future minimum lease payments under
operating leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
---- ---------
<S> <C>
1998 $12,150
1999 8,867
2000 8,494
2001 7,596
2002 3,154
Remainder 11,941
-------
Total minimum lease payments $52,202
=======
</TABLE>
Rental expense under operating leases was $16,271 in 1995, $15,589 in 1996 and
$14,596 in 1997.
F-17
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 13 -- OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
=======================================
DECEMBER 31,
---------------------------------------
1996 1997
------------ -----------
<S> <C> <C>
Accrued payroll and benefits........................................ $ 45,063 $ 41,559
Accrued other taxes................................................. 33,364 35,133
Accrued royalties................................................... 12,851 14,230
Accrued interest.................................................... 7,217 9,930
Other............................................................... 31,987 34,122
Current portion of long-term liabilities
Postretirement benefits other than pensions...................... 59,700 63,254
Workers' compensation............................................ 31,302 33,213
Reclamation...................................................... 18,636 20,221
Salary retirement................................................ 6,149 20,013
Mine closing..................................................... 17,389 16,824
Pneumoconiosis benefits.......................................... 11,460 10,982
Other............................................................ 55 6,115
-------- --------
Total Other Accrued Liabilities..................................... $275,173 $305,596
======== ========
</TABLE>
NOTE 14 -- EMPLOYEE BENEFIT PLANS
PENSION PLANS
CONSOL has non-contributory defined benefit plans covering substantially all
employees not covered by multi-employer retirement plans. The benefits for
these plans are based primarily on years of service and employees' pay near
retirement. CONSOL's funding policy is consistent with the funding requirements
of federal law and regulations.
Net pension charges for defined benefit plans include the following components:
<TABLE>
<CAPTION>
======================================================
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
-------------- ------------- ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period........... $ 10,400 $ 12,556 $ 12,657
Interest cost on projected benefit obligation............... 13,508 14,418 15,107
Return on assets:
Actual gain.............................................. (31,857) (21,612) (26,273)
Deferred gain............................................ 19,536 8,649 13,034
-------- -------- --------
Net return on assets........................................ (12,321) (12,963) (13,239)
Amortization of net losses and prior service costs.......... 771 568 4,029
-------- -------- --------
</TABLE>
F-18
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Net Pension Charges......................................... $ 12,358 $ 14,579 $ 18,554
======== ======== ========
</TABLE>
The status of these plans at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
TOTAL TOTAL
--------- ---------
<S> <C> <C>
Actuarial present value of
Vested benefit obligation............................................. $(142,609) $(149,344)
---------- ---------
Accumulated benefit obligation........................................... $(163,305) $(176,175)
========= =========
Projected benefit obligation............................................. $(220,643) $(227,671)
Plan assets at fair value................................................ 158,453 173,287
--------- ---------
Projected benefit obligation in excess of assets......................... (62,190) (54,384)
Unrecognized net losses.................................................. 46,500 30,324
Unrecognized prior service cost.......................................... 2,787 2,434
--------- ---------
Accrued pension cost(1).................................................. $ (12,903) $ (21,626)
========= =========
</TABLE>
______________________
(1) Accrued pension cost for plans where accumulated benefits exceed assets
excludes the additional pension liability of $1,201 in 1996 and $551 in 1997
(included in Other Deferred Credits and Other Liabilities) needed to meet the
minimum liability requirements.
The projected benefit obligation was determined using a discount rate of 7.25%
in 1996 and in 1997. The assumed long-term rate of compensation increase was 5%
in 1996 and in 1997. The assumed long-term rate of return on plan assets was 9%
in all years. Plan assets consist principally of common stocks and U.S.
government obligations.
F-19
<PAGE>
UMWA PENSION AND BENEFIT TRUSTS
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
Certain subsidiaries of CONSOL are required under the National Bituminous Coal
Wage Agreement (NBCWA) of 1993 with the United Mine Workers of America (UMWA) to
pay amounts to the UMWA Pension Trusts based principally on hours worked by UMWA
represented employees. These multi-employer pension trusts provide benefits to
eligible retirees through a defined benefit plan. Amounts charged to expense
for these benefits were $7,166 in 1995, $6,441 in 1996 and $5,831 in 1997. The
Employee Retirement Income Security Act of 1974 (ERISA) as amended in 1980,
imposes certain liabilities on contributors to multi-employer pension plans in
the event of a contributor's withdrawal from the plan. The withdrawal liability
would be calculated based on the contributor's proportionate share of the plan's
unfunded vested liabilities.
The Coal Industry Retiree Health Benefit Act of 1992 (The Act) created two
multi-employer benefit plans: (1) the United Mine Workers of America Combined
Benefit Fund (The Combined Fund) into which the former UMWA Benefit Trusts were
merged, and (2) the 1992 Benefit Fund. CONSOL subsidiaries account for required
contributions to these multi-employer trusts as expense when incurred.
The Combined Fund provides medical and death benefits for all beneficiaries of
the former UMWA Benefit Trusts who were actually receiving benefits as of July
20, 1992. The Act provides for the assignment of beneficiaries to former
employers and the allocation of unassigned beneficiaries (referred to as
orphans) to companies using a formula set forth in The Act. The Act requires
that responsibility for funding the benefits to be paid to beneficiaries be
assigned to their former signatory employers or related companies. Amounts
charged to expense for the Combined Fund were $22,730 in 1995, $25,828 in 1996
and $32,980 in 1997.
The 1992 Benefit Fund provides medical and death benefits to orphan UMWA-
represented members eligible for retirement on February 1, 1993, and who
actually retired between July 20, 1992 and September 30, 1994. Amounts charged
to expense for the 1992 Benefit Fund were $1,855 in 1995, $3,269 in 1996 and
$5,564 in 1997.
The UMWA 1993 Benefit Plan is a defined contribution plan that was created as
the result of negotiations for the NBCWA of 1993. This plan provides health
care benefits to orphan UMWA retirees who are not eligible to participate in the
Combined Fund, the 1992 Benefit Fund, or whose last employer signed the NBCWA of
1993 and subsequently goes out of business. Contributions to the trust are
fixed at ten cents per hour worked by UMWA represented employees. The NBCWA of
1993 specifies that benefits provided under this plan are only for the duration
of the contract. Amounts charged to expense for the UMWA 1993 Benefit Plan were
$956 in 1995, $857 in 1996 and $779 in 1997.
A new five-year labor agreement was reached in December 1997 and will be
effective from January 1, 1998 through December 31, 2002. This agreement
replaces the National Bituminous Coal Wage Agreement (NBCWA) of 1993.
F-20
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
INVESTMENT PLAN
CONSOL has an Investment Plan available to all domestic, non-represented
employees. CONSOL matches employee contributions for an amount up to 6%
of the employee's base pay. Amounts charged to expense were $12,170 in 1995,
$11,324 in 1996 and $11,372 in 1997.
LONG-TERM DISABILITY
CONSOL has a Long-Term Disability Plan available to all full-time salaried
employees. The benefits for this plan are based on a percentage of monthly
earnings, offset by all other income benefits available to the disabled.
Liabilities (net of Plan Assets) included in Deferred Credits and Other
Liabilities - Other amounted to $18,960 and $22,342 at December 31, 1996, and
December 31, 1997, respectively. The liabilities were determined using a
discount rate of 7.25% in 1996 and 1997. Amounts charged to expense were $1,740
in 1995, $2,988 in 1996 and $8,449 in 1997.
COAL WORKERS' PNEUMOCONIOSIS (CWP)
CONSOL is liable under the Federal Coal Mine Health and Safety Act of 1969, as
amended, for medical and disability benefits to employees and their dependents
resulting from occurrences of coal workers' pneumoconiosis disease. CONSOL is
also liable under various state statutes for pneumoconiosis benefits. CONSOL
provides for these claims through a self-insurance program.
CONSOL employs the projected unit credit method to determine the CWP liability
and expense. Under this method, the costs determined by the actuarial study are
being amortized over the employees' requisite service period. Actuarial gains
and losses are being amortized over the remainder of the service life of the
employees which approximates 15.4 years.
Coal Workers' Pneumoconiosis cost included the following components:
<TABLE>
<CAPTION>
=======================================================
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
--------------- ------------ ------------
<S> <C> <C> <C>
Service cost................................................ $ 7,661 $ 8,971 $ 7,128
Interest cost............................................... 21,030 20,436 16,075
Amortization of actuarial gain............................. (22,643) (17,326) (18,756)
-------- -------- --------
Net Coal Workers' Pneumoconiosis Cost....................... $ 6,048 $ 12,081 $ 4,447
======== ======== ========
</TABLE>
CWP payments were $12,084 in 1995, $12,543 in 1996 and $10,928 in 1997.
F-21
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 15 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain subsidiaries of CONSOL provide medical and life insurance benefits to
retired employees not covered by the Coal Industry Retiree Health Benefit Act of
1992. Substantially all employees may become eligible for these benefits if
they have worked ten years and attained age 55. The associated plans are
unfunded. The medical plan contains certain cost sharing and containment
features, such as deductibles, coinsurance, health care networks and
coordination with Medicare.
The following table sets forth the status of the plans, reconciled with amounts
recognized in the consolidated balance sheet:
<TABLE>
<CAPTION>
======================================
DECEMBER 31,
--------------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees......................................................... $ 667,352 $ 697,540
Fully eligible active plan participants.......................... 60,432 66,845
Other active plan participants................................... 180,942 190,766
---------- ----------
Total accumulated postretirement obligation...................... 908,726 955,151
Unrecognized net reduction in prior service costs................ 48,359 39,528
Unrecognized net gain............................................ 187,232 150,636
---------- ----------
Total......................................................... 1,144,317 1,145,315
Less current portion (included in Other Accrued Liabilities)..... 59,700 63,254
---------- ----------
Long-Term Liability.............................................. $1,084,617 $1,082,061
========== ==========
</TABLE>
The accumulated postretirement benefit obligation was calculated using a
discount rate of 7.25% at December 31, 1996 and December 31, 1997.
Net Periodic Postretirement Benefit Cost included the following components:
<TABLE>
<CAPTION>
========================================================
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
--------------- ------------ -------------
<S> <C> <C> <C>
Service cost................................................ $ 7,298 $ 9,227 $ 9,884
Interest cost............................................... 67,223 62,736 65,968
Other -- net................................................ (27,388) (18,278) (15,276)
-------- -------- --------
Net Periodic Postretirement Benefit Cost.................... $ 47,133 $ 53,685 $ 60,576
======== ======== ========
</TABLE>
F-22
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
A 7.5% annual rate of increase in per capita cost of covered health care
benefits was assumed for 1997, gradually decreasing to 4.5% in 2003, and
remaining level thereafter. The health care cost trend rate assumption has a
significant effect on the amount of the obligation and periodic cost reported.
An increase in the assumed health care cost trend rate by 1% in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by $84,920 and increase the aggregate of the service and interest cost
component of net periodic postretirement benefit cost for 1997 by $8,085.
The National Bituminous Coal Wage Agreement of 1993 included additional cost
containment features, including increased deductibles, pre-certification
requirements, and the implementation of a health care network, which reduced the
obligation for future represented retirees. This plan amendment resulted in an
unrecognized reduction in prior service cost of $49,459, which is being
amortized over the average remaining years of service to full eligibility of
those plan participants active at the date of the plan amendment. Effective
July 1, 1994, the benefit plans for non-represented employees were changed
similarly which reduced the obligation for current and future non-represented
retirees. This plan amendment resulted in an unrecognized reduction in prior
service cost of $24,153, which is being amortized over the average remaining
years of service to full eligibility of those plan participants active at the
date of the plan amendment.
NOTE 16 - OTHER INCOME STATEMENT INFORMATION
Research and development costs charged to expense aggregated $11,533 in 1995,
$9,442 in 1996 and $9,484 in 1997.
Maintenance and repairs charged to expense aggregated $277,838 in 1995, $277,396
in 1996 and $281,820 in 1997.
NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash used in operating activities includes:
<TABLE>
<CAPTION>
--------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
Interest paid (net of amounts capitalized).................. $48,937 $36,544 $33,031
Income taxes paid........................................... $62,393 $64,547 $55,554
</TABLE>
Cash dividends paid to stockholders amounted to $80,000 in 1995, $80,000 in 1996
and $460,000 in 1997.
NOTE 18 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
CONSOL markets steam coal, principally to electric utilities in the United
States, Canada and Western Europe, and metallurgical coal to steel and coke
producers worldwide. As of December 31, 1996 and 1997, accounts
F-23
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
receivable from utilities were $134,711 and $137,857, respectively, and from
steel and coke producers were $62,743 and $47,015, respectively. Credit is
extended based on an evaluation of the customer's financial condition, and
generally collateral is not required. Credit losses consistently have been
minimal.
CONSOL is committed under several long-term contracts to supply coal that meets
certain quality requirements at specified prices. These prices are generally
adjusted based on indices. Quantities sold under some of these contracts may
vary from year to year within certain limits at the option of the customer.
Sales (including spot sales) to a major customer were $302,968 in 1995, $318,899
in 1996 and $357,605 in 1997. As of December 31, 1996 and 1997, accounts
receivable from this customer were $35,146 and $31,818, respectively.
In 1995, 1996 and 1997, CONSOL U.S. operations had export sales, principally to
Canadian and Western European customers, of $359,370, $357,854 and $325,544,
respectively.
NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash and cash equivalents The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value due to the short maturity
of these instruments.
Marketable securities The carrying value of marketable securities approximates
fair value based on impending auction dates and routine trading at par value for
those or similar investments.
Short-term notes payable The carrying amount reported in the balance sheet for
short-term notes payable approximates its fair value due to the short-term
maturity of these instruments.
Long-term debt The fair values of long-term debt are estimated using discounted
cash flow analyses, based on CONSOL's current incremental borrowing rates for
similar types of borrowing arrangements.
The carrying amounts and fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
======================================================================
DECEMBER 31,
----------------------------------------------------------------------
1996 1997
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 39,986 $ 39,986 $ 18,788 $ 18,788
Marketable securities..................... $ 354,273 $ 354,273 $ 114,829 $ 114,829
Short-term notes payable.................. $ (46,378) $ (46,378) $ (55,051) $ (55,051)
Long-term debt............................ $(448,971) $(470,023) $(397,257) $(420,215)
</TABLE>
F-24
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 20 - COMMITMENTS AND CONTINGENT LIABILITIES
CONSOL has various purchase commitments for materials, supplies and items of
permanent investment incidental to the ordinary conduct of business. Such
commitments are not at prices in excess of current market.
CONSOL is subject to various lawsuits and claims with respect to such matters as
personal injury, damage to property, governmental regulations including
environmental remediation, and other actions, arising out of the normal course
of business. The costs of mine closing and reclamation are accrued over the
productive life of the mine. In addition, CONSOL has accrued $3,275 in other
liabilities for remediation of a waste disposal site. In the opinion of
management, the ultimate liabilities resulting from such lawsuits and claims
will not materially affect CONSOL.
A public utility filed suit against CONSOL alleging breach of a long-term coal
supply contract based upon CONSOL's refusal to agree to price reductions in the
price for coal under the contract's "gross inequities" clause. Damages claimed,
including interest, are approximately $190 million. Discovery is in progress,
and the case is set for trial October 5, 1998. CONSOL is vigorously defending
the suit. Management believes that the claims are without merit, and,
accordingly, CONSOL has not accrued any liability associated with the action.
CONSOL received from a group of public utilities, two notices of intent to
submit certain price disputes to arbitration pursuant to a 1987 coal sales
contract. The notices claim that the utilities have been overcharged by
approximately $40 million for coal under the price adjustment clause of the
contract. In accordance with contract procedure, CONSOL submitted its response
asserting that the price adjustments were made in conformity with the contract.
The parties have not yet submitted their positions to an arbitrator. Management
believes that the claims are without merit, and, accordingly, CONSOL has not
accrued any liability associated with this proceeding.
A subsidiary has a long-term sales contract to supply coal to a group of public
utilities. This contract was conditioned on the purchase of the subsidiary that
will supply a portion of the contracted coal. By agreement between the parties,
a portion of the amounts payable by the group of public utilities includes debt
service (long-term debt and capital lease obligations) that the company is
obligated to pay for the benefit of the group of public utilities, which has
severally guaranteed to the holders the discharge of the long-term debt and
capital lease obligations. Accordingly, that portion of the contract receivable
has been assigned to reduce the unpaid amounts of long-term debt and capital
lease obligations (which aggregated $81,189 at December 31, 1997), as such
amounts are funded and guaranteed by, and are under the responsibility and
control of, the group of public utilities.
F-25
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 21 - INDUSTRY SEGMENT INFORMATION
CONSOL conducts its operations through a coal segment and an industrial supplies
and equipment segment. The principal business of the coal segment is the
mining, preparation and marketing of steam coal, sold primarily to electric
utilities, and metallurgical coal, sold to steel and coke producers. CONSOL's
other segment markets industrial supplies and equipment through Fairmont Supply
Company. Products are sold between segments on a basis reflecting the market
value of the products.
Industry segment results for 1997 are:
<TABLE>
<CAPTION>
========================================================================
INDUSTRIAL
SUPPLIES &
COAL EQUIPMENT ELIMINATION CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Sales - outside..................... $2,029,095 $117,841 $ - $2,146,936
Sales - related companies........... 39,406 98,855 - 138,261
Intersegment transfers.............. - 77,714 (77,714) -
---------- --------- ----------- ------------
Total Sales................... $2,068,501 $294,410 $(77,714) $2,285,197
---------- --------- ----------- ------------
Earnings before income taxes........ $ 232,395 $ 1,281 $ 233,676
Income taxes........................ 49,541 346 49,887
---------- --------- ------------
Net Income.......................... $ 182,854 $ 935 $ 183,789
---------- --------- ------------
Identifiable assets................. $3,480,303 $ 67,708 $3,548,011
---------- --------- ------------
Depreciation, depletion and
amortization..................... $ 232,225 $ 1,079 $ 233,304
---------- --------- ------------
Additions to property, plant and
equipment........................ $ 201,907 $ 526 $ 202,433
---------- --------- ------------
</TABLE>
Industry segment results for 1996 are:
<TABLE>
<CAPTION>
========================================================================
INDUSTRIAL
SUPPLIES &
COAL EQUIPMENT ELIMINATION CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Sales - outside..................... $2,094,137 $113,433 - $2,207,570
Sales - related companies........... 39,212 89,232 - 128,444
Intersegment transfers.............. - 76,569 (76,569) -
---------- --------- ----------- ------------
Total Sales................... $2,133,349 $279,234 $(76,569) $2,336,014
---------- --------- ----------- ------------
Earnings before income taxes........ $ 185,367 $ 3,332 $ 188,699
</TABLE>
F-26
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Income taxes........................ 34,813 1,157 35,970
---------- --------- ------------
Net Income.......................... $ 150,554 $ 2,175 $ 152,729
========== ========= ============
Identifiable assets................. $3,791,145 $ 66,363 $3,857,508
========== ========= ============
Depreciation, depletion and
amortization..................... $ 233,934 $ 1,225 $ 235,159
========== ========= ============
Additions to property, plant and
equipment........................ $ 171,104 $ 975 $ 172,079
========== ========= ============
</TABLE>
Industry segment results for 1995 are:
<TABLE>
<CAPTION>
========================================================================
INDUSTRIAL
SUPPLIES &
COAL EQUIPMENT ELIMINATION CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Sales - outside..................... $2,019,439 $109,206 - $2,128,645
Sales - related companies........... 37,921 102,645 - 140,566
Intersegment transfers.............. - 77,604 (77,604) -
---------- --------- ----------- ------------
Total Sales................... $2,057,360 $289,455 $(77,604) $2,269,211
========== ========= =========== ============
Earnings before income taxes........ $ 151,901 $ 893 $ 152,794
Income taxes........................ 22,414 330 22,744
---------- --------- ------------
Net Income.......................... $ 129,487 $ 563 $ 130,050
========== ========= ============
Identifiable assets................. $3,805,531 $ 66,447 $3,871,978
========== ========= ============
Depreciation, depletion and
amortization..................... $ 251,830 $ 1,283 $ 253,113
========== ========= ============
Additions to property, plant and
equipment........................ $ 237,475 $ 1,307 $ 238,782(1)
========== ========= ============
</TABLE>
_____________
(1) Includes $52,513 acquired from Greene Hill Coal Company.
NOTE 22 - SUBSEQUENT EVENT
On ___________, 1999, the Board of Directors acted to recapitalize CONSOL
with one class of common stock with a par value of $.01 per share and authorized
500 million shares. Upon the effective date of the recapitalization, 57,667,559
shares were issued in exchange for the Class A and Class B shares previously
outstanding to effect an approximate 1,088 for 1 stock split.
F-27
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS)
NOTE 23 - SUPPLEMENTAL COAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
==============================================
(Millions of Tons) 1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Proved and probable coal reserves at January 1*............. 4,956 5,072 5,063
Purchased reserves.......................................... 191 120 10
Reserves sold in place...................................... (65) (17) (31)
Production.................................................. (71) (72) (73)
Revisions and other changes................................. 61 (40) (193)
------ ------ ------
Proved and Probable Coal Reserves at December 31*........... 5,072 5,063 4,776
====== ====== ======
</TABLE>
____________
* Proved and probable coal reserves are the equivalent of "demonstrated
reserves" under the coal resource classification system of the U.S. Geological
Survey. Generally, these reserves would be commercially minable at year-end
prices and cost levels, using current technology and mining practices.
The coal reserves are located in nearly every major coal-producing region in
North America. At December 31, 1997, 858 million tons were assigned to mines
either in production or under development. The proved and probable reserves at
December 31, 1997 include 4,020 million tons of steam coal, of which
approximately 15 percent has a sulfur content equivalent to less than 1.2 pounds
sulfur dioxide per million British thermal unit (Btu), and an additional 15
percent has a sulfur content equivalent to between 1.2 and 2.5 pounds sulfur
dioxide per million Btu. The reserves also include 756 million tons of
metallurgical coal, of which approximately 65 percent has a sulfur content
equivalent to less than 1.2 pounds sulfur dioxide per million Btu, and the
remaining 35 percent has a sulfur content equivalent to between 1.2 and 2.5
pounds sulfur dioxide per million Btu. A significant portion of this
metallurgical coal can also serve the steam coal market.
F-28
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
==========================================================
AT SEPTEMBER 30,
AT DECEMBER 31, 1998 PRO FORMA
1997 HISTORICAL (SEE NOTE 3)
---------------- --------------- -------------
Assets (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents.............................. $ 18,788 $ 37,926 $ 37,926
Marketable Securities.................................. 114,829 60,545 60,545
Accounts and Notes Receivable
Trade............................................... 252,901 288,394 288,394
Related Parties..................................... 6,305 4,309 4,309
Other Receivables................................... 23,392 23,971 23,971
Inventories............................................ 140,724 160,029 160,029
Deferred Income Taxes.................................. 94,027 92,105 92,105
Prepaid Expenses....................................... 19,273 28,878 28,878
---------- ---------- ----------
Total Current Assets............................. 670,239 696,157 696,157
Property, Plant and Equipment
Property, Plant and Equipment.......................... 4,506,797 4,973,932 4,973,932
Less __ Accumulated Depreciation, Depletion and
Amortization.............................................. 2,067,707 2,204,903 2,204,903
---------- ---------- ----------
Total Property, Plant and Equipment __ Net....... 2,439,090 2,769,029 2,769,029
Other Assets
Deferred Income Taxes.................................. 201,270 206,882 206,882
Advance Mining Royalties............................... 131,079 125,377 125,377
Other.................................................. 106,333 191,784 191,784
---------- ---------- ----------
Total Other Assets............................... 438,682 524,043 524,043
---------- ---------- ----------
Total Assets..................................... $3,548,011 $3,989,229 $3,989,229
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
=============================================================
AT SEPTEMBER 30,
AT DECEMBER 31, 1998 PRO FORMA
1997 HISTORICAL (SEE NOTE 3)
----------------- ------------------ ----------------
Liabilities (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current Liabilities
Accounts Payable....................................... $ 211,059 $ 225,021 $ 225,021
Short-Term Notes Payable............................... 55,051 105,476 685,476
Current Portion of Long-Term Debt...................... 7,639 108,540 108,540
Accrued Income Taxes................................... 13,581 5,279 5,279
Other Accrued Liabilities.............................. 305,596 329,456 329,456
------------ ------------ ------------
Total Current Liabilities........................... 592,926 773,772 1,353,772
Long-Term Debt............................................ 389,618 321,887 321,887
Deferred Credits and Other Liabilities
Postretirement Benefits Other Than Pensions............ 1,082,061 1,222,716 1,222,716
Pneumoconiosis Benefits................................ 500,429 484,234 484,234
Mine Closing........................................... 232,767 268,996 268,996
Workers' Compensation.................................. 177,453 215,094 215,094
Reclamation............................................ 24,331 17,902 17,902
Other............................................... 245,661 257,166 257,166
------------ ------------ ------------
Total Deferred Credits and Other Liabilities........ 2,262,702 2,466,108 2,466,108
Stockholders' Equity
Common Stock, $.01 Par Value; 500,000,000
shares authorized; Issued and outstanding,
actual 108,806,714 shares; outstanding,
pro forma 57,667,559 shares......................... 1,088 1,088 577
Capital in Excess of Par Value......................... 801,916 801,916 302,427
Retained (Deficit)..................................... (500,239) (375,542) (455,542)
------------ ------------ ------------
Total Stockholders' Equity.......................... 302,765 427,462 (152,538)
------------ ------------ ------------
Total Liabilities and Stockholders' Equity.......... $3,548,011 $3,989,229 $3,989,229
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
===================================================================
CAPITAL IN RETAINED TOTAL
COMMON EXCESS OF PAR EARNINGS STOCKHOLDERS'
STOCK VALUE DEFICIT EQUITY
------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance December 31, 1997.............. $ 1,088 801,916 (500,239) 302,765
Net Income............................. -- -- 124,697 124,697
Dividends.............................. -- -- -- --
---------- ---------- ---------- ---------
Balance September 30, 1998............. $ 1,088 $801,916 $(375,542) $427,462
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
==========================================
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1997 1998
----------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING
Net Income........................................................ $ 119,884 $ 124,697
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation, Depletion and Amortization.................... 171,353 175,575
(Gain) Loss on Sale of Assets............................... (10,944) (2,618)
Amortization for Advance Mining Royalties................... 9,651 10,877
Deferred Income Taxes....................................... (8,228) (3,690)
Changes in Operating Assets...................................... (16,967) (8,059)
Changes in Other Assets.......................................... 1,728 (207)
Changes in Operating Liabilities................................. 5,244 (36,895)
Changes in Other Liabilities..................................... (27,781) 4,695
Other............................................................ (675) (1,858)
----------- -----------
123,381 137,820
----------- -----------
Net Cash Provided by Operating Activities........................ 243,265 262,517
CASH FLOW FROM INVESTING ACTIVITIES
Capital Expenditures............................................ (135,330) (188,624)
Additions to Advance Mining Royalties........................... (5,083) (5,068)
Acquisition of R&P Coal Co. -- Net of Cash Acquired............. -- (100,410)
Proceeds from Sale of Assets.................................... 14,865 6,394
Changes in Marketable Securities -- Net......................... 50,698 54,284
----------- -----------
Net Cash Used in Investing Activities........................... (74,850) (233,424)
CASH FLOW FROM FINANCING ACTIVITIES
Payments on Long-Term Notes...................................... (44,000) --
Payments (Proceeds) on Borrowings............................... (43,356) (9,955)
----------- -----------
Net Cash Used in Financing Activities........................... (87,356) (9,955)
----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents............ 81,059 19,138
Cash and Cash Equivalents at Beginning of Period..................... 39,986 18,788
----------- -----------
Cash and Cash Equivalents at End of Period........................... $ 121,045 $ 37,926
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - BASIS OF PRESENTATION
The Company considers that all adjustments (all of which are normal recurring
accruals) necessary for a fair statement of financial position and results of
operations for these periods have been made; however, results for such interim
periods are subject to year-end audit adjustments. Results for such interim
periods are not necessarily indicative of results for a full year.
NOTE 2 - ACQUISITION
On September 22, 1998, CONSOL purchased 100% of the outstanding stock of the
Rochester and Pittsburgh Coal Company (R&P) for $149,683. The acquisition has
been accounted for as a purchase and, accordingly, the operating results of R&P
have been included in the Company's consolidated financial statements since the
date of acquisition. Pro forma revenues were $646,015 and $629,540 for the
third quarter 1998 and 1997 respectively, and were $1,972,247 and $1,893,997 for
the nine months ended September 30, 1998 and 1997 respectively. Pro forma net
income would not materially change for these periods.
NOTE 3 - SUBSEQUENT EVENTS
On September 14, 1998, the Company entered into a definitive agreement to
purchase 47,000 shares of Class A Common Stock from DuPont and affiliated
companies at a price of $500,000. The closing of the transaction occurred on
November 5, 1998. The Board of Directors agreed that prior to the closing,
CONSOL would pay the pro rata annual dividend based on to-date results for the
days of 1998 elapsed prior to the payment of the purchase price of the shares.
The pro rata dividend of $59,677 was paid on November 5, 1998. On December 28,
1998, and additional dividend of $20,323 was paid, bringing the total dividends
paid in 1998 to $80,000. The Company issued commercial paper in November 1998
in order to finance, together with other available funds, the purchase of the
shares, the payment of the dividend and the acquisition of R&P and the
refinancing of certain indebtedness incurred by R&P.
F-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering, all of which will
be borne by CONSOL, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee...................................... $151,729.62
Blue Sky Fees and Expenses................................ *
Printing and Engraving Expenses........................... *
Legal Fees................................................ *
Accounting Fees........................................... *
NASD Filing Fee........................................... 30,500
Miscellaneous............................................. *
_________
TOTAL................................................... $ *
</TABLE>
_____________
*To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CONSOL's Certificate of Incorporation and By-Laws provide, in part, that
CONSOL shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by the Delaware General Corporation Law (the "DGCL").
The DGCL permits Delaware corporations to indemnify their directors and
officers against all reasonable expenses incurred in the defense of any lawsuit
to which they are made parties by reason of being directors or officers, in
cases of successful defense, and against such expenses in other cases, subject
to specified conditions and exclusions. Such indemnification is not exclusive
of any other rights to which those indemnified may be entitled under any by-law,
agreement, vote of stockholders or otherwise.
The DGCL contains a provision eliminating the personal liability of a director
to a corporation or its stockholders for monetary damages for breach of, or
failure to perform, any duty resulting solely from his status as a director,
except with respect to (a) a willful failure to deal fairly with the corporation
or its stockholders where a director has a material conflict of interest, (b) a
violation of criminal law unless the director had reasonable cause to believe
his conduct was lawful, (c) a transaction yielding an improper personal profit,
and (d) willful misconduct. The foregoing statute also is applicable to
situations wherein a director has voted for, or assented to the declaration of,
a dividend, repurchase of shares, distribution, or the making of a loan to an
officer or director, in each case where the same occurs in violation of
applicable law.
CONSOL has purchased directors' and officers' liability insurance covering
certain liabilities incurred by its directors in connection with the performance
of their duties.
The Underwriting Agreement filed herewith as Exhibit 1 contains provisions by
which the Underwriters agree to indemnify CONSOL, each person who controls
CONSOL within the meaning of Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended, each director of CONSOL
II-1
<PAGE>
and each officer of CONSOL who signs the Registration Statement with respect to
information furnished in writing by the Underwriters for use in the Registration
Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
CONSOL has not issued securities during the prior three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
--------
1 -- Form of Underwriting Agreement between CONSOL, J.P. Morgan &
Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated as Representatives of the several
Underwriters.*
3.1 -- Certificate of Incorporation of CONSOL.*
3.2 -- By-Laws of CONSOL.*
4.1 -- Specimen Common Stock Certificate.*
5 -- Opinion of Thelen Reid & Priest LLP regarding legality.*
10.1 -- Senior Revolving Loan Agreement dated as of December 23,
1993, between Consolidation Coal Company and Morgan Guaranty
Trust Company of New York for a maximum principal amount at
any one time outstanding not to exceed $25,000,000
10.2 -- First Amendment to Senior Revolving Loan Agreement dated as
of November ___, 1994, between Consolidation Coal Company
and Morgan Guaranty Trust Company of New York
10.3 -- Second Amendment to Senior Revolving Loan Agreement dated as
of October 1, 1995, between Consolidation Coal Company and
Morgan Guaranty Trust Company of New York
10.4 -- Third Amendment to Senior Revolving Loan Agreement dated as
of December 14, 1995, between Consolidation Coal Company and
Morgan Guaranty Trust Company of New York
10.5 -- Fourth Amendment to Senior Revolving Loan Agreement dated as
of March 1, 1996, between Consolidation Coal Company and
Morgan Guaranty Trust Company of New York
10.6 -- Fifth Amendment to Senior Revolving Loan Agreement dated as
of December 2, 1997, between Consolidation Coal Company and
Morgan Guaranty Trust Company of New York
II-2
<PAGE>
10.7 -- Sixth Amendment to Senior Revolving Loan Agreement dated as
of October 29, 1998, between Consolidation Coal Company and
Morgan Guaranty Trust Company of New York
10.8 -- Seventh Amendment to Senior Revolving Loan Agreement dated
as of January 19, 1999, between Consolidation Coal Company
and Morgan Guaranty Trust Company of New York
10.9 -- Senior Revolving Loan Agreement, dated as of October 29,
1998, between Consolidation Coal Company and First National
Bank of Chicago for a maximum principal amount at any one
time outstanding not to exceed $100,000,000
10.10 -- Note issued by Consolidation Coal Company in the aggregate
principal amount of $100,000,000
10.11 -- Parent Guaranty, dated November 13, 1998, from CONSOL Energy
Inc. and CONSOL Inc. to First National Bank of Chicago
10.12 -- Significant Subsidiary Guaranty, dated November 13, 1998, to
First National Bank of Chicago
10.13 -- Subordination Agreement, dated November 13, 1998, among
CONSOL Energy Inc, and certain subsidiaries of CONSOL Energy
Inc. for the benefit of the First National Bank of Chicago
10.14 -- Share Purchase Agreement, dated September 14, 1998, among
E.I. DuPont De Nemours and Company, DuPont Energy Company,
Rheinbraun A.G. and CONSOL Energy Inc.
10.15 -- Amendatory Amendment No. 3, dated October 1, 1997, to the
Shareholders Agreement, dated December 6, 1991, as amended
10.16 -- Amendatory Amendment No. 4, dated September 14, 1998, to the
Shareholders Agreement, dated December 6, 1991, as amended
10.17 -- Consulting Agreement dated as of February 1, 1999, between
CONSOL Inc. and B.R. Brown
10.18 -- Employment Agreement dated December 11, 1997, between CONSOL
Inc. and J. Brett Harvey
11 -- Statement regarding computation of per share earnings.*
21 -- Subsidiaries of CONSOL.*
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Thelen Reid & Priest LLP (included as part of
Exhibit 5 above).*
24 -- Power of Attorney.+
II-3
<PAGE>
27 -- Financial data schedule.+
(b) Schedules
---------
No schedules are required to be presented by CONSOL pursuant to Regulation
S-X in connection with the filing of this Registration Statement.
_________________________________
*To be filed by amendment.
+Filed previously.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amended Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Pittsburgh,
Pennsylvania on February 4, 1999.
CONSOL ENERGY INC.
By: /s/ J. Brett Harvey
-------------------------------------
J. Brett Harvey,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
*
- ------------------------------------- Director February 4, 1999
B. R. Brown
/s/ J. Brett Harvey President and Chief Executive February 4, 1999
- -------------------------------------
J. Brett Harvey Officer and Director (Principal
Executive Officer)
* Vice President and Treasurer February 4, 1999
- -------------------------------------
Michael F. Nemser (Principal Financial Officer)
* Vice President and Controller February 4, 1999
- -------------------------------------
William J. Lyons (Principal Accounting Officer)
* February 4, 1999
- ------------------------------------- Director
Dr. Dieter Henning
* February 4, 1999
- ------------------------------------- Director
Berthold Bonekamp
* February 4, 1999
- ------------------------------------- Director
Bernd J. Breloer
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C>
* Director February 4, 1999
- -------------------------------------
Dr. Rolf Zimmermann
*By:/s/ Daniel L. Fassio February 4, 1999
Daniel L. Fassio,
As Attorney-In-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document Page
- ------ -------- ----
<S> <C> <C>
10.1 -- Senior Revolving Loan Agreement dated as of December 23, 1993,
between Consolidation Coal Company and Morgan Guaranty Trust
Company of New York for a maximum principal amount at any one time
outstanding not to exceed $25,000,000.....................................
10.2 -- First Amendment to Senior Revolving Loan Agreement dated as of
November ___, 1994, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York..........................................
10.3 -- Second Amendment to Senior Revolving Loan Agreement dated as of
October 1, 1995, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York..........................................
10.4 -- Third Amendment to Senior Revolving Loan Agreement dated as of
December 14, 1995, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York .........................................
10.5 -- Fourth Amendment to Senior Revolving Loan Agreement dated as
of March 1, 1996, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York..........................................
10.6 -- Fifth Amendment to Senior Revolving Loan Agreement dated as
of December 2, 1997, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York .........................................
10.7 -- Sixth Amendment to Senior Revolving Loan Agreement dated as
of October 29, 1998, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York .........................................
10.8 -- Seventh Amendment to Senior Revolving Loan Agreement dated as
of January 19, 1999, between Consolidation Coal Company and Morgan
Guaranty Trust Company of New York .........................................
10.9 -- Senior Revolving Loan Agreement, dated as of October 29, 1998, between
Consolidation Coal Company and First National Bank of Chicago for a maximum
principal amount at any one time outstanding not to exceed
$100,000,000 ...............................................................
10.10 -- Note issued by Consolidation Coal Company in the aggregate principal
amount of $100,000,000 .....................................................
10.11 -- Parent Guaranty, dated November 13, 1998, from CONSOL Energy Inc. and CONSOL
Inc. to First National Bank of Chicago .....................................
10.12 -- Significant Subsidiary Guaranty, dated November 13, 1998, to First National
Bank of Chicago ............................................................
10.13 -- Subordination Agreement, dated November 13, 1998, among CONSOL Energy Inc,
and certain subsidiaries of CONSOL Energy Inc. for the benefit of the First
National Bank of Chicago....................................................
10.14 -- Share Purchase Agreement, dated September 14, 1998, among E.I. DuPont De
Nemours and Company, DuPont Energy Company, Rheinbraun A.G. and CONSOL Energy
Inc. .......................................................................
10.15 -- Amendatory Amendment No. 3, dated October 1, 1997, to the Shareholders
Agreement, dated December 6, 1991, as amended ..............................
10.16 -- Amendatory Amendment No. 4, dated September 14, 1998, to the Shareholders
Agreement, dated December 6, 1991, as amended ..............................
10.17 -- Consulting Agreement dated as of February 1, 1999, between CONSOL Inc. and
B.R. Brown .................................................................
10.18 -- Employment Agreement dated December 11, 1997, between CONSOL Inc. and J. Brett
Harvey .....................................................................
23.1 -- Consent of Ernst & Young LLP. .............................................
</TABLE>
<PAGE>
EXHIBIT 10.1
------------
U.S. $25,000,000
SENIOR REVOLVING LOAN AGREEMENT,
dated as of December 23, 1993
among
CONSOLIDATION COAL COMPANY
as the Borrower
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as the Bank
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS.................................... 1
SECTION 1.1 Defined Terms......................................... 1
SECTION 1.2 Use of Defined Terms.................................. 15
SECTION 1.3 Accounting and Financial Determinations............... 15
ARTICLE II
COMMITMENTS.................................... 15
SECTION 2.1 Commitments........................................... 15
SECTION 2.2 Total Commitment Amount............................... 16
SECTION 2.3 Fees.................................................. 16
SECTION 2.4 Commitment Termination Date........................... 16
ARTICLE III
LOANS AND NOTES................................ 17
SECTION 3.1 Borrowing Procedure................................... 17
SECTION 3.2 Note.................................................. 17
SECTION 3.3 Principal Payments and Prepayments.................... 17
SECTION 3.4 Interest.............................................. 18
SECTION 3.5 Post-Maturity Rates................................... 19
SECTION 3.6 Payment Dates......................................... 19
SECTION 3.7 Payments, Computations, etc........................... 19
SECTION 3.8 Setoff................................................ 20
SECTION 3.9 Taxes................................................. 20
ARTICLE IV
BASE RATE, CD RATE AND LIBO RATE
OPTIONS FOR THE LOANS.......................... 22
SECTION 4.1 Elections............................................. 22
SECTION 4.2 Fixed Rate Lending Unlawful........................... 24
SECTION 4.3 Deposits Unavailable.................................. 24
SECTION 4.4 Capital Adequacy; Increased Costs, etc................ 24
SECTION 4.5 Funding Losses........................................ 25
ARTICLE V
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CONDITIONS PRECEDENT............................ 26
SECTION 5.1 Initial Borrowing................................... 26
SECTION 5.1.1 Resolutions, etc.................................... 26
SECTION 5.1.2 Delivery of Notes................................... 27
SECTION 5.1.3 Opinions of Counsel................................. 27
SECTION 5.1.4 Parent Guaranty..................................... 27
SECTION 5.1.5 Significant Subsidiary Guaranty..................... 27
SECTION 5.1.6 Subordination Agreement............................. 27
SECTION 5.1.7 Credit Rating....................................... 27
SECTION 5.1.8 Facilities to be Terminated......................... 27
SECTION 5.1.9 Satisfactory Legal Form............................. 27
SECTION 5.2 All Loans........................................... 28
SECTION 5.2.1 Compliance with Warranties, non-Default. etc........ 28
SECTION 5.2.2 Absence of Litigation, etc.......................... 28
SECTION 5.2.3 Loan Request........................................ 28
ARTICLE VI
WARRANTIES, ETC................................. 29
SECTION 6.1 Organization, Power, Authority, etc................. 29
SECTION 6.2 Due Authorization................................... 29
SECTION 6.3 Validity, etc....................................... 29
SECTION 6.4 Financial Information............................... 29
SECTION 6.5 Absence of Certain Default.......................... 30
SECTION 6.6 Litigation, etc..................................... 30
SECTION 6.7 Regulation U........................................ 30
SECTION 6.8 Government Regulation............................... 30
SECTION 6.9 Certain Contractual Obligations or Organic
Documents........................................... 31
SECTION 6.10 Taxes............................................... 31
SECTION 6.11 Pension and Welfare Plans........................... 31
SECTION 6.12 Labor Controversies................................. 31
SECTION 6.13 Subsidiaries and Significant Subsidiaries........... 31
SECTION 6.14 Patents, Trademarks, etc............................ 31
SECTION 6.15 Ownership of Properties; Liens...................... 32
SECTION 6.16 Accuracy of Information............................. 32
SECTION 6.17 Environmental Warranties............................ 32
ARTICLE VII
COVENANTS....................................... 34
SECTION 7.1 Certain Affirmative Covenants....................... 34
SECTION 7.1.1 Financial Information, etc.......................... 34
SECTION 7.1.2 Maintenance of Corporate Existences, etc............ 35
SECTION 7.1.3 Foreign Qualification............................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 7.1.4 Payment of Taxes, etc............................... 35
SECTION 7.1.5 Insurance........................................... 35
SECTION 7.1.6 Notice of Default, Litigation, etc.................. 36
SECTION 7.1.7 Performance of Loan Documents....................... 37
SECTION 7.1.8 Books and Records................................... 37
SECTION 7.1.9 Significant Subsidiary Guaranty..................... 37
SECTION 7.1.10 Environmental Covenant.............................. 37
SECTION 7.2 Certain Negative Covenants.......................... 37
SECTION 7.2.1 Indebtedness for Borrowed Money..................... 37
SECTION 7.2.2 Liens............................................... 38
SECTION 7.2.3 Consolidation, Merger, etc.......................... 39
SECTION 7.2.4 Transactions with Affiliates........................ 39
SECTION 7.2.5 Sale or Discount of Receivables..................... 39
SECTION 7.2.6 Dividends........................................... 40
SECTION 7.2.7 Inconsistent Agreements............................. 40
SECTION 7.2.8 Loans, Advances and Investments..................... 40
SECTION 7.2.9 Guaranties.......................................... 40
SECTION 7.2.10 Securities.......................................... 41
SECTION 7.2.11 Business Activities................................. 41
ARTICLE VIII
EVENTS OF DEFAULT............................... 42
SECTION 8.1 Events of Default................................... 42
SECTION 8.1.1 Non-Payment of Liabilities.......................... 42
SECTION 8.1.2 Non-Performance of Certain Covenants................ 42
SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed
Money............................................... 42
SECTION 8.1.4 Bankruptcy, Insolvency, etc......................... 42
SECTION 8.1.5 Control of the Borrower or CEI...................... 43
SECTION 8.1.6 Non-Performance of Other Obligations................ 43
SECTION 8.1.7 Breach of Representation or Warranty................ 43
SECTION 8.1.8 Pension Plans....................................... 43
SECTION 8.1.9 Judgments........................................... 43
SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and
Subordination....................................... 43
SECTION 8.1.11 Credit Rating....................................... 44
SECTION 8.2 Action if Bankruptcy................................ 44
SECTION 8.3 Action if Other Event of Default.................... 44
ARTICLE IX
NO PREFERENTIAL PROVISIONS.......................... 44
SECTION 9.1 No Preferential Provisions.......................... 44
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 9.2 Pro Rate Borrowings and Payments.................... 45
ARTICLE X
MISCELLANEOUS................................... 45
SECTION 10.1 Waivers, Amendments, etc............................ 45
SECTION 10.2 Notices............................................. 45
SECTION 10.3 Costs and Expenses.................................. 45
SECTION 10.4 Indemnification..................................... 45
SECTION 10.5 Survival............................................ 46
SECTION 10.6 Severability........................................ 46
SECTION 10.7 Headings............................................ 46
SECTION 10.8 Counterparts, Effectiveness, etc.................... 46
SECTION 10.9 Governing Law; Entire Agreement..................... 46
SECTION 10.10 Successors and Assigns.............................. 47
SECTION 10.11 Sale and Transfers, etc., of Loans and Notes;
Participations in Loans and Notes................... 47
SECTION 10.12 Other Transactions.................................. 49
SECTION 10.13 Waiver of Jury Trial................................ 49
SECTION 10.14 Consent to Jurisdiction and Service of Process...... 49
</TABLE>
iv
<PAGE>
EXHIBITS
EXHIBIT A - Note
EXHIBIT B - Loan Request
EXHIBIT C - Continuation/Conversion Notice
EXHIBIT D - Confidentiality Agreement
EXHIBIT E - Disclosure Schedule
EXHIBIT F - Opinion of Borrower's General Counsel
EXHIBIT G - Parent Guaranty
EXHIBIT H - Significant Subsidiary Guaranty
EXHIBIT I - Assignment and Acceptance
EXHIBIT J - Commitment Termination Date Extension Request
EXHIBIT K - Not assigned
EXHIBIT L - Subordination Agreement
EXHIBIT M - Permitted Investments
EXHIBIT N - LIBOR and Domestic Offices of Banks and Addresses for
Notices
1
<PAGE>
SENIOR REVOLVING LOAN AGREEMENT
THIS SENIOR REVOLVING LOAN AGREEMENT, dated as of December 23, 1993,
between CONSOLIDATION COAL COMPANY, a Delaware corporation (the "Borrower"), and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the "Bank").
W I T N E S S E T H:
WHEREAS, the Bank granted to the Borrower a $19,700,000 Commitment pursuant
to which Loans were to be made under a $200,000,000 Senior Revolving Loan
Agreement dated December 31, 1991, among the Borrower, the Bank, various other
banks and the Bank of Nova Scotia, acting as Agent (the "1991 Agreement"), and
WHEREAS, the Borrower desires to obtain a Commitment from the Bank under
this Agreement pursuant to which Loans, in a maximum aggregate principal amount
at any one time outstanding not to exceed $25,000,000, will be made to the
Borrower from time to time prior to the Commitment Termination Date; and
WHEREAS, the Bank is willing, on the terms and conditions hereinafter set
forth (including Article V), to extend such Commitment and make such Loans to
the Borrower; and
WHEREAS, the proceeds of such Loans will be used for general corporate
purposes and working capital purposes of the Borrower and Subsidiaries of CEI;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms. The following terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such definitions to be equally applicable to the singular and plural forms
thereof):
"Affiliate" of any Person means any other Person which, directly or
---------
indirectly, controls or is controlled by or under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Pension Plan). A Person shall be deemed to be "controlled
by" any other Person if such other Person possesses, directly or indirectly,
power:
<PAGE>
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners of such Person; or
(b) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Agreement" means, at any date, this loan agreement, a reconstituted 1991
---------
Agreement, as originally in effect on the Effective Date, and as thereafter from
time to time amended, supplemented, amended and restated or otherwise modified
and in effect on such date.
"Applicable Margin" means, for any Interest Period, the amount indicated
-----------------
below for each type of Loan based upon the Credit Rating for each day during
such Interest Period:
LIBO CD Base
Rate Rate Rate
Credit Rating Loans Loans Loans
- ------------- ----- ----- -----
Level I 0.375% 0.50% 0%
Level II 0.50% 0.625% 0%
Level III 1.25% 1.25% 1.0%
"Approval" means each and every approval, consent, filing and registration
--------
by or with any Federal, state or other regulatory authority necessary to
authorize or permit the execution, delivery or performance of this Agreement,
the Notes or any other Loan Document or for the validity or enforceability
hereof or thereof.
"Assessment Rate" means, for any Interest Period for CD Rate Loans, the net
---------------
annual assessment rate (rounded upwards, if necessary, to the next higher 1/100
of 1%) estimated by the Bank to be the then current annual assessment payable by
insured banks to the Federal Deposit Insurance Corporation (or any successor)
for insuring time deposits at such banks in the United States.
"Assignment and Acceptance" means any assignment and acceptance,
-------------------------
substantially in the form of Exhibit I hereto.
---------
"Authorized Officer" means, relative to any Loan Party, those of its
------------------
officers whose signatures and incumbency shall have been certified to the Bank .
"Bank" is defined in the preamble.
---- --------
2
<PAGE>
"Base Rate" means at any time and with respect to all Base Rate Loans, a
---------
fluctuating rate of interest per annum equal to the higher of:
(a) the rate of interest most recently announced by the Bank in New
York, New York as its base rate or prime rate or prime commercial lending
rate (of which announcements the Bank shall make all reasonable efforts to
give notice promptly to the Borrower); and
(b) the Federal Funds Rate plus 1/2%.
The Base Rate is not necessarily intended to be the lowest rate of interest
charged by the Bank in connection with extensions of credit. Changes in the
rate of interest on Loans maintained as Base Rate Loans shall take effect
simultaneously with each change in the Base Rate.
"Base Rate Loan" is defined in Section 4.1.
-------------- -----------
"Borrower" is defined in the preamble.
-------- --------
"Borrowing" means the Loans made by the Bank on any Business Day in
---------
accordance with Section 3.1.
-----------
"Business Day" means:
------------
(a) any day which is neither a Saturday or Sunday nor a legal holiday
in the State of New York or Pennsylvania or Georgia on which Banks are
authorized or required to be closed in New York City or Pittsburgh or
Atlanta; and
(b) relative to the date of
(i) making or continuing any portion of any Loans as, or
converting any portion of any Loans from or into LIBO Rate Loans,
(ii) making any payment or Prepayment of principal of or
payment of interest on the portion of the principal amount of the
Loans being maintained as LIBO Rate Loans, and
(iii) the Borrower's giving any notice (or the number of
Business Days to elapse prior to the effectiveness thereof) in
connection with any matter referred to in clause (b)(i) or (b)(ii),
------ -------
a banking business day of the Bank at, and on which dealings in Dollars are
carried on in the interbank eurodollar market of, the Bank's LIBOR Office.
3
<PAGE>
"CD Rate" means, relative to an Interest Period, the rate (expressed as a
-------
decimal) of interest determined by the Bank to be the average (rounded upwards,
if necessary, to the nearest 1/16 of 1%) of the bid rates quoted to the Bank in
the secondary market at approximately 10:00 a.m. New York City time (or as soon
thereafter as practicable) on the first day of such Interest Period by two
certificate of deposit dealers of recognized standing selected by the Bank in
its sole discretion for the purchase from the Bank at face value of certificates
issued by the Bank in an amount approximately equal or comparable to the amount
of the Bank's CD Rate Loan to be outstanding during such Interest Period and for
the number of days comprised therein.
"CD Rate Loan" is defined in Section 4.1.
------------ -----------
"CD Rate (Reserve Adjusted)" means a rate per annum (rounded upwards, if
--------------------------
necessary, to the nearest 1/16 of 1%) determined pursuant to the following
formula:
CDR(RA) = CDR + AR
-----------------------
(1.00 - CDRR)
where,
CDR(RA) = CD Rate (Reserve Adjusted)
CDR = CD Rate
CDRR = CD Reserve Requirement
AR = Assessment Rate
"CD Reserve Requirement" means, relative to each Interest Period, a
----------------------
percentage (expressed as a decimal) equal to the aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves and taking into
account any transitional adjustments or other scheduled changes in reserve
requirements during such Interest Period) on the first day of such Interest
Period, as specified under Regulation D of the F.R.S. Board, or any other
regulation of the F.R.S. Board which prescribes reserve requirements applicable
to non-personal time deposits as presently defined in Regulation D, as then
applicable to the class of banks of which the Bank is a member, on deposits of
the type used as a reference in determining the CD Rate and having a maturity
approximately equal to such Interest Period.
"CEI" means Consol Energy Inc., a Delaware corporation.
---
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
-------
Liability Information System List.
"Change in Control" means:
-----------------
4
<PAGE>
(a) with respect to the Borrower, the failure of CEI to own, directly
or indirectly, free and clear of all Liens or other encumbrances, one
hundred percent (100%) of the outstanding shares of capital stock of the
Borrower on a fully diluted basis; and
(b) with respect to CEI, the failure of Du Pont and/or Rheinbraun AG
and RG to own, directly or indirectly, a cumulative total of at least
fifty-one percent (51%) of the outstanding shares of capital stock of CEI,
on a fully diluted basis, in each case, free and clear of all Liens or
other encumbrances.
"CII" means Consol Inc., a Delaware corporation.
---
"Code" means the Internal Revenue Code of 1986, and the regulations
----
thereunder, as amended from time to time.
"Commercial Paper Indebtedness" means commercial paper issued by the
-----------------------------
Borrower with an original maturity of not more than 270 days from the date of
issuance, incurrence or other creation thereof and, at the time any
determination thereof is to be made, means the then aggregate outstanding face
amount (if issued, incurred or created on a discount basis) or principal amount
together with interest thereon to stated maturity (if issued, incurred or
created on an interest-bearing basis) of such commercial paper.
"Commitment" means the Bank's obligation to make Loans pursuant to Section
---------- -------
2.1.
- ---
"Commitment Termination Date" means the earliest of
---------------------------
(a) December 18, 1994 as such date may be extended pursuant to
Section 2.4;
---
(b) five Business Days after notice is given by the Borrower to the
Bank for purposes of designating a Commitment Termination Date pursuant to
this clause, provided that, on such designated Commitment Termination Date,
--------
no Loans are outstanding;
(c) immediately and without further action upon the occurrence of any
Default described in Section 8.1.4 with respect to the Borrower; and
-------------
(d) immediately when any other Event of Default shall have occurred
and be continuing and the Loans shall be declared to be due and payable
pursuant to Section 8.3.
-----------
"Commitment Termination Date Extension Request" means a request
---------------------------------------------
substantially in the form of Exhibit J attached hereto duly executed by an
---------
Authorized Officer of the Borrower.
5
<PAGE>
"Confidentiality Agreement" means a confidentiality agreement duly executed
-------------------------
by an Authorized Officer of the Borrower and the Bank substantially in the form
of Exhibit D attached hereto (as such may be amended, supplemented, restated or
---------
otherwise modified and in effect from time to time with the consent of the
Borrower and the Bank).
"Consolidated Subsidiary" of any Person means, at any time, every
-----------------------
Subsidiary which would be included as a consolidated subsidiary of such Person
in its consolidated financial statements as of such time; unless otherwise
specified, "Consolidated Subsidiary" means a Consolidated Subsidiary of CEI and
shall include the Borrower.
"Continuation/Conversion Notice" means a notice of continuation or
------------------------------
conversion and certificate duly executed by the chief executive or financial
Authorized Officer of the Borrower substantially in the form of Exhibit C
---------
attached hereto.
"Contractual Obligation" means, relative to any Person, any provision of
----------------------
any security issued by such Person or of any Instrument or undertaking to which
such Person is a party or by which it or any of its property is bound.
"Controlled Group" means all members of a controlled group of corporations
----------------
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or either
Guarantor, are treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA.
"Credit Rating" means the credit rating of the Borrower's long-term
-------------
unsecured debt securities without third-party credit enhancement by any two of
S&P, Moody's, D&P, or Fitch, one of which must be S&P or Moody's. "Level I"
Credit Rating means a Credit Rating of any two credit rating agencies, one of
which must be by S&P or Moody's, of at least A- in the case of S&P, at least A3
in the case of Moody's, at least A- in the case of D&P and at least A- in the
case of Fitch. "Level III" Credit Rating means a Credit Rating of any two
credit rating agencies, one of which must be by S&P or Moody's, of less than A-
but at least BBB- in the case of S&P, less than A3 but at least Baa3 in the case
of Moody's, less than A-but at least BBB- in the case of D&P or less than BBB-
in the case of Fitch. "Level III" Credit Rating means a Credit Rating of any
two credit rating agencies, one of which must be by S&P or Moody's, of less than
BBB- in the case of S&P, less than Baa3 in the case of Moody's, less than BBB-
in the case of D&P and less than BBB- in the case of Fitch, or there being
neither a Credit Rating from S&P nor Moody's, at the same time.
"Default" means any Event of Default or any condition or event which, after
-------
notice or lapse of time or both, would constitute an Event of Default.
"Dollar" and the sign "$" mean lawful money of the United States of
------
America.
"Domestic Office" means, relative to the Bank, the office of the Bank
---------------
designated as such on Exhibit N hereto or such other office of the Bank (or any
---------
successor or assign of the
6
<PAGE>
Bank) within the United States of America as may be designated from time to time
by notice from the Bank to each other Person party hereto.
"D&P" means Duff & Phelps Credit Rating Co.
---
"Du Pont" means E.I. Du Pont de Nemours and Company, a Delaware
-------
corporation.
"Effective Date" means the date this Agreement becomes effective pursuant
--------------
to Section 10.8.
------------
"Environmental Laws" means all applicable federal, state or local statutes,
------------------
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment, including CERCLA and SMCRA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Event of Default" is defined in Section 8.1.
---------------- -----------
"Exemption Agreement" is defined in Section 3.9(c).
------------------- --------------
"Exemption Presentation" is defined in Section 3.9(d).
---------------------- --------------
"Extension Effective Date" means, with respect to any Commitment
------------------------
Termination Date, the date which is 60 days prior to such Commitment Termination
Date.
"Facilities to be Terminated" means certain commitments made under the 1991
---------------------------
Agreement, all of which will be terminated on or prior to the Effective Date as
provided in Section 5.1.8.
"Federal Funds Rate" means, for any day, a fluctuating interest rate per
------------------
annum equal to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York; or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the Bank from three federal funds brokers of recognized
standing selected by it.
"Fiscal Quarter" means any quarter of a Fiscal Year.
--------------
7
<PAGE>
"Fiscal Year" means any period of twelve consecutive calendar months ending
-----------
on December 31.
"Fitch" means Fitch Investors Service, Inc.
-----
"Fixed Rate Loan" is defined in Section 4.1.
--------------- -----------
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
(or any successor).
"GAAP" means generally accepted United States accounting principles.
----
"Guarantors" means CEI and CI.
----------
"Guaranty" means any agreement, undertaking or arrangement by which any
--------
Person guarantees, endorses or otherwise becomes or is contingently liable upon
(by direct or indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise
to assure a creditor against loss) the debt, obligation or other liability of
any other Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends or other distributions upon
the shares of any other Person. The amount of the obligor's obligation under
any guaranty shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum outstanding principal amount, if
larger) of the debt, obligation or other liability thereby guaranteed.
"Hazardous Material" means
------------------
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by RCRA;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other
Environmental Law.
"hereof", "hereto", "hereunder" and similar terms refer to this Agreement
------ ------ ---------
and not to any particular Section or provision of this Agreement.
"Impermissible Qualification" means, relative to the opinion by independent
---------------------------
public accountants as to any financial statement of CEI, any qualification or
exception to such opinion:
(a) which is of a "going concern" or similar nature;
8
<PAGE>
or
(b) which relates to the limited scope of examination of matters
relevant to such financial information.
"including" means including without limiting the generality of any
---------
description preceding such term.
"Indebtedness" of any Person means, without duplication:
------------
(a) Indebtedness for Borrowed Money;
(b) all items other than as described in clause (a) which, in
----------
accordance with GAAP, would be included as liabilities on the liability
side of a balance sheet of such Person as of the date at which Indebtedness
is to be determined; and
(c) whether or not so included as liabilities in accordance with GAAP
(i) all indebtedness (excluding prepaid interest thereon) secured
by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements) whether or not such indebtedness shall have been
assumed by such Person,
(ii) all Guaranties issued by such Person
"Indebtedness for Borrowed Money" of any Person means, without duplication,
-------------------------------
all obligations of such Person, and all Guaranties issued by such Person, for
borrowed money (including all notes payable and drafts accepted representing
extensions of credit and all obligations evidenced by bonds, debentures, notes,
unpaid reimbursement obligations under drawn letters of credit or other similar
instruments) on which interest charges are customarily paid.
"Indemnified Liabilities" is defined in Section 10.4.
----------------------- ------------
"Instrument" means any document or writing (whether by formal agreement,
----------
letter or otherwise) under which any obligation is evidenced, assumed or
undertaken, or any right to any Lien is granted or perfected.
"Interest Period" means, relative to any Fixed Rate Loan, the period which
---------------
shall begin on (and include) the date on which such Fixed Rate Loan is made or
continued as, or converted into, a Fixed Rate Loan pursuant to Section 4.1, and,
-----------
unless the final maturity of such Fixed Rate Loan is accelerated, shall end on
(but exclude) the day which is, in the case of a CD Rate Loan 30, 60 or 90 days
thereafter, or which, in the case of a LIBO Rate Loan, numerically corresponds
to such date one week or one, two, or three months thereafter, in
9
<PAGE>
either case as the Borrower may select in its relevant notice pursuant to
Section 4.1; provided, however, that:
- -----------
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than eight different dates;
(b) absent such selection, the Borrower shall be deemed to have
selected an Interest Period of one month or 30 days, as the case may be;
provided, that if another duration shall be required in order to comply
--------
with clause (a) such Loan shall be a Base Rate Loan for such duration;
----------
(c) if such Interest Period applies to LIBO Rate Loans and there
exists no numerically corresponding day in such month, such Interest Period
shall end on the last Business Day of such month;
(d) if such Interest Period applies to LIBO Rate Loans and such
Interest Period would otherwise end on a day which is not a Business Day,
such Interest Period shall end on the Business Day next following such
numerically corresponding day (unless such next following Business Day is
the first Business Day of a calendar month, in which case such Interest
Period shall end on the preceding Business Day); and
(e) no Interest Period shall end later than the date established
pursuant to clause (a) or (b) of the definition of Commitment Termination
---------- ---
Date.
"Liabilities" means all obligations (monetary or otherwise) of the Borrower
-----------
under this Agreement, the Notes and each other Loan Document.
"LIBO Rate" means, relative to each Interest Period applicable to any LIBO
---------
Rate Loans comprising all or any part of any Borrowing, conversion or
continuation, the rate per annum which appears on Telerate page 3750 or Telerate
page 4833 as of 11:00 a.m., London time, two Business Days prior to the
beginning of such Interest Period, provided that (i) if more than one such
offered rate appears on the Telerate page, the LIBO Rate will be the arithmetic
average (rounded, if necessary, to the nearest 1/100th of 1%) of such offered
rates; and (ii) if no such offered rates appear on such page, the LIBO Rate for
such Interest Period will be the arithmetic average (rounded, if necessary, to
the nearest 1/100th of 1%) of rates quoted by not less than two major banks in
New York City, selected by the Borrower, at approximately 11:00 a.m., New York
City time, two Business Days prior to the beginning of such Interest Period, for
delivery on the first day of such Interest Period, for the number of days
comprised therein and in an amount equal to the amount of the LIBO Rate Loan of
the Bank to be outstanding during such Interest Period.
"LIBO Rate Loan" is defined in Section 4.1.
-------------- -----------
10
<PAGE>
"LIBO Rate (Reserve Adjusted)" means, relative to any portion of a Loan to
----------------------------
be made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
-----------------------------
(Reserve Adjusted) 1 - LIBOR Reserve Percentage
The Bank shall determine the LIBO Rate (Reserve Adjusted) for each Interest
Period, applicable to LIBO Rate Loans comprising all or part of any Borrowing,
conversion or continuation and promptly notify the Borrower thereof (which
determination shall, in the absence of demonstrable error, be conclusive and
binding on the Borrower) and, if requested by the Borrower, deliver a statement
showing the computation used by the Bank in making such determination.
"LIBOR Office" means the office of the Bank designated as such on Exhibit N
------------ -------
hereto or such other domestic or foreign office or offices of the Bank (as
designated from time to time by notice from the Bank to the Borrower).
"LIBOR Reserve Percentage" means, relative to each Interest Period, a
------------------------
percentage (expressed as a decimal) equal to the daily average during such
Interest Period of the percentages in effect on each day of such Interest
Period, as prescribed by the F.R.S. Board, for determining reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation of the F.R.S. Board which prescribes reserve requirements
applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as
applicable to the Bank or any Participant of the Bank with respect to such
participation.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
----
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever securing Indebtedness (including any conditional sale or other
title retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing, accompanied by the filing of any
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Loans" is defined in Section 2.1.
----- -----------
"Loan Document" means this Agreement and each Instrument and any other
-------------
document from time to time executed and delivered to the Bank pursuant hereto,
whether or not mentioned herein, including the Notes, the Parent Guaranty, the
Significant Subsidiary Guaranty and the Subordination Agreement.
"Loan Party" means the Borrower, each Guarantor, each Significant
----------
Subsidiary and any other party (other than the Bank) that executes and delivers
a Loan Document.
11
<PAGE>
"Loan Request" means a loan request and certificate duly executed by the
------------
chief executive or financial Authorized Officer of the Borrower substantially in
the form of Exhibit B attached hereto.
---------
"Materially Adverse Effect" means any occurrence of whatever nature
-------------------------
(including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding) which would reasonably be expected, on
a consolidated basis for CEI and its Subsidiaries (including the Borrower) in
accordance with GAAP, to have a materially adverse effect on (a) the
consolidated financial condition, business, operations or properties of CEI and
its Subsidiaries (including the Borrower) taken as a whole or (b) the ability of
the Borrower or any other Loan Party to perform any of its payment or other
material obligations under this Agreement or any other Loan Document.
"Maturity" means, relative to any Loan, the date on which such Loan is
--------
stated to be due and payable, in whole or in part (in accordance with the Note
evidencing such Loan, this Agreement, or otherwise), or such earlier date when
such Loan (or any portion thereof) shall be or become due and payable, in whole
or in part, in accordance with the terms of this Agreement, whether by required
prepayment, declaration, or otherwise.
"Monthly Payment Date" means the last day of each calendar month, or if
---------------
such day is not a Business Day, the next succeeding Business Day.
"Moody's" means Moody's Investors Service, Inc.
-------
"Non-United States Person" means a Person who is not (i) a citizen,
------------------------
national or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or (iii) an estate or trust, in each case the
income of which is subject to United States Federal income taxation regardless
of the source of its income.
"Note" means any promissory note of the Borrower, dated the date hereof,
----
substantially in the form of Exhibit A attached hereto (as such promissory note
---------
may be amended, endorsed, or otherwise modified from time to time) and all other
promissory notes accepted from time to time in substitution, replacement, or
renewal therefor.
"Ongoing Indebtedness" means the Indebtedness described in Item 7.2.1(iii)
-------------------- ---------------
of Exhibit E hereto.
---------
"Organic Document" means, relative to any corporation, its certificate of
----------------
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
12
<PAGE>
"Parent Guaranty" means that certain guaranty, executed by each Guarantor,
---------------
substantially in the form of Exhibit G attached hereto (as such may be amended,
---------
supplemented, restated or otherwise modified and in effect from time to time).
"Participant" is defined in Section 10.11.
----------- -------------
"PBGC" means the Pension Benefit Guaranty Corporation, a United States
----
corporation and any entity succeeding to all or any of its functions under
ERISA.
"Pension Plan" means a "pension plan", as such term is defined in section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled Group, may have any liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the five years preceding this Agreement, or by reason of
being deemed to be a contributing sponsor under section 4069 of ERISA.
"Permitted Investment" means, at any time, each of the investments listed
--------------------
on Exhibit M hereto.
---------
"Person" means any natural person, corporation, firm, association,
------
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Purchasing Bank" is defined in Section 10.11(b).
--------------- ----------------
"Quarterly Payment Date" means the last day of any Fiscal Quarter or, if
-----------------
such day is not a Business Day, the next succeeding Business Day.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. Section
----
6901, et seq., as in effect from time to time.
"Regulatory Change" means, relative to any Bank, any change after the date
-----------------
hereof in any (or the adoption after the date hereof of any new):
(a) United States Federal or state law or foreign law applicable to
such Bank; or
(b) rule, regulation, interpretation, directive or request (whether or
not having the force of law) applying to such Bank of any court or
governmental authority charged with the interpretation or administration of
any law referred to in clause (a) or of any fiscal, monetary or other
----------
authority having jurisdiction over such Bank.
13
<PAGE>
"Release" means a "release", as such term is defined in CERCLA.
-------
"Reportable Event" means a "reportable event" described in Section 4043(b)
----------------
of ERISA for which the 30-day notice requirement contained in 29 C.F.R.
(S)2613.8(a) has not been waived.
"RG" means Rheinbraun US Gmbh, a corporation existing under the laws of The
--
Federal Republic of Germany.
"Rheinbraun AG" means, Rheinbraun AG, a corporation existing under the laws
----------
of The Federal Republic of Germany.
"SEC" means the Securities and Exchange Commission (or any government body
---
or agency succeeding to the functions of such Commission).
"Significant Subsidiary" means McElroy Coal Company, a Delaware
----------------------
corporation; Conrhein, a Pennsylvania general partnership; Consol Pennsylvania
Coal Company, a Delaware corporation; Consol Sales Company, a Delaware
corporation; Fairmont Supply Company, a Delaware corporation; Consolidation Coal
Sales Company, a Delaware corporation; Island Creek Coal Company, a Delaware
corporation, Island Creek Corporation, a California corporation; Laurel Run
Mining Company, a Virginia corporation; and Nineveh Coal Company, a Delaware
corporation, and any other wholly-owned direct or indirect Subsidiary of CEI
whose assets exceed 5% of the consolidated assets of CEI and the Consolidated
Subsidiaries or whose revenues exceed 5% of the consolidated revenues of CEI and
the Consolidated Subsidiaries or any other wholly-owned direct or indirect
Subsidiary of CEI so designated by the Borrower after the Effective Date.
"Significant Subsidiary Guaranty" means that certain guaranty, executed by
-------------------------------
each Significant Subsidiary, substantially in the form of Exhibit H attached
---------
hereto (as such may be amended, supplemented, restated or otherwise modified and
in effect from time to time).
"SMCRA" means the Federal Surface Mining Control and Reclamation Act of
-----
1977, as in effect from time to time.
"S&P" means Standard & Poor's Corporation.
---
"Subordination Agreement" means that certain subordination agreement,
-----------------------
substantially in the form of Exhibit L attached hereto (as such may be amended,
---------
supplemented, restated or otherwise modified with the written consent of the
Bank and in effect from time to time).
"Subsidiary" of any corporation means any other corporation more than 50%
----------
of the outstanding shares of capital stock of which having ordinary voting power
for the election of directors is owned directly or indirectly by such
corporation, and, except as otherwise
14
<PAGE>
indicated herein, references to Subsidiaries shall refer to Subsidiaries of CEI
(other than the Borrower).
"Taxes" is defined in Section 3.09.
----- ------------
"Total Commitment Amount" is defined in Section 2.2.
----------------------- -----------
"Transferee" is defined in Section 10.11(c).
---------- ----------------
"type" means, relative to the outstanding principal amount of all or any
----
portion of a Loan, the portion thereof, if any, being maintained as a Base Rate
Loan, a CD Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its 50 States
------------- ----
and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in section
------------
3(1) of ERISA (other than a multiemployer plan as defined in section 3(37) of
ERISA), under which the Borrower, either Guarantor or any Subsidiary may have
any liability, including any obligation to contribute.
SECTION 1.2 Use of Defined Terms. Terms for which meanings are provided
--------------------
in this Agreement shall, unless otherwise defined or the context otherwise
requires, have such meanings when used in the Exhibits attached hereto, each
Loan Request, Continuation/ Conversion Notice, notice and other communication
delivered from time to time in connection with this Agreement or any Loan
Document and the definitions of such terms are applicable to the singular as
well as the plural form of such terms, as the context requires.
SECTION 1.3 Accounting and Financial Determinations. Where the
---------------------------------------
character or amount of any asset or liability or item of income or expense is
required to be determined, or any accounting computation is required to be made,
for the purpose of this Agreement, such determination or calculation shall, to
the extent applicable and except as otherwise specified in this Agreement, be
made in accordance with GAAP used in, and consistently applied with, the
financial statements referred to in Section 6.4.
-----------
ARTICLE II
COMMITMENTS
SECTION 2.1 Commitments. Subject to the terms and conditions of this
-----------
Agreement (including Article V), the Bank agrees that it will, from time to time
---------
on any Business Day occurring during the period commencing on the Effective Date
and continuing to (but not including) the Commitment Termination Date, make
loans ("Loans") to the
-----
15
<PAGE>
Borrower equal to the amount of the Borrowing requested on each such Business
Day; provided, however, that the Bank shall not be permitted or required to make
-------- -------
any Loan if, after giving effect thereto,
the sum of the aggregate amount of Commercial Paper Indebtedness and
the aggregate principal amount of all Loans outstanding at any one time
from the Bank plus the aggregate amount of all loans outstanding at any one
time under the other Senior Revolving Loan Agreements would exceed
$200,000,000.
Subject to the terms hereof, the Borrower may from time to time prior to the
Commitment Termination Date borrow, prepay, and reborrow amounts pursuant to the
Commitment.
SECTION 2.2 Total Commitment Amount. The aggregate amount (the "Total
----------------------- -----
Commitment Amount") of the Bank's Commitment on any date on or prior to the
- -----------------
Commitment Termination Date shall be $25,000,000 less all voluntary reductions
to such amount made by the Borrower; provided, however, that all such reductions
-------- -------
shall require at least three Business Days' prior notice to the Bank and be
permanent, and all partial reductions of such amount, in the case of any
voluntary reduction, shall be in minimum amounts of $500,000 and in integral
multiples of $100,000 in excess thereof.
SECTION 2.3 Fees. The Borrower agrees to pay
----
the Bank, for the period (including any portion thereof when its
Commitment is suspended by reason of the Borrower's inability to satisfy
any condition of Article V) commencing on the Effective Date and continuing
---------
through the Commitment Termination Date, a commitment fee at the rate of
(i) 0.10% per annum for each day in such period when the Credit Rating is
Level I and (ii) 0.15% per annum for each day in such period when the
Credit Rating is Level II and (iii) 0.20% per annum for each day in such
period when the Credit Rating is Level III, on the daily average of the
excess of the Commitment Amount over the outstanding principal amount of
the Bank's Loans. Such commitment fees shall be payable by the Borrower
quarterly in arrears to the Bank for the period ending on each Quarterly
Payment Date, commencing with the first such day following the Effective
Date, and on the Commitment Termination Date.
SECTION 2.4 Commitment Termination Date. The Commitment shall terminate
---------------------------
and the Bank shall be relieved of its obligation to make any Loan on the
Commitment Termination Date. The Borrower may from time to time request an
extension of the Commitment Termination Date for an additional 360 days by
executing and delivering to the Bank a Commitment Termination Date Extension
Request at least thirty (30) but not more than forty-five (45) days prior to the
then current Extension Effective Date. The Commitment Termination Date shall be
so extended if the Bank on or prior to the then current Extension Effective Date
duly executes a counterpart of such Commitment Termination Date Extension
Request; provided, that any such extension shall not be effective before the
--------
then current
16
<PAGE>
Extension Effective Date. The Bank may in its sole and absolute discretion
withhold its consent to any such Commitment Termination Date Extension Request.
ARTICLE III
LOANS AND NOTES
SECTION 3.1 Borrowing Procedure. By giving notice to the Bank on or
-------------------
before 12:00 noon, New York time, the Borrower may from time to time irrevocably
request, on not less than three (or same-day in the case of a Base Rate Loan)
nor more than five Business Days' notice, that a Borrowing be made by the Bank
in an aggregate amount equal to the lesser of (i) a minimum amount of $500,000
and an integral multiple of $100,000 in excess thereof, or (ii) the unused
amount of the Commitment then available pursuant to Section 2.1. Such notice may
-----------
be oral and shall be confirmed in writing on or before the first Business Day
following such request by delivering a Loan Request to the Bank. Subject to the
terms and conditions of this Agreement, each Borrowing shall be made on the
Business Day specified in the Loan Request therefor. On such Business Day and
subject to such terms and conditions, the Bank shall provide the Borrower with
funds, on or before 11:00 a.m., New York time (or 3:00 p.m., New York time, in
the case of a Base Rate Loan), in an amount equal to such Loan Request by
transferring same day or immediately available funds to such account as the
Borrower shall specify from time to time by notice to the Bank.
SECTION 3.2 Note. All Loans made by the Bank shall be evidenced by a
----
Note payable to the order of the Bank in a maximum principal amount equal to the
Bank's original Total Commitment Amount. The Borrower hereby irrevocably
authorizes the Bank to make (or cause to be made) appropriate notations on the
grid attached to the Bank's Note (or on a continuation of such grid attached to
any such Note and made a part thereof), which notations, if made, shall
evidence, inter alia, the date of, the outstanding principal of, and the
----- ----
interest rate (including any conversions thereof pursuant to Section 4.2) and
-----------
Interest Period applicable to, the Loans evidenced thereby. Any such notations
on any such grid (and on any such continuation) indicating the outstanding
principal amount of the Bank's Loans shall be rebuttable presumptive evidence of
the principal amount thereof owing and unpaid, but the failure to record any
such amount on such grid (or on such continuation) shall not limit or otherwise
affect the obligations of the Borrower hereunder or under such Note to make
payments of principal of or interest on such Loans when due.
SECTION 3.3 Principal Payments and Prepayments. The Borrower will repay
----------------------------------
the outstanding principal amount of the Notes on the Commitment Termination
Date. In addition, the Borrower:
(a) may make a voluntary prepayment in part in an aggregate principal
amount of not less than $500,000 and an integral multiple of $100,000 in
excess thereof, or in full of the outstanding principal amount of the Notes
from time to time
17
<PAGE>
at any time, in each case upon at least three Business Days' prior notice
(or same day notice in the case of a Base Rate Loan) to the Bank;
(b) shall, on each date when any reduction in the Total Commitment
Amount shall become effective pursuant to Section 2.2, make a mandatory
-----------
prepayment of the Notes equal to the excess, if any, of the outstanding
principal amount of all Loans over the Total Commitment Amount as so
reduced; and
(c) shall, on each date when the sum of the aggregate principal amount
of all Loans outstanding plus the Commercial Paper Indebtedness exceeds the
Total Commitment Amount, make a mandatory prepayment of the then aggregate
outstanding principal amount of all Loans in an aggregate amount equal to
such excess.
Each prepayment of a Note made pursuant to this Section shall be without premium
or penalty, except as may be required by Section 4.5. All interest accrued on
-----------
the principal amount of Notes prepaid shall be paid on the date of such
prepayment. No prepayment of principal of the Notes pursuant to clause (a) or
---
(c) above prior to the Commitment Termination Date shall cause a reduction in
- ---
the Total Commitment Amount.
Each prepayment of the Notes shall, except as the Borrower may otherwise
have notified the Bank, be applied, to the extent of such prepayment:
(a) first, to the principal amount thereof being maintained as a Base
Rate Loan;
(b) second, to the principal amount thereof being maintained as a CD
Rate Loan; and
(c) third, to the principal amount thereof being maintained as a LIBO
Rate Loan.
SECTION 3.4 Interest. The Borrower agrees to pay interest on the
--------
principal amount of the Notes from time to time unpaid prior to and at Maturity
at a rate per annum:
(a) on that portion of the outstanding principal amount thereof
maintained from time to time as a Base Rate Loan, equal to the sum of the
Base Rate from time to time most recently announced plus the Applicable
Margin per annum,
(b) on that portion of the outstanding principal amount thereof
maintained from time to time as one or more CD Rate Loans during each
applicable Interest Period, equal to the sum of the CD Rate (Reserve
Adjusted) for such Interest Period plus the Applicable Margin per annum,
and
18
<PAGE>
(c) on that portion of the outstanding principal amount thereof
maintained from time to time as one or more LIBO Rate Loans during each
applicable Interest Period, equal to the sum of the LIBO Rate (Reserve
Adjusted) for such Interest Period plus the Applicable Margin per annum.
SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any
-------------------
portion of the principal amount of the Loans or after any other monetary
Liabilities shall have become due, the Borrower shall pay interest (after as
well as before judgment) on the principal amount of all types of Loans so
matured or on such other monetary Liabilities, as the case may be, at a rate per
annum which is determined by increasing each of the Applicable Margins set forth
in clauses (a), (b) and (c) of Section 3.4 by 2% per annum for Loans so matured
----------- --- --- -----------
and, to the extent permitted by applicable law, at a rate per annum equal to the
Base Rate plus 2% for such other monetary Liabilities.
SECTION 3.6 Payment Dates. Interest accrued on the Notes prior to
-------------
Maturity (as aforesaid) shall be payable, without duplication:
(a) on that portion of the outstanding principal amount of each Note
maintained as a Base Rate Loan, on each Monthly Payment Date, commencing
with the first such Monthly Payment Date following the date of such Notes;
(b) on that portion of the outstanding principal amount of each Note
maintained as one or more Fixed Rate Loans, on the last day of each
applicable Interest Period; and
(c) on that portion of the outstanding principal amount of each Note
converted into a Base Rate Loan or a Fixed Rate Loan, as the case may be,
on a day when interest would not otherwise have been payable pursuant to
clause (a) or (b), on the date of such conversion.
---------- ---
Interest on the Notes shall be payable at Maturity (as aforesaid) and,
thereafter, on demand. The Bank shall give prompt notice to the Borrower of
each computation of accrued interest before the due date thereof.
SECTION 3.7 Payments, Computations, etc. Unless otherwise expressly
----------------------------
provided in this Agreement, all payments by the Borrower pursuant to this
Agreement, the Notes, or any other Loan Document, whether in respect of
principal or interest, shall be made by the Borrower to the Bank without set-
off, deduction, or counterclaim, not later than 2:00 pm, New York time, on the
date due, in same day or immediately available funds, to such account as the
Bank shall specify from time to time by notice to the Borrower. Funds received
after that time shall be deemed to have been received by the Bank on the next
following Business Day. All interest and fees shall be computed on the basis of
the actual number of days (including the first day but excluding the last day)
occurring during the period for which fee is payable over a year comprised of
360 days. Whenever any payment to be
19
<PAGE>
made shall otherwise be due on a day which is not a Business Day, such payment
shall (except as otherwise required by clause (d) of the definition of the term
----------
"Interest Period" with respect to payments then due of principal of or interest
---------------
on any Notes being maintained as LIBO Rate Loans) be made on the next succeeding
Business Day and such extension of time shall be included in computing interest,
if any, in connection with such payment.
SECTION 3.8 Setoff. In addition to and not in limitation of any rights
------
of the Bank or other holder of any Note under applicable law, the Bank shall,
upon the occurrence of any Default described in Section 8.1.4 or upon the
-------------
occurrence of any other Event of Default, have the right to set off, appropriate
and apply to the payment of the Liabilities owing to it any and all balances,
credits, deposits, accounts, or moneys of the Borrower then maintained with the
Bank and (as security for such Liabilities) the Borrower hereby grants to the
Bank a continuing security interest in any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter maintained with such Bank.
The Bank agrees promptly to notify the Borrower after any such setoff and
application made by the Bank; provided, however, that the failure to give such
-------- -------
notice shall not affect the validity of such setoff and application. The rights
of the Bank under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which the
Bank may have.
SECTION 3.9 Taxes. (a) All payments by the Borrower of principal of,
-----
and interest on, the Loans and all other amounts payable hereunder to any
recipient (including any Purchasing Bank) shall be made free and clear of and
without deduction or withholding for any present or future income, stamp, or
other taxes, fees, duties or other charges of any nature whatsoever imposed by
any taxing authority, other than taxes imposed on or measured by such
recipient's net income or receipts (such nonexcluded items being hereinafter
referred to as "Taxes"), except to the extent that such deduction or withholding
-----
is required pursuant to any applicable law, rule, or regulation. In the event
that any deduction or withholding from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule, or regulation, then the Borrower will:
(i) pay to the relevant authority the full amount required to be so
withheld or deducted;
(ii) promptly forward to the Bank an official receipt or other
documentation satisfactory to the Bank evidencing such payment to such
authority; and
(iii) (except to the extent that such deduction or withholding
results from the breach, by a recipient of a payment, of its Exemption
Agreement, or would not be required if such recipient's Exemption
Representation were true) pay to the Bank or holder of a Note such
additional amount or amounts as is necessary to ensure that the net amount
actually received by the Bank or such holder, after giving effect to any
credit against Taxes received by the Bank or such holder as a result of
such deduction or withholding, will equal the full amount the Bank or such
holder would have
20
<PAGE>
received had no such deduction or withholding been required. The Bank and
holder shall determine such additional amount or amounts payable to it
(which determination shall, in the absence of demonstrable error, be
conclusive and binding on the Borrower).
Moreover, if any Taxes are directly imposed on the Bank, as a result of any
change in law or any applicable double taxation treaty of the United States, the
jurisdiction of the Bank's incorporation or the jurisdiction in which the Bank's
Domestic Office or LIBOR Office is located, with respect to any payment received
by the Bank hereunder, the Bank may pay such Taxes and the Borrower will
promptly pay such additional amounts (including any penalties, interest or out-
of-pocket expenses) as are necessary in order that the net amount received by
the Bank after the payment of such Taxes (including any Taxes on such additional
amount) shall equal the amount such Person would have received had such Taxes
not been imposed (except to the extent that such Taxes result from the breach,
by such payee, of its Exemption Agreement, or would not be required if such
payee's Exemption Representation were true).
(b) If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Bank the required receipts or other
required documentary evidence, the Borrower shall indemnify the Bank for any
incremental Taxes, interest or penalties that may become payable by the Bank as
a result of any such failure.
(c) The Bank and each subsequent holder of any Note that is a Non-United
States Person agrees (the Bank's "Exemption Agreement") (to the extent it is
-------------------
permitted to do so under the laws and any applicable double taxation treaties of
the United States, the jurisdiction of the Bank's incorporation, and the
jurisdictions in which the Bank's Domestic Office and the Bank's LIBOR office
are located) to execute and deliver to the Borrower prior to the first scheduled
payment date in each Fiscal Year, a United States Internal Revenue Service Form
1001 or Form 4224 (or any successor form), appropriately completed and claiming
complete (or, in the case it becomes appropriate due to any change in law or
such applicable double taxation treaties, partial) exemption from withholding
and deduction of United States Federal Taxes.
(d) The Bank and each Purchasing Bank hereby represents and warrants (such
Bank's "Exemption Representation") to the Borrower that on the date hereof (or,
------------------------
in the case of a Purchasing Bank, on the date on which such Purchasing Bank
becomes a Bank hereunder) (i) its Domestic Office and its LIBOR Office are
entitled to receive payments of principal of, and interest on, Loans made
hereunder without deduction or withholding for or on account of any Taxes
imposed by the United States or any political subdivision thereof, (ii) it is
permitted to take the actions described in clause (c) above (with respect to
----------
complete exemption from withholding and deduction of United States Federal
Taxes) under the laws and any applicable double taxation treaties of the
jurisdictions specified in such clause (c) and (iii) any payment received by
----------
such Bank hereunder is not subject to any Taxes, whether or not such Taxes are
required to be deducted or withheld by the Borrower.
21
<PAGE>
(e) The Bank agrees to use reasonable efforts to change its Domestic
Office or LIBOR Office or prepare, execute and file any additional forms or
other documents which may be necessary or advisable to avoid or to minimize any
amounts otherwise payable under this Section 3.9, in each case solely if such
-----------
change or such preparation, execution and filing can be made or done in a manner
so that the Bank, in its reasonable determination, suffers no legal, economic or
regulatory disadvantage.
(f) In the event that the Borrower becomes required to pay an additional
amount pursuant to this Section 3.10 to the Bank, then the Borrower shall have
------------
the right to seek a substitute bank or banks to promptly replace the Bank under
this Agreement in accordance with the provisions of Section 10.11(b).
----------------
(g) The parties agree to cooperate with each other in connection with any
Taxes matters pertaining to this Agreement and the Bank shall promptly notify
the Borrower of any Taxes imposed on it with respect to any payment received by
the Bank hereunder, stating the reasons therefor and the amount, if any, payable
by the Borrower hereunder in respect of such Taxes.
ARTICLE IV
BASE RATE, CD RATE AND LIBO RATE
OPTIONS FOR THE LOANS
SECTION 4.1 Elections. The Loans comprising any Borrowing may be made
---------
as a "Base Rate Loan" or, at the Borrower's election made in accordance with
---------
this Section, as a loan (a "Fixed Rate Loan") having for each particular
---------------
Interest Period a fixed rate of interest determined by reference to either the
LIBO Rate (Reserve Adjusted) (a "LIBO Rate Loan") or, the CD Rate (Reserve
--------------
Adjusted) (a "CD Rate Loan"), as specified in the Loan Request for such Loan.
------------
The Borrower may from time to time by delivering to the Bank a
Continuation/Conversion Notice request, on not less than one (or not less than
three if a Loan is to be continued as, or converted into, a LIBO Rate Loan) nor
more than five Business Days' notice:
(a) that all, or any portion in a minimum amount of $500,000 or an
integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of any Borrowing be converted from Base Rate Loans into
Fixed Rate Loans of either type or, subject to Section 4.5, from either
-----------
type of Fixed Rate Loans into Base Rate Loans or Fixed Rate Loans of the
other type; and
(b) on the expiration of the Interest Period applicable to any
Fixed Rate Loans, that all, or any portion in a minimum amount of $500,000
or an integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of such Fixed Rate Loans be continued as Fixed Rate Loans
of such type or be converted into
22
<PAGE>
Base Rate Loans or Fixed Rate Loans of the other type (in the absence of
the delivery of a Continuation/Conversion Notice pursuant to this clause,
the Borrower will be deemed to have requested that such Fixed Rate Loans be
converted into Base Rate Loans);
provided, however, that:
(c) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, Fixed Rate Loans if, after giving
effect to such action, the Interest Period applicable thereto shall extend
beyond the date of any prepayment required by Section 3.3, unless a
-----------
sufficient principal amount of other Loans are being maintained as Base
Rate Loans to permit such prepayment to be applied in full to such Base
Rate Loans; and
(d) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, a Fixed Rate Loan when any Default
has occurred and is continuing.
Each Continuation/Conversion Notice requesting that all, or any portion, of the
principal amount of the Loans be continued as, or be converted into, Fixed Rate
Loans shall specify the duration of the Interest Period commencing upon such
continuation or conversion.
The Bank may, if it so elects, fulfill its commitment to make or continue
any portion of the principal amount of a Loan as, or to convert any portion of
the principal amount of a Loan into, one or more Fixed Rate Loans by causing a
foreign branch or Affiliate of the Bank to make any such Fixed Rate Loan;
provided, however, that in such event such Fixed Rate Loan shall be deemed to
- -------- -------
have been made by the Bank, and the obligation of the Borrower to repay such
Fixed Rate Loan shall nevertheless be to the Bank and shall be deemed to be held
by it, to the extent of such Fixed Rate Loan, for the account of such foreign
branch or Affiliate; and provided, further, that the making of such Fixed Rate
-------- -------
Loans by a foreign branch or Affiliate of the Bank does not result in any
additional Taxes assessable against the Bank in connection with any payments
made by the Borrower hereunder.
Whenever the Bank makes any notations pursuant to Section 3.2 on the grid
-----------
attached to the Note (or on the continuation of such grid) and whenever the Bank
converts a Loan into a Base Rate Loan or a Fixed Rate Loan, the Bank will make
further notations on the grid attached to such Note (or on such continuation)
reflecting the portions of the outstanding principal amounts thereof being
maintained as a Base Rate Loan and Fixed Rate Loans. Failure to record any such
amounts on the grid shall not limit or otherwise affect the obligations of the
Borrower to make payments of principal and interest on each Note when due.
The Borrower understands that, if it elects that any portion of the
principal amount of a Borrowing be made, continued as, or converted into, a
Fixed Rate Loan, the Bank may
23
<PAGE>
(while being entitled to fund all or any portion of such Fixed Rate Loan as it
may see fit) wish to be able to fund such Fixed Rate Loan by issuing Dollar
certificates of deposit in New York City or purchasing Dollar deposits in its
LIBOR Office's interbank eurodollar market. Accordingly, in connection with any
determination to be made for purposes of Section 4.2, 4.3, 4.4 or 4.5, it shall
----------- --- --- ---
be conclusively presumed that the Bank has elected to fund all Fixed Rate Loans
by issuing Dollar certificates of deposit in New York City, in the case of CD
Rate Loans, or purchasing Dollar deposits in such interbank eurodollar market,
in the case of LIBO Rate Loans.
SECTION 4.2 Fixed Rate Lending Unlawful. If as the result of any
---------------------------
Regulatory Change the Bank shall determine (which determination shall, in the
absence of demonstrable error, be conclusive and binding on the Borrower) that
it is unlawful for the Bank to make, continue or maintain a Loan as, or to
convert a Loan into, one or more Fixed Rate Loans of a certain type, the
obligation of the Bank under Section 4.1 to make, continue or maintain any
-----------
portion of the principal amount of a Loan as, or to convert such Loan into, one
or more Fixed Rate Loans of such type shall, upon such determination (and
telephonic notice thereof confirmed in writing to the Borrower), forthwith
terminate, and any portion of the principal amount of a Loan then maintained as
one or more Fixed Rate Loans of such type by the Bank shall automatically
convert into a Base Rate Loan. If circumstances subsequently change so that the
Bank shall determine that it is no longer so affected, the obligation of the
Bank under Section 4.1 to make or continue Loans as, or to convert Loans into,
-----------
Fixed Rate Loans shall, upon such determination and telephonic notice thereof
confirmed in writing to the Borrower), forthwith be reinstated.
SECTION 4.3 Deposits Unavailable. If prior to the date on which all or
--------------------
any portion of the principal amount of any Loan is to be made, continued as, or
converted into, a Fixed Rate Loan, the Bank shall determine for any reason
whatsoever (which determination shall, in the absence of demonstrable error, be
conclusive and binding on the Borrower) that dollar deposits in the relevant
amount and for the relevant Interest Period are not available to the Bank in its
relevant market, the Bank shall promptly give telephonic notice of such
determination confirmed in writing to the Borrower, and the obligation under
Section 4.1 of the Bank to make, continue any portion of the principal amount of
- -----------
a Loan as, or to convert a Loan into, one or more Fixed Rate Loans of such type
shall, upon such notification, forthwith terminate; and the portion of all Loans
then maintained as Fixed Rate Loans of such type by the Bank shall on the
expiration of the Interest Period applicable thereto automatically convert into
Base Rate Loans.
If circumstances subsequently change so that the Bank shall no longer be so
affected, the Bank shall promptly give telephonic notice thereof confirmed in
writing to the Borrower and the obligations of the Bank under Section 4.1 to
-----------
make or continue Loans as, or convert Loans into, Fixed Rate Loans shall be
reinstated.
SECTION 4.4 Capital Adequacy; Increased Costs, etc. The Borrower
---------------------------------------
further agrees to reimburse the Bank for any increase in the cost to the Bank of
making, continuing,
24
<PAGE>
maintaining or converting (or of its obligation to make, continue, maintain or
convert) any of its Loans hereunder (or any portion thereof) and for any
reduction in the amount of any sum receivable by the Bank hereunder in respect
of making, continuing, maintaining or converting (or of its obligation to make,
continue, maintain or convert) any of its Loans hereunder (or any portion
thereof) from time to time by reason of:
(a) to the extent not included in the calculation of the LIBO Rate
(Reserve Adjusted), the adoption or compliance with any capital adequacy,
reserve, special deposit, or similar requirement against assets of,
deposits with or for the account of, or credit extended by, the Bank, under
or pursuant to any law, treaty, rule, regulation (including any F.R.S.
Board regulation), or requirement in effect on the date hereof, or as the
result of any Regulatory Change; or
(b) any Regulatory Change which shall subject the Bank to any tax
(other than taxes on net income or receipts), levy, impost, charge, fee,
duty, deduction, or withholding of any kind whatsoever or change the
taxation of any Loan made or maintained as a Fixed Rate Loan and the
interest thereon (other than any change which affects, and to the extent
that it affects, the taxation of net income or receipts).
In any such event, the Bank shall promptly notify the Borrower thereof stating
the reasons therefor and the additional amount required fully to compensate the
Bank for such increased cost or reduced amount. Such additional amounts shall
be payable on demand after receipt of such notice. A statement as to any such
increased cost or reduced amount or any change therein (including calculations
thereof in reasonable detail) shall be submitted by the Bank to the Borrower and
shall, in the absence of demonstrable error, be conclusive and binding on the
Borrower. In the event that the Borrower is required to pay an additional
amount pursuant to this Section 4.4 to the Bank, then the Borrower shall have
-----------
the right to seek a substitute bank or banks to replace the Bank under this
Agreement in accordance with the provisions of Section 10.11(b).
----------------
SECTION 4.5 Funding Losses. In the event the Bank shall incur any loss
--------------
or expense (including any loss or expense incurred by reason of the liquidation,
or reemployment of deposits or other funds acquired by the Bank to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a Fixed Rate Loan)
as a result of:
(a) payment or prepayment of the principal amount of any Fixed Rate
Loan on a date other than the scheduled last day of the Interest Period
applicable thereto, whether pursuant to Section 3.3 or otherwise;
-----------
(b) any conversion of all or any portion of the outstanding
principal amount of any Fixed Rate Loan to a Base Rate Loan pursuant to
Section 4.1 prior to the expiration of the Interest Period then applicable
-----------
thereto (but excluding in each case any
25
<PAGE>
loss or expense resulting therefrom to the extent the Bank is reimbursed
therefor by interest payable pursuant to clause (c) of Section 3.6); or
---------- -----------
(c) a Loan not being made, continued as, or converted into, a Fixed
Rate Loan in accordance with a Loan Request or the Continuation/Conversion
Notice given therefor (other than as the result of a default by the Bank in
complying with such Loan Request or such Continuation/Conversion Notice);
then, upon the request of the Bank, the Borrower shall pay directly to the Bank
such amount as will (in the reasonable determination of the Bank) reimburse the
Bank for such loss or expense. A certificate as to any such loss or expense
(including calculations thereof in reasonable detail) shall be submitted by the
Bank to the Borrower and shall, in the absence of demonstrable error, be
conclusive and binding on the Borrower.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Initial Borrowing. The obligations of the Banks to fund the
-----------------
initial Borrowing (which does not include the first Borrowing following any
extension of the Commitment Termination Date) shall be subject to the prior or
concurrent satisfaction of each of the following conditions precedent.
SECTION 5.1.1 Resolutions, etc. The Bank shall have received:
-----------------
(a) a certificate, dated the date of the initial Borrowing, of the
Secretary or an Assistant Secretary of the Borrower as to
(i) resolutions of its Board of Directors then in full force
and effect authorizing the execution, delivery and performance of the
Loan Documents to be executed by it hereunder;
(ii) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement and each Loan
Document executed by it, upon which certificate the Bank may
conclusively rely until it shall have received a further certificate
of the Secretary or an Assistant Secretary of the Borrower cancelling
or amending such prior certificate; and
(iii) a true and correct copy of the By-laws as then in effect;
(b) a certificate of the Secretary or any Assistant Secretary of each
Guarantor, each Significant Subsidiary and each Subsidiary party to the
Subordination Agreement as to
26
<PAGE>
(i) resolutions of its Board of Directors then in full force
and effect authorizing the execution, delivery and performance by such
Loan Party of the Loan Documents to be executed and delivered by it
hereunder;
(ii) the incumbency and signatures of those of its officers
authorized to act with respect to such Loan Documents upon which
certificate the Bank may conclusively rely until it shall have
received a further certificate of such Loan Party cancelling or
amending such prior certificate; and
(iii) a true and correct copy of the By-laws as then in effect.
SECTION 5.1.2 Delivery of Notes. Borrower shall have delivered to the
-----------------
Bank a Note, duly executed and delivered and conforming to the requirements of
Section 3.2.
- -----------
SECTION 5.1.3 Opinions of Counsel. The Bank shall have received opinions
-------------------
from the general counsel of the Borrower, the Guarantors, each Significant
Subsidiary and each Subsidiary party to the Subordination Agreement,
substantially in the form of Exhibit F attached hereto.
-------
SECTION 5.1.4 Parent Guaranty. The Bank shall have received the Parent
---------------
Guaranty duly executed by each Guarantor.
SECTION 5.1.5 Significant Subsidiary Guaranty. The Bank shall have
-------------------------------
received the Significant Subsidiary Guaranty duly executed by each Person that
is a Significant Subsidiary as of the Effective Date.
SECTION 5.1.6 Subordination Agreement. The Bank shall have received the
-----------------------
Subordination Agreement duly executed by each Subsidiary, the Borrower and each
Guarantor which, as of the Effective Date, is expected to make any loans to any
Significant Subsidiary, the Borrower or either Guarantor.
SECTION 5.1.7 Credit Rating. The Borrower shall have delivered to the
-------------
Bank a letter from each of S&P and Moody's stating its intention to confirm the
Borrower a Level I Credit Rating upon review of all documents in support of the
Borrower's commercial paper program and medium term note issuance.
SECTION 5.1.8 Facilities to be Terminated. The Facilities to be
---------------------------
Terminated shall have been terminated and all Indebtedness for Borrowed Money
thereunder shall have been paid in full.
SECTION 5.1.9 Satisfactory Legal Form. All documents executed or
-----------------------
submitted pursuant hereto by or on behalf of the Borrower, each Guarantor, any
Significant Subsidiary or any Subsidiary party to the Subordination Agreement
shall be satisfactory in form and substance to the Bank and its counsel; the
Bank and its counsel shall have received all
27
<PAGE>
information, and such counterpart originals or such certified or other copies of
such materials, as the Bank or its counsel may request; and all legal matters
incident to the transactions contemplated by this Agreement and each other Loan
Document shall be satisfactory to counsel to the Bank.
SECTION 5.2 All Loans. The obligation of the Bank to make any Loan
---------
shall be subject to the satisfaction of each of the conditions precedent set
forth in Sections 5.2.1 through 5.2.3, and each request that a Borrowing be made
----------------------------
hereunder shall constitute a certification by the Borrower that each of such
conditions precedent will be satisfied on the date of such requested Borrowing
(and after giving effect to such Borrowing).
SECTION 5.2.1 Compliance with Warranties, non-Default. etc. The
---------------------------------------------
representations and warranties set forth in Article VI shall have been true and
----------
correct in all material respects as of the date initially made, and on the date
(and after giving effect to the incurrence) of such Loan:
(a) such representations and warranties shall be true and correct in
all material respects with the same effect as if then made;
(b) no Default shall have then occurred and be continuing; and
(c) since the Effective Date, there shall have been no occurrence
which, individually or in the aggregate, as of the date on which such Loan
is to be made, would reasonably be expected to have a Materially Adverse
Effect.
SECTION 5.2.2 Absence of Litigation, etc. No litigation, arbitration or
---------------------------
governmental investigation or proceeding shall be pending or, to the knowledge
of the Borrower, threatened against the Borrower, either Guarantor or any
Subsidiary or shall affect the business, operations or prospects of any thereof
which was not disclosed by the Borrower to the Bank pursuant to Section 6.6 (or
-----------
prior to the date of the Loans most recently made hereunder, if any, pursuant to
Section 7.1.6), and no development not so disclosed shall have occurred in any
- -------------
litigation, arbitration or governmental investigation or proceeding so
disclosed, which, in either event, as of the date on which such Loan is to be
made, would reasonably be expected to have a Materially Adverse Effect.
SECTION 5.2.3 Loan Request. The Bank shall have received a Loan Request
------------
for such Borrowing.
28
<PAGE>
ARTICLE VI
WARRANTIES, ETC.
In order to induce the Bank to enter into this Agreement and to make Loans
hereunder, the Borrower represents and warrants to the Bank as follows:
SECTION 6.1 Organization, Power, Authority, etc. Each Loan Party is a
-----------------------------------
corporation validly organized and existing and in good standing under the laws
of the state of its incorporation, is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction where the nature of its
business makes such qualification necessary and where the failure to so qualify
would reasonably be expected to have a Materially Adverse Effect and has full
power and authority to own and hold under lease its property and conduct its
business substantially as presently conducted by it. Each Loan Party has full
power and authority to enter into and to perform its obligations under this
Agreement and each Loan Document to which each is a party and to obtain the
Loans hereunder, in the case of the Borrower.
SECTION 6.2 Due Authorization. The execution and delivery by each
-----------------
Loan Party of this Agreement and each Loan Document executed by it and the
performance by each of its respective obligations hereunder and thereunder and
the borrowings hereunder by the Borrower have been duly authorized by all
necessary corporate action, do not require any Approval, do not and will not
conflict with, result in any violation of, or constitute any default under, any
provision of any Organic Document or material Contractual Obligation of such
Loan Party (or any other material Contractual Obligation) or any present law or
governmental regulation or court decree or order applicable to any Loan Party
and will not result in or require the creation or imposition of any Lien in any
of their respective properties pursuant to the provisions of any Contractual
Obligation.
SECTION 6.3 Validity, etc. This Agreement is, and each Loan Document
--------------
executed by any Loan Party will on the due execution and delivery thereof be,
the legal, valid and binding obligation of such Loan Party enforceable in
accordance with its terms, subject, as to enforcement, only to bankruptcy,
insolvency, reorganization, moratorium or other similar laws at the time in
effect affecting the enforceability of the rights of creditors generally, and by
general equitable principles.
SECTION 6.4 Financial Information. All balance sheets, statements of
---------------------
operations, of total owners' equity and of changes in cash flows and other
financial information of CEI and the Consolidated Subsidiaries (or, in the case
of any such balance sheets or statements prepared prior to the date hereof, of
the Borrower and its Consolidated Subsidiaries) which have been or shall
hereafter be furnished by or on behalf of the Borrower to the Bank for the
purposes of or in connection with this Agreement or any transaction contemplated
hereby pursuant to Section 7.1.1(a) or Section 7.1.1(b) (except Section
---------------- ---------------- -------
7.1.1(a)(iii)) have been or will be prepared in accordance with GAAP
- --------------
consistently applied
29
<PAGE>
throughout the periods involved (except as disclosed therein), and, in the case
of information relating to coal reserves, have been or will be prepared in
accordance with all relevant rules and regulations promulgated by the SEC, as in
effect on the Effective Date, and do or will present fairly the consolidated
financial condition of the corporations covered thereby as at the dates thereof
and the results of their operations for the periods then ended and the
consolidated statements of earnings, of operations and of total owners' equity,
for each of the fiscal periods then ended, of CEI and the Consolidated
Subsidiaries (or, in the case of any such balance sheets or statements prepared
prior to the date hereof, of the Borrower and its Consolidated Subsidiaries).
Since December 31, 1990, there has been no occurrence which, individually or in
the aggregate, would reasonably be expected to have a Materially Adverse Effect.
Except as disclosed in Item 6.6 ("Litigation") of the Disclosure Schedule, none
--------
of the Guarantors, the Borrower or the Consolidated Subsidiaries have any
material contingent liabilities (including any liability pursuant to the Federal
Black Lung Benefits Act of 1972, as in effect from time to time) not provided
for or disclosed in the financial statements of CEI and the Consolidated
Subsidiaries most recently delivered by or on behalf of the Borrower to the
Banks.
SECTION 6.5 Absence of Certain Default.
--------------------------
Neither the Borrower, either Guarantor nor any Subsidiary is in default,
(a) in the payment of (or in the performance of any material
obligation applicable to) any Indebtedness outstanding in a principal
amount exceeding $10,000,000 in the aggregate; or
(b) under any law or governmental regulation or court decree or order
which would reasonably be expected to have a Materially Adverse Effect.
SECTION 6.6 Litigation, etc. Except as described in Item 6.6
---------------- ---- ---
("Litigation") of the Disclosure Schedule, no litigation, arbitration or
governmental investigation or proceeding against the Borrower, either Guarantor
or any Subsidiary or to which any of the properties of any thereof is subject is
pending or, to the knowledge of the Borrower, threatened which would reasonably
be expected to result in a liability in excess of $10,000,000.
SECTION 6.7 Regulation U. None of the Borrower, either Guarantor or any
------------
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock, and less than 25% of the assets of each consists of margin stock. Terms
for which meanings are provided in Regulation U of the F.R.S. Board or any
regulations substituted therefor, as from time to time in effect, are used in
this Section with such meanings.
SECTION 6.8 Government Regulation. None of the Borrower, either
---------------------
Guarantor or any Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a
30
<PAGE>
"holding company", within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
SECTION 6.9 Certain Contractual Obligations or Organic Documents. None
----------------------------------------------------
of the Borrower, either Guarantor or any Subsidiary is a party or subject to any
Contractual Obligation or Organic Document which would reasonably be expected to
have a Materially Adverse Effect.
SECTION 6.10 Taxes. The Borrower, each Guarantor and all subsidiaries
-----
have filed all tax returns and reports required by law to have been filed by
them and have paid all taxes and governmental charges thereby shown to be owing,
except any such taxes or charges which are being contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on their books.
SECTION 6.11 Pension and Welfare Plans. During the twelve-consecutive-
-------------------------
month period prior to the Effective Date and prior to the date of any Borrowing
hereunder, (a) no steps have been taken to terminate any Pension Plan the assets
of which are insufficient to satisfy all benefit liabilities thereunder (as
defined in section 4001(a)(16) of ERISA) for which the Borrower, either
Guarantor or any Subsidiary could be held liable, and (b) no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise to
a Lien under section 302(f) of ERISA. No condition exists or event or
transaction has occurred with respect to any Pension Plan which might result in
the incurrence by the Borrower, either Guarantor or any Subsidiary of any
material liability, fine or penalty. None of the Borrower, either Guarantor or
any Subsidiary has any contingent liability with respect to any post-retirement
benefit under a Welfare Plan, other than liability for continuation coverage
described in Part 6 of Subtitle B of Title I of ERISA.
SECTION 6.12 Labor Controversies. There are no labor controversies
-------------------
pending or, to the best of the Borrower's knowledge, threatened against the
Borrower, either Guarantor or any Subsidiary, which would reasonably be expected
to have a Materially Adverse Effect.
SECTION 6.13 Subsidiaries and Significant Subsidiaries. Neither the
-----------------------------------------
Borrower nor any Guarantor has any Subsidiaries or Significant Subsidiaries
except those identified in Item 6.13 ("Existing Subsidiaries and Significant
---------
Subsidiaries") of the Disclosure Schedule or those acquired or created
subsequent to the date hereof.
SECTION 6.14 Patents, Trademarks, etc. Each of the Borrower, each
-------------------------
Guarantor and each Subsidiary owns and possesses all such patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights and copyrights as the Borrower considers necessary
for the conduct of the businesses of the Borrower, such Guarantor or such
subsidiary as now conducted without any infringement upon rights of others which
would reasonably be expected to have a Materially Adverse Effect. There is no
individual patent or patent license used by the Borrower or either Guarantor or
any Subsidiary
31
<PAGE>
in the conduct of its business the loss of which would reasonably be expected to
have a Materially Adverse Effect.
SECTION 6.15 Ownership of Properties; Liens. Each of the Borrower, each
------------------------------
Guarantor and each Subsidiary has good and marketable title to or good leasehold
interests in all of its material properties and assets, real and personal, of
any nature whatsoever, free and clear of all Liens except as permitted pursuant
to Section 7.2.2.
-------------
SECTION 6.16 Accuracy of Information. All factual information heretofore
-----------------------
or contemporaneously furnished by the Borrower to the Bank in connection with
execution and delivery of this Agreement and the various transactions
contemplated hereby, as supplemented from time to time and when taken as a
whole, to the best of the Borrower's knowledge, has been, and all other such
factual information hereafter furnished by the Borrower, either Guarantor or any
Subsidiary, to the Bank, as supplemented from time to time and when taken as a
whole, will be, true and accurate in every material respect on the date as of
which such information is dated or certified and as of the Effective Date and
not incomplete by omitting to state any material fact necessary to make such
information not misleading. All projections and pro forma financial information
contained in any materials furnished by the Borrower or either Guarantor or any
Subsidiary to the Bank are based on good faith estimates and assumptions by the
management of the Borrower, the applicable Guarantor or the applicable
Subsidiary, it being recognized by the Bank, however, that projections and
statements as to future events are not to be viewed as fact and that actual
results during the period or periods covered by any such projections or
statements may differ from the projected results and that the differences may be
material.
SECTION 6.17 Environmental Warranties.
------------------------
(a) no facility or property (including underlying groundwater) owned
or leased by either Guarantor, the Borrower or any Significant Subsidiary
have been, and continue to be, owned or leased by the Borrower, the
Guarantor or such Significant Subsidiary is out of compliance with any
Environmental Law to the extent that such noncompliance, either singly or
in the aggregate, has or could reasonably be expected to have a Materially
Adverse Effect;
(b) there are no pending or threatened
(i) claims, complaints, notices or requests for information
received by either Guarantor, the Borrower or any Significant
Subsidiary with respect to any alleged violation of any Environmental
Law, or
(ii) complaints, notices or inquiries to either Guarantor, the
Borrower or any Significant Subsidiary regarding potential liability
under any Environmental Law,
32
<PAGE>
in each case, which singly, or in the aggregate, have or could reasonably
be expected to have a Materially Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or under
any property now or previously owned or leased by either Guarantor, the
Borrower or any significant Subsidiary that, singly or in the aggregate,
have, or could reasonably be expected to have, a Materially Adverse Effect;
(d) each Guarantor, the Borrower and the Significant Subsidiaries have
been issued and are in material compliance with all material permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for their businesses;
(e) no property now or previously owned or leased by either Guarantor,
the Borrower or any Significant Subsidiary is listed or proposed for
listing (with respect to owned property only) (i) on the CERCLIS or on any
similar state list of sites requiring investigation or clean-up to the
extent that such listing relates to liabilities, individually or in the
aggregate, that could reasonably be expected to have a Materially Adverse
Effect, or (ii) on the National Priorities List pursuant to CERCLA;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by either Guarantor, the Borrower or any
Significant Subsidiary that, singly or in the aggregate, have, or could
reasonably be expected to have, a Materially Adverse Effect;
(g) none of either Guarantor, the Borrower or any Significant
Subsidiary has directly transported or directly arranged for the
transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on
the CERCLIS or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations which
may lead to material claims against such Guarantor, the Borrower or such
Significant Subsidiary for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA that, either singly or in
the aggregate, have, or could reasonably be expected to have, a Materially
Adverse Effect;
(h) there are no polychlorinated biphenyls or friable asbestos present
at any property now or previously owned or leased by either Guarantor, the
Borrower or any Significant Subsidiary that, singly or in the aggregate,
have, or could reasonably be expected to have, a Materially Adverse Effect;
(i) no conditions exist at, on or under any property now or previously
owned or leased by either Guarantor, the Borrower or any Significant
Subsidiary which, with the passage of time, or the giving of notice or
both, would give rise to
33
<PAGE>
liability under any Environmental Law that, either singly or in the
aggregate, have, or could reasonably be expected to have, a Materially
Adverse Effect; and
(j) none of either Guarantor, the Borrower or any Subsidiary owns or
leases any "industrial establishment" (as such term is defined in the New
Jersey Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6, et seg.)
-- ---
in the State of New Jersey.
ARTICLE VII
COVENANTS
SECTION 7.1 Certain Affirmative Covenants. The Borrower agrees with the
-----------------------------
Bank that, until the Commitment shall have terminated and all of the Liabilities
have been paid and performed in full, the Borrower will perform the obligations
set forth in this Section 7.1.
-----------
SECTION 7.1.1 Financial Information, etc. The Borrower will furnish, or
---------------------------
will cause to be furnished, to the Bank copies of the following financial
statements, reports and information:
(a) promptly when available and in any event within 90 days after the
close of each Fiscal Year
(i) a balance sheet at the close of such Fiscal Year, and
statements of operations, of Total Owners' Equity and of cash flows
for such Fiscal Year, of CEI and the Consolidated Subsidiaries
certified without Impermissible Qualification by independent public
accountants of recognized standing selected by the Borrower or CEI and
reasonably acceptable to the Bank,
(ii) a letter report of such accountants at the close of such
Fiscal Year to the effect that they have reviewed the provisions of
this Agreement and are not aware of any Default hereunder (insofar as
any Default may relate to accounting matters) continuing at the end of
such Fiscal Year, except such Default, if any, as may be disclosed in
such statement, and
(iii) a certificate of an Authorized Officer of the Borrower
that no Default has occurred and is continuing, or specifying any such
Default and the actions, if any, being taken by the Borrower with
respect thereto,
(b) promptly when available and in any event within 45 days after
the close of each of the first three Fiscal Quarters of each Fiscal Year
34
<PAGE>
(i) a balance sheet at the close of such Fiscal Quarter and
statements of operations, of total owners' equity and of changes in
cash flows for the period commencing at the close of the previous
Fiscal Year and ending with the close of such Fiscal Quarter, of CEI
and the Consolidated Subsidiaries;
(c) promptly upon the incorporation or acquisition thereof,
information regarding the creation or acquisition of any new Significant
Subsidiary;
(d) such other information with respect to the financial condition,
business, property, assets, revenues, and operations of the Borrower,
either Guarantor and the Subsidiaries as the Bank may from time to time
reasonably request.
SECTION 7.1.2 Maintenance of Corporate Existences, etc. Except as
-----------------------------------------
permitted by Section 7.2.4, the Borrower will cause to be done at all times all
-------------
things necessary to maintain and preserve the corporate existences of the
Borrower, each Guarantor and each significant Subsidiary, and to comply in all
material respects with all applicable laws, rules, regulations and orders.
Except as permitted by Section 7.2.4, the Borrower or the Guarantors will
-------------
continue to own and hold directly or indirectly, free and clear of all Liens
(except as permitted by Section 7.2.2), all of the outstanding shares of capital
-------------
stock of each Subsidiary now owned or hereafter acquired.
SECTION 7.1.3 Foreign Qualification. The Borrower will, and will cause
---------------------
each Guarantor and each Subsidiary to, cause to be done at all times all things
necessary to be duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction where the nature of its business makes such
qualification necessary and where the failure to so qualify would reasonably be
expected to have a Materially Adverse Effect, and to comply in all material
respects with all applicable laws, rules, regulations and orders.
SECTION 7.1.4 Payment of Taxes, etc. The Borrower will, and will cause
----------------------
each Guarantor and each Subsidiary to, pay and discharge, prior to becoming
delinquent, all federal, state and local taxes, assessments and other
governmental charges or levies against or on any of its property, as well as
claims of any kind which, if unpaid, might become a Lien in a material amount
upon any of its properties; provided, however, that the foregoing shall not
-------- -------
require the Borrower, either Guarantor or any Subsidiary to pay or discharge any
such tax, assessment, charge, levy or other Lien so long as it shall contest the
validity thereof in good faith by appropriate proceedings and shall set aside on
its books adequate reserves in accordance with GAAP with respect thereto.
SECTION 7.1.5 Insurance. The Borrower will, and will cause each Guarantor
---------
and each Subsidiary to, maintain or cause to be maintained through self-
insurance and with responsible insurance companies insurance with respect to its
properties and business against such casualties and contingencies and of such
types and in such amounts as has been historically maintained by the Borrower,
the Guarantors and the Subsidiaries, or which is consistent with sound business
practice in the reasonable opinion of the Borrower, and will,
35
<PAGE>
upon request of the Bank, furnish to the Bank at reasonable intervals a
certificate of an Authorized officer setting forth the nature and extent of all
insurance maintained by the Borrower, the Guarantors and the Subsidiaries in
accordance with this Section.
SECTION 7.1.6 Notice of Default, Litigation, etc. The Borrower will give
-----------------------------------
prompt notice (with a description in reasonable detail) to the Bank of:
(a) the occurrence of any Default or any Event of Default;
(b) the occurrence of any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by the Borrower to the
Bank which has been instituted or, to the knowledge of the Borrower, is
threatened against the Borrower, either Guarantor or any Subsidiary or to
which any of their respective properties is subject which would reasonably
be expected to result in a liability to the Borrower, either Guarantor or
any Subsidiary not covered by the Borrower's, such Guarantor's or such
Subsidiary's insurers, as applicable, in excess of 10,000,000;
(c) any material development which shall occur in any litigation,
arbitration or governmental investigation or proceeding previously
disclosed by the Borrower to the Banks;
(d) the occurrence of any event which would reasonably be expected to
have a Materially Adverse Effect;
(e) the occurrence of (i) a Reportable Event with respect to any
Pension Plan; (ii) the institution of steps by the Borrower, either
Guarantor or any Subsidiary to terminate, any Pension Plan where the
unfunded liability is in excess of $10,000,000; or (iii) a partial or
complete withdrawal (as described in ERISA section 4203 or 4205) by the
Borrower, either Guarantor or any Subsidiary from a multiemployer plan (as
defined in Section 4001(a)(3) of ERISA) where the unfunded liability is in
excess of $10,000,000; and
(f) the occurrence of (i) the institution of any steps by the PBGC to
terminate any Pension Plan; (ii) the failure to make a required
contribution to any Pension Plan if such failure is sufficient to give rise
to a Lien under section 304(f) of ERISA; (iii) the adoption of an amendment
or the application for a funding waiver that could result in a requirement
that the Borrower, either Guarantor or any Subsidiary furnish a bond or
other security to the PBGC or to a Pension Plan pursuant to sections 306 or
307 of ERISA; (iv) the assertion of any claim with respect to any Pension
Plan which could, if determined adversely, result in the incurrence by the
Borrower, either Guarantor or any Subsidiary of any material liability,
fine or penalty; or (v) any material increase in the contingent liability
of the Borrower, either Guarantor or any Subsidiary with respect to post-
retirement benefits under any Welfare Plan, as determined under Financial
Accounting Standards Board No. 106.
36
<PAGE>
SECTION 7.1.7 Performance of Loan Documents. The Borrower will, and will
-----------------------------
cause each Loan Party to, perform promptly and faithfully all of its obligations
under each Loan Document executed by it.
SECTION 7.1.8 Books and Records. The Borrower will, and will cause each
-----------------
Guarantor and each Subsidiary to, keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP and permit the Bank or
any of its representatives, at reasonable times and intervals and as arranged
through the Treasurer or chief legal officer of the Borrower, to visit all of
its offices, discuss its financial matters with its officers and independent
accountants, examine and photocopy extracts from (a) any of its financial books
and records and (b) any of its other corporate records other than such corporate
records that are reasonably determined by the Borrower to be proprietary.
SECTION 7.1.9 Significant Subsidiary Guaranty. The Borrower agrees to
-------------------------------
promptly notify the Bank each time a Subsidiary becomes a Significant Subsidiary
and to cause such Significant Subsidiary to deliver to the Bank a duly executed
Significant Subsidiary Guaranty along with an opinion of counsel and a
certificate of the type required by Section 5.1.1(b) both in form and substance
----------------
acceptable to the Required Banks.
SECTION 7.1.10 Environmental Covenant. The Borrower will, and will cause
----------------------
each Guarantor and each Significant Subsidiary to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with
all applicable Environmental Laws;
(b) immediately notify the Bank and provide copies upon receipt of all
material written claims, complaints, notices or inquiries relating to the
condition of its facilities and properties or compliance with Environmental
Laws, in each case which involve or could reasonably be expected to involve
obligations of the Borrower, either Guarantor or any Significant
Subsidiary, as the case may be, in excess of $10,000,000; and
(c) provide such information and certifications which the Bank may
reasonably request from time to time to evidence compliance with this
Section 7.1.10.
--------------
SECTION 7.2 Certain Negative Covenants. The Borrower agrees with the
--------------------------
Bank that, until the Commitment shall have terminated and all of the Liabilities
have been paid and performed in full:
SECTION 7.2.1 Indebtedness for Borrowed Money. The Borrower will not
-------------------------------
permit any Subsidiary to incur or permit to exist any Indebtedness for Borrowed
Money,
37
<PAGE>
except (i) Indebtedness for Borrowed Money of any significant Subsidiary to the
Borrower, either Guarantor or any Subsidiary which is subordinated to such
Significant Subsidiary's obligations under the Significant Subsidiary Guaranty
pursuant to a Subordination Agreement; (ii) Indebtedness for Borrowed Money of
any Subsidiary (other than a Significant Subsidiary) to any other Subsidiary or
to the Borrower or either Guarantor; (iii) Indebtedness for Borrowed Money
outstanding on the date hereof and listed in Item 7.2.1(iii) of the Disclosure
---- ----------
Schedule and refinancings thereof; provided that such Indebtedness for Borrowed
--------
Money is not increased as the result of such refinancing; (iv) additional
unsecured Indebtedness for Borrowed Money of all Subsidiaries (other than
Significant Subsidiaries) not to exceed $25,000,000 in the aggregate at any one
time outstanding; and (v) additional unsecured Indebtedness for Borrowed Money
of any Subsidiary acquired with such indebtedness existing at the time of
acquisition/merger of such Subsidiary.
SECTION 7.2.2 Liens. The Borrower will not, and will not permit either
-----
Guarantor or any Subsidiary to, create, incur, assume or suffer to exist any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, except:
(a) Liens in favor of the Bank or the other Senior Revolving Lenders
to secure the Liabilities or liabilities under Senior Revolving Loan
Agreements up to a maximum of $200,000,000;
(b) Liens which were granted prior to the date hereof in (and only in)
assets identified in Item 7.2.1(iii) ("Ongoing Indebtedness") and Item
---------- ----
7.2.2(b) ("Liens") of the Disclosure Schedule;
--------
(c) Liens in (and only in) stock or assets permitted to be acquired
under the terms of this Agreement granted to secure Indebtedness incurred
at the time of such acquisition (or within one year thereof) to finance the
acquisition of such stock or assets; provided, that the amount of
--------
Indebtedness secured thereby is not increased;
(d) statutory and common law banker's Liens and rights of setoff on
bank deposits;
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
38
<PAGE>
(g) Liens incurred or existing in the ordinary course of business,
consistent with past practice and not to secure Indebtedness for Borrowed
Money, such as in connection with workers' compensation, unemployment
insurance or other forms of governmental insurance or benefits, or to
secure performance of tenders, statutory obligations, leases and contracts
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(h) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance;
(i) Liens existing on any assets at the date of acquisition of such
assets permitted to be acquired under the terms of this Agreement acquired
after the date of this Agreement;
(j) Liens granted to secure Indebtedness incurred to refinance any
Indebtedness secured by Liens permitted by clauses (b), (c) and (i) of this
Section 7.2.2; provided, that such Indebtedness is not increased as the
------------- --------
result of such refinancing and that such Liens attach only to.the same
assets subject to Lien prior to the refinancing.
SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and will
---------------------------
not permit either Guarantor or any Subsidiary to, consolidate with or merge into
or with any other corporation, or sell, transfer, lease or sell and lease back
or otherwise dispose of all or substantially all of its assets to any Person,
without prior written consent of the Bank, except for
the voluntary liquidation or dissolution of any wholly-owned
Subsidiary into the Borrower, the merger of any Person with a Subsidiary,
provided that after giving effect to such merger, such Subsidiary remains a
"Subsidiary" as defined herein, or the merger of any Subsidiary into the
Borrower provided that the Borrower is the surviving corporation;
SECTION 7.2.4 Transactions with Affiliates. The Borrower will not, and
----------------------------
will not permit either Guarantor or any Significant Subsidiary to, enter into,
or cause, suffer or permit to exist any transaction, arrangement or contract
with any of its Affiliates (except for Significant Subsidiaries) which would not
be entered into by a prudent Person in the position of the Borrower, such
Guarantor or such Subsidiary, or which is on terms which are not on an arms-
length basis.
SECTION 7.2.5 Sale or Discount of Receivables. The Borrower will not, and
-------------------------------
will not permit either Guarantor or any Subsidiary to, directly or indirectly,
sell with recourse any of its notes or accounts receivable in excess of
$100,000,000 in the aggregate at any one
39
<PAGE>
time, other than those arising from the export outside of the United States of
goods or services.
SECTION 7.2.6 Dividends. Neither the Borrower nor either Guarantor shall
---------
pay any dividends to its respective shareholders upon the occurrence, or during
the continuance of, any Default.
SECTION 7.2.7 Inconsistent Agreements. The Borrower will not, and will
-----------------------
not permit either Guarantor or any Subsidiary to, enter into any agreement
containing any provision which would be violated or breached by any borrowing by
the Borrower made hereunder or by the performance by the Borrower or any other
Loan Party of their respective obligations hereunder or under any Loan Document.
SECTION 7.2.8 Loans, Advances and Investments. The Borrower will not, and
-------------------------------
will not permit either Guarantor or any Subsidiary to, make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Person, except:
(i) advances or extensions of credit on terms customary in the
industry involved in the form of accounts or other receivables incurred,
and investments, loans and advances made in settlement of such accounts
receivable, all in the ordinary course of business;
(ii) Permitted Investments;
(iii) investments, loans or advances to or in the Borrower or in any
Subsidiary or in either Guarantor;
(iv) loans or advances to employees of the Borrower, either Guarantor
or any Subsidiary in the ordinary course of their respective businesses,
consistent with past practices, not to exceed $1,000,000 in aggregate
amount at any time outstanding; and
(v) other investments, loans or advances not exceeding $100,000,000
in the aggregate at any time outstanding.
SECTION 7.2.9 Guaranties. Except as described in Item 7.2.9
---------- ----------
("Guaranties") of the Disclosure Schedule, neither the Borrower, either of the
Guarantors nor any subsidiary will enter into any Guaranty prior to the
Commitment Termination Date, except for
(a) Guaranties relating to operating and capital leases on which the
Borrower, such Guarantor or such Subsidiary is lessee;
(b) the Parent Guaranty and any Significant Subsidiary Guaranty;
40
<PAGE>
(c) Guaranties (other than Guaranties described in clause (b) of this
----------
Section 7.2.9 and Guaranties described in Item 7.2.9 of the Disclosure
------------- ----------
Schedule) not to exceed $25,000,000 in aggregate amount at any time
outstanding of Indebtedness for Borrowed Money;
(d) contingent obligations arising or existing as the result of the
sale or other disposition of assets;
(e) Guaranties by the Borrower or either Guarantor of any Indebtedness
for Borrowed Money of any Subsidiary permitted under Section 7.2.1;
--------------
(f) Guaranties by the Borrower or either Guarantor not to exceed
$75,000,000 in aggregate amount at any time outstanding of any obligations
of any Person other than any Subsidiary or any of its Affiliates; and
(g) Guarantees by the Borrower, any Subsidiary or either Guarantor of
any obligation of the Borrower, any Subsidiary or other Guarantor incurred
or existing in the ordinary course of business, consistent with past
practice and not to secure indebtedness for Borrowed Money, such as in
connection with workers' compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts entered into in the
ordinary course of business or to secure obligations on surety or appeal
bonds.
SECTION 7.2.10 Securities. The Borrower will not, and will not permit
----------
either Guarantor or any Subsidiary to, make any distributions, redemptions,
prepayments, defeasances or repurchases of its securities upon the occurrence or
during the continuance of any Default. The Borrower will not, and will not
permit any Significant Subsidiary to, issue any capital stock to any Person
other than either Guarantor, any other Significant Subsidiary or the Borrower.
SECTION 7.2.11 Business Activities. The Borrower will not, and will not
-------------------
permit the Guarantors or any Significant Subsidiary to:
(a) operate its business other than in the ordinary and usual course;
and
(b) engage in any type of business except the businesses of the type
or substantially related to the type so operated by the Borrower, such
Guarantor or such Significant Subsidiary on the Effective Date.
41
<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Events of Default. The term "Event of Default" shall mean
----------------- ----------------
each of the following events:
SECTION 8.1.1 Non-Payment of Liabilities. The Borrower shall default in
--------------------------
the payment or prepayment when due, whether at stated maturity, by acceleration,
or otherwise, of any principal of any Note, or the Borrower shall default (and
such default shall continue unremedied for a period of three days) in the
payment when due, whether at stated maturity, by acceleration, or otherwise, of
interest on any Note, of any commitment fee or of any other Liability.
SECTION 8.1.2 Non-Performance of Certain Covenants. The Borrower
------------------------------------
shall default in the due performance and observance of any of its obligations
under Section 7.2 of this Agreement and such default shall continue unremedied
-----------
for 10 days after notice thereof shall have been given to the Borrower by the
Bank at the request of the Bank.
SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed
---------------------------------------------------
Money. Any default shall occur under the terms applicable to any Indebtedness
- -----
for Borrowed Money outstanding in a principal amount exceeding individually or
in the aggregate $25,000,000 of the Borrower, the Guarantors or any Significant
Subsidiary representing any borrowing or financing or arising under any other
lease or material agreement, and such default shall:
(a) consist of the failure to pay Indebtedness for Borrowed Money at
the maturity thereof; or
(b) continue without being cured or waived (so long as such cure or
waiver did not involve any payment of principal of such Indebtedness for
Borrowed Money) for a period of time sufficient to permit acceleration of
Indebtedness for Borrowed Money.
SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower, either Guarantor
----------------------------
or any Significant Subsidiary shall become insolvent or generally fail to pay,
or admit in writing its inability to pay, debts as they become due; or the
Borrower, either Guarantor or any Significant Subsidiary shall apply for,
consent to, or acquiesce in, the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower, such Guarantor or such
Significant Subsidiary or any property of any thereof, or make a general
assignment for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver, sequestrator or other custodian
shall be appointed for the Borrower, either Guarantor or any Significant
Subsidiary or for a substantial part of the property of any thereof and not be
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or
42
<PAGE>
liquidation proceeding, shall be commenced in respect of the Borrower, either
Guarantor or any Significant Subsidiary, and, if such case or proceeding is not
commenced by the Borrower, such Guarantor or such significant Subsidiary, such
case or proceeding shall be consented to or acquiesced in by the Borrower, such
Guarantor or such Significant Subsidiary or shall result in the entry of an
order for relief or shall remain for 60 days undismissed; or the Borrower,
either Guarantor or any Significant Subsidiary shall take any corporate action
to authorize, or in furtherance of, any of the foregoing.
SECTION 8.1.5 Control of the Borrower or CEI. Any Change in Control shall
------------------------------
occur on or after January 1, 1992.
SECTION 8.1.6 Non-Performance of Other Obligations. Any Loan Party shall
------------------------------------
default in the due performance and observance of any other agreement, applicable
to it, contained in this Agreement or in any other Loan Document, and such
default shall continue unremedied for a period of 30 days after notice thereof
shall have been given to the Borrower by the Bank.
SECTION 8.1.7 Breach of Representation or Warranty. Any representation or
------------------------------------
warranty of any Loan Party in any Loan Document or in any writing furnished
after the date of this Agreement by or on behalf of any Loan Party to the Bank
for the purposes of or in connection with this Agreement is or shall be
incorrect in any material respect when made.
SECTION 8.1.8 Pension Plans. Any of the following events shall occur with
-------------
respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan, in excess
of $25,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 8.1.9 Judgments. A final judgment to the extent not covered by
---------
insurance that, with other such outstanding final judgments against the
Borrower, either Guarantor and the Subsidiaries exceeds an aggregate of
$10,000,000 shall be rendered against the Borrower, either Guarantor or any
Subsidiary and if, within 60 days after entry thereof, such judgment shall not
have been discharged or otherwise satisfied or execution thereof stayed pending
appeal, or if, within 60 days after the expiration of any such stay, such
judgment shall not have been discharged or otherwise satisfied.
SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and
----------------------------------------------------
Subordination. The Parent Guaranty or any Significant Subsidiary Guaranty or
- -------------
any
43
<PAGE>
Subordination Agreement shall cease to be in full force and effect or any Loan
Party or any Person by, through or on behalf of any Loan Party shall contest in
any manner in writing the validity, binding nature or enforceability of either
the Parent Guaranty, any Significant Subsidiary Guaranty or any Subordination
Agreement.
SECTION 8.1.11 Credit Rating. Borrower having neither a Credit Rating from
-------------
S&P nor Moody's, at the same time.
SECTION 8.2 Action if Bankruptcy. If any Event of Default described in
--------------------
Section 8.1.4 shall occur with respect to the Borrower, the outstanding
- -------------
principal amount of all outstanding Notes and all other Liabilities shall be and
become immediately due and payable, without notice or demand.
SECTION 8.3 Action if Other Event of Default. If any Event of Default
--------------------------------
(other than an Event of Default described in Section 8.1.4 with respect to the
-------------
Borrower) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Bank may, without notice or demand, declare all or any portion
of the outstanding principal amount of the Loans to be due and payable and any
or all other Liabilities to be due and payable, whereupon the full unpaid amount
of such Loans and any and all other Liabilities which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand, or presentment.
ARTICLE IX
NO PREFERENTIAL PROVISIONS
SECTION 9.1 No Preferential Provisions. The Borrower is a party to
--------------------------
separate senior revolving loan agreements having terms substantially similar to
the terms of this Agreement and may from time to time enter into additional or
replacement senior revolving loan agreements with one or more financial
institutions having terms substantially similar to the terms of this Agreement
(any such agreement [including this Agreement], a "Senior Revolving Loan
Agreement", and each lender under a Senior Revolving Loan Agreement [including
the Bank], a "Senior Revolving Lender"). The Borrower shall not consent to or
otherwise effect any amendment to a Senior Revolving Loan Agreement or any
document or instrument delivered pursuant thereto, or enter into any additional
agreement or deliver any additional instrument in respect of a Senior Revolving
Loan Agreement, that places another Senior Revolving Lender in a position that
is materially superior to that of the Bank, unless prior to taking any such
action, the Borrower shall have offered to the Bank the opportunity to
incorporate the terms of such proposed amendment into the terms of this
Agreement or the documents or instruments delivered pursuant hereto or to become
party to or otherwise benefit from the terms of such additional document or
instrument or a similar document or instrument.
44
<PAGE>
SECTION 9.2 Pro Rate Borrowings and Payments. All Borrowings, all
--------------------------------
interest payments and all principal payments and prepayments under all Senior
Revolving Loan Agreements shall be made based on each Senior Revolving Lender's
pro rata share of the aggregate total of the Commitments of all Senior Revolving
- --- ----
Loan Agreements.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Waivers, Amendments, etc. The provisions of this Agreement
-------------------------
and of each Loan Document may from time to time be amended, modified, or waived,
if such amendment, modification or waiver is in writing and consented to by the
Borrower and the Bank.
No failure or delay on the part of the Bank or the holder of any Note in
exercising any power or right under this Agreement or any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the Borrower in
any case shall entitle it to any notice or demand in similar or other
circumstances. No waiver or approval by the Bank, or the holder of any Note
under this Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2 Notices. All notices and other communications provided to
-------
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to it at its
address set forth in Exhibit N hereto or at such other address as may be
---------
designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid or sent by nationally
recognized courier, shall be deemed given when received; any notice, if
transmitted by telex or facsimile, shall be deemed given when transmitted
(answerback confirmed in the case of telexes and electronically confirmed in the
case of any facsimile).
SECTION 10.3 Costs and Expenses. The Borrower agrees to reimburse the
------------------
Bank upon demand for all reasonable out-of-pocket expenses (including attorneys'
fees and legal expenses and the allocated costs of in-house counsel and legal
staff) incurred by the Bank in enforcing the obligations of the Borrower, either
Guarantor or any Significant Subsidiary under this Agreement or any other Loan
Document.
SECTION 10.4 Indemnification. In consideration of the execution and
---------------
delivery of this Agreement by the Bank and the extension of the Commitment, the
Borrower hereby indemnifies, exonerates and holds the Bank and each of its
officers, directors, employees, and
45
<PAGE>
agents (the "Bank Parties") free and harmless from and against any and all
------------
actions, causes of action, suits, losses, costs, liabilities and damages, and
expenses actually incurred in connection therewith (irrespective of whether such
Bank Party is a party to the action for which indemnification hereunder is
sought), including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Bank Parties or any of them as a
- ------------------------
result of, or arising out of, or relating to the entering into and performance
of this Agreement and any other Loan Document by any of the Bank Parties; except
for any such Indemnified Liabilities arising for the account of a particular
Bank Party by reason of the relevant Bank Party's breach of this Agreement or of
any Loan Document or gross negligence or wilful misconduct, and if and to the
extent that the foregoing undertaking may be unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
SECTION 10.5 Survival. The obligations of the Borrower under Sections
-------- --------
4.4, 4.5, 10.3, and 10.4 shall in each case survive any termination of this
- --- --- ---- ----
Agreement. The representations and warranties made by each Loan Party in this
Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.
SECTION 10.6 Severability. Any provision of this Agreement or any other
------------
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or such Loan Document or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 10.7 Headings. The various headings of this Agreement and of
--------
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such Loan Document or any
provisions hereof or thereof.
SECTION 10.8 Counterparts, Effectiveness, etc. This Agreement may be
---------------------------------
executed by the parties hereto in several counterparts, each of which shall be
executed by the Borrower and the Bank and be deemed to be an original and all of
which shall constitute together but one and the same agreement. This Agreement
shall become effective when counterparts hereof are executed on behalf of the
Borrower and the Bank.
SECTION 10.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES,
-------------------------------
AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT, THE
NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
46
<PAGE>
SECTION 10.10 Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
-------- -------
(a) the Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Bank; and
(b) the rights of sale, assignment, participation and transfer by the
Bank are subject to Section 10.11.
-------------
SECTION 10.11 Sale and Transfers, etc., of Loans and Notes; Participations
------------------------------------------------------------
in Loans and Notes.
- ------------------
(a) The Bank may at any time sell to one or more banks or other
entities ("Participants") participating interests in all or any portion of
------------
its Commitment and Loans or any other rights or interest of the Bank
hereunder (its "Credit Exposure"). In the event of any such sale by a Bank
---------------
of participating interests to a Participant, the Bank shall notify the
Borrower of the identity of such Participant, the Bank's obligations under
this Agreement shall remain unchanged, the Bank shall remain solely
responsible for the performance thereof, the Bank shall remain the holder
of any such Note for all purposes under this Agreement, and the Borrower
shall continue to deal solely and directly with such Bank in connection
with the Bank's rights and obligations under this Agreement. Except in the
case of the sale of a participation to an Affiliate of the Bank, any
participation permitted hereunder shall be in a minimum amount of at least
$5,000,000, and the relevant participation agreement shall not permit the
Participant to transfer, pledge, assign, sell participations in or
otherwise encumber its portion of the Commitment or Loans. The Bank agrees
that any agreement between the Bank and any such Participant in respect of
such participating interest shall not restrict the Bank's right to agree to
any amendment, supplement or modification to the Agreement or any of the
Loan Documents except to extend the final maturity of any Note, reduce the
rate or extend the time of payment of interest thereon or any fees owed to
the Bank under this Agreement or any of the Loan Documents, reduce the
principal amount of any Note or release any Guaranty. The Borrower hereby
acknowledges and agrees that any such disposition described in this Section
will give rise to a direct obligation of the Borrower to the Participant,
and such Participant shall, for purposes of Sections 3.7, 3.8, 3.9, 4.4 and
---------------------------
4.5, be considered a Bank and may rely on, and possess all rights under,
---
any opinions, certificates, or other Instruments delivered under or in
connection with this Agreement or any other Loan Document; provided,
--------
however, that, the Borrower shall only be required to deliver information
-------
and data required pursuant to this Agreement to the Bank selling or
granting a participation in (in whole or in part) its Credit Exposure; and
provided, further, that no Participant shall be entitled to payment of any
-------- -------
amount under Section 3.9 in excess of that which would have been at the
-----------
date of such participation required to be paid to the selling Bank had no
participation occurred. Concurrently with the
47
<PAGE>
sale of any participation, the Participant shall execute and deliver to the
Borrower and the Bank an instrument in writing specifying its Domestic
Office and its LIBOR office and containing an Exemption Representation,
and, if such Participant is a Non-United States Person, an Exemption
Agreement.
(b) The Bank (in such capacity the "Assigning Bank") may at any time
--------------
assign to one or more banks or other entities (each a "Purchasing Bank")
---------------
all or any part of its Credit Exposure, provided that (i) unless assigned
to an Affiliate of such Assigning Bank or another Senior Revolving Lender,
it assigns its Credit Exposure in an amount not less than $9,000,000 and,
unless such assignment covers all of such Assigning Bank's Credit Exposure,
such Assigning Bank must retain at least $9,000,000 and (ii) any Purchasing
Bank must be acceptable to the Borrower, whose consent shall not be
unreasonably withheld, and the Bank's and the Borrower's decisions
respecting the same shall be made promptly. In the event of any
assignment, the Assigning Bank shall give notice to the Borrower and shall
deliver to the Borrower, for its acceptance and recording in its records,
an Assignment and Acceptance, which shall include an Exemption
Representation and, if such Purchasing Bank is a Non-United States Person,
its Exemption Agreement. The Borrower and the Bank agree that to the
extent of any assignment, the Purchasing Bank shall be deemed to have the
same rights and benefits with respect to the Borrower under this Agreement
and any Notes as it would have had if it were a Bank hereunder; provided
--------
that the Borrower shall be entitled to continue to deal solely and directly
with the Assigning Bank in connection with the interests so assigned to the
Purchasing Bank until the Assignment and Acceptance shall have been
delivered to the Borrower collectively by the Assigning Bank and the
Purchasing Bank. Upon the assignment of Credit Exposure provided for
hereby, the Assigning Bank shall be relieved of its obligations hereunder
to the extent of such assignment. In the event of any assignment, the
Borrower shall, at its sole cost and expense, prepare and deliver to the
Assigning Bank and to the Purchasing Bank new Notes reflecting the effect
of such assignment.
(c) The Borrower authorizes the Bank to disclose to any Participant or
Purchasing Bank (each, a "Transferee") and any prospective Transferee any
----------
and all financial information in the Bank's possession concerning the
Borrower, either Guarantor and any Subsidiary which has been delivered to
the Bank by the Borrower, either Guarantor or any Subsidiary pursuant to
this Agreement or any other Loan Document or which has been delivered to
the Bank by the Borrower, either Guarantor or any Subsidiary in connection
with the Bank's credit evaluation of the Borrower, either Guarantor or any
Subsidiary prior to entering into this Agreement; provided, that such
--------
Transferee or prospective Transferee shall first have executed and
delivered to the Borrower a Confidentiality Agreement.
48
<PAGE>
(d) The Bank shall have the right to collaterally assign its rights
hereunder or under any other Loan Document to any Federal Reserve Bank in
accordance with applicable law.
SECTION 10.12 Other Transactions. Nothing contained herein shall preclude
------------------
the Bank from engaging in any transaction, in addition to those contemplated by
this Agreement or any other Loan Document, with the Borrower or any of its
Affiliates in which the Borrower or such Affiliate is not restricted hereby from
engaging with any other Person.
SECTION 10.13 Waiver of Jury Trial. THE BANK, AND THE BORROWER HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF THE BANK, OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE BANK ENTERING INTO THIS AGREEMENT.
SECTION 10.14 Consent to Jurisdiction and Service of Process. Any
----------------------------------------------
judicial proceedings brought against the Borrower with respect to this Agreement
or any Note may be brought in any state or federal court of competent
jurisdiction in the State of New York and by the execution and delivery of this
Agreement the Borrower accepts the nonexclusive jurisdiction of the aforesaid
courts. Service of process may be made by any means authorized by federal law
or the law of New York. A copy of any such process so served shall be mailed by
registered mail to the Borrower at its address set forth below its signature
hereto or at such other address as may be designated by the Borrower in a notice
to the Bank. Nothing herein shall limit the right of any Bank to bring
proceedings against the Borrower in the courts of any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CONSOLIDATION COAL COMPANY
/s/ Michael F. Nemser
By-----------------------------
Name: Michael F. Nemser
Title: Vice President-Treasury
49
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
/s/ Caroline Shapiro
By-----------------------------
Title:
50
<PAGE>
SCHEDULE TO EXHIBIT 10.1
In addition, to Exhibit 10.1, Consolidation Coal Company entered into five
additional Senior Revolving Loan Agreements of the same date with each of the
following banks, all of which are substantially identical to Exhibit 10.1 in all
material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.2
------------
FIRST AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this _______ day of November, 1994,
by and between Consolidation Coal Company, a Delaware corporation ("Borrower")
and Morgan Guaranty Trust Company of New York ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993 (the "Loan Agreement"); and
WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in
certain respects, effective December 18, 1994.
NOW,, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. The Loan Agreement is hereby amended in the following respects,
effective December 18, 1994:
A. The definition of "Applicable Margin" within SECTION 1.1 is amended in its
-----------------
entirety to read as follows:
"Applicable Margin" means, for any Interest Period, the amount
-----------------
indicated below for each type of Loan based upon the Credit Rating for each
day during such Interest Period:
LIBO CD Base
Rate Rate Rate
Credit Rating Loans Loans Loans
------------- ----- ----- -----
Level I 0.25% 0.375% 0.0
Level II 0.40% 0.525% 0.0
Level III 1.00% 1.125% 1.0%
B. The definition of "Credit Rating" within SECTION 1.1 is amended in its
-------------
entirety to read as follows:
"Credit Rating" means the credit rating of the Borrower's long-term
-------------
unsecured debt securities without third-party credit enhancement by any two
of S&P, Moody's, D&P, or Fitch, one of which must be S&P or Moody's.
"Level I" Credit Rating means
<PAGE>
a Credit Rating of any two credit rating agencies, one of which must be by
S&P or Moody's, of at least A- in the case of S&P, at least A3 in the case
of Moody's, at least A- in the case of D&P and at least A- in the case of
Fitch. "Level II" Credit Rating means a Credit Rating of any two credit
rating agencies, one of which must be by S&P or Moody's, of less than A-
but at least BBB- in the case of S&P, less than A3 but at least Baa3 in the
case of Moody's, less than A- but at least BBB- in the case of D&P or less
than A- but at least BBB- in the case of Fitch. "Level III" Credit Rating
means a credit rating of any two credit rating agencies, one of which must
be by S&P or Moody's, of less than BBB- in the case of S&P, less than Baa3
in the case of Moody's, less than BBB- in the case of D&P and less than
BBB- in the case of Fitch, or there being neither a credit rating from S&P
or Moody's, at the same time.
C. Subparagraph (a) of the definition of "Business Day" within SECTION 1.1 is
------------
amended in its entirety to read as follows:
(a) any day which is neither a Saturday or Sunday nor a legal holiday
in the State of New York or Pennsylvania on which banks are authorized or
required to be closed in New York City or Pittsburgh; and
D. SECTION 2.3 is amended in its entirety to read as follows:
SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the
----
period (including any portion thereof when its Commitment is suspended by
reason of the Borrower's inability to satisfy any condition of Article V)
----------
commencing on the Effective Date and continuing through the Commitment
Termination Date, a commitment fee at the rate of (i) 0.07% per annum for
each day in such period when the Credit Rating is Level I and (ii) 0.10%
per annum for each day in such period when the Credit Rating is Level II
and (iii) 0.20% per annum for each day in such period when the Credit
Rating is Level III, on the daily average of the excess of the Commitment
Amount over the outstanding principal amount of the Bank's Loans. Such
commitment fees shall be payable by the Borrower quarterly in arrears to
the Bank for the period ending on each Quarterly Payment Date, commencing
with the first such day following December 18, 1994 and on the Commitment
Termination Date.
E. SECTION 7.1.2 is amended by changing each of the two references therein to
"Section 7.2.4" to read "Section 7.2.3".
------------- -------------
F. SECTION 7.1.9 is amended by changing the final two words therein, "Required
Banks", to read "Bank".
G. SECTION 7.2.3 is amended in its entirety to read as follows:
SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and
--------------------------
will not permit either Guarantor or any Subsidiary to, consolidate with or
merge into or with any
2
<PAGE>
other corporation, or sell, transfer, lease or sell and lease back or
otherwise dispose of all or substantially all of its assets to any Person,
without prior written consent of the Bank, except for the voluntary
liquidation or dissolution of any wholly-owned subsidiary into another
Subsidiary or into the Borrower, the merger of any Person with a
Subsidiary, provided that after giving effect to such merger, such
Subsidiary remains a "Subsidiary" as defined herein, or the merger of any
Subsidiary into another Subsidiary or into the Borrower provided that in
the case of any such merger into the Borrower, the Borrower is the
surviving corporation.
2. All other terms and conditions of the Loan Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, Borrower and Bank have caused this First Amendment to
Senior Revolving Loan Agreement to be executed by their respective, duly
authorized officers or representatives as of the day and year first above
written.
CONSOLIDATION COAL COMPANY
By /s/ Michael F. Nemser
------------------------------
Michael F. Nemser, Vice President
and Treasurer of CONSOL Inc.,
Attorney-in-Fact
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ James S. Finch
-------------------------------
Name: James S. Finch
----------------------------
Title: Vice President
---------------------------
3
<PAGE>
SCHEDULE TO EXHIBIT 10.2
In addition, to Exhibit 10.2, Consolidation Coal Company entered into First
Amendments to the Senior Revolving Loan Agreements of the same date with each of
the following banks, all of which are substantially identical to Exhibit 10.2 in
all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.3
------------
SECOND AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this lst day of October, 1995, by and
between Consolidation Coal Company, a Delaware corporation ("Borrower") and
Morgan Guaranty Trust Company of New York ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993 (the "Loan Agreement"); and
WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in
certain respects, effective December 13, 1995.
NOW, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. The Loan Agreement is hereby amended in the following respects,
effective December 13, 1995:
A. The definition of "Applicable Margin" within SECTION 1.1 is amended in its
-----------------
entirety to read as follows:
"Applicable Margin" means, for any Interest Period, the amount
-----------------
indicated below for each type of Loan based upon the Credit Rating for each
day during such Interest Period:
LIBO CD Base
Rate Rate Rate
Credit Rating Loans Loans Loans
--------------- ------ ------ ------
Level I 0.225% 0.350% 0.0
Level II 0.375% 0.500% 0.0
Level III 0.625% 0.750% 1.0%
B. SECTION 2.3 is amended in its entirety to read as follows:
SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the
----
period (including any portion thereof when its Commitment is suspended by
reason of the Borrower's on the Effective Date and continuing through the
Commitment Termination Date, a commitment fee at the rate of (i) 0.06% per
annum for each day in such period
<PAGE>
when the Credit Rating is Level I and (ii) 0.09% per annum for each day in
such period when the Credit Rating is Level II and (iii) 0.20% per annum
for each day in such period when the Credit Rating is Level III, on the
daily average of the excess of the Commitment Amount over the outstanding
principal amount of the Bank's Loans. Such commitment fees shall be
payable by the Borrower quarterly in arrears to the Bank for the period
ending on each Quarterly Payment Date, commencing with the first such day
following December 13, 1995 and on the Commitment Termination Date.
2. All other terms and conditions of the Loan Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, Borrower and Bank have caused this Second Amendment to
Senior Revolving Loan Agreement to be executed by their respective, duly
authorized officers or representatives as of the day and year first above
written.
CONSOLIDATION COAL COMPANY
By /s/ Michael F. Nemser
------------------------------
Michael F. Nemser, Vice President
and Treasurer of CONSOL Inc.,
Attorney-in-Fact
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Robert Bottamedi
-------------------------------
Name: Robert Bottamedi
----------------------------
Title: Vice President
---------------------------
2
<PAGE>
SCHEDULE TO EXHIBIT 10.3
In addition, to Exhibit 10.3, Consolidation Coal Company entered into
Second Amendments to the Senior Revolving Loan Agreements of the same date with
each of the following banks, all of which are substantially identical to Exhibit
10.3 in all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.4
------------
THIRD AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this 14th day of December, 1995, by
and between Consolidation Coal Company, a Delaware corporation ("Borrower") and
Morgan Guaranty Trust Company of New York ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993 (the "Loan Agreement"); and
WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in
certain respects, effective December 1, 1995.
NOW, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. The Loan Agreement is hereby amended in the following respects,
effective December 1, 1995:
SECTION 7.2.3 is amended in its entire to read at follows:
SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and
--------------------------
will not permit either Guarantor or any Subsidiary to, consolidate with or
merge into or with any other corporation, or sell, transfer, lease or sell
and lease back or otherwise dispose of all or substantially all of its
assets to any Person, without prior written consent of the Bank, except for
(i) the voluntary liquidation or dissolution of any wholly-owned Subsidiary
into another Subsidiary or into the Borrower, the merger of any Person with
a Subsidiary, provided that after giving effect to such merger, such
Subsidiary remains a "Subsidiary" as defined herein, or the merger of any
Subsidiary into another Subsidiary or to the Borrower provided that in the
case of any such merger into the Borrower, the Borrower is the surviving
corporation and (ii) the sale, transfer, lease or sale and lease back or
other disposition of all or substantially all of the assets of one or more
Subsidiaries not to exceed in any calendar year an aggregate total of 10%
of the consolidated assets of CEI and the Consolidated Subsidiaries.
2. All other terms and conditions of the Loan Agreement shall remain in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, Borrower and Bank have caused this Third Amendment to
Senior Revolving Loan Agreement to be executed by their respective, duly
authorized officers or representatives as of the day and year first above
written.
CONSOLIDATION COAL COMPANY
By /s/ Michael F. Nemser
---------------------------------
Michael F. Nemser, Vice President
and Treasurer of CONSOL Inc.,
Attorney-in-Fact
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ James S. Finch
--------------------------------
Name: James S. Finch
-----------------------------
Title: Vice President
----------------------------
<PAGE>
SCHEDULE TO EXHIBIT 10.4
In addition, to Exhibit 10.4, Consolidation Coal Company entered into Third
Amendments to the Senior Revolving Loan Agreements of the same date with each of
the following banks, all of which are substantially identical to Exhibit 10.4 in
all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.5
------------
FOURTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this first day of March, 1996, by and
between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993 (the "Loan Agreement"); and
WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in
certain respects, effective April 1, 1996; and
WHEREAS, Borrower desires to obtain a Commitment from Bank under the Loan
Agreement pursuant to which Loans, in a maximum aggregate principal amount at
any one time outstanding not to exceed $28,500,000, will be made to Borrower
from time to time prior to the Commitment Termination Date.
NOW, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. The Loan Agreement is hereby amended in the following respects, effective
April 1, 1996:
A. SECTION 2.2 is amended in its entirety to read as follows:
SECTION 2.2 Total Commitment Amount. The aggregate amount (the "Total
----------------------- -----
Commitment Amount") of the Bank's Commitment on any date on or prior to the
-----------------
Commitment Termination Date shall be $28,500,000 less all voluntary
reductions to such amount made by the Borrower; provided, however, that all
-------- -------
such reductions shall require at least three Business Days' prior notice to
the Bank and be permanent, and all partial reductions of such amount in the
case of any voluntary reduction, shall be in minimum amounts of $500,000
and in integral multiples of $100,000 in excess thereof.
2. All other terms and conditions of the Loan Agreement shall remain in full
force and effect.
3. This Fourth Amendment may be executed by the parties hereto in several
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Borrower and Bank have caused this Fourth Amendment to the
Senior Revolving Loan Agreement to be executed by their respective, duly
authorized officers or representatives as of the day and year first above
written.
CONSOLIDATION COAL COMPANY
By /s/ Karen L. Musial
-----------------------------------
Karen L. Musial, Vice President and
Treasurer of CONSOL Inc.,
Attorney-in-Fact
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Robert Bottamedi
-----------------------------------
Name Robert Bottamedi
---------------------------------
Title Vice President
--------------------------------
<PAGE>
SCHEDULE TO EXHIBIT 10.5
In addition, to Exhibit 10.5, Consolidation Coal Company entered into
Fourth Amendments to the Senior Revolving Loan Agreements of the same date with
each of the following banks, all of which are substantially identical to Exhibit
10.5 in all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.6
------------
FIFTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this second day of December, 1997, by
and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993 (the "Loan Agreement"); and
WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in
certain respects, effective December 2, 1997.
NOW, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. The Loan Agreement is hereby amended in the following respects,
effective December 2, 1997:
A. SECTION 2.3 is amended in its entirety to read as follows:
SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the
----
period (including any portion thereof when its Commitment is suspended by
reason of the Borrower's inability to satisfy any condition of Article V)
---------
commencing on the Effective Date and continuing through the Commitment
Termination Date, a commitment fee at the rate of (i) 0.05% per annum for
each day in such period when the Credit Rating is Level I and (ii) 0.09%
per annum for each day in such period when the Credit Rating is Level II
and (iii) 0.20% per annum for each day in such period when the Credit
Rating is Level III, on the daily average of the excess of the Commitment
Amount over the outstanding principal amount of the Bank's Loans. Such
commitment fees shall be payable by the Borrower quarterly in arrears to
the Bank for the period ending on each Quarterly Payment Date, commencing
with the first such day following December 2, 1997 and on the Commitment
Termination Date.
2. All other terms and conditions of the Loan Agreement shall remain in
full force and effect.
3. This Fifth Amendment may be executed by the parties hereto in several
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Borrower and Bank have caused this Fifth Amendment to
the Senior Revolving Loan Agreement to be executed by their respective, duly
authorized officers or representatives as of the day and year first above
written.
CONSOLIDATION COAL COMPANY
By /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice President
and Treasurer of CONSOL Inc.,
Attorney-in-Fact
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Kathryn Sayko-Yanes
----------------------------
Name Kathryn Sayko-Yanes
-------------------------
Title Vice President
------------------------
<PAGE>
SCHEDULE TO EXHIBIT 10.6
In addition, to Exhibit 10.6, Consolidation Coal Company entered into Fifth
Amendments to the Senior Revolving Loan Agreements of the same date with each of
the following banks, all of which are substantially identical to Exhibit 10.6 in
all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.7
------------
SIXTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this 29th day of October, 1998, by
and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993, as amended (the "Loan Agreement");
WHEREAS, Borrower desires to obtain a Commitment from Bank under the Loan
Agreement pursuant to which Loans, in a maximum aggregate principal amount at
any one time not to exceed $100,000,000, will be made from time to time prior to
the Commitment Termination Date; and
WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in
certain other respects, effective October 29, 1998.
NOW, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. The Loan Agreement is hereby amended in the following respects,
effective October 29, 1998:
A. The definition of "Applicable Margin" within SECTION 1.1 is amended in its
-----------------
entirety to read as follows:
"Applicable Margin" means, for any Interest Period, the amount
-----------------
indicated below for each type of Loan based upon the Credit Rating for each
day during such Interest Period:
LIBO Base
Rate Rate
Credit Rating Loans Loans
------------- ----- -----
Level I 0.350% 0%
Level II 0.500% 0%
Level III 1.250% 1.00%
B. The definitions of "Assessment Rate", "CD Rate", "CD Rate Loan", "CD Rate
--------------- ------- -------
(Reserve Adjusted)", "CD Reserve Requirement", "Du Pont" and "Fixed Rate
------------------ ---------------------- ------- ----------
Loan" within SECTION 1.1 are deleted from SECTION 1.1 in their entirety.
----
C. The definition of "Change in Control" within SECTION 1.1 is amended in its
-----------------
entirety to read as follows:
<PAGE>
"Change in Control" means
-----------------
(a) with respect to the Borrower, the failure of CEI to own,
directly or indirectly, free and clear of all Liens or other
encumbrances, one hundred percent (100%) of the outstanding shares of
capital stock of the Borrower on a fully diluted basis; and
(b) with respect to CEI, the failure of Rheinbraun AG and RG to
own, directly or indirectly, a cumulative total of at least fifty-one
percent (51%) of the outstanding shares of capital stock of CEI, on a
fully diluted basis, in each case, free and clear of all Liens and
other encumbrances.
D. The definition of "Commitment Termination Date" within Section 1.1 is
---------------------------
amended in its entirety to read as follows:
"Commitment Termination Date" means the earliest of
---------------------------
(a) October 22, 1999 as such date may be extended pursuant to
Section 2.4;
------------
(b) five Business Days after notice is given by the Borrower to
the Bank for purposes of designating a Commitment Termination Date
pursuant to this clause, provided that, on such designated Commitment
--------
Termination Date, no Loans are outstanding;
(c) immediately and without further action upon the occurrence
of any Default described in Section 8.1.4 with respect to the
-------------
Borrower; and
(d) immediately when any other Event of Default shall have
occurred and be continuing and the Loans shall be declared to be due
and payable pursuant to Section 8.3.
-----------
E. The definition of "Interest Period" within Section 1.1 is amended in its
---------------
entirety to read as follows:
"Interest Period" means, relative to any LIBO Rate Loan, the period
---------------
which shall begin on (and include) the date on which such LIBO Rate Loan is
made or continued as, or converted into, a LIBO Rate Loan pursuant to
Section 4.1, and, unless the final maturity of such LIBO Rate Loan is
-----------
accelerated, shall end on (but exclude) the day which numerically
corresponds to such date one week or one, two, or three months thereafter,
as the Borrower may select in its relevant notice pursuant to Section 4.1;
-----------
provided, however, that:
-2-
<PAGE>
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than eight different dates;
(b) absent such selection, the Borrower shall be deemed to have
selected an Interest Period of one month provided, that if another duration
--------
shall be required in order to comply with clause (a), such Loan shall be a
----------
Base Rate Loan for such duration;
(c) if there exists no numerically corresponding day in such month,
such Interest Period shall end on the last Business Day of such month;
(d) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the Business Day next
following such numerically corresponding day (unless such next following
Business Day is the first Business Day of a calendar month, in which case
such Interest Period shall end on the preceding Business Day); and
(e) no Interest Period shall end later than the date established
pursuant to clause (a) or (b) of the definition of Commitment Termination
---------- ---
Date.
F. The definition of "Significant Subsidiary" within SECTION 1.1 is amended in
----------------------
its entirety to read as follows:
"Significant Subsidiary" means McElroy Coal Company, a Delaware
----------------------
corporation; Consol Pennsylvania Coal Company, a Delaware corporation;
Nineveh Coal Company, a Delaware corporation; Consolidation Coal Sales
Company, a Delaware corporation; Island Creek Coal Company, a Delaware
corporation; Laurel Run Mining Company, a Virginia corporation; New Century
Holdings, Inc., a Delaware corporation; Keystone Coal Mining Corporation, a
Pennsylvania corporation; Helvetia Coal Company, a Pennsylvania
corporation; CONSOL Sales Company, a Delaware corporation; Eighty-Four
Mining Company, a Pennsylvania corporation; Rochester & Pittsburgh Coal
Company, a Pennsylvania corporation; Fairmont Supply Company, a Delaware
corporation, and any other wholly-owned direct or indirect Subsidiary of
CEI whose assets exceed 5% of the consolidated assets of CEI and the
Consolidated Subsidiaries or whose revenues exceed 5% of the consolidated
revenues of CEI and the Consolidated Subsidiaries or any other direct or
indirect Subsidiary of CEI so designated by the Borrower after the
Effective Date.
G. The definition of "type" within Section 1.1 is amended in its entirety to
----
read as follows:
-3-
<PAGE>
"type" means, relative to the outstanding principal amount of all or
----
any portion of a Loan, the portion thereof, if any, being maintained as a
Base Rate Loan or a LIBO Rate Loan.
H. SECTION 2.1 is amended in its entirety to read as follows:
SECTION 2.1 Commitment. Subject to the terms and conditions of this
----------
Agreement (including Article V), the Bank agrees that it will, from time to
---------
time on any Business Day occurring during the period commencing on October
29, 1998 and continuing to (but not including) the Commitment Termination
Date, make loans ("Loans") to the Borrower equal to the amount of the
-----
Borrowing requested on each such Business Day; provided, however, that all
-------- -------
such Loans shall be made on a pro rata basis with loans from all other
banks which have Senior Revolving Loan Agreements with the Borrower, and
the Bank shall not be permitted or required to make any Loan if, after
giving effect thereto, the sum of the aggregate amount of Commercial Paper
Indebtedness and the aggregate principal amount of all Loans outstanding at
any one time from the Bank plus the aggregate of all loans outstanding
under Borrower's other Senior Revolving Loan Agreements would exceed
$650,000,000. Subject to the terms hereof, the Borrower may from time to
time prior to the Commitment Termination Date borrow, prepay, and reborrow
amounts pursuant to the Commitment.
I. SECTION 2.2 is amended in its entirety to read as follows:
SECTION 2.2 Total Commitment Amount. The aggregate amount (the
-----------------------
"Total Commitment Amount") of the Bank's Commitment on any date on or prior
to the Commitment Termination Date shall be $100,000,000 less all voluntary
reductions to such amount made by the Borrower; provided, however, that all
-------- -------
such reductions shall be made on a pro rata basis with reductions of the
total commitment amounts of all other banks which have Senior Revolving
Loan Agreements with the Borrower, shall require at least three Business
Days' prior notice to the Bank and be permanent, and all partial reductions
of such amount, in the case of any voluntary reduction, shall be in minimum
amounts of $500,000 and in integral multiples of $100,000 in excess
thereof.
J. SECTION 2.3 is amended in its entirety to read as follows:
SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the
----
period (including any portion thereof when its Commitment is suspended by
reason of the Borrower's inability to satisfy any condition of Article V)
---------
commencing on October 29, 1998 and continuing through the Commitment
Termination Date, the following fees:
-4-
<PAGE>
(a) a start-up fee of $50,000 due and payable on October 29, 1998;
(b) a revolving credit facility fee for each day which shall be equal
to (i) the applicable percentage for such day, determined, based on the
Credit Rating on such day, in accordance with the table set forth below,
multiplied by (ii) 1/365, multiplied by (iii) the Total Commitment Amount
on such day.
Credit Rating Applicable Percentage
------------- ---------------------
Level I 0.080%
Level II 0.125%
Level III 0.250%
Such revolving credit facility fees shall be due and payable by the
Borrower quarterly in arrears to the Bank for the period ending on each
Quarterly Payment Date, commencing with the first such day following
October 29, 1998 and on the Commitment Termination Date; and
(c) a utilization fee for each day on which the aggregate principal
amount of all outstanding Loans from the Bank exceeds fifty percent (50%)
of the Total Commitment Amount on such day equal to (i) the applicable
percentage for such day, determined, based on the Credit Rating on such
day, in accordance with the table set forth below, multiplied by (ii)
1/365, multiplied by (iii) the aggregate principal amount of all
outstanding Loans from the Bank on such day.
Credit Rating Applicable Percentage
------------- ---------------------
Level I 0.070%
Level II 0.125%
Level III 0.250%
Such utilization fees shall be due and payable by the Borrower quarterly in
arrears to the Bank for the period ending on each Quarterly Payment Date,
commencing with the first such day following October 29, 1998 and on the
Commitment Termination Date.
K. SECTION 3.3 is amended in its entirety to read as follows:
SECTION 3.3 Principal Payments and Prepayments. The Borrower will
----------------------------------
repay the outstanding principal amount of the Notes on the Commitment
Termination Date. In addition, the Borrower:
a. may make a voluntary prepayment in part in an aggregate principal
amount of not less than $500,000 and an integral multiple of $100,000 in
excess thereof, or in full of the outstanding principal amount of the Notes
from time to
-5-
<PAGE>
time at any time, in each case upon at least three Business Days' prior
notice (or same day notice in the case of a Base Rate Loan) to the Bank;
b. shall, on each date when any reduction in the Total Commitment
Amount shall become effective pursuant to Section 2.2, make a mandatory
-----------
prepayment of the Notes equal to the excess, if any, of the outstanding
principal amount of all Loans over the Total Commitment Amount as so
reduced; and
c. shall, on each date when the sum of the aggregate principal
amount of all Loans outstanding plus the Commercial Paper Indebtedness
exceeds the Total Commitment Amount, make a mandatory prepayment of the
then aggregate outstanding principal amount of all Loans in an aggregate
amount equal to such excess.
Each prepayment of a Note made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.5. All interest
-----------
accrued on the principal amount of Notes prepaid shall be paid on the date
of such prepayment. No prepayment of principal of the Notes pursuant to
clause (a) or (c) above prior to the Commitment Termination Date shall
---------- ---
cause a reduction in the Total Commitment Amount.
Each prepayment of the Notes shall, except as the Borrower may
otherwise have notified the Bank, be applied, to the extent of such
prepayment:
(a) first, to the principal amount thereof being maintained as a Base
Rate Loan; and
(b) second, to the principal amount thereof being maintained as a
LIBO Rate Loan.
L. SECTION 3.4 is amended in its entirety to read as follows:
SECTION 3.4 Interest. The Borrower agrees to pay interest on the
--------
principal amount of the Notes from time to time unpaid prior to and at
Maturity at a rate per annum:
(a) on that portion of the outstanding principal amount thereof
maintained from time to time as a Base Rate Loan, equal to the sum of
the Base Rate from time to time most recently announced plus the
Applicable Margin per annum, and
(b) on that portion of the outstanding principal amount thereof
maintained from time to time as one or more LIBO Rate Loans during
each applicable Interest Period, equal to the sum of the LIBO Rate
(Reserve
-6-
<PAGE>
Adjusted) for such Interest Period plus the Applicable Margin per
annum.
M. SECTION 3.5 is amended in its entirety to read as follows:
SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any
-------------------
portion of the principal amount of the Loans or after any other monetary
Liabilities shall have become due, the Borrower shall pay interest (after
as well as before judgment) on the principal amount of all types of Loans
so matured or on such other monetary Liabilities, as the case may be, at a
rate per annum which is determined by increasing each of the Applicable
Margins set forth in clauses (a) and (b) of Section 3.4 by 2% per annum for
----------- --- -----------
Loans so matured and, to the extent permitted by applicable law, at a rate
per annum equal to the Base Rate plus 2% for such other monetary
Liabilities.
N. SECTION 3.6 is amended in its entirety to read as follows:
SECTION 3.6 Payment Dates. Interest accrued on the Notes prior to
-------------
Maturity (as aforesaid) shall be payable, without duplication:
(a) on that portion of the outstanding principal amount of each
Note maintained as a Base Rate Loan, on each Monthly Payment Date,
commencing with the first such Monthly Payment Date following the date
of such Notes;
(b) on that portion of the outstanding principal amount of each
Note maintained as one or more LIBO Rate Loans, on the last day of
each applicable Interest Period; and
(c) on that portion of the outstanding principal amount of each
Note converted into a Base Rate Loan or a LIBO Rate Loan, as the case
may be, on a day when interest would not otherwise have been payable
pursuant to clause (a) or (b), on the date of such conversion.
---------- ---
Interest on the Notes shall be payable at Maturity (as aforesaid) and,
thereafter, on demand. The Bank shall give prompt notice to the Borrower
of each computation of accrued interest before the due date thereof.
O. ARTICLE IV is hereby amended in its entirety to read as follows:
-7-
<PAGE>
ARTICLE IV
BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS
SECTION 4.1 Elections. The Loans comprising any Borrowing may be made
---------
as a "Base Rate Loan" or, at the Borrower's election made in accordance with
--------------
this Section, as a loan having for each particular Interest Period a fixed rate
of interest determined by reference to the LIBO Rate (Reserve Adjusted) (a "LIBO
----
Rate Loan"). The Borrower may request from time to time by delivering to the
- ---------
Bank a Continuation/Conversion Notice request, on not less than one (or not less
than three if a Loan is to be continued as, or converted into, a LIBO Rate Loan)
nor more than five Business Days' notice:
(a) that all, or any portion in a minimum amount of $500,000 or
an integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of any Borrowing be converted from Base Rate Loans
into LIBO Rate Loans or, subject to Section 4.5, from LIBO Rate Loans
-----------
into Base Rate Loans; and
(b) on the expiration of the Interest Period applicable to any
LIBO Rate Loans, that all, or any portion in a minimum amount of
$500,000 or an integral multiple of $100,000 in excess thereof, of the
outstanding principal amount of such LIBO Rate Loans be converted into
Base Rate Loans;
provided, however, that:
(c) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, LIBO Rate Loans if, after
giving effect to such action, the Interest Period applicable thereto
shall extend beyond the date of any prepayment required by Section
-------
3.3, unless a sufficient principal amount of other Loans are being
---
maintained as Base Rate Loans to permit such prepayment to be applied
in full to such Base Rate Loans; and
(d) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, a LIBO Rate Loan when any
Default has occurred and is continuing.
Each Continuation/Conversion Notice requesting that all, or any portion, of the
principal amount of the Loans be continued as, or be converted into, LIBO Rate
Loans shall specify the duration of the Interest Period commencing upon such
continuation or conversion.
-8-
<PAGE>
The Bank may, if it so elects, fulfill its commitment to make or continue
any portion of the principal amount of a Loan as, or to convert any portion of
the principal amount of a Loan into, one or more LIBO Rate Loans by causing a
foreign branch or Affiliate of the Bank to make any such LIBO Rate Loan;
provided, however, that in such event such LIBO Rate Loan shall be deemed to
- -----------------
have been made by the Bank, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to the Bank and shall be deemed to be held
by it, to the extent of such LIBO Rate Loan, for the account of such foreign
branch or Affiliate; and provided, further, that the making of such LIBO Rate
-----------------
Loans by a foreign branch or Affiliate of the Bank does not result in any
additional Taxes assessable against the Bank in connection with any payments
made by the Borrower hereunder.
Whenever the Bank makes any notations pursuant to Section 3.2 on the grid
-----------
attached to the Note (or on the continuation of such grid) and whenever the Bank
converts a Loan into a Base Rate Loan or a LIBO Rate Loan, the Bank will make
further notations on the grid attached to such Note (or on such continuation)
reflecting the portions of the outstanding principal amounts thereof being
maintained as a Base Rate Loan and LIBO Rate Loans. Failure to record any such
amounts on the grid shall not limit or otherwise affect the obligations of the
Borrower to make payments of principal and interest on each Note when due.
The Borrower understands that, if it elects that any portion of the
principal amount of a Borrowing be made, continued as, or converted into, a LIBO
Rate Loan, the Bank may (while being entitled to fund all or any portion of such
LIBO Rate Loan as it may see fit) wish to be able to fund such LIBO Rate Loan by
purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market.
Accordingly, in connection with any determination to be made for purposes of
Section 4.2, 4.3, 4.4 or 4.5, it shall be conclusively presumed that the Bank
- ----------- --- --- ---
has elected to fund all LIBO Rate Loans by purchasing Dollar deposits in such
interbank eurodollar market.
SECTION 4.2 LIBO Rate Lending Unlawful. If as the result of any
--------------------------
Regulatory Change the Bank shall determine (which determination shall, in the
absence of demonstrable error, be conclusive and binding on the Borrower) that
it is unlawful for the Bank to make, continue or maintain a Loan as, or to
convert a Loan into, one or more LIBO Rate Loans, the obligation of the Bank
under Section 4.1 to make, continue or maintain any portion of the principal
-----------
amount of a Loan as, or to convert such Loan into, one or more LIBO Rate Loans
shall, upon such determination (and telephonic notice thereof confirmed in
writing to the Borrower), forthwith terminate, and any portion of the principal
amount of a Loan then maintained as one or more LIBO Rate Loans by the Bank
shall automatically convert into a Base Rate Loan. If circumstances
subsequently change so that the Bank shall determine that it is no
-9-
<PAGE>
longer so affected, the obligation of the Bank under Section 4.1 to make or
-----------
continue Loans as, or to convert Loans into, LIBO Rate Loans shall, upon such
determination (and telephonic notice thereof confirmed in writing to the
Borrower), forthwith be reinstated.
SECTION 4.3 Deposits Unavailable. If prior to the date on which all or
--------------------
any portion of the principal amount of any Loan is to be made, continued as, or
converted into, a LIBO Rate Loan, the Bank shall determine for any reason
whatsoever (which determination shall, in the absence of demonstrable error, be
conclusive and binding on the Borrower) that dollar deposits in the relevant
amount and for the relevant Interest Period are not available to the Bank in its
relevant market, the Bank shall promptly give telephonic notice of such
determination confirmed in writing to the Borrower, and the obligation under
Section 4.1 of the Bank to make, continue any portion of the principal amount of
- -----------
a Loan as, or to convert a Loan into, one or more LIBO Rate Loans shall, upon
such notification, forthwith terminate; and the portion of all Loans then
maintained as LIBO Rate Loans by the Bank shall on the expiration of the
Interest Period applicable thereto automatically convert into Base Rate Loans.
If circumstances subsequently change so that the Bank shall no longer be so
affected, the Bank shall promptly give telephonic notice thereof confirmed in
writing to the Borrower and the obligations of the Bank under Section 4.1 to
-----------
make or continue Loans as, or convert Loans into, LIBO Rate Loans shall be
reinstated.
SECTION 4.4 Capital Adequacy; Increased Costs, etc. The Borrower
--------------------------------------
further agrees to reimburse the Bank for any increase in the cost to the Bank of
making, continuing, maintaining or converting (or of its obligation to make,
continue, maintain or convert) any of its Loans hereunder (or any portion
thereof) and for any reduction in the amount of any sum receivable by the Bank
hereunder in respect of making, continuing, maintaining or converting (or of its
obligation to make, continue, maintain or convert) any of its Loans hereunder
(or any portion thereof) from time to time by reason of:
(a) to the extent not included in the calculation of the LIBO
Rate (Reserve Adjusted), the adoption or compliance with any capital
adequacy, reserve, special deposit, or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
the Bank, under or pursuant to any law, treaty, rule, regulation
(including any F.R.S. Board regulation), or requirement in effect on
the date hereof, or as the result of any Regulatory Change; or
(b) any Regulatory Change which shall subject the Bank to any
tax (other than taxes on net income or receipts), levy, impost,
charge, fee, duty, deduction, or withholding of any kind whatsoever or
change the taxation
-10-
<PAGE>
of any Loan made or maintained as a LIBO Rate Loan and the interest
thereon (other than any change which affects, and to the extent that
it affects, the taxation of net income or receipts).
In any such event, the Bank shall promptly notify the Borrower thereof stating
the reasons therefor and the additional amount required fully to compensate the
Bank for such increased cost or reduced amount. Such additional amounts shall
be payable on demand after receipt of such notice. A statement as to any such
increased cost or reduced amount or any change therein (including calculations
thereof in reasonable detail) shall be submitted by the Bank to the Borrower and
shall, in the absence of demonstrable error, be conclusive and binding on the
Borrower. In the event that the Borrower is required to pay an additional
amount pursuant to this Section 4.4 to the Bank, then the Borrower shall have
-----------
the right to seek a substitute bank or banks to replace the Bank under this
Agreement in accordance with the provisions of Section 10.11(b).
----------------
SECTION 4.5 Funding Losses. In the event the Bank shall incur any loss
--------------
or expense (including any loss or expense incurred by reason of the liquidation,
or reemployment of deposits or other funds acquired by the Bank to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a LIBO Rate Loan)
as a result of:
(a) payment or prepayment of the principal amount of any LIBO
Rate Loan on a date other than the scheduled last day of the Interest
Period applicable thereto, whether pursuant to Section 3.3 or
-----------
otherwise;
(b) any conversion of all or any portion of the outstanding
principal amount of any LIBO Rate Loan to a Base Rate Loan pursuant to
Section 4.1 prior to the expiration of the Interest Period then
-----------
applicable thereto (but excluding in each case any loss or expense
resulting therefrom to the extent the Bank is reimbursed therefor by
interest payable pursuant to clause (c) of Section 3.6); or
---------- ------------
(c) a Loan not being made, continued as, or converted into, a
LIBO Rate Loan in accordance with a Loan Request or the
Continuation/Conversion Notice given therefor (other than as the
result of a default by the Bank in complying with such Loan Request or
such Continuation/Conversion Notice);
then, upon the request of the Bank, the Borrower shall pay directly to the
Bank such amount as will (in the reasonable determination of the Bank)
reimburse the Bank for such loss or
-11-
<PAGE>
expense. A certificate as to any such loss or expense (including
calculations thereof in reasonable detail) shall be submitted by the Bank
to the Borrower and shall, in the absence of demonstrable error, be
conclusive and binding on the Borrower.
P. SECTION 6.18 is hereby added to the Loan Agreement, to read as
follows:
SECTION 6.18 Year 2000. The Borrower has reviewed the areas within
---------
its business and operations which could be adversely affected by, and has
developed or is developing a program to address, on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer applications used by
the Borrower may be unable to recognize and perform properly date sensitive
functions involving certain dates prior to and any date on or after
December 31, 1999), and has made related appropriate inquiry of material
suppliers and vendors. The Borrower believes that with modification and
replacement of existing software and hardware, the Year 2000 Issue can be
substantially mitigated. However, if such modifications and replacements
are not made, or are not completed on a timely basis, which the Borrower
currently does not anticipate, the Year 2000 Issue could have a material
impact on the operations of the Borrower. The inability of a substantial
number of third parties to complete their Year 2000 resolution process
could materially impact the Borrower.
Q. SECTION 6.19 is hereby added to the Loan Agreement, to read as follows:
SECTION 6.19 Borrower's Solvency. Both prior to and after giving
-------------------
effect to the Sixth Amendment to this Agreement dated October 29, 1998, and
the increase in the Total Commitment effected thereby, the Borrower is and
will be Solvent. As used in this Section, "Solvent" means the Borrower is
able to pay its debts as they become due in the usual course of business.
R. SECTION 7.2.6 is amended in its entirety to read as follows:
SECTION 7.2.6 Dividends. Neither the Borrower nor either Guarantor
---------
shall pay any dividends to its respective shareholders upon the occurrence,
or during the continuance of, any Default. No dividend shall be paid by
Borrower or either Guarantor other than in accordance with all applicable
provisions of law including, without limitation, the Delaware General
Corporation Law, as amended.
S. SECTION 8.1.11 is amended in its entirety to read as follows:
-12-
<PAGE>
SECTION 8.1.11 Credit Rating. Borrower having neither a Credit
-------------
Rating from S&P nor Moody's at the same time, or having a Credit Rating
from S&P of less than BB- or a Credit Rating from Moody's of less than Ba3.
T. SECTION 8.1.12 is hereby added to the Loan Agreement, to read as follows:
SECTION 8.1.12 Funded Debt Ratio. The ratio of Borrower's total
-----------------
Indebtedness for Borrowed Money on any day to total earnings for the last
four consecutive complete calendar quarters (before interest, taxes,
depreciation and amortization and excluding any extraordinary gains or
losses) exceeds 2.5:1, and Borrower's Credit Rating is at Level II or Level
III.
1. All other terms and conditions of the Loan Agreement all remain
in full force and effect and are hereby ratified.
2. This sixth Amendment may be executed by the parties hereto in
several counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
3. As of the date hereof, no Default or Event of Default has
occurred and is continuing.
4. The representations and warranties set forth in Article VI Loan
Agreement are true and correct on and as of the date of as if made on the
date hereof.
5. This Sixth Amendment shall be governed by the internal laws of
the State of New York.
6. Each Guarantor consents to the terms of this Sixth Amendment
including, without limitation, the increase to the Total Commitment Amount,
confirms the continuing validity and effectiveness of its guaranty and
agrees that its guaranty shall be unaffected by the terms of this Sixth
Amendment.
-13-
<PAGE>
IN WITNESS WHEREOF, Borrower, Bank and the Guarantors have caused this
Sixth Amendment to the Senior Revolving Loan Agreement to be executed by their
respective, duly authorized officers or representatives as of the day and year
first above written.
CONSOLIDATION COAL COMPANY
By /s/ Karen L. Zemba
----------------------------
Karen L. Zemba
Vice President and Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathryn Sayko-Yanes
-----------------------------
Name Kathryn Sayko-Yanes
---------------------------
Title Vice President
--------------------------
CONSOL Inc.
By /s/ Karen L. Zemba
-----------------------------
Its Vice President & President
----------------------------
CONSOL Energy Inc.
By /s/ J. P. Garniewski
-----------------------------
Its J. P. Garniewski Jr., Assistant Secretary
-----------------------------------------
-14-
<PAGE>
SCHEDULE TO EXHIBIT 10.7
In addition, to Exhibit 10.7, Consolidation Coal Company entered into Sixth
Amendments to the Senior Revolving Loan Agreements of the same date with each of
the following banks, all of which are substantially identical to Exhibit 10.7 in
all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.8
------------
SEVENTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT
THIS AMENDMENT, made and entered into this 19th day of January, 1999, by
and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement
dated as of December 23, 1993, as amended (the "Loan Agreement"); and
WHEREAS, Borrower and Bank desire to hereby amend SECTION 2.1 of the Loan
Agreement, effective January 19, 1999.
NOW, THEREFORE, in consideration of the foregoing premises, and intending
to be legally bound hereby, Borrower and Bank hereby agree as follows:
1. SECTION 2.1 of the Loan Agreement is hereby amended in its entirety to
read as follows, effective January 19, 1999:
SECTION 2.1 Commitment. Subject to the terms and conditions of this
----------
Agreement (including Article V), the Bank agrees that it will, from time to
---------
time on any Business Day occurring during the period commencing January 19,
1999 and continuing to (but not including) the Commitment Termination Date,
make loans ("Loans") to the Borrower equal to the amount of the Borrowing
-----
requested on each such Business Day; provided, however, that all such Loans
-------- -------
shall be made on a pro rata basis with loans from all other banks which
have Senior Revolving Loan Agreements with the Borrower, and the Bank shall
not be permitted or required to make any Loan if, after giving effect
thereto, the sum of the aggregate amount of Commercial Paper Indebtedness
and the aggregate principal amount of all Loans outstanding at any one time
from the Bank plus the aggregate of all loans outstanding under Borrower's
other Senior Revolving Loan Agreements would exceed $800,000,000. Subject
to the terms hereof, the Borrower may from time to time prior to the
Commitment Termination Date
<PAGE>
borrow, prepay, and reborrow amounts pursuant to this Commitment.
2. All other terms and conditions of the Loan Agreement shall remain in
full force and effect and are hereby ratified.
3. This Seventh Amendment may be executed by the parties hereto in
several counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
4. This Seventh Amendment shall be governed by the internal laws of the
State of New York.
5. Each Guarantor consents to the terms of this Seventh Amendment
including, without limitation, the increase to the Total Commitment Amount,
confirms the continuing validity and effectiveness of its guaranty and agrees
that its guaranty shall be unaffected by the terms of this Seventh Amendment.
IN WITNESS WHEREOF, Borrower, Bank and the Guarantors have caused this
Seventh Amendment to the Senior Revolving Loan Agreement to be executed by their
respective, duly authorized officers or representatives as of the day and year
first above written.
CONSOLIDATION COAL COMPANY
/s/Karen L. Zemba
By----------------------
Karen L. Zemba
Vice President and Treasurer
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By_____________________
Name___________________
Title__________________
-2-
<PAGE>
CONSOL INC.
/s/ Karen L. Zemba
By-------------------------------
Karen L. Zemba
Vice President and Treasurer
CONSOL ENERGY INC.
/s/ J.P. Garniewski
By-------------------------------
J. P. Garniewski, Jr.,
Assistant Secretary
-3-
<PAGE>
SCHEDULE TO EXHIBIT 10.8
In addition, to Exhibit 10.8, Consolidation Coal Company entered into
Seventh Amendments to the Senior Revolving Loan Agreements of the same date with
each of the following banks, all of which are substantially identical to Exhibit
10.8 in all material respects:
PNC Bank
The Bank of Nova Scotia
Citibank N.A.
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.9
------------
U.S. $100,000,000
SENIOR REVOLVING LOAN AGREEMENT,
dated as of November 13, 1998
among
CONSOLIDATION COAL COMPANY
as the Borrower
and
THE FIRST NATIONAL BANK OF CHICAGO
as the Bank
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms............................................. 1
SECTION 1.2 Use of Defined Terms...................................... 11
SECTION 1.3 Accounting and Financial Determinations................... 11
ARTICLE II
COMMITMENTS
SECTION 2.1 Commitments............................................... 11
SECTION 2.2 Total Commitment Amount................................... 12
SECTION 2.3 Fees...................................................... 12
SECTION 2.4 Commitment Termination Date............................... 12
ARTICLE III
LOANS AND NOTES
SECTION 3.1 Borrowing Procedure....................................... 13
SECTION 3.2 Note...................................................... 13
SECTION 3.3 Principal Payments and Prepayments........................ 13
SECTION 3.4 Interest.................................................. 14
SECTION 3.5 Post-Maturity Rates....................................... 14
SECTION 3.6 Payment Dates............................................. 14
SECTION 3.7 Payments, Computations, etc............................... 15
SECTION 3.8 Setoff.................................................... 15
SECTION 3.9 Taxes..................................................... 15
ARTICLE IV
BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS
SECTION 4.1 Elections................................................. 17
SECTION 4.2 LIBO Rate Lending Unlawful................................ 18
SECTION 4.3 Deposits Unavailable...................................... 18
SECTION 4.4 Capital Adequacy; Increased Costs, etc.................... 19
SECTION 4.5 Funding Losses............................................ 19
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Initial Borrowing....................................... 20
SECTION 5.1.1 Resolutions, etc........................................ 20
SECTION 5.1.2 Delivery of Notes....................................... 21
SECTION 5.1.3 Opinions of Counsel..................................... 21
SECTION 5.1.4 Parent Guaranty......................................... 21
SECTION 5.1.5 Significant Subsidiary Guaranty......................... 21
SECTION 5.1.6 Subordination Agreement................................. 21
SECTION 5.1.7 Credit Rating........................................... 21
SECTION 5.1.8 Satisfactory Legal Form................................. 21
SECTION 5.2 All Loans............................................... 21
SECTION 5.2.1 Compliance with Warranties, non-Default, etc............ 21
SECTION 5.2.2 Absence of Litigation, etc.............................. 22
SECTION 5.2.3 Loan Request............................................ 22
ARTICLE VI
WARRANTIES, ETC.
SECTION 6.1 Organization, Power, Authority, etc..................... 22
SECTION 6.2 Due Authorization....................................... 22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 6.3 Validity, etc............................................ 22
SECTION 6.4 Financial Information.................................... 22
SECTION 6.5 Absence of Certain Default............................... 23
SECTION 6.6 Litigation, etc.......................................... 23
SECTION 6.7 Regulation U............................................. 23
SECTION 6.8 Government Regulation.................................... 23
SECTION 6.9 Certain Contractual Obligations or Organic Documents..... 24
SECTION 6.10 Taxes.................................................... 24
SECTION 6.11 Pension and Welfare Plans................................ 24
SECTION 6.12 Labor Controversies...................................... 24
SECTION 6.13 Subsidiaries and Significant Subsidiaries................ 24
SECTION 6.14 Patents, Trademarks, Etc................................. 24
SECTION 6.15 Ownership of Properties; Liens........................... 24
SECTION 6.16 Accuracy of Information.................................. 24
SECTION 6.17 Environmental Warranties................................. 25
SECTION 6.18 Year 2000................................................ 26
SECTION 6.19 Borrower's Solvency...................................... 26
ARTICLE VII
COVENANTS
SECTION 7.1 Certain Affirmative Covenants........................... 26
SECTION 7.1.1 Financial Information, etc.............................. 27
SECTION 7.1.2 Maintenance of Corporate Existences, etc................ 27
SECTION 7.1.3 Foreign Qualification................................... 27
SECTION 7.1.4 Payment of Taxes, etc................................... 28
SECTION 7.1.5 Insurance............................................... 28
SECTION 7.1.6 Notice of Default, Litigation, etc...................... 28
SECTION 7.1.7 Performance of Loan Documents........................... 29
SECTION 7.1.8 Books and Records....................................... 29
SECTION 7.1.9 Significant Subsidiary Guaranty......................... 29
SECTION 7.1.10 Environmental Covenant.................................. 29
SECTION 7.2 Certain Negative Covenants.............................. 29
SECTION 7.2.1 Indebtedness for Borrowed Money......................... 30
SECTION 7.2.2 Liens................................................... 30
SECTION 7.2.3 Consolidation, Merger, etc.............................. 31
SECTION 7.2.4 Transactions with Affiliates............................ 31
SECTION 7.2.5 Sale or Discount of Receivables......................... 31
SECTION 7.2.6 Dividends............................................... 31
SECTION 7.2.7 Inconsistent Agreements................................. 31
SECTION 7.2.8 Loans, Advances and Investments......................... 31
SECTION 7.2.9 Guaranties.............................................. 32
SECTION 7.2.10 Securities.............................................. 32
SECTION 7.2.11 Business Activities..................................... 33
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Events of Default....................................... 33
SECTION 8.1.1 Non-Payment of Liabilities.............................. 33
SECTION 8.1.2 Non-Performance of Certain Covenants.................... 33
SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed
Money................................................... 33
SECTION 8.1.4 Bankruptcy, Insolvency, etc............................. 33
SECTION 8.1.5 Control of the Borrower or CEI.......................... 34
SECTION 8.1.6 Non-Performance of Other Obligations.................... 34
SECTION 8.1.7 Breach of Representation or Warranty.................... 34
SECTION 8.1.8 Pension Plans........................................... 34
SECTION 8.1.9 Judgments............................................... 34
SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty
and Subordination Agreement............................. 34
SECTION 8.1.11 Credit Rating........................................... 34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 8.1.12 Funded Debt Ratio....................................... 34
SECTION 8.2 Action if Bankruptcy.................................... 35
SECTION 8.3 Action if Other Event of Default........................ 35
ARTICLE IX
NO PREFERENTIAL PROVISIONS
SECTION 9.1 No Preferential Provisions.............................. 35
SECTION 9.2 Pro Rata Borrowings and Payments........................ 35
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Waivers, Amendments, etc. of Loans and Notes;
Participation in Loans and Notes........................ 35
SECTION 10.2 Notices................................................. 36
SECTION 10.3 Costs and Expenses...................................... 36
SECTION 10.4 Indemnification......................................... 36
SECTION 10.5 Survival................................................ 36
SECTION 10.6 Severability............................................ 36
SECTION 10.7 Headings................................................ 36
SECTION 10.8 Counterparts, Effectiveness, etc........................ 37
SECTION 10.9 Governing Law; Entire Agreement......................... 37
SECTION 10.10 Successors and Assigns.................................. 37
SECTION 10.11 Sale and Transfers, etc., of Loans and Notes;
Participations in Loans and Notes....................... 37
SECTION 10.12 Other Transactions...................................... 38
SECTION 10.13 Waiver of Jury Trial.................................... 39
SECTION 10.14 Consent to Jurisdiction and Service of Process.......... 39
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT A - Note
EXHIBIT B - Loan Request
EXHIBIT C - Continuation/Conversion Notice
EXHIBIT D - Confidentiality Agreement
EXHIBIT E - Disclosure Schedule
EXHIBIT F - Opinion of Borrower's General Counsel
EXHIBIT G - Parent Guaranty
EXHIBIT H - Significant Subsidiary Guaranty
EXHIBIT I - Assignment and Acceptance
EXHIBIT J - Commitment Termination Date Extension Request
EXHIBIT K - Not assigned
EXHIBIT L - Subordination Agreement
EXHIBIT M - Permitted Investments
EXHIBIT N - LIBOR and Domestic Offices of Banks and
Addresses for Notices
<PAGE>
SENIOR REVOLVING LOAN AGREEMENT
THIS SENIOR REVOLVING LOAN AGREEMENT, dated as of October 29, 1998, between
CONSOLIDATION COAL COMPANY, a Delaware corporation (the "Borrower"), and THE
FIRST NATIONAL BANK OF CHICAGO (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower desires to obtain a Commitment from the Bank under
this Agreement pursuant to which Loans, in a maximum aggregate principal amount
at any one time outstanding not to exceed $100,000,000, will be made to the
Borrower from time to time prior to the Commitment Termination Date; and
WHEREAS, the Bank is willing, on the terms and conditions hereinafter set
forth (including Article V), to extend such Commitment and make such Loans to
the Borrower; and
WHEREAS, the proceeds of such Loans will be used for general corporate
purposes and working capital purposes of the Borrower and Subsidiaries of CEI;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms. The following terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such definitions to be equally applicable to the singular and plural forms
thereof):
"Affiliate" of any Person means any other Person which, directly or
-----------
indirectly, controls or is controlled by or under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Pension Plan). A Person shall be deemed to be "controlled
by" any other Person if such other Person possesses, directly or indirectly,
power:
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners of such Person; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agreement" means, at any date, this loan agreement as originally in effect
-----------
on the Effective Date, and as thereafter from time to time amended,
supplemented, amended and restated or otherwise modified and in effect on such
date.
"Applicable Margin" means, for any Interest Period, the amount indicated
-----------------
below for each type of Loan based upon the Credit Rating for each day during
such Interest Period:
-1-
<PAGE>
LIBO Base
Rate Rate
Credit Rating Loans Loans
- --------------- ------ ------
Level I 0.350% 0%
Level II 0.500% 0%
Level III 1.250% 1.00%
"Approval" means each and every approval, consent, filing and registration
--------
by or with any Federal, state or other regulatory authority necessary to
authorize or permit the execution, delivery or performance of this Agreement,
the Notes or any other Loan Document or for the validity or enforceability
hereof or thereof.
"Assignment and Acceptance" means any assignment and acceptance,
-------------------------
substantially in the form of Exhibit I hereto.
---------
"Authorized Officer" means, relative to any Loan Party, those of its
------------------
officers whose signatures and incumbency shall have been certified to the Bank.
"Bank" is defined in the preamble.
---- --------
"Base Rate" means at any time and with respect to all Base Rate Loans, a
---------
fluctuating rate of interest per annum equal to the higher of:
(a) a rate of interest equal to the corporate base rate of interest
announced by the Bank from time to time, changing when and as said
corporate base rate changes; and
(b) the Federal Funds Rate plus 1/2%.
The Base Rate is not necessarily intended to be the lowest rate of interest
charged by the Bank in connection with extensions of credit. Changes in the
rate of interest on Loans maintained as Base Rate Loans shall take effect
simultaneously with each change in the Base Rate.
"Base Rate Loan" is defined in Section 4.1.
-------------- -----------
"Borrower" is defined in the preamble.
-------- --------
"Borrowing" means the Loans made by the Bank on any Business Day in
---------
accordance with Section 3.1.
-----------
"Business Day" means:
------------
(a) any day which is neither a Saturday or Sunday nor a legal holiday
in the State of New York or North Carolina or Virginia on which Banks are
authorized or required to be closed in New York City or Charlotte or
Roanoke; and
(b) relative to the date of
(i) making or continuing any portion of any Loans as, or
converting any portion of any Loans from or into LIBO Rate Loans,
(ii) making any payment or prepayment of principal of or
payment of interest on the portion of the principal amount of the
Loans being maintained as LIBO Rate Loans, and
(iii) the Borrower's giving any notice (or the number of
Business Days to elapse prior to the effectiveness thereof) in
-2-
<PAGE>
connection with any matter referred to in clause (b )(i) or (b) (ii), a
-------------- --------
banking business day of the Bank at, and on which dealings in Dollars are
carried on in the interbank eurodollar market of, the Bank's LIBOR Office.
"CEI" means Consol Energy Inc., a Delaware corporation.
---
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
-------
Liability Information System List.
"Change in Control" means:
-----------------
(a) with respect to the Borrower, the failure of CEI to own, directly
or indirectly, free and clear of all Liens or other encumbrances, one
hundred percent (100%) of the outstanding shares of capital stock of the
Borrower on a fully diluted basis; and
(b) with respect to CEI, the failure of Rheinbraun AG and RG to own,
directly or indirectly, a cumulative total of at least fifty-one percent
(51%) of the outstanding shares of capital stock of CEI, on a fully diluted
basis, in each case, free and clear of all Liens and other encumbrances.
"CI" means Consol Inc., a Delaware corporation.
--
"Code" means the Internal Revenue Code of 1986, and the regulations
----
thereunder, as amended from time to time.
"Commercial Paper Indebtedness" means commercial paper issued by the
-----------------------------
Borrower with an original maturity of not more than 270 days from the date of
issuance, incurrence or other creation thereof and, at the time any
determination thereof is to be made, means the then aggregate outstanding face
amount (if issued, incurred or created on a discount basis) or principal amount
together with interest thereon to stated maturity (if issued, incurred or
created on an interest-bearing basis) of such commercial paper.
"Commitment" means the Bank's obligation to make Loans pursuant to Section
---------- -------
2.1.
- ---
"Commitment Termination Date" means the earliest of
---------------------------
(a) October 22, 1999 as such date may be extended pursuant to Section
-------
2.4;
----
(b) five Business Days after notice is given by the Borrower to the
Bank for purposes of designating a Commitment Termination Date pursuant to
this clause, provided that, on such designated Commitment Termination Date,
--------
no Loans are outstanding;
(c) immediately and without further action upon the occurrence of any
Default described in Section 8.1.4 with respect to the Borrower; and
-------------
(d) immediately when any other Event of Default shall have occurred
and be continuing and the Loans shall be declared to be due and payable
pursuant to Section 8.3.
-----------
-3-
<PAGE>
"Commitment Termination Date Extension Request" means a request
---------------------------------------------
substantially in the form of Exhibit J attached hereto duly executed by an
---------
Authorized Officer of the Borrower.
"Confidentiality Agreement" means a confidentiality agreement duly executed
-------------------------
by an Authorized Officer of the Borrower and the Bank substantially in the form
of Exhibit D attached hereto (as such may be amended, supplemented, restated or
---------
otherwise modified and in effect from time to time with the consent of the
Borrower and the Bank).
"Consolidated Subsidiary" of any Person means, at any time, every
------------------------
Subsidiary which would be included as a consolidated subsidiary of such Person
in its consolidated financial statements as of such time; unless otherwise
specified,
"Consolidated Subsidiary" means a Consolidated Subsidiary of CEI and shall
include the Borrower.
"Continuation/Conversion Notice" means a notice of continuation or
------------------------------
conversion and certificate duly executed by the chief executive or financial
Authorized Officer of the Borrower substantially in the form of Exhibit C
---------
attached hereto.
"Contractual Obligation" means, relative to any Person, any provision of
----------------------
any security issued by such Person or of any Instrument or undertaking to which
such Person is a party or by which it or any of its property is bound.
"Controlled Group" means all members of a controlled group of corporations
----------------
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or either
Guarantor, are treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA.
"Credit Rating" means the credit rating of the Borrower's long-term
-------------
unsecured debt securities without third-party credit enhancement by any two of
S&P, Moody's, D&P, or Fitch, one of which must be S&P or Moody's. "Level I"
Credit Rating means a Credit Rating of any two credit rating agencies, one of
which must be by S&P or Moody's, of at least A- in the case of S&P, at least A3
in the case of Moody's, at least A- in the case of D&P and at least A- in the
case of Fitch. "Level II" Credit Rating means a Credit Rating of any two credit
rating agencies, one of which must be by S&P or Moody's, of less than A- but at
least BBB- in the case of S&P, less than A3 but at least Baa3 in the case of
Moody's, less than A- but at least BBB- in the case of D&P or less than BBB- in
the case of Fitch. ."Level III" Credit Rating means a Credit Rating of any two
credit rating agencies, one of which must be by S&P or Moody's, of less than
BBB- in the case of S&P, less than Baa3 in the case of Moody's, less than BBB-
in the case of D&P and less than BBB- in the case of Fitch, or there being
neither a Credit Rating from S&P nor Moody's, at the same time.
"Default" means any Event of Default or any condition or event which, after
-------
notice or lapse of time or both, would constitute an Event of Default.
"Dollar" and the sign "$" all mean lawful money of the United States of
------ -
America.
"Domestic Office" means, relative to the Bank, the office of the Bank
---------------
designated as such on Exhibit N hereto or such other office of the Bank (or any
---------
successor or assign of the Bank) within the United States of America as may be
designated from time to time by notice from the Bank to each other Person party
hereto.
-4-
<PAGE>
"D&P" means Duff & Phelps Credit Rating Co.
---
"Effective Date" means the date this Agreement becomes effective pursuant
--------------
to Section 10.8.
------------
"Environmental Laws" means all applicable federal, state or local statutes,
------------------
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment, including CERCLA and SMCRA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Event of Default" is defined in Section 8.1.
---------------- -----------
"Exemption Agreement" is defined in Section 3.9(c).
------------------- --------------
"Exemption Representation" is defined in Section 3.9(d).
------------------------ --------------
"Extension Effective Date" means, with respect to any Commitment
------------------------
Termination Date, the date which is 60 days prior to such Commitment Termination
Date.
"Federal Funds Rate" means, for any day, a fluctuating interest rate per
------------------
annum equal to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York; or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the Bank from three federal funds brokers of recognized
standing selected by it.
"Fiscal Quarter" means any quarter of a Fiscal Year.
--------------
"Fiscal Year" means any period of twelve consecutive calendar months ending
-----------
on December 31.
"Fitch" means Fitch Investors Service, Inc.
-----
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
(or any successor).
"GAAP" means generally accepted United States accounting principles.
----
"Guarantors" means CEI and CI.
----------
"Guaranty" means any agreement, undertaking or arrangement by which any
--------
Person guarantees, endorses or otherwise becomes or is contingently liable upon
(by direct or indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise
to assure a creditor against loss) the debt, obligation or other liability of
any other Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends or other distributions upon
the shares of any other Person. The amount of the obligor's obligation under
any guaranty shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum
-5-
<PAGE>
outstanding principal amount, if larger) of the debt, obligation or other
liability thereby guaranteed.
"Hazardous Material" means
------------------
(a) any "hazardous substance". as defined by CERCLA;
(b) any "hazardous waste", as defined by RCRA;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other
Environmental Law.
"hereof", "hereto", "hereunder" and similar terms refer to this Agreement
------ ------ ---------
and not to any particular Section or provision of this Agreement.
"Impermissible Qualification" means, relative to the opinion by independent
---------------------------
public accountants as to any financial statement of CEI, any qualification or
exception to such opinion:
(a) which is of a "going concern" or similar nature; or
(b) which relates to the limited scope of examination of matters
relevant to such financial information.
"including" means including without limiting the generality of any
---------
description preceding such term.
"Indebtedness" of any Person means, without duplication:
------------
(a) Indebtedness for Borrowed Money;
(b) all items other than as described in clause (a)
----------
which, in accordance with GAAP, would be included as liabilities on the
liability side of a balance sheet of such Person as of the date at which
Indebtedness is to be determined; and
(c) whether or not so included as liabilities in accordance with GAAP
(i) all indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements) whether or not such indebtedness shall have been
assumed by such Person,
(ii) all Guaranties issued by such Person
"Indebtedness for Borrowed Money" of any Person means, without duplication,
-------------------------------
all obligations of such Person, and all Guaranties issued by such Person, for
borrowed money (including all notes payable and drafts accepted representing
extensions of credit and all obligations evidenced by bonds, debentures, notes,
unpaid reimbursement obligations under drawn letters of credit or other similar
instruments) on which interest charges are customarily paid.
"Indemnified Liabilities" is defined in Section 10.4.
----------------------- ------------
"Instrument" means any document or writing (whether by formal agreement,
----------
letter or otherwise) under which any obligation is evidenced, assumed or
undertaken, or any right to any Lien is granted or perfected.
-6-
<PAGE>
"Interest Period" means, relative to any LIBO Rate Loan, the period which
---------------
shall begin on (and include) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 4.1, and,
-----------
unless the final maturity of such LIBO Rate Loan is accelerated, shall end on
(but exclude) the day which numerically corresponds to such date one week or
one, two, or three months thereafter, as the Borrower may select in its relevant
notice pursuant to Section 4.1; provided, however, that:
-----------
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than eight different dates;
(b) absent such selection, the Borrower shall be deemed to have
selected an Interest Period of one month provided, that if another duration
--------
shall be required in order to comply with clause (a), such Loan shall be a
----------
Base Rate Loan for such duration;
(c) if there exists no numerically corresponding day in such month,
such Interest Period shall end on the last Business Day of such month;
(d) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the Business Day next
following such numerically corresponding day (unless such next following
Business Day is the first Business Day of a calendar month, in which case
such Interest Period shall end on the preceding Business Day); and
(e) no Interest Period shall end later than the date established
pursuant to clause (a) or (b) of the definition of Commitment Termination
---------- ---
Date.
"Liabilities" means all obligations (monetary or otherwise) of the Borrower
-----------
under this Agreement, the Notes and each other Loan Document.
"LIBO Rate" means, relative to each Interest Period applicable to any LIBO
---------
Rate Loans comprising all or any part of any Borrowing, conversion or
continuation, the rate per annum which appears on Telerate page 3750 or Telerate
page 4833 as of 11:00 a.m., London time, two Business Days prior to the
beginning of such Interest Period, provided that (i) if more than one such
offered rate appears on the Telerate page, the LIBO Rate will be the arithmetic
average (rounded, if necessary, to the nearest 1/100th of 1%) of such offered
rates; and (ii) if no such offered rates appear on such page, the LIBO Rate for
such Interest Period will be the arithmetic average (rounded, if necessary, to
the nearest 1/100th of 1%) of rates quoted by not less than two major banks in
New York City, selected by the Borrower, at approximately 11:00 a.m., New York
City time, two Business Days prior to the beginning of such Interest Period, for
delivery on the first day of such Interest Period, for the number of days
comprised therein and in an amount equal to the amount of the LIBO Rate Loan of
the Bank to be outstanding during such Interest Period.
"LIBO Rate Loan" is defined in Section 4.1.
-------------- -----------
"LIBO Rate (Reserve Adjusted)" means, relative to any portion of a Loan to
----------------------------
be made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
----------------------------
(Reserve Adjusted) 1 - LIBOR Reserve Percentage
-7-
<PAGE>
The Bank shall determine the LIBO Rate (Reserve Adjusted) for each Interest
Period, applicable to LIBO Rate Loans comprising all or part of any Borrowing,
conversion or continuation and promptly notify the Borrower thereof (which
determination shall, in the absence of demonstrable error, be conclusive and
binding on the Borrower) and, if requested by the Borrower, deliver a statement
showing the computation used by the Bank in making such determination.
"LIBOR Office" means the office of the Bank designated as such on Exhibit N
------------ ---------
hereto or such other domestic or foreign office or offices of the Bank (as
designated from time to time by notice from the Bank to the Borrower).
"LIBOR Reserve Percentage" means, relative to each Interest Period, a
------------------------
percentage (expressed as a decimal) equal to the daily average during such
Interest Period of the percentages in effect on each day of such Interest
Period, as prescribed by the F.R.S. Board, for determining reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation of the F.R.S. Board which prescribes reserve requirements
applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as
applicable to the Bank or any Participant of the Bank with respect to such
participation.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
----
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever securing Indebtedness (including any conditional sale or other
title retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing, accompanied by the filing of any
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Loans" is defined in Section 2.1.
----- -----------
"Loan Document" means this Agreement and each Instrument and any other
-------------
document from time to time executed and delivered to the Bank pursuant hereto,
whether or not mentioned herein, including the Notes, the Parent Guaranty, the
Significant Subsidiary Guaranty and the Subordination Agreement.
"Loan Party" means the Borrower, each Guarantor, each Significant
----------
Subsidiary and any other party (other than the Bank) that executes and delivers
a Loan Document.
"Loan Request" means a loan request and certificate duly executed by the
------------
chief executive or financial Authorized Officer of the Borrower substantially in
the form of Exhibit B attached hereto.
---------
"Materially Adverse Effect" means any occurrence of whatever nature
-------------------------
(including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding) which would reasonably be expected, on
a consolidated basis for CEI and its Subsidiaries (including the Borrower) in
accordance with GAAP, to have a materially adverse effect on (a) the
consolidated financial condition, business, operations or properties of CEI and
its Subsidiaries (including the Borrower) taken as a whole or (b) the ability of
the Borrower or any other Loan Party to perform any of its payment or other
material obligations under this Agreement or any other Loan Document.
"Maturity" means, relative to any Loan, the date on which such Loan is
--------
stated to be due and payable, in whole or in part (in accordance with the Note
evidencing such Loan, this Agreement, or otherwise), or such earlier date when
such Loan (or any portion thereof) shall be or become due and payable, in
-8-
<PAGE>
whole or in part, in accordance with the terms of this Agreement, whether by
required prepayment, declaration, or otherwise.
"Monthly Payment Date" means the last day of each calendar month, or if
--------------------
such day is not a Business Day, the next succeeding Business Day.
"Moody's" means Moody's Investors Service, Inc.
-------
"Non-United States Person" means a Person who is not (i) a citizen,
------------------------
national or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or (iii) an estate or trust, in each case the
income of which is subject to United States Federal income taxation regardless
of the source of its income.
"Note" means any promissory note of the Borrower, dated the date hereof,
----
substantially in the form of Exhibit A attached hereto (as such promissory note
---------
may be amended, endorsed, or otherwise modified from time to time) and all other
promissory notes accepted from time to time in substitution, replacement, or
renewal therefor.
"Ongoing Indebtedness" means the Indebtedness described in Item 7.2.1(iii)
-------------------- ---------------
of Exhibit E hereto.
---------
"Organic Document" means, relative to any corporation, its certificate of
----------------
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"Parent Guaranty" that certain guaranty, executed by each Guarantor,
---------------
substantially in the form of Exhibit G attached hereto (as such may be amended,
---------
supplemented, restated or otherwise modified and in effect from time to time).
"Participant" is defined in Section 10.11.
----------- -------------
"PBGC" means the Pension Benefit Guaranty Corporation, a United States
----
corporation and any entity succeeding to all or any of its functions under
ERISA.
"Pension Plan" means a "pension plan", as such term is defined in section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled Group, may have any liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the five years preceding this Agreement, or by reason of
being deemed to be a contributing sponsor under section 4069 of ERISA.
"Permitted Investment" means, at any time, each of the investments listed
--------------------
on Exhibit M hereto.
---------
"Person" means any natural person, corporation, firm, association,
------
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Purchasing Bank" is defined in Section 10.11(b).
--------------- ----------------
"Quarterly Payment Date" means the last day of any Fiscal Quarter or, if
----------------------
such day is not a Business Day, the next succeeding Business Day.
-9-
<PAGE>
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. Section
----
6901, et seq., as in effect from time to time.
"Regulatory Change" means, relative to any Bank, any change after the date
-----------------
hereof in any (or the adoption after the date hereof of any new):
(a) United States Federal or state law or foreign law applicable to
such Bank; or
(b) rule, regulation, interpretation, directive or request (whether
or not having the force of law) applying to such Bank of any court or
governmental authority charged with the interpretation or administration of
any law referred to in clause (a) or of any fiscal, monetary or other
----------
authority having jurisdiction over such Bank.
"Release" means a "release", as such term is defined in CERCLA.
-------
"Reportable Event" means a "reportable event" described in Section 4043(b)
----------------
of ERISA for which the 30-day notice requirement contained in 29 C.F.R.
(S)2613.8(a) has not been waived.
"RG" means Rheinbraun US Gmbh, a corporation existing under the laws of The
--
Federal Republic of Germany.
"Rheinbraun AG" means, Rheinbraun AG, a corporation existing under the laws
-------------
of The Federal Republic of Germany.
"SEC" means the Securities and Exchange Commission (or any government body
---
or agency succeeding to the functions of such Commission).
"Significant Subsidiary" means McElroy Coal Company, a Delaware
----------------------
corporation; Consol Pennsylvania Coal Company, a Delaware corporation; Nineveh
Coal Company, a Delaware corporation; Consolidation Coal Sales Company, a
Delaware corporation; Island Creek Coal Company, a Delaware corporation; Laurel
Run Mining Company, a Virginia corporation; New Century Holdings, Inc., a
Delaware corporation; Keystone Coal Mining Corporation, a Pennsylvania
corporation; Helvetia Coal Company, a Pennsylvania corporation; CONSOL Sales
Company, a Delaware corporation; Eighty-Four Mining Company, a Pennsylvania
corporation; Rochester & Pittsburgh Coal Company, a Pennsylvania corporation;
Fairmont Supply Company, a Delaware corporation, and any other wholly-owned
direct or indirect Subsidiary of CEI whose assets exceed 5% of the consolidated
assets of CEI and the Consolidated Subsidiaries or whose revenues exceed 5% of
the consolidated revenues of CEI and the Consolidated Subsidiaries or any other
direct or indirect Subsidiary of CEI so designated by the Borrower after the
Effective Date.
"Significant Subsidiary Guaranty" means that certain guaranty, executed by
-------------------------------
each Significant Subsidiary, substantially in the form of Exhibit H attached
---------
hereto (as such may be amended, supplemented, restated or otherwise modified and
in effect from time to time).
"SMCRA" means the Federal Surface Mining Control and Reclamation Act of
-----
1977, as in effect from time to time.
"S&P" means Standard & Poor's Corporation.
---
"Subordination Agreement" means that certain subordination agreement,
-----------------------
substantially in the form of Exhibit L attached hereto (as such may be amended,
---------
supplemented, restated or otherwise modified with the written consent of the
Bank and in effect from time to time).
-10-
<PAGE>
"Subsidiary" of any corporation means any other corporation more than 50%
----------
of the outstanding shares of capital stock of which having ordinary voting power
for the election of directors is owned directly or indirectly by such
corporation, and, except as otherwise indicated herein, references to
Subsidiaries shall refer to Subsidiaries of CEI (other than the Borrower).
"Taxes" is defined in Section 3.09.
----- ------------
"Total Commitment Amount" is defined in Section 2.2.
----------------------- -----------
"Transferee" is defined in Section 10.11(c).
---------- ----------------
"type" means, relative to the outstanding principal amount of all or any
----
portion of a Loan, the portion thereof, if any, being maintained as a Base Rate
Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its 50 States
-------------- ----
and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in section
------------
3(l) of ERISA (other than a multiemployer plan as defined in section 3(37) of
ERISA), under which the Borrower, either Guarantor or any Subsidiary may have
any liability, including any obligation to contribute.
SECTION 1.2 Use of Defined Terms. Terms for which meanings are provided
--------------------
in this Agreement shall, unless otherwise defined or the context otherwise
requires, have such meanings when used in the Exhibits attached hereto, each
Loan Request, Continuation/Conversion Notice, notice and other communication
delivered from time to time in connection with this Agreement or any Loan
Document and the definitions of such terms are applicable to the singular as
well as the plural form of such terms, as the context requires.
SECTION 1.3 Accounting and Financial Determinations. Where the character
---------------------------------------
or amount of any asset or liability or item of income or expense is required to
be determined, or any accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP used in, and consistently applied with, the financial
statements referred to in Section 6.4.
-----------
ARTICLE II
COMMITMENTS
SECTION 2.1 Commitments. Subject to the terms and conditions of this
-----------
Agreement (including Article V), the Bank agrees that it will, from time to time
----------
on any Business Day occurring during the period commencing on October 29, 1998
and continuing to (but not including) the Commitment Termination Date, make
loans ("Loans") to the Borrower equal to the amount of the Borrowing requested
-----
on each such Business Day; provided, however, that all such Loans shall be made
-------- -------
on a pro rata basis with loans from all other banks which have Senior Revolving
Loan Agreements with the Borrower, and the Bank shall not be permitted or
required to make any Loan if, after giving effect thereto, the sum of the
aggregate amount of Commercial Paper Indebtedness and the aggregate principal
amount of all Loans outstanding at any one time from the Bank plus the aggregate
of all loans outstanding under Borrower's other Senior Revolving Loan Agreements
would exceed $650,000,000. Subject to the terms hereof, the Borrower may from
time to time prior to the Commitment Termination Date borrow, prepay, and
reborrow amounts pursuant to the Commitment.
-11-
<PAGE>
SECTION 2.2 Total Commitment Amount. The aggregate amount (the "Total
-----------------------
Commitment Amount") of the Bank's Commitment on any date on or prior to the
Commitment Termination Date shall be $100,000,000 less all voluntary reductions
to such amount made by the Borrower; provided, however, that all such reductions
-----------------
shall be made on a pro rata basis with reductions of the total commitment
amounts of all other banks which have Senior Revolving Loan Agreements with the
Borrower, shall require at least three Business Days' prior notice to the Bank
and be permanent, and all partial reductions of such amount, in the case of any
voluntary reduction, shall be in minimum amounts of $500,000 and in integral
multiples of $100,000 in excess thereof.
SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the period
----
(including any portion thereof when its Commitment is suspended by reason of the
Borrower's inability to satisfy any condition of Article V) commencing on
----------
October 29, 1998 and continuing through the Commitment Termination Date, the
following fees:
(a) a start-up fee of $50,000 due and payable on or before November
13, 1998;
(b) a revolving credit facility fee for each day which shall be equal
to (i) the applicable percentage for such day, determined, based on the
Credit Rating on such day, in accordance with the table set forth below,
multiplied by (ii) 1/365, multiplied by (iii) the Total Commitment Amount
on such day.
Credit Rating Applicable Percentage
------------- ---------------------
Level I 0.0800%
Level II 0.1250%
Level III 0.250%
Such revolving credit facility fees shall be due and payable by the
Borrower quarterly in arrears to the Bank for the period ending on each
Quarterly Payment Date, commencing with the first such day following
October 29, 1998 and on the Commitment Termination Date; and
(c) a utilization fee for each day on which the aggregate principal
amount of all outstanding Loans from the Bank exceeds fifty percent (50%)
of the Total Commitment Amount on such day equal to (i) the applicable
percentage for such day, determined, based on the Credit Rating on such
day, in accordance with the table set forth below, multiplied by (ii)
1/365, multiplied by (iii) the aggregate principal amount of all
outstanding Loans from the Bank on such day.
Credit Rating Applicable Percentage
------------- ---------------------
Level I 0.070%
Level II 0.125%
Level III 0.250%
Such utilization fees shall be due and payable by the Borrower quarterly in
arrears to the Bank for the period ending on each Quarterly Payment Date,
commencing with the first such day following October 29, 1998 and on the
Commitment Termination Date.
SECTION 2.4 Commitment Termination Date. The Commitment shall terminate
---------------------------
and the Bank shall be relieved of its obligation to make any Loan on the
Commitment Termination Date. The Borrower may from time to time request an
extension of the Commitment Termination Date for an additional 360 days by
executing and delivering to the Bank a Commitment Termination Date Extension
Request at least thirty (30) but not more than forty-five (45) days prior to the
then current Extension Effective Date. The Commitment Termination Date shall be
so extended if the Bank on or prior to the then current Extension
-12-
<PAGE>
Effective Date duly executes a counterpart of such Commitment Termination Date
Extension Request; provided, that any such extension shall not be effective
--------
before the then current Extension Effective Date. The Bank may in its sole and
absolute discretion withhold its consent to any such Commitment Termination Date
Extension Request.
ARTICLE III
LOANS AND NOTES
SECTION 3.1 Borrowing Procedure. By giving notice to the Bank on or
-------------------
before 12:00 noon, New York time, the Borrower may from time to time irrevocably
request, on not less than three (or same-day in the case of a Base Rate Loan)
nor more than five Business Days' notice, that a Borrowing be made by the Bank
in an aggregate amount equal to the lesser of (i) a minimum amount of $500,000
and an integral multiple of $100,000 in excess thereof, or (ii) the unused
amount of the Commitment then available pursuant to Section 2.1. Such notice may
-----------
be oral and shall be confirmed in writing on or before the first Business Day
following such request by delivering a Loan Request to the Bank. Subject to the
terms and conditions of this Agreement, each Borrowing shall be made on the
Business Day specified in the Loan Request therefor. On such Business Day and
subject to such terms and conditions, the Bank shall provide the Borrower with
funds, on or before 11:00 a.m., New York time (or 3:00 p.m., New York time, in
the case of a Base Rate Loan), in an amount equal to such Loan Request by
transferring same day or immediately available funds to such account as the
Borrower shall specify from time to time by notice to the Bank.
SECTION 3.2 Note. All Loans made by the Bank shall be evidenced by a Note
----
payable to the order of the Bank in a maximum principal amount equal to the
Bank's original Total Commitment Amount. The Borrower hereby irrevocably
authorizes the Bank to make (or cause to be made) appropriate notations on the
grid attached to the Bank's Note (or on a continuation of such grid attached to
any such Note and made a part thereof), which notations, if made, shall
evidence, inter alia, the date of, the outstanding principal of, and the
----------
interest rate (including any conversions thereof pursuant to Section 4.2) and
-----------
Interest Period applicable to, the Loans evidenced thereby. Any such notations
on any such grid (and on any such continuation) indicating the outstanding
principal amount of the Bank's Loans shall be rebuttable presumptive evidence of
the principal amount thereof owing and unpaid, but the failure to record any
such amount on such grid (or on such continuation) shall not limit or otherwise
affect the obligations of the Borrower hereunder or under such Note to make
payments of principal of or interest on such Loans when due.
SECTION 3.3 Principal Payments and Prepayments. The Borrower will repay
----------------------------------
the outstanding principal amount of the Note on the Commitment Termination Date.
In addition, the Borrower:
a. may make a voluntary prepayment in part in an aggregate
principal amount of not less than $500,000 and an integral multiple of
$100,000 in excess thereof, or in full of the outstanding principal amount
of the Note from time to time at any time, in each case upon at least three
Business Days, prior notice (or same day notice in the case of a Base Rate
Loan) to the Bank;
b. shall, on each date when any reduction in the Total Commitment
Amount shall become effective pursuant to Section 2.2, make a mandatory
-----------
prepayment of the Note equal to the excess, if any, of the outstanding
principal amount of all Loans over the Total Commitment Amount as so
reduced; and
-13-
<PAGE>
c. shall, on each date when the sum of the aggregate principal
amount of all Loans outstanding plus the Commercial Paper Indebtedness exceeds
the Total Commitment Amount, make a mandatory prepayment of the then aggregate
outstanding principal amount of all Loans in an aggregate amount equal to such
excess.
Each prepayment of a Note made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.5. All interest
-----------
accrued on the principal amount of a Note prepaid shall be paid on the date
of such prepayment. No prepayment of principal of the Note pursuant to
clause (a) or (c) above prior to the Commitment Termination Date shall
---------- ---
cause a reduction in the Total Commitment Amount.
Each prepayment of the Note shall, except as the Borrower may
otherwise have notified the Bank, be applied, to the extent of such prepayment:
(a) first, to the principal amount thereof being maintained as
a Base Rate Loan; and
(b) second, to the principal amount thereof being maintained as
a LIBO Rate Loan.
SECTION 3.4 Interest. The Borrower agrees to pay interest on the
--------
principal amount of the Note from time to time unpaid prior to and at Maturity
at a rate per annum:
(a) on that portion of the outstanding principal amount thereof
maintained from time to time as a Base Rate Loan, equal to the sum of
the Base Rate from time to time most recently announced plus the
Applicable Margin per annum, and
(b) on that portion of the outstanding principal amount thereof
maintained from time to time as one or more LIBO Rate Loans during
each applicable Interest Period, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable margin
per annum.
SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any portion
-------------------
of the principal amount of the Loans or after any other monetary Liabilities
shall have become due, the Borrower shall pay interest (after as well as before
judgment) on the principal amount of all types of Loans so matured or on such
other monetary Liabilities, as the case may be, at a rate per annum which is
determined by increasing each of the Applicable Margins set forth in clauses (a)
-----------
and (b) of Section 3.4 by 2% per annum for Loans so matured and, to the extent
--- -----------
permitted by applicable law, at a rate per annum equal to the Base Rate plus 2%
for such other monetary Liabilities.
SECTION 3.6 Payment Dates. Interest accrued on the Note prior to Maturity
-------------
(as aforesaid) shall be payable, without duplication:
(a) on that portion of the outstanding principal amount of each
Note maintained as a Base Rate Loan, on each Monthly Payment Date,
commencing with the first such Monthly Payment Date following the date
of such Notes;
(b) on that portion of the outstanding principal amount of each
Note maintained as one or more LIBO Rate Loans, on the last day of
each applicable Interest Period; and
(c) on that portion of the outstanding principal amount of each
Note converted into a Base Rate Loan or a LIBO Rate Loan, as
-14-
<PAGE>
the case may be, on a day when interest would not otherwise have been
payable pursuant to clause (a) or (b), on the date of such conversion.
---------- ---
Interest on the Note shall be payable at Maturity (as aforesaid) and,
thereafter, on demand. The Bank shall give prompt notice to the Borrower
of each computation of accrued interest before the due date thereof.
SECTION 3.7 Payments, Computations, etc. Unless otherwise expressly
----------------------------
provided in this Agreement, all payments by the Borrower pursuant to this
Agreement, the Note, or any other Loan Document, whether in respect of principal
or interest, shall be made by the Borrower to the Bank without set-off,
deduction, or counterclaim, not later than 2:00 pm, New York time, on the date
due, in same day or immediately available funds, to such account as the Bank
shall specify from time to time by notice to the Borrower. Funds received after
that time shall be deemed to have been received by the Bank on the next
following Business Day. All interest and fees shall be computed on the basis of
the actual number of days (including the first day but excluding the last day)
occurring during the period for which fee is payable over a year comprised of
360 days. Whenever any payment to be made shall otherwise be due on a day which
is not a Business Day, such payment shall (except as otherwise required by
clause (d) of the definition of the term "Interest Period" with respect to
- ---------- ---------------
payments then due of principal of or interest on any Note being maintained as
LIBO Rate Loans) be made on the next succeeding Business Day and such extension
of time shall be included in computing interest, if any, in connection with such
payment.
SECTION 3.8 Setoff. In addition to and not in limitation of any rights of
------
the Bank or other holder of any Note under applicable law, the Bank shall, upon
the occurrence of any Default described in Section 8.1.4 or upon the occurrence
-------------
of any other Event of Default, have the right to set off, appropriate and apply
to the payment of the Liabilities owing to it any and all balances, credits,
deposits, accounts, or moneys of the Borrower then maintained with the Bank and
(as security for such Liabilities) the Borrower hereby grants to the Bank a
continuing security interest in any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter maintained with such Bank.
The Bank agrees promptly to notify the Borrower after any such setoff and
application made by the Bank; provided, however, that the failure to give such
-------- -------
notice shall not affect the validity of such setoff and application. The rights
of the Bank under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which the
Bank may have.
SECTION 3.9 Taxes. (a) All payments by the Borrower of principal of, and
-----
interest on, the Loans and all other amounts payable hereunder to any recipient
(including any Purchasing Bank) shall be made free and clear of and without
deduction or withholding for any present or future income, stamp, or other
taxes, fees, duties or other charges of any nature whatsoever imposed by any
taxing authority, other than taxes imposed on or measured by such recipient's
net income or receipts (such non-excluded items being hereinafter referred to as
"Taxes"), except to the extent that such deduction or withholding is required
-----
pursuant to any applicable law, rule, or regulation. In the event that any
deduction or withholding from any payment to be made by the Borrower hereunder
is required in respect of any Taxes pursuant to any applicable law, rule, or
regulation, then the Borrower will:
(i) pay to the relevant authority the full amount required to be so
withheld or deducted;
-15-
<PAGE>
(ii) promptly forward to the Bank an official receipt or other
documentation satisfactory to the Bank evidencing such payment to such
authority; and
(iii) (except to the extent that such deduction or withholding
results from the breach, by a recipient of a payment, of its Exemption
Agreement, or would not be required if such recipients Exemption
Representation were true) pay to the Bank or holder of a Note such
additional amount or amounts as is necessary to ensure that the net amount
actually received by the Bank or such holder, after giving effect to any
credit against Taxes received by the Bank or such holder as a result of
such deduction or withholding, will equal the full amount the Bank or such
holder would have received had no such deduction or withholding been
required. The Bank and holder shall determine such additional amount or
amounts payable to it (which determination shall, in the absence of
demonstrable error, be conclusive and binding on the Borrower).
Moreover, if any Taxes are directly imposed on the Bank, as a result of any
change in law or any applicable double taxation treaty of the United States, the
jurisdiction of the Bank's incorporation or the jurisdiction in which the Bank's
Domestic Office or LIBOR Office is located, with respect to any payment received
by the Bank hereunder, the Bank may pay such Taxes and the Borrower will
promptly pay such additional amounts (including any penalties, interest or out-
of-pocket expenses) as are necessary in order that the net amount received by
the Bank after the payment of such Taxes (including any Taxes on such additional
amount) shall equal the amount such Person would have received had such Taxes
not been imposed (except to the extent that such Taxes result from the breach,
by such payee, of its Exemption Agreement, or would not be required if such
payee's Exemption Representation were true).
(b) If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Bank the required receipts or other
required documentary evidence, the Borrower shall indemnify the Bank for any
incremental Taxes, interest or penalties that may become payable by the Bank as
a result of any such failure.
(c) The Bank and each subsequent holder of any Note that is a Non-United
States Person agrees (the Bank's "Exemption Agreement" (to the extent it is
-------------------
permitted to do so under the laws and any applicable double taxation treaties of
the United States, the jurisdiction of the Bank's incorporation, and the
jurisdictions in which the Bank's Domestic Office and the Bank's LIBOR Office
are located) to execute and deliver to the Borrower prior to the first scheduled
payment date in each Fiscal Year, a United States Internal Revenue Service Form
1001 or Form 4224 (or any successor form), appropriately completed and claiming
complete (or, in the case it becomes appropriate due to any change in law or
such applicable double taxation treaties, partial) exemption from withholding
and deduction of United States Federal Taxes.
(d) The Bank and each Purchasing Bank hereby represents and warrants
(such Bank's "Exemption Representation" to the Borrower that on the date hereof
------------------------
(or, in the case of a Purchasing Bank, on the date on which such Purchasing Bank
becomes a Bank hereunder) (i) its Domestic Office and its LIBOR Office are
entitled to receive payments of principal of, and interest on, Loans made
hereunder without deduction or withholding for or on account of any Taxes
imposed by the United States or any political subdivision thereof, (ii) it is
permitted to take the actions described in clause (c) above (with respect to
----------
complete exemption from withholding and deduction of United States Federal
Taxes) under the laws and any applicable double taxation treaties of the
jurisdictions specified in such clause (c) and (iii) any payment received by
----------
such Bank hereunder is not subject to any Taxes, whether or not such Taxes are
required to be deducted or withheld by the Borrower.
-16-
<PAGE>
(d) The Bank agrees to use reasonable efforts to change its Domestic
Office or LIBOR Office or prepare, execute and file any additional forms or
other documents which may be necessary or advisable to avoid or to minimize any
amounts otherwise payable under this Section 3.9, in each case solely if such
-----------
change or such preparation, execution and filing can be made or done in a manner
so that the Bank, in its reasonable determination, suffers no legal, economic or
regulatory disadvantage.
(e) In the event that the Borrower becomes required to pay an additional
amount pursuant to this Section 3.10 to the Bank, then the Borrower shall have
------------
the right to seek a substitute bank or banks to promptly replace the Bank under
this Agreement in .accordance with the provisions of Section 10.11(b).
----------------
(g) The parties agree to cooperate with each other in connection with any
Taxes matters pertaining to this Agreement and the Bank shall promptly notify
the Borrower of any Taxes imposed on it with respect to any payment received by
the Bank hereunder, stating the reasons therefor and the amount, if any, payable
by the Borrower hereunder in respect of such Taxes.
ARTICLE IV
BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS
SECTION 4.1 Elections. The Loans comprising any Borrowing may be made as
---------
a "Base Rate Loan" or, at the Borrower's election made in accordance with this
--------------
Section, as a loan having for each particular Interest Period a fixed rate of
interest determined by reference to the LIBO Rate (Reserve Adjusted) (a "LIBO
----
Rate Loan)". The Borrower may request from time to time by delivering to the
- ----------
Bank a Continuation/ Conversion Notice request, on not less than one (or not
less than three if a Loan is to be continued as, or converted into, a LIBO Rate
Loan) nor more than five Business Days, notice:
(a) that all, or any portion in a minimum amount of $500,000 or an
integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of any Borrowing be converted from Base Rate Loans into
LIBO Rate Loans or, subject to Section 4.5, from LIBO Rate Loans into Base
-----------
Rate Loans; and
(b) on the expiration of the Interest Period applicable to any LIBO
Rate Loans, that all, or any portion in a minimum amount of $500,000 or an
integral multiple of $100,000 in excess thereof, of the outstanding
principal amount of such LIBO Rate Loans be converted into Base Rate Loans;
provided, however, that:
(c) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, LIBO Rate Loans if, after giving
effect to such action, the Interest Period applicable thereto shall extend
beyond the date of any prepayment required by Section 3.3, unless a
-----------
sufficient principal amount of other Loans are being maintained as Base
Rate Loans to permit such prepayment to be applied in full to such Base
Rate Loans; and
(d) no portion of the outstanding principal amount of any Loans may
be continued as, or be converted into, a LIBO Rate Loan when any Default
has occurred and is continuing.
-17-
<PAGE>
Each Continuation/Conversion Notice requesting that all, or any portion, of
the principal amount of the Loans be continued as, or be converted into,
LIBO Rate Loans shall specify the duration of the Interest Period
commencing upon such continuation or conversion.
The Bank may, if it so elects, fulfill its commitment to make or
continue any portion of the principal amount of a Loan as, or to convert
any portion of the principal amount of a Loan into, one or more LIBO Rate
Loans by causing a foreign branch or Affiliate of the Bank to make any such
LIBO Rate Loan; provided, however, that in such event such LIBO Rate Loan
-------- -------
shall be deemed to have been made by the Bank, and the obligation of the
Borrower to repay such LIBO Rate Loan shall nevertheless be to the Bank and
shall be deemed to be held by it, to the extent of such LIBO Rate Loan, for
the account of such foreign branch or Affiliate; and provided further that
-------- -------
the making of such LIBO Rate Loans by a foreign branch or Affiliate of the
Bank does not result in any additional Taxes assessable against the Bank in
connection with any payments made by the Borrower hereunder-
Whenever the Bank makes any notations pursuant to Section 3.2 on the
-----------
grid attached to the Note (or on the continuation of such grid) and
whenever the Bank converts a Loan into a Base Rate Loan or a LIBO Rate
Loan, the Bank will make further notations on the grid attached to such
Note (or on such continuation) reflecting the portions of the outstanding
principal amounts thereof being maintained as a Base Rate Loan and LIBO
Rate Loans. Failure to record any such amounts on the grid shall not limit
or otherwise affect the obligations of the Borrower to make payments of
principal and interest on each Note when due.
The Borrower understands that, if it elects that any portion of the
principal amount of a Borrowing be made, continued as, or converted into, a
LIBO Rate Loan, the Bank may (while being entitled to fund all or any
portion of such LIBO Rate Loan as it may see fit) wish to be able to fund
such LIBO Rate Loan by purchasing Dollar deposits in its LIBOR Office's
interbank eurodollar market. Accordingly, in connection with any
determination to be made for purposes of Section 4.2, 4.3, 4.4 or 4.5, it
----------- --- --- ---
shall be conclusively presumed that the Bank has elected to fund all LIBO
Rate Loans by purchasing Dollar deposits in such interbank eurodollar
market.
SECTION 4.2 LIBO Rate Lending Unlawful. If as the result of any
--------------------------
Regulatory Change the Bank shall determine (which determination shall, in the
absence of demonstrable error, be conclusive and binding on the Borrower) that
it is unlawful for the Bank to make, continue or maintain a Loan as, or to
convert a Loan into, one or more LIBO Rate Loans, the obligation of the Bank
under Section 4.1 to make, continue or maintain any portion of the principal
-----------
amount of a Loan as, or to convert such Loan into, one or more LIBO Rate Loans
shall, upon such determination (and telephonic notice thereof confirmed in
writing to the Borrower), forthwith terminate, and any portion of the principal
amount of a Loan then maintained as one or more LIBO Rate Loans by the Bank
shall automatically convert into a Base Rate Loan. If circumstances
subsequently change so that the Bank shall determine that it is no longer so
affected, the obligation of the Bank under Section 4.1 to make or continue Loans
-----------
as, or to convert Loans into, LIBO Rate Loans shall, upon such determination
(and telephonic notice thereof confirmed in writing to the Borrower), forthwith
be reinstated.
SECTION 4.3 Deposits Unavailable. If prior to the date on which all or
--------------------
any portion of the principal amount of any Loan is to be made, continued as, or
converted into, a LIBO Rate Loan, the Bank shall determine for any reason
whatsoever (which determination shall, in the absence of demonstrable error,
-18-
<PAGE>
be conclusive and binding on the Borrower) that dollar deposits in the relevant
amount and for the relevant Interest Period are not available to the Bank in its
relevant market, the Bank shall promptly give telephonic notice of such
determination confirmed in writing to the Borrower, and the obligation under
Section 4.1 of the Bank to make, continue any portion of the principal amount of
- -----------
a Loan as, or to convert a Loan into, one or more LIBO Rate Loans shall, upon
such notification, forthwith terminate; and the portion of all Loans then
maintained as LIBO Rate Loans by the Bank shall on the expiration of the
Interest Period applicable thereto automatically convert into Base Rate Loans.
If circumstances subsequently change so that the Bank shall no longer be so
affected, the Bank shall promptly give telephonic notice thereof confirmed in
writing to the Borrower and the obligations of the Bank under Section 4.1 to
-----------
make or continue Loans as, or convert Loans into, LIBO Rate Loans shall be
reinstated.
SECTION 4.4 Capital Adequacy; Increased Costs, etc. The Borrower further
---------------------------------------
agrees to reimburse the Bank for any increase in the cost to the Bank of making,
continuing, maintaining or converting (or of its obligation to make, continue,
maintain or convert) any of its Loans hereunder (or any portion thereof) and for
any reduction in the amount of any sum receivable by the Bank hereunder in
respect of making, continuing, maintaining or converting (or of its obligation
to make, continue, maintain or convert) any of its Loans hereunder (or any
portion thereof) from time to time by reason of:
(a) to the extent not included in the calculation of the LIBO Rate
(Reserve Adjusted), the adoption or compliance with any capital adequacy,
reserve, special deposit, or similar requirement against assets of,
deposits with or for the account of, or credit extended by, the Bank, under
or pursuant to any law, treaty, rule, regulation (including any F.R.S.
Board regulation), or requirement in effect on the date hereof, or as the
result of any Regulatory Change; or
(b) any Regulatory Change which shall subject the Bank to any tax
(other than taxes on net income or receipts), levy, impost, charge, fee,
duty, deduction, or withholding of any kind whatsoever or change the
taxation of any Loan made or maintained as a LIBO Rate Loan and the
interest thereon (other than any change which affects, and to the extent
that it affects, the taxation of net income or receipts).
In any such event, the Bank shall promptly notify the Borrower thereof
stating the reasons therefor and the additional amount required fully to
compensate the Bank for such increased cost or reduced amount. Such
additional amounts shall be payable on demand after receipt of such notice.
A statement as to any such increased cost or reduced amount or any change
therein (including calculations thereof in reasonable detail) shall be
submitted by the Bank to the Borrower and shall, in the absence of
demonstrable error, be conclusive and binding on the Borrower. In the
event that the Borrower is required to pay an additional amount pursuant to
this Section 4.4 to the Bank, then the Borrower shall have the right to
-----------
seek a substitute bank or banks to replace the Bank under this Agreement in
accordance with the provisions of Section 10.11(b).
----------------
SECTION 4.5 Funding Losses. In the event the Bank shall incur any loss or
--------------
expense (including any loss or expense incurred by reason of the liquidation, or
reemployment of deposits or other funds acquired by the Bank to make, continue
or maintain any portion of the principal amount of any Loan as, or to convert
any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a
result of:
(a) payment or prepayment of the principal amount of any LIBO Rate
Loan on a date other than the scheduled last day of the Interest Period
applicable thereto, whether pursuant to Section 3.3 or otherwise;
-----------
-19-
<PAGE>
(b) any conversion of all or any portion of the outstanding
principal amount of any LIBO Rate Loan to a Base Rate Loan pursuant to
Section 4.1 prior to the expiration of the Interest Period then applicable
thereto (but excluding in each case any loss or expense resulting therefrom
to the extent the Bank is reimbursed therefor by interest payable pursuant
to clause (c) of Section 3.6); or
---------- -----------
(c) a Loan not being made, continued as, or converted into, a LIBO
Rate Loan in accordance with a Loan Request or the Continuation/Conversion
Notice given therefor (other than as the result of a default by the Bank in
complying with such Loan Request or such Continuation/Conversion Notice);
then, upon the request of the Bank, the Borrower shall pay directly to the
Bank such amount as will (in the reasonable determination of the Bank)
reimburse the Bank for such loss or expense. A certificate as to any such
loss or expense (including calculations thereof in reasonable detail) shall
be submitted by the Bank to the Borrower and shall, in the absence of
demonstrable error, be conclusive and binding on the Borrower.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Initial Borrowing. The obligations of the Banks to fund the
-----------------
initial Borrowing (which does not include the first Borrowing following any
extension of the Commitment Termination Date) shall be subject to the prior or
concurrent satisfaction of each of the following conditions precedent.
SECTION 5.1.1 Resolutions, etc. The Bank shall have received:
-----------------
(a) a certificate, dated the date of the initial Borrowing, of the
Secretary or an Assistant Secretary of the Borrower as to
(i) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of the Loan
Documents to be executed by it hereunder;
(ii) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement and each Loan
Document executed by it, upon which certificate the Bank may
conclusively rely until it shall have received a further certificate
of the Secretary or an Assistant Secretary of the Borrower cancelling
or amending such prior certificate; and
(iii) a true and correct copy of the By-laws as then in effect;
(b) a certificate of the Secretary or any Assistant Secretary of each
Guarantor, each Significant Subsidiary and each Subsidiary party to the
Subordination Agreement as to
(iii) resolutions of its Board of Directors then in full force
and effect authorizing the execution, delivery and performance by such Loan
Party of the Loan Documents to be executed and delivered by it hereunder;
(iv) the incumbency and signatures of those of its officers
authorized to act with respect to such Loan Documents upon which
-20-
<PAGE>
certificate the Bank may conclusively rely until it shall have received a
further certificate of such Loan Party cancelling or amending such prior
certificate; and
(iii) a true and correct copy of the By-laws as then in effect.
SECTION 5.1.2 Delivery of Notes. Borrower shall have delivered to the
-----------------
Bank a Note, duly executed and delivered and conforming to the requirements of
Section 3.2.
- -----------
SECTION 5.1.3 Opinions of Counsel. The Bank shall have received opinions
-------------------
from the general counsel of the Borrower, the Guarantors, each Significant
Subsidiary and each Subsidiary party to the Subordination Agreement,
substantially in the form of Exhibit F attached hereto.
---------
SECTION 5.1.4 Parent Guaranty. The Bank shall have received the Parent
---------------
Guaranty duly executed by each Guarantor.
SECTION 5.1.5 Significant Subsidiary Guaranty. The Bank shall have
-------------------------------
received the Significant Subsidiary Guaranty duly executed by each Person that
is a Significant Subsidiary as of the Effective Date.
SECTION 5.1.6 Subordination Agreement. The Bank shall have received the
-----------------------
Subordination Agreement duly executed by each Subsidiary, the Borrower and each
Guarantor which, as of the Effective Date, is expected to make any loans to any
Significant Subsidiary, the Borrower or either Guarantor.
SECTION 5.1.7 Credit Rating. The Borrower shall have delivered to the
-------------
Bank a letter from each of S&P and Moody's stating its intention to confirm the
Borrower a Level I Credit Rating upon review of all documents in support of the
Borrower's commercial paper program and medium term note issuance.
SECTION 5.1.8 Satisfactory Legal Form. All documents executed or
-----------------------
submitted pursuant hereto by or on behalf of the Borrower, each Guarantor, any
Significant Subsidiary or any Subsidiary party to the Subordination Agreement
shall be satisfactory in form and substance to the Bank and its counsel; the
Bank and its counsel shall have received all information, and such counterpart
originals or such certified or other copies of such materials, as the Bank or
its counsel may request; and all legal matters incident to the transactions
contemplated by this Agreement and each other Loan Document shall be
satisfactory to counsel to the Bank.
SECTION 5.2 All Loans. The obligation of the Bank to make any Loan shall
---------
be subject to the satisfaction of each of the conditions precedent set forth in
Sections 5.2.1 through 5.2.3, and each request that a Borrowing be made
- ----------------------------
hereunder shall constitute a certification by the Borrower that each of such
conditions precedent will be satisfied on the date of such requested Borrowing
(and after giving effect to such Borrowing).
SECTION 5.2.1 Compliance with Warranties, non-Default, etc. The
---------------------------------------------
representations and warranties set forth in Article VI shall have been true and
----------
correct in all material respects as of the date initially made, and on the date
(and after giving effect to the incurrence) of such Loan:
(f) such representations and warranties shall be true and correct in
all material respects with the same effect as if then made;
(g) no Default shall have then occurred and be continuing; and
(c) since the Effective Date, there shall have been no
-21-
<PAGE>
occurrence which, individually or in the aggregate, as of the date on which
such Loan is to be made, would reasonably be expected to have a Materially
Adverse Effect.
SECTION 5.2.2 Absence of Litigation, etc. No litigation, arbitration or
--------------------------
governmental investigation or proceeding shall be pending or, to the knowledge
of the Borrower, threatened against the Borrower, either Guarantor or any
Subsidiary or shall affect the business, operations or prospects of any thereof
which was not disclosed by the Borrower to the Bank pursuant to Section 6.6 (or
-----------
prior to the date of the Loans most recently made hereunder, if any, pursuant to
Section 7.1.6), and no development not so disclosed shall have occurred in any
- --------------
litigation, arbitration or governmental investigation or proceeding so
disclosed, which, in either event, as of the date on which such Loan is to be
made, would reasonably be expected to have a Materially Adverse Effect.
SECTION 5.2.3 Loan Request. The Bank shall have received a Loan Request
------------
for such Borrowing.
ARTICLE VI
WARRANTIES, ETC.
In order to induce the Bank to enter into this Agreement and to make Loans
hereunder, the Borrower represents and warrants to the Bank as follows:
SECTION 6.1 Organization, Power, Authority, etc. Each Loan Party is a
-----------------------------------
corporation validly organized and existing and in good standing under the laws
of the state of its incorporation, is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction where the nature of its
business makes such qualification necessary and where the failure to so qualify
would reasonably be expected to have a Materially Adverse Effect and has full
power and authority to own and hold under lease its property and conduct its
business substantially as presently conducted by it. Each Loan Party has full
power and authority to enter into and to perform its obligations under this
Agreement and each Loan Document to which each is a party and to obtain the
Loans hereunder, in the case of the Borrower.
SECTION 6.2 Due Authorization. The execution and delivery by each Loan
-----------------
Party of this Agreement and each Loan Document executed by it and the
performance by each of its respective obligations hereunder and thereunder and
the borrowings hereunder by the Borrower have been duly authorized by all
necessary corporate action, do not require any Approval, do not and will not
conflict with, result in any violation of, or constitute any default under, any
provision of any Organic Document or material Contractual Obligation of such
Loan Party (or any other material Contractual Obligation) or any present law or
governmental regulation or court decree or order applicable to any Loan Party
and will not result in or require the creation or imposition of any Lien in any
of their respective properties pursuant to the provisions of any Contractual
Obligation.
SECTION 6.3 Validity, etc. This Agreement is, and each Loan Document
-------------
executed by any Loan Party will on the due execution and delivery thereof be,
the legal, valid and binding obligation of such Loan Party enforceable in
accordance with its terms, subject, as to enforcement, only to bankruptcy,
insolvency, reorganization, moratorium or other similar laws at the time in
effect affecting the enforceability of the rights of creditors generally, and by
general equitable principles.
SECTION 6.4 Financial Information. All balance sheets, statements of
---------------------
operations, of total owners' equity and of changes in cash flows and other
-22-
<PAGE>
financial information of CEI and the Consolidated Subsidiaries (or, in the case
of any such balance sheets or statements prepared prior to the date hereof, of
the Borrower and its Consolidated Subsidiaries) which have been or shall
hereafter be furnished by or on behalf of the Borrower to the Bank for the
purposes of or in connection with this Agreement or any transaction contemplated
hereby pursuant to Section 7.1.1(a) or Section 7.1.1(b) (except Section
---------------- ---------------- -------
7.1.1(a)(iii)) have been or will be prepared in accordance with GAAP
- --------------
consistently applied throughout the periods involved (except as disclosed
therein), and, in the case of information relating to coal reserves, have been
or will be prepared in accordance with all relevant rules and regulations
promulgated by the SEC, as in effect on the Effective Date, and do or will
present fairly the consolidated financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended and the consolidated statements of earnings, of operations
and of total owners' equity, for each of the fiscal periods then ended, of CEI
and the Consolidated Subsidiaries (or, in the case of any such balance sheets or
statements prepared prior to the date hereof, of the Borrower and its
Consolidated Subsidiaries). Since December 31, 1997, there has been no
occurrence which, individually or in the aggregate, would reasonably be expected
to have a Materially Adverse Effect. Except as disclosed in Item 6.6
--------
("Litigation") of the Disclosure Schedule, none of the Guarantors, the Borrower
or the Consolidated Subsidiaries have any material contingent liabilities
(including any liability pursuant to the Federal Black Lung Benefits Act of
1972, as in effect from time to time) not provided for or disclosed in the
financial statements of CEI and the Consolidated Subsidiaries most recently
delivered by or on behalf of the Borrower to the Banks.
SECTION 6.5 Absence of Certain Default. Neither the Borrower, either
--------------------------
Guarantor nor any Subsidiary is in default,
(h) in the payment of (or in the performance of any material
obligation applicable to) any Indebtedness outstanding in a principal
amount exceeding $10,000,000 in the aggregate; or
(i) under any law or governmental regulation or court decree or order
which would reasonably be expected to have a Materially Adverse Effect.
SECTION 6.6 Litigation, etc. Except as described in Item 6.6
--------------- --------
("Litigation") of the Disclosure Schedule, no litigation, arbitration or
governmental investigation or proceeding against the Borrower, either Guarantor
or any Subsidiary or to which any of the properties of any thereof is subject is
pending or, to the knowledge of the Borrower, threatened which would reasonably
be expected to result in a liability in excess of $10,000,000.
SECTION 6.7 Regulation U. None of the Borrower, either Guarantor or any
------------
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock, and less than 25% of the assets of each consists of margin stock. Terms
for which meanings are provided in Regulation U of the F.R.S. Board or any
regulations substituted therefor, as from time to time in effect, are used in
this Section with such meanings.
SECTION 6.8 Government Regulation. None of the Borrower, either Guarantor
---------------------
or any Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
-23-
<PAGE>
SECTION 6.9 Certain Contractual Obligations or Organic Documents. None
----------------------------------------------------
of the Borrower, either Guarantor or any Subsidiary is a party or subject to any
Contractual Obligation or Organic Document which would reasonably be expected to
have a Materially Adverse Effect.
SECTION 6.10 Taxes. The Borrower, each Guarantor and all Subsidiaries
-----
have filed all tax returns and reports required by law to have been filed by
them and have paid all taxes and governmental charges thereby shown to be owing,
except any such taxes or charges which are being contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on their books.
SECTION 6.11 Pension and Welfare Plans. During the twelve-consecutive-
-------------------------
month period prior to the Effective Date and prior to the date of any Borrowing
hereunder, (a) no steps have been taken to terminate any Pension Plan the assets
of which are insufficient to satisfy all benefit liabilities thereunder (as
defined in section 4001(a)(16) of ERISA) for which the Borrower, either
Guarantor or any Subsidiary could be held liable, and (b) no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise to
a Lien under section 302(f) of ERISA. No condition exists or event or
transaction has occurred with respect to any Pension Plan which might result in
the incurrence by the Borrower, either Guarantor or any Subsidiary of any
material liability, fine or penalty. None of the Borrower, either Guarantor or
any Subsidiary has any contingent liability with respect to any post-retirement
benefit under a Welfare Plan, other than liability for continuation coverage
described in Part 6 of Subtitle B of Title I of ERISA.
SECTION 6.12 Labor Controversies. There are no labor controversies
-------------------
pending or, to the best of the Borrower's knowledge, threatened against the
Borrower, either Guarantor or any Subsidiary, which would reasonably be expected
to have a Materially Adverse Effect.
SECTION 6.13 Subsidiaries and Significant Subsidiaries. Neither the
-----------------------------------------
Borrower nor any Guarantor has any Subsidiaries or Significant Subsidiaries
except those identified in Item 6.13 ("Existing Subsidiaries and Significant
---------
Subsidiaries") of the Disclosure Schedule or those acquired or created
subsequent to the date hereof.
SECTION 6.14 Patents, Trademarks, Etc. Each of the Borrower, each
------------------------
Guarantor and each Subsidiary owns and possesses all such patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights and copyrights as the Borrower considers necessary
for the conduct of the businesses of the Borrower, such Guarantor or such
Subsidiary as now conducted without any infringement upon rights of others which
would reasonably be expected to have a Materially Adverse Effect. There is no
individual patent or patent license used by the Borrower or either Guarantor or
any Subsidiary in the conduct of its business the loss of which would reasonably
be expected to have a Materially Adverse Effect.
SECTION 6.15 Ownership of Properties; Liens. Each of the Borrower, each
------------------------------
Guarantor and each Subsidiary has good and marketable title to or good leasehold
interests in all of its material properties and assets, real and personal, of
any nature whatsoever, free and clear of all Liens except as permitted pursuant
to Section 7.2.2.
-------------
SECTION 6.16 Accuracy of Information. All factual information heretofore
-----------------------
or contemporaneously furnished by the Borrower to the Bank in connection with
execution and delivery of this Agreement and the various transactions
contemplated hereby, as supplemented from time to time and when taken as a
whole, to the best of the Borrower's knowledge, has been, and all other such
factual information hereafter furnished by the Borrower, either Guarantor or any
Subsidiary, to the Bank, as supplemented from time to time
-24-
<PAGE>
and when taken as a whole, will be, true and accurate in every material respect
on the date as of which such information is dated or certified and as of the
Effective Date and not incomplete by omitting to state any material fact
necessary to make such information not misleading. All projections and pro
forma financial information contained in any materials furnished by the Borrower
or either Guarantor or any Subsidiary to the Bank are based on good faith
estimates and assumptions by the management of the Borrower, the applicable
Guarantor or the applicable Subsidiary, it being recognized by the Bank,
however, that projections and statements as to future events are not to be
viewed as fact and that actual results during the period or periods covered by
any such projections or statements may differ from the projected results and
that the differences may be material.
SECTION 6.17 Environmental Warranties.
------------------------
(a) no facility or property (including underlying groundwater) owned
or leased by either Guarantor, the Borrower or any Significant Subsidiary
have been, and continue to be, owned or leased by the Borrower, the
Guarantor or such Significant Subsidiary is out of compliance with any
Environmental Law to the extent that such noncompliance, either singly or
in the aggregate, has or could reasonably be expected to have a Materially
Adverse Effect;
(b) there are no pending or threatened
(i) claims, complaints, notices or requests for information
received by either Guarantor, the Borrower or any Significant
Subsidiary with respect to any alleged violation of any Environmental
Law, or
(ii) complaints, notices or inquiries to either Guarantor, the
Borrower or any Significant Subsidiary regarding potential liability
under any Environmental Law,
in each case, which singly, or in the aggregate, have or could reasonably
be expected to have a Materially Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or under
any property now or previously owned or leased by either Guarantor, the
Borrower or any Significant Subsidiary that, singly or in the aggregate,
have, or could reasonably be expected to have, a Materially Adverse Effect;
(d) each Guarantor, the Borrower and the Significant Subsidiaries have
been issued and are in material compliance with all material permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for their businesses;
(e) no property now or previously owned or leased by either Guarantor,
the Borrower or any Significant Subsidiary is listed or proposed for
listing (with respect to owned property only) (i) on the CERCLIS or on any
similar state list of sites requiring investigation or clean-up to the
extent that such listing relates to liabilities, individually or in the
aggregate, that could reasonably be expected to have a Materially Adverse
Effect, or (ii) on the National Priorities List pursuant to CERCLA;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by either Guarantor, the Borrower or any
-25-
<PAGE>
Significant Subsidiary that, singly or in the aggregate, have, or could
reasonably be expected to have, a Materially Adverse Effect;
(g) none of either Guarantor, the Borrower or any Significant
Subsidiary has directly transported or directly arranged for the
transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on
the CERCLIS or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations which
may lead to material claims against such Guarantor, the Borrower or such
Significant Subsidiary for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA that, either singly or in
the aggregate, have, or could reasonably be expected to have, a Materially
Adverse Effect;
(h) there are no polychlorinated biphenyls or friable asbestos present
at any property now or previously owned or leased by either Guarantor, the
Borrower or any Significant Subsidiary that, singly or in the aggregate,
have, or could reasonably be expected to have, a Materially Adverse Effect;
(i) no conditions exist at, on or under any property now or previously
owned or leased by either Guarantor, the Borrower or any Significant
Subsidiary which, with the passage of time, or the giving of notice or
both, would give rise to liability under any Environmental Law that, either
singly or in the aggregate, have, or could reasonably be expected to have,
a Materially Adverse Effect; and
(j) none of either Guarantor, the Borrower or any Subsidiary owns or
leases any "industrial establishment" (as such term is defined in the New
Jersey Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6, et seq.)
-- ---
in the State of New Jersey.
SECTION 6.18 Year 2000. The Borrower has reviewed the areas within its
---------
business and operations which could be adversely affected by, and has developed
or is developing a program to address, on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications used by the Borrower may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999), and has made
related appropriate inquiry of material suppliers and vendors. The Borrower
believes that with modification and replacement of existing software and
hardware, the Year 2000 Issue can be substantially mitigated. However, if such
modifications and replacements are not made, or are not completed on a timely
basis, which the Borrower currently does not anticipate, the Year 2000 Issue
could have a material impact on the operations of the Borrower. The inability
of a substantial number of third parties to complete their Year 2000 resolution
process could materially impact the Borrower.
SECTION 6.19 Borrower's Solvency. As of the date of this Agreement, the
-------------------
Borrower is and will be Solvent. As used in this Section, "Solvent" means the
Borrower is able to pay its debts as they become due in the usual course of
business.
ARTICLE VII
COVENANTS
SECTION 7.1 Certain Affirmative Covenants. The Borrower agrees with the
-----------------------------
Bank that, until the Commitment shall have terminated and all of the
-26-
<PAGE>
Liabilities have been paid and performed in full, the Borrower will perform the
obligations set forth in this Section 7.1.
-----------
SECTION 7.1.1 Financial Information, etc. The Borrower will furnish, or
--------------------------
will cause to be furnished, to the Bank copies of the following financial
statements, reports and information:
(a) promptly when available and in any event within 90 days after the
close of each Fiscal Year
(i) a balance sheet at the close of such Fiscal Year, and
statements of operations, of Total Owners' Equity and of cash flows
for such Fiscal Year, of CEI and the Consolidated Subsidiaries
certified without Impermissible Qualification by independent public
accountants of recognized standing selected by the Borrower or CEI and
reasonably acceptable to the Bank,
(ii) a letter report of such accountants at the close of such
Fiscal Year to the effect that they have reviewed the provisions of
this Agreement and are not aware of any Default hereunder (insofar as
any Default may relate to accounting matters) continuing at the end of
such Fiscal Year, except such Default, if any, as may be disclosed in
such statement, and
(iii) a certificate of an Authorized Officer of the Borrower
that no Default has occurred and is continuing, or specifying any such
Default and the actions, if any, being taken by the Borrower with
respect thereto,
(b) promptly when available and in any event within 45 days after the
close of each of the first three Fiscal Quarters of each Fiscal Year
(i) a balance sheet at the close of such Fiscal Quarter and
statements of operations, of total owners' equity and of changes in
cash flows for the period commencing at the close of the previous
Fiscal Year and ending with the close of such Fiscal Quarter, of CEI
and the Consolidated Subsidiaries;
(c) promptly upon the incorporation or acquisition thereof,
information regarding the creation or acquisition of any new Significant
Subsidiary;
(d) such other information with respect to the financial condition,
business, property, assets, revenues, and operations of the Borrower,
either Guarantor and the Subsidiaries as the Bank may from time to time
reasonably request.
SECTION 7.1.2 Maintenance of Corporate Existences, etc. Except as
----------------------------------------
permitted by Section 7.2.4, the Borrower will cause to be done at all times all
-------------
things necessary to maintain and preserve the corporate existences of the
Borrower, each Guarantor and each Significant Subsidiary, and to comply in all
material respects with all applicable laws, rules, regulations and orders.
Except as permitted by Section 7.2.4, the Borrower or the Guarantors will
-------------
continue to own and hold directly or indirectly, free and clear of all Liens
(except as permitted by Section 7.2.2), all of the outstanding shares of capital
-------------
stock of each Subsidiary now owned or hereafter acquired.
SECTION 7.1.3 Foreign Qualification. The Borrower will, and will cause
---------------------
each Guarantor and each Subsidiary to, cause to be done at all times all things
necessary to be duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction where the nature of its business
-27-
<PAGE>
makes such qualification necessary and where the failure to so qualify would
reasonably be expected to have a Materially Adverse Effect, and to comply in all
material respects with all applicable laws, rules, regulations and orders.
SECTION 7.1.4 Payment of Taxes, etc. The Borrower will, and will cause
---------------------
each Guarantor and each Subsidiary to, pay and discharge, prior to becoming
delinquent, all federal, state and local taxes, assessments and other
governmental charges or levies against or on any of its property, as well as
claims of any kind which, if unpaid, might become a Lien in a material amount
upon any of its properties; provided, however, that the foregoing shall not
-------- -------
require the Borrower, either Guarantor or any Subsidiary to pay or discharge any
such tax, assessment, charge, levy or other Lien so long as it shall contest the
validity thereof in good faith by appropriate proceedings and shall set aside on
its books adequate reserves in accordance with GAAP with respect thereto.
SECTION 7.1.5 Insurance. The Borrower will, and will cause each Guarantor
---------
and each Subsidiary to, maintain or cause to be maintained through self-
insurance and with responsible insurance companies insurance with respect to its
properties and business against such casualties and contingencies and of such
types and in such amounts as has been historically maintained by the Borrower,
the Guarantors and the Subsidiaries, or which is consistent with sound business
practice in the reasonable opinion of the Borrower, and will, upon request of
the Bank, furnish to the Bank at reasonable intervals a certificate of an
Authorized Officer setting forth the nature and extent of all insurance
maintained by the Borrower, the Guarantors and the Subsidiaries in accordance
with this Section.
SECTION 7.1.6 Notice of Default, Litigation, etc. The Borrower will give
----------------------------------
prompt notice (with a description in reasonable detail) to the Bank of:
(a) the occurrence of any Default or any Event of Default;
(b) the occurrence of any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by the Borrower to the
Bank which has been instituted or, to the knowledge of the Borrowers is
threatened against the Borrower, either Guarantor or any Subsidiary or to
which any of their respective properties is subject which would reasonably
be expected to result in a liability to the Borrower, either Guarantor or
any Subsidiary not covered by the Borrower's, such Guarantor's or such
Subsidiary's insurers, as applicable, in excess of $10,000,000;
(c) any material development which shall occur in any litigation,
arbitration or governmental investigation or proceeding previously
disclosed by the Borrower to the Banks;
(d) the occurrence of any event which would reasonably be expected to
have a Materially Adverse Effect;
(e) the occurrence of (iv) a Reportable Event with respect to any
Pension Plan; (v) the institution of steps by the Borrower, either
Guarantor or any Subsidiary to Terminate, any Pension Plan where the
unfunded liability is in excess of $10,000,000; or (vi) a partial or
complete withdrawal (as described in ERISA section 4203 or 4205) by the
Borrower, either Guarantor or any Subsidiary from a multiemployer plan (as
defined in Section 4001(a)(3) of ERISA) where the unfunded liability is in
excess of $10,000,000; and
(f) the occurrence of (vii) the institution of any steps by the PBGC
to terminate any Pension Plan; (viii) the failure to make a required
contribution to any Pension Plan if such failure is sufficient
-28-
<PAGE>
to give rise to a Lien under section 304(f) of ERISA; (ix) the adoption of
an amendment or the application for a funding waiver that could result in a
requirement that the Borrower, either Guarantor or any Subsidiary furnish a
bond or other security to the PBGC or to a Pension Plan pursuant to
sections 306 or 307 of ERISA; (x) the assertion of any claim with respect
to any Pension Plan which could, if determined adversely, result in the
incurrence by the Borrower, either Guarantor or any Subsidiary of any
material liability, fine or penalty; or (xi) any material increase in the
contingent liability of the Borrower, either Guarantor or any Subsidiary
with respect to post-retirement benefits under any Welfare Plan, as
determined under Financial Accounting Standards Board No. 106.
SECTION 7.1.7 Performance of Loan Documents. The Borrower will, and will
-----------------------------
cause each Loan Party to, perform promptly and faithfully all of its obligations
under each Loan Document executed by it.
SECTION 7.1.8 Books and Records. The Borrower will, and will cause each
-----------------
Guarantor and each Subsidiary to, keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP and permit the Bank or
any of its representatives, at reasonable times and intervals and as arranged
through the Treasurer or chief legal officer of the Borrower, to visit all of
its offices, discuss its financial matters with its officers and independent
accountants, examine and photocopy extracts from (a) any of its financial books
and records and (b) any of its other corporate records other than such corporate
records that are reasonably determined by the Borrower to be proprietary.
SECTION 7.1.9 Significant Subsidiary Guaranty. The Borrower agrees to
-------------------------------
promptly notify the Bank each time a Subsidiary becomes a Significant Subsidiary
and to cause such Significant Subsidiary to deliver to the Bank a duly executed
Significant Subsidiary Guaranty along with an opinion of counsel and a
certificate of the type required by Section 5.1.1(b) both in form and substance
----------------
acceptable to the Bank.
SECTION 7.1.10 Environmental Covenant. The Borrower will, and will cause
----------------------
each Guarantor and each Significant Subsidiary to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with
all applicable Environmental Laws;
(b) immediately notify the Bank and provide copies upon receipt of
all material written claims, complaints, notices or inquiries relating to
the condition of its facilities and properties or compliance with
Environmental Laws, in each case which involve or could reasonably be
expected to involve obligations of the Borrower, either Guarantor or any
Significant Subsidiary, as the case may be, in excess of $10,000,000; and
(c) provide such information and certifications which the Bank may
reasonably request from time to time to evidence compliance with this
Section 7.1.10.
--------------
SECTION 7.2 Certain Negative Covenants. The Borrower agrees with the Bank
--------------------------
that, until the Commitment shall have terminated and all of the Liabilities have
been paid and performed in full:
-29-
<PAGE>
SECTION 7.2.1 Indebtedness for Borrowed Money. The Borrower will not
-------------------------------
permit any Subsidiary to incur or permit to exist any Indebtedness for Borrowed
Money, except (i) Indebtedness for Borrowed Money of any Significant Subsidiary
to the Borrower, either Guarantor or any Subsidiary which is subordinated to
such Significant Subsidiary's obligations under the Significant Subsidiary
Guaranty pursuant to a Subordination Agreement; (ii) Indebtedness for Borrowed
Money of any Subsidiary (other than a Significant Subsidiary) to any other
Subsidiary or to the Borrower or either Guarantor; (iii) Indebtedness for
Borrowed Money outstanding on the date hereof and listed in Item 7.2.1(iii) of
---------------
the Disclosure Schedule and refinancings thereof; provided that such
--------
Indebtedness for Borrowed Money is not increased as the result of such
refinancing; (iv) additional unsecured Indebtedness for Borrowed Money of all
Subsidiaries (other than Significant Subsidiaries) not to exceed $25,000,000 in
the aggregate at any one time outstanding; and (v) additional unsecured
Indebtedness for Borrowed Money of any Subsidiary acquired with such
indebtedness existing at the time of acquisition/merger of such Subsidiary.
SECTION 7.2.2 Liens. The Borrower will not, and will not permit either
-----
Guarantor or any Subsidiary to, create, incur, assume or suffer to exist any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, except:
(a) Liens in favor of the Bank or the other Senior Revolving Lenders
to secure the Liabilities or liabilities under Senior Revolving Loan
Agreements up to a maximum of $650,000,000;
(b) Liens which were granted prior to the date hereof in (and only
in) assets identified in Item 7.2.1(iii) ("Ongoing Indebtedness") and Item
--------------- ----
7.2.2(b) ("Liens") of the Disclosure Schedule;
--------
(c) Liens in (and only in) stock or assets permitted to be acquired
under the terms of this Agreement granted to secure Indebtedness incurred
at the time of such acquisition (or within one year thereof) to finance the
acquisition of such stock or assets; provided, that the amount of
--------
Indebtedness secured thereby is not increased;
(d) statutory and common law banker's Liens and rights of setoff on
bank deposits;
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(g) Liens incurred or existing in the ordinary course of business,
consistent with past practice and not to secure Indebtedness for Borrowed
Money, such as in connection with workers' compensation, unemployment
insurance or other forms of governmental insurance or benefits, or to
secure performance of tenders, statutory obligations, leases and contracts
entered into in the ordinary bourse of business or to secure obligations on
surety or appeal bonds;
-30-
<PAGE>
(h) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance;
(i) Liens existing on any assets at the date of acquisition of such
assets permitted to be acquired under the terms of this Agreement acquired
after the date of this Agreement;
(j) Liens granted to secure Indebtedness incurred to refinance any
Indebtedness secured by Liens permitted by clauses (b), (c) and (i) of this
Section 7.2.2; provided, that such Indebtedness is not increased as the
------------- --------
result of such refinancing and that such Liens attach only to the same
assets subject to Lien prior to the refinancing.
SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and will
--------------------------
not permit either Guarantor or any Subsidiary to, consolidate with or merge into
or with any other corporation, or sell, transfer, lease or sell and lease back
or otherwise dispose of all or substantially all of its assets to any Person,
without prior written consent of the Bank, except for
the voluntary liquidation or dissolution of any wholly-owned
Subsidiary into the Borrower, the merger of any Person with a Subsidiary,
provided that after giving effect to such merger, such Subsidiary remains a
"Subsidiary" as defined herein, or the merger of any Subsidiary into the
Borrower provided that the Borrower is the surviving corporation;
SECTION 7.2.4 Transactions with Affiliates. The Borrower will not, and
----------------------------
will not permit either Guarantor or any Significant Subsidiary to, enter into,
or cause, suffer or permit to exist any transaction, arrangement or contract
with any of its Affiliates (except for Significant Subsidiaries) which would not
be entered into by a prudent Person in the position of the Borrower, such
Guarantor or such Subsidiary, or which is on terms which are not on an arms-
length basis.
SECTION 7.2.5 Sale or Discount of Receivables. The Borrower will not, and
-------------------------------
will not permit either Guarantor or any Subsidiary to, directly or indirectly,
sell with recourse any of its notes or accounts receivable in excess of
$100,000,000 in the aggregate at any one time, other than those arising from the
export outside of the United States of goods or services.
SECTION 7.2.6 Dividends. Neither the Borrower nor either Guarantor shall
---------
pay any dividends to its respective shareholders upon the occurrence, or during
the continuance of, any Default. No dividend shall be paid by Borrower or
either Guarantor other than in accordance with all applicable provisions of law
including, without limitation, the Delaware General Corporation Law, as amended.
SECTION 7.2.7 Inconsistent Agreements. The Borrower will not, and will
-----------------------
not permit either Guarantor or any Subsidiary to, enter into any agreement
containing any provision which would be violated or breached by any borrowing by
the Borrower made hereunder or by the performance by the Borrower or any other
Loan Party of their respective obligations hereunder or under any Loan Document.
SECTION 7.2.8 Loans, Advances and Investments. The Borrower will not, and
-------------------------------
will not permit either Guarantor or any Subsidiary to, make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Person, except:
-31-
<PAGE>
(i) advances or extensions of credit on terms customary in the
industry involved in the form of accounts or other receivables incurred,
and investments, loans and advances made in settlement of such accounts
receivable, all in the ordinary course of business;
(ii) Permitted Investments;
(iii) investments, loans or advances to or in the Borrower or in any
Subsidiary or in either Guarantor;
(iv) loans or advances to employees of the Borrower, either
Guarantor or any Subsidiary in the ordinary course of their respective
businesses, consistent with past practices, not to exceed $1,000,000 in
aggregate amount at any time outstanding; and
(v) other investments, loans or advances not exceeding $100,000,000
in the aggregate at any time outstanding.
SECTION 7.2.9 Guaranties. Except as described in Item 7.2.9
---------- ----------
("Guaranties") of the Disclosure Schedule, neither the Borrower, either of the
Guarantors nor any Subsidiary will enter into any Guaranty prior to the
Commitment Termination Date, except for
(a) Guaranties relating to operating and capital leases on which the
Borrower, such Guarantor or such Subsidiary is lessee;
(b) the Parent Guaranty and any Significant Subsidiary Guaranty;
(c) Guaranties (other than Guaranties described in clause (b) of this
----------
Section 7.2.9 and Guaranties described in Item 7.2.9 of the Disclosure
------------- ----------
Schedule) not to exceed $25,000,000 in aggregate amount at any time
outstanding of Indebtedness for Borrowed Money;
(d) contingent obligations arising or existing as the result of the
sale or other disposition of assets;
(e) Guaranties by the Borrower or either Guarantor of any
Indebtedness for Borrowed Money of any Subsidiary permitted under Section
-------
7.2.1;
-----
(f) Guaranties by the Borrower or either Guarantor not to exceed
$75,000,000 in aggregate amount at any time outstanding of any obligations
of any Person other than any Subsidiary or any of its Affiliates; and
(g) Guarantees by the Borrower, any Subsidiary or either Guarantor of
any obligation of the Borrower, any Subsidiary or other Guarantor incurred
or existing in the ordinary course of business, consistent with past
practice and not to secure indebtedness for Borrowed Money, such as in
connection with workers' compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts entered into in the
ordinary course of business or to secure obligations on surety or appeal
bonds.
SECTION 7.2.10 Securities. The Borrower will not, and will not permit
----------
either Guarantor or any Subsidiary to, make any distributions, redemptions,
prepayments, defeasances or repurchases of its securities upon the occurrence or
during the continuance of any Default. The Borrower will not, and will not
permit any Significant Subsidiary to, issue any capital stock to any Person
other than either Guarantor, any other Significant Subsidiary or the Borrower.
-32-
<PAGE>
SECTION 7.2.11 Business Activities. The Borrower will not, and will not
-------------------
permit the Guarantors or any Significant Subsidiary to:
(a) operate its business other than in the ordinary and usual course;
and
(b) engage in any type of business except the businesses of the type
or substantially related to the type so operated by the Borrower, such
Guarantor or such Significant Subsidiary on the Effective Date.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Events of Default. The term "Event of Default" shall mean
----------------- ----------------
each of the following events:
SECTION 8.1.1 Non-Payment of Liabilities. The Borrower shall default in
--------------------------
the payment or prepayment when due, whether at stated maturity, by acceleration,
or otherwise, of any principal of any Note, or the Borrower shall default (and
such default shall continue unremedied for a period of three days) in the
payment when due, whether at stated maturity, by acceleration, or otherwise, of
interest on any Note, of any commitment fee or of any other Liability.
SECTION 8.1.2 Non-Performance of Certain Covenants. The Borrower shall
------------------------------------
default in the due performance and observance of any of its obligations under
Section 7-2 of this Agreement and such default shall continue unremedied for 10
- -----------
days after notice thereof shall have been given to the Borrower by the Bank.
SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed Money.
---------------------------------------------------------
Any default shall occur under the terms applicable to any Indebtedness for
Borrowed Money outstanding in a principal amount exceeding individually or in
the aggregate $25,000,000 of the Borrower, the Guarantors or any Significant
Subsidiary representing any borrowing or financing or arising under any other
lease or material agreement, and such default shall:
(a) consist of the failure to pay Indebtedness for Borrowed Money at
the maturity thereof; or
(b) continue without being cured or waived (so long as such cure or
waiver did not involve any payment of principal of such Indebtedness for
Borrowed Money) for a period of time sufficient to permit acceleration of
Indebtedness for Borrowed Money.
SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower, either Guarantor
---------------------------
or any Significant Subsidiary shall become insolvent or generally fail to pay,
or admit in writing its inability to pay, debts as they become due; or the
Borrower, either Guarantor or any Significant Subsidiary shall apply for,
consent to, or acquiesce in, the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower, such Guarantor or such
Significant Subsidiary or any property of any thereof, or make a general
assignment for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver, sequestrator or other custodian
shall be appointed for the Borrower, either Guarantor or any Significant
Subsidiary or for a substantial part of the property of any thereof and not be
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, shall be commenced in respect
of the Borrower, either Guarantor or
-33-
<PAGE>
any Significant Subsidiary, and, if such case or proceeding is not commenced by
the Borrower, such Guarantor or such Significant Subsidiary, such case or
proceeding shall be consented to or acquiesced in by the Borrower, such
Guarantor or such Significant Subsidiary or shall result in the entry of an
order for relief or shall remain for 60 days undismissed; or the Borrower,
either Guarantor or any Significant Subsidiary shall take any corporate action
to authorize, or in furtherance of, any of the foregoing.
SECTION 8.1.5 Control of the Borrower or CEI. Any Change in Control shall
------------------------------
occur on or after January 1, 1992.
SECTION 8.1.6 Non-Performance of Other Obligations. Any Loan Party shall
------------------------------------
default in the due performance and observance of any other agreement, applicable
to it, contained in this Agreement or in any other Loan Document, and such
default shall continue unremedied for a period of 30 days after notice thereof
shall have been given to the Borrower by the Bank.
SECTION 8.1.7 Breach of Representation or Warranty. Any representation or
------------------------------------
warranty of any Loan Party in any Loan Document or in any writing furnished
after the date of this Agreement by or on behalf of any Loan Party to the Bank
for the purposes of or in connection with this Agreement is or shall be
incorrect in any material respect when made.
SECTION 8.1.8 Pension Plans. Any of the following events shall occur with
-------------
respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan, in excess
of $25,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 8.1.9 Judgments. A final judgment to the extent not covered by
---------
insurance that, with other such outstanding final judgments against the
Borrower, either Guarantor and the Subsidiaries exceeds an aggregate of
$10,000,000 shall be rendered against the Borrower, either Guarantor or any
Subsidiary and if, within 60 days after entry thereof, such judgment shall not
have been discharged or otherwise satisfied or execution thereof stayed pending
appeal, or if, within 60 days after the expiration of any such stay, such
judgment shall not have been discharged or otherwise satisfied.
SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and
----------------------------------------------------
Subordination Agreement. The Parent Guaranty or any Significant Subsidiary
- -----------------------
Guaranty or any Subordination Agreement shall cease to be in full force and
effect or any Loan Party or any Person by, through or on behalf of any Loan
Party shall contest in any manner in writing the validity, binding nature or
enforceability of either the Parent Guaranty, any Significant Subsidiary
Guaranty or any Subordination Agreement.
SECTION 8.1.11 Credit Rating. Borrower having neither a Credit Rating
-------------
from S&P nor Moody's at the same time, or having a Credit Rating from S&P of
less than BB- or a Credit Rating from Moody's of less than Ba3.
SECTION 8.1.12 Funded Debt Ratio. The ratio of Borrower's total
-----------------
Indebtedness for Borrowed Money on any day to total earnings for the last four
consecutive complete calendar quarters (before interest, taxes, depreciation and
amortization and excluding any extraordinary gains or losses) exceeds 2.5:1, and
Borrower's Credit Rating is at Level II or Level III.
-34-
<PAGE>
SECTION 8.2 Action if Bankruptcy. If any Event of Default described in
--------------------
Section 8.1.4 shall occur with respect to the Borrower, the outstanding
- -------------
principal amount of all outstanding Notes and all other Liabilities shall be and
become immediately due and payable, without notice or demand.
SECTION 8.3 Action if Other Event of Default. If any Event of Default
--------------------------------
(other than an Event of Default described in Section 8.1.4 with respect to the
-------------
Borrower) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Bank may, without notice or demand, declare all or any portion
of the outstanding principal amount of the Loans to be due and payable and any
or all other Liabilities to be due and payable, whereupon the full unpaid amount
of such Loans and any and all other Liabilities which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand, or presentment.
ARTICLE IX
NO PREFERENTIAL PROVISIONS
SECTION 9.1 No Preferential Provisions. The Borrower is a party to
--------------------------
separate senior revolving loan agreements having terms substantially similar to
the terms of this Agreement and may from time to time enter into additional or
replacement senior revolving loan agreements with one or more financial
institutions having terms substantially similar to the terms of this Agreement
(any such agreement [including this Agreement] a "Senior Revolving Loan
Agreement", and each lender under a Senior Revolving Loan Agreement [including
the Bank], a "Senior Revolving Lender"). The Borrower shall not consent to or
otherwise effect any amendment to a Senior Revolving Loan Agreement any document
or instrument delivered pursuant thereto, or enter into any additional agreement
or deliver any additional instrument in respect of a Senior Revolving Loan
Agreement, that places another Senior Revolving Lender in a position that is
materially superior to that of the Bank, unless prior to taking any such action,
the Borrower shall have offered to the Bank the opportunity to incorporate the
terms of such proposed amendment into the terms of this Agreement or the
documents or instruments delivered pursuant hereto or to become party to or
otherwise benefit from the terms of such additional document or instrument or a
similar document or instrument.
SECTION 9.2 Pro Rata Borrowings and Payments. All Borrowings, all
--------------------------------
interest payments and all principal payments and prepayments under all Senior
Revolving Loan Agreements shall be made based on each Senior Revolving Lender's
pro rata share of the aggregate total of the Commitments of all Senior Revolving
- --- ----
Loan Agreements.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Waivers, Amendments, etc. of Loans and Notes; Participation
-----------------------------------------------------------
in Loans and Notes. The provisions of this Agreement and of each Loan Document
- ------------------
may from time to time be amended, modified, or waived, if such amendment
modification or waiver is in writing and consented to by the Borrower and the
Bank.
No failure or delay on the part of the Bank or the holder of any Note in
exercising any power or right under this Agreement or any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the Borrower in
any case shall entitle it to any notice or demand in similar or other
-35-
<PAGE>
circumstances. No waiver or approval by the Bank, or the holder of any Note
under this Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2 Notices. All notices and other communications provided to
-------
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to it at its
address set forth in Exhibit N hereto or at such other address as may be
---------
designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid or sent by nationally
recognized courier, shall be deemed given when received; any notice, if
transmitted by telex or facsimile, shall be deemed given when transmitted
(answerback confirmed in the case of telexes and electronically confirmed in the
case of any facsimile).
SECTION 10.3 Costs and Expenses. The Borrower agrees to reimburse the
------------------
Bank upon demand for all reasonable out-of-pocket expenses (including attorneys'
fees and legal expenses and the allocated costs of in-house counsel and legal
staff) incurred by the Bank in enforcing the obligations of the Borrower, either
Guarantor or any Significant Subsidiary under this Agreement or any other Loan
Document.
SECTION 10.4 Indemnification. In consideration of the execution and
---------------
delivery of this Agreement by the Bank and the extension of the Commitment, the
Borrower hereby indemnities, exonerates and holds the Bank and each of its
officers, directors, employees, and agents (the "Bank Parties") free and
------------
harmless from and against any and all actions, causes of action, suits, losses,
costs, liabilities and damages, and expenses actually incurred in connection
therewith (irrespective of whether such Bank Party is a party to the action for
which indemnification hereunder is sought), including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Bank Parties
-----------------------
or any of them as a result of, or arising out of, or relating to the entering
into and performance of this Agreement and any other Loan Document by any of the
Bank Parties; except for any such Indemnified Liabilities arising for the
account of a particular Bank Party by reason of the relevant Bank Party's breach
of this Agreement or of any Loan Document or gross negligence or wilful
misconduct, and if and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
SECTION 10.5 Survival. The obligations of the Borrower under Section 4.4,
-------- -----------
4.5, 10.3, and 10.4 shall in each case survive any termination of this
- --- ---- ----
Agreement. The representations and warranties made by each Loan Party in this
Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.
SECTION 10.6 Severability. Any provision of this Agreement or any other
------------
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or such Loan Document or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 10.7 Headings. The various headings of this Agreement and of each
--------
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such Loan Document or any
provisions hereof or thereof.
-36-
<PAGE>
SECTION 10.8 Counterparts, Effectiveness, etc. This Agreement may be
---------------------------------
executed by the parties hereto in several counterparts, each of which shall be
executed by the Borrower and the Bank and be deemed to be an original and all of
which shall constitute together but one and the same agreement. This Agreement
shall become effective when counterparts hereof are executed on behalf of the
Borrower and the Bank.
SECTION 10.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTE,
-------------------------------
AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT, THE
NOTE, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 10.10 Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
-------- -------
(a) the Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Bank; and
(b) the rights of sale, assignment, participation and transfer by the
Bank are subject to Section 10.11.
-------------
SECTION 10.11 Sale and Transfers, etc., of Loans and Notes; Participations
------------------------------------------------------------
in Loans and Notes.
- ------------------
(a) The Bank may at any time sell to one or more banks or other
entities ("Participants") participating interests in all or any portion of
------------
its Commitment and Loans or any other rights or interest of the Bank
hereunder (its "Credit Exposure"). In the event of any such sale by a Bank
---------------
of participating interests to a Participant, the Bank shall notify the
Borrower of the identity of such Participant, the Bank's obligations under
this Agreement shall remain unchanged, the Bank shall remain solely
responsible for the performance thereof, the Bank shall remain the holder
of any such Note for all purposes under this Agreement, and the Borrower
shall continue to deal solely and directly with such Bank in connection
with the Bank's rights and obligations under this Agreement. Except in the
case of the sale of a participation to an Affiliate of the Bank, any
participation permitted hereunder shall be in a minimum amount of at least
$5,000,000, and the relevant participation agreement shall not permit the
Participant to transfer, pledge, assign, sell participations in or
otherwise encumber its portion of the Commitment or Loans. The Bank agrees
that any agreement between the Bank and any such Participant in respect of
such participating interest shall not restrict the Bank's right to agree to
any amendment, supplement or modification to the Agreement or any of the
Loan Documents except to extend the final maturity of any Note, reduce the
rate or extend the time of payment of interest thereon or any fees owed to
the Bank under this Agreement or any of the Loan Documents, reduce the
principal amount of any Note or release any Guaranty. The Borrower hereby
acknowledges and agrees that any such disposition described in this Section
will give rise to a direct obligation of the Borrower to the Participant,
and such Participant shall, for purposes of Sections 3.7, 3.8, 3.9, 4.4 and
------------ --- --- ---
4.5, be considered a Bank and may rely on, and possess all rights under,
---
any opinions, certificates, or other Instruments delivered under or in
connection with this Agreement or any other Loan Document; provided,
--------
however, that, the Borrower shall only be required to deliver information
-------
and data required pursuant to this Agreement to the Bank selling or
granting a participation in (in whole or in part) its Credit Exposure; and
provided, further, that no
-------- -------
-37-
<PAGE>
Participant shall be entitled to payment of any amount under Section 3.9 in
-----------
excess of that which would have been at the date of such participation
required to be paid to the selling Bank had no participation occurred.
Concurrently with the sale of any participation, the Participant shall
execute and deliver to the Borrower and the Bank an instrument in writing
specifying its Domestic Office and its LIBOR Office and containing an
Exemption Representation, and, if such Participant is a Non-United States
Person, an Exemption Agreement.
(b) The Bank (in such capacity the "Assigning Bank") may at any time
--------------
assign to one or more banks or other entities (each a "Purchasing Bank")
---------------
all or any part of its Credit Exposure, provided that (i) unless assigned
to an Affiliate of such Assigning Bank or another Senior Revolving Lender,
it assigns its Credit Exposure in an amount not less than $9,000,000 and,
unless such assignment covers all of such Assigning Bank's Credit Exposure,
such Assigning Bank must retain at least $9,000,000 and (ii) any Purchasing
Bank must be acceptable to the Borrower, whose consent shall not be
unreasonably withheld, and the Bank's and the Borrower's decisions
respecting the same shall be made promptly. In the event of any
assignment, the Assigning Bank shall give notice to the Borrower and shall
deliver to the Borrower, for its acceptance and recording in its records,
an Assignment and Acceptance, which shall include an Exemption
Representation and, if such Purchasing Bank is a Non-United States Person,
its Exemption Agreement. The Borrower and the Bank agree that to the
extent of any assignment, the Purchasing Bank shall be deemed to have the
same rights and benefits with respect to the Borrower under this Agreement
and any Notes as it would have had if it were a Bank hereunder; provided
--------
that the Borrower shall be entitled to continue to deal solely and directly
with the Assigning Bank in connection with the interests so assigned to the
Purchasing Bank until the Assignment and Acceptance shall have been
delivered to the Borrower collectively by the Assigning Bank and the
Purchasing Bank. Upon the assignment of Credit Exposure provided for
hereby, the Assigning Bank shall be relieved of its obligations hereunder
to the extent of such assignment. In the event of any assignment, the
Borrower shall, at its sole cost and expense, prepare and deliver to the
Assigning Bank and to the Purchasing Bank new Notes reflecting the effect
of such assignment.
(c) The Borrower authorizes the Bank to disclose to any Participant
or Purchasing Bank (each, a "Transferee") and any prospective Transferee
----------
any and all financial information in the Bank's possession concerning the
Borrower, either Guarantor and any Subsidiary which has been delivered to
the Bank by the Borrower, either Guarantor or any Subsidiary pursuant to
this Agreement or any other Loan Document or which has been delivered to
the Bank by the Borrower, either Guarantor or any Subsidiary in connection
with the Bank's credit evaluation of the Borrower, either Guarantor or any
Subsidiary prior to entering into this Agreement; provided, that such
--------
Transferee or prospective Transferee shall first have executed and
delivered to the Borrower a Confidentiality Agreement.
(d) The Bank shall have the right to collaterally assign its rights
hereunder or under any other Loan Document to any Federal Reserve Bank in
accordance with applicable law.
SECTION 10.12 Other Transactions. Nothing contained herein shall preclude
------------------
the Bank from engaging in any transaction, in addition to those contemplated by
this Agreement or any other Loan Document, with the Borrower or any of its
Affiliates in which the Borrower or such Affiliate is not restricted hereby from
engaging with any other Person.
-38-
<PAGE>
SECTION 10.13 Waiver of Jury Trial. THE BANK, AND THE BORROWER HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF THE BANK, OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE BANK ENTERING INTO THIS AGREEMENT.
SECTION 10.14 Consent to Jurisdiction and Service of Process. Any
----------------------------------------------
judicial proceedings brought against the Borrower with respect to this Agreement
or any Note may be brought in any state or federal court of competent
jurisdiction in the State of New York and by the execution and delivery of this
Agreement the Borrower accepts the nonexclusive jurisdiction of the aforesaid
courts. Service of process may be made by any means authorized by federal law
or the law of New York. A copy of any such process so served shall be mailed by
registered mail to the Borrower at its address set forth below its signature
hereto or at such other address as may be designated by the Borrower in a notice
to the Bank. Nothing herein shall limit the right of any Bank to bring
proceedings against the Borrower in the courts of any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CONSOLIDATION COAL COMPANY
By /s/ Karen L. Zemba
-----------------------------------------------
Karen L. Zemba
Vice President & Treasurer
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ D. Andrew Bateman
-----------------------------------------------
Title: D. Andrew Bateman
Senior Vice President
-39-
<PAGE>
SCHEDULE TO EXHIBIT 10.9
In addition, to Exhibit 10.9, Consolidation Coal Company entered into two
additional Senior Revolving Loan Agreements with the following banks, all of
which are substantially identical to Exhibit 10.9 in all material respects:
The First Union National Bank
Bank of America National Trust and Savings Association
<PAGE>
EXHIBIT 10.10
NOTE
$100,000,000 November 13, 1998
FOR VALUE RECEIVED, the undersigned, CONSOLIDATION COAL COMPANY, a Delaware
corporation (the "Borrower"), promises to pay to the order of THE FIRST NATIONAL
--------
BANK OF CHICAGO (the "Bank") on the Commitment Termination Date the principal
----
sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) or, if less, the outstanding
principal amount of all Loans made by the Bank to the Borrower outstanding from
time to time pursuant to that certain Senior Revolving Loan Agreement, dated as
of November 13, 1998, (together with all amendments, if any, hereafter from time
to time made thereto, the "Loan Agreement"), among the Borrower and The Bank as
--------------
such Loans are entered by the holder hereof in its records or in the appropriate
column of the grid (the "Grid") attached to this Note. All payments on account
----
of the principal hereof shall also be endorsed by the holder hereof on the Grid
or otherwise entered on the records of the Bank. Failure to record any such
amounts on the Grid shall not limit or otherwise affect the obligations of the
Borrower to make payments of principal or interest on this Note when due.
The unpaid principal amount of this Note from time to time outstanding
shall bear interest as provided in Section 3.4 and Section 3.5 of the Loan
----------- -----------
Agreement.
All payments of principal of and interest on this Note shall be payable in
lawful currency of the United States of America at the offices of the Bank in
immediately available funds.
This Note is the Note referred to in, and evidences indebtedness incurred
under, the Loan Agreement, to which reference is made for a statement of the
terms and conditions on which the Borrower is permitted and required to make
prepayments of principal of this Note and on which the indebtedness evidenced
hereby may be declared to be immediately due and payable. Unless the contract
requires otherwise, a capitalized item in this Note shall have the meaning given
in the Loan Agreement.
CONSOLIDATION COAL COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba
Vice President & Treasurer
<PAGE>
GRID
Loans made by the Bank to Consolidation Coal Company described in that certain
Senior Revolving Loan Agreement, dated as of November 13, 1998, and payments of
principal of such Loans.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PORTION OF PRINCIPAL BALANCE MAINTAINED
- ----------------------------------------------------------------------------------------------------------------------
APPLICABLE
AMOUNT OF OUTSTANDING FIXED
AMOUNT OF PRINCIPAL PRINCIPAL BASE RATE LIBO RATE INTEREST NOTATION
DATE LOAN PAYMENT BALANCE LOAN LOAN PERIOD MADE BY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
SCHEDULE TO EXHIBIT 10.10
In addition, to Exhibit 10.10, Consolidation Coal Company issued Note for
the benefit of each of the following banks, all of which are substantially
identical to Exhibit 10.10 in all material respects:
The First Union National Bank
Bank of America National Trust and Savings Association
<PAGE>
EXHIBIT 10.11
================================================================================
PARENT GUARANTY
From
CONSOL ENERGY INC.
AND
CONSOL INC.
To
THE FIRST NATIONAL BANK OF CHICAGO
================================================================================
<PAGE>
PARENT GUARANTY
---------------
1. Guaranty of Payment. FOR VALUE RECEIVED, and in consideration of any
-------------------
loan or other financial accommodation heretofore or hereafter at any time made
or granted to CONSOLIDATION COAL COMPANY, a Delaware corporation (herein called
the "Debtor") by THE FIRST NATIONAL BANK OF CHICAGO(herein, in such capacity,
------
together with its successors and assigns, called "Bank"), each of the
----
undersigned, hereby unconditionally guarantees the full and prompt payment when
due, whether by acceleration or otherwise, and at all times thereafter, of all
obligations of the Debtor to the Bank, howsoever created, arising or evidenced,
whether direct or indirect, primary or secondary, absolute or contingent, joint
or several, or now or hereafter existing, or due or to become due (all such
obligations, together with any extensions or renewals thereof, being hereinafter
collectively called the "Liabilities"), under and in connection with that
-----------
certain Senior Revolving Loan Agreement, dated as of November 13, 1998 (herein,
as the same may be amended from time to time, called the "Loan Agreement"),
--------------
among the Debtor and the Bank, and each of the undersigned further agrees to pay
all reasonable expenses (including attorneys' fees and legal expenses) paid or
incurred by the Bank in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing this guaranty.
2. Acceleration of the Time of Payment of Amount Payable Under Guaranty.
--------------------------------------------------------------------
Each of undersigned agrees that, in the event of the dissolution or insolvency
of the Debtor or such undersigned, or the inability or failure of the Debtor or
such undersigned to pay debts as they become due, or an assignment by the Debtor
or such undersigned for the benefit of creditor, or the commencement of any case
or proceeding in respect of the Debtor or such undersigned under any bankruptcy,
insolvency or similar laws, and, if such case or proceeding is not commenced by
the Debtor or such undersigned such case or proceeding shall be consented to or
acquiesced in by the Debtor or such undersigned, or shall result in the entry of
an order for relief or shall remain for 60 days undismissed, and if such event
shall occur at a time when any of the Liabilities may not then be due and
payable, such undersigned will pay to the Agent forthwith the full amount which
would be payable hereunder by such undersigned if all Liabilities were then due
and payable.
3. Right of Setoff in Deposits and other Property. The Bank shall have a
----------------------------------------------
right of set off against (and may, without demand or notice of any kind, at any
time and from time to time when any amount shall be due and payable by such
undersigned hereunder, appropriate and apply toward the payment of such amount,
in such order of application as the Bank may elect) any and all balances,
credits, deposits (general or special, time or demand, provisional or final),
accounts or moneys of or in the name of such undersigned now or hereafter with
the Agent or such Bank.
4. Continuing Guaranty. This guaranty shall in all respects be a
-------------------
continuing, absolute and unconditional guaranty, and shall remain in full force
and effect (notwithstanding, without limitation, the dissolution of any of the
undersigned or that at any time or from time to time all Liabilities may have
been paid in full), until all Liabilities (including any extensions or renewals
of any thereof) and all interest thereon and all expenses (including attorneys'
fees and legal expenses) reasonably paid or incurred by the Bank in endeavoring
to collect the Liabilities and in enforcing this guaranty shall have been
finally paid in full and all other obligations of each of the undersigned under
this guaranty shall have been satisfied.
5. Rescission or Return of Payment on Liabilities. Each of the
----------------------------------------------
undersigned further agrees that, if at any time all or any part of any payment
theretofore applied by the Bank to any of the Liabilities is or must be
rescinded or returned by the Bank for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of the
2
<PAGE>
Debtor), such Liabilities shall, for the purposes of this guaranty, to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by the Bank, and this
guaranty shall continue to be effective or be reinstated, as the case may be, as
to such Liabilities, all as though such application by the Bank had not been
made.
6. Bank Permitted to Take Certain Actions. The Bank may, from time to
--------------------------------------
time, at its sole discretion and without notice to the undersigned (or any of
them) take any or all of the following actions without impairing the obligation
of the undersigned under this guaranty: (a) retain or obtain a lien upon or a
security interest in any property to secure any of the Liabilities or any
obligation hereunder, (b) retain or obtain the primary or secondary obligation
of any obligor or obligors, in addition to the undersigned, with respect to any
of the Liabilities (c) extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any of the Liabilities, or
release or compromise any obligation of any of the undersigned hereunder or any
obligation of any nature of any other obligor with respect to any of the
Liabilities, (d) release or fail to perfect its lien upon or security interest
in, or impair, surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities or any
obligation hereunder, or extend or renew for one or more periods (whether or not
longer than the original period) or release, compromise, alter or exchange any
obligations of any nature of any obligor with respect to any such property, and
(e) resort to the undersigned (or any of them) for payment of any of the
Liabilities, whether or not the Bank (i) shall have resorted to any property
securing any of the Liabilities or any obligation hereunder or (ii) shall have
proceeded against any other of the undersigned or any other obligor primarily or
secondarily obligated with respect to any of the Liabilities (all of the actions
referred to in preceding clauses (i) and (ii) being hereby expressly waived by
the undersigned).
7. Application of Payments. Any amounts received by the Bank from
-----------------------
whatsoever source on account of the Liabilities may be applied by the Bank,
toward the payment of such of the Liabilities, and in such order of application,
as the Bank may from time to time elect.
8. Waiver of Subrogation. Each of the undersigned hereby waives any
---------------------
claim or other right which such of the undersigned may now have or hereafter
acquire against the Debtor or any other obligor primarily or secondarily
obligated with respect to any of the Liabilities that arises from the existence
or performance of the obligations of such of the undersigned under this
guaranty, including, without limitation, any right of indemnification or any
right of subrogation or other right to participate in any claim or remedy of the
Bank against the Debtor or any property securing any of the Liabilities, which
the Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity or under contract, statute Or common law. The
provisions of this paragraph are for the express benefit of the Debtor and each
other obligor primarily or secondarily obligated with respect to any of the
Liabilities as well as the Bank and may be enforced independently by the Debtor
and each such other obligor.
9. Waiver of Notice and Other Matters. Each of the undersigned hereby
----------------------------------
expressly waives: (a) notice of the acceptance by the Bank of this guaranty, (b)
notice of the existence or creation or non-payment of all or any of the
Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other
notices whatsoever, and (d) all diligence in collection or protection of or
realization upon the Liabilities or any thereof, any obligation hereunder, or
any security for or guaranty of any of the foregoing.
10. Additional Liabilities of the Debtor Authorized. The creation or
-----------------------------------------------
existence, with or without notice to the undersigned, from time to time of
3
<PAGE>
Liabilities in excess of the amount to which the right of recovery under this
guaranty is limited shall not in any way affect or impair the rights of the Bank
and the obligations of the undersigned under this guaranty.
11. Assignment of Liabilities. The Bank may, from time to time to the
-------------------------
extent permitted under the Loan Agreement, without notice to the undersigned (or
any of them) assign or transfer any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Liabilities shall be and remain Liabilities
for the purposes of this guaranty, and each and every immediate and successive
assignee or transferee of any of the Liabilities or any interest therein shall,
to the extent of the interest of such assignee or transferee in the Liabilities,
be entitled to the benefits of this guaranty to the same extent as if such
assignee or transferee were the Bank.
12. Waiver and Modifications. No delay on the part of the Bank in the
------------------------
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by the Bank of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy; nor shall
any modification or waiver of any of the provisions of this guaranty be binding
upon the Bank except as expressly set forth in a writing duly signed and
delivered on behalf of the Bank.
13. Obligations Under Guaranty. No action of the Bank permitted hereunder
--------------------------
shall in any way affect or impair the rights of the Bank and the obligations of
the undersigned under this guaranty. For the purposes of this guaranty,
Liabilities shall include all obligations of the Debtor to the Bank under and in
connection with the Loan Agreement, notwithstanding any right or power of the
Debtor or anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
affect or impair the obligations of the undersigned hereunder. The obligations
of the undersigned under this guaranty shall be absolute and unconditional
irrespective of any circumstance whatsoever which might constitute a legal or
equitable discharge or defense of the undersigned (or any of them). Each of the
undersigned hereby acknowledges that there are no conditions to the
effectiveness of this guaranty.
14. Information Concerning Debtor. Each of the undersigned hereby
-----------------------------
warrants and represents to the Bank that such undersigned now has and will
continue to have independent means of obtaining information concerning the
affairs, financial condition and business of the Debtor. The Bank shall have no
duty or responsibility to provide the undersigned (or any of them) with any
credit or other information concerning the affairs, financial condition or
business of the Debtor which may come into the Bank's possession.
15. Senior Indebtedness. Each of the undersigned hereby further warrants
-------------------
and represents that the obligations of each undersigned under this guaranty and
under each other Loan Document constitutes indebtedness senior to any
subordinated indebtedness of such undersigned.
16. Certain Representations. Each of the undersigned hereby further
-----------------------
warrants and represents to the Bank that (a) the execution and delivery of this
guaranty, and the performance by each of the undersigned of its obligations
hereunder, are within the corporate right, power, authority and capacity of such
undersigned and have been duly authorized by all necessary corporate action on
the part of such undersigned, and (b) this guaranty has been duly executed and
delivered on behalf of each of the undersigned and is the legal, valid and
binding obligation of such undersigned, enforceable in accordance with its
terms, the making and performance of which do not and will not contravene or
conflict with the charter or by-laws of such undersigned or violate or
constitute a default under any law, any presently existing requirement or
restriction imposed by judicial, arbitral or any governmental
4
<PAGE>
instrumentality or any agreement, instrument or indenture by which such
undersigned is bound.
17. No Liens. Each of the undersigned hereby covenants that it will not
--------
permit any Liens upon any of the capital stock of the Debtor owned by such
undersigned except as permitted by the Loan Agreement.
18. Successors. This guaranty shall be binding upon the undersigned, and
----------
upon the successors and assigns of the undersigned; and all references herein to
the Debtor and to such undersigned, respectively, shall be deemed to include any
successor or successors, whether immediate or remote, to such of the Debtor or
such undersigned. The term "undersigned" as used herein shall mean all parties
executing this guaranty and each of them, and all such parties shall be jointly
and severally obligated hereunder.
19. Law; Severability. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE
-----------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Wherever possible each
provision of this guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
guaranty.
20. Captions. Section captions used in this guaranty are for convenience
--------
only, and shall not affect the construction of this guaranty.
21. Waiver of Jury Trial. THE UNDERSIGNED HEREBY EXPRESSLY
--------------------
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
NOT BEFORE A JURY.
22. Consent to Jurisdiction and Service of Process. Each of the
----------------------------------------------
undersigned agrees that any judicial proceedings brought against such
undersigned with respect to this guaranty may be brought in any state or federal
court of competent jurisdiction in the State of New York and by the execution
and delivery of this guaranty, each of the undersigned accepts the nonexclusive
jurisdiction of the aforesaid courts. Service of process may be made by any
means authorized by federal law or the law of New York, as the case may be. A
copy of any such process so served shall be mailed by registered mail to such
undersigned at its address set forth opposite its name on the signature page
hereto or at such other address as may be designated by such undersigned in a
notice to the Agent. Nothing herein shall limit the right of the Agent or any
Bank to bring proceedings against any of the undersigned in the courts of any
other jurisdiction.
23. Liabilities Limited. Anything else in this guaranty notwithstanding,
-------------------
each of the undersigned shall be liable under this guaranty only for the maximum
amount of such liability that can be hereby incurred without rendering this
guaranty, as it relates to such undersigned, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount.
5
<PAGE>
SIGNED AND DELIVERED as of this 13th day of November, 1998.
CONSOL ENERGY INC.
By:/s/ J. P. Garniewski, Jr.
--------------------------
J.P. Garniewski, Jr.
Assistant Secretary
1800 Washington Road
Pittsburgh, PA 15241
Facsimile: (412) 831-4994
CONSOL INC.
By:/s/ Karen L. Zemba
--------------------------
Karen L. Zemba
Vice President & Treasurer
1800 Washington Road
Pittsburgh, PA 15241
Facsimile: (412) 831-4151
6
<PAGE>
SCHEDULE TO EXHIBIT 10.11
In addition, to Exhibit 10.11, Consolidation Coal Company executed a Parent
Guaranty with each of the following banks, all of which are substantially
identical to Exhibit 10.11 in all material respects:
The First Union National Bank
Bank of America National Trust and Savings Association
<PAGE>
EXHIBIT 10.12
================================================================================
Significant Subsidiary GUARANTY
From
CONSOLIDATION COAL SALES COMPANY,
CONSOL PENNSYLVANIA COAL COMPANY,
CONSOL SALES COMPANY,
EIGHTY-FOUR MINING COMPANY,
FAIRMONT SUPPLY COMPANY,
HELVETIA COAL COMPANY,
ISLAND CREEK COAL COMPANY,
KEYSTONE COAL MINING CORPORATION,
LAUREL RUN MINING COMPANY,
McELROY COAL COMPANY,
NEW CENTURY HOLDINGS, INC.,
NINEVEH COAL COMPANY,
ROCHESTER & PITTSBURGH COAL COMPANY
To
THE FIRST NATIONAL BANK OF CHICAGO
================================================================================
1
<PAGE>
SIGNIFICANT SUBSIDIARY GUARANTY
-------------------------------
1. Guaranty of Payment. FOR VALUE RECEIVED, and in consideration of any
-------------------
loan or other financial accommodation heretofore or hereafter at any time made
or granted to CONSOLIDATION COAL COMPANY, a Delaware corporation (herein called
the "Debtor") by THE FIRST NATIONAL BANK OF CHICAGO, individually (herein, in
------
such capacity, together with its successors and assigns, called "Bank"), each of
----
the undersigned, hereby unconditionally guarantees the full and prompt payment
when due, whether by acceleration or otherwise, and at all times thereafter, of
all obligations of the Debtor to the Bank, howsoever created, arising or
evidenced, whether direct or indirect, primary or secondary, absolute or
contingent, joint or several, or now or hereafter existing, or due or to become
due (all such obligations, together with any extensions or renewals thereof,
being hereinafter collectively called the "Liabilities"), under and in
-----------
connection with that certain Senior Revolving Loan Agreement, dated as of
December 23, 1993 (herein, as the same may be amended from time to time, called
the "Loan Agreement"), between the Debtor and the Bank and each of the
--------------
undersigned further agrees to pay all reasonable expenses (including attorneys'
fees and legal expenses) paid or incurred by the Bank in endeavoring to collect
the Liabilities, or any part thereof, and in enforcing this guaranty.
2. Acceleration of the Time of Payment of Amount Payable Under Guaranty.
--------------------------------------------------------------------
Each of the undersigned agrees that, in the event of the dissolution or
insolvency of the Debtor or such undersigned, or the inability or failure of the
Debtor or such undersigned to pay debts as they become due, or an assignment by
the Debtor or such undersigned for the benefit of creditors, or the commencement
of any case or proceeding in respect of the Debtor or such undersigned under any
bankruptcy, insolvency or similar laws, and, if such case or proceeding is not
commenced by the Debtor or such undersigned, such case or proceeding shall be
consented to or acquiesced in by the Debtor or such undersigned, or shall result
in the entry of an order for relief or shall remain for 60 days undismissed, and
if such event shall occur at a time when any of the Liabilities may not then be
due and payable, such undersigned will pay to the Bank forthwith the full amount
which would be payable hereunder by such undersigned if all Liabilities were
then due and payable.
3. Right of Setoff in Deposits and Other Property. The Bank shall have a
----------------------------------------------
right of set off against (and may, without demand or notice of any kind, at any
time and from time to time when any amount shall be due and payable by such
undersigned hereunder, set off, appropriate and apply toward the payment of such
amount, in such order of application as the Bank may elect) any and all
balances, credits, deposits (general or special, time or demand, provisional or
final), accounts or moneys of or in the name of such undersigned now or
hereafter with the Bank.
4. Continuing Guaranty. This guaranty shall in all respects be a
-------------------
continuing, absolute and unconditional guaranty, and shall remain in full force
and effect (notwithstanding, without limitation, the dissolution of any of the
undersigned or that at any time or from time to time all Liabilities may have
been paid in full), until all Liabilities (including any extensions or renewals
of any thereof) and all interest thereon and all expenses (including attorneys'
fees and legal expenses) reasonably paid or incurred by the Bank in endeavoring
to collect the Liabilities and in enforcing this guaranty shall have been
finally paid in full and all other obligations of each of the undersigned under
this guaranty shall have been satisfied.
5. Rescission or Return of Payment on Liabilities. Each of the
----------------------------------------------
undersigned further agrees that, if at any time all or any part of any payment
theretofore applied by the Bank to any of the Liabilities is or must be
rescinded or returned by the Bank for any reason whatsoever (including,
2
<PAGE>
without limitation, the insolvency, bankruptcy or reorganization of the Debtor),
such Liabilities shall, for the purposes of this guaranty, to the extent that
such payment is or must be rescinded or returned, be deemed to have continued in
existence, notwithstanding such application by the Bank, and this guaranty shall
continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Bank had not been made.
6. Bank Permitted to Take Certain Actions. The Bank may, from time to
--------------------------------------
time, at its sole discretion and without notice to the undersigned (or any of
them), take any or all of the following actions without impairing the obligation
of the undersigned under this guaranty: (a) retain or obtain a lien upon or a
security interest in any property to secure any of the Liabilities or any
obligation hereunder, (b) retain or obtain the primary or secondary obligation
of any obligor or obligors, in addition to the undersigned, with respect to any
of the Liabilities, (c) extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any OF the Liabilities, or
release or compromise any obligation of any of the undersigned hereunder or any
obligation of any nature of any other obligor with respect to any of the
Liabilities, (d) release or fail to perfect its lien upon or security interest
in, or impair, surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities or any
obligation hereunder, or extend or renew for one or more periods (whether or not
longer than the original period) or release, compromise, alter or exchange any
obligations of any nature of any obligor with respect to any such property, and
(e) resort to the undersigned (or any of them) for payment of any of the
Liabilities, whether or not the Bank (i) shall have resorted to any property
securing any of the Liabilities or any obligation hereunder or (ii) shall have
proceeded against any other of the undersigned or any other obligor primarily or
secondarily obligated with respect to any of the Liabilities (all of the actions
referred to in preceding clauses (i) and (ii) being hereby expressly waived by
the undersigned).
7. Application of Payments. Any amounts received by the Bank from
-----------------------
whatsoever source on account of the Liabilities may be applied by the Bank,
toward the payment of such of the Liabilities, and in such order of application,
as the Bank may from time to time elect.
8. Waiver of Subrogation. Each of the undersigned hereby waives any
---------------------
claim or other right which such of the undersigned may now have or hereafter
acquire against the Debtor or any other obligor primarily or secondarily
obligated with respect to any of the Liabilities that arises from the existence
or performance of the obligations of such of the undersigned under this
guaranty, including, without limitation, any right of indemnification or any
right of subrogation or other right to participate in any claim or remedy of the
Bank against the Debtor or any property securing any of the Liabilities, which
the Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity or under contract, statute or common law. The
provisions of this paragraph are for the express benefit of the Debtor and each
other obligor primarily or secondarily obligated with respect to any of the
Liabilities as well as the Bank and may be enforced independently by the Debtor
and each such other obligor.
9. Waiver of Notice and Other Matters. Each of the undersigned hereby
----------------------------------
expressly waives: (a) notice of the acceptance by the Bank of this guaranty, (b)
notice of the existence or creation or non-payment of all or any of the
Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other
notices whatsoever, and (d) all diligence in collection or protection of or
realization upon the Liabilities or any thereof, any obligation hereunder, or
any security for or guaranty of any of the foregoing.
3
<PAGE>
10. Additional Liabilities of the Debtor Authorized. The creation or
-----------------------------------------------
existence, with or without notice to the undersigned, from time to time of
Liabilities in excess of the amount to which the right of recovery under this
guaranty is limited shall not in any way affect or impair the rights of the Bank
and the obligations of the undersigned under this guaranty.
11. Assignment of Liabilities. The Bank may, from time to time to the
-------------------------
extent permitted under the Loan Agreement, without notice to the undersigned (or
any of them), assign or transfer any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Liabilities shall be and remain Liabilities
for the purposes of this guaranty, and each and every immediate and successive
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this guaranty to the same extent as
if such assignee or transferee were the Bank.
12. Waiver and Modifications. No delay on the part of the Bank in the
------------------------
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by the Bank of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy; nor shall
any modification or waiver of any of the provisions of this guaranty be binding
upon the Bank except as expressly set forth in a writing duly signed and
delivered on behalf of the Bank.
13. Obligations Under Guaranty. No action of the Bank permitted hereunder
--------------------------
shall in any way affect or impair the rights of the Bank and the obligations of
the undersigned under this guaranty. For the purposes of this guaranty,
Liabilities shall include all obligations of the Debtor to the Bank under and in
connection with the Loan Agreement, notwithstanding any right or power of the
Debtor or anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
affect or impair the obligations of the undersigned hereunder. The obligations
of the undersigned under this guaranty shall be absolute and unconditional
irrespective of any circumstance whatsoever which might constitute a legal or
equitable discharge or defense of the undersigned (or any of them). Each of the
undersigned hereby acknowledges that there are no conditions to the
effectiveness of this guaranty.
14. Information Concerning Debtor. Each of the undersigned hereby
-----------------------------
warrants and represents to the Bank that such undersigned now has and will
continue to have independent means of obtaining information concerning the
affairs, financial condition and business of the Debtor. The Bank shall have no
duty or responsibility to provide the undersigned (or any of them) with any
credit or other information concerning the affairs, financial condition or
business of the Debtor which may come into the Bank's possession.
15. Senior Indebtedness. Each of the undersigned hereby further warrants
-------------------
and represents that the obligations of such undersigned under this Guaranty and
under each other Loan Document constitutes indebtedness senior to any
subordinated indebtedness of such undersigned.
16. Certain Representations. The undersigned hereby further warrant and
-----------------------
represent to the Bank that (a) the execution and delivery of this guaranty, and
the performance by each of the undersigned of its obligations hereunder, are
within the corporate right, power, authority and capacity of such undersigned
and have been duly authorized by all necessary corporate action on the part of
such undersigned, and (b) this guaranty has been duly executed and delivered on
behalf of each of the undersigned and is the legal, valid and binding obligation
of such undersigned, enforceable in accordance with its terms, the making and
performance of which do not and will not contravene or conflict with the charter
or by-laws of such undersigned or
4
<PAGE>
violate or constitute a default under any law, any presently existing
requirement or restriction imposed by judicial, arbitral or any governmental
instrumentality or any agreement, instrument or indenture by which such
undersigned is bound.
17. Liabilities Limited. Anything else in this guaranty notwithstanding,
-------------------
each of the undersigned shall be liable under this guaranty only for the maximum
amount of such liability that can be hereby incurred without rendering this
guaranty, as it relates to such undersigned, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount.
18. Successors. This guaranty shall be binding upon the undersigned, and
----------
upon the successors and assigns of the undersigned; and all references herein to
the Debtor and to such of the undersigned, respectively, shall be deemed to
include any successor or successors, whether immediate or remote, to the Debtor
or such undersigned. The term "undersigned" as used herein shall mean all
parties executing this guaranty and each of them, and all such parties shall be
jointly and severally obligated hereunder.
19. Law; Severability. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE
-----------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Wherever possible each
provision of this guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
guaranty.
20. Captions. Section captions used in this guaranty are for convenience
--------
only, and shall not affect the construction of this guaranty.
21. Waiver of Jury Trial. THE UNDERSIGNED HEREBY EXPRESSLY WAIVE ANY
--------------------
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
22. Consent to Jurisdiction and Service of Process. Each of the
----------------------------------------------
undersigned agrees that any judicial proceedings brought against such
undersigned with respect to this guaranty may be brought in any state or federal
court of competent jurisdiction in the State of New York and by the execution
and delivery of this guaranty, each of the undersigned accepts the nonexclusive
jurisdiction of the aforesaid courts. Service of process may be made by any
means authorized by federal law or the law of New York, as the case may be. A
copy of any such process so served shall be mailed by registered mail to such
undersigned at its address set forth opposite its name on the signature page
hereto or at such other address as may be designated by such undersigned in a
notice to the Bank. Nothing herein shall limit the right of the Bank to bring
proceedings against any of the undersigned in the courts of any other
jurisdiction.
5
<PAGE>
SIGNED AND DELIVERED as of this 13th day of November, 1998.
CONSOLIDATION COAL SALES COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
CONSOL PENNSYLVANIA COAL COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
CONSOL SALES COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
EIGHTY-FOUR MINING COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
FAIRMONT SUPPLY COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
HELVETIA COAL COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
6
<PAGE>
ISLAND CREEK COAL COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
KEYSTONE COAL MINING CORPORATION
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
LAUREL RUN MINING COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
McELROY COAL COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
NEW CENTURY HOLDINGS, INC.
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
NINEVEH COAL COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
7
<PAGE>
ROCHESTER & PITTSBURGH COAL COMPANY
/s/ Karen L. Zemba
By:--------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
8
<PAGE>
SCHEDULE TO EXHIBIT 10.12
In addition, to Exhibit 10.12, Consolidation Coal Company executed a
Significant Subsidiary Guaranty with each of the following banks, all of which
are substantially identical to Exhibit 10.12 in all material respects:
The First Union National Bank
Bank of America National Trust and Savings Association
<PAGE>
EXHIBIT 10.13
SUBORDINATION AGREEMENT
This Agreement, dated as of November 13, 1998, is entered into by and
between each of CONSOLIDATION COAL COMPANY (the "Borrower"), CONSOL ENERGY INC.
--------
("CEI"), CONSOL INC. ("CI"), CONSOLIDATION COAL SALES COMPANY ("CCSC"), CONSOL
--- -- ----
OF CANADA INC., ("CAN") CONSOL PENNSYLVANIA COAL COMPANY ("CPCC"), CONSOL SALES
--- ----
COMPANY ("CSC"), EIGHTY-FOUR MINING COMPANY ("EFMC"), FAIRMONT SUPPLY COMPANY
--- ----
("FSC"), HELVETIA COAL COMPANY ("HCC"), ISLAND CREEK COAL COMPANY ("ICC"),
--- --- ---
KEYSTONE COAL MINING CORPORATION ("KCMC"), LAUREL RUN MINING COMPANY ("LRMC"),
---- ----
McELROY COAL COMPANY, ("MCC"), NEW CENTURY HOLDINGS, INC., ("NCH"), NINEVEH COAL
--- ---
COMPANY ("NCC") and ROCHESTER & PITTSBURGH COAL COMPANY ("R&P"); the Borrower,
--- ---
CEI, CI, CCSC, CAN, CPCC, CSC, EFMC, FSC, HCC, ICC, KCMC, LRMC, MCC, NCH, NCC
and R&P are collectively referred to herein as the "Subordinated Lenders") for
--------------------
the benefit of THE FIRST NATIONAL BANK OF CHICAGO under the Loan Agreement
referred to below, (together with its respective successors and assigns, the
"Bank");
----
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower and the Bank have entered into a Senior Revolving
Loan Agreement, dated as of November 13, 1998, (as the same may at any time be
amended or modified and in effect, the "Loan Agreement"), pursuant to which,
--------------
among other things, the Bank has agreed to extend credit to the Borrower;
WHEREAS, each of the Subordinated Lenders acknowledges that the loans and
other extensions of financial accommodations or credit to the Borrower and the
Bank pursuant to the Loan Agreement is of value to the Subordinated Lenders;
WHEREAS, capitalized terms used but not otherwise defined herein shall have
the meanings assigned thereto in the Loan Agreement;
NOW, THEREFORE, to induce the Bank to enter into the Loan Agreement, and
for other valuable consideration, receipt whereof is hereby acknowledged, each
of the Subordinated Lenders hereby agrees as follows:
SECTION 1. Definitions. All claims by or belonging to any Person against
-----------
the Borrower, either Guarantor, CCSC, CPCC, CSC, EFMC, FSC, HCC, NCC, ICC, KCMC,
LRMC, MCC, NCH, NCC AND R&P and any other Person that from time to time is a
Significant Subsidiary (individually, a "Debtor" and collectively, the
------
"Debtors"), howsoever created, arising or evidenced, whether direct or indirect,
-------
absolute or contingent or now or hereafter existing, are hereinafter called the
"Claims". All Claims of the Bank under the Loan Agreement, the Notes and each
other Loan Document are hereinafter called the "Senior Claims", and all Claims
of each of the Subordinated Lenders are hereinafter called the "Junior Claims";
it being expressly understood and agreed that the term "Senior Claims", as used
herein, shall include, without limitation, any and all interest accruing on any
of the Senior Claims after the commencement of any suits or proceedings referred
to in Section 5, notwithstanding any provision or rule of law which might
---------
restrict the rights of the Bank, as against any of the Debtors or anyone else,
to collect such interest.
SECTION 2. Notice of Junior Liabilities, etc. any time when a Default
----------------------------------
shall be existing, each of the Subordinated Lenders will promptly notify the
Bank of the creation of any Junior Claims and of the issuance of any promissory
note or other instrument of any of the Debtors to evidence any Junior Claims.
<PAGE>
SECTION 3. Subordination. Except as expressly provided in Section 4 of
-------------
this Agreement, the payment of all Junior Claims shall be postponed and
subordinated to the payment in full of all Senior Claims, and each Subordinated
Lender agrees not to seek to collect any amounts owing to it by any of the
Debtors under or in connection with any settlement of any Junior Claim or any
judgment entered in favor of any or all Claimants with respect to a Junior
Claim, or to seek to obtain any other distributions in money or property or of
any other kind whatsoever in respect of any Junior Claims, nor shall any
property or assets of any of the Debtors be applied to the purchase or other
acquisition or retirement of any Junior Claims.
SECTION 4. Permitted Payments. Provided that both before and after giving
------------------
effect to any such payment, no Default shall have occurred and be continuing,
notwithstanding Section 3 above, any of the Debtors may pay to the Subordinated
Lenders, and the Subordinated Lenders may accept from such Debtors, any payments
of principal and interest on all Junior Claims. In the event that a Default
shall be existing, none of the Subordinated Lenders shall ask, demand, take or
receive from any Debtor by setoff or in any other manner any payment in respect
of any Junior Claims until such Default ceases to exist or all Senior Claims
shall have been fully paid in cash and performed and all of the Commitments
shall have been terminated.
SECTION 5. Bankruptcy, Insolvency, etc. In the event of any dissolution,
---------------------------
winding up, liquidation, readjustment, reorganization or other similar
proceedings relating to (a) any Debtor or (b) the respective assets or
properties of any Debtor, whether such proceeding or proceedings are voluntary
or involuntary, partial or complete, and whether in bankruptcy, insolvency or
receivership, or upon an assignment for the benefit of creditors, or any other
marshalling of the assets and liabilities of any Debtor or any sale of all or
substantially all of the assets of any Debtor, or otherwise, the Subordinated
Lenders hereby acknowledge and agree that the Senior Claims shall first be paid
in full before any Subordinated Lender shall be entitled to receive and/or to
retain any payment or distribution in respect of any of the Junior Claims. In
order to implement the foregoing, (i) all payments and distributions of any kind
or character in respect of any of the Junior Claims to which any Subordinated
Lender would be entitled if the Junior Claims were not subordinated pursuant to
this Agreement shall be made directly to the Bank, (ii) each Subordinated Lender
shall promptly file a claim or claims, in the form required in such proceedings,
for the full outstanding amount of the Junior Claims, if any, by or belonging to
such Subordinated Lender, and shall cause said claim or claims to be approved
and all payments and other distributions in respect thereof to be made directly
to the Bank, and (iii) each Subordinated Lender hereby irrevocably agrees that,
if such Subordinated Lender shall fail to file any such claim referred to in the
preceding clause (ii), the Bank may, at its sole discretion, in the name of each
Subordinated Lender or otherwise, demand, sue for, collect, receive and accept
receipt for any and all such payments or distributions, and file, prove, and
vote or consent in any such proceedings with respect to, any and all claims of
each Subordinated Lender relating to the Junior Claims.
SECTION 6. Payments Held in Trust. In the event that any Subordinated
----------------------
Lender receives any payment or other distribution of any kind or character from
any source whatsoever in respect of any of the Junior Claims, other than as
expressly permitted by the terms of this Agreement, such payment or other
distribution shall be received in trust for the Bank, and each Subordinated
Lender shall promptly turn over any such payment or distribution to the Bank.
Each of the Subordinated Lenders will keep, and cause each Debtor to keep, this
Agreement with and as part of its respective books and records, and will cause
to be clearly inserted in any promissory note or other instrument which at any
time evidences any of the Junior Claims a statement to the effect that the
payment thereof is subordinated in accordance with the terms of this Agreement.
Each of the Subordinated Lenders will execute such further
2
<PAGE>
documents or instruments and take such further action as the Bank may from time
to time reasonably request to carry out the intent of this Agreement.
SECTION 7. Application of Payments, No Subrogation. All payments and
---------------------------------------
distributions received by the Bank in respect of the Junior Claims, to the
extent received in or converted into cash, may be applied by the Bank first to
the payment of any and all expenses (including attorneys' fees and legal
expenses) paid or incurred by the Bank in enforcing this Agreement or in
endeavoring to collect or realize upon any of the Senior Claims or the Junior
Claims or any security therefor, and any balance thereof may, solely as between
each of the Subordinated Lenders and the Bank, be applied by the Bank in such
order of application as the Bank, in its sole discretion, may elect from time to
time, toward the payment of the Senior Claims remaining unpaid; provided,
---------
however, as among the Debtors on the one hand and each of the Subordinated
- -------
Lenders on the other hand, and their respective creditors, no such payments or
distributions of any kind or character shall be deemed to be payments or
distributions in respect of the Senior Claims. Notwithstanding any such
payments or distributions received by the Bank in respect of the Senior Claims
or the Junior Claims, which payments or distributions are applied by the Bank
toward the payment of the Senior Claims, each of the Subordinated Lenders shall
be subrogated to the then existing rights of the Bank, if any, in respect of the
Senior Claims only at such time as this Agreement shall have been discontinued
and the Bank shall have received payment of the full amount of the Senior
Claims.
SECTION 8. Waivers by the Subordinated Lenders. Each of the Subordinated
-----------------------------------
Lenders hereby waives: (a) notice of acceptance by the Bank of this Agreement;
(b) notice of the existence or creation or non-payment of all or any of the
Claims; and (c) all diligence in collection or protection of or realization upon
the Claims or any thereof or any security therefor.
SECTION 9. Obligations of the Subordinated Lenders. None of the
---------------------------------------
Subordinated Lenders will, without the Bank's prior written consent: (a) after
the occurrence of and during the continuation of a Default, cancel, waive,
forgive, transfer or assign, or attempt to enforce or collect, any Junior Claims
or any rights in respect thereof; (b) take any collateral security for any
Junior Claims or subordinate any Junior Claims or any rights in respect thereof
to any Claims other than Senior Claims; or (c) after the occurrence of and
during the continuation of a Default, convert any Junior Claims into stock of
any Debtor.
SECTION 10. Continuing Subordination. This Agreement shall in all
------------------------
respects be a continuing agreement and shall remain in full force and effect,
notwithstanding, without limitation, the dissolution or insolvency of the
Borrower, any Debtor or any of the Subordinated Lenders. All of the agreements
and obligations of each of the Subordinated Lenders under this Agreement shall
remain in effect in full until all such Senior Claims (including without
limitation any extensions, renewals or refinancings of any thereof and all
interest and expenses relating to such Senior Claims) shall have been finally
paid in cash in full and all of the Commitments shall have been terminated
(subject to reinstatement if any such Senior Claims shall thereafter cease to
have been paid in full in cash).
SECTION 11. Representations and Warranties. Each of the Subordinated
------------------------------
Lenders represents and warrants unto the Bank as set forth below.
a. Each of the Subordinated Lenders is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
b. The execution, delivery and performance by each of the Subordinated
Lenders of this Agreement are within their respective corporate
3
<PAGE>
powers, have been duly authorized by all necessary corporate action of each such
Subordinated Lender (including, without limitation, stockholder approval), have
received all necessary governmental approvals (if any shall be required) and
other consents or approvals and do not and will not contravene or conflict with,
or create a lien under, (i) any provision of law, (ii) the constituent documents
of such Subordinated Lender, (iii), any court or administrative decree
applicable to such Subordinated Lender or (iv) any contractual restriction
binding upon such Subordinated Lender.
c. This Agreement has been duly executed and delivered by each of the
Subordinated Lenders, and is the legal, valid and binding obligation of each of
the Subordinated Lenders enforceable against such Subordinated Lender in
accordance with its terms, subject, as to enforcement, only to bankruptcy,
insolvency, reorganization, moratorium or other similar laws at the time in
effect affecting the enforceability of the rights of creditors generally, and by
general equitable principles.
SECTION 12. Rights of the Bank. The Bank may, from time to time, at its
------------------
sole discretion and without notice to any or all of the Subordinated Lenders,
take any or all of the following actions: (a) retain or obtain a security
interest in any property to secure any of the Senior Claims, (b) retain or
obtain the primary or secondary obligation of any other obligor or obligors with
respect to any of the Senior Claims, (c) extend or renew for one or more periods
(whether or not longer than the original period), alter or exchange any of the
Senior Claims, or release or compromise any obligation of any nature of any
obligor with respect to any of the Senior Claims, and (d) release its security
interest in, or surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Senior Claims, or extend or
renew for one or more periods (whether or not longer than the original period)
or release, compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such property.
SECTION 13. Transfer of Senior Liabilities. The Bank may, from time to
------------------------------
time, without notice to any or all of the Subordinated Lenders, assign or
transfer any or all of the Senior Claims or any interest therein.
Notwithstanding any such assignment or transfer or any subsequent assignment or
transfer of any Senior Claims, such Senior Claims shall be and remain Senior
Claims for the purpose of this Agreement, and every immediate and successive
assignee or transferee of any of the Senior Claims or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Senior Claims, 5 be entitled to the benefits of this Agreement to the same
extent as if such assignee or transferee were the Bank.
SECTION 14. Miscellaneous. The Bank shall not be prejudiced in its rights
-------------
under this Agreement by any act or failure to act of any or all of the
Subordinated Lenders or by any noncompliance of any or all of the Subordinated
Lenders with any agreement or obligation, regardless of any knowledge thereof
which the Bank may have or with which the Bank may be charged. No action of the
Lender permitted hereunder shall in any way affect or impair the rights of the
Bank and the obligations of each of the Subordinated Lenders under this
Agreement. No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
the Bank of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy; nor shall any modification or
waiver of any of the provisions of this Agreement be binding upon the Bank
unless such modification or waiver is expressly set forth in a writing duly
signed and delivered on behalf of the Bank. For purposes of this Agreement, the
Senior Claims shall include all obligations of each Debtor to the Bank,
notwithstanding any right or power of any Debtor or anyone else to assert any
claim or defense as to the invalidity or unenforceability of any such
obligation, and no such claim or defense shall affect or impair the agreements
and obligations of the Subordinated Lenders hereunder.
4
<PAGE>
SECTION 15. Successors and Assigns. This Agreement shall be binding
----------------------
upon each of the Subordinated Lenders and upon the legal representatives,
successors and assigns of each of the Subordinated Lenders, whether immediate or
remote. The term "Subordinated Lenders" as used herein shall mean all of the
Subordinated Lenders and each of them obligated hereunder.
SECTION 16. Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the internal laws of the State of New York,
without regard to principles of conflicts of law. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
SECTION 17. Waiver of Jury Trial; Submission to Jurisdiction. waives any
------------------------------------------------
right to a trial by jury in any action or proceeding to enforce or defend any
rights under or relating to this Agreement or arising from or relating to any
banking relationship existing in connection with this Agreement or otherwise
between each of the Subordinated Lenders, and agrees that any such action or
proceeding shall be tried before a court and not before a jury.
Each of the Subordinated Lenders hereby agrees that any judicial
proceedings brought against such Subordinated Lender with respect to this
Agreement may be brought in any state or federal court of competent jurisdiction
in the State of New York and by the execution and delivery of this Agreement,
each Subordinated Lender accepts the nonexclusive jurisdiction of the aforesaid
courts. Service of process may be made by any means authorized by federal law
or the law of New York. A copy of such process so served shall be mailed by
registered mail to such Subordinated Lender at its address set forth opposite
its nature or the signature page hereto or at such other address as may be
designated by such Subordinated Lender in a notice to the Bank.
Nothing in this paragraph 17 shall affect the right of the Bank to serve
legal process in any other manner permitted by law or affect the right of the
Bank to bring any action or proceeding against any of the Subordinated Lenders
or their respective property in the courts of any other jurisdictions.
SECTION 18. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions to this Agreement.
SECTION 19. Section Titles. The section tiles contained in this Agreement
--------------
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
IN WITNESS WHEREOF, this Agreement has been made and delivered at as of the
date and year first written above.
CONSOLIDATION COAL SALES COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
5
<PAGE>
CONSOL PENNSYLVANIA COAL COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
CONSOL SALES COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
EIGHTY-FOUR MINING COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
FAIRMONT SUPPLY COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
HELVETICA COAL COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
ISLAND CREEK COAL COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
6
<PAGE>
KEYSTONE COAL MINING CORPORATION
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
LAUREL RUN MINING COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
McELROY COAL COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
NEW CENTURY HOLDINGS, INC.
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
NINEVEH COAL COMPANY
By: /s/ Karen L. Zemba
----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
7
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT
Each of the undersigned acknowledges receipt of a copy of the foregoing
Subordination Agreement, waives notice of acceptance thereof by THE FIRST
NATIONAL BANK OF CHICAGO ("Bank") or any holder of any of the Senior Claims, and
agrees to be bound by the terms and provisions thereof, to make no payments or
distributions contrary to the terms and provisions thereof, and to do every
other act and thing necessary or appropriate to carry out such terms and
provisions. Each of the undersigned acknowledges that (i) such Subordination
Agreement is solely for the benefit of the Bank and the other holders of the
Senior Claims from time to time, and that none of the undersigned requires any
rights by virtue thereof, and the terms of the Subordination Agreement may be
amended from time Lo time to alter the relative rights or obligations of the
Bank and the other holders of the Senior Claims and the holders of the Junior
Claims without the consent of any of the undersigned.
IN WITNESS WHEREOF, this Acknowledgment and Agreement has been made and
delivered as of the 13th day of November, 1996.
CONSOLIDATION COAL SALES COMPANY
/s/ Karen L. Zemba
By:------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
CONSOL PENNSYLVANIA COAL COMPANY
/s/ Karen L. Zemba
By:------------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
CONSOL SALES COMPANY
/s/ Karen L. Zemba
By:----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
EIGHTY-FOUR MINING COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
8
<PAGE>
FAIRMONT SUPPLY COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
HELVETICA COAL COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
ISLAND CREEK COAL COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
KEYSTONE COAL MINING CORPORATION
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
LAUREL RUN MINING COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
McELROY COAL COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
9
<PAGE>
NEW CENTURY HOLDINGS, INC.
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
NINEVEH COAL COMPANY
/s/ Karen L. Zemba
By:-----------------------------
Karen L. Zemba, Vice
President & Treasurer of
CONSOL Inc, Attorney-in-Fact
10
<PAGE>
SCHEDULE TO EXHIBIT 10.13
In addition, to Exhibit 10.13, Consolidation Coal Company executed a
Subordination Agreement with each of the following banks, all of which are
substantially identical to Exhibit 10.13 in all material respects:
The First Union National Bank
Bank of America National Trust and Savings Association
<PAGE>
EXHIBIT 10.14
-------------
SHARE PURCHASE AGREEMENT
among
E.I. DU PONT DE NEMOURS AND COMPANY,
DU PONT ENERGY COMPANY,
RHEINBRAUN A.G., and
CONSOL ENERGY INC.
Dated September 17, 1998
<PAGE>
SHARE PURCHASE AGREEMENT dated as of September 14, 1998, among E.I. DU
PONT DE NEMOURS AND COMPANY ("Du Pont"), a Delaware corporation, DU PONT ENERGY
COMPANY ("DEC"), a Delaware corporation, RHEINBRAUN A.G. ("Rheinbraun"), a
corporation organized under the laws of the Federal Republic of Germany, and
CONSOL ENERGY INC. ("CEI"), a Delaware corporation.
WHEREAS, DEC is a wholly-owned subsidiary of Du Pont and owns 50,000
Class A shares of Consol Energy Inc., a Delaware Corporation ("CEI"),
constituting 50% of the issued and outstanding shares of common stock of CEI
(the "Class A Shares");
WHEREAS, Rheinbraun (and an affiliate of Rheinbraun) owns 50,000 Class
B shares of CEI, constituting 50% of the issued and outstanding shares of common
stock of CEI; and
WHEREAS, DEC desires to sell, and Du Pont intends to cause DEC to
sell, 47,000 of the Class A Shares to CEI, which CEI has elected to purchase
pursuant to the Option Agreement (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, and agreements herein contained, the parties hereto
agree as follows:
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I - DEFINITIONS............................................................. 2
ARTICLE II - PURCHASE OF SHARES; CONTROL OF CEI...................................... 5
2.1 Shares to be Purchased.................................................... 5
----------------------
2.2 Method of Payment......................................................... 5
-----------------
2.4. Effective Date............................................................ 5
--------------
ARTICLE III - THE CLOSING............................................................ 6
ARTICLE IV - REPRESENTATIONS OF DU PONT.............................................. 6
4.1 Organization, Standing and Power.......................................... 6
--------------------------------
4.2 Ownership of Class A Shares............................................... 6
---------------------------
4.3 Authority; Non-contravention.............................................. 7
----------------------------
4.4 Brokers................................................................... 9
-------
ARTICLE V - REPRESENTATIONS OF CEI................................................... 9
5.1 Organization and Corporate Power.......................................... 9
--------------------------------
5.2 Authority; Non-contravention.............................................. 9
----------------------------
5.3 Securities Laws........................................................... 11
---------------
5.4 Brokers................................................................... 11
-------
ARTICLE VI - GOVERNMENT FILINGS...................................................... 11
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF RHEINBRAUN................................ 12
7.1 Obligations Performed..................................................... 12
---------------------
7.2 Representations True...................................................... 13
--------------------
7.3 Opinions of Counsel....................................................... 13
-------------------
7.4 Authorization............................................................. 13
-------------
7.5 All Proceedings Satisfactory.............................................. 14
----------------------------
7.6 Injunctions............................................................... 14
-----------
7.7 No Governmental Prohibitions.............................................. 14
----------------------------
7.8 Governmental Approvals.................................................... 15
----------------------
7.9 Casualty and Changes...................................................... 17
--------------------
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF DU PONT.................................. 18
8.1 Obligations Performed..................................................... 18
---------------------
8.2 Representations True...................................................... 18
--------------------
8.3 Opinions of Counsel....................................................... 18
-------------------
8.4 Authorization............................................................. 19
-------------
8.5 All Proceedings Satisfactory.............................................. 19
----------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.6 Injunctions............................................................... 19
-----------
8.7 No Governmental Prohibitions.............................................. 19
----------------------------
8.8 Governmental Approvals.................................................... 20
----------------------
8.9 Rheinbraun Counter-Guaranty............................................... 21
---------------------------
ARTICLE IX - INDEMNIFICATION......................................................... 22
9.1 Indemnification by Du Pont................................................ 22
--------------------------
9.2 Rules of Construction..................................................... 25
---------------------
9.3 Notice of Claim for Indemnification....................................... 25
-----------------------------------
9.4 Indemnity Notice Periods.................................................. 26
------------------------
9.5 Exclusive Remedies........................................................ 28
------------------
9.6 Coexistence of SEA Agreement.............................................. 28
----------------------------
9.7 Knowledge of Claims....................................................... 29
-------------------
9.8 Notice to Du Pont of Common Loss Settlements.............................. 29
--------------------------------------------
ARTICLE X - TERMINATION.............................................................. 30
ARTICLE XI - EXPENSES................................................................ 30
ARTICLE XII - ASSIGNMENT............................................................. 31
ARTICLE XIII- SURVIVAL OF CONDITIONS, WARRANTIES, ETC................................ 31
ARTICLE XIV - NOTICES................................................................ 31
ARTICLE XV - MISCELLANEOUS........................................................... 33
15.1 Entire Agreement.......................................................... 33
----------------
15.2 Counterparts.............................................................. 33
------------
15.3 Partial Invalidity........................................................ 33
------------------
15.4 Interpretation............................................................ 33
--------------
15.5 Amendments, Waivers and Consents.......................................... 34
--------------------------------
15.6 Publicity................................................................. 34
---------
15.7 Further Assurances........................................................ 35
------------------
ARTICLE XVI - GOVERNING LAW; ARBITRATION............................................. 35
16.1 Governing Law............................................................. 35
-------------
16.2 Arbitration............................................................... 35
-----------
</TABLE>
-ii-
<PAGE>
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated:
"CLASS A SHARES" means all of the authorized, issued, and outstanding
shares of Class A Common stock of CEI, $1.00 par value each.
"CLOSING" means the closing specified in Article III of this
Agreement.
"CLOSING DATE" means the date of the Closing specified in Article III
of this Agreement.
"COAL GROUP" means CEI and its Subsidiaries, and a "member of the Coal
Group" shall be any one of CEI or such Subsidiaries.
"DU PONT LIABILITY" shall mean any Loss incurred by Du Pont or DEC
other than a reduction in the value of the Coal Group by reason of a Loss
incurred by the Coal Group.
"ENVIRONMENTAL LAWS" shall mean all applicable federal, state,
regional and local laws, statutes, ordinances, judgments, rulings, and
regulations relating to any matters of pollution, protection of the environment
(including, without limitation, any matters relating to land subsidence or
reclamation) or environmental regulation or control.
"HAZARDOUS ITEMS" shall mean anything included within the definition
of "hazardous waste" under the Resource Conservation and Recovery Act, 42 U.S.C.
(S) 6901 et seq. and the
-2-
<PAGE>
regulations promulgated thereunder, and each of the following: polychlorinated
biphenyls, petroleum and petroleum products or derivatives, asbestos and
radioactive materials.
"LOSS" shall mean any and all liability, loss, damage or deficiency
and any costs or expenses incident thereto (including accounting and legal fees
and expenses).
"OPTION AGREEMENT" shall mean the Option (Class A Shares) Agreement
dated as of September __, 1998, among Du Pont, DEC, Rheinbraun, and CEI.
"PRE-CLOSING COAL GROUP LITIGATION" means (i) all judicial,
administrative or arbitral actions, claims, suits, proceedings or investigations
pending as of the Closing Date against any member of the Coal Group (other than
any such actions, claims, suits, proceedings or investigations under statutorily
mandated state worker's compensation laws or state and federal occupational
disease laws), and (ii) to the knowledge of Du Pont, all such actions, claims,
suits, proceedings or investigations threatened against any member of the Coal
Group in which there has been asserted a claim for more than One Million Dollars
($1,000,000) or a claim for monetary damages in an unspecified amount in which,
although no claim for monetary damages has yet been made, such claim would
reasonably be expected to be for more than One Million Dollars ($1,000,000). The
term "to the knowledge of Du Pont" means matters known to any officer or
director of Du Pont, DEC, and any member of the Coal Group (excluding those
directors of a member of the Coal Group nominated exclusively by
-3-
<PAGE>
Rheinbraun) or that should have been known to such officers and directors in the
ordinary course of fulfilling their duties.
"RHEINBRAUN LIABILITY" shall mean any Loss incurred by Rheinbraun,
other than a reduction in the value of the Coal Group by reason of a Loss
incurred by the Coal Group, to which Rheinbraun succeeds or which Rheinbraun
incurs as a result of the sale by DEC of 47,000 Class A Shares pursuant to this
Agreement.
"SEA AGREEMENT" means the Share Exchange and Acquisition Agreement
among Du Pont, DEC, Rheinbraun, and others dated December 6, 1991, as amended.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement among Du
Pont, DEC, Rheinbraun, and others dated December 6, 1991, as amended.
"SHAREHOLDERS AMENDATORY AGREEMENT" means Amendatory Agreement No. 3
dated as of October 1, 1997, as amended, among Du Pont, DEC, Rheinbraun, an
affiliate of Rheinbraun, and CEI, amending the Shareholders' Agreement.
"SUBSIDIARY" means, with respect to another person, a corporation,
partnership, trust, or other legal entity controlled by such other person,
directly or indirectly. An entity shall be deemed subject to the control of
another person when such person, directly or indirectly, has the power to direct
or cause the direction of the management and policies of such entity.
"TAXES" means the taxes specified in section 9.1(d).
-4-
<PAGE>
ARTICLE II
PURCHASE OF SHARES; CONTROL OF CEI
2.1 Shares to be Purchased. Subject to the terms and conditions of
----------------------
this Agreement, CEI shall at the Closing pay to DEC $500 Million (Five Hundred
Million Dollars) for 47,000 Class A Shares, and, in consideration of such
payment, Du Pont shall cause DEC at the Closing to sell and transfer to CEI (or
nominee of CEI), and DEC shall sell and transfer to CEI (or nominee of CEI), all
of DEC's right, title, and interest in 47,000 Class A Shares. Certificates
representing all such Class A Shares shall be duly endorsed for transfer or
accompanied by duly executed transfer forms. CEI shall deliver to DEC at the
Closing a new share certificate representing the remaining 3,000 Class A Shares
owned by DEC.
2.2 Method of Payment. Subject to the terms and conditions of this
-----------------
Agreement, the payment to be made to DEC pursuant to section 2.1 shall be
effected by the transfer (by wire transfer or intrabank transfer) of immediately
available funds to such bank account as DEC shall designate by written notice to
CEI not less than ten (10) days prior to the date when due.
2.3. Effective Date. This Agreement shall come into force when CEI
--------------
shall give written notice of exercise of the option granted by the Option
Agreement in accordance with its terms.
-5-
<PAGE>
ARTICLE III
THE CLOSING
Subject to the terms and conditions of this Agreement, the Closing of
the transaction described in section 2.1 shall take place at 10:00 a.m. on the
tenth business day following the fulfillment or waiver of the conditions stated
in Articles VII and VIII of this Agreement, which shall be the "Closing Date,"
at the offices of BT Wolfensohn, a Division of BT Securities Corporation, 130
Liberty Street, New York, New York, or at such other date or place as may be
mutually agreed upon in writing by the parties.
ARTICLE IV
REPRESENTATIONS OF DU PONT
Du Pont represents and warrants to CEI as follows:
4.1 Organization, Standing and Power. Each of Du Pont and DEC is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as currently conducted.
4.2 Ownership of Class A Shares. DEC is the record and beneficial
---------------------------
owner of all of the Class A Shares, free and clear of any lien, claim, charge or
encumbrance of any kind (other than such restrictions as may be imposed by the
Shareholders Agreement and the Option Agreement). All the Class A Shares have
been duly authorized and validly issued, and are fully paid and nonassessable.
Except as provided in this Agreement, or by
-6-
<PAGE>
federal or state securities laws, or as may be provided by the Shareholders
Agreement or the Option Agreement, the Class A Shares are not subject to any
restrictions, contractual or otherwise, relating to their disposition, nor to
any right or obligation of CEI or any other person to purchase them. Upon
delivery of, and payment for, the Class A Shares at the Closing as provided in
this Agreement, CEI will acquire good and valid title to 47,000 Class A Shares,
free and clear of any lien, claim, charge or encumbrance of any kind.
4.3 Authority; Non-contravention.
----------------------------
(a) Du Pont has all requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of, and the performance of its obligations under, this
Agreement have been duly authorized by all necessary corporate action of Du
Pont. Du Pont has duly executed and delivered this Agreement, and this Agreement
is the legal, valid, and binding obligation of Du Pont, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws generally applicable to creditors'
rights and remedies and to the exercise of judicial discretion in accordance
with general principles of equity.
(b) DEC has all requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. DEC
has taken all necessary corporate action duly to authorize the execution and
delivery of, and the
-7-
<PAGE>
performance of its obligations under, this Agreement. The sale of Class A Shares
by DEC as provided herein has been duly authorized by all necessary corporate
action of DEC, DEC has duly executed and delivered this Agreement, and this
Agreement are its legal, valid and binding obligations, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws generally applicable to creditors'
rights and remedies and the exercise of judicial discretion in accordance with
general principles of equity.
(c) The execution and delivery by Du Pont and DEC of this
Agreement do not, and the performance by each of Du Pont and DEC of their
respective obligations under this Agreement and the consummation of the
transactions contemplated hereunder will not, violate, conflict with, or result
(with or without the giving of notice or the lapse of time or both) in the
breach or termination of, or default under, or result in the creation of any
material lien, security interest, charge or encumbrance under, any provision of
(i) the certificate of incorporation or by-laws of Du Pont or DEC or of any law,
rule or regulation of any governmental body or any order, judgment or decree
applicable to either of them or any of their respective assets, or (ii) any
material loan or credit agreement, note, bond, lease, license, franchise,
mortgage, indenture or other agreement, obligation or instrument to which Du
Pont or DEC is a party or by which either of them may be bound or under which
either of them enjoys any rights or privileges. No consent, approval, order or
authorization of, or registration,
-8-
<PAGE>
declaration or filing with, any court, administrative agency or commission or
other governmental authority or agency, domestic or foreign, is required by or
with respect to Du Pont or DEC in connection with the execution and delivery of
this Agreement by Du Pont or DEC or the consummation of the transactions
contemplated hereunder, except for such approvals, filings and the like as are
referred to in Article VI.
4.4 Brokers. Du Pont is not liable for any fee, commission or other
-------
compensation to any agent, broker, investment banker or other person acting on
behalf or under the authority of Du Pont or any of its affiliates in connection
with the making, execution, delivery or performance of this Agreement other than
to BT Wolfensohn, a Division of BT Securities Corporation, for which Du Pont
alone is liable.
ARTICLE V
CEI represents and warrants to Du Pont as follows:
5.1 Organization and Corporate Power. CEI is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as currently conducted.
5.2 Authority; Non-contravention. CEI has all requisite corporate
----------------------------
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The
-9-
<PAGE>
execution and delivery of this Agreement and the performance of its obligations
hereunder have been duly authorized by all necessary corporate action. CEI has
duly executed and delivered this Agreement and this Agreement is its legal,
valid and binding obligation, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
generally applicable to creditors' rights and remedies and to the exercise of
judicial discretion in accordance with general principles of equity. The
execution and delivery of this Agreement by CEI does not, and the performance of
its obligations and the consummation of the transactions contemplated hereunder
will not, violate, conflict with, or result (with or without the giving of
notice or the lapse of time or both) in the breach or termination of, or default
under, or result in the creation of any material lien, security interest, charge
or encumbrance under, any provision of (i) the Certificate of Incorporation or
By-Laws of CEI or of any law, rule or regulation of any governmental body or any
order, judgment or decree applicable to it or to any of its assets, or (ii) any
material loan or credit agreement, note, bond, lease, license, franchise,
mortgage, indenture or other agreement, obligation or instrument to which it is
a party or by which it may be bound or under which it enjoys any rights or
privileges. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or agency, domestic or foreign, is required by or
with respect to CEI in connection with
-10-
<PAGE>
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereunder, except for such approvals, filings and the
like as are referred to in Article VIII.
5.3 Securities Laws. CEI understands that the Class A Shares have not
---------------
been registered under the Securities Act of 1933, as amended, or any applicable
state securities laws, and that CEI cannot dispose of any or all of the Class A
Shares unless such Class A Shares are subsequently registered under said Act or
applicable state securities laws, or unless an exemption from such registration
requirements is available. CEI understands that each certificate representing
any Class A Shares bears a legend reflecting the foregoing.
5.4 Brokers. CEI is not liable for any fee, commission or other
-------
compensation to any agent, broker, investment banker or other person acting on
behalf or under its authority or any of its affiliates in connection with the
making, execution, delivery or performance of this Agreement other than to Brown
Brothers Harriman & Co., for which Rheinbraun alone is liable.
ARTICLE VI
GOVERNMENT FILINGS
The parties agree to prepare and file as soon as practicable all such
applications or notifications to governmental authorities in the United States,
Canada, and the European Community as may be required by law in order to permit
the
-11-
<PAGE>
consummation of the transactions contemplated by this Agreement. Such
applications and notifications shall include (i) application of the parties to
the Commission of the European Communities, (ii) if required, joint notice to
the Committee on Foreign Investment in the United States ("CFIUS") pursuant to
(S)721 of the Defense Production Act of 1950 (the "Exon-Florio Amendment"), and
(iii) if required, notice by CEI to Investment Canada under the Investment
Canada Act of the acquisition by Rheinbraun, which owns 50% of the outstanding
shares of CEI, of an additional indirect interest in CEI and Canadian
subsidiaries of CEI. Du Pont, Rheinbraun and CEI agree to cooperate in preparing
and filing such applications and notifications.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF CEI
The obligations of CEI under Article II of this Agreement are subject
to the fulfillment at or before the Closing (or at or before such other date as
may be specified in this Article) of each of the following conditions unless
such condition is waived in writing:
7.1 Obligations Performed. Du Pont and DEC shall have timely
---------------------
performed all of their respective obligations under this Agreement required to
be performed at or before the Closing, and there shall have been delivered to
CEI a certificate of an executive officer of Du Pont and DEC, respectively,
dated the Closing Date to such effect.
-12-
<PAGE>
7.2 Representations True. The representations and warranties of Du
--------------------
Pont and DEC contained in Article IV of this Agreement shall be true, as of the
Closing Date, with the same force and effect as though such representations and
warranties had been made as of the Closing Date (except to the extent that such
representations and warranties shall not be true because of transactions
provided for in this Agreement), and there shall have been delivered to CEI a
certificate of an executive officer of Du Pont and DEC, respectively, dated the
Closing Date to such effect.
7.3 Opinions of Counsel. There shall have been delivered to CEI the
-------------------
opinion of the General Counsel of Du Pont and the ancillary opinions of special
foreign counsel, which counsel shall be acceptable to CEI, each dated the
Closing Date, with respect to such matters relating to this Agreement as CEI may
reasonably request, in form substantially similar to opinions of counsel
delivered pursuant to section 9.3 of the SEA Agreement.
7.4 Authorization. The Board of Directors (or any authorized
-------------
committee thereof) of Du Pont, and the Board of Directors and stockholders of
DEC, shall have duly adopted resolutions in form and substance reasonably
satisfactory to CEI authorizing each of them to consummate the Closing and the
other transactions contemplated hereby in accordance with the terms and
conditions hereof, and there shall have been delivered to CEI copies of all such
resolutions, in each case certified by the Secretary or an Assistant Secretary
of Du Pont or DEC, as the case may be.
-13-
<PAGE>
7.5 All Proceedings Satisfactory. Du Pont shall have furnished to CEI
----------------------------
at the Closing all such other certificates and other documents as CEI may
reasonably request in order to evidence the performance by Du Pont of its
obligations under this Agreement or as may be necessary to carry out the
purposes of this Agreement.
7.6 Injunctions. No injunction or restraining order against any
-----------
transaction contemplated by this Agreement shall be in effect, and no judicial
or administrative action or proceeding to enjoin any such transaction shall have
been instituted or threatened which, in the opinion of counsel to CEI, could
result in the issuance of such an injunction.
7.7 No Governmental Prohibitions. There shall not be any statute,
----------------------------
rule, decree, order or injunction of the United States, the European Community
or the Federal Republic of Germany (or any of their respective states or other
jurisdictions, or the respective courts of such countries, states or other
jurisdictions), interpreted, promulgated, enacted, entered into or enforced by
the United States, the European Community or the Federal Republic of Germany (or
any of their respective states or other jurisdictions) or by any governmental
agency, authority or court thereof, that (i) restrains or prohibits the making
or consummation of this Agreement or restrains or prohibits the performance of
this Agreement and the transactions contemplated hereby, (ii) in connection with
the transactions contemplated by this Agreement, prohibits or materially limits
the ownership or
-14-
<PAGE>
operation by Rheinbraun or CEI of all or any material portion of the business or
assets of CEI or any of its Subsidiaries or compels any of them to dispose of or
hold separate all or any material portion of such business or assets, or imposes
any material limitation on the ability of CEI or any of its Subsidiaries to
conduct such business or own such assets, or (iii) imposes material limitations
on the ability of CEI to pay for, to acquire or hold or to exercise ownership of
Class A Shares.
7.8 Governmental Approvals.
----------------------
(a) Neither the Antitrust Division of the Department of Justice
nor the Federal Trade Commission shall have filed suit, which suit remains
pending, to prevent any transaction provided for in this Agreement.
(b) CEI (i) shall have received an opinion of counsel
satisfactory to it stating that the acquisition by Rheinbraun of an additional
indirect interest in CEI and the Canadian Subsidiaries of CEI pursuant to this
Agreement is not subject to notification or review under the Investment Canada
Act or (ii) shall have filed notification under Section 12 of the Investment
Canada Act and shall have received a receipt under Section 13(1) of such Act (A)
certifying the date on which the complete notice or the information required to
complete the notice required under such Act was received by Investment Canada
and (B) advising CEI that (X) the investment is not reviewable under such Act or
(Y) unless Investment Canada sends CEI a notice for review within 21 days after
such certified date, the investment is not
-15-
<PAGE>
reviewable, and, if such receipt contains the language set forth in this clause,
21 days shall have elapsed and no notice for review shall have been sent to CEI;
provided, that if a notice for review is sent to CEI within such 21 day period,
- --------
then CEI also shall have received notice under Section 21 or 23 of such Act that
the Minister (as defined in said Act) is satisfied, or is deemed to be
satisfied, that the acquisition by Rheinbraun of further indirect control of
such Canadian Subsidiaries pursuant to this Agreement is likely to be of net
benefit to Canada, or CEI shall have received from Investment Canada official
advice in writing that such a notice will be sent by the Minister in due course
on the basis of the undertakings theretofore made or proposed by CEI.
(c) The CFIUS (as defined in Article VI) shall have determined
not to investigate the transactions contemplated by this Agreement under the
Exon-Florio Amendment.
(d) CEI or Rheinbraun and Du Pont shall have received notice from
the Commission of the European Communities stating that such Commission (i) does
not object to, or does not propose to take any action in respect of, the
transactions contemplated by this Agreement, or (ii) proposes to impose
conditions or restrictions on such transactions that CEI, Rheinbraun, and Du
Pont, each in its absolute discretion, find acceptable; provided, that, if any
--------
party finds such conditions or restrictions unacceptable it shall notify the
other parties of the fact and, at the request of either such party hereto, the
parties shall enter into negotiations with a view to amending this
-16-
<PAGE>
Agreement in a mutually satisfactory manner (in the absolute discretion of each
of them) that complies with such conditions or restrictions; provided, further,
--------
that CEI undertakes to Rheinbraun that, if Rheinbraun finds such conditions or
restrictions unacceptable, CEI shall comply with instructions of Rheinbraun in
respect thereof.
(e) There shall have been obtained all approvals or
authorizations by any government agency in the United States or elsewhere (other
than the authorizations contemplated by this section 7.8(b)-(d), inclusive)
which are required to be obtained before the Closing in order to permit CEI to
acquire all of the Class A Shares.
7.9 Casualty and Changes. Since the date of this Agreement, there
--------------------
shall not have occurred any event or condition (whether or not covered by
insurance) which has had, or which is likely to have, either individually or in
the aggregate with other such events or conditions, a materially adverse effect
on the assets, business, or financial condition of the Coal Group taken as a
whole, including (without limitation) any fire, accident or other casualty,
labor disturbance or act of God or the public enemy affecting in a material way
the Coal Group and the properties used therein taken as a whole.
-17-
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF DU PONT
The obligations of Du Pont under Article II of this Agreement are
subject to the fulfillment at or before the Closing (or at or before such other
date as may be specified in this Article) of each of the following conditions
unless such condition is waived in writing:
8.1 Obligations Performed. CEI shall have timely performed all of its
---------------------
obligations under this Agreement required to be performed at or before the
Closing, and there shall have been delivered to Du Pont a certificate of an
executive officer of CEI, dated the Closing Date, to such effect.
8.2 Representations True. The representations and warranties of CEI
--------------------
contained in Article V of this Agreement shall be true, as of the Closing Date,
with the same force and effect as though such representations and warranties had
been made as of the Closing Date (except to the extent that such representations
and warranties shall not be true because of transactions provided for in this
Agreement), and there shall have been delivered to Du Pont a certificate of an
executive officer of CEI, dated the Closing Date, to such effect.
8.3 Opinions of Counsel. There shall have been delivered to Du Pont
-------------------
the opinion of Messrs. Becker, Glynn, Melamed & Muffly LLP and the ancillary
opinions of special foreign counsel, which foreign counsel shall be acceptable
to Du Pont, each dated the Closing Date, with respect to such matters relating
-18-
<PAGE>
to this Agreement as Du Pont may reasonably request, in form substantially
similar to opinions of counsel delivered pursuant to section 10.3 of the SEA
Agreement.
8.4 Authorization. The Board of Directors of CEI shall have duly
-------------
adopted resolutions in form and substance reasonably satisfactory to Du Pont
authorizing CEI to consummate the Closing and the other transactions
contemplated hereby in accordance with the terms hereof, and there shall have
been delivered to Du Pont copies of all such resolutions, certified by the
general counsel of CEI.
8.5 All Proceedings Satisfactory. CEI shall have furnished to Du Pont
----------------------------
at the Closing all such other certificates and other documents as Du Pont may
reasonably request in order to evidence the performance by CEI of its
obligations under this Agreement or as may be necessary to carry out the
purposes of this Agreement.
8.6 Injunctions. No injunction or restraining order against any
-----------
transaction contemplated by this Agreement shall be in effect and no judicial or
administrative action or proceeding to enjoin any such transaction shall have
been instituted or threatened which, in the opinion of counsel to Du Pont, could
result in the issuance of such an injunction.
8.7 No Governmental Prohibitions. There shall not be any statute,
rule, decree, order or injunction of the United States, the European Community
or the Federal Republic of Germany (or any of their respective states or other
jurisdictions or the
-19-
<PAGE>
respective courts of such countries, states or other jurisdictions),
interpreted, promulgated, enacted, entered into or enforced by the United
States, the European Community or the Federal Republic of Germany (or any of
their respective states or other jurisdictions) or any governmental agency or
authority or court thereof, that restrains or prohibits the performance of this
Agreement and the transactions contemplated hereby.
8.8 Governmental Approvals.
----------------------
(a) Neither the Antitrust Division of the Department of Justice
nor the Federal Trade Commission shall have filed suit, which suit remains
pending, to prevent any transaction provided for in this Agreement.
(b) Du Pont and CEI or Rheinbraun shall have received notice
from the Commission of the European Communities stating that such Commission (i)
does not object to, or does not propose to take any action in respect of, the
transactions contemplated by this Agreement, or (ii) proposes to impose
conditions or restrictions on such transactions that Du Pont, CEI, and
Rheinbraun, each in its absolute discretion, find acceptable; provided, that, if
--------
any party finds such conditions or restrictions unacceptable it shall notify the
other parties of the fact and, at the request of either such party hereto, the
parties shall enter into negotiations with a view to amending this Agreement in
a mutually satisfactory manner (in the absolute discretion of each of them) that
complies with such conditions or restrictions; provided, further, that CEI
--------
undertakes to Rheinbraun that, if
-20-
<PAGE>
Rheinbraun finds such conditions or restrictions unacceptable, CEI shall comply
with instructions of Rheinbraun in respect thereof.
(c) There shall have been obtained all approvals or authorizations by
any government agency in the United States or elsewhere (other than the
authorizations contemplated by Sections 8.8 (b)) which are required to be
obtained before the Closing in order to permit DEC to sell the Class A Shares
pursuant to Article II.
8.9 Rheinbraun Counter-Guaranty. Rheinbraun shall have executed and
---------------------------
delivered to Du Pont a counter-guaranty in favor of Du Pont in the form of
Exhibit A in respect of any liability Du Pont may incur as a result of
guarantees and indemnities heretofore given by Du Pont and its Affiliates not
within the Coal Group of those obligations of members of the Coal Group set
forth in a list that CEI shall promptly furnish to Du Pont and Rheinbraun after
the date hereof. Such list shall set forth all guarantees and indemnities
theretofore given by Du Pont and its Affiliates not within the Coal Group of
relevant obligations of the members of the Coal Group, and shall be prepared in
the same manner and in accordance with the same principles used in preparing
Schedule 10.12 of the SEA Agreement. Such list, when confirmed by Du Pont and
Rheinbraun, which confirmation shall not be unreasonably withheld by either
party, shall then be deemed Exhibit B to this Agreement.
-21-
<PAGE>
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Du Pont. Subject to Section 9.2, if the
--------------------------
Closing shall take place, Du Pont will defend, indemnify and hold harmless each
of Rheinbraun and CEI, severally, against and in respect of:
(a) General: Any Rheinbraun Liability, any Loss incurred by CEI as an
-------
entity separate and apart from the Coal Group and 47% of any and all Loss which
any member of the Coal Group incurs resulting from any misrepresentation, breach
of warranty or nonfulfillment of any agreement of Du Pont, or from any
misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished to CEI in connection with the transactions
contemplated hereby;
(b) Environmental Matters: Any Rheinbraun Liability and forty-seven
---------------------
(47%) of any and all Loss which any member of the Coal Group incurs, arising or
resulting from or relating to (i) the failure of any member of the Coal Group
(A) to have received as of the Closing Date all permits and authorizations of
any kind, and to have filed all notifications of any kind on or prior to the
Closing Date, required for the generation, handling, storage, transportation,
disposal or remediation of Hazardous Items, or (B) to have complied at any time
prior to the Closing Date with all laws and regulations governing the
generation, handling, storage, transportation, disposal or remediation of
Hazardous Items; and
-22-
<PAGE>
(ii) the presence, at any time prior to the Closing Date, of Hazardous Items on,
at or under any property of any member of the Coal Group or any other property,
or the migration, at any time prior to the Closing Date, of any Hazardous Items
from any properties of any member of the Coal Group to any other property, or
the release, discharge, transportation, or disposal, at any time prior to the
Closing Date, of any Hazardous Items by or on behalf of any member of the Coal
Group (the foregoing being hereinafter referred to as "Environmental Matters"),
excluding the first fifty million dollars ($50,000,000) in the aggregate of Loss
(calculated on a pre-tax basis) incurred by any of Rheinbraun and any member of
the Coal Group arising or resulting from or relating to any Environmental
Matters;
(c) Pre-Closing Coal Group Litigation: Any Rheinbraun Liability and
---------------------------------
forty-seven percent (47%) of any and all Loss which any member of the Coal Group
incurs, arising from or relating to Pre-Closing Coal Group Litigation, excluding
the first forty million dollars ($40,000,000) in the aggregate of Loss
(calculated on a pre-tax basis) incurred by any of Rheinbraun and any member of
the Coal Group arising from or relating to Pre-Closing Coal Group Litigation;
(d) Taxes. Any Rheinbraun Liability and forty-seven percent (47%) of
-----
any and all Loss which any member of the Coal Group incurs that may result if
the liabilities accrued for any Taxes in the accounts of the Coal Group, as at
the date of the Option Agreement or as at the Closing Date, shall be inadequate
-23-
<PAGE>
to cover all material liability of the Coal Group for Taxes (excluding, for
purposes of determining such adequacy, interest and penalties) for any taxable
year or tax period ending, respectively, on or before the date of the Option
Agreement or the Closing Date. As used herein, the term "Taxes" means all
federal, state, local, and foreign income, profits, franchise, sales, use,
occupation, property, severance, production, excise payroll, and other taxes
(including interest and penalties thereon).
(e) Conoco Minerals: Any Rheinbraun Liability and forty-seven percent
---------------
(47%) of any and all Loss which any member of the Coal Group incurs, arising
from or relating to the properties of Conoco Inc. or its Minerals Divisions,
including but not limited to those properties constituting or known as the
Conquista Project;
(f) Limitation: Notwithstanding the foregoing, Du Pont shall not be
----------
required so to indemnify Rheinbraun or CEI in respect of any of the matters
referred to in paragraphs (a), (b), (c), and (d) (except the matter described in
section 4.4, above) until the aggregate amount of all such Rheinbraun Liability
and Loss incurred by members of the Coal Group (calculated on a pre-tax basis)
exceeds twenty million dollars ($20,000,000), in which case Du Pont shall so
indemnify Rheinbraun or CEI, as the case may be, from and against all such
Rheinbraun Liability and Loss, including the first twenty million dollars
($20,000,000) thereof (but such amount of Loss shall be calculated on an after-
tax basis and
-24-
<PAGE>
subject to the provisions of Section 9.2.(b)), but in no event shall the
obligations of Du Pont under this Article in the aggregate exceed Five Hundred
Million United States Dollars ($500,000,000).
9.2 Rules of Construction.
---------------------
(a) If a claim for indemnification shall appear to fall under
paragraph (a) of section 9.1 and any other paragraph thereof, the paragraph
other than paragraph (a) of the greatest particularity in relation to such claim
shall govern exclusively. If a claim for indemnification shall appear to fall
under both paragraph (b) of Section 9.1 and paragraph (c) thereof, the former
paragraph shall govern exclusively.
(b) Any amount indemnifiable under Section 9.1 shall be reduced
by the amount by which the income tax liability of the Coal Group or Rheinbraun,
as the case may be, is reduced as a result of the relevant Loss; provided, that
the prompt payment when due of the entire indemnifiable amount (as adjusted to
reflect any good faith estimate of such reduction in income tax liability) shall
not be affected or delayed unless such actual reduction in income tax liability
shall have been finally determined prior to such due date. When such actual
reduction in income tax liability shall be finally determined after payment of
the entirety of such adjusted indemnifiable amount, there shall be an
appropriate reconciling payment.
9.3 Notice of Claim for Indemnification. Upon receipt by Rheinbraun
-----------------------------------
or CEI of notice or the obtaining by Rheinbraun or
-25-
<PAGE>
CEI of evidence of any claim upon which indemnification may be sought hereunder,
it shall give written notice of the same to Du Pont. Such notice shall describe
the nature of the claim and, wherever possible, contain an estimate of the
amount of such claim. If any such claim relates to claims asserted by a third
party against Rheinbraun or against any member of the Coal Group (the
"defendant"), and if Du Pont desires to contest the same, Du Pont shall within
ten days after the receipt of a notice pursuant to Section 9.4(a) so notify the
defendant, failing which the defendant shall have the right to undertake the
defense, compromise or settlement of the same (acting in good faith) on behalf
of and for the account and risk of Du Pont. If Du Pont so notifies the defendant
that Du Pont elects to contest the claim, then Du Pont shall be entitled to
control the defense thereof by counsel of its own selection (the identity of
which counsel shall be subject to the consent of the other party, which consent
shall not be unreasonably withheld) and at its own expense. Du Pont and the
defendant shall give each other all information and assistance which each may
reasonably request in defending any matter hereunder.
9.4 Indemnity Notice Periods.
------------------------
(a) Save as otherwise provided in this section 9.4, any claim
for indemnification under section 9.1(a) shall be sufficiently and timely
asserted by Rheinbraun or CEI, as the case may be, if asserted by written notice
pursuant to Section 9.3 to Du Pont not later than August 31, 2000.
-26-
<PAGE>
(b) Any claim for indemnification under section 9.1(b) shall be
sufficiently and timely asserted by Rheinbraun or CEI, as the case may be, if
asserted by written notice pursuant to section 9.3 at any time not later than
the fourth anniversary of the Closing.
(c) Any claim for indemnification under section 9.1(c) shall be
sufficiently and timely asserted by Rheinbraun or CEI, as the case may be, if
asserted by written notice pursuant to section 9.3 within ninety (90) days after
all administrative and judicial proceedings in respect of all matters the
subject of such section shall have been settled or shall have concluded by the
entry of a final judgment, issuance of an arbitral award or otherwise.
(d) Any claim for indemnification with respect to a liability
for Taxes (as defined in section 9.1(d)) shall be sufficiently and timely
asserted by Rheinbraun or CEI, as the case may be, if asserted by written notice
pursuant to section 9.3 within ninety (90) days after all administrative and any
judicial proceedings have concluded and there has been a final determination of
the Taxes due which are the subject of such claim, and shall be barred unless so
asserted.
(e) Any claim for indemnification under section 9.1(e) may be
asserted at any time.
(f) Notwithstanding any other provision of this Article, any
claim for indemnification by a party based upon a willful and fraudulent
misrepresentation by the other party may be
-27-
<PAGE>
asserted by the party seeking indemnification by written notice pursuant to
section 9.3 within one hundred and eighty (180) days after such party receives
or obtains actual knowledge of such misrepresentation.
9.5 Exclusive Remedies. Following the Closing, except in the case of
------------------
fraud, the indemnities set forth in this Article shall be the only remedies
available to a party entitled to indemnification with respect to the matters
giving rise to such indemnification.
9.6 Coexistence of SEA Agreement. Neither this Article nor any
---------------------------
indemnification made under this Article shall affect or lessen the obligations
of any party as indemnitor under the SEA Agreement, and neither the SEA
Agreement nor any indemnification made under the SEA Agreement shall affect or
lessen the obligations of any party as indemnitor under this Article; provided,
--------
that, for purposes of administering claims under the SEA Agreement and this
- ----
Agreement, the following rules shall apply:
(a) a Loss any portion of which may be indemnifiable under both
Agreements (a "Common Loss") shall first be charged only against any applicable
exclusion in the SEA Agreement (set forth in Section 11.1 (d), (e) or (f) of the
SEA Agreement, as the case may be) and thereafter shall be indemnified by Du
Pont to the extent required by the SEA Agreement, subject to the $20,000,000
threshold set forth in the last paragraph of Section 11.1 of the SEA Agreement
if not yet satisfied;
-28-
<PAGE>
(b) once any applicable exclusion or threshold under the SEA
Agreement has been satisfied, any Common Loss incurred thereafter shall, to the
extent not charged against any exclusion or threshold or indemnified by Du Pont
under the SEA Agreement, be treated as a Loss indemnifiable under this
Agreement, subject to any applicable exclusions or threshold under this
Agreement; and
(c) a Loss indemnifiable under only one of the SEA Agreement and this
Agreement shall be indemnified only under, and to the extent required by, the
applicable Agreement, subject to the exclusions and threshold of such Agreement;
it is understood that no Loss which might have been indemnifiable under the SEA
Agreement but is not because of a failure to give timely notice thereof in
accordance with the provisions of the SEA Agreement shall be treated as a Common
Loss.
9.7 Knowledge of Claims. Each representation and warranty made by a
-------------------
party to this Agreement is made with the intention that the recipient thereof
may rely upon the accuracy thereof, and the effect of each such representation
and warranty shall not be lessened by any investigation independently conducted
by such recipient.
9.8 Notice to Du Pont of Common Loss Settlements. Prior to settling
--------------------------------------------
any proceeding or claim (including without limitation any tax dispute,
arbitration or claim) for an amount in excess of $1,000,000 (in respect of any
tax claim) or in excess of $5,000,000 (in respect of any other claim) that is
-29-
<PAGE>
subject to the indemnification provisions hereof (without regard to the
exclusion and threshold amounts specified herein) and that would give rise to a
Common Loss, CEI shall give Du Pont as much notice of such settlement as is
reasonably practicable in the circumstances and opportunity to comment thereon.
ARTICLE X
TERMINATION
If the Closing shall not have taken place on or before the 120th day
following the effective date of this Agreement, then this Agreement may be
terminated at any time thereafter by any party upon written notice delivered to
all other parties hereto; provided, that, this Article does not confer on any
--------
party the right to terminate this Agreement if all conditions to the performance
by such party of its obligations under this Agreement have been fulfilled or
waived on or before such 120th day, and a party may not terminate this Agreement
on the ground of non-fulfillment of a condition if such non-fulfillment was
itself caused by such party. Termination of this Agreement shall not affect
rights or obligations of any party accruing before the effective date of
termination.
ARTICLE XI
EXPENSES
Each of the parties to this Agreement shall bear all costs and
expenses incurred by it in connection with this
-30-
<PAGE>
Agreement and the transactions contemplated hereby, including fees and expenses
of counsel.
ARTICLE XII
ASSIGNMENT
12.1 Du Pont and DEC may assign rights under this Agreement only with
the prior written consent of CEI. Any purported assignment without such consent
shall be void. CEI may freely assign this Agreement, in whole or in part.
12.2 The terms and conditions of this Agreement shall be binding on
the parties and their respective successors and permitted assigns.
ARTICLE XIII
SURVIVAL OF CONDITIONS, WARRANTIES, ETC.
All the terms, conditions, warranties, representations, and guarantees
set forth in this Agreement shall survive the Closing of the transactions
provided for in this Agreement.
ARTICLE XIV
NOTICES
All notices, consents, requests, instructions, approvals, and other
communications provided for herein (other than legal process) shall be validly
given if in writing and delivered personally or by confirmed telefax or express
mail (requiring a return receipt) to the address set forth below or to
-31-
<PAGE>
such other address as any party may from time to time designate in a written
notice given in like manner. Notices and such other communications shall be
deemed delivered upon actual receipt:
(i) if to Du Pont or DEC, to each at:
E.I. Du Pont de Nemours and Company
1007 Market Street
Wilmington, Delaware 19898
U.S.A.
Attention: Vice President - Treasury
Telefax: (302) 774-1829
(ii) if to Rheinbraun, at:
Rheinbraun AG
Stuttgenweg 2
D-50935 Koln
Federal Republic of Germany
Attention: Vorstand
Telefax: 011-49-221-480-1354
(iii) if to CEI, at:
Consol Energy Inc.
3513 Concord Pike
P.O. Box 7108
Wilmington, Delaware 19803
Attention: President
Telefax: 412-831-4635
with a copy, in respect of notices to
Rheinbraun or CEI, to:
Becker, Glynn, Melamed & Muffly LLP
299 Park Avenue
New York, New York 10171
U.S.A.
Telefax: (212) 888-0255
Attention: Robert C. Muffly
-32-
<PAGE>
ARTICLE XV
MISCELLANEOUS
15.1 Entire Agreement.
----------------
(a) This Agreement constitutes the entire agreement between the
parties on the subject matter hereof, and supersedes any and all prior
agreements and undertakings between the parties hereto with respect to the
subject matter hereof.
(b) Nothing in this Agreement shall affect or lessen the rights
and obligations of the parties (including indemnification obligations) under the
SEA Agreement.
15.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to constitute an original of the
same Agreement, and all counterparts together shall constitute one single
agreement, which shall be effective upon the execution hereof by all the parties
hereto. A complete set of counterparts shall be made available to each party
hereto.
15.3 Partial Invalidity. In the event that one or more of the
------------------
provisions of this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement, and
this Agreement shall be construed as if such invalid or illegal or unenforceable
provision had never been contained herein.
15.4 Interpretation. The Table of Contents and the headings of the
--------------
Articles and Sections of this Agreement are
-33-
<PAGE>
included for convenience of reference only and shall not affect the
interpretation of any provision of this Agreement. The assumption of
responsibility for the drafting of this Agreement or any portion hereof by a
party hereto shall not result in any inference or presumption that this
Agreement shall be construed against such party.
15.5 Amendments, Waivers and Consents. For the purposes of this
--------------------------------
Agreement, except as otherwise specifically set forth herein, no course of
dealing between any of the parties and no delay on the part of any party hereto
in exercising any rights hereunder shall operate as a waiver of the rights
hereof. No covenant or other provision hereof may be waived otherwise than by a
written instrument signed by the party so waiving such covenant or other
provision; provided, that, except as otherwise stated herein, changes in or
--------
additions to, and any consents required by, this Agreement may be made, and
compliance with any term, covenant, condition or provision set forth herein may
be omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), by a consent or consents in writing by the
party charged with the omission or waiver thereof.
15.6 Publicity. Subject to applicable securities laws and
---------
regulations (including regulations of a securities exchange) of the United
States, any state thereof or the Federal Republic of Germany, no public release
or announcement concerning the transactions contemplated hereby shall be issued
by any party hereto without the prior written consent of the other parties. If
-34-
<PAGE>
such release or announcement shall be required by any such laws or regulations,
the party required to make the release or announcement shall allow the other
parties reasonable time to comment on such release or announcement in advance of
its issuance.
15.7 Further Assurances. Each party will execute and deliver such
------------------
further instruments, shall obtain all necessary consents, and shall take such
further actions as may be reasonably requested by the other parties to confirm
and carry out the transactions contemplated by this Agreement.
ARTICLE XVI
GOVERNING LAW; ARBITRATION
16.1 Governing Law. The validity, performance, interpretation and
-------------
other incidents of this Agreement shall be governed by the internal law of the
State of New York.
16.2 Arbitration
-----------
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement, or the interpretation, breach, termination or
invalidity thereof, shall be finally settled by arbitration in London, England,
in accordance with the Rules of the London Court of International Arbitration
("LCIA") as in force on the date hereof by three arbitrators as hereinafter
provided. The language of any arbitral proceeding shall be English. For the
purposes of this section 16.2, Du Pont and DEC shall be deemed a single party,
Rheinbraun and CEI shall be deemed a single party,
-35-
<PAGE>
and all procedural rights and obligations of such party shall be exercised and
discharged, respectively, by Du Pont and Rheinbraun.
(b) The arbitral tribunal shall be composed of three
arbitrators appointed as follows:
(i) Each party shall nominate an arbitrator, and the two
arbitrators so nominated shall appoint a third arbitrator
who shall act as president of the tribunal;
(ii) if either party shall fail to nominate an arbitrator
within thirty (30) days after receiving notice of the
nomination of an arbitrator by the other party, such
arbitrator shall, at the written request of such other
party, be appointed by the LCIA;
(iii) if the two arbitrators so nominated shall fail to agree
upon a third arbitrator within thirty (30) days after the
appointment of the second arbitrator, the third arbitrator
shall, at the written request of either party, be
appointed by the LCIA;
(iv) should a vacancy arise because any arbitrator dies,
resigns, refuses to act, or becomes incapable of
performing his functions, the vacancy shall be filled by
the method by which that arbitrator was originally
appointed.
-36-
<PAGE>
(c) Any arbitration proceeding hereunder may include claims or
counterclaims, if any, arising under and chargeable against a party to this
Agreement who is also a party to the Shareholders Agreement, the Shareholders
Amendatory Agreement, the SEA Agreement, or all said agreements. If more than
one arbitration proceeding shall be pending hereunder concurrently, then, upon
the written agreement of all parties engaged in such proceedings, the several
proceedings may be consolidated by the LCIA into one proceeding upon the terms
of such agreement and the Rules of the LCIA.
(d) The parties agree that irreparable damage would occur if any
provision of this Agreement were not performed in accordance with its specific
terms or were otherwise breached, and that the arbitral tribunal shall
consequently have power to grant injunctions (preliminary and permanent) and
specific performance in addition to other relief. The arbitral tribunal shall
also grant to any party, upon its request, broad discovery of relevant,
unprivileged documents controlled by the other party. Nothing herein shall limit
the right of any party, before and during any such arbitration proceeding, to
have recourse to such provisional judicial remedies, including preliminary
injunction and attachment, as would be available in the absence of this Section;
provided, that any legal action seeking such provisional judicial remedies shall
be brought in state or federal courts in Wilmington, Delaware, if brought
against a domiciliary of the United States, or in the courts of Cologne,
Germany, if brought
-37-
<PAGE>
against a domiciliary of Germany, or in the courts of England (irrespective of
the domiciles of the parties). Judgment upon any arbitral award may be entered
in any court having jurisdiction. The parties agree to exclude the right of
appeal to any court in England from any award of the arbitral tribunal, and to
exclude the right to apply to any court in England for the determination of any
question of law arising in the arbitration.
(e) During the pendency of an arbitration proceeding hereunder, any
party to the proceeding may continue to perform its obligations hereunder
without prejudice to its claims, defenses, counterclaims, or any resulting
award, and such party shall continue to perform such obligations unless its
claims, defenses, or counterclaims assert in such proceeding that, in
consequence of a material breach of this Agreement by another party to such
proceeding or the failure of a condition of such obligations, it is excused from
continued performance of this Agreement.
(f) Each party agrees that any request for arbitration, answer
thereto or other paper for such arbitration, or complaint, answer thereto or
other paper for such judicial proceeding, shall be sufficiently served on a
party if delivered personally or by express mail (return receipt requested) to
the address specified for such party in this Agreement, such delivery to be
effective only upon actual receipt.
-38-
<PAGE>
IN WITNESS WHEREOF, DU PONT, DEC, RHEINBRAUN AND CEI have caused this
Agreement to be duly executed all as of the day and year first above written.
E.I. DU PONT DE NEMOURS AND COMPANY
By: /s/ S. M. Stalnecker ATTEST:
-----------------------------------
Name: S. M. Stalnecker
Title: Vice president and Treasurer
/s/ ^[SIGNATURE ILLEGIBLE]^
-----------------------------
Assistant Secretary
DU PONT ENERGY COMPANY
By: /s/ S. M. Stalnecker ATTEST:
-----------------------------------
Name: S. M. Stalnecker
Title: President
/s/ ^SIGNATURE ILLEGIBLE^
-----------------------------
Assistant Secretary
RHEINBRAUN AG
By: /s/ Bernd J. Breloer By: /s/ Berthold Bonokamp
----------------------------------- --------------------------
Name: Bernd J. Breloer Name: Berthold Bonokamp
Title: Mitglied des Vorstandes Title: Mitglied des
Vorstandes
CONSOL ENERGY INC.
By:/s/ J. Brett Harvey ATTEST:
------------------------------------
Name: J. Brett Harvey
Title: President
/s/ D. L. Fassio
------------------------------
Secretary
-39-
<PAGE>
Exhibit A to Share Purchase Agreement
Form of Counter-Guaranty
------------------------
COUNTER-GUARANTY made as of __________________ by RHEINBRAUN AG, a
corporation duly organized and existing under the laws of Germany (hereinafter
the "Guarantor").
WITNESSETH:
WHEREAS, Consol Energy Inc. and E.I. du Pont de Nemours and Company ("Du
Pont") and an Affiliate, have entered into a Share Purchase Agreement dated
________________ (the "Agreement"); and
WHEREAS, Section 8.9 of the Agreement contemplates that the Guarantor shall
execute and deliver in favor of Du Pont a counter-guaranty in respect of any
liability Du Pont may incur as a result of guaranties or indemnities heretofore
given by Du Pont or certain of its Affiliates not within the Coal Group (as
defined in the Agreement) of certain obligations of members of the Coal Group,
as set forth in Exhibit B of the Agreement;
NOW, THEREFORE, the Guarantor, for and in consideration of Du Pont's
entering into the Agreement and for U.S. $1.00 and other good and valuable
consideration, agrees as follows:
<PAGE>
1. As used in this Counter-Guaranty, (i) the term "Reimbursable Payment"
shall mean a payment made by Du Pont (or such Affiliate) to the beneficiary of a
guaranty or indemnity set forth in Exhibit B of the Agreement ("Beneficiary"),
up to the maximum amount of such guaranty or indemnity shown on said Exhibit,
that is made in discharge of (a) a final judgment or order of a court of
competent jurisdiction in favor of such Beneficiary respecting the claims of
such Beneficiary under such guaranty or indemnity, or (b) a written agreement
between Du Pont (or such Affiliate) and such Beneficiary settling with finality,
and releasing Du Pont (or such Affiliate) from further obligations respecting
such claims of such Beneficiary under such guaranty or indemnity to which
agreement Rheinbraun shall have consented in writing prior to the execution
thereof (which consent shall not be unreasonably withheld), and (ii) the term
"Expenditures" shall mean all reasonable expenses of Du Pont (or such Affiliate)
paid to any third party that are incidental to a claim referred to in (i) above,
provided however that Du Pont (or such Affiliate) shall have consulted with
Rheinbraun prior to incurring such expenses. Any other term not defined herein
shall have the same meaning given it in the Agreement.
2. Within 30 days after Du Pont (or such Affiliate) shall have received
written notice of a claim, or threatened claim, by a Beneficiary, Du Pont (or
such Affiliate) shall give written
2
<PAGE>
notice thereof to Rheinbraun together with a photocopy of such notice. Within 30
days after Du Pont (or such Affiliate) shall have made a Reimbursable Payment to
such Beneficiary and/or shall have incurred Expenditures, it shall give written
notice to Rheinbraun stating the amount paid or incurred and shall furnish to
Rheinbraun documentary evidence of the making of such Reimbursable Payment
and/or the incurring of such Expenditures, or if no such documentary evidence
exists, a certificate signed by an officer of Du Pont (or of such Affiliate)
attesting to the making of such Reimbursable Payment or the incurring of such
Expenditures. In the case of a payment of the character described in
subparagraph 1(i)(a), above, Du Pont (or such Affiliate) shall also furnish to
Rheinbraun a photocopy of the relevant judgment or order, and, in the case of a
payment of the character described in subparagraph 1(i)(b), above, Du Pont (or
such Affiliate) shall also furnish to Rheinbraun a photocopy of the relevant
written agreement as executed by Du Pont (or such Affiliate) and such
Beneficiary.
3. Within 30 days after the receipt by Rheinbraun of documents specified
in and conforming to paragraph (2), above, Rheinbraun shall pay to Du Pont (or
such Affiliate) the amount of the Reimbursable Payment and/or Expenditures made
or incurred by Du Pont (or such Affiliate), and Du Pont (or such Affiliate)
shall, within 10 days of receipt of such payment from Rheinbraun,
3
<PAGE>
assign to Rheinbraun, absolutely, by written instrument satisfactory to
Rheinbraun, all rights, by way of subrogation or otherwise, that Du Pont (or
such Affiliate) shall acquire against the principal debtor by reason of such
Reimbursable Payment or Expenditures.
4. No Beneficiary shall, by reason of this Counter-Guaranty, acquire
rights against Rheinbraun as a third-party beneficiary hereof or otherwise.
5. Subject to Section 7 hereof, Du Pont (for itself and all such
Affiliates) and Rheinbraun each hereby agree that, in respect of any rights
either of them may acquire by subrogation or otherwise, it shall not, without
the consent of the other, proceed against any member of the Coal Group by reason
of any Reimbursable Payment or Expenditures made or incurred by Du Pont (or such
Affiliate) or by reason of any payment made by Rheinbraun to Du Pont (or such
Affiliate) pursuant to paragraph 3 hereof.
6. The following provisions of the Agreement are incorporated by reference
as if fully set forth herein: Article XIV (Notices) and Sections 16.1
(Governing Law) and 16.2 (Arbitration).
4
<PAGE>
7. Rheinbraun understands and agrees that Du Pont (or such Affiliate) will
continue to follow its standard practice of billing back to the Coal Group 100%
of all Reimbursable Payments, Expenditures and insurance, surety or other
premiums or expenses paid to maintain in effect the guaranties and indemnities
set forth in Exhibit B of the Agreement. To the extent such billings are paid by
the Coal Group, Du Pont (and each such Affiliate) shall not be entitled to make
a claim for the amount of such billings against Rheinbraun hereunder, and if any
such billings are paid by the Coal Group after payment of the same by Rheinbraun
to Du Pont hereunder, Du Pont shall promptly refund to Rheinbraun the amount of
such payment.
8. This Counter-Guaranty is made and given in replacement of that certain
Counter-Guaranty dated as of December 31, 1991 (the "Prior Counter-Guaranty")
made by the Guarantor in favor of Du Pont. The parties agree that the prior
Counter-Guaranty is hereby terminated and declared to be void as of the date
thereof.
5
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Counter-Guaranty as of
the day and year first above written.
RHEINBRAUN AG
By:_______________________________
__________________________________
E.I. DU PONT NEMOURS AND COMPANY
By:_______________________________
6
<PAGE>
EXHIBIT 10.15
-------------
AMENDATORY AGREEMENT NO. 3 dated as of October 1, 1997, to the
Shareholders' Agreement dated as of December 6, 1991, as amended (the
"Shareholders' Agreement"), among E.I. DU PONT DE NEMOURS AND CO., a Delaware
corporation ("Du Pont"), DU PONT ENERGY COMPANY, a Delaware corporation ("DEC"),
CONSOL ENERGY INC., a Delaware corporation ("CEI"), RHEINBRAUN AG, a German
corporation ("Rheinbraun"), and RHEINBRAUN US GMBH, a German corporation ("RG").
WHEREAS, Du Pont, DEC, CEI, and Rheinbraun have entered into an Option
(Class A Shares) Agreement, dated as of this date (the "Option Agreement"),
granting to Rheinbraun the option (the "Option") to purchase 50,000 Class A
Shares (the "Class A Shares") of CEI owned by DEC;
WHEREAS, the Option Agreement provides that, upon exercise by
Rheinbraun of the Option, the purchase of Class A Shares thereunder is to be
made pursuant to a Share Purchase Agreement in form attached as Exhibit A to the
Option Agreement (the "SPA");
WHEREAS, the parties hereto intend that the exercise of the Option
will vest in Rheinbraun control over CEI, while expiry of the Option will
entitle Du Pont to dispose of Class A Shares in a public offering (without
prejudice to its right to dispose of Class A Shares under the Shareholders'
Agreement);
<PAGE>
WHEREAS, in consequence of the foregoing, the parties hereto are
entering into this Amendatory Agreement to provide that, upon exercise or expiry
of the Option the Shareholders' Agreement shall be further amended as herein
provided;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
---------
Definitions
-----------
Terms used herein without definition that are defined in the
Shareholders' Agreement shall have the meanings, respectively, specified in the
Shareholders' Agreement, and the following terms shall have the meanings
assigned to them below:
"Closing" shall mean the closing specified in Article III of the SPA.
"Closing Date" shall mean the date of the Closing specified in Article
III of the SPA.
"Coal Group" shall mean CEI and its Subsidiaries, and a "member of the
Coal Group" shall be any one of CEI or such Subsidiaries.
"Subsidiary" shall mean, with respect to another person, a
corporation, partnership, trust, or other legal entity controlled by such other
person, directly or indirectly. An entity shall be deemed subject to the control
of another person
2
<PAGE>
when such person, directly or indirectly, has the power to direct or cause the
direction of the management and policies of such entity.
"Underwriting Agreement" shall mean an agreement between CEI and
underwriters to effect an underwritten, registered public offering of Class A
Shares.
ARTICLE II
----------
Exercise of Option
------------------
1. Rheinbraun Control; Suspension of Shareholders' Agreement. If
---------------------------------------------------------
Rheinbraun shall exercise the Option, then, effective immediately upon the
exercise of the Option, the following provisions shall apply:
(a) Rheinbraun shall assume exclusive managerial control over the
Coal Group and, to that end, (i) Du Pont shall cause each of the directors of
CEI nominated by Du Pont to deliver to CEI, with a copy to Rheinbraun, written
resignations from all directorships in the Coal Group held by him, and (ii) Du
Pont shall cause DEC to execute and deliver to Rheinbraun its irrevocable proxy,
in substantially the form of Exhibit A hereto, authorizing officers of
Rheinbraun identified therein to act in the place of DEC with respect to the
Class A Shares in all respects, as such officers may determine; and,
(b) All provisions of the Shareholders' Agreement shall be suspended
and without contractual force except the following: sections 4.2 (subject,
however, to section 2(b) of the
3
<PAGE>
Option Agreement), 6.4, and Article VII; provided, that, nothing in this section
-------- ----
1 shall entitle Rheinbraun to amend the Certificate of Incorporation or By-laws
of CEI, to amend further the Shareholders' Agreement, or to cause any member of
the Coal Group to do any act prior to the Closing Date of the type referred to
in item 4 (Certain Capital Expenditures), item 6 (New Lines of Business) or item
13 (New Business with Stockholders) of Annex G of the Shareholders' Agreement
without the prior written consent of Du Pont.
2. Closing; Termination of Shareholders' Agreement. Upon the
-----------------------------------------------
acquisition by Rheinbraun of title to 50,000 Class A Shares at the consummation
of the Closing, then, automatically and without the necessity of further action
by the parties, (a) the Shareholders' Agreement shall terminate and be of no
further force or effect as of the Closing Date, and (b) each of the parties
hereto shall be deemed to have released and forever discharged every other party
to the Shareholders' Agreement from every liability and obligation that any of
them may have to the releasing party arising from the making and performance of
the Shareholders' Agreement.
3. Termination Without Closing. If the SPA shall be terminated as
---------------------------
provided therein, or otherwise cancelled or discharged, without consummation of
the Closing, then, as of the date of such termination, cancellation or
discharge, (a) the resignations and proxy delivered pursuant to section 1 of
this Article II shall be void, and said directors (or their respective
4
<PAGE>
successors appointed by Du Pont) shall reassume the directorships from which
they resigned and (b) the Shareholders' Agreement shall be reinstated and
continue in full force and effect and, to the extent practicable, the rights and
obligations of the parties to the Shareholders' Agreement, and the status of the
boards of directors of the Coal Group and the voting rights of DEC as holder of
the Class A Shares, shall be restored to their status as of the date and prior
to the execution hereof.
ARTICLE III
-----------
Public Offering
---------------
1. Right to Make Offering. If the Option shall expire unexercised,
----------------------
Du Pont shall be entitled to dispose of all or part of the Class A Shares in the
manner, and upon the conditions, specified in this Article and in Exhibit B
(Registration Rights), annexed hereto. For the purposes of this Amendatory
Agreement, Du Pont shall include DEC.
2. (a) Procedures. Until December 31, 2001, Du Pont may distribute
----------
Class A Shares to the public by means of (i) a spin-off stock dividend to
shareholders of Du Pont or (ii) a registered public offering pursuant to an
Underwriting Agreement as provided in Exhibit B. Not more than 60 days after
expiry of the Option, Du Pont shall give written notice to Rheinbraun and CEI
(the "2(a) Notice") of the method that it has elected to employ to make such
distribution and shall thereafter proceed according to such method; provided,
--------
that, Du Pont may amend the
- ----
5
<PAGE>
2(a) Notice once, not more than 180 days after expiry of the Option. The 2(a)
Notice shall include any proposal of Du Pont to change the capitalization of
CEI, by stock-split or otherwise, for the purposes of such distribution, and, if
Rheinbraun and CEI shall consent to such proposal (which consent shall not be
unreasonably withheld), corresponding changes shall be made in the Certificate
Incorporation and By-laws of CEI to give effect thereto. Any shares issued by
CEI in exchange for or in lieu of Class A Shares shall be deemed Class A Shares
for the purpose hereof.
(b) Breadth of Distribution. In any public offering made pursuant to
-----------------------
this Article and Exhibit B, Du Pont shall cause its underwriters to (i) effect
as wide a distribution of the Class A Shares as is practicable; (ii) prevent the
sale of Class A Shares to any person that would, following such sale,
beneficially own more than 4.9% of the outstanding shares of CEI after
completion of such offering; and (iii) treat Rheinbraun equally with
institutional investors and other offerees to whom Class A Shares are offered
for sale in the first such offering.
(c) Rheinbraun Cooperation. In connection with any public offering
----------------------
made pursuant to this Article and Exhibit B, Rheinbraun will use its reasonable
best efforts to (i) cause CEI to perform its obligations under this Article and
Exhibit B, and (ii) take such other actions as are reasonably requested by Du
Pont, or required by law, to expedite or facilitate the registration,
qualification or distribution of the number of
6
<PAGE>
Class A Shares included in such offering in accordance with this Article and
Exhibit B.
ARTICLE IV
----------
Effects on Shareholders' Agreement
----------------------------------
1. Complete Disposition. If Du Pont and DEC shall dispose of all
--------------------
Class A Shares in conformity with Article III hereof, then, as of the date of
the final such disposition, (a) the Shareholders' Agreement shall terminate and
be of no further force or effect, and (b) each of the parties hereto shall be
deemed to have released and forever discharged every other party to the
Shareholders' Agreement from every liability and obligation that any of them may
have to the releasing party arising from the making and performance of the
Shareholders' Agreement.
2. Partial Disposition. So long as Du Pont shall own any of the
-------------------
Class A Shares, the Shareholders' Agreement (including section 4.2 thereof)
shall be binding on Du Pont, and shall apply to such Shares, in accordance with
its terms as amended heretofore and hereby; provided, that, if part of the Class
-------- ----
A Shares shall have been distributed in a public offering in conformity with
Article III hereof, only the following provisions of the Shareholders' Agreement
shall continue so to bind Du Pont: sections 4.2 as amended by section 3 of this
Article (for the purpose of which Du Pont and Rheinbraun shall be deemed the
sole
7
<PAGE>
shareholders of CEI), 6.4, 7.1 (in relation to Class A Shares held by Du Pont),
7.2, 7.3, and 7.5 through 7.12 (inclusive).
3. Amendment of Section 4.2.1. If the Option shall expire
--------------------------
unexercised, section 4.2.1 of the Shareholders' Agreement shall be deemed
amended as of October 1, 1998, to read as set forth in Exhibit C (Amended
Section 4.2.1) annexed hereto.
ARTICLE V
---------
Miscellaneous
-------------
1. Assignment. By written notice to Rheinbraun and CEI, Du Pont may
----------
nominate a Subsidiary of Du Pont to exercise the rights granted by Article III
hereof. Any other purported assignment of any right or privilege by one party
hereto without the prior written consent of all other parties hereto shall be
void.
2. Incorporation by Reference. Sections 7.4 through 7.12 (inclusive)
--------------------------
of the Shareholders' Agreement are incorporated by reference as if fully set
forth herein and shall apply to this Amendatory Agreement irrespective of the
termination of the Shareholders' Agreement.
8
<PAGE>
IN WITNESS WHEREOF, DU PONT, DEC, CEI, RHEINBRAUN, and RG have caused
this Agreement to be duly executed, all as of the day and year first above
written.
E.I. DU PONT DE NEMOURS AND COMPANY
By:/s/ John C. Sargent ATTEST:
-----------------------------------
Name: John C. Sargent
Title: Vice President and Treasurer
/s/ L. B. Lancaster
-------------------------
Secretary
DU PONT ENERGY COMPANY
By:/s/ John C. Sargent ATTEST:
-----------------------------------
Name:
Title: President
/s/ SIGNATURE ILLEGIBLE^^
-------------------------
Secretary
CONSOL ENERGY INC.
By:/s/ B. R. Brown ATTEST:
-----------------------------------
Name:
Title: President
/s/ D. L. Fassio
-------------------------
Secretary
RHEINBRAUN AG
By: /s/ Dr. Dieter Henning By: /s/ Bernd J. Breloer
----------------------------------- -------------------------
Name: Dr. Dieter Henning Name: Bernd J. Breloer
Title: Vorsitzender d. Vorstandes Title: Mitglied d.
Vorstandes
RHEINBRAUN US GMBH
By: /s/ Dr. Peter Kausch By: /s/ Dr. Rolf Zimmermann
----------------------------------- -------------------------
Name: Dr. Peter Kausch Name: Dr. Rolf Zimmermann
Title: Geschaftsfuhrer Title: Geschaftsfuhrer
9
<PAGE>
EXHIBIT A to Amendatory Agreement
---------------------------------
IRREVOCABLE PROXY
The undersigned, DUPONT ENERGY COMPANY, a Delaware corporation ("DEC"), is
a holder of 50,000 shares of class A Common Stock of Consol Energy Inc., a
Delaware corporation, represented by Certificate No. ______ (the "Shares"). DEC
hereby irrevocably appoints Dr. Dieter Henning or Dr. Peter Kausch or Dr. Rolf
Zimmermann, or any of them, with full power of substitution, as its attorney and
proxy to attend meetings, vote, give consents and in all other ways act in the
place of DEC with respect to all the shares (and any and all shares or other
securities issued in respect of the Shares).
This proxy is made pursuant to section 212 of the Delaware General
Corporation Law and an Amendatory Agreement dated as of _______, 1997, among
DEC, Rheinbraun A.G., and others relating to the sale of the Shares by DEC to
Rheinbraun A.G. and is therefore coupled with the interest provided thereby.
DATED: ____________
DUPONT ENERGY COMPANY
By: __________________________
ATTEST:
___________________________
Secretary
10
<PAGE>
EXHIBIT B to Amendatory Agreement
---------------------------------
REGISTRATION RIGHTS
1.1. Agreement to Register. CEI agrees to register the Class A
---------------------
Shares, any other securities issued in exchange therefor (including by way of
stock split or in connection with a combination of shares, recapitalization, or
otherwise) and any other securities issued as a dividend thereon (the
"Registrable Securities") upon the terms and subject to the conditions set forth
in this Exhibit B and in the Amendatory Agreement to which this Exhibit is
annexed.
(a) Demand Registration. On not more than two occasions prior to
-------------------
December 31, 2001, if Du Pont (i) requests in writing (a "Registration Request")
that CEI register the sale or other distribution under the Securities Act of
1933, as amended (the "Securities Act") of any of the Registrable Securities
(which request shall specify the number of Registrable Securities intended to be
offered and sold), (ii) expresses Du Pont's present intent to offer such
Registrable Securities for distribution, (iii) describes the nature or method of
the proposed offer and sale thereof, and (iv) undertakes to provide all such
information and materials relating to Du Pont and to take all such action as may
be required of Du Pont in order to permit CEI to comply with all applicable
requirements of the Securities and Exchange Commission (the "Commission") and to
obtain acceleration of the effective date of the registration statement
therefor, CEI shall use all reasonable efforts to cause the offering of the
Registrable Securities so specified in such request to be registered as soon as
reasonably practicable so as to permit the sale or other distribution by Du Pont
of the Registrable Securities specified in the Registration Request, and shall
in connection therewith prepare and file on an appropriate form, as CEI shall
reasonably determine, a registration statement under the Securities Act to
effect such registration. Notwithstanding any provision to the contrary
contained herein, CEI shall not be required to file any registration statement
pursuant to this section 1.1(a) in the following circumstances:
(i) if, in the reasonable judgment of Rheinbraun or CEI, a
registration at the time and on the terms requested would materially adversely
affect any financing by CEI that had been contemplated by Rheinbraun or CEI
prior to the notice by Du Pont requesting registration, CEI shall not be
required to commence using its best efforts to effect a registration pursuant to
this section until the earliest of (1) 90 days after the completion of such
financing, (2) the termination of any "black out" period
<PAGE>
required by the underwriters, initial purchasers or placement agents, if any, in
connection with such financing or (3) promptly after abandonment of such
financing;
(ii) if, while a Registration Request is pending pursuant to
this section, Rheinbraun or CEI determines in good faith, based on the advice of
counsel, that proceeding with the registration would require the disclosure of
material information that Rheinbraun or CEI has a bona fide business purpose for
preserving as confidential, or CEI is unable to comply with Commission
requirements, CEI shall not be required to effect such pending registration
statement until the earlier of (1) the date upon which such material information
is disclosed to the public or ceases to be material or (2) 120 days after the
date CEI makes such determination; and
(iii) if Rheinbraun and CEI shall not have received undertakings
reasonably satisfactory to them from any underwriter or underwriters to
indemnify and hold them harmless, each of their directors and officers, and
every other controlling person of them, from and against any and all loss,
damage, liability, cost or expense to which they, any director or officer of
them, or every other controlling person of them may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses (A) are caused by any untrue or alleged untrue statement of any
material fact contained in the registration statement or prospectus included
therein, as amended or supplemented, or (B) arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in conformity with written information furnished by
such underwriter or underwriters.
(iv) The right of Du Pont to exercise registration rights
pursuant to section 1.1(a) shall be subject to the condition that the first
Registration Request of Du Pont shall be for not less than 20,000 Class A Shares
(or equivalent).
(b) Registration Expenses. Du Pont shall bear the costs and
---------------------
expenses incurred in connection with the registration of the sale or other
distribution of the Registrable Securities pursuant to the terms of this section
1.1 (or, if securities are included in any such registration for the account of
CEI or any other security holders, Du Pont shall bear its proportionate share of
such costs and expenses, except Du Pont shall pay any
2
<PAGE>
underwriting fees, discounts or commissions attributable to sales of Registrable
Securities by Du Pont and any "out-of-pocket" expenses of Du Pont, including Du
Pont's counsel's fees and expenses) including, without limitation, (i) all
filing fees with the Commission; (ii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities, (iii)
printing expenses, (iv) the fees and expenses incurred in connection with the
listing of the Registrable Securities, (v) fees and expenses of counsel and
independent certified public accountants for the Company (including the expenses
of any comfort letters).
(c) Other Registration Provisions and Procedures. Any registration
--------------------------------------------
under this section 1.1 shall be subject to the following procedures:
1. As to any proposed offer or sale of Registrable Securities, such
securities shall cease to be Registrable Securities where (a) a
registration statement with respect to the sale of such
securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance
with such registration statement, or (b) such securities have
been transferred or sold to any individual or entity other than
Du Pont or any affiliate of Du Pont.
2. Upon any registration under section 1.1 of this Exhibit becoming
effective, CEI will use its best efforts to keep such
registration statement current for a period of 90 days or such
shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold.
3. A Registration Request shall not be deemed to have been made for
purposes of the first sentence of section 1.1(a) hereof:
(a) if, after a registration statement has become effective,
such registration statement is interfered with by any stop
order, injunction or other order or requirement of the
Commission or other governmental authority for any reason
other than an act or omission of Du Pont;
3
<PAGE>
(b) if the conditions to closing specified in any purchase
agreement or underwriting agreement entered into in
connection with such registration are not satisfied other
than by reason of some act or omission by Du Pont; or
(c) if CEI voluntarily takes any action that would result in Du
Pont not being able to sell such Registrable Securities
covered thereby; or
(d) if Du Pont notifies CEI in writing of Du Pont's intention
not to proceed with a registration prior to execution of an
underwriting agreement relating to that Registration
Request.
4. In connection with any offering of Registrable Securities
pursuant to this Exhibit, CEI (a) will furnish to Du Pont and the
underwriters such number of copies of any prospectus (including
any preliminary prospectus) and prospectus supplement as Du Pont
or such underwriters may reasonably request in order to effect
the offering and sale of the Registrable Securities to be offered
and sold, but only while CEI shall be required under the
provisions hereof to cause the registration statement to remain
current, and (b) take such action as shall be necessary to
qualify the Registrable Securities covered by such registration
under blue sky or other state securities laws for offer and sale
as Du Pont or the underwriters shall request; provided, however,
-------- -------
that CEI shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in
which it shall not be then qualified or to file any general
consent to service of process or to subject itself to taxation in
any jurisdiction wherein it would not otherwise be subject to
taxation but for the requirement of this paragraph.
5. The underwriters acting hereunder shall be selected by Du Pont
with the prior written approval of Rheinbraun and CEI (which
approval shall not be unreasonably withheld). Any underwriting
agreement made hereunder shall be subject to the prior written
approval of Du Pont
4
<PAGE>
and Rheinbraun (which approval shall not be unreasonably
withheld).
6. In connection with any offering of Registrable Securities
registered pursuant to this Agreement, CEI shall (a) furnish Du
Pont, at CEI's expense, with certificates not containing legends
affecting resales under the securities laws of the United States
or any State representing ownership of the Registrable
Securities, in such denominations as Du Pont shall request, which
are sold pursuant to the prospectus contained in the registration
statement.
7. In connection with CEI's obligations under section 1.1(a) hereof,
CEI will:
(a) prepare and file with the SEC within 90 days after receipt
of a Registration Request with respect to such Registrable
Securities (except as otherwise permitted by section 1.1(a)
of the Agreement), a registration statement on any form for
which CEI then qualifies and which shall be appropriate to
effect the intended method of distribution and which form
shall be available for the sale of the Registrable
Securities in accordance with the intended method of
distribution thereof; provided, however, that the
--------
registration statement, if other than on Form S-1, will
contain such additional information in compliance with
securities laws as the underwriters deem necessary or
appropriate for marketing purposes and which shall be
reasonable and customary, and use its best efforts to cause
such registration statement to become and remain effective;
and before filing a registration statement or prospectus or
any amendments or supplements thereto relating to a
registration pursuant to section 1.1(a) hereof, CEI will
furnish to Du Pont and counsel selected by Du Pont (and the
underwriters) copies of all such documents proposed to be
filed, and CEI will not file any registration statement to
which Rheinbraun or Du Pont or their respective counsel (or
the underwriters) shall reasonably object;
5
<PAGE>
(b) cooperate and assist in any filings required to be made with
a securities exchange or the National Association of
Securities Dealers, Inc.;
(c) cause the prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed
pursuant to the Securities Act;
(d) notify Du Pont promptly: (i) when the prospectus or any
prospectus supplement or post-effective amendment has been
filed, and, with respect to the registration statement or
any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission for any
amendments or supplements to the registration statement or
the prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) if, at
any time prior to the closing contemplated by an
underwriting agreement entered into in connection with such
registration statement, that the representations and
warranties of CEI contained therein cease to be true and
correct; (v) of the receipt by CEI of any notification with
respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such
purpose; and (vi) of the happening of any event which makes
any statement in the prospectus or any document incorporated
therein by reference untrue and which requires the making of
any changes in the registration statement, the prospectus or
any document incorporated therein by reference in order to
make the statements therein not misleading;
(e) make reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration
statement;
6
<PAGE>
(f) furnish to Du Pont, without charge, one copy of the
registration statement as declared effective by the
Commission and any post-effective amendment thereto,
including financial statements and schedules, all documents
incorporated therein by reference and all exhibits
(including those incorporated by reference);
(g) upon the occurrence of any event referred to in paragraph
7(d)(vi) of this section, prepare a supplement or post-
effective amendment to the registration statement, the
related prospectus or any document incorporated therein by
reference or file any other required document so that, as
thereafter delivered to purchasers of the Registrable
Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein not
misleading;
(h) use reasonable efforts to cause all Registrable Securities
covered by the registration statement to be listed on a
securities exchange if requested by Du Pont or the
underwriters;
(i) use reasonable efforts to obtain (i) for delivery at each
closing of the sale of Registrable Securities, opinions of
counsel to CEI and updates thereof addressed to the
underwriters, if any, of such sale covering the matters
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably
requested by the underwriters, if any, and (ii) "cold
comfort" letters and updates thereof from the Company's
independent certified public accountants addressed to the
underwriters, if any, of such sale, such letters to be in
customary form and covering matters of the type customarily
covered in "cold comfort" letters by accountants in
connection with underwritten offerings, which shall be
delivered at the time of effectiveness of the
7
<PAGE>
registration statement and at each closing of the sale of
Registrable Securities;
(j) participate and cause such members of its management as the
underwriters shall reasonably request (and which shall be
customary) to participate in "road shows" and similar
promotional meetings to the extent reasonably requested by
the underwriters; and
(k) otherwise use its reasonable efforts to comply with all
applicable law and rules and regulations of the Commission.
1.2. Public Offering Indemnities. In the event of any registered
---------------------------
offering of Registrable Securities pursuant to section 1.1 hereof:
(a) CEI will indemnify and hold harmless, to the fullest extent
permitted by law, Du Pont, Rheinbraun, and any underwriter, as defined in the
Securities Act, and each person, if any, who controls Du Pont, Rheinbraun, or
such underwriter within the meaning of the Securities Act, from and against any
and all losses, damages, claims, liabilities, joint or several, reasonable costs
and expenses (including any amounts paid in any settlement effected with CEI's
consent) to which Du Pont, Rheinbraun, or any such underwriter or controlling
person may become subject under the Securities Act, state securities or blue sky
laws, common law or otherwise, insofar as such losses, damages, claims,
liabilities (or actions or proceedings in respect thereof), costs or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or the
prospectus included therein, as amended or supplemented, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they are made, not misleading, and CEI will reimburse Du Pont, Rheinbraun,
any underwriter, and each such controlling person, promptly upon demand, for any
legal or any other expenses incurred by them in connection with investigating,
preparing to defend or defending against such loss, damage, claim, liability,
action or proceeding; provided, however, that CEI will not be liable in any such
-------- -------
case to the extent that any such loss, damage, liability, cost or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information furnished by
Du Pont, Rheinbraun, such underwriter or such controlling persons,
8
<PAGE>
as the case may be, in writing specifically for use in the preparation thereof,
provided, further, that CEI will not be liable under the indemnity agreement of
- -------- -------
this section to Du Pont, Rheinbraun, or any underwriter (or controlling person
of any of them) with respect to any preliminary prospectus to the extent that
any such loss, damage, liability, cost or expense results from the fact that
Registrable Securities were sold by any such indemnitee to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus as then amended or supplemented if CEI has
previously furnished copies thereof to Du Pont, Rheinbraun, such underwriter or
such controlling person as the case may be. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of Du
Pont, Rheinbraun, any underwriter and shall survive the transfer of such
Registrable Securities by Du Pont.
(b) Du Pont shall indemnify and hold harmless Rheinbraun and CEI,
each director of Rheinbraun and CEI, each officer of CEI who signs such
registration statement, any underwriter, and each person, if any, who controls
CEI or Rheinbraun or such underwriter from and against any and all loss, damage,
liability, cost or expense to which Rheinbraun or CEI or any such controlling
person or any underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses (i)
are caused by any untrue or alleged untrue statement of any material fact
contained in the registration statement or included prospectus, as amended or
supplemented, or (ii) arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in conformity with written information furnished by
Du Pont to CEI for use therein.
(c) Rheinbraun shall indemnify and hold harmless Du Pont and CEI,
each director of Du Pont and CEI, each officer of CEI who signs such
registration statement, any underwriter, and each person, if any, who controls
CEI or Du Pont or such underwriter from and against any and all loss, damage,
liability, cost or expense to which Du Pont or CEI or any such controlling
person or any underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses (i)
are caused by any untrue or alleged untrue statement of any material fact
contained in the registration statement or included prospectus, as amended or
supplemented, or
9
<PAGE>
(ii) arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
so made in conformity with written information furnished by Rheinbraun to CEI
for use therein.
(d) Promptly after receipt by an indemnified party pursuant to the
provisions of subsection (a), (b), or (c) of this section of written notice of
the commencement of any action with respect to which a claim for indemnity may
be made pursuant to this section, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the provisions
of said subsection (a), (b), or (c) promptly notify in writing the indemnifying
party of the commencement thereof; but the omission to notify the indemnifying
party will not relieve it from any liability which it may have otherwise to any
indemnified party. In case such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof; provided, that, if the defendants in any action
-------- ----
include both the indemnified party and the indemnifying party and there is a
conflict of interest that would prevent counsel for the indemnifying party from
also representing the indemnified party, the indemnified parties shall have the
right to select one separate counsel to participate in the defense of such
action on behalf of all such indemnified parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said subsection (a), (b), or (c) for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel in
accordance with the provision of the immediately preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. No indemnifying party will
consent to entry of any judgment, or enter into any settlement with respect to a
claim, without the written consent of the indemnified party (which consent shall
not be unreasonably withheld) or unless such judgment or settlement includes as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all
10
<PAGE>
liability in respect to such claim or litigation. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any action the
defense of which has been assumed by an indemnifying party without the consent
of such indemnifying party, which consent shall not be unreasonably withheld.
(e) If recovery is not available under the foregoing indemnification
provisions or is insufficient to hold harmless an indemnified party in respect
of any losses, claims, liabilities, costs or expenses specifically covered by
the indemnification provisions set forth above for any reason other than as
specified in section 1.2(a), (b), or (c), the parties entitled to
indemnification by the terms thereof shall be entitled to contribution to
losses, claims, liabilities, costs and expenses as may be more fully set forth
in an underwriting agreement to be executed in connection with such
registration, except to the extent that contribution is not permitted under
section 11(f) of the Securities Act. In determining the amount of contribution
to which the respective parties are entitled, there shall be considered the
relative benefits and faults and any other equitable considerations appropriate
under the circumstances provided in section 11(f) of the Securities Act. No
person guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The contribution
provided for in this section shall survive, with respect to a holder of
Registrable Securities, the transfer of Registrable Securities by such holder,
and, with respect to a holder of Registrable Securities or CEI, shall remain in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party.
1.3. Holdback Provision. Rheinbraun and CEI agree not to effect any
------------------
public sale of equity securities of CEI (or securities convertible into or
exchangeable for such equity securities) during the seven days prior to and the
90 days after any underwritten registration pursuant to this Exhibit B has
become effective, or such longer period (not to exceed 180 days) as the
underwriter may reasonably request consistent with customary practice.
11
<PAGE>
Exhibit C to Amendatory Agreement
---------------------------------
Amended Section 4.2.1
as of October 1, 1998
---------------------
4.2.1 During any period that members of the Du Pont Group and the
Rheinbraun Group shall be the sole shareholders of CEI, the provisions of this
paragraph 4.2.1 shall apply to any purported disposition of Shares by any such
shareholder. Du Pont and Rheinbraun each guarantee that the obligations imposed
by this paragraph shall be duly performed by any shareholder that is a member,
respectively, of the Du Pont Group or the Rheinbraun Group.
(a) The Seller shall give written notice to the Offeree (the "Option
Notice") of the terms and conditions upon which the Seller may
desire to sell the Offered Shares to a third party or parties.
(b) The Offeree shall, within 30 days after receipt of the Option
Notice, give written notice to the Seller whether it elects to
purchase not less than all the Offered Shares on the terms and
conditions set forth in the Option Notice.
(c) If the Offeree shall elect to purchase the Offered Shares, the
Offeree's notice of election shall
<PAGE>
specify a date, not later than 30 days after the receipt by the
parties of all necessary governmental or other regulatory
approvals for such purchase, or, if no such approvals are
required, not later than 60 days after the Offeree's receipt of
the Option Notice, for the closing of such purchase. The giving
of a notice in such form shall bind the Offeree to purchase, and
the Seller to sell and transfer, on the date of the closing so
specified, the Offered Shares on the terms and conditions stated
in the Option Notice, and shall also bind the Seller and Offeree
to pursue diligently the obtaining of all such governmental and
regulatory approvals. In any such sale the Seller shall be deemed
to have warranted to the Offeree that the Seller has good and
unencumbered title to the Offered Shares.
(d) If the Offeree, by notice to the Seller, shall elect not to
exercise its right to purchase the Offered Shares, or if 30 days
shall have elapsed from the date of receipt of the Option Notice
by the Offeree without such election having been notified to the
Seller, then the Seller may sell and transfer the Offered Shares
to any third party or parties in a single transaction if such
sale
<PAGE>
shall be on terms and conditions no less favorable to Seller than
the terms and conditions stated in the Option Notice; provided,
--------
that the following condition shall have been satisfied: the
Seller shall have given written notice (the "Identification
Notice") to the Offeree of the identity of such third party or
parties together with a copy of (i) a letter of intent executed
by all parties (but only if such letter of intent has been
publicly disclosed), or, alternatively, (ii) a definitive,
integrated agreement of sale executed by all parties (which
agreement or letter of intent, as the case may be, shall include
provision for a closing to be consummated not sooner than the
40th day following the date of delivery to the Offeree of the
Identification Notice subject to the terms of this subparagraph),
and the Offeree shall have the option, exercisable by written
notice delivered to the Seller prior to the 30th day following
the date of delivery to the Offeree of the Identification Notice,
to purchase the Offered Shares on the terms and conditions
specified in such letter of intent or agreement of sale, as the
case may be, except that the amount payable by the Offeree shall
be 104% of the
<PAGE>
economic value of the cash, stock and any other property
specified in such letter of intent or agreement of sale as the
price of the Offered Shares. If the Offeree shall exercise such
option, the Offeree shall be bound to purchase, and the Seller to
sell and transfer to the Offeree, the Offered Shares on a closing
date not later than the 30th day following the receipt of all
necessary governmental and regulatory approvals, but if no such
approvals are required, not later than the 60th day following the
date of delivery of the Identification Notice. The exercise of
such option by the Offeree shall bind the Seller and Offeree to
pursue diligently the obtaining of all such necessary
governmental and regulatory approvals. In any such sale the
Seller shall be deemed to have warranted to the Offeree that the
Seller has good and unencumbered title to the Offered Shares.
(e) If the Seller shall not have completed the transfer of all of the
Shares referred to in the Option Notice to a third party or
parties in a single transaction on or before the first
anniversary of the date of the Option Notice, the restrictions on
transfer imposed by this Article
<PAGE>
shall again apply to any proposed transfer of such Shares.
<PAGE>
EXHIBIT 10.16
-------------
AMENDATORY AGREEMENT NO. 4 dated as of September 14, 1998, to the
Shareholders' Agreement dated as of December 6, 1991, as amended (the
"Shareholders' Agreement"), among E.I. DU PONT DE NEMOURS AND CO., a Delaware
corporation ("Du Pont"), DU PONT ENERGY COMPANY, a Delaware corporation ("DEC"),
CONSOL ENERGY INC., a Delaware corporation ("CEI"), RHEINBRAUN AG, a German
corporation ("Rheinbraun"), and RHEINBRAUN US GMBH, a German corporation
("RG").
WHEREAS, Du Pont, DEC, CEI, and Rheinbraun have this date entered into
an Option (Class A Shares) Agreement (the "Option"), granting to CEI the right
to purchase 47,000 Class A Shares (the "Class A Shares") of CEI owned by DEC
pursuant to a Share Purchase Agreement ("SPA") in form annexed as Exhibit A to
the Option;
WHEREAS, the parties hereto intend that upon the exercise of the
Option by CEI and the purchase by CEI of 47,000 Class A Shares pursuant to the
SPA, Du Pont will be entitled, after a specified period, to dispose of 3,000
Class A Shares in a registered public offering or by other means conforming to
the Securities Act of 1933, as amended;
<PAGE>
WHEREAS, in consequence of the Option, the parties hereto intend to
amend and supplement Amendatory Agreement No. 3 dated as of October 1, 1997,
among the parties hereto ("Amendatory Agreement No. 3") and the Shareholders'
Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
---------
Definitions
-----------
Terms used herein without definition that are defined in the
Shareholders' Agreement and in Article I of Amendatory Agreement No. 3 shall
have the meanings, respectively, specified in said Agreements.
ARTICLE II
----------
Amendments of Amendatory Agreement No. 3
----------------------------------------
Amendatory Agreement No. 3 is hereby amended as follows:
1. In Article II, section 1, (a) the introductory clause reading, "If
Rheinbraun shall exercise the Option" is amended to read, "If CEI shall exercise
the Option"; (b) the Irrevocable Proxy annexed as Exhibit A shall be amended to
substitute the number "47,000" for "50,000", to delete the words "Dr. Peter
Kausch" and to substitute therefor the words, "Berthold Bonekamp", and to refer
in the last paragraph thereof to a sale of
2
<PAGE>
Shares to "CEI" and not to "Rheinbraun"; and (c) at the end of subsection (b),
the following sentence shall be added: "Nothing herein or in the Shareholders'
Agreement shall affect the right of CEI to borrow funds for purposes of
purchasing the Class A Shares pursuant to the SPA or any other purpose if so
authorized by the Board of Directors of CEI as then constituted."
2. In Article II, section 2, the introductory clause, "Upon the
acquisition by Rheinbraun of title to 50,000 Class A Shares" is amended to read,
"Upon the acquisition by CEI of title to 47,000 Class A Shares";
3. References in Amendatory Agreement No. 3 to the "Option" shall be
taken to refer to the Option granted to CEI pursuant to the Option (Class A
Shares) Agreement dated the date hereof among Du Pont, CEI, DEC and Rheinbraun.
4. In Article IV, section 2, the introductory clause reading, "So
long as Du Pont shall own any of the Class A Shares" shall be amended to read,
"If the Option shall expire unexercised then, so long as Du Pont shall own any
of the Class A Shares,";
ARTICLE III
-----------
Provisions Supplementary to
Amendatory Agreement No. 3
--------------------------
Amendatory Agreement No. 3 is hereby supplemented with the following
provisions:
1. If CEI shall acquire 47,000 Class A Shares at the Closing under
the SPA, then DEC shall not, and Du Pont shall
3
<PAGE>
cause DEC not to, dispose of any of the remaining 3,000 Class A Shares held by
DEC (including securities issued in exchange therefor, in lieu thereof or as a
dividend thereon) (the "Registrable Securities") during the 180 days after the
Closing Date under the SPA (the "Waiting Period").
2. DEC shall be entitled to dispose of all the Registrable
Securities after the Waiting Period,
(a) pursuant to registration rights granted by Exhibit B to
Amendatory Agreement No. 3 (which is incorporated herein by reference, as if
fully set forth herein) as amended by section 3, below;
(b) if CEI shall not complete a registered underwritten initial
public offering of common stock (an "IPO") during the Waiting Period and shall
later undertake an IPO, DEC may elect to include (i.e., "piggy-back") all the
Registrable Securities in such later IPO upon reasonable notice to CEI and upon
such terms, customary for "piggy-back" offerings, as CEI may reasonably require;
and
(c) in a private sale or sales conforming to the Securities Act of
1933, as amended.
3. For purposes of this Agreement only, said Exhibit B shall be
deemed amended as follows:
(a) in Section 1.1, the introductory clause reading, "CEI agrees to
register the Class A Shares" is amended to read, "CEI agrees to register 3,000
Class A Shares", and the definition
4
<PAGE>
of "Registrable Securities" shall be as stated in section 1, above;
(b) in subsection 1.1(a), that part of clause (i) of the first
sentence reading, "any of the Registrable Securities (which request shall
specify the number of Registrable Securities intended to be offered and sold),"
is amended to read, "all of the Registrable Securities,";
(c) Subsection 1.1(a)(iv) is deleted.
4. DEC shall not, and Du Pont shall cause DEC not to, effect or
allow any public sale of the Registrable Securities during the seven days prior
to and the 90 days after any underwritten registered financing by CEI has become
effective, or such longer period (not to exceed 180 days) as the underwriter may
reasonably request consistent with customary practice.
ARTICLE IV
----------
Miscellaneous
-------------
1. Assignment. By written notice to Rheinbraun and CEI, Du Pont may
----------
nominate a Subsidiary of Du Pont to exercise the registration rights granted by
Article III hereof respecting the 3,000 Class A Shares specified therein, and,
in connection with a lawful private sale of said 3,000 Class A Shares, Du Pont
may assign such rights to the purchaser. Any other purported assignment of any
right or privilege by one party hereto without
5
<PAGE>
the prior written consent of all other parties hereto shall be void.
2. Incorporation by Reference. Sections 7.4 through 7.12 (inclusive)
--------------------------
of the Shareholders' Agreement are incorporated by reference as if fully set
forth herein and shall apply to this Amendatory Agreement irrespective of the
termination of the Shareholders' Agreement. The agreements of the parties set
forth in Article III of this Amendatory Agreement No. 4 shall survive any
termination of the Shareholders' Agreement pursuant to Article II, section 2, of
Amendatory Agreement No. 3.
3. Effect. Except as expressly amended and supplemented by this
------
Amendatory Agreement, Amendatory Agreement No. 3 and the Shareholders' Agreement
as previously amended shall continue in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, DU PONT, DEC, CEI, RHEINBRAUN, and RG have caused
this Agreement to be duly executed, all as of the day and year first above
written.
E.I. DU PONT DE NEMOURS AND COMPANY
By: /s/ S. M. Stalnecker ATTEST:
------------------------------
Name: S. M. Stalnecker
Title: Vice President-Treasury
/s/ [SIGNATURE ILLEGIBLE]^^
----------------------------------
Asst. Secretary
DU PONT ENERGY COMPANY
By: /s/ S. M. Stalnecker ATTEST:
------------------------------
Name: S. M. Stalnecker
Title: President
/s/ [SIGNATURE ILLEGIBLE]^^
----------------------------------
Assistant Secretary
CONSOL ENERGY INC.
By: /s/ J. Brett Harvey ATTEST:
------------------------------
Name: J. Brett Harvey
Title: President
/s/ D. L. Fassio
----------------------------------
Secretary
RHEINBRAUN AG
By: /s/ Bernd J. Breloer By: /s/ Berthold Bonekamp
------------------------------ ------------------------------
Name: Bernd J. Breloer Name: Berthold Bonekamp
Title: Mitglied des Vorstandes Title: Mitglied des Vorstandes
RHEINBRAUN US GMBH
By: /s/ Dr. Peter Kausch By: /s/ Dr. Rolf Zimmermann
------------------------------ -------------------------------
Name: Dr. Peter Kausch Name: Dr. Rolf Zimmermann
Title: Geschuftsfuhrer Title: Geschuftsfuhrer
7
<PAGE>
EXHIBIT 10.17
-------------
CONSULTING AGREEMENT dated as of February 1, 1999, between CONSOL
INC., a Delaware corporation (hereinafter the "Corporation") and B. R.
Brown (hereinafter "Mr. Brown").
Mr. Brown is Chairman of the Board of Directors of the Corporation. He has
been employed by the Corporation under an agreement dated December 9, 1996, as
extended until June 30, 1998 (by a written agreement dated February 26, 1998),
and as extended until January 31, 1999 (by informal agreement). He will retire
as Chairman of the Board effective January 31, 1999. In view of his long
experience with the Corporation and his knowledge of its affairs, the
Corporation desires to have him available to act as a consultant to the
President of the Corporation during the period February 1, 1999, to January 31,
2000, on the terms and conditions hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
1. Period of Consultancy. During the period February 1, 1999, to January
---------------------
31, 2000, Mr. Brown shall serve the Corporation in the capacity of general
consultant. To that end he shall be available for consultation and advice as and
when the President of the Corporation may reasonably require. Mr. Brown shall
not, however, be required to attend regularly at any
<PAGE>
business office of the Corporation or to live at any specified place for any
stated period or periods of time. Insofar as it shall be practicable from a
business point of view, the Corporation shall consider the reasonable
convenience of Mr. Brown in timing its requests, and the failure or inability of
Mr. Brown by reason of illness or cause beyond his control to respond to such
requests shall not be deemed to constitute a default on his part in the
performance of his obligations under this Agreement. Mr. Brown agrees to render
his services in such manner and under such circumstances as shall be in the best
interests of the Corporation and consistent with its general policies. The
services which Mr. Brown shall render to the Corporation under this Agreement
shall be rendered in the capacity of an independent contractor.
2. Compensation. As compensation for his services under this
------------
Agreement, the Corporation will pay to Mr. Brown $360,000 per year, payable in
equal monthly installments, in the period February 1, 1999, to January 31, 2000;
provided, that, if in any month Mr. Brown shall actually be engaged in work for
- --------
the Corporation for more than six days (whether or not consecutive), the
Corporation will pay to him a consultation fee of $5,000 for each such
additional day (or substantial part thereof) in such month that Mr. Brown shall
actually be engaged in work for the Corporation. In said period the Corporation
will reimburse Mr. Brown for any out-of-pocket disbursements which he shall
2
<PAGE>
reasonably incur in connection with the performance of his services under this
Agreement.
3. No Competition: Confidentiality. Mr. Brown (a) until January 31,
-------------------------------
2001, will not, without the consent of the Corporation, in any way engage as
principal, agent or employee in any business competitive with that of the
Corporation and (b) will endeavor in all respects to act in accordance with the
interests of the Corporation. Mr. Brown will not at any time, reveal, divulge or
make known, either directly or through another, to any person, firm or
corporation, any confidential information received by him at any time touching
the operations or the financial, business or other affairs of the Corporation or
any of its affiliates or any customer or supplier of any of them; provided, that
--------
confidential information shall not include any information which (i) is known
generally to the public other than as a result of unauthorized disclosure by Mr.
Brown, (ii) becomes available to Mr. Brown on a non-confidential basis from a
source other than the Corporation or any of its affiliates, or (iii) was
available to Mr. Brown on a non-confidential basis prior to its disclosure to
Mr. Brown or any of its affiliates.
4. Other Post-Retirement Rights. This Agreement shall not be deemed
----------------------------
to affect in any respect (a) the rights which Mr. Brown shall have under any
Employment Retirement Plan of the Corporation after January 31, 1999, or (b) any
other post-retirement rights that may have been expressly granted to him by
3
<PAGE>
written contract with the Corporation or by reason of his participation in any
plan of the Corporation for the benefit of its employees. It is understood that
for all purposes (including all purposes of any plan of the Corporation for the
benefit of its employees) Mr. Brown shall not be deemed to be an employee of the
Corporation for any period after January 31, 1999.
5. No Assignment. Any purported assignment of this Agreement by Mr.
-------------
Brown or the Corporation, in whole or in part, without the prior written consent
of the other party shall be void; provided, that upon the sale of all or
--------
substantially all the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or a consolidation of the Corporation
with another corporation, this Agreement shall inure to the benefit of and be
binding upon both Mr. Brown and the Corporation purchasing the assets, business
and goodwill, or surviving or arising out of such merger or consolidation, as
the case may be.
6. Governing Law. This Agreement shall be governed by and
-------------
interpreted under the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
signed in its corporate name by its President.
4
<PAGE>
and Mr. Brown has hereunto set his hand, all as of the day and year first above
written.
CONSOL INC.
By: /s/ J. Brett Harvey
----------------------------
President
/s/ B. R. Brown
-------------------------------
B. R. Brown
5
<PAGE>
[LETTERHEAD OF RHEINBRAUN APPEARS HERE]
February 1, 1999
Mr. B. R. Brown
CONSOL Inc.
1800 Washington Road
Pittsburgh, PA 15241
USA
Re: BOARD OF DIRECTORS OF CEI AND CI
--------------------------------
Dear Mr. Brown:
We refer to the Consulting Agreement dated this date between you and Consol Inc.
("CI"), a subsidiary of Consol Energy Inc. ("CEI"). The period of consultancy
under that agreement expires on January 31, 2000. You are also a member of the
boards of directors of CEI and CI.
This will confirm the intention of Rheinbraun AG, as the majority stockholder of
CEI, to continue your service as a director of CEI and CI until January 31,
2000, and of your agreement so to serve CEI and CI, subject to the respective
by-laws of CEI and CI. Unless extended to a later date by mutual written
agreement, you shall be deemed to have resigned from both said directorships as
of January 31, 2000.
Very truly yours,
Rheinbraun Aktiengesellschaft
ACCEPTED:
/s/ B. R. Brown
------------------
B. R. Brown
<PAGE>
EXHIBIT 10.18
-------------
Consol Inc.
Consol Plaza
1800 Washington Road
Pittsburgh, PA 15241
(412) 831-4000
December 11, 1997
Mr. J. Brett Harvey
Interwest Mining Company
One Utah Center - Suite 2300
201 South Main Street
Salt Lake City, Utah 84140-0023
Dear Brett:
This Letter Agreement (the "Agreement") sets forth the terms and
conditions under which you will be employed as President and Chief Executive
Officer of both Consol Energy Inc., a Delaware corporation ("CEI"), and its
wholly-owned subsidiary, Consol Inc., a Delaware corporation ("CI").
1. Definitions.
-----------
As used in this Agreement, the following terms shall have the meanings
given below, respectively:
"Affiliate" shall mean CEI, CI, and any corporation controlled by CEI
or CI, or both of them, directly or indirectly.
"Term" shall mean the period commencing January 1, 1998, and ending on
December 31, 2002, subject to earlier termination as provided in Section 3
hereof.
"Shareholders Agreement" shall mean that shareholders agreement, dated
December 6, 1991, as amended, among the shareholders of CEI.
2. Term and Responsibilities.
-------------------------
(a) During the Term, you will be an employee of CI, and serve as its
President and Chief Executive Officer. During the Term, the shareholders of CEI
undertake
<PAGE>
Mr. J. Brett Harvey
December 11, 1997
Page 2
to elect you as a director of CEI, to cause your election as a director of CI,
and to cause the Boards of CEI and CI to elect you as Chief Executive Officer
and President of both Corporations. You hereby agree to accept such employment
and such positions.
(b) During the Term you will hold identical offices and directorships
in both CEI and CI, and you will serve those corporations accordingly. You
hereby confirm that you have been provided with a copy of the By-laws of each of
CEI and CI and, with respect to each of the offices and directorships specified
above, you will have the rights and duties stated in said By-laws for said
offices, respectively. You also confirm that you have been provided with a copy
of the Shareholders Agreement, including Annex G thereto, and, to the extent
that instrument affects the conduct of any of the offices or directorships of
CEI or CI you may hold hereunder, you agree to be bound thereby.
(c) During the Term, you will devote the necessary business time and
attention, and use your best efforts consistent with your current skills,
exclusively to furthering the business and affairs of CEI, CI and their
Affiliates. Without the prior written consent of the Boards of each of CEI and
CI, you will not serve on any other board of directors, or devote time to or
make, directly or indirectly, personal investments in any other entity that
would lessen your ability to perform your obligations hereunder or violate
conflict-of-interest rules of CEI, CI or their Affiliates.
(d) In your capacities as President and Chief Executive Officer of CEI
and CI, you will have charge and supervision of the business and affairs of CEI,
CI and their Affiliates, subject at all times to the direction and control of
the respective CEI and CI Boards. You will keep both Boards informed concerning
the business affairs of CEI, CI, and their Affiliates, you shall report directly
to the respective Boards of CEI and CI, and you shall operate within the
policies, strategic plans and financial goals approved by such Boards.
3. Termination.
-----------
(a) Your engagement hereunder will terminate in every capacity (a)
---
upon your death, or your sustaining a disability that would make you eligible
for disability pension under the CI Employee Retirement Plan (the "ERP"), (b)
---
effective at any time, by at least ninety (90) days' advance written notice
given by either party to the other; provided, that, the Board of CI shall have
-------- ----
the right to terminate your employment for "cause" (as defined in paragraph (c)
below) at any time by written notice specifying the reason for such termination.
(b) In the event of termination of your employment hereunder during
the Term for any reason other than (i) termination by CI for cause (as defined
in paragraph (c)
<PAGE>
Mr. J. Brett Harvey
December 11, 1997
Page 3
below) or (ii) your resignation, your then current base salary shall continue to
be paid to you (or your estate, in event of your death) until the end of the
Term, plus a one-time payment in an amount equal to any incentive compensation
received in the preceding twelve months. In such event, you (or your estate, in
the event of your death) shall also he entitled for purposes of the ERP to
receive service credit for the remainder of the Term.
(c) For purposes of this Agreement, "cause" shall mean (i) gross
negligence detrimental to CEI, CI or their Affiliates, or willful misconduct;
(ii) the commission of a felony or other crime involving moral turpitude; or
(iii) such personal misconduct by you as shall bring CEI, CI or their Affiliates
into disrepute. In the event of termination for cause, your compensation and
benefits shall cease and terminate at the end of the month in which the notice
of termination was given.
4. Compensation.
------------
(a) Base Salary.
-----------
As compensation for your services during the Term, CI shall pay to you
in equal monthly installments, a base salary at an annual rate of $390,000, with
such additional amounts as may be determined from time to time by the Board of
CI in its sole discretion. Any increase in base salary approved by the Board of
CI will not be subsequently reduced or eliminated without your consent.
(b) Incentive Compensation.
----------------------
For services rendered during the Term, you will be eligible to
participate in all incentive compensation programs for senior management of CI,
including the short-term and long-term incentive pay programs, subject to their
respective terms and conditions.
(c) Benefit Plans.
-------------
For services rendered during the Term, you will be eligible for all
employee benefit plans and policies applicable to salaried employees of CI. For
purposes of the ERP, you will be allotted eleven (11) years of additional
service credit, representing your years of employment at PacifiCorp and its
affiliated companies ("PacifiCorp"). It is agreed, however, that there shall be
deducted from the amount of any benefit payable to you under the ERP, an amount
equal to the aggregate amount of any benefits payable to you pursuant to the any
retirement or similar plans of PacifiCorp.
<PAGE>
Mr. J. Brett Harvey
December 11, 1997
Page 4
5. Confidentiality and Non-Competition.
-----------------------------------
(a) Except as required in furtherance of the business of CEI and CI
and their Affiliates, you agree that so long as you are entitled to receive
compensation under Section 4 hereof you will not at any time, reveal, divulge or
make known, either directly or through another, to any person, firm or
corporation, any confidential information received by you at any time touching
the operations or the financial, business or other affairs of CEI, CI or any of
their Affiliates or any customer or supplier of any of them; provided, that
--------
confidential information shall not include any information which (i) is known
---
generally to the public other than as a result of unauthorized disclosure by
you, (ii) becomes available to you on a non-confidential basis from a source
----
other than CEI, CI or any of their Affiliates, or (iii) was available to you on
-----
an non-confidential basis prior to its disclosure to you by CEI, CI or any of
their Affiliates.
(b) You agree that, for a period of twelve (12) months after the
termination of your engagement hereunder, you will not directly or indirectly
participate in any attempt to hire or solicit the employment of any person who
was at such termination, an employee, officer or director of CEI, CI or any of
their Affiliates.
(c) You agree that so long as you are entitled to receive compensation
under Section 4 hereof, you will not be a consultant, director, officer or
employee or have any interest either directly or indirectly in any individual,
partnership, corporation or other entity which is engaged in a business
competitive with the business of CEI, CI or any of their Affiliates in the
United States or Canada; provided, that the foregoing shall not prohibit the
--------
ownership by you of less than 5% of any class of outstanding voting securities
(or any options, warrants or rights to acquire such securities or any securities
convertible into such securities) of any corporation.
6. Binding Agreement.
-----------------
The provisions of this Agreement shall be binding on you and CEI, CI
and their successors and assigns. You hereby acknowledge that the undertakings
hereunder are unique to you, and any purported assignment by you without CEI's
and CI's prior written consent shall be void.
7. Miscellaneous.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of Pennsylvania. If any provision hereof shall for any reason be held
to be invalid,
<PAGE>
Mr. J. Brett Harvey
December 11, 1997
Page 5
illegal or unenforceable in any respect, it shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. If any provision
hereof shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting or
reducing it to the extent necessary to render it enforceable under then current
law. This Agreement shall supersede all prior understanding between you and CEI
and CI as to the terms of your employment. No waiver by any party of the breach
by the other of any provision hereof shall be deemed a waiver of any later or
other breach hereof, or a waiver of any other provision hereof. This Agreement
sets forth all the terms and understandings between the parties with respect to
the subject matter hereof and may not be waived, amended, discharged or
terminated orally or by any course of dealing by the parties, but only by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought to be enforced.
<PAGE>
Mr. J. Brett Harvey
December 11, 1997
Page 6
If the foregoing meets with your approval, please so indicate by
signing both copies of this Agreement and returning one to the attention of the
undersigned, whereupon it shall become a legally binding agreement among you,
CEI and CI.
Very truly yours,
CONSOL ENERGY INC.
By: /s/ B. R. Brown
------------------------
Chairman
CONSOL INC.
By: /s/ B. R. Brown
------------------------
Chairman
AGREED to as of the date
first above written.
By: /s/ J. Brett Harvey
-----------------------
J. Brett Harvey
<PAGE>
Mr. J. Brett Harvey
December 11, 1997
Page 7
The undersigned constitute all of the Shareholders of CEI, and agree
to cause the election of J. Brett Harvey to the offices and directorships
specified in the foregoing letter agreement, dated December 11, 1997, subject to
the terms and conditions thereof.
DUPONT ENERGY COMPANY
By: /s/ ILLEGIBLE SIGNATURE
-----------------------------
Title: DEC's Senior CEI Director
---------------------------
RHEINBRAUN AG
By: /s/ Dr. Dieter Henning
-----------------------------
Title: Vorsitzendes des Vorstandes
----------------------------
By: /s/ Bernd J. Breloer
-----------------------------
Title: Mitglied des Vorstandes
---------------------------
RHEINBRAUN US GMBH
By: /s/ Dr. Peter Kausch
-----------------------------
Title: Geschaftsfuhrer
---------------------------
By: /s/ Dr. Rolf Zimmerman
-----------------------------
Title: Geschaftsfuhrer
---------------------------
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP
We consent to the reference of our firm under the captions "Prospectus Summary",
"Selected Consolidated Financial and Operating Data" and "Experts" and to the
use of our report dated February 15, 1998 (except Note 22, as to which the date
is ____), with respect to the financial statements of Consol Energy, Inc.
included in the Registration Statement on Form S-1 and the related Prospectus
for the registration of shares of its common stock.
Ernst & Young LLP
Pittsburgh, Pennsylvania
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 22 to the financial
statements.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 5, 1999
